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SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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): December 9, 1997
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Chevy Chase Bank, F.S.B. (as Seller pursuant to the Pooling
and Servicing Agreement dated as of June 1, 1998 providing for
the issuance of Chevy Chase Auto Receivables Trust 1998-2
Auto Receivables Backed Certificates)
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(Exact Name of registrant as specified in its charter)
United States 333-21707 52-0897004
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(State or other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
8401 Connecticut Avenue, Chevy Chase, Maryland 20815
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including Area Code: (301) 986-7000
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Not applicable
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(Former Name or Former Address, if Changed Since Last Report)
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Item 5. Other Events
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In connection with the offering and sale of 5.91% Auto Receivables Backed
Certificates, of which Chevy Chase Auto Receivables Trust, 1998-2 is the issuer
as described in a Prospectus Supplement dated as of June 15, 1998 to the
Prospectus dated September 17, 1997, a pooling and serving agreement was entered
into as of June 1, 1998 among Chevy Chase Bank, F.S.B. as seller and servicer
(the "Seller") and U.S. Bank National Association, as trustee; an underwriting
agreement was entered into on June 15, 1998 among the Seller and J.P. Morgan
Securities Inc., as representative of the underwriters (the "Underwriter"); and
an indemnification agreement was entered into as of December 11, 1997 among the
Seller, the Underwriter and the certificate insurer.
Use of Proceeds
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On June 15, 1998, Chevy Chase Auto Receivables Trust 1998-2 (the "Issuer")
commenced an offering of 5.91% Auto Receivables Backed Certificates (the
"Securities") issued pursuant to a Pooling and Servicing Agreement dated as of
June 1, 1998 by and among Chevy Chase Bank, F.S.B., as Seller and Servicer (the
"Bank") and U.S. Bank National Association, as Trustee. The offering is
described in the Prospectus Supplement dated June 15, 1998 to the Prospectus
dated September 17, 1997, and the offering was made under the registration
statement on Form S-3 filed with the Securities and Exchange Commission on
February 12, 1997 which became effective on March 11, 1997 and was assigned file
number 333-21707.
The offering terminated on June 19, 1998 after the sale of all
Securities registered. The managing underwriters of the offering were J.P.
Morgan Securities Inc. and Salomon Brothers Inc. A total of $153,615,935.94 of
Securities were registered, with an aggregate price to the public of
$153,522,486.76 plus accrued interest thereon at the rate of 5.91% per annum
from June 15, 1998. All of the Securities registered were sold, for an aggregate
offering price to the public of $153,522,486.76 plus accrued interest thereon at
the rate of 5.91% per annum from June 15, 1998.
In connection with issuance and distribution of the Securities, from the
date the offering commenced through the date the offering terminated, the Bank
paid underwriting commissions and discounts of $384,039.84, and incurred other
expenses, including legal fees and costs and expenses paid to or for the
underwriters, reasonably estimated to be $375,000. All such other expenses
were paid by direct or indirect payments to persons other than (i) directors,
officers or general partners of the Issuer or the Bank or their associates, (ii)
persons owning ten percent or more of any class of equity securities of the
Issuer or the Bank and (iii) affiliates of the Issuer or the Bank. The total
amount of expenses paid by the Bank is estimated to be $759,039.84. After
deducting the total expenses described above, the net offering proceeds to the
Bank are estimated to be $152,763,446.92 plus accrued interest on the total
amount of the Securities (as set forth above) at the rate of 5.91% per annum
from June 15, 1998.
Of the net offering proceeds received by the Bank, an amount equal to
$105,182,321.51 was used by the Bank to purchase certain receivables from
Consumer Finance Corporation, its wholly-owned subsidiary; $18,049,872.47 was
used to fund a reserve account and $168,715.60 was used to fund a yield
maintenance account; the remainder of such net proceeds were used by the Bank
for general corporate purposes.
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits;
(a) Not applicable.
(b) Not applicable.
(c) Exhibits:
(1) Underwriting Agreement
1.2 Underwriting Agreement (Trust 1998-2)
(4) Instruments defining the rights of security holders, including
indentures
4.2 Pooling and Servicing Agreement (Trust 1998-2)
(10) Material Contracts
10.2 Indemnification Agreement (Trust 1998-2)
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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.
CHEVY CHASE BANK, F.S.B.
Date: June 19, 1998 By: /s/ Mark A. Holles
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Mark A. Holles,
Vice President
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Exhibit Index
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Exhibit
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1.2 Underwriting Agreement
4.2 Pooling and Servicing Agreement
10.2 Indemnification Agreement
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EXHIBIT 1.2
CHEVY CHASE AUTO RECEIVABLES TRUST 1998-2
5.91% Auto Receivables Backed Certificates
UNDERWRITING AGREEMENT
June 15, 1998
J.P. Morgan Securities Inc.
as Representative of the Underwriters
identified on Schedule 1
60 Wall Street
New York, NY 10260
Ladies and Gentlemen:
1. INTRODUCTION. Chevy Chase Bank, F.S.B., a federally chartered
stock savings bank ("Chevy Chase"), has authorized the issuance and sale of
5.91% Auto Receivables Backed Certificates (the "Certificates"), evidencing
interests in a trust (the "Trust") consisting, among other things, of (i) simple
interest retail installment sales contracts and installment loans (the
"Receivables") secured by new and used automobiles, light duty trucks and vans
(the "Vehicles") financed thereby, (ii) amounts due or received thereunder on or
after June 1, 1998 (the "Cut-Off Date"), and (iii) security interests in the
Vehicles financed thereby. The Certificates will be issued under a Pooling and
Servicing Agreement dated as of June 1, 1998 (the "Trust Agreement") between
Chevy Chase as seller and as servicer and U.S. Bank National Association, as
trustee (the "Trustee").
The Certificates will evidence fractional undivided interests in 100% of the
Trust. The Trustee, on behalf of the holders of the Certificates (the
"Certificateholders"), will have the benefit of a financial guaranty insurance
policy (the "Certificate Insurance Policy") from MBIA Insurance Corporation (the
"Certificate Insurer"). The Trustee will also have access to a Reserve Account
to be established for the benefit of the Certificateholders and the Certificate
Insurer. Each Certificateholder will also purchase the right to receive a pro
rata share of the applicable portion of the amounts payable under the Yield
Maintenance Account established pursuant to the Trust Agreement. The
Certificates will be issued in an aggregate principal amount of $153,615,935.94,
which is equal to the original pool balance of the Receivables, exclusive of
accrued interest, as of the opening of business on the Cut-Off Date. The forms
of the Trust Agreement and the Certificate Insurance Policy have been timely
filed as exhibits to the Registration Statement (as such term is hereinafter
defined). Capitalized terms used but not defined herein shall have the meanings
given to them in the Trust Agreement. Chevy Chase hereby agrees with the several
Underwriters named in Schedule 1 hereto (the "Underwriters") as follows:
2. REPRESENTATIONS AND WARRANTIES OF CHEVY CHASE. Chevy Chase
represents and warrants to, and agrees with, each of the Underwriters that:
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(a) A Registration Statement on Form S-3 (No. 333-21707) relating
to the Certificates, including a form of Prospectus, has been filed with
the Securities and Exchange Commission (the "Commission") and either (i)
has been declared effective under the Securities Act of 1933 (the "Act")
and is not proposed to be amended or (ii) is proposed to be amended by
amendment or post-effective amendment. If Chevy Chase does not propose to
amend such Registration Statement or if any post effective amendment to
such Registration Statement has been filed with the Commission prior to the
execution and delivery of this Agreement, such Registration Statement or
such post-effective amendment, as the case may be, has been declared
effective by the Commission. For purposes of this Agreement, "Effective
Time" means (i) if Chevy Chase has advised J.P. Morgan Securities Inc., as
representative of the Underwriters (the "Representative"), that it does not
propose to amend such Registration Statement, the date and time as of which
such Registration Statement, or the most recent post-effective amendment
thereto (if any) filed prior to the execution and delivery of this
Agreement, was declared effective by the Commission, or (ii) if Chevy Chase
has advised the Representative that it proposes to file an amendment or
post-effective amendment to such Registration Statement, the date and time
as of which such Registration Statement, as amended by such amendment or
post-effective amendment, as the case may be, is declared effective by the
Commission. "Effective Date" means the date of the Effective Time. Such
Registration Statement, as amended at the Effective Time, including all
material incorporated by reference therein and including all information,
if any, deemed to be a part of such Registration Statement as of the
Effective Time pursuant to Rule 430A(b) under the Act, is referred to
herein as the "Registration Statement". The term "Base Prospectus" means
the prospectus included in the Registration Statement, as such Base
Prospectus has been amended or supplemented subsequent to the Effective
Time by any Prospectus filed with the Commission pursuant to Rule
424(b)(2), (3), (4) or (5). The term "Prospectus Supplement" means the
preliminary prospectus supplement dated June 10, 1998 and the prospectus
supplement dated June 15, 1998, both specifically relating to the
Certificates, as both were filed with the Commission pursuant to Rule 424
under the Act (together the "Prospectus Supplement"). The Base Prospectus
and the Prospectus Supplement, together with all material incorporated by
reference in such Base Prospectus or such Prospectus Supplement, is
hereinafter referred to as the "Prospectus."
(b) If the Effective Time is prior to the execution and delivery
of this Agreement: (i) on the Effective Date, the Registration Statement
conformed, and on the date of this Agreement the Registration Statement
conforms, in all material respects with the requirements of the Act and the
rules and regulations of the Commission ("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 not misleading, and (ii) on the date of this Agreement,
the Prospectus conforms, and at the time of filing of the Prospectus
pursuant to Rule 424(b) and at the Closing Date, the Prospectus will
conform, in all material respects to the requirements of the Act and the
Rules and Regulations and the Prospectus does not include, and will not
include, any untrue statement of a material fact, and does not omit to
state any material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading. If the Effective Time is subsequent to the execution and
delivery of this Agreement, on the Effective Date the Registration
Statement and the Prospectus will conform in all material respects to the
requirements of the Act and the Rules and
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Regulations, and (i) the Registration Statement will not include any untrue
statement of a material fact or will not omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading and (ii) the Prospectus will not include an untrue statement
of a material fact or will not omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The two preceding sentences do
not apply to statements in or omissions from the Registration Statement or
Prospectus based upon written information furnished to Chevy Chase by any
Underwriters through the Representative specifically for use therein, it
being understood the only such information is that described as such in
Section 8(b). The conditions to the use by Chevy Chase 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 and the Prospectus. There are no contracts or
documents which were required to be filed as exhibits to the Registration
Statement pursuant to the Act or the Rules and Regulations on or prior to
the Effective Date which have not been so filed on or prior to the
Effective Date or that were required to be filed as exhibits to the
Registration Statement pursuant to the Act or the Rules and Regulations
which have not been filed as exhibits to reports filed under the Exchange
Act that are incorporated by reference into the Registration Statement.
(c) Since the respective dates as of which information is given
in the Prospectus, or the Prospectus as amended and supplemented, there has
not been any material adverse change in the general affairs, management, or
results of operations of Chevy Chase or of its subsidiaries otherwise than
as set forth or contemplated in the Prospectus or the Prospectus as amended
and supplemented, nor has there been any adverse change in the general
affairs, management, or results of operations of any other affiliate of
Chevy Chase which could have a material adverse effect on the general
affairs, management or results of operations of Chevy Chase or its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus
or the Prospectus as amended and supplemented.
(d) Chevy Chase is a federally chartered stock savings bank duly
organized and validly existing under the laws of the United States of
America, and has full corporate power, authority and legal right to own its
properties and conduct its business as such properties are presently owned
and such business is presently conducted, and to execute, deliver and
perform its obligations under this Agreement, the Trust Agreement and the
Indemnification Agreement, and to cause the Certificates to be issued.
Chevy Chase has conducted and is conducting its business so as to comply in
all material respects with all applicable statutes and regulations,
including, without limitation, all regulations, decisions, directives and
orders of the Office of Thrift Supervision. Chevy Chase is duly qualified
to do business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the conduct of
its business requires such qualification.
(e) (i) There are no legal, governmental or regulatory proceedings
pending to which Chevy Chase is a party or to which any of its property is
subject, which, if determined adversely to Chevy Chase, would individually
or in the aggregate have a material adverse effect on the performance by
Chevy Chase of this Agreement, the Trust Agreement and the Indemnification
Agreement or the consummation of the transactions contemplated hereunder or
thereunder and (ii) to the best of its knowledge, no such
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proceedings are threatened or contemplated by governmental or regulatory
authorities or threatened by others.
(f) This Agreement has been duly authorized and validly executed
and delivered by Chevy Chase and constitutes a valid and binding agreement
of Chevy Chase, enforceable against Chevy Chase in accordance with its
terms, except to the extent that (i) the enforceability hereof may be
subject to insolvency, reorganization, moratorium, receivership,
conservatorship, or other similar laws, regulations or procedures of
general applicability now or hereafter in effect relating to or affecting
creditors' or other obligees' rights generally or the rights of creditors
or obligees of federally chartered stock savings banks, the deposits of
which are insured by the Federal Deposit Insurance Corporation (the
"FDIC"), (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought
and (iii) rights to indemnification and contribution under this Agreement
may be limited by state or federal securities laws or the policies
underlying such laws.
(g) The Trust Agreement and the Indemnification Agreement have
been duly authorized by Chevy Chase and, when executed and delivered by
Chevy Chase and assuming the due authorization, execution and delivery of
the Trust Agreement and the Indemnification Agreement by the other parties
thereto, will constitute valid and binding obligations of Chevy Chase
enforceable against Chevy Chase in accordance with their respective terms,
except to the extent that (i) the enforceability thereof may be subject to
insolvency, reorganization, moratorium, receivership, conservatorship, or
other similar laws, regulations or procedures of general applicability now
or hereafter in effect relating to or affecting creditors' or obligees'
rights generally or the rights of creditors or obligees of federally
chartered stock savings banks, the deposits of which are insured by the
FDIC, (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought
and (iii) rights to indemnification and contribution may be limited by
state or federal securities laws or the policies underlying such laws.
(h) The issuance and delivery of the Certificates, the
consummation of any other of the transactions contemplated herein, in the
Trust Agreement and the Indemnification Agreement or the fulfillment of the
terms of this Agreement, the Trust Agreement or the Indemnification
Agreement, do not and will not conflict with or violate any term or
provision of the Charter or By-laws of Chevy Chase, any statute, order or
regulation applicable to Chevy Chase of any court, regulatory body,
administrative agency or governmental body having jurisdiction over Chevy
Chase and do not and will not conflict with, result in a breach or
violation or the acceleration of or constitute a default under or result in
the creation or imposition of any lien, charge or encumbrance upon any of
the property or assets of Chevy Chase pursuant to the terms of, any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which Chevy Chase is a party or by which Chevy Chase may be
bound or to which any of the property or assets of Chevy Chase may be
subject except for conflicts, violations, breaches, accelerations and
defaults which would not, individually or in the aggregate, be materially
adverse to Chevy Chase or materially adverse to the transactions
contemplated by this Agreement.
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(i) Arthur Andersen LLP is an independent public accountant with
respect to Chevy Chase as required by the Act and the Rules and
Regulations.
(j) The direction by Chevy Chase to the Trustee to execute,
countersign, issue and deliver the Certificates has been duly authorized by
Chevy Chase, and, assuming the Trustee has been duly authorized to do so,
when executed, countersigned, issued and delivered by the Trustee in
accordance with the Trust Agreement, the Certificates will be validly
issued and outstanding and will be entitled to the benefits of the Trust
Agreement.
(k) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body of the
United States is required for the issuance and sale of the Certificates, or
the consummation by Chevy Chase of the other transactions contemplated by
this Agreement, the Trust Agreement or the Indemnification Agreement,
except the registration under the Act of the Certificates and such
consents, approvals, authorizations, registrations or qualifications as may
have been obtained or effected or as may be required under securities or
Blue Sky laws in connection with the purchase and distribution of the
Certificates by the Underwriters.
(l) Chevy Chase possesses all material licenses, certificates,
authorizations or permits issued by the appropriate state, Federal or
foreign regulatory agencies or bodies necessary to conduct the business now
conducted by it and as described in the Prospectus and Chevy Chase has not
received notice of proceedings relating to the revocation or modification
of any such license, certificate, authorization or permit which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially and adversely affect the conduct of its business,
operations, financial condition or income.
(m) At the time of execution and delivery of the Trust Agreement,
Chevy Chase (i) will not have assigned to any person any of its right,
title or interest in the Receivables or in the Trust Agreement or the
Certificates and (ii) will have the power and authority to sell the
Receivables to the Trustee and to sell the Certificates to the
Underwriters, and upon execution and delivery of the Trust Agreement by the
Trustee, the Trustee will have acquired beneficial ownership of all of
Chevy Chase's right, title and interest in and to the Receivables, and upon
delivery to the Underwriters of the Certificates the Underwriters will have
good and marketable title to the Certificates.
(n) As of the Cut-Off Date, the Receivables will meet the
eligibility criteria described in the Prospectus.
(o) The Trust created by the Trust Agreement is not, and
immediately following the issuance and sale of the Certificates will not
be, required to be registered as an "investment company" under the
Investment Company Act of 1940, as amended (the "1940 Act"), as in effect
on the date hereof.
(p) Chevy Chase has authorized the conveyance of the Receivables
to the Trust, and Chevy Chase has authorized the Trust to issue the
Certificates.
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(q) Each of the Certificates, the Trust Agreement and the
Certificate Insurance Policy conforms in all material respects to the
descriptions thereof contained in the Prospectus.
(r) Any taxes, fees and other governmental charges in connection
with the execution, delivery and issuance of this Agreement, the Trust
Agreement, the Indemnification Agreement, the Certificate Insurance Policy
and the Certificates that are required to be paid by Chevy Chase at or
prior to the Closing Date have been paid or will be paid at or prior to the
Closing Date.
(s) Chevy Chase will not apply the proceeds of the sale of the
Certificates pursuant to this Agreement to purchase securities (which term
does not include the Receivables) within the meaning of Regulation T
promulgated by the Federal Reserve Board.
(t) As of the Closing Date, the representations and warranties of
Chevy Chase in the Trust Agreement and the Indemnification Agreement will
be true and correct.
Any certificate signed by an officer of Chevy Chase and delivered to
the Underwriters or the Underwriters' counsel in connection with an offering of
the Certificates shall be deemed, and shall state that it is, a representation
and warranty as to the matters covered thereby to each person to whom the
representations and warranties in this Section 2 are made.
3. PURCHASE, SALE, DELIVERY AND PAYMENTS. The Underwriters'
commitment to purchase the Certificates pursuant to this Agreement shall be
deemed to have been made on the basis of the representations and warranties
herein contained and shall be subject to the terms and conditions herein set
forth. Chevy Chase agrees to instruct the Trustee to issue and agrees to sell to
the Underwriters, and the Underwriters, severally and not jointly, agree, to
purchase from Chevy Chase at the purchase price for the Certificates set forth
opposite the names of the Underwriters on Schedule 1 hereto, the respective
principal amount of Certificates set forth on Schedule 1 hereto. Payment of the
purchase price for, and delivery of, any Certificates to be purchased by the
Underwriters shall be made at the offices of Shaw Pittman Potts & Trowbridge,
1675 Broadway, New York, New York 10019 or at such other place as shall be
agreed upon by the Underwriters and Chevy Chase, at 10:00 a.m. New York time on
June 23, 1998 (the "Closing Date"), or at such other date or time as shall be
agreed upon in writing by the Representative and Chevy Chase. On the Closing
Date, payment shall be made to Chevy Chase by wire transfer of same day funds
payable to the account of Chevy Chase against delivery to the Trustee as
custodian for The Depository Trust Company ("DTC") of the Certificates in the
form of one or more global certificates in definitive form (the "Global
Certificates") and registered in the name of Cede & Co., as nominee for DTC. The
Global Certificates will be made available for checking at the offices of Shaw
Pittman Potts & Trowbridge at least 24 hours prior to the Closing Date.
4. OFFERING BY UNDERWRITERS. It is understood that the Underwriters
propose to offer the Certificates for sale to the public (which may include
selected dealers) as set forth in the Prospectus.
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5. COVENANTS OF CHEVY CHASE. Chevy Chase covenants with the
Underwriters as follows:
(a) To prepare a Prospectus setting forth any price related
information previously omitted from the effective Registration Statement
pursuant to Rule 430A under the Act within the time period prescribed by
Rule 430A, and to transmit such Prospectus to the Commission for filing
pursuant to Rule 424(b) under the Act within the prescribed time period,
and prior to the Closing Date to provide evidence satisfactory to the
Underwriters of such timely filing, or to prepare and timely file a post-
effective amendment to the Registration Statement providing such
information, which post-effective amendment shall have been declared
effective in accordance with the requirements of Rule 430A under the Act
and to provide evidence satisfactory to the Underwriters of the
effectiveness thereof.
(b) If at any time when the Prospectus as amended or supplemented
is required by the Act to be delivered in connection with sales of the
Certificates by the Underwriters, any event shall occur or condition exist
as a result of which it is necessary, in the opinion of the Underwriters'
counsel or counsel for Chevy Chase, further to amend or supplement the
Prospectus as then amended or supplemented in order that the Prospectus as
amended or supplemented will not include an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in the light of circumstances existing at the time it is delivered
to a purchaser, not misleading or if it shall be necessary, in the opinion
of any such counsel, at any such time to amend or supplement the
Registration Statement or the Prospectus as then amended or supplemented in
order to comply with the requirements of the Act or the Rules and
Regulations, or if required by such Rules and Regulations, including Rule
430A thereunder, to file a post-effective amendment to such Registration
Statement (including an amended Prospectus), Chevy Chase will promptly
notify the Representative of such event and will prepare and file with the
Commission (subject to the Representative's prior review), at its own
expense, such amendment or supplement as may be necessary to correct such
untrue statement or omission or to make the Registration Statement comply
with such requirements, and within two Business Days will furnish to the
Underwriters as many copies of the Prospectus, as amended or supplemented,
as the Underwriters shall reasonably request. Neither the Representative's
consent to, nor the Underwriters' delivery of, any such amendment or
supplement shall constitute a waiver of any of the conditions set forth in
Section 6 of this Agreement.
(c) Chevy Chase will give the Underwriters reasonable notice of
its intention to file any amendment to the Registration Statement, the
Prospectus or the Prospectus as amended or supplemented, pursuant to the
Act, and will furnish the Underwriters with copies of any such amendment or
supplement proposed to be filed a reasonable time in advance of filing, and
will not file any such amendment or supplement to which the Underwriters or
the Underwriters' counsel shall object.
(d) Chevy Chase will notify the Underwriters immediately, and
confirm the notice in writing, (i) of the effectiveness of any amendment to
the Registration Statement, (ii) of the mailing or the delivery to the
Commission for filing of any supplement to the Prospectus or the Prospectus
as amended or supplemented, (iii) of the receipt and contents of any
comments from the Commission with respect to the Registration Statement or
the
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Prospectus or the Prospectus as amended or supplemented, (iv) of any request
by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information and
(v) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of, or threat
of, any proceedings for that purpose or (vi) the suspension of qualification
of the Certificates for offering or sale in any jurisdiction or the
initiation of any proceeding for that purpose. Chevy Chase will make every
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible
moment.
(e) Chevy Chase will deliver to the Underwriters as many signed
and as many conformed copies of the Registration Statement (as originally
filed) and of each amendment thereto (including exhibits filed therewith or
incorporated by reference therein and documents incorporated by reference in
the Prospectus), each related preliminary prospectus, and so long as delivery
of a Prospectus relating to the Certificates is required to be delivered
under the Act in connection with sales by any Underwriter or dealer, the
Prospectus and all amendments and supplements to such documents, in each case
as soon as available and in such quantities as the Underwriters may
reasonably request. Chevy Chase will also furnish to the Representative
copies of any report required by Rule 463 under the Act.
(f) Chevy Chase will make generally available to holders of the
Certificates as soon as practicable, but in any event not later than the
Availability Date (as defined below), earning statements of the Trust (which
need not be audited) complying with Section 11(a) of the Act and the Rules
and Regulations (including Rule 158) and covering a period of at least twelve
consecutive months beginning after the Effective Date which will satisfy the
provisions of Section 11(a) of the Act. For the purposes of the preceding
sentence, the "Availability Date" means the 45th day after the end of the
Trust's fourth fiscal quarter following the fiscal quarter that includes the
Effective Date, except that, if such fourth fiscal quarter is the last
quarter of the Trust's fiscal year, "Availability Date" means the 90th day
after the end of such fourth fiscal quarter.
(g) Chevy Chase will endeavor, in cooperation with the
Underwriters, to qualify the Certificates for sale and the determination of
their eligibility for investment under the applicable securities laws of such
states and other jurisdictions of the United States as the Representative may
designate, and will maintain or cause to be maintained such qualifications in
effect for as long as may be required for the distribution of the
Certificates. Chevy Chase will file or cause the filing of such statements
and reports as may be required by the laws of each jurisdiction in which the
Certificates have been qualified as above provided.
(h) Chevy Chase will not, directly or indirectly, without the
Underwriters' prior consent, publicly offer or sell or contract to sell or
attempt to offer, sell or dispose of any securities representing interests in
or secured by the Receivables for a period of 30 days following the
commencement of the offering of the Certificates to the public; provided,
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however, that Chevy Chase may contract to sell or attempt to offer, sell or
-------
dispose of securities in public transactions secured by first mortgage loans
or credit card receivables.
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(i) For a period from the date of this Agreement until the
retirement of the Certificates, Chevy Chase, as Servicer, will deliver to the
Representative and, upon request, to each of the other Underwriters, as soon
as practicable, copies of each certificate, report or notice and the annual
statements of compliance delivered by Chevy Chase, as Servicer, to the
Trustee pursuant to Section 4.10 of the Trust Agreement, the annual statement
of a firm of independent public accountants furnished to the Trustee pursuant
to Section 4.11 of the Trust Agreement and such other information concerning
the Receivables, Chevy Chase (including in its capacities as the Seller and
Servicer) or the Certificates, as the Representative may from time to time
reasonably request.
(j) On or before the Closing Date, Chevy Chase shall furnish or
make available to the Underwriters or its counsel such additional documents
and information regarding Chevy Chase (including in its capacities as the
Seller and Servicer) and its affairs as the Underwriters may from time to
time reasonably request, including any and all documentation reasonably
requested in connection with their due diligence efforts regarding
information in the Prospectus and in order to evidence the accuracy or
completeness of any of the conditions contained in this Agreement.
(k) So long as any Certificate is outstanding, Chevy Chase shall
furnish to the Representative by first class mail as soon as practicable, (A)
all documents distributed, or caused to be distributed, by Chevy Chase to
Certificateholders, (B) all documents filed, or caused to be filed, by Chevy
Chase with the Commission relating to the Trust pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (C) any order of the
Commission under the Exchange Act or pursuant to a "no action" letter from
the staff of the Commission relating to the Trust and (D) from time to time,
such other information in the possession of Chevy Chase concerning the Trust
as the Representative may reasonably request.
(l) Chevy Chase shall apply the net proceeds from the sale of the
Certificates in the manner set forth in the Prospectus Supplement.
(m) If, between the date hereof or, if earlier, the dates as of
which information is given in the Prospectus and the Closing Date, to the
knowledge of Chevy Chase there shall have been any material change, or any
development involving a prospective material change in or affecting the
general affairs, management, financial position, shareholders' equity or
results of operations of Chevy Chase, Chevy Chase will give prompt written
notice thereof to the Underwriters.
(n) To the extent, if any, that any rating provided with respect
to the Certificates set forth in Section 6(i) hereof is conditional upon the
furnishing of documents reasonably available to Chevy Chase or the taking of
any other reasonable actions by Chevy Chase, Chevy Chase shall furnish such
documents or take any such other actions.
6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the Underwriters to purchase the Certificates pursuant to this
Agreement are subject to the accuracy on and as of the Closing Date of the
representations and warranties on the part of Chevy Chase herein contained, to
the accuracy of the statements of officers of Chevy
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Chase made pursuant hereto, to the performance by Chevy Chase of all of its
obligations hereunder and to the following conditions at the Closing Date:
(a) The Representative shall have received a letter, dated the
date of delivery thereof (which, if the Effective Time is prior to the
execution and delivery of this Agreement, shall be on or prior to the date of
this Agreement or, if the Effective Time is subsequent to the execution and
delivery of this Agreement, shall be prior to the filing of the amendment or
post-effective amendment to the Registration Statement to be filed shortly
prior to the Effective Time), from Arthur Andersen LLP, in form and substance
satisfactory to the Underwriters and counsel for the Underwriters, confirming
that they are independent public accountants within the meaning of the Act
and the applicable published Rules and Regulations thereunder and stating in
effect that (i) they have performed certain specified procedures as a result
of which they have determined that certain information of an accounting,
financial or statistical nature (which is limited to accounting, financial or
statistical information derived from the general accounting records of the
Trust and Chevy Chase set forth in the Registration Statement and the
Prospectus), agrees with the accounting records of the Trust and Chevy Chase,
excluding any questions of legal interpretation, and (ii) they have performed
certain specified procedures with respect to the computer programs used to
select the Receivables and to generate information with respect to the
Receivables set forth in the Registration Statement and the Prospectus.
For purposes of this subsection (a), if the Effective Time is
subsequent to the execution and delivery of this Agreement, "Registration
Statement" shall mean the registration statement as proposed to be amended by
the amendment or post-effective amendment to be filed shortly prior to the
Effective Time, and "Prospectus" shall mean the prospectus included in such
Registration Statement. Financial statements included in material incorporated
by reference into the Prospectus shall be deemed included in the Registration
Statement for purposes of this subsection (a).
(b) If the Effective Time is not prior to the execution and
delivery of this Agreement, the Effective Time shall have occurred not later
than 10:00 p.m., New York time, on the date of this Agreement or such later
date as shall have been consented to by the Representative. If the Effective
Time is prior to the execution and delivery of this Agreement, the Prospectus
shall have been filed with the Commission in accordance with the Rules and
Regulations and Section 5 (a) of this Agreement.
(c) The Registration Statement shall have been declared effective
by the Commission and no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the Act or proceedings
therefor initiated or threatened by the Commission, any price related
information previously omitted from the effective Registration Statement
pursuant to Rule 430A under the Act shall have been included in the
Prospectus and transmitted to the Commission for filing pursuant to Rule 424
under the Act within the prescribed time period, and Chevy Chase shall have
provided evidence satisfactory to the Underwriters of such timely filing, or
a post-effective amendment to the Registration Statement providing such
information shall have been promptly filed with the Commission and declared
effective in accordance with the requirements of Rule 430A under the Act, and
prior to the Closing Date, Chevy Chase shall have provided evidence
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satisfactory to the Underwriters of such effectiveness and there shall not
have come to the attention of the Underwriters facts that would cause the
Underwriters to believe that the Prospectus, at the time it was required to
be delivered to a purchaser of the Certificates, contained an untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(d) The Underwriters shall have received the favorable opinion,
dated the Closing Date, of Shaw Pittman Potts & Trowbridge, counsel to Chevy
Chase, or other counsel to Chevy Chase, acceptable to the Underwriters and
their counsel, addressed to the Underwriters and in form and scope
satisfactory to the Underwriters' counsel, to the effect that:
(i) Chevy Chase has been duly chartered and is validly
existing as a federally chartered stock savings bank under the laws of the
United States of America and has full corporate power and authority to own
its properties and conduct its business as described in the Prospectus; Chevy
Chase has full corporate power and authority to execute, deliver, and perform
its obligations under this Agreement, the Trust Agreement and the
Indemnification Agreement and to cause the Certificates to be issued and to
consummate the transactions contemplated hereby and thereby.
(ii) Chevy Chase has duly authorized and executed this
Agreement, the Trust Agreement and the Indemnification Agreement.
(iii) The execution, delivery and performance of this
Agreement, the Trust Agreement and the Indemnification Agreement, the
transfer of the Receivables to the Trust, the issuance and sale of the
Certificates and the consummation of any other of the transactions
contemplated herein or in the Trust Agreement do not conflict with or result
in a violation of (a) any applicable law or regulation of the United States
of America or the State of New York or Maryland to which Chevy Chase is
subject, (b) the Charter or By-laws of Chevy Chase or (c) any order, writ,
judgment or decree known to such counsel to which Chevy Chase is a party or
is subject, or result in any lien, charge or encumbrance upon any of the
properties or assets of Chevy Chase.
(iv) There are no actions, proceedings or investigations
pending or threatened before any court, administrative agency or other
tribunal to which Chevy Chase is a named party or to which its assets are
subject (A) asserting the invalidity of the Trust Agreement, the
Indemnification Agreement, this Agreement or the Certificates, (B) seeking to
prevent the issuance of the Certificates or the consummation by Chevy Chase
of any of the transactions contemplated by the Trust Agreement, the
Indemnification Agreement, or this Agreement, (C) that might adversely affect
the validity or enforceability of the Trust Agreement, the Indemnification
Agreement, this Agreement or the Certificates, or (D) seeking to adversely
affect the federal income tax attributes of the Certificates as described in
the Prospectus Supplement under the heading "Certain Federal Income Tax
Consequences."
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(v) No consent, approval, authorization, order,
registration or qualification of or with any court or governmental agency or
body of the United States is required for the issuance and sale of the
Certificates, or the consummation by Chevy Chase of the other transactions
contemplated by this Agreement, the Trust Agreement or the Indemnification
Agreement, except the registration under the Act of the Certificates and such
consents, approvals, authorizations, registrations or qualifications as may
have been obtained or effected or as may be required under securities or Blue
Sky laws in connection with the purchase and distribution of the Certificates
by the Underwriters.
(vi) Each of this Agreement, the Trust Agreement and the
Indemnification Agreement, constitutes the valid, legal and binding
obligation of Chevy Chase enforceable against Chevy Chase in accordance with
its terms.
(vii) The Certificates have been duly authorized and, when
executed and authenticated in accordance with the terms of the Trust
Agreement and delivered to and paid for by the Underwriters pursuant to this
Agreement, will be duly and validly issued and outstanding and will be
entitled to the benefits of the Trust Agreement.
(viii) The Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, the
Prospectus either was filed with the Commission pursuant to the subparagraph
of Rule 424(b) specified in such opinion on the date specified therein or was
included in the Registration Statement (as the case may be), and, to the best
of the knowledge of such counsel, no stop order suspending the effectiveness
of the Registration Statement or any part thereof has been instituted or is
pending or contemplated under the Act, and the Registration Statement and the
Prospectus, and each amendment or supplement thereof, as of their respective
effective or issue dates, complies as to form in all material respects with
the requirements of the Act and the Rules and Regulations; such counsel have
no reason to believe that the Registration Statement or any amendment
thereto, as of its Effective Date, contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that
the Registration Statement as of the Closing Date, or the Prospectus, as of
its issue date or as of such Closing Date, contained any untrue statement of
a material fact or omitted to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; it being understood that such counsel need
express no opinion as to the financial statements or other financial data
contained in the Registration Statement or the Prospectus.
(xi) The conditions to the use by Chevy Chase 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 and the Prospectus. There are no contracts or
documents of Chevy Chase which are required to be filed as exhibits to the
Registration Statement pursuant to the Act or the Rules and Regulations
thereunder which have not been so filed.
(x) The Registration Statement at the time it became
effective, and any amendment thereto at the time such amendment became
effective, complied as to form
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in all material respects with the applicable requirements of the Act and the
Rules and Regulations.
(xi) The Trust Agreement is not required to be qualified
under the Trust Indenture Act of 1939, as amended.
(xii) The Trust is not required to be registered under the
1940 Act, and immediately following the issuance and sale of the Certificates
in the manner contemplated by the Trust Agreement and this Agreement, the
Trust will not be required to be so registered.
(xiii) The Certificates, this Agreement, the Trust Agreement
and the Certificate Insurance Policy conform in all material respects to the
respective descriptions thereof in the Registration Statement and the
Prospectus.
(xiv) The statements in the Base Prospectus under the
headings "RISK FACTORS -- Financial Institution Insolvency Risks," and
"CERTAIN LEGAL ASPECTS OF THE RECEIVABLES," and in the Prospectus Supplement
under the headings "SUMMARY OF TERMS -- Certain Legal Aspects of the
Receivables," "SUMMARY OF TERMS -- Certain Federal Tax Considerations,"
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES," and "ERISA CONSIDERATIONS," to the
extent that they constitute matters of law or legal conclusions with respect
thereto, have been prepared or reviewed by such counsel and are correct in
all material respects.
(xv) No filing or other action, except the filing of a
Uniform Commercial Code financing statement on Form UCC-1 with the Maryland
State Department of Assessments and Taxation naming Chevy Chase as "debtor"
and the Trustee as "secured party," is necessary to perfect the transfer of
the Receivables and proceeds (as defined in Section 9-306 of the Maryland
Uniform Commercial Code) thereof against the claims of creditors of, and
transferees from, Chevy Chase. Such security interest would be enforceable
notwithstanding the insolvency of Chevy Chase or a receivership or
conservatorship of Chevy Chase in which the FDIC is appointed a receiver or
conservator for Chevy Chase.
(xvi) The Receivables constitute "chattel paper" as defined
in Section 9-105 of the Uniform Commercial Code as in effect in the State of
Maryland.
In addition, such counsel shall state that nothing has come to their
attention that would lead them to believe that the Registration Statement, at
the time it became effective, contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, or that the Prospectus, as of its
date and as of the Closing Date, contains an untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(e) The Underwriters shall have received the favorable opinion of
counsel to the Trustee, dated the Closing Date, addressed to the Underwriters
and in form and scope satisfactory to the Underwriters' counsel, to the
effect that:
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(i) The Trustee has duly authorized, executed and delivered
the Trust Agreement.
(ii) The Trustee has been duly organized and is validly
existing as a national banking corporation in good standing under the laws of
the United States of America and has full power and authority to execute and
deliver the Trust Agreement and to perform its obligations thereunder and
such Agreement constitutes the valid, legal and binding obligation of the
Trustee, enforceable against the Trustee in accordance with its terms.
(iii) The Certificates have been duly executed and
countersigned by the Trustee.
(iv) The execution and delivery by the Trustee of the Trust
Agreement and the performance by the Trustee of its duties thereunder do not
conflict with or result in a violation of (a) any law or regulation of the
United States of America or the State of Minnesota, (b) the charter or by-
laws of the Trustee, (c) any order, writ, judgment or decree or (d) any
agreement, instrument, order, writ, judgment or decree known to such counsel
to which the Trustee is a party or is subject.
(v) No consent, approval or authorization of, or
registration, declaration or filing with, any court or governmental agency or
body of the United States of America or any state thereof is required for the
execution, delivery or performance by the Trustee of the Trust Agreement.
(f) The Underwriters shall have received an opinion, dated the
Closing Date, of Shaw Pittman Potts & Trowbridge, counsel to Chevy Chase,
addressed to, and satisfactory to, Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. ("S&P"), Moody's Investors
Service, Inc. ("Moody's") Fitch IBCA, Inc. ("Fitch") and the Underwriters,
relating to the sale of the Receivables to the Trustee.
(g) Chevy Chase shall have furnished to the Underwriters a
certificate signed on behalf of Chevy Chase by any two of the chairman of the
board, the president, any vice chairman of the board, any executive vice
president, any senior vice president, any vice president, the treasurer, or
the controller of the Seller or the Servicer, as appropriate, dated the
Closing Date, as to (i) the accuracy of the representations and warranties of
Chevy Chase herein and in the Trust Agreement at and as of the Closing Date,
(ii) the performance by Chevy Chase of all of its obligations hereunder to be
performed at or prior to the Closing Date and (iii) such other matters as the
Underwriters may reasonably request.
(h) The Trustee shall have furnished to the Underwriters a
certificate of the Trustee, signed by one or more duly authorized officers of
the Trustee, dated the Closing Date, as to the due acceptance of the Trust
Agreement by the Trustee and the due execution and delivery of the
Certificates by the Trustee thereunder and such other matters as the
Underwriters shall reasonably request.
(i) The Certificates shall have been rated "AAA" by S&P, "Aaa" by
Moody's and "AAA" by Fitch, and such ratings shall not have been rescinded.
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(j) The Underwriters shall have received from Arthur Andersen
LLP, or other independent certified public accountants acceptable to the
Underwriters, a letter, dated as of the Closing Date, delivered at such time
in form satisfactory to the Underwriters.
(k) Prior to the Closing Date the Underwriters shall have been
furnished with such documents and opinions as they may reasonably require for
the purpose of enabling them to pass upon the issuance and sale of the
Certificates as herein contemplated and related proceedings or in order to
evidence the accuracy and completeness of any of the representations and
warranties, or the fulfillment of any of the conditions, herein contained;
and all proceedings taken by Chevy Chase in connection with the issuance and
sale of the Certificates as herein contemplated shall be satisfactory in form
and substance to the Underwriters.
(l) Since the respective dates as of which information is given
in the Prospectus, there shall not have been any change, or any development
involving a prospective change, in or affecting the general affairs,
management, financial position, shareholders' equity or results of operations
of Chevy Chase or the Certificate Insurer otherwise than as set forth in the
Prospectus, the effect of which is in the Underwriters' judgment so material
and adverse as to make it impracticable or inadvisable to proceed with the
public offering or the delivery of the Certificates on the terms and in the
manner contemplated in the Prospectus or which, in the judgment of the
Underwriters, materially impairs the investment quality of the Certificates
or the ability of the Servicer to service the Receivables.
(m) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (i) any change, development or event involving
a prospective change, in the condition (financial or other), business,
properties or results of operations of Chevy Chase or its automobile loan
business or the Certificate Insurer which, in the judgment of the
Underwriters, is material and adverse and makes it impracticable or
inadvisable to proceed with the completion of the public offering or the sale
of and payment for the Certificates; (ii) any banking moratorium declared by
Federal, New York, Minnesota or Maryland authorities; or (iii) any
downgrading in the rating of any securities of Chevy Chase or the Certificate
Insurer 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
securities of Chevy Chase or the Certificate Insurer (other than an
announcement with positive implications of a possible upgrading, and no
implication of a possible downgrading, of such rating); or (iv) any
suspension or limitation of trading in securities generally on the New York
Stock Exchange, or any setting of minimum prices for trading on such
exchange; or (v) any outbreak or escalation of major hostilities in which the
United States is involved, any declaration of war by Congress or any other
substantial national or international calamity, emergency or change in
financial markets if, in the Representative's judgment, the effect of any
such outbreak, escalation, declaration, calamity, emergency or change makes
it impractical or inadvisable to proceed with completion of the sale of and
payment for the Certificates.
(n) The Underwriters shall have received evidence satisfactory to
the Underwriters that (i) on or before the Closing Date, UCC-1 financing
statements have been
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filed in the offices of the Maryland State Department of Assessments and
Taxation, reflecting the interest of the Trust in the Receivables and the
proceeds thereof and (ii) the Trust will have a first priority perfected
security interest in the amounts on deposit from time to time in the Reserve
Account and the Yield Maintenance Account.
(o) Chevy Chase will provide or cause to be provided to the
Representative such conformed copies of such opinions, certificates, letters
and documents being provided pursuant hereto and such further information,
certificates and documents as the Representative may reasonably request. The
Representative may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters
hereunder.
(p) The Certificate Insurance Policy shall have been duly
executed and issued at or prior to the Closing Date and shall conform in all
material respects to the description thereof in the Prospectus.
(q) The Underwriters shall have received the favorable opinion,
dated the Closing Date, of counsel for the Certificate Insurer, in form and
scope satisfactory to the Underwriters, to the effect that:
(i) The Certificate Insurer is duly organized as a New
York stock insurance corporation and is validly existing under the laws of
New York, and has the full power and authority (corporate and other) to
issue, and to take all action required of it under, the Certificate Insurance
Policy.
(ii) The execution, delivery and performance by the
Certificate Insurer of the Certificate Insurance Policy has been duly
authorized by all necessary corporate action on the part of the Certificate
Insurer.
(iii) The execution, delivery and performance by the
Certificate Insurer of the Certificate Insurance Policy does not require the
consent or approval of, the giving of notice to, the registration with, or
the taking of any other action in respect of any state or other governmental
agency or authority which has not previously been effected.
(iv) The Certificate Insurance Policy has been duly
authorized, executed and delivered by the Certificate Insurer and constitutes
a legal, valid and binding obligation of the Certificate Insurer, enforceable
against the Certificate Insurer in accordance with its terms (subject, as to
enforcement, to bankruptcy, reorganization, insolvency, moratorium and other
laws affecting creditors' rights generally and to general equity principles).
(v) The Certificate Insurance Policy is not required to
be registered under the Act.
(vi) The information set forth under the caption "The
Certificate Insurance Policy" in the Prospectus, insofar as such statements
constitute a description of the Certificate Insurance Policy, accurately
summarizes the Certificate Insurance Policy.
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In rendering this opinion, such counsel may rely, as to matters of
fact, on certificates of responsible officers of the Certificate Insurer and
public officials. Such opinion may assume the due authorization, execution and
delivery of the instruments and documents referred to therein by the parties
thereto other than the Certificate Insurer.
The Certificate Insurer shall have furnished to you and Chevy Chase a
certificate of the Certificate Insurer, signed by one or more duly authorized
officers of the Certificate Insurer, dated the Closing Date, certifying (i) the
information relating to the Certificate Insurer in the Prospectus is true and
correct in all material respects as of the dates specified therein, (ii) there
has been no change in the financial condition of the Certificate Insurer since
March 31, 1998 which could have a material adverse effect on the Certificate
Insurer's ability to meet its obligations under the Certificate Insurance Policy
and (iii) such other matters as the Underwriters may reasonably request.
If any condition specified in this Section 6 shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by the Underwriters by notice to Chevy Chase at any time at or prior to the
Closing Date, and such termination shall be without liability of any party to
any other party except as provided in Section 7.
7. PAYMENT OF EXPENSES. Chevy Chase agrees to pay all expenses
incident to the performance of its obligations under this Agreement, and will
reimburse the Underwriters (if and to the extent incurred by them) for any
filing fees and other expenses (including fees and disbursements of counsel),
including, without limitation, those related to (i) the filing of the
Registration Statement and all amendments thereto, (ii) the duplication and
delivery to the Underwriters, in such quantities as the Underwriters may
reasonably request, of copies of this Agreement, (iii) the preparation, issuance
and delivery of the Certificates and the determination of their eligibility for
investment under the laws of such jurisdictions as the Representative
designates, (iv) 50% of the fees and disbursements of Shaw Pittman Potts &
Trowbridge, counsel for Chevy Chase, (v) 50% of the fees and disbursements of
Burbage & Weddell, LLC and Smith Helms Mullis & Moore, LLP, not to exceed
$3,500.00, (vi) the fees and disbursements of Arthur Andersen LLP, accountants
of Chevy Chase, (vii) the qualification of the Certificates under securities and
Blue Sky laws and the determination of the eligibility of the Certificates for
investment in accordance with the provisions of Section 5(g), including filing
fees and disbursements and 50% of the fees of Shaw Pittman Potts & Trowbridge in
connection therewith and in connection with the preparation of any Blue Sky
Survey, (viii) the printing and delivery to the Underwriters, in such quantities
as the Underwriters may reasonably request, of copies of the Registration
Statement and Prospectus and all amendments and supplements thereto, and of any
Blue Sky Survey, (ix) the filing fee of the National Association of Securities
Dealers, Inc., (x) the duplication and delivery to the Underwriters in such
quantities as the Underwriters may reasonably request, of copies of the Trust
Agreement, (xi) the fees charged by nationally recognized statistical rating
agencies for rating the Certificates, (xii) the fees and expenses of the Trustee
and its counsel, and (xiii) the fees and expenses of the Certificate Insurer and
its counsel. The Underwriters agree to pay (i) 50% of the fees and disbursements
of Shaw Pittman Potts & Trowbridge, including, without limitation, 50% of the
fees of Shaw Pittman Potts & Trowbridge in connection with the qualification of
the Certificates under Securities and Blue Sky laws, including the preparation
of any Blue Sky Survey, (ii) 50% of the fees and
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disbursements of Burbage & Weddell, LLC and Smith Helms Mullis & Moore, LLP, not
to exceed $3,500.00 and (iii) other expenses of Chevy Chase relating to the
transactions contemplated hereby in an amount equal to $38,404.00.
8. INDEMNIFICATION. Chevy Chase agrees to indemnify and hold harmless
each Underwriter and each person, if any, who controls each Underwriter within
the meaning of the Act or the Exchange Act, as follows:
(a) Chevy Chase will indemnify and hold harmless the Underwriters
against any losses, claims, damages or liabilities, joint or several, to
which such Underwriters may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement, the Prospectus, or any amendment or supplement thereto, or any
related preliminary prospectus, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading (in
the case of the Prospectus, any related preliminary prospectus or any
amendment or supplement thereto, in the light of the circumstances under
which they were made) and will reimburse the Underwriters for any legal or
other expenses reasonably incurred by such Underwriters in connection with
investigating or defending any such loss, claim, damage, liability or action
as such expenses are incurred; provided, however, that Chevy Chase will not
-------- -------
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged
untrue statement in or omission or alleged omission from any of such
documents in reliance upon and in conformity with written information
furnished to Chevy Chase by any Underwriter through the Representative
specifically for use therein, it being understood and agreed that the only
such information furnished by any Underwriter consists of the information
described as such in subsection (b) below.
(b) Each Underwriter will severally and not jointly indemnify and
hold harmless Chevy Chase against any losses, claims, damages or liabilities
to which Chevy Chase may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement, the Prospectus, or any amendment or supplement thereto, or any
related preliminary prospectus, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading
(in the case of the Prospectus or any related Preliminary Prospectus, in the
light of the circumstances under which they were made), in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to Chevy Chase by such
Underwriter through the Representative specifically for use therein, and will
reimburse any legal or other expenses reasonably incurred by Chevy Chase in
connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred, it being understood and
agreed that the only such information furnished by any Underwriter consists
of the following information in the Prospectus furnished on behalf of the
Underwriters: the last paragraph at
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the bottom of the cover page of the Prospectus Supplement concerning the
terms of the offering by the Underwriters, the legend concerning
overallotments and stabilizing on the inside front cover page of the
Prospectus Supplement and the information under the caption "Underwriting" in
the Prospectus Supplement.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under subsection (a) or (b) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under subsection (a) or (b) above. In case any such
action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to
the indemnifying party), and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened action in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by
such indemnified party unless such settlement includes an unconditional
release of such indemnified party from all liability on any claims that are
the subject matter of such action.
9. CONTRIBUTION. If the indemnification provided for in Section 8 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) of Section 8 above, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of the losses, claims, damages or liabilities referred to in such subsection (a)
or (b) (i) in such proportion as is appropriate to reflect the relative benefits
received by Chevy Chase on the one hand and each of the Underwriters on the
other from the offering of the Certificates 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 Chevy Chase on the one hand and each of the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities as well as any other
relevant equitable considerations. The relative benefits received by Chevy Chase
on the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by Chevy Chase bear to the total underwriting discounts and
commissions received by the Underwriters. The relative fault 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 Chevy Chase or the Underwriters
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The amount
paid by an indemnified party as a result of the losses, claims, damages or
liabilities referred to in the first
19
<PAGE>
sentence of this Section 9 shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
Section 9. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this Section 9 to contribute are several in proportion to their
respective underwriting obligations and not joint.
The obligations of Chevy Chase under Section 8 and this Section 9
shall be in addition to any liability which Chevy Chase may otherwise have and
shall extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations of
the Underwriters under Section 8 and this Section 9 shall be in addition to any
liability which the respective Underwriters may otherwise have and shall extend,
upon the same terms and conditions, to each director of Chevy Chase, to each
officer of Chevy Chase who has signed the Registration Statement and to each
person, if any, who controls Chevy Chase within the meaning of the Act.
Each Underwriter, with respect to the Certificates, agrees that it
will not prepare or distribute to any proposed purchaser of any Certificates any
Derived Information (as such term is hereinafter defined), unless it shall have
provided to the Servicer a copy of such Derived Information and a sufficient
time prior to its proposed distribution to permit the Servicer to review and
comment upon such Derived Information, and such Underwriters shall have obtained
the prior written consent of the Servicer thereto following its review. In
addition, such Underwriters agree to provide the Servicer, no later than the
date on which the Prospectus is required to be filed pursuant to Rule 424, with
a definitive copy of its Derived Information with respect to such Certificates
provided by the Underwriters for filing with the Commission on Form 8-K.
Each Underwriter agrees, severally and not jointly, assuming all
Companies-Provided Information (as such term is hereinafter defined) provided by
Chevy Chase is accurate and complete in all material respects, to indemnify and
hold harmless Chevy Chase, each of Chevy Chase's officers and directors and each
person who controls Chevy Chase within the meaning of the Act against any and
all losses, claims, damages or liabilities, joint or several, to which they may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement of a material fact contained in the Derived
Information provided by such Underwriters, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and agrees to
reimburse each such indemnified party for any legal or other expenses reasonably
incurred by him, her or it in connection with investigating or defending or
preparing to defend any such loss, claim, damage, liability or action as such
expenses are incurred. The obligations of the Underwriters under this Section 9
shall be in addition to any liability which the Underwriters may otherwise have.
For purposes of this Section 9, the term "Derived Information" means
such portion, if any, of the information delivered to Chevy Chase for filing
with the Commission on Form 8-K as:
20
<PAGE>
(i) is not contained in the Prospectus without taking into
account information incorporated therein by reference;
(ii) does not constitute Companies-Provided Information;
and
(iii) is not information provided by the Certificate
Insurer.
"Companies-Provided Information" means any computer tape furnished to the
Underwriters by Chevy Chase concerning the Receivables assigned to the Trust.
Notwithstanding the provisions of Sections 8 and 9, the Underwriters
shall not be required to contribute any amount in excess of the amount by which
the total price at which the Certificates underwritten by the Underwriters and
distributed to the public were offered to the public exceeds the amount of any
damages which the Underwriters have otherwise been required to pay in respect of
such losses, liabilities, claims, damages and expenses. For purposes of this
Section 9, each person, if any, who controls the Underwriters within the meaning
of the Act or the Exchange Act shall have the same rights to contribution as
each of the Underwriters, and each director of Chevy Chase, each officer of
Chevy Chase who signed the Registration Statement, and each person, if any, who
controls Chevy Chase within the meaning of the Act or the Exchange Act shall
have the same rights to contribution as Chevy Chase.
10. DEFAULT OF UNDERWRITERS. If any Underwriter defaults in its
obligations to purchase Certificates hereunder on the Closing Date and the
aggregate principal amount of Certificates that such defaulting Underwriter or
Underwriters have agreed but failed to purchase does not exceed 10% of the total
principal amount of Certificates that the Underwriters are obligated to purchase
on such Closing Date, the Representative may make arrangements satisfactory to
Chevy Chase for the purchase of such Certificates by other persons, including
any of the Underwriters, but if no such arrangements are made by such Closing
Date, the nondefaulting Underwriters shall be obligated severally, in proportion
to their respective commitments hereunder, to purchase the Certificates that
such defaulting Underwriters agreed but failed to purchase on such Closing Date.
If any Underwriters so default and the aggregate principal amount of
Certificates with respect to which such default or defaults occur exceeds 10% of
the total principal amount of Certificates that the Underwriters are obligated
to purchase on such Closing Date and arrangements satisfactory to the
Representative and Chevy Chase for the purchase of such Certificates by other
persons are not made within 36 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or
Chevy Chase, except as provided in Section 11. As used in this Agreement, the
term "Underwriter" includes any person substituted for an Underwriter under this
Section 10. Nothing herein will relieve a defaulting Underwriter from liability
for its default.
11. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS. The
respective indemnities, agreements, representations, warranties and other
statements of Chevy Chase or its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation, or statement as to the results thereof,
made by or on behalf of any Underwriter, Chevy Chase or any of their respective
representatives, officers or directors or any controlling person, and will
survive delivery of and payment for the Certificates. If this Agreement is
terminated or if for any reason
21
<PAGE>
the purchase of the Certificates by the Underwriters is not consummated, Chevy
Chase and the Underwriters shall remain responsible for the expenses to be paid
or reimbursed by it pursuant to Section 7 and the respective obligations of
Chevy Chase and the Underwriters pursuant to Section 8 and 9 shall remain in
effect, and if any Certificates have been purchased hereunder the
representations and warranties in Section 2 and all obligations under Section 5
and 6 shall also remain in effect. If the purchase of the Certificates by the
Underwriters is not consummated for any reason other than solely because of the
termination of this Agreement pursuant to Section 10 or the occurrence of any
event specified in clause (ii), (iv) or (v) of Section 6(m), Chevy Chase will
reimburse the Underwriters for all out-of-pocket expenses reasonably incurred by
them in connection with the offering of the Certificates.
12. NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if mailed or transmitted
by any standard form of telecommunication. Notices to the Representative shall
be directed to the address set forth on the first page hereof, or sent by
facsimile machine which produces an electronic confirmation of receipt to (212)
648-5251 attention: James P. Moore. Notices to Chevy Chase shall be directed to
Chevy Chase Bank, F.S.B., 8401 Connecticut Avenue, Chevy Chase, Maryland 20815,
or sent by facsimile machine which produces an electronic confirmation of
receipt to (301) 986-7401, attention: Stephen R. Halpin, Jr.
13. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the Underwriters and Chevy Chase, and their respective successors.
Nothing expressed or mentioned in this Agreement is intended nor shall it be
construed to give any person, firm or corporation, other than the parties hereto
or thereto and their respective successors and the controlling persons and
officers and directors referred to in Sections 8 and 9 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or with
respect to this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the parties and their respective successors and such
controlling persons and officers and directors and their heirs and legal
representatives (to the extent of their rights as specified herein and therein)
and except as provided above for the benefit of no other person, firm or
corporation. No purchaser of Certificates from the Underwriters shall be deemed
to be a successor by reason merely of such purchase.
14. REPRESENTATIONS OF UNDERWRITERS. The Representative will act for
the several Underwriters in connection with the transactions contemplated by
this Agreement, and any action under this Agreement taken by the Representative
will be binding upon all the Underwriters.
15. GOVERNING LAW AND TIME; CONSENT TO JURISDICTION. THIS AGREEMENT
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND SHALL BE CONSTRUED IN
ACCORDANCE WITH SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
CHEVY CHASE HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE FEDERAL AND
STATE COURTS IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN ANY SUIT OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
22
<PAGE>
THE TRANSACTIONS CONTEMPLATED HEREBY. SPECIFIED TIMES OF DAY REFER TO NEW YORK
CITY TIME.
16. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but together they shall constitute
but one instrument.
23
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument along with all counterparts will become a binding agreement between
you and Chevy Chase in accordance with its terms.
Very truly yours,
CHEVY CHASE BANK, F.S.B.
By: /s/ Mark A. Holles
------------------
Mark A. Holles
Vice President
CONFIRMED AND ACCEPTED, as of
the date first above written:
J.P. Morgan Securities Inc.
By: /s/ James P. Moore
------------------
James P. Moore
Vice President
24
<PAGE>
Schedule 1
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Underwriters Purchase Price Principal Proceeds to Chevy
Percentage Amount Chase (includes
accrued interest)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
J.P. Morgan Securities Inc. 99.939167% 76,815,935.94 76,819,648.97
- -------------------------------------------------------------------------------------
Salomon Brothers Inc 99.939167% 76,800,000.00 76,803,712.26
- -------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
EXHIBIT 4.2
CHEVY CHASE BANK, F.S.B.,
Seller and Servicer
and
U.S. BANK NATIONAL ASSOCIATION,
Trustee
POOLING AND SERVICING AGREEMENT
Dated as of June 1, 1998
$153,615,935.94
Chevy Chase Auto Receivables Trust 1998-2
5.91% Auto Receivables Backed Certificates
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.................................................... 1
SECTION 1.1 DEFINITIONS.................................................. 1
SECTION 1.2 USAGE OF TERMS............................................... 18
SECTION 1.3 CUT-OFF DATE AND RECORD DATE................................. 19
SECTION 1.4 SECTION REFERENCES........................................... 19
SECTION 1.5 INTEREST CALCULATIONS........................................ 19
SECTION 1.6 ACTION BY OR CONSENT OF CERTIFICATEHOLDERS;
ACTION BY OR CONSENT OF CERTIFICATE INSURER................. 19
ARTICLE II CREATION OF THE TRUST; CONVEYANCE OF
RECEIVABLES................................................... 20
SECTION 2.1 CREATION OF TRUST............................................ 20
SECTION 2.2 CONVEYANCE OF RECEIVABLES.................................... 20
SECTION 2.3 ACCEPTANCE BY TRUSTEE........................................ 21
ARTICLE III. THE RECEIVABLES................................................ 22
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF SELLER..................... 22
SECTION 3.2 REPURCHASE UPON BREACH....................................... 26
SECTION 3.3 CUSTODY OF RECEIVABLE FILES.................................. 26
SECTION 3.4 DUTIES OF SERVICER AND SUB-SERVICER AS
CUSTODIAN................................................... 27
SECTION 3.5 INSTRUCTIONS; AUTHORITY TO ACT............................... 28
SECTION 3.6 EFFECTIVE PERIOD AND TERMINATION............................. 28
ARTICLE IV. ADMINISTRATION AND SERVICING OF RECEIVABLES.................... 29
SECTION 4.1 DUTIES OF SERVICER........................................... 29
SECTION 4.2 COLLECTION OF RECEIVABLE PAYMENTS............................ 30
SECTION 4.3 REALIZATION UPON RECEIVABLES................................. 30
SECTION 4.4 INSURANCE.................................................... 31
SECTION 4.5 MAINTENANCE OF SECURITY INTERESTS IN FINANCED
VEHICLES.................................................... 31
SECTION 4.6 COVENANTS OF SERVICER........................................ 32
SECTION 4.7 PURCHASE OF RECEIVABLES UPON BREACH.......................... 35
SECTION 4.8 SERVICING FEES............................................... 35
SECTION 4.9 SERVICER'S CERTIFICATE....................................... 35
SECTION 4.10 ANNUAL STATEMENT AS TO COMPLIANCE; NOTICE OF
DEFAULT..................................................... 36
SECTION 4.11 ANNUAL INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS' REPORT......................................... 36
<PAGE>
SECTION 4.12 ACCESS TO CERTAIN DOCUMENTATION AND
INFORMATION REGARDING RECEIVABLES........................... 37
SECTION 4.13 SERVICER EXPENSES............................................ 37
SECTION 4.14 REPORTS TO CERTIFICATEHOLDERS................................ 37
ARTICLE V. DISTRIBUTIONS; STATEMENTS TO CERTIFICATEHOLDERS................ 37
SECTION 5.1 ESTABLISHMENT OF ACCOUNTS.................................... 37
SECTION 5.2 COLLECTIONS.................................................. 39
SECTION 5.3 PURCHASE AMOUNTS............................................. 40
SECTION 5.4 DISTRIBUTIONS................................................ 40
SECTION 5.5 CERTIFICATE INSURANCE POLICY................................. 42
SECTION 5.6 RESERVE ACCOUNT AND YIELD MAINTENANCE ACCOUNT................ 44
SECTION 5.7 STATEMENTS TO CERTIFICATEHOLDERS............................. 46
ARTICLE VI CERTIFICATES................................................... 48
SECTION 6.1 THE CERTIFICATES............................................. 48
SECTION 6.2 AUTHENTICATION OF CERTIFICATES............................... 48
SECTION 6.3 REGISTRATION OF TRANSFER AND EXCHANGE OF
CERTIFICATES................................................ 49
SECTION 6.4 MUTILATED, DESTROYED, LOST, OR STOLEN
CERTIFICATES................................................ 49
SECTION 6.5 PERSONS DEEMED OWNERS........................................ 50
SECTION 6.6 ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES
AND ADDRESSES............................................... 50
SECTION 6.7 MAINTENANCE OF OFFICE OR AGENCY.............................. 50
SECTION 6.8 BOOK-ENTRY CERTIFICATES...................................... 50
SECTION 6.9 NOTICES TO CLEARING AGENCY................................... 51
SECTION 6.10 DEFINITIVE CERTIFICATES...................................... 52
ARTICLE VII THE SELLER..................................................... 52
SECTION 7.1 REPRESENTATIONS OF SELLER.................................... 52
SECTION 7.2 LIABILITY OF SELLER.......................................... 54
SECTION 7.3 MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF
THE OBLIGATIONS OF THE SELLER............................... 54
SECTION 7.4 LIMITATION ON LIABILITY OF CERTAIN PERSONS OF
SELLER...................................................... 55
ARTICLE VIII THE SERVICER................................................... 55
SECTION 8.1 REPRESENTATIONS OF SERVICER.................................. 55
SECTION 8.2 LIABILITIES OF SERVICER, INDEMNITIES......................... 57
SECTION 8.3 MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF
THE OBLIGATIONS OF THE SERVICER............................. 58
ii
<PAGE>
SECTION 8.4 LIMITATION ON LIABILITY OF CERTAIN PERSONS OF
SERVICER................................................... 59
SECTION 8.5 SERVICER NOT TO RESIGN...................................... 59
SECTION 8.6 DELEGATION OF DUTIES........................................ 60
ARTICLE IX DEFAULT........................................................ 60
SECTION 9.1 SERVICER DEFAULT............................................ 60
SECTION 9.2 APPOINTMENT OF SUCCESSOR.................................... 62
SECTION 9.3 NOTIFICATION TO CERTIFICATEHOLDERS.......................... 63
SECTION 9.4 WAIVER OF PAST DEFAULTS..................................... 63
SECTION 9.5 EFFECT OF EVENT OF DEFAULT ON SUB-SERVICER.................. 63
ARTICLE X THE TRUSTEE.................................................... 63
SECTION 10.1 DUTIES OF TRUSTEE........................................... 63
SECTION 10.2 TRUSTEE'S CERTIFICATE....................................... 65
SECTION 10.3 TRUSTEE'S ASSIGNMENT OF PURCHASED RECEIVABLES............... 65
SECTION 10.4 CERTAIN MATTERS AFFECTING THE TRUSTEE....................... 66
SECTION 10.5 TRUSTEE NOT LIABLE FOR CERTIFICATES OR
RECEIVABLES................................................ 67
SECTION 10.6 TRUSTEE MAY OWN CERTIFICATES................................ 68
SECTION 10.7 TRUSTEE'S FEES.............................................. 68
SECTION 10.8 ELIGIBILITY REQUIREMENTS FOR TRUSTEE........................ 68
SECTION 10.9 RESIGNATION OR REMOVAL OF TRUSTEE........................... 69
SECTION 10.10 SUCCESSOR TRUSTEE........................................... 69
SECTION 10.11 MERGER OR CONSOLIDATION OF TRUSTEE.......................... 70
SECTION 10.12 APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE............... 70
SECTION 10.13 REPRESENTATIONS AND WARRANTIES OF TRUSTEE................... 72
SECTION 10.14 TAX RETURNS................................................. 73
ARTICLE XI TERMINATION.................................................... 73
SECTION 11.1 TERMINATION OF THE TRUST.................................... 73
SECTION 11.2 OPTIONAL PURCHASE OF ALL RECEIVABLES........................ 74
ARTICLE XII MISCELLANEOUS PROVISIONS....................................... 74
SECTION 12.1 AMENDMENT................................................... 74
SECTION 12.2 PROTECTION OF TITLE TO TRUST................................ 76
SECTION 12.3 LIMITATION ON RIGHTS OF CERTIFICATEHOLDERS.................. 77
SECTION 12.4 GOVERNING LAW............................................... 78
SECTION 12.5 NOTICES..................................................... 78
SECTION 12.6 SEVERABILITY OF PROVISIONS.................................. 79
SECTION 12.7 ASSIGNMENT.................................................. 79
SECTION 12.8 CERTIFICATES NONASSESSABLE AND FULLY PAID................... 79
iii
<PAGE>
SECTION 12.9 COUNTERPARTS................................................ 79
SECTION 12.10 BENEFITS OF AGREEMENT....................................... 79
SECTION 12.11 TAX TREATMENT............................................... 80
iv
<PAGE>
Exhibit A Schedule of Receivables
Exhibit B Form of Certificates
Exhibit C Form of Trustee's Certificate (assignment to Seller)
Exhibit D Form of Trustee's Certificate (assignment to Servicer)
Exhibit E Form of Servicer's Certificate
Exhibit F List of Designated Loans
v
<PAGE>
This POOLING AND SERVICING AGREEMENT (this "Agreement" or this
"Pooling and Servicing Agreement"), dated as of June 1, 1998, is made with
respect to the formation of the Chevy Chase Auto Receivables Trust 1998-2, among
CHEVY CHASE BANK, F.S.B., a federally chartered savings bank, as seller and
servicer (the "Seller" or the "Servicer" in its respective capacities as such),
and U.S. BANK NATIONAL ASSOCIATION, as trustee (the "Trustee").
WITNESSETH THAT: In consideration of the premises and of the mutual
agreements herein contained, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1. 1. DEFINITIONS.
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
"ACCOUNT" means any of the Collection Account, the Certificate
Account, the Yield Maintenance Account and the Reserve Account.
"ADDITIONAL FEES" means any late fees, prepayment charges, extension
fees or other administrative fees or similar charges allowed by applicable law
with respect to the Receivables and collected by the Servicer.
"AMOUNT FINANCED", with respect to a Receivable, means the amount
advanced under the Receivable toward the purchase price of the Financed Vehicle
and any related costs, except with respect to Receivables originated through
applications submitted by Obligors directly to the Seller, exclusive of the
amount allocable to the premium of credit life, disability or hospitalization
insurance covering the Financed Vehicle or the Obligor.
"ANNUAL PERCENTAGE RATE" or "APR" of a Receivable means the annual
interest rate stated in the Receivable.
"APR": see "Annual Percentage Rate."
"AVAILABLE DISTRIBUTION AMOUNT" means, with respect to any
Distribution Date, the sum of the amounts described in clauses (x), (y) and (z)
of Section 5.4(a) on such Distribution Date.
"AVAILABLE FUNDS" means, with respect to a Distribution Date, for the
related Determination Date, any and all amounts then held in the Collection
Account and deposited therein with respect to the Receivables during or
otherwise with respect to the related Collection Period (other than amounts
representing the Monthly Servicing Fee and any Liquidation Expenses for such
Collection Period), together with amounts to be transferred from the Yield
Maintenance Account to the Certificate Account with respect
<PAGE>
to such Distribution Date. Available Funds does not include amounts, if any, on
deposit in or withdrawn from the Reserve Account or any amounts paid by the
Certificate Insurer under the Certificate Insurance Policy and does not include
any amounts that cannot be distributed to the Certificateholders by the Trustee
as a result of proceedings under the United States Bankruptcy Code.
"BALLOON PAYMENT" means, with respect to a Balloon Receivable, the
payment to be made by the Obligor on the stated maturity date of such Balloon
Receivable.
"BALLOON RECEIVABLE" means any Receivable that on the date of
origination provided for scheduled monthly payments in level amounts
substantially lower than the amount of the final scheduled payment.
"BOOK-ENTRY CERTIFICATES" means beneficial interests in the Definitive
Certificate described in Section 6.8, the ownership and transfers of which shall
be made through book entries by a Clearing Agency as described in Section 6.8.
"BUSINESS DAY" means, unless otherwise specified in this Agreement,
any day other than a Saturday, a Sunday, or a day on which banking institutions
in New York, New York, Chevy Chase, Maryland or the city in which the Corporate
Trust Office of the Trustee or the Certificate Insurer is located shall be
authorized or obligated by law, executive order, or governmental decree to be
closed.
"CERTIFICATE" means a security executed on behalf of the Trustee and
authenticated by the Trustee substantially in the form attached as Exhibit B.
"CERTIFICATE ACCOUNT" means the account designated as such,
established and maintained pursuant to Section 5.1.
"CERTIFICATEHOLDER" or "HOLDER" means the Person in whose name the
respective Certificate shall be registered in the Certificate Register.
"CERTIFICATE INSURANCE POLICY" means the certificate guaranty
insurance policy number 26750, issued by the Certificate Insurer to the Trustee
for the benefit of the Certificateholders.
"CERTIFICATE INSURER" means MBIA Insurance Corporation, a New York
stock insurance corporation, and any successor thereto. "CERTIFICATE OWNER"
means, with respect to a Book-Entry Certificate, the Person who is the owner of
such Book-Entry Certificate, as reflected on the books of the Clearing Agency,
or on the books of a direct or indirect Clearing Agency Participant.
"CERTIFICATE PRINCIPAL BALANCE" means, at any time, the Initial
Certificate Principal Balance minus all amounts previously distributed to
Certificateholders and allocable to principal.
2
<PAGE>
"CERTIFICATE REGISTER" and "CERTIFICATE REGISTRAR" mean the register
maintained and the registrar appointed pursuant to Section 6.3.
"CLAIM DATE" shall have the meaning specified in Section 5.5(b).
"CLEARING AGENCY" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended. The initial Clearing Agency shall be The Depository Trust Company.
"CLEARING AGENCY PARTICIPANT" means a broker, dealer, bank, other
financial institution or other person for whom from time to time a Clearing
Agency effects book-entry transfers of securities deposited with the Clearing
Agency.
"CLOSING DATE" means June 19, 1998.
"CODE" means the Internal Revenue Code of 1986, as it may be amended
from time to time, or any successor statute thereto, and applicable temporary or
final regulations of the U.S. Department of the Treasury promulgated thereunder.
"COLLATERAL INSURANCE" shall have the meaning specified in Section
4.4(b).
"COLLECTION ACCOUNT" means the account designated as such, established
and maintained pursuant to Section 5.1.
"COLLECTION PERIOD" means (i) initially, the period from and including
the Cut-Off Date through and including the last day of the calendar month in
which the Cut-Off Date occurs and (ii) thereafter, each calendar month until the
Trust shall terminate pursuant to Article XI.
"CORPORATE TRUST OFFICE" at the date hereof, is located at 180 East
5th Street, St. Paul, Minnesota, 55101, Attention: Structured Finance; the
telecopy number for the Corporate Trust Office on the date of the execution of
this Agreement is (612) 244-0089.
"CUMULATIVE NET LOSS PERCENTAGE" means, with respect to any
Distribution Date, the fraction, expressed as a percentage, equal to the
aggregate of Net Losses for all Collection Periods since the Cut-Off Date
through the related Collection Period divided by the Pool Balance as of the Cut-
Off Date.
"CUT-OFF DATE" means June 1, 1998.
"DEALER" means the seller of a Financed Vehicle who arranged for a
sales contract or loan from a Lender to the purchaser of a Financed Vehicle
under an existing agreement with such Lender.
"DEFAULTED RECEIVABLE", with respect to a Distribution Date, means a
Receivable (other than a Purchased Receivable) as to which the earlier of the
3
<PAGE>
following has occurred: (i) a scheduled payment is 180 days contractually
delinquent as of the end of the most recently completed Collection Period (or,
with respect to a Receivable which the Servicer has determined to be either a
"skip" or a bankruptcy, such longer period of delinquency as may be permitted by
the Certificate Insurer) or (ii) the Servicer has determined in accordance with
its customary servicing practices, during the Collection Period preceding such
Distribution Date, that eventual payment in full of the Amount Financed is
unlikely.
"DEFICIENCY AMOUNT" shall have the meaning specified in Section
5.5(b).
"DEFINITIVE CERTIFICATES" shall have the meaning specified in Section
6.8.
"DELINQUENCY PERCENTAGE" means, with respect to any Distribution Date,
the fraction, expressed as a percentage, equal to (x) the aggregate Principal
Balances of all Receivables 30 or more days delinquent (including any
Receivables relating to repossessed Financed Vehicles held in the Servicer's
inventory regardless of when repossessed, but exclusive of any Defaulted
Receivables) as of the last day of the related Collection Period divided by (y)
the Pool Balance as of the last day of the related Collection Period.
"DELIVERY" when used with respect to any Eligible Investments means:
(a) with respect to bankers' acceptances, commercial paper, negotiable
certificates of deposit and other obligations that constitute "instruments"
within the meaning of Section 9-105(l)(i) of the UCC and are susceptible of
physical delivery, transfer thereof by physical delivery to the Trustee endorsed
to, or registered in the name of, the Trustee or its nominee or endorsed in
blank, and, with respect to a certificated security (as defined in Section 8-
102(4) of the UCC) transfer thereof (i) by the acquisition of possession by the
Trustee of the "security certificate" (as defined in 8-102(16) of the UCC), or
(ii) the Trustee or some person other than a "securities intermediary" (as
defined in 8-102(14) of the UCC), either acquires possession of the security
certificate on behalf of the Trustee or, having previously acquired possession
of the certificate, acknowledges that it holds for the Trustee, or (iii) a
securities intermediary acting on behalf of the Trustee acquires possession of
the security certificate, only if the certificate is in "registered form" (as
defined in 8-102(13) of the UCC) and has been specially indorsed to the Trustee
by an effective "indorsement" (as defined in 8-102(l1) of the UCC) (all of the
foregoing "Physical Property") and, in any event, any such Physical Property in
registered form shall be in the name of the Trustee or its nominee or custodian,
and such additional or alternative procedures as may hereafter become
appropriate to effect the complete transfer of ownership of or a security
interest in any such Eligible Investment to the Trustee, consistent with changes
in applicable law or regulations or the interpretation thereof;
(b) with respect to any security issued by the U.S. Treasury, the Federal
Home Loan Mortgage Corporation or the Federal National Mortgage Association that
is a book-
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entry security held through the Federal Reserve System pursuant to federal book-
entry regulations, the following procedures, all in accordance with applicable
law, including applicable federal regulations and Articles 8 and 9 of the UCC,
book-entry registration of such Eligible Investment to an appropriate
Participant's Securities Account (as defined in such applicable federal
regulations) maintained with a Federal Reserve Bank by a financial intermediary
which is also a "Participant" pursuant to applicable federal regulations and
issuance by such financial intermediary of a deposit advice or other written
confirmation of such book-entry registration to the Trustee of the purchase by
the Trustee of such book-entry securities; the making by such financial
intermediary of entries in its books and records identifying such book-entry
security held through the Federal Reserve System pursuant to federal book-entry
regulations as belonging to the Trustee and as having been credited to a
securities account in the name of the Trustee and indicating that such financial
intermediary holds such Eligible Investment solely as agent for the Trustee; and
(c) with respect to any Eligible Investment that is an uncertificated
security under Article 8 of the UCC and that is not governed by clause (b)
above, (i) registration by the issuer of the Trustee as the registered owner,
upon original issue or registration or transfer, or (ii) another person, other
than a securities intermediary, either becomes the registered owner of the
uncertificated security on behalf of the Trustee or, having previously become
the registered owner, acknowledges that it holds for the Trustee; and such
additional or alternative procedures as may be or hereafter become requisite or
appropriate to effect complete transfer of ownership of or a security interest
in any such Eligible Investment to the Trustee, consistent with changes in
applicable law or regulations or the interpretation thereof.
"DEPOSIT DATE" means, with respect to any Distribution Date, the
Business Day immediately preceding such Distribution Date.
"DESIGNATED LOANS" means any Receivable with an APR below the Required
Rate, as listed on Exhibit F.
"DESIGNATED LOAN REQUIRED AMOUNT" means, with respect to any
Distribution Date, and with respect to each Designated Loan held by the Trust as
of the opening of business on the first day of the Collection Period in which
such Distribution Date occurs, the sum, for such Collection Period and each
future Collection Period (assuming that such Designated Loan amortizes in
accordance with its terms) of the products of (x) one-twelfth, (y) such
Designated Loan's principal balance as of the opening of business on the first
day of such Collection Period and all future Collection Periods, assuming that
such Designated Loan amortizes according to its terms and (z) the excess of (i)
the Required Rate over (ii) such Designated Loan's APR.
"DETERMINATION DATE" means the earlier of the eighth Business Day or
the eleventh calendar day of the month (or, if such eleventh calendar day is not
a Business Day, the Business Day preceding the eleventh calendar day of the
month).
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"DISTRIBUTION DATE" means, with respect to each Collection Period, the
fifteenth day of the following month, or if the fifteenth day shall not be a
Business Day, the next following Business Day, commencing July 15, 1998.
"ELIGIBLE ACCOUNT" means either (a) a segregated account with an
Eligible Bank or (b) a segregated trust account with the corporate trust
department of a depository institution with corporate trust powers organized
under the laws of the United States of America or any state thereof or the
District of Columbia (or any United States branch of a foreign bank) and whose
deposits are insured by the FDIC, provided that such institution must have a net
worth in excess of $50,000,000 and must have a rating of Baa3 or higher from
Moody's and a rating of BBB- or higher from Standard & Poor's with respect to
long-term deposit obligations. The Trustee shall give notice to the Servicer
and to the Certificate Insurer of any change in location of any Eligible
Account.
"ELIGIBLE BANK" shall mean a depository institution organized under
the laws of the United States or any one of the states thereof, including the
District of Columbia (or any United States branch or agency of a foreign bank)
having corporate trust powers and acting as a trustee for funds deposited in
such account, which is subject to supervision and examination by federal or
state banking authorities, the deposits of which are insured by the Federal
Deposit Insurance Corporation ("FDIC") and which at all times (a) has a net
worth in excess of $50,000,000 and (b) has either (x) a long-term unsecured debt
rating of at least A2 by Moody's and AA by Standard & Poor's or (y) a short-term
certificate of deposit rating of P-1 by Moody's and A-1+ by Standard & Poor's.
"ELIGIBLE INVESTMENT" means any of the following:
(i) Direct obligations of the United States of America and
securities fully and unconditionally guaranteed as to the timely payment of
principal and interest by the United States of America; provided, that the
full faith and credit of the United States of America must be pledged to
any such direct obligation or guarantee ("Direct Obligations");
(ii) Direct Obligations and fully guaranteed certificates of
beneficial interest of the Export-Import Bank of the United States;
consolidated debt obligations and letter of credit-backed issues of the
Federal Home Loan Banks; participation certificates and senior debt
obligations of the Federal Home Loan Mortgage Corporation ("FHLMCs");
debentures of the Federal Housing Administration; mortgage-backed
securities (except stripped mortgage-securities which are valued greater
than par on the portion of unpaid principal) and senior debt obligations of
the Federal National Mortgage Association ("FNMAs"); participation
certificates of the General Services Administration; guaranteed mortgage-
backed securities and guaranteed participation certificates of the
Government National Mortgage Association ("GNMAs"); guaranteed
participation certificates and guaranteed pool certificates of the Small
Business Administration; debt obligations and letter of credit-backed
issues of the Student Loan Marketing Association; local authority bonds of
the U.S. Department of Housing & Urban Development; guaranteed Title XI
financings of the U.S.
6
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Maritime Administration; guaranteed transit bonds of the Washington
Metropolitan Area Transit Authority; and Resolution Funding Corporation
securities; all of the foregoing rated, at the time of purchase, "P-1" or
"A2" or better by Moody's and, if rated by Fitch, "F1" or better by Fitch;
(iii) Direct obligations of any state of the United States of America
or any subdivision or agency thereof whose unsecured, uninsured and
unguaranteed general obligation debt is rated, at the time of purchase "A2"
or better by Moody's and "A" or better by Standard & Poor's and "A" or
better if rated by Fitch, or any obligation fully and unconditionally
guaranteed by any state, subdivision or agency whose unsecured, uninsured
and unguaranteed general obligation debt is rated, at the time of purchase,
"A2" or better by Moody's and "A" or better by Standard & Poor's and, if
rated by Fitch, "A" or better by Fitch;
(iv) Commercial paper (having original maturities of not more than
270 days) rated, at the time of purchase, "P-1" by Moody's and "A-1" or
better by Standard & Poor's and, if rated by Fitch, F1 or better by Fitch;
(v) Federal funds, unsecured certificates of deposit, time deposits
or bankers acceptances (in each case having maturities of not more than 365
days) of any domestic bank including a branch office of a foreign bank
which branch office is located in the United States, provided legal
opinions are received to the effect that full and timely payment of such
deposit or similar obligation is enforceable against the principal office
or any branch of such bank, which, at the time of purchase, has a short-
term "Bank Deposit" rating of "P-1" by Moody's and a "Short-Term CD" rating
of "A-1" or better by Standard & Poor's and further provided that the bank
is subject to the supervision and examination of federal and state banking
authorities;
(vi) Deposits of any bank or savings and loan association which has
combined capital, surplus and undivided profits of not less than $3
million, provided such deposits are continuously and fully insured by the
Bank Insurance Fund or the Savings Association Insurance Fund of the FDIC;
(vii) Investments in money-market funds rated "AAAm" or "AAAm-G" by
Standard & Poor's and "Aaa" by Moody's;
(viii) Repurchase agreements collateralized by Direct Obligations,
GNMAs, FNMAs or FHLMCs, as defined above, with any registered broker/dealer
subject to the Securities Investors' Protection Corporation jurisdiction or
any commercial bank insured by the FDIC, if such broker/dealer or bank has
an uninsured, unsecured and unguaranteed obligation rated "P-1" or "A2" or
better by Moody's, "A-1" or "A-" or better by Standard & Poor's and, if
rated by Fitch, "F1" or "A" or better by Fitch, provided:
a. a master repurchase agreement or specific written
repurchase agreement governs the transaction; and
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b. the securities are held free and clear of any lien by the
Trustee or an independent third party acting solely as
agent ("Agent") for the Trustee, and such third party is
(i) a Federal Reserve Bank, (ii) a bank which is a member
of the FDIC and which has combined capital, surplus and
undivided profits of not less than $50 million or (iii) a
bank approved in writing for such purpose by the
Certificate Insurer, and the Trustee shall have received
written confirmation from such third party that it holds
such securities, free and clear of any lien, as agent for
the Trustee; and
c. a perfected first security interest under the Uniform
Commercial Code, or book entry procedures prescribed at 31
C.F.R. 306.1 et seq. or 31 C.F.R. 350.0 et seq. in such
securities is created for the benefit of the Trustee; and
d. the repurchase agreement has a term of 180 days or less,
and the Trustee or the Agent will value the collateral
securities no less frequently than weekly and will
liquidate the collateral securities if any deficiency in
the required collateral percentage is not restored within
two business days of such valuation; and
e. the fair market value of the securities in relation to the
amount of the repurchase obligation, including principal
and interest, is equal to at least 103%; and
f. the securities have a rating, at the time of purchase of
"P-1" or "A2" or better by Moody's.
(xi) Investment agreements, the issuer, form and substance of which
are specifically approved by the Certificate Insurer with notice to
Standard & Poor's and Moody's.
Notwithstanding the foregoing, Eligible Investments shall not include
(i) "stripped securities" and investments which contractually may return less
than the purchase price therefor, and (ii) instruments with a purchase price
greater than par if such instrument may be prepaid or called at a price less
than its purchase price prior to its stated maturity.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"FINAL SCHEDULED DISTRIBUTION DATE" means the Distribution Date in
December 2004.
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"FINANCED VEHICLE" means an automobile, light duty truck or van,
together with all accessions thereto, securing an Obligor's indebtedness under
the respective Receivable.
"FITCH" means Fitch IBCA, Inc.
"HOLDER" see "Certificateholder."
"INDEMNIFICATION AGREEMENT" means the Indemnification Agreement dated
as of June 15, 1998 by and among MBIA Insurance Corporation, Chevy Chase Bank,
F.S.B., and J.P. Morgan Securities Inc. as Representative of itself and Salomon
Brothers Inc.
"INITIAL CERTIFICATE PRINCIPAL BALANCE" means $153,615,935.94.
"INITIAL YIELD MAINTENANCE AMOUNT" means $168,715.60.
"INSURANCE POLICIES" means the insurance policies described in Section
3.1(xiii).
"INSURED PAYMENT" means (i) as of any Distribution Date, any
Deficiency Amount and (ii) any Preference Amount.
"INSURER DEFAULT" means the occurrence and continuation of the
following event: the Certificate Insurer shall have failed to make a payment
required under the Certificate Insurance Policy in accordance with its terms.
"LATE PAYMENT RATE" means, for any Distribution Date, the "prime rate"
of interest as published in THE WALL STREET JOURNAL in New York, New York plus
2%. The Late Payment Rate shall be computed on the basis of a 360-day year
consisting of twelve 30-day months.
"LENDERS" means, together, the Seller and the Seller's wholly-owned
subsidiary, Consumer Finance Corporation, a Virginia corporation, and "Lender"
means the Seller or Consumer Finance Corporation.
"LEVEL 1 SPECIFIED CUMULATIVE NET LOSS PERCENTAGE" means, with respect
to a Distribution Date, the percentage specified in the following table across
from the number of such Distribution Date:
Distribution Date Level 1 Cumulative Net Loss Percentage
----------------- --------------------------------------
9 =6.42%
10 =7.03%
11 =7.64%
12 =8.24%
13 =8.56%
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Distribution Date Level 1 Cumulative Net Loss Percentage
- ----------------- --------------------------------------
14 =8.88%
15 =9.19%
16 =9.51%
17 =9.82%
18 =10.13%
19 =10.47%
20 =10.82%
21 =11.16%
22 =11.49%
23 =11.83%
24 =12.17%
25 =12.41%
26 =12.65%
27 =12.89%
28 =13.15%
29 =13.42%
30 =13.68%
31 =13.94%
32 =14.21%
33 =14.47%
34 =14.74%
35 and thereafter =15.00%
"LEVEL 1 SPECIFIED DELINQUENCY PERCENTAGE" means, on or prior to the
ninth Distribution Date, 10.00% and thereafter, 11.25%.
"LEVEL 1 SPECIFIED NET LOSS PERCENTAGE" means, on or prior to the
ninth Distribution Date, 6.50% and thereafter, 6.25%.
"LEVEL 2 SPECIFIED CUMULATIVE NET LOSS PERCENTAGE" means, with respect
to a Distribution Date, the percentage specified in the following table across
from the number of such Distribution Date:
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Distribution Date Level 2 Cumulative Net Loss Percentage
- ------------------- ---------------------------------------
9 =7.71%
10 =8.44%
11 =9.16%
12 =9.89%
13 =10.27%
14 =10.65%
15 =11.03%
16 =11.41%
17 =11.78%
18 =12.16%
19 =12.57%
20 =12.98%
21 =13.39%
22 =13.79%
23 =14.20%
24 =14.60%
25 =14.89%
26 =15.18%
27 =15.47%
28 =15.78%
29 =16.10%
30 =16.42%
31 =16.73%
32 =17.05%
33 =17.37%
34 =17.68%
35 and thereafter =18.00%
"LEVEL 2 SPECIFIED DELINQUENCY PERCENTAGE" means 14.00%.
"LEVEL 2 SPECIFIED NET LOSS PERCENTAGE" means, on or prior to the
ninth Distribution Date, 8.00% and thereafter, 7.75%.
"LIEN" means a security interest, lien, charge, pledge, equity, or
encumbrance of any kind other than tax liens, mechanics' liens, and any liens
which attach to the respective Receivable by operation of law.
"LIQUIDATION EXPENSES" shall have the meaning provided in Section
5.2(a).
"LIQUIDATION PROCEEDS" means, with respect to a Distribution Date, all
monies collected with respect to a Defaulted Receivable during the related
Collection Period from whatever source (other than withdrawals from the Reserve
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Account or the Yield Maintenance Account and the proceeds of a claim under the
Certificate Insurance Policy), including insurance proceeds and proceeds of
Financed Vehicles which have been sold or otherwise disposed of, during the
preceding Collection Period, net of (i) Liquidation Expenses plus any (ii)
amounts required by law to be remitted to the Obligor.
"MAJORITY CERTIFICATEHOLDERS" means, as of any date of determination,
Holders of Certificates representing a majority of the Certificate Principal
Balance as of such date.
"MONTHLY INTEREST" means, for any Distribution Date, one-twelfth of
the product of the Pass-Through Rate and the Certificate Principal Balance as of
the immediately preceding Distribution Date (after giving effect to
distributions of principal made on such date), or, in the case of the first
Distribution Date, the Initial Certificate Principal Balance.
"MONTHLY PRINCIPAL" for any Distribution Date will equal the Pool
Balance on the last day of the second preceding Collection Period (or, in the
case of the first Distribution Date, the Initial Certificate Principal Balance)
less the Pool Balance on the last day of the preceding Collection Period;
provided, however, that Monthly Principal on the Final Scheduled Distribution
Date will equal the Certificate Principal Balance on such date. For the purpose
of determining Monthly Principal, the Principal Balance of a Defaulted
Receivable or a Purchased Receivable is deemed to be zero on and after the last
day of the Collection Period in which such Receivable became a Defaulted
Receivable or with respect to which it became a Purchased Receivable.
"MONTHLY SERVICING FEE" means, for any Distribution Date, one-twelfth
of the product of (a) the Pool Balance as of the beginning of the immediately
preceding Collection Period and (b) the Servicing Fee Rate.
"MONTHLY TRUSTEE'S FEE" means, for any Distribution Date, one twelfth
of the product of (a) the Certificate Principal Balance as of the end of the
Collection Period preceding such Distribution Date and (b) .0034%.
"MOODY'S" means Moody's Investors Service, Inc.
"NET AVAILABLE DISTRIBUTION AMOUNT" means, with respect to any
Distribution Date, the sum of (i) Available Funds (other than amounts deposited
to the Certificate Account in error and Liquidation Proceeds from Receivables
purchased by the Seller or the Servicer) net of amounts payable in respect of
the Monthly Trustee's Fee and the Premium Amount in respect of such Distribution
Date plus (ii) amounts withdrawn from the Reserve Account for deposit into the
Certificate Account with respect to such Distribution Date.
"NET LOSSES" means with respect to a Collection Period, the excess of
(x) the aggregate Principal Balance of each Receivable which became a Defaulted
Receivable during such Collection Period over (y) the Liquidation Proceeds, if
any, collected during such Collection Period.
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"NET LOSS PERCENTAGE" means, with respect to any Distribution Date,
the fraction, expressed as a percentage, equal to (x) twelve times the Net
Losses for the related Collection Period divided by (y) the Pool Balance as of
the last day of the related Collection Period.
"NOTICE" means the telephonic or telegraphic notice promptly confirmed
in writing by fax, substantially in the form of Exhibit A attached to the
Certificate Insurance Policy, the original of which is subsequently delivered by
registered or certified mail, from the Trustee specifying the Insured Payment
which shall be due and owing on the applicable Distribution Date.
"OBLIGOR" on a Receivable means the purchaser or the co-purchasers of,
or any guarantor with respect to, the Financed Vehicle or any other Person who
owes payments under the Receivable.
"OFFICERS' CERTIFICATE" means a certificate signed by any two of the
chairman of the board, the president, any vice chairman of the board, any
executive vice president, any senior vice president, any vice president, the
treasurer, or the controller of the Seller or the Servicer, as appropriate;
provided that no individual shall sign in a dual capacity.
"OPINION OF COUNSEL" means a written opinion of counsel, who may be
in-house counsel to the Seller or Servicer, which counsel shall be acceptable to
the Trustee and the Certificate Insurer.
"OPTIONAL PURCHASE PRICE" means the amount specified as such in
Section 11.2.
"ORIGINAL POOL BALANCE" shall be $153,615,935.94.
"PASS-THROUGH RATE" shall be 5.91% per annum.
"PERSON" means any individual, corporation, estate, partnership,
limited liability company, joint venture, association, joint stock company,
trust, unincorporated organization, or government or any agency or political
subdivision thereof.
"POOL BALANCE" as of any date means the aggregate Principal Balance of
the Receivables as of the close of business on such date (excluding Defaulted
Receivables and Purchased Receivables, which are deemed to have a Principal
Balance of zero).
"POOL FACTOR" means, at any time, a seven digit decimal number equal
to the current Certificate Principal Balance divided by the Initial Certificate
Principal Balance.
"PREFERENCE AMOUNT" means, as to any Distribution Date, any amounts
included in previous distributions to Certificateholders of Required Payments
(exclusive of Insured Payments) which are recovered from such Certificateholders
as a
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voidable preference by a trustee in bankruptcy pursuant to the United States
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 and which
have not theretofore been repaid to such Certificateholders, provided such
Certificateholders have complied with the provisions of Section 5.5(e).
"PREFERENCE ORDER" shall have the meaning set forth in Section 5.5(e).
"PREMIUM AMOUNT" means, as to any Distribution Date, one-twelfth of
the product of (x) the Premium Percentage and (y) the Certificate Principal
Balance on such Distribution Date (after taking into account any distributions
of principal to the Certificateholders to be made on such Distribution Date).
"PREMIUM PERCENTAGE" has the meaning set forth in the letter agreement
between the Seller and the Certificate Insurer.
"PRINCIPAL BALANCE" of a Receivable, at any time, means the Amount
Financed minus that portion of all payments received by the Servicer on or
before such time allocable to principal of such Receivable.
"PURCHASE AMOUNT" means, with respect to a Purchased Receivable as of
a Distribution Date, the amount equal to the sum of the Principal Balance of
such Receivable as of the last day of the preceding Collection Period and any
unpaid interest accrued thereon at the related APR through the date such
Receivable is purchased or repurchased, after giving effect to the receipt of
monies collected on such Receivable in such preceding Collection Period.
"PURCHASED RECEIVABLE" means, with respect to a Distribution Date, a
Receivable purchased not later than the last day of the Collection Period
immediately preceding such Distribution Date by the Servicer pursuant to Section
4.2 or 4.7 or repurchased not later than the last day of the Collection Period
immediately preceding such Distribution Date by the Seller pursuant to Section
3.2 or 11.2.
"RATING AGENCIES" means Moody's, Standard & Poor's and Fitch.
"RECEIVABLE" means any motor vehicle retail installment sales contract
or motor vehicle installment loan executed by an Obligor in respect of a
Financed Vehicle, including, without limitation, any extension or revision
agreement relating thereto and all payments due thereunder on or after the Cut-
Off Date and all proceeds thereof, which Receivable appears on the Schedule of
Receivables.
"RECEIVABLE FILES" means the documents specified in Section 3.3.
"RECORD DATE" means, as to any Distribution Date, the close of
business, if applicable, on the day (whether or not a Business Day) immediately
preceding such Distribution Date or, if Definitive Certificates are issued
pursuant to
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Section 6.8, the last day of the calendar month immediately preceding the month
in which such Distribution Date occurs.
"REIMBURSEMENT AMOUNT" means, as of any Distribution Date, the sum of
(i) all Insured Payments previously paid by the Certificate Insurer and not
previously repaid to the Certificate Insurer pursuant to Section 5.4(a)(v) and
Section 5.5(d), plus the amount of any unpaid Premium Amount not paid to the
Certificate Insurer pursuant to Section 5.4(a)(ii), plus (ii) interest accrued
on each such Insured Payment not previously repaid and each such unpaid Premium
Amount, calculated at the Late Payment Rate in each case from the date the
Certificate Insurer paid the related Insured Payment, or the date the related
Premium Amount was due, as the case may be. The Certificate Insurer shall
notify in writing the Trustee and the Seller of the amount of any Reimbursement
Amount due in respect of any Distribution Date at least two days prior to the
related Determination Date.
"REQUIRED PAYMENTS" means, with respect to any Distribution Date, the
sum of the Monthly Interest and the Monthly Principal for such Distribution
Date.
"REQUIRED RATE" means 8.4134% per annum.
"RESERVE ACCOUNT" means the Reserve Account established pursuant to
Section 5.6.
"RESERVE ACCOUNT DEPOSIT AMOUNT" means, with respect to any
Distribution Date, the lesser of (x) the excess of (i) the Specified Reserve
Balance on such Distribution Date over (ii) the amount on deposit in the Reserve
Account on such Distribution Date, after taking into account (a) the amount of
any Reserve Account Withdrawal Amount on such Distribution Date and (b) the
amount, if any, on deposit in the Reserve Account representing net investment
earnings to be withdrawn pursuant to Section 5.6(a) and (y) the amount remaining
in the Certificate Account after taking into account the distributions therefrom
described in clauses (i) through (v) of Section 5.4(a).
"RESERVE ACCOUNT WITHDRAWAL AMOUNT" means, with respect to any
Distribution Date, the lesser of (x) any shortfall in the amount of Available
Funds available to pay the amounts specified in clauses (iii) and (iv) of
Section 5.4(a) (taking into account application of Available Funds to the
priority of payments specified in Section 5.4(a)) and (y) the amount on deposit
in the Reserve Account on such Distribution Date prior to application of amounts
on deposit therein pursuant to Section 5.4(a) but after distribution of net
investment earnings on deposit therein to the Seller or its designee pursuant to
Section 5.6(a).
"RESERVE INITIAL DEPOSIT" shall be $18,049,872.47.
"RESPONSIBLE OFFICER" means, when used with respect to the Trustee,
any officer within the Corporate Trust Department (or any successor group of the
Trustee), including any senior vice president, vice president, assistant vice
president, assistant secretary, assistant treasurer or any other officer or
assistant officer of the Trustee customarily performing functions similar to
those performed by the persons who
15
<PAGE>
at the time shall be such officers, respectively, or to whom any corporate trust
matter is referred at the Corporate Trust Department because of his knowledge of
and familiarity with the particular subject.
"SCHEDULE OF RECEIVABLES" shall be, as of any date, the schedule of
Receivables included in the Trust on such date. The initial Schedule of
Receivables as of the Cut-Off Date is attached hereto as Exhibit A and sets
forth as to each Receivable, among other things, (a) its identifying number and
the billing address of the related Obligor; (b) its date of origination; (c) the
original number of months to stated maturity; (d) the original stated maturity;
(e) the Principal Balance as of the Cut-Off Date; (f) the original Principal
Balance; (g) the APR; (h) the scheduled monthly payment of principal and
interest; (i) the amount of the Balloon Payment, if any; and (j) whether such
Receivable is with recourse to any Dealer and the type of such recourse.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLER" means Chevy Chase Bank, F.S.B. in its capacity as the seller
of the Receivables under this Agreement, and each successor to Chevy Chase Bank,
F.S.B. (in the same capacity) pursuant to Section 7.3.
"SERVICER" means Chevy Chase Bank, F.S.B. in its capacity as the
servicer of the Receivables, and each successor to Chevy Chase Bank, F.S.B. (in
the same capacity) pursuant to Sections 8.3 and 9.2.
"SERVICER DEFAULT" means an event specified in Section 9.1.
"SERVICER'S CERTIFICATE" means a certificate completed and executed by
the Servicer by its chairman of the board, its president, any vice chairman of
its board, any executive vice president, any senior vice president, any vice
president, the treasurer, or the controller of the Servicer pursuant to Section
4.9.
"SERVICING FEE RATE" means 2.30%.
"SERVICING OFFICE" means, at the date of this Agreement, the office of
the Servicer specified in this Agreement, or such other address as the Servicer
may designate from time to time by notice to the Seller, the Trustee and the
Certificate Insurer.
"SERVICING OFFICER" means any officer of the Servicer involved in, or
responsible for, the administration and servicing of the Receivables whose name
appears on a list of servicing officers annexed to an Officers' Certificate
furnished to the Trustee by the Servicer, as the case may be, as such list may
from time to time be amended.
"SPECIFIED RESERVE BALANCE" means, with respect to any Distribution
Date, the greater of (i) $2,534,662.94, and (ii) 13.25% of the Pool Balance at
the close of business on the last day of the related Collection Period; except
that if on any Distribution Date:
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(a) (i) the average of the Net Loss Percentage for the three
Collection Periods preceding such Distribution Date or for the three Collection
Periods preceding either of the two preceding Distribution Dates equals or
exceeds the Level 1 Specified Net Loss Percentage; or (ii) the average of the
Delinquency Percentages for the three Collection Periods preceding such
Distribution Date or for the three Collection Periods preceding either of the
two preceding Distribution Dates equals or exceeds the Level 1 Specified
Delinquency Percentage; or (iii) the Cumulative Net Loss Percentage equals or
exceeds the Level 1 Specified Cumulative Net Loss Percentage, then the Specified
Reserve Balance applicable to such Distribution Date shall be an amount equal to
the greater of (x) $2,534,662.94 and (y) 14.25% of the Pool Balance at the close
of business on the last day of the related Collection Period; or
(b) (i) the average of the Net Loss Percentage for the three
Collection Periods preceding such Distribution Date or for the three Collection
Periods preceding either of the two preceding Distribution Dates equals or
exceeds the Level 2 Specified Net Loss Percentage; or (ii) the average of the
Delinquency Percentages for the three Collection Periods preceding such
Distribution Date or for the three Collection Periods preceding either of the
two preceding Distribution Dates equals or exceeds the Level 2 Specified
Delinquency Percentage; or (iii) the Cumulative Net Loss Percentage equals or
exceeds the Level 2 Specified Cumulative Net Loss Percentage, then the Specified
Reserve Balance applicable to such Distribution Date shall be an amount equal to
the greater of (x) $2,534,662.94 and (y) 16.25% of the Pool Balance at the close
of business on the last day of the related Collection Period.
"STANDARD & POOR'S" means Standard & Poor's Ratings Group, a division
of The McGraw Hill Companies, Inc.
"STATE" means (i) any state of the United States of America or (ii)
the District of Columbia.
"SUB-SERVICED RECEIVABLES" means those Receivables sold to Chevy Chase
Bank, F.S.B. pursuant to the Purchase and Sale Agreement dated as of June 1,
1998, between Chevy Chase Bank, F.S.B. as Purchaser and Consumer Finance
Corporation as Seller.
"SUB-SERVICER" means, as to the Sub-Serviced Receivables, the
Servicer's wholly-owned subsidiary, Consumer Finance Corporation, a Virginia
corporation.
"TRUST" means the trust created by this Agreement, the estate of which
shall consist of the Receivables (other than Purchased Receivables) and all
monies (including accrued interest) due or received thereon on or after the Cut-
Off Date; security interests in the Financed Vehicles, the Certificate Account
and the Collection Account; funds deposited in the Collection Account and the
Certificate Account; Purchase Amounts; the right to receive payments from funds
deposited in the Reserve Account and the Yield Maintenance Account (under the
conditions specified herein); the right to receive payments under the
Certificate Insurance Policy (under the conditions specified
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herein); any property (including the right to receive future Liquidation
Proceeds) that shall have secured a Receivable and that shall have been acquired
by or on behalf of the Trust; proceeds from recourse to Dealers relating to the
Receivables; proceeds from claims on any physical damage, theft, vendor's single
interest, credit life, disability, or hospitalization insurance policies
covering Financed Vehicles or Obligors; and other property described in Section
2.2.
"TRUSTEE" means U.S. Bank National Association, a national banking
association, or its successor in interest, or any successor trustee appointed as
herein provided.
"TRUSTEE'S CERTIFICATE" means a certificate completed and executed by
the Trustee by a Responsible Officer pursuant to Section 10.2, substantially in
the form of, in the case of an assignment to the Seller, Exhibit C, and, in the
case of an assignment to the Servicer, Exhibit D.
"UCC" means the Uniform Commercial Code, as it may be amended from
time to time, as in effect in the applicable jurisdiction.
"YIELD MAINTENANCE ACCOUNT" means the Yield Maintenance Account
established pursuant to Section 5.6.
"YIELD MAINTENANCE AMOUNT" means, with respect to any Distribution
Date, the sum of all Designated Loan Required Amounts as of such Distribution
Date.
"YIELD MAINTENANCE WITHDRAWAL AMOUNT" means, as of any Distribution
Date, the lesser of (i) the sum of, with respect to each Designated Loan held by
the Trust as of the opening of business on the first day of the related
Collection Period, the products of (x) one-twelfth, (y) such Designated Loan's
Principal Balance as of such time and (z) the excess of (1) the Required Rate
over (2) such Designated Loan's APR and (ii) the amount on deposit in the Yield
Maintenance Account on such Distribution Date, exclusive of net investment
earnings.
SECTION 1.2. USAGE OF TERMS.
With respect to all terms in this Agreement, the singular includes the plural
and the plural the singular; words importing any gender include the other
genders; references to "writing" include printing, typing, lithography, and
other means of reproducing words in a visible form; references to agreements and
other contractual instruments include all subsequent amendments thereto or
changes therein entered into in accordance with their respective terms and not
prohibited by this Agreement; references to Persons include their permitted
successors and assigns; and the term "including" means "including without
limitation."
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SECTION 1.3. CUT-OFF DATE AND RECORD DATE.
All references to the Record Date prior to the first Record Date in
the life of the Trust shall be to the Cut-off Date.
SECTION 1.4. SECTION REFERENCES.
All references to Articles, Sections, subsections, paragraphs,
clauses, Exhibits and Schedules in this Agreement shall be to such portions of
this Agreement unless otherwise specified.
SECTION 1.5. INTEREST CALCULATIONS.
(a) All allocations of payments with respect to a Receivable to principal
and interest and determinations of periodic charges and the like shall be made
using the simple interest method, based on the actual number of days elapsed and
the actual number of days in the calendar year. Each payment on a Receivable
(net of fees and charges) shall be applied first to the amount of interest
accrued on such Receivable to the date of receipt and then to reduce the
principal amount outstanding on the Receivable.
(b) All calculations of interest on the Certificates and of the Monthly
Servicing Fee, Premium Amount and Monthly Trustee's Fee shall be made on the
basis of a 360-day year comprised of twelve 30-day months.
SECTION 1.6. ACTION BY OR CONSENT OF CERTIFICATEHOLDERS;
ACTION BY OR CONSENT OF CERTIFICATE INSURER.
(a) Solely for the purposes of giving any consent, waiver, request, or
demand pursuant to this Agreement, the interest evidenced by any Certificate
registered in the name of the Seller or the Servicer, or any Person controlling,
controlled by, or under common control with the Seller or the Servicer, other
than a Certificate pledged by any such Person to a nonaffiliated third party,
shall not be taken into account in determining whether the requisite percentage
necessary to effect any such consent, waiver, request, or demand shall have been
obtained unless all of the Certificates outstanding are registered in the name
of the Seller, the Servicer and any such Persons. For purposes of the foregoing,
a trust or other entity formed for the securitization of assets is not a Person
controlling, controlled by or under common control with, or affiliated with, the
Seller or the Servicer.
(b) If an Insurer Default has occurred and is continuing, any vote or
action of the Trustee or the Majority Certificateholders that otherwise requires
the consent of the Certificate Insurer may be taken without such consent, and
all rights of the Certificate Insurer to take or consent to any action shall
vest in the Majority Certificateholders until such Insurer Default has been
cured.
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ARTICLE II
CREATION OF THE TRUST;
CONVEYANCE OF RECEIVABLES
SECTION 2.1. CREATION OF TRUST.
Upon the execution of this Pooling and Servicing Agreement by the
parties hereto and the concurrent conveyance of the Receivables by the Seller to
the Trustee pursuant to Section 2.2, there is hereby created the Chevy Chase
Auto Receivables Trust 1998-2.
SECTION 2.2. CONVEYANCE OF RECEIVABLES.
In consideration of the Trustee's delivery to or upon the order of the
Seller of authenticated Certificates with an Initial Certificate Principal
Balance equal to $153,615,935.94, the Seller does hereby sell, transfer, assign,
and otherwise convey to the Trustee, in trust for the benefit of the
Certificateholders and the Certificate Insurer, without recourse (subject to the
obligations contained herein), the following property, wherever located in
whatever form, whether tangible or intangible and whether now owned or hereafter
acquired:
(i) all right, title, and interest of the Seller in and to the
Receivables listed in the Schedule of Receivables, including all monies due
or received thereunder on or after the Cut-Off Date and all property
(including the right to receive future Liquidation Proceeds) that secures a
Receivable;
(ii) the security interests of the Seller in the Financed Vehicles
granted by Obligors pursuant to the Receivables;
(iii) the Certificate Account and the Collection Account and funds
deposited therein and all investments of such funds;
(iv) the interest of the Seller in the documents constructively
delivered to the Trustee pursuant to Section 3.3;
(v) the interest of the Seller in any proceeds from recourse to
Dealers relating to the Receivables;
(vi) the interest of the Seller in any Liquidation Proceeds and any
proceeds from claims on any physical damage, theft, vendor's single
interest, credit life, disability or hospitalization insurance policies
covering Financed Vehicles or Obligors;
(vii) the rights of the Seller to proceeds of Insurance Policies;
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(viii) the right to receive payments as set forth herein from the
Reserve Account and the Yield Maintenance Account;
(ix) the right to receive payments as set forth herein from the
Certificate Insurance Policy; and
(x) the proceeds of any and all of the foregoing.
It is the express intention of the Seller and the Trustee that (a) the
assignment and transfer herein contemplated constitute a sale of the Receivables
and the other property of the Trust described above, and all proceeds of the
foregoing, conveying good title thereto free and clear of any liens,
encumbrances, security interests or rights of other Persons, from the Seller to
the Trust and (b) the Receivables and the other property of the Trust described
above not be a part of the Seller's estate in the event of an insolvency of the
Seller. In the event that, notwithstanding the intent of the Seller and the
Trustee, such conveyance is deemed to be a pledge in connection with a
financing, the parties intend that the Seller shall have granted to the Trustee,
in trust for the benefit of the Certificateholders and the Certificate Insurer,
a security interest in all of the Seller's right, title and interest in the
items of property listed in clauses (i) through (x) above, and all proceeds of
the foregoing, wherever located and in whatever form, that such security
interest be a first priority perfected security interest and that this Agreement
shall constitute a security agreement under applicable law and the Trustee shall
have all of the rights and remedies of a secured party and creditor under the
UCC as in force in the relevant jurisdictions.
The Seller hereby pledges, grants a security interest in, assigns and
otherwise sets over to the Trustee, in trust for the benefit of the
Certificateholders and the Certificate Insurer, all of the Seller's right, title
and interest, whether now owned or hereafter acquired in and to the Yield
Maintenance Account and the Reserve Account and all amounts on deposit therein
and all Eligible Investments held therein from time to time and all proceeds
thereof, and hereby grants to the Trustee for the benefit of the
Certificateholders and the Certificate Insurer a first priority perfected
security interest in such Accounts, amounts and Eligible Investments and
proceeds. It is the intention of the Seller that, with respect to such Accounts
and such amounts and Eligible Investments and proceeds, this Agreement shall
constitute a security agreement under applicable law and the Trustee shall have
all of the rights and remedies of a secured party and creditor under the UCC and
other applicable law as in force in the relevant jurisdictions.
The Seller has caused the Certificate Insurance Policy to be issued to
the Trustee, in trust, for the benefit of the Certificateholders.
SECTION 2.3. ACCEPTANCE BY TRUSTEE.
The Trustee does hereby accept the assignment by the Seller pursuant
to Section 2.2 and declares that the Trustee accepts such assignment upon the
trusts herein set forth for the benefit of the Certificateholders and the
Certificate Insurer, as their respective interests may appear, subject to the
terms and provisions of this Agreement.
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The assignment will not constitute, and is not intended to result in, an
assumption by the Trustee, any Certificateholder or the Certificate Insurer of
any obligation of the Seller or any other Persons in connection with the
Receivables, the Receivables Files, the Insurance Policies or under any
agreements or instruments relating to any of them.
ARTICLE III
THE RECEIVABLES
SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF SELLER.
The Seller makes the following representations and warranties as to
the Receivables on which the Trustee relies in accepting the Receivables in
trust and executing and authenticating the Certificates and upon which the
Certificate Insurer relies in executing and delivering the Certificate Insurance
Policy. Such representations and warranties speak as of the Closing Date, but
shall survive the sale, transfer, and assignment of the Receivables to the
Trustee.
(i) CHARACTERISTICS OF RECEIVABLES. Each Receivable (a) shall have
been originated or purchased by a Lender, (b) shall have been fully and
properly executed by the parties thereto, (c) is a fully-amortizing simple
interest installment contract or installment loan which provides for level
monthly payments over its original term, provided that (x) some Receivables
may include a payment in the last month in the life of the Receivable which
due to delinquencies or partial prepayments may be different from the level
monthly payment and (y) 0.08% of the Receivables (measured as a percentage
of the Original Pool Balance) may be Balloon Receivables, (d) shall have
created or shall create a valid, subsisting, and enforceable first priority
security interest in favor of such Lender in the Financed Vehicle, which
security interest shall be assignable and shall have been validly assigned
by the Seller to the Trustee, (e) shall contain customary and enforceable
provisions such that the rights and remedies of the holder thereof shall be
adequate for realization against the collateral of the benefits of the
security and (f) is payable in United States dollars.
(ii) SCHEDULE OF RECEIVABLES. The information set forth in the
Schedule of Receivables shall be true and correct in all material respects
as of the opening of business on the Cut-Off Date. The Seller shall have
caused each Lender's electronic ledger relating to each related Receivable
to be clearly and unambiguously marked to show that such Receivable has
been sold to the Trust for the benefit of the Certificateholders pursuant
to this Agreement.
(iii) COMPLIANCE WITH LAW. Each Receivable and each sale of the
related Financed Vehicle shall have complied at the time it was originated
or made and at the execution of this Agreement shall comply in all material
respects
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with all 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 Billing 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, and State adaptations
of the National Consumer Act and of the Uniform Consumer Credit Code, and
other applicable consumer credit laws and equal credit opportunity and
disclosure laws.
(iv) BINDING OBLIGATION. Each Receivable represents the genuine,
legal, valid, and binding payment obligation in writing of the related
Obligor, enforceable by the holder thereof in accordance with its terms.
All parties to such Receivable have full legal capacity to execute and
deliver such Receivable and all other documents related thereto and to
grant the security interest granted thereby and the terms of such
Receivable have not been waived or modified in any respect (other than
extensions of payments granted in the ordinary course of the Servicer's
collection procedures (or of the Sub-Servicer, with respect to the Sub-
Serviced Receivables) and the term of which does not extend beyond the last
day of the Collection Period immediately preceding the Final Scheduled
Distribution Date).
(v) NO GOVERNMENT OBLIGOR. None of the Receivables shall be due
from the United States of America or any State or local government or from
any agency, department, or instrumentality of the United States of America
or any State or local government.
(vi) SECURITY INTEREST IN FINANCED VEHICLE. Immediately prior to the
sale, assignment, and transfer thereof to the Trustee, each Receivable
shall be secured by a validly perfected first priority security interest in
the Financed Vehicle in favor of the Lender that originated or purchased
such Receivable as secured party and all necessary and appropriate actions
with respect to such Receivable shall have been taken to perfect a first
priority security interest in the Financed Vehicle in favor of such Lender
as secured party, which security interest is assignable and has been so
assigned to the Trustee.
(vii) RECEIVABLES IN FORCE. No Receivable shall have been satisfied,
subordinated, or rescinded, nor shall any Financed Vehicle have been
released from the lien granted by the related Receivable in whole or in
part.
(vii) NO WAIVER. No provision of a Receivable shall have been waived
(other than extensions of payments granted in the ordinary course of the
collection procedures of the Servicer (or of the Sub-Servicer, with respect
to the Sub-Serviced Receivables) and the term of which does not extend
beyond the last day of the Collection Period immediately preceding the
Final Scheduled Distribution Date).
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(ix) NO AMENDMENTS. No Receivable shall have been amended such that
the number of the Obligor's scheduled payments shall have been increased.
(x) NO DEFENSES. No facts exist which would give rise to any right
of rescission, setoff, counterclaim or defense nor shall have any right of
rescission, setoff, counterclaim, or defense been asserted or threatened
with respect to any Receivable.
(xi) NO LIENS. No liens or claims shall have been filed, including
liens for work, labor, materials or taxes relating to a Financed Vehicle,
that shall be liens prior to, or equal or coordinate with, the security
interest in the Financed Vehicle granted by the Obligor pursuant to the
Receivable.
(xii) NO DEFAULT. Except for payment defaults continuing for a period
of not more than 59 days (or 29 days with respect to the Sub-Serviced
Receivables), as of the Cut-Off Date, no default, breach, violation or
event permitting acceleration under the terms of any Receivable shall
exist; no continuing condition that with notice or lapse of time would
constitute a default, breach, violation or event permitting acceleration
under the terms of any Receivable shall exist; and the related Lender shall
not have waived any of the foregoing.
(xiii) INSURANCE. The Servicer, in accordance with its customary
procedures, shall have (i) required that the Obligor obtain physical damage
and theft insurance covering the Financed Vehicle as of the date of related
contract and (ii) obtained vendor's single interest insurance covering the
Financed Vehicle.
(xiv) TITLE. It is the intention of the Seller that the transfer and
assignment herein contemplated, taken as a whole, constitutes a sale of the
Receivables and other property of the Trust from the Seller to the Trust
and that the beneficial interest in and title to the Receivables and other
Trust property not be part of the receivership or conservatorship estate in
the event of the appointment of a receiver or conservator for the Seller.
No Receivable has been sold, transferred, assigned, or pledged by the
Seller to any Person other than the Trustee. Immediately prior to the
transfer and assignment herein contemplated, the Seller had good and
marketable title to each Receivable free and clear of all Liens, and,
immediately upon the transfer thereof, the Trustee for the benefit of the
Certificateholders and the Certificate Insurer shall have good and
marketable title to each Receivable, free and clear of all Liens and rights
of others, except for the rights of the Certificateholders and the
Certificate Insurer; and the transfer has been perfected under the UCC.
(xv) LAWFUL ASSIGNMENT. No Receivable shall have been originated in,
or shall be subject to the laws of, any jurisdiction under which the sale,
transfer, and assignment of such Receivable under this Agreement or
transfers of the Certificates would be unlawful, void, or voidable.
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(xvi) ALL FILINGS MADE. All filings (including, without limitation,
UCC filings) necessary in any jurisdiction to give the Trustee a first
priority perfected ownership interest in the Receivables shall have been
made.
(xvii) ONE ORIGINAL. There shall be only one original executed copy
of each Receivable, and immediately prior to the constructive delivery
thereof to the Trustee pursuant to Section 3.3, such copy shall have been
in the custody and possession of the applicable Lender.
(xviii) NO BANKRUPT OBLIGOR. None of the Receivables shall be due from
an Obligor who has commenced a voluntary case under the United States
Bankruptcy Code or consented to the entry of or failed to have stayed
within 60 days of entry an order for relief against it in an involuntary
case under the United States Bankruptcy Code.
(xix) CHATTEL PAPER; CHIEF EXECUTIVE OFFICE. The Receivables
constitute "chattel paper" within the meaning of the UCC as in effect in
the State of Maryland. The chief executive office of the Seller is located
in the State of Maryland.
(xx) MAXIMUM AMOUNT FINANCED. No Obligor shall be the Obligor on
Receivables on which the sum of the Principal Balances of such Receivables
is greater than $48,000.
(xxi) NO ASSIGNMENT. The related Lender has not taken any action to
convey any right to any Person that would result in such Person having a
right to payments due under the Receivable that is senior to or equal with
that of the Trust.
(xxii) COMPOSITION OF RECEIVABLES. Each Receivable is secured by a
Financed Vehicle which is a new or used automobile, light duty truck or
van.
(xxiii) MATURITY OF RECEIVABLES. Each Receivable shall have an
original term to stated maturity of at least 12 months and not more than 72
months.
(xxiv) MINIMUM AND MAXIMUM ANNUAL PERCENTAGE RATE. Each Receivable
shall have an Annual Percentage Rate no less than 6.00% and no more than
31.99%.
(xxv) MINIMUM AND MAXIMUM PRINCIPAL BALANCE. Each Receivable shall
have a Principal Balance as of the Cut-Off Date no less than $1,000 and no
more than $40,000.
(xxvi) PAYMENT. With respect to Sub-Serviced Receivables only, the
Obligor under each Sub-Serviced Receivable has made at least one payment
with respect thereto as of the Cut-Off Date.
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(xxvii) STATES OF OBLIGOR RESIDENCE. Except with respect to
Receivables with an aggregate Principal Balance as of the Cut-Off Date
representing 27.36% of the Original Pool Balance, the Obligor under each
Receivable has a billing address in Maryland, Virginia, North Carolina or
Georgia.
(xxviii) LOCATION OF RECEIVABLE FILES. The Receivable Files shall be
kept by the Servicer as custodian for the Trustee at 7926 Jones Branch
Drive, McLean, Virginia 22102, or at such other location or locations as
may be designated from time to time by notice to the Trustee and the
Certificate Insurer.
(xxvix) ADVANCE PAYMENTS. As of the day prior to the Cut-Off Date, no
Receivable has been paid more than 180 days in advance.
(xxx) NO ADVERSE SELECTION. The Receivables were selected from
retail installment sales contracts and motor vehicle installment loans in
the applicable Lender's portfolio that had met the applicable conditions
specified in this Section 3.1 utilizing no selection procedures adverse to
the Certificateholders or the Certificate Insurer relative to similar
retail installment sales contracts and motor vehicle installment loans in
such Lender's portfolio.
SECTION 3.2. REPURCHASE UPON BREACH.
The Seller, the Servicer, the Trustee or the Certificate Insurer, as
the case may be, shall inform the other parties promptly, in writing, upon the
discovery of any breach of the Seller's representations and warranties contained
in Section 3.1; provided, that the Trustee shall have no duty to inquire
concerning, or to investigate, the breach of any of such representations and
warranties. Unless the breach shall have been cured by the last day of the
Collection Period following the Collection Period during which the Seller
becomes aware of, or receives written notice of, such breach, the Seller shall
repurchase as of such day (or, at the Seller's option, as of the last day of the
month in which such breach was discovered) any Receivable materially and
adversely affected by such breach and any Receivable in which the interest of
the Trust or of the Certificate Insurer is materially and adversely affected by
such breach (unless such Receivable is otherwise being purchased pursuant to
Section 11.2). In consideration of the purchase of the Receivable, the Seller
shall remit the Purchase Amount, in the manner specified in Section 5.3. The
sole remedy of the Trustee, the Trust, the Certificateholders or the Certificate
Insurer with respect to a breach of the Seller's representations and warranties
contained in Section 3.1 shall be to require the Seller to repurchase
Receivables pursuant to this Section 3.2. The Seller shall notify the
Certificate Insurer of any repurchase of any Receivable pursuant to this
Section.
SECTION 3.3. CUSTODY OF RECEIVABLE FILES.
To assure uniform quality in servicing the Receivables and to reduce
administrative costs, the Trustee, upon the execution and delivery of this
Agreement, hereby revocably appoints the Servicer, and the Servicer hereby
accepts such
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appointment, to act as the agent of the Trustee as custodian of the following
documents or instruments which are hereby constructively delivered to the
Trustee with respect to each Receivable:
(i) The original of the Receivable fully executed by the Obligor.
(ii) The original credit application fully executed by the Obligor.
(iii) The original certificate of title (or, if the original is not
returned to the Lender under applicable state law, a copy thereof) held by
the Lender that originated or purchased such Receivable evidencing the
security interest of such Lender in the Financed Vehicle.
(iv) Any and all other documents that the Servicer or the applicable
Lender shall keep on file, in accordance with its customary procedures,
relating to a Receivable, an Obligor, or a Financed Vehicle.
SECTION 3.4. DUTIES OF SERVICER AND SUB-SERVICER AS CUSTODIAN.
(i) SAFEKEEPING. The Servicer, in its capacity as custodian, shall
hold the Receivable Files on behalf of the Trustee for the use and benefit
of all present and future Certificateholders and the Certificate Insurer
and maintain such accurate and complete accounts, records, and computer
systems pertaining to each Receivable File as shall enable the Trustee to
comply with this Agreement. In performing its duties as custodian, the
Servicer shall act with reasonable care, using that degree of skill and
attention that the Servicer exercises with respect to the receivable files
relating to all comparable automotive receivables that the Servicer
services for itself. The Servicer shall conduct, or cause to be conducted,
periodic audits of the Receivable Files held by it under this Agreement,
and of the related accounts, records, and computer systems, in such a
manner as shall enable the Trustee to verify the accuracy of the Servicer's
record keeping. The Servicer shall promptly report to the Trustee and the
Certificate Insurer any failure on the Servicer's part to hold the
Receivable Files and maintain its accounts, records, and computer systems
as herein provided and promptly take appropriate action to remedy any such
failure.
(ii) MAINTENANCE OF AND ACCESS TO RECORDS. The Servicer shall
maintain each Receivable File at its office specified in this Agreement, or
at such other office or offices as shall be specified by the Servicer to
the Trustee and the Certificate Insurer by prior written notice. The
Servicer shall make available to the Trustee and the Certificate Insurer or
their respective duly authorized representatives, attorneys, or auditors a
list of locations of the Receivable Files, and the related accounts,
records, and computer systems maintained by the Servicer at such times
during normal business hours as the Trustee or the Certificate Insurer
shall instruct, which does not unreasonably interfere with the Servicer's
normal operations or customer or employee relations.
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(iii) RELEASE OF DOCUMENTS. Upon instruction from the Trustee, the
Servicer shall release any document in a Receivable File to the Trustee,
the Trustee's agent, or the Trustee's designee, as the case may be, at such
place or places as the Trustee may designate, as soon as practicable.
(iv) SERVICER TO REMAIN LIABLE. The Servicer shall require the Sub-
Servicer to comply with the preceding provisions of this Section 3.4 with
respect to the Sub-Serviced Receivables. Notwithstanding anything to the
contrary, the Servicer shall remain primarily liable for its duties as
custodian with respect to all Receivables, including the Sub-Serviced
Receivables.
SECTION 3.5. INSTRUCTIONS; AUTHORITY TO ACT.
The Servicer and the Sub-Servicer shall be deemed to have received
proper instructions with respect to the Receivable Files upon its receipt of
written instructions signed by a Responsible Officer of the Trustee.
SECTION 3.6. EFFECTIVE PERIOD AND TERMINATION.
The appointment of the Servicer as custodian shall become effective as
of the Cut-Off Date and shall continue in full force and effect for the term of
the Trust unless terminated earlier pursuant to this Section 3.6. If the
Servicer shall resign in accordance with the provisions of Section 8.5 or if all
of the rights and obligations of the Servicer shall have been terminated under
Section 9.1, the appointment of the Servicer and the Sub-Servicer as custodian
may be terminated (1) by the Trustee or by the Majority Certificateholders, in
either case, with the consent of the Certificate Insurer or (2) by the
Certificate Insurer, by written notification to the Servicer. The Trustee with
the consent of the Certificate Insurer may, or at the direction of the
Certificate Insurer, shall terminate the Servicer's appointment as custodian
with cause at any time upon written notification to the Servicer, in which case
the Sub-Servicer shall also be terminated as a custodian. The Trustee shall
notify the Rating Agencies of any termination of the Servicer's appointment as
custodian pursuant to this Section 3.6. As soon as practicable after any
termination of such appointment, the Servicer and the Sub-Servicer shall deliver
the Receivable Files to the Trustee or the Trustee's agent at such place or
places as the Trustee may reasonably designate.
The following procedures shall apply if the appointment of the
Servicer as the custodian has been terminated:
(i) Upon payment in full of any Receivable, the Servicer will notify
the Trustee by an Officers' Certificate (which certification shall include
a statement to the effect that all amounts received in connection with such
payments which are required to be deposited in the Collection Account
pursuant to Section 5.2 have been so deposited) and shall request delivery
of the Receivable and Receivable File to the Servicer.
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(ii) From time to time as appropriate for servicing and enforcing
any Receivable, the Trustee shall, upon written request of an officer of
the Servicer and delivery to the Trustee of a receipt signed by such
officer in a form satisfactory to the Trustee, cause the original
Receivable and the related Receivable File to be released to the Servicer.
The Servicer's receipt for a Receivable and/or Receivable File shall
obligate the Servicer to return the original Receivable and the related
Receivable File to the Trustee when the Servicer's need for such Receivable
and/or Receivable File has ceased unless the Receivable shall be liquidated
or repurchased as described in Section 3.2, 4.2 or 4.7.
(iii) The Trustee may rely and shall be protected when acting or
refraining from acting upon any certificate, request or receipt under this
Section 3.6.
(iv) The Trustee shall permit the Servicer and the Certificate
Insurer access to the Receivables Files at all reasonable times during the
Trustee's normal business hours. The Trustee shall, within two Business
Days of the request of the Servicer or the Certificate Insurer, execute
such documents and instruments as are prepared by the Servicer or the
Certificate Insurer and delivered to the Trustee, as the Servicer or the
Certificate Insurer deems necessary to permit the Servicer, in accordance
with its customary servicing procedures, to enforce the Receivable on
behalf of the Trust and any related Insurance Policies covering the
Obligor, the Receivable or Financed Vehicle so long as such execution in
the Trustee's sole discretion does not conflict with this Agreement and
will not cause it undue risk or liability. The Trustee shall not be
obligated to release any document from any Receivable File unless it
receives a trust receipt from the Servicer as described in clause (ii) of
this Section 3.6.
ARTICLE IV
ADMINISTRATION AND SERVICING OF RECEIVABLES
SECTION 4.1 DUTIES OF SERVICER.
The Servicer, as an independent contractor on behalf of the Trust and
for the benefit of the Certificateholders and the Certificate Insurer, will be
responsible for managing, servicing and administering the Receivables and
enforcing and making collections on the Receivables and any insurance polices
relating to the Financed Vehicles and for enforcing any security interest in any
of the Financed Vehicles, with reasonable care, using that degree of skill and
attention that the Servicer exercises with responsibilities shall include
collecting and posting all payments, responding to inquiries respect to all
comparable automotive receivables that it services for itself. The Servicer's of
Obligors or of federal, state or local governmental authorities with respect to
the Receivables, investigating delinquencies, sending payment coupons to
Obligors, accounting for collections, furnishing monthly and annual statements
to the Trustee and the Certificate Insurer with respect to distributions,
providing appropriate federal income tax information for use in providing
information to Certificateholders and attempting to
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maintain the perfected security interest of the applicable Lender in the
Financed Vehicles, in accordance with the provisions set forth herein. The
Servicer shall follow its customary standards, policies, and procedures in
performing its duties as Servicer; provided, that with respect to the Sub-
Serviced Receivables and for so long as the Sub-Servicer is sub-servicing the
Sub-Serviced Receivables, for purposes of this Section 4.1 and of Sections 4.2
and 4.3, the Servicer shall follow the Sub-Servicer's customary standards,
policies, practices and procedures. Without limiting the generality of the
foregoing, the Servicer is authorized and empowered by the Trustee to execute
and deliver, on behalf of itself, the Trust, the Certificateholders, or the
Trustee or any of them, any and all instruments of satisfaction or cancellation,
or partial or full release or discharge, and all other comparable instruments,
with respect to such Receivables or to the Financed Vehicles securing such
Receivables. If the Servicer shall commence a legal proceeding to enforce a
Receivable, the Trustee shall thereupon be deemed to have automatically
assigned, solely for the purpose of collection, such Receivable to the Servicer.
The Trustee shall execute any documents prepared by the Servicer and delivered
to the Trustee for execution that are necessary or appropriate to enable the
Servicer to carry out its servicing and administrative duties hereunder.
SECTION 4.2. COLLECTION OF RECEIVABLE PAYMENTS.
The Servicer shall use its best 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 all comparable automotive receivables that it services for itself.
If payments are extended in the ordinary course of the Servicer's collection
procedures, and, as a result, any Receivable would be outstanding on the first
day after the end of the Collection Period immediately preceding the Final
Scheduled Distribution Date, then the Servicer shall be obligated to purchase
such Receivable in the manner set forth in Section 4.7 (unless such Receivable
is otherwise being purchased pursuant to Section 11.2) as of the last day of the
Collection Period following the Collection Period in which the extension was
made (or, at the Servicer's option, as of the last day of the Collection Period
in which the extension was made); provided, however, that the purchase
obligation with respect to a Receivable shall be the obligation of the Servicer
which granted the extension, and not of any successor Servicer; and provided,
further, that the purchase obligation of any Servicer shall survive the
termination of such Servicer as Servicer. The Servicer may in its discretion
waive any Additional Fees.
SECTION 4.3 REALIZATION UPON RECEIVABLES.
On behalf of the Trust, the Servicer shall use its best efforts,
consistent with its customary servicing procedures, to repossess or otherwise
convert the ownership of the Financed Vehicle securing any Receivable as to
which the Servicer shall have determined that eventual payment in full is
unlikely. The Servicer shall follow such customary and usual practices and
procedures as it shall deem necessary or advisable in its servicing of
automotive receivables, which may include reasonable efforts to realize upon any
recourse to Dealers and selling the Financed Vehicle at a public or private
sale.
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The foregoing shall be 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 the repair or the repossession of such Financed Vehicle
unless it shall determine in its discretion that such repair and/or repossession
will increase the Liquidation Proceeds of the related Receivable by an amount
equal to or greater than the amount of such expenses.
SECTION 4.4. INSURANCE
(a) The Servicer may sue to enforce or collect upon the Insurance
Policies, in its own name, if possible, 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 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 Trustee, on behalf of the Trust, at the Servicer's expense, or the
Seller, at the Seller's expense, shall take such steps as the Servicer deems
necessary to enforce such Insurance Policy, including bringing suit in its name
or the name of the Trustee for the benefit of the Certificateholders.
(b) The Servicer shall maintain a vendor's single interest or other
collateral protection insurance policy with respect to all Financed Vehicles
("Collateral Insurance") which policy by its terms insures against physical
damage in the event any Obligor fails to maintain physical damage insurance with
respect to the related Financed Vehicles. The Seller will be the named insured
under all policies of Collateral Insurance. The Servicer shall maintain
Collateral Insurance at all times unless the Certificate Insurer otherwise
consents in writing.
(c) Costs incurred by the Servicer in maintaining Collateral Insurance
shall be paid by the Servicer.
SECTION 4.5. MAINTENANCE OF SECURITY INTERESTS IN FINANCED VEHICLES.
The Servicer shall, in accordance with its customary servicing
procedures, take such steps as are necessary to maintain perfection of the
security interest created by each Receivable in the related Financed Vehicle.
The Trustee hereby authorizes the Servicer to take such steps as are necessary
to re-perfect such security interest on behalf of the Trust in the event of the
relocation of a Financed Vehicle or for any other reason. In the event that the
assignment of a Receivable to the Trust is insufficient, without a notation on
the related Financed Vehicle's certificate of title, or without fulfilling any
additional administrative requirements under the laws of the State in which the
Financed Vehicle is located, to grant to the Trust a perfected security interest
in the related Financed Vehicle, the Seller hereby agrees on behalf of itself
and the other Lender that
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the listing of the applicable Lender as the secured party on the certificate of
title is in its capacity as agent of the Trust.
SECTION 4.6. COVENANTS OF SERVICER.
(a) The Servicer shall not release the Financed Vehicle securing any
Receivable from the security interest granted by such Receivable in whole or in
part except in the event of payment in full by or on behalf of the Obligor
thereunder or repossession, nor shall the Servicer impair the rights of the
Trust or the Certificateholders in the Receivables, nor shall the Servicer
change the amount of the scheduled payment under a Receivable (except for an
extension permitted pursuant to Section 4.2) or change the APR of or the Amount
Financed under a Receivable, nor shall the Servicer fail to comply with the
provisions of any Insurance Policy, if the failure to so comply would impair the
protection or benefit to be afforded by such Insurance Policy.
(b) COMPLIANCE WITH APPLICABLE LAWS. The Servicer shall comply with any
law or, to the best of the Servicer's knowledge, any order, rule or regulation
applicable to the Servicer of any court or of any federal or state regulatory
body, administrative agency, or other governmental instrumentality having
jurisdiction over the Servicer or its properties, the failure to comply with
which may materially and adversely affect the performance by the Servicer of its
obligations under, or the validity or enforceability of, this Agreement, the
Indemnification Agreement or the Certificates.
(c) CORPORATE EXISTENCE. The Servicer shall maintain its corporate
existence and shall at all times continue to be duly organized under the laws of
its jurisdiction of incorporation and duly qualified and duly authorized and
shall conduct its business in accordance with the terms of its charter and
bylaws; provided, however, that the Servicer shall not be required to maintain
its existence as a federally chartered thrift if the board of directors of the
Servicer shall determine that the preservation of such status is no longer
desirable and that the loss thereof is not disadvantageous in any material
respect to the Certificateholders or the Certificate Insurer.
(d) FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; OTHER INFORMATION. The
Servicer shall keep or cause to be kept in reasonable detail books and records
of account of its assets and business, including, but not limited to, books and
records relating to this Agreement. The Servicer shall furnish or cause to be
furnished to the Certificate Insurer:
(i) ANNUAL FINANCIAL STATEMENTS. As soon as available, and in any
event within 120 days after the close of each fiscal year of the Servicer,
the audited consolidated statements of financial condition of the Servicer
and its subsidiaries as of the end of such fiscal year and the related
audited consolidated statements of operations, shareholders' equity and
cash flows for such fiscal year, all in reasonable detail and stating in
comparative form the respective figures for the corresponding date and
period in the preceding fiscal year, prepared in accordance with generally
accepted accounting principles, consistently applied, and accompanied by
the audit opinion of the Servicer's independent accountants
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(which shall be a nationally recognized independent public accounting firm
or otherwise acceptable to the Certificate Insurer).
(ii) QUARTERLY FINANCIAL STATEMENTS. As soon as available, and in
any event within 90 days after each of the first three fiscal quarters of
each fiscal year of the Servicer, the unaudited consolidated statements of
financial condition of the Servicer and its subsidiaries as of the end of
such fiscal quarter and the related unaudited consolidated statements of
operations, shareholders' equity and cash flows for such fiscal quarter,
all in reasonable detail and stating in comparative form the respective
figures for the corresponding date and period in the preceding fiscal year,
prepared in accordance with generally accepted accounting principles,
consistently applied.
(iii) CERTAIN INFORMATION. Upon the reasonable request of the
Certificate Insurer, the Servicer shall promptly provide copies of any
requested proxy statements, financial statements, reports and registration
statements which the Servicer files with, or delivers to, the Securities
and Exchange Commission or any national securities exchange.
All financial statements specified in clause (i) above shall be furnished
in consolidated form for the Servicer and its subsidiaries in the event the
Servicer shall consolidate its financial statements with its subsidiaries.
The Certificate Insurer, by the issuance of the Certificate Insurance
Policy, agrees that it and its agents, accountants and attorneys shall keep
confidential all financial statements, reports and other information delivered
by the Servicer pursuant to this Section 4.6(d).
Nothing in this Section shall be construed to apply to such information
delivered by the Certificate Insurer to any reinsurer or potential reinsurer,
rating agency or regulator of the Certificate Insurer.
(e) MAINTENANCE OF INSURANCE. The Servicer shall maintain with a
responsible company, and at its own expense, a blanket fidelity bond and an
errors and omissions insurance policy in a minimum amount generally maintained
by prudent federally chartered thrift institutions engaged in the servicing of
automotive receivables and having servicing portfolios of a similar size.
(f) ACCESS TO RECORDS; DISCUSSIONS WITH OFFICERS AND ACCOUNTANTS. On an
annual basis, or upon the occurrence of (x) a Servicer Default, (y) an event
that could have a material adverse effect on the ability of the Servicer to
perform its obligations under this Agreement or the Certificates, or (z) an
event that could have a material adverse effect on the validity or
enforceability of, this Agreement or the Certificates, the Servicer shall, upon
the reasonable request of the Certificate Insurer, permit the Certificate
Insurer or its authorized agents:
(i) to discuss the affairs, finances and accounts of the Servicer
with the chief operating officer and the chief financial officer of the
Servicer, in each
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case, to the extent related to the Receivables, or the duties of the
Servicer hereunder; and
(ii) with the Servicer's consent, which consent shall not be
unreasonably withheld, to discuss the affairs, finances and accounts of the
Servicer with the Servicer's independent accountants, in each case, to the
extent related to the Receivables, or the duty of the Servicer hereunder,
provided that an officer of the Servicer shall have the right to be present
during such discussions.
Such inspections and discussions shall be conducted during normal
business hours and shall not unreasonably disrupt the business of the Servicer.
The Certificate Insurer, by the issuance of the Certificate Insurance
Policy, agrees that it and its shareholders, directors, agents, accountants and
attorneys shall keep confidential any matter of which it becomes aware through
such inspections or discussions (unless readily available from public sources),
except as may be otherwise required by regulation, law or court order or
requested by appropriate governmental authorities or as necessary to preserve
its rights or security under or to enforce this Agreement, provided that the
foregoing shall not limit the right of the Certificate Insurer to make such
information available to its regulators, securities rating agencies, reinsurers,
credit and liquidity providers, counsel and accountants. If the Certificate
Insurer is requested or required (by oral questions, interrogatories, requests
for information or documents subpoena, civil investigative demand or similar
process) to disclose any information of which it becomes aware through such
inspections or discussions, the Certificate Insurer will promptly notify the
Servicer of such request(s) so that the Servicer may seek an appropriate
protective order and/or waive the Certificate Insurer's compliance with the
provisions of this Agreement. If, in the absence of a protective order or the
receipt of a waiver hereunder, the Certificate Insurer is, nonetheless, in the
opinion of its counsel, compelled to disclose such information to any tribunal
or else stand liable for contempt or suffer other censure or significant
penalty, the Certificate Insurer may disclose such information to such tribunal
that the Certificate Insurer is compelled to disclose, provided that a copy of
all information disclosed is provided to the Servicer promptly upon such
disclosure.
(g) NOTICE OF MATERIAL EVENTS. The Servicer shall promptly inform the
Certificate Insurer and the Rating Agencies in writing of the receipt of notice
of any proceeding by any regulatory body seeking any determination or ruling
that might materially and adversely affect the performance by the Servicer of
its obligations under, or the validity or enforceability of, this Agreement or
the Certificates.
(h) MAINTENANCE OF LICENSES. The Servicer shall maintain all licenses,
permits, charters and registrations which are material to the performance of its
obligations under this Agreement or the Certificates.
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SECTION 4.7. PURCHASE OF RECEIVABLES UPON BREACH
The Servicer, the Trustee or the Certificate Insurer shall inform the
other parties promptly, in writing, upon the discovery of any breach by the
Servicer of its obligations under Section 4.5 or 4.6; provided, that the Trustee
shall have no duty to inquire concerning, or to investigate, the breach of any
of such obligations. Unless the breach shall have been cured by the last day of
the Collection Period following the Collection Period during which the Servicer
becomes aware of, or receives written notice of such breach, the Servicer shall
purchase as of such day (or, at the Servicer's option, as of the last day of the
month in which such breach was discovered) any Receivable materially and
adversely affected by such breach and any Receivable in which the interest of
the Trust or of the Certificate Insurer is materially and adversely affected by
such breach (unless such Receivable is otherwise being purchased pursuant to
Section 3.2 or 11.2). In consideration of the purchase of such Receivable, the
Servicer shall remit the Purchase Amount with respect to such Receivable in the
manner specified in Section 5.3. The sole remedy of the Trustee, the Trust, the
Certificateholders or the Certificate Insurer with respect to a breach pursuant
to Section 4.5 or 4.6 shall be to require the Servicer to purchase Receivables
pursuant to this Section 4.7. The Servicer shall notify the Certificate Insurer
of any purchase of a Receivable pursuant to this Section 4.7.
SECTION 4.8. SERVICING FEES.
(a) The servicing fee for a Collection Period shall equal the Monthly
Servicing Fee (except that in the case of a successor Servicer, the servicing
fee shall equal such amount as is arranged in accordance with Section 9.2).
(b) The Servicer shall deposit into the Collection Account all Additional
Fees, which shall be included in Available Funds. Investment earnings on the
Collection Account and the Certificate Account, if any, shall be deposited into
the respective accounts and shall be included in Available Funds.
(c) Investment earnings on the Reserve Account and the Yield Maintenance
Account shall be paid to the Seller or its designee as provided in Section 5.1.
(d) The Monthly Servicing Fee and Liquidation Expenses may be retained by
the Servicer from the aggregate interest collections on the Receivables during
the related Collection Period, prior to the deposit of such amounts in the
Collection Account pursuant to Section 5.2; in no event shall the Servicer
retain with respect to any Collection Period, an amount of base servicing
compensation in excess of the Monthly Servicing Fee, even if multiple payments
("advance payments" or "payaheads") are received from the Obligors during such
Collection Period.
SECTION 4.9. SERVICER'S CERTIFICATE.
On or before each Determination Date, the Servicer shall deliver to
the Trustee and the Certificate Insurer by 12:00 pm New York City time a
Servicer's Certificate in the form of Exhibit E attached hereto containing all
information necessary
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to make the distributions pursuant to Section 5.4, to make any transfers of
funds pursuant to Sections 5.1, 5.2 and 5.6, and to make any demands on the
Certificate Insurance Policy pursuant to Section 5.5 for the Collection Period
preceding the date of such Servicer's Certificate and all information necessary
for the Trustee to send statements to Certificateholders pursuant to Section
5.7. Receivables purchased by the Servicer or repurchased by the Seller as of
the last day of such Collection Period shall be identified by the Seller's
account number with respect to such Receivable (as specified in the Schedule of
Receivables).
SECTION 4.10. ANNUAL STATEMENT AS TO COMPLIANCE; NOTICE OF DEFAULT.
(a) The Servicer shall deliver to the Trustee and the Certificate Insurer,
on or before December 31 of each year, beginning December 31, 1999, an Officers'
Certificate stating that (i) a review of the activities of the Servicer during
the preceding 12-month period ended September 30 of such year (or such longer
period since the date of this Agreement) and of its performance under this
Agreement has been made under such officers' supervision and (ii) to the best of
such officers' knowledge, based on such review, the Servicer has fulfilled all
of its obligations under this Agreement throughout such year, or, if there has
been a default in the fulfillment of any such obligation, specifying each such
default known to such officers and the nature and status thereof.
(b) The Servicer shall deliver to the Trustee and the Certificate Insurer,
promptly after having obtained knowledge thereof, but in no event later than one
Business Day thereafter, written notice in an Officers' Certificate of any event
which with the giving of notice or lapse of time, or both, would become a
Servicer Default under clause (i) of Section 9.1. The Seller shall deliver to
the Trustee and the Certificate Insurer, promptly after having obtained
knowledge thereof, but in no event later than five Business Days thereafter,
written notice in an Officers' Certificate of any event which with the giving of
notice or lapse of time, or both, would become a Servicer Default under any
other clause of Section 9.1.
SECTION 4.11. ANNUAL INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT.
The Servicer shall cause a firm of independent certified public
accountants, who may also render other services to the Servicer, to deliver to
the Trustee, with a copy to the Rating Agencies and the Certificate Insurer on
or before December 31 of each year concerning the 12-month period ended
September 30 of such year (or such longer period since the date of this
Agreement), beginning December 31, 1999, a report addressed to the Board of
Directors of the Servicer, the Trustee and the Certificate Insurer, to the
effect that such firm has read the monthly Servicer's Certificates delivered
pursuant to Section 4.9 with respect to each Collection Period during such one-
year (or longer) period and reviewed the servicing of the Receivables by the
Servicer and that such review (1) included tests relating to automobile, light
duty truck and van loans serviced for others in accordance with the requirements
of the Uniform Single Attestation
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Program for Mortgage Bankers, to the extent the procedures in such program are
applicable to the servicing obligations set forth in this Agreement, and (2)
except as described in the report, disclosed no exceptions or errors in the
records relating to automobile, light duty truck and van loans serviced for
others that, in the firm's opinion, paragraph four of such program requires such
firm to report.
The report will also indicate that the firm is independent of the
Servicer within the meaning of the Code of Professional Ethics of the American
Institute of Certified Public Accountants.
SECTION 4.12 ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING
RECEIVABLES.
The Servicer shall provide (and shall require the Sub-Servicer to
provide) to the Certificateholders and the Trustee access to the Receivables
Files in such cases where the Certificateholder or the Trustee shall be required
by applicable statutes or regulations to review such documentation. The
Certificate Insurer shall be afforded such access at any time, subject to the
requirements of the next sentence. Access shall be afforded without charge, but
only upon reasonable request and during the normal business hours at the
respective offices of the Servicer. Nothing in this Section shall affect 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 to information as a result of such obligation shall not
constitute a breach of this Section 4.12.
SECTION 4.13 SERVICER EXPENSES.
The Servicer shall be required to pay all expenses incurred by it in
connection with its activities hereunder, including fees and disbursements of
independent accountants and taxes imposed on the Servicer.
SECTION 4.14 REPORTS TO CERTIFICATEHOLDERS.
The Trustee shall provide to any Certificateholder, who so requests in
writing (addressed to the Corporate Trust Office) and the Rating Agencies a copy
of any certificate described in Section 4.9, or the annual statement described
in Section 4.10, or the annual report described in Section 4.11. The Trustee may
require the Certificateholder to pay a reasonable sum to cover the cost of the
Trustee's compliance with such request.
ARTICLE V
DISTRIBUTIONS; STATEMENTS TO CERTIFICATEHOLDERS
SECTION 5.1 ESTABLISHMENT OF ACCOUNTS.
(a) The Trustee, on behalf of the Trust, shall establish the Collection
Account and the Certificate Account as segregated trust accounts in the name of
the Trust for the
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benefit of Certificateholders and the Certificate Insurer with the
Corporate Trust Office of the Trustee. The Servicer shall direct the Trustee to
invest the amounts in the Collection Account and the Certificate Account in
Eligible Investments that, with respect to the Collection Account, mature not
later than the Business Day prior to the next succeeding Determination Date or,
with respect to the Certificate Account, mature not later than the next
succeeding Deposit Date, and to hold such Eligible Investments to maturity. The
Collection Account and the Certificate Account shall always be maintained as
Eligible Accounts. The Trustee may trade with itself or an affiliate in the
purchase or sale of Eligible Investments.
(i) The Seller shall establish and maintain the Reserve Account and
the Yield Maintenance Account in the name of the Trustee, each as an Eligible
Account for the benefit of the Trust, the Certificateholders and the Certificate
Insurer. The Reserve Account and the Yield Maintenance Account shall not be
property of the Trust.
(ii) Funds on deposit in the Reserve Account and the Yield Maintenance
Account shall be invested by the Trustee in Eligible Investments, in each case
selected by the Servicer by a written direction or by oral direction, promptly
confirmed in writing, which shall certify that any such investment is authorized
by this Section 5.1(b); provided, however, the Trustee shall not be liable for
any loss arising from such investment in Eligible Investments (other than as
Obligor under any Eligible Investment). All such Eligible Investments shall be
held by the Trustee for the benefit of the beneficiaries of the Reserve Account
and the Yield Maintenance Account; provided that on each Distribution Date all
interest and other investment income (net of investment losses and expenses) on
funds on deposit in the Reserve Account and the Yield Maintenance Account shall
be withdrawn at the direction of the Servicer and shall be paid to the Seller or
its designee. Funds on deposit in the Reserve Account and the Yield Maintenance
Account shall be invested in Eligible Investments that will mature so that such
funds will be available at the close of business on the related Deposit Date.
Funds deposited in the Reserve Account and the Yield Maintenance Account on the
day which immediately precedes a Deposit Date upon the maturity of any Eligible
Investments are not required to be (but may be) invested overnight in accordance
with the investment provisions contained herein. The Seller shall treat the
funds and other assets in the Reserve Account and the Yield Maintenance Account
as its own for federal, state and local income tax and franchise tax purposes
and shall report on its tax returns all income and gain from the Reserve Account
and the Yield Maintenance Account.
(iii) The Trustee agrees as follows with respect to the Eligible
Investments, and the proceeds thereof, held from time to time in the Reserve
Account and the Yield Maintenance Account:
(A) any Eligible Investment that is held in deposit
accounts shall be subject to the exclusive custody
and control of the Trustee, and the Trustee shall
have sole signature authority with respect thereto;
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(B) any Eligible Investment that constitutes Physical
Property (as defined in the definition of Delivery)
shall be delivered to the Trustee in accordance with
paragraph (a) of the definition of "Delivery" and
shall be held, pending maturity or disposition,
solely by the Trustee or a securities intermediary
(as such term is defined in Section 8-102(14) of the
UCC) acting solely for the Trustee;
(C) any Eligible Investment that is a book-entry security
held through the Federal Reserve System pursuant to
federal book-entry regulations shall be delivered in
accordance with paragraph (b) of the definition of
"Delivery" and shall be maintained by the Trustee,
pending maturity or disposition, through continued
book entry registration of such Eligible Investment
as described in such paragraph; and
(D) any Eligible Investment that is an "uncertificated
security" under Article 8 of the UCC and that is not
governed by clause (C) above shall be delivered to
the Trustee in accordance with paragraph (c) of the
definition of "Delivery" and shall be maintained by
the Trustee, pending maturity or disposition, through
continued registration of the Trustee's (or its
nominee's) ownership of such security directly or
through one or more securities intermediaries acting
solely for the Trustee.
(iv) The Servicer shall have the power, revocable by the Trustee, to
instruct the Trustee to make withdrawals and payments from the Reserve Account
and the Yield Maintenance Account for the purpose of making distributions of
funds on deposit in such Accounts in accordance with the provisions hereof.
(c) In the event of any change of law regarding matters relating to the
perfection of security interests in any Account, the amounts or any Eligible
Investments held therein, the Seller shall cause to be furnished to the Trustee,
the Certificate Insurer and each Rating Agency, an Opinion of Counsel addressing
such matters and if necessary, the Seller shall cooperate with the Trustee in
taking all actions necessary to comply with the change in law.
SECTION 5.2 COLLECTIONS.
(A) The Servicer shall remit to the Collection Account within two Business
Days following receipt thereof all payments by or on behalf of the Obligors on
the Receivables and all Liquidation Proceeds (including payments made under any
of the Insurance Policies or the Collateral Insurance to the extent applicable
to payments due on the Receivables), both as collected during the Collection
Period, net of (i) the Servicer's actual out-of-pocket expenses reasonably
incurred with respect to Defaulted Receivables
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or Financed Vehicles ("Liquidation Expenses"), which shall be paid from amounts
actually recovered with respect to any Defaulted Receivable or Financed Vehicle,
(ii) charge backs attributable to errors in posting, returned checks, or rights
of offset for amounts that should not have been paid or that must be refunded as
the result of a successful claim or defense under bankruptcy or similar laws and
(iii) the Monthly Servicing Fee, as provided in Section 4.8. The amounts
specified in clauses (i), (ii) and (iii), to the extent deposited into the
Collection Account, shall not be included in Available Funds and will be
withdrawn from the Collection Account and paid to the Servicer from time to
time.
(b) On the Determination Date in each month, the Servicer shall instruct
the Trustee to withdraw from the Collection Account the amount collected with
respect to Receivables, including Additional Fees and Liquidation Proceeds,
received during the Collection Period and investment earnings related to such
Determination Date, net of any amounts specified in clauses (i), (ii) and (iii)
of Section 5.2(a), to the extent deposited therein, and deposit such amount in
immediately available funds or by wire transfer in immediately available funds
into the Certificate Account.
(c) On or before each Determination Date, the Servicer shall determine (i)
the amount of Available Funds and (ii) the amount of funds necessary to make the
distributions required pursuant to clauses (i) through (viii) of Section 5.4(a)
on the next Distribution Date. The Servicer shall by a Servicer's Certificate
notify the Trustee of such amounts by telecopy to the Corporate Trust Office (or
such other number as the Trustee may from time to time provide), followed
promptly by mailing such notice to the Trustee at the Corporate Trust Office,
and the Trustee shall promptly provide such notice to the Certificate Insurer.
SECTION 5.3 PURCHASE AMOUNTS.
On the Determination Date following each Collection Period, the
Servicer or the Seller, as the case may be, shall remit to the Certificate
Account the aggregate Purchase Amount for such Collection Period pursuant to
Sections 3.2, 4.2 and 4.7.
SECTION 5.4 DISTRIBUTIONS.
(a) On each Distribution Date, the Trustee shall apply or cause to be
applied the sum of (x) the Available Funds (after withdrawing amounts deposited
in error and Liquidation Proceeds relating to Purchased Receivables) for the
related Collection Period, including the Yield Maintenance Withdrawal Amount for
such Distribution Date and (y) the Reserve Account Withdrawal Amount for such
Distribution Date and (z) the amount of any Insured Payment to make the
following distributions in the listed order of priority:
(i) to the Trustee, the Monthly Trustee's Fee, and any overdue
Monthly Trustee's Fee, from Available Funds;
(ii) to the Certificate Insurer, by wire transfer of immediately
available funds to the account designated in writing by the Certificate
Insurer, the Premium
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Amount, such amount to be paid from Available Funds (after giving effect to
the application of Available Funds described in clause (i) above);
(iii) to the Certificateholders, pro rata, Monthly Interest,
including any overdue Monthly Interest, such amount to be paid from
Available Funds (after giving effect to the application of Available Funds
described in clauses (i) and (ii) above); and, if such Available Funds are
insufficient, the Certificateholders shall receive such deficiency from any
monies deposited into the Certificate Account from the Reserve Account and,
if such amounts are still insufficient, from any Insured Payment in respect
of the Deficiency Amount;
(iv) to the Certificateholders, pro rata, the Monthly Principal and
any overdue Monthly Principal, such amount to be paid from Available Funds
(after giving effect to the application of Available Funds described in
clauses (i), (ii) and (iii) above); and, if such Available Funds are
insufficient, the Certificateholders shall receive such deficiency from any
monies deposited into the Certificate Account from the Reserve Account
(after giving effect to the application of such monies described in clause
(iii)) and, if such amounts are still insufficient, from any Insured
Payment in respect of the Deficiency Amount;
(v) to the Certificate Insurer, by wire transfer of immediately
available funds to the account designated in writing by the Certificate
Insurer, the Reimbursement Amount, if any, then owed to the Certificate
Insurer, such amount to be paid from Available Funds (after giving effect
to the application of Available Funds described in clauses (i), (ii), (iii)
and (iv) above);
(vi) to the Reserve Account, the Reserve Account Deposit Amount for
such Distribution Date, such amount to be paid from Available Funds (after
giving effect to the application of Available Funds described in clauses
(i), (ii), (iii), (iv) and (v) above);
(vii) to the Servicer, the Trustee and the Certificate Insurer,
certain indemnification amounts to which they may be entitled, such amounts
to be paid from Available Funds (after giving effect to the application of
Available Funds described in clauses (i), (ii), (iii), (iv), (v) and (vi)
above); and
(viii) to the Seller or its designee, the aggregate amount remaining
in the Certificate Account.
If the Seller exercises the purchase option on any Distribution Date
pursuant to Section 11.2, the Optional Purchase Price shall be deposited into
the Certificate Account on the Determination Date related to such Distribution
Date.
In making such distributions, the Trustee shall be entitled to rely
upon (without investigation, confirmation or recalculation) all information and
calculations contained in the Servicer's Certificate delivered to the Trustee
pursuant to Section 4.9.
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(b) All monthly distributions to Certificateholders shall be made by wire
transfer (if wiring instructions are received from the Certificateholders), or,
in the absence of such instructions, by check mailed to each Certificateholder
of record on the preceding Record Date at its address appearing on the
Certificate Register, or by such other means as the Certificateholder and the
Trustee shall agree. Payments to the Certificate Insurer or the Seller or its
designee shall be made by wire transfer based on instructions received by the
Trustee from such Person. Notwithstanding the foregoing, the final payment on
each Certificate shall be made only against the presentation and surrender of
the Certificate at the office or agency then maintained by the Trustee.
(c) Each Certificateholder shall promptly notify the Trustee and the
Certificate Insurer in writing upon the receipt of a nonappealable court order
of a court having competent jurisdiction seeking to recover payments to
Certificateholders or the Trust as a voidable preference by a trustee in
bankruptcy pursuant to the United States Bankruptcy Code and shall enclose a
copy of such order with such notice to the Trustee and the Certificate Insurer.
(d) If the Servicer has failed to provide the Trustee with the notice
required pursuant to Section 5.2, the Trustee may calculate Monthly Interest and
apply funds, if any, in the Collection Account as of the last day of the prior
Collection Period, plus any payments from the Certificate Insurer, to make a
distribution of Monthly Interest to the Certificateholders.
SECTION 5.5 CERTIFICATE INSURANCE POLICY.
(a) By 12:00 noon New York City time on each Determination Date the Trustee
shall, based solely on the information set forth in the related Servicer's
Certificate, determine the amount of Available Funds (including the Yield
Maintenance Withdrawal Amount) and the amount of the Reserve Account Withdrawal
Amount with respect to the immediately following Distribution Date.
(b) In the event that the Certificate Insurer does not otherwise make
available to the Trustee any shortfall in the sum of (i) the Reserve Account
Withdrawal Amount and (ii) Available Funds (in each case taking into account the
application of such amounts to the priority of payments specified in Section
5.4(a)) to pay the amounts specified in clauses (iii) and (iv) of Section 5.4(a)
(the "Deficiency Amount"), by 12:00 p.m. New York City time on the third
Business Day preceding the related Distribution Date (the "Claim Date"), the
Trustee shall complete a Notice in the form of Exhibit A attached to the
Certificate Insurance Policy and submit such notice to the Certificate Insurer
no later than 12:00 p.m. New York City time on the Claim Date as a claim for an
Insured Payment in an amount equal to such Deficiency Amount. The Notice shall
specify the amount of the Insured Payment and shall constitute a claim for an
Insured Payment pursuant to the Certificate Insurance Policy.
(c) The Trustee shall report to the Seller and the Certificate Insurer with
respect to the amounts then held in each Account held by the Trustee and the
identity of the investments included therein, as the Seller or the Certificate
Insurer may from time to
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time request. Without limiting the generality of the foregoing, the Trustee
shall, at the request of the Seller or the Certificate Insurer, transmit
promptly to the Certificate Insurer and the Seller copies of all accountings of
receipts in respect of the Receivables furnished to it by the Servicer.
(d) The Trustee shall (i) receive as attorney-in-fact of the
Certificateholders any Insured Payment from the Certificate Insurer and (ii)
disburse the same to such Certificateholders as set forth in Section 5.4.
Insured Payments disbursed by the Trustee from proceeds of the Certificate
Insurance Policy shall not be considered payment by the Trust with respect to
the Certificates, and the Certificate Insurer shall become the owner of such
unpaid amounts due from the Trust in respect of Insured Payments as the deemed
assignee of such Certificateholders, as hereinafter provided. The Trust and the
Trustee hereby agree on behalf of each Certificateholder for the benefit of the
Certificate Insurer that to the extent the Certificate Insurer pays Insured
Payments, either directly or indirectly (as by paying through the Trustee), to
the Certificateholders, the Certificate Insurer shall be subrogated to the
rights of the Certificateholders with respect to such Insured Payments, shall be
deemed to the extent of the Insured Payments so made to be a Certificateholder
and shall receive future distributions until all such Insured Payments by the
Certificate Insurer have been fully reimbursed, as described in the following
paragraph. To evidence such subrogation, the Trustee shall note the Certificate
Insurer's rights as subrogee on the Certificate Register upon receipt from the
Certificate Insurer of proof of the payment of any Insured Payment, after making
the distribution on any such future Distribution Date to the Certificateholders
other than to the Certificate Insurer.
The Certificate Insurer shall be entitled to receive the related
Reimbursement Amount pursuant to Section 5.4(a) with respect to each Insured
Payment made by the Certificate Insurer. The Trustee hereby agrees on behalf of
each Certificateholder and the Trust for the benefit of the Certificate Insurer
that it recognizes that to the extent the Certificate Insurer makes Insured
Payments, either directly or indirectly (as by paying through the Trustee), to
the Certificateholders, or to the extent any Premium Amount remains unpaid, the
Certificate Insurer shall be entitled to receive the related Reimbursement
Amount or Premium Amount pursuant to Section 5.4(a). It is understood and
agreed that the intention of the parties is that the Certificate Insurer shall
not be entitled to reimbursement on any Distribution Date for amounts previously
paid by it unless on such Distribution Date the Certificateholders shall also
have received the full amount of the Monthly Interest and Monthly Principal for
such Distribution Date.
(e) Each Certificateholder which pays any Preference Amounts theretofore
received by such Certificateholder on account of such Certificate will be
entitled to receive reimbursement for such amounts from the Certificate Insurer
in accordance with the terms of the Certificate Insurance Policy, but only after
(i) delivering a copy to the Certificate Insurer of a final, nonappealable order
(a "Preference Order") of a court having competent jurisdiction under the United
States Bankruptcy Code demanding payment of such amount to the bankruptcy court
and (ii) irrevocably assigning such Certificateholder's claim with respect to
such Preference Order to the Certificate Insurer in such form as is required by
the Certificate Insurer. In no event shall the Certificate Insurer pay more
than one Insured Payment in respect of any Preference Amount.
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Consequently, the Trustee shall not be entitled to reimbursement with respect to
any Preference Order relating to the Certificateholder's receipt of funds
representing Insured Payments made by the Certificate Insurer in respect of such
Distribution Date.
The Trustee, for itself and on behalf of the Certificateholders,
agrees that the Certificate Insurer may at any time during the continuation of
any proceeding relating to a Preference Order direct all matters relating to
such Preference Order, including, without limitation, the direction of any
appeal of any order relating to such Preference Order and the posting of any
surety, supersedeas or performance bond pending any such appeal. In addition
and without limitation of the foregoing, the Certificate Insurer shall be
subrogated, to the extent of Insured Payments, to the rights of the Seller, the
Servicer, the Trustee and each Certificateholder in the conduct of any such
preference claim, including, without limitation, all rights of any party to any
adversarial proceeding or action with respect to any court order issued in
connection with any such preference claim.
(f) The Trustee shall keep a complete and accurate record of the amount of
interest and principal paid in respect of any Certificate from moneys received
under the Certificate Insurance Policy. The Certificate Insurer shall have the
right to inspect such records at reasonable times during normal business hours
upon one Business Day's prior notice to the Trustee.
(g) The Certificate Insurer shall have the right to give participations in
its rights under this Agreement and to enter into contracts of reinsurance with
respect to the Certificate Insurance Policy; provided that no such grant of
participation shall operate to relieve the Certificate Insurer of liability on
the Certificate Insurance Policy, and provided further that no such
participation or contract of reinsurance shall require the Servicer, the Trustee
or the Seller to deal with any person other than the Certificate Insurer.
SECTION 5.6 RESERVE ACCOUNT AND YIELD MAINTENANCE ACCOUNT.
(a) On the Closing Date, the Seller shall deposit the Reserve Initial
Deposit into the Reserve Account. Amounts held from time to time in the Reserve
Account shall be held by the Trustee for the benefit of the Seller, subject to
the first priority security interest granted under Section 2.2 hereof to the
Trustee for the benefit of the Certificateholders and the Certificate Insurer,
but the Reserve Account shall not be an asset of the Trust.
The Seller may, from time to time after the date hereof, request each
Rating Agency and the Certificate Insurer to approve a formula for determining
the Specified Reserve Balance that is different from the formula set forth
herein, which may result in a decrease in the amount of the Specified Reserve
Balance or change the manner by which the Reserve Account is funded.
Notwithstanding any other provision of this Agreement, if the Certificate
Insurer consents and each Rating Agency then rating the Certificates notifies
the Trustee, the Certificate Insurer and the Seller in writing that the
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use of any such new formula, and any decrease in the amount of the Specified
Reserve Balance or change in the manner by which the Reserve Account is funded,
will not result in the qualification, reduction or withdrawal of its then
current rating of the Certificates then the Specified Reserve Balance will be
determined in accordance with such new formula and this Agreement will be
amended to reflect such new formula without the consent of any
Certificateholder.
On each Distribution Date (A) if the amount on deposit in the Reserve
Account (without taking into account any amount on deposit in the Reserve
Account representing net investment earnings) is less than the Specified Reserve
Balance, the Trustee shall, after payment of any amounts required to be
distributed pursuant to clauses (i) through (v) of Section 5.4(a) deposit in the
Reserve Account the Reserve Account Deposit Amount pursuant to Section
5.4(a)(vi), (B) the Trustee shall distribute any amount on deposit in the
Reserve Account representing net investment earnings to the Seller or its
designee, and (C) if the amount on deposit in the Reserve Account (after giving
effect to all other deposits thereto and withdrawals therefrom to be made on
such Distribution Date, including withdrawals pursuant to clause (B) of this
paragraph) is greater than the Specified Reserve Balance, the Trustee shall
distribute the amount of such excess to the Seller or its designee on such
Distribution Date.
(b) On each Distribution Date, the Servicer shall instruct the Trustee
(based on the information contained in the Servicer's Certificate delivered on
the related Determination Date) to withdraw the Reserve Account Withdrawal
Amount from the Reserve Account and deposit such amounts in the Certificate
Account or apply such amounts as described in Section 5.6(a), as applicable.
(c) On the Closing Date, the Seller shall deposit the Initial Yield
Maintenance Amount into the Yield Maintenance Account. Amounts held from time to
time in the Yield Maintenance Account shall be held by the Trustee for the
benefit of the Seller, subject to the first priority security interest granted
under Section 2.2 hereof to the Trustee for the benefit of the
Certificateholders and the Certificate Insurer, but the Yield Maintenance
Account shall not be an asset of the Trust.
On each Distribution Date (i) the Trustee shall withdraw the Yield
Maintenance Withdrawal Amount from the Yield Maintenance Account and distribute
such amount pursuant to Section 5.4(a) hereof, (ii) the Trustee shall withdraw
from the Yield Maintenance Account the net investment earnings then on deposit
therein and distribute such amount to the Seller or its designee and (iii) if
the amount then on deposit in the Yield Maintenance Account (after giving effect
to all withdrawals therefrom to be made on such Distribution Date) is greater
than the Yield Maintenance Amount, the Trustee shall distribute the amount of
such excess to the Seller or its designee on such Distribution Date.
(d) Amounts properly received by the Seller or its designee pursuant to
this Agreement shall not be available to the Trustee or the Trust for the
purpose of making deposits to the Reserve Account, or making payments to the
Certificateholders, nor shall the Seller or its designee be required to refund
any amount properly received by it.
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SECTION 5.7 STATEMENTS TO CERTIFICATEHOLDERS.
On each Distribution Date, the Trustee shall mail or send by facsimile
to the Certificateholders, the Rating Agencies and the Certificate Insurer a
statement, based on information in the Servicer's Certificate furnished to the
Trustee by the Servicer pursuant to Section 4.9, setting forth for the
Collection Period relating to such Distribution Date the following information
(which in the case of items (i), (ii) and (iii) shall be based on a Certificate
in a principal amount of $1,000):
(i) the amount of the distribution allocable to principal,
including any overdue principal;
(ii) the amount of the distribution allocable to interest, including
any overdue interest;
(iii) the Monthly Servicing Fee, including any overdue Monthly
Servicing Fee, and the Monthly Trustee's Fee;
(iv) the amount of any Insured Payments;
(v) the remaining balance in the Reserve Account and in the Yield
Maintenance Account, together with the Reserve Account Withdrawal Amount
and the Yield Maintenance Withdrawal Amount;
(vi) the aggregate Net Losses on the Receivables for the related
Collection Period;
(vii) the Pool Balance and Pool Factor as of the end of the related
Collection Period;
(viii) the aggregate Principal Balance of all Receivables which were
delinquent 30 days or more as of the last day of the related Collection
Period;
(ix) the Certificate Principal Balance (after giving effect to any
distribution in respect of principal on such Distribution Date) on which
Monthly Interest will be calculated with respect to the next succeeding
Distribution Date;
(x) the Delinquency Percentage, Net Loss Percentage and Cumulative
Net Loss Percentage relating to such Distribution Date;
(xi) the aggregate of all Purchase Amounts received on the related
Determination Date;
(xii) the aggregate amount received with respect to Defaulted
Receivables, including Liquidation Proceeds, during the related Collection
Period; and
(xiii) the Reimbursement Amount for such Distribution Date.
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Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of this Agreement, the Trustee
shall mail, to each Person who at any time during such calendar year shall have
been a Certificateholder, a statement containing the sum of the amounts
determined in clauses (i), (ii) and (iii) for such calendar year or, in the
event such Person shall have been a Certificateholder during a portion of such
calendar year, for the applicable portion of such year, unless substantially
comparable information has been provided to such Certificateholder, for the
purposes of such Certificateholder's preparation of federal income tax returns.
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ARTICLE VI
CERTIFICATES
SECTION 6.1. THE CERTIFICATES.
(a) The Certificates shall be substantially in the form attached hereto as
Exhibit B. The Certificates shall be issued in denominations of $1,000 and
integral multiples thereof; provided, however, that one Certificate may be
issued in a denomination that includes any residual amount. The Certificates
shall be executed on behalf of the Trust by manual signature of a Responsible
Officer of the Trustee. Certificates bearing the signatures of individuals who
were, at the time when such signatures shall have been affixed, authorized to
sign on behalf of the Trust, shall be valid and binding obligations of the
Trust, notwithstanding that such individuals 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 such Certificates.
(b) The Certificates are pass-through securities having the rights
described therein and herein. Notwithstanding references herein or therein with
respect to the Certificates as to "principal" and "interest" no debt of any
Person is represented thereby, nor are the Certificates or the underlying
Receivables guaranteed by any Person (except that the Receivables may be
recourse to the Obligors thereof to the extent permitted by law and except for
the rights of the Trustee with respect to the Certificate Insurance Policy).
Distributions on the Certificates are payable solely from payments received on
or with respect to the Receivables, from moneys in the Collection Account and
the Certificate Account, except as otherwise provided herein, from earnings on
moneys and the proceeds of property held as a part of the Trust and, upon the
occurrence of certain events as herein provided, from draws on the Reserve
Account and the Yield Maintenance Account and claims under the Certificate
Insurance Policy. Each Certificate entitles the Certificate Owner thereof to
receive monthly on each Distribution Date a specified portion of such payments
with respect to the Receivables, earnings, proceeds and withdrawals from the
Reserve Account and the Yield Maintenance Account and claims under the
Certificate Insurance Policy pro rata in accordance with the ownership interest
of such Certificate Owner; provided, however that Certificate Owners shall not
be entitled to earnings on the Yield Maintenance Account or the Reserve Account.
SECTION 6.2. AUTHENTICATION OF CERTIFICATES.
The Trustee shall cause the Certificates to be executed on behalf of
the Trust, authenticated, and delivered to or upon the written order of the
Seller, signed by its chairman of the board, any vice chairman of the board, its
president, any executive vice president, any senior vice president or any vice
president, without further corporate action by the Seller, in authorized
denominations, pursuant to this Agreement. 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 as set forth in the form of Certificate attached as Exhibit B
hereto, executed by the Trustee by manual signature; such authentication shall
constitute conclusive
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evidence that such Certificate shall have been duly authenticated and delivered
hereunder. All Certificates shall be dated the date of their authentication.
SECTION 6.3. 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 6.7, a Certificate Register in
which, subject to such reasonable regulations as it may prescribe, the Trustee
shall provide for the registration of Certificates and of transfers and
exchanges of Certificates as herein provided. The Trustee shall be the initial
Certificate Registrar.
Upon surrender for registration of transfer of any Certificate at the
Corporate Trust Office, the Trustee shall execute, authenticate, and deliver, in
the name of the designated transferee or transferees, one or more new
Certificates in authorized denominations of a like aggregate amount dated the
date of authentication by the Trustee. At the option of a Holder, Certificates
may be exchanged for other Certificates of authorized denominations of a like
aggregate amount upon surrender of the Certificates to be exchanged at the
Corporate Trust Office.
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 Trustee and the Certificate Registrar duly executed by
the Holder or his or her attorney duly authorized in writing. Each Certificate
surrendered for registration of transfer and exchange shall be canceled and
subsequently destroyed by the Trustee.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Trustee may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.
SECTION 6.4. MUTILATED, DESTROYED, LOST, OR STOLEN CERTIFICATES.
If (a) any mutilated Certificate shall be surrendered to the
Certificate Registrar, or if the Certificate Registrar shall receive evidence to
its satisfaction of the destruction, loss, or theft of any Certificate and (b)
there shall be delivered to the Certificate Registrar or the Trustee and to the
Certificate Insurer such security or indemnity as may be required by them to
save each of them harmless, then in the absence of notice that such Certificate
shall have been acquired by a bona fide purchaser other than the Person who
requested a replacement Certificate, the Trustee on behalf of the Trust shall
execute and the Trustee shall authenticate and deliver, in exchange for or in
lieu of any such mutilated, destroyed, lost, or stolen Certificate, a new
Certificate of like tenor and denomination. In connection with the issuance of
any new Certificate under this Section 6.4, the Trustee and 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 6.4 shall
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constitute conclusive evidence of ownership in the Trust, as if originally
issued, whether or not the lost, stolen, or destroyed Certificate shall be found
at any time.
SECTION 6.5. PERSONS DEEMED OWNERS.
Prior to registration of transfer, the Trustee or the Certificate
Registrar may treat the Person in whose name any Certificate shall be registered
as the owner of such Certificate for the purpose of receiving distributions
pursuant to Section 5.4 and for all other purposes whatsoever, and neither the
Trustee, the Certificate Insurer nor the Certificate Registrar shall be bound by
any notice to the contrary.
SECTION 6.6. ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND ADDRESSES.
The Trustee shall furnish or cause to be furnished to the Servicer and
the Certificate Insurer, within 15 days after receipt by the Trustee of a
request therefor from such party in writing, a list, in such form as such party
may reasonably require, of the names and addresses of the Certificateholders as
of the most recent Record Date. If three or more Certificateholders, or one or
more Holders of Certificates aggregating not less than 25% of the Certificate
Principal Balance, apply in writing to the Trustee, and such application states
that the applicants desire to communicate with other Certificateholders with
respect to their rights under this Agreement or under the Certificates and such
application shall be accompanied by a copy of the communication that such
applicants propose to transmit, then the Trustee shall, within five Business
Days after the receipt of such application, afford such applicants access during
normal business hours to the current list of Certificateholders. Each Holder,
by receiving and holding a Certificate, shall be deemed to have agreed to hold
neither the Servicer nor the Trustee accountable by reason of the disclosure of
its name and address, regardless of the source from which such information was
derived.
SECTION 6.7. MAINTENANCE OF OFFICE OR AGENCY.
The Trustee shall maintain 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 Trustee in respect of the
Certificates and this Agreement may be served. The Trustee initially designates
the Corporate Trust Office as specified in this Agreement as its office for such
purposes. The Trustee shall give prompt written notice to the Servicer, the
Certificate Insurer and Certificateholders of any change in the location of the
Certificate Register or any such office or agency.
SECTION 6.8. BOOK-ENTRY CERTIFICATES.
The Certificates (other than a Certificate representing any residual
portion of the Pool Balance as of the Cut-Off Date), upon original issuance,
shall be issued in the form of typewritten Certificates representing the Book-
Entry Certificates, to be delivered to The Depository Trust Company, the initial
Clearing Agency, by the Seller or on its
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behalf. The Certificates shall initially be registered on the Certificate
Register in the name of CEDE & Co., the nominee of the initial Clearing Agency,
and no Certificate Owner will receive a definitive certificate representing such
Certificate Owner's interest in the Certificates, except as provided in Section
6.10. Unless and until definitive, fully registered Certificates ("Definitive
Certificates") have been issued to Certificateholders pursuant to Section 6.10:
(i) the provisions of this Section 6.8 shall be in full force and
effect;
(ii) the Seller, the Servicer and the Trustee may deal with the
Clearing Agency and the Clearing Agency Participants for all purposes
(including the making of distributions on the Certificates and the taking
of actions by the Certificateholders) as the authorized representatives of
the Certificate Owners;
(iii) to the extent that the provisions of this Section 6.8 conflict
with any other provisions of this Agreement, the provisions of this Section
6.8 shall control;
(iv) the rights of Certificate Owners shall be exercised only
through the Clearing Agency (or to the extent Certificate Owners are not
Clearing Agency Participants through the Clearing Agency Participants
through which such Certificate Owners own Book-Entry Certificates) and
shall be limited to those established by law and agreements between such
Certificate Owners and the Clearing Agency and/or the Clearing Agency
Participants, and all references in this Agreement to actions by
Certificateholders shall refer to actions taken by the Clearing Agency upon
instructions from the Clearing Agency Participants, and all references in
this Agreement to distributions, notices, reports and statements to
Certificateholders shall refer to distributions, notices, reports and
statements to the Clearing Agency or its nominee, as registered Holder of
the Certificates, as the case may be, for distribution to Certificate
Owners in accordance with the procedures of the Clearing Agency; and
(v) pursuant to an agreement between the Clearing Agency and the
Seller, the initial Clearing Agency will make Book-Entry transfers among
the Clearing Agency Participants and receive and transmit distributions of
principal and interest on the Certificates to the Clearing Agency
Participants, for distribution by such Clearing Agency Participants to the
Certificate Owners or their nominees.
SECTION 6.9. NOTICES TO CLEARING AGENCY.
Whenever notice or other communication to the Certificateholders is
required under this Agreement, unless and until Definitive Certificates shall
have been issued to Certificate Owners pursuant to Section 6.10, the Trustee
shall give to the Clearing Agency all such notices and communications specified
herein to be given to Certificateholders.
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SECTION 6.10. DEFINITIVE CERTIFICATES.
If (i)(A) the Servicer advises the Trustee in writing that the
Clearing Agency is no longer willing or able properly to discharge its
responsibilities as Clearing Agency with respect to the Certificates, and (B)
the Trustee or the Servicer is unable to locate a qualified successor, (ii) the
Servicer, at its option, elects to terminate the Book-Entry system through the
Clearing Agency or (iii) after the occurrence of a Servicer Default,
Certificateholders representing in the aggregate not less than a majority of the
Certificate Principal Balance advise the Clearing Agency through the Clearing
Agency Participants in writing that the continuation of a Book-Entry system
through the Clearing Agency is no longer in the best interests of the
Certificate Owners, the Trustee shall notify the Clearing Agency of the
occurrence of any such event and of the availability of Definitive Certificates
to Certificate Owners requesting the same. Upon surrender to the Trustee by the
Clearing Agency, accompanied by re-registration instructions from the Clearing
Agency for registration and instructions and directions from the Servicer to
execute and authenticate new Certificates, the Trustee shall issue authenticated
Definitive Certificates. The Servicer shall arrange for, and will bear all
costs of, the printing and issuance of such Definitive Certificates. None of
the Seller, the Servicer, the Trustee or the Certificate Insurer shall be liable
for any delay in delivery of such instructions and may conclusively rely on, and
shall be protected in relying on, such instructions. Upon the issuance of
Definitive Certificates, all references herein to obligations imposed upon or to
be performed by the Clearing Agency shall be deemed to be imposed upon and
performed by the Trustee, to the extent applicable with respect to such
Definitive Certificates and the Trustee shall recognize the Holders of the
Definitive Certificates as Certificateholders hereunder.
ARTICLE VII
THE SELLER
SECTION 7.1. REPRESENTATIONS OF SELLER.
The Seller makes the following representations on which the Trustee
relies in accepting the Receivables in trust and executing and authenticating
the Certificates and upon which the Certificate Insurer relies in executing and
delivering the Certificate Insurance Policy. The representations speak as of
the Closing Date and shall survive the sale of the Receivables to the Trustee.
(i) DUE ORGANIZATION AND GOOD STANDING. The Seller shall have been
duly organized and shall be validly existing as a federal savings bank in
good standing under the laws of the United States of America, with the
corporate power and authority to own its properties and to conduct its
business as such properties shall be currently owned and such business is
presently conducted, and had at all relevant times, and shall have, the
corporate power and authority and legal right to acquire and own the
Receivables.
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(ii) DUE QUALIFICATION. The Seller shall be duly qualified to do
business as a foreign corporation in good standing, and shall have obtained
all necessary licenses and approvals in all jurisdictions in which the
ownership or lease of property or the conduct of its business shall require
such qualifications, except where the failure to be so qualified or to have
obtained such licenses or approvals would not have a material adverse
effect on the transactions contemplated by this Agreement.
(iii) POWER AND AUTHORITY. The Seller shall have the corporate power
and authority to execute and deliver this Agreement and to carry out its
terms, the Seller shall have full power and authority to sell and assign
the property to be sold and assigned to and deposited with the Trustee as
part of the Trust and shall have duly authorized such sale and assignment
to the Trustee by all necessary corporate action; and the execution,
delivery, and performance of this Agreement shall have been duly authorized
by the Seller by all necessary corporate action.
(iv) VALID SALE; BINDING OBLIGATIONS. This Agreement shall evidence
a valid sale, transfer, and assignment of the Receivables, enforceable
against creditors of and purchasers from the Seller; and shall be a legal,
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 or other obligees' rights in general or the rights of
creditors or obligees of federally chartered stock savings banks, the
deposits of which are insured by the FDIC, and by general principles of
equity, regardless of whether such enforceability shall be considered in a
proceeding in equity or at law.
(v) NO VIOLATION. The consummation of the transactions contemplated
by this Agreement and the fulfillment of the terms hereof shall not
conflict with, result in any breach of any of the terms and provisions of,
nor constitute (with or without notice or lapse of time) a default under,
the charter or by-laws of the Seller, or any indenture, agreement, or other
instrument to which the Seller is a party or by which it shall be bound;
nor result in the creation or imposition of any Lien upon any of its
properties pursuant to the terms of any such indenture, agreement, or other
instrument (other than this Agreement); nor violate any law or, to the best
of the Seller's knowledge, any order, rule, or regulation applicable to the
Seller of any court or of any federal or state regulatory body,
administrative agency, or other governmental instrumentality having
jurisdiction over the Seller or its properties.
(vi) NO PROCEEDINGS. There are no proceedings or investigations
pending or, to the Seller's best knowledge, threatened before any court,
regulatory body, administrative agency, or other governmental
instrumentality having jurisdiction over the Seller or its properties (A)
asserting the invalidity of this Agreement or the Certificates, (B) seeking
to prevent the issuance of the Certificates or the consummation of any of
the transactions contemplated by this
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Agreement, (C) seeking any determination or ruling that might materially
and adversely affect the performance by the Seller of its obligations
under, or the validity or enforceability of, this Agreement or the
Certificates, or (D) which might adversely affect the federal income tax
attributes of the Certificates.
(vii) NO CONSENT REQUIRED. The Seller is not required to obtain the
consent of any other Person or any consent, license, approval or
authorization of, or make any registration or declaration with, any
governmental authority or agency in connection with the execution, delivery
and performance of this Agreement (except as have been obtained), other
than as may be required under the Blue Sky laws of any state or the
Securities Act.
(viii) NO INSOLVENCY. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby were not made in
contemplation of the insolvency of the Seller or after the commission of
any act of insolvency by the Seller.
(ix) NOT AN INVESTMENT COMPANY. The Trust is not required to be
registered as an "investment company" under the Investment Company Act of
1940, as amended.
(x) OFFICIAL RECORD. This Agreement and all other documents related
hereto to which the Seller is a party have been approved by the Seller's
board of directors, which approval is reflected in the minutes of such
board, and shall continuously from the time of each such document's
execution, be maintained as an official record of the Seller.
SECTION 7.2. LIABILITY OF SELLER.
The Seller shall be liable in accordance herewith only to the extent
of the obligations specifically undertaken and the representations made by the
Seller under this Agreement.
SECTION 7.3. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE OBLIGATIONS
OF THE SELLER.
Any Person (a) into which the Seller may be merged or consolidated,
(b) which may result from any merger or consolidation to which the Seller shall
be a party, or (c) which may succeed to the properties and assets of the Seller
substantially as a whole, which Person in any of the foregoing cases executes an
agreement of assumption to perform every obligation of the Seller under this
Agreement, shall be the successor to the Seller hereunder without the execution
or filing of any document or any further act by any of the parties to this
Agreement; provided, further, that (x) the Seller shall have delivered to the
Trustee and the Certificate Insurer an Officers' Certificate and an Opinion of
Counsel each stating that such consolidation, merger, or succession and such
agreement of assumption comply with this Section 7.3, and (y) all conditions
precedent, if any, provided for in this Agreement relating to such merger,
consolidation or
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succession have been complied with. Notwithstanding the above, no such
transaction shall result in the Seller becoming subject to the provisions of the
United States Bankruptcy Code or similar laws of any State. The Seller or its
successor hereunder shall provide the Trustee, the Servicer, the Certificate
Insurer and the Rating Agencies with prompt notice of any such transaction.
SECTION 7.4. LIMITATION ON LIABILITY OF CERTAIN PERSONS OF SELLER.
No recourse under or upon any obligation or covenant of this
Agreement, or of any Certificate or for any claim based thereon or otherwise in
respect thereof, shall be had against any incorporator, shareholder, officer or
director as such, of the Seller or of any successor corporation, either directly
or through the Seller, whether by virtue of any constitution, statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise. This
Agreement and the obligations created hereunder are solely corporate
obligations, and no personal liability whatever shall attach to, or is or shall
be incurred by the incorporators, shareholders, officers or directors, as such,
of the Seller, or any of them, because of the issuance of the Certificates, or
under or by reason of the obligations, covenants or agreements contained in this
Agreement or in any of the Certificates or implied therefrom. Any and all such
personal liability, either at common law or in equity or by constitution or
statute, of, and any and all such rights and claims against, every such
incorporator, shareholder, officer or director, as such, because of the issuance
of the Certificates, or under or by reason of the obligations, covenants or
agreements contained in this Agreement or in any of the Certificates or implied
therefrom, are hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Agreement and the issuance of the
Certificates. The Seller and any director, officer, employee or agent of the
Seller may rely in good faith on any document of any kind prima facie properly
executed and submitted by any Person respecting any matters arising hereunder.
ARTICLE VII
THE SERVICER
SECTION 8.1. REPRESENTATIONS OF SERVICER.
The Servicer makes the following representations on which the Trustee
relies in accepting the Receivables in trust and executing and authenticating
the Certificates and upon which the Certificate Insurer relies in executing and
delivering the Certificate Insurance Policy. The representations speak as of
the Closing Date and shall survive the sale of the Receivables to the Trustee.
(a) DUE ORGANIZATION AND GOOD STANDING. The Servicer shall have been duly
organized and shall be validly existing as a federal savings bank in good
standing under the laws of the United States of America, with the corporate
power and
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authority to own its properties and to conduct its business as such properties
shall be currently owned and such business is presently conducted, and had at
all relevant times, and shall have, the corporate power and authority and legal
right to acquire, own, sell, and service the Receivables and to hold the
Receivable Files as custodian on behalf of the Trustee.
(b) DUE QUALIFICATION. The Servicer shall be duly qualified to do business
as a foreign corporation in good standing, and shall have obtained all necessary
licenses and approvals in all jurisdictions in which the ownership or lease of
property or the conduct of its business (including the servicing of the
Receivables as required by this Agreement) shall require such qualifications,
except where the failure to be so qualified or to have obtained such licenses or
approvals would not have a material adverse effect on the transactions
contemplated by this Agreement and would not render any Receivable unenforceable
by the Trustee on behalf of the Certificateholders and the Certificate Insurer.
(c) POWER AND AUTHORITY. The Servicer shall have the corporate power and
authority to execute and deliver this Agreement and to carry out its terms, and
the execution, delivery, and performance of this Agreement shall have been duly
authorized by the Servicer by all necessary corporate action.
(d) BINDING OBLIGATIONS. This Agreement shall constitute a legal, valid,
and binding obligation of the Servicer enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, or other similar laws affecting the enforcement of creditors' or
other obligees' rights in general or the rights of creditors or obligees of
federally chartered stock savings banks, the deposits of which are insured by
the Federal Deposit Insurance Corporation, and by general principles of equity,
regardless of whether such enforceability shall be considered in a proceeding in
equity or at law.
(e) NO VIOLATION. The consummation of the transactions contemplated by
this Agreement and the fulfillment of the terms hereof shall not conflict with,
result in any breach of any of the terms and provisions of, nor constitute (with
or without notice or lapse of time) a default under, the charter or by-laws of
the Servicer, or any indenture, agreement, or other instrument to which the
Servicer is a party or by which it shall be bound; nor result in the creation or
imposition of any Lien upon any of its properties pursuant to the terms of any
such indenture, agreement, or other instrument (other than this Agreement); nor
violate any law or, to the best of the Servicer's knowledge any order, rule, or
regulation applicable to the Servicer of any court or of any federal or State
regulatory body, administrative agency, or other governmental instrumentality
having jurisdiction over the Servicer or its properties.
(f) NO PROCEEDINGS. There are no proceedings or investigations pending or,
to the Servicer's best knowledge, threatened before any court, regulatory body,
administrative agency, or other governmental instrumentality having jurisdiction
over the Servicer or its properties (A) asserting the invalidity of this
Agreement or the Certificates, (B) seeking to prevent the issuance of the
Certificates or the consummation of any of the
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transactions contemplated by this Agreement, (C) seeking any determination or
ruling that might materially and adversely affect the performance by the
Servicer of its obligations under, or the validity or enforceability of, this
Agreement or the Certificates, or (D) which might adversely affect the federal
income tax attributes of the Certificates.
SECTION 8.2. LIABILITIES OF SERVICER, INDEMNITIES.
(a) The Servicer shall be liable in accordance herewith only to the extent
of the obligations specifically undertaken and the representations made by the
Servicer under this Agreement, including its duties as custodian of the
Receivable Files.
(i) The Servicer, except as set forth in this Section 8.2, shall
not be under any liability to the Trust or the Certificateholders for
taking any action or for refraining from taking any action pursuant to this
Agreement, or for errors in judgment; provided, however, that this
provision shall not protect the Servicer against any liability which would
otherwise be imposed upon the Servicer by reason of its willful
misfeasance, bad faith or negligence in the performance of its duties or by
reason of its reckless disregard of its obligations and duties as Servicer
hereunder.
(ii) The Servicer shall indemnify, defend, and hold harmless the
Trustee, its officers, directors, agents and employees, the Trust, the
Certificateholders and the Certificate Insurer 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 the Servicer or any
affiliate thereof of a Financed Vehicle; provided, that the Servicer shall
have no obligation to indemnify any Person against any credit losses on any
Receivable serviced by the Servicer in accordance with the requirements of
this Agreement.
(iii) The Servicer shall indemnify, defend and hold harmless the
Trust, the Trustee and its officers, directors, employees and agents and
the Certificate Insurer from and against any loss, liability, expense,
damage or injury, including any judgment, award, settlement and other costs
or expenses incurred in connection with the defense of any action,
proceeding or claim, to the extent such loss, liability, expense, damage or
injury arose out of, or was imposed upon such persons through, the willful
misfeasance, bad faith or negligence of the Servicer in the performance of
its duties or by reason of its reckless disregard of its obligations and
duties as Servicer hereunder.
(iv) The initial Servicer shall indemnify, defend and hold harmless
the Trustee, its officers, directors, employees and agents from and against
any loss, liability or expense incurred without negligence or bad faith on
the part of the Trustee or its officers, directors, employees or agents and
arising out of or in connection with the acceptance or administration by
the Trustee of this Trust, as applicable, including the costs and expenses
of defending itself against any claim or liability in connection with the
exercise or performance of any of the Trustee's powers or duties hereunder.
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(v) The Servicer shall defend, indemnify and hold harmless the
Trust and the Trustee, its respective officers, directors, agents and
employees, the Certificate Insurer and the Certificateholders from and
against any taxes that may at any time be asserted against the Trust, the
Trustee, the Certificate Insurer or the Certificateholders with respect to
the transactions contemplated in this Agreement, including, without
limitation, any sales, gross receipts, general corporation, tangible
personal property, privilege or license taxes (but not including any
personal property taxes asserted with respect to ownership of the
Receivables, or federal or other income taxes arising out of distributions
on the Certificates) and costs and expenses in defending against the same.
Indemnification under this Section 8.2 shall include reasonable fees
and expenses of counsel and expenses of litigation.
Within a reasonable period after receipt by the Trustee, the Trust,
the Certificate Insurer or the Certificateholders of notice of the commencement
of any action with respect to which indemnification is sought under this Section
8.2, such party shall notify the Servicer in writing of the commencement
thereof. In case any such action shall be brought, the Servicer shall be
entitled to participate in and, to the extent that it shall wish, to assume the
defense thereof, with counsel satisfactory to such indemnified party, and after
notice from the Servicer to the indemnified party of its election so to assume
the defense thereof, the Servicer shall not be liable to such indemnified party
for any legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation.
The Servicer shall not be liable for any settlement of any litigation
or proceeding effected without the written consent of the Servicer (which shall
not be unreasonably withheld). The indemnified party shall not, without the
Servicer's written consent (which shall not be unreasonably withheld), settle or
compromise any claim or consent to entry of any judgment which would impose an
injunction or other equitable relief on the Servicer or which does not include
as an unconditional term thereof the release by the claimant or the plaintiff of
the Servicer from all liability in respect of such claim.
The rights to indemnification under this Section 8.2 shall survive the
termination, resignation or removal of the Servicer with respect to acts and
omissions to act of the Servicer giving rise to such rights and occurring prior
to such termination, resignation or removal. In addition, the rights to
indemnification under this Section 8.2 shall survive the termination of the
Trust.
SECTION 8.3. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE OBLIGATIONS
OF THE SERVICER.
Any Person (a) into which the Servicer may be merged or consolidated,
(b) which may result from any merger or consolidation to which the Servicer
shall be a party, or (c) which may succeed to the properties and assets of the
Servicer substantially as a whole, which Person in any of the foregoing cases
executes an agreement of
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assumption to perform every obligation of the Servicer hereunder, shall be the
successor to the Servicer 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; provided, however, that (x) the Servicer shall have delivered to the
Trustee and the Certificate Insurer an Officers' Certificate and an Opinion of
Counsel each stating that such consolidation, merger or succession and such
agreement of assumption comply with this Section 8.3 and (y) all conditions
precedent, if any, provided for in this Agreement relating to such merger,
consolidation or succession have been complied with. The Servicer or its
successor hereunder shall provide the Trustee, the Seller, the Certificate
Insurer and the Rating Agencies with prompt notice of any such transaction.
SECTION 8.4. LIMITATION ON LIABILITY OF CERTAIN PERSONS OF SERVICER.
No recourse under or upon any obligation or covenant of this
Agreement, or of any Certificate or for any claim based thereon or otherwise in
respect thereof, shall be had against any incorporator, shareholder, officer or
director as such, of the Servicer or of any successor corporation, either
directly or through the Servicer, whether by virtue of any constitution, statute
or rule of law, or by the enforcement of any assessment or penalty or otherwise.
This Agreement and the obligations created hereunder are solely corporate
obligations, and no personal liability whatever shall attach to, or is or shall
be incurred by the incorporators, shareholders, officers or directors, as such,
of the Servicer, or any of them, because of the issuance of the Certificates, or
under or by reason of the obligations, covenants or agreements contained in this
Agreement or in any of the Certificates or implied therefrom. Any and all such
personal liability, either at common law or in equity or by constitution or
statute, of, and any and all such rights and claims against, every such
incorporator, shareholder, officer or director, as such, because of the issuance
of the Certificates, or under or by reason of the obligations, covenants or
agreements contained in this Agreement or in any of the Certificates or implied
therefrom, are hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Agreement and the issuance of the
Certificates. The Servicer and any director, officer, employee or agent of the
Servicer may rely in good faith on any document of any kind prima facie properly
executed and submitted by any Person respecting any matters arising hereunder.
Except as provided in this Agreement, the Servicer shall not be under
any obligation to appear in, prosecute, or defend any legal action that shall
not be incidental to its duties to service the Receivables in accordance with
this Agreement (collection actions with respect to Defaulted Receivables are
understood to be incidental to the Servicer's duties to service the
Receivables), and that in its opinion may involve it in any expense or
liability.
SECTION 8.5. SERVICER NOT TO RESIGN.
The Servicer shall not resign from its obligations and duties under
this Agreement except upon determination that the performance of its duties
shall no longer
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be permissible under applicable law (any such determination permitting the
resignation of the Servicer shall be evidenced by an Opinion of Counsel to such
effect delivered to the Trustee and the Certificate Insurer). Notice of any such
determination permitting the resignation of the Servicer, shall be communicated
to the Trustee, the Certificate Insurer and the Rating Agencies at the earliest
practicable time and any such determination permitting the resignation of the
Servicer shall be evidenced by an Opinion of Counsel to such effect delivered to
the Trustee concurrently with such notice. No such resignation shall become
effective until the Trustee or other successor Servicer shall have assumed the
responsibilities and obligations of the Servicer in accordance with Section 9.2.
SECTION 8.6. DELEGATION OF DUTIES
The Servicer may at any time delegate any duties hereunder to any
Person, including, without limitation, the Sub-Servicer, who agrees to conduct
such duties in accordance with this Agreement; provided, however, that the
Servicer may not delegate its duties as custodian except (i) with the consent of
the Certificate Insurer, or (ii) as provided in Sections 3.3 and 3.4 of this
Agreement. Such delegation shall not relieve the Servicer of its
responsibilities and liabilities with respect to such duties, and shall not
constitute a resignation within the meaning of Section 8.5.
ARTICLE IX
DEFAULT
SECTION 9.1. SERVICER DEFAULT.
If any one of the following events ("Servicer Default") shall occur
and be continuing:
(i) any failure by the Servicer to deliver to the Trustee on or
prior to the Determination Date the Servicer's Certificate for the related
Collection Period or to deliver to the Trustee for distribution to the
Certificateholders any proceeds or payment required to be so delivered
under the terms of the Certificates and this Agreement that shall continue
unremedied for a period of more than three Business Days after written
notice from (x) the Trustee or the Holders of Certificates evidencing not
less than 25% of the Certificate Principal Balance, which notice, in either
case, shall be consented to by the Certificate Insurer, or (y) the
Certificate Insurer is received by the Servicer as specified in this
Agreement; or
(ii) any failure on the part of the Servicer or the Seller duly to
observe or to perform in any material respect any other covenants or
agreements of the Servicer or the Seller, as the case may be, set forth in
the Certificates or in this Agreement, which failure shall (a) materially
and adversely affect the rights of the Certificateholders (determined
without regard to the availability of the Certificate
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Insurance Policy) and (b) continue unremedied for a period of more than 30
days after the date on which written notice of such failure, requiring the
same to be remedied, shall have been given (x) to the Servicer or the
Seller, as the case may be, by the Trustee (which notice is consented to by
the Certificate Insurer), or (y) to the Servicer or the Seller, as the case
may be, and to the Trustee by the Holders of Certificates evidencing not
less than 25% of the Certificate Principal Balance (which notice shall be
consented to by the Certificate Insurer), or (z) to the Servicer or the
Seller, as the case may be, by the Certificate Insurer; or
(iii) the entry of a decree or order by a court or agency or
supervisory authority having jurisdiction in the premises for the
appointment of a conservator, receiver, or liquidator for the Servicer in
any insolvency, readjustment of debt, marshaling of assets and liabilities,
or similar proceedings, or for the winding up or liquidation of its
affairs, and the continuance of any such decree or order unstayed and in
effect for a period of 60 consecutive days; or
(iv) the consent by the Servicer to the appointment of a conservator
or receiver or liquidator in any insolvency, readjustment of debt,
marshaling of assets and liabilities, or similar proceedings of or relating
to the Servicer or of or relating to substantially all of its property; or
the admission by the Servicer in writing of its inability to pay its debts
generally as they become due, the filing by the Servicer of a petition to
take advantage of any applicable insolvency or reorganization statute, the
making by the Servicer of an assignment for the benefit of its creditors,
or the voluntary suspension by the Servicer of payment of its obligations;
then, and in each and every case, so long as a Servicer Default shall not have
been remedied, (x) the Trustee or the Holders of Certificates evidencing more
than 50% of the Certificate Principal Balance, in either case with the consent
of the Certificate Insurer or (y) the Certificate Insurer, by notice then given
in writing to the Servicer (and to the Trustee if given by the Certificate
Insurer or the Certificateholders), may terminate all of the rights and
obligations of the Servicer under this Agreement.
On or after the receipt by the Servicer of such written notice, all authority
and power of the Servicer under this Agreement, whether with respect to the
Certificates or the Receivables or otherwise, shall, without further action,
pass to and be vested in the Trustee or such successor Servicer as may be
appointed under Section 9.2 pursuant to and under this Section 9.1; and, without
limitation, the Servicer, the Trustee or such other successor Servicer, as the
case may be, is hereby authorized and empowered to execute and deliver, on
behalf of the predecessor Servicer, as attorney-in-fact or otherwise, any and
all documents and other instruments, and to do or accomplish all other acts or
things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement of the Receivables
and related documents, or otherwise; provided, however, that the Trustee or any
successor Servicer shall not be liable for any acts, omissions or obligations of
the Servicer prior to such succession. The predecessor Servicer shall cooperate
with the successor Servicer and the Trustee in effecting the termination of the
responsibilities and rights of the predecessor Servicer
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under this Agreement, including the transfer to the successor Servicer of
electronic records related to the Receivables in such form as the successor
Servicer may reasonably request and the transfer to the successor Servicer for
administration by it of all cash amounts that shall at the time be held by the
predecessor Servicer for deposit, or shall thereafter be received with respect
to a Receivable. The Trustee shall give the Rating Agencies and the Certificate
Insurer notice of any termination of the Servicer pursuant to the terms of this
Section 9.1.
SECTION 9.2. APPOINTMENT OF SUCCESSOR
(a) Upon the Servicer's receipt of notice of termination pursuant to
Section 9.1 or the Servicer's resignation in accordance with the terms of this
Agreement, the predecessor Servicer shall continue to perform its functions as
Servicer under this Agreement, in the case of termination, only until the date
specified in such termination notice or, if no such date is specified in a
notice of termination, until receipt of such notice and, in the case of
resignation, until the later of (x) the date 45 days from the delivery to the
Trustee and the Certificate Insurer of written notice of such resignation (or
written confirmation of such notice) in accordance with the terms of this
Agreement and (y) the date upon which the predecessor Servicer shall become
unable to act as Servicer, as specified in the notice of resignation and
accompanying Opinion of Counsel. In the event of the Servicer's resignation or
termination hereunder, the Trustee shall, with the consent of the Certificate
Insurer, appoint a successor Servicer acceptable to the Certificate Insurer, and
the successor Servicer shall accept its appointment by a written assumption in
form acceptable to the Trustee. In the event that a successor Servicer has not
been appointed at the time when the predecessor Servicer has ceased to act as
Servicer in accordance with this Section 9.2, the Trustee without further action
shall automatically be appointed the successor Servicer; provided, however, that
the Trustee shall not be liable for any acts, omissions or obligations of the
Servicer prior to such succession. Notwithstanding the above, the Trustee shall,
if it shall be legally unable so to act, appoint, or petition a court of
competent jurisdiction to appoint, any established financial institution
reasonably acceptable to the Certificate Insurer, having a net worth of not less
than $50,000,000 and whose regular business shall include the servicing of
automotive receivables, as the successor to the Servicer under this Agreement.
(b) Upon appointment, the successor Servicer shall be the successor in all
respects to the predecessor Servicer and shall be subject to all the
responsibilities, duties, and liabilities arising thereafter relating thereto
placed on the predecessor Servicer, and shall be entitled to all of the rights
granted to the predecessor Servicer, by the terms and provisions of this
Agreement.
(c) In connection with such appointment, the Trustee may make such
arrangements for the compensation of a successor Servicer out of payments on
Receivables as it and such successor Servicer shall agree; provided, however,
that no such compensation shall be in excess of that permitted the original
Servicer under this Agreement. The Trustee and such successor Servicer shall
take such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession.
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The Servicer shall cooperate with the successor Servicer in effecting
the transfer of the rights and responsibilities of the Servicer under this
Agreement.
SECTION 9.3. NOTIFICATION TO CERTIFICATEHOLDERS.
Upon any notice of a Servicer Default or upon any termination of, or
appointment of a successor to, the Servicer pursuant to this Article IX, the
Trustee shall give prompt written notice thereof to Certificateholders at their
respective addresses appearing in the Certificate Register, to the Rating
Agencies and to the Certificate Insurer.
SECTION 9.4. WAIVER OF PAST DEFAULTS.
The Certificate Insurer or, provided they have obtained the prior
consent of the Certificate Insurer, the Majority Certificateholders, on behalf
of all Holders of Certificates, may waive any default by the Servicer or the
Seller in the performance of its obligations hereunder and its consequences,
except a default in making any required deposits to or payments from the
Certificate Account in accordance with this Agreement. Upon any such waiver of
a past default, such default shall cease to exist, and any Servicer Default
arising therefrom shall be deemed to have been remedied for every purpose of
this Agreement. No such waiver shall extend to any subsequent or other default
or impair any right consequent thereon.
SECTION 9.5. EFFECT OF SERVICER DEFAULT ON SUB-SERVICER.
Any removal of the Servicer pursuant to this Article IX shall ipso
facto constitute a removal of the Sub-Servicer.
ARTICLE X
THE TRUSTEE
SECTION 10.1 DUTIES OF TRUSTEE.
The Trustee, both prior to and after the occurrence of a Servicer
Default, shall undertake to perform such duties as are specifically set forth in
this Agreement. If a Servicer Default shall have occurred and shall not have
been cured, the Trustee shall exercise such of the rights and powers vested in
it by this Agreement, and shall use the same degree of care and skill in their
exercise, as a prudent man or woman would exercise or use under the
circumstances in the conduct of his or her own affairs; provided, however, that
if the Trustee shall assume the duties of the Servicer pursuant to Section 9.2,
the Trustee in performing such duties shall use the degree of skill and
attention customarily exercised by a servicer with respect to automobile
receivables that it services for itself or others.
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The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee that shall be specifically required to be furnished pursuant to
any provision of this Agreement, shall examine them to determine whether they
conform as to form to the requirements of this Agreement.
No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own bad faith; provided, however, that:
(i) prior to the occurrence of a Servicer Default, and after the
curing of all such Servicer Defaults that may have occurred, the duties and
obligations of the Trustee shall be determined solely by the express
provisions of this Agreement, the Trustee shall not be liable except for
the performance of such duties and obligations as shall be specifically set
forth in this Agreement, no implied covenants or obligations shall be read
into this Agreement against the Trustee and, in the absence of bad faith on
the part of the Trustee, or manifest error, the Trustee may conclusively
rely on the truth of the statements and the correctness of the opinions
expressed in any certificates or opinions furnished to the Trustee and
conforming to the requirements of this Agreement;
(ii) the Trustee shall not be liable for an error of judgment made
in good faith by a Responsible Officer, unless it shall be proved that the
Trustee shall have been negligent in ascertaining the pertinent facts;
(iii) the Trustee shall not be liable with respect to any action
taken, suffered, or omitted to be taken in good faith in accordance with
this Agreement or at the direction of the Certificate Insurer or the
Holders of Certificates evidencing not less than 25% of the Certificate
Principal Balance with the consent of the Certificate Insurer relating to
the time, method, and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred upon
the Trustee, under this Agreement;
(iv) the Trustee shall not be charged with knowledge of any failure
by the Servicer to comply with the obligations of the Servicer referred to
in clause (i) or (ii) of Section 9.1, or of any failure by the Seller to
comply with the obligations of the Seller referred to in clause (ii) of
Section 9.1, unless a Responsible Officer of the Trustee has actual
knowledge or receives written notice of such failure (it being understood
that knowledge of the Servicer or the Servicer as custodian, in its
capacity as agent for the Trustee, is not attributable to the Trustee) from
the Servicer, the Seller or the Certificate Insurer, as the case may be, or
the Holders of Certificates evidencing not less than 25% of the Certificate
Principal Balance; and
(v) without limiting the generality of this Section or Section
10.4, the Trustee shall have no duty (i) to see to any recording, filing,
or depositing of this Agreement or any agreement referred to herein or any
financing statement evidencing a security interest in the Receivables or
the Financed Vehicles, or to
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see to the maintenance of any such recording or filing or depositing or to
any rerecording, refiling or redepositing of any thereof, (ii) to see to
any insurance of the Financed Vehicles or Obligors or to effect or maintain
any such insurance, (iii) to see to the payment or discharge of any tax,
assessment, or other governmental charge or any Lien or encumbrance of any
kind owing with respect to, or assessed or levied against, any part of the
Trust, (iv) to confirm or verify the contents of any reports or
certificates of the Servicer delivered to the Trustee pursuant to this
Agreement believed by the Trustee to be genuine and to have been signed or
presented by the proper party or parties, or (v) to inspect the Financed
Vehicles at any time or ascertain or inquire as to the performance or
observance of any of the Seller's or the Servicer's representations,
warranties or covenants or the Servicer's duties and obligations as
Servicer and as custodian of the Receivable Files under this Agreement.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if there shall be
reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability shall not be reasonably assured to it,
and none of the provisions contained in this Agreement shall in any event
require the Trustee to perform, or be responsible for the manner of performance
of, any of the obligations of the Servicer under this Agreement except during
such time, if any, as the Trustee shall be the successor to, and be vested with
the rights, duties, powers, and privileges of, the Servicer in accordance with
the terms of this Agreement.
SECTION 10.2 TRUSTEE'S CERTIFICATE'.
On or as soon as practicable after each Distribution Date on which
Receivables shall be (i) assigned to the Seller pursuant to Section 3.2 or 11.2
or (ii) assigned to the Servicer pursuant to Section 4.2 or 4.7, the Trustee
shall execute a Trustee's Certificate, substantially in the form of, in the case
of an assignment to the Seller, Exhibit C, or, in the case of an assignment to
the Servicer, Exhibit D, based on the information contained in the Servicer's
Certificate for the related Collection Period, amounts deposited to the
Certificate Account, and notices received pursuant to this Agreement,
identifying the Receivables repurchased by the Seller pursuant to Section 3.2 or
11.2 or purchased by the Servicer pursuant to Section 4.2 or 4.7 with respect to
such Collection Period, and shall deliver such Trustee's Certificate,
accompanied by a copy of the Servicer's Certificate for such Collection Period
to the Seller or the Servicer, as the case may be, with a copy to the
Certificate Insurer. The Trustee's Certificate shall be an assignment pursuant
to Section 10.3.
SECTION 10.3. TRUSTEE'S ASSIGNMENT OF PURCHASED RECEIVABLES.
With respect to each Receivable repurchased by the Seller pursuant to
Section 3.2 or 11.2 or purchased by the Servicer pursuant to Section 4.2 or 4.7,
the
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Trustee shall assign, on the day on which the Trustee receives payment for such
Receivable, effective as of the last day of the Collection Period during which
such Receivable became subject to repurchase by the Seller or purchase by the
Servicer, without recourse, representation, or warranty, to the Seller or the
Servicer (as the case may be) all the Trustee's right, title, and interest in
and to such Receivables, and all security and documents relating thereto, and
all proceeds thereof, such assignment being an assignment outright and not for
security. If in any enforcement suit or legal proceeding it shall be held that
the Servicer may not enforce a Receivable on the ground that it shall not be a
real party in interest or a holder entitled to enforce the Receivable, the
Trustee shall, at the Servicer's expense, take such steps as the Trustee deems
necessary to enforce the Receivable, including bringing suit in its name or the
name of the Certificateholders.
SECTION 10.4 CERTAIN MATTERS AFFECTING THE TRUSTEE.
Except as otherwise provided in Section 10.1:
(i) The Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate,
Servicer's Certificate, certificate of auditors, or any other certificate,
statement, instrument, opinion, report, notice, request, consent, order,
appraisal, bond, or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties.
(ii) The Trustee may consult with counsel and any Opinion of Counsel
shall be full and complete authorization and protection in respect of any
action taken or suffered or omitted by it under this Agreement in good
faith and in accordance with such Opinion of Counsel.
(iii) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement, or to institute, conduct,
or defend any litigation under this Agreement or in relation to this
Agreement, at the request, order, or direction of any of the
Certificateholders pursuant to the provisions of this Agreement, unless
such Certificateholders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses, and liabilities that may
be incurred therein or thereby; nothing contained in this Agreement,
however, shall relieve the Trustee of the obligations, upon the occurrence
of a Servicer Default (that shall not have been cured), to exercise such of
the rights and powers vested in it by this Agreement, and to use the same
degree of care and skill in their exercise as a prudent man or woman would
exercise or use under the circumstances in the conduct of his or her own
affairs.
(iv) The Trustee shall not be liable for any action taken, suffered,
or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this
Agreement.
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(v) Prior to the occurrence of a Servicer Default and after the
curing of all Servicer Defaults that may have occurred, the Trustee shall
not be bound to make any investigation into the facts or matters stated in
any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, approval, bond, or other paper or
document, unless requested in writing to do so by the Holders of
Certificates evidencing not less than 25% of the Certificate Principal
Balance or the Certificate Insurer; provided, however, that if the payment
within a reasonable time to the Trustee of the costs, expenses, or
liabilities likely to be incurred by it in the making of such investigation
shall be, in the opinion of the Trustee, not reasonably assured to the
Trustee by the security afforded to it by the terms of this Agreement, the
Trustee may require reasonable indemnity against such cost, expense, or
liability as a condition to so proceeding. Nothing in this clause (v) shall
affect the obligation of the Servicer to observe any applicable law
prohibiting disclosure of information regarding the Obligors.
(vi) The Trustee may execute any of the trusts or powers hereunder
or perform any duties under this Agreement either directly or by or through
agents or attorneys or a custodian and shall not be liable for the
negligence of any such agents, attorneys or custodians appointed with due
care. The Trustee shall not be responsible for any misconduct or negligence
solely attributable to the acts or omissions of the Servicer in its
capacity as Servicer or custodian.
(vii) Subsequent to the sale of the Receivables by the Seller to the
Trustee, the Trustee shall have no duty of independent inquiry, except as
may be required by Section 10.1, and the Trustee may rely upon the
representations and warranties and covenants of the Seller and the Servicer
contained in this Agreement with respect to the Receivables and the
Receivable Files.
SECTION 10.5. TRUSTEE NOT LIABLE FOR CERTIFICATES OR RECEIVABLES.
The recitals contained herein and in the Certificates (other than the
certificate of authentication on the Certificates) shall be taken as the
statements of the Seller or the Servicer, as the case may be, and the Trustee
assumes no responsibility for the correctness thereof. The Trustee shall make
no representations as to the validity or sufficiency of this Agreement or of the
Certificates (other than the certificate of authentication on the Certificates),
or of any Receivable or related document. The Trustee shall at no time 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
efficacy of the Trust or its ability to generate the payments to be distributed
to Certificateholders under this Agreement, including, without limitation, the
existence, condition, location, and ownership of any Financed Vehicle; the
existence and enforceability of any physical damage insurance, theft insurance,
vendor's single interest insurance, or credit life or disability and
hospitalization insurance with respect to any Receivable; the existence and
contents of any Receivable or any computer or other record thereof; the validity
of the
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assignment of any Receivable to the Trust or of any intervening assignment; the
completeness of any Receivable; the performance or enforcement of any
Receivable; the compliance by the Seller or the Servicer with any warranty or
representation made under this Agreement or in any related document and the
accuracy of any such warranty or representation prior to the Trustee's receipt
of notice or other discovery of any noncompliance therewith or any breach
thereof; any investment of monies by the Servicer or any loss resulting
therefrom other than investments in obligations of or guaranteed by the Trustee
(it being understood that the Trustee shall remain responsible for any Trust
property that it may hold); the acts or omissions of the Seller, the Servicer,
or any Obligor; any action of the Servicer taken in the name of the Trustee; or
any action by the Trustee taken at the instruction of the Servicer; provided,
however, that the foregoing shall not relieve the Trustee of its obligation to
perform its duties under this Agreement. Except with respect to a claim based on
the failure of the Trustee to perform its duties under this Agreement or based
on the Trustee's negligence or willful misconduct, no recourse shall be had for
any claim based on any provision of this Agreement, the Certificates, or any
Receivable or assignment thereof against the Trustee in its individual capacity,
the Trustee shall not have any personal obligation, liability, or duty
whatsoever to any Certificateholder or any other Person with respect to any such
claim, and any such claim shall be asserted solely against the Trust or any
indemnitor who shall furnish indemnity as provided in this Agreement. The
Trustee shall not be accountable for the use or application by the Seller of any
of the Certificates or of the proceeds of such Certificates, or for the use or
application of any funds paid to the Seller or the Servicer in respect of the
Receivables. The Trustee shall not be responsible for any statement in any
document prepared, executed or delivered in connection with the sale and
issuance of the Certificates other than any such document prepared, executed or
delivered by the Trustee in connection therewith on the Closing Date.
SECTION 10.6 TRUSTEE MAY OWN CERTIFICATES.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Certificates with the same rights as it would have if it
were not Trustee.
SECTION 10.7. TRUSTEE'S FEES.
The Trustee's fee for a Collection Period shall equal the Monthly
Trustee's Fee. The Monthly Trustee's Fee will be paid from the funds of the
Trust in accordance with Section 5.4.
SECTION 10.8. ELIGIBILITY REQUIREMENTS FOR TRUSTEE.
The Trustee under this Agreement shall at all times be a corporation
having an office in the same State as the location of the Corporate Trust Office
as specified in this Agreement, or another state of the United States of America
or the District of Columbia; and organized and doing business under the laws of
such State, district or the United States of America; authorized under such laws
to exercise corporate trust powers; having a combined capital and surplus of at
least $50,000,000 and subject to
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supervision or examination by federal or State authorities; having a rating of
its long-term debt obligations by Moody's of no less than Baa3; and reasonably
satisfactory to the Certificate Insurer. 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 10.8, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. In case at any time the Trustee shall cease to
be eligible in accordance with the provisions of this Section 10.8, the Trustee
shall resign immediately in the manner and with the effect specified in Section
10.9.
SECTION 10.9. RESIGNATION OR REMOVAL OF TRUSTEE.
The Trustee may at any time resign and be discharged from the trusts
hereby created by giving written notice thereof to the Servicer and the
Certificate Insurer. Upon receiving such notice of resignation, the Servicer
shall, with the consent of the Certificate Insurer, promptly appoint a successor
Trustee by written instrument, in duplicate, one copy of which instrument shall
be delivered to the resigning Trustee and one copy to the successor Trustee. If
no successor Trustee shall have been so appointed and have accepted appointment
within 30 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment of
a successor Trustee.
If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 10.8 and shall fail to resign after written
request therefor by the Servicer or the Certificate Insurer, or if at any time
the Trustee shall be legally unable to act, or shall be adjudged a bankrupt or
insolvent, or a receiver of the Trustee or of its property shall be appointed,
or any public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation, or
liquidation, then the Servicer or the Certificate Insurer may remove the
Trustee. If it shall remove the Trustee under the authority of the immediately
preceding sentence, the Servicer shall promptly appoint a successor Trustee that
meets the eligibility requirements of Section 10.8 by written instrument, in
duplicate, one copy of which instrument shall be delivered to the Trustee so
removed and one copy to the successor Trustee.
Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section 10.9 shall
not become effective without the consent of the Certificate Insurer and until
acceptance of appointment by the successor Trustee pursuant to Section 10.10.
SECTION 10.10. SUCCESSOR TRUSTEE.
Any successor Trustee appointed pursuant to Section 10.9 shall
execute, acknowledge, and deliver to the Servicer and to its predecessor Trustee
an instrument accepting such appointment under this Agreement, and thereupon the
resignation or removal of the predecessor Trustee shall become effective and
such successor Trustee,
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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 Trustee. The predecessor
Trustee shall deliver to the successor Trustee all documents and statements held
by it under this Agreement; and the Servicer and the predecessor Trustee shall
execute and deliver such instruments and do such other things as may reasonably
be required for fully and certainly vesting and confirming in the successor
Trustee all such rights, powers, duties, and obligations.
No successor Trustee shall accept appointment as provided in this
Section 10.10 unless at the time of such acceptance such successor Trustee shall
be eligible pursuant to Section 10.8.
Upon acceptance of appointment by a successor Trustee pursuant to this
Section 10.10, the Servicer shall mail notice of the successor of such Trustee
under this Agreement to all Holders of Certificates at their addresses as shown
in the Certificate Register, to the Certificate Insurer and to the Rating
Agencies. If the Servicer shall fail to mail such notice within 10 days after
acceptance of appointment by the successor Trustee, the successor Trustee shall
cause such notice to be mailed at the expense of the Servicer.
SECTION 10.11. MERGER OR CONSOLIDATION OF TRUSTEE.
Any corporation into which the 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 Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be eligible pursuant to Section 10.8, without
the execution or filing of any instrument or any further act on the part of any
of the parties hereto, anything herein to the contrary notwithstanding. The
Trustee or its successor hereunder shall provide the Servicer, the Certificate
Insurer and the Rating Agencies with prompt notice of any such transaction.
SECTION 10.12. 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 or any Financed Vehicle may at the time be located, the
Servicer and the Trustee with the consent of the Certificate Insurer acting
jointly shall have the power and shall execute and deliver all instruments to
appoint one or more Persons approved by the Trustee to act as co-trustee,
jointly with the Trustee, or separate trustee or separate trustees, of all or
any part of the Trust, and to vest in such Person, in such capacity and for the
benefit of the Certificateholders and the Certificate Insurer, such title to the
Trust, or any part thereof, and, subject to the other provisions of this Section
10.12, such powers, duties, obligations, rights, and trusts as the Servicer and
the Trustee may consider necessary or desirable. If the Servicer shall not have
joined in such appointment within 15 days after the receipt by it of a request
so to do, or in the case a Servicer Default shall
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have occurred and be continuing, the Trustee alone shall have the power to make
such appointment. No co-trustee or separate trustee under this Agreement shall
be required to meet the terms of eligibility as a successor Trustee pursuant to
Section 10.8 and no notice to Certificateholders of the appointment of any co-
trustee or separate trustee shall be required pursuant to Section 10.10.
Each separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(A) all rights, powers, duties, and obligations conferred or
imposed upon the Trustee shall be conferred upon and
exercised or performed by the Trustee and such separate
trustee or co-trustee jointly (it being understood that such
separate trustee or co-trustee is not authorized to act
separately without the Trustee joining in such act), except
to the extent that under any law of any jurisdiction in
which any particular act or acts are to be performed
(whether as Trustee under this Agreement or as successor to
the Servicer under this Agreement), the Trustee shall be
incompetent or unqualified to perform such act or acts, in
which event such rights, powers, duties, and obligations
(including the holding of title to the Trust 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;
(B) no trustee under this Agreement shall be personally liable
by reason of any act or omission of any other trustee under
this Agreement; and
(C) the Servicer, the Trustee and the Certificate Insurer acting
jointly may at any time accept the resignation of or remove
any separate trustee or co-trustee.
Any notice, request, or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article X. 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 Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Each
such instrument shall be filed with the Trustee and a copy thereof given to the
Servicer and the Certificate Insurer.
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Any separate trustee or co-trustee may at any time appoint the
Trustee, its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign, or be removed, all of its
estates, properties, rights, remedies, and trusts shall vest in and be exercised
by the Trustee, to the extent permitted by law, without the appointment of a new
or successor trustee.
SECTION 10.13. REPRESENTATIONS AND WARRANTIES OF
TRUSTEE.
The Trustee shall make the following representations and warranties on
which the Seller, the Certificate Insurer and Certificateholders may rely:
(A) DUE ORGANIZATION AND GOOD STANDING. The Trustee is a
national banking association duly organized, validly
existing, and in good standing under the laws of the United
States of America.
(B) POWER AND AUTHORITY. The Trustee has full power, authority,
and legal right to execute, deliver, and perform this
Agreement, and shall have taken all necessary action to
authorize the execution, delivery, and performance by it of
this Agreement.
(C) NO VIOLATION. The execution, delivery, and performance by
the Trustee of this Agreement shall not violate any
provision of any law governing the banking and trust powers
of the Trustee or, to the best of the Trustee's knowledge,
any order, writ, judgment, or decree of any court,
arbitrator, or governmental authority applicable to the
Trustee or any of its assets.
(D) NO PROCEEDINGS. The execution, delivery, and performance by
the Trustee of this Agreement shall not require the
authorization, consent, or approval of, the giving of notice
to, the filing or registration with, or the taking of any
other action in respect of any governmental authority or
agency regulating the banking and corporate trust activities
of the Trustee.
(E) DULY EXECUTED. This Agreement shall have been duly executed
and delivered by the Trustee and shall constitute the legal,
valid, and binding agreement of the Trustee, enforceable in
accordance with its terms.
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(F) SECURITIES INTERMEDIARY. The Trustee is a securities
intermediary as defined under Article 8 of the Minnesota
Uniform Commercial Code.
SECTION 10.14. TAX RETURNS.
The Servicer shall prepare or shall cause to be prepared any tax
returns required to be filed by the Trust and the Trustee shall promptly sign
and file such returns. In no event shall the Trustee be liable for any
liabilities, costs or expenses of the Trust or the Certificateholders under any
tax law, including without limitation federal, state or local income or excise
taxes or any other tax imposed on or measured by income (or any interest or
penalty with respect thereto or arising from a failure to comply therewith).
ARTICLE XI
TERMINATION
SECTION 11.1. TERMINATION OF THE TRUST.
The respective obligations and responsibilities of the Seller, the
Servicer, and the Trustee created hereby and the Trust created by this Agreement
shall terminate upon the earlier of (i) the maturity or other liquidation of the
last Receivable in accordance with the terms hereof and the disposition of any
amounts received upon liquidation of any remaining Receivables in the Trust in
accordance with the terms hereof, including the purchase as of the last day of
any Collection Period by the Seller at its option, pursuant to Section 11.2, of
the corpus of the Trust or (ii) the payment to Certificateholders and the
Certificate Insurer of all amounts required to be paid to them pursuant to this
Agreement; provided, however, that in no event shall the trust created by this
Agreement continue beyond the expiration of 21 years from the death of the last
survivor of the descendants of Joseph P. Kennedy, the late ambassador of the
Court of St. James, living on the date of this Agreement. The Servicer shall
promptly notify the Trustee and the Certificate Insurer of any prospective
termination pursuant to this Section 11.1.
Notice of any termination, specifying the Distribution Date upon which
the Certificateholders may surrender their Certificates to the Trustee for
payment of the final distribution and cancellation, shall be given promptly by
the Trustee by letter to Certificateholders mailed not later than the first day
of the month in which the specified Distribution Date occurs, stating (A) the
Distribution Date upon which final payment of the Certificates shall be made
upon presentation and surrender of the Certificates at the office of the Trustee
therein designated, (B) the amount of any such final payment, and (C) that the
Record Date otherwise applicable to such Distribution Date is not applicable,
payments being made only upon presentation and surrender of the Certificates at
the office of the Trustee therein specified. The Trustee shall give such notice
to the Certificate Registrar (if other than the Trustee) at the time such notice
is given to Certificateholders. Upon presentation and surrender of the
Certificates, the Trustee shall
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cause to be distributed to Certificateholders and the Certificate Insurer
amounts distributable on such Distribution Date pursuant to Section 5.4.
In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six months after the date specified
in the above-mentioned written notice, the Trustee shall give a second written
notice to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
one year after the second notice all the Certificates shall not have been
surrendered for cancellation, the Trustee may take appropriate steps, or may
appoint an agent to take appropriate steps, to contact the remaining
Certificateholders concerning surrender of their Certificates, and the cost
thereof shall be paid out of the funds and other assets that shall remain
subject to this Agreement. Any funds remaining in the Trust after exhaustion of
such remedies shall, upon notice to the Trustee, be paid by the Trustee to the
Servicer for deposit into an escrow account, and thereafter Certificateholders
shall look only to such escrow account with respect to any claims in respect of
such funds.
SECTION 11.2. OPTIONAL PURCHASE OF ALL RECEIVABLES.
The Seller shall have the option to purchase the corpus of the Trust
on any Distribution Date following a Record Date on which the Pool Balance is 5%
or less of the Original Pool Balance. To exercise such option, the Seller shall
deposit in the Certificate Account an amount equal to the outstanding
Certificate Principal Balance plus all accrued and unpaid interest thereon,
together with any Reimbursement Amount then owed to the Certificate Insurer (the
"Optional Purchase Price"); provided, however, that the Seller may not effect
any such purchase unless the Trustee and the Certificate Insurer shall have
received an Opinion of Counsel acceptable to them that such purchase does not
constitute a fraudulent conveyance under applicable federal and state laws.
Such price shall be deposited to the Certificate Account in immediately
available funds by 12:00 noon, New York City time, on such Distribution Date
and, upon notice to the Trustee of such deposit, the Trustee shall release the
Receivables and the Receivable Files and all other property of the Trust to the
Seller, whereupon the Certificates shall no longer evidence any right or
interest in the Receivables or other property of the Trust or any proceeds
thereof.
ARTICLE XII
MISCELLANEOUS PROVISIONS
SECTION 12.1. AMENDMENT.
This Agreement may be amended by the Seller, the Servicer and the
Trustee, without the consent of any of the Certificateholders but with the prior
written consent of the Certificate Insurer (so long as an Insurer Default shall
not have occurred and be continuing), (i) to cure any ambiguity or defect, (ii)
to correct or supplement any provisions in this Agreement, or (iii) to correct
any typographical error or to add any other provisions with respect to matters
or questions arising under this Agreement;
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provided, however, that such action shall not, as evidenced by an Opinion of
Counsel, adversely affect in any material respect the interests of any
Certificateholder; provided, further, that if an Insurer Default has occurred
and is continuing, notwithstanding the provisions of Section 1.6(b), such action
shall not amend, modify or limit the Certificate Insurer's rights under (i)
Section 5.4(a), (ii) any rights to indemnification to which the Certificate
Insurer is entitled hereunder or (iii) any defined terms used in any provisions
of this Agreement referenced in the preceding clauses (i) or (ii).
This Agreement may also be amended from time to time by the Seller,
the Servicer and the Trustee with the consent of the Certificate Insurer and
Majority Certificateholders for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement,
or of modifying in any manner the rights of the Holders of Certificates;
provided, however, that no such amendment shall, without the consent of the
Holders of all Certificates then outstanding, reduce the aforesaid percentage
required to consent to any such amendment. In no case may any such amendment
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on Receivables or distributions that shall be
required to be made on any Certificate without the consent of the Holder of such
Certificate.
The Trustee shall notify each Rating Agency prior to any amendment of
this Agreement; to the extent practicable, such notice shall be given not less
than 10 days prior to the date on which such amendment is executed.
Promptly after the execution of any amendment or consent, the Trustee
shall furnish written notification of the substance of such amendment or consent
to each Certificateholder, each Rating Agency and the Certificate Insurer; a
copy of any proposed amendment shall be furnished to the Certificate Insurer by
the Seller prior to its execution by the Seller.
It shall not be necessary for the consent of Certificateholders
pursuant to this Section 12.1 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 Certificateholders shall be
subject to such reasonable requirements as the Trustee may prescribe.
Prior to the execution of any amendment to this Agreement, the Trustee
and the Certificate Insurer shall be entitled to receive and rely upon an
Opinion of Counsel stating that the execution of such amendment is authorized or
permitted by this Agreement and the Opinion of Counsel referred to in Section
12.2(i)(1). The Trustee may, but shall not be obligated to, enter into any such
amendment which affects the Trustee's own rights, duties, or immunities under
this Agreement.
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SECTION 12.2. PROTECTION OF TITLE TO TRUST.
(a) The Seller shall execute and file, or cause to be executed and filed,
such financing statements and cause to be executed and filed such continuation
statements, all in such manner and in such places as may be required by law
fully to preserve, maintain, and protect the interest of the Certificateholders,
the Certificate Insurer and the Trustee under this Agreement in the Receivables
and in the proceeds thereof. The Seller shall deliver (or cause to be delivered)
to the Trustee and the Certificate Insurer file-stamped copies of, or filing
receipts for, any document filed as provided above, as soon as available
following such filing.
(b) Neither the Seller nor the Servicer shall change its name, identity,
or corporate structure in any manner that would, could, or might make any
financing statement or continuation statement filed by the Seller in accordance
with Section 12.2(a) above seriously misleading within the meaning of Section 9-
402(7) of the UCC, unless the Seller or Servicer shall have filed (or cause to
be filed) UCC financing statements upon any of the stated events.
(c) If, as a result of a relocation of the Seller's or Servicer's
principal executive office, 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, then the Seller or the Servicer
shall file or cause to be filed such amendment or continuation statement or new
financing statement within the period of time necessary fully to preserve and
protect the interest of the Trustee in the Receivables. The Servicer shall at
all times maintain each office from which it shall service Receivables, and its
principal executive office, within the United States of America.
(d) The Servicer shall maintain accounts and records as to each Receivable
accurately and in sufficient detail to permit (i) the reader thereof to know at
any time the status of such Receivable, including payments and recoveries made
and payments owing (and the nature of each) and (ii) reconciliation between
payments or recoveries on (or with respect to) each Receivable and the amounts
from time to time deposited in the Certificate 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 of the Receivables to the Trustee,
the Servicer's master computer records (including any back-up archives) that
refer to a Receivable shall indicate clearly with reference to the particular
grantor trust that such Receivable is owned by the Trustee. Indication of the
Trustee's ownership of a Receivable shall be deleted from or modified on the
Servicer's computer systems when, and only when, the Receivable shall have been
paid in full or repurchased or purchased hereunder.
(f) If at any time the Seller or the Servicer shall propose to sell, grant
a security interest in, or otherwise transfer any interest in automotive
receivables to any prospective purchaser, lender, or other transferee, the
Servicer shall give to such prospective purchaser, lender, or other transferee
computer tapes, records, or print-outs (including any restored from back-up
archives) that, if they shall refer in any manner
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whatsoever to any Receivable, shall indicate clearly that such Receivable has
been sold and is owned by the Trustee.
(g) The Servicer shall permit the Trustee and the Certificate Insurer and
their respective agents at any time during normal business hours to inspect,
audit, and make copies of and abstracts from the Servicer's records regarding
any Receivable to the extent permitted by applicable banking, privacy and other
laws limiting such access.
(h) Upon request, the Servicer shall furnish to the Trustee and to the
Certificate Insurer, within five Business Days, a list of all Receivables (by
contract number and name of Obligor) then held as part of the Trust, together
with a reconciliation of such list to the Schedule of Receivables and to each of
the Servicer's Certificates furnished before such request indicating removal of
Receivables from the Trust.
(i) The Servicer shall deliver to the Trustee and the Certificate Insurer:
(1) promptly after the execution and delivery of this Agreement
and of each amendment hereto and at the time of any merger,
consolidation or succession of the Seller or the Servicer, an
Opinion of Counsel either (a) 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 first priority perfected security
interest of the Trustee in the Receivables, and reciting the
details of such filings or referring to prior Opinions of Counsel
in which such details are given, or (b) stating that, in the
opinion of such counsel, no such action shall be necessary to
preserve and protect such interest; and
(2) by December 31 of each calendar year beginning December 31,
1999, an Opinion of Counsel, dated as of a date during the 90-day
period ending on such date, either (a) 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 first priority
perfected security interest of the Trustee in the Receivables,
and reciting the details of such filings or referring to prior
Opinions of Counsel in which such details are given, or (b)
stating that, in the opinion of such counsel, no such action
shall be necessary to preserve and protect such interest.
SECTION 12.3. LIMITATION ON RIGHTS OF CERTIFICATEHOLDERS.
The death or incapacity of any Certificateholder shall not operate to
terminate this Agreement or the Trust, nor entitle such Certificateholder's
legal representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the Trust,
nor otherwise affect the rights, obligations, and liabilities of the parties to
this Agreement or any of them.
No Certificateholder shall have any right to vote (except as provided
in Section 9.1, 9.4, 12.1, 12.3 or 12.7) or in any manner otherwise control the
operation and
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management of the Trust, or the obligations of the parties to this Agreement,
nor shall anything in this Agreement set forth, or contained in the terms of the
Certificates, be construed so as to constitute the Certificateholders from time
to time as partners or members of an association; nor shall any
Certificateholder be under any liability to any third person by reason of any
action taken pursuant to any provision of this Agreement.
No Certificateholder shall have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action, or
proceeding in equity or at law upon or under or with respect to this Agreement,
unless such Holder previously shall have received the written consent of the
Certificate Insurer and shall have given to the Trustee a written notice of
default and of the continuance thereof, as hereinbefore provided, and unless
also the Holders of Certificates evidencing not less than 25% of the Certificate
Principal Balance shall have made written request upon the Trustee to institute
such action, suit, or proceeding in its own name as Trustee under this Agreement
and shall have offered to the Trustee such reasonable indemnity as it may
require against the costs, expenses, and liabilities to be incurred therein or
thereby, and the Trustee, for 30 days after its receipt of such notice, request,
and offer of indemnity, shall have neglected or refused to institute any such
action, suit, or proceeding and during such 30-day period no direction
inconsistent with such written request has been given to the Trustee pursuant to
Section 9.4; no one or more Holders of Certificates shall have any right in any
manner whatever by virtue or by availing itself or themselves of any provisions
of this Agreement to affect, disturb, or prejudice the rights of the Holders of
any other of the Certificates, or to obtain or seek to obtain priority over or
preference to any other such Holder, or to enforce any right, under this
Agreement except in the manner provided in this Agreement and for the equal,
ratable, and common benefit of all Certificateholders. For the protection and
enforcement of the provisions of this Section 12.3, each Certificateholder and
the Trustee shall be entitled to such relief as can be given either at law or in
equity.
SECTION 12.4. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS
OF LAW PRINCIPLES) APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED WITHIN THE
STATE OF NEW YORK, AND THE OBLIGATIONS, RIGHTS, AND REMEDIES OF THE PARTIES
UNDER THIS AGREEMENT SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 12.5. 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 or the Servicer, to the agent for service as specified in
this Agreement, at the following address: Chevy Chase Bank, F.S.B., 8401
Connecticut Avenue, 6th Floor, Chevy Chase, Maryland 20815, Attention: General
Counsel, or at such other address as shall be
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designated by the Seller or the Servicer in a written notice to the Trustee and
(b) in the case of the Trustee, at the Corporate Trust Office, (c) in the case
of the Certificate Insurer, at 113 King Street, Armonk, New York 10504,
Attention: Insured Portfolio Management Structured Finance. Any notice required
or permitted to be mailed to a Certificateholder shall be given by first class
mail, postage prepaid, at the address of such Holder as shown in the Certificate
Register. 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 shall receive such notice.
SECTION 12.6. SEVERABILITY OF PROVISIONS.
If any one or more of the covenants, agreements, provisions, or terms
of this Agreement shall be for any reason whatsoever held invalid, then such
covenants, agreements, provisions, or terms shall be deemed severable from the
remaining covenants, agreements, provisions, or terms of this Agreement and
shall in no way affect the validity or enforceability of the other provisions of
this Agreement or of the Certificates or the rights of the Holders thereof or
the rights of the Certificate Insurer.
SECTION 12.7. ASSIGNMENT.
Notwithstanding anything to the contrary contained herein, except as
provided in Sections 7.3 and 8.3 and as provided in the provisions of this
Agreement concerning the resignation of the Servicer, this Agreement may not be
assigned by the Seller or the Servicer without the prior written consent of (x)
the Certificate Insurer or (y) the Trustee or the Majority Certificateholders,
in either case acting with the consent of the Certificate Insurer.
SECTION 12.8. CERTIFICATES NONASSESSABLE AND FULLY PAID.
Certificateholders shall not be personally liable for obligations of
the Trust. The interests represented by the Certificates shall be nonassessable
for any losses or expenses of the Trust or for any reason whatsoever, and, upon
authentication thereof by the Trustee pursuant to Section 6.2, Certificates
shall be deemed fully paid.
SECTION 12.9. COUNTERPARTS.
For the purpose of facilitating the execution of this Agreement and
for other purposes, this Agreement may be executed simultaneously in any number
of counterparts, each of which counterparts shall be deemed to be an original,
and all of which counterparts shall constitute but one and the same instrument.
SECTION 12.10. BENEFITS OF AGREEMENT.
This Agreement shall inure to the benefit of and be binding upon the
parties hereto, the Certificateholders and their respective successors and
assigns, and to the extent provided herein, the Certificate Insurer. Without
limiting the generality of the
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foregoing, all covenants and agreements in this Agreement which expressly confer
rights upon the Certificate Insurer shall be for the benefit of and run directly
to the Certificate Insurer, and the Certificate Insurer shall be entitled to
rely on and enforce such covenants to the same extent as if it were a party
hereto. Except as otherwise provided in this Agreement, no other person shall
have any rights or obligations hereunder.
SECTION 12.11. TAX TREATMENT.
The parties hereto agree that the Trust created hereby will at all
times be characterized as a grantor trust for federal, state and local income
tax purposes.
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IN WITNESS WHEREOF, the parties have caused this Pooling and Servicing Agreement
to be duly executed by their respective officers as of the day and year first
above written.
CHEVY CHASE BANK, F.S.B.,
as Seller and Servicer
By: /s/ Mark A. Holles
--------------------------
Mark A. Holles
Vice President
U.S. BANK NATIONAL ASSOCIATION,
as Trustee
By: /s/ Edward F. Kachinski
--------------------------
Edward F. Kachinski
Vice President
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EXHIBIT 10.2
INDEMNIFICATION AGREEMENT
-------------------------
This Agreement, dated as of June 15, 1998, is by and among MBIA
Insurance Corporation, a New York stock insurance corporation (the "Certificate
Insurer"), as the Certificate Insurer under the certificate guaranty insurance
policy (the "Policy") to be issued in connection with the Certificates described
below, Chevy Chase Bank, F.S.B. (the "Bank") and J.P. Morgan Securities Inc., as
Representative (the "Representative") of itself and Salomon Brothers Inc
(collectively, the "Underwriters").
1. Definitions. As used in this Agreement, the following terms shall
-----------
have the respective meanings stated below:
"Act" means the Securities Act of 1933, as amended, together with
all related rules and regulations.
"Agreement" means this Indemnification Agreement by and among the
Certificate Insurer, the Bank and the Representative.
"Bank Party" means the Bank, its parents, subsidiaries and
affiliates and any shareholder, director, officer, employee, agent or any
"controlling person" (as such term is used in the Act) of any of the
foregoing.
"Certificates" means the Auto Receivables Backed Certificates
issued by the Chevy Chase Auto Receivables Trust 1998-2 pursuant to a
Pooling and Servicing Agreement (the "Pooling and Servicing Agreement")
dated as of June 1, 1998 between the Bank, as seller and servicer, and U.S.
Bank National Association, as trustee.
"Indemnified Party" means any party entitled to any
indemnification pursuant to Section 5 below, as the context requires.
"Indemnifying Party" means any party required to provide
indemnification pursuant to Section 5 below, as the context requires.
"Insurer Party" means the Certificate Insurer, its parents,
subsidiaries and affiliates and any shareholder, director, officer,
employee, agent or any "controlling person" (as such term is used in the
Act) of any of the foregoing.
"Losses" means (i) any actual out-of-pocket loss paid by the party
entitled to indemnification or contribution hereunder, and (ii) any actual
out-of-pocket costs and expenses paid by such party, including reasonable
fees and expenses of its counsel, to the extent not paid, satisfied or
reimbursed from funds
<PAGE>
provided by any other Person (provided that the foregoing shall not create
or imply any obligation to pursue recourse against any such other Person).
"Person" means any individual, partnership, joint venture,
corporation, limited liability company, trust or unincorporated
organization or any government or agency or political subdivision thereof.
"Prospectus" means the form of final Prospectus Supplement, dated
June 15, 1998, together with the Prospectus dated September 17, 1997,
included in the Registration Statement and any post-effective amendments
thereto.
"Registration Statement" means the registration statement on Form
S-3 of the Bank on behalf of the Chevy Chase Auto Receivables Trust 1998-2
(Registration No. 333-21707) relating to the Certificates in the form in
which it has become effective, as supplemented by the Prospectus.
"State Securities Law" means any state, local or foreign statute,
and any rule or regulation thereunder, regulating (i) transactions and
dealings in securities, (ii) any person or entity engaging in such
transactions or advising with respect to securities or (iii) investment
companies.
"Underwriting Agreement" means the Underwriting Agreement by and
between the Bank and the Representative, dated June 15, 1998.
"Underwriter Party" means each of the Underwriters, its respective
parents, subsidiaries and affiliates and any shareholder, director,
officer, employee, agent or "controlling person" (as such term is used in
the Act) of any of the foregoing.
2. Representations and Warranties of the Certificate Insurer. The
---------------------------------------------------------
Certificate Insurer represents and warrants to the Underwriters and the Bank as
follows:
(a) Organization and Licensing. The Certificate Insurer is a duly
--------------------------
incorporated and existing New York stock insurance corporation
licensed to do business in the State of New York.
(b) Corporate Power. The Certificate Insurer has the corporate
---------------
power and authority to issue the Policy and execute and deliver this
Agreement and to perform all of its obligations hereunder and
thereunder.
(c) Authorization; Approvals. The issuance of the Policy and the
------------------------
execution, delivery and performance of this Agreement have been duly
authorized by all necessary corporate proceedings. No further
approvals or filings of any kind, including, without limitation, any
further approvals of or further filing with any governmental agency or
other governmental authority, or any approval of the Certificate
Insurer's board of directors or
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stockholders, are necessary for the Policy and this Agreement to
constitute the legal, valid and binding obligations of the Certificate
Insurer.
(d) No Conflicts. The execution and delivery of this Agreement
------------
and consummation of the transactions contemplated hereunder will not
result in the breach of any terms or provisions of the certificate of
incorporation or by-laws of the Certificate Insurer, or result in the
breach of a term or provision of, or conflict with or constitute a
default under or result in the acceleration of any obligation under,
any material agreement or other material instrument to which the
Certificate Insurer or its property is subject, or result in the
violation of any law, rule, regulation, order, judgment or decree to
which the Certificate Insurer or any of its property is subject or
result in the creation of any lien on any of the Certificate Insurer's
assets or property (other than pursuant to this Agreement).
(e) Enforceability. The Policy, when issued, and this Agreement
--------------
will each constitute a legal, valid and binding obligation of the
Certificate Insurer, enforceable in accordance with its terms subject,
as to enforcement of remedies, to bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforceability of creditors' rights generally applicable in the event
of the bankruptcy, insolvency or reorganization of the Certificate
Insurer and to general principles of equity, and, as to
indemnification and contribution, to limits which may be imposed by
state or federal securities laws or the policies underlying such laws.
(f) Financial Information. The consolidated financial statements
---------------------
of the Certificate Insurer as of December 31, 1997 and December 31,
1996 and for the three years in the period ended December 31, 1997
incorporated by referenced in the Prospectus (the "Insurer Audited
Financial Statements"), fairly present in all material respects the
financial condition of the Certificate Insurer as of such dates and
for the period covered by such statements in accordance with generally
accepted accounting principles consistently applied. The consolidated
financial statements of the Certificate Insurer and its subsidiaries
as of March 31, 1998 and for the periods ending March 31, 1998 and
March 31, 1997 incorporated by reference in the Prospectus (the
"Insurer Unaudited Financial Statements") present fairly in all
material respects the financial condition of the Certificate Insurer
as of such date and for the periods covered by such statements in
accordance with generally accepted accounting principles applied in a
manner consistent with the accounting principles used in preparing the
Insurer Audited Financial Statements, and, since March 31, 1998 there
has been no material change in such financial condition of the
Certificate Insurer which would materially and adversely affect its
ability to perform its obligations under the Policy.
3
<PAGE>
(g) Certificate Insurer Information. The information in the
-------------------------------
Prospectus as of the date hereof (including information incorporated
by reference therein) under the captions "The Certificate Insurer" and
"The Certificate Insurance Policy" (collectively, the "Insurer
Information") is limited and does not purport to provide the scope of
disclosure required to be included in a prospectus for a registrant
under the Securities Act of 1933, in connection with the public offer
and sale of securities of such registrant. Within such limited scope
of disclosure, the Insurer Information does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(h) Limitations. Nothing in this Agreement shall be construed as
-----------
a representation or undertaking by the Certificate Insurer concerning
maintenance of the rating currently assigned to its claims-paying
ability by Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Ratings Group, a division of The McGraw-Hill Companies, Inc.
("S&P"), Fitch IBCA, Inc. ("Fitch") or any other nationally recognized
statistical rating organization (collectively, the "Rating Agencies").
The Rating Agencies, in assigning such rating, may take into account
facts and assumptions not described in the Prospectus, and the facts
and assumptions which are considered by the Rating Agencies are
subject to change over time. The Certificate Insurer has not attempted
to disclose all facts and assumptions which the Rating Agencies deem
relevant in assigning a rating within a particular rating category to
the Certificate Insurer's claims-paying ability. Notwithstanding the
foregoing, the Certificate Insurer is not aware of any facts that, if
disclosed to Moody's, S&P or Fitch, would be reasonably expected to
result in a downgrade of the rating of the claims-paying ability of
the Certificate Insurer by any of such Rating Agencies.
(i) No Litigation. There are no actions, suits, proceedings or
-------------
investigations pending, or to the best of the Certificate Insurer's
knowledge, threatened against it at law or in equity or before or by
any court, governmental agency, board or commission or any arbitrator
which, if decided adversely, would materially and adversely affect its
ability to perform its obligations under this Agreement or the Policy.
(j) 1933 Act Registration. The Policy is exempt from registration
---------------------
under the Act.
3. Agreements, Representations and Warranties of the Underwriters.
--------------------------------------------------------------
The Underwriters represent and warrant to and agree with the Bank and the
Certificate Insurer that the statements contained in the last paragraph at the
bottom of the cover page of the Prospectus Supplement concerning the terms of
the offering by the Underwriters, the legend concerning overallotments and
stabilizing on the inside front cover page of the Prospectus Supplement and the
statements in the Prospectus Supplement under the
4
<PAGE>
caption "Underwriting" (referred to herein as the "Underwriters Information")
are true and correct in all material respects.
4. Agreements, Representations and Warranties of the Bank. The Bank
------------------------------------------------------
represents and warrants to and agrees with the Certificate Insurer and the
Underwriters as follows:
(a) Registration Statement. The information in the Registration
----------------------
Statement, other than the Insurer Information and the Underwriters
Information, is true and correct in all material respects and does not
contain any untrue statement of a fact that is material or omit to
state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(b) Organization. The Bank is a federally chartered stock savings
------------
bank duly organized and validly existing under the laws of the United
States of America, and has full corporate power, authority and legal
right to own its properties and conduct its business as presently
conducted. The Bank is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions in which its
ownership or lease of property or the conduct of its business requires
such qualification.
(c) Corporate Power. The Bank has the corporate power and
---------------
authority to execute and deliver this Agreement, the Underwriting
Agreement and the Pooling and Servicing Agreement and to perform all
of its obligations hereunder and thereunder.
(d) Authorization; Approvals. The issuance and delivery of the
------------------------
Certificates and the execution, delivery and performance of this
Agreement, the Underwriting Agreement and the Pooling and Servicing
Agreement by the Bank have been duly authorized by all necessary
corporate proceedings. No further approvals or filings of any kind,
including, without limitation, any further approvals of or further
filing with any governmental agency or other governmental authority,
or any further approval of the Bank's board of directors or
stockholders, are necessary for this Agreement, the Underwriting
Agreement and the Pooling and Servicing Agreement to constitute the
legal, valid and binding obligations of the Bank.
(e) No Conflicts. The issuance and delivery of the Certificates,
------------
the consummation of any other of the transactions contemplated herein
or in the Pooling and Servicing Agreement or the Underwriting
Agreement, or the fulfillment of the terms of this Agreement, the
Underwriting Agreement or the Pooling and Servicing Agreement, do not
and will not conflict with or violate any term or provision of the
Charter or By-Laws of the Bank, any statute, order or regulation
applicable to the Bank of any court, regulatory body, administrative
agency or governmental body
5
<PAGE>
having jurisdiction over the Bank and do not and will not conflict
with, result in a breach or violation or the acceleration of or
constitute a default under or result in the creation or imposition of
any lien, charge or encumbrance upon any of the property or assets of
the Bank pursuant to the terms of any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the
Bank is a party or by which the Bank may be bound or to which any of
the property or assets of the Bank may be subject except for
conflicts, violations, breaches, accelerations and defaults which
would not, individually or in the aggregate, materially and adversely
affect its ability to perform its obligations under this Agreement,
the Underwriting Agreement or the Pooling and Servicing Agreement.
(f) Enforceability. This Agreement, the Pooling and Servicing
--------------
Agreement and the Underwriting Agreement have been duly authorized by
the Bank, and, when executed and delivered by the Bank and assuming
the due authorization, execution and delivery of the Pooling and
Servicing Agreement and the Underwriting Agreement by the other
parties thereto, will constitute valid and binding obligations of the
Bank, enforceable against the Bank in accordance with their respective
terms, except to the extent that (i) the enforceability thereof may be
subject to insolvency, reorganization, moratorium, receivership,
conservatorship or similar laws, regulations or procedures of general
applicability now or hereafter in effect relating to or affecting
creditors' or obligees' rights generally or the rights of creditors or
obligees of federally chartered stock savings banks, the deposits of
which are insured by the FDIC, (ii) the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought, and (iii) the rights to
indemnification and contribution may be limited by state or federal
securities laws or the policies underlying such laws. When executed,
authenticated and delivered in accordance with the terms of the
Pooling and Servicing Agreement and paid for by the Underwriters
pursuant to the Underwriting Agreement, the Certificates will be duly
and validly issued and outstanding and will be entitled to the
benefits of the Pooling and Servicing Agreement.
(g) No Litigation. There are no actions, suits, proceedings or
-------------
investigations pending or, to the best of the Bank's knowledge,
threatened against it at law or in equity or before any court,
governmental agency, board or commission or any arbitrator which, if
decided adversely, would materially and adversely affect its ability
to perform its obligations under this Agreement, the Underwriting
Agreement or the Pooling and Servicing Agreement.
5. Indemnification.
---------------
6
<PAGE>
(a) The Certificate Insurer hereby agrees, upon the terms and
subject to the conditions of this Agreement, to indemnify, defend and
hold harmless each Bank Party and each Underwriter Party against any
and all Losses incurred by such Bank Party or Underwriter Party, as
applicable, with respect to the offer and sale of the Certificates and
resulting from the Certificate Insurer's breach of any of its
representations and warranties set forth in Section 2 of this
Agreement.
(b) The Underwriters hereby agree, upon the terms and subject to
the conditions of this Agreement, to indemnify, defend and hold
harmless each Insurer Party against any and all Losses incurred by
such Insurer Party which arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact in the
Underwriters Information or (ii) the omission or alleged omission to
state in the Underwriters Information a material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(c) The Bank hereby agrees, upon the terms and subject to the
conditions of this Agreement, to indemnify, defend and hold harmless
each Insurer Party against any and all losses incurred by such Insurer
Party with respect to the offer and sale of the Certificates and
resulting from the Bank's breach of any of its representations and
warranties set forth in Section 4 of this Agreement.
(d) Upon the incurrence of any Losses entitling a party to
indemnification hereunder, the Indemnifying Party shall reimburse the
Indemnified Party promptly upon establishment by written notice from
the Indemnified Party to the Indemnifying Party of the Losses
incurred.
6. Certificate Insurer Undertaking. The Certificate Insurer hereby
-------------------------------
agrees that, for so long as the Underwriters are required under the Act to
deliver a Prospectus in connection with the sale of the Certificates, the
Certificate Insurer will furnish to either the Representative or the Bank, or
both, upon written request of such party or parties and at the expense of the
requesting party, copies of the Certificate Insurer's most recent financial
statements (annual or interim, as the case may be) prepared in accordance with
generally accepted accounting principles (subject, as to interim statements, to
normal year-end adjustments and to the absence of footnotes) within a reasonable
time after they are available.
7. Notice to be Given to the Certificate Insurer. Except as provided
---------------------------------------------
below in Section 10 with respect to contribution, the indemnification provided
herein by the Certificate Insurer shall be the exclusive remedy of any
Underwriter Party or Bank Party for the Losses resulting from the Certificate
Insurer's breach of a representation, warranty or agreement hereunder; provided,
however, that any Underwriter Party or Bank Party shall be entitled to pursue
any other remedy at law or in equity for any such breach so long as the damages
sought to be recovered shall not exceed the Losses incurred
7
<PAGE>
thereby resulting from such breach. In the event that any action or regulatory
proceeding shall be commenced or claim asserted which may entitle an Underwriter
Party or Bank Party to be indemnified under this Agreement, such party shall
give the Certificate Insurer written notice of such action or claim reasonably
promptly after receipt of written notice thereof. The Certificate Insurer shall
be entitled to participate in the defense of any such action or claim in
reasonable cooperation with, and with the reasonable cooperation of, the
Underwriter Party or the Bank Party, as the case may be. The Indemnified Party
will have the right to employ its own counsel in any such action in addition to
counsel for the Certificate Insurer, but the fees and expenses of the
Indemnified Party's own counsel will be at the expense of such Indemnified Party
unless (1) the employment of such counsel by the Indemnified Party at the
Certificate Insurer's expense has been authorized in writing by the Certificate
Insurer, or (2) the Certificate Insurer has not in fact employed counsel to
assume the defense of such action within a reasonable time after receiving
notice of the commencement of the action, or (3) the named parties to any such
action include the Certificate Insurer and the Indemnified Party, and such
Indemnified Party shall have been advised by counsel in writing that there may
be one or more legal defenses available to it which are different from or
additional to those available to the Certificate Insurer (in which case, if such
Indemnified Party notifies the Certificate Insurer in writing that it elects to
employ separate counsel at the expense of the Certificate Insurer, the
Certificate Insurer shall not have the right to assume the defense of such
action or proceeding on such Indemnified Party's behalf), in each of which cases
the reasonable fees and expenses of counsel (including local counsel) will be at
the expense of the Certificate Insurer and all such fees and expenses will be
reimbursed promptly as they are incurred (provided, that the party seeking
reimbursement must provide documentation of expenses). In no event will the
Certificate Insurer be liable for the fees and expenses of more than one counsel
for all Bank Parties and more than one counsel for all Underwriter Parties in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances. The Underwriter Parties and Bank Parties shall cooperate with the
Certificate Insurer in resolving any event which would give rise to an indemnity
obligation pursuant to Section 5(a) hereof in the most efficient manner. No
settlement of any such claim or action shall be entered into without the consent
of the Bank Party or Underwriter Party, as the case may be, who is subject to
such claim or action and the Certificate Insurer; provided, however, that the
consent of such Bank Party or such Underwriter Party, as applicable, shall not
be required if such settlement fully discharges, with prejudice against the
plaintiff, the claim or action against such Bank Party or Underwriter Party. Any
failure by a Bank Party or Underwriter Party, as the case may be, to comply with
the provisions of this Section shall relieve the Certificate Insurer of
liability only if such failure is materially prejudicial to any legal pleadings,
grounds, defenses or remedies in respect thereof or the Certificate Insurer's
liability hereunder and then only to the extent of such prejudice.
8. Notice to be Given to the Representative. Except as provided
----------------------------------------
below in Section 10 with respect to contribution, the indemnification provided
herein by the Underwriters shall be the exclusive remedy of any Insurer Party
for the Losses resulting from matters specified in Section 5(b) hereof;
provided, however, that the Insurer Party shall be entitled to pursue any other
remedy at law or in equity for any such breach so
8
<PAGE>
long as the damages sought to be recovered shall not exceed the Losses incurred
thereby resulting from such breach. In the event that any action or regulatory
proceeding shall be commenced or claim asserted which may entitle an Insurer
Party to be indemnified under this Agreement, such party shall give the
Representative written notice of such action or claim reasonably promptly after
receipt of written notice thereof. The Underwriters shall be entitled to
participate in the defense of any such action or claim in reasonable cooperation
with, and with the reasonable cooperation of, the Insurer Party. The Indemnified
Party will have the right to employ its own counsel in any such action in
addition to counsel for the Underwriters, but the fees and expenses of the
Indemnified Party's own counsel will be at the expense of such Indemnified Party
unless (1) the employment of such counsel by the Indemnified Party at the
Underwriters' expense has been authorized in writing by the Representative, or
(2) the Underwriters have not in fact employed counsel to assume the defense of
such action within a reasonable time after receiving notice of the commencement
of the action, or (3) the named parties to any such action include the
Underwriters and the Indemnified Party, and such Indemnified Party shall have
been advised by counsel in writing that there may be one or more legal defenses
available to it which are different from or additional to those available to the
Underwriters (in which case, if such Indemnified Party notifies the Underwriters
in writing that it elects to employ separate counsel at the expense of the
Underwriters, the Underwriters shall not have the right to assume the defense of
such action or proceeding on such Indemnified Party's behalf), in each of which
cases the reasonable fees and expenses of counsel (including local counsel) will
be at the expense of the Underwriters and all such fees and expenses will be
reimbursed promptly as they are incurred (provided, that the party seeking
reimbursement must provide documentation of expenses). In no event will the
Underwriters be liable for the fees and expenses of more than one counsel for
all Insurer Parties in connection with any one action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. The Insurer Party shall cooperate
with the Underwriters in resolving any event which would give rise to an
indemnity obligation pursuant to Section 5(b) hereof in the most efficient
manner. No settlement of any such claim or action shall be entered into without
the consent of the Insurer Party who is subject to such claim or action and the
Underwriters; provided, however, that the consent of such Insurer Party shall
not be required if such settlement fully discharges, with prejudice against the
plaintiff, the claim or action against such Insurer Party. Any failure by an
Insurer Party to comply with the provisions of this Section shall relieve the
Underwriters of liability only if such failure is materially prejudicial to any
legal pleadings, grounds, defenses or remedies in respect thereof or the
Underwriters' liability hereunder and then only to the extent of such prejudice.
9. Notice to be Given to the Bank. Except as provided below in
------------------------------
Section 10 with respect to contribution, the indemnification provided herein by
the Bank shall be the exclusive remedy of any Insurer Party for the Losses
resulting from the Bank's breach of a representation, warranty or agreement
hereunder; provided, however, that the Insurer Party shall be entitled to pursue
any other remedy at law or in equity for any such breach so long as the damages
sought to be recovered shall not exceed the Losses incurred thereby resulting
from such breach. In the event that any action or regulatory proceeding shall be
commenced or claim asserted which may entitle an Insurer Party to be
9
<PAGE>
indemnified under this Agreement, such party shall give the Bank written notice
of such action or claim reasonably promptly after receipt of written notice
thereof. The Bank shall be entitled to participate in the defense of any such
action or claim in reasonable cooperation with, and with the reasonable
cooperation of, the Insurer Party. The Indemnified Party will have the right to
employ its own counsel in any such action in addition to counsel for the Bank,
but the fees and expenses of the Indemnified Party's own counsel will be at the
expense of such Indemnified Party unless (1) the employment of such counsel by
the Indemnified Party at the Bank's expense has been authorized in writing by
the Bank, or (2) the Bank has not in fact employed counsel to assume the defense
of such action within a reasonable time after receiving notice of the
commencement of the action, or (3) the named parties to any such action include
the Bank and the Indemnified Party, and such Indemnified Party shall have been
advised by counsel in writing that there may be one or more legal defenses
available to it which are different from or additional to those available to the
Bank (in which case, if such Indemnified Party notifies the Bank in writing that
it elects to employ separate counsel at the expense of the Bank, the Bank shall
not have the right to assume the defense of such action or proceeding on such
Indemnified Party's behalf), in each of which cases the reasonable fees and
expenses of counsel (including local counsel) will be at the expense of the Bank
and all such fees and expenses will be reimbursed promptly as they are incurred
(provided, that the party seeking reimbursement must provide documentation of
expenses). In no event will the Bank be liable for the fees and expenses of more
than one counsel for all Insurer Parties in connection with any one action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances. The Insurer Party
shall cooperate with the Bank in resolving any event which would give rise to an
indemnity obligation pursuant to Section 5(c) hereof in the most efficient
manner. No settlement of any such claim or action shall be entered into without
the consent of the Insurer Party, who is subject to such claim or action and the
Bank; provided, however, that the consent of such Insurer Party shall not be
required if such settlement fully discharges, with prejudice against the
plaintiff, the claim or action against such Insurer Party. Any failure by an
Insurer Party to comply with the provisions of this Section shall relieve the
Bank of liability only if such failure is materially prejudicial to any legal
pleadings, grounds, defenses or remedies in respect thereof or the Bank's
liability hereunder and then only to the extent of such prejudice.
10. Contribution.
------------
(a) To provide for just and equitable contribution if the
indemnification provided by the Certificate Insurer is determined to
be unavailable for any Underwriter Party or Bank Party (other than
pursuant to Sections 5 or 7 of this Agreement), the Certificate
Insurer shall contribute to the aggregate costs and liabilities
arising from any breach of a representation or warranty set forth in
this Agreement on the basis of the relative fault of all Underwriter
Parties, all Bank Parties and all Insurer Parties, respectively.
(b) To provide for just and equitable contribution if the
indemnification provided by the Bank is determined to be unavailable
for
10
<PAGE>
any Insurer Party (other than pursuant to Sections 5 or 9 of this
Agreement), the Bank shall contribute to the aggregate costs and
liabilities arising from any breach of a representation or warranty
set forth in this Agreement on the basis of the relative fault of all
Underwriter Parties, all Bank Parties and all Insurer Parties,
respectively.
(c) To provide for just and equitable contribution if the
indemnification provided by the Underwriters is determined to be
unavailable for any Insurer Party (other than pursuant to Sections 5
or 8 of this Agreement), the Underwriters shall contribute to the
aggregate costs and liabilities arising from (i) any untrue statement
or alleged untrue statement of a material fact in the Underwriters
Information or (ii) the omission or alleged omission to state in the
Underwriters Information a material fact required to be stated therein
or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, on the basis
of the relative fault of all Underwriter Parties, all Bank Parties and
all Insurer Parties, respectively; provided, however, that the
Underwriters shall not be liable for any amount in excess of (i) the
excess of the sales price of the Certificates to the public over the
prices paid therefor by the Underwriters over (ii) the aggregate
amount of any damages which the Underwriters have been otherwise
required to pay in respect of the same or any substantially similar
claim.
(d) The relative fault of each Indemnifying Party, on the one
hand, and of each Indemnified Party, on the other, shall be determined
by reference to, among other things, whether the breach of, or alleged
breach of, any of its representations and warranties set forth in
Sections 2, 3 or 4 of this Agreement relates to information supplied
by, or action within the control of, the Indemnifying Party or the
Indemnified Party and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such breach.
(e) The parties agree that the Certificate Insurer shall be solely
responsible for the Insurer Information and for the Insurer Audited
and Unaudited Financial Statements, that the Underwriters shall be
solely responsible for the Underwriters Information and that the Bank
shall be responsible solely for all other information in the
Registration Statement and in the Prospectus.
(f) 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.
(g) The indemnity and contribution agreements contained in this
Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any
Underwriter Party,
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<PAGE>
any Bank Party or any Insurer Party, (ii) the issuance of the
Certificates or the Policy or (iii) any termination of this Agreement.
(h) Upon the occurrence of any Losses entitling a party to
contribution hereunder, the contributor shall reimburse the party
entitled to contribution promptly upon establishment by the party
entitled to contribution of the Losses incurred.
It is understood and agreed that the indemnities set forth in this
Agreement shall survive the execution and delivery of this Agreement and the
issuance, sale and delivery of the Certificates.
11. Notices. All notices and other communications provided for under
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this Agreement shall be addressed to the address set forth below as to each
party or at such other address as shall be designated by a party in a written
notice to the other parties.
If to the Certificate Insurer: MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
Attn: General Counsel
If to the Bank: Chevy Chase Bank, F.S.B.
8401 Connecticut Avenue
Chevy Chase, MD 20815
Attention: General Counsel
If to the Representative: J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260
Attention: General Counsel
12. Governing Law. This Agreement shall be deemed to be a contract
-------------
under the laws of the State of New York and shall be governed by and construed
in accordance with the laws of the State of New York without regard to its
conflicts of laws provisions. This Agreement may not be assigned by any party
without the express written consent of each other party. Amendments of this
Agreement shall be in writing signed by each party. This Agreement shall not be
effective until executed by the Certificate Insurer, the Bank and the
Representatives.
13. Underwriting Agreement; Pooling and Servicing Agreement. This
-------------------------------------------------------
Agreement in no way limits or otherwise affects the indemnification obligations
of (a) the Bank or the Underwriters under the Underwriting Agreement or (b) the
Bank under the Pooling and Servicing Agreement.
14. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall together constitute but one and the same
instrument.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized, all as of the date first above written.
MBIA INSURANCE CORPORATION
By: /s/ Ann D. McKenna
------------------------------
Ann D. McKenna
Assistant Vice President
CHEVY CHASE BANK, F.S.B.
By: /s/ Mark A. Holles
------------------------------
Mark A. Holles
Vice President
J.P. MORGAN SECURITIES INC.
as Representative
By: /s/ James P. Moore
------------------------------
James P. Moore
Vice President
13
