===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) March 24, 1999
-----------------------
PARAGON AUTO RECEIVABLES CORPORATION
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware
- -------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
333-63697 33-063501
- ----------------------------------- ------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
27405 Puerta Real, Suite 200, Mission Viejo, CA 92691
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(949) 348-8707
- -------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
- -------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
===============================================================================
-1-
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On March 30, 1999, the Registrant caused the issuance and sale of
approximately $100,000,000 initial principal amount of Class A 5.95% Asset
Backed Notes (the "Notes") and $2,564,102.56 initial principal amount of
Asset Backed Certificates (the "Certificates").
The Registrant is filing final forms of the exhibits listed in
Item 7(c) below relating to the Notes and Certificates.
Item 7. Financial Statements and Exhibits
(c) Exhibits
Exhibit
No. Document Description
- ------- --------------------
1.1 Underwriting Agreement, dated as of March 24, 1999,
between Paragon Auto Receivables Corporation, Paragon
Acceptance Corporation and Credit Suisse First Boston
Corporation.
4.1 Indenture, dated as of March 30, 1999, between Paragon
Auto Receivables Owner Trust 1999- A and Norwest Bank
Minnesota, National Association, as Indenture Trustee.
4.2 Trust Agreement dated as of March 15, 1999, between
Paragon Acceptance Corporation, Wilmington Trust Company,
as Owner Trustee, and Paragon Auto Receivables
Corporation.
4.3 Sale and Servicing Agreement dated as of March 30, 1999,
between Paragon Acceptance Corporation, in its individual
capacity and as Servicer, Paragon Auto Receivables
Corporation, as Seller, Paragon Auto Receivables Owner
Trust 1999-A, as Purchaser, and Norwest Bank Minnesota,
National Association, as Indenture Trustee and Backup
Servicer.
4.4 Receivables Purchase Agreement dated as of March 30,
1999, between Paragon Acceptance Corporation, as Seller,
and Paragon Auto Receivables Corporation, as Purchaser.
-2-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
PARAGON AUTO RECEIVABLES CORPORATION
(Registrant)
Dated: April 8, 1999 By: /s/ Nancy C. Ferguson
--------------------------------------
Name: Nancy C. Ferguson
Title: Vice President
-3-
<PAGE>
INDEX OF EXHIBITS
Exhibit
No. Document Description
- ------- --------------------
1.1 Underwriting Agreement, dated as of March 24, 1999,
between Paragon Auto Receivables Corporation, Paragon
Acceptance Corporation and Credit Suisse First Boston
Corporation.
4.1 Indenture, dated as of March 30, 1999, between Paragon
Auto Receivables Owner Trust 1999- A and Norwest Bank
Minnesota, National Association, as Indenture Trustee.
4.2 Trust Agreement dated as of March 15, 1999, between
Paragon Acceptance Corporation, Wilmington Trust Company,
as Owner Trustee, and Paragon Auto Receivables
Corporation.
4.3 Sale and Servicing Agreement dated as of March 30, 1999,
between Paragon Acceptance Corporation, in its individual
capacity and as Servicer, Paragon Auto Receivables
Corporation, as Seller, Paragon Auto Receivables Owner
Trust 1999-A, as Purchaser, and Norwest Bank Minnesota,
National Association, as Indenture Trustee and Backup
Servicer.
4.4 Receivables Purchase Agreement dated as of March 30,
1999, between Paragon Acceptance Corporation, as Seller,
and Paragon Auto Receivables Corporation, as Purchaser.
-4-
PARAGON AUTO RECEIVABLES OWNER TRUST 1999-A
$100,000,000 5.95% Asset Backed Notes, Class A
PARAGON AUTO RECEIVABLES CORPORATION
(Seller)
PARAGON ACCEPTANCE CORPORATION
(Servicer)
UNDERWRITING AGREEMENT
March 24, 1999
Credit Suisse First Boston Corporation
(the "Underwriter")
Eleven Madison Avenue
New York, NY 10010-3629
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 Underwriter $100,000,000 aggregate principal amount of Class A
5.95% Asset Backed Notes (the "Notes"). The Notes are issued by the Paragon
Auto Receivables Owner Trust 1999-A (the "Trust"). The Trust also will
issue $2,564,102.56 aggregate principal amount of certificates (the
"Certificates"). Each Certificate will represent a fractional undivided
interest in the Trust and will be initially sold to the Seller. Each Note
will be secured by the assets of the Trust pursuant to the Indenture (as
defined below).
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 duty trucks and sports utility vehicles (and
all accessories thereto) (the "Financed Vehicles"), and all monies due or
received thereunder or in respect thereof after February 28, 1999 (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, to be dated as of the Closing Date, between the
Seller, the Servicer,
<PAGE>
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"). Pursuant to an Insurance
and Indemnity Agreement (the "Insurance Agreement") among MBIA Insurance
Corporation (the "Note Insurer"), the Servicer, the Backup Servicer, the
Indenture Trustee, Paragon and the Seller, the Note Insurer has issued its
financial guaranty insurance policy (the "Policy") to the Indenture Trustee
for the benefit of the Noteholders guaranteeing timely payment of interest
on and principal of the Notes.
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 Notes. 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 dated March 18, 1999 and a prospectus
supplement describing the Notes and the offering thereof dated March 24,
1999 (the "Prospectus Supplement"), which prospectus will be 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, the
Indenture, the Trust Agreement, the Insurance Agreement, the Policy, this
Agreement, the Notes and each Depository Agreement. "Securityholder" means
any Noteholder and "Security Owner" means the beneficial owner of any Note.
To the extent not defined herein, capitalized terms used herein have the
meanings assigned to such terms in the Sale and Servicing Agreement.
Paragon and the Seller agree, severally and not jointly, with the
Underwriter as follows:
1. The Seller agrees to sell and deliver to the Underwriter as
hereinafter provided, and the Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees to purchase the Notes from the
Seller.
2
<PAGE>
2. The Seller understands that the Underwriter intends (i) to make
a public offering of the Notes purchased by it hereunder as soon after the
Registration Statement and this Agreement have become effective as in the
judgment of the Seller and the Underwriter is advisable and (ii) initially
to offer the Notes purchased by the Underwriter hereunder upon the terms
set forth in the Prospectus.
3. Payment for the Notes purchased by the Underwriter 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: Nationsbank, St. Louis, MO,
ABA #081000032, Acct. No. 340179237046, Account Name: Paragon Acceptance.
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 March 30, 1999, or at such other time on
the same or such other date, not later than the fifth Business Day
thereafter, as the Underwriter and the Seller may agree upon in writing
(the "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 Underwriter hereunder shall
be made against delivery to it 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 Underwriter 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 Underwriter 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, the 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 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
3
<PAGE>
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 written information furnished to the
Seller by the Underwriter specifically for use therein, it being
understood and agreed that the only such information furnished by
the Underwriter consists of, under the caption "Underwriting" in
the Prospectus Supplement, the second and seventh paragraphs and
the second sentence of the fourth paragraph (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 Underwriter 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 Notes 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 Notes and the Transaction Documents conform in all
4
<PAGE>
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 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 Notes 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 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, 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 Notes or the marketability of any of the Notes.
5
<PAGE>
(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) 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 Underwriter 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 Underwriter a copy of the proposed
amendment or supplement and giving the Underwriter 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. The
Seller will promptly advise the Underwriter (i) when the
Prospectus, and any supplement thereto, shall have been filed with
the Commission pursuant to Rule 424(b), (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 Notes
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
Underwriter, 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 the Underwriter as many copies of the Prospectus
(including all amendments and supplements thereto) as the
Underwriter 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 Underwriter a prospectus relating to the Notes is required by
law to be delivered in connection with sales by an Underwriter or
a dealer, any
6
<PAGE>
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 supplement the Prospectus to comply with applicable law,
the Seller will forthwith prepare and furnish, at its own expense,
to the Underwriter and to the dealers (whose names and addresses
the Underwriter will furnish to the Seller) to which Notes may
have been sold by the Underwriter, 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. Neither the Underwriter's consent to,
nor the Underwriter's delivery of, any such amendment or
supplement shall constitute a waiver of any of the conditions set
forth in Section 7.
(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 Underwriter 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 reasonable fees and disbursements of
counsel to the Underwriter 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
Underwriter 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 Notes, the Servicer will furnish to
the Underwriter (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 Underwriter 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
7
<PAGE>
the Act of the Registration Statement, the Prospectus (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 Underwriter may designate (including reasonable fees
and reasonable disbursements of counsel for the Underwriter), (iv) 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 Underwriter and dealers
of copies of the Registration Statement, and the Prospectus (including
exhibits, amendments and supplements thereto) as herein provided, (v) any
fees and expenses payable to the Rating Agencies in connection with the
rating of the Notes and (vi) any fees and expenses of the Trustee and the
Indenture Trustee.
7. The obligations of the Underwriter 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 Underwriter a letter
dated as of the date of the Prospectus, substantially in the form
of the draft to which the Underwriter previously agreed and
otherwise in form and substance reasonably satisfactory to the
Underwriter.
(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; 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. Any request
of the Commission for inclusion of additional information in the
Registration Statement or the Prospectus shall have been complied
with in all material respects.
(c) The Underwriter shall have received the Sale and
Servicing Agreement, the Receivables Purchase Agreement, the
Indenture, the Trust Agreement, the Insurance Agreement and the
Notes in form and substance, reasonably satisfactory to the
Underwriter and duly executed by the signatories required pursuant
to the respective terms thereof.
(d) The Underwriter 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
8
<PAGE>
best of such officer's knowledge, contemplated by the Commission,
and that since the date of this Agreement 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.
(e) After the execution and delivery of this Agreement
and prior to the Closing Date, 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
Underwriter, 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, or (ii) any
downgrading in the rating of any debt Notes 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 Notes
(other than an announcement with no implication of a possible
downgrading, of such rating).
(f) The Underwriter 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 Underwriter 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.
(g) The Underwriter 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 Underwriter, as to certain corporate matters,
tax matters, Notes 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.
(h) 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
Underwriter.
(i) The Underwriter 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 Underwriter, as to the validity and
9
<PAGE>
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.
(j) The Underwriter shall have received from counsel for
the Trustee, an opinion, dated as of the Closing Date, and
reasonably satisfactory in form and substance to the Underwriter,
as to the due authorization, execution and delivery of each
Transaction Document to which the Trustee is a party.
(k) The Underwriter 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 Underwriter,
as to the due authorization, execution and delivery of each
Transaction Document to which the Indenture Trustee is a party;
(l) The Underwriter shall have received from counsel for
the Note Insurer an opinion, dated as of the Closing Date and
reasonably satisfactory in form and substance to the Underwriter,
as to the authorization, execution and delivery of the Insurance
Agreement and the Policy.
(m) If any Rating Agency shall have requested any legal
opinion, officer's certificate or other document not required by
this Agreement, the Underwriter 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 Underwriter to rely on such opinion,
certificate or document as if it were addressed to the
Underwriter.
(n) The Notes shall have been rated "AAA" or its
equivalent by at least two Rating Agencies, and the Underwriter
shall have received copies of letters to that effect dated as of
the Closing Date.
(o) The Insurance Agreement and the Indemnification
Agreement shall have been executed and delivered, in which the
Note Insurer shall represent, among other representations, that
(i) the information under the caption "Description of the Insurer"
in the Prospectus Supplement was approved by the Note Insurer and
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading and (ii) there has been no change in the financial
condition of the Note Insurer since December 31, 1998, which would
have a material adverse effect on the Note Insurer's ability to
meet its obligations under the Policy.
(p) The Policy shall have been issued by the Note Insurer
and shall have been duly countersigned by an authorized agent of
the Note Insurer, if so required under applicable state law or
regulation.
(q) 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.
10
<PAGE>
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 the Underwriter and each person, if any, who
controls the 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 the 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 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.
The Underwriter agrees 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 the Underwriter, but only with
reference to Underwriter Information delivered by the 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
Underwriter and such control persons of the Underwriter shall be designated
in writing by the Underwriter. Any such
11
<PAGE>
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, and does not include
a statement as to, or an admission of, fault, culpability or a failure to
act by or on behalf of an indemnified part.
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 on the one hand and the Underwriter on the other
hand from the offering of the Notes 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 Underwriter 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 Underwriter 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 Underwriter, in each case as
set forth in the table on the cover of the Prospectus, bear to the
aggregate public offering price of the Notes. The relative fault of Paragon
and the Seller on the one hand and the Underwriter 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 the Underwriter 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 Underwriter 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.
12
<PAGE>
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.
In no case shall the Underwriter be responsible for any amount in
excess of the underwriting discount applicable to the Notes purchased by
the Underwriter hereunder.
The Underwriter confirms that the information set forth in the
Prospectus Supplement under the caption "Underwriting" in the second and
seventh paragraphs and the second sentence of the fourth paragraph is
correct and constitutes the only information furnished in writing to
Paragon and the Seller by or on behalf of the Underwriter specifically for
inclusion in the Prospectus Supplement.
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 the Underwriter or any person
controlling the 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
Notes.
9. Notwithstanding anything herein contained, this Agreement may
be terminated by the Underwriter, by written notice given to the Seller, if
after the execution and delivery of this Agreement and prior to the Closing
Date (i) any material adverse change, or any development involving a
prospective material adverse change, in or affecting particularly the
business or properties of the Trust, Paragon or the Seller which, in the
reasonable judgment of the Underwriter, materially impairs the investment
quality of the Notes or makes it impractical or inadvisable to market the
Notes; (ii) trading generally shall have been materially suspended or
materially limited on the New York Stock Exchange or there shall have been
any setting of minimum prices for trading on such exchange; (iii) trading
of any Notes of Paragon or the Seller, if any, shall have been suspended on
any exchange or in any over-the-counter market; (iv) a moratorium on
commercial banking activities in New York or Delaware shall have been
declared by either federal, New York or Delaware authorities; or (v) 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, or emergency in
financial markets if, in the reasonable judgment of the Underwriter, the
effect of any such outbreak, escalation, declaration, calamity or emergency
makes it impractical or inadvisable to market the Notes on the terms and in
the manner contemplated in the Prospectus. Upon such notice being given,
the parties to this Agreement shall (except for any liability arising
before or in relation to such termination) be released and discharged from
their respective obligations under this Agreement.
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.
13
<PAGE>
11. If this Agreement shall be terminated by the Underwriter
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
Underwriter's obligations cannot be fulfilled, in each case other than in
connection with a termination under Section 9(ii), (iv) or (v), Paragon and
the Seller agree to reimburse the Underwriter for all out-of-pocket
expenses (including the reasonable fees and expenses of their counsel)
reasonably incurred by the Underwriter in connection with this Agreement or
the offering contemplated thereunder.
12. 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 Underwriter shall be given to them at Eleven Madison Avenue, New York,
NY 10010-3629 (Facsimile No: (212) 325-8278), Attention: Transaction
Advisory Group. 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.
13. This Agreement shall inure to the benefit of and be binding
upon Paragon and the Seller, the Underwriter, 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 the Underwriter shall be deemed to be
a successor by reason merely of such purchase.
14. 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).
14
<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 Underwriter in accordance with its terms.
Very truly yours,
PARAGON AUTO RECEIVABLES CORPORATION
By: /s/ Nancy C. Ferguson
---------------------------------
Name: Nancy C. Ferguson
Title: Vice President
PARAGON ACCEPTANCE CORPORATION
By: /s/ Nancy C. Ferguson
----------------------------------
Name: Nancy C. Ferguson
Title: Secretary
The foregoing Underwriting
Agreement is hereby confirmed
and accepted as of the date
first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
By: /s/ Richard d'Albert
------------------------------
Name: Richard d'Albert
Title: Managing Director
S-1 Underwriting Agreement
===============================================================================
INDENTURE
between
PARAGON AUTO RECEIVABLES OWNER TRUST 1999-A
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
as Indenture Trustee
Dated as of March 30, 1999
===============================================================================
<PAGE>
Table of Contents
-----------------
Page
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.1. Definitions...........................................2
SECTION 1.2. Incorporation by Reference of Trust Indenture Act.....7
SECTION 1.3. Rules of Construction.................................8
ARTICLE II
The Notes
SECTION 2.1. Form..................................................8
SECTION 2.2. Execution, Authentication and Delivery................8
SECTION 2.3. Temporary Notes.......................................9
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................................13
SECTION 2.10. Definitive Notes.....................................13
ARTICLE III
Covenants
SECTION 3.1. Payment of Principal and Interest....................13
SECTION 3.2. Maintenance of Office or Agency......................13
SECTION 3.3. Money for Payments To Be Held in Trust...............13
SECTION 3.4. Existence............................................15
SECTION 3.5. Protection of the Trust Estate.......................15
SECTION 3.6. Opinion as to the Trust Estate.......................16
SECTION 3.7. Performance of Obligations; Servicing of Receivables.16
SECTION 3.8. Negative Covenants...................................17
SECTION 3.9. Annual Statement as to Compliance....................18
SECTION 3.10. Issuer May Consolidate, etc., Only on Certain Terms..18
SECTION 3.11. Successor or Transferee..............................20
SECTION 3.12. No Other Business....................................20
SECTION 3.13. No Borrowing.........................................20
SECTION 3.14. Servicer's Obligations...............................21
SECTION 3.15. Guarantees, Loans, Advances and Other Liabilities....21
SECTION 3.16. Capital Expenditures.................................21
<PAGE>
Page
SECTION 3.17. Notice of Events of Default..........................21
SECTION 3.18. Further Instruments and Acts.........................21
SECTION 3.19. Compliance with Laws.................................21
SECTION 3.20. Tax Treatment........................................21
SECTION 3.21. Investment Company Act...............................22
SECTION 3.22. Liens...............................................22
SECTION 3.23. Conduct of Business.................................22
ARTICLE IV
Satisfaction and Discharge
SECTION 4.1. Satisfaction and Discharge of Indenture...............22
SECTION 4.2. Payment of Moneys Held by Paying Agent................23
SECTION 4.3. Release of Trust Estate...............................23
ARTICLE V
Remedies
SECTION 5.1. Events of Default....................................24
SECTION 5.2. Acceleration of Maturity; Rescission and Annulment...25
SECTION 5.3. Collection of Indebtedness and Suits for Enforcement
Authority of Controlling Party.....................26
SECTION 5.4. Remedies; Priorities.................................28
SECTION 5.5. Optional Preservation of the Receivables.............29
SECTION 5.6. Limitation of Suits..................................30
SECTION 5.7. Unconditional Rights of Noteholders To Receive
Principal and Interest.............................30
SECTION 5.8. Restoration of Rights and Remedies...................30
SECTION 5.9. Rights and Remedies Cumulative.......................31
SECTION 5.10. Delay or Omission Not a Waiver.......................31
SECTION 5.11. Control by Noteholders...............................31
SECTION 5.12. Waiver of Past Defaults..............................32
SECTION 5.13. Undertaking for Costs................................32
SECTION 5.14. Waiver of Stay or Extension Laws.....................32
SECTION 5.15. Action on Notes......................................32
SECTION 5.16. Performance and Enforcement of Certain Obligations...33
ii
<PAGE>
ARTICLE VI
The Trustee
Page
SECTION 6.1. Duties of the Trustee................................33
SECTION 6.2. Rights of Trustee....................................36
SECTION 6.3. Individual Rights of the Trustee.....................37
SECTION 6.4. Trustee's Disclaimer.................................37
SECTION 6.5. Notice of Defaults...................................37
SECTION 6.6. Reports by Trustee to the Holders....................37
SECTION 6.7. Compensation, Reimbursement and Indemnity............37
SECTION 6.8. Replacement of the Trustee...........................38
SECTION 6.9. Successor Trustee by Merger..........................39
SECTION 6.10. Appointment of Co-Trustee or Separate Trustee........39
SECTION 6.11. Eligibility; Disqualification........................41
SECTION 6.12. Appointment and Powers...............................41
SECTION 6.13. Limitation on Liability..............................41
SECTION 6.14. Trustee Not Liable for Notes or Receivables..........42
SECTION 6.15. Reliance upon Documents..............................42
SECTION 6.16. Representations and Warranties of the Trustee........42
SECTION 6.17. Waiver of Setoffs....................................43
SECTION 6.18. Rights to Direct Trustee.............................43
SECTION 6.19. Preferential Collection of Claims Against Issuer.....43
ARTICLE VII
Noteholders' Lists and Reports
SECTION 7.1. Issuer To Furnish Trustee Names and Addresses of
Noteholders........................................44
SECTION 7.2. Preservation of Information; Communications to
Noteholders........................................44
SECTION 7.3. Reports by Issuer....................................44
SECTION 7.4. Reports by Trustee...................................45
ARTICLE VIII
Accounts, Disbursements and Releases
SECTION 8.1. Collection of Money..................................45
SECTION 8.2. Trust Accounts.......................................45
SECTION 8.3. General Provisions Regarding Accounts................46
SECTION 8.4. Release of Trust Estate..............................46
SECTION 8.5. Opinion of Counsel...................................46
ARTICLE IX
Supplemental Indentures
SECTION 9.1. Supplemental Indentures Without Consent of
Noteholders........................................47
SECTION 9.2. Supplemental Indentures With Consent of Noteholders..48
iii
<PAGE>
Page
SECTION 9.3. Execution of Supplemental Indentures.................49
SECTION 9.4. Effect of Supplemental Indenture.....................49
SECTION 9.5. Reference in Notes to Supplemental Indentures........50
ARTICLE X
Redemption of Notes
SECTION 10.1. Redemption..........................................50
SECTION 10.2. Form of Redemption Notice...........................50
SECTION 10.3. Notes Payable on Redemption Date....................50
ARTICLE XI
Miscellaneous
SECTION 11.1. Compliance Certificates and Opinions, etc...........51
SECTION 11.2. Form of Documents Delivered to Trustee..............53
SECTION 11.3. Acts of Noteholders.................................53
SECTION 11.4. Notices, etc., to the Trustee, Issuer and
Rating Agency.....................................54
SECTION 11.5. Notices to Noteholders; Waiver......................54
SECTION 11.6. Alternate Payment and Notice Provisions.............55
SECTION 11.7. Effect of Headings and Table of Contents............55
SECTION 11.8. Successors and Assigns..............................55
SECTION 11.9. Severability........................................55
SECTION 11.10. Benefits of Indenture...............................56
SECTION 11.11. Legal Holidays......................................56
SECTION 11.12. GOVERNING LAW.......................................56
SECTION 11.13. Counterparts........................................56
SECTION 11.14. Recording of Indenture..............................56
SECTION 11.15. Trust Obligation....................................56
SECTION 11.16. No Petition.........................................56
SECTION 11.17. Inspection..........................................57
SECTION 11.18. Conflict with Trust Indenture Act...................57
SECTION 11.19. Certain Matters Regarding the Note Insurer..........57
SECTION 11.20. Subordination.......................................58
EXHIBITS
EXHIBIT A Form of Class A Notes
iv
<PAGE>
INDENTURE, dated as of March 30, 1999, between PARAGON AUTO
RECEIVABLES OWNER TRUST 1999-A, a Delaware statutory business 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 5.95%
Asset Backed Notes, Class A (the "Class A Notes") or 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 and the Note Insurer (as defined below).
MBIA Insurance Corporation (the "Note Insurer") has issued and
delivered a financial guaranty insurance policy, dated as of Closing Date
(such policy, together with the related endorsements, the "Policy"),
pursuant to which the Note Insurer guarantees certain scheduled payments on
the Notes.
As an inducement to the Note Insurer to issue and deliver the
Policy, the Issuer has executed and delivered the Insurance and
Reimbursement Agreement, dated as of the Closing Date (as amended from time
to time, the "Insurance Agreement"), among the Note Insurer, the Issuer,
Paragon Auto Receivables Corporation and Paragon Acceptance Corporation.
As an additional inducement to the Note Insurer to issue the
Policy, and as security for the performance by the Issuer of the Secured
Obligations, the Issuer has agreed to grant the Indenture Collateral as
collateral to the Trustee for the benefit of the Note Insurer.
GRANTING CLAUSE
The Issuer hereby Grants to the Trustee at the Closing Date, on
behalf of and for the benefit of the Noteholders and the Note Insurer (each
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 Initial Cutoff Date with respect to the
Initial Receivables and after the applicable Subsequent Cutoff
Date with respect to any Subsequent Receivables, 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 Initial Receivables and any
Subsequent Receivables, and any other interest of the Issuer in
the Financed Vehicles, including the certificates of title with
respect to the Financed Vehicles;
1
<PAGE>
(c) the Insurance Policies and any proceeds from any
Insurance Policies relating to the Initial Receivables and any
Subsequent Receivables, the Obligors or the related Financed
Vehicles, including rebates or refunds of premiums;
(e) rights against Dealers with respect to the Initial
Receivables and any Subsequent 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 Trust
Accounts, 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 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 and the Note
Insurer, 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 (i) capitalized terms that are used
herein that are not otherwise defined herein shall have the meanings
assigned to them in the Sale and Servicing Agreement (as defined below) and
(ii) 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 and the Note Insurer on the Closing
Date (as such list may be modified or supplemented from time to time
thereafter).
2
<PAGE>
"Class" means any class of Notes.
"Class A Interest Rate" means 5.95% 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.
"Closing Date" means March 30, 1999.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time, and Treasury Regulations promulgated thereunder.
"Commission" shall mean the Securities and Exchange Commission.
"Controlling Party" shall mean the Note Insurer, so long as no
Insurer Default shall have occurred and be continuing, and the Indenture
Trustee, for so long as an Insurer Default shall have occurred and be
continuing.
"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, the
Note Insurer and the Issuer, or the principal corporate trust office of any
successor Trustee (the address of which the successor Trustee shall notify
the Noteholders, the Note Insurer 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 "A-1" by Standard & Poor's and "P-1" by Moody's.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
3
<PAGE>
"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.
"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 or the Note Insurer 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.
"Issuer" means Paragon Auto Receivables Owner Trust 1999-A, 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 Majority" means Holders of the Notes representing more than
50% of the Note Balance.
4
<PAGE>
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 2.4.
"Notes" is defined in the introduction hereto.
"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 and the Note Insurer.
"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, if addressed to the Note
Insurer, reasonably satisfactory to the Note Insurer, 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 Notes that have been paid with proceeds of the
Policy shall continue to remain Outstanding for purposes of this Indenture
until the Note Insurer has been paid as subrogee hereunder or reimbursed
pursuant to the Insurance Agreement as evidenced by a written notice from
the Note Insurer delivered to the Trustee, and the Note Insurer shall be
deemed to be the Holder of such Notes to the extent of any payments thereon
made by the Note Insurer; and provided, further, 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.
5
<PAGE>
"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.
"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 March 30, 1999 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 Note Insurer or the
Trustee for the benefit of the Noteholders and the Note Insurer under this
Indenture or the Notes (including all payments under the Notes).
6
<PAGE>
"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 latest of (i) the expiration of the
Policy and the return of the Policy to the Note Insurer for cancellation,
(ii) the date on which the Note Insurer shall have received payment in full
of all amounts that the Issuer may owe to the Note Insurer under the
Indenture and the Insurance Agreement and (iii) 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 and
the Note Insurer (including all property and interests Granted to the
Trustee), including all proceeds thereof.
"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 reasonably acceptable to the
Note Insurer.
"Underwriter" means Credit Suisse First Boston Corporation.
(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.
7
<PAGE>
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.
ARTICLE II
The Notes
SECTION 2.1. Form. The Class A Notes, together with the Trustee's
certificate of authentication, shall be in substantially the forms set
forth in Exhibit A, with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon, as may,
consistently herewith, be determined by the officers executing such Notes,
as evidenced by their execution of the Notes. Any portion of the text of
any Note may be set forth on the reverse thereof, with an appropriate
reference thereto on the face of the Note.
Each Note shall be dated the date of its authentication. The terms
of the Notes set forth in Exhibit A are part of the terms of this
Indenture.
SECTION 2.2. Execution, Authentication and Delivery. The Notes
shall be executed on behalf of the 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.
8
<PAGE>
The Trustee shall upon receipt of an Issuer Order authenticate and
deliver Class A Notes for original issue in an aggregate principal amount
of $100,000,000. The Class A Note Balance at any time may not exceed such
amount.
Each Note shall be dated the date of its authentication. The Notes
shall be issuable as registered Notes in the minimum denomination of
$250,000 and in integral multiples of $1,000 in excess thereof; provided,
however, that one Note may be issued in an additional amount equal to any
remaining portion of the original Note Balance.
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 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 shall give the Trustee and the Note Insurer
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 and the Note Insurer 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
9
<PAGE>
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.
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.
Notwithstanding anything else to the contrary contained herein,
the obligation of the Issuer to pay the principal of and interest on the
Notes is not a general obligation of the Issuer, but is limited solely to
the Trust Estate pledged hereunder and the Policy.
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 and the Note Insurer such
security or indemnity as may be reasonably required by the Trustee, the
Note Insurer and the Issuer to hold the Issuer, the Trustee and the Note
Insurer, 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
10
<PAGE>
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, the Note Insurer 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, the
Note Insurer 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.
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, the Note
Insurer and any of their respective agents 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 none of the Issuer, the Note
Insurer 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 shall accrue interest at the Class A
Interest Rate, 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
11
<PAGE>
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, the Note
Insurer 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.
(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.
(d) Promptly following the date on which all principal of and
interest on the Notes has been paid in full, the Trustee shall, if the Note
Insurer has paid any amount in respect of the Notes under the Policy that
has not been reimbursed to it, deliver such surrendered Notes to the Note
Insurer.
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 canceled 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 canceled by the Trustee. No Notes
shall be authenticated in lieu of or in exchange for any Notes canceled as
provided in this Section except as expressly permitted by this Indenture.
All canceled 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.
12
<PAGE>
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 2.6, 2.7 and 3.7 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 written consent of
the Note Insurer 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 and the Pre-Funding Account on
each Payment Date for the benefit of the Class A Notes, 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 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 and the Note Insurer 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.
13
<PAGE>
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 and the Note Insurer 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 and the Note Insurer 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
(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,
14
<PAGE>
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, the Note
Insurer or such Paying Agent with respect to such trust money shall
thereupon cease; provided, however, that if such money or any portion
thereof had been previously deposited by the Note Insurer with the Trustee
for the payment of principal or interest on the Notes, to the extent any
amounts are owing to the Note Insurer, such amounts shall be paid promptly
by the Trustee from the funds so deposited in the Collection Account to the
Note Insurer upon receipt of a written request by the Note Insurer to such
effect; and provided, further, 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 and the Note Insurer 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 and the Note Insurer, 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, 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;
15
<PAGE>
(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, the Note Insurer 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
and on each Subsequent Transfer Date, the Issuer shall furnish to the
Trustee and the Note Insurer 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 (subject
to the rights of the Note Insurer under the Insurance Agreement) 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.
(b) The Issuer may contract with other Persons reasonably
acceptable to the Controlling Party to assist it in performing its duties
under this Indenture, and any performance of such duties by a Person
identified to the Trustee and the Note Insurer 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.
16
<PAGE>
(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, the Note Insurer 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 and the Note Insurer. As soon as a successor Servicer is
appointed by the Controlling Party, the Issuer shall notify the Trustee and
the Note Insurer 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: (i) without the prior consent of
the Controlling Party or (ii) 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;
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 Noteholder by reason of the payment of the taxes levied or
assessed upon any part of the Trust Estate; or
17
<PAGE>
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 and
the Note Insurer have 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 and the Note Insurer on or before April 30 of each
year, commencing April 30, 2000, 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 and the Note
Insurer, in form reasonably satisfactory to the Trustee and the
Note Insurer (so long as no Insurer Default shall have occurred
and be continuing), 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 and the
Note Insurer) 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;
18
<PAGE>
(vi) the Issuer shall have delivered to the Trustee and
the Note Insurer 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); and
(vii) until the Notes are paid in full and all amounts
owing to the Note Insurer under the Related Documents have been
paid in full and if no Insurer Default shall have occurred and be
continuing, the Note Insurer has consented thereto in writing.
(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 and the Note Insurer, in form reasonably satisfactory to
the Trustee and the Note Insurer (so long as no Insurer Default
shall have occurred and be continuing), 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 and the
Note Insurer) 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;
19
<PAGE>
(vi) the Issuer shall have delivered to the Trustee and
the Note Insurer an Officers' Certificate and an Opinion of
Counsel each stating that such conveyance or transfer 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); and
(vii) until the Notes are paid in full and all amounts
owing to the Note Insurer under the Related Documents have been
paid in full and if no Insurer Default shall have occurred and be
continuing, the Note Insurer has consented thereto in writing.
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 and the Note
Insurer 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, (ii) obligations owing from time
to time to the Note Insurer under the Insurance Agreement and (iii) any
other indebtedness permitted by the Related Documents. The proceeds of the
Notes shall be used to fund the initial deposit in the Pre-Funding Account
pursuant to Section 4.6(a) of the Sale and Servicing Agreement, the
Interest Reserve Account pursuant to Section 4.6(d) of the Sale and
Servicing Agreement and 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 and the
obligations owing from time to time to the Note Insurer under the Insurance
Agreement, unless (i) such indebtedness is either (x) rated at least as
high as the rating on the Notes or (y) is other debt that (1) is fully
subordinated to the rated debt, (2) is non-recourse to the Issuer or any
assets of the Issuer other than the Trust Property in excess of amounts
necessary to pay the Noteholders pursuant to Section 4.5(a) and (3) does
not constitute a claim against the Issuer to the extent funds are
insufficient to pay such additional debt, (ii) each of the parties to the
documentation related to such indebtedness shall have signed documentation
containing a provision substantially similar to Section 11.16, (iii) such
indebtedness does not permit
20
<PAGE>
recourse to the Trust Estate, (iv) the Rating Agencies shall have confirmed
in writing to the Note Insurer at the expense of Paragon or its Affiliates
that the risk to the Note Insurer in insuring the Notes shall remain at
least investment grade and (v) the Note Insurer shall have consented to
such indebtedness.
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).
SECTION 3.17. Notice of Events of Default. The Issuer shall give
the Trustee, the Note Insurer and the Rating Agency prompt written notice
of each Event of Default hereunder and each default on the part of the
Servicer, the Note Insurer 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 or the Note Insurer, 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.
21
<PAGE>
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 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,
22
<PAGE>
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 and the Note Insurer 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 and the Policy has expired and been returned to the
Note Insurer for cancellation;
(B) the Issuer has paid or caused to be paid all amounts
owed to the Note Insurer under the Insurance Agreement and all
other sums payable hereunder by the Issuer; and
(C) the Issuer has delivered to the Trustee and the Note
Insurer an Officers' Certificate, an Opinion of Counsel and (if
required by the Trustee or the Note Insurer) 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.
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. The Trustee shall surrender
the Policy to the Note Insurer ninety days after the payment of the Notes
in full.
23
<PAGE>
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 have a material
adverse effect on the interests of the Noteholders or the Note
Insurer 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, the Note Insurer, 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
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
24
<PAGE>
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 on the Final
Scheduled Payment Date;
provided, however, that so long as no Insurer Default shall have occurred
and be continuing, neither the Trustee nor the Noteholders may declare an
Event of Default under the Indenture. So long as an Insurer Default shall
not have occurred and be continuing, (a) an Indenture Event of Default
shall occur only upon delivery by the Note Insurer to the Indenture Trustee
of notice of the occurrence of an Indenture Event of Default; and (b) the
failure to pay principal on the Notes shall not result in the occurrence of
an Indenture Event of Default until the Final Scheduled Payment Date for
the Notes.
The Issuer shall deliver to the Trustee, the Note Insurer, 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 Insurer Default shall not have occurred and be continuing and an
Event of Default shall have occurred and be continuing, then the Note
Insurer may declare all the Notes to be immediately due and payable, by a
notice in writing to the Issuer (and to the Trustee), and upon any such
declaration, the Note Balance, together with accrued and unpaid interest
thereon through the date of acceleration, shall become immediately due and
payable. If an Insurer Default shall have occurred and be continuing and 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. In the event of an acceleration of
the Notes by operation of this Section 5.2, the Trustee shall continue to
be entitled to make claims under the Policy pursuant to the Sale and
Servicing Agreement for payments on the Notes. Payments under the Policy
following acceleration of the Notes shall be applied by the Trustee to pay
interest and principal on the Notes according to Section 5.4(a).
If the Notes are accelerated due to an Event of Default, the Note
Insurer shall have the right (in addition to its obligation to make
payments on the Notes in accordance with the Policy), but not the
obligation, to make payments under the Policy or otherwise of interest and
principal due on the Notes, in whole or in part, on any date or dates
following such acceleration as the Note Insurer, in its sole discretion,
shall elect. In no event may the Note Insurer make payments with respect to
the
25
<PAGE>
Notes later than required by the Note Insurer's obligation to make payments
on the Notes in accordance with the Policy.
At any time after such declaration of acceleration of maturity has
been made and before a judgment or decree for payment of the money due has
been obtained by the Trustee as hereinafter in this Article V provided, the
Note Majority or the Note Insurer, as applicable, 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
(B) all sums paid or advanced by the Trustee or
the Note Insurer hereunder or by the Note Insurer under
the Insurance Agreement or the Policy and the reasonable
compensation, expenses, disbursements and advances of the
Trustee and the Note Insurer and their 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; Authority of Controlling Party. (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) The Noteholders and the Note Insurer each hereby irrevocably
and unconditionally appoints the Controlling Party as the true and lawful
attorney in fact of such party for so long as such party is not the
Controlling Party, with full power of substitution, to execute, acknowledge
and deliver any notice, document, certificate, paper, pleading or
instrument and to do in the name of the Controlling Party as well as in the
name, place and stead of such party such acts, things and deeds for or on
behalf of and in the name of such party under this Indenture (including
under Section 5.4) and under the Related Documents that such party could or
might do or that may be necessary or desirable, to effect the purposes
contemplated hereunder and under the Related Documents and, following the
occurrence of an Event of Default, exercise full right, power and authority
to take, or
26
<PAGE>
not take, any and all acts with respect to the administration, maintenance or
disposition of the Trust Estate.
(c) If an Event of Default occurs and is continuing, the Trustee
may at the direction of the Note Insurer or, if an Insurer Default has
occurred and is continuing, the Note Majority, 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.
(d) 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
liabilities incurred, and all advances made, by the Trustee and
each predecessor Trustee, except as a result of negligence or bad
faith), the Note Insurer 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;
27
<PAGE>
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 and the Note Insurer.
(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.
SECTION 5.4. Remedies; Priorities. (a) If an Event of Default
shall have occurred and be continuing, the Trustee shall, at the direction
of the Note Insurer or, if an Insurer Default has occurred or is
continuing, 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;
28
<PAGE>
(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.
(b) Notwithstanding the foregoing, if the Trustee is the
Controlling Party, and if an Event of Default specified in Section 5.1(i),
(ii), (iii) or (vi) shall have occurred and be continuing, the Trustee may
not sell or otherwise liquidate the Trust Estate, unless: (A) all the
Noteholders consent thereto, (B) the proceeds of such sale or liquidation
distributable to the Noteholders are sufficient to pay 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 the Note Insurer 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.
(c) If the Trustee collects any money or property pursuant to this
Article V (excluding any payments made under the Policy), it shall pay out
such money or property according to the priorities set forth in Section 4.5
of the Sale and Servicing Agreement.
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. At the
direction of the Controlling Party and if the Notes have been declared to
be due and payable under Section 5.2 following an Event of Default, and
such declaration and its consequences have not been rescinded and annulled,
the 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.
29
<PAGE>
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;
(v) no direction inconsistent with such written request
has been given to the Trustee during such 60-day period by the
Note Majority; and
(vi) an Insurer Default shall have occurred and be
continuing;
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 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,
30
<PAGE>
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, the Note Insurer 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, the Controlling Party, the Note Insurer 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, the
Controlling Party, the Note Insurer or to the Noteholders may be exercised
from time to time, and as often as may be deemed expedient, by the Trustee,
the Controlling Party or by the Noteholders, as the case may be.
SECTION 5.11. Control by Noteholders. If the Trustee is the
Controlling Party, 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;
(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.
31
<PAGE>
SECTION 5.12. Waiver of Past Defaults. The Note Insurer or, if an
Insurer Default has occurred and is continuing, 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, the Note
Insurer 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 or the Note Insurer, (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).
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, the Note Insurer or the
Noteholders shall be impaired by the
32
<PAGE>
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 or the Controlling Party, as
applicable) and at the Issuer's expense, the Issuer shall take all such
lawful action as the Trustee or the Note Insurer 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 shall upon the direction (which direction shall be in
writing) of the Note Insurer or, if an Insurer Default has occurred and is
continuing, the Holders of a Note Majority, 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.
(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
33
<PAGE>
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, the Note Insurer 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).
(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
34
<PAGE>
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 Note Insurer or 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.
(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.
35
<PAGE>
(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.
(o) The Trustee shall hold the Policy and shall hold any proceeds
of any claim on the Policy in trust solely for application as provided in
the Sale and Servicing Agreement. The Trustee shall deliver to the Rating
Agency notice of any amendment or modification made to the Policy prior to
the Termination Date. Unless the Rating Agency Condition is satisfied, no
amendment or modification shall be made to the Policy without the prior
written consent of the Holders of all the Notes.
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.
36
<PAGE>
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, the Note
Insurer 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 4.8 of
the Sale and Servicing Agreement.
SECTION 6.7. Compensation, Reimbursement and Indemnity. (a) The
Issuer shall pursuant to Section 4.5(a) of the Sale and Servicing
Agreement, 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 pursuant to Section 4.5(a) of the Sale and Servicing
Agreement, 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 pursuant to Section 4.5(a) of the Sale and
Servicing Agreement 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
37
<PAGE>
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 pursuant to Section 4.5(a) of the Sale and
Servicing Agreement, or shall 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
reasonably acceptable to the Note Insurer 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, the Note Insurer and
the Noteholders or sooner if so required by law. The Issuer may, with the
consent of the Note Insurer, if no Insurer Default has occurred and is
continuing, which consent shall not be unreasonably withheld, 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, the Note Insurer and the
Noteholders and shall appoint a successor Trustee reasonably acceptable to
the Controlling Party. If the Issuer fails to appoint such a successor
Trustee, the Trustee may appoint a successor Trustee reasonably acceptable
to the Controlling Party.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee, the Note Insurer 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
38
<PAGE>
of the Trustee under this Indenture. The successor Trustee shall mail a
notice of its succession to Noteholders and the Note Insurer. 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.
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 Note Insurer, 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 or the Note Insurer 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 Note Insurer, 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 with
the consent of the Note Insurer (which consent shall not be unreasonably
withheld) 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
39
<PAGE>
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 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 with the consent of the
Note Insurer (which consent shall not be unreasonably withheld)
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.
40
<PAGE>
SECTION 6.11. Eligibility; Disqualification. The Trustee shall at
all times satisfy the requirements of TIA ss. 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. The Trustee shall
provide copies of such reports to the Note Insurer upon request. The
Trustee shall comply with TIA ss. 310(b), including the optional provision
permitted by the second sentence of TIA ss. 310(b)(9); provided, however,
that there shall be excluded from the operation of TIA ss. 310(b)(1) any
indenture or indentures under which other securities of Issuer are
outstanding if the requirements for such exclusion set forth in TIA ss.
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 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.
41
<PAGE>
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 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 and the Note Insurer as
follows:
42
<PAGE>
(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 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 ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated.
43
<PAGE>
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. The Trustee or, if the Trustee is not
the Note Registrar, the Issuer shall furnish to the Note Insurer in writing
at such times as the Note Insurer may reasonably request a copy of the
list.
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 ss. 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 ss. 313(c))
such summaries of any information, documents and
44
<PAGE>
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.
The Trustee shall have no duty to review any of the documents
delivered to it pursuant to this Section and shall not be deemed to have
knowledge or notice of their contents solely because of such delivery.
(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 ss. 313(a),
within 60 days after each March 31, beginning with March 31, 2000, Trustee
shall mail to each Noteholder as required by TIA ss. 313(c) and to the Note
Insurer, a brief report dated as of such date that complies with TIA ss.
313(a). Trustee also shall comply with TIA ss. 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.
ARTICLE VIII
Accounts, Disbursements and Releases
SECTION 8.1. Collection of Money. (a) 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.
(b) The Notes shall be insured by the Policy pursuant to the terms
set forth therein, and in this Indenture and the Sale and Servicing
Agreement. All amounts received under the Policy shall be used solely for
payment of the amounts set forth in Section 4.5 of the Sale and Servicing
Agreement.
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 and the Note Insurer, the Trust
Accounts as provided in Section 4.1 of the Sale and Servicing Agreement.
45
<PAGE>
(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 Reimbursement Amounts due to the Note Insurer have been
paid in full and all other Secured Obligations have been 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 and the Note Insurer
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 delivered to the Trustee and the Note
Insurer 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 or the Note Insurer 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
46
<PAGE>
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 the
prior consent of the Note Insurer if no Insurer Default has occurred and is
continuing (which consent shall not be unreasonably withheld) and 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 and the Note Insurer, 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;
(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;
provided, however, that any such action under this Section 9.1 shall not as
evidenced by an Opinion of Counsel delivered to the Note Insurer, adversely
affect in any material respect the interests of the Note Insurer.
47
<PAGE>
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. If an Insurer Default has
occurred and is continuing, written consent of the Note Insurer shall be
required prior to the execution of such supplemental indenture or
indentures unless such action shall not, as evidenced by an Opinion of
Counsel delivered to the Note Insurer and the Trustee, adversely affect in
any material respect the interests of the Note Insurer.
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 Insurer if no Insurer Default has occurred and is
continuing and 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 if an Insurer Default has occurred and
is continuing, written consent of the Note Insurer shall be required prior
to the execution of such supplemental indenture or indentures unless such
action shall not, as evidenced by an Opinion of Counsel delivered to the
Note Insurer and the Trustee, adversely affect in any material respect the
interests of the Note Insurer; and provided, further, that, subject to the
express rights of the Note Insurer under the Related Documents, no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Note affected thereby:
(i) change the date of payment of any installment of
principal of or interest on any Note, or reduce the principal
amount thereof, the interest rate thereon or the Redemption Price
with respect thereto, change the 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);
(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;
48
<PAGE>
(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 copy 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.
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
49
<PAGE>
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, the Note Insurer 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.
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.
50
<PAGE>
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.
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 and the Note Insurer (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 and
(ii) an Opinion of Counsel stating that in the opinion of such counsel all
such conditions precedent, if any, have been complied with, and if required
by the TIA, the Issuer shall furnish to the Trustee 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.
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
51
<PAGE>
(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 and
the Note Insurer 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 and the Note Insurer 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 and the Note Insurer 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 and the Note Insurer
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.
(iv) If (A) the Issuer is required to furnish to the
Trustee and the Note Insurer 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 and the Note Insurer 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.
52
<PAGE>
(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
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
53
<PAGE>
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 1999-A, 27405 Puerta Real,
Suite 200, Mission Viejo, California 92691, Telecopy No.: (714)
348-8707, or at any other address 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 Note Insurer or 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
54
<PAGE>
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.
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,
55
<PAGE>
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, the Note
Insurer, 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 (which may be counsel to the Servicer or any other counsel
reasonably acceptable to the Trustee and the Controlling Party) 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.
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.
56
<PAGE>
SECTION 11.16. No Petition. The Trustee, by entering into this
Indenture, each Noteholder, by accepting a Note, and the Note Insurer, by
accepting the benefits of this Agreement, 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 or of the
Note Insurer, 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 and the Note Insurer
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 and the Note Insurer
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 or the Note Insurer'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, the Note Insurer or 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, the Note Insurer or such Noteholder
having a need to know the same; provided, that the Trustee, the Note
Insurer 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 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 ss.ss. 310 through 317 that impose duties on
any person (including the provisions automatically deemed included herein
unless expressly excluded by this Indenture) are a part of and govern this
Indenture, whether or not physically contained herein.
57
<PAGE>
SECTION 11.19. Certain Matters Regarding the Note Insurer. So long
as an Insurer Default shall not have occurred and be continuing, the Note
Insurer shall have the right to exercise all rights, including voting
rights, that the Noteholders are entitled to exercise pursuant to this
Agreement, without any consent of such Noteholders; provided, however, that
without the consent of each Noteholder, the Note Insurer shall not exercise
such rights to amend this Agreement in any manner that would (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 or the Class A Interest Rate, (ii) adversely affect
in any material respect the interests of the Holders of any Notes, or (iii)
alter the rights of any such Holder to consent to such amendment.
Notwithstanding any provision in this Agreement to the contrary,
if an Insurer Default has occurred and is continuing, the Note Insurer
shall not have the right to take any action under this Agreement or to
control or direct the actions of Paragon, the Seller, the Trust or the
Trustee pursuant to the terms of this Agreement, nor shall the consent of
the Note Insurer be required with respect to any action (or waiver of a
right to take action) to be taken by Paragon, the Seller, the Trust or the
Trustee or the Holders of the Notes; provided, however, that the consent of
the Note Insurer shall be required with respect to any amendment of this
Agreement to the extent provided in Article IX.
SECTION 11.20. Subordination. The Trust and each Class A
Noteholder by accepting a Class A Note acknowledges and agrees that such
Class A Note represents indebtedness of the Trust and does not represent an
interest in any assets (other than the Trust Property) of the Seller
(including by virtue of any deficiency claim in respect of obligations not
paid or otherwise satisfied from the Trust Property and proceeds thereof).
In furtherance of and not in derogation of the foregoing, to the extent the
Seller enters into other securitization transactions, the Trust as well as
each Class A Noteholder by accepting a Class A Note acknowledges and agrees
that is shall have no right, title or interest in or to any assets (or
interests therein) (other than Trust Property) conveyed or purported to be
conveyed by the Seller to another securitization trust or other Person or
Persons in connection therewith (whether by way of a sale, capital
contribution or by virtue of the granting of a lien) ("Other Assets"). To
the extent that, notwithstanding the agreements and provisions contained in
the preceding sentences of this subsection, the Trust or any Class A
Noteholder either (i) asserts an interest or claim to, or benefit from,
Other Assets, whether asserted against or through the Seller or any other
Person owned by the Seller, or (ii) is deemed to have any such interest,
claim or benefit in or from Other Assets, whether by operation of law,
legal process, pursuant to applicable provisions of insolvency laws or
otherwise (including by virtue of Section 1111(b) of the federal Bankruptcy
Code or any successor provision having similar effect under the Bankruptcy
Code), and whether deemed asserted against or through the Seller or any
other Person owned by the Seller, then the Trust and each Class A
Noteholder by accepting a Class A Note further acknowledges and agrees that
any such interest, claim or benefit in or from Other Assets is and shall be
expressly subordinated to the indefeasible payment in full of all
obligations and liabilities of the Seller which, under the terms of the
relevant documents relating to the securitization of such Other Assets, are
entitled to be paid from, entitled to the benefits of, or otherwise secured
by such Other Assets (whether or not any such entitlement or security
interest is legally perfected or otherwise entitled to a priority of
distribution or application under applicable law, including insolvency
laws, and whether asserted against the Seller or any other Person owned by
the Seller), including, the payment of post-petition interest on such other
obligations and liabilities. This subordination agreement shall
58
<PAGE>
be deemed a subordination agreement within the meaning of Section 510(a) of
the Bankruptcy Code. Each Class A Noteholder further acknowledges and
agrees that no adequate remedy at law exists for a breach of this Section
11.20 and the terms of this Section 11.20 may be enforced by an action for
specific performance.
59
<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 1999-A
By: WILMINGTON TRUST COMPANY, not in its
individual capacity but solely as Owner Trustee
By: /s/ James P. Lawler
------------------------------------
Name: James P. Lawler
Title: Vice President
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee
By: /s/ Daniel W. Rolczynski
--------------------------------------
Name: Daniel W. Rolczynski
Title: Corporate Trust Officer
60 Indenture
<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 1999-A
____% 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.
BY ITS ACQUISITION OF A NOTE, THE PURCHASER REPRESENTS AND
WARRANTS TO THE ISSUER THAT EITHER (I) IT WILL NOT PURCHASE OR HOLD THE
NOTE WITH PLAN ASSETS OF ANY EMPLOYEE BENEFIT PLAN SUBJECT TO TITLE I OF
THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")
OR ANY PLAN COVERED BY SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986,
AS AMENDED (THE "CODE"), OR (II) ITS PURCHASE AND HOLDING OF THE NOTE WILL
NOT RESULT IN A NONEXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA
OR SECTION 4975 OF THE CODE.
Paragon Auto Receivables Owner Trust 1999-A, a Delaware trust
(including any successor, the "Issuer"), for value received, hereby
promises to pay to ______________, or registered assigns,
- --------
1/Denominations of $250,000 and integral multiples of $1,000 in excess thereof.
A-1 Indenture
<PAGE>
the principal sum of __________________ DOLLARS ($___________), 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 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 March 30, 1999.
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 Class A Noteholder by acceptance of
a Note acknowledges that the Class A Notes represent indebtedness of the
Trust and do not represent an interest in any assets (other than the Trust
Property) of the Seller as further described in Section 10.11 of the Sale
and Servicing Agreement and Section 11.20 of 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.
The Notes are entitled to the benefits of a financial guaranty
insurance policy (the "Policy") issued by MBIA Insurance Corporation (the
"Note Insurer"), pursuant to which the Note Insurer has unconditionally
guaranteed payments of interest and principal on the Notes on each Payment
Date, all as more fully set forth therein and in the Indenture.
"Statement of Insurance" attached hereto.
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.
A-2 Indenture
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer.
Dated: _______ __, 1999
PARAGON AUTO RECEIVABLES OWNER TRUST 1999-A
By: WILMINGTON TRUST COMPANY, not in its individual
capacity but solely as Owner Trustee
By:___________________________________________
Name:______________________________________
Title:_____________________________________
Class A Note
<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
Class A Note
<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 March [__], 1999 (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 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 (with the consent of the Note Insurer under certain circumstances)
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 sum of the Initial Cutoff Date Principal Balance plus the Aggregate
Principal Balance of all Subsequent Receivables as of their applicable
Subsequent Cutoff Dates.
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
Class A Note
<PAGE>
to take no action inconsistent with the treatment of, the Notes for such
tax purposes as indebtedness of the Issuer.
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.
Class A Note
<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.
Class A Note
- -------------------------------------------------------------------------------
TRUST AGREEMENT
between
PARAGON ACCEPTANCE CORPORATION
WILMINGTON TRUST COMPANY
OWNER TRUSTEE
and
PARAGON AUTO RECEIVABLES CORPORATION
Dated as of March 15, 1999
- -------------------------------------------------------------------------------
<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...........................8
ARTICLE III.
Certificates and Transfer of Interests
SECTION 3.1. Initial Ownership..................................9
SECTION 3.2. The Certificates...................................9
SECTION 3.3. Authentication of Certificates.....................9
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)...............11
SECTION 3.7. Access to List of Certificateholder(s)'
Names and Addresses..............................11
SECTION 3.8. Maintenance of Office or Agency...................12
SECTION 3.9. ERISA Restrictions................................12
ARTICLE IV.
Voting Rights and Other Actions
SECTION 4.1. Prior Notice to Holders with Respect to
Certain Matters...................................12
SECTION 4.2. Action by Certificateholder(s) with Respect to
Certain Matters...................................13
SECTION 4.3. Action by Certificateholder(s) with Respect to
Bankruptcy........................................13
i
<PAGE>
SECTION 4.4. Restrictions on Certificateholder(s)' Power........13
SECTION 4.5. Majority Control...................................14
ARTICLE V.
Certain Duties
SECTION 5.1. Accounting and Records to the Noteholders,
Certificateholder(s), the Internal Revenue
Service and Others................ 14
SECTION 5.2. Signature on Returns; Tax Matters Partner..........15
SECTION 5.3. Payments to Certificateholders.....................15
ARTICLE VI.
Authority and Duties of Owner Trustee
SECTION 6.1. General Authority.................................15
SECTION 6.2. General Duties....................................15
SECTION 6.3. Action upon Instruction...........................16
SECTION 6.4. No Duties Except as Specified in this Agreement
or in Instructions...............................17
SECTION 6.5. No Action Except under Specified Documents
or Instructions..................................17
SECTION 6.6. Restrictions......................................17
ARTICLE VII.
Concerning the Owner Trustee
SECTION 7.1. Acceptance of Trusts and Duties...................18
SECTION 7.2. Furnishing of Documents...........................19
SECTION 7.3. Representations and Warranties....................19
SECTION 7.4. Reliance; Advice of Counsel.......................20
SECTION 7.5. Not Acting in Individual Capacity.................20
SECTION 7.6. Owner Trustee Not Liable for Certificates
or Receivables...................................20
SECTION 7.7. Payments from Trust Property......................21
SECTION 7.8. Doing Business in Other Jurisdictions.............21
ARTICLE VIII.
Compensation of Owner Trustee
SECTION 8.1. Owner Trustee's Fees and Expenses.................21
SECTION 8.2. Indemnification...................................22
SECTION 8.3. Payments to the Owner Trustee.....................22
SECTION 8.4. Non-recourse Obligations..........................22
ARTICLE IX.
Termination of Trust Agreement
SECTION 9.1. Termination of Trust Agreement....................22
ii
<PAGE>
ARTICLE X.
Successor Owner Trustees and Additional Owner Trustees
SECTION 10.1. Eligibility Requirements for Owner Trustee........24
SECTION 10.2. Resignation or Removal of Owner Trustee...........24
SECTION 10.3. Successor Owner Trustee...........................25
SECTION 10.4. Merger or Consolidation of Owner Trustee..........26
SECTION 10.5. Appointment of Co-Trustee or Separate Trustee.....26
ARTICLE XI.
Miscellaneous
SECTION 11.1. Supplements and Amendments........................27
SECTION 11.2. No Legal Title to Trust Property in
Certificateholder(s).............................29
SECTION 11.3. Limitations on Rights of Others...................29
SECTION 11.4. Notices...........................................29
SECTION 11.5. Severability......................................29
SECTION 11.6. Separate Counterparts.............................30
SECTION 11.7. Assignments.......................................30
SECTION 11.8. No Petition.......................................30
SECTION 11.9. Bankruptcy Matters................................30
SECTION 11.10. No Recourse.......................................30
SECTION 11.11. Headings..........................................30
SECTION 11.12. GOVERNING LAW.....................................30
SECTION 11.13. Servicer..........................................31
SECTION 11.14. Certain Matters Regarding the Insurer.............31
EXHIBITS
Exhibit A Form of Certificate
iii
<PAGE>
TRUST AGREEMENT, dated as of March 15, 1999, 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 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), the Note Insurer and PAC, or 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).
"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.
1
<PAGE>
"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.
"Note Insurer" shall mean MBIA Insurance Corporation, a
New York insurance company, or any successor thereto, as issuer of the
Policy.
"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.
"Policy" shall mean the note guaranty insurance policy
number 28877, dated March 30, 1999, issued by the Note Insurer to the
Indenture Trustee for the benefit of the Noteholders, including any
endorsements thereto.
"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 March 30, 1999, 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 provisions of proposed or temporary regulations shall
include analogous provisions of final Treasury Regulations or other
successor Treasury Regulations.
2
<PAGE>
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 1999-A," 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), the Note Insurer 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), the Note Insurer 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;
(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;
3
<PAGE>
(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 $1000. 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 statutory Delaware business 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 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
4
<PAGE>
herein. The Owner Trustee shall file a certificate of trust under Section
3810 of the Delaware Business Trust Act.
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, Paragon Auto and the
Certificateholder(s) makes the following representations and warranties as
to itself upon which the Note Insurer relies in issuing the Policy and the
Owner Trustee relies in accepting the Trust Property in trust and issuing
the Certificates.
(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.
5
<PAGE>
(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.
(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
6
<PAGE>
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 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, the Note Insurer and
the Owner Trustee, during the term of this Agreement, and to the fullest
extent permitted by applicable law, that:
(a) it shall not create, incur or suffer to exist any
indebtedness or engage in any business, except, in each case, as permitted
by its certificate of incorporation and the other Related Documents;
7
<PAGE>
(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 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 one year and one day following 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)
8
<PAGE>
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.
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
9
<PAGE>
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, 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
10
<PAGE>
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 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 and the Note Insurer, within 15 days after
receipt by the Owner Trustee of a request therefor from such Person in
writing, a list of the names and addresses of the 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, the Note Insurer or any
agent thereof accountable by reason of the disclosure of its name and
address, regardless of the source from which such information was derived.
SECTION 3.8. Maintenance of Office or Agency. The Owner
Trustee shall maintain in Wilmington, Delaware, an office or offices or agency
or agencies where 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
11
<PAGE>
Owner Trustee initially designates its Corporate Trust Office for such
purposes. The Owner Trustee shall give 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 I of
ERISA, (ii) a plan described in Section 4975(e)(1) of the Code, or (iii)
any entity whose underlying assets include plan assets by reason of a
plan's investment in the entity (each, a "Benefit Plan"). 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 the Certificateholder(s) and with the prior written
consent of the Note Insurer (so long as no Insurer Default shall have
occurred and be continuing) 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), the
furnishing of indemnification
12
<PAGE>
satisfactory to the Owner Trustee by the Certificateholder(s) and, to the
extent required by the preceding sentence, the prior written consent of the
Note Insurer.
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) and the Note Insurer.
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 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.
13
<PAGE>
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 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)(vii) of the
Sale and Servicing Agreement by wire transfer or check mailed to such
Certificateholder.
14
<PAGE>
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 $100,000,000. 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 regardless of whether
such Related Document is terminated, revoked or rejected by such Person,
and the Owner Trustee shall not be liable for the 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.
15
<PAGE>
(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) and the Note Insurer 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 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.
16
<PAGE>
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 a Responsible Officer 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.
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
17
<PAGE>
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, any Noteholder or to any Certificateholder, other
than as expressly provided for herein and in the Related Documents;
(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 Note Insurer 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, the
Note Insurer 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.
18
<PAGE>
(b) It has taken all corporate action necessary to
authorize the execution and delivery by it of this Agreement, and this
Agreement will be executed and delivered by one of its officers who is duly
authorized to execute and deliver this Agreement on its behalf.
(c) Neither the execution nor the delivery by it of this
Agreement, nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof will
contravene any federal or Delaware state law, governmental rule or
regulation governing the banking or trust powers of the Owner Trustee or
any judgment or order binding on it, or constitute any default under its
charter documents or by-laws or any indenture, mortgage, contract,
agreement or instrument to which it is a party or by which any of its
properties may be bound.
SECTION 7.4. Reliance; Advice of Counsel. (a) The Owner
Trustee shall incur no liability to anyone in acting upon any signature,
instrument, notice, resolution, request, consent, order, certificate,
report, opinion, bond or other document or paper believed by it to be
genuine and believed by it to be signed by the proper party or parties. The
Owner Trustee may accept a certified copy of a resolution of the board of
directors or other governing body of any corporate party as conclusive
evidence that such resolution has been duly adopted by such body and that
the same is in full force and effect. As to any fact or matter the method
of the determination of which is not specifically prescribed herein, the
Owner Trustee may for all purposes hereof rely on a certificate, signed by
the president or any vice president or by the treasurer, secretary or other
authorized officers of the relevant party, as to such fact or matter, and
such certificate shall constitute full protection to the Owner Trustee for
any action taken or omitted to be taken by it in good faith in reliance
thereon.
(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
19
<PAGE>
Owner Trustee on the Certificates) shall be taken as the statements of PAC
and the Owner Trustee assumes no responsibility for the correctness
thereof. The Owner Trustee makes no representations as to the validity or
sufficiency of this Agreement, 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, the Note Insurer 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 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.
20
<PAGE>
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 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.
21
<PAGE>
ARTICLE IX.
Termination of Trust Agreement
SECTION 9.1. Termination of Trust Agreement. (a) The
Issuer shall dissolve 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, Noteholders and the Note Insurer 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 the Note Insurer 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 termination from the Servicer given pursuant to Section 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(a)(vii) 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
22
<PAGE>
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.
(e) Upon the completion of winding up of the Trust,
including the payment or the making of reasonable provision for payment of
all obligations of the Trust in accordance with Section 3808(e) of the
Delaware Business Trust Act, the Owner Trustee shall file a certificate of
cancellation with the Delaware Secretary of State in accordance with
Section 3810 of the Delaware Business Trust Act, at which time the Trust
and this Agreement (other than Sections 8.1 and 8.2) shall terminate. The
Servicer shall act as the liquidator of the Trust and shall be responsible
for directing the Owner Trustee to take all required actions in connection
with winding up the Trust.
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 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, the Note
Insurer and the Servicer. Upon receiving such notice of resignation,
Paragon Auto shall promptly appoint a successor Owner Trustee reasonably
acceptable to the Note Insurer 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
or the Note
23
<PAGE>
Insurer may petition any court of competent jurisdiction for the
appointment of a successor Owner Trustee.
If at any time the Owner Trustee shall cease to be
eligible in accordance with the provisions of Section 10.1 and shall fail
to resign after written request therefor by Paragon Auto, the Note Insurer
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 the Owner Trustee shall be removed under the
authority of the immediately preceding sentence, Paragon Auto shall
promptly appoint a successor Owner Trustee reasonably acceptable to the
Note Insurer 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, the Note Insurer and to its
predecessor Owner Trustee an instrument accepting such appointment under
this Agreement, and thereupon the resignation or removal of the predecessor
Owner Trustee shall become effective and such successor Owner Trustee,
without any further act, deed or conveyance, shall become fully vested with
all the rights, powers, duties and obligations of its predecessor under
this Agreement, with like effect as if originally named as Owner Trustee.
The predecessor Owner Trustee shall upon payment of its fees and expenses
deliver to the successor Owner Trustee all documents and statements and
monies held by it under this Agreement. 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, the Note Insurer and the Rating Agency. If the
Servicer shall fail to mail such notice within 10 days after acceptance of
appointment by the
24
<PAGE>
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 and the Note Insurer.
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 with the
consent of the Note Insurer (which consent shall not be unreasonably
withheld) 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 with
the consent of the Note Insurer (which consent shall not be unreasonably
withheld). No co-trustee or separate trustee under this Agreement shall be
required to meet the terms of eligibility as a successor trustee pursuant
to Section 10.1 and no notice of the appointment of any co-trustee or
separate trustee shall be required pursuant to Section 10.3.
Each separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions
and conditions:
(i) all rights, powers, duties and obligations
conferred or imposed upon the Owner Trustee shall be conferred
upon and exercised or performed by the Owner Trustee and such
separate trustee or co-trustee jointly (it being understood that
such separate trustee or co-trustee is not authorized to act
separately without the Owner Trustee joining in such act), except
to the extent that under any law of any jurisdiction in which any
particular act or acts are 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;
25
<PAGE>
(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 with the consent of the Note Insurer (which consent shall
not be unreasonably withheld) 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 and the Note Insurer.
Any separate trustee or co-trustee may at any time
appoint the Owner Trustee, its agent or attorney-in-fact with full power
and authority, to the extent not prohibited by law, to do any lawful act
under or in respect of this Agreement on its behalf and in its name. If any
separate trustee or co-trustee shall die, become incapable of acting,
resign or be removed, all of its estates, properties, rights, remedies and
trusts shall vest in and be exercised by the Owner Trustee, to the extent
permitted by law, without the appointment of a new or successor trustee.
ARTICLE XI.
Miscellaneous
SECTION 11.1. Supplements and Amendments. (a) This
Agreement may be amended by PAC, Paragon Auto and the Owner Trustee, with
prior written notice to the Rating Agency and with the prior written
consent of the Note Insurer (so long as an Insurer Default shall not have
occurred), which consent shall not be unreasonably withheld, but without
the consent 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 delivered to the Owner Trustee, the Note Insurer and the
Rating Agency, adversely affect in any material respect the interests of
the Note Insurer or 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 prior
26
<PAGE>
written consent of the Note Insurer (so long as an Insurer Default shall
not have occurred), and the consent of the holders of Notes evidencing not
less than the Note Majority and 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 (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, the Note Insurer and the Rating Agency.
It shall not be necessary for the consent of
Certificateholder(s), the Noteholders, the Note Insurer or the Indenture
Trustee pursuant to this Section 11.1(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. If an Insurer Default has
occurred and in continuing, written consent of the Note Insurer shall be
required prior to the execution of such amendment unless such action shall
not, as evidenced by an Opinion of Counsel delivered to the Note Insurer
and the Indenture Trustee, adversely affect in any material respect the
interests of the Note Insurer. The manner of obtaining such consents (and
any other consents of the Note Insurer, 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 the Note Insurer,
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
27
<PAGE>
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 the Note Insurer, 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; (iii) if to PAC, addressed to Paragon Acceptance Corporation,
27405 Puerta Real, Suite 200, Mission Viejo, California 92691, Attention:
Vice President-Finance, Telecopy No.: (949) 348-8707; and (iv) if to the
Note Insurer, addressed to MBIA Insurance Corporation, 113 King Street,
Armonk, New York, 10504, Attention: Insured Portfolio Management,
Structured Finance, Telecopy No.: (914) 765- 3163; 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.
28
<PAGE>
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
Servicer, the Indenture Trustee, the Note Insurer 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
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
29
<PAGE>
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.
SECTION 11.14. Certain Matters Regarding the Insurer. So
long as an Insurer Default shall not have occurred and be continuing, the
Note Insurer shall have the right to exercise all rights, including voting
rights, that the Noteholders or Certificateholders are entitled to exercise
pursuant to this Agreement, without any consent of such Noteholders or
Certificateholders; provided, however, that without the consent of each
Noteholder or Certificateholder, the Note Insurer shall not exercise such
rights to amend this Agreement in any manner that would (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, (ii) adversely affect in any material respect the
interests of the Holders of any Notes or Certificates, or (iii) alter the
rights of any such Holder to consent to such amendment.
Notwithstanding any provision in this Agreement to the contrary,
if an Insurer Default has occurred and is continuing, the Note Insurer
shall not have the right to take any action under this Agreement or to
control or direct the actions of PAC, Paragon Auto, the Trust or the Owner
Trustee pursuant to the terms of this Agreement, nor shall the consent of
the Note Insurer be required with respect to any action (or waiver of a
right to take action) to be taken by PAC, Paragon Auto, the Trust or the
Owner Trustee or the Holders of the Notes, or the Certificates; provided,
however, that the consent of the Note Insurer shall be required with
respect to any amendment of this Agreement (which shall not be unreasonably
withheld) to the extent provided in Section 11.1.
30
<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: /s/ James P. Lawler
-------------------------------------
Name: James P. Lawler
Title: Vice President
PARAGON AUTO RECEIVABLES
CORPORATION, as Holder of the Certificate
By: /s/ Nancy C. Ferguson
--------------------------------------
Name: Nancy C. Ferguson
Title: Vice President
Acknowledged and Agreed:
PARAGON ACCEPTANCE CORPORATION, as Servicer
By: /s/ Nancy C. Ferguson
--------------------------------
Name: Nancy C. Ferguson
Title: Secretary
31 Trust Agreement
<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.
Trust Agreement
A-1
<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 1999-A (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.
March 15, 1999
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
March 15, 1999 (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 March 15,
1999, between the Issuer, Norwest Bank Minnesota, National Association, as
Indenture Trustee (the "Indenture Trustee"), are two classes of Notes
designated as "Class A 5.95% Asset Backed 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 Initial Cutoff Date with
respect to the Initial Receivables and after the Subsequent Cutoff Date
with respect to Subsequent Receivables, security interests in the vehicles
financed thereby, certain bank accounts and the proceeds thereof, proceeds
from claims on certain insurance policies and certain other rights under
the Trust Agreement and the Sale and Servicing Agreement, to be dated as of
March 30, 1999 (the "Sale and Servicing Agreement"), among PAC, Paragon
Auto, the Issuer and the Indenture Trustee, all right to and interest of
Paragon Auto in and to the Receivables Purchase Agreement, to be dated as
of March 30, 1999, between PAC and Paragon Auto, and all proceeds of the
foregoing.
A-2 Trust Agreement
<PAGE>
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 April 15, 1999, 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, 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
A-3 Trust Agreement
<PAGE>
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 Trust Agreememt
<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 1999-A
By: WILMINGTON TRUST COMPANY,
not in its individual capacity but solely as
Owner Trustee
Dated: By:_________________________________________
A-5 Trust Agreement
<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, Paragon Auto and the Owner Trustee with
the consent of the Note Insurer and the 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.
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
A-6 Trust Agreement
<PAGE>
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 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, Noteholders and the Note Insurer of all amounts
required to be paid to them pursuant to this 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 sum of the Initial Cutoff Date Principal Balance plus the
aggregate Principal Balance of all Subsequent Receivables as of their
applicable Subsequent Cutoff Dates.
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 Trust Agreement
<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 Trust Agreement
SALE AND SERVICING AGREEMENT
RELATING TO
PARAGON AUTO RECEIVABLES OWNER TRUST 1999-A
between
PARAGON ACCEPTANCE CORPORATION
In its individual capacity
and as Servicer
PARAGON AUTO RECEIVABLES CORPORATION
as Seller
PARAGON AUTO RECEIVABLES OWNER TRUST 1999-A
as Purchaser
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
as Indenture Trustee and Backup Servicer
-----------------------------------------
Dated as of March 30, 1999
-----------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
Section 1.1. Definitions...........................................1
Section 1.2. Usage of Terms.......................................23
Section 1.3. Calculations.........................................23
Section 1.4. Section References...................................23
Section 1.5. Action by or Consent of Noteholders..................23
Section 1.6. No Recourse..........................................23
Section 1.7. Nonpetition Covenant.................................24
ARTICLE II
CONVEYANCE OF RECEIVABLES; ACCEPTANCE BY INDENTURE TRUSTEE
Section 2.1. Conveyance of Receivables............................24
Section 2.2. Conveyance of Subsequent Receivables.................25
Section 2.3. Custody of Receivable Files..........................27
Section 2.4. Conditions Precedent to Issuance by Trust............28
Section 2.5. Representations and Warranties of Seller.............29
Section 2.6. Repurchase of Receivables Upon Breach of Warranty....31
Section 2.7. Indenture Trustee's Assignment of Receivables........31
Section 2.8. Collecting Lien Certificates.........................32
ARTICLE III
ADMINISTRATION AND SERVICING OF RECEIVABLES
Section 3.1. Duties of the Servicer...............................32
Section 3.2. Collection of Receivable Payments; Modifications of
Receivables; Lockbox Agreement...................33
Section 3.3. Realization Upon Receivables.........................34
Section 3.4. Insurance............................................35
Section 3.5. Maintenance of Security Interests in Vehicles........35
Section 3.6. Covenants, Representations and Warranties of
Servicer...........................................36
Section 3.7. Purchase of Receivables Upon Breach of Covenant......39
Section 3.8. Total Servicing Fee; Payment of Certain Expenses
by Servicer; Backup Servicer Fee.................39
Section 3.9. Servicer's Certificate...............................40
Section 3.10. Annual Statement as to Compliance; Notice of Servicer
Termination Event...............................40
Section 3.11. Annual Independent Accountants' Report..............41
i
<PAGE>
Section 3.12. Access to Certain Documentation and Information
Regarding Receivables..........................41
Section 3.13. Monthly Tape; Certain Duties of Backup Servicer.....41
Section 3.14. Insurance...........................................42
Section 3.15. Compliance with Laws................................43
ARTICLE IV
PAYMENTS; STATEMENTS TO NOTEHOLDERS
Section 4.1. Trust Accounts.......................................43
Section 4.2. Servicer Reimbursements..............................45
Section 4.3. Application of Collections...........................46
Section 4.4. Additional Deposits..................................46
Section 4.5. Payments.............................................46
Section 4.6. Pre-Funding Account and Interest Reserve Account.....48
Section 4.7. Net Deposits.........................................49
Section 4.8. Statements to Noteholders............................50
Section 4.9. Optional Deposits by the Note Insurer................51
ARTICLE V
THE RESERVE ACCOUNT AND THE POLICY
Section 5.1. Initial Deposit......................................52
Section 5.2. Policy...............................................52
Section 5.3. Deficiency Claim Amounts.............................52
Section 5.4. Claims Under Policy..................................52
Section 5.5. Distribution of Excess...............................53
Section 5.6. Surrender of Policy..................................53
ARTICLE VI
THE SELLER
Section 6.1. Liability of Seller..................................54
Section 6.2. Merger or Consolidation of the Seller................54
Section 6.3. Limitation on Liability of Seller and Others.........54
Section 6.4. Special Purpose Entity...............................54
Section 6.5. Restrictions on Liens................................55
Section 6.6. Creation of Indebtedness; Guarantees.................56
Section 6.7. Compliance with Laws.................................56
Section 6.8 Further Instruments and Acts..........................56
Section 6.9 Investment Company Act................................56
ii
<PAGE>
ARTICLE VII
THE SERVICER
Section 7.1. Liability of Servicer; Indemnities...................56
Section 7.2. Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer or Backup Servicer..57
Section 7.3. Limitation on Liability of Servicer, Backup Servicer
and Others.........................................58
Section 7.4. Delegation of Duties.................................59
Section 7.5. Servicer and Backup Servicer Not to Resign...........59
Section 7.6. Administrative Duties
ARTICLE VIII
SERVICER TERMINATION EVENTS
Section 8.1. Servicer Termination Event...........................61
Section 8.2. Consequences of a Servicer Termination Event.........62
Section 8.3. Appointment of Successor.............................62
Section 8.4. Notification to Noteholders..........................63
Section 8.5. Waiver of Past Defaults..............................64
ARTICLE IX
TERMINATION
Section 9.1. Optional Purchase of All Receivables.................64
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1. Amendment...........................................64
Section 10.2. Protection of Title to Trust........................66
Section 10.3. Limitation on Rights of Noteholders.................67
Section 10.4. GOVERNING LAW.......................................68
Section 10.5. Severability of Provisions..........................68
Section 10.6. Assignment..........................................68
Section 10.7. Third-Party Beneficiaries...........................69
Section 10.8. Counterparts........................................69
Section 10.9. Notices.............................................69
Section 10.10. Successors and Assigns.............................69
Section 10.11. Subordination......................................70
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
Exhibit C -- Form of Subsequent Transfer Agreement
Exhibit D -- Form of Officer's Certificate
iv
<PAGE>
SALE AND SERVICING AGREEMENT, dated as of March 30, 1999 (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 1999-A, a
Delaware statutory business trust, as purchaser (the "Trust" or the
"Issuer"), 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).
Addition Notice: With respect to the transfer of Subsequent
Receivables to the Trust pursuant to Section 2.2 of this Agreement, a written
notice, which shall be given by the Seller to the
1
<PAGE>
Trustee and the Note Insurer not later than seven Business Days prior to
the related Subsequent Transfer Date, of the Seller's designation of
Subsequent Receivables to be sold to the Trust, which shall include the
aggregate Principal Balance of such Subsequent Receivables and the other
pool information required by the Note Insurer and the Rating Agencies.
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
Initial 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, (iii) the
Policy Claim Amount, if any, received by the Indenture Trustee from the
Note Insurer with respect to such Payment Date, (iv) all Pre-Funding
Earnings, if any, to be transferred to the Collection Account pursuant to
Section 4.6(a) for such Payment Date, (v) all income from investments of
funds in the Collection Account during the related
2
<PAGE>
Collection Period and (vi) the Interest Reserve Requirement, if any, to be
transferred to the Collection Account for such 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.
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 the schedule of fees issued by the
Backup Servicer and acknowledged by Paragon on March 26, 1999, with a copy
delivered to the Note Insurer.
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 and, with respect to any successor Servicer
the amounts specified in Section 8.3 to the extent not paid by the original
Servicer.
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(s): As defined in the Trust Agreement.
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 Note Balance as of the close of business on
the related Accounting 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: 5.95% per annum, calculated on a basis of a
360-day year consisting of twelve 30-day months.
3
<PAGE>
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 Factor: As of any Payment Date, a seven-digit decimal
figure equal to the Note Balance as of the close of business on such
Payment Date divided by the initial 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 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 Noteholder's Percentage of
the sum of (A) the principal portion of all Collected Funds for the related
Determination Date, (B) without duplication, 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 Note Balance.
Class A Redemption Amount: As of the Payment Date on or
immediately following the last day of the Funding Period, after giving
effect to any transfer of Subsequent Receivables on such date, an amount
equal to the remaining portion of the Pre-Funded Amount as of such Payment
Date multiplied by the Noteholder's Percentage.
Clearing Corporation: As defined in Section 8-102(3) of Old Article 8.
Closing: As defined in Section 2.1(d).
Closing Date: March 30, 1999
Collected Funds: With respect to any Determination Date, the
amount of funds in the Collection Account representing collections
(including collections under Insurance Policies) on the Receivables
received by the Servicer during the related Collection Period, including
all Liquidation Proceeds (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.
4
<PAGE>
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 Note Insurer, so long as no Insurer Default
shall have occurred and be continuing, and the Indenture Trustee for the
benefit of the Noteholders for so long as an Insurer Default shall have
occurred and be continuing; provided, however, that the Owner Trustee for
the benefit of the Certificateholder(s) shall be the Controlling Party
after all unpaid principal and interest on the Notes shall have been paid
in full and the Note Insurer has received all amounts due and owing to it
under the Insurance Agreement.
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, the Note Insurer and the Seller.
5
<PAGE>
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.
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 Initial Cutoff Date
plus the aggregate Principal Balance of all Subsequent Receivables as of
their applicable Subsequent Cutoff Dates.
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
Reserve Event or a Trigger Event that has occurred, that no Reserve Event
or Trigger Event, respectively, shall have occurred as of such
Determination Date or as of either of the three consecutively preceding
Determination Dates.
Default Ratio: With respect to any Determination Date, the
fraction (expressed as a percentage) the numerator of which is equal to the
Aggregate Principal Balance as of the related Accounting Date of all
Receivables that have become Liquidated Receivables during the related
Collection Period and the denominator of which is equal to the Aggregate
Principal Balance of the Receivables as of the open of business on the
first day of the related Collection Period.
Deficiency Claim Amount: As defined in Section 5.3.
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 (excluding any Receivable for which the related Financed Vehicle
6
<PAGE>
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 of the Receivables as of the open of
business on the first day of the related Collection Period.
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;
7
<PAGE>
(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 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.
Depositary Agreement: The letter of representations dated
March 30, 1999 between the Issuer and the Depository Trust Company.
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 "A-l" by S&P and "P-1" by Moody's.
8
<PAGE>
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 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 S&P and 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 S&P and 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 S&P and 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 S&P and Moody's);
(f) money market mutual funds that are rated in the
highest credit rating category by Moody's and S&P; or
9
<PAGE>
(g) any other demand or time deposit, obligation,
security or investment as may be acceptable to the Rating Agency
and the Note Insurer, as evidenced by the prior written consent of
the Note Insurer and satisfaction of the Rating Agency Condition.
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, (v) if an
Insurer Default shall have occurred and be continuing, has been approved by
Noteholders constituting a Note Majority and (vi) if an Insurer Default
shall not have occurred and be continuing, is acceptable to the Note
Insurer.
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: means November 15, 2005 (or, if any
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.
Funding Period: The period beginning on the Closing Date and ending on
the earliest to occur of (i) the date on which the Pre-Funded Amount (after
giving effect to any transfer of
10
<PAGE>
Subsequent Receivables to the Trust on such date) is less than $100,000,
(ii) the date on which a Servicer Termination Event or an Event of Default
under the Indenture occurs and (iii) the close of business on the Payment
Date in May, 1999.
Governmental Authority: Any court or federal or state regulatory
body, administrative agency or other tribunal or other governmental
instrumentality.
Indemnification Agreement: means the Indemnification Agreement, dated
as of March 24, 1999, among the Note Insurer, the Servicer, the Seller,
Paragon, and Credit Suisse First Boston Corporation, as Underwriter.
Indenture: The Indenture, dated as of March 30, 1999 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, as specified in the schedule of fees issued by the
Indenture Trustee and acknowledged by Paragon on March 26, 1999, with a
copy delivered to the Note Insurer.
Independent Accountants: As defined in Section 3.11.
Initial Cutoff Date: The close of business on February 28, 1999.
Initial Cutoff Date Principal Balance: $76,548,946.54.
Initial Receivables: The Receivables listed on the Schedule of
Initial Receivables on the Closing Date.
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,
11
<PAGE>
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 Agreement: means the Insurance and Reimbursement Agreement,
dated as of March 30, 1999, among the Note Insurer, the Servicer, the Seller,
Paragon and the Issuer.
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.
Insurer Default: The occurrence and continuance of any of the
following events:
(A) the Note Insurer shall have failed to make a payment
required under the Policy in accordance with its terms; or
(B) (i) the Superintendent of Insurance of the State of
New York (or any Person succeeding to the duties of such
Superintendent) (for the purpose of this paragraph (b), the
"Superintendent") shall apply for an order (1) pursuant to Section
7402 of the New York Insurance Law (or any successor provisions
thereto), directing him to liquidate the Note Insurer, (2)
pursuant to Section 7404 of the New York Insurance Law (or any
successor provision thereto), directing him to liquidate the
business of Note Insurer or (3) pursuant to Section 7416 of the
New York Insurance Law (or any successor provision thereto),
dissolving the corporate existence of Note Insurer and such
application shall not be dismissed or withdrawn during a period of
60 consecutive days or a court of competent jurisdiction enters an
order granting the relief sought; (ii) the Superintendent shall
determine that the Note Insurer is insolvent within the meaning of
Section 1309 of the New York Insurance Law; (iii) an Insolvency
Event shall have occurred with respect to the Note Insurer.
Interest Reserve Account: The account designated as the Interest
Reserve Account in, and which is established and maintained pursuant to,
Section 4.1(b).
Interest Reserve Requirement: With respect to the Payment Dates
occurring in April and May of 1999, the excess, if any, of (a) the sum of
the payments to be made pursuant to clauses (i), (iii) and (v) of Section
4.5(a) of this Agreement, over (b) the sum of (i) 30 days of interest
calculated at the Class A Interest Rate (44 days of interest for the April
1999 Payment Date) on an amount equal to the Noteholder's Percentage of the
outstanding Principal Balance of all Receivables held by the Trust as of
(x) with respect to the April 1999 Payment Date, the Initial Cutoff Date,
and (y) with respect to the Payment Date occurring in May of 1999, the
close of business on the last day of
12
<PAGE>
the second preceding Collection Period, calculated at the Class A Interest
Rate, and (ii) any Pre- Funding Earnings to be transferred to the
Collection Account on such Payment Date; and with respect to the Payment
Date in April 1999, an additional amount equal to any amount deposited by
Paragon into the Interest Reserve Account pursuant to Section 4.6(d).
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 the earliest of any of the following events has
occurred (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 and drawings under the Policy) 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;
13
<PAGE>
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 executed on behalf of the Trust
and issued pursuant to the Indenture in substantially the form set forth in
Exhibit A to the Indenture, respectively.
Note Balance: Initially, $100,000,000 and, thereafter, an amount
equal to the initial Note Balance reduced by all amounts distributed to the
Class A Noteholders that are allocable to principal.
Note Insurer: shall mean MBIA Insurance Corporation, a New York
insurance company, or any successor thereto, as issuer of the Policy.
Note Majority: As of any date of determination, Holders of Notes
representing more than 50% of the Note Balance.
Note Register: As defined in the Indenture.
Noteholder or Holder: Registered holders of Notes.
Noteholders' Percentage: (a) 100% until and including the later of
September 15, 1999 and the first date when the Overcollateralization Amount
equals or exceeds the Target Overcollateralization Amount, (b) thereafter,
if September 15, 1999 is the later date in clause (a), zero until the
Overcollateralization Amount equals but does not exceed the Target
Overcollateralization Amount and (c) thereafter, 96%.
Notice for Payment: A written or telecopied notice from the Indenture
Trustee to the Note Insurer, as set forth in the Policy.
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, the Note Insurer or the Owner Trustee, reasonably
14
<PAGE>
acceptable (as to form and substance) to the Indenture Trustee, the Note
Insurer or the Owner Trustee, respectively.
Other Assets: As defined in Section 10.11.
Overcollateralization Amount: With respect to any Payment Date,
the positive difference between (a) the Aggregate Principal Balance of the
Receivables as of the related Accounting Date and (b) the Note Balance,
after giving effect to distributions of principal to Noteholders pursuant
to clause (iv) of Section 4.5(a), including any Class A Redemption Amounts,
on such Payment Date.
Overfunded Interest Reserve Amount: (i) with respect to the April
1999 Payment Date, the excess of (a) the amount on deposit in the Interest
Reserve Account on such Payment Date (after giving effect to the transfer
of the Interest Reserve Requirement to the Collection Account on such
date), over (b) the sum of (x) estimated the payments to be made pursuant
to clauses (i) and (v) of Section 4.5(a) of this Agreement on the May 1999
Payment Date and (y) (I) 30 days of interest on the Noteholder's Percentage
of the Pre-Funded Amount as of the close of business on the Related
Accounting Date, calculated at the Class A Interest Rate, minus (II) the
product of (A) 1/360, (B) 2.5%, (C) 30 and (D) the amount on deposit in the
Pre-Funding Account (excluding Pre-Funding Earnings) as of the related
Accounting Date; and (ii) with respect to the May 1999 Payment Date, the
amount on deposit in the Interest Reserve Account on such Payment Date
(after giving effect to the transfer of the Interest Reserve Requirement to
the Collection Account on such date).
Owner Trustee: As defined in the Trust Agreement.
Owner Trustee Fee: With respect to any payment date, the fees
payable to the Owner Trustee for services rendered during the related
Collection Period, as specified in the fee agreement dated March 15, 1999
between the Owner Trustee and Paragon, with a copy delivered to the Note
Insurer.
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 April 15, 1999
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.
15
<PAGE>
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.
Policy: shall mean the note guaranty insurance policy number 28877,
dated March 30, 1999 issued by the Note Insurer to the Indenture Trustee for
the benefit of the Noteholders, including any endorsements thereto.
Policy Claim Amount: as defined in Section 5.4(a).
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.
Preference Amount: shall mean any amounts previously distributed
to a Noteholder that are recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy with respect to Paragon, the
Seller or the Trust pursuant to the U.S. Bankruptcy Code (11 U.S.C.), as
amended from time to time, in accordance with a final nonappealable order
of a court having competent jurisdiction.
Pre-Funded Amount: With respect to the Funding Period and as of any
date, the amount on deposit in the Pre-Funding Account on such date.
Pre-Funding Account: The account designated as the Pre-Funding
Account in, and which is established and maintained pursuant to, Section 4.1(a).
Pre-Funding Earnings: As of any Payment Date, the investment earnings
on amounts on deposit in the Pre-Funding Account as of the close of business on
the related Accounting Date.
Premium: as defined in the Insurance Agreement.
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
16
<PAGE>
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: Moody's and S&P, so long as they maintain a rating
on the Notes; and if Moody's or S&P no longer maintains a rating on the
Notes, such other nationally recognized statistical rating organization
selected by the Seller and (so long as an Insurer Default shall not have
occurred and be continuing) acceptable to the Note Insurer.
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, the
Note Insurer and the Indenture Trustee in writing that such action will not
result in a reduction or withdrawal of the then current rating of the Class
A 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 2.3 pertaining to a particular Receivable.
Receivables Purchase Agreement: The Receivables Purchase Agreement,
dated as of March 30, 1999 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.
Reimbursement Amounts: Any payments made by the Note Insurer under
the Policy, any unpaid Premiums due the Note Insurer and any amounts paid
by the Note Insurer pursuant to Section 4.9 and all other amounts owing to
the Note Insurer pursuant to the Insurance Agreement. Reimbursement Amounts
shall be payable from the flow of funds in accordance with Section 4.5.
Reimbursement Amounts shall include interest on the above amounts
calculated at the "prime rate"
17
<PAGE>
of interest set forth in The Wall Street Journal on the applicable
Determination Date ("Prime") plus 3%. Interest shall accrue on all
Reimbursement Amounts on a monthly basis, as of each Payment Date, at Prime
plus 3% assuming a 360-day year based on the actual number of days elapsed.
Related Documents: This Agreement, the Indenture, the Trust
Agreement, the Notes, the Receivables Purchase Agreement, the Insurance
Agreement, the Indemnification Agreement, the Policy, 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 (a) the lesser of (i) 1% of the Aggregate Principal Balance
of the Initial Receivables as of the Initial Cutoff Date and the Aggregate
Principal Balance of the Subsequent Receivables as of their Subsequent
Cutoff Date(s) and (ii) the Note Balance and (b) 2.0% of the Aggregate
Principal Balance of the Receivables as of the related Accounting Date;
provided, however, that (1) if a Reserve Event has occurred and has not
been Deemed Cured as of such Payment Date, the Reserve Account Required
Amount shall be 6% of the Aggregate Principal Balance of the Receivables as
of the related Accounting Date, and (2) if a Trigger Event has occurred and
has not been Deemed Cured as of such Payment Date, the Reserve Account
Required Amount shall be 100% of the Aggregate Principal Balance of the
Receivables 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.
Reserve Event: With respect to any Determination Date, (a) the
three month average Default Ratio exceeds 7.00%, (b) the three month
average Delinquency Ratio exceeds 1.50%, or (c) the Cumulative Net Loss
Ratio exceeds the percentage shown opposite the number for the applicable
Determination Date (after the Closing Date) below:
18
<PAGE>
||
Determination Date Cumulative Net Loss
(after the Closing Date) Ratio
-----
6th through 8th 0.75%
9th through 11th 1.35%
12th through 14th 2.00%
15th through 17th 2.50%
18th through 20th 3.35%
21st through 23rd 4.65%
24th through 26th 5.50%
27th through 29th 5.75%
30th and thereafter 5.90%
||
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 supplemented by each Schedule of Subsequent
Receivables attached as Schedule A to each Subsequent Transfer Agreement,
as each 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.
Schedule of Subsequent Receivables: The schedule of all retail
installment contracts sold and transferred to the Trust pursuant to a
Subsequent Transfer Agreement which such schedule is
19
<PAGE>
attached as Schedule A to such Subsequent Transfer Agreement and shall
supplement the Schedule of Initial Receivables.
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.
Subsequent Cutoff Date: With respect to any Subsequent Receivable,
the close of business on any day at least seven Business Days before the
related Subsequent Transfer Date, but in no event later than April 30,
1999.
Subsequent Purchase Agreement: With respect to any Subsequent
Receivables, the agreement between Paragon and the Seller pursuant to which
Paragon transfers the Subsequent Receivables to the Seller, the form of
which is attached to the Receivables Purchase Agreement as Exhibit A.
20
<PAGE>
Subsequent Receivable: Each of the Receivables sold to the Trust
pursuant to Section 2.2, which shall be listed on the Schedule of
Subsequent Receivables attached as Schedule A to the related Subsequent
Transfer Agreement.
Subsequent Reserve Account Deposit: With respect to any transfer
of Subsequent Receivables to the Trust pursuant to Section 2.2, an amount
equal to 2% of the Principal Balance of the Subsequent Receivables as of
the related Subsequent Cutoff Date.
Subsequent Transfer Agreement: As defined in Section 2.2(b).
Subsequent Transfer Date: The date specified as such in the
Subsequent Transfer Agreement.
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, non-sufficient fund or returned check
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.
Target Overcollateralization Amount: 4% of the Aggregate Principal
Balance of the Receivables.
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 2%, (b) the occurrence of any of the events enumerated in
Section 6.1 of the Insurance Agreement or (c) the Cumulative Net Loss Ratio
exceeds the percentage shown opposite the number of the applicable
Determination Date (after the Closing Date) below:
21
<PAGE>
||
Determination Date Cumulative Net Loss
(after the Closing Date) Ratio
-----
6th through 8th 1.00%
9th through 11th 1.60%
12th through 14th 2.30%
15th through 17th 3.00%
18th through 20th 3.65%
21st through 23rd 5.10%
24th through 26th 6.00%
27th through 29th 6.30%
30th and thereafter 6.50%
||
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 March 15, 1999,
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
Sections 2.1 and 2.2, together with certain monies paid after the Initial
Cutoff Date with respect to the Initial Receivables and after the
applicable Subsequent Cutoff Date with respect to the Subsequent
Receivables, the Policy, 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.
22
<PAGE>
Warehouse Lender: CTS or any lender under a successor warehouse loan
facility.
Warehouse Liens: The security interests in the Receivables and
other Trust Property granted by Paragon as debtor/seller in favor of (i)
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 or (ii) the lender under any successor warehouse loan
facility.
Warranty Receivable: With respect to any Collection Period, a
Receivable that the Seller has become obligated to repurchase pursuant to
Section 2.6.
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 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 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
Note Insurer, 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 Note Insurer, the
Backup Servicer, the Owner Trustee (in its individual or trust capacities)
or the Indenture Trustee.
23
<PAGE>
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.
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 Initial Receivables and all
monies due or received thereunder or in respect thereof after the Initial
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 Trust Accounts, 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.
24
<PAGE>
(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. Conveyance of Subsequent Receivables. (a) Subject to
the conditions set forth in Section 2.2(b), the Seller, pursuant to the
terms contained herein and in one or more Subsequent Transfer Agreements,
shall sell, transfer, assign and otherwise convey 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
Subsequent Receivables and all monies received thereunder or in respect
thereof after the related Subsequent Cutoff Date (including all Liquidation
Proceeds and recoveries received with respect to such Subsequent
Receivables); and (2) all of the right, title and interest of 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 Subsequent 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 Subsequent Receivables under the Dealer Agreements and the
Dealer Assignments, (iv) the rights of the Seller under the related
Subsequent Purchase Agreement, 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.
(b) On any Subsequent Transfer Date, the Seller shall transfer to
the Trust the Subsequent Receivables sold to the Trust on such Subsequent
Transfer Date and the other property and rights related thereto described
in Section 2.2(a) upon the satisfaction of each of the following conditions
on or prior to such Subsequent Transfer Date:
(i) the Seller shall have provided the Owner Trustee on
behalf of the Trust, the Indenture Trustee, the Note Insurer,
Paragon and the Rating Agencies with an Addition Notice not later
than five Business Days prior to such Subsequent Transfer Date and
shall have provided any information reasonably requested by any of
them with respect to such Subsequent Receivables;
(ii) the Seller shall have delivered to the Owner Trustee
on behalf of the Trust, the Note Insurer and the Indenture Trustee
a duly executed (A) written assignment (including an acceptance by
the Owner Trustee on behalf of the Trust and the Indenture
Trustee) in substantially the form of Exhibit C (the "Subsequent
Transfer Agreement"), which shall include supplements to Schedule
A listing such Subsequent Receivables and which shall specify the
amount of the Subsequent Reserve Account Deposit, if any, and (B)
Subsequent Purchase Agreement;
25
<PAGE>
(iii) on the Subsequent Transfer Date, the Seller shall
have deposited in the Collection Account all collections received
in respect of such Subsequent Receivables received after the
related Subsequent Cutoff Date and prior to the second Business
Day preceding the Subsequent Transfer Date;
(iv) as of such Subsequent Transfer Date, neither Paragon
nor the Seller shall have been insolvent nor shall any of them
have been made insolvent by such transfer nor shall any of them be
aware of any pending insolvency;
(v) such addition shall not result in the Trust being
treated as an association (or a publicly traded partnership)
taxable as a corporation for federal or Delaware income tax
purposes;
(vi) the Funding Period shall not have terminated;
(vii) the Seller shall have delivered to the Owner
Trustee on behalf of the Trust, the Note Insurer, the Indenture
Trustee and Paragon an Officer's Certificate in the form of
Exhibit D confirming the satisfaction of each condition precedent
specified in this Section 2.2(b);
(viii) the Seller shall have delivered to the Rating
Agencies, Paragon, the Note Insurer and the Indenture Trustee an
Opinion of Counsel with respect to the transfer of such Subsequent
Receivables substantially similar to the form of the Opinion of
Counsel relating to certain bankruptcy, tax and security interest
matters delivered to the Rating Agencies, Paragon, the Note
Insurer and the Indenture Trustee on the Closing Date;
(ix) the Seller shall have deposited the Subsequent
Reserve Account Deposit, if any, in the Reserve Account;
(x) the Seller shall have delivered to the Indenture
Trustee the Receivable Files relating to the Subsequent
Receivables in accordance with Section 2.3;
(xi) each Rating Agency shall have notified the Seller,
the Indenture Trustee and the Note Insurer in writing that
following such transfer the rating on the Class A Notes will not
be withdrawn or reduced by such Rating Agency with and without
regard to the Policy;
(xii) the Receivables in the Trust, including such
Subsequent Receivables, shall meet the following criteria: (A) the
weighted average APR of the Receivables in the Trust shall not be
less than 10.60%; (B) no Receivables shall have an APR less than
6.75%; (C) the weighted average remaining term to maturity of the
Receivables on such Subsequent Transfer Date shall not be greater
than 64 months; (D) based upon the billing addresses of the
Dealers, not more than 10% of the aggregate Principal Balances of
the Receivables, including such Subsequent Receivables, are
located in any one state other than California,
26
<PAGE>
North Carolina, Virginia or Texas; (E) at least 65% of the
Receivables shall be secured by automobiles and sports utility
vehicles with a manufacturer's suggested retail price when new of
$20,000 or more; (F) Pre-Computed Receivables shall not exceed 12%
of the Receivables by Aggregate Principal Balance; (G) no more
than 45% of the Receivables shall have an original term of more
than 60 months but less than or equal to 72 months; (H) no
Receivable shall have a Principal Balance less than $1000 or in
excess of $85,000; and (I) no more than 4% of Aggregate Principal
Balance of the Receivables shall be rated "Credit Tier A" as
defined in Paragon's credit and collection policy;
(xiii) the Seller shall have taken any action required to
be taken by Paragon or the Seller to maintain the first priority
perfected ownership interest of the Trust and the first priority
security interest of the Indenture Trustee in the assets of the
Trust;
(xiv) no selection procedures adverse to the interests of
the Noteholders or the Note Insurer shall have been utilized in
selecting such Subsequent Receivables;
(xv) the representations and warranties set forth in
Section 2.5 to the extent applicable to the Subsequent Receivables
are true and correct in all material respects; and
(xvi) the Subsequent Cutoff Date related to any
Subsequent Transfer Date shall be no later than April 30, 1999.
(c) On such Subsequent Transfer Date, if all the conditions
specified in Section 2.2(b) have been satisfied as evidenced by the receipt
by the Owner Trustee on behalf of the Trust and the Indenture Trustee, as
applicable, of the documents and amounts described in Sections 2.2(b)(i),
(ii), (iii), (vii), (viii), (ix), (x) and (xi), the Owner Trustee on behalf
of the Trust shall accept the transfer of such Subsequent Receivables and
the Indenture Trustee shall pay to the Seller from the Pre- Funding Account
an amount equal to (i) the aggregate Principal Balance of the Subsequent
Receivables transferred to the Trust as of such date, minus (ii) the
Subsequent Reserve Account Deposit, if any, for such Subsequent Transfer
Date.
(d) The Seller covenants to transfer to the Trust pursuant to
Section 2.2(a) Subsequent Receivables with an aggregate Principal Balance
equal to up to $26,015,156.02; provided, however, that the sole remedy of
the Trust, the Indenture Trustee and the Noteholders with respect to a
failure of such covenant shall be to enforce the provisions of the
Receivables Purchase Agreement.
Section 2.3. Custody of Receivable Files.
(a) (i) Simultaneously with the execution and delivery of this
Agreement and the sale, transfer and assignment of the Initial Receivables
and the other Trust Property to the Trust pursuant to this Agreement, and
(ii) at least five days prior to the execution and delivery of a Subsequent
Purchase Agreement and the sale, transfer and assignment of any Subsequent
Receivables, the Seller shall deliver the following documents or
instruments in its possession to the Indenture Trustee (along with a list,
in a mutually acceptable electronic format, of the Receivables):
27
<PAGE>
(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 2.6 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, the Note Insurer 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.
Section 2.4. 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
28
<PAGE>
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 2.5. 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, on which the Note
Insurer relies in issuing the Policy and on which the Indenture Trustee
relies in authenticating the Notes. Unless otherwise specified, such
representations and warranties speak as of the Closing Date with respect to
the Initial Receivables and as of the related Subsequent Transfer Date with
respect to the Subsequent Receivables acquired by the Trust on such
Subsequent Transfer 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 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
29
<PAGE>
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 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.
30
<PAGE>
(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 Issuer hereunder and
any obligations of a Dealer in connection with a Receivable including any
rights to recourse against such Dealer.
Section 2.6. Repurchase of Receivables Upon Breach of Warranty.
Upon discovery by any of the Seller, the Servicer, the Note Insurer or the
Indenture Trustee of a breach of any of the representations and warranties
of the Seller contained in Section 2.5(a) that has a material adverse
effect on the interests of the Noteholders or the Note Insurer 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
2.6; 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) (II) 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 January 31, 1999. 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 Note
Insurer, 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 2.6.
Section 2.7. 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, the Note Insurer 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 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, the Note Insurer and the
Indenture Trustee. Notwithstanding the foregoing, although the Trust and
the Indenture Trustee, as applicable, shall be required to execute
31
<PAGE>
documentation related to the foregoing, neither the Trust nor the Indenture
Trustee shall be required to prepare any such documentation.
Section 2.8. 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, the Note Insurer 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 and Note Insurer 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 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
32
<PAGE>
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 not at any time agree to a modification or
amendment of a Receivable without the consent of the Note Insurer (which
consent shall not be unreasonably withheld) unless such modification or
amendment shall (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 and the Note Insurer; provided, however, that, with respect to
any Receivable, the Servicer shall not grant more than one extension per
year, shall not grant extensions for a cumulative total of more than six
months during the life of the Receivable, and such extension shall not
extend beyond the Final Scheduled Payment Date; and provided, further, that
the Servicer shall not grant modifications that lower the interest rate on
the Receivables for more than 5% of the sum of (i) the Aggregate Principal
Balance of the Receivables as of the Initial Cutoff Date and (ii) the
Aggregate Principal Balance of the Subsequent Receivables as of their
respective Subsequent Cutoff Dates.
33
<PAGE>
(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 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 such
funds are deposited into the Lockbox Account; provided, however, 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,
the Note Insurer 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
34
<PAGE>
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
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 and the Note
Insurer. 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. (a)
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
35
<PAGE>
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 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.
(b) Upon the occurrence of a Trigger Event, the Note Insurer may
instruct the Indenture Trustee and the Servicer to take or cause to be
taken such action as may, in the opinion of the Note Insurer, be necessary
to perfect or re-perfect the security interests in the Financed Vehicles
securing the Receivables in the name of the Indenture Trustee by amending
the title documents of such Financed Vehicles or by such other reasonable
means as may, in the opinion of the Note Insurer, be necessary or prudent.
Paragon hereby agrees to pay all expenses related to such perfection or re-
perfection and to take all action necessary therefor. In addition, prior to
the occurrence of a Trigger Event, the Note Insurer may instruct the
Indenture Trustee and the Servicer to take or cause to be taken such action
as may, in the opinion of the Note Insurer, be necessary to perfect or
re-perfect the security interest in the Financed Vehicles underlying the
Receivables in the name of the Indenture Trustee, including by amending the
title documents of such Financed Vehicles or by such other reasonable means
as may, in the opinion of the Note Insurer, be necessary or prudent;
provided, however, that if the Note Insurer requests that the title
documents be amended prior to the occurrence of a Trigger Event, all
out-of-pocket expenses of Paragon, the Servicer, the Trust or the Indenture
Trustee in connection with such action shall be reimbursed to Paragon, the
Servicer, the Trust or the Indenture Trustee, as applicable, by the Note
Insurer. Each of Paragon and the Seller hereby appoints the Indenture
Trustee as its attorney-in-fact to take any and all steps required to be
performed by Paragon or the Seller, as applicable, pursuant to this Section
3.5(b), including execution of certificates of title or any other documents
in the name and stead of Paragon or the Seller, as applicable, and the
Indenture Trustee hereby accepts such appointment. Notwithstanding the
foregoing, although the Indenture Trustee shall be required to execute
documentation relating to the foregoing, the Indenture Trustee shall not be
required to prepare any such documentation.
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, on which
the Note Insurer relies in issuing the Policy and on which the Indenture
Trustee relies in authenticating the Notes. Unless otherwise specified,
such representations and warranties speak as of the Closing Date with
respect to the Initial Receivables and as of the related Subsequent
Transfer Date with respect to the Subsequent Receivables acquired by the
Trust on such Subsequent Transfer 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;
36
<PAGE>
(ii) No Impairment. The Servicer shall do nothing to
impair the rights of the Trust, the Indenture Trustee, the Note
Insurer 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 and the Note Insurer 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;
(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
37
<PAGE>
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 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
Owner Trustee, the Trust, the Note Insurer, the Backup Servicer
and the Indenture Trustee and any officers, directors, employees
or agents of the Owner Trustee, the Note Insurer, 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 Owner Trustee, the Note Insurer,
38
<PAGE>
the Backup Servicer and the Indenture Trustee may sustain in
connection with claims asserted at any time by third parties
against the Owner Trustee, the Trust, the Note Insurer, 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, in each case
reflecting all applicable loan information, as of the following
dates: (1) the close of business on the day immediately preceding
conversion to the Backup Servicer, (2) on an annual basis
commencing April 1, 2000, and (3) following a Reserve Event,
monthly.
Section 3.7. Purchase of Receivables Upon Breach of Covenant. Upon
discovery by the Servicer, the Note Insurer 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 Note Insurer or the
Noteholders in any Receivable, or (b) a failure to obtain a Lien
Certificate within 180 days as described in Section 2.8, 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, the Note Insurer
or the Indenture Trustee on behalf of 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 the
Noteholders or the Note Insurer. 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.
39
<PAGE>
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 Note Insurer, 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 Indenture Trustee to make any
withdrawal required by Section 5.3, to give any notice required by Section
5.4 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 4.8 to Noteholders, (iii) a listing of all
Purchased Receivables purchased as of the related Deposit Date with respect
to the related Collection Period, (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 4.7 and (v) the Premium
payable to the Note Insurer. 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 Note Insurer, 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, 2000, 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.
(b) The Servicer shall deliver to the Indenture Trustee, the Owner
Trustee, the Note Insurer, 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 Officers'
Certificate of any event that, with the giving of notice or lapse of time,
would become a Servicer Termination Event under Section 8.1.
40
<PAGE>
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 reasonably acceptable to the Note
Insurer (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, 2000, with respect to the twelve
months ended the immediately preceding December 31 (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, 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 Note Insurer, the Backup
Servicer and the Rating Agency.
If such firm requires the Indenture Trustee or the Owner Trustee
to agree to the procedures performed by such firm, the Servicer shall
direct the Indenture Trustee in writing to so agree; it being understood
and agreed that the Indenture Trustee or the Owner Trustee will deliver
such letter of agreement in conclusive reliance upon the direction of the
Servicer, and the Indenture Trustee or the Owner Trustee shall not make any
independent inquiry or investigation as to, and shall have no obligation or
liability in respect of, the sufficiency, validity or correctness of such
procedures. Delivery of such reports, information and documents to the
Indenture Trustee is for informational purposes only, and the Indenture
Trustee's receipt of such shall not constitute constructive notice of any
information contained therein or determinable from information contained
therein, including the Servicer's compliance with any of its covenants
hereunder.
Section 3.12. Access to Certain Documentation and Information
Regarding Receivables. The Servicer shall provide to representatives of the
Indenture Trustee, the Backup Servicer, the Note Insurer 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 in a format acceptable to the Indenture
Trustee and the Backup Servicer containing the information with respect to
the
41
<PAGE>
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 and the Class A 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, the Note
Insurer 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 each Rating Agency.
42
<PAGE>
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) 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, the Reserve Account,
the Pre-Funding Account and the Interest Reserve Account each in the name
of the Indenture Trustee for the benefit of the Noteholders and the Note
Insurer. The Collection Account, the Reserve Account, the Pre-Funding
Account and the Interest Reserve Account shall each be an Eligible Account
and shall each be a segregated trust account initially established with the
Indenture Trustee.
(b) All amounts held in the Collection Account, the Pre-Funding
Account, Interest Reserve 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 the Note Insurer, 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
(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
43
<PAGE>
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. All interest, dividends, gains
upon sale and other income from or earnings on, investments of funds in the
Pre-Funding Account shall be deposited in the Collection Account pursuant
to Section 4.5(a). 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;
44
<PAGE>
(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 the Closing Date, the Servicer shall deposit in the
Collection Account (i) all Scheduled Payments and prepayments of Initial
Receivables with respect to which available funds have been received in the
Lockbox Account after the Initial Cutoff Date and prior to the second
Business Day preceding the Closing Date and (ii) all Liquidation Proceeds
and proceeds of Insurance Policies realized in respect of Financed Vehicles
related to the Initial Receivables and applied by the Servicer after the
Initial 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 or the Note
Insurer,
45
<PAGE>
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
Indenture Trustee and the Note Insurer 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 interest and principal thereof 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 5.3. Upon receipt, the Indenture Trustee shall remit to the
Collection Account any amounts delivered to the Indenture Trustee by the
Note Insurer.
Section 4.5. Payments. (a) 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)
transfer from (x) the Pre-Funding Account to the Collection Account, in
immediately available funds, the Pre-Funding Earnings on deposit in the
Pre-Funding Account with respect to the immediately preceding Collection
Period, (y) the Interest Reserve Account to Collection Account, in
immediately available funds, the Interest Reserve Requirement, if any and
(z) distribute the following amounts from the Collection Account in the
following order of priority:
46
<PAGE>
(i) first, from the Payment Amount (excluding the Policy
Claim Amount), to the Indenture Trustee, any accrued and unpaid
Indenture Trustee Fees and any other accrued and unpaid expenses
of the Indenture Trustee; to the Backup Servicer, any accrued and
unpaid Backup Servicer Fees and any other accrued and unpaid
expenses of the Backup Servicer; and to the Owner Trustee, any
accrued and unpaid Owner Trustee Fees and any accrued and unpaid
expenses of the Owner Trustee in each case in accordance with the
Related Documents; provided, however, that such accrued and unpaid
expenses payable to the Indenture Trustee, Backup Servicer (other
than transition expenses which are governed by Section 8.3) and
Owner Trustee shall not exceed an amount to be agreed by the Note
Insurer; and, provided, further, that the limitation on expenses
payable pursuant to this clause (i) shall not apply after a Event
of Default under the Indenture (as such term is defined in the
Indenture);
(ii) second, from the remaining Payment Amount (excluding
the Policy Claim 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 4.7 and to the
extent the Servicer has not in its discretion chosen to
subordinate its Basic Servicing Fee and Supplemental Servicing
Fee, in whole or in part, pursuant to clause (ix);
(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, until the
Note Balance has been reduced to zero, the Class A Principal
Payment Amount to the Class A Noteholders;
(v) fifth, from the remaining Payment Amount, any
amounts, including the Premium, owing to the Note Insurer under
the Insurance Agreement and not previously paid;
(vi) sixth, 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);
(vii) seventh, from the remaining Payment Amount, any
amounts due to the Indenture Trustee, Owner Trustee, Backup
Servicer or successor Servicer relating to accrued and unpaid
expenses not previously paid pursuant to clause (i) or (ii) above,
as applicable;
(viii) eighth, from the remaining Payment Amount,
together with any funds in the Reserve Account in excess of the
Reserve Account Required Amount, until the Overcollateralization
Amount equals the Target Overcollateralization Amount as of the
47
<PAGE>
related Accounting Date, to the Class A Noteholders, as an
additional payment of principal on such Notes, an amount equal to
the difference between the Target Overcollateralization Amount as
of the related Accounting Date and the Overcollateralization
Amount;
(ix) ninth, from the remaining Payment Amount, at the
Servicer's discretion, any accrued and unpaid Basic Servicing Fees
and Supplemental Servicing Fees not paid pursuant to clause (ii)
above; and
(x) tenth, from the remaining Payment Amount, together
with any funds in the Reserve Account in excess of the Reserve
Account Required Amount, to the Certificateholder(s).
(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(s) 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 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, 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(s) in accordance with Section 9.1 of the Trust Agreement.
Any amounts deposited into the Collection Account pursuant to
Section 4.9 with respect to a Payment Date and any Policy Claim Amounts
received by the Indenture Trustee as a result of a claim under the Policy
with respect to such Payment Date shall be applied by the Indenture Trustee
solely to make the payments referred to in clauses (i) through (iv) above,
in that order of priority, but only to the extent that the Payment Amount
(other than any Policy Claim Amounts) with respect to such Payment Date,
after application as provided above, was insufficient to make such payment.
In addition, pursuant to Section 4.9 if the Note Insurer pays any amounts
to the Indenture Trustee with respect to a Payment Date in connection with
the Note Insurer's election to pay, as provided in the Policy, all or a
portion of any shortfalls in the Payment Amount (other than any Policy
Claim Amounts) with respect to such Payment Date available to distribute
the amounts referred to in clauses (i) through (ii) above, the Indenture
Trustee shall distribute the amounts so received from the Note Insurer as
provided in such clauses.
Section 4.6. Pre-Funding Account and Interest Reserve Account. (a)
On the Closing Date, the Indenture Trustee shall deposit, in trust for the
benefit of the Noteholders, $26,015,156.02 into the Pre-Funding Account
from the proceeds of the sale of the Notes. On each Subsequent Transfer
Date, upon satisfaction of the conditions set forth in Section 2.2(b) with
respect to such transfer, the Servicer shall instruct the Indenture Trustee
in writing: (i) first, to withdraw from the Pre-Funding Account an amount
equal to the aggregate Principal Balance of the related Subsequent
Receivables
48
<PAGE>
sold to the Trust on such Subsequent Transfer Date (calculated as of the
related Subsequent Cutoff Date); (ii) second, to deposit into the Reserve
Account, from the amount withdrawn from the Pre- Funding Account pursuant
to clause (i) above, the Subsequent Reserve Account Deposit for such
Subsequent Transfer Date; and (iii) third, to distribute the amount
remaining from the amount withdrawn from the Pre-Funding Account pursuant
to clause (i) above to or upon the order of the Seller. On each
Determination Date, the Servicer shall instruct (in the related Servicer's
Certificate) the Indenture Trustee to transfer the Pre-Funding Earnings on
deposit in the Pre-Funding Account for the related Collection Period to the
Collection Account.
(b) On the Determination Date related to the May 1999 Payment
Date, after giving effect to any reductions in the Pre-Funded Amount on
such Payment Date pursuant to Section 4.6(a) and the transfer of the
Pre-Funded Earnings into the Collection Account on such Payment Date
pursuant to Section 4.6(a), the Servicer shall instruct the Indenture
Trustee (in the related Servicer's Certificate) to withdraw from the
Pre-Funding Account the remaining Pre-Funded Amount and deposit such amount
in the Collection Account for distribution of the Class A Redemption Amount
pursuant to Section 4.6(c).
(c) On the Payment Date determined in accordance with Section
4.6(b), the Indenture Trustee shall pay to the Class A Noteholders from the
sources identified in Section 4.6(b), as a payment of principal on the
Class A Notes, the Class A Redemption Amount, if any.
(d) On the Closing Date, the Indenture Trustee shall deposit, in
trust for the benefit of the Noteholders, $260,000 in the Interest Reserve
Account from the proceeds of the sale of the Notes. On the Determination
Date relating to each of the April 1999 and May 1999 Payment Dates, the
Servicer shall instruct the Indenture Trustee in the related Officer's
Certificate to transfer from the Interest Reserve Account to the Collection
Account the Interest Reserve Requirement, if any, for such Payment Date. On
the Determination Date relating to the April 1999 Payment Date, Paragon
shall pay to the Indenture Trustee for deposit into the Interest Reserve
Account an amount equal to the excess, if any, of (i) the amount required
to make the payments in clauses (i), (iii) and (v) of Section 4.5 of this
Agreement, over (ii) Available Funds (excluding the Policy Claim Amount)
available to make payments pursuant to clauses (i), (iii) and (v) of
Section 4.5 of this Agreement on the April 1999 Payment Date.
(e) On the Determination Date relating to the April 1999 and May
1999 Payment Dates, the Servicer shall instruct the Indenture Trustee in
the related Officer's Certificate to withdraw from the Interest Reserve
Account and pay to the Seller on such Payment Date an amount equal to the
Overfunded Interest Reserve Amount for such Payment Date. On the first
Payment Date following the termination of the Funding Period (including any
Payment Date on which the Funding Period terminates), any amounts remaining
in the Interest Reserve Account, after taking into account the transfers on
such Payment Date described in Section 4.6(d), shall be paid to the Seller,
and the Interest Reserve Account shall be closed.
Section 4.7. 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
49
<PAGE>
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 4.8. 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 Note Insurer, 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 Noteholders, the amount of
such payment allocable to principal;
(ii) in the case of the Class A 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 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 and Class A 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 as of such Payment Date
(after giving effect to payments made on such Payment Date);
(viii) the Delinquency Ratio, the Default Ratio and
Cumulative Net Loss Ratio for such Determination Date;
(ix) whether any Reserve Event or Trigger Event has
occurred as of such Determination Date;
50
<PAGE>
(x) whether any Reserve Event or Trigger Event that may
have occurred as of a prior Determination Date is Deemed Cured as
of such Determination Date;
(xi) the Policy Claim Amount, if any, for such Payment
Date.
(xii) the calculation of the amounts to be reimbursed to
the Note Insurer on the related Payment Date for prior payments by
the Note Insurer; and
(xiii) whether, to the knowledge of the Servicer, an Insurer
Default has occurred and is continuing; and
(xiv) for Payment Dates during the Funding Period, the
Principal Balance of all Subsequent Receivables transferred to the
Trust during the related Collection Period and the remaining
Pre-Funded Amount, after giving effect to the payments made on
such Payment Date;
(xv) for the Payment Date on or immediately following the
end of the Funding Period, the Class A Redemption Amount, if any;
and
(xvi) the Overcollateralization Amount and the Target
Overcollateralization Amount, each expressed as a dollar amount
and as a percentage of the Aggregate Principal Balance of the
Receivables.
Each amount set forth pursuant to clauses (i), (ii) and (iv) above shall be
expressed as a dollar amount per $1,000 of original principal balance of a
Note.
(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)
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.
Section 4.9. Optional Deposits by the Note Insurer. The Note
Insurer shall at any time, and from time to time, have the option (but
shall not be required, except as provided in Section 5.4 and in accordance
with the terms of the Policy) to deliver amounts to the Indenture Trustee
for deposit into the Collection Account to provide funds in respect of the
payment of fees or expenses of any provider of services to the Issuer with
respect to such Payment Date.
51
<PAGE>
ARTICLE V
THE RESERVE ACCOUNT AND THE POLICY
Section 5.1. Initial Deposit. On the Closing Date, the Seller
shall deposit $1,530,978.93 into the Reserve Account (representing 2% of
the Aggregate Principal Balance of the Receivables as of the Initial Cutoff
Date). On each Subsequent Transfer Date, the Indenture Trustee, on behalf
of the Seller, shall deposit the Subsequent Reserve Account Deposit from
amounts that would otherwise be released to the Seller from the Pre-Funding
Account in accordance with the written instructions of the Servicer.
Section 5.2. Policy. The Issuer agrees, simultaneously with the
execution and delivery of this Agreement, to cause the Note Insurer to
issue the Policy for the benefit of the Issuer and the Noteholders in
accordance with the terms thereof.
Section 5.3. Deficiency Claim Amounts. If the Servicer's
Certificate with respect to any Determination Date shall state that the
amount of the Available Funds (other than the Policy Claim Amount), for the
related Payment Date, 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 (iv) 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 Business Day preceding the related Payment Date.
Section 5.4. Claims Under Policy. (a) The Indenture Trustee shall
determine on the second Business Day prior to the related Payment Date (i)
the amount, if any, by which (x) the Class A Interest Payment Amount
exceeds (y) the sum of (1) Available Funds (excluding the Policy Claim
Amount), and (2) the amount on deposit in the Reserve Account on such
Payment Date after giving effect to the distributions set forth in Section
4.5(a) (i) and (ii); (ii) on any Payment Date other than the Final
Scheduled Payment Date, the amount, if any, by which (x) the Note Balance
as of such Payment Date (after giving effect to all other amounts allocable
and distributable to principal on such Payment Date, including amounts
withdrawn from the Reserve Account) exceeds (y) the sum of (1) the
Aggregate Principal Balance of the Receivables as of the related Accounting
Date and (2) the Pre-Funded Amount, if any, as of the related Accounting
Date; plus (iii) on the Final Scheduled Payment Date, an amount equal to
the Note Balance (after giving effect to all other amounts allocable and
distributable to principal on such Payment Date, including amounts
withdrawn from the Reserve Account). If such a shortfall exists, then the
Indenture Trustee shall furnish to the Note Insurer no later than 12:00
noon, New York City time, two Business Days prior to the related Payment
Date a written notice specifying the Policy Claim Amount (the amount of any
such shortfall plus any Preference Amount being referred to as the "Policy
Claim Amount"). Amounts paid by the Note Insurer under the Policy shall be
deposited by the Indenture Trustee into the Collection Account pursuant to
Section 4.4 for payment to Noteholders on the related Payment Date and
shall remain uninvested.
52
<PAGE>
(b) Any notice delivered by the Indenture Trustee to the Note
Insurer pursuant to Section 5.4(a) shall specify the Policy Claim Amount
claimed under the Policy and shall constitute a "Notice for Payment" under
the Policy. In accordance with the provisions of the Policy, the Note
Insurer is required to pay to the Indenture Trustee the Policy Claim Amount
properly claimed thereunder by 10:00 a.m., New York City time, on the later
of (i) the second Business Day following receipt on a Business Day of the
Notice for Payment, and (ii) the applicable Payment Date. Any payment made
by the Note Insurer under the Policy shall be applied solely to the payment
of the Notes and for no other purpose, except as provided for in Section
4.9.
(c) The Indenture Trustee shall (i) receive as attorney-in-fact of
each Noteholder any Policy Claim Amount from the Note Insurer and (ii)
deposit the same in to the Collection Account for disbursement to the
Noteholders as set forth in Section 4.5. Any and all Policy Claim Amounts
disbursed by the Indenture Trustee from claims made under the Policy shall
not be considered payment by the Issuer or from the Reserve Account with
respect to such Notes and shall not discharge the obligations of the Issuer
with respect thereto. The Note Insurer shall, to the extent it makes any
payment with respect to the Notes, become subrogated to the rights of the
recipients of such payments to the extent of such payments. Subject to and
conditioned upon any payment with respect to the Notes by or on behalf of
the Note Insurer, the Indenture Trustee shall assign to the Note Insurer
all rights to the payment of interest or principal with respect to the
Notes that are then due for payment to the extent of all payments made by
the Note Insurer, and the Note Insurer may exercise any option, vote,
right, power or the like with respect to the Notes to the extent that it
has made payment pursuant to the Policy. To evidence such subrogation, the
Note Registrar shall note the Note Insurer's rights as subrogee upon the
Note Register of Noteholders upon receipt from the Note Insurer of proof of
payment by the Note Insurer of any Policy Claim Amount. Pursuant to the
Indenture, the Note Registrar and the Indenture Trustee shall accept a
voucher or other evidence of payment as prima facie evidence of such
payment.
(d) The Indenture Trustee shall enforce on behalf of the
Noteholders the obligations of the Note Insurer under the Policy.
Notwithstanding any other provision of this Agreement, the Noteholders are
not entitled to institute proceedings directly against the Note Insurer.
Section 5.5. 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 or Reserve
Event has occurred or (b) all Trigger Events and Reserve 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
after giving effect to any distribution thereof pursuant to Section
4.5(a)(viii).
Section 5.6. Surrender of Policy. The Indenture Trustee shall
surrender the Policy to the Note Insurer for cancellation ninety days after
payment of all amounts due under the Notes.
53
<PAGE>
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, the Note
Insurer 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 2.5 shall have been breached (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, the Note Insurer 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; (c) the Seller shall have delivered to the Owner Trustee,
the Indenture Trustee, the Note Insurer 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 and (d)
such successor Seller shall be acceptable to the Controlling Party and the
Rating Agency Condition is satisfied.
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
54
<PAGE>
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.
(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 (i)
its certificate of incorporation, except in accordance therewith and with
the prior written consent of the Note Insurer (which consent shall not be
unreasonably withheld) and notice to the Rating Agencies or (ii) its 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
55
<PAGE>
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 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, the Note Insurer 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, the Note Insurer 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.
56
<PAGE>
(c) The Servicer shall indemnify, defend and hold harmless the
Seller, the Indenture Trustee, the Owner Trustee, the Trust, the Backup
Servicer, the Note Insurer 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 Indenture Trustee, the Owner Trustee, the Backup Servicer,
the Note Insurer 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, the Note Insurer 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
57
<PAGE>
Section 7.2(a) to the Owner Trustee, the Indenture Trustee, the Backup
Servicer, the Note Insurer and the Rating Agency and the Rating Agency
Condition in respect of such merger, consolidation or succession shall have
been satisfied and the Note Insurer shall have consented thereto; provided,
however, that if the successor to the Servicer is rated at least investment
grade by the Rating Agencies and is in the business of servicing assets
similar to the Receivables, the Note Insurer's consent may not be
unreasonably withheld. 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 (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 or
Servicer Termination Event shall have occurred and be continuing, (y) the
Servicer shall have delivered to the Owner Trustee, the Indenture Trustee,
the Note Insurer 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, the Note Insurer 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, the Note Insurer 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
58
<PAGE>
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 Note Insurer,
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 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 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 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, the Note Insurer
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 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
59
<PAGE>
would cause it to be in violation of such legal requirements, and the Note
Insurer 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, the Note Insurer 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
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.
60
<PAGE>
(ii) Notwithstanding anything in this Agreement or any of
the Related 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(s). 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.
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, the Indenture Trustee or (unless an Insurer Default
shall have occurred and be continuing) the Note Insurer or discovery of
such failure by a Responsible Officer of the Servicer; or
(b) Failure by the Servicer to deliver to the Indenture Trustee
and the Note Insurer, 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 or
the Note Insurer and (ii) to the extent capable of cure, such failure or
falseness continues 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, the Holders of more than 25% of the Note Balance or, so
long as no Insurer Default has occurred and is continuing, by the Note
Insurer; or
(d) The occurrence of an Insolvency Event with respect to the
Servicer; or
61
<PAGE>
(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
or the Note Insurer 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, the Holders of more than 25% of the Note Balance or, so
long as no Insurer Default has occurred and is continuing, by the Note
Insurer, the circumstances or condition in respect of which such
representation or warranty was incorrect shall not have been eliminated or
otherwise cured; or
(f) the occurrence of a Trigger Event under the Insurance
Agreement.
Section 8.2. Consequences of a Servicer Termination Event. If a
Servicer Termination Event shall occur and be continuing, the Note Insurer
(or, if an Insurer Default shall have occurred 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, the Note Insurer and
the Rating Agency (and to the Indenture Trustee if given by the
Noteholders), 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 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
Controlling Party); 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
62
<PAGE>
Section 7.5, the Backup Servicer (unless the Note Insurer shall have
exercised its option pursuant to Section 8.3(b) to appoint an alternate
successor Servicer) shall be the successor in all respects to the Servicer
in its capacity as Servicer under this Agreement and the transactions set
forth or provided for in this Agreement, and shall be subject to all the
rights, responsibilities, restrictions, duties, liabilities and termination
provisions relating thereto placed on the Servicer by the terms and
provisions of this Agreement, except as otherwise stated herein. The
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 Servicer from third party servicers
selected by the Backup Servicer; provided, however, in no event shall a
successor Servicer be entitled to receive compensation in excess of 1.5% of
the Aggregate Principal Balance as of the first day of any related
Collection Period, unless the Indenture Trustee shall have notified the
Rating Agencies and obtained the prior written consent of the Note Insurer
(which consent shall not be unreasonably withheld); and provided, further,
that any transition fees payable in connection with the transfer of
servicing shall be paid by Paragon, and to the extent not paid by Paragon,
such fees shall be payable pursuant to Section 4.5(a)(ii); provided;
however, that in no event shall such transition fees exceed $100,000,
unless the Indenture Trustee shall have notified the Rating Agencies and
obtained the prior written consent of the Note Insurer (which consent shall
not be unreasonably withheld).
(b) So long as no Insurer Default shall have occurred and be
continuing, the Note Insurer may exercise at any time the right to appoint
as successor to the Servicer a Person other than the Person serving as
Backup Servicer at the time, and (without limiting the Note Insurer's
obligations under the Policy) shall have no liability to the Indenture
Trustee, Paragon, the Issuer, the Person then serving as Backup Servicer,
any Noteholders or any other Person if it does so. Notwithstanding the
foregoing, if the Backup Servicer shall be legally unable or unwilling to
act as Servicer and the Note Insurer shall not have appointed a successor
Servicer, the Backup Servicer and the Note Insurer 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 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
63
<PAGE>
written notice thereof to the Rating Agency, the Note Insurer and to the
Noteholders at their respective addresses appearing in the Note Register.
Section 8.5. Waiver of Past Defaults. The Note Insurer or (if an
Insurer Default shall have occurred and be continuing), 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 Note Insurer shall provide prompt written notice of any such waiver to
the Indenture Trustee. The Indenture Trustee shall provide the Noteholders,
the Note Insurer 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 Initial Cutoff Date Principal Balance plus the
aggregate Principal Balance of all Subsequent Receivables as of their
applicable Subsequent Cutoff Dates (with the consent of the Note Insurer,
which shall not be unreasonably withheld, if a claim has previously been
made on the Policy, such purchase would result in a claim on the Policy or
such purchase would result in any amount owing and remaining unpaid under
the Related Documents to the Note Insurer or any other Person). 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 Note Balance
plus accrued and unpaid interest thereon) plus all amounts due to the Note
Insurer under the Insurance Agreement 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(s), the Note Insurer
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.
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(s) or
the Noteholders, but with the prior written consent of the Note Insurer (so
long as an Insurer Default shall not have occurred and be continuing),
which consent shall not be unreasonably withheld, (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
64
<PAGE>
eliminating any provision of this Agreement or of modifying in any manner
the rights of the Noteholders, provided that such action in this clause (a)
shall not, as evidenced by an Opinion of Counsel delivered to the Indenture
Trustee, the Note Insurer and the Rating Agency, adversely affect in any
material respect the interests of the Noteholders and the Note Insurer.
(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 the Note Insurer (so long as an Insurer
Default shall not have occurred and be continuing), and 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 or the Class A 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 Note Insurer, the Rating Agency and the
Owner Trustee within five days of receipt thereof.
(d) Promptly after the execution of any such amendment or consent
under Section 10.1(a) or 10.1(b) and receipt thereof by the Indenture
Trustee, 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 the 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. If an Insurer Default has occurred and is
continuing, written consent of the Note Insurer shall be required prior to
the execution of such amendment unless such action shall not, as evidenced
by an Opinion of Counsel delivered to the Note Insurer and the Indenture
Trustee, adversely affect in any material respect the interests of the Note
Insurer. The manner of obtaining such consents (and any other consents of
Noteholders provided for in this Agreement) and of evidencing the
authorization of the execution thereof by Noteholders shall be subject to
such reasonable requirements as the Indenture Trustee may prescribe.
65
<PAGE>
(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, the Note Insurer 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 and the Note Insurer
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, the Note Insurer 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, the Note Insurer 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 and each Subsequent
Transfer Agreement of the Receivables to the Trust, 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
66
<PAGE>
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, the Note Insurer 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, the Note Insurer 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, the
Note Insurer 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 from time to time as partners or members
of an association; nor shall any Noteholder be under any
67
<PAGE>
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 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. WITHOUT LIMITING THE FOREGOING, THE "SECURITIES
INTERMEDIARY'S JURISDICTION" WITHIN THE MEANING OF SECTION 8-110(E) OF
REVISED ARTICLE 8 WITH RESPECT TO THE TRUST ACCOUNTS MAINTAINED AT THE
INDENTURE TRUSTEE PURSUANT TO SECTION 4.1 SHALL BE NEW YORK.
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 enforceability of the other provisions of this
Agreement or of the Notes or the rights of the Holders thereof.
68
<PAGE>
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, the Note Insurer 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 the Note Insurer 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.: (949) 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.: (949) 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, (e) in the case of the
Note Insurer, at the following address: 113 King Street, Armonk, New York,
10504, Attention: Insured Portfolio Management, Structured Finance,
Telecopy No. (914) 765-3163, (f) in the case of Moody's, at the following
address: 99 Church Street, New York, New York 10007, Attention: ABS
Monitoring Group, Telecopy No: (212) 553-7820, or at such other address as
shall be designated by any such party in a written notice to the other
parties and (g) in the case of S&P, at the following address: 26 Broadway,
10th floor, New York, New York 10004, Attn: ABS Surveillance, Telecopy No:
(212) 208-0053, 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
69
<PAGE>
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, the Note Insurer 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. Except as otherwise provided in this
Article X, no other Person shall have any right or obligation hereunder.
Section 10.11. Subordination. The Trust and each Class A
Noteholder by accepting a Class A Note acknowledges and agrees that such
Class A Note represents indebtedness of the Trust and Trust Property only
and does not represent an interest in any assets (other than the Trust
Property) of the Seller (including by virtue of any deficiency claim in
respect of obligations not paid or otherwise satisfied from the Trust
Property and proceeds thereof). In furtherance of and not in derogation of
the foregoing, to the extent the Seller enters into other securitization
transactions, the Trust as well as each Class A Noteholder by accepting a
Class A Note acknowledges and agrees that is shall have no right, title or
interest in or to any assets (or interests therein) (other than Trust
Property) conveyed or purported to be conveyed by the Seller to another
securitization trust or other Person or Persons in connection therewith
(whether by way of a sale, capital contribution or by virtue of the
granting of a lien) ("Other Assets"). To the extent that, notwithstanding
the agreements and provisions contained in the preceding sentences of this
subsection, the Trust or any Class A Noteholder either (i) asserts an
interest or claim to, or benefit from, Other Assets, whether asserted
against or through the Seller or any other Person owned by the Seller, or
(ii) is deemed to have any such interest, claim or benefit in or from Other
Assets, whether by operation of law, legal process, pursuant to applicable
provisions of insolvency laws or otherwise (including by virtue of Section
1111(b) of the federal Bankruptcy Code or any successor provision having
similar effect under the Bankruptcy Code), and whether deemed asserted
against or through the Seller or any other Person owned by the Seller, then
the Trust and each Class A Noteholder by accepting a Class A Note further
acknowledges and agrees that any such interest, claim or benefit in or from
Other Assets is and shall be expressly subordinated to the indefeasible
payment in full of all obligations and liabilities of the Seller which,
under the terms of the relevant documents relating to the securitization of
such Other Assets, are entitled to be paid from, entitled to the benefits
of, or otherwise secured by such Other Assets (whether or not any such
entitlement or security interest is legally perfected or otherwise entitled
to a priority of distribution or application under applicable law,
including insolvency laws, and whether asserted against the Seller or any
other Person owned by the Seller), including, the payment of post-petition
interest on such other obligations and liabilities. This subordination
agreement shall be deemed a subordination agreement within the meaning of
Section 510(a) of the Bankruptcy Code. Each Class A Noteholder further
acknowledges and agrees that no adequate remedy at law exists for a breach
of this Section 10.11 and the terms of this Section 10.11 may be enforced
by an action for specific performance.
70
<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: /s/ Nancy C. Ferguson
------------------------------------
Name: Nancy C. Ferguson
Title: Secretary
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Indenture Trustee and as
Backup Servicer
By: /s/ Daniel W. Rolczynski
------------------------------------
Name: Daniel W. Rolczynski
Title: Corporate Trust Officer
PARAGON AUTO RECEIVABLES CORPORATION, as
Seller
By: /s/ Nancy C. Ferguson
-------------------------------------
Name: Nancy C. Ferguson
Title: Vice President
71 Sale and Servicing Agreement
<PAGE>
PARAGON AUTO RECEIVABLES OWNER TRUST
1999-A, as Purchaser
By: WILMINGTON TRUST COMPANY
not in its individual capacity but
solely as Owner Trustee
By: /s/ James P. Lawler
---------------------------------
Name: James P. Lawler
Title: Vice President
72 Sale and Servicing Agreement
<PAGE>
SCHEDULE A
SCHEDULE OF RECEIVABLES
On file with the Servicer and the Indenture Trustee.
A-1 Sale and Servicing Agreement
<PAGE>
SCHEDULE B
REPRESENTATIONS AND WARRANTIES OF SELLER
WITH RESPECT TO RECEIVABLES
1. Contract Origination Date. Each Initial Receivable has
a contract origination date on or before February 28, 1999, and
each Subsequent Receivable has a contract origination date on or
before the applicable Subsequent Cutoff date.
2. Term of Receivables. Each Initial Receivable has an
original term of at least 18 months and not more than 72 months
and had a remaining term as of the Initial Cutoff Date of at least
12 months and not more than 72 months; each Subsequent Receivable
has an original term of at least 18 months and not more than 72
months and had a remaining term as of the Subsequent Cutoff Date
of at least 12 months and not more than 72 months; the weighted
average original contracted term of the Initial Receivables was 64
months as of the Initial Cutoff Date; the weighted average
remaining contracted term of the Initial Receivables was 61 months
as of the Initial Cutoff Date.
3. Characteristics of Receivables. (A) Each Receivable
(1) is denominated in U.S. dollars and has been originated in the
United States of America by Paragon or by a Dealer for the retail
sale of a Financed Vehicle in the ordinary course of such Dealer's
business in each case 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)
and if originated by a Dealer, 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) as of the
Initial Cutoff Date has an Annual Percentage Rate of not less than
6.83% and not more than 17%, (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, provided that
not more than 12% of the Receivables are Pre-Computed Receivables;
(B) as of the Initial Cutoff Date in the case of an Initial
Receivable, or as of the applicable Subsequent Cutoff Date, in the
case of a Subsequent Receivable, 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 May 15,
2005; (D) as of the Initial Cutoff Date, not more than 93.40% of
the aggregate principal balance of the Initial Receivables
represented financing of used vehicles, and the remainder of the
Initial Receivables represented financing of new vehicles; (E) as
of the Initial Cutoff Date, the average remaining principal
balance of the Initial Receivables was not more than
B-1 Sale and Servicing Agreement
<PAGE>
$18,648; (F) as of the Initial Cutoff Date, the weighted average
Annual Percentage Rate of the Initial Receivables was not less
than 10.63%; (G) as of the Initial Cutoff Date at least 65% of the
Initial Receivables shall be secured by automobiles and sports
utility vehicles with a manufacturer's suggested retail price when
new of $20,000 or more; and (H) as of the Initial Cutoff Date, no
more than 4% of Aggregate Principal Balance of the Initial
Receivables shall be rated "Credit Tier A" as defined in Paragon's
credit and collection policy.
4. Principal Balance; Scheduled Payments. (A) Each
Receivable has an outstanding principal balance as of the Initial
Cutoff Date in the case of an Initial Receivable, or as of the
applicable Subsequent Cutoff Date in the case of a Subsequent
Receivable, of not less than $1,000 and not more than $85,000; (B)
each Receivable originated on or prior to January 31, 1999 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 January 31, 1999 either (I) has had (and each
Subsequent Receivable will have) at least one scheduled payment
made prior to the date that is two Business Days prior to the
Closing Date (or the Subsequent Transfer Date with respect to a
Subsequent Receivable) or (II) will have a first scheduled payment
made within 29 days of the due date thereof.
5. Characteristics of Obligors. As of the Initial Cutoff
Date with respect to an Initial Receivable and as of the
applicable Subsequent Cutoff Date with respect to a Subsequent
Receivable, 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
Initial Cutoff Date, the Obligors of approximately 28.42% of the
Receivables were located in California, the Obligors of
approximately 15.46% of the Receivables were located in North
Carolina, the Obligors of approximately 12.78% of the Receivables
were located in Texas, the Obligors of approximately 11.48% of the
Receivables were located in Virginia and no other state based upon
the billing addresses of the Dealers has a concentration of
Receivables greater than or equal to 10% of the Aggregate
Principal Balance of the Receivables.
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 with respect to the Initial Receivables and on or prior to
the applicable Subsequent Transfer Date with respect to Subsequent
Receivables 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
B-2 Sale and Servicing Agreement
<PAGE>
true and correct in all material respects as of the close of
business on the Initial Cutoff Date and each Subsequent Cutoff
Date.
9. Adverse Selection. No selection procedures having a
material adverse effect on the Trust, the Note Insurer or
Noteholders have been utilized in selecting the Receivables from
those receivables owned by Paragon that met the selection criteria
contained in this Agreement. No advances were made to qualify the
Receivables under the eligibility criteria set forth in this
Schedule B.
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 date of transfer thereof 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
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 with respect to the Initial Receivables or after the
applicable Subsequent Transfer Date with respect to Subsequent
Receivables).
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 Initial Cutoff Date with
respect to the Initial Receivables or as of the applicable
Subsequent Cutoff Date with respect to Subsequent Receivables, no
Receivable has been amended, altered or modified; 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
B-3 Sale and Servicing Agreement
<PAGE>
permitted pursuant to Section 3.2 of this Agreement, and no more
than 0.05% of the Receivables have been extended beyond their
original maturity dates. As of the Initial Cutoff Date with
respect to the Initial Receivables or as of the applicable
Subsequent Cutoff Date with respect to Subsequent Receivables, 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 Initial Cutoff Date with
respect to the Initial Receivables and as of the related
Subsequent Cutoff Date with respect to Subsequent Receivables, 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 Initial Cutoff Date with respect
to the Initial Receivables or as of the applicable Subsequent
Cutoff Date with respect to Subsequent Receivables, 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 Initial Cutoff Date with respect to the Initial Receivables or
as of the applicable Subsequent Cutoff Date with respect to
Subsequent Receivables, 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 Initial Cutoff Date with respect to the Initial Receivables
or as of the applicable Subsequent Cutoff Date with respect to
Subsequent Receivables.
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
B-4 Sale and Servicing Agreement
<PAGE>
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 a Warehouse Lender (and the Warehouse Liens shall be released
as of the Closing Date) or any such pledge that has been released
on or prior to the Closing Date with respect to the Initial
Receivables or the applicable Subsequent Transfer Date with
respect to the Subsequent Receivables. 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 and each
Subsequent Transfer 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 or the
applicable Subsequent 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 Initial
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.
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.
B-5 Sale and Servicing Agreement
<PAGE>
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 Initial Cutoff Date with respect
to the Initial Receivables and as of the applicable Subsequent
Cutoff Date with respect to Subsequent Receivables, there is no
Lien against the related Financed Vehicles for delinquent taxes.
B-6 Sale and Servicing Agreement
<PAGE>
EXHIBIT A
FORM OF SERVICER'S CERTIFICATE
[Attached.]
A-1 Sale and Servicing Agreement
<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 1999-A, 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 (the
"Indenture Trustee") and Backup Servicer
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 Sale and Servicing Agreement
<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 Sale and Servicing Agreement
<PAGE>
EXHIBIT C
SUBSEQUENT TRANSFER AGREEMENT
TRANSFER No. ______ OF SUBSEQUENT RECEIVABLES, dated as of
____________, 1999 (this "Agreement"), between PARAGON AUTO
RECEIVABLES CORPORATION., as seller (the "Seller"), PARAGON AUTO
RECEIVABLES OWNER TRUST 1999-A, as purchaser (the "Trust"),
PARAGON ACCEPTANCE CORPORATION., in its individual capacity and as
servicer (the "Servicer"), and NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as indenture trustee and backup servicer (the
"Indenture Trustee") pursuant to the Sale and Servicing Agreement
referred to below.
WHEREAS, the Seller, the Trust, the Servicer and the Indenture
Trustee are parties to the Sale and Servicing Agreement, dated as of March
30, 1999 (the "Sale and Servicing Agreement");
WHEREAS, pursuant to the Sale and Servicing Agreement, the Seller
wishes to convey Subsequent Receivables to the Trust; and
WHEREAS, the Trust is willing to accept such conveyance subject to
the terms and conditions hereof.
NOW, THEREFORE, the Seller, the Trust, the Servicer and the
Indenture Trustee hereby agree as follows:
1. Defined Terms. Capitalized terms used but not defined herein
shall have the meanings set forth in the Sale and Servicing Agreement.
"Subsequent Cutoff Date" shall mean, with respect to the
Subsequent Receivables conveyed hereby, the opening of business on
________, 1999.
"Subsequent Reserve Account Deposit" means 2% of the
aggregate Principal Balance of Subsequent Receivables conveyed hereunder as
of the Subsequent Cutoff Date, or
$_____________.
"Subsequent Transfer Date" shall mean, with respect to
the Subsequent Receivables conveyed hereby, ______________, 1999.
2. Schedule of Receivables. Annexed hereto are supplements to
Schedule A to the Sale and Servicing Agreement listing the Receivables that
constitute the Subsequent Receivables to be conveyed pursuant to this
Agreement on the Subsequent Transfer Date.
C-1 Sale and Servicing Agreement
<PAGE>
3. Conveyance of Subsequent Receivables; Deposit of Subsequent Reserve
Account Deposit. (a) In consideration of the Trust's delivery to or upon
the order of the Seller of $_____________, the Seller does hereby sell,
transfer, assign and otherwise convey, without recourse (except as
expressly provided in the Sale and Servicing Agreement), to the Trust, (1)
all of the right, title and interest of the Seller in and to the Subsequent
Receivables and all monies received thereunder or in respect thereof after
the Subsequent Cutoff Date (including all Liquidation Proceeds and
recoveries received with respect to such Subsequent 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 Subsequent Receivables, the
Obligors or the related Financed Vehicles, including rebates of premiums
relating to the Subsequent Receivables, (iii) the rights of Paragon and the
Seller against Dealers with respect to the Subsequent Receivables under the
Dealer Agreements and the Dealer Assignments, (iv) the rights of the Seller
under the related Subsequent Purchase Agreement 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. It is the intention
of the Seller that the transfer and assignment contemplated by this
Agreement shall constitute a sale of the Subsequent Receivables and the
other Trust Property with respect thereto from the Seller to the Trust and
the beneficial interest in and title to the Subsequent Receivables and the
other Trust Property with respect thereto 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 3(a) for the benefit of
the Noteholders, and this Agreement shall constitute a security agreement.
(b) On the Subsequent Transfer Date and simultaneously
with the conveyance of the Subsequent Receivables, the Trust, on behalf of
the Seller, shall deposit into the Reserve Account the Subsequent Reserve
Account Deposit.
4. Representations and Warranties of the Seller. The Seller hereby
represents and warrants to the other parties hereto and the Note Insurer as
of the date of this Agreement and as of the Subsequent Transfer Date:
(a) 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.
(b) 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
Subsequent Receivables and the other property conveyed hereunder
to the Trust pursuant to this
C-2 Sale and Servicing Agreement
<PAGE>
Agreement, (ii) the validity or enforceability of the Subsequent
Receivables and the other property conveyed hereunder or (iii) the
Seller's ability to perform its obligations hereunder and under
its Related Documents.
(c) Power and Authority. The Seller has the power and
authority to execute and deliver this Agreement and to carry out
its terms; the Seller has power and authority to sell and assign
the Subsequent Receivables and the other 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 this Agreement has been duly authorized by the
Seller by all necessary corporate action.
(d) Binding Obligations. This Agreement, when duly
executed and delivered, shall constitute a valid and binding
obligation of the Seller 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 the Seller of this Agreement, the consummation of the
transactions contemplated hereby and the fulfillment of the terms
hereof 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 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 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 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.
(f) 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 (A) asserting the
invalidity of any of this Agreement, (B) seeking to prevent the
consummation of any of the transactions contemplated by this
Agreement, (C) 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, this
Agreement, or (D) seeking to impose any excise, franchise,
transfer or similar tax upon the sale and assignment of the
Subsequent Receivables and the other property hereunder.
(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 the Seller in connection with the execution, delivery
or performance
C-3 Sale and Servicing Agreement
<PAGE>
of this Agreement or the consummation of the transactions
contemplated hereby, except such as have been duly made, effected
or obtained.
(h) Principal Balance. The aggregate Principal Balance of
the Subsequent Receivables listed on the supplements to Schedule A
annexed hereto and conveyed to the Trust pursuant to this
Agreement as of the Subsequent Cutoff Date is $______________.
(i) Aggregate Pool Characteristics. The Receivables in
the Trust, including the Subsequent Receivables to be conveyed to
the Trust on the Subsequent Transfer Date, meet the following
criteria: (A) the weighted average APR of the Receivables in the
Trust shall not be less than 10.60%; (B) no Receivables shall have
an APR less than 6.75%; (C) the weighted average remaining term to
maturity of the Receivables on such Subsequent Transfer Date shall
not be greater than 64 months; (D) based upon the billing
addresses of the Dealers, not more than 10% of the aggregate
Principal Balances of the Receivables, including such Subsequent
Receivables, are located in any one state other than California,
North Carolina, Virginia or Texas; (E) at least 65% of the
Receivables shall be secured by automobiles and sports utility
vehicles with a manufacturer's suggested retail price when new of
$20,000 or more; (F) Pre-Computed Receivables shall not exceed 12%
of the Receivables by Aggregate Principal Balance; (G) no more
than 45% of the Receivables shall have an original term of more
than 60 months but less than or equal to 72 months; (H) no
Receivable shall have a Principal Balance less than $1000 or in
excess of $85,000; and (I) no more than 4% of Aggregate Principal
Balance of the Receivables shall be rated "Credit Tier A" as
defined in Paragon's credit and collection policy.
5. Conditions Precedent. The obligation of the Trust to acquire the
Receivables hereunder is subject to the satisfaction, on or prior to the
Subsequent Transfer Date, of the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by the Seller in Section
2.5(a) of the Sale and Servicing Agreement (with respect to the
Subsequent Receivables) and Section 4 of this Agreement shall be
true and correct as of the date of this Agreement and as of the
Subsequent Transfer Date.
(b) Sale and Servicing Agreement Conditions. Each of the
conditions set forth in Section 2.2(b) of the Sale and Servicing
Agreement shall have been satisfied.
6. Ratification of Agreement. As supplemented by this Agreement,
the Sale and Servicing Agreement is in all respects ratified and confirmed
and the Sale and Servicing Agreement as so supplemented by this Agreement
shall be read, taken and construed as one and the same instrument.
7. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together shall constitute one and the same instrument.
C-4 Sale and Servicing Agreement
<PAGE>
8. Third Party Beneficiaries. The Note Insurer shall be a
third-party beneficiary to the provisions of this Agreement and shall be
entitled to rely upon and directly enforce such provisions of this
Agreement. 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.
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 LAW THEREOF (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.
C-5 Sale and Servicing Agreement
<PAGE>
IN WITNESS WHEREOF, the Seller, the Servicer, the Backup
Servicer, the Purchaser and the Indenture Trustee have caused this
Agreement to be executed by their duly authorized officers as of the day
and the year first above written.
PARAGON AUTO RECEIVABLES
CORPORATION, as Seller
By:__________________________________
Name:
Title:
PARAGON ACCEPTANCE
CORPORATION., as Servicer
By:__________________________________
Name:
Title:
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as
Indenture Trustee and as Backup Servicer
By:___________________________________
Name:
Title:
PARAGON AUTO RECEIVABLES
OWNER TRUST 1999-A, as Purchaser
By: WILMINGTON TRUST COMPANY,
not in its individual capacity but
solely as Owner Trustee
By:____________________________________
Name:
Title:
C-6 Sale and Servicing Agreement
<PAGE>
SCHEDULE A
SUPPLEMENT TO SCHEDULE OF RECEIVABLES FOR
SUBSEQUENT TRANSFER DATE: __________
See attached list
C-7 Sale and Servicing Agreement
<PAGE>
EXHIBIT D
FORM OF OFFICER'S CERTIFICATE
The undersigned hereby certifies that he is a duly authorized
officer of Paragon Acceptance Corporation, a Delaware Corporation
("Paragon"), and Paragon Auto Receivables Corporation, a Delaware
corporation ("Paragon Auto"), and that as such he is authorized to execute
and deliver this certificate in the name of and on behalf of Paragon and
Paragon Auto and represents, warrants and further certifies in his official
capacity, in the name and on behalf of Paragon and Paragon Auto, as follows
in connection with the transfer on __________, 199_ (the "Subsequent
Transfer Date") of Subsequent Receivables and with respect thereto by
Paragon to Paragon Auto and by Paragon Auto to the Trust:
1. Paragon Auto has provided Paragon, the Owner Trustee on behalf of
the Trust, the Indenture Trustee, the Note Insurer and the Rating
Agencies with an Addition Notice not later than five days prior to
the Subsequent Transfer Date and has provided any information
reasonably requested by any of them with respect to such
Subsequent Receivables;
2. Paragon Auto has delivered to Paragon, the Owner Trustee on behalf
of the Trust, the Note Insurer and the Indenture Trustee a duly
executed Subsequent Purchase Agreement, including a Schedule of
Subsequent Receivables;
3. Paragon Auto, or Paragon on its behalf, has deposited in the
Collection Account all collections received in respect of such
Subsequent Receivables received after the related Subsequent
Cutoff Date;
4. Paragon Auto has delivered to the Owner Trustee on behalf of the
Trust, the Note Insurer and the Indenture Trustee a duly executed
Subsequent Transfer Agreement, including a Schedule of Subsequent
Receivables;
5. As of the Subsequent Transfer Date, neither Paragon nor Paragon
Auto is insolvent nor have any of them been made insolvent by such
transfer nor are any of them aware of any pending insolvency;
6. Such addition shall not result in the Trust being treated as an
association taxable as a corporation for federal or Delaware
income tax purposes;
7. The Funding Period has not terminated;
8. The Note Insurer has given its prior written approval of the
transfer of such Subsequent Receivables with respect thereto by
Paragon to Paragon Auto and by Paragon Auto to the Trust, and
Paragon Auto, or Paragon on its behalf, has provided a copy
thereof to the Indenture Trustee.
D-1 Sale and Servicing Agreement
<PAGE>
9. Paragon Auto has deposited the Subsequent Reserve Account Deposit in
the Reserve Account;
10. Paragon Auto has delivered to the Indenture Trustee the Receivable
Files relating to such Subsequent Receivables;
11. Both Paragon Auto and Paragon has delivered to the Rating
Agencies, the Note Insurer and the Indenture Trustee an Opinion of
Counsel with respect to the transfer of Subsequent Receivables
substantially in the form of the Opinion of Counsel relating to
certain bankruptcy, insolvency, tax and security interest matters
delivered to the Rating Agencies, Paragon, the Note Insurer and
the Indenture Trustee on the Closing Date;
12. The Receivables in the Trust, including such Subsequent
Receivables, shall meet the following criteria: (A) the weighted
average APR of the Receivables in the Trust shall not be less than
10.60%; (B) no Receivables shall have an APR less than 6.75%; (C) the
weighted average remaining term to maturity of the Receivables on such
Subsequent Transfer Date shall not be greater than 64 months; (D)
based upon the billing addresses of the Dealers, not more than 10% of
the aggregate Principal Balances of the Receivables, including such
Subsequent Receivables, are located in any one state other than
California, North Carolina, Virginia or Texas; (E) at least 65% of the
Receivables shall be secured by automobiles and sports utility
vehicles with a manufacturer's suggested retail price of $20,000 or
more; (F) Pre-Computed Receivables shall not exceed 12% of the
Receivables by Aggregate Principal Balance; (G) no more than 45% of
the Receivables shall have an original term of more than 60 months but
less than or equal to 72 months; (H) no Receivable shall have a
Principal Balance less than $1000 or in excess of $85,000; and (I) no
more than 4% of Aggregate Principal Balance of the Receivables shall
be rated "Credit Tier A" as defined in Paragon's credit and collection
policy.
13. No selection procedures adverse to the interests of the
Noteholders or the Note Insurer were utilized in selecting such
Subsequent Receivables;
14. Each of the conditions precedent specified in either Section
2.2(c) of the Receivables Purchase Agreement or Section 2.2(b) of
the Sale and Servicing Agreement has been satisfied;
15. The representations and warranties set forth in Section 3.1 of the
Receivables Purchase Agreement are true and correct in all
material respects; and
16. Paragon and Paragon Auto have each taken any action required to be
taken to maintain the first priority perfected ownership interest
of the Trust in the assets of the Trust.
D-2 Sale and Servicing Agreement
<PAGE>
Capitalized terms used herein which are not defined herein shall
have the meanings ascribed thereto in the Sale and Servicing Agreement,
dated as of March 30, 1999, between Paragon Auto, as Seller, Paragon Auto
Receivables Owner Trust 1999-A, as purchaser, Paragon, in its individual
capacity and as Servicer, and Norwest Bank Minnesota, National Association,
as Indenture Trustee and as Backup Servicer.
PARAGON AUTO RECEIVABLES CORPORATION
By:_________________________________
Name:
Title:
PARAGON ACCEPTANCE CORPORATION
By:_________________________________
Name:
Title:
D-3 Sale and Servicing Agreement
RECEIVABLES PURCHASE AGREEMENT
between
PARAGON ACCEPTANCE CORPORATION
as Seller
and
PARAGON AUTO RECEIVABLES CORPORATION
as Purchaser
------------------------------
Dated as of March 30, 1999
-------------------------------
<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 Initial Receivables and the Other
Conveyed Property........................................3
SECTION 2.2. Conveyance of the Subsequent Receivables and the Other
Conveyed Property..........................................3
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of PAC as Seller............6
SECTION 3.2. Representations and Warranties of Paragon Auto
as Purchaser.............................................8
SECTION 3.3. Indemnification............................................9
ARTICLE IV
COVENANTS OF PAC
SECTION 4.1. Protection of Title of Paragon Auto and the Trust.........10
SECTION 4.2. Other Liens or Interests..................................12
SECTION 4.3. Costs and Expenses........................................12
ARTICLE V
REPURCHASES
SECTION 5.1. Repurchase of Receivables Upon Breach of Warranty.........12
SECTION 5.2. Reassignment of Purchased Receivables.....................13
SECTION 5.3. Waivers...................................................13
i
<PAGE>
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. Liability of PAC..........................................13
SECTION 6.2. Merger or Consolidation of PAC............................13
SECTION 6.3. Limitation on Liability of PAC and Others.................14
SECTION 6.4. Conveyance of the Receivables and the Other Conveyed
Property to the Trust.....................................14
SECTION 6.5. Amendment.................................................15
SECTION 6.6. Notices...................................................16
SECTION 6.7. Merger and Integration....................................16
SECTION 6.8. Severability of Provisions................................16
SECTION 6.9. GOVERNING LAW.............................................16
SECTION 6.10. Counterparts..............................................16
SECTION 6.11. Nonpetition Covenant......................................17
SECTION 6.12. Assignment................................................17
SECTION 6.13. Third-Party Beneficiaries.................................17
SECTION 6.14. Successors and Assigns....................................17
SECTION 6.15. Insurer Default...........................................17
SCHEDULE A -- Schedule of Receivables
SCHEDULE B -- Representations and Warranties of PAC
SCHEDULE C -- Legal Proceedings
EXHIBIT A -- Form of Subsequent Purchase Agreement
EXHIBIT B -- Form of Officer's Certificate
ii
<PAGE>
RECEIVABLES PURCHASE AGREEMENT, dated as of March 30, 1999 (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 either the
Initial Receivables or the Subsequent Receivables, as applicable, or with
respect to the Receivables collectively: (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 Initial Cutoff Date, in the case of the Initial
Receivables, or after the Subsequent Cutoff Date, in the case of the
Subsequent Receivables (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 Trust Accounts (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 2.6 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 or any Subsequent Transfer Date,
the net book value of such Receivables (as reflected on the books of PAC as
of the Initial Cutoff Date or the relevant Subsequent Cutoff Date),
1
<PAGE>
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.
"Purchaser" means Paragon Auto Receivables Corporation.
"Sale and Servicing Agreement" means the Sale and Servicing
Agreement, dated as of March 30, 1999, 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.
2
<PAGE>
ARTICLE II
CONVEYANCE OF THE RECEIVABLES
AND THE OTHER CONVEYED PROPERTY
SECTION 2.1. Conveyance of the Initial 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 Initial
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 Initial Receivables and the Other Conveyed Property from PAC to
Paragon Auto and the beneficial interest in and title to the Initial
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) Initial Receivables Purchase Price. Simultaneously with the
conveyance of the Initial 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 $76,497,002.10 shall be paid to PAC in
cash by federal wire transfer (same day) funds. An amount equal to
$4,355,081.49 shall be deemed paid and returned to Paragon Auto as a
contribution to capital from PAC.
SECTION 2.2. Conveyance of the Subsequent Receivables and the Other
Conveyed Property.
(a) Conveyance. On each Subsequent Transfer Date and subject to
the terms and conditions of this Agreement, PAC shall, upon execution of a
Subsequent Purchase Agreement in the form of Exhibit A, sell, transfer,
assign and otherwise convey to Paragon Auto, and Paragon Auto shall
purchase all right, title and interest of PAC in and to the Subsequent
Receivables specified in the applicable Subsequent Purchase Agreement 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 and the related Subsequent Purchase Agreement shall constitute a
sale and/or contribution of the Subsequent Receivables and the Other
Conveyed Property from PAC to Paragon Auto and the beneficial interest in
and title to the Subsequent 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, PAC hereby grants
a first priority security interest to Paragon Auto in the property conveyed
pursuant to this Section 2.2(a), and this Agreement shall be construed so
as to further such intent.
3
<PAGE>
(b) Subsequent Receivables Purchase Price. Simultaneously with
each conveyance of Subsequent Receivables and the Other Conveyed Property
with respect thereto by PAC to Paragon Auto, on the applicable Subsequent
Transfer Date, Paragon Auto shall pay to PAC the Purchase Price of the
Subsequent Receivables sold by PAC to Paragon Auto.
(c) Conditions to Conveyance. On each Subsequent Transfer Date,
PAC shall transfer to Paragon Auto the Subsequent Receivables and the Other
Conveyed Property with respect thereto to be transferred on such date only
upon the satisfaction of each of the following conditions on or prior to
the Subsequent Transfer Date:
(i) Paragon Auto shall have provided the Owner Trustee on
behalf of the Trust, the Indenture Trustee, the Note Insurer, PAC
and the Rating Agencies with an Addition Notice not later than
five Business Days prior to such Subsequent Transfer Date and
shall have provided any information reasonably requested by any of
them with respect to such Subsequent Receivables;
(ii) Paragon Auto shall have delivered to the Indenture
Trustee and the Note Insurer a duly executed Subsequent Purchase
Agreement in the form of Exhibit A hereto, which shall include a
Schedule A listing such Subsequent Receivables;
(iii) on the Subsequent Transfer Date, Paragon Auto shall
have deposited in the Collection Account all collections received
in respect of such Subsequent Receivables received after the
related Subsequent Cutoff Date and prior to the second Business
Day preceding the Subsequent Transfer Date;
(iv) as of such Subsequent Transfer Date, neither PAC nor
Paragon Auto shall have been insolvent nor shall either of them
have been made insolvent by such transfer nor shall either of them
be aware of any pending insolvency;
(v) such addition shall not result in the Trust being
treated as an association (or a publicly traded partnership)
taxable as a corporation for federal or Delaware income tax
purposes;
(vi) the Funding Period shall not have terminated;
(vii) Paragon Auto shall have delivered to the Owner
Trustee on behalf of the Trust, the Indenture Trustee, the Note
Insurer and PAC an Officer's Certificate in the form of Exhibit D
to the Sale and Servicing Agreement confirming the satisfaction of
each condition precedent specified in this Section 2.2(c);
(viii) Paragon Auto shall have delivered to the Rating
Agencies, PAC, the Note Insurer and the Indenture Trustee an
Opinion of Counsel with respect to the transfer of such Subsequent
Receivables substantially similar to the form of the Opinion of
Counsel relating
4
<PAGE>
to certain bankruptcy, tax and security interest matters delivered
to the Rating Agencies, PAC, the Note Insurer and the Indenture
Trustee on the Closing Date;
(ix) Paragon Auto shall have deposited the Subsequent
Reserve Account Deposit, if any, in the Reserve Account;
(x) Paragon Auto shall have delivered to the Indenture
Trustee the Receivable Files relating to the Subsequent
Receivables in accordance with Section 2.3 of the Sale and
Servicing Agreement;
(xi) each Rating Agency shall have notified Paragon Auto,
the Indenture Trustee and the Note Insurer in writing that
following such transfer the rating on the Class A Notes will not
be withdrawn or reduced by such Rating Agency with and without
regard to the Policy;
(xii) the Receivables in the Trust, including such
Subsequent Receivables, shall meet the following criteria: (A) the
weighted average APR of the Receivables in the Trust shall not be
less than 10.60%; (B) no Receivables shall have an APR less than
6.75%; (C) the weighted average remaining term to maturity of the
Receivables on such Subsequent Transfer Date shall not be greater
than 64 months; (D) based upon the billing addresses of the
Dealers, not more than 10% of the aggregate Principal Balances of
the Receivables, including such Subsequent Receivables, are
located in any one state other than California, North Carolina,
Virginia or Texas; (E) at least 65% of the Receivables shall be
secured by automobiles and sports utility vehicles with a
manufacturer's suggested retail price when new of $20,000 or more;
(F) Pre-Computed Receivables shall not exceed 12% of the
Receivables by Aggregate Principal Balance; (G) no more than 45%
of the Receivables shall have an original term of more than 60
months but less than or equal to 72 months; (H) no Receivable
shall have a Principal Balance less than $1,000 or in excess of
$85,000; and (I) no more than 4% of Aggregate Principal Balance of
the Receivables shall be rated "Credit Tier A" as defined in
Paragon's credit and collection policy.
(xiii) Paragon Auto shall have taken any action required
to be taken by PAC or Paragon Auto to maintain the first priority
perfected ownership interest of the Trust and the first priority
perfected security interest of the Indenture Trustee in the assets
of the Trust;
(xiv) no selection procedures adverse to the interests of
the Noteholders or the Note Insurer shall have been utilized in
selecting such Subsequent Receivables; and
(xv) the representations and warranties set forth in
Section 3.1 and Section 3.2 shall be true and correct in all
material respects.
5
<PAGE>
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 and on which the Note Insurer
will rely in issuing the Policy. Unless otherwise specified, such
representations and warranties speak as of the Closing Date with respect to
the Initial Receivables and as of the related Subsequent Transfer Date with
respect to the Subsequent Receivables, 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 this 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.
(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
6
<PAGE>
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 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.
(j) Dealer Recourse. The Seller shall execute and deliver such
other instruments and agreements as the Purchaser may reasonably request in
order to enforce any rights against a Dealer and any obligations of a
Dealer in connection with a Receivable including any rights to recourse
against such Dealer.
7
<PAGE>
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 with
respect to the Initial Receivables and as of the related Subsequent
Transfer Date with respect to the Subsequent Receivables, 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 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
8
<PAGE>
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 or any Subsequent Transfer 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.
(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 it 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, the Note
Insurer 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 Note Insurer, the
Trust and the Owner Trustee (the "Indemnified Parties"):
9
<PAGE>
(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 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 each
Subsequent Purchase Agreement, and of the Trust, the Indenture Trustee and
the Note Insurer under the Indenture, the Sale and Servicing
10
<PAGE>
Agreement, this Agreement and each Subsequent Transfer Agreement in the
Receivables and the Other Conveyed Property, as the case may be, and in the
proceeds thereof. PAC shall deliver (or cause to be delivered) to Paragon
Auto, the Owner Trustee, the Note Insurer 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, the
Note Insurer 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, the Note Insurer 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, the Indenture
Trustee and the Note Insurer 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 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).
11
<PAGE>
(g) Promptly after taking the foregoing actions described in
Sections 4.1(b) or (c), PAC shall deliver to the Indenture Trustee, the
Note Insurer 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
Note Insurer 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 and the Note Insurer 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, under each Subsequent Purchase Agreement and under
the Sale and Servicing Agreement and its Related Documents. PAC shall pay
or cause to be paid all reasonable costs and expenses of the Note Insurer,
including reasonable counsel fees and disbursements, incurred in connection
with the transfer of Subsequent Receivables.
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) (II) 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 January 31,
1999. The obligation of PAC to repurchase any Receivable as to which a
breach has occurred and is continuing shall, if such
12
<PAGE>
obligation is fulfilled, constitute the sole remedy against PAC for such
breach available to Paragon Auto, the Note Insurer, 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 with
respect to such Receivables, free of any further obligation to Paragon
Auto, the Trust, the Indenture Trustee, the Note Insurer 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, the Note Insurer 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.
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, the Note Insurer and the Rating Agency and the Note Insurer shall
have consented thereto; provided, however, if the successor to the Servicer
is rated at least investment grade by the Rating Agencies and is in the
business of
13
<PAGE>
servicing assets similar to the Receivables the Note Insurer's consent may
not be unreasonably withheld. 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 3.1 shall have been breached (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, the Rating Agency and the Note
Insurer 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, the Rating Agency and the Note Insurer 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 and each Subsequent Purchase Agreement, to the Trust on the date
hereof with respect to the Initial Receivables, and on each Subsequent
Transfer Date, with respect to the related Subsequent Receivables. 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 each Subsequent Purchase Agreement, and
the rights of Paragon Auto hereunder and each Subsequent Purchase
Agreement, are intended to benefit the Note Insurer, the Indenture Trustee,
the Trust and the Noteholders. In furtherance of the foregoing, PAC
covenants and agrees to perform its duties and obligations hereunder and
under each Subsequent Purchase Agreement in accordance with the terms
hereof for the benefit of the Note Insurer, the Indenture Trustee, the
Trust and the Noteholders and that, notwithstanding anything to the
contrary in this Agreement or any Subsequent Purchase Agreement, PAC shall
be directly liable to the Indenture Trustee, the Note Insurer 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, the Note Insurer
and the Indenture Trustee may enforce the duties and obligations of PAC
under this Agreement or any Subsequent Purchase Agreement against PAC for
the benefit of the Trust, the Note Insurer or the Noteholders,
respectively.
14
<PAGE>
SECTION 6.5. Amendment.
(a) This Agreement may be amended by PAC and Paragon Auto, with
the prior written consent of the Note Insurer (so long as an Insurer
Default shall not have occurred and be continuing), which consent shall not
be unreasonably withheld, 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 (a) shall
not, as evidenced by an Opinion of Counsel delivered to the Owner Trustee,
the Note Insurer, the Indenture Trustee and the Rating Agency, adversely
affect in any material respect the interests of the Noteholders and the
Note Insurer.
(b) This Agreement may also be amended from time to time by PAC
and Paragon Auto, with the prior written consent of the Note Insurer (so
long as an Insurer Default shall not have occurred and be continuing), and
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 (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. If an
Insurer Default has occurred and is continuing, written consent of the Note
Insurer shall be required prior to the execution of such amendment unless
such action shall not, as evidenced by an Opinion of Counsel delivered to
the Note Insurer and the Indenture Trustee, adversely affect in any
material respect the interests of the Note Insurer.
(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
evidencing the authorization of the execution thereof by Noteholders shall
be subject to such reasonable requirements as the Indenture Trustee may
prescribe.
15
<PAGE>
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, (c) in the case of Moody's, at
the following address: 99 Church Street, New York, New York 10007,
Attention: ABS Monitoring Group, Telecopy No: (212) 553-7820, (d) in the
case of S&P, at the following address: 26 Broadway, 10th floor, New York,
New York 10004, Attn: ABS Surveillance, Telecopy No: (212) 208-0053, and
(e) in the case of the Owner Trustee, at 1100 North Market Street,
Wilmington, Delaware 19890, Attention: Corporate Trust Administration, and
(f) in the case of the Note Insurer, at the following address: 113 King
Street, Armonk, New York, 10504, 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.
16
<PAGE>
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.
SECTION 6.13. Third-Party Beneficiaries. This Agreement shall
inure to the benefit of and be binding upon the parties hereto, the Trust,
the Indenture Trustee, the Note Insurer 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, the Trust, the Indenture Trustee, the Note Insurer 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, the Trust, the Indenture Trustee, the Note Insurer 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, the Note Insurer 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.
SECTION 6.15. Insurer Default. In the event any right of the Note
Insurer hereunder is suspended during the continuation of an Insurer
Default, such right automatically and forthwith shall be assigned to the
Indenture Trustee, and may be exercised by the Indenture Trustee, during
the continuation of such Insurer Default. Upon the cessation of such
Insurer Default, any such rights shall revert to the Note Insurer and shall
be exercisable solely by the Note Insurer.
17
<PAGE>
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: /s/ Nancy C. Ferguson
----------------------------------
Name: Nancy C. Ferguson
Title: Secretary
PARAGON AUTO RECEIVABLES
CORPORATION, as Purchaser
By: /s/ Nancy C. Ferguson
---------------------------------
Name: Nancy C. Ferguson
Title: Vice President
18
<PAGE>
SCHEDULE A
SCHEDULE OF RECEIVABLES
On file with the Indenture Trustee.
A-1
<PAGE>
SCHEDULE B
REPRESENTATIONS AND WARRANTIES OF SELLER
WITH RESPECT TO RECEIVABLES
1. Contract Origination Date. Each Initial Receivable has
a contract origination date on or before February 28, 1999, and
each Subsequent Receivable has a contract origination date on or
before the applicable Subsequent Cutoff Date.
2. Term of Receivables. Each Initial Receivable has an
original term of at least 18 months and not more than 72 months
and had a remaining term as of the Initial Cutoff Date of at least
12 months and not more than 72 months; each Subsequent Receivable
has an original term of at least 18 months and not more than 72
months and had a remaining term as of the Subsequent Cutoff Date
of at least 12 months and not more than 72 months; the weighted
average original contracted term of the Initial Receivables was 64
months as of the Initial Cutoff Date; the weighted average
remaining contracted term of the Initial Receivables was 61 months
as of the Initial Cutoff Date.
3. Characteristics of Receivables. (A) Each Receivable
(1) is denominated in U.S. dollars and has been originated in the
United States of America by PAC or by a Dealer for the retail sale
of a Financed Vehicle in the ordinary course of such Dealer's
business in each case 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)
and if originated by a Dealer, was transferred to PAC from such
Dealer under an existing Dealer Agreement and Dealer Assignment
and was transferred to Paragon Auto 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) as of the Initial Cutoff Date has an
Annual Percentage Rate of not less than 6.83% and not more than
17%, (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 provided that not more than 12% of the
Receivables are Pre-Computed Receivables by Aggregate Principal
Balance; (B) as of the Initial Cutoff Date in the case of an
Initial Receivable, or as of the applicable Subsequent Cutoff
Date, in the case of a Subsequent Receivable, 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
May 15, 2005; (D) as of the Initial Cutoff Date, not more than
93.40% of the aggregate principal balance of the Initial
Receivables represented financing of used vehicles, and the
remainder of the Initial Receivables represented financing of new
B-1
<PAGE>
vehicles; (E) as of the Initial Cutoff Date, the average remaining
principal balance of the Initial Receivables was not more than
$18,648; and (F) as of the Initial Cutoff Date, the weighted
average Annual Percentage Rate of the Initial Receivables was not
less than 10.63%.
4. Principal Balance; Scheduled Payments. (A) Each
Receivable has an outstanding principal balance as of the Initial
Cutoff Date in the case of an Initial Receivable, or as of the
applicable Subsequent Cutoff Date in the case of a Subsequent
Receivable, of not less than $1,000 and not more than $85,000; (B)
each Receivable originated on or prior to January 31, 1999 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 January 31, 1999 either (I) has had (and each
Subsequent Receivable will have) at least one scheduled payment
made prior to the date that is two Business Days prior to the
Closing Date (or the Subsequent Transfer Date with respect to a
Subsequent Receivable) or (II) will have a first scheduled payment
made within 29 days of the due date thereof.
5. Characteristics of Obligors. As of the Initial Cutoff
Date with respect to an Initial Receivable and as of the
applicable Subsequent Cutoff Date with respect to a Subsequent
Receivable, 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 PAC, 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
Initial Cutoff Date, the Obligors of approximately 28.42% of the
Receivables were located in California, the Obligors of
approximately 15.46% of the Receivables were located in North
Carolina, the Obligors of approximately 12.78% of the Receivables
were located in Texas, the Obligors of approximately 11.48% of the
Receivables were located in Virginia and no other state had a
concentration of more than 10% of the Receivables.
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 with respect to the Initial Receivables and on or prior to
the applicable Subsequent Transfer Date with respect to Subsequent
Receivables 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
Initial Cutoff Date and each Subsequent Cutoff Date.
9. Adverse Selection. No selection procedures having a
material adverse effect on the Trust, the Note Insurer or
Noteholders have been utilized in selecting the Receivables
B-2
<PAGE>
from those receivables owned by PAC that met the selection
criteria contained in this Agreement. No advances were made to
qualify the Receivables under the eligibility criteria set forth
in this Schedule B.
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 date of transfer thereof 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
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 with respect to the Initial Receivables or after the
applicable Subsequent Transfer Date with respect to Subsequent
Receivables).
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 Initial Cutoff Date with
respect to the Initial Receivables or as of the applicable
Subsequent Cutoff Date with respect to Subsequent Receivables, no
Receivable has been amended, altered or modified; 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, and no more than 0.05% of the Receivables have been
extended beyond their original maturity dates. As of the Initial
Cutoff Date with respect to the Initial Receivables or as of the
applicable Subsequent Cutoff Date with respect to Subsequent
Receivables, no Receivable has been
B-3
<PAGE>
modified as a result of application of the Soldiers' and Sailors'
Civil Relief Act of 1940, as amended.
15. No Defenses. As of the Initial Cutoff Date with
respect to the Initial Receivables or as of the applicable
Subsequent Cutoff Date with respect to the Subsequent Receivables,
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 Initial Cutoff Date with respect
to the Initial Receivables or as of the applicable Subsequent
Cutoff Date with respect to Subsequent Receivables, 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 Initial Cutoff Date with respect to the Initial Receivables or
as of the applicable Subsequent Cutoff Date with respect to
Subsequent Receivables, 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 Initial Cutoff Date with respect to the Initial Receivables
or as of the applicable Subsequent Cutoff Date with respect to
Subsequent Receivables.
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 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.
B-4
<PAGE>
20. Title. No Receivable has been sold, transferred,
assigned or pledged by PAC to any Person other than the Seller or
a Warehouse Lender (and the Warehouse Liens shall be released as
of the Closing Date) or any such pledge that has been released on
or prior to the Closing Date with respect to the Initial
Receivables or the applicable Subsequent Transfer Date with
respect to the Subsequent Receivables. 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 and each
Subsequent Transfer 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 or the applicable Subsequent
Purchase Agreement and sold by 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 Initial 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.
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
B-5
<PAGE>
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 Initial Cutoff Date with respect
to the Initial Receivables and as of the applicable Subsequent
Cutoff Date with respect to Subsequent Receivables, 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-6
<PAGE>
SCHEDULE C
LEGAL PROCEEDINGS
-----------------
None.
C-1
<PAGE>
EXHIBIT A
SUBSEQUENT PURCHASE AGREEMENT
THIS SUBSEQUENT PURCHASE AGREEMENT, dated as of _______ __, 1999 (the
"Subsequent Purchase Agreement") is between Paragon Auto Receivables
Corporation, a Delaware corporation, as Purchaser ("Paragon Auto") and
Paragon Acceptance Corporation, a Delaware limited partnership, as Seller
("PAC").
WHEREAS, Paragon Auto, as Purchaser, has agreed to purchase from
PAC, as Seller, and PAC, pursuant to the Receivables Purchase Agreement,
dated as of March 30, 1999 (the "Receivables Purchase Agreement"), between
Paragon Auto, as Purchaser and PAC, as Seller, is selling and transferring
to Paragon Auto the Receivables listed on the Schedule of Subsequent
Receivables attached as Schedule A (the "Subsequent Receivables") and the
Other Conveyed Property with respect thereto.
NOW, THEREFORE, in consideration of the mutual agreements
contained herein, Paragon Auto and PAC hereby agree as follows:
SECTION 1. Definitions. Capitalized terms used herein without
definition shall have the meanings assigned to such terms in the Receivables
Purchase Agreement.
SECTION 2. Conveyance of Subsequent Receivables. For value
received, in accordance with the Receivables Purchase Agreement, PAC does
hereby sell, assign, transfer and otherwise convey to Paragon Auto, all
right, title and interest of PAC in and to the Subsequent 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
Subsequent Purchase Agreement shall constitute a sale of the Subsequent
Receivables and the Other Conveyed Property with respect thereto from PAC
to Paragon Auto and the beneficial interest in and title to the Subsequent
Receivables and the Other Conveyed Property with respect thereto 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, PAC hereby grants a first priority security interest
to Paragon Auto in the property conveyed pursuant to this Section 2, and
this Subsequent Purchase Agreement shall be construed so as to further such
intent.
SECTION 3. Representations and Warranties of Paragon Auto. This
Agreement is made pursuant to and upon the representations, warranties,
covenants and agreements on the part of Paragon Auto contained in the
Receivables Purchase Agreement and is to be governed by the Receivables
Purchase Agreement. All of such representations, warranties, covenants and
agreements are hereby incorporated herein and are in full force and effect
as though specifically set forth herein.
A-1
<PAGE>
SECTION 4. Representations and Warranties of PAC. This Agreement
is made pursuant to and upon the representations, warranties, covenants and
agreements on the part of PAC contained in the Receivables Purchase
Agreement and is to be governed by the Receivables Purchase Agreement. All
of such representations, warranties, covenants and agreements are hereby
incorporated herein and are in full force and effect as though specifically
set forth herein.
SECTION 5. 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 LAW THEREFORE (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.
A-2
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Subsequent
Purchase Agreement to be duly executed this __ day of 1999, but effective
as of the date and year first written above.
PARAGON AUTO RECEIVABLES
CORPORATION, as Purchaser
By:__________________________________
Name:
Title:
PARAGON ACCEPTANCE CORPORATION, as
Seller
By:__________________________________
Name:
Title:
A-3
<PAGE>
SCHEDULE A
SUPPLEMENT TO SCHEDULE OF RECEIVABLES
FOR SUBSEQUENT TRANSFER DATE: ___________ ___, 1999
<PAGE>
EXHIBIT B
FORM OF OFFICER'S CERTIFICATE
The undersigned hereby certifies that he is a duly authorized
officer of Paragon Acceptance Corporation, an Delaware Corporation
("Paragon"), and Paragon Auto Receivables Corporation, an Delaware
corporation ("Paragon Auto"), and that as such he is authorized to execute
and deliver this certificate in the name of and on behalf of Paragon and
Paragon Auto and represents, warrants and further certifies in his official
capacity, in the name and on behalf of Paragon and Paragon Auto, as follows
in connection with the transfer on __________, 1999 (the "Subsequent
Transfer Date") of Subsequent Receivables and Other Conveyed Property with
respect thereto by Paragon to Paragon Auto and by Paragon Auto to the
Trust:
1. Paragon Auto has provided Paragon, the Owner Trustee on behalf of
the Trust, the Indenture Trustee, the Note Insurer and the Rating
Agencies with an Addition Notice not later than ten days prior to
the Subsequent Transfer Date and has provided any information
reasonably requested by any of them with respect to such
Subsequent Receivables;
2. Paragon Auto has delivered to Paragon, the Owner Trustee on behalf
of the Trust, the Note Insurer and the Indenture Trustee a duly
executed Subsequent Purchase Agreement, including a Schedule of
Subsequent Receivables;
3. Paragon Auto, or Paragon on its behalf, has deposited in the
Collection Account all collections received in respect of such
Subsequent Receivables received after the related Subsequent
Cutoff Date;
4. As of the Subsequent Transfer Date, neither Paragon nor Paragon
Auto is insolvent nor have any of them been made insolvent by such
transfer nor are any of them aware of any pending insolvency;
5. The Funding Period has not terminated;
6. Paragon Auto has deposited the Subsequent Reserve Account Deposit in
the Reserve Account;
7. Paragon Auto has delivered to the Indenture Trustee the Receivable
Files relating to such Subsequent Receivables;
8. Both Paragon Auto and Paragon have delivered to the Rating
Agencies, the Note Insurer and the Indenture Trustee an Opinion of
Counsel with respect to the transfer of Subsequent Receivables
substantially in the form of the Opinion of Counsel relating to
B-1
<PAGE>
certain bankruptcy, insolvency, tax and security interest matters
delivered to the Rating Agencies, Paragon, the Note Insurer and
the Indenture Trustee on the Closing Date;
9. The Receivables in the Trust, including such Subsequent Receivables,
meet the following criteria: (A) the weighted average APR of the
Receivables in the Trust shall not be less than 10.60%; (B) no
Receivables shall have an APR less than 6.75%; (C) the weighted
average remaining term to maturity of the Receivables on the
Subsequent Transfer Date shall not be greater than 64 months;
(D) based upon the billing addresses of the Dealers, not more
than 10% of the aggregate Principal Balances of the
Receivables, including such Subsequent Receivables, are located
in any one state other than California, North Carolina,
Virginia or Texas; (E) at least 65% of the Receivables shall be
secured by automobiles and sports utility vehicles with a
manufacturer's suggested retail price when new of $20,000 or
more; (F) Pre-Computed Receivables shall not exceed 12% of the
Receivables by Aggregate Principal Balance; (G) no more than
45% of the Receivables shall have an original term of more than
60 months but less than or equal to 72 months; (H) no
Receivable shall have a Principal Balance less than $1,000 or
in excess of $85,000; and (I) no more than 4% of Aggregate
Principal Balance of the Receivables shall be rated "Credit
Tier A" as defined in Paragon's credit and collection policy;
10. No selection procedures adverse to the interests of the
Noteholders or the Note Insurer were utilized in selecting such
Subsequent Receivables;
11. Each of the conditions precedent specified in either Section
2.2(c) of the Receivables Purchase Agreement or Section 2.2(b) of
the Sale and Servicing Agreement has been satisfied; and
12. The representations and warranties set forth in Section 3.1 of the
Receivables Purchase Agreement are true and correct in all
material respects.
B-2
<PAGE>
Capitalized terms used herein which are not defined herein shall
have the meanings ascribed thereto in the Sale and Servicing Agreement,
dated as of March 30, 1999, between Paragon Auto, as Seller, Paragon Auto
Receivables Owner Trust 1999-A, as purchaser, Paragon, in its individual
capacity and as Servicer, and Norwest Bank Minnesota, National Association,
as Indenture Trustee and as Backup Servicer.
PARAGON AUTO RECEIVABLES CORPORATION
By:_________________________________
Name:
Title:
PARAGON ACCEPTANCE CORPORATION
By:_________________________________
Name:
Title:
B-3
