As filed with the Securities and Exchange Commission on November 25, 1998
Registration No. 333-63697
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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Paragon Auto Receivables Corporation
as Seller to the Trusts described herein
(Exact name of Registrant as specified in its charter)
27405 PUERTA REAL, SUITE 200
Delaware MISSION VIEJO, 33-0653501
(State or other CALIFORNIA 92691 (I.R.S. Employer
jurisdiction of (949) 348-8707 Identification No.)
incorporation or (Address, including zip code, and
organization) telephone number, including area
code, of Registrant's principal
executive offices)
Nancy C. Ferguson, Esq.
General Counsel
Paragon Acceptance Corporation
200 South Hanley, Suite 800
Clayton, Missouri 63105
(314) 721-0012
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to:
Elizabeth A. Raymond, Esq.
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
(312) 782-0600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after this Registration Statement becomes effective as
determined by market conditions.
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If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box: |X|
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
===============================================================================
Proposed Proposed
Title of each maximum maximum
class of Amount offering aggregate Amount of
securities to be to be price per offering registration
registered registered unit(1) price(1) fee
- -------------------------------------------------------------------------------
Asset Backed Notes
and Certificates....... $1,000,000 100% $1,000,000 $295(2)
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SECTION 8(A), MAY DETERMINE.
<PAGE>
INTRODUCTORY STATEMENT
This Registration Statement contains (i) the form of Prospectus
relating to the offering of a series of Asset Backed Notes and/or
Asset Backed Certificates by various Paragon Auto Receivables
Trusts created from time to time by Paragon Auto Receivables
Corporation, and (ii) two forms of Prospectus Supplement relating
to offerings of particular series of Asset Backed Certificates
(such form of Prospectus Supplement is identified on the outside
front cover page thereof as the "Preliminary Grantor Trust
Prospectus Supplement Form") or of Asset Backed Notes and Asset
Backed Certificates (such form of Prospectus Supplement is
identified on the outside front cover page thereof as the
"Preliminary Owner Trust Prospectus Supplement Form" and, together
with the form of Grantor Trust Prospectus Supplement, the
"Prospectus Supplement Forms") described therein. Each Prospectus
Supplement Form relates only to the securities described therein.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS
SUBJECT TO COMPLETION, DATED ___________, 1998
PARAGON AUTO RECEIVABLES TRUSTS
Asset Backed Notes
Asset Backed Certificates
Paragon Auto Receivables Corporation
Seller
Paragon Acceptance Corporation
Servicer
The Asset Backed Notes (the "Notes") and the Asset Backed
Certificates (the "Certificates" and, together with the Notes, the
"Securities") described herein may be sold from time to time in one or more
series, in amounts, at prices and on terms to be determined at the time of
sale and to be set forth in a supplement to this Prospectus (a "Prospectus
Supplement"). Each series of Securities, which may include one or more
classes of Notes or one or more classes of Certificates (or both), will be
issued by a trust to be formed on or before the issuance date for that
series (each, a "Trust"). Each Trust will be formed pursuant to either a
Trust Agreement (as amended and supplemented from time to time, a "Trust
Agreement") to be entered into between Paragon Auto Receivables
Corporation, a Delaware corporation, as seller (the "Seller"), Paragon
Acceptance Corporation ("Paragon" or, in its capacity as servicer, the
"Servicer"), and the trustee specified in the related Prospectus Supplement
(the "Trustee") or a Pooling and Servicing Agreement to be entered into
between the Trustee, the Seller and the Servicer. If a series of Securities
includes Notes, these Notes will be issued and secured pursuant to an
Indenture (as amended and supplemented from time to time, an "Indenture")
between the Trust and the indenture trustee specified in the related
Prospectus Supplement (the "Indenture Trustee") and will represent
indebtedness of the related Trust. The Certificates of a series will
represent fractional undivided interests in the related Trust. Capitalized
terms used in this Prospectus are defined on the pages indicated in the
"Index of Terms" on page 60 of this Prospectus. The property of each Trust
will include a pool of motor vehicle retail installment contracts (the
"Receivables") secured by new or used automobiles, light duty trucks and
sports utility vehicles (the "Financed Vehicles"), all moneys due or
received thereunder or with respect thereto after the applicable Cutoff
Date set forth in the related Prospectus Supplement, security interests in
the vehicles financed, any proceeds from claims on insurance policies with
respect to the Financed Vehicles, rights under dealer agreements, rights
with respect to deposit accounts in which collections are held or that
serve as credit enhancement, any other credit enhancements, and proceeds of
the foregoing, all as described herein and in the related Prospectus
Supplement. See "The Trusts."
(Continued on next page)
<PAGE>
Prospective investors should consider the "Risk Factors"
set forth at page 13 herein, which discusses material
risks involved with an investment in the Securities.
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ANY NOTES OF A SERIES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES OF A
SERIES REPRESENT BENEFICIAL INTERESTS IN, THE RELATED TRUST ONLY AND DO NOT
REPRESENT OBLIGATIONS OF OR INTERESTS IN PARAGON AUTO RECEIVABLES
CORPORATION, PARAGON ACCEPTANCE CORPORATION OR ANY OF THEIR AFFILIATES.
NONE OF THE NOTES, THE CERTIFICATES OR THE RECEIVABLES ARE GUARANTEED OR
INSURED BY, PARAGON AUTO RECEIVABLES CORPORATION, PARAGON ACCEPTANCE
CORPORATION OR ANY OF THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus may not be used to consummate sales of Securities offered
hereby unless accompanied by a Prospectus Supplement.
The date of this Prospectus is _______ __, 1998.
1
<PAGE>
(Continued from previous page)
The related Prospectus Supplement will specify which class or
classes of Notes, if any, and which class or classes of Certificates, if
any, of the related series are being offered thereby. Each class of
Securities of any series, other than any Strip Notes and Strip
Certificates, will represent the right to receive a specified amount of
payments of principal and interest on the related Receivables, at the
rates, on the dates and in the manner described herein and in the related
Prospectus Supplement. See "Description of the Notes," "Description of the
Certificates" and "Description of the Securities" herein and in the related
Prospectus Supplement. If a series includes multiple classes of Securities,
the rights of one or more classes of Securities to receive payments may be
senior, equal to or subordinate to the rights of one or more of the other
classes of such series. Distributions on Certificates of a series may be
subordinated in priority to payments due on any related Notes or any other
Certificates to the extent described herein and in the related Prospectus
Supplement. See "Risk Factors--Risks Related to Subordination" herein and
in the related Prospectus Supplement.
A series may include one or more classes of Notes and/or
Certificates which differ as to the timing and priority of payment,
interest rate or amount of distributions in respect of principal or
interest or both. A series may include one or more classes of Notes or
Certificates entitled to distributions in respect of principal with
disproportionate, nominal or no interest distributions, or to interest
distributions, with disproportionate, nominal or no distributions in
respect of principal. The rate of payment in respect of the principal of
any class of Notes and distributions in respect of the Certificate Balance
(as specified in the related Prospectus Supplement, the "Certificate
Balance") of any class of the Certificates will depend on the priority of
payment of such class and the rate and timing of payments (including
prepayments, defaults, liquidations and repurchases of Receivables) on the
related Receivables. A rate of payment lower or higher than that
anticipated may affect the weighted average life of each class of
Securities in the manner described herein and in the related Prospectus
Supplement. See "Weighted Average Life of the Securities."
AVAILABLE INFORMATION
The Seller, as originator of each Trust, has filed with the
Securities and Exchange Commission (the "Commission") a Registration
Statement (together with all amendments and exhibits thereto, referred to
herein as the "Registration Statement") under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the Notes and/or the
Certificates offered pursuant to this Prospectus. For further information,
reference is made to the Registration Statement, which may be inspected and
copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549; and at the Commission's
regional offices at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of the Registration Statement may be obtained
from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the
Commission maintains a public access site on the Internet through the World
Wide Web at which site reports, information statements and other
information, including all electronic filings, may be viewed. The Internet
address of such World Wide Web site is http://www.sec.gov.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Seller, as originator of any Trust,
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), after the date of this
Prospectus and prior to the termination of the offering of the Securities
shall be deemed to be incorporated by reference in this Prospectus or in
any related Prospectus Supplement. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus. See "Certain Information Regarding
the Securities--Reports to Securityholders."
The Seller will provide without charge to each person, including
any beneficial owner of Securities, to whom a copy of this Prospectus is
delivered, on the written or oral request of such person, a copy of any or
all of the documents incorporated herein or in any related Prospectus
Supplement by reference, except the exhibits to such documents (unless such
exhibits are specifically incorporated by reference in such documents).
Requests for such copies should be directed to the Seller, in care of
Paragon Acceptance Corporation, 200 South Hanley, Suite 800, Clayton,
Missouri 63105, Attention: General Counsel (Telephone: (314) 721-0012). The
Servicer will file with respect to each Trust such periodic reports as are
required by the Exchange Act.
2
<PAGE>
RISK FACTORS
The Limited Liquidity of the Securities May Make it Difficult to Resell Your
Securities
The Underwriters for an offering of Securities (as defined in the related
Prospectus Supplement, "Underwriters") may assist in resales of the Securities
but they are not required to do so. A secondary market for any Securities may
not develop. If a secondary market does develop, it might not continue or it
might not be sufficiently liquid to allow you to resell any of your
Securities. In addition, if the Securities are traded after their initial
issuance, they may trade at a discount from their initial offering price,
depending on prevailing interest rates, the market for similar securities,
the financial condition and prospects of the Trust and other factors beyond
the control of the Issuer, including general economic conditions.
Limited Delinquency and Loss Experience of the Seller
Paragon began purchasing motor vehicle retail installment contracts
in August 1996. Although Paragon has calculated and presented its net loss
experience with respect to its serviced portfolio in this Prospectus and
the related Prospectus Supplement, there can be no assurance that the
information presented will reflect actual experience with respect to the
Receivables. In addition, there can be no assurance that the future
delinquency or loss experience of a Trust with respect to the Receivables
will be better or worse than that set forth herein with respect to
Paragon's serviced portfolio. It is likely, however, that delinquencies and
losses will increase in the portfolio as the Receivables become more
seasoned. The credit enhancement for each Trust will be designed to protect
Securityholders against such increases in delinquencies and losses. If,
however, any such increase is greater than anticipated, delays in payments
of collections of the Receivables could occur or reductions in the amount
of payments to Securityholders could result. See "The Receivables" in the
related Prospectus Supplement.
Possible Adverse Effects on Yield of Securities if Receivables Prepay Early
Reinvestment Risks from Prepayments. All the Receivables are
prepayable at any time without penalty (or with only a nominal penalty) to
the Obligor. For this purpose the term "prepayments" includes prepayments
in full, partial prepayments and liquidations due to default, receipts of
proceeds from claims on any repossession loss, physical damage, credit life
and accident and health insurance policies and purchases by dealers (the
"Dealers") under their respective dealer agreements (each, a "Dealer
Agreement") or dealer assignments (each, a "Dealer Assignment"). In
addition, the Seller and the Servicer may be required to repurchase
Receivables from the Trust if specified representations or covenants made
by them are breached. The Servicer also has the right to purchase all
remaining Receivables and other Trust property from a Trust pursuant to its
optional repurchase right. See "Description of the Transfer and Servicing
Agreements--Sale and Assignment of Receivables," "--Servicing Procedures" and
"--Termination." Each such prepayment, repurchase or purchase will shorten the
average life of the related Securities.
Prepayment rates of Receivables may be influenced by a variety of
economic, social and other factors, and cannot be predicted with any
assurance. For example, decreases in interest rates and the fact that the
Obligor may not sell or transfer the Financed Vehicle without the payment
in full of the related Receivable may affect the rate of prepayment. If
prepayments occur after a decline in interest rates, you may be required to
reinvest your funds at a return lower than the applicable interest rate on
a class of Notes (the "Interest Rate") or the applicable rate of interest
on a class of Certificates (the "Certificate Rate")). You will bear all
reinvestment risk resulting from a faster or slower rate of prepayment of
Receivables.
<PAGE>
Risks Associated with Securities Purchased at a Discount or Premium.
Holders of Securities should consider, in the case of any Securities
purchased at a discount, the risk that a slower than anticipated rate of
principal payments on the Receivables will result in an actual yield (i.e.,
the effective interest rate) that is less than the anticipated yield. In
the case of any Securities purchased at a premium, Holders of Securities
should consider the risk that a faster than anticipated rate of principal
payments on the Receivables will result in an actual yield that is less
than the anticipated yield. See "--Reinvestment Risks from Prepayments."
Risks Associated with Yield Sensitivity of the Strip Securities. The
yield to maturity of any Strip Securities will be extremely sensitive to the
prepayment and default experience on the Receivables, which may fluctuate
significantly from time to time. See "--Reinvestment Risks from
Prepayments." Holders of any Strip Securities entitled to principal
payments with disproportionately small, nominal or no interest payments
should consider the risk that a slower than anticipated rate of payments on
the Receivables will result in an actual yield that is less than the
anticipated yield. Holders of Strip Securities entitled to interest
payments with disproportionately small, nominal or no principal payments
should consider the risk that a faster than anticipated rate of payments on
the Receivables will result in an actual yield that is less than the
anticipated yields. Prospective investors in Strip Securities should fully
consider the risk that an extremely rapid rate of principal prepayments
could result in the failure of investors in the Strip Securities entitled
to disproportionately small, nominal or no principal payments to recoup
their initial investment.
3
<PAGE>
Possible Servicing Errors Due to Commingling of Receivables Files
The Seller will cause financing statements to be filed with the
appropriate governmental authorities to perfect the interest of the related
Trust in its purchase of Receivables from the Seller and to perfect the
interest of the Seller in its purchase of Receivables from Paragon in
accordance with the UCC in effect in the relevant jurisdiction. If so
specified in the related Prospectus Supplement, the Servicer will hold the
Receivables, either directly or through subservicers, as custodian for the
applicable Trustee following the sale and assignment of the Receivables to
the related Trust. The Receivables will not be segregated, stamped or
otherwise marked to indicate that they have been sold to the related Trust.
The Seller believes that it is customary for Receivables to not be
segregated or stamped or otherwise marked in connection with asset
securitizations of the type contemplated hereby and in other types of
receivables financings where the parent company of the transferor has
credit ratings that are investment grade or better and servicing is
retained by the transferor. If through inadvertence or otherwise (for
example, if Paragon or the Seller were to sell or grant a security interest
in Receivables in violation of the applicable Transfer and Servicing
Agreements), another party purchases (or takes a security interest in) the
Receivables for new value in the ordinary course of business and takes
possession of the Receivables without actual knowledge of the related
Trust's interest, the purchaser (or secured party) will acquire an interest
in the Receivables superior to the interest of the related Trust. Under
such circumstances, there is a risk that the Trust would not be able to
realize some or all of the cash flow from such Receivable. Although Paragon
or the Seller would be liable to the Trust in that event, if Paragon or the
Seller became insolvent, holders of Securities could suffer losses.
Possible Unenforceability of the Trust's Security Interest in Financed Vehicles
Because Certificates of Title Will Not Be Amended
In connection with the sale of Receivables by Paragon to the Seller
and by the Seller to a Trust, security interests in the Financed Vehicles
securing such Receivables will be assigned by Paragon to the Seller and by
the Seller to such Trust simultaneously with the sale of such Receivables
by Paragon to the Seller and by the Seller to such Trust. Due to
administrative burden and expense (i.e., fees payable to state motor
vehicle departments ranging up to approximately forty dollars per vehicle
and related paperwork), the certificates of title to the Financed Vehicles
will not be amended to reflect the assignments to the Seller or to the
Trust. In the absence of such amendments, the Seller and such Trust may not
have a perfected security interest in the Financed Vehicles securing the
Receivables in some states. The Seller will be obligated to repurchase any
Receivable sold to such Trust as to which the Seller has breached its
representation that it has a perfected security interest in the Financed
Vehicle securing such Receivable as of the date such Receivable is
transferred to such Trust, if such breach shall materially and adversely
affect the interest of such Trust in such Receivable and if a breach of
such representation shall not have been cured by the last day of the month
that includes the sixtieth day (or, if the Seller elects, earlier)
following the discovery by or notice to the Seller of such breach. If such
Trust does not have a perfected security interest in a Financed Vehicle,
its ability to realize on such Financed Vehicle in the event of a default
may be adversely affected, which could result in delays in payments on the
related Notes (if any) and Certificates and possible reductions in the
amount of those payments. Paragon will be obligated, pursuant to the
applicable Purchase Agreement, to repurchase from the Seller any Receivable
sold by it thereunder that the Seller has repurchased as a result of such a
breach. The Seller will assign its rights under each Purchase Agreement to
the related Trust. The Seller believes that it is customary for
certificates of title or ownership to not be endorsed or amended in
connection with asset securitizations of the type contemplated hereby.
4
<PAGE>
Possible Non-Priority of the Trust's Security Interests in Financed Vehicles
To the extent the security interest in the Financed Vehicles is
perfected, such Trust will have a prior claim over subsequent purchasers of
such Financed Vehicles and holders of subsequently perfected security
interests. However, as against liens for repairs of Financed Vehicles or
for taxes unpaid by an Obligor under a Receivable, or through fraud or
negligence, such Trust could lose the priority of its security interest or
its security interest in a Financed Vehicle. Loss of priority could result
in delays in payments on the related Notes (if any) and Certificates and
possible reductions in the amount of those payments. Neither the Seller nor
the Servicer will have an obligation to repurchase a Receivable as to which
any of the aforementioned occurrences result in such Trust's losing the
priority of its security interest or its security interest in such Financed
Vehicle after the date such security interest was conveyed to such Trust.
See "Certain Legal Aspects of the Receivables--Security Interest in
Vehicles."
Possible Payment Reductions or Delays Because of Insolvency of Paragon or the
Seller
The Seller has taken steps in structuring the transactions described
herein and in the related Prospectus Supplement that are intended to ensure
that the voluntary or involuntary application for relief by Paragon under
the United States Bankruptcy Code (the "Bankruptcy Code") or similar
applicable state laws ("Insolvency Laws") will not result in consolidation
of the assets and liabilities of the Seller with those of Paragon. These
steps include the creation of the Seller as a separate, limited-purpose
subsidiary pursuant to a certificate of incorporation containing certain
limitations (including restrictions on the nature of the Seller's business
and a restriction on the Seller's ability to commence a voluntary case or
proceeding under any Insolvency Law without the prior unanimous affirmative
vote of all of its directors). However, there can be no assurance that the
activities of the Seller would not result in a court's concluding that the
assets and liabilities of the Seller should be consolidated with those of
Paragon in a proceeding under any Insolvency Law. See "The Seller." If a
court were to conclude that the assets and liabilities of the Seller should
be consolidated with those of Paragon in a proceeding under any Insolvency
Law, then any "true sale" to the Seller would be ineffective to remove the
Receivables and other assets from the bankruptcy estate of Paragon. See
"Risk of No 'True Sale'" below. Although there can be no assurance, the
Seller believes there is no material risk that the Trust would be
substantively consolidated with any other entity if that entity were to
become the subject of a proceeding under any Insolvency Law.
The Seller and Paragon each intend that the transfer of Receivables
by Paragon to the Seller will constitute a "true sale" of such Receivables.
The Seller will take steps in structuring its purchases of Receivables from
Paragon to increase the likelihood that such purchases will each be deemed
a "true sale". In particular, each such purchase will be without recourse
to Paragon for credit losses and at a purchase price believed by the
parties to represent the fair market value of the applicable Receivables.
If the transfer does, in fact, constitute such a "true sale," the
Receivables and the proceeds thereof would not be part of Paragon's bankruptcy
estate under Section 541 of the Bankruptcy Code should Paragon become the
subject of a bankruptcy case subsequent to the transfer of the Receivables
to the Seller. It is a condition of the offering that the Seller shall have
received an opinion of counsel to the effect that, subject to certain
facts, assumptions and qualifications, the transfer of such Receivables by
Paragon to the Seller pursuant to the related Purchase Agreement would be
characterized as a "true sale'" of such Receivables to the Seller and such
Receivables would not form part of Paragon's bankruptcy estate pursuant to
Section 541 of the Bankruptcy Code.
5
<PAGE>
Notwithstanding the foregoing, if the Seller or Paragon were to
become a debtor in a bankruptcy case and a creditor or trustee in
bankruptcy of the Seller or Paragon or Paragon itself were to take the
position that the transfer of Receivables by the Seller to the Trust, or by
Paragon to the Seller, as the case may be, should instead be treated as a
pledge of the Receivables to secure a borrowing of the Seller or Paragon,
as the case may be, then delays in payments of collections of the
Receivables could occur or (should the court rule in favor of any such
trustee, debtor or creditor) reductions in the amount of such payments
could result. If the transfer of the Receivables by the Seller to the
Trust, or by Paragon to the Seller, is treated as a pledge instead of a
sale, a tax, government or other lien on the property of the Seller or
Paragon, as the case may be, arising before the transfer of the Receivables
to the Trust may have priority over the Trust's or the Seller's interest in
the Receivables.
In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir. 1993),
cert. denied 114 S.Ct 554 (1993), the United States Court of Appeals for the
10th Circuit suggested that even where a transfer of accounts from a
seller to a buyer constitutes a "true sale," the accounts would
nevertheless constitute property of the seller's bankruptcy estate in a
bankruptcy of the seller. If the Seller were to become subject to a
bankruptcy proceeding and a court were to follow the Octagon court's
reasoning, Securityholders might experience delays in payment or possibly
losses on their investment in the Securities. The Permanent Editorial Board
of the UCC has issued an official commentary (PEB Commentary No. 14) which
characterizes the Octagon court's interpretation of Article 9 of the UCC as
erroneous. Such commentary states that nothing in Article 9 is intended to
prevent the transfer of ownership of accounts or chattel paper. However,
such commentary is not legally binding on any court.
Limitations on Realization Upon Financed Vehicles Because of Insolvency of
Obligors
Numerous statutory provisions, including Insolvency Laws, may
interfere with or affect the ability of a secured party to realize upon
collateral or to enforce a deficiency judgment against an obligor. For
example, in a Chapter 13 proceeding under the Bankruptcy Code, a court may
prevent a creditor from repossessing a vehicle, and, as part of the
obligor's rehabilitation plan, reduce the amount of the secured
indebtedness to the market value of the vehicle at the time of bankruptcy
(as determined by the court), leaving the creditor as a general unsecured
creditor for the remainder of the indebtedness. A bankruptcy court may also
reduce the monthly payments due under a contract or change the rate of
interest and time of repayment of the indebtedness. To the extent that any
credit enhancement for such Trust were insufficient to cover all such
losses, such actions could result in an inability of holders of the Notes
(if any) and Certificates issued by such Trust to recover payment in full
of their respective principal amounts and interest thereon or could result
in delays in such payments.
6
<PAGE>
Limitations on Enforceability of the Receivables Because of Consumer
Protection Laws
Federal and state contracts and consumer protection laws regulate the
creation and enforcement of consumer loans such as the Receivables. Specific
statutory liabilities are imposed upon creditors who fail to comply with these
regulatory provisions. In some cases, this liability could affect an
assignee's ability to enforce a Receivable. Application of such laws could
also render a Receivable unenforceable, cause the Trust to be unable to collect
any balance remaining due on the Receivable or result in liability to the
Trust. If an Obligor had a claim against any Trust for violation of these laws
prior to the Cutoff Date, the Seller will be obligated to repurchase the
related Receivable unless the breach is cured. If the Seller fails to
repurchase such Receivable, payments to Securityholders could be reduced or
delayed. See "Certain Legal Aspects of the Receivables--Consumer Protection
Laws."
Limited Assets of Trust on Which to Rely for Payments on Securities
No Trust will have, or be permitted or expected to have, any
significant assets or sources of funds other than the Receivables and, to
the extent provided in the related Prospectus Supplement, a Pre-Funding
Account, a Revolving Account, a Reserve Account and any other credit
enhancement. The Notes of any series will represent obligations solely of,
and the Certificates of any series will represent interests solely in, the
related Trust and neither the Notes nor the Certificates of any series will
be insured or guaranteed by Paragon, the Seller, the Servicer, any Trustee,
any Indenture Trustee or any other person or entity. Consequently, holders
of the Securities of any series must rely for repayment upon payments on
the related Receivables and, if and to the extent available, amounts on
deposit in the Pre-Funding Account (if any), the Revolving Account (if
any), the Reserve Account (if any) and any other credit enhancement, in
each case to the extent provided in the related Prospectus Supplement.
Amounts to be deposited in any such Reserve Account with respect to any
Trust will be limited in amount and the amount required to be on deposit in
such Reserve Account will be reduced as the Pool Balance is reduced. In
addition, funds in any such Reserve Account will be available on each
Payment Date to cover shortfalls in distributions of interest and principal
on the related Securities. If any such Reserve Account is depleted, the
related Trust will depend solely on current payments on its Receivables and
other credit enhancement (if any) to make payments on the related
Securities. If losses occur which are not covered by the Reserve Account
(if any) or any other credit enhancement or which exceed the amount covered
by such credit enhancement, holders of Securities may be unable to receive
payment in full of principal and interest on their respective Securities.
If so directed by the holders of the requisite percentage of
outstanding Notes of a series issued with respect to a Trust that issues
Notes, following an acceleration of the Notes upon an Event of Default, the
applicable
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Indenture Trustee may sell the related Receivables in certain limited
circumstances as specified in the related Indenture. See "Description of
the Notes--The Indenture--Events of Default; Rights upon Event of Default."
However, there is no assurance that the market value of such Receivables
will at any time be equal to or greater than the aggregate principal amount
of such outstanding Notes and the aggregate Certificate Balance of all
outstanding Certificates. Therefore, upon an Event of Default with respect
to the Notes of any series, there can be no assurance that sufficient funds
will be available to repay the related registered holders of each class of
Notes ("Noteholders") and registered holders of Certificates
("Certificateholders" and together with any Noteholders, the
"Securityholders") in full. In addition, the amount of principal required
to be paid to Noteholders of such series under the related Indenture will
generally be limited to amounts available to be deposited in the applicable
Note Distribution Account. Therefore, the failure to pay principal on a
class of Notes generally will not result in the occurrence of an Event of
Default until the Final Scheduled Payment Date (as defined in the related
Prospectus Supplement, the "Final Scheduled Payment Date") for such class
of Notes.
Limited Recourse of Securityholders to Paragon, the Seller, the Servicer and
their Affiliates
Paragon, the Seller and their affiliates are generally not obligated
to make any payments to Securityholders in respect of any Securities.
However, the Seller will make representations and warranties with respect
to the characteristics of the Receivables. In certain circumstances, the
Seller may be required to repurchase Receivables with respect to which the
representations and warranties have been breached. If the Seller fails to
repurchase such Receivables, payments to Securityholders may be reduced or
delayed. See "Description of the Transfer and Servicing Agreements--Sale
and Assignment of Receivables."
In addition, in certain circumstances, the Servicer may be required
to purchase Receivables. If the Servicer fails to purchase such
Receivables, payments to Securityholders may be reduced or delayed. See
"Description of the Transfer and Servicing Agreements--Servicing
Procedures." If Paragon were to stop acting as the Servicer, delays in
processing payments on the Receivables and information in respect of the
Receivables could occur and result in delays in payments to the
Securityholders.
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Risks Associated with Subsequent Receivables
Prepayment and Reinvestment Risk if Subsequent Receivables Are not
Purchased by the Trust. If so specified in the applicable Prospectus
Supplement, the property of a Trust may include monies on deposit in a
Pre-Funding Account or Revolving Account. These monies will be used to
purchase or otherwise acquire additional Receivables ("Subsequent
Receivables") from the Seller from time to time during the Funding Period
(as such term is defined in the related Prospectus Supplement, the "Funding
Period") or Revolving Period (as such term is defined in the related
Prospectus Supplement, the "Revolving Period") specified in the related
Prospectus Supplement. If a Pre-Funding Account or Revolving Account is
included in the property of a Trust and Paragon cannot generate Subsequent
Receivables to be conveyed to the Seller for later conveyance to this
Trust, the amount on deposit in these accounts cannot be applied to the
purchase of Subsequent Receivables during the Funding Period or Revolving
Period, as applicable. The Funding Period may be up to one year in length
in the case of any Trust that issues Notes and 90 days after the Closing
Date for any other Trust. The duration of any Revolving Period will be set
forth in the related Prospectus Supplement. If any amounts on deposit in
the Pre-Funding Account or Revolving Account have not been fully applied to
the purchase of Subsequent Receivables by a Trust by the end of the
applicable Funding Period or Revolving Period, the holders of Securities
issued by the related Trust will receive, on the Payment Date on or
immediately after the last day of the applicable Funding Period or
Revolving Period, as applicable, a prepayment of principal in an amount
equal to the amount remaining in the Pre-Funding Account or Revolving
Account. It is anticipated that the principal balance of Subsequent
Receivables sold to a Trust will not be exactly equal to the amount on
deposit in the Pre-Funding Account or the Revolving Account, and that
therefore there will be at least a nominal amount of principal prepaid to
the holders of the Securities of the Trust. The transfer of Subsequent
Receivables to the Trust may also result in accelerated payments of
principal to Securityholders because of an increased level of prepayments on
the Subsequent Receivables. Securityholders will bear the reinvestment risk
associated with any such distribution of amounts on deposit in the
Pre-Funding Account or Revolving Account after the termination of the
applicable Pre-Funding Period or Revolving Period, as applicable.
Possible Changes in Characteristics of the Receivables Pool When
Subsequent Receivables Are Purchased by the Trust. Subsequent Receivables may
be originated by the Paragon at a later date using credit criteria
different from those which were applied to any of the Receivables
initially sold or transferred to the Trust on or before the Closing Date
(the "Initial Receivables") and may be of a different credit quality.
However, the transfer of Subsequent Receivables to a Trust will be subject
to the condition, among others, that the Rating Agency has notified the
Seller in writing on the Closing Date that, following the transfer of such
Subsequent Receivables to the Trust in accordance with the provisions of
the Transfer and Servicing Agreements, the rating with respect to each
class of Securities issued by such Trust will not be lowered or withdrawn.
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Extension or Deferral of Payments on Receivables May Increase Weighted Average
Life of Securities
In certain circumstances, the Servicer may permit the extension or
modification of Receivables on a case-by-case basis. Any such extensions or
modifications may increase the weighted average life of the related
Securities. Any reinvestment risks resulting from faster or slower payment
resulting from extensions, modifications or amendments of payments on
Receivables held by the Trust will be borne entirely by the
Securityholders. The Servicer will not be permitted to grant any such
extension or modification if as a result the final scheduled payment on a
Receivable would fall after the related Final Scheduled Maturity Date (as
defined in the related Prospectus Supplement, the "Final Scheduled Maturity
Date"), unless the Servicer repurchases the affected Receivable. See "Risk
Factors--Risk of Prepayment and Possible Adverse Effect on Yield" and
"Weighted Average Life of the Securities."
Possible Disruption Caused by Termination of Servicer
With respect to a series of Securities that includes Notes, in the
event a Servicer Termination Event occurs, the Indenture Trustee or the
Noteholders with respect to such series, as described under "Description of
the Transfer and Servicing Agreements--Rights upon Servicer Termination
Event" may remove the Servicer without the consent of the Trustee or any of
the Certificateholders with respect to such series. The Trustee or the
Certificateholders with respect to such series will not have the ability to
remove the Servicer if a Servicer Termination Event occurs. In addition,
the Noteholders of such series will have the ability, with certain
specified exceptions, to waive Servicer Termination Events by the Servicer,
including Servicer Termination Events that could materially adversely
affect the Certificateholders of such series. See "Description of the
Transfer and Servicing Agreements--Waiver of Past Defaults." The Servicer
believes that its credit loss and delinquency experience reflect in part
its trained staff and collection procedures. There can be no assurance that
collections with respect to the Receivables will not be adversely affected
by any change in Servicer.
Book-Entry Registration Results in Security Owners Only Being Able to Exercise
Their Rights Indirectly
Each class of Securities of a given series will be initially
represented by one or more certificates registered in the name of Cede &
Co. ("Cede"), or any other nominee for the Depository Trust Company ("DTC")
set forth in the related Prospectus Supplement (Cede, or such other
nominee, "DTC's Nominee"), and will not be registered in the names of the
beneficial owners of the Securities ("Security Owners") of such series or
their nominees unless Definitive Securities are issued. As a result, unless
and until Definitive Securities for such series are issued, such Security
Owners will not be recognized by the Trustee or any applicable Indenture
Trustee as "Certificateholders", "Noteholders" or "Securityholders", as the
case may be (as such terms are used herein or in the related Pooling and
Servicing Agreement or related Indenture and Trust Agreement, as
applicable). Hence, until Definitive Securities are issued, such Security
Owners will only be able to exercise the rights of Securityholders
indirectly through DTC, Cedel or Euroclear and their participating
organizations. See "Certain Information Regarding the
Securities--Book-Entry Registration" and "--Definitive Securities."
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Ratings of the Securities
It is a condition to the issuance of each class of Securities offered
hereby that they are rated by at least one nationally recognized
statistical rating agency (the "Rating Agency") in one of its generic
rating categories which signifies investment grade. A rating is not a
recommendation to purchase, hold or sell Securities, inasmuch as such
rating does not comment as to market price or suitability for a particular
investor. The ratings of the Securities address the likelihood of the
timely payment of interest on and the ultimate payment of principal of the
Securities pursuant to their terms. There can be no assurance that a rating
will remain for any given period of time or that a rating will not be
lowered or withdrawn entirely by a Rating Agency if in its judgment
circumstances in the future so warrant.
THE TRUSTS
With respect to each series of Securities, the Seller will establish
a separate Trust pursuant to the respective Trust Agreement or Pooling and
Servicing Agreement, as applicable, for the transactions described herein
and in the related Prospectus Supplement. The property of each Trust will
include a pool (a "Receivables Pool") of Receivables pursuant to which a
purchaser (an "Obligor") of a Financed Vehicle is obligated. The property
of each Trust will also include all payments due or received with respect
to Receivables on and after the Cutoff Date (as such term is defined in the
related Prospectus Supplement, a "Cutoff Date"). Pursuant to each Dealer
Agreement, the applicable Dealer is obligated to purchase from Paragon that
is a party to such Dealer Agreement any Receivables sold or originated
thereunder which do not meet certain representations made by that Dealer,
and, to the extent set forth in the related Prospectus Supplement, any
uncollectible Receivables covered by recourse plans ("Dealer Recourse").
The Receivables of each Receivables Pool will be serviced by the Servicer.
See "The Servicer." Receivables that are to be included in any Receivables
Pool will be transferred pursuant to a Purchase Agreement (the "Purchase
Agreement") by Paragon to the Seller for purposes of transfer to the
applicable Trust. In addition, to the extent described in any Prospectus
Supplement, the related Receivables Pool may include Receivables acquired
by Paragon through acquisitions.
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On or before the applicable Closing Date, the Seller will sell the
Initial Receivables of the applicable Receivables Pool to the Trust. To the
extent so provided in the related Prospectus Supplement, Subsequent
Receivables will be conveyed to the Trust as frequently as daily during a
Funding Period. Any Subsequent Receivables so conveyed will also be assets
of the applicable Trust and will be subject to the prior rights of the
related Indenture Trustee and the Noteholders, if any, therein. The
property of each Trust will also include (i) all of the right, title and
interest of Paragon and the Seller in and to (i) the security interests of
Paragon and the Seller in the related Financed Vehicles and any other
interest of Paragon and the Seller in the related Financed Vehicles,
including the certificates of title with respect to such Financed Vehicles,
(ii) certain insurance policies and any proceeds from such insurance
policies relating to the Receivables, the Obligors or the related Financed
Vehicles, including rebates or refunds of premiums, (iii) the rights of
Paragon and the Seller against Dealers with respect to the Receivables,
(iv) the rights of the Seller under the related Purchase Agreement, (v) all
funds on deposit from time to time in the trust accounts established and
maintained pursuant to the related Transfer and Servicing Agreement,
including all income thereon and proceeds thereof, and (vi) all proceeds
and investments of any of the foregoing, provided that, with respect to any
series of Notes, the relevant rights and benefits with respect to such
property will be assigned by the Seller and the Trustee to the related
Indenture Trustee for the benefit of the related Securityholders. To the
extent specified in the related Prospectus Supplement, a Pre-Funding
Account, a Revolving Account, a Reserve Account or other form of credit
enhancement may be a part of the property of any given Trust or may be held
by the Trustee or an Indenture Trustee for the benefit of holders of the
related Securities.
If so specified in the related Prospectus Supplement, a Trust may
acquire Initial Receivables pursuant to warehouse financing arrangements
entered into prior to the sale by that Trust of any Notes offered hereby.
"Warehouse financing" generally refers to interim financing of Receivables
during the period from the purchase or funding of the Receivables by
Paragon until the securitization of the Receivables. In some cases, to the
extent specified in the related Prospectus Supplement, a Trust that issues
Notes will acquire Receivables prior to the issuance of the Notes and/or
Certificates ultimately to be issued by that Trust. The interim financing
for such acquisitions will be provided by the issuance by the Trust of
notes or certificates which were privately placed. Such notes or
certificates will be refinanced by the sale of the Notes and/or
Certificates. It will be a condition to the issuance of any Securities
which refinance other securities issued by any such Trust that such
warehouse financing be repaid to the extent provided in the related
Prospectus Supplement, and any related security interests released, at or
prior to the time of such issuance.
The Servicer will service the Receivables held by each Trust and will
receive fees for such services. See "Description of the Transfer and
Servicing Agreements--Servicing Compensation and Payment of Expenses"
herein and "--Servicing Compensation and Payment of Expenses" in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, to facilitate the servicing of the Receivables each
Trustee will authorize the Servicer to retain physical possession of the
documents representing the Receivables held by each Trust and other
documents relating thereto as custodian for each such Trust. Due to
administrative burden and expense (i.e., fees payable to state motor
vehicle departments ranging up to approximately forty
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dollars per vehicle and related paperwork), the certificates of title to
the Financed Vehicles will not be amended to reflect the sale and
assignment of the security interest in the Financed Vehicles to the Seller
or each Trust. In the absence of such amendments, the Seller and such Trust
may not have a perfected security interest in the Financed Vehicles in all
states. See "Certain Legal Aspects of the Receivables" and "Description of
the Transfer and Servicing Agreements--Sale and Assignment of Receivables."
Notes and Certificates of a given Series will be issued by the same
Trust and payable from the same Trust property. If the protection provided
to any Noteholders of a given series by the subordination of the related
Certificates and by the Reserve Account (if any) or other credit
enhancement for such series, or the protection provided to
Certificateholders by any such Reserve Account or other credit enhancement
is insufficient, such Noteholders or Certificateholders, as the case may
be, would have to look principally to the Obligors on the related
Receivables, the proceeds from the repossession and sale of Financed
Vehicles which secure defaulted Receivables and the proceeds from any
recourse against Dealers with respect to such Receivables. In such event,
certain factors, such as the applicable Trust's not having perfected
security interests in the Financed Vehicles in all states, may affect the
Servicer's ability to repossess and sell the collateral securing the
Receivables, and thus may reduce the proceeds to be distributed to the
holders of the Securities of such series. See "Description of the Transfer
and Servicing Agreements--Distributions", "--Credit and Cash Flow
Enhancement" and "Certain Legal Aspects of the Receivables."
If so specified in the related Prospectus Supplement, a Trust may
make an election to be treated as a "financial asset securitization
investment trust" or "FASIT." The applicable Transfer and Servicing
Agreement for such a Trust may contain any such terms and provide for the
issuance of Notes or Certificates on such terms and conditions as are
permitted to a FASIT and described in the related Prospectus Supplement.
See "Federal Income Tax Consequences--FASIT Legislation."
The principal offices of the applicable Trust (if any) and the
related Trustee will be specified in the related Prospectus Supplement.
The Trustee
The Trustee for each Trust will be specified in the related
Prospectus Supplement. The Trustee's liability in connection with the
issuance and sale of the related Securities is limited solely to the
express obligations of such Trustee set forth in the related Trust
Agreement and the applicable Transfer and Servicing Agreement. The Trustee
under each Trust Agreement will perform administrative functions under such
Trust Agreement, including making distributions from the Certificate
Distribution Account. A Trustee may resign at any time, in which event the
Servicer, or its successor, will be obligated to appoint a successor
trustee. The Servicer may also remove the Trustee if the Trustee ceases to
be eligible to continue as Trustee under the related Trust Agreement or
Pooling and Servicing Agreement, as applicable, or if the Trustee becomes
insolvent. In such circumstances, the Servicer will be obligated to appoint
a successor trustee. Any resignation or removal of a Trustee and
appointment of a successor trustee will not become effective until
acceptance of the appointment by the successor trustee.
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THE RECEIVABLES POOLS
General
The Receivables in each Receivables Pool will be motor vehicle retail
installment sales contracts secured by new or used motor vehicles entered
into between Obligors and automotive dealers and may include motor vehicle
promissory notes and security agreements executed by an Obligor in favor of
a motor vehicle lender ("Direct Loans"). The Receivables to be held by each
Trust will be selected from the Receivables portfolio of Paragon for
inclusion in a Receivables Pool by several criteria, including that each
Receivable (i) is secured by a new or used vehicle, (ii) was originated in
the United States, (iii) is a Precomputed Receivable or a Simple Interest
Receivable and (iv) as of the Cutoff Date (a) had an outstanding principal
balance of at least the amount set forth in the related Prospectus
Supplement, (b) had a scheduled maturity not later than the date set forth
in the related Prospectus Supplement, (c) had an original term to maturity
of not more than the period set forth in the related Prospectus Supplement
and (d) had a contractual rate of interest ("APR") of not less than the
rate per annum set forth in the related Prospectus Supplement. No selection
criteria or procedures believed by the Seller to be adverse to the
Securityholders are to be used in selecting the Receivables.
"Precomputed Receivables" provide for allocation of payments
according to the 'sum of periodic balances' or 'sum of monthly payments'
method, similar to the 'Rule of 78's' ("Rule of 78's Receivables") or are
monthly actuarial receivables ("Actuarial Receivables" and, together with
Rule of 78's Receivables, "Precomputed Receivables"). An Actuarial
Receivable provides for amortization of the amount financed over a series
of fixed level payment installments. Each monthly installment, including
the installment representing the final payment on the Receivable, consists
of an amount of Finance charge equal to 1/12 of the APR of the account
multiplied by the unpaid amount financed, and a portion of the amount financed
to the remainder of the installment. A Rule of 78's Receivable provides for the
payment by the obligor of a specified total amount of payments, payable in
equal installments on each due date. The total represents the principal
amount financed and interest in an amount calculated on the basis of the
stated APR for the term of the receivable. The rate at which interest is
earned is calculated in accordance with the 'Rule of 78's.' The 'Rule of 78's'
is a method of calculating the unearned portion of the precomputed finance
charge (or interest) on Receivables payable in substantially equal successive
installments of approximately equal intervals over 12 months. The unearned
portion of the precomputed finance charge to be refunded if a Receivable is
prepaid is equal to that portion of the finance charge which the sum of the
number of months the obligations are outstanding after the date of
prepayment (counting 1 month as 1, 2 months as 3 (1 + 2), etc., up to 78)
bears to 78.
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"Simple Interest Receivables" provide for the amortization of the
amount financed under the Receivable over a series of fixed level monthly
payments (except that the last payment may be different). However, unlike
the monthly payments under an Actuarial Receivable, each monthly payment
consists of an installment of interest that is calculated on the basis of
the outstanding principal balance of the receivable multiplied by the
stated APR and further multiplied by the period elapsed (as a fraction of a
calendar year) since the last payment of interest was made. As payments are
received under a Simple Interest Receivable, they are applied first to
interest accrued to the date of payment, and the balance is applied to
reduce the unpaid principal balance. Accordingly, if an obligor pays a
fixed monthly installment before its scheduled due date, the portion of the
payment allocable to interest for the period since the preceding payment
was made will be less than it would have been had the payment been made as
scheduled, and the portion of the payment applied to reduce the unpaid
principal balance will be correspondingly greater. Conversely, if an
obligor pays a fixed monthly installment after its scheduled due date, the
portion of the payment allocable to interest for the period since the
preceding payment was made will be greater than it would have been had the
payment been made as scheduled, and the portion of the payment applied to
reduce the unpaid principal balance will be correspondingly less. In either
case, the obligor pays a fixed monthly installment until the final
scheduled payment date, at which time the amount of the final installment
is increased or decreased as necessary to repay the then outstanding
principal balance and unpaid accrued interest. If a receivable is prepaid,
the Obligor is required to pay interest only to the date of prepayment.
Information with respect to each Receivables Pool will be set forth
in the related Prospectus Supplement, including, to the extent appropriate,
the composition, the distribution by APR and by the geographic location,
the portion of such Receivables Pool consisting of Precomputed Receivables
and of Simple Interest Receivables and the portion of such Receivables Pool
secured by new vehicles and by used vehicles.
Underwriting
Paragon positions itself in the dealership market as prime quality
financing source and offers distinct vehicle financing programs to its
dealers. These offerings vary based upon (a) credit quality of the
customer, (b) the percentage of wholesale value of the vehicle that Paragon
is willing to advance and (c) pricing (i.e., annual percentage rate and
dealer participation paid). Paragon strives to provide professional service
to its dealers, including by (i) providing dealers with written credit
guidelines, (ii) making consistent credit decisions and (iii) providing
credit decisions seven days a week, with credit approvals for most eligible
applicants within 30 minutes of receipt of the application. Paragon's
competitors include money center and regional commercial banks, as well as
other captive and independent finance companies.
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A signed Dealer Agreement is a prerequisite for Paragon's purchase of
contracts from a dealer and provides representations and warranties with
respect to each contract sold to Paragon. Dealer relationships are
developed and maintained by Paragon's experienced sales representatives.
Sales representatives typically target dealers with whom they have had past
relationships. Paragon consults publicly available sources and industry
participants in an attempt to ensure that Dealers in its program have a
good reputation in the marketplace both as to their overall business and as
to their owners and management. Dealers must also have a concentration of
"high line" vehicles (that is, luxury and near-luxury automobiles and
certain select sports utility vehicles).
Credit underwriting is centralized at Paragon's service center in St.
Louis, Missouri. Dealers typically remit applications to the service center
via facsimile. Credit analysts underwrite each application using Paragon's
written underwriting guidelines and application processing software, known
as Automated Credit Applications Processing System ("ACAPS"). ACAPS
electronically obtains credit bureau reports on each applicant and provides
interpretation of the reports.
Paragon's guidelines are geared toward "prime" credits and,
therefore, analysts employ credit scoring in their credit decision. The
credit scoring system utilized by Paragon is a "launch scorecard" purchased
from Experian's Strategic Solutions Division, which calculates a credit
score based upon a statistical algorithm derived from the performance of
over 1,000,000 motor vehicle retail installment contracts. Other important
factors in Paragon's credit decisions include previous credit experience,
total debt payment obligations to income ratios, employment stability and
residence stability. Once an applicant is approved and Paragon receives the
contract documentation from the dealer, documentation specialists verify
that (a) the contract and all related documents are completed properly and
all signatures are in order and (b) the contract conforms to the credit
decision, including the name of the customer, the specific vehicle, the
additional equipment and the amount of the advance, prior to purchasing the
contract from the dealer.
Subsequent Receivables
Subsequent Receivables may be originated at a later date using credit
criteria different from those which were applied to any Initial Receivables
and may be of a different credit quality. Periodic information regarding
the Subsequent Receivables will be included under Item 5 in a Current
Report filed on Form 8-K with the Commission pursuant to the Exchange Act
with respect to each Trust to which Subsequent Receivables have been
transferred.
Servicing and Collections
Paragon handles all servicing and collection functions from its
centralized service center in St. Louis, Missouri. Paragon sends monthly
statements to each customer to provide an active reminder of the due date
and amount of each payment. The statements direct payments to the lockbox
maintained with NationsBank, N.A. in St. Louis. For a description of the
lockbox arrangements, see "The Transaction Documents--Collections."
For delinquent payments, Paragon organizes the collection workload
based upon the seriousness of the delinquency. Therefore, more senior
customer service representatives work the accounts that are more than 30
days delinquent and the less seasoned customer service representatives work
the earlier delinquency stages. Collection activities begin through
telephone contact with delinquent customers once a contract becomes 10 days
delinquent (or, in the case of first payment defaults, one day delinquent).
Frequent telephone contact is typically maintained until either (a) the
delinquent payment is made by the customer, (b) the customer breaks several
promises to make such payment or (c) the customer misses a second payment
(i.e., is more than 30 days delinquent). The decision to repossess a
vehicle is typically addressed by the collections manager prior to the 45th
day of delinquency. Paragon believes that addressing the decision to
repossess a vehicle early in the delinquency will lead to lower net losses
over the life of the portfolio. Paragon's loss recognition policy is
generally to charge off a contract upon the earliest to occur of: (i)
repossession and sale of the vehicle; (ii) a good faith determination by
collections management that no further proceeds are expected to be received
on such contract; or (iii) such contract becomes 120 days delinquent.
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Information Technology and Systems
Paragon's information technology needs are met with a system
consisting of two mainframe computers (which are provided by vendors) and
personal computer local area networks linking the mainframes with the St.
Louis service center and Paragon's headquarters in Mission Viejo. The
mainframe computers house Paragon's credit application processing system,
ACAPS, and Paragon's loan accounting and collections systems, Shaw IL 2000
and CS 2000. The mainframe which runs ACAPS is provided by CBC Companies,
Inc. and is located in Columbus, Ohio. Communication between Columbus and
St. Louis is conducted over a dedicated, leased telephone line. The
mainframe that runs Paragon's loan accounting and collections programs is
provided by CSC Logic, Inc./MSA d/b/a Loan Servicing Enterprise (LSE)
("CSC"). These programs reside on CSC's mainframe computer in Dallas,
Texas, with which the service center communicates through a dedicated,
leased telephone line.
Delinquency and Loss Experience
Certain information concerning the experience of Paragon pertaining
to delinquency and loss experience with respect to Receivables will be set
forth in the related Prospectus Supplement. There can be no assurance that
the delinquency and net loss experience on any Receivables Pool will be
comparable to prior experience or to such information.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
The weighted average life of the Notes, if any, and the Certificates
of any series will generally be influenced by the rate at which the
principal balances of the related Receivables are paid, which payment may
be in the form of scheduled amortization or prepayments. See "Description
of the Transfer and Servicing Agreements--Accounts." All of the Receivables
are repayable at any time without penalty (or with only a nominal penalty)
to the Obligor. The rate of prepayment of automotive receivables is
influenced by a variety of economic, social and other factors, including
decreases in the general level of prevailing interest rates, the desire of
the Obligor to purchase a new vehicle and the fact that an Obligor
generally may not sell or transfer the Financed Vehicle securing a
Receivable unless such Receivable is paid in full. In addition, under
certain circumstances, the Seller will be obligated to repurchase
Receivables from a given Trust pursuant to the related Transfer and
Servicing Agreement as a result of breaches of representations and
warranties and the Servicer will be obligated to purchase Receivables from
such Trust pursuant to such Transfer and Servicing Agreement as a result of
breaches of certain covenants. Holders of Securities should consider, in
the case of Securities purchased at a discount, the risk that a slower than
anticipated rate of principal payments on the Receivables could result in
an actual yield that is less than the anticipated yield and, in the case of
Securities purchased at a premium, the risk that a faster than anticipated
rate of principal payments on the Receivables could result in an actual
yield that is less than the anticipated yield. See "Description of the
Transfer and Servicing Agreements--Sale and Assignment of Receivables" and
"--Servicing Procedures." See also "Description of the Transfer and
Servicing Agreements--Termination" regarding the option of the Seller and
Servicer to purchase the Receivables from a given Trust and "--Insolvency
Event" regarding the sale of the Receivables owned by a Trust that is not a
grantor trust if an Insolvency Event with respect to the Seller occurs.
No prediction can be made as to the rate of prepayment on the
Receivables. The Servicer is not aware of any publicly available industry
statistics for the entire industry on an aggregate basis that set forth
principal prepayment experience for Receivables similar to the Receivables
over an extended period of time.
In light of the above considerations, there can be no assurance as to
the amount of principal payments to be made on the Notes, if any, or the
Certificates of a given series on each Payment Date, since such amount will
depend, in part, on the amount of principal collected on the related
Receivables Pool during the applicable Collection Period. Any reinvestment
risks resulting from a faster or slower incidence of prepayment of
Receivables will be borne entirely by the Noteholders, if any, and the
Certificateholders of a given series. The related Prospectus Supplement may
set forth certain additional information with respect to the maturity and
prepayment considerations applicable to the particular Receivables Pool and
the related series of Securities.
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Consistent with its customary servicing practices and procedures, the
Servicer or its designee may, in its discretion and on a case-by-case
basis, arrange with Obligors to extend or modify the terms of the related
Receivables. Extensions and modifications are generally only granted in
cases of short-term financial hardship, such as unexpected medical
expenses, unexpected car repair expenses or a temporary leave of absence
from employment, and are generally limited to one extension of no more than
three months duration per year per Obligor. Any extensions or modifications
of Receivables may increase the weighted average life of the related
Securities. Unless the Servicer repurchases the affected Receivable, the
Servicer will not be permitted voluntarily to grant any extension or
modification if as a result the final scheduled payment on a Receivable
would fall after the related Final Scheduled Maturity Date or modify a
Receivable in a Trust to be treated as a grantor trust if such modification
would result in a deemed exchange of such Receivable under Section 1001 of
the Code.
POOL FACTORS AND TRADING INFORMATION
The "Note Pool Factor" for each class of Notes will be a seven-digit
decimal which the Servicer will compute prior to each distribution with
respect to such class of Notes expressing the remaining outstanding
principal balance of such class of Notes, as of the applicable Payment Date
(after giving effect to payments to be made on such Payment Date), as a
fraction of the initial outstanding principal balance of such class of
Notes. The "Certificate Pool Factor" for each class of Certificates will be
a seven-digit decimal which the Servicer will compute prior to each
distribution with respect to such class of Certificates expressing the
remaining Certificate Balance of such class of Certificates, as of the
applicable Payment Date (after giving effect to distributions to be made on
such Payment Date), as a fraction of the initial Certificate Balance of
such class of Certificates. Each Note Pool Factor and each Certificate Pool
Factor will initially be 1.0000000 and thereafter will decline to reflect
reductions in the outstanding principal balance of the applicable class of
Notes, or the reduction of the Certificate Balance of the applicable class
of Certificates, as the case may be. A Noteholder's portion of the
aggregate outstanding principal balance of the related class of Notes is
the product of (i) the original denomination of such Noteholder's Note and
(ii) the applicable Note Pool Factor. A Certificateholder's portion of the
aggregate outstanding Certificate Balance for the related class of
Certificates is the product of (i) the original denomination of such
Certificateholder's Certificate and (ii) the applicable Certificate Pool
Factor.
The Noteholders, if any, and the Certificateholders will receive
reports on or about each Payment Date concerning payments received on the
Receivables, the Pool Balance (as such term is defined in the related
Prospectus Supplement, the "Pool Balance"), each Certificate Pool Factor or
Note Pool Factor, as applicable, and various other items of information,
including amounts allocated or distributed for such Payment Date. In
addition, Securityholders of record during any calendar year will be
furnished information for tax reporting purposes not later than the latest
date permitted by law. See "Certain Information Regarding the
Securities--Reports to Securityholders."
USE OF PROCEEDS
The net proceeds from the sale of the Securities of a given series
will be applied by the Seller or the applicable Trust (i) to the purchase
of the Receivables and/or repayment of any related Warehouse Financing,
(ii) to make the initial required deposit (if any) into any Reserve Account
or other account established in connection with a given series, (iii) to
make the deposit of the amount (the "Pre-Funded Amount") to be deposited
into the Pre-Funding Account (as such term is defined in the related
Prospectus Supplement, the "Pre-Funding Account") or the Revolving Account
(as such term is defined in the related Prospectus Supplement, the
"Revolving Account") on the related Closing Date, if any, and (iv) such
other uses as may be set forth in the related Prospectus Supplement. The
portion of the net proceeds paid to the Seller will be used to purchase the
Receivables from Paragon.
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THE SELLER
The Seller is a wholly-owned subsidiary of Paragon. The Seller was
incorporated in the State of Delaware on November 20, 1997. The principal
executive offices of the Seller are located at 27405 Puerta Real, Suite
200, Mission Viejo, California 92691 and its telephone number is (949)
348-8700.
The Seller has taken steps in structuring the transactions described
herein and in the Prospectus Supplement that are intended to ensure that
the voluntary or involuntary application for relief by Paragon under any
Insolvency Laws will not result in consolidation of the assets and
liabilities of the Seller with those of Paragon. These steps include the
creation of the Seller as a separate, limited-purpose subsidiary pursuant
to a certificate of incorporation and bylaws containing certain limitations
(including restrictions on the nature of the Seller's business and a
restriction on the Seller's ability to commence a voluntary case or
proceeding under any Insolvency Law without the prior unanimous affirmative
vote of all of its directors). However, there can be no assurance that the
activities of the Seller would not result in a court's concluding that the
assets and liabilities of the Seller should be consolidated with those of
Paragon in a proceeding under any Insolvency Law. See "Risk Factors--Risk
of Substantive Consolidation."
The Seller will warrant to the Trust in the applicable Transfer and
Servicing Agreement that the sale of the Receivables by the Seller to the
Trustee on behalf of the Trust is a valid sale of such Receivables. In
addition, the Seller, the Trustee and the Trust will treat the conveyance
by the Seller of the Receivables as a sale of the Receivables by the Seller
to the Trustee on behalf of the Trust and the Seller will take or cause to
be taken all actions that are required to perfect the Trustee's ownership
in such Receivables. If the Seller were to become a debtor in a bankruptcy
case and a creditor or trustee in bankruptcy of the Seller or the Seller
itself were to take the position that the sale of Receivables by the Seller
to the Trust should instead be treated as a pledge of the Receivables to
secure a borrowing of the Seller, then delays in payments of collections of
the Receivables could occur or (should the court rule in favor of any such
trustee, debtor or creditor) reductions in the amount of such payments
could result. If the transfer of the Receivables by the Seller to the
Trustee on behalf of the Trust is treated as a pledge instead of a sale, a
tax or government lien on the property of the Seller arising before the
transfer of the Receivables to the Trustee on behalf of the Trust may have
priority over such Trustee's interest in the Receivables. If the conveyance
by the Seller of the Receivables is treated as a sale, the Receivables
would not be part of the Seller's bankruptcy estate and would not be
available to the Seller's creditors.
PARAGON AND THE SERVICER
Paragon Acceptance Corporation, a Delaware corporation, is a
specialized consumer finance company engaged in the acquisition and
servicing of "prime" quality automobile, light duty truck and sports
utility vehicle retail installment sale contracts secured by recent model,
"high line" vehicles (that is, luxury and near-luxury automobiles and
certain select sports utility vehicles). Paragon purchases and services
motor vehicle retail installment contracts through its dealer service
center in St. Louis, Missouri. The headquarters and principal executive
offices of Paragon are located at 27405 Puerta Real, Suite 200, Mission
Viejo, California 92691.
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DESCRIPTION OF THE NOTES
General
With respect to each Trust that issues Notes, one or more classes of
Notes of the related series will be issued pursuant to the terms of an
Indenture, a form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The following summary
describes the material terms and provisions of the Indenture and Notes, but
it does not purport to be complete and is subject to, and is qualified by
reference to, all the provisions of the applicable Notes and Indenture.
Each class of Notes will initially be represented by one or more
Notes, in each case registered in the name of a nominee of DTC (together
with any successor depository selected by the Trust, the "Depository")
except as set forth below. See "Certain Information Regarding the
Securities--Definitive Securities." Notes will be available for purchase in
denominations specified in the related Prospectus Supplement or, if not so
specified, in denominations of $1,000 and integral multiples thereof. Notes may
be issued in book-entry form or as Definitive Notes and if not otherwise
specified in the related Prospectus Supplement, will be issued in
book-entry form only. As to Notes issued in book-entry form, the Seller has
been informed by DTC that DTC's nominee will be Cede, unless another
nominee is specified in the related Prospectus Supplement. Accordingly,
such nominee is expected to be the holder of record of the Notes of each
such class. Unless and until Definitive Notes are issued in replacement for
book-entry Notes under the limited circumstances described herein or in the
related Prospectus Supplement, no beneficial owner of Notes (each, a "Note
Owner") will be entitled to receive a physical certificate representing a
Note. See "Certain Information Regarding the Securities--Definitive
Securities." As to the Notes issued in book-entry form, all references
herein and in the related Prospectus Supplement to actions by Noteholders
refer to actions taken by DTC upon instructions from its participating
organizations (the "Participants") and all references herein and in the
related Prospectus Supplement to distributions, notices, reports and
statements to Noteholders refer to distributions, notices, reports and
statements to DTC or its nominee, as the registered holder of the Notes,
for distribution to Noteholders in accordance with DTC's procedures with
respect thereto. See "Certain Information Regarding the
Securities--Book-Entry Registration" and "--Definitive Securities."
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Principal and Interest on the Notes
The timing and priority of payment, seniority, Interest Rate and
amount of or method of determining payments of principal and interest on
each class of Notes of a given series will be described in the related
Prospectus Supplement. The right of holders of any class of Notes to
receive payments of principal and interest may be senior or subordinate to
the rights of holders of any other class or classes of Notes of such
series, as described in the related Prospectus Supplement. The dates for
payments of interest and principal on the Notes of such series may be
different from the Payment Dates for the Certificates of such series. To
the extent specified in the related Prospectus Supplement, payments of
interest on the Notes other than certain Strip Notes, if any, of such
series will be made prior to payments of principal thereon. To the extent
provided in the related Prospectus Supplement, a series may include one or
more classes of Notes ("Strip Notes") entitled to (i) principal payments
with disproportionate, nominal or no interest payments or (ii) interest
payments with disproportionate, nominal or no principal payments. Each
class of Notes may have a different Interest Rate, which may be a fixed,
variable or adjustable Interest Rate (and which may be zero for certain
classes of Strip Notes), or any combination of the foregoing. The related
Prospectus Supplement will specify the Interest Rate for each class of
Notes of a given series or the method for determining such Interest Rate.
See also "Certain Information Regarding the Securities--Fixed Rate
Securities" and "--Floating Rate Securities." One or more classes of Notes
of a series may be redeemable in whole or in part under the circumstances
specified in the related Prospectus Supplement, including at the end of the
Funding Period (if any) or as a result of the exercise by the Seller or
Servicer of its option to purchase the related Receivables Pool.
To the extent specified in the related Prospectus Supplement,
payments to Noteholders of all classes within a series in respect of
interest will have the same priority. Under certain circumstances, the
amount available for such payments could be less than the amount of
interest payable on the Notes on any of the dates specified for payments in
the related Prospectus Supplement (each, a "Payment Date", which may be the
same date as each applicable Payment Date as specified in the related
Prospectus Supplement), in which case each class of Noteholders will
receive its ratable share (based upon the aggregate amount of interest due
to such class of Noteholders) of the aggregate amount available to be
distributed in respect of interest on the Notes of such series. See
"Description of the Transfer and Servicing Agreements--Distributions" and
"--Credit and Cash Flow Enhancement."
In the case of a series of Notes which includes two or more classes
of Notes, the sequential order and priority of payment in respect of
principal and interest, and any schedule or formula or other provisions
applicable to the determination thereof, of each such class will be set
forth in the related Prospectus Supplement. Payments in respect of
principal and interest of any class of Notes will be made on a pro rata
basis among all the Noteholders of such class.
To the extent specified in the related Prospectus Supplement, the
principal amount of Notes outstanding at any time may be reduced to reflect
losses in the Receivables experienced prior to such time.
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Following are examples of various types of Notes which may be issued
by a Trust. The Prospectus Supplement accompanying this Prospectus will
describe in more detail any of the below-listed types of Notes actually
issued by a particular Trust.
Fixed Payment Notes. To the extent specified in any Prospectus
Supplement, one or more classes of Notes of a given series may have fixed
principal payment schedules. Noteholders of such Notes would be entitled to
receive as payments of principal on any given Payment Date the applicable
amounts set forth on such schedule with respect to such Notes, in the
manner and to the extent set forth in the related Prospectus Supplement.
Short Term Asset Backed Notes. To the extent specified in any
Prospectus Supplement, one or more classes of Notes of a given series may
be entitled to receive principal payments prior to the receipt of principal
payments by other classes of Securities issued by the applicable Trust. If
so provided in the related Prospectus Supplement, such class or classes of
Notes will have a final scheduled maturity date of less than 397 days from
the initial trade date related thereto and such class or classes will have
received a short-term rating by a Rating Agency that is in one of the two
highest short-term rating categories. The failure to pay such a class of
Notes on or prior to the related Final Scheduled Maturity Date would
constitute an event of default under the related Indenture. In general,
such class or classes of Notes will otherwise be similar to Notes which are
described in this Prospectus.
Planned Amortization Class. To the extent specified in any Prospectus
Supplement, one or more classes of Notes of a given series may be
structured as a planned amortization class ("PAC"). A PAC will be retired
according to a predetermined amortization schedule set forth in the related
Prospectus Supplement and structured to be substantially independent of the
prepayment rate on the Receivables. The timing of distributions in respect
of the other classes of Securities in the related series in some instances
may be slowed down or accelerated so that the PAC scheduled amortization
may be met as provided in the related Prospectus Supplement. The planned
amortization for a PAC set forth in the related Prospectus Supplement
generally will require scheduled sinking fund payments for the PAC on each
Payment Date. Payments to the other classes of Securities in the related
series will be allocated as otherwise set forth in the related Prospectus
Supplement only after the scheduled sinking fund payments or scheduled
amortization payments to the PAC have been made.
Targeted Amortization Class. To the extent specified in any
Prospectus Supplement, one or more classes of Notes of a given series may
be structured as a targeted amortization class ("TAC"). Any TAC will be
similar to a PAC, with support classes providing protection against
prepayment risks to the TAC. However, a TAC will differ from a PAC in that
it generally may not receive as much protection against prepayments on the
Receivables as a PAC. In particular, a TAC will generally provide no
protection against the risk of prepayments occurring more slowly than the
rate of prepayment assumed for structuring purposes and generally will not
be structured to permit expected cash flows from non-TAC classes of
Securities to be diverted to the TAC.
Companion Class. To the extent specified in any Prospectus
Supplement, one or more classes of Notes of a given series may be designed
to receive principal payments on a Payment Date only if principal payments
have been made on a specified planned amortization class of Notes or
targeted amortization class of Notes, and to receive any excess payments
over the amount required to reduce the principal amount of the planned
amortization class or targeted amortization class to the planned or
targeted balance for such Payment Date.
The Indenture
Modification of Indenture. With respect to each Trust that has issued
Notes pursuant to an Indenture, the Trust and the Indenture Trustee may,
with the consent of the holders of a majority of the outstanding Notes of
the related series, execute a supplemental indenture to add provisions to,
change in any manner or eliminate any provisions of, the related Indenture,
or modify (except as provided below) in any manner the rights of the
related Noteholders.
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With respect to the Notes of a given series, without the consent of
the holder of each outstanding Note affected thereby, no supplemental
indenture will: (i) change the due date of any installment of principal of
or interest on any such Note or reduce the principal amount thereof, the
Interest Rate specified thereon or the redemption price with respect
thereto or change any place of payment where, or the coin or currency in
which, any such Note or any interest thereon is payable; (ii) impair the
right to institute suit for the enforcement of certain provisions of the
related Indenture regarding payment; (iii) reduce the percentage of the
aggregate amount of the outstanding Notes of such series, 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 the related Indenture or of certain defaults thereunder and
their consequences as provided for in such Indenture; (iv) modify or alter
the provisions of the related Indenture regarding the voting of Notes held
by the applicable Trust, any other obligor on such Notes, the Seller or an
affiliate of any of them; (v) reduce the percentage of the aggregate
outstanding amount of such Notes, the consent of the holders of which is
required to direct the related Indenture Trustee to sell or liquidate the
Receivables; (vi) decrease the percentage of the aggregate principal amount
of such Notes required to amend the sections of the related Indenture which
specify the applicable percentage of aggregate principal amount of the
Notes of such series necessary to amend such Indenture or certain other
related agreements; or (vii) permit the creation of any lien ranking prior
to or on a parity with the lien of the related Indenture with respect to
any of the collateral for such Notes or, except as otherwise permitted or
contemplated in such Indenture, terminate the lien of such Indenture on any
such collateral or deprive the holder of any such Note of the security
afforded by the lien of such Indenture.
The Trust and the applicable Indenture Trustee may also enter into
supplemental indentures, without obtaining the consent of the Noteholders
of the related series, for the purpose of, among other things, adding any
provisions to or changing in any manner or eliminating any of the
provisions of the related Indenture or of modifying in any manner the
rights of such Noteholders; provided that such action will not adversely
affect in any material respect the interest of any such Noteholder, unless
the Rating Agency then rating the Notes shall have notified the Seller, the
Servicer and the Indenture Trustee in writing that such action will not
result in a reduction or withdrawal of the rating of the affected Notes of
such series.
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Events Of Default; Rights Upon Event of Default. With respect to the
Notes of a given series, "Events of Default" under the related Indenture
will consist of: (i) any failure to pay interest on the Notes as and when
the same becomes due and payable, which failure continues unremedied for
five days; (ii) any failure to make any required payment of principal on
the Notes; (iii) a default in the observance or performance in any material
respect of any covenant or agreement of the applicable Trust made in the
related Indenture, or any representation or warranty made by the applicable
Trust in the related Indenture or in any certificate delivered pursuant
thereto or in connection therewith having been incorrect as of the time
made, and the continuation of any such default or the failure to cure such
breach of a representation or warranty for a period of 30 days after there
shall have been given to such Trust by the applicable Indenture Trustee, or
to such Trust and such Indenture Trustee by the holders of at least 25% of
the aggregate outstanding principal balance of the Notes, a written notice
in accordance with the related Indenture; (iv) certain events of
bankruptcy, insolvency, receivership or liquidation with respect to the
Seller or the applicable Trust; and (v) failure to pay the unpaid principal
balance of any class of Notes on the respective Final Scheduled Payment
Date for such class. However, the amount of principal required to be paid
to Noteholders of such series under the related Indenture will generally be
limited to amounts available to be deposited in the applicable Note
Distribution Account. Therefore, the failure to pay principal on a class of
Notes generally will not result in the occurrence of an Event of Default
until the Final Scheduled Payment Date for such class of Notes.
If an Event of Default should occur and be continuing with respect to
the Notes of any series, the related Indenture Trustee or holders of a
majority in principal amount of such Notes then outstanding may declare the
principal of such Notes to be immediately due and payable. Such declaration
may, under certain circumstances, be rescinded by the holders of a
percentage of the principal amount of Notes then outstanding specified in
the related Prospectus Supplement and, if not so specified, may be
rescinded by the holder of a majority in principal amount of such Notes
then outstanding.
If the Notes of any series are due and payable following an Event
of Default with respect thereto, the related Indenture Trustee may institute
proceedings to collect amounts due or foreclose on Trust property, exercise
remedies as a secured party, sell the related Receivables or elect to have
the applicable Trust maintain possession of such Receivables and continue to
apply collections on such Receivables as if there had been no declaration of
acceleration. Such Indenture Trustee is prohibited from selling the related
Receivables following an Event of Default, other than a default in the
payment of any principal of or a default for five days or more in the payment
of any interest on any Note of such series, unless (i) the holders of all
such outstanding Notes and the holders of all outstanding certificates
consent to such sale, (ii) the proceeds of such sale are sufficient to pay in
full the principal of and the accrued interest on such outstanding Notes and
all outstanding Certificates on the date of such sale, or (iii) such
Indenture Trustee determines that the proceeds of Receivables would not be
sufficient on an ongoing basis to make all payments on such Notes as such
payments would have become due if such obligations had not been declared due
and payable, and such Indenture Trustee obtains the consent of the holders of
66-2/3% of the aggregate outstanding amount of such Notes and the holders of
100% of the aggregate outstanding amount of the Certificates.
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If an Event of Default occurs and is continuing with respect to a
series of Notes, such Indenture Trustee will be under no obligation to
exercise any of the rights or powers under such Indenture at the request or
direction of any of the holders of such Notes, if such Indenture Trustee
believes it will not be adequately indemnified against the costs, expenses
and liabilities which might be incurred by it in complying with such request
or direction. Subject to the provisions for indemnification and certain
limitations contained in the related Indenture, the holders of a majority in
principal amount of the outstanding Notes of a given series will have the
right to direct the time, method and place of conducting any proceeding or
any remedy available to the applicable Indenture Trustee, and the holders of
a majority in principal amount of such Notes then outstanding may, in certain
cases, waive any default with respect thereto, except a default in the
payment of principal or interest or a default in respect of a covenant or
provision of such Indenture that cannot be modified without the waiver or
consent of all the holders of such outstanding Notes.
No holder of a Note of any series will have the right to institute
any proceeding with respect to the related Indenture, unless (i) such holder
previously has given to the applicable Indenture Trustee written notice of a
continuing Event of Default, (ii) the holders of not less than 25% in
principal amount of the outstanding Notes of such series have made written
request to such Indenture Trustee to institute such proceeding in its own
name as Indenture Trustee, (iii) such holder or holders have offered such
Indenture Trustee satisfactory indemnity, (iv) such Indenture Trustee has for
60 days failed to institute such proceeding, and (v) no direction
inconsistent with such written request has been given to such Indenture
Trustee during such 60-day period by the holders of a majority in principal
amount of such outstanding Notes.
With respect to any Trust, neither the related Indenture Trustee nor
the related Trustee in its individual capacity, nor any holder of a
Certificate representing an ownership interest in such Trust nor any of their
respective owners, beneficiaries, agents, officers, directors, employees,
affiliates, successors or assigns will, in the absence of an express
agreement to the contrary, be personally liable for the payment of the
principal of or interest on the related Notes or for the agreements of such
Trust contained in the applicable Indenture.
Certain Covenants
Each Indenture will provide that the related Trust may not
consolidate with or merge into any other entity, unless (i) the entity formed
by or surviving such consolidation or merger is organized under the laws of
the United States or any state, (ii) such entity expressly assumes such
Trust's obligation to make due and punctual payments upon the Notes of the
related series and the performance or observance of every agreement and
covenant of such Trust under the Indenture, (iii) no Event of Default shall
have occurred and be continuing immediately after such merger or
consolidation, (iv) such Trust has been advised that the rating of the Notes
or the Certificates of such series then in effect would not be reduced or
withdrawn by the Rating Agency as a result of such merger or consolidation,
(v) such Trust has received an opinion of counsel to the effect that such
consolidation or merger would have no material adverse tax consequence to the
Trust or to any related Noteholder or Certificateholder, and (vi) any action
necessary to maintain the lien and security interest under the Indenture has
been taken.
Each Trust will not, among other things, (i) except as expressly
permitted by the applicable Indenture, the applicable Transfer and
Servicing Agreements or certain related documents with respect to such
Trust (collectively, the "Related Documents"), sell, transfer, exchange or
otherwise dispose of any of the assets of such Trust, (ii) claim any credit
on or make any deduction from the principal and interest payable in respect
of the Notes of the related series (other than amounts withheld under the
Code or applicable state law) or assert any claim against any present or
former holder of such Notes because of the payment of taxes levied or
assessed upon such Trust, (iii) permit the validity or effectiveness of the
related Indenture to be impaired or permit any person to be released from
any covenants or obligations with respect to such Notes under such
Indenture except as may be expressly permitted thereby, (iv) permit any
lien, charge, excise, claim, security interest, mortgage or other
encumbrance (other than certain liens that arise by operation of law) to be
created on or extend to or otherwise arise upon or burden the assets of
such Trust or any part thereof, or any interest therein or the proceeds
thereof, or (v) permit the lien of the related Indenture not to constitute a
valid first priority (other than certain liens that arise by operation of law)
security interest in the assets of such Trust.
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No Trust may engage in any activity other than as specified under the
section of the related Prospectus Supplement entitled "The Trust." No Trust
will incur, assume or guarantee any indebtedness other than indebtedness
incurred pursuant to the related Notes and the related Indenture or
otherwise in accordance with the Related Documents.
Satisfaction and Discharge of Indenture. An Indenture will be
discharged with respect to the collateral securing the related Notes upon
the delivery to the related Indenture Trustee for cancellation of all such
Notes or, with certain limitations, upon deposit with such Indenture
Trustee of funds sufficient for the payment in full of all such Notes.
The Indenture Trustee
The Indenture Trustee for a series of Notes will be specified in the
related Prospectus Supplement. The Indenture Trustee for any series may
resign at any time, in which event the issuer with respect to each series
of Securities (the "Issuer") will be obligated to appoint a successor
trustee for such series. The Issuer may also remove any such Indenture
Trustee if such Indenture Trustee ceases to be eligible to continue as such
under the related Indenture or if such Indenture Trustee becomes insolvent.
In such circumstances, the Issuer will be obligated to appoint a successor
trustee for the applicable series of Notes. Any resignation or removal of
the Indenture Trustee and appointment of a successor trustee for any series
of Notes does not become effective until acceptance of the appointment by
the successor trustee for such series.
DESCRIPTION OF THE CERTIFICATES
General
With respect to each Trust, one or more classes of Certificates of
the related series will be issued pursuant to the terms of a Trust
Agreement or a Pooling and Servicing Agreement, a form of each of which has
been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. The following summary describes the material terms
and provisions of Certificates and the Trust Agreement or the Pooling and
Servicing Agreement, as applicable, but it does not purport to be complete
and is subject to, and is qualified by reference to, all the provisions of
the Certificates and the Trust Agreement or Pooling and Servicing
Agreement, as applicable.
Except for the Certificates, if any, of a given series purchased by
the Seller, each class of Certificates will initially be represented by one
or more Certificates registered in the name of the Depository, except as
set forth below. See "Certain Information Regarding the Securities --
Definitive Securities." Except for the Certificates, if any, of a given
series purchased by the Seller, the Certificates will be available for
purchase in minimum denominations specified in the related Prospectus
Supplement, or if not so specified, in denominations of $1,000 and integral
multiples of $1,000 in excess thereof. Certificates may be issued in
book-entry form or as Definitive Certificates and if not otherwise
specified in the related Prospectus Supplement will be available in
book-entry form only. As to the Certificates issued in book-entry form, the
Seller has been informed by DTC that DTC's nominee will be Cede, unless
another nominee is specified in the related Prospectus Supplement.
Accordingly, such nominee is expected to be the holder of record of the
Certificates of any series that are not purchased by the Seller. Unless and
until Definitive Certificates are issued in replacement for book-entry
Certificates under the limited circumstances described herein or in the
related Prospectus Supplement, no beneficial owner of Certificates (each a
"Certificate Owner") (other than the Seller) will be entitled to receive a
physical certificate representing a Certificate. See "Certain Information
Regarding the Securities -- Definitive Securities." As to Certificates
issued in book-entry form, all references herein and in the related
Prospectus Supplement to actions by Certificateholders refer to actions
taken by DTC upon instructions from the Participants and all references
herein and in the related Prospectus Supplement to distributions, notices,
reports and statements to Certificateholders refer to distributions,
notices, reports and statements to DTC or its nominee, as the case may be,
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as the registered holder of the Certificates, for distribution to
Certificateholders in accordance with DTC's procedures with respect thereto.
See "Certain Information Regarding the Securities -- Book-Entry Registration"
and "-- Definitive Securities." Any Certificates of such series owned by the
Seller or its affiliates will be entitled to equal and proportionate benefits
under the applicable Trust Agreement, except that such Certificates will be
deemed not to be outstanding for the purpose of determining whether the
requisite percentage of Certificateholders have given any request, demand,
authorization, direction, notice, consent or other action under the Related
Documents (other than the commencement by the related Trust of a voluntary
proceeding in bankruptcy as described under "Description of the Transfer and
Servicing Agreements--Insolvency Event").
Distributions of Principal and Interest
The timing and priority of distributions, seniority, allocations of
losses, Certificate Rate and amount of or method of determining
distributions with respect to principal and interest of each class of
Certificates will be described in the related Prospectus Supplement.
Distributions of interest on such Certificates other than certain Strip
Certificates will be made on the dates specified in the related Prospectus
Supplement (each, a "Payment Date") and will be made prior to distributions
with respect to principal of such Certificates. To the extent provided in
the related Prospectus Supplement, a series may include one or more classes
of Certificates ("Strip Certificates," and, together with Strip Notes,
"Strip Securities") entitled to (i) distributions in respect of principal
with disproportionate, nominal or no interest distributions, or (ii)
interest distributions with disproportionate, nominal or no distributions
in respect of principal. Each class of Certificates may have a different
Certificate Rate, which may be a fixed, variable or adjustable Certificate
Rate (and which may be zero for certain classes of Strip Certificates) or
any combination of the foregoing. The related Prospectus Supplement will
specify the Certificate Rate for each class of Certificates of a given
series or the method for determining such Certificate Rate. See also
"Certain Information Regarding the Securities--Fixed Rate Securities" and
"--Floating Rate Securities." If a series of Securities includes classes of
Notes, such Notes and Certificates will be issued by the same Trust and
payable from the same Trust property, to the extent specified in the
related Prospectus Supplement, distributions in respect of the Certificates
of such series will be subordinate to payments in respect of the Notes of
such series to the extent provided in the related Prospectus Supplement.
Distributions in respect of interest on and principal of any class of
Certificates will be made on a pro rata basis among all the
Certificateholders of such class.
In the case of a series of Certificates which includes two or more
classes of Certificates, the timing, sequential order, priority of payment
or amount of distributions in respect of interest and principal, and any
schedule or formula or other provisions applicable to the determination
thereof, of each such class shall be as set forth in the related Prospectus
Supplement.
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To the extent specified in the related Prospectus Supplement, the
principal amount of Certificates outstanding at any time may be reduced to
reflect losses on the Receivables experienced prior to such time.
CERTAIN INFORMATION REGARDING THE SECURITIES
Fixed Rate Securities
Each class of Securities (other than certain classes of Strip Notes
or Strip Certificates) may bear interest at a fixed rate per annum ("Fixed
Rate Securities") or at a variable or adjustable rate per annum ("Floating
Rate Securities"), as more fully described below and in the related
Prospectus Supplement. Each class of Fixed Rate Securities will bear
interest at the applicable per annum Interest Rate or Certificate Rate, as
the case may be, specified in the related Prospectus Supplement. Interest
on each class of Fixed Rate Securities will be computed on the basis of a
360-day year of twelve 30-day months or on such other day count basis as is
specified in the applicable Prospectus Supplement. See "Description of the
Notes--Principal and Interest on the Notes" and "Description of the
Certificates-- Distributions of Principal and Interest."
Floating Rate Securities
Each class of Floating Rate Securities will bear interest for each
applicable Interest Reset Period (as such term is defined in the related
Prospectus Supplement with respect to a class of Floating Rate Securities,
"Interest Reset Period") at a rate per annum determined by reference to an
interest rate basis (the "Base Rate"), plus or minus the Spread, if any, or
multiplied by the Spread Multiplier, if any, in each case as specified in
the related Prospectus Supplement. The "Spread" is the number of basis
points (one basis point equals one-hundredth of a percentage point) that may
be specified in the applicable Prospectus Supplement as being applicable to
such class, and the "Spread Multiplier" is the percentage that may be specified
in the applicable Prospectus Supplement as being applicable to such class.
The applicable Prospectus Supplement will designate a Base Rate for a
given Floating Rate Security based on the London interbank offered rate
("LIBOR"), commercial paper rates, Federal funds rates, U.S. Government
treasury securities rates, negotiable certificates of deposit rates or
another rate as set forth in such Prospectus Supplement.
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As specified in the applicable Prospectus Supplement, Floating Rate
Securities of a given class may also have either or both of the following
(in each case expressed as a rate per annum): (i) a maximum limitation, or
ceiling, on the rate at which interest may accrue during any interest
period and (ii) a minimum limitation, or floor, on the rate at which
interest may accrue during any interest period. In addition to any maximum
interest rate that may be applicable to any class of Floating Rate
Securities, the interest rate applicable to any class of Floating Rate
Securities will in no event be higher than the maximum rate permitted by
applicable law, as the same may be modified by United States law of general
application.
Each Trust with respect to which a class of Floating Rate Securities
will be issued will appoint, and enter into agreements with, a calculation
agent (each, a "Calculation Agent") to calculate interest rates on each
such class of Floating Rate Securities issued with respect thereto. The
applicable Prospectus Supplement will set forth the identity of the
Calculation Agent for each such class of Floating Rate Securities of a
given series, which may be either the Trustee or Indenture Trustee with
respect to such series. All determinations of interest by the Calculation
Agent shall, in the absence of manifest error, be conclusive for all
purposes and binding on the holders of Floating Rate Securities of a given
class. All percentages resulting from any calculation of the rate of
interest on a Floating Rate Security will be rounded, if necessary, in the
manner specified in the related Prospectus Supplement or, if not so
specified to the nearest 1/100,000 of 1% (.0000001), with five
one-millionths of a percentage point rounded upward.
Book-Entry Registration
With respect to each class of Securities of a given series issued in
book-entry form, Securityholders may hold their Securities through DTC (in
the United States) or Cedel or Euroclear (in Europe) if they are
participants of such systems, or indirectly through organizations that are
participants in such systems. DTC's Nominee will hold the global
Securities. Cedel and Euroclear will hold omnibus positions on behalf of
the Cedel Participants and the Euroclear Participants, respectively,
through customers' securities accounts in Cedel's and Euroclear's names on
the books of their respective depositories (collectively, the
"Depositaries") which in turn will hold such positions in customers'
securities accounts in the Depositaries' names on the books of DTC. For
additional information regarding clearance and settlement procedures see
Annex I hereto.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC holds securities for its Participants ("DTC
Participants") and facilitates the clearance and settlement among DTC
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic book-entry changes in DTC
Participants' accounts, thereby eliminating the need for physical movement
of securities certificates. DTC Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to the DTC system is also available to
others such as securities brokers and dealers, banks, and trust companies
that clear through or maintain a custodial relationship with a DTC
Participant, either directly or indirectly ("Indirect Participants"). The
rules applicable to DTC and DTC Participants are on file with the
Securities and Exchange Commission.
Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between Cedel Participants and Euroclear Participants will
occur in the ordinary way in accordance with their applicable rules and
operating procedures.
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Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in
DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by its Depositary; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in
accordance with its rules and procedures and within its established
deadlines (European time). The relevant European international clearing
system will, if the transaction meets its settlement requirements, deliver
instructions to its Depositary to take action to effect final settlement on
its behalf by delivering or receiving securities in DTC, and making or
receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Cedel Participants and Euroclear Participants
may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business
day following the DTC settlement date, and such credits or any transactions
in such securities settled during such processing will be reported to the
relevant Cedel Participant or Euroclear Participant on such business day.
Cash received in Cedel or Euroclear as a result of sales of securities by
or through a Cedel Participant or a Euroclear Participant to a DTC
Participant will be received with value on the DTC settlement date but will
be available in the relevant Cedel or Euroclear cash account only as of the
business day following settlement in DTC.
Purchases of Securities under the DTC system must be made by or
through DTC Participants, which will receive a credit for the Securities on
DTC's records. The ownership interest of each actual Security Owner is in
turn to be recorded on the DTC Participants' and Indirect Participants'
records. Security Owners will not receive written confirmation from DTC of
their purchase, but Security Owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the DTC Participant or Indirect
Participant through which the Security Owner entered into the transaction.
Transfers of ownership interests in the Securities are to be accomplished
by entries made on the books of DTC Participants acting on behalf of
Security Owners. Security Owners will not receive certificates representing
their ownership interest in Securities, except in the event that use of the
book-entry system for the Securities is discontinued. Except to the extent
Seller holds Certificates with respect to any series of Securities, it is
anticipated that the only "Securityholder", "Noteholder" and
"Certificateholder" will be DTC's Nominee. Note Owners will not be
recognized by each Indenture Trustee as Noteholders, as such term is used
in each Indenture, and Note Owners will be permitted to exercise the rights
of Noteholders only indirectly through DTC and DTC Participants. Similarly,
Certificate Owners will not be recognized by each Trustee as
Certificateholders as such term is used in each Trust Agreement or Pooling
and Servicing Agreement, and Certificate Owners will be permitted to
exercise the rights of Certificateholders only indirectly through DTC and
DTC Participants.
To facilitate subsequent transfers, all Securities deposited by DTC
Participants with DTC are registered in the name of DTC's Nominee. The
deposit of Securities with DTC and their registration in the name of DTC's
Nominee effects no change in beneficial ownership. DTC has no knowledge of
the actual Security Owners of the Securities; DTC's records reflect only
the identity of the DTC Participants to whose accounts such Securities are
credited, which may or may not be the Security Owners. The DTC Participants
will remain responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by DTC to DTC
Participants, by DTC Participants to Indirect Participants, and by DTC
Participants and Indirect Participants to Security Owners will be governed
by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
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Neither DTC nor DTC's Nominee will consent or vote with respect to
Securities. Under its usual procedures, DTC mails an omnibus proxy to the
issuer as soon as possible after the record date, which assigns DTC's
Nominee's consenting or voting rights to those DTC Participants to whose
accounts the Securities are credited on the record date (identified in a
listing attached thereto).
Principal and interest payments on the Securities will be made to
DTC. DTC's practice is to credit Participants' accounts on the applicable
Payment Date in accordance with their respective holdings shown on DTC's
records unless DTC has reason to believe that it will not receive payment
on such Payment Date. Payments by DTC Participants to Security Owners will
be governed by standing instructions and customary practices, as
is the case with securities held for the accounts of customers in bearer
form or registered in "street name" and will be the responsibility of such
DTC Participant and not of DTC, the related Indenture Trustee or the
related Trustee, as applicable or the Seller, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
principal and interest to DTC is the responsibility of the applicable
Trustee, disbursement of such payments to DTC Participants shall be the
responsibility of DTC, and disbursement of such payments to Security Owners
shall be the responsibility of DTC Participants and Indirect Participants.
Under a book-entry format, Securityholders may experience some delay in
their receipt of payments, since such payments will be forwarded by the
applicable Trustee to DTC's Nominee. DTC will forward such payments to DTC
Participants which thereafter will forward them to Indirect Participants or
Security Owners.
Because DTC can only act on behalf of DTC Participants, who in turn
act on behalf of Indirect Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons or entities that do not
participate in the DTC system, or otherwise take actions with respect to
such Securities, may be limited due to the lack of a physical certificate
for such Securities.
DTC has advised the Seller that it will take any action permitted to
be taken by a Noteholder under the related Indenture or a Certificateholder
under the related Trust Agreement or Pooling and Servicing Agreement only
at the direction of one or more DTC Participants to whose accounts with DTC
the applicable Notes or Certificates are credited. DTC may take conflicting
actions with respect to other undivided interests to the extent that such
actions are taken on behalf of Participants whose holdings include such
undivided interests.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that the Seller believes to be
reliable, but the Seller takes no responsibility for the accuracy thereof.
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Cedel Bank, societe anonyme ("Cedel") is incorporated under the laws
of Luxembourg as a professional depository. Cedel holds securities for its
participating organizations ("Cedel Participants") and facilitates the
clearance and settlement of securities transactions between Cedel
Participants through electronic book-entry changes in accounts of Cedel
Participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Cedel in any of 32 currencies,
including United States dollars. Cedel provides to its Cedel Participants,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. Cedel interfaces with domestic markets in several countries. As
a professional depository, Cedel is subject to regulation by the Luxembourg
Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers
and dealers, banks, trust companies, clearing corporations and certain
other organizations and may include the underwriters of any series of
Securities. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a Cedel Participant, either directly or
indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to
clear and settle transactions between Euroclear Participants through
simultaneous electronic book-entry delivery against payment, thereby
eliminating the need for physical movement of certificates and any risk
from lack of simultaneous transfers of securities and cash. Transactions
may now be settled in any of 32 currencies, including United States
dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in 25
countries generally similar to the arrangements for cross-market transfers
with DTC described above. The Euroclear System is operated by Morgan
Guaranty Trust Company of New York, Brussels, Belgium office (the
"Euroclear Operator" or "Euroclear"), under contract with Euroclear
Clearance System, Societe Cooperative, a Belgian cooperative corporation
(the "Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear
cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative Board establishes policy for the Euroclear
System. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial
intermediaries and may include the underwriters of any series of
Securities. Indirect access to the Euroclear System is also available to
other firms that maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
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The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such,
it is regulated and examined by the Board of Governors of the Federal
Reserve System and the New York State Banking Department, as well as the
Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear System
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments
with respect to securities in the Euroclear System. All securities in the
Euroclear System are held on a fungible basis without attribution of
specific certificates to specific securities clearance accounts. The
Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions with respect to Securities held through Cedel or
Euroclear will be credited to the cash accounts of Cedel Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions
will be subject to tax reporting in accordance with relevant United States
tax laws and regulations. See "Material Federal Income Tax Consequences."
Cedel or the Euroclear Operator, as the case may be, will take any other
action permitted to be taken by a Securityholder under a related Agreement
on behalf of a Cedel Participant or Euroclear Participant only in
accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect such actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Securities among
participants of DTC, Cedel and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time. Under such circumstances, in the event that a
successor securities depository for DTC is not obtained, Definitive
Securities are required to be printed and delivered. The Seller may decide
to discontinue use of the system of book-entry transfers through DTC (or a
successor securities depository). In that event, Definitive Securities will
be delivered to Securityholders. See "--Definitive Securities."
NONE OF THE TRUST, THE SELLER, PARAGON, THE SERVICER, ANY
SUBSERVICER, ANY APPLICABLE TRUSTEE NOR ANY OF THE UNDERWRITERS WILL HAVE
ANY RESPONSIBILITY OR OBLIGATION TO ANY DTC PARTICIPANTS, CEDEL
PARTICIPANTS OR EUROCLEAR PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS
NOMINEES WITH RESPECT TO (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC,
CEDEL, EUROCLEAR OR ANY PARTICIPANT, (2) THE PAYMENT BY DTC, CEDEL,
EUROCLEAR OR ANY PARTICIPANT OF ANY AMOUNT DUE TO ANY SECURITY OWNER IN
RESPECT OF THE PRINCIPAL BALANCE OF, OR INTEREST ON, THE SECURITIES, (3)
THE DELIVERY BY ANY DTC PARTICIPANT, CEDEL PARTICIPANT, OR EUROCLEAR
PARTICIPANT OF ANY NOTICE TO ANY SECURITY OWNER WHICH IS REQUIRED OR
PERMITTED UNDER THE TERMS OF THE APPLICABLE AGREEMENTS TO BE GIVEN TO
SECURITYHOLDERS OR (4) ANY OTHER ACTION TAKEN BY DTC OR DTC'S NOMINEE AS
THE SECURITYHOLDER.
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Definitive Securities
With respect to any series of Notes and any series of Certificates
issued in book-entry form, such Notes or Certificates will be issued in
fully registered, certificated form ("Definitive Notes" and "Definitive
Certificates", respectively, and collectively referred to herein as
"Definitive Securities") to Noteholders or Certificateholders or their
respective nominees, rather than to DTC or its nominee, if the related
Prospectus Supplement so provides with respect to the initial issuance of
any such Securities thereunder and, if the related Prospectus Supplement
does not so provide, only if (i) Seller advises the related Trustee that
DTC is no longer willing or able to discharge properly its responsibilities
as depository with respect to such Securities and such Trustee is unable to
locate a qualified successor, (ii) the Seller at its option, advises the
related Trustee that it elects to terminate the book-entry system through
DTC, or (iii) after the occurrence of an Event of Default or a Servicer
Termination Event with respect to such Securities, holders representing at
least a majority of the outstanding principal amount of the Notes or the
Certificates, as the case may be, of such series advise the applicable
Trustee and DTC through its Participants in writing that the continuation
of a book-entry system through DTC (or a successor thereto) with respect to
such Notes or Certificates is no longer in the best interest of the holders
of such Securities.
Upon the occurrence of any event described in the immediately
preceding paragraph, the applicable Trustee will be required to notify all
applicable Security Owners of a given series through Participants of the
availability of Definitive Securities. Upon surrender by DTC of the
definitive certificates representing the corresponding Securities and
receipt of instructions for re-registration, the applicable Trustee will
reissue such Securities as Definitive Securities to such Securityholders.
Distributions of principal of, and interest on, Definitive Securities
will be made by the applicable Trustee in accordance with the procedures
set forth in the related Indenture or the related Trust Agreement or
Pooling and Servicing Agreement, as applicable, directly to holders of
Definitive Securities in whose names the Definitive Securities were
registered at the close of business on the applicable record date specified
for such Securities in the related Prospectus Supplement. Such
distributions will be made by check mailed to the address of such holder as
it appears on the register maintained by the applicable Trustee. The final
payment on any such Definitive Security, however, will be made only upon
presentation and surrender of such Definitive Security at the office or
agency specified in the notice of final distribution to the applicable
Securityholders.
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Definitive Securities will be transferable and exchangeable at the
offices of the applicable Trustee or of a registrar named in a notice
delivered to holders of Definitive Securities. No service charge will be
imposed for any registration of transfer or exchange, but the applicable
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith.
List of Securityholders
Three or more holders of Notes of a given series or one or more
holders of such Notes evidencing not less than 25% of the aggregate
outstanding principal balance of such Notes may, by written request to the
related Indenture Trustee, obtain access to the list of all Noteholders of
such series maintained by such Indenture Trustee for the purpose of
communicating with other Noteholders with respect to their rights under the
related Indenture or under such Notes. Unless Definitive Notes have been
issued, the only "Noteholder" appearing on the list maintained by the
related Indenture Trustee will be Cede, as nominee for DTC. In such
circumstances, any Note Owner wishing to communicate with other Note Owners
will not be able to identify those Note Owners through the Indenture
Trustee and instead will have to attempt to identify them through DTC and
its Participants or such other means as such Note Owner may find available.
Three or more holders of Notes of a given series or one or more
holders of such Certificates evidencing not less than 25% of the
Certificate Balance of such Certificates may, by written request to the
related Trustee, obtain access to the list of all Certificateholders of
such series maintained by such Trustee for the purpose of communicating
with other Certificateholders with respect to their rights under the
related Trust Agreement or Pooling and Servicing Agreement or under such
Certificates. Unless Definitive Certificates have been issued, the only
"Certificateholder" appearing on the list maintained by the related Trustee
will be Cede, as nominee for DTC. In such circumstances, any Certificate
Owner wishing to communicate with other Certificate Owners will not be able
to identify those Certificate Owners through the Trustee and instead will
have to attempt to identify them through DTC and its Participants or such
other means as such Certificate Owner may find available.
Reports to Securityholders
With respect to each series of Securities, on or prior to each
Payment Date, the Servicer will prepare and provide to the related Trustee
a statement to be delivered to the related Securityholders. With respect to
each series of Securities, each such statement to be delivered to
Noteholders will include (to the extent applicable) the following
information (and any other information so specified in the related
Prospectus Supplement) as to the Notes of such series with respect to such
Payment Date or the period since the previous Payment Date, as applicable,
and each such statement to be delivered to Certificateholders will include
(to the extent applicable) the following information (and any other
information so specified in the related Prospectus Supplement) as to the
Certificates of such series with respect to such Payment Date or the period
since the previous Payment Date, as applicable:
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(i) the amount of the distribution allocable to interest on
or with respect to each class of Securities of such series;
(ii) the amount of the distribution allocable to principal of
each class of Securities of such series;
(iii) the amount of the distribution allocable to draws from
the Reserve Account (if any), any Yield Supplement Account or
payments in respect of any other credit or cash flow enhancement
arrangement;
(iv) the balance of any Yield Supplement Account or the
Reserve Account (if any) on such date, after giving effect to changes
therein on such date;
(v) the amount of fees paid by the Trust with respect to such
Collection Period;
(vi) the aggregate outstanding principal balance and the Note
Pool Factor for each class of such Notes, and the Certificate Balance
and the Certificate Pool Factor for each class of such Certificates,
each after giving effect to all payments reported under clause (ii)
above on such date;
(vii) the Noteholders' Interest Carryover Shortfall, the
Noteholders' Principal Carryover Shortfall, the Certificateholders'
Interest Carryover Shortfall and the Certificateholders' Principal
Carryover Shortfall (each as defined in the related Prospectus
Supplement), if any, in each case as applicable to each class of
Securities, and the change in such amounts from the preceding
statement;
(viii) the Interest Rate or Certificate Rate for the next
period for any class of Notes or Certificates of such series with
variable or adjustable rates;
(ix) for each such date during the Funding Period (if any),
the remaining Pre-Funded Amount;
(x) for the first such date that is on or immediately
following the end of the Funding Period (if any), the amount of any
remaining Pre-Funded Amount that has not been used to fund the
purchase of Subsequent Receivables and is being passed through as
payments of principal on the Securities of such series;
(xi) to the extent provided in the related Prospectus
Supplement, the amount of advances made by the Servicer, if any, on
such date; and
(xii) such other information as may be specified in the
related Prospectus Supplement.
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Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of each Trust, the applicable
Trustee will mail to each person who at any time during such calendar year
has been a Securityholder with respect to such Trust and received any
payment thereon a statement containing certain information for the purposes
of such Securityholder's preparation of federal income tax returns. See
"Material Federal Income Tax Consequences."
Funding Period or Revolving Period
If specified in the related Prospectus Supplement, during a Funding
Period and/or Revolving Period, the Pre-Funding Account and/or Revolving
Account will be maintained as a trust account in the name of the applicable
Trustee. The Pre-Funded Amount will initially equal the amount specified in
the related Prospectus Supplement, which may be up to 100% of the aggregate
principal amount of the series of Securities offered thereunder. During the
Funding Period, the Pre-Funded Amount will be reduced by the amount thereof
used to purchase Subsequent Receivables in accordance with the applicable
Transfer and Servicing Agreement and the amounts thereof deposited in the
Reserve Account in connection with the purchase of such Subsequent
Receivables.
Prior to being used to purchase Subsequent Receivables or paid to the
Noteholders and Certificateholders, the Pre-Funded Amount and amounts on
deposit in the Revolving Account will be invested from time to time in
Permitted Investments. See "Description of the Transfer and Servicing
Agreements--Accounts."
If the initial Pre-Funded Amount exceeds 25% of the aggregate
proceeds from the sale of Securities, the actual investments of the
Pre-Funding Amount as of the end of each month will be provided in Current
Reports on Form 8-K to be filed by the Seller with respect to the
applicable Trust.
If specified in the related Prospectus Supplement for a Trust that
issues Notes, during a Revolving Period, the applicable Trustee will
deposit in the related Revolving Account the principal collections on the
related Receivables as described above. In addition, on each Payment Date
during the Revolving Period, the applicable Trustee will deposit in the
related Revolving Account any other amount described in the related
Prospectus Supplement. Funds on deposit in a Revolving Account will be
withdrawn from time to time during the related Revolving Period for
delivery to the Seller in exchange for the transfer and assignment of
Subsequent Receivables to the related Trust in the manner specified in the
related Prospectus Supplement. In addition, on the Payment Date following
the end of the related Revolving Period, the applicable Trustee will
transfer the amount, if any, on deposit in the related Revolving Account at
the close of business on the last day of such Revolving Period, less any
investment earnings on deposit therein, to the related Collection Account
for distribution to the related Securityholders on such Payment Date. In
addition, on each Payment Date during the related Revolving Period, the
applicable Trustee will transfer to the related Collection Account for
distribution to the related Securityholders on such Payment Date the
amount, if any, by which the amount on deposit in the related Revolving
Account at the close of business on the last day of the preceding calendar
month, less any investment earnings on deposit therein, exceeds the maximum
permitted Revolving Account balance specified in the related Prospectus
Supplement.
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DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes the material terms of each Sale and
Servicing Agreement between the Seller, the Servicer and the Trust (as
amended and supplemented from time to time, the "Sale and Servicing
Agreement") or Pooling and Servicing Agreement between the Seller, the
Servicer and the Trustee (as amended and supplemented from time to time,
the "Pooling and Servicing Agreement" and, together with the Sale and
Servicing Agreement, each a "Transfer and Servicing Agreement") pursuant to
which a Trust will purchase Receivables from the Seller and the Servicer
will agree to service such Receivables and each Trust Agreement (in the
case of a grantor trust, the Pooling and Servicing Agreement) pursuant to
which a Trust will be created and Certificates will be issued and pursuant
to which the Trustee will undertake certain administrative duties with
respect to a Trust that issues Notes. Forms of each type of the Transfer
and Servicing Agreements and the Trust Agreement have been filed as
exhibits to the Registration Statement of which this Prospectus forms a
part. This summary does not purport to be complete and is subject to, and
qualified by reference to, all the provisions of the Transfer and Servicing
Agreements and the Trust Agreement.
Sale and Assignment of Receivables
Prior to or at the time of issuance of the Securities of a given
Trust, pursuant to a related Purchase Agreement, Paragon will sell and
assign to the Seller, without recourse, its entire interest in the Initial
Receivables, of the related Receivables Pool, including its security
interests in the related Financed Vehicles. The Seller will, if so
specified in the related Prospectus Supplement, transfer and assign to the
applicable Trustee, without recourse, pursuant to a Transfer and Servicing
Agreement, its entire interest in the Initial Receivables, if any, of the
related Receivables Pool, including its security interests in the related
Financed Vehicles. The Trustee will not independently verify the existence
and qualification of any Receivables. The Trustee will, concurrently with
such sale and assignment, execute, authenticate, and deliver the related
Notes and/or Certificates to the Seller in exchange for the Receivables.
Each such Receivable will be identified in a schedule delivered pursuant to
such Transfer and Servicing Agreement (a "Schedule of Receivables"). The
net proceeds received by the Seller from the sale of the Certificates and
the Notes of a given series will be applied to the purchase of the related
Receivables from Paragon and, to the extent specified in the related
Prospectus Supplement, to the repayment of any Warehouse Financing or
deposit of the Pre-Funded Amount into the Pre-Funding Account and to make
any required initial deposit in any Reserve Account. The related Prospectus
Supplement for a given Trust will specify whether, and the terms,
conditions and manner under which, Subsequent Receivables will be sold by
the Seller to the applicable Trust from time to time during any Funding
Period on each date specified as a transfer date in the related Prospectus
Supplement (each, a "Subsequent Transfer Date").
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The purchase price for the Receivables purchased by the Trust from
the Seller and by the Seller from Paragon may be more or less than the
aggregate principal balance thereof. If any Receivables are purchased for a
purchase price less than their respective principal balances, a portion of
the collections or proceeds in respect of principal from such Receivables
may be deemed collections or proceeds in respect of interest on such
Receivables for the purposes of allocating distributions on the Securities.
If so specified in the related Prospectus Supplement, a Trust may
acquire Initial Receivables pursuant to Warehouse Financing arrangements
entered into prior to the issuance by that Trust of any Securities offered
hereby. It will be a condition to the issuance of Securities by any such
Trust that any Warehouse Financing with respect to the Pool Receivables be
repaid in full, and any related security interests released, at or prior to
the time of such issuance.
In each Purchase Agreement, Paragon will represent and warrant to the
Seller and in each Transfer and Servicing Agreement, the Seller will
represent and warrant to the applicable Trust, among other things:
(i) as of the Closing Date, the information provided in the
schedule to the Sale and Servicing Agreement with respect to the
Receivables is correct in all material respects; (ii) as of the Cutoff Date
or the applicable Subsequent Transfer Date, if any, the Receivables are
free and clear of all liens or claims existing or that have been filed for
work, labor, storage or materials that are liens prior to the security
interest in the Financed Vehicle granted by the Receivables and no right of
setoff, counterclaim or rescission has been asserted or threatened with
respect to the Receivables; (iii) at the date of issuance of the
Securities, each of the Receivables is secured by (or will be when all
necessary steps have been taken to result in) a first priority perfected
security interest in the Financed Vehicle in favor of Paragon; (iv) none of
the Receivables contravenes in any material respects any requirements of
applicable federal, state and local laws, including consumer credit, truth
in lending, equal credit opportunity and disclosure laws; and (v) any other
representations and warranties that may be described in the related
Prospectus Supplement.
As of the last day of the month that includes the sixtieth day (or if
the Seller elects, earlier) following the discovery by or notice to the
Seller of a breach of any representation or warranty of the Seller that
materially and adversely affects the interests of the related Trust in any
Receivable, the Seller, unless the breach is cured, will repurchase such
Receivable from such Trust at a price equal to the amount of principal plus
accrued interest calculated in accordance with the Servicer's customary
practices for such Receivable, after giving effect to the receipt of any
moneys collected (from whatever source) on such Receivable, if any (the
"Purchase Amount"). The repurchase obligation constitutes the sole remedy
available to the Certificateholders or the Trustee and any Noteholders or
Indenture Trustee in respect of such Trust for any such uncured breach.
Unless otherwise specified in the related Prospectus Supplement, to
assure uniform quality in servicing the Receivables and to reduce
administrative costs, the Seller and each Trust will designate the Servicer
or Paragon as custodian to maintain possession, as such Trust's agent, of
the related motor vehicle retail installment sales contract or promissory
note and security agreement and any other documents relating to the
Receivables. The Receivables will not be segregated, stamped or otherwise
marked to indicate that they have been sold to the related Trust. The
accounting records and computer systems of Paragon, the Servicer and the
Seller will reflect the sales and assignments of the related Receivables to
the Seller or a Trust, as applicable, and Uniform Commercial Code ("UCC")
financing statements reflecting such sales and assignments will be filed.
If through inadvertence or otherwise, another party purchases (or takes a
security interest in) the Receivables for new value in the ordinary course
of business and takes possession of the Receivables without actual
knowledge of the related Trust's interest, the purchaser (or secured party)
will acquire an interest in the Receivables superior to the interest of the
related Trust. See "Certain Legal Aspects of the Receivables--Security
Interest in Vehicles."
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Accounts
With respect to each Trust that issues Notes, the Servicer will
establish and maintain with the related Indenture Trustee one or more
accounts, in the name of the Indenture Trustee on behalf of the related
Noteholders and Certificateholders, into which all payments made on or with
respect to the related Receivables will be deposited (the "Collection
Account"). The Servicer will establish and maintain with such Indenture
Trustee an account, in the name of such Indenture Trustee on behalf of such
Noteholders, into which amounts released from the Collection Account and
any Pre-Funding Account, Revolving Account, Reserve Account or other credit
enhancement for payment to such Noteholders will be deposited and from
which all distributions to such Noteholders will be made (the "Note
Distribution Account"). The Servicer will establish and maintain with the
related Trustee one or more accounts, in the name of such Trustee on behalf of
such Certificateholders, into which amounts released from the Collection
Account and any Pre-Funding Account, Revolving Account, Reserve Account or
other credit or cash flow enhancement for distribution to such
Certificateholders will be deposited and from which all distributions to such
Certificateholders will be made (each, a "Certificate Distribution Account").
With respect to each Trust that does not issue Notes, the Servicer will also
establish and maintain the Collection Account and any other Trust Account in
the name of the related Trustee on behalf of the related Certificateholders.
If so provided in the related Prospectus Supplement, the Servicer
will establish an additional account (the "Payahead Account"), into which,
to the extent required by the applicable Transfer and Servicing Agreement,
early payments by or on behalf of Obligors on Precomputed Receivables which
do not constitute scheduled payments, full prepayments, nor certain partial
prepayments that result in a reduction of the Obligor's periodic payment
below the scheduled payment as of the applicable Cutoff Date ("Payaheads")
will be deposited until such time as the payment falls due. Until such time
as payments are transferred from the Payahead Account to the Collection
Account, they will not constitute collected interest or collected principal
and will not be available for distribution to the applicable Noteholders or
Certificateholders. For each Trust that issues Notes, the Payahead Account
will initially be maintained with and in the name of the applicable
Indenture Trustee. With respect to each Trust that does not issue Notes,
the Servicer will establish and maintain with the related Trustee the
Payahead Account in the name of such Trustee. So long as Paragon is the
Servicer and provided that (i) there exists no Servicer Termination Event
and (ii) each other condition to holding Payaheads as may be required by
the applicable Transfer and Servicing Agreement is satisfied, Payaheads may
be retained by the Servicer until the applicable Payment Date.
Any other accounts to be established with respect to a Trust,
including any Pre-Funding Account, Revolving Account, Yield Supplement
Account (as such term is defined in the related Prospectus Supplement, the
"Yield Supplement Account") or Reserve Account, will be described in the
related Prospectus Supplement.
For any series of Securities, funds in the Collection Account, the
Note Distribution Account, the Certificate Distribution Account(s) and any
Pre-Funding Account, Revolving Account, Reserve Account and other accounts
identified as such in the related Prospectus Supplement (collectively, the
"Trust Accounts") will be invested as provided in the related Transfer and
Servicing Agreement in Permitted Investments.
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"Permitted Investments" will be any Eligible Investments, except that
money market funds will not be Permitted Investments in the case of a
Pre-Funding Account unless the Indenture Trustee receives an opinion of
counsel to the effect that making such investments will not require the
related Trust to register as an investment company under the Investment
Company Act of 1940, as amended. "Eligible Investments" consist of (a)
direct interest-bearing obligations of, and interest-bearing obligations
guaranteed as to timely payment of principal and interest by, the United
States or any agency or instrumentality of the United States the
obligations of which are backed by the full faith and credit of the United
States; (b) demand or time deposits in, certificates of deposit of, demand
notes of, or bankers' acceptances issued by any depository institution or
trust company organized under the laws of the United States or any State
and subject to supervision and examination by federal and/or state banking
authorities (including, if applicable, the related Indenture Trustee or any
agent of the related Indenture Trustee acting in their respective
commercial capacities); provided, however, that the short-term unsecured
debt obligations of such depository institution or trust company at the
time of such investment, or contractual commitment providing for such
investment, are rated in one of the two highest short-term rating
categories by the Rating Agency; (c) repurchase obligations pursuant to a
written agreement (i) with respect to any obligation described in clause (a)
above, where the related Indenture Trustee has taken actual or constructive
delivery of such obligation in accordance with the applicable Indenture,
and (ii) entered into with 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 in one of
the two highest short-term rating categories by the Rating Agency
(including, if applicable, the related Indenture Trustee, or any agent of
the related Indenture Trustee acting in its commercial capacity); (d)
securities bearing interest or sold at a discount issued by any corporation
incorporated under the laws of the United States or any State whose
long-term unsecured debt obligations are rated in one of the two highest
long-term rating categories by the Rating Agency at the time of such
investment or contractual commitment providing for such investment; (e)
commercial paper that (i) is payable in United States dollars and
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(ii) is rated in one of the two highest short-term rating categories by the
Rating Agency; (f) money market mutual funds that are rated in the highest
credit rating category by at least one nationally recognized statistical
rating organization; or (g) any other demand or time deposit, obligation,
security or investment as may be acceptable to the Rating Agency, as
evidenced by the prior written consent of the Rating Agency.
Permitted Investments generally are limited to obligations or
securities that mature on or before the date of the next distribution for
such series. However, to the extent permitted by the Rating Agency, funds
in any Reserve Account may be invested in securities that will not mature
prior to the date of the next distribution with respect to such
Certificates or Notes and will not be sold to meet any shortfalls. Thus,
the amount of cash in any Reserve Account at any time may be less than the
balance of the Reserve Account. If the amount required to be withdrawn from
any Reserve Account to cover shortfalls in collections on the related
Receivables (as provided in the related Prospectus Supplement) exceeds the
amount of cash in the Reserve Account, a temporary shortfall in the amounts
distributed to the related Noteholders or Certificateholders could result,
which could, in turn, increase the average life of the Notes or the
Certificates of such series. To the extent specified in the related
Prospectus Supplement, investment earnings on funds deposited in the Trust
Accounts, net of losses and investment expenses (collectively, "Investment
Earnings"), will be either retained in the applicable Trust Account or
distributed to the Servicer and not be treated as collections on the
Receivables or otherwise be available for Noteholders or
Certificateholders.
The Trust Accounts will be maintained as Eligible Accounts. "Eligible
Account" means either (i) a segregated trust account that is maintained
with the corporate trust department of a depository institution, or (ii) a
segregated direct deposit account maintained with a depository institution
or trust company organized under the laws of the United States of America,
any of the States thereof or the District of Columbia having a certificate
of deposit, short-term deposit or commercial paper rating in one of the two
highest categories from the Rating Agency (or, if not rated by the Rating
Agency, from another nationally recognized statistical rating
organization).
Servicing Procedures
The Servicer will make reasonable efforts to collect all payments due
with respect to the Receivables held by any Trust and will, consistent with
the related Transfer and Servicing Agreement, follow such collection
procedures as it follows with respect to comparable motor vehicle retail
installment sales contracts and promissory note and security agreements it
services for itself or others. Consistent with its customary procedures,
the Servicer may, in its discretion, arrange with the Obligor on a
Receivable to extend, modify or amend the payment schedule, but no such
arrangement will, for purposes of any Transfer and Servicing Agreement,
modify any Receivable if such amendment or modification would extend the
final payment date of any Receivable beyond the Final Scheduled Maturity
Date. Some of such arrangements may result in the Servicer purchasing the
Receivable for the Purchase Amount. See "Risk Factors--Risk of Prepayment
and Possible Adverse Effect on Yield." The Servicer may sell the Financed
Vehicle securing the respective Receivable at public or private sale, or
take any other action permitted by applicable law. See "Certain Legal
Aspects of the Receivables."
Pursuant to the applicable Transfer and Servicing Agreement, Paragon,
as Servicer, has the right to delegate any or all of its responsibilities
and obligations as Servicer to any of its affiliates and to delegate
specific duties to third-party service providers who are in the business of
performing such duties. Notwithstanding any delegation of its
responsibilities and obligations to any other entity, the Servicer will
continue to be liable for all its servicing obligations under the
applicable Transfer and Servicing Agreement as if the Servicer alone were
servicing the Receivables.
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Collections
With respect to each Trust, the Servicer will generally deposit all
payments on the related Receivables received from Obligors and all proceeds
of the related Receivables collected during each collection period
specified in the related Prospectus Supplement (each, a "Collection
Period") into the related Collection Account not later than two business
days after receipt of available funds. However, if so provided in the
related Prospectus Supplement, so long as Paragon is the Servicer and
provided that (i) there exists no Servicer Termination Event and (ii) each
other condition to making monthly deposits as may be required by the
related Transfer and Servicing Agreement is satisfied, the Servicer may
retain such amounts until the Business Day (as defined in the related
Prospectus Supplement, a "Business Day") prior to the applicable Payment
Date. The Servicer or the Seller, as the case may be, will remit the
aggregate Purchase Amount of any Receivables to be purchased from a Trust
to the related Collection Account on the Business Day prior to the
applicable Payment Date. Pending deposit into the Collection Account,
collections may be employed by the Servicer at its own risk and for its own
benefit and will not be segregated from its own funds. To the extent set
forth in the related Prospectus Supplement, the Servicer may, in order to
satisfy the requirements described above, obtain a letter of credit or
other security for the benefit of the related Trust to secure timely
remittances of collections on the related Receivables and payment of the
aggregate Purchase Amount with respect to Receivables purchased by the
Servicer. If so provided in the related Prospectus Supplement, to the
extent the collections on a Precomputed Receivable for a Collection Period
are less than the scheduled payment, the amount of Payaheads made on such
Precomputed Receivable not previously applied (the "Payahead Balance"), if
any, with respect to such Precomputed Receivable shall be applied by the
Servicer to the extent of the shortfall.
Servicing Compensation and Payment of Expenses
On each Payment Date, the Servicer will be entitled to receive the
Servicing Fee for the related Collection Period in an amount generally
equal to a specified percentage per annum (as set forth in the related
Prospectus Supplement, the "Servicing Fee Rate") of the Pool Balance as of
the first day of such Collection Period (the "Servicing Fee"). To the
extent provided in the related Prospectus Supplement, the Servicer's right
to receive all or a portion of the Servicing Fee on one or more Payment
Dates may be subordinated to the rights of Securityholders to receive
principal and interest for the related Collection Period. In addition, to
the extent provided in the related Prospectus Supplement, on one or more
Payment Dates all or a portion of such Servicing Fee may be deposited in
the Reserve Account until the Reserve Account Required Amount or such other
amount specified in the related Prospectus Supplement is on deposit in the
Reserve Account. If it is acceptable to the Rating Agency without a
reduction in the rating of any of the Securities, the Servicing Fee in
respect of a Collection Period (together with any portion of a Servicing
Fee that remains unpaid from prior Payment Dates) at the option of the
Servicer may be paid at or as soon as possible after the beginning of such
Collection Period out of the first collections of interest received on the
Receivables for such Collection Period.
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The Servicer will also collect and retain all administrative fees,
expenses and charges paid by or on behalf of Obligors, including any late
fees, non-sufficient funds fees and liquidation fees collected on the
Receivables during such Collection Period and reimbursement of any personal
property taxes assessed on repossessed Financed Vehicles paid by the
Servicer ("Supplemental Servicing Fees") and will be entitled to
reimbursement from such Trust for certain liabilities. Payments by or on
behalf of Obligors will be allocated to scheduled payments and late fees
and other charges in accordance with the Servicer's customary practices and
procedures. In addition, the Servicer or the Seller will be entitled to
receive such fees and other amounts specified in the related Prospectus
Supplement. See "Description of the Transfer and Servicing
Agreements--Servicing Compensation and Payment of Expenses" and
"--Distributions" in the related Prospectus Supplement.
The Servicing Fee and Supplemental Servicing Fee will compensate the
Servicer for performing the functions of a third party servicer of motor
vehicle receivables as an agent for its beneficial owner, including
collecting and posting all payments, responding to inquiries of Obligors on
the Receivables, investigating delinquencies, sending billing information
to Obligors, paying costs of collections and disposition of defaults and
policing the collateral. The Servicing Fee also will compensate the
Servicer for administering the particular Receivables Pool, accounting for
collections and furnishing monthly and annual statements to the related
Trustee and Indenture Trustee with respect to distributions and generating
federal income tax information for such Trust and for the related
Noteholders and Certificateholders. The Servicing Fee also will reimburse
the Servicer for certain taxes, the fees of the related Trustee and
Indenture Trustee, if any, accounting fees, outside auditor fees, data
processing costs and other costs incurred in connection with administering
the applicable Receivables Pool.
Distributions
With respect to each series of Securities, beginning on the Payment
Date, as applicable, specified in the related Prospectus Supplement,
distributions of principal and interest (or, where applicable, of principal
or interest only) on each class of such Securities entitled thereto will be
made by the applicable Trustee to the Noteholders and the
Certificateholders of such series. The timing, calculation, allocation,
order, source, priorities of and
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requirements for all payments to each class of Noteholders and all
distributions to each class of Certificateholders of such series will be
set forth in the related Prospectus Supplement.
With respect to each Trust, on each Payment Date, collections on the
related Receivables will be transferred from the Collection Account to the
Note Distribution Account for distribution to Noteholders, if any, and to
each Certificate Distribution Account for distribution to
Certificateholders to the extent provided in the related Prospectus
Supplement. Credit enhancement, such as a Reserve Account, will be
available to cover any shortfalls in the amount available for distribution
on such date to the extent (a) specified in the related Prospectus
Supplement and (b) that such credit enhancement is actually available for
such purpose from time to time. As more fully described in the related
Prospectus Supplement, distributions in respect of principal of a class of
Securities of a given series will be subordinate to distributions in
respect of interest on such class, and distributions in respect of one or
more classes of Certificates of such series may be subordinate to payments
in respect of Notes, if any, of such series or other classes of
Certificates of such series.
Credit and Cash Flow Enhancement
The amounts and types of credit and cash flow enhancement
arrangements and the provider thereof, if applicable, with respect to each
class of Securities of a given series, if any, will be set forth in the
related Prospectus Supplement. If and to the extent provided in the related
Prospectus Supplement, credit and cash flow enhancement may be in the form
of subordination of one or more classes of Securities or all or a portion
of the Servicing Fee, Supplemental Servicing Fee or certain other amounts
payable to the Servicer or the Seller pursuant to the applicable Transfer
and Servicing Agreement, Reserve Accounts, over-collateralization, letters
of credit, credit or liquidity facilities, surety bonds, guaranteed
investment contracts, guaranteed rate agreements, swaps or other interest
rate protection agreements, repurchase obligations, yield supplement
agreements, other agreements with respect to third party payments or cash
deposits or any combination of two or more of the foregoing. If specified
in the related Prospectus Supplement, credit or cash flow enhancement for a
class of Securities may cover one or more other classes of Securities of
the same series, and credit or cash flow enhancement for a series of
Securities may cover one or more other series of Securities.
The presence of a Reserve Account and other forms of credit
enhancement for the benefit of any class or series of Securities is
intended to enhance the likelihood of receipt by the Securityholders of
such class or series of the full amount of principal and interest due
thereon and to decrease the likelihood that such Securityholders will
experience losses. The credit enhancement for a class or series of
Securities will not provide protection against all risks of loss and will
not guarantee repayment of the entire principal balance and interest
thereon except to the extent so specified in the related Prospectus
Supplement. If losses occur which exceed the amount covered by any credit
enhancement or which are not covered by any credit enhancement,
Securityholders of any class or series will bear their allocable share of
deficiencies, as described in the related Prospectus Supplement. In
addition, if a form of credit enhancement covers more than one series of
Securities, Securityholders of any such series will be subject to the risk
that such credit enhancement will be exhausted by the claims of
Securityholders of other series.
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Reserve Account. If so provided in the related Prospectus Supplement,
pursuant to the related Transfer and Servicing Agreement, the Seller will
establish for a series or class of Securities an account, as specified in
the related Prospectus Supplement (the "Reserve Account"), which will be
maintained with the related Trustee or Indenture Trustee, as applicable.
The Reserve Account will be funded by an initial deposit on the Closing
Date in the amount (if any) set forth in the related Prospectus Supplement
and, if the related series has a Funding Period, will also be funded on
each Subsequent Transfer Date to the extent described in the related
Prospectus Supplement. To the extent described in the related Prospectus
Supplement, the amount (if any) on deposit in the Reserve Account will be
increased on each Payment Date thereafter up to the Reserve Account
Required Amount (as defined in the related Prospectus Supplement) by the
deposit therein of the amount of collections on the related Receivables
remaining on each such Payment Date after the payment of all other required
payments and distributions on such date. The related Prospectus Supplement
will describe the circumstances and manner under which distributions may be
made out of the Reserve Account, either to holders of the Securities
covered thereby or to the Seller.
The Seller may at any time, without consent of the Securityholders,
sell, transfer, convey or assign in any manner its rights to and interests
in distributions from the Reserve Account provided that (i) the Rating
Agency confirms in writing that such action will not result in a reduction
or withdrawal of the rating of any class of Securities, (ii) the Seller
provides to the applicable trustee and any Indenture Trustee an opinion of
counsel from independent counsel that such action will not cause the
related Trust to be classified as an association (or publicly traded
partnership) taxable as a corporation for federal income tax purposes and
(iii) such transferee or assignee agrees in writing to take positions for
federal income tax purposes consistent with the federal income tax
positions agreed to be taken by the Seller.
Yield Supplement Account; Yield Supplement Agreement. If so provided
in the related Prospectus Supplement, pursuant to the related Transfer and
Servicing Agreement, Paragon, the Seller or another person will enter into
a Yield Supplement Agreement (as such term is defined in the related
Prospectus Supplement, the "Yield Supplement Agreement") pursuant to which
Paragon, the Seller or such other person will establish for a series a
Yield Supplement Account which will be maintained with the same entity at
which the related Collection Account is maintained and, if so specified in
the related Prospectus Supplement, will be created with an initial deposit
by the Seller. Each Yield Supplement Account will be designed solely to
hold funds to be applied by the Indenture Trustee or applicable Trustee to
provide payments to Securityholders in respect of Receivables the APR of
which is less than the Required Rate (as such term is defined in the
related Prospectus Supplement, the "Required Rate").
On each Payment Date, the obligor under the Yield Supplement
Agreement will pay to the Trust an amount equal to the Yield Supplement
Amount (as such term is defined in the related Prospectus Supplement, the
"Yield Supplement Amount") in respect of the Receivables for such Payment
Date. If so specified in the Prospectus Supplement, in the event that such
obligor defaults on its obligation to make payments under the Yield
Supplement Agreement, the related Prospectus Supplement will describe the
manner and circumstances in which amounts on deposit on any Payment Date in
the Yield Supplement Account in excess of the Required Yield Supplement
Amount (as such term is defined in the related Prospectus Supplement, the
"Required Yield Supplement Amount") will be released, and to whom such
amounts will be distributed. Monies on deposit in the Yield Supplement
Account may be invested in Permitted Investments under the circumstances
and in the manner described in the related Transfer and Servicing
Agreement. If so specified in the related Prospectus Supplement, investment
earnings on investment of funds in a Yield Supplement Account will be
deposited into such Yield Supplement Account. The related Prospectus
Supplement, will describe the manner in which any monies remaining on
deposit in a Yield Supplement Account upon the termination of the related
Trust pursuant to its terms will be released and to whom such amounts will
be distributed.
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If a Yield Supplement Account is established with respect to any
Trust as to which a Pre-Funding Account has been established, the Seller
and the related Indenture Trustee or applicable Trustee, will enter into a
Yield Supplement Agreement pursuant to which, on each Subsequent Transfer
Date, the Seller will deposit into the Yield Supplement Account the
Additional Yield Supplement Amount (as such term is defined in the related
Prospectus Supplement, the "Additional Yield Supplement Amount") in respect
of the related Subsequent Receivables. Each Yield Supplement Agreement will
affect only Receivables having an APR less than the related Required Rate.
Statements to Trustees and Trust
Prior to each Payment Date with respect to each series of Securities,
the Servicer will provide to the applicable Indenture Trustee, if any, and
the applicable Trustee as of the close of business on the last day of the
preceding Collection Period a statement setting forth substantially the
same information as is required to be provided in the periodic reports
provided to Securityholders of such series described under "Certain
Information Regarding the Securities -- Reports to Securityholders."
Evidence as to Compliance
Each Transfer and Servicing Agreement will provide that the Servicer
will furnish to the related Trust and Indenture Trustee or Trustee, as
applicable, on or before April 30 of each year, beginning in the calendar
year following the establishment of the related Trust, a statement of a
firm of independent certified public accountants (or other evidence
satisfactory to the Rating Agency) as to compliance by the Servicer during
the preceding twelve months ended December 31 (or, in the case of the first
such certificate, from the applicable Closing Date) with certain standards
relating to the servicing of the applicable Receivables, the Servicer's
accounting records and computer files with respect thereto and certain
other matters.
Each Transfer and Servicing Agreement will also provide for delivery
to the related Trust and Indenture Trustee or Trustee, as applicable,
substantially simultaneously with the delivery of such accountants'
statement referred to above, of a certificate signed by an officer of the
Servicer stating that the Servicer has fulfilled its obligations under the
applicable Transfer and Servicing Agreement, throughout the preceding
twelve months (or, in the case of the first such certificate, from the
Closing Date) or, if there has been a default in the fulfillment of any
such obligation, describing each such default. The Servicer has agreed to
give each Indenture Trustee and each Trustee notice of certain Servicer
Termination Events under the related Transfer and Servicing Agreement.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the applicable Trustee
at the appropriate address set forth in the Prospectus Supplement.
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Certain Matters Regarding the Servicer
Each Transfer and Servicing Agreement will provide that the Servicer
may not resign from its obligations and duties as Servicer thereunder,
except upon determination that the Servicer's performance of such duties is
no longer permissible under applicable law. No such resignation will become
effective until the related Indenture Trustee or Trustee, as applicable, or
a successor servicer, has assumed the Servicer's servicing obligations and
duties under such Transfer and Servicing Agreement.
Each Transfer and Servicing Agreement will further provide that
neither the Servicer nor any of its directors, officers, employees and
agents will be under any liability to the related Trust or the related
Noteholders or Certificateholders for taking any action or for refraining
from taking any action pursuant to such Transfer and Servicing Agreement or
for errors in judgment; except that neither the Servicer nor any such
person will be protected against any liability that would otherwise be
imposed by reason of willful misfeasance, bad faith or negligence in the
performance of the Servicer's duties thereunder or by reason of reckless
disregard of its obligations and duties thereunder. In addition, each
Transfer and Servicing Agreement will provide that the Servicer is under no
obligation to appear in, prosecute or defend any legal action that is not
incidental to the Servicer's servicing responsibilities under such Transfer
and Servicing Agreement and that, in its opinion, may cause it to incur any
expense or liability.
Under the circumstances specified in each Transfer and Servicing
Agreement, any entity into which the Servicer may be merged or
consolidated, or any entity resulting from any merger or consolidation to
which the Servicer is a party, or any entity succeeding to the business of
the Servicer or, with respect to its obligations as Servicer, any
corporation 50% or more of the voting stock of which is owned, directly or
indirectly, by Paragon, which corporation or other entity in each of the
foregoing cases assumes the obligations of the Servicer, will be the
successor of the Servicer under such Transfer and Servicing Agreement.
Servicer Termination Events
"Servicer Termination Events" under each Transfer and Servicing
Agreement will include: (i) the Servicer's failure to make deposits into
the Collection Account or to deliver to the applicable Trustee any proceeds
or payments payable to the Noteholders or Certificateholders required to be
so deposited or delivered in accordance with the Transfer and Servicing
Agreement, which failure continues unremedied for a period of two Business
Days (one Business Day with respect to payment of Purchase Amounts) after
receipt of notice by the Servicer from the applicable Trustee or discovery
of such failure by a responsible officer of the Servicer; (ii) the
Servicer's failure to deliver the required servicer's certificate to the
applicable Trustee by the Determination Date (as defined in the related
Prospectus Supplement, the "Determination Date") (or within two Business
Days thereafter, if such failure by the Servicer is due to circumstances
outside the Servicer's control), or failure on the part of the Servicer to
observe certain other of its covenants and agreements set forth in the
Transfer and Servicing Agreement with respect to mergers; (iii) the
Servicer's failure or failures to satisfy certain other covenants or
agreements set forth in the Transfer and Servicing Agreement, which failure
or failures, individually or in the aggregate, materially and adversely
affect the rights of Noteholders and remains uncured for a period of 30
days after notice thereof; (iv) certain events of insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings
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with respect to the Servicer indicating its insolvency, reorganization
pursuant to bankruptcy proceedings, or inability to pay its obligations,
the commencement of an involuntary case under the federal bankruptcy law,
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 (v) the breach of certain of the Servicer's
representations or warranties, which breach has a material adverse effect
on the Trust or the holders of Notes or Certificates and is not cured
within 30 days after notice thereof.
Rights Upon Servicer Termination Events
In the case of any Trust that has issued Notes, as long as a Servicer
Termination Event under a Sale and Servicing Agreement remains unremedied,
the related Trustee or the related Indenture Trustee or holders of Notes of
the related series evidencing greater than 50% of the principal amount of
such Notes then outstanding may terminate all the rights and obligations of
the Servicer under such Sale and Servicing Agreement, whereupon the Backup
Servicer (if specified in the related Prospectus Supplement, the "Backup
Servicer") or a successor servicer appointed by such Indenture Trustee will
succeed to all the responsibilities, duties and liabilities of the Servicer
under such Sale and Servicing Agreement and will be entitled to similar
compensation arrangements. In the case of any Trust that has not issued
Notes, as long as a Servicer Termination Event under the related Pooling
and Servicing Agreement remains unremedied, the related Trustee or holders
of Certificates of the related series evidencing greater than 50% of the
principal amount of such Certificates then outstanding may terminate all
the rights and obligations of the Servicer under such Pooling and Servicing
Agreement, whereupon such Trustee or a successor servicer appointed by such
Trustee will succeed to all the responsibilities, duties and liabilities of
the Servicer under such Pooling and Servicing Agreement and will be
entitled to similar compensation arrangements. If, however, a conservator,
receiver or similar official has been appointed for the Servicer, and no
Servicer Termination Event other than such appointment has occurred, such
official may have the power to prevent such Indenture Trustee, such
Noteholders, such Trustee or such Certificateholders from effecting a
transfer of servicing.
Waiver of Past Servicer Termination Events
With respect to each Trust that has issued Notes, the holders of
Notes evidencing at least a majority in principal amount of the then
outstanding Notes of the related series (or the holders of the Certificates
of such series evidencing not less than a majority of the outstanding
Certificate Balance, in the case of any Servicer Termination Event which
does not adversely affect the related Indenture Trustee or such
Noteholders) may, on behalf of all such Noteholders and Certificateholders,
waive any Servicer Termination Event by the Servicer in the performance of
its obligations under the related Sale and Servicing Agreement and its
consequences, except a Servicer Termination Event in making any required
deposits to or payments from any of the Trust Accounts in accordance with
such Sale and Servicing Agreement. With respect to each Trust that has not
issued Notes, holders of Certificates of such series evidencing not less
than a majority of the principal amount of such Certificates then
outstanding may, on behalf of all such Certificateholders, waive any
Servicer Termination Event by the Servicer in the performance of its
obligations under the related Transfer and Servicing Agreement, except a
Servicer Termination Event in making any required deposits to or payments
from the related Trust Accounts in accordance with such Transfer and
Servicing Agreement. No such waiver will impair such Noteholders' or
Certificateholders' rights with respect to subsequent defaults.
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Amendment
Each of the Transfer and Servicing Agreements may be amended by the
parties thereto, without the consent of any of the Noteholders, to cure any
ambiguity, to correct or supplement any provision therein or for the
purpose of adding any provision to or changing in any manner or eliminating
any provision thereof or modifying in any manner the rights of the
Noteholders; provided, however, that such action must not, as evidenced by
an opinion of counsel, adversely affect in any material respect the
interests of the Noteholders. The parties thereto may also amend a Transfer
and Servicing Agreement with the consent of holders of notes of such series
evidencing at least a majority of the principal amount of then outstanding
Notes to add, change or eliminate any provisions of such Transfer and
Servicing Agreement or to modify the rights of the Noteholders; provided,
however, that the Rating Agency has notified the parties thereto in writing
prior to the execution thereof that such action will not result in a
reduction of the then current rating of any class of then outstanding
Notes; and provided, further, that such action will not: (i) increase or
reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on Receivables or payments required to be made on any
Note, or the interest rate on any Note; (ii) amend any provisions
summarized under "The Notes--Priority of Distribution Amounts" in the related
Prospectus Supplement in such a manner as to affect the priority of payment
of interest or principal to Noteholders; or (iii) reduce the percentage of
the aggregate principal amount of the Notes required to consent to any such
amendment or any waiver thereunder, without the consent of the holders of all
Notes outstanding.
Additionally, each of the Transfer and Servicing Agreements may be
amended by the parties thereto at the direction of the Seller or Servicer
without the consent of any of the Securityholders to add, modify or
eliminate such provisions as may be necessary or advisable in order to
enable all or a portion of a Trust to qualify as, and to permit an election
to be made to cause all or a portion of a Trust to be treated as, a
"financial asset securitization investment trust" as described in the
provisions of the "Small Business Job Protection Act of 1996," H.R. 3448,
and in connection with any such election, to modify or eliminate existing
provisions of a Transfer and Servicing Agreement relating to the intended
federal income tax treatment of the Securities and the related Trust in the
absence of the election. See "Federal Income Tax Consequences--FASIT
Legislation." It is a condition to any such amendment that the Rating
Agency will have notified the Seller, the Servicer and the applicable
Trustee in writing that the amendment will not result in a reduction or
withdrawal of the rating of any outstanding Securities with respect to
which it is a Rating Agency.
Additionally, each of the Transfer and Servicing Agreements may be
amended by the parties thereto at the direction of the Seller or Servicer
without the consent of any of the Securityholders (i) to add, modify or
eliminate such provisions as may be necessary or advisable in order to
enable (a) the transfer to the Trust of all or any portion of the
Receivables to be derecognized under generally accepted accounting
principles ("GAAP") by the Seller to the applicable Trust, (b) the
applicable Trust to avoid becoming a member of the Seller's consolidated
group under GAAP, or (c) the Seller or any of its affiliates to otherwise
comply with or obtain more favorable treatment under any law or regulation
or any accounting rule or principle; and (ii) in connection with any such
addition, modification or elimination, without limiting the generality of
the foregoing clause (i), to cause the Receivables to be transferred by the
Seller first to a bankruptcy remote affiliate and from such affiliate to a
Trust; provided, however, that it is a condition to any such amendment that
(i) the Seller delivers an officer's certificate to the related Trustee to
the effect that such amendment meets the requirements set forth in this
paragraph and (ii) such amendment will not result in a withdrawal or
reduction of the rating of any outstanding series of Securities under the
related Trust.
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Insolvency
Each Trust Agreement will provide that the applicable Trustee does
not have the power to commence a voluntary proceeding in bankruptcy with
respect to the related Trust without the unanimous prior approval of all
Certificateholders (including the Seller) of such Trust and the delivery to
such Trustee by each such Certificateholder (including the Seller) of a
certificate certifying that such Certificateholder reasonably believes that
such Trust is insolvent.
Non-Recourse Sale and Assignment
The Notes of any series will represent obligations solely of, and the
Certificates of any series will represent interests solely in, the related
Trust and neither the Notes nor the Certificates of any series will be
insured or guaranteed by Paragon, the Seller, the Servicer, any Trustee,
any Indenture Trustee or, except to the extent provided in the related
Prospectus Supplement, any other person or entity.
Payment of Notes
Upon the payment in full of all outstanding Notes of a given series
and the satisfaction and discharge of the related Indenture, the related
Trustee will succeed to all the rights of the Indenture Trustee, and the
Certificateholders of such series will succeed to all the rights of the
Noteholders of such series, under the related Sale and Servicing Agreement,
except as otherwise provided therein.
Termination
With respect to each Trust, the obligations of the Servicer, the
Seller, the related Trustee and the related Indenture Trustee, if any,
pursuant to the Transfer and Servicing Agreements will terminate upon the
earlier of (i) the maturity or other liquidation of the last related
Receivable and the disposition of any amounts received upon liquidation of
any such remaining Receivables, (ii) the payment to Noteholders, if any,
and Certificateholders of the related series of all amounts required to be
paid to them pursuant to the Transfer and Servicing Agreements and (iii)
the occurrence of either event described below.
In order to avoid excessive administrative expense, the Servicer will
be permitted at its option to purchase from each Trust, as of any Payment
Date, if the then outstanding Pool Balance with respect to the Receivables
held by such Trust is equal to or less than the percentage of the Initial
Pool Balance set forth in the related Prospectus Supplement (as defined in
the related Prospectus Supplement, the "Initial Pool Balance"), all
remaining related Receivables at a price equal to the aggregate of the
Purchase Amounts thereof as of the end of the immediately preceding
Collection Period, provided that such price is sufficient to redeem each
Security issued by such Trust at a redemption price equal to its
outstanding principal amount plus accrued and unpaid interest at the
applicable Interest Rate thereon.
As more fully described in the related Prospectus Supplement, any
outstanding Notes of the related series will be redeemed concurrently with
either of the events specified above and the subsequent distribution to the
related Certificateholders of all amounts required to be distributed to
them pursuant to the applicable Trust Agreement or Pooling and Servicing
Agreement will effect early retirement of the Certificates of such series.
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CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
Rights in the Receivables
The Receivables are "chattel paper" as defined in the UCC. Pursuant
to the UCC, a sale of chattel paper is treated in a manner similar to a
transaction creating a security interest in chattel paper. The Seller will
cause appropriate financing statements to be filed with the appropriate
governmental authorities to perfect the interest of the related Trust in
its purchase of Receivables from the Seller and in the appropriate
jurisdictions to perfect the interest of the Seller in its purchase of
Receivables from Paragon.
Pursuant to the applicable Transfer and Servicing Agreement, Paragon
will (unless otherwise specified in the related Prospectus Supplement) hold
the Receivables as custodian for the applicable Trustee following the sale
and assignment of the Receivables to the related Trust. The Seller will
take such action as is required to perfect the rights of the applicable
Trustee in the Receivables. The Receivables will not be segregated, stamped
or otherwise marked to indicate that they have been sold to the related
Trust. If through inadvertence or otherwise, another party purchases (or
takes a security interest in) the Receivables for new value in the ordinary
course of business and takes possession of the Receivables without
knowledge of the related Trust's security interest, the purchaser (or
secured party) will acquire an interest in the Receivables superior to the
interest of the related Trust. Any such purchaser/secured party would not
be deemed to have such knowledge merely because there are UCC filings of
record and would not learn of the sale of the Receivables from a review of
the Receivables since they would not be marked to show the sale of such
Receivables to the Trust.
Under the applicable Transfer and Servicing Agreement, the Servicer
will be obligated from time to time to take such actions as are necessary
to protect and perfect the related Trust's interest in the Receivables and
their proceeds.
Security Interest in Vehicles
Each motor vehicle retail installment sales contract or promissory
note and security agreement evidencing a Receivable grants a security
interest in the Financed Vehicle under the applicable UCC. Perfection of
security interests in automobiles, light duty trucks and sports utility
vehicles is generally governed by the motor vehicle registration laws of
the state in which the vehicle is located. In California and most other
states in which the Receivables are originated, a security interest in
automobiles and light duty trucks is perfected by notation (or compliance
with the requirements to effect such notation) of the secured party's lien
on the vehicles' certificate of title within the time permitted by applicable
law. Paragon takes all actions necessary under the laws of the state in which
the financed vehicle is located to perfect its security interest in the
financed vehicle securing a retail installment sales contract purchased by
it from a Dealer or Direct Loan made by Paragon, including, where
applicable, having a notation of its lien recorded on such vehicle's
certificate of title. Because the Servicer continues to service the
contracts and receivables, the Obligors on the contracts and receivables
will not be notified of the sales from Paragon to the Seller or from the
Seller to the Trust, and no action will be taken to record the transfer of
the security interest from Paragon to the Seller or from the Seller to the
Trust by amendment of the certificates of title for the Financed Vehicles
or otherwise.
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Pursuant to each Purchase Agreement, Paragon will assign to the
Seller its interests in the Financed Vehicles securing the Receivables
assigned by Paragon to the Seller and, with respect to each Trust, pursuant
to the related Transfer and Servicing Agreement, the Seller will assign its
interests in the Financed Vehicles securing the related Receivables to such
Trust. However, because of the administrative burden and expense, none of
Paragon, the Seller, the Servicer or the related Trustee will amend any
certificate of title to identify either the Seller or such Trust as the new
secured party on such certificate of title relating to a Financed Vehicle.
Also, Paragon will continue to hold any certificates of title relating to
the Financed Vehicles in its possession as custodian for the Seller and
such Trust pursuant to the related Transfer and Servicing Agreement. See
"Description of the Transfer and Servicing Agreements--Sale and Assignment
of Receivables."
In California and most other states, an assignment such as that under
each Transfer and Servicing Agreement is an effective conveyance of a
security interest without amendment of any lien noted on a vehicle's
certificate of title, and the assignee succeeds thereby to the assignor's
rights as secured party. However, by not identifying the related Trust as
the secured party on the certificate of title, the security interest of
such Trust in the vehicle could be defeated through fraud or negligence
and, in most states including California, any person without notice of the
assignment is protected in dealing with the lienholder of record as the
holder of the security interest. In California and most other states, in
the absence of fraud or forgery by the vehicle owner or Paragon or
administrative error by state or local agencies, the notation of the lien
of Paragon on the certificates of title will be sufficient to protect
the related Trust against the rights of subsequent purchasers of a Financed
Vehicle or subsequent lenders who take a security interest in a Financed
Vehicle. If there are any Financed Vehicles as to which the Seller failed
to obtain and assign to the related Trust a perfected security interest,
the security interest of such Trust would be subordinate to, among others,
subsequent purchasers of the Financed Vehicles and holders of perfected
security interests. Such a failure, however, would constitute a breach of
the warranties of the Seller under the related Transfer and Servicing
Agreement and would create an obligation of the Seller to repurchase the
related Receivable unless the breach is cured. Pursuant to each Transfer
and Servicing Agreement the Seller will assign such rights to the related
Trust. See "Description of the Transfer and Servicing Agreements--Sale and
Assignment of Receivables" and "Risk Factors--Risk of Unenforceable
Security Interest in Financed Vehicles."
Under the laws of California and most other states, the perfected
security interest in a vehicle would continue for four months after the
vehicle is moved to a state other than the state in which it is initially
registered and thereafter until the owner thereof re-registers the vehicle
in the new state but in any event not beyond the surrender of the
certificate of title. A majority of states, including California, generally
require surrender of a certificate of title to re-register a vehicle.
Accordingly, a secured party must surrender possession if it holds the
certificate of title to the vehicle or, in the case of a vehicle registered
in a state providing for the notation of a lien on the certificate of title
but not possession by the secured party, the secured party noted on the
certificate of title would receive notice of surrender if the security
interest is noted on the certificate of title. Thus, the secured party
noted on the certificate of title would have the opportunity to re-perfect
its security interest in the vehicle in the state of relocation. In states
that do not require a certificate of title for registration of a motor
vehicle, re-registration could defeat perfection. In the ordinary course
of servicing motor vehicle receivables, Paragon takes any necessary steps
to effect re-perfection upon receipt of notice of re-registration or
information from the Obligor as to relocation. Similarly, when an Obligor
sells a vehicle, Paragon generally must surrender possession of the
certificate of title or if noted as lienholder on the certificate of title
will receive notice as a result of its lien noted thereon and accordingly
will have an opportunity to require satisfaction of the related Receivable
before release of the lien. Under each Transfer and Servicing Agreement,
the Servicer is obligated to take appropriate
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steps, at the Servicer's expense, to maintain perfection of security
interests in the Financed Vehicles and is obligated to purchase the related
Receivable if it fails to do so.
Under the laws of California and most other states, liens for repairs
performed on, or storage of, a motor vehicle and liens for unpaid taxes
take priority over even a perfected security interest in a financed
vehicle. The Code also grants priority to certain federal tax liens over
the lien of a secured party. The laws of certain states, including
California, and federal law permit the confiscation of vehicles by
governmental authorities under certain circumstances if used in unlawful
activities, which may result in the loss of a secured party's perfected
security interest in the confiscated vehicle. Under each Transfer and
Servicing Agreement, the Seller will represent to the related Trust that,
as of the date the related Receivable is sold to such Trust, each security
interest in a Financed Vehicle is or will be prior to all other present
liens (other than tax liens and other liens that arise by operation of law)
upon and security interests in such Financed Vehicle. However, liens for
repairs, storage or taxes could arise, or the confiscation of a Financed
Vehicle could occur, at any time during the term of a Receivable. No notice
will be given to the Trustee, any Indenture Trustee, any Noteholders or the
Certificateholders in respect of a given Trust if such a lien arises or
confiscation occurs.
Repossession
In the event of default by vehicle purchasers, the holder of the
motor vehicle retail installment sales contract or Direct Loan has all the
remedies of a secured party under the UCC, except where specifically
limited by other state laws or federal consumer protection laws. Among the
UCC remedies, the secured party has the right to perform self-help
repossession unless such act would constitute a breach of the peace.
Self-help is the method employed by the Servicer in most cases and is
accomplished simply by retaking possession of the financed vehicle. In the
event of default by the obligor, some jurisdictions require that the
obligor be notified of the default and be given a time period within which
he may cure the default prior to repossession. Generally, the right to cure
may be exercised on a limited number of occasions in any one-year period.
In cases where the obligor objects or raises a defense to repossession, or
if otherwise required by applicable state law, a court order must be
obtained from the appropriate state court, and the vehicle must then be
repossessed in accordance with that order.
Notice of Sale; Redemption Rights
The UCC and other state laws require the secured party to provide the
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. In most states, the obligor has the right to redeem the collateral
prior to actual sale by paying the secured party the unpaid principal
balance of the obligation plus reasonable expenses for repossession,
holding, and preparing the collateral for disposition, arranging for its
sale, and, in some jurisdictions, reasonable attorney's fees (the
"repossession costs"). In some states, including California, the obligor
also has the right to reinstate the contract by paying the secured party
delinquent installments plus the repossession costs.
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Deficiency Judgments and Excess Proceeds
The proceeds of resale of the vehicles generally will be applied
first to the expenses of resale and repossession and then to the
satisfaction of the indebtedness. While some states, including California,
impose prohibitions or limitations on deficiency judgments if the net
proceeds from resale do not cover the full amount of the indebtedness, a
deficiency judgment can be sought in those states that do not prohibit or
limit such judgments. However, the deficiency judgment would be a personal
judgment against the obligor for the shortfall, and a defaulting obligor
can be expected to have very little capital or sources of income available
following repossession. In addition, if any aspects of the repossession or
sale do not comply with applicable law, any otherwise existing right to a
deficiency judgement may be prohibited or limited. Therefore, in many
cases, it may not be useful to seek a deficiency judgment or, if one is
obtained, it may be settled at a significant discount.
Occasionally, after resale of a vehicle and payment of all expenses
and all indebtedness, there is a surplus of funds. In that case, the UCC
requires the creditor to remit the surplus to any holder of a lien with
respect to the vehicle or if no such lienholder exists or there are
remaining funds, to remit the surplus to the former owner of the vehicle.
Soldiers' and Sailors Civil Relief Act
The Soldiers' and Sailors Civil Relief Act of 1940 (the "Relief Act")
imposes certain limitations upon the actions of creditors with respect to
persons serving in the Armed Forces of the United States, and, to a more
limited extent, their dependents and guarantors and sureties of debt
incurred by such persons. An obligation incurred by a person prior to
entering military service cannot bear interest at a rate in excess of 6%
during the person's term of military service, unless the obligee petitions
a court which determines that the person's military service does not impair
his or her ability to pay interest at a higher rate. Further, a secured
party may not repossess during a person's military service a motor vehicle
subject to an installment sales contract or a promissory note entered into
prior to the person's entering military service, for a loan default which
occurred prior to or during such service, without court action. The Relief
Act imposes penalties for knowingly repossessing property in contravention
of its provisions. Additionally, dependents of military personnel are
entitled to the protection of the Relief Act, upon application to a court,
if such court determines the obligation of such dependent has been
materially impaired by reason of military service. To the extent an
obligation is unenforceable against the person in military service or a
dependent, any guarantor or surety of such obligation will not be liable
for performance.
Consumer Protection Laws
Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon lenders and servicers
involved in consumer finance. These laws include, but are not limited to,
the Truth-in-Lending Act, the Equal Credit Opportunity Act, the Federal
Trade Commission Act, the Fair Credit Billing Act, the Fair Credit
Reporting Act, the Fair Debt Collection Procedures Act, the Magnuson-Moss
Warranty Act, the Federal Reserve Board's Regulations B, Z and AA, the
Relief Act, state adoptions of the National Consumer Act and of the Uniform
Consumer Credit Code and state motor vehicle retail installment sales acts,
retail installment sales acts and other similar laws. In addition to
Federal law, state consumer protection statutes regulate, among other
things, the terms and conditions of the motor vehicle retail installment
sales contracts and promissory notes and security agreements pursuant to
which purchasers finance the acquisition of motor vehicles. These laws
place finance charge ceilings and other restrictions on consumer
transactions and require contract disclosures in addition to those required
under federal law. These requirements impose specific statutory liabilities
upon creditors who fail to comply. In some cases, this liability could
affect the ability of an assignee, such as the applicable Trustee, to
enforce consumer finance contracts such as the Receivables. The "Credit
Practices" Rule of the Federal Trade Commission imposes additional
restrictions on contract provisions and credit practices.
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The so-called "Holder-in-Due-Course" Rule of the Federal Trade
Commission (the "FTC Rule"), the provisions of which are generally
duplicated by the Uniform Consumer Credit Code, other statutes or the
common law, has the effect of subjecting a seller in a consumer credit
transaction (and certain related creditors and their assignees) to all
claims and defenses which the obligor in the transaction could assert
against the seller of the goods. Liability under the FTC Rule is limited to
the amounts paid by the obligor under the contract and the holder of the
contract may also be unable to collect any balance remaining due thereunder
from the obligor.
Most of the Receivables will be subject to the requirements of the
FTC Rule. Accordingly, each Trust, as holder of the related Receivables,
will be subject to any claims or defenses that the purchaser of the
applicable Financed Vehicle may assert against the seller of the Financed
Vehicle. Such claims are limited to a maximum liability equal to the
amounts paid by the Obligor on the Receivable. If an Obligor were
successful in asserting any such claim or defense, such claim or defense
would constitute a breach of the Seller's warranties under the related
Transfer and Servicing Agreement and would create an obligation of the
Seller to repurchase the Receivable unless the breach is cured. See
"Description of the Transfer and Servicing Agreements--Sale and Assignment
of Receivables."
Under the motor vehicle dealer licensing laws of most states,
including California, sellers of motor vehicles are required to be licensed
to sell such vehicles at retail sale. In addition, with respect to used
motor vehicles , the FTC's Rule on Sale of Used Vehicles requires all
sellers of used motor vehicles to prepare, complete and display a "Buyer's
Guide" which explains the warranty coverage for such vehicles. Federal
Odometer Regulations promulgated under the Motor Vehicle Information and
Cost Savings Act require that all sellers of used motor vehicles furnish a
written statement signed by the seller certifying the accuracy of the
odometer reading. If a seller is not properly licensed or if either a Buyer's
Guide or odometer disclosure statement was not properly provided to the
purchaser of a Financed Vehicle, such purchaser may be able to assert a claim
against the seller of such vehicle. Although Paragon is not a seller of motor
vehicles and is not subject to these laws, a violation thereof may form the
basis for a claim or defense against Paragon, the Seller or the applicable
Trustee as holder of the Receivables.
Courts have applied general equitable principles to secured parties
pursuing repossession and litigation involving deficiency balances. These
equitable principles may have the effect of relieving an Obligor from some
or all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies
of secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the
United States. Courts have generally upheld the notice provisions of the
UCC and related laws as reasonable or have found that the repossession and
resale by the creditor do not involve sufficient state action to afford
constitutional protection to borrowers.
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Under each Transfer and Servicing Agreement, the Seller will warrant
to the related Trust that each Receivable complies with all requirements of
law in all material respects. Accordingly, if an Obligor has a claim
against a Trust for violation of any law and such claim materially and
adversely affects such Trust's interest in a Receivable, such violation
would constitute a breach of the warranties of the Seller under such
Transfer and Servicing Agreement and would create an obligation of the
Seller to repurchase the Receivable unless the breach is cured. See
"Description of the Transfer and Servicing Agreements -- Sale and
Assignment of Receivables."
Certain Matters Relating to Insolvency
Seller has taken steps in structuring the transactions described
herein and in the related Prospectus Supplement that are intended to ensure
that the voluntary or involuntary application for relief by Paragon under
the Bankruptcy Code or Insolvency Laws will not result in consolidation of
the assets and liabilities of the Seller with those of Paragon. These steps
include the creation of the Seller as a separate, limited-purpose
subsidiary pursuant to a certificate of incorporation containing certain
limitations (including restrictions on the nature of the Seller's business
and a restriction on the Seller's ability to commence a voluntary case or
proceeding under any Insolvency Law without the prior unanimous affirmative
vote of all of its directors). However, there can be no assurance that the
activities of the Seller would not result in a court's concluding that the
assets and liabilities of the Seller should be consolidated with those of
Paragon in a proceeding under any Insolvency Law. If a court were to
conclude that the assets and liabilities of the Seller should be
consolidated with those of Paragon in a proceeding under any Insolvency
Law, then any "true sale" to the Seller would be ineffective to remove the
Receivables and other assets from the bankruptcy estate of Paragon.
Although there can be no assurance, the Seller believes there is no
material risk that the Trust would be substantively consolidated with any
other entity if that entity were to become the subject of a proceeding
under any Insolvency Law.
The Seller and Paragon each intend that the transfer of Receivables
by Paragon to the Seller will constitute a "true sale" of such Receivables.
The Seller will take steps in structuring its purchases of Receivables from
Paragon to increase the likelihood that such purchases will each be deemed
a "true sale". In particular, each such purchase will be without recourse
to Paragon for credit losses and at a purchase price believed by the
parties to represent the fair market value of the applicable Receivables.
If the transfer does, in fact, constitute such a "true sale," the
Receivables and the proceeds thereof would not be part Paragon's bankruptcy
estate under Section 541 of the Bankruptcy Code should Paragon become the
subject of a bankruptcy case subsequent to the transfer of the Receivables
to the Seller. It is a condition of the offering that the Seller shall have
received an opinion of counsel to the effect that, subject to certain
facts, assumptions and qualifications, the transfer of such Receivables by
Paragon to the Seller pursuant to the related Purchase Agreement would be
characterized as a "true sale'" of such Receivables to the Seller and such
Receivables would not form part of Paragon's bankruptcy estate pursuant to
Section 541 of the Bankruptcy Code.
Notwithstanding the foregoing, if the Seller or Paragon were to
become a debtor in a bankruptcy case and a creditor or trustee in
bankruptcy of the Seller or Paragon or Paragon itself were to take the
position that the transfer of Receivables by the Seller to the Trust, or by
Paragon to the Seller, as the case may be, should instead be treated as a
pledge of the Receivables to secure a borrowing of the Seller or Paragon,
as the case may be, then
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delays in payments of collections of the Receivables could occur or (should
the court rule in favor of any such trustee, debtor or creditor) reductions
in the amount of such payments could result. If the transfer of the
Receivables by the Seller to the Trust, or by Paragon to the Seller, is
treated as a pledge instead of a sale, a tax, government or other lien on
the property of the Seller or Paragon, as the case may be, arising before
the transfer of the Receivables to the Trust may have priority over the
Trust's or the Seller's interest in the Receivables.
In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir.
1993), cert. denied 114 S.Ct 554 (1993), the United States Court of Appeals
for the 10th Circuit suggested that even where a transfer of accounts from
a seller to a buyer constitutes a "true sale," the accounts would
nevertheless constitute property of the seller's bankruptcy estate in a
bankruptcy of the seller. If the Seller were to become subject to a
bankruptcy proceeding and a court were to follow the Octagon court's
reasoning, Securityholders might experience delays in payment or possibly
losses on their investment in the Securities. The Permanent Editorial Board
of the UCC has issued an official commentary (PEB Commentary No. 14) which
characterizes the Octagon court's interpretation of Article 9 of the UCC as
erroneous. Such commentary states that nothing in Article 9 is intended to
prevent the transfer of ownership of accounts or chattel paper. However,
such commentary is not legally binding on any court.
Other Limitations
In addition to the 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 a secured
party to realize upon collateral or to enforce a deficiency judgment. For
example, in a Chapter 13 proceeding under the federal bankruptcy law, a
court may prevent a creditor from repossessing a vehicle, and, as part of
the rehabilitation plan, reduce the amount of the secured indebtedness to
the market value of the vehicle at the time of bankruptcy (as determined by
the court), leaving the creditor as a general unsecured creditor for the
remainder of the indebtedness. A bankruptcy court may also reduce the
monthly payments due under a contract or change the rate of interest and
time of repayment of the indebtedness.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Set forth in the related Prospectus Supplement is a summary of
material federal income tax consequences of the purchase, ownership and
disposition of the Notes and the Certificates. The summary is intended as a
discussion of the possible effects of certain federal income tax consequences
to holders generally, but does not purport to furnish information in the level
of detail or with the attention to a holder's specific tax circumstances
that would be provided by a holder's own tax advisor. For example, it does
not discuss the tax consequences of the purchase, ownership and disposition
of the Notes and Certificates by Noteholders or Certificateholders that are
subject to special treatment under the federal income tax laws (including
banks and thrifts, insurance companies, regulated investment companies,
dealers in securities, foreign investors, trusts and estates and
pass-through entities the equity holders of which are any of the
foregoing). In addition, any discussion regarding the Notes is limited to
the federal income tax consequences of the initial Noteholders and not a
purchaser in the secondary market. Moreover, there are no cases or Internal
Revenue Service ("IRS") rulings on similar transactions involving both debt
and equity interests issued by a trust with terms similar to those of the
Notes and the Certificates. As a result, the IRS may disagree with all or a
part of the discussion in the Prospectus Supplement. We suggest that
prospective investors consult their own tax advisors in determining the
federal, state, local, foreign and any other tax consequences to them of
the purchase, ownership and disposition of the Notes and the Certificates.
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The summary is based upon current provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), the Treasury regulations promulgated
thereunder and judicial or ruling authority, all of which are subject to
change, which change may be retroactive. Each Trust will be provided with
an opinion of Federal Tax Counsel, regarding certain federal income tax
matters. An opinion of Federal Tax Counsel, however, is not binding on the
IRS or the courts. No ruling on any of the issues discussed in the related
Prospectus Supplement will be sought from the IRS. For purposes of the
summary, references to the Trust, the Notes, the Certificates and related
terms, parties and documents shall be deemed to refer, unless otherwise
specified therein, to each Trust and the Notes, Certificates and related
terms, parties and documents applicable to such Trust.
The summary of material federal tax consequences to the
Certificateholders, and, if applicable, to the Noteholders, is set forth in
the related Prospectus Supplement. The federal income tax consequences to
Certificateholders will vary depending on whether the Trust is intended to
be treated as a partnership under the Code or as a grantor trust. The
Prospectus Supplement for each series of Certificates will specify whether
a partnership election will be made or the Trust will be treated as a
grantor trust. In addition, to the extent set forth in the related
Prospectus Supplement, the tax consequences to Securityholders may vary
depending upon whether the related Prospectus Supplement provides for a
Revolving Period for Trusts that issue Notes.
Tax Opinions
The following is a brief summary of the tax opinions being rendered
by Mayer, Brown & Platt, special federal tax counsel for the Seller
("Federal Tax Counsel"). Unless the Prospectus Supplement specifies that
the Trust will be treated as a grantor trust, Federal Tax Counsel is of the
opinion that the applicable Trust will not be classified as an association
(or publicly traded partnership) taxable as a corporation for federal
income tax purposes. Further, with respect to the Notes, Federal Tax
Counsel is of the opinion that the Notes will be characterized as debt for
federal income tax purposes. If the Prospectus Supplement specifies that
the related Trust will be treated as a grantor trust, Federal Tax Counsel
is of the opinion that such Trust will not be classified as an association
(or publicly traded partnership) taxable as a corporation and that such
Trust will be classified as a grantor trust under Subpart E, Part I of
Subchapter J of the Code for federal income tax purposes.
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In addition, Federal Tax Counsel will render its opinion that it has
prepared or reviewed the statements herein and in the related Prospectus
Supplement under the heading "Summary of Terms--Material Federal Income Tax
Consequences" as they relate to federal income tax matters and under the
heading "Material Federal Income Tax Consequences," and is of the opinion
that such statements are correct in all material respects. Any such
opinions will be filed either as an exhibit to the registration statement
of which this Prospectus forms a part or will be filed as an exhibit to a
Form 8-K filed prior to the confirmation of sales of any series of
Securities. Such statements are intended as a discussion of the possible
effects of the classification of the Trust as a partnership or a grantor
trust, as the case may be, for federal income tax purposes on investors and
of related tax matters affecting investors generally, but do not purport to
furnish information in the level of detail or with the attention to the
investor's specific tax circumstances that would be provided by an
investor's own tax adviser. Accordingly, we suggest that investors consult
their own tax advisers with regard to the tax consequences to it of
investing in the Notes and/or Certificates.
FASIT Legislation
In August, 1996, the United States Congress passed and President
Clinton signed into law the "Small Business Job Protection Act of 1996,"
H.R. 3448 (the "Act"). The Act, which was effective September 1, 1997,
created a new type of entity for federal income tax purposes called a
"financial asset securitization investment trust" or "FASIT." The Act
enables certain arrangements similar to a Trust to elect to be treated as a
FASIT. Under the FASIT provisions of the Act, a FASIT generally would avoid
federal income taxation and could issue securities substantially similar to
the Certificates and Notes, and those securities would be treated as debt
for federal income tax purposes. If so specified in the related Prospectus
Supplement, a Trust may make an election to be treated as a FASIT. The
applicable Transfer and Servicing Agreement for such a Trust may contain
any such terms and provide for the issuance of Notes or Certificates on
such terms and conditions as are permitted to a FASIT and described in the
related Prospectus Supplement. However, any Trust electing to be treated as
a FASIT will be limited by the applicable Transfer and Servicing Agreement
in its ability to add or remove assets to substantially the same extent as a
"real estate mortgage investment conduit" under the Code and the regulations
thereunder. In addition, upon satisfying certain conditions set forth in the
applicable Transfer and Servicing Agreement for such a Trust, the Seller and
Servicer will be permitted to amend the Transfer and Servicing Agreements in
order to enable all or a portion of a Trust to qualify as a FASIT and to permit
a FASIT election to be made with respect thereto, and to make such
modifications to a Transfer and Servicing Agreement as may be permitted by
reason of the making of such an election. See "Description of the Transfer
and Servicing Agreements--Amendment." However, there can be no assurance
that the Seller will or will not cause any permissible FASIT election to be
made with respect to a Trust or amend a Transfer and Servicing Agreement in
connection with any election. In addition, if such an election is made, it
may cause a holder to recognize gain (but not loss) with respect to any
Notes or Certificates held by it, even though Federal Tax Counsel will
deliver its opinion that a Note will be treated as debt for federal income
tax purposes without regard to the election and the Note or Certificate
would be treated as debt following the election. Additionally, any such
election and any related amendments to a Transfer and Servicing Agreement may
have other tax and non-tax consequences to Securityholders. Accordingly, we
suggest that Securityholders consult their tax advisors with regard to the
effects of any such election and any permitted related amendments on them
in their particular circumstances.
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STATE TAX CONSEQUENCES
The above discussion does not address the tax treatment of any tax
partnership, grantor trust, Notes, Certificates, Noteholders or
Certificateholders under any state tax laws. We suggest that prospective
investors consult with their own tax advisors regarding the state tax
treatment of any tax partnership or grantor trust as well as any state tax
consequences to them of purchasing, holding and disposing of Notes or
Certificates.
* * *
THE FEDERAL AND STATE TAX DISCUSSIONS SET FORTH ABOVE AND IN THE
RELATED PROSPECTUS SUPPLEMENT MAY NOT BE APPLICABLE DEPENDING UPON A
NOTEHOLDER'S OR CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION. WE SUGGEST
THAT PROSPECTIVE PURCHASERS CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE
TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF
NOTES AND CERTIFICATES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL,
STATE OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan subject to ERISA, as well as
individual retirement accounts, certain types of Keogh Plans and other
plans subject to Section 4975 of the Code (each a "Benefit Plan"), from
engaging in certain transactions with persons that are "parties in
interest" under ERISA or "disqualified persons" under the Code with respect
to such Benefit Plan. A violation of these "prohibited transaction" rules
may result in an excise tax or other penalties and liabilities under ERISA
and the Code for such persons.
A fiduciary of a Benefit Plan considering the purchase of Securities
of any series should carefully review with its legal and other advisors
whether the assets of the related Trust would be considered plan assets,
whether the purchase or holding of the Securities could give rise to a
transaction prohibited or otherwise impermissible under ERISA or the Code,
and should refer to the discussion under "ERISA Considerations" in the
related Prospectus Supplement regarding any restrictions on the purchase or
holding of the Securities offered thereby.
Certain employee benefit plans, such as governmental plans (as
defined in Section 3(32) of ERISA) and certain church plans (as defined in
Section 3(33) of ERISA) are not subject to the fiduciary and prohibited
transaction provisions under ERISA or the Code discussed herein, but
governmental plans may be subject to comparable restrictions under
applicable state law.
Trusts That Issue Notes
The following discussion applies only to Trusts that issue Notes.
Certain transactions involving a Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit
Plan that purchased Notes or Certificates if assets of the Trust were
deemed to be assets of the Benefit Plan. Under a regulation issued by the
United States Department of Labor (the "Plan Asset Regulation"), the assets
of a Trust would be treated as plan assets of a Benefit Plan for the
purposes of ERISA and the Code only if the Benefit Plan acquired an "equity
interest" in the Trust and none of the exceptions contained in the Plan
Asset Regulation was applicable. An equity interest is defined under the
Plan Asset Regulation as an interest other than an instrument which is
treated as indebtedness under applicable local law and which has no
substantial equity features. The likely treatment of the Notes as debt
under ERISA will be described in the related Prospectus Supplement.
Regardless of whether the Notes are treated as an equity interest for
purposes of the Plan Asset Regulation, the acquisition or holding of such
Notes with plan assets of a Benefit Plan could be considered to give rise
to a prohibited transaction if the Seller, the Servicer or the applicable
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Issuer, Trustee or Indenture Trustee is or becomes a party in interest
under ERISA or a disqualified person under the Code with respect to such
Benefit Plan. In such case, certain exemptions from the prohibited
transactions rules may be available, depending upon the type and
circumstances of the Benefit Plan fiduciary making the decision to purchase
the Notes with assets of the Benefit Plan. Included among these exemptions
are Prohibited Transaction Exemption ("PTE") 84-14, applicable to certain
transactions effected by a qualified professional asset manager; PTE 90-1,
applicable to certain transactions entered into by an insurance company
separate account; PTE 91-38, applicable to certain transactions entered
into by a bank collective investment trust; PTE 95-60, applicable to
certain transactions entered into by an insurance company general account;
and PTE 96-23, applicable to certain transactions entered into by an
in-house asset manager. Purchasers acquiring Notes of any series with the
assets of a Benefit Plan shall be deemed to represent and warrant that such
purchase and holding will not give rise to a nonexempt prohibited
transaction.
Because the Certificates issued by a Trust that also issues Notes
will most likely be treated as equity interests under the Plan Asset
Regulation, such Certificates may not be acquired with the assets of any
Benefit Plan. Purchasers of the Certificates issued by a Trust that also
issues Notes shall be deemed to represent and warrant that they are not
purchasing the Certificates with the assets of a Benefit Plan.
Trusts That Do Not Issue Notes
The following discussion applies only to nonsubordinated Certificates
(referred to herein as "Senior Certificates") issued by a Trust that does
not issue Notes.
The related Prospectus Supplement will indicate whether the lead
underwriter named therein has been granted by the U.S. Department of Labor,
an exemption (the "Exemption") from certain of the prohibited transaction
rules of ERISA with respect to the initial purchase, the holding and the
subsequent resale by Benefit Plans of certificates representing interests
in asset-backed pass-through trusts that consist of certain receivables,
loans and other obligations that meet the conditions and requirements of
the Exemption. The receivables covered by the Exemption include motor
vehicle installment sales contracts such as the Receivables.
Among the conditions which must be satisfied for the Exemption to
apply to the Senior Certificates are the following:
(1) the acquisition of the Senior Certificates by a Benefit
Plan is on terms (including the price for the Senior Certificates)
that are at least as favorable to the Benefit Plan as they would be
in an arm's length transaction with an unrelated party;
(2) the rights and interests evidenced by the Senior
Certificates acquired by the Benefit Plan are not subordinated to the
rights and interests evidenced by other certificates of the Trust;
(3) the Senior Certificates acquired by the Benefit Plan have
received a rating at the time of such acquisition that is in one of
the three highest generic rating categories from either Standard &
Poor's Ratings Services, Moody's Investors Service, Inc., Duff &
Phelps Credit Rating Co. or Fitch Investors Service, L.P.;
(4) the Trustee is not an affiliate of any other member of
the Restricted Group (as defined below);
(5) the sum of all payments made to the underwriters in
connection with the distribution of the Senior Certificates
represents not more than reasonable compensation for underwriting the
Senior Certificates; the sum of all payments made to and retained by
the Seller pursuant to the sale of the Receivables to the Trust
represents not more than the fair market value of such Receivables;
and the sum of all payments made to and retained by the Servicer
represents not more than reasonable compensation for the Servicer's
services under the Sale and Servicing Agreement and reimbursement of
the Servicer's reasonable expenses in connection therewith; and
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(6) the Benefit Plan investing in the Senior Certificates is
an "accredited investor" as defined in Rule 501(a)(1) of Regulation D
of the Commission under the Securities Act.
Additional conditions must be satisfied for a Trust with a
Pre-Funding Account to be covered by the Exemption.
Moreover, the Exemption would provide relief from certain
self-dealing/conflict of interest or prohibited transactions only if, among
other requirements, (i) in the case of the acquisition of Senior
Certificates in connection with the initial issuance, at least fifty (50)
percent of the Senior Certificates are acquired by persons independent of
the Restricted Group, (ii) the Benefit Plan's investment in Senior
Certificates does not exceed twenty-five (25) percent of all of the Senior
Certificates outstanding at the time of the acquisition, and (iii)
immediately after the acquisition, no more than twenty-five (25) percent of
the assets of the Benefit Plan are invested in certificates representing an
interest in one or more trusts containing assets sold or serviced by the
same entity. The Exemption does not apply to Benefit Plans sponsored by the
Seller, any underwriter, the Trustee, the Servicer, any Obligor with
respect to Receivables included in the Trust constituting more than five
percent of the aggregate unamortized principal balance of the assets in the
Trust, or any affiliate of such parties (the "Restricted Group").
The related Prospectus Supplement will indicate whether the Seller
believes that all conditions of the Exemption other than those within the
control of the investors have been met with respect to the Senior
Certificates, and whether the Senior Certificates may be acquired by
Benefit Plans.
Because any Certificates issued by a Trust that are subordinate to
any other class of Securities (the "Subordinate Certificates") will not be
eligible for the relief afforded by the Exemption, such Subordinate
Certificates may not be acquired with the assets of a Benefit Plan. Each
purchaser of a Subordinate Certificate shall be deemed to represent and
warrant that it is not acquiring or holding the Subordinate Certificate
with the assets of a Benefit Plan.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement
with respect to the Notes, if any, of a given series and an underwriting
agreement with respect to the Certificates of such series (collectively,
the "Underwriting Agreements"), the Seller will agree to cause the related
Trust to sell to the underwriters named therein and in the related
Prospectus Supplement, and each of such underwriters will severally agree
to purchase, the principal amount of each class of Notes and Certificates,
as the case may be, of the related series set forth therein and in the
related Prospectus Supplement.
In each of the Underwriting Agreements with respect to any given
series of Securities, the several underwriters will agree, subject to the
terms and conditions set forth therein, to purchase all the Notes and
Certificates, as the case may be, described therein which are offered
hereby and by the related Prospectus Supplement if any of such Notes and
Certificates, as the case may be, are purchased.
In the initial distribution of the Securities, the Securities will
either be offered at prices set forth in the applicable Prospectus
Supplement or, if specified in the applicable Prospectus Supplement,
offered at varying prices in negotiated transactions. After the initial
public offering of such Securities, those public offering prices may
change.
Each Underwriting Agreement will provide that the Seller will
indemnify the underwriters against certain civil liabilities, including
liabilities under the Securities Act, or contribute to payments the several
underwriters may be required to make in respect thereof.
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Each Trust may, from time to time, invest the funds in its Trust
Accounts in Permitted Investments acquired from such underwriters or from
the Seller.
Pursuant to each Underwriting Agreement with respect to a given
series of Securities, the closing of the sale of any class of Securities
subject to such Underwriting Agreement will be conditioned on the closing
of the sale of all other such classes of Securities of that series.
The place and time of delivery for the Securities in respect of which
this Prospectus is delivered will be set forth in the related Prospectus
Supplement.
LEGAL OPINIONS
Certain legal matters relating to the Securities of any series will
be passed upon for the related Trust, the Seller and the Servicer by Nancy
C. Ferguson, Esq., General Counsel of the Servicer, and by Mayer, Brown &
Platt, Chicago, Illinois. Certain legal matters will be passed upon for the
Underwriters by its counsel set forth in the related Prospectus Supplement.
Mayer, Brown & Platt may from time to time render legal services to the
Seller, the Servicer and their affiliates.
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INDEX OF TERMS
ACAPS ..............................................................13
Actuarial Receivables.......................................................12
Additional Yield Supplement Amount..........................................35
APR ..............................................................11
Backup Servicer.............................................................37
Bankruptcy Code..............................................................5
Base Rate ..............................................................22
Benefit Plan ..............................................................46
Bill ..............................................................45
Business Day ..............................................................33
Buyer's Guide ............................................................. 48
Calculation Agent...........................................................23
Cede ...............................................................8
Cedel ..............................................................25
Cedel Participants..........................................................25
Certificate Balance..........................................................2
Certificate Distribution Account............................................31
Certificate Owner...........................................................21
Certificate Pool Factor.....................................................15
Certificate Rate.............................................................3
Certificateholders...........................................................7
Certificates ...............................................................1
Closing Date ..............................................................29
Code ..............................................................44
Collection Account..........................................................30
Collection Period...........................................................32
Commission ...............................................................2
Cooperative ..............................................................25
CSC ..............................................................14
Cutoff Date ..............................................................10
Dealer Agreement.............................................................3
Dealer Assignment............................................................3
Dealer Recourse.............................................................10
Dealers ...............................................................3
Definitive Certificates.....................................................26
Definitive Notes............................................................26
Definitive Securities.......................................................26
Depositaries ..............................................................23
Depository ..............................................................16
Determination Date..........................................................36
Direct Loans ..............................................................11
Distribution Date...........................................................22
DTC .............................................................A-1
DTC Participants............................................................23
DTC's Nominee ...............................................................8
Eligible Account............................................................32
Eligible Investments........................................................31
Euroclear ..............................................................25
Euroclear Operator..........................................................25
Euroclear Participants......................................................25
Events of Default...........................................................19
Exchange Act ...............................................................2
Exemption ..............................................................47
FASIT ..............................................................11
Final Scheduled Maturity Date................................................8
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Financed Vehicles............................................................1
Fixed Rate Securities.......................................................22
Floating Rate Securities....................................................22
FTC Rule ..............................................................42
Funding Period...............................................................7
GAAP ..............................................................38
Global Securities..........................................................A-1
Indenture ............................................................. 17
Indenture Trustee............................................................1
Indirect Participants.......................................................23
Initial Pool Balance........................................................39
Initial Receivables..........................................................8
Insolvency Laws............................................................ 43
Interest Rate ...............................................................3
Interest Reset Period.......................................................22
Investment Earnings.........................................................32
IRS ..............................................................44
Issuer ..............................................................21
LIBOR ..............................................................23
Note Distribution Account...................................................31
Note Pool Factor............................................................15
Noteholders ...............................................................7
Notes ...............................................................1
Obligor ..............................................................10
PAC ..............................................................18
Paragon ...............................................................1
Participants ..............................................................17
Payahead Account............................................................31
Payahead Balance............................................................33
Payaheads ..............................................................31
Payment Date ..............................................................17
Permitted Investments.......................................................31
Plan Assets Regulation......................................................46
Pool Balance ..............................................................15
Pooling and Servicing Agreement.............................................29
Pre-Funded Amount...........................................................15
Pre-Funding Account.........................................................15
Precomputed Receivables.....................................................12
Prepayments ...............................................................3
Prospectus Supplement........................................................1
Purchase Agreement..........................................................10
Purchase Amount.............................................................30
Rating Agency ............................................................., 8
Receivables ...............................................................1
Receivables Pool............................................................10
Registration Statement.......................................................2
Related Documents...........................................................20
Relief Act ..............................................................42
Required Rate ..............................................................35
Required Yield Supplement Amount............................................35
Reserve Account.............................................................34
Restricted Group............................................................48
Revolving Account...........................................................15
Revolving Period.............................................................7
Rule of 78's Receivables....................................................12
Sale and Servicing Agreement................................................29
Schedule of Receivables.....................................................29
66
<PAGE>
Securities ...............................................................1
Securities Act...............................................................2
Security Owners..............................................................8
Securityholders..............................................................7
Seller ...............................................................1
Senior Certificates.........................................................47
Series .............................................................A-1
Servicer ...............................................................1
Servicer Termination Events.................................................36
Servicing Fee ..............................................................33
Servicing Fee Rate..........................................................33
Simple Interest Receivable..................................................12
Spread ..............................................................22
Spread Multiplier...........................................................23
Strip Certificates..........................................................22
Strip Notes ..............................................................17
Strip Securities............................................................22
Subsequent Receivables.......................................................7
Subsequent Transfer Date....................................................29
Supplemental Servicing Fees.................................................33
TAC ..............................................................18
Terms and Conditions........................................................26
Transfer and Servicing Agreement............................................29
Trust ...............................................................1
Trust Accounts..............................................................31
Trust Agreement..............................................................1
Trustee ...............................................................1
U.S. Person .............................................................A-3
UCC ..............................................................30
Underwriters ...............................................................3
Underwriting Agreements.....................................................48
Warehouse Financing.........................................................30
Withholding Tax Regulations................................................A-3
Yield Supplement Account....................................................31
Yield Supplement Agreement..................................................35
Yield Supplement Amount.....................................................35
67
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Paragon
Auto Receivables Trust Asset Backed Notes and Asset Backed Certificates
(the "Global Securities") will be available only in book-entry form.
Investors in the Global Securities may hold such Global Securities through
any of The Depository Trust Company ("DTC"), Cedel or Euroclear. The Global
Securities will be tradeable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary
trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in
accordance with conventional eurobond practice (i.e., seven calendar day
settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures
applicable to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Securities will be effected on a
delivery-against-payment basis through the respective Depositaries of Cedel
and Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain
requirements and deliver appropriate U.S. tax documents to the securities
clearing organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the
name of Cede as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on
their behalf as direct and indirect Participants in DTC. As a result, Cedel
and Euroclear will hold positions on behalf of their participants through
their respective Depositaries, which in turn will hold such positions in
accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to U.S. corporate debt
obligations. Investor securities custody accounts will be credited with
their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global
security and no "lock-up" or restricted period. Global Securities will be
credited to the securities custody accounts on the settlement date against
payment in same-day funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and
seller's accounts are located to ensure that settlement can be made on the
desired value date.
Trading between DTC Participants. Secondary market trading between
DTC Participants will be settled using the procedures applicable to U.S.
corporate debt obligations in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be
settled using the procedures applicable to conventional eurobonds in
same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC
Participant to the account of a Cedel Participant or a Euroclear
Participant,
A-1
<PAGE>
the purchaser will send instructions to Cedel or Euroclear through a Cedel
Participant or Euroclear Participant at least one business day prior to
settlement. Cedel or Euroclear will instruct the respective Depositary, as
the case may be, to receive the Global Securities against payment. Payment
will include interest accrued on the Global Securities from and including
the last coupon payment date to and excluding the settlement date. Payment
will then be made by the respective Depositary to the DTC Participant's
account against delivery of the Global Securities. After settlement has
been completed, the Global Securities will be credited to the respective
clearing system and by the clearing system, in accordance with its usual
procedures, to the Cedel Participant's or Euroclear Participant's account.
The Global Securities credit will appear the next day (European time) and
the cash debit will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding
day when settlement occurred in New York). If settlement is not completed
on the intended value date (i.e., the trade fails), the Cedel or Euroclear
cash debit will be valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to
pre-position funds for settlement, either from cash on hand or existing
lines of credit, as they would for any settlement occurring within Cedel or
Euroclear. Under this approach, they may take on credit exposure to Cedel
or Euroclear until the Global Securities are credited to their accounts one
day later.
As an alternative, if Cedel or Euroclear has extended a line of
credit to them, Cedel Participants or Euroclear Participants can elect not
to pre-position funds and allow that credit line to be drawn upon the
finance settlement. Under this procedure, Cedel Participants or Euroclear
Participants purchasing Global Securities would incur overdraft charges for
one day, assuming they cleared the overdraft when the Global Securities
were credited to their accounts. However, interest on the Global Securities
would accrue from the value date. Therefore, in many cases the investment
income on the Global Securities earned during that one-day period may
substantially reduce or offset the amount of such overdraft charges,
although this result will depend on each Cedel Participant's or Euroclear
Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Global
Securities to the respective Depositary for the benefit of Cedel
Participants or Euroclear Participants. The sale proceeds will be available
to the DTC seller on the settlement date. Thus, to the DTC Participant a
cross-market transaction will settle no differently than a trade between
two DTC Participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Cedel Participants and Euroclear
Participants may employ their customary procedures for transactions in
which Global Securities are to be transferred by the respective clearing
system, through the respective Depositary, to a DTC Participant. The seller
will send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. In
these cases, Cedel or Euroclear will instruct the respective Depositary, as
appropriate, to deliver the Global Securities to the DTC Participant's
account against payment. Payment will include interest accrued on the
Global Securities from and including the last coupon payment date to and
excluding the settlement date. The payment will then be reflected in the
account of the Cedel Participant or Euroclear Participant the following
day, and receipt of the cash proceeds in the Cedel Participant's or
Euroclear Participant's account would be back-valued to the value date
(which would be the preceding day, when settlement occurred in New York).
Should the Cedel Participant or Euroclear Participant have a line of credit
with its respective clearing system and elect to be in debit in
anticipation of receipt of the sale proceeds in its account, the
back-valuation will extinguish any overdraft charges incurred over that
one-day period. If settlement is not completed on the intended value date
(i.e., the trade fails), receipt of the cash proceeds in the Cedel
Participant's or Euroclear Participant's account would instead be valued as
of the actual settlement date. Finally, day traders that use Cedel or
A-2
<PAGE>
Euroclear and that purchase Global Securities from DTC Participants for
delivery to Cedel Participants or Euroclear Participants should note that
these trades would automatically fail on the sale side unless affirmative
action were taken. At least three techniques should be readily available to
eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until
the purchase side of the day trade is reflected in their Cedel or
Euroclear accounts) in accordance with the clearing system's
customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would
give the Global Securities sufficient time to be reflected in their
Cedel or Euroclear account in order to settle the sale side of the
trade; or
(c) staggering the value dates for the buy and sell sides of
the trade so that the value date for the purchase from the DTC
Participant is at least one day prior to the value date for the sale
to the Cedel Participant or Euroclear Participant.
Certain U.S. Federal Income Tax Documentation Requirements
Subject to the discussion below concerning final withholding tax
regulations, a beneficial owner of Global Securities holding securities
through Cedel or Euroclear (or through DTC if the holder has an address
outside the U.S.) will be subject to the 30% U.S. withholding tax that
generally applies to payments of interest (including original issue
discount) on registered debt issued by U.S. Persons, unless (i) each
clearing system, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business in the chain of
intermediaries between such beneficial owner and the U.S. entity required
to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of
Securities that are non-U.S. Persons can obtain a complete exemption from
the withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status). If the information shown on Form W-8 changes, a new Form W-8 must
be filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income
(Form 4224). A non-U.S. Person, including a non-U.S. corporation or bank
with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Security Owners residing
in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing
Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty
provides only for a reduced rate, withholding tax will be imposed at that
rate unless the filer alternatively files Form W-8. Form 1001 may be filed
by the Security Owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Security Owner of a
Global Security or in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom
it holds (the clearing agency, in the case of persons holding directly on
the books of the clearing agency). Form W-8 and Form 1001 are effective for
three calendar years and Form 4224 is effective for one calendar year.
A-3
<PAGE>
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership (unless the IRS provides
otherwise by Treasury regulations) organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate or, for
taxable years beginning before January 1, 1997, a trust the income of which
is includible in gross income for United States tax purposes, regardless of
its source or, (iv) for taxable years beginning after December 31, 1996, a
trust if a U.S. court is able to exercise primary supervision over the
administration of the trust and one or more U.S. persons have the authority
to control all substantial decisions of the trust. This summary does not
deal with all aspects of U.S. Federal income tax withholding that may be
relevant to foreign holders of the Global Securities. Investors are advised
to consult their own tax advisers for specific tax advice concerning their
holding and disposing of the Global Securities.
On October 6, 1997, final Treasury regulations (the "Withholding Tax
Regulations") were issued that modify certain of the filing requirements
with which non-U.S. persons must comply in order to be entitled to an
exemption from U.S. withholding tax or a reduction to the applicable U.S.
withholding tax rate. Those persons currently required to file Form W-8
generally will continue to be required to file that form. However, the
requirement that non-U.S. persons submit Form W-8 is extended to most
non-U.S. persons who wish to seek an exemption from withholding tax on the
basis that income from the Global Securities is effectively connected with
the conduct of a U.S. trade or business (in lieu of Form 4224) and to non-U.S.
persons wishing to rely on a tax treaty to reduce the withholding tax rate
(in lieu of Form 1001). The Withholding Tax Regulations generally are
effective for payments of interest due after December 31, 1998, but Forms 4224
and 1001 filed prior to that date will continue to be effective until the
earlier of December 31, 1999 or the current expiration date of those forms.
Prospective investors are urged to consult their tax advisors with respect
to the effect of the Withholding Tax Regulations.
A-4
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED __________, ____
[PRELIMINARY GRANTOR TRUST PROSPECTUS SUPPLEMENT FORM]
(To Prospectus dated __________, ____)
[$______________]
PARAGON AUTO RECEIVABLES GRANTOR TRUST ____ - _
Issuer
$_____________ ____% Asset Backed Certificates, Class A
$______________ ____% Asset Backed Certificates, Class B
PARAGON AUTO RECEIVABLES CORPORATION
Seller
PARAGON ACCEPTANCE CORPORATION
Servicer
The Paragon Auto Receivables Grantor Trust _____-__ (the "Trust") will
be formed pursuant to a Pooling and Servicing Agreement, to be dated as of
_________, _____, among Paragon Auto Receivables Corporation, as seller (the
"Seller"), Paragon Acceptance Corporation in its capacity as servicer (in
such capacity, the "Servicer"), and ___________, as Trustee. The Trust will
issue $_________ aggregate principal amount of ____% Asset Backed
Certificates, Class A (the "Class A Certificates"), and $________ aggregate
principal amount of ____% Asset Backed Certificates, Class B (the "Class B
Certificates" and, together with the Class A Certificates, the
"Certificates"). The Class A Certificates will evidence in the aggregate an
approximate ___% undivided ownership in the Trust and the Class B
Certificates will evidence in the aggregate an approximate ___% undivided
ownership interest in the Trust. The rights of the Class B Certificateholders
to receive distributions with respect to the Receivables are subordinated to
the rights of the Class A Certificateholders to the extent described herein.
See "Description of the Certificates--Distributions." The assets of the Trust
will include a pool of motor vehicle retail installment contracts (the
"Receivables") secured by new or used automobiles, light duty trucks and
sports utility vehicles, all monies due or received thereunder or with
respect thereto after _________, _____, security interests in the vehicles
financed thereby, any proceeds from claims on insurance policies with respect
to the financed vehicles, certain rights under dealer agreements and certain
other agreements, rights with respect to deposit accounts in which
collections are held,[monies on deposit in a trust account (the "Pre-Funding
Account") to be established with the Trustee] and the proceeds of the
foregoing. [Distributions on Class B Certificates will be subordinated to
distributions on Class A Certificates to the extent described herein.]
[Additional Receivables (the "Subsequent Receivables") will be purchased by
the Trust from the Seller from time to time on or before __________, _____
from funds on deposit in the Pre-Funding Account.]
(cover continued on following next page)
------------------
Prospective investors should consider the material risks involved with an
investment in the securities discussed in the "Risk Factors" set forth at
page S-__ herein and at page ___ in the accompanying Prospectus (the
"Prospectus"). [Material risks associated with the Subsequent Receivables
are described at page __ of the accompanying Prospectus.]
<PAGE>
THE CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND DO
NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN PARAGON AUTO RECEIVABLES
CORPORATION, PARAGON ACCEPTANCE CORPORATION OR ANY OF THEIR AFFILIATES.
NEITHER THE CERTIFICATES NOR THE RECEIVABLES ARE INSURED OR GUARANTEED BY
PARAGON AUTO RECEIVABLES CORPORATION, PARAGON ACCEPTANCE CORPORATION OR ANY
OF THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions the Seller(1)(2)
------------ ------------- ----------------
Per Class A Certificate % % %
Per Class B Certificate % % %
Total $___________ $___________ $____________
- --------------------------
(1) Plus accrued interest, if any, from _______, _____.
(2) Before deducting expenses, estimated to be $_________.
------------------
The Certificates are offered by the Underwriters when, as and if issued and
accepted by the Underwriters and subject to their right to reject orders in
S-1
<PAGE>
whole or in part. It is expected that delivery of the Certificates will be
made in book-entry form through the Same Day Funds Settlement System of The
Depository Trust Company, or through Cedel Bank, societe anonyme or the
Euroclear System, on or about _______, _____.
Capitalized terms used in this Prospectus Supplement are defined
in this Prospectus Supplement on the pages indicated in the "Index of
Terms" on page ___ of this Prospectus Supplement or, to the extent not
defined herein, have the meanings assigned to such terms in the Prospectus.
Principal and interest to the extent of the Class A Certificate Rate or
Class B Certificate Rate, as appropriate, will be distributed on the [15th]
day of each month (the "Payment Date") commencing ____________, _____. The
Final Scheduled Payment Date on the Certificates will be in _____________,
_____ (the "Final Scheduled Payment Date").
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION
ABOUT THE OFFERING OF THE CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED
IN THE PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES
MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT
OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES DESCRIBED IN THIS
PROSPECTUS SUPPLEMENT, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
There is currently no secondary market for the Certificates
offered hereby and there is no assurance that one will develop. Each
Underwriter expects, but it is not obligated, to make a market in the
Certificates. There can be no assurance that a secondary market will
develop, or that it will provide Certificateholders with liquidity of
investment or that it will continue for the life of the Certificates
offered hereby.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, monthly
unaudited reports containing information concerning the Receivables will be
prepared by the Servicer and sent on behalf of the Trust only to Cede &
Co., as nominee of the Depository Trust Company and registered holder of
the Certificates. If Definitive Certificates are issued, these reports will
be sent on behalf of the Trust directly to each Certificateholder at its
registered address on file with the Trustee. See "Certain Information
Regarding the Securities--Book-Entry Registration" and "--Reports to
Securityholders" in the accompanying Prospectus. Such reports will not
constitute financial statements prepared in accordance with generally
accepted accounting principles. The Seller, as originator of the Trust,
will file with the Securities and Exchange Commission (the "Commission")
such periodic reports as are required under the Securities Exchange Act of
1934, as amended, and the rules and regulations of the Commission
thereunder. In addition, the Commission maintains a public access site on
the Internet through the World Wide Web at which site reports, information
statements and other information, including all electronic filings, may be
viewed. The Internet address of such World Wide Web site is
http://www.sec.gov.
S-2
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and
in the Prospectus. Capitalized terms used and not defined in this summary
are defined elsewhere in this Prospectus Supplement on the pages indicated
in the "Index of Terms" beginning at page S-__ or, to the extent not
defined herein, are defined in the Prospectus.
Issuer.................... Paragon Auto Receivables Grantor Trust ____-_
(the "Trust" or the "Issuer"), a trust
established pursuant to a Pooling and
Servicing Agreement, to be dated as of
______, _____ (as amended and supplemented
from time to time, the "Agreement"), among
the Seller, the Servicer and the Trustee.
Seller................... Paragon Auto Receivables Corporation, a
Delaware corporation (the "Seller"). See
"The Seller."
Servicer.................. Paragon Acceptance Corporation, a Delaware
corporation ("Paragon" or in its
capacity as servicer, the "Servicer").
Trustee................... _________________________, a ____________
banking corporation, as trustee under the
Agreement (the "Trustee"). The principal
offices of the Trustee from which
information regarding the Trust and the
Certificates are located at _____________.
The Certificates.......... The Trust will issue Asset Backed
Certificates pursuant to the Agreement in an
aggregate initial principal amount of
$_______. The Certificates represent
fractional undivided interests in the Trust.
The Certificates will consist of $_____
aggregate principal amount of ____% Asset
Backed Certificates, Class A (the "Class A
Certificates"), and $_____ aggregate
principal amount of ____% Asset Backed
Certificates, Class B (the "Class B
Certificates"). The Trust assets will
include: (i) specified motor vehicle retail
installment contracts (collectively, the
"Receivables") secured by new or used
automobiles, light duty trucks and sports
utility vehicles (the "Financed Vehicles");
(ii) all monies received thereunder and
after __________, _____ (the "Cutoff Date");
(iii) security interests in the Financed
Vehicles securing the Receivables; (iv) any
proceeds from claims on certain insurance
policies, refunds for costs of service
policies or contracts, refunds of unearned
premiums with respect to certain insurance
policies and any recourse to Dealers for any
of the foregoing; (v) certain rights under
Dealer Agreements; (vi) certain Eligible
Accounts in which collections are held; and
(vii) all income from and proceeds of the
foregoing. The Certificates will be issued
in fully registered form in denominations of
$1,000 and integral multiples thereof.
The Class A Certificates will evidence in the
aggregate an approximate ___% undivided
ownership interest (the "Class A
S-3
<PAGE>
Percentage") in the Trust, and the Class B
Certificates will evidence in the aggregate
an approximate _____% undivided ownership
interest (the "Class B Percentage") in the
Trust. The Class B Certificates are
subordinated to the Class A Certificates to
the extent described herein. See
"Description of the
Certificates--Distributions."
The Receivables.......... On __________, _____ (the "Closing Date"),
pursuant to the Agreement, the Trust will
purchase from the Seller Receivables having
an aggregate principal balance of
approximately $______________ as of the
Cutoff Date.
The Receivables consist of motor vehicle
retail installment contracts between an
Obligor and a Dealer. See "The Receivables
Pool" herein and "The Receivables Pools" in
the Prospectus.
The Receivables have been selected from the
motor vehicle receivables owned by Paragon
based on the criteria specified in the
Agreement and described herein and in the
Prospectus. See "The Receivables Pool"
herein and "The Receivables Pools" in the
Prospectus. No Receivable has or will have a
scheduled maturity that, after giving
prospective effect to any permitted
extensions or deferrals, would be later than
_________, _____ (the "Final Scheduled
Maturity Date"). As of the Cutoff Date, the
weighted average annual percentage rate of
the Receivables was approximately ______%
per annum, the weighted average remaining
term to maturity of the Receivables was
approximately _____ months and the weighted
average original term to maturity of the
Receivables was approximately _____ months.
As of the Cutoff Date, approximately _____%
of the aggregate principal balance of the
Receivables represented financing of new
vehicles and the remainder represented
financing of used vehicles.
The "Aggregate Principal Balance" means, at
any time, the sum of the outstanding
Principal Balances of the Receivables.
"Principal Balance" means, with respect to
any Receivable, as of any date, the Amount
Financed minus that portion of all payments
(including all scheduled payments and any
prepayments in full or partial prepayment)
received on or prior to such date and
allocable to principal in accordance with
the simple interest method. "Amount
Financed" means, with respect to a
Receivable, the "amount financed" within the
meaning of the Federal Truth-in-Lending Act,
which is the aggregate amount of credit
initially extended under such Receivable
toward the purchase price of the Financed
Vehicle and related costs, including amounts
of credit extended in respect of
accessories, insurance premiums, service and
warranty policies or contracts and other
items customarily financed as part of motor
vehicle retail installment contracts.
S-4
<PAGE>
Terms of the Certificates
A. Payment Dates....... Distributions with respect to the
Certificates will be made on the 15th day of
each month or, if any such day is not a
Business Day, on the next succeeding
Business Day (each, a "Payment Date"),
commencing __________, _____. Distributions
will be made to Certificateholders of record
as of the Business Day preceding the
applicable Payment Date (each, a "Record
Date"). "Business Day" means any day other
than a Saturday, Sunday or other day on
which commercial banking institutions or
trust companies in St. Louis, Missouri, Los
Angeles, California, New York, New York or
_____________, _____________ are authorized
or required to be closed. "Collection
Period" means (a) the period from (but not
including) the Cutoff Date to and including
__________, _____ and (b) thereafter, each
calendar month during the term of the
Agreement.
B. Class A Certificate
Rate............... ____% per annum (the "Class A Certificate Rate").
C. Class B Certificate
Rate............... ____% per annum (the "Class B Certificate Rate").
D. Interest............. On each Payment Date, interest at the Class A
Certificate Rate on the Class A Certificate
Balance and interest at the Class B
Certificate Rate on the Class B Certificate
Balance, in each case as of the immediately
preceding Payment Date (after giving effect
to all payments of principal made on such
preceding Payment Date) will be paid to the
holders of record of the Class A
Certificates ("Class A Certificateholders")
and the holders of record of the Class B
Certificates ("Class B Certificateholders";
the Class A Certificateholders and the Class
B Certificateholders are collectively
referred to herein as the
"Certificateholders") as of the Record Date
to the extent that sufficient funds are on
deposit for such Payment Date in the
Collection Account or available in the
Reserve Account to make such distribution.
See "Description of the
Certificates--Distributions" and
"--Accounts" herein. The rights of Class B
Certificateholders to receive payments of
interest will be subordinated to the rights
of the Class A Certificateholders to receive
payments of interest to the extent described
herein. See "Description of the
Certificates--Distributions." Interest in
respect of a Payment Date will accrue from
the preceding Payment Date (or, for the
first Payment Date, from ______, _____) to
and including such Payment Date.
E. Principal........... On each Payment Date, all payments of
principal on the Receivables received by the
Servicer during the preceding Collection
Period, as described more fully herein, plus
an amount equal to the aggregate principal
balance of any Receivables which became
Defaulted Receivables during the preceding
Collection Period, will be distributed by
the Trustee pro rata to the Class A
Certificateholders and to the Class B
Certificateholders of record on the
preceding Record Date, to the extent that
sufficient funds are on deposit in the
S-5
<PAGE>
Collection Account or available in the
Reserve Account to make such distribution.
See "Description of the
Certificates--Distributions" and
"--Accounts." The rights of the Class B
Certificateholders to receive payments of
principal will be subordinated to the rights
of the Class A Certificateholders to receive
payments of interest and principal to the
extent described herein. See "Description of
the Certificates--Distributions." The "Class
A Certificate Balance" and "Class B
Certificate Balance" will initially equal
$________ and $_________, respectively, and,
in each case, will thereafter equal the
initial Class A Certificate Balance or the
initial Class B Certificate Balance, as the
case may be, reduced by all principal
distributions on the Class A Certificates
and the Class B Certificates, respectively.
F. Optional Repurchase
of the Receivables;
Prepayment......... The Servicer may purchase all the Receivables
and other Trust property on any Payment Date
if, as of the related Accounting Date, the
Aggregate Principal Balance has declined to
less than 10% of the Initial Pool Balance. In
such event, on the related Payment Date, the
Certificateholders will receive as a
prepayment in full an amount equal to the
Certificate Balance plus accrued and unpaid
interest thereon at the Certificate Rate.
The "Initial Principal Balance" will equal
the Aggregate Principal Balance as of the
Cutoff Date. See "Description of the
Certificates--Optional Repurchase of
Receivables; Prepayment."
Subordination of Class B
Certificates............. Distributions of interest and principal on
the Class B Certificates will be
subordinated in priority of payment to
interest and principal due on the Class A
Certificates to the extent described herein.
See "Description of the
Certificates--Distributions." The Class B
Certificateholders will not receive any
distributions of interest with respect to a
Collection Period until the full amount of
interest on the Class A Certificates
relating to such Collection Period has been
deposited in the Class A Distribution
Account. The Class B Certificateholders will
not receive any distributions of principal
with respect to such Collection Period until
the full amount of interest on and principal
of the Class A Certificates relating to such
Collection Period has been deposited in the
Class A Distribution Account. See "Risk
Factors--Risks related to Subordination" and
"--Risks related to Limited Assets of Trust"
in the Prospectus.
[Pre-Funding Account].... [During the period (the "Funding Period")
from and including the Closing Date until
the earliest of (i) the Determination Date
on which (a) the Pre-Funded Amount is less
than $________, (b) an Event of Default has
occurred under the Indenture or a Servicer
Termination Event has occurred under the
Pooling and Servicing Agreement, (c) certain
events of insolvency have occurred with
respect to the Seller or the Servicer or
(ii) the close of business on the ________
Payment Date, the Pre-Funded Amount will be
maintained in
S-6
<PAGE>
an account in the name of the Indenture
Trustee (the "Pre-Funding Account"). The
Pre-Funded Amount is expected to initially
equal approximately $_____________ and,
during the Funding Period, will be reduced
by the principal balance of Subsequent
Receivables purchased by the Trust from time
to time in accordance with the Pooling and
Servicing Agreement. The Seller expects that
the Pre-Funded Amount will be reduced to
less than $_________ by the ________ Payment
Date. Any Pre-Funded Amount remaining at the
end of the Funding Period will be payable to
the Noteholders and Certificateholders pro
rata in proportion to the respective
principal balances of each class of
Certificates. See "Description of the
Transfer and Servicing Agreements --
Pre-Funding Account; Subsequent
Receivables."]
Reserve Account.......... A reserve account (the "Reserve Account")
will be created with an initial deposit by
the Seller of cash or certain investments
having a value of at least $________ (the
"Reserve Account Initial Deposit"). In
addition, on each Payment Date, any amounts
on deposit in the Collection Account with
respect to the preceding Collection Period
after payments to the Certificateholders,
the Servicer and the Trustee have been made
will be deposited into the Reserve Account
until the amount on deposit in the Reserve
Account is equal to the Reserve Account
Required Amount.
On or prior to the Business Day preceding
each Payment Date (the "Deposit Date"), the
Trustee will withdraw funds from the Reserve
Account, to the extent of the funds therein,
to the extent (a) the sum of the amounts
required to be distributed to
Certificateholders and the Servicer on the
related Payment Date exceeds (b) the amount
on deposit in the Collection Account with
respect to the preceding Collection Period.
If the amount on deposit in the Reserve
Account is reduced to zero,
Certificateholders will bear the credit and
other risks associated with ownership of the
Receivables, including the risk that the
Trust may not have a perfected security
interest in the Financed Vehicles. See "Risk
Factors" herein and in the Prospectus,
"Description of the Certificates--Accounts"
herein and "Certain Legal Aspects of the
Receivables" in the Prospectus.
Material Federal Income
Consequences............. In the opinion of Mayer, Brown & Platt, the
Trust will be treated as a grantor trust for
federal income tax purposes and will not be
subject to federal income tax. Accordingly,
the Certificateholders will be treated as
owners of the Receivables for federal income
tax purposes. Certificateholders will report
their pro rata share of all income earned on
the Receivables (other than amounts, if any,
treated as "stripped coupons") and, subject
to certain limitations in the case of
Certificateholders who are individuals,
trusts, or estates, may deduct their pro
rata share of reasonable servicing and other
fees. See "Material Federal Income Tax
Consequences" and "Certain State Tax
S-7
<PAGE>
Consequences" herein and in the Prospectus
for additional information concerning the
application of federal and state tax laws to
the Trust and the Securities.
ERISA Considerations..... Subject to the considerations discussed under
"ERISA Considerations" herein and in the
Prospectus, the Class A Certificates are
eligible for purchase by employee benefit
plans.
The Class B Certificates and any beneficial
interest in such Class B Certificates may
not be acquired with the assets of an
employee benefit plan subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or with the
assets of an individual retirement account.
See "ERISA Considerations" herein and in the
Prospectus.
Ratings of the
Certificates............ It is a condition to the issuance of the
Class A Certificates that they be rated in
the highest investment rating category by at
least one nationally recognized rating
agency (the "Rating Agency"), and it is a
condition to the issuance of the Class B
Certificates that they be rated by at least
one nationally recognized rating agency in
the "A" category. The ratings of the
Certificates address the likelihood of the
timely payment of interest on and the
ultimate payment of principal of the
Certificates pursuant to their terms. These
ratings are not a recommendation to buy,
sell or hold the Certificates. There can be
no assurance that a rating will not be
lowered or withdrawn by a rating agency if
circumstances so warrant. See "Risk
Factors--Ratings of the Securities" in the
Prospectus and "Risk Factors--Ratings of the
Certificates" herein.
S-8
<PAGE>
RISK FACTORS
In addition to the other information contained herein and in the
Prospectus, prospective investors should consider carefully the following
risk factors and the information contained in "Risk Factors" in the
Prospectus.
Class B Certificates Subordinated to Class A Certificates
Distributions of interest and principal on the Class B
Certificates will be subordinated in priority of payment to interest on the
Class A Certificates. No distributions with respect to a Collection Period
will be made on the Class B Certificates until the full amount of interest
on and principal of the Class A Certificates on the related Payment Date
has been distributed to the Class A Certificateholders.
Limited Assets of Trust on Which Certificateholders Can Rely for Payments
The Trust will not have, nor is it permitted or expected to have,
any significant assets or sources of funds other than the Receivables and
the Reserve Account. Holders of the Certificates must rely for repayment
upon payments on the Receivables and, if and to the extent available,
amounts on deposit in the Reserve Account. Similarly, although funds in the
Reserve Account will be available on each Payment Date to cover shortfalls
in distributions of interest and principal on the Certificates, amounts to
be deposited in the Reserve Account are limited in amount. If the Reserve
Account is exhausted, the Trust will depend solely on current distributions
on the Receivables to make payments on the Certificates.
Amounts on deposit in the Reserve Account will be available on any
Payment Date first to cover payment of Servicing Fees to the Servicer, then
shortfalls in distributions of interest on the Class A Certificates and
then shortfalls in distributions of interest on the Class B Certificates.
After distributions of interest on the Certificates have been made, the
remaining amounts on deposit in the Reserve Account will be available first
to cover shortfalls in distributions of principal on the Class A
Certificates and then shortfalls in distributions of principal on the Class
B Certificates. If the Reserve Account is exhausted, the Trust will depend
solely on payments on the Receivables to make distributions on the
Certificates, and Certificateholders will bear the risk of delinquency,
losses and repossessions with respect to the Receivables. There can be no
assurance that the future delinquency, loss and repossession experience of
the Trust with respect to the Receivables will be better or worse than that
set forth herein with respect to the Receivables serviced by the Servicer.
Any amounts released from the Reserve Account to the Seller will not be
available to the Certificateholders. See "The Receivables Pool--Pool
Composition" and "Delinquency and Net Losses" and "The Receivables Pools"
in the Prospectus and "Description of the Certificates--Reserve Account"
and "Distributions."
Risk That Principal on Certificates May Pay Down Earlier Than Expected
As the rate of payment of principal of each class of the
Certificates depends on the rate of payment (including prepayments) of the
principal balance of the Receivables, the final distribution in respect of
each class of the Certificates could occur significantly earlier than the
Final Scheduled Payment Date. It is expected that the final distribution in
respect of the Certificates will occur on or prior to the Final Scheduled
Payment Date. However, if sufficient funds are not available to reduce the
aggregate Certificate Balance of either class of Certificates to zero on or
prior to the Final Scheduled Payment Date, the final distribution in
respect of such class of Certificates could occur later than such date. See
"Weighted Average Life of the Certificates" herein and "Weighted Average
Life of the Securities" in the Prospectus.
S-9
<PAGE>
Payments on Certificates May Be Affected by Regional Economic Conditions
SIGNIFICANT GEOGRAPHIC CONCENTRATION MAY INCREASE THE EXPOSURE OF
THE TRUST TO THE ECONOMIC CONDITIONS IN CERTAIN STATES. Economic conditions
in states where Obligors reside may affect the delinquency, loss and
repossession experience of the Trust with respect to the Receivables.
Obligors on Receivables representing approximately ___%, ___%, ___% and
___% by principal balance of the Receivables were located in ________,
________, ________ and ________ at the Cutoff Date. As a result, economic
conditions in such states may have a disproportionate effect on prepayments
and/or defaults in respect of the Receivables and thus on amounts available
for distribution to Certificateholders. In particular, an economic downturn
in one or more of such states could adversely affect the performance of the
Trust as a whole (even if national economic conditions remain unchanged or
improve) as obligors in such state or states experience the effects of such
a downturn and face greater difficulty in making payments on their Financed
Vehicles. See "The Receivables Pool" herein.
Ratings of the Certificates Do Not Address Suitability of Investment
It is a condition to the issuance of the Class A Certificates that
they be rated in the highest investment rating category by at least one
Rating Agency, and it is a condition to the issuance of the Class B
Certificates that they be rated by at least one Rating Agency in the "A"
category. A rating is not a recommendation to purchase, hold or sell the
Certificates, inasmuch as such rating does not comment as to market price
or suitability for a particular investor. The ratings of the Certificates
address the likelihood of the payment of principal and interest on the
Certificates pursuant to their terms. There can be no assurance that a
rating will remain for any given period of time or that a rating will not
be lowered or withdrawn entirely by a Rating Agency if in its judgment
circumstances in the future so warrant.
THE TRUST
The Seller will establish the Trust by selling and assigning the
Trust property, as described below, to the Trustee in exchange for the
Certificates. The Servicer will service the Receivables pursuant to the
Agreement and will be compensated for acting as the Servicer. See
"Description of the Certificates--Servicing Compensation and Payment of
Expenses." To facilitate servicing and to minimize administrative burden
and expense, the Servicer will be appointed to act as custodian for the
Receivables originated by it or purchased by it from a Dealer, but the
Trustee will not stamp the Receivables to reflect the sale and assignment
of the Receivables to the Trust or amend the certificates of title to the
Financed Vehicles. In the absence of amendments to the certificates of
title, the Trustee may not have perfected security interests in the
Financed Vehicles securing the Receivables originated in some states.
See "Certain Legal Aspects of the Receivables" in the Prospectus.
If the protection provided to the investment of the
Certificateholders by the Reserve Account and, in the case of the Class A
Certificateholders, the subordination of the Class B Certificates, is
insufficient, the Trust will look only to the Obligors on the Receivables,
the proceeds from the repossession and sale of Financed Vehicles which
secure defaulted Receivables and the proceeds from any Dealer Recourse. In
such event, certain factors, such as the Trust's not having first priority
perfected security interests in some of the Financed Vehicles, may affect
the Trust's ability to realize on the collateral securing the Receivables,
and thus may reduce the proceeds to be distributed to Certificateholders
with respect to the Certificates. See "Description of the
Certificates--Distributions" and "--Accounts" herein and "Certain Legal
Aspects of the Receivables" in the Prospectus.
Each Certificate represents a fractional undivided ownership
interest in the Trust. The Trust property includes retail installment sale
contracts secured by new or used automobiles, light duty trucks or sports
utility vehicles, and all payments received thereunder after the Cutoff
Date. The Trust property also includes (a) such amounts as from time to
time may be held in one or more trust accounts established and maintained
by the Servicer pursuant to the Agreement, as described below; (b) security
interests in the Financed Vehicles and any accessions thereto; (c) the
rights to proceeds with respect to the Receivables from claims on insurance
S-10
<PAGE>
policies covering the Financed Vehicles; (d) any property that shall have
secured a Receivable and that shall have been acquired by the Trustee; (e)
any Dealer Recourse and any other rights of Paragon under Dealer
Agreements; (f) rights under the Purchase Agreement; (g) the Seller's
rights to certain documents and instruments relating to the Receivables;
(h) certain rebates of premiums and other amounts relating to certain
insurance policies and other items financed under the Receivables; and (i)
any and all proceeds of the foregoing. The Reserve Account will be
maintained by the Trustee for the benefit of the Certificateholders, but
will not be part of the Trust.
THE RECEIVABLES POOL
The Receivables were purchased or originated by Paragon in the
ordinary course of its business. The pool of Receivables (the "Receivables
Pool") will consist of Receivables purchased by the Trust as of the Cutoff
Date. The Receivables have been selected from the Receivables portfolio of
Paragon for inclusion in the Receivables Pool by several criteria, some of
which are set forth in the Prospectus under "The Receivables Pool," as well
as the requirement that each Receivable: (a) had no amount due 10% or more of
which was more than 29 days past due as of the Cutoff Date; (b) has an APR
of not less than _____% and not more than _____%; [(c) provides for level
monthly payments that fully amortize the amount financed over an original
term of at least _____ months and not more than ____ months (provided
payments are made on the applicable due dates);] (d) had an outstanding
Principal Balance as of the Cutoff Date of not less than $_______ and not
more than $_______; and (e) had a remaining term as of the Cutoff Date of
at least ___ months and not more than ___ months. The Receivables were
originated on or before ________, ____. The composition of the Receivables
Pool as of the Closing Date will not deviate from the composition of the
Receivables Pool as of the Cutoff Date. No selection procedures believed by
the Seller to be adverse to the Certificateholders were used in selecting
the Receivables.
The tables below set forth information regarding the composition
and characteristics of the Receivables Pool as of the Cutoff Date.
S-11
<PAGE>
Composition of the Receivables
as of the Cutoff Date
Aggregate Principal Balance..................................$___________
Number of Receivables..............................................._____
Average Amount Financed......................................$___________
Range of Amounts Financed....................$___________ to $___________
Average Remaining Principal Balance..........................$___________
Range of Remaining Principal Balances........$___________ to $___________
Weighted Average APR..............................................._____%
Range of APRs............................................_____% to _____%
Weighted Average Original Term to
Maturity (1)................................................____ months
Range of Original Terms to Maturity...................____ to ____ months
Weighted Average Remaining Term to
Maturity (1)................................................____ months
Range of Remaining Terms to Maturity..................____ to ____ months
New Vehicles (Percentage of Aggregate
Principal Balance)................................................____%
Used Vehicles (Percentage of Aggregate
Principal Balance)................................................____%
(1) Rounded to the nearest month.
S-12
<PAGE>
<TABLE>
<CAPTION>
Distribution of the Receivables by APR
as of the Cutoff Date
<S> <C> <C> <C> <C>
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
APR Range Balance Balance (1) Receivables Receivables (1)
----------- -------------- -------------- ----------- ---------------
% $ % %
______________ _____________ ___________ _____________
TOTAL $ 100.00% 100.00%
(1) Percentages may not add up to 100.00% because of rounding.
<CAPTION>
Distribution of Receivables by Principal Place of Business of Dealer
as of the Cutoff Date
<S> <C> <C> <C> <C>
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
State Balance Balance (1) Receivables Receivables (1)
----------- -------------- -------------- ----------- ---------------
$ % %
______________ _____________ ___________ _____________
TOTAL $ 100.00% 100.00%
(1) Percentages may not add up to 100.00% because of rounding.
S-13
<PAGE>
<CAPTION>
Distribution by Original Term to Scheduled Maturity of the Receivables
as of the Cutoff Date
<S> <C> <C> <C> <C>
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
Range of Original Terms Balance Balance (1) Receivables Receivables(1)
- ----------------------- ------- -------------- ----------- --------------
to months $ % %
to months
to months
to months
to months
to months
to months
to months
to months
months
___________ _____________ ___________ _____________
TOTAL $ 100.00% 100.00%
(1) Percentages may not add up to 100.00% because of rounding.
<CAPTION>
Distribution by Remaining Term to Scheduled Maturity of the Receivables
as of the Cutoff Date
<S> <C> <C> <C> <C>
Percentage
Aggregate by Aggregate Percentage
Range of Principal Principal Number of by Number of
Remaining Terms Balance Balance (1) Receivables Receivables(1)
- --------------- ------- ------------- ----------- --------------
to months $ % %
to months
to months
to months
to months
to months
to months
to months
to months
to months
months
___________ _____________ ___________ _____________
TOTAL $ 100.00% 100.00%
(1) Percentages may not add up to 100.00% because of rounding.
S-14
<PAGE>
<CAPTION>
Distribution of Receivables by Amount Financed
as of the Cutoff Date
<S> <C> <C> <C> <C>
Percentage
Aggregate by Aggregate Percentage
Amount Principal Principal Number of by Number of
Financed Balance Balance (1) Receivables Receivables(1)
- ----------------- ------- ------------- ----------- --------------
$5,000.00 to $9,999.99 $ % %
$10,000.00 to $14,999.99
$15,000.00 to $19,999.99
$20,000.00 to $24,999.99
$25,000.00 to $29,999.99
$30,000.00 to $34,999.99
$35,000.00 to $39,999.99
$40,000.00 to $44,999.99
$45,000.00 to $49,999.99
$50,000.00 to $54,999.99
$55,000.00 to $59,999.99
$60,000.00 to $64,999.99
$65,000.00 to $69,999.99
$100,000.00 and above
___________ _____________ ___________ _____________
TOTAL $ 100.00% 100.00%
(1) Percentages may not add up to 100.00% because of rounding.
<CAPTION>
Distribution of Receivables by Current Principal Balance
as of the Cutoff Date
<S> <C> <C> <C> <C>
Percentage
Aggregate by Aggregate Percentage
Current Principal Principal Number of by Number of
Principal Balance Balance Balance (1) Receivables Receivables(1)
- ----------------- ------- ------------- ----------- --------------
$5,000.00 to $9,999.99 $ % %
$10,000.00 to $14,999.99
$15,000.00 to $19,999.99
$20,000.00 to $24,999.99
$25,000.00 to $29,999.99
$30,000.00 to $34,999.99
$35,000.00 to $39,999.99
$40,000.00 to $44,999.99
$45,000.00 to $49,999.99
$50,000.00 to $54,999.99
$55,000.00 to $59,999.99
$60,000.00 to $64,999.99
$95,000.00 to $99,999.99
___________ _____________ ___________ _____________
TOTAL $ 100.00% 100.00%
(1) Percentages may not add up to 100.00% because of rounding.
</TABLE>
S-15
<PAGE>
Delinquencies and Loss Experience
The following tables set forth information relating to the
delinquency and loss experience of Paragon for the periods indicated. There
is no assurance that the delinquency and credit loss experience with
respect to Paragon's automobile, light duty truck and sports utility
vehicle installment contracts in the future, or that the experience of the
Receivables owned by the Trust and pledged to the Indenture Trustee for the
benefit of the [Note][Security] holders, will be similar to that set forth
below.
Paragon began acquiring contracts in August of 1996.
Delinquencies, repossessions and net losses have increased steadily since
that time due to seasoning of the pool of contracts. Fluctuations in
delinquencies, repossessions and losses generally follow trends in the overall
economic environment and may be affected by such factors as increased
competition for obligors, the supply of and demand for automobiles, light
duty trucks and sports utility vehicles, rising consumer debt burden per
household and increases in personal bankruptcies. The credit enhancement for
the Trust has been designed to protect [Note][Security] holders against
increases in delinquencies and losses. If, however, any such increase is
greater than anticipated, delays in payments of collections of the Receivables
could occur or reductions in the amount of payments to [Note][Security] holders
could result.
For a description of Paragon's underwriting and collections
practices, see "The Receivables-Underwriting" and "-Servicing and Collections"
in the Prospectus.
S-16
<PAGE>
<TABLE>
<CAPTION>
PARAGON ACCEPTANCE CORPORATION
Historical Delinquency Experience
As of
9/30/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97
------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Aggregate Principal No. of contracts 77 486 1,180 2,090 3,292 4,576
Balance at Period End(1) Amount ($) 1,169,188 7,889,627 19,105,772 33,882,836 53,902,072 75,755,941
------------------- --------- --------- ---------- ---------- ---------- ----------
Delinquencies
30 - 59 days No. of contracts 0 2 4 14 47 66
Pay Off Balance ($) 0 21,084 68,810 283,003 723,757 1,031,132
% of Principal 0.00% 0.27% 0.36% 0.84% 1.34% 1.36%
60 - 89 days No. of contracts 0 0 0 3 3 10
Pay Off Balance ($) 0 0 0 34,773 33,718 160,904
% of Principal 0.00% 0.00% 0.00% 0.10% 0.06% 0.21%
90 days or more No. of contracts 0 0 0 0 3 1
Pay Off Balance ($) 0 0 0 0 49,982 14,185
% of Principal 0.00% 0.00% 0.00% 0.00% 0.09% 0.02%
---------- --------- ---------- ---------- ---------- ----------
Total Delinquencies No. of contracts 0 2 4 17 53 77
Pay Off Balance ($) 0 21,084 68,810 317,776 807,457 1,206,221
% of Principal 0.00% 0.27% 0.36% 0.94% 1.50% 1.59%
Amount in No. of vehicles 0 0 2 6 4 7
Repossession Pay Off Balance ($) 0 0 33,804 105,815 94,154 112,910
Inventory % of Principal 0.00% 0.00% 0.18% 0.31% 0.17% 0.15%
---------- --------- ---------- ---------- ---------- ----------
Total Delinquencies No. of contracts &
and Amount in vehicles 0 2 6 23 57 84
Repossession Pay Off Balance ($) 0 21,084 102,614 423,591 901,611 1,319,131
% of Principal 0.00% 0.27% 0.54% 1.25% 1.67% 1.74%
========== ========= ========== ========== ========== ==========
<CAPTION>
PARAGON ACCEPTANCE CORPORATION
Historical Delinquency Experience
3/31/98 6/30/98 9/30/98
------- ------- -------
<S> <C> <C> <C> <C>
Aggregate Principal No. of contracts 6,471 8,667 10,435
Balance at Period End(1) Amount ($) 107,228,391 145,663,968 176,207,183
--------------------- ------------- ------------ ------------
Delinquencies
30 - 59 days No. of contracts 68 132 136
Pay Off Balance ($) 1,189,755 2,213,174 2,231,656
% of Principal 1.11% 1.52% 1.27%
60 - 89 days No. of contracts 13 22 37
Pay Off Balance ($) 219,789 405,439 565,302
% of Principal 0.21% 0.28% 0.32%
90 days or more No. of contracts 7 4 10
Pay Off Balance ($) 111,797 92,083 143,667
% of Principal 0.10% 0.06% 0.08%
------------ ------------- ------------
Total Delinquencies No. of contracts 88 158 183
Pay Off Balance ($) 1,521,342 2,710,696 2,940,625
% of Principal 1.42% 1.86% 1.67%
Amount in No. of vehicles 19 24 24
Repossession Pay Off Balance ($) 241,598 434,530 368,665
Inventory % of Principal 0.23% 0.30% 0.21%
------------- ------------- -------------
Total Delinquencies No. of contracts &
and Amount in vehicles 107 182 207
Repossession Pay Off Balance ($) 1,762,940 3,145,226 3,309,290
% of Principal 1.64% 2.16% 1.88%
============= ============= ===========
</TABLE>
(1) Aggregate Principal Balance equals the net finance receivables for
all contracts serviced, excluding repossessed vehicles. The amounts
are on a basis consistent with Paragon's financial statement
presentation of Contracts Held for Sale, and include such items as
unamortized dealer participation and deferred initial direct costs,
reserve for losses, and unearned finance charges on precomputed
contracts.
S-17
<PAGE>
<TABLE>
<CAPTION>
PARAGON ACCEPTANCE CORPORATION
Historical Net Loss Experience
9/30/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97
------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Average Aggregate
Principal Balance $443,904 $4,229,961 $13,791,251 $26,544,803 $43,690,638 $64,796,884
======== ========== =========== =========== =========== ===========
Gross Charge-Offs(1) $0 $0 $4,006 $42,227 $103,098 $228,598
Recoveries(2) $0 $0 $0 $985 $102 $80
----- ------- ------ ----- ------- ------
Net Losses $0 $0 $4,006 $41,242 $102,996 $228,518
===== ====== ====== ======== ======== ========
Net Losses as a
Percentage of Average
Aggregate Principal
Balance(3) 0.00% 0.00% 0.03% 0.16% 0.24% 0.35%
===== ===== ===== ===== ===== =====
</TABLE>
PARAGON ACCEPTANCE CORPORATION
Historical Net Loss Experience
Year Ended
3/31/98 6/30/98 9/30/98 9/30/98
------- ------- ------- -------
Average Aggregate
Principal Balance $90,934,548 $126,481,513 $160,920,635 $111,068,155
=========== ============ ============ ============
Gross Charge-Offs(1) $235,758 $573,477 $577,162 $1,614,995
Recoveries(2) $23,224 $84,559 $189,766 $297,629
-------- ------- -------- --------
Net Losses $212,534 $488,918 $387,396 $1,317,366
======== ======== ======== ==========
Net Losses as a
Percentage of Average
Aggregate Principal
Balance(3) 0.23% 0.39% 0.24% 1.19%
===== ===== ===== =====
(1) Gross Charge-Offs are defined as principal balance at time of
charge-off less net sale proceeds.
(2) Recoveries are post charge-off amounts that are collected and applied
toward the obligors' deficiency balance.
(3) Percentages are not annualized.
S-18
<PAGE>
Year 2000 Compliance
The year 2000 issue is the result of computer programs being written
to store and process data using two digits rather than four to define the
applicable year. Any computer programs used by Paragon that have date
sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations. Paragon's critical
computer applications software is not maintained in-house. Rather, Paragon
operates under service agreements with outside vendors that provide Paragon
(and many other institutions) access to the applications that are
maintained by the vendors and run on the vendors' mainframe computers.
These critical applications have been certified as year 2000 compliant.
Paragon has also assessed the potential impact of year 2000 noncompliance
on the part of other external relationships and, subject to Paragon's
ongoing review of vendors' year 2000 compliance, Paragon is not aware at
this time of any such issues that would have a material adverse effect on
Paragon's financial position, cash flows or results of operations. As a
result, subject to Paragon's ongoing compliance efforts, the costs and
uncertainties relating to timely resolution of year 2000 issues applicable
to Paragon's business and operations are not reasonably expected by the
Seller to have a material adverse effect on Paragon's financial position,
cash flows or results of operations. The preceding two sentences are
forward-looking statements and the actual costs could differ materially
from the costs currently anticipated by Paragon.
THE SELLER, THE SERVICER AND PARAGON
The Seller is a wholly-owned subsidiary of Paragon. Information
regarding the Seller is set forth under "The Seller" in the Prospectus and
additional information about Paragon and the Servicer is set forth under
"Paragon and the Servicer" in the Prospectus. Paragon was incorporated in
the State of Delaware in November 1994 and began purchasing contracts in
August 1996. Paragon was initially capitalized with approximately
$8,400,000 in preferred and common stock held by an investment fund managed
by Triumph Capital Group, Inc. ("Triumph") and Paragon's senior management.
Triumph is a private investment management company founded in 1990 and
based in Boston, Massachusetts. Triumph manages three early stage and
mezzanine investment funds for institutional investors with capital
commitments equal to approximately $500,000,000. In April 1998, Paragon
issued approximately $14,000,000 in additional preferred and common stock
to three institutional investors not affiliated with Triumph. Other funding
sources available to Paragon include a warehouse lending facility provided
by ContiTrade Services, L.L.C. ("CTS"), and a $4,000,000 subordinated
lending facility also provided by CTS. CTS holds a warrant to purchase up
to approximately 7.5% of the common stock of Paragon.
WEIGHTED AVERAGE LIFE OF THE CERTIFICATES
Information regarding certain maturity and prepayment
considerations with respect to the Certificates is set forth under
"Weighted Average Life of the Securities" in the Prospectus. As the rate of
payment of principal of each class of the Certificates depends primarily on
the rate of payment (including prepayments and liquidations due to default)
of the aggregate principal balance of the Receivables, the final
distribution in respect of the Certificates could occur significantly
earlier than the Final Scheduled Payment Date. Consistent with its
customary servicing practices and procedures, the Servicer may, in its
discretion and on a case-by-case basis, arrange with Obligors to extend or
modify the terms of Receivables. Any such extension or modification will
have the effect of extending the weighted average life of the Certificates.
However, the Servicer will not be permitted to grant any such deferral or
extension if as a result the final scheduled payment on a Receivable would
fall after the Final Scheduled Maturity Date, unless the Servicer
repurchases such Receivable. Certificateholders will bear the risk of being
able to reinvest principal payments on the Certificates at yields at least
equal to the yield on their respective Certificates.
S-19
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the terms of the
Agreement, a form of which has been filed as an exhibit to the Registration
Statement. A copy of the Agreement will be filed with the Commission
following the issuance of the Certificates. The summary describes the
material terms of the Certificates and the Agreement, but it does not
purport to be complete and is subject to, and qualified by reference to,
all the provisions of the Certificates and the Agreement. The following
summary supplements the description of the general terms and provisions of
the Certificates of any given series and the related Agreement set forth in
the Prospectus, to which description reference is hereby made.
General
The Certificates will evidence interests in the Trust created
pursuant to the Agreement. The Class A Certificates will evidence in the
aggregate an undivided ownership interest of approximately ___% (the "Class
A Percentage") in the Trust and the Class B Certificates will evidence in
the aggregate an undivided ownership interest of approximately ___% (the
"Class B Percentage") in the Trust. In general, it is intended that Class A
Certificateholders receive, on each Payment Date, the Class A Percentage of
the Principal Distribution Amount plus interest at the Class A Certificate
Rate on the Class A Certificate Balance. Subject to the prior rights of the
Class A Certificateholders, it is intended that the Class B
Certificateholders receive, on each Payment Date, the Class B Percentage of
the Principal Distribution Amount plus interest at the Class B Certificate
Rate on the Class B Principal Certificate.
"Available Principal" for a Payment Date means the sum of
the following amounts with respect to the related Collection
Period: (a) that portion of the collections on the Receivables
received during the related Collection Period that is allocable to
interest in accordance with the Servicer's customary procedures;
(b) all Liquidation Proceeds received during such Collection
Period; and (c) all Purchase Amounts, each to the extent
attributable to accrued interest, of all Receivables that are
repurchased by the Seller or purchased by the Servicer under an
obligation which arose during the related Collection Period.
"Available Interest" for any Payment Date shall exclude all
payments and proceeds of any Receivables the Purchase Amount of
which has been distributed on a prior Payment Date.
"Defaulted Receivable" means, with respect to any
Collection Period, a Receivable (other than a Purchased
Receivable) which the Servicer has determined to charge off during
such Collection Period in accordance with its customary servicing
practices; provided, that any Receivable which the Seller or
Servicer is obligated to repurchase or purchase shall be deemed to
have become a Defaulted Receivable during a Collection Period if
the Seller or Servicer fails to deposit the Purchase Amount on the
related Deposit Date when due.
"Principal Distribution Amount" means, for any Payment
Date, the sum of the Available Principal for such Payment Date
plus the Realized Losses with respect to the related Collection
Period.
"Purchased Receivable" means, at any time, a Receivable
as to which payment of the Purchase Amount has previously been
made by the Seller or the Servicer pursuant to the Agreement.
"Realized Losses" means, for any Collection Period, the
aggregate principal balances of any Receivables that became
Defaulted Receivables during such Collection Period.
Optional Repurchase of the Receivables; Prepayment
If the Aggregate Principal Balance as of any Accounting Date has
declined to 10% or less of the Initial Principal Balance, the Seller
may purchase all remaining Trust Property on any Payment Date
occurring in a subsequent Collection Period and cause the prepayment of the
S-20
<PAGE>
Certificates in an amount equal to the Certificate Balance plus accrued and
unpaid interest thereon at the Certificate Rate. See "Description of the
Transfer and Servicing Agreements--Termination" in the Prospectus.
Accounts
Separate Certificate Distribution Accounts will be established for
the Class A Certificates (the "Class A Distribution Account") and the Class
B Certificates (the "Class B Distribution Account"). In addition to those
accounts and a Collection Account for the Trust (see "Description of the
Transfer and Servicing Agreements--Accounts" in the Prospectus), the Seller
will also establish and maintain in the name of the Trustee, the Reserve
Account. The Reserve Account will be created with an initial deposit by the
Seller of cash or Eligible Investments having a value of at least equal to
the Reserve Account Initial Deposit. In addition, on each Payment Date, any
amounts on deposit in the Collection Account with respect to the preceding
Collection Period after payments to the Certificateholders and the Servicer
have been made will be deposited into the Reserve Account until the amount
on deposit in the Reserve Account is equal to the Reserve Account Required
Amount.
The Reserve Account will be an Eligible Account which the Seller
shall establish and maintain in the name of the Trustee. Funds on deposit
in the Reserve Account will be invested in Eligible Investments selected by
the Seller and, if permitted by the Rating Agency, funds on deposit in the
Reserve Account may be invested in Eligible Investments that mature later
than the next Deposit Date. The Reserve Account and any amounts therein
will not be property of the Trust, but will be pledged to and held for the
benefit of the Trustee, as secured party.
On each Deposit Date, the Trustee will withdraw funds from the
Reserve Account to the extent (a) the sum of the amounts required to be
distributed to Certificateholders and the accrued and unpaid Servicing Fees
payable to the Servicer on such Payment Date exceeds (b) the amount on
deposit in the Collection Account with respect to the preceding Collection
Period (net of investment income). Such deficiencies in the Collection
Account may result from, among other things, Receivables becoming Defaulted
Receivables or the failure by the Servicer to make any remittance required
to be made under the Agreement. The aggregate amount to be withdrawn from
the Reserve Account on any Deposit Date will not exceed the amount
available in the Reserve Account with respect to the related Payment Date.
The Trustee will deposit the proceeds of such withdrawal into the
Collection Account on or before the Payment Date with respect to which such
withdrawal was made.
Subject to reduction as described below, the "Reserve Account
Required Amount" means the greater of (i) _____% of the Aggregate Principal
Balance (after giving effect to any distributions on the Certificates on
such Payment Date) and (ii) the Floor Amount; provided, however, that if a
Trigger Event has occurred and has not been Deemed Cured, the Reserve
Account Required Amount will be ___% of the Aggregate Principal Balance
(after giving effect to any distributions on the Securities on such Payment
Date). The Reserve Account Required Amount may be reduced from time to time
if the Rating Agency has delivered prior written notice to the Seller, the
Servicer, the Indenture Trustee and the Owner Trustee that such reduction
will not result in a reduction, withdrawal or qualification of the Rating
Agency's then current ratings of each class of the Certificates. The time
necessary for the Reserve Account to reach and maintain the Reserve Account
Required Amount at any time after the Closing Date will be affected by the
delinquency, credit loss, repossession and prepayment experience of the
Receivables and, therefore, cannot be accurately predicted. Amounts on
deposit in the Reserve Account will be released to the Servicer on each
Payment Date to the extent that the amount on deposit in the Reserve
Account would exceed the Reserve Account Required Amount.
"Liquidation Proceeds" with respect to a Liquidated
Receivable means all amounts realized with respect to such
Receivable (other than amounts withdrawn from the Reserve Account)
net of (i) reasonable expenses incurred by the Servicer in
connection with the collection of such Receivable and the
repossession and disposition of the related Financed Vehicle and
(ii) amounts that are required to be refunded to the Obligor on
such Receivable; provided, however, that the Liquidation Proceeds
with respect to any Receivable will in no event be less than zero.
S-21
<PAGE>
"Floor Amount" with respect to any Payment Date means the
lesser of (i) the aggregate outstanding principal amount of the
Certificate Balance (after giving effect to any distributions on
the Certificates on such Payment Date) and (ii)
$__________________.
"Deficiency Claim Amount" means, with respect to any
Determination Date, the positive difference of (i) the sum of the
Servicing Fee for the related Collection Period and all accrued
and unpaid Servicing Fees for prior Collection Periods, the
Certificateholders' Interest Payment Amount and the
Certificateholders' Interest Payment Amount for such Payment Date
minus (ii) the amount of Available Funds with respect to such
Determination Date, which amount will be withdrawn from the
Reserve Account to the extent funds are on deposit therein and
deposited into the Collection Account on the related Payment Date.
If funds in the Reserve Account are reduced to zero, the
Certificateholders will bear the credit and other risks associated with
ownership of the Receivables. In such a case, the amount available for
distribution may be less than that described below, and the
Certificateholders may experience delays or suffer losses as a result,
among other things, of defaults or delinquencies by the Obligors or
previous extensions made by the Servicer.
[Pre-Funding Account; Subsequent Receivables]
[On the Closing Date, approximately $____________ of Initial
Receivables will be transferred to the Trust by the Seller and the
approximately $______________ Pre-Funded Amount will be deposited by the
Trust in the Pre-Funding Account. If the principal amount of eligible
Receivables originated by Paragon during the Funding Period is less than
the Pre-Funded Amount, the Seller will have insufficient Receivables to
sell to the Trust on the Subsequent Transfer Dates, thereby resulting in a
prepayment of principal to the Noteholders and the Certificateholders as
described in the following paragraph.] [In addition, any conveyance of
Subsequent Receivables is subject to the satisfaction, on or before the
related Subsequent Transfer Date, of the condition that each such
Subsequent Receivable satisfies the eligibility criteria specified in "The
Receivables Pool" herein and "The Receivables Pools" in the Prospectus.]
[To the extent that the Pre-Funded Amount has not been fully
applied to the purchase of Subsequent Receivables by the Trust during the
Funding Period, the Noteholders and the Certificateholders will receive, on
the Payment Date on or immediately following the last day of the Funding
Period, a prepayment of principal in an amount equal to their pro rata
share (based on the Certificate Balance) of any remaining Pre-Funded Amount
following the purchase of any Subsequent Receivables on such Payment Date.
It is anticipated that the principal amount of Subsequent Receivables sold
to the Trust will not be exactly equal to the original Pre-Funded Amount
and that therefore there will be at least a nominal amount of principal
prepaid to the Noteholders and to the Certificateholders.]
[If the amount of the Pre-Funding Account will exceed 25% of the
aggregate proceeds from the offering, include the specific investments in
which the Pre-Funding Account will be invested and specify that the actual
investments of the Pre-Funding Account as of the end of the preceding month
will be provided in the periodic reports on Form 8-K and Form 10-K to be
filed by the Seller with respect to the Trust.]
Servicing Compensation and Payment of Expenses
The Servicing Fee Rate will be 1.0% per annum of the Aggregate
Principal Balance as of the opening of business on the first day of the
related Collection Period. See "Description of the Transfer and Servicing
Agreements--Servicing Compensation and Payment of Expenses" in the
Prospectus. The Servicer will also collect and retain any late fees,
non-sufficient funds fees, liquidation fees and other administrative fees
(the "Supplemental Servicing Fee") with respect to the Receivables.
Payments by or on behalf of Obligors will be allocated to scheduled
payments and late fees and other charges in accordance with the Servicer's
normal practices and procedures. As additional compensation, the Servicer
may be entitled to receive for the related Collection Period some or all of
S-22
<PAGE>
the portion, if any, of the Payment Amount for such Collection Period
remaining after payment of the Servicing Fee and interest and principal in
respect of the Certificates and any required deposit to the Reserve
Account. See "Description of the Transfer and Servicing Agreements --
Servicing Compensation and Payment of Expenses" in the Prospectus and
"--Distributions" herein.
Distributions
Deposits to Collection Account. On or before the eighth calendar
day of each month, or if such eighth day is not a Business Day, the next
Business Day (the "Determination Date"), the Servicer will provide the
Trustee with a report (the "Servicer's Report") containing certain
information with respect to the preceding Collection Period, including the
amount of aggregate collections on the Receivables during such Collection
Period, the aggregate amount of Receivables which became Defaulted
Receivables during such Collection Period, the aggregate Purchase Amounts
of Receivables to be repurchased by the Seller or to be purchased by the
Servicer on the related Deposit Date and the aggregate amount to be
withdrawn from the Reserve Account.
On or before each Deposit Date, (a) the Servicer will cause all
collections and Liquidation Proceeds to be deposited into the Collection
Account and will deposit into the Collection Account all Purchase Amounts
of Receivables to be purchased by the Servicer on such Deposit Date, (b)
the Seller will deposit into the Collection Account all Purchase Amounts of
Receivables to be repurchased by the Seller on such Deposit Date and (c)
the Trustee will make any required withdrawals for the related Payment Date
from the Reserve Account and deposit such amounts into the Collection
Account.
Deposits to the Distribution Accounts. On each Payment Date, the
Trustee will make the following deposits and distributions from the
Collection Account, to the extent of the sum of Available Interest and any
amount available in the Reserve Account remaining after such reimbursements
(and, in the case of shortfalls occurring under clause (b) below in the
Class A Interest Payment Amount, the Class B Percentage of Available
Principal to the extent of such shortfalls), in the following priority:
(a) to the Servicer, any unpaid Servicing Fee for the related
Collection Period and all unpaid Servicing Fees from
prior Collection Periods;
(b) to the Class A Distribution Account, the Class A Interest
Payment Amount for such Payment Date; and
(c) to the Class B Distribution Account, the Class B Interest
Payment Amount for such Payment Date.
On each Payment Date based on the related Servicer's Report, the
Trustee will make the following deposits and distributions, to the extent
of Available Principal and the portions of Available Interest and amount
available in the Reserve Amount remaining after the application of clauses
(a), (b) and (c) above, in the following priority:
(d) to the Class A Distribution Account, the Class A Principal
Payment Amount for such Payment Date;
(e) to the Class B Distribution Account, the Class B Principal
Payment Amount for such Payment Date;
(f) to the Reserve Account, any amounts remaining, until the
amount on deposit in the Reserve Account equals the
Reserve Account Required Amount; and
(g) to the Seller or the Servicer, as an additional servicing,
any amounts remaining.
S-23
<PAGE>
On each Payment Date, all amounts on deposit in the Class A
Distribution Account will be distributed to the Class A Certificateholders
as of the Record Date and all amounts on deposit in the Class B
Distribution Account will be distributed to the Class B Certificateholders
as of the Record Date by the Trustee.
"Class A Interest Carryover Shortfall" means, (a) with
respect to the initial Payment Date, zero, and (b) with respect to
any other Payment Date, the excess of Class A Monthly Interest for
the preceding Payment Date and any outstanding Class A Interest
Carryover Shortfall on such preceding Payment Date, over the
amount in respect of interest that is actually deposited in the
Class A Distribution Account on such preceding Payment Date, plus
30 days of interest on such excess, to the extent permitted by
law, at the Class A Certificate Rate.
"Class A Interest Payment Amount" means, with respect to
any Payment Date, the sum of Class A Monthly Interest for such
Payment Date and the Class A Interest Carryover Shortfall for such
Payment Date.
"Class A Monthly Interest" means, with respect to any
Payment Date, one-twelfth of the Class A Certificate Rate
multiplied by the Class A Certificate Balance as of the Payment
Date occurring in the preceding Collection Period (after giving
effect to any payments made on such Payment Date) or, in the case
of the first Payment Date, as of the Closing Date.
"Class A Monthly Principal" means, with respect to any
Payment Date, the Class A Percentage of the Principal Distribution
Amount for such Payment Date.
"Class A Principal Carryover Shortfall" means, as of the
close of business on any Payment Date, the excess of Class A
Monthly Principal for such Payment Date and any outstanding Class
A Principal Carryover Shortfall from the preceding Payment Date
over the amount in respect of principal that is actually deposited
in the Class A Distribution Account on such Payment Date.
"Class A Principal Payment Amount" means, with respect to
any Payment Date, the sum of Class A Monthly Principal for such
Payment Date and, in the case of any Payment Date other than the
initial Payment Date, the Class A Principal Carryover Shortfall as
of the close of business on the preceding Payment Date; provided,
however, that the Class A Principal Payment Amount shall not
exceed the outstanding aggregate principal balance of the Class A
Certificates prior to such Payment Date. In addition, on the Final
Scheduled Payment Date, the Class A Principal Payment Amount shall
include any additional amount available to reduce the outstanding
aggregate principal balance of the Class A Certificates to zero.
"Class B Interest Carryover Shortfall" means, (a) with
respect to the initial Payment Date, zero, and (b) with respect to
any other Payment Date, the excess of Class B Monthly Interest for
the preceding Payment Date and any outstanding Class B Interest
Carryover Shortfall on such preceding Payment Date, over the
amount in respect of interest that is actually deposited in the
Class B Distribution Account on such preceding Payment Date, plus
30 days of interest on such excess, to the extent permitted by
law, at the Class B Certificate Rate.
"Class B Interest Payment Amount" means, with respect to
any Payment Date, the sum of Class B Monthly Interest for such
Payment Date and the Class B Interest Carryover Shortfall for such
Payment Date.
"Class B Monthly Interest" means, with respect to any
Payment Date, one-twelfth of the Class B Certificate Rate
multiplied by the Class B Certificate Balance as of the Payment
Date occurring in the preceding Collection Period (after giving
effect to any payments made on such Payment Date) or, in the case
of the first Payment Date, as of the Closing Date.
S-24
<PAGE>
"Class B Monthly Principal" means, with respect to any
Payment Date, the Class B Percentage of the Principal Distribution
Amount for such Payment Date.
"Class B Principal Carryover Shortfall" means, as of the
close of business on any Payment Date, the excess of Class B
Monthly Principal for such Payment Date and any outstanding Class
B Principal Carryover Shortfall from the preceding Payment Date
over the amount in respect of principal that is actually deposited
in the Class B Distribution Account on such Payment Date.
"Class B Principal Payment Amount" means, with respect to
any Payment Date, the sum of Class B Monthly Principal for such
Payment Date and, in the case of any Payment Date other than the
initial Payment Date, the Class B Principal Carryover Shortfall as
of the close of business on the preceding Payment Date; provided,
however, that the Class B Interest Payment Amount shall not exceed
the outstanding aggregate principal balance of the Class B
Certificates prior to such Payment Date. In addition, on the Final
Scheduled Payment Date, the Class B Interest Payment Amount will
include any additional amount available to reduce the outstanding
aggregate principal balance of the Class B Certificates to zero.
The following chart sets forth an example of the application of
the foregoing provisions to a hypothetical monthly distribution:
March 1 - March 31........ Collection Period. The Servicer receives
monthly payments, prepayments, and other
proceeds in respect of the Receivables.
March 31.................. Record Date. Distributions on the next
Payment Date are made to Certificateholders
of record at the close of business on this
date.
April 8.................. Determination Date. On or before this date,
the Servicer delivers to the Trustee the
Servicer's Report, which notifies the
Trustee of the amounts required to be
distributed and the amounts available for
distribution on the next Payment Date.
April 12................. Deposit Date. All Collections relating to the
preceding Collection Period are required to
be deposited in the Collection Account on or
before this date. The Trustee withdraws
funds from the Reserve Account to the extent
necessary.
April 15.................. Payment Date. The Trustee distributes to
Certificateholders amounts payable in
respect of the Certificates, pays the
Servicing Fee to the Servicer, deposits any
excess funds to the Reserve Account and, if
the Reserve Account is equal to the Reserve
Account Required Amount, pays any remaining
funds to the Seller.
S-25
<PAGE>
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
Information regarding certain legal aspects of the Receivables is
set forth under "Certain Legal Aspects of the Receivables" in the
Prospectus.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of material federal income tax
consequences of the purchase, ownership and disposition of the Certificates
and such summary represents the opinion of Federal Tax Counsel subject to
the qualifications set forth herein. An opinion of Federal Tax Counsel,
however, is not binding on the IRS or the courts. No ruling on any of the
issues discussed below will be sought from the Internal Revenue Service
("IRS"). The following summary is intended as a discussion of the possible
effects of certain federal income tax consequences to holders, but does not
purport to furnish information in the level of detail or with the attention
to a holder's specific tax circumstances that would be provided by a
holder's own tax advisor. For example, it does not discuss the tax
consequences of the purchase, ownership and disposition of Certificates by
Certificateholders that are subject to special treatment under the federal
income tax laws (including banks and thrifts, insurance companies,
regulated investment companies, dealers in securities, foreign investors,
trusts and estates and pass-through entities, the equity holders of which
are any of the foregoing). Moreover, there are no cases or IRS rulings on
similar transactions involving interests issued by a trust with terms
similar to those of the Certificates. As a result, the IRS may disagree
with all or a part of the discussion below. We suggest that prospective
investors consult their own tax advisors in determining the federal, state,
local, foreign and any other tax consequences to them of the purchase,
ownership and disposition of the Certificates.
The following summary is based upon current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury
regulations promulgated thereunder and judicial or ruling authority, all of
which are subject to change, which change may be retroactive.
Scope of the Tax Opinions
In the opinion of Federal Tax Counsel, the Trust will not be
classified as an association (or publicly traded partnership) taxable as a
corporation and that such Trust will be classified as a grantor trust under
subpart E, Part I of subchapter J of the Code for federal income tax purposes.
In addition, Federal Tax Counsel has prepared or reviewed the
statements herein and in the Prospectus under the heading "Summary of
Terms--Material Federal Income Tax Consequences" as they relate to federal
income tax matters and under the heading "Material Federal Income Tax
Consequences," and is of the opinion that such statements are correct in
all material respects. Such statements are intended as a discussion of the
possible effects of the classification of the Trust as a grantor trust for
federal income tax purposes on investors and of related tax matters
affecting investors generally, but do not purport to furnish information in
the level of detail or with the attention to the investor's specific tax
circumstances that would be provided by an investor's own tax adviser.
Accordingly, we suggest that investors consult their own tax advisers with
regard to the tax consequences to them of investing in the Certificates.
Tax Classification of the Trust as a Grantor Trust
Federal Tax Counsel is of the opinion that the Trust will not be
classified as an association taxable as a corporation and that such Trust
will be classified as a grantor trust under subpart E, Part 1 of subchapter
J of the Code. A copy of such opinion of Federal Tax Counsel will be filed
with the Commission as an exhibit to a Form 8-K prior to the confirmation
of sales of any series of Securities. Owners of Certificates (referred to
herein as "Grantor Trust Certificateholders") will be treated for federal
income tax purposes as owners of a portion of the Trust's assets as
described below. The Certificates issued by the Trust are referred to
herein as "Grantor Trust Certificates".
Possible Alternative Treatment of the Trust as a Grantor Trust. In
a recently released technical advice memorandum, the IRS recharacterized
two high quality auto loan grantor trust securitizations as secured
borrowings for federal income tax purposes. Although Mayer, Brown & Platt
is of the opinion that the Trust will be classified as a grantor trust for
federal income tax purposes, the IRS could disagree with such opinion and
assert that the Seller's assignment to the Trust followed by the issuance
of Certificates by the Trust should be recharacterized as a secured
borrowing by the Seller rather than as a sale for federal income tax
S-26
<PAGE>
purposes. Even if the IRS were successful in recharacterizing the Seller's
assignment to the Trust in this matter, such recharacterization would not be
anticipated to have a material adverse effect on the timing or character of
income to the Trust or Certificateholders.
Characterization. Each Grantor Trust Certificateholder will be
treated as the owner of a pro rata undivided interest in the interest and
principal portions of the Trust represented by the Grantor Trust
Certificates and will be considered the equitable owner of a pro rata
undivided interest in each of the Receivables in the Trust. Any amounts
received by a Grantor Trust Certificateholder in lieu of amounts due with
respect to any Receivable because of a default or delinquency in payment
will be treated for federal income tax purposes as having the same
character as the payments they replace.
Each Grantor Trust Certificateholder will be required to report on
its federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire
income from the Receivables in the Trust represented by the Grantor Trust
Certificates, including interest, OID, if any, market discount, if any,
prepayment fees, assumption fees, any gain recognized upon an assumption
and late payment charges received by the Servicer. Under Sections 162 or
212 of the Code each Grantor Trust Certificateholder will be entitled to
deduct its pro rata share of servicing fees, prepayment fees, assumption
fees, any loss recognized upon an assumption and late payment charges
retained by the Servicer, provided that such amounts are reasonable
compensation for services rendered to the Trust. Grantor Trust
Certificateholders that are individuals, estates or trusts will be entitled
to deduct their share of expenses only to the extent such expenses plus all
other miscellaneous itemized deductions exceed two percent of its adjusted
gross income. In addition, the Code provides that the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds a threshold amount specified in the Code
adjusted for inflation ($124,500 in 1998, in the case of a joint return)
will be reduced by the lesser of (i) 3% of the excess of adjusted gross
income over the specified threshold amount or (ii) 80% of the amount of
itemized deductions otherwise allowable for such taxable year. A Grantor
Trust Certificateholder using the cash method of accounting must take into
account its pro rata share of income and deductions as and when collected
by or paid to the Servicer. A Grantor Trust Certificateholder using an
accrual method of accounting must take into account its pro rata share of
income and deductions as they become due or are paid to the Servicer,
whichever is earlier. If the servicing fees paid to the Servicer are deemed
to exceed reasonable servicing compensation, the amount of such excess
could be considered as an ownership interest retained by the Servicer (or
any person to whom the Servicer assigned for value all or a portion of the
servicing fees) in a portion of the interest payments on the Receivables.
The Receivables would then be subject to the "coupon stripping" rules of
the Code discussed below.
Premium. The price paid for a Grantor Trust Certificate by a
holder will be allocated to such holder's undivided interest in each
Receivable based on each Receivable's relative fair market value, so that
such holder's undivided interest in each Receivable will have its own tax
basis. A Grantor Trust Certificateholder that acquires an interest in
Receivables at a premium may elect to amortize such premium under a
constant yield method. Amortizable bond premium will be treated as an
offset to interest income on such Grantor Trust Certificate. The basis for
such Grantor Trust Certificate will be reduced to the extent that
amortizable premium is applied to offset interest payments. A Grantor Trust
Certificateholder that makes this election for a Grantor Trust Certificate
that is acquired at a premium will be deemed to have made an election to
amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Grantor Trust Certificateholder held at
the beginning of the year of the election or acquired thereafter. Absent
such an election, the premium will be deductible as an ordinary loss only
upon disposition of the Certificate or pro rata as principal is paid on the
Receivables.
Stripped Bonds and Stripped Coupons
To the extent a transaction is determined to involve "excess
servicing" (as described above), or that the classes of Certificates
represent stripped interests in the underlying Receivables, the Grantor
Trust Certificates will represent interests in stripped bonds for federal
income tax purposes. Although the tax treatment of stripped bonds is not
entirely clear, based on recent guidance by the IRS, each purchaser of a
S-27
<PAGE>
Grantor Trust Certificate will be treated as the purchaser of a stripped
bond which should generally be treated as a single debt instrument issued on
the day it is purchased for purposes of calculating any OID. Under Treasury
regulations (the "Section 1286 Treasury Regulations"), if the discount on a
stripped bond is larger than a de minimis amount (as calculated for
purposes of the OID rules of the Code) such stripped bond will be
considered to have been issued with OID. If OID rules were to apply, all of
the taxable income to be recognized with respect to the Certificates would
be includible in income as OID but would not be includible again when the
interest is actually received. Regulations do not adequately address the
circumstances in which payment of interest on Certificates such as the
Grantor Trust Certificates would be considered unconditionally payable, and
thus, Federal Tax Counsel is unable to opine as to the extent to which
interest payments on the Certificates would be treated as qualified stated
interest.
Market Discount and Premium. A Grantor Trust Certificateholder
that acquires an undivided interest in Receivables may be subject to the
market discount rules of Code Sections 1276 through 1278 to the extent an
undivided interest in a Receivable is considered to have been purchased at
a "market discount." Generally, the amount of market discount is equal to the
excess of the portion of the principal amount of such Receivable allocable to
such holder's undivided interest over such holder's tax basis in such interest.
Market discount with respect to a Grantor Trust Certificate will be
considered to be zero if the amount allocable to the Grantor Trust
Certificate is less than 0.25% of the Grantor Trust Certificate's stated
redemption price at maturity multiplied by the weighted average maturity
remaining after the date of purchase. Treasury regulations implementing the
market discount rules have not yet been issued; therefore, we suggest that
investors consult their own tax advisors regarding the application of these
rules and the advisability of making any of the elections allowed under
Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount
bond shall be treated as ordinary income to the extent that it does not
exceed the accrued market discount at the time of such payment. The amount
of accrued market discount for purposes of determining the tax treatment of
subsequent principal payments or dispositions of the market discount bond
is to be reduced by the amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on
debt instruments, the principal of which is payable in more than one
installment. While the Treasury Department has not yet issued regulations,
rules described in the relevant legislative history likely will apply.
Under those rules, the holder of a market discount bond may elect to accrue
market discount on the basis of a constant yield method.
A holder who acquired a Grantor Trust Certificate at a market
discount may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry such Grantor Trust Certificate purchased with market
discount. For these purposes, the de minimis rule referred to above
applies. Any such deferred interest expense would not exceed the market
discount that accrues during such taxable year and is, in general, allowed
as a deduction not later than the year in which such market discount is
includible in income. If such holder elects to include market discount in
income currently as it accrues on all market discount instruments acquired
by such holder in that taxable year or thereafter, the interest deferral
rule described above will not apply.
To the extent a Grantor Trust Certificateholder is considered to
have purchased an undivided interest in a Receivable for an amount that is
greater than its stated redemption price at maturity of such Receivable,
such Grantor Trust Certificateholder will be considered to have purchased
the Receivable with "amortizable bond premium" equal in amount to such
excess. See "--Premium."
Election to Treat All Interest as OID. The OID regulations permit
a Grantor Trust Certificateholder to elect to accrue all interest, discount
(including de minimis market or OID) and premium in income as interest,
based on a constant yield method. If such an election were to be made with
respect to a Grantor Trust Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in
S-28
<PAGE>
income current market discount with respect to all other debt instruments
having market discount that such Grantor Trust Certificateholder acquires
during the year of the election or thereafter. Similarly, a Grantor Trust
Certificateholder that makes this election for a Grantor Trust Certificate
that is acquired at a premium will be deemed to have made an election to
amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Grantor Trust Certificateholder held at
the beginning of the year of the election or acquired thereafter. See
"--Premium." The election to accrue interest, discount and premium on a
constant yield method with respect to a Grantor Trust Certificate is
generally irrevocable.
Sale or Exchange of a Grantor Trust Certificate. Sale or exchange
of a Grantor Trust Certificate prior to its maturity will result in gain or
loss equal to the difference, if any, between the amount received and the
owner's adjusted basis in the Grantor Trust Certificate. Such adjusted
basis will generally equal the seller's purchase price for the Grantor Trust
Certificate, increased by the OID included in the seller's gross income
with respect to the Grantor Trust Certificate, and reduced by principal
payments on the Grantor Trust Certificate previously received by the
seller. Such gain or loss will be capital gain or loss to an owner for
which a Grantor Trust Certificate is a "capital asset" within the meaning
of Code Section 1221, and will be long-term or short-term depending on
whether the Grantor Trust Certificate has been owned for the long-term
capital gain holding period. For individuals, estates and trusts, the
current maximum long-term capital gain rate is generally 20% if the capital
asset has been held for more than 12 months.
Grantor Trust Certificates will be "evidences of indebtedness"
within the meaning of Code Section 582(c)(1), so that gain or loss
recognized from the sale of a Grantor Trust Certificate by a bank or a
thrift institution to which such section applies will be treated as
ordinary income or loss.
Non-U.S. Persons. Generally, interest or OID paid by the person
required to withhold tax under Code Section 1441 or 1442 to (i) an owner that
is not a U.S. Person (as defined below) or (ii) a Grantor Trust
Certificateholder holding on behalf of an owner that is not a U.S. Person
would not be subject to withholding if such Grantor Trust Certificateholder
complies with certain identification requirements (including delivery of a
statement, signed by the Grantor Trust Certificateholder under penalties of
perjury, certifying that such Grantor Trust Certificateholder is not a U.S.
Person and providing the name and address of such Grantor Trust
Certificateholder).
As used herein, a "U.S. Person" means a citizen or resident of the
United States, a corporation or a partnership organized in or under the
laws of the United States or any political subdivision thereof or an estate
or trust, the income of which is includible in gross income for federal
income tax purposes regardless of its source.
On October 6, 1997, final Treasury regulations (the "Withholding
Tax Regulations") were issued that modify certain of the filing
requirements with which foreign persons must comply in order to be entitled
to an exemption from U.S. withholding tax or a reduction to the applicable
U.S. withholding tax rate. Those persons currently required to file Form
W-8 generally will continue to be required to file that form. However, the
requirement that foreign persons submit Form W-8 is extended to most
foreign persons who wish to seek an exemption from withholding tax on the
basis that income from the Certificates is effectively connected with the
conduct of a U.S. trade or business (in lieu of Form 4224) and to foreign
persons wishing to rely on a tax treaty to reduce the withholding tax rate
(in lieu of Form 1001). The Withholding Tax Regulations are effective for
payments of interest due after December 31, 1999, but Forms 4224 and 1001
filed prior to that date will continue to be effective until the earlier of
December 31, 2000 or the current expiration date of those forms. We suggest
that prospective investors consult their own tax advisors with respect to
the effect of the Withholding Tax Regulations.
Information Reporting and Backup Withholding. The Servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a Grantor Trust Certificateholder at
any time during such year, such information as may be deemed necessary or
desirable to assist Grantor Trust Certificateholders in preparing their
federal income tax returns, or to enable holders to make such information
available to beneficial owners or financial intermediaries that hold
Grantor Trust Certificates as nominees on behalf of beneficial owners. If a
holder, beneficial owner, financial intermediary or other recipient of a
S-29
<PAGE>
payment on behalf of a beneficial owner fails to supply a certified
taxpayer identification number or if the Secretary of the Treasury
determines that such person has not reported all interest and dividend
income required to be shown on its federal income tax return, 31% backup
withholding may be required with respect to any payments. Any amounts
deducted and withheld from a distribution to a recipient would be allowed
as a credit against such recipient's federal income tax liability. We
suggest that prospective investors consult their own tax advisors
concerning the potential impact of the Withholding Tax Regulations.
STATE INCOME TAX CONSEQUENCES
In addition to the federal income tax consequences described in
"Material Federal Income Tax Consequences" above, potential purchasers should
consider the state income tax consequences of the acquisition, ownership and
disposition of the Certificates. State income tax law may vary substantially
from state to state, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, we suggest that
potential purchasers consult their own tax advisors with respect to the
various tax consequences of an investment in the Certificates.
ERISA CONSIDERATIONS
The Class A Certificates
Subject to the considerations set forth under "ERISA
Considerations--Trusts That Do Not Issue Notes" in the Prospectus, the
Class A Certificates may be purchased with the assets of an employee
benefit plan or an individual retirement account (a "Plan") subject to
ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended (the
"Code"). A fiduciary of a Plan must determine that the purchase of a Class
A Certificate is consistent with its fiduciary duties under ERISA and does
not result in a nonexempt prohibited transaction as defined in Section 406
of ERISA or Section 4975 of the Code. For additional information regarding
treatment of the Class A Certificates under ERISA, see "ERISA
Considerations" in the Prospectus.
The Class B Certificates
The Class B Certificates and any beneficial interest in such Class
B Certificates may not be acquired (a) with the assets of an employee
benefit plan (as defined in Section 3(3) of ERISA) that is subject to the
provisions of Title I of ERISA, (b) by a plan described in Section
4975(e)(1) of the Code or (c) by any entity whose underlying assets include
plan assets by reason of a plan's investment in the entity. By its
acceptance of a Class B Certificate, each Class B Certificateholder will be
deemed to have represented and warranted that it is not subject to the
foregoing limitation. For additional information regarding treatment of the
Class B Certificates under ERISA, see "ERISA Considerations" in the
Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement, the Seller has agreed to cause the Trust to sell to each of the
underwriters listed below (each, an "Underwriter"), and each of the
Underwriters has agreed to purchase, the principal amount of the
Certificates set forth opposite its name below. Under the terms and
conditions of the Underwriting Agreement, each of the Underwriters is
obligated to take and pay for all of the Certificates, if any are taken.
S-30
<PAGE>
Principal Amount of Principal Amount of
Class A Certificates Class B Certificates
- --------------------......... $--------------------- $-------------------
- --------------------......... --------------------- -------------------
- --------------------......... --------------------- -------------------
$_____________________ $___________________
The Seller has been advised by the Underwriters that they propose
initially to offer the Certificates to the public at the prices set forth
herein, and to certain dealers at such prices less the initial concession
not in excess of _____% per Class A Certificate and ____% per Class B
Certificate. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of ____% per Class A Certificate and ____% per
Class B Certificate to certain other dealers. After the initial public
offering of the Certificates, the public offering prices and such
concessions may be changed.
The Seller does not intend to apply for listing of the
Certificates on a national securities exchange, but has been advised by the
Underwriters that they intend to make a market in the Certificates. The
Underwriters are not obligated, however, to make a market in the
Certificates and may discontinue market making at any time without notice.
No assurance can be given as to the liquidity of the trading market for the
Certificates.
The Seller and Paragon have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended.
In the ordinary course of their respective businesses, each
Underwriter and its affiliates have engaged and may in the future engage in
commercial banking and investment banking transactions with the Seller.
LEGAL OPINIONS
In addition to the legal opinions described in the Prospectus,
certain federal income tax and other legal matters will be passed upon for
the Trust by Mayer, Brown & Platt, Chicago, Illinois. Certain legal matters
will be passed upon for the Underwriters by _____________________,
______________, ____________. Mayer, Brown & Platt may from time to time
render legal services to the Seller, the Servicer and its affiliates.
S-31
<PAGE>
INDEX OF DEFINED TERMS
Page
Aggregate Principal Balance.................................................S-4
Agreement ..........................................................S-3
Amount Financed ..........................................................S-4
Available Principal........................................................S-20
Bank ..........................................................S-3
Business Day ..........................................................S-5
Certificate Rate ..........................................................S-5
Certificateholders..........................................................S-5
Certificates ..........................................................S-1
Class A Certificate Balance.................................................S-6
Class A Certificate Rate....................................................S-5
Class A Certificateholders..................................................S-5
Class A Certificates........................................................S-1
Class A Distribution Account...............................................S-21
Class A Interest Carryover Shortfall.......................................S-24
Class A Interest Payment Amount............................................S-24
Class A Monthly Interest...................................................S-24
Class A Monthly Principal..................................................S-24
Class A Percentage..........................................................S-4
Class A Principal Carryover Shortfall......................................S-24
Class A Principal Payment Amount...........................................S-24
Class B Certificate Balance.................................................S-6
Class B Certificate Rate....................................................S-5
Class B Certificateholders..................................................S-5
Class B Certificates........................................................S-1
Class B Distribution Account...............................................S-21
Class B Interest Carryover Shortfall.......................................S-24
Class B Interest Payment Amount............................................S-24
Class B Monthly Interest...................................................S-25
Class B Monthly Principal..................................................S-25
Class B Percentage..........................................................S-4
Class B Principal Carryover Shortfall......................................S-25
Class B Principal Payment Amount...........................................S-25
Closing Date ..........................................................S-4
Code .........................................................S-30
Collection Period ..........................................................S-5
Commission ..........................................................S-2
CTS .........................................................S-19
Cutoff Date ..........................................................S-3
Defaulted Receivable.......................................................S-20
Deficiency Claim Amount....................................................S-22
Deposit Date ..........................................................S-7
Determination Date.........................................................S-23
ERISA ..........................................................S-8
Federal Tax Counsel........................................................S-26
Final Scheduled Maturity Date...............................................S-4
Financed Vehicles ..........................................................S-3
Floor Amount .........................................................S-22
S-32
<PAGE>
Grantor Trust Certificateholders...........................................S-26
Grantor Trust Certificates.................................................S-26
Initial Principal Balance...................................................S-6
Issuer ..........................................................S-3
Liquidation Proceeds.......................................................S-21
Payment Date ..........................................................S-5
Plan .........................................................S-30
Principal Balance ..........................................................S-4
Principal Distribution Amount..............................................S-20
Prospectus ..........................................................S-1
Purchased Receivable.......................................................S-20
Rating Agencies ..........................................................S-8
Realized Losses .........................................................S-20
Receivables Pool .........................................................S-11
Record Date ..........................................................S-5
Reserve Account ..........................................................S-7
Reserve Account Initial Deposit.............................................S-7
Reserve Account Required Amount............................................S-21
Section 1286 Treasury Regulations..........................................S-28
Seller ..........................................................S-1
Servicer ..........................................................S-1
Servicer's Report .........................................................S-23
Supplemental Servicing Fee.................................................S-23
Triumph .........................................................S-19
Trust ..........................................................S-1
Trustee ..........................................................S-3
U.S. Person .........................................................S-29
Underwriter .........................................................S-31
S-33
<PAGE>
No dealer, salesman or other person has been authorized to
give any information or to make any representation not
contained in this Prospectus Supplement or the Prospectus
and, if given or made, such information or representation
must not be relied upon as having been authorized by the
Seller or the Underwriters. This Prospectus Supplement and
the Prospectus do not constitute an offer of any securities
other than those to which they relate or an offer to sell, or a
solicitation of an offer to buy, to any person in any
jurisdiction where such an offer or solicitation would be
unlawful. Neither the delivery of this Prospectus Supplement
and the Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that the
information contained herein is correct as of any time
subsequent to their respective dates.
---------------------------
TABLE OF CONTENTS
Prospectus Supplement
Page
Reports to Certificateholders................. S-2
Summary of Terms.............................. S-4
Risk Factors.................................. S-9
The Trust..................................... S-11
The Receivables Pool.......................... S-12
The Seller, the Servicer and Paragon.......... S-17
Weighted Average Life of the Certificates..... S-18
Description of the Certificates............... S-18
Certain Legal Aspects of the Receivables...... S-25
ERISA Considerations.......................... S-29
Underwriting.................................. S-30
Legal Opinions................................ S-30
Index of Defined Terms........................ S-31
Prospectus
Page
Available Information.........................
Incorporation of Certain Documents
by Reference................................
Summary of Terms..............................
Risk Factors..................................
The Trusts....................................
The Receivables Pools.........................
Weighted Average Life of the Securities.......
Pool Factors and Trading Information..........
Use of Proceeds...............................
The Seller....................................
Paragon.......................................
Description of the Notes......................
Description of the Certificates...............
Certain Information Regarding the
Securities..................................
Description of the Transfer and Servicing
Agreements..................................
Certain Legal Aspects of the Receivables......
Material Federal Income Tax Consequences......
Certain State Tax Consequences................
ERISA Considerations..........................
Plan of Distribution..........................
Legal Opinions................................
Index of Defined Terms........................
Global Clearance, Settlement and Tax
Documentation Procedures....................
<PAGE>
$______________________________
PARAGON AUTO RECEIVABLES
CORPORATION
(Seller)
$_________________
__% Asset Backed
Certificates
Class A
$_________________
__% Asset Backed
Certificates
Class B
=====================
PROSPECTUS SUPPLEMENT
____________, ___
=====================
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED __________, ____
[PRELIMINARY OWNER TRUST PROSPECTUS SUPPLEMENT FORM]
(To Prospectus dated __________, ____)
$______________
PARAGON AUTO RECEIVABLES OWNER TRUST ____-_
Issuer
$______________ Class A-1 ____% Asset Backed Notes
$______________ Class A-2 ____% Asset Backed Notes
[$______________ ____% Asset Backed Certificates]
PARAGON AUTO RECEIVABLES CORPORATION
Seller
PARAGON ACCEPTANCE CORPORATION
Servicer
The Paragon Auto Receivables Owner Trust ____-__ (the "Trust")
will be governed by a Trust Agreement, to be dated as of
___________________, ____, between Paragon Auto Receivables Corporation, as
seller (the "Seller") and ___________________, as Owner Trustee. The Trust
will issue $_____________ aggregate principal amount of Class A-1 ___%
Asset Backed Notes (the "Class A-1 Notes") and $____________ aggregate
principal amount of Class A-2 ___% Asset Backed Notes (the "Class A-2
Notes" and, together with the Class A-1 Notes, the "Notes") pursuant to an
Indenture, to be dated as of _____________, ____, between the Trust and
___________________, as Indenture Trustee. The Trust will also issue
$__________________ aggregate principal amount of ___% Asset Backed
Certificates (the "Certificates" and, together with the Notes, the
"Securities"), [which are not being offered hereby]. The rights of the
Certificateholders will be subordinated to the rights of the Noteholders to
the extent described herein. The assets of the Trust will include a pool of
motor vehicle retail installment contracts (the "Receivables") secured by
new or used automobiles, light duty trucks and sports utility vehicles, all
monies due or received thereunder or with respect thereto after _________,
_____, security interests in the vehicles financed thereby, any proceeds
from claims on insurance policies with respect to the financed vehicles,
certain rights under dealer agreements and certain other agreements, rights
with respect to deposit accounts in which collections are held [and monies
on deposit in a trust account (the "Pre-Funding Account") to be established
with the Indenture Trustee], and the proceeds of the foregoing. [Additional
Receivables (the "Subsequent Receivables") will be purchased by the Trust
from the Seller from time to time on or before __________, _____ from funds
on deposit in the Pre-Funding Account.]
(cover continued on next page)
------------------
Prospective investors should consider the material risks involved with an
investment in the [Notes], [Securities] described in "Risk Factors" set
forth at page S-__ herein and at page ___ in the accompanying Prospectus
(the "Prospectus"). [Material risks associated with the Subsequent
Receivables are described at page __ of the accompanying Prospectus.]
<PAGE>
THE NOTES REPRESENT [NOTES] OF, AND THE CERTIFICATES REPRESENT BENEFICIAL
INTERESTS IN, [THE TRUST ONLY AND DO NOT REPRESENT] OBLIGATIONS OF OR
INTERESTS IN PARAGON AUTO RECEIVABLES CORPORATION, PARAGON ACCEPTANCE
CORPORATION OR ANY OF THEIR AFFILIATES. NEITHER THE [SECURITIES] [NOTES]
NOR THE RECEIVABLES ARE INSURED OR GUARANTEED BY PARAGON AUTO RECEIVABLES
CORPORATION, PARAGON ACCEPTANCE CORPORATION OR ANY OF THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions the Seller(1)(2)
Per Class A-1 Note % % %
Per Class A-2 Note % % %
[Per Certificate % % %]
Total $____________ $____________ $____________
- ---------------------
(1) Plus accrued interest, if any, from ___________, _____.
(2) Before deducting expenses, estimated to be $___________.
------------------
The Notes [and Certificates] are offered by the Underwriters when, as and
if issued and accepted by the Underwriters and subject to their right to
reject orders in whole or in part. It is expected that delivery of the
S-1
<PAGE>
Notes [and the Certificates] will be made in book-entry form only through
the Same Day Funds Settlement System of The Depository Trust Company, [or
through Cedel Bank, societe anonyme or the Euroclear System,] on or about
__________, _____.
The assets of the Trust will be transferred by the Seller to the
Trust on or prior to the Closing Date. The Notes will be secured by the
assets of the Trust pursuant to the Indenture. Capitalized terms used in
this Prospectus Supplement are defined in this Prospectus Supplement on the
pages indicated in the "Index of Terms" on page ___ of this Prospectus
Supplement or, to the extent not defined herein, are defined in the
Prospectus. Interest on all classes of Notes will accrue at the fixed per
annum interest rates specified above. Interest on the Notes will be payable
on the [15th] day of each month or the next business day (each, a "Payment
Date"), commencing _______, ____. Principal of the Notes will be payable on
each Payment Date to the extent described herein[, except that no principal
will be paid on the Class A-2 Notes until the Class A-1 Notes have been
paid in full]. See "Description of the Notes--Payments of Interest."
[The Certificates will represent fractional undivided interests in
the Trust. Interest, at the Certificate Rate, will be distributed to the
Certificateholders on each Payment Date to the extent of available funds.
Principal, to the extent described herein, will be distributed to the
Certificateholders on each Payment Date commencing with the Payment Date on
which the Notes were paid in full to the extent of available funds. See
"Description of the Certificates--Distributions of Principal Payments." See
"Description of the Transfer and Servicing Agreements--Subordination of
Certificates."]
Each class of Notes [and Certificates] will be payable in full on
the applicable final scheduled Payment Date as set forth herein. However,
payment in full of a class of Notes [or of Certificates] could occur
earlier or later than such dates as described herein. See "Weighted Average
Life of the Securities." In addition, the Class A-2 Notes and the
Certificates will be subject to prepayment in whole, but not in part, on
any Payment Date on which Paragon Acceptance Corporation in its capacity as
servicer (in such capacity, the "Servicer") exercises its option to
purchase the Receivables. The Servicer may purchase the Receivables when
the aggregate principal balance of the Receivables has declined to 10% or
less of the initial aggregate principal balance of the Receivables
purchased by the Trust.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPETE INFORMATION
ABOUT THE OFFERING OF THE NOTES [AND THE CERTIFICATES]. ADDITIONAL
INFORMATION IS CONTAINED IN THE PROSPECTUS AND PROSPECTIVE INVESTORS ARE
URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL.
SALES OF THE NOTES [OR THE CERTIFICATES] MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
TO THE EXTENT ANY STATEMENTS IN THIS PROSPECTUS SUPPLEMENT MODIFY OR SPECIFY
ADDITIONAL INFORMATION WITH RESPECT TO STATEMENTS IN THE PROSPECTUS, THE
STATEMENTS IN THIS PROSPECTUS SUPPLEMENT SHALL CONTROL.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT
OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE
NOTES [AND THE CERTIFICATES] AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE [NOTES] [SECURITIES] DESCRIBED IN
THIS PROSPECTUS SUPPLEMENT, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WHEN ACTING AS UNDERWRITER
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
S-2
<PAGE>
There is currently no secondary market for the [Notes] [Securities] offered
hereby. Each Underwriter expects, but is not obligated to make a market in
the Notes [and Certificates]. There can be no assurance that a secondary
market will develop or that it will provide [Note] [Security] holders with
liquidity of investment or that it will continue for the life of the
[Notes] [Securities] offered hereby.
REPORTS TO [NOTE] [SECURITY] HOLDERS
Unless and until Definitive Notes [or Definitive Certificates] are
issued, monthly and annual unaudited reports containing information
concerning the Receivables will be prepared by the Servicer and sent on
behalf of the Trust only to Cede & Co., as nominee of the Depository Trust
Company and registered holder of the Notes [and the Certificates]. If
Definitive Notes [or Definitive Certificates] are issued, these reports
will be sent on behalf of the Trust directly to each Noteholder [and each
Certificateholder] at its registered address on file with the Indenture
Trustee [or the Owner Trustee, as applicable]. See "Certain Information
Regarding the Securities--Book-Entry Registration" and "--Reports to
Securityholders" in the accompanying Prospectus. Such reports will not
constitute financial statements prepared in accordance with generally
accepted accounting principles. The Seller, as originator of the Trust,
will file with the Securities and Exchange Commission (the "Commission")
such periodic reports as are required under the Securities Exchange Act of
1934, as amended, and the rules and regulations of the Commission
thereunder. In addition, the Commission maintains a public access site on
the Internet through the World Wide Web at which site reports, information
statements and other information, including all electronic filings, may be
viewed. The Internet address of such World Wide Web site is
http://www.sec.gov.
S-3
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference
to the detailed information appearing elsewhere in this Prospectus
Supplement and in the Prospectus. Capitalized terms used and not defined in
this summary are defined elsewhere in this Prospectus Supplement on the
pages indicated in the "Index of Terms" beginning at page S-__ or, to the
extent not defined herein, are defined in the Prospectus.
Issuer..................... Paragon Auto Receivables Owner Trust ____-__ (the
"Trust" or the "Issuer"), a trust established
pursuant to a trust agreement (as amended and
supplemented, the "Trust Agreement"), dated as of
_______________, ____, between the Seller and the
Owner Trustee.
Seller.................... Paragon Auto Receivables Corporation, a Delaware
corporation (the "Seller"). See "The Seller."
Servicer.................. Paragon Acceptance Corporation, a Delaware
corporation ("Paragon" or, in its capacity as
servicer, the "Servicer").
Indenture Trustee.......... ____________________, as trustee under the
Indenture (the "Indenture Trustee").
Owner Trustee.............. ____________________, as owner trustee under
the Trust Agreement (the "Owner Trustee").
The Notes.................. The Trust will issue Asset Backed Notes (the
"Notes"), pursuant to an Indenture, to be
dated as of _______________, ____ (as
amended and supplemented from time to time,
the "Indenture"), between the Issuer and the
Indenture Trustee, as follows: (a) Class A-1
__% Asset Backed Notes (the "Class A-1
Notes") in the aggregate initial principal
amount of $______________; and (b) Class A-2
__% Asset Backed Notes (the "Class A-2
Notes") in the aggregate initial principal
amount of $____________.
The Notes will be secured by the assets of
the Trust pursuant to the Indenture.
The Certificates.......... The Trust will issue __% Asset Backed
Certificates (the "Certificates" and,
together with the Notes, the "Securities")
with an aggregate initial Certificate
Balance of $________________. The
Certificates will represent fractional
undivided interests in the Trust and will be
issued pursuant to the Trust Agreement.
The Receivables............ On or prior to __________, ____ (the "Closing
Date"), the Trust will purchase the
Trust Property from the Seller pursuant to a
Sale and Servicing Agreement to be dated as
of ____________, ____ (as amended and
supplemented from time to time, the "Sale
and Servicing Agreement"), between the
Trust, the Seller and the Servicer. The
"Trust Property" will include: (i) specified
motor vehicle retail installment
S-4
<PAGE>
contracts (collectively, the "Receivables")
secured by new or used automobiles, light
duty trucks and sports utility vehicles (the
"Financed Vehicles"); (ii) all monies
received thereunder after __________,
_____ (the "Cutoff Date"); (iii) security
interests in the Financed Vehicles securing
the Receivables; (iv) any proceeds from
claims on certain insurance policies,
refunds for costs of service policies or
contracts, refunds of unearned premiums with
respect to certain insurance policies and
any recourse to Dealers for any of the
foregoing; (v) certain rights under Dealer
Agreements; (vi) certain Eligible Accounts
in which collections are held; and (vii) all
income from and proceeds of the foregoing.
See "Description of the Transfer and
Servicing Agreements" herein and in the
Prospectus.
The Receivables consist of motor vehicle retail
installment contracts between an Obligor
and a Dealer. See "The Receivables Pool" herein
and "The Receivables Pools" in the Prospectus.
The Receivables have been selected from motor
vehicle receivables owned by Paragon based on
the criteria specified in the Sale and Servicing
Agreement and described herein and in the
Prospectus. See "The Receivables Pool" herein
and "The Receivables Pools" in the
Prospectus. No Receivable will have a
scheduled maturity that, after giving
prospective effect to any permitted
extensions or such deferrals, would be later
than ____________ (the "Final Scheduled
Payment Date"). As of the Cutoff Date, the
weighted average remaining maturity of the
Receivables was approximately _____ months
and the weighted average original maturity
of the Receivables was approximately ____
months. As of the Cutoff Date, approximately
____% of the aggregate principal balance of
the Receivables represented financing of
used vehicles and the remainder represented
financing of new vehicles.
The"Aggregate Principal Balance" means, at any
time, the sum of the outstanding Principal
Balances of the Receivables. "Principal Balance"
means, with respect to any Receivable, as of any
date, the Amount Financed minus that portion of
all payments (including all scheduled
payments and any prepayments in full or
partial prepayment) received on or prior to
such date and allocable to principal in
accordance with the [simple interest]
method. "Amount Financed" means, with
respect to a Receivable, the "amount
financed" within the meaning of the Federal
Truth-in-Lending Act, which is the aggregate
amount of credit initially extended under
such Receivable toward the purchase price of
the Financed Vehicle and related costs,
including amounts of credit extended in
respect of accessories, insurance premiums,
service and warranty policies or contracts
S-5
<PAGE>
and other items customarily financed as part of
motor vehicle retail installment contracts.
Terms of the Notes
A. Payment Dates.......... Payments of interest and principal on the
Notes will be made on the [15th] day of each
month or, if any such day is not a Business
Day, on the next succeeding Business Day
(each, a "Payment Date"), commencing
______________, ____. Payments will be made
to holders of record of the Notes (the
"Noteholders") as of the day preceding such
Payment Date (a "Record Date"). "Business
Day" means any day other than a Saturday,
Sunday or other day on which commercial
banking institutions or trust companies in
St. Louis, Missouri, Los Angeles,
California, New York, New York or
_____________, _____________ are authorized
or required to be closed.
B. Interest Rates......... The Class A-1 Notes will bear interest at the
rate of __% per annum (the "Class A-1
Interest Rate") and the Class A-2 Notes will
bear interest at the rate of __% per annum
(the "Class A-2 Interest Rate"). The Class
A-1 Interest Rate and the Class A-2 Interest
Rate are referred to herein collectively as
"Interest Rates."
C. Interest............... Interest on the outstanding principal amount
of the Notes of each class will accrue at
the applicable Interest Rate from the
Closing Date (in the case of the first
Payment Date) and thereafter from (and
including) the preceding Payment Date
through (but excluding) the current Payment
Date (each an "Interest Period"). Interest
on the Notes will be calculated on the basis
of a 360-day year consisting of twelve
30-day months. See "Description of the
Notes--Payments of Interest."
D. Principal.............. Principal of the Notes will be payable on each
Payment Date in an an amount equal to the
Noteholders' Principal Payment Amount for the
calendar month (the "Collection Period")
preceding such Payment Date.
No principal payments will be made on the Class
A-2 Notes until the Class A-1 Notes have been
paid in full.]
The outstanding principal amount of the Class
A-1 Notes, to the extent not previously
paid, will be payable on the _____________,
____ Payment Date (the "Class A-1 Final
Scheduled Payment Date"); and the
outstanding principal amount of the Class
A-2 Notes, to the extent not previously
paid, will be payable on the ____________,
____ Payment Date (the "Class A-2 Final
Scheduled Payment Date").
S-6
<PAGE>
E. Significant
Characteristics of
Class __ Notes......... [Interest will accrue on the Class __ Notes
from [the Closing Date] but no interest will be
payable on the Class __ Notes until [the
Payment Date on or after which the Class __
Notes have been paid in full]. [The Class __
Notes [do not bear interest] [bear interest
at a nominal rate] and principal thereon is
due and payable on [and after] [the Payment
Date following the Payment Date on or after
which the Class __ Notes have been paid in
full] [each Payment Date to the extent that
principal available to be paid on the Class
__ Notes exceeds the amount necessary to
reduce the outstanding principal balance of
the Class __ Notes to the [planned balance]
for such Payment Date. [No principal is
payable with respect to the Class __ Notes.
The Class __ Notes are entitled only to
interest on the [nominal] [notional] amount
thereof, as described above under
"Principal."] As a result, the yield to
maturity on the Class __ Notes will be
particularly sensitive to the rate and
timing of repayment, repurchase and defaults
on the Receivables.] [See "Risk Factors" and
"The Receivables Pool-- Weighted Average
Life of the Securities."]
F. Optional Repurchase of
Receivables; Redemption.. The Servicer may purchase all the Receivables
and other Trust property on any Payment Date
after the Class A-1 Notes have been repaid
in full if, as of the related Accounting
Date, the Aggregate Principal Balance has
declined to less than 10% of the Initial Pool
Balance. In such event, on the related
Payment Date, the Class A-2 Noteholders will
receive as a prepayment in full an amount
equal to the Class A-2 Note Balance plus
accrued and unpaid interest thereon at the
Class A-2 Interest Rate. See "Description of
the Notes--Optional Redemption." The
"Initial Principal Balance" will equal the
aggregate principal balance of the
Receivables as of the Cutoff Date.
[Terms of the Certificates
A. Payment Dates........... Distributions with respect to the Certificates
will be made on each Payment Date,
commencing __________,
____. Distributions will be made to holders
of record of the Certificates (the
"Certificateholders" and, together with the
Noteholders, the "Securityholders") as of
the related Record Date (which will be the
last Business Day of the preceding month if
Definitive Certificates are issued).
B. Certificate Rate....... ___% per annum (the "Certificate Rate").
C. Interest................ On each Payment Date, the Owner Trustee will
distribute pro rata to Certificateholders
accrued interest at the Certificate Rate
on the outstanding Certificate Balance
generally to the extent of funds
available following payment of the
Servicing
S-7
<PAGE>
Fee and distributions in respect of interest
on the Notes from the Payment Amount and the
Reserve Account. Interest will be calculated
on the basis of a 360-day year consisting of
twelve 30-day months. Interest in respect of
a Payment Date will accrue from (and
including) the Closing Date (in the case of
the first Payment Date) and thereafter from
(and including) the preceding Payment Date
to (but excluding) such Payment Date.
D. Principal.............. No distributions of principal on the
Certificates will be made until all of the
Notes have been paid in full. On each
Payment Date commencing on the Payment Date
on which the Class A-2 Notes are paid in
full, principal of the Certificates will be
payable in an amount generally equal to the
Certificateholders' Principal Payment Amount
for the Collection Period preceding such
Payment Date, to the extent of funds
available therefor following payment of the
Servicing Fee, payments of interest and
principal, if any, due in respect of the
Notes and the distribution of interest in
respect of the Certificates.
The outstanding principal amount, if any, of
the Certificates will be payable in full on
the __________ Payment Date (the
"Certificate Final Scheduled Payment Date").
E. Optional Repurchase
of Receivables;
Prepayment............ The Servicer may purchase all the Receivables
and other Trust property on any Payment Date
if, as of the related Accounting Date, the
Aggregate Principal Balance has declined to
less than 10% of the Initial Pool Balance.
In such event, on the related Payment Date, the
Certificateholders will receive as a
prepayment in full an amount equal to the
Certificate Balance plus accrued and unpaid
interest thereon at the Certificate Rate.
See "Description of the
Certificates--Optional Repurchase of
Receivables; Prepayment."]
[Pre-Funding Account....... During the period (the "Funding Period") from
and including the Closing Date until the
earliest of (i) the Determination Date on
which (a) the Pre-Funded Amount is less than
$________, (b) an Event of Default has
occurred under the Indenture or a Servicer
Termination Event has occurred under the
Sale and Servicing Agreement, (c) certain
events of insolvency have occurred with
respect to the Seller or the Servicer or
(ii) the close of business on the ________
Payment Date, the Pre-Funded Amount will be
maintained in an account in the name of the
Indenture Trustee (the "Pre-Funding
Account"). The Pre-Funded Amount is expected
to initially equal approximately
$_____________ and, during the Funding
Period, will be reduced by the principal
balance of Subsequent Receivables purchased
by the Trust from time to time in accordance
with the Sale and Servicing Agreement. The
Seller expects that the Pre-Funded Amount
S-8
<PAGE>
will be reduced to less than $_________ by
the ________ Payment Date. Any Pre-Funded
Amount remaining at the end of the Funding
Period will be payable to the Noteholders
and Certificateholders pro rata in
proportion to the respective principal
balances of each class of Notes and the
Certificates. See "Description of the
Transfer and Servicing Agreements --
Pre-Funding Account; Subsequent
Receivables."]
Reserve Account............ A reserve account (the "Reserve Account")
will be created with an initial deposit by
the Seller of cash or certain investments
having a value of at least $________ (the
"Reserve Account Deposit"). In addition, on
each Payment Date, any amounts on deposit in
the Collection Account with respect to the
preceding Collection Period after payments
to the Noteholders and the Servicer have
been made will be deposited into the Reserve
Account until the amount of the Reserve
Account is equal to the Reserve Account
Required Amount.
On each Payment Date, the Indenture Trustee
will withdraw funds from the Reserve
Account, to the extent of the funds therein
(exclusive of investment earnings), to the
extent (a) the sum of the amounts required
to be distributed to Noteholders,
[Certificateholders] and the Servicer on the
related Payment Date exceeds (b) the amount
on deposit in the Collection Account with
respect to the preceding Collection Period
(net of investment income). If the amount in
the Reserve Account is reduced to zero,
Noteholders [and Certificateholders] will
bear the credit and other risks associated
with ownership of the Receivables, including
the risk that the Trust may not have a
perfected security interest in the Financed
Vehicles. See "Risk Factors" herein and in
the Prospectus, "Description of the
Certificates--The Reserve Account" and
"Certain Legal Aspects of the Receivables"
in the Prospectus.
Material Federal Income
Tax Consequences........... In the opinion of Mayer, Brown & Platt,
special tax counsel for the Issuer, for
federal income tax purposes, the Notes will
be characterized as debt, and the Trust will
not be classified as a separate entity that
is an association (or a publicly traded
partnership) taxable as a corporation. Each
Noteholder, by its acceptance of a Note,
will agree to treat the Notes as
indebtedness, [and each Certificateholder,
by its acceptance of a Certificate, will
agree to treat the Trust as a partnership in
which the Certificateholders are partners
for federal, state and local tax purposes].
[Certificateholders should be aware that, if
the Trust does not have sufficient cash to
make cash distributions of interest to
Certificateholders, Certificateholders may
still be allocated income equal to the
amount of income that would accrue at the
Certificate Rate multiplied by the
Certificate Balance
S-9
<PAGE>
held by such Certificateholder. As a
consequence, cash basis holders would, in
effect, be required to report income from the
Certificates on the accrual basis and
Certificateholders may become liable for
taxes on Trust income even if they have not
received distributions of cash.] See
"Material Federal Income Tax Consequences"
and "State Tax Consequences" herein and in
the Prospectus for additional information
concerning the application of federal and
state tax laws to the Trust and the
Securities.
ERISA Considerations....... Subject to the considerations discussed under
"ERISA Considerations" herein and in the
Prospectus, the Notes are eligible for
purchase by employee benefit plans.
[The Certificates may not be acquired with
the assets of any employee benefit plan
subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
or Section 4975 of the Internal Revenue Code
of 1986, as amended (the "Code"), or with
the assets of an individual retirement
account.] See "ERISA Considerations" herein
and in the Prospectus.
[Legal Investment.......... The Class A-1 Notes will be eligible
securities for purchase by money market
funds under paragraph (a)(10) of Rule 2a-7
under the Investment Company Act of 1940, as
amended.]
Rating of the Notes........ It is a condition to the issuance of the
Notes that the Class A-1 Notes be rated in
the highest [short-term] rating category and
that the Class A-2 Notes be rated in the
highest long-term rating category by at
least one nationally recognized statistical
rating agency (the "Rating Agency"). The
ratings of the Notes address the likelihood
of the timely payment of interest on and the
ultimate payment of principal of the Notes
pursuant to their terms. These ratings are
not a recommendation to buy, sell or hold
the Notes. There can be no assurance that a
rating will not be lowered or withdrawn by
the Rating Agency if circumstances so
warrant. See "Risk Factors--Ratings of the
Securities" herein and in the Prospectus.
S-10
<PAGE>
RISK FACTORS
In addition to the other information contained herein and in the
Prospectus, prospective investors should consider carefully the following
risk factors and the information contained in "Risk Factors" in the
Prospectus.
[Certificates Subordinated to Notes
Distributions of interest and principal on the Certificates will
be subordinated in priority of payment to interest and principal due on the
Class A-1 Notes and Class A-2 Notes. Consequently, the Certificateholders
will not receive any distributions with respect to a Collection Period
until the full amount of interest on and principal of the Notes on such
Payment Date has been deposited in the Note Distribution Account. The
Certificateholders will not receive any distributions of principal until
the Payment Date on which the Class A-2 Notes were paid in full. However,
upon the occurrence and during the continuation of an Event of Default
which has resulted in an acceleration of the Notes, distributions of all
amounts on the Certificates will be subordinated in priority of payment to
payment in full of principal of the Notes.
If an Event of Default occurs and is not cured, the Indenture
Trustee or the holders of a majority of the aggregate principal amount of
all the Notes may declare the principal of the Notes to be immediately due
and payable, and the Indenture Trustee may institute or be required to
institute proceedings to collect amounts due or exercise its remedies as a
secured party (including foreclosure or sale of the Receivables). In the
event of a sale of Receivables by the Indenture Trustee following an Event
of Default, there is no assurance that the proceeds of such sale will be
equal to or greater than the aggregate outstanding principal amount of the
Notes and the Certificate Balance plus accrued interest. Because neither
interest nor principal is distributed to Certificateholders upon sale of
the Receivables following an Event of Default and acceleration of the Notes
under the Indenture until all the Notes have been paid in full, the
interests of Noteholders and the Certificateholders may conflict, and the
exercise by the Indenture Trustee of its right to sell the Receivables or
exercise other remedies under the Indenture and applicable law may cause
the Certificateholders to suffer a loss of all or part of their investment.
See "Description of the Notes--The Indenture--Events of Default; Rights
upon Event of Default" and "Description of the Transfer and Servicing
Agreements--Insolvency Event" in the Prospectus.
In general, the Seller may, and in certain circumstances the
Certificateholders may, direct the Owner Trustee in the administration of the
Trust. However, because the Trust has pledged the property of the Trust to
the Indenture Trustee to secure the payment of the Notes, including in such
pledge certain rights of the Trust under the Sale and Servicing Agreement,
the Indenture Trustee and not the Seller or the Certificateholders has the
power to direct the Trust to take certain actions in connection with the
administration of the property of the Trust until the Notes have been paid in
full and the lien of the Indenture has been released. In addition, the Seller
and Certificateholders are not allowed to direct the Owner Trustee to take
any action which conflicts with the provisions of any of the Sale and
Servicing Agreement, the Trust Agreement or the Indenture (together the
"Related Documents"). The Indenture specifically prohibits the Issuer from
taking any action which would impair the Indenture Trustee's security
interest in the Trust and generally requires the Owner Trustee to obtain the
consent of the Indenture Trustee or the holders of a majority of the
aggregate principal amount of the Notes before modifying, amending,
supplementing, waiving or terminating any Related Document or any provision
of any Related Document. Therefore, until the Notes have been paid in full,
the ability to direct the Trust with respect to certain actions permitted to
be taken by it under the Related Documents rests with the Indenture Trustee
and the Noteholders instead of the Seller or the Certificateholders.
If a Servicer Termination Event were to occur, the holders of a
majority of the outstanding principal amount of the Notes, the Indenture
Trustee acting on behalf of the Noteholders, or the Owner Trustee and not
the Seller or the Certificateholders, would have the right to terminate the
Servicer as the servicer of the Receivables without consideration of the
effect such termination would have on Certificateholders. In addition, the
holders of not less than a majority of the outstanding principal amount of
S-11
<PAGE>
the Notes would have the right to waive certain Servicer Termination Events,
without consideration of the effect such waiver would have on
Certificateholders. See "Description of the Transfer and Servicing
Agreements--Servicer Termination Events" and "--Rights upon Servicer
Termination Events" in the Prospectus.]
Limited Assets of Trust on Which [Note][Security] holders Can Rely for Payments
The Trust will not have, nor is it permitted or expected to have,
any significant assets or sources of funds other than the Receivables and
the Reserve Account. Holders of the Notes [and the Certificates] must rely
for repayment upon payments on the Receivables and, if and to the extent
available, amounts on deposit in the Reserve Account. Similarly, although
funds in the Reserve Account will be available on each Payment Date to
cover shortfalls in distributions of interest and principal on the Notes
[and the Certificates], amounts to be deposited in the Reserve Account are
limited in amount. If the Reserve Account is exhausted, the Trust will
depend solely on current distributions on the Receivables to make payments
on the Notes [and the Certificates].
Amounts on deposit in the Reserve Account will be available on any
Payment Date first to cover payment of Servicing Fees to the Servicer, then
shortfalls in distributions of interest on the Notes [and then shortfalls
in distributions of interest on Certificates]. [After distributions of
interest on the Certificates have been made, the remaining amounts on
deposit in the Reserve Account will be available first to cover shortfalls
in distributions of principal on the Notes and then shortfalls in
distributions of principal on the Certificates]. If the Reserve Account is
exhausted, the Trust will depend solely on payments on the Receivables to
make distributions on the [Notes] [Securities], and [Note] [Security]
holders will bear the risk of delinquency, losses and repossessions with
respect to the Receivables. There can be no assurance that the future
delinquency, loss and repossession experience of the Trust with respect to
the Receivables will be better or worse than that set forth herein with
respect to the portfolio of Receivables serviced by the Servicer. Any
amounts released from the Reserve Account to the Seller will not be
available to the [Notes] [Security] holders. See "The Receivables
Pool--Pool Composition" and "Delinquency and Net Losses" herein and "The
Receivables Pools" in the Prospectus and "Description of the Transfer and
Servicing Agreements--Subordination of Certificateholders; Reserve Account"
and "--Distributions" herein.
Risk that Principal on [Notes][Securities] May Pay Down Earlier Than Expected
The Class A-2 Notes will not receive any principal payments until the
Class A-1 Notes have been paid in full. [In addition, no principal payments
on the Certificates will be made until the Payment Date on which the Notes
are paid in full]. As the rate of payment of principal of the Notes [and the
Certificates] depends on the rate of payment (including prepayments) of the
principal balance of the Receivables, final payment of the Notes [and the
final distribution in respect of the Certificates] could occur significantly
earlier than the applicable Final Scheduled Payment Date. It is expected that
final payment of the Notes [and the final distribution in respect of the
Certificates] will occur on or prior to the applicable Final Scheduled
Payment Date. However, if sufficient funds are not available to pay the Notes
[or the Certificates] in full on or prior to the applicable Final Scheduled
Payment Date, final payment of the Notes [and the final distribution in
respect of the Certificates] could occur later than such date. See "Weighted
Average Life of the Securities" herein and in the Prospectus.
[THE YIELD ON THE CLASS ____ NOTES WILL BE EXTREMELY SENSITIVE TO THE
RATE AND TIMING OF PAYMENTS (INCLUDING PREPAYMENTS) ON THE RECEIVABLES. [AN
INVESTOR PURCHASING A CLASS ____ NOTE AT A SIGNIFICANT PREMIUM COULD, UNDER
CERTAIN PREPAYMENT SCENARIOS, FAIL TO RECOUP ITS ORIGINAL INVESTMENT.] [THE
YIELD TO MATURITY ON THE CLASS ____ NOTES WILL BE ADVERSELY AFFECTED BY A
LOWER THAN ANTICIPATED RATE OF PAYMENT ON THE RECEIVABLES.] [The reinvestment
risk to an investor in the Class ____ Notes may be exacerbated in the event
of [an increase in the rate of payment on the Receivables in a decreasing
interest rate environment] [a decrease in the rate of payment on the
Receivables in an increasing rate environment]. Any ratings assigned to the
Class ____ Notes by a Rating Agency will reflect only such Rating Agency's
assessment of the likelihood that timely distributions will be made with
respect to the Class ____ Notes in accordance with the Sale and Servicing
S-12
<PAGE>
Agreement and the Indenture. Such rating will not constitute an assessment of
the likelihood that principal prepayments on the Receivables will occur or of
the degree to which the rate of such prepayments might differ from that
originally anticipated. As a result, such rating will not address the
possibility that prepayment rates higher or lower than anticipated by an
investor may cause [such investor to experience a lower than anticipated
yield] [an investor purchasing a Class ____ Note at a significant premium
might fail to recoup its investment]. See "The Receivable Pool -- Sensitivity
of the Class ____ Notes to Prepayments."]
Payments on [Notes][Securities] May Be Affected By Regional Economic Conditions
SIGNIFICANT GEOGRAPHIC CONCENTRATION MAY INCREASE THE EXPOSURE OF
THE TRUST TO THE ECONOMIC CONDITIONS IN THOSE STATES. Economic conditions
in states where Obligors reside may affect the delinquency, loss and
repossession experience of the Trust with respect to the Receivables.
Obligors on Receivables representing approximately ___%, ___%, ___% and __%
by principal balance of the Receivables were located in ________, ________,
________ and ________ at the Cutoff Date. As a result, economic conditions
in such states may have a disproportionate effect on prepayments and/or
defaults in respect of the Receivables and thus on amounts available for
distribution to Securityholders. In particular, an economic downturn in one
or more of such states could adversely affect the performance of the Trust
as a whole (even if national economic conditions remain unchanged or
improve) as obligors in such states experience the effects of such a
downturn and face greater difficulty in making payments on their Financed
Vehicles. See "The Receivables Pool" herein.
Ratings of the Securities Do Not Address Suitability of Investment
It is a condition to the issuance of the Notes [and the
Certificates] that the Class A-1 Notes be rated in the highest [short-term]
rating category and that the Class A-2 Notes be rated in the highest
long-term rating category by at least one nationally recognized statistical
rating agency. A rating is not a recommendation to purchase, hold or sell
Securities, inasmuch as such rating does not comment as to market price or
suitability for a particular investor. The ratings of the Securities
address the likelihood of the payment of principal and interest on the
Securities pursuant to their terms. There can be no assurance that a rating
will remain for any given period of time or that a rating will not be
lowered or withdrawn entirely by a Rating Agency if in its judgment
circumstances in the future so warrant.
THE TRUST
General
The Issuer, Paragon Auto Receivables Owner Trust ____-_, is a
trust formed, prior to its purchase of the Receivables and the issuance of
the [Notes][Securities], under the laws of the State of Delaware pursuant
to the Trust Agreement for the transactions described in this Prospectus
Supplement. After its formation, the Trust will not engage in any activity
other than acquiring, holding and managing the Receivables and the other
assets of the Trust and proceeds therefrom and issuing the Notes and
Certificates and making payments thereon.
At the time the Notes and Certificates are issued, the Trust will
be capitalized with equity in an amount equal to the Certificate Balance of
$__________, excluding amounts deposited in the Reserve Account. The equity
of the Trust, together with the net proceeds from the sale of the Notes,
will be used by the Trust to purchase the Receivables from the Seller
pursuant to the Sale and Servicing Agreement [or to repayment of any
related Warehouse Financing].
If the protection provided to the investment of the [Notes]
[Security] holders by the Reserve Account is insufficient, the Trust will
look only to the Obligors on the Receivables, the proceeds from the
repossession and sale of Financed Vehicles which secure defaulted
Receivables and the proceeds from any Dealer Recourse. In such event,
certain factors, such as the Trust's not having first priority perfected
security interests in some of the Financed Vehicles, may affect the Trust's
ability to realize on the collateral securing the Receivables, and thus may
reduce the proceeds to be distributed to [Note] [Security] holders
S-13
<PAGE>
with respect to the [Notes] [Securities]. See "Description of the Transfer
and Servicing Agreements--Distributions" and "--Reserve Account" and
"Certain Legal Aspects of the Receivables" in the Prospectus.
The Trust's principal offices are in [Delaware], in care of
__________________, as Owner Trustee, at the address listed below under
"--The Owner Trustee".
Capitalization of the Trust
The following table illustrates the capitalization of the Trust as
of the Closing Date, as if the issuance and sale of the Notes and the
Certificates have taken place on such date:
Class A-1 __% Asset Backed Notes................ $ __________________
Class A-2 __% Asset Backed Notes................ __________________
__% Asset Backed Certificates................... __________________
Total.......................................... $
==================
The Owner Trustee
_______________ is the Owner Trustee under the Trust Agreement.
_____________ is a __________________ and its principal offices where
information can be obtained relating to the Trust and the Certificates are
located at _____________________. The Seller and its affiliates may
maintain normal commercial banking relations with the Owner Trustee and its
affiliates.
THE RECEIVABLES POOL
The Receivables were purchased or originated by Paragon in the
ordinary course of its business. The pool of Receivables (the "Receivables
Pool") will consist of Receivables purchased by the Trust as of the Cutoff
Date. The Receivables have been selected from the Receivables portfolio of
Paragon for inclusion in the Receivables Pool by several criteria, some of
which are set forth in the Prospectus under "The Receivables Pool," as well
as the requirement that each Receivable: (a) had no amount due 10% or more of
which was more than 29 days past due as of the Cutoff Date; (b) has an APR
of not less than _____% and not more than _____%; [(c) provides for level
monthly payments that fully amortize the amount financed over an original
term of at least_____ months and not more than ____ months (provided
payments are made on the applicable due dates [and except that the final
payment may differ]);] (d) had an outstanding Principal Balance as of the
Cutoff Date of not less than $_______ and not more than $_______; and (e)
had a remaining term as of the Cutoff Date of at least ___ months and not
more than ___ months. The Receivables were originated on or before
________, ____. The composition of the Receivables Pool as of the Closing
Date will not deviate from the composition of the Receivables Pool as of
the Cutoff Date. No selection procedures believed by the Seller to be
adverse to the [Note] [Security] holders were used in selecting the
Receivables.
The tables below set forth information regarding the composition
and characteristics of the Receivables Pool as of the Cutoff Date.
S-14
<PAGE>
Composition of the Receivables
as of the Cutoff Date
Aggregate Principal Balance........................................$___________
Number of Receivables....................................................._____
Average Amount Financed............................................$___________
Range of Amounts Financed..........................$___________ to $___________
Average Remaining Principal Balance................................$___________
Range of Remaining Principal Balances..............$___________ to $___________
Weighted Average APR....................................................._____%
Range of APRs.................................................._____% to _____%
Weighted Average Original Term to Maturity (1)......................____ months
Range of Original Terms to Maturity.........................____ to ____ months
Weighted Average Remaining Term to Maturity (1).....................____ months
Range of Remaining Terms to Maturity........................____ to ____ months
New Vehicles (Percentage of Aggregate Principal Balance)..................____%
Used Vehicles (Percentage of Aggregate Principal Balance).................____%
(1) Rounded to the nearest month.
S-15
<PAGE>
Distribution of the Receivables by APR
as of the Cutoff Date
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
APR Range Balance Balance (1) Receivables Receivables (1)
------------ ------------- ------------- ------------ ---------------
% $ % %
____________ __________ _________ ___________
TOTAL $ 100.00% 100.00%
(1) Percentages may not add up to 100.00% because of rounding.
<CAPTION>
Distribution of Receivables by Principal Place of Business of Dealer
as of the Cutoff Date
<S> <C> <C> <C> <C>
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
State Balance Balance (1) Receivables Receivables (1)
------------ ------------- ------------- ------------ ---------------
% $ % %
____________ __________ _________ ___________
TOTAL $ 100.00% 100.00%
(1) Percentages may not add up to 100.00% because of rounding.
S-16
<PAGE>
<CAPTION>
Distribution by Original Term to Scheduled Maturity of the Receivables
as of the Cutoff Date
<S> <C> <C> <C> <C>
Percentage
Aggregate by Aggregate Percentage
Range of Principal Principal Number of by Number of
Original Terms Balance Balance (1) Receivables Receivables (1)
--------------- ------------- ------------- ------------ ---------------
to months $ % %
to months
to months
to months
to months
to months
to months
to months
to months
months
____________ __________ _________ ___________
TOTAL $ 100.00% 100.00%
(1) Percentages may not add up to 100.00% because of rounding.
<CAPTION>
Distribution by Remaining Term to Scheduled Maturity of the Receivables
as of the Cutoff Date
<S> <C> <C> <C> <C>
Percentage
Aggregate by Aggregate Percentage
Range of Principal Principal Number of by Number of
Remaining Terms Balance Balance (1) Receivables Receivables (1)
--------------- ------------- ------------- ------------ ---------------
to months $ % %
to months
to months
to months
to months
to months
to months
to months
to months
months
____________ __________ _________ ___________
TOTAL $ 100.00% 100.00%
(1) Percentages may not add up to 100.00% because of rounding.
S-17
<PAGE>
<CAPTION>
Distribution of Receivables by Amount Financed
as of the Cutoff Date
<S> <C> <C> <C> <C>
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
Amount Financed Balance Balance (1) Receivables Receivables (1)
---------------- ------------- ------------- ------------ ---------------
$5,000.00 to $9,999.99 $ % %
$10,000.00 to $14,999.99
$15,000.00 to $19,999.99
$20,000.00 to $24,999.99
$25,000.00 to $29,999.99
$30,000.00 to $34,999.99
$35,000.00 to $39,999.99
$40,000.00 to $44,999.99
$45,000.00 to $49,999.99
$50,000.00 to $54,999.99
$55,000.00 to $59,999.99
$60,000.00 to $64,999.99
$65,000.00 to $69,999.99
$100,000.00 and above
____________ __________ _________ ___________
TOTAL $ 100.00% 100.00%
(1) Percentages may not add up to 100.00% because of rounding.
<CAPTION>
Distribution of Receivables by Current Principal Balance
as of the Cutoff Date
<S> <C> <C> <C> <C>
Percentage
Aggregate by Aggregate Percentage
Current Principal Principal Number of by Number of
Principal Balance Balance Balance (1) Receivables Receivables (1)
------------------ ------------- ------------- ------------ ---------------
$5,000.00 to $9,999.99 $ % %
$10,000.00 to $14,999.99
$15,000.00 to $19,999.99
$20,000.00 to $24,999.99
$25,000.00 to $29,999.99
$30,000.00 to $34,999.99
$35,000.00 to $39,999.99
$40,000.00 to $44,999.99
$45,000.00 to $49,999.99
$50,000.00 to $54,999.99
$55,000.00 to $59,999.99
$60,000.00 to $64,999.99
$95,000.00 to $99,999.99
____________ __________ _________ ___________
TOTAL $ 100.00% 100.00%
(1) Percentages may not add up to 100.00% because of rounding.
</TABLE>
S-18
<PAGE>
Delinquencies and Loss Experience
The following tables set forth information relating to the
delinquency and loss experience of Paragon for the periods indicated. There
is no assurance that the delinquency and credit loss experience with
respect to Paragon's automobile, light duty truck and sports utility
vehicle installment contracts in the future, or that the experience of the
Receivables owned by the Trust and pledged to the Indenture Trustee for the
benefit of the [Note][Security] holders, will be similar to that set forth
below.
Paragon began acquiring contracts in August of 1996.
Delinquencies, repossessions and net losses have increased steadily since
that time due to seasoning of the pool of contracts. Fluctuations in
delinquencies, repossessions and losses generally follow trends in the overall
economic environment and may be affected by such factors as increased
competition for obligors, the supply of and demand for automobiles, light duty
trucks and sports utility vehicles, rising consumer debt burden per household
and increases in personal bankruptcies. The credit enhancement for the Trust
has been designed to protect [Note][Security] holders against increases in
delinquencies and losses. If, however, any such increase is greater than
anticipated, delays in payments of collections of the Receivables could
occur or reductions in the amount of payments to [Note][Security] holders
could result.
For a description of Paragon's underwriting and collections
practices, see "The Receivables Pools-Underwriting" and "-Servicing and
Collections" in the Prospectus.
S-19
<PAGE>
<TABLE>
<CAPTION>
PARAGON ACCEPTANCE CORPORATION
Historical Delinquency Experience
<S> <C> <C> <C> <C> <C> <C> <C>
As of
9/30/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97
Aggregate Principal No. of contracts 77 486 1,180 2,090 3,292 4,576
Balance at Period End(1) Amount ($) 1,169,188 7,889,627 19,105,772 33,882,836 53,902,072 75,755,941
--------------------- --------- ----------- ------------ ------------ ----------- ----------
Delinquencies
30 - 59 days No. of contracts 0 2 4 14 47 66
Pay Off Balance ($) 0 21,084 68,810 283,003 723,757 1,031,132
% of Principal 0.00% 0.27% 0.36% 0.84% 1.34% 1.36%
60 - 89 days No. of contracts 0 0 0 3 3 10
Pay Off Balance ($) 0 0 0 34,773 33,718 160,904
% of Principal 0.00% 0.00% 0.00% 0.10% 0.06% 0.21%
90 days or more No. of contracts 0 0 0 0 3 1
Pay Off Balance ($) 0 0 0 0 49,982 14,185
% of Principal 0.00% 0.00% 0.00% 0.00% 0.09% 0.02%
--------- ----------- ----------- ----------- ------------- -----------
Total Delinquencies No. of contracts 0 2 4 17 53 77
Pay Off Balance ($) 0 21,084 68,810 317,776 807,457 1,206,221
% of Principal 0.00% 0.27% 0.36% 0.94% 1.50% 1.59%
Amount in No. of vehicles 0 0 2 6 4 7
Repossession Pay Off Balance ($) 0 0 33,804 105,815 94,154 112,910
Inventory % of Principal 0.00% 0.00% 0.18% 0.31% 0.17% 0.15%
--------- ----------- ----------- ----------- ------------- -----------
Total Delinquencies No. of contracts &
and Amount in vehicles 0 2 6 23 57 84
Repossession Pay Off Balance ($) 0 21,084 102,614 423,591 901,611 1,319,131
% of Principal 0.00% 0.27% 0.54% 1.25% 1.67% 1.74%
========= ------------ =========== =========== ============ ===========
(1) Aggregate Principal Balance equals the net finance receivables for all contracts serviced, excluding repossessed vehicles.
the amounts are on a basis consistent with Paragon's financial statement presentation of Contracts Held for Sale, and
consists of unamortized dealer participation and deferred initial direct costs, reserve for losses, and unearned finance
charges on precomputed contracts.
<CAPTION>
<S> <C> <C> <C> <C>
3/31/98 6/30/98 9/30/98
Aggregate Principal No. of contracts 6,471 8,667 10,435
Balance at Period End(1) Amount ($) 107,228,391 145,663,968 176,207,183
------------------- ------------ ----------- -----------
Delinquencies
30 - 59 days No. of contracts 68 132 136
Pay Off Balance ($) 1,189,755 2,213,174 2,231,656
% of Principal 1.11% 1.52% 1.27%
60 - 89 days No. of contracts 13 22 37
Pay Off Balance ($) 219,789 405,439 565,302
% of Principal 0.21% 0.28% 0.32%
90 days or more No. of contracts 7 4 10
Pay Off Balance ($) 111,797 92,083 143,667
% of Principal 0.10% 0.06% 0.08%
------------ ------------- ------------
Total Delinquencies No. of contracts 88 158 183
Pay Off Balance ($) 1,521,342 2,710,696 2,940,625
% of Principal 1.42% 1.86% 1.67%
Amount in No. of vehicles 19 24 24
Repossession Pay Off Balance ($) 241,598 434,530 368,665
Inventory % of Principal 0.23% 0.30% 0.21%
------------- ------------- -------------
Total Delinquencies No. of contracts &
and Amount in vehicles 107 182 207
Repossession Pay Off Balance ($) 1,762,940 3,145,226 3,309,290
% of Principal 1.64% 2.16% 1.88%
(1) Aggregate Principal Balance equals the net finance receivables for all contracts serviced, excluding repossessed vehicles.
the amounts are on a basis consistent with Paragon's financial statement presentation of Contracts Held for Sale, and
consists of unamortized dealer participation and deferred initial direct costs, reserve for losses, and unearned finance
charges on precomputed contracts.
S-20
<PAGE>
<CAPTION>
PARAGON ACCEPTANCE CORPORATION
Historical Net Loss Experience
<S> <C> <C> <C> <C> <C> <C>
9/30/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97
------- -------- ------- ------- ------- --------
Average Aggregate
Principal Balance $443,904 $4,229,961 $13,791,251 $26,544,803 $43,690,638 $64,796,884
======== ========== =========== =========== =========== ===========
Gross Charge-Offs(1) $0 $0 $4,006 $42,227 $103,098 $228,598
Recoveries(2) $0 $0 $0 $985 $102 $80
----- ------- ------ ----- ------- ------
Net Losses $0 $0 $4,006 $41,242 $102,996 $228,518
===== ====== ====== ======== ======== ========
Net Losses as a
Percentage of Average
Aggregate Principal
Balance(3) 0.00% 0.00% 0.03% 0.16% 0.24% 0.35%
===== ===== ===== ===== ===== =====
</TABLE>
(1) Gross Charge-Offs are defined as principal balance at time of
charge-off less net sale proceeds.
(2) Recoveries are post charge-off amounts that are collected and applied
toward the obligors' deficiency balance.
(3) Percentages are not annualized.
PARAGON ACCEPTANCE CORPORATION
Historical Net Loss Experience
Year Ended
3/31/98 6/30/98 9/30/98 9/30/98
------- ------- ------- -------
Average Aggregate
Principal Balance $90,934,548 $126,481,513 $160,920,635 $111,068,155
=========== ============ ============ ============
Gross Charge-Offs(1) $235,758 $573,477 $577,162 $1,614,995
Recoveries(2) $23,224 $84,559 $189.766 $297,629
-------- ------- -------- --------
Net Losses $212,534 $488,918 $387,396 $1,317,366
======== ======== ======== ==========
Net Losses as a
Percentage of Average
Aggregate Principal
Balance(3) 0.23% 0.39% 0.24% 1.19%
===== ===== ===== =====
(1) Gross Charge-Offs are defined as principal balance at time of
charge-off less net sale proceeds.
(2) Recoveries are post charge-off amounts that are collected and applied
toward the obligors' deficiency balance.
(3) Percentages are not annualized.
S-21
<PAGE>
Year 2000 Compliance
The year 2000 issue is the result of computer programs
being written to store and process data using two digits rather than four
to define the applicable year. Any computer programs used by Paragon that
have date sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations. Paragon's critical
computer applications software is not maintained in-house. Rather, Paragon
operates under service agreements with outside vendors that provide Paragon
(and many other institutions) access to the applications that are
maintained by the vendors and run on the vendors' mainframe computers.
These critical applications have been certified as year 2000 compliant.
Paragon has also assessed the potential impact of year 2000 noncompliance
on the part of other external relationships and, subject to Paragon's
ongoing review of vendors' year 2000 compliance, Paragon is not aware at
this time of any such issues that would have a material adverse effect on
Paragon's financial position, cash flows or results of operations. As a
result, subject to Paragon's ongoing compliance efforts, the costs and
uncertainties relating to timely resolution of year 2000 issues applicable
to Paragon's business and operations are not reasonably expected by the
Seller to have a material adverse effect on Paragon's financial position,
cash flows or results of operations. The preceding two sentences are
forward-looking statements and the actual costs could differ materially
from the costs currently anticipated by Paragon.
THE SELLER, THE SERVICER AND PARAGON
The Seller is a wholly-owned subsidiary of Paragon. Information
regarding the Seller is set forth under "The Seller" in the Prospectus and
additional information about Paragon and the Servicer is set forth under
"Paragon and the Servicer" in the Prospectus. Paragon was incorporated in
the State of Delaware in November 1994 and began purchasing contracts in
August 1996. Paragon was initially capitalized with approximately
$8,400,000 in preferred and common stock held by an investment fund managed
by Triumph Capital Group, Inc. ("Triumph") and Paragon's senior management.
Triumph is a private investment management company founded in 1990 and
based in Boston, Massachusetts. Triumph manages three early stage and
mezzanine investment funds for institutional investors with capital
commitments equal to approximately $500,000,000. In April 1998, Paragon
issued approximately $14,000,000 in additional preferred and common stock
to three institutional investors not affiliated with Triumph. Other funding
sources available to Paragon include a warehouse lending facility provided
by ContiTrade Services, L.L.C. ("CTS"), and a $4,000,000 subordinated
lending facility also provided by CTS. CTS holds a warrant to purchase up
to approximately 7.5% of the common stock of Paragon.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
Information regarding certain maturity and prepayment
considerations with respect to the Securities is set forth under "Weighted
Average Life of Securities" in the Prospectus. No principal payments will
be made on the Class A-2 Notes until all Class A-1 Notes have been paid in
full. In addition, no principal payments on the Certificates will be made
until all of the Notes have been paid in full. See "Description of the
Notes--Payments of Principal" and "Description of the
Certificates--Distributions of Principal Payments." As the rate of payment
of principal of each class of Notes and the Certificates depends primarily
on the rate of payment (including prepayments) of the principal balance of
the Receivables, final payment of any class of the Notes and the final
distribution in respect of the Certificates could occur significantly
earlier than the respective Final Scheduled Payment Dates. It is expected
that final payment of the Notes and the final distribution in respect of
the Certificates will occur on or prior to the applicable Final Scheduled
Payment Date. However, if sufficient funds are not available to pay the
Notes or the Certificates in full on or prior to the applicable Final
Scheduled Payment Date, final payment of the Notes and the final
distribution in respect of the Certificates could occur later than such date.
S-22
<PAGE>
DESCRIPTION OF THE NOTES
General
The Notes will be issued pursuant to the Indenture, a form of
which has been filed as an exhibit to the Registration Statement. A copy of
the Indenture will be filed with the Commission following the issuance of
the Securities. The summary describes the material terms of the Notes and
the Indenture, but it does not purport to be complete and is subject to,
and is qualified by reference to, all the provisions of the Notes and the
Indenture. Where particular provisions or terms used in the Indenture are
referred to, the actual provisions (including definitions of terms) are
incorporated by reference as part of such summary. The following summary
supplements the description of the general terms and provisions of the
Notes of any given series and the related Indenture set forth in the
Prospectus, to which description reference is hereby made.
_____________________ will be the Indenture Trustee under the Indenture.
The address of the Indenture Trustee at which information regarding the
Trust and Notes may be obtained is ________________.
Payments of Interest
Each class of the Notes will constitute Fixed Rate Securities, as
such term is defined under "Certain Information Regarding the
Securities--Fixed Rate Securities" in the Prospectus. Interest on the
principal balances of the classes of the Notes will accrue at their
respective per annum Interest Rates and will be payable to the Noteholders
monthly on each Payment Date, commencing __________, ____. Interest on the
outstanding principal amount of the Notes will accrue at the applicable
Interest Rate for the applicable Interest Accrual Period. Interest
distributions due for any Payment Date but not distributed on such Payment
Date will be due on the next Payment Date increased by an amount equal to
interest on such amount at the applicable Interest Rate (to the extent
lawful). Interest on the Notes will be calculated on the basis of a 360-day
year consisting of twelve 30-day months. Interest payments on the Notes
will be derived from the Payment Amount remaining after the payment of the
Servicing Fee. See "Description of the Transfer and Servicing
Agreements--Distributions" and "--Reserve Account."
Interest payments to both classes of Noteholders will have the
same priority. Under certain circumstances, the amount available for
interest payments could be less than the amount of interest payable on the
Notes on any Payment Date, in which case each class of Noteholders will
receive their ratable share (based upon the aggregate amount of interest
due to such class of Noteholders) of the aggregate amount available to be
distributed in respect of interest on the Notes.
Payments of Principal
Principal payments will be made to the Noteholders on each Payment
Date in an amount equal to the Noteholders' Principal Payment Amount.
Principal payments on the Notes will be derived from the Payment Amount
remaining after the payment of the Servicing Fee and the Noteholders'
Interest Payment Amount. See "Description of the Transfer and Servicing
Agreements--Distributions" and "--Reserve Account."
On the eighth day of the calendar month during which any Payment
Date occurs (or, if such day is not a Business Day, the next Business Day)
(a "Determination Date"), the Indenture Trustee shall determine the amount
in the Collection Account allocable to interest and the amount allocable to
principal.
On each Payment Date, principal payments on the Notes will be
applied in the following order of priority: (a) to the principal balance of
the Class A-1 Notes until the principal balance of the Class A-1 Notes is
reduced to zero; and (b) to the principal balance of the Class A-2 Notes
until the principal balance of the Class A-2 Notes is reduced to zero. The
principal balance of the Class A-1 Notes, to the extent not previously
paid, will be due on the Class A-1 Final Scheduled Payment Date and the
principal balance of the Class A-2 Notes, to the extent not
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previously paid, will be due on the Class A-2 Final Scheduled Payment Date.
The actual date on which the aggregate outstanding principal amount of
either class of Notes is paid may be earlier than the respective final
scheduled Payment Dates set forth above based on a variety of factors,
including those described under "Weighted Average Life of the Securities"
herein and in the Prospectus.
Optional Repurchase of Receivables; Redemption
On any Payment Date after the Class A-1 Notes have been paid in
full, the Class A-2 Notes will be redeemed in whole, but not in part, if
the Servicer exercises its option to purchase the Receivables. The Servicer
may purchase the Receivables when the Aggregate Principal Balance shall
have declined to 10% or less of the Initial Principal Balance, as described
in the Prospectus under "Description of the Transfer and Servicing
Agreements--Termination". The redemption price will be equal to the unpaid
principal amount of the Class A-2 Notes plus accrued and unpaid interest
thereon.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to the Trust Agreement, a
form of which has been filed as an exhibit to the Registration Statement. A
copy of the Trust Agreement will be filed with the Commission following the
issuance of the Securities. The summary describes the material terms of the
Certificates and the Trust Agreement, but it does not purport to be complete
and is subject to, and qualified by reference to, all the provisions of the
Certificates and the Trust Agreement. The following summary supplements the
description of the general terms and provisions of the Certificates of any
given series and the related Trust Agreement set forth in the Prospectus, to
which description reference is hereby made.
Distribution of Interest Income
On each Payment Date, commencing ________ ___, ____, the
Certificateholders will be entitled to distributions in an amount equal to
the amount of interest that would accrue on the Certificate Balance at the
Certificate Rate. The Certificates will constitute Fixed Rate Securities,
as such term is defined under "Certain Information Regarding the
Securities--Fixed Rate Securities" in the Prospectus. Interest in respect
of a Payment Date will accrue from the Closing Date (in the case of the
first Payment Date) and thereafter, from the [15th] day of the month
preceding the month of the Payment Date to and including the ___ day of the
month of such Payment Date. Interest distributions due for any Payment Date
but not distributed on such Payment Date will be due on the next Payment
Date increased by an amount equal to interest on such amount at the
Certificate Rate (to the extent lawful). Interest distributions with
respect to the Certificates will be funded from the portion of the Payment
Amount and the funds in the Reserve Account remaining after the
distribution of the Servicing Fee and the Noteholders' Interest Payment
Amount. See "Description of the Transfer and Servicing
Agreements--Distributions" and "--Reserve Account."
Distributions of Principal Payments
Certificateholders will be entitled to distributions of principal
on each Payment Date, commencing with the Payment Date on which the Notes
are paid in full, in an amount equal to the Principal Distribution Amount
(less on the Payment Date on which the Notes are paid in full, the portion
thereof payable on the Notes). Distributions with respect to principal
payments will be funded from the portion of the Principal Distribution
Amount remaining after the distribution of the Servicing Fee, the
Noteholders' Distributable Amount (on the Payment Date on which
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the Notes are paid in full) and the Certificateholders' Interest Payment
Amount. See "Description of the Transfer and Servicing
Agreements--Distributions" and "--Reserve Account".
Optional Repurchase of the Receivables; Prepayment
If the Servicer exercises its option to purchase the Receivables
when the Aggregate Principal Balance declines to 10% or less of the Initial
Principal Balance, the Servicer may purchase all remaining Trust Property
on any Payment Date occurring in a subsequent Collection Period and cause
the prepayment of the Certificates in an amount equal to the Certificate
Balance plus accrued and unpaid interest thereon at the Certificate Rate.
See "Description of the Transfer and Servicing Agreements--Termination" in
the Prospectus.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of the Sale and
Servicing Agreement and the Trust Agreement. Forms of the Sale and
Servicing Agreement and the Trust Agreement have been filed as exhibits to
the Registration Statement. A copy of the Sale and Servicing Agreement will
be filed with the Commission following the issuance of the Securities. The
summary describes the material terms of the Sale and Servicing Agreement
and the Trust Agreement, but it does not purport to be complete and is
subject to, and qualified by reference to, all the provisions of the Sale
and Servicing Agreement and the Trust Agreement. The following summary
supplements the description of the general terms and provisions of the Sale
and Servicing Agreement and the Trust Agreement set forth in the
Prospectus, to which description reference is hereby made.
Accounts
Accounts referred to under "Description of the Transfer and
Servicing Agreements--Accounts" in the Prospectus, as well as the Reserve
Account, will be established by the Servicer and maintained in the name of
the Indenture Trustee on behalf of the Noteholders [and the
Certificateholders]. Amounts held from time to time in the Reserve Account
will be held for the benefit of Noteholders [and Certificateholders]. Funds
on deposit in the Reserve Account will be invested in Eligible Investments
selected by the Seller and, if permitted by the Rating Agency, funds on
deposit in the Reserve Account may be invested in Eligible Investments that
mature later than the next Payment Date. Upon any distribution to the
Servicer of amounts from the Reserve Account, the Securityholders will not
have any rights in, or claims to, such amounts. On or before each Payment
Date, funds in the amount of the Deficiency Claim Amount for such Payment
Date will be withdrawn from the Reserve Account and deposited in the
Collection Account.
On each Payment Date, the Trustee will withdraw funds from the
Reserve Account in the amount of the Deficiency Claim Amount. Such
withdrawal may result from, among other things, Receivables becoming
Liquidated Receivables or the failure by the Servicer to make any
remittance required to be made under the Agreement. The aggregate amount to
be withdrawn from the Reserve Account on any Payment Date will not exceed
the amount available in the Reserve Amount with respect to the related
Payment Date. The Trustee will deposit the proceeds of such withdrawal into
the Collection Account on or before the Payment Date with respect to which
such withdrawal was made.
Subject to reduction as described below, the "Reserve Account
Required Amount" means the greater of (i) _____% of the Aggregate Principal
Balance (after giving effect to any distributions on the Securities on such
Payment Date) and (ii) the Floor Amount; [provided, that if a Trigger Event
has occurred and has not been Deemed Cured, the Reserve Account Required
Amount will be ___% of the Aggregate Principal Balance (after giving effect
to any distributions on the Securities on such Payment Date)]. The Reserve
Account Required Amount may be reduced from time to time if the Rating
Agency has delivered prior written notice to the Seller, the Servicer, the
Indenture Trustee and the Owner Trustee that such reduction will not result
in a reduction, withdrawal or
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qualification of the Rating Agency's then current ratings of each class of
the Notes and the Certificates. The time necessary for the Reserve Account
to reach and maintain the Reserve Account Required Amount at any time after
the Closing Date will be affected by the delinquency, credit loss,
repossession and prepayment experience of the Receivables and, therefore,
cannot be accurately predicted. Amounts on deposit in the Reserve Account
will be released to the Servicer on each Payment Date to the extent that
the amount on deposit in the Reserve Account would exceed the Reserve
Account Required Amount.
"Liquidation Proceeds" with respect to a Liquidated
Receivable means all amounts realized with respect to such
Receivable (other than amounts withdrawn from the Reserve Account)
net of (i) reasonable expenses incurred by the Servicer in
connection with the collection of such Receivable and the
repossession and disposition of the related Financed Vehicle and
(ii) amounts that are required to be refunded to the Obligor on
such Receivable; provided, however, that the Liquidation Proceeds
with respect to any Receivable will in no event be less than zero.
"Floor Amount" with respect to any Payment Date means the
lesser of (i) the aggregate outstanding principal amount of the
Notes [and the Certificate Balance] (after giving effect to any
distributions on the [Notes] [Securities] on such Payment Date)
and (ii) $__________________.
"Deficiency Claim Amount" means, with respect to any
Determination Date, the positive difference of (i) the sum of the
Servicing Fee for the related Collection Period and all accrued
and unpaid Servicing Fees for prior Collection Periods, the
Noteholders' Interest Payment Amount, the Certificateholders'
Interest Payment Amount, the Noteholders' Principal Payment Amount
and the Certificateholders' Principal Payment Amount for such
Payment Date minus (ii) the amount of Available Funds with respect
to such Determination Date, which amount will be withdrawn from
the Reserve Account to the extent funds are on deposit therein and
deposited into the Collection Account on the related Payment Date.
If funds in the Reserve Account are reduced to zero, the [Note]
[Security] holders will bear the credit and other risks associated with
ownership of the Receivables. In such a case, the amount available for
distribution may be less than that described below, and the [Note]
[Security] holders may experience delays or suffer losses as a result,
among other things, of defaults or delinquencies by the Obligors or
previous extensions made by the Servicer.
[Pre-Funding Account; Subsequent Receivables]
[On the Closing Date, approximately $____________ of Initial
Receivables will be transferred to the Trust by the Seller and the
approximately $______________ Pre-Funded Amount will be deposited by the
Trust in the Pre-Funding Account. If the principal amount of eligible
Receivables originated by Paragon during the Funding Period is less than
the Pre-Funded Amount, the Seller will have insufficient Receivables to
sell to the Trust on the Subsequent Transfer Dates, thereby resulting in a
prepayment of principal to the Noteholders and the Certificateholders as
described in the following paragraph.] [In addition, any conveyance of
Subsequent Receivables is subject to the satisfaction, on or before the
related Subsequent Transfer Date, of the condition that each such
Subsequent Receivable satisfies the eligibility criteria specified in "The
Receivables Pool" herein and "The Receivables Pools" in the Prospectus.]
[To the extent that the Pre-Funded Amount has not been fully
applied to the purchase of Subsequent Receivables by the Trust during the
Funding Period, the Noteholders and the Certificateholders will receive, on
the Payment Date on or immediately following the last day of the Funding
Period, a prepayment of principal in an amount equal to their pro rata
share (based on the current principal balance of each class of Notes and
the Certificate Balance) of any remaining Pre-Funded Amount following the
purchase of any Subsequent Receivables on such Payment Date. It is
anticipated that the principal amount of Subsequent Receivables sold to the
Trust will
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not be exactly equal to the original Pre-Funded Amount and that therefore
there will be at least a nominal amount of principal prepaid to the
Noteholders and to the Certificateholders.]
[If the amount of the Pre-Funding Account will exceed 25% of the
aggregate proceeds from the offering, include the specific investments in
which the Pre-Funding Account will be invested and specify that the actual
investments of the Pre-Funding Account as of the end of the preceding month
will be provided in the periodic reports on Form 8-K and Form 10-K to be
filed by the Seller with respect to the Trust.]
Servicing Compensation and Payment of Expenses
The Servicing Fee Rate will be 1.0% per annum of the Aggregate
Principal Balance as of the opening of business on the first day of the
related Collection Period. See "Description of the Transfer and Servicing
Agreements--Servicing Compensation and Payment of Expenses" in the
Prospectus. The Servicer will also collect and retain any late fees,
non-sufficient funds fees, liquidation fees and other administrative fees
(the "Supplemental Servicing Fee") with respect to the Receivables.
Payments by or on behalf of Obligors will be allocated to scheduled
payments and late fees and other charges in accordance with the Servicer's
normal practices and procedures. As additional compensation, the Servicer
may be entitled to receive for the related Collection Period some or all of
the portion, if any, of the Payment Amount for such Collection Period
remaining after payment of the Servicing Fee and interest and principal in
respect of the Securities and any required deposit to the Reserve Account.
See "Description of the Transfer and Servicing Agreements--Servicing
Compensation and Payment of Expenses" in the Prospectus and
"--Distributions" herein.
Distributions
Deposits to Collection Account. On or before each Payment Date,
the Servicer will cause all collections and other amounts constituting the
Payment Amount to be deposited into the Collection Account.
"Accounting Date" means, with respect to any Collection
Period, the last day of such Collection Period, and with respect
to any Payment Date, the last day of the Collection Period
preceding such Payment Date.
"APR" means, with respect to a Receivable, the rate per
annum of interest charged on the outstanding principal balance of
such Receivable.
"Available Funds" means, with respect to any
Determination Date, the sum of (i) the Collected Funds received by
the Servicer during the related Collection Period, (ii) all
Purchase Amounts deposited in the Collection Account since the
preceding Determination Date and on or before the related Deposit
Date, and (iii) all income received from investments of funds in
the Collection Account during the related Collection Period.
"Certificate Balance" equals, initially, $_________ and,
thereafter, equals the initial Certificate Balance, reduced by all
amounts allocable to principal previously distributed to
Certificateholders.
["Certificateholders' Interest Carryover Shortfall"
means, with respect to any Payment Date, the excess of the
Certificateholders' Monthly Interest Payment Amount for the
preceding Payment Date and any outstanding Certificateholders'
Interest Carryover Shortfall on such preceding Payment Date, over
the amount in respect of interest that is actually deposited in
the Certificate Distribution Account on such preceding Payment
Date, plus interest on such excess, to the extent permitted by
law, at the Certificate Rate from and including such preceding
Payment Date to but excluding the current Payment Date.]
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"Certificateholders' Interest Payment Amount" means, for any
Payment Date, the sum of the Certificateholders' Monthly Interest
Payment Amount for such Payment Date and the Certificateholders'
Interest Carryover Shortfall for such Payment Date.
"Certificateholders' Monthly Interest Payment Amount"
means, for any Payment Date, the amount of interest accrued on the
Certificates at the Certificate Rate during the related Interest
Period (calculated on the basis of a 360-day year and twelve
30-day months).
"Certificateholders' Percentage" means 100% minus the
Noteholders' Percentage.
"Certificateholders' Principal Payment Amount" means, for
any Payment Date, the sum of the Certificateholders' Monthly
Principal Payment Amount for such Payment Date and the
Certificateholders' Principal Carryover Shortfall as of the close
of the preceding Payment Date; provided that the Certificateholers'
Principal Payment Amount shall not exceed the Certificate
Balance. In addition, on the Certificate Final Scheduled Payment
Date, the principal required to be distributed to
Certificateholders will include the lesser of (a) any payments of
principal due and remaining unpaid on each Receivable owned by
Issuer as of ___________ or (b) the portion of the amount that is
necessary (after giving effect to the other amounts to be
deposited in the Certificate Distribution Account on such Payment
Date and allocable to principal) to reduce the Certificate Balance
to zero, in either case after giving effect to any required
distribution of the Noteholders' Principal Payment Amount to the
Note Distribution Account. In addition, on any Payment Date on
which, after giving effect to all distributions to Servicer, the
Noteholders and the Certificateholders on such Payment Date, (i)
the outstanding principal balance of the Notes is zero and (ii)
the amount on deposit in the Reserve Account is equal to or
greater than the Certificate Balance, Certificateholders'
Principal Payment Amount shall include an amount equal to such
Certificate Balance.
"Certificateholder's Monthly Principal Payment Amount"
means, for any Payment Date, the Certificateholders' Percentage of
the Principal Distribution Amount or, for any Payment Date on or
after the Payment Date on which the outstanding principal balance
of the Class A-2 Notes is reduced to zero, 100% of the Principal
Distribution Amount (less any amount required on the first such
Payment Date to reduce the outstanding principal balance of the
Class A-2 Notes to zero, which shall be deposited into the Note
Distribution Account).
"Certificateholders' Principal Carryover Shortfall"
means, as of the close of any Payment Date, the excess of the
Certificateholders' Monthly Principal Payment Amount and any
outstanding Certificateholders' Principal Carryover Shortfall from
the preceding Payment Date, over the amount in respect of
principal that is actually deposited in the Certificate
Distribution Account.
"Collected Funds" means, with respect to any
Determination Date, the amount of funds in the Collection Account
representing collections on the Receivables received by the
Servicer during the related Collection Period, including all
Liquidation Proceeds collected during the related Collection
Period (but excluding any Purchase Amounts) and all amounts paid
by Dealers under Dealer Agreements or Dealer Assignments with
respect to the Receivables during the related Collection Period.
"Liquidated Receivable" means, with respect to any
Collection Period, a Receivable as to which (i) the related
Financed Vehicle has been repossessed and sold by the Servicer, or
(ii) at least 10% of any scheduled payment has become 120 or more
days delinquent, or (iii) the Servicer has determined in good
faith that all amounts it expects to recover with respect thereto
have been received.
"Payment Amount" means, with respect to any Payment Date,
the sum of (i) the Available Funds as of the related Determination
Date, plus (ii) the Deficiency Claim Amount, if any, with respect
to such Payment Date.
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"Principal Distribution Amount" without duplication, the
sum of: (i) the principal portion of all Collected Funds for the
related Determination Date (other than Collected Funds received
with respect to Liquidated Receivables following the respective
dates such Receivables became Liquidated Receivables), (ii) the
Principal Balance of all Receivables that became Liquidated
Receivables during the related Collection Period (other than
Purchased Receivables) as determined on the respective dates such
Receivables became Liquidated Receivables, and (iii) the principal
portion of the Purchase Amount of all Receivables that became
Purchased Receivables as of the related Accounting Date.
"Purchase Amount" means for any Receivable, as of the
close of business on the last day of a Collection Period, the
amount of principal plus accrued interest calculated in accordance
with the Servicer's customary practices, for such Receivable as of
such day.
"Purchased Receivable" means a Receivable purchased as of
the close of business on the last day of a Collection Period by
the Servicer or repurchased by the Seller pursuant to the Sale and
Servicing Agreement.
Deposits to the Distribution Accounts. On each Payment Date,
Servicer shall instruct the Indenture Trustee or, in the event that the
Collection Account is maintained with an institution other than Indenture
Trustee, instruct and cause such institution (based on the information
contained in the Servicer's Report delivered on the related Determination
Date) to make, and Indenture Trustee or such other institution shall make,
the following deposits and distributions from the Collection Account for
deposit in the applicable account by 11:00 a.m. (New York time), to the
extent of the Payment Amount, in the following order of priority:
(a) to the Servicer, from the Payment Amount, the
Servicing Fee for the related Collection Period and all accrued
and unpaid Servicing Fees for prior Collection Periods;
(b) to the Note Distribution Account, from the Payment
Amount remaining after the application of clause (a), the
Noteholders' Interest Payment Amount;
(c) to the Note Distribution Account, from the Payment
Amount remaining after the application of clause (a) and (b), the
Noteholders' Principal Payment Amount;
(d) to Owner Trustee for deposit in the Certificate
Distribution Account, from the Payment Amount remaining after the
application of clauses (a) through (c), the Certificateholders'
Interest Payment Amount;
(e) to Owner Trustee for deposit in the Certificate
Distribution Account, from the Payment Amount remaining after the
application of clauses (a) through (d), the Certificateholders'
Principal Payment Amount;
(f) to the Reserve Account until the amount on deposit in
the Reserve Account equals the Reserve Account Required Amount; and
(g) to the Seller or the Servicer, any amounts remaining.
On each Determination Date (other than the first Determination
Date), the Servicer will provide the Owner Trustee and the Indenture
Trustee with certain information with respect to the Collection Period
related to the prior Payment Date, including the amount of aggregate
collections on the Receivables, the aggregate amount of Receivables which
were written off and the aggregate Purchase Amount of Receivables to be
repurchased by the Seller or to be purchased by the Servicer.
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For purposes hereof, the following terms shall have the following
meanings:
"Noteholders' Distributable Amount" means, with respect
to any Payment Date, the sum of the Noteholders' Principal Payment
Amount and the Noteholders' Interest Payment Amount.
"Noteholders' Interest Carryover Shortfall" means, with
respect to any Payment Date, the excess of the Noteholders'
Monthly Interest Payment Amount for the preceding Payment Date and
any outstanding Noteholders' Interest Carryover Shortfall on such
preceding Payment Date, over the amount in respect of interest
that is actually deposited in the Note Distribution Account on
such preceding Payment Date, plus interest on the amount of
interest due but not paid to Noteholders on the preceding Payment
Date, to the extent permitted by law, at the respective Interest
Rates borne by each class of Notes from such preceding Payment
Date through the current Payment Date.
"Noteholders' Interest Payment Amount" means, for any
Payment Date, the sum of the Noteholders' Monthly Interest Payment
Amount for such Payment Date and the Noteholders' Interest
Carryover Shortfall for such Payment Date.
"Noteholders' Monthly Interest Payment Amount" means, for
any Payment Date and for each class of Notes, the amount of
interest accrued on such class at its respective Interest Rate
during the related Interest Period (calculated on the basis of a
360-day year and twelve 30-day months).
"Noteholders' Monthly Principal Payment Amount" means,
for any Payment Date, the Noteholders' Percentage of the Principal
Distribution Amount.
"Noteholders' Percentage" means 100% until the point in
time at which Class A-1 Notes and Class A-2 Notes have been paid
in full and zero thereafter.
"Noteholders' Principal Carryover Shortfall" means, as of
the close of any Payment Date, the excess of the Noteholders'
Monthly Principal Payment Amount and any outstanding Noteholders'
Principal Carryover Shortfall from the preceding Payment Date over
the amount in respect of principal that is actually deposited in
the Note Distribution Account.
"Noteholders' Principal Payment Amount" means, for any
Payment Date, the sum of the Noteholder's Monthly Principal
Payment Amount for such Payment Date and the Noteholders' Principal
Carryover Shortfall as of the close of the preceding Payment Date;
provided that the Noteholders' Principal Payment Amount shall not
exceed the outstanding principal balance of the Notes. In addition,
on the Final Scheduled Payment Date of each class of Notes, the
principal required to be deposited in the Note Distribution Account
will include the amount necessary (after giving effect to the other
amounts to be deposited in the Note Distribution Account on such
Payment Date and allocable to principal) to reduce the outstanding
amount of such class of Notes to zero.
On each Payment Date, all amounts on deposit in the Note
Distribution Account (other than investment earnings) will be paid in the
following order of priority:
(a) to the applicable Noteholders, accrued and unpaid
interest on the outstanding principal balance of the applicable
class of Notes at the applicable Interest Rate;
(b) the Noteholders' Principal Payment Amount in the
following order of priority:
(i) to the Holders of the Class A-1 Notes in
reduction of principal until the principal balance of the
Class A-1 Notes has been reduced to zero; and
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(ii) to the Holders of the Class A-2 Notes in
reduction of principal until the principal balance of the
Class A-2 Notes has been reduced to zero.
On each Payment Date, all amounts on deposit in the Certificate
Distribution Account will be distributed to the Certificateholders in the
following priority:
(a) first, to the Certificateholders, on a pro rata
basis, an amount equal to the Certificateholders' Interest Payment
Amount; and
(b) second, to the Certificateholders, on a pro rata
basis, an amount equal to the Certificateholders' Principal
Payment Amount.
Subordination of Certificateholders
The rights of the Certificateholders to receive distributions with
respect to the Receivables will be subordinated to the rights of the
Noteholders in the event of defaults and delinquencies on the Receivables
as provided in the Sale and Servicing Agreement. The protection afforded to
the Noteholders through subordination will be effected both by the
preferential right of the Noteholders to receive current distributions with
respect to the Receivables and by the establishment of the Reserve Account.
If on any Payment Date the entire Noteholders' Interest Payment Amount for
such Payment Date (after giving effect to any amounts withdrawn from the
Reserve Account) is not deposited in the Note Distribution Account, the
Certificateholders will not receive any distributions.
The subordination of the Certificates and the Reserve Account are
intended to enhance the likelihood of receipt by Noteholders of the full
amount of principal and interest due them and to decrease the likelihood
that the Noteholders will experience losses. In addition, the Reserve
Account is intended to enhance the likelihood of receipt by
Certificateholders of the full amount of principal and interest due them
and to decrease the likelihood that the Certificateholders will experience
losses. However, in certain circumstances, the Reserve Account could be
depleted. If the amount required to be withdrawn from the Reserve Account
to cover shortfalls in collections on the Receivables exceeds the amount of
available cash in the Reserve Account, Noteholders or Certificateholders
could incur losses or a temporary shortfall in the amounts distributed to
the Noteholders or the Certificateholders could result, which could, in
turn, increase the average life of the Notes or the Certificates.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
Information regarding certain legal aspects of the Receivables is
set forth under "Certain Legal Aspects of the Receivables" in the
Prospectus.
LEGAL INVESTMENT
[The Class A-1 Notes will be eligible for purchase by money market
funds under paragraph (a) (10) of Rule 2a-7 under the Investment Company
Act of 1940, as amended.]
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of material federal income tax
consequences of the purchase, ownership and disposition of the Notes and
the Certificates and such summary represents the opinion of Federal Tax
Counsel subject to the qualifications set forth herein. An opinion of
Federal Tax Counsel, however, is not binding on the Internal Revenue
Service ("IRS") or the courts. No ruling on any of the issues discussed
below will be sought from
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the IRS. The following summary is intended as a discussion of the possible
effects of certain federal income tax consequences to holders, but does not
purport to furnish information in the level of detail or with the attention
to a holder's specific tax circumstances that would be provided by a
holder's own tax advisor. For example, it does not discuss the tax
consequences of the purchase, ownership and disposition of the Notes and
Certificates by Noteholders or Certificateholders that are subject to
special treatment under the federal income tax laws (including banks and
thrifts, insurance companies, regulated investment companies, dealers in
securities, foreign investors, trusts and estates and pass-through
entities, the equity holders of which are any of the foregoing). In
addition, the discussion regarding the Notes is limited to the federal
income tax consequences of the initial Noteholders and not a purchaser in
the secondary market. Moreover, there are no cases or IRS rulings on
similar transactions involving both debt and equity interests issued by a
trust with terms similar to those of the Notes and the Certificates. As a
result, the IRS may disagree with all or a part of the discussion below. We
suggest that prospective investors consult their own tax advisors in
determining the federal, state, local, foreign and any other tax
consequences to them of the purchase, ownership and disposition of the
Notes and the Certificates.
The following summary is based upon current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury
regulations promulgated thereunder and judicial or ruling authority, all of
which are subject to change, which change may be retroactive.
Scope of the Tax Opinions
In the opinion of Federal Tax Counsel, the Trust will not be
classified as a separate entity that is an association (or publicly traded
partnership) taxable as a corporation for federal income tax purposes.
Further, with respect to the Notes, Federal Tax Counsel is of the opinion
that the Notes will be characterized as debt for federal income tax
purposes.
In addition, Federal Tax Counsel has prepared or reviewed the
statements under the heading "Summary of Terms--Tax Status" as they relate
to federal income tax matters and under the heading "Material Federal
Income Tax Consequences" herein and in the Prospectus and is of the opinion
that such statements are correct in all material respects. Such statements
are intended as a discussion of the possible effects of the classification
of the Trust as a partnership for federal income tax purposes on investors
and of related tax matters affecting investors generally, but do not
purport to furnish information in the level of detail or with the attention
to the investor's specific tax circumstances that would be provided by an
investor's own tax adviser. Accordingly, we suggest that investors consult
their own tax advisers with regard to the tax consequences to them of
investing in the Notes and the Certificates.
Tax Classification of the Trust as a Partnership
Federal Tax Counsel is of the opinion that the Trust (which the
Trust Agreement specifies is intended to be treated as a partnership) will
not be classified as a separate entity that is an association (or publicly
traded partnership) taxable as a corporation for federal income tax
purposes. A copy of such opinion of Federal Tax Counsel will be filed with
the Commission as an exhibit to a Form 8-K prior to the confirmation of
sales of any series of Securities. This opinion is based on the assumption
that the terms of the Trust Agreement and related documents will be
complied with, and on Federal Tax Counsel's conclusion that the nature of
the income of the Trust will exempt it from the rule that certain publicly
traded partnerships are taxable as corporations.
If the Trust were taxable as a corporation for federal income tax
purposes, the Trust would be subject to corporate income tax on its taxable
income. The Trust's taxable income would include all its income on the
Receivables, reduced by its interest expense on the Notes provided the
Notes are respected as debt for federal income tax purposes (see discussion
in the following paragraph). Any such corporate income tax could materially
reduce cash available to make payments on the Notes and distributions on
the Certificates, and Certificateholders could be liable for any such tax
that is unpaid by the Trust.
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Tax Consequences to Holders of the Notes
Treatment of the Notes as Indebtedness. The Seller will agree, and
the Noteholders will agree by their purchase of Notes, to treat the Notes
as debt for federal, state and local income and franchise tax purposes. In
the opinion of Federal Tax Counsel, the Notes will be characterized as debt
for federal income tax purposes. A copy of such opinion of Federal Tax
Counsel will be filed with the Commission with a Form 8-K following the
issuance of the Notes. The discussion below assumes this characterization
of the Notes is correct.
The discussion below assumes that all payments on the Notes are
denominated in U.S. dollars, and that the Notes are not Strip Notes.
Moreover, the discussion assumes that the interest formula for the Notes
meets the requirements for "qualified stated interest" under Treasury
regulations (the "OID regulations") relating to original issue discount
("OID"), and that any OID on the Notes (i.e., any excess of the principal
amount of the Notes over their issue price) does not exceed a de minimis
amount (i.e., 1/4% of their principal amount multiplied by the number of full
years included in their term), all within the meaning of the OID regulations.
Interest Income on the Notes. Based on the above assumptions, except as
discussed in the following paragraph, the Notes will not be considered issued
with OID. The stated interest thereon will be taxable to a Noteholder as
ordinary interest income when received or accrued in accordance with such
Noteholder's method of tax accounting. Under the OID regulations, a holder of
a Note issued with a de minimis amount of OID must include such OID in
income, on a pro rata basis, as principal payments are made on the Note. It
is believed that any prepayment premium paid as a result of a mandatory
redemption will be taxable as contingent interest when it becomes fixed and
unconditionally payable. A purchaser who buys a Note for more or less than
its principal amount will generally be subject, respectively, to the premium
amortization or market discount rules of the Code.
Sale or Other Disposition. If a Noteholder sells a Note, the
holder will recognize gain or loss in an amount equal to the difference
between the amount realized on the sale and the holder's adjusted tax basis
in the Note. The adjusted tax basis of a Note to a particular Noteholder
will equal the holder's cost for the Note, increased by any market
discount, OID and gain previously included by such Noteholder in income
with respect to the Note and decreased by the amount of bond premium (if
any) previously amortized and by the amount of principal payments
previously received by such Noteholder with respect to such Note. Any such
gain or loss will be capital gain or loss if the Note was held as a capital
asset, except for gain representing accrued interest and accrued market
discount not previously included in income. Capital losses may be used by a
corporate taxpayer only to offset capital gains, and by an individual
taxpayer only to the extent of capital gains plus $3,000 of other income.
Foreign Holders. Interest payments made (or accrued) to a
Noteholder who is a nonresident alien, foreign corporation or other
non-United States person (a "foreign person") generally will be considered
"portfolio interest", and generally will not be subject to United States
federal income tax and withholding tax, if the interest is not effectively
connected with the conduct of a trade or business within the United States by
the foreign person and the foreign person (i) is not actually or constructively
a "10 percent shareholder" of the Trust or the Seller (including a holder of 10%
of the outstanding Certificates) or a "controlled foreign corporation" with
respect to which the Trust or the Seller is a "related person" within the
meaning of the Code and (ii) provides the Trustee or other person who is
otherwise required to withhold U.S. tax with respect to the Notes with an
appropriate statement (on IRS Form W-8 or a similar form), signed under
penalties of perjury, certifying that the beneficial owner of the Note is a
foreign person and providing the foreign person's name and address. If a
Note is held through a securities clearing organization or certain other
financial institutions, the organization or institution may provide the
relevant signed statement to the withholding agent; in that case, however,
the signed statement must be accompanied by a Form W-8 or substitute form
provided by the foreign person that owns the Note. If such interest is not
portfolio interest, then it will be subject to United States federal
withholding tax at a rate of 30 percent, unless that rate is reduced or
eliminated pursuant to an applicable tax treaty and the foreign person
provides the trustee or other payor of the interest with a copy of IRS Form
1001, or if the interest is effectively connected with the conduct of a
U.S. trade or business and the foreign person provides a copy of IRS Form 4224.
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Any capital gain realized on the sale, redemption, retirement or
other taxable disposition of a Note by a foreign person will be exempt from
United States federal income and withholding tax, provided that (i) such
gain is not effectively connected with the conduct of a trade or business
in the United States by the foreign person and (ii) in the case of an
individual foreign person, the foreign person is not present in the United
States for 183 days or more in the taxable year.
On October 6, 1997, final Treasury regulations (the "Withholding Tax
Regulations") were issued that modify certain of the filing requirements with
which foreign persons must comply in order to be entitled to an exemption
from U.S. withholding tax or a reduction to the applicable U.S. withholding
tax rate. Those persons currently required to file Form W-8 will continue to
be required to file that form. However, the requirement that foreign persons
submit Form W-8 generally is extended to most foreign persons who wish to seek
an exemption from withholding tax on the basis that income from the Certificates
is effectively connected with the conduct of a U.S. trade or business (in
lieu of Form 4224) and to foreign persons wishing to rely on a tax treaty to
reduce the withholding tax rate (in lieu of Form 1001). The Withholding Tax
Regulations are effective for payments of interest due after December 31,
1999, but Forms 4224 and 1001 filed prior to that date will continue to be
effective until the earlier of December 31, 2000 or the current expiration
date of those forms. Prospective investors are urged to consult their tax
advisors with respect to the effect of the Withholding Tax Regulations.
Backup Withholding. Each holder of a Note (other than an exempt
holder such as a corporation, tax exempt organization, qualified pension
and profit sharing trust, individual retirement account or nonresident
alien who provides certification as to status as a nonresident) will be
required to provide, under penalties of perjury, a certificate containing
the holder's name, address, correct federal taxpayer identification number
and a statement that the holder is not subject to backup withholding.
Should a nonexempt Noteholder fail to provide the required certification,
the Trust will be required to withhold 31 percent of the amount otherwise
payable to the holder, and remit the withheld amount to the IRS as a credit
against the holder's federal income tax liability. We suggest that
Noteholders consult with their tax advisors as to their eligibility for
exemption from backup withholding and the procedure for obtaining the
exemption, and the potential impact of the Withholding Tax Regulations.
Possible Alternative Treatments of the Notes. If, contrary to the
opinion of Federal Tax Counsel, the IRS successfully asserted that one or
more of the Notes did not represent debt for federal income tax purposes,
the Notes might be treated as equity interests in the Trust. If so treated,
the Trust might be taxable as a corporation with the adverse consequences
described above (and the taxable corporation would not be able to reduce
its taxable income by deductions for interest expense on Notes
recharacterized as equity). Alternatively, and most likely in the view of
Federal Tax Counsel, the Trust might be treated as a publicly traded
partnership that would not be taxable as a corporation because it would
meet certain qualifying income tests. Nonetheless, treatment of the Notes
as equity interests in such a publicly traded partnership could have
adverse tax consequences to certain holders. For example, income to certain
tax-exempt entities (including pension funds) would be "unrelated business
taxable income", income to foreign holders generally would be subject to U.S.
tax and U.S. tax return filing and withholding requirements, and individual
holders might be subject to certain limitations on their ability to deduct
their share of Trust expenses. Furthermore, such a characterization could
subject holders to state and local taxation in jurisdictions in which they are
not currently subject to tax.
Tax Consequences to Holders of the Certificates
Treatment of the Trust as a Partnership. The Seller, the Servicer,
the Trustee, and the Certificateholders, by their purchase of Certificates,
will agree to treat the Trust as a partnership for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in
part by income, with the assets of the partnership being the assets held by
the Trust, the partners of the partnership being the Certificateholders,
and the Notes being debt of the partnership. However, the proper
characterization of the arrangement involving the Trust, the Certificates,
the Notes, the Seller, and the Servicer is not clear because there is no
authority on transactions closely comparable to that contemplated herein.
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A variety of alternative characterizations are possible. For
example, because the Certificates have certain features characteristic of
debt, the Certificates might be considered debt of the Seller or the Trust.
Any such characterization would not result in materially adverse tax
consequences to Certificateholders as compared to the intended consequences
from treatment of the Certificates as equity in a partnership, described
below. The following discussion assumes that the Certificates represent
equity interests in a partnership.
The following discussion assumes that all payments on the
Certificates are denominated in U.S. dollars, none of the Certificates are
Strip Certificates, and that a series of Securities includes a single class
of Certificates.
Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's accruals of guaranteed payments
from the Trust and its allocated share of other income, gains, losses,
deductions and credits of the Trust. The Trust's income will consist
primarily of interest and finance charges earned on the Receivables
(including appropriate adjustments for market discount, OID and bond premium)
and any gain upon collection or disposition of Receivables. The Trust's
deductions will consist primarily of interest accruing with respect to the
Notes, guaranteed payments on the Certificates, servicing and other fees, and
losses or deductions upon collection or disposition of Receivables.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership
agreement (here, the Trust Agreement and related documents). Under the
Trust Agreement, interest payments on the Certificates at the Certificate
Rate (including interest on amounts previously due on the Certificates but
not yet distributed) will be treated as "guaranteed payments" under Section
707(c) of the Code. Guaranteed payments are payments to partners for the
use of their capital and, in the present circumstances, are treated as
deductible to the Trust and ordinary income to the Certificateholders. The
Trust will have a calendar year tax year and will deduct the guaranteed
payments under the accrual method of accounting. Certificateholders with a
calendar year tax year are required to include the accruals of guaranteed
payments in income in their taxable year that corresponds to the year in
which the Trust deducts the payments, and Certificateholders with a
different taxable year are required to include the payments in income in
their taxable year that includes the December 31 of the Trust year in which
the Trust deducts the payments. It is possible that guaranteed payments
will not be treated as interest for all purposes of the Code.
In addition, the Trust Agreement will provide, in generaly, that the
Certificateholders will be allocated taxable income of the Trust for each
Collection Period equal to the sum of (i) any Trust income attributable to
discount on the Receivables that corresponds to any excess of the principal
amount of the Certificates over their initial issue price, (ii) prepayment
premium, if any, payable to the Certificateholders for such month and (iii)
any other amounts of income payable to the Certificateholders for such month.
Such allocation will be reduced by any amortization by the Trust of premium
on Receivables that corresponds to any excess of the issue price of
Certificates over their principal amount. All remaining items of taxable
income, gain, loss and deduction of the Trust, if any, will be allocated to
the Seller.
Based on the economic arrangement of the parties, this approach for
allocating Trust income arguably should be permissible under applicable
Treasury regulations, although no assurance can be given that the IRS would
not require a greater amount of income to be allocated to Certificateholders.
Moreover, even under the foregoing method of allocation, Certificateholders
may be allocated income equal to the entire Certificate Rate plus the other
items described above even though the Trust might not have sufficient cash to
make current cash distributions of such amount. Thus, cash basis holders
would, in effect, be required to report income from the Certificates on the
accrual basis and Certificateholders may become liable for taxes on Trust
income even if they have not received cash from the Trust to pay such taxes.
In addition, because tax allocations and tax reporting will be done on a
uniform basis for all Certificateholders but Certificateholders may be
purchasing Certificates at different times and at different prices,
Certificateholders may be required to report on their tax returns taxable
income that is greater or less than the amount reported to them by the Trust.
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All of the guaranteed payments and taxable income allocated to a
Certificateholder that is a pension, profit sharing or employee benefit
plan or other tax-exempt entity (including an individual retirement
account) will constitute "unrelated business taxable income" generally taxable
to such a holder under the Code.
An individual taxpayer's share of expenses of the Trust (including
fees to the Servicer but not interest expense) would be miscellaneous
itemized deductions. Such deductions might be disallowed to the individual
in whole or in part and might result in such holder being taxed on an
amount of income that exceeds the amount of cash actually distributed to
such holder over the life of the Trust. It is not clear whether these rules
would be applicable to a Certificateholder accruing guaranteed payments.
The Trust intends to make all tax calculations relating to income
and allocations to Certificateholders on an aggregate basis. If the IRS
were to require that such calculations be made separately for each
Receivable, the Trust might be required to incur additional expense but it
is believed that there would not be a material adverse effect on
Certificateholders.
Discount and Premium. It is believed that the Receivables were not
issued with OID, and, therefore, the Trust should not have OID income.
However, the purchase price paid by the Trust for the Receivables may be
greater or less than the remaining principal balance of the Receivables at
the time of purchase. If so, the Receivables will have been acquired at a
premium or discount, as the case may be. (As indicated above, the Trust
will make this calculation on an aggregate basis, but might be required to
recompute it on a Receivable-by-Receivable basis.)
If the Trust acquires the Receivables at a market discount or
premium, the Trust will elect to include any such discount in income
currently as it accrues over the life of the Receivables or to offset any
such premium against interest income on the Receivables. As indicated
above, a portion of such market discount income or premium deduction may be
allocated to Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust
will be deemed to terminate for federal income tax purposes if 50% or more
of the capital and profits interests in the Trust are sold or exchanged
within a 12-month period. If such a termination occurs, under current
Treasury regulations the Trust will be deemed to contribute all of its
assets and liabilities to a new partnership in exchange for an interest in
the new partnership; and, immediately thereafter, the terminated
partnership will be deemed to have distributed interests in the new
partnership to the new and remaining partners in liquidation of the old
partnership. The Trust will not comply with certain technical requirements
that might apply when such a constructive termination occurs. As a result,
the Trust may be subject to certain tax penalties and may incur additional
expenses if it is required to comply with those requirements. Furthermore,
the Trust might not be able to comply due to lack of data.
Disposition of Certificates. Subject to the discussion in the
immediately following paragraph, generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates
sold. A Certificateholder's tax basis in a Certificate will generally equal
the holder's cost increased by the holder's share of Trust income (includible
in income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the
Certificates sold (rather than maintaining a separate tax basis in each
Certificate for purposes of computing gain or loss on a sale of that
Certificate).
Any gain on the sale of a Certificate attributable to the holder's
share of unrecognized accrued market discount on the Receivables would
generally be treated as ordinary income to the holder and would give rise to
special tax reporting requirements. The Trust does not expect to have any other
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assets that would give rise to such special reporting requirements. Thus, to
avoid those special reporting requirements, the Trust will elect to include
market discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate
amount of income (not including income attributable to disallowed itemized
deductions described above) over the life of the Certificates that exceeds
the aggregate cash distributions with respect thereto, such excess will
generally give rise to a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the
Trust's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the
Certificateholders in proportion to the principal amount of Certificates owned
by them as of the close of the last day of such month. As a result, a holder
purchasing Certificates may be allocated tax items (which will affect its tax
liability and tax basis) attributable to periods before the actual purchase.
The use of such a monthly convention may not be permitted by
existing Treasury regulations. If a monthly convention is not allowed (or
only applies to transfers of less than all of the partner's interest),
taxable income or losses of the Trust might be reallocated among the
Certificateholders. The Seller is authorized to revise the Trust's method
of allocation between transferors and transferees to conform to a method
permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher (or lower) basis unless the Trust were to file an election under
Section 754 of the Code. In order to avoid the administrative complexities
that would be involved in keeping accurate accounting records, as well as
potentially onerous information reporting requirements, the Trust will not
make such election. As a result, Certificateholders might be allocated a
greater or lesser amount of Trust income than would be appropriate based on
their own purchase price for Certificates.
Administrative Matters. The Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year
of the Trust will be the calendar year. The Trust will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust and will report each Certificateholder's allocable share of items of
Trust income and expense to holders and the IRS on Schedule K-1. The Trust
will provide the Schedule K-1 information to nominees that fail to provide
the Trust with the information statement described below and such nominees
will be required to forward such information to the beneficial owners of the
Certificates. Holders must file tax returns that are consistent with the
information return filed by the Trust or be subject to penalties unless the
holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates
as a nominee at any time during a calendar year is required to furnish the
Trust with a statement containing certain information on the nominee, the
beneficial owners and the Certificates so held. Such information includes
(i) the name, address and taxpayer identification number of the nominee and
(ii) as to each beneficial owner (x) the name, address and identification
number of such person, (y) whether such person is a United States person, a
tax-exempt entity or a foreign government, an international organization,
or any wholly-owned agency or instrumentality of either of the foregoing,
and (z) certain information on Certificates that were held, bought or sold
on behalf of such person throughout the year. In addition, brokers and
financial institutions that hold Certificates through a nominee are
required to furnish directly to the Trust information as to themselves and
their ownership of Certificates. A clearing agency registered under Section
17A of the Exchange Act is not required to furnish any such information
statement to the Trust. The information referred to above for any calendar
year must be furnished to the Trust on or before the following January 31.
Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
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The Seller will be designated as the tax matters partner in the
related Trust Agreement and, as such, will be responsible for representing
the Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which
the partnership information return is filed. Any adverse determination
following an audit of the return of the Trust by the appropriate taxing
authorities could result in an adjustment of the returns of the
Certificateholders, and, under certain circumstances, a Certificateholder
may be precluded from separately litigating a proposed adjustment to the
items of the Trust. An adjustment could also result in an audit of a
Certificateholder's returns and adjustments of items not related to the
income and losses of the Trust.
Tax Consequences to Foreign Certificateholders. It is not clear whether
the Trust would be considered to be engaged in a trade or business in the
United States for purposes of federal withholding taxes with respect to
non-U.S. persons because there is no clear authority dealing with that issue
under facts substantially similar to those described herein. Although it is
not expected that the Trust would be engaged in a trade or business in the
United States for such purposes, the Trust will withhold as if it were so
engaged in order to protect the Trust from possible adverse consequences of a
failure to withhold. The Trust expects to withhold on the portion of its
taxable income that is allocable to foreign Certificateholders pursuant to
Section 1446 of the Code, as if such income were effectively connected to a
U.S. trade or business, at a rate of 35% for foreign holders that are taxable
as corporations and 39.6% for all other foreign holders. Subsequent adoption
of Treasury regulations or the issuance of other administrative
pronouncements may require the Trust to change its withholding procedures. In
determining a Certificateholder's withholding status, the Trust may rely on
IRS Form W-8, IRS Form W-9 or the holder's certification of nonforeign status
signed under penalties of perjury.
Each foreign Certificateholder might be required to file a U.S.
individual or corporate income tax return and pay U.S. income tax on the
amount computed therein (including, in the case of a corporation, the
branch profits tax) on its share of accruals of guaranteed payments and the
Trust's income. Each foreign Certificateholder must obtain a taxpayer
identification number from the IRS and submit that number to the Trust on
Form W-8 in order to assure appropriate crediting of the taxes withheld. A
foreign Certificateholder generally would be entitled to file with the IRS a
claim for refund with respect to taxes withheld by the Trust, taking the
position that no taxes were due because the Trust was not engaged in a U.S.
trade or business. However, the IRS may assert additional taxes are due, and no
assurance can be given as to the appropriate amount of tax liability.
The Withholding Tax Regulations modify certain of the filing
requirements with which foreign persons must comply in order to be entitled
to an exemption from U.S. withholding tax or a reduction to the applicable
U.S. withholding tax rate. Those persons currently required to file Form
W-8 will continue to be required to file that form. However, the
requirement that foreign persons submit Form W-8 generally is extended to most
foreign persons who wish to seek an exemption from withholding tax on the
basis that income from the Certificates is effectively connected with the
conduct of a U.S. trade or business (in lieu of Form 4224) and to foreign
persons wishing to rely on a tax treaty to reduce the withholding tax rate
(in lieu of Form 1001). The Withholding Tax Regulations are effective for
payments of interest due after December 31, 1999, but Forms 4224 and 1001
filed prior to that date will continue to be effective until the earlier of
December 31, 2000 or the current expiration date of those forms.
Prospective investors are urged to consult their tax advisors with respect
to the effect of the Withholding Tax Regulations.
Backup Withholding. Distributions made on the Certificates and
proceeds from the sale of the Certificates will be subject to a "backup"
withholding tax of 31%, in general, if the Certificateholder fails to comply
with certain identification procedures, unless the holder is an exempt recipient
under applicable provisions of the Code. We suggest that Certificateholders
consult with their tax advisors as to their eligibility for exemption to
backup withholding, the procedure for obtaining the exemption, and the
potential impact of the Withholding Tax Regulations.
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STATE TAX CONSEQUENCES
In addition to the federal income tax consequences described in
"Material Federal Income Tax Consequences" above, we suggest that potential
purchasers consider the state income tax consequences of the acquisition,
ownership and disposition of the Notes. State income tax law may vary
substantially from state to state, and this discussion does not purport to
describe any aspect of the income tax laws of any state. Therefore, we
suggest that potential purchasers consult their own tax advisors with
respect to the various tax consequences of an investment in the Notes.
ERISA CONSIDERATIONS
The Notes
The Notes may be purchased by an employee benefit plan or an
individual retirement account (a "Plan") subject to ERISA or Section 4975
of the Code. A fiduciary of a Plan must determine that the purchase of a
Note is consistent with its fiduciary duties under ERISA and does not
result in the assets of the Trust being deemed to constitute plan assets or
in a nonexempt prohibited transaction as defined in Section 406 of ERISA or
Section 4975 of the Code. For additional information regarding the partial
prohibited transactions and exemptions that may be available and the ERISA
principles regarding debt, see "ERISA Considerations" in the Prospectus.
Although there is little guidance on the subject, the Seller
believes that, at the time of their issuance, the Notes should be treated
as an instrument without substantial equity features for purposes of the
Plan Asset Regulation. The debt status of the Notes could be affected,
after their initial issuance, by certain changes in the financial condition
of the trust.
By its acceptance of a Note, each Noteholder shall be deemed to
have represented and warranted that its purchase and holding of the Note
will not result in a nonexempt prohibited transaction under Section 406(a)
of ERISA or Section 4975 of the Code.
[The Certificates
The Certificates may not be acquired (a) with the assets of an
employee benefit plan (as defined in Section 3(3) of ERISA) that is subject
to the provisions of Title I of ERISA, (b) by a plan described in Section
4975(e) (1) of the Code or (c) by any entity whose underlying assets
include plan assets by reason of a plan's investment in the entity or which
uses plan assets to acquire Certificates. By its acceptance of a
Certificate, each Certificateholder will be deemed to have represented and
warranted that it is not subject to the foregoing limitation. In this
regard, we suggest that purchasers that are insurance companies consult
with their counsel with respect to the United States Supreme Court case
interpreting the fiduciary responsibility rules of ERISA, John Hancock
Mutual Life Insurance Co. v. Harris Trust and Savings Bank (decided
December 13, 1993). In John Hancock, the Supreme Court ruled that assets
held in an insurance company's general account may be deemed to be "plan
assets" for ERISA purposes under certain circumstances. Prospective
purchasers should determine whether the decision affects their ability to
make purchases of the Certificates. For additional information regarding
treatment of the Certificates under ERISA, see "ERISA Considerations" in
the Prospectus.]
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement, the Seller has agreed to cause the Trust to sell to each of the
underwriters listed below (each, an "Underwriter"), and each of the
Underwriters has agreed to purchase, the principal amount of the Securities
set forth opposite its name below. Under the terms and conditions of the
Underwriting Agreement, each of the Underwriters is obligated to take and
pay for all of the Securities if any are taken.
Principal Amount of Principal Amount [Principal Amount
Class A-1 of Class A-2 of Asset-Backed
Asset-Backed Notes Asset-Backed Notes Certificates]
------------------- ------------------- ----------------
- ---------- $-------------------- ------------------ $---------------
- ---------- --------------------- ------------------ ---------------
- ---------- --------------------- ------------------ ---------------
Total: $==================== ================== $===============
The Seller has been advised by the Underwriters that they propose
initially to offer the Securities to the public at the prices set forth
herein, and to certain dealers at such prices less the initial concession
not in excess of ____% per Class A-1 Note; _____% per Class A-2 Note; and
_____% per Certificate. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of __% of the principal amount of the
Securities to certain other dealers. After the initial public offering, the
public offering price and such concessions may be changed.
The Seller does not intend to apply for listing of the Notes [or
the Certificates] on a national securities exchange, but has been advised
by the Underwriters that they intend to make a market in the Notes [and
Certificates]. The Underwriters are not obligated, however, to make a
market in the Notes [and the Certificates] and may discontinue market
making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Notes [or the Certificates].
In connection with this offering, the underwriters may over-allot
or effect transactions which stabilize or maintain the market prices of the
Notes [and the Certificates] at levels above those which might otherwise
prevail in the open market. Such stabilizing, if commenced, may be
discontinued at any time.
The Seller and Paragon have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended.
In the ordinary course of their respective businesses, each
Underwriter and its affiliates have engaged and may in the future engage in
commercial banking and investment banking transactions with the Seller.
LEGAL OPINIONS
In addition to the legal opinions described in the Prospectus,
certain legal matters relating to the Notes and the Certificates and
certain federal income tax and other matters will be passed upon for the
Trust by Mayer, Brown & Platt. Certain legal matters will be passed upon
for the Underwriters by __________________,
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_______________, _______________. Mayer, Brown & Platt may from time to
time render legal services to the Seller, the Servicer and its affiliates.
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INDEX OF DEFINED TERMS
Page
Accounting Date ......................................................S-27
Aggregate Principal Balance..............................................S-5
Amount Financed .......................................................S-5
Available Funds ......................................................S-27
Business Day .......................................................S-6
Certificate Balance.....................................................S-27
Certificate Final Scheduled Payment Date.................................S-8
Certificate Rate .......................................................S-7
Certificateholder's Monthly Principal Payment Amount....................S-28
Certificateholders.......................................................S-7
Certificateholders' Interest Carryover Shortfall........................S-27
Certificateholders' Interest Payment Amount.............................S-28
Certificateholders' Monthly Interest Payment Amount.....................S-28
Certificateholders' Principal Carryover Shortfall.......................S-28
Certificateholders' Principal Payment Amount............................S-28
Certificates .......................................................S-1
Class A-1 Final Scheduled Payment Date...................................S-6
Class A-1 Interest Rate..................................................S-6
Class A-1 Notes .......................................................S-1
Class A-2 Final Scheduled Payment Date...................................S-6
Class A-2 Interest Rate..................................................S-6
Class A-2 Notes .......................................................S-1
Closing Date .......................................................S-4
Code ......................................................S-10
Collected Funds ......................................................S-28
Collection Period .......................................................S-6
Commission .......................................................S-3
Contract Rate ......................................................S-27
CTS ......................................................S-22
Cutoff Date .......................................................S-5
Defaulted Receivable....................................................S-28
Deficiency Claim Amount.................................................S-26
Determination Date......................................................S-23
Distribution Date .......................................................S-6
ERISA ......................................................S-10
Final Scheduled Payment Date.............................................S-5
Financed Vehicles .......................................................S-5
Floor Amount ......................................................S-26
Foreign person ......................................................S-33
Indenture .......................................................S-4
Indenture Trustee .......................................................S-4
Initial Principal Balance................................................S-7
Interest Accrual Period..................................................S-6
Interest Period .......................................................S-6
Interest Rates .......................................................S-6
IRS ......................................................S-32
Issuer .......................................................S-4
Liquidated Receivable...................................................S-28
Liquidation Proceeds....................................................S-26
Noteholders .......................................................S-6
Noteholders' Distributable Amount.......................................S-30
Noteholders' Interest Carryover Shortfall...............................S-30
S-42
<PAGE>
Noteholders' Interest Payment Amount....................................S-30
Noteholders' Monthly Principal Payment Amount...........................S-30
Noteholders' Percentage.................................................S-30
Noteholders' Principal Carryover Shortfall..............................S-30
Noteholders' Principal Payment Amount...................................S-30
Notes .......................................................S-4
OID ......................................................S-33
OID regulations ......................................................S-33
Owner Trustee .......................................................S-4
Payment Amount ......................................................S-28
Payment Date .......................................................S-2
Plan ......................................................S-39
Portfolio interest......................................................S-33
Principal Balance .......................................................S-5
Principal Distribution Amount...........................................S-29
Prospectus .......................................................S-1
Purchase Amount ......................................................S-29
Purchased Receivable....................................................S-29
Qualified stated interest...............................................S-33
Rating Agency ......................................................S-10
Receivables Pool ......................................................S-14
Record Date .......................................................S-6
Related Documents ......................................................S-11
Reserve Account .......................................................S-9
Reserve Account Deposit..................................................S-9
Reserve Account Required Amount.........................................S-25
Sale and Servicing Agreement.............................................S-4
Securities .......................................................S-4
Securityholders .......................................................S-7
Seller .......................................................S-4
Servicer .......................................................S-2
Supplemental Servicing Fee..............................................S-27
Triumph ......................................................S-22
Trust .......................................................S-4
Trust Agreement .......................................................S-4
Trust Property .......................................................S-4
Underwriter ......................................................S-40
S-43
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Seller or the Underwriters. This Prospectus Supplement and the Prospectus
do not constitute an offer of any securities other than those to which they
relate or an offer to sell, or a solicitation of an offer to buy, to any
person in any jurisdiction where such an offer or solicitation would be
unlawful. Neither the delivery of this Prospectus Supplement and the
Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that the information contained herein is correct as
of any time subsequent to their respective dates.
---------------------------
TABLE OF CONTENTS
Prospectus Supplement
Page
Reports to Securityholders.................... S-3
Summary of Terms.............................. S-4
Risk Factors.................................. S-11
The Trust..................................... S-13
The Receivables Pool.......................... S-13
The Seller, the Servicer and Paragon.......... S-15
Weighted Average Life of the Securities....... S-22
Description of the Notes...................... S-23
Description of the Certificates............... S-27
Description of the Transfer and Servicing
Agreements.................................. S-34
Certain Legal Aspects of the Receivables...... S-34
Legal Investment.............................. S-34
ERISA Considerations.......................... S-42
Underwriting.................................. S-42
Legal Opinions................................ S-43
Index of Defined Terms........................ S-44
Prospectus
Page
Available Information.........................
Incorporation of Certain Documents
by Reference................................
Summary of Terms..............................
Risk Factors..................................
The Trusts....................................
The Receivables Pools.........................
Weighted Average Life of the Securities.......
Pool Factors and Trading Information..........
Use of Proceeds...............................
The Seller....................................
Paragon.......................................
Description of the Notes......................
Description of the Certificates...............
Certain Information Regarding the
Securities..................................
Description of the Transfer and Servicing
Agreements
Certain Legal Aspects of the Receivables......
Material Federal Income Tax Consequences......
Certain State Tax Consequences................
ERISA Considerations..........................
Plan of Distribution..........................
Legal Opinions................................
Index of Defined Terms........................
Global Clearance, Settlement and
Documentation Procedures....................
S-44
<PAGE>
PARAGON AUTO RECEIVABLES
CORPORATION
(Seller)
$______________
Class A-1 ____%
Asset Backed Notes
$____________
Class A-2 ____%
Asset Backed Notes
[$______________
____%
Asset Backed Certificates]
====================
PROSPECTUS SUPPLEMENT
______________________, _____
====================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities being offered hereunder
other than underwriting discounts and commissions.
Registration Fee.............................................$
"Blue Sky" Registration Fees.................................
Printing and Engraving Expenses..............................
Trustee Fees and Expenses....................................
Legal Fees and Expenses......................................
Accountants' Fees and Expenses...............................
Rating Agency Fees...........................................
Miscellaneous................................................ _________
Total........................................$
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) The Delaware General Corporation Law (Section 145) gives Delaware
corporations broad powers to indemnify their present and former directors
and officers and those of affiliated corporations against expenses incurred
in the defense of any lawsuit to which they are made parties by reason of
being or having been such directors or officers, subject to specified
conditions and exclusions, gives a director or officer who successfully
defends an action the right to be so indemnified, and authorizes the
registrant to buy directors' and officers' liability insurance. Such
indemnification is not exclusive of any other rights to which those
indemnified may be entitled under any bylaws, agreement, vote of
stockholders or otherwise.
(b) Article IX of the Certificate of Incorporation of the registrant
permits, and Article XII of the Bylaws of the registrant provides for,
indemnification of directors, officers, employees and agents to the fullest
extent permitted by law.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
(a) All financial statements, schedules and historical financial
information have been omitted as they are not applicable.
1.1 Form of Underwriting Agreement.**
3.1 Certificate of Incorporation of Paragon Auto Receivables
Corporation**
3.2 By-Laws of Paragon Auto Receivables Corporation**
3.3 Form of Certificate of Trust for Paragon Auto Receivables Trusts
(included in Exhibit 4.2).**
4.1 Form of Indenture between the Trust and the Indenture Trustee
(including forms of Notes).**
4.2 Form of Trust Agreement between the Registrant and the Trustee
(including forms of Certificates).**
4.3 Form of Pooling and Servicing Agreement between the
Registrant, the Servicer and the Trustee (including forms of
Certificates).**
5.1 Opinion of Mayer, Brown & Platt with respect to legality.**
8.1 Opinion of Mayer, Brown & Platt with respect to federal tax
matters.**
23.1 Consents of Mayer, Brown & Platt (included in its opinions
filed as Exhibits 5.1 and 8.1).**
24.1 Powers of Attorney.*
99.1 Form of Sale and Servicing Agreement among the Registrant, the
Servicer and the Trust.**
99.2 Form of Purchase Agreement between Paragon and the Registrant.**
- -----------------------------
* Previously filed.
** Filed herewith.
ITEM 17. UNDERTAKINGS
(a) As to Rule 415 and Rule 430A:
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made of the securities registered hereby, a post-effective amendment
to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended (the "Securities Act");
(ii) to reflect in the prospectus any facts or events
arising after the effective date of this registration statement (or
the most recent post-effective amendment hereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in this registration statement; and
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in this
registration statement or any material change to such information in
this registration statement;
provided, however, that the undertakings set forth in clauses (i) and (ii)
above do not apply if the information required to be included in a
post-effective amendment by those clauses is contained in periodic reports
filed by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as amended, that are incorporated by
reference in this registration statement.
(2) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
II-2
<PAGE>
(3) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(4) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) As to documents subsequently filed that are incorporated by
reference:
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934, as amended, that is incorporated by
reference in this registration statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) As to Equity Offerings of Nonreporting Registrants:
The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required
by the underwriter to permit prompt delivery to each purchaser.
(d) As to indemnification:
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item
15 above, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
(e) As to qualification of Trust Indentures under the Trust Indenture Act
of 1939 for delayed offerings:
The undersigned registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with
the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Act.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe
that it meets all the requirements for filing on Form S-3 (and that the
security rating requirement will be met by the time of sale) and has duly
caused this Amendment No. 1 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Clayton, the State
of Missouri, on the ____ day of November, 1998.
PARAGON AUTO RECEIVABLES CORPORATION
By: /s/ Nancy C. Ferguson
---------------------------------
Nancy C. Ferguson
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
Signature Title Date
/s/ * President November ___, 1998
- --------------------- (principal executive
Dennis D. Lamont officer) and Director
/s/ * Treasurer November ___, 1998
- --------------------- (principal financial
James E. Stublarec and accounting officer)
/s/ Nancy C. Ferguson Secretary and Director November ___, 1998
- -------------------------
Nancy C. Ferguson
/s/ * Director November ___, 1998
- ----------------------
Douglas K. Johnson
* Signed by Nancy C. Ferguson as Attorney-in-Fact under Power of Attorney.
II-4
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Sequential
No. Description of Exhibit Page Number
- -------- ---------------------- ------------
1.1 Form of Underwriting Agreement.**
3.1 Certificate of Incorporation of Paragon Auto Receivables
Corporation**
3.2 By-Laws of Paragon Auto Receivables Corporation**
3.3 Form of Certificate of Trust for Paragon Auto Receivables
Trusts (included in Exhibit 4.2).**
4.1 Form of Indenture between the Trust and the Indenture Trustee
(including forms of Notes).**
4.2 Form of Trust Agreement between the Registrant and the Trustee
(including forms of Certificates).**
4.3 Form of Pooling and Servicing Agreement, among the Registrant,
the Servicer and the Trustee (including forms of Certificates).**
5.1 Opinion of Mayer, Brown & Platt with respect to legality.**
8.1 Opinion of Mayer, Brown & Platt with respect to federal
tax matters.**
23.1 Consents of Mayer, Brown & Platt (included in its opinions
filed as Exhibits 5.1 and 8.1).**
24.1 Powers of Attorney.*
99.1 Form of Sale and Servicing Agreement among the Registrant,
the Servicer and the Trust.**
99.2 Form of Purchase Agreement between Paragon and the Registrant.**
- -----------------------------
* Previously filed.
** Filed herewith.
II-5
Exhibit 1.1
PARAGON AUTO RECEIVABLES OWNER TRUST ____-_
$______________ Class A-1 __% Asset Backed Notes
$______________ Class A-2 __% Asset Backed Notes
$______________ Class B __% Asset Backed Notes
[$_______________ __% Certificates]
PARAGON AUTO RECEIVABLES CORPORATION
(Seller)
PARAGON ACCEPTANCE CORPORATION
(Servicer)
UNDERWRITING AGREEMENT
--------- --, ----
- ----------------
---------------,
As Representative of the
Underwriters Listed in
Schedule I
(the "Representative")
- -------------------------
- -------------------------
Ladies and Gentlemen:
Paragon Auto Receivables Corporation, a Delaware corporation (the
"Seller") and a wholly owned special purpose subsidiary of Paragon
Acceptance Corporation, a Delaware corporation ("Paragon"), proposes to
sell to the Underwriters listed in Schedule I (the "Underwriters")
$__________ aggregate principal amount of Class A-1 ___% Asset Backed Notes
(the "Class A-1 Notes"), $_________ aggregate principal amount of Class A-2
__% Asset Backed Notes (the "Class A-2 Notes") and $________ aggregate
principal amount of Class B ___% Asset Backed Notes (the "Class B Notes"
and, together with the Class A-1 Notes and the Class A-2 Notes, the
"Notes"). The Notes are issued by the Paragon Auto Receivables Owner Trust
____-_ (the "Trust"). The Trust also will issue $___________ aggregate
principal amount of certificates (the "Certificates" and, together with the
Notes, the "Securities"). Each Certificate will represent a fractional
undivided interest in the Trust. Each Note will be secured by the assets of
the Trust pursuant to the Indenture (as defined below).
<PAGE>
The assets of the Trust will include, among other things, a pool
of motor vehicle retail installment contracts sold and assigned by the
Seller to the Trust on the Closing Date (the "Receivables"), secured by new
and used automobiles, light trucks and sports utility vehicles (and all
accessories thereto) (the "Financed Vehicles"), and all monies due or
received thereunder or in respect thereof after __________ __, ____ (the
"Cutoff Date"). The receivables will be serviced for the Trust by Paragon
in its capacity as servicer (in such capacity, the "Servicer").
The Receivables will be sold to the Seller by Paragon pursuant to
a Receivables Purchase Agreement, to be dated as of the Closing Date
("Receivables Purchase Agreement"), between the Seller and Paragon. The
Receivables will be conveyed by the Seller to the Trust pursuant to a [Sale
and Servicing Agreement] [Pooling and Servicing Agreement], to be dated as
of the Closing Date, between the Seller, the Servicer, Norwest Bank
Minnesota, National Association, as indenture trustee (the "Indenture
Trustee"), and Wilmington Trust Company, as owner trustee (the "Trustee")
(the ["Sale and Servicing Agreement"] ["Pooling and Servicing Agreement"]).
The Notes will be issued pursuant to an Indenture, to be dated as
of the Closing Date (the "Indenture"), between the Trust and the Indenture
Trustee. The Certificates will be issued pursuant to a Trust Agreement, to
be dated as of the Closing Date (the "Trust Agreement"), between the Seller
and the Trustee.
The Seller has prepared in conformity in all material respects
with the provisions of the Securities Act of 1933, as amended (the "Act"),
and the rules and regulations of the Commission thereunder (the "Rules and
Regulations"), and filed with the Securities and Exchange Commission (the
"Commission") a registration statement (Reg. No. 333-63697), including a
prospectus, relating to the Securities. [The Seller has also prepared an
ABS term sheet for the Notes (the "ABS Note Term Sheet") in conformity in
all material respects with the Act, the Rules and Regulations and all
requirements applicable to ABS term sheets and computational materials set
forth in no-action letters issued by the Commission.] The registration
statement as amended at the time it became effective, or, if any
post-effective amendment has been filed with respect thereto, as amended by
the most recent post-effective amendment at the time of its effectiveness,
is referred to as the "Registration Statement." The form of base prospectus
included in the Registration Statement as most recently filed with the
Commission is referred to as the "Base Prospectus." The form of the
prospectus which includes the Base Prospectus and a prospectus supplement
describing the Notes and the offering thereof (the "Prospectus
Supplement"), which prospectus is filed on or after the date of this
Agreement in accordance with Rule 424(b), is referred to in this Agreement
as the "Prospectus."
The terms which follow, when used in this Agreement, shall have
the meanings indicated. "Effective Date" shall mean the latest of the dates
that the Registration Statement or the most recent post-effective amendment
thereto became effective. "Execution Time" shall mean the date and time
that this Agreement is executed and delivered by the parties hereto. "Rule
424" refers to such rule under the Act. "Transaction Documents" shall mean
the Receivables Purchase Agreement, the [Sale and Servicing Agreement]
[Pooling and Servicing Agreement], the Indenture, the Trust Agreement, this
Agreement, the Securities and each Depository Agreement. "Securityholder"
means any Noteholder [and any Certificateholder] and "Security Owner" means
the beneficial owner of any
-2-
<PAGE>
Note [or Certificate]. To the extent not defined herein, capitalized terms
used herein have the meanings assigned to such terms in the [Sale and
Servicing Agreement] [Pooling and Servicing Agreement].
Paragon and the Seller agree, severally and not jointly, with the
Underwriters as follows:
1. The Seller agrees to sell and deliver to the Underwriters as
hereinafter provided, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees to purchase, severally and not
jointly, from the Seller, the respective aggregate principal amounts and
classes of Notes set forth opposite such Underwriter's name in Schedule I.
The purchase price for Notes of any class will be the applicable percentage
set forth on Schedule I of the aggregate principal amount of such class
purchased.
2. (a) The Seller understands that the Underwriters intend (i) to
make a public offering of the Notes purchased by the Underwriters
hereunder as soon after the Registration Statement and this
Agreement have become effective as in the judgment of the Seller
and the Representative is advisable and (ii) initially to offer
the Notes purchased by the Underwriters hereunder upon the terms
set forth in the Prospectus.
[(b) The Seller understands that each Underwriter may
deliver to potential investors in the Notes (each, a "Potential
Investor") ABS Note Term Sheets in connection with its offering of
the Notes, subject to the following conditions to be satisfied by
such Underwriter:
(1) Such Underwriter shall make no substantive
changes to the ABS Note Term Sheets and, for purposes of
filing the to-be-delivered ABS Note Term Sheet with the
Securities and Exchange Commission on Form 8-K, such
Underwriter shall deliver to the Seller's counsel a copy
of the ABS Note Term Sheet that it intends to deliver to
any Potential Investor;
(2) Such Underwriter shall ensure that the ABS
Note Term Sheet contains a legend stating that the
information contained therein will be superseded by the
final prospectus supplement and that the information
contained therein supersedes any prior or similar term
sheet;
(3) Unless the ABS Note Term Sheet is an exact
duplicate of the ABS Note Term Sheet prepared by the
Seller, such Underwriter shall obtain authorization to
make delivery of such ABS Note Term Sheet from the
General Counsel of Paragon;
(4) Such Underwriter shall deliver the ABS Note
Term Sheet to any Potential Investor solely in paper form
or by facsimile, shall take reasonable precautions to
ensure the integrity and security of the information in
the ABS Note
-3-
<PAGE>
Term Sheet and shall ensure that the information
contained in the delivered ABS Note Term Sheet is the
information that is intended to be delivered;
[(5) Such Underwriter recognizes that the
Trust's issuance of asset-backed securities is a
"Prefunding Transaction" as such term is used in the
December 18, 1995 no-action letter issued by staff of the
Securities and Exchange Commission to the Public
Securities Association (the "No-Action Letter"), and
consequently that in the staff's view, as expressed in
the No-Action Letter, the final prospectus for this
transaction must be delivered at least 48 hours prior to
sending a confirmation, and such Underwriter agrees to
comply with that requirement;]
(6) If any of Paragon, the Seller, the Trust or
the Seller's counsel so instruct such Underwriter, such
Underwriter shall: (i) immediately stop delivering the
ABS Note Term Sheets to Potential Investors, (ii) revise
the ABS Note Term Sheet and/or (iii) distribute
supplemental materials to all Potential Investors;
[(7) Such Underwriter shall not send a
confirmation of the type described in Rule 10b-10 under
the Securities Exchange Act of 1934, as amended, to any
Potential Investor until such Underwriter has been
informed that the ABS Note Term Sheet has been filed with
the Securities and Exchange Commission and such filing
has become effective;] and
(8) Such Underwriter shall not deliver any
copies of the ABS Note Term Sheet to any Potential
Investor after the Securities to be issued by the Trust
have been priced.
(c) If such Underwriter: (a) transmits to Potential
Investors an ABS Note Term Sheet that contains information other
than the information provided by the Seller, or (b) materially
changes the context in which such information is presented to
Potential Investors, then such Underwriter agrees to indemnify and
hold harmless Paragon, the Seller, and the Trust (and each of
their respective affiliates, officers, directors, employees,
counsel and agents) from and against any and all losses, claims,
damages and liabilities (including, without limitation, the legal
fees and other expenses reasonably incurred in connection with
investigating, preparing or defending any suit, action or
proceeding or any claim asserted), (irrespective of whether any
such indemnified person is a party to the action for which
indemnification hereunder is sought) incurred by any such
indemnified person(s) as a result of, arising out of or relating
to any such failure, transmission or change.]
3. Payment for the Notes purchased by the Underwriters hereunder
shall be made to the Seller or to its order by wire transfer of same day
funds to the following account of the Seller: ______________. The closing
of the purchase hereunder shall occur at the office of Mayer Brown & Platt,
190 South LaSalle Street, Chicago, Illinois 60603 at 10:00 A.M., Chicago,
Illinois time on __________ __, ____, or at such other time on the same or
such other date, not later than the ______ Business Day thereafter, as the
Representative and the Seller may agree upon in writing (the
-4-
<PAGE>
"Closing Date"). As used herein, the term "Business Day" means any day other
than a Saturday, Sunday or other day on which commercial banking institutions
or trust companies in St. Louis, Missouri, Los Angeles, California, New York,
New York and Minneapolis, Minnesota are authorized or obligated by law or
order to be closed.
Payment for the Notes purchased by the Underwriters hereunder
shall be made against delivery to the Representative for the respective
accounts of the Underwriters on the Closing Date of such Notes in
definitive form registered in the name of Cede & Co., as nominee of The
Depository Trust Company, and in such denominations, as permitted by the
Transaction Documents, as the Representative shall request in writing not
later than a reasonable time prior to the Closing Date. The Seller shall
make such definitive certificates representing the Notes available for
inspection by the Representative at the office of Mayer, Brown & Platt, 190
South LaSalle Street, Chicago, Illinois 60603 not later than 1:00 P.M.,
Chicago, Illinois time, on the Business Day prior to the Closing Date.
4. Paragon and the Seller represent and warrant (severally and not
jointly) to, and agree with, each Underwriter that:
(a) The Registration Statement, including amendments
thereto as may have been required on or prior to the date hereof,
relating to the Notes, has been filed with the Commission and such
Registration Statement as amended [has][will] become effective.
The conditions to the use by the Seller of a Registration
Statement on Form S-3 under the Act, as set forth in the General
Instructions to Form S-3, have been satisfied with respect to the
Registration Statement.
(b) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that
purpose has been instituted or, to its knowledge, threatened by
the Commission, and (i) on the Effective Date of the Registration
Statement, the Registration Statement conformed in all material
respects to the requirements of the Act and the Rules and
Regulations, and did not include any untrue statement of a
material fact or omit to state any material fact required to be
stated therein, or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading, (ii) on the date of this Agreement, the Prospectus
conforms in all material respects to the requirements of the Act
and the Rules and Regulations, and does not include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein, or necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading, and (iii) at the time of filing of the Prospectus
pursuant to Rule 424(b) and on the Closing Date the Registration
Statement and the Prospectus will conform in all material respects
to the requirements of the Act and the Rules and Regulations, and
neither of such documents will include any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in
reliance upon and in conformity with information furnished
-5-
<PAGE>
to it in writing by any Underwriter through the Representative
expressly for use in the Registration Statement or the Prospectus
(collectively, the "Underwriter Information").
(c) The computer tapes with respect to the Receivables to
be sold to the Trust created as of the Cutoff Date (the "Computer
Tapes"), and made available to the Representative by Paragon, were
complete and accurate in all material respects as of the date
thereof.
(d) It is a corporation that is duly organized, validly
existing and in good standing under the laws of its jurisdiction
of organization, with power and authority to own its properties
and conduct its business as now conducted by it and has full power
and authority to acquire, own and sell the Receivables and the
other Trust Property. It has the power and authority to execute,
deliver and perform this Agreement and each of the other
Transaction Documents to which it is a party and to carry out
their respective terms and to sell and assign the respective
property to be sold and assigned to and deposited with the Trustee
as Trust Property.
(e) The Securities have been duly authorized, and, when
issued and delivered pursuant to the Transaction Documents and
duly executed and authenticated by the Trustee and the Indenture
Trustee, as applicable, will be duly and validly issued,
authenticated and delivered and entitled to the benefits provided
by the Transaction Documents. The execution, delivery and
performance by it of each of the Transaction Documents to which it
is a party and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by it by all
necessary corporate action. The Transaction Documents to which it
is a party have been duly executed and delivered by it and, when
executed and delivered by it and the other parties thereto, each
of such Transaction Documents will constitute a legal, valid and
binding obligation of it, enforceable against it in accordance
with its respective terms, subject, as to enforceability, to
applicable bankruptcy, insolvency, reorganization, moratorium,
conservatorship, receivership, liquidation and other similar laws
affecting enforcement of the rights of creditors generally and to
equitable limitations on the availability of specific remedies.
The Securities and the Transaction Documents conform in all
material respects to the descriptions thereof in the Prospectus.
The Notes and the Indenture have been duly executed and delivered
by the Trust and, when the Indenture is executed and the Notes are
authenticated by the Indenture Trustee, the Indenture and the
Notes will constitute legal, valid and binding obligations of the
Trust, enforceable in accordance with their respective terms,
subject, as to enforceability, to applicable bankruptcy,
insolvency, reorganization, moratorium, conservatorship,
receivership, liquidation and other similar laws affecting
enforcement of the rights of creditors generally and to equitable
limitations on the availability of specific remedies.
(f) No consent, approval, license, authorization, or
order of, or declaration, or registration or filing with, any
court or governmental authority, is required to be made in
connection with the execution, delivery or performance by it of
any of the Transaction Documents to which it is a party or the
consummation of the transactions contemplated
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<PAGE>
hereby or thereby, except such as have been obtained and made
under the Act and the Rules and Regulations or state securities
laws and any filings of UCC financing statements.
(g) The execution, delivery and performance by it of the
Transaction Documents to which it is a party, the consummation of
the transactions contemplated hereby and thereby and the
fulfillment of the terms thereof do not (i) 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
certificate of incorporation or bylaws of it, or any indenture,
agreement, mortgage, deed of trust or other instrument to which it
is a party or by which it or its properties are found, (ii) result
in the creation or imposition of any lien (other than permitted
liens) upon any of its properties pursuant to the terms of any
such indenture, agreement, mortgage, deed of trust or other
instrument or (iii) to its knowledge, violate any law, order, rule
or regulation applicable to it of any governmental authority
having jurisdiction over it or any of its properties.
(h) There are no proceedings or investigations pending,
or to its knowledge, threatened against it, before any
governmental authority having jurisdiction over it or its
properties (i) asserting the invalidity of the Agreement or any of
the Transaction Documents to which it is a party, (ii) seeking to
prevent the issuance of the Securities or the consummation of any
of the transactions contemplated by any of the Transaction
Documents to which it is a party, (iii) seeking any determination
or ruling that would have a material adverse effect on the
performance by it of its obligations under, or the validity or
enforceability of, any of the Transaction Documents to which it is
a party, (iv) seeking to materially and adversely affect the
federal income tax or other federal, state or local tax attributes
of the Securities or seeking to impose any excise, franchise,
transfer or similar tax upon the Securities or the sale and
assignment of the Receivables and the other Trust Property, or (v)
which, if determined adversely, could individually or in the
aggregate reasonably be expected to materially adversely affect
the interests of the holders of any of the Securities or the
marketability of any of the Securities.
(i) There are no contracts or other documents of a
character required to be filed as an exhibit to the Registration
Statement or required to be described in the Registration
Statement or the Prospectus pursuant to the Act and the Rules and
Regulations that are not filed or described as required.
(j) The representations and warranties of Paragon
contained in Section 3.6 of the Sale and Servicing Agreement and
Section 3.1 of the Receivables Purchase Agreement and of the
Seller in Section 3.2 of the Receivables Purchase Agreement are
true and correct in all material respects as of the dates of the
respective Transaction Documents.
(k) By assignment and delivery of the Receivables to the
Seller as of the Closing Date, Paragon will transfer title in such
Receivables to the Seller, subject to no Lien prior or equal to
the ownership interest granted to the Seller. By assignment and
delivery of each of the Receivables to the Trust as of the Closing
Date, the Seller will transfer title in the
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<PAGE>
Receivables to the Trust, subject to no Lien prior or equal to the
ownership or security interest granted to the Trust.
(l) KPMG Peat Marwick LLP are independent public
accountants with respect to Paragon and the Seller within the
meaning of the Act and the Rules and Regulations.
5. Paragon and the Seller covenant and agree, severally and not
jointly, with the Underwriters that:
(a) Prior to the termination of the offering of the
Notes, the Seller will not file or cause to be filed any amendment
of the Registration Statement or supplement to the Prospectus
without first furnishing to the Representative a copy of the
proposed amendment or supplement and giving the Representative a
reasonable opportunity to review the same. Subject to the
foregoing sentence, the Seller will cause the Prospectus, and any
supplement thereto, to be filed with the Commission pursuant to
the applicable paragraph of Rule 424(b) within the time period
prescribed [and the Seller will cause the ABS Note Term Sheet to
be filed with the Commission pursuant to a Current Report on Form
8-K within the second business day following the first day the ABS
Note Term Sheet has been sent to a prospective investor in the
Notes]. The Seller will promptly advise the Underwriters (i) when
the Prospectus, and any supplement thereto, shall have been filed
with the Commission pursuant to Rule 424(b) [and the ABS Note Term
Sheet shall have been filed pursuant to a Current Report on Form
8-K], (ii) when any amendment to the Registration Statement shall
have become effective, (iii) of any request by the Commission for
any amendment of the Registration Statement or supplement to the
Prospectus or for any additional information, (iv) of the receipt
by the Seller of notification with respect to the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation or threatening of any
proceeding for that purpose and (v) of the receipt by the Seller
of notification with respect to the suspension of the
qualification of the Securities for sale in any jurisdiction or
the initiation or threatening of any proceeding for such purpose.
The Seller will use its reasonable efforts to prevent the issuance
of any such stop order and, if issued, to obtain as soon as
possible the withdrawal thereof.
(b) The Seller will deliver, at its expense, to the
Representative, two copies of the signed Registration Statement
(as originally filed) and each amendment thereto, in each case
including exhibits, and, during the period mentioned in Section
5(e), to each Underwriter as many copies of the Prospectus
(including all amendments and supplements thereto) as the
Representative may reasonably request.
(c) If during such period of time after the first date of
the public offering of the Notes as in the opinion of counsel for
the Underwriters a prospectus relating to the Notes is required by
law to be delivered in connection with sales by an Underwriter or
a dealer, any event shall occur as a result of which it is
necessary to amend or supplement the Prospectus in order to make
the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not materially misleading,
or it is necessary to amend or
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<PAGE>
supplement the Prospectus to comply with applicable law, the
Seller will forthwith prepare and furnish, at its own expense, to
the Underwriters and to the dealers (whose names and addresses the
Underwriters will furnish to the Seller) to which Notes may have
been sold by the Underwriters and upon request by the
Representative to any other dealers identified by the
Representative, such amendments or supplements to the Prospectus
as may be necessary so that the statements in the Prospectus as so
amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be
materially misleading or so that the Prospectus will comply with
applicable law.
(d) The Seller will endeavor to qualify the Notes for
offer and sale under the securities or Blue Sky laws of such
jurisdictions as the Representative shall reasonably request and
will continue such qualification in effect so long as reasonably
required for distribution of the Notes and will pay all reasonable
fees and expenses (including fees and disbursements of counsel to
the Representative to the extent provided in Section 6(iii))
incurred in connection with such qualification and in connection
with the determination of the eligibility of the Notes for
investment under the laws of such jurisdictions as the
Representative may designate; provided, however, that the Seller
shall not be obligated to qualify to do business in any
jurisdiction in which it is not currently so qualified; and
provided, further, that the Seller shall not be required to file a
general consent to service of process in any jurisdiction.
(e) For the period from the date of this Agreement until
the retirement of all of the Securities, the Servicer will furnish
to the Representative (i) copies of each Servicer's Certificate
and the annual statements of compliance delivered to the Trustee
or the Indenture Trustee pursuant to the Transaction Documents and
the annual independent certified public accountant's servicing
reports furnished to the Trustee or the Indenture Trustee pursuant
to the Transaction Documents, by first-class mail at the same time
such statements and reports are furnished to the Trustee or the
Indenture Trustee, (ii) copies of each amendment to any of the
Transaction Documents, and (iii) such other information concerning
the Trust, Paragon or the Seller as the Representative may
reasonably request.
(f) To the extent, if any, that the ratings provided with
respect to the Notes by the Rating Agencies are conditional upon
the furnishing of documents or the taking of any other action by
it, it shall furnish or cause to be furnished such documents and
use reasonable efforts to take any such other action.
6. Paragon and the Seller will pay all costs and expenses incident
to the performance of their respective obligations under this Agreement,
including, without limitation, all costs and expenses (i) incident to the
preparation, issuance, execution, authentication and delivery of the Notes,
(ii) incident to the preparation, printing (or otherwise reproducing),
filing and delivery under the Act of the Registration Statement, the
Prospectus [and the ABS Note Term Sheet] (including in each case all
exhibits, amendments and supplements thereto), (iii) incurred in connection
with the registration or qualification and determination of eligibility for
investment of the Notes under the laws of such jurisdictions as the
Representative may designate (including fees and disbursements
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<PAGE>
of counsel for the Underwriters with respect thereto up to $__________),
(iv) related to any filing with the National Association of Securities
Dealers, Inc., (v) in connection with the printing (including word
processing and duplication costs) and delivery of this Agreement, the other
Transaction Documents and any Blue Sky Memorandum and the furnishing to the
Underwriters and dealers of copies of the Registration Statement, [the ABS
Note Term Sheet] and the Prospectus (including exhibits, amendments and
supplements thereto) as herein provided, (vi) any fees and expenses payable
to the Rating Agencies in connection with the rating of the Notes and (vii)
any fees and expenses of the Trustee and the Indenture Trustee.
7. The obligations of the Underwriters to purchase and pay for the
Notes will be subject to the accuracy in all material respects, as of the
date hereof and as of the Closing Date, of the representations and
warranties contained herein, to the accuracy of the statements of officers
of Paragon and the Seller made in any writing delivered at the Closing
pursuant to the provisions hereof, to the performance in all material
respects by each of Paragon and the Seller of its obligations hereunder and
to the following additional conditions precedent:
(a) KPMG shall have furnished to the Representative
letters dated, respectively, as of the date of the Prospectus and
as of the Closing Date, substantially in the forms of the drafts
to which the Representative previously agreed and otherwise in
form and substance reasonably satisfactory to the Representative.
(b) The form of prospectus used to confirm sales of Notes
shall have been filed with the Commission pursuant to Rule 424(b)
within the applicable time period prescribed for such filing by
the Rules and Regulations and in accordance with Section 5(a) of
this Agreement;[ the ABS Note Term Sheet shall have been filed
with the Commission pursuant to a Current Report on Form 8-K
within two business days following the first day the ABS Note Term
Sheet is first sent to prospective investors in the Notes]; and no
stop order suspending the effectiveness of the Registration
Statement shall be in effect, and no proceedings for such purpose
shall be pending before or, to the knowledge of Paragon or the
Seller, contemplated by the Commission.
(c) The Representative shall have received officer's
certificates, dated the Closing Date, signed by any Vice President
or more senior officer of Paragon and the Seller, representing and
warranting that, as of the Closing Date, its representations and
warranties in this Agreement and the other Transaction Documents
are true and correct in all material respects, that it has
complied with all agreements and satisfied all conditions on its
part to be performed or satisfied hereunder or under the other
Transaction Documents at or prior to the Closing Date, that no
stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have
been instituted or, to the best of such officer's knowledge,
contemplated by the Commission, and that since ____________ __,
____, there has been no material adverse change, or any
development involving a material adverse change, in or affecting
the Receivables or the business or properties of the Trust or
either Paragon or the Seller which materially impairs the
investment quality of the Notes.
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<PAGE>
(d) After the execution and delivery of this Agreement,
there shall not have occurred (i) any material adverse change, or
any development involving a material adverse change, in or
affecting the business, operations, financial condition or
properties of the Trust or either Paragon or the Seller which, in
the reasonable judgment of the Representative, materially impairs
the investment quality of the Notes or makes it impractical or
inadvisable to proceed with completion of the sale of and payment
for the Notes, (ii) any downgrading in the rating of any debt
securities of Paragon or the Seller by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule
436(g) under the Act), or any public announcement that any such
organization has under surveillance or review its rating of any
such debt securities (other than an announcement with no
implication of a possible downgrading, of such rating).
(e) The Representative shall have received the opinion of
Nancy C. Ferguson, General Counsel of Paragon, dated as of the
Closing Date and reasonably satisfactory in form and substance to
the Representative as to certain corporate matters, including,
without limitation, as to the due authorization, execution and
delivery by, and the enforceability against, Paragon and the
Seller of each of the Transaction Documents to which it is a
party.
(f) The Representative shall have received from Mayer,
Brown & Platt, special counsel to Paragon and the Seller,
opinions, dated as of the Closing Date, and reasonably
satisfactory in form and substance to the Representative, as to
certain corporate matters, tax matters, securities law matters and
security interest matters, including, without limitation, as to
the due authorization, execution and delivery by, and
enforceability against, Paragon and the Seller of each Transaction
Document to which Paragon or the Seller is a party.
(g) Mayer, Brown & Platt, special counsel to Paragon and
the Seller, shall have furnished opinions, dated as of the Closing
Date, with respect to (i) nonconsolidation under the Bankruptcy
Code of the assets and liabilities of the Seller on the one hand,
and those of Paragon, on the other, if Paragon were to become
subject of a case under the Bankruptcy Code, and (ii) the
characterization of the transfer of the Receivables from Paragon
to the Seller and from the Seller to the Trust and perfection of
the Trust's and the Indenture Trustee's interest in the
Receivables, satisfactory in form and substance to the
Representative.
[(h) The Representative shall have received from local
counsel in each jurisdiction in which the outstanding Principal
Balance of the Receivables as of the Cutoff Date equals or exceeds
20% of the Cutoff Date Pool Balance, an opinion, dated as of the
Closing Date, and reasonably satisfactory in form and substance to
the Representative, as to the validity and perfection of Paragon's
security interest in the Financed Vehicles located in such
jurisdiction and the effectiveness of the assignment of such
security interest to the Indenture Trustee.]
(i) The Representative shall have received from counsel
for the Trustee, an opinion, dated as of the Closing Date, and
reasonably satisfactory in form and substance to
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<PAGE>
the Representative, as to the due authorization, execution and
delivery of each Transaction Document to which the Trustee is a
party.
(j) The Representative shall have received from counsel
for the Indenture Trustee an opinion, dated as of the Closing Date
and reasonably satisfactory in form and substance to the
Representative, as to the due authorization, execution and
delivery of each Transaction Document to which the Indenture
Trustee is a party;
(k) If any Rating Agency shall have requested any legal
opinion, officer's certificate or other document not required by
this Agreement, the Representative also shall have received such
legal opinion, officer's certificate or other document together
with a letter from the party delivering such opinion, certificate
or document allowing the Underwriters to rely on such opinion,
certificate or document as if it were addressed to the
Underwriters.
(l) The Class A-1 Notes and Class A-2 Notes shall have
been rated "____" and "____", respectively, or its equivalent by at
least [two] Rating Agencies and the Class B Notes shall have been
rated at least "____" or its equivalent by at least [two] Rating
Agencies.
(m) The Seller shall have made or caused to be made a
deposit in the Reserve Account in the amount of the initial
Reserve Account Required Amount.
8. Paragon and the Seller, jointly and severally (except as
otherwise set forth at the conclusion of this Section 8), agree to
indemnify and hold harmless each Underwriter and each person, if any, who
controls each Underwriter within the meaning of either Section 15 of the
Act or Section 20 of the Exchange Act, from and against any and all losses,
claims, damages and liabilities (including, without limitation, the legal
fees and other expenses reasonably incurred in connection with
investigating, preparing or defending any suit, action or proceeding or any
claim asserted), incurred by such Underwriter or such controlling person
and caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus (as
amended or supplemented if the Seller shall have furnished such amendments
or supplements thereto) [or the ABS Note Term Sheet], or caused by any
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any
untrue statement or omission or alleged untrue statement or omission made
in reliance upon and in conformity with the Underwriter Information[;
provided that the foregoing indemnity with respect to any untrue statement
or omission in the ABS Note Term Sheet shall not inure to the benefit of
any Underwriter (or to the benefit of any person controlling such
Underwriter) from whom the person asserting any losses, claims or damages
purchased Securities if such untrue statement or omission or alleged untrue
statement or omission made in the ABS Note Term Sheet is eliminated or
remedied in the Prospectus (as amended or supplemented if the Seller shall
have furnished any amendments or supplements thereto) and a copy of the
Prospectus (as so amended or supplemented) shall not have been furnished to
such person at or prior to the written confirmation of the sale of such
Securities to such person to the extent required by law].
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<PAGE>
Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless Paragon and the Seller, and each of their respective
directors and officers and each person who controls either of them within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from Paragon and the Seller to
each Underwriter, but only with reference to Underwriter Information
delivered by such Underwriter.
If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted
against any person in respect of which indemnity may be sought pursuant to
either of the two preceding paragraphs, such person (the "Indemnified
Person") shall promptly notify the person against whom such indemnity may
be sought (the "Indemnifying Person") in writing, and the Indemnifying
Person shall retain counsel reasonably satisfactory to the Indemnified
Person to represent the Indemnified Person and any others the Indemnifying
Person may designate in such proceeding and shall pay the reasonable fees
and expenses of such counsel related to such proceeding; provided that the
failure of the Indemnified Person to give notice shall not relieve the
Indemnifying Person of its obligations under this Section 8 except to the
extent that the Indemnifying Person shall have been prejudiced thereby. In
any such proceeding, any Indemnified Person shall have the right to retain
its own counsel, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Person unless (i) the Indemnifying Person and
the Indemnified Person shall have mutually agreed to the contrary, (ii) the
Indemnifying Person has failed within a reasonable time to retain counsel
reasonably satisfactory to the Indemnified Person or (iii) the named
parties in any such proceeding (including any impleaded parties) include
both the Indemnifying Person and the Indemnified Person and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
Indemnifying Person shall not, in connection with any proceeding or related
proceeding in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm (in addition to any local counsel) for all
Indemnified Persons, and that all such fees and expenses shall be
reimbursed as they are incurred promptly following submission of a
documented request for such reimbursement. Any such separate firm for the
Underwriters and such control persons of the Underwriters shall be
designated in writing by the Representative. Any such separate firm for
Paragon and the Seller and their directors, officers and control persons
shall be designated in writing by Paragon. The Indemnifying Person shall
not be liable for any settlement of any claim or proceeding effected
without its written consent. No Indemnifying Person shall, without the
prior written consent of the Indemnified Person, effect any settlement of
any pending or threatened proceeding in respect of which any Indemnified
Person is or could have been a party and indemnity could have been sought
hereunder by such Indemnified Person, unless such settlement includes an
unconditional release of such Indemnified Person from all liability on
claims that are the subject matter of such proceeding.
If the indemnification provided for in the first and second
paragraphs of this Section 8 is determined by a court to be unavailable to
an Indemnified Person in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Person under such
paragraph, in lieu of indemnifying such Indemnified Person thereunder,
shall contribute to the amount paid or payable by such Indemnified Person
as a result of such losses, claims, damages or liabilities (i) in such
proportion as is appropriate to reflect the relative benefits received by
Paragon and the Seller
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<PAGE>
on the one hand and the Underwriters on the other hand from the offering of
the Securities or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of Paragon and the Seller on the one hand and the
Underwriters on the other in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as
any other relevant equitable considerations. The relative benefits received
by Paragon and the Seller on the one hand and the Underwriters on the other
shall be deemed to be in the same respective proportions as the net
proceeds from the offering (before deducting expenses) received by Paragon
and the Seller and the total underwriting discounts and the commissions
received by the Underwriters, in each case as set forth in the table on the
cover of the Prospectus, bear to the aggregate public offering price of the
Securities. The relative fault of Paragon and the Seller on the one hand
and the Underwriters on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by Paragon and the Seller or by any of the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
Paragon and the Seller and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this Section 8 were
determined by pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred to in the
preceding paragraph. The amount paid or payable by an Indemnified Person as
a result of the losses, claims, damages and liabilities referred to in the
preceding paragraph shall be deemed to include, subject to the limitations
set forth above, any legal or other expenses incurred by such Indemnified
Person in connection with investigating or defending any such action or
claim. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 8 are
several in proportion to the respective aggregate principal amount of
Securities set forth opposite their names in Schedule I, and not joint.
The indemnity and contribution agreements contained in this
Section 8 are in addition to any liability which the Indemnifying Persons
may otherwise have to the Indemnified Persons referred to above.
The indemnity and contribution agreements contained in this
Section 8 and the representations and warranties of Paragon and the Seller
set forth in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter or by or on behalf of any Participating Entity
or any of their officers or directors or any other person controlling any
Participating Entity and (iii) acceptance of and payment for any of the
Securities.
9. Notwithstanding anything herein contained, this Agreement may
be terminated by the Representative, by written notice given to the Seller,
if after the execution and delivery of this Agreement and prior to the
Closing Date (i) trading generally shall have been suspended or
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materially limited on the New York Stock Exchange or there shall have been
any setting of minimum prices for trading on such exchange; (ii) trading of
any securities of or guaranteed by Paragon or the Seller, if any, shall
have been suspended on any exchange or in any over-the-counter market;
(iii) a moratorium on commercial banking activities in New York or Delaware
shall have been declared by either federal, New York or Delaware
authorities; or (iv) there shall have occurred any outbreak or escalation
of major hostilities in which the United States is involved, any
declaration of war by Congress or any other substantial national or
international calamity, emergency or change in financial markets if, in the
reasonable judgment of the Representative, the effect of any such outbreak,
escalation, declaration, calamity, emergency or change makes it impractical
or inadvisable to market the Notes on the terms and in the manner
contemplated in the Prospectus.
10. This Agreement shall become effective upon the later of (x)
execution and delivery hereof by the parties hereto and (y) release of
notification of the effectiveness of the Registration Statement (or, if
applicable, any post-effective amendment) by the Commission.
11. If on the Closing Date (i) any Underwriter shall fail or
refuse to purchase any Notes which it has agreed to purchase hereunder on
such date, (ii) such failure or refusal shall constitute a default in the
performance of such Underwriter's obligations hereunder, and (iii) the
aggregate principal amount of Notes which such defaulting Underwriter
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate principal amount of the Notes to be purchased by the Underwriters
on such date, the other Underwriters shall be obligated to purchase Notes
which such defaulting Underwriter agreed but failed or refused to purchase
on such date. If on the Closing Date (i) any Underwriter shall fail or
refuse to purchase Notes which it has agreed to purchase hereunder on such
date, (ii) such failure or refusal shall constitute a default in the
performance of such Underwriter's obligations hereunder, (iii) the
aggregate principal amount of Notes with respect to which such default
occurs is more than one-tenth of the aggregate principal amount of Notes to
be purchased by the Underwriters on such date, and (iv) arrangements
satisfactory to the non-defaulting Underwriters and the Seller for the
purchase of such Notes are not made within [72] hours after such default,
this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter or Paragon and the Seller. In any such case
either the Representative or the Seller shall have the right to postpone
the Closing Date, but in no event for longer than seven business days, in
order that the required changes, if any, in the Registration Statement and
in the Prospectus or in any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
12. If this Agreement shall be terminated by the Underwriters, or
any one of them, because of any failure or refusal on the part of Paragon
or the Seller to comply with the terms or to fulfill any of the conditions
of this Agreement, or if for any reason Paragon or the Seller shall be
unable to perform its obligations under this Agreement or any condition of
the Underwriters' obligations cannot be fulfilled, in each case other than
in connection with a termination under Section 9 or any default by the
Underwriters under Section 11, Paragon and the Seller agree to reimburse
the Underwriters, severally, or such Underwriter which has so terminated
this Agreement with respect to itself, for all out-of-pocket expenses
(including the reasonable fees and expenses of
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their counsel) reasonably incurred by such Underwriter(s) in connection
with this Agreement or the offering contemplated thereunder.
13. Any action by the Underwriters hereunder may be taken by the
Representative alone on behalf of the Underwriters, and any such action
taken by the Representative alone shall be binding upon the Underwriters.
All notices and other communications hereunder shall be in writing and
shall be deemed to have been duly given if mailed, delivered by hand or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be given to the Representative, c/o
______________________________________________________________ (Facsimile
No: (___) ________), Attention: __________________________. Notices to
Paragon shall be given to them at 27405 Puerta Real, Suite 200, Mission
Viejo, California 92691, (Facsimile No.: (949) 348-8707), Attention: Dennis
D. Lamont, with a copy to 200 South Hanley, Suite 800, Clayton, MO 63105,
(Facsimile No.: (314)721-3286), Attention: Nancy C. Ferguson. Notices to the
Seller shall be given to them at 27405 Puerta Real, Suite 200, Mission
Viejo, California 92691, (Facsimile No.: (949) 348-8707), Attention: Dennis
D. Lamont, President, with a copy to 200 South Hanley, Suite 800, Clayton, MO
63105 (Facsimile No.: (314)721-3286), Attention: Nancy C. Ferguson, General
Counsel.
14. This Agreement shall inure to the benefit of and be binding
upon Paragon and the Seller, the Underwriters, any controlling persons
referred to herein and their respective successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed
to give any other person or entity, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision herein
contained. No purchaser of Notes from any Underwriter shall be deemed to be
a successor by reason merely of such purchase.
15. This Agreement may be signed in counterparts, each of which
shall be an original and all of which together shall constitute one and the
same instrument. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICTS OF LAWS PROVISIONS THEREOF (OTHER THAN SECTION 5-1401 OF THE NEW
YORK GENERAL OBLIGATIONS LAW).
-16-
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed duplicate hereof,
whereupon it will become a binding agreement between Paragon and the Seller
and the Underwriters in accordance with its terms.
Very truly yours,
PARAGON AUTO RECEIVABLES CORPORATION
By:______________________________________
Name:
Title:
PARAGON ACCEPTANCE CORPORATION
By:______________________________________
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
the date first above written.
_____________________________,
As Representative
of the Underwriter
By:__________________________
Name:
Title:
S-1
<PAGE>
SCHEDULE I
Initial Initial Initial
Principal Amount Principal Amount Principal Amount
of Class A-1 of Class A-2 of Class B
Asset-Backed Asset-Backed Asset-Backed
Notes Notes Notes Total
---------------- ---------------- ---------------- -------
- -----------------
- -----------------
Total:
Purchase Price:
II-1
Certificate of Incorporation
of
PARAGON AUTO RECEIVABLES CORPORATION
ARTICLE I
NAME
The name of the corporation is Paragon Auto Receivables
Corporation (the "Corporation").
ARTICLE II
REGISTERED OFFICE AND AGENT
The address of its registered office in the State of Delaware, is
1013 Centre Road, in the City of Wilmington, County of New Castle, Delaware
19805. The name of its registered agent at such address is Corporation
Service Company.
ARTICLE III
CORPORATE PURPOSES
The nature of the businesses or purposes to be conducted or
promoted by the Corporation is to engage exclusively in the following
activities:
(a) (i) to purchase, make loans secured by, accept
capital contributions of or otherwise acquire from Paragon
Acceptance Corporation, a Delaware corporation (together with its
successors "PAC") or its affiliates, and to hold, sell, transfer
or pledge or otherwise exercise ownership rights with respect to
all right, title and interest of PAC and such affiliates with
respect to (A) installment contracts arising from sales by motor
vehicle dealers of goods and services and assigned to PAC or its
affiliates in the ordinary course of business, whether such
contracts constitute accounts, chattel paper, instruments or
general intangibles, and including all rights to payment
thereunder ("Receivables"), (B) any and all liens, security
interests and collateral for such Receivables, (C) any proceeds of
insurance covering such collateral and refunds of unearned
premiums for insurance, (D) contracts between PAC and the motor
vehicle dealers who originate Receivables, and (E) any and all
related rights and proceeds of any of the foregoing (the property
described in clauses (B) through (E) above being called "Related
Assets"); (ii) to deal with the obligors under or servicers of
<PAGE>
Receivables and owners of Related Assets; (iii) to borrow funds
and issue evidences of indebtedness in respect thereof, and sell
and assign Receivables or interests in Receivables and issue
notes, certificates or evidences of ownership or assignments in
respect thereof, in each case in order to finance and facilitate
the purchase of Receivables and Related Assets and to secure such
borrowings and indebtedness with (and to pledge and grant liens on
and security interests in) Receivables and Related Assets acquired
from time to time and other assets and properties in which it
otherwise has a right, title or interest; (iv) to enter into one
or more agreements relating to the issuance of such notes,
certificates or other evidences of ownership or assignment, and to
enter into credit enhancement arrangements and agreements with
respect thereto and the purchase and servicing of Receivables and
all such documents, agreements and instruments necessary or
appropriate in connection therewith and to undertake all such
duties and obligations and covenants as may be set forth in such
agreements, documents, and instruments on its part to be performed
thereunder; (v) to loan or otherwise invest proceeds from
Receivables and Related Assets and any other income; and (vi) to
execute, deliver and perform agreements evidencing, necessitated
by or in connection with any and all of the foregoing;
(b) to issue capital stock as provided for herein; and
(c) to engage in any lawful act or activity and to
exercise any powers permitted to corporations organized under the
General Corporation Law of the State of Delaware that are
incidental to and necessary, suitable or convenient for the
accomplishment of the purposes specified in clauses (a) through
(c) above.
ARTICLE IV
CAPITAL STOCK
(a) The total number of shares of all classes of capital
stock that the Corporation shall have authority to issue is one
thousand (1,000) shares of Common Stock, $1.00 par value (the
"Common Stock").
(b) Each outstanding share of Common Stock shall, when
validly issued by the Corporation, entitle the record holder
thereof to one vote at all shareholders' meetings on all matters
submitted to a vote of the shareholders of the Corporation.
(c) Dividends may be declared upon and paid to the
holders of the Common Stock as the board of directors of the
Corporation (the "Board of Directors") shall determine.
2
<PAGE>
ARTICLE V
INCORPORATOR
The name and mailing address of the sole incorporator is as
follows:
Francis C. Rowinski
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
ARTICLE VI
DURATION
The Corporation is to have perpetual existence.
ARTICLE VII
INDEPENDENT DIRECTORS
(a) At any given time, at least one member of the
Corporation's Board of Directors shall be an Independent Director
as defined below; provided, however, that if at any time the
office of Independent Director shall be vacant for any reason,
subject to Article XI hereof, any action taken by the Board of
Directors in accordance with this Certificate of Incorporation and
the Corporation's By-Laws (other than actions taken with respect
to matters described in such Article XI) shall nonetheless be
valid.
(b) As used herein, the following terms shall have the
meaning set forth below:
(i) An "Independent Director" shall be an
individual who: (A) is not and has not been employed by
PAC, or any of its subsidiaries or affiliates as a
director, officer or employee within the five years prior
to such individual's appointment as an Independent
Director; provided, however, that such individual is
currently not the recipient of compensation or other
remuneration or benefits from PAC, its subsidiaries or
affiliates in an amount exceeding 5% of the gross
revenues of such individual during the last calendar
year; (B) is not and is not affiliated with a tax exempt
entity that receives contributions from PAC, its
subsidiaries or affiliates in an amount exceeding 5% of
the gross contributions of such entity during the last
calendar year; (C) is not and is not affiliated with a
person that is or has been a significant advisor or
consultant to PAC or any of its subsidiaries or
affiliates within the five years prior to such
individual's appointment as an Independent Director; (D)
is not affiliated with a person that is
3
<PAGE>
or has been a significant supplier of PAC or any of its
subsidiaries or affiliates within the five years prior to
such individual's appointment as an Independent Director;
(E) is not affiliated with a person with respect to which
PAC or any of its subsidiaries or affiliates is or has
been a significant customer or supplier within the five
years prior to such individual's appointment as an
Independent Director; (F) does not have and has not had
significant personal services contract(s) with PAC or any
of its subsidiaries or affiliates within the five years
prior to such individual's appointment as an Independent
Director; (G) is not the beneficial owner at the time of
such individual's appointment as an Independent Director,
or at any time thereafter while serving as an Independent
Director, of more than 1% of the then outstanding shares
of common stock of PAC or any affiliate of PAC; (H) is
not a spouse, parent, sibling or child of any person
described by (A) through (G); (I) is not an officer,
director or employee of, or a spouse, parent, sibling or
child of an officer, director or employee of, a person
who is or has been a major creditor of PAC or any of its
subsidiaries or affiliates within the five years prior to
such individual's appointment as an Independent Director;
and (J) has not served as a trustee in bankruptcy for PAC
or any of its affiliates or subsidiaries; provided,
however, that notwithstanding anything contained in
clauses (A) through (J) above, an Independent Director
may serve or have served as an Independent Director of
one or more additional limited purpose corporations,
business trusts, partnerships or other entities organized
for the purpose of acquiring, financing or otherwise
investing, directly or indirectly, in assets or
receivables originated, owned or serviced by PAC or any
of its affiliates.
(ii) An "affiliate" of a person, or a person
"affiliated with," a specified person shall mean a person
that directly or indirectly through one or more
intermediaries controls, is controlled by or is under
common control with the specified person.
(iii) The term "control" (including the terms
"controlling," "controlled by" and "under common control
with") shall mean the possession, direct or indirect, of
the power to direct or cause the direction of the
management and policies of a person, whether through the
ownership of voting securities, by contract or otherwise.
(iv) The term "person" shall mean any
individual, partnership, firm, corporation, association,
trust, unincorporated organization or other entity, as
well as any syndicate or group deemed to be a person
pursuant to Article 13(d)(3) of the Securities Exchange
Act of 1934, as amended.
(v) A "subsidiary" of PAC shall mean any
corporation a majority of the voting stock of which is
owned, directly or indirectly, through one or more other
subsidiaries, by PAC.
4
<PAGE>
(vi) A person shall be deemed to be or to be
affiliated with a company or firm that is a "significant
advisor or consultant to PAC or any of its subsidiaries
or affiliates" if such person received or would receive
fees or similar compensation in the last calendar year
from PAC or any of its subsidiaries or affiliates in
excess of the lesser of: (i) 3% of the consolidated gross
revenues that PAC and its subsidiaries received for the
sale of their products and services during such fiscal
year of PAC; (ii) 5% of the gross revenues of the person
during such calendar year, if such person is a
self-employed individual; and (iii) 5% of the
consolidated gross revenues received by such company or
firm for the sale of its products and services during
such fiscal year, if the person is a company or firm;
provided, however, that director's fees and expense
reimbursements shall not be included in the gross
revenues of an individual for purposes of this
determination.
(vii) A "significant customer of PAC or any of
its subsidiaries or affiliates" shall mean a customer
from which PAC and any of its subsidiaries or affiliates
collectively in the last fiscal year of PAC received
payments in consideration for the products and services
of PAC and its subsidiaries and affiliates that are in
excess of 3% of the consolidated gross revenues of PAC
and its subsidiaries during such fiscal year.
(viii) A "significant supplier of PAC or any of
its subsidiaries or affiliates" shall mean a supplier to
which PAC and any of its subsidiaries or affiliates
collectively in the last fiscal year of PAC made payments
in consideration for the supplier's products and services
in excess of 3% of the consolidated gross revenues of PAC
and its subsidiaries during such fiscal year.
(ix) PAC or any of its subsidiaries and
affiliates shall be deemed a "significant customer" of a
company if PAC and any of its subsidiaries and affiliates
collectively were the direct source during such company's
last fiscal year of in excess of 5% of the gross revenues
that such company received from the sale of its products
and services during such fiscal year.
(x) PAC or any of its subsidiaries and
affiliates shall be deemed a "significant supplier" of a
company if PAC and any of its subsidiaries or affiliates
collectively received in such company's fiscal year
payments from such company in excess of 5% of the gross
revenues that such company received during such fiscal
year for the sale of its products and services.
(xi) A person shall be deemed to have
"significant personal services contract(s) with PAC or
any of its subsidiaries or affiliates" if the fees and
other compensation received by the person in the last
calendar year pursuant to personal services contract(s)
with PAC and any of its subsidiaries or affiliates
exceeded or would exceed 5% of such person's gross
revenues during such calendar year.
5
<PAGE>
(xii) A person shall be deemed to be a "major
creditor of PAC or any of its subsidiaries or affiliates"
if it is a financial institution that PAC or such
subsidiary or affiliate owes outstanding indebtedness for
borrowed money in a sum sufficiently large as would
reasonably be expected to influence the judgment of such
Independent Director adversely to the interests of the
Corporate when its interests are adverse to PAC or any of
its subsidiaries or its affiliates.
(c) If an Independent Director resigns, dies or becomes
incapacitated, or such position otherwise becomes vacant, no
action requiring the unanimous vote of the Board of Directors
shall be taken until a successor Independent Director is elected
and qualified and approves of such action. In the event of the
death, incapacity or resignation of an Independent Director, or a
vacancy for any other reason, a successor Independent Director
shall be appointed by the remaining directors. To the extent
permitted by Delaware law, the Independent Director, in voting on
matters subject to the approval of the Board of Directors, shall
at all times take into account the interests of creditors of the
Corporation, in addition to the interests of the Corporation and
its stockholders. In addition, no Independent Director may be
removed unless (i) he is removed for cause and (ii) his or her
successor has been elected.
ARTICLE VIII
POWERS OF BOARD OF DIRECTORS
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
(a) To make, alter or repeal the By-Laws of the
Corporation, subject to any limitation set forth in the By-Laws or
in this Certificate of Incorporation.
(b) To set apart out of any of the funds of the
Corporation available for dividends a reserve or reserves for any
proper purpose and to abolish any such reserve in the manner in
which it was created.
(c) By a majority of the whole Board, to designate one or
more committees, each committee to consist of one or more of the
Directors of the Corporation at least one of whom shall be an
Independent Director. The Board may designate one or more
Directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the committee
other than an Independent Director. The By-Laws may provide that
in the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not
disqualified from voting, whether or not he, she or they
constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such
absent or disqualified member unless such member is an Independent
Director. Any such committee, to the extent provided in the
resolution of the Board of Directors, or in the
6
<PAGE>
By-Laws of the Corporation, shall have and may exercise all the
powers and authority of the Board of Directors in the management
of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power or
authority in reference to amending the certificate of
incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation
or a revocation of a dissolution, or amending the By-Laws of the
Corporation; and, unless the resolution or By-Laws expressly so
provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock.
(d) To exercise, in addition to the powers and
authorities herein or by law conferred upon it, any such powers
and authorities and do all such acts and things as may be
exercised or done by the Corporation, subject nevertheless, to the
provisions of the laws of the State of Delaware and of this
Certificate of Incorporation and of the By-Laws of the
Corporation.
ARTICLE IX
NO DIRECTOR LIABILITY; INDEMNIFICATION
(a) A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, as the same exists or hereafter may be amended,
or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law
hereafter is amended to authorize the further elimination or
limitation of the liability of directors, then the liability of a
director of the Corporation, in addition to the limitation on
personal liability provided herein, shall be limited to the
fullest extent permitted by the amended Delaware Corporation Law.
No amendment to or repeal of this Article shall apply to or have
any effect on the liability or alleged liability of any director
of the Corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment or repeal.
(b) The Corporation shall, to the fullest extent
permitted by the provisions of Section 145 of the General
Corporation Law of the State of Delaware, as the same may be
amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against
any and all of the expenses, liabilities or other matters referred
to in or covered by said section, and the indemnification provided
for herein shall not be deemed exclusive of any other rights to
which those indemnified
7
<PAGE>
may be entitled under any Bylaw, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of
such a person.
ARTICLE X
STOCKHOLDER MEETINGS
Meetings of the stockholders may be held within or without the
State of Delaware, as the By-Laws may provide. The books of the Corporation
may be kept (subject to any provision contained in the statutes) outside
the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the By-Laws of the
Corporation. Elections of the directors need not be by written ballot
unless the By-Laws of the Corporation shall so provide.
ARTICLE XI
CORPORATE RESTRICTIONS
(a) The Corporation shall not, without the affirmative
vote of 100% of the members of the Board of Directors, including
the affirmative vote of the Independent Director, which vote of
each such director shall be in writing and given prior to such
action, do any of the following:
(i) engage in any business or activity other
than those set forth in Article III hereof;
(ii) incur any indebtedness, or assume or
guaranty any indebtedness of any other entity, other than
(A) indebtedness arising from salaries, fees and expenses
to its professional advisors and counsel, directors,
officers and employees, (B) other indebtedness on account
of incidentals or services supplied or furnished to the
Corporation, and (C) in the ordinary course of the
Corporation's business as set forth in Article III
hereof;
(iii) dissolve or liquidate, in whole or in
part, consolidate or merge with or into any other entity
or convey or transfer its properties and assets,
substantially as an entirety to any entity other than in
the ordinary course of the Corporation's business as set
forth in Article III hereof;
8
<PAGE>
(iv) institute proceedings to be adjudicated
bankrupt or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against it or file a
petition seeking, or consent to, reorganization,
liquidation or relief under any applicable federal or
state law relating to bankruptcy, insolvency,
reorganization or dissolution, or consent to the
appointment of a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the
Corporation or a substantial part of its property, or
make an assignment for the benefit of creditors, or admit
in writing its inability to pay its debts as they become
due, or take corporate action in furtherance of any such
action;
(v) repeal, amend or otherwise modify any
provision of Article III, Article VII or this Article XI
of this Certificate of Incorporation; or
(vi) increase or reclassify the capital stock of
the Corporation or issue any additional shares of capital
stock of the Corporation.
(b) The Corporation shall not take any corporate action
in connection with any merger of the Corporation into, or
consolidation of the Corporation with, any other person or entity,
or convey, transfer or lease substantially all of its assets as an
entirety to any person or entity unless, the following conditions
are satisfied:
(i) The person or entity surviving such merger
or consolidation or the person or entity which acquires
by conveyance, transfer or lease substantially all of the
assets of the Corporation (A) is organized under the laws
of the United States or any state thereof, (B) has
immediately following such merger or consolidation or
transfer a net worth at least equal to that of the
Corporation immediately prior to such merger,
consolidation or transfer (or whose obligations are
guaranteed by a person or entity with a net worth at
least equal to that of the Corporation immediately prior
to such merger, consolidation or transfer), (C) expressly
assumes all of the obligations of the Corporation in
connection with the indebtedness of the Corporation and
(D) shall have a certificate of incorporation, or other
organizational document containing provisions
substantially similar to the provisions of Article III,
Article VII and Article XI of this Certificate of
Incorporation.
(ii) Immediately after giving effect to such
merger, consolidation or transfer, no default or event of
default shall have occurred and be continuing under any
agreement to which the Corporation is a party.
(iii) Such merger, consolidation or transfer
shall be authorized by (A) the affirmative vote of 100%
of the entire Board of Directors, including the
Independent Director and (B) the affirmative vote of the
holders of outstanding shares of capital stock of the
Corporation representing 100% of all the votes entitled
to be cast thereon.
9
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(c) The Corporation will maintain its separate corporate
existence and identity and will take all steps necessary to make
it apparent to third parties that the Corporation is an entity
with assets and liabilities distinct from those of PAC or any
subsidiary or affiliate of PAC. The Corporation shall therefore,
at all times (i) promptly reimburse PAC or any affiliate of PAC
for all reasonable expenses paid or incurred by PAC, any affiliate
or their personnel for or on behalf of the Corporation, including
appropriate allocations of (x) salaries and benefits of those
personnel performing services for the Corporation and (y) office
space, overhead, computing and other expenses attributable to
services performed for the Corporation, if any, (ii) maintain the
Corporation's books, accounting records and other corporate
documents and records separate from those of PAC or any other
entity, (iii) prepare separate financial statements from those of
PAC and request that PAC include certain footnotes in any
consolidated financial statements issued by PAC to the effect that
PAC contributed certain assets to the Corporation, (iv) not
commingle the Corporation's assets with those of PAC or any other
entity, (v) maintain the Corporation's books of account and
payroll (if any) separate from those of PAC or any affiliate of
PAC, (vi) act solely in its corporate name and through its own
authorized officers and agents, invoices and letterhead, (vii)
separately manage the Corporation's liabilities from those of PAC
or any affiliate of PAC and pay its own liabilities, including all
administrative expenses, from its own separate assets, and (viii)
pay from the Corporation's assets all obligations and indebtedness
of any kind incurred by the Corporation. The corporation shall
abide by all corporate formalities, including the maintenance of
current minute books, and the Corporation shall cause its
financial statements to be prepared in accordance with generally
accepted accounting principles in a manner that indicates the
separate existence of the Corporation and its assets and
liabilities. The Corporation shall not assume the liabilities of
PAC or any affiliate of PAC, and shall not guarantee the
liabilities of PAC or any affiliate of PAC. The officers and
directors of the Corporation (as appropriate) shall make decisions
with respect to the business and daily operations of the
Corporation independent of and not dictated by PAC or any
affiliate of PAC.
ARTICLE XII
RESERVATION OF RIGHT TO AMEND CERTIFICATE OF INCORPORATION
Except as set forth in Article XI hereof, the Corporation reserves
the right to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted
subject to this reservation.
THE UNDERSIGNED, being the sole incorporator hereinbefore named,
for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, does
10
<PAGE>
hereby make this certificate, declaring and certifying that this is my act
and deed and that the facts herein stated are true to the best of my
knowledge.
Executed this 20th day of November, 1997.
______________________
Francis C. Rowinski
11
PARAGON AUTO RECEIVABLES CORPORATION
(a Delaware corporation)
BY-LAWS
As of November 20, 1997
ARTICLE I
Offices
SECTION 1.01. Registered Office. The registered office of the
Corporation in the State of Delaware shall be at 1013 Centre Road, in the
city of Wilmington, County of New Castle, Delaware 19805. The name of the
resident agent in charge thereof shall be Corporation Service Company.
SECTION 1.02. Other Offices. The Corporation may also have an
office or offices in the City of Mission Viejo, State of California, and at
such other place or places either within or without the State of Delaware
as the Board of Directors may from time to time determine or the business
of the Corporation require.
ARTICLE II
Meetings of Stockholders
SECTION 2.01. Place of Meetings. All meetings of the stockholders
of the Corporation shall be held at such place either within or without the
State of Delaware as may be designated by or in the manner provided in the
By-Laws.
SECTION 2.02. Annual Meetings.
(a) The annual meeting of the stockholders for the election of
directors and for the transaction of such other business as properly may
come before the meeting shall be held at the principal office of the
Corporation in the State of Delaware, or such place as may be designated by
or in the manner provided in the By-Laws, at three o'clock in the
afternoon, local time, on the first Tuesday in May in each year, if not a
legal holiday at the place where such meeting is to be held, and, if a
legal holiday, then on the next succeeding business day not a legal holiday
at the same hour.
(b) In respect of the annual meeting for any particular year, the
Board of Directors may, by resolution, fix a different day, time or place
(either within or without the State of Delaware) for the annual meeting.
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(c) If the election of directors shall not be held on the day
designated herein or the day fixed by the Board, as the case may be, for
any annual meeting, or on the day of any adjourned session thereof, the
Board of Directors shall cause the election to be held at a special meeting
as soon thereafter as may conveniently be scheduled. At such special
meeting the stockholders may elect the directors and transact other
business with the same force and effect as at an annual meeting duly called
and held.
SECTION 2.03. Special Meetings. A special meeting of the
stockholders for any purpose or purposes may be called at any time by the
President or by order of the Board of Directors and must be called by the
Secretary upon the request in writing of a stockholder or stockholders
holding of record at least thirty-five percent (35%) of the outstanding
shares of stock of the Corporation entitled to vote at such meeting.
SECTION 2.04. Notice of Meetings.
(a) Except as otherwise required by statute or by the Certificate
of Incorporation of Paragon Auto Receivables Corporation (the "Company"),
notice of each annual or special meeting of the stockholders shall be given
to each stockholder of record entitled to vote at such meeting not less
than ten (10) days nor more than sixty (60) days before the day on which
the meeting is to be held by delivering written notice thereof to its
offices personally or by mailing such notice, postage prepaid, addressed to
him or her at his or her post office address last shown in the records of
the Corporation or by transmitting notice thereof to him or her at such
address by telephone, facsimile, electronic mail or any other available
method, provided that notice of a meeting called at the request of a
shareholder pursuant to Section 2.03 shall be given not less than twenty
(20) days before the day on which the meeting is to be held. Every such
notice shall state the time and place of the meeting and, in case of a
special meeting, shall state briefly the purposes thereof.
(b) Except as otherwise required by statute, notice of any meeting
of stockholders shall not be required to be given to any stockholders who
shall attend such meeting in person or by proxy or who shall, in person or
by attorney thereunto authorized, waive such notice in writing or by
telephone, facsimile, electronic mail or any other available method either
before or after such meeting. Notice of any adjourned meeting of the
stockholders shall not be required to be given except when expressly
required by law.
SECTION 2.05. Quorum.
(a) At each meeting of the stockholders, except where otherwise
provided by statute, the Certificate of Incorporation or these By-Laws, the
holders of record of a majority of the issued and outstanding shares of
stock of the Corporation entitled to vote at such meeting, present in
person or represented by proxy, shall constitute a quorum for the
transaction of business.
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(b) In the absence of a quorum a majority in interest of the
stockholders of the Corporation entitled to vote, present in person or
represented by proxy or, in the absence of all such stockholders, any
officer entitled to preside at, or act as secretary of, such meeting, shall
have the power to adjourn the meeting from time to time, until stockholders
holding the requisite amount of stock shall be present or represented. At
any such adjourned meeting at which a quorum shall be present any business
may be transacted which might have been transacted at the meeting as
originally called.
SECTION 2.06. Organization. At each meeting of the stockholders
the President or, in his or her absence, any Vice President or, in the
absence of each of them, a chairman chosen by a majority vote of the
stockholders entitled to vote thereat, present in person or by proxy, shall
act as chairman, and the Secretary or an Assistant Secretary of the
Corporation or, in the absence of the Secretary and all Assistant
Secretaries, a person whom the chairman of such meeting shall appoint shall
act as secretary of the meeting and keep the minutes thereof.
SECTION 2.07. Voting.
(a) Except as otherwise provided by law or by the Certificate of
Incorporation or these By-Laws, at every meeting of the stockholders each
holder of Common Stock shall be entitled to one (1) vote, in person or by
proxy, for each share of Common Stock of the Corporation registered in its
name on the books of the Corporation:
(i) on the date fixed pursuant to Section 8.03 of these
By-Laws as the record date for the determination of
stockholders entitled to vote at such meeting; or
(ii) if no such record date shall have been fixed, then
the record date shall be at the close of business on the
day next preceding the day on which notice of such
meeting is given.
(b) Persons holding stock in a fiduciary capacity shall be
entitled to vote the shares so held. In the case of stock held jointly by
two (2) or more executors, administrators, guardians, conservators,
trustees or other fiduciaries, such fiduciaries may designated in writing
one (1) or more of their number to represent such stock and vote the
shares. No proxy shall be voted after three (3) years from its date, unless
said proxy provides for a longer period.
(c) At all meetings of the stockholders, all matters (except
where other provision is made by law or by the Certificate of Incorporation
or these By-Laws) shall be decided by the vote of a majority in interest of
the stockholders entitled to vote thereon, present in person or by proxy at
such meeting, a quorum being present.
SECTION 2.08. Inspectors. The chairman of the meeting may at any
time appoint two (2) or more inspectors to serve at any meeting of the
stockholders. Such inspectors shall decide upon the qualification of
voters, accept and count the votes for and against the questions presented,
report the results of such votes, and subscribe and deliver to the
secretary of the
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meeting a certificate stating the number of shares of stock issued and
outstanding and entitled to vote thereon and the number of shares voted for
and against the questions presented. The inspectors need not be
stockholders of the Corporation, and any director or officer of the
Corporation may be an inspector on any question other than a vote for or
against his or her election to any position with the Corporation or on any
other question in which he or she may be directly interested. Before acting
as, herein provided, each inspector shall subscribe an oath faithfully to
execute the duties of an inspector with strict impartiality and according
to the best of his or her ability.
SECTION 2.09. List of Stockholders.
(a) It shall be the duty of the Secretary or other officer of the
Corporation who shall have charge of its stock ledger to prepare and make,
or cause to be prepared and made, at least ten (10) days before every
meeting of the stockholders, a complete list of the stockholders entitled
to vote thereat, arranged in alphabetical order and showing the address of
each stockholder and the number of shares registered in the name of the
stockholder. Such list shall be open during ordinary business hours to the
examination of any stockholder for any purpose germane to the meeting for a
period of at least ten (10) days prior to the election, either at a place
within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting or, if not so specified, at a place
where the meeting is to be held.
(b) Such list shall be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
(c) Upon the willful neglect or refusal of the directors to
produce such list at any meeting for the election of directors, they shall
be ineligible for election to any office at such meeting.
(d) The stock ledger shall be conclusive evidence as to who are
the stockholders entitled to examine the stock ledger and the list of
stockholders required by this Section 2.09 on the books of the Corporation
or to vote in person or by proxy at any meeting of stockholders.
ARTICLE III
Board of Directors
SECTION 3.01. General Powers. The business, property and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors.
SECTION 3.02. Number, Qualifications and Term of Office.
(a) The number of directors of the Corporation which shall
constitute the whole Board of Directors shall be such number, not less than
three (3), as from time to time shall be fixed by the stockholders at any
annual meeting or at any special meeting called for the purpose; provided,
however, that between such meetings of stockholders the number so fixed may
at any time be increased by the affirmative vote of a majority of the Board
of Directors.
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(b) Subject to Article VII of the Certificate of Incorporation of
the Corporation, each director shall hold office until the expiration of
his or her term and until his or her successor shall be elected or until
his or her death, or until he or she shall resign, or until he or she shall
have been removed in the manner hereinafter provided.
SECTION 3.03. Election of Directors. Subject to the requirements
of Articles VII and XI of the Certificate of Incorporation of the
Corporation, at each meeting of the stockholders for the election of
directors at which a quorum is present, the persons, not exceeding the
authorized number of directors, receiving the greatest number of votes of
the stockholders entitled to vote thereon, present in person or by proxy,
shall be the directors. In the case of any increases in the number of
directors, the additional director or directors may be elected either at
the meeting of the Board of Directors or of the stockholders at which each
increase is voted, or at any subsequent annual, regular or special meeting
of the Board of Directors or stockholders.
SECTION 3.04. Quorum and Manner of Acting.
(a) Except as otherwise provided by statute or by the Certificate
of Incorporation, a majority of the directors at the time in office shall
constitute a quorum for the transaction of business at any meeting and the
affirmative action of a majority of the directors present at any meeting at
which a quorum is present shall be required for the taking of any action by
the Board of Directors.
(b) In the event the Secretary is informed that one (1) or more
directors will be out of the continental limits of the United States at the
date of any regular or special meeting of the Board, or if one (1) or more
of the directors shall be disqualified to vote at such meeting, then the
required quorum shall be reduced by one (1) for each such director so
absent or disqualified; provided, however, that in no event shall the
quorum as adjusted be less than one third of the total number of directors.
(c) In the absence of a quorum at any meeting of the Board such
meeting need not be held, or a majority of the directors present thereat
or, if no director be present, the Secretary may adjourn such meeting from
time to time until a quorum shall be present. Notice of any adjourned
meeting need not be given.
SECTION 3.05. Offices, Place of Meeting and Records. The Board of
Directors may hold meetings, have an office or offices and keep the books
and records of the Corporation at such place or places within or without
the State of Delaware as the Board may from time to time determine. The
place of meeting shall be specified or fixed in the respective notices or
waivers or notice thereof, except where otherwise provided by statute, by
the Certificate of Incorporation or these By-Laws. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by
means of conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other, and
such participation in a meeting shall constitute presence in person at the
meeting.
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SECTION 3.06. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such places and at such times as the Board shall
from time to time by resolution determine. If any day fixed for a regular
meeting shall be a legal holiday at the place where the meeting is to be
held, then the meeting which would otherwise be held on that day shall be
held at said place at the same hour on the next succeeding business day.
Notice of regular meetings need not be given.
SECTION 3.07. Special Meetings; Notice. Special meetings of the
Board or Directors shall be held whenever called by the President or by any
two of the directors. Notice of each such meeting shall be mailed to each
director, addressed to him or her at his or her residence or usual place of
business, at least three (3) days before the day on which the meeting is to
be held, or shall be sent to him or her at his or her residence or at such
place of business by facsimile, electronic mail or other available means,
or shall be delivered personally or by telephone, not later than two days
before the day on which the meeting is to be held. Each such notice shall
state the time and place of the meeting but need not state the purposes
thereof except as otherwise herein expressly provided. Notice of any such
meeting need not be given to any director, however, if waived by him or her
in writing or by telephone, facsimile, electronic mail or otherwise,
whether before or after such meeting shall be held, or if he or she shall
be present at such meeting.
SECTION 3.08. Organization. At each meeting of the Board of
Directors, the President or, in his absence, a director chosen by a
majority of the directors present shall act as chairman. The Secretary or,
in his or her absence an Assistant Secretary or, in the absence of the
Secretary and all Assistant Secretaries, a person whom the chairman of such
meeting shall appoint shall act as secretary of such meeting and keep the
minutes thereof.
SECTION 3.09. Order of Business. At all meetings of the Board of
Directors business shall be transacted in the order determined by the Board.
SECTION 3.10. Removal of Directors. Except as otherwise provided
in the Certificate of Incorporation or in these By-Laws, any director may
be removed, either with or without cause, at any time, by the affirmative
vote of the holders of record of a majority of the issued and outstanding
stock entitled to vote for the election of directors of the Corporation
given at a special meeting of the stockholders called and held for the
purpose; and the vacancy in the Board caused by any such removal may be
filled by such stockholders at such meeting in the manner hereinafter
provided or, if the stockholders at such meeting shall fail to fill such
vacancy, as in these By-Laws provided.
SECTION 3.11. Resignation. Subject to the requirements of Article VII
of the Certificate of Incorporation of the Corporation, any director of the
Corporation may resign at any time by giving written notice of his or her
resignation to the Board of Directors, to the President, any Vice President
or the Secretary of the Corporation. Such resignation shall take effect at the
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date of receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
SECTION 3.12. Vacancies. Subject to the requirements of Article
VII of the Certificate of Incorporation of the Corporation, any vacancy in
the Board of Directors caused by death, resignation, removal,
disqualification, an increase in the number of directors, or any other
cause, may be filled by majority action of the remaining directors then in
office, though less than a quorum, or by the stockholders of the
Corporation at the next annual meeting or any special meeting called for
the purpose, and each director so elected shall hold office until the next
annual election of directors and until his or her successor shall be duly
elected and qualified, or until his or her death or until he or she shall
resign or shall have been removed in the manner herein provided.
SECTION 3.13. Compensation. Each director, in consideration of his
or her serving as such, shall be entitled to receive from the Corporation
such amount per annum or such fees for attendance at directors' meetings,
or both, as the Board of Directors shall from time to time determine,
together with reimbursement for the reasonable expenses incurred by him or
her in connection with the performance of his or her duties; provided that
nothing herein contained shall be construed to preclude any director from
serving the Corporation or its subsidiaries in any other capacity and
receiving proper compensation therefor.
ARTICLE IV
Committees
SECTION 4.01. Standing Committees. The Board of Directors may from
time to time, by resolution passed by a majority of the whole Board,
designate one (1) or more committees which shall be standing in nature,
each Standing Committee to consist of one (1) or more directors and any
number of officers of the Corporation. Unless otherwise restricted by the
Certificate of Incorporation of the Corporation, any such Standing
Committee shall have and may exercise the powers of the Board of Directors
in the management of the business and affairs of the corporation for
whatever purpose they see fit.
A majority of all of the members of any such Standing Committee
may determine its action and fix the time and place of its meetings, unless
the Board of Directors shall otherwise provide. The Board of Directors
shall have the power to change the members of any Standing Committee at any
time, to fill vacancies and to discharge any such Standing Committee,
either with or without cause, at any time. The Board of Directors may
delegate such power to the members of any Standing Committee or one (1) or
more principal officers.
SECTION 4.02. Alternates. Unless otherwise restricted by the
Certificate of Incorporation of the Corporation, the Board of Directors
may, by resolution passed by a majority of the whole Board, designate one
(1) or more directors as alternate members of any committee who may replace
any absent or disqualified member at any meeting of the committee;
provided,
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however, that in the absence of any such designation of alternates the
member or members of any committee present at any meeting and not
disqualified from acting, whether or not he, she or they constitute a
quorum, may unanimously appoint another member of the Board to act at the
meeting in the place of any absent or disqualified member.
SECTION 4.03. Additional Committees. The Board of Directors, any
Standing Committee, or any principal officer or director may from time to
time create such additional committees of directors, officers, employees or
other persons designated by it (or any combination of such persons) for
such business purposes as they deem necessary and for advising with the
Board and the principal officers of the Corporation in all such matters as
the Board and the principal officers shall deem advisable.
A majority of all the members of any such committee may determine
its action and fix the time and place of its meetings, unless the Board of
Directors or any Standing Committee shall otherwise provide. The Board of
Directors, any Standing Committee, or any principal officer or director
shall have power to change the members of any additional committee at any
time, to fill vacancies and to discharge any such committee, with or
without cause, at any time.
ARTICLE V
Action by Consent or Telephone
SECTION 5.01. Consent by Directors. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if prior to such action a written consent thereto is
signed by all members of the Board and such written consent is filed with
the minutes of the proceedings of the Board.
SECTION 5.02. Consent by Stockholders. Any action required or
permitted to be taken at any meeting of the stockholders may be taken
without a meeting upon the written consent of the holders of shares of
stock entitled to vote who hold the number of shares which in the aggregate
are at least equal to the percentage of the total vote required by statute
or the Certificate of Incorporation or these By-Laws for the proposed
corporate action.
SECTION 5.03. Telephone Meetings. Members of the Board of
Directors may participate in a meeting of such Board by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other.
ARTICLE VI
Officers
SECTION 6.01. Number. The principal officers of the Corporation
shall be a President, one (1) or more Vice Presidents (the number thereof and
variations in title to be determined by
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the Board of Directors), a Treasurer, a Controller and a Secretary. In
addition, there may be such other or subordinate officers, agents and
employees as may be appointed in accordance with the provisions of Section
6.03. Any two (2) or more offices, except those of President and Secretary,
may be held by the same person.
SECTION 6.02. Election, Qualifications and Term of Office. Each
officer of the Corporation, except such officers as may be appointed in
accordance with the provisions of Section 6.03, shall be elected annually
by the Board of Directors and shall hold office until his or her successor
shall have been duly elected and qualified, or until his or her death, or
until he or she shall have resigned or shall have been removed in the
manner herein provided. The President may serve and remain as director.
SECTION 6.03. Other Officers. The Corporation may have such other
officers, agents, and employees as the Board of Directors may deem
necessary, including a Chairman of the Board, one (1) or more Assistant
Vice Presidents, Assistant Controllers, Assistant Treasurers and Assistant
Secretaries, each of whom shall hold office for such period, have such
authority, and perform such duties as the Board of Directors or the
President may from time to time determine. The Board of Directors may
delegate to any principal officer the power to appoint or remove any
subordinate officers, agents or employees.
SECTION 6.04. Removal. Any officer may be removed, either with or
without cause, by the vote of a majority of the whole Board of Directors
or, except in case of any officer elected by the Board of Directors, by any
committee or officer upon whom the power of removal may be conferred by the
Board of Directors.
SECTION 6.05. Resignation. Any officer may resign at any time by
giving written notice to the Board of Directors or the President. Any such
resignation shall take effect at the date of receipt of such notice or at
any later time specified therein; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it
effective.
SECTION 6.06. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled
for the unexpired portion of the term in the manner prescribed in these
By-Laws for regular election or appointment to such office.
SECTION 6.07. President. The President shall be the chief
operating officer of the Corporation and shall have general direction of
the operations of the Corporation, subject to the control of the Board of
Directors. The President shall preside at all meetings of the Board of
Directors and at all meetings of the stockholders and shall have such
additional powers and shall perform such further duties as may from time to
time be assigned to him or her by the Board of Directors.
SECTION 6.08. Vice Presidents. Each Vice President shall have such
powers and perform such duties as the Board of Directors may from time to
time prescribe or as shall be assigned to him or her by the President.
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SECTION 6.09. Treasurer. The Treasurer shall have charge and
custody of, and be responsible for, all funds and securities of the
Corporation, and shall deposit all such funds to the credit of the
Corporation in such banks, trust companies or other depositories as shall
be selected in accordance with the provisions of these By-Laws; he or she
shall disburse the funds of the Corporation as may be ordered by the Board
of Directors, making proper vouchers for such disbursements, and shall
render to the Board of Directors or the stockholders, whenever the Board
may require him or her so to do, a statement of all his or her transactions
as Treasurer or the financial condition of the Corporation; and, in
general, he or she shall perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him
or her by the Board of Directors and any committee of the Board designated
by it so to act.
SECTION 6.10. Secretary and Assistant Secretaries. The Secretary
shall record or cause to be recorded in books provided for the purpose the
minutes of the meetings of the stockholders, the Board of Directors, and
all committees of which a secretary shall not have been appointed; shall
see that all notices are duly given in accordance with the provisions of
these By-Laws and as required by law; shall be custodian of all corporate
records (other than financial) and of the seal of the Corporation and see
that the seal is affixed to all documents the execution of which on behalf
of the Corporation under its seal is duly authorized in accordance with the
provisions of these By-Laws; shall keep, or cause to be kept, the list of
stockholders as required by Section 2.09, which shall include the post
office addresses of the stockholders and the number of shares held by them,
respectively, and shall make or cause to be made, all proper changes
therein; shall see that the books, reports, statements, certificates and
all other documents and records required by law are properly kept and
filed; and, in general, shall perform all duties incident to the office of
Secretary and such other duties as may from time to time be assigned to him
or her by the Board of Directors.
The Assistant Secretaries in order of their seniority shall, in
the absence or disability of the Secretary, perform the duties and exercise
the powers of the Secretary and shall perform such other duties as the
Board of Directors shall prescribe.
SECTION 6.11. Controller and Assistant Controllers. The Controller
shall be in charge of the books and records of account of the Corporation
and of its statistical records. He or she shall keep or cause to be kept at
such office or offices as the Board of Directors may from time to time
designate complete and accurate accounts of all assets, liabilities,
receipts, disbursements and other transactions of the Corporation; shall
cause regular audits of such books and records to be made; shall be
responsible for the preparation and filing of all reports and actions
related to or based upon the books and records of the Corporation; shall
render financial statements at the annual meeting of stockholders, if
called upon so to do, or at the request of any director or the Board of
Directors; shall render to the Board of Directors such statistical reports
and analyses as the Board from time to time may require; and, in general,
shall perform all the duties incident to the office of Controller and such
other duties as from time to time may be assigned to him or her by the
Board of Directors.
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The Assistant Controllers in order of their seniority shall, in
the absence or disability of the Controller, perform the duties and
exercise the powers of the Controller and shall perform such other duties
as the Board of Directors shall describe.
ARTICLE VII
Contracts, Checks, Drafts, Bank Accounts, Etc.
SECTION 7.01. Execution of Contracts. Unless the Board of
Directors shall otherwise determine, the President, any Vice President or
the Treasurer and the Secretary or any Assistant Secretary may enter into
any contract or execute any contract or other instrument, the execution of
which is not otherwise specifically provided for, in the name and on behalf
of the Corporation. The Board of Directors, or any committee designated
thereby with power so to act, except as otherwise provided in these
By-Laws, may authorize any other or additional officer or officers,
employees or agent or agents of the Corporation to enter into any contract
or execute and deliver any instrument in the name and on behalf of the
Corporation, and such authority may be general or confined to specific
instances. Unless authorized so to do by these By-Laws or by the Board of
Directors or by any such committee, no officer, agent or employee shall
have any power or authority to bind the Corporation by any contract or
engagement or to pledge its credit or to render it liable pecuniarily for
any purpose or to any amount.
SECTION 7.02. Loans. No loan shall be contracted on behalf of the
Corporation, and no evidence of indebtedness shall be issued, endorsed or
accepted in its name, unless authorized by the Board of Directors or any
committee designated by the Board so to act. Such authority may be general
or confined to specific instances. When so authorized, the officer or
officers thereunto authorized may effect loans and advances at any time for
the Corporation from any bank, trust company or other institution, or from
any firm, corporation or individual, and for such loans and advances may
make, execute and deliver promissory notes or other evidences of
indebtedness of the Corporation, and, when authorized as aforesaid, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, may mortgage, pledge, hypothecate or
transfer any real or personal property at any time owned or held by the
Corporation, and to that end execute instruments of mortgage or pledge or
otherwise transfer such property.
SECTION 7.03. Checks, Drafts, etc. All checks, drafts, bills of
exchange or other orders for the payment of money, obligations, notes, or
other evidences of indebtedness, bills of lading, warehouse receipts and
insurance certificates of the Corporation, shall be signed or endorsed by
such officer or officers, agent or agents, attorney or attorneys, employee
or employees, of the Corporation as shall from time to time be determined
by resolution of the Board of Directors or any committee designated by the
Board so to act.
SECTION 7.04. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
or any committee designated by the Board so to act
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may from time to time designate, or as may be designated by any officer or
officers or agent or agents of the Corporation to whom such power may be
delegated by the Board of Directors or any committee designated by the
Board so to act and for the purpose of such deposit and for the purposes of
collection for the account of the Corporation, all checks, drafts, and
other orders for the payment of money which are payable to the order of the
Corporation may be endorsed, assigned and delivered by any officer, agent
or employee of the Corporation or in such other manner as may from time to
time be designated or determined by resolution of the Board of Directors or
any committee designated by the Board so to act.
SECTION 7.05. Proxies in Respect of Securities of Other
Corporations. Unless otherwise provided by resolution adopted by the Board
of Directors or any committee so designated to act by the Board, the
President or any Vice President may from time to time appoint an attorney
or attorneys or agent or agents of the Corporation, in the name and on
behalf of the Corporation, to cast the votes which the Corporation may be
entitled to cast as the holder of stock or other securities in any other
corporation, association or trust any of whose stock or other securities
may be held by the Corporation, at meetings of the holders of the stock or
other securities of such other corporation, association or trust, or to
consent in writing, in the name of the Corporation as such holder, to any
action by such other corporation, association or trust, and may instruct
the person or persons so appointed as to the manner of casting such votes
or giving such consent, and may execute or cause to be executed in the name
and on behalf of the Corporation and under its corporate seal, or
otherwise, all such written proxies or other instruments as he or she may
deem necessary or proper in the premises.
ARTICLE VIII
Books and Records
SECTION 8.01. Place. The books and records of the Corporation may
be kept at such places within or without the State of Delaware, as the
Board of Directors may from time to time determine. The stock record books
and the blank stock certificate books shall be kept by the Secretary or by
any other officer or agent designated by the Board of Directors.
SECTION 8.02. Addresses of Stockholders. Each stockholder shall
furnish to the Secretary of the Corporation or to the transfer agent of the
Corporation an address at which notices of meetings and all other corporate
notices may be served upon or mailed to him or her, and if any stockholder
shall fail to designate such address, corporate notices may be served upon
him or her by mail, postage prepaid, to him or her at his or her post
office address last known to the Secretary of the Corporation or to the
transfer agent of the Corporation or by transmitting a notice thereof to
him or her at such address by telephone, facsimile, electronic mail or
other available method.
SECTION 8.03. Record Dates. The Board of Directors may fix in advance
a date, not exceeding sixty (60) days preceding the date of any meeting of
stockholders, or the date for the payment of any dividend, or the date for
the allotment of any rights, or the date when any change
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or conversion or exchange of capital stock of the Corporation shall go into
effect, or a date in connection with obtaining such consent, as a record
date for the determination of the stockholders entitled to notice of, and
to vote at, any such meeting or any adjournment thereof, or entitled to
receive payment of any such dividend, or to any such allotment of rights,
or to exercise the rights in respect of any change, conversion or exchange
of capital stock of the Corporation, or to give such consent, and in each
such case such stockholders and only such stockholders as shall be
stockholders of record on the date so fixed shall be entitled to notice of
or to vote at, such meeting and any adjournment thereof, or to receive
payment of such dividend, or to receive such allotment of rights, or to
exercise such rights or to give such consent, as the case may be,
notwithstanding any transfer of any stock on the books of the Corporation
after any such record date fixed as aforesaid.
SECTION 8.04. Audit of Books and Accounts. The books and accounts
of the Corporation shall be audited at least once in each fiscal year by
certified public accountants of good standing, elected by the Board of
Directors.
ARTICLE IX
Shares and Their Transfer
SECTION 9.01. Certificates of Stock. Every owner of stock of the
Corporation shall be entitled to have a certificate certifying the number
of shares owned by him or her in the Corporation and designating the class
of stock to which such shares belong, which shall otherwise be in such form
as the Board of Directors shall prescribe. Each such certificate shall be
signed by the President or a Vice President and the Treasurer or the
Secretary or any Assistant Secretary of the Corporation; provided, however,
that where such certificate is signed or countersigned by a transfer agent
or registrar the signatures of such officers of the Corporation and the
seal of the Corporation may be in facsimile form. In case any officer or
officers who shall have signed, or whose facsimile signature or signatures
shall have been used on, any such certificate or certificates shall cease
to be such officer or officers of the Corporation, whether because of
death, resignation or otherwise, before such certificate or certificates
shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be issued and delivered by the Corporation as
though the person or persons who signed such certificate or whose facsimile
signature or signatures shall have been used thereon had not ceased to be
such officer or officers of the Corporation.
SECTION 9.02. Record. A record shall be kept of the name of the
person, firm or corporation owning the stock represented by each
certificate for stock of the Corporation issued, the number of shares
represented by each such certificate, and the date thereof, and, in the
case of cancellation, the date of cancellation. The person or entity in
whose name shares of stock stand on the books of the Corporation shall be
deemed the owner thereof for all purposes as regards the Corporation.
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<PAGE>
SECTION 9.03. Transfer of Stock. Transfers of shares of the stock
of the Corporation shall be made only on the books of the Corporation by
the registered holder thereof, or by his or her attorney thereunto
authorized, and on the surrender of the certificate or certificates for
such shares properly endorsed.
SECTION 9.04. Transfer Agent and Registrar; Regulations. The
Corporation shall, if and whenever the Board of Directors shall so
determine, maintain one (1) or more transfer offices or agencies, each in
charge of a transfer agent designated by the Board of Directors, where the
shares of the capital stock of the Corporation shall be directly
transferable, and also if and whenever the Board of Directors shall so
determine, maintain one (1) or more registry offices, each in charge of a
registrar designated by the Board of Directors, where such shares of stock
shall be registered. The Board of Directors may make such rules and
regulations as it may deem expedient, not inconsistent with these By-Laws,
concerning the issue, transfer and registration of certificates for shares
of the capital stock of the Corporation.
SECTION 9.05. Lost, Destroyed or Mutilated Certificates. In case
of the alleged loss or destruction or the mutilation of a certificate
representing capital stock of the Corporation, a new certificate may be
issued in place thereof, in the manner and upon such terms as the Board of
Directors may prescribe.
ARTICLE X
Corporate Seal
The Board of Directors may provide a corporate seal in such form
as the Board of Directors shall determine.
ARTICLE XI
Fiscal Year
The fiscal year of the Corporation shall begin at the opening of
business on the Sunday nearest to the first day of January and end at the
close of business on the Saturday nearest to the thirty-first day of
December in each year, whether such Sunday or Saturday, as the case may be,
falls in December or in January.
ARTICLE XII
Indemnification
(a) The Corporation shall indemnify, to the full extent permitted
by law, any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an
action by or in the right of the Corporation) by reason of the fact that he
or she is or was a
Page 14
<PAGE>
director, officer or employee of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
(each such person being referred to hereafter as an "Agent"), against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection
with such action, suit or proceeding if he or she acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed
to be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
(b) The Corporation shall indemnify, to the full extent permitted
by law, any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by reason of
the fact that he or she is or was an Agent against expenses (including
attorneys' fees) actually and reasonably incurred by him or her in
connection with the defense or settlement of such action or suit if he or
she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the Corporation and except that
no such indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery of
Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which such Court of
Chancery or such other court shall deem proper.
(c) To the extent that an Agent shall be successful on the merits
or otherwise (including dismissal of an action without prejudice or the
settlement of an action without admission of liability) in defense of any
action, suit or proceeding referred to in paragraphs (a) and (b), or in
defense of any claim, issue or matter therein, he or she shall be
indemnified, to the full extent permitted by law, against expenses
(including attorneys' fees) actually and reasonably incurred by him or her
in connection therewith.
(d) Any indemnification under paragraphs (a) and (b) (unless
ordered by a court) shall be made by the Corporation only as authorized in
the specific case upon a determination that indemnification of the Agent is
proper in the circumstances because he or she has met the applicable
standard of conduct set forth in paragraphs (a) and (b). Such determination
shall be made (1) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
Page 15
<PAGE>
(e) Expenses incurred by an Agent in defending a civil or criminal
action, suit or proceeding referred to in paragraphs (a) and (b) shall be
paid by the Corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of such
Agent to repay such amount if it shall ultimately be determined that he or
she is not entitled to be indemnified by the Corporation as authorized in
this Article XII. Notwithstanding the foregoing, no advance shall be made
by the Corporation if a determination is reasonably and promptly made by
the Board of Directors by a majority vote of a quorum of disinterested
directors, or (if such a quorum is not obtainable or, even if obtainable, a
quorum of disinterested directors so directs) by independent legal counsel
in a written opinion, that, based upon the facts known to the Board of
Directors or counsel at the time such determination is made, such Agent
acted in bad faith or in a manner that such person did not believe to be in
or not opposed to the best interest of the Corporation, or, with respect to
any criminal proceeding, that such Agent believed or had reasonable cause
to believe his or her conduct was unlawful. In no event shall any advance
be made in instances where the Board of Directors or independent legal
counsel reasonably determines that such person deliberately breached his or
her duty to the Corporation or its shareholders.
(f) The indemnification and advancement of expenses provided by,
or granted pursuant to, the other paragraphs of this Article XII shall not
be deemed exclusive of any other rights to which those seeking
indemnification and advancement of expenses may be entitled under any
agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his or her official capacity and as to action in
another capacity while holding such office. All rights to indemnification
under this Article XII shall be deemed to be provided by a contract between
the Corporation and each Agent who serves in such capacity at any time
while this Article XII is in effect. Any repeal or modification of this
Article XII shall not affect any rights or obligations then existing.
(g) The Corporation may purchase and maintain insurance on behalf
of any person who is or was an Agent against any liability asserted against
him or her and incurred by him or her in any such capacity, or arising out
of his or her status as such, whether or not the Corporation would have the
power to indemnify him or her against such liability under the provisions
of this Article XII.
(h) For purposes of this Article XII, references to "the
Corporation" shall include, in addition to the resulting or surviving
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger, so that any person who
is or was a director, officer or employee of such constituent corporation,
or is or was serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position
under the provisions of this Article XII with respect to the resulting or
surviving corporation as he or she would have with respect to such
constituent corporation if its separate existence had continued.
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(i) For purposes of this Article XII, references to "other
enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and references to "serving at the request of the
Corporation" shall include any service as a director, officer or employee
of the Corporation which imposes duties on, or involves services by, such
director, officer or employee with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in
a manner he or she reasonably believed to be in the interests of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Article XII.
(j) The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article XII shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be
an Agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) Notwithstanding any other provision of these By-Laws, the
Corporation shall not, and shall not be obligated to, pay any amount
pursuant to this Article XII unless the Corporation has received funds
which may be used to make such payment and which funds are not required to
repay any other obligation of the Corporation when due.
ARTICLE XIII
Waiver of Notice
Whenever any notice whatever is required to be given by statute,
these By-Laws or the Certificate of Incorporation, a waiver thereof in
writing, signed by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed equivalent
thereto.
ARTICLE XIV
Amendments
These By-Laws may be altered, amended or repealed, in whole or in
part, and new By-Laws may be adopted, in whole or in part, by the
affirmative vote of the holders of record of a majority of the outstanding
stock of the Corporation present in person or represented by proxy and
entitled to vote in respect thereof, given at an annual meeting or at any
special meeting at which a quorum shall be present, or by the affirmative
vote of a majority of the whole Board of Directors given at any meeting;
provided, however, that in no event shall any amendment alteration or
repeal of any By-law in any manner impair or be inconsistent with, the
Certificate of Incorporation of the Corporation (including, without
limitation, Articles III, VII, VIII, XI and XII thereof). Any By-Law made,
altered, amended or repealed by the Board of Directors shall be subject to
alteration, amendment or repeal by vote of stockholders as provided above.
Page 17
Exhibit 4.1
===============================================================================
INDENTURE
between
PARAGON AUTO RECEIVABLES OWNER TRUST ____-_
and
[NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION]
as Indenture Trustee
Dated as of __________ ___, ____
===============================================================================
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
-----------------
Page
ARTICLE I
Definitions and Incorporation by Reference
<S> <C> <C>
SECTION 1.1. Definitions................................................................................2
SECTION 1.2. Incorporation by Reference of Trust Indenture Act..........................................7
SECTION 1.3. Rules of Construction......................................................................7
ARTICLE II
The Notes
SECTION 2.1. Form.......................................................................................8
SECTION 2.2. Execution, Authentication and Delivery.....................................................8
SECTION 2.3. Temporary Notes............................................................................8
SECTION 2.4. Registration; Registration of Transfer and Exchange........................................9
SECTION 2.5. Mutilated, Destroyed, Lost or Stolen Notes................................................10
SECTION 2.6. Persons Deemed Owners.....................................................................11
SECTION 2.7. Payment of Principal and Interest; Defaulted Interest.....................................11
SECTION 2.8. Cancellation..............................................................................12
SECTION 2.9. Release of Collateral.....................................................................12
SECTION 2.10. Definitive Notes..........................................................................12
ARTICLE III
Covenants
SECTION 3.1. Payment of Principal and Interest.........................................................12
SECTION 3.2. Maintenance of Office or Agency...........................................................12
SECTION 3.3. Money for Payments To Be Held in Trust....................................................13
SECTION 3.4. Existence.................................................................................14
SECTION 3.5. Protection of the Trust Estate............................................................14
SECTION 3.6. Opinion as to the Trust Estate............................................................15
SECTION 3.7. Performance of Obligations; Servicing of Receivables......................................15
SECTION 3.8. Negative Covenants........................................................................16
SECTION 3.9. Annual Statement as to Compliance.........................................................17
SECTION 3.10. Issuer May Consolidate, etc., Only on Certain Terms......................................17
SECTION 3.11. Successor or Transferee..................................................................19
SECTION 3.12. No Other Business........................................................................19
SECTION 3.13. No Borrowing.............................................................................19
SECTION 3.14. Servicer's Obligations...................................................................19
<PAGE>
Page
SECTION 3.15. Guarantees, Loans, Advances and Other Liabilities........................................19
SECTION 3.16. Capital Expenditures.....................................................................19
SECTION 3.17. Notice of Events of Default..............................................................20
SECTION 3.18. Further Instruments and Acts.............................................................20
SECTION 3.19. Compliance with Laws.....................................................................20
SECTION 3.20. Tax Treatment............................................................................20
SECTION 3.21. Investment Company Act...................................................................20
SECTION 3.22. Liens....................................................................................20
SECTION 3.23. Conduct of Business......................................................................20
ARTICLE IV
Satisfaction and Discharge
SECTION 4.1. Satisfaction and Discharge of Indenture...................................................21
SECTION 4.2. Payment of Moneys Held by Paying Agent....................................................22
SECTION 4.3. Release of Trust Estate...................................................................22
ARTICLE V
Remedies
SECTION 5.1. Events of Default.........................................................................22
SECTION 5.2. Acceleration of Maturity; Rescission and Annulment........................................23
SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee...........................24
SECTION 5.4. Remedies; Priorities......................................................................26
SECTION 5.5. Optional Preservation of the Receivables..................................................27
SECTION 5.6. Limitation of Suits.......................................................................27
SECTION 5.7. Unconditional Rights of Noteholders To Receive Principal
and Interest........................................................................28
SECTION 5.8. Restoration of Rights and Remedies........................................................28
SECTION 5.9. Rights and Remedies Cumulative............................................................28
SECTION 5.10. Delay or Omission Not a Waiver...........................................................28
SECTION 5.11. Control by Noteholders...................................................................28
SECTION 5.12. Waiver of Past Defaults..................................................................29
SECTION 5.13. Undertaking for Costs....................................................................29
SECTION 5.14. Waiver of Stay or Extension Laws.........................................................30
SECTION 5.15. Action on Notes..........................................................................30
SECTION 5.16. Performance and Enforcement of Certain Obligations.......................................30
ARTICLE VI
The Trustee
SECTION 6.1. Duties of the Trustee.....................................................................30
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Page
SECTION 6.2. Rights of Trustee.........................................................................33
SECTION 6.3. Individual Rights of the Trustee..........................................................34
SECTION 6.4. Trustee's Disclaimer......................................................................34
SECTION 6.5. Notice of Defaults........................................................................34
SECTION 6.6. Reports by Trustee to the Holders.........................................................34
SECTION 6.7. Compensation, Reimbursement and Indemnity.................................................34
SECTION 6.8. Replacement of the Trustee................................................................35
SECTION 6.9. Successor Trustee by Merger...............................................................36
SECTION 6.10. Appointment of Co-Trustee or Separate Trustee............................................36
SECTION 6.11. Eligibility; Disqualification............................................................37
SECTION 6.12. Appointment and Powers...................................................................38
SECTION 6.13. Limitation on Liability..................................................................38
SECTION 6.14. Trustee Not Liable for Notes or Receivables..............................................38
SECTION 6.15. Reliance upon Documents..................................................................39
SECTION 6.16. Representations and Warranties of the Trustee............................................39
SECTION 6.17. Waiver of Setoffs........................................................................40
SECTION 6.18. Rights to Direct Trustee.................................................................40
SECTION 6.19. Preferential Collection of Claims Against Issuer.........................................40
ARTICLE VII
Noteholders' Lists and Reports
SECTION 7.1. Issuer To Furnish Trustee Names and Addresses of Noteholders..............................40
SECTION 7.2. Preservation of Information; Communications to Noteholders................................41
SECTION 7.3. Reports by Issuer.........................................................................41
SECTION 7.4. Reports by Trustee........................................................................41
ARTICLE VIII
Accounts, Disbursements and Releases
SECTION 8.1. Collection of Money.......................................................................42
SECTION 8.2. Trust Accounts............................................................................42
SECTION 8.3. General Provisions Regarding Accounts.....................................................42
SECTION 8.4. Release of Trust Estate...................................................................42
SECTION 8.5. Opinion of Counsel........................................................................43
ARTICLE IX
Supplemental Indentures
SECTION 9.1. Supplemental Indentures Without Consent of Noteholders....................................43
SECTION 9.2. Supplemental Indentures With Consent of Noteholders.......................................44
SECTION 9.3. Execution of Supplemental Indentures......................................................46
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Page
SECTION 9.4. Effect of Supplemental Indenture..........................................................46
SECTION 9.5. Reference in Notes to Supplemental Indentures.............................................46
ARTICLE X
Redemption of Notes
SECTION 10.1. Redemption...............................................................................46
SECTION 10.2. Form of Redemption Notice................................................................46
SECTION 10.3. Notes Payable on Redemption Date.........................................................47
ARTICLE XI
Miscellaneous
SECTION 11.1. Compliance Certificates and Opinions, etc................................................47
SECTION 11.2. Form of Documents Delivered to Trustee...................................................49
SECTION 11.3. Acts of Noteholders......................................................................50
SECTION 11.4. Notices, etc., to the Trustee, Issuer and Rating Agency..................................50
SECTION 11.5. Notices to Noteholders; Waiver...........................................................51
SECTION 11.6. Alternate Payment and Notice Provisions..................................................51
SECTION 11.7. Effect of Headings and Table of Contents.................................................52
SECTION 11.8. Successors and Assigns...................................................................52
SECTION 11.9. Severability.............................................................................52
SECTION 11.10. Benefits of Indenture...................................................................52
SECTION 11.11. Legal Holidays..........................................................................52
SECTION 11.12. GOVERNING LAW...........................................................................52
SECTION 11.13. Counterparts............................................................................52
SECTION 11.14. Recording of Indenture..................................................................52
SECTION 11.15. Trust Obligation........................................................................53
SECTION 11.16. No Petition.............................................................................53
SECTION 11.17. Inspection..............................................................................53
SECTION 11.18. Conflict with Trust Indenture Act.......................................................54
</TABLE>
EXHIBITS
EXHIBIT A Form of Class A Notes
EXHIBIT B Form of Class B Notes
iv
<PAGE>
INDENTURE, dated as of ________ ___, ____, between PARAGON AUTO
RECEIVABLES OWNER TRUST ____-_, a Delaware trust (the "Issuer"), and
[NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking
association], as trustee and not in its individual capacity (the
"Trustee").
Each party agrees as follows for the benefit of the other party
and for the equal and ratable benefit of the Holders of the Issuer's ___%
Asset Backed Notes, Class A (each, a "Class A Note") and ___% Asset Backed
Notes, Class B (each, a "Class B Note"; and together with the Class A
Notes, the "Notes").
As security for the payment and performance by the Issuer of the
Secured Obligations (as defined below), the Issuer has agreed to assign the
Indenture Collateral (as defined below) as collateral to the Trustee on
behalf of the Noteholders.
GRANTING CLAUSE
The Issuer hereby Grants to the Trustee at the Closing Date, on
behalf of and for the benefit of the Noteholders (as defined below) to
secure the performance of the Secured Obligations and its compliance with
the covenants hereof, all of the Issuer's right, title and interest in (but
none of the obligations), to and under the following, whether now existing
or hereafter arising or acquired (collectively, the "Indenture
Collateral"):
(a) the Receivables, all monies received thereunder or in
respect thereof after the Cutoff Date and all Liquidation Proceeds
and recoveries received with respect to such Receivables;
(b) the security interests in the Financed Vehicles
granted by Obligors pursuant to the Receivables, and any other
interest of the Issuer in the Financed Vehicles, including the
certificates of title with respect to the Financed Vehicles;
(c) the Insurance Policies and any proceeds from any
Insurance Policies relating to the Receivables, the Obligors or
the related Financed Vehicles, including rebates or refunds of
premiums;
(e) rights against Dealers with respect to the Receivables
under the Dealer Agreements and the Dealer Assignments;
(f) the rights of the Seller under the Receivables
Purchase Agreement and the rights of the Issuer under the Sale and
Servicing Agreement;
(g) all funds on deposit from time to time in the
Collection Account and the Reserve Account, including all income
thereon and proceeds thereof; and
(h) all proceeds and investments of any of the foregoing,
all present and future claims, demands, causes and choses in
action in respect of any or all of the foregoing and all
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payments on or under and all proceeds of every kind and nature
whatsoever in respect of any of the foregoing.
The foregoing Grant is made in trust to secure the payment of the
Secured Obligations.
The Trustee, as Trustee on behalf of the Holders, acknowledges
such Grant, accepts the trusts under this Indenture in accordance with this
Indenture and agrees to perform its duties required in this Indenture to
the end that the interests of the Holders of the Notes may be adequately
and effectively protected.
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.1. Definitions. (a) Except as otherwise specified herein or
as the context may otherwise require, the following terms have the
respective meanings set forth below for all purposes of this Indenture:
"Act" has the meaning specified in Section 11.3(a).
"Authorized Officer" means, with respect to the Issuer, any
officer or agent acting pursuant to a power of attorney of the Owner
Trustee on behalf of the Issuer, as applicable, in matters relating to the
Issuer and who is identified on the list of Authorized Officers delivered
by the Owner Trustee to the Trustee on the Closing Date (as such list may
be modified or supplemented from time to time thereafter).
"Class" means any class of Notes.
"Class A Interest Rate" means ___% per annum, calculated on the
basis of a 360-day year consisting of twelve 30-day months.
"Class A Note" is defined in the recitals. Each Class A Note shall
be substantially in the form of Exhibit A.
"Class B Interest Rate" means ___% per annum, calculated on the
basis of a 360-day year consisting of twelve 30-day months.
"Class B Note" is defined in the recitals. Each Class B Note shall
be substantially in the form of Exhibit B.
"Closing Date" means ________ ___, ____.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time, and Treasury Regulations promulgated thereunder.
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<PAGE>
"Commission" shall mean the Securities and Exchange Commission.
"Corporate Trust Office" means the principal office of the Trustee
at which at any particular time its corporate trust business shall be
administered, which office at the date of the execution of this Indenture
is located at [Norwest Center, Sixth Street and Marquette Avenue,
Minneapolis, Minnesota 55479-0070, Attention: Corporate Trust
Services/Asset-Backed Administration]; or at such other address as the
Trustee may designate from time to time by notice to the Noteholders and
the Issuer, or the principal corporate trust office of any successor
Trustee (the address of which the successor Trustee shall notify the
Noteholders and the Issuer).
"Default" means any occurrence that is, or with notice or the
lapse of time or both would become, an Event of Default.
"Definitive Notes" shall mean definitive, fully registered Notes.
The Definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods (with or without
steel engraved borders), all as determined by the officers executing such
Notes, as evidenced by their execution of such Notes.
"Event of Default" has the meaning specified in Section 5.1.
"Eligible Account" means (i) A segregated trust account that is
maintained with the corporate trust department of the Trustee, or (ii) a
segregated direct deposit account maintained with a depository institution
or trust company organized under the laws of the United States of America,
or any of the States thereof or the District of Columbia, having a
certificate of deposit, short-term deposit or commercial paper rating of at
least ["D-1" by DCR (or, if not rated by DCR, "A-1" by Standard & Poor's or
"P-1" by Moody's)].
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Grant" means mortgage, pledge, bargain, sell, warrant, alienate,
remise, release, convey, assign, transfer, create and grant a lien upon and
a security interest in and right of set-off against, deposit, set over and
confirm pursuant to this Indenture, and other forms of the verb "to Grant"
shall have correlative meanings. A Grant of the Indenture 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
Indenture Collateral and all other moneys 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" means the Person in whose name a Note is registered on
the Note Register.
"Indenture" means this Indenture as amended or supplemented from
time to time.
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<PAGE>
"Indenture Collateral" has the meaning specified in the Granting
Clause of this Indenture.
"Independent" means, when used with respect to any specified
Person, that the Person: (a) is in fact independent of the Issuer, any
other obligor upon the Notes, Paragon and any Affiliate of any of the
foregoing Persons, (b) does not have any direct financial interest or any
material indirect financial interest in the Issuer, any such other obligor,
Paragon or any Affiliate of any of the foregoing Persons and (c) is not
connected with the Issuer, any such other obligor, Paragon 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" means a certificate or opinion to be
delivered to the Trustee under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 11.1, made
by an Independent appraiser or other expert duly licensed and of recognized
standing appointed by an Issuer Order, 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.
"Institutional Accredited Investor" means institutional investors
that are "accredited investors" as defined in Rule 501(a)(1), (2), (3) or
(7) of Regulation D promulgated under the Securities Act.
"Issuer" means Paragon Auto Receivables Owner Trust ____-_, until
a permitted successor replaces it and, thereafter, means such successor.
"Issuer Order" and "Issuer Request" means a written order or
request, respectively, signed in the name of the Issuer by any one of its
Authorized Officers and delivered to the Trustee.
"Noteholder" means a Holder.
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 2.4.
"Notes" is defined in the introduction hereto.
"Note Majority" means Holders of Class A Notes and Class B Notes
representing more than 50% of the Note Balance, or if there are no Class A
Notes Outstanding, Holders of Class B Notes representing more than 50% of
the Class B Note Balance, or if there are no Class B Notes Outstanding,
Holders of Class A Notes representing at least 50% of the Class A Note
Balance.
"Officers' Certificate" means a certificate signed by any two
Authorized Officers of the Issuer, under the circumstances described in,
and otherwise complying with, the applicable requirements of Section 11.1,
and delivered to the Trustee.
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"Opinion of Counsel" means one or more written opinions of
counsel, which counsel may be counsel to Paragon and which opinion shall be
reasonably satisfactory to the Trustee, and which shall comply with any
applicable requirements of Section 11.1.
"Outstanding" means, as of any date, all Notes theretofore
authenticated and delivered under this Indenture except:
(i) Notes theretofore cancelled 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 Trustee or any 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); and
(iii) Notes in exchange for or in lieu of other Notes
that have been authenticated and delivered pursuant to this
Indenture unless proof satisfactory to the Trustee is presented
that any such Notes are held by a bona fide purchaser;
provided, however, that in determining whether the Holders of the requisite
Note Balance have given any request, demand, authorization, direction,
notice, consent or waiver hereunder or under any Related Document, Notes
owned by the Issuer, any other obligor upon the Notes, Paragon or any
Affiliate of any of the foregoing Persons shall be disregarded and deemed
not to be Outstanding, except that, in determining whether the 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 Trustee actually knows to be so owned 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 Trustee
the pledgee's right so to act with respect to such Notes and that the
pledgee is not the Issuer, any other obligor upon the Notes, Paragon or any
Affiliate of any of the foregoing Persons.
"Owner Trustee" means [Wilmington Trust Company], not in its
individual capacity but solely as trustee of the Issuer.
"Paying Agent" means the Trustee or any other Person that meets
the eligibility standards for the Trustee specified in Section 6.11 and is
authorized by the Issuer to make the payments to and distributions from the
Collection Account, including payment of principal of or interest on the
Notes on behalf of the Issuer.
"Predecessor Note" means, with respect to any particular
Note, every previous Note evidencing all or a portion of the same debt as
that evidenced by such particular Note; and, for the purpose of this
definition, any Note authenticated and delivered under Section 2.5 in lieu
of a mutilated, lost, destroyed or stolen Note shall be deemed to evidence
the same debt as the mutilated, lost, destroyed or stolen Note.
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"Proceeding" means any suit in equity, action at law or other
judicial or administrative proceeding.
"Redemption Date" means the Payment Date specified by the Servicer
or the Issuer pursuant to Section 10.1.
"Redemption Price" means the aggregate unpaid principal amount of
the Notes to be redeemed, plus accrued and unpaid interest thereon at the
applicable interest rate to but excluding the related Redemption Date.
"Registered Holder" means the Person in whose name a Note is
registered on the Note Register on the applicable Record Date.
"Responsible Officer" means, with respect to the Trustee, any
officer within the Corporate Trust Office of the Trustee, including any
Vice President, Assistant Vice President, Secretary or Assistant Secretary,
or any other officer of the Trustee 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, in each case having responsibility with
respect to this Indenture.
"Sale and Servicing Agreement" means the Sale and Servicing
Agreement, dated as of ________ __, ____, between the Issuer, the Seller,
Paragon, in its individual capacity and as Servicer, and [Norwest Bank
Minnesota, National Association], as Trustee and as Backup Servicer, as the
same may be amended or supplemented from time to time.
"Secured Obligations" means all amounts and obligations that the
Issuer may at any time owe to or on behalf of the Trustee for the benefit
of the Noteholders under this Indenture or the Notes (including all
payments under the Notes).
"Securities Act" means the Securities Act of 1933, as amended.
"State" means any one of the 50 states of the United States of America
or the District of Columbia.
"Termination Date" means the date on which the Trustee shall have
received full and indefeasible payment and performance of all Secured
Obligations.
"TIA" means the Trust Indenture Act.
"Trust Estate" means all the 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, without limitation, all property and interests Granted to the
Trustee), including all proceeds thereof.
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"Trustee" means [Norwest Bank Minnesota, National Association],
not in its individual capacity but solely as Trustee under this Indenture,
or any successor Trustee under this Indenture.
"Underwriter" means ________________________.
(b) Except as otherwise specified herein or as the context may
otherwise require, the capitalized terms used herein but not defined have
the respective meanings set forth in the Sale and Servicing Agreement for
all purposes of this Indenture.
SECTION 1.2. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means Trustee.
"obligor" on the indenture securities means Issuer and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission
rule have the meaning assigned to them by such definitions.
SECTION 1.3. Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the
meaning assigned to it in accordance with generally accepted
accounting principles as in effect on the date hereof;
(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.
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ARTICLE II
The Notes
SECTION 2.1. Form. The Class A Notes and Class B Notes, together
with the Trustee's certificate of authentication, shall be in substantially
the forms set forth in Exhibits A and B, respectively, 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.
Each Note shall be dated the date of its authentication. The terms
of the Notes set forth in Exhibits A and 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 Issuer by any of its Authorized Officers.
The signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who
were at any time Authorized Officers of the Issuer shall bind the Issuer,
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 Trustee shall upon receipt of an Issuer Order authenticate and
deliver Class A Notes and Class B Notes for original issue in an aggregate
principal amount of $_____________ and $____________, respectively. The
Class A Note Balance and Class B Note Balance at any time may not exceed
such respective amounts.
Each Note shall be dated the date of its authentication. The Notes
shall be issuable as registered Notes in the minimum denomination of
$________ and in integral multiples of $1,000 in excess thereof; provided,
however, that one Note of each Class may be issued in an additional amount
equal to any remaining portion of the original Note Balance for such Class.
No Note shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by the manual signature of one of its authorized
signatories, and such certificate of authentication shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated
and delivered hereunder.
SECTION 2.3. Temporary Notes. Pending the preparation of
Definitive Notes, the Issuer may execute, and upon receipt of an Issuer
Order, the Trustee shall authenticate and deliver, temporary Notes that are
printed, lithographed, typewritten, mimeographed or otherwise produced, of
the tenor of the Definitive Notes in lieu of which they are issued and with
such variations not
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inconsistent with this Indenture as the officers executing such Notes may
determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Issuer will cause Definitive
Notes to be prepared without unreasonable delay. After the preparation of
Definitive Notes, the temporary Notes shall be exchangeable for Definitive
Notes upon surrender of the temporary Notes at the office or agency of the
Issuer 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 Issuer shall execute and the Trustee shall authenticate and deliver in
exchange therefor a like principal amount of Definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall in all
respects be entitled to the same benefits under this Indenture as
Definitive Notes.
SECTION 2.4. Registration; Registration of Transfer and Exchange.
The Issuer shall cause to be kept a register (the "Note Register") in
which, subject to such reasonable regulations as it may prescribe, the
Issuer shall provide for the registration of Notes and the registration of
transfers of Notes. The Trustee shall be the "Note Registrar" for the
purpose of registering Notes and transfers of Notes as herein provided.
Upon any resignation of any Note Registrar, the Issuer shall promptly
appoint a successor or, if it elects not to make such an appointment,
assume the duties of the Note Registrar.
If a Person other than the Trustee is appointed by the Issuer as
the Note Registrar, the Issuer will give the 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 Trustee shall have
the right to inspect the Note Register at all reasonable times, to obtain
copies thereof, and to rely upon a certificate executed on behalf of the
Note Registrar by an Executive 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 of transfer of any Note at the
office or agency of the Issuer to be maintained as provided in Section 3.2,
if the requirements of Section 8-401(1) of the UCC are met, the Issuer
shall deliver an Issuer Request to the Trustee and the Issuer shall
execute, the Trustee shall authenticate and the Noteholder shall obtain
from the Trustee, in the name of the designated transferee or transferees,
one or more new Notes in any authorized denominations of a like aggregate
principal amount.
At the option of the Holder, Notes may be exchanged for other new
Notes of the same Class in any authorized denominations of a like aggregate
principal amount, upon surrender of the Notes to be exchanged at such
office or agency. Whenever any Notes are so surrendered for exchange, if
the requirements of Section 8-401(1) of the UCC are met, the Issuer shall
deliver an Issuer Request to the Trustee and the Issuer shall execute, the
Trustee shall authenticate and the Noteholder shall obtain from the
Trustee, the Notes that the Noteholder making the exchange is entitled to
receive.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Issuer, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Notes
surrendered upon such registration of transfer or exchange.
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Every Note presented or surrendered for registration of transfer
or exchange shall be duly endorsed by, or be accompanied by a written
instrument of transfer in form satisfactory to the Trustee 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.
No service charge shall be made to a Holder for any registration
of transfer or exchange of Notes, but the Issuer or the Trustee 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 9.5 not
involving any transfer.
SECTION 2.5. Mutilated, Destroyed, Lost or Stolen Notes. If (i)
any mutilated Note is surrendered to the Trustee, or the Trustee receives
evidence to its satisfaction of the destruction, loss or theft of any Note,
and (ii) there is delivered to the Trustee such security or indemnity as
may be reasonably required by the Trustee and the Issuer to hold the Issuer
and the Trustee, respectively, harmless, then, in the absence of notice to
the Issuer, the Note Registrar or the Trustee that such Note has been
acquired by a bona fide purchaser, and provided that the requirements of
Section 8- 405 of the UCC are met, the Issuer shall execute, and upon its
request the Trustee shall authenticate and deliver, in exchange for or in
lieu of any such mutilated, destroyed, lost or stolen Note, a replacement
Note of the same Class; provided, however, that if any such destroyed, lost
or stolen Note, but not a mutilated Note, shall have become, or within
seven days shall be, due and payable, or shall have been called for
redemption, instead of issuing a replacement Note, the Issuer may pay such
destroyed, lost or stolen Note when so due or payable or upon the
Redemption Date without surrender thereof. If, after the delivery of such
replacement Note (or payment of a destroyed, lost or stolen Note pursuant
to the proviso to the preceding sentence), a bona fide purchaser of the
original Note in lieu of which such replacement Note was issued presents
for payment such original Note, the Issuer and the Trustee shall be
entitled to recover such replacement Note (or such payment) from the Person
to whom it was delivered or any Person taking such replacement Note from
such Person to whom such replacement Note was delivered (or payment made)
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 Issuer or the
Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section 2.5,
the Issuer or the Trustee may require the payment by the Holder of such
Note of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other reasonable expenses
(including the fees and expenses of the Trustee) connected therewith.
Every replacement Note issued pursuant to this Section 2.5 in
replacement of any mutilated, destroyed, lost or stolen Note shall
constitute an original additional contractual obligation of the Issuer,
whether or not the mutilated, destroyed, lost or stolen Note shall be at
any time enforceable by anyone, and shall be entitled to all the benefits
of this Indenture equally and proportionately with any and all other Notes
duly issued hereunder.
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The provisions of this Section 2.5 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 Owners. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Trustee and any agent
of the Issuer or the Trustee may treat the Person in whose name any Note is
registered as of the preceding Record Date as the owner of such Note for
the purpose of receiving payments of principal of and interest, if any, on
such Note and for all other purposes whatsoever, whether or not such Note
be overdue, and neither the Issuer nor the Trustee nor any agent thereof
shall be affected by notice to the contrary.
SECTION 2.7. Payment of Principal and Interest; Defaulted
Interest. (a) The Class A Notes and Class B Notes shall accrue interest at
the Class A Interest Rate and the Class B Interest Rate, respectively, and
such interest shall be payable on each Payment Date, as and to the extent
provided in Section 4.5 of the Sale and Servicing Agreement and Section 3.1
of this Indenture. Any installment of interest or principal, if any,
payable on any Note that is punctually paid or duly provided for by the
Issuer on the applicable Payment Date shall be paid to the Person in whose
name such Note (or one or more Predecessor Notes) is registered on the
related Record Date, by wire transfer of immediately available funds, or
(if such Person has not delivered to the Trustee in writing instructions
with respect to effecting a wire transfer to such Person) by check mailed
first-class, postage prepaid to such Person's address as it appears on the
Note Register on such Record Date. Notwithstanding the above, the final
installment of principal payable with respect to the Notes (and except for
the Redemption Price for any Note called for redemption pursuant to Section
10.1) shall be payable as provided in Section 2.7(b)(ii). The funds
represented by any such checks returned undelivered shall be held in
accordance with Section 3.3.
(b)(i) The principal of each Note shall be payable in installments
on each Payment Date (including the Final Scheduled Payment Date) as and to
the extent provided in this Indenture and in Section 4.5 of the Sale and
Servicing Agreement. Notwithstanding the foregoing (and subject to the
provisions of Sections 5.1 and 5.2), the entire Note Balance shall be due
and payable, ratably to all Noteholders, on the date on which an Event of
Default shall have occurred and be continuing if the Trustee or a Note
Majority has declared the Notes to be immediately due and payable in the
manner provided in Section 5.2.
(ii) The Trustee shall notify the Person in whose name a
Note is registered at the close of business on the Accounting Date
preceding the Payment Date on which the Issuer expects that the
final installment of principal of and interest on such Note will
be paid. Such notice shall be mailed no later than five days prior
to such final Payment Date and shall specify that such final
installment will be payable only upon presentation and surrender
of such Note and shall specify the place where such Note may be
presented and surrendered for payment of such installment. Notices
in connection with redemptions of Notes shall be mailed to
Noteholders as provided in Section 10.2.
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(c) If the Issuer defaults in a payment of interest on the Notes,
the Issuer shall pay, in any lawful manner, defaulted interest (plus
interest on such defaulted interest to the extent lawful) at the applicable
interest rate from the Payment Date for which such payment is in default.
The Issuer may pay such defaulted interest to the Persons who are
Noteholders on a subsequent Payment Date.
SECTION 2.8. Cancellation. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to
any Person other than the Trustee, be delivered to the Trustee and shall be
promptly cancelled by the Trustee. The Issuer may at any time deliver to
the Trustee for cancellation any Notes previously authenticated and
delivered hereunder that the Issuer may have acquired in any manner
whatsoever, and all Notes so delivered shall be promptly cancelled by the
Trustee. No Notes shall be authenticated in lieu of or in exchange for any
Notes cancelled as provided in this Section except as expressly permitted
by this Indenture. All cancelled Notes may be held or disposed of by the
Trustee in accordance with its standard retention or disposal policy as in
effect at the time.
SECTION 2.9. Release of Collateral. Subject to Section 11.1 and
the Related Documents and except (i) in connection with the discharge, in
the ordinary course of business, by the Servicer of its servicing
obligations under Article III of the Sale and Servicing Agreement, (ii) in
connection with any of the activities referred to in Section 11.1(b)(v), or
(iii) in accordance with Sections 2.3, 2.5 and 2.6 of the Sale and
Servicing Agreement, the Trustee shall release property from the lien of
this Indenture only upon receipt of an Issuer Request accompanied by an
Officers' Certificate and an Opinion of Counsel and the Trustee (acting at
the written instruction of Holders representing the Note Majority).
SECTION 2.10. Definitive Notes. Upon issuance of Definitive Notes,
the Trustee shall recognize the Holders of the Definitive Notes as Noteholders.
ARTICLE III
Covenants
SECTION 3.1. Payment of Principal and Interest. The Issuer shall
duly and punctually pay the principal and interest, if any, on the Notes in
accordance with the terms of the Notes and this Indenture. Without limiting
the foregoing, the Issuer shall distribute (or cause to be distributed) the
amounts on deposit in the Collection Account on each Payment Date for the
benefit of the Class A Notes and Class B Notes, respectively, as and to the
extent provided in Section 4.5 of the Sale and Servicing Agreement to
Holders of the Notes. Amounts properly withheld under the Code or any
applicable State law by any Person from a payment to any Noteholder of
interest and/or principal shall be considered as having been paid by the
Issuer to such Noteholder for all purposes of this Indenture.
SECTION 3.2. Maintenance of Office or Agency. The Trustee shall
maintain in the city of [Minneapolis, Minnesota] an office or agency where
Notes may be surrendered for registration of transfer or exchange, and
where notices and demands to or upon the Issuer in respect of the Notes
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and this Indenture may be served. The Issuer hereby initially appoints the
Trustee to serve as its agent for the foregoing purposes. The Trustee shall
give prompt written notice to the Issuer of the location, and of any change
in the location, of any such office or agency. If at any time the Trustee
shall fail to maintain any such office or agency or shall fail to furnish
the Issuer with the address thereof, such surrenders, notices and demands
may be made or served at the Corporate Trust Office, and the Issuer hereby
appoints the Trustee as its agent to receive all such surrenders, notices
and demands.
SECTION 3.3. Money for Payments To Be Held in Trust. As provided
in Section 8.2(a), all payments of amounts due and payable with respect to
any Notes that are to be made from amounts withdrawn from the Collection
Account pursuant to Section 8.2(b) shall be made on behalf of the Issuer by
the Trustee or by another Paying Agent, and no amounts so withdrawn from
the Collection Account for payments of Notes shall be paid over to the
Issuer, except as provided in this Section 3.3 and Section 4.5 of the Sale
and Servicing Agreement.
On or before each Payment Date (including the Final Scheduled
Payment Date) and Redemption Date, the Issuer shall deposit or cause to be
deposited in the Collection Account an aggregate sum sufficient to pay the
amounts then becoming due under the Notes as and to the extent provided in
Section 4.5 of the Sale and Servicing Agreement, such sum to be held in
trust for the benefit of the Persons entitled thereto.
The Issuer shall cause each Paying Agent (other than the Trustee)
to execute and deliver to the Trustee an instrument in which such Paying
Agent shall agree with the Trustee (and if the Trustee acts as Paying
Agent, it hereby so agrees), subject to the provisions of this Section 3.3,
that such Paying Agent shall:
(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 Trustee written notice of any Default by
the Issuer (or any other obligor upon the Notes) of which it has
actual knowledge 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 Trustee, forthwith pay to
the Trustee all sums so held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith
pay to the 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 Paying Agent; and
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(v) comply with all requirements of the Code with respect
to the withholding from any payments made by it on any Notes of
any applicable withholding taxes imposed thereon and with respect
to any applicable reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by
Issuer Order, direct any Paying Agent to pay to the Trustee all sums held
in trust by such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which the sums were held by such Paying Agent;
and upon such payment by any Paying Agent to the Trustee, such Paying Agent
shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any
money held by the Trustee or any 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 upon Issuer Request shall be deposited by the Trustee in the
Collection Account; and the Holder of such Note shall thereafter, as an
unsecured general creditor, look only to the Issuer for payment thereof
(but only to the extent of the amounts so paid to the Issuer), and all
liability of the Trustee or such Paying Agent with respect to such trust
money shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, shall at
the expense and direction of the Issuer 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
Issuer. The Trustee shall also adopt and employ, at the expense of the
Issuer, any other reasonable means of notification of such repayment
(including 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 moneys due and payable but not claimed is determinable from
the records of the Trustee or of any Paying Agent, at the last address of
record for each such Holder).
SECTION 3.4. Existence. The Issuer shall keep in full effect its
existence, rights and franchises as a trust under the laws of The State of
Delaware and shall 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
Indenture Collateral and each other instrument or agreement included in the
Trust Estate or to enforce its rights under the Receivables and with
respect to the Financed Vehicles.
SECTION 3.5. Protection of the Trust Estate. The Issuer intends
the security interest Granted pursuant to this Indenture in favor of the
Noteholders to be prior to all other liens in respect of the Trust Estate,
and the Issuer shall take all actions necessary to obtain and maintain, in
favor of the Trustee for the benefit of the Noteholders, a first lien on
and a first priority, perfected security interest in the Trust Estate. The
Issuer shall from time to time execute and deliver all such supplements and
amendments hereto and all such financing statements, continuation
statements,
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instruments of further assurance and other instruments, and shall take such
other action necessary or advisable to:
(i) Grant more effectively all or any portion of the
Trust Estate;
(ii) maintain the Trust Estate free and clear of all
prior liens;
(iii) maintain or preserve the lien and security interest
(and the priority thereof) in favor of the Trustee for the benefit
of the Noteholders created by this Indenture or carry out more
effectively the purposes hereof;
(iv) perfect, publish notice of or protect the validity
of any Grant made or to be made by this Indenture;
(v) enforce any of the Indenture Collateral;
(vi) preserve and defend title to the Trust Estate and
the rights of the Trustee and the Noteholders in such Trust Estate
against the claims of all Persons; and
(vii) pay all taxes or assessments levied or assessed
upon the Trust Estate when due.
The Issuer hereby designates the Trustee as its agent and attorney-in-fact
to execute any financing statement, continuation statement, instrument of
further assurance or other instrument required to be executed to accomplish
the foregoing; provided, however, that the Trustee shall not be obligated
to execute such instruments except upon written instruction from the
Servicer or the Issuer, except, that such instruction need not be in
writing if delivered with respect to instruments to be executed by the
Trustee on the Closing Date.
SECTION 3.6. Opinion as to the Trust Estate. On the Closing Date
the Issuer shall furnish to the Trustee an Opinion of Counsel either
stating that, in the opinion of such counsel, such action has been taken
with respect to the execution and filing of any financing statements and
continuation statements as are necessary to perfect and make effective the
first priority lien and security interest in the Receivables and the
proceeds thereof in favor of the Trustee for the benefit of the Noteholders
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.
SECTION 3.7. Performance of Obligations; Servicing of Receivables.
(a) The Issuer shall not take, or fail to take, any action and shall use
its best efforts not to permit any action to be taken by others that would
release any Person from any material covenants or obligations under any
instrument or agreement included in the Trust Estate 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 expressly provided in this Indenture, the Sale and
Servicing Agreement or such other instrument or agreement.
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(b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such
duties by a Person identified to the Trustee in an Officers' Certificate of
the Issuer shall be deemed to be action taken by the Issuer. Pursuant to
the Sale and Servicing Agreement, the Issuer has contracted with the
Servicer to assist the Issuer in performing its duties under the Notes and
this Indenture.
(c) The Issuer shall perform and observe all of its obligations
and agreements contained in this Indenture, the other Related Documents and
in the instruments and agreements included in the Trust Estate, including
filing or causing to be filed any UCC financing statements and continuation
statements required to be filed by this Indenture and the Sale and
Servicing Agreement in accordance with and within the time periods provided
for herein and therein.
(d) If the Issuer shall have knowledge of the occurrence of a
Servicer Termination Event under the Sale and Servicing Agreement, the
Issuer shall promptly notify the Trustee and the Rating Agency thereof in
writing, and shall specify in such notice the action, if any, the Issuer is
taking with respect thereto. 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 Issuer shall take all reasonable steps available to it to
remedy such failure.
(e) If notice of termination has been given to the Servicer of the
Servicer's rights and powers pursuant to Section 8.2 of the Sale and
Servicing Agreement, the Backup Servicer or another successor Servicer
shall be appointed as successor Servicer in accordance with Section 8.3 of
the Sale and Servicing Agreement.
(f) Upon any termination of the Servicer's rights and powers
pursuant to the Sale and Servicing Agreement, the Issuer shall promptly
notify the Trustee. As soon as a successor Servicer is appointed, the
Issuer shall notify the Trustee of such appointment, specifying in such
notice the name and address of such successor Servicer.
(g) The Issuer agrees that it shall not waive timely performance
or observance by the Servicer, the Backup Servicer or Paragon of their
respective duties under Related Documents if the effect thereof would
adversely affect the Holders.
SECTION 3.8. Negative Covenants. So long as any Notes are
Outstanding, the Issuer shall not:
(i) except as expressly permitted by this Indenture or
the Sale and Servicing Agreement, sell, transfer, exchange or
otherwise dispose of any of the properties or assets of the
Issuer, including those included in the Trust Estate;
(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
applicable State law) or assert any claim against any present or
former
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Noteholder by reason of the payment of the taxes levied or assessed
upon any part of the Trust Estate; or
(iii)(A) permit the validity or effectiveness of this Indenture
to be impaired, or permit the lien of 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 Estate or any part
thereof or any interest therein or the proceeds thereof (other
than any liens which are junior to or are otherwise subordinated
to the lien in favor of the Trustee (and to which the Trustee has
consented in writing) and tax liens, mechanics' liens and other
liens that arise by operation of law, in each case on a Financed
Vehicle and arising solely as a result of an action or omission of
the related Obligor), or (C) permit the lien of this Indenture not
to constitute a valid first priority (other than with respect to
any such tax lien, mechanics' lien or other lien not considered a
lien) security interest in the Trust Estate.
SECTION 3.9. Annual Statement as to Compliance. The Issuer will
deliver to the Trustee on or before April 30 of each year, commencing April
30, ____, the officers' certificate specified in Section 3.10 of the Sale
and Servicing Agreement.
SECTION 3.10. Issuer May Consolidate, etc., Only on Certain Terms.
(a) The Issuer shall not consolidate or merge with or into any other
Person, unless:
(i) the Person (if other than the Issuer) formed by or
surviving such consolidation or merger shall be a Person organized
and existing under the laws of the United States of America or any
State and shall expressly assume, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the due and punctual payment of the
principal of and interest on all Notes and the performance or
observance of every agreement and covenant of this Indenture on
the part of the Issuer to be performed or observed, all as
provided herein;
(ii) immediately after giving effect to such transaction,
no Default or Event of Default shall have occurred and be
continuing;
(iii) the Rating Agency Condition shall have been
satisfied with respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel
(and shall have delivered copies thereof to the Trustee) to the
effect that such transaction will not have any material adverse
tax consequence to any Noteholder;
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(v) any action that is necessary to maintain the lien and
security interest created by this Indenture shall have been taken;
and
(vi) the Issuer shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel each stating that
such consolidation or merger and such supplemental indenture
comply with this Section 3.10 and that all conditions precedent
provided for in this Section 3.10 relating to such transaction
have been complied with (including any filing required by the
Exchange Act).
(b) The Issuer shall not convey or transfer all or substantially
all of its properties or assets, including those included in the Trust
Estate, to any Person, unless:
(i) the Person that acquires by conveyance or transfer
the properties and assets of the Issuer the conveyance or transfer
of which is hereby restricted shall: (A) be a United States
citizen or a Person organized and existing under the laws of the
United States of America or any State, (B) expressly assumes, by
an indenture supplemental hereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, the due and punctual
payment of the principal of and interest on all Notes and the
performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed,
all as provided herein, (C) expressly agrees by means of such
supplemental indenture that all right, title and interest so
conveyed or transferred shall be subject and subordinate to the
rights of Holders of the Notes, (D) unless otherwise provided in
such supplemental indenture, expressly agrees to indemnify, defend
and hold harmless the Issuer against and from any loss, liability
or expense arising under or related to this Indenture and the
Notes, and (E) expressly agrees by means of such supplemental
indenture that such Person (or if a group of Persons, then one
specified Person) shall make any filings with the Commission (and
any other appropriate Person) required by the Exchange Act in
connection with the Notes;
(ii) immediately after giving effect to such transaction,
no Default or Event of Default shall have occurred and be
continuing;
(iii) the Rating Agency Condition shall have been
satisfied with respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel
(and shall have delivered copies thereof to the Trustee) to the
effect that such transaction will not have any material adverse
tax consequence to any Noteholder;
(v) any action that is necessary to maintain the lien and
security interest created by this Indenture shall have been taken;
and
(vi) the Issuer shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel each stating that
such conveyance or transfer and such supplemental
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indenture comply with this Section 3.10 and that all conditions
precedent provided for in this Section 3.10 relating to such
transaction have been complied with (including any filing required
by the Exchange Act).
SECTION 3.11. Successor or Transferee. (a) Upon any consolidation
or merger of the Issuer in accordance with Section 3.10(a), the Person
formed by or surviving such consolidation or merger (if other than the
Issuer) shall succeed to, and be substituted for, and may exercise every
right and power of, the Issuer under this Indenture with the same effect as
if such Person had been named as the Issuer herein.
(b) Upon a conveyance or transfer of all or substantially all the
assets and properties of the Issuer pursuant to Section 3.10(b), the Issuer
shall be released from every covenant and agreement of this Indenture to be
observed or performed on the part of the Issuer with respect to the Notes
immediately upon the delivery of written notice to the Trustee stating that
the Issuer is to be so released.
SECTION 3.12. No Other Business. The Issuer shall not engage in
any business other than financing, purchasing, owning, selling and managing
of the Receivables in the manner contemplated by this Indenture and the
other Related Documents and activities incidental thereto.
SECTION 3.13. No Borrowing. The Issuer shall not issue, incur,
assume, guarantee or otherwise become liable, directly or indirectly, for
any indebtedness except for (i) the Notes and (ii) any other indebtedness
permitted by the Related Documents. The proceeds of the Notes shall be used
to fund the initial deposit in the Reserve Account pursuant to Section 5.1
of the Sale and Servicing Agreement, to purchase the Receivables and to pay
the Issuer's organizational, transactional and start up expenses. Net
amounts remaining after such payments shall be distributed by the Issuer to
the Certificateholder(s). The Issuer shall incur no additional borrowed
money indebtedness secured by the Trust Estate other than the Notes.
SECTION 3.14. Servicer's Obligations. The Issuer shall cause the
Servicer to comply with Article III 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 Issuer 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 Issuer shall not make any
expenditure (by long- term or operating lease or otherwise) for capital
assets (either realty or personalty).
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SECTION 3.17. Notice of Events of Default. The Issuer shall give
the Trustee and the Rating Agency prompt written notice of each Event of
Default hereunder and each default on the part of the Servicer or Paragon
of its obligations under the Sale and Servicing Agreement, in each case of
which it becomes aware.
SECTION 3.18. Further Instruments and Acts. Upon request of the
Trustee, the Issuer shall 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 3.19. Compliance with Laws. The Issuer 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 Issuer to perform its obligations under the Notes, this
Indenture or any Related Document.
SECTION 3.20. Tax Treatment. The Issuer has structured this
Indenture and the Notes with the intention that the Notes will qualify
under applicable federal, state and local tax law as indebtedness. The
Issuer and each Holder agrees to treat, and take no action inconsistent
with the treatment of, the Notes (or any beneficial interest therein) as
indebtedness for purposes of federal, state and local income or franchise
taxes and any other tax imposed on or measured by income. Each Holder, by
acquisition of a beneficial interest in a Note, agrees to be bound by the
provisions of this Section 3.20.
SECTION 3.21. Investment Company Act. The Issuer shall conduct its
operations in a manner that will not subject it to registration as an
"investment company" under the Investment Company Act of 1940, as amended.
SECTION 3.22. Liens. The Issuer shall not contract for, create,
incur or suffer to exist any Lien upon any of its property or assets,
whether now owned or hereafter acquired, except for Permitted Liens.
SECTION 3.23. Conduct of Business. The Issuer shall (a) 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 Issuer with
which those others are concerned, and particularly shall use its best
efforts to avoid the appearance of conducting business on behalf of
Paragon, the Seller or any Affiliate thereof or that the assets of the
Issuer are available to pay the creditors of Paragon, the Seller or any
Affiliate thereof or any other entity; (b) maintain records and books of
account separate from those of Paragon, the Seller or any Affiliate thereof
or any other entity; (c) use its best efforts to maintain an arm's-length
relationship with Paragon, the Seller or any Affiliate thereof and shall
not hold itself out as being liable for the debts of Paragon, the Seller or
any Affiliate thereof or any other entity; (d) use its best efforts to keep
its assets and its liabilities wholly separate from those of all other
entities, including Paragon, the Seller or any Affiliate thereof, except as
otherwise anticipated by the Related Documents; (e) not maintain bank
accounts or other depository accounts to which any Affiliate (other than
the Seller in its capacity as sole Certificateholder of the Issuer) is an
account party, into which any Affiliate (other than the Seller in its
capacity as sole Certificateholder of the
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Issuer) makes deposits or from which any Affiliate (other than the Seller
in its capacity as sole Certificateholder of the Issuer) has the power to
make withdrawals, except as otherwise permitted by Sections 3.2 and 4.2 of
the Sale and Servicing Agreement; (f) shall obtain proper authorization for
all the Issuer's actions requiring such authorization; (g) shall obtain
proper authorization from the Seller and its other Certificateholders, if
any, for all action requiring approval of the Seller and its other
Certificateholders, if any; (h) shall pay operating expenses and
liabilities from the Issuer's own funds; (i) shall disclose in its annual
financial statements the effects of the Issuer's transactions under the
Related Documents in accordance with generally accepted accounting
principles and shall disclose that the assets of the Issuer are not
available to pay creditors of Paragon; (j) shall continuously maintain the
resolutions, agreements and other instruments underlying the transactions
described in the Related Documents as official records; and (k) shall
insure that any consolidated financial statements of Paragon has notes to
the effect that the Issuer is a separate entity whose creditors have a
claim on its assets prior to those assets becoming available to its equity
holders.
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 3.2, 3.3 and 3.20, (v) the rights, obligations and immunities
of the Trustee hereunder (including the rights of the Trustee under Section
6.7 and the obligations of the Trustee under Section 4.2) and (vi) the
rights of Noteholders as beneficiaries hereof with respect to the property
so deposited with the Trustee payable to all or any of them, and the
Trustee, on demand of and at the expense of the Issuer, shall execute
proper instruments acknowledging satisfaction and discharge of this
Indenture with respect to the Notes, when:
(A) 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 Issuer and
thereafter repaid to the Issuer or discharged from such trust, as
provided in Section 3.3) have been delivered to the Trustee for
cancellation;
(B) the Issuer has paid or caused to be paid all other
sums payable hereunder by the Issuer; and
(C) the Issuer has delivered to the Trustee an Officers'
Certificate, an Opinion of Counsel and (if required by the
Trustee) an Independent Certificate from a firm of certified
public accountants, each meeting the applicable requirements of
Section 11.1(a) and, subject to Section 11.2, each stating that
all conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been complied
with.
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SECTION 4.2. Payment of Moneys Held by Paying Agent. In connection
with the satisfaction and discharge of this Indenture with respect to the
Notes, all moneys then held by any Paying Agent other than the Trustee
under this Indenture with respect to such Notes shall, upon demand of the
Issuer, be paid to the Trustee to be held and applied according to Section
3.3 and Section 4.5 of the Sale and Servicing Agreement, and thereupon such
Paying Agent shall be released from all further liability with respect to
such moneys.
SECTION 4.3. Release of Trust Estate. The Trustee shall, on or
after the Termination Date, release any remaining portion of the Trust
Estate from the lien created by this Indenture. Subject to Section 2.9, the
Trustee shall release property from the lien created by this Indenture
pursuant to this Section 4.3 only upon receipt of a written request of the
Issuer accompanied by an Officer's Certificate.
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 Governmental
Authority):
(i) default in the payment of any interest on any Note
when the same becomes due and payable, and such default shall
continue for a period of five days;
(ii) default in the payment of the principal of any Note
when the same becomes due and payable;
(iii) default in the observance or performance of any
covenant or agreement of the Issuer made in this Indenture (other
than a covenant or agreement a default in the observance or
performance of which is elsewhere in this Section 5.1 specifically
dealt with), or any representation or warranty of the Issuer made
in this Indenture or in any certificate or other writing delivered
pursuant hereto or in connection herewith 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
Issuer by the Trustee or to the Issuer and the Trustee by the
Holders of at least 25% of the Note Balance, a written notice
specifying such default or incorrect representation or warranty
and requiring it to be remedied and stating that such notice is a
"Notice of Default" hereunder;
(iv) the filing of a petition for relief by a court
having jurisdiction in the premises in respect of the Issuer, the
Seller or any substantial part of its property in an involuntary
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case under any applicable Federal or State bankruptcy, insolvency
or other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official of the Issuer, the Seller or for any
substantial part of its property, or ordering the winding-up or
liquidation of the affairs of the Issuer or the Seller, and such
petition shall remain unstayed and in effect for a period of 60
consecutive days;
(v) the commencement by the Issuer or the Seller 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 Issuer or the Seller to the entry of an order for
relief in an involuntary case under any such law, or the consent
by the Issuer or the Seller to the appointment or taking
possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of the Issuer or the
Seller or for any substantial part of its property, or the making
by the Issuer or the Seller of any general assignment for the
benefit of creditors, or the failure by the Issuer or the Seller
generally to pay its debts as such debts become due, or the taking
of action by the Issuer or the Seller in furtherance of any of the
foregoing; or
(vi) the failure to pay the Note Balance of any Class of
Notes on the Final Scheduled Payment Date for such Class of Notes.
The Issuer shall deliver to the Trustee, the Noteholders and the
Rating Agency, within five days after the occurrence thereof, written
notice in the form of an Officers' Certificate of any event that, with the
giving of notice or the lapse of time or both, would become an Event of
Default under clause (iii), its status and what action the Issuer is taking
or proposes to take with respect thereto.
SECTION 5.2. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default shall have occurred and be continuing, the Trustee
in its discretion may, or if so requested in writing by Holders of Notes
representing the Note Majority shall, declare by written notice to the
Issuer that the Notes become, whereupon they shall become, immediately due
and payable, together with accrued and unpaid interest thereon.
Notwithstanding anything to the contrary in this Section 5.2, if an Event
of Default specified in Section 5.1(iv) or (v) shall occur and be
continuing, the Notes shall become immediately due and payable at par,
together with accrued interest thereon.
At any time after such declaration of acceleration of maturity has
been made by the Trustee and before a judgment or decree for payment of the
money due has been obtained by the Trustee as hereinafter in this Article V
provided, the Note Majority, by written notice to the Issuer and the
Trustee, may rescind and annul such declaration and its consequences if:
(i) the Issuer has paid or deposited with the 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 Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the 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 Trustee. (a) The Issuer covenants that if the Notes are accelerated
following the occurrence of an Event of Default, the Issuer will, upon
demand of the Trustee, pay to it as and to the extent provided in Section
4.5 of the Sale and Servicing Agreement, for the benefit of the Holders of
Notes, the whole amount then due and payable on such Notes for principal
and interest, 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 Trustee and its agents and counsel.
(b) If an Event of Default occurs and is continuing, the Trustee
may, as more particularly provided in Section 5.4, proceed to protect and
enforce its rights and the rights of the Noteholders, by such appropriate
Proceedings as the Trustee 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 Trustee by this Indenture or by law.
(c) If there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership
interest in the Trust Estate, 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, trustee in
bankruptcy or reorganization, liquidator, sequestrator or similar official
shall have been appointed for or taken possession of the Issuer or its
property or such other obligor or Person, or in case of any other
comparable judicial Proceedings relative to the Issuer or other obligor
upon the Notes, or to the creditors or property of the Issuer or such other
obligor, the 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 Trustee shall have made any
demand pursuant to this Section 5.3, 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 Trustee
(including any claim for reasonable compensation to the Trustee
and each predecessor Trustee, and their respective agents,
attorneys and counsel, and for reimbursement of all expenses and
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liabilities incurred, and all advances made, by the Trustee and
each predecessor Trustee, except as a result of negligence or bad
faith) and of the Noteholders allowed in such Proceedings;
(ii) unless prohibited by applicable law or regulations,
to vote on behalf of the Holders of the Notes in any election of a
trustee, a standby trustee or any Person performing similar
functions in any such Proceedings;
(iii) to collect and receive any moneys 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 Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the
claims of the Trustee or the Holders of Notes allowed in any
Proceedings relative to the Issuer, its creditors and its
property;
and any trustee, receiver, liquidator, assignee, custodian, sequestrator or
other similar official in any such Proceeding is hereby authorized by each
of such Noteholders to make payments to the Trustee, and, if the Trustee
shall consent to the making of payments directly to such Noteholders, to
pay to the Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Trustee, each predecessor Trustee and their respective
agents, attorneys and counsel, and all other expenses and liabilities
incurred, and all advances made, by the Trustee and each predecessor
Trustee except as a result of negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the
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 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, or under any of the Notes may be enforced by the 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 Trustee shall be brought in its own name and as trustee
of an express trust, and any recovery of judgment, subject to the payment
of the expenses, disbursements and compensation of the Trustee, each
predecessor Trustee and their respective agents and attorneys, shall be for
the ratable benefit of the Holders of the Notes.
(g) In any Proceedings brought by the Trustee or to which the
Trustee shall be a party (and also any Proceedings involving the
interpretation of any provision of this Indenture), the 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.
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SECTION 5.4. Remedies; Priorities. (a) If an Event of Default shall
have occurred and be continuing, the Trustee may or shall, at the direction of
the Note Majority (subject to Section 5.5) exercise any one or more of the
following remedies, whether sequentially or concurrently:
(i) institute Proceedings in its own name and as or on
behalf of a 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 Issuer and any other
obligor upon such Notes moneys adjudged due;
(ii) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture with respect to
the Trust Estate;
(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 Noteholders;
(iv) sell the Trust Estate, 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;
(v) elect to have the Issuer maintain possession of the
Receivables and continue to apply collections on such Receivables
as if there had been no declaration of acceleration; and
(vi) make demand upon the Servicer, by written notice,
that the Servicer deliver to the Trustee all Receivable Files;
provided, however, that the Trustee may not sell or otherwise liquidate the
Trust Estate following an Event of Default, other than an Event of Default
described in Section 5.1(i) or (ii), unless: (A) all the Noteholders
consent thereto, (B) 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 (C) the Trustee
determines that the Trust Estate 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 Trustee provides prior written notice to the Rating Agency and
obtains the consent of Holders of the Note Majority. In determining such
sufficiency or insufficiency with respect to clauses (B) and (C) above, the
Trustee may, but need not, obtain and rely 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 Estate for such purpose.
(b) If the Trustee collects any money or property pursuant to this
Article V, it shall pay out such money or property according to the
priorities set forth in Section 4.5 of the Sale and Servicing Agreement.
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The Trustee may fix a special record date and special payment date
for any payment to Noteholders pursuant to this Section. At least 15 days
before such special record date, the Trustee shall mail to each Noteholder
and the Issuer a notice that states the special record date, the special
payment date and the amount to be paid.
SECTION 5.5. Optional Preservation of the Receivables. 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 Trustee may, but need not, elect to retain
possession of the Trust Estate and effect the collection thereof rather
than dispose of or liquidate the Trust Estate. 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
Trustee shall take such desire into account when determining whether or not
to retain possession of the Trust Estate. In determining whether to retain
possession of the Trust Estate and effect the collection thereof, the
Trustee may, but need not, obtain and rely 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 Estate for such purpose. Subject to Section 5.11 and for purposes of
effecting the collection of the Trust Estate, the Trustee may (but shall
not be required to) reasonably exercise any judgment or take any action not
otherwise inconsistent with the terms hereof.
SECTION 5.6. Limitation of Suits. No Holder of any Note shall have
any right to institute any Proceeding, judicial or otherwise, with respect
to this Indenture, or for the appointment of a receiver or trustee, or for
any other remedy hereunder, unless:
(i) such Holder has previously given written notice to
the Trustee of a continuing Event of Default;
(ii) the Holder(s) of not less than 25% of the Note
Balance have made written request to the Trustee to institute such
Proceeding in respect of such Event of Default in its own name as
Trustee hereunder;
(iii) such Holder(s) have offered to the Trustee
indemnity reasonably satisfactory to the Trustee against the
costs, expenses and liabilities to be incurred in complying with
such request;
(iv) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute
such Proceeding; and
(v) no direction inconsistent with such written request
has been given to the Trustee during such 60-day period by the
Note Majority;
it being understood and intended that no one or more Holder(s) of Notes
shall have any right in any manner whatever by virtue of, or by availing
of, any provision of this Indenture to affect, disturb or prejudice the
rights of any other Holder(s) of Notes or to obtain or to seek to obtain
priority or
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preference over any other Holder(s) or to enforce any right under this
Indenture, except in the manner herein provided.
SECTION 5.7. Unconditional Rights of Noteholders To Receive
Principal and Interest. Notwithstanding any other provisions in this
Indenture, the Holder of any Note shall have the right, which is absolute
and unconditional, to receive payment of the principal of and interest, if
any, on such Note on or after the respective due dates thereof expressed in
such Note or in this Indenture (or, in the case of redemption, on or after
the Redemption Date) and to institute suit for the enforcement of any such
payment, and such right shall not be impaired without the consent of such
Holder.
SECTION 5.8. Restoration of Rights and Remedies. If the Trustee 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 or has been determined adversely to the Trustee or to such
Noteholder, then and in every such case the Issuer, the 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 Trustee and the Noteholders
shall continue as though no such Proceeding had been instituted.
SECTION 5.9. Rights and Remedies Cumulative. No right or remedy
herein conferred upon or reserved to the Trustee 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 5.10. Delay or Omission Not a Waiver. No delay or omission
of the Trustee or any Holder of Notes 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 Trustee or to the Noteholders may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the
Noteholders, as the case may be.
SECTION 5.11. Control by Noteholders. The Holders of the Note
Majority shall have the right to direct the time, method and place of
conducting any Proceeding for any remedy available to the Trustee with
respect to the Notes or exercising any trust or power conferred on the
Trustee; provided, however 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 Trustee to sell or liquidate the Trust Estate
shall be by all the Noteholders;
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(iii) if the conditions set forth in Section 5.5 have
been satisfied and the Trustee elects to retain the Trust Estate
pursuant to such Section, then any direction to the Trustee by
Holders of Notes representing less than 100% of the Note Balance
to sell or liquidate the Trust Estate shall be of no force and
effect; and
(iv) the Trustee may take any other action deemed proper
by the Trustee that is not inconsistent with such direction;
provided, however, that, subject to Section 6.1, the Trustee need not take
any action that it reasonably determines might involve it in liability or
would reasonably be expected to materially adversely affect the rights of
any Noteholder(s) not consenting to such action, except that no such action
shall be deemed to reasonably be expected to materially adversely affect
the rights of the Class B Noteholders by reason of such Class B
Noteholders' being subordinate to the Class A Noteholders under the terms
of this Indenture or with respect to the Indenture Collateral.
SECTION 5.12. Waiver of Past Defaults. The Holders of the Note
Majority 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 that
cannot be modified or amended without the consent of the Holder of each
Note. In the case of any such waiver, the Issuer, the 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 Event of 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 impair any right
consequent thereto.
The Indenture Trustee shall promptly provide written notice to the
Rating Agency of any such waiver.
SECTION 5.13. Undertaking for Costs. All parties to this Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof
shall be deemed to have agreed, that any court may in its discretion
require, in any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as 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
attorney's 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 5.13 shall not apply to (a)
any suit instituted by the Trustee, (b) any suit instituted by any
Noteholder(s) holding in the aggregate more than 10% of the Note Balance or
(c) any suit instituted by any Noteholder for the enforcement of the
payment of principal of or interest on any Note on or after the respective
due dates expressed in such Note and in this Indenture (or, in the case of
redemption, on or after the Redemption Date).
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SECTION 5.14. Waiver of Stay or Extension Laws. The Issuer
covenants (to the extent that it may lawfully do so) that it will not at
any time 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 Issuer (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 Trustee, but will suffer and
permit the execution of every such power as though no such law had been
enacted.
SECTION 5.15. Action on Notes. The 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 the Notes or this Indenture. Neither the lien of this Indenture
nor any rights or remedies of the Trustee or the Noteholders shall be
impaired by the recovery of any judgment by the Trustee against the Issuer
or by the levy of any execution under such judgment upon any portion of the
Trust Estate or upon any of the assets of the Issuer.
SECTION 5.16. Performance and Enforcement of Certain Obligations.
(a) Promptly following a request from the Trustee to do so (after the
occurrence of an Event of Default as otherwise required under this Article
V or upon the direction of the Servicer, as applicable) and at the Issuer's
expense, the Issuer shall take all such lawful action as the Trustee may
request to compel or secure the performance and observance by Paragon and
the Servicer, as applicable, of each of their obligations to the Seller or
the Issuer 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 Issuer under or
in connection with the Sale and Servicing Agreement to the extent and in
the manner directed by the Trustee, including the transmission of notices
of default on the part of Paragon or the Servicer thereunder and the
institution of legal or administrative actions or proceedings to compel or
secure performance by Paragon or the Servicer of each of their obligations
under the Sale and Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the
Trustee may, and at the direction (which direction shall be in writing) of
the Holders of the Note Majority shall, exercise all rights, remedies,
powers, privileges and claims of the Issuer against Paragon 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 Paragon or the Servicer of each of their obligations to the
Seller thereunder and to give any consent, request, notice, direction,
approval, extension or waiver under the Sale and Servicing Agreement, and
any right of the Issuer to take such action shall be suspended.
ARTICLE VI
The Trustee
SECTION 6.1. Duties of the Trustee. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise the rights and
powers vested in it by this Indenture and use the same degree of care and
skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
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(b) Except during the continuance of an Event of Default actually
known to a Responsible Officer:
(i) the Trustee undertakes to perform such duties and
only such duties as are specifically set forth in this Indenture
and its other Related Documents and no implied covenants or
obligations shall be read into this Indenture against the Trustee;
and
(ii) in the absence of bad faith on its part, the Trustee
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 Trustee and conforming to the
requirements of this Indenture; provided, however, in the case of
any such certificates or opinions that by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee
shall examine the certificates and opinions to determine whether
or not they conform to the requirements of this Indenture and the
Trustee's other Related Documents.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful
misconduct, except that:
(i) this clause (c) does not limit the effect of clause
(b) of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer unless it is
proved that the Trustee was negligent in ascertaining the
pertinent facts;
(iii) the Trustee 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 this Indenture;
(iv) the Trustee shall not be charged with knowledge of
an Event of Default or Servicer Termination Event unless a
Responsible Officer obtains actual knowledge of such event or the
Trustee receives written notice of such event from Paragon, the
Servicer or Holders owning Notes aggregating not less than 10% of
the Note Balance; and
(v) the Trustee shall have no duty to monitor the
performance of the Issuer, the Seller, Paragon or the Servicer,
nor shall it have any liability in connection with malfeasance or
nonfeasance by the Issuer, the Seller, Paragon or the Servicer.
The Trustee shall have no liability in connection with compliance
of the Issuer, the Seller, Paragon or the Servicer with statutory
or regulatory requirements related to the Receivables. The Trustee
shall not make or be deemed to have made any representations or
warranties with respect to the Receivables or the validity or
sufficiency of any pledge or assignment of the Receivables to the
Trustee.
(d) Every provision of this Indenture that in any way relates to
the Trustee is subject to clauses (a), (b), (c) and (g).
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(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Issuer.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law, this Indenture or the
Sale and Servicing Agreement.
(g) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur or be subjected to
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 repayments of such funds or adequate indemnity
reasonably satisfactory to it against any loss, liability or expense is not
reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to this Section 6.1.
(i) The Trustee shall, upon two Business Day's prior notice to the
Trustee, permit any representative of the Issuer, during the Trustee's
normal business hours, to examine all books of account and official records
required to be maintained in accordance with this Agreement of the Trustee
relating to the Notes, to make copies and extracts therefrom and to discuss
the Trustee's affairs and actions, as such affairs and actions relate to
the Trustee's duties with respect to the Notes, with the Trustee's officers
and employees responsible for carrying out the Trustee's duties with
respect to the Notes. All expenses incurred by the Trustee in connection
with such examination shall be borne by the Issuer.
(j) In no event shall the Trustee be required to perform, or be
responsible for the manner of performance of, any of the obligations of the
Servicer, or any other party, under the Sale and Servicing Agreement except
that [Norwest Bank Minnesota, National Association] solely in its capacity
as Backup Servicer, shall perform and be responsible for such obligations
during such time, if any, as the Backup Servicer shall be the successor to,
and be vested with the rights, powers, duties and privileges of the
Servicer in accordance with the terms of the Sale and Servicing Agreement.
(l) Without limiting the generality of this Section 6.1, the
Trustee, in its capacity as Trustee, shall have no duty, unless
specifically set forth in this Indenture or the Related Documents, (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 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 Estate, (iii) to confirm or verify the contents of any reports or
certificates delivered to the Trustee pursuant to this Indenture or the
Sale and Servicing Agreement believed by the Trustee to be genuine and to
have been signed or presented by the proper party or parties, or (iv) to
inspect the Financed Vehicles at any time or ascertain or inquire as to the
performance or observance of any of the Issuer's, the Seller's or the
Servicer's representations, warranties or covenants or the Servicer's
duties and obligations as Servicer.
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(m) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture, or to institute,
conduct or defend any litigation under this Agreement or in relation to
this Indenture, at the request, order or direction of any of the
Noteholders, pursuant to the provisions of this Indenture, unless such
Noteholders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities that may be incurred
therein or thereby.
(n) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section 6.1 and to the provisions of the
TIA.
SECTION 6.2. Rights of Trustee. (a) The Trustee may conclusively
rely and shall be fully protected in acting on any document reasonably
believed by it to be genuine and to have been signed or presented by the
proper person. The Trustee need not investigate any fact or matter stated
in any such document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel. The Trustee
shall not be liable for any action it takes or omits to take in good faith
in reliance on the Officers' Certificate or Opinion of Counsel.
(c) The Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents,
attorneys or a custodian or nominee, and the Trustee shall not be
responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent, attorney, custodian or nominee appointed
with due care by it.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within its
rights or powers; provided, however, that the Trustee's conduct does not
constitute wilful misconduct, negligence (other than errors in judgment) or
bad faith.
(e) The Trustee 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 Trustee shall not be required to make any initial or
periodic examination of any files or records related to the Receivables for
the purpose of establishing the presence or absence of defects, the
compliance by the Issuer with its representations and warranties or for any
other purpose.
(g) If the Trustee is also acting as Paying Agent or Note
Registrar hereunder, the rights and protections afforded to the Trustee
pursuant to this Article VI shall also be afforded to such Paying Agent or
Note Registrar.
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SECTION 6.3. Individual Rights of the Trustee. The Trustee shall
not, in its individual capacity, but may in a fiduciary capacity, become
the owner of Notes. The Trustee may otherwise deal with the Issuer or its
Affiliates with the same rights it would have if it were not the Trustee.
Any Paying Agent, Note Registrar, co-registrar or co-paying agent may do
the same with like rights. However, the Trustee must comply with Sections
6.11 and 6.12.
SECTION 6.4. Trustee's Disclaimer. The Trustee shall not be
responsible for, and makes no representation as to the validity or adequacy
of, this Indenture, the Trust Estate or the Notes; shall not be accountable
for the Issuer's use of the proceeds from the Notes; and shall not be
responsible for any statement of the Issuer in this Indenture or in any
document issued in connection with the sale of the Notes or in the Notes
other than the Trustee's certificate of authentication.
SECTION 6.5. Notice of Defaults. If an Event of Default or
Servicer Termination Event occurs and is continuing and is known to a
Responsible Officer, the Trustee shall mail to the Rating Agency and each
Noteholder notice of the Event of Default or Servicer Termination Event
within 20 days after such Responsible Officer has knowledge of such Event
of Default or Servicer Termination Event. Except in the case of an Event of
Default in payment of principal of or interest on any Note, the Trustee may
withhold the notice of such Event of Default if and so long as a committee
of its Responsible Officers in good faith determines that withholding the
notice is in the interests of Noteholders.
SECTION 6.6. Reports by Trustee to the Holders. The Trustee shall
deliver to each Noteholder such information as set forth in Section 4.7 of
the Sale and Servicing Agreement.
SECTION 6.7. Compensation, Reimbursement and Indemnity. (a) The
Issuer shall, or shall cause the Servicer to, pay to the Trustee from time
to time reasonable compensation for its services, including extraordinary
services such as default administration. The Trustee's compensation shall
not be limited by any law on compensation of a trustee of an express trust.
The Issuer shall, or shall cause the Servicer to, reimburse the Trustee 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 securities transaction charges and the reasonable
compensation and expenses, disbursements and advances of the Trustee's
agents, counsel, accountants and experts but, with respect to securities
transaction charges, only to the extent such charges have not been waived
due to the Trustee's receipt of payment from any financial institution with
respect to certain eligible investments specified by the Servicer pursuant
to Section 4.1(b) of the Sale and Servicing Agreement.
(b) The Issuer shall or shall cause the Servicer to indemnify the
Trustee and its officers, directors, employees and agents against any and
all loss, liability or expense (including attorneys' fees) incurred by them
in connection with the administration of this trust and the performance of
its duties hereunder. The Trustee shall notify the Issuer and the Servicer
promptly of any claim for which it may seek indemnity. Failure by the
Trustee to so notify the Issuer and the Servicer shall not relieve the
Issuer or the Servicer of its obligations hereunder. The Issuer shall, or
shall cause the Servicer to, defend the claim and the Trustee may have
separate counsel and the Issuer shall, or shall
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cause the Servicer to, pay the fees and expenses of such counsel. Neither
the Issuer nor the Servicer need reimburse any expense or indemnify against
any loss, liability or expense incurred by the Trustee through the
Trustee's own willful misconduct, negligence (other than errors in
judgment) or bad faith.
The Issuer's payment obligations to the Trustee pursuant to this
Section 6.7 shall survive the discharge of this Indenture. When the Trustee
incurs expenses after the occurrence of an Event of Default specified in
Section 5.1(iv) or (v), the expenses are intended to constitute expenses of
administration under Title 11 of the United States Code or any other
applicable Federal or State bankruptcy, insolvency or similar law.
Notwithstanding anything else set forth in this Indenture or the Related
Documents, the Trustee agrees that the obligations of the Issuer to the
Trustee hereunder and under the Related Documents shall be recourse to the
Trust Estate only and specifically shall not be recourse to the assets of
the Issuer, the Seller or Paragon, except that Paragon, as Servicer, has
undertaken the payment and indemnity obligations as described in this
Section 6.7.
SECTION 6.8. Replacement of the Trustee. No resignation or removal
of the Trustee and no appointment of a successor Trustee shall become
effective until the acceptance of appointment by the successor Trustee
pursuant to this Section 6.8. Subject to the preceding sentence, the
Trustee may resign at any time by providing 60 days prior written notice to
the Issuer and the Noteholders or sooner if so required by law. The Issuer
may remove the Trustee if:
(i) the Trustee fails to comply with Section 6.11;
(ii) the Trustee is adjudged a bankrupt or insolvent;
(iii) a receiver or other public officer takes charge of
the Trustee or its property; or
(iv) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Issuer shall promptly provide
written notice of such event to the Rating Agency and the Noteholders and
shall appoint a successor Trustee. If the Issuer fails to appoint such a
successor Trustee, the Trustee may appoint a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuer. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and
the successor Trustee shall have all the rights, powers and duties of the
Trustee under this Indenture. The successor Trustee shall mail a notice of
its succession to Noteholders. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee and shall be
paid all fees and expenses owed through the date of termination.
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If a successor Trustee does not take office within 60 days after
the retiring Trustee provides notice of intended resignation or is removed,
the retiring Trustee, the Issuer or a Note Majority may petition any court
of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee shall fail to comply with Section 6.11, any
Noteholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Issuer's obligations under Section 6.7 shall continue for the
benefit of the retiring Trustee. The retiring Trustee shall have no
liability for any act or omission by any successor Trustee.
SECTION 6.9. Successor Trustee by Merger. If the 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 Trustee. The
Trustee shall provide the Rating Agency and the Issuer written notice of
any such transaction; provided, however, that such corporation or banking
association shall be otherwise qualified and eligible under Section 6.11.
If at the time of any such succession by merger, conversion or
consolidation to the Trustee any of the Notes shall have been authenticated
but not delivered, any such successor to the 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 Trustee may authenticate such
Notes either in the name of any predecessor trustee hereunder or in the
name of the successor to the Trustee; and in all such cases such
certificates of authentication shall have the full force and effect to the
same extent given to the certificate of authentication of the Trustee
anywhere in the Notes or in this Indenture.
SECTION 6.10. Appointment of Co-Trustee or Separate 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 Estate may at the time be located, the Trustee shall
have the power and may execute and deliver all instruments to appoint one
or more Person(s) to act as co-trustee(s), or separate trustee(s), of all
or any part of the Trust Estate, and to vest in such Person(s), in such
capacity and for the benefit of the Noteholders, such title to the Trust
Estate, or any part thereof, and, subject to the other provisions of this
Section, such powers, duties, obligations, rights and trusts as the 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.
(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 Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and
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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 Trustee joining in such act), except to the
extent that under any law of any jurisdiction in which any
particular act(s) are to be performed, the Trustee shall be
incompetent or unqualified to perform such act(s), in which event
such rights, powers, duties and obligations (including the holding
of title to the Trust Estate 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
Trustee;
(ii) no trustee hereunder shall be personally liable by
reason of any act or omission of any other trustee hereunder; and
(iii) the 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 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 Indenture and the conditions of this Article VI. Each separate trustee
and co-trustee, upon its acceptance of the trusts conferred, shall be
vested with the estates or property specified in its instrument of
appointment, either jointly with the 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
Trustee. Every such instrument shall be filed with the Trustee.
(d) Any separate trustee or co-trustee may at any time constitute
the Trustee as 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 Indenture 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 Trustee, to the extent permitted by law,
without the appointment of a new or successor trustee.
(e) The Trustee shall have no obligation to determine whether a
co-trustee or separate trustee is legally required in any jurisdiction in
which any part of the Trust Estate may be located.
SECTION 6.11. Eligibility; Disqualification. The Trustee shall at
all times satisfy the requirements of TIA Section 310(a). The Trustee shall
have a combined capital and surplus of at least $50,000,000 as set forth in
its most recent published annual report of condition. Trustee shall comply
with TIA Section 310(b), including the optional provision permitted by the
second sentence of TIA Section 310(b)(9); provided, however, that there shall
be excluded from the operation of TIA Section 310(b)(1) any indenture or
indentures under which other securities of Issuer are outstanding if the
requirements for such exclusion set forth in TIA Section 310(b)(1) are met.
SECTION 6.12. Appointment and Powers. Subject to the terms and
conditions hereof, each of the Noteholders hereby appoints [Norwest Bank
Minnesota, National Association] as Trustee with
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respect to the Indenture Collateral, and [Norwest Bank Minnesota, National
Association] hereby accepts such appointment and agrees to act as the
Trustee on behalf of the Noteholders with respect to the Indenture
Collateral for the Noteholders, to maintain custody and possession of such
Indenture Collateral (except as otherwise provided hereunder) and to
perform the other duties of the Trustee in accordance with the provisions
of this Indenture. Receipt of such instructions shall not be a condition to
the exercise by the Trustee of its express duties hereunder, except where
this Indenture provides that the Trustee is permitted to act only following
and in accordance with such instructions.
SECTION 6.13. Limitation on Liability. Neither the Trustee nor any
of its directors, officers, agents or employees shall be liable for any
action taken or omitted to be taken by it or them hereunder or in
connection herewith, except that the Trustee shall be liable for its
negligence (other than errors in judgment), bad faith or willful
misconduct; nor shall the Trustee be responsible for the validity,
effectiveness, value, sufficiency or enforceability against the Issuer of
this Indenture or any of the Indenture Collateral (or any part thereof).
Notwithstanding any term or provision of this Indenture, the Trustee shall
incur no liability to the Issuer or the Noteholders for any action taken or
omitted by the Trustee in connection with the Indenture Collateral, except
for the negligence (other than errors in judgment) or willful misconduct on
the part of the Trustee and, further, shall incur no liability to the
Noteholders except for negligence (other than errors in judgment) or
willful misconduct in carrying out its duties to the Noteholders. Subject
to Section 6.15, the Trustee shall be protected and shall incur no
liability to any such party in relying upon the accuracy, acting in
reliance upon the contents, and assuming the genuineness of any notice,
demand, certificate, signature, instrument or other document reasonably
believed by the Trustee to be genuine and to have been duly executed by the
appropriate signatory, and (absent actual knowledge to the contrary) the
Trustee shall not be required to make any independent investigation with
respect thereto. The Trustee 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 Related Documents. The Trustee 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 Trustee shall not be under any obligation to exercise any
of the remedial rights or powers vested in it by this Indenture or to
follow any direction from the Issuer unless it shall have received security
or indemnity satisfactory to the Trustee against the costs, expenses and
liabilities which might be incurred by it.
SECTION 6.14. Trustee Not Liable for Notes or Receivables. The
Trustee makes no representations as to the validity or sufficiency of the
Sale and Servicing Agreement or of the Notes (other than authentication of
the Notes) or of any Receivable or Related Document, except as expressly
provided herein or in the Sale and Servicing Agreement. Except as expressly
set forth in the Related Documents, the Trustee shall at no time (except
for its duties as Backup Servicer under the Related Documents and except
during such time, if any, as it is acting as successor Servicer) have any
responsibility or liability for or with respect to the legality, validity
and enforceability of any security interest in any Financed Vehicle or any
Receivable, or the perfection and priority of such a security interest or
the maintenance of any such perfection and priority, or for or with respect
to the efficiency of the Trust or its ability to generate the payments to
be distributed to Noteholders
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under this Indenture, including the existence, condition, location and
ownership of any Financed Vehicle; the existence and enforceability of any
insurance thereon; the existence of any Receivable or any computer or other
record thereof (it being understood that the Trustee has not reviewed and
does not intend to review such matters, the sole responsibility for such
review being vested in the Seller or the Servicer, as applicable); the
completeness of any Receivable; the receipt by the Servicer of any
Receivable; the performance or enforcement of any Receivable; the
compliance by the Seller and the Servicer with any covenant or the breach
by the Seller and the Servicer of any warranty or representation made under
any Related Document and the accuracy of any such warranty or
representation prior to the Trustee's receipt of notice or other discovery
of any noncompliance therewith or any breach thereof; any investment of
monies by or at the direction of the Servicer or any loss resulting
therefrom (it being understood, however, that the Trustee shall remain
responsible for any Trust Property that it may hold directly); the acts or
omissions of the Seller, the Servicer or any Obligor; any action of the
Servicer taken in the name of the Trustee; the accuracy, content or
completeness of any offering documents used in connection with the sale of
the Notes or any action by the Trustee taken at the instruction of the
Servicer, the Seller or the Noteholders holding the requisite percentage of
Notes; provided, however, that the foregoing shall not relieve the Trustee
of its obligation to perform its duties under this Agreement and the other
Related Documents, whether as Trustee or as Backup Servicer. The Trustee
shall not be accountable for the use or application by the Seller of any of
the Notes or of the proceeds of such Notes, or for the use or application
of any funds paid to the Servicer in respect of the Receivables prior to
the time such funds are deposited in the Collection Account.
SECTION 6.15. Reliance upon Documents. In the absence of bad faith
or negligence on its part, the Trustee shall be entitled to rely on any
communication, instrument, paper or other document reasonably believed by
it to be genuine and correct and to have been signed or sent by the proper
Person or Persons and shall have no liability in acting, or omitting to
act, where such action or omission to act is in reasonable reliance upon
any statement or opinion contained in any such document or instrument.
SECTION 6.16. Representations and Warranties of the Trustee.
The Trustee represents and warrants to the Issuer as follows:
(a) Due Organization. The Trustee is a national banking
association duly organized, validly existing and in good standing under the
laws of the United States, and is duly authorized and licensed under
applicable law to conduct its business as presently conducted.
(b) Corporate Power. The Trustee has all requisite right, power
and authority to execute and deliver this Indenture and to perform all of
its duties as Trustee hereunder.
(c) Due Authorization. The execution and delivery by the Trustee
of this Indenture and the other Related Documents to which it is a party,
and the performance by the Trustee of its duties hereunder and thereunder,
have been duly authorized by all necessary corporate proceedings and no
further approvals or filings, including any governmental approvals, are
required for the valid
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execution and delivery by the Trustee or the performance by the Trustee, of
this Indenture and such other Related Documents.
(d) Valid and Binding Indenture. The Trustee has duly executed and
delivered this Indenture and each other Related Document to which it is a
party, and each of this Indenture and each such other Related Document
constitutes the legal, valid and binding obligation of the Trustee,
enforceable against the Trustee in accordance with its respective 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 6.17. Waiver of Setoffs. The Trustee hereby expressly
waives any and all rights of setoff that the Trustee may otherwise at any
time have under applicable law with respect to the Trust Accounts and
agrees that amounts in the Trust Accounts shall at all times be held and
applied solely in accordance with the provisions hereof and of the Sale and
Servicing Agreement.
SECTION 6.18. Rights to Direct Trustee. A Note Majority shall have
the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee; provided, however, that subject to Section 6.1,
the Trustee shall have the right to decline to follow any such direction if
the Trustee upon written advice of counsel shall determine that the action
so directed may not lawfully be taken, or if the Trustee in good faith
shall determine that the proceedings so directed would be in violation of
this Indenture or any of the Related Documents or would subject it to
personal liability against which it has not been provided reasonable
indemnity or be unduly prejudicial to the rights of Noteholders not parties
to such direction; and provided, further, that nothing in this Indenture
shall impair the right of the Trustee to take any action deemed proper by
the Trustee and that is not inconsistent with such direction by the
Noteholders.
SECTION 6.19. Preferential Collection of Claims Against Issuer.
Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE VII
Noteholders' Lists and Reports
SECTION 7.1. Issuer To Furnish Trustee Names and Addresses of
Noteholders. Issuer will furnish or cause to be furnished to 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 Trustee
may reasonably require, of the names and addresses of the Holders as of
such Record Date, (b) at such other times as Trustee may request in
writing, within 30 days after receipt by Issuer 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 (i) Trustee
is Note Registrar, or (ii) the Notes are Book-Entry Notes, no such list
shall be required to be furnished.
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SECTION 7.2. Preservation of Information; Communications to
Noteholders. (a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Trustee as provided in
Section 7.1 and the names and addresses of Holders of Notes received by the
Trustee in its capacity as Note Registrar. The Trustee may destroy any list
furnished to it as provided in Section 7.1 upon receipt of a new list so
furnished.
(b) Noteholders may communicate pursuant to TIA Section 312(b) with
other Noteholders with respect to their rights under this Indenture or
under the Notes. Three or more Noteholders, or one or more Holder(s) of
Notes evidencing at least 25% of the Note Balance, may obtain a list of the
names and addresses of Holders of Notes of record as of the most recent
Record Date in order to communicate with other Noteholders with respect to
their rights under this Indenture or under the Notes.
SECTION 7.3. Reports by Issuer. (a) Issuer shall:
(i) file with Trustee, within 15 days after Issuer is
required to file the same with the Commission, copies of the
annual reports and of the information, documents and other reports
(or copies of such portions of any of the foregoing as the
Commission may from time to time by rules and regulations
prescribe) which Issuer may be required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act;
(ii) file with Trustee and the Commission in accordance
with rules and regulations prescribed from time to time by the
Commission such additional information, documents and reports with
respect to compliance by Issuer with the conditions and covenants
of this Indenture as may be required from time to time by such
rules and regulations; and
(iii) supply to Trustee (and Indenture Trustee shall
transmit by mail to all Noteholders described in TIA Section 313(c))
such summaries of any information, documents and reports required
to be filed by Issuer pursuant to clauses (i) and (ii) of this
Section 7.3(a) as may be required by rules and regulations
prescribed from time to time by the Commission.
(b) Unless Issuer otherwise determines, the fiscal year of Issuer
shall end on December 31 of each year.
SECTION 7.4. Reports by Trustee. If required by TIA Section 313(a),
within 60 days after each March 31, beginning with March 31, ____, Trustee
shall mail to each Noteholder as required by TIA Section 313(c) a brief report
dated as of such date that complies with TIA Section 313(a). Trustee also shall
comply with TIA Section 313(b)(1). A copy of each report at the time of its
mailing to Noteholders shall be filed by Trustee with the Commission and
each stock exchange, if any, on which the Notes are listed. Issuer shall
notify Trustee if and when the Notes are listed on any stock exchange.
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ARTICLE VIII
Accounts, Disbursements and Releases
SECTION 8.1. Collection of Money. Except as otherwise expressly
provided herein, the 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 Trustee pursuant to this Indenture. The Trustee shall
apply all such money received by it as provided in this Indenture. Except
as otherwise expressly provided in this Indenture, if any default occurs in
the making of any payment or performance under any agreement or instrument
that is part of the Trust Estate, the Trustee may take such action as may
be appropriate to enforce such payment or performance, including the
institution and prosecution of appropriate Proceedings. Any such action
shall be without prejudice to any right to claim a Default or Event of
Default under this Indenture and any right to proceed thereafter as
provided in Article V.
SECTION 8.2. Trust Accounts. (a) On or prior to the Closing Date,
the Issuer shall cause the Servicer to establish and maintain, in the name of
the Trustee, for the benefit of the Noteholders, the Trust Accounts as
provided in Section 4.1 of the Sale and Servicing Agreement.
(b) On each Payment Date, the Trustee shall distribute all amounts
on deposit in the Collection Account to Noteholders to the extent of
amounts due and unpaid on the Notes for principal and interest in the
amounts and in the order of priority set forth in Section 4.5 of the Sale
and Servicing Agreement.
SECTION 8.3. General Provisions Regarding Accounts. (a) So long as
no Default or Event of Default shall have occurred and be continuing, all
or a portion of the funds in the Trust Accounts shall be invested and
reinvested by the Trustee in Eligible Investments in accordance with
Section 4.1(b) of the Sale and Servicing Agreement.
(b) Subject to Section 6.1(c), the Trustee shall not in any way be
held liable for the selection of Eligible Investments or by reason of any
insufficiency in the Trust Accounts resulting from any loss on any Eligible
Investment included therein, except for losses attributable to the
Trustee's failure to make payments on such Eligible Investments issued by
the Trustee, in its commercial capacity as principal obligor and not as
trustee, in accordance with their terms.
SECTION 8.4. Release of Trust Estate. (a) Subject to the payment
of its fees and expenses pursuant to Section 6.7, the Trustee may, and when
required by this Indenture shall, execute instruments to release property
from the lien of this Indenture, or convey the Trustee's interest in the
same, in a manner and under circumstances that are not inconsistent with
this Indenture and the Sale and Servicing Agreement. No party relying upon
an instrument executed by the Trustee as provided in this Article shall be
bound to ascertain the Trustee's authority, inquire into the satisfaction
of any conditions precedent or see to the application of any moneys.
(b) The Trustee shall, at such time as there are no Notes
Outstanding and all sums due to the Trustee pursuant to Section 6.7 have
been paid and all other Secured Obligations have been
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paid in full, release any remaining portion of the Trust Estate that
secured the Notes from the lien of this Indenture and release to the Issuer
or any other Person entitled thereto any funds then on deposit in the
Collection Account. The Trustee shall release property from the lien of
this Indenture pursuant to this paragraph only upon receipt of an Issuer
Request accompanied by an Officers' Certificate and an Opinion of Counsel
meeting the applicable requirements of Section 11.1.
SECTION 8.5. Opinion of Counsel. The Trustee shall receive at
least seven days' notice when requested by the Issuer to take any action
pursuant to Section 8.4(a), accompanied by copies of any instruments
involved, and the Trustee shall also require, as a condition to such
action, an Opinion of Counsel 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 this
Indenture; provided, however, that no such Opinion of Counsel shall be
required after the Notes are paid in full or for the release of liens in
connection with a Purchased Receivable; and provided, further, that such
Opinion of Counsel shall not be required to express an opinion as to the
fair value of the Trust Estate. Counsel rendering any such opinion may
rely, without independent investigation, on the accuracy and validity of
any certificate or other instrument delivered to the Trustee in connection
with any such action.
ARTICLE IX
Supplemental Indentures
SECTION 9.1. Supplemental Indentures Without Consent of
Noteholders. (a) Without the consent of the Holders of Notes but with prior
written notice to the Rating Agency, the Issuer and the Trustee, when
authorized by an Issuer Order, at any time and from time to time, may enter
into one or more indentures supplemental hereto in form satisfactory to the
Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property
at any time subject to the lien of this Indenture, or better to
assure, convey and confirm unto the Trustee any property subject
or required to be subjected to the lien of this Indenture, or to
subject to the lien of this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another Person to the Issuer, and
the assumption by any such successor of the covenants of the
Issuer herein and in the Notes;
(iii) to add to the covenants of the Issuer, for the
benefit of the Holders of Notes, or to surrender any right or
power herein conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
additional property to or with the Trustee;
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(v) (A) to cure any ambiguity or to correct any provision
herein or in any supplemental indenture that may be inconsistent
with any other provision herein or in any supplemental indenture
or (B) to make any other provisions with respect to matters or
questions arising under this Indenture or in any supplemental
indenture so long as, in the Opinion of Counsel, such action in
this clause (B) shall not materially adversely affect the
interests of the Holders of Notes; or
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the
Notes and to add to or change any of the provisions of this
Indenture as shall be necessary to facilitate the administration
of the trusts hereunder by more than one trustee, pursuant to the
requirements of Article VI.
The Trustee is hereby authorized to join in the execution of any
such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b) The Issuer and the Trustee, when authorized by an Issuer
Order, may, without the consent of the any of the Holders of Notes but with
prior written notice to the Rating Agency, enter into an indenture or
indentures supplemental hereto (i) to cure any ambiguity, (ii) to correct
or supplement any provisions in this Indenture or (iii) 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 Notes under this Indenture so long as such action in this
clause (iii) shall not, as evidenced by an Opinion of Counsel, adversely
affect in any material respect the interests of any Noteholder.
SECTION 9.2. Supplemental Indentures With Consent of Noteholders.
The Issuer and the Trustee, when authorized by an Issuer Order, may, with
prior written notice to the Rating Agency and with the prior written
consent of the Note Majority 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 Notes under this
Indenture; provided, however, that, 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 provisions of this Indenture
relating to the application of collections on, or the proceeds of
the sale of, the Trust Estate to the payment of principal of or
interest on the Notes, or change any place of payment where, or
the coin or currency in which, any Note or the interest thereon is
payable, or 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 or after the respective due dates
thereof (or, in the case of redemption, on or after the Redemption
Date);
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(ii) reduce the percentage of the Note Balance, 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;
(iii) modify or alter the provisions of the proviso to
the definition of "Outstanding";
(iv) reduce the percentage of the Note Balance required
to direct the Trustee to direct the Issuer to sell or liquidate
the Trust Estate pursuant to Section 5.4 or 5.11;
(v) modify any provision of this Section 9.2 except to
increase any percentage specified herein or to provide that
certain additional provisions of this Indenture or the other
Related Documents cannot be modified or waived without the consent
of the Holder of each Outstanding Note affected thereby;
(vi) modify any of the provisions of this Indenture in
such manner as to affect the calculation of the amount of any
payment of interest or principal due on any Note on any Payment
Date (including the calculation of any of the individual
components of such calculation);
(vii) permit the creation of any lien ranking prior to or
on a parity with the lien of this Indenture with respect to any
part of the Trust Estate or, except as otherwise permitted or
contemplated herein, terminate the lien of this Indenture on any
property at any time subject hereto or deprive any Holder of Notes
of the security provided by the lien of this Indenture; or
(viii) become effective if the Rating Agency Condition in
respect thereof shall have not been satisfied.
It shall not be necessary for any Act of the Noteholders under
this Section 9.2 to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such Act shall
approve the substance thereof. The manner of obtaining such consents (and
any other consents of Noteholders provided for in this Indenture or in any
other Related Document) and of evidencing the authorization of the
execution thereof by Noteholders shall be subject to such reasonable
requirements as the Trustee may provide.
Promptly after the execution by the Issuer and the Trustee of any
supplemental indenture pursuant to this Section 9.2, the Trustee shall mail
to the Holders of the Notes to which such amendment or supplemental
indenture relates a notice setting forth in general terms the substance of
such supplemental indenture. Any failure of the Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or
affect the validity of any such supplemental indenture.
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SECTION 9.3. Execution of Supplemental Indentures. In executing,
or permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modifications thereby of the trusts
created by this Indenture, the 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 stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Trustee may,
but shall not be obligated to, enter into any such supplemental indenture
that affects the Trustee's own rights, duties, liabilities or immunities
under this Indenture or otherwise.
SECTION 9.4. Effect of Supplemental Indenture. Upon the execution
of any supplemental indenture pursuant to the provisions hereof, this
Indenture shall be and be deemed to be modified and amended in accordance
therewith with respect to the Notes affected thereby, and the respective
rights, limitations of rights, obligations, duties, liabilities and
immunities under this Indenture of the Trustee, the Issuer and the Holders
of the Notes shall thereafter be determined, exercised and enforced
hereunder subject in all respects to such modifications and amendments, and
all the terms and conditions of any such supplemental indenture shall be
and be deemed to be part of the terms and conditions of this Indenture for
any and all purposes.
SECTION 9.5. Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may bear a notation in form approved by
the Trustee as to any matter provided for in such supplemental indenture.
If the Issuer shall so determine, new Notes so modified as to conform, in
the opinion of the Issuer, to any such supplemental indenture may be
prepared and executed by the Issuer and authenticated and delivered by the
Trustee in exchange for Outstanding Notes.
ARTICLE X
Redemption of Notes
SECTION 10.1. Redemption. On any Payment Date on which the
Servicer exercises its option to purchase the Receivables and other Trust
Property pursuant to Section 9.1 of the Sale and Servicing Agreement, the
Notes shall be redeemed in whole, but not in part, for a purchase price
equal to the Redemption Price. Pursuant to said Section 9.1, the Servicer
shall furnish notice of such redemption to the Trustee, the Backup Servicer
and the Rating Agency not later than 10 days prior to the Redemption Date
and the Servicer shall deposit with the Trustee in the Collection Account
the Redemption Price of the Notes to be redeemed on or before the date of
redemption.
SECTION 10.2. Form of Redemption Notice. Notice of redemption
under Section 10.1 shall be given by the Trustee by first-class mail,
postage prepaid, mailed not less than 5 days prior to the applicable
Redemption Date to each Holder of Notes, as of the close of business on the
Record Date preceding the applicable Redemption Date, at such Holder's
address appearing in the Note Register.
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All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price; and
(iii) the place where such Notes are to be surrendered
for payment of the Redemption Price (which shall be the office or
agency of the Issuer to be maintained as provided in Section 3.2).
Notice of redemption of the Notes shall be given by the Trustee in
the name and at the expense of the Issuer. 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.
SECTION 10.3. Notes Payable on Redemption Date. The Notes or
portions thereof to be redeemed shall, following notice of redemption
pursuant to this Article X, become due and payable on the Redemption Date
at the Redemption Price and (unless the Issuer 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.
If there are not sufficient funds in the Collection Account on the
Payment Date on which the Notes are to be redeemed available to pay the
Redemption Price, the notice of redemption shall be deemed to have been
revoked and the Notes shall not be redeemed on the Redemption Date.
Payments will be made on such Payment Date in accordance with Section 4.5
of the Sale and Servicing Agreement as though no notice of redemption had
been given and the Notes shall continue to bear interest at the Class A
Interest Rate or Class B Interest Rate, as applicable.
ARTICLE XI
Miscellaneous
SECTION 11.1. Compliance Certificates and Opinions, etc. (a) Upon
any application or request by the Issuer to the Trustee to take any action
under this Indenture, the Trustee shall be entitled to request that the
Issuer furnish to the Trustee (i) an Officers' Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to
the proposed action have been complied with, (ii) an Opinion of Counsel
stating that in the opinion of such counsel all such conditions precedent,
if any, have been complied with and (iii) (if required by the TIA) an
Independent Certificate from a firm of certified public accountants meeting
the applicable requirements of this Section 11.1, except that, in the case
of any such application or request as to which the furnishing of such
documents is specifically required by this Indenture, no additional
certificate or opinion need be furnished.
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Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) 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;
(2) 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;
(3) a statement that, in the opinion of each such
signatory, such signatory has made (or has caused to be 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
(4) a statement as to whether, in the opinion of each
such signatory, such condition or covenant has been complied with.
(b)(i) Prior to the deposit of any Indenture Collateral or other
property or securities with the Trustee that is to be made the basis for
the release of any property or securities subject to the lien of this
Indenture, the Issuer shall, in addition to any obligation imposed in
Section 11.1(a) or elsewhere in this Indenture, furnish to the Trustee an
Officers' Certificate certifying or stating the opinion of each person
signing such certificate as to the fair value (within 90 days of such
deposit) to the Issuer of the Indenture Collateral or other property or
securities to be so deposited.
(ii) If (A) the Issuer is required to furnish to the
Trustee an Officers' Certificate described in clause (i), and (B)
the fair value to the Issuer of the Indenture Collateral or other
property or securities to be so deposited and of all other such
Indenture Collateral or other property or securities made the
basis of any such withdrawal or release since the commencement of
the then-current fiscal year of the Issuer (as set forth in the
certificates delivered pursuant to clause (i) and this clause
(ii)) is 11% or more of the Note Balance, the Issuer shall also
deliver to the Trustee an Independent Certificate as to the same
matters, provided, however, that such a certificate need not be
furnished with respect to any Indenture Collateral or other
property or securities so deposited if the fair value thereof to
the Issuer as set forth in the related Officers' Certificate is
less than $25,000 or less than one percent of the Note Balance.
(iii) Other than with respect to property as contemplated
by clause (v), whenever any Indenture Collateral or other property
or securities are to be released from the lien of this Indenture,
the Issuer shall also furnish to the Trustee an Officers'
Certificate certifying or stating the opinion of each person
signing such certificate as to the fair value (within 90 days of
such release) of the Indenture Collateral or other property or
securities proposed to be released and stating that in the opinion
of such person the proposed release will not impair the security
under this Indenture in contravention of the provisions hereof.
48
<PAGE>
(iv) If (A) the Issuer is required to furnish to the
Trustee an Officers' Certificate certifying or stating the opinion
of any signer thereof as to the matters described in clause (iii)
and (B) the fair value to the Issuer of the Indenture Collateral
or other property or securities and of all other property (other
than property as contemplated by clause (v)) or securities
released from the lien of this Indenture since the commencement of
the then-current fiscal year (as set forth in the certificates
required by clause (iii) and this clause (iv)) equals 11% or more
of the Note Balance, the Issuer shall also furnish to the Trustee
an Independent Certificate as to the same matters, provided,
however, that such certificate need not be furnished in the case
of any release of Indenture Collateral or other property or
securities if the fair value thereof to the Issuer as set forth in
the related Officers' Certificate is less than $25,000 or less
than one percent of the then Note Balance.
(v) Notwithstanding Section 2.9 or any other provision of
this Section 11.1, the Issuer may, without compliance with the
requirements of the other provisions of this Section 11.1: (A)
collect, liquidate, sell or otherwise dispose of Receivables and
Financed Vehicles as and to the extent permitted or required by
the Related Documents and (B) make cash payments out of the
Collection Account as and to the extent permitted or required by
the Related Documents.
SECTION 11.2. Form of Documents Delivered to 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 Issuer
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,
opinion or representations with respect to the matters upon which his
certificate or opinion is based is/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, Paragon or the
Issuer, stating that the information with respect to such factual matters
is in the possession of the Servicer, Paragon or the Issuer, as applicable,
unless such Authorized Officer or counsel knows, or in the exercise of
reasonable care should know, that the certificate, opinion or
representations with respect to such matters is/are erroneous.
Where any Person is required or permitted 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,
certificate or report to the Trustee, it is provided that the Issuer shall
deliver any document as a condition of the granting of such application, or
as evidence of the Issuer's compliance with any term hereof, it is intended
49
<PAGE>
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 Issuer to have such application
granted or to the sufficiency of such certificate or report. The foregoing
shall not, however, be construed to affect the Trustee's right to 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 instrument(s) of substantially similar tenor
signed by such Noteholders in person or by agents duly appointed in
writing; and except as herein otherwise expressly provided, such action
shall become effective when such instrument(s) are delivered to the
Trustee, and, where it is hereby expressly required, to the Issuer. Such
instrument(s) (and the action embodied therein and evidenced thereby) are
herein sometimes referred to as the "Act" of the Noteholders signing such
instrument(s). 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 Trustee
and the Issuer, 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 manner that the Trustee deems
sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or Act by the Holder of any Notes shall bind the Holder of
every Note issued upon the registration thereof, in exchange therefor or in
lieu thereof, in respect of anything done, omitted or suffered to be done
by the Trustee or the Issuer in reliance thereon, whether or not notation
of such action is made upon such Note.
SECTION 11.4. Notices, etc., to the Trustee, Issuer and Rating
Agency. Any request, demand, authorization, direction, notice, consent,
waiver or Act of Noteholders, or other documents provided or permitted by
this Indenture, shall be in writing and, if such request, demand,
authorization, direction, notice, consent, waiver or Act of Noteholders is
to be made upon, given or furnished to or filed with:
(a) the Trustee by any Noteholder or by the Issuer, shall
be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Trustee at its
Corporate Trust Office, or
(b) the Issuer by the Trustee or by any Noteholder, shall
be sufficient for every purpose hereunder if in writing and
mailed, first-class, postage prepaid, to the Issuer addressed to:
Paragon Auto Receivables Owner Trust ____-_, 27405 Puerta Real,
Suite 200, Mission Viejo, California 92691, Telecopy No.: (714)
348-8707, or at any other address
50
<PAGE>
previously furnished in writing to the Trustee by the Issuer, with
a copy to the Owner Trustee, addressed to: [Wilmington Trust Company,
1100 North Market Street, Wilmington, Delaware 19890, Attention:
Corporate Trust Administration]. The Issuer shall promptly transmit
any notice received by it from the Noteholders to the Trustee.
Notices required to be given to the Rating Agency by the Issuer or
the Trustee shall be in writing, personally delivered or mailed by
certified mail, return receipt requested, to their respective addresses set
forth in Section 10.9 of the Sale and Servicing Agreement.
SECTION 11.5. Notices to Noteholders; Waiver. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in
writing and mailed, first-class, postage prepaid to each Noteholder
affected by such event, at his address as it appears on the Note Register,
not later than the latest date, and not earlier than the earliest date,
prescribed for the giving of such notice. In any case where notice to
Noteholders is given by mail, neither the failure to mail such notice nor
any defect in any notice so mailed to any particular Noteholder shall
affect the sufficiency of such notice with respect to other Noteholders,
and any notice that is mailed in the manner herein provided shall
conclusively be presumed to have been duly given.
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 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, it
shall be impractical to mail notice of any event to Noteholders when such
notice is required to be given pursuant to this Indenture, then any manner
of giving such notice as shall be satisfactory to the Trustee shall be
deemed to be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agency,
failure to give such notice shall not affect any other rights or
obligations created hereunder, and shall not under any circumstance
constitute a Default or Event of Default.
SECTION 11.6. Alternate Payment and Notice Provisions.
Notwithstanding any provision of this Indenture or any of the Notes to the
contrary, the Issuer may enter into any agreement with any Holder of a Note
providing for a method of payment, or notice by the Trustee or any Paying
Agent to such Holder, that is different from the methods provided for in
this Indenture or the Notes for such payments or notices. The Issuer will
furnish to the Trustee a copy of each such agreement and the Trustee will
cause payments to be made and notices to be given in accordance with such
agreements to the extent such alternative arrangements are reasonable. Any
additional costs or expenses associated therewith shall be payable by the
Issuer or the applicable Noteholder.
51
<PAGE>
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 Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Trustee in this
Indenture shall bind its successors, co-trustees and agents of the Trustee.
SECTION 11.9. Severability. Any provision of this Indenture or the
Notes 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 or of
the Notes, as applicable, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
SECTION 11.10. Benefits of Indenture. 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, the Noteholders, any other
party secured hereunder and any other Person with an ownership interest in
any part of the Trust Estate, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
SECTION 11.11. 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 Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
SECTION 11.12. 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 (OTHER THAN SECTION 5-1401 OF THE NEW YORK
GENERAL OBLIGATIONS LAW), AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.13. Counterparts. This Indenture may be executed in any
number of counterparts, each of which when so executed shall be deemed to
be an original, but all such counterparts shall together constitute but one
and the same instrument.
SECTION 11.14. Recording of Indenture. If this Indenture is
subject to recording in any public recording offices, such recording is to
be effected by the Issuer and, at its expense, accompanied by an Opinion of
Counsel 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 Trustee under this
Indenture.
52
<PAGE>
SECTION 11.15. Trust Obligation. No recourse may be taken,
directly or indirectly, with respect to the obligations of the Issuer or
the Trustee on the Notes or under this Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i)
the Owner Trustee in its individual capacity, (ii) any owner of a
beneficial interest in the Issuer or (iii) any partner, owner, beneficiary,
officer, director, employee or agent of (a) the Owner Trustee in its
individual capacity, (b) any owner of a beneficial interest in the Issuer
or the Trustee or (c) of any successor or assign of the Owner Trustee in
its individual capacity, except as any such Person may have expressly
agreed (it being understood that the Owner Trustee has no such obligations
in its individual capacity) and except that any such partner, 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.
SECTION 11.16. No Petition. The Trustee, by entering into this
Indenture, and each Noteholder, by accepting a Note, hereby covenant and
agree that they shall not at any time institute against the Issuer, or join
in any institution against 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, this Indenture or
any other Related Document. The foregoing shall not limit the rights of the
Trustee to file any claim in or otherwise take any action with respect to
any insolvency proceeding that was instituted against the Issuer by any
Person other than the Trustee.
SECTION 11.17. Inspection. The Issuer agrees that, on reasonable
prior notice, it will permit any representative of the Trustee, during the
Issuer's normal business hours, to examine all the books of account,
records, reports and other papers of the Issuer, to make copies and
extracts therefrom, to cause such books to be audited by Independent
certified public accountants, and to discuss the Issuer's affairs, finances
and accounts with the Issuer's officers, employees and Independent
certified public accountants, all at such reasonable times and as often as
may be reasonably requested. The Trustee shall and shall cause its
representatives to hold in confidence all such information; provided,
however, that the foregoing shall not be construed to prohibit (i)
disclosure of any and all information that is or becomes publicly known, or
information obtained by the Trustee from sources other than the Issuer or
the Servicer, (ii) disclosure of any and all information (A) if required to
do so by any applicable statute, law, rule or regulation, (B) to any
government agency or regulatory or self-regulatory body having or claiming
authority to regulate or oversee any aspects of the Trustee's business or
that of its Affiliates, (C) pursuant to any subpoena, civil investigative
demand or similar demand or request of any court, regulatory authority,
arbitrator or arbitration to which the Trustee, such Noteholder or an
Affiliate thereof or any officer, director, employee or shareholder thereof
is subject, (D) in any preliminary or final placement memorandum,
registration statement or contract or other document pertaining to the
transactions contemplated by the Indenture and approved in advance by the
Issuer or (E) to any Affiliate, independent or internal auditor, agent,
employee or attorney of the Trustee or such Noteholder having a need to
know the same; provided, that the Trustee or such Noteholder advises such
recipient of the confidential nature of the information being disclosed and
such recipient agrees to keep such information confidential, (iii) any
other disclosure authorized by the Issuer or the Servicer
53
<PAGE>
or (iv) disclosure to the other parties to the transactions contemplated by
the Related Documents and the Noteholders.
SECTION 11.18. Conflict with Trust Indenture Act. If any provision
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Indenture by any of the provisions of the
Trust Indenture Act, such required provision shall control.
The provisions of TIA Sections 310 through 317 that impose duties on
any person (including the provisions automatically deemed included herein
unless expressly excluded by this Indenture) are a part of and govern this
Indenture, whether or not physically contained herein.
54
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed by their respective officers duly authorized as of the
day and year first above written.
PARAGON AUTO RECEIVABLES OWNER TRUST ____-_
By: [WILMINGTON TRUST COMPANY], not in its
individual capacity but solely as Owner
Trustee
By: ________________________________
Name:
Title:
[NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION], as Trustee
By: ________________________________
Name:
Title:
55
<PAGE>
EXHIBIT A
to Indenture
FORM OF CLASS A NOTES
REGISTERED $____________1/
No. R-___
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH
HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY
TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
PARAGON AUTO RECEIVABLES OWNER TRUST ____-_
____% ASSET BACKED NOTES, CLASS A
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
TRUSTEE OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
Paragon Auto Receivables Owner Trust ____-_, a Delaware trust
(including any successor, the "Issuer"), for value received, hereby
promises to pay to ______________, or registered assigns, the principal sum
of __________________ DOLLARS ($___________), partially payable on each
Payment Date in an amount equal to the aggregate amount, if any, payable
from the Collection Account in respect of principal on the Class A Notes
pursuant to Section 3.1 of the Indenture and Section 4.5 of the Sale and
Servicing Agreement; provided, however, that the entire unpaid principal
amount of this Note shall be due and payable on the earlier of the Final
Scheduled Payment Date and the Redemption Date, if any, pursuant to Section
10.1 of the Indenture. The Issuer will pay interest on this Note at the
rate per annum shown above, on each Payment Date until the principal of
this Note is paid or made available for payment, on the principal amount of
this Note outstanding on the close of business on the day preceding such
Payment Date, subject to certain limitations
- --------
1/Denominations of $250,000 and integral multiples of $1,000 in excess thereof.
A-1
<PAGE>
contained in Section 3.1 of the Indenture and Section 4.5 of the Sale and
Servicing Agreement. Interest on this Note will accrue for each Payment
Date from the most recent Payment Date on which interest has been paid to
but excluding the then current Payment Date or, if no interest has yet been
paid, from _________ __, ____. Interest will be computed on the basis of a
360-day year of twelve 30-day months. Such principal of and interest on
this Note shall be paid in the manner specified in the Indenture.
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.
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 Trustee 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.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer.
Dated: ________ __, ____
PARAGON AUTO RECEIVABLES OWNER TRUST ____-_
By: [WILMINGTON TRUST COMPANY], not in its individual
capacity but solely as Owner Trustee
By:__________________________________________________
Name:____________________________________________
Title:___________________________________________
A-2
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
Dated: ________ __, ____
[NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION],
not in its individual capacity but solely as Indenture Trustee
By: _____________________________________
Authorized Signatory
A-3
<PAGE>
[REVERSE OF NOTE]
This Note is one of a duly authorized issue of Notes of the
Issuer, designated as its ____% Asset Backed Notes, Class A (herein called
the "Class A Notes" or the "Notes"), all issued under an Indenture, dated
as of ________ __, ____ (such Indenture, as supplemented or amended, is
herein called the "Indenture"), between the Issuer and [Norwest Bank
Minnesota, National Association], not in its individual capacity but solely
as trustee (the "Trustee", which term includes any successor Trustee 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 Trustee and the Holders of the
Notes. The Notes are subject to all terms of the Indenture. All terms used
in this Note that are not otherwise defined herein and that are defined in
the Indenture shall have the meanings assigned to them in or pursuant to
the Indenture.
The Class A Notes and the Class B Notes are and will each be
secured by the collateral pledged as security therefor as provided in the
Indenture.
The Issuer shall pay interest on overdue installments of interest
at the Class A Interest Rate to the extent lawful.
As provided in the Indenture, the Notes may be redeemed pursuant
to Section 10.1 of the Indenture, in whole, but not in part, if the
Servicer exercises its option to purchase the Receivables and the other
Trust Property on any Payment Date if, as of the related Accounting Date,
the Aggregate Principal Balance of Receivables has declined to less than
10% of the Cutoff Date Principal Balance.
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 or the Trustee on the Notes or under the
Indenture or any certificate or other writing delivered in connection
therewith, against (i) the Owner Trustee in its individual capacity or the
Trustee in its individual capacity, (ii) any owner of a beneficial interest
in the Issuer or (iii) any partner, owner, beneficiary, agent, officer,
director or employee of (a) the Owner Trustee in its individual capacity or
the Trustee in its individual capacity, (b) any holder of a beneficial
interest in the Issuer or the Owner Trustee or the Trustee or of (c) any
successor or assign of the Owner Trustee in its individual capacity or the
Trustee in its individual capacity, except as any such Person may have
expressly agreed and except that any such partner, 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.
It is the intent of the Issuer, the Servicer and the Noteholders
that, for purposes of Federal and State income tax and any other tax
measured in whole or in part by income, the Notes will qualify as
indebtedness of the Issuer. The Noteholders, by acceptance of a Note, agree
to treat, and to take no action inconsistent with the treatment of, the
Notes for such tax purposes as indebtedness of the Issuer.
A-4
<PAGE>
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 Issuer, or join in any institution
against the Issuer of, any bankruptcy, reorganization or arrangement,
insolvency or liquidation 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 Related Documents.
This Note and the Indenture shall be construed in accordance with
the laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties
hereunder and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note
or of the Indenture shall alter or impair the obligation of the Issuer,
which is absolute and unconditional, to pay the principal of and interest
on this Note at the times, place and rate, and in the coin or currency,
herein prescribed.
Anything herein to the contrary notwithstanding, except as
expressly provided in the Related Documents, neither [Wilmington Trust
Company], in its individual capacity, [Norwest Bank Minnesota, National
Association], in its individual capacity, any owner of a beneficial
interest in the Issuer, nor any of their respective partners,
beneficiaries, agents, officers, directors, employees, 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 (i) the
Owner Trustee for the sole purpose of binding the assets of the Issuer, and
(ii) the Trustee for the sole purpose of binding the interests of the
Trustee in the assets of the Issuer. The Holder of this Note by the
acceptance hereof agrees that, except as expressly provided in the Related
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.
A-5
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
- -----------------------------------------------------------------
FOR VALUE RECEIVED, the undersigned hereby sells,
assigns and transfers unto _______________________________
__________________________________________________________
(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:
___________________________________
Signatures must be guaranteed by an
"eligible guarantor institution"
meeting the requirements of the Note
Registrar.
- -------------------------
*/ 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.
A-6
<PAGE>
EXHIBIT B
to Indenture
FORM OF CLASS B NOTES
REGISTERED $____________2/
No. R-___
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH
HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY
TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
PARAGON AUTO RECEIVABLES OWNER TRUST ____-_
___% ASSET BACKED NOTES, CLASS B
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
TRUSTEE OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS NOTE MAY NOT BE PURCHASED BY EMPLOYEE BENEFIT PLANS THAT ARE
SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE "CODE"), OR PERSONS USING ASSETS OF SUCH PLANS.
Paragon Auto Receivables Owner Trust ____-_, a Delaware trust
(including any successor, the "Issuer"), for value received, hereby
promises to pay to ________________________, or registered assigns, the
principal sum of __________________ DOLLARS ($___________), partially
payable on each Payment Date in an amount equal to the aggregate amount, if
any, payable from the
- --------
2/Denominations of $250,000 and integral multiples of $1,000 in excess thereof.
B-1
<PAGE>
Collection Account in respect of principal on the Class B Notes pursuant to
Section 3.1 of the Indenture and Section 4.5 of the Sale and Servicing
Agreement; provided, however, that the entire unpaid principal amount of
this Note shall be due and payable on the earlier of the Final Scheduled
Payment Date and the Redemption Date, if any, pursuant to Section 10.1 of
the Indenture. The Issuer will pay interest on this Note at the rate per
annum shown above, on each Payment Date until the principal of this Note is
paid or made available for payment, on the principal amount of this Note
outstanding on the close of business on the day preceding such Payment Date
(after giving effect to all payments of principal made on the preceding
Payment Date), subject to certain limitations contained in Section 3.1 of
the Indenture and Section 4.5 of the Sale and Servicing Agreement. Interest
on this Note will accrue for each Payment Date from the most recent Payment
Date on which interest has been paid to but excluding the then current
Payment Date or, if no interest has yet been paid, from _______ __, ____.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. Such principal of and interest on this Note shall be paid in the
manner specified in the Indenture.
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.
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 Trustee 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-2
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer.
Dated: _________ __, ____
PARAGON AUTO RECEIVABLES OWNER TRUST ____-_
By: [WILMINGTON TRUST COMPANY], not in its individual
capacity but solely as Owner Trustee
By:________________________________________________________
Name:___________________________________________________
Title:__________________________________________________
B-3
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
Dated: ________ __, ____
[NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION],
not in its individual capacity but solely
as Indenture Trustee
By:______________________________________
Authorized Signatory
B-4
<PAGE>
[REVERSE OF NOTE]
This Note is one of a duly authorized issue of Notes of the
Issuer, designated as its ____% Asset Backed Notes, Class B (herein called
the "Class B Notes" or the "Notes"), all issued under an Indenture, dated
as of ________ __, ____ (such Indenture, as supplemented or amended, is
herein called the "Indenture"), between the Issuer and [Norwest Bank
Minnesota, National Association], not in its individual capacity but solely
as trustee (the "Trustee", which term includes any successor Trustee 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 Trustee and the Holders of the
Notes. The Notes are subject to all terms of the Indenture. All terms used
in this Note that are not otherwise defined herein and that are defined in
the Indenture shall have the meanings assigned to them in or pursuant to
the Indenture.
The Class A Notes and the Class B Notes are and will each be
secured by the collateral pledged as security therefor as provided in the
Indenture.
The Issuer shall pay interest on overdue installments of interest
at the Class B Interest Rate to the extent lawful.
As provided in the Indenture, the Notes may be redeemed pursuant
to Section 10.1 of the Indenture, in whole, but not in part, if the
Servicer exercises its option to purchase the Receivables and the other
Trust Property on any Payment Date if, as of the related Accounting Date,
the Aggregate Principal Balance of Receivables has declined to less than
10% of the Cutoff Date Principal Balance.
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 or the Trustee on the Notes or under the
Indenture or any certificate or other writing delivered in connection
therewith, against (i) the Owner Trustee in its individual capacity or the
Trustee in its individual capacity, (ii) any owner of a beneficial interest
in the Issuer or (iii) any partner, owner, beneficiary, agent, officer,
director or employee of (a) the Owner Trustee in its individual capacity or
the Trustee in its individual capacity, (b) any holder of a beneficial
interest in the Issuer or the Owner Trustee or the Trustee or of (c) any
successor or assign of the Owner Trustee in its individual capacity or the
Trustee in its individual capacity, except as any such Person may have
expressly agreed and except that any such partner, 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.
It is the intent of the Issuer, the Servicer and the Noteholders
that, for purposes of Federal and State income tax and any other tax
measured in whole or in part by income, the Notes will qualify as
indebtedness of the Issuer. The Noteholders, by acceptance of a Note, agree
to treat, and to take no action inconsistent with the treatment of, the
Notes for such tax purposes as indebtedness of the Issuer.
B-5
<PAGE>
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 Issuer, or join in any institution
against the Issuer of, any bankruptcy, reorganization or arrangement,
insolvency or liquidation 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 Related Documents.
This Note and the Indenture shall be construed in accordance with
the laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties
hereunder and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note
or of the Indenture shall alter or impair the obligation of the Issuer,
which is absolute and unconditional, to pay the principal of and interest
on this Note at the times, place and rate, and in the coin or currency,
herein prescribed.
Anything herein to the contrary notwithstanding, except as
expressly provided in the Related Documents, neither [Wilmington Trust
Company], in its individual capacity, [Norwest Bank Minnesota, National
Association], in its individual capacity, any owner of a beneficial
interest in the Issuer, nor any of their respective partners,
beneficiaries, agents, officers, directors, employees, 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 (i) the
Owner Trustee for the sole purpose of binding the assets of the Issuer and
(ii) the Trustee for the sole purpose of binding the interests of the
Trustee in the assets of the Issuer. The Holder of this Note by the
acceptance hereof agrees that, except as expressly provided in the Related
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.
B-6
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
- -----------------------------------------------------------------
FOR VALUE RECEIVED, the undersigned hereby sells,
assigns and transfers unto _______________________________
__________________________________________________________
(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:
___________________________________
Signatures must be guaranteed by an
"eligible guarantor institution"
meeting the requirements of the Note
Registrar.
- -------------------------
*/ 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.
B-7
Exhibit 4.2
- -------------------------------------------------------------------------------
TRUST AGREEMENT
between
PARAGON ACCEPTANCE CORPORATION
[WILMINGTON TRUST COMPANY]
OWNER TRUSTEE
and
PARAGON AUTO RECEIVABLES CORPORATION
Dated as of __________ __, ____
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I.
Definitions
SECTION 1.1. Capitalized Terms..............................................1
SECTION 1.2. Usage of Terms.................................................3
ARTICLE II.
Organization
SECTION 2.1. Name...........................................................3
SECTION 2.2. Office.........................................................3
SECTION 2.3. Purposes and Powers............................................3
SECTION 2.4. Appointment of Owner Trustee...................................4
SECTION 2.5. Initial Capital Contribution of Trust Property.................4
SECTION 2.6. Declaration of Trust...........................................4
SECTION 2.7. No Liability of Certificateholder..............................5
SECTION 2.8. Title to Trust Property........................................5
SECTION 2.9. Situs of Trust.................................................5
SECTION 2.10. Representations and Warranties of each of PAC and the
Certificateholder(s)...........................................5
SECTION 2.11. Federal Income Tax Allocations.................................7
SECTION 2.12. Covenants of Paragon Auto......................................8
SECTION 2.13. Covenants of the Holders.......................................9
ARTICLE III.
Certificates and Transfer of Interests
SECTION 3.1. Initial Ownership..............................................9
SECTION 3.2. The Certificates..............................................10
SECTION 3.3. Authentication of Certificates................................10
SECTION 3.4. Registration of Transfer and Exchange of Certificates.........10
SECTION 3.5. Mutilated, Destroyed, Lost or Stolen Certificates.............11
SECTION 3.6. Persons Deemed Certificateholder(s)...........................12
SECTION 3.7. Access to List of Certificateholder(s)' Names and Addresses...12
SECTION 3.8. Maintenance of Office or Agency...............................12
SECTION 3.9. ERISA Restrictions............................................13
ARTICLE IV.
Voting Rights and Other Actions
SECTION 4.1. Prior Notice to Holders with Respect to Certain Matters.......13
SECTION 4.2. Action by Certificateholder(s) with Respect to Certain
Matters.......................................................13
i
<PAGE>
SECTION 4.3. Action by Certificateholder(s) with Respect to Bankruptcy.....14
SECTION 4.4. Restrictions on Certificateholder(s)' Power...................14
SECTION 4.5. Majority Control..............................................15
ARTICLE V.
Certain Duties
SECTION 5.1. Accounting and Records to the Noteholders,
Certificateholder(s), the Internal Revenue Service and
Others........................................................15
SECTION 5.2. Signature on Returns; Tax Matters Partner.....................15
SECTION 5.3. Payments to Certificateholders................................16
ARTICLE VI.
Authority and Duties of Owner Trustee
SECTION 6.1. General Authority.............................................16
SECTION 6.2. General Duties................................................16
SECTION 6.3. Action upon Instruction.......................................17
SECTION 6.4. No Duties Except as Specified in this Agreement or in
Instructions..................................................18
SECTION 6.5. No Action Except under Specified Documents or Instructions....18
SECTION 6.6. Restrictions..................................................18
ARTICLE VII.
Concerning the Owner Trustee
SECTION 7.1. Acceptance of Trusts and Duties...............................19
SECTION 7.2. Furnishing of Documents.......................................20
SECTION 7.3. Representations and Warranties................................20
SECTION 7.4. Reliance; Advice of Counsel...................................21
SECTION 7.5. Not Acting in Individual Capacity.............................21
SECTION 7.6. Owner Trustee Not Liable for Certificates or Receivables......21
SECTION 7.7. Payments from Trust Property..................................22
SECTION 7.8. Doing Business in Other Jurisdictions.........................22
ARTICLE VIII.
Compensation of Owner Trustee
SECTION 8.1. Owner Trustee's Fees and Expenses.............................23
SECTION 8.2. Indemnification...............................................23
SECTION 8.3. Payments to the Owner Trustee.................................23
SECTION 8.4. Non-recourse Obligations......................................24
ii
<PAGE>
ARTICLE IX.
Termination of Trust Agreement
SECTION 9.1. Termination of Trust Agreement................................24
ARTICLE X.
Successor Owner Trustees and Additional Owner Trustees
SECTION 10.1. Eligibility Requirements for Owner Trustee...................25
SECTION 10.2. Resignation or Removal of Owner Trustee......................26
SECTION 10.3. Successor Owner Trustee......................................26
SECTION 10.4. Merger or Consolidation of Owner Trustee.....................27
SECTION 10.5. Appointment of Co-Trustee or Separate Trustee................27
ARTICLE XI.
Miscellaneous
SECTION 11.1. Supplements and Amendments...................................29
SECTION 11.2. No Legal Title to Trust Property in Certificateholder(s).....30
SECTION 11.3. Limitations on Rights of Others..............................30
SECTION 11.4. Notices......................................................30
SECTION 11.5. Severability.................................................31
SECTION 11.6. Separate Counterparts........................................31
SECTION 11.7. Assignments..................................................31
SECTION 11.8. No Petition..................................................31
SECTION 11.9. Bankruptcy Matters...........................................31
SECTION 11.10. No Recourse..................................................32
SECTION 11.11. Headings.....................................................32
SECTION 11.12. GOVERNING LAW................................................32
SECTION 11.13. Servicer.....................................................32
EXHIBITS
Exhibit A Form of Certificate
iii
<PAGE>
TRUST AGREEMENT, dated as of _________ __, ____, between
PARAGON ACCEPTANCE CORPORATION., a Delaware corporation ("PAC" or in its
capacity as Servicer, the "Servicer"), PARAGON AUTO RECEIVABLES
CORPORATION, a Delaware corporation, as trustor and as Holder of the
Certificate ("Paragon Auto"), and [Wilmington Trust Company, a Delaware
banking corporation], as Owner Trustee.
ARTICLE I.
Definitions
SECTION 1.1. Capitalized Terms. Capitalized terms used but
not defined herein shall have the meanings set forth in the Sale and Servicing
Agreement (as defined below). For all purposes of this Agreement, the
following terms shall have the meanings set forth below:
"Agreement" shall mean this Trust Agreement, as the same
may be amended and supplemented from time to time.
"Benefit Plan" shall have the meaning assigned to such term in
Section 3.9.
"Certificate" means a certificate evidencing the
beneficial interest of a Certificateholder in the Issuer, substantially in
the form of Exhibit A.
"Certificate Balance" shall have the meaning assigned to
such term in Section 2.5.
"Certificate Percentage Interest" shall mean with respect
to any Certificate, the percentage interest of ownership in the Issuer
represented thereby as set forth on the face thereof.
"Certificate Register" and "Certificate Registrar" shall
mean the register mentioned in and the registrar appointed pursuant to
Section 3.4.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and Treasury Regulations promulgated thereunder.
"Corporate Trust Office" shall mean, with respect to the
Owner Trustee, the principal corporate trust office of the Owner Trustee
located at [Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19890, Attention: Corporate Trust Administration], or at such
other address as the Owner Trustee may designate by notice to the
Certificateholder(s), and PAC, or the principal corporate trust office
1
<PAGE>
of any successor Owner Trustee (the address of which the successor owner
trustee will notify the Certificateholder(s), and PAC).
"Equity Interests" shall have the meaning assigned to
such term in Section 2.11.
"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.
"Governmental Authority" shall mean any court or federal
or state regulatory body, administrative agency or other tribunal or other
governmental instrumentality.
"Holder" or "Certificateholder" shall mean the Person in
whose name a Certificate is registered on the Certificate Register.
"Indemnified Parties" shall have the meaning assigned to such
term in Section 8.2.
"Instructing Party" shall have the meaning assigned to such
term in Section 6.3(a).
"Issuer" shall mean the Trust established by this 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.
"Paragon Auto" shall mean Paragon Auto Receivables
Corporation, a Delaware corporation.
"Sale and Servicing Agreement" shall mean the Sale and
Servicing Agreement, dated as of _________ __, ____, between the Issuer,
Paragon Auto, PAC, in its individual capacity and as Servicer, and [Norwest
Bank Minnesota, National Association], as Indenture Trustee and Backup
Servicer, as the same may be amended or supplemented from time to time.
"Secretary of State" shall mean the Secretary of State of the
State of Delaware.
"Treasury Regulations" shall mean regulations, including
proposed or temporary regulations, promulgated under the Code. References
herein to specific
2
<PAGE>
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
SECTION 1.2. 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 one 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, and the terms "include" or "including"
mean "include without limitation" or "including without limitation."
ARTICLE II.
Organization
SECTION 2.1. Name. There is hereby formed a trust to be
known as "Paragon Auto Receivables Owner Trust ____-_," in which name the
Owner Trustee may conduct the business of the Issuer, make and execute
contracts and other instruments on behalf of the Issuer and sue and be sued
on behalf of the Issuer.
SECTION 2.2. Office. The office of the Issuer shall be
(a) in care of the Owner Trustee at the Corporate Trust Office or at such
other address in Delaware as the Owner Trustee may designate by written
notice to the Certificateholder(s) and PAC or (b) at the principal
corporate trust office of any successor Owner Trustee (the address of which
the successor Owner Trustee will notify the Certificateholder(s) and PAC).
SECTION 2.3. Purposes and Powers. (a) The purpose of the
Issuer is, and the Issuer shall have the power and authority, to engage in the
following activities:
(i) to acquire from time to time the Trust
Property;
(ii) to issue the Notes pursuant to the
Indenture and the Certificates pursuant to this Agreement, and to
sell the Notes and the Certificates;
(iii) with the proceeds of the sale of the
Notes, to fund Trust accounts, to pay the organizational, start-up
and transactional expenses of the Issuer and to pay the balance to
Paragon Auto pursuant to the Sale and Servicing Agreement;
3
<PAGE>
(iv) to assign, grant, transfer, pledge,
mortgage and convey the Trust Property to the Indenture Trustee
pursuant to the Indenture for the benefit of the Noteholders and
to hold, manage and distribute to the Certificateholder(s) and the
Seller pursuant to the terms of the Sale and Servicing Agreement
any portion of the Trust Property released from the Lien of, and
remitted to the Issuer pursuant to, the Indenture and the Sale and
Servicing Agreement;
(v) to enter into and perform its obligations
under the Related Documents to which it is a party;
(vi) 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
(vii) subject to compliance with the Related
Documents, to engage in such other activities as may be required
in connection with conservation of the Trust Property and the
making of distributions to the Certificateholder(s) and the
Noteholders.
The Issuer is hereby authorized to engage in the foregoing activities. The
Issuer 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 Related Documents.
SECTION 2.4. Appointment of Owner Trustee. Paragon Auto
hereby appoints the Owner Trustee as trustee of the Issuer effective as of
the date hereof, to have all the rights, powers and duties set forth
herein, and the Owner Trustee by execution hereof accepts such appointment.
SECTION 2.5. Initial Capital Contribution of Trust
Property. Paragon Auto hereby sells, assigns, transfers, conveys and sets
over to the Owner Trustee, as of the date hereof, the sum of $10 (the
"Initial Certificate Balance"). The Owner Trustee hereby acknowledges
receipt in trust from Paragon Auto, as of the date hereof, of the foregoing
contribution, which shall constitute the initial Trust Property and shall
be deposited into the Collection Account.
SECTION 2.6. Declaration of Trust. The Owner Trustee
hereby declares that it will hold the Trust Property in trust upon and
subject to the conditions set forth herein for the use and benefit of the
Holders, subject to the obligations of the Issuer under the Related
Documents. The Issuer shall constitute a trust under Delaware
law, and this Agreement shall constitute the governing instrument of such
Delaware trust. It is the intention of the parties hereto that, solely for
income and franchise tax purposes, until the Certificates are held by more
than one person or the Trust is recharacterized as a separate entity, the
Trust will be disregarded as an entity separate from its beneficial owner
and the Notes will be treated as debt of the
4
<PAGE>
Certificateholder. If the Certificates are held by more than one person or
the Trust is recharacterized as a separate entity, it is the intention of
the parties hereto that, solely for income and franchise tax purposes, the
Issuer shall be treated as a partnership with the assets of the partnership
being the Trust Property, the partners of the partnership being the
Certificateholders and the Notes being debt of the partnership. The parties
agree that, unless otherwise required by appropriate tax authorities, until
the Certificates are held by more than one person or the Trust is
recharacterized as a separate entity, the Trust will not file or cause to
be filed annual or other necessary returns, reports and other forms
characterizing the Issuer as a partnership for income and franchise tax
purposes. Effective as of the date hereof, the Owner Trustee shall have all
rights, powers and duties set forth herein.
SECTION 2.7. No Liability of Certificateholder. No
Certificateholder shall have any personal liability for any liability or
obligation of the Issuer.
SECTION 2.8. Title to Trust Property. (a) Legal title to
all the Trust Property shall be vested at all times in the Issuer as a
separate legal entity except where applicable law in any jurisdiction
requires title to any part of the Trust Property 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 Holders shall not have legal title to any part of
the Trust Property. The Holders shall be entitled to receive distributions
with respect to their undivided ownership interest therein only in
accordance with Articles V and IX. No transfer, by operation of law or
otherwise, of any right, title or interest by any Certificateholder of its
beneficial or other ownership interest in the Trust Property 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 Issuer shall be located
and administered in the State of Delaware or California. The Issuer's
assets shall be segregated. All bank accounts maintained by the Owner
Trustee on behalf of the Issuer shall be located in the State of Delaware.
Payments shall be received by the Issuer only in Delaware, Minnesota or
California and payments will be made by the Issuer only from Delaware. The
Issuer 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 Issuer from having employees
within or without the State of Delaware, Minnesota or California. The only
office of the Issuer shall be at the Corporate Trust Office in Delaware.
SECTION 2.10. Representations and Warranties of each of
PAC and the Certificateholder(s). Each of PAC and the Certificateholder(s)
makes the following representations and warranties as to itself upon which
the Owner Trustee relies in accepting the Trust Property in trust and
issuing the Certificates.
5
<PAGE>
(a) Organization and Good Standing. It is duly organized
and is validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation, with power and authority to own its
properties and to conduct its business as such properties are currently
owned and such business is currently conducted, and has power and authority
to enter into and perform its obligations under its Related Documents.
(b) Due Qualification. It is duly qualified to do
business as a foreign corporation in good standing and has obtained all
necessary licenses and approvals in all jurisdictions where the failure to
do so would have a material adverse effect on its ability to perform its
obligations under its Related Documents and its ability to enforce the
Receivables and the other Trust Property.
(c) Power and Authority. It has the power and authority
to execute and deliver this Agreement and its Related Documents and to
carry out its and their terms, and the execution, delivery and performance
of this Agreement and its Related Documents have been duly authorized by
all necessary corporate action.
(d) No Consent Required. No consent, license, approval,
authorization or order of, or registration, declaration or filing with, any
Governmental Authority or other Person is required to be made in connection
with the execution, delivery or performance of this Agreement or its
Related Documents or the consummation of the transactions contemplated
hereby or thereby, except such as have been duly made, effected or
obtained.
(e) No Violation. The execution, delivery and performance
by it of this Agreement and its Related Documents, the consummation of the
transactions contemplated hereby and thereby, and the fulfillment of the
terms hereof and thereof, do not (i) 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, its certificate of incorporation or
bylaws, or any indenture, agreement, mortgage, deed of trust or other
instrument to which it is a party or by which it or its properties are
bound, (ii) 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 (iii) to the best of its
knowledge, violate any law, order, rule or regulation applicable to it of
any Governmental Authority having jurisdiction over it or any of its
properties.
(f) Binding Obligations. Its Related Documents, when duly
executed and delivered, shall constitute legal, valid and binding
obligations of it enforceable in accordance with their respective terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and by equitable limitations on the
availability of specific remedies, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
6
<PAGE>
(g) No Proceedings. There are no proceedings or
investigations pending or, to the best of its knowledge, threatened against
it before any Governmental Authority having jurisdiction over it or its
properties (i) asserting the invalidity of any of the Related Documents,
(ii) seeking to prevent the issuance of the Certificates or the
consummation of any of the transactions contemplated by the Related
Documents, (iii) seeking any determination or ruling that would have a
material adverse effect on the performance by it of its obligations under,
or the validity or enforceability of, any of the Related Documents or (iv)
seeking to materially and adversely affect the federal income tax or other
federal, state or local tax attributes of the Certificates or seeking to
impose any excise, franchise, transfer or similar tax upon the Certificates
or the sale and assignment of the Receivables under the Related Documents.
SECTION 2.11. Federal Income Tax Allocations. If
Certificates are held by more than one person or the Trust is
recharacterized as a separate entity, interest payments on the Certificates
(or other interests in the Trust treated as equity in the Trust for
applicable tax purposes ("Equity Interests"), including interest on amounts
previously due on the Certificates or Equity Interests but not yet
distributed) shall be treated as "guaranteed payments" under Section 707(c)
of the Code. Net income of the Issuer 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:
(a) among the Certificateholders and Equity Interest
holders as of the close of business on the last day of such month,
in proportion to their ownership of principal amount of
Certificates and Equity Interests on such date, an amount of net
income up to the sum of: (i) the portion of the market discount on
the Receivables accrued during such month that is allocable to the
excess, if any, of the initial Certificate Balance over their
initial aggregate issue price, (ii) Certificateholders' and Equity
Interest holders' prepayment premium, if any, payable for such
month and (iii) any other amounts of income payable to the
Certificateholders or Equity Interest holders for such month; and
such sum of amounts specified in clauses (i) through (iii) of this
sentence shall be reduced by any amortization by the Trust of
premium on Receivables that corresponds to any excess of the issue
price of Certificates or Equity Interests over their principal
amount; and
(b) to Paragon Auto, and other holders of interests in
the Reserve Account, to the extent of any remaining net income, in
accordance with their respective interests therein.
If the net income of the Trust for any month is insufficient for the
allocations described in clause (a), subsequent net income shall first be
allocated to make up such shortfall before being allocated as provided in
the preceding sentence. Net losses of
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the Trust, if any, 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 to Paragon Auto (or other
holders of interests in the Reserve Account) to the extent Paragon Auto (or
such holders) are reasonably expected to bear the economic burden of such
net losses, and any remaining net losses shall be allocated among the
remaining Certificateholders and Equity Interest holders as of the close of
business on the last day of such month in proportion to their ownership of
principal amount of Certificates and Equity Interests on such day. Paragon
Auto is authorized to modify the allocations in this paragraph if necessary
or appropriate, in its sole discretion, for the allocations to fairly
reflect the economic income, gain or loss to Paragon Auto (or other holders
of interests in the Reserve Account) or to the Certificateholders or Equity
Interest holders, or as otherwise required by the Code. Notwithstanding
anything provided in this Section 2.11, if the Certificates are held solely
by one person or the Trust has not been recharacterized as a separate
entity, the application of this Section 2.11 shall be disregarded.
SECTION 2.12. Covenants of Paragon Auto. Paragon Auto
agrees and covenants for the benefit of each Holder and the Owner Trustee,
during the term of this Agreement, and to the fullest extent permitted by
applicable law, that:
(a) it shall not create, incur or suffer to exist any
indebtedness or engage in any business, except, in each case, as permitted
by its certificate of incorporation and the other Related Documents;
(b) it shall not, for any reason, institute proceedings
for the Issuer to be adjudicated a bankrupt or insolvent, or consent to the
institution of bankruptcy or insolvency proceedings against the Issuer, or
file a petition seeking or consenting to reorganization or relief under any
applicable federal or state law relating to the bankruptcy of the Issuer,
or consent to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Issuer or a substantial
part of the property of the Issuer or cause or permit the Issuer to make
any assignment for the benefit of creditors, or admit in writing the
inability of the Issuer to pay its debts generally as they become due, or
declare or effect a moratorium on the debt of the Issuer or take any action
in furtherance of any such action; and
(c) it shall not, for any reason, institute proceedings
for it to be adjudicated a bankrupt or insolvent, or consent to the
institution of bankruptcy or insolvency proceedings against it, or file a
petition seeking or consenting to reorganization or relief under any
applicable federal or state law relating to bankruptcy, or consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of it or a substantial part of its property, or
make any assignment for the benefit of creditors, or admit in writing its
inability to pay its debts
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generally as they become due, or declare or effect a moratorium on its debt
or take any action in furtherance of any such action.
SECTION 2.13. Covenants of the Holders. Each Holder agrees:
(a) to be bound by the terms and conditions of the
Certificates of which such Holder is the owner and of this Agreement,
including any supplements or amendments hereto, and to perform the
obligations of a Holder as set forth therein or herein, in all respects as
if it were a signatory hereto. This undertaking is made for the benefit of
the Issuer, the Owner Trustee and all other Holders present and future;
(b) to hereby appoint Paragon Auto as such Holder's agent
and attorney-in-fact to sign any federal income tax information return
filed on behalf of the Issuer and agree that, if requested by the Issuer,
it will sign such federal income tax information return in its capacity as
holder of an interest in the Issuer. Each Holder also hereby agrees that in
its tax returns it will not take any position inconsistent with those taken
in any tax returns filed by the Issuer;
(c) if such Holder is other than an individual or other
entity holding its Certificate through a broker who reports securities
sales on Form 1099-B, to notify the Owner Trustee of any transfer by it of
a Certificate in a taxable sale or exchange, within 30 days of the date of
the transfer; and
(d) until the completion of the events specified in
Section 9.1(e), not to, for any reason, institute proceedings for the
Issuer or Paragon Auto to be adjudicated a bankrupt or insolvent, or
consent to the institution of bankruptcy or insolvency proceedings against
the Issuer or Paragon Auto, 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 Issuer
or Paragon Auto or a substantial part of its property, or cause or permit
the Issuer or Paragon Auto 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.
ARTICLE III.
Certificates and Transfer of Interests
SECTION 3.1. Initial Ownership. Upon the formation of the
Issuer by the contribution by Paragon Auto pursuant to Section 2.5 and upon the
issuance of the Certificates, Paragon Auto shall be the sole initial beneficiary
of the Issuer.
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SECTION 3.2. The Certificates. The Certificates shall be
initially issued to Paragon Auto in a Certificate Percentage Interest of
100%. The Certificates shall be executed on behalf of the Issuer by manual
or facsimile signature of an authorized officer of the Owner Trustee.
Certificates bearing the manual or facsimile signatures of individuals who
were, at the time when such signatures shall have been affixed, authorized
to sign on behalf of the Issuer shall be validly issued and entitled to the
benefit of this Agreement, notwithstanding that such individuals or any of
them shall have ceased to be so authorized prior to the authentication and
delivery of such Certificates or did not hold such offices at the date of
authentication and delivery of such Certificates. A transferee of a
Certificate shall become a Certificateholder, and shall be entitled to the
rights and subject to the obligations of a Certificateholder hereunder,
upon due registration of such Certificate in such transferee's name
pursuant to Section 3.4.
SECTION 3.3. Authentication of Certificates. Concurrently
with the initial sale of the Receivables to the Issuer pursuant to the Sale
and Servicing Agreement, the Owner Trustee shall cause the Certificates in
an aggregate Certificate Percentage Interest equal to 100% to be executed
on behalf of the Issuer, authenticated and delivered to or upon the written
order of Paragon Auto, signed by its chairman of the board, its president
or any vice president, its treasurer or any assistant treasurer without
further corporate action by Paragon Auto, in authorized denominations. No
Certificate shall entitle its holder to any benefit under this Agreement,
or shall be valid for any purpose, unless there shall appear on such
Certificate a certificate of authentication substantially in the form set
forth in Exhibit A, executed by the Owner Trustee by manual signature. Such
authentication shall constitute conclusive evidence that such Certificate
shall have been duly authenticated and delivered hereunder. All
Certificates shall be dated the date of their authentication.
SECTION 3.4. Registration of Transfer and Exchange of
Certificates. The Certificate Registrar shall keep or cause to be kept, at
the office or agency maintained pursuant to Section 3.8, a Certificate
Register in which, subject to such reasonable regulations as it may
prescribe, the Owner Trustee shall provide for the registration of
Certificates and of transfers and exchanges of Certificates as herein
provided. [Wilmington Trust Company] shall be the initial Certificate
Registrar.
The Certificate Registrar shall provide the Indenture
Trustee with a list of the names and addresses of the Certificateholder(s)
on the Closing Date. Upon any transfers of Certificates, the Certificate
Registrar shall promptly notify the Servicer and the Indenture Trustee of
the name and address of the transferee in writing, by facsimile.
Upon surrender for registration of transfer of any
Certificate at the office or agency maintained pursuant to Section 3.8, the
Owner Trustee shall execute,
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authenticate and deliver (or shall cause its authenticating agent to
authenticate and deliver), in the name of the designated transferee or
transferees, one or more new Certificates in authorized denominations of a
like class and aggregate Certificate Percentage Interest dated the date of
authentication by the Owner Trustee or any authenticating agent. At the
option of a Holder, Certificates may be exchanged for other Certificates of
the same class in authorized denominations of a like aggregate amount upon
surrender of the Certificates to be exchanged at the office or agency
maintained pursuant to Section 3.8.
Every Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Owner Trustee and the
Certificate Registrar duly executed by the Certificateholder or his
attorney duly authorized in writing, with such signature guaranteed by an
"eligible guarantor institution" meeting the requirements of the
Certificate Registrar, which requirements include membership or
participation in the Securities Transfer Agent's Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined
by the Certificate Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Exchange Act. No transfer of a Certificate shall
be registered unless the transferee shall have provided an opinion of
counsel that no registration is required under the Securities Act of 1933,
as amended, the Investment Company Act of 1940, as amended or any
applicable state laws. Each Certificate surrendered for registration of
transfer or exchange shall be canceled and subsequently disposed of by the
Owner Trustee in accordance with its customary practice.
No service charge shall be made for any registration of
transfer or exchange of Certificates, but the Owner Trustee or the
Certificate Registrar may require payment of a sum sufficient to cover any
tax or governmental charge that may be imposed in connection with any
transfer or exchange of Certificates.
Notwithstanding the preceding provisions of this Section
3.4, the Owner Trustee shall not be required to make, and the Certificate
Registrar shall not be required to register, transfers or exchanges of
Certificates for a period of 15 days preceding the due date for any payment
with respect to the Certificates.
SECTION 3.5. Mutilated, Destroyed, Lost or Stolen
Certificates. If (a) any mutilated Certificate shall be surrendered to
the Certificate Registrar, or if the Certificate Registrar shall receive
evidence to its satisfaction of the destruction, loss or theft of any
Certificate and (b) there shall be delivered to the Certificate Registrar
and the Owner Trustee such security or indemnity as may be reasonably
required by them to save each of them harmless, then in the absence of
notice that such Certificate shall have been acquired by a bona fide
purchaser, the Owner Trustee on behalf of the Issuer shall execute and the
Owner Trustee, or the Owner Trustee's authenticating agent, shall
authenticate and deliver, in exchange for or in lieu of any
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such mutilated, destroyed, lost or stolen Certificate, a new Certificate of
like class, tenor and Certificate Percentage Interest. In connection with
the issuance of any new Certificate under this Section 3.5, 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 3.5 shall constitute conclusive evidence of an ownership
interest in the Issuer, as if originally issued, whether or not the lost,
stolen or destroyed Certificate shall be found at any time.
SECTION 3.6. Persons Deemed Certificateholder(s). Every
Person by virtue of becoming a Certificateholder in accordance with this
Agreement shall be deemed to be bound by the terms of this Agreement. Prior
to due presentation of a Certificate for registration of transfer, the
Owner Trustee and the Certificate Registrar and any agent of the Owner
Trustee or the Certificate Registrar, may treat the Person in whose name
any Certificate shall be registered in the Certificate Register as the
owner of such Certificate for the purpose of receiving distributions
pursuant to the Sale and Servicing Agreement and for all other purposes
whatsoever, and neither the Owner Trustee nor the Certificate Registrar nor
any agent of the Owner Trustee or the Certificate Registrar shall be bound
by any notice to the contrary.
SECTION 3.7. Access to List of Certificateholder(s)'
Names and Addresses. The Owner Trustee shall furnish or cause to be
furnished to the Servicer or PAC, within 15 days after receipt by the Owner
Trustee of a request therefor from such Person in writing, a list of the
names and addresses of the Certificateholder(s) as of the most recent
Record Date. If three or more Holders of Certificates or one or more
Holders of Certificates evidencing not less than a Certificate Percentage
Interest equal to 25% apply in writing to the Owner Trustee, and such
application states that the applicants desire to communicate with other
Certificateholder(s) with respect to their rights under this Agreement or
under the Certificates and such application is accompanied by a copy of the
communication that such applicants propose to transmit, then the Owner
Trustee shall, within five Business Days after the receipt of such
application, afford such applicants access during normal business hours to
the current list of Certificateholder(s). Each Holder or Owner, by
receiving and holding a Certificate, shall be deemed to have agreed not to
hold any of PAC, the Servicer, the Owner Trustee 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 Certificates may be surrendered for registration of transfer
or exchange and where notices and demands to or upon the Owner Trustee in
respect of the Certificates and the Related Documents may be served. The Owner
Trustee initially designates its Corporate Trust Office for such purposes.
The Owner Trustee shall give
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prompt written notice to PAC and the Certificateholder(s) of any change in
the location of the Certificate Register or any such office or agency.
SECTION 3.9. ERISA Restrictions. The Certificates may not
be acquired by or for the account of (i) an employee benefit plan (as
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) that is subject to the provisions of Title 1 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"). By accepting and
holding its beneficial ownership interest in its Certificate, the Holder
thereof shall be deemed to have represented and warranted that it is not a
Benefit Plan.
ARTICLE IV.
Voting Rights and Other Actions
SECTION 4.1. Prior Notice to Holders with Respect to
Certain Matters. With respect to the following matters, the Owner Trustee
shall not take any of the actions set forth below unless at least 30 days
before the taking of such action, the Owner Trustee shall have notified the
Certificateholder(s) in writing of the proposed action and the
Certificateholder(s) shall have notified the Owner Trustee in writing that
such Certificateholder(s) have consented thereto:
(a) the amendment of the Indenture by a supplemental indenture
in circumstances where the consent of any Noteholder is required;
(b) the amendment of the Indenture by a supplemental
indenture in circumstances where the consent of any Noteholder is not
required and such amendment would materially and adversely affect the
interests of the Certificateholder(s); or
(c) 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 and
adversely affect the interests of the Certificateholder(s).
The Owner Trustee shall notify the Certificateholder(s) in writing of any
appointment of a successor Note Registrar, Indenture Trustee or Certificate
Registrar within five Business Days thereof.
SECTION 4.2. Action by Certificateholder(s) with Respect to
Certain Matters. The Owner Trustee shall not have the power, except upon the
direction of
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the Certificateholder(s) and in accordance with the Related Documents, to
(a) remove the Servicer under the Sale and Servicing Agreement or (b) 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 Certificateholder(s) and the furnishing
of indemnification satisfactory to the Owner Trustee by the
Certificateholder(s).
SECTION 4.3. Action by Certificateholder(s) with Respect
to Bankruptcy. The Owner Trustee shall not have the power to, and shall
not, commence any proceeding or other actions contemplated by Section
2.12(b) relating to the Issuer without the unanimous prior approval of all
Certificateholder(s).
SECTION 4.4. Restrictions on Certificateholder(s)' Power.
(a) The Certificateholder(s) 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 Issuer or the Owner Trustee under this Agreement
or any of the Related 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.
(b) To the fullest extent permitted by law, no
Certificateholder shall have any right by virtue or by availing itself of
any provisions of this Agreement to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this
Agreement or any Related Document, unless: (i) the Certificateholder(s) are
the Instructing Party pursuant to Section 6.3 and shall previously have
given to the Owner Trustee a written notice of default and of the
continuance thereof, as provided in this Agreement; (ii)
Certificateholder(s) evidencing not less than a Certificate Percentage
Interest equal to 25% shall have made written request to 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; (iii) 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 (iv) 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 4.4(b) or Section 6.3;
provided, however, that each Certificateholder hereby agrees with every
other Certificateholder and the Owner Trustee that no one or more Holders
of Certificates shall have any right in any manner whatever by virtue or by
availing itself or themselves of any provisions of this Agreement to
affect, disturb or prejudice the rights of the Holders of any other of the
Certificates, or to obtain or seek to obtain priority over or preference to
any other such Holder, or to enforce any right under this Agreement, except
in the manner provided in this Agreement and for the equal, ratable and
common benefit of all Certificateholder(s). For the protection and
enforcement
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of the provisions of this Section 4.4, each and every Certificateholder and
the Owner Trustee shall be entitled to such relief as can be given either
at law or in equity.
SECTION 4.5. Majority Control. No Certificateholder shall
have any right to vote or in any manner otherwise control the operation and
management of the Issuer except as expressly provided in this Agreement.
Except as expressly provided herein, any action that may be taken by the
Certificateholder(s) under this Agreement may be taken by the Instructing
Party. Except as expressly provided herein, any written notice of the
Certificateholder(s) delivered pursuant to this Agreement shall be
effective if signed by the Instructing Party.
ARTICLE V.
Certain Duties
SECTION 5.1. Accounting and Records to the Noteholders,
Certificateholder(s), the Internal Revenue Service and Others. Subject to
Section 2.6 of this Agreement, Paragon Auto shall: (a) maintain (or cause
to be maintained) the books of the Issuer on a calendar year basis on the
accrual method of accounting (including the allocations, net income and net
loss under Section 2.11); (b) prepare and deliver (or cause to be
delivered) to each Certificateholder, as may be required by the Code and
applicable Treasury Regulations, such information as may be required
(including Schedule K-1) to enable each Certificateholder to prepare its
federal and state income tax returns; (c) prepare and file or cause to be
filed such tax returns relating to the Issuer (including a partnership
information return, Form 1065), and direct the Owner Trustee or the
Servicer, as the case may be, to make such elections as may from time to
time be required or appropriate under any applicable state or federal
statute or rule or regulation thereunder so as to maintain the Issuer's
characterization as a partnership for federal income tax purposes; and (d)
collect or cause to be collected any withholding tax as required under the
Code with respect to income or distributions to Certificateholder(s) and
the appropriate forms relating thereto. Subject to Section 2.6, the Owner
Trustee shall make all elections pursuant to this Section 5.1 as directed
by Paragon Auto. The Owner Trustee shall sign all tax information returns
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, Paragon
Auto or the Servicer, as the case may be. The Owner Trustee shall elect
under Section 1278 of the Code to include in income currently any market
discount that accrues with respect to the Receivables. The Owner Trustee
shall not make the election provided under Section 754 of the Code.
SECTION 5.2. Signature on Returns; Tax Matters Partner. (a)
Notwithstanding the provisions of Section 5.1 and subject to Section 2.6, the
Owner
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Trustee shall sign on behalf of the Issuer the tax returns of the Issuer,
if any, unless applicable law requires a Certificateholder to sign such
documents, in which case such documents shall be signed by Paragon Auto.
(b) Subject to Section 2.6, Paragon Auto shall be the
"tax matters partner" of the Issuer pursuant to the Code.
SECTION 5.3. Payments to Certificateholders. On each
Payment Date, the Indenture Trustee will distribute to the
Certificateholder(s) as of the related Record Date each such
Certificateholder's Certificate Percentage Interest in the amount to be
distributed on such Payment Date pursuant to Section 4.5(a)(xii) of the
Sale and Servicing Agreement by wire transfer or check mailed to such
Certificateholder.
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 Related Documents to
which the Issuer is named as a party and each certificate or other document
attached as an exhibit to or contemplated by the Related Documents to which
the Issuer is named as a party and any amendment thereto, in each case in
such form as Paragon Auto shall approve as evidenced conclusively by the
Owner Trustee's execution thereof, and on behalf of the Issuer, to direct
the Indenture Trustee to authenticate and deliver Class A Notes in the
aggregate principal amount of $_____________, and Class B Notes in the
aggregate principal amount of $____________. In addition to the foregoing,
the Owner Trustee is authorized, but shall not be obligated, to take all
actions required of the Issuer pursuant to the Related Documents. The Owner
Trustee is further authorized from time to time to take such action as the
Instructing Party recommends with respect to the Related Documents so long
as such activities are consistent with the terms of the Related Documents.
Paragon Auto may execute any other closing certificates or receipts on
behalf of the Issuer.
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 Issuer in the interest of the Holders, subject to the Related Documents
to which the Issuer is a party 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 Related Documents to the extent the Servicer has agreed in the
Sale and Servicing Agreement or PAC or Paragon Auto has agreed in this
Agreement to perform any act or to discharge any duty of the Owner Trustee
or the Issuer hereunder or under any Related Document, and the Owner
Trustee shall not be liable for the
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default or failure of the Servicer, PAC or Paragon Auto to carry out its
obligations under the Sale and Servicing Agreement or this Agreement,
respectively.
SECTION 6.3. Action upon Instruction. (a) Subject to
Article IV, the Certificateholder(s) acting by the Holders of Certificates
evidencing not less than a majority of the Certificate Percentage Interest
(the "Instructing Party") shall have the exclusive right to direct the
actions of the Owner Trustee in the management of the Issuer, so long as
such instructions are not inconsistent with the express terms set forth
herein or in any Related Document. The Instructing Party shall not instruct
the Owner Trustee in a manner inconsistent with this Agreement or the
Related Documents; provided, however, that the Owner Trustee in its
individual capacity shall not incur any liability for the good faith
compliance with any instructions received by it from an Instructing Party.
(b) The Owner Trustee shall not be required to take any
action hereunder or under any Related 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 Related 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 Related Document, the Owner Trustee shall promptly
give notice (in such form as shall be appropriate under the circumstances)
to the Certificateholder(s) 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 delivery of such notice (or within such
shorter period of time as reasonably may be specified in such notice or may
be necessary under the circumstances) it may, but shall be under no duty
to, take or refrain from taking such action, not inconsistent with this
Agreement or the Related Documents, as it shall deem to be in the best
interests of the Certificateholder(s), and shall have no liability to any
Person for such action or inaction.
(d) If the Owner Trustee is unsure as to the application
of any provision of this Agreement or any Related 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 if this Agreement permits
any determination by the Owner Trustee or is silent or is incomplete as to
the course of action that the Owner Trustee is required to take with
respect to a particular set of facts, the Owner Trustee may give notice (in
such form as shall be appropriate under the circumstances) to the
Certificateholder(s) requesting instruction and, to the extent that the
Owner Trustee acts or refrains from acting in good faith in accordance with
any such instruction
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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 delivery of such notice (or
within such shorter period of time as reasonably may be specified in such
notice or may be necessary under the circumstances) it may, but shall be
under no duty to, take or refrain from taking such action, not inconsistent
with this Agreement or the Related Documents, as it shall deem to be in the
best interests of the Certificateholder(s), 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 Trust Property, 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 Related Document against the Owner Trustee. The Owner Trustee shall
have no responsibility for preparing or filing any tax or securities law
filing or report with respect to the Issuer of the Notes or 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 record this Agreement or any Related
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 Trust Property 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 Trust
Property.
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 Trust Property or take
any action on the part of the Issuer except (a) in accordance with the
powers granted to and the authority conferred upon the Owner Trustee
pursuant to this Agreement, (b) in accordance with the Related Documents
and (c) in accordance with any document or instruction delivered to the
Owner Trustee pursuant to Section 6.3.
SECTION 6.6. Restrictions. The Owner Trustee shall not
take any action that, to the actual knowledge of the Owner Trustee, would
result in the Issuer's becoming taxable as a corporation for federal income
tax purposes or for the purposes of any applicable state tax on
corporations. The Certificateholder(s) shall not direct the Owner Trustee
to take action that would violate the provisions of this Section 6.6.
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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 moneys actually
received by it constituting part of the Trust Property upon the terms of
the Related Documents and this Agreement. The Owner Trustee (in its
individual or trust capacities) shall not be answerable or accountable
hereunder or under any Related Document under any circumstances, except (i)
for its own willful misconduct, bad faith or gross negligence (or ordinary
negligence in the handling of funds), (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 or (iv) 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 (in its individual or trust
capacities) shall not be liable for any error of judgment made by a
Responsible Officer of the Owner Trustee;
(b) the Owner Trustee (in its individual or trust
capacities) 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 Servicer or any Certificateholder;
(c) no provision of this Agreement or any Related
Document shall require the Owner Trustee (in its individual or trust
capacities) 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 Related 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) the Owner Trustee (in its individual or trust
capacities) shall not be responsible for or in respect of the validity or
sufficiency of this Agreement or for the due execution hereof by PAC or
Paragon Auto or for the form, character, genuineness, sufficiency, value or
validity of any of the Trust Property or for or in respect of the validity
or sufficiency of the Related Documents, other than the certificate of
authentication on the Certificates, and the Owner Trustee shall in no event
assume or incur any liability, duty or obligation to PAC or Paragon Auto,
the Indenture Trustee, the Collateral Agent, any Noteholder or to any
Certificateholder, other than as expressly provided for herein and in the
Related Documents;
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(e) the Owner Trustee (in its individual or trust
capacities) shall not be liable for the default or misconduct of Paragon
Auto, the Indenture Trustee, the Collateral Agent or the Servicer under any
of the Related Documents or otherwise, and the Owner Trustee shall have no
obligation or liability to perform the obligations under this Agreement or
the Related Documents that are required to be performed by Paragon Auto
under this Agreement, the Indenture Trustee under the Indenture or the
Servicer under the Sale and Servicing Agreement; and
(f) the Owner Trustee (in its individual or trust
capacities) 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 Related Document, at the request, order or direction of
the Instructing Party or any of the Certificateholder(s), unless such
Instructing Party or Certificateholder(s) have offered to the Owner Trustee
security or indemnity reasonably satisfactory to it against the costs,
expenses and liabilities that may reasonably 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 Related Document
shall not be construed as a duty, and the Owner Trustee (in its individual
or trust capacities) shall not be answerable for other than its gross
negligence (or ordinary negligence in the handling of funds), 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(s), 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 Related Documents.
SECTION 7.3. Representations and Warranties. The Owner Trustee
hereby represents and warrants in its individual capacity to PAC and the
Holders, 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 any of the terms or provisions hereof will
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contravene any federal or Delaware state law, governmental rule or
regulation governing the banking or trust powers of the Owner Trustee or
any judgment or order binding on it, or constitute any default under its
charter documents or by-laws or any indenture, mortgage, contract,
agreement or instrument to which it is a party or by which any of its
properties may be bound.
SECTION 7.4. Reliance; Advice of Counsel. (a) The Owner
Trustee shall incur no liability to anyone in acting upon any signature,
instrument, notice, resolution, request, consent, order, certificate,
report, opinion, bond or other document or paper believed by it to be
genuine and believed by it to be signed by the proper party or parties. The
Owner Trustee may accept a certified copy of a resolution of the board of
directors or other governing body of any corporate party as conclusive
evidence that such resolution has been duly adopted by such body and that
the same is in full force and effect. As to any fact or matter the method
of the determination of which is not specifically prescribed herein, the
Owner Trustee may for all purposes hereof rely on a certificate, signed by
the president or any vice president or by the treasurer, secretary or other
authorized officers of the relevant party, as to such fact or matter, and
such certificate shall constitute full protection to the Owner Trustee for
any action taken or omitted to be taken by it in good faith in reliance
thereon.
(b) In the exercise or administration of the trusts
hereunder and in the performance of its duties and obligations under this
Agreement or the Related 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 Related Document.
SECTION 7.5. Not Acting in Individual Capacity. Except as
provided in this Article VII, in accepting the trusts hereby created, the
Owner Trustee 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
Related Document shall look only to the Trust Property for payment or
satisfaction thereof.
SECTION 7.6. Owner Trustee Not Liable for Certificates or
Receivables. The recitals contained herein and in the Certificates (other than
the signature and countersignature of the Owner Trustee on the Certificates)
shall be taken as the statements of PAC and the Owner Trustee assumes no
responsibility for the
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correctness thereof. The Owner Trustee makes no representations as to the
validity or sufficiency of this Agreement, any Related Document, the
Certificates (other than the signature and countersignature of the Owner
Trustee on the Certificates), the Notes or any Receivable or related
documents. The Owner Trustee shall at no time have any responsibility or
liability for or with respect to the legality, validity and enforceability
of any Receivable, or the perfection and priority of any security interest
created by any Receivable in any Financed Vehicle or the maintenance of any
such perfection and priority, or for or with respect to the sufficiency of
the Trust Property or its ability to generate the payments to be
distributed to Certificateholder(s) under this Agreement or the Noteholders
under the Indenture, including: 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 Issuer or of any intervening assignment; the completeness of any
Receivable; the performance or enforcement of any Receivable; the
compliance by PAC, the Servicer or any other Person with any warranty or
representation made under any Related Document or in any related document
or the accuracy of any such warranty or representation or any action of the
Indenture Trustee or the Servicer or any subservicer taken in the name of
the Owner Trustee.
SECTION 7.7. Payments from Trust Property. All payments
to be made by the Owner Trustee under this Agreement or any of the Related
Documents to which the Issuer or the Owner Trustee is a party shall be made
only from the income and proceeds of the Trust Property, only to the extent
not otherwise directed to be made by the Indenture Trustee and only to the
extent that the Owner Trustee shall have received income or proceeds from
the Trust Property 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 Related Documents to which the Issuer or the Owner
Trustee is a party, except any Expenses arising from or resulting from any
of the matters described in the third sentence of Section 7.1.
SECTION 7.8. Doing Business in Other Jurisdictions.
Notwithstanding anything contained to the contrary, neither [Wilmington
Trust Company] or any successor thereto, nor the Owner Trustee shall be
required to take any action in any jurisdiction other than in the State of
Delaware if the taking of such action will, even after the appointment of a
co-trustee or separate trustee in accordance with Section 10.5, (a) 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; (b) 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 (c) subject [Wilmington Trust Company] (or any successor thereto) to
personal jurisdiction in any jurisdiction other than the State of
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Delaware for causes of action arising from acts unrelated to the
consummation of the transactions by [Wilmington Trust Company] (or any
successor thereto) or the Owner Trustee, as the case may be, contemplated
hereby.
ARTICLE VIII.
Compensation of Owner Trustee
SECTION 8.1. Owner Trustee's Fees and Expenses. The Owner
Trustee shall receive from the Issuer or Paragon Auto as compensation for
its services hereunder such fees as have been separately agreed upon before
the date hereof between PAC and the Owner Trustee, and the Owner Trustee
shall be entitled to be reimbursed by the Issuer or Paragon Auto 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 Related
Documents. The Owner Trustee shall also be entitled to be reimbursed by
Paragon Auto for any organizational expenses of the Issuer. Fees and
expenses of the Owner Trustee shall be paid pursuant to Section 4.5 of the
Sale and Servicing Agreement or by Paragon Auto.
SECTION 8.2. Indemnification. PAC 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, penalties, 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 at any time be imposed on, incurred
by, or asserted against any Indemnified Party in any way relating to or
arising out of this Agreement, the Related Documents, the Trust Property,
the administration of the Trust Property or the action or inaction of the
Owner Trustee hereunder; provided, however, that PAC 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 8.2 and
the rights under Section 8.1 shall survive the resignation or termination
of the Owner Trustee or the termination of this Agreement. In any event of
any claim, action or proceeding for which indemnity will be sought pursuant
to this Section 8.2, the Owner Trustee's choice of legal counsel shall be
subject to the approval of Paragon Auto, which approval shall not be
unreasonably withheld.
SECTION 8.3. Payments to the Owner Trustee. Any amounts paid
to the Owner Trustee pursuant to this Article VIII or the Sale and Servicing
Agreement
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shall be deemed not to be a part of the Trust Property immediately after such
payment.
SECTION 8.4. Non-recourse Obligations. Notwithstanding
anything in this Agreement or any Related Document, the Owner Trustee
agrees in its individual capacity and in its capacity as Owner Trustee for
the Issuer that all obligations of the Issuer to the Owner Trustee
individually or as Owner Trustee for the Issuer shall be recourse to the
Trust Property only and specifically shall not be recourse to the assets of
any Holder except as otherwise specifically agreed in this Agreement or the
Related Documents.
ARTICLE IX.
Termination of Trust Agreement
SECTION 9.1. Termination of Trust Agreement. (a) The
Issuer shall dissolve and this Agreement shall terminate and be of no
further force or effect upon the later of (i) the maturity or other
liquidation of the last Receivable (including the purchase by the Servicer
at its option of the Receivables and other Trust Property of the Issuer as
described in Section 9.1 of the Sale and Servicing Agreement) and the
subsequent distribution of amounts in respect of such Receivables as
provided in the Related Documents, and (ii) the payment to
Certificateholders and Noteholders of all amounts required to be paid to
them pursuant to this Agreement and 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 dissolution of the Issuer.
The Servicer shall promptly notify the Owner Trustee of any prospective
termination or dissolution pursuant to this Section 9.1. The bankruptcy,
liquidation, dissolution, death or incapacity of any Certificateholder,
shall not (x) operate to terminate this Agreement or dissolve the Issuer,
nor (y) entitle such Certificateholder's legal representatives or heirs to
claim an accounting or to take any action or proceeding in any court for a
partition or winding up of all or any part of the affairs of the Issuer or
Trust Property nor (z) otherwise affect the rights, obligations and
liabilities of the parties hereto.
(b) Except as provided in Section 9.1(a), neither PAC nor
Paragon Auto nor any Certificateholder shall be entitled to revoke the
trust created hereby or otherwise dissolve the Issuer.
(c) Notice of any dissolution of the Issuer, specifying
the Payment Date upon which the Certificateholder(s) shall surrender their
Certificates to the Indenture Trustee for payment of the final distribution
and cancellation, shall be given by the Owner Trustee by letter to
Certificateholder(s) mailed within five Business Days of receipt of notice
of such termination from the Servicer given pursuant to Section
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9.1 of the Sale and Servicing Agreement, stating (i) the Payment Date upon
or with respect to which final payment of the Certificates shall be made
upon presentation and surrender of the Certificates at the office of the
Indenture Trustee therein designated, (ii) the amount of any such final
payment, (iii) that the Record Date otherwise applicable to such Payment
Date is not applicable, payments being made only upon presentation and
surrender of the Certificates at the office of the Indenture Trustee
therein specified and (iv) that no amount will thereafter be payable under
the Certificates. The Owner Trustee shall give such notice to the
Certificate Registrar (if other than the Owner Trustee) and the Indenture
Trustee at the time such notice is given to Certificateholder(s). Upon
presentation and surrender of the Certificates, the Indenture Trustee shall
cause to be distributed to Certificateholder(s) amounts distributable on
such Payment Date pursuant to Section 4.5(b)(xii) of the Sale and Servicing
Agreement.
If all of the Certificateholder(s) shall not surrender
their Certificates for cancellation within six months after the date
specified in the above mentioned written notice, the Owner Trustee shall
give a second written notice to the remaining Certificateholder(s) to
surrender their Certificates for cancellation and receive the final
distribution with respect thereto. If within one year after the second
notice all the Certificates shall not have been surrendered for
cancellation, the Owner Trustee may take appropriate steps, or may appoint
an agent to take appropriate steps, to contact the remaining
Certificateholder(s) concerning surrender of their Certificates, and the
cost thereof shall be paid out of the funds and other assets that shall
remain subject to this Agreement. Any funds held by the Issuer after
exhaustion of such remedies shall be distributed, subject to applicable
escheat laws, by the Indenture Trustee to Paragon Auto and Holders shall
look solely to Paragon Auto for payment.
(d) Any funds held by the Issuer after funds for final
payment have been distributed or set aside for payment shall be distributed
by the Owner Trustee to Paragon Auto.
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: (a) authorized to
exercise corporate trust powers; and (b) having a combined capital and
surplus of at least $50,000,000 and subject to supervision or examination
by federal or state authorities. 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 10.1, 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
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report of condition so published. If at any time the Owner Trustee shall
cease to be eligible in accordance with the provisions of this Section
10.1, 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 Paragon Auto and the
Servicer. Upon receiving such notice of resignation, Paragon Auto shall
promptly appoint a successor Owner Trustee 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. 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 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 Paragon Auto or any other
entity authorized to make such request, 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 such requesting party may remove the Owner Trustee. If
Paragon Auto shall remove the Owner Trustee under the authority of the
immediately preceding sentence, Paragon Auto shall promptly appoint a
successor Owner Trustee by written instrument, in duplicate, one copy of
which instrument shall be delivered to the outgoing Owner Trustee so
removed 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 10.2 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
Servicer shall provide notice of such resignation or removal of the Owner
Trustee to the Rating Agency.
SECTION 10.3. Successor Owner Trustee. Any successor Owner
Trustee appointed pursuant to Section 10.2 shall execute, acknowledge and
deliver to Paragon Auto, the Servicer and to its predecessor Owner Trustee
an instrument accepting such appointment under this Agreement, and
thereupon the resignation or removal of the predecessor Owner Trustee shall
become effective and such successor Owner Trustee, without any further act,
deed or conveyance, shall become fully vested with all the rights, powers,
duties and obligations of its predecessor under this Agreement, with like
effect as if originally named as Owner Trustee. The predecessor
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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. Paragon Auto and the predecessor Owner Trustee shall
execute and deliver such instruments and do such other things as may
reasonably be required for fully and certainly vesting and confirming in
the successor Owner Trustee all such rights, powers, duties and
obligations.
No successor Owner Trustee shall accept appointment as
provided in this Section unless at the time of such acceptance such
successor Owner Trustee shall be eligible pursuant to Section 10.1.
Upon acceptance of appointment by a successor Owner
Trustee pursuant to this Section, the Servicer shall mail notice of the
successor of such Owner Trustee to all Certificateholder(s), the Indenture
Trustee, the Noteholders and the Rating Agency. 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. The Owner Trustee shall mail notice
of such merger or consolidation to the Rating Agency.
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 Trust Property 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 to act as co-trustee, jointly with the Owner Trustee, or
separate trustee or separate trustees, of all or any part of the Trust
Property, and to vest in such Person, in such capacity, such title to the
Issuer, or any part thereof, and, subject to the other provisions of this
Section 10.5, 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 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
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successor trustee pursuant to Section 10.1 and no notice of the appointment
of any co-trustee or separate trustee shall be required pursuant to Section
10.3.
Each separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions
and conditions:
(i) all rights, powers, duties and obligations
conferred or imposed upon the Owner Trustee shall be conferred
upon and exercised or performed by the Owner Trustee and such
separate trustee or co-trustee jointly (it being understood that
such separate trustee or co-trustee is not authorized to act
separately without the Owner Trustee joining in such act), except
to the extent that under any law of any jurisdiction in which any
particular act or acts are 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 Issuer 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 Section 10.5. 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.
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.
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ARTICLE XI.
Miscellaneous
SECTION 11.1. Supplements and Amendments. (a) This
Agreement may be amended by PAC, Paragon Auto and the Owner Trustee, with
prior written notice to the Rating Agency, without the consent of any of
the Noteholders or any other Certificateholder(s): (i) to cure any
ambiguity or defect; (ii) to correct or supplement any provisions in this
Agreement; or (iii) for the purpose of adding any provision to or changing
in any manner or eliminating any provision of this Agreement or of
modifying in any manner the rights of the Certificateholders, provided,
that any such action under this clause (iii) shall not, as evidenced by an
Opinion of Counsel (which may be based upon a certificate of the Servicer)
delivered to the Owner Trustee and the Rating Agency, adversely affect in
any material respect the interests of any Noteholder or Certificateholder.
(b) This Agreement may also be amended from time to time
by PAC, Paragon Auto and the Owner Trustee, with prior written notice to
the Rating Agency and with the consent of the holders of Notes evidencing
not less than the Note Majority and the consent of the Certificateholder(s)
evidencing not less than a majority Certificate Percentage Interest (which
consent of any Holder of a Certificate or Note given pursuant to this
Section 11.1(b) or pursuant to any other provision of this Agreement shall
be conclusive and binding on such Holder and on all future Holders of such
Certificate or Note and of any Certificate or Note issued upon the transfer
thereof or in exchange thereof or in lieu thereof whether or not notation
of such consent is made upon the Certificate or Note) for the purpose of
adding any provisions to or changing in any manner or eliminating any of
the provisions of this Agreement or of modifying in any manner the rights
of the Noteholders or the Certificateholder(s); provided, however, that,
the Rating Agency Condition shall have been satisfied with respect to any
such amendment prior to the execution thereof; and provided, further, that
no such amendment shall (i) increase or reduce in any manner the amount of,
or accelerate or delay the timing of, collections of payments on
Receivables, payments that shall be required to be made on any Certificate
or Note, or yield on the Certificates or the Class A Interest Rate or the
Class B Interest Rate, or (ii) reduce the aforesaid percentage required to
consent to any such amendment or any waiver hereunder, without the consent
of the Holders of all Certificates then outstanding.
Promptly after the execution of any such amendment or
consent, the Owner Trustee shall furnish written notification of the
substance of such amendment or consent to each Certificateholder, the
Noteholders, the Indenture Trustee and the Rating Agency.
It shall not be necessary for the consent of
Certificateholder(s), the Noteholders or the Indenture Trustee pursuant to
this Section 11.1(b) to approve the
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particular form of any proposed amendment or consent, but it shall be
sufficient if such consent shall approve the substance thereof. The manner
of obtaining such consents (and any other consents of Certificateholder(s)
or Noteholders provided for in this Agreement or in any other Related
Document) and of evidencing the authorization of the execution thereof by
Certificateholder(s) or Noteholders shall be subject to such reasonable
requirements as the Owner Trustee may prescribe.
Prior to the execution of any amendment to this
Agreement, the Owner Trustee shall be entitled to receive and rely upon an
Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Section 11.1 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. No Legal Title to Trust Property in
Certificateholder(s). The Certificateholder(s) shall not have legal title
to any part of the Trust Property. The Certificateholder(s) shall be
entitled to receive distributions with respect to their undivided ownership
interest therein only in accordance with Articles V and IX. No transfer, by
operation of law or otherwise, of any right, title or interest of the
Certificateholder(s) to and in their ownership interest in the Trust
Property 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 11.3. Limitations on Rights of Others. Except for
Section 2.7, the provisions of this Agreement are solely for the benefit of
the Owner Trustee (in its individual and trust capacities), PAC, the
Certificateholder(s), the Servicer and, to the extent expressly provided
herein, the Indenture Trustee and the Noteholders, and nothing in this
Agreement, whether express or implied, shall be construed to give to any
other Person any legal or equitable right, remedy or claim in the Trust
Property or under or in respect of this Agreement or any covenants,
conditions or provisions contained herein.
SECTION 11.4. 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: (i) if to the Trust or the Owner Trustee, addressed to the
Corporate Trust Office; (ii) if to Paragon Auto, addressed to Paragon Auto
Receivables Corporation, 27405 Puerta Real, Suite 200, Mission Viejo,
California 92691, Attention: Vice President-Finance, Telecopy No.: (949)
348-8707; and (iii) if to PAC, addressed to Paragon Acceptance Corporation,
27405 Puerta Real, Suite 200, Mission Viejo, California 92691, Attention:
Vice President-Finance, Telecopy No.:
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(949) 348-8707; 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 a
Certificateholder shall be given by first-class mail, postage prepaid, at
the address of such Holder as shown in the Certificate Register. Any notice
so mailed within the time prescribed in this Agreement shall be
conclusively presumed to have been duly given, whether or not the
Certificateholder receives such notice.
SECTION 11.5. Severability. Any provision of this
Agreement that is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
SECTION 11.6. 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 11.7. Assignments. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns.
SECTION 11.8. No Petition. The Owner Trustee (not in its
individual capacity but solely as Owner Trustee), by entering into this
Agreement, each Certificateholder, by accepting a Certificate, and the
Indenture Trustee and each Noteholder by accepting the benefits of this
Agreement, hereby covenants and agrees that they will not at any time
institute against Paragon Auto, or join in any institution against Paragon
Auto 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 Related Documents.
SECTION 11.9. Bankruptcy Matters. No Certificateholder or
any party to this Agreement shall take any action to cause the Issuer to
dissolve in whole or in part or file a voluntary petition or otherwise
initiate proceedings to have the Issuer adjudicated bankrupt or insolvent,
or consent to the institution of bankruptcy or insolvency proceedings
against the Issuer, or file a petition seeking or consenting to
reorganization or relief of the Issuer as debtor under any applicable
federal or state law relating to bankruptcy, insolvency or other relief for
debtors with respect to the Issuer; or seek or consent to the appointment
of any trustee, receiver, conservator, assignee, sequestrator, custodian,
liquidator (or other similar official) of the Issuer or of all or any
31
<PAGE>
substantial part of the properties and assets of the Issuer, or cause the
Issuer to make any general assignment for the benefit of creditors of the
Issuer or take any action in furtherance of any of the above actions unless
each Certificateholder and the Indenture Trustee shall have provided its
written consent.
SECTION 11.10. No Recourse. Each Certificateholder by
accepting a Certificate acknowledges that such Certificateholder's
Certificates represent beneficial interests in the Issuer only and do not
represent interests in or obligations of the Seller, the Servicer, Paragon
Auto, the Owner Trustee, the Indenture Trustee or any Affiliate thereof and
no recourse may be had against such parties or their assets, except as may
be expressly set forth or contemplated in this Agreement, the Certificates
or the Related Documents.
SECTION 11.11. 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 11.12. GOVERNING LAW. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF, AND THE OBLIGATIONS,
RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
SECTION 11.13. Servicer. The Servicer is authorized to
prepare, or cause to be prepared, execute and deliver on behalf of the
Issuer all such documents, reports, filings, instruments, certificates and
opinions as it shall be the duty of the Issuer or Owner Trustee to prepare,
file or deliver pursuant to the Related Documents. Upon written request,
the Owner Trustee shall execute and deliver to the Servicer a limited power
of attorney appointing the Servicer the Issuer'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.
32
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Trust Agreement to be duly executed by their respective officers hereunto
duly authorized as of the day and year first above written.
[WILMINGTON TRUST COMPANY],
not in its individual capacity (except as
otherwise expressly set forth herein) but solely
as Owner Trustee
By:_____________________________________
Name: _______________________________
Title: ______________________________
PARAGON AUTO RECEIVABLES
CORPORATION, as Holder of the Certificate
By:______________________________________
Name: ________________________________
Title: _______________________________
Acknowledged and Agreed:
PARAGON ACCEPTANCE CORPORATION, as Servicer
By:____________________________
Name: _______________________________
Title: _______________________________
<PAGE>
EXHIBIT A
____% Certificate Percentage Interest
NUMBER
R-
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT UNDER THE LIMITED
CIRCUMSTANCES SPECIFIED IN THE TRUST AGREEMENT.1
--------------------------
ASSET BACKED CERTIFICATE
--------------------------
evidencing a beneficial ownership interest in certain distributions of the
Issuer, as defined below, the property of which includes a pool of motor
vehicle retail installment contracts secured by new or used automobiles or
light trucks and sold by Paragon Acceptance Corporation, a Delaware
corporation ("PAC" or in its capacity as Servicer under the Sale and
Servicing Agreement (as defined below), the "Servicer") to Paragon Auto
Receivables Corporation., a Delaware corporation ("Paragon Auto"), and by
Paragon Auto to the Issuer.
THIS CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAW OF ANY STATE. ANY RESALE,
TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE WITHOUT SUCH REGISTRATION
OR QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION WHICH DOES NOT REQUIRE
SUCH REGISTRATION OR QUALIFICATION.
THIS CERTIFICATE MAY NOT BE PURCHASED BY EMPLOYEE BENEFIT PLANS THAT ARE
SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE "CODE"), OR PERSONS USING ASSETS OF SUCH PLANS.
(This Certificate does not represent an interest in or obligation of PAC,
the Servicer, Paragon Auto or any Affiliate thereof, except to the limited
extent described below.)
- ---------------------
1 To be inserted on the Certificate to be held by Paragon Auto.
<PAGE>
THIS CERTIFIES THAT _____________ is the registered owner of a __%
Certificate Percentage Interest that is a nonassessable, fully-paid,
beneficial ownership interest in certain distributions of Paragon Auto
Receivables Owner Trust ____-_ (the "Issuer") formed by Paragon Auto.
OWNER TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the
within-mentioned Trust Agreement.
[Wilmington Trust Company], [Wilmington Trust Company],
not in its individual not in its individual
capacity but solely as capacity but solely as
Owner Trustee or Owner Trustee
By: _______________________ By: __________________________
Authenticating Agent
By: __________________________
The Issuer was created pursuant to a Trust Agreement, dated as of
_________ ___, ____ (the "Trust Agreement"), between PAC, Paragon Auto and
[Wilmington Trust Company], as owner trustee (the "Owner Trustee"), a
summary of certain of the pertinent provisions of which is set forth below.
To the extent not otherwise defined herein, the capitalized terms used
herein have the meanings assigned to them in the Trust Agreement.
This Certificate is one of the duly authorized Certificates
designated as "Asset Backed Certificates" (herein called the
"Certificates"). Also issued under the Indenture, dated as of _________ __,
____, between the Issuer, [Norwest Bank Minnesota, National Association],
as Indenture Trustee (the "Indenture Trustee"), are two classes of Notes
designated as "Class A _____% Asset Backed Notes" (the "Class A Notes") and
"Class B _____% Asset Backed Notes" (the "Class B Notes") (the "Class A
Notes", together with the Class B Notes, the "Notes"). 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 subject to the Trust Agreement includes a pool of motor
vehicle retail installment contracts secured by new and used automobiles
and light trucks (the "Receivables"), all monies received thereunder or in
respect thereof 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
A-2
<PAGE>
Trust Agreement and the Sale and Servicing Agreement, dated as of
__________ __, ____ (the "Sale and Servicing Agreement"), between PAC,
Paragon Auto and the Indenture Trustee, all right to and interest of
Paragon Auto in and to the Receivables Purchase Agreement, dated as of
__________ __, ____, between PAC and Paragon Auto, and all proceeds of the
foregoing.
Under the Trust Agreement, there will be distributed on the 15th
day of each month (or, if such 15th day is not a Business Day, the next
Business Day) (the "Payment Date"), commencing on ____________ 15, ____, to
the Person in whose name this Certificate is registered at the close of
business on the Business Day preceding such Payment Date (the "Record
Date"), such Certificateholder's Certificate Percentage Interest in the
amount to be distributed to Certificateholders on such Payment 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.
It is the intent of the Seller, the Servicer, Paragon Auto and
the Certificateholders that, for purposes of all applicable federal and
state income taxes, until the Certificates are held by more than one person
or the Trust is recharacterized as a separate entity, the Trust will be
disregarded as an entity separate from its owner. If the Certificates are
held by more than one person or the Trust is recharacterized as a separate
entity, it is the intent of Paragon Auto, the Servicer and the
Certificateholder that, for purposes of all applicable federal and state
income taxes, the Issuer will be treated as a partnership and the
Certificateholders (including Paragon Auto) will be treated as partners in
that partnership. Paragon Auto and any other Certificateholders by
acceptance of a Certificate, agree to treat, and to take no action
inconsistent with such treatment of, the Certificates for such tax
purposes.
Each Certificateholder, by its acceptance of a Certificate,
covenants and agrees that such Certificateholder will not at any time
institute against the Issuer or Paragon Auto, or join in any institution
against the Issuer or Paragon Auto of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings
under any United States federal or state bankruptcy or similar law in
connection with any obligations relating to the Certificates, the Notes,
the Trust Agreement or any of the Related Documents.
Distributions on this Certificate will be made on behalf of the
Trust by the Indenture Trustee as provided in the Sale and Servicing
Agreement 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,
A-3
<PAGE>
the final distribution on this Certificate will be made after due notice by
the Indenture 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 Indenture Trustee in Minneapolis,
Minnesota.
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
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.
A-4
<PAGE>
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Issuer
and not in its individual capacity, has caused this Certificate to be duly
executed.
PARAGON AUTO RECEIVABLES OWNER
TRUST ____-_
By: [WILMINGTON TRUST COMPANY],
not in its individual capacity but solely
as Owner Trustee
Dated: By:_________________________________________
A-5
<PAGE>
(Reverse of Certificate)
The Certificates do not represent an obligation of, or an
interest in, PAC, the Servicer, Paragon Auto, 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 Sale and Servicing Agreement or the
Related 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, all as more
specifically set forth herein and in the Trust Agreement and 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 Seller, and at such other places, if any,
designated by the Seller, by any Certificateholder upon written request.
The Trust Agreement permits, with certain exceptions therein
provided, the amendment thereof and the modification of the rights and
obligations of PAC and the rights of the Certificateholder(s) under the
Trust Agreement at any time by PAC and the Owner Trustee with the consent
of Holders of Certificates evidencing not less than a majority of the
outstanding Certificate Percentage Interest of the Certificates. Any such
consent by the holder of this Certificate shall be conclusive and binding
on such holder and on all future holders of this Certificate and of any
Certificate issued upon the transfer hereof or in exchange hereof or in
lieu hereof whether or not notation of such consent is made upon this
Certificate. The Trust Agreement also permits the amendment thereof, in
certain limited circumstances, without the consent of the holders of any of
the Certificates.
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 City of Wilmington, State
of Delaware, 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 in authorized
denominations evidencing the same aggregate interest in the Issuer will be
issued to the designated transferee. The initial Certificate Registrar
appointed under the Trust Agreement is [Wilmington Trust Company].
As provided in the Trust Agreement and subject to certain
limitations therein set forth, Certificates are exchangeable for new
Certificates in authorized denominations evidencing the same aggregate
denomination, 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.
A-6
<PAGE>
The Owner Trustee, the Certificate Registrar and any agent of the
Owner Trust or the Certificate Registrar 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 Sale and Servicing Agreement and the Trust created by the
Trust Agreement shall terminate upon the payment to Certificateholder(s)
and Noteholders of all amounts required to be paid to them pursuant to the
Trust Agreement and the Sale and Servicing Agreement. The Servicer of the
Receivables may at its option purchase Receivables and other property of
the Issuer at a price specified in the Sale and Servicing Agreement, and
such purchase of the Receivables and other property of the Issuer will
effect early retirement of the Certificates; provided, however, such right
of purchase is exercisable, subject to certain restrictions, only as of the
last day of any Collection Period as of which the Aggregate Principal
Balance has declined to less than 10% of the Cutoff Date Principal Balance.
The Certificates may not be purchased by (a) an employee benefit
plan (as defined in Section 3(3) of ERISA) that is subject to the
provisions of Title I of ERISA, (b) a plan described in Section 4975(e)(1)
of the Code or (c) any entity whose underlying assets include plan assets
by reason of a plan's investment in the entity (each, a "Benefit Plan"). By
accepting and holding this Certificate, the Holder hereof shall be deemed
to have represented and warranted that it is not a Benefit Plan.
The recitals contained herein shall be taken as the statements of
PAC, Paragon Auto or the Servicer, as the case may be, and the Owner
Trustee assumes no responsibility for the correctness thereof. The Owner
Trustee makes no representations as to the validity or sufficiency of this
Certificate or of any Receivable or related document.
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Owner Trustee, by manual or
facsimile signature, this Certificate shall not entitle the holder hereof
to any benefit under the Trust Agreement or the Sale and Servicing
Agreement or be valid for any purpose.
A-7
<PAGE>
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 Securities Exchange Act of 1934, as
amended.
A-8
Exhibit 4.3
PARAGON AUTO RECEIVABLES CORPORATION
Seller,
PARAGON ACCEPTANCE CORPORATION
Servicer
and
[NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION]
Trustee [and Backup Servicer]
on behalf of the Holders
-------------------------------
POOLING AND SERVICING AGREEMENT
-------------------------------
Dated as of _______ __, _____
PARAGON AUTO RECEIVABLES TRUST ____-_
____% Asset Backed Certificates, Class A
____% Asset Backed Certificates, Class B
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
<S> <C> <C>
Section 1.1. Definitions.....................................................1
Section 1.2. Usage of Terms.................................................18
Section 1.3. Calculations...................................................19
Section 1.4. Section References.............................................19
Section 1.5. Action by or Consent of Certificateholders.....................19
Section 1.6. No Recourse....................................................19
Section 1.7. Nonpetition Covenant...........................................19
<CAPTION>
ARTICLE II
CONVEYANCE OF RECEIVABLES; ACCEPTANCE BY TRUSTEE
<S> <C> <C>
Section 2.1. Conveyance of Receivables......................................20
Section 2.2. Custody of Receivable Files....................................20
Section 2.3. Conditions Precedent to Issuance by Trust......................22
Section 2.4. Representations and Warranties of Seller.......................22
Section 2.5. Repurchase of Receivables Upon Breach of Warranty..............24
Section 2.6. Trustee's Assignment of Receivables............................24
Section 2.7. Collecting Lien Certificates...................................25
<CAPTION>
ARTICLE III
ADMINISTRATION AND SERVICING OF RECEIVABLES
<S> <C> <C>
Section 3.1. Duties of the Servicer.........................................25
Section 3.2. Collection of Receivable Payments; Modifications of
Receivables; Lockbox Agreement.................................26
Section 3.3. Realization Upon Receivables...................................27
Section 3.4. Insurance......................................................28
Section 3.5. Maintenance of Security Interests in Vehicles..................28
Section 3.6. Covenants, Representations and Warranties of Servicer..........29
Section 3.7. Purchase of Receivables Upon Breach of Covenant................31
Section 3.8. Total Servicing Fee; Payment of Certain Expenses by
Servicer[; Backup Servicer Fee]................................32
Section 3.9. Servicer's Certificate.........................................32
Section 3.10. Annual Statement as to Compliance; Notice of Servicer
Termination Event..............................................32
Section 3.11. Annual Independent Accountants' Report.........................33
Section 3.12. Access to Certain Documentation and Information Regarding
Receivables....................................................33
i
<PAGE>
<CAPTION>
<S> <C> <C>
Section 3.13. Monthly Tape[; Certain Duties of Backup Servicer]..............33
Section 3.14. Insurance......................................................34
Section 3.15. Compliance with Laws...........................................34
Section 3.16. Reports to the Commission......................................34
<CAPTION>
ARTICLE IV
PAYMENTS; STATEMENTS TO CERTIFICATEHOLDERS
<S> <C> <C>
Section 4.1. Trust Accounts.................................................35
Section 4.2. Servicer Reimbursements........................................37
Section 4.3. Application of Collections.....................................37
Section 4.4. Additional Deposits............................................38
Section 4.5. Payments.......................................................38
Section 4.6. Net Deposits...................................................39
Section 4.7. Statements to Certificateholders...............................40
<CAPTION>
ARTICLE V
THE CERTIFICATES
<S> <C> <C>
Section 5.1. The Certificates...............................................41
Section 5.2. Authentication of Certificates.................................41
Section 5.3. Registration of Transfer and Exchange of Certificates..........41
Section 5.4. Mutilated, Destroyed, Lost or Stolen Certificates..............42
Section 5.5. Persons Deemed Owners..........................................43
Section 5.6. Access to List of Holders' Names and Addresses.................43
Section 5.7. Maintenance of Office or Agency................................43
Section 5.8. Book Entry Certificates........................................43
Section 5.9. Notices to Clearing Agency.....................................44
Section 5.10. Definitive Certificates........................................44
<CAPTION>
ARTICLE VI
THE RESERVE ACCOUNT
<S> <C> <C>
Section 6.1. Initial Deposit................................................45
Section 6.2. Deficiency Claim Amounts.......................................45
Section 6.3. Distribution of Excess.........................................45
<CAPTION>
ARTICLE VII
THE SELLER
<S> <C> <C>
Section 7.1. Liability of Seller............................................45
Section 7.2. Merger or Consolidation of the Seller..........................46
Section 7.3. Limitation on Liability of Seller and Others...................47
Section 7.4. Special Purpose Entity.........................................47
Section 7.5. Restrictions on Liens..........................................48
ii
<PAGE>
<CAPTION>
<S> <C> <C>
Section 7.6. Creation of Indebtedness; Guarantees...........................48
Section 7.7. Compliance with Laws...........................................48
Section 7.8 Further Instruments and Acts...................................49
Section 7.9 Investment Company Act.........................................49
<CAPTION>
ARTICLE VIII
THE SERVICER
<S> <C> <C>
Section 8.1. Liability of the Servicer; Indemnities.........................49
Section 8.2. Merger or Consolidation of, or Assumption of the Obligations
of, the Servicer [or Backup Servicer]..........................50
Section 8.3. Limitation on Liability of Servicer[, Backup Servicer] and
Others.........................................................51
Section 8.4. Delegation of Duties...........................................52
Section 8.5. Servicer [and Backup Servicer] Not to Resign...................52
<CAPTION>
ARTICLE IX
TRUSTEE
<S> <C> <C>
Section 9.1. Acceptance by the Trustee......................................52
Section 9.2. Duties of the Trustee..........................................52
Section 9.3. The Trustee's Certificate......................................54
Section 9.4. The Trustee's Assignment of Purchased Receivables..............54
Section 9.5. Certain Matters Affecting the Trustee..........................54
Section 9.6. The Trustee Not Liable for Certificates or Receivables.........56
Section 9.7. The Trustee May Own Certificates...............................57
Section 9.8. The Trustee's Fees and Expenses................................57
Section 9.9. Eligibility Requirements for The Trustee.......................58
Section 9.10. Resignation or Removal of the Trustee..........................58
Section 9.11. Successor Trustee..............................................59
Section 9.12. Merger or Consolidation of or Assumption of Obligations of
the Trustee....................................................59
Section 9.13. Appointment of Co-Trustee or Separate Trustee..................60
Section 9.14. Representations and Warranties of the Trustee..................61
Section 9.15. Reports by the Trustee.........................................62
Section 9.16. Tax Returns....................................................62
Section 9.17. The Trustee May Enforce Claims Without Possession of
Certificates...................................................62
<CAPTION>
ARTICLE X
SERVICER TERMINATION EVENTS
<S> <C> <C>
Section 10.1. Servicer Termination Event.....................................62
Section 10.2. Consequences of a Servicer Termination Event...................63
Section 10.3. Appointment of Successor.......................................64
Section 10.4. Notification to Certificateholders.............................64
Section 10.5. Waiver of Past Defaults........................................65
iii
<PAGE>
<CAPTION>
ARTICLE XI
TERMINATION
<S> <C> <C>
Section 11.1. Termination of the Trust.......................................65
Section 11.2. Optional Purchase of All Receivables...........................66
<CAPTION>
ARTICLE XII
MISCELLANEOUS PROVISIONS
<S> <C> <C>
Section 12.1. Amendment......................................................66
Section 12.2. Protection of Title to Trust...................................67
Section 12.3. Limitation on Rights of Certificateholders.....................69
Section 12.4. GOVERNING LAW..................................................70
Section 12.5. Severability of Provisions.....................................70
Section 12.6. Assignment.....................................................70
Section 12.7. Third-Party Beneficiaries......................................70
Section 12.8. Counterparts...................................................70
Section 12.9. Notices........................................................70
Section 12.10. Successors and Assigns.........................................71
</TABLE>
iv
<PAGE>
SCHEDULES
Schedule A -- Schedule of Receivables
Schedule B -- Representations and Warranties of the Seller
EXHIBITS
Exhibit A -- Form of Servicer's Certificate
Exhibit B -- Request for Release and Receipt of Documents
Exhibit C -- Form of Class A Certificates
Exhibit D -- Form of Class B Certificates
v
<PAGE>
POOLING AND SERVICING AGREEMENT, dated as of ________ __, ____
(this "Agreement"), between PARAGON ACCEPTANCE CORPORATION, a Delaware
corporation, in its individual capacity ("Paragon") and as Servicer (the
"Servicer"), PARAGON AUTO RECEIVABLES CORPORATION, a Delaware corporation,
as Seller (the "Seller"), and [NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, a national banking association], as Trustee (in such capacity,
the "Trustee") [and as Backup Servicer (in such capacity, the "Backup
Servicer")].
In consideration of the premises and of the mutual agreements
herein contained, and other good and valuable consideration, the receipt of
which is acknowledged, the parties hereto, intending to be legally bound,
agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. Capitalized terms used but not defined
herein shall have the meanings set forth in the Receivables Purchase
Agreement (as defined below). Whenever capitalized and used in this
Agreement, the following words shall have the following meanings:
Accountants' Report: The report of a firm of nationally recognized
independent accountants described in Section 3.11.
Accounting Date: (a) The last day of a Collection Period and (b)
with respect to a Payment Date or Determination Date, the last day of the
Collection Period preceding such Payment Date or Determination Date (such
date being referred to as the "related Accounting Date" with respect to
such Payment Date or Determination Date).
Administrative Receivable: With respect to any Collection Period,
a Receivable that the Servicer is required to purchase pursuant to Section
3.7 on or before the Deposit Date following such Collection Period.
Affiliate: 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,
the term "control" (including the terms "controlling," "controlled by" and
"under common control with") means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies
of a Person, whether through the ownership of voting securities, by
contract or otherwise.
Aggregate Principal Balance: With respect to the Closing Date, the
Cutoff Date Principal Balance, and with respect to any Determination Date,
the sum of the Principal Balances (computed as of the related Accounting
Date) for all Receivables (other than Liquidated Receivables and Purchased
Receivables).
Agreement: This Agreement and all exhibits and schedules hereto.
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Amount Financed: With respect to a Receivable, the "amount
financed" within the meaning of the Federal Truth-in-Lending Act, which is
the aggregate amount of credit initially extended under such Receivable
toward the purchase price of the related Financed Vehicle and related
costs, including amounts of credit extended in respect of accessories,
insurance premiums, service and warranty policies or contracts and other
items customarily financed as part of motor vehicle retail installment
contracts.
Annual Percentage Rate or APR: With respect to a Receivable, the
rate per annum of finance charges stated in such Receivable as the "annual
percentage rate" (within the meaning of the Federal Truth-in-Lending Act);
provided, however, that if, after the Closing Date, the annual percentage
rate with respect to a Receivable as of the Closing Date is reduced as a
result of (i) an insolvency proceeding involving the related Obligor or
(ii) the Soldiers' and Sailors' Civil Relief Act of 1940, the Annual
Percentage Rate or APR shall refer to such reduced rate.
Authorized Officer: means any officer within the Corporate Trust
Office of Trustee, including any vice president, assistant vice president,
secretary, assistant secretary or any other officer of Trustee 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.
Available Funds: With respect to any Determination Date, the sum
of (i) the Collected Funds received by the Servicer during the related
Collection Period, (ii) all Purchase Amounts with respect to Purchased
Receivables deposited in the Collection Account since the preceding
Determination Date and on or before the related Deposit Date, and (iii) all
income from investments of funds in the Collection Account during the
related Collection Period.
[Backup Servicer: [ Norwest Bank Minnesota, National Association,]
its successor in interest pursuant to Section 8.2 or such Person as shall have
been appointed as Backup Servicer pursuant to Section 10.3.]
[Backup Servicer Fee: With respect to any Payment Date, the fee
payable to the Backup Servicer for services rendered during the related
Collection Period, as specified in a separate fee letter between the Backup
Servicer and Paragon.]
Basic Servicing Fee: With respect to any Payment Date, the fee
payable to the Servicer for services rendered during the related Collection
Period, which shall be equal to one-twelfth of 1.00% multiplied by the
Aggregate Principal Balance as of the open of business on the first day of
the related Collection Period.
Book Entry Certificates: means beneficial interests in the
definitive Certificates described in Section 5.8, the ownership of which
shall be evidenced, and transfers of which shall be made, through book
entries by a Clearing Agency as described in Section 5.8.
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Business Day: Any day other than a Saturday, Sunday or other day
on which commercial banking institutions or trust companies in St. Louis,
Missouri, Los Angeles, California, New York, New York, Minneapolis,
Minnesota or the principal place of business of any successor Servicer or
successor Trustee are authorized or obligated by law or order to be closed.
Certificate: Any one of the Class A Certificates or Class B
Certificates executed on behalf of the Trust and issued pursuant to this
Agreement in substantially the form set forth in Exhibit C or D to this
Agreement, respectively.
Certificate Balance: As of any date of determination, the sum the
Class A Certificate Balance and the Class B Certificate Balance.
Certificate Majority: As of any date of determination, Holders of
Class A Certificates and Class B Certificates representing more than 50% of
the Certificate Balance.
Certificate Owner: means, with respect to a Book Entry
Certificate, the Person who is the owner of such Book Entry Certificate, as
reflected on the books of the Clearing Agency, or on the books of a Person
maintaining an account with such Clearing Agency (directly or as an
indirect participant, in accordance with the rules, regulations and
procedures of such Clearing Agency).
Certificate Register: means the register maintained by Trustee for the
registration of Certificates and of transfers and exchanges of Certificates
as provided in Section 5.3.
Certificated Security: As defined in Section 8-102(a)(4) of Revised
Article 8.
Certificateholder or Holder: Registered holders of Certificates.
Class: A class of Certificates.
Class A Certificate: Any Certificate executed on behalf of the
Trust and issued pursuant to this Agreement in substantially the form set
forth in Exhibit C hereto.
Class A Certificate Balance: Initially, $____________ and,
thereafter, an amount equal to the initial Class A Certificate Balance
reduced by all amounts distributed to the Class A Certificateholders that
are allocable to principal.
Class A Certificate Factor: As of any Payment Date, a seven-digit
decimal figure equal to the Class A Certificate Balance as of the close of
business on such Payment Date divided by the initial Class A Certificate
Balance.
Class A Interest Carryover Shortfall: As of the close of business on
any Payment Date, an amount equal to (i) the Class A Interest Payment
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Amount for such Payment Date, minus (ii) the amount of interest that the
holders of the Class A Certificates actually received on such Payment Date.
Class A Interest Payment Amount: With respect to any Payment Date,
the sum of (i) for the initial Payment Date, 44 days of interest and for
any Payment Date thereafter, 30 days of interest, in each case calculated
on the basis of a 360-day year consisting of twelve 30-day months, at the
Class A Interest Rate on the Class A Certificate Balance as of the close of
business on the Cutoff Date (with respect to the initial Payment Date) or
the related Accounting Date (with respect to each Payment Date after the
initial Payment Date), plus (ii) any outstanding Class A Interest Carryover
Shortfall with respect to the preceding Payment Date, plus 30 days of
interest on such outstanding Class A Interest Carryover Shortfall, to the
extent permitted by law, at the Class A Interest Rate.
Class A Interest Rate: ___% per annum, calculated on a basis of a
360-day year consisting of twelve 30-day months.
Class A Payment Amount: On any Payment Date, the sum of the
Class A Principal Payment Amount and the Class A Interest Payment Amount.
Class A Percentage: ____%.
Class A Principal Carryover Shortfall: As of the close of business
on any Payment Date, an amount equal to (i) the Class A Principal Payment
Amount, minus (ii) the amount of principal that the holders of the Class A
Certificates actually received on such Payment Date.
Class A Principal Payment Amount: With respect to any Payment
Date, without duplication, the sum of: (i) the Class A Percentage of the
sum of: (A) the principal portion of all Collected Funds for the related
Determination Date (other than Collected Funds received with respect to
Liquidated Receivables following the respective dates such Receivables
became Liquidated Receivables), (B) the Principal Balance of all
Receivables that became Liquidated Receivables during the related
Collection Period (other than Purchased Receivables) as determined on the
respective dates such Receivables became Liquidated Receivables, (C) the
principal portion of the Purchase Amount of all Receivables that became
Purchased Receivables as of the related Accounting Date, and (D) the
aggregate amount of Cram Down Losses that shall have been realized during
the related Collection Period; plus (ii) any Class A Principal Carryover
Shortfall with respect to the preceding Payment Date; provided, however,
that on the Final Scheduled Payment Date, the Class A Principal Payment
Amount shall equal the Class A Certificate Balance.
Class B Certificate: Any Certificate executed on behalf of the
Trust and issued pursuant to this Agreement in substantially the form set
forth in Exhibit D hereto.
Class B Certificate Balance: Initially, $____________ and,
thereafter, an amount equal to the initial Class B Certificate Balance
reduced by all amounts distributed to the Class B Certificateholders that
are allocable to principal.
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Class B Certificate Factor: As of any Payment Date, a seven-digit
decimal figure equal to the Class B Certificate Balance as of the close of
business on such Payment Date divided by the initial Class B Certificate
Balance.
Class B Interest Carryover Shortfall: As of the close of business
on any Payment Date, an amount equal to (i) the Class B Interest Payment
Amount for such Payment Date, minus (ii) the amount of interest that the
holders of the Class B Certificates actually received on such Payment Date.
Class B Interest Payment Amount: With respect to any Payment Date,
the sum of (i) for the initial Payment Date, 44 days of interest and for
any Payment Date thereafter, 30 days of interest, in each case calculated
on the basis of a 360-day year consisting of twelve 30-day months, at the
Class B Interest Rate on the Class B Certificate Balance as of the close of
business on the Cutoff Date (with respect to the initial Payment Date) or
the related Accounting Date (with respect to each Payment Date after the
initial Payment Date), plus (ii) any outstanding Class B Interest Carryover
Shortfall with respect to the preceding Payment Date, plus 30 days of
interest on such outstanding Class B Interest Carryover Shortfall, to the
extent permitted by law, at the Class B Interest Rate.
Class B Interest Rate: ___% per annum, calculated on the basis of a
360-day year consisting of twelve 30-day months.
Class B Payment Amount: On any Payment Date, the sum of the
Class B Interest Payment Amount and the Class B Principal Payment Amount.
Class B Percentage: ___%.
Class B Principal Carryover Shortfall: As of the close of business
on any Payment Date, an amount equal to (i) the Class B Principal Payment
Amount, minus (ii) the amount of principal that the holders of the Class B
Certificates actually received on such Payment Date.
Class B Principal Payment Amount: With respect to any Payment
Date, without duplication, the sum of: (i) the Class B Percentage of the
sum of: (A) the principal portion of all Collected Funds for the related
Determination Date (other than Collected Funds received with respect to
Liquidated Receivables following the respective dates such Receivables
became Liquidated Receivables), (B) the Principal Balance of all
Receivables that became Liquidated Receivables during the related
Collection Period (other than Purchased Receivables) as determined on the
respective dates such Receivables became Liquidated Receivables, (C) the
principal portion of the Purchase Amount of all Receivables that became
Purchased Receivables as of the related Accounting Date, and (D) the
aggregate amount of Cram Down Losses that shall have been realized during
the related Collection Period; plus (ii) any Class B Principal Carryover
Shortfall with respect to the preceding Payment Date; provided, however,
that on the Final Scheduled Payment Date, the Class B Principal Payment
Amount shall equal the Class B Certificate Balance.
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Clearing Agency: means an organization registered as a
"clearing agency" pursuant to Section 17A of the Exchange Act, as amended.
Clearing Agency Participant: means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers of securities deposited with the
Clearing Agency.
Clearing Corporation: As defined in Section 8-102(3) of Old Article 8.
Closing: As defined in Section 2.1(d).
Closing Date: ________ __, ____.
Code: means the Internal Revenue Code of 1986 and the Treasury
Regulations promulgated thereunder.
Collected Funds: With respect to any Determination Date, the
amount of funds in the Collection Account representing collections on the
Receivables received by the Servicer during the related Collection Period,
including all Liquidation Proceeds collected during the related Collection
Period (but excluding any Purchase Amounts) and all amounts paid by the
Dealers under Dealer Agreements or Dealer Assignments with respect to the
Receivables during the related Collection Period.
Collection Account: The account designated as the Collection Account
in, and which is established and maintained pursuant to, Section 4.1.
Collection Period: (a) A calendar month and (b) with respect to a
Payment Date or Determination Date, the calendar month preceding the month
in which such Payment Date or Determination Date occurs (such calendar
month being referred to as the "related Collection Period" with respect to
such Payment Date or Determination Date).
Commission: means the Securities and Exchange Commission.
Computer Tape: The computer tape or diskette generated on behalf
of the Seller that provides information relating to the Receivables.
Control: With respect to any Federal Book Entry Security, the
Trustee shall have obtained control if:
(i) the Trustee is a participant in the book entry system
maintained by the Federal Reserve Bank that is acting as fiscal
agent for the issuer of such Federal Book Entry Security, and such
Federal Reserve Bank has indicated by book entry that such Federal
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Book Entry Security has been credited to the Trustee's securities
account in such book entry system; or
(ii) (a) the Trustee (1) is registered on the records of
a Securities Intermediary as the person having a Securities
Entitlement in respect of such Federal Book Entry Security against
such Securities Intermediary; or (2) has obtained the agreement,
in writing, of the Securities Intermediary for such Securities
Entitlement that such Securities Intermediary will comply with
Entitlement Orders of the Trustee without further consent of any
other Person; and (b) the Securities Intermediary is a participant
in the book entry system maintained by the Federal Reserve Bank
that is acting as fiscal agent for the issuer of such Federal Book
Entry Security; and (c) such Federal Reserve Bank has indicated by
book entry that such Federal Book Entry Security has been credited
to the Securities Intermediary's securities account in such book
entry system.
Controlling Party: The Trustee for the benefit of the Certificate-
holders.
Corporate Trust Office: The principal office of the Trustee at
which its corporate trust business shall be administered, which office at
the Closing Date is located at [Norwest Center, Sixth Street and Marquette
Avenue, Minneapolis, Minnesota 55479-0070, Attention: Corporate Trust
Services/Asset-Backed Administration]; or such other address or the Trustee
may designate from time to time by notice to the Certificateholders and the
Seller.
Cram Down Loss: 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 principal balance of such Receivable immediately prior to such
order, minus the principal balance of such Receivable as so reduced. A
"Cram Down Loss" shall be deemed to have been realized on the date of
issuance of such order.
[CTS: ContiTrade Services L.L.C., a Delaware limited liability
company.]
[CTS Liens: The security interests in the Receivables and other
Trust Property granted by Paragon as debtor/seller in favor of CTS as
secured party/purchaser in connection with the Warehouse Credit and
Servicing Agreement, dated as of March 29, 1996, as amended, between
Paragon and CTS.]
Cumulative Net Loss Ratio: With respect to any Determination Date,
the fraction (expressed as a percentage) the numerator of which is equal to
the sum of (i) the Principal Balance of all Receivables that have become
Liquidated Receivables as of the related Accounting Date less all
Liquidation Proceeds and recoveries received with respect to such
Receivables and (ii) the aggregate Cram Down Losses with respect to the
Receivables as of the related Accounting Date, and the denominator of which
is equal to the Aggregate Principal Balance as of the Cutoff Date.
Cutoff Date: The close of business on _______ __, ___-.
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Cutoff Date Principal Balance: $_______________.
DCR: Duff & Phelps Credit Rating Co., or any successor thereto.
Dealer: A seller of new or used automobiles, light trucks or
sports utility vehicles that originated one or more of the Receivables and
sold the respective Receivable to Paragon under a Dealer Agreement or
Dealer Assignment.
Dealer Agreement: An agreement between Paragon and a Dealer relating
to the sale of retail installment contracts to Paragon and all documents
and instruments relating thereto.
Dealer Assignment: With respect to a Receivable, the assignment
executed by a Dealer conveying such Receivable to Paragon.
Deemed Cured: As of any Determination Date, with respect to a
Trigger Event that has occurred, that no Trigger Event shall have occurred
as of such Determination Date or as of either of the two consecutively
preceding Determination Dates.
Deficiency Claim Amount: As defined in Section 6.2.
Definitive Certificates: As defined in Section 5.8.
Delinquency Ratio: With respect to any Determination Date, the
fraction (expressed as a percentage) the numerator of which is the
Principal Balance of all Receivables, of which 10% or more of any Scheduled
Payment (including any Receivable for which the related Financed Vehicle
has been repossessed but not yet sold by the Servicer) is 60 or more days
past due as of the related Accounting Date, and the denominator of which is
the Aggregate Principal Balance.
Delivery: When used with respect to Trust Account Property,
"Delivery" means:
(i) with respect to Physical Property other than a
"certificated security" as defined under Old Article 8, transfer
thereof to the Trustee or its nominee or custodian by physical
delivery to the Trustee or its nominee or custodian endorsed to,
or registered in the name of, the Trustee or its nominee or
custodian or endorsed in blank;
(ii) with respect to a "certificated security" as defined
under Old Article 8 that will, upon compliance with the following
procedures, be held by a Person located in an Old Article 8
Jurisdiction, transfer thereof:
(A) by delivery of such certificated security
endorsed to, or registered in the name of, the Trustee or
its nominee or custodian or endorsed in blank to a
Financial Intermediary, and the making by such Financial
Intermediary of entries on its books and records
identifying such certificated security as belonging to
the Trustee or its nominee or custodian and the sending
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by such Financial Intermediary of a confirmation of the
transfer to the Trustee or its nominee or custodian of such
certificated security; or
(B)(1) by delivery thereof to a Clearing
Corporation and the registering by such Clearing
Corporation of appropriate entries on its books reducing
the appropriate securities account of the transferor and
increasing the appropriate securities account of a
Financial Intermediary by the amount of such certificated
security, (2) the identification by the Clearing
Corporation of the certificated securities for the sole
and exclusive account of the Financial Intermediary, (3)
the maintenance of such certificated securities by such
Clearing Corporation or a "custodian bank" (as defined in
Section 8-102(4) of Old Article 8) or the nominee of
either subject to the Clearing Corporation's exclusive
control, (4) the sending of a confirmation by the
Financial Intermediary of the transfer to the Trustee or
its nominee or custodian of such securities and the
registering by such Financial Intermediary of entries on
its books and records identifying such certificated
security as belonging to the Trustee or its nominee or
custodian, and, in any event, any such Physical Property
in registered form shall be in the name of the Trustee or
its nominee or custodian, and (5) such additional or
alternative procedures as may hereafter become
appropriate to effect complete transfer of ownership of
any such Trust Account Property to the Trustee or its
nominee or custodian, consistent with applicable law or
regulations or the interpretation thereof;
(iii) with respect to a Certificated Security that will,
upon compliance with the following procedures, be held by a person
located in a Revised Article 8 Jurisdiction, transfer of such
Certificated Security to the Trustee or its nominee or custodian
by physical delivery to the Trustee or its nominee or custodian,
endorsed to, or registered in the name of, the Trustee or its
nominee or custodian or endorsed in blank;
(iv) with respect to any such Trust Account Property that
constitutes an "uncertificated security" under Old Article 8 (and
that is not a Federal Book Entry Security) and where the issuer
thereof is organized in an Old Article 8 Jurisdiction,
registration of the transfer to, and ownership of such Trust
Account Property by the Trustee or any Financial Intermediary
acting on behalf of the Trustee by the issuer of such Trust
Account Property, and (B) in the case of registration in the name
of any Financial Intermediary, (1) the making by any such
Financial Intermediary of entries in its books and records
identifying such uncertificated security as belonging to the
Trustee, and (2) delivery by any such Financial Intermediary to
the Trustee of a written confirmation of the transfer of the
uncertificated securities to the Trustee; and
(v) with respect to any such Trust Account Property that
constitutes an Uncertificated Security (including any investments
in money market mutual funds, but excluding any Federal Book Entry
Security) and where the issuer thereof is organized in a Revised
Article 8 Jurisdiction, (A) registration of the Trustee as the
registered owner by the issuer, or (B)
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satisfaction of the requirements for obtaining "control" pursuant
to Section 8-106(c)(2) of Revised Article 8.
Deposit Date: With respect to any Determination Date, the Business
Day preceding such Determination Date.
Depository Agreement: means the agreement, dated the Closing Date,
between Seller, Servicer, Trustee and the initial Clearing Agency.
Determination Date: With respect to any Payment Date, the eighth
day of the calendar month in which such Payment Date occurs (or, if such
day is not a Business Day, the next Business Day).
Electronic Ledger: The electronic master record of the retail
installment contracts of the Servicer.
Eligible Account: (i) A segregated trust account that is
maintained with the corporate trust department of a depository institution,
or (ii) a segregated direct deposit account maintained with a depository
institution or trust company organized under the laws of the United States
of America, 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 ["D-1" by DCR (or, if not rated by DCR, "A-l" by S&P or "P-1" by
Moody's)].
Eligible Investments: Any one or more of the following types of
investments:
(a) direct interest-bearing obligations of, and
interest-bearing obligations guaranteed as to timely payment of
principal and interest by, the United States or any agency or
instrumentality of the United States the obligations of which are
backed by the full faith and credit of the United States;
(b) demand or time deposits in, certificates of deposit
of, demand notes of, or bankers' acceptances issued by any
depository institution or trust company organized under the laws
of the United States or any State and subject to supervision and
examination by federal and/or state banking authorities
(including, if applicable, the Trustee or any agent of the Trustee
acting in their respective commercial capacities); provided,
however, that the short-term unsecured debt obligations of such
depository institution or trust company at the time of such
investment, or contractual commitment providing for such
investment, are rated in one of the two highest short-term rating
categories by [DCR (or, if not rated by DCR, in one of the two
highest short-term rating categories by S&P or Moody's)];
(c) 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 in accordance with Section 4.1, and
(ii) entered into with a depository institution or trust company
organized under the laws of the United States or any
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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 in one of the two highest
short-term rating categories by [DCR (or, if not rated by DCR, in
one of the two highest short-term rating categories by S&P or
Moody's)] (including, if applicable, the Trustee, or any agent of
the Trustee acting in its commercial capacity);
(d) securities bearing interest or sold at a discount
issued by any corporation incorporated under the laws of the
United States or any State whose long-term unsecured debt
obligations are rated in one of the two highest long-term rating
categories by [DCR (or, if not rated by DCR, in one of the two
highest long-term rating categories by S&P or Moody's)] at the
time of such investment or contractual commitment providing for
such investment; provided, however, that securities issued by any
particular corporation shall not be Eligible Investments with
respect to the Collection Account to the extent that an investment
therein will cause the then outstanding principal amount of
securities issued by such corporation and held in the Collection
Account to exceed 10% of the Eligible Investments held in the
Collection Account (with Eligible Investments held in the
Collection Account valued at par);
(e) commercial paper that (i) is payable in United States
dollars and (ii) is rated in one of the two highest short-term
rating categories by [DCR (or, if not rated by DCR, in one of the
two highest short-term rating categories by S&P or Moody's)];
(f) money market mutual funds that are rated in the
highest credit rating category by [Moody's or S&P]; or
(g) any other demand or time deposit, obligation,
security or investment as may be acceptable to the Rating Agency,
as evidenced by the prior written consent of the Rating Agency.
Any such Eligible Investments may be purchased by or through the Trustee or
any of its Affiliates.
Eligible Servicer: Paragon[, 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 contracts and/or motor
vehicle installment loans comparable to the Receivables, (ii) is legally
qualified and has the capacity to service the Receivables, (iii) has
demonstrated the ability to service with reasonable skill and care a
portfolio of motor vehicle retail installment contracts and/or motor
vehicle installment loans similar to the Receivables, (iv) is qualified and
entitled to use, pursuant to a license or other written agreement, and
agrees to maintain the confidentiality of, the software that the Servicer
uses in connection with performing its duties and responsibilities under
this Agreement or otherwise has available software that is adequate to
perform its duties and responsibilities under this Agreement and (v) has
been approved by Certificateholders constituting a Certificate Majority.
Entitlement Order: As defined in Section 8-102(a)(8) of Revised
Article 8.
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Executive Officer: With respect to any corporation, the President,
Chief Financial Officer or any Vice President.
Federal Book Entry Security: An obligation (i) issued by the U.S.
Treasury, the Federal Home Loan Mortgage Corporation or the Federal
National Mortgage Association, or any other direct obligation of, or
obligation fully guaranteed as to timely payment or principal and interest
by, the United States of America, that is a book-entry security held
through the Federal Reserve System pursuant to Federal book entry
regulations, and (ii) the perfection of a security interest in which is
governed pursuant to federal regulations by Revised Article 8.
Final Scheduled Payment Date: _______ __, 20__ (or, if such day is
not a Business Day, the next Business Day).
Financed Vehicle: A new or used automobile, light truck or sports
utility vehicle, together with all accessories thereto, securing or
purporting to secure an Obligor's indebtedness under a Receivable.
Financial Asset: As defined in Section 8-102(a)(9) of Revised
Article 8.
Financial Intermediary: As defined in Section 8-313(4) of Old
Article 8.
Floor Amount: The lesser of (i) the Certificate Balance and (ii)
$500,000.
Governmental Authority: Any court or federal or state regulatory
body, administrative agency or other tribunal or other governmental
instrumentality.
Independent Accountants: As defined in Section 3.11.
Insolvency Event: With respect to a specified Person, (a) the
entry of a decree or order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its property
in an involuntary case under any applicable federal or state bankruptcy,
insolvency or other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official for such Person or for any substantial part of its property, or
ordering the winding-up or liquidation of such Person's affairs, 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 (b) the commencement by such Person 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 such Person to the entry of
an order for relief in an involuntary case under any such law, or the
consent by such Person to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official for such Person or for any substantial part of its property, or
the making by such Person of any general assignment for the benefit of
creditors, or the failure by such Person generally to pay its debts as such
debts become due, or the taking of action by such Person in furtherance of
any of the foregoing.
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Instruments: As defined in Section 9-105(l)(i) of Revised Article 8.
Insurance Policy: With respect to a Receivable, any insurance
policy benefiting the holder of the Receivable and providing loss or
physical damage, credit life, accident and health, theft, mechanical
breakdown or similar coverage with respect to the Financed Vehicle or the
related Obligor.
Investment Property: As defined in Section 9-115(1)(f) of Revised
Article 8.
Lien: Any security interest, lien, charge, pledge, preference,
equity or encumbrance of any kind, including tax liens, mechanics' liens
and any liens that attach by operation of law.
Lien Certificate: 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 that
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: With respect to any Collection Period, a
Receivable as to which (i) the related Financed Vehicle has been
repossessed and sold by the Servicer, (ii) at least 10% of any Scheduled
Payment has become 120 or more days delinquent, or (iii) the Servicer has
determined in good faith that all amounts it expects to recover with
respect thereto have been received. Any Receivable that becomes a Purchased
Receivable on or before the related Deposit Date shall not be a Liquidated
Receivable.
Liquidation Proceeds: With respect to a Liquidated Receivable, all
amounts realized with respect to such Receivable (other than amounts
withdrawn from the Reserve Account) net of (i) reasonable expenses incurred
by the Servicer in connection with the collection of such Receivable and
the repossession and disposition of the related Financed Vehicle and (ii)
amounts that are required to be refunded to the Obligor on such Receivable;
provided, however, that the Liquidation Proceeds with respect to any
Receivable shall in no event be less than zero.
Lockbox Account: As defined in Section 3.2(d).
Lockbox Agreement: As defined in Section 3.2(d).
Lockbox Bank: As defined in Section 3.2(d).
Monthly Records: All records and data maintained by the Servicer
with respect to the Receivables and the Obligors, including the following
with respect to each Receivable: the account number; the identity of the
originating Dealer; Obligor name, Obligor address; Obligor home phone
number; Obligor business phone number (if any); original Amount Financed or
Principal Balance; original total of payments; original term; Annual
Percentage Rate; current balance; pay off balance;
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current remaining term; contract origination date; first payment date;
final scheduled payment date; next payment due date; collateral
description; days currently delinquent; new/used classification; amount of
the Scheduled Payment; and past due late charges, if any.
Moody's: Moody's Investors Service, Inc., or any successor thereto.
Obligor: With respect to a Receivable, the purchaser or the
co-purchasers of the related Financed Vehicle and any other Person or
Persons who are primarily or secondarily obligated to make payments under
such Receivable.
Officer's Certificate: A certificate signed by an Executive Officer.
Old Article 8: Article 8 of the UCC as in effect in the State of
Missouri as of the date hereof.
Old Article 8 Jurisdiction: A jurisdiction which has not adopted
Revised Article 8.
Opinion of Counsel: A written opinion of counsel reasonably
acceptable in form and substance and from counsel acceptable to the
Servicer and, if such opinion or a copy thereof is required to be delivered
to the Trustee, reasonably acceptable (as to form and substance) to it.
Paragon: As defined in the first paragraph of this Agreement.
Payment Amount: With respect to a Payment Date, the sum of (i) the
Available Funds as of the related Determination Date, plus (ii) the
Deficiency Claim Amount, if any, with respect to such Payment Date.
Payment Date: The 15th day of each calendar month, or if such 15th
day is not a Business Day, the next Business Day, commencing ________ 15,
____ and including the Final Scheduled Payment Date.
Permitted Lien: (i) the Lien in favor of the Trust, (ii) the Lien
in favor of the Trustee for the benefit of the Certificateholders, (iii)
the restrictions on transferability imposed by the Related Documents and
(iv) inchoate Liens for taxes not yet payable and mechanics' or suppliers'
liens for services or materials supplied the payment of which is not yet
overdue.
Person: Any legal person, including any individual, corporation,
partnership, limited liability company, joint venture, estate, association,
joint stock company, trust, unincorporated organization or government or
any agency or political subdivision thereof.
Physical Property: Personal property constituting Instruments or
constituting "certificated securities" under Old Article 8, including
bankers' acceptances, commercial paper, negotiable certificates of deposit
and other obligations that are susceptible of physical delivery.
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Pre-Computed Receivable: Any Receivable under which the portion of
a payment allocable to earned interest (which may be referred to in the
related Receivable as an add-on finance charge) and the portion allocable
to the Amount Financed is determined according to the sum of periodic
balances or the sum of monthly balances or any equivalent method or are
monthly actuarial receivables.
Principal Balance: With respect to any Receivable, as of any date,
the Amount Financed minus (i) in the case of a Pre-Computed Receivable,
that portion of all payments (including all Scheduled Payments and any
prepayments in full or partial prepayment) received on or prior to such
date and allocable to principal in accordance with the actuarial method,
(ii) in the case of a Simple Interest Receivable, that portion of all
payments (including all Scheduled Payments and any prepayments in full or
partial prepayment) received on or prior to such date and allocable to
principal in accordance with the simple interest method, and (iii) any Cram
Down Loss in respect of such Receivable.
Purchase Amount: With respect to a Receivable, the Principal Balance
and all accrued and unpaid interest on the Receivable as of the Accounting
Date as of which such Receivable is to be purchased.
Purchased Receivable: With respect to any Collection Period, any
Warranty Receivable or Administrative Receivable as to which the Purchase
Amount has been deposited in the Collection Account by or on behalf of the
Seller or the Servicer, as applicable, on or before the related Deposit
Date and any Receivable purchased by the Servicer pursuant to Section 9.1
as to which the Purchase Amount has been deposited in the Collection
Account by or on behalf of the Servicer.
Rating Agency: ___, so long as ___ maintains a rating on the Class
A Certificates and the Class B Certificates; and if ___ no longer maintains
a rating on the Class A Certificates or Class B Certificates, such other
nationally recognized statistical rating organization selected by the
Seller.
Rating Agency Condition: With respect to any action, that the
Rating Agency shall have been given prior notice thereof and that the
Rating Agency shall have notified Paragon, the Seller, the Servicer and the
Trustee in writing that such action will not result in a reduction or
withdrawal of the then current rating of the Class A Certificates or the
Class B Certificates.
Receivable: A retail installment contract (and related security
agreement) for a new or used automobile, light truck or sports utility
vehicle (and all accessories thereto) that is included in the Schedule of
Receivables, and all rights and obligations under such a contract.
Receivable File: The documents, electronic entries, instruments and
writings listed in Section 2.2 pertaining to a particular Receivable.
Receivables Purchase Agreement: The Receivables Purchase Agreement,
dated as of ________ __, ____, between the Seller and Paragon.
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Record Date: The Business Day preceding the related Payment Date.
Registrar of Titles: With respect to any state, the Governmental
Authority responsible for the registration of, and the issuance of
certificates of title relating to, motor vehicles and liens thereon.
Related Documents: This Agreement, the Certificates, the
Receivables Purchase Agreement, the Certificate of Incorporation of Paragon
Auto Receivables Corporation and the other agreements executed in
connection with the Closing. The Related Documents executed by any party
are referred to herein as "such party's Related Documents," "its Related
Documents" or by a similar expression.
Reserve Account: The Reserve Account established and maintained
pursuant to Section 4.1(a)(ii).
Reserve Account Required Amount: With respect to a Payment Date,
the greater of (i) 5% of the Certificate Balance as of the related
Accounting Date and (ii) the Floor Amount; provided, however, that if a
Trigger Event has occurred and has not been Deemed Cured as of such Payment
Date, the Reserve Fund Required Amount shall be 10% of the Certificate
Balance as of the related Accounting Date.
Responsible Officer: When used with respect to the Trustee, any
officer of the Trustee assigned by the Trustee to administer its corporate
trust affairs relating to the Trust. When used with respect to any other
Person that is not an individual, the President, any Vice-President or
Assistant Vice-President or the Controller of such Person, or any other
officer or employee having similar functions.
Revised Article 8: UCC, Revised Article 8, Investment Securities
(with conforming and miscellaneous amendments to Articles 1, 3, 4, 5, 9 and
10), 1994 Official Text, as adopted by the American Law Institute and the
National Conference of Commissioners on Uniform State Laws. Unless the
context requires otherwise, "Revised Article 8" means such version in the
form in which it is adopted in the applicable jurisdiction.
Revised Article 8 Jurisdiction: A jurisdiction which has adopted
Revised Article 8.
S&P: Standard & Poor's a division of the McGraw-Hill Companies,
Inc., or any successor thereto.
Schedule of Receivables: The schedule of all retail installment
contracts sold and transferred to the Trust on the Closing Date attached
hereto as Schedule A, as it may be amended from time to time, including to
remove Purchased Receivables pursuant to Section 2.6.
Schedule of Representations: The Schedule of Representations and
Warranties of the Seller attached as Schedule B.
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Scheduled Payment: With respect to any Collection Period for any
Receivable, the amount set forth in such Receivable as required to be paid
by the Obligor thereon in such Collection Period. If, after the Closing
Date, the Obligor's obligation under a Receivable with respect to a
Collection Period has been modified so as to differ from the amount
specified in such Receivable as a result of (i) the order of a court in an
insolvency proceeding involving the Obligor, (ii) the Soldiers' and
Sailors' Civil Relief Act of 1940 or (iii) modifications or extensions of
the Receivable permitted by Section 3.2(b) or 3.2(c), the Scheduled Payment
with respect to such Collection Period shall refer to the Obligor's payment
obligation with respect to such Collection Period as so modified.
Securities Account: As defined in Section 8-501(a) of Revised
Article 8.
Securities Act: The Securities Act of 1933, as amended.
Securities Entitlement: As defined in Section 8-102(a)(17) of
Revised Article 8.
Securities Intermediary: As defined in Section 8-102(a)(14) of
Revised Article 8.
Seller: As defined in the first paragraph of this Agreement.
Servicer: Paragon Acceptance Corporation, a Delaware corporation,
its successor in interest pursuant to Section 8.2 or, after any termination
of the Servicer upon a Servicer Termination Event[, the Backup Servicer] or
any other successor Servicer.
Servicer Termination Event: An event described in Section 10.1.
Servicer's Certificate: With respect to each Determination Date, a
certificate, completed by and executed on behalf of the Servicer, in
accordance with Section 3.9, substantially in the form attached as Exhibit A.
Simple Interest Receivable: Any Receivable under which principal and
interest is allocated according to the simple interest method.
Supplemental Servicing Fee: With respect to any Collection Period,
all administrative fees, expenses and charges paid by or on behalf of
Obligors, including any late fees, NSF fees and liquidation fees collected
on the Receivables during such Collection Period and reimbursement of any
personal property taxes assessed on repossessed Financed Vehicles paid by
the Servicer.
Total Servicing Fee: The sum of the Basic Servicing Fee and the
Supplemental Servicing Fee.
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Trigger Event: With respect to any Determination Date, (a) the
average of the Delinquency Ratios for the three preceding Collection
Periods exceeds ____% or (b) the Cumulative Net Loss Ratio exceeds the
percentage shown opposite the number of the applicable Determination Date
(after the Closing Date) below:
Determination Date Cumulative Net Loss Ratio
------------------ -------------------------
(after the Closing Date)
1st through 12th %
13th through 18th %
19th through 24th %
25th through 30th %
31st and on %
Trust: As defined in the first paragraph of this Agreement.
Trust Account: As defined in Section 4.1(b).
Trust Account Property: 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 Property: The property and proceeds conveyed pursuant to
Section 2.1, together with certain monies paid after the Cutoff Date with
respect to the Receivables, the Trust Accounts (including all Eligible
Investments therein and all proceeds therefrom), the rights of the Trust
under this Agreement and the rights of the Seller under the Receivables
Purchase Agreement.
Trustee: As defined in the first paragraph of this Agreement.
Trustee Fee: With respect to any Payment Date, the fee payable to
the Trustee for services rendered during the related Collection Period.
Uncertificated Security: As defined in Section 8-102(a)(18) of
Revised Article 8.
UCC: The Uniform Commercial Code as in effect in the relevant
jurisdiction.
Warranty Receivable: With respect to any Collection Period, a
Receivable that the Seller has become obligated to repurchase pursuant to
Section 2.5.
Section 1.2. 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 one gender include the other
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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, and the terms
"include" or "including" mean "include without limitation" or "including
without limitation."
Section 1.3. Calculations. All calculations of the amount of
interest accrued on the Certificates shall be made on the basis of a
360-day year consisting of twelve 30-day months. All references to the
Principal Balance of a Receivable as of an Accounting Date shall refer to
the close of business on such day.
Section 1.4. Section References. All references to Articles,
Sections, paragraphs, subsections, exhibits and schedules shall be to such
portions of this Agreement unless otherwise specified.
Section 1.5. Action by or Consent of Certificateholders. Whenever
any provision of this Agreement refers to action to be taken or consented
to by Certificateholders, such provision shall be deemed to refer to
Certificateholders of record as of the Record Date preceding the date on
which such action is to be taken or consent given by Certificateholders.
Solely for purposes of any action to be taken or consented to by
Certificateholders, any Certificate registered in the name of Paragon, the
Seller or any Affiliate thereof shall be deemed not to be outstanding;
provided, however, that, solely for the purpose of determining whether the
Trustee is entitled to rely upon any such action or consent, only
Certificates that the Trustee knows to be so owned shall be so disregarded.
Section 1.6. No Recourse. No recourse may be taken, directly or
indirectly, under this Agreement or any certificate or other writing
delivered in connection herewith or therewith, against any stockholder,
officer or director, as such, of Paragon, the Seller, the Servicer, [the
Backup Servicer,] or the Trustee or of any predecessor or successor of
Paragon, the Seller, the Servicer[, the Backup Servicer] or the Trustee.
Section 1.7. Nonpetition Covenant. Until one year and one day
following the payment in full of all amounts due in respect of the
Certificates, none of the Seller, the Servicer, the Trustee[, the Backup
Servicer] nor Paragon shall petition or otherwise invoke the process of any
court or government authority for the purpose of commencing or sustaining a
case against the Seller or the Trust 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 Seller or
the Trust or any substantial part of its property, or ordering the winding
up or liquidation of the affairs of the Seller or the Trust.
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ARTICLE II
CONVEYANCE OF RECEIVABLES; ACCEPTANCE BY TRUSTEE
Section 2.1. Conveyance of Receivables. (a) Subject to the terms
and conditions of this Agreement, the Seller hereby sells, transfers,
assigns and otherwise conveys to the Trust, without recourse (but without
limitation of its obligations under this Agreement): (1) all of the right,
title and interest of the Seller in and to the Receivables and all monies
due or received thereunder or in respect thereof after the Cutoff Date
(including all Liquidation Proceeds and recoveries received with respect to
such Receivables); and (2) all of the right, title and interest of Paragon
and the Seller in and to (i) the security interests of Paragon and the
Seller in the related Financed Vehicles and any other interest of Paragon
and the Seller in the related Financed Vehicles, including the certificates
of title with respect to such Financed Vehicles, (ii) the Insurance
Policies and any proceeds from any Insurance Policies relating to the
Receivables, the Obligors or the related Financed Vehicles, including
rebates or refunds of premiums, (iii) the rights of Paragon and the Seller
against Dealers with respect to the Receivables under the Dealer Agreements
and the Dealer Assignments, (iv) the rights of the Seller under the
Receivables Purchase Agreement, (v) all funds on deposit from time to time
in the Collection Account and the Reserve Account, including all income
thereon and proceeds thereof, and (vi) all proceeds and investments of any
of the foregoing, all present and future claims, demands, causes and
chooses in action in respect of any or all of the foregoing and all
payments on or under and all proceeds of every kind and nature whatsoever
in respect of any of the foregoing.
(b) It is the intention of the Seller that the transfer and
assignment contemplated by this Agreement shall constitute a sale of the
Receivables and the other Trust Property from the Seller to the Trust 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. If, notwithstanding the intent of the Seller, the transfer
and assignment contemplated hereby is held not to be a sale, the Seller
hereby grants a first priority security interest to the Trust in the
property referred to in this Section 2.1, and this Agreement shall
constitute a security agreement. The execution and delivery of this
Agreement shall constitute an acknowledgment by the Seller and the Trustee
on behalf of the Certificateholders that they intend to establish (for
federal income tax purposes) a trust, rather than an association taxable as
a corporation. The powers granted and obligations undertaken in this
Agreement shall be construed so as to further such intent.
(c) The Seller hereby directs the Trust to, and the Trust does
hereby, accept the Trust Property conveyed by the Seller to the Trust
pursuant to this Section 2.1.
(d) The conveyance of the Receivables and the other Trust Property
with respect thereto shall take place at a closing (the "Closing") at the
offices of Mayer, Brown & Platt, 190 South LaSalle Street, Chicago,
Illinois 60603 on the Closing Date.
Section 2.2. Custody of Receivable Files.
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(a) Simultaneously with the execution and delivery of this
Agreement and the sale, transfer and assignment of the Receivables
and the other Trust Property to the Trust pursuant to this
Agreement, the Seller shall deliver the following documents or
instruments in its possession to the Trustee, other than the
documents referred to in clause (iii) which shall be delivered no
later than 30 days following the Closing Date:
(i) The fully executed original of the Receivable
(together with any agreements modifying the Receivable including
any extension agreements, provided that the Trustee shall not have
to certify the receipt of any such agreements modifying or
extending the Receivable);
(ii) The original credit application, or a copy thereof,
of each Obligor, fully executed by each such Obligor; and
(iii) The original Lien Certificate (when received) and
any such other documents, if any, that Paragon keeps on file in
accordance with its customary procedures indicating that the
Financed Vehicle is owned by the Obligor and subject to the
interest of Paragon as first lienholder or secured party
(including any Lien Certificate received by Paragon), or, if such
original Lien Certificate has not yet been received, a copy of the
application therefor, if any, showing Paragon as secured party.
(b) Upon payment in full of any Receivable, the Servicer shall
notify the Trustee pursuant to a certificate of an officer of the Servicer
in the form of Exhibit B hereto and shall request delivery of the
Receivable and the Receivable File to the Servicer. From time to time as
appropriate for servicing and enforcing any Receivable, the Trustee shall,
upon written request of an officer of the Servicer and delivery to the
Trustee of a receipt signed by such officer cause the original Receivable
and the Receivable File to be released to the Servicer. The Servicer's
receipt of a Receivable and/or a Receivable File shall obligate the
Servicer to return the original Receivable and Receivable File to the
Trustee when its need by the Servicer has ceased, unless the Receivable is
repurchased as described in Section 2.5 or Section 3.7.
(c) The Trustee shall maintain the Receivable Files it has
received at its principal office or at such other office as shall from time
to time be identified to the Servicer, and the Trustee will hold such
Receivable File in such office on behalf of the Certificateholders, clearly
identified as being separate from any other instruments and files on its
records, including other instruments and files held by the Trustee. Each
Receivable shall be identified on the books and records of the Trustee in a
manner that (i) is consistent with practices of a commercial bank acting in
the capacity of custodian with respect to similar receivables and (ii) is
otherwise necessary, as reasonably determined by the Trustee, to comply
with the terms of this Agreement.
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Section 2.3. Conditions Precedent to Issuance by Trust. As
conditions to the Trustee's authentication and delivery of the Certificates
on the Closing Date, the Trustee shall have received the following on or
before the Closing Date:
(a) The Schedule of Receivables certified by an Executive
Officer of the Seller;
(b) The acknowledgment (including an exceptions listing,
if any) of the Trustee stating that it holds the Receivable Files
relating to the Receivables and has reviewed such Receivable Files
and such Receivable Files contain the items set forth in Section
2.2(i), (ii) and (iii);
(c) Copies of resolutions of the Board of Directors of
the Seller approving the execution, delivery and performance of
the Seller's Related Documents and the transactions contemplated
hereby and thereby, certified by a Secretary or an Assistant
Secretary of the Seller;
(d) Copies of resolutions of the Board of Directors of
Paragon approving the execution, delivery and performance of its
Related Documents and the transactions contemplated hereby and
thereby, certified by a Secretary or an Assistant Secretary of
Paragon; and
(e) Opinions from Mayer, Brown & Platt and Nancy C.
Ferguson, General Counsel of Paragon, and Hudson Cook, LLP with
respect to the Trust's first priority perfected security interest
or ownership interest in the Receivables and the Financed Vehicles
and copies of any financing statements which have been or will be
attached to such opinions.
Section 2.4. Representations and Warranties of Seller. By its
execution of this Agreement, the Seller makes the following representations
and warranties on which the Trust relies in accepting the Receivables and
the other Trust Property and in issuing the Certificates and on which the
Trustee relies in authenticating the Certificates. Unless otherwise
specified, such representations and warranties speak as of the Closing
Date, but shall survive the sale, transfer and assignment of the
Receivables to the Trust.
(a) Schedule of Representations. The representations and
warranties set forth on the Schedule of Representations are true and
correct in all material respects.
(b) Organization and Good Standing. The Seller has been duly
organized and is validly existing as a corporation under the laws of the
State of Delaware, with power and authority to own its properties and to
conduct its business as such properties are currently owned and such
business is currently conducted.
(c) Due Qualification. The Seller is duly qualified to do business
and has obtained all necessary licenses and approvals in all jurisdictions
where the failure to do so would have a material adverse effect on (i) the
Seller's ability to transfer the Receivables and the other Trust Property to
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the Trust pursuant to this Agreement, (ii) the validity or enforceability
of the Receivables and the other Trust Property or (iii) the Seller's
ability to perform its obligations hereunder and under its Related
Documents.
(d) Power and Authority. The Seller has the power and authority to
execute and deliver its Related Documents and to carry out their terms; the
Seller has power and authority to sell and assign the Receivables and the
other Trust Property to be sold and assigned to and deposited with the
Trust by it and has duly authorized such sale and assignment to and deposit
with the Trust by all necessary corporate action; and the execution,
delivery and performance of the Seller's Related Documents have been duly
authorized by the Seller by all necessary corporate action.
(e) Binding Obligations. The Seller's Related Documents, when duly
executed and delivered, shall constitute valid and binding obligations of
the Seller enforceable in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of creditors' rights generally
and by equitable limitations on the availability of specific remedies,
regardless of whether such enforceability is considered in a proceeding in
equity or at law.
(f) No Violation. The execution, delivery and performance by the
Seller of its Related Documents, the consummation of the transactions
contemplated thereby and the fulfillment of the terms thereof do not (i)
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 certificate of incorporation or bylaws of the Seller, or any indenture,
agreement, mortgage, deed of trust or other instrument to which the Seller
is a party or by which it or its properties are bound, (ii) result in the
creation or imposition of any Lien (other than Permitted Liens) upon any of
its properties pursuant to the terms of any such indenture, agreement,
mortgage, deed of trust or other instrument or (iii) to the Seller's
knowledge, violate any law, order, rule or regulation applicable to the
Seller of any Governmental Authority having jurisdiction over the Seller or
any of its properties.
(g) No Proceedings. There are no proceedings or investigations
pending or, to the Seller's knowledge, threatened against the Seller,
before any Governmental Authority having jurisdiction over the Seller or
its properties (i) asserting the invalidity of any of the Related
Documents, (ii) seeking to prevent the issuance of the Certificates or the
consummation of any of the transactions contemplated by any of the Related
Documents, (iii) seeking any determination or ruling that would have a
material adverse effect on the performance by the Seller of its obligations
under, or the validity or enforceability of, any of the Related Documents,
or (iv) seeking to materially and adversely affect the federal income tax
or other federal, state or local tax attributes of the Certificates or
seeking to impose any excise, franchise, transfer or similar tax upon the
Certificates or the sale and assignment of the Receivables and the other
Trust Property hereunder.
(h) No Consents. No consent, approval, license, authorization or
order of, or declaration, registration or filing with, any Governmental
Authority or other Person is required to be made by the Seller in
connection with the execution, delivery or performance of its Related
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Documents or the consummation of the transactions contemplated thereby,
except such as have been duly made, effected or obtained.
(i) Chief Executive Office. The chief executive office of the
Seller is at 27405 Puerta Real, Suite 200, Mission Viejo, California 92691.
(j) Dealer Recourse. The Seller shall execute and deliver such
other instruments and agreements as the Trustee may reasonably request in
order to enforce any rights against a Dealer assigned to the Seller under
the Receivables Purchase Agreement and assigned to the Purchaser hereunder
and any obligations of a Dealer in connection with a Receivable including
any rights to recourse against such Dealer.
Section 2.5. Repurchase of Receivables Upon Breach of Warranty.
Upon discovery by any of the Seller, the Servicer or the Trustee of a
breach of any of the representations and warranties of the Seller contained
in Section 2.4(a) that has a material adverse effect on the interests of
the Certificateholders in any Receivable, the party discovering such breach
shall give prompt written notice to the others; provided, however, that the
failure to give any such notice shall not affect any obligation of the
Seller under this Section 2.5; and provided, further, that the maximum
aggregate purchase obligation of the Seller with respect to breaches of the
representation and warranty made in clause (C) of paragraph 4 of the
Schedule of Representations shall not exceed an amount equal to 10% of the
aggregate Principal Balance of all Receivables originated after ________
__, ____. As of the second Accounting Date (or, at the Seller's election,
the first Accounting Date) following its discovery or its receipt of notice
of any such breach the Seller shall, unless such breach shall have been
cured in all material respects, repurchase such Receivable from the Trust
and, on or before the Deposit Date following such Accounting Date, the
Seller shall pay the Purchase Amount to the Trust pursuant to Section 4.4.
The obligation of the Seller to repurchase any Receivable as to which a
breach has occurred and is continuing shall, if such obligation is
fulfilled, constitute the sole remedy against the Seller for such breach
available to the Trust, the Certificateholders or the Trustee on behalf of
the Certificateholders. The Trustee shall not be under any duty or
obligation to investigate the occurrence of a breach of representation or
warranty in accordance with this Section 2.5.
Section 2.6. Trustee's Assignment of Receivables. With respect to
all Administrative Receivables and all Warranty Receivables purchased by
the Servicer or the Seller and all Receivables purchased by the Servicer
pursuant to Section 11.2, the Trust and the Trustee shall take any and all
actions reasonably requested by the Seller or the Servicer, at the expense
of the requesting party, to assign, without recourse, representation or
warranty, to the Seller or the Servicer, as applicable, all the Trust's and
the Trustee's right, title and interest in and to such Purchased
Receivables and the other Trust Property with respect thereto, such
assignment being an assignment outright and not for security; and the
Seller or the Servicer, as applicable, shall thereupon own such Purchased
Receivables and the other Trust Property related thereto, free of any
further obligation to the Trust, the Trustee or the Certificateholders with
respect thereto. The Trust and the Trustee shall take any and all actions
reasonably requested by the Seller or the Servicer, at the expense of the
requesting party, to release its security interest in each Purchased
Receivable and in the other Trust Property with respect thereto. The
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Servicer shall remove each Purchased Receivable from the Schedule of
Receivables and mark the Electronic Ledger accordingly. The Servicer shall
deliver any supplements to the Schedule of Receivables to the Seller and
the Trustee. Notwithstanding the foregoing, although the Trust and the
Trustee, as applicable, shall be required to execute documentation related
to the foregoing, neither the Trust nor the Trustee shall be required to
prepare any such documentation.
Section 2.7. Collecting Lien Certificates. The Servicer shall use
its best efforts to collect each Lien Certificate from the applicable
Registrar of Titles as promptly as practicable and, pending receipt of each
Lien Certificate from such Registrar of Titles, shall supply written
evidence that each such Lien Certificate has been applied for. If a Lien
Certificate with respect to a Receivable showing Paragon as first
lienholder is not received by the Trustee within 180 days after the Closing
Date, the Servicer shall be obligated to purchase such Receivable under
Section 3.7.
ARTICLE III
ADMINISTRATION AND SERVICING OF RECEIVABLES
Section 3.1. Duties of the Servicer. The Servicer is hereby
authorized to act as agent for the Trust and in such capacity shall manage,
service, administer and make collections on the Receivables and perform the
other actions required by the Servicer under this Agreement. The Servicer
agrees that its servicing of the Receivables shall be carried out in
accordance with customary and usual procedures of institutions that service
motor vehicle retail installment contracts and, to the extent more
exacting, with the degree of skill and attention that the Servicer
exercises from time to time with respect to comparable motor vehicle
receivables that it services for itself or others. In performing such
duties, it shall comply with its current servicing policies and procedures,
as such servicing policies and procedures may be amended from time to time,
so long as such amendments shall not materially and adversely affect the
interests of the Certificateholders or the Trust. The Servicer's duties
shall include collection and posting of all payments, responding to
inquiries of Obligors on the Receivables, investigating delinquencies,
sending statements or payment coupons to Obligors, monitoring the
collateral, accounting for collections and furnishing monthly and annual
statements to the Trustee with respect to distributions and performing the
other duties specified herein. To the extent consistent with the standards,
policies and procedures otherwise required hereby, the Servicer shall
follow its customary standards, policies and procedures and shall have full
power and authority, acting alone, to do any and all things in connection
with management, servicing, administration and collection that it may deem
necessary or desirable. Without limiting the generality of the foregoing,
the Servicer is hereby authorized and empowered by the Trust 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 the Financed
Vehicles. The Servicer is authorized to release Liens on Financed Vehicles
granted by the Receivables in order to collect insurance proceeds with
respect thereto and to liquidate such Financed Vehicles in accordance with
its customary standards, policies and procedures. The Servicer is hereby
authorized to commence, in its own name or in the name of the Trust or the
Trustee (provided that, if the Servicer is acting in the name of the
Trustee, it has obtained the Trustee's consent, which consent shall not be
unreasonably withheld), legal proceedings
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to enforce Receivables or to commence or participate in any other legal
proceedings (including bankruptcy proceedings) relating to or involving
Receivables, Obligors or Financed Vehicles. If the Servicer commences or
participates in such legal proceedings in its own name, the Trust shall
thereupon be deemed to have automatically assigned such Receivables to the
Servicer solely for purposes of commencing or participating in any such
proceedings as a party or claimant, and the Servicer is authorized and
empowered by the Trust to execute and deliver in the Servicer's name any
notices, demands, claims, complaints, responses, affidavits or other
documents or instruments in connection with any such proceedings. The
Trustee and the Trust shall furnish the Servicer with any powers of
attorney and other documents that the Servicer may reasonably request and
that the Servicer deems necessary or appropriate and take any other steps
that the Servicer may deem reasonably necessary or appropriate to enable
the Servicer to carry out its servicing and administrative duties under
this Agreement.
Section 3.2. Collection of Receivable Payments; Modifications of
Receivables; Lockbox Agreement. (a) Consistent with the standards, policies
and procedures required by this Agreement, the Servicer shall make
reasonable efforts to collect all payments 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
comparable motor vehicle receivables that it services for itself or others
and otherwise act with respect to the Receivables, the Dealer Agreements,
the Dealer Assignments, the Insurance Policies and the other Trust Property
in such manner as will, in the reasonable judgment of the Servicer,
maximize the amount to be received by the Trust with respect thereto. The
Servicer is authorized in its discretion to waive any prepayment charge,
late payment charge or any other similar fees that may be collected in the
ordinary course of servicing any Receivable.
(b) The Servicer may at any time agree to a modification or
amendment of a Receivable in order to (i) change the Obligor's regular due
date to another date within fifteen calendar days of such due date, or (ii)
re-amortize the Scheduled Payments on the Receivable following a partial
prepayment of principal, or (iii) add an additional Obligor to the
Receivable.
(c) The Servicer may grant payment extensions on, or other
modifications or amendments to, a Receivable (in addition to those
modifications permitted by Section 3.2(b)) in accordance with its customary
procedures if the Servicer believes in good faith that such extension,
modification or amendment is necessary to avoid a default on such
Receivable, will maximize the amount to be received by the Trust with
respect to such Receivable and is otherwise in the best interests of the
Certificateholders; provided, however, that, with respect to any
Receivable, the Servicer shall not grant more than one extension per year
and shall not grant extensions for a cumulative total of more than six
months during the life of the Receivable.
(d) Paragon has entered into [a Lockbox Agreement, dated as of
November 25, 1997 (as it may be amended or supplemented from time to time,
the "Lockbox Agreement"), with NationsBank, N.A. (the "Lockbox Bank"),
ContiTrade Services L.L.C., the Servicer and Norwest Bank Minnesota,
National Association as agent for the various parties described therein.]
The bank account established pursuant to the Lockbox Agreement (the
"Lockbox Account") shall be
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maintained at the Lockbox Bank. The Servicer shall direct funds in the
Lockbox Account relating to the Receivables to be transferred on a daily
basis to the Collection Account established in the name of [Norwest Bank
Minnesota, National Association,] as Trustee. All payments made by or on
behalf of Obligors or received by the Servicer with respect to the
Receivables and all Liquidation Proceeds received by the Servicer with
respect to the Receivables shall be sent to the Lockbox Account within one
Business Day after receipt. The Servicer shall transfer such payments, and
any payments made by Obligors directly to the Lockbox Account, to the
Collection Account within two Business Days after receipt of available
funds in the Lockbox Account; provided, however, that if the Servicer is
not able to transfer such payments within two Business Days due to
circumstances outside the Servicer's control, the Servicer shall transfer
such payments to the Collection Account as soon as is practicable; and,
provided, further, that if the Servicer is not able to transfer any such
payment within two Business Days because the Obligor or Receivable to which
such payment relates is not readily identifiable, the Servicer shall use
its best efforts to identify the related Obligor or Receivable as soon as
practicable and shall transfer such payment within one Business Day after
identifying such related Obligor or Receivable.
(e) Notwithstanding any third-party processing arrangement, or any
of the provisions of this Agreement relating to any third-party processing
arrangement, the Servicer shall remain obligated and liable to the Trust
and the Certificateholders for servicing and administering the Receivables
and the other Trust Property in accordance with the provisions of this
Agreement without diminution of such obligation or liability by virtue
thereof.
Section 3.3. Realization Upon Receivables. (a) Consistent with the
standards, policies and procedures required by this Agreement, the Servicer
shall use its best efforts to repossess (or otherwise comparably convert
the ownership of) and liquidate any Financed Vehicle securing a Receivable
with respect to which the Servicer has determined that payments thereunder
are not likely to be resumed, as soon as practicable after default on such
Receivable but in no event later than the date on which at least 10% of a
Scheduled Payment has become 120 days delinquent; provided, however, that
the Servicer may elect not to repossess a Financed Vehicle within such time
period if in its good faith judgment it determines that the proceeds
ultimately recoverable with respect to such Receivable would be increased
by forbearance; and provided, further, that the Servicer shall not be
required to repossess a Financed Vehicle if prohibited by law. The Servicer
is authorized to follow such customary practices and procedures as it shall
deem necessary or advisable, consistent with the standard of care required
by Section 3.1, which practices and procedures may include reasonable
efforts to realize upon any recourse to Dealers, the sale of the related
Financed Vehicle at public or private sale, the submission of claims under
an Insurance Policy and other actions by the Servicer in order to realize
upon a Receivable. The foregoing is subject to the provision that, in any
case in which the Financed Vehicle shall have suffered damage, the Servicer
shall not expend funds in connection with any repair or towards the
repossession of such Financed Vehicle unless it shall determine in its
discretion that such repair or repossession shall increase the proceeds of
liquidation of the related Receivable by an amount greater than the amount
of such expenses. The Servicer shall be entitled to recover all reasonable
expenses incurred by it in the course of repossessing and liquidating a
Financed Vehicle into cash proceeds, but only out of the cash proceeds of
such Financed Vehicle, any deficiency obtained from the Obligor or any
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amounts received from the related Dealer, which amounts in reimbursement
may be retained by the Servicer (and shall not be required to be deposited
as provided in Section 3.2(d) to the extent of such expenses). All amounts
received upon liquidation of a Financed Vehicle (less reasonable expenses
as described in the preceding sentence) shall be remitted directly by the
Servicer as provided in Section 3.2(d).
(b) If the Servicer elects to commence a legal proceeding to
enforce a Dealer Agreement or Dealer Assignment, the act of commencement
shall be deemed to be an automatic assignment from the Trust and the
Trustee to the Servicer of the rights under such agreements for purposes of
collection only. If, however, in any enforcement suit or legal proceeding
it is held that the Servicer may not enforce any such agreement on the
grounds that it is not a real party in interest or a Person entitled to
enforce such agreement, the Trust or the Trustee, at the Servicer's
expense, or the Seller, at the Seller's expense, shall take such steps as
the Servicer deems reasonably necessary to enforce such agreement,
including bringing suit in its name or the name of the Seller, the Trust or
the Trustee for the benefit of the Certificateholders. All amounts
recovered shall be remitted directly by the Servicer as provided in Section
3.2(d).
Section 3.4. Insurance. The Servicer may sue to enforce or collect
upon the Insurance Policies in its own name or as agent of the Trust. If
the Servicer elects to commence a legal proceeding to enforce an Insurance
Policy, the act of commencement shall be deemed to be an automatic
assignment of the rights of the Trust and the Trustee under such Insurance
Policy to the Servicer for purposes of collection only. If, however, in any
enforcement suit or legal proceeding it is held that the Servicer may not
enforce an Insurance Policy on the grounds that it is not a real party in
interest or a holder entitled to enforce the Insurance Policy, the Trust or
the Trustee, at the Servicer's expense, or the Seller, at the Seller's
expense, shall take such steps as the Servicer deems reasonably necessary
to enforce such Insurance Policy, including bringing suit in its name or
the name of the Trust and the Trustee for the benefit of the
Certificateholders.
Section 3.5. Maintenance of Security Interests in Vehicles.
Consistent with the policies and procedures required by this Agreement, the
Servicer shall take such steps on behalf of the Trust as are necessary to
maintain perfection of the first priority security interest created by each
Receivable in the related Financed Vehicle, including the recording,
registering, filing, re-recording, re-filing and re-registering of all
security agreements, financing statements and continuation statements as
are necessary to maintain the security interest under the respective
Receivables. The Trust and the Trustee each hereby authorize the Servicer,
and the Servicer agrees, to take any and all steps necessary to re-perfect
such security interest in the name of Paragon or the Seller on behalf of
the Trust as necessary because of the relocation of a Financed Vehicle or
for any other reason. If the assignment of a Receivable to the Trust and
the pledge of such Receivables to the Trustee are insufficient without a
notation on the related Financed Vehicle's certificate of title or without
fulfilling any additional administrative requirements under the laws of the
state in which the Financed Vehicle is located, to perfect a security
interest in the related Financed Vehicle in favor of the Trustee, the
Servicer hereby agrees that Paragon's designation as the secured party on
the certificate of title is in its capacity as agent of the Trustee, solely
for purposes of providing perfection of the security interest therein.
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Section 3.6. Covenants, Representations and Warranties of
Servicer. By its execution and delivery of this Agreement, the Servicer
makes the following representations, warranties and covenants on which the
Trust relies in accepting the Receivables and issuing the Certificates and
on which the Trustee relies in authenticating the Certificates. Unless
otherwise specified, such representations and warranties speak as of the
Closing Date, but shall survive the sale, transfer and assignment of the
Receivables to the Trust.
(a) The Servicer covenants as follows:
(i) Liens in Force. 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;
(ii) No Impairment. The Servicer shall do nothing to
impair the rights of the Trust, the Trustee or the
Certificateholders in the Receivables or the other Trust Property.
The Servicer shall take such action as is necessary (including the
filing of appropriate UCC financing statements and continuation
statements) to preserve the rights of the Trust, the Trustee and
the Certificateholders in the Receivables and the other Trust
Property;
(iii) No Amendments. The Servicer shall not extend or
otherwise amend the terms of any Receivable, except in accordance
with Section 3.2; and
(iv) Restrictions on Liens. The Servicer shall not (A)
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, except for Permitted Liens or
(B) sign or file under the UCC of any jurisdiction any financing
statement that names the Servicer as a debtor, or sign any
security agreement authorizing any secured party thereunder to
file such financing statement, with respect to the Receivables,
except in each case any such instrument solely securing the rights
and preserving the Lien of the Trustee for the benefit of the
Certificateholders or as otherwise permitted under this Agreement
or the Related Documents.
(v) Servicing of Receivables. The Servicer shall service
the Receivables as described in this Agreement until such time as
it has been replaced by a successor Servicer.
(b) The Servicer represents, warrants and covenants as of the
Closing Date as to itself:
(i) Organization and Good Standing. The Servicer has been
duly organized and is validly existing as a corporation in good
standing under the laws of its jurisdiction of organization, with
power and authority to own its properties and to conduct its
business as such properties are currently owned and such business
is currently conducted;
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(ii) Due Qualification. The Servicer is duly qualified to
do business as a foreign corporation in good standing and has
obtained all necessary licenses and approvals in all jurisdictions
where the failure to do so would have a material adverse effect on
its ability to perform its obligations under its Related Documents
and its ability to enforce the Receivables and the other Trust
Property;
(iii) Power and Authority. The Servicer has the power and
authority to execute and deliver this Agreement and its Related
Documents and to carry out its terms and their terms, and the
execution, delivery and performance of the Servicer's Related
Documents have been duly authorized by the Servicer by all
necessary corporate action;
(iv) Binding Obligation. The Servicer's Related
Documents, when duly executed and delivered, shall constitute
legal, valid and binding obligations of the Servicer enforceable
in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency,
reorganization, or other similar laws affecting the enforcement of
creditors' rights generally and by equitable limitations on the
availability of specific remedies, regardless of whether such
enforceability is considered in a proceeding in equity or at law;
(v) No Violation. The execution, delivery and performance
by the Servicer of its Related Documents, the consummation of the
transactions contemplated thereby and the fulfillment of the terms
thereof do not (A) 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 certificate of
incorporation or bylaws of the Servicer, or any indenture,
agreement, mortgage, deed of trust or other instrument to which
the Servicer is a party or by which it or its properties are
bound, (B) 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 (C) to
the best of the Servicer's knowledge, violate any law, order, rule
or regulation applicable to the Servicer of any Governmental
Authority having jurisdiction over the Servicer or any of its
properties;
(vi) No Proceedings. There are no proceedings or
investigations pending or, to the best of the Servicer's
knowledge, threatened against the Servicer, before any
Governmental Authority having jurisdiction over the Servicer or
its properties (A) asserting the invalidity of any of the Related
Documents, (B) seeking to prevent the issuance of the Certificates
or the consummation of any of the transactions contemplated by the
Related Documents, (C) seeking any determination or ruling that
would have a material adverse effect on the performance by the
Servicer of its obligations under, or the validity or
enforceability of, any of the Related Documents or (D) seeking to
materially and adversely affect the federal income tax or other
federal, state or local tax attributes of the Certificates or
seeking to impose any excise, franchise, transfer or similar tax
upon the Certificates or the sale and assignment of the
Receivables hereunder; and
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(vii) No Consents. No consent, license, approval,
authorization or order of, or registration, declaration or filing
with, any Governmental Authority or other Person is required to be
made in connection with the execution, delivery or performance of
the Servicer's Related Documents or the consummation of the
transactions contemplated thereby, except such as have been duly
made, effected or obtained.
[(c) The Servicer covenants and agrees:
(i) [Backup Servicer and] Trustee Indemnification. The
Servicer shall defend, indemnify and hold [the Backup Servicer
and] the Trustee and any officers, directors, employees or agents
of [the Backup Servicer and] the Trustee harmless against any and
all claims, losses, penalties, fines, forfeitures, legal fees and
related costs, judgments and any other costs, fees and expenses
that [the Backup Servicer and] the Trustee may sustain in
connection with claims asserted at any time by third parties
against [the Backup Servicer or] the Trustee that result from (A)
any willful or negligent act taken or omission by the Servicer
(other than errors in judgment) or (B) a material breach of any
representations of the Servicer in this Section 3.6; and
(ii) The Servicer shall make arrangements for the prompt
and safe transfer of, and the Servicer shall provide to the Backup
Servicer, all necessary servicing files and records, including (as
deemed necessary by the Backup Servicer at such time): (A) account
documentation, (B) servicing system tapes (in a format acceptable
to the Backup Servicer), (C) account payment history, (D)
collections history and (E) the trial balances, as of the close of
business on the day immediately preceding conversion to the Backup
Servicer, reflecting all applicable loan information.]
Section 3.7. Purchase of Receivables Upon Breach of Covenant. Upon
discovery by the Servicer or the Trustee of (a) a breach of any of the
covenants set forth in Sections 3.5 or 3.6(a) that has a material adverse
effect on the interests of the Trust or the Certificateholders in any
Receivable, or (b) a failure to obtain a Lien Certificate within 180 days
as described in Section 2.7, the party discovering such breach shall give
prompt written notice to the others; provided, however, that the failure to
give any such notice shall not affect any obligation of the Servicer under
this Section 3.7. As of the second Accounting Date (or, at the Servicer's
election, the first Accounting Date) following its discovery or receipt of
notice of any such breach, the Servicer shall, unless such breach shall
have been cured in all material respects, purchase from the Trust the
Receivables affected by such breach and, on or before the related Deposit
Date, the Servicer shall pay the related Purchase Amount to the Trust
pursuant to Section 4.4. The obligation of the Servicer to purchase any
Receivable with respect to which such a breach has occurred and is
continuing shall, if such obligation is fulfilled, constitute the sole
remedy against the Servicer for such breach available to the Trust, the
Certificateholders or the Trustee on behalf of Certificateholders. The
Trustee shall not be under any duty or obligation to investigate the
occurrence of a breach of a covenant in accordance with this Section 3.7.
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Section 3.8. Total Servicing Fee; Payment of Certain Expenses by
Servicer[; Backup Servicer Fee]. On each Payment Date, the Servicer shall
be entitled to receive out of the Collection Account the Total Servicing
Fee for the related Collection Period pursuant to Section 4.5. 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,
costs and expenses of independent accountants, expenses incurred in
connection with distributions and reports made by the Servicer to
Certificateholders. [On each Payment Date, the Backup Servicer shall be
entitled to receive out of the Collection Account the Backup Servicer Fee
for the related Collection Period pursuant to Section 4.5.]
Section 3.9. Servicer's Certificate. No later than 2:00 p.m., New
York City time, on each Determination Date, the Servicer shall deliver to
the Seller, the Trustee[, the Backup Servicer] and the Rating Agency, a
Servicer's Certificate executed by a Responsible Officer of the Servicer
containing, among other things, (i) all information necessary to enable the
Trustee to make any withdrawal required by Section 6.2, to give any notice
required by Section 6.2 and to make the distributions required by Section
4.5, (ii) all information necessary to enable the Trustee to send the
statements required by Section 4.7 to Certificateholders, (iii) a listing
of all Purchased Receivables purchased as of the related Deposit Date with
respect to the related Collection Period and (iv) all information necessary
to enable the Trustee to reconcile all deposits to, and withdrawals from,
the Collection Account for the related Collection Period and Payment Date,
including the accounting required by Section 4.6. Receivables purchased by
the Servicer or repurchased by the Seller on or before the related Deposit
Date and each Receivable that became a Liquidated Receivable or that was
paid in full during the related Collection Period shall be identified by
account number (as set forth in the Schedule of Receivables). In addition
to the information set forth in the preceding sentence, the Servicer's
Certificate shall also contain the following information: (a) the
Delinquency Ratio and the Cumulative Net Loss Ratio for such Determination
Date; (b) whether any Trigger Event has occurred as of such Determination
Date; and (c) whether any Trigger Event that may have occurred as of a
prior Determination Date is Deemed Cured as of such Determination Date. A
copy of such certificate may be obtained by any Certificateholder by a
request in writing to the Trustee addressed to the Corporate Trust Office.
Section 3.10. Annual Statement as to Compliance; Notice of
Servicer Termination Event. (a) The Servicer shall deliver to the Trustee,
[the Backup Servicer,] and the Rating Agency, 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, 1999, an officer's certificate
signed by any Responsible Officer of the Servicer, dated as of the
preceding December 31 (or other applicable date), stating that (i) a review
of the activities of the Servicer during the preceding 12-month period (or
such other period as shall have elapsed from the Closing Date to the date
of the first such certificate) and of its performance under this Agreement
has been made under such officer's supervision, and (ii) to such officer's
knowledge, based on such review, the Servicer has fulfilled all its
obligations under this Agreement throughout such period, 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.
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(b) The Servicer shall deliver to the Trustee, [the Backup
Servicer] and the 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 that, with the giving of
notice or lapse of time, would become a Servicer Termination Event under
Section 10.1.
Section 3.11. Annual Independent Accountants' Report. The Servicer
shall cause KPMG Peat Marwick LLP or another firm of nationally recognized
independent certified public accountants (the "Independent Accountants"),
who may also render other services to the Servicer, to deliver to the
Servicer, 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, 1999, 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 Servicer, to the
effect that such firm has audited the books and records of the Servicer and
issued its report thereon and that: (1) such audit 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; and (2) the firm is
independent of the Servicer within the meaning of the Code of Professional
Ethics of the American Institute of Certified Public Accountants. The
Servicer shall also cause the Independent Accountants to deliver to the
Servicer on such dates a letter to the effect that certain agreed upon
procedures were performed relating to three randomly selected Servicer's
Certificates (or, for the twelve months ending December 31, ____, the
Servicer's Certificate for the December ____ Collection Period), and,
except as disclosed in such report, no errors or exceptions were found in
the Servicer's Certificate(s) based on the performance of such agreed upon
procedures. The Servicer shall deliver a copy of the Accountants' Report,
within 15 days of receipt, to the Seller, the Trustee[, the Backup
Servicer] and the Rating Agency.
Section 3.12. Access to Certain Documentation and Information
Regarding Receivables. The Servicer shall provide to representatives of the
Trustee and [the Backup Servicer] reasonable access to the documentation
regarding the Receivables. In each case, such access shall be afforded
without charge but only upon reasonable request and during normal business
hours. Nothing in this Section 3.12 shall derogate from the obligation of
the Servicer to observe any applicable law prohibiting disclosure of
information regarding the Obligors, and the failure of the Servicer to
provide access as a result of such obligation shall not constitute a breach
of this Section 3.12.
Section 3.13. Monthly Tape[; Certain Duties of Backup Servicer].
(a) On or before each Determination Date, the Servicer shall deliver to the
Trustee [and the Backup Servicer] a computer tape or a diskette (or any
other electronic transmission acceptable to the Trustee [and the Backup
Servicer]) in a format acceptable to the Trustee [and the Backup Servicer]
containing the information with respect to the Receivables as of the
preceding Accounting Date necessary for preparation of the Servicer's
Certificate relating to the next Determination Date.
[(b) Prior to each such Payment Date, the Backup Servicer shall
use such tape or diskette (or other means of electronic transmission
acceptable to the Trustee and the Backup Servicer) and review the related
Servicer's Certificate in order to perform the following:
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(i) confirm that the Servicer's Certificate is complete
on its face;
(ii) calculate and confirm the Class A Principal Payment
Amount, the Class A Interest Payment Amount, the Class B Principal
Payment Amount and the Class B Interest Payment Amount for the
next Payment Date; and
(iii) verify the mathematical accuracy of any
calculations on the face of the Servicer's Certificate.]
[(c) In the event of any discrepancy between the information set
forth in (ii) or (iii) in clause (b) above as calculated by the Servicer
from that determined or calculated by the Backup Servicer, the Backup
Servicer shall promptly report such discrepancy to the Servicer and the
Trustee. In the event of a discrepancy as described in the preceding
sentence, the Servicer and the Backup Servicer shall attempt to reconcile
such discrepancies prior to the related Payment Date, but in the absence of
a reconciliation, distributions on the related Payment Date shall be made
by the Trustee consistent with the information provided by the Servicer and
the Servicer and the Backup Servicer shall attempt to reconcile such
discrepancies prior to the next Determination Date. If the Backup Servicer
and the Servicer are unable to reconcile discrepancies with respect to such
Servicer's Certificate by the next Determination Date that falls in April,
July, October or January, the Servicer shall cause the Independent
Accountants, at the Servicer's expense, to examine the Servicer's
Certificate and attempt to reconcile the discrepancies at the earliest
possible date. The effect, if any, of such reconciliation shall be
reflected in the Servicer's Certificate for such next succeeding
Determination Date.]
[(d) Other than the duties specifically set forth in this
Agreement, the Backup Servicer shall have no obligations hereunder,
including 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, except for the express duties of the
Backup Servicer set forth herein.]
Section 3.14. Insurance. The Servicer shall maintain customary
amounts of insurance coverage, including errors and omissions liability,
fidelity bond, commercial general liability, property, directors and
officers liability and workers' compensation coverage. The Servicer shall
be entitled to self-insure with respect to such insurance so long as the
long-term unsecured debt obligations of the Servicer are rated in the
second highest long-term debt category by the Rating Agency (or, if not
rated by the Rating Agency, by ___ or ____).
Section 3.15. Compliance with Laws. The Servicer shall comply with
the requirements of all applicable laws (including any federal or state
laws regulating the collection or enforcement of consumer debts and/or the
foreclosure upon, and repossession of, vehicles) in the discharge of its
duties and obligations hereunder.
Section 3.16. Reports to the Commission. Servicer shall, on behalf
of the Trust, cause to be filed with the Commission any periodic reports
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required to be filed under the provisions of the Exchange Act, and the
rules and regulations of the Commission thereunder. Seller shall, at its
expense, cooperate in any reasonable request made by Servicer in connection
with such filings.
ARTICLE IV
PAYMENTS; STATEMENTS TO CERTIFICATEHOLDERS
Section 4.1. Trust Accounts. (a) (i) On or prior to the Closing
Date, the Servicer or the Trustee on behalf of and at the direction of the
Servicer shall establish the Collection Account in the name of the Trustee
for the benefit of the Certificateholders. The Collection Account shall be
an Eligible Account and shall be a segregated trust account initially
established with the Trustee.
(ii) On or prior to the Closing Date, the Servicer or the
Trustee on behalf of and at the direction of the Servicer shall
establish the Reserve Account in the name of the Trustee for the
benefit of the Certificateholders. The Reserve Account shall be an
Eligible Account and shall be a segregated trust account initially
established with the Trustee.
(b) All amounts held in the Collection Account and the Reserve Account
(collectively, the "Trust Accounts"), shall, to the extent permitted by
applicable laws, rules and regulations, be invested by the Trustee, as
directed by the Servicer in writing (or, if the Servicer fails to provide
such direction, amounts in the Collection Account shall be invested in
investments described in clause (f) of the definition of Eligible
Investments), in Eligible Investments that mature not later than one
Business Day prior to the Payment Date for the Collection Period to which
such amounts relate. Any such written direction shall certify that any such
investment is authorized by this Section 4.1. Investments in Eligible
Investments shall be made in the name of the Trustee on behalf of the
Certificateholders, and such investments shall not be sold or disposed of
prior to their maturity. Each and every investment of funds in a Trust
Account shall be made in Eligible Investments held by a financial
institution that is a Securities Intermediary:
(i) in an account pursuant to an agreement with such
financial institution, governed by the law of the State of
Missouri or any other jurisdiction which has adopted Revised
Article 8, that requires such financial institution to (A) comply
with Entitlement Orders pertaining to such account originated by
the Trustee, in its capacity as trustee hereunder, without further
consent of the Seller, (B) not enter into any agreement which
grants "control" (as defined in Section 8-106 of Revised Article
8) of such account (or any interest or property therein) to any
Person other than the Trustee, (C) subordinate any security
interest, banker's lien, right of setoff or other similar right
which such financial institution may have in such account to the
interest of the Trustee and (D) expressly treat each item of
property as a Financial Asset and such account as a Securities
Account; and
(ii) with respect to which such institution has noted the
Trustee's interest therein by book entry or otherwise, and with
respect to which a confirmation of the Trustee's interest has been
sent to the Trustee by such institution, provided that such
Eligible Investments are (A) specific "certificated securities"
(as defined under Old Article 8), and
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(B) either (1) in the possession of such institution or (2) in the
possession of a Clearing Corporation, registered in the name of
such Clearing Corporation, not endorsed for collection or
surrender or any other purpose not involving transfer, not
containing any evidence of a right or interest inconsistent with
the Trustee's security interest therein, and held by such Clearing
Corporation in an account of such institution.
Subject to the other provisions hereof, the Trustee shall have sole control
over each such investment and the income thereon, and any certificate or
other instrument evidencing any such investment, if any, shall be delivered
directly to the Trustee or its agent, together with each document of
transfer, if any, necessary to transfer title to such investment to the
Trustee in a manner that complies with this Section 4.1. All interest,
dividends, gains upon sale and other income from, or earnings on,
investments of funds in the Collection Account shall be deposited in the
Collection Account and distributed on the next Payment Date pursuant to
Section 4.5. All interest, dividends, gains upon sale and other income from
or earnings on, investments of funds in the Reserve Account shall be
deposited in the Reserve Account and distributed on the next Payment Date
pursuant to Section 4.5. If the Trustee is given instructions to invest
funds in a Trust Account in investments other than investments of the type
described in clause (f) of the definition of "Eligible Investments", the
Person giving such instructions agrees to assist the Trustee in complying
with the requirements herein with respect to such investments.
(c) With respect to the Trust Account Property:
(i) any Trust Account Property that is held in
deposit accounts shall be held solely in the name of the Trustee
in accounts which satisfy clause (ii) of the definition of
Eligible Account; each such deposit account shall be subject to
the exclusive custody and control of the Trustee, and the Trustee
shall have sole signature authority with respect thereto;
(ii) any Trust Account Property that constitutes
Physical Property (other than a "certificated security" as defined
under Old Article 8) shall be delivered to the Trustee in
accordance with paragraph (i) of the definition of "Delivery" and
shall be held, pending maturity or disposition, solely by the
Trustee;
(iii) any Trust Account Property that
constitutes a "certificated security" as defined under Old Article
8 that will, upon compliance with the procedures set forth in
paragraph (ii) of the definition of "Delivery," be held by a
Person located in an Old Article 8 Jurisdiction, shall be
delivered to the Trustee in accordance with paragraph (ii) of the
definition of "Delivery" and shall be held, pending maturity or
disposition, solely by the Trustee or a Financial Intermediary
acting solely for the Trustee;
(iv) any Trust Account Property that constitutes
a Certificated Security that will, upon compliance with the
procedures set forth in paragraph (iii) of the definition of
"Delivery," be held by a Person located in a Revised Article 8
Jurisdiction shall be
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delivered to the Trustee in accordance with paragraph (iii) of the
definition of "Delivery" and shall be held, pending maturity or
disposition, solely by the Trustee;
(v) any Trust Account Property that constitutes
an "uncertificated security" under Old Article 8 (and that is not
a Federal Book Entry Security) and where the issuer thereof is
organized in an Old Article 8 Jurisdiction, shall be delivered to
the Trustee in accordance with paragraph (iv) of the definition of
"Delivery" and shall be maintained, pending maturity or
disposition, through continued registration of the Trustee's (or
its nominee's) ownership of such security;
(vi) any such Trust Account Property that
constitutes an Uncertificated Security (including any investments
in money market mutual funds, but excluding any Federal Book Entry
Security) and where the issuer thereof is organized in a Revised
Article 8 Jurisdiction, shall be delivered to the Trustee in
accordance with paragraph (v) of the definition of "Delivery" and
shall be maintained, pending maturity or disposition, through
continued registration of the Trustee's (or its nominee's)
ownership of such security; and
(vii) with respect to any Trust Account Property
that constitutes a Federal Book Entry Security, the Trustee shall
maintain and obtain Control over such property.
Effective upon Delivery of any Trust Account Property in the form
of Physical Property, book-entry securities or uncertificated
securities, the Trustee shall be deemed to have represented that
it has purchased such Trust Account Property for value, in good
faith and without notice of any adverse claim thereto.
(d) On or within three Business Days of the Closing Date, the
Servicer shall deposit in the Collection Account (i) all Scheduled Payments
and prepayments of Receivables with respect to which available funds have
been received in the Lockbox Account after the Cutoff Date and prior to the
Closing Date and (ii) all Liquidation Proceeds and proceeds of Insurance
Policies realized in respect of Financed Vehicles and applied by the
Servicer after the Cutoff Date.
Section 4.2. Servicer Reimbursements. The Servicer shall be
entitled to be reimbursed from amounts on deposit in, or to be deposited
in, the Collection Account with respect to a Collection Period for amounts
previously deposited in the Collection Account but later determined by the
Servicer to have resulted from mistaken deposits or postings or checks
returned for insufficient funds. The amount to be reimbursed hereunder
shall be paid to the Servicer on the related Payment Date pursuant to
Section 4.5(a)(ii). Upon the request of the Trustee, the Servicer shall
certify any amount to be reimbursed hereunder and shall supply such other
information as may be necessary in the opinion of the Trustee to verify the
accuracy of such certification. The Trustee shall not be under any
obligation to make the request described in the immediately preceding
sentence.
Section 4.3. Application of Collections. For purposes of this
Agreement, all collections for a Collection Period shall be applied by the
Servicer as follows:
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(a) With respect to each Receivable, payments by or on
behalf of the Obligor (other than Supplemental Servicing Fees with
respect to such Receivable, to the extent collected) shall be
applied to reduce the balance thereof in accordance with the terms
of such Receivable.
(b) With respect to each Receivable that has become a
Purchased Receivable on any Deposit Date, the Purchase Amount
shall be applied to interest and principal on the Receivable in
accordance with Section 4.3(a) as if the Purchase Amount had been
paid by the Obligor on the related Accounting Date. Nothing
contained herein shall relieve any Obligor of any obligation
relating to any Receivable.
(c) All amounts collected that are payable to the
Servicer as Supplemental Servicing Fees hereunder shall be
deposited in the Collection Account and paid to the Servicer in
accordance with Section 4.5(a)(ii).
(d) All payments by or on behalf of an Obligor received
with respect to any Purchased Receivable after the Accounting Date
preceding the Deposit Date on which the Purchase Amount was paid
by the Seller or the Servicer shall be paid to the Seller or the
Servicer, respectively, and shall not be included in the Available
Funds.
Section 4.4. Additional Deposits. On or before each Deposit Date,
the Servicer or the Seller shall deposit into the Collection Account the
aggregate Purchase Amounts with respect to Purchased Receivables. All such
deposits of Purchase Amounts shall be made in immediately available funds.
On or before each Payment Date, the Trustee shall remit to the Collection
Account any amounts to be transferred into the Collection Account by the
Trustee from the Reserve Account pursuant to Section 6.2.
Section 4.5. Payments. (a) From the Collection Account, on each
Payment Date, the Trustee shall (based solely on the information contained
in the Servicer's Certificate delivered with respect to the related
Determination Date) distribute the following amounts in the following order
of priority:
(i) first, from the Payment Amount, to the Trustee, any
accrued and unpaid Trustee Fees and any other accrued and unpaid
fees and expenses of the Trustee[; to the Backup Servicer, any
accrued and unpaid Backup Servicer Fees and any other accrued and
unpaid fees and expenses of the Backup Servicer; in each case] in
accordance with the Related Documents;
(ii) second, from the remaining Payment Amount, to the
Servicer, any accrued and unpaid Basic Servicing Fees and
Supplemental Servicing Fees with respect to the related Collection
Period and the amounts specified in Section 4.2 to the extent the
Servicer has not reimbursed itself in respect of such amounts
pursuant to Section 4.6;
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(iii) third, from the remaining Payment Amount, to the
Class A Certificateholders, the Class A Interest Payment Amount
for such Payment Date;
(iv) fourth, from the remaining Payment Amount, to the
Class B Certificateholders, the Class B Interest Payment Amount
for such Payment Date;
(v) fifth, from the remaining Payment Amount, to the
Class A Certificateholders, the Class A Principal Payment Amount
for such Payment Date;
(vi) sixth, from the remaining Payment Amount, to the
Class B Certificateholders, the Class B Principal Payment Amount
for such Payment Date;
(vii) seventh, from the remaining Payment Amount, to the
Reserve Account to the extent necessary to make the amount on
deposit in the Reserve Account equal to the Reserve Account
Required Amount (after giving effect to all withdrawals from the
Reserve Account on such date); and
(viii) eighth, from the remaining Payment Amount,
together with any funds to be released from the Reserve Account
pursuant to this Agreement, to the Seller.
(b) Subject to Section 11.2 respecting the final payment upon
retirement of each Certificate, and provided that the Trustee has received
the applicable Servicer's Certificate, on each Payment Date, the Trustee
shall distribute to each Certificateholder (or, in the case of Certificates
registered in the name of a Clearing Agency, or its nominee, by wire
transfer of immediately available funds) of record on the preceding Record
Date either (i) by wire transfer, in immediately available funds to the
account of such holder at a bank or other entity having appropriate
facilities therefor, if such Certificateholder holds Certificates
representing at least $1,000,000 in Class A Certificate Balance or Class B
Certificate Balance as of the Closing Date, and if such Certificateholder
shall have provided to the Trustee appropriate instructions not later than
15 days prior to such Payment Date, or (ii) by check mailed to such
Certificateholder at the address of such Holder appearing in the
Certificate Register, the amount of the Class A Payment Amount or the Class
B Payment Amount, as applicable, allocable to such Holder to the extent
funds therefor are distributed under Section 4.5(a).
Section 4.6. Net Deposits. So long as no Servicer Termination
Event has occurred and is continuing, the Servicer may make the remittances
to be made by it pursuant to Sections 4.2 net of amounts (which amounts may
be netted prior to any such remittance for a Collection Period) to be
distributed to it pursuant to Section 4.2; provided, however, that the
Servicer shall account for all of such amounts in the related Servicer's
Certificate as if such amounts were deposited and distributed separately;
and provided, further, that if an error is made by the Servicer in
calculating the amount to be deposited or retained by it, with the result
that an amount less than required is deposited in the Lockbox Account or
the Collection Account, the Servicer shall make a payment of the deficiency
to the Lockbox Account or the Collection Account, as applicable,
immediately upon becoming aware, or receiving notice from the Trustee, of
such error.
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Section 4.7. Statements to Certificateholders. (a) On each Payment
Date, the Trustee shall include with each payment to each
Certificateholder, a statement prepared by the Servicer (which statement
shall also be provided to the Certificateholder(s) and to the Rating
Agency), based on information in the Servicer's Certificate delivered on
the related Determination Date pursuant to Section 3.9, setting forth for
such Payment Date and the Collection Period relating to such Payment Date
the following information:
(i) in the case of the Class A and Class B
Certificateholders, the amount of such payment allocable to principal;
(ii) in the case of the Class A and Class B
Certificateholders, the amount of such payment allocable to
interest;
(iii) the amount of such payment payable out of amounts
withdrawn from the Reserve Account and the amount remaining in the
Reserve Account;
(iv) the Class A Certificate Balance and the Class B
Certificate Balance, as applicable (after giving effect to all
payments made on such Payment Date);
(v) the amount of fees paid by the Trust with respect to
such Collection Period;
(vi) the amount of the Class A Interest Carryover
Shortfall, Class A Principal Carryover Shortfall, Class B Interest
Carryover Shortfall and Class B Principal Carryover Shortfall, if
any, on such Payment Date and the change in such amounts from
those of the prior Payment Date;
(vii) the Class A Certificate Factor and the Class B
Certificate Factor as of such Payment Date (after giving effect to
payments made on such Payment Date);
(viii) the Delinquency Ratio and Cumulative Net Loss Ratio
for such Determination Date;
(ix) whether any Trigger Event has occurred as of such
Determination Date; and
(x) whether any Trigger Event that may have occurred as
of a prior Determination Date is Deemed Cured as of such
Determination Date.
Each amount set forth pursuant to clauses (i) (such amounts broken down by
Class of Certificate), (ii) (such amounts broken down by Class of
Certificate) and (iv) above shall be expressed as a dollar amount per
$1,000 of original principal balance of a Certificate of the related Class.
(b) Within the prescribed period of time for tax reporting
purposes after the end of each calendar year during the term of this
Agreement, the Trustee shall mail, to each Person who at any time during
such calendar year shall have been a Holder of a Certificate, a statement
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containing the sum of the amounts set forth in clauses (i), (ii), and (v)
(separately indicating amounts in respect of the Class A Certificates and
the Class B Certificates in the case of (i) and (ii)) and such other
information, requested in writing by the Servicer, if any, as the Servicer
determines is reasonably necessary to permit such Certificateholder to
ascertain its share of the gross income and deductions of the Trust
(exclusive of the Supplemental Servicing Fee), for such calendar year or,
if such Person shall have been a Holder of a Certificate during a portion
of such calendar year, for the applicable portion of such year, for the
purposes of such Certificateholder's preparation of federal income tax
returns.
ARTICLE V
THE CERTIFICATES
Section 5.1. The Certificates. The Trustee shall, upon written
order or request signed in the name of the Seller by one of its officers
authorized to do so and delivered to an Authorized Officer of the Trustee,
execute on behalf of the Trust, authenticate and deliver the Certificates
to or upon the order of the Seller in the aggregate principal amount and
denominations as set forth in such written order or request. The
Certificates shall be issuable in denominations of $1,000 and integral
multiples thereof; provided, however, that one Class A Certificate and one
Class B Certificate may be issued in a denomination that represents the
residual amount of the original Class A Certificate Balance and the
original Class B Certificate Balance, respectively. Upon initial issuance,
the Class A Certificates and the Class B Certificates shall be in the form
of Exhibit B and Exhibit D, respectively, which are incorporated by
reference herein, and shall be issued as provided in Section 5.8, in an
aggregate amount equal to the original Class A Certificate Balance and the
original Class B Certificate Balance, respectively. The Certificates shall
be executed by the Trustee on behalf of the Trust by manual or facsimile
signature of an Authorized Officer of the Trustee under the Trustee's seal
imprinted thereon and attested by the manual or facsimile signature of an
Authorized Officer of the Trustee. Certificates bearing the manual or
facsimile signatures of individuals who were, at the time when such
signatures shall have been affixed, authorized to sign on behalf of the
Trust, shall be valid and binding obligations of the Trust, notwithstanding
that such individuals shall have ceased to be so authorized prior to the
authentication and delivery of such Certificates or did not hold such
offices at the date of such Certificates.
Section 5.2. Authentication of Certificates. No Certificate shall
entitle the Holder thereof to any benefit under this Agreement, or shall be
valid for any purpose, unless there shall appear on such Certificate a
certificate of authentication, substantially in the form set forth in the
form of Certificates attached hereto as Exhibit C and Exhibit D, executed
by the Trustee by manual signature. Such authentication shall constitute
conclusive evidence, and the only evidence, that such Certificate has been
duly authenticated and delivered hereunder. All Certificates shall be dated
the date of their authentication.
Section 5.3. Registration of Transfer and Exchange of Certificates.
The Trustee shall maintain, or cause to be maintained, at the office or
agency to be maintained by it in accordance with Section 5.7, a Certificate
Register in which, subject to such reasonable regulations as it may
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prescribe, the Trustee shall provide for the registration of Certificates
and of transfers and exchanges of Certificates as herein provided. Upon
surrender for registration of transfer of any Class A Certificate or Class
B Certificate at such office or agency, the Trustee shall execute,
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Class A Certificates or Class B Certificates,
as the case may be, in authorized denominations of a like aggregate amount.
At the option of a Holder, Class A Certificates or Class B Certificates may
be exchanged for other Class A Certificates or Class B Certificates, as the
case may be, of authorized denominations of a like aggregate amount at the
office or agency maintained by the Trustee in accordance with Section 5.7.
Every Certificate presented or surrendered for registration of transfer or
exchange shall be accompanied by a written instrument of transfer duly
executed by the Holder and in a form satisfactory to the Trustee. No
service charge shall be made for any registration of transfer or exchange
of Certificates, but the Trustee may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with
any transfer or exchange of Certificates. All Certificates surrendered for
registration of transfer or exchange shall be canceled and disposed of in
accordance with the customary procedures of the Trustee.
The Class B Certificates and any beneficial interest in such Class
B Certificates may not be acquired (a) with the assets of an employee
benefit plan (as defined in Section 3(3) of ERISA) that is subject to the
provisions of Title I of ERISA, (b) by a plan described in Section
4975(e)(1) of the Code or (c) by any entity whose underlying assets include
plan assets by reason of a plan's investment in the entity. By accepting
and holding a Class B Certificate or interest therein, the Holder thereof
or Class B Certificate Owner thereof shall be deemed to have represented
and warranted that it is not subject to the foregoing limitation.
The preceding provisions of this Section 5.3 notwithstanding, the
Trustee shall not make and need not register any transfer or exchange of
Certificates for a period of 15 days preceding any Payment Date for any
payment with respect to the Certificates.
Section 5.4. Mutilated, Destroyed, Lost or Stolen Certificates. If
(a) any mutilated Class A Certificate or Class B Certificate shall be
surrendered to the Trustee, or if the Trustee shall receive evidence to its
satisfaction of the destruction, loss or theft of any Class A Certificate
or Class B Certificate and (b) there shall be delivered to the Trustee such
security or indemnity as may be required to save the Trustee harmless, then
in the absence of notice that such Class A Certificate or Class B
Certificate shall have been acquired by a bona fide purchaser, the Trustee
shall execute, authenticate and deliver, in exchange for or in lieu of any
such mutilated, destroyed, lost or stolen Class A Certificate or Class B
Certificate, a new Class A Certificate or Class B Certificate of like tenor
and denomination. In connection with the issuance of any new Certificate
under this Section 5.4, the Trustee may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be
imposed in connection herewith. Any replacement Certificate issued pursuant
to this Section 5.4 shall constitute conclusive evidence of ownership in
the Trust, as if originally issued, whether or not the lost, stolen or
destroyed Certificate shall be found at any time.
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Section 5.5. Persons Deemed Owners. Prior to due presentation of a
Certificate for registration of transfer, the Trustee may treat the Person
in whose name any Certificate shall be registered as the owner of such
Certificate for the purpose of receiving payments pursuant to Section 4.5
and for all other purposes, and the Trustee shall not be bound by any
notice to the contrary.
Section 5.6. Access to List of Holders' Names and Addresses. The
Trustee shall furnish or cause to be furnished to the Servicer, within
fifteen days after receipt by the Trustee of a request therefor from the
Servicer in writing, in such form as Servicer may reasonably require, a
list of the names and addresses of the Holders as of the most recent Record
Date. If Definitive Certificates have been issued, the Trustee, upon
written request of (a) three or more Holders or (b) one or more Holders
evidencing not less than 25% of the aggregate outstanding principal balance
of the Certificates, shall, within five Business Days after the receipt of
such request, afford such Holders access during normal business hours to
the most current list of Holders for purposes of communicating with other
Holders with respect to their rights under the Agreement. Each Holder, by
receiving and holding a Certificate, shall be deemed to have agreed not to
hold the Seller, the Servicer or the Trustee accountable by reason of the
disclosure of such Holder's name and address, regardless of the source from
which such information was derived.
Section 5.7. Maintenance of Office or Agency. The Trustee shall
maintain, or cause to be maintained, at its expense, in _______________, an
office or agency where Certificates may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Trustee
in respect of the Certificates and this Agreement may be served. The
Trustee initially designates its office located at _______________________
for such purposes. The Trustee shall give prompt written notice to the
Servicer and to the Holders of any change in the location of any such
office or agency.
Section 5.8. Book Entry Certificates. Upon original issuance, the
Class A Certificates and the Class B Certificates, other than the Class A
Certificate representing the residual amount of the original Class A
Certificate Balance and the Class B Certificate representing the residual
amount of the original Class B Certificate Balance, which shall be issued
upon the written order of the Seller, shall be issued in the form of one or
more typewritten Certificates representing the Book Entry Certificates, to
be delivered to the initial Clearing Agency, by, or on behalf of, the
Seller. Such Certificates shall initially be registered on the Certificate
Register in the name of CEDE & Co., the nominee of the initial Clearing
Agency, and no Certificate Owner shall receive a Definitive Certificate
representing such Certificate Owner's interest in the Class A Certificates
or the Class B Certificates, as the case may be, except as provided in
Section 5.10. Unless and until definitive, fully registered Certificates
("Definitive Certificates") have been issued to the Holders pursuant to
Section 5.10:
(a) the provisions of this Section 5.8 shall be in full
force and effect;
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(b) the Seller, the Servicer and the Trustee may deal
with the Clearing Agency for all purposes (including the making of
distributions on the Certificates and the taking of actions by the
Holders) as the authorized representative of the Certificate
Owners;
(c) to the extent that the provisions of this Section 5.8
conflict with any other provisions of this Agreement, the
provisions of this Section 5.8 shall control;
(d) the rights of Certificate Owners shall be exercised
only through the Clearing Agency and shall be limited to those
established by law, the rules, regulations and procedures of the
Clearing Agency and agreements between such Certificate Owners and
the Clearing Agency and all references in this Agreement to
actions by Holders shall refer to actions taken by the Clearing
Agency upon instructions from the Clearing Agency Participants,
and all references in this Agreement to distributions, notices,
reports and statements to Holders shall refer to distributions,
notices, reports and statements to the Clearing Agency or its
nominee, as registered holder of the Certificates, as the case may
be, for distribution to Certificate Owners in accordance with the
rules, regulations and procedures of the Clearing Agency; and
(e) pursuant to the Depository Agreement, the initial
Clearing Agency shall make book-entry transfers among the Clearing
Agency Participants and receive and transmit distributions of
principal and interest on the Certificates to the Clearing Agency
Participants, for distribution by such Clearing Agency
Participants to the Certificate Owners or their nominees.
For purposes of any provision of this Agreement requiring or
permitting actions with the consent of, or at the direction of, Holders of
Certificates evidencing specified percentages of the aggregate outstanding
principal balance of such Certificates, such direction or consent may be
given by Certificate Owners having interests in the requisite percentage,
acting through the Clearing Agency.
Section 5.9. Notices to Clearing Agency. Whenever notice or other
communication to the Holders is required under this Agreement, unless and
until Definitive Certificates shall have been issued to Certificate Owners
pursuant to Section 5.10, the Trustee shall give all such notices and
communications specified herein to be given to Holders to the Clearing
Agency.
Section 5.10. Definitive Certificates. If (a) (i) the Seller
advises the Trustee in writing that the Clearing Agency is no longer
willing or able properly to discharge its responsibilities under the
Depository Agreement and (ii) the Trustee or the Seller is unable to locate
a qualified successor, (b) the Seller, at its option, advises the Trustee
in writing that it elects to terminate the book-entry system through the
Clearing Agency or (c) after the occurrence of a Servicer Termination
Event, Certificate Owners representing in the aggregate not less than a
majority of the aggregate outstanding principal balance of the
Certificates, advise the Trustee and the Clearing Agency through the
Clearing Agency Participants in writing that the continuation of a
book-entry system through the Clearing Agency is no longer in the
Certificate Owners' best interests, the Trustee shall
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notify the Clearing Agency which shall be responsible to notify the
Certificate Owners of the occurrence of any such event and of the
availability of Definitive Certificates to Certificate Owners requesting
the same. Upon surrender to the Trustee by the Clearing Agency of the
Certificates registered in the name of the nominee of the Clearing Agency,
accompanied by re-registration instructions from the Clearing Agency for
registration, the Trustee shall execute, on behalf of the Trust,
authenticate and deliver Definitive Certificates in accordance with such
instructions. The Seller shall arrange for, and shall bear all costs of,
the printing and issuance of such Definitive Certificates. Neither the
Seller, the Servicer nor the Trustee shall be liable for any delay in
delivery of such instructions and may conclusively rely on, and shall be
protected in relying on, such instructions. Upon the issuance of Definitive
Certificates, the Trustee shall recognize the Holders of the Definitive
Certificates as Holders hereunder.
ARTICLE VI
THE RESERVE ACCOUNT
Section 6.1. Initial Deposit. On the Closing Date, the Seller shall
deposit $___________ into the Reserve Account.
Section 6.2. Deficiency Claim Amounts. If the Servicer's
Certificate with respect to any Determination Date shall state that the
amount of the Available Funds with respect to such Determination Date is
less than the sum of the amounts payable on the related Payment Date
pursuant to clauses (i) through (vi) of Section 4.5(a) (such deficiency
being a "Deficiency Claim Amount"), then the Trustee shall transfer funds
in the amount of such Deficiency Claim Amount (to the extent of the funds
available therein) from the Reserve Account to the Collection Account on
the related Deposit Date.
Section 6.3. Distribution of Excess. If (i) the amount on deposit
in the Reserve Account on any Payment Date (after giving effect to all
deposits therein or withdrawals therefrom on such Payment Date) exceeds the
Reserve Account Required Amount and (ii) (a) no Trigger Event has occurred
or (b) all Trigger Events which have occurred have been Deemed Cured, the
Trustee shall distribute an amount equal to any such excess pursuant to the
Servicer's Certificate and Section 4.5(a)(viii).
ARTICLE VII
THE SELLER
Section 7.1. Liability of Seller. (a) The Seller shall be
liable hereunder only to the extent of the obligations in this Agreement
specifically undertaken by the Seller and the representations made by the
Seller.
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(b) The Seller shall defend, indemnify and hold harmless the
Trustee, the Servicer, the Trust[, the Backup Servicer] and the
Certificateholders, and their respective officers, directors, agents and
employees, 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 (i) the use,
ownership or operation, if any, by the Seller or any Affiliate thereof of a
Financed Vehicle or (ii) any violation by the Seller, the Servicer or the
Trust of state or federal securities laws relating to the Certificates.
(c) The Seller shall indemnify, defend and hold harmless the
Servicer, the Trustee, the Trust, [the Backup Servicer,] and their
respective officers, directors, agents and employees, from and against any
and all costs, expenses, losses, claims, penalties, fines, forfeitures,
judgments, damages and liabilities to the extent that such cost, expense,
loss, claim, penalty, fine, forfeiture, judgment, damage or liability arose
out of, or was imposed upon the Servicer, the Trustee[, the Backup
Servicer] or the Trust by reason of, the breach of this Agreement by the
Seller, the negligence (other than errors in judgment), misfeasance or bad
faith of the Seller in the performance of its duties under this Agreement
or by reason of negligent disregard of its obligations and duties under
this Agreement.
(d) Indemnification under this Section 7.1 shall survive the
termination of this Agreement and shall include reasonable fees and
expenses of counsel and expenses of litigation. If the Seller has made any
indemnity payments pursuant to this Section 7.1 and the recipient
thereafter collects any of such amounts from others, the recipient shall
promptly repay such amounts collected to the Seller, without interest.
(e) Notwithstanding the indemnity provisions contained in Sections
7.1(b) through (d), the Seller shall not be required to indemnify the
Servicer, the Trustee, the Trust[, the Backup Servicer] or their respective
officers, directors, agents or employees, against any costs, expenses,
losses, damages, claims or liabilities to the extent the same shall have
been (i) caused by the misfeasance, bad faith or gross negligence (or
ordinary negligence in the handling of funds) of such party or (ii)
suffered by reason of uncollectible or uncollected Receivables not caused
by the Seller's negligence (other than errors in judgment), misfeasance or
bad faith. Notwithstanding the indemnity provisions contained in Section
7.1(b), the Seller shall not be required to indemnify the
Certificateholders for any losses suffered in their capacity as investors
in the Certificates.
Section 7.2. Merger or Consolidation of the Seller. The Seller
shall not merge or consolidate with any other Person or permit any other
Person to become the successor to all or substantially all of the Seller's
business or assets unless the conditions precedent set forth in this
Section 7.2 have been satisfied. Any such successor corporation shall
execute an agreement of assumption of every obligation of the Seller under
its Related Documents and, whether or not such assumption agreement is
executed, shall be the successor to the Seller under this Agreement without
the execution or filing of any document (or any further act on the part of
any of the parties to this Agreement). The Seller shall provide prompt
notice of any merger, consolidation or succession pursuant to this Section
7.2 to the Trustee, the Certificateholders and the Rating Agency.
Notwithstanding the foregoing, the Seller shall not merge or consolidate
with any other Person or permit any other Person to become
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a successor to the Seller's business, unless: (a) immediately after giving
effect to such transaction, no representation or warranty made pursuant to
Section 2.4 shall have been breached in any material respect (for purposes
hereof, such representations and warranties shall speak as of the date of
the consummation of such transaction) and no event that, after notice or
lapse of time, would become an Event of Default shall have occurred and be
continuing; (b) the Seller shall have delivered to the Trustee and the
Rating Agency an Officer's Certificate and an Opinion of Counsel each
stating that such consolidation, merger or succession and such agreement of
assumption comply with this Section 7.2 and that all conditions precedent,
if any, provided for in this Agreement relating to such transaction have
been complied with; and (c) the Seller shall have delivered to the Trustee
and the Rating Agency an Opinion of Counsel, stating, in the opinion of
such counsel, either (i) all financing statements and continuation
statements and amendments thereto have been executed and filed that are
necessary to preserve and protect the interests of the Trust and the
Trustee in the Receivables or (ii) no such action shall be necessary to
preserve and protect such interest.
Section 7.3. 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 advice of counsel or on any document of any kind
prima facie properly executed and submitted by any Person respecting any
matters arising under this Agreement. The Seller shall not be under any
obligation to appear in, prosecute or defend any legal action that is not
incidental to its obligations as Seller of the Receivables under this
Agreement and that in its opinion may involve it in any expense or
liability.
Section 7.4. Special Purpose Entity. (a) The Seller 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 such persons are concerned, and shall use its best efforts to avoid
the appearance that it is conducting business on behalf of any Affiliate
thereof or that the assets of the Seller are available to pay the creditors
of Paragon or any Affiliate thereof (other than as expressly provided
herein).
(b) The Seller shall maintain corporate records and books of
account separate from those of Paragon and any Affiliate thereof.
(c) The Seller shall obtain proper authorization for all corporate
action requiring such authorization.
(d) The Seller shall pay its own operating expenses and
liabilities from its own funds.
(e) The annual financial statements of Paragon shall disclose the
effects of the transactions contemplated hereby in accordance with
generally accepted accounting principles.
(f) The resolutions, agreements and other instruments of the
Seller underlying the transactions described in the Related Documents shall
be continuously maintained by the Seller as official records of the Seller.
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(g) The Seller shall maintain an arm's-length relationship with
Paragon and its Affiliates, and shall not hold itself out as being liable
for the debts of Paragon or any of its Affiliates.
(h) The Seller shall keep its assets and liabilities separate from
those of all other entities other than as permitted by the Related
Documents.
(i) The books and records of the Seller shall be maintained at the
address designated herein for receipt of notices, unless the Seller shall
otherwise advise the parties hereto in writing.
(j) The Seller shall not maintain bank accounts or other
depository accounts to which any Affiliate is an account party, into which
any Affiliate makes deposits or from which any Affiliate has the power to
make withdrawals, except as otherwise permitted by the Related Documents.
(k) The Seller shall insure that any consolidated financial
statements of Paragon has notes to the effect that the Seller is a separate
entity whose creditors have a claim on its assets prior to those assets
becoming available to its equity holders.
(l) The Seller shall not amend, supplement or otherwise modify its
certificate of incorporation or bylaws except in accordance therewith.
Section 7.5. Restrictions on Liens. The Seller shall not (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 except for
Permitted Liens or (ii) sign or file under the UCC of any jurisdiction any
financing statement that names Paragon or the Seller as a debtor, or sign
any security agreement authorizing any secured party thereunder to file
such financing statement, with respect to the Receivables, except in each
case any such instrument solely securing the rights and preserving the Lien
of the Trust and the Lien of the Trustee for the benefit of the
Certificateholders.
Section 7.6. Creation of Indebtedness; Guarantees. The Seller
shall not create, incur, assume or suffer to exist any indebtedness other
than indebtedness permitted under the Related Documents. The Seller shall
incur no additional borrowed money indebtedness secured by the Trust
Property other than the Certificates. The Seller 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.
Section 7.7. Compliance with Laws. The Seller 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 Seller to perform its obligations under any Related
Document.
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Section 7.8 Further Instruments and Acts. Upon request of the
Trust or the Trustee, the Seller shall 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 Agreement.
Section 7.9 Investment Company Act. The Seller shall conduct its
operations in a manner that will not subject it to registration as an
"Investment Company" under the Investment Company Act of 1940, as amended.
ARTICLE VIII
THE SERVICER
Section 8.1. Liability of the 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
Seller, the Trustee, the Trust[, the Backup Servicer] and the
Certificateholders, and their respective officers, directors, agents and
employees, 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 (i) the use,
ownership or operation, if any, by the Servicer or any Affiliate thereof of
a Financed Vehicle or (ii) any violation by the Seller, the Servicer or the
Trust of state or federal securities laws relating to the Certificates.
(c) The Servicer shall indemnify, defend and hold harmless the
Seller, the Trustee, the Trust, [the Backup Servicer,] and their respective
officers, directors, agents and employees, from and against any and all
costs, expenses, losses, claims, penalties, fines, forfeitures, judgments,
damages and liabilities to the extent that such cost, expense, loss, claim,
penalty, fine, forfeiture, judgment, damage or liability arose out of, or
was imposed upon the Seller, the Trustee[, the Backup Servicer] or the
Trust by reason of, the breach of this Agreement by the Servicer, the
negligence (other than errors in judgment), misfeasance or bad faith of the
Servicer in the performance of its duties under this Agreement or by reason
of negligent disregard of its obligations and duties under this Agreement.
(d) Indemnification under this Section 8.1 shall survive the
termination of this Agreement and shall include reasonable fees and
expenses of counsel and expenses of litigation. If the Servicer has made
any indemnity payments pursuant to this Section 8.1 and the recipient
thereafter collects any of such amounts from others, the recipient shall
promptly repay such amounts collected to the Servicer, without interest.
(e) Notwithstanding the indemnity provisions contained in Sections
8.1(b) through (d), the Servicer shall not be required to indemnify the
Seller, the Trustee, the Trust[, the Backup Servicer] or their respective
officers, directors, agents or employees, against any costs, expenses,
losses, damages, claims or liabilities to the extent the same shall have
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been (i) caused by the misfeasance, bad faith or gross negligence (or
ordinary negligence in the handling of funds) of such party or (ii)
suffered by reason of uncollectible or uncollected Receivables not caused
by the Servicer's negligence (other than errors in judgment), misfeasance
or bad faith. Notwithstanding the indemnity provisions contained in Section
8.1(b), the Servicer shall not be required to indemnify the
Certificateholders for any losses suffered in their capacity as investors
in the Certificates.
Section 8.2. Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer [or Backup Servicer]. (a) The Servicer shall
not merge or consolidate with any other Person, convey, transfer or lease
all or substantially all its assets as an entirety to another Person, or
permit any other Person to become the successor to all or substantially all
of its business or assets, unless, after the merger, consolidation,
conveyance, transfer, lease or succession, the successor or surviving
entity shall be capable of fulfilling the duties of the Servicer contained
in this Agreement and shall be an Eligible Servicer. Any corporation (i)
into which the Servicer may be merged or consolidated, (ii) resulting from
any merger or consolidation to which the Servicer shall be a party, (iii)
that acquires by conveyance, transfer, or lease substantially all of the
assets of the Servicer, or (iv) succeeding to the business of the Servicer,
in any of the foregoing cases shall execute an agreement of assumption to
perform every obligation of the Servicer under this Agreement and, whether
or not such assumption agreement is executed, shall be the successor to the
Servicer 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; provided,
however, that nothing contained herein shall be deemed to release the
Servicer from any obligation hereunder. The Servicer shall provide notice
of any merger, consolidation or succession pursuant to this Section 8.2(a)
to the Trustee[, the Backup Servicer] and the Rating Agency and the Rating
Agency Condition in respect of such merger, consolidation or succession
shall have been satisfied. Notwithstanding the foregoing, the Servicer
shall not merge or consolidate with any other Person or permit any other
Person to become a successor to all or substantially all of its business or
assets, unless (x) immediately after giving effect to such transaction, no
representation or warranty made pursuant to Section 3.6 shall have been
breached in any material respect (for purposes hereof, such representations
and warranties shall speak as of the date of the consummation of such
transaction) and no event that, after notice or lapse of time, would become
an Event of Default shall have occurred and be continuing, (y) the Servicer
shall have delivered to the Trustee and the Rating Agency an Officer's
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or succession and such agreement of assumption comply
with this Section 8.2(a) and (z) the Servicer shall have delivered to the
Trustee and the Rating Agency an Opinion of Counsel, stating in the opinion
of such counsel, either (A) all financing statements and continuation
statements and amendments thereto have been executed and filed that are
necessary to preserve and protect the interest of the Trust and the Trustee
in the Receivables and the proceeds thereof or (B) no such action shall be
necessary to preserve and protect such interest.
[(b) Any corporation (i) into which the Backup Servicer may be
merged, consolidated or converted, (ii) resulting from any merger,
consolidation or conversion to which the Backup Servicer shall be a party,
(iii) that acquires by conveyance, transfer or lease substantially all of
the assets of the Backup Servicer, or (iv) succeeding to the business of
the Backup Servicer, in any of the foregoing cases shall execute an
agreement of assumption to perform every obligation of the Backup
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Servicer under this Agreement and, whether or not such assumption agreement
is executed, shall be the successor to the Backup Servicer 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; provided, however, that nothing
contained herein shall be deemed to release the Backup Servicer from any
obligation.]
Section 8.3. Limitation on Liability of Servicer[, Backup
Servicer] and Others. (a) Neither the Servicer[, the Backup Servicer] nor
any of the directors, officers, employees or agents of the Servicer [or the
Backup Servicer] shall be under any liability to the Trust, the
Certificateholders, the Trustee, or the Seller, except as provided in this
Agreement, for any action taken or for refraining from the taking of any
action pursuant to this Agreement; provided, however, that this provision
shall not protect the Servicer[, the Backup Servicer] or any such Person
against any liability that would otherwise be imposed by reason of a breach
of this Agreement or willful misfeasance, bad faith or negligence (other
than errors in judgment) in the performance of its duties. The Servicer[,
the Backup Servicer] and any director, officer, employee or agent of the
Servicer [or the Backup Servicer] 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
this Agreement.
[(b) Unless acting as Servicer hereunder, the Backup Servicer
shall not be liable for any obligation of the Servicer contained in this
Agreement, and the Trustee, the Seller and the Certificateholders shall
look only to the Servicer to perform such obligations.]
[(c) The parties expressly acknowledge and consent to [Norwest
Bank Minnesota, National Association] acting in the possible dual capacity
of Backup Servicer or successor Servicer and in the capacity as Trustee.
Norwest Bank Minnesota, National Association may, in such dual capacity,
discharge its separate functions fully, without hindrance or regard to
conflict of interest principles, duty of loyalty principles or other breach
of fiduciary duties to the extent that any such conflict or breach arises
from the performance by Norwest Bank Minnesota, National Association of
express duties set forth in this Agreement in any of such capacities, all
of which defenses, claims or assertions are hereby expressly waived by the
other parties hereto except in the case of negligence (other than errors in
judgment) and willful misconduct by Norwest Bank Minnesota, National
Association.]
[(d) The Backup Servicer shall have no responsibility and shall
not be in default hereunder nor incur any liability for any failure, error,
malfunction or any delay in carrying out any of its duties under this
Agreement if any such failure or delay results from the Backup Servicer
acting in accordance with information prepared or supplied by a Person
other than the Backup Servicer or the failure of any such Person to prepare
or provide such information. The Backup Servicer 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,
the Seller, the Controlling Party or the Trustee for any inaccuracy or
omission in a notice or communication received by the Backup Servicer from
any third party or (ii) that is due to or results from the invalidity,
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unenforceability of any Receivable under applicable law or the breach or
the inaccuracy of any representation or warranty made with respect to any
Receivable.]
Section 8.4. Delegation of Duties. The Servicer may at any time
perform through subcontractors the specific duties of (i) repossession of
Financed Vehicles and (ii) pursuing the collection of deficiency balances
on defaulted Receivables, in each case without the consent of the Trustee
[or the Backup Servicer]. The Servicer may also perform other specific
duties through such sub-contractors in accordance with its customary
servicing policies and procedures without the prior consent of the Trustee
[or the Backup Servicer]. No such delegation or sub-contracting of duties
by the Servicer shall relieve the Servicer of its responsibility with
respect to such duties.
Section 8.5. Servicer [and Backup Servicer] Not to Resign. Subject
to the provisions of Section 8.2, [neither] the Servicer [nor the Backup
Servicer] shall resign from the obligations and duties imposed on it by
this Agreement as Servicer [or Backup Servicer] except upon a determination
that by reason of a change in legal requirements the performance of its
duties under this Agreement would cause it to be in violation of such legal
requirements, and a Certificate Majority does not elect to waive the
obligations of the Servicer [or the Backup Servicer, as the case may be,]
to perform the duties that render it legally unable to act or to delegate
those duties to another Person. Any such determination permitting the
resignation of the Servicer [or Backup Servicer] shall be evidenced by an
Opinion of Counsel to such effect delivered and acceptable to the Trustee.
No resignation of the Servicer shall become effective until [the Backup
Servicer or] a successor Servicer that is an Eligible Servicer shall have
assumed the responsibilities and obligations of the Servicer. [No
resignation of the Backup Servicer shall become effective until a Person
that is an Eligible Servicer shall have assumed the responsibilities and
obligations of the Backup Servicer; provided, however, that if a successor
Backup Servicer is not appointed within 60 days after the Backup Servicer
has given notice of its resignation and has provided the Opinion of Counsel
required by this Section 8.5, the Backup Servicer may petition a court for
its removal. Notwithstanding the foregoing, the Backup Servicer may resign
for any reason, provided an entity acceptable to the Controlling Party
shall have assumed the responsibilities and obligations of the Backup
Servicer prior to the effectiveness of any such resignation and the Rating
Agency Condition is satisfied with respect thereto.]
ARTICLE IX
TRUSTEE
Section 9.1. Acceptance by the Trustee. The Trustee hereby
acknowledges its acceptance of all right, title and interest in and to the
Receivables and the other Trust Property conveyed by Seller pursuant to
this Agreement and hereby declares that the Trustee holds and shall hold
such right, title and interest, upon the trust set forth in this Agreement.
Section 9.2. Duties of the Trustee. (a) The Trustee, both prior to
and after the curing of a Servicer Termination Event, undertakes to perform
only such duties as are specifically set forth in this Agreement and no
implied covenants or obligations shall be read into this Agreement against
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the Trustee. If a Servicer Termination Event, of which an Authorized
Officer of the Trustee has actual knowledge, shall have occurred and shall
not have been cured (the appointment of a successor Servicer (including the
Trustee) to constitute a cure for the purposes of this Article), The
Trustee shall exercise such of the rights and powers vested in it by this
Agreement, and shall use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the circumstances in
the conduct of his own affairs; provided, however, that if the Trustee
assumes the duties of the Servicer pursuant to Section 8.2, the Trustee in
performing such duties shall use the degree of skill and attention required
by Section 3.1.
(b) The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders, or other instruments
furnished to the Trustee that are required specifically to be furnished
pursuant to any provision of this Agreement, shall examine them to
determine whether they conform to the requirements of this Agreement.
(c) No provision of this Agreement shall be construed to relieve
the Trustee from liability for its own negligent action, its own negligent
failure to act, its own willful misfeasance or its own bad faith; provided,
however, that:
(i) Prior to the occurrence of a Servicer Termination
Event, and after the curing of all such Servicer Termination
Events that may have occurred, the duties and obligations of the
Trustee shall be determined solely by the express provisions of
this Agreement, the Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set
forth in this Agreement, no implied covenants or obligations shall
be read into this Agreement against the Trustee, the permissible
right of the Trustee (solely in its capacity as such) to do things
enumerated in this Agreement shall not be construed as a duty and,
in the absence of bad faith on the part of the Trustee, or
manifest error, the Trustee (solely in its capacity as such) may
conclusively rely on the truth of the statements and the
correctness of the opinions expressed in any certificates or
opinions furnished to the Trustee and conforming to the
requirements of this Agreement;
(ii) The Trustee shall not be personally liable for an
error of judgment made in good faith by an officer of the Trustee,
unless it shall be proved that the Trustee shall have been
negligent in performing its duties in accordance with the terms of
this Agreement; and
(iii) The Trustee shall not be personally liable with
respect to any action taken, suffered, or omitted to be taken in
good faith in accordance with the direction of the Controlling
Party, as set forth in Section 8.1, relating to the time, method
and place of conducting any proceeding or any remedy available to
the Trustee, or exercising any trust or power conferred upon the
Trustee, under this Agreement.
(d) Except for the willful misfeasance, bad faith or negligence of
the Trustee, the Trustee shall not be required to expend or risk its own
funds or otherwise incur any 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 for believing that the repayment of
such funds or indemnity satisfactory
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to it against such risk or liability shall not be reasonably assured to it,
and none of the provisions contained in this Agreement shall in any event
require the Trustee to perform, or be responsible for the manner of
performance of, any of the obligations of the Servicer under this Agreement
except during such time, if any, as the Trustee shall be the successor to,
and be vested with the rights, duties, powers and privileges of, the
Servicer in accordance with the terms of this Agreement.
(e) Except for actions expressly authorized by this Agreement, the
Trustee shall take no action reasonably likely to impair the security
interests created or existing under any Receivable or Financed Vehicle or
to impair the value of any Receivable or Financed Vehicle.
(f) The Trustee shall have no power to vary the corpus of the
Trust including (i) accepting any substitute obligation for a Receivable
initially assigned to the Trustee under this Agreement, (ii) adding any
other investment, obligation or security, or (iii) withdrawing any
Receivable, except for a withdrawal permitted under this Agreement.
Section 9.3. The Trustee's Certificate. As soon as practicable
after each Deposit Date on which Receivables shall be assigned to Seller
pursuant to Section 2.4 or 10.2 or to the Servicer pursuant to Section 3.7,
as applicable, the Trustee shall execute a certificate, prepared by the
Servicer, including its date and the date of the Agreement, and accompanied
by a copy of the Servicer's Report for the related Collection Period. The
Trustee's certificate shall operate, as of such Deposit Date, as an
assignment pursuant to Section 9.4.
Section 9.4. The Trustee's Assignment of Purchased Receivables.
With respect to all Receivables repurchased by Seller pursuant to Section
2.5, or purchased by the Servicer pursuant to Section 3.7 or Section 11.2,
the Trustee shall assign, without recourse, representation or warranty, to
the Seller or the Servicer, as the case may be, all of the Trustee's right,
title and interest in and to such Receivables, and all security and
documents and all other Trust Property conveyed pursuant to Section 2.1
with respect to such Receivables. Such assignment shall be a sale and
assignment outright, and not for security. If, in any enforcement suit or
legal proceeding, it is held that the Seller or the Servicer, as the case
may be, may not enforce any such Receivable on the ground that it shall not
be a real party in interest or a holder entitled to enforce the Receivable,
the Trustee shall, at the expense of the Seller or the Servicer, as the
case may be, take such steps as the Seller or the Servicer, as the case may
be, deems necessary to enforce the Receivable, including bringing suit in
the Trustee's name or the names of the Holders.
Section 9.5. Certain Matters Affecting the Trustee. Except as
otherwise provided in Section 9.2:
(a) The Trustee may conclusively rely and shall be
protected in acting or refraining from acting upon, any
resolution, certificate of auditors or accountants or any other
certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, appraisal, bond, note or other
paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties.
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(b) The Trustee may consult with counsel knowledgeable in
the area and any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken or
suffered or omitted by it under this Agreement in good faith and
in accordance with such written Opinion of Counsel a copy of which
shall be provided to the Seller and the Servicer.
(c) The 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 in relation to this Agreement, at the request, order or
direction of any of the Holders pursuant to the provisions of this
Agreement, unless such Holders shall have offered to the Trustee
security or indemnity satisfactory to the Trustee against the
costs, expenses, and liabilities that may be incurred therein or
thereby. Nothing contained in this Agreement, however, shall
relieve the Trustee of the obligations, upon the occurrence of a
Servicer Termination Event that is not timely cured or waived
pursuant to Section 10.5, to exercise such of the rights and
powers vested in it by this Agreement, and to use the same degree
of care and skill in their exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own
affairs; provided, however, that if the Trustee assumes the duties
of the Servicer pursuant to Section 10.3, the Trustee in
performing such duties shall use the degree of skill and attention
required by Section 3.1.
(d) The Trustee shall not be personally liable for any
action taken, suffered or omitted by it in good faith and believed
by it to be authorized or within the discretion, rights or powers
conferred upon it by this Agreement.
(e) Prior to the occurrence of a Servicer Termination
Event and after the curing of all Servicer Termination Events that
may have occurred, the Trustee shall not be bound to make any
investigation into the facts of any matters stated in any
resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, direction, order, approval, bond, note
or other paper or document, unless requested in writing so to do
by the Controlling Party; provided, however, that if the payment
within a reasonable time to the Trustee of the costs, expenses, or
liabilities likely to be incurred by it in the making of an
investigation requested by the Holders is, in the opinion of the
Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Agreement, the Trustee may
require indemnity satisfactory to it against such cost, expense,
or liability as a condition to so proceeding. The reasonable
expense of every such examination shall be paid by the Servicer,
or, if paid by the Trustee, shall be reimbursed by the Servicer
upon demand. Nothing in this clause (e) shall affect the
obligation of the Servicer to observe any applicable law
prohibiting disclosure of information regarding the Obligors;
provided, however, further, that the Trustee shall be entitled to
make such further inquiry or investigation into such facts or
matter as it may reasonably see fit, and if the Trustee shall
determine to make such further inquiry or investigation it shall
be entitled to examine the books and records of the Servicer or
the Seller, personally or by agent or attorney, at the sole cost
and expense of the Servicer or the Seller, as the case may be.
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(f) The Trustee may execute any of the trusts or powers
hereunder or perform any duties under this Agreement either
directly or by or through agents, attorneys, nominees or a
custodian, and shall not be liable for the acts of such agents,
attorney, nominees or custodians except for (i) acts of
____________ or any successor agent carrying out the Trustee's
obligations with respect to the preparation of Servicer's
Certificate and (ii) acts of any other agent, attorney, nominee or
custodian if (A) the Trustee has not acted with due care in their
appointment or (B) Seller has not consented to their appointment.
(g) The Trustee shall not be required to make any initial
or periodic examination of any documents or records related to the
Receivables or Financed Vehicles for the purpose of establishing
the presence or absence of defects, the compliance by Seller with
its representations and warranties or for any other purpose.
(h) The Trustee shall not be construed to be a guarantor
of the performance of the Servicer, nor shall the Trustee have any
duty to monitor the performance of the Servicer other than as
expressly stated in this Agreement.
(i) The Trustee shall not be required to take notice or
be deemed to have notice of any Servicer Termination Event
hereunder, except a Servicer Termination Event under Section
10.1(a) or (b), unless the Trustee shall be specifically notified
in writing of such Servicer Termination Event by the Servicer, the
Seller or any Holder. All notices or other instruments required by
this Agreement to be delivered to the Trustee shall be delivered
at the Corporate Trust Office and, in the absence of such notice
so delivered, the Trustee may conclusively assume there is no
Servicer Termination Event except as aforesaid.
Section 9.6. The Trustee Not Liable for Certificates or
Receivables. The Trustee assumes no responsibility for the correctness of
the recitals contained herein and in the Certificates (other than the
certificate of authentication on the Certificates). Except as expressly
provided herein, the Trustee makes no representations as to the validity or
sufficiency of this Agreement or of the Certificates (other than the
Trustee's execution of, and the certificate of authentication on, the
Certificates), or of any Receivable or related document, or for the
validity of the execution by the Seller and the Servicer of this Agreement
or of any supplements hereto or instruments of further assurance, or for
the sufficiency of the Trust Property hereunder, and the Trustee shall not
be bound to ascertain or inquire as to the performance or observance of any
covenants, conditions or agreements on the part of the Seller or the
Servicer under this Agreement except as herein set forth; but the Trustee
may require the Seller or the Servicer to provide full information and
advice as to the performance of the aforesaid covenants, condition and
agreements. The Trustee (solely in its capacity as such) shall have no
obligation to perform any of the duties of the Seller or the Servicer,
except as explicitly set forth in this Agreement. The Trustee shall have no
liability in connection with compliance of the Servicer or the Seller with
statutory or regulatory requirements to the Receivables. The Trustee shall
not make or be deemed to have made any representations or warranties with
respect to the Receivables or the validity or sufficiency of any assignment
of the Receivables to the Trust or the Trustee. The Trustee (solely in its
capacity as such) shall at no time have any responsibility or liability
for, or with respect to, the legality, validity or enforceability of
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any security interest in any Financed Vehicle or (prior to the time, if
any, that the Servicer is terminated as custodian hereunder) any
Receivable, or the perfection and priority of such a security interest or
the maintenance of any such perfection and priority, the efficacy of the
Trust or its ability to generate funds sufficient to provide for the
payments to be distributed to Holders under this Agreement, the existence,
condition, location, and ownership of any Financed Vehicle, the existence
and enforceability of the Insurance Policies, the existence and contents of
any Receivable or 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 Seller with any warranty or
representation made under this Agreement or in any related document and the
accuracy of any such warranty or representation, prior to the Trustee's
receipt of notice or other discovery of any noncompliance therewith or any
breach thereof, any investment of monies by the Servicer or any loss
resulting therefrom (it being understood that the Trustee shall remain
responsible for any Trust Property that it may hold), the acts or omissions
of the Seller, the Servicer, or any Obligor, any action of the Servicer
taken in the name of the Trustee, or any action by the Trustee taken at the
instruction of the Servicer, provided, however, that such instruction is
not in express violation of the terms and provisions of this Agreement);
provided, however, that the foregoing shall not relieve the Trustee of its
obligation to perform its duties under this Agreement. Except with respect
to a claim based on the failure of the Trustee to perform its duties under
this Agreement (whether in its capacity as the Trustee or as successor
Servicer) or based on the Trustee's willful misconduct, negligence, or bad
faith, or based on the Trustee's breach of a representation and warranty
contained in Section 9.14, no recourse shall be had to the Trustee (whether
in its individual capacity or as the Trustee) for any claim based on any
provision of this Agreement, the Certificates, or any Receivable or
assignment thereof against the Trustee in its individual capacity; the
Trustee shall not have any personal obligation, liability, or duty
whatsoever to any Holder or any other Person with respect to any such
claim. The Trustee shall not be accountable for the use or application by
the Seller of the proceeds of such Certificates, or for the use or
application of any funds paid to the Servicer in respect of the Receivables
prior to the time such amounts are deposited in the Collection Account
(whether or not the Collection Account is maintained with the Trustee). The
Trustee shall have no liability for any losses from the investment or
reinvestment in Eligible Investments made in accordance with Section 4.1.
Section 9.7. The Trustee May Own Certificates. The Trustee in its
individual or any other capacity may become the owner or pledgee of
Certificates with the same rights as it would have if it were not the
Trustee.
Section 9.8. The Trustee's Fees and Expenses. The Servicer agrees
to pay to the Trustee, and the Trustee shall be entitled to, reasonable
compensation (which shall not be limited by any provision of law in regard
to the compensation of a trustee of an express trust) for all services
rendered by it in the execution of the trusts created by this Agreement and
in the exercise and performance of any of the powers and duties under this
Agreement as Trustee, and the Servicer shall pay or reimburse the Trustee
upon its request for all reasonable expenses (including expenses incurred
in connection with notices or other communications to Holders),
disbursements and advances (including the reasonable compensation and the
reasonable expenses and disbursements of its counsel and of all persons not
regularly in its employ) incurred or made by the Trustee in
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accordance with any of the provisions of this Agreement (including the
reasonable fees and expenses of its agents, any co-trustee and counsel) or
in defense of any action brought against it in connection with this
Agreement except any such expense, disbursement or advance as may arise
from its negligence, willful misfeasance, or bad faith. The Servicer's
covenant to pay the expenses, disbursements and advances provided for in
the preceding sentence shall survive the termination of this Agreement.
Section 9.9. Eligibility Requirements for The Trustee. The Trustee
shall at all times be organized and doing business under the banking laws
of the United States or of any state thereof, shall be authorized under
such laws to exercise corporate trust powers, shall have a consolidated net
worth of at least $50,000,000 and shall be subject to supervision or
examination by federal or state banking authorities. If the Trustee 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 9.9, the consolidated net worth of the
Trustee shall be deemed to be its consolidated capital and surplus as set
forth in its most recent consolidated report of condition so published. In
case at any time the Trustee shall cease to be eligible in accordance with
the provisions of this Section 9.9, the Trustee shall resign immediately in
the manner and with the effect specified in Section 9.10.
Section 9.10. Resignation or Removal of the Trustee. (a) The
Trustee may at any time resign and be discharged from the trusts hereby
created by giving 30 days' prior written notice thereof to the Servicer.
Upon receiving such notice of resignation, the Servicer shall promptly
appoint a successor Trustee, by written instrument, in duplicate, one copy
of which instrument shall be delivered to the resigning Trustee and one
copy to the successor Trustee. If no successor Trustee shall have been so
appointed and have accepted appointment within 30 days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee;
provided, however, that such right to appoint or to petition for the
appointment of any such successor shall in no event relieve the resigning
Trustee from any obligations otherwise imposed on it under this Agreement
and the Related Documents until such successor has in fact assumed such
appointment.
(b) If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 9.9 and shall fail to resign
after written request therefor by the Servicer, or if at any time the
Trustee shall be legally unable to act, or shall be adjudged bankrupt or
insolvent, or a receiver, conservator or liquidator of the Trustee or of
its property shall be appointed, or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then the Servicer may remove
the Trustee. If the Trustee is removed under the authority of the
immediately preceding sentence, the Servicer shall promptly appoint a
successor trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the Trustee so removed, the successor
Trustee, the Holders at their respective addresses of record and the Rating
Agencies.
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(c) Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section 9.10
shall not become effective until acceptance of appointment by the successor
Trustee pursuant to Section 9.11.
(d) The respective obligations of the Seller and the Servicer
described in this Agreement shall survive the removal or resignation of the
Trustee as provided in this Agreement.
Section 9.11. Successor Trustee. (a) Any successor Trustee
appointed pursuant to Section 9.10 shall execute, acknowledge, and deliver
to the Servicer and to its predecessor Trustee an instrument accepting such
appointment under this Agreement, and thereupon the resignation or removal
of the predecessor Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become fully
vested with all rights, powers, duties, and obligations of its predecessor
under this Agreement, with like effect as if originally named as the
Trustee. The predecessor Trustee shall deliver to the successor Trustee all
documents and statements held by it under this Agreement, and the Servicer
and the predecessor 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 Trustee all such rights, powers,
duties, and obligations.
(b) No successor Trustee shall accept appointment as provided in
this Section 9.11 unless at the time of such acceptance such successor
Trustee shall be eligible pursuant to Section 9.9.
(c) Upon acceptance of appointment by a successor Trustee pursuant
to this Section 9.11, the Servicer shall mail notice of such acceptance by
the successor Trustee under this Agreement to all Holders at their
respective addresses of record and to the Rating Agencies. If the Servicer
shall fail to mail such notice within 10 days after acceptance of
appointment by the successor Trustee, the successor Trustee shall cause
such notice to be mailed at the expense of the Servicer.
(d) No predecessor Trustee shall be liable for the acts or
omissions of any successor Trustee.
Section 9.12. Merger or Consolidation of or Assumption of
Obligations of the Trustee. Any corporation or banking association which is
eligible to be a successor Trustee under Section 9.9 (a) into which the
Trustee may be merged or consolidated, (b) that may result from any merger,
conversion or consolidation to which the Trustee shall be a party, or (c)
that may succeed by purchase and assumption to the business of the Trustee,
where the Trustee is not the surviving entity, which corporation or banking
association executes an agreement of assumption to perform every obligation
of the Trustee under this Agreement, shall be the successor of the Trustee
hereunder, 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. The Trustee shall promptly notify the Servicer
and each Rating Agency of any such merger, conversion, consolidation or
purchase and assumption where the Trustee is not the surviving entity.
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Section 9.13. Appointment of Co-Trustee or Separate Trustee. (a)
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 Trust Property or any Financed Vehicle may at the time be
located, the Servicer and the Trustee acting jointly shall have the power
and shall execute and deliver all instruments to appoint one or more
Persons approved by the Trustee to act as co-trustee, jointly with the
Trustee, or separate trustee or separate trustees, of all or any part of
the Trust, and to vest in such Person, in such capacity and for the benefit
of the Holders, such title to the Trust, or any part thereof, and, subject
to the other provisions of this Section 9.13, such powers, duties,
obligations, rights, and trusts as the Servicer and the 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, or in case a Servicer Termination Event shall have occurred and be
continuing, the Trustee alone 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 9.9 and no notice to Holders of the appointment of any
co-trustee or separate trustee shall be required pursuant to Section 9.11.
Notwithstanding the appointment of a co-trustee or separate trustee
hereunder, the Trustee shall not be relieved of any of its obligations
under this Agreement.
(b) 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 Trustee shall be conferred upon and exercised
or performed by the 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
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 (whether as the Trustee under this Agreement or as
successor to the Servicer under this Agreement), the 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 Property 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 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.
(iii) The Servicer and the Trustee acting jointly 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 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 in particular to the provisions 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 Trustee or separately,
as may be provided therein, subject to all
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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 Trustee. Each such instrument shall be filed
with the Trustee and a copy thereof given to the Servicer.
(d) Any separate trustee or co-trustee may, at any time, appoint
the 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 Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee. The Trustee shall promptly
notify the Servicer and each Rating Agency of any appointment made pursuant
to this Section 9.13.
Section 9.14. Representations and Warranties of the Trustee. The
Trustee makes the following representations and warranties on which the
Seller, the Servicer, and the Holders may rely:
(a) Organization and Good Standing. The Trustee is a
banking corporation duly organized, validly existing, and in good
standing under the laws of ______________.
(b) Power and Authority. The Trustee has full power,
authority and legal right to execute, deliver, and perform this
Agreement and the Related Documents and has taken all necessary
action to authorize the execution, delivery, and performance by it
of this Agreement and the Related Documents to which it is a
party.
(c) Enforceability. This Agreement and the Related
Documents to which it is a party have been duly executed and
delivered by the Trustee and this Agreement and such Related
Documents constitute legal, valid and binding obligations of the
Trustee enforceable against the Trustee in accordance with their
respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect affecting the
enforcement of creditors' rights generally and except as such
enforceability may be limited by equitable limitations on the
availability of specific remedies.
(d) No Consent Required. No approval, authorization,
consent, license or other order or action of, or filing or
registration with, any governmental authority, bureau or agency is
required in connection with the execution, delivery or performance
by the Trustee of this Agreement, the Related Documents or the
consummation of the transactions contemplated hereby or thereby.
(e) No Violation. The execution, delivery and performance
by the Trustee of this Agreement and the Related Documents and the
consummation of the transactions contemplated hereby and thereby
will not conflict with, result in any breach of the terms and
provisions of, constitute (with or without notice or lapse of
time) a default under, or result in the creation or disposition of
any Lien upon any of its properties pursuant to the terms of,
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(i) the articles of association or by-laws of the Trustee, (ii)
any indenture, contract, lease, mortgage, deed of trust or other
instrument or agreement to which the Trustee is a party or by
which the Trustee is bound or to which any of its properties are
subject, or (iii) any law, order, rule or regulation applicable to
the Trustee or its properties of any federal or state regulatory
body, any court, administrative agency or other governmental
instrumentality having jurisdiction over the Trustee or any of its
properties.
Section 9.15. Reports by the Trustee. The Trustee shall provide to
any Holder or Certificate Owner who so requests in writing (addressed to
the Corporate Trust Office) a copy of any Servicer's Report, the annual
statement described in Section 3.10, and the annual accountant's
examination described in Section 3.11. The Trustee may require any Holder
or Certificate Owner requesting such report to pay a reasonable sum to
cover the cost of the Trustee's complying with such request.
Section 9.16. Tax Returns. The Servicer shall prepare or shall
cause to be prepared any tax returns required to be filed by the Trust and
shall remit such returns to the Trustee for signature at least five days
before such returns are due to be filed. The Trustee, upon request, will
furnish the Servicer with all such information actually known to an
Authorized Officer of the Trustee as may be reasonably required in
connection with the preparation of all tax returns of the Trust, and shall,
upon request, execute such returns. The Servicer shall prepare the tax
returns of the Trust in accordance with the Code and any regulations
(including, to the extent applicable by their terms, proposed regulations)
thereunder.
Section 9.17. The Trustee May Enforce Claims Without Possession of
Certificates. All rights of action and claims under this Agreement or the
Certificates may be prosecuted and enforced by the Trustee without the
possession of any of the Certificates or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name as the Trustee. Any recovery of
judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel, be for the ratable benefit of the Holders in respect of
which such judgment has been obtained.
ARTICLE X
SERVICER TERMINATION EVENTS
Section 10.1. Servicer Termination Event. For purposes of this
Agreement, each of the following shall constitute a "Servicer Termination
Event":
(a) Any failure by the Servicer to make deposits into the
Collection Account or to deliver to the Trustee for distribution any
proceeds or payment required to be so deposited or delivered under the
terms of this Agreement that continues unremedied for a period of two
Business Days (one Business Day with respect to payment of Purchase
Amounts) after the earlier of receipt of written notice by the Servicer
from the Trustee or discovery of such failure by a Responsible Officer of
the Servicer; or
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(b) Failure by the Servicer to deliver to the Trustee the
Servicer's Certificate by 2:00 p.m., New York City time, on each
Determination Date (or within two Business Days thereafter, if such failure
by the Servicer is due to circumstances outside the Servicer's control), or
failure on the part of the Servicer to observe in all material respects its
covenants and agreements set forth in Section 8.2(a); or
(c) Failure or failures on the part of the Servicer duly to
observe or perform any other covenants or agreements of the Servicer set
forth in this Agreement, which failure or failures, individually or in the
aggregate, (i) materially and adversely affect the rights of
Certificateholders and (ii) continue unremedied for a period of 30 days
after the earlier of knowledge thereof by a Responsible Officer of the
Servicer or the date on which written notice of such failure or failures,
requiring the same to be remedied, shall have been given to the Servicer by
the Trustee or Holders of more than 25% of the Certificate Balance; or
(d) The occurrence of an Insolvency Event with respect to the
Servicer; or
(e) Any representation or warranty 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 or warranty has a material adverse effect on the
Certificateholders and, within 30 days after the earlier of knowledge
thereof by a Responsible Officer of the Servicer or the date written notice
thereof shall have been given to the Servicer by the Trustee or Holders of
more than 25% of the sum of the then outstanding Class A and Class B
Certificate Balances, the circumstances or condition in respect of which
such representation or warranty was incorrect shall not have been
eliminated or otherwise cured.
Section 10.2. Consequences of a Servicer Termination Event. If a
Servicer Termination Event shall occur and be continuing, either the
Trustee (to the extent it has knowledge thereof) or a Certificate Majority,
by notice given in writing to the Servicer and the Rating Agency (and to
the Trustee if given by the Certificateholders), may terminate all of the
rights and obligations of the Servicer under this Agreement. On or after
the receipt by the Servicer of such written notice, all authority, power,
obligations and responsibilities of the Servicer under this Agreement,
whether with respect to the Certificates, the Receivables, the other Trust
Property or otherwise, automatically shall pass to, be vested in and become
obligations and responsibilities of [the Backup Servicer (or] such other
successor Servicer appointed by the Trustee[)]; provided, however, that the
successor Servicer shall have no liability with respect to (i) any
obligation that was required to be performed by the terminated Servicer
prior to the date that the successor Servicer becomes the Servicer or (ii)
any claim of a third party based on any alleged action or inaction of the
terminated Servicer. 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, the other
Trust Property and related documents to show the Trust or the Trustee as
lienholder or secured party on the related Lien Certificates, or otherwise.
The terminated Servicer
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agrees to cooperate with the successor Servicer in effecting the
termination of the responsibilities and rights of the terminated Servicer
under this Agreement, including the transfer to the successor Servicer for
administration by it of all cash amounts that shall at the time be held by
the terminated Servicer for deposit, or have been deposited by the
terminated Servicer, in the Collection Account or the Lockbox Account or
thereafter received with respect to the Receivables and the delivery to the
successor Servicer of all Receivable Files and Monthly Records and a
computer tape in readable form as of the most recent Business Day
containing all information necessary to enable the successor Servicer to
service the Trust Property. The terminated Servicer shall grant the Trustee
and the successor Servicer reasonable access during normal business hours
to the terminated Servicer's premises.
Section 10.3. Appointment of Successor. (a) On and after the time
the Servicer receives a notice of termination pursuant to Section 10.2 or
upon the resignation of the Servicer pursuant to Section 8.5, the [Backup
Servicer] [successor Servicer] shall be the successor in all respects to
the Servicer in its capacity as Servicer under this Agreement and the
transactions set forth or provided for in this Agreement, and shall be
subject to all the rights, responsibilities, restrictions, duties,
liabilities and termination provisions relating thereto placed on the
Servicer by the terms and provisions of this Agreement, except as otherwise
stated herein. The Trustee 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 termination under Section 10.2 upon the occurrence
of any Servicer Termination Event applicable to it as Servicer. Any
successor Servicer appointed pursuant to this Section 10.3 shall be
entitled to compensation equal to the greater of (i) the Total Servicing
Fee or (ii) the then-current "market rate" fee for servicing assets
comparable to the Receivables, which rate shall be determined by averaging
three servicing fee bids obtained by the [Backup] [successor] Servicer from
third party servicers selected by the [Backup] [successor] Servicer.
(b) If the [Backup] [successor] Servicer shall be legally unable
or unwilling to act as Servicer, the [Backup] [successor] Servicer, the
Trustee or a Certificate Majority may petition a court of competent
jurisdiction to appoint any Eligible Servicer as the successor to the
Servicer. Pending appointment pursuant to the preceding sentence, the
[Backup] [successor] 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. Subject to Section 8.5, no provision of this
Agreement shall be construed as relieving the [Backup] [successor] Servicer
of its obligation to succeed as successor Servicer upon the termination of
the Servicer pursuant to Section 10.2 or the resignation of the Servicer
pursuant to Section 8.5.
(c) Any successor Servicer shall be entitled to such compensation
(whether payable out of the Collection Account or otherwise) as the
Servicer would have been entitled to under this Agreement if the Servicer
had not resigned or been terminated hereunder.
Section 10.4. Notification to Certificateholders. Upon any termination
of, or appointment of a successor to, the Servicer pursuant to this Article XI,
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the Trustee shall give prompt written notice thereof to the Rating Agency
and to the Certificateholders at their respective addresses appearing in
the Certificate Register.
Section 10.5. Waiver of Past Defaults. A Certificate Majority may,
on behalf of the Certificateholders, 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 thereon.
The Trustee shall provide the Certificateholders and the Rating Agency with
notice of any waiver of any default by the Servicer hereunder.
ARTICLE XI
TERMINATION
Section 11.1. Termination of the Trust. (a) The Trust, and the
respective obligations and responsibilities of the Seller, the Servicer and
the Trustee hereunder, shall terminate (except as otherwise expressly
provided herein) upon the earliest of: (i) the Payment Date after the
purchase by the Servicer, at its option pursuant to Section 11.2, of the
Receivables remaining in the Trust, (ii) the payment to Holders of all
amounts required to be paid to them pursuant to this Agreement or (iii) the
Payment Date after the month that is six months after the maturity or the
liquidation of the last Receivable held in the Trust and the disposition of
any amounts received upon liquidation of any property remaining in the
Trust; provided, however, that in no event shall the Trust created by this
Agreement continue beyond the expiration of 21 years from the death of the
last survivor of the descendants living on the date of this Agreement of
Rose Kennedy of the Commonwealth of Massachusetts. Servicer shall promptly
notify the Trustee of any prospective termination pursuant to this Section
11.1.
(b) Notice of any termination, specifying the Payment Date upon
which the Holders may surrender the Certificates to the Trustee for payment
of the final distribution and cancellation, shall be given promptly by the
Trustee by letter to Holders of record and the Rating Agencies mailed not
earlier than the 15th day and not later than the 25th day of the month
preceding the specified Payment Date stating the amount of any such final
payment and that the Record Date otherwise applicable to such Payment Date
is not applicable, payments being made only upon presentation and surrender
of the Certificates at the office of the Trustee therein specified. Upon
presentation and surrender of the Certificates, the Trustee shall cause to
be distributed to Holders amounts distributable on such Payment Date
pursuant to Section 4.5. Amounts remaining in the Trust after distribution,
or after setting aside all funds required for distribution, to the Holders
shall be distributed to the Seller.
(c) If all the Holders shall not surrender their Certificates for
cancellation within six months after the date specified in the
above-mentioned written notice, the Trustee shall give a second written
notice to the remaining Holders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto.
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Trustee shall after giving such notice to deliver or cause to be delivered
to the Servicer the Certificate Register. If within one year after the
second notice all the Certificates shall not have been surrendered for
cancellation, the Servicer may take appropriate steps, or may appoint an
agent to take appropriate steps, to contact the remaining Holders
concerning surrender of their Certificates, and the cost thereof shall be
paid out of the funds and other assets that shall remain subject to this
Agreement. Any funds remaining in the Trust after exhaustion of such
remedies shall be distributed by the Trustee to the Seller.
Section 11.2. Optional Purchase of All Receivables. As an
administrative convenience, the Servicer shall have the option to purchase
the Receivables and the other Trust Property on any Payment Date if, as of
the related Accounting Date, the Aggregate Principal Balance has declined
to less than 10% of the Cutoff Date Principal Balance. To exercise such
option, the Servicer shall pay the aggregate Purchase Amounts for the
Receivables (which amount shall in no event be less than the sum of the
Class A Certificate Balance and the Class B Certificate Balance then
outstanding plus accrued and unpaid interest thereon) and shall succeed to
all interests in and to the Trust Property. Not later than 10 days prior to
any proposed exercise of such option, the Servicer or Seller shall notify
the Rating Agency, the Trustee and the Certificateholders of any proposed
exercise of such option. The purchase price paid by the Servicer shall be
deposited into the Collection Account on or before such Payment Date and
distributed pursuant to Section 4.5.
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.1. Amendment. (a) This Agreement may be amended by the
Trust, the Seller, the Servicer, Paragon[, the Backup Servicer] and the
Trustee without the consent of any of the Certificateholders, (i) to cure
any ambiguity, (ii) to correct or supplement any provisions in this
Agreement or (iii) for the purpose of adding any provision to or changing
in any manner or eliminating any provision of this Agreement or of
modifying in any manner the rights of the Certificateholders, provided that
such action in this clause (iii) shall not, as evidenced by an Opinion of
Counsel delivered to the Trustee and the Rating Agency, adversely affect in
any material respect the interests of the Certificateholders.
(b) This Agreement may also be amended from time to time by the
Seller, the Servicer, Paragon[, the Backup Servicer] and the Trustee with
the consent of a Certificate Majority (which consent of any Holder of a
Certificate given pursuant to this Section 12.1(b) or pursuant to any other
provision of this Agreement shall be conclusive and binding on such Holder
and on all future Holders of such Certificate and of any Certificate issued
upon the transfer thereof or in exchange thereof or in lieu thereof whether
or not notation of such consent is made upon the Certificate), 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 Holders of Certificates; provided, however, that
the Rating Agency Condition shall have been satisfied with respect to any
such amendment prior to the execution thereof; and provided, further, that
no such amendment shall (i) increase or reduce in any manner the amount of,
or accelerate or delay the timing of, collections of payments on
Receivables, distributions that shall be required to be made
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on any Certificate, the Class A Interest Rate or the Class B Interest Rate,
(ii) amend any provisions of Section 4.5 in such a manner as to affect the
priority of payment of interest or principal to Certificateholders, or (c)
reduce the aforesaid percentage required to consent to any such amendment
or any waiver hereunder, without the consent of the Holders of all
Certificates then outstanding.
(c) Prior to the execution of any such amendment or consent under
Section 12.1(a) or (b), the Seller shall furnish the Trustee with a written
notice describing the substance of such amendment and the Trustee shall
forward such written notification of the substance of such amendment or
consent to the Rating Agency within five days of receipt thereof.
(d) Promptly after the execution of any such amendment and receipt
thereof by the Trustee or consent under Section 12.1(b), the Trustee shall
furnish written notification of the substance of such amendment or consent
to each Certificateholder.
(e) It shall not be necessary for the consent of
Certificateholders pursuant to Section 12.1(b) to approve the particular
form of any proposed amendment or consent, but it shall be sufficient if
such consent shall approve the substance thereof. The manner of obtaining
such consents (and any other consents of Certificateholders provided for in
this Agreement) and of evidencing the authorization of the execution
thereof by Certificateholders shall be subject to such reasonable
requirements as the Trustee may prescribe.
(f) Prior to the execution of any amendment to this Agreement, the
Trustee, upon request, shall be entitled to receive and rely upon an
Opinion of Counsel (delivered at the expense of the Seller) stating that
the execution of such amendment is authorized or permitted by this
Agreement, in addition to the Opinion of Counsel referred to in Section
12.2(i). The Trustee may, but shall not be obligated to, enter into any
such amendment that affects the Trustee's own rights, duties or immunities
under this Agreement or otherwise.
Section 12.2. Protection of Title to Trust. (a) The Servicer shall
execute, file, record and register such financing statements and cause to
be executed, filed, recorded and registered such continuation and other
statements or documents, all in such manner and in such places as may be
required by law fully to preserve, maintain and protect the interest of the
Trust and the Trustee under this Agreement in the Trust Property and in the
proceeds thereof. The Servicer shall deliver (or cause to be delivered) to
the Trustee file-stamped copies of, or filing receipts for, any document
recorded, registered or filed as provided above, as soon as available
following such recordation, registration or filing. Paragon and the Seller
shall cooperate fully with the Servicer in connection with the obligations
set forth above and shall execute any and all documents reasonably required
to fulfill the intent of this Section 12.2(a).
(b) Neither the Seller nor the Servicer shall change its name,
identity or corporate structure in any manner that would make any financing
statement or continuation statement filed by the Servicer in accordance
with Section 12.2(a) seriously misleading within the meaning of the
applicable provisions of the UCC or any title statute, unless it shall have
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given the Trustee at least 30 days prior written notice thereof, and shall
promptly file appropriate amendments to all previously filed financing
statements and continuation statements.
(c) Each of the Seller and the Servicer shall give the Trustee at
least 30 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. The Servicer shall at all times maintain each office
from which it services 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 (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 its computer systems so that, from
and after the time of sale under this Agreement, the Servicer's master
computer records (including any backup archives) that refer to any
Receivable indicate clearly that such Receivable is owned by the Trust.
Indication of the Trust's ownership of a Receivable shall be deleted from
or modified on the Servicer's computer systems when, and only when, the
Receivable shall become a Purchased Receivable or shall have been paid in
full.
(f) If at any time the Seller or the Servicer proposes to sell,
grant a security interest in, or otherwise transfer any interest in
automotive receivables (other than the 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
refer in any manner whatsoever to any Receivable, indicate clearly that
such Receivable has been sold and is owned by the Trust (unless such
Receivable shall become a Purchased Receivable or shall have been paid in
full).
(g) Upon reasonable notice, the Servicer shall permit the Trustee,
[the Backup Servicer,] the Seller and their respective agents, at any time
during normal business hours to inspect and make copies of and abstracts
from the Servicer's records regarding any Receivables or any other portion
of the Trust Property.
(h) The Servicer shall furnish to the Trustee[, the Backup
Servicer] and the Seller upon request within a reasonable period of time
the Schedule of Receivables, setting forth the Receivables then held as
part of the Trust. The Trustee shall hold the Schedule of Receivables 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.
(i) The Seller and the Servicer (or the applicable party in the
case of Section 12.2(b) or (c)) shall deliver to the Trustee simultaneously
with the execution and delivery of this Agreement
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and of each amendment thereto and upon the occurrence of the events giving
rise to an obligation to give notice pursuant to Section 12.2(b) or (c), an
Opinion of Counsel (i) stating that, in the opinion of such counsel, all
financing statements and continuation statements have been executed and
filed that are necessary fully to preserve and protect the interests of the
Trust and the Trustee in the Receivables, and reciting the details of such
filing or referring to prior Opinions of Counsel in which such details are
given or (ii) stating that, in the opinion of such counsel, no such action
is necessary to preserve and protect such interest.
Section 12.3. Limitation on Rights of Certificateholders. (a) The
death or incapacity of any Certificateholder shall not operate to terminate
this Agreement or the Trust, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the
Trust, nor otherwise affect the rights, obligations and liabilities of the
parties to this Agreement or any of them.
(b) No Certificateholder shall have any right to vote (except as
provided in this Section 12.3 or Sections 10.2, 10.5 or 12.1) or in any
manner otherwise control the operation and management of the Trust, or the
obligations of the parties to this Agreement, nor shall anything set forth
in this Agreement, or contained in the terms of the Certificates, be
construed so as to constitute the Certificateholders from time to time as
partners or members of an association; nor shall any Certificateholder be
under any liability to any third person by reason of any action taken by
the parties to this Agreement pursuant to any provision of this Agreement
or any Related Document.
(c) No Certificateholder shall have any right by virtue or by
availing itself of any provisions of this Agreement to institute any suit,
action, or proceeding in equity or at law upon or under or with respect to
this Agreement, unless such Holder previously shall have given to the
Trustee a written notice of default and of the continuance thereof, as
provided in this Agreement, and unless also the Holders of Certificates
evidencing not less than 25% of the Certificate Balance shall have made
written request upon the Trustee to institute such action, suit or
proceeding in its own name as Trustee under this Agreement and shall have
offered to the Trustee such reasonable indemnity as it may require against
the costs, expenses and liabilities to be incurred therein or thereby, and
the 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 Trustee
pursuant to and in compliance with this Section 12.3 or Section 10.5; it
being understood and intended, and being expressly covenanted by each
Certificateholder with every other Certificateholder and the Trustee, that
no one or more Holders of Certificates shall have any right in any manner
whatever by virtue or by availing itself or themselves of any provisions of
this Agreement to affect, disturb, or prejudice the rights of the Holders
of any other of the Certificates, or to obtain or seek to obtain priority
over or preference to any other such Holder, or to enforce any right under
this Agreement, except in the manner provided in this Agreement and for the
equal, ratable and common benefit of all Certificateholders. For the
protection and enforcement of the provisions of this Section 12.3, each and
every Certificateholder and the Trustee shall be entitled to such relief as
can be given either at law or in equity.
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Section 12.4. GOVERNING LAW. THIS AGREEMENT (OTHER THAN ARTICLE V
AND, SOLELY FOR THE PURPOSE OF INTERPRETING ARTICLE V, ANY DEFINITIONS
REFERRED TO THEREIN) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICTS OF LAWS THEREOF (OTHER THAN SECTION 5-1401 OF THE NEW YORK
GENERAL OBLIGATIONS LAW) AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES UNDER THIS AGREEMENT SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS. ARTICLE V (AND, SOLELY FOR THE PURPOSE OF INTERPRETING ARTICLE V, ANY
DEFINITIONS REFERRED TO THEREIN) SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF MISSOURI WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAWS THEREOF AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES UNDER THIS AGREEMENT SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
Section 12.5. Severability of Provisions. If any one or more of
the covenants, agreements, provisions or terms of this Agreement shall be
for any reason whatsoever held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Agreement and shall in no way
affect the validity or enforceability of the other provisions of this
Agreement or of the Certificates or the rights of the Holders thereof.
Section 12.6. Assignment. Notwithstanding anything to the contrary
contained in this Agreement, except as provided in Section 7.2 or Section
8.2 and as provided in the provisions of the Agreement concerning the
resignation of the Servicer [and the Backup Servicer], this Agreement may
not be assigned by the Seller or the Servicer without the prior written
consent of [the Backup Servicer and] the Trustee. Prior written notice of
any such assignment shall be provided to the Rating Agency.
Section 12.7. Third-Party Beneficiaries. Nothing in this
Agreement, express or implied, shall give to any Person, other than the
parties hereto and their successors hereunder and permitted assigns, any
benefit or any legal or equitable right, remedy or claim under this
Agreement.
Section 12.8. Counterparts. This Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts
shall be deemed to be an original, and all of which counterparts shall
constitute but one and the same instrument.
Section 12.9. Notices. All demands, notices and communications under
this Agreement shall be in writing, personally delivered or mailed by
certified mail, return receipt requested, and shall be deemed to have been
duly given upon receipt (a) in the case of the Seller, at the following
address: Paragon Auto Receivables Corporation, 27405 Puerta Real, Suite
200, Mission Viejo, California 92691, Attention: Vice President-Finance,
Telecopy No.: (714) 348-8707, (b) in the case of the Servicer, at the
following address: Paragon Acceptance Corporation, 27405 Puerta Real, Suite
200, Mission Viejo, California 92691, Attention: Vice President - Finance,
Telecopy No.: (714) 348-8707, (c) in the case of the Trustee[, and for so
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long as the Trustee is the Backup Servicer, the Backup Servicer,] at the
following address: [Norwest Bank Minnesota, National Association, Norwest
Center, Sixth Street and Marquette Avenue, Minneapolis, Minnesota
55479-0070, Attention: Corporate Trust Services/Asset-Backed
Administration, Telecopy No.: (612) 667-3539], and (d) in the case of the
Rating Agency, at the following address: _____________, Attention:
_________, or at such other address as shall be designated by any such
party in a written notice to the other parties. Any notice required or
permitted to be mailed to a Certificateholder shall be given by first class
mail, postage prepaid, at the address of such Holder as shown in the
Certificate Register, and 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 12.10. Successors and Assigns. This Agreement shall be
binding upon the parties hereto and their respective successors and
assigns, and shall inure to the benefit of and be enforceable by the
parties hereto and their respective successors and assigns permitted
hereunder. All covenants and agreements contained herein shall be binding
upon, and inure to the benefit of, the Trust, the Trustee and the
Certificateholders and their respective permitted successors and assigns,
if any. Any request, notice, direction, consent, waiver or other instrument
or action by any Certificateholder shall bind its successors and assigns.
Except as otherwise provided in this Article XII, no other Person shall
have any right or obligation hereunder.
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IN WITNESS WHEREOF, the Seller, the Servicer, the Trust[, the
Backup Servicer] and the Trustee have caused this Sale and Servicing
Agreement to be duly executed by their respective officers, effective as of
the day and year first above written.
PARAGON ACCEPTANCE CORPORATION, in its
individual capacity and as Servicer
By: ____________________________________
Name: __________________________________
Title: _________________________________
[NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION], as Trustee [and as
Backup Servicer]
By: ____________________________________
Name: __________________________________
Title: _________________________________
PARAGON AUTO RECEIVABLES CORPORATION, as
Seller
By: ____________________________________
Name: __________________________________
Title: _________________________________
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SCHEDULE A
SCHEDULE OF RECEIVABLES
On file with the Servicer and the Trustee.
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SCHEDULE B
REPRESENTATIONS AND WARRANTIES OF SELLER
WITH RESPECT TO RECEIVABLES
1. Contract Origination Date. Each Receivable has a
contract origination date on or before _______ __, ____.
2. Term of Receivables. Each Receivable has an original
term of at least __ months and not more than __ months and had a
remaining term as of the Cutoff Date of at least __ months and not
more than __ months; the weighted average original contracted term
of the Receivables was __ months as of the Cutoff Date; the
weighted average remaining contracted term of the Receivables was
__ months as of the Cutoff Date.
3. Characteristics of Receivables. (A) Each Receivable
(1) has been originated in the United States of America by a
Dealer for the retail sale of a Financed Vehicle in the ordinary
course of such Dealer's business in accordance in all material
respects with Paragon's credit approval guidelines, and, to the
best knowledge of Seller, such Dealer had all necessary licenses
and permits to originate Receivables in the state where such
Dealer was located, (2) was fully and properly executed by the
parties thereto, (3) was purchased by Paragon from such Dealer
under an existing Dealer Agreement and Dealer Assignment and was
purchased by the Seller from Paragon pursuant to the Receivables
Purchase Agreement, (4) contains customary and enforceable
provisions such that the rights and remedies of the holder or
assignee thereof shall be adequate for realization against the
collateral of the benefits of the security, (5) provides for level
monthly payments that fully amortize the Amount Financed over the
original term (except for the last payment, which may be greater
or smaller than the level payment), provided payments are made on
the applicable due dates, (6) has an Annual Percentage Rate of not
less than ____% and not more than ____%, (7) provides for, if such
contract is prepaid, a prepayment that fully pays the Principal
Balance and accrued interest at the Annual Percentage Rate and (8)
is a Simple Interest Receivable or a Pre-Computed Receivable; (B)
as of the Cutoff Date no Receivable has a payment more than 10% of
which is more than 29 days past due; (C) each Receivable has a
final scheduled payment due no later than ________ __, 20__; (D)
as of the Cutoff Date, not more than ____% of the aggregate
principal balance of the Receivables represented financing of used
vehicles, and the remainder of the Receivables represented
financing of new vehicles; (E) as of the Cutoff Date, the average
remaining principal balance of the Receivables was not more than
$_________; and (F) as of the Cutoff Date, the weighted average
Annual Percentage Rate of the Receivables was not more than ____%.
4. Principal Balance; Scheduled Payments. (A) Each
Receivable has an outstanding principal balance as of the Cutoff
Date of not less than $_____ and not more than $______; (B) each
Receivable originated on or prior to _________ __, ____ had at
least one scheduled payment made prior to the date that is two
Business Days prior to the Closing Date; and (C) each Receivable
originated after _________ __, ____ either (I) has had at least
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one scheduled payment made prior to the date that is two Business
Days prior to the Closing Date or (II) will have a first scheduled
payment made within __ days of the due date thereof.
5. Characteristics of Obligors. As of the Cutoff Date, no
Obligor on any Receivable (A) was the subject of any federal,
state or other bankruptcy, insolvency or similar proceeding
pending on the date of application that is not discharged, (B) was
currently the subject of a judgment in favor of Paragon, and (C)
had its related Financed Vehicle repossessed (or subject to
repossession).
6. Billing Addresses for Obligors. Based on the billing
addresses of the Dealers and the Principal Balances as of the
Cutoff Date, the Obligors of approximately ___% of the Receivables
were located in _______________, the Obligors of approximately
___% of the Receivables were located in _______________, the
Obligors of approximately ___% of the Receivables were located in
_____________ and the Obligors of approximately ___% of the
Receivables were located in other states.
7. Location of Receivable Files. There exists a complete
Receivable File with respect to each Receivable that will have
been delivered to the Trustee on or prior to the Closing Date and
any exceptions set forth in the Trustee's certificate will be
corrected within 30 days.
8. Schedule of Receivables. The information with respect
to the Receivables set forth in the Schedule of Receivables has
been produced from the Electronic Ledger and is true and correct
in all material respects as of the close of business on the Cutoff
Date.
9. Adverse Selection. No selection procedures having a
material adverse effect on the Trust or Certificateholders have
been utilized in selecting the Receivables from those receivables
owned by Paragon that met the selection criteria contained in this
Agreement.
10. Compliance with Law. Neither the Receivables nor the
sale of the related Financed Vehicles, at the time the related
Receivable was originated or made, contravened in any material
respect, and, at the execution of this Agreement contravenes in
any material respect, any requirements of applicable federal,
state and local laws, and regulations thereunder including,
without limitation, usury laws, the Federal Truth-in-Lending Act,
the Equal Credit Opportunity Act, the Fair Credit Reporting Act,
the Fair Debt Collection Practices Act, the Federal Trade
Commission Act, the Magnuson-Moss Warranty Act, the Federal
Reserve Board's Regulations B and Z, the Soldiers' and Sailors'
Civil Relief Act of 1940, each applicable state Motor Vehicle
Retail Installment Sales Act, and state adaptations of the
National Consumer Act and of the Uniform Consumer Credit Code, and
other consumer credit laws and equal credit opportunity and
disclosure laws.
11. No Government Obligor. None of the Receivables is due
from the United States of America or any state or from any other
Governmental Authority.
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12. Security Interest in Financed Vehicle. Each
Receivable has created, or will create when all required
procedures are completed by the Servicer, a valid, subsisting and
enforceable first priority perfected security interest in the
related Financed Vehicle in favor of Paragon as secured party, and
such security interest is, or will be upon the completion of all
required procedures by the Servicer, prior to all other liens upon
and security interests in such Financed Vehicle that now exist or
may hereafter arise or be created (except, as to priority, for any
tax liens or mechanics' liens that may arise after the Closing
Date).
13. Binding Obligation; Receivables in Force. Each
Receivable is a binding obligation of its related Obligor and no
Receivable has been satisfied, subordinated or rescinded, nor has
any Financed Vehicle been released from the lien granted by the
related Receivable in whole or in part.
14. No Amendments. As of the Cutoff Date, no Receivable has
been amended, altered or modified; and no provision of any Receivable
has been waived, other than any provisions requiring vendor single
interest insurance or late payment fees and those waivers,
alterations or modifications specifically permitted pursuant to
Section 3.2 of this Agreement. As of the Cutoff Date, no
Receivable has been modified as a result of application of the
Soldiers' and Sailors' Civil Relief Act of 1940, as amended.
15. No Defenses. As of the Cutoff Date, no right of
rescission, setoff, counterclaim or defense exists with respect to
any Receivable. The operation of the terms of any Receivable or
the exercise of any right thereunder will not render such
Receivable unenforceable in whole or in part or subject to any
such right of rescission, setoff, counterclaim or defense.
16. No Liens. As of the Cutoff Date, there are no liens
or claims existing or that have been filed for work, labor,
storage or materials relating to any of the related Financed
Vehicles that are liens prior to the security interest in the
related Financed Vehicles granted by the related Receivables.
17. No Fraud or Misrepresentation. Each Receivable was
originated by a Dealer and was sold by the Dealer to Paragon
without fraud or misrepresentation on the part of such Dealer in
either case.
18. No Default; Repossession. Except for payment
delinquencies continuing for a period of less than 31 days as of
the Cutoff Date, no default, breach, violation or event permitting
acceleration under the terms of any Receivable has occurred; no
continuing condition that with notice or the lapse of time would
constitute a default, breach, violation, or event permitting
acceleration under the terms of any Receivable has arisen; the
Seller shall not waive and has not waived any of the foregoing;
and no related Financed Vehicle has been repossessed as of the
Cutoff Date.
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19. Insurance; Other. Paragon, in accordance with its
customary procedures, has determined (A) that each Obligor, at the
time of origination, had obtained or agreed to obtain insurance
covering the Financed Vehicle as of the execution of the
Receivable insuring against loss and damage due to fire, theft,
transportation, collision and other risks generally covered by
comprehensive and collision coverage (i) in an amount at least
equal to the lesser of (x) its maximum insurable value or (y) the
principal amount due from the Obligor under the related Receivable
and (ii) naming Paragon as loss payee, (B) each Receivable that
finances the cost of premiums for credit life and accident or
health insurance is covered by an insurance policy and certificate
of insurance naming Paragon as creditor under each such insurance
policy and certificate of insurance, and (C) as to each Receivable
that includes financing for the cost of a service contract, the
respective Financed Vehicle that secures the Receivable is covered
by a service contract. No Receivable has force-placed insurance.
20. Title. No Receivable has been sold, transferred,
assigned or pledged by Paragon to any Person other than the Seller
[or CTS (and the CTS Liens shall be released as of the Closing
Date)] or any such pledge has been released on or prior to the
Closing Date. Immediately prior to the transfer and assignment
herein contemplated, the Seller had good and marketable title to
each Receivable, and was the sole owner thereof, free and clear of
all Liens and, immediately upon the transfer thereof, the Trust
shall have good and marketable title to each such Receivable, and
will be the sole owner thereof, free and clear of all Liens (other
than Permitted Liens), and the transfer has been perfected under
the UCC. No Dealer has a participation in, or other right to
receive, proceeds of any Receivable. The Seller has not taken any
action to convey any right to any Person that would result in such
Person having a right to payments received under the related
Insurance Policies or the related Dealer Agreements or Dealer
Assignments or to payments due under such Receivables.
21. Marking of Receivables. On the Closing Date, Paragon
or the Seller will have caused the portions of the Electronic
Ledger relating to the Receivables to be clearly and unambiguously
marked to show that the Receivables have been sold by Paragon to
the Seller in accordance with the terms of the Receivables
Purchase Agreement and sold by the Seller to the Trust in
accordance with the terms of this Agreement and pledged to the
Trustee for the benefit of the Certificateholders under this
Agreement.
22. Computer Tape. The Computer Tape made available by
the Seller to the Trustee on the Closing Date was complete and
accurate in all material respects as of the Cutoff Date and
includes a description of the same Receivables that are described
in the Schedule of Receivables.
23. Lawful Assignment. No Receivable has been originated
in, or is subject to the laws of, any jurisdiction under which the
sale, contribution, transfer and assignment of such Receivable
under this Agreement shall be unlawful, void or voidable. 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.
B-4
<PAGE>
24. All Filings Made. All filings (including, without
limitation, UCC filings) necessary in any jurisdiction to give the
Trustee a first priority perfected ownership interest in the
Receivables and the other Trust Property have been made.
25. One Original. There is only one original executed
copy of each Receivable.
26. Valid and Binding Obligation of Obligor. Each
Receivable is the 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
bankruptcy, insolvency or similar laws affecting the enforcement
of creditors' rights generally; all parties to such contract had
full legal capacity to execute and deliver such contract and all
other documents related thereto and to grant the security interest
purported to be granted thereby.
27. Title Documents. (A) If any Financed Vehicle was
originated in a state in which notation of security interest on
the title document is required or permitted to perfect such
security interest, the title document for such Financed Vehicle
shows, or if a new or replacement title document is being applied
for with respect to such Financed Vehicle, the title document will
be received within 180 days and will show, Paragon named as the
original secured party under the related Receivables as the Holder
of a first priority security interest in such Financed Vehicle,
and (B) if any Financed Vehicle was originated in a state in which
the filing of a financing statement under the UCC is required to
perfect a security interest in motor vehicles, such filings or
recordings have been duly made and show Paragon named as the
original secured party under the related Receivable, and in either
case, no further action is required under the UCC or any titling
statute or act to continue the perfected status of the first
priority security interest in the Financed Vehicle against
creditors of and transferees from the original Obligor.
28. Chattel Paper. Each Receivable constitutes "chattel
paper" under the UCC.
29. Tax Liens. As of the Cutoff Date, there is no Lien
against the related Financed Vehicles for delinquent taxes.
B-5
<PAGE>
EXHIBIT A
FORM OF SERVICER'S CERTIFICATE
[Attached.]
A-1
<PAGE>
EXHIBIT B
REQUEST FOR RELEASE AND RECEIPT OF DOCUMENTS
To: [Norwest Bank Minnesota, National Association]
Re: Pooling and Servicing Agreement (the "Pooling and
Servicing Agreement"), dated as of ________ __,
____, between Paragon Auto Receivables
Corporation (the "Seller"), Paragon Acceptance
Corporation, individually and in its capacity as
Servicer (the "Servicer"), and Norwest Bank
Minnesota, National Association, as Trustee
[and Backup Servicer] (the "Trustee")
In connection with the administration of the Receivables held by
you as the Trustee, we request the release, and acknowledge receipt, of the
Receivable and related Receivable File described below, for the reason
indicated.
Obligor's Name, Customer Account Number and Vehicle Identification Number
Reason for Requesting Documents (check one)
_____ 1. Receivable Paid in Full. All amounts received in connection with
such payments have been deposited into the Lockbox Account as
required pursuant to Section 3.2 of the Servicing Agreement
_____ 2. Receivable Purchased from Trust pursuant to Section 2.5 or 3.7
of the Servicing Agreement
_____ 3. Receivable is being serviced or subject to enforcement of
rights and remedies pursuant to Section 2.2(b) of the Servicing
Agreement
_____ 4. Other (explain)_______________________________
If item 1 or 2 above is checked, and if all or part of the Receivable or
Receivable File was previously released to us, please release to us any
additional documents in your possession relating to the above specified
Receivable.
If item 3 or 4 above is checked, upon our return of all of the above
documents to you as the Trustee, please acknowledge your receipt by signing
in the space indicated below, and returning this form.
B-1
<PAGE>
PARAGON ACCEPTANCE CORPORATION
as Servicer
By: ________________________________
Name: _______________________________
Title: ______________________________
Date: _______________________________
DOCUMENTS RETURNED TO THE TRUSTEE
[Norwest Bank Minnesota, National Association]
(Trustee)
By: ________________________________
Name: _______________________________
Title: ______________________________
Date: _______________________________
B-2
<PAGE>
FORM OF CLASS A CERTIFICATE
EXHIBIT C
PARAGON AUTO RECEIVABLES TRUST ____-_
____% ASSET BACKED CERTIFICATE, CLASS A
Evidencing a fractional undivided interest in the Trust, as defined below,
the property of which includes a pool of fixed rate simple interest retail
motor vehicle loans and/or retail installment sales contracts (the
"Receivables") secured by the new and used automobiles and light trucks
financed thereby (the "Financed Vehicles") and sold to the Trust by Paragon
Auto Receivables Corporation.
THIS CERTIFICATE REPRESENTS A FRACTIONAL UNDIVIDED INTEREST IN THE TRUST
AND DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF PARAGON AUTO
RECEIVABLES CORPORATION, PARAGON ACCEPTANCE CORPORATION OR ANY OF THEIR
AFFILIATES. THIS CERTIFICATE AND THE RECEIVABLES ARE NOT DEPOSITS AND ARE
NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENTAL AGENCY.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE TRUSTEE OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
NUMBER CUSIP ______________________
- -----------------
$___________________________
Original Certificate Amount
C-1
<PAGE>
THIS CERTIFIES THAT ____________________ is the registered owner
of a ______________ dollars, nonassessable, fully paid, fractional
undivided interest in Paragon Auto Receivables Trust ____-_ (the "Trust")
formed pursuant to a Pooling and Servicing Agreement dated as of ______ __,
___ (the "Agreement") between Paragon Auto Receivables Corporation (the
"Seller"), Paragon Acceptance Corporation (the "Servicer") and ___________,
a ____________ corporation, as trustee (the "Trustee").
To the extent not otherwise defined herein, the capitalized terms
used herein have the meanings assigned to them in the Agreement. This
Certificate is one of the duly authorized Certificates designated as "____%
Asset Backed Certificates, Class A" (the "Class A Certificates"). Also
issued under the Agreement are Certificates designated as "____% Asset
Backed Certificates, Class B" (the "Class B Certificates"). The Class A
Certificates and the Class B Certificates are collectively called the
"Certificates." This Certificate is issued under and is subject to the
terms, provisions, and conditions of the Agreement, to which the Holder of
this Certificate by virtue of the acceptance hereof assents and by which
such Holder is bound. The Trust Property includes (as more fully described
in the Agreement) a pool of Receivables, certain monies received under the
Receivables after _______ __, ___ (the "Cutoff Date"), security interests
in the Financed Vehicles, and proceeds of the foregoing.
Subject to the terms and conditions of the Agreement (including
the availability of funds for distributions) and until the obligations
created by the Agreement shall have terminated in accordance therewith,
there will be distributed, but only from funds on deposit in the Collection
Account, on the __th day of each month or, if such __th day is not a
Business Day, the next succeeding Business Day (each such date, a "Payment
Date"), commencing _______ __, ____ , to the Person in whose name this
Certificate is registered on the preceding Business Day (the "Record
Date"), such Holder's fractional undivided interest in the amounts to be
distributed to Class A Holders pursuant to the Agreement on such Payment
Date.
Distributions on this Certificate shall be made by the Trustee by
check mailed to the Holder of record at its address as it appears in the
Certificate Register without the presentation or surrender of this
Certificate or the making of any notation hereon, except that with respect
to a Certificate registered in the name of a Clearing Agency or its
nominee, distributions shall be made by wire transfer of immediately
available funds. Except as otherwise provided in the Agreement and
notwithstanding the above, the final distribution on this Certificate will
be made after due notice by the Trustee of the pendency of such
distribution and only upon presentation and surrender of this Certificate
at the office or agency maintained for that purpose by the Trustee.
This Certificate does not purport to summarize the Agreement and
reference is hereby made to the Agreement for information with respect to
the rights, benefits, obligations and duties evidenced thereby.
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Trustee, by manual signature, this
Certificate shall not entitle the holder hereof to any benefit under the
Agreement or be valid for any purpose.
C-2
<PAGE>
Each Holder, by its acceptance of a Certificate or a beneficial
interest in a Certificate, acknowledges and agrees that they intend that
the Trust be classified (for federal tax purposes) as a grantor trust under
Subpart E, Part I of Subchapter J of the Internal Revenue Code of which the
Holders are owners, rather than as an association taxable as a corporation.
C-3
<PAGE>
IN WITNESS WHEREOF, the Trustee, on behalf of the Trust, and not
in its individual capacity, has caused this Certificate to be duly
executed.
PARAGON AUTO RECEIVABLES TRUST ____-_
By: __________________,
as Trustee
By: _________________________________________________
Authorized Officer
DATED:
[SEAL]
ATTEST:
_____________________________________________________
Authorized Officer
Trustee's Certificate of
Authentication:
This is one of the Class A Certificates referred
to in the within-mentioned Agreement.
_____________________________,
as Trustee
By: ______________________________________________
Authorized Officer
C-4
<PAGE>
FORM OF CLASS B CERTIFICATE
EXHIBIT D
PARAGON AUTO RECEIVABLES TRUST ____-_
____% ASSET BACKED CERTIFICATE, CLASS B
Evidencing a fractional undivided interest in the Trust, as defined below,
the property of which includes a pool of fixed rate simple interest retail
motor vehicle loans and/or retail installment sales contracts (the
"Receivables") secured by the new and used automobiles and light trucks
financed thereby (the "Financed Vehicles") and sold to the Trust by Paragon
Auto Receivables Corporation.
THIS CERTIFICATE REPRESENTS A FRACTIONAL UNDIVIDED INTEREST IN THE TRUST
AND DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF PARAGON AUTO
RECEIVABLES CORPORATION, PARAGON ACCEPTANCE CORPORATION OR ANY OF THEIR
AFFILIATES. THIS CERTIFICATE AND THE RECEIVABLES ARE NOT DEPOSITS AND ARE
NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENTAL AGENCY.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE TRUSTEE OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS CERTIFICATE MAY NOT BE PURCHASED BY EMPLOYEE BENEFIT PLANS THAT ARE
SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE "CODE"), OR PERSONS USING ASSETS OF SUCH PLANS.
NUMBER CUSIP ______________________
_________________
$___________________________
Original Certificate Amount
D-1
<PAGE>
THIS CERTIFIES THAT ____________________ is the registered owner
of a ______________ dollars, nonassessable, fully paid, fractional
undivided interest in the Paragon Auto Receivables Trust ____-_ (the
"Trust") formed pursuant to a Pooling and Servicing Agreement dated as of
______ __, ___ (the "Agreement") between Paragon Auto Receivables
Corporation, a Delaware corporation (the "Seller"), Paragon Acceptance
Corporation (the "Servicer") and ____________, a ___________ corporation,
as trustee (the "Trustee").
To the extent not otherwise defined herein, the capitalized terms
used herein have the meanings assigned to them in the Agreement. This
Certificate is one of the duly authorized Certificates designated as "____%
Asset Backed Certificates, Class B" (called the "Class B Certificates").
Also issued under the Agreement are Certificates designated as ____% Asset
Backed Certificates, Class A (the "Class A Certificates"). The Class A
Certificates and the Class B Certificates are collectively called the
"Certificates." This Certificate is issued under and is subject to the
terms, provisions, and conditions of the Agreement, to which the Holder of
this Certificate by virtue of the acceptance hereof assents and by which
such Holder is bound. The Trust Property includes (as more fully described
in the Agreement) a pool of Receivables, certain monies received under the
Receivables after _______ __, ___ (the "Cutoff Date"), security interests
in the Financed Vehicles, and proceeds of the foregoing. The rights of the
Holder of the Class B Certificates are subordinated to the rights of the
Holders of the Class A Certificates to the extent set forth in the
Agreement.
Subject to the terms and conditions of the Agreement (including
the availability of funds for distributions and the subordination of the
Class B Certificates) and until the obligations created by the Agreement
shall have terminated in accordance therewith, there will be distributed,
but only from funds on deposit in the Collection Account, on the __th day
of each month or, if such __th day is not a Business Day, the next
succeeding Business Day (each such date, a "Payment Date"), commencing
______ __, ____ , to the Person in whose name this Certificate is
registered at the close of business on the preceding Business Day (the
"Record Date"), such Holder's fractional undivided interest in the amounts
to be distributed to Class B Holders pursuant to the Agreement on such
Payment Date.
Distributions on this Certificate shall be made by the Trustee by
check mailed to the Holder of record at its address as it appears in the
Certificate Register without the presentation or surrender of this
Certificate or the making of any notation hereon, except that with respect
to a Certificate registered in the name of a Clearing Agency or its
nominee, distributions shall be made by wire transfer of immediately
available funds. Except as otherwise provided in the Agreement and
notwithstanding the above, the final distribution on this Certificate will
be made after due notice by the Trustee of the pendency of such
distribution and only upon presentation and surrender of this Certificate
at the office or agency maintained for that purpose by the Trustee.
This Certificate does not purport to summarize the Agreement and
reference is hereby made to the Agreement for information with respect to
the rights, benefits, obligations and duties evidenced thereby.
D-2
<PAGE>
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Trustee, by manual signature, this
Certificate shall not entitle the holder hereof to any benefit under the
Agreement or be valid for any purpose.
Each Holder, by its acceptance of a Certificate or a beneficial
interest in a Certificate, acknowledges and agrees that they intend that
the Trust be classified (for federal tax purposes) as a grantor trust under
Subpart E, Part I of Subchapter J of the Internal Revenue Code of which the
Holders are owners, rather than as an association taxable as a corporation.
D-3
<PAGE>
IN WITNESS WHEREOF, Trustee, on behalf of the Trust, and not in
its individual capacity, has caused this Certificate to be duly executed.
PARAGON AUTO RECEIVABLES TRUST ____-_
By: _________________,
as Trustee
By: _____________________________________________
Authorized Officer
DATED:
[SEAL]
ATTEST:
________________________________________________
Authorized Officer
Trustee's Certificate of
Authentication:
This is one of the Class B Certificates referred
to in the within-mentioned Agreement.
____________________,
as Trustee
By: __________________________________________
Authorized Officer
D-4
Exhibit 5.1
November 25, 1998
Paragon Auto Receivables Corporation
27405 Puerta Real, Suite 200
Mission Viejo, CA 92691
Ladies and Gentlemen:
We have acted as special counsel to Paragon Auto Receivables
Corporation (the "Company") in connection with the preparation of the
Registration Statement on Form S-3, File No. 333-63697 (together with
exhibits and any amendments thereto, the "Registration Statement"), and the
Prospectus and form of Prospectus Supplement forming a part thereof
(collectively, the "Prospectus"), filed by the Company with the Securities
and Exchange Commission (the "Commission") under the Securities Act of
1933, as amended (the "Act"), relating to the registration of Asset Backed
Notes (the "Notes") and/or Asset Backed Certificates (the "Certificates"),
to be sold from time to time in one or more series in amounts to be
determined at the time of sale and to be set forth in one or more
Prospectus Supplements.
We are familiar with the proceedings to date in connection with
the proposed issuance and sale of the Notes and Certificates. In order to
express our opinion stated below, we have examined and relied upon the
Registration Statement and, in each case as filed with the Registration
Statement, the forms of Pooling and Servicing Agreement, Trust Agreement,
Sale and Servicing Agreement, Indenture, Notes and Certificates (the
"Operative Documents") and such other documents as we have deemed necessary
or advisable for purposes of rendering this opinion. Except as otherwise
indicated herein, all terms defined in the Prospectus are used herein as so
defined.
We have assumed for the purposes of the opinions set forth below
that the Notes and Certificates will be issued as described in the
Registration Statement and that the Notes and Certificates will be sold by
the Company for reasonably equivalent consideration. We express no opinion
with respect to the issuance of Notes or Certificates for which we do not
act as counsel to the Company.
On the basis of the foregoing examination and assumptions, and
upon consideration of applicable law, it is our opinion that, with respect
to the Certificates and/or Notes of any series, when: (a) the Registration
Statement becomes effective pursuant to the provisions of the Act, (b) the
amount, price, interest rate and other principal terms of such Notes and/or
Certificates have been fixed by or pursuant to authorization of the Board
of Directors of the Company, (c) the Operative Documents relating to such
series have each been duly completed, authorized, executed and delivered by
the parties thereto substantially in the form filed as an exhibit to the
Registration Statement reflecting the terms established as described above,
(d) such Notes and/or Certificates have been duly executed and issued by
the related Trust and authenticated by the Owner Trustee or the Trustee, as
applicable, and sold by the Company or by the Trust, at the direction of
the Company as applicable, and (e) payment of the agreed consideration for
such Notes and/or Certificates shall have been received by the Trust, all
in accordance with the terms and conditions of the related Operative
Documents and a definitive purchase, underwriting or similar agreement with
respect to such Notes and/or Certificates and in the manner described in
the Registration Statement; then (i) such
<PAGE>
Certificates will have been duly authorized by all necessary action of the
Trust and will be legally issued, fully paid and nonassessable and (ii)
such Notes will have been duly authorized by all necessary action of the
Trust and will be legally issued and binding obligations of the Trust and
entitled to the benefits afforded by the related Indenture.
We hereby consent to the filing of this opinion as an Exhibit to
the Registration Statement. In giving such consent, we do not admit that we
are "experts" within the meaning of the term used in the Act or the rules
and regulations of the Securities and Exchange Commission issued
thereunder, with respect to any part of the Registration Statement,
including this opinion as an exhibit or otherwise.
Very truly yours,
s/s
MAYER, BROWN & PLATT
EAR/NEL/LBT
-2-
Exhibit 8.1
November 25, 1998
Paragon Auto Receivables Corporation
27405 Puerta Real, Suite 200
Mission Viejo, California 92691
Ladies and Gentlemen:
We have acted as special tax counsel for Paragon Auto Receivables
Corporation, a Delaware corporation (the "Seller"), in connection with the
preparation of the Registration Statement on Form S-3, File No. 333-63697
(as amended, the "Registration Statement") filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Act"), for the registration under the Act of certain series (each, a
"Series") of Asset Backed Notes (the "Notes") and/or Asset Backed
Certificates (the "Certificates" and, together with the Notes, the
"Securities"). Each such Series will represent an undivided interest in a
trust (the "Trust") to be formed pursuant to either (i) a Trust Agreement
between the Seller and the Trustee specified in the related Prospectus
Supplement or (ii) a Pooling and Servicing Agreement between the Trustee,
the Seller and Paragon Acceptance Corporation, as Servicer. Capitalized
terms used herein without definitions have the meanings ascribed to them in
the Registration Statement.
We hereby confirm that the statements set forth in the prospectus
relating to the Securities (the "Prospectus") forming a part of the
Registration Statement under the headings "Summary of Terms -- Material
Federal Income Tax Consequences" and "Material Federal Income Tax
Consequences," and the statements set forth in each of the prospectus
supplements (the "Prospectus Supplements") under the headings "Summary of
Terms -- Material Federal Income Tax Consequences" and "Material Federal
Income Tax Consequences," which statements have been prepared by us, to the
extent that they constitute matters of law or legal conclusions with
respect thereto relating to federal tax matters, are correct in all
material respects, and we hereby confirm and adopt the opinions set forth
therein. There can be no assurance, however, that the tax conclusions
presented therein will not be successfully challenged by the IRS, or
significantly altered by new legislation, changes in IRS positions or
judicial decisions, any of which challenges or alterations may be applied
retroactively with respect to completed transactions.
The opinion set forth in this letter is based upon the applicable
provisions of the Internal Revenue Code of 1986, as amended, Treasury
regulations promulgated and proposed thereunder, current positions of the
Internal Revenue Service (the "IRS") contained in published Revenue Rulings
and Revenue Procedures, current administrative positions of the IRS and
existing judicial
<PAGE>
Paragon Auto Receivables Corporation
November 23, 1998
Page 2
decisions. No tax rulings will be sought from the IRS with respect to any of
the matters discussed herein.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement. In giving such consent, we do not admit that we
are "experts" within the meaning of the term used in the Act or the rules
and regulations of the Securities and Exchange Commission issued
thereunder, with respect to any part of the Registration Statement,
including this opinion as an exhibit or otherwise.
Very truly yours,
s/s
MAYER, BROWN & PLATT
EAR/WAL/BLG
Exhibit 99.1
SALE AND SERVICING AGREEMENT
RELATING TO
PARAGON AUTO RECEIVABLES OWNER TRUST ____-_
between
PARAGON ACCEPTANCE CORPORATION
In its individual capacity
and as Servicer
PARAGON AUTO RECEIVABLES CORPORATION
as Seller
PARAGON AUTO RECEIVABLES OWNER TRUST ____-_
as Purchaser
and
[NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION]
as Indenture Trustee [and Backup Servicer]
-----------------------------------------
Dated as of ________ __, ____
-----------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
Section 1.1. Definitions...........................................1
Section 1.2. Usage of Terms.......................................19
Section 1.3. Calculations.........................................20
Section 1.4. Section References...................................20
Section 1.5. Action by or Consent of Noteholders..................20
Section 1.6. No Recourse..........................................20
Section 1.7. Nonpetition Covenant.................................20
ARTICLE II
CONVEYANCE OF RECEIVABLES; ACCEPTANCE
BY INDENTURE TRUSTEE
Section 2.1. Conveyance of Receivables............................21
Section 2.2. Custody of Receivable Files..........................22
Section 2.3. Conditions Precedent to Issuance by Trust............23
Section 2.4. Representations and Warranties of Seller.............23
Section 2.5. Repurchase of Receivables Upon Breach of Warranty....25
Section 2.6. Indenture Trustee's Assignment of Receivables........25
Section 2.7. Collecting Lien Certificates.........................26
ARTICLE III
ADMINISTRATION AND SERVICING OF RECEIVABLES
Section 3.1. Duties of the Servicer...............................26
Section 3.2. Collection of Receivable Payments; Modifications of
Receivables; Lockbox Agreement.......................27
Section 3.3. Realization Upon Receivables.........................28
Section 3.4. Insurance............................................29
Section 3.5. Maintenance of Security Interests in Vehicles........29
Section 3.6. Covenants, Representations and Warranties of Servicer30
Section 3.7. Purchase of Receivables Upon Breach of Covenant......32
Section 3.8. Total Servicing Fee; Payment of Certain Expenses by
Servicer[; Backup Servicer Fee]......................33
Section 3.9. Servicer's Certificate...............................33
Section 3.10. Annual Statement as to Compliance; Notice of
Servicer Termination Event...........................33
Section 3.11. Annual Independent Accountants' Report...............34
i
<PAGE>
Section 3.12. Access to Certain Documentation and Information
Regarding Receivables...............................34
Section 3.13. Monthly Tape; [Certain Duties of Backup Servicer]...34
Section 3.14. Insurance...........................................35
Section 3.15. Compliance with Laws................................36
ARTICLE IV
PAYMENTS; STATEMENTS TO NOTEHOLDERS
Section 4.1. Trust Accounts......................................36
Section 4.2. Servicer Reimbursements.............................38
Section 4.3. Application of Collections..........................39
Section 4.4. Additional Deposits.................................39
Section 4.5. Payments............................................39
Section 4.6. Net Deposits........................................41
Section 4.7. Statements to Noteholders...........................41
ARTICLE V
THE RESERVE ACCOUNT
Section 5.1. Initial Deposit.....................................42
Section 5.2. Deficiency Claim Amounts............................42
Section 5.3. Distribution of Excess..............................42
ARTICLE VI
THE SELLER
Section 6.1. Liability of Seller..................................43
Section 6.2. Merger or Consolidation of the Seller................43
Section 6.3. Limitation on Liability of Seller and Others.........43
Section 6.4. Special Purpose Entity...............................43
Section 6.5. Restrictions on Liens................................44
Section 6.6. Creation of Indebtedness; Guarantees.................45
Section 6.7. Compliance with Laws.................................45
Section 6.8. Further Instruments and Acts.........................45
Section 6.9 Investment Company Act...............................45
ii
<PAGE>
ARTICLE VII
THE SERVICER
Section 7.1. Liability of Servicer; Indemnities..................45
Section 7.2. Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer [or Backup Servicer]...46
Section 7.3. Limitation on Liability of Servicer[, Backup
Servicer] and Others................................47
Section 7.4. Delegation of Duties................................48
Section 7.5. Servicer [and Backup Servicer] Not to Resign........48
Section 7.6. Administrative Duties...............................49
ARTICLE VIII
SERVICER TERMINATION EVENTS
Section 8.1. Servicer Termination Event..........................50
Section 8.2. Consequences of a Servicer Termination Event........50
Section 8.3. Appointment of Successor............................51
Section 8.4. Notification to Noteholders.........................52
Section 8.5. Waiver of Past Defaults.............................52
ARTICLE IX
TERMINATION
Section 9.1. Optional Purchase of All Receivables................52
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1. Amendment...........................................53
Section 10.2. Protection of Title to Trust........................54
Section 10.3. Limitation on Rights of Noteholders.................55
Section 10.4. GOVERNING LAW.......................................56
Section 10.5. Severability of Provisions..........................56
Section 10.6. Assignment..........................................57
Section 10.7. Third-Party Beneficiaries...........................57
Section 10.8. Counterparts........................................57
Section 10.9. Notices.............................................57
Section 10.10. Successors and Assigns..............................57
iii
<PAGE>
SCHEDULES
Schedule A -- Schedule of Receivables
Schedule B -- Representations and Warranties of the Seller
EXHIBITS
Exhibit A -- Form of Servicer's Certificate
Exhibit B -- Request for Release and Receipt of Documents
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SALE AND SERVICING AGREEMENT, dated as of ________ __, ____ (this
"Agreement"), between PARAGON ACCEPTANCE CORPORATION, a Delaware
corporation, in its individual capacity ("Paragon") and as Servicer (the
"Servicer"), PARAGON AUTO RECEIVABLES CORPORATION, a Delaware corporation,
as Seller (the "Seller"), PARAGON AUTO RECEIVABLES OWNER TRUST ____-_, a
Delaware trust, as purchaser (the "Trust"), and [NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, a national banking association], as Indenture Trustee
(in such capacity, the "Indenture Trustee") [and as Backup Servicer (in
such capacity, the "Backup Servicer")].
WHEREAS, pursuant to the Receivables Purchase Agreement (as
defined below), the Seller has purchased from Paragon certain receivables
arising in connection with motor vehicle retail installment contracts
acquired by Paragon through motor vehicle dealers;
WHEREAS, the Seller wishes to sell and the Trust wishes to purchase
certain of such receivables;
WHEREAS, the Servicer has agreed to service such receivables,
which constitute the principal assets of the trust estate; and
WHEREAS, [Norwest Bank Minnesota, National Association] is willing
to serve in the capacities of Indenture Trustee [and Backup Servicer
hereunder].
NOW, THEREFORE, in consideration of the mutual agreements
contained herein, Paragon, the Servicer, the Seller, the Trust, the
Indenture Trustee [and the Backup Servicer] hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. Capitalized terms used but not defined
herein shall have the meanings set forth in the Trust Agreement or the
Indenture (each as defined below). Whenever capitalized and used in this
Agreement, the following words shall have the following meanings:
Accountants' Report: The report of a firm of nationally recognized
independent accountants described in Section 3.11.
Accounting Date: (a) The last day of a Collection Period and (b)
with respect to a Payment Date or Determination Date, the last day of the
Collection Period preceding such Payment Date or Determination Date (such
date being referred to as the "related Accounting Date" with respect to
such Payment Date or Determination Date).
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Administrative Receivable: With respect to any Collection Period,
a Receivable that the Servicer is required to purchase pursuant to Section
3.7 on or before the Deposit Date following such Collection Period.
Affiliate: 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,
the term "control" (including the terms "controlling," "controlled by" and
"under common control with") means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies
of a Person, whether through the ownership of voting securities, by
contract or otherwise.
Aggregate Principal Balance: With respect to the Closing Date, the
Cutoff Date Principal Balance, and with respect to any Determination Date,
the sum of the Principal Balances (computed as of the related Accounting
Date) for all Receivables (other than Liquidated Receivables and Purchased
Receivables).
Agreement: This Agreement and all exhibits and schedules hereto.
Amount Financed: With respect to a Receivable, the "amount
financed" within the meaning of the Federal Truth-in-Lending Act, which is
the aggregate amount of credit initially extended under such Receivable
toward the purchase price of the related Financed Vehicle and related
costs, including amounts of credit extended in respect of accessories,
insurance premiums, service and warranty policies or contracts and other
items customarily financed as part of motor vehicle retail installment
contracts.
Annual Percentage Rate or APR: With respect to a Receivable, the
rate per annum of finance charges stated in such Receivable as the "annual
percentage rate" (within the meaning of the Federal Truth-in-Lending Act);
provided, however, that if, after the Closing Date, the annual percentage
rate with respect to a Receivable as of the Closing Date is reduced as a
result of (i) an insolvency proceeding involving the related Obligor or
(ii) the Soldiers' and Sailors' Civil Relief Act of 1940, the Annual
Percentage Rate or APR shall refer to such reduced rate.
Available Funds: With respect to any Determination Date, the sum
of (i) the Collected Funds received by the Servicer during the related
Collection Period, (ii) all Purchase Amounts with respect to Purchased
Receivables deposited in the Collection Account since the preceding
Determination Date and on or before the related Deposit Date, and (iii) all
income from investments of funds in the Collection Account during the
related Collection Period.
[Backup Servicer: Norwest Bank Minnesota, National Association, its
successor in interest pursuant to Section 7.2 or such Person as shall have been
appointed as Backup Servicer pursuant to Section 8.3.]
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[Backup Servicer Fee: With respect to any Payment Date, the fee
payable to the Backup Servicer for services rendered during the related
Collection Period, as specified in a separate fee letter between the Backup
Servicer and Paragon.]
Basic Servicing Fee: With respect to any Payment Date, the fee
payable to the Servicer for services rendered during the related Collection
Period, which shall be equal to one-twelfth of 1.00% multiplied by the
Aggregate Principal Balance as of the open of business on the first day of
the related Collection Period.
Business Day: Any day other than a Saturday, Sunday or other day
on which commercial banking institutions or trust companies in St. Louis,
Missouri, Los Angeles, California, New York, New York, Minneapolis,
Minnesota or the principal place of business of any successor Servicer or
successor Indenture Trustee are authorized or obligated by law or order to
be closed.
Certificate: As defined in the Trust Agreement.
Certificated Security: As defined in Section 8-102(a)(4) of Revised
Article 8.
Certificateholder: As defined in the Trust Agreement.
Class: A class of Notes.
Class A Interest Carryover Shortfall: As of the close of business
on any Payment Date, an amount equal to (i) the Class A Interest Payment
Amount for such Payment Date, minus (ii) the amount of interest that the
holders of the Class A Notes actually received on such Payment Date.
Class A Interest Payment Amount: With respect to any Payment Date,
the sum of (i) for the initial Payment Date, 44 days of interest and for
any Payment Date thereafter, 30 days of interest, in each case calculated
on the basis of a 360-day year consisting of twelve 30-day months, at the
Class A Interest Rate on the Class A Note Balance as of the close of
business on the Cutoff Date (with respect to the initial Payment Date) or
the related Accounting Date (with respect to each Payment Date after the
initial Payment Date), plus (ii) any outstanding Class A Interest Carryover
Shortfall with respect to the preceding Payment Date, plus 30 days of
interest on such outstanding Class A Interest Carryover Shortfall, to the
extent permitted by law, at the Class A Interest Rate.
Class A Interest Rate: ___% per annum, calculated on a basis of a
360-day year consisting of twelve 30-day months.
Class A Note: Any Note executed on behalf of the Trust and issued
pursuant to the Indenture in substantially the form set forth in Exhibit A
to the Indenture.
Class A Note Balance: Initially, $____________ and, thereafter, an
amount equal to the initial Class A Note Balance reduced by all amounts
distributed to the Class A Noteholders that are allocable to principal.
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Class A Note Factor: As of any Payment Date, a seven-digit decimal
figure equal to the Class A Note Balance as of the close of business on
such Payment Date divided by the initial Class A Note Balance.
Class A Payment Amount: On any Payment Date, the sum of the Class A
Principal Payment Amount and the Class A Interest Payment Amount.
Class A Percentage: ____%.
Class A Principal Carryover Shortfall: As of the close of business
on any Payment Date, an amount equal to (i) the Class A Principal Payment
Amount, minus (ii) the amount of principal that the holders of the Class A
Notes actually received on such Payment Date.
Class A Principal Payment Amount: With respect to any Payment
Date, without duplication, the sum of: (i) the Class A Percentage of the
sum of: (A) the principal portion of all Collected Funds for the related
Determination Date (other than Collected Funds received with respect to
Liquidated Receivables following the respective dates such Receivables
became Liquidated Receivables), (B) the Principal Balance of all
Receivables that became Liquidated Receivables during the related
Collection Period (other than Purchased Receivables) as determined on the
respective dates such Receivables became Liquidated Receivables, (C) the
principal portion of the Purchase Amount of all Receivables that became
Purchased Receivables as of the related Accounting Date, and (D) the
aggregate amount of Cram Down Losses that shall have been realized during
the related Collection Period; plus (ii) any Class A Principal Carryover
Shortfall with respect to the preceding Payment Date; provided, however,
that on the Final Scheduled Payment Date, the Class A Principal Payment
Amount shall equal the Class A Note Balance.
Class B Interest Carryover Shortfall: As of the close of business
on any Payment Date, an amount equal to (i) the Class B Interest Payment
Amount for such Payment Date, minus (ii) the amount of interest that the
holders of the Class B Notes actually received on such Payment Date.
Class B Interest Payment Amount: With respect to any Payment Date,
the sum of (i) for the initial Payment Date, 44 days of interest and for
any Payment Date thereafter, 30 days of interest, in each case calculated
on the basis of a 360-day year consisting of twelve 30-day months, at the
Class B Interest Rate on the Class B Note Balance as of the close of
business on the Cutoff Date (with respect to the initial Payment Date) or
the related Accounting Date (with respect to each Payment Date after the
initial Payment Date), plus (ii) any outstanding Class B Interest Carryover
Shortfall with respect to the preceding Payment Date, plus 30 days of
interest on such outstanding Class B Interest Carryover Shortfall, to the
extent permitted by law, at the Class B Interest Rate.
Class B Interest Rate: ___% per annum, calculated on the basis of a
360-day year consisting of twelve 30-day months.
Class B Note: Any Note executed on behalf of the Trust and issued
pursuant to the Indenture in substantially the form set forth in Exhibit B
to the Indenture.
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Class B Note Balance: Initially, $____________ and, thereafter, an
amount equal to the initial Class B Note Balance reduced by all amounts
distributed to the Class B Noteholders that are allocable to principal.
Class B Note Factor: As of any Payment Date, a seven-digit decimal
figure equal to the Class B Note Balance as of the close of business on
such Payment Date divided by the initial Class B Note Balance.
Class B Payment Amount: On any Payment Date, the sum of the Class B
Interest Payment Amount and the Class B Principal Payment Amount.
Class B Percentage: ___%.
Class B Principal Carryover Shortfall: As of the close of business
on any Payment Date, an amount equal to (i) the Class B Principal Payment
Amount, minus (ii) the amount of principal that the holders of the Class B
Notes actually received on such Payment Date.
Class B Principal Payment Amount: With respect to any Payment
Date, without duplication, the sum of: (i) the Class B Percentage of the
sum of: (A) the principal portion of all Collected Funds for the related
Determination Date (other than Collected Funds received with respect to
Liquidated Receivables following the respective dates such Receivables
became Liquidated Receivables), (B) the Principal Balance of all
Receivables that became Liquidated Receivables during the related
Collection Period (other than Purchased Receivables) as determined on the
respective dates such Receivables became Liquidated Receivables, (C) the
principal portion of the Purchase Amount of all Receivables that became
Purchased Receivables as of the related Accounting Date, and (D) the
aggregate amount of Cram Down Losses that shall have been realized during
the related Collection Period; plus (ii) any Class B Principal Carryover
Shortfall with respect to the preceding Payment Date; provided, however,
that on the Final Scheduled Payment Date, the Class B Principal Payment
Amount shall equal the Class B Note Balance.
Clearing Corporation: As defined in Section 8-102(3) of Old Article 8.
Closing: As defined in Section 2.1(d).
Closing Date: ________ __, ____.
Collected Funds: With respect to any Determination Date, the
amount of funds in the Collection Account representing collections on the
Receivables received by the Servicer during the related Collection Period,
including all Liquidation Proceeds collected during the related Collection
Period (but excluding any Purchase Amounts) and all amounts paid by the
Dealers under Dealer Agreements or Dealer Assignments with respect to the
Receivables during the related Collection Period.
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Collection Account: The account designated as the Collection Account
in, and which is established and maintained pursuant to, Section 4.1.
Collection Period: (a) A calendar month and (b) with respect to a
Payment Date or Determination Date, the calendar month preceding the month
in which such Payment Date or Determination Date occurs (such calendar
month being referred to as the "related Collection Period" with respect to
such Payment Date or Determination Date).
Computer Tape: The computer tape or diskette generated on behalf of
the Seller that provides information relating to the Receivables.
Control: With respect to any Federal Book Entry Security, the
Indenture Trustee shall have obtained control if:
(i) the Indenture Trustee is a participant in the book
entry system maintained by the Federal Reserve Bank that is acting
as fiscal agent for the issuer of such Federal Book Entry
Security, and such Federal Reserve Bank has indicated by book
entry that such Federal Book Entry Security has been credited to
the Indenture Trustee's securities account in such book entry
system; or
(ii) (a) the Indenture Trustee (1) is registered on the
records of a Securities Intermediary as the person having a
Securities Entitlement in respect of such Federal Book Entry
Security against such Securities Intermediary; or (2) has obtained
the agreement, in writing, of the Securities Intermediary for such
Securities Entitlement that such Securities Intermediary will
comply with Entitlement Orders of the Indenture Trustee without
further consent of any other Person; and (b) the Securities
Intermediary is a participant in the book entry system maintained
by the Federal Reserve Bank that is acting as fiscal agent for the
issuer of such Federal Book Entry Security; and (c) such Federal
Reserve Bank has indicated by book entry that such Federal Book
Entry Security has been credited to the Securities Intermediary's
securities account in such book entry system.
Controlling Party: The Indenture Trustee for the benefit of the
Noteholders; provided, however, that the Owner Trustee for the benefit of
the Certificateholders shall be the Controlling Party after all unpaid
principal and interest on the Notes shall have been paid in full.
Corporate Trust Office: The principal office of the Indenture
Trustee at which its corporate trust business shall be administered, which
office at the Closing Date is located at [Norwest Center, Sixth Street and
Marquette Avenue, Minneapolis, Minnesota 55479-0070, Attention: Corporate
Trust Services/Asset-Backed Administration]; or such other address or the
Indenture Trustee may designate from time to time by notice to the
Noteholders and the Seller.
Cram Down Loss: 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
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amount equal to the principal balance of such Receivable immediately prior
to such order, minus the principal balance of such Receivable as so
reduced. A "Cram Down Loss" shall be deemed to have been realized on the
date of issuance of such order.
[CTS: ContiTrade Services L.L.C., a Delaware limited liability
company.]
[CTS Liens: The security interests in the Receivables and other
Trust Property granted by Paragon as debtor/seller in favor of CTS as
secured party/purchaser in connection with the Warehouse Credit and
Servicing Agreement, dated as of March 29, 1996, as amended, between
Paragon and CTS.]
Cumulative Net Loss Ratio: With respect to any Determination Date,
the fraction (expressed as a percentage) the numerator of which is equal to
the sum of (i) the Principal Balance of all Receivables that have become
Liquidated Receivables as of the related Accounting Date less all
Liquidation Proceeds and recoveries received with respect to such
Receivables and (ii) the aggregate Cram Down Losses with respect to the
Receivables as of the related Accounting Date, and the denominator of which
is equal to the Aggregate Principal Balance as of the Cutoff Date.
Cutoff Date: The close of business on _______ __, ____.
Cutoff Date Principal Balance: $_______________.
DCR: Duff & Phelps Credit Rating Co., or any successor thereto.
Dealer: A seller of new or used automobiles, light trucks or
sports utility vehicles that originated one or more of the Receivables and
sold the respective Receivable to Paragon under a Dealer Agreement or
Dealer Assignment.
Dealer Agreement: An agreement between Paragon and a Dealer relating
to the sale of retail installment contracts to Paragon and all documents
and instruments relating thereto.
Dealer Assignment: With respect to a Receivable, the assignment
executed by a Dealer conveying such Receivable to Paragon.
Deemed Cured: As of any Determination Date, with respect to a
Trigger Event that has occurred, that no Trigger Event shall have occurred
as of such Determination Date or as of either of the two consecutively
preceding Determination Dates.
Deficiency Claim Amount: As defined in Section 5.2.
Delinquency Ratio: With respect to any Determination Date, the
fraction (expressed as a percentage) the numerator of which is the
Principal Balance of all Receivables, of which 10% or more of any Scheduled
Payment (including any Receivable for which the related Financed Vehicle
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has been repossessed but not yet sold by the Servicer) is 60 or more days
past due as of the related Accounting Date, and the denominator of which is
the Aggregate Principal Balance.
Delivery: When used with respect to Trust Account Property,
"Delivery" means:
(i) with respect to Physical Property other than a
"certificated security" as defined under Old Article 8, transfer
thereof to the Indenture Trustee or its nominee or custodian by
physical delivery to the Indenture Trustee or its nominee or
custodian endorsed to, or registered in the name of, the Indenture
Trustee or its nominee or custodian or endorsed in blank;
(ii) with respect to a "certificated security" as defined
under Old Article 8 that will, upon compliance with the following
procedures, be held by a Person located in an Old Article 8
Jurisdiction, transfer thereof:
(A) by delivery of such certificated security
endorsed to, or registered in the name of, the Indenture
Trustee or its nominee or custodian or endorsed in blank
to a Financial Intermediary, and the making by such
Financial Intermediary of entries on its books and
records identifying such certificated security as
belonging to the Indenture Trustee or its nominee or
custodian and the sending by such Financial Intermediary
of a confirmation of the transfer to the Indenture
Trustee or its nominee or custodian of such certificated
security; or
(B)(1) by delivery thereof to a Clearing
Corporation and the registering by such Clearing
Corporation of appropriate entries on its books reducing
the appropriate securities account of the transferor and
increasing the appropriate securities account of a
Financial Intermediary by the amount of such certificated
security, (2) the identification by the Clearing
Corporation of the certificated securities for the sole
and exclusive account of the Financial Intermediary, (3)
the maintenance of such certificated securities by such
Clearing Corporation or a "custodian bank" (as defined in
Section 8-102(4) of Old Article 8) or the nominee of
either subject to the Clearing Corporation's exclusive
control, (4) the sending of a confirmation by the
Financial Intermediary of the transfer to the Indenture
Trustee or its nominee or custodian of such securities
and the registering by such Financial Intermediary of
entries on its books and records identifying such
certificated security as belonging to the Indenture
Trustee or its nominee or custodian, and, in any event,
any such Physical Property in registered form shall be in
the name of the Indenture Trustee or its nominee or
custodian, and (5) such additional or alternative
procedures as may hereafter become appropriate to effect
complete transfer of ownership of any such Trust Account
Property to the Indenture Trustee or its nominee or
custodian, consistent with applicable law or regulations
or the interpretation thereof;
(iii) with respect to a Certificated Security that will,
upon compliance with the following procedures, be held by a person
located in a Revised Article 8 Jurisdiction,
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transfer of such Certificated Security to the Indenture Trustee or
its nominee or custodian by physical delivery to the Indenture
Trustee or its nominee or custodian, endorsed to, or registered in
the name of, the Indenture Trustee or its nominee or custodian or
endorsed in blank;
(iv) with respect to any such Trust Account Property that
constitutes an "uncertificated security" under Old Article 8 (and
that is not a Federal Book Entry Security) and where the issuer
thereof is organized in an Old Article 8 Jurisdiction,
registration of the transfer to, and ownership of such Trust
Account Property by the Indenture Trustee or any Financial
Intermediary acting on behalf of the Indenture Trustee by the
issuer of such Trust Account Property, and (B) in the case of
registration in the name of any Financial Intermediary, (1) the
making by any such Financial Intermediary of entries in its books
and records identifying such uncertificated security as belonging
to the Indenture Trustee, and (2) delivery by any such Financial
Intermediary to the Indenture Trustee of a written confirmation of
the transfer of the uncertificated securities to the Indenture
Trustee; and
(v) with respect to any such Trust Account Property that
constitutes an Uncertificated Security (including any investments
in money market mutual funds, but excluding any Federal Book Entry
Security) and where the issuer thereof is organized in a Revised
Article 8 Jurisdiction, (A) registration of the Indenture Trustee
as the registered owner by the issuer, or (B) satisfaction of the
requirements for obtaining "control" pursuant to Section 8-
106(c)(2) of Revised Article 8.
Deposit Date: With respect to any Determination Date, the Business
Day preceding such Determination Date.
Determination Date: With respect to any Payment Date, the eighth
day of the calendar month in which such Payment Date occurs (or, if such
day is not a Business Day, the next Business Day).
Electronic Ledger: The electronic master record of the retail
installment contracts of the Servicer.
Eligible Account: (i) A segregated trust account that is
maintained with the corporate trust department of a depository institution,
or (ii) a segregated direct deposit account maintained with a depository
institution or trust company organized under the laws of the United States
of America, 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 ["D-1" by DCR (or, if not rated by DCR, "A-l" by S&P or "P-1" by
Moody's)].
Eligible Investments: Any one or more of the following types of
investments:
(a) direct interest-bearing obligations of, and
interest-bearing obligations guaranteed as to timely payment of
principal and interest by, the United States or any agency or
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instrumentality of the United States the obligations of which are
backed by the full faith and credit of the United States;
(b) demand or time deposits in, certificates of deposit
of, demand notes of, or bankers' acceptances issued by any
depository institution or trust company organized under the laws
of the United States or any State and subject to supervision and
examination by federal and/or state banking authorities
(including, if applicable, the Indenture Trustee or any agent of
the Indenture Trustee acting in their respective commercial
capacities); provided, however, that the short-term unsecured debt
obligations of such depository institution or trust company at the
time of such investment, or contractual commitment providing for
such investment, are rated in one of the two highest short-term
rating categories by [DCR (or, if not rated by DCR, in one of the
two highest short-term rating categories by S&P or Moody's)];
(c) repurchase obligations pursuant to a written
agreement (i) with respect to any obligation described in clause
(a) above, where the Indenture Trustee has taken actual or
constructive delivery of such obligation in accordance with
Section 4.1, and (ii) entered into with 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 in one of the two highest
short-term rating categories by [DCR (or, if not rated by DCR, in
one of the two highest short-term rating categories by S&P or
Moody's)] (including, if applicable, the Indenture Trustee, or any
agent of the Indenture Trustee acting in its commercial capacity);
(d) securities bearing interest or sold at a discount
issued by any corporation incorporated under the laws of the
United States or any State whose long-term unsecured debt
obligations are rated in one of the two highest long-term rating
categories by [DCR (or, if not rated by DCR, in one of the two
highest long-term rating categories by S&P or Moody's)] at the
time of such investment or contractual commitment providing for
such investment; provided, however, that securities issued by any
particular corporation shall not be Eligible Investments with
respect to the Collection Account to the extent that an investment
therein will cause the then outstanding principal amount of
securities issued by such corporation and held in the Collection
Account to exceed 10% of the Eligible Investments held in the
Collection Account (with Eligible Investments held in the
Collection Account valued at par);
(e) commercial paper that (i) is payable in United States
dollars and (ii) is rated in one of the two highest short-term
rating categories by [DCR (or, if not rated by DCR, in one of the
two highest short-term rating categories by S&P or Moody's)];
(f) money market mutual funds that are rated in the
highest credit rating category by [Moody's or S&P]; or
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(g) any other demand or time deposit, obligation,
security or investment as may be acceptable to the Rating Agency,
as evidenced by the prior written consent of the Rating Agency.
Any such Eligible Investments may be purchased by or through the Trustee or
any of its Affiliates.
Eligible Servicer: Paragon[, 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 contracts and/or motor
vehicle installment loans comparable to the Receivables, (ii) is legally
qualified and has the capacity to service the Receivables, (iii) has
demonstrated the ability to service with reasonable skill and care a
portfolio of motor vehicle retail installment contracts and/or motor
vehicle installment loans similar to the Receivables, (iv) is qualified and
entitled to use, pursuant to a license or other written agreement, and
agrees to maintain the confidentiality of, the software that the Servicer
uses in connection with performing its duties and responsibilities under
this Agreement or otherwise has available software that is adequate to
perform its duties and responsibilities under this Agreement and (v) has
been approved by Noteholders constituting a Note Majority.
Entitlement Order: As defined in Section 8-102(a)(8) of Revised
Article 8.
Executive Officer: With respect to any corporation, the President,
Chief Financial Officer or any Vice President.
Federal Book Entry Security: An obligation (i) issued by the U.S.
Treasury, the Federal Home Loan Mortgage Corporation or the Federal
National Mortgage Association, or any other direct obligation of, or
obligation fully guaranteed as to timely payment or principal and interest
by, the United States of America, that is a book-entry security held
through the Federal Reserve System pursuant to Federal book entry
regulations, and (ii) the perfection of a security interest in which is
governed pursuant to federal regulations by Revised Article 8.
Final Scheduled Payment Date: _______ __, 20__ (or, if such day is not
a Business Day, the next Business Day).
Financed Vehicle: A new or used automobile, light truck or sports
utility vehicle, together with all accessories thereto, securing or
purporting to secure an Obligor's indebtedness under a Receivable.
Financial Asset: As defined in Section 8-102(a)(9) of Revised
Article 8.
Financial Intermediary: As defined in Section 8-313(4) of Old
Article 8.
Floor Amount: The lesser of (i) the Note Balance and (ii) $500,000.
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Governmental Authority: Any court or federal or state regulatory
body, administrative agency or other tribunal or other governmental
instrumentality.
Indenture: The Indenture, dated as of ________ __, ____, between the
Trust and the Indenture Trustee, as the same may be amended or supplemented
from time to time.
Indenture Trustee: The Person acting as Indenture Trustee under
the Indenture, its successors in interest and any successor Indenture
Trustee under the Indenture, as specified in a separate fee letter between
the Indenture Trustee and Paragon.
Indenture Trustee Fee: With respect to any Payment Date, the fee
payable to the Indenture Trustee for services rendered during the related
Collection Period.
Independent Accountants: As defined in Section 3.11.
Insolvency Event: With respect to a specified Person, (a) the
entry of a decree or order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its property
in an involuntary case under any applicable federal or state bankruptcy,
insolvency or other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official for such Person or for any substantial part of its property, or
ordering the winding-up or liquidation of such Person's affairs, 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 (b) the commencement by such Person 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 such Person to the entry of
an order for relief in an involuntary case under any such law, or the
consent by such Person to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official for such Person or for any substantial part of its property, or
the making by such Person of any general assignment for the benefit of
creditors, or the failure by such Person generally to pay its debts as such
debts become due, or the taking of action by such Person in furtherance of
any of the foregoing.
Instruments: As defined in Section 9-105(l)(i) of Revised Article 8.
Insurance Policy: With respect to a Receivable, any insurance
policy benefiting the holder of the Receivable and providing loss or
physical damage, credit life, accident and health, theft, mechanical
breakdown or similar coverage with respect to the Financed Vehicle or the
related Obligor.
Investment Property: As defined in Section 9-115(1)(f) of Revised
Article 8.
Lien: Any security interest, lien, charge, pledge, preference,
equity or encumbrance of any kind, including tax liens, mechanics' liens
and any liens that attach by operation of law.
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Lien Certificate: 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 that
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: With respect to any Collection Period, a
Receivable as to which (i) the related Financed Vehicle has been
repossessed and sold by the Servicer, (ii) at least 10% of any Scheduled
Payment has become 120 or more days delinquent, or (iii) the Servicer has
determined in good faith that all amounts it expects to recover with
respect thereto have been received. Any Receivable that becomes a Purchased
Receivable on or before the related Deposit Date shall not be a Liquidated
Receivable.
Liquidation Proceeds: With respect to a Liquidated Receivable, all
amounts realized with respect to such Receivable (other than amounts
withdrawn from the Reserve Account) net of (i) reasonable expenses incurred
by the Servicer in connection with the collection of such Receivable and
the repossession and disposition of the related Financed Vehicle and (ii)
amounts that are required to be refunded to the Obligor on such Receivable;
provided, however, that the Liquidation Proceeds with respect to any
Receivable shall in no event be less than zero.
Lockbox Account: As defined in Section 3.2(d).
Lockbox Agreement: As defined in Section 3.2(d).
Lockbox Bank: As defined in Section 3.2(d).
Monthly Records: All records and data maintained by the Servicer
with respect to the Receivables and the Obligors, including the following
with respect to each Receivable: the account number; the identity of the
originating Dealer; Obligor name, Obligor address; Obligor home phone
number; Obligor business phone number (if any); original Amount Financed or
Principal Balance; original total of payments; original term; Annual
Percentage Rate; current balance; pay off balance; current remaining term;
contract origination date; first payment date; final scheduled payment
date; next payment due date; collateral description; days currently
delinquent; new/used classification; amount of the Scheduled Payment; and
past due late charges, if any.
Moody's: Moody's Investors Service, Inc., or any successor thereto.
Note: Any one of the Class A Notes or Class B Notes executed on
behalf of the Trust and issued pursuant to the Indenture in substantially
the form set forth in Exhibit A or B to the Indenture, respectively.
Note Balance: As of any date of determination, the sum the Class A
Note Balance and the Class B Note Balance.
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Note Majority: As of any date of determination, Holders of Class A
Notes and Class B Notes representing more than 50% of the Note Balance.
Note Register: As defined in the Indenture.
Noteholder or Holder: Registered holders of Notes.
Obligor: With respect to a Receivable, the purchaser or the
co-purchasers of the related Financed Vehicle and any other Person or
Persons who are primarily or secondarily obligated to make payments under
such Receivable.
Officer's Certificate: A certificate signed by an Executive Officer.
Old Article 8: Article 8 of the UCC as in effect in the State of
Missouri as of the date hereof.
Old Article 8 Jurisdiction: A jurisdiction which has not adopted
Revised Article 8.
Opinion of Counsel: A written opinion of counsel reasonably
acceptable in form and substance and from counsel acceptable to the Issuer
and, if such opinion or a copy thereof is required to be delivered to the
Indenture Trustee or the Owner Trustee, reasonably acceptable (as to form
and substance) to the Indenture Trustee or the Owner Trustee, respectively.
Owner Trustee: As defined in the Trust Agreement.
Paragon: As defined in the first paragraph of this Agreement.
Payment Amount: With respect to a Payment Date, the sum of (i) the
Available Funds as of the related Determination Date, plus (ii) the
Deficiency Claim Amount, if any, with respect to such Payment Date.
Payment Date: The 15th day of each calendar month, or if such 15th
day is not a Business Day, the next Business Day, commencing ________ 15,
____ and including the Final Scheduled Payment Date.
Permitted Lien: (i) the Lien in favor of the Trust, (ii) the Lien
in favor of the Indenture Trustee for the benefit of the Noteholders, (iii)
the restrictions on transferability imposed by the Related Documents and
(iv) inchoate Liens for taxes not yet payable and mechanics' or suppliers'
liens for services or materials supplied the payment of which is not yet
overdue.
Person: Any legal person, including any individual, corporation,
partnership, limited liability company, joint venture, estate, association,
joint stock company, trust, unincorporated organization or government or
any agency or political subdivision thereof.
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Physical Property: Personal property constituting Instruments or
constituting "certificated securities" under Old Article 8, including
bankers' acceptances, commercial paper, negotiable certificates of deposit
and other obligations that are susceptible of physical delivery.
Pre-Computed Receivable: Any Receivable under which the portion of
a payment allocable to earned interest (which may be referred to in the
related Receivable as an add-on finance charge) and the portion allocable
to the Amount Financed is determined according to the sum of periodic
balances or the sum of monthly balances or any equivalent method or are
monthly actuarial receivables.
Principal Balance: With respect to any Receivable, as of any date,
the Amount Financed minus (i) in the case of a Pre-Computed Receivable,
that portion of all payments (including all Scheduled Payments and any
prepayments in full or partial prepayment) received on or prior to such
date and allocable to principal in accordance with the actuarial method,
(ii) in the case of a Simple Interest Receivable, that portion of all
payments (including all Scheduled Payments and any prepayments in full or
partial prepayment) received on or prior to such date and allocable to
principal in accordance with the simple interest method, and (iii) any Cram
Down Loss in respect of such Receivable.
Purchase Amount: With respect to a Receivable, the Principal Balance
and all accrued and unpaid interest on the Receivable as of the Accounting
Date as of which such Receivable is to be purchased.
Purchased Receivable: With respect to any Collection Period, any
Warranty Receivable or Administrative Receivable as to which the Purchase
Amount has been deposited in the Collection Account by or on behalf of the
Seller or the Servicer, as applicable, on or before the related Deposit
Date and any Receivable purchased by the Servicer pursuant to Section 9.1
as to which the Purchase Amount has been deposited in the Collection
Account by or on behalf of the Servicer.
Rating Agency: ____, so long as ____ maintains a rating on the
Class A Notes and the Class B Notes; and if ____ no longer maintains a
rating on the Class A Notes or Class B Notes, such other nationally
recognized statistical rating organization selected by the Seller.
Rating Agency Condition: With respect to any action, that the
Rating Agency shall have been given prior notice thereof and that the
Rating Agency shall have notified Paragon, the Seller, the Servicer and the
Indenture Trustee in writing that such action will not result in a
reduction or withdrawal of the then current rating of the Class A Notes or
the Class B Notes.
Receivable: A retail installment contract (and related security
agreement) for a new or used automobile, light truck or sports utility
vehicle (and all accessories thereto) that is included in the Schedule of
Receivables, and all rights and obligations under such a contract.
Receivable File: The documents, electronic entries, instruments and
writings listed in Section 2.2 pertaining to a particular Receivable.
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Receivables Purchase Agreement: The Receivables Purchase Agreement,
dated as of ________ __, ____, between the Seller and Paragon.
Record Date: The Business Day preceding the related Payment Date.
Registrar of Titles: With respect to any state, the Governmental
Authority responsible for the registration of, and the issuance of
certificates of title relating to, motor vehicles and liens thereon.
Related Documents: This Agreement, the Indenture, the Trust
Agreement, the Notes, the Receivables Purchase Agreement, the Certificate
of Incorporation of Paragon Auto Receivables Corporation and the other
agreements executed in connection with the Closing. The Related Documents
executed by any party are referred to herein as "such party's Related
Documents," "its Related Documents" or by a similar expression.
Reserve Account: The Reserve Account established and maintained
pursuant to Section 4.1(a)(ii).
Reserve Account Required Amount: With respect to a Payment Date,
the greater of (i) 5% of the Note Balance as of the related Accounting Date
and (ii) the Floor Amount; provided, however, that if a Trigger Event has
occurred and has not been Deemed Cured as of such Payment Date, the Reserve
Fund Required Amount shall be 10% of the Note Balance as of the related
Accounting Date.
Responsible Officer: When used with respect to the Indenture
Trustee, any officer of the Indenture Trustee assigned by the Indenture
Trustee to administer its corporate trust affairs relating to the Trust.
When used with respect to any other Person that is not an individual, the
President, any Vice-President or Assistant Vice-President or the Controller
of such Person, or any other officer or employee having similar functions.
Revised Article 8: UCC, Revised Article 8, Investment Securities
(with conforming and miscellaneous amendments to Articles 1, 3, 4, 5, 9 and
10), 1994 Official Text, as adopted by the American Law Institute and the
National Conference of Commissioners on Uniform State Laws. Unless the
context requires otherwise, "Revised Article 8" means such version in the
form in which it is adopted in the applicable jurisdiction.
Revised Article 8 Jurisdiction: A jurisdiction which has adopted
Revised Article 8.
Rule 144A: Rule 144A under the Securities Act.
S&P: Standard & Poor's a division of the McGraw-Hill Companies,
Inc., or any successor thereto.
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Schedule of Receivables: The schedule of all retail installment
contracts sold and transferred to the Trust on the Closing Date attached
hereto as Schedule A, as it may be amended from time to time, including to
remove Purchased Receivables pursuant to Section 2.6.
Schedule of Representations: The Schedule of Representations and
Warranties of the Seller attached as Schedule B.
Scheduled Payment: With respect to any Collection Period for any
Receivable, the amount set forth in such Receivable as required to be paid
by the Obligor thereon in such Collection Period. If, after the Closing
Date, the Obligor's obligation under a Receivable with respect to a
Collection Period has been modified so as to differ from the amount
specified in such Receivable as a result of (i) the order of a court in an
insolvency proceeding involving the Obligor, (ii) the Soldiers' and
Sailors' Civil Relief Act of 1940 or (iii) modifications or extensions of
the Receivable permitted by Section 3.2(b) or 3.2(c), the Scheduled Payment
with respect to such Collection Period shall refer to the Obligor's payment
obligation with respect to such Collection Period as so modified.
Securities Account: As defined in Section 8-501(a) of Revised
Article 8.
Securities Act: The Securities Act of 1933, as amended.
Securities Entitlement: As defined in Section 8-102(a)(17) of Revised
Article 8.
Securities Intermediary: As defined in Section 8-102(a)(14) of Revised
Article 8.
Seller: As defined in the first paragraph of this Agreement.
Servicer: Paragon Acceptance Corporation, a Delaware corporation,
its successor in interest pursuant to Section 7.2 or, after any termination
of the Servicer upon a Servicer Termination Event, the [Backup Servicer or
any other] successor Servicer.
Servicer Termination Event: An event described in Section 8.1.
Servicer's Certificate: With respect to each Determination Date, a
certificate, completed by and executed on behalf of the Servicer, in
accordance with Section 3.9, substantially in the form attached as Exhibit
A.
Simple Interest Receivable: Any Receivable under which principal and
interest is allocated according to the simple interest method.
Supplemental Servicing Fee: With respect to any Collection Period,
all administrative fees, expenses and charges paid by or on behalf of
Obligors, including any late fees, NSF fees and liquidation fees collected
on the Receivables during such Collection Period and reimbursement of any
personal property taxes assessed on repossessed Financed Vehicles paid by
the Servicer.
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Total Servicing Fee: The sum of the Basic Servicing Fee and the
Supplemental Servicing Fee.
Trigger Event: With respect to any Determination Date, (a) the
average of the Delinquency Ratios for the three preceding Collection
Periods exceeds ___% or (b) the Cumulative Net Loss Ratio exceeds the
percentage shown opposite the number of the applicable Determination Date
(after the Closing Date) below:
Determination Date Cumulative Net Loss Ratio
- ------------------ -------------------------
(after the Closing Date)
1st through 12th %
13th through 18th %
19th through 24th %
25th through 30th %
31st and on %
Trust: As defined in the first paragraph of this Agreement.
Trust Account: As defined in Section 4.1(b).
Trust Account Property: 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 Agreement: The Trust Agreement, dated as of ________ __,
____, between Paragon, Paragon Auto Receivables Corporation, as holder of
the Certificate, and Wilmington Trust Company, as Owner Trustee.
Trust Property: The property and proceeds conveyed pursuant to
Section 2.1, together with certain monies paid after the Cutoff Date with
respect to the Receivables, the Trust Accounts (including all Eligible
Investments therein and all proceeds therefrom), the rights of the Trust
under this Agreement and the rights of the Seller under the Receivables
Purchase Agreement.
Uncertificated Security: As defined in Section 8-102(a)(18) of Revised
Article 8.
UCC: The Uniform Commercial Code as in effect in the relevant
jurisdiction.
Warranty Receivable: With respect to any Collection Period, a
Receivable that the Seller has become obligated to repurchase pursuant to
Section 2.5.
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Section 1.2. 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 one 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, and the terms "include" or "including"
mean "include without limitation" or "including without limitation."
Section 1.3. Calculations. All calculations of the amount of
interest accrued on the Notes shall be made on the basis of a 360-day year
consisting of twelve 30-day months. All references to the Principal Balance
of a Receivable as of a Accounting Date shall refer to the close of
business on such day.
Section 1.4. Section References. All references to Articles,
Sections, paragraphs, subsections, exhibits and schedules shall be to such
portions of this Agreement unless otherwise specified.
Section 1.5. 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 Noteholders of
record as of the Record Date preceding the date on which such action is to
be taken or consent given by Noteholders. Solely for purposes of any action
to be taken or consented to by Noteholders, any Note registered in the name
of Paragon, the Seller or any Affiliate thereof shall be deemed not to be
outstanding; provided, however, that, solely for the purpose of determining
whether the Indenture Trustee is entitled to rely upon any such action or
consent, only Notes that the Indenture Trustee knows to be so owned shall
be so disregarded.
Section 1.6. No Recourse. No recourse may be taken, directly or
indirectly, under this Agreement or any certificate or other writing
delivered in connection herewith or therewith, against any stockholder,
officer or director, as such, of Paragon, the Seller, the Servicer, [the
Backup Servicer,] the Owner Trustee (in its individual or trust capacities)
or the Indenture Trustee or of any predecessor or successor of Paragon, the
Seller, the Servicer, [the Backup Servicer,] the Owner Trustee (in its
individual or trust capacities) or the Indenture Trustee.
Section 1.7. Nonpetition Covenant. Until one year and one day
following the payment in full of all amounts due in respect of the Notes,
none of the Seller, the Servicer, the Indenture Trustee, [the Backup
Servicer,] nor Paragon shall petition or otherwise invoke the process of
any court or government authority for the purpose of commencing or
sustaining a case against the Seller or the Trust 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 Seller or the Trust or any substantial part of its
property, or ordering the winding up or liquidation of the affairs of the
Seller or the Trust.
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ARTICLE II
CONVEYANCE OF RECEIVABLES; ACCEPTANCE BY INDENTURE TRUSTEE
Section 2.1. Conveyance of Receivables. (a) Subject to the terms
and conditions of this Agreement, the Seller hereby sells, transfers,
assigns and otherwise conveys to the Trust, without recourse (but without
limitation of its obligations under this Agreement): (1) all of the right,
title and interest of the Seller in and to the Receivables and all monies
due or received thereunder or in respect thereof after the Cutoff Date
(including all Liquidation Proceeds and recoveries received with respect to
such Receivables); and (2) all of the right, title and interest of Paragon
and the Seller in and to (i) the security interests of Paragon and the
Seller in the related Financed Vehicles and any other interest of Paragon
and the Seller in the related Financed Vehicles, including the certificates
of title with respect to such Financed Vehicles, (ii) the Insurance
Policies and any proceeds from any Insurance Policies relating to the
Receivables, the Obligors or the related Financed Vehicles, including
rebates or refunds of premiums, (iii) the rights of Paragon and the Seller
against Dealers with respect to the Receivables under the Dealer Agreements
and the Dealer Assignments, (iv) the rights of the Seller under the
Receivables Purchase Agreement, (v) all funds on deposit from time to time
in the Collection Account and the Reserve Account, including all income
thereon and proceeds thereof, and (vi) all proceeds and investments of any
of the foregoing, all present and future claims, demands, causes and choses
in action in respect of any or all of the foregoing and all payments on or
under and all proceeds of every kind and nature whatsoever in respect of
any of the foregoing.
(b) It is the intention of the Seller that the transfer and
assignment contemplated by this Agreement shall constitute a sale of the
Receivables and the other Trust Property from the Seller to the Trust 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. If, notwithstanding the intent of the Seller, the transfer
and assignment contemplated hereby is held not to be a sale, the Seller
hereby grants a first priority security interest to the Trust in the
property referred to in this Section 2.1, and this Agreement shall
constitute a security agreement. The execution and delivery of this
Agreement shall constitute an acknowledgment by the Seller and the
Indenture Trustee on behalf of the Noteholders that, solely for income and
franchise tax purposes, until the Certificates are held by more than one
Person or the Trust is recharacterized as a separate entity, the Trust will
be disregarded as an entity separate from its owner and the Notes will be
treated as debt of the Seller. The powers granted and obligations
undertaken in this Agreement shall be construed so as to further such
intent.
(c) The Seller hereby directs the Trust to, and the Trust does
hereby, accept the Trust Property conveyed by the Seller to the Trust
pursuant to this Section 2.1.
(d) The conveyance of the Receivables and the other Trust Property
with respect thereto shall take place at a closing (the "Closing") at the
offices of Mayer, Brown & Platt, 190 South LaSalle Street, Chicago,
Illinois 60603 on the Closing Date.
Section 2.2. Custody of Receivable Files.
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(a) Simultaneously with the execution and delivery of this
Agreement and the sale, transfer and assignment of the Receivables and the
other Trust Property to the Trust pursuant to this Agreement, the Seller
shall deliver the following documents or instruments in its possession to
the Indenture Trustee, other than the documents referred to in clause (iii)
which shall be delivered no later than 30 days following the Closing Date:
(i) The fully executed original of the Receivable
(together with any agreements modifying the Receivable including
any extension agreements, provided that the Indenture Trustee
shall not have to certify the receipt of any such agreements
modifying or extending the Receivable);
(ii) The original credit application, or a copy thereof,
of each Obligor, fully executed by each such Obligor; and
(iii) The original Lien Certificate (when received) and
any such other documents, if any, that Paragon keeps on file in
accordance with its customary procedures indicating that the
Financed Vehicle is owned by the Obligor and subject to the
interest of Paragon as first lienholder or secured party
(including any Lien Certificate received by Paragon), or, if such
original Lien Certificate has not yet been received, a copy of the
application therefor, if any, showing Paragon as secured party.
(b) Upon payment in full of any Receivable, the Servicer shall
notify the Indenture Trustee pursuant to a certificate of an officer of the
Servicer in the form of Exhibit B hereto and shall request delivery of the
Receivable and the Receivable File to the Servicer. From time to time as
appropriate for servicing and enforcing any Receivable, the Indenture
Trustee shall, upon written request of an officer of the Servicer and
delivery to the Indenture Trustee of a receipt signed by such officer cause
the original Receivable and the Receivable File to be released to the
Servicer. The Servicer's receipt of a Receivable and/or a Receivable File
shall obligate the Servicer to return the original Receivable and
Receivable File to the Indenture Trustee when its need by the Servicer has
ceased, unless the Receivable is repurchased as described in Section 2.5 or
Section 3.7.
(c) The Indenture Trustee shall maintain the Receivable Files it
has received at its principal office or at such other office as shall from
time to time be identified to the Servicer and the Owner Trustee, and the
Indenture Trustee will hold such Receivable File in such office on behalf
of the Noteholders, clearly identified as being separate from any other
instruments and files on its records, including other instruments and files
held by the Indenture Trustee. Each Receivable shall be identified on the
books and records of the Indenture Trustee in a manner that (i) is
consistent with practices of a commercial bank acting in the capacity of
custodian with respect to similar receivables and (ii) is otherwise
necessary, as reasonably determined by the Indenture Trustee, to comply
with the terms of this Agreement.
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Section 2.3. Conditions Precedent to Issuance by Trust. As
conditions to the Indenture Trustee's authentication and delivery of the
Notes on the Closing Date, the Indenture Trustee shall have received the
following on or before the Closing Date:
(a) The Schedule of Receivables certified by an Executive
Officer of the Seller;
(b) The acknowledgment (including an exceptions listing,
if any) of the Indenture Trustee stating that it holds the
Receivable Files relating to the Receivables and has reviewed such
Receivable Files and such Receivable Files contain the items set
forth in Section 2.2(i), (ii) and (iii);
(c) Copies of resolutions of the Board of Directors of
the Seller approving the execution, delivery and performance of
the Seller's Related Documents and the transactions contemplated
hereby and thereby, certified by a Secretary or an Assistant
Secretary of the Seller;
(d) Copies of resolutions of the Board of Directors of
Paragon approving the execution, delivery and performance of its
Related Documents and the transactions contemplated hereby and
thereby, certified by a Secretary or an Assistant Secretary of
Paragon; and
(e) Opinions from Mayer, Brown & Platt and Nancy C.
Ferguson, General Counsel of Paragon, and Hudson Cook, LLP with
respect to the Trust's first priority perfected security interest
or ownership interest in the Receivables and the Financed Vehicles
and copies of any financing statements which have been or will be
attached to such opinions.
Section 2.4. Representations and Warranties of Seller. By its
execution of this Agreement, the Seller makes the following representations
and warranties on which the Trust relies in accepting the Receivables and
the other Trust Property and in issuing the Notes and on which the
Indenture Trustee relies in authenticating the Notes. Unless otherwise
specified, such representations and warranties speak as of the Closing
Date, but shall survive the sale, transfer and assignment of the
Receivables to the Trust.
(a) Schedule of Representations. The representations and
warranties set forth on the Schedule of Representations are true and
correct in all material respects.
(b) Organization and Good Standing. The Seller has been duly
organized and is validly existing as a corporation under the laws of the
State of Delaware, with power and authority to own its properties and to
conduct its business as such properties are currently owned and such
business is currently conducted.
(c) Due Qualification. The Seller is duly qualified to do business
and has obtained all necessary licenses and approvals in all jurisdictions
where the failure to do so would have a material adverse effect on (i) the
Seller's ability to transfer the Receivables and the other Trust Property
to
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the Trust pursuant to this Agreement, (ii) the validity or enforceability
of the Receivables and the other Trust Property or (iii) the Seller's
ability to perform its obligations hereunder and under its Related
Documents.
(d) Power and Authority. The Seller has the power and authority to
execute and deliver its Related Documents and to carry out their terms; the
Seller has power and authority to sell and assign the Receivables and the
other Trust Property to be sold and assigned to and deposited with the
Trust by it and has duly authorized such sale and assignment to and deposit
with the Trust by all necessary corporate action; and the execution,
delivery and performance of the Seller's Related Documents have been duly
authorized by the Seller by all necessary corporate action.
(e) Binding Obligations. The Seller's Related Documents, when duly
executed and delivered, shall constitute valid and binding obligations of
the Seller enforceable in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of creditors' rights generally
and by equitable limitations on the availability of specific remedies,
regardless of whether such enforceability is considered in a proceeding in
equity or at law.
(f) No Violation. The execution, delivery and performance by the
Seller of its Related Documents, the consummation of the transactions
contemplated thereby and the fulfillment of the terms thereof do not (i)
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 certificate of incorporation or bylaws of the Seller, or any indenture,
agreement, mortgage, deed of trust or other instrument to which the Seller
is a party or by which it or its properties are bound, (ii) result in the
creation or imposition of any Lien (other than Permitted Liens) upon any of
its properties pursuant to the terms of any such indenture, agreement,
mortgage, deed of trust or other instrument or (iii) to the Seller's
knowledge, violate any law, order, rule or regulation applicable to the
Seller of any Governmental Authority having jurisdiction over the Seller or
any of its properties.
(g) No Proceedings. There are no proceedings or investigations
pending or, to the Seller's knowledge, threatened against the Seller,
before any Governmental Authority having jurisdiction over the Seller or
its properties (i) asserting the invalidity of any of the Related
Documents, (ii) seeking to prevent the issuance of the Notes or the
consummation of any of the transactions contemplated by any of the Related
Documents, (iii) seeking any determination or ruling that would have a
material adverse effect on the performance by the Seller of its obligations
under, or the validity or enforceability of, any of the Related Documents,
or (iv) seeking to materially and adversely affect the federal income tax
or other federal, state or local tax attributes of the Notes or seeking to
impose any excise, franchise, transfer or similar tax upon the Notes or the
sale and assignment of the Receivables and the other Trust Property
hereunder.
(h) No Consents. No consent, approval, license, authorization or
order of, or declaration, registration or filing with, any Governmental
Authority or other Person is required to be made by the Seller in
connection with the execution, delivery or performance of its Related
Documents or
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the consummation of the transactions contemplated thereby, except such as
have been duly made, effected or obtained.
(i) Chief Executive Office. The chief executive office of the
Seller is at 27405 Puerta Real, Suite 200, Mission Viejo, California 92691.
(j) Dealer Recourse. The Seller shall execute and deliver such
other instruments and agreements as the Issuer may reasonably request in
order to enforce any rights against a Dealer assigned to the Seller under
the Receivables Purchase Agreement and assigned to the Purchaser hereunder
and any obligations of a Dealer in connection with a Receivable including
any rights to recourse against such Dealer.
Section 2.5. Repurchase of Receivables Upon Breach of Warranty.
Upon discovery by any of the Seller, the Servicer or the Indenture Trustee
of a breach of any of the representations and warranties of the Seller
contained in Section 2.4(a) that has a material adverse effect on the
interests of the Noteholders in any Receivable, the party discovering such
breach shall give prompt written notice to the others; provided, however,
that the failure to give any such notice shall not affect any obligation of
the Seller under this Section 2.5; and provided, further, that the maximum
aggregate purchase obligation of the Seller with respect to breaches of the
representation and warranty made in clause (C) of paragraph 4 of the
Schedule of Representations shall not exceed an amount equal to 10% of the
aggregate Principal Balance of all Receivables originated after September
30, 1997. As of the second Accounting Date (or, at the Seller's election,
the first Accounting Date) following its discovery or its receipt of notice
of any such breach the Seller shall, unless such breach shall have been
cured in all material respects, repurchase such Receivable from the Trust
and, on or before the Deposit Date following such Accounting Date, the
Seller shall pay the Purchase Amount to the Trust pursuant to Section 4.4.
The obligation of the Seller to repurchase any Receivable as to which a
breach has occurred and is continuing shall, if such obligation is
fulfilled, constitute the sole remedy against the Seller for such breach
available to the Trust, the Noteholders or the Indenture Trustee on behalf
of the Noteholders. The Indenture Trustee shall not be under any duty or
obligation to investigate the occurrence of a breach of representation or
warranty in accordance with this Section 2.5.
Section 2.6. Indenture Trustee's Assignment of Receivables. With
respect to all Administrative Receivables and all Warranty Receivables
purchased by the Servicer or the Seller and all Receivables purchased by
the Servicer pursuant to Section 9.1, the Trust and the Indenture Trustee
shall take any and all actions reasonably requested by the Seller or the
Servicer, at the expense of the requesting party, to assign, without
recourse, representation or warranty, to the Seller or the Servicer, as
applicable, all the Trust's and the Indenture Trustee's right, title and
interest in and to such Purchased Receivables and the other Trust Property
with respect thereto, such assignment being an assignment outright and not
for security; and the Seller or the Servicer, as applicable, shall
thereupon own such Purchased Receivables and the other Trust Property
related thereto, free of any further obligation to the Trust, the Indenture
Trustee or the Noteholders with respect thereto. The Trust and the
Indenture Trustee shall take any and all actions reasonably requested by
the Seller or the Servicer, at the expense of the requesting party, to
release its security interest in each Purchased
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Receivable and in the other Trust Property with respect thereto. The
Servicer shall remove each Purchased Receivable from the Schedule of
Receivables and mark the Electronic Ledger accordingly. The Servicer shall
deliver any supplements to the Schedule of Receivables to the Seller and
the Indenture Trustee. Notwithstanding the foregoing, although the Trust
and the Indenture Trustee, as applicable, shall be required to execute
documentation related to the foregoing, neither the Trust nor the Indenture
Trustee shall be required to prepare any such documentation.
Section 2.7. Collecting Lien Certificates. The Servicer shall use
its best efforts to collect each Lien Certificate from the applicable
Registrar of Titles as promptly as practicable and, pending receipt of each
Lien Certificate from such Registrar of Titles, shall supply written
evidence that each such Lien Certificate has been applied for. If a Lien
Certificate with respect to a Receivable showing Paragon as first
lienholder is not received by the Indenture Trustee within 180 days after
the Closing Date, the Servicer shall be obligated to purchase such
Receivable under Section 3.7.
ARTICLE III
ADMINISTRATION AND SERVICING OF RECEIVABLES
Section 3.1. Duties of the Servicer. The Servicer is hereby
authorized to act as agent for the Trust and in such capacity shall manage,
service, administer and make collections on the Receivables and perform the
other actions required by the Servicer under this Agreement. The Servicer
agrees that its servicing of the Receivables shall be carried out in
accordance with customary and usual procedures of institutions that service
motor vehicle retail installment contracts and, to the extent more
exacting, with the degree of skill and attention that the Servicer
exercises from time to time with respect to comparable motor vehicle
receivables that it services for itself or others. In performing such
duties, it shall comply with its current servicing policies and procedures,
as such servicing policies and procedures may be amended from time to time,
so long as such amendments shall not materially and adversely affect the
interests of the Noteholders or the Trust. The Servicer's duties shall
include collection and posting of all payments, responding to inquiries of
Obligors on the Receivables, investigating delinquencies, sending
statements or payment coupons to Obligors, monitoring the collateral,
accounting for collections and furnishing monthly and annual statements to
the Indenture Trustee with respect to distributions and performing the
other duties specified herein. To the extent consistent with the standards,
policies and procedures otherwise required hereby, the Servicer shall
follow its customary standards, policies and procedures and shall have full
power and authority, acting alone, to do any and all things in connection
with management, servicing, administration and collection that it may deem
necessary or desirable. Without limiting the generality of the foregoing,
the Servicer is hereby authorized and empowered by the Trust 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 the Financed
Vehicles. The Servicer is authorized to release Liens on Financed Vehicles
granted by the Receivables in order to collect insurance proceeds with
respect thereto and to liquidate such Financed Vehicles in accordance with
its customary standards, policies and procedures. The Servicer is hereby
authorized to commence, in its own name or in the name of the Trust or the
Indenture Trustee (provided that, if the Servicer is acting in the name of
the Indenture
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Trustee, it has obtained the Indenture Trustee's consent, which consent
shall not be unreasonably withheld), legal proceedings to enforce
Receivables or to commence or participate in any other legal proceedings
(including bankruptcy proceedings) relating to or involving Receivables,
Obligors or Financed Vehicles. If the Servicer commences or participates in
such legal proceedings in its own name, the Trust shall thereupon be deemed
to have automatically assigned such Receivables to the Servicer solely for
purposes of commencing or participating in any such proceedings as a party
or claimant, and the Servicer is authorized and empowered by the Trust to
execute and deliver in the Servicer's name any notices, demands, claims,
complaints, responses, affidavits or other documents or instruments in
connection with any such proceedings. The Indenture Trustee and the Trust
shall furnish the Servicer with any powers of attorney and other documents
that the Servicer may reasonably request and that the Servicer deems
necessary or appropriate and take any other steps that the Servicer may
deem reasonably necessary or appropriate to enable the Servicer to carry
out its servicing and administrative duties under this Agreement.
Section 3.2. Collection of Receivable Payments; Modifications of
Receivables; Lockbox Agreement. (a) Consistent with the standards, policies
and procedures required by this Agreement, the Servicer shall make
reasonable efforts to collect all payments 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
comparable motor vehicle receivables that it services for itself or others
and otherwise act with respect to the Receivables, the Dealer Agreements,
the Dealer Assignments, the Insurance Policies and the other Trust Property
in such manner as will, in the reasonable judgment of the Servicer,
maximize the amount to be received by the Trust with respect thereto. The
Servicer is authorized in its discretion to waive any prepayment charge,
late payment charge or any other similar fees that may be collected in the
ordinary course of servicing any Receivable.
(b) The Servicer may at any time agree to a modification or
amendment of a Receivable in order to (i) change the Obligor's regular due
date to another date within fifteen calendar days of such due date, or (ii)
re-amortize the Scheduled Payments on the Receivable following a partial
prepayment of principal, or (iii) add an additional Obligor to the
Receivable.
(c) The Servicer may grant payment extensions on, or other
modifications or amendments to, a Receivable (in addition to those
modifications permitted by Section 3.2(b)) in accordance with its customary
procedures if the Servicer believes in good faith that such extension,
modification or amendment is necessary to avoid a default on such
Receivable, will maximize the amount to be received by the Trust with
respect to such Receivable and is otherwise in the best interests of the
Noteholders; provided, however, that, with respect to any Receivable, the
Servicer shall not grant more than one extension per year and shall not
grant extensions for a cumulative total of more than six months during the
life of the Receivable.
(d) Paragon has entered into a Lockbox Agreement, dated as of
November 25, 1997 (as it may be amended or supplemented from time to time,
the "Lockbox Agreement"), with NationsBank, N.A. (the "Lockbox Bank"),
ContiTrade Services L.L.C., the Servicer and [Norwest Bank Minnesota,
National Association] as agent for the various parties described therein.
The bank
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account established pursuant to the Lockbox Agreement (the "Lockbox
Account") shall be maintained at the Lockbox Bank. The Servicer shall
direct funds in the Lockbox Account relating to the Receivables to be
transferred on a daily basis to the Collection Account established in the
name of [Norwest Bank Minnesota, National Association,] as Indenture
Trustee. All payments made by or on behalf of Obligors or received by the
Servicer with respect to the Receivables and all Liquidation Proceeds
received by the Servicer with respect to the Receivables shall be sent to
the Lockbox Account within one Business Day after receipt. The Servicer
shall transfer such payments, and any payments made by Obligors directly to
the Lockbox Account, to the Collection Account within two Business Days
after receipt of available funds in the Lockbox Account; provided, however,
that if the Servicer is not able to transfer such payments within two
Business Days due to circumstances outside the Servicer's control, the
Servicer shall transfer such payments to the Collection Account as soon as
is practicable; and, provided, further, that if the Servicer is not able to
transfer any such payment within two Business Days because the Obligor or
Receivable to which such payment relates is not readily identifiable, the
Servicer shall use its best efforts to identify the related Obligor or
Receivable as soon as practicable and shall transfer such payment within
one Business Day after identifying such related Obligor or Receivable.
(e) Notwithstanding any third-party processing arrangement, or any
of the provisions of this Agreement relating to any third-party processing
arrangement, the Servicer shall remain obligated and liable to the Trust
and the Noteholders for servicing and administering the Receivables and the
other Trust Property in accordance with the provisions of this Agreement
without diminution of such obligation or liability by virtue thereof.
Section 3.3. Realization Upon Receivables. (a) Consistent with the
standards, policies and procedures required by this Agreement, the Servicer
shall use its best efforts to repossess (or otherwise comparably convert
the ownership of) and liquidate any Financed Vehicle securing a Receivable
with respect to which the Servicer has determined that payments thereunder
are not likely to be resumed, as soon as practicable after default on such
Receivable but in no event later than the date on which at least 10% of a
Scheduled Payment has become 120 days delinquent; provided, however, that
the Servicer may elect not to repossess a Financed Vehicle within such time
period if in its good faith judgment it determines that the proceeds
ultimately recoverable with respect to such Receivable would be increased
by forbearance; and provided, further, that the Servicer shall not be
required to repossess a Financed Vehicle if prohibited by law. The Servicer
is authorized to follow such customary practices and procedures as it shall
deem necessary or advisable, consistent with the standard of care required
by Section 3.1, which practices and procedures may include reasonable
efforts to realize upon any recourse to Dealers, the sale of the related
Financed Vehicle at public or private sale, the submission of claims under
an Insurance Policy and other actions by the Servicer in order to realize
upon a Receivable. The foregoing is subject to the provision that, in any
case in which the Financed Vehicle shall have suffered damage, the Servicer
shall not expend funds in connection with any repair or towards the
repossession of such Financed Vehicle unless it shall determine in its
discretion that such repair or repossession shall increase the proceeds of
liquidation of the related Receivable by an amount greater than the amount
of such expenses. The Servicer shall be entitled to recover all reasonable
expenses incurred by it in the course of repossessing and liquidating a
Financed Vehicle into cash proceeds, but only out
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of the cash proceeds of such Financed Vehicle, any deficiency obtained from
the Obligor or any amounts received from the related Dealer, which amounts
in reimbursement may be retained by the Servicer (and shall not be required
to be deposited as provided in Section 3.2(d) to the extent of such
expenses). All amounts received upon liquidation of a Financed Vehicle
(less reasonable expenses as described in the preceding sentence) shall be
remitted directly by the Servicer as provided in Section 3.2(d).
(b) If the Servicer elects to commence a legal proceeding to
enforce a Dealer Agreement or Dealer Assignment, the act of commencement
shall be deemed to be an automatic assignment from the Trust and the
Indenture Trustee to the Servicer of the rights under such agreements for
purposes of collection only. If, however, in any enforcement suit or legal
proceeding it is held that the Servicer may not enforce any such agreement
on the grounds that it is not a real party in interest or a Person entitled
to enforce such agreement, the Trust or the Indenture Trustee, at the
Servicer's expense, or the Seller, at the Seller's expense, shall take such
steps as the Servicer deems reasonably necessary to enforce such agreement,
including bringing suit in its name or the name of the Seller, the Trust or
the Indenture Trustee for the benefit of the Noteholders. All amounts
recovered shall be remitted directly by the Servicer as provided in Section
3.2(d).
Section 3.4. Insurance. The Servicer may sue to enforce or collect
upon the Insurance Policies in its own name or as agent of the Trust. If
the Servicer elects to commence a legal proceeding to enforce an Insurance
Policy, the act of commencement shall be deemed to be an automatic
assignment of the rights of the Trust and the Indenture Trustee under such
Insurance Policy to the Servicer for purposes of collection only. If,
however, in any enforcement suit or legal proceeding it is held that the
Servicer may not enforce an Insurance Policy on the grounds that it is not
a real party in interest or a holder entitled to enforce the Insurance
Policy, the Trust or the Indenture Trustee, at the Servicer's expense, or
the Seller, at the Seller's expense, shall take such steps as the Servicer
deems reasonably necessary to enforce such Insurance Policy, including
bringing suit in its name or the name of the Trust and the Indenture
Trustee for the benefit of the Noteholders.
Section 3.5. Maintenance of Security Interests in Vehicles.
Consistent with the policies and procedures required by this Agreement, the
Servicer shall take such steps on behalf of the Trust as are necessary to
maintain perfection of the first priority security interest created by each
Receivable in the related Financed Vehicle, including the recording,
registering, filing, re-recording, re-filing and re-registering of all
security agreements, financing statements and continuation statements as
are necessary to maintain the security interest under the respective
Receivables. The Trust and the Indenture Trustee each hereby authorize the
Servicer, and the Servicer agrees, to take any and all steps necessary to
re-perfect such security interest in the name of Paragon or the Seller on
behalf of the Trust as necessary because of the relocation of a Financed
Vehicle or for any other reason. If the assignment of a Receivable to the
Trust and the pledge of such Receivables to the Indenture Trustee are
insufficient without a notation on the related Financed Vehicle's
certificate of title or without fulfilling any additional administrative
requirements under the laws of the state in which the Financed Vehicle is
located, to perfect a security interest in the related Financed Vehicle in
favor of the Indenture Trustee, the Servicer hereby agrees that Paragon's
designation as the secured party
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on the certificate of title is in its capacity as agent of the Indenture
Trustee, solely for purposes of providing perfection of the security
interest therein.
Section 3.6. Covenants, Representations and Warranties of
Servicer. By its execution and delivery of this Agreement, the Servicer
makes the following representations, warranties and covenants on which the
Trust relies in accepting the Receivables and issuing the Notes and on
which the Indenture Trustee relies in authenticating the Notes. Unless
otherwise specified, such representations and warranties speak as of the
Closing Date, but shall survive the sale, transfer and assignment of the
Receivables to the Trust.
(a) The Servicer covenants as follows:
(i) Liens in Force. 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;
(ii) No Impairment. The Servicer shall do nothing to
impair the rights of the Trust, the Indenture Trustee or the
Noteholders in the Receivables or the other Trust Property. The
Servicer shall take such action as is necessary (including the
filing of appropriate UCC financing statements and continuation
statements) to preserve the rights of the Trust, the Indenture
Trustee and the Noteholders in the Receivables and the other Trust
Property;
(iii) No Amendments. The Servicer shall not extend or
otherwise amend the terms of any Receivable, except in accordance
with Section 3.2; and
(iv) Restrictions on Liens. The Servicer shall not (A)
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, except for Permitted Liens or
(B) sign or file under the UCC of any jurisdiction any financing
statement that names the Servicer as a debtor, or sign any
security agreement authorizing any secured party thereunder to
file such financing statement, with respect to the Receivables,
except in each case any such instrument solely securing the rights
and preserving the Lien of the Indenture Trustee for the benefit
of the Noteholders or as otherwise permitted under this Agreement
or the Related Documents.
(v) Servicing of Receivables. The Servicer shall service
the Receivables as described in this Agreement until such time as
it has been replaced by a successor Servicer.
(b) The Servicer represents, warrants and covenants as of the
Closing Date as to itself:
(i) Organization and Good Standing. The Servicer has been
duly organized and is validly existing as a corporation in good
standing under the laws of its jurisdiction of
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organization, with power and authority to own its properties and
to conduct its business as such properties are currently owned and
such business is currently conducted;
(ii) Due Qualification. The Servicer is duly qualified to
do business as a foreign corporation in good standing and has
obtained all necessary licenses and approvals in all jurisdictions
where the failure to do so would have a material adverse effect on
its ability to perform its obligations under its Related Documents
and its ability to enforce the Receivables and the other Trust
Property;
(iii) Power and Authority. The Servicer has the power and
authority to execute and deliver this Agreement and its Related
Documents and to carry out its terms and their terms, and the
execution, delivery and performance of the Servicer's Related
Documents have been duly authorized by the Servicer by all
necessary corporate action;
(iv) Binding Obligation. The Servicer's Related
Documents, when duly executed and delivered, shall constitute
legal, valid and binding obligations of the Servicer enforceable
in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency,
reorganization, or other similar laws affecting the enforcement of
creditors' rights generally and by equitable limitations on the
availability of specific remedies, regardless of whether such
enforceability is considered in a proceeding in equity or at law;
(v) No Violation. The execution, delivery and performance
by the Servicer of its Related Documents, the consummation of the
transactions contemplated thereby and the fulfillment of the terms
thereof do not (A) 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 certificate of
incorporation or bylaws of the Servicer, or any indenture,
agreement, mortgage, deed of trust or other instrument to which
the Servicer is a party or by which it or its properties are
bound, (B) 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 (C) to
the best of the Servicer's knowledge, violate any law, order, rule
or regulation applicable to the Servicer of any Governmental
Authority having jurisdiction over the Servicer or any of its
properties;
(vi) No Proceedings. There are no proceedings or
investigations pending or, to the best of the Servicer's
knowledge, threatened against the Servicer, before any
Governmental Authority having jurisdiction over the Servicer or
its properties (A) asserting the invalidity of any of the Related
Documents, (B) seeking to prevent the issuance of the Notes or the
consummation of any of the transactions contemplated by the
Related Documents, (C) seeking any determination or ruling that
would have a material adverse effect on the performance by the
Servicer of its obligations under, or the validity or
enforceability of, any of the Related Documents or (D) seeking to
materially and adversely affect the federal income tax or other
federal, state or local tax attributes of the Notes or
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seeking to impose any excise, franchise, transfer or similar tax upon
the Notes or the sale and assignment of the Receivables hereunder; and
(vii) No Consents. No consent, license, approval,
authorization or order of, or registration, declaration or filing
with, any Governmental Authority or other Person is required to be
made in connection with the execution, delivery or performance of
the Servicer's Related Documents or the consummation of the
transactions contemplated thereby, except such as have been duly
made, effected or obtained.
(c) The Servicer covenants and agrees:
(i) [Backup Servicer and] Indenture Trustee
Indemnification. The Servicer shall defend, indemnify and hold
[the Backup Servicer and] the Indenture Trustee and any officers,
directors, employees or agents of [the Backup Servicer and] the
Indenture Trustee harmless against any and all claims, losses,
penalties, fines, forfeitures, legal fees and related costs,
judgments and any other costs, fees and expenses that [the Backup
Servicer and] the Indenture Trustee may sustain in connection with
claims asserted at any time by third parties against [the Backup
Servicer or] the Indenture Trustee that result from (A) any
willful or negligent act taken or omission by the Servicer (other
than errors in judgment) or (B) a material breach of any
representations of the Servicer in this Section 3.6; and
[(ii) The Servicer shall make arrangements for the prompt
and safe transfer of, and the Servicer shall provide to the Backup
Servicer, all necessary servicing files and records, including (as
deemed necessary by the Backup Servicer at such time): (A) account
documentation, (B) servicing system tapes (in a format acceptable
to the Backup Servicer), (C) account payment history, (D)
collections history and (E) the trial balances, as of the close of
business on the day immediately preceding conversion to the Backup
Servicer, reflecting all applicable loan information.]
Section 3.7. Purchase of Receivables Upon Breach of Covenant. Upon
discovery by the Servicer or the Indenture Trustee of (a) a breach of any
of the covenants set forth in Sections 3.5 or 3.6(a) that has a material
adverse effect on the interests of the Trust or the Noteholders in any
Receivable, or (b) a failure to obtain a Lien Certificate within 180 days
as described in Section 2.7, the party discovering such breach shall give
prompt written notice to the others and the Owner Trustee; provided,
however, that the failure to give any such notice shall not affect any
obligation of the Servicer under this Section 3.7. As of the second
Accounting Date (or, at the Servicer's election, the first Accounting Date)
following its discovery or receipt of notice of any such breach, the
Servicer shall, unless such breach shall have been cured in all material
respects, purchase from the Trust the Receivables affected by such breach
and, on or before the related Deposit Date, the Servicer shall pay the
related Purchase Amount to the Trust pursuant to Section 4.4. The
obligation of the Servicer to purchase any Receivable with respect to which
such a breach has occurred and is continuing shall, if such obligation is
fulfilled, constitute the sole remedy against the Servicer for such breach
available to the Trust, the Noteholders or the Indenture Trustee on behalf
of
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Noteholders. The Indenture Trustee shall not be under any duty or obligation
to investigate the occurrence of a breach of a covenant in accordance with
this Section 3.7.
Section 3.8. Total Servicing Fee; Payment of Certain Expenses by
Servicer[; Backup Servicer Fee.] On each Payment Date, the Servicer shall
be entitled to receive out of the Collection Account the Total Servicing
Fee for the related Collection Period pursuant to Section 4.5. 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,
costs and expenses of independent accountants, expenses incurred in
connection with distributions and reports made by the Servicer to
Noteholders. [On each Payment Date, the Backup Servicer shall be entitled
to receive out of the Collection Account the Backup Servicer Fee for the
related Collection Period pursuant to Section 4.5.]
Section 3.9. Servicer's Certificate. No later than 2:00 p.m., New
York City time, on each Determination Date, the Servicer shall deliver to
the Indenture Trustee, the Owner Trustee, [the Backup Servicer,] the Rating
Agency, any Noteholder and Stein Roe & Farnham Incorporated (or its
successor as agent for a Noteholder), a Servicer's Certificate executed by
a Responsible Officer of the Servicer containing, among other things, (i)
all information necessary to enable the Indenture Trustee to make any
withdrawal required by Section 5.2, to give any notice required by Section
5.2 and to make the distributions required by Section 4.5, (ii) all
information necessary to enable the Indenture Trustee to send the
statements required by Section 4.7 to Noteholders, (iii) a listing of all
Purchased Receivables purchased as of the related Deposit Date with respect
to the related Collection Period and (iv) all information necessary to
enable the Indenture Trustee to reconcile all deposits to, and withdrawals
from, the Collection Account for the related Collection Period and Payment
Date, including the accounting required by Section 4.6. Receivables
purchased by the Servicer or repurchased by the Seller on or before the
related Deposit Date and each Receivable that became a Liquidated
Receivable or that was paid in full during the related Collection Period
shall be identified by account number (as set forth in the Schedule of
Receivables). In addition to the information set forth in the preceding
sentence, the Servicer's Certificate shall also contain the following
information: (a) the Delinquency Ratio and the Cumulative Net Loss Ratio
for such Determination Date; (b) whether any Trigger Event has occurred as
of such Determination Date; and (c) whether any Trigger Event that may have
occurred as of a prior Determination Date is Deemed Cured as of such
Determination Date. A copy of such certificate may be obtained by any
Noteholder by a request in writing to the Indenture Trustee addressed to
the Corporate Trust Office.
Section 3.10. Annual Statement as to Compliance; Notice of
Servicer Termination Event. (a) The Servicer shall deliver to the Indenture
Trustee, the Owner Trustee, [the Backup Servicer,] and the Rating Agency,
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, 1999,
an officer's certificate signed by any Responsible Officer of the Servicer,
dated as of the preceding December 31 (or other applicable date), stating
that (i) a review of the activities of the Servicer during the preceding
12-month period (or such other period as shall have elapsed from the
Closing Date to the date of the first such certificate) and of its
performance under this Agreement has been made under such officer's
supervision, and (ii) to such officer's knowledge, based on such review,
the Servicer has
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fulfilled all its obligations under this Agreement throughout such period,
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.
(b) The Servicer shall deliver to the Indenture Trustee, the Owner
Trustee, [the Backup Servicer] and the 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 that,
with the giving of notice or lapse of time, would become a Servicer
Termination Event under Section 8.1.
Section 3.11. Annual Independent Accountants' Report. The Servicer
shall cause KPMG Peat Marwick LLP or another firm of nationally recognized
independent certified public accountants (the "Independent Accountants"),
who may also render other services to the Servicer, to deliver to the
Servicer, 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, 1999, 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 Servicer, to the
effect that such firm has audited the books and records of the Servicer and
issued its report thereon and that: (1) such audit 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; and (2) the firm is
independent of the Servicer within the meaning of the Code of Professional
Ethics of the American Institute of Certified Public Accountants. The
Servicer shall also cause the Independent Accountants to deliver to the
Servicer on such dates a letter to the effect that certain agreed upon
procedures were performed relating to three randomly selected Servicer's
Certificates (or, for the twelve months ending December 31, ____, the
Servicer's Certificate for the December ____ Collection Period), and,
except as disclosed in such report, no errors or exceptions were found in
the Servicer's Certificate(s) based on the performance of such agreed upon
procedures. The Servicer shall deliver a copy of the Accountants' Report,
within 15 days of receipt, to the Seller, the Owner Trustee, the Indenture
Trustee[, the Backup Servicer] and the Rating Agency.
Section 3.12. Access to Certain Documentation and Information
Regarding Receivables. The Servicer shall provide to representatives of the
Indenture Trustee, [the Backup Servicer] and the Owner Trustee reasonable
access to the documentation regarding the Receivables. In each case, such
access shall be afforded without charge but only upon reasonable request
and during normal business hours. Nothing in this Section 3.12 shall
derogate from the obligation of the Servicer to observe any applicable law
prohibiting disclosure of information regarding the Obligors, and the
failure of the Servicer to provide access as a result of such obligation
shall not constitute a breach of this Section 3.12.
Section 3.13. Monthly Tape[; Certain Duties of Backup Servicer]. (a)
On or before each Determination Date, the Servicer shall deliver to the
Indenture Trustee [and the Backup Servicer] a computer tape or a diskette
(or any other electronic transmission acceptable to the Indenture
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Trustee [and the Backup Servicer]) in a format acceptable to the Indenture
Trustee [and the Backup Servicer] containing the information with respect
to the Receivables as of the preceding Accounting Date necessary for
preparation of the Servicer's Certificate relating to the next
Determination Date.
[(b) Prior to each such Payment Date, the Backup Servicer shall
use such tape or diskette (or other means of electronic transmission
acceptable to the Indenture Trustee and the Backup Servicer) and review the
related Servicer's Certificate in order to perform the following:
(i) confirm that the Servicer's Certificate is complete on
its face;
(ii) calculate and confirm the Class A Principal Payment
Amount, the Class A Interest Payment Amount, the Class B Principal
Payment Amount and the Class B Interest Payment Amount for the
next Payment Date; and
(iii) verify the mathematical accuracy of any
calculations on the face of the Servicer's Certificate.]
[(c) In the event of any discrepancy between the information set
forth in (ii) or (iii) in clause (b) above as calculated by the Servicer
from that determined or calculated by the Backup Servicer, the Backup
Servicer shall promptly report such discrepancy to the Servicer and the
Indenture Trustee. In the event of a discrepancy as described in the
preceding sentence, the Servicer and the Backup Servicer shall attempt to
reconcile such discrepancies prior to the related Payment Date, but in the
absence of a reconciliation, distributions on the related Payment Date
shall be made by the Indenture Trustee consistent with the information
provided by the Servicer and the Servicer and the Backup Servicer shall
attempt to reconcile such discrepancies prior to the next Determination
Date. If the Backup Servicer and the Servicer are unable to reconcile
discrepancies with respect to such Servicer's Certificate by the next
Determination Date that falls in April, July, October or January, the
Servicer shall cause the Independent Accountants, at the Servicer's
expense, to examine the Servicer's Certificate and attempt to reconcile the
discrepancies at the earliest possible date. The effect, if any, of such
reconciliation shall be reflected in the Servicer's Certificate for such
next succeeding Determination Date.]
[(d) Other than the duties specifically set forth in this
Agreement, the Backup Servicer shall have no obligations hereunder,
including 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, except for the express duties of the
Backup Servicer set forth herein.]
Section 3.14. Insurance. The Servicer shall maintain customary
amounts of insurance coverage, including errors and omissions liability,
fidelity bond, commercial general liability, property, directors and
officers liability and workers' compensation coverage. The Servicer shall
be entitled to self-insure with respect to such insurance so long as the
long-term unsecured debt obligations of the Servicer are rated in the
second highest long-term debt category by the Rating Agency (or, if not
rated by the Rating Agency, by ____ or _____).
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Section 3.15. Compliance with Laws. The Servicer shall comply with
the requirements of all applicable laws (including any federal or state
laws regulating the collection or enforcement of consumer debts and/or the
foreclosure upon, and repossession of, vehicles) in the discharge of its
duties and obligations hereunder.
ARTICLE IV
PAYMENTS; STATEMENTS TO NOTEHOLDERS
Section 4.1. Trust Accounts. (a) (i) On or prior to the Closing
Date, the Servicer or the Indenture Trustee on behalf of and at the
direction of the Servicer shall establish the Collection Account in the
name of the Indenture Trustee for the benefit of the Noteholders. The
Collection Account shall be an Eligible Account and shall be a segregated
trust account initially established with the Indenture Trustee.
(ii) On or prior to the Closing Date, the Servicer or the
Indenture Trustee on behalf of and at the direction of the
Servicer shall establish the Reserve Account in the name of the
Indenture Trustee for the benefit of the Noteholders. The Reserve
Account shall be an Eligible Account and shall be a segregated
trust account initially established with the Indenture Trustee.
(b) All amounts held in the Collection Account and the Reserve
Account (collectively, the "Trust Accounts"), shall, to the extent
permitted by applicable laws, rules and regulations, be invested by the
Indenture Trustee, as directed by the Servicer in writing (or, if the
Servicer fails to provide such direction, amounts in the Collection Account
shall be invested in investments described in clause (f) of the definition
of Eligible Investments), in Eligible Investments that mature not later
than one Business Day prior to the Payment Date for the Collection Period
to which such amounts relate. Any such written direction shall certify that
any such investment is authorized by this Section 4.1. Investments in
Eligible Investments shall be made in the name of the Indenture Trustee on
behalf of the Noteholders, and such investments shall not be sold or
disposed of prior to their maturity. Each and every investment of funds in
a Trust Account shall be made in Eligible Investments held by a financial
institution that is a Securities Intermediary:
(i) in an account pursuant to an agreement with such
financial institution, governed by the law of the State of
Missouri or any other jurisdiction which has adopted Revised
Article 8, that requires such financial institution to (A) comply
with Entitlement Orders pertaining to such account originated by
the Indenture Trustee, in its capacity as trustee under the
Indenture, without further consent of the Seller, (B) not enter
into any agreement which grants "control" (as defined in Section
8-106 of Revised Article 8) of such account (or any interest or
property therein) to any Person other than the Indenture Trustee,
(C) subordinate any security interest, banker's lien, right of
setoff or other similar right which such financial institution may
have in such account to the interest of the Indenture Trustee and
(D) expressly treat each item of property as a Financial Asset and
such account as a Securities Account; and
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(ii) with respect to which such institution has noted
the Indenture Trustee's interest therein by book entry or
otherwise, and with respect to which a confirmation of the
Indenture Trustee's interest has been sent to the Indenture
Trustee by such institution, provided that such Eligible
Investments are (A) specific "certificated securities" (as defined
under Old Article 8), and (B) either (1) in the possession of such
institution or (2) in the possession of a Clearing Corporation,
registered in the name of such Clearing Corporation, not endorsed
for collection or surrender or any other purpose not involving
transfer, not containing any evidence of a right or interest
inconsistent with the Indenture Trustee's security interest
therein, and held by such Clearing Corporation in an account of
such institution.
Subject to the other provisions hereof, the Indenture Trustee shall have
sole control over each such investment and the income thereon, and any
certificate or other instrument evidencing any such investment, if any,
shall be delivered directly to the Indenture Trustee or its agent, together
with each document of transfer, if any, necessary to transfer title to such
investment to the Indenture Trustee in a manner that complies with this
Section 4.1. All interest, dividends, gains upon sale and other income
from, or earnings on, investments of funds in the Collection Account shall
be deposited in the Collection Account and distributed on the next Payment
Date pursuant to Section 4.5. All interest, dividends, gains upon sale and
other income from or earnings on, investments of funds in the Reserve
Account shall be deposited in the Reserve Account and distributed on the
next Payment Date pursuant to Section 4.5. If the Indenture Trustee is
given instructions to invest funds in a Trust Account in investments other
than investments of the type described in clause (f) of the definition of
"Eligible Investments", the Person giving such instructions agrees to
assist the Indenture Trustee in complying with the requirements herein with
respect to such investments.
(c) With respect to the Trust Account Property:
(i) any Trust Account Property that is held in
deposit accounts shall be held solely in the name of the Indenture
Trustee in accounts which satisfy clause (ii) of the definition of
Eligible Account; each such deposit account shall be subject to
the exclusive custody and control of the Indenture Trustee, and
the Indenture Trustee shall have sole signature authority with
respect thereto;
(ii) any Trust Account Property that constitutes
Physical Property (other than a "certificated security" as defined
under Old Article 8) shall be delivered to the Indenture Trustee
in accordance with paragraph (i) of the definition of "Delivery"
and shall be held, pending maturity or disposition, solely by the
Indenture Trustee;
(iii) any Trust Account Property that
constitutes a "certificated security" as defined under Old Article
8 that will, upon compliance with the procedures set forth in
paragraph (ii) of the definition of "Delivery," be held by a
Person located in an Old Article 8 Jurisdiction, shall be
delivered to the Indenture Trustee in accordance with paragraph
(ii) of the definition of "Delivery" and shall be held, pending
maturity or disposition, solely by the Indenture Trustee or a
Financial Intermediary acting solely for the Indenture Trustee;
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(iv) any Trust Account Property that constitutes
a Certificated Security that will, upon compliance with the
procedures set forth in paragraph (iii) of the definition of
"Delivery," be held by a Person located in a Revised Article 8
Jurisdiction shall be delivered to the Indenture Trustee in
accordance with paragraph (iii) of the definition of "Delivery"
and shall be held, pending maturity or disposition, solely by the
Indenture Trustee;
(v) any Trust Account Property that constitutes
an "uncertificated security" under Old Article 8 (and that is not
a Federal Book Entry Security) and where the issuer thereof is
organized in an Old Article 8 Jurisdiction, shall be delivered to
the Indenture Trustee in accordance with paragraph (iv) of the
definition of "Delivery" and shall be maintained, pending maturity
or disposition, through continued registration of the Indenture
Trustee's (or its nominee's) ownership of such security;
(vi) any such Trust Account Property that
constitutes an Uncertificated Security (including any investments
in money market mutual funds, but excluding any Federal Book Entry
Security) and where the issuer thereof is organized in a Revised
Article 8 Jurisdiction, shall be delivered to the Indenture
Trustee in accordance with paragraph (v) of the definition of
"Delivery" and shall be maintained, pending maturity or
disposition, through continued registration of the Indenture
Trustee's (or its nominee's) ownership of such security; and
(vii) with respect to any Trust Account Property
that constitutes a Federal Book Entry Security, the Indenture
Trustee shall maintain and obtain Control over such property.
Effective upon Delivery of any Trust Account Property in the form
of Physical Property, book-entry securities or uncertificated
securities, the Indenture Trustee shall be deemed to have
represented that it has purchased such Trust Account Property for
value, in good faith and without notice of any adverse claim
thereto.
(d) On or within three Business Days of the Closing Date, the
Servicer shall deposit in the Collection Account (i) all Scheduled Payments
and prepayments of Receivables with respect to which available funds have
been received in the Lockbox Account after the Cutoff Date and prior to the
Closing Date and (ii) all Liquidation Proceeds and proceeds of Insurance
Policies realized in respect of Financed Vehicles and applied by the
Servicer after the Cutoff Date.
Section 4.2. Servicer Reimbursements. The Servicer shall be
entitled to be reimbursed from amounts on deposit in, or to be deposited
in, the Collection Account with respect to a Collection Period for amounts
previously deposited in the Collection Account but later determined by the
Servicer to have resulted from mistaken deposits or postings or checks
returned for insufficient funds. The amount to be reimbursed hereunder
shall be paid to the Servicer on the related Payment Date pursuant to
Section 4.5(a)(ii). Upon the request of the Indenture Trustee, the Servicer
shall certify any amount to be reimbursed hereunder and shall supply such
other information as may be
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necessary in the opinion of the Indenture Trustee to verify the accuracy of
such certification. The Indenture Trustee shall not be under any obligation
to make the request described in the immediately preceding sentence.
Section 4.3. Application of Collections. For purposes of this
Agreement, all collections for a Collection Period shall be applied by the
Servicer as follows:
(a) With respect to each Receivable, payments by or on
behalf of the Obligor (other than Supplemental Servicing Fees with
respect to such Receivable, to the extent collected) shall be
applied to reduce the balance thereof in accordance with the terms
of such Receivable.
(b) With respect to each Receivable that has become a
Purchased Receivable on any Deposit Date, the Purchase Amount
shall be applied to interest and principal on the Receivable in
accordance with Section 4.3(a) as if the Purchase Amount had been
paid by the Obligor on the related Accounting Date. Nothing
contained herein shall relieve any Obligor of any obligation
relating to any Receivable.
(c) All amounts collected that are payable to the
Servicer as Supplemental Servicing Fees hereunder shall be
deposited in the Collection Account and paid to the Servicer in
accordance with Section 4.5(a)(ii).
(d) All payments by or on behalf of an Obligor received
with respect to any Purchased Receivable after the Accounting Date
preceding the Deposit Date on which the Purchase Amount was paid
by the Seller or the Servicer shall be paid to the Seller or the
Servicer, respectively, and shall not be included in the Available
Funds.
Section 4.4. Additional Deposits. On or before each Deposit Date,
the Servicer or the Seller shall deposit into the Collection Account the
aggregate Purchase Amounts with respect to Purchased Receivables. All such
deposits of Purchase Amounts shall be made in immediately available funds.
On or before each Payment Date, the Indenture Trustee shall remit to the
Collection Account any amounts to be transferred into the Collection
Account by the Indenture Trustee from the Reserve Account pursuant to
Section 5.2.
Section 4.5. Payments. (a) From the Collection Account, on each
Payment Date, the Indenture Trustee shall (based solely on the information
contained in the Servicer's Certificate delivered with respect to the
related Determination Date) distribute the following amounts in the
following order of priority:
(i) first, from the Payment Amount, to the Indenture
Trustee, any accrued and unpaid Indenture Trustee Fees and any
other accrued and unpaid fees and expenses of the Indenture
Trustee; [to the Backup Servicer, any accrued and unpaid Backup
Servicer Fees and any other accrued and unpaid fees and expenses
of the Backup Servicer;] and to the Owner
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Trustee, any accrued and unpaid fees and expenses of the Owner
Trustee, in each case in accordance with the Related Documents;
(ii) second, from the remaining Payment Amount, to the
Servicer, any accrued and unpaid Basic Servicing Fees and
Supplemental Servicing Fees with respect to the related Collection
Period and the amounts specified in Section 4.2 to the extent the
Servicer has not reimbursed itself in respect of such amounts
pursuant to Section 4.6;
(iii) third, from the remaining Payment Amount, to the
Class A Noteholders, the Class A Interest Payment Amount for such
Payment Date;
(iv) fourth, from the remaining Payment Amount, to the
Class B Noteholders, the Class B Interest Payment Amount for such
Payment Date;
(v) fifth, from the remaining Payment Amount, to the
Class A Noteholders, the Class A Principal Payment Amount for such
Payment Date;
(vi) sixth, from the remaining Payment Amount, to the
Class B Noteholders, the Class B Principal Payment Amount for such
Payment Date;
(vii) seventh, from the remaining Payment Amount, to the
Reserve Account to the extent necessary to make the amount on
deposit in the Reserve Account equal to the Reserve Account
Required Amount (after giving effect to all withdrawals from the
Reserve Account on such date); and
(viii) eighth, from the remaining Payment Amount,
together with any funds to be released from the Reserve Account
pursuant to this Agreement, to the Certificateholder, in
accordance with Section 5.3 of the Trust Agreement.
(b) Subject to Section 9.1 respecting the final payment upon
retirement of each Note, and provided that the Indenture Trustee has
received the applicable Servicer's Certificate, on each Payment Date, the
Indenture Trustee shall distribute to each Noteholder and Certificateholder
of record on the preceding Record Date either (i) by wire transfer, in
immediately available funds to the account of such holder at a bank or
other entity having appropriate facilities therefor, if such Noteholder
holds Notes representing at least $1,000,000 in Class A Note Balance or
Class B Note Balance as of the Closing Date, and if such Noteholder shall
have provided to the Indenture Trustee appropriate instructions not later
than 15 days prior to such Payment Date, or (ii) by check mailed to such
Noteholder at the address of such Holder appearing in the Note Register,
the amount of the Class A Payment Amount or the Class B Payment Amount, as
applicable, allocable to such Holder to the extent funds therefor are
distributed under Section 4.5(a). The Indenture Trustee agrees to provide
notice of final payment to the Certificateholder in accordance with Section
9.1 of the Trust Agreement.
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Section 4.6. Net Deposits. So long as no Servicer Termination
Event has occurred and is continuing, the Servicer may make the remittances
to be made by it pursuant to Sections 4.2 net of amounts (which amounts may
be netted prior to any such remittance for a Collection Period) to be
distributed to it pursuant to Section 4.2; provided, however, that the
Servicer shall account for all of such amounts in the related Servicer's
Certificate as if such amounts were deposited and distributed separately;
and provided, further, that if an error is made by the Servicer in
calculating the amount to be deposited or retained by it, with the result
that an amount less than required is deposited in the Lockbox Account or
the Collection Account, the Servicer shall make a payment of the deficiency
to the Lockbox Account or the Collection Account, as applicable,
immediately upon becoming aware, or receiving notice from the Indenture
Trustee, of such error.
Section 4.7. Statements to Noteholders. (a) On each Payment Date,
the Indenture Trustee shall include with each payment to each Noteholder, a
statement prepared by the Servicer (which statement shall also be provided
to the Certificateholder(s) and to the Rating Agency), based on information
in the Servicer's Certificate delivered on the related Determination Date
pursuant to Section 3.9, setting forth for such Payment Date and the
Collection Period relating to such Payment Date the following information:
(i) in the case of the Class A and Class B Noteholders, the
amount of such payment allocable to principal;
(ii) in the case of the Class A and Class B Noteholders,
the amount of such payment allocable to interest;
(iii) the amount of such payment payable out of amounts
withdrawn from the Reserve Account and the amount remaining in the
Reserve Account;
(iv) the Class A Note Balance and the Class B Note
Balance, as applicable (after giving effect to all payments made
on such Payment Date);
(v) the amount of fees paid by the Trust with respect to
such Collection Period;
(vi) the amount of the Class A Interest Carryover
Shortfall, Class A Principal Carryover Shortfall, Class B Interest
Carryover Shortfall and Class B Principal Carryover Shortfall, if
any, on such Payment Date and the change in such amounts from
those of the prior Payment Date;
(vii) the Class A Note Factor and the Class B Note Factor
as of such Payment Date (after giving effect to payments made on
such Payment Date);
(viii) the Delinquency Ratio and Cumulative Net Loss Ratio
for such Determination Date;
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(ix) whether any Trigger Event has occurred as of such
Determination Date; and
(x) whether any Trigger Event that may have occurred as
of a prior Determination Date is Deemed Cured as of such
Determination Date.
Each amount set forth pursuant to clauses (i) (such amounts broken down by
Class of Note), (ii) (such amounts broken down by Class of Note) and (iv)
above shall be expressed as a dollar amount per $1,000 of original
principal balance of a Note of the related Class.
(b) Within the prescribed period of time for tax reporting
purposes after the end of each calendar year during the term of this
Agreement, the Indenture Trustee shall mail, to each Person who at any time
during such calendar year shall have been a Holder of a Note, a statement
containing the sum of the amounts set forth in clauses (i), (ii), and (v)
(separately indicating amounts in respect of the Class A Notes and the
Class B Notes in the case of (i) and (ii)) and such other information,
requested in writing by the Servicer, if any, as the Servicer determines is
reasonably necessary to permit such Noteholder to ascertain its share of
the gross income and deductions of the Trust (exclusive of the Supplemental
Servicing Fee), for such calendar year or, in the event such Person shall
have been a Holder of a Note during a portion of such calendar year, for
the applicable portion of such year, for the purposes of such Noteholder's
preparation of federal income tax returns.
ARTICLE V
THE RESERVE ACCOUNT
Section 5.1. Initial Deposit. On the Closing Date, the Seller shall
deposit $__________ into the Reserve Account.
Section 5.2. Deficiency Claim Amounts. If the Servicer's
Certificate with respect to any Determination Date shall state that the
amount of the Available Funds with respect to such Determination Date is
less than the sum of the amounts payable on the related Payment Date
pursuant to clauses (i) through (vi) of Section 4.5(a) (such deficiency
being a "Deficiency Claim Amount"), then the Indenture Trustee shall
transfer funds in the amount of such Deficiency Claim Amount (to the extent
of the funds available therein) from the Reserve Account to the Collection
Account on the related Deposit Date.
Section 5.3. Distribution of Excess. If (i) the amount on deposit
in the Reserve Account on any Payment Date (after giving effect to all
deposits therein or withdrawals therefrom on such Payment Date) exceeds the
Reserve Account Required Amount and (ii) (a) no Trigger Event has occurred
or (b) all Trigger Events which have occurred have been Deemed Cured, the
Indenture Trustee shall distribute an amount equal to any such excess
pursuant to the Servicer's Certificate and Section 4.5(a)(viii).
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ARTICLE VI
THE SELLER
Section 6.1. Liability of Seller. The Seller shall be liable
hereunder only to the extent of the obligations in this Agreement
specifically undertaken by the Seller and the representations made by the
Seller.
Section 6.2. Merger or Consolidation of the Seller. The Seller
shall not merge or consolidate with any other Person or permit any other
Person to become the successor to all or substantially all of the Seller's
business or assets unless the conditions precedent set forth in this
Section 6.2 have been satisfied. Any such successor corporation shall
execute an agreement of assumption of every obligation of the Seller under
its Related Documents and, whether or not such assumption agreement is
executed, shall be the successor to the Seller under this Agreement without
the execution or filing of any document (or any further act on the part of
any of the parties to this Agreement). The Seller shall provide prompt
notice of any merger, consolidation or succession pursuant to this Section
6.2 to the Owner Trustee, the Indenture Trustee, the Noteholders and the
Rating Agency. Notwithstanding the foregoing, the Seller shall not merge or
consolidate with any other Person or permit any other Person to become a
successor to the Seller's business, unless: (a) immediately after giving
effect to such transaction, no representation or warranty made pursuant to
Section 2.4 shall have been breached in any material respect (for purposes
hereof, such representations and warranties shall speak as of the date of
the consummation of such transaction) and no event that, after notice or
lapse of time, would become an Event of Default shall have occurred and be
continuing; (b) the Seller shall have delivered to the Owner Trustee, the
Indenture Trustee and the Rating Agency an Officer's Certificate and an
Opinion of Counsel each stating that such consolidation, merger or
succession and such agreement of assumption comply with this Section 6.2
and that all conditions precedent, if any, provided for in this Agreement
relating to such transaction have been complied with; and (c) the Seller
shall have delivered to the Owner Trustee, the Indenture Trustee and the
Rating Agency an Opinion of Counsel, stating, in the opinion of such
counsel, either (i) all financing statements and continuation statements
and amendments thereto have been executed and filed that are necessary to
preserve and protect the interests of the Trust and the Indenture Trustee
in the Receivables or (ii) no such action shall be necessary to preserve
and protect such interest.
Section 6.3. 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 advice of counsel or on any document of any kind
prima facie properly executed and submitted by any Person respecting any
matters arising under this Agreement. The Seller shall not be under any
obligation to appear in, prosecute or defend any legal action that is not
incidental to its obligations as Seller of the Receivables under this
Agreement and that in its opinion may involve it in any expense or
liability.
Section 6.4. Special Purpose Entity. (a) The Seller 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 such persons are concerned, and shall use its best efforts to avoid
the appearance that it is conducting business on behalf of any Affiliate
thereof or that the assets of the
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Seller are available to pay the creditors of Paragon or any Affiliate
thereof (other than as expressly provided herein).
(b) The Seller shall maintain corporate records and books of
account separate from those of Paragon and any Affiliate thereof.
(c) The Seller shall obtain proper authorization for all corporate
action requiring such authorization.
(d) The Seller shall pay its own operating expenses and
liabilities from its own funds.
(e) The annual financial statements of Paragon shall disclose the
effects of the transactions contemplated hereby in accordance with
generally accepted accounting principles.
(f) The resolutions, agreements and other instruments of the
Seller underlying the transactions described in the Related Documents shall
be continuously maintained by the Seller as official records of the Seller.
(g) The Seller shall maintain an arm's-length relationship with
Paragon and its Affiliates, and shall not hold itself out as being liable
for the debts of Paragon or any of its Affiliates.
(h) The Seller shall keep its assets and liabilities separate from
those of all other entities other than as permitted by the Related
Documents.
(i) The books and records of the Seller shall be maintained at the
address designated herein for receipt of notices, unless the Seller shall
otherwise advise the parties hereto in writing.
(j) The Seller shall not maintain bank accounts or other
depository accounts to which any Affiliate is an account party, into which
any Affiliate makes deposits or from which any Affiliate has the power to
make withdrawals, except as otherwise permitted by the Related Documents.
(k) The Seller shall insure that any consolidated financial
statements of Paragon has notes to the effect that the Seller is a separate
entity whose creditors have a claim on its assets prior to those assets
becoming available to its equity holders.
(l) The Seller shall not amend, supplement or otherwise modify its
certificate of incorporation or bylaws except in accordance therewith.
Section 6.5. Restrictions on Liens. The Seller shall not (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 except for
Permitted Liens or (ii) sign or file under the UCC of any jurisdiction any
financing statement that names Paragon or the Seller as a debtor,
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or sign any security agreement authorizing any secured party thereunder to
file such financing statement, with respect to the Receivables, except in
each case any such instrument solely securing the rights and preserving the
Lien of the Trust and the Lien of the Indenture Trustee for the benefit of
the Noteholders.
Section 6.6. Creation of Indebtedness; Guarantees. The Seller
shall not create, incur, assume or suffer to exist any indebtedness other
than indebtedness permitted under the Related Documents. The Seller shall
incur no additional borrowed money indebtedness secured by the Trust
Property other than the Notes. The Seller 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.
Section 6.7. Compliance with Laws. The Seller 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 Seller to perform its obligations under any Related
Document.
Section 6.8 Further Instruments and Acts. Upon request of the
Trust or the Indenture Trustee, the Seller shall 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 Agreement.
Section 6.9 Investment Company Act. The Seller shall conduct its
operations in a manner that will not subject it to registration as an
"Investment Company" under the Investment Company Act of 1940, as amended.
ARTICLE VII
THE SERVICER
Section 7.1. 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
Seller, the Indenture Trustee, the Owner Trustee, the Trust[, the Backup
Servicer] and the Noteholders, and their respective officers, directors,
agents and employees, 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 (i)
the use, ownership or operation, if any, by the Servicer or any Affiliate
thereof of a Financed Vehicle or (ii) any violation by the Seller, the
Servicer or the Trust of state or federal securities laws relating to the
Notes or the Certificates.
(c) The Servicer shall indemnify, defend and hold harmless the
Seller, the Indenture Trustee, the Owner Trustee, the Trust, [the Backup
Servicer,] and their respective officers, directors, agents and employees,
from and against any and all costs, expenses, losses, claims, penalties,
fines,
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forfeitures, judgments, damages and liabilities to the extent that such
cost, expense, loss, claim, penalty, fine, forfeiture, judgment, damage or
liability arose out of, or was imposed upon the Seller, the Indenture
Trustee, the Owner Trustee, [the Backup Servicer] or the Trust by reason
of, the breach of this Agreement by the Servicer, the negligence (other
than errors in judgment), misfeasance or bad faith of the Servicer in the
performance of its duties under this Agreement or by reason of negligent
disregard of its obligations and duties under this Agreement.
(d) Indemnification under this Section 7.1 shall survive the
termination of this Agreement and shall include reasonable fees and
expenses of counsel and expenses of litigation. If the Servicer has made
any indemnity payments pursuant to this Section 7.1 and the recipient
thereafter collects any of such amounts from others, the recipient shall
promptly repay such amounts collected to the Servicer, without interest.
(e) Notwithstanding the indemnity provisions contained in Sections
7.1(b) through (d), the Servicer shall not be required to indemnify the
Seller, the Indenture Trustee, the Owner Trustee, the Trust, [the Backup
Servicer] or their respective officers, directors, agents or employees,
against any costs, expenses, losses, damages, claims or liabilities to the
extent the same shall have been (i) caused by the misfeasance, bad faith or
gross negligence (or ordinary negligence in the handling of funds) of such
party or (ii) suffered by reason of uncollectible or uncollected
Receivables not caused by the Servicer's negligence (other than errors in
judgment), misfeasance or bad faith. Notwithstanding the indemnity
provisions contained in Section 7.1(b), the Servicer shall not be required
to indemnify the Noteholders for any losses suffered in their capacity as
investors in the Notes.
Section 7.2. Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer [or Backup Servicer]. (a) The Servicer shall
not merge or consolidate with any other Person, convey, transfer or lease
all or substantially all its assets as an entirety to another Person, or
permit any other Person to become the successor to all or substantially all
of its business or assets, unless, after the merger, consolidation,
conveyance, transfer, lease or succession, the successor or surviving
entity shall be capable of fulfilling the duties of the Servicer contained
in this Agreement and shall be an Eligible Servicer. Any corporation (i)
into which the Servicer may be merged or consolidated, (ii) resulting from
any merger or consolidation to which the Servicer shall be a party, (iii)
that acquires by conveyance, transfer, or lease substantially all of the
assets of the Servicer, or (iv) succeeding to the business of the Servicer,
in any of the foregoing cases shall execute an agreement of assumption to
perform every obligation of the Servicer under this Agreement and, whether
or not such assumption agreement is executed, shall be the successor to the
Servicer 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; provided,
however, that nothing contained herein shall be deemed to release the
Servicer from any obligation hereunder. The Servicer shall provide notice
of any merger, consolidation or succession pursuant to this Section 7.2(a)
to the Owner Trustee, the Indenture Trustee[, the Backup Servicer] and the
Rating Agency and the Rating Agency Condition in respect of such merger,
consolidation or succession shall have been satisfied. Notwithstanding the
foregoing, the Servicer shall not merge or consolidate with any other
Person or permit any other Person to become a successor to all or
substantially all
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of its business or assets, unless (x) immediately after giving effect to
such transaction, no representation or warranty made pursuant to Section
3.6 shall have been breached in any material respect (for purposes hereof,
such representations and warranties shall speak as of the date of the
consummation of such transaction) and no event that, after notice or lapse
of time, would become an Event of Default shall have occurred and be
continuing, (y) the Servicer shall have delivered to the Owner Trustee, the
Indenture Trustee and the Rating Agency an Officer's Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or
succession and such agreement of assumption comply with this Section 7.2(a)
and (z) the Servicer shall have delivered to the Owner Trustee, the
Indenture Trustee and the Rating Agency an Opinion of Counsel, stating in
the opinion of such counsel, either (A) all financing statements and
continuation statements and amendments thereto have been executed and filed
that are necessary to preserve and protect the interest of the Trust and
the Indenture Trustee in the Receivables and the proceeds thereof or (B) no
such action shall be necessary to preserve and protect such interest.
[(b) Any corporation (i) into which the Backup Servicer may be
merged, consolidated or converted, (ii) resulting from any merger,
consolidation or conversion to which the Backup Servicer shall be a party,
(iii) that acquires by conveyance, transfer or lease substantially all of
the assets of the Backup Servicer, or (iv) succeeding to the business of
the Backup Servicer, in any of the foregoing cases shall execute an
agreement of assumption to perform every obligation of the Backup Servicer
under this Agreement and, whether or not such assumption agreement is
executed, shall be the successor to the Backup Servicer 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; provided, however, that nothing
contained herein shall be deemed to release the Backup Servicer from any
obligation.]
Section 7.3. Limitation on Liability of Servicer[, Backup
Servicer] and Others. (a) Neither the Servicer[, the Backup Servicer] nor
any of the directors, officers, employees or agents of the Servicer [or the
Backup Servicer] shall be under any liability to the Trust, the
Noteholders, the Indenture Trustee, the Owner Trustee or the Seller, except
as provided in this Agreement, for any action taken or for refraining from
the taking of any action pursuant to this Agreement; provided, however,
that this provision shall not protect the Servicer[, the Backup Servicer]
or any such Person against any liability that would otherwise be imposed by
reason of a breach of this Agreement or willful misfeasance, bad faith or
negligence (other than errors in judgment) in the performance of its
duties. The Servicer, [the Backup Servicer] and any director, officer,
employee or agent of the Servicer [or the Backup Servicer] 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 this Agreement.
[(b) Unless acting as Servicer hereunder, the Backup Servicer
shall not be liable for any obligation of the Servicer contained in this
Agreement, and the Indenture Trustee, the Owner Trustee, the Seller and the
Noteholders shall look only to the Servicer to perform such obligations.]
[(c) The parties expressly acknowledge and consent to [Norwest
Bank Minnesota, National Association] acting in the possible dual capacity
of Backup Servicer or successor Servicer
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and in the capacity as Indenture Trustee. [Norwest Bank Minnesota, National
Association] may, in such dual capacity, discharge its separate functions
fully, without hindrance or regard to conflict of interest principles, duty
of loyalty principles or other breach of fiduciary duties to the extent
that any such conflict or breach arises from the performance by [Norwest
Bank Minnesota, National Association] of express duties set forth in this
Agreement in any of such capacities, all of which defenses, claims or
assertions are hereby expressly waived by the other parties hereto except
in the case of negligence (other than errors in judgment) and willful
misconduct by [Norwest Bank Minnesota, National Association].]
[(d) The Backup Servicer shall have no responsibility and shall
not be in default hereunder nor incur any liability for any failure, error,
malfunction or any delay in carrying out any of its duties under this
Agreement if any such failure or delay results from the Backup Servicer
acting in accordance with information prepared or supplied by a Person
other than the Backup Servicer or the failure of any such Person to prepare
or provide such information. The Backup Servicer 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,
the Seller, the Controlling Party, the Indenture Trustee or the Owner
Trustee or for any inaccuracy or omission in a notice or communication
received by the Backup Servicer from any third party or (ii) that is due to
or results from the invalidity, unenforceability of any Receivable under
applicable law or the breach or the inaccuracy of any representation or
warranty made with respect to any Receivable.]
Section 7.4. Delegation of Duties. The Servicer may at any time
perform through sub-contractors the specific duties of (i) repossession of
Financed Vehicles and (ii) pursuing the collection of deficiency balances
on defaulted Receivables, in each case without the consent of the Owner
Trustee[, the Backup Servicer] or the Indenture Trustee . The Servicer may
also perform other specific duties through such sub-contractors in
accordance with its customary servicing policies and procedures without the
prior consent of the Owner Trustee, [, the Backup Servicer] or the
Indenture Trustee. No such delegation or sub-contracting of duties by the
Servicer shall relieve the Servicer of its responsibility with respect to
such duties.
Section 7.5. Servicer [and Backup Servicer] Not to Resign. Subject
to the provisions of Section 7.2, [neither] the Servicer [nor the Backup
Servicer] shall [not] resign from the obligations and duties imposed on it
by this Agreement as Servicer [or Backup Servicer] except upon a
determination that by reason of a change in legal requirements the
performance of its duties under this Agreement would cause it to be in
violation of such legal requirements, and a Note Majority does not elect to
waive the obligations of the Servicer [or the Backup Servicer, as the case
may be,] to perform the duties that render it legally unable to act or to
delegate those duties to another Person. Any such determination permitting
the resignation of the Servicer [or Backup Servicer] shall be evidenced by
an Opinion of Counsel to such effect delivered and acceptable to the Owner
Trustee and the Indenture Trustee. No resignation of the Servicer shall
become effective until [the Backup Servicer or] a successor Servicer that
is an Eligible Servicer shall have assumed the responsibilities and
obligations of the Servicer. [No resignation of the Backup Servicer shall
become effective until a Person that is an Eligible Servicer shall have
assumed the responsibilities and obligations of the Backup Servicer;
provided, however, that if a successor Backup Servicer is not appointed
within 60
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days after the Backup Servicer has given notice of its resignation and has
provided the Opinion of Counsel required by this Section 7.5, the Backup
Servicer may petition a court for its removal. Notwithstanding the
foregoing, the Backup Servicer may resign for any reason, provided an
entity acceptable to the Controlling Party shall have assumed the
responsibilities and obligations of the Backup Servicer prior to the
effectiveness of any such resignation and the Rating Agency Condition is
satisfied with respect thereto.]
Section 7.6. 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
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 to prepare, file or deliver
pursuant to the Indenture. In furtherance of the foregoing, the Servicer
shall take all necessary action that is the duty of the Issuer to take
pursuant to Sections 2.9, 3.3, 3.4, 3.5, 3.6, 3.7, 3.9, 3.10, 3.19, 3.21,
3.23, 4.1, 5.1, 5.16, 8.4, 8.5, 9.1, 9.2, 9.5 and 11.1 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 Related Documents, the Servicer shall
perform such calculations and shall prepare for execution by 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 Related Documents or under
state and federal tax and securities laws and shall take all appropriate
action that it is the duty of the Issuer to take pursuant to this Agreement
or any of the Related Documents. 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
Related 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 Basic Documents to the contrary, the Servicer shall be responsible for
promptly notifying the Owner Trustee if any withholding tax is imposed on
the Issuer's payments (or allocations of income) to any Certificateholder.
Any such notice shall be in writing and specify the amount of any
withholding tax required to be withheld by the Owner Trustee pursuant to
such provision.
(c) Records. The Servicer shall maintain appropriate books of
account and records relating to the services performed under this
Agreement, which books of account and records shall be accessible for
inspection by the Owner Trustee at any time during normal business hours.
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ARTICLE VIII
SERVICER TERMINATION EVENTS
Section 8.1. Servicer Termination Event. For purposes of this
Agreement, each of the following shall constitute a "Servicer Termination
Event":
(a) Any failure by the Servicer to make deposits into the
Collection Account or to deliver to the Indenture Trustee for distribution
any proceeds or payment required to be so deposited or delivered under the
terms of this Agreement that continues unremedied for a period of two
Business Days (one Business Day with respect to payment of Purchase
Amounts) after the earlier of receipt of written notice by the Servicer
from the Owner Trustee or the Indenture Trustee or discovery of such
failure by a Responsible Officer of the Servicer; or
(b) Failure by the Servicer to deliver to the Indenture Trustee
the Servicer's Certificate by 2:00 p.m., New York City time, on each
Determination Date (or within two Business Days thereafter, if such failure
by the Servicer is due to circumstances outside the Servicer's control), or
failure on the part of the Servicer to observe in all material respects its
covenants and agreements set forth in Section 7.2(a); or
(c) Failure or failures on the part of the Servicer duly to
observe or perform any other covenants or agreements of the Servicer set
forth in this Agreement, which failure or failures, individually or in the
aggregate, (i) materially and adversely affect the rights of Noteholders
and (ii) continue unremedied for a period of 30 days after the earlier of
knowledge thereof by a Responsible Officer of the Servicer or the date on
which written notice of such failure or failures, requiring the same to be
remedied, shall have been given to the Servicer by the Owner Trustee, the
Indenture Trustee or Holders of more than 25% of the Note Balance; or
(d) The occurrence of an Insolvency Event with respect to the
Servicer; or
(e) Any representation or warranty 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 or warranty has a material adverse effect on the Noteholders
and, within 30 days after the earlier of knowledge thereof by a Responsible
Officer of the Servicer or the date written notice thereof shall have been
given to the Servicer by the Owner Trustee, the Indenture Trustee or
Holders of more than 25% of the sum of the then outstanding Class A and
Class B Note Balances, the circumstances or condition in respect of which
such representation or warranty was incorrect shall not have been
eliminated or otherwise cured.
Section 8.2. Consequences of a Servicer Termination Event. If a
Servicer Termination Event shall occur and be continuing, either the
Indenture Trustee (to the extent it has knowledge thereof) or a Note
Majority, by notice given in writing to the Servicer and the Rating Agency
(and to the Indenture Trustee if given by the Noteholders), may terminate
all of the rights and obligations
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of the Servicer under this Agreement. On or after the receipt by the
Servicer of such written notice, all authority, power, obligations and
responsibilities of the Servicer under this Agreement, whether with respect
to the Notes, the Receivables, the other Trust Property or otherwise,
automatically shall pass to, be vested in and become obligations and
responsibilities of the [Backup Servicer (or such other] successor Servicer
appointed by the Indenture Trustee[)]; provided, however, that the
successor Servicer shall have no liability with respect to (i) any
obligation that was required to be performed by the terminated Servicer
prior to the date that the successor Servicer becomes the Servicer or (ii)
any claim of a third party based on any alleged action or inaction of the
terminated Servicer. 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, the other
Trust Property and related documents to show the Trust or the Indenture
Trustee as lienholder or secured party on the related Lien Certificates, or
otherwise. The terminated Servicer agrees to cooperate with the successor
Servicer in effecting the termination of the responsibilities and rights of
the terminated Servicer under this Agreement, including the transfer to the
successor Servicer for administration by it of all cash amounts that shall
at the time be held by the terminated Servicer for deposit, or have been
deposited by the terminated Servicer, in the Collection Account or the
Lockbox Account or thereafter received with respect to the Receivables and
the delivery to the successor Servicer of all Receivable Files and Monthly
Records and a computer tape in readable form as of the most recent Business
Day containing all information necessary to enable the successor Servicer
to service the Trust Property. The terminated Servicer shall grant the
Indenture Trustee and the successor Servicer reasonable access during
normal business hours to the terminated Servicer's premises.
Section 8.3. Appointment of Successor. (a) On and after the time
the Servicer receives a notice of termination pursuant to Section 8.2 or
upon the resignation of the Servicer pursuant to Section 7.5, the [Backup]
[successor] Servicer shall be the successor in all respects to the Servicer
in its capacity as Servicer under this Agreement and the transactions set
forth or provided for in this Agreement, and shall be subject to all the
rights, responsibilities, restrictions, duties, liabilities and termination
provisions relating thereto placed on the Servicer by the terms and
provisions of this Agreement, except as otherwise stated herein. The
Indenture Trustee 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 termination under Section 8.2 upon the occurrence of
any Servicer Termination Event applicable to it as Servicer. Any successor
Servicer appointed pursuant to this Section 8.3 shall be entitled to
compensation equal to the greater of (i) the Total Servicing Fee or (ii)
the then-current "market rate" fee for servicing assets comparable to the
Receivables, which rate shall be determined by averaging three servicing
fee bids obtained by the [Backup] [successor] Servicer from third party
servicers selected by the [Backup] [successor] Servicer.
[(b) If the Backup Servicer shall be legally unable or unwilling
to act as Servicer, the Backup Servicer, the Indenture Trustee or a Note
Majority may petition a court of competent jurisdiction to appoint any
Eligible Servicer as the successor to the Servicer. Pending appointment
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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. Subject to Section 7.5, no
provision of this Agreement shall be construed as relieving the Backup
Servicer of its obligation to succeed as successor Servicer upon the
termination of the Servicer pursuant to Section 8.2 or the resignation of
the Servicer pursuant to Section 7.5.]
(c) Any successor Servicer shall be entitled to such compensation
(whether payable out of the Collection Account or otherwise) as the
Servicer would have been entitled to under this Agreement if the Servicer
had not resigned or been terminated hereunder.
Section 8.4. Notification to Noteholders. Upon any termination of,
or appointment of a successor to, the Servicer pursuant to this Article
VIII, the Indenture Trustee shall give prompt written notice thereof to the
Rating Agency and to the Noteholders at their respective addresses
appearing in the Note Register.
Section 8.5. Waiver of Past Defaults. A Note Majority may, on
behalf of the 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 thereon.
The Indenture Trustee shall provide the Noteholders and the Rating Agency
with notice of any waiver of any default by the Servicer hereunder.
ARTICLE IX
TERMINATION
Section 9.1. Optional Purchase of All Receivables. As an
administrative convenience, the Servicer shall have the option to purchase
the Receivables and the other Trust Property on any Payment Date if, as of
the related Accounting Date, the Aggregate Principal Balance has declined
to less than 10% of the Cutoff Date Principal Balance. To exercise such
option, the Servicer shall pay the aggregate Purchase Amounts for the
Receivables (which amount shall in no event be less than the sum of the
Class A Note Balance and the Class B Note Balance plus accrued and unpaid
interest thereon) and shall succeed to all interests in and to the Trust
Property. Not later than 10 days prior to any proposed exercise of such
option, the Servicer or Seller shall notify the Rating Agency, the
Indenture Trustee, the Certificateholder and the Owner Trustee of any
proposed exercise of such option. The purchase price paid by the Servicer
shall be deposited into the Collection Account on or before such Payment
Date and distributed pursuant to Section 4.5.
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ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1. Amendment. (a) This Agreement may be amended by the
Trust, the Seller, the Servicer, Paragon[, the Backup Servicer] and the
Indenture Trustee without the consent of any of the Certificateholder or
the Noteholders, (i) to cure any ambiguity, (ii) to correct or supplement
any provisions in this Agreement or (iii) for the purpose of adding any
provision to or changing in any manner or eliminating any provision of this
Agreement or of modifying in any manner the rights of the Noteholders,
provided that such action in this clause (iii) shall not, as evidenced by
an Opinion of Counsel delivered to the Indenture Trustee and the Rating
Agency, adversely affect in any material respect the interests of the
Noteholders.
(b) This Agreement may also be amended from time to time by the
Seller, the Servicer, Paragon[, the Backup Servicer] and the Indenture
Trustee with the consent of a Note Majority (which consent of any Holder of
a Note given pursuant to this Section 10.1(b) or pursuant to any other
provision of this Agreement shall be conclusive and binding on such Holder
and on all future Holders of such Note and of any Note issued upon the
transfer thereof or in exchange thereof or in lieu thereof whether or not
notation of such consent is made upon the Note), for the purpose of adding
any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement, or of modifying in any manner the rights of
the Holders of Notes; provided, however, that the Rating Agency Condition
shall have been satisfied with respect to any such amendment prior to the
execution thereof; and provided, further, that no such amendment shall (i)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on Receivables, distributions that shall
be required to be made on any Note, the Class A Interest Rate or the Class
B Interest Rate, (ii) amend any provisions of Section 4.5 in such a manner
as to affect the priority of payment of interest or principal to
Noteholders, or (c) reduce the aforesaid percentage required to consent to
any such amendment or any waiver hereunder, without the consent of the
Holders of all Notes then outstanding.
(c) Prior to the execution of any such amendment or consent under
Section 10.1(a) or (b), the Seller shall furnish the Indenture Trustee with
a written notice describing the substance of such amendment and the
Indenture Trustee shall forward such written notification of the substance
of such amendment or consent to the Rating Agency and the Owner Trustee
within five days of receipt thereof.
(d) Promptly after the execution of any such amendment and receipt
thereof by the Indenture Trustee or consent under Section 10.1(b), the
Indenture Trustee shall furnish written notification of the substance of
such amendment or consent to each Noteholder.
(e) It shall not be necessary for the consent of Noteholders
pursuant to Section 10.1(b) to approve the particular form of any proposed
amendment or consent, but it shall be sufficient if such consent shall
approve the substance thereof. The manner of obtaining such consents (and
any other consents of Noteholders provided for in this Agreement) and of
evidencing the authorization
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of the execution thereof by Noteholders shall be subject to such reasonable
requirements as the Indenture Trustee may prescribe.
(f) Prior to the execution of any amendment to this Agreement, the
Indenture Trustee, upon request, shall be entitled to receive and rely upon
an Opinion of Counsel (delivered at the expense of the Seller) stating that
the execution of such amendment is authorized or permitted by this
Agreement, in addition to the Opinion of Counsel referred to in Section
10.2(i). The Indenture Trustee may, but shall not be obligated to, enter
into any such amendment that affects the Indenture Trustee's own rights,
duties or immunities under this Agreement or otherwise.
Section 10.2. Protection of Title to Trust. (a) The Servicer shall
execute, file, record and register such financing statements and cause to
be executed, filed, recorded and registered such continuation and other
statements or documents, all in such manner and in such places as may be
required by law fully to preserve, maintain and protect the interest of the
Trust and the Indenture Trustee under this Agreement in the Trust Property
and in the proceeds thereof. The Servicer shall deliver (or cause to be
delivered) to the Indenture Trustee file-stamped copies of, or filing
receipts for, any document recorded, registered or filed as provided above,
as soon as available following such recordation, registration or filing.
Paragon and the Seller shall cooperate fully with the Servicer in
connection with the obligations set forth above and shall execute any and
all documents reasonably required to fulfill the intent of this Section
10.2(a).
(b) Neither the Seller nor the Servicer shall change its name,
identity or corporate structure in any manner that would make any financing
statement or continuation statement filed by the Servicer in accordance
with Section 10.2(a) seriously misleading within the meaning of the
applicable provisions of the UCC or any title statute, unless it shall have
given the Owner Trustee and the Indenture Trustee at least 30 days prior
written notice thereof, and shall promptly file appropriate amendments to
all previously filed financing statements and continuation statements.
(c) Each of the Seller and the Servicer shall give the Owner
Trustee and the Indenture Trustee at least 30 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. The Servicer shall at all
times maintain each office from which it services 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 (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 its computer systems so that, from
and after the time of sale under this Agreement, the Servicer's master
computer records (including any backup archives) that refer to any
Receivable indicate clearly that such Receivable is owned by the Trust.
Indication
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of the Trust's ownership of a Receivable shall be deleted from or modified
on the Servicer's computer systems when, and only when, the Receivable
shall become a Purchased Receivable or shall have been paid in full.
(f) If at any time the Seller or the Servicer proposes to sell,
grant a security interest in, or otherwise transfer any interest in
automotive receivables (other than the 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
refer in any manner whatsoever to any Receivable, indicate clearly that
such Receivable has been sold and is owned by the Trust (unless such
Receivable shall become a Purchased Receivable or shall have been paid in
full).
(g) Upon reasonable notice, the Servicer shall permit the
Indenture Trustee, [the Backup Servicer,] the Seller and their respective
agents, at any time during normal business hours to inspect and make copies
of and abstracts from the Servicer's records regarding any Receivables or
any other portion of the Trust Property.
(h) The Servicer shall furnish to the Owner Trustee, the Indenture
Trustee[, the Backup Servicer] and the Seller upon request within a
reasonable period of time the Schedule of Receivables, setting forth the
Receivables then held as part of the Trust. The Indenture Trustee shall
hold the Schedule of Receivables 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.
(i) The Seller and the Servicer (or the applicable party in the
case of Section 10.2(b) or (c)) shall deliver to the Owner Trustee and the
Indenture Trustee simultaneously with the execution and delivery of this
Agreement and of each amendment thereto and upon the occurrence of the
events giving rise to an obligation to give notice pursuant to Section
10.2(b) or (c), an Opinion of Counsel (i) stating that, in the opinion of
such counsel, all financing statements and continuation statements have
been executed and filed that are necessary fully to preserve and protect
the interests of the Trust and the Indenture Trustee in the Receivables,
and reciting the details of such filing or referring to prior Opinions of
Counsel in which such details are given or (ii) stating that, in the
opinion of such counsel, no such action is necessary to preserve and
protect such interest.
Section 10.3. Limitation on Rights of Noteholders. (a) The death
or incapacity of any Noteholder shall not operate to terminate this
Agreement or the Trust, nor entitle such Noteholder's legal representatives
or heirs to claim an accounting or to take any action or commence any
proceeding in any court for a partition or winding up of the Trust, nor
otherwise affect the rights, obligations and liabilities of the parties to
this Agreement or any of them.
(b) No Noteholder shall have any right to vote (except as provided
in this Section 10.3 or Sections 8.2, 8.5 or 10.1) or in any manner
otherwise control the operation and management of the Trust, or the
obligations of the parties to this Agreement, nor shall anything set forth
in this Agreement, or contained in the terms of the Notes, be construed so
as to constitute the Noteholders
54
<PAGE>
from time to time as partners or members of an association; nor shall any
Noteholder be under any liability to any third person by reason of any
action taken by the parties to this Agreement pursuant to any provision of
this Agreement or any Related Document.
(c) No Noteholder shall have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action,
or proceeding in equity or at law upon or under or with respect to this
Agreement, unless such Holder previously shall have given to the Indenture
Trustee a written notice of default and of the continuance thereof, as
provided in this Agreement, and unless also the Holders of Notes evidencing
not less than 25% of the Note Balance shall have made written request upon
the Indenture Trustee to institute such action, suit or proceeding in its
own name as Indenture Trustee under this Agreement and shall have offered
to the Indenture Trustee such reasonable indemnity as it may require
against the costs, expenses and liabilities to be incurred therein or
thereby, and the Indenture 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 Indenture Trustee pursuant to and in compliance with this
Section 10.3 or Section 8.5; it being understood and intended, and being
expressly covenanted by each Noteholder with every other Noteholder and the
Indenture Trustee, that no one or more Holders of Notes shall have any
right in any manner whatever by virtue or by availing itself or themselves
of any provisions of this Agreement to affect, disturb, or prejudice the
rights of the Holders of any other of the Notes, or to obtain or seek to
obtain priority over or preference to any other such Holder, or to enforce
any right under this Agreement, except in the manner provided in this
Agreement and for the equal, ratable and common benefit of all Noteholders.
For the protection and enforcement of the provisions of this Section 10.3,
each and every Noteholder and the Indenture Trustee shall be entitled to
such relief as can be given either at law or in equity.
Section 10.4. GOVERNING LAW. THIS AGREEMENT (OTHER THAN ARTICLE V
AND, SOLELY FOR THE PURPOSE OF INTERPRETING ARTICLE V, ANY DEFINITIONS
REFERRED TO THEREIN) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICTS OF LAWS THEREOF (OTHER THAN SECTION 5-1401 OF THE NEW YORK
GENERAL OBLIGATIONS LAW) AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES UNDER THIS AGREEMENT SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS. ARTICLE V (AND, SOLELY FOR THE PURPOSE OF INTERPRETING ARTICLE V, ANY
DEFINITIONS REFERRED TO THEREIN) SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF MISSOURI WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAWS THEREOF AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES UNDER THIS AGREEMENT SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
Section 10.5. Severability of Provisions. If any one or more of
the covenants, agreements, provisions or terms of this Agreement shall be
for any reason whatsoever held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Agreement and shall in no way
affect the validity or
55
<PAGE>
enforceability of the other provisions of this Agreement or of the Notes or
the rights of the Holders thereof.
Section 10.6. Assignment. Notwithstanding anything to the contrary
contained in this Agreement, except as provided in Section 6.2 or Section
7.2 and as provided in the provisions of the Agreement concerning the
resignation of the Servicer [and the Backup Servicer], this Agreement may
not be assigned by the Seller or the Servicer without the prior written
consent of the Owner Trustee[, the Backup Servicer] and the Indenture
Trustee. Prior written notice of any such assignment shall be provided to
the Rating Agency.
Section 10.7. Third-Party Beneficiaries. Nothing in this
Agreement, express or implied, shall give to any Person, other than the
parties hereto and their successors hereunder and permitted assigns, any
benefit or any legal or equitable right, remedy or claim under this
Agreement.
Section 10.8. Counterparts. This Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts
shall be deemed to be an original, and all of which counterparts shall
constitute but one and the same instrument.
Section 10.9. Notices. All demands, notices and communications
under this Agreement shall be in writing, personally delivered or mailed by
certified mail, return receipt requested, and shall be deemed to have been
duly given upon receipt (a) in the case of the Seller, at the following
address: Paragon Auto Receivables Corporation, 27405 Puerta Real, Suite
200, Mission Viejo, California 92691, Attention: Vice President-Finance,
Telecopy No.: (714) 348-8707, (b) in the case of the Servicer, at the
following address: Paragon Acceptance Corporation, 27405 Puerta Real, Suite
200, Mission Viejo, California 92691, Attention: Vice President - Finance,
Telecopy No.: (714) 348-8707, (c) in the case of the Indenture Trustee,
[and for so long as the Indenture Trustee is the Backup Servicer, the
Backup Servicer,] at the following address: [Norwest Bank Minnesota,
National Association, Norwest Center, Sixth Street and Marquette Avenue,
Minneapolis, Minnesota 55479-0070, Attention: Corporate Trust
Services/Asset-Backed Administration, Telecopy No.: (612) 667-3539], (d) in
the case of the Trust or the Owner Trustee, at the following address:
[Wilmington Trust Company, 1100 North Market Street, Wilmington, Delaware
19890, Attention: Corporate Trust Administration] and (e) in the case of
the Rating Agency, at the following address: _________________, or at such
other address as shall be designated by any such party in a written notice
to the other parties. Any notice required or permitted to be mailed to a
Noteholder shall be given by first class mail, postage prepaid, at the
address of such Holder as shown in the Note Register, and any notice so
mailed within the time prescribed in this Agreement shall be conclusively
presumed to have been duly given, whether or not the Noteholder receives
such notice.
Section 10.10. Successors and Assigns. This Agreement shall be
binding upon the parties hereto and their respective successors and
assigns, and shall inure to the benefit of and be enforceable by the
parties hereto and their respective successors and assigns permitted
hereunder. All covenants and agreements contained herein shall be binding
upon, and inure to the benefit of, the Trust, the Indenture Trustee and the
Noteholders and their respective permitted successors and assigns, if any.
Any request, notice, direction, consent, waiver or other instrument or
action by any
56
<PAGE>
Noteholder shall bind its successors and assigns. Except as otherwise
provided in this Article X, no other Person shall have any right or
obligation hereunder.
57
<PAGE>
IN WITNESS WHEREOF, the Seller, the Servicer, the Trust[, the
Backup Servicer] and the Indenture Trustee have caused this Sale and
Servicing Agreement to be duly executed by their respective officers,
effective as of the day and year first above written.
PARAGON ACCEPTANCE CORPORATION, in its
individual capacity and as Servicer
By:___________________________________
Name:_________________________________
Title:________________________________
[NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION], as Indenture Trustee [and as
Backup Servicer]
By:____________________________________
Name:__________________________________
Title:_________________________________
PARAGON AUTO RECEIVABLES CORPORATION, as
Seller
By:____________________________________
Name:__________________________________
Title:_________________________________
58
<PAGE>
PARAGON AUTO RECEIVABLES OWNER TRUST
____- _, as Purchaser
By: [WILMINGTON TRUST COMPANY]
not in its individual capacity but solely as
Owner Trustee
By:___________________________________
Name:_________________________________
Title:________________________________
59
<PAGE>
SCHEDULE A
SCHEDULE OF RECEIVABLES
On file with the Servicer and the Indenture Trustee.
60
<PAGE>
SCHEDULE B
REPRESENTATIONS AND WARRANTIES OF SELLER
WITH RESPECT TO RECEIVABLES
1. Contract Origination Date. Each Receivable has a
contract origination date on or before _______ __, ____.
2. Term of Receivables. Each Receivable has an original
term of at least __ months and not more than __ months and had a
remaining term as of the Cutoff Date of at least __ months and not
more than __ months; the weighted average original contracted term
of the Receivables was __ months as of the Cutoff Date; the
weighted average remaining contracted term of the Receivables was
__ months as of the Cutoff Date.
3. Characteristics of Receivables. (A) Each Receivable
(1) has been originated in the United States of America by a
Dealer for the retail sale of a Financed Vehicle in the ordinary
course of such Dealer's business in accordance in all material
respects with Paragon's credit approval guidelines, and, to the
best knowledge of Seller, such Dealer had all necessary licenses
and permits to originate Receivables in the state where such
Dealer was located, (2) was fully and properly executed by the
parties thereto, (3) was purchased by Paragon from such Dealer
under an existing Dealer Agreement and Dealer Assignment and was
purchased by the Seller from Paragon pursuant to the Receivables
Purchase Agreement, (4) contains customary and enforceable
provisions such that the rights and remedies of the holder or
assignee thereof shall be adequate for realization against the
collateral of the benefits of the security, (5) provides for level
monthly payments that fully amortize the Amount Financed over the
original term (except for the last payment, which may be greater
or smaller than the level payment), provided payments are made on
the applicable due dates, (6) has an Annual Percentage Rate of not
less than ____% and not more than ____%, (7) provides for, if such
contract is prepaid, a prepayment that fully pays the Principal
Balance and accrued interest at the Annual Percentage Rate and (8)
is a Simple Interest Receivable or a Pre-Computed Receivable; (B)
as of the Cutoff Date no Receivable has a payment more than 10% of
which is more than 29 days past due; (C) each Receivable has a
final scheduled payment due no later than ________ __, 20__; (D)
as of the Cutoff Date, not more than ____% of the aggregate
principal balance of the Receivables represented financing of used
vehicles, and the remainder of the Receivables represented
financing of new vehicles; (E) as of the Cutoff Date, the average
remaining principal balance of the Receivables was not more than
$_________; and (F) as of the Cutoff Date, the weighted average
Annual Percentage Rate of the Receivables was not more than ____%.
4. Principal Balance; Scheduled Payments. (A) Each
Receivable has an outstanding principal balance as of the Cutoff
Date of not less than $_____ and not more than $______; (B) each
Receivable originated on or prior to _________ __, ____ had at
least one scheduled payment made prior to the date that is two
Business Days prior to the Closing Date; and (C) each Receivable
originated after _________ __, ____ either (I) has had at least
B-1
<PAGE>
one scheduled payment made prior to the date that is two Business
Days prior to the Closing Date or (II) will have a first scheduled
payment made within 45 days of the due date thereof.
5. Characteristics of Obligors. As of the Cutoff Date, no
Obligor on any Receivable (A) was the subject of any federal,
state or other bankruptcy, insolvency or similar proceeding
pending on the date of application that is not discharged, (B) was
currently the subject of a judgment in favor of Paragon, and (C)
had its related Financed Vehicle repossessed (or subject to
repossession).
6. Billing Addresses for Obligors. Based on the billing
addresses of the Dealers and the Principal Balances as of the
Cutoff Date, the Obligors of approximately ___% of the Receivables
were located in ___________, the Obligors of approximately ___% of
the Receivables were located in ___________, the Obligors of
approximately ___% of the Receivables were located in ___________
and the Obligors of approximately ___% of the Receivables were
located in other states.
7. Location of Receivable Files. There exists a complete
Receivable File with respect to each Receivable that will have
been delivered to the Indenture Trustee on or prior to the Closing
Date and any exceptions set forth in the Indenture Trustee's
certificate will be corrected within 30 days.
8. Schedule of Receivables. The information with respect
to the Receivables set forth in the Schedule of Receivables has
been produced from the Electronic Ledger and is true and correct
in all material respects as of the close of business on the Cutoff
Date.
9. Adverse Selection. No selection procedures having a
material adverse effect on the Trust or Noteholders have been
utilized in selecting the Receivables from those receivables owned
by Paragon that met the selection criteria contained in this
Agreement.
10. Compliance with Law. Neither the Receivables nor the
sale of the related Financed Vehicles, at the time the related
Receivable was originated or made, contravened in any material
respect, and, at the execution of this Agreement contravenes in
any material respect, any requirements of applicable federal,
state and local laws, and regulations thereunder including,
without limitation, usury laws, the Federal Truth-in-Lending Act,
the Equal Credit Opportunity Act, the Fair Credit Reporting Act,
the Fair Debt Collection Practices Act, the Federal Trade
Commission Act, the Magnuson-Moss Warranty Act, the Federal
Reserve Board's Regulations B and Z, the Soldiers' and Sailors'
Civil Relief Act of 1940, each applicable state Motor Vehicle
Retail Installment Sales Act, and state adaptations of the
National Consumer Act and of the Uniform Consumer Credit Code, and
other consumer credit laws and equal credit opportunity and
disclosure laws.
11. No Government Obligor. None of the Receivables is due
from the United States of America or any state or from any other
Governmental Authority.
B-2
<PAGE>
12. Security Interest in Financed Vehicle. Each
Receivable has created, or will create when all required
procedures are completed by the Servicer, a valid, subsisting and
enforceable first priority perfected security interest in the
related Financed Vehicle in favor of Paragon as secured party, and
such security interest is, or will be upon the completion of all
required procedures by the Servicer, prior to all other liens upon
and security interests in such Financed Vehicle that now exist or
may hereafter arise or be created (except, as to priority, for any
tax liens or mechanics' liens that may arise after the Closing
Date).
13. Binding Obligation; Receivables in Force. Each
Receivable is a binding obligation of its related Obligor and no
Receivable has been satisfied, subordinated or rescinded, nor has
any Financed Vehicle been released from the lien granted by the
related Receivable in whole or in part.
14. No Amendments. As of the Cutoff Date, no Receivable has
been amended, altered or modified; and no provision of any Receivable
has been waived, other than any provisions requiring vendor single
interest insurance or late payment fees and those waivers,
alterations or modifications specifically permitted pursuant to
Section 3.2 of this Agreement. As of the Cutoff Date, no
Receivable has been modified as a result of application of the
Soldiers' and Sailors' Civil Relief Act of 1940, as amended.
15. No Defenses. As of the Cutoff Date, no right of
rescission, setoff, counterclaim or defense exists with respect to
any Receivable. The operation of the terms of any Receivable or
the exercise of any right thereunder will not render such
Receivable unenforceable in whole or in part or subject to any
such right of rescission, setoff, counterclaim or defense.
16. No Liens. As of the Cutoff Date, there are no liens
or claims existing or that have been filed for work, labor,
storage or materials relating to any of the related Financed
Vehicles that are liens prior to the security interest in the
related Financed Vehicles granted by the related Receivables.
17. No Fraud or Misrepresentation. Each Receivable was
originated by a Dealer and was sold by the Dealer to Paragon
without fraud or misrepresentation on the part of such Dealer in
either case.
18. No Default; Repossession. Except for payment
delinquencies continuing for a period of less than 31 days as of
the Cutoff Date, no default, breach, violation or event permitting
acceleration under the terms of any Receivable has occurred; no
continuing condition that with notice or the lapse of time would
constitute a default, breach, violation, or event permitting
acceleration under the terms of any Receivable has arisen; the
Seller shall not waive and has not waived any of the foregoing;
and no related Financed Vehicle has been repossessed as of the
Cutoff Date.
B-3
<PAGE>
19. Insurance; Other. Paragon, in accordance with its
customary procedures, has determined (A) that each Obligor, at the
time of origination, had obtained or agreed to obtain insurance
covering the Financed Vehicle as of the execution of the
Receivable insuring against loss and damage due to fire, theft,
transportation, collision and other risks generally covered by
comprehensive and collision coverage (i) in an amount at least
equal to the lesser of (x) its maximum insurable value or (y) the
principal amount due from the Obligor under the related Receivable
and (ii) naming Paragon as loss payee, (B) each Receivable that
finances the cost of premiums for credit life and accident or
health insurance is covered by an insurance policy and certificate
of insurance naming Paragon as creditor under each such insurance
policy and certificate of insurance, and (C) as to each Receivable
that includes financing for the cost of a service contract, the
respective Financed Vehicle that secures the Receivable is covered
by a service contract. No Receivable has force-placed insurance.
20. Title. No Receivable has been sold, transferred,
assigned or pledged by Paragon to any Person other than the Seller
[or CTS (and the CTS Liens shall be released as of the Closing
Date)] or any such pledge has been released on or prior to the
Closing Date. Immediately prior to the transfer and assignment
herein contemplated, the Seller had good and marketable title to
each Receivable, and was the sole owner thereof, free and clear of
all Liens and, immediately upon the transfer thereof, the Trust
shall have good and marketable title to each such Receivable, and
will be the sole owner thereof, free and clear of all Liens (other
than Permitted Liens), and the transfer has been perfected under
the UCC. No Dealer has a participation in, or other right to
receive, proceeds of any Receivable. The Seller has not taken any
action to convey any right to any Person that would result in such
Person having a right to payments received under the related
Insurance Policies or the related Dealer Agreements or Dealer
Assignments or to payments due under such Receivables.
21. Marking of Receivables. On the Closing Date, Paragon
or the Seller will have caused the portions of the Electronic
Ledger relating to the Receivables to be clearly and unambiguously
marked to show that the Receivables have been sold by Paragon to
the Seller in accordance with the terms of the Receivables
Purchase Agreement and sold by the Seller to the Trust in
accordance with the terms of this Agreement and pledged to the
Indenture Trustee for the benefit of the Noteholders under the
Indenture.
22. Computer Tape. The Computer Tape made available by
the Seller to the Indenture Trustee on the Closing Date was
complete and accurate in all material respects as of the Cutoff
Date and includes a description of the same Receivables that are
described in the Schedule of Receivables.
23. Lawful Assignment. No Receivable has been originated
in, or is subject to the laws of, any jurisdiction under which the
sale, contribution, transfer and assignment of such Receivable
under this Agreement shall be unlawful, void or voidable. 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.
B-4
<PAGE>
24. All Filings Made. All filings (including, without
limitation, UCC filings) necessary in any jurisdiction to give the
Indenture Trustee a first priority perfected ownership interest in
the Receivables and the other Trust Property have been made.
25. One Original. There is only one original executed
copy of each Receivable.
26. Valid and Binding Obligation of Obligor. Each
Receivable is the 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
bankruptcy, insolvency or similar laws affecting the enforcement
of creditors' rights generally; all parties to such contract had
full legal capacity to execute and deliver such contract and all
other documents related thereto and to grant the security interest
purported to be granted thereby.
27. Title Documents. (A) If any Financed Vehicle was
originated in a state in which notation of security interest on
the title document is required or permitted to perfect such
security interest, the title document for such Financed Vehicle
shows, or if a new or replacement title document is being applied
for with respect to such Financed Vehicle, the title document will
be received within 180 days and will show, Paragon named as the
original secured party under the related Receivables as the Holder
of a first priority security interest in such Financed Vehicle,
and (B) if any Financed Vehicle was originated in a state in which
the filing of a financing statement under the UCC is required to
perfect a security interest in motor vehicles, such filings or
recordings have been duly made and show Paragon named as the
original secured party under the related Receivable, and in either
case, no further action is required under the UCC or any titling
statute or act to continue the perfected status of the first
priority security interest in the Financed Vehicle against
creditors of and transferees from the original Obligor.
28. Chattel Paper. Each Receivable constitutes "chattel
paper" under the UCC.
29. Tax Liens. As of the Cutoff Date, there is no Lien
against the related Financed Vehicles for delinquent taxes.
3300191.2 111898 1424C 97386502
B-5
<PAGE>
EXHIBIT A
FORM OF SERVICER'S CERTIFICATE
[Attached.]
A-1
<PAGE>
EXHIBIT B
REQUEST FOR RELEASE AND RECEIPT OF DOCUMENTS
--------------------------------------------
To: [Norwest Bank Minnesota, National Association]
Re: Sale and Servicing Agreement (the "Servicing
Agreement"), dated as of ________ __, ____,
between Paragon Auto Receivables Corporation
(the "Seller"), Paragon Auto Receivables Owner
Trust ____-_, as purchaser (the "Trust"),
Paragon Acceptance Corporation, individually and
in its capacity as Servicer (the "Servicer"),
and [Norwest Bank Minnesota, National
Association,] as Indenture Trustee [and Backup
Servicer] (the "Indenture Trustee")
In connection with the administration of the Receivables held by
you as the Indenture Trustee, we request the release, and acknowledge
receipt, of the Receivable and related Receivable File described below, for
the reason indicated.
Obligor's Name, Customer Account Number and Vehicle Identification Number
- -------------------------------------------------------------------------
Reason for Requesting Documents (check one)
- -------------------------------------------
_____ 1. Receivable Paid in Full. All amounts received in connection
with such payments have been deposited into the Lockbox
Account as required pursuant to Section 3.2 of the Servicing
Agreement -----------
_____ 2. Receivable Purchased from Trust pursuant to Section 2.5 or
3.7 of the Servicing Agreement -----------
---
_____ 3. Receivable is being serviced or subject to enforcement of
rights and remedies pursuant to Section 2.2(b) of the Servicing
Agreement --------------
_____ 4. Other (explain)_______________________________
If item 1 or 2 above is checked, and if all or part of the Receivable or
Receivable File was previously released to us, please release to us any
additional documents in your possession relating to the above specified
Receivable.
B-1
<PAGE>
If item 3 or 4 above is checked, upon our return of all of the above
documents to you as the Indenture Trustee, please acknowledge your receipt
by signing in the space indicated below, and returning this form.
PARAGON ACCEPTANCE CORPORATION
as Servicer
By:____________________________
Name:__________________________
Title:_________________________
Date:__________________________
DOCUMENTS RETURNED TO THE INDENTURE TRUSTEE
[Norwest Bank Minnesota, National Association]
(Indenture Trustee)
By:____________________________
Name:__________________________
Title:_________________________
DAte:__________________________
B-2
Exhibit 99.2
RECEIVABLES PURCHASE AGREEMENT
between
PARAGON ACCEPTANCE CORPORATION
as Seller
and
PARAGON AUTO RECEIVABLES CORPORATION
as Purchaser
---------------------------
Dated as of ________ __,_____
---------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions..................................................1
SECTION 1.2. Usage of Terms...............................................2
SECTION 1.3. Section References...........................................2
SECTION 1.4. Action by or Consent of Noteholders..........................2
SECTION 1.5. No Recourse..................................................2
ARTICLE II
CONVEYANCE OF THE RECEIVABLES
AND THE OTHER CONVEYED PROPERTY
SECTION 2.1. Conveyance of the Receivables and the Other Conveyed
Property.....................................................3
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of PAC as Seller..............3
SECTION 3.2. Representations and Warranties of Paragon Auto as
Purchaser....................................................5
SECTION 3.3. Indemnification..............................................7
ARTICLE IV
COVENANTS OF PAC
SECTION 4.1. Protection of Title of Paragon Auto and the Trust............8
SECTION 4.2. Other Liens or Interests.....................................9
SECTION 4.3. Costs and Expenses...........................................9
ARTICLE V
REPURCHASES
SECTION 5.1. Repurchase of Receivables Upon Breach of Warranty............0
SECTION 5.2. Reassignment of Purchased Receivables........................0
SECTION 5.3. Waivers......................................................0
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. Liability of PAC.............................................1
i
<PAGE>
SECTION 6.2. Merger or Consolidation of PAC..............................11
SECTION 6.3. Limitation on Liability of PAC and Others...................11
SECTION 6.4. Conveyance of the Receivables and the Other Conveyed
Property to the Trust.......................................11
SECTION 6.5. Amendment...................................................12
SECTION 6.6. Notices.....................................................13
SECTION 6.7. Merger and Integration......................................13
SECTION 6.8. Severability of Provisions..................................13
SECTION 6.9. GOVERNING LAW...............................................13
SECTION 6.10. Counterparts................................................13
SECTION 6.11. Nonpetition Covenant........................................14
SECTION 6.12. Assignment..................................................14
SECTION 6.13. Third-Party Beneficiaries...................................14
SECTION 6.14. Successors and Assigns......................................14
SCHEDULE A -- Schedule of Receivables
SCHEDULE B -- Representations and Warranties of the Seller
SCHEDULE C -- Legal Proceedings
ii
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RECEIVABLES PURCHASE AGREEMENT, dated as of ________ __, _____ (this
"Agreement"), between Paragon Acceptance Corporation, a Delaware
corporation, as seller ("PAC"), and Paragon Auto Receivables Corporation, a
Delaware corporation, as purchaser ("Paragon Auto").
WHEREAS, Paragon Auto, as Purchaser, has agreed to purchase from
PAC, as Seller, and PAC has agreed to sell and transfer to Paragon Auto,
the Receivables and the Other Conveyed Property.
NOW, THEREFORE, in consideration of the mutual agreements
contained herein, Paragon Auto and PAC hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. Capitalized terms used but not defined
herein shall have the meanings set forth in the Sale and Servicing Agreement
(as defined below). Whenever capitalized and used in this Agreement, the
following words shall have the following meanings:
"Other Conveyed Property" means, with respect to the Receivables:
(1) all of the right, title and interest of PAC in and to all monies
received under the Receivables or in respect thereof after the Cutoff Date
(including all Liquidation Proceeds and recoveries received with respect to
such Receivables); and (2) all of the right, title and interest of PAC in
and to (i) the security interests of PAC in the related Financed Vehicles
and any other interest of PAC in the related Financed Vehicles, including
the certificates of title with respect to such Financed Vehicles, (ii) the
Insurance Policies and any proceeds from any Insurance Policies relating to
the Receivables, the Obligors or the related Financed Vehicles, including
rebates or refunds of premiums relating to the Receivables, (iii) the
rights of PAC against Dealers with respect to the Receivables under the
Dealer Agreements and the Dealer Assignments, (iv) all funds on deposit
from time to time in the Collection Account and the Reserve Account
(including all income thereon and proceeds thereof), and (v) all proceeds
and investments of any of the foregoing, all present and future claims,
demands, causes and choses in action in respect of any or all of the
foregoing and all payments on or under and all proceeds of every kind and
nature whatsoever in respect of any of the foregoing.
"PAC Repurchase Event" means the occurrence of a breach of any of
PAC's representations and warranties under Section 3.1(a) or the occurrence
of any other event that requires Paragon Auto to repurchase a Receivable
under Section 2.5 of the Sale and Servicing Agreement.
"Purchase Price" means, with respect to Receivables to be sold by
PAC to the Purchaser on the Closing Date, the net book value of such
Receivables (as reflected on the books of PAC as of the Cutoff Date), after
giving effect to whatever adjustments are necessary, in the judgment of
PAC, to properly record the sale in accordance with generally accepted
accounting principles and the Related Documents.
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"Purchaser" means Paragon Auto Receivables Corporation.
"Sale and Servicing Agreement" means the Sale and Servicing
Agreement, dated as of _________ __, _____, between Paragon Acceptance
Corporation, in its individual capacity and as Servicer, Paragon Auto
Receivables Corporation, as Seller, the Trust and Norwest Bank Minnesota,
National Association, as Indenture Trustee and as Backup Servicer, as the
same may be amended or supplemented from time to time.
"Schedule of Representations" means the Schedule of
Representations and Warranties attached hereto as Schedule B.
"Seller" means Paragon Acceptance Corporation
SECTION 1.2. Usage of Terms. With respect to all terms used in
this Agreement, the singular includes the plural and the plural the
singular; words importing one 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 or the Sale and Servicing Agreement;
references to Persons include their permitted successors and assigns; and
the terms "include" or "including" mean "include without limitation" or
"including without limitation."
SECTION 1.3. Section References. All references to Articles, Sections,
paragraphs, subsections, exhibits and schedules shall be to such portions of
this Agreement unless otherwise specified.
SECTION 1.4. Action by or Consent of Noteholders. Whenever any
provision of this Agreement refers to action to be taken or consented to by
Noteholders, such provision shall be deemed to refer to Noteholders of
record as of the Record Date 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 Paragon Auto, PAC or any Affiliate thereof shall be deemed not
to be outstanding; provided, however, that, solely for the purpose of
determining whether the Indenture Trustee is entitled to rely upon any such
action or consent, only Notes which the Indenture Trustee knows to be so
owned shall be so disregarded.
SECTION 1.5. No Recourse. No recourse may be taken, directly or
indirectly, under this Agreement or any certificate or other writing
delivered in connection herewith or therewith, against any stockholder,
officer or director, as such, of PAC, Paragon Auto or of any predecessor or
successor of PAC or Paragon Auto.
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ARTICLE II
CONVEYANCE OF THE RECEIVABLES
AND THE OTHER CONVEYED PROPERTY
SECTION 2.1. Conveyance of the Receivables and the Other Conveyed
Property.
(a) Conveyance. Subject to the terms and conditions of this
Agreement, PAC hereby sells, contributes, transfers, assigns and otherwise
conveys to Paragon Auto, without recourse (but without limitation of its
obligations in this Agreement), and Paragon Auto hereby purchases and
accepts, all right, title and interest of PAC in and to the Receivables and
the Other Conveyed Property with respect thereto. It is the intention of
PAC and Paragon Auto that the transfer and assignment contemplated by this
Agreement shall constitute a sale and/or contribution of the Receivables
and the Other Conveyed Property from PAC to Paragon Auto and the beneficial
interest in and title to the Receivables and the Other Conveyed Property
shall not be part of PAC's estate in the event of the filing of a
bankruptcy petition by or against PAC under any bankruptcy law. If,
notwithstanding the intent of PAC and Paragon Auto, the transfer and
assignment contemplated hereby is held not to be a sale and/or
contribution, PAC hereby grants a first priority security interest to
Paragon Auto in the property conveyed pursuant to this Section 2.1(a), and
this Agreement shall be construed so as to further such intent.
(b) Receivables Purchase Price. Simultaneously with the conveyance
of the Receivables and the Other Conveyed Property with respect thereto by
PAC to Paragon Auto, on the Closing Date, Paragon Auto shall pay to PAC the
Purchase Price of the Receivables sold by PAC to Paragon Auto. An amount
equal to $______________ shall be paid to PAC in cash by federal wire
transfer (same day) funds. An amount equal to $_____________ shall be
deemed paid and returned to Paragon Auto as a contribution to capital from
PAC.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of PAC as Seller. By
its execution of this Agreement, PAC makes the following representations
and warranties on which Paragon Auto relies in purchasing the Receivables
and the Other Conveyed Property with respect thereto and in transferring
the Receivables and the Other Conveyed Property with respect thereto to the
Trust under the Sale and Servicing Agreement. Unless otherwise specified,
such representations and warranties speak as of the Closing Date, but shall
survive the sale, contribution, transfer and assignment of the Receivables
and the Other Conveyed Property hereunder, and the sale, transfer and
assignment thereof by Paragon Auto to the Trust under the Sale and
Servicing Agreement. PAC and Paragon Auto agree that Paragon Auto will
assign to the Trust all of Paragon Auto's rights and interests under the
Agreement and the Trust will pledge all of such interests of Paragon Auto
to the Indenture Trustee, and that the Indenture Trustee will thereafter be
entitled to enforce this Agreement directly against PAC in the Indenture
Trustee's own name on behalf of the Noteholders.
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(a) Schedule of Representations. The representations and
warranties set forth on the Schedule of Representations are true and
correct in all material respects.
(b) Organization and Good Standing. PAC has been duly organized
and is validly existing as a corporation in good standing under the laws of
the State of Delaware, with power and authority to own its properties and
to conduct its business as such properties are currently owned and such
business is currently conducted.
(c) Due Qualification. PAC is duly qualified to do business and
has obtained all necessary licenses and approvals in all jurisdictions
where the failure to do so would have a material adverse effect on (i)
PAC's ability to originate, own, sell and transfer the Receivables and the
Other Conveyed Property to Paragon Auto pursuant to this Agreement, (ii)
the validity or enforceability of the Receivables or the Other Conveyed
Property or (iii) PAC's ability to perform its obligations hereunder and
under its Related Documents.
(d) Power and Authority. PAC has the power and authority to
execute and deliver this Agreement, the Sale and Servicing Agreement and
its Related Documents and to carry out its terms and their terms,
respectively; PAC has power and authority to sell and assign the
Receivables and Other Conveyed Property to be sold and assigned to and
deposited with Paragon Auto hereunder and has duly authorized such sale and
assignment to Paragon Auto by all necessary corporate action; and the
execution, delivery and performance of this Agreement, the Sale and
Servicing Agreement and its Related Documents have been duly authorized by
PAC by all necessary corporate action.
(e) Binding Obligations. This Agreement, the Sale and Servicing
Agreement and its Related Documents, when duly executed and delivered,
shall constitute legal, valid and binding obligations of PAC enforceable in
accordance with their respective terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and by equitable
limitations on the availability of specific remedies, regardless of whether
such enforceability is considered in a proceeding in equity or at law.
(f) No Violation. The execution, delivery and performance by PAC
of its Related Documents, the consummation of the transactions contemplated
by this Agreement, the Sale and Servicing Agreement and the Related
Documents and the fulfillment of the terms hereof and thereof do not (i)
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 articles of incorporation or bylaws of PAC, or any indenture,
agreement, mortgage, deed of trust or other instrument to which PAC is a
party or by which it or its properties are bound, (ii) 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 (iii) to the best of PAC's knowledge, violate any law,
order, rule or regulation applicable to PAC of any Governmental Authority
having jurisdiction over PAC or any of its properties.
(g) No Proceedings. Other than as set forth on Schedule C hereto,
there are no proceedings or investigations pending or, to the best of PAC's
knowledge, threatened against PAC
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before any Governmental Authority having jurisdiction over PAC or its
properties (A) asserting the invalidity of this Agreement or any of the
Related Documents, (B) seeking to prevent the issuance of the Notes or the
consummation of any of the transactions contemplated by this Agreement or
any of the Related Documents, (C) seeking any determination or ruling that
would have a material adverse effect on the performance by PAC of its
obligations under, or the validity or enforceability of, this Agreement or
any of the Related Documents, (D) seeking to materially and adversely
affect the federal income tax or other federal, state or local tax
attributes of the Notes or seeking to impose any excise, franchise,
transfer or similar tax upon the Notes or the sale and assignment of the
Receivables and the Other Conveyed Property.
(h) No Consents. No consent, approval, license, authorization or
order of, or declaration, registration or filing with, any Governmental
Authority or other Person, is required to be made by PAC in connection with
the execution, delivery or performance of its Related Documents or the
consummation of the transactions contemplated thereby, except such as have
been duly made, effected or obtained.
(i) Chief Executive Office; Name. The chief executive office of
PAC is located at 27405 Puerta Real, Suite 200, Mission Viejo, California
and there have been no other such locations during the past four months.
PAC has not been known by any name other than Paragon Acceptance
Corporation since July 1, 1996 and is not known by any trade names.
SECTION 3.2. Representations and Warranties of Paragon Auto as
Purchaser. By its execution of this Agreement, Paragon Auto makes the
following representations and warranties on which PAC relies in selling,
assigning, transferring and conveying the Receivables and the Other
Conveyed Property to Paragon Auto hereunder. Unless otherwise specified,
such representations and warranties speak as of the Closing Date, but shall
survive the sale, contribution, transfer and assignment of the Receivables
and the Other Conveyed Property hereunder, and the sale, transfer and
assignment thereof by Paragon Auto to the Trust under the Sale and
Servicing Agreement.
(a) Organization and Good Standing. Paragon Auto has been duly
organized and is validly existing as a corporation under the laws of the
State of Delaware, with power and authority to own its properties and to
conduct its business as such properties are currently owned and such
business is currently conducted.
(b) Due Qualification. Paragon Auto is duly qualified to do
business and has obtained all necessary licenses and approvals in all
jurisdictions where the failure to do so would have a material and adverse
effect on (i) Paragon Auto's ability to acquire the Receivables or the
Other Conveyed Property pursuant to this Agreement, (ii) the validity or
enforceability of the Receivables and the Other Conveyed Property or (iii)
Paragon Auto's ability to perform its obligations hereunder, under the Sale
and Servicing Agreement and under its Related Documents.
(c) Power and Authority. Paragon Auto has the power and authority
to execute and deliver this Agreement and to carry out its terms and their
terms, respectively; Paragon Auto has the power and authority to acquire
the Receivables and the Other Conveyed Property hereunder and to
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sell, transfer or otherwise convey such Receivables and Other Conveyed
Property to the Trust and has duly authorized such acquisition and
conveyance by all necessary corporate action; and the execution, delivery
and performance of this Agreement has been duly authorized by Paragon Auto
by all necessary corporate action.
(d) Binding Obligation. This Agreement, when duly executed and
delivered, shall constitute legal, valid and binding obligation of Paragon
Auto 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 generally and by equitable
limitations on the availability of specific remedies, regardless of whether
such enforceability is considered in a proceeding in equity or at law.
(e) No Violation. The execution, delivery and performance by
Paragon Auto of this Agreement, the consummation of the transactions
contemplated by this Agreement, the Sale and Servicing Agreement and
Paragon Auto's Related Documents, and the fulfillment of the terms of this
Agreement, the Sale and Servicing Agreement and Paragon Auto's Related
Documents, do not (i) 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 articles of incorporation or bylaws of Paragon
Auto, or any indenture, agreement, mortgage, deed of trust or other
instrument to which Paragon Auto is a party or by which it or its
properties are bound, (ii) 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 (iii) to the best
of Paragon Auto's knowledge, violate any law, order, rule or regulation
applicable to Paragon Auto of any Governmental Authority having
jurisdiction over Paragon Auto or any of its properties.
(f) No Proceedings. There are no proceedings or investigations
pending or, to Paragon Auto's knowledge, threatened against Paragon Auto
before any Governmental Authority having jurisdiction over Paragon Auto or
its properties (A) asserting the invalidity of this Agreement, the Sale and
Servicing Agreement or any of the Related Documents, (B) seeking to prevent
the consummation of any of the transactions contemplated by this Agreement,
the Sale and Servicing Agreement or any of Paragon Auto's Related
Documents, (C) seeking any determination or ruling that would have a
material adverse effect on the performance by Paragon Auto of its
obligations under, or the validity or enforceability of, this Agreement,
the Sale and Servicing Agreement or any of Paragon Auto's Related
Documents, or (D) seeking to materially and adversely affect the federal
income tax or other federal, state or local tax attributes of the Notes or
seeking to impose any excise, franchise, transfer or similar tax upon the
Notes or the transfer and acquisition of the Receivables and the Other
Conveyed Property hereunder, or the transfer by Paragon Auto of the
Receivables and the Other Conveyed Property to the Trust pursuant to the
Sale and Servicing Agreement.
(g) No Consents. No consent, approval, license, authorization or
order of, or declaration, registration or filing with, any Governmental
Authority or other Person is required to be made by Paragon Auto in
connection with the execution, delivery or performance of its Related
Documents or the consummation of the transactions contemplated thereby,
except such as have been duly made, effected or obtained.
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(h) Chief Executive Office. The chief executive office of Paragon
Auto is located at 27405 Puerta Real, Suite 200, Mission Viejo, California.
In the event of any breach of a representation and warranty made by Paragon
Auto hereunder, PAC covenants and agrees that PAC will not take any action
to pursue any remedy that either may have hereunder, in law, in equity or
otherwise, until a year and a day have passed since the date on which all
Notes or other similar securities issued by the Trust, or another trust or
similar vehicle formed by Paragon Auto, or any obligations, notes or other
securities issued by Paragon Auto have been paid in full. PAC and Paragon
Auto agree that damages will not be an adequate remedy for such breach and
that this covenant may be specifically enforced by Paragon Auto or by the
Indenture Trustee on behalf of the Noteholders.
SECTION 3.3. Indemnification. PAC shall defend, indemnify and hold
harmless Paragon Auto, the Indenture Trustee, the Backup Servicer, the Trust
and the Owner Trustee (the "Indemnified Parties"):
(a) for any liability they may incur as a result of the failure of
a Receivable to have been originated in compliance with all requirements of
law and for breach of its representations and warranties contained herein
or failure to perform in all material respects its obligations and duties
contained herein;
(b) from and against any and all costs, expenses, losses, damages,
claims and liabilities, arising out of or resulting from the use, ownership
or operation by PAC or any Affiliate thereof of a Financed Vehicle;
(c) from and against any and all costs (including attorneys' fees
and costs), expenses, losses, damages, claims, penalties, fines,
forfeitures, judgments and liabilities to the extent that such cost,
expense, loss, damage, claim, penalty, fine, forfeiture, judgment or
liability arose out of, or was imposed upon the Indemnified Parties
through, the negligence (other than errors in judgment), misfeasance or bad
faith of PAC in the performance of its duties under this Agreement
(including any violation of law); and
(d) from, and shall pay, taxes that may at any time be asserted
against the Indemnified Parties with respect to the conveyance or ownership
of the Receivables or the Other Conveyed Property hereunder, including any
sales, gross receipts, personal property, tangible or intangible personal
property, privilege or license taxes (but not including any income or
franchise taxes, arising out of the transactions contemplated hereby or
transfer taxes arising in connection with the transfer of the Notes), and
costs and expenses in defending against the same.
Notwithstanding the indemnity provisions contained in Sections
3.3(a) through 3.3(d), PAC shall not be required to indemnify any
Indemnified Party against any taxes, costs, expenses, losses, damages,
claims or liabilities to the extent the same shall arise out of or be based
upon (i) the
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misfeasance, bad faith or gross negligence of such party, or (ii) losses
suffered by reason of uncollectible or uncollected Receivables.
Indemnification under this Section 3.3 shall survive the
termination of this Agreement and shall include fees and expenses of
litigation. These indemnity obligations shall be in addition to any
obligation that PAC may otherwise have.
ARTICLE IV
COVENANTS OF PAC
SECTION 4.1. Protection of Title of Paragon Auto and the Trust.
(a) PAC shall execute, file, record and register such financing
statements and cause to be executed, filed, recorded and registered such
continuation and other statements or documents, all in such manner and in
such places as may be required by law fully to preserve, maintain and
protect the interests of Paragon Auto under this Agreement, and of the
Trust and the Indenture Trustee under the Indenture and the Sale and
Servicing Agreement, in the Receivables and the Other Conveyed Property,
and in the proceeds thereof. PAC shall deliver (or cause to be delivered)
to Paragon Auto, the Owner Trustee and the Indenture Trustee file-stamped
copies of, or filing receipts for, any document recorded, registered or
filed as provided above, as soon as available following such recordation,
registration or filing. If PAC fails to perform its obligations under this
subsection, Paragon Auto, the Owner Trustee or the Indenture Trustee may do
so, at the expense of PAC.
(b) PAC shall not change its name, identity or corporate structure
in any manner that would make any financing statement or continuation
statement filed by PAC (or by Paragon Auto, the Trust or the Indenture
Trustee on behalf of PAC) in accordance with Section 4.1(a) seriously
misleading within the meaning of the applicable provisions of the UCC or
any title statute, unless PAC shall have given Paragon Auto, the Owner
Trustee and the Indenture Trustee at least 30 days prior written notice
thereof, and shall promptly file appropriate amendments to all previously
filed financing statements and continuation statements.
(c) PAC shall give Paragon Auto, the Owner Trustee and the
Indenture Trustee at least 30 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. PAC shall at all times maintain each office from which
it services Receivables and its principal executive office within the
United States of America.
(d) PAC, so long as PAC is 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
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Receivable and the amounts from time to time deposited in the Collection
Account in respect of such Receivable.
(e) PAC shall maintain its computer systems so that, from and
after the time of sale under this Agreement of the Receivables to Paragon
Auto and the sale of the Receivables by Paragon Auto to the Trust, PAC's
master computer records (including any backup archives) that refer to any
Receivable indicate clearly that such Receivable is owned by the Trust.
Indication of the Trust's ownership of a Receivable shall be deleted from
or modified on PAC's computer systems when, and only when, the Receivable
has been paid in full or purchased.
(f) If at any time PAC proposes to sell, grant a security interest
in, or otherwise transfer any interest in automotive receivables (other
than the Receivables) to any prospective purchaser, lender or other
transferee, PAC shall give to such prospective purchaser, lender or other
transferee computer tapes, records or print-outs (including any restored
from backup archives) that, if they shall refer in any manner whatsoever to
any Receivable, indicate clearly that such Receivable is owned by the Trust
(unless such Receivable has been paid in full or purchased).
(g) Promptly after taking the foregoing actions described in
Sections 4.1(b) or (c), PAC shall deliver to the Indenture Trustee and the
Owner Trustee an Opinion of Counsel either (i) stating that, in the opinion
of such counsel, all financing statements and continuation statements have
been executed and filed that are necessary to preserve and protect the
interest of the Indenture Trustee in the Trust Property, and reciting the
details of such filings or referring to prior Opinions of Counsel in which
such details are given, or (ii) stating that, in the opinion of such
counsel, no such action is necessary to preserve and protect such interest.
SECTION 4.2. Other Liens or Interests. PAC shall not (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, except for the
Lien in favor of Paragon Auto, the Lien in favor of the Trust, the Lien in
favor of the Indenture Trustee for the benefit of the Noteholders and the
restrictions on transferability imposed by the Related Documents or (ii)
sign or file under the UCC of any jurisdiction any financing statement that
names PAC or Paragon Auto as a debtor, or sign any security agreement
authorizing any secured party thereunder to file any such financing
statement, with respect to the Receivables, except in each case any such
instrument solely securing the rights and preserving the Lien of Paragon
Auto, the Lien of the Trust and the Lien of the Indenture Trustee, for the
benefit of the Noteholders or as otherwise permitted under this Agreement
or the Related Documents.
SECTION 4.3. Costs and Expenses. PAC shall pay all reasonable costs
and disbursements in connection with the performance of its obligations
hereunder and under the Sale and Servicing Agreement and its Related Documents.
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ARTICLE V
REPURCHASES
SECTION 5.1. Repurchase of Receivables Upon Breach of Warranty.
Upon the occurrence of a PAC Repurchase Event, PAC shall, unless such
breach shall have been cured in all material respects, repurchase the
related Receivable from Paragon Auto as of the second Accounting Date (or
at PAC's election, the first Accounting Date) following its discovery or
its receipt of notice of any such PAC Repurchase Event and, on or before
the Deposit Date following such Accounting Date, PAC shall pay the Purchase
Amount to Paragon Auto and Paragon Auto shall deposit or cause to be
deposited such Purchase Amount into the Collection Account pursuant to
Section 4.4 of the Sale and Servicing Agreement; provided, however, that
the maximum aggregate purchase obligation of PAC with respect to breaches
of the representation and warranty made in clause (C) of paragraph 4 of the
Schedule B hereto shall not exceed an amount equal to 10% of the aggregate
principal balance of all Receivables originated after _______, ____. The
obligation of PAC to repurchase any Receivable as to which a breach has
occurred and is continuing shall, if such obligation is fulfilled,
constitute the sole remedy against PAC for such breach available to Paragon
Auto, the Indenture Trustee on behalf of the Noteholders or the
Noteholders.
SECTION 5.2. Reassignment of Purchased Receivables. Upon deposit
in the Collection Account of the Purchase Amount of any Receivables
repurchased by PAC under Section 5.1, Paragon Auto, the Owner Trustee and
the Indenture Trustee shall take any and all actions reasonably requested
by PAC, at the expense of PAC, to assign, without recourse, representation
or warranty, to PAC all of Paragon Auto's, the Indenture Trustee's and the
Trust's right, title and interest in and to such Receivables, such
assignment being an assignment outright and not for security; and PAC shall
thereupon own such Receivables and all such other Conveyed Property, free
of any further obligation to Paragon Auto, the Trust, the Indenture Trustee
or the Noteholders with respect thereto. Paragon Auto shall take any and
all actions reasonably requested by PAC, at the expense of PAC, to release
its security interest in each such Receivable and in the Other Conveyed
Property with respect thereto. If, following the reassignment of a
Purchased Receivable, in any enforcement suit or legal proceeding, it is
held that PAC may not enforce any such Receivable on the ground that it
shall not be a real party in interest or a holder entitled to enforce the
Receivable, Paragon Auto shall, at the expense of PAC, take such steps as
PAC deems reasonably necessary to enforce the Receivable, including
bringing suit in Paragon Auto's name.
SECTION 5.3. Waivers. No failure or delay on the part of Paragon
Auto or the Trust, as purchaser and assignee of Paragon Auto, in exercising
any power, right or remedy under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right
or remedy preclude any other or future exercise thereof or the exercise of
any other power, right or remedy.
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ARTICLE VI
MISCELLANEOUS
SECTION 6.1. Liability of PAC. PAC shall be liable in accordance
herewith only to the extent of the obligations of this Agreement
specifically undertaken by PAC and its representations and warranties.
SECTION 6.2. Merger or Consolidation of PAC. PAC shall not merge
or consolidate with any other Person or permit any other Person to become
the successor to all or substantially all of PAC's business or assets
unless any such successor corporation shall execute an agreement of
assumption of every obligation of PAC under its Related Documents and,
whether or not such assumption agreement is executed, shall be the
successor to PAC under this Agreement without the execution or filing of
any document (or any further act on the part of any of the parties to this
Agreement). PAC shall provide prompt notice of any merger, consolidation or
succession pursuant to this Section 6.2 to the Owner Trustee, the Indenture
Trustee and the Rating Agency. Notwithstanding the foregoing, PAC shall not
merge or consolidate with any other Person or permit any other Person to
become a successor to PAC's business, unless: (i) immediately after giving
effect to such transaction, no representation or warranty made pursuant to
Section 3.5 shall have been breached in any material respect (for purposes
hereof, such representations and warranties shall speak as of the date of
the consummation of such transaction); (ii) PAC shall have delivered to the
Owner Trustee, the Indenture Trustee and the Rating Agency an Officer's
Certificate and an Opinion of Counsel each stating that such consolidation,
merger or succession and such agreement of assumption comply with this
Section 6.2 and that all conditions precedent, if any, provided for in this
Agreement relating to such transaction have been complied with; and (iii)
PAC shall have delivered to the Owner Trustee, the Indenture Trustee and
the Rating Agency an Opinion of Counsel, stating, in the opinion of such
counsel, either (A) all financing statements and continuation statements
and amendments thereto have been executed and filed that are necessary to
preserve and protect the interests of Paragon Auto, the Trust and the
Indenture Trustee in the Receivables or (B) no such action shall be
necessary to preserve and protect such interest.
SECTION 6.3. Limitation on Liability of PAC and Others. PAC and
any director or officer or employee or agent of PAC may rely in good faith
on the advice of counsel or on any document of any kind prima facie
properly executed and submitted by any Person respecting any matters
arising under this Agreement. PAC shall not be under any obligation to
appear in, prosecute or defend any legal action that is not incidental to
its obligations under this Agreement and that in its opinion may involve it
in any expense or liability.
SECTION 6.4. Conveyance of the Receivables and the Other Conveyed
Property to the Trust. PAC acknowledges that Paragon Auto intends, pursuant
to the Sale and Servicing Agreement, to convey the Receivables and the
Other Conveyed Property, together with its respective rights under this
Agreement, to the Trust on the date hereof. PAC acknowledges and consents
to such conveyance and waives any further notice thereof and covenants and
agrees that the representations and warranties of PAC contained in this
Agreement, and the rights of Paragon Auto hereunder, are intended to
benefit the Indenture Trustee, the Trust and the Noteholders. In
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furtherance of the foregoing, PAC covenants and agrees to perform its
duties and obligations hereunder in accordance with the terms hereof for
the benefit of the Indenture Trustee, the Trust and the Noteholders and
that, notwithstanding anything to the contrary in this Agreement, PAC shall
be directly liable to the Indenture Trustee and the Trust (notwithstanding
any failure by the Servicer, the Backup Servicer or Paragon Auto to perform
its duties and obligations hereunder or under the Sale and Servicing
Agreement), and that the Owner Trustee and the Indenture Trustee may
enforce the duties and obligations of PAC under this Agreement against PAC
for the benefit of the Trust or the Noteholders, respectively.
SECTION 6.5. Amendment.
(a) This Agreement may be amended by PAC and Paragon Auto without
the consent of any of the Certificateholder or the Noteholders, (i) to cure
any ambiguity, (ii) to correct or supplement any provisions in this
Agreement or (iii) for the purpose of adding any provision to or changing
in any manner or eliminating any provision of this Agreement or of
modifying in any manner the rights of the Noteholders, provided, that any
such action under this clause (iii) shall not, as evidenced by an Opinion
of Counsel delivered to the Owner Trustee, the Indenture Trustee and the
Rating Agency, adversely affect in any material respect the interests of
the Noteholders.
(b) This Agreement may also be amended from time to time by PAC
and Paragon Auto with the consent of a Note Majority (which consent of any
Holder of a Note given pursuant to this Section 6.5(b) or pursuant to any
other provision of this Agreement shall be conclusive and binding on such
Holder and on all future Holders of such Note and of any Note issued upon
the transfer thereof or in exchange thereof or in lieu thereof whether or
not notation of such consent is made upon the Note), for the purpose of
adding any provisions to or changing in any manner or eliminating any of
the provisions of this Agreement, or of modifying in any manner the rights
of the Noteholders; provided, however, that the Rating Agency Condition
shall have been satisfied with respect to any such amendment prior to the
execution thereof; and provided, further, that no such amendment shall (i)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on Receivables, payments that shall be
required to be made on any Note, the Class A Interest Rate or the Class B
Interest Rate or (ii) reduce the aforesaid percentage required to consent
to any such amendment or any waiver hereunder, without the consent of the
Holders of all Notes then outstanding.
(c) Prior to the execution of any such amendment or consent under
Section 6.5(a) or (b), PAC shall furnish five days prior written
notification of such amendment or consent to the Rating Agency.
(d) Promptly after the execution of any such amendment or consent
under Section 6.5(b), the Indenture Trustee shall furnish a copy of such
amendment or consent to each Noteholder.
(e) It shall not be necessary for the consent of Noteholders
pursuant to Section 6.5(b) 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 of
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evidencing the authorization of the execution thereof by Noteholders shall
be subject to such reasonable requirements as the Indenture Trustee may
prescribe.
SECTION 6.6. Notices. All demands, notices and communications
under this agreement shall be in writing, personally delivered or mailed by
certified mail, return receipt requested, and shall be deemed to have been
duly given upon receipt (a) in the case of PAC and Paragon Auto, at the
following address: 27405 Puerta Real, Suite 200, Mission Viejo, California
92691, Telecopy No.: (949) 348-8707, (b) in the case of the Indenture
Trustee, at the [Corporate Trust Services/Asset- Backed Administration,
Norwest Center, Sixth Street and Marquette Avenue, Minneapolis, Minnesota
55479-0070, Telecopy No.: (612) 667-3539], (d) in the case of the Rating
Agency, ______________________________________________________________________,
(e) in the case of the Owner Trustee, at [1100 North Market Street, Wilmington,
Delaware 19890, Attention: Corporate Trust Administration], or at such other
address as shall be designated by any such party in a written notice to the
other parties. Any notice required or permitted to be mailed to a Noteholder
shall be given by first class mail, postage prepaid, at the address of such
Holder as shown in the Note Register, and any notice so mailed within the time
prescribed in this Agreement shall be conclusively presumed to have been duly
given, whether or not the Noteholder receives such notice.
SECTION 6.7. Merger and Integration. Except as specifically stated
otherwise herein, this Agreement, the Sale and Servicing Agreement and the
Related Documents set forth the entire understanding of the parties
relating to the subject matter hereof, and all prior understandings,
written or oral, are superseded by this Agreement, the Sale and Servicing
Agreement and the Related Documents. This Agreement may not be modified,
amended, waived or supplemented except as provided herein.
SECTION 6.8. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for
any reason whatsoever held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Agreement and shall in no way
affect the validity or enforceability of the other provisions of this
Agreement.
SECTION 6.9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF (OTHER THAN SECTION
5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW) AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES UNDER THIS AGREEMENT SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
SECTION 6.10. Counterparts. This Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and all of which counterparts shall constitute but
one and the same instrument.
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SECTION 6.11. Nonpetition Covenant. Until one year and one day
following the payment in full of all amounts due in respect of the Notes,
PAC shall not petition or otherwise invoke the process of any court or
government authority for the purpose of commencing or sustaining a case
against Paragon Auto under any federal or state bankruptcy, insolvency or
similar law or appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of Paragon Auto or any
substantial part of its property, or ordering the winding up or liquidation
of the affairs of Paragon Auto.
SECTION 6.12. Assignment. Notwithstanding anything to the contrary
contained in this Agreement, except as provided in Section 6.2, this Agreement
may not be assigned by PAC or Paragon Auto.
SECTION 6.13. Third-Party Beneficiaries. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. Except as otherwise provided
in this Article VI, no other Person shall have any right or obligation
hereunder. Nothing in this Agreement, express or implied, shall give to any
Person, other than the parties hereto and their successors hereunder and
permitted assigns, any benefit or any legal or equitable right, remedy or
claim under this Agreement.
SECTION 6.14. Successors and Assigns. This Agreement shall be
binding upon the parties hereof and their respective successors and
assigns, and shall inure to the benefit of and be enforceable by the
parties hereof and their respective successors and assigns permitted
hereunder. All covenants and agreements contained herein shall be binding
upon, and inure to the benefit of the Trust, the Indenture Trustee and the
Noteholders and their respective permitted successors and assigns, if any.
Any request, notice, direction, consent, waiver or other instrument or
action by any Noteholder shall bind its successors and assigns.
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IN WITNESS WHEREOF, the parties have caused this Receivables
Purchase Agreement to be duly executed by their respective officers,
effective as of the day and year first above written.
PARAGON ACCEPTANCE CORPORATION, as
Seller
By:_______________________________
Name:__________________________
Title:_________________________
PARAGON AUTO RECEIVABLES
CORPORATION, as Purchaser
By:_____________________________
Name:_______________________
Title:______________________
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SCHEDULE A
SCHEDULE OF RECEIVABLES
On file with the Indenture Trustee.
A-1
<PAGE>
SCHEDULE B
REPRESENTATIONS AND WARRANTIES OF PAC
1. Contract Origination Date. Each Receivable has a
contract origination date on or before _______ __, _____.
2. Term of Receivables. Each Receivable has an original
term of at least __ months and not more than __ months and had a
remaining term as of the Cutoff Date of at least __ months and not
more than __ months; the weighted average original contracted term
of the Receivables was __ months as of the Cutoff Date; the
weighted average remaining contracted term of the Receivables was
__ months as of the Cutoff Date.
3. Characteristics of Receivables. (A) Each Receivable
(1) has been originated in the United States of America by a
Dealer for the retail sale of a Financed Vehicle in the ordinary
course of such Dealer's business in accordance in all material
respects with PAC's credit approval guidelines, and, to the best
knowledge of Seller, such Dealer had all necessary licenses and
permits to originate Receivables in the state where such Dealer
was located, (2) was fully and properly executed by the parties
thereto, (3) was purchased by PAC from such Dealer under an
existing Dealer Agreement and Dealer Assignment, (4) contains
customary and enforceable provisions such that the rights and
remedies of the holder or assignee thereof shall be adequate for
realization against the collateral of the benefits of the
security, (5) provides for level monthly payments that fully
amortize the Amount Financed over the original term (except for
the last payment, which may be greater or smaller than the level
payment), provided payments are made on the applicable due dates,
(6) has an Annual Percentage Rate of not less than ____% and not
more than ____%, and (7) provides for, if such contract is
prepaid, a prepayment that fully pays the Principal Balance and
accrued interest at the Annual Percentage Rate; (B) as of the
Cutoff Date, no Receivable has a payment more than 10% of which is
more than 29 days past due; (C) each Receivable has a final
scheduled payment due no later than _________ __, 20__; (D) as of
the Cutoff Date, not more than ___% of the aggregate principal
balance of the Receivables represented financing of used vehicles,
and the remainder of the Receivables represented financing of new
vehicles; (E) as of the Cutoff Date, the average remaining
principal balance of the Receivables was not more than
$__________; and (F) as of the Cutoff Date, the weighted average
Annual Percentage Rate of the Receivables was not more than ___%.
4. Principal Balance; Scheduled Payments. (A) Each
Receivable has an outstanding principal balance as of the Cutoff
Date of not less than $_____ and not more than $__________; (B) each
Receivable originated on or prior to _____ __, had at least one
scheduled payment made prior to the date that is two Business Days
prior to the Closing Date; and (C) each Receivable originated
after _______ __, either (I) has had at least one scheduled
payment made prior to the date that is two Business Days prior to
the Closing Date or (II) will have a first scheduled payment made
within 45 days of the due date thereof.
B-1
<PAGE>
5. Characteristics of Obligors. As of the Cutoff Date, no
Obligor on any Receivable (A) was the subject of any federal,
state or other bankruptcy, insolvency or similar proceeding
pending on such date that is not discharged, (B) was currently the
subject of a judgment in favor of PAC or (C) had its related
Financed Vehicle repossessed (or subject to repossession).
6. Billing Addresses for Obligors. Based on the billing
addresses of the Dealers and the Principal Balances as of the
Cutoff Date, the Obligors of approximately ___% of the Receivables
were located in ___________, the Obligors of approximately ____%
of the Receivables were located in ________, the Obligors of
approximately ____% of the Receivables were located in ________,
the Obligors of approximately ____% of the Receivables were
located in __________ and the Obligors of approximately ____% of
the Receivables were located in other states.
7. Location of Receivable Files. There exists a complete
Receivable File with respect to each Receivable that will have
been delivered to the Indenture Trustee on or prior to the Closing
Date and any exceptions set forth in the Indenture Trustee's
certificate will be corrected within 30 days.
8. Schedule of Receivables. The information with respect
to the Receivables set forth in the Schedule of Receivables has
been produced from the Electronic Ledger and is true and correct
in all material respects as of the close of business on the Cutoff
Date.
9. Adverse Selection. No selection procedures having a
material adverse effect on the Trust or the Noteholders have been
utilized in selecting the Receivables from those receivables owned
by PAC that met the selection criteria contained in this
Agreement.
10. Compliance with Law. Neither the Receivables nor the
sale of the related Financed Vehicles at the time the related
Receivable was originated or made, contravened in any material
respect, and, at the execution of this Agreement contravenes in
any material respect, any requirements of applicable federal,
state and local laws, and regulations thereunder including,
without limitation, usury laws, the Federal Truth-in-Lending Act,
the Equal Credit Opportunity Act, the Fair Credit Reporting Act,
the Fair Debt Collection Practices Act, the Federal Trade
Commission Act, the Magnuson-Moss Warranty Act, the Federal
Reserve Board's Regulations B and Z, the Soldiers' and Sailors'
Civil Relief Act of 1940, each applicable state Motor Vehicle
Retail Installment Sales Act, and state adaptations of the
National Consumer Act and of the Uniform Consumer Credit Code, and
other consumer credit laws and equal credit opportunity and
disclosure laws.
11. No Government Obligor. None of the Receivables is due
from the United States of America or any state or from any other
Governmental Authority.
12. Security Interest in Financed Vehicle. Each
Receivable has created, or will create when all required
procedures are completed by the Servicer, a valid, subsisting and
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enforceable first priority perfected security interest in the
related Financed Vehicle in favor of PAC as secured party, and
such security interest is, or will be upon the completion of all
required procedures by the Servicer, prior to all other liens upon
and security interests in such Financed Vehicle that now exist or
may hereafter arise or be created (except, as to priority, for any
tax liens or mechanics' liens that may arise after the Closing
Date).
13. Binding Obligation; Receivables in Force. Each
Receivable is a binding obligation of its related Obligor and no
Receivable has been satisfied, subordinated or rescinded, nor has
any Financed Vehicle been released from the lien granted by the
related Receivable in whole or in part.
14. No Amendments. As of the Cutoff Date, no Receivable
has been amended, altered or modified and no provision of any
Receivable has been waived, other than any provisions requiring
vendor single interest insurance or late payment fees and those
waivers, alterations or modifications specifically permitted
pursuant to this Agreement or the Sale and Servicing Agreement. As
of the Cutoff Date, no Receivable has been modified as a result of
application of the Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
15. No Defenses. As of the Cutoff Date, no right of
rescission, setoff, counterclaim or defense exists with respect to
any Receivable. The operation of the terms of any Receivable or
the exercise of any right thereunder will not render such
Receivable unenforceable in whole or in part or subject to any
such right of rescission, setoff, counterclaim or defense.
16. No Liens. As of the Cutoff Date, there are no liens
or claims existing or that have been filed for work, labor,
storage or materials relating to any of the related Financed
Vehicles that are liens prior to the security interest in the
related Financed Vehicles granted by the related Receivables.
17. No Fraud or Misrepresentation. Each Receivable was
originated by a Dealer and was sold by the Dealer to PAC without
fraud or misrepresentation on the part of such Dealer in either
case.
18. No Default; Repossession. Except for payment
delinquencies continuing for a period of less than 31 days as of
the Cutoff Date, no default, breach, violation or event permitting
acceleration under the terms of any Receivable has occurred; no
continuing condition that with notice or the lapse of time would
constitute a default, breach, violation, or event permitting
acceleration under the terms of any Receivable has arisen; and no
related Financed Vehicle has been repossessed as of the Cutoff
Date.
19. Insurance; Other. PAC, in accordance with its
customary procedures, has determined (A) that each Obligor, at the
time of origination, had obtained or agreed to obtain insurance
covering the Financed Vehicle as of the execution of the
Receivable insuring against loss and damage due to fire, theft,
transportation, collision and other risks generally
B-3
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covered by comprehensive and collision coverage (i) in an amount
at least equal to the lesser of (x) its maximum insurable value or
(y) the principal amount due from the Obligor under the related
Receivable and (ii) naming PAC as loss payee, (B) each Receivable
that finances the cost of premiums for credit life and accident or
health insurance is covered by an insurance policy and certificate
of insurance naming PAC as creditor under each such insurance
policy and certificate of insurance, and (C) as to each Receivable
that includes financing for the cost of a service contract, the
respective Financed Vehicle that secures the Receivable is covered
by a service contract. No Receivable has force-placed insurance.
20. Title. No Receivable has been sold, transferred,
assigned or pledged by PAC to any Person other than the Purchaser
[or CTS (and the CTS Liens shall be released as of the Closing
Date)] or any such pledge has been released on or prior to the
Closing Date. Immediately prior to the transfer and assignment
herein contemplated, PAC had good and marketable title to each
Receivable, and was the sole owner thereof, free and clear of all
Liens and, immediately upon the transfer thereof, the Purchaser
shall have good and marketable title to each such Receivable, and
will be the sole owner thereof, free and clear of all Liens (other
than Permitted Liens), and the transfer has been perfected under
the UCC. No Dealer has a participation in, or other right to
receive, proceeds of any Receivable. PAC has not taken any action
to convey any right to any Person that would result in such Person
having a right to payments received under the related Insurance
Policies or the related Dealer Agreements or Dealer Assignments or
to payments due under such Receivables.
21. Marking of Receivables. On the Closing Date, PAC will
have caused the portions of the Electronic Ledger relating to the
Receivables to be clearly and unambiguously marked to show that
the Receivables have been sold by PAC to Paragon Auto in
accordance with the terms of the Receivables Purchase Agreement
and sold by the Paragon Auto to the Trust in accordance with the
terms of the Sale and Servicing Agreement and pledged to the
Indenture Trustee for the benefit of the Noteholders under the
Indenture.
22. Computer Tape. The Computer Tape made available by
PAC to Paragon Auto on the Closing Date was complete and accurate
in all material respects as of the Cutoff Date and includes a
description of the same Receivables that are described in the
Schedule of Receivables.
23. Lawful Assignment. No Receivable has been originated
in, or is subject to the laws of, any jurisdiction under which the
sale, contribution, transfer and assignment of such Receivable
under this Agreement shall be unlawful, void or voidable. PAC has
not entered into any agreement with any account debtor that
prohibits, restricts or conditions the assignment of any portion
of the Receivables.
24. All Filings Made. All filings (including, without
limitation, UCC filings) necessary in any jurisdiction to give the
Indenture Trustee a first priority perfected ownership interest in
the Receivables and the other Trust Property have been made.
B-4
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25. One Original. There is only one original executed
copy of each Receivable.
26. Valid and Binding Obligation of Obligor. Each
Receivable is the 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
bankruptcy, insolvency or similar laws affecting the enforcement
of creditors' rights generally; all parties to such contract had
full legal capacity to execute and deliver such contract and all
other documents related thereto and to grant the security interest
purported to be granted thereby.
27. Title Documents. (A) If any Financed Vehicle was
originated in a state in which notation of security interest on
the title document is required or permitted to perfect such
security interest, the title document for such Financed Vehicle
shows, or if a new or replacement title document is being applied
for with respect to such Financed Vehicle the title document will
be received within 180 days and will show, PAC named as the
original secured party under the related Receivables as the Holder
of a first priority security interest in such Financed Vehicle,
and (B) if any Financed Vehicle was originated in a state in which
the filing of a financing statement under the UCC is required to
perfect a security interest in motor vehicles, such filings or
recordings have been duly made and show PAC named as the original
secured party under the related Receivable, and in either case, no
further action is required under the UCC or any titling statute or
act to continue the perfected status of the first priority
security interest in the Financed Vehicle against creditors of and
transferees from the original Obligor.
28. Chattel Paper. Each Receivable constitutes "chattel
paper" under the UCC.
29. Tax Liens. As of the Cutoff Date, there is no Lien
against the related Financed Vehicles for delinquent taxes.
30. No Proceedings. There are no proceedings or
investigations pending, or to the best of PAC's knowledge,
threatened, before any Governmental Authority having jurisdiction
over PAC asserting the invalidity of any Receivable or seeking any
determination or ruling that could reasonably be expected to
materially and adversely affect payment on or enforceability of
any Receivable.
31. Valid Transfer. The conveyance by PAC hereunder
constitutes a valid transfer of all of PAC's right, title and interest
in and to the Receivables and the Other Conveyed Property.
B-5
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SCHEDULE C
LEGAL PROCEEDINGS
None.
C-1
