<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 19, 1997
ARCADIA RECEIVABLES FINANCE CORP.
as originator of
ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1997-B
--------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 333-18021 41-(applied for)
----------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS employer
of incorporation) file number) identification No.)
7825 Washington Avenue South, Suite 410, Minneapolis, Minnesota 55439-2435
----------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (612)942-9880
-------------
Olympic Receivables Financial Corporation
----------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 1. CHANGES IN CONTROL OF REGISTRANT.
Not applicable.
Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
Not applicable.
Item 3. BANKRUPTCY OR RECEIVERSHIP.
Not applicable.
Item 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANTS.
Not applicable.
Item 5. OTHER EVENTS.
Not applicable.
Item 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS.
Not applicable.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial statements of businesses acquired.
Not applicable.
(b) Pro forma financial information.
Not applicable.
(c) Exhibits.
The following are filed herewith. The exhibit numbers
correspond with Item 601(b) of Regulation S-K.
Exhibit No. Description
----------- -----------
4.1 Trust Agreement, dated as of June 1, 1997, among
Arcadia Receivables Finance Corp., Financial
Security Assurance Inc. and Mellon Bank (DE),
National Association, as Owner Trustee (without
exhibits)
<PAGE>
4.2 Indenture, dated as of June 1, 1997, between
Arcadia Automobile Receivables Trust, 1997-B
and The Chase Manhattan Bank, as Trustee
and Indenture Collateral Agent (without
exhibits)
4.3 Sale and Servicing Agreement, dated as of
June 1, 1997, among Arcadia Automobile
Receivables Trust, 1997-B, as Issuer, Arcadia
Receivables Finance Corp., as Seller, Arcadia
Financial Ltd., in its individual capacity and as
Servicer, and The Chase Manhattan Bank, as
Backup Servicer (without exhibits)
4.4 Receivables Purchase Agreement and
Assignment, dated as of June 1, 1997, by and
between Arcadia Receivables Finance Corp., as
Purchaser, and Arcadia Financial Ltd., as Seller
(without exhibits)
4.5 Financial Guaranty Insurance Policy issued by
Financial Security Assurance Inc. with respect
to the Automobile Receivables-Backed Notes
8.1 Opinion and Consent of Dorsey & Whitney
LLP with respect to tax matters
23.1 Consent of Dorsey & Whitney LLP (included as
part of Exhibit 8.1)
23.2 Consent of Coopers & Lybrand L.L.P.
<PAGE>
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.
Dated: July 19, 1997 ARCADIA RECEIVABLES FINANCE CORP.,
as originator of Arcadia Automobile
Receivables Trust, 1997-B
By: /s/ Brian S. Anderson
---------------------
Brian S. Anderson
Senior Vice President
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Page
- -------------- ----
4.1 Trust Agreement, dated as of June 1, 1997, among
Arcadia Receivables Finance Corp., Financial Security
Assurance Inc. and Mellon Bank (DE), National
Association, as Owner Trustee (without exhibits)
4.2 Indenture, dated as of June 1, 1997, between Arcadia
Automobile Receivables Trust, 1997-B and
The Chase Manhattan Bank, as Trustee and
Indenture Collateral Agent (without exhibits)
4.3 Sale and Servicing Agreement, dated as of June 1,
1997, among Arcadia Automobile Receivables Trust,
1997-B, as Issuer, Arcadia Receivables Finance Corp.,
as Seller, Arcadia Financial Ltd., in its individual
capacity and as Servicer, and The Chase Manhattan
Bank, as Backup Servicer (without exhibits)
4.4 Receivables Purchase Agreement and
Assignment, dated as of June 1, 1997, by and
between Arcadia Receivables Finance Corp., as
Purchaser, and Arcadia Financial Ltd., as Seller
(without exhibits)
4.5 Financial Guaranty Insurance Policy issued by
Financial Security Assurance Inc. with respect to the
Automobile Receivables-Backed Notes
8.1 Opinion and Consent of Dorsey & Whitney LLP with
respect to tax matters
23.1 Consent of Dorsey & Whitney LLP (included as part of
Exhibit 8.1)
23.2 Consent of Coopers & Lybrand L.L.P.<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
EXHIBITS
To
FORM 8-K
ARCADIA RECEIVABLES FINANCE CORP.
as originator of
ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1997-B
<PAGE>
EXHIBIT 4.1
TRUST AGREEMENT
Dated as of June 1, 1997
among
ARCADIA RECEIVABLES FINANCE CORP.,
FINANCIAL SECURITY ASSURANCE INC.
and
MELLON BANK (DE), NATIONAL ASSOCIATION
Owner Trustee
ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1997-B
<PAGE>
TABLE OF CONTENTS
PAGE
INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I - DEFINITIONS . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1. Definitions. . . . . . . . . . . . . . . . . 1
SECTION 1.2. Usage of Terms . . . . . . . . . . . . . . . 3
SECTION 1.3. Section References . . . . . . . . . . . . . 4
SECTION 1.4. Material Adverse Effect. . . . . . . . . . . 4
ARTICLE II - CREATION OF TRUST. . . . . . . . . . . . . . . . . 4
SECTION 2.1. Creation of Trust . . . . . . . . . . . . . 4
SECTION 2.2. Office . . . . . . . . . . . . . . . . . . . 4
SECTION 2.3. Purposes and Powers. . . . . . . . . . . . . 4
SECTION 2.4. Appointment of Owner Trustee . . . . . . . . 5
SECTION 2.5. Initial Capital Contribution of
Trust Estate. . . . . . . . . . . . . . . . 5
SECTION 2.6. Declaration of Trust . . . . . . . . . . . . 5
SECTION 2.7. Liability of the Depositor . . . . . . . . . 6
SECTION 2.8. Title to Trust Property . . . . . . . . . . 6
SECTION 2.9. Situs of Trust . . . . . . . . . . . . . . . 6
SECTION 2.10. Representations and Warranties of
the Depositor . . . . . . . . . . . . . . . 6
SECTION 2.11. Federal Income Tax Treatment . . . . . . . . 7
SECTION 2.12. Covenants of the Depositor . . . . . . . . . 8
SECTION 2.13. Ownership of Trust . . . . . . . . . . . . . 9
SECTION 2.14. Maintenance of Office or Agency. . . . . . . 9
ARTICLE III - ACTIONS BY OWNER TRUSTEE. . . . . . . . . . . . . 10
SECTION 3.1. Action by the Security Insurer with
Respect to Bankruptcy . . . . . . . . . . . 10
SECTION 3.2. Rights of Security Insurer . . . . . . . . . 10
ARTICLE IV - CERTAIN DUTIES OF TRUST. . . . . . . . . . . . . . 10
SECTION 4.1. Accounting; Reports; Tax Returns . . . . . . 10
ARTICLE V - AUTHORITY AND DUTIES OF OWNER TRUSTEE . . . . . . . 11
SECTION 5.1. General Authority. . . . . . . . . . . . . . 11
SECTION 5.2. General Duties . . . . . . . . . . . . . . . 12
SECTION 5.3. Action upon Instruction. . . . . . . . . . . 12
SECTION 5.4. No Duties Except as Specified in
this Agreement or in Instructions . . . . . 13
SECTION 5.5. No Action Except under Specified
Documents or Instructions . . . . . . . . . 13
SECTION 5.6. Restrictions . . . . . . . . . . . . . . . . 14
SECTION 5.7. Administration Agreement . . . . . . . . . . 14
-i-
<PAGE>
ARTICLE VI - CONCERNING THE OWNER TRUSTEE . . . . . . . . . . . 14
SECTION 6.1. Acceptance of Trustee and Duties . . . . . . 14
SECTION 6.2. Representations and Warranties . . . . . . . 16
SECTION 6.3. Reliance; Advice of Counsel. . . . . . . . . 17
SECTION 6.4. Not Acting in Individual Capacity. . . . . . 17
SECTION 6.5. Owner Trustee Not Liable for Notes
or Receivables. . . . . . . . . . . . . . . 17
SECTION 6.6. Owner Trustee May Own Notes . . . . . . . . 18
ARTICLE VII - COMPENSATION OF OWNER TRUSTEE . . . . . . . . . . 18
SECTION 7.1. Owner Trustee's Fees and Expenses. . . . . . 18
SECTION 7.2. Indemnification. . . . . . . . . . . . . . . 18
SECTION 7.3. Non-recourse Obligations . . . . . . . . . . 19
ARTICLE VIII - TERMINATION. . . . . . . . . . . . . . . . . . . 19
SECTION 8.1. Termination of the Trust . . . . . . . . . . 19
SECTION 8.2. Dissolution Events with respect
to the Depositor. . . . . . . . . . . . . . 20
ARTICLE IX - SUCCESSOR OWNER TRUSTEES AND ADDITIONAL
OWNER TRUSTEES. . . . . . . . . . . . . . . . . . 20
SECTION 9.1. Eligibility Requirements for Owner
Trustee . . . . . . . . . . . . . . . . . . 20
SECTION 9.2. Resignation or Removal of Owner Trustee. . . 21
SECTION 9.3. Successor Owner Trustee . . . . . . . . . . 22
SECTION 9.4. Merger or Consolidation of Owner Trustee . . 22
SECTION 9.5. Appointment of Co-Trustee or Separate
Trustee . . . . . . . . . . . . . . . . . . 22
ARTICLE X - MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . 24
SECTION 10.1. Amendment. . . . . . . . . . . . . . . . . . 24
SECTION 10.2. Governing Law. . . . . . . . . . . . . . . . 25
SECTION 10.3. Severability of Provisions . . . . . . . . . 25
SECTION 10.4. Third-Party Beneficiaries. . . . . . . . . . 25
SECTION 10.5. Counterparts . . . . . . . . . . . . . . . . 26
SECTION 10.6. Notices. . . . . . . . . . . . . . . . . . . 26
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
-ii-
<PAGE>
THIS TRUST AGREEMENT, dated as of June 1, 1997, is made among Arcadia
Receivables Finance Corp., a Delaware corporation (the "Seller"), Financial
Security Assurance Inc. ("Financial Security") and Mellon Bank (DE), National
Association, a Delaware corporation, as Owner Trustee (in such capacity, the
"Owner Trustee").
In consideration of the mutual agreements herein contained, and of
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. All terms defined in the Spread Account
Agreement or the Sale and Servicing Agreement (each as defined below) shall have
the same meaning in this Agreement. Whenever capitalized and used in this
Agreement, the following words and phrases, unless otherwise specified, shall
have the following meanings:
ADMINISTRATION AGREEMENT: The Administration Agreement, dated as of
June 19, 1997, between the Administrator and the Trust, as the same may be
amended and supplemented from time to time.
ADMINISTRATOR: Mellon Bank (DE), National Association, a Delaware
corporation, or any successor Administrator under the Administration Agreement.
AFL: Arcadia Financial Ltd., a Minnesota corporation, and its
successors in interest.
AGREEMENT OR "THIS AGREEMENT": This Trust Agreement, all amendments
and supplements thereto and all exhibits and schedules to any of the foregoing.
AUTHENTICATION AGENT: Mellon Bank (DE), National Association, or its
successor in interest, and any successor authentication agent appointed as
provided in this Agreement.
BUSINESS TRUST STATUTE: Chapter 38 of Title 12 of the Delaware Code,
12 Del. Code Section 3801 et seq., as the same may be amended from time to time.
CERTIFICATE OF TRUST: The Certificate of Trust in the form of Exhibit
A hereto filed for the Trust pursuant to Section 3810(a) of the Business Trust
Statute.
CODE: The Internal Revenue Code of 1986, as amended.
<PAGE>
CORPORATE TRUST OFFICE: The principal office of the Owner Trustee at
which at any particular time its corporate trust business shall be administered,
which office at the Closing Date is located at 919 North Market Street, Second
Floor, Wilmington, Delaware 19801, Attention: Robert M. Bell; the telecopy
number for such office on the date of the execution of this Agreement is (302)
421-2323.
DEPOSITOR: The Seller in its capacity as depositor hereunder.
DISSOLUTION EVENT: With respect to the Depositor, means the
termination or dissolution of such Person, or the occurrence of an Insolvency
Event with respect to such Person.
EXPENSES: The meaning assigned to such term in Section 7.2.
INDEMNIFIED PARTIES: The meaning assigned to such term in Section 7.2.
INDEMNIFIED PARTIES: The meaning assigned to such term in Section 7.2.
INSTRUCTING PARTY: The meaning assigned to such term in
Section 5.3(a).
OWNER TRUSTEE: Mellon Bank (DE), National Association, or its
successor in interest, acting not individually but solely as trustee, and any
successor trustee appointed as provided in this Agreement.
RECORD DATE: With respect to any Distribution Date, the close of
business on the last Business Day immediately preceding such Distribution Date.
RELATED DOCUMENTS: The Sale and Servicing Agreement, the Indenture,
the Notes, the Purchase Agreements, each Subsequent Transfer Agreement, each
Subsequent Purchase Agreement, the Custodian Agreement, the Note Policy, the
Spread Account Agreement, the Stock Pledge Agreement, the Insurance Agreement,
the Administration Agreement, the Lockbox Agreement, the Depository Agreement,
and the Underwriting Agreement between AFL and the Seller and the underwriters
of the Notes. The Related Documents executed by any party are referred to
herein as "such party's Related Documents," "its Related Documents" or by a
similar expression.
SALE AND SERVICING AGREEMENT: The Sale and Servicing Agreement, dated
as of June 1, 1997 among the Trust, the Seller, AFL, in its individual capacity
and as Servicer, and The Chase Manhattan Bank, National Association, as Backup
Servicer, as the same may be amended and supplemented from time to time.
SECRETARY OF STATE: The Secretary of State of the State of Delaware.
-2-
<PAGE>
SECURITY INSURER: Financial Security Assurance Inc., or its successor
in interest.
SELLER: Arcadia Receivables Finance Corp., a Delaware corporation, or
its successor in interest.
SPREAD ACCOUNT: The Series 1997-B Spread Account established and
maintained pursuant to the Spread Account Agreement.
SPREAD ACCOUNT AGREEMENT: The Spread Account Agreement, dated as of
March 25, 1993, as amended and restated as of June 1, 1997, among the Seller,
AFL, the Security Insurer, the Collateral Agent and the Indenture Trustee, as
the same may be amended, supplemented or otherwise modified in accordance with
the terms thereof.
STOCK PLEDGE AGREEMENT: The Second Amended and Restated Stock Pledge
Agreement, dated as of March 25, 1993, as amended and restated as of December 3,
1996, among the Security Insurer, AFL and the Collateral Agent, relating to the
stock of each of Arcadia First GP Inc., Arcadia Second GP Inc. and the Seller,
as the same may be amended from time to time.
TRUST: The trust created by this Agreement, the estate of which
consists of the Trust Property.
TRUST ACCOUNTS: The Collection Account, the Subcollection Account, the
Lockbox Account, the Pre-Funding Account, the Reserve Account and the Note
Distribution Account.
TRUST PROPERTY: The property and proceeds of every description
conveyed pursuant to Section 2.5 hereof and Sections 2.1 and 2.4 of the Sale and
Servicing Agreement, together with the Trust Accounts (including all Eligible
Investments therein and all proceeds therefrom).
SECTION 1.2. USAGE OF TERMS. With respect to all terms used in this
Agreement, the singular includes the plural and the plural the singular; words
importing 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 terms "include"
or "including" mean "include without limitation" or "including without
limitation." To the extent that definitions are contained in this Agreement, or
in any such certificate or other document, such definitions shall control.
-3-
<PAGE>
SECTION 1.3. SECTION REFERENCES. All references to Articles,
Sections, paragraphs, subsections, exhibits and schedules shall be to such
portions of this Agreement unless otherwise specified.
SECTION 1.4. MATERIAL ADVERSE EFFECT. Whenever a determination is to
be made under this Agreement as to whether a given event, action, course of
conduct or set of facts or circumstances could or would have a material adverse
effect on the Trust (or any similar or analogous determination), such
determination shall be made without taking into account the insurance provided
by the Note Policy.
ARTICLE II
CREATION OF TRUST
SECTION 2.1. CREATION OF TRUST. There is hereby formed a trust to be
known as "Arcadia Automobile Receivables Trust, 1997-B," in which name the Trust
may conduct business, make and execute contracts and other instruments and sue
and be sued.
SECTION 2.2. OFFICE. The office of the Trust shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address in Delaware
as the Owner Trustee may designate by written notice to the Security Insurer and
the Depositor.
SECTION 2.3. PURPOSES AND POWERS. The purpose of the Trust is, and
the Trust shall have the power and authority, to engage in the following
activities:
(i) to issue the Notes pursuant to the Indenture and to sell the
Notes;
(ii) with the proceeds of the sale of the Notes, to fund the
Pre-Funding Account and the Reserve Account, to pay the organizational,
start-up and transactional expenses of the Trust and to pay the balance
to the Seller pursuant to the Sale and Servicing Agreement;
(iii) to assign, grant, transfer, pledge, mortgage and convey the
Trust Property to the Indenture Collateral Agent pursuant to the Indenture
for the benefit of the Security Insurer and the Indenture Trustee on behalf
of the Noteholders and to hold, manage and distribute to the Depositor
pursuant to the terms of the Sale and Servicing Agreement any portion of
the Trust Property released from the Lien of, and remitted to the Trust
pursuant to, the Indenture;
-4-
<PAGE>
(iv) to enter into and perform its obligations under the Related
Documents to which it is to be a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith; and
(vi) subject to compliance with the Related Documents, to engage in
such other activities as may be required in connection with conservation
of the Trust Property and the making of distributions to the Noteholders.
The Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or expressly authorized by the terms of this Agreement or
the Related Documents.
SECTION 2.4. APPOINTMENT OF OWNER TRUSTEE. The Depositor hereby
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein, and the
Owner Trustee hereby accepts such appointment.
SECTION 2.5. INITIAL CAPITAL CONTRIBUTION OF TRUST ESTATE. The
Depositor hereby sells, assigns, transfers, conveys and sets over to the Owner
Trustee, as of the date hereof, the sum of $10. The Owner Trustee hereby
acknowledges receipt in trust from the Depositor, as of the date hereof, of the
foregoing contribution, which shall constitute the initial Trust Property. The
Depositor shall pay organizational expenses of the Trust as they may arise or
shall, upon the request of the Owner Trustee, promptly reimburse the Owner
Trustee for any such expenses paid by the Owner Trustee.
SECTION 2.6. DECLARATION OF TRUST. The Owner Trustee hereby declares
that it will hold the Trust Property in trust upon and subject to the conditions
set forth herein, subject to the interests and rights in the Trust Property
granted to other Persons by the Related Documents. It is the intention and
agreement of the parties hereto that the Trust constitute a business trust under
the Business Trust Statute and that this Agreement constitute the governing
instrument of such business trust. None of the parties hereto shall make the
election provided in Treasury Regulation Section 301.7701-3(c) to have the Trust
classified as an association taxable as a corporation. On the date hereof, the
Owner Trustee shall file the Certificate of Trust required by Section 3810(a) of
the Business Trust Statute in the Office of the Secretary of State. Effective
as of the date hereof, the Owner Trustee shall have all rights, powers and
duties set forth herein and in the Business Trust Statute with respect to
accomplishing the purposes of the Trust.
-5-
<PAGE>
SECTION 2.7. LIABILITY OF THE DEPOSITOR. The Depositor shall be
liable directly to indemnify each injured party for all losses, claims, damages,
liabilities and expenses of the Trust, to the extent not paid out of the Trust
Property, to the extent provided in, and subject to the terms and conditions
contained in, the Spread Account Agreement; PROVIDED, FURTHER, that the
Depositor shall not be liable to indemnify any injured party if such party has
agreed that its recourse against the Trust for any obligation or liability of
the Trust to such party shall be limited to the assets of the Trust. In
addition, any third party creditors of the Trust (other than in connection with
the obligations described in the provisos to the preceding sentence for which
the Depositor shall not be liable) shall be deemed third party beneficiaries of
this paragraph.
SECTION 2.8. TITLE TO TRUST PROPERTY. Legal title to all the Trust
Property shall be vested at all times in the Trust as a separate legal entity
except where applicable law in any jurisdiction requires title to any part of
the Trust Property to be vested in a trustee or trustees, in which case title
shall be deemed to be vested in the Owner Trustee, a co-trustee and/or a
separate trustee, as the case may be.
SECTION 2.9. SITUS OF TRUST. The Trust will be located and
administered in the State of Delaware. All bank accounts maintained by the
Owner Trustee on behalf of the Trust shall be located in the State of Delaware.
The Trust shall not have any employees in any state other than Delaware;
PROVIDED, HOWEVER, that nothing herein shall restrict or prohibit the Owner
Trustee, the Servicer or any agent of the Trust from having employees within or
without the State of Delaware. Payments will be received by the Trust only in
Delaware, and payments will be made by the Trust only from Delaware. The only
office of the Trust will be at the Corporate Trust Office in Delaware.
SECTION 2.10. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR. By
execution of this Agreement, the Depositor makes the following representations
and warranties with respect to itself on which the Owner Trustee relies in
accepting the Trust Property in trust and upon which the Security Insurer relies
in issuing the Note Policy.
(a) ORGANIZATION AND GOOD STANDING. It has been duly organized and
is validly existing as a corporation in good standing under the laws of the
State of Delaware, with power and authority to own its properties and to conduct
its business as such properties are currently owned and as such business is
currently conducted and is proposed to be conducted pursuant to this Agreement
and the Related Documents.
(b) DUE QUALIFICATION. It is duly qualified to do business as a
foreign corporation in good standing, and has obtained all necessary licenses
and approvals, in all jurisdictions in which the ownership or lease of its
property, the conduct of its
-6-
<PAGE>
business and the performance of its obligations under this Agreement and the
Related Documents requires such qualification.
(c) POWER AND AUTHORITY. It has the power and authority to execute
and deliver this Agreement and its Related Documents and to perform its
obligations pursuant thereto; and the execution, delivery and performance of
this Agreement and its Related Documents have been duly authorized by all
necessary corporate action.
(d) NO CONSENT REQUIRED. No consent, license, approval or
authorization or registration or declaration with, any Person or with any
governmental authority, bureau or agency is required in connection with the
execution, delivery or performance of this Agreement and the Related Documents,
except for such as have been obtained, effected or made.
(e) NO VIOLATION. The consummation of the transactions contemplated
by this Agreement and its Related Documents and the fulfillment of its
obligations under this Agreement and its Related Documents shall not conflict
with, result in any breach of any of the terms and provisions of or constitute
(with or without notice, lapse of time or both) a default under, its certificate
of incorporation or by-laws, or any indenture, agreement, mortgage, deed of
trust or other instrument to which it is a party or by which it is bound, or
result in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such indenture, agreement, mortgage, deed of trust
or other instrument, or violate any law, order, rule or regulation applicable to
it of any court or of any federal or state regulatory body, administrative
agency or other governmental instrumentality having jurisdiction over it or any
of its properties.
(f) NO PROCEEDINGS. There are no proceedings or investigations
pending or, to its knowledge threatened against it before any court, regulatory
body, administrative agency or other tribunal or governmental instrumentality
having jurisdiction over it or its properties (A) asserting the invalidity of
this Agreement or any of the Related Documents, (B) seeking to prevent the
issuance of the Notes or the consummation of any of the transactions
contemplated by this Agreement or any of the Related Documents, or (C) seeking
any determination or ruling that might materially and adversely affect its
performance of its obligations under, or the validity or enforceability of, this
Agreement or any of the Related Documents.
SECTION 2.11. FEDERAL INCOME TAX TREATMENT. The Depositor, the
Servicer, the Owner Trustee and each Noteholder agree to treat, and to take no
action inconsistent with the treatment of, the Notes as indebtedness for
purposes of federal, state, local and foreign income or franchise taxes and any
other tax imposed on or measured by income. Each Noteholder, by acceptance of
its Note, agrees to be bound by the provisions of this Section 2.11. Each
Noteholder agrees that it will cause any Note Owner acquiring an interest in a
Note through it to comply with this Agreement as to the treatment of the Notes
as indebtedness under applicable tax
-7-
<PAGE>
law, as described in this Section 2.11. Furthermore, subject to Section 4.1,
the Depositor and the Trustee shall treat the Trust as a security device
only, and shall not file tax returns or obtain an employer identification
number on behalf of the Trust.
In the event that any class of Notes is deemed for federal income tax
purposes to represent an equity interest in the Trust, the Trust shall be
treated for federal income tax purposes as a partnership among the Holders of
such Notes and the Depositor. In the event such a partnership is deemed to
exist, the net income of the Trust for any month as determined for Federal
income tax purposes (and each item of income, gain, loss and deduction entering
into the computation thereof) shall be allocated:
(a) among the Noteholders as of the first Record Date following the
end of such month, in proportion to their ownership of principal amount of
Notes on such date, an amount of net income up to the sum of
(i) Noteholders' Interest Distributable Amount for such month, (ii) the
portion of the market discount on the Receivables accrued during such
month that is allocable to the excess of the initial aggregate principal
amount of the Notes over their initial aggregate issue price, and (iii) any
Note Prepayment Premium distributable to the Noteholders with respect to
such month; and
(b) next, to the Depositor to the extent of any remaining net income.
If the net income of the Trust for any month is insufficient for the allocations
described in clause (a) above, subsequent net income shall first be allocated to
make up such shortfall before being allocated as provided in clause (b). Net
losses of the Trust, if any, for any month as determined for Federal income tax
purposes (and each item of income, gain, loss and deduction entering into the
computation thereof) shall be allocated to the Depositor to the extent the
Depositor is reasonably expected to bear the economic burden of such net losses,
then net losses shall be allocated among the Noteholders as of the first Record
Date following the end of such month in proportion to their ownership of
principal amount of the Notes on such Record Date. The Depositor is authorized
to modify the allocation in this paragraph if necessary or appropriate, in its
sole discretion, for the allocations to reflect fairly the economic income, gain
or loss to the Noteholders to comply with the provisions of the Code and the
accompanying Treasury Regulations.
SECTION 2.12. COVENANTS OF THE DEPOSITOR. The Depositor agrees and
covenants for the benefit of the Security Insurer and the Owner Trustee, during
the term of this Agreement, and to the fullest extent permitted by applicable
law, that:
(a) it shall not sell, assign, transfer, give or encumber, by
operation of law or otherwise, in whole or in part, its interest in the
Trust;
-8-
<PAGE>
(b) it shall not create, incur or suffer to exist any indebtedness
or engage in any business, except, in each case, as permitted by its certificate
of incorporation and the Related Documents;
(c) it shall not, for any reason, institute proceedings for the
Trust to be adjudicated a bankrupt or insolvent, or consent to the institution
of bankruptcy or insolvency proceedings against the Trust, or file a petition
seeking or consenting to reorganization or relief under any applicable federal
or state law relating to the bankruptcy of the Trust, or consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Trust or a substantial part of the property of the
Trust or cause or permit the Trust to make any assignment for the benefit of
creditors, or admit in writing the inability of the Trust to pay its debts
generally as they become due, or declare or effect a moratorium on the debt of
the Trust or take any action in furtherance of any such action;
(d) it shall obtain from each counterparty to each Related
Document to which it or the Trust is a party and each other agreement entered
into on or after the date hereof to which it or the Trust is a party, an
agreement by each such counterparty that prior to the occurrence of the event
specified in Section 8.1(c) such counterparty shall not institute against, or
join any other Person in instituting against, it or the Trust, any
bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings or other similar proceedings under the laws of the United States
or any state of the United States;
(e) it shall not, for any reason, withdraw or attempt to withdraw
from this Agreement, dissolve, institute proceedings for it to be
adjudicated a bankrupt or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against it, or file a petition seeking
or consenting to reorganization or relief under any applicable federal or state
law relating to bankruptcy, or consent to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of it or
a substantial part of its property, or make any assignment for the benefit of
creditors, or admit in writing its inability to pay its debts generally as they
become due, or declare or effect a moratorium on its debt or take any action in
furtherance of any such action.
SECTION 2.13. OWNERSHIP OF TRUST. Upon the formation of the Trust
by the contribution by the Depositor pursuant to Section 2.5, the Depositor
shall be the sole beneficiary of the Trust.
SECTION 2.14. MAINTENANCE OF OFFICE OR AGENCY. The Owner Trustee
shall maintain in Wilmington, Delaware, an office or offices or agency or
agencies where notices and demands to or upon the Owner Trustee in respect of
the Related Documents may be served. The Owner Trustee initially designates
Mellon Bank
-9-
<PAGE>
(DE), National Association, 2 Mellon Bank Center, Pittsburgh, PA 15259 as its
principal corporate trust office for such purposes. The Owner Trustee shall
give prompt written notice to the Depositor and the Security Insurer of any
change in the location of any such office or agency.
ARTICLE III
ACTIONS BY OWNER TRUSTEE
SECTION 3.1. ACTION BY THE SECURITY INSURER WITH RESPECT TO
BANKRUPTCY. The Owner Trustee shall not have the power to commence a
voluntary proceeding in bankruptcy relating to the Trust without the prior
written consent of the Security Insurer.
SECTION 3.2. RIGHTS OF SECURITY INSURER. Notwithstanding anything
to the contrary in the Related Documents, without the prior written consent
of the Security Insurer (so long as no Insurer Default shall have occurred
and be continuing), the Owner Trustee shall not (i) remove the Administrator,
the Servicer or the Backup Servicer, (ii) initiate any claim, suit or
proceeding by the Trust or compromise any claim, suit or proceeding brought
by or against the Trust, (iii) authorize the merger or consolidation of the
Trust with or into any other business trust or other entity (other than in
accordance with Section 3.10 of the Indenture) or (iv) amend the Certificate
of Trust.
ARTICLE IV
CERTAIN DUTIES OF TRUST
SECTION 4.1. ACCOUNTING; REPORTS; TAX RETURNS.
(a) The Administrator has agreed pursuant to the Administration
Agreement that the Administrator shall (i) maintain (or cause to be
maintained) the books of the Trust on a calendar year basis on the accrual
method of accounting, and (ii) file or cause to be filed all documents
required to be filed by the Trust with the Securities and Exchange Commission
and otherwise take or cause to be taken all such actions as are notified by
the Servicer in writing to the Administrator as being required for the
Trust's compliance with all applicable provisions of state and federal
securities laws.
(b) Consistent with Section 2.11, the Depositor, the Owner Trustee
and the Administrator shall not file any federal income tax returns on behalf
of the Trust; provided, however, that if any class of Notes is treated as an
equity interest in the Trust, the Administrator shall file or cause to be
filed such tax returns relating to the Trust (including a partnership
information return, Form 1065), and direct the
-10-
<PAGE>
Owner Trustee to make such elections as may from time to time be required or
appropriate under any applicable state or Federal statute or rule or regulation
thereunder so as to maintain the Trust's characterization as a partnership for
Federal income tax purposes. If the Trust is treated as a partnership for
federal income tax purposes, the Depositor shall be the "tax matters partner"
of the Trust pursuant to the Code.
(c) The Owner Trustee shall make all elections pursuant to this
Section 4.1 only as directed in writing by the Depositor, with the consent of
the Security Insurer. The Depositor hereby directs the Owner Trustee to
elect under Section 1278 of the Code to include in income currently any
market discount that accrues with respect to the Receivables.
(d) Upon the direction of the Depositor, the Owner Trustee shall
sign on behalf of the Trust the tax returns of the Trust, if any, unless
applicable law requires the Depositor to sign such documents, in which case
such documents shall be signed by the Depositor. In signing any tax return
of the Trust, the Owner Trustee shall rely entirely upon, and shall have no
liability for, information or calculations provided by the Depositor.
(e) None of the parties hereto shall make the election provided in
Treasury Regulation Section 301.7701-3(c) to have the Trust classified as an
association taxable as a corporation.
ARTICLE V
AUTHORITY AND DUTIES OF OWNER TRUSTEE
SECTION 5.1. GENERAL AUTHORITY. The Owner Trustee is authorized
and directed to execute and deliver the Related Documents to which the Trust
is to be a party and each certificate or other document attached as an
exhibit to or contemplated by the Related Documents to which the Trust is to
be a party and any amendment thereto, and on behalf of the Trust, to direct
the Indenture Trustee to authenticate and deliver the Class A-1 Notes in the
aggregate principal amount of $82,000,000, the Class A-2 Notes in the
aggregate principal amount of $210,000,000, the Class A-3 Notes in the
aggregate principal amount of $170,000,000, the Class A-4 Notes in the
aggregate principal amount of $150,000,000, and the Class A-5 Notes in the
aggregate principal amount of $163,000,000. In addition to the foregoing,
the Owner Trustee is authorized, but shall not be obligated, to take all
actions required of the Trust pursuant to the Related Documents. The Owner
Trustee is further authorized, on behalf of the Trust, to enter into the
Administration Agreement, to appoint, with the consent of the Security
Insurer, a successor Administrator and to take from time to time such action
as the Instructing Party recommends with respect to the Related Documents so
long as such actions are consistent with the terms of the Related Documents.
-11-
<PAGE>
SECTION 5.2. GENERAL DUTIES. It shall be the duty of the Owner
Trustee to discharge (or cause to be discharged through the Administrator or
such agents as shall be appointed with the consent of the Security Insurer)
all of its responsibilities pursuant to the terms of this Agreement and the
Related Documents subject to the Related Documents and in accordance with the
provisions of this Agreement. Notwithstanding the foregoing, the Owner
Trustee shall be deemed to have discharged its duties and responsibilities
hereunder and under the Related Documents to the extent the Administrator has
agreed in the Administration Agreement to perform any act or to discharge any
duty of the Owner Trustee hereunder or under any Related Document, and the
Owner Trustee shall not be liable for the default or failure of the
Administrator to carry out its obligations under the Administration
Agreement. Notwithstanding anything herein or in any Related Document to the
contrary, the Owner Trustee shall discharge its obligations pursuant to
Section 5.3 and Section 5.4 of the Sale and Servicing Agreement directly and
not through the Administrator or any agent.
SECTION 5.3. ACTION UPON INSTRUCTION.
(a) Subject to Article IV and the terms of the Spread Account
Agreement, the Security Insurer (so long as an Insurer Default shall not have
occurred and be continuing) or the Depositor (if an Insurer Default shall
have occurred and be continuing) (the "Instructing Party") shall have the
exclusive right to direct the actions of the Owner Trustee in the management
of the Trust, so long as such instructions are not inconsistent with the
express terms set forth herein or in any Related Document. The Instructing
Party shall not instruct the Owner Trustee in a manner inconsistent with this
Agreement or the Related Documents.
(b) The Owner Trustee shall not be required to take any action
hereunder or under any Related Document if the Owner Trustee shall have
reasonably determined, or shall have been advised by counsel, that such
action is contrary to the terms hereof or of any Related Document or is
otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between
alternative courses of action permitted or required by the terms of this
Agreement or any Related Document, the Owner Trustee shall promptly give
notice (in such form as shall be appropriate under the circumstances) to the
Instructing Party requesting instruction as to the course of action to be
adopted, and to the extent the Owner Trustee acts in good faith in accordance
with any written instruction received from the Instructing Party, the Owner
Trustee shall not be liable on account of such action to any Person. If the
Owner Trustee shall not have received appropriate instruction within ten days
of such notice (or within such shorter period of time as reasonably may be
specified in such notice or may be necessary under the circumstances) it may,
but shall be under no duty to, take or refrain from taking such action, not
inconsistent with this Agreement or the Related Documents, and shall have no
liability to any Person for such action or inaction.
-12-
<PAGE>
(d) In the event that the Owner Trustee is unsure as to the
application of any provision of this Agreement or any Related Document or any
such provision is ambiguous as to its application, or is, or appears to be,
in conflict with any other applicable provision, or in the event that this
Agreement permits any determination by the Owner Trustee or is silent or is
incomplete as to the course of action that the Owner Trustee is required to
take with respect to a particular set of facts, the Owner Trustee may give
notice (in such form as shall be appropriate under the circumstances) to the
Instructing Party requesting instruction and, to the extent that the Owner
Trustee acts or refrains from acting in good faith in accordance with any
such instruction received, the Owner Trustee shall not be liable, on account
of such action or inaction, to any Person. If the Owner Trustee shall not
have received appropriate instruction within 10 days of such notice (or
within such shorter period of time as reasonably may be specified in such
notice or may be necessary under the circumstances) it may, but shall be
under no duty to, take or refrain from taking such action, not inconsistent
with this Agreement or the Related Documents, as it shall deem to be in the
best interests of the Owners, and shall have no liability to any Person for
such action or inaction.
SECTION 5.4. NO DUTIES EXCEPT AS SPECIFIED IN THIS AGREEMENT OR IN
INSTRUCTIONS. The Owner Trustee shall not have any duty or obligation to
manage, make any payment with respect to, register, record, sell, dispose of,
or otherwise deal with the Trust Property, or to otherwise take or refrain
from taking any action under, or in connection with, any document
contemplated hereby to which the Trust is a party, except as expressly
provided by the terms of this Agreement (including as provided in Section
5.2) or in any written instruction received by the Owner Trustee pursuant to
Section 5.3; and no implied duties or obligations shall be read into this
Agreement or any Related Document against the Owner Trustee. The Owner
Trustee shall have no responsibility for preparing, monitoring or filing any
financing or continuation statements in any public office at any time or
otherwise to perfect or maintain the perfection of any security interest or
lien granted to it hereunder or to record this Agreement or any Related
Document; however, the Owner Trustee will from time to time execute and
deliver such financing or continuation statements as are prepared by the
Servicer and delivered to the Owner Trustee for its execution on behalf of
the Trust for the purpose of perfecting or maintaining the perfection of such
a security interest or lien or effecting such a recording. The Owner Trustee
nevertheless agrees that it will, at its own cost and expense (and not at the
expense of the Trust), promptly take all action as may be necessary to
discharge any liens on any part of the Trust Property that are attributable
to claims against the Owner Trustee in its individual capacity that are not
related to the ownership or the administration of the Trust Property.
SECTION 5.5. NO ACTION EXCEPT UNDER SPECIFIED DOCUMENTS OR
INSTRUCTIONS. The Owner Trustee shall not manage, control, use, sell,
dispose of or otherwise deal with any part of, the Trust Property except (i)
in accordance with the powers granted to and the authority conferred upon the
Owner Trustee pursuant to this Agreement, (ii) in accordance with the Related
Documents and (iii) in
-13-
<PAGE>
accordance with any document or instruction delivered to the Owner Trustee
pursuant to Section 5.3.
SECTION 5.6. RESTRICTIONS. The Owner Trustee shall not take any
action (a) that is inconsistent with the purposes of the Trust set forth in
Section 2.3 or (b) that, to the actual knowledge of the Owner Trustee, would
result in the Trust's becoming taxable as a corporation for Federal income
tax purposes.
SECTION 5.7. ADMINISTRATION AGREEMENT.
(a) The Administrator is authorized to execute on behalf of the
Trust all documents, reports, filings, instruments, certificates and opinions
as it shall be the duty of the Trust to prepare, file or deliver pursuant to
the Related Documents. Upon written request, the Owner Trustee shall execute
and deliver to the Administrator a power of attorney appointing the
Administrator its agent and attorney-in-fact to execute all such documents,
reports, filings, instruments, certificates and opinions.
(b) If the Administrator shall resign or be removed pursuant to
the terms of the Administration Agreement, the Owner Trustee may, and is
hereby authorized and empowered to, subject to obtaining the prior written
consent of the Security Insurer, appoint or consent to the appointment of a
successor Administrator pursuant to the Administration Agreement.
(c) If the Administration Agreement is terminated, the Owner
Trustee may, and is hereby authorized and empowered to, subject to obtaining
the prior written consent of the Security Insurer, appoint or consent to the
appointment of a Person to perform substantially the same duties as are
assigned to the Administrator in the Administration Agreement pursuant to an
agreement containing substantially the same provisions as are contained in
the Administration Agreement.
(d) The Owner Trustee shall promptly notify the Security Insurer
of any default by or misconduct of the Administrator under the Administration
Agreement of which the Owner Trustee has received written notice or of which
a Responsible Officer has actual knowledge.
ARTICLE VI
CONCERNING THE OWNER TRUSTEE
SECTION 6.1. ACCEPTANCE OF TRUSTEE AND DUTIES. The Owner Trustee
accepts the trusts hereby created and agrees to perform its duties hereunder
with respect to such trusts but only upon the terms of this Agreement. The
Owner Trustee also agrees to disburse all monies actually received by it
constituting part of
-14-
<PAGE>
the Trust Property upon the terms of the Related Documents and this
Agreement. The Owner Trustee shall not be answerable or accountable
hereunder or under any Related Document under any circumstances, except (i)
for its own willful misconduct or gross negligence, (ii) in the case of the
inaccuracy of any representation or warranty contained in Section 6.2, (iii)
for liabilities arising from the failure of the Owner Trustee to perform
obligations expressly undertaken by it in the last sentence of Section 5.4
hereof, (iv) for any investments issued by the Owner Trustee or any branch or
affiliate thereof in its commercial capacity or (v) for taxes, fees or other
charges on, based on or measured by, any fees, commissions or compensation
received by the Owner Trustee. In particular, but not by way of limitation
(and subject to the exceptions set forth in the preceding sentence):
(a) the Owner Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Owner Trustee;
(b) the Owner Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the instructions of the Instructing Party;
(c) no provision of this Agreement or any Related Document shall
require the Owner Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of its rights or powers
hereunder or under any Related Document if the Owner Trustee shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured or
provided to it;
(d) under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under this Agreement or any of the
Related Documents, including the principal of and interest on the Notes;
(e) the Owner Trustee shall not be responsible for or in respect
of the validity or sufficiency of this Agreement or for the due execution
hereof by the Depositor or the Security Insurer or for the form, character,
genuineness, sufficiency, value or validity of any of the Trust Property or
for or in respect of the validity or sufficiency of the Related Documents and
the Owner Trustee shall in no event assume or incur any liability, duty, or
obligation to the Security Insurer, the Custodian, the Indenture Trustee or
to any Noteholder, other than as expressly provided for herein and in the
Related Documents;
(f) the Owner Trustee shall not be liable for the default or
misconduct of the Administrator, the Security Insurer, the Custodian, the
Indenture Trustee or the Servicer under any of the Related Documents or
otherwise and the Owner Trustee shall have no obligation or liability to
perform the obligations of the Trust under this Agreement or the Related
-15-
<PAGE>
Documents that are required to be performed by the Administrator under the
Administration Agreement, the Security Insurer under the Note Policy, the
Custodian under the Custodian Agreement, the Indenture Trustee under the
Indenture or the Servicer under the Sale and Servicing Agreement; and
(g) the Owner Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Agreement, or to institute,
conduct or defend any litigation under this Agreement or otherwise or in
relation to this Agreement or any Related Document, at the request, order or
direction of the Instructing Party, unless such Instructing Party has offered
to the Owner Trustee security or indemnity satisfactory to it against the
costs, expenses and liabilities that may be incurred by the Owner Trustee
therein or thereby. The right of the Owner Trustee to perform any
discretionary act enumerated in this Agreement or in any Related Document
shall not be construed as a duty, and the Owner Trustee shall not be
answerable for other than its gross negligence or willful misconduct in the
performance of any such act.
SECTION 6.2. REPRESENTATIONS AND WARRANTIES. The Owner Trustee
hereby represents and warrants to the Depositor and the Security Insurer
(which shall have relied on such representations and warranties in issuing
the Note Policy) that:
(a) It is a banking corporation duly organized and validly
existing in good standing under the laws of the State of Delaware. It has
all requisite corporate power and authority and all franchises, grants,
authorizations, consents, orders and approvals from all governmental
authorities necessary to execute, deliver and perform its obligations under
this Agreement and each Related Document to which the Trust is a party.
(b) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Agreement and each Related Document to
which the Trust is a party, and this Agreement and each Related Document will
be executed and delivered by one of its officers who is duly authorized to
execute and deliver this Agreement on its behalf.
(c) Neither the execution nor the delivery by it of this
Agreement, nor the consummation by it of the transactions contemplated hereby
nor compliance by it with any of the terms or provisions hereof will
contravene any Federal or Delaware law, governmental rule or regulation
governing the banking or trust powers of the Owner Trustee or any judgment or
order binding on it, or constitute any default under its charter documents or
by-laws or any indenture, mortgage, contract, agreement or instrument to
which it is a party or by which any of its properties may be bound or result
in the creation or imposition of any lien, charge or encumbrance on the Trust
Property resulting from actions by or claims against the Owner Trustee
-17-
<PAGE>
individually which are unrelated to this Agreement or the Related Documents.
SECTION 6.3. RELIANCE; ADVICE OF COUNSEL.
(a) The Owner Trustee shall incur no liability to anyone in acting
upon any signature, instrument, notice, resolution, request, consent, order,
certificate, report, opinion, bond, or other document or paper believed by it
to be genuine and believed by it to be signed by the proper party or parties.
The Owner Trustee may accept a certified copy of a resolution of the board
of directors or other governing body of any corporate party as conclusive
evidence that such resolution has been duly adopted by such body and that the
same is in full force and effect. As to any fact or matter the method of the
determination of which is not specifically prescribed herein, the Owner
Trustee may for all purposes hereof rely on a certificate, signed by the
president or any vice president or by the treasurer or other authorized
officers of the relevant party, as to such fact or matter, and such
certificate shall constitute full protection to the Owner Trustee for any
action taken or omitted to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder and
in the performance of its duties and obligations under this Agreement or the
Related Documents, the Owner Trustee (i) may act directly or through its
agents or attorneys pursuant to agreements entered into with any of them, and
the Owner Trustee shall not be liable for the conduct or misconduct of such
agents or attorneys if such agents or attorneys shall have been selected by
the Owner Trustee with reasonable care, and (ii) may consult with counsel,
accountants and other skilled persons to be selected with reasonable care and
employed by it. The Owner Trustee shall not be liable for anything done,
suffered or omitted in good faith by it in accordance with the written
opinion or advice of any such counsel, accountants or other such persons and
not contrary to this Agreement or any Related Document.
SECTION 6.4. NOT ACTING IN INDIVIDUAL CAPACITY. Except as
provided in this Article VII, in accepting the trusts hereby created Mellon
Bank (DE), National Association acts solely as Owner Trustee hereunder and
not in its individual capacity and all Persons having any claim against the
Owner Trustee by reason of the transactions contemplated by this Agreement or
any Related Document shall look only to the Trust Property for payment or
satisfaction thereof.
SECTION 6.5. OWNER TRUSTEE NOT LIABLE FOR NOTES OR RECEIVABLES.
The recitals contained herein shall be taken as the statements of the
Depositor (other than the signature or counter-signature of the Owner Trustee
on the Notes), and the Owner Trustee assumes no responsibility for the
correctness thereof. The Owner Trustee makes no representations as to the
validity or sufficiency of this Agreement or of any Related Document or the
Notes (other than the signature or counter-signature of the Owner Trustee on
the Notes), or of any Receivable or related documents. The Owner Trustee
shall at no time have any responsibility or liability
-17-
<PAGE>
for or with respect to the legality, validity and enforceability of any
Receivable, or the perfection and priority of any security interest created
by any Receivable in any Financed Vehicle or the maintenance of any such
perfection and priority of any security interest created by any Receivable in
any Financed Vehicle or the maintenance of any such perfection and priority,
or for or with respect to the sufficiency of the Trust Property or its
ability to generate the payments to be distributed to the Noteholders under
the Indenture, including, without limitation: the existence, condition and
ownership of any Financed Vehicle; the existence and enforceability of any
insurance thereon; the existence and contents of any Receivable or any
computer or other record thereof; the validity of the assignment of any
Receivable to the Trust or of any intervening assignment; the validity or
sufficiency of the Note Policy; 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 any Related
Document or in any related document or the accuracy of any such warranty or
representation or any action of the Indenture Trustee, the Custodian or the
Servicer taken in the name of the Owner Trustee.
SECTION 6.6. OWNER TRUSTEE MAY OWN NOTES. The Owner Trustee in
its individual or any other capacity may become the owner or pledgee of Notes
and may deal with the Depositor, the Seller, the Indenture Trustee and the
Servicer in banking or other transactions with the same rights as it would
have if it were not Owner Trustee.
ARTICLE VII
COMPENSATION OF OWNER TRUSTEE
SECTION 7.1. OWNER TRUSTEE'S FEES AND EXPENSES. The Owner Trustee
shall receive as compensation for its services hereunder such fees as have
been separately agreed upon before the date hereof between AFL and the Owner
Trustee, and the Owner Trustee shall be entitled to be reimbursed by AFL for
its other reasonable expenses hereunder, including the reasonable
compensation, expenses and disbursements of such agents, representatives,
experts and counsel as the Owner Trustee may employ in connection with the
exercise and performance of its rights and its duties hereunder; PROVIDED,
HOWEVER, that the Owner Trustee shall only be entitled to reimbursement for
expenses hereunder to the extent such expenses (i) are fees of outside
counsel engaged by the Owner Trustee in respect of the performance of its
obligations hereunder or (ii) relate to the performance of its obligations
pursuant to Section 4.1 hereof.
SECTION 7.2. INDEMNIFICATION. AFL shall be liable as primary
obligor for, and shall indemnify the Owner Trustee in its individual capacity
and its successors, assigns, agents and servants, and any co-trustee
(including William J. Wade) (collectively, the "Indemnified Parties") from
and against, any and all
-18-
<PAGE>
liabilities, obligations, losses, damages, taxes, claims, actions and suits,
and any and all reasonable costs, expenses and disbursements (including
reasonable legal fees and expenses) of any kind and nature whatsoever
(collectively, "Expenses") which may at any time be imposed on, incurred by,
or asserted against the Owner Trustee or any Indemnified Party in any way
relating to or arising out of this Agreement, the Related Documents, the
Trust Property, the administration of the Trust Property or the action or
inaction of the Owner Trustee hereunder, except only that AFL shall not be
liable for or required to indemnify the Owner Trustee from and against
Expenses arising or resulting from any of the matters described in the third
sentence of Section 6.1. The indemnities contained in this Section shall
survive the resignation or termination of the Owner Trustee or the
termination of this Agreement.
SECTION 7.3. NON-RECOURSE OBLIGATIONS. Notwithstanding anything
in this Agreement or any Related Document, the Owner Trustee agrees in its
individual capacity and in its capacity as Owner Trustee for the Trust that
all obligations of the Trust to the Owner Trustee individually or as Owner
Trustee for the Trust shall be recourse to the Trust Property only.
ARTICLE XIII
TERMINATION
SECTION 8.1. TERMINATION OF THE TRUST.
(a) The respective obligations and responsibilities of the
Depositor and the Owner Trustee created by this Agreement and the Trust
created by this Agreement shall terminate upon the latest of (i) the maturity
or other liquidation of the last Receivable (including the purchase as of any
Accounting Date by the Seller or the Servicer at its option of the corpus of
the Trust as described in Section 8.1 of the Sale and Servicing Agreement)
and the subsequent distribution of amounts in respect of such Receivables as
provided in the Related Documents, (ii) the payment to the Security Insurer
of all amounts payable or reimbursable to it pursuant to the Sale and
Servicing Agreement or (iii) at the time provided in Section 8.2. In any
case, there shall be delivered to the Owner Trustee, the Indenture Trustee
and the Rating Agencies an Opinion of Counsel that all applicable preference
periods under federal, state and local bankruptcy, insolvency and similar
laws have expired with respect to the payments pursuant to clause (ii);
PROVIDED, HOWEVER, that in no event shall the trust created by this Agreement
continue beyond the expiration of 21 years from the death of the last
survivor of the descendants living on the date of this Agreement of Rose
Kennedy of the Commonwealth of Massachusetts; and PROVIDED, FURTHER, that the
rights to indemnification under Section 7.2 shall survive the termination of
the Trust. The Servicer shall promptly notify the Owner Trustee and the
Security Insurer of any prospective termination pursuant to this Section 8.1.
<PAGE>
(b) Except as provided in Section 8.1(a), the Depositor shall not
be entitled to revoke or terminate the Trust.
(c) Upon the winding up of the Trust and its termination, the
Owner Trustee shall cause the Certificate of Trust to be canceled by filing a
certificate of cancellation with the Secretary of State in accordance with
the provisions of Section 3810 of the Business Trust Statute.
SECTION 8.2. DISSOLUTION EVENTS WITH RESPECT TO THE DEPOSITOR. In
the event that a Dissolution Event shall occur with respect to the Depositor,
the Owner Trustee promptly upon obtaining knowledge of such occurrence shall
request an opinion of counsel from counsel acceptable to the Security Insurer
to the effect that a failure to terminate the Trust upon the occurrence of
such Dissolution Event (and the transfer, if any, of the interest in the
Trust held by the Depositor) will not cause the Trust to be treated as an
association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes. In the event that the Owner Trustee is unable
to obtain such an opinion the Trust will terminate within 90 days after the
occurrence of the Dissolution Event with respect to the Depositor. Promptly
after the occurrence of the event referred to above, (i) the Depositor shall
give the Indenture Trustee, the Owner Trustee and the Security Insurer
written notice of the occurrence of such event, (ii) the Owner Trustee shall,
upon the receipt of such written notice, give prompt written notice to the
Indenture Trustee of the occurrence of such event and (iii) the Indenture
Trustee shall, upon receipt of written notice of the occurrence of such event
from the Owner Trustee or the Seller, give prompt written notice to the
Noteholders of the occurrence of such event; PROVIDED, HOWEVER, that any
failure to give a notice required by this sentence shall not prevent or
delay, in any manner, a termination of the Trust pursuant to the first
sentence of this Section 8.2. Upon a termination pursuant to this Section,
the Owner Trustee shall direct the Indenture Trustee to sell the assets of
the Trust (other than the Trust Accounts) at one or more private or public
sales conducted in any manner permitted by law. The proceeds of such a sale
of the assets of the Trust shall be distributed as provided in Section 8.1(b)
of the Sale and Servicing Agreement.
ARTICLE IX
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
SECTION 9.1. ELIGIBILITY REQUIREMENTS FOR OWNER TRUSTEE. The
Owner Trustee shall at all times be a corporation (i) satisfying the
provisions of Section 3807(a) of the Business Trust Statute; (ii) authorized to
exercise corporate trust powers; (iii) having a combined capital and surplus
of at least $50,000,000 and subject to supervision or examination by Federal
or State authorities; (iv) having (or having a parent which has) a rating of
at least Baa3 by Moody's or A-1 by Standard & Poor's; and (v) acceptable to
the Security Insurer in its sole discretion, so long as an Insurer Default
shall not have occurred and be continuing. If such corporation shall
-20-
<PAGE>
publish reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for
the purpose of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. In case at any
time the Owner Trustee shall cease to be eligible in accordance with the
provisions of this Section, the Owner Trustee shall resign immediately in the
manner and with the effect specified in Section 9.2.
SECTION 9.2. RESIGNATION OR REMOVAL OF OWNER TRUSTEE. The Owner
Trustee may at any time resign and be discharged from the trusts hereby
created by giving written notice thereof to the Depositor, the Security
Insurer and the Servicer at least 30 days before the date specified in such
instrument. Upon receiving such notice of resignation, the Depositor shall
promptly appoint a successor Owner Trustee meeting the qualifications set
forth in Section 9.1 by written instrument, in duplicate, one copy of which
instrument shall be delivered to the resigning Owner Trustee and one copy to
the successor Owner Trustee, provided that the Depositor shall have received
written confirmation from each of the Rating Agencies that the proposed
appointment will not result in an increased capital charge to the Security
Insurer by either of the Rating Agencies. If no successor Owner Trustee
shall have been so appointed and have accepted appointment within 30 days
after the giving of such notice of resignation, the resigning Owner Trustee
or the Security Insurer may petition any court of competent jurisdiction for
the appointment of a successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 9.1 and shall fail to resign after
written request therefor by the Depositor or if at any time the Owner Trustee
shall be legally unable to act, or shall be adjudged bankrupt or insolvent,
or a receiver of the Owner Trustee or of its property shall be appointed, or
any public officer shall take charge or control of the Owner Trustee or of
its property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Depositor, with the consent of the Security Insurer (so
long as an Insurer Default shall not have occurred and be continuing) may
remove the Owner Trustee. If the Depositor shall remove the Owner Trustee
under the authority of the immediately preceding sentence, the Depositor
shall promptly appoint a successor Owner Trustee meeting the qualification
requirements of Section 9.1 by written instrument, in triplicate, one copy of
which instrument shall be delivered to the outgoing Owner Trustee so removed,
one copy to the Security Insurer and one copy to the successor Owner Trustee
and payment of all fees owed to the outgoing Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of
a successor Owner Trustee pursuant to any of the provisions of this Section
shall not become effective until all fees and expenses, including any
indemnity payments, due to the outgoing Owner Trustee have been paid and
until acceptance of appointment by the successor Owner Trustee pursuant to
Section 9.3. The Depositor
-21-
<PAGE>
shall provide notice of such resignation or removal of the Owner Trustee to
each of the Rating Agencies.
SECTION 9.3. SUCCESSOR OWNER TRUSTEE. Any successor Owner Trustee
appointed pursuant to Section 9.2 shall execute, acknowledge and deliver to
the Depositor, the Security Insurer and to its predecessor Owner Trustee an
instrument accepting such appointment under this Agreement, and thereupon the
resignation or removal of the predecessor Owner Trustee shall become
effective and such successor Owner Trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties,
and obligations of its predecessor under this Agreement, with like effect as
if originally named as Owner Trustee. The predecessor Owner Trustee shall
deliver to the successor Owner Trustee all documents and statements and
monies held by it under this Agreement; and the Depositor and the predecessor
Owner Trustee shall execute and deliver such instruments and do such other
things as may reasonably be required for fully and certainly vesting and
confirming in the successor Owner Trustee all such rights, powers, duties,
and obligations.
No successor Owner Trustee shall accept appointment as provided in
this Section unless at the time of such acceptance such successor Owner
Trustee shall be eligible pursuant to Section 9.1.
Upon acceptance of appointment by a successor Owner Trustee
pursuant to this Section, the Depositor shall mail notice of the successor of
such Owner Trustee to the Indenture Trustee, the Noteholders and the Rating
Agencies. If the Depositor shall fail to mail such notice within 10 days
after acceptance of appointment by the successor Owner Trustee, the successor
Owner Trustee shall cause such notice to be mailed at the expense of the
Depositor.
SECTION 9.4. MERGER OR CONSOLIDATION OF OWNER TRUSTEE. Any
corporation into which the Owner Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Owner Trustee shall be a party, or
any corporation succeeding to all or substantially all of the corporate trust
business of the Owner Trustee, shall be the successor of the Owner Trustee
hereunder, provided such corporation shall be eligible pursuant to Section
9.1, without the execution or filing of any instrument or any further act on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding, and provided further that the Owner Trustee shall mail
notice of such merger or consolidation to the Rating Agencies.
SECTION 9.5. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any
part of the Trust Property or any Financed Vehicle may at the time be
located, the Administrator and the Owner Trustee acting jointly shall have
the power and shall
-22-
<PAGE>
execute and deliver all instruments to appoint one or more Persons approved
by the Owner Trustee and the Security Insurer to act as co-trustee, jointly
with the Owner Trustee, or separate trustee or separate trustees, of all or
any part of the Trust Property, and to vest in such Person, in such capacity,
such title to the Trust, or any part thereof, and, subject to the other
provisions of this Section, such powers, duties, obligations, rights and
trusts as the Administrator and the Owner Trustee may consider necessary or
desirable. If the Administrator shall not have joined in such appointment
within 15 days after the receipt by it of a request so to do, the Owner
Trustee, subject to the approval of the Security Insurer, shall have the
power to make such appointment. No co-trustee or separate trustee under this
Agreement shall be required to meet the terms of eligibility as a successor
trustee pursuant to Section 10.1 and no notice of the appointment of any
co-trustee or separate trustee shall be required pursuant to Section 9.1.
Each separate trustee and co-trustee shall, to the extent permitted
by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties, and obligations conferred or
imposed upon the Owner Trustee shall be conferred upon and exercised or
performed by the Owner Trustee and such separate trustee or co-trustee
jointly (it being understood that such separate trustee or co-trustee is not
authorized to act separately without the Owner Trustee joining in such act),
except to the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed the Owner Trustee shall be
incompetent or unqualified to perform such act or acts, in which event such
rights, powers, duties, and obligations (including the holding of title to
the Trust Property or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or co-trustee, but
solely at the direction of the Owner Trustee;
(ii) no trustee under this Agreement shall be personally liable
by reason of any act or omission of any other trustee under this Agreement;
and
(iii) the Administrator and the Owner Trustee acting jointly may
at any time accept the resignation of or remove any separate trustee or
co-trustee.
Any notice, request or other writing given to the Owner Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement
and the conditions of this Article. Each separate trustee and co-trustee,
upon its acceptance of the trusts conferred, shall be vested with the estates
or property specified in its instrument of appointment, either jointly with
the Owner Trustee or separately, as may be provided therein, subject to all
the provisions of this Agreement, specifically including every
-23-
<PAGE>
provision of this Agreement relating to the conduct of, affecting the
liability of, or affording protection to, the Owner Trustee. Each such
instrument shall be filed with the Owner Trustee and a copy thereof given to
the Administrator and the Security Insurer.
Any separate trustee or co-trustee may at any time appoint the
Owner Trustee, its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect
of this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Owner Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. AMENDMENT.
(a) This Agreement may be amended by the Depositor and the Owner
Trustee, with the prior written consent of the Security Insurer (so long as
an Insurer Default shall not have occurred and be continuing) but without the
consent of any of the Noteholders, (i) to cure any ambiguity, or (ii) to
correct, supplement or modify any provisions in this Agreement; PROVIDED,
HOWEVER, that such action shall not, as evidenced by an Opinion of Counsel,
adversely affect in any material respect the interests of any Noteholder.
(b) This Agreement may also be amended from time to time, with the
prior written consent of the Security Insurer (so long as an Insurer Default
shall not have occurred and be continuing), by the Depositor and the Owner
Trustee and, if such amendment materially and adversely affects the interests
of Noteholders, the consent of a Note Majority (which consent of any Holder
of a Note given pursuant to this Section or pursuant to any other provision
of this Agreement shall be conclusive and binding on such Holder and on all
future Holders of such Note and of any Note issued upon the transfer thereof
or in exchange thereof or in lieu thereof whether or not notation of such
consent is made upon the Note) for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this
Agreement, or of modifying in any manner the rights of the Holders of Notes;
PROVIDED, HOWEVER, that, subject to the express rights of the Security
Insurer under the Related Documents, including its rights to consent to
certain modifications of the Receivables pursuant to Section 3.2 of the Sale
and Servicing Agreement and its rights referred to in Section 5.02(c) of the
Indenture, no such amendment shall (a) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, collections of payments on
Receivables or distributions that shall be required to be made on any Note or
the Class A-1 Interest
-24-
<PAGE>
Rate, the Class A-2 Interest Rate, the Class A-3 Interest Rate, the Class A-4
Interest Rate or the Class A-5 Interest Rate, or (b) reduce the aforesaid
percentage required to consent to any such amendment or any waiver hereunder,
without the consent of the Holders of all Notes then outstanding.
(c) Prior to the execution of any such amendment or consent, the
Depositor shall furnish written notification of the substance of such
amendment or consent to each Rating Agency.
(d) Promptly after the execution of any such amendment or consent,
the Owner Trustee shall furnish written notification of the substance of such
amendment or consent to the Indenture Trustee unless such parties have
previously received such notification.
(e) It shall not be necessary for the consent of Noteholders
pursuant to Section 11.1(b) to approve the particular form of any proposed
amendment or consent, but it shall be sufficient if such consent shall
approve the substance thereof. The manner of obtaining such consents (and
any other consents of Noteholders provided for in this Agreement) shall be
subject to such reasonable requirements as the Owner Trustee may prescribe,
including the establishment of record dates.
(f) Prior to the execution of any amendment to this Agreement, the
Owner Trustee shall be entitled to receive and rely upon an Opinion of
Counsel stating that the execution of such amendment is authorized or
permitted by this Agreement and that all conditions precedent to the
execution and delivery of such amendment have been satisfied. The Owner
Trustee may, but shall not be obligated to, enter into any such amendment
which affects the Owner Trustee's own rights, duties or immunities under this
Agreement or otherwise.
SECTION 10.2. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware without
regard to the principles of conflicts of laws thereof and the obligations,
rights and remedies of the parties under this Agreement shall be determined
in accordance with such laws.
SECTION 10.3. SEVERABILITY OF PROVISIONS. If any one or more of
the covenants, agreements, provisions or terms of this Agreement shall be for
any reason whatsoever held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Agreement and shall in no way affect
the validity or enforceability of the other provisions of this Agreement.
SECTION 10.4. THIRD-PARTY BENEFICIARIES. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. Except as otherwise provided in
this Agreement, no other Person shall have any right or obligation hereunder.
Without limiting the
-25-
<PAGE>
generality of the foregoing, all covenants and agreements in this Agreement
which expressly confer rights upon the Security Insurer shall be for the
benefit of and run directly to the Security Insurer, and the Security Insurer
shall be entitled to rely on and enforce such covenants, subject, however, to
the limitations on such rights provided in this Agreement and the Related
Documents. The Security Insurer may disclaim any of its rights and powers
under this Agreement (but not its duties and obligations under the Note
Policy) upon delivery of a written notice to the Owner Trustee.
SECTION 10.5. COUNTERPARTS. For the purpose of facilitating its
execution 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 10.6. NOTICES. All demands, notices and communications
under this Agreement shall be in writing, personally delivered or mailed by
certified mail-return receipt requested, and shall be deemed to have been
duly given upon receipt (a) in the case of the Depositor, at the following
address: 7825 Washington Avenue South, Minneapolis, Minnesota 55439-2435,
with copies to: Arcadia Financial Ltd., 7825 Washington Avenue South,
Minneapolis, Minnesota 55439-2435, Attention: President, (b) in the case of
the Owner Trustee, at the Corporate Trust Office, (c) in the case of each
Rating Agency, 99 Church Street, New York, New York 10007 (for Moody's), and
26 Broadway, New York, New York 10004, Attention: Asset-Backed Surveillance
(for Standard & Poor's), and (d) in the case of the Security Insurer,
Financial Security Assurance Inc., 350 Park Avenue, New York, NY 10022,
Attention: Surveillance Department, Telex No.: (212)688-3101, Confirmation:
(212)826-0100, Telecopy Nos.: (212)339-3518, (212)339-3529 (in each case in
which notice or other communication to Financial Security refers to an Event
of Default, a claim on the Note Policy or with respect to which failure on
the part of Financial Security to respond shall be deemed to constitute
consent or acceptance, then a copy of such notice or other communication
should also be sent to the attention of the General Counsel and the
Head--Financial Guaranty Group "URGENT MATERIAL ENCLOSED") or at such other
address as shall be designated by any such party in a written notice to the
other parties.
-26-
<PAGE>
IN WITNESS WHEREOF, the Depositor, the Security Insurer and the
Owner Trustee have caused this Trust Agreement to be duly executed by their
respective officers as of the day and year first above written.
ARCADIA RECEIVABLES FINANCE CORP.
By /s/ John A. Witham
--------------------------------
Name: John A. Witham
Title: Senior Vice President and Chief
Financial Officer
ARCADIA RECEIVABLES FINANCE CORP.,
in its capacity as Depositor
By /s/ John A. Witham
--------------------------------
Name: John A. Witham
Title: Senior Vice President and Chief
Financial Officer
FINANCIAL SECURITY ASSURANCE INC.
By /s/ Russell B. Brewer II
--------------------------------
Authorized Officer
MELLON BANK (DE), NATIONAL ASSOCIATION
By /s/ E.D. Renn
--------------------------------
Name: E. D. Renn
Title: Vice President
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1997-B
5.7425% Class A-1 Automobile Receivables-Backed Notes
6.10% Class A-2 Automobile Receivables-Backed Notes
6.30% Class A-3 Automobile Receivables-Backed Notes
6.50% Class A-4 Automobile Receivables-Backed Notes
6.70% Class A-5 Automobile Receivables-Backed Notes
_________________________
INDENTURE
Dated as of June 1, 1997
_________________________
THE CHASE MANHATTAN BANK
Trustee and Indenture Collateral Agent
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE TABLE
<TABLE>
TIA Indenture
Section Section
---------
<S> <C>
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . 6.11
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . 6.11
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . 6.10
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . N.A.2
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . 6.11
(b). . . . . . . . . . . . . . . . . . . . . . . . . 6.08; 6.11
(c). . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a). . . . . . . . . . . . . . . . . . . . . . . . . 6.12
(b). . . . . . . . . . . . . . . . . . . . . . . . . 6.12
(c). . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a). . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(b). . . . . . . . . . . . . . . . . . . . . . . . . 7.02
(c). . . . . . . . . . . . . . . . . . . . . . . . . 7.02
313(a). . . . . . . . . . . . . . . . . . . . . . . . . 7.04
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . 7.04
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . 7.04
(c). . . . . . . . . . . . . . . . . . . . . . . . . 11.05
(d). . . . . . . . . . . . . . . . . . . . . . . . . 7.04
314(a). . . . . . . . . . . . . . . . . . . . . . . . . 7.03
(b). . . . . . . . . . . . . . . . . . . . . . . . . 3.06; 11.15
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . 11.01
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . 11.01
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . 11.01
(d). . . . . . . . . . . . . . . . . . . . . . . . . 11.01
(e). . . . . . . . . . . . . . . . . . . . . . . . . 11.01
(f). . . . . . . . . . . . . . . . . . . . . . . . . 11.01
315(a). . . . . . . . . . . . . . . . . . . . . . . . . 6.01
(b). . . . . . . . . . . . . . . . . . . . . . . . . 6.05; 11.05
(c). . . . . . . . . . . . . . . . . . . . . . . . . 6.01
(d). . . . . . . . . . . . . . . . . . . . . . . . . 6.01
(e). . . . . . . . . . . . . . . . . . . . . . . . . 5.14
316(a)(last sentence) . . . . . . . . . . . . . . . . . 1.01
(a)(1)(A). . . . . . . . . . . . . . . . . . . . . . 5.12
(a)(1)(B). . . . . . . . . . . . . . . . . . . . . . 5.13
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b). . . . . . . . . . . . . . . . . . . . . . . . . 5.08
(c). . . . . . . . . . . . . . . . . . . . . . . . . N.A.
317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . 5.03
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . 5.03
(b). . . . . . . . . . . . . . . . . . . . . . . . . 3.03
318(a). . . . . . . . . . . . . . . . . . . . . . . . . 11.07
</TABLE>
- -------------
1 Note: This Cross Reference Table shall not, for any purpose, be deemed to
be part of this Indenture.
2 N.A. means Not Applicable.
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C>
ARTICLE I - DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . 3
SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.02. Incorporation by Reference of Trust Indenture Act . . . 14
SECTION 1.03. Rules of Construction . . . . . . . . . . . . . . . . . 14
ARTICLE II - THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.01. Form. . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.02. Execution, Authentication and Delivery. . . . . . . . . 15
SECTION 2.03. Temporary Notes . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.04. Registration; Registration of Transfer and Exchange . . 16
SECTION 2.05. Mutilated, Destroyed, Lost or Stolen Notes. . . . . . . 17
SECTION 2.06. Person Deemed Owner . . . . . . . . . . . . . . . . . . 18
SECTION 2.07. Payment of Principal and Interest; Defaulted Interest . 19
SECTION 2.08. Cancellation. . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.09. Book-Entry Notes. . . . . . . . . . . . . . . . . . . . 20
SECTION 2.10. Notices to Depository . . . . . . . . . . . . . . . . . 21
SECTION 2.11. Definitive Notes. . . . . . . . . . . . . . . . . . . . 21
ARTICLE III - COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.01. Payment of Principal, Interest and Premium. . . . . . . 22
SECTION 3.02. Maintenance of Office or Agency . . . . . . . . . . . . 22
SECTION 3.03. Money for Payments To Be Held in Trust. . . . . . . . . 22
SECTION 3.04. Existence . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.05. Protection of Trust Estate . . . . . . . . . . . . . . 24
SECTION 3.06. Opinions as to Trust Estate . . . . . . . . . . . . . . 25
SECTION 3.07. Performance of Obligations; Servicing of Receivables. . 26
SECTION 3.08. Negative Covenants . . . . . . . . . . . . . . . . . . 27
SECTION 3.09. Annual Statement as to Compliance . . . . . . . . . . . 27
SECTION 3.10. Issuer May Consolidate, etc. Only on Certain Terms. . . 28
SECTION 3.11. Successor or Transferee . . . . . . . . . . . . . . . . 30
SECTION 3.12. No Other Business . . . . . . . . . . . . . . . . . . . 31
SECTION 3.13. No Borrowing . . . . . . . . . . . . . . . . . . . . . 31
SECTION 3.14. Servicer's Obligations . . . . . . . . . . . . . . . . 31
SECTION 3.15. Guarantees, Loans, Advances and Other Liabilities . . . 31
SECTION 3.16. Capital Expenditures . . . . . . . . . . . . . . . . . 31
SECTION 3.17. Restricted Payments . . . . . . . . . . . . . . . . . . 31
SECTION 3.18. Notice of Events of Default . . . . . . . . . . . . . . 32
SECTION 3.19. Further Instruments and Acts . . . . . . . . . . . . . 32
SECTION 3.20. Compliance with Laws . . . . . . . . . . . . . . . . . 32
SECTION 3.21. Amendments of Sale and Servicing Agreement and
Trust Agreement . . . . . . . . . . . . . . . . . . . . 32
-i-
<PAGE>
SECTION 3.22. Removal of Administrator . . . . . . . . . . . . . . . 32
SECTION 3.23. Income Tax Characterization . . . . . . . . . . . . . . 32
ARTICLE IV - SATISFACTION AND DISCHARGE . . . . . . . . . . . . . . . . . . 32
SECTION 4.01. Satisfaction and Discharge of Indenture . . . . . . . . 32
SECTION 4.02. Application of Trust Money . . . . . . . . . . . . . . 34
SECTION 4.03. Repayment of Moneys Held by Paying Agent. . . . . . . . 34
SECTION 4.04. Release of Trust Estate . . . . . . . . . . . . . . . . 34
ARTICLE V - REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 5.01. Events of Default . . . . . . . . . . . . . . . . . . . 34
SECTION 5.02. Rights upon Event of Default . . . . . . . . . . . . . 36
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement
by Trustee; Authority of Controlling Party. . . . . . . 37
SECTION 5.04. Remedies . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 5.05. Optional Preservation of the Receivables. . . . . . . . 41
SECTION 5.06. Priorities . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 5.07. Limitation of Suits . . . . . . . . . . . . . . . . . . 42
SECTION 5.08. Unconditional Rights of Noteholders To Receive
Principal and Interest. . . . . . . . . . . . . . . . . 43
SECTION 5.09. Restoration of Rights and Remedies. . . . . . . . . . . 43
SECTION 5.10. Rights and Remedies Cumulative. . . . . . . . . . . . . 44
SECTION 5.11. Delay or Omission Not a Waiver. . . . . . . . . . . . . 44
SECTION 5.12. Control by Noteholders. . . . . . . . . . . . . . . . . 44
SECTION 5.13. Waiver of Past Defaults . . . . . . . . . . . . . . . . 45
SECTION 5.14. Undertaking for Costs . . . . . . . . . . . . . . . . . 45
SECTION 5.15. Waiver of Stay or Extension Laws . . . . . . . . . . . 45
SECTION 5.16. Action on Notes . . . . . . . . . . . . . . . . . . . . 46
SECTION 5.17. Performance and Enforcement of Certain Obligations. . . 46
SECTION 5.18. Claims Under Note Policy . . . . . . . . . . . . . . . 47
SECTION 5.19. Preference Claims . . . . . . . . . . . . . . . . . . . 49
ARTICLE VI - THE TRUSTEE AND THE INDENTURE COLLATERAL AGENT . . . . . . . . 50
SECTION 6.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . 50
SECTION 6.02. Rights of Trustee . . . . . . . . . . . . . . . . . . . 52
SECTION 6.03. Individual Rights of Trustee . . . . . . . . . . . . . 54
SECTION 6.04. Trustee's Disclaimer . . . . . . . . . . . . . . . . . 54
SECTION 6.05. Notice of Defaults . . . . . . . . . . . . . . . . . . 54
SECTION 6.06. Reports by Trustee to Holders . . . . . . . . . . . . . 54
SECTION 6.07. Compensation and Indemnity . . . . . . . . . . . . . . 54
SECTION 6.08. Replacement of Trustee . . . . . . . . . . . . . . . . 55
SECTION 6.09. Successor Trustee by Merger . . . . . . . . . . . . . . 57
SECTION 6.10. Appointment of Co-Trustee or Separate Trustee . . . . . 57
SECTION 6.11. Eligibility; Disqualification . . . . . . . . . . . . . 58
SECTION 6.12. Preferential Collection of Claims Against Issuer. . . . 59
-ii-
<PAGE>
SECTION 6.13. Appointment and Powers . . . . . . . . . . . . . . . . 59
SECTION 6.14. Performance of Duties . . . . . . . . . . . . . . . . . 59
SECTION 6.15. Limitation on Liability . . . . . . . . . . . . . . . . 59
SECTION 6.16. Reliance upon Documents . . . . . . . . . . . . . . . . 60
SECTION 6.17. Successor Indenture Collateral Agent. . . . . . . . . . 60
SECTION 6.18. Compensation and Indemnity . . . . . . . . . . . . . . 62
SECTION 6.19. Representations and Warranties of the Indenture
Collateral Agent. . . . . . . . . . . . . . . . . . . . 63
SECTION 6.20. Waiver of Setoffs . . . . . . . . . . . . . . . . . . . 63
SECTION 6.21. Control by the Controlling Party. . . . . . . . . . . . 64
ARTICLE VII - NOTEHOLDERS' LISTS AND REPORTS. . . . . . . . . . . . . . . . 64
SECTION 7.01. Issuer To Furnish Trustee Names and Addresses to
Noteholders . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 7.02. Preservation of Information; Communications to
Noteholders . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 7.03. Reports by Issuer . . . . . . . . . . . . . . . . . . . 65
SECTION 7.04. Reports by Trustee . . . . . . . . . . . . . . . . . . 65
ARTICLE VIII - ACCOUNTS, DISBURSEMENTS AND RELEASES . . . . . . . . . . . . 65
SECTION 8.01. Collection of Money . . . . . . . . . . . . . . . . . . 65
SECTION 8.02. Trust Accounts . . . . . . . . . . . . . . . . . . . . 66
SECTION 8.03. General Provisions Regarding Accounts . . . . . . . . . 67
ARTICLE IX - SUPPLEMENTAL INDENTURES. . . . . . . . . . . . . . . . . . . . 67
SECTION 9.01. Supplemental Indentures Without Consent of
Noteholders . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 9.02. Supplemental Indentures With Consent of
Noteholders . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 9.03. Execution of Supplemental Indentures. . . . . . . . . . 70
SECTION 9.04. Effect of Supplemental Indenture . . . . . . . . . . . 71
SECTION 9.05. Conformity With Trust Indenture Act . . . . . . . . . . 71
SECTION 9.06. Reference in Notes to Supplemental Indentures . . . . . 71
ARTICLE X - REDEMPTION OF NOTES . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 10.01. Redemption . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 10.02. Form of Redemption Notice . . . . . . . . . . . . . . . 72
SECTION 10.03. Notes Payable on Redemption Date . . . . . . . . . . . 73
ARTICLE XI - MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 11.01. Compliance Certificates and Opinions, etc . . . . . . . 73
SECTION 11.02. Form of Documents Delivered to Trustee. . . . . . . . . 75
SECTION 11.03. Acts of Noteholders . . . . . . . . . . . . . . . . . . 76
SECTION 11.04. Notices, etc., to Trustee, Issuer and Rating Agencies . 77
SECTION 11.05. Notices to Noteholders; Waiver . . . . . . . . . . . . 78
SECTION 11.06. Alternate Payment and Notice Provisions . . . . . . . . 78
-iii-
<PAGE>
SECTION 11.07. Conflict with Trust Indenture Act . . . . . . . . . . . 79
SECTION 11.08. Effect of Headings and Table of Contents. . . . . . . . 79
SECTION 11.09. Successors and Assigns . . . . . . . . . . . . . . . . 79
SECTION 11.10. Severability . . . . . . . . . . . . . . . . . . . . . 79
SECTION 11.11. Benefits of Indenture . . . . . . . . . . . . . . . . . 79
SECTION 11.12. Legal Holidays . . . . . . . . . . . . . . . . . . . . 80
SECTION 11.13. Governing Law . . . . . . . . . . . . . . . . . . . . . 80
SECTION 11.14. Counterparts . . . . . . . . . . . . . . . . . . . . . 80
SECTION 11.15. Recording of Indenture . . . . . . . . . . . . . . . . 80
SECTION 11.16. Trust Obligation . . . . . . . . . . . . . . . . . . . 80
SECTION 11.17. No Petition . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 11.18. Inspection . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 11.19. Limitation of Liability . . . . . . . . . . . . . . . . 81
</TABLE>
-iv-
<PAGE>
INDENTURE, dated as of June 1, 1997, between ARCADIA AUTOMOBILE
RECEIVABLES TRUST, 1997-B, a Delaware business trust (the "Issuer"), and THE
CHASE MANHATTAN BANK,in its capacities as trustee (the "Trustee") and as
Indenture Collateral Agent (as defined below) and not in its individual
capacity.
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of the Issuer's 5.7425%
Class A-1 Automobile Receivables-Backed Notes (the "Class A-1 Notes"), 6.10%
Class A-2 Automobile Receivables-Backed Notes (the "Class A-2 Notes"), 6.30%
Class A-3 Automobile Receivables-Backed Notes (the "Class A-3 Notes"), 6.50%
Class A-4 Automobile Receivables-Backed Notes (the "Class A-4 Notes"), and
6.70% Class A-5 Automobile Receivables-Backed Notes (the "Class A-5 Notes"),
(the Class A-1 Notes, together with the Class A-2 Notes, the Class A-3 Notes,
the Class A-4 Notes and the Class A-5 Notes, the "Notes"):
As security for the payment and performance by the Issuer of its
obligations under this Indenture and the Notes, the Issuer has agreed to
assign the Indenture Collateral (as defined below) as collateral to the
Indenture Collateral Agent for the benefit of the Trustee on behalf of the
Noteholders.
Financial Security Assurance Inc. (the "Security Insurer") has
issued and delivered a financial guaranty insurance policy, dated the Closing
Date (with endorsements, the "Note Policy"), pursuant to which the Security
Insurer guarantees certain Scheduled Payments, as defined in the Note Policy.
As an inducement to the Security Insurer to issue and deliver the
Note Policy, the Issuer and the Security Insurer have executed and delivered
the Insurance and Indemnity Agreement, dated as of June 19, 1997 (as amended
from time to time, the "Insurance Agreement"), among the Security Insurer,
the Issuer, Arcadia Receivables Finance Corp. and Arcadia Financial Ltd.
As an additional inducement to the Security Insurer to issue the
Note Policy, and as security for the performance by the Issuer of the Insurer
Issuer Secured Obligations and as security for the performance by the Issuer
of the Trustee Issuer Secured Obligations, the Issuer has agreed to assign
the Indenture Collateral (as defined below) as collateral to the Indenture
Collateral Agent for the benefit of the Issuer Secured Parties, as their
respective interests may appear.
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Collateral Agent at the
Closing Date, on behalf of and for the benefit of the Issuer Secured Parties
to secure the performance of the respective Issuer Secured Obligations, all
of the Issuer's right, title and interest in and to (a)the Initial
Receivables and all moneys paid or payable thereon or in respect thereof
after the Initial Cutoff Date (including amounts due on or before the Initial
Cutoff Date but received by AFL, the Seller or the Issuer after the Initial
Cutoff Date); (b)the Subsequent Receivables and all moneys paid or payable
<PAGE>
thereon or in respect thereof after the related Subsequent Cutoff Date
(including amounts due on or before the related Subsequent Cutoff Date but
received by AFL, the Seller or the Issuer after the related Subsequent Cutoff
Date); (c)an assignment of the security interests of AFL in the Financed
Vehicles; (d)the Insurance Policies and any proceeds from any Insurance
Policies relating to the Receivables, the Obligors or the Financed Vehicles,
including rebates of premiums, all Collateral Insurance and any Force-Placed
Insurance relating to the Receivables; (e)an assignment of the rights of AFL
or the Seller against Dealers with respect to the Receivables under the
Dealer Agreements and the Dealer Assignments, (f)all items contained in the
Receivable Files and any and all other documents that AFL keeps on file in
accordance with its customary procedures relating to the Receivables, the
Obligors or the Financed Vehicles, (g)an assignment of the rights of the
Seller under the Purchase Agreement and each Subsequent Purchase Agreement,
(h)property (including the right to receive future Liquidation Proceeds) that
secures a Receivable and that has been acquired by or on behalf of the Trust
pursuant to liquidation of such Receivable, (i)the Trust Accounts and all
funds on deposit therein from time to time, and in all investments and
proceeds thereof (including all income thereon), (j)the Purchase Agreement
and each Subsequent Purchase Agreement, including the right assigned to the
Issuer to cause AFL to repurchase Receivables from the Seller under certain
circumstances, (k)the Sale and Servicing Agreement and each Subsequent
Transfer Agreement (including all rights of the Seller under the Purchase
Agreement and each Subsequent Purchase Agreement assigned to the Issuer
pursuant to the Sale and Servicing Agreement), and (l)all present and future
claims, demands, causes and choses in action in respect of any or all of the
foregoing and all payments on or under and all proceeds of every kind and
nature whatsoever in respect of any or all of the foregoing, including all
proceeds of the conversion, voluntary or involuntary, into cash or other
liquid property, all cash proceeds, accounts, accounts receivable, notes,
drafts, acceptances, chattel paper, checks, deposit accounts, insurance
proceeds, condemnation awards, rights to payment of any and every kind and
other forms of obligations and receivables, instruments and other property
which at any time constitute all or part of or are included in the proceeds
of any of the foregoing (collectively, the "Indenture Collateral").
The Indenture Collateral Agent, for the benefit of the Trustee on
behalf of the Holders of the Notes and for the benefit of the Security
Insurer acknowledges such Grant. The Trustee on behalf of the Holders of the
Notes accepts the trusts under this Indenture in accordance with the
provisions of this Indenture and agrees to perform its duties required in
this Indenture to the best of its ability to the end that the interests of
the Holders of the Notes may be adequately and effectively protected.
-2-
<PAGE>
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
(a) Except as otherwise specified herein or as the context may
otherwise require, the following terms have the respective meanings set forth
below for all purposes of this Indenture.
"ACT" has the meaning specified in Section 11.03(a).
"ADMINISTRATOR" has the meaning specified therefor in the Trust
Agreement.
"AFFILIATE" means, with respect to any specified Person, any other
Person controlling or controlled by or under common control with such
specified Person. For the purposes of this definition, "control" when used
with respect to any specified Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"AUTHORIZED OFFICER" means, with respect to the Issuer, any officer
of the Owner Trustee who is authorized to act for the Owner Trustee in
matters relating to the Issuer and who is identified on the list of
Authorized Officers delivered by the Owner Trustee to the Trustee on the
Closing Date (as such list may be modified or supplemented from time to time
thereafter).
"BOOK-ENTRY NOTE" means any Note registered in the name of the
Depository or its nominee, ownership of which is reflected on the books of
the Depository or on the books of a person maintaining an account with such
Depository (directly or as an indirect participant in accordance with the
rules of such Depository).
"BUSINESS DAY" means any day other than a Saturday, Sunday, legal
holiday or other day on which commercial banking institutions in Minneapolis,
Minnesota, New York, New York, Wilmington, Delaware or any other location of
any successor Servicer, successor Owner Trustee, successor Trustee or
successor Indenture Collateral Agent are authorized or obligated by law,
executive order or governmental decree to remain closed.
"CERTIFICATE OF TRUST" means the Certificate of Trust of the Issuer
substantially in the form of Exhibit A to the Trust Agreement.
-3-
<PAGE>
"CLASS A-1 INTEREST RATE" means 5.7425%, per annum (computed on the
basis of actual days elapsed in a 360-day year of twelve 30-day months).
"CLASS A-2 INTEREST RATE" means 6.10%, per annum (computed on the
basis of a 360-day year of twelve 30-day months).
"CLASS A-3 INTEREST RATE" means 6.30%, per annum (computed on the
basis of a 360-day year of twelve 30-day months).
"CLASS A-4 INTEREST RATE" means 6.50% per annum (computed on the
basis of a 360-day year of twelve 30-day months).
"CLASS A-5 INTEREST RATE" means 6.70% per annum (computed on the
basis of a 360-day year of twelve 30-day months).
"CLASS A-1 NOTES" means the 5.7425% Class A-1 Automobile
Receivables-Backed Notes substantially in the form of Exhibit C-1.
"CLASS A-2 NOTES" means the 6.10% Class A-2 Automobile
Receivables-Backed Notes substantially in the form of Exhibit C-2.
"CLASS A-3 NOTES" means the 6.30% Class A-3 Automobile
Receivables-Backed Notes substantially in the form of Exhibit C-3.
"CLASS A-4 NOTES" means the 6.50% Class A-4 Automobile
Receivables-Backed Notes substantially in the form of Exhibit C-4.
"CLASS A-5 NOTES" means the 6.70% Class A-5 Automobile
Receivables-Backed Notes substantially in the form of Exhibit C-5.
"CLOSING DATE" means June 19, 1997.
"CODE" means the Internal Revenue Code of 1986, as amended from
time to time, and Treasury Regulations promulgated thereunder.
"CONTROLLING PARTY" means the Security Insurer, so long as no Insurer
Default shall have occurred and be continuing, and the Trustee, for so long as
an Insurer Default shall have occurred and be continuing.
"CORPORATE TRUST OFFICE" means the principal office of the Trustee
at which at any particular time its corporate trust business shall be
administered which office at date of the execution of this Agreement is
located at 450 West 33rd Street, New York, NY 100001-2697, Attention: Global
Trust, Structured Finance Services Group; or at such other address as the
Trustee may designate from time to time by notice to the Noteholders, the
Security Insurer and the Issuer, or the principal
-4-
<PAGE>
corporate trust office of any successor Trustee (the address of which the
successor Trustee will notify the Noteholders, the Security Insurer and the
Issuer).
"DEFAULT" means any occurrence that is, or with notice or the lapse
of time or both would become, an Event of Default.
"DEFINITIVE NOTES" has the meaning specified in Section 2.09.
"DEPOSITORY" means the initial Depository, The Depository Trust
Company, the nominee of which is Cede & Co., as the registered Holder of
$82,000,000 in aggregate principal amount of the Class A-1 Notes,
$210,000,000 in aggregate principal amount of the Class A-2 Notes,
$170,000,000 in aggregate principal amount of the Class A-3 Notes,
$150,000,000 in aggregate principal amount of the Class A-4 Notes and
$163,000,000 in aggregate principal amount of the Class A-5 Notes as of the
Closing Date, and any permitted successor depository. The Depository shall
at all times be a "clearing corporation" as defined in Section 8-102(3) of
the New York UCC.
"DEPOSITORY AGREEMENT" means the agreement among the Issuer, the
Trustee and The Depository Trust Company, as the initial Depository, dated as
of the Closing Date, relating to the Notes substantially in the form of
Exhibit B.
"DEPOSITORY PARTICIPANT" means a broker, dealer, bank or other
financial institution or other Person for whom from time to time a Depository
effects book-entry transfers and pledges of securities deposited with the
Depository.
"EVENT OF DEFAULT" has the meaning specified in Section 5.01.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXECUTIVE OFFICER" means, with respect to any corporation, the
Chief Executive Officer, Chief Operating Officer, Chief Financial Officer,
President, Executive Vice President, any Vice President, any Responsible
Officer, the Secretary or the Treasurer of such corporation; and with respect
to any partnership, any general partner thereof.
"GRANT" means mortgage, pledge, bargain, sell, warrant, alienate,
remise, release, convey, assign, transfer, create, and grant a lien upon and
a security interest in and right of set-off against, deposit, set over and
confirm pursuant to this Indenture. A Grant of the Indenture Collateral or
of any other agreement or instrument shall include all rights, powers and
options (but none of the obligations) of the Granting party thereunder,
including the immediate and continuing right to claim for, collect, receive
and give receipt for principal and interest payments in respect of the
Indenture Collateral and all other moneys payable thereunder, to give and
receive notices and other communications, to make waivers or other
-5-
<PAGE>
agreements, to exercise all rights and options, to bring Proceedings in the
name of the Granting party or otherwise and generally to do and receive
anything that the Granting party is or may be entitled to do or receive
thereunder or with respect thereto.
"HOLDER" or "NOTEHOLDER" means the Person in whose name a Note is
registered on the Note Register.
"INDEBTEDNESS" means, with respect to any Person at any time,
(a)indebtedness or liability of such Person for borrowed money whether or not
evidenced by bonds, debentures, notes or other instruments, or for the
deferred purchase price of property or services (including trade
obligations); (b)obligations of such Person as lessee under leases which
should have been or should be, in accordance with generally accepted
accounting principles, recorded as capital leases; (c)current liabilities of
such Person in respect of unfunded vested benefits under plans covered by
Title IV of ERISA; (d)obligations issued for or liabilities incurred on the
account of such Person; (e)obligations or liabilities of such Person arising
under acceptance facilities; (f)obligations of such Person under any
guarantees, endorsements (other than for collection or deposit in the
ordinary course of business) and other contingent obligations to purchase, to
provide funds for payment, to supply funds to invest in any Person or
otherwise to assure a creditor against loss; (g)obligations of such Person
secured by any lien on property or assets of such Person, whether or not the
obligations have been assumed by such Person; or (h)obligations of such
Person under any interest rate or currency exchange agreement.
"INDENTURE" means this Indenture as amended or supplemented from
time to time.
"INDENTURE COLLATERAL" has the meaning specified in the Granting
Clause of this Indenture.
"INDENTURE COLLATERAL AGENT" means, initially, The Chase Manhattan
Bank, in its capacity as collateral agent on behalf of the Issuer Secured
Parties, including its successors in interest, until and unless and a
successor Person shall have become the Indenture Collateral Agent pursuant to
Section 6.17 hereof, and thereafter "Indenture Collateral Agent" shall mean
such successor Person.
"INDEPENDENT" means, when used with respect to any specified
Person, that the Person (a)is in fact independent of the Issuer, any other
obligor upon the Notes, the Seller and any Affiliate of any of the foregoing
Persons, (b)does not have any direct financial interest or any material
indirect financial interest in the Issuer, any such other obligor, the Seller
or any Affiliate of any of the foregoing Persons and (c)is not connected with
the Issuer, any such other obligor, the Seller or any Affiliate of any of the
foregoing Persons as an officer, employee, promoter, underwriter, trustee,
partner, director or person performing similar functions.
<PAGE>
"INDEPENDENT CERTIFICATE" means a certificate or opinion to be
delivered to the Indenture Collateral Agent under the circumstances described
in, and otherwise complying with, the applicable requirements of Section 11.01,
made by an Independent appraiser or other expert appointed by an Issuer Order
and approved by the Indenture Collateral Agent in the exercise of reasonable
care, and such opinion or certificate shall state that the signer has read the
definition of "Independent" in this Indenture and that the signer is Independent
within the meaning thereof.
"INSURANCE AGREEMENT INDENTURE CROSS DEFAULT" has the meaning
specified therefor in the Insurance Agreement.
"INSURER ISSUER SECURED OBLIGATIONS" means all amounts and obligations
which the Issuer may at any time owe to or on behalf of the Security Insurer
under this Indenture, the Insurance Agreement or any other Related Document.
"INTEREST RATE" means the Class A-1 Interest Rate, the Class A-2
Interest Rate, the Class A-3 Interest Rate, the Class A-4 Interest Rate or the
Class A-5 Interest Rate, as applicable.
"ISSUER" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor and, for purposes of
any provision contained herein and required by the TIA, each other obligor on
the Notes.
"ISSUER ORDER" and "ISSUER REQUEST" means a written order or request
signed in the name of the Issuer by any one of its Authorized Officers and
delivered to the Trustee.
"ISSUER SECURED OBLIGATIONS" means the Insurer Issuer Secured
Obligations and the Trustee Issuer Secured Obligations.
"ISSUER SECURED PARTIES" means each of the Trustee in respect of the
Trustee Issuer Secured Obligations and the Security Insurer in respect of the
Insurer Issuer Secured Obligations.
"LETTER AGREEMENT" has the meaning specified in Section 6.07.
"NOTE" means a Class A-1 Note, Class A-2 Note, Class A-3 Note, Class
A-4 Note or Class A-5 Note, as applicable.
"NOTE OWNER" means, with respect to a Book-Entry Note, the Person who
is the owner of such Book-Entry Note, as reflected on the books of the
Depository, or on the books of a Person maintaining an account with such
Depository (directly as a Depository participant or as an indirect participant,
in each
-7-
<PAGE>
case in accordance with the rules of such Depository) and with respect to any
Definitive Notes, the Holder.
"NOTE POLICY" means the Financial Guaranty Insurance Policy issued by
the Security Insurer with respect to the Notes, including any endorsements
thereto, in the form of Exhibit D.
"NOTE POLICY CLAIM AMOUNT" has the meaning specified in Section 5.18.
"NOTE REGISTER" and "NOTE REGISTRAR" have the respective meanings
specified in Section 2.04.
"NOTICE OF CLAIM" has the meaning specified in Section 5.18.
"OFFICERS' CERTIFICATE" means a certificate signed by any Authorized
Officer of the Issuer, under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.01, and delivered to,
the Trustee. Unless otherwise specified, any reference in this Indenture to an
Officers' Certificate shall be to an Officers' Certificate of any Authorized
Officer of the Issuer.
"OPINION OF COUNSEL" means one or more written opinions of counsel who
may, except as otherwise expressly provided in this Indenture, be employees of
or counsel to the Issuer and who shall be satisfactory to the Trustee and, if
addressed to the Security Insurer, satisfactory to the Security Insurer, and
which shall comply with any applicable requirements of Section 11.01, and shall
be in form and substance satisfactory to the Trustee, and if addressed to the
Security Insurer, satisfactory to the Security Insurer. Such Opinion of Counsel
shall not be at the expense of the Trustee.
"OUTSTANDING" means, as of the date of determination, all Notes
theretofore authenticated and delivered under this Indenture except:
(i) Notes theretofore canceled by the Note Registrar or delivered
to the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent in trust for the Holders of such Notes (provided, however,
that if such Notes are to be redeemed, notice of such redemption has
been duly given pursuant to this Indenture or provision therefor,
satisfactory to the Trustee, has been made); and
(iii) Notes in exchange for or in lieu of other Notes which
have been authenticated and delivered pursuant to this Indenture unless
proof
-8-
<PAGE>
satisfactory to the Trustee is presented that any such Notes are
held by a bona fide purchaser;
PROVIDED, HOWEVER, that Notes which have been paid with proceeds of the Note
Policy shall continue to remain Outstanding for purposes of this Indenture until
the Security Insurer has been paid as subrogee hereunder or reimbursed pursuant
to the Insurance Agreement as evidenced by a written notice from the Security
Insurer delivered to the Trustee, and the Security Insurer shall be deemed to be
the Holder thereof to the extent of any payments thereon made by the Security
Insurer; PROVIDED, FURTHER, that in determining whether the Holders of the
requisite Outstanding Amount of the Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder or under any
Related Document, Notes owned by the Issuer, any other obligor upon the Notes,
the Seller or any Affiliate of any of the foregoing Persons shall be disregarded
and deemed not to be Outstanding, except that, in determining whether the
Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes that the Trustee
knows to be so owned shall be so disregarded. Notes so owned that have been
pledged in good faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act with respect to
such Notes and that the pledgee is not the Issuer, any other obligor upon the
Notes, the Seller or any Affiliate of any of the foregoing Persons.
"OUTSTANDING AMOUNT" means the aggregate principal amount of all
Notes, or class of Notes, as applicable, Outstanding at the date of
determination.
"OWNER TRUSTEE" means Mellon Bank (DE), National Association, not in
its individual capacity but solely as Owner Trustee under the Trust Agreement,
or any successor trustee under the Trust Agreement.
"PAYING AGENT" shall initially mean the Trustee or, with respect to
any successor to the Trustee, any other Person that meets the eligibility
standards for the Trustee specified in Section 6.11 and, so long as no Insurer
Default shall have occurred and be continuing, is consented to by the Security
Insurer and is authorized by the Issuer to make the distributions from the Note
Distribution Account, including payment of principal of or interest on the Notes
on behalf of the Issuer.
"PAYMENT DATE" means a Distribution Date.
"PERSON" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), unincorporated organization or government or any agency or political
subdivision thereof.
"PREDECESSOR NOTE" means, with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such
-9-
<PAGE>
particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.05 in lieu of a mutilated, lost,
destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Note.
"PREFERENCE CLAIM" has the meaning specified in Section 5.19.
"PROCEEDING" means any suit in equity, action at law or other judicial
or administrative proceeding.
"RATING AGENCY" means each of Moody's and Standard & Poor's, so long
as such Persons maintain a rating on the Notes; and if either Moody's or
Standard & Poor's no longer maintains a rating on the Notes, such other
nationally recognized statistical rating organization selected by the Seller and
(so long as an Insurer Default shall not have occurred and be continuing)
acceptable to the Security Insurer.
"RATING AGENCY CONDITION" means, with respect to any action, that each
Rating Agency shall have been given 10 days' prior notice thereof and that each
of the Rating Agencies shall have notified the Seller, the Servicer, the
Security Insurer, the Trustee, the Owner Trustee and the Issuer in writing that
such action will not result in a reduction or withdrawal of the then current
rating of the Notes and will not result in an increased capital charge to the
Security Insurer.
"RECORD DATE" means, with respect to a Payment Date or Redemption
Date, the close of business on the last Business Day immediately preceding such
Payment Date or Redemption Date.
"REDEMPTION DATE" means (a)in the case of a redemption of the Notes
pursuant to Section 10.01(a) or a payment to Noteholders pursuant to Section
10.01(c), the Payment Date specified by the Servicer or the Issuer pursuant to
Section 10.01(a) or 10.01(c), as applicable, or (b)in the case of a redemption
of Notes pursuant to Section 10.01(b), the Payment Date on or immediately
following the last day of the Funding Period.
"REDEMPTION PRICE" means (a)in the case of a redemption of the Notes
pursuant to Section 10.01(a), an amount equal to the principal amount of the
Notes redeemed plus accrued and unpaid interest on the principal amount of each
class of Notes at the respective Interest Rate for each such class of Notes
being so redeemed to but excluding the Redemption Date, or (b)in the case of a
payment made to Noteholders pursuant to Section 10.01(c), the amount on deposit
in the Note Distribution Account, but not in excess of the amount specified in
clause (a) above.
"REGISTERED HOLDER" means the Person in whose name a Note is
registered on the Note Register on the applicable Record Date.
-10-
<PAGE>
"RELATED DOCUMENTS" means the Trust Agreement, the Notes, the Purchase
Agreements, the Sale and Servicing Agreement, each Subsequent Purchase
Agreement, each Subsequent Transfer Agreement, the Administration Agreement, the
Custodian Agreement, the Note Policy, the Spread Account Agreement, the
Insurance Agreement, the Lockbox Agreement, the Stock Pledge Agreement, the
Depository Agreement and the Underwriting Agreement between the Seller and AFL
and the underwriters of the Notes. The Related Documents executed by any party
are referred to herein as "such party's Related Documents," "its Related
Documents" or by a similar expression.
"RESPONSIBLE OFFICER" means, with respect to the Trustee, any officer
assigned to the Corporate Trust Division (or any successor thereto), including
any Vice President, Assistant Vice President, Trust Officer, any Assistant
Secretary, any trust officer or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and having direct responsibility for the administration of the Trust.
When used with respect to any other Person that is not an individual, the
President, any Vice President or Assistant Vice President or the Controller of
such Person, or any other officer or employee having similar functions.
"SALE AND SERVICING AGREEMENT" means the Sale and Servicing Agreement,
dated as of June 1, 1997, among the Issuer, the Seller, the Servicer and the
Backup Servicer.
"SCHEDULE OF RECEIVABLES" means the listing of the Receivables set
forth in Exhibit A, as supplemented on each Subsequent Transfer Date to reflect
the sale to the Issuer of Subsequent Receivables.
"SCHEDULED PAYMENTS" has the meaning specified therefor in the Note
Policy.
"STATE" means any one of the 50 states of the United States of America
or the District of Columbia.
"TERMINATION DATE" means the latest of (i)the expiration of the Note
Policy and the return of the Note Policy to the Security Insurer for
cancellation, (ii)the date on which the Security Insurer shall have received
payment and performance of all Insurer Issuer Secured Obligations and (iii)the
date on which the Trustee shall have received payment and performance of all
Trustee Issuer Secured Obligations.
"TRUST ESTATE" means all money, instruments, rights and other property
that are subject or intended to be subject to the lien and security interest of
this Indenture for the benefit of the Noteholders (including, without
limitation, the Indenture Collateral Granted to the Indenture Collateral Agent),
including all proceeds thereof.
-11-
<PAGE>
"TRUST INDENTURE ACT" OR "TIA" means the Trust Indenture Act of 1939
as in force on the date hereof, unless otherwise specifically provided. The
term "TIA" shall specifically include any amendments or revisions to the Trust
Indenture Act of 1939 which may be enacted from time to time.
"TRUSTEE" means The Chase Manhattan Bank, a New York banking
corporation, as Trustee under this Indenture, or any successor Trustee under
this Indenture.
"TRUSTEE ISSUER SECURED OBLIGATIONS" means all amounts and obligations
which the Issuer may at any time owe to or on behalf of the Trustee for the
benefit of the Noteholders under this Indenture or the Notes.
"UCC" means, unless the context otherwise requires, the Uniform
Commercial Code, as in effect in the relevant jurisdiction, as amended from time
to time.
(b) Except as otherwise specified herein or as the context may
otherwise require, the following terms have the respective meanings set forth in
the Sale and Servicing Agreement as in effect on the Closing Date for all
purposes of this Indenture, and the definitions of such terms are equally
applicable both to the singular and plural forms of such terms:
Section of Sale and
Term Servicing Agreement
- ---- -------------------
AFL. . . . . . . . . . . . . . . . . . . . . . Section 1.1
Aggregate Principal Balance. . . . . . . . . . Section 1.1
APR. . . . . . . . . . . . . . . . . . . . . . Section 1.1
Available Funds. . . . . . . . . . . . . . . . Section 1.1
Backup Servicer. . . . . . . . . . . . . . . . Section 1.1
Class A-1 Final Scheduled Distribution Date. . Section 1.1
Class A-2 Final Scheduled Distribution Date. . Section 1.1
Class A-3 Final Scheduled Distribution Date. . Section 1.1
Class A-4 Final Scheduled Distribution Date. . Section 1.1
Class A-5 Final Scheduled Distribution Date. . Section 1.1
Class A-1 Holdback Amount. . . . . . . . . . . Section 1.1
Class A-1 Holdback Subaccount. . . . . . . . . Section 1.1
Class A-1 Prepayment Amount. . . . . . . . . . Section 1.1
Class A-2 Prepayment Amount. . . . . . . . . . Section 1.1
Class A-3 Prepayment Amount. . . . . . . . . . Section 1.1
Class A-4 Prepayment Amount. . . . . . . . . . Section 1.1
Class A-5 Prepayment Amount. . . . . . . . . . Section 1.1
Class A-1 Prepayment Premium . . . . . . . . . Section 1.1
Class A-2 Prepayment Premium . . . . . . . . . Section 1.1
-12-
<PAGE>
Class A-3 Prepayment Premium . . . . . . . . . Section 1.1
Class A-4 Prepayment Premium . . . . . . . . . Section 1.1
Class A-5 Prepayment Premium . . . . . . . . . Section 1.1
Collateral Agent . . . . . . . . . . . . . . . Section 1.1
Collateral Insurance . . . . . . . . . . . . . Section 1.1
Collection Account . . . . . . . . . . . . . . Section 1.1
Custodian. . . . . . . . . . . . . . . . . . . Section 1.1
Dealer . . . . . . . . . . . . . . . . . . . . Section 1.1
Dealer Agreement . . . . . . . . . . . . . . . Section 1.1
Dealer Assignment. . . . . . . . . . . . . . . Section 1.1
Distribution Date. . . . . . . . . . . . . . . Section 1.1
Draw Date. . . . . . . . . . . . . . . . . . . Section 1.1
Eligible Account . . . . . . . . . . . . . . . Section 1.1
Eligible Investments . . . . . . . . . . . . . Section 1.1
Financed Vehicle . . . . . . . . . . . . . . . Section 1.1
Force-Placed Insurance . . . . . . . . . . . . Section 1.1
Funding Period . . . . . . . . . . . . . . . . Section 1.1
Initial Receivables. . . . . . . . . . . . . . Section 1.1
Insurance Agreement. . . . . . . . . . . . . . Section 1.1
Insurance Agreement Event of Default . . . . . Section 1.1
Insurer Default. . . . . . . . . . . . . . . . Section 1.1
Liquidation Proceeds . . . . . . . . . . . . . Section 1.1
Lockbox Bank . . . . . . . . . . . . . . . . . Section 1.1
Monthly Period . . . . . . . . . . . . . . . . Section 1.1
Moody's. . . . . . . . . . . . . . . . . . . . Section 1.1
Note Distribution Account. . . . . . . . . . . Section 1.1
Note Majority. . . . . . . . . . . . . . . . . Section 1.1
Noteholders' Interest Distributable Amount . . Section 1.1
Noteholders' Percentage. . . . . . . . . . . . Section 1.1
Noteholders' Principal Distributable Amount. . Section 1.1
Obligor. . . . . . . . . . . . . . . . . . . . Section 1.1
Pre-Funded Amount. . . . . . . . . . . . . . . Section 1.1
Pre-Funding Account. . . . . . . . . . . . . . Section 4.1
Purchase Agreements. . . . . . . . . . . . . . Section 1.1
Purchased Receivable . . . . . . . . . . . . . Section 1.1
Receivable . . . . . . . . . . . . . . . . . . Section 1.1
Reserve Account. . . . . . . . . . . . . . . . Section 1.1
Security Insurer . . . . . . . . . . . . . . . Section 1.1
Seller . . . . . . . . . . . . . . . . . . . . Section 1.1
Servicer . . . . . . . . . . . . . . . . . . . Section 1.1
Servicer Termination Event . . . . . . . . . . Section 1.1
Standard & Poor's. . . . . . . . . . . . . . . Section 1.1
Subsequent Receivables . . . . . . . . . . . . Section 1.1
Subsequent Transfer Date . . . . . . . . . . . Section 1.1
Trust Accounts . . . . . . . . . . . . . . . . Section 1.1
Trust Agreement. . . . . . . . . . . . . . . . Section 1.1
-13-
<PAGE>
SECTION 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Issuer and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
have the meaning assigned to them by such definitions.
SECTION 1.03. RULES OF CONSTRUCTION. Unless otherwise specified:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning assigned
to it in accordance with generally accepted accounting principles as in effect
from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in the plural
include the singular; and
(vi) references to Sections, Subsections, Schedules and Exhibits shall
refer to such portions of this Indenture.
-14-
<PAGE>
ARTICLE II
THE NOTES
SECTION 2.01. FORM. The Class A-1 Notes, the Class A-2 Notes, the
Class A-3 Notes, the Class A-4 Notes and the Class A-5 Notes, in each case
together with the Trustee's certificate of authentication, shall be in
substantially the forms set forth in Exhibits C-1, C-2, C-3, C-4 and C-5,
respectively, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture and may have
such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution of the Notes.
Any portion of the text of any Note may be set forth on the reverse thereof,
with an appropriate reference thereto on the face of the Note.
The Notes shall be typewritten, printed, lithographed or engraved or
produced by any combination of these methods (with or without steel engraved
borders), all as determined by the officers executing such Notes, as evidenced
by their execution of such Notes.
Each Note shall be dated the date of its authentication. The terms of
the Notes set forth in Exhibits C-1, C-2, C-3, C-4 and C-5 are part of the terms
of this Indenture.
SECTION 2.02. EXECUTION, AUTHENTICATION AND DELIVERY. The Notes
shall be executed on behalf of the Issuer by any of its Authorized Officers.
The signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who
were at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
The Trustee shall upon receipt of the Note Policy and Issuer Order
authenticate and deliver Class A-1 Notes for original issue in an aggregate
principal amount of $82,000,000, Class A-2 Notes in an aggregate principal
amount of $210,000,000, Class A-3 Notes in an aggregate principal amount of
$170,000,000, Class A-4 Notes in an aggregate principal amount of $150,000,000,
and Class A-5 Notes in an aggregate principal amount of $163,000,000. The
aggregate principal amount of Class A-1 Notes, the Class A-2 Notes the Class A-3
Notes, the Class A-4 Notes and the Class A-5 Notes outstanding at any time may
not exceed that amount except as provided in Section 2.05.
-15-
<PAGE>
Each Note shall be dated the date of its authentication. The Notes
shall be issuable as registered Notes in the minimum denomination of $1,000 and
in integral multiples thereof.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by the manual signature of one of its authorized
signatories, and such certificate upon any Note shall be conclusive evidence,
and the only evidence, that such Note has been duly authenticated and delivered
hereunder.
SECTION 2.03. TEMPORARY NOTES. Pending the preparation of definitive
Notes, the Issuer may execute, and upon receipt of an Issuer Order the Trustee
shall authenticate and deliver, temporary Notes which are printed, lithographed,
typewritten, mimeographed or otherwise produced, of the tenor of the definitive
Notes in lieu of which they are issued and with such variations not inconsistent
with the terms of this Indenture as the officers executing such Notes may
determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Issuer will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Issuer to be
maintained as provided in Section 3.02, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Notes, the Issuer shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
like principal amount of definitive Notes of authorized denominations. Until so
exchanged, the temporary Notes shall in all respects be entitled to the same
benefits under this Indenture as definitive Notes.
SECTION 2.04. REGISTRATION; REGISTRATION OF TRANSFER AND EXCHANGE.
The Issuer shall cause to be kept a register (the "Note Register") in which,
subject to such reasonable regulations as it may prescribe, the Issuer shall
provide for the registration of Notes and the registration of transfers of
Notes. The Trustee shall be "Note Registrar" for the purpose of registering
Notes and transfers of Notes as herein provided. Upon any resignation of any
Note Registrar, the Issuer shall promptly appoint a successor or, if it elects
not to make such an appointment, assume the duties of Note Registrar.
If a Person other than the Trustee is appointed by the Issuer as Note
Registrar, the Issuer will give the Trustee prompt written notice of the
appointment of such Note Registrar and of the location, and any change in the
location, of the Note Register, and the Trustee shall have the right to inspect
the Note Register at all reasonable times and to obtain copies thereof, and the
Trustee shall have the right to rely upon a certificate executed on behalf of
the Note Registrar by an Executive
-16-
<PAGE>
Officer thereof as to the names and addresses of the Holders of the Notes and
the principal amounts and number of such Notes.
Upon surrender for registration of transfer of any Note at the office
or agency of the Issuer to be maintained as provided in Section 3.02, the Issuer
shall execute, and the Trustee shall authenticate and the Noteholder shall
obtain from the Trustee, in the name of the designated transferee or
transferees, one or more new Notes in any authorized denominations, of a like
aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes in
any authorized denominations, of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, the Issuer shall execute, and the Trustee
shall authenticate and the Noteholder shall obtain from the Trustee, the Notes
which the Noteholder making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by a written instrument of
transfer in form satisfactory to the Trustee duly executed by, the Holder
thereof or such Holder's attorney duly authorized in writing, with such
signature guaranteed by a commercial bank or trust company located, or having a
correspondent located, in The City of New York or the city in which the
Corporate Trust Office is located, or by a member firm of a national securities
exchange, and such other documents as the Trustee may require.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Issuer or the Trustee may require payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of Notes,
other than exchanges pursuant to Section 2.03 or 9.06 not involving any
transfer.
The preceding provisions of this section notwithstanding, the Issuer
shall not be required to make and the Note Registrar need not register transfers
or exchanges of Notes selected for redemption or of any Note for a period of 15
days preceding the due date for any payment with respect to the Note.
SECTION 2.05. MUTILATED, DESTROYED, LOST OR STOLEN NOTES. If (i)any
mutilated Note is surrendered to the Trustee, or the Trustee receives evidence
to its satisfaction of the destruction, loss or theft of any Note, and (ii)there
is delivered to the Trustee and the Security Insurer (unless an Insurer Default
shall have occurred and be continuing) such security or indemnity as may be
required by them to hold
-17-
<PAGE>
the Issuer, the Trustee and the Security Insurer harmless, then, in the
absence of notice to the Issuer, the Note Registrar or the Trustee that such
Note has been acquired by a bona fide purchaser, the Issuer shall execute and
upon its request the Trustee shall authenticate and deliver, in exchange for
or in lieu of any such mutilated, destroyed, lost or stolen Note, a
replacement Note; PROVIDED, HOWEVER, that if any such destroyed, lost or
stolen Note, but not a mutilated Note, shall have become or within seven days
shall be due and payable, or shall have been called for redemption, instead
of issuing a replacement Note, the Issuer may pay such destroyed, lost or
stolen Note when so due or payable or upon the Redemption Date without
surrender thereof. If, after the delivery of such replacement Note or
payment of a destroyed, lost or stolen Note pursuant to the proviso to the
preceding sentence, a bona fide purchaser of the original Note in lieu of
which such replacement Note was issued presents for payment such original
Note, the Issuer, the Security Insurer and the Trustee shall be entitled to
recover such replacement Note (or such payment) from the Person to whom it
was delivered or any Person taking such replacement Note from such Person to
whom such replacement Note was delivered or any assignee of such Person,
except a bona fide purchaser, and shall be entitled to recover upon the
security or indemnity provided therefor to the extent of any loss, damage,
cost or expense incurred by the Issuer or the Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section, the
Issuer or the Trustee may require the payment by the Holder of such Note of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto and any other reasonable expenses (including the fees and
expenses of the Trustee or the Note Registrar) connected therewith.
Every replacement Note issued pursuant to this Section in replacement
of any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Issuer, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.06. PERSON DEEMED OWNER. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Trustee, the Security
Insurer and any agent of the Issuer, the Trustee or the Security Insurer may
treat the Person in whose name any Note is registered (as of the day of
determination) as the owner of such Note for the purpose of receiving payments
of principal of and interest, if any, on such Note and for all other purposes
whatsoever, whether or not such Note be overdue, and none of the Issuer, the
Security Insurer, the Trustee nor any agent of the Issuer or the Trustee shall
be affected by notice to the contrary.
-18-
<PAGE>
SECTION 2.07. PAYMENT OF PRINCIPAL AND INTEREST; DEFAULTED INTEREST.
(a) The Notes shall accrue interest as provided in the forms of the
Class A-1 Note, the Class A-2 Note, the Class A-3 Note, the Class A-4 Note, and
the Class A-5 Note set forth in Exhibits C-1, C-2, C-3, C-4 and C-5,
respectively, and such interest shall be payable on each Payment Date as
specified therein, subject to Section 3.01. Any installment of interest or
principal, if any, payable on any Note which is punctually paid or duly provided
for by the Issuer on the applicable Payment Date shall be paid to the Person in
whose name such Note (or one or more Predecessor Notes) is registered on the
Record Date, by check mailed first-class, postage prepaid to such Person's
address as it appears on the Note Register on such Record Date, except that,
unless Definitive Notes have been issued pursuant to Section 2.11, with respect
to Notes registered on the Record Date in the name of the nominee of the
Depository, payment will be made by wire transfer in immediately available funds
to the account designated by such nomineeand except for (i)the final installment
of principal payable with respect to such Note on a Payment Date and (ii)the
Redemption Price for any Note called for redemption pursuant to Section
10.01(a), which shall be payable as provided below. The funds represented by any
such checks returned undelivered shall be held in accordance with Section 3.03.
(b) The principal of each Note shall be payable in installments on
each Payment Date as provided in the forms of the Class A-1 Note, the Class A-2
Note the Class A-3 Note, the Class A-4 Note and the Class A-5 Note set forth in
Exhibits C-1, C-2, C-3, C-4 and C-5, respectively. Notwithstanding the
foregoing, the entire unpaid principal amount of the Notes shall be due and
payable, if not previously paid, on the date on which an Event of Default shall
have occurred and be continuing, so long as an Insurer Default shall not have
occurred and be continuing or, if an Insurer Default shall have occurred and be
continuing, on the date on which an Event of Default shall have occurred and be
continuing and the Trustee or a Note Majority have declared the Notes to be
immediately due and payable in the manner provided in Section 5.02. All
principal payments on a class of Notes shall be made pro rata to the Noteholders
of such Class entitled thereto. The Trustee shall notify the Person in whose
name a Note is registered at the close of business on the Record Date preceding
the Payment Date on which the Issuer expects that the final installment of
principal of and interest on such Note will be paid. Such notice shall be
mailed no later than five days prior to such final Payment Date and shall
specify that such final installment will be payable only upon presentation and
surrender of such Note and shall specify the place where such Note may be
presented and surrendered for payment of such installment. Notices in
connection with redemptions of Notes shall be mailed to Noteholders as provided
in Section 10.02.
(c) Promptly following the date on which all principal of and
interest on the Notes has been paid in full and the Notes have been surrendered
to the Trustee, the Trustee shall, if the Security Insurer has paid any amount
in respect
-19-
<PAGE>
of the Notes under the Note Policy or otherwise which has not been reimbursed
to it, deliver such surrendered Notes to the Security Insurer.
SECTION 2.08. CANCELLATION. Subject to Section 2.07(c), all Notes
surrendered for payment, registration of transfer, exchange or redemption shall,
if surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly canceled by the Trustee. Subject to Section 2.07(c), the
Issuer may at any time deliver to the Trustee for cancellation any Notes
previously authenticated and delivered hereunder which the Issuer may have
acquired in any manner whatsoever, and all Notes so delivered shall be promptly
canceled by the Trustee. No Notes shall be authenticated in lieu of or in
exchange for any Notes canceled as provided in this Section, except as expressly
permitted by this Indenture. Subject to Section 2.07(c), all canceled Notes may
be held or disposed of by the Trustee in accordance with its standard retention
or disposal policy as in effect at the time unless the Issuer shall direct by an
Issuer Order that they be destroyed or returned to it, provided that such Issuer
Order is timely and the Notes have not been previously disposed of by the
Trustee.
SECTION 2.09. BOOK-ENTRY NOTES. The Notes, upon original issuance,
will be issued in the form of a typewritten Note or Notes representing the
Book-Entry Notes, to be delivered to The Depository Trust Company, the initial
Depository, by, or on behalf of, the Issuer. Such Note shall initially be
registered on the Note Register in the name of Cede & Co., the nominee of the
initial Depository, and no Note Owner will receive a Definitive Note
representing such Note Owner's interest in such Note, except as provided in
Section 2.11. Unless and until definitive, fully registered Notes (the
"Definitive Notes") have been issued to Note Owners pursuant to Section 2.11:
(i) the provisions of this Section shall be in full force and effect;
(ii) the Note Registrar and the Trustee shall be entitled to deal
with the Depository for all purposes of this Indenture (including the
payment of principal of and interest on the Notes and the giving of
instructions or directions hereunder) as the sole holder of the Notes,
and shall have no obligation to the Note Owners;
(iii) to the extent that the provisions of this Section conflict with
any other provisions of this Indenture, the provisions of this Section
shall control;
(iv) the rights of Note Owners shall be exercised only through the
Depository and shall be limited to those established by law and agreements
between such Note Owners and the Depository and/or the Depository
Participants. Pursuant to the Depository Agreement, unless and until
Definitive Notes are issued pursuant to Section 2.11, the initial
Depository will make book-entry transfers among the Depository
Participants and receive
-20-
<PAGE>
and transmit payments of principal of and interest on the Notes to such
Depository Participants;
(v) whenever this Indenture requires or permits actions to be taken
based upon instructions or directions of Holders of Notes evidencing a
specified percentage of the Outstanding Amount of the Notes, the
Depository shall be deemed to represent such percentage only to the extent
that it has received instructions to such effect from Note Owners and/or
Depository Participants owning or representing, respectively, such
required percentage of the beneficial interest in the Notes and has
delivered such instructions to the Trustee; and
(vi) Note Owners may receive copies of any reports sent to Noteholders
pursuant to this Indenture, upon written request, together with a
certification that they are Note Owners and payment of reproduction and
postage expenses associated with the distribution of such reports, from
the Trustee at the Corporate Trust Office.
SECTION 2.10. NOTICES TO DEPOSITORY. Whenever a notice or other
communication to the Noteholders is required under this Indenture, unless and
until Definitive Notes shall have been issued to Note Owners pursuant to Section
2.11, the Trustee shall give all such notices and communications specified
herein to be given to Holders of the Notes to the Depository and shall have no
obligation to the Note Owners.
SECTION 2.11. DEFINITIVE NOTES. If (i)the Administrator advises the
Trustee in writing that the Depository is no longer willing or able properly to
discharge its responsibilities with respect to the Notes, and the Administrator
is unable to locate a qualified successor, (ii)the Administrator at its option
advises the Trustee in writing that it elects to terminate the book-entry system
through the Depository or (iii)after the occurrence of an Event of Default, a
Note Majority advises the Depository in writing that the continuation of a
book-entry system through the Depository is no longer in the best interests of
the Note Owners, then the Depository shall notify all Note Owners and the
Trustee of the occurrence of any such event and of the availability of
Definitive Notes to Note Owners requesting the same. Upon surrender to the
Trustee of the Note or Notes representing the Book-Entry Notes by the
Depository, accompanied by registration instructions, the Issuer shall execute
and the Trustee shall authenticate the Definitive Notes in accordance with the
instructions of the Depository. None of the Issuer, the Note Registrar or the
Trustee shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Notes, the Trustee shall recognize the Holders
of the Definitive Notes as Noteholders.
-21-
<PAGE>
ARTICLE III
COVENANTS
SECTION 3.01. PAYMENT OF PRINCIPAL, INTEREST AND PREMIUM. The
Issuer will duly and punctually pay the principal, interest and premium, if
any, on the Notes in accordance with the terms of the Notes and this
Indenture. Without limiting the foregoing, the Issuer will cause to be
distributed all amounts on deposit in the Note Distribution Account on a
Payment Date in accordance with Section8.02(b). Amounts properly withheld
under the Code by any Person from a payment to any Noteholder of interest
and/or principal shall be considered as having been paid by the Issuer to
such Noteholder for all purposes of this Indenture.
SECTION 3.02. MAINTENANCE OF OFFICE OR AGENCY. The Issuer will
maintain in the City of New York, an office or agency where Notes may be
surrendered for registration of transfer or exchange, and where notices and
demands to or upon the Issuer in respect of the Notes and this Indenture may
be served. The Issuer hereby initially appoints the Trustee to serve as its
agent for the foregoing purposes. The Issuer will give prompt written notice
to the Trustee of the location, and of any change in the location, of any
such office or agency. If at any time the Issuer shall fail to maintain any
such office or agency or shall fail to furnish the Trustee with the address
thereof, such surrenders, notices and demands may be made or served at the
Corporate Trust Office, and the Issuer hereby appoints the Trustee as its
agent to receive all such surrenders, notices and demands.
SECTION 3.03. MONEY FOR PAYMENTS TO BE HELD IN TRUST. As provided
in Section 8.02, all payments of amounts due and payable with respect to any
Notes that are to be made from amounts withdrawn from the Note Distribution
Account pursuant to Section 8.02(b) shall be made on behalf of the Issuer by
the Trustee or by another Paying Agent in accordance with written
instructions from the Issuer upon which the Trustee may rely, and no amounts
so withdrawn from the Note Distribution Account for payments of Notes shall
be paid over to the Issuer.
On or before each Payment Date and Redemption Date, the Issuer
shall deposit or cause to be deposited in the Note Distribution Account an
aggregate sum sufficient to pay the amounts then becoming due, such sum to be
held in trust for the benefit of the Persons entitled thereto and (unless the
Paying Agent is the Trustee) shall promptly notify the Trustee in writing of
its action or failure so to act.
The Issuer will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee and the Security Insurer an instrument in
which such Paying Agent shall agree with the Trustee (and if the Trustee acts
as Paying Agent, it hereby so agrees), subject to the provisions of this
Section, that such Paying Agent will:
-22-
<PAGE>
(i) hold all sums held by it for the payment of amounts due with
respect to the Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise
disposed of as herein provided and pay such sums to such Persons as
herein provided;
(ii) give the Trustee written notice of any default (of which it has
actual knowledge) by the Issuer (or any other obligor upon the Notes) in
the making of any payment required to be made with respect to the Notes;
(iii) at any time during the continuance of any such default, upon
the written request of the Trustee, forthwith pay to the Trustee all sums
so held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to the
Trustee all sums held by it in trust for the payment of Notes if at any
time it ceases to meet the standards required to be met by a Paying Agent
at the time of its appointment; and
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on any Notes of any applicable
withholding taxes imposed thereon and with respect to any applicable
reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by
Issuer Order direct any Paying Agent to pay to the Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Trustee upon the same
trusts as those upon which the sums were held by such Paying Agent; and upon
such payment by any Paying Agent to the Trustee, such Paying Agent shall be
released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any money
held by the Trustee or any Paying Agent in trust for the payment of any
amount due with respect to any Note and remaining unclaimed for two years
after such amount has become due and payable shall be discharged from such
trust and upon Issuer Request with the consent of the Security Insurer
(unless an Insurer Default shall have occurred and be continuing) shall be
deposited by the Trustee in the Collection Account; and the Holder of such
Note shall thereafter, as an unsecured general creditor, look only to the
Issuer for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money shall thereupon cease; PROVIDED,
HOWEVER, that if such money or any portion thereof had been previously
deposited by the Security Insurer or the Indenture Collateral Agent with the
Trustee for the payment of principal or interest on the Notes, to the extent
any amounts are owing to the Security Insurer, such amounts shall be paid
promptly to the Security Insurer upon receipt of a written request by the
Security Insurer to such effect, and PROVIDED, FURTHER, that the Trustee or
such Paying Agent, before being required to
-23-
<PAGE>
make any such repayment, may at the expense of the Issuer cause to be
published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in The City of New
York, notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be
repaid to or for the account of the Issuer. The Trustee may also adopt and
employ, at the expense of the Issuer, any other reasonable means of
notification of such repayment (including, but not limited to, mailing notice
of such repayment to Holders whose Notes have been called but have not been
surrendered for redemption or whose right to or interest in moneys due and
payable but not claimed is determinable from the records of the Trustee or of
any Paying Agent, at the last address of record for each such Holder).
SECTION 3.04. EXISTENCE. The Issuer will keep in full effect its
existence, rights and franchises as a business trust under the laws of the
State of Delaware (unless it becomes, or any successor Issuer hereunder is or
becomes, organized under the laws of any other state or of the United States
of America, in which case the Issuer will keep in full effect its existence,
rights and franchises under the laws of such other jurisdiction) and will
obtain and preserve its qualification to do business in each jurisdiction in
which such qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes, the Indenture Collateral and
each other instrument or agreement included in the Trust Estate.
SECTION 3.05. PROTECTION OF TRUST ESTATE. The Issuer intends the
security interest Granted pursuant to this Indenture in favor of the Issuer
Secured Parties to be prior to all other liens in respect of the Trust
Estate, and the Issuer shall take all actions necessary to obtain and
maintain, in favor of the Indenture Collateral Agent, for the benefit of the
Issuer Secured Parties, a first lien on and a first priority, perfected
security interest in the Trust Estate. The Issuer will from time to time
execute and deliver all such supplements and amendments hereto and all such
financing statements, continuation statements, instruments of further
assurance and other instruments, all as prepared by the Servicer and
delivered to the Issuer, and will take such other action necessary or
advisable to:
(i) grant more effectively all or any portion of the Trust Estate;
(ii) maintain or preserve the lien and security interest (and the
priority thereof) in favor of the Indenture Collateral Agent for the
benefit of the Issuer Secured Parties created by this Indenture or carry
out more effectively the purposes hereof;
(iii) perfect, publish notice of or protect the validity of any Grant
made or to be made by this Indenture;
(iv) enforce any of the Indenture Collateral;
-24-
<PAGE>
(v) preserve and defend title to the Trust Estate and the rights of
the Indenture Collateral Agent in such Trust Estate against the claims of
all persons and parties; or
(vi) pay all taxes or assessments levied or assessed upon the Trust
Estate when due.
The Issuer hereby designates the Indenture Collateral Agent its agent and
attorney-in-fact to execute any financing statement, continuation statement
or other instrument required by the Indenture Collateral Agent pursuant to
this Section; PROVIDED, HOWEVER, that the Servicer shall be responsible for
filing any such financing statement or continuation statement.
SECTION 3.06. OPINIONS AS TO TRUST ESTATE.
(a) On the Closing Date and on each Subsequent Transfer Date, the
Issuer shall furnish to the Trustee, the Indenture Collateral Agent and the
Security Insurer an Opinion of Counsel either stating that, in the opinion of
such counsel, such action has been taken with respect to the recording and
filing of this Indenture, any indentures supplemental hereto, and any other
requisite documents, and with respect to the execution and filing of any
financing statements and continuation statements, as are necessary to perfect
and make effective the first priority lien and security interest in favor of
the Indenture Collateral Agent, for the benefit of the Issuer Secured
Parties, created by this Indenture and reciting the details of such action,
or stating that, in the opinion of such counsel, no such action is necessary
to make such lien and security interest effective.
(b) On or before April 30 in each calendar year, beginning in
1998, the Issuer shall furnish to the Trustee, the Indenture Collateral Agent
and the Security Insurer an Opinion of Counsel with respect to each
jurisdiction in which the Receivables are located or a Uniform Commercial
Code financing statement has been filed by the Issuer either stating that, in
the opinion of such counsel, such action has been taken with respect to the
recording, filing, re-recording and refiling of this Indenture, any
indentures supplemental hereto and any other requisite documents and with
respect to the execution and filing of any financing statements and
continuation statements as is necessary to maintain the first priority lien
and security interest created by this Indenture and reciting the details of
such action or stating that in the opinion of such counsel no such action is
necessary to maintain such lien and security interest. Such Opinion of
Counsel shall also describe the recording, filing, re-recording and refiling
of this Indenture, any indentures supplemental hereto and any other requisite
documents and the execution and filing of any financing statements and
continuation statements that will, in the opinion of such counsel, be
required to maintain the lien and security interest of this Indenture until
April 30 in the following calendar year.
-25-
<PAGE>
SECTION 3.07. PERFORMANCE OF OBLIGATIONS; SERVICING OF RECEIVABLES.
(a) The Issuer will not take any action and will use its best
efforts not to permit any action to be taken by others that would release any
Person from any of such Person's material covenants or obligations under any
instrument or agreement included in the Trust Estate or that would result in
the amendment, hypothecation, subordination, termination or discharge of, or
impair the validity or effectiveness of, any such instrument or agreement,
except as expressly provided in this Indenture, the Sale and Servicing
Agreement or such other instrument or agreement.
(b) The Issuer may contract with other Persons acceptable to the
Security Insurer (so long as no Insurer Default shall have occurred and be
continuing) to assist it in performing its duties under this Indenture, and
any performance of such duties by a Person identified to the Trustee and the
Security Insurer in an Officers' Certificate of the Issuer shall be deemed to
be action taken by the Issuer. Initially, the Issuer has contracted with the
Servicer and the Administrator to assist the Issuer in performing its duties
under this Indenture. The Owner Trustee shall not be responsible for the
action or inaction of the Servicer or the Administrator.
(c) The Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, the Related Documents
and in the instruments and agreements included in the Trust Estate, including
but not limited to filing or causing to be filed all UCC financing statements
and continuation statements required to be filed by the terms of this
Indenture and the Sale and Servicing Agreement in accordance with and within
the time periods provided for herein and therein.
(d) If the Issuer shall have knowledge of the occurrence of a
Servicer Termination Event under the Sale and Servicing Agreement, the Issuer
shall promptly in writing notify the Trustee, the Security Insurer and the
Rating Agencies thereof, and shall specify in such notice the action, if any,
the Issuer is taking with respect of such default. If a Servicer Termination
Event shall arise from the failure of the Servicer to perform any of its
duties or obligations under the Sale and Servicing Agreement with respect to
the Receivables, the Issuer shall take all reasonable steps available to it
to remedy such failure.
(e) If an Insurer Default shall have occurred and be continuing
and if the Issuer has given notice of termination to the Servicer of the
Servicer's rights and powers pursuant to Section 8.2 of the Sale and
Servicing Agreement, as promptly as possible thereafter, the Issuer shall
appoint a successor servicer in accordance with Section 8.3 of the Sale and
Servicing Agreement.
(f) Upon any termination of the Servicer's rights and powers
pursuant to the Sale and Servicing Agreement, the Issuer shall promptly
notify the
-26-
<PAGE>
Trustee. As soon as a successor Servicer is appointed, the Issuer shall
notify the Trustee of such appointment, specifying in such notice the name
and address of such successor Servicer.
(g) The Issuer agrees that it will not waive timely performance or
observance by the Servicer, the Backup Servicer, the Seller or AFL of their
respective duties under the Related Documents (x)without the prior consent of
the Security Insurer (unless an Insurer Default shall have occurred and be
controlling) or (y)if the effect thereof would adversely affect the Holders
of the Notes.
SECTION 3.08. NEGATIVE COVENANTS. Until the Termination Date, the
Issuer shall not:
(i) except as expressly permitted by this Indenture, the Purchase
Agreement or the Sale and Servicing Agreement, sell, transfer, exchange or
otherwise dispose of any of the properties or assets of the Issuer,
including those included in the Trust Estate, unless directed to do so by
the Controlling Party;
(ii) claim any credit on, or make any deduction from the principal,
interest or premium payable in respect of, the Notes (other than amounts
properly withheld from such payments under the Code) or assert any claim
against any present or former Noteholder by reason of the payment of the
taxes levied or assessed upon any part of the Trust Estate; or
(iii) (A) permit the validity or effectiveness of this Indenture to be
impaired, or permit the lien in favor of the Indenture Collateral Agent
created by this Indenture to be amended, hypothecated, subordinated,
terminated or discharged, or permit any Person to be released from any
covenants or obligations with respect to the Notes under this Indenture
except as may be expressly permitted hereby, (B) permit any lien, charge,
excise, claim, security interest, mortgage or other encumbrance (other
than the lien in favor of the Indenture Collateral Agent created by this
Indenture) to be created on or extend to or otherwise arise upon or
burden the Trust Estate or any part thereof or any interest therein or
the proceeds thereof (other than tax liens, mechanics' liens and other
liens that arise by operation of law, in each case on a Financed Vehicle
and arising solely as a result of an action or omission of the related
Obligor), (C) permit the lien in favor of the Indenture Collateral Agent
created by this Indenture not to constitute a valid first priority (other
than with respect to any such tax, mechanics' or other lien) security
interest in the Trust Estate, or (D) amend, modify or fail to comply with
the provisions of the Related Documents without the prior written consent
of the Controlling Party.
SECTION 3.09. ANNUAL STATEMENT AS TO COMPLIANCE. The Issuer will
deliver to the Trustee and the Security Insurer, within 120 days after the
end of each
-27-
<PAGE>
fiscal year of the Issuer (commencing with the fiscal year ended December31,
1997), an Officers' Certificate stating, as to the Authorized Officer signing
such Officer's Certificate, that
(i) a review of the activities of the Issuer during such year and of
performance under this Indenture has been made under such Authorized
Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge, based on
such review, the Issuer has complied with all conditions and covenants
under this Indenture throughout such year, or, if there has been a default
in the compliance of any such condition or covenant, specifying each such
default known to such Authorized Officer and the nature and status thereof.
SECTION 3.10. ISSUER MAY CONSOLIDATE, ETC. ONLY ON CERTAIN TERMS.
(a) The Issuer shall not consolidate or merge with or into any
other Person, unless
(i) the Person (if other than the Issuer) formed by or surviving
such consolidation or merger shall be a Person organized and existing
under the laws of the United States of America or any State and shall
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form and substance satisfactory to the
Trustee and the Security Insurer (so long as no Insurer Default shall
have occurred and be continuing), the due and punctual payment of the
principal of and interest on all Notes and the performance or observance
of every agreement and covenant of this Indenture and each other Related
Document on the part of the Issuer to be performed or observed, all as
provided herein;
(ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied with
respect to such transaction;
(iv) the Issuer, at its own expense, shall have received an Opinion
of Counsel which shall be delivered to and shall be satisfactory to the
Trustee and the Security Insurer (so long as no Insurer Default shall have
occurred and be continuing) to the effect that such transaction will not
have any material adverse tax consequence to the Trust, the Security
Insurer or any Noteholder;
(v) any action as is necessary to maintain the lien and security
interest created in favor of the Indenture Collateral Agent by this
Indenture shall have been taken;
-28-
<PAGE>
(vi) the Issuer, at its own expense, shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel (which shall
describe the actions taken as required by clause (a)(v) of this Section
3.10 or that no such actions will be taken) each stating that such
consolidation or merger and such supplemental indenture comply with this
Article III and that all conditions precedent herein provided for relating
to such transaction have been compiled with (including any filing required
by the Exchange Act); and
(vii) so long as no Insurer Default shall have occurred and be
continuing, the Issuer shall have given the Security Insurer written notice
of such consolidation or merger at least 20 Business Days prior to the
consummation of such action and shall have received the prior written
approval of the Security Insurer of such consolidation or merger and the
Issuer or the Person (if other than the Issuer) formed by or surviving such
consolidation or merger has a net worth, immediately after such
consolidation or merger, that is (a)greater than zero and (b)not less than
the net worth of the Issuer immediately prior to giving effect to such
consolidation or merger.
(b) The Issuer shall not convey or transfer all or substantially
all of its properties or assets, including those included in the Trust
Estate, to any Person (except as expressly permitted by the Indenture, the
Purchase Agreement or the Sale and Servicing Agreement), unless
(i) the Person that acquires by conveyance or transfer the
properties and assets of the Issuer shall (A) be a United States citizen or
a Person organized and existing under the laws of the United States of
America or any State, (B) expressly assume, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form and substance
satisfactory to the Trustee and the Security Insurer (so long as no
Insurer Default shall have occurred and be continuing), the due and
punctual payment of the principal of and interest on all Notes and the
performance or observance of every agreement and covenant of this
Indenture and each Related Document on the part of the Issuer to be
performed or observed, all as provided herein, (C) expressly agree by
means of such supplemental indenture that all right, title and interest
so conveyed or transferred shall be subject and subordinate to the rights
of Holders of the Notes, (D) unless otherwise provided in such supplemental
indenture, expressly agree to indemnify, defend and hold harmless the
Issuer against and from any loss, liability or expense arising under or
related to this Indenture and the Notes and (E) expressly agree by means of
such supplemental indenture that such Person (or if a group of Persons,
then one specified Person) shall make all filings with the Commission (and
any other appropriate Person) required by the Exchange Act in connection
with the Notes;
-29-
<PAGE>
(ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied with
respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel which shall
be delivered to and shall be satisfactory to the Trustee and the Security
Insurer (so long as no Insurer Default shall have occurred and be
continuing) to the effect that such transaction will not have any material
adverse tax consequence to the Trust, the Security Insurer, any Noteholder;
(v) any action as is necessary to maintain the lien and security
interest created in favor of the Indenture Collateral Agent by this
Indenture shall have been taken;
(vi) the Issuer shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel (which shall describe the actions
taken as required by clause (b)(v) of this Section 3.10 or that no such
actions will be taken) each stating that such conveyance or transfer and
such supplemental indenture comply with this Article III and that all
conditions precedent herein provided for relating to such transaction
have been complied with (including any filing required by the Exchange
Act); and
(vii) so long as no Insurer Default shall have occurred and be
continuing, the Issuer shall have given the Security Insurer written notice
of such conveyance or transfer of properties or assets at least 20 Business
Days prior to the consummation of such action and shall have received the
prior written approval of the Security Insurer of such conveyance or
transfer and the Person acquiring by conveyance or transfer the properties
or assets of the Issuer has a net worth, immediately after such conveyance
or transfer, that is (a) greater than zero and (b) not less than the net
worth of the Issuer immediately prior to giving effect to such conveyance
or transfer.
SECTION 3.11. SUCCESSOR OR TRANSFEREE.
(a) Upon any consolidation or merger of the Issuer in accordance
with Section 3.10(a), the Person formed by or surviving such consolidation or
merger (if other than the Issuer) shall succeed to, and be substituted for,
and may exercise every right and power of, the Issuer under this Indenture
with the same effect as if such Person had been named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties
of the Issuer pursuant to Section 3.10(b), Arcadia Automobile Receivables
Trust, 1997-Bwill be released from every covenant and agreement of this
Indenture to be
-30-
<PAGE>
observed or performed on the part of the Issuer with respect to the Notes
immediately upon the delivery of written notice to the Trustee stating that
Arcadia Automobile Receivables Trust, 1997-B is to be so released.
SECTION 3.12. NO OTHER BUSINESS. The Issuer shall not engage in
any business other than financing, purchasing, owning, selling and managing
the Receivables in the manner contemplated by this Indenture and the Related
Documents and activities incidental thereto. After the Funding Period, the
Issuer shall not fund the purchase of any new Receivables.
SECTION 3.13. NO BORROWING. The Issuer shall not issue, incur,
assume, guarantee or otherwise become liable, directly or indirectly, for any
Indebtedness except for (i) the Notes, (ii) obligations owing from time to time
to the Security Insurer under the Insurance Agreement and (iii) any other
Indebtedness permitted by or arising under the Related Documents. The
proceeds of the Notes shall be used exclusively to fund the Issuer's purchase
of the Receivables and the other assets specified in the Sale and Servicing
Agreement, to fund the Pre-Funding Account, the Reserve Account and the
Spread Account and to pay the Issuer's organizational, transactional and
start-up expenses.
SECTION 3.14. SERVICER'S OBLIGATIONS. The Issuer shall cause the
Servicer to comply with Sections 3.9, 3.10, 3.11 and 4.9(b) of the Sale and
Servicing Agreement.
SECTION 3.15. GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES.
Except as contemplated by the Sale and Servicing Agreement or this Indenture,
the Issuer shall not make any loan or advance or credit to, or guarantee
(directly or indirectly or by an instrument having the effect of assuming
another's payment or performance on any obligation or capability of so doing
or otherwise), endorse or otherwise become contingently liable, directly or
indirectly, in connection with the obligations, stocks or dividends of, or
own, purchase, repurchase or acquire (or agree contingently to do so) any
stock, obligations, assets or securities of, any other interest in, or make
any capital contribution to, any other Person.
SECTION 3.16. CAPITAL EXPENDITURES. The Issuer shall not make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty).
SECTION 3.17. RESTRICTED PAYMENTS. Except as expressly permitted
by this Indenture or the Sale and Servicing Agreement, the Issuer shall not,
directly or indirectly, (i) make any distribution (by reduction of capital or
otherwise), whether in cash, property, securities or a combination thereof,
to the Owner Trustee or any owner of a beneficial interest in the Issuer or
otherwise with respect to any ownership or equity interest or security in or
of the Issuer or to the Servicer, (ii) redeem, purchase, retire or otherwise
acquire for value any such ownership or equity interest or security or (iii)
set aside or otherwise segregate any amounts for
-31-
<PAGE>
any such purpose. The Issuer will not, directly or indirectly, make payments
to or distributions from the Collection Account except in accordance with
this Indenture and the Related Documents.
SECTION 3.18. NOTICE OF EVENTS OF DEFAULT. The Issuer agrees to
give the Trustee, the Security Insurer and the Rating Agencies prompt written
notice of each Event of Default hereunder, each default on the part of the
Servicer or the Seller of its obligations under the Sale and Servicing
Agreement and each default on the part of AFL of its obligations under the
Purchase Agreements.
SECTION 3.19. FURTHER INSTRUMENTS AND ACTS. Upon request of the
Trustee or the Security Insurer, the Issuer will execute and deliver such
further instruments and do such further acts as may be reasonably necessary
or proper to carry out more effectively the purpose of this Indenture.
SECTION 3.20. COMPLIANCE WITH LAWS. The Issuer shall comply with
the requirements of all applicable laws, the non-compliance with which would,
individually or in the aggregate, materially and adversely affect the ability
of the Issuer to perform its obligations under the Notes, this Indenture or
any Related Document.
SECTION 3.21. AMENDMENTS OF SALE AND SERVICING AGREEMENT AND TRUST
AGREEMENT. The Issuer shall not agree to any amendment to Section 10.1 of
the Sale and Servicing Agreement or Section 11.1 of the Trust Agreement to
eliminate the requirements thereunder that the Trustee or the Holders of the
Notes consent to amendments thereto as provided therein.
SECTION 3.22. REMOVAL OF ADMINISTRATOR. If an Insurer Default
shall have occurred and be continuing, so long as any Notes are issued and
outstanding, the Issuer shall not remove the Administrator without cause
unless the Rating Agency Condition shall have been satisfied in connection
with such removal.
SECTION 3.23. INCOME TAX CHARACTERIZATION. For purposes of
federal income, state and local income and franchise and any other income
taxes, the Issuer will treat the Notes as indebtedness.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.01. SATISFACTION AND DISCHARGE OF INDENTURE. This
Indenture shall cease to be of further effect with respect to the Notes
except as to (i) rights of registration of transfer and exchange, (ii)
substitution of mutilated, destroyed, lost or stolen Notes, (iii) rights of
Noteholders to receive payments of principal, interest and premium, if any,
thereon, (iv) Sections 3.03, 3.04, 3.05, 3.07,
-32-
<PAGE>
3.08, 3.10, 3.12, 3.13, 3.20, 3.21 and 3.23, (v)the rights, obligations and
immunities of the Trustee hereunder (including the rights of the Trustee
under Section 6.07 and the obligations of the Trustee under Section 4.02) and
(vi)the rights of Noteholders as beneficiaries hereof with respect to the
property so deposited with the Trustee payable to all or any of them, and the
Trustee, on demand of and at the expense of the Issuer, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture with
respect to the Notes, when
(A) either
(1) all Notes theretofore authenticated and delivered (other than
(i) Notes that have been destroyed, lost or stolen and that have been
replaced or paid as provided in Section 2.05 and (ii) Notes for whose payment
money has theretofore been deposited in trust or segregated and held in trust
by the Issuer and thereafter repaid to the Issuer or discharged from such
trust, as provided in Section 3.03) have been delivered to the Trustee for
cancellation and the Note Policy has expired and been returned to the
Security Insurer for cancellation; or
(2) all Notes not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at the Final Scheduled
Distribution Date within one year, or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at the expense,
of the Issuer,
and the Issuer, in the case of (i), (ii) or (iii) above, has irrevocably
deposited or caused to be irrevocably deposited with the Indenture Collateral
Agent as part of the Trust Estate cash or direct obligations of or
obligations guaranteed by the United States of America (which will mature
prior to the date such amounts are payable), in trust in an Eligible Account
in the name of the Indenture Collateral Agent for such purpose, in an amount
sufficient to pay and discharge the entire indebtedness on such Notes not
theretofore delivered to the Trustee for cancellation when due to the Final
Scheduled Distribution Date or Redemption Date (if Notes shall have been
called for redemption pursuant to Section 10.01(a)), as the case may be;
(B) the Issuer has paid or caused to be paid all Insurer Issuer
Secured Obligations and all Trustee Issuer Secured Obligations; and
-33-
<PAGE>
(C) the Issuer has delivered to the Trustee, the Indenture
Collateral Agent and the Security Insurer an Officers' Certificate, an
Opinion of Counsel and (if required by the TIA, the Trustee, the Indenture
Collateral Agent and the Security Insurer) an Independent Certificate from a
firm of certified public accountants, each meeting the applicable
requirements of Section 11.01(a) and each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of
this Indenture have been complied with and the Rating Agency Condition has
been satisfied.
SECTION 4.02. APPLICATION OF TRUST MONEY. All moneys deposited
with the Trustee pursuant to Section 4.01 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent, as
the Trustee may determine, to the Holders of the particular Notes for the
payment or redemption of which such moneys have been deposited with the
Trustee, of all sums due and to become due thereon for principal and
interest; but such moneys need not be segregated from other funds except to
the extent required herein or in the Sale and Servicing Agreement or required
by law.
SECTION 4.03. REPAYMENT OF MONEYS HELD BY PAYING AGENT. In
connection with the satisfaction and discharge of this Indenture with respect
to the Notes, all moneys then held by any Paying Agent other than the Trustee
under the provisions of this Indenture with respect to such Notes shall, upon
written demand of the Issuer, be paid to the Trustee to be held and applied
according to Section 3.03 and thereupon such Paying Agent shall be released
from all further liability with respect to such moneys.
SECTION 4.04. RELEASE OF TRUST ESTATE. The Indenture Collateral
Agent shall, on or after the Termination Date, release any remaining portion
of the Trust Estate from the lien created by this Indenture and deposit in
the Collection Account any funds then on deposit in any other Trust Account.
The Indenture Collateral Agent shall release property from the lien created
by this Indenture pursuant to this Section 4.04 only upon receipt of an
Issuer Request accompanied by an Officer's Certificate, an Opinion of Counsel
and (if required by the TIA) Independent Certificates in accordance with TIA
Sections 314(c) and 314(d)(1) meeting the applicable requirements of Section
11.01.
ARTICLE V
REMEDIES
SECTION 5.01. EVENTS OF DEFAULT. "Event of Default," wherever
used herein, means any one of the following events (whatever the reason for
such Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or
governmental body):
<PAGE>
(i) default in the payment of any interest on any Note when the same
becomes due and payable, and such default shall continue for a period of
five days (solely for purposes of this clause, a payment on the Notes
funded by the Security Insurer or the Collateral Agent pursuant to the
Spread Account Agreement shall be deemed to be a payment made by the
Issuer); or
(ii) default in the payment of the principal of or any installment of
the principal of any Note when the same becomes due and payable (solely for
purposes of this clause, a payment on the Notes funded by the Security
Insurer or the Collateral Agent pursuant to the Spread Account Agreement,
shall be deemed to be a payment made by the Issuer); or
(iii) so long as an Insurer Default shall not have occurred and be
continuing, an Insurance Agreement Indenture Cross Default shall have
occurred; provided, however, that the occurrence of an Insurance Agreement
Indenture Cross Default may not form the basis of an Event of Default
unless the Security Insurer shall, upon prior written notice to the Rating
Agencies, have delivered to the Issuer and the Trustee and not rescinded a
written notice specifying that such Insurance Agreement Indenture Cross
Default constitutes an Event of Default under the Indenture; or
(iv) so long as an Insurer Default shall have occurred and be
continuing, default in the observance or performance of any covenant or
agreement of the Issuer made in this Indenture (other than a covenant or
agreement, a default in the observance or performance of which is elsewhere
in this Section specifically dealt with), or any representation or warranty
of the Issuer made in this Indenture or in any certificate or other writing
delivered pursuant hereto or in connection herewith proving to have been
incorrect in any material respect as of the time when the same shall have
been made, and such default shall continue or not be cured, or the
circumstance or condition in respect of which such misrepresentation or
warranty was incorrect shall not have been eliminated or otherwise cured,
for a period of 30 days after there shall have been given, by registered,
express or certified mail, to the Issuer by the Trustee or to the Issuer
and the Trustee by the Holders of at least 25% of the Outstanding Amount
of the Notes, a written notice specifying such default or incorrect
representation or warranty and requiring it to be remedied and stating that
such notice is a "Notice of Default" hereunder; or
(v) so long as an Insurer Default shall have occurred and be
continuing, the commencement of an involuntary case against the Issuer
under any applicable Federal or state bankruptcy, insolvency or other
similar law now or hereafter in effect, and such case is not dismissed
within 60 days; or
35
<PAGE>
(vi) so long as an Insurer Default shall have occurred and be
continuing, (A) the commencement by the Issuer of a voluntary case under
any applicable Federal or state bankruptcy, insolvency or other similar law
now or hereafter in effect, (B) the entry of an order for relief in an
involuntary case against the Issuer under any such law, (C) the consent by
the Issuer to the entry of any such order for relief, (D) the consent by
the Issuer to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official
of the Issuer or for any substantial part of the Trust Estate, (E) the
making by the Issuer of any general assignment for the benefit of
creditors, (F) the failure by the Issuer generally to pay its debts as such
debts become due, or (G) the taking of action by the Issuer in furtherance
of any of the foregoing.
The Issuer shall deliver to the Trustee and the Security Insurer,
within five days after obtaining knowledge of the occurrence thereof, written
notice in the form of an Officers' Certificate of any event which with the
giving of notice and the lapse of time would become an Event of Default under
clause (iii), its status and what action the Issuer is taking or proposes to
take with respect thereto.
SECTION 5.02. RIGHTS UPON EVENT OF DEFAULT.
(a) If an Insurer Default shall not have occurred and be
continuing and an Event of Default shall have occurred and be continuing, the
Notes shall become immediately due and payable at par, together with accrued
interest thereon. If an Event of Default shall have occurred and be
continuing, the Controlling Party may exercise any of the remedies specified
in Section 5.04(a). In the event of any acceleration of any Notes by
operation of this Section 5.02, the Trustee shall continue to be entitled to
make claims under the Note Policy pursuant to Section 5.18 hereof for
Scheduled Payments on the Notes. Payments under the Note Policy following
acceleration of any Notes shall be applied by the Trustee:
FIRST: to Noteholders for amounts due and unpaid on the Notes for
interest, ratably, without preference or priority of any kind, according
to the amounts due and payable on the Notes for interest; and
SECOND: to Noteholders for amounts due and unpaid on the Notes for
principal, ratably, without preference or priority of any kind, according
to the amounts due and payable on the Notes for principal.
(b) In the event any Notes are accelerated due to an Event of
Default, the Security Insurer shall have the right (in addition to its
obligation to pay Scheduled Payments on the Notes in accordance with the Note
Policy), but not the obligation, to make payments under the Note Policy or
otherwise of interest and principal due on such Notes, in whole or in part,
on any date or dates following such acceleration as the Security Insurer, in
its sole discretion, shall elect.
36
<PAGE>
(c) If an Insurer Default shall have occurred and be continuing
and an Event of Default shall have occurred and be continuing, the Trustee in
its discretion may, or if so requested in writing by Holders holding Notes
representing at least 66-2/3% of the aggregate outstanding principal amount
of the Notes shall, upon prior written notice to the Rating Agencies, declare
by written notice to the Issuer that the Notes become, whereupon they shall
become, immediately due and payable at par, together with accrued interest
thereon. Notwithstanding anything to the contrary in this paragraph (c), if
an Event of Default specified in Section 5.01(v) or (vi) shall occur and be
continuing when an Insurer Default has occurred and is continuing, the Notes
shall become immediately due and payable at par, together with accrued
interest thereon.
SECTION 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT
BY TRUSTEE; AUTHORITY OF CONTROLLING PARTY.
(a) The Issuer covenants that if any Notes are accelerated
following the occurrence of an Event of Default, the Issuer will, upon demand
of the Trustee, pay to it, for the benefit of the Holders of such Notes, the
whole amount then due and payable on such Notes for principal and interest,
with interest upon the overdue principal, and, to the extent payment at such
rate of interest shall be legally enforceable, upon overdue installments of
interest, at the applicable Interest Rate and in addition thereto such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements,
indemnified amounts and advances of the Trustee and its agents and counsel.
(b) Each Issuer Secured Party hereby irrevocably and
unconditionally appoints the Controlling Party as the true and lawful
attorney-in-fact of such Issuer Secured Party for so long as such Issuer
Secured Party is not the Controlling Party, with full power of substitution,
to execute, acknowledge and deliver any notice, document, certificate, paper,
pleading or instrument and to do in the name of the Controlling Party as well
as in the name, place and stead of such Issuer Secured Party such acts,
things and deeds for or on behalf of and in the name of such Issuer Secured
Party under this Indenture (including specifically under Section 5.04) and
under the Related Documents which such Issuer Secured Party could or might do
or which may be necessary, desirable or convenient in such Controlling
Party's sole discretion to effect the purposes contemplated hereunder and
under the Related Documents and, without limitation, following the occurrence
of an Event of Default, exercise full right, power and authority to take, or
defer from taking, any and all acts with respect to the administration,
maintenance or disposition of the Trust Estate.
(c) If an Event of Default occurs and is continuing, the Trustee
may in its discretion but with the consent of the Controlling Party (except
as provided in Section 5.03(d) below), proceed to protect and enforce its
rights and the rights of the Noteholders, by such appropriate Proceedings as
the Trustee shall deem most
37
<PAGE>
effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy
or legal or equitable right vested in the Trustee by this Indenture or by
law.
(d) Notwithstanding anything to the contrary contained in this
Indenture (including without limitation Sections 5.04(a), 5.12, 5.13 and
5.17) and regardless of whether an Insurer Default shall have occurred and be
continuing, if the Issuer fails to perform its obligations under Section
10.01(b) hereof when and as due, the Trustee may in its discretion (and
without the consent of the Controlling Party) proceed to protect and enforce
its rights and the rights of the Noteholders by such appropriate Proceedings
as the Trustee shall deem most effective to protect and enforce any such
rights, whether for specific performance of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy or legal or equitable right vested in the
Trustee by this Indenture or by law; provided that the Trustee shall only be
entitled to take any such actions without the consent of the Controlling
Party to the extent such actions (x) are taken only to enforce to Issuer's
obligations to redeem the principal amount of Notes and make payment of the
Noteholders' Prepayment Premium required under Section 10.01(b) and (y) are
taken only against the portion of the Indenture Collateral, if any,
consisting of the Pre-Funding Account, the Reserve Account, any investments
therein and any proceeds thereof.
(e) In case there shall be pending, relative to the Issuer or any
other obligor upon the Notes or any Person having or claiming an ownership
interest in the Trust Estate, Proceedings under Title 11 of the United States
Code or any other applicable Federal or state bankruptcy, insolvency or other
similar law, or in case a receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, sequestrator or similar official shall have been
appointed for or taken possession of the Issuer or its property or such other
obligor or Person, or in case of any other comparable judicial Proceedings
relative to the Issuer or other obligor upon the Notes, or to the creditors
or property of the Issuer or such other obligor, the Trustee, irrespective of
whether the principal of any Notes shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the
Trustee shall have made any demand pursuant to the provisions of this
Section, shall be entitled and empowered, by intervention in such Proceedings
or otherwise:
(i) to file and prove a claim or claims for the whole amount of
principal, interest and premium, if any, owing and unpaid in respect of the
Notes and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim
for reasonable compensation to the Trustee and each predecessor Trustee,
and their respective agents, attorneys and counsel, and for reimbursement
of all expenses and liabilities incurred, and all advances made, by the
Trustee and each predecessor Trustee, except as a result of negligence or
bad faith) and of the Noteholders allowed in such Proceedings;
38
<PAGE>
(ii) unless prohibited by applicable law and regulations, to vote on
behalf of the Holders of Notes in any election of a trustee, a standby
trustee or Person performing similar functions in any such Proceedings;
(iii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute all amounts received with
respect to the claims of the Noteholders and of the Trustee on their
behalf; and
(iv) to file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Trustee or
the Holders of Notes allowed in any judicial proceedings relative to the
Issuer, its creditors and its property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Trustee, and, in the event that the Trustee shall consent to
the making of payments directly to such Noteholders, to pay to the Trustee
such amounts as shall be sufficient to cover reasonable compensation to the
Trustee, each predecessor Trustee and their respective agents, attorneys and
counsel, and all other expenses and liabilities incurred, and all advances
made, by the Trustee and each predecessor Trustee except as a result of
negligence or bad faith.
(f) Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or vote for or accept or adopt on behalf
of any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Trustee to vote in respect of the claim of any Noteholder in
any such proceeding except, as aforesaid, to vote for the election of a
trustee in bankruptcy or similar Person.
(g) All rights of action and of asserting claims under this
Indenture, the Spread Account Agreement, or under any of the Notes, may be
enforced by the Trustee without the possession of any of the Notes or the
production thereof in any trial or other Proceedings relative thereto, and
any such action or Proceedings instituted by the Trustee shall be brought in
its own name as trustee of an express trust, and any recovery of judgment,
subject to the payment of the expenses, disbursements and compensation of the
Trustee, each predecessor Trustee and their respective agents and attorneys,
shall be for the ratable benefit of the Holders of the Notes.
(h) In any Proceedings brought by the Trustee (including any
Proceedings involving the interpretation of any provision of this Indenture
or the Spread Account Agreement), the Trustee shall be held to represent all
the Holders of the Notes, and it shall not be necessary to make any
Noteholder a party to any such Proceedings.
39
<PAGE>
SECTION 5.04. REMEDIES. (a) If an Event of Default shall have
occurred and be continuing, the Controlling Party may (subject to Section
5.05):
(i) institute Proceedings in its own name and as or on behalf of a
trustee of an express trust for the collection of all amounts then payable
on the Notes or under this Indenture with respect thereto, whether by
declaration or otherwise, enforce any judgment obtained, and collect from
the Issuer and any other obligor upon such Notes moneys adjudged due;
(ii) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture with respect to the Trust Estate;
(iii) exercise any remedies of a secured party under the UCC and any
other remedy available to the Trustee and take any other appropriate action
to protect and enforce the rights and remedies of the Issuer Secured
Parties; and
(iv) direct the Indenture Collateral Agent to sell the Trust Estate or
any portion thereof or rights or interest therein, at one or more public or
private sales called and conducted in any manner permitted by law;
PROVIDED, HOWEVER, that
(A) if the Security Insurer is the Controlling Party, the
Security Insurer may not sell or otherwise liquidate the Trust Estate
following an Insurance Agreement Indenture Cross Default unless
(I) such Insurance Agreement Indenture Cross Default arises
from a claim being made on the Note Policy or from the insolvency
of the Trust or the Seller, or
(II) the proceeds of such sale or liquidation distributable
to the Noteholders are sufficient to discharge in full all
amounts then due and unpaid upon such Notes for principal and
interest; or
(B) if the Trustee is the Controlling Party, the Trustee may not
sell or otherwise liquidate the Trust Estate following an Event of
Default unless
(I) such Event of Default is of the type described in
Section 5.01(i) or (ii), or
(II) either
(x) the Holders of 100% of the Outstanding Amount of
the Notes consent thereto,
40
<PAGE>
(y) the proceeds of such sale or liquidation
distributable to the Noteholders are sufficient to discharge
in full all amounts then due and unpaid upon such Notes for
principal and interest, or
(z) the Trustee determines that the Trust Estate will
not continue to provide sufficient funds for the payment of
principal of and interest on the Notes as they would have
become due if the Notes had not been declared due and
payable, and the Trustee provides prior written notice to
the Rating Agencies and obtains the consent of Holders of
66-2/3% of the Outstanding Amount of the Notes.
In determining such sufficiency or insufficiency with respect to
clause (y) and (z), the Trustee may, but need not, obtain and rely
upon an opinion of an Independent investment banking or accounting
firm of national reputation as to the feasibility of such proposed
action and as to the sufficiency of the Trust Estate for such purpose.
SECTION 5.05. OPTIONAL PRESERVATION OF THE RECEIVABLES. If the
Trustee is Controlling Party and if any Notes have been declared to be due
and payable under Section 5.02 following an Event of Default and such
declaration and its consequences have not been rescinded and annulled, the
Trustee may, but need not, elect to maintain possession of the Trust Estate.
It is the desire of the parties hereto and the Noteholders that there be at
all times sufficient funds for the payment of principal of and interest on
the Notes, and the Trustee shall take such desire into account when
determining whether or not to maintain possession of the Trust Estate. In
determining whether to maintain possession of the Trust Estate, the Trustee
may, but need not, obtain and rely upon an opinion of an Independent
investment banking or accounting firm of national reputation as to the
feasibility of such proposed action and as to the sufficiency of the Trust
Estate for such purpose.
SECTION 5.06. PRIORITIES.
(a) If the Trustee collects any money or property pursuant to this
Article V (excluding any payments made under the Note Policy), or if the
Indenture Collateral Agent delivers any money or property in respect of
liquidation of the Trust Estate to the Trustee pursuant to Section
5.04(a)(iv), the Trustee shall pay as promptly as practicable out the money
or property in the following order:
FIRST: amounts due and owing and required to be distributed to the
Servicer, the Owner Trustee, the Administrator, the Trustee, the Lockbox
Bank, the Custodian, the Backup Servicer, the Collateral Agent and the
Indenture Collateral Agent, respectively, pursuant to priorities (i), (ii)
and (iii)
41
<PAGE>
of Section 4.6 of the Sale and Servicing Agreement and not
previously distributed, in the order of such priorities and without
preference or priority of any kind within such priorities;
SECOND: to Noteholders for amounts due and unpaid on the Notes for
interest, ratably, without preference or priority of any kind, according to
the amounts due and payable on the Notes for interest;
THIRD: to Noteholders for amounts due and unpaid on the Notes for
principal and premium, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for principal;
FOURTH: amounts due and owing and required to be distributed to the
Security Insurer pursuant to priority (vi) of Section 4.6 of the Sale and
Servicing Agreement and not previously distributed; and
FIFTH: to the Collateral Agent to be applied as provided in the
Spread Account Agreement;
provided that any amounts collected from the Pre-Funding Account or the
Reserve Account shall be paid, FIRST, for amounts due and unpaid on the Notes
for principal and premium, if any, for distribution to Noteholders in
accordance with Section 10.01(b) and, SECOND, in accordance with priorities
ONE through FIFTH above; PROVIDED, HOWEVER, that the Issuer's obligation to
pay the Class A-1 Prepayment Premium, the Class A-2 Prepayment Premium, the
Class A-3 Prepayment Premium, the Class A-4 Prepayment Premium or the Class
A-5 Prepayment Premium shall, as set forth in Section 2.4(d) of the Sale and
Servicing Agreement, be limited solely to funds which are received by the
Issuer from AFL pursuant to Section 6.2 of the Purchase Agreement as
liquidated damages for the failure of AFL to deliver Subsequent Receivables
and no other assets of the Issuer will be available to pay the Class A-1
Prepayment Premium, the Class A-2 Prepayment Premium, the Class A-3
Prepayment Premium, the Class A-4 Prepayment Premium or the Class A-5
Prepayment Premium, under the circumstances.
(b) The Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section. At least 15 days before
such record date the Issuer shall mail to each Noteholder and the Trustee a
notice that states the record date, the payment date and the amount to be
paid.
SECTION 5.07. LIMITATION OF SUITS. No Holder of any Note shall
have any right to institute any Proceeding, judicial or otherwise, with
respect to this Indenture, or for the appointment of a receiver or trustee,
or for any other remedy hereunder, unless:
(i) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
42
<PAGE>
(ii) the Holders of not less than 25% of the Outstanding
Amount of the Notes have made written request to the Trustee to
institute such Proceeding in respect of such Event of Default in its
name as Trustee hereunder;
(iii) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in complying with such request;
(iv) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute such
Proceedings;
(v) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority of the Outstanding Amount of the Notes; and
(vi) an Insurer Default shall have occurred and be continuing;
it being understood and intended that no one or more Holders of Notes shall
have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Notes or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this
Indenture, except in the manner herein provided.
In the event the Trustee shall receive conflicting or inconsistent
requests and indemnity from two or more groups of Holders of Notes, each
representing less than a majority of the Outstanding Amount of the Notes, the
Trustee in its sole discretion may determine what action, if any, shall be
taken, notwithstanding any other provisions of this Indenture.
SECTION 5.08. UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE
PRINCIPAL AND INTEREST. Notwithstanding any other provisions in this
Indenture, the Holder of any Note shall have the right, which is absolute and
unconditional, to receive payment of the principal of and interest on such Note
on or after the respective due dates thereof expressed in such Note or in this
Indenture (or, in the case of redemption, on or after the Redemption Date) and
to institute suit for the enforcement of any such payment, and such right shall
not be impaired without the consent of such Holder; PROVIDED, HOWEVER, that so
long as an Insurer Default shall not have occurred and be continuing, no such
suit shall be instituted.
SECTION 5.09. RESTORATION OF RIGHTS AND REMEDIES. If the Controlling
Party or any Noteholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Trustee or to
such Noteholder, then and in every such case the Issuer, the Trustee and the
-43-
<PAGE>
Noteholders shall, subject to any determination in such Proceeding, be restored
severally and respectively to their former positions hereunder, and thereafter
all rights and remedies of the Trustee and the Noteholders shall continue as
though no such Proceeding had been instituted.
SECTION 5.10. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy
herein conferred upon or reserved to the Controlling Party or to the Noteholders
is intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 5.11. DELAY OR OMISSION NOT A WAIVER. No delay or omission
of the Controlling Party or any Holder of any Note to exercise any right or
remedy accruing upon any Default or Event of Default shall impair any such right
or remedy or constitute a waiver of any such Default or Event of Default or an
acquiescence therein. Every right and remedy given by this Article V or by law
to the Trustee or to the Noteholders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Noteholders, as the
case may be.
SECTION 5.12. CONTROL BY NOTEHOLDERS. If the Trustee is the
Controlling Party, the Holders of a majority of the Outstanding Amount of the
Notes shall have the right to direct the time, method and place of conducting
any Proceeding for any remedy available to the Trustee with respect to the Notes
or exercising any trust or power conferred on the Trustee; provided that
(i) such direction shall not be in conflict with any rule of
law or with this Indenture;
(ii) subject to the express terms of Section 5.04, any
direction to the Trustee to sell or liquidate all or any portion of the
Trust Estate shall be by the Holders of Notes representing not less than
100% of the Outstanding Amount of the Notes;
(iii) if the conditions set forth in Section 5.05 have
been satisfied and the Trustee elects to retain the Trust Estate
pursuant to such Section, then any direction to the Trustee by Holders
of Notes representing less than 100% of the Outstanding Amount of the
Notes to sell or liquidate all or any portion of the Trust Estate shall
be of no force and effect; and
(iv) the Trustee may take any other action deemed proper by the
Trustee that is not inconsistent with such direction; PROVIDED, HOWEVER,
that, subject to Section 6.01, the Trustee need not take any action that
it determines
-44-
<PAGE>
might involve it in liability or might materially and adversely affect the
rights of any Noteholders not consenting to such action.
SECTION 5.13. WAIVER OF PAST DEFAULTS.
If an Insurer Default shall have occurred and be continuing, the
Holders of Notes of not less than a majority of the Outstanding Amount of the
Notes may waive any past Default or Event of Default and its consequences
except a Default (a) in payment of principal of or interest on any of the
Notes or (b) in respect of a covenant or provision hereof which cannot be
modified or amended without the consent of the Holder of each Note. In the
case of any such waiver, the Issuer, the Trustee and the Holders of the Notes
shall be restored to their former positions and rights hereunder,
respectively; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereto.
Upon any such waiver, such Default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured and not to have
occurred, for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereto.
SECTION 5.14. UNDERTAKING FOR COSTS. All parties to this
Indenture agree, and each Holder of any Note by such Holder's acceptance
thereof shall be deemed to have agreed, that any court may in its discretion
require, in any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered
or omitted by it as Trustee, the filing by any party litigant in such suit of
an undertaking to pay the costs of such suit and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to (a) any suit instituted by the
Trustee, (b) any suit instituted by any Noteholder, or group of Noteholders,
in each case holding in the aggregate more than 10% of the Outstanding Amount
of the Notes or (c) any suit instituted by any Noteholder for the enforcement
of the payment of principal of or interest on any Note on or after the
respective due dates expressed in such Note and in this Indenture (or, in the
case of redemption, on or after the Redemption Date).
SECTION 5.15. WAIVER OF STAY OR EXTENSION LAWS. The Issuer covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner whatsoever, claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantages of any such law, and covenants that
it will not hinder, delay or impede
-45-
<PAGE>
the execution of any power herein granted to the Trustee, but will suffer and
permit the execution of every such power as though no such law had been enacted.
SECTION 5.16. ACTION ON NOTES. The Trustee's right to seek and
recover judgment on the Notes or under this Indenture shall not be affected
by the seeking, obtaining or application of any other relief under or with
respect to this Indenture. Neither the lien of this Indenture nor any rights
or remedies of the Trustee or the Noteholders shall be impaired by the
recovery of any judgment by the Trustee against the Issuer or by the levy of
any execution under such judgment upon any portion of the Trust Estate or
upon any of the assets of the Issuer.
SECTION 5.17. PERFORMANCE AND ENFORCEMENT OF CERTAIN OBLIGATIONS.
(a) Promptly following a request from the Trustee to do so and
at the Seller's expense, the Issuer agrees to take all such lawful action as
the Trustee may request to compel or secure the performance and observance by
the Seller, the Servicer and AFL, as applicable, of each of their obligations
to the Issuer under or in connection with the Sale and Servicing Agreement or
to the Seller under or in connection with the Purchase Agreement in
accordance with the terms thereof, and to exercise any and all rights,
remedies, powers and privileges lawfully available to the Issuer under or in
connection with the Sale and Servicing Agreement to the extent and in the
manner directed by the Trustee, including the transmission of notices of
default on the part of the Seller or the Servicer thereunder and the
institution of legal or administrative actions or proceedings to compel or
secure performance by the Seller or the Servicer of each of their obligations
under the Sale and Servicing Agreement.
(b) If the Trustee is Controlling Party and if an Event of
Default has occurred and is continuing, the Trustee may, and at the direction
(which direction shall be in writing, including facsimile) of the Holders of
66-2/3% of the Outstanding Amount of the Notes shall, upon the receipt of
such indemnity as the Trustee may reasonably request, exercise all rights,
remedies, powers, privileges and claims of the Issuer against the Seller or
the Servicer under or in connection with the Sale and Servicing Agreement,
including the right or power to take any action to compel or secure
performance or observance by the Seller or the Servicer of each of their
obligations to the Issuer thereunder and to give any consent, request,
notice, direction, approval, extension or waiver under the Sale and Servicing
Agreement, and any right of the Issuer to take such action shall be suspended.
(c) Promptly following a request from the Trustee to do so and
at the Seller's expense, the Issuer agrees to take all such lawful action as
the Trustee may request to compel or secure the performance and observance by
AFL of each of its obligations to the Seller under or in connection with the
Purchase Agreement in accordance with the terms thereof, and to exercise any
and all rights, remedies, powers and privileges lawfully available to the
Issuer under or in connection with the Purchase Agreement to the extent and
in the manner directed by the Trustee,
-46-
<PAGE>
including the transmission of notices
of default on the part of the Seller thereunder and the institution of legal
or administrative actions or proceedings to compel or secure performance by
AFL of each of its obligations under the Purchase Agreement.
(d) If the Trustee is Controlling Party and if an Event of
Default has occurred and is continuing the Trustee may, and at the direction
(which direction shall be in writing, including facsimile) of the Holders of
66-2/3% of the Outstanding Amount of the Notes shall, upon the receipt of
such indemnity as the Trustee may reasonably request, exercise all rights,
remedies, powers, privileges and claims of the Seller against AFL under or in
connection with the Purchase Agreement, including the right or power to take
any action to compel or secure performance or observance by AFL of each of
its obligations to the Seller hereunder and to give any consent, request,
notice, direction, approval, extension or waiver under the Purchase
Agreement, and any right of the Seller to take such action shall be suspended.
SECTION 5.18. CLAIMS UNDER NOTE POLICY.
(a) In the event that the Trustee has delivered a Deficiency
Notice with respect to any Determination Date pursuant to Section 5.2 of the
Sale and Servicing Agreement, the Trustee shall on the related Draw Date
determine the Note Policy Claim Amount (as defined below) for the related
Payment Date. If the Note Policy Claim Amount for such Payment Date is
greater than zero, the Trustee shall furnish to the Security Insurer no later
than 12:00 noon New York City time on the related Draw Date a completed Notice
of Claim in the amount of the Note Policy Claim Amount. Amounts paid by the
Security Insurer pursuant to a claim submitted under this Section 5.18(a)
shall be deposited by the Trustee into the Note Distribution Account for
payment to Noteholders on the related Payment Date. The "Note Policy Claim
Amount" for any Payment Date other than the Class A-1 Final Scheduled
Distribution Date shall equal the lesser of (i) the sum of the Noteholders'
Interest Distributable Amount and the Noteholders' Principal Distributable
Amount for such Payment Date, and (ii) the excess, if any, of the amount
required to be distributed pursuant to clauses (i) - (v) of Section 4.6 of
the Sale and Servicing Agreement (without giving effect to the limitation of
the Distribution Amount specified in each such clause) over the Distribution
Amount with respect to such Payment Date. The "Note Policy Claim Amount"
with respect to the Class A-1 Final Scheduled Distribution Date shall equal
the excess, if any, of (i) the amount required to be distributed pursuant to
clauses (i) - (vi) of Section 4.6 of the Sale and Servicing Agreement
(without giving effect to the limitation of the Distribution Amount specified
in each such clause) over (ii) the sum of (A) the Distribution Amount with
respect to such Payment Date, plus (B) the amount, if any, withdrawn from the
Class A-1 Holdback Subaccount and deposited in the Note Distribution Account
pursuant to Section 5.1(b) of the Sale and Servicing Agreement.
(b) Any notice delivered by the Trustee to the Security Insurer
pursuant to subsection 5.18(a) shall specify the Note Policy Claim Amount
claimed
-47-
<PAGE>
under the Note Policy and shall constitute a "Notice of Claim" under the Note
Policy. In accordance with the provisions of the Note Policy, the Security
Insurer is required to pay to the Trustee the Note Policy Claim Amount properly
claimed thereunder by 12:00 noon, New York City time, on the later of (i) the
third Business Day following receipt on a Business Day of the Notice of Claim,
and (ii) the applicable Payment Date. Any payment made by the Security Insurer
under the Note Policy shall be applied solely to the payment of the Notes, and
for no other purpose.
(c) The Trustee shall (i) receive as attorney-in-fact of each
Noteholder any Note Policy Claim Amount from the Security Insurer and
(ii) deposit the same in the Note Distribution Account for distribution to
Noteholders as provided in Section 3.01 or Section 5.02 of this Indenture.
Any and all Note Policy Claim Amounts disbursed by the Trustee from claims
made under the Note Policy shall not be considered payment by the Trust or
from the Spread Account with respect to such Notes, and shall not discharge
the obligations of the Trust with respect thereto. The Security Insurer
shall, to the extent it makes any payment with respect to the Notes, become
subrogated to the rights of the recipients of such payments to the extent of
such payments. Subject to and conditioned upon any payment with respect to
the Notes by or on behalf of the Security Insurer, the Trustee shall assign
to the Security Insurer all rights to the payment of interest or principal
with respect to the Notes which are then due for payment to the extent of all
payments made by the Security Insurer, and the Security Insurer may exercise
any option, vote, right, power or the like with respect to the Notes to the
extent that it has made payment pursuant to the Note Policy. To evidence
such subrogation, the Note Registrar shall note the Security Insurer's rights
as subrogee upon the register of Noteholders upon receipt from the Security
Insurer of proof of payment by the Security Insurer of any Noteholders'
Interest Distributable Amount or Noteholders' Principal Distributable Amount.
The foregoing subrogation shall in all cases be subject to the rights of the
Noteholders to receive all Scheduled Payments in respect of the Notes.
(d) The Trustee shall keep a complete and accurate record of all
funds deposited by the Security Insurer into the Collection Account and the
allocation of such funds to payment of interest on and principal paid in
respect of any Note. The Security Insurer shall have the right to inspect
such records at reasonable times upon one Business Day's prior notice to the
Trustee.
(e) The Trustee shall be entitled to enforce on behalf of the
Noteholders the obligations of the Security Insurer under the Note Policy.
Notwithstanding any other provision of this Agreement or any Related Document,
the Noteholders are not entitled to institute proceedings directly against the
Security Insurer.
-48-
<PAGE>
SECTION 5.19. PREFERENCE CLAIMS.
(a) In the event that the Trustee has received a certified copy
of an order of the appropriate court that any Noteholders' Interest
Distributable Amount or Noteholders' Principal Distributable Amount paid on a
Note has been avoided in whole or in part as a preference payment under
applicable bankruptcy law, the Trustee shall so notify the Security Insurer,
shall comply with the provisions of the Note Policy to obtain payment by the
Security Insurer of such avoided payment, and shall, at the time it provides
notice to the Security Insurer, notify Holders of the Notes by mail that, in
the event that any Noteholder's payment is so recoverable, such Noteholder
will be entitled to payment pursuant to the terms of the Note Policy. The
Trustee shall furnish to the Security Insurer its records evidencing the
payments of principal of and interest on Notes, if any, which have been made
by the Trustee and subsequently recovered from Noteholders, and the dates on
which such payments were made. Pursuant to the terms of the Note Policy, the
Security Insurer will make such payment on behalf of the Noteholder to the
receiver, conservator, debtor-in-possession or trustee in bankruptcy named in
the Order (as defined in the Note Policy) and not to the Trustee or any
Noteholder directly (unless a Noteholder has previously paid such payment to
the receiver, conservator, debtor-in-possession or trustee in bankruptcy, in
which case the Security Insurer will make such payment to the Trustee for
distribution to such Noteholder upon proof of such payment reasonably
satisfactory to the Security Insurer).
(b) The Trustee shall promptly notify the Security Insurer of
any proceeding or the institution of any action (of which the Trustee has
actual knowledge) seeking the avoidance as a preferential transfer under
applicable bankruptcy, insolvency, receivership, rehabilitation or similar
law (a "Preference Claim") of any distribution made with respect to the
Notes. Each Holder, by its purchase of Notes, and the Trustee hereby agree
that so long as an Insurer Default shall not have occurred and be continuing,
the Security Insurer may at any time during the continuation of any
proceeding relating to a Preference Claim direct all matters relating to such
Preference Claim including, without limitation, (i) the direction of any
appeal of any order relating to any Preference Claim and (ii) the posting of
any surety, supersedeas or performance bond pending any such appeal at the
expense of the Security Insurer, but subject to reimbursement as provided in
the Insurance Agreement. In addition, and without limitation of the
foregoing, as set forth in Section 5.18(c), the Security Insurer shall be
subrogated to, and each Noteholder and the Trustee hereby delegate and
assign, to the fullest extent permitted by law, the rights of the Trustee and
each Noteholder in the conduct of any proceeding with respect to a Preference
Claim, including, without limitation, all rights of any party to an adversary
proceeding action with respect to any court order issued in connection with
any such Preference Claim.
-49-
<PAGE>
ARTICLE VI
THE TRUSTEE AND THE INDENTURE COLLATERAL AGENT
SECTION 6.01. DUTIES OF TRUSTEE.
(a) If an Event of Default of which a Responsible Officer of the
Trustee shall have actual knowledge has occurred and is continuing, the Trustee
shall exercise the rights and powers vested in it by this Indenture and in the
same degree of care and skill in their exercise as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.
(b) Except during the continuance of an Event of Default of which
a Responsible Officer of the Trustee shall have actual knowledge:
(i) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(ii) prior to the occurrence of a Event of Default of which a
Responsible Officer of the Trustee shall have actual knowledge, and
after the curing of all such Events of Default which may have occurred,
(A) the duties and obligations of the Trustee shall be determined solely
by the express provisions of this Agreement, (B) the Trustee shall not
be liable except for the performance of such duties and obligations as
are specifically set forth in this Agreement, (C) no implied covenants
or obligations shall be read into this Agreement against the Trustee and
(D) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon all resolutions, statements,
reports, documents, orders, certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; PROVIDED,
HOWEVER, that the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture and, if applicable, the Spread Account Agreement and the
Trustee's other Related Documents. If any such instrument is found not
to conform in any material respect to the requirements of this
Agreement, the Trustee shall notify the Noteholders of such instrument
in the event the Trustee, after so requesting, does not receive a
satisfactorily corrected document.
(c) The Trustee may not be relieved from liability in its
individual capacity from liability to the Noteholders for its willful
misconduct, negligence or bad faith in connection with the distribution of
amounts from the Note Distribution Account in accordance with the terms
hereof, or for its willful misconduct, negligence or bad faith in the
performance of its duties as Trustee hereunder, except that:
-50-
<PAGE>
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 5.12 or relating to the
time, method and place of conducting any proceeding for any remedy
available to the Trustee, or executing or omitting to execute any power
conferred upon the Trustee, under this Agreement.
(d) Every provision of this Indenture that in any way relates to
the Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Issuer.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law or the terms of this Indenture
or the Sale and Servicing Agreement.
(g) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that
repayments of such funds or adequate indemnity against such risk or liability
is not reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
(i) The Trustee shall, upon one Business Day's prior notice to
the Trustee, permit any representative of the Security Insurer, during the
Trustee's normal business hours, to examine all books of account, records,
reports and other papers of the Trustee relating to the Notes, to make copies
and extracts therefrom and to discuss the Trustee's affairs and actions, as
such affairs and actions relate to the Trustee's duties with respect to the
Notes, with the Trustee's officers and employees responsible for carrying out
the Trustee's duties with respect to the Notes.
(j) In no event shall the Trustee be required to perform, or be
responsible for the manner of performance of, any of the obligations of the
Servicer, or any other party, under the Sale and Servicing Agreement, except
during such
-51-
<PAGE>
time, if any, as the Backup Servicer shall be the successor to, and be vested
with the rights, powers, duties and privileges of the Servicer in accordance
with the terms of, the Sale and Servicing Agreement.
(k) The Trustee shall, and hereby agrees that it will, perform all
of the obligations and duties required of it under the Sale and Servicing
Agreement.
(l) The Trustee shall, and hereby agrees that it will, hold the
Note Policy in trust, and will hold any proceeds of any claim on the Note
Policy in trust solely for the use and benefit of the Noteholders.
(m) Without limiting the generality of this Section 6.01, the
Trustee shall have no duty (i) to see to any recording, filing or depositing
of this Indenture or any agreement referred to herein or any financing
statement evidencing a security interest in the Financed Vehicles, or to see
to the maintenance of any such recording or filing or depositing or to any
recording, refiling or redepositing of any thereof, (ii) to see to any
insurance of the Financed Vehicles or Obligors or to effect or maintain any
such insurance, (iii) to see to the payment or discharge of any tax,
assessment or other governmental charge or any Lien or encumbrance of any
kind owing with respect to, assessed or levied against any part of the Trust,
(iv) to confirm or verify the contents of any reports or certificates
delivered to the Trustee pursuant to this Indenture or the Sale and Servicing
Agreement believed by the Trustee to be genuine and to have been signed or
presented by the proper party or parties, or (v) to inspect the Financed
Vehicles at any time or ascertain or inquire as to the performance of
observance of any of the Issuer's, the Seller's or the Servicer's
representations, warranties or covenants or the Servicer's duties and
obligations as Servicer and as custodian of the Receivable Files under the
Agreement.
(n) The Trustee shall not be required to take notice or be
deemed to have notice or knowledge of an Event of Default or any other
default under this Agreement unless a Responsible Officer of the Trustee
shall have received written notice thereof. In the absence of receipt of
such notice, the Trustee may conclusively assume that there is no Event of
Default or other such default.
SECTION 6.02. RIGHTS OF TRUSTEE.
(a) The Trustee may rely and shall be protected in acting or
refraining from acting upon any document believed by it to be genuine and to
have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Other than with respect to actions required to be taken by
the Trustee pursuant to Section 5.18 and 5.19, before the Trustee acts or
refrains from acting, it may require an Officers' Certificate (with respect
to factual matters) or an Opinion of Counsel, as applicable, which shall not
be at the expense of the Trustee. The Trustee shall not be liable for any
action it takes or omits to take in good faith in
-52-
<PAGE>
reliance on the Officers' Certificate or Opinion of Counsel, as applicable, or
as directed by the requisite amount of Note Owners as provided herein.
(c) The Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys or a custodian or nominee, and the Trustee shall not be responsible
for any misconduct or negligence on the part of, or for the supervision of, any
such agent, attorney, custodian or nominee appointed with due care by it
hereunder.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers; PROVIDED, HOWEVER, that the Trustee's conduct does not
constitute willful misconduct, negligence or bad faith.
(e) The Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture
and the Notes shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder
in good faith and in accordance with the advice or opinion of such counsel.
(f) The Trustee shall be under no obligation to institute,
conduct or defend any litigation under this Indenture or in relation to this
Indenture, at the request, order or direction of any of the Holders of Notes
or the Controlling Party, pursuant to the provisions of this Indenture,
unless such Holders of Notes or the Controlling Party shall have offered to
the Trustee reasonable security or indemnity against the costs, expenses and
liabilities that may be incurred therein or thereby; PROVIDED, HOWEVER, that
the Trustee shall, upon the occurrence of an Event of Default (that has not
been cured), exercise the rights and powers vested in it by this Indenture
with reasonable care and skill.
(g) 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
Security Insurer (so long as no Insurer Default shall have occurred and be
continuing) or (if an Insurer Default shall have occurred and be continuing)
by the Holders of Notes evidencing not less than 25% of the Outstanding
Amount thereof; PROVIDED, HOWEVER, that if the payment within a reasonable
time to the Trustee of the costs, expenses or liabilities likely to be
incurred by it in the making of such investigation is, in the opinion of the
Trustee, not reasonably assured to the Trustee by the security afforded to it
by the terms of this Indenture or the Sale and Servicing Agreement, the
Trustee may require reasonable indemnity against such cost, expense or
liability as a condition to so proceeding; the reasonable expense of every
such examination shall be paid by the Person making such request, or, if paid
by the Trustee, shall be reimbursed by the Person making such request upon
demand.
-53-
<PAGE>
(h) The right of the Trustee to perform any discretionary act
enumerated in this Agreement shall not be construed as a duty, and the Trustee
shall not be answerable for other than its negligence or willful misconduct in
the performance of such act.
(i) The Trustee shall not be required to give any bond or surety
in respect of the execution of the Trust or the Trust Estate created hereby
or the powers granted hereunder.
SECTION 6.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its
individual or any other capacity may become the owner or pledgee of Notes and
may otherwise deal with the Issuer or its Affiliates with the same rights it
would have if it were not Trustee. Any Paying Agent, Note Registrar,
co-registrar or co-paying agent may do the same with like rights. However, the
Trustee is required to comply with Sections 6.11 and 6.12.
SECTION 6.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture, the Trust Estate or the Notes, it shall not be accountable
for the Issuer's use of the proceeds from the Notes, and it shall not be
responsible for any statement of the Issuer in the Indenture or in any
document issued in connection with the sale of the Notes or in the Notes
other than the Trustee's certificate of authentication.
SECTION 6.05. NOTICE OF DEFAULTS. If a Default occurs and is
continuing and if it is known to a Responsible Officer of the Trustee, the
Trustee shall mail to each Noteholder and the Security Insurer notice of the
Default within 90 days after it occurs. Except in the case of a Default in
payment of principal of or interest on any Note (including payments pursuant to
the mandatory redemption provisions of such Note), the Trustee may withhold the
notice if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of Noteholders.
SECTION 6.06. REPORTS BY TRUSTEE TO HOLDERS. The Trustee shall
deliver to each Noteholder such information as may be required to enable such
holder to prepare its federal and state income tax returns.
SECTION 6.07. COMPENSATION AND INDEMNITY.
(a) AFL in a separate letter agreement (the "Letter Agreement") has
covenanted and agreed to pay to the Trustee, and the Trustee shall be entitled
to, certain annual fees, which shall not be limited by any law on compensation
of a trustee of an express trust. In the Letter Agreement, AFL has also agreed
to reimburse the Trustee for all reasonable out-of-pocket expenses incurred or
made by it, including costs of collection, in addition to the compensation for
its services. Such expenses shall include the reasonable compensation and
expenses, disbursements and advances of the Trustee's agents, counsel,
accountants and
-54-
<PAGE>
experts. AFL has also agreed to indemnify the Trustee and any director,
officer, employee or agent of the Trustee against any and all loss, liability or
expense (including attorneys' fees) incurred by it in connection with the
administration of this trust and the performance of its duties hereunder.
(b) If notwithstanding the provisions of the Letter Agreement, AFL
fails to pay any fee, expense or indemnified amount due to the Trustee
pursuant to the terms of the Letter Agreement, the Trustee shall be entitled
to a distribution in respect of such amount pursuant of Section 4.6(ii) of
the Sale and Servicing Agreement. If notwithstanding the provisions of the
Letter Agreement, AFL fails to make any payment or reimbursement due to the
Trustee for any expense or claim for indemnification to which the Trustee is
entitled pursuant to the terms of the Letter Agreement, the Trustee shall be
entitled to a distribution in respect of such amount pursuant to priority
SIXTH of Section 3.03(b) of the Spread Account Agreement. The Issuer's
payment obligations to the Trustee pursuant to this Section shall survive the
discharge of this Indenture. When the Trustee incurs expenses after the
occurrence of a Default specified in Section 5.01(v) or (vi) with respect to
the Issuer, the expenses are intended to constitute expenses of
administration under Title 11 of the United States Code or any other
applicable Federal or state bankruptcy, insolvency or similar law.
Notwithstanding anything else set forth in this Indenture or the Related
Documents, the Trustee agrees that the obligations of the Issuer (but not
AFL) to the Trustee hereunder and under the Related Documents shall be
recourse to the Trust Estate only. In addition, the Trustee agrees that its
recourse to the Issuer, the Trust Estate, the Seller and amounts held
pursuant of the Spread Account Agreement shall be limited to the right to
receive the distributions referred to in the first two sentences of this
Section 6.07(b).
SECTION 6.08. REPLACEMENT OF TRUSTEE. The Trustee may resign at
any time by so notifying the Issuer and the Security Insurer. The Issuer
may, with the consent of the Security Insurer, and, at the request of the
Security Insurer shall, remove the Trustee, unless an Insurer Default shall
have occurred and be continuing) if:
(i) the Trustee fails to comply with Section 6.11;
(ii) a court having jurisdiction in the premises in respect
of the Trustee in an involuntary case or proceeding under federal or
state banking or bankruptcy laws, as now or hereafter constituted, or
any other applicable federal or state bankruptcy, insolvency or other
similar law, shall have entered a decree or order granting relief or
appointing a receiver, liquidator, assignee, custodian, trustee,
conservator, sequestrator (or similar official) for the Trustee or for
any substantial part of the Trustee's property, or ordering the
winding-up or liquidation of the Trustee's affairs;
-55-
<PAGE>
(iii) an involuntary case under the federal bankruptcy laws,
as now or hereafter in effect, or another present or future federal or
state bankruptcy, insolvency or similar law is commenced with respect to
the Trustee and such case is not dismissed within 60 days;
(iv) the Trustee commences a voluntary case under any
federal or state banking or bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law, or consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian,
trustee, conservator, sequestrator (or other similar official) for the
Trustee or for any substantial part of the Trustee's property, or makes
any assignment for the benefit of creditors or fails generally to pay
its debts as such debts become due or takes any corporate action in
furtherance of any of the foregoing;
(v) the Trustee otherwise becomes incapable of acting; or
(vi) the rating assigned to the long-term unsecured debt
obligations of the Trustee (or the holding company thereof) by the
Rating Agencies shall be lowered below the rating of "BBB", "Baa3" or
equivalent rating or be withdrawn by either of the Rating Agencies.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Issuer shall promptly appoint a
successor Trustee acceptable to the Security Insurer (so long as an Insurer
Default shall not have occurred and be continuing). If the Issuer fails to
appoint such a successor Trustee, the Security Insurer may appoint a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuer. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and
the successor Trustee shall have all the rights, powers and duties of the
Trustee under this Indenture. The successor Trustee shall mail a notice of
its succession to Noteholders. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Security
Insurer (provided that no Insurer Default shall have occurred and be
continuing), the Issuer or the Holders of a majority in Outstanding Amount of
the Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee fails to comply with Section 6.11, any Noteholder may
petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
-56-
<PAGE>
Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor Trustee
pursuant to this Section and payment of all fees and expenses owed to the
outgoing Trustee. Notwithstanding the replacement of the Trustee pursuant to
this Section, the retiring Trustee shall be entitled to payment or
reimbursement of such amounts as such Person is entitled pursuant to Section
6.07.
SECTION 6.09. SUCCESSOR TRUSTEE BY MERGER. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee. The Trustee shall provide the
Rating Agencies prompt notice of any such transaction.
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall succeed to the trusts
created by this Indenture any of the Notes shall have been authenticated but
not delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Trustee may authenticate such Notes
either in the name of any predecessor hereunder or in the name of the
successor to the Trustee; and in all such cases such certificates shall have
the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Trustee shall have.
SECTION 6.10. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.
(a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Trust may at the time be located, the Trustee, with the
consent of the Security Insurer (so long as an Insurer Default shall not have
occurred and be continuing), shall have the power and may execute and deliver
all instruments to appoint one or more Persons to act as a co-trustee or
co-trustees, or separate trustee or separate trustees, of all or any part of
the Trust, and to vest in such Person or Persons, in such capacity and for
the benefit of the Noteholders, such title to the Trust, or any part hereof,
and, subject to the other provisions of this Section, such powers, duties,
obligations, rights and trusts as the Trustee may consider necessary or
desirable. No co-trustee or separate trustee hereunder shall be required to
meet the terms of eligibility as a successor Trustee under Section 6.11 and
no notice to Noteholders of the appointment of any co-trustee or separate
trustee shall be required under Section 6.08 hereof.
-57-
<PAGE>
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions
and conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or
co-trustee jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed 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;
(ii) no trustee hereunder shall be personally liable by
reason of any act or omission of any other trustee hereunder; and
(iii) the Trustee may at any time accept the resignation of
or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement
and the conditions of this Article VI. Each separate trustee and co-trustee,
upon its acceptance of the trusts conferred, shall be vested with the estates
or property specified in its instrument of appointment, either jointly with
the Trustee or separately, as may be provided therein, subject to all the
provisions of this Indenture, specifically including every provision of this
Indenture relating to the conduct of, affecting the liability of, or
affording protection to, the Trustee. Every such instrument shall be filed
with the Trustee.
(d) Any separate trustee or co-trustee may at any time constitute
the Trustee, 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 6.11. ELIGIBILITY; DISQUALIFICATION. The Trustee shall at
all times satisfy the requirements of TIA Section 310(a). The Trustee shall
have a combined capital and surplus of at least $50,000,000 as set forth in
its most recent published annual report of condition. The Trustee shall
provide copies of such reports to the
-58-
<PAGE>
Security Insurer upon request. The Trustee shall comply with TIA Section
310(b), including the optional provision permitted by the second sentence of
TIA Section 310(b)(9); PROVIDED, HOWEVER, that there shall be excluded from
the operation of TIA Section 310(b)(1) any indenture or indentures under
which other securities of the Issuer are outstanding if the requirements for
such exclusion set forth in TIA Section 310(b)(1) are met.
SECTION 6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER.
The Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or
been removed shall be subject to TIA Section 311(a) to the extent indicated.
SECTION 6.13. APPOINTMENT AND POWERS. Subject to the terms and
conditions hereof, each of the Issuer Secured Parties hereby appoints The
Chase Manhattan Bank as the Indenture Collateral Agent with respect to the
Indenture Collateral, and The Chase Manhattan Bank hereby accepts such
appointment and agrees to act as Indenture Collateral Agent with respect to
the Indenture Collateral for the Issuer Secured Parties, to maintain custody
and possession of such Indenture Collateral (except as otherwise provided
hereunder) and to perform the other duties of the Indenture Collateral Agent
in accordance with the provisions of this Indenture. Each Issuer Secured
Party hereby authorizes the Indenture Collateral Agent to take such action on
its behalf, and to exercise such rights, remedies, powers and privileges
hereunder, as the Controlling Party may direct and as are specifically
authorized to be exercised by the Indenture Collateral Agent by the terms
hereof, together with such actions, rights, remedies, powers and privileges
as are reasonably incidental thereto. The Indenture Collateral Agent shall
act upon and in compliance with the written instructions of the Controlling
Party delivered pursuant to this Indenture promptly following receipt of such
written instructions; provided that the Indenture Collateral Agent shall not
act in accordance with any instructions (i) which are not authorized by, or in
violation of the provisions of, this Indenture, (ii) which are in violation of
any applicable law, rule or regulation or (iii) for which the Indenture
Collateral Agent has not received reasonable indemnity. Receipt of such
instructions shall not be a condition to the exercise by the Indenture
Collateral Agent of its express duties hereunder, except where this Indenture
provides that the Indenture Collateral Agent is permitted to act only
following and in accordance with such instructions.
SECTION 6.14. PERFORMANCE OF DUTIES. The Indenture Collateral
Agent shall have no duties or responsibilities except those expressly set
forth in this Indenture and the other Related Documents to which the
Indenture Collateral Agent is a party or as directed by the Controlling Party
in accordance with this Indenture. The Indenture Collateral Agent shall not
be required to take any discretionary actions hereunder except at the written
direction and with the indemnification of the Controlling Party. The
Indenture Collateral Agent shall, and hereby agrees that it will, perform all
of the duties and obligations required of it under the Sale and Servicing
Agreement.
-59-
<PAGE>
SECTION 6.15. LIMITATION ON LIABILITY. Neither the Indenture
Collateral Agent nor any of its directors, officers or employees shall be
liable for any action taken or omitted to be taken by it or them hereunder,
or in connection herewith, except that the Indenture Collateral Agent shall
be liable for its negligence, bad faith or willful misconduct; nor shall the
Indenture Collateral Agent be responsible for the validity, effectiveness,
value, sufficiency or enforceability against the Issuer of this Indenture or
any of the Indenture Collateral (or any part thereof). Notwithstanding any
term or provision of this Indenture, the Indenture Collateral Agent shall
incur no liability to Issuer or the Issuer Secured Parties for any action
taken or omitted by the Indenture Collateral Agent in connection with the
Indenture Collateral, except for the negligence or willful misconduct on the
part of the Indenture Collateral Agent, and, further, shall incur no
liability to the Issuer Secured Parties except for negligence or willful
misconduct in carrying out its duties to the Issuer Secured Parties. Subject
to Section 6.16, the Indenture Collateral Agent shall be protected and shall
incur no liability to any such party in relying upon the accuracy, acting in
reliance upon the contents, and assuming the genuineness of any notice,
demand, certificate, signature, instrument or other document reasonably
believed by the Indenture Collateral Agent to be genuine and to have been
duly executed by the appropriate signatory, and (absent actual knowledge to
the contrary) the Indenture Collateral Agent shall not be required to make
any independent investigation with respect thereto. The Indenture Collateral
Agent shall at all times be free independently to establish to its reasonable
satisfaction, but shall have no duty to independently verify, the existence
or nonexistence of facts that are a condition to the exercise or enforcement
of any right or remedy hereunder or under any of the Related Documents. The
Indenture Collateral Agent may consult with counsel, and shall no be liable
for any action taken or omitted to be taken by it hereunder in good faith and
in accordance with the written advice of such counsel. The Indenture
Collateral Agent shall not be under any obligation to exercise any of the
remedial rights or powers vested in it by this Indenture or to follow any
direction from the Controlling Party unless it shall have received reasonable
security or indemnity satisfactory to the Indenture Collateral Agent against
the costs, expenses and liabilities which might be incurred by it.
SECTION 6.16. RELIANCE UPON DOCUMENTS. In the absence of bad faith
or negligence on its part, the Indenture Collateral Agent shall be entitled
to rely on any communication, instrument, paper or other document reasonably
believed by it to be genuine and correct and to have been signed or sent by
the proper Person or Persons and shall have no liability in acting, or
omitting to act, where such action or omission to act is in reasonable
reliance upon any statement or opinion contained in any such document or
instrument.
SECTION 6.17. SUCCESSOR INDENTURE COLLATERAL AGENT.
(a) MERGER. Any Person into which the Indenture Collateral Agent
may be converted or merged, or with which it may be consolidated, or to which
it
-60-
<PAGE>
may sell or transfer its trust business and assets as a whole or
substantially as a whole, or any Person resulting from any such conversion,
merger, consolidation, sale or transfer to which the Indenture Collateral
Agent is a party, shall (provided it is otherwise qualified to serve as the
Indenture Collateral Agent hereunder) be and become a successor Indenture
Collateral Agent hereunder and be vested with all of the title to and
interest in the Indenture Collateral and all of the trusts, powers,
discretions, immunities, privileges and other matters as was its predecessor
without the execution or filing of any instrument or any further act, deed or
conveyance on the part of any of the parties hereto, anything herein to the
contrary notwithstanding, except to the extent, if any, that any such action
is necessary to perfect, or continue the perfection of, the security interest
of the Issuer Secured Parties in the Indenture Collateral.
(b) RESIGNATION. The Indenture Collateral Agent and any successor
Indenture Collateral Agent may resign at any time by so notifying the Issuer
and the Security Insurer.
(c) REMOVAL. The Indenture Collateral Agent may be removed by the
Controlling Party at any time, with or without cause, by an instrument or
concurrent instruments in writing delivered to the Indenture Collateral
Agent, the other Issuer Secured Party and the Issuer. A temporary successor
may be removed at any time to allow a successor Indenture Collateral Agent to
be appointed pursuant to subsection (d) below. Any removal pursuant to the
provisions of this subsection (c) shall take effect only upon the date which
is the latest of (i) the effective date of the appointment of a successor
Indenture Collateral Agent and the acceptance in writing by such successor
Indenture Collateral Agent of such appointment and of its obligation to
perform its duties hereunder in accordance with the provisions hereof, and
(ii) receipt by the Controlling Party of an Opinion of Counsel to the effect
described in Section 3.06.
(d) ACCEPTANCE BY SUCCESSOR. The Controlling Party shall have
the sole right to appoint each successor Indenture Collateral Agent. Every
temporary or permanent successor Indenture Collateral Agent appointed
hereunder shall execute, acknowledge and deliver to its predecessor and to
the Trustee, each Issuer Secured Party and the Issuer an instrument in
writing accepting such appointment hereunder and the relevant predecessor
shall execute, acknowledge and deliver such other documents and instruments
as will effectuate the delivery of all Indenture Collateral to the successor
Indenture Collateral Agent, whereupon such successor, without any further
act, deed or conveyance, shall become fully vested with all the estates,
properties, rights, powers, duties and obligations of its predecessor. Such
predecessor shall, nevertheless, on the written request of either Issuer
Secured Party or the Issuer, execute and deliver an instrument transferring
to such successor all the estates, properties, rights and powers of such
predecessor hereunder. In the event that any instrument in writing from the
Issuer or an Issuer Secured Party is reasonably required by a successor
Indenture Collateral Agent to more fully and certainly vest in such successor
the estates, properties, rights, powers,
-61-
<PAGE>
duties and obligations vested or intended to be vested hereunder in the
Indenture Collateral Agent, any and all such written instruments shall, at
the request of the temporary or permanent successor Indenture Collateral
Agent, be forthwith executed, acknowledged and delivered by the Trustee or
the Issuer, as the case may be. The designation of any successor Indenture
Collateral Agent and the instrument or instruments removing any Indenture
Collateral Agent and appointing a successor hereunder, together with all
other instruments provided for herein, shall be maintained with the records
relating to the Indenture Collateral and, to the extent required by
applicable law, filed or recorded by the successor Indenture Collateral Agent
in each place where such filing or recoding is necessary to effect the
transfer of the Indenture Collateral to the successor Indenture Collateral
Agent or to protect or continue the perfection of the security interests
granted hereunder.
SECTION 6.18. COMPENSATION AND INDEMNITY.
(a) AFL in a separate Letter Agreement has covenanted and agreed
to pay to the Indenture Collateral Agent, and the Indenture Collateral Agent
shall be entitled to, certain annual fees, which shall not be limited by any
law on compensation of an Indenture Collateral Agent of an express trust. In
such Letter Agreement, AFL has also agreed to reimburse the Indenture
Collateral Agent for all reasonable out-of-pocket expenses incurred or made
by it, including costs of collection, in addition to the compensation for its
services. Such expenses shall include the reasonable compensation and
expenses, disbursements, indemnified amounts and advances of the Indenture
Collateral Agent's agents, counsel, accountants and experts. AFL has also
agreed to indemnify the Indenture Collateral Agent and any director, officer,
employee or agent of the Indenture Collateral Agent against any and all loss,
liability or expense (including attorneys' fees) incurred by it in connection
with the administration of this trust and the performance of its duties
hereunder.
(b) If notwithstanding the provisions of the Letter Agreement or
this Agreement, AFL fails to pay any fee expense or indemnified amount due to
the Indenture Collateral Agent pursuant to the terms of the Letter Agreement
or this Agreement, the Indenture Collateral Agent shall be entitled to a
distribution in respect of such amount pursuant to Section 4.6(ii) of the
Sale and Servicing Agreement. If notwithstanding the provisions of the
Letter Agreement or this Agreement, AFL fails to make any payment or
reimbursement due to the Indenture Collateral Agent for any expense or claim
for indemnification to which the Indenture Collateral Agent is entitled
pursuant to the terms of the Letter Agreement or this Agreement, the
Indenture Collateral Agent shall be entitled to a distribution in respect of
such amount pursuant to priority SIXTH of Section 3.03(b) of the Spread
Account Agreement. The Issuer's payment obligations to the Indenture
Collateral Agent pursuant to this Section shall survive the discharge of this
Indenture. When the Indenture Collateral Agent incurs expenses after the
occurrence of a Default specified in Section 5.01(v) or (vi) with respect to
the Issuer, the expenses are intended to constitute expenses of
administration under Title 11 of
-62-
<PAGE>
the United States Code or any other applicable Federal or state bankruptcy,
insolvency or similar law. Notwithstanding anything else set forth in this
Indenture or the Related Documents, the Indenture Collateral Agent agrees
that the obligations of the Issuer to the Indenture Collateral Agent
hereunder and under the Related Documents shall be recourse to the Trust
Estate only. In addition, the Indenture Collateral Agent agrees that its
recourse to the Issuer, the Trust Estate, the Seller and amounts held
pursuant to the Spread Account Agreement shall be limited to the right to
receive the distributions referred to in the first two sentences of this
Section 6.18.
SECTION 6.19. REPRESENTATIONS AND WARRANTIES OF THE INDENTURE
COLLATERAL AGENT. The Indenture Collateral Agent represents and warrants to
the Issuer and to each Issuer Secured Party as follows:
(a) DUE ORGANIZATION. The Indenture Collateral Agent is a New
York banking corporation, duly organized, validly existing and in good
standing under the laws of the State of New York and is duly authorized and
licensed under applicable law to conduct its business as presently conducted.
(b) CORPORATE POWER. The Indenture Collateral Agent has all
requisite right, power and authority to execute and deliver this Indenture
and to perform all of its duties as Indenture Collateral Agent hereunder.
(c) DUE AUTHORIZATION. The execution and delivery by the
Indenture Collateral Agent of this Indenture and the other Transaction
Documents to which it is a party, and the performance by the Indenture
Collateral Agent of its duties hereunder and thereunder, have been duly
authorized by all necessary corporate proceedings and no further approvals or
filings, including any governmental approvals, are required for the valid
execution and delivery by the Indenture Collateral Agent, or the performance
by the Indenture Collateral Agent, of this Indenture and such other Related
Documents.
(d) VALID AND BINDING INDENTURE. The Indenture Collateral Agent
has duly executed and delivered this Indenture and each other Related
Document to which it is a party, and each of this Indenture and each such
other Related Document constitutes the legal, valid and binding obligation of
the Indenture Collateral Agent, enforceable against the Indenture Collateral
Agent in accordance with its terms, except as (i) such enforceability may be
limited by bankruptcy, insolvency, reorganization and similar laws relating
to or affecting the enforcement of creditors' rights generally and (ii) the
availability of equitable remedies may be limited by equitable principles of
general applicability.
SECTION 6.20. WAIVER OF SETOFFS. The Indenture Collateral Agent
hereby expressly waives any and all rights of setoff that the Indenture
Collateral Agent may otherwise at any time have under applicable law with
respect to any
-63-
<PAGE>
Trust Account and agrees that amounts in the Trust Accounts shall at all
times be held and applied solely in accordance with the provisions hereof.
SECTION 6.21. CONTROL BY THE CONTROLLING PARTY. The Indenture
Collateral Agent shall comply with notices and instructions given by the
Issuer only if accompanied by the written consent of the Controlling Party,
except that if any Event of Default shall have occurred and be continuing,
the Indenture Collateral Agent shall act upon and comply with notices and
instructions given by the Controlling Party alone in the place and stead of
the Issuer.
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
SECTION 7.01. ISSUER TO FURNISH TRUSTEE NAMES AND ADDRESSES TO
NOTEHOLDERS. The Issuer will furnish or cause to be furnished to the Trustee
(a) not more than five days after the earlier of (i) each Record Date and
(ii) three months after the last Record Date, a list, in such form as the
Trustee may reasonably require, of the names and addresses of the Holders of
Notes as of such Record Date, (b) at such other times as the Trustee may
request in writing, within 30 days after receipt by the Issuer of any such
request, a list of similar form and content as of a date not more than 10
days prior to the time such list is furnished; PROVIDED, HOWEVER, that so
long as the Trustee is the Note Registrar, no such list shall be required to
be furnished. The Trustee or, if the Trustee is not the Note Registrar, the
Issuer shall furnish to the Security Insurer in writing on an annual basis on
each March 31 and at such other times as the Security Insurer may request a
copy of the list.
SECTION 7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO
NOTEHOLDERS.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Trustee as provided in
Section 7.01 and the names and addresses of Holders of Notes received by the
Trustee in its capacity as Note Registrar. The Trustee may destroy any list
furnished to it as provided in such Section 7.01 upon receipt of a new list
so furnished.
(b) Noteholders may communicate pursuant to TIA Section 312(b)
with other Noteholders with respect to their rights under this Indenture or
under the Notes.
(c) The Issuer, the Trustee and the Note Registrar shall have
the protection of TIA Section 312(c).
-64-
<PAGE>
SECTION 7.03. REPORTS BY ISSUER.
(a) The Issuer shall:
(i) file with the Trustee, within 15 days after the Issuer
is required to file the same with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies
of such portions of any of the foregoing as the Commission may from time
to time by rules and regulations prescribe) which the Issuer may be
required to file with the Commission pursuant to Section 13 or 15(d) of
the Exchange Act;
(ii) file with the Trustee and the Commission in accordance
with rules and regulations prescribed from time to time by the
Commission such additional information, documents and reports with
respect to compliance by the Issuer with the conditions and covenants of
this Indenture as may be required from time to time by such rules and
regulations; and
(iii) supply to the Trustee (and the Trustee shall transmit
by mail to all Noteholders described in TIA Section 313(c)) such
summaries of any information, documents and reports required to be filed
by the Issuer pursuant to clauses (i) and (ii) of this Section 7.03(a)
as may be required by rules and regulations prescribed from time to time
by the Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of the
Issuer shall end on December31 of each year.
SECTION 7.04. REPORTS BY TRUSTEE. If required by TIA Section 313(a),
within 60 days after each March 31, beginning with March 31, 1998, the
Trustee shall mail to the Security Insurer and each Noteholder as required by
TIA Section 313(c) a brief report dated as of such date that complies with
TIA Section 313(a). The Trustee also shall comply with TIA Section 313(b).
A copy of each report at the time of its mailing to Noteholders
shall be filed by the Trustee with the Commission and each stock exchange, if
any, on which the Notes are listed. The Issuer shall notify the Trustee if
and when the Notes are listed on any stock exchange.
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.01. COLLECTION OF MONEY. Except as otherwise expressly
provided herein, the Trustee may demand payment or delivery of, and shall
receive and collect, directly and without intervention or assistance of any
fiscal agent or other intermediary, all money and other property payable to or
receivable by the
-65-
<PAGE>
Trustee pursuant to this Indenture as instructed in writing by the Servicer.
The Trustee shall apply all such money received by it as provided in this
Indenture. Except as otherwise expressly provided in this Indenture, if any
default occurs in the making of any payment or performance under any
agreement or instrument that is part of this Indenture or the Notes, the
Trustee may take such action as may be appropriate to enforce such payment or
performance, including the institution and prosecution of appropriate
Proceedings. Any such action shall be without prejudice to any right to
claim a Default or Event of Default under this Indenture and any right to
proceed thereafter as provided in Article V.
SECTION 8.02. TRUST ACCOUNTS.
(a) On or prior to the Closing Date, the Issuer shall cause the
Servicer to establish and maintain, in the name of the Trustee, for the
benefit of the Noteholders, the Trust Accounts as provided in Section 4.1 of
the Sale and Servicing Agreement.
(b) On each Payment Date and Redemption Date, the Trustee shall
distribute all amounts on deposit in the Note Distribution Account to
Noteholders in respect of the Notes to the extent of amounts due and unpaid
on the Notes for principal, interest and premium, if any, first to pay all
accrued and unpaid interest, and then to pay principal and premium, if any,
on the Notes in the following amounts and in the following order of priority
as directed in writing by the Servicer (except as otherwise provided in
Section 5.06):
(i) accrued and unpaid interest on the Notes, provided that
if funds in the Note Distribution Account are not sufficient to pay the
entire amount of accrued but unpaid interest on each class of Notes, the
amount in the Note Distribution Account shall be applied to the payment
of such interest on each class of Notes pro rata on the basis of the
amount of accrued and unpaid interest on each class of Notes;
(ii) any amounts deposited in the Note Distribution Account
with respect to the Class A-1 Prepayment Amount, the Class A-2
Prepayment Amount, the Class A-3 Prepayment Amount, the Class A-4
Prepayment Amount and the Class A-5 Prepayment Amount or the Class A-1
Prepayment Premium, the Class A-2 Prepayment Premium, the Class A-3
Prepayment Premium, the Class A-4 Prepayment Premium and the Class A-5
Prepayment Premium shall be distributed to the Holders of the Class A-1
Notes, the Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes and
the Class A-5 Notes, respectively;
(iii) to the Holders of the Class A-1 Notes in reduction of
the Outstanding Amount of the Class A-1 Notes until the Outstanding
Amount of the Class A-1 Notes is reduced to zero;
-66-
<PAGE>
(iv) to the Holders of the Class A-2 Notes in reduction of
the Outstanding Amount of the Class A-2 Notes until the Outstanding
Amount of the Class A-2 Notes is reduced to zero,
(v) to the Holders of the Class A-3 Notes in reduction of
the Outstanding Amount of the Class A-3 Notes until the Outstanding
Amount of the Class A-3 Notes is reduced to zero;
(vi) to the Holders of the Class A-4 Notes in reduction of
the Outstanding Amount of the Class A-4 Notes until the Outstanding
Amount of the Class A-4 Notes is reduced to zero; and
(vii) to the Holders of the Class A-5 Notes in reduction of
the Outstanding Amount of the Class A-5 Notes until the Outstanding
Amount of the Class A-5 Notes is reduced to zero.
SECTION 8.03. GENERAL PROVISIONS REGARDING ACCOUNTS.
(a) So long as no Default or Event of Default shall have occurred
and be continuing, all or a portion of the funds in the Trust Accounts shall
be invested and reinvested in Eligible Investments in accordance with the
provisions of Section 4.1(e) of the Sale and Servicing Agreement.
(b) Subject to Section 6.01(c), the Trustee shall not in any way be
held liable by reason of any insufficiency in any of the Trust Accounts
resulting from any loss on any Eligible Investment included therein except for
losses attributable to the Trustee's failure to make payments on such Eligible
Investments issued by the Trustee, in its commercial capacity as principal
obligor and not as Trustee, in accordance with their terms.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS.
(a) Without the consent of the Holders of any Notes but with the
consent of the Security Insurer (unless an Insurer Default shall have
occurred and be continuing) and with prior notice to the Rating Agencies, the
Issuer and the Trustee, when authorized by an Issuer Order, at any time and
from time to time, may enter into one or more indentures supplemental hereto
(which shall conform to the provisions of the Trust Indenture Act as in force
at the date of the execution thereof), in form satisfactory to the Trustee,
for any of the following purposes:
-67-
<PAGE>
(i) to correct or amplify the description of any property
at any time subject to the lien of this Indenture, or better to assure,
convey and confirm unto the Indenture Collateral Agent any property
subject or required to be subjected to the lien created by this
Indenture, or to subject to the lien created by this Indenture
additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another Person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein
and in the Notes contained;
(iii) to add to the covenants of the Issuer, for the benefit
of the Holders of the Notes, or to surrender any right or power herein
conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Collateral Agent;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture which may be
inconsistent with any other provision herein or in any supplemental
indenture or to make any other provisions with respect to matters or
questions arising under this Indenture or in any supplemental indenture;
PROVIDED that such action shall not adversely affect the interests of
the Holders of the Notes;
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes
and to add to or change any of the provisions of this Indenture as shall
be necessary to facilitate the administration of the trusts hereunder by
more than one trustee, pursuant to the requirements of Article VI; or
(vii) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar
Federal statute hereafter enacted and to add to this Indenture such
other provisions as may be expressly required by the TIA.
The Trustee is hereby authorized to join in the execution of any
such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b) The Issuer and the Trustee, when authorized by an Issuer
Order, may, also without the consent of any of the Holders of the Notes but
with the consent of the Security Insurer (unless an Insurer Default shall
have occurred and be continuing) and with prior notice to the Rating
Agencies, enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to, or
-68-
<PAGE>
changing in any manner or eliminating any of the provisions of, this
Indenture or of modifying in any manner the rights of the Holders of the
Notes under this Indenture; PROVIDED, HOWEVER, that such action shall not, as
evidenced by an Opinion of Counsel, adversely affect in any material respect
the interests of any Noteholder.
SECTION 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS.
The Issuer and the Trustee, when authorized by an Issuer Order, also may,
with prior notice to the Rating Agencies, with the consent of the Security
Insurer (unless an Insurer Default shall have occurred and be continuing) and
with the consent of the Holders of not less than a majority of the
Outstanding Amount of the Notes, by Act of such Holders delivered to the
Issuer and the Trustee, enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to, or changing in any manner
or eliminating any of the provisions of, this Indenture or of modifying in
any manner the rights of the Holders of the Notes under this Indenture;
PROVIDED, however, that, subject to the express rights of the Security
Insurer under the Related Documents, including its rights to agree to certain
modifications of the Receivables pursuant to Section 3.2 of the Sale and
Servicing Agreement and its rights referred to in Section 5.02(c), no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Note affected thereby:
(i) change the date of payment of any installment of
principal of or interest on any Note, or reduce the principal amount
thereof, the interest rate thereon or the Redemption Price with respect
thereto, change the provision of this Indenture relating to the
application of collections on, or the proceeds of the sale of, the Trust
Estate to payment of principal of or interest on the Notes, or change
any place of payment where, or the coin or currency in which, any Note
or the interest thereon is payable, or impair the right to institute
suit for the enforcement of the provisions of this Indenture requiring
the application of funds available therefor, as provided in Article V,
to the payment of any such amount due on the Notes on or after the
respective due dates thereof (or, in the case of redemption, on or after
the Redemption Date);
(ii) reduce the percentage of the Outstanding Amount of the
Notes, the consent of the Holders of which is required for any such
supplemental indenture, or the consent of the Holders of which is
required for any waiver of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences provided
for in this Indenture;
(iii) modify or alter the provisions of the second proviso to
the definition of the term "Outstanding";
-69-
<PAGE>
(iv) reduce the percentage of the Outstanding Amount of the
Notes required to direct the Trustee to direct the Issuer to sell or
liquidate the Trust Estate pursuant to Section 5.04;
(v) modify any provision of this Section except to increase
any percentage specified herein or to provide that certain additional
provisions of this Indenture or the Related Documents cannot be modified
or waived without the consent of the Holder of each Outstanding Note
affected thereby;
(vi) modify any of the provisions of this Indenture in such
manner as to affect the calculation of the amount of any payment of
interest or principal due on any Note on any Payment Date (including the
calculation of any of the individual components of such calculation) or
to affect the rights of the Holders of Notes to the benefit of any
provisions for the mandatory redemption of the Notes contained herein; or
(vii) permit the creation of any lien ranking prior to or on
a parity with the lien created by this Indenture with respect to any
part of the Trust Estate or, except as otherwise permitted or
contemplated herein or in the Spread Account Agreement, terminate the
lien created by this Indenture on any property at any time subject
hereto or deprive the Holder of any Note of the security provided by the
lien created by this Indenture.
The Trustee may in its discretion determine whether or not any Notes
would be affected by any supplemental indenture, and any such determination
shall be conclusive upon the Holders of all Notes, whether theretofore or
thereafter authenticated and delivered hereunder. The Trustee shall not be
liable for any such determination made in good faith.
It shall not be necessary for any Act of Noteholders under this
Section to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
Promptly after the execution by the Issuer and the Trustee of any
supplemental indenture pursuant to this Section, the Trustee shall mail to
the Holders of the Notes to which such amendment or supplemental indenture
relates a notice setting forth in general terms the substance of such
supplemental indenture. Any failure of the Trustee to mail such notice, or
any defect therein, shall not, however, in any way impair or affect the
validity of any such supplemental indenture.
SECTION 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing,
or permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modifications thereby of the trusts
created by this Indenture, the Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02 shall be fully protected in relying upon,
an Opinion of Counsel (which shall not
-70-
<PAGE>
be at the expense of the Trustee) stating that the execution of such
supplemental indenture is authorized or permitted by this Indenture. The
Trustee may, but shall not be obligated to, enter into any such supplemental
indenture that affects the Trustee's own rights, duties, liabilities or
immunities under this Indenture or otherwise.
SECTION 9.04. EFFECT OF SUPPLEMENTAL INDENTURE. Upon the
execution of any supplemental indenture pursuant to the provisions hereof,
this Indenture shall be and be deemed to be modified and amended in
accordance therewith with respect to the Notes affected thereby, and the
respective rights, limitations of rights, obligations, duties, liabilities
and immunities under this Indenture of the Trustee, the Issuer and the
Holders of the Notes shall thereafter be determined, exercised and enforced
hereunder subject in all respects to such modifications and amendments, and
all the terms and conditions of any such supplemental indenture shall be and
be deemed to be part of the terms and conditions of this Indenture for any
and all purposes.
SECTION 9.05. CONFORMITY WITH TRUST INDENTURE ACT. Every
amendment of this Indenture and every supplemental indenture executed
pursuant to this Article IX shall conform to the requirements of the Trust
Indenture Act as then in effect so long as this Indenture shall then be
qualified under the Trust Indenture Act.
SECTION 9.06. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES.
Notes authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article IX may, and if required by the Trustee
shall, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Trustee
shall so determine, new notes so modified as to conform, in the opinion of
the Trustee and the Issuer, to any such supplemental indenture may be
prepared and executed by the Issuer and authenticated and delivered by the
Trustee in exchange for Outstanding Notes.
ARTICLE X
REDEMPTION OF NOTES
SECTION 10.01. REDEMPTION.
(a) In the event that the Seller or the Servicer pursuant to
Section 9.1(a) of the Sale and Servicing Agreement purchases the corpus of
the Trust, the Notes are subject to redemption in whole, but not in part, on
the Payment Date on which such repurchase occurs, for a purchase price equal
to the Redemption Price; PROVIDED, HOWEVER, that the Issuer has available
funds sufficient to pay the Redemption Price. The Seller, the Servicer or
the Issuer shall furnish the Trustee, Owner Trustee, Security Insurer and the
Rating Agencies with written notice of such redemption. If the Notes are to
be redeemed pursuant to this Section 10.01(a),
-71-
<PAGE>
the Servicer or the Issuer shall furnish notice of such election to the
Trustee not later than 25 days prior to the Redemption Date, and the Issuer
shall deposit with the Trustee in the Note Distribution Account the
Redemption Price of the Notes to be redeemed, whereupon all such Notes shall
be due and payable on the Redemption Date upon the furnishing of a notice
complying with Section 10.02 to each Holder of the Notes.
(b) In the event that on the Payment Date on or immediately
following the last day of the Funding Period, any portion of the Pre-Funded
Amount remains on deposit in the Pre-Funding Account after giving effect to
the purchase of all Subsequent Receivables, including any such purchase on
such Redemption Date, each class of Notes will be redeemed in part, on a pro
rata basis, in an aggregate principal amount equal to the Class A-1
Prepayment Amount, the Class A-2 Prepayment Amount, the Class A-3 Prepayment
Amount, the Class A-4 Prepayment Amount, and Class A-5 Prepayment Amount, as
applicable.
If the Pre-Funded Amount at the end of the Pre-Funding Period
exceeds $100,000, the Issuer shall also pay to the Holders of each class of
Notes, on a pro rata basis, on the Redemption Date the Class A-1 Prepayment
Premium, the Class A-2 Prepayment Premium, the Class A-3 Prepayment Premium,
the Class A-4 Prepayment Premium and the Class A-5 Prepayment Premium, as
applicable; PROVIDED, however, that the Issuer's obligation to pay the Class
A-1 Prepayment Premium, the Class A-2 Prepayment Premium, the Class A-3
Prepayment Premium, the Class A-4 Prepayment Premium or the Class A-5
Prepayment Premium shall, as set forth in Section 2.4(d) of the Sale and
Servicing Agreement, be limited solely to funds which are received by the
Issuer from AFL pursuant to Section 6.2 of the Purchase Agreement as
liquidated damages for the failure of AFL to deliver Subsequent Receivables
and no other assets of the Issuer will be available to pay the Class A-1
Prepayment Premium, the Class A-2 Prepayment Premium, the Class A-3
Prepayment Premium, the Class A-4 Prepayment Premium or the Class A-5
Prepayment Premium, under any circumstances.
(c) In the event that the assets of the Trust are sold pursuant
to Section 9.2 of the Trust Agreement, the proceeds of such sale shall be
distributed as provided in Section 5.06. If amounts are to be paid to
Noteholders pursuant to this Section 10.01(c), the Servicer or the Issuer
shall, to the extent practicable, furnish written notice of such event to the
Trustee and the Owner Trustee not later than 25 days prior to the Redemption
Date whereupon all such amounts shall be payable on the Redemption Date.
SECTION 10.02. FORM OF REDEMPTION NOTICE.
(a) Notice of redemption under Section 10.01(a) shall be given
by the Trustee by first-class mail, postage prepaid, mailed not less than
five days prior to the applicable Redemption Date to each Holder of Notes, as
of the close of business on the Record Date with respect to the Payment Date
immediately
-72-
<PAGE>
preceding the applicable Redemption Date, at such Holder's address appearing
in the Note Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price; and
(iii) the place where such Notes are to be surrendered for
payment of the Redemption Price (which shall be the office or agency of
the Issuer to be maintained as provided in Section 3.02).
Notice of redemption of the Notes shall be given by the Trustee in
the name and at the expense of the Issuer. Failure to give notice of
redemption, or any defect therein, to any Holder of any Note shall not impair
or affect the validity of the redemption of any other Note.
(b) Prior notice of redemption under Sections 10.01(b) and
10.01(c) is not required to be given to Noteholders.
SECTION 10.03. NOTES PAYABLE ON REDEMPTION DATE. The Notes or
portions thereof to be redeemed shall, following notice of redemption (if
any) as required by Section 10.02, on the Redemption Date become due and
payable at the Redemption Price and (unless the Issuer shall default in the
payment of the Redemption Price) no interest shall accrue on the Redemption
Price for any period after the date to which accrued interest is calculated
for purposes of calculating the Redemption Price.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. COMPLIANCE CERTIFICATES AND OPINIONS, ETC.
(a) Upon any application or request by the Issuer to the Trustee
or the Indenture Collateral Agent to take any action under any provision of
this Indenture, the Issuer shall furnish to the Trustee or the Indenture
Collateral Agent, as the case may be, and to the Security Insurer if the
application or request is made to the Indenture Collateral Agent (i)an
Officers' Certificate stating that all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied
with, (ii)an Opinion of Counsel stating that in the opinion of such counsel
all such conditions precedent, if any, have been complied with and (iii)(if
required by the TIA) an Independent Certificate from a firm of certified
public accountants meeting the applicable requirements of this Section,
except that, in the case of any such application or request as to which the
furnishing of such
-73-
<PAGE>
documents is specifically required by any provision of this Indenture, no
additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition and
the definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of each such
signatory, such signatory has made such examination or investigation as
is necessary to enable such signatory to express an informed opinion as
to whether or not such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with.
(b) (i) Prior to the deposit of any Indenture Collateral or
other property or securities with the Indenture Collateral Agent that is
to be made the basis for the release of any property subject to the lien
created by this Indenture, the Issuer shall, in addition to any
obligation imposed in Section 11.01(a) or elsewhere in this Indenture,
furnish to the Indenture Collateral Agent and the Security Insurer (so
long as no Insurer Default shall have occurred and be continuing) an
Officers' Certificate certifying or stating the opinion of each person
signing such certificate as to the fair value (within 90 days of such
deposit) to the Issuer of the Indenture Collateral or other property or
securities to be so deposited.
(ii) Whenever the Issuer is required to furnish to the
Indenture Collateral Agent and the Security Insurer an Officers'
Certificate certifying or stating the opinion of any signer thereof as
to the matters described in clause (i) above, the Issuer shall also
deliver to the Indenture Collateral Agent and the Security Insurer an
Independent Certificate as to the same matters, if the fair value to the
Issuer of the property to be so deposited and of all other such property
made the basis of any such withdrawal or release since the commencement
of the then-current fiscal year of the Issuer, as set forth in the
certificates delivered pursuant to clause (i) above and this clause
(ii), is 10% or more of the Outstanding Amount of the Notes, but such a
certificate need not be furnished with respect to any property so
deposited, if the fair value thereof to the Issuer as set forth in the
related Officers' Certificate is less than $25,000 or less than one
percent of the Outstanding Amount of the Notes.
-74-
<PAGE>
(iii) Other than with respect to any release described in clause
(A) or (B) of Section 11.01(b)(v), whenever any property or securities are
to be released from the lien created by this Indenture, the Issuer shall
also furnish to the Indenture Collateral Agent and the Security Insurer
(so long as no Insurer Default shall have occurred and be continuing) an
Officers' Certificate certifying or stating the opinion of each person
signing such certificate as to the fair value (within 90 days of such
release) of the property or securities proposed to be released and stating
that in the opinion of such person the proposed release will not impair
the security created by this Indenture in contravention of the provisions
hereof.
(iv) Whenever the Issuer is required to furnish to the Trustee and
the Security Insurer an Officers' Certificate certifying or stating the
opinion of any signer thereof as to the matters described in clause (iii)
above, the Issuer shall also furnish to the Indenture Collateral Agent and
the Security Insurer an Independent Certificate as to the same matters if
the fair value of the property or securities and of all other property or
securities (other than property described in clauses (A) or (B) of Section
11.01(b)(v)) released from the lien created by this Indenture since the
commencement of the then current fiscal year, as set forth in the
certificates required by clause (iii) above and this clause (iv), equals
10% or more of the Outstanding Amount of the Notes, but such certificate
need not be furnished in the case of any release of property or securities
if the fair value thereof as set forth in the related Officers' Certificate
is less than $25,000 or less than one percent of the then Outstanding
Amount of the Notes.
(v) Notwithstanding any other provision of this Section, the
Issuer may, without compliance with the other provisions of this
Section (A) collect, liquidate, sell or otherwise dispose of Receivables
as and to the extent permitted or required by the Related Documents
(including as provided in Section 3.1 of the Sale and Servicing Agreement)
and (B) make cash payments out of the Trust Accounts as and to the extent
permitted or required by the Related Documents.
SECTION 11.02. FORM OF DOCUMENTS DELIVERED TO TRUSTEE. In any case
where several matters are required to be certified by, or covered by an opinion
of, any specified Person, it is not necessary that all such matters be certified
by, or covered by the opinion of, only one such Person, or that they be so
certified or covered by only one document, but one such Person may certify or
give an opinion with respect to some matters and one or more other such Persons
as to other matters, and any such Person may certify or give an opinion as to
such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or
-75-
<PAGE>
representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations by, an officer or officers of
the Servicer, the Seller or the Issuer, stating that the information with
respect to such factual matters is in the possession of the Servicer, the Seller
or the Issuer, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Trustee, it is provided that the Issuer shall
deliver any document as a condition of the granting of such application, or as
evidence of the Issuer's compliance with any term hereof, it is intended that
the truth and accuracy, at the time of the granting of such application or at
the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Trustee's right to rely upon the truth and accuracy of
any statement or opinion contained in any such document as provided in Article
VI.
SECTION 11.03. ACTS OF NOTEHOLDERS.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders in person or by agents
duly appointed in writing; and except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee, and, where it is hereby expressly required, to the
Issuer. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Noteholders signing such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Indenture and (subject to Section 6.01) conclusive in
favor of the Trustee and the Issuer, if made in the manner provided in this
Section.
-76-
<PAGE>
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Trustee deems
sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted or suffered to be done by the
Trustee or the Issuer in reliance thereon, whether or not notation of such
action is made upon such Note.
SECTION 11.04. NOTICES, ETC., TO TRUSTEE, ISSUER AND RATING AGENCIES.
Any request, demand, authorization, direction, notice, consent, waiver or Act of
Noteholders or other documents provided or permitted by this Indenture to be
made upon, given or furnished to or filed with:
(a) the Trustee by any Noteholder or by the Issuer shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
(b) the Issuer by the Trustee or by any Noteholder shall be
sufficient for every purpose hereunder if in writing and mailed,
first-class, postage prepaid, to the Issuer addressed to: Arcadia
Automobile Receivables Trust, 1997-B, in care of Mellon Bank (DE),
National Association, as Owner Trustee, 919 North Market Street, Second
Floor, Wilmington, Delaware 19801, Attention: Robert M. Bell, with a
copy to Mellon Bank (DE), National Association, or at any other address
previously furnished in writing to the Trustee by Issuer. The Issuer shall
promptly transmit any notice received by it from the Noteholders to the
Trustee, or
(c) the Security Insurer by the Issuer or the Trustee shall be
sufficient for any purpose hereunder if in writing and mailed by
registered mail or personally delivered or telexed or telecopied to the
recipient as follows:
To the Security Insurer: Financial Security Assurance Inc.
350 Park Avenue
New York, NY 10022
Attention: Surveillance Department
Telex No.: (212)688-3101
Confirmation: (212)826-0100
Telecopy Nos.: (212)339-3518 or (212)339-3529
-77-
<PAGE>
(In each case in which notice or other communication to the Security Insurer
refers to an Event of Default, a claim on the Note Policy or with respect to
which failure on the part of the Security Insurer to respond shall be deemed to
constitute consent or acceptance, then a copy of such notice or other
communication should also be sent to the attention of the General Counsel and
the Head--Financial Guaranty Group "URGENT MATERIAL ENCLOSED.")
Notices required to be given to the Rating Agencies by the Issuer, the
Trustee or the Owner Trustee shall be in writing, personally delivered or
mailed by certified mail, return receipt requested to (i) in the case of
Moody's, at the following address: Moody's Investors Service, Inc., ABS
Monitoring Department, 99 Church Street, New York, New York 10007 and
(ii) in the case of Standard & Poor's, at the following address:
Standard & Poor's Ratings Group, 26 Broadway (20th Floor), New York,
New York 10004, Attention of Asset Backed Surveillance Department; or as
to each of the foregoing, at such other address as shall be designated by
written notice to the other parties.
SECTION 11.05 NOTICES TO NOTEHOLDERS; WAIVER. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at his address as it appears on the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner herein
provided shall conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Trustee but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event of Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created
-78-
<PAGE>
hereunder, and shall not under any circumstance constitute a Default or
Event of Default.
SECTION 11.06. ALTERNATE PAYMENT AND NOTICE PROVISIONS.
Notwithstanding any provision of this Indenture or any of the Notes to the
contrary, the Issuer may enter into any agreement with any Holder of a Note
providing for a method of payment, or notice by the Trustee or any Paying Agent
to such Holder, that is different from the methods provided for in this
Indenture for such payments or notices. The Issuer will furnish to the Trustee
a copy of each such agreement and the Trustee will cause payments to be made and
notices to be given in accordance with such agreements.
SECTION 11.07. CONFLICT WITH TRUST INDENTURE ACT. If any provision
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.
The provisions of TIA Sections 310 through 317 that impose duties on
any Person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
SECTION 11.08. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.
SECTION 11.09. SUCCESSORS AND ASSIGNS. All covenants and agreements
in this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not.
All agreements of the Trustee in this Indenture shall bind its
successors.
SECTION 11.10. SEVERABILITY. In case any provision in this Indenture
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 11.11. BENEFITS OF INDENTURE. The Security Insurer and its
successors and assigns shall be a third-party beneficiary to the provisions of
this Indenture, and shall be entitled to rely upon and directly to enforce such
provisions of this Indenture so long as no Insurer Default shall have occurred
and be continuing. Nothing in this Indenture or in the Notes, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder, and the Noteholders, and any other party secured
hereunder, and any other Person with an ownership interest in any part of the
Trust Estate, any benefit or any legal or
-79-
<PAGE>
equitable right, remedy or claim under this Indenture. The Security Insurer
may disclaim any of its rights and powers under this Indenture (in which case
the Indenture Trustee may exercise such right or power hereunder), but not
its duties and obligations under the Note Policy, upon delivery of a written
notice to the Trustee.
SECTION 11.12. LEGAL HOLIDAYS. In any case where the date on which
any payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
SECTION 11.13. GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.14. COUNTERPARTS. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 11.15. RECORDING OF INDENTURE. If this Indenture is subject
to recording in any appropriate public recording offices, such recording is to
be effected by the Issuer and at its expense accompanied by an Opinion of
Counsel (which may be counsel to the Trustee or any other counsel reasonably
acceptable to the Trustee, and the Security Insurer) to the effect that such
recording is necessary either for the protection of the Noteholders or any other
Person secured hereunder or for the enforcement of any right or remedy granted
to the Trustee or the Indenture Collateral Agent under this Indenture or the
Collateral Agent under the Spread Account Agreement.
SECTION 11.16. TRUST OBLIGATION. No recourse may be taken,
directly or indirectly, with respect to the obligations of the Issuer, the
Owner Trustee or the Trustee on the Notes or under this Indenture or any
certificate or other writing delivered in connection herewith or therewith,
against (i) the Trustee or the Owner Trustee in its individual capacity, (ii)
any owner of a beneficial interest in the Issuer or (iii) any partner, owner,
beneficiary, agent, officer, director, employee or agent of the Trustee or
the Owner Trustee in its individual capacity, any holder of a beneficial
interest in the Issuer, the Owner Trustee or the Trustee or of any successor
or assign of the Trustee or the Owner Trustee in its individual capacity,
except as any such Person may have expressly agreed (it being understood that
the Trustee and the Owner Trustee have no such obligations in their
individual capacity) and except that any such partner, owner or beneficiary
shall be fully liable, to the extent
-80-
<PAGE>
provided by applicable law, for any unpaid consideration for stock, unpaid
capital contribution or failure to pay any installment or call owing to such
entity. For all purposes of this Indenture, in the performance of any duties
or obligations of the Issuer hereunder, the Owner Trustee shall be subject
to, and entitled to the benefits of, the terms and provisions of Articles VI,
VII and VIII of the Trust Agreement.
SECTION 11.17. NO PETITION. The Trustee and the Indenture Collateral
Agent, by entering into this Indenture, and each Noteholder, by accepting a
Note, hereby covenant and agree that they will not at any time institute against
the Seller or the Issuer, or join in any institution against the Seller or the
Issuer of, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings under any United States Federal or
state bankruptcy or similar law in connection with any obligations relating to
the Notes, this Indenture or any of the Related Documents.
SECTION 11.18. INSPECTION. The Issuer agrees that, on reasonable
prior notice, it will permit any representative of the Trustee or of the
Security Insurer, during the Issuer's normal business hours, to examine all the
books of account, records, reports, and other papers of the Issuer, to make
copies and extracts therefrom, to cause such books to be audited by independent
certified public accountants, and to discuss the Issuer's affairs, finances and
accounts with the Issuer's officers, employees, and independent certified public
accountants, all at such reasonable times and as often as may be reasonably
requested. The Trustee shall and shall cause its representatives to hold in
confidence all such information except to the extent disclosure may be required
by law (and all reasonable applications for confidential treatment are
unavailing) and except to the extent that the Trustee may reasonably determine
that such disclosure is consistent with its obligations hereunder.
SECTION 11.19. LIMITATION OF LIABILITY. It is expressly understood
and agreed by the parties hereto that (a) this Agreement is executed and
delivered by Mellon Bank (DE), National Association, not individually or
personally but solely as Owner Trustee of the Issuer under the Trust Agreement,
in the exercise of the powers and authority conferred and vested in it, (b) each
of the representations, undertakings and agreements herein made on the part of
the Issuer is made and intended not as personal representations, undertakings
and agreements by Mellon Bank (DE), National Association but is made and
intended for the purpose for binding only the Issuer, (c) nothing herein
contained shall be construed as creating any liability on Mellon Bank (DE),
National Association, individually or personally, to perform any covenant either
expressed or implied contained herein, all such liability, if any, being
expressly waived by the parties to this Agreement and by any person claiming by,
through or under them and (d) under no circumstances shall Mellon Bank (DE),
National Association be personally liable for the payment of any indebtedness or
expenses of the Issuer or be liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaken by the Issuer under this
Agreement or any related documents.
-81-
<PAGE>
IN WITNESS WHEREOF, the Issuer and the Trustee have caused this
Indenture to be duly executed by their respective officers, thereunto duly
authorized, all as of the day and year first above written.
ARCADIA AUTOMOBILE RECEIVABLES
TRUST, 1997-B
By MELLON BANK (DE),
NATIONAL ASSOCIATION,
not in its individual capacity but solely as
Owner Trustee under the Trust Agreement
By /s/ E. D. Renn
---------------------------------
Name: E. D. Renn
Title: Vice President
THE CHASE MANHATTAN BANK,
not in its individual capacity but solely as
Trustee and Indenture Collateral Agent
By /s/ Vada Haight
---------------------------------
Name: Vada Haight
Title: Assistant Vice President
<PAGE>
SALE AND SERVICING AGREEMENT
Dated as of June 1, 1997
among
ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1997-B
Issuer
ARCADIA RECEIVABLES FINANCE CORP.
Seller
ARCADIA FINANCIAL LTD.
In its individual capacity and as Servicer
and
THE CHASE MANHATTAN BANK
Backup Servicer
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. Usage of Terms . . . . . . . . . . . . . . . . . . . 25
SECTION 1.3. Calculations . . . . . . . . . . . . . . . . . . . . 25
SECTION 1.4. Section References . . . . . . . . . . . . . . . . . 25
SECTION 1.5. No Recourse . . . . . . . . . . . . . . . . . . . . . 25
SECTION 1.6. Material Adverse Effect . . . . . . . . . . . . . . . 26
ARTICLE II - CONVEYANCE OF RECEIVABLES . . . . . . . . . . . . . . . . . 26
SECTION 2.1. Conveyance of Initial Receivables . . . . . . . . . . 26
SECTION 2.2. Custody of Receivable Files . . . . . . . . . . . . . 27
SECTION 2.3. Conditions to Acceptance by Owner Trustee . . . . . . 28
SECTION 2.4. Conveyance of Subsequent Receivables. . . . . . . . . 29
SECTION 2.5. Representations and Warranties of Seller. . . . . . . 32
SECTION 2.6. Repurchase of Receivables Upon Breach of Warranty . . 34
SECTION 2.7. Nonpetition Covenant . . . . . . . . . . . . . . . . 35
SECTION 2.8. Collecting Lien Certificates Not Delivered on the
Closing Date or Subsequent Transfer Date . . . . . . 35
SECTION 2.9. Trust's Assignment of Administrative Receivables
and Warranty Receivables . . . . . . . . . . . . . . 35
ARTICLE III - ADMINISTRATION AND SERVICING OF RECEIVABLES . . . . . . . . 36
SECTION 3.1. Duties of the Servicer . . . . . . . . . . . . . . . 36
SECTION 3.2. Collection of Receivable Payments; Modifications of
Receivables; Lockbox Agreements . . . . . . . . . . . 37
SECTION 3.3. Realization Upon Receivables. . . . . . . . . . . . . 40
SECTION 3.4. Insurance . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 3.5. Maintenance of Security Interests in Vehicles . . . . 43
SECTION 3.6. Covenants, Representations, and Warranties of
Servicer . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 3.7. Purchase of Receivables Upon Breach of Covenant . . . 46
SECTION 3.8. Total Servicing Fee; Payment of Certain Expenses by
Servicer . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 3.9. Servicer's Certificate . . . . . . . . . . . . . . . 47
SECTION 3.10. Annual Statement as to Compliance; Notice of Servicer
Termination Event . . . . . . . . . . . . . . . . . . 48
SECTION 3.11. Annual Independent Accountants' Report. . . . . . . . 49
SECTION 3.12. Access to Certain Documentation and Information
Regarding Receivables . . . . . . . . . . . . . . . . 50
SECTION 3.13. Monthly Tape . . . . . . . . . . . . . . . . . . . . 50
SECTION 3.14. Retention and Termination of Servicer . . . . . . . . 51
SECTION 3.15. Fidelity Bond . . . . . . . . . . . . . . . . . . . . 51
- i -
<PAGE>
SECTION 3.16. Duties of the Servicer under the Indenture . . . . . 51
SECTION 3.17. Duties of the Servicer under the Insurance Agreement. 53
SECTION 3.18. Certain Duties of the Servicer under the Trust
Agreement . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE IV - DISTRIBUTIONS; STATEMENTS TO NOTEHOLDERS . . . . . . . . . . 54
SECTION 4.1. Trust Accounts . . . . . . . . . . . . . . . . . . . 54
SECTION 4.2. Collections . . . . . . . . . . . . . . . . . . . . . 56
SECTION 4.3. Application of Collections . . . . . . . . . . . . . 57
SECTION 4.4. Monthly Advances . . . . . . . . . . . . . . . . . . 58
SECTION 4.5. Additional Deposits . . . . . . . . . . . . . . . . . 59
SECTION 4.6. Distributions . . . . . . . . . . . . . . . . . . . . 59
SECTION 4.7. Pre-Funding Account . . . . . . . . . . . . . . . . . 60
SECTION 4.8. Net Deposits . . . . . . . . . . . . . . . . . . . . 62
SECTION 4.9. Statements to Noteholders . . . . . . . . . . . . . . 62
SECTION 4.10. Indenture Trustee as Agent . . . . . . . . . . . . . 63
SECTION 4.11. Eligible Accounts . . . . . . . . . . . . . . . . . . 63
ARTICLE V - THE RESERVE ACCOUNT; THE SPREAD ACCOUNT . . . . . . . . . . 63
SECTION 5.1. Withdrawals from the Reserve Account . . . . . . . . 63
SECTION 5.2. Withdrawals from Spread Account . . . . . . . . . . 64
ARTICLE VI - THE SELLER . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 6.1. Liability of Seller . . . . . . . . . . . . . . . . . 65
SECTION 6.2. Merger or Consolidation of, or Assumption of the
Obligations of, Seller; Amendment of Certificate of
Incorporation . . . . . . . . . . . . . . . . . . . . 65
SECTION 6.3. Limitation on Liability of Seller and Others. . . . . 66
SECTION 6.4. Seller May Own Notes. . . . . . . . . . . . . . . . . 66
ARTICLE VII - THE SERVICER . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 7.1. Liability of Servicer; Indemnities . . . . . . . . . . 67
SECTION 7.2. Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer or Backup Servicer. . . . 68
SECTION 7.3. Limitation on Liability of Servicer, Backup Servicer
and Others . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 7.4. Delegation of Duties . . . . . . . . . . . . . . . . . 70
SECTION 7.5. Servicer and Backup Servicer Not to Resign . . . . . . 70
ARTICLE VIII - SERVICER TERMINATION EVENTS . . . . . . . . . . . . . . . 71
SECTION 8.1. Servicer Termination Event . . . . . . . . . . . . . . 71
SECTION 8.2. Consequences of a Servicer Termination Event . . . . . 73
SECTION 8.3. Appointment of Successor . . . . . . . . . . . . . . . 74
SECTION 8.4. Notification to Noteholders . . . . . . . . . . . . . 75
SECTION 8.5. Waiver of Past Defaults . . . . . . . . . . . . . . . 75
- ii -
<PAGE>
ARTICLE IX - TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 9.1. Optional Purchase of All Receivables; Liquidation
of Trust Estate . . . . . . . . . . . . . . . . . . 76
ARTICLE X - MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . 77
SECTION 10.1. Amendment . . . . . . . . . . . . . . . . . . . . . 77
SECTION 10.2. Protection of Title to Trust Property. . . . . . . . 78
SECTION 10.3. Governing Law . . . . . . . . . . . . . . . . . . . 80
SECTION 10.4. Severability of Provisions . . . . . . . . . . . . . 81
SECTION 10.5. Assignment . . . . . . . . . . . . . . . . . . . . . 81
SECTION 10.6. Third-Party Beneficiaries . . . . . . . . . . . . . 81
SECTION 10.7. Disclaimer by Security Insurer . . . . . . . . . . . 81
SECTION 10.8. Counterparts . . . . . . . . . . . . . . . . . . . . 81
SECTION 10.9. Intention of Parties . . . . . . . . . . . . . . . . 81
SECTION 10.10. Notices . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 10.11. Limitation of Liability . . . . . . . . . . . . . . 82
- iii -
<PAGE>
THIS SALE AND SERVICING AGREEMENT, dated as of June 1, 1997, is
made among Arcadia Automobile Receivables Trust, 1997-B (the "Issuer"),
Arcadia Receivables Finance Corp., a Delaware corporation, as Seller (the
"Seller"), Arcadia Financial Ltd., a Minnesota corporation, in its individual
capacity and as Servicer (in its individual capacity, "AFL"; in its capacity
as Servicer, the "Servicer") and The Chase Manhattan Bank, a New York banking
corporation, as Backup Servicer (the "Backup Servicer").
In consideration of the mutual agreements herein contained, and of
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. All terms defined in the Spread Account
Agreement, the Indenture or the Trust Agreement (each as defined below) shall
have the same meaning in this Agreement. Whenever capitalized and used in
this Agreement, the following words and phrases, unless the context otherwise
requires, shall have the following meanings:
ACCOUNTANTS' REPORT: The report of a firm of nationally recognized
independent accountants described in Section 3.11.
ACCOUNTING DATE: With respect to a Distribution Date, the last day
of the Monthly Period immediately preceding such Distribution Date.
ACTUAL FUNDS: With respect to a Distribution Date, the sum of (i)
Available Funds for such Distribution Date, plus (ii) the portion of the
Reserve Amount, if any, deposited pursuant to Section 5.1(a) into the
Collection Account with respect to such Distribution Date.
ADDITION NOTICE: With respect to any transfer of Subsequent
Receivables to the Trust pursuant to Section 2.4, a notice, which shall be
given not later than 15 days prior to the related Subsequent Transfer Date,
of the Seller's designation of Subsequent Receivables to be transferred to
the Issuer and the aggregate Principal Balance of such Subsequent Receivables.
ADMINISTRATIVE RECEIVABLE: With respect to any Monthly Period, a
Receivable which the Servicer is required to purchase pursuant to Section 3.7
or which the Servicer has elected to purchase pursuant to Section 3.4(c).
AFFILIATE: With respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person, means the power to
direct the management and
<PAGE>
policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
AFL: Arcadia Financial Ltd., a Minnesota corporation.
AGGREGATE PRINCIPAL BALANCE: With respect to any Determination
Date, the sum of the Principal Balances (computed as of the related
Accounting Date) for all Receivables (other than (i) any Receivable that
became a Liquidated Receivable during the related Monthly Period and (ii) any
Receivable that became a Purchased Receivable as of the immediately preceding
Accounting Date).
AGREEMENT OR "THIS AGREEMENT": This Sale and Servicing Agreement,
all amendments and supplements thereto and all exhibits and schedules to any
of the foregoing.
AMOUNT FINANCED: With respect to a Receivable, the aggregate amount
advanced under such Receivable toward the purchase price of the Financed
Vehicle and related costs, including amounts advanced in respect of
accessories, insurance premiums, service and warranty contracts, other items
customarily financed as part of retail automobile installment sale contracts
or promissory notes, and related costs. The term "Amount Financed" shall not
include any Insurance Add-On Amounts.
ANNUAL PERCENTAGE RATE OR APR: With respect to a Receivable, the
rate per annum of finance charges stated in such Receivable as the "annual
percentage rate" (within the meaning of the Federal Truth-in-Lending Act).
If after the Closing Date, the rate per annum with respect to a Receivable as
of the Closing Date is reduced as a result of (i) an insolvency proceeding
involving the Obligor or (ii) pursuant to the Soldiers' and Sailors' Civil
Relief Act of 1940, Annual Percentage Rate or APR shall refer to such reduced
rate.
ARCC PURCHASE AGREEMENT: The Receivables Purchase Agreement and
Assignment, dated as of December 3, 1996, between AFL and the Seller.
ASSUMED REINVESTMENT RATE: 2.5% per annum.
AVAILABLE FUNDS: With respect to any Determination Date, the sum of
(i) the Collected Funds for such Determination Date, (ii) all Purchase
Amounts deposited in the Collection Account as of the related Deposit Date,
(iii) all Monthly Advances made by the Servicer as of the related Deposit
Date, and (iv) all net income from investments of funds in the Trust Accounts
during the related Monthly Period.
BACKUP SERVICER: The Chase Manhattan Bank, or its successor in
interest pursuant to Section 8.2, or such Person as shall have been appointed
as Backup Servicer or successor Servicer pursuant to Section 8.3.
- 2 -
<PAGE>
BASIC SERVICING FEE: With respect to any Monthly Period, the fee
payable to the Servicer for services rendered during such Monthly Period,
which shall be equal to one-twelfth of the Basic Servicing Fee Rate
multiplied by the Aggregate Principal Balance as of the Determination Date
falling in such Monthly Period.
BASIC SERVICING FEE RATE: 1.00% per annum.
BUSINESS DAY: Any day other than a Saturday, Sunday, legal holiday
or other day on which commercial banking institutions in Minneapolis,
Minnesota, New York, New York, Wilmington, Delaware or any other location of
any successor Servicer, successor Owner Trustee, successor Indenture Trustee
or successor Collateral Agent are authorized or obligated by law, executive
order or governmental decree to be closed.
CLASS A-1 FINAL SCHEDULED DISTRIBUTION DATE: June 15, 1998 (or, if
such day is not a Business Day, the next succeeding Business Day thereafter).
CLASS A-1 HOLDBACK AMOUNT: As of any Subsequent Transfer Date, an
amount equal to 2.5% of the amount, if any, by which the applicable "Target
Original Pool Balance" specified below is greater than the Original Pool
Balance after giving effect to the transfer of Subsequent Receivables on such
Subsequent Transfer Date:
Subsequent Transfer Date Target Original Pool Balance
------------------------ ----------------------------
June 19 - July 14 $658,238,881.75
July 15 - August 14 $775,000,000.00
CLASS A-1 HOLDBACK SUBACCOUNT: The subaccount of the Reserve
Account, the funds in which shall consist of all Class A-1 Holdback Amounts
deposited therein during the Funding Period, other than investment earnings
thereon. Any funds in the Class A-1 Holdback Subaccount shall be withdrawn
on the Class A-1 Final Scheduled Distribution Date and distributed as
specified in Section 5.1(b).
CLASS A-1 INTEREST CARRYOVER SHORTFALL: With respect to any
Distribution Date, the excess of the Class A-1 Interest Distributable Amount
for the preceding Distribution Date over the amount in respect of interest on
the Class A-1 Notes that was actually deposited in the Note Distribution
Account on such preceding Distribution Date, plus interest on the amount of
interest due but not paid to Class A-1 Noteholders on the preceding
Distribution Date, to the extent permitted by law, at the Class A-1 Interest
Rate from such preceding Distribution Date to but excluding the current
Distribution Date.
- 3 -
<PAGE>
CLASS A-1 INTEREST DISTRIBUTABLE AMOUNT: With respect to any
Distribution Date, the sum of the Class A-1 Monthly Interest Distributable
Amount for such Distribution Date and the Class A-1 Interest Carryover
Shortfall for such Distribution Date.
CLASS A-1 INTEREST RATE: 5.7425% per annum.
CLASS A-1 MONTHLY INTEREST DISTRIBUTABLE AMOUNT: With respect to
any Distribution Date, the product of (i) the product of (x) the Class A-1
Interest Rate and (y) a fraction, the numerator of which is the number of
days elapsed from and including the most recent date to which interest has
been paid (or, in the case of the first Distribution Date, interest accrued
for the number of days elapsed from and including the Closing Date to but
excluding July 15, 1997, based on the assumption that the last day of each
month is the 30th) to but excluding such Distribution Date and the
denominator of which is 360 and (ii) the outstanding principal balance of the
Class A-1 Notes on the immediately preceding Distribution Date (or, in the
case of the first Distribution Date, on the Closing Date), after giving
effect to all payments of principal to Class A-1 Noteholders on or prior to
such immediately preceding Distribution Date (or, in the case of the first
Distribution Date, on the Closing Date).
CLASS A-1 PREPAYMENT AMOUNT: As of the Distribution Date on or
immediately following the last day of the Funding Period, after giving effect
to any transfer of Subsequent Receivables on such date, an amount equal to
the Class A-1 Noteholders' pro rata share (based on the respective current
outstanding principal balance of each class of Notes) of the Pre-Funded
Amount as of such Distribution Date.
CLASS A-1 PREPAYMENT PREMIUM: An amount computed by the Servicer
equal to the excess, if any, discounted as described below, of (i) the amount
of interest that would accrue on the Class A-1 Prepayment Amount at the Class
A-1 Interest Rate during the period commencing on and including the
Distribution Date on which the Class A-1 Prepayment Amount is required to be
deposited in the Note Distribution Account pursuant to Section 4.7 to but
excluding September 17, 1997 over (ii) the amount of interest that would have
accrued on the Class A-1 Prepayment Amount over the same period at a per
annum rate of interest equal to 3-month LIBOR on the Determination Date
preceding such Distribution Date. Such excess shall be discounted to present
value to such Distribution Date at the yield described in clause (ii) above.
CLASS A-2 FINAL SCHEDULED DISTRIBUTION DATE: June 15, 2000 (or, if
such day is not a Business Day, the next succeeding Business Day thereafter).
CLASS A-2 INTEREST CARRYOVER SHORTFALL: With respect to any
Distribution Date, the excess of the Class A-2 Interest Distributable Amount
for the preceding Distribution Date, over the amount in respect of interest
on the Class A-2
- 4 -
<PAGE>
Notes that was actually deposited in the Note Distribution Account on such
preceding Distribution Date, plus interest on the amount of interest due but
not paid to Class A-2 Noteholders on the preceding Distribution Date, to the
extent permitted by law, at the Class A-2 Interest Rate from such preceding
Distribution Date to but excluding the current Distribution Date.
CLASS A-2 INTEREST DISTRIBUTABLE AMOUNT: With respect to any
Distribution Date, the sum of the Class A-2 Monthly Interest Distributable
Amount for such Distribution Date and the Class A-2 Interest Carryover
Shortfall for such Distribution Date.
CLASS A-2 INTEREST RATE: 6.10% per annum.
CLASS A-2 MONTHLY INTEREST DISTRIBUTABLE AMOUNT: With respect to
any Distribution Date, 30 days of interest (or, in the case of the first
Distribution Date, interest accrued from and including the Closing Date to
but excluding July 15, 1997) at the Class A-2 Interest Rate on the
outstanding principal balance of the Class A-2 Notes on the immediately
preceding Distribution Date (or, in the case of the first Distribution Date,
on the Closing Date), after giving effect to all payments of principal to
Class A-2 Noteholders on such or prior to immediately preceding Distribution
Date.
CLASS A-2 PREPAYMENT AMOUNT: As of the Distribution Date on or
immediately following the last day of the Funding Period, after giving effect
to any transfer of Subsequent Receivables on such date, an amount equal to
the Class A-2 Noteholders' pro rata share (based on the respective current
outstanding principal balance of each class of Notes) of the Pre-Funded
Amount as of such Distribution Date.
CLASS A-2 PREPAYMENT PREMIUM: An amount computed by the Servicer
equal to the excess, if any, discounted as described below, of (i) the amount
of interest that would accrue on the Class A-2 Prepayment Amount at the Class
A-2 Interest Rate during the period commencing on and including the
Distribution Date on which the Class A-2 Prepayment Amount is required to be
deposited in the Note Distribution Account pursuant to Section 4.7 to but
excluding May 31, 1998, over (ii) the amount of interest that would have
accrued on the Class A-2 Prepayment Amount over the same period at a per
annum rate of interest equal to the yield to maturity on the Determination
Date preceding such Distribution Date on the 6.00% U.S. Treasury Note due May
31, 1998. Such excess shall be discounted to present value to such
Distribution Date at the yield described in clause (ii) above.
CLASS A-3 FINAL SCHEDULED DISTRIBUTION DATE: July 15, 2001 (or,
if such day is not a Business Day, the next succeeding Business Day
thereafter).
- 5 -
<PAGE>
CLASS A-3 INTEREST CARRYOVER SHORTFALL: With respect to any
Distribution Date, the excess of the Class A-3 Interest Distributable Amount
for the preceding Distribution Date over the amount in respect of interest on
the Class A-3 Notes that was actually deposited in the Note Distribution
Account on such preceding Distribution Date, plus interest on the amount of
interest due but not paid to Class A-3 Noteholders on the preceding
Distribution Date, to the extent permitted by law, at the Class A-3 Interest
Rate from such preceding Distribution Date to but excluding the current
Distribution Date.
CLASS A-3 INTEREST DISTRIBUTABLE AMOUNT: With respect to any
Distribution Date, the sum of the Class A-3 Monthly Interest Distributable
Amount for such Distribution Date and the Class A-3 Interest Carryover
Shortfall for such Distribution Date.
CLASS A-3 INTEREST RATE: 6.30% per annum.
CLASS A-3 MONTHLY INTEREST DISTRIBUTABLE AMOUNT: With respect to
any Distribution Date, 30 days of interest (or, in the case of the first
Distribution Date, interest accrued from and including the Closing Date to
but excluding July 15, 1997) at the Class A-3 Interest Rate on the outstanding
principal balance of the Class A-3 Notes on the immediately preceding
Distribution Date (or, in the case of the first Distribution Date, on the
Closing Date), after giving effect to all payments of principal to Class A-3
Noteholders on or prior to such immediately preceding Distribution Date.
CLASS A-3 PREPAYMENT AMOUNT: As of the Distribution Date on or
immediately following the last day of the Funding Period, after giving effect
to any transfer of Subsequent Receivables on such date, an amount equal to
the Class A-3 Noteholders' pro rata share (based on the respective current
outstanding principal balance of each class of Notes) of the Pre-Funded
Amount as of such Distribution Date.
CLASS A-3 PREPAYMENT PREMIUM: An amount computed by the Servicer
equal to the excess, if any, discounted as described below, of (i) the amount
of interest that would accrue on the Class A-3 Prepayment Amount at the
Class A-3 Interest Rate during the period commencing on and including the
Distribution Date on which the Class A-3 Prepayment Amount is required to be
deposited in the Note Distribution Account pursuant to Section 4.7 to but
excluding March 31, 1999, over (ii) the amount of interest that would have
accrued on the Class A-3 Prepayment Amount over the same period at a per
annum rate of interest equal to the yield to maturity on the Determination
Date preceding such Distribution Date on the 6.25% U.S. Treasury Note due
March 31, 1999. Such excess shall be discounted to present value to such
Distribution Date at the yield described in clause (ii) above.
CLASS A-4 FINAL SCHEDULED DISTRIBUTION DATE: June 15, 2002 (or, if
such day is not a Business Day, the next succeeding Business Day thereafter).
-6-
<PAGE>
CLASS A-4 INTEREST CARRYOVER SHORTFALL: With respect to any
Distribution Date, the excess of the Class A-4 Interest Distributable Amount
for the preceding Distribution Date over the amount in respect of interest on
the Class A-4 Notes that was actually deposited in the Note Distribution
Account on such preceding Distribution Date, plus interest on the amount of
interest due but not paid to Class A-4 Noteholders on the preceding
Distribution Date, to the extent permitted by law, at the Class A-4 Interest
Rate from such preceding Distribution Date to but excluding the current
Distribution Date.
CLASS A-4 INTEREST DISTRIBUTABLE AMOUNT: With respect to any
Distribution Date, the sum of the Class A-4 Monthly Interest Distributable
Amount for such Distribution Date and the Class A-4 Interest Carryover
Shortfall for such Distribution Date.
CLASS A-4 INTEREST RATE: 6.50% per annum.
CLASS A-4 MONTHLY INTEREST DISTRIBUTABLE AMOUNT: With respect to
any Distribution Date, 30 days of interest (or, in the case of the first
Distribution Date, interest accrued from and including the Closing Date to
but excluding July 15, 1997) at the Class A-4 Interest Rate on the outstanding
principal balance of the Class A-4 Notes on the immediately preceding
Distribution Date (or, in the case of the first Distribution Date, on the
Closing Date), after giving effect to all payments of principal to Class A-4
Noteholders on or prior to such immediately preceding Distribution Date.
CLASS A-4 PREPAYMENT AMOUNT: As of the Distribution Date on or
immediately following the last day of the Funding Period, after giving effect
to any transfer of Subsequent Receivables on such date, an amount equal to
the Class A-4 Noteholders' pro rata share (based on the respective current
outstanding principal balance of each class of Notes) of the Pre-Funded
Amount as of such Distribution Date.
CLASS A-4 PREPAYMENT PREMIUM: An amount computed by the Servicer
equal to the excess, if any, discounted as described below, of (i) the amount
of interest that would accrue on the Class A-4 Prepayment Amount at the
Class A-4 Interest Rate during the period commencing on and including the
Distribution Date on which the Class A-4 Prepayment Amount is required to be
deposited in the Note Distribution Account pursuant to Section 4.7 to but
excluding February 15, 2000, over (ii) the amount of interest that would have
accrued on the Class A-4 Prepayment Amount over the same period at a per
annum rate of interest equal to the yield to maturity on the Determination
Date preceding such Distribution Date on the 5.875% U.S. Treasury Note due
February 15, 2000. Such excess shall be discounted to present value to such
Distribution Date at the yield described in clause (ii) above.
-7-
<PAGE>
CLASS A-5 FINAL SCHEDULED DISTRIBUTION DATE: February 15, 2005
(or, if such day is not a Business Day, the next succeeding Business Day
thereafter).
CLASS A-5 INTEREST CARRYOVER SHORTFALL: With respect to any
Distribution Date, the excess of the Class A-5 Interest Distributable Amount
for the preceding Distribution Date over the amount in respect of interest on
the Class A-5 Notes that was actually deposited in the Note Distribution
Account on such preceding Distribution Date, plus interest on the amount of
interest due but not paid to Class A-5 Noteholders on the preceding
Distribution Date, to the extent permitted by law, at the Class A-5 Interest
Rate from such preceding Distribution Date to but excluding the current
Distribution Date.
CLASS A-5 INTEREST DISTRIBUTABLE AMOUNT: With respect to any
Distribution Date, the sum of the Class A-5 Monthly Interest Distributable
Amount for such Distribution Date and the Class A-5 Interest Carryover
Shortfall for such Distribution Date.
CLASS A-5 INTEREST RATE: 6.70% per annum.
CLASS A-5 MONTHLY INTEREST DISTRIBUTABLE AMOUNT: With respect to
any Distribution Date, 30 days of interest (or, in the case of the first
Distribution Date, interest accrued from and including the Closing Date to
but excluding July 15, 1997) at the Class A-5 Interest Rate on the outstanding
principal balance of the Class A-5 Notes on the immediately preceding
Distribution Date (or, in the case of the first Distribution Date, on the
Closing Date), after giving effect to all payments of principal to Class A-5
Noteholders on or prior to such immediately preceding Distribution Date.
CLASS A-5 PREPAYMENT AMOUNT: As of the Distribution Date on or
immediately following the last day of the Funding Period, after giving effect
to any transfer of Subsequent Receivables on such date, an amount equal to
the Class A-5 Noteholders' pro rata share (based on the respective current
outstanding principal balance of each class of Notes) of the Pre-Funded
Amount as of such Distribution Date.
CLASS A-5 PREPAYMENT PREMIUM: An amount computed by the Servicer
equal to the excess, if any, discounted as described below, of (i) the amount
of interest that would accrue on the Class A-5 Prepayment Amount at the
Class A-5 Interest Rate during the period commencing on and including the
Distribution Date on which the Class A-5 Prepayment Amount is required to be
deposited in the Note Distribution Account pursuant to Section 4.7 to but
excluding February 28, 2001, over (ii) the amount of interest that would have
accrued on the Class A-5 Prepayment Amount over the same period at a per
annum rate of interest equal to the yield to maturity on the Determination
Date preceding such Distribution Date on the 5.625% U.S. Treasury Note due
February 28, 2001. Such excess shall be
-8-
<PAGE>
discounted to present value to such Distribution Date at the yield described
in clause (ii) above.
CLOSING DATE: June 19, 1997.
CLOSING DATE PURCHASE AGREEMENT: The Receivables Purchase
Agreement and Assignment, dated as of June 1, 1997, between AFL and the Seller.
COLLATERAL AGENT: The Collateral Agent named in the Spread Account
Agreement, and any successor thereto pursuant to the terms of the Spread
Account Agreement.
COLLATERAL INSURANCE: The insurance policy maintained by the
Servicer, or indemnification obligation of the Servicer in lieu of such
insurance policy, pursuant to Section 3.4(e).
COLLECTED FUNDS: With respect to any Determination Date, the amount
of funds in the Collection Account representing collections on the
Receivables during the related Monthly Period, including all Liquidation
Proceeds collected during the related Monthly Period (but excluding any
Monthly Advances and any Purchase Amounts).
COLLECTION ACCOUNT: The account designated as the Collection
Account in, and which is established and maintained pursuant to, Section 4.1(a).
COLLECTION RECORDS: All manually prepared or computer generated
records relating to collection efforts or payment histories with respect to
the Receivables.
COMPUTER TAPE: The computer tape generated on behalf of the Seller
which provides information relating to the Receivables and which was used by
the Seller and AFL in selecting the Receivables conveyed to the Trust
hereunder.
CORPORATE TRUST OFFICE: With respect to the Owner Trustee, the
principal office of the Owner Trustee at which at any particular time its
corporate trust business shall be administered, which office at the Closing
Date is located at 919 North Market Street, Second Floor, Wilmington,
Delaware 19801, Attention: Robert H. Bell; the telecopy number for the
Corporate Trust Office of the Owner Trustee on the date of the execution of
this Agreement is (302) 421-2323; with respect to the Indenture Trustee, the
principal office of the Indenture Trustee at which at any particular time its
corporate trust business shall be administered, which office is located at
450 West 33rd Street, New York, NY 10001-2697, Attention: Global Trust,
Structured Finance Services Group; the telecopy number for the Global Trust,
Structured Finance Services Group of the Indenture Trustee on the date of
execution of this Agreement is (212) 946-3916.
-9-
<PAGE>
CRAM DOWN LOSS: With respect to a Receivable, if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an
order reducing the amount owed on a Receivable or otherwise modifying or
restructuring the Scheduled Payments to be made on a Receivable, an amount
equal to the excess of the Principal Balance of such Receivable immediately
prior to such order over the Principal Balance of such Receivable as so
reduced or the net present value (using as the discount rate the higher of
the contract rate or the rate of interest, if any, specified by the court in
such order) of the Scheduled Payments as so modified or restructured. A
"Cram Down Loss" shall be deemed to have occurred on the date of issuance of
such order.
CREDIT ENHANCEMENT FEE: With respect to any Distribution Date, the
amount to be paid to the Security Insurer pursuant to Section 4.6 (viii) and
the amount to which the Seller is entitled pursuant to Section 4.6 (ix).
CUSTODIAN: AFL and any other Person named from time to time as
custodian in any Custodian Agreement acting as agent for the Trust, which
Person must be (so long as an Insurer Default shall not have occurred and be
continuing) acceptable to the Security Insurer.
CUSTODIAN AGREEMENT: Any Custodian Agreement from time to time in
effect between the Custodian named therein and the Trust, substantially in
the form of Exhibit B hereto, as the same may be amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof,
which Custodian Agreement and any amendments, supplements or modifications
thereto shall (so long as an Insurer Default shall not have occurred and be
continuing) be acceptable to the Security Insurer.
DEALER: A seller of new or used automobiles or light trucks that
originated one or more of the Receivables and sold the respective Receivable,
directly or indirectly, to AFL under an existing agreement between such
seller and AFL.
DEALER AGREEMENT: An agreement between AFL and a Dealer relating to
the sale of retail installment sale contracts and installment notes to AFL
and all documents and instruments relating thereto.
DEALER ASSIGNMENT: With respect to a Receivable, the executed
assignment executed by a Dealer conveying such Receivable to AFL.
DEFICIENCY CLAIM AMOUNT: As defined in Section 5.2(a).
DEFICIENCY CLAIM DATE: With respect to any Distribution Date, the
fourth Business Day immediately preceding such Distribution Date.
DEFICIENCY NOTICE: As defined in Section 5.2(a).
-10-
<PAGE>
DEPOSIT DATE: With respect to any Monthly Period, the Business Day
immediately preceding the related Determination Date.
DETERMINATION DATE: With respect to any Monthly Period, the sixth
Business Day immediately preceding the related Distribution Date.
DISTRIBUTION AMOUNT: With respect to a Distribution Date, the sum
of (i) the Actual Funds for such Distribution Date, and (ii) the Deficiency
Claim Amount, if any, received by the Indenture Trustee with respect to such
Distribution Date.
DISTRIBUTION DATE: The 15th day of each calendar month, or if such
15th day is not a Business Day, the next succeeding Business Day, commencing
July 15, 1997 to and including the Final Scheduled Distribution Date.
DRAW DATE: With respect to any Distribution Date, the third
Business Day immediately preceding such Distribution Date.
ELECTRONIC LEDGER: The electronic master record of the retail
installment sales contracts or installment loans of AFL.
ELIGIBLE ACCOUNT: (i) A segregated trust account that is maintained
with the corporate trust department of a depository institution acceptable to
the Security Insurer (so long as an Insurer Default shall not have occurred
and be continuing), or (ii) a segregated direct deposit account maintained
with a depository institution or trust company organized under the laws of
the United States of America, or any of the States thereof, or the District
of Columbia, having a certificate of deposit, short term deposit or
commercial paper rating of at least "A-1+" by Standard & Poor's and "P-1" by
Moody's and (so long as an Insurer Default shall not have occurred and be
continuing) acceptable to the Security Insurer.
ELIGIBLE INVESTMENTS: Any one or more of the following types of
investments:
(a) (i) direct interest-bearing obligations of, and
interest-bearing obligations guaranteed as to timely payment of principal and
interest by, the United States or any agency or instrumentality of the United
States, the obligations of which are backed by the full faith and credit of
the United States; and (ii) direct interest-bearing obligations of, and
interest-bearing obligations guaranteed as to timely payment of principal and
interest by, the Federal National Mortgage Association or the Federal Home
Loan Mortgage Corporation, but only if, at the time of investment, such
obligations are assigned a rating in the highest credit rating category by
each Rating Agency;
-11-
<PAGE>
(b) demand or time deposits in, certificates of deposit of, or
bankers' acceptances issued by any depository institution or trust company
organized under the laws of the United States or any State and subject to
supervision and examination by federal and/or State banking authorities
(including, if applicable, the Indenture Trustee, the Owner Trustee or any
agent of either of them acting in their respective commercial capacities);
provided that the short-term unsecured debt obligations of such depository
institution or trust company at the time of such investment, or contractual
commitment providing for such investment, are assigned a rating in the
highest credit rating category by each Rating Agency;
(c) repurchase obligations pursuant to a written agreement (i) with
respect to any obligation described in clause (a) above, where the Indenture
Trustee has taken actual or constructive delivery of such obligation in
accordance with Section 4.1, and (ii) entered into with the corporate trust
department of a depository institution or trust company organized under the
laws of the United States or any State thereof, the deposits of which are
insured by the Federal Deposit Insurance Corporation and the short-term
unsecured debt obligations of which are rated "A-1+" by Standard & Poor's and
"P-1" by Moody's (including, if applicable, the Indenture Trustee, the Owner
Trustee or any agent of either of them acting in their respective commercial
capacities);
(d) securities bearing interest or sold at a discount issued by
any corporation incorporated under the laws of the United States or any State
whose long-term unsecured debt obligations are assigned a rating in the
highest credit rating category by each Rating Agency at the time of such
investment or contractual commitment providing for such investment; PROVIDED,
HOWEVER, that securities issued by any particular corporation will not be
Eligible Investments to the extent that an investment therein will cause the
then outstanding principal amount of securities issued by such corporation
and held in the Trust Accounts to exceed 10% of the Eligible Investments held
in the Trust Accounts (with Eligible Investments held in the Trust Accounts
valued at par);
(e) commercial paper that (i) is payable in United States dollars
and (ii) is rated in the highest credit rating category by each Rating Agency;
(f) units of money market funds rated in the highest credit rating
category by each Rating Agency; provided that all Eligible Investments shall
be held in the name of the Indenture Trustee; or
(g) any other demand or time deposit, obligation, security or
investment as may be acceptable to the Rating Agencies and the Security
Insurer, as evidenced by the prior written consent of the Security Insurer,
as may from time to time be confirmed in writing to the Indenture Trustee by
the Security Insurer;
PROVIDED, HOWEVER, that securities issued by any entity (except as provided
in paragraph (a)) will not be Eligible Investments to the extent that an
investment therein will cause the then outstanding principal amount of
securities issued by
-12-
<PAGE>
such entity and held in the Pre-Funding Account to exceed $25 million (with
Eligible Investments held in the Pre-Funding Account valued at par).
Eligible Investments may be purchased by or through the Indenture Trustee or any
of its Affiliates.
ELIGIBLE SERVICER: AFL, the Backup Servicer or another Person
whichat the time of its appointment as Servicer (i) is servicing a portfolio
of motor vehicle retail installment sales contracts and/or motor vehicle
installment loans, (ii) is legally qualified and has the capacity to service
the Receivables, (iii) has demonstrated the ability professionally and
competently to service a portfolio of motor vehicle retail installment sales
contracts and/or motor vehicle installment loans similar to the Receivables
with reasonable skill and care, and (iv) is qualified and entitled to use,
pursuant to a license or other written agreement, and agrees to maintain the
confidentiality of, the software which the Servicer uses in connection with
performing its duties and responsibilities under this Agreement or otherwise
has available software which is adequate to perform its duties and
responsibilities under this Agreement.
FINAL SCHEDULED DISTRIBUTION DATE: With respect to each class of
Notes, the Class A-1 Final Scheduled Distribution Date, the Class A-2 Final
Scheduled Distribution Date, the Class A-3 Final Scheduled Distribution Date,
the Class A-4 Final Scheduled Distribution Date and the Class A-5 Final
Scheduled Distribution Date, respectively.
FINANCED VEHICLE: A new or used automobile or light truck, together
with all accessories thereto, securing or purporting to secure an Obligor's
indebtedness under a Receivable.
FORCE-PLACED INSURANCE: The meaning set forth in Section 3.4(b).
FUNDING PERIOD: The period beginning on the Closing Date and ending
on the first to occur of (a) the Distribution Date on which the Pre-Funded
Amount (after giving effect to any reduction in the Pre-Funded Amount in
connection with the transfer of Subsequent Receivables to the Trust on such
Distribution Date) is less than $100,000, (b) the date on which an Event of
Default or a Servicer Termination Event occurs, (c) the date on which an
Insolvency Event occurs with respect to AFL and (d) the close of business on
the Distribution Date occurring in August, 1997.
INDENTURE: The Indenture, dated as of June 1, 1997, among the Trust,
the Indenture Trustee and the Indenture Collateral Agent, as the same may be
amended and supplemented from time to time.
-13-
<PAGE>
INDENTURE COLLATERAL AGENT: The Person acting as Indenture
Collateral Agent under the Indenture, its successors in interest and any
successor Indenture Collateral Agent under the Indenture.
INDENTURE TRUSTEE: The Person acting as Trustee under the
Indenture, its successors in interest and any successor Trustee under the
Indenture.
INDEPENDENT ACCOUNTANTS: As defined in Section 3.11(a).
INITIAL CUTOFF DATE: June 11, 1997.
INITIAL CUTOFF DATE PRINCIPAL BALANCE: $541,477,763.50.
INITIAL RECEIVABLES: The Receivables listed on the Schedule of Initial
Receivables on the Closing Date.
INSOLVENCY EVENT: With respect to a specified Person, (a) the
commencement of an involuntary case against such Person under the federal
bankruptcy laws, as now or hereinafter in effect, or another present or
future federal or state bankruptcy, insolvency or similar law, and such case
is not dismissed within 60 days; or (b) the filing of a decree or entry of an
order for relief by a court having jurisdiction in the premises in respect of
such Person or any substantial part of its property in an involuntary case
under any applicable Federal or state bankruptcy, insolvency or other similar
law now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official for such
Person or for any substantial part of its property, or ordering the
winding-up or liquidation of such Person's affairs; or (c) the commencement by
such Person of a voluntary case under any applicable Federal or state
bankruptcy, insolvency or other similar law now or hereafter in effect, or
the consent by such Person to the entry of an order for relief in an
involuntary case under any such law, or the consent by such Person to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for
any substantial part of its property, or the making by such Person of any
general assignment for the benefit of creditors, or the failure by such
Person generally to pay its debts as such debts become due, or the taking of
action by such Person in furtherance of any of the foregoing.
INSURANCE ADD-ON AMOUNT: The premium charged to the Obligor in the
event that the Servicer obtains Force-Placed Insurance pursuant to Section 3.4.
INSURANCE AGREEMENT: The Insurance and Indemnity Agreement, dated
as of June 19, 1997, among the Security Insurer, the Trust, the Seller and AFL.
INSURANCE AGREEMENT EVENT OF DEFAULT: An "Event of Default" as
defined in the Insurance Agreement.
-14-
<PAGE>
INSURANCE POLICY: With respect to a Receivable, any insurance
policy benefiting the holder of the Receivable providing loss or physical
damage, credit life, credit disability, theft, mechanical breakdown or
similar coverage with respect to the Financed Vehicle or the Obligor.
INSURER DEFAULT: The occurrence and continuance of any of the
following:
(a) the Security Insurer shall have failed to make a payment required
under the Note Policy;
(b) The Security Insurer shall have (i) filed a petition or commenced
any case or proceeding under any provision or chapter of the United States
Bankruptcy Code, the New York State Insurance Law, or any other similar
federal or state law relating to insolvency, bankruptcy, rehabilitation,
liquidation or reorganization, (ii) made a general assignment for the
benefit of its creditors, or (iii) had an order for relief entered against
it under the United States Bankruptcy Code, the New York State Insurance
Law, or any other similar federal or state law relating to insolvency,
bankruptcy, rehabilitation, liquidation or reorganization which is final
and nonappealable; or
(c) a court of competent jurisdiction, the New York Department of
Insurance or other competent regulatory authority shall have entered a
final and nonappealable order, judgment or decree (i) appointing a
custodian, trustee, agent or receiver for the Security Insurer or for
all or any material portion of its property or (ii) authorizing the taking
of possession by a custodian, trustee, agent or receiver of the Security
Insurer (or the taking of possession of all or any material portion of the
property of the Security Insurer).
LIBOR: As of any Determination Date, the rate for deposits in U.S.
dollars which appears on Telerate Page 3750 (as defined herein) as of
11:00 a.m., London time, on such date. If such date does not appear on
Telerate Page 3750, the rate for that day will be determined on the basis of
the rates at which deposits in United States dollars are offered by the
Reference Banks (as defined herein) at approximately 11:00 a.m., London time,
on that day to prime banks in the London interbank market for a period equal
to the relevant Monthly Period (commencing on the first day of such Monthly
Period). The Servicer will request the principal London office of each of
the Reference Banks to provide a quotation of its rate. If at least two such
quotations are provided, the rate for the day will be the arithmetic mean of
the quotations. If fewer than two quotations are provided as requested, the
rate for that day will be the arithmetic mean of the rates quoted by major
banks in New York City, selected by the Servicer, at approximately 11:00 a.m.,
New York City time, on that day for loans in United States dollars to leading
international banks for
-15-
<PAGE>
a period equal to the relevant Monthly Period (commencing on the first day of
such Monthly Period).
LIEN: Any security interest, lien, charge, pledge, preference,
equity or encumbrance of any kind, including tax liens, mechanics' liens and
any liens that attach by operation of law.
LIEN CERTIFICATE: With respect to a Financed Vehicle, an original
certificate of title, certificate of lien or other notification issued by the
Registrar of Titles of the applicable state to a secured party which
indicates that the lien of the secured party on the Financed Vehicle is
recorded on the original certificate of title. In any jurisdiction in which
the original certificate of title is required to be given to the Obligor, the
term "Lien Certificate" shall mean only a certificate or notification issued
to a secured party.
LIQUIDATED RECEIVABLE: With respect to any Monthly Period, a
Receivable as to which (i) 91 days have elapsed since the Servicer repossessed
the related Financed Vehicle, (ii) the Servicer has determined in good faith
that all amounts it expects to recover have been received, or (iii) all or any
portion of a Scheduled Payment shall have become more than 180 days past due.
LIQUIDATION PROCEEDS: With respect to a Liquidated Receivable, all
amounts realized with respect to such Receivable (other than amounts
withdrawn from the Spread Account or the Reserve Account and drawings under
the Note Policy) net of (i) reasonable expenses incurred by the Servicer in
connection with the collection of such Receivable and the repossession and
disposition of the Financed Vehicle and (ii) amounts that are required to be
refunded to the Obligor on such Receivable; PROVIDED, HOWEVER, that the
Liquidation Proceeds with respect to any Receivable shall in no event be less
than zero.
LOCKBOX ACCOUNT: The segregated account maintained on behalf of the
Trust by the Lockbox Bank in accordance with Section 3.2(d).
LOCKBOX AGREEMENT: The Agency Agreement, dated as of November 13,
1992 by and among Harris Trust and Savings Bank, AFL, Shawmut Bank, N.A., as
Trustee, Saturn Financial Services, Inc. and the Program Parties (as defined
therein), taken together with the Retail Lockbox Agreement, dated as of
November 13, 1992, among such parties, and the Counterpart to Agency Agreement
and Retail Lockbox Agreement, dated as of June 19, 1997, among Harris Trust
and Savings Bank, AFL, the Trust, the Indenture Trustee and the Security
Insurer, as such agreements may be amended from time to time, unless the
Indenture Trustee hereunder shall cease to be a Program Party thereunder, or
such agreement shall be terminated in accordance with its terms, in which
event "Lockbox Agreement" shall mean such other agreement, in form and
substance acceptable to the Security Insurer, or if an Insurer Default shall
have occurred and be continuing, to a Note
-16-
<PAGE>
Majority, among the Servicer, the Trust, the Indenture Trustee and the
Lockbox Bank.
LOCKBOX BANK: A depository institution named by the Servicer and,
so long as an Insurer Default shall not have occurred and be continuing,
acceptable to the Security Insurer, or, if an Insurer Default shall have
occurred and be continuing, to a Note Majority.
MONTHLY ADVANCE: The amount that the Servicer is required to
advance on any Receivable pursuant to Section 4.4(a).
MONTHLY PERIOD: With respect to a Distribution Date, the calendar
month preceding the month in which such Distribution Date occurs (such
calendar month being referred to as the "related" Monthly Period with respect
to such Distribution Date). With respect to an Accounting Date, the calendar
month in which such Accounting Date occurs is referred to herein as the
"related" Monthly Period to such Accounting Date.
MONTHLY RECORDS: All records and data maintained by the Servicer with
respect to the Receivables, including the following with respect to each
Receivable: the account number; the identity of the originating Dealer; Obligor
name; Obligor address; Obligor home phone number; Obligor business phone number;
original Principal Balance; original term; Annual Percentage Rate; current
Principal Balance; current remaining term; origination date; first payment date;
final scheduled payment date; next payment due date; date of most recent
payment; new/used classification; collateral description; days currently
delinquent; number of contract extensions (months) to date; amount, if any, of
Force-Placed Insurance payable monthly; amount of the Scheduled Payment; current
Insurance Policy expiration date; and past due late charges, if any.
MOODY'S: Moody's Investors Service, Inc., or any successor thereto.
NOTE DISTRIBUTION ACCOUNT: The account designated as such,
established and maintained pursuant to Section 4.1(c).
NOTE MAJORITY: As to each class of Notes, Holders of Notes
representing a majority of the outstanding principal balance of such class of
Notes.
NOTE POLICY: The financial guaranty insurance policy issued by the
Security Insurer to the Indenture Trustee on behalf of the Noteholders.
NOTE POOL FACTOR: With respect to any Distribution Date and each
class of Notes, an eight-digit decimal figure equal to the outstanding
principal balance of such class of Notes as of such Distribution Date (after
giving effect to all distributions on such date) divided by the original
outstanding principal balance of such class of Notes as of the Closing Date.
-17-
<PAGE>
NOTEHOLDERS' INTEREST DISTRIBUTABLE AMOUNT: With respect to any
Distribution Date, the sum of the Class A-1 Interest Distributable Amount, the
Class A-2 Interest Distributable Amount, the Class A-3 Interest Distributable
Amount, the Class A-4 Interest Distributable Amount and the Class A-5 Interest
Distributable Amount.
NOTEHOLDERS' MONTHLY PRINCIPAL DISTRIBUTABLE AMOUNT: With respect to
any Distribution Date, 100% of the Principal Distribution Amount. With respect
to the Distribution Date on which the outstanding principal balance of the Class
A-1 Notes is reduced to zero, the "Noteholders' Monthly Principal Distributable
Amount" shall equal the sum of (i) the outstanding principal balance of the
Class A-1 Notes plus (ii) 100% (after giving effect to the retirement of the
Class A-1 Notes) of the Principal Distribution Amount less the outstanding
principal balance of the Class A-1 Notes immediately prior to such Distribution
Date.
NOTEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL: As of the close of
business on any Distribution Date, the excess of the sum of the Noteholders'
Monthly Principal Distributable Amount and any outstanding Noteholders'
Principal Carryover Shortfall from the immediately preceding Distribution Date
over the amount in respect of principal that is actually deposited in the Note
Distribution Account on such immediately preceding Distribution Date.
NOTEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT: With respect to any
Distribution Date (other than the Final Scheduled Distribution Date with respect
to any class of Notes), the sum of the Noteholders' Monthly Principal
Distributable Amount for such Distribution Date and any Noteholders' Principal
Carryover Shortfall as of the close of the preceding Distribution Date. The
Noteholders' Principal Distributable Amount on the Final Scheduled Distribution
Date for any class of Notes will equal the sum of (i) the Noteholders' Monthly
Principal Distributable Amount for such Distribution Date, (ii) the Noteholders'
Principal Carryover Shortfall as of the close of the preceding Distribution
Date, and (iii) the excess of the outstanding principal balance of such class of
Notes, if any, over the amounts in clauses (i) and (ii). In no event may the
Noteholders' Principal Distributable Amount for any Distribution Date exceed the
outstanding principal balance of the Notes immediately prior to such
Distribution Date.
NOTES: The Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes,
the Class A-4 Notes and the Class A-5 Notes.
OBLIGOR: The purchaser or the co-purchasers of the Financed Vehicle
and any other Person or Persons who are primarily or secondarily obligated to
make payments under a Receivable.
OPINION OF COUNSEL: A written opinion of counsel acceptable in form
and substance and from counsel acceptable to the Owner Trustee and, if such
-18-
<PAGE>
opinion or a copy thereof is required to be delivered to the Indenture Trustee
or the Security Insurer, to the Indenture Trustee or the Security Insurer, as
applicable.
ORIGINAL POOL BALANCE: As of any date, the sum of the Initial Cutoff
Date Principal Balance plus the aggregate Principal Balance (as of the related
Subsequent Cutoff Date) of all Subsequent Receivables sold to the Trust on any
Subsequent Transfer Date.
OUTSTANDING MONTHLY ADVANCES: With respect to a Receivable and a
Determination Date, the sum of all Monthly Advances made on any Determination
Date prior to such Determination Date relating to that Receivable which have not
been reimbursed pursuant to Section 4.6(i) or Section 4.8.
OWNER TRUSTEE: Mellon Bank (DE), National Association, acting not
individually but solely as trustee, or its successor in interest, and any
successor Owner Trustee appointed as provided in the Trust Agreement.
PERSON: Any legal person, including any individual, corporation,
partnership, joint venture, estate, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof, or any other entity.
PRE-FUNDED AMOUNT: As of any date, $233,522,236.50 minus the aggregate
Principal Balance (as of the related Subsequent Cutoff Date) of all Subsequent
Receivables sold to the Trust on or prior to such date.
PRE-FUNDING ACCOUNT: The account designated as the Pre-Funding Account
in, and which is established and maintained pursuant to, Section 4.1(b).
PREFERENCE CLAIM: The meaning specified in Section 5.4(b).
PRINCIPAL BALANCE: With respect to any Receivable, as of any date, the
Amount Financed minus (i) that portion of all amounts received on or prior to
such date and allocable to principal in accordance with the terms of the
Receivable, and (ii) any Cram Down Loss in respect of such Receivable.
PRINCIPAL DISTRIBUTION AMOUNT: With respect to any Distribution Date,
the amount equal to the sum of the following amounts with respect to the related
Monthly Period, in each case computed with respect to each Receivable in
accordance with the method specified in the related retail installment sale
contract or promissory note: (i) that portion of all collections on Receivables
(other than Liquidated Receivables and Purchased Receivables) allocable to
principal, including all full and partial principal prepayments, (ii) the
Principal Balance (as of the related Accounting Date) of all Receivables that
became Liquidated Receivables during the related Monthly Period (other than
Purchased Receivables), (iii) the Principal Balance of all Receivables that
became Purchased Receivables as of the related
-19-
<PAGE>
Accounting Date, and, in the sole discretion of the Security Insurer,
provided no Insurer Default shall have occurred and be continuing, the
Principal Balance as of the related Accounting Date of all Receivables that
were required to be purchased as of the related Accounting Date but were not
so purchased, and (iv) the aggregate amount of Cram Down Losses that shall
have occurred during the related Monthly Period.
PURCHASE AGREEMENTS: (i) The Closing Date Purchase Agreement and
(ii) one or more Assignment Agreements pursuant to the ARCC Purchase Agreement,
pursuant to which, together, AFL transferred the Initial Receivables to the
Seller.
PURCHASE AMOUNT: With respect to a Receivable, the Principal Balance
and all accrued and unpaid interest on the Receivable (without regard to any
Monthly Advances that may have been made with respect to the Receivable) as of
the Accounting Date on which the obligation to purchase such Receivable arises.
PURCHASED RECEIVABLE: As of any Accounting Date, any Receivable
(including any Liquidated Receivable) that became a Warranty Receivable or
Administrative Receivable as of such Accounting Date (or which AFL or the
Servicer has elected to purchase as of an earlier Accounting Date, as permitted
by Section 2.6 or 3.7), and as to which the Purchase Amount has been deposited
in the Collection Account by the Seller, AFL or the Servicer, as applicable, on
or before the related Deposit Date.
RATING AGENCY: Each of Moody's and Standard & Poor's, so long as such
Persons maintain a rating on the Notes; and if either Moody's or Standard &
Poor's no longer maintains a rating on the Notes, such other nationally
recognized statistical rating organization selected by the Seller and (so long
as an Insurer Default shall not have occurred and be continuing) acceptable to
the Security Insurer.
RATING AGENCY CONDITION: With respect to any action, that each Rating
Agency shall have been given 10 days' prior notice thereof and that each of the
Rating Agencies shall have notified the Seller, the Servicer, the Security
Insurer, the Owner Trustee and the Indenture Trustee in writing that such action
will not result in a reduction or withdrawal of the then current rating of the
Notes.
RECEIVABLE: A retail installment sale contract or promissory note (and
related security agreement) for a new or used automobile or light truck (and all
accessories thereto) that is included in the Schedule of Receivables, and all
rights and obligations under such a contract, but not including (i) any
Liquidated Receivable (other than for purposes of calculating Noteholders'
Distributable Amounts hereunder and for the purpose of determining the
obligations pursuant to Section 2.6 and 3.7 to purchase Receivables), or
(ii) any Purchased Receivable on or after the Accounting Date immediately
preceding the Deposit Date on which
-20-
<PAGE>
payment of the Purchase Amount is made in connection therewith pursuant to
Section 4.5.
RECEIVABLE FILE: The documents, electronic entries, instruments and
writings listed in Section 2.2 pertaining to a particular Receivable.
REFERENCE BANKS: Three major banks in the London interbank market
selected by the Servicer.
REGISTRAR OF TITLES: With respect to any state, the governmental
agency or body responsible for the registration of, and the issuance of
certificates of title relating to, motor vehicles and liens thereon.
RELATED DOCUMENTS: The Trust Agreement, the Indenture, the Notes, the
Purchase Agreements, each Subsequent Purchase Agreement, each Subsequent
Transfer Agreement, the Custodian Agreement, the Note Policy, the Spread Account
Agreement, the Insurance Agreement, the Lockbox Agreement, the Depository
Agreement, the Stock Pledge Agreement and the Underwriting Agreement between the
Seller and AFL and the underwriter of the Notes. The Related Documents executed
by any party are referred to herein as "such party's Related Documents," "its
Related Documents" or by a similar expression.
REPURCHASE EVENTS: The occurrence of a breach of any of AFL's, the
Seller's or the Servicer's representations and warranties in this Agreement or
in the Purchase Agreement or in any Subsequent Purchase Agreement which requires
the repurchase of a Receivable by AFL or the Seller pursuant to Section 2.6 or
by the Servicer pursuant to Section 3.7.
REQUIRED DEPOSIT RATING: A rating on short-term unsecured debt
obligations of "P-1" by Moody's and at least "A-1+" by Standard & Poor's (or
such other rating as may be acceptable to the Rating Agencies and, so long as an
Insurer Default shall not have occurred and be continuing, the Security Insurer)
so as to not affect the rating on the Notes.
REQUISITE RESERVE AMOUNT: As of the Closing Date, $1,383,884.24 and as
of any Distribution Date or Subsequent Transfer Date thereafter during the
Funding Period an amount equal to the difference between
(a) the product of (x) the weighted average of the Class A-1
Interest Rate, the Class A-2 Interest Rate, the Class A-3 Interest Rate,
the Class A-4 Interest Rate and the Class A-5 Interest Rate (based on the
outstanding principal balance of the Class A-1 Notes, the Class A-2 Notes,
the Class A-3 Notes, the Class A-4 Notes and the Class A-5 Notes on such
date), divided by 360, (y) the Pre-Funded Amount on such date and (z) the
number of days until the Distribution Date in August 1997, and
-21-
<PAGE>
(b) the product of (x) the Assumed Reinvestment Rate, divided
by 360, (y) the Pre-Funded Amount on such date and (z) the number of days
until the Distribution Date in August 1997.
The Requisite Reserve Amount for any Subsequent Transfer Date (i) shall be
calculated after taking into account the transfer of Subsequent Receivables to
the Trust on such Subsequent Transfer Date (unless such Subsequent Transfer Date
does not coincide with a Distribution Date and does not occur between a
Distribution Date and the related Determination Date) and (ii)(A) if such
Subsequent Transfer Date does not coincide with a Distribution Date but occurs
between a Distribution Date and the related Determination Date, shall be
calculated as of the Distribution Date immediately following such Subsequent
Transfer Date as if such Subsequent Transfer Date occurred on such Distribution
Date, (B) if such Subsequent Transfer Date coincides with a Distribution Date,
shall be calculated as of such Distribution Date or (C) if such Subsequent
Transfer Date does not coincide with a Distribution Date and does not occur
between a Distribution Date and the related Determination Date, shall be
calculated as of the immediately preceding Distribution Date (or as of the
Closing Date, if such Subsequent Transfer Date occurs before the Determination
Date in July 1997) as if such Subsequent Transfer Date occurred on such
immediately preceding Distribution Date (or the Closing Date).
RESERVE ACCOUNT: The account designated as the Reserve Account in, and
which is established and maintained pursuant to, Section 4.1(d), including the
Class A-1 Holdback Subaccount.
RESERVE AMOUNT: As of any date of determination, the amount on deposit
in the Reserve Account (other than the amount on deposit in the Class A-1
Holdback Subaccount) on such date.
RESPONSIBLE OFFICER: When used with respect to the Owner Trustee, any
officer of the Owner Trustee assigned by the Owner Trustee to administer its
corporate trust affairs relating to the Trust. When used with respect to the
Indenture Trustee, any officer assigned to the Corporate Trust Division (or any
successor thereto), including any Vice President, Assistant Vice President,
Trust Officer, any Assistant Secretary, any trust officer or any other officer
of the Indenture Trustee customarily performing functions similar to those
performed by any of the above designated officers and having direct
responsibility for the administration of the Trust. When used with respect to
any other Person that is not an individual, the President, any Vice-President or
Assistant Vice-President or the Controller of such Person, or any other officer
or employee having similar functions.
SCHEDULE OF INITIAL RECEIVABLES: The schedule of all retail
installment sales contracts and promissory notes sold and transferred to the
Trust pursuant to this Agreement which is attached hereto as Schedule A.
-22-
<PAGE>
SCHEDULE OF RECEIVABLES: The Schedule of Initial Receivables attached
hereto as Schedule A as supplemented by each Schedule of Subsequent Receivables
attached as Schedule A to each Subsequent Transfer Agreement.
SCHEDULE OF REPRESENTATIONS: The Schedule of Representations and
Warranties attached hereto as Schedule B.
SCHEDULE OF SUBSEQUENT RECEIVABLES: The schedule of all retail
installment sales contracts and promissory notes sold and transferred to the
Trust pursuant to a Subsequent Transfer Agreement which is attached as Schedule
A to such Subsequent Transfer Agreement, which Schedule of Subsequent
Receivables shall supplement the Schedule of Initial Receivables.
SCHEDULED PAYMENT: With respect to any Monthly Period for any
Receivable, the amount set forth in such Receivable as required to be paid by
the Obligor in such Monthly Period. If after the Closing Date, the Obligor's
obligation under a Receivable with respect to a Monthly Period has been modified
so as to differ from the amount specified in such Receivable as a result of
(i) the order of a court in an insolvency proceeding involving the Obligor,
(ii) pursuant to the Soldiers' and Sailors' Civil Relief Act of 1940 or
(iii) modifications or extensions of the Receivable permitted by Section 3.2(b),
the Scheduled Payment with respect to such Monthly Period shall refer to the
Obligor's payment obligation with respect to such Monthly Period as so modified.
SECURITY INSURER: Financial Security Assurance Inc., a monoline
insurance company incorporated under the laws of the State of New York, or any
successor thereto, as issuer of the Note Policy.
SELLER: Arcadia Receivables Finance Corp., a Delaware corporation, or
its successor in interest pursuant to Section 6.2.
SERVICER: Arcadia Financial Ltd., its successor in interest pursuant
to Section 8.2 or, after any termination of the Servicer upon a Servicer
Termination Event, the Backup Servicer or any other successor Servicer.
SERVICER EXTENSION NOTICE: The notice delivered pursuant to
Section 3.14.
SERVICER TERMINATION EVENT: An event described in Section 8.1.
SERVICER'S CERTIFICATE: With respect to each Determination Date, a
certificate, completed by and executed on behalf of the Servicer, in accordance
with Section 3.9, substantially in the form attached hereto as Exhibit E.
SPREAD ACCOUNT: The Spread Account established and maintained pursuant
to the Spread Account Agreement.
-23-
<PAGE>
SPREAD ACCOUNT ADDITIONAL DEPOSIT: With respect to any transfer of
Subsequent Receivables to the Trust pursuant to Section 2.4, the amount required
to be deposited in the Spread Account pursuant to the terms of the Spread
Account Agreement.
SPREAD ACCOUNT AGREEMENT: The Spread Account Agreement, dated as of
March 25, 1993, as amended and restated as of June 1, 1997, among the Seller,
AFL, the Security Insurer, the Collateral Agent and the trustees specified
therein, as the same may be amended, supplemented or otherwise modified in
accordance with the terms thereof.
STANDARD & POOR'S: Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc., or any successor thereto.
STOCK PLEDGE AGREEMENT: The Stock Pledge Agreement, dated as of
March 25, 1993, as amended and restated as of December 3, 1996, among the
Security Insurer, AFL and the Collateral Agent, as the same may be amended
from time to time.
SUBCOLLECTION ACCOUNT: The account designated as the Subcollection
Account in, and which is established and maintained pursuant to Section 4.2(a).
SUBSEQUENT CUTOFF DATE: With respect to any Subsequent Receivables,
the date specified in the related Subsequent Transfer Agreement, which may in no
event be later than the Subsequent Transfer Date.
SUBSEQUENT PURCHASE AGREEMENT: With respect to any Subsequent
Receivables, either (i) the agreement between AFL and the Seller pursuant to
which AFL transferred the Subsequent Receivables to the Seller, the form of
which is attached to the Purchase Agreement as Exhibit A, or (ii) one or more
Assignment Agreements pursuant to the ARCC Purchase Agreement, pursuant to which
AFL transferred the Subsequent Receivables to the Seller.
SUBSEQUENT RECEIVABLES:All Receivables sold and transferred to the
Trust pursuant to Section 2.4.
SUBSEQUENT TRANSFER AGREEMENT: With respect to any Subsequent
Receivables, the related agreement described in Section 2.4.
SUBSEQUENT TRANSFER DATE: Any date during the Funding Period on which
Subsequent Receivables are transferred to the Trust pursuant to Section 2.4.
SUPPLEMENTAL SERVICING FEE: With respect to any Monthly Period, all
administrative fees, expenses and charges paid by or on behalf of Obligors,
including late fees, collected on the Receivables during such Monthly Period.
-24-
<PAGE>
TELERATE PAGE 3750: The display page currently so designated on the
Dow Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices).
TOTAL SERVICING FEE: The sum of the Basic Servicing Fee and the
Supplemental Servicing Fee.
TRUST: Arcadia Automobile Receivables Trust, 1997-B.
TRUST ACCOUNTS: The meaning specified in 4.1(e).
TRUST AGREEMENT: The Trust Agreement dated as of June1, 1997, among
the Seller, the Security Insurer and the Owner Trustee, as the same may be
amended and supplemented from time to time.
UCC: The Uniform Commercial Code as in effect in the relevant
jurisdiction.
WARRANTY RECEIVABLE: With respect to any Monthly Period, a Receivable
which AFL has become obligated to repurchase pursuant to Section 2.6.
SECTION 1.2. USAGE OF TERMS. With respect to all terms used in this
Agreement, the singular includes the plural and the plural the singular; words
importing any gender include the other gender; references to "writing" include
printing, typing, lithography, and other means of reproducing words in a visible
form; references to agreements and other contractual instruments include all
subsequent amendments thereto or changes therein entered into in accordance with
their respective terms and not prohibited by this Agreement; references to
Persons include their permitted successors and assigns; and the terms "include"
or "including" mean "include without limitation" or "including without
limitation."
SECTION 1.3. CALCULATIONS. All calculations of the amount of
interest accrued on the Notes and all calculations of the amount of the Basic
Servicing Fee shall be made on the basis of a 360-day year consisting of twelve
30-day months, except that calculations of interest accrued on the Class A-1
Notes shall be made on the basis of actual days elapsed in a 360-day year. All
references to the Principal Balance of a Receivable as of an Accounting Date
shall refer to the close of business on such day.
SECTION 1.4. SECTION REFERENCES. All references to Articles,
Sections, paragraphs, subsections, exhibits and schedules shall be to such
portions of this Agreement unless otherwise specified.
SECTION 1.5. NO RECOURSE. No recourse may be taken, directly or
indirectly, under this Agreement or any certificate or other writing delivered
in
-25-
<PAGE>
connection herewith or therewith, against any stockholder, officer, or
director, as such, of the Seller, AFL, the Servicer, the Indenture Trustee,
the Backup Servicer or the Owner Trustee or of any predecessor or successor
of the Seller, AFL, the Servicer, the Indenture Trustee, the Backup Servicer
or the Owner Trustee.
SECTION 1.6. MATERIAL ADVERSE EFFECT. Whenever a determination is to
be made under this Agreement as to whether a given event, action, course of
conduct or set of facts or circumstances could or would have a material adverse
effect on the Trust or the Noteholders (or any similar or analogous
determination), such determination shall be made without taking into account the
insurance provided by the Note Policy.
ARTICLE II
CONVEYANCE OF RECEIVABLES
SECTION 2.1. CONVEYANCE OF INITIAL RECEIVABLES. Subject to the terms
and conditions of this Agreement, the Seller, pursuant to the mutually agreed
upon terms contained herein, hereby sells, transfers, assigns, and otherwise
conveys to the Trust, without recourse (but without limitation of its
obligations in this Agreement), all of the right, title and interest of the
Seller in and to the Initial Receivables, all monies at any time paid or payable
thereon or in respect thereof after the Initial Cutoff Date (including amounts
due on or before the Initial Cutoff Date but received by AFL or the Seller after
the Initial Cutoff Date), an assignment of security interests of AFL in the
related Financed Vehicles, the Insurance Policies and any proceeds from any
Insurance Policies relating to the Initial Receivables, the Obligors or the
related Financed Vehicles, including rebates of premiums, all Collateral
Insurance and any Force-Placed Insurance relating to the Initial Receivables, an
assignment of the rights of AFL or the Seller against Dealers with respect to
the Initial Receivables under the Dealer Agreements and the Dealer Assignments,
all items contained in the related Receivable Files, any and all other documents
that AFL keeps on file in accordance with its customary procedures relating to
the Initial Receivables, the Obligors or the related Financed Vehicles, an
assignment of the rights of the Seller under the Purchase Agreements, property
(including the right to receive future Liquidation Proceeds) that secures an
Initial Receivable and that has been acquired by or on behalf of the Trust
pursuant to liquidation of such Receivable, all funds on deposit from time to
time in the Trust Accounts and all investments therein and proceeds thereof, and
all proceeds of the foregoing. It is the intention of the Seller that the
transfer and assignment contemplated by this Agreement and each Subsequent
Transfer Agreement shall constitute a sale of the Receivables and other Trust
Property from the Seller to the Trust and the beneficial interest in and title
to the Recivables and the other Trust Property shall not be part of the Seller's
estate in the event of the filing of a bankruptcy petition by or against the
Seller under any bankruptcy law. In the event that, notwithstanding the intent
of the Seller, the transfer and assignment contemplated hereby and each
Subsequent Transfer Agreement is held not to be a
26
<PAGE>
sale, this Agreement and each Subsequent Transfer Agreement shall constitute a
grant of a security interest to the Trust in the property referred to in this
Section 2.1 or transferred to the Trust pursuant to the related Subsequent
Transfer Agreement.
SECTION 2.2. CUSTODY OF RECEIVABLE FILES.
(a) In connection with the sale, transfer and assignment of the
Receivables and the other Trust Property to the Trust pursuant to this Agreement
and each Subsequent Transfer Agreement, and simultaneously with the execution
and delivery of this Agreement, the Trust shall enter into the Custodian
Agreement with the Custodian, dated as of the Closing Date, pursuant to which
the Owner Trustee, on behalf of the Trust, shall revocably appoint the
Custodian, and the Custodian shall accept such appointment, to act as the agent
of the Trust as Custodian of the following documents or instruments in its
possession which shall be delivered to the Custodian as agent of the Trust on or
before the Closing Date (with respect to each Initial Receivable) or the
applicable Subsequent Transfer Date (with respect to each Subsequent
Receivable):
(i) The fully executed original of the Receivable (together
with any agreements modifying the Receivable, including without limitation
any extension agreements);
(ii) Documents evidencing or related to any Insurance Policy,
or copies thereof;
(iii) The original credit application, or a copy thereof, of
each Obligor, fully executed by each such Obligor on AFL's customary form,
or on a form approved by AFL, for such application; and
(iv) The original certificate of title (when received) and
otherwise such documents, if any, that AFL keeps on file in accordance with
its customary procedures indicating that the Financed Vehicle is owned by
the Obligor and subject to the interest of AFL as first lienholder or
secured party (including any Lien Certificate received by AFL), or, if such
original certificate of title has not yet been received, a copy of the
application therefor, showing AFL as secured party.
In connection with the grant of the security interest in the Trust
Estate to the Issuer Secured Parties pursuant to the Indenture, the Trust agrees
that from and after the Closing Date through the date of release of such
security interest pursuant to the terms of the Indenture, the Custodian shall
not be acting as agent of the Trust, but rather shall be acting as agent of the
Issuer Secured Parties.
The Indenture Trustee may act as the Custodian, in which case the
Indenture Trustee shall be deemed to have assumed the obligations of the
Custodian specified in the Custodian Agreement.
-27-
<PAGE>
(b) Upon payment in full on any Receivable, the Servicer will notify
the Custodian by certification of an officer of the Servicer (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 3.1 have been so deposited) and shall
request delivery of the Receivable and Receivable File to the Servicer. From
time to time as appropriate for servicing and enforcing any Receivable, the
Custodian shall, upon written request of an officer of the Servicer and delivery
to the Custodian of a receipt signed by such officer, cause the original
Receivable and the related Receivable File to be released to the Servicer. The
Servicer's receipt of a Receivable and/or Receivable File shall obligate the
Servicer to return the original Receivable and the related Receivable File to
the Custodian when its need by the Servicer has ceased unless the Receivable
shall be repurchased as described in Section 2.6 or 3.7.
SECTION 2.3. CONDITIONS TO ACCEPTANCE BY OWNER TRUSTEE. As
conditions to Owner Trustee's execution and delivery of the Notes on behalf of
the Trust on the Closing Date, the Owner Trustee shall have received the
following on or before the Closing Date:
(a) The Schedule of Initial Receivables certified by the
President, Controller or Treasurer of the Seller;
(b) The acknowledgement of the Custodian that it holds the
Receivable File relating to each Initial Receivable;
(c) Copies of resolutions of the Board of Directors of the
Seller approving the execution, delivery and performance of this
Agreement, the Related Documents and the transactions contemplated
hereby and thereby, certified by a Secretary or an Assistant Secretary
of the Seller;
(d) Copies of resolutions of the Board of Directors of AFL
approving the execution, delivery and performance of this Agreement, the
Related Documents and the transactions contemplated hereby and thereby,
certified by a Secretary or an Assistant Secretary of AFL;
(e) Evidence that all filings (including, without limitation,
UCC filings) required to be made by any Person and actions required to
be taken or performed by any Person in any jurisdiction (other than
those actions to be taken with respect to Subsequent Receivables
pursuant to Section 2.4) to give the Owner Trustee a first priority
perfected lien on, or ownership interest in, the Receivables and the
other Trust Property have been made, taken or performed; and
(f) An executed copy of the Spread Account Agreement and
evidence of the deposit of $1,383,884.24 in the Reserve Account.
-28-
<PAGE>
SECTION 2.4. CONVEYANCE OF SUBSEQUENT RECEIVABLES.
(a) Subject to the conditions set forth in paragraph (b) below, the
Seller, pursuant to the mutually agreed upon terms contained herein and pursuant
to one or more Subsequent Transfer Agreements, shall sell, transfer, assign, and
otherwise convey to the Trust, without recourse (but without limitation of its
obligations in this Agreement), all of the right, title and interest of the
Seller in and to the Subsequent Receivables, all monies at any time paid or
payable thereon or in respect thereof after the related Subsequent Cutoff Date
(including amounts due on or before the related Subsequent Cutoff Date but
received by AFL or the Seller after the related Subsequent Cutoff Date), an
assignment of security interests of AFL in the related Financed Vehicles, the
Insurance Policies and any proceeds from any Insurance Policies relating to the
Subsequent Receivables, the Obligors or the related Financed Vehicles, including
rebates of premiums, all Collateral Insurance and any Force-Placed Insurance
relating to the Subsequent Receivables, rights of AFL or the Seller against
Dealers with respect to the Subsequent Receivables under the Dealer Agreements
and the Dealer Assignments, all items contained in the Receivable Files relating
to the Subsequent Receivables, any and all other documents that AFL keeps on
file in accordance with its customary procedures relating to the Subsequent
Receivables, the Obligors or the related Financed Vehicles, the rights of the
Seller under the related Subsequent Purchase Agreement, property (including the
right to receive future Liquidation Proceeds) that secures a Subsequent
Receivable and that has been acquired by or on behalf of the Trust pursuant to
liquidation of such Subsequent Receivable, and all proceeds of the foregoing.
(b) The Seller shall transfer to the Trust the Subsequent Receivables
and the other property and rights related thereto described in paragraph (a)
above only upon the satisfaction of each of the following conditions on or prior
to the related Subsequent Transfer Date:
(i) The Seller shall have provided the Owner Trustee, the
Indenture Trustee, the Security Insurer and the Rating Agencies with a
timely Addition Notice and shall have provided any information
reasonably requested by any of the foregoing with respect to the
Subsequent Receivables;
(ii) the Funding Period shall not have terminated;
(iii) the Security Insurer (so long as an Insurer Default
shall not have occurred and be continuing) shall in its sole and
absolute discretion have given its prior written approval of the
transfer of such Subsequent Receivables to the Trust;
(iv) the Seller shall have delivered to the Owner Trustee and
the Indenture Trustee a duly executed written assignment (including an
acceptance by the Indenture Trustee and the Owner Trustee) in
substantially
-29-
<PAGE>
the form of Exhibit G (the "Subsequent Transfer Agreement"), which shall
include a Schedule of Subsequent Receivables listing the Subsequent
Receivables and shall specify the Spread Account Additional Deposit, if
any, the Requisite Reserve Amount, and the Class A-1 Holdback Amount,
if any, as of or for such Subsequent Transfer Date;
(v) the Seller shall have delivered to the Custodian the
Receivable Files relating to the Subsequent Receivables, and the
Custodian shall have delivered to the Seller, the Owner Trustee, the
Security Insurer and the Indenture Collateral Agent an acknowledgement
of receipt of such Receivable Files;
(vi) the Seller shall, to the extent required by Section 4.1,
have deposited in the Collection Account collections in respect of the
Subsequent Receivables;
(vii) as of each Subsequent Transfer Date, neither AFL nor
the Seller shall be insolvent nor shall either of them have been made
insolvent by such transfer nor shall either of them be aware of any
pending insolvency;
(viii) the applicable Spread Account Additional Deposit for
such Subsequent Transfer Date shall have been made pursuant to the
Spread Account Agreement.
(ix) the Reserve Amount on such Subsequent Transfer Date,
after taking into account any transfers of funds from the Reserve
Account to the Depositor in respect of the sale of the Subsequent
Receivables to the Trust, shall be no less than the Requisite Reserve
Amount for such Subsequent Transfer Date;
(x) each Rating Agency shall have notified the Seller, the
Owner Trustee, the Indenture Trustee and the Security Insurer in writing
that following such transfer the Notes will be rated in the highest
short-term or long-term rating category, as applicable, by such Rating
Agency;
(xi) such addition will not result in a material adverse tax
consequence to the Trust or the Noteholders as evidenced by an Opinion
of Counsel to be delivered by the Seller;
(xii) the Seller shall have delivered to the Owner Trustee
and the Indenture Trustee an Officer's Certificate confirming the
satisfaction of each condition precedent specified in this paragraph (b);
(xiii) the Seller shall have delivered to the Rating Agencies
and to the Security Insurer one or more Opinions of Counsel with respect
to the
-30-
<PAGE>
transfer of the Subsequent Receivables substantially in the form of the
Opinions of Counsel delivered to such Persons on the Closing Date;
(xiv) (A) the Receivables in the Trust, including the
Subsequent Receivables to be conveyed to the Trust on the Subsequent
Transfer Date, shall meet the following criteria (based on the
characteristics of the Initial Receivables on the Initial Cutoff Date
and the Subsequent Receivables on each related Subsequent Cutoff Date):
(1) the weighted average APR of such Receivables will not be less than
14.75%, (2) the weighted average remaining term of such Receivables will
not be greater than 67 months nor less than 63 months, (3) not more than
87% of the Aggregate Principal Balances of such Receivables will
represent loans secured by used Financed Vehicles, (4) not more than 52%
of the Aggregate Principal Balance of such Receivables will represent
Receivables originated under AFL's "Classic" program, (5) not more than
2% of the Aggregate Principal Balance of such Receivables will have an
APR in excess of 21%, (6) not more than 0.25% of the Aggregate Principal
Balance of such Receivables will represent loans in excess of
$50,000.00, (7) not more than 3.0% of the Aggregate Principal Balance of
such Receivables will represent loans with original terms greater than
72 months and (8) not more than 5.0% of the Aggregate Principal Balance
of such Receivables will represent loans secured by Financed Vehicles
that previously secured a loan originated by AFL with an obligor other
than the current Obligor, and (B) the Trust, the Owner Trustee, the
Indenture Trustee and the Security Insurer shall have received written
confirmation from a firm of certified independent public accountants as
to the satisfaction of such criteria;
(xv) the Seller shall have taken any action necessary or, if
requested by the Security Insurer, advisable to maintain the first
perfected ownership interest of the Trust in the Trust Property and the
first perfected security interest of the Indenture Collateral Agent in
the Indenture Collateral; and
(xvi) no selection procedures adverse to the interests of the
Noteholders shall have been utilized in selecting the Subsequent
Receivables.
(c) On such Subsequent Transfer Date, if all the conditions specified
in paragraph (b) above have been satisfied, the Trust shall accept the transfer
of such Subsequent Receivables and shall pay to the Seller from the Pre-Funding
Account an amount equal to (i) the Principal Balance as of the related
Subsequent Cutoff Date of the Subsequent Receivables transferred to the Trust as
of such date, minus (ii) the Spread Account Additional Deposit, if any, for such
Subsequent Transfer Date, minus (iii) the amount, if any, by which the Requisite
Reserve Amount for such Subsequent Transfer Date exceeds the Reserve Amount as
of such Subsequent Transfer Date, and minus (iv) the Class A-1 Holdback Amount,
if any, for such Subsequent Transfer Date.
-31-
<PAGE>
(d) The Seller covenants to transfer to the Trust pursuant to
paragraph(a) above Subsequent Receivables with an aggregate Principal Balance
equal to $233,522,236.50; PROVIDED, HOWEVER, that the sole remedy of the Trust,
the Owner Trustee, the Indenture Trustee or the Noteholders with respect to a
failure of such covenant shall be to enforce the provisions of Sections 2.3(c)
and 6.2 of the Closing Date Purchase Agreement, Section 2.4(c) hereof (with
respect to Class A-1 Holdback Amounts) and Section 4.7(c) hereof, Section
10.01(b) of the Indenture and Section 5.2 of the Trust Agreement with respect to
payment of the Class A-1 Prepayment Premium, Class A-2 Prepayment Premium, Class
A-3 Prepayment Premium, Class A-4 Prepayment Premium and Class A-5 Prepayment
Premium.
SECTION 2.5. REPRESENTATIONS AND WARRANTIES OF SELLER. By its
execution of this Agreement and each Subsequent Transfer Agreement, the Seller
makes the following representations and warranties on which the Trust relies in
accepting the Receivables and the other Trust Property in trust and on which the
Owner Trustee relies in issuing on behalf of the Trust, Notes and upon which the
Security Insurer relies in issuing the Note Policy. Unless otherwise specified,
such representations and warranties speak as of the Closing Date or Subsequent
Transfer Date, as appropriate, but shall survive the sale, transfer, and
assignment of the Receivables to the Trust.
(a) SCHEDULE OF REPRESENTATIONS. The representations and
warranties set forth on the Schedule of Representations are true and
correct.
(b) ORGANIZATION AND GOOD STANDING. The Seller has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware, with power and authority to own
its properties and to conduct its business as such properties are
currently owned and such business is currently conducted, and had at all
relevant times, and now has, power, authority and legal right to
acquire, own and sell the Receivables and the other property transferred
to the Trust.
(c) DUE QUALIFICATION. The Seller is duly qualified to do
business as a foreign corporation in good standing, and has obtained all
necessary licenses and approvals, in all jurisdictions in which the
ownership or lease of its property or the conduct of its business
requires such qualification.
(d) POWER AND AUTHORITY. The Seller has the power and
authority to execute and deliver this Agreement and its Related
Documents and to carry out its terms and their terms, respectively; the
Seller has full power and authority to sell and assign the Trust
Property to be sold and assigned to and deposited with the Trust by it
and has duly authorized such sale and assignment to the Trust by all
necessary corporate action; and the execution, delivery and performance
of this Agreement and the Seller's
-32-
<PAGE>
Related Documents have been duly authorized by the Seller by all necessary
corporate action.
(e) VALID SALE; BINDING OBLIGATIONS. This Agreement and the
related Subsequent Transfer Agreement, if any, effects a valid sale,
transfer and assignment of the Receivables and the other Trust Property,
enforceable against the Seller and creditors of and purchasers from the
Seller; and this Agreement and the related Subsequent Transfer
Agreement, if any, and the Seller's Related Documents, when duly
executed and delivered, shall constitute legal, valid and binding
obligations of the Seller enforceable in accordance with their
respective terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and by equitable limitations
on the availability of specific remedies, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
(f) NO VIOLATION. The consummation of the transactions
contemplated by this Agreement and the related Subsequent Transfer
Agreement, if any, and the Related Documents and the fulfillment of the
terms of this Agreement and the related Subsequent Transfer Agreement,
if any, and the Related Documents shall not conflict with, result in any
breach of any of the terms and provisions of or constitute (with or
without notice, lapse of time or both) a default under the certificate
of incorporation or by-laws of the Seller, or any indenture, agreement,
mortgage, deed of trust or other instrument to which the Seller is a
party or by which it is bound, or result in the creation or imposition
of any Lien upon any of its properties pursuant to the terms of any such
indenture, agreement, mortgage, deed of trust or other instrument, other
than this Agreement, or violate any law, order, rule or regulation
applicable to the Seller of any court or of any federal or state
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Seller or any of its
properties.
(g) NO PROCEEDINGS. There are no proceedings or
investigations pending or, to the Seller's knowledge, threatened against
the Seller or AFL, before any court, regulatory body, administrative
agency or other tribunal or governmental instrumentality having
jurisdiction over the Seller or its properties (A) asserting the
invalidity of this Agreement or any of the Related Documents, (B) seeking
to prevent the issuance of the Notes or the consummation of any of the
transactions contemplated by this Agreement or any of the Related
Documents, (C) seeking any determination or ruling that might materially
and adversely affect the performance by the Seller of its obligations
under, or the validity or enforceability of, this Agreement or any of
the Related Documents, or (D) seeking to adversely affect the federal
income tax or other federal, state or local tax attributes of the Notes.
-33-
<PAGE>
(h) CHIEF EXECUTIVE OFFICE. The chief executive office of the
Seller is at 7825 Washington Avenue South, Suite 410, Minneapolis, MN
55439-2435.
(i) REGISTRATION STATEMENT. No stop order suspending the
effectiveness of the Registration Statement relating to the Notes has been
issued, and no proceeding for that purpose has been instituted or is
threatened, by the Securities and Exchange Commission.
(j) FILINGS. Since the effective date of the Registration
Statement relating to the Notes, there has occurred no event required to be
set forth in an amendment or supplement to the Registration Statement or
Prospectus that has not been so set forth, and there has been no document
required to be filed under the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Securities and Exchange Commission
thereunder that upon such filing would be deemed to be incorporated by
reference in the Prospectus that has not been so filed.
SECTION 2.6. REPURCHASE OF RECEIVABLES UPON BREACH OF WARRANTY.
Concurrently with the execution and delivery of this Agreement or the applicable
Subsequent Transfer Agreement, as appropriate, AFL and the Seller have entered
into the Purchase Agreements or Subsequent Purchase Agreement, as applicable,
the rights of the Seller under which have been assigned by the Seller to the
Trust. Under the Purchase Agreements and each Subsequent Purchase Agreement, if
applicable, AFL has made the same representations and warranties to the Seller
with respect to the Receivables as those made by Seller pursuant to the Schedule
of Representations, upon which the Owner Trustee has relied in accepting the
Trust Property in trust and executing the Notes and upon which the Security
Insurer has relied in issuing the Note Policy and upon which the Indenture
Trustee has relied in authenticating the Notes. Upon discovery by any of AFL,
the Seller, the Servicer, the Security Insurer, the Indenture Trustee or the
Owner Trustee of a breach of any of the representations and warranties contained
in Section 2.5 that materially and adversely affects the interests of the
Noteholders, the Security Insurer or the Trust in any Receivable (including any
Liquidated Receivable), the party discovering such breach shall give prompt
written notice to the others; PROVIDED, HOWEVER, that the failure to give any
such notice shall not affect any obligation of AFL or the Seller. As of the
second Accounting Date (or, at AFL's election, the first Accounting Date)
following its discovery or its receipt of notice of any breach of the
representations and warranties set forth on the Schedule of Representations that
materially and adversely affects the interests of the Noteholders, the Security
Insurer or the Trust in any Receivable (including any Liquidated Receivable),
AFL shall, unlesssuch breach shall have been cured in all material respects,
purchase such Receivable from the Trust and, on or before the related Deposit
Date, AFL shall pay the Purchase Amount to the Owner Trustee pursuant to Section
4.5. The obligations of the Seller with respect to any such breach of
representations and warranties shall be limited to taking any and all actions
necessary to enable the Owner Trustee to enforce directly
34
<PAGE>
the obligations of AFL under the Purchase Agreement or Subsequent Purchase
Agreement, as applicable. It is understood and agreed that, except as set
forth in this Section 2.6, the obligation of AFL to repurchase any Receivable
as to which a breach has occurred and is continuing shall, if such obligation
is fulfilled, constitute the sole remedy against AFL or the Seller for such
breach available to the Security Insurer or the Indenture Trustee on behalf
of the Noteholders.
In addition to the foregoing and notwithstanding whether the related
Receivable shall have been purchased by the Seller or AFL, AFL shall indemnify
the Owner Trustee, the Indenture Trustee, the Backup Servicer, the Collateral
Agent, the Security Insurer, the Trust and the Noteholders against all costs,
expenses, losses, damages, claims and liabilities, including reasonable fees and
expenses of counsel, which may be asserted against or incurred by any of them as
a result of third party claims arising out of the events or facts giving rise to
such breach.
SECTION 2.7. NONPETITION COVENANT. None of the Seller, the Servicer,
the Owner Trustee (in its individual capacity or on behalf of the Trust), the
Backup Servicer nor AFL shall petition or otherwise invoke the process of any
court or government authority for the purpose of commencing or sustaining a case
against the Trust under any federal or state bankruptcy, insolvency or similar
law or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Trust or any substantial part of
its property, or ordering the winding up or liquidation of the affairs of the
Trust.
SECTION 2.8. COLLECTING LIEN CERTIFICATES NOT DELIVERED ON THE
CLOSING DATE OR SUBSEQUENT TRANSFER DATE. In the case of any Receivable in
respect of which written evidence from the Dealer selling the related Financed
Vehicle that the Lien Certificate for such Financed Vehicle showing AFL as first
lienholder has been applied for from the Registrar of Titles was delivered to
the Custodian on the Closing Date or Subsequent Transfer Date, as appropriate,
in lieu of a Lien Certificate, the Servicer shall use its best efforts to
collect such Lien Certificate from the Registrar of Titles as promptly as
practicable. If such Lien Certificate showing AFL as first lienholder is not
received by the Custodian within 180 days after the Closing Date or Subsequent
Transfer Date, as appropriate, then the representation and warranty in Paragraph
18 of the Schedule of Representations in respect of such Receivable shall be
deemed to have been incorrect in a manner that materially and adversely affects
the Noteholders, the Security Insurer and the Trust.
SECTION 2.9. TRUST'S ASSIGNMENT OF ADMINISTRATIVE RECEIVABLES AND
WARRANTY RECEIVABLES. With respect to all Administrative Receivables and all
Warranty Receivables purchased by the Servicer, the Seller or AFL, the Owner
Trustee shall take any and all actions reasonably requested by the Seller,
AFL or Servicer, at the expense of the requesting party, to assign, without
recourse, representation or warranty, to the Seller, AFL or the Servicer, as
applicable, all the Trust's right, title and interest in and to such
purchased Receivable, all monies due thereon, the security interests in the
related Financed Vehicles, proceeds from any
35
<PAGE>
Insurance Policies, proceeds from recourse against Dealers on such
Receivables and the interests of the Trust in certain rebates of premiums and
other amounts relating to the Insurance Policies and any documents relating
thereto, such assignment being an assignment outright and not for security;
and the Seller, AFL or the Servicer, as applicable, shall thereupon own such
Receivable, and all such security and documents, free of any further
obligation to the Owner Trustee, the Trust, the Indenture Trustee, the
Security Insurer, the Indenture Collateral Agent or the Noteholders with
respect thereto.
ARTICLE III
ADMINISTRATION AND SERVICING OF RECEIVABLES
SECTION 3.1. DUTIES OF THE SERVICER. The Servicer is hereby
authorized to act as agent for the Trust and in such capacity shall manage,
service, administer and make collections on the Receivables, and perform the
other actions required by the Servicer under this Agreement. The Servicer
agrees that its servicing of the Receivables shall be carried out in
accordance with customary and usual procedures of institutions which service
motor vehicle retail installment sales contracts and, to the extent more
exacting, the degree of skill and attention that the Servicer exercises from
time to time with respect to all comparable motor vehicle receivables that it
services for itself or others. In performing such duties, so long as AFL is
the Servicer, it shall comply with the policies and procedures attached
hereto as Schedule B. The Servicer's duties shall include, without
limitation, collection and posting of all payments, responding to inquiries
of Obligors on the Receivables, investigating delinquencies, sending payment
coupons to Obligors, reporting any required tax information to Obligors,
policing the collateral, complying with the terms of the Lockbox Agreement,
accounting for collections and furnishing monthly and annual statements to
the Owner Trustee, the Indenture Trustee and the Security Insurer with
respect to distributions, monitoring the status of Insurance Policies with
respect to the Financed Vehicles and performing the other duties specified
herein. The Servicer shall also administer and enforce all rights and
responsibilities of the holder of the Receivables provided for in the Dealer
Agreements (and shall maintain possession of the Dealer Agreements, to the
extent it is necessary to do so), the Dealer Assignments and the Insurance
Policies, to the extent that such Dealer Agreements, Dealer Assignments and
Insurance Policies relate to the Receivables, the Financed Vehicles or the
Obligors. To the extent consistent with the standards, policies and
procedures otherwise required hereby, the Servicer shall follow its customary
standards, policies, and procedures and shall have full power and authority,
acting alone, to do any and all things in connection with such managing,
servicing, administration and collection that it may deem necessary or
desirable. Without limiting the generality of the foregoing, the Servicer is
hereby authorized and empowered by the Owner Trustee to execute and deliver,
on behalf of the Trust, any and all instruments of satisfaction or
cancellation, or of partial or full release or discharge, and all other
comparable
36
<PAGE>
instruments, with respect to the Receivables and with respect to the Financed
Vehicles; PROVIDED, HOWEVER, that notwithstanding the foregoing, the Servicer
shall not, except pursuant to an order from a court of competent
jurisdiction, release an Obligor from payment of any unpaid amount under any
Receivable or waive the right to collect the unpaid balance of any Receivable
from the Obligor, except that the Servicer may forego collection efforts if
the amount subject to collection is DE MINIMIS and if it would forego
collection in accordance with its customary procedures. The Servicer is
hereby authorized to commence, in its own name or in the name of the Trust
(provided the Servicer has obtained the Owner Trustee's consent, which
consent shall not be unreasonably withheld), a legal proceeding to enforce a
Receivable pursuant to Section 3.3 or to commence or participate in any other
legal proceeding (including, without limitation, a bankruptcy proceeding)
relating to or involving a Receivable, an Obligor or a Financed Vehicle. If
the Servicer commences or participates in such a legal proceeding in its own
name, the Trust shall thereupon be deemed to have automatically assigned such
Receivable to the Servicer solely for purposes of commencing or participating
in any such proceeding as a party or claimant, and the Servicer is authorized
and empowered by the Owner Trustee to execute and deliver in the Servicer's
name any notices, demands, claims, complaints, responses, affidavits or other
documents or instruments in connection with any such proceeding. The Owner
Trustee shall furnish the Servicer with any powers of attorney and other
documents which the Servicer may reasonably request and which the Servicer
deems necessary or appropriate and take any other steps which the Servicer
may deem necessary or appropriate to enable the Servicer to carry out its
servicing and administrative duties under this Agreement.
SECTION 3.2. COLLECTION OF RECEIVABLE PAYMENTS; MODIFICATIONS OF
RECEIVABLES; LOCKBOX AGREEMENTS.
(a) Consistent with the standards, policies and procedures
required by this Agreement, the Servicer shall make reasonable efforts to
collect all payments called for under the terms and provisions of the
Receivables as and when the same shall become due, and shall follow such
collection procedures as it follows with respect to all comparable automobile
receivables that it services for itself or others and otherwise act with
respect to the Receivables, the Dealer Agreements, the Dealer Assignments,
the Insurance Policies and the other Trust Property in such manner as will,
in the reasonable judgment of the Servicer, maximize the amount to be
received by the Trust with respect thereto. The Servicer is authorized in its
discretion to waive any prepayment charge, late payment charge or any other
similar fees that may be collected in the ordinary course of servicing any
Receivable.
(b) The Servicer may at any time agree to a modification,
amendment or extension of a Receivable in order to (i)change the Obligor's
regular due date to a date within the Monthly Period in which such due date
occurs, (ii)re-amortize the scheduled payments on the Receivable following a
partial prepayment of principal and (iii) grant extensions on a Receivable,
provided that the Servicer
37
<PAGE>
shall not be permitted to extend the monthly payments on a Receivable more
than two times in any twelve-month period, and provided further that the
aggregate period of all extensions on a Receivable shall not exceed six months.
(c) The Servicer may grant payment extensions or deferrals on, or
other modifications or amendments to, a Receivable (in addition to those
modifications permitted by Section 3.2(b)) in accordance with its customary
procedures if the Servicer believes in good faith that such extension,
deferral, modification or amendment is necessary to avoid a default on such
Receivable, will maximize the amount to be received by the Trust with respect
to such Receivable, and is otherwise in the best interests of the Trust;
PROVIDED, HOWEVER, that:
(i) In no event may a Receivable be extended beyond the
Monthly Period immediately preceding the Final Scheduled Distribution
Date;
(ii) So long as an Insurer Default shall not have occurred
and be continuing, the Servicer shall not amend or modify a Receivable
(except as provided in Section 3.2(b)) without the consent of the Security
Insurer;
(iii) So long as an Insurer Default shall not have occurred
and be continuing, the Aggregate Principal Balance of Receivables which
have been extended during any Monthly Period (A) shall not exceed 6.5% of
the Aggregate Principal Balance of Receivables during such Monthly Period
(computed as of the Accounting Date immediately prior to the first day of
the related Monthly Period) and (B) shall not exceed 4.0% of the average
of the Aggregate Principal Balance of Receivables for such Monthly Period
and the three prior Monthly Periods (computed as of the Accounting Date
immediately prior to the first day of the related Monthly Period);
(iv) So long as an Insurer Default shall not have occurred
and be continuing, the Aggregate Principal Balance of Receivables for
which payment deferrals have been granted during any Monthly Period (A)
shall not exceed 3.0% of the Aggregate Principal Balance of Receivables
during such Monthly Period (computed as of the Accounting Date immediately
prior to the first day of the related Monthly Period) and (B) shall not
exceed 2.0% of the average of the Aggregate Principal Balance of
Receivables for such Monthly Period and the three prior Monthly Periods
(computed as of the Accounting Date immediately prior to the first day
of the related Monthly Period);
(v) No such extension, modification or amendment shall be
granted if such action, when aggregated with all previous extensions,
modifications and amendments of Receivables, would have the effect of
causing any Notes to be deemed to have been exchanged for other Notes
within the meaning of Section 1001 of the Internal Revenue Code of 1986,
as
38
<PAGE>
amended, or any proposed, temporary or final Treasury Regulations
issued thereunder; and
(vi) If an Insurer Default shall have occurred and be
continuing, the Servicer may not extend or modify any Receivable (other
than as permitted by Section 3.2(b)).
(d) The Servicer shall use its reasonable best efforts to cause
Obligors to make all payments on the Receivables, whether by check or by
direct debit of the Obligor's bank account, to be made directly to one or
more Lockbox Banks, acting as agent for the Trust pursuant to a Lockbox
Agreement. Amounts received by a Lockbox Bank in respect of the Receivables
may initially be deposited into a demand deposit account maintained by the
Lockbox Bank as agent for the Trust and for other owners of automobile
receivables serviced by the Servicer. The Servicer shall use its reasonable
best efforts to cause any Lockbox Bank to deposit all payments on the
Receivables in the Lockbox Account no later than the Business Day after
receipt, and to cause all amounts credited to the Lockbox Account on account
of such payments to be transferred to the Collection Account no later than
the second Business Day after receipt of such payments. The Lockbox Account
shall be a demand deposit account held by the Lockbox Bank, or at the request
of the Security Insurer (unless an Insurer Default shall have occurred and be
continuing) an Eligible Account satisfying clause (i) of the definition
thereof.
Prior to the Closing Date and each Subsequent Transfer Date, as
applicable, the Servicer shall have notified each Obligor that makes its
payments on the Receivables by check to make such payments thereafter
directly to the Lockbox Bank (except in the case of Obligors that have
already been making such payments to the Lockbox Bank), and shall have
provided each such Obligor with a supply of mailing address labels in order
to enable such Obligors to make such payments directly to the Lockbox Bank
for deposit into the Lockbox Account, and the Servicer will continue, not
less often than every three months, to so notify those Obligors who have
failed to make payments to the Lockbox Bank. If and to the extent requested
by the Security Insurer (unless an Insurer Default shall have occurred and be
continuing), the Servicer shall request each Obligor that makes payment on
the Receivables by direct debit of such Obligor's bank account, to execute a
new authorization for automatic payment which in the judgment of the Security
Insurer is sufficient to authorize direct debit by the Lockbox Bank on behalf
of the Trust. If at any time the Lockbox Bank is unable to directly debit an
Obligor's bank account that makes payment on the Receivables by direct debit
and if such inability is not cured within 15 days or cannot be cured by
execution by the Obligor of a new authorization for automatic payment, the
Servicer shall notify such Obligor that it cannot make payment by direct
debit and must thereafter make payment by check.
Notwithstanding any Lockbox Agreement, or any of the provisions of
this Agreement relating to the Lockbox Agreement, the Servicer shall remain
obligated and liable to the Owner Trustee, Indenture Trustee and Noteholders
for
39
<PAGE>
servicing and administering the Receivables and the other Trust Property
in accordance with the provisions of this Agreement without diminution of
such obligation or liability by virtue thereof.
In the event the Servicer shall for any reason no longer be acting
as such, the successor Servicer shall thereupon assume all of the rights and
obligations of the outgoing Servicer under the Lockbox Agreement. In such
event, the successor Servicer shall be deemed to have assumed all of the
outgoing Servicer's interest therein and to have replaced the outgoing
Servicer as a party to each such Lockbox Agreement to the same extent as if
such Lockbox Agreement had been assigned to the successor Servicer, except
that the outgoing Servicer shall not thereby be relieved of any liability or
obligations on the part of the outgoing Servicer to the Lockbox Bank under
such Lockbox Agreement. The outgoing Servicer shall, upon request of the
Owner Trustee but at the expense of the outgoing Servicer, deliver to the
successor Servicer all documents and records relating to each such Agreement
and an accounting of amounts collected and held by the Lockbox Bank and
otherwise use its best efforts to effect the orderly and efficient transfer
of any Lockbox Agreement to the successor Servicer. In the event that the
Security Insurer (so long as an Insurer Default shall not have occurred and
be continuing) or a Note Majority (if an Insurer Default shall have occurred
and be continuing) elects to change the identity of the Lockbox Bank, the
outgoing Servicer, at its expense, shall cause the Lockbox Bank to deliver,
at the direction of the Security Insurer (so long as an Insurer Default shall
not have occurred and be continuing) or a Note Majority (if an Insurer
Default shall have occurred and be continuing) to the Owner Trustee or a
successor Lockbox Bank, all documents and records relating to the Receivables
and all amounts held (or thereafter received) by the Lockbox Bank (together
with an accounting of such amounts) and shall otherwise use its best efforts
to effect the orderly and efficient transfer of the lockbox arrangements and
the Servicer shall notify the Obligors to make payments to the Lockbox
established by the successor.
(e) The Servicer shall remit all payments by or on behalf of the
Obligors received directly by the Servicer to the Subcollection Account or to
the Lockbox Bank for deposit into the Collection Account without deposit into
any intervening account as soon as practicable, but in no event later than the
Business Day after receipt thereof.
SECTION 3.3. REALIZATION UPON RECEIVABLES.
(a) Consistent with the standards, policies and procedures
required by this Agreement, the Servicer shall use its best efforts to
repossess (or otherwise comparably convert the ownership of) and liquidate
any Financed Vehicle securing a Receivable with respect to which the Servicer
has determined that payments thereunder are not likely to be resumed, as soon
as is practicable after default on such Receivable but in no event later than
the date on which all or any portion of a Scheduled Payment has become 91
days delinquent. The Servicer is authorized to follow such customary
practices and procedures as it shall deem necessary or
40
<PAGE>
advisable, consistent with the standard of care required by Section 3.1,
which practices and procedures may include reasonable efforts to realize upon
any recourse to Dealers, the sale of the related Financed Vehicle at public
or private sale, the submission of claims under an Insurance Policy and other
actions by the Servicer in order to realize upon such a Receivable. The
foregoing is subject to the provision that, in any case in which the Financed
Vehicle shall have suffered damage, the Servicer shall not expend funds in
connection with any repair or towards the repossession of such Financed
Vehicle unless it shall determine in its discretion that such repair and/or
repossession shall increase the proceeds of liquidation of the related
Receivable by an amount greater than the amount of such expenses. All
amounts received upon liquidation of a Financed Vehicle shall be remitted
directly by the Servicer to the Subcollection Account without deposit into
any intervening account as soon as practicable, but in no event later than
the Business Day after receipt thereof. The Servicer shall be entitled to
recover all reasonable expenses incurred by it in the course of repossessing
and liquidating a Financed Vehicle into cash proceeds, but only out of the
cash proceeds of such Financed Vehicle, any deficiency obtained from the
Obligor or any amounts received from the related Dealer, which amount may be
retained by the Servicer (and shall not be required to be deposited as
provided in Section 3.2(e)) to the extent of such expenses. The Servicer
shall pay on behalf of the Trust any personal property taxes assessed on
repossessed Financed Vehicles; the Servicer shall be entitled to
reimbursement of any such tax from Liquidation Proceeds with respect to such
Receivable.
(b) If the Servicer elects to commence a legal proceeding to
enforce a Dealer Agreement or Dealer Assignment, the act of commencement
shall be deemed to be an automatic assignment from the Trust to the Servicer
of the rights under such Dealer Agreement and Dealer Assignment for purposes
of collection only. If, however, in any enforcement suit or legal proceeding,
it is held that the Servicer may not enforce a Dealer Agreement or Dealer
Assignment on the grounds that it is not a real party in interest or a Person
entitled to enforce the Dealer Agreement or Dealer Assignment, the Owner
Trustee, at the Servicer's expense, or the Seller, at the Seller's expense,
shall take such steps as the Servicer deems necessary to enforce the Dealer
Agreement or Dealer Assignment, including bringing suit in its name or the
name of the Seller or of the Indenture Collateral Agent for the benefit of
the Issuer Secured Parties. All amounts recovered shall be remitted directly
by the Servicer as provided in Section 3.2(e).
SECTION 3.4. INSURANCE.
(a) The Servicer shall require that each Financed Vehicle be
insured by the Insurance Policies referred to in Paragraph 24 of the Schedule
of Representations and Warranties and shall monitor the status of such
physical loss and damage insurance coverage thereafter, in accordance with
its customary servicing procedures. Each Receivable requires the Obligor to
maintain such physical loss and damage insurance, naming AFL and its
successors and assigns as additional insureds, and permits the holder of such
Receivable to obtain physical loss and damage insurance at the expense of the
Obligor if the Obligor fails to maintain such insurance. If the Servicer
shall determine that an Obligor has failed to obtain or maintain a physical
41
<PAGE>
loss and damage Insurance Policy covering the related Financed Vehicle which
satisfies the conditions set forth in clause (1)(A) of such Paragraph 24
(including, without limitation, during the repossession of such Financed
Vehicle) the Servicer shall enforce the rights of the holder of the
Receivable under the Receivable to require the Obligor to obtain such
physical loss and damage insurance.
(b) The Servicer may, if an Obligor fails to obtain or maintain a
physical loss and damage Insurance Policy, obtain insurance with respect to
the related Financed Vehicle and advance on behalf of such Obligor, as
required under the terms of the insurance policy, the premiums for such
insurance (such insurance being referred to herein as "Force-Placed
Insurance"). All policies of Force-Placed Insurance shall be endorsed with
clauses providing for loss payable to the Owner Trustee. Any cost incurred
by the Servicer in maintaining such Force-Placed Insurance shall only be
recoverable out of premiums paid by the Obligors or Liquidation Proceeds with
respect to the Receivable, as provided in Section 3.4(c).
(c) In connection with any Force-Placed Insurance obtained
hereunder, the Servicer may, in the manner and to the extent permitted by
applicable law, require the Obligors to repay the entire premium to the
Servicer. In no event shall the Servicer include the amount of the premium
in the Amount Financed under the Receivable. For all purposes of this
Agreement, the Insurance Add-On Amount with respect to any Receivable having
Force-Placed Insurance will be treated as a separate obligation of the
Obligor and will not be added to the Principal Balance of such Receivable,
and amounts allocable thereto will not be available for distribution on the
Notes. The Servicer shall retain and separately administer the right to
receive payments from Obligors with respect to Insurance Add-On Amounts or
rebates of Force-Placed Insurance premiums. If an Obligor makes a payment
with respect to a Receivable having Force-Placed Insurance, but the Servicer
is unable to determine whether the payment is allocable to the Receivable or
to the Insurance Add-On Amount, the payment shall be applied first to any
unpaid Scheduled Payments and then to the Insurance Add-On Amount.
Liquidation Proceeds on any Receivable will be used first to pay the
Principal Balance and accrued interest on such Receivable and then to pay the
related Insurance Add-On Amount. If an Obligor under a Receivable with
respect to which the Servicer has placed Force-Placed Insurance fails to make
scheduled payments of such Insurance Add-On Amount as due, and the Servicer
has determined that eventual payment of the Insurance Add-On Amount is
unlikely, the Servicer may, but shall not be required to, purchase such
Receivable from the Trust for the Purchase Amount on any subsequent Deposit
Date. Any such Receivable, and any Receivable with respect to which the
Servicer has placed Force-Placed Insurance which has been paid in full
(excluding any Insurance Add-On Amounts) will be assigned to the Servicer.
42
<PAGE>
(d) 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 Owner 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 Indenture Collateral
Agent for the benefit of the Issuer Secured Parties.
(e) The Servicer shall maintain a vendor's single interest or
other collateral protection insurance policy with respect to all Financed
Vehicles, which policy shall by its terms insure against physical damage in
the event any Obligor fails to maintain physical loss and damage insurance
with respect to the related Financed Vehicle. Costs incurred by the Servicer
in maintaining such insurance shall be paid by the Servicer. The Servicer
will cause itself to be named as named insured and the Owner Trustee to be
named a loss payee under all such policies. The Servicer may, with the
consent of the Security Insurer, elect not to maintain such insurance policy
but in such event will be obligated to indemnify the Trust against any losses
arising from an Obligor's failure to maintain physical loss and damage
insurance with respect to the related Financed Vehicle.
SECTION 3.5. MAINTENANCE OF SECURITY INTERESTS IN VEHICLES.
(a) Consistent with the policies and procedures required by this
Agreement, the Servicer shall take such steps as are necessary to maintain
perfection of the security interest created by each Receivable in the related
Financed Vehicle on behalf of the Trust, including but not limited to obtaining
the execution by the Obligors and the recording, registering, filing,
re-recording, re-filing, and re-registering of all security agreements,
financing statements and continuation statements as are necessary to maintain
the security interest granted by the Obligors under the respective Receivables.
The Owner Trustee hereby authorizes the Servicer, and the Servicer agrees, to
take any and all steps necessary to re-perfect such security interest on behalf
of the Trust as necessary because of the relocation of a Financed Vehicle or for
any other reason. In the event that the assignment of a Receivable to the Owner
Trustee on behalf of 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 perfect a security interest in the related
Financed Vehicle in favor of the Trust, the Servicer hereby agrees that the
Servicer's designation as the secured party on the certificate of title is in
its capacity as agent of the Trust.
43
<PAGE>
(b) Upon the occurrence of an Insurance Agreement Event of
Default, the Security Insurer may (so long as an Insurer Default shall not
have occurred and be continuing) instruct the Owner Trustee and the Servicer
to take or cause to be taken, or, if an Insurer Default shall have occurred,
upon the occurrence of a Servicer Termination Event, the Owner Trustee and
the Servicer shall take or cause to be taken such action as may, in the
opinion of counsel to the Security Insurer (or, if an Insurer Default shall
have occurred and be continuing, counsel to the Owner Trustee), be necessary
to perfect or re-perfect the security interests in the Financed Vehicles
securing the Receivables in the name of the Trust by amending the title
documents of such Financed Vehicles or by such other reasonable means as may,
in the opinion of counsel to the Security Insurer or the Owner Trustee (as
applicable), be necessary or prudent. AFL hereby agrees to pay all expenses
related to such perfection or re-perfection and to take all action necessary
therefor. In addition, prior to the occurrence of an Insurance Agreement
Event of Default, the Security Insurer may (unless an Insurer Default shall
have occurred and be continuing) instruct the Owner Trustee and the Servicer
to take or cause to be taken such action as may, in the opinion of counsel to
the Security Insurer, be necessary to perfect or re-perfect the security
interest in the Financed Vehicles underlying the Receivables in the name of
the Trust, including by amending the title documents of such Financed
Vehicles or by such other reasonable means as may, in the opinion of counsel
to the Security Insurer, be necessary or prudent; PROVIDED, HOWEVER, that
(unless an Insurer Default shall have occurred and be continuing) if the
Security Insurer requests that the title documents be amended prior to the
occurrence of an Insurance Agreement Event of Default, the out-of-pocket
expenses of the Servicer or the Owner Trustee in connection with such action
shall be reimbursed to the Servicer or the Owner Trustee, as applicable, by
the Security Insurer.
SECTION 3.6. COVENANTS, REPRESENTATIONS, AND WARRANTIES OF
SERVICER. By its execution and delivery of this Agreement, the Servicer makes
the following representations, warranties and covenants on which the Owner
Trustee relies in accepting the Receivables in trust and issuing the Notes on
behalf of the Trust, on which the Indenture Trustee relies in authenticating
the Notes and on which the Security Insurer relies in issuing the Note Policy.
(a) The Servicer covenants as follows:
(i) LIENS IN FORCE. The Financed Vehicle securing each
Receivable shall not be released in whole or in part from the security
interest granted by the Receivable, except upon payment in full of the
Receivable or as otherwise contemplated herein;
(ii) NO IMPAIRMENT. The Servicer shall do nothing to impair
the rights of the Trust, the Noteholders in the Receivables, the
Dealer Agreements, the Dealer Assignments, the Insurance Policies or
the other Trust Property; and
44
<PAGE>
(iii) NO AMENDMENTS. The Servicer shall not extend or
otherwise amend the terms of any Receivable, except in accordance with
Section 3.2.
(b) The Servicer represents, warrants and covenants as of the Closing
Date as to itself:
(i) ORGANIZATION AND GOOD STANDING. The Servicer has
been duly organized and is validly existing and in good standing under
the laws of its jurisdiction of organization, with power, authority
and legal right to own its properties and to conduct its business as
such properties are currently owned and such business is currently
conducted, and had at all relevant times, and now has, power,
authority and legal right to enter into and perform its obligations
under this Agreement;
(ii) DUE QUALIFICATION. The Servicer is duly qualified to
do business as a foreign corporation in good standing, and has
obtained all necessary licenses and approvals, in all jurisdictions 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) requires or shall require such qualification;
(iii) POWER AND AUTHORITY. The Servicer has the power and
authority to execute and deliver this Agreement and its Related
Documents and to carry out its terms and their terms, respectively,
and the execution, delivery and performance of this Agreement and the
Servicer's Related Documents have been duly authorized by the Servicer
by all necessary corporate action;
(iv) BINDING OBLIGATION. This Agreement and the
Servicer's Related Documents shall constitute legal, valid and binding
obligations of the Servicer enforceable in accordance with their
respective terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, or other similar laws
affecting the enforcement of creditors' rights generally and by
equitable limitations on the availability of specific remedies,
regardless of whether such enforceability is considered in a
proceeding in equity or at law;
(v) NO VIOLATION. The consummation of the transactions
contemplated by this Agreement and the Servicer's Related Documents,
and the fulfillment of the terms of this Agreement and the Servicer's
Related Documents, shall not conflict with, result in any breach of
any of the terms and provisions of, or constitute (with or without
notice or lapse of time) a default under, the articles of
incorporation or bylaws of the Servicer, or any indenture, agreement,
-45-
<PAGE>
mortgage, deed of trust or other instrument to which the Servicer is a
party or by which it is bound, or result in the creation or imposition
of any Lien upon any of its properties pursuant to the terms of any
such indenture, agreement, mortgage, deed of trust or other
instrument, other than this Agreement, or violate any law, order, rule
or regulation applicable to the Servicer of any court or of any
federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Servicer or
any of its properties;
(vi) NO PROCEEDINGS. There are no proceedings or
investigations pending or, to the Servicer's knowledge, threatened
against the Servicer, before any court, regulatory body,
administrative agency or other tribunal or governmental
instrumentality having jurisdiction over the Servicer or its
properties (A) asserting the invalidity of this Agreement or any of
the Related Documents, (B) seeking to prevent the issuance of the
Notes or the consummation of any of the transactions contemplated by
this Agreement or any of the Related Documents, or (C) seeking any
determination or ruling that might materially and adversely affect the
performance by the Servicer of its obligations under, or the validity
or enforceability of, this Agreement or any of the Related Documents
or (D) seeking to adversely affect the federal income tax or other
federal, state or local tax attributes of the Notes;
(vii) NO CONSENTS. The Servicer is not required to obtain
the consent of any other party or any consent, license, approval or
authorization, or registration or declaration with, any governmental
authority, bureau or agency in connection with the execution,
delivery, performance, validity or enforceability of this Agreement;
(viii) COLLATERAL INSURANCE. The Collateral Insurance is in
full force and effect.
SECTION 3.7. PURCHASE OF RECEIVABLES UPON BREACH OF COVENANT. Upon
discovery by any of the Servicer, the Security Insurer, the Owner Trustee or the
Indenture Trustee of a breach of any of the covenants set forth in Sections
3.5(a) or 3.6(a), the party discovering such breach shall give prompt written
notice to the others; PROVIDED, HOWEVER, that the failure to give any such
notice shall not affect any obligation of the Servicer. As of the second
Accounting Date following its discovery or receipt of notice of any breach of
any covenant set forth in Sections 3.5(a) or 3.6(a) which materially and
adversely affects the interests of the Noteholders, the Trust or the Security
Insurer in any Receivable (including any Liquidated Receivable) (or, at the
Servicer's election, the first Accounting Date so following), the Servicer
shall, unless it shall have cured such breach in all material respects, purchase
from the Trust the Receivable affected by such breach and, on the
-46-
<PAGE>
related Deposit Date, the Servicer shall pay the related Purchase Amount. It
is understood and agreed that the obligation of the Servicer to purchase any
Receivable (including any Liquidated Receivable) with respect to which such a
breach has occurred and is continuing shall, if such obligation is fulfilled,
constitute the sole remedy against the Servicer for such breach available to
the Security Insurer, the Noteholders, or the Indenture Trustee on behalf of
Noteholders; PROVIDED, HOWEVER, that the Servicer shall indemnify the Owner
Trustee, the Backup Servicer, the Collateral Agent, the Security Insurer, the
Trust, the Indenture Trustee and the Noteholders against all costs, expenses,
losses, damages, claims and liabilities, including reasonable fees and
expenses of counsel, which may be asserted against or incurred by any of them
as a result of third party claims arising out of the events or facts giving
rise to such breach.
SECTION 3.8. TOTAL SERVICING FEE; PAYMENT OF CERTAIN EXPENSES BY
SERVICER. On each Distribution Date, the Servicer shall be entitled to receive
out of the Collection Account the Basic Servicing Fee and any Supplemental
Servicing Fee for the related Monthly Period pursuant to Section 4.6. The
Servicer shall be required to pay all expenses incurred by it in connection with
its activities under this Agreement (including taxes imposed on the Servicer,
expenses incurred in connection with distributions and reports to Noteholders
and the Security Insurer and all other fees and expenses of the Trust, including
taxes levied or assessed against the Trust, and claims against the Trust in
respect of indemnification, unless such fees, expenses or claims in respect of
indemnification are expressly stated to be for the account of AFL or not to be
for the account of the Servicer). The Servicer shall be liable for the fees and
expenses of the Owner Trustee, the Administrator, the Indenture Collateral
Agent, the Indenture Trustee, the Custodian, the Backup Servicer, the Collateral
Agent, the Lockbox Bank (and any fees under the Lockbox Agreement) and the
Independent Accountants. Notwithstanding the foregoing, if the Servicer shall
not be AFL, a successor to AFL as Servicer permitted by Section 7.2 or an
Affiliate of any of the foregoing, such Servicer shall not be liable for taxes
levied or assessed against the Trust or claims against the Trust in respect of
indemnification.
SECTION 3.9. SERVICER'S CERTIFICATE. No later than 10:00 a.m. New
York City time on each Determination Date, the Servicer shall deliver to the
Owner Trustee, the Indenture Trustee, the Backup Servicer, the Security Insurer,
the Collateral Agent and each Rating Agency a Servicer's Certificate executed by
a Responsible Officer of the Servicer containing, among other things, (i) all
information necessary to enable the Indenture Trustee to make any withdrawal and
deposit required by Section 5.1, to give any notice required by Section 5.2, to
make the distributions required by Sections 4.6 and 4.7(b), to make the
withdrawals, distributions and deliveries required by Section 4.7(a) and to
determine the amount to which the Servicer is entitled to be reimbursed or has
been reimbursed during the related Monthly Period for Monthly Advances pursuant
to Section 4.4(c), (ii) all information necessary to enable the Indenture
Trustee to send the statements to Noteholders required by Section 4.9, (iii) a
listing of all Warranty Receivables and
-47-
<PAGE>
Administrative Receivables purchased as of the related Deposit Date,
identifying the Receivables so purchased, and (iv) all information necessary
to enable the Indenture Trustee to reconcile all deposits to, and withdrawals
from, the Collection Account for the related Monthly Period and Distribution
Date, including the accounting required by Section 4.8. Receivables purchased
by the Servicer or by the Seller or AFL on the related Deposit Date and each
Receivable which became a Liquidated Receivable or which was paid in full
during the related Monthly Period shall be identified by account number (as
set forth in the Schedule of Receivables). A copy of such certificate may be
obtained by any Noteholder (or by a Note Owner, upon certification that such
Person is a Note Owner and payment of any expenses associated with the
distribution thereof) by a request in writing to the Indenture Trustee
addressed to the Corporate Trust Office. In addition to the information set
forth in the preceding sentence, the Servicer's Certificate delivered to the
Security Insurer, the Collateral Agent and the Indenture Trustee on the
Determination Date shall also contain the following information: (a) the
Delinquency Ratio, Average Delinquency Ratio, Cumulative Default Rate and
Cumulative Net Loss Rate for such Determination Date; (b) whether any Trigger
Event has occurred as of such Determination Date; (c) whether any Trigger
Event that may have occurred as of a prior Determination Date is Deemed Cured
as of such Determination Date; (d) whether to the knowledge of the Servicer an
Insurance Agreement Event of Default has occurred, (e) if AFL shall be the
Servicer, whether a Capture Event shall have occurred and be continuing, and
(f) if AFL shall be the Servicer, whether any Capture Event specified in any
prior Servicer's Certificate has been cured by a permanent waiver, effective
in accordance with the terms of the Purchase Agreements.
SECTION 3.10. ANNUAL STATEMENT AS TO COMPLIANCE; NOTICE OF SERVICER
TERMINATION EVENT.
(a) The Servicer shall deliver to the Owner Trustee, the Indenture
Trustee, the Backup Servicer, the Security Insurer and each Rating Agency, on or
before March 31 (or 90 days after the end of the Servicer's fiscal year, if
other than December 31) of each year, beginning on March 31, 1998, an officer's
certificate signed by any Responsible Officer of the Servicer, dated as of
December 31 (or other applicable date) of the immediately preceding year,
stating that (i) a review of the activities of the Servicer during the preceding
12-month period (or such other period as shall have elapsed from the Closing
Date to the date of the first such certificate) and of its performance under
this Agreement has been made under such officer's supervision, and (ii) to such
officer's knowledge, based on such review, the Servicer has fulfilled all its
obligations under this Agreement throughout such period, or, if there has been a
default in the fulfillment of any such obligation, specifying each such default
known to such officer and the nature and status thereof.
(b) The Servicer shall deliver to the Owner Trustee, the Indenture
Trustee, the Backup Servicer, the Security Insurer, the Collateral Agent, and
each Rating Agency, promptly after having obtained knowledge thereof, but in no
event
-48-
<PAGE>
later than two Business Days thereafter, written notice in an officer's
certificate of any event which with the giving of notice or lapse of time, or
both, would become a Servicer Termination Event under Section 8.1(a). The
Seller or the Servicer shall deliver to the Owner Trustee, the Indenture
Trustee, the Backup Servicer, the Security Insurer, the Collateral Agent, the
Servicer or the Seller (as applicable) and each Rating Agency promptly after
having obtained knowledge thereof, but in no event later than two Business
Days thereafter, written notice in an officer's certificate of any event
which with the giving of notice or lapse of time, or both, would become a
Servicer Termination Event under any other clause of Section 8.1.
SECTION 3.11. ANNUAL INDEPENDENT ACCOUNTANTS' REPORT.
(a) The Servicer shall cause a firm of nationally recognized
independent certified public accountants (the "Independent Accountants"), who
may also render other services to the Servicer or to the Seller, to deliver to
the Owner Trustee, the Indenture Trustee, the Backup Servicer, the Security
Insurer and each Rating Agency, on or before March 31 (or 90 days after the end
of the Servicer's fiscal year, if other than December 31) of each year,
beginning on March 31, 1998, with respect to the twelve months ended the
immediately preceding December 31 (or other applicable date) (or such other
period as shall have elapsed from the Closing Date to the date of such
certificate), a statement (the "Accountant's Report") addressed to the Board of
Directors of the Servicer, to the Owner Trustee, the Indenture Trustee, the
Backup Servicer and to the Security Insurer, to the effect that such firm has
audited the financial statements of the Servicer and issued its report thereon
and that such audit was made in accordance with generally accepted auditing
standards, and accordingly included such tests of the accounting records and
such other auditing procedures as such firm considered necessary in the
circumstances, including procedures as determined by the Independent Accountants
related to (1) the documents and records concerning the servicing of automobile
installment sales contracts under pooling and servicing agreements and sale and
servicing agreements substantially similar one to another (such statement to
have attached thereto a schedule setting forth the pooling and servicing
agreements and sale and servicing agreements covered thereby, including this
Agreement); and (2) the delinquency and loss statistics relating to the
Servicer's portfolio of automobile installment sales contracts; and except as
described in the statement, disclosed no exceptions or errors in the records
relating to automobile and light truck loans serviced for others that, in the
firm's opinion, generally accepted auditing standards requires such firm to
report. The Accountants' Report shall further state that (1) a review in
accordance with agreed upon procedures was made of three randomly selected
Servicer's Certificates for each Trust and (2) except as disclosed in the
Report, no exceptions or errors in the Servicer's Certificates so examined were
found.
(b) The Accountants' Report shall also indicate that the firm is
independent of the Seller and the Servicer within the meaning of the Code of
Professional Ethics of the American Institute of Certified Public Accountants.
-49-
<PAGE>
(c) A copy of the Accountants' Report may be obtained by any
Noteholder (or by any Note Owner, upon certification that such Person is a Note
Owner and payment of any expenses associated with the distribution thereof) by a
request in writing to the Indenture Trustee addressed to the Corporate Trust
Office.
SECTION 3.12. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION
REGARDING RECEIVABLES. The Servicer shall provide to representatives of the
Owner Trustee, Indenture Trustee, the Backup Servicer and the Security Insurer
reasonable access to the documentation regarding the Receivables. The Servicer
shall provide such access to any Noteholder (or Note Owner) only in such cases
where the Servicer is required by applicable statutes or regulations (whether
applicable to the Servicer or to such Noteholder or Note Owner) to permit such
Noteholder (or Note Owner) to review such documentation. In each case, such
access shall be afforded without charge but only upon reasonable request and
during normal business hours. Nothing in this Section shall derogate from the
obligation of the Servicer to observe any applicable law prohibiting disclosure
of information regarding the Obligors, and the failure of the Servicer to
provide access as provided in this Section as a result of such obligation shall
not constitute a breach of this Section. Any Noteholder (or Note Owner), by its
acceptance of a Note (or by acquisition of its beneficial interest therein), as
applicable, shall be deemed to have agreed to keep confidential and not to use
for its own benefit any information obtained by it pursuant to this Section,
except as may be required by applicable law.
SECTION 3.13. MONTHLY TAPE. On or before the third Business Day, but
in no event later than the fifth calendar day, of each month, the Servicer will
deliver to the Indenture Trustee and the Backup Servicer a computer tape and a
diskette (or any other electronic transmission acceptable to the Indenture
Trustee and the Backup Servicer) in a format acceptable to the Indenture Trustee
and the Backup Servicer containing the information with respect to the
Receivables as of the preceding Accounting Date necessary for preparation of the
Servicer's Certificate relating to the immediately succeeding Determination Date
and necessary to determine the application of collections as provided in Section
4.3. The Backup Servicer shall use such tape or diskette (or other electronic
transmission acceptable to the Indenture Trustee and the Backup Servicer) to
verify the Servicer's Certificate delivered by the Servicer, and the Backup
Servicer shall certify to the Security Insurer that it has verified the
Servicer's Certificate in accordance with this Section 3.13 and shall notify the
Servicer and the Security Insurer of any discrepancies, in each case, on or
before the second Business Day following the Determination Date. In the event
that the Backup Servicer reports any discrepancies, the Servicer and the Backup
Servicer shall attempt to reconcile such discrepancies prior to the related
Deficiency Claim Date, but in the absence of a reconciliation, the Servicer's
Certificate shall control for the purpose of calculations and distributions with
respect to the related Distribution Date. In the event that the Backup Servicer
and the Servicer are unable to reconcile discrepancies with respect to a
Servicer's Certificate by the related Distribution Date, the Servicer shall
cause the Independent
-50-
<PAGE>
Accountants, at the Servicer's expense, to audit the Servicer's Certificate
and, prior to the third Business Day, but in no event later than the fifth
calendar day, of the following month, reconcile the discrepancies. The
effect, if any, of such reconciliation shall be reflected in the Servicer's
Certificate for such next succeeding Determination Date. In addition, the
Servicer shall, if so requested by the Security Insurer (unless an Insurer
Default shall have occurred and be continuing) deliver to the Backup Servicer
its Collection Records and its Monthly Records within one Business Day of
demand therefor and a computer tape containing as of the close of business on
the date of demand all of the data maintained by the Servicer in computer
format in connection with servicing the Receivables. Other than the duties
specifically set forth in this Agreement, the Backup Servicer shall have no
obligations hereunder, including, without limitation, to supervise, verify,
monitor or administer the performance of the Servicer. The Backup Servicer
shall have no liability for any actions taken or omitted by the Servicer.
The duties and obligations of the Backup Servicer shall be determined solely
by the express provisions of this Agreement and no implied covenants or
obligations shall be read into this Agreement against the Backup Servicer.
SECTION 3.14. RETENTION AND TERMINATION OF SERVICER. The Servicer
hereby covenants and agrees to act as such under this Agreement for an initial
term, commencing on the Closing Date and ending on June 30, 1997, which term
shall be extendible by the Security Insurer for successive quarterly terms
ending on each successive September 30, December 31, March 31 and June 30 (or,
pursuant to revocable written standing instructions from time to time to the
Servicer, the Indenture Trustee and the Owner Trustee, for any specified number
of terms greater than one), until the termination of the Trust. Each such
notice (including each notice pursuant to standing instructions, which shall be
deemed delivered at the end of successive quarterly terms for so long as such
instructions are in effect) (a "Servicer Extension Notice") shall be delivered
by the Security Insurer to the Owner Trustee, the Indenture Trustee and the
Servicer. The Servicer hereby agrees that, as of the date hereof and upon its
receipt of any such Servicer Extension Notice, the Servicer shall become bound,
for the initial term beginning on the Closing Date and for the duration of the
term covered by such Servicer Extension Notice, to continue as the Servicer
subject to and in accordance with the other provisions of this Agreement. Until
such time as an Insurer Default shall have occurred and be continuing, the
Indenture Trustee agrees that if as of the fifteenth day prior to the last day
of any term of the Servicer the Indenture Trustee shall not have received any
Servicer Extension Notice from the Security Insurer, the Indenture Trustee will,
within five days thereafter, give written notice of such non-receipt to the
Owner Trustee, the Security Insurer and the Servicer.
SECTION 3.15. FIDELITY BOND. The Servicer shall maintain a fidelity
bond in such form and amount as is customary for entities acting as custodian of
funds and documents in respect of consumer contracts on behalf of institutional
investors.
-51-
<PAGE>
SECTION 3.16. DUTIES OF THE SERVICER UNDER THE INDENTURE. The
Servicer shall, and hereby agrees that it will, perform on behalf of the Trust
and the Owner Trustee the following duties of the Trust or the Owner Trustee, as
applicable, under the Indenture (references are to the applicable Sections in
the Indenture):
(a) the direction to the Paying Agents, if any, to deposit moneys
with the Indenture Trustee (Section 3.03);
(b) the obtaining and preservation of the Issuer's qualification to
do business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of the Indenture, the
Notes, the Indenture Collateral and each other instrument and agreement
included in the Trust Estate (Section 3.04);
(c) the preparation of all supplements, amendments, financing
statements, continuation statements, instruments of further assurance and
other instruments, in accordance with Section 3.05 of the Indenture,
necessary to protect the Trust Estate (Section 3.05);
(d) the delivery of the Opinion of Counsel on the Closing Date and
the annual delivery of Opinions of Counsel, in accordance with Section
3.06 of the Indenture, as to the Trust Estate, and the annual delivery of
the Officers' Certificate and certain other statements, in accordance with
Section 3.09 of the Indenture, as to compliance with the Indenture
(Sections 3.06 and 3.09);
(e) the preparation and obtaining of documents and instruments
required for the release of the Issuer from its obligations under the
Indenture (Section 3.10(b));
(f) the monitoring of the Issuer's obligations as to the satisfaction
and discharge of the Indenture and the preparation of an Officers'
Certificate and the obtaining of the Opinion of Counsel and the
Independent Certificate relating thereto (Section 4.01);
(g) the preparation of any written instruments required to confirm
more fully the authority of any co-trustee or separate trustee and any
written instruments necessary in connection with the resignation or
removal of any co-trustee or separate trustee (Sections 6.08 and 6.10);
(h) the opening of one or more accounts in the Trust's name, the
preparation of Issuer Orders, Officers' Certificates and Opinions of
Counsel and all other actions necessary with respect to investment and
reinvestment of funds in the Trust Accounts (Sections 8.02 and 8.03);
-52-
<PAGE>
(i) the preparation of Trust Orders and the obtaining of Opinions of
Counsel with respect to the execution of supplemental indentures
(Sections 9.01, 9.02 and 9.03);
(j) the preparation of all Officers' Certificates, Opinions of
Counsel and Independent Certificates with respect to any requests by the
Issuer to the Indenture Trustee or the Indenture Collateral Agent to take
any action under the Indenture (Section 11.01(a));
(k) the preparation and delivery of Officers' Certificates and the
obtaining of Independent Certificates, if necessary, for the release of
property from the lien of the Indenture (Section 11.01(b)); and
(l) the recording of the Indenture, if applicable (Section 11.15).
In addition to the duties of the Servicer set forth above, the Servicer shall,
and hereby agrees that it will, prepare, distribute and file any reports
required by Section313(b) of the Trust Indenture Act of 1939, as amended, as a
result of any transfer of Subsequent Receivables. Such distribution and filing
is to be effected by the Servicer's distribution and filing of the Servicer's
Certificate.
SECTION 3.17. DUTIES OF THE SERVICER UNDER THE INSURANCE AGREEMENT.
The Servicer shall, and hereby agrees that it will, perform on behalf of the
Trust and the Owner Trustee the following duties of the Trust under the
Insurance Agreement (references are to the applicable Sections in the Insurance
Agreement):
(a) the maintenance of books and records of accounts of the Trust's
assets and business and the furnishing to the Security Insurer of reports,
certificates, statements, financial statements or notices furnished to the
Indenture Trustee or the Noteholders pursuant to the Related Documents
(Section 2.02(b));
(b) the delivery to the Security Insurer and, upon request, any
Noteholder, of certificates with respect to compliance with, and other
matters under, the Related Documents (Section 2.02(c));
(c) the filing of financing statements, assignments or other
instruments, and amendments or continuation statements relating thereto to
preserve and protect fully the lien and security interest in, and all
rights of the Indenture Trustee and the Security Insurer with respect to,
the Trust Estate (Section 2.02(f));
(d) the maintenance of licenses, permits, charters and registrations
of the Trust material to the performance by the Trust of its
-53-
<PAGE>
obligations under the Insurance Agreement and the Related Documents
(Section 2.02(g));
(e) the provision to the Security Insurer of executed original copies
of the documents executed in connection with the closing of the offering
of the Notes (Section 2.02(k)); and
(f) the taking of actions to ensure that the Trust is taxable as a
partnership for federal and state income tax purposes and not as an
association (or publicly traded partnership) taxable as a corporation
(Section 2.02(l)).
SECTION 3.18. CERTAIN DUTIES OF THE SERVICER UNDER THE TRUST
AGREEMENT. The Servicer shall, and hereby agrees that it will, monitor the
Trust's compliance with all applicable provisions of state and federal
securities laws, notify the Trust and the Administrator of any actions to be
taken by the Trust necessary for compliance with such laws and prepare on behalf
of the Trust and the Administrator all notices, filings or other documents or
instruments required to be filed under such laws.
ARTICLE IV
DISTRIBUTIONS; STATEMENTS TO NOTEHOLDERS
SECTION 4.1. TRUST ACCOUNTS.
(a) The Servicer shall establish the Collection Account in the name
of the Indenture Collateral Agent for the benefit of the Issuer Secured Parties
(as defined in the Indenture). The Collection Account shall be an Eligible
Account and initially shall be a segregated trust account established with the
Indenture Collateral Agent and maintained with the Indenture Collateral Agent.
(b) The Servicer shall establish the Pre-Funding Account in the name
of the Indenture Collateral Agent for the benefit of the Issuer Secured Parties.
The Pre-Funding Account shall be an Eligible Account and initially shall be a
segregated trust account established with the Indenture Collateral Agent and
maintained with the Indenture Collateral Agent.
(c) The Servicer shall establish the Note Distribution Account in the
name of the Indenture Collateral Agent for the benefit of the Issuer Secured
Parties. The Note Distribution Account shall be an Eligible Account and
initially shall be a segregated trust account established with the Indenture
Collateral Agent and maintained with the Indenture Collateral Agent.
-54-
<PAGE>
(d) The Servicer shall establish the Reserve Account (including the
Class A-1 Holdback Subaccount) in the name of the Indenture Collateral Agent for
the benefit of the Issuer Secured Parties. The Reserve Account shall be an
Eligible Account and initially shall be a segregated trust account established
with the Indenture Collateral Agent and maintained with the Indenture Collateral
Agent.
(e) All amounts held in the Collection Account, the Pre-Funding
Account, the Note Distribution Account and the Reserve Account (collectively,
the "Trust Accounts") shall, to the extent permitted by applicable laws, rules
and regulations, be invested, as directed in writing by the Servicer, in
Eligible Investments that, in the case of amounts held in the Collection
Account, the Note Distribution Account and the Reserve Account, mature not later
than one Business Day prior to the Distribution Date for the Monthly Period to
which such amounts relate, and, in the case of amounts held in the Pre-Funding
Account, mature in such amounts and on such dates, not later than one Business
Day prior to the last day of the Funding Period, as the Servicer may direct in
writing. Any such written direction shall certify that any such investment is
authorized by this Section 4.1. Investments in Eligible Investments shall be
made in the name of the Indenture Trustee on behalf of the Trust, and such
investments shall not be sold or disposed of prior to their maturity. Any
investment of funds in the Trust Accounts shall be made in Eligible Investments
held by a financial institution in accordance with the following requirements:
(a) all Eligible Investments shall be held in an account with such financial
institution in the name of the Indenture Trustee, (b) with respect to securities
held in such account, such securities shall be (i) certificated securities (as
such term is used in N.Y. UCC Section 8-313(1)(d)(i)), securities deemed to be
certificated securities under applicable regulations of the United States
government, or uncertificated securities issued by an issuer organized under the
laws of the State of New York or the State of Delaware, (ii) either (A) in the
possession of such institution, (B) in the possession of a clearing corporation
(as such term is used in N.Y. UCC Section 8-313(1)(g)) in the State of New York,
registered in the name of such clearing corporation or its nominee, not endorsed
for collection or surrender or any other purpose not involving transfer, not
containing any evidence of a right or interest inconsistent with the Indenture
Trustee's security interest therein, and held by such clearing corporation in an
account of such institution, (C) held in an account of such institution with the
Federal Reserve Bank of New York or the Federal Reserve Bank of Minneapolis, or
(D) in the case of uncertificated securities, issued in the name of such
institution, and (iii) identified, by book entry or otherwise, as held for the
account of, or pledged to, the Indenture Trustee on the records of such
institution, and such institution shall have sent the Indenture Trustee a
confirmation thereof, (c) with respect to repurchase obligations held in such
account, such repurchase obligations shall be identified by such institution, by
book entry or otherwise, as held for the account of, or pledged to, the
Indenture Trustee on the records of such institution, and the related securities
shall be held in accordance with the requirements of clause (b) above, and
(d) with respect to other Eligible Investments other than securities and
repurchase agreements, such Eligible Investments shall be held in a manner
acceptable to the Indenture Collateral Agent.
-55-
<PAGE>
Subject to the other provisions hereof, the Indenture Collateral Agent shall
have sole control over each such investment and the income thereon, and any
certificate or other instrument evidencing any such investment, if any, shall
be delivered directly to the Indenture Collateral Agent or its agent,
together with each document of transfer, if any, necessary to transfer title
to such investment to the Indenture Collateral Agent in a manner which
complies with this Section 4.1. All interest, dividends, gains upon sale and
other income from, or earnings on, investments of funds in the Trust Accounts
shall be deposited in the Collection Account and distributed on the next
Distribution Date pursuant to Section 4.6. The Servicer shall deposit in the
applicable Trust Account an amount equal to any net loss on such investments
immediately as realized.
(f) On the Closing Date, the Servicer shall deposit in the Collection
Account (i) all Scheduled Payments and prepayments of Initial Receivables
received by the Servicer after the Initial Cutoff Date and on or prior to the
Business Day immediately preceding the Closing Date or received by the Lockbox
Bank after the Initial Cutoff Date and on or prior to the second Business Day
immediately preceding the Closing Date and (ii) all Liquidation Proceeds and
proceeds of Insurance Policies realized in respect of a Financed Vehicle and
applied by the Servicer after the Initial Cutoff Date. On each Subsequent
Transfer Date, the Servicer shall deposit in the Collection Account (x) all
Scheduled Payments and prepayments of the related Subsequent Receivables
received by the Servicer after the related Subsequent Cutoff Date and on or
prior to the Business Day immediately preceding the related Subsequent Transfer
Date or received by the Lockbox Bank after the related Subsequent Cutoff Date
and on or prior to the second Business Day immediately preceding the related
Subsequent Transfer Date and (y) all Liquidation Proceeds and proceeds of
Insurance Policies related in respect of a Financed Vehicle and applied by the
Servicer after the related Subsequent Cutoff Date.
SECTION 4.2. COLLECTIONS.
(a) The Servicer shall establish the Subcollection Account in the
name of the Indenture Trustee for the benefit of the Noteholders. The
Subcollection Account shall be an Eligible Account satisfying clause (ii) of the
definition of "Eligible Account," and shall initially be established with the
Indenture Trustee. The Servicer shall remit directly to the Subcollection
Account without deposit into any intervening account all payments by or on
behalf of the Obligors on the Receivables and all Liquidation Proceeds received
by the Servicer, in each case, as soon as practicable, but in no event later
than the Business Day after receipt thereof. Within two days of deposit of
payments into the Subcollection Account, the Indenture Trustee shall transfer
all amounts credited to the Subcollection Account on account of such payments to
the Collection Account. Amounts in the Subcollection Account shall not be
invested. Notwithstanding the foregoing, the Servicer may utilize an
alternative remittance schedule acceptable to the Servicer if the Security
Insurer consents in writing (so long as an Insurer Default shall not have
occurred and be continuing) and the Servicer provides to the Indenture
-56-
<PAGE>
Trustee written confirmation from each Rating Agency that such
alternative remittance schedule will not result in the downgrading or withdrawal
by the Rating Agency of the rating then assigned to the Notes.
(b) Notwithstanding the provisions of subsection (a) hereof, the
Servicer will be entitled to be reimbursed from amounts on deposit in the
Collection Account with respect to a Monthly Period for amounts previously
deposited in the Collection Account but later determined by the Servicer or
the Lockbox Bank to have resulted from mistaken deposits or postings or
checks returned for insufficient funds. The amount to be reimbursed
hereunder shall be paid to the Servicer on the related Distribution Date
pursuant to Section 4.6(iii) upon certification by the Servicer of such
amounts and the provision of such information to the Indenture Trustee and
the Security Insurer as may be necessary in the opinion of the Indenture
Trustee and the Security Insurer to verify the accuracy of such
certification. In the event that the Security Insurer has not received
evidence satisfactory to it of the Servicer's entitlement to reimbursement
pursuant to this Section 4.2(b), the Security Insurer shall (unless an
Insurer Default shall have occurred and be continuing) give the Indenture
Trustee notice to such effect, following receipt of which the Indenture
Trustee shall not make a distribution to the Servicer in respect of such
amount pursuant to Section 4.6, or if the Servicer prior thereto has been
reimbursed pursuant to Section 4.6 or Section 4.8, the Indenture Trustee
shall withhold such amounts from amounts otherwise distributable to the
Servicer on the next succeeding Distribution Date.
SECTION 4.3. APPLICATION OF COLLECTIONS. For the purposes of this
Agreement, all collections for a Monthly Period shall be applied by the
Servicer as follows:
(a) With respect to each Receivable, payments by or on behalf of the
Obligor thereof (other than of Supplemental Servicing Fees with respect to
such Receivable, to the extent collected) shall be applied to interest and
principal with respect to such Receivable in accordance with the terms of
such Receivable. With respect to each Liquidated Receivable, Liquidation
Proceeds shall be applied to interest and principal with respect to such
Receivable in accordance with the terms of such Receivable, and then to any
Insurance Add-On Amount due and payable with respect to such Receivable.
The Servicer shall not be entitled to any Supplemental Servicing Fees with
respect to a Liquidated Receivable.
(b) With respect to each Receivable that has become a Purchased
Receivable on any Deposit Date, the Purchase Amount shall be applied, for
purposes of this Agreement only, to interest and principal on the Receivable
in accordance with the terms of the Receivable as if the Purchase Amount had
been paid by the Obligor on the Accounting Date. The Servicer shall not be
entitled to any Supplemental Servicing Fees with respect to such
-57-
<PAGE>
a Receivable. Nothing contained herein shall relieve any Obligor of any
obligation relating to any Receivable.
(c) All amounts collected that are payable to the Servicer as
Supplemental Servicing Fees hereunder shall be deposited in the Collection
Account and paid to the Servicer in accordance with Section 4.6(iii).
(d) All payments by or on behalf of an Obligor received with respect
to any Purchased Receivable after the Accounting Date immediately preceding
the Deposit Date on which the Purchase Amount was paid by the Seller, AFL
or the Servicer shall be paid to the Seller, AFL or the Servicer,
respectively, and shall not be included in the Available Funds.
SECTION 4.4. MONTHLY ADVANCES.
(a) If with respect to a Receivable, the amount deposited into the
Collection Account during a Monthly Period in respect of such Receivable and
allocable to interest (determined in accordance with Section 4.3) is less
than an amount of interest equal to interest accrued on such Receivable (for
the number of calendar days in such Monthly Period) (calculated according to
the method specified in the related retail installment sale contract or
promissory note at the APR on the Principal Balance of such Receivable as of
the Accounting Date preceding such Distribution Date), the Servicer shall
make a Monthly Advance equal to the amount of such shortfall; PROVIDED,
HOWEVER, that the Servicer shall not be required to make a Monthly Advance
with respect to a Receivable extended pursuant to Section 3.2(b) for any
Monthly Period during which no Scheduled Payment is due according to the
terms of such extension; and PROVIDED FURTHER, that the Servicer shall not be
required to make a Monthly Advance with respect to a Receivable that is less
than 31 days delinquent.
(b) On or before each Determination Date and prior to the delivery
of the Servicer's Certificate for such Determination Date pursuant to
Section 3.9, the Servicer shall deposit in the Collection Account the aggregate
amount of Monthly Advances required for the related Monthly Period in
immediately available funds (subject to Section 4.8).
(c) The Servicer shall be entitled to be reimbursed for
Outstanding Monthly Advances with respect to a Receivable pursuant to
Section 4.6(i) or pursuant to Section 4.8 from the following sources with
respect to such Receivable on any day subsequent to the Distribution Date in
respect of which such Monthly Advance was made: (i) subsequent payments by or
on behalf of the Obligor with respect to such Receivable, (ii) collections of
Liquidation Proceeds with respect to such Receivable if such Receivable
becomes a Liquidated Receivable and (iii) payment of any Purchase Amount with
respect to such Receivable if such Receivable becomes a Purchased Receivable.
If any Receivable shall become a Liquidated Receivable and the Servicer shall
not have been fully reimbursed for
-58-
<PAGE>
Outstanding Monthly Advances with respect to such Receivable from the sources
of funds previously described in this paragraph, the Servicer shall be
entitled to reimbursement from collections on Receivables other than the
Receivable in respect of which such Outstanding Monthly Advance shall have
been made.
SECTION 4.5. ADDITIONAL DEPOSITS. On or before each Deposit Date,
the Servicer or AFL shall deposit in the Collection Account the aggregate
Purchase Amounts with respect to Administrative Receivables and Warranty
Receivables, respectively. All such deposits of Purchase Amounts shall be
made in immediately available funds. On or before each Draw Date, the
Indenture Trustee shall deposit in the Collection Account any amounts
delivered to the Indenture Trustee by the Collateral Agent.
SECTION 4.6. DISTRIBUTIONS. On each Distribution Date, the
Indenture Trustee shall (based on the information contained in the Servicer's
Certificate delivered on the related Determination Date) distribute the
following amounts and in the order of priority specified below. Within each
order of priority, amounts shall be deemed withdrawn first from Available
Funds, second from the Reserve Account and third from any Deficiency Claim
Amounts.
(i) first, from the Distribution Amount, (A) to the Trust for payment
of any taxes due and unpaid with respect to the Trust, to the extent such
taxes have not been previously paid by AFL or by the Servicer pursuant to
Section 3.8, and (B) then to the Servicer, the amount of Outstanding Monthly
Advances for which the Servicer is entitled to be reimbursed pursuant to
Section 4.4(c) and for which the Servicer has not previously been reimbursed
pursuant to Section 4.8;
(ii) second, from the Distribution Amount then remaining on deposit in
the Collection Account, to the Owner Trustee, any accrued and unpaid fees of
the Owner Trustee in accordance with the Trust Agreement and including
amounts with respect to which the Administrator is entitled to be reimbursed
pursuant to the Administration Agreement; to the Indenture Trustee, any
accrued and unpaid fees of the Indenture Trustee in accordance with the
Indenture; to any Lockbox Bank, Custodian, Backup Servicer, Collateral
Agent, Indenture Collateral Agent or Administrator (including the Owner
Trustee or Indenture Trustee if acting in any such additional capacity),
any accrued and unpaid fees (in each case, to the extent such Person has
not previously received such amount from the Servicer or AFL), to the
Backup Servicer, any transition expenses (not to exceed $50,000) in
accordance with Section 8.3; PROVIDED, HOWEVER, in the event that the rating
assigned by Standard & Poor's to the claims-paying ability of the Security
Insurer is not AAA, the accrued and unpaid fees of the Owner Trustee, the
Indenture Trustee, the Backup Servicer, the Collateral Agent, the Indenture
Collateral Agent and the Administrator shall be distributed pursuant to this
clause (ii) to the extent such fees are not in excess of the amount (the
"Servicer Fee
-59-
<PAGE>
Threshold") obtained by dividing (x).20% of the Aggregate Principal Balance
by (y) twelve, and any accrued and unpaid fees in excess of the Servicer Fee
Threshold remaining to be distributed pursuant to this clause (ii) shall not
be distributed pursuant to this clause (ii) but shall be distributed after
the distributions to be made pursuant to clause (v) below but before the
distributions to be made pursuant to clause (vi) below;
(iii) third, from the Distribution Amount then remaining on
deposit in the Collection Account, to the Servicer, the Basic Servicing Fee
for the related Monthly Period, any Supplemental Servicing Fees for the
related Monthly Period, and any amounts specified in Section 4.2(b), to the
extent the Servicer has not reimbursed itself in respect of such amounts
pursuant to Section 4.8;
(iv) fourth, from the Distribution Amount then remaining on deposit in
the Collection Account, to the Note Distribution Account, an amount equal to
the Noteholders' Interest Distributable Amount for such Distribution Date;
(v) fifth, from the Distribution Amount then remaining on deposit in
the Collection Account, to the Note Distribution Account, an amount equal to
the Noteholders' Principal Distributable Amount for such Distribution Date;
(vi) sixth, from the Distribution Amount then remaining on deposit in
the Collection Account, to the Security Insurer, to the extent of any
amounts owing to the Security Insurer under the Insurance Agreement and not
paid, whether or not AFL is also obligated to pay such amounts, such amounts
representing a portion of the Credit Enhancement Fee otherwise payable on a
subordinated basis to the Seller; and
(vii) seventh, any remaining Available Funds to the Collateral
Agent for deposit in the Spread Account, such amounts representing a portion
of the Credit Enhancement Fee payable on a subordinated basis to the Seller.
SECTION 4.7. PRE-FUNDING ACCOUNT.
(a) On the Closing Date, the Indenture Trustee will deposit, on
behalf of the Seller, in the Pre-Funding Account $233,522,236.50 from the
proceeds of the sale of the Notes. On each Subsequent Transfer Date, the
Servicer shall instruct the Indenture Trustee in writing:
(i) to withdraw from the Pre-Funding Account the Spread Account
Additional Deposit, if any, on such Subsequent Transfer Date, and to deliver
such funds to the Collateral Agent for deposit in the Spread Account,
-60-
<PAGE>
(ii) to withdraw from the Pre-Funding Account the amount, if any, by
which the Requisite Reserve Amount for such Subsequent Transfer Date exceeds
the Reserve Amount, and to deposit such funds in the Reserve Account,
(iii) to withdraw from the Pre-Funding Account the Class A-1
Holdback Amount, if any, for such Subsequent Transfer Date, and to deposit
such funds in the Class A-1 Holdback Subaccount,
(iv) to withdraw from the Pre-Funding Account the amount, if any, on
deposit therein in excess of the remaining Prefunded Amount, after giving
effect to the withdrawals specified in clauses (i) - (iii) above, and to
distribute such amount to or upon the order of the Seller upon satisfaction
of the conditions set forth in Section 2.4 with respect to such transfer,
and
(v) to withdraw from the Reserve Account an amount equal to the
excess, if any, of the Reserve Amount (after giving effect to withdrawals
from the Reserve Account pursuant to Section 5.1 on the immediately
following Distribution Date, if such Subsequent Transfer Date falls between
a Determination Date and the related Distribution Date) over the Requisite
Reserve Amount for such Subsequent Transfer Date and to distribute such
amount to or upon the order of the Depositor.
(b) If (x) the Pre-Funded Amount has not been reduced to zero on
the Distribution Date on or immediately following the end of the Funding
Period) or (y) the Pre-Funded Amount has been reduced to $100,000 or less on
any Distribution Date, in either case after giving effect to any reductions
in the Pre-Funded Amount on such Distribution Date pursuant to paragraph (a)
above, the Servicer shall provide written instructions to the Indenture
Trustee to withdraw from the Pre-Funding Account on such Distribution Date an
amount equal to the sum of the Class A-1 Prepayment Amount, the Class A-2
Prepayment Amount, the Class A-3 Prepayment Amount, the Class A-4 Prepayment
Amount and the Class A-5 Prepayment Amount and deposit such amount in the
Note Distribution Account. Any remaining funds on deposit in the Pre-Funding
Account shall be distributed to the Depositor. If the funds on deposit in
the Pre-Funding Account are less than the amount described above, then the
Servicer shall provide written instructions to the Indenture Trustee to
withdraw the funds on deposit in the Pre-Funding Account and deposit such
funds in the Note Distribution Account and Collection Account, pro rata in
accordance with the amount specified above.
(c) If the Pre-Funded Amount is greater than $100,000 at the end
of the Funding Period, the Seller willdeposit into the Note Distribution
Account an amount equal to the sum of the Class A-1 Prepayment Premium, the
Class A-2 Prepayment Premium, the Class A-3 Prepayment Premium, the Class A-4
Prepayment Premium and the Class A-5 Prepayment Premium; PROVIDED,
-61-
<PAGE>
HOWEVER, that the obligation of the Seller to make the deposits referred to
in this sentence is expressly limited to the extent of the amount of
Liquidated Damages (as defined in the Closing Date Purchase Agreement) paid
to the Seller by AFL and by the Seller to the Trust.
SECTION 4.8. NET DEPOSITS. Subject to payment by the Servicer of
amounts otherwise payable pursuant to Section 4.6(ii) and provided that no
Servicer Termination Event shall have occurred and be continuing with respect
to such Servicer, the Servicer may make the remittances to be made by it
pursuant to Sections 4.2, 4.4 and 4.5 net of amounts (which amounts may be
netted prior to any such remittance for a Monthly Period) to be distributed
to it pursuant to Sections 3.8, 4.2(b) and 4.6(i); PROVIDED, HOWEVER, that
the Servicer shall account for all of such amounts in the related Servicer's
Certificate as if such amounts were deposited and distributed separately;
and, PROVIDED, FURTHER, that if an error is made by the Servicer in
calculating the amount to be deposited or retained by it, with the result
that an amount less than required is deposited in the Collection Account, the
Servicer shall make a payment of the deficiency to the Collection Account,
immediately upon becoming aware, or receiving notice from the Indenture
Trustee, of such error.
SECTION 4.9. STATEMENTS TO NOTEHOLDERS.
(a) On each Distribution Date, the Indenture Trustee shall include
with each distribution to each Noteholder, the Servicer's Certificate (which
statement shall also have been provided to the Security Insurer and to each
Rating Agency by the Servicer) delivered on the related Determination Date
pursuant to Section 3.9, setting forth for the Monthly Period relating to
such Payment Date the following information with respect to each class of
Notes:
(i) the amount of such distribution allocable to principal;
(ii) the amount of such distribution allocable to interest;
(iii) the amount of such distribution payable out of amounts
withdrawn from the Reserve Account, the Class A-1 Holdback Subaccount,
the Spread Account or pursuant to a claim on the Note Policy;
(iv) the outstanding principal balance of the Notes (after giving
effect to distributions made on such Distribution Date);
(v) the Class A-1 Interest Carryover Shortfall, the Class A-2
Interest Carryover Shortfall, the Class A-3 Interest Carryover Shortfall,
the Class A-4 Interest Carryover Shortfall, the Class A-5 Interest Carryover
Shortfall and the Noteholders' Principal Carryover Shortfall, if any, and
the change in such amounts from the preceding statement;
-62-
<PAGE>
(vi) the amount of fees paid by the Trust with respect to such
Monthly Period;
(vii) for Payment Dates during the Funding Period, the remaining
Pre-Funded Amount, the remaining Reserve Amount and the amount on deposit
in the Class A-1 Holdback Subaccount;
(viii) for the Payment Date on or immediately following the end of
the Funding Period, the Class A-1 Prepayment Amount, the Class A-2
Prepayment Amount, the Class A-3 Prepayment Amount, the Class A-4 Prepayment
Amount, the Class A-5 Prepayment Amount, the Class A-1 Prepayment Premium,
the Class A-2 Prepayment Premium, the Class A-3 Prepayment Premium, the
Class A-4 Prepayment Premium and the Class A-5 Prepayment Premium, if any,
and the remaining Reserve Amount that has not been distributed pursuant to
Section 4.6 or to the Depositor; and
(ix) the Note Pool Factor with respect to each class of Notes
(after giving effect to distributions made on such Payment Date).
Each amount set forth pursuant to subclauses (i) through (iv) above may be
expressed as a dollar amount per $1,000 of original principal balance of a
Note.
(b) Note Owners may obtain copies of the statements delivered by
the Indenture Trustee pursuant to subsection (b) above upon written request
to the Indenture Trustee at its Corporate Trust Office (together with a
certification that such Person is a Note Owner and payment of any expenses
associated with the distribution thereof).
SECTION 4.10. INDENTURE TRUSTEE AS AGENT. The Indenture Trustee,
in holding all funds in the Trust Accounts and in making distributions as
provided in this Agreement, shall act solely on behalf of and as agent for
the Noteholders.
SECTION 4.11. ELIGIBLE ACCOUNTS. Any account which is required to
be established as an Eligible Account pursuant to this Agreement and which
ceases to be an Eligible Account shall within five Business Days (or such
longer period, not to exceed 30 days, as to which each Rating Agency and the
Security Insurer may consent) be established as a new account which shall be
an Eligible Account and any cash and/or any investments shall be transferred
to such new account.
-63-
<PAGE>
ARTICLE V
THE RESERVE ACCOUNT; THE SPREAD ACCOUNT
SECTION 5.1. WITHDRAWALS FROM THE RESERVE ACCOUNT.
(a) In the event that the Servicer's Certificate with respect to any
Determination Date shall state that the amount of Available Funds with respect
to such Determination Date is less than the sum of the amounts payable on the
related Distribution Date pursuant to clauses (i) through (viii) of Section 4.6,
then on the Draw Date immediately preceding such Distribution Date, the
Indenture Trustee, in accordance with written instructions, shall (i) withdraw
amounts on deposit in the Reserve Account, other than any funds in the Class A-1
Holdback Subaccount (up to the amount by which the amounts payable on the
related Distribution Date pursuant to clauses (i) through (viii) of Section 4.6
exceed the amount of Available Funds with respect to such Determination Date)
and (ii) deposit the amounts so withdrawn from the Reserve Account into the
Collection Account. On each Distribution Date, any funds on deposit in the
Reserve Account (other than funds on deposit in the Class A-1 Holdback
Subaccount) in excess of the Requisite Reserve Amount (after giving effect to
any withdrawals on the immediately preceding Draw Date as described above) shall
be paid to the Depositor.
(b) In the event that the Servicer's Certificate with respect to
the Determination Date related to the Class A-1 Final Scheduled Distribution
Date shall state that the unpaid principal balance of the Class A-1 Notes
(after giving effect to the distribution of the Available Funds pursuant to
clauses (i)- (v) of Section 4.6 for such Distribution Date), is greater than
zero, then on the Draw Date immediately preceding such Distribution Date the
Indenture Trustee, in accordance with written instructions, shall withdraw an
amount equal to such unpaid principal balance from funds on deposit in the
Class A-1 Holdback Subaccount (or the amount of funds on deposit in the
Class A-1 Holdback Subaccount, if less) and deposit such funds in the Note
Distribution Account for distribution to the Class A-1 Noteholders on such
Distribution Date. Funds in the Class A-1 Holdback Subaccount shall not be
available to pay any other amounts. Any funds remaining in the Class A-1
Holdback Subaccount, after withdrawal of any such amount on the Class A-1
Final Scheduled Distribution Date, shall be released to the Depositor.
SECTION 5.2. WITHDRAWALS FROM SPREAD ACCOUNT.
(a) In the event that the Servicer's Certificate with respect to any
Determination Date shall state that the Deficiency Claim Amount (as defined
below) with respect to the related Distribution Date is greater than zero, then
on the Deficiency Claim Date immediately preceding such Distribution Date, the
Indenture Trustee shall deliver to the Collateral Agent, the Security Insurer,
the Fiscal Agent, if any, the Owner Trustee and the Servicer, by hand delivery,
telex or facsimile
-64-
<PAGE>
transmission, a written notice (a "Deficiency Notice"). Such Deficiency
Notice shall direct the Collateral Agent to remit such Deficiency Claim
Amount (to the extent of the funds available to be distributed pursuant to
the Spread Account Agreement) to the Indenture Trustee for deposit in the
Collection Account. The "Deficiency Claim Amount" with respect to any
Distribution Date shall equal the excess, if any, of
(i) the amount required to be distributed pursuant to clauses (i)-
(vi) of Section 4.6 (without giving effect to the limitation of the
Distribution Amount specified in each such clause) over
(ii) the sum of (A)the Actual Funds with respect to such Distribution
Date, plus (B) if such Distribution Date is the Class A-1 Final Scheduled
Distribution Date, the amount, if any, withdrawn from the Class A-1 Holdback
Subaccount and deposited in the Note Distribution Account pursuant to
Section 5.1(b).
(b) any Deficiency Notice shall be delivered by 10:00 a.m., New York
City time, on the fourth Business Day preceding such Distribution Date. The
amounts distributed by the Collateral Agent to the Indenture Trustee pursuant to
a Deficiency Notice shall be deposited by the Indenture Trustee into the
Collection Account pursuant to Section 4.5.
ARTICLE VI
THE SELLER
SECTION 6.1. LIABILITY OF SELLER.
(a) The Seller shall be liable hereunder only to the extent of the
obligations in this Agreement specifically undertaken by the Seller and the
representations made by the Seller.
SECTION 6.2. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, SELLER; AMENDMENT OF CERTIFICATE OF INCORPORATION.
(a) The Seller shall not merge or consolidate with any other
Person or permit any other Person to become the successor to the Seller's
business without (so long as an Insurer Default shall not have occurred and
be continuing) the prior written consent of the Security Insurer. The
certificate of incorporation of any corporation (i) into which the Seller may
be merged or consolidated, (ii) resulting from any merger or consolidation to
which the Seller shall be a party, or (iii) succeeding to the business of
Seller, shall contain provisions relating to limitations on business and
other matters substantively identical to those contained in the Seller's
certificate of incorporation. Any such successor corporation shall execute
an agreement of assumption of every obligation of the Seller under this
Agreement and each Related Document and, whether or not such assumption
-65-
<PAGE>
agreement is executed, shall be the successor to the Seller under this
Agreement without the execution or filing of any document or any further act
on the part of any of the parties to this Agreement. The Seller shall
provide prompt notice of any merger, consolidation or succession pursuant to
this Section 6.2 to the Owner Trustee, the Indenture Trustee, the Security
Insurer and the Rating Agencies. Notwithstanding the foregoing, the Seller
shall not merge or consolidate with any other Person or permit any other
Person to become a successor to the Seller's business, unless (x) immediately
after giving effect to such transaction, no representation or warranty made
pursuant to Section 2.5 shall have been breached (for purposes hereof, such
representations and warranties shall speak as of the date of the consummation
of such transaction) and no event that, after notice or lapse of time, or
both, would become a Servicer Termination Event shall have occurred and be
continuing, (y) the Seller shall have delivered to the Owner Trustee, the
Indenture Trustee and the Security Insurer an officer's certificate and an
Opinion of Counsel each stating that such consolidation, merger or succession
and such agreement of assumption comply with this Section 6.2 and that all
conditions precedent, if any, provided for in this Agreement relating to such
transaction have been complied with, and (z) the Seller shall have delivered
to the Owner Trustee, the Indenture Trustee and the Security Insurer an
Opinion of Counsel, stating that, in the opinion of such counsel, either
(A) all financing statements and continuation statements and amendments
thereto have been executed and filed that are necessary to preserve and
protect the interest of the Trust in the Trust Property and reciting the
details of the filings or (B) no such action shall be necessary to preserve
and protect such interest.
(b) The Seller hereby agrees that it shall not (i) take any action
prohibited by Article XVI of its certificate of incorporation or (ii) without
the prior written consent of the Owner Trustee and the Indenture Trustee and
(so long as an Insurer Default shall not have occurred and be continuing) the
Security Insurer and without giving prior written notice to the Rating
Agencies, amend Article III, Article IX, Article XIV or Article XVI of its
certificate of incorporation.
SECTION 6.3. LIMITATION ON LIABILITY OF SELLER AND OTHERS. The
Seller and any director or officer or employee or agent of the Seller may rely
in good faith on the advice of counsel or on any document of any kind prima
facie properly executed and submitted by any Person respecting any matters
arising under this Agreement. The Seller shall not be under any obligation to
appear in, prosecute or defend any legal action that is not incidental to its
obligations as Seller of the Receivables under this Agreement and that in its
opinion may involve it in any expense or liability.
SECTION 6.4. SELLER MAY OWN NOTES. Each of the Seller and any
Affiliate of the Seller may in its individual or any other capacity become the
owner or pledgee of Notes with the same rights as it would have if it were not
the Seller or an Affiliate thereof except as otherwise specifically provided
herein or in the Related Documents. Notes so owned by or pledged to the Seller
or such Affiliate shall have
-66-
<PAGE>
an equal and proportionate benefit under the provisions of this Agreement or
any Related Document, without preference, priority, or distinction as among
all of the Notes, provided that any Notes owned by the Seller or any
Affiliate thereof, during the time such Notes are owned by them, shall be
without voting rights for any purpose set forth in this Agreement or any
Related Document. The Seller shall notify the Owner Trustee, the Indenture
Trustee and the Security Insurer promptly after it or any of its Affiliates
become the owner or pledgee of a Note.
ARTICLE VII
THE SERVICER
SECTION 7.1. LIABILITY OF SERVICER; INDEMNITIES.
(a) The Servicer (in its capacity as such and, in the case of AFL,
without limitation of its obligations under the Purchase Agreement) shall be
liable hereunder only to the extent of the obligations in this Agreement
specifically undertaken by the Servicer and the representations made by the
Servicer.
(b) The Servicer shall defend, indemnify and hold harmless the Trust,
the Owner Trustee, the Indenture Trustee, the Backup Servicer, the Security
Insurer, their respective officers, directors, agents and employees, and the
Noteholders from and against any and all costs, expenses, losses, damages,
claims and liabilities, including reasonable fees and expenses of counsel and
expenses of litigation arising out of or resulting from the use, ownership or
operation by the Servicer or any Affiliate thereof of any Financed Vehicle.
(c) The Servicer shall indemnify, defend and hold harmless the Trust,
the Owner Trustee, the Indenture Trustee, the Backup Servicer, the Security
Insurer, their respective officers, directors, agents and employees and the
Noteholders from and against any taxes that may at any time be asserted against
the Trust, the Owner Trustee, the Indenture Trustee, the Backup Servicer, the
Security Insurer or the Noteholders with respect to the transactions
contemplated in this Agreement, including, without limitation, any sales, gross
receipts, general corporation, tangible personal property, privilege or license
taxes (but not including any taxes asserted with respect to, and as of the date
of, the sale of the Receivables and the other Trust Property to the Trust or the
issuance and original sale of the Notes and costs and expenses in defending
against the same.
(d) The Servicer shall indemnify, defend and hold harmless the Trust,
the Owner Trustee, the Indenture Trustee, the Backup Servicer, the Security
Insurer, their respective officers, directors, agents and employees and the
Noteholders from and against any and all costs, expenses, losses, claims,
damages, and liabilities to the extent that such cost, expense, loss, claim,
damage, or liability arose out of, or was imposed upon the Trust, the Owner
Trustee, the Indenture
-67-
<PAGE>
Trustee, the Backup Servicer, the Security Insurer or the Noteholders through
the breach of this Agreement, the negligence, willful misfeasance, or bad
faith of the Servicer in the performance of its duties under this Agreement
or by reason of reckless disregard of its obligations and duties under this
Agreement.
(e) The Servicer shall indemnify, defend, and hold harmless the Owner
Trustee, in its individual capacity, its officers, directors, agents and
employees, from and against all costs, taxes (other than income taxes on fees
and expenses payable to the Owner Trustee), expenses, losses, claims, damages
and liabilities arising out of or incurred in connection with the acceptance or
performance of the trusts and duties contained in the Trust Agreement and the
Related Documents, except to the extent that such cost, taxes (other than income
taxes), expense, loss, claim, damage or liability (A) is due to the willful
misfeasance or gross negligence of the Owner Trustee, or (B) arises from the
Owner Trustee's breach of any of its representations or warranties set forth in
Section 6.2 of the Trust Agreement; PROVIDED, HOWEVER, that amounts payable
under this paragraph shall be increased by the amount of income taxes actually
paid by the Owner Trustee in respect of any indemnity payment unless the Owner
Trustee received or can reasonably be expected to receive a tax deduction for
the related loss or cost.
(f) Indemnification under this Article shall include, without
limitation, reasonable fees and expenses of counsel and expenses of litigation.
If the Servicer has made any indemnity payments pursuant to this Article and the
recipient thereafter collects any of such amounts from others, the recipient
shall promptly repay such amounts collected to the Servicer, without interest.
(g) AFL, in its individual capacity, hereby acknowledges that the
indemnification provisions in the Purchase Agreement benefiting the Trust, the
Owner Trustee, the Indenture Trustee, the Backup Servicer and the Security
Insurer are enforceable by each hereunder.
SECTION 7.2. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, THE SERVICER OR BACKUP SERVICER.
(a) The Servicer shall not merge or consolidate with any other
person, convey, transfer or lease substantially all its assets as an entirety to
another Person, or permit any other Person to become the successor to the
Servicer's business unless, after the merger, consolidation, conveyance,
transfer, lease or succession, the successor or surviving entity shall be an
Eligible Servicer and shall be capable of fulfilling the duties of the Servicer
contained in this Agreement. Any corporation (i) into which the Servicer may be
merged or consolidated, (ii) resulting from any merger or consolidation to which
the Servicer shall be a party, (iii) which acquires by conveyance, transfer, or
lease substantially all of the assets of the Servicer, or (iv) succeeding to the
business of the Servicer, in any of the foregoing cases shall execute an
agreement of assumption to perform every obligation of the Servicer under this
Agreement and, whether or not such assumption agreement is
-68-
<PAGE>
executed, shall be the successor to the Servicer under this Agreement without
the execution or filing of any paper or any further act on the part of any of
the parties to this Agreement, anything in this Agreement to the contrary
notwithstanding; PROVIDED, HOWEVER, that nothing contained herein shall be
deemed to release the Servicer from any obligation. The Servicer shall
provide notice of any merger, consolidation or succession pursuant to this
Section 7.2(a) to the Owner Trustee, the Indenture Trustee, the Security
Insurer and each Rating Agency. Notwithstanding the foregoing, the Servicer
shall not merge or consolidate with any other Person or permit any other
Person to become a successor to the Servicer's business, unless
(x) immediately after giving effect to such transaction, no representation or
warranty made pursuant to Section 3.6 shall have been breached (for purposes
hereof, such representations and warranties shall speak as of the date of the
consummation of such transaction) and no event that, after notice or lapse of
time, or both, would become an Insurance Agreement Event of Default shall
have occurred and be continuing, (y) the Servicer shall have delivered to the
Owner Trustee, the Indenture Trustee and the Security Insurer an Officer's
Certificate and an Opinion of Counsel each stating that such consolidation,
merger or succession and such agreement of assumption comply with this
Section 7.2(a) and that all conditions precedent, if any, provided for in
this Agreement relating to such transaction have been complied with, and
(z) the Servicer shall have delivered to the Owner Trustee, the Indenture
Trustee and the Security Insurer an Opinion of Counsel, stating that, in the
opinion of such counsel, either (A) all financing statements and continuation
statements and amendments thereto have been executed and filed that are
necessary to preserve and protect the interest of the Owner Trustee in the
Trust Property and reciting the details of the filings or (B) no such action
shall be necessary to preserve and protect such interest.
(b) Any corporation (i) into which the Backup Servicer may be
merged or consolidated, (ii) resulting from any merger or consolidation to
which the Backup Servicer shall be a party, (iii) which acquires by
conveyance, transfer or lease substantially all of the assets of the Backup
Servicer, or (iv) succeeding to the business of the Backup Servicer, in any
of the foregoing cases shall execute an agreement of assumption to perform
every obligation of the Backup Servicer under this Agreement and, whether or
not such assumption agreement is executed, shall be the successor to the
Backup Servicer under this Agreement without the execution or filing of any
paper or any further act on the part of any of the parties to this Agreement,
anything in this Agreement to the contrary notwithstanding; PROVIDED,
HOWEVER, that nothing contained herein shall be deemed to release the Backup
Servicer from any obligation.
SECTION 7.3. LIMITATION ON LIABILITY OF SERVICER, BACKUP SERVICER AND
OTHERS.
(a) Neither the Servicer, the Backup Servicer nor any of the
directors or officers or employees or agents of the Servicer or Backup Servicer
shall be under any liability to the Trust, or the Noteholders, except as
provided in this
-69-
<PAGE>
Agreement, for any action taken or for refraining from the taking of any
action pursuant to this Agreement; PROVIDED, HOWEVER, that this provision
shall not protect the Servicer, the Backup Servicer or any such person
against any liability that would otherwise be imposed by reason of a breach
of this Agreement or willful misfeasance, bad faith or negligence (excluding
errors in judgment) in the performance of duties, by reason of reckless
disregard of obligations and duties under this Agreement or any violation of
law by the Servicer, Backup Servicer or such person, as the case may be;
PROVIDED FURTHER, that this provision shall not affect any liability to
indemnify the Owner Trustee and the Indenture Trustee for costs, taxes,
expenses, claims, liabilities, losses or damages paid by the Owner Trustee or
the Indenture Trustee, each in its individual capacity. The Servicer, the
Backup Servicer and any director, officer, employee or agent of the Servicer
or Backup Servicer may rely in good faith on the advice of counsel or on any
document of any kind PRIMA FACIE properly executed and submitted by any
Person respecting any matters arising under this Agreement.
(b) The Backup Servicer shall not be liable for any obligation of the
Servicer contained in this Agreement, and the Owner Trustee, the Indenture
Trustee, the Seller, the Security Insurer and the Noteholders shall look only to
the Servicer to perform such obligations.
SECTION 7.4. DELEGATION OF DUTIES. The Servicer may delegate duties
under this Agreement to an Affiliate of AFL with the prior written consent of
the Security Insurer, the Indenture Trustee, the Owner Trustee and the Backup
Servicer. The Servicer also may at any time perform the specific duty of
repossession of Financed Vehicles through sub-contractors who are in the
business of servicing automotive receivables and may perform other specific
duties through such sub-contractors with the prior written consent of the
Security Insurer (unless an Insurer Default shall have occurred and be
continuing), PROVIDED, HOWEVER, that no such delegation or sub-contracting
duties by the Servicer shall relieve the Servicer of its responsibility with
respect to such duties. So long as no Insurer Default shall have occurred and
be continuing, neither AFL or any party acting as Servicer hereunder shall
appoint any subservicer hereunder without the prior written consent of the
Security Insurer, the Indenture Trustee, the Owner Trustee and the Backup
Servicer.
SECTION 7.5. SERVICER AND BACKUP SERVICER NOT TO RESIGN. Subject to
the provisions of Section 7.2, neither the Servicer nor the Backup Servicer
shall resign from the obligations and duties imposed on it by this Agreement as
Servicer or Backup Servicer except upon a determination that by reason of a
change in legal requirements the performance of its duties under this Agreement
would cause it to be in violation of such legal requirements in a manner which
would have a material adverse effect on the Servicer or the Backup Servicer, as
the case may be, and the Security Insurer (so long as an Insurer Default shall
not have occurred and be continuing) or Note Majority (if an Insurer Default
shall have occurred and be continuing) does not elect to waive the obligations
of the Servicer or the Backup Servicer, as the case may be, to perform the
duties which render it legally unable to
-70-
<PAGE>
act or to delegate those duties to another Person. Any such determination
permitting the resignation of the Servicer or Backup Servicer shall be
evidenced by an Opinion of Counsel to such effect delivered and reasonably
acceptable to the Owner Trustee, the Indenture Trustee and the Security
Insurer (unless an Insurer Default shall have occurred and be continuing).
No resignation of the Servicer shall become effective until, so long as no
Insurer Default shall have occurred and be continuing, the Backup Servicer or
an entity acceptable to the Security Insurer shall have assumed the
responsibilities and obligations of the Servicer or, if an Insurer Default
shall have occurred and be continuing, the Backup Servicer or a successor
Servicer that is an Eligible Servicer shall have assumed the responsibilities
and obligations of the Servicer. No resignation of the Backup Servicer shall
become effective until, so long as no Insurer Default shall have occurred and
be continuing, an entity acceptable to the Security Insurer shall have
assumed the responsibilities and obligations of the Backup Servicer or, if an
Insurer Default shall have occurred and be continuing, a Person that is an
Eligible Servicr shall have assumed the responsibilities and obligations of
the Backup Servicer; PROVIDED, HOWEVER, that in the event a successor Backup
Servicer is not appointed within 60 days after the Backup Servicer has given
notice of its resignation and has provided the Opinion of Counsel required by
this Section 7.5, the Backup Servicer may petition a court for its removal.
ARTICLE VIII
SERVICER TERMINATION EVENTS
SECTION 8.1. SERVICER TERMINATION EVENT. For purposes of this
Agreement, each of the following shall constitute a "Servicer Termination
Event":
(a) Any failure by the Servicer to deliver to the Indenture Trustee
for distribution to Noteholders any proceeds or payment required to be so
delivered under the terms of this Agreement (or, if AFL is the Servicer, the
Purchase Agreement) that continues unremedied for a period of two Business
Days (one Business Day with respect to payment of Purchase Amounts) after
written notice is received by the Servicer from the Indenture Trustee or
(unless an Insurer Default shall have occurred and be continuing) the
Security Insurer or after discovery of such failure by a Responsible Officer
of the Servicer; or
(b) Failure by the Servicer to deliver to the Indenture Trustee, the
Owner Trustee and (so long as an Insurer Default shall not have occurred and
be continuing) the Security Insurer the Servicer's Certificate by the fourth
Business Day prior to the Distribution Date, or failure on the part of the
Servicer to observe its covenants and agreements set forth in Section
7.2(a); or
-71-
<PAGE>
(c) Failure on the part of the Servicer duly to observe or perform in
any material respect any other covenants or agreements of the Servicer set
forth in this Agreement (or, if AFL is the Servicer, the Purchase
Agreement), which failure (i) materially and adversely affects the rights of
Noteholders (determined without regard to the availability of funds under
the Note Policy), or of the Security Insurer (unless an Insurer Default
shall have occurred and be continuing), and (ii) continues unremedied for a
period of 30 days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Servicer by
the Owner Trustee, the Indenture Trustee or the Security Insurer (or, if an
Insurer Default shall have occurred and be continuing, any Noteholder); or
(d) (i) The commencement of an involuntary case under the federal
bankruptcy laws, as now or hereinafter in effect, or another present or
future federal or state bankruptcy, insolvency or similar law and such case
is not dismissed within 60 days; or (ii) the entry of a decree or order for
relief by a court or regulatory authority having jurisdiction in respect of
the Servicer or the Seller in an involuntary case under the federal
bankruptcy laws, as now or hereafter in effect, or another present or
future, federal or state, bankruptcy, insolvency or similar law, or
appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Servicer or the Seller or of
any substantial part of their respective properties or ordering the winding
up or liquidation of the affairs of the Servicer or the Seller; or
(e) The commencement by the Servicer or the Seller of a voluntary
case under the federal bankruptcy laws, as now or hereafter in effect, or
any other present or future, federal or state, bankruptcy, insolvency or
similar law, or the consent by the Servicer or the Seller to the appointment
of or taking possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of the Servicer or the
Seller or of any substantial part of its property or the making by the
Servicer or the Seller of an assignment for the benefit of creditors or the
failure by the Servicer or the Seller generally to pay its debts as such
debts become due or the taking of corporate action by the Servicer or the
Seller in furtherance of any of the foregoing; or
(f) Any representation, warranty or statement of the Servicer or the
Seller made in this Agreement or any certificate, report or other writing
delivered pursuant hereto shall prove to be incorrect in any material
respect as of the time when the same shall have been made (excluding,
however, any representation or warranty set forth in Section 2.5(a)), and
the incorrectness of such representation, warranty or statement has a
material adverse effect on the Trust and, within 30 days after written
notice thereof shall have been given to the Servicer or the Seller by the
Owner Trustee, the Indenture Trustee or the Security Insurer (or, if an
Insurer Default shall have
-72-
<PAGE>
occurred and be continuing, a Noteholder), the circumstances or condition
in respect of which such representation, warranty or statement was incorrect
shall not have been eliminated or otherwise cured; or
(g) So long as an Insurer Default shall not have occurred and be
continuing, the Security Insurer shall not have delivered a Servicer
Extension Notice pursuant to Section 3.14 (in which case the Servicer
Termination Event will be deemed to have occurred as of the last day of the
term of the most recent Servicer Extension Notice received); or
(h) So long as an Insurer Default shall not have occurred and be
continuing, an Insurance Agreement Event of Default shall have occurred; or
(i) A claim is made under the Note Policy.
SECTION 8.2. CONSEQUENCES OF A SERVICER TERMINATION EVENT. If a
Servicer Termination Event shall occur and be continuing, the Security Insurer
(or, if an Insurer Default shall have occurred and be continuing, either the
Indenture Trustee, the Owner Trustee, or a Note Majority), by notice given in
writing to the Servicer (and to the Indenture Trustee, the Backup Servicer and
the Owner Trustee if given by the Security Insurer or the Noteholders) may
terminate all of the rights and obligations of the Servicer under this
Agreement. On or after (i) the receipt by the Servicer of such written notice,
or (ii) the receipt by the Backup Servicer (or any alternate successor servicer
appointed by the Security Insurer pursuant to Section 8.3(b)) of written notice
from the Security Insurer that the Security Insurer is not extending the
Servicer's term pursuant to Section 3.14, all authority, power, obligations and
responsibilities of the Servicer under this Agreement, whether with respect to
the Notes or the Trust Property or otherwise, shall be terminated and
automatically shall pass to, be vested in and become obligations and
responsibilities of the Backup Servicer (or such other successor Servicer
appointed by the Security Insurer); PROVIDED, HOWEVER, that the successor
Servicer shall have no liability with respect to any obligation which was
required to be performed by the terminated Servicer prior to the date that the
successor Servicer becomes the Servicer or any claim of a third party based on
any alleged action or inaction of the terminated Servicer. The successor
Servicer is authorized and empowered by this Agreement to execute and deliver,
on behalf of the terminated Servicer, as attorney-in-fact or otherwise, any and
all documents and other instruments and to do or accomplish all other acts or
things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement of the Receivables
and the other Trust Property and related documents to show the Owner Trustee as
lienholder or secured party on the related Lien Certificates, or otherwise. The
terminated Servicer agrees to cooperate with the successor Servicer in effecting
the termination of the responsibilities and rights of the terminated Servicer
under this Agreement, including, without limitation, the transfer to the
successor Servicer for administration by it of all cash amounts that shall at
the time be held by the
-73-
<PAGE>
terminated Servicer for deposit, or have been deposited by the terminated
Servicer, in the Collection Account or thereafter received with respect to
the Receivables and the delivery to the successor Servicer of all Receivable
Files, Monthly Records and Collection Records and a computer tape in readable
form as of the most recent Business Day containing all information necessary
to enable the successor Servicer or a successor Servicer to service the
Receivables and the other Trust Property. If requested by the Security
Insurer (unless an Insurer Default shall have occurred and be continuing),
the successor Servicer shall terminate the Lockbox Agreement and direct the
Obligors to make all payments under the Receivables directly to the successor
Servicer (in which event the successor Servicer shall process such payments
in accordance with Section 3.2(e)), or to a lockbox established by the
successor Servicer at the direction of the Security Insurer (unless an
Insurer Default shall have occurred and be continuing), at the successor
Servicer's expense. In addition to any other amounts that are then payable
to the terminated Servicer under this Agreement, the terminated Servicer
shall then be entitled to receive out of Available Funds reimbursements for
any Outstanding Monthly Advances (in accordance with Section 4.4(c)) made
during the period prior to the notice pursuant to this Section 8.2 which
terminates the obligation and rights of the terminated Servicer under this
Agreement. The Owner Trustee, the Indenture Trustee and the successor
Servicer may set off and deduct any amounts owed by the terminated Servicer
from any amounts payable to the terminated Servicer pursuant to the preceding
sentence. The terminated Servicer shall grant the Owner Trustee, the
Indenture Trustee, the successor Servicer and the Security Insurer reasonable
access to the terminated Servicer's premises at the terminated Servicer's
expense.
SECTION 8.3. APPOINTMENT OF SUCCESSOR.
(a) On and after (i) the time the Servicer receives a notice of
termination pursuant to Section 8.2, or (ii) the resignation of the Servicer
pursuant to Section 7.5, or (iii) the receipt by the Backup Servicer (or any
alternate successor servicer appointed by the Security Insurer pursuant to
Section 8.3(b)) of written notice from the Security Insurer that the Security
Insurer is not extending the Servicer's term pursuant to Section 3.14, the
Backup Servicer (unless the Security Insurer shall have exercised its option
pursuant to Section 8.3(b) to appoint an alternate successor Servicer) shall
be the successor in all respects to the Servicer in its capacity as servicer
under this Agreement and the transactions set forth or provided for in this
Agreement, and shall be subject to all the responsibilities, restrictions,
duties, liabilities and termination provisions relating thereto placed on the
Servicer by the terms and provisions of this Agreement. The Owner Trustee
and such successor shall take such action, consistent with this Agreement, as
shall be necessary to effectuate any such succession. If a successor
Servicer is acting as Servicer hereunder, it shall be subject to termination
under Section 8.2 upon the occurrence of any Servicer Termination Event
applicable to it as Servicer and shall serve from term to term as provided in
Section 3.14.
-74-
<PAGE>
(b) The Security Insurer may (so long as an Insurer Default shall not
have occurred and be continuing) exercise at any time its right to appoint as
Backup Servicer or as successor to the Servicer a Person other than the Person
serving as Backup Servicer at the time, and (without limiting its obligations
under the Note Policy) shall have no liability to the Owner Trustee, the
Indenture Trustee, AFL, the Seller, the Person then serving as Backup Servicer,
any Noteholders, any Note Owner or any other Person if it does so.
Notwithstanding the above, if the Backup Servicer shall be legally unable or
unwilling to act as Servicer and an Insurer Default shall have occurred and be
continuing, the Backup Servicer, the Indenture Trustee, a Note Majority or the
Owner Trustee may petition a court of competent jurisdiction to appoint any
Eligible Servicer as the successor to the Servicer. Pending appointment
pursuant to the preceding sentence, the Backup Servicer shall act as successor
Servicer unless it is legally unable to do so, in which event the outgoing
Servicer shall continue to act as Servicer until a successor has been appointed
and accepted such appointment. Subject to Section 7.5, no provision of this
Agreement shall be construed as relieving the Backup Servicer of its obligation
to succeed as successor Servicer upon the termination of the Servicer pursuant
to Section 8.2 or the resignation of the Servicer pursuant to Section 7.5. If
upon the termination of the Servicer pursuant to Section 8.2 or the resignation
of the Servicer pursuant to Section 7.5, the Security Insurer appoints a
successor Servicer other than the Backup Servicer, the Backup Servicer shall not
be relieved of its duties as Backup Servicer hereunder.
(c) Any successor Servicer shall be entitled to such compensation
(whether payable out of the Collection Account or otherwise) as the Servicer
would have been entitled to under the Agreement if the Servicer had not resigned
or been terminated hereunder. If any successor Servicer is appointed as a
result of the Backup Servicer's refusal (in contravention of the terms of this
Agreement) to act as Servicer although it is legally able to do so, the Security
Insurer and such successor Servicer may agree on reasonable additional
compensation to be paid to such successor Servicer by the Backup Servicer, which
additional compensation shall be paid by the Backup Servicer in its individual
capacity and solely out of its own funds. If any successor Servicer is
appointed for any reason other than the Backup Servicer's refusal to act as
Servicer although legally able to do so, the Security Insurer and such successor
Servicer may agree on additional compensation to be paid to such successor
Servicer, which additional compensation shall be payable as provided in the
Spread Account Agreement. If the Backup Servicer is the successor Servicer, the
Backup Servicer shall be entitled to reimbursement, pursuant to Section 4.6(ii),
of reasonable transition expenses, not in excess of $100,000, incurred in acting
as successor Servicer. In addition, any successor Servicer shall be entitled to
reimbursement, as provided in the Spread Account Agreement, of reasonable
transition expenses incurred in acting as successor Servicer.
SECTION 8.4. NOTIFICATION TO NOTEHOLDERS. Upon any termination of,
or appointment of a successor to, the Servicer pursuant to this Article VIII,
the
-75-
<PAGE>
Indenture Trustee shall give prompt written notice thereof to Noteholders at
their respective addresses appearing in the Note Register.
SECTION 8.5. WAIVER OF PAST DEFAULTS. The Security Insurer (or, if
an Insurer Default shall have occurred and be continuing, a Note Majority) may,
on behalf of all Holders of Notes, waive any default by the Servicer in the
performance of its obligations hereunder and its consequences. Upon any such
waiver of a past default, such default shall cease to exist, and any Servicer
Termination Event arising therefrom shall be deemed to have been remedied for
every purpose of this Agreement. No such waiver shall extend to any subsequent
or other default or impair any right consequent thereon.
ARTICLE IX
TERMINATION
SECTION 9.1. OPTIONAL PURCHASE OF ALL RECEIVABLES; LIQUIDATION OF
TRUST ESTATE.
(a) On each Determination Date as of which the Aggregate Principal
Balance is less than 10% of the Original Pool Balance, the Servicer and the
Seller each shall have the option to purchase the corpus of the Trust (with
the consent of the Security Insurer, if a claim has previously been made
under the Note Policy or if such purchase would result in a claim on the Note
Policy or if such purchase would result in any amount owing to the Security
Insurer remaining unpaid); PROVIDED, HOWEVER, that the amount to be paid for
such purchase (as set forth in the following sentence) shall be sufficient to
pay the full amount of principal, premium, if any, and interest then due and
payable on the Notes. To exercise such option, the Servicer or the Seller,
as the case may be, shall pay the aggregate Purchase Amounts for the
Receivables, plus the appraised value of any other property (including the
right to receive any future recoveries) held as part of the Trust, such
appraisal to be conducted by an appraiser mutually agreed upon by the
Servicer or the Seller, as the case may be, and the Security Insurer (or the
Indenture Trustee, if an Insurer Default shall have accrued and be
continuing), and shall succeed to all interests in and to the Trust Property.
The fees and expenses related to such appraisal shall be paid by the party
exercising the option to purchase. The party exercising such option to
repurchase shall deposit the aggregate Purchase Amounts for the Receivables
and the amount of the appraised value of any other property held as part of
the Trust into the Collection Account, and the Indenture Trustee shall
distribute the amounts so deposited in accordance with Section 4.6.
(b) Upon any sale of the assets of the Trust pursuant to Section 9.2
of the Trust Agreement, the Owner Trustee shall instruct the Indenture Trustee
in writing to deposit the proceeds from such sale after all payments and
reserves therefrom have been made (the "Insolvency Proceeds") in the Collection
Account.
-76-
<PAGE>
On the Distribution Date on which the Insolvency Proceeds are deposited in
the Collection Account (or, if such proceeds are not so deposited on a
Distribution Date, on the Distribution Date immediately following such
deposit), the Owner Trustee shall instruct the Indenture Trustee in writing
to make the following deposits (after the application on such Distribution
Date of the Available Funds) from the Insolvency Proceeds:
(i) to the Note Distribution Account, any portion of the Noteholders'
Interest Distributable Amount not otherwise deposited into the Note
Distribution Account on such Distribution Date;
(ii) to the Note Distribution Account, the Class A-1 Prepayment
Premium, Class A-2 Prepayment Premium, Class A-3 Prepayment Premium,
Class A-4 Prepayment Premium and Class A-5 Prepayment Premium (only to the
extent of the amount of Liquidated Damages (as defined in the Purchase
Agreement) received by the Trust from the Seller); and
(iii) to the Note Distribution Account, the outstanding principal
balance of the Notes (after giving effect to the reduction in the
outstanding principal balance of the Notes to result from the deposits
otherwise made in the Note Distribution Account on such Distribution Date).
Any Insolvency Proceeds remaining after the deposits described above shall be
paid, first, to the Security Insurer, to the extent of any amounts owing to the
Security Insurer under the Insurance Agreement and not paid, whether or not AFL
is obligated to pay such amounts, and second to the Collateral Agent for deposit
in the Spread Account.
(c) Notice of any termination of the Trust shall be given by the
Servicer to the Owner Trustee and the Indenture Trustee as soon as practicable
after the Servicer has received notice thereof.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. AMENDMENT.
(a) This Agreement may be amended by the Seller, the Servicer and the
Trust, with the prior written consent of the Indenture Trustee and the Security
Insurer (so long as an Insurer Default shall not have occurred and be
continuing) but without the consent of any of the Noteholders, (i) to cure any
ambiguity, (ii) to correct or supplement any provisions in this Agreement or
(iii) for the purpose of adding any provision to or changing in any manner or
eliminating any provision of this Agreement or of modifying in any manner the
rights of the Noteholders;
-77-
<PAGE>
PROVIDED, HOWEVER, that such action shall not, as evidenced by an Opinion of
Counsel, adversely affect in any material respect the interests of the
Noteholders.
(b) This Agreement may also be amended from time to time by the
Seller, the Servicer and the Trust with the prior written consent of the
Indenture Trustee and the Security Insurer (so long as an Insurer Default
shall not have occurred and be continuing) and with the consent of a Note
Majority (which consent of any Holder of a Note given pursuant to this
Section or pursuant to any other provision of this Agreement shall be
conclusive and binding on such Holder and on all future Holders of such Note
and of any Note issued upon the transfer thereof or in exchange thereof or in
lieu thereof whether or not notation of such consent is made upon the Note)
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement, or of modifying in any
manner the rights of the Holders of Notes; PROVIDED, HOWEVER, that, subject
to the express rights of the Security Insurer under the Related Documents,
including its rights to agree to certain modifications of the Receivables
pursuant to Section 3.2 and its rights to cause the Indenture Collateral
Agent to liquidate the Collateral under the circumstances and subject to the
provisions of Section 5.04 of the Indenture, no such amendment shall (a)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on Receivables or distributions required
to be made on any Note or the Class A-1 Interest Rate, Class A-2 Interest
Rate, Class A-3 Interest Rate, Class A-4 Interest Rate or Class A-5 Interest
Rate, (b) amend any provisions of Section 4.6 in such a manner as to affect
the priority of payment of interest, principal or premium to Noteholders, or
(c) reduce the aforesaid percentage required to consent to any such amendment
or any waiver hereunder, without the consent of the Holders of all Notes then
outstanding.
(c) Prior to the execution of any such amendment or consent, the
Owner Trustee shall furnish written notification of the substance of such
amendment or consent to each Rating Agency.
(d) Promptly after the execution of any such amendment or consent,
the Owner Trustee shall furnish written notification of the substance of such
amendment or consent to the Indenture Trustee.
(e) It shall not be necessary for the consent of Noteholders pursuant
to Section 10.1(b) to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents (and any other consents of
Noteholders provided for in this Agreement) and of evidencing the authorization
of the execution thereof by Noteholders shall be subject to such reasonable
requirements as the Indenture Trustee may prescribe, including the establishment
of record dates.
(f) Prior to the execution of any amendment to this Agreement, the
Owner Trustee shall be entitled to receive and rely upon an Opinion of Counsel
-78-
<PAGE>
stating that the execution of such amendment is authorized or permitted by
this Agreement, in addition to the Opinion of Counsel referred to in Section
10.2(i). The Owner Trustee may, but shall not be obligated to, enter into any
such amendment which affects the Owner Trustee's own rights, duties or
immunities under this Agreement or otherwise.
SECTION 10.2. PROTECTION OF TITLE TO TRUST PROPERTY.
(a) The Servicer shall execute and file such financing statements and
cause to be executed and filed such continuation and other statements, all in
such manner and in such places as may be required by law fully to preserve,
maintain and protect the interest of the Trust, the Owner Trustee and the
Indenture Collateral Agent in the Trust Property and in the proceeds thereof.
The Servicer shall deliver (or cause to be delivered) to the Owner Trustee, the
Indenture Collateral Agent and the Security 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, the Servicer nor the Trust 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 paragraph (a) above seriously misleading within the meaning of
Section 9-402(7) of the UCC, unless it shall have given the Owner Trustee, the
Indenture Trustee and the Security Insurer (so long as an Insurer Default shall
not have occurred and be continuing) at least 60 days' prior written notice
thereof, and shall promptly file appropriate amendments to all previously filed
financing statements and continuation statements.
(c) Each of the Seller, the Servicer and the Trust shall give the
Owner Trustee, the Indenture Trustee and the Security Insurer at least 60 days'
prior written notice of any relocation of its principal executive office if, as
a result of such relocation, the applicable provisions of the UCC would require
the filing of any amendment of any previously filed financing or continuation
statement or of any new financing statement. The Servicer shall at all times
maintain each office from which it services Receivables and its principal
executive office within the United States of America.
(d) The Servicer shall maintain accounts and records as to each
Receivable accurately and in sufficient detail to permit (i) the reader thereof
to know at any time the status of such Receivable, including payments and
recoveries made and payments owing (and the nature of each) and
(ii) reconciliation between payments or recoveries on (or with respect to) each
Receivable and the amounts from time to time deposited in the Collection Account
in respect of such Receivable.
(e) The Servicer shall maintain its computer systems so that, from
and after the time of sale under this Agreement of the Receivables to the Trust,
the
-79-
<PAGE>
Servicer's master computer records (including any backup archives) that
refer to any Receivable indicate clearly (with reference to the particular
trust) that the Receivable is owned by the Trust. Indication of the Trust's
ownership of a Receivable shall be deleted from or modified on the Servicer's
computer systems when, and only when, the Receivable has been paid in full or
repurchased by the Seller or Servicer.
(f) If at any time the Seller or the Servicer proposes to sell, grant
a security interest in, or otherwise transfer any interest in automotive
receivables 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 backup
archives) that, if they refer in any manner whatsoever to any Receivable,
indicate clearly that such Receivable has been sold and is owned by the Trust
unless such Receivable has been paid in full or repurchased by the Seller or
Servicer.
(g) The Servicer shall permit the Owner Trustee, the Indenture
Trustee, the Backup Servicer, the Security Insurer and their respective agents,
at any time to inspect, audit and make copies of and abstracts from the
Servicer's records regarding any Receivables or any other portion of the Trust
Property.
(h) The Servicer shall furnish to the Owner Trustee, the Indenture
Trustee, the Backup Servicer and the Security Insurer at any time upon request a
list of all Receivables then held as part of the Trust, together with a
reconciliation of such list to the Schedule of Receivables and to each of the
Servicer's Certificates furnished before such request indicating removal of
Receivables from the Trust. Upon request, the Servicer shall furnish a copy of
any list to the Seller. The Owner Trustee shall hold any such list and Schedule
of Receivables for examination by interested parties during normal business
hours at the Corporate Trust Office upon reasonable notice by such Persons of
their desire to conduct an examination.
(i) The Seller and the Servicer shall deliver to the Owner Trustee,
the Indenture Trustee and the Security Insurer simultaneously with the execution
and delivery of this Agreement and of each amendment thereto and upon the
occurrence of the events giving rise to an obligation to give notice pursuant to
Section 10.2(b) or (c), an Opinion of Counsel 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 interest of the Owner Trustee and the Indenture Collateral Agent in the
Receivables and the other Trust Property, 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 is
necessary to preserve and protect such interest.
(j) The Servicer shall deliver to the Owner Trustee, the Indenture
Trustee and the Security Insurer, within 90 days after the beginning of each
calendar year beginning with the first calendar year beginning more than
three months after the Closing Date, an Opinion of Counsel, either (a)
stating that, in the opinion of
-80-
<PAGE>
such counsel, all financing statements and continuation statements have been
executed and filed that are necessary fully to preserve and protect the
interest of the Trust and the Indenture Collateral Agent in the Receivables,
and reciting the details of such filings or referring to prior Opinions of
Counsel in which such details are given, or (b) stating that, in the opinion
of such counsel, no action shall be necessary to preserve and protect such
interest.
SECTION 10.3. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
the principles of conflicts of laws thereof and the obligations, rights and
remedies of the parties under this Agreement shall be determined in accordance
with such laws.
SECTION 10.4. SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Notes or the
rights of the Holders thereof.
SECTION 10.5. ASSIGNMENT. Notwithstanding anything to the contrary
contained in this Agreement, except as provided in Section 7.2 or Section 8.2
(and as provided in the provisions of the Agreement concerning the resignation
of the Servicer and the Backup Servicer), this Agreement may not be assigned by
the Seller or the Servicer without the prior written consent of the Owner
Trustee, the Indenture Trustee and the Security Insurer (or, if an Insurer
Default shall have occurred and be continuing, the Owner Trustee, the Indenture
Trustee and a Note Majority).
SECTION 10.6. THIRD-PARTY BENEFICIARIES. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. The Security Insurer and its successors and
assigns shall be a third-party beneficiary to the provisions of this Agreement,
and shall be entitled to rely upon and directly to enforce such provisions of
this Agreement so long as no Insurer Default shall have occurred and be
continuing. Nothing in this Agreement, express or implied, shall give to any
Person, other than the parties hereto and their successors hereunder, any
benefit or any legal or equitable right, remedy or claim under this Agreement.
Except as expressly stated otherwise herein or in the Related Documents, any
right of the Security Insurer to direct, appoint, consent to, approve of, or
take any action under this Agreement, shall be a right exercised by the Security
Insurer in its sole and absolute discretion.
SECTION 10.7. DISCLAIMER BY SECURITY INSURER. The Security Insurer
may disclaim any of its rights and powers under this Agreement (but not its
duties
-81-
<PAGE>
and obligations under the Note Policy) upon delivery of a written notice to
the Owner Trustee and the Indenture Trustee.
SECTION 10.8. COUNTERPARTS. For the purpose of facilitating its
execution 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 10.9. INTENTION OF PARTIES. The execution and delivery of
this Agreement shall constitute an acknowledgement by the Seller, that it is
intended that the assignment and transfer herein contemplated constitute a sale
and assignment outright, and not for security, of the Receivables and the other
Trust Property, conveying good title thereto free and clear of any Liens, from
the Seller to the Trust, and that the Receivables and the other Trust Property
shall not be a part of the Seller's estate in the event of the insolvency,
receivership, conservatorship or the occurrence of another similar event, of, or
with respect to, the Seller. In the event that such conveyance is determined to
be made as security for a loan made by the Trust to the Seller, the Seller
intends that it shall have granted to the Owner Trustee a first priority
security interest in all of the Seller's right, title and interest in and to the
Trust Property conveyed to the Trust pursuant to Sections 2.1 and 2.4 of this
Agreement, and that this Agreement shall constitute a security agreement under
applicable law.
SECTION 10.10. NOTICES. All demands, notices and communications
under this Agreement shall be in writing, personally delivered, sent by
facsimile or mailed by certified mail-return receipt requested, and shall be
deemed to have been duly given upon receipt (a) in the case of AFL, the
Seller or the Servicer, at the following address: Arcadia Receivables Finance
Corp., 7825 Washington Avenue South, Suite 410, Minneapolis, Minnesota
55439-2435, with copies to: Arcadia Financial Ltd., 7825 Washington Avenue
South, Minneapolis, Minnesota 55439-2435, Attention: John A. Witham, (b) in the
case of the Owner Trustee, at the Corporate Trust Office (with a copy to
Mellon Bank (DE), National Association, 2 Mellon Bank Center, Pittsburgh,
Pennsylvania 15259, Attention: Corporate Trust Group, Telecopy No. (412)
234-9169), (c) in the case of the Indenture Trustee and, for so long as the
Indenture Trustee is the Backup Servicer or the Collateral Agent, at 450 West
33rd Street, New York, NY 10001-2697, Attention: Global Trust, Structured
Finance Services Group, (d) in the case of each Rating Agency, 99 Church
Street, New York, New York 10007 (for Moody's) and 26 Broadway, New York, New
York 10004 (for Standard & Poor's), Attention: Asset-Backed Surveillance, and
(e) in the case of the Security Insurer, Financial Security Assurance Inc.,
350 Park Avenue, New York, New York 10022, Attention: Surveillance
Department, Telex No.: (212) 688-3103, Confirmation: (212) 826-0100, Telecopy
Nos.: (212) 339-3518, (212) 339-3529 (in each case in which notice or other
communication to Financial Security refers to an Event of Default, a claim on
the Note Policy or with respect to which failure on the part of Financial
Security to respond shall be deemed to constitute
-82-
<PAGE>
consent or acceptance, then a copy of such notice or other communication
should also be sent to the attention of the General Counsel and the
Head-Financial Guaranty Group "URGENT MATERIAL ENCLOSED"), or at such other
address as shall be designated by any such party in a written notice to the
other parties. Any notice required or permitted to be mailed to a Noteholder
shall be given by first class mail, postage prepaid, at the address of such
Holder as shown in the Note Register, and any notice so mailed within the
time prescribed in this Agreement shall be conclusively presumed to have been
duly given, whether or not the Noteholder receives such notice.
SECTION 10.11. LIMITATION OF LIABILITY. It is expressly
understood and agreed by the parties hereto that (a) this Agreement is
executed and delivered by Mellon Bank (DE), National Association, not
individually or personally but solely as Owner Trustee of the Trust under the
Trust Agreement, in the exercise of the powers and authority conferred and
vested in it, (b) each of the representations, undertakings and agreements
herein made on the part of the Trust is made and intended not as personal
representations, undertakings and agreements by Mellon Bank (DE), National
Association but is made and intended for the purpose for binding only the
Trust, (c) nothing herein contained shall be construed as creating any
liability on Mellon Bank (DE), National Association, individually or
personally, to perform any covenant either expressed or implied contained
herein, all such liability, if any, being expressly waived by the parties to
this Agreement and by any person claiming by, through or under them and (d)
under no circumstances shall Mellon Bank (DE), National Association be
personally liable for the payment of any indebtedness or expenses of the
Trust or be liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaken by the Trust under
this Agreement or any related documents.
[SIGNATURE PAGE FOLLOWS]
-83-
<PAGE>
IN WITNESS WHEREOF, the Issuer, the Seller, AFL, the Servicer and
the Backup Servicer have caused this Sale and Servicing Agreement to be duly
executed by their respective officers as of the day and year first above
written.
ISSUER:
ARCADIA AUTOMOBILE RECEIVABLES
TRUST, 1997-B
By MELLON BANK (DE),
NATIONAL ASSOCIATION,
not in its individual capacity but solely as
Owner Trustee
By /s/ E.D. Renn
---------------------------------------------
Name: E. D. Renn
Title: Vice President
SELLER:
ARCADIA RECEIVABLES FINANCE CORP.
By /s/ John A. Witham
---------------------------------------------
Name: John A. Witham
Title: Senior Vice President and Chief
Financial Officer
ARCADIA FINANCIAL LTD.
In its individual capacity and as Servicer
By /s/ John A. Witham
---------------------------------------------
Name: John A. Witham
Title: Executive Vice President and Chief
Financial Officer
BACKUP SERVICER:
THE CHASE MANHATTAN BANK
By /s/ Vada Haight
---------------------------------------------
Name: Vada Haight
Title: Assistant Vice President
Acknowledged and Accepted:
THE CHASE MANHATTAN BANK,
not in its individual capacity but as Indenture Trustee
By /s/ Vada Haight
------------------------------------------
Name: Vada Haight
Title: Assistant Vice President
<PAGE>
RECEIVABLES PURCHASE AGREEMENT AND ASSIGNMENT
between
ARCADIA RECEIVABLES FINANCE CORP.
Purchaser
and
ARCADIA FINANCIAL LTD.
Seller
dated as of
June 1, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1. General . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. Specific Terms . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.3. Usage of Terms . . . . . . . . . . . . . . . . . . . . . 4
SECTION 1.4. Certain References . . . . . . . . . . . . . . . . . . . 4
SECTION 1.5. No Recourse . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 1.6. Action by or Consent of Noteholders . . . . . . . . . . 5
SECTION 1.7. Material Adverse Effect . . . . . . . . . . . . . . . . 5
ARTICLE II - CONVEYANCE OF THE INITIAL RECEIVABLES
AND THE INITIAL OTHER CONVEYED PROPERTY . . . . . . . . . . . 5
SECTION 2.1. Conveyance of the Initial Receivables and the Initial
Other Conveyed Property. . . . . . . . . . . . . . . . 5
SECTION 2.2. Purchase Price of Initial Receivables . . . . . . . . . 6
SECTION 2.3. Conveyance of Subsequent Receivables and Subsequent
Other Conveyed Property. . . . . . . . . . . . . . . . 6
ARTICLE III - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . 8
SECTION 3.1. Representations and Warranties of AFL . . . . . . . . . 8
SECTION 3.2. Representations and Warranties of ARFC . . . . . . . . 10
ARTICLE IV - COVENANTS OF AFL . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.1. Protection of Title of ARFC and the Trust . . . . . . . 12
SECTION 4.2. Other Liens or Interests . . . . . . . . . . . . . . . 14
SECTION 4.3. Costs and Expenses . . . . . . . . . . . . . . . . . . . 14
SECTION 4.4. Indemnification . . . . . . . . . . . . . . . . . . . . 14
ARTICLE V - REPURCHASES . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 5.1. Repurchase of Receivables Upon Breach of Warranty . . . 16
SECTION 5.2. Reassignment of Purchased Receivables . . . . . . . . . 17
SECTION 5.3. Waivers . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VI - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 6.1. Liability of AFL . . . . . . . . . . . . . . . . . . . . 18
SECTION 6.2. Failure of AFL to Sell Subsequent Receivables . . . . . 18
SECTION 6.3. Merger or Consolidation of AFL or ARFC . . . . . . . . . 18
SECTION 6.4. Limitation on Liability of AFL and Others . . . . . . . 19
SECTION 6.5. AFL May Own Notes . . . . . . . . . . . . . . . . . . . 19
SECTION 6.6. Amendment . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 6.7. Notices . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 6.8. Merger and Integration . . . . . . . . . . . . . . . . . 21
SECTION 6.9. Severability of Provisions . . . . . . . . . . . . . . . 21
SECTION 6.10. Intention of the Parties . . . . . . . . . . . . . . . 21
SECTION 6.11. Governing Law . . . . . . . . . . . . . . . . . . . . . 21
<PAGE>
SECTION 6.12. Counterparts . . . . . . . . . . . . . . . . . . . . . 21
SECTION 6.13. Conveyance of the Initial Receivables and the Initial
Other Conveyed Property to the Trust. . . . . . . . . 22
SECTION 6.14. Nonpetition Covenant . . . . . . . . . . . . . . . . . 22
SCHEDULES
Schedule A -- Schedule of Initial Receivables
Schedule B -- Representations and Warranties of AFL
- ii -
<PAGE>
RECEIVABLES PURCHASE AGREEMENT AND ASSIGNMENT
THIS RECEIVABLES PURCHASE AGREEMENT AND ASSIGNMENT, dated as of
June 1, 1997, executed between Arcadia Receivables Finance Corp., a Delaware
corporation, as purchaser ("ARFC"), and Arcadia Financial Ltd., a Minnesota
corporation, as seller ("AFL").
W I T N E S S E T H:
WHEREAS, ARFC has agreed to purchase from AFL and AFL, pursuant to
one or more Assignments pursuant to a Receivables Purchase Agreement and
Assignment, dated as of December 3, 1996, between ARFC and AFL (the "ARCC
Purchase Agreement"), has transferred to ARFC certain of the Initial
Receivables and Initial Other Conveyed Property;
WHEREAS, ARFC has agreed to purchase from AFL and AFL, pursuant to
this Agreement, is transferring to ARFC the remainder of the Initial
Receivables and Initial Other Conveyed Property; and
WHEREAS, ARFC has agreed to purchase (or has purchased) from AFL
and AFL has agreed to transfer (or has transferred) to ARFC the Subsequent
Receivables and Subsequent Other Conveyed Property in an amount set forth
herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter contained, and for other good and valuable
consideration, the receipt of which is acknowledged, ARFC and AFL, intending
to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. GENERAL. The specific terms defined in this Article
include the plural as well as the singular. The words "herein," "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a
whole and not to any particular Article, Section or other subdivision, and
Article, Section, Schedule and Exhibit references, unless otherwise
specified, refer to Articles and Sections of and Schedules and Exhibits to
this Agreement. Capitalized terms used herein without definition shall have
the respective meanings assigned to such terms in the Sale and Servicing
Agreement, dated as of June 1, 1997, by and among Arcadia Receivables Finance
Corp. (as Seller), Arcadia Financial Ltd. (in its individual capacity and as
Servicer), Arcadia Automobile Receivables Trust, 1997-B (as Issuer) (the
"Trust") and The Chase Manhattan Bank, a national banking association (as
Backup Servicer).
<PAGE>
SECTION 1.2. SPECIFIC TERMS. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise requires, shall
have the following meanings:
"AGREEMENT" shall mean this Receivables Purchase Agreement and
Assignment and all amendments hereof and supplements hereto.
"CLOSING DATE" means June 19, 1997.
"INDENTURE TRUSTEE" means The Chase Manhattan Bank, a national
banking association, as trustee and indenture collateral agent under the
Indenture, dated as of June 1, 1997, between the Trust, the Indenture Trustee
and the Indenture Collateral Agent.
"INITIAL OTHER CONVEYED PROPERTY" means all monies at any time paid
or payable on the Initial Receivables or in respect thereof after the Initial
Cutoff Date (including amounts due on or before the Initial Cutoff Date but
received by AFL after the Initial Cutoff Date), an assignment of security
interests in the Financed Vehicles, the Collection Account (including all
Eligible Investments therein and all proceeds therefrom), the Subcollection
Account, the Insurance Policies and any proceeds from any Insurance Policies
relating to the Initial Receivables, the Obligors or the related Financed
Vehicles, including rebates of premiums, rights under any Collateral
Insurance and any Force-Placed Insurance relating to the Initial Receivables,
an assignment of the rights of AFL against Dealers with respect to the
Initial Receivables under the Dealer Agreements and the Dealer Assignments,
all items contained in the Receivable Files relating to the Initial
Receivables, any and all other documents or electronic records that AFL keeps
on file in accordance with its customary procedures relating to the Initial
Receivables, the Obligors or the related Financed Vehicles, property
(including the right to receive future Liquidation Proceeds) that secures an
Initial Receivable and that has been acquired by or on behalf of the Trust
pursuant to liquidation of such Initial Receivable, and all proceeds of the
foregoing.
"INITIAL RECEIVABLES" means the Receivables listed on the Schedule
of Initial Receivables attached hereto as Schedule A.
"INITIAL SPREAD ACCOUNT DEPOSIT" means $11,625,000.00.
"INSURANCE AGREEMENT" means the Insurance and Indemnity Agreement,
dated as of June 19, 1997, among the Security Insurer, the Trust, ARFC and AFL.
"LIQUIDATED DAMAGES" means an amount equal to the sum of the
Class A-1 Prepayment Premium, the Class A-2 Prepayment Premium, the Class A-3
Prepayment Premium, the Class A-4 Prepayment Premium and the Class A-5
Prepayment Premium.
-2-
<PAGE>
"OTHER CONVEYED PROPERTY" means the Initial Other Conveyed Property
conveyed by AFL to ARFC pursuant to this Agreement together with any and all
Subsequent Other Conveyed Property conveyed by AFL to ARFC pursuant to each
Subsequent Purchase Agreement.
"OWNER TRUSTEE" means Mellon Bank (DE), National Association, a
Delaware corporation, not in its individual capacity but solely as trustee of
the Trust and any successor trustee appointed and acting pursuant to the
Trust Agreement.
"RELATED DOCUMENTS" means the Notes, the Custodian Agreement, the
Trust Agreement, the Administration Agreement, the Indenture, each Subsequent
Purchase Agreement, the Sale and Servicing Agreement, each Subsequent
Transfer Agreement, the Note Policy, the Spread Account Agreement, the
Insurance Agreement, the Lockbox Agreement and the Underwriting Agreement
among AFL, ARFC and the underwriters of the Notes. The Related Documents to
be executed by any party are referred to herein as "such party's Related
Documents," "its Related Documents" or by a similar expression.
"REPURCHASE EVENT" means the occurrence of a breach of any of AFL's
representations and warranties hereunder or under any Subsequent Purchase
Agreement or any other event which requires the repurchase of a Receivable by
AFL under the Sale and Servicing Agreement.
"SALE AND SERVICING AGREEMENT" means the Sale and Servicing
Agreement, dated as of June 1, 1997, executed and delivered by Arcadia
Receivables Finance Corp., as Seller, Arcadia Financial Ltd., in its
individual capacity and as Servicer, Arcadia Automobile Receivables Trust,
1997-B, as Issuer, and The Chase Manhattan Bank, as Backup Servicer.
"SCHEDULE OF INITIAL RECEIVABLES" means the schedule of all retail
installment sales contracts and promissory notes sold and transferred
pursuant to this Agreement which is attached hereto as Schedule A.
"SCHEDULE OF RECEIVABLES" means the Schedule of Initial Receivables
attached hereto as Schedule A as supplemented by each Schedule of Subsequent
Receivables attached to each Subsequent Purchase Agreement as Schedule A.
"SCHEDULE OF REPRESENTATIONS" means the Schedule of Representations
and Warranties attached hereto as Schedule B.
"SCHEDULE OF SUBSEQUENT RECEIVABLES" means the schedule of all
retail installment sales contracts and promissory notes sold and transferred
pursuant to a Subsequent Purchase Agreement which is attached to such
Subsequent Purchase Agreement as Schedule A, which Schedule of Subsequent
Receivables shall supplement the Schedule of Initial Receivables.
-3-
<PAGE>
"SPREAD ACCOUNT" means the Spread Account established and
maintained pursuant to the Spread Account Agreement. The Spread Account
shall in no event be deemed to be part of the Trust Property.
"SPREAD ACCOUNT AGREEMENT" means the Spread Account Agreement,
dated as of March 25, 1993, as amended and restated as of June 1, 1997, among
AFL, ARFC, the Security Insurer, the Collateral Agent and the trustees
specified therein, as the same may be amended, supplemented or otherwise
modified in accordance with the terms thereof.
"SUBSEQUENT OTHER CONVEYED PROPERTY" means the Subsequent Other
Conveyed Property conveyed by AFL to ARFC pursuant to each Subsequent
Purchase Agreement.
"SUBSEQUENT RECEIVABLES" means the Receivables specified in the
Schedule of Subsequent Receivables attached as Schedule A to each Subsequent
Purchase Agreement.
"TRUST" means the trust created by the Trust Agreement, the estate
of which consists of the Trust Property.
"TRUST PROPERTY" means the property and proceeds of every
description conveyed pursuant to Section 2.5 of the Trust Agreement, Sections
2.1 and 2.4 of the Sale and Servicing Agreement and Section 2.1 hereof and
pursuant to any Subsequent Purchase Agreement and Subsequent Transfer
Agreement, together with the Trust Accounts (including all Eligible
Investments therein and all proceeds therefrom). Although ARFC has pledged
the Spread Account to the Collateral Agent pursuant to the Spread Account
Agreement, the Spread Account shall not under any circumstances be deemed to
be a part of or otherwise includable in the Trust or the Trust Property.
SECTION 1.3. USAGE OF TERMS. With respect to all terms used in
this Agreement, the singular includes the plural and the plural the singular;
words importing any gender include the other gender; references to "writing"
include printing, typing, lithography, and other means of reproducing words
in a visible form; references to agreements and other contractual instruments
include all subsequent amendments thereto or changes therein entered into in
accordance with their respective terms and not prohibited by this Agreement
or the Sale and Servicing Agreement; references to Persons include their
permitted successors and assigns; and the terms "include" or "including" mean
"include without limitation" or "including without limitation."
SECTION 1.4. CERTAIN REFERENCES. All references to the Principal
Balance of a Receivable as of an Accounting Date shall refer to the close of
business on such day, or as of the first day of a Monthly Period shall refer
to the opening of
-4-
<PAGE>
business on such day. All references to the last day of a Monthly Period
shall refer to the close of business on such day.
SECTION 1.5. NO RECOURSE. Without limiting the obligations of AFL
hereunder, no recourse may be taken, directly or indirectly, under this
Agreement or any certificate or other writing delivered in connection
herewith or therewith, against any stockholder, officer or director, as such,
of AFL, or of any predecessor or successor of AFL.
SECTION 1.6. ACTION BY OR CONSENT OF NOTEHOLDERS. Whenever any
provision of this Agreement refers to action to be taken, or consented to, by
Noteholders, such provision shall be deemed to refer to Noteholders of record
as of the Record Date immediately preceding the date on which such action is
to be taken, or consent given, by Noteholders. Solely for the purposes of
any action to be taken, or consented to, by Noteholders, any Note registered
in the name of the Seller, AFL or any Affiliate thereof shall be deemed not
to be outstanding, and the related Outstanding Amount, evidenced thereby
shall not be taken into account in determining whether the requisite
Outstanding Amount necessary to effect any such action or consent has been
obtained; PROVIDED, HOWEVER, that, solely for the purpose of determining
whether the Indenture Trustee is entitled to rely upon any such action or
consent, only Notes which the Indenture Trustee knows to be so owned shall be
so disregarded.
SECTION 1.7. MATERIAL ADVERSE EFFECT. Whenever a determination is
to be made under this Agreement as to whether a given event, action, course
of conduct or set of facts or circumstances could or would have a material
adverse effect on the Trust or the Noteholders (or any similar or analogous
determination), such determination shall be made without taking into account
the funds available from claims under the Note Policy.
ARTICLE II
CONVEYANCE OF THE INITIAL RECEIVABLES
AND THE INITIAL OTHER CONVEYED PROPERTY
SECTION 2.1. CONVEYANCE OF THE INITIAL RECEIVABLES AND THE INITIAL
OTHER CONVEYED PROPERTY. Subject to the terms and conditions of this
Agreement, AFL hereby sells, transfers, assigns, and otherwise conveys to
ARFC without recourse (but without limitation of its obligations in this
Agreement), and ARFC hereby purchases, all right, title and interest of AFL
in and to the Initial Receivables and the Initial Other Conveyed Property.
AFL and ARFC acknowledge that certain of the Initial Receivables and Initial
Other Conveyed Property have previously been sold, transferred, assigned and
conveyed to ARFC pursuant to the Telluride Purchase Agreement, and AFL hereby
confirms such prior sale, transfer, assignment and conveyance. It is the
intention of AFL and ARFC that the transfer and assignment contemplated by
this Agreement shall constitute a sale of the Initial
-5-
<PAGE>
Receivables and the Initial Other Conveyed Property from AFL to ARFC,
conveying good title thereto free and clear of any Liens, and the Initial
Receivables and the Initial Other Conveyed Property shall not be part of
AFL's estate in the event of the filing of a bankruptcy petition by or
against AFL under any bankruptcy or similar law.
SECTION 2.2. PURCHASE PRICE OF INITIAL RECEIVABLES.
Simultaneously with the conveyance of the Initial Receivables and the Initial
Other Conveyed Property to ARFC, ARFC has paid or caused to be paid to or
upon the order of AFL approximately $539,368,879.26 by wire transfer of
immediately available funds (representing the proceeds to ARFC from the sale
of the Initial Receivables after (i) deducting expenses of $725,000 incurred
by ARFC in connection with such sale, (ii) depositing the Pre-Funded Amount in
the Pre-Funding Account and (iii) depositing the Reserve Amount in the Reserve
Account).
SECTION 2.3. CONVEYANCE OF SUBSEQUENT RECEIVABLES AND SUBSEQUENT
OTHER CONVEYED PROPERTY.
(a) Subject to the conditions set forth in paragraph (b) below
and the terms and conditions in the related Subsequent Purchase Agreement, in
consideration of AFL's delivery on the related Subsequent Transfer Date to or
upon the order of ARFC of an amount equal to the purchase price of the
Subsequent Receivables (as set forth in the related Subsequent Purchase
Agreement), AFL hereby agrees to sell, transfer, assign, and otherwise convey
to ARFC without recourse (but without limitation of its obligations in this
Agreement and the related Subsequent Purchase Agreement), and ARFC hereby
agrees to purchase all right, title and interest of AFL in and to the
Subsequent Receivables and the Subsequent Other Conveyed Property described
in the related Subsequent Purchase Agreement.
(b) AFL shall transfer to ARFC, and ARFC shall acquire, the
Subsequent Receivables and the Subsequent Other Conveyed Property to be
transferred on any Subsequent Transfer Date only upon the satisfaction of
each of the following conditions on or prior to such Subsequent Transfer Date:
(i) ARFC shall have provided the Owner Trustee, the
Indenture Trustee, the Security Insurer and the Rating Agencies with a
timely Addition Notice and shall have provided any information
reasonably requested by any of the foregoing with respect to the
Subsequent Receivables;
(ii) the Funding Period shall not have terminated;
(iii) the Security Insurer (so long as an Insurer Default
shall not have occurred and be continuing) shall in its sole and
absolute discretion have given its prior written approval of the
transfer of the Subsequent Receivables and the Subsequent Other Conveyed
Property by AFL to ARFC and, in turn, by ARFC to the Trust;
-6-
<PAGE>
(iv) ARFC shall have delivered to AFL a duly executed
Subsequent Receivables Purchase Agreement and Assignment, in
substantially the form of Exhibit A hereto (the "Subsequent Purchase
Agreement"), which shall include a Schedule of Subsequent Receivables;
(v) as of each Subsequent Transfer Date, neither AFL nor
ARFC was insolvent nor will either of them have been made insolvent by
such transfer nor is either of them aware of any pending insolvency;
(vi) each Rating Agency shall have notified ARFC, the Owner
Trustee, the Indenture Trustee and the Security Insurer in writing that
following such transfer the Notes will be rated in the highest rating
category by such Rating Agency;
(vii) such addition will not result in a material adverse tax
consequence to the Trust or the Noteholders as evidenced by an Opinion
of Counsel to be delivered by AFL;
(viii) ARFC shall have delivered to the Rating Agencies and to
the Security Insurer one or more Opinions of Counsel with respect to the
transfer of the Subsequent Receivables substantially in the form of the
Opinions of Counsel delivered to such persons on the Closing Date;
(ix) (A) the Receivables in the Trust, including the
Subsequent Receivables to be conveyed by AFL to ARFC and, in turn, by
ARFC to the Trust on the Subsequent Transfer Date, shall meet the
following criteria (based on the characteristics of the Initial
Receivables on the Initial Cutoff Date and the Subsequent Receivables on
each related Subsequent Cutoff Date): (1) the weighted average APR of
such Receivables will not be less than 14.75%, (2) the weighted average
remaining term of such Receivables will not be more than 67 nor less
than 63 months, (3) not more than 87% of the Aggregate Principal Balances
of such Receivables will represent used Financed Vehicles, (4) not more
than 52% of the Aggregate Principal Balance of such Receivables will
represent Receivables originated under AFL's "Classic" program, (5) not
more than 2.0% of the Principal Balance of such Receivables will have an
Annual Percentage Rate in excess of 21.0%, (6) not more than 0.25% of the
Aggregate Principal Balance of such Receivables will represent loans on
Financed Vehicles in excess of $50,000.00, (7) not more than 3.0% of the
Aggregate Principal Balance of such Receivables will represent loans
with original terms greater than 72 months and (8) not more than 5.0% of
the Aggregate Principal Balance of such Receivables will represent loans
secured by Financed Vehicles that previously secured a loan originated
by AFL with an obligor other than the current Obligor, and (B) the Trust,
the Owner Trustee, the Indenture Trustee and the Security Insurer shall
have received written confirmation from a firm of certified independent
public accountants as to the satisfaction of such criteria;
-7-
<PAGE>
(x) AFL shall have taken any action necessary, or if
requested by the Security Insurer, advisable to maintain the first
perfected ownership interest of the Trust in the Trust Property and the
first perfected security interest of ARFC in the Subsequent Receivables
and the Subsequent Other Conveyed Property, the Trust in the Trust
Property and the first perfected security interest of the Indenture
Collateral Agent in the Indenture Collateral;
(xi) AFL is conveying Subsequent Receivables to the Seller in
substantially the order they were originated by AFL; and
(xii) no selection procedures believed by AFL to be adverse to
the interests of the Noteholders shall have been utilized in selecting
the Subsequent Receivables.
It is the intention of AFL and ARFC that the transfer and assignment
contemplated by this Agreement and the related Subsequent Purchase Agreement
shall constitute a sale of the Subsequent Receivables and the Subsequent
Other Conveyed Property from AFL to ARFC, conveying good title thereto free
and clear of any Liens, and the Subsequent Receivables and the Subsequent
Other Conveyed Property shall not be part of AFL's estate in the event of the
filing of a bankruptcy petition by or against AFL under any bankruptcy or
similar law.
(c) AFL covenants to transfer to ARFC pursuant to paragraph
(a)above Subsequent Receivables with an aggregate Principal Balance equal to
$233,522,236.50; PROVIDED, HOWEVER, that the sole remedy of ARFC with respect
to a failure of such covenant shall be to enforce the provisions of Section
6.2 of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF AFL. AFL makes the
following representations and warranties, on which ARFC relies in purchasing
the Initial Receivables and the Initial Other Conveyed Property and in
transferring the Initial Receivables and the Initial Other Conveyed Property
to the Trust under the Sale and Servicing Agreement and on which the Security
Insurer will rely in issuing the Note Policy. Such representations are made
as of the execution and delivery of this Agreement, but shall survive the
sale, transfer and assignment of the Initial Receivables and the Initial
Other Conveyed Property hereunder and the sale, transfer and assignment
thereof by ARFC to the Trust under the Sale and Servicing Agreement. AFL and
ARFC agree that ARFC will assign to the Trust all of ARFC's rights under this
Agreement and that the Trust will thereafter be entitled to enforce this
Agreement against AFL in the Trust's own name.
-8-
<PAGE>
(a) SCHEDULE OF REPRESENTATIONS. The representations and
warranties set forth on the Schedule of Representations are true and
correct.
(b) ORGANIZATION AND GOOD STANDING. AFL has been duly organized
and is validly existing as a corporation in good standing under the laws
of the State of Minnesota, with power and authority to own its
properties and to conduct its business as such properties are currently
owned and such business is currently conducted, and had at all relevant
times, and now has, power, authority and legal right to acquire, own and
sell the Initial Receivables and the Initial Other Conveyed Property
transferred to ARFC.
(c) DUE QUALIFICATION. AFL is duly qualified to do business as a
foreign corporation in good standing, and has obtained all necessary
licenses and approvals, in all jurisdictions in which the ownership or
lease of its property or the conduct of its business requires such
qualification.
(d) POWER AND AUTHORITY. AFL has the power and authority to
execute and deliver this Agreement and its Related Documents and to
carry out its terms and their terms, respectively; AFL has full power
and authority to sell and assign the Initial Receivables and the Initial
Other Conveyed Property to be sold and assigned to and deposited with
ARFC hereunder and has duly authorized such sale and assignment to ARFC
by all necessary corporate action; and the execution, delivery and
performance of this Agreement and AFL's Related Documents have been duly
authorized by AFL by all necessary corporate action.
(e) VALID SALE; BINDING OBLIGATIONS. This Agreement and AFL's
Related Documents have been duly executed and delivered, shall effect a
valid sale, transfer and assignment of the Initial Receivables and the
Initial Other Conveyed Property, enforceable against AFL and creditors
of and purchasers from AFL; and this Agreement and AFL's Related
Documents constitute legal, valid and binding obligations of AFL
enforceable in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting the enforcement of creditors' rights
generally and by equitable limitations on the availability of specific
remedies, regardless of whether such enforceability is considered in a
proceeding in equity or at law.
(f) NO VIOLATION. The consummation of the transactions
contemplated by this Agreement and the Related Documents and the
fulfillment of the terms of this Agreement and the Related Documents
shall not conflict with, result in any breach of any of the terms and
provisions of or constitute (with or without notice, lapse of time or
both) a default under, the articles of incorporation or bylaws of AFL,
or any indenture, agreement, mortgage, deed of trust or other instrument
to which AFL is a party or by
-9-
<PAGE>
which it is bound, or result in the creation or imposition of any Lien upon
any of its properties pursuant to the terms of any such indenture, agreement,
mortgage, deed of trust or other instrument, other than this Agreement, the
Spread Account Agreement and the Sale and Servicing Agreement, or violate any
law, order, rule or regulation applicable to AFL of any court or of any
federal or state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over AFL or any of its properties.
(g) NO PROCEEDINGS. There are no proceedings or investigations
pending or, to AFL's knowledge, threatened against AFL, before any
court, regulatory body, administrative agency or other tribunal or
governmental instrumentality having jurisdiction over AFL or its
properties (i)asserting the invalidity of this Agreement or any of the
Related Documents, (ii)seeking to prevent the issuance of the Notes or
the consummation of any of the transactions contemplated by this
Agreement or any of the Related Documents, (iii)seeking any
determination or ruling that might materially and adversely affect the
performance by AFL of its obligations under, or the validity or
enforceability of, this Agreement or any of the Related Documents or
(iv)seeking to affect adversely the federal income tax or other federal,
state or local tax attributes of, or seeking to impose any excise,
franchise, transfer or similar tax upon, the transfer and acquisition of
the Initial Receivables and the Initial Other Conveyed Property
hereunder or under the Sale and Servicing Agreement.
(h) CHIEF EXECUTIVE OFFICE. The chief executive office of AFL is
located at 7825 Washington Avenue South, Minneapolis, MN 55439-2435.
SECTION 3.2. REPRESENTATIONS AND WARRANTIES OF ARFC. ARFC makes the
following representations and warranties, on which AFL relies in selling,
assigning, transferring and conveying the Initial Receivables and the Initial
Other Conveyed Property to ARFC hereunder. Such representations are made as
of the execution and delivery of this Agreement, but shall survive the sale,
transfer and assignment of the Initial Receivables and the Initial Other
Conveyed Property hereunder and the sale, transfer and assignment thereof by
ARFC to the Trust under the Sale and Servicing Agreement.
(a) ORGANIZATION AND GOOD STANDING. ARFC has been duly organized
and is validly existing and in good standing as a corporation under the
laws of the State of Delaware, with the power and authority to own its
properties and to conduct its business as such properties are currently
owned and such business is currently conducted, and had at all relevant
times, and has, full power, authority and legal right to acquire and own
the Initial Receivables and the Initial Other Conveyed Property and to
transfer the Initial Receivables and the Initial Other Conveyed Property
to the Trust pursuant to the Sale and Servicing Agreement.
-10-
<PAGE>
(b) DUE QUALIFICATION. ARFC is duly qualified to do business as a
foreign corporation in good standing, and has obtained all necessary
licenses and approvals in all jurisdictions where the failure to do so
would materially and adversely affect (i) ARFC's ability to acquire the
Initial Receivables or the Initial Other Conveyed Property, (ii) the
validity or enforceability of the Initial Receivables and the Initial
Other Conveyed Property or (iii) ARFC's ability to perform its
obligations hereunder and under the Related Documents.
(c) POWER AND AUTHORITY. ARFC has the power, authority and legal
right to execute and deliver this Agreement and its Related Documents
and to carry out the terms hereof and thereof and to acquire the Initial
Receivables and the Initial Other Conveyed Property hereunder; and the
execution, delivery and performance of this Agreement and its Related
Documents and all of the documents required pursuant hereto or thereto
have been duly authorized by ARFC by all necessary action.
(d) NO CONSENT REQUIRED. ARFC is not required to obtain the
consent of any other Person, or any consent, license, approval or
authorization or registration or declaration with, any governmental
authority, bureau or agency in connection with the execution, delivery
or performance of this Agreement and the Related Documents, except for
such as have been obtained, effected or made.
(e) BINDING OBLIGATION. This Agreement and each of its Related
Documents constitutes a legal, valid and binding obligation of ARFC,
enforceable against ARFC in accordance with its terms, subject, as to
enforceability, to applicable bankruptcy, insolvency, reorganization,
conservatorship, receivership, liquidation and other similar laws and to
general equitable principles.
(f) NO VIOLATION. The execution, delivery and performance by ARFC
of this Agreement, the consummation of the transactions contemplated by
this Agreement and the Related Documents and the fulfillment of the
terms of this Agreement and the Related Documents do not and will not
conflict with, result in any breach of any of the terms and provisions
of or constitute (with or without notice or lapse of time) a default
under the certificate of incorporation or bylaws of ARFC, or conflict
with or breach any of the terms or provisions of, or constitute (with or
without notice or lapse of time) a default under, any indenture,
agreement, mortgage, deed of trust or other instrument to which ARFC is
a party or by which ARFC is bound or to which any of its properties are
subject, or result in the creation or imposition of any Lien upon any of
its properties pursuant to the terms of any such indenture, agreement,
mortgage, deed of trust or other instrument (other than the Sale and
Servicing Agreement and the Indenture), or violate any law, order, rule
or regulation, applicable to ARFC or its properties, of any federal or
state regulatory body or any court, administrative agency, or other
-11-
<PAGE>
governmental instrumentality having jurisdiction over ARFC or any of its
properties.
(g) NO PROCEEDINGS. There are no proceedings or investigations
pending, or, to the knowledge of ARFC, threatened against ARFC, before
any court, regulatory body, administrative agency, or other tribunal or
governmental instrumentality having jurisdiction over ARFC or its
properties: (i) asserting the invalidity of this Agreement or any of the
Related Documents, (ii) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement or any of the Related
Documents, (iii) seeking any determination or ruling that might
materially and adversely affect the performance by ARFC of its
obligations under, or the validity or enforceability of, this Agreement
or any of the Related Documents or (iv) that may adversely affect the
federal or state income tax attributes of, or seeking to impose any
excise, franchise, transfer or similar tax upon, the transfer and
acquisition of the Initial Receivables and the Initial Other Conveyed
Property hereunder or the transfer of the Initial Receivables and the
Initial Other Conveyed Property to the Trust pursuant to the Sale and
Servicing Agreement.
In the event of any breach of a representation and warranty made by ARFC
hereunder, AFL covenants and agrees that it will not take any action to
pursue any remedy that it may have hereunder, in law, in equity or otherwise,
until a year and a day have passed since the later of (i) the date on which
all pass-through certificates or other similar securities issued by the
Trust, or a trust or similar vehicle formed by ARFC, have been paid in full,
or (ii) all Notes or other similar securities issued by the Trust, or a trust
or similar vehicle formed by ARFC, have been paid in full. AFL and ARFC
agree that damages will not be an adequate remedy for such breach and that
this covenant may be specifically enforced by ARFC or by the Owner Trustee on
behalf of the Trust.
ARTICLE IV
COVENANTS OF AFL
SECTION 4.1. PROTECTION OF TITLE OF ARFC AND THE TRUST.
(a) At or prior to the Closing Date or each Subsequent Transfer
Date, as the case may be, AFL shall have filed or caused to be filed a UCC-1
financing statement, executed by AFL as seller or debtor, naming ARFC as
purchaser or secured party and describing the Initial Receivables and the
Initial Other Conveyed Property, with respect to this Agreement, and the
Subsequent Receivables and the Subsequent Other Conveyed Property, with
respect to each Subsequent Purchase Agreement, being sold by it to ARFC as
collateral, with the office of the Secretary of State of the State of
Minnesota and in such other locations as ARFC shall have
-12-
<PAGE>
required. From time to time thereafter, AFL shall execute and file such
financing statements and cause to be executed and filed such continuation
statements, all in such manner and in such places as may be required by law
fully to preserve, maintain and protect the interest of ARFC under this
Agreement and each Subsequent Purchase Agreement and of the Trust under the
Sale and Servicing Agreement and each Subsequent Transfer Agreement in the
Initial Receivables and the Initial Other Conveyed Property and the
Subsequent Receivables and the Subsequent Other Conveyed Property, as the
case may be, and in the proceeds thereof. AFL shall deliver (or cause to be
delivered) to ARFC, the Owner Trustee, the Indenture Trustee and the Security
Insurer file-stamped copies of, or filing receipts for, any document filed as
provided above, as soon as available following such filing. In the event
that AFL fails to perform its obligations under this subsection, ARFC or the
Owner Trustee may do so at the expense of AFL.
(b) AFL shall not change its name, identity, or corporate
structure in any manner that would, could or might make any financing
statement or continuation statement filed by AFL (or by ARFC or the Owner
Trustee on behalf of AFL) in accordance with paragraph (a)above seriously
misleading within the meaning of Section 9-402(7) of the UCC, unless it shall
have given ARFC, the Owner Trustee and the Security Insurer at least 60 days'
prior written notice thereof, and shall promptly file appropriate amendments
to all previously filed financing statements and continuation statements.
(c) AFL shall give ARFC, the Security Insurer (so long as an
Insurer Default shall not have occurred and be continuing), the Indenture
Trustee and the Owner Trustee at least 60 days' prior written notice of any
relocation of its principal executive office if, as a result of such
relocation, the applicable provisions of the UCC would require the filing of
any amendment of any previously filed financing or continuation statement or
of any new financing statement. AFL shall at all times maintain each office
from which it services Receivables and its principal executive office within
the United States of America.
(d) AFL shall maintain its computer systems so that, from and
after the time of sale under this Agreement of the Initial Receivables to
ARFC, and from and after the time of sale under each Subsequent Purchase
Agreement of the Subsequent Receivables to ARFC, and the conveyance of the
Initial Receivables and the Subsequent Receivables by ARFC to the Trust,
AFL's master computer records (including archives) that shall refer to an
Initial Receivable or Subsequent Receivable indicate clearly that such
Initial Receivable or Subsequent Receivable has been sold to ARFC and has
been conveyed by ARFC to the Trust. Indication of the Trust's ownership of
an Initial Receivable or Subsequent Receivable shall be deleted from or
modified on AFL's computer systems when, and only when, the Initial
Receivable or Subsequent Receivable shall become a Purchased Receivable or
shall have been paid in full.
-13-
<PAGE>
(e) If at any time AFL shall propose to sell, grant a security
interest in, or otherwise transfer any interest in motor vehicle receivables
to any prospective purchaser, lender or other transferee, AFL shall give to
such prospective purchaser, lender, or other transferee computer tapes,
records, or print-outs (including any restored from archives) that, if they
shall refer in any manner whatsoever to any Initial Receivable or Subsequent
Receivable, shall indicate clearly that such Initial Receivable or Subsequent
Receivable has been sold to ARFC and is owned by the Trust.
SECTION 4.2. OTHER LIENS OR INTERESTS. Except for the conveyances
hereunder and under any Subsequent Purchase Agreement, AFL will not sell,
pledge, assign or transfer to any other Person, or grant, create, incur,
assume or suffer to exist any Lien on the Initial Receivables or the Initial
Other Conveyed Property or on the Subsequent Receivables or the Subsequent
Other Conveyed Property, or any interest therein, and AFL shall defend the
right, title, and interest of ARFC and the Trust in and to the Initial
Receivables and the Initial Other Conveyed Property and the Subsequent
Receivables and the Subsequent Other Conveyed Property against all claims of
third parties claiming through or under AFL.
SECTION 4.3. COSTS AND EXPENSES. AFL shall pay all reasonable
costs and disbursements in connection with the performance of its obligations
hereunder and under each Subsequent Purchase Agreement and its Related
Documents.
SECTION 4.4. INDEMNIFICATION.
(a) AFL shall defend, indemnify and hold harmless ARFC, the Trust,
the Owner Trustee, the Security Insurer, the Indenture Trustee, the Backup
Servicer and the Noteholders from and against any and all costs, expenses,
losses, damages, claims, and liabilities, arising out of or resulting from
any breach of any of AFL's representations and warranties contained herein or
in any Subsequent Purchase Agreement.
(b) AFL shall defend, indemnify and hold harmless ARFC, the Trust,
the Owner Trustee, the Indenture Trustee, the Backup Servicer and the
Noteholders 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 AFL or any affiliate thereof of a Financed Vehicle.
(c) AFL shall defend and indemnify ARFC, the Trust, the Owner
Trustee, the Security Insurer, the Indenture Trustee, the Backup Servicer and
the Noteholders against any and all costs, expenses, losses, damages, claims
and liabilities arising out of or resulting from any action taken, or failed
to be taken, by it in respect of any portion of the Trust Property other than
in accordance with this Agreement, each Subsequent Purchase Agreement or the
Sale and Servicing Agreement and each Subsequent Transfer Agreement.
-14-
<PAGE>
(d) AFL agrees to pay, and shall defend, indemnify and hold harmless
ARFC, the Trust, the Owner Trustee, the Indenture Trustee, the Backup Servicer
and the Noteholders from and against any taxes that may at any time be asserted
against ARFC, the Owner Trustee, the Indenture Trustee, the Backup Servicer and
the Noteholders with respect to the transactions contemplated in this Agreement
or in any Subsequent Purchase Agreement, including, without limitation, any
sales, gross receipts, general corporation, tangible or intangible personal
property, privilege, or license taxes (but not including any taxes asserted with
respect to, and as of the date of, the sale, transfer and assignment of the
Initial Receivables and the Initial Other Conveyed Property or the Subsequent
Receivables or Subsequent Other Conveyed Property to ARFC and of the Trust
Property to the Trust or the issuance and original sale of the Notes, or
asserted with respect to ownership of the Initial Receivables and Initial Other
Conveyed Property or the Subsequent Receivables or Subsequent Other Conveyed
Property or the Trust Property which shall be indemnified by AFL pursuant to
clause (e) below, or federal, state or other income taxes, arising out of
distributions on the Notes or transfer taxes arising in connection with the
transfer of the Notes) and costs and expenses in defending against the same,
arising by reason of the acts to be performed by AFL under this Agreement or
under any Subsequent Purchase Agreement or imposed against such Persons.
(e) AFL agrees to pay, and to indemnify, defend and hold harmless
ARFC, the Trust, the Owner Trustee, the Indenture Trustee, the Backup Servicer
and the Noteholders from, any taxes which may at any time be asserted against
such Persons with respect to, and as of the date of, the conveyance or ownership
of the Initial Receivables or the Initial Other Conveyed Property hereunder or
the Subsequent Receivables or Subsequent Other Conveyed Property under each
Subsequent Purchase Agreement and the conveyance or ownership of the Trust
Property under the Sale and Servicing Agreement and the Subsequent Transfer
Agreements or the issuance and original sale of the Notes, including, without
limitation, any sales, gross receipts, personal property, tangible or intangible
personal property, privilege or license taxes (but not including any federal or
other income taxes, including franchise taxes, arising out of the transactions
contemplated hereby or transfer taxes arising in connection with the transfer of
Notes) and costs and expenses in defending against the same, arising by reason
of the acts to be performed by AFL under this Agreement or under any Subsequent
Purchase Agreement or imposed against such Persons.
(f) AFL shall defend, indemnify, and hold harmless ARFC, the Owner
Trustee, the Security Insurer, the Indenture Trustee, the Backup Servicer, the
Trust and the Noteholders from and against any and all costs, expenses, losses,
claims, damages, and liabilities to the extent that such cost, expense, loss,
claim, damage, or liability arose out of, or was imposed upon ARFC, the Trust,
the Indenture Trustee and the Noteholders through the negligence, willful
misfeasance, or bad faith of AFL in the performance of its duties under this
Agreement or under any Subsequent Purchase Agreement or by reason of reckless
disregard of AFL's
- 15 -
<PAGE>
obligations and duties under this Agreement or under any Subsequent Purchase
Agreement.
(g) AFL shall indemnify, defend and hold harmless ARFC, the Owner
Trustee, the Security Insurer, the Indenture Trustee, the Backup Servicer, the
Trust and the Noteholders from and against any loss, liability or expense
incurred by reason of the violation by AFL of federal or state securities laws
in connection with the registration or the sale of the Notes.
(h) AFL shall indemnify, defend and hold harmless ARFC, the Owner
Trustee, the Security Insurer, the Indenture Trustee, the Backup Servicer, the
Trust and the Noteholders from and against any loss, liability or expense
imposed upon, or incurred by, ARFC, the Owner Trustee, the Indenture Trustee,
the Trust or the Noteholders as a result of the failure of any Initial
Receivable or Subsequent Receivable, or the sale of the related Financed
Vehicle, to comply with all requirements of applicable law.
(i) AFL shall defend, indemnify, and hold harmless ARFC from and
against all costs, expenses, losses, claims, damages, and liabilities arising
out of or incurred in connection with the acceptance or performance of AFL's
trusts and duties as Servicer under the Sale and Servicing Agreement, except to
the extent that such cost, expense, loss, claim, damage, or liability shall be
due to the willful misfeasance, bad faith, or negligence (except for errors in
judgment) of ARFC.
(j) AFL shall indemnify, defend and hold harmless ARFC, the Owner
Trustee, the Indenture Trustee, the Backup Servicer, the Trust and the
Noteholders from and against any loss, liability or expense imposed upon, or
incurred by, ARFC, the Owner Trustee and the Indenture Trustee, the Trust and
the Noteholders as a result of AFL's or ARFC's use of the name "Arcadia."
Indemnification under this Section 4.4 shall include reasonable fees
and expenses of counsel and expenses of litigation and shall survive termination
of the Trust. The indemnity obligations hereunder shall be in addition to any
obligation that AFL may otherwise have.
ARTICLE V
REPURCHASES
SECTION 5.1. REPURCHASE OF RECEIVABLES UPON BREACH OF WARRANTY. Upon
the occurrence of a Repurchase Event AFL shall, unless such breach shall have
been cured in all material respects, repurchase such Receivable from the Trust
and, on or before the related Deposit Date, AFL shall pay the Purchase Amount to
the Trust pursuant to Section 4.5 of the Sale and Servicing Agreement. It is
understood and agreed that, except as set forth in Section 6.1, the obligation
of AFL
- 16 -
<PAGE>
to repurchase any Receivable as to which a breach has occurred and is
continuing shall, if such obligation is fulfilled, constitute the sole remedy
against AFL for such breach available to ARFC, the Security Insurer,
Noteholders, or the Indenture Trustee on behalf of Noteholders. The
provisions of this Section 5.1 are intended to grant the Owner Trustee and
the Indenture Trustee a direct right against AFL to demand performance
hereunder, and in connection therewith, AFL waives any requirement of prior
demand against ARFC with respect to such repurchase obligation. Any such
purchase shall take place in the manner specified in Section 2.6 of the Sale
and Servicing Agreement. Notwithstanding any other provision of this
Agreement, any Subsequent Purchase Agreement or the Sale and Servicing
Agreement or any Subsequent Transfer Agreement to the contrary, the
obligation of AFL under this Section shall not terminate upon a termination
of AFL as Servicer under the Sale and Servicing Agreement and shall be
performed in accordance with the terms hereof notwithstanding the failure of
the Servicer or ARFC to perform any of their respective obligations with
respect to such Receivable under the Sale and Servicing Agreement.
In addition to the foregoing and notwithstanding whether the related
Receivable shall have been purchased by AFL, AFL shall indemnify the Owner
Trustee, the Indenture Trustee, the Backup Servicer, the Security Insurer, the
Trust and the Noteholders against all costs, expenses, losses, damages, claims
and liabilities, including reasonable fees and expenses of counsel, which may be
asserted against or incurred by any of them as a result of third party claims
arising out of the events or facts giving rise to such Repurchase Events.
SECTION 5.2. REASSIGNMENT OF PURCHASED RECEIVABLES. Upon deposit in
the Collection Account of the Purchase Amount of any Receivable repurchased by
AFL under Section 5.1, ARFC and the Owner Trustee shall take such steps as may
be reasonably requested by AFL in order to assign to AFL all of ARFC's and the
Trust's right, title and interest in and to such Receivable and all security and
documents and all Other Conveyed Property conveyed to ARFC and the Trust
directly relating thereto, without recourse, representation or warranty, except
as to the absence of liens, charges or encumbrances created by or arising as a
result of actions of ARFC or the Owner Trustee. Such assignment shall be a sale
and assignment outright, and not for security. If, following the reassignment
of a Purchased Receivable, in any enforcement suit or legal proceeding, it is
held that AFL may not enforce any such Receivable on the ground that it shall
not be a real party in interest or a holder entitled to enforce the Receivable,
ARFC and the Owner Trustee shall, at the expense of AFL, take such steps as AFL
deems reasonably necessary to enforce the Receivable, including bringing suit in
ARFC's or the Owner Trustee's name.
SECTION 5.3. WAIVERS. No failure or delay on the part of ARFC, or
the Owner Trustee as assignee of ARFC, in exercising any power, right or remedy
under this Agreement or under any Subsequent Purchase Agreement shall operate as
a waiver thereof, nor shall any single or partial exercise of any such power,
right
- 17 -
<PAGE>
or remedy preclude any other or future exercise thereof or the exercise of
any other power, right or remedy.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. LIABILITY OF AFL. AFL shall be liable in accordance
herewith only to the extent of the obligations in this Agreement or in any
Subsequent Purchase Agreement specifically undertaken by AFL and the
representations and warranties of AFL.
SECTION 6.2. FAILURE OF AFL TO SELL SUBSEQUENT RECEIVABLES. In the
event that AFL shall fail to deliver and sell to ARFC any or all of the
Subsequent Receivables required under this Agreement, AFL shall be obligated to
pay to ARFC the Liquidated Damages on the Business Day immediately preceding the
Distribution Date on which the Funding Period ends (or, if the Funding Period
does not end on a Distribution Date, on the first Distribution Date following
the end of the Funding Period).
SECTION 6.3. MERGER OR CONSOLIDATION OF AFL OR ARFC. Any
corporation or other entity (i) into which AFL or ARFC may be merged or
consolidated, (ii)resulting from any merger or consolidation to which AFL or
ARFC is a party or (iii) succeeding to the business of AFL or ARFC, in the
case of ARFC, which corporation has a certificate of incorporation containing
provisions relating to limitations on business and other matters
substantively identical to those contained in ARFC's certificate of
incorporation, provided that in any of the foregoing cases such corporation
shall execute an agreement of assumption to perform every obligation of AFL
or ARFC, as the case may be, under this Agreement and each Subsequent
Purchase Agreement and, whether or not such assumption agreement is executed,
shall be the successor to AFL or ARFC, as the case may be, hereunder and
under each such Subsequent Purchase Agreement (without relieving AFL or ARFC
of its responsibilities hereunder, if it survives such merger or
consolidation) without the execution or filing of any document or any further
act by any of the parties to this Agreement or each Subsequent Purchase
Agreement. Notwithstanding the foregoing, so long as an Insurer Default
shall not have occurred and be continuing, ARFC shall not merge or
consolidate with any other Person or permit any other Person to become the
successor to ARFC's business without the prior written consent of the
Security Insurer. AFL or ARFC shall promptly inform the other party, the
Owner Trustee and the Indenture Trustee and, so long as an Insurer Default
shall not have occurred and be continuing, the Security Insurer of such
merger, consolidation or purchase and assumption. Notwithstanding the
foregoing, as a condition to the consummation of the transactions referred to
in clauses (i), (ii) and (iii) above, (x) immediately after giving effect to
such transaction, no representation or warranty made pursuant to Sections
- 18 -
<PAGE>
3.1 and 3.2 and this Agreement, or similar representation or warranty made in
any Subsequent Purchase Agreement, shall have been breached (for purposes
hereof, such representations and warranties shall speak as of the date of the
consummation of such transaction) and no event that, after notice or lapse of
time, or both, would become an event of default under the Insurance
Agreement, shall have occurred and be continuing, (y) AFL or ARFC, as
applicable, shall have delivered written notice of such consolidation, merger
or purchase and assumption to the Rating Agencies prior to the consummation
of such transaction and shall have delivered to the Owner Trustee and the
Indenture Trustee an Officer's Certificate and an Opinion of Counsel each
stating that such consolidation, merger or succession and such agreement of
assumption comply with this Section 6.3 and that all conditions precedent, if
any, provided for in this Agreement, or in each Subsequent Purchase
Agreement, relating to such transaction have been complied with, and (z) AFL
or ARFC, as applicable, shall have delivered to the Owner Trustee and the
Indenture Trustee an Opinion of Counsel, stating that, in the opinion of such
counsel, either (A) all financing statements and continuation statements and
amendments thereto have been executed and filed that are necessary to
preserve and protect the interest of the Owner Trustee in the Trust Property
and reciting the details of the filings or (B) no such action shall be
necessary to preserve and protect such interest.
SECTION 6.4. LIMITATION ON LIABILITY OF AFL AND OTHERS. AFL and any
director, officer, employee or agent may rely in good faith on the advice of
counsel or on any document of any kind prima facie properly executed and
submitted by any Person respecting any matters arising under this Agreement.
AFL shall not be under any obligation to appear in, prosecute or defend any
legal action that is not incidental to its obligations under this Agreement, any
Subsequent Purchase Agreement or its Related Documents and that in its opinion
may involve it in any expense or liability.
SECTION 6.5. AFL MAY OWN NOTES. Subject to the provisions of the
Sale and Servicing Agreement, AFL and any Affiliate of AFL may in its individual
or any other capacity become the owner or pledgee of Notes with the same rights
as it would have if it were not AFL or an Affiliate thereof.
SECTION 6.6. AMENDMENT.
(a) This Agreement and any Subsequent Purchase Agreement may be
amended by AFL and ARFC, so long as an Insurer Default shall not have occurred
and be continuing, with the prior written consent of the Security Insurer and
without the consent of the Owner Trustee, the Indenture Trustee or any of the
Noteholders (A)to cure any ambiguity or (B)to correct any provisions in this
Agreement or any such Subsequent Purchase Agreement; PROVIDED, HOWEVER, that
such action shall not, as evidenced by an Opinion of Counsel delivered to the
Owner Trustee and the Indenture Trustee, adversely affect in any material
respect the interests of any Noteholder.
- 19 -
<PAGE>
(b) This Agreement may also be amended from time to time by AFL and
ARFC, so long as an Insurer Default shall not have occurred and be continuing,
with the prior written consent of the Security Insurer, the Owner Trustee and
the Indenture Trustee and a Note Majority, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement, or of modifying in any manner the rights of the Noteholders;
PROVIDED, HOWEVER, that no such amendment shall (i) increase or reduce in any
manner the amount of, or accelerate or delay the timing of, collections of
payments on Receivables, distributions that shall be required to be made on any
Note or the Note Interest Rate or (ii) reduce the aforesaid percentage required
to consent to any such amendment or any waiver hereunder, without the consent of
the Holders of all Notes then outstanding.
(c) Prior to the execution of any such amendment or consent, AFL
shall have furnished written notification of the substance of such amendment or
consent to each Rating Agency.
(d) Promptly after the execution of any such amendment or consent,
the Owner Trustee or the Indenture Trustee, as applicable, shall furnish written
notification of the substance of such amendment or consent to each
Certificateholder and Noteholder.
(e) It shall not be necessary for the consent of Noteholders pursuant
to this Section to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Noteholders shall be subject to such
reasonable requirements as the Owner Trustee or the Indenture Trustee, as
applicable, may prescribe, including the establishment of record dates. The
consent of any Holder of a Note given pursuant to this Section or pursuant to
any other provision of this Agreement shall be conclusive and binding on such
Holder and on all future Holders of such Note and of any Note issued upon the
transfer thereof or in exchange thereof or in lieu thereof whether or not
notation of such consent is made upon the Note.
SECTION 6.7. NOTICES. All demands, notices and communications to
AFL or ARFC hereunder shall be in writing, personally delivered, or sent by
telecopier (subsequently confirmed in writing), reputable overnight courier
or mailed by certified mail, return receipt requested, and shall be deemed to
have been given upon receipt (a) in the case of AFL, to Arcadia Financial
Ltd., 7825 Washington Avenue South, Minneapolis, Minnesota 55439-2435,
Attention: JohnA. Witham, or such other address as shall be designated by
AFL in a written notice delivered to the other party or to the Owner Trustee
or the Indenture Trustee, as applicable, or (b) in case of ARFC, to Arcadia
Receivables Finance Corp., 7825 Washington Avenue South, Suite 410,
Minneapolis, Minnesota 55439-2435, Attention: John A. Witham.
- 20 -
<PAGE>
SECTION 6.8. MERGER AND INTEGRATION. Except as specifically stated
otherwise herein, this Agreement and the Related Documents set forth the entire
understanding of the parties relating to the subject matter hereof, and all
prior understandings, written or oral, are superseded by this Agreement and the
Related Documents. This Agreement may not be modified, amended, waived or
supplemented except as provided herein.
SECTION 6.9. SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, provisions or terms of this Agreement shall be for any reason
whatsoever held invalid, then such covenants, provisions or terms shall be
deemed severable from the remaining covenants, provisions or terms of this
Agreement and shall in no way affect the validity or enforceability of the other
provisions of this Agreement.
SECTION 6.10. INTENTION OF THE PARTIES. The execution and delivery
of this Agreement and of each Subsequent Purchase Agreement shall constitute an
acknowledgment by AFL and ARFC that they intend that each assignment and
transfer herein and therein contemplated constitute a sale and assignment
outright, and not for security, of the Initial Receivables and the Initial Other
Conveyed Property and the Subsequent Receivables and Subsequent Other Conveyed
Property, as the case may be, conveying good title thereto free and clear of any
Liens, from AFL to ARFC, and that the Initial Receivables and the Initial Other
Conveyed Property and the Subsequent Receivables and Subsequent Other Conveyed
Property shall not be a part of AFL's estate in the event of the bankruptcy,
reorganization, arrangement, insolvency or liquidation proceeding, or other
proceeding under any federal or state bankruptcy or similar law, or the
occurrence of another similar event, of, or with respect to, AFL. In the event
that such conveyance is determined to be made as security for a loan made by
ARFC, the Trust or the Noteholders to AFL, the parties intend that AFL shall
have granted to ARFC a security interest in all of AFL's right, title and
interest in and to the Initial Receivables and the Initial Other Conveyed
Property and the Subsequent Receivables and Subsequent Other Conveyed Property,
as the case may be, conveyed pursuant to Section 2.1 hereof or pursuant to any
Subsequent Purchase Agreement, and that this Agreement and each Subsequent
Purchase Agreement shall constitute a security agreement under applicable law.
SECTION 6.11. GOVERNING LAW. This Agreement shall be construed in
accordance with, the laws of the State of New York without regard to the
principles of conflicts of laws thereof, and the obligations, rights and
remedies of the parties under this Agreement shall be determined in accordance
with such laws.
SECTION 6.12. 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.
- 21 -
<PAGE>
SECTION 6.13. CONVEYANCE OF THE INITIAL RECEIVABLES AND THE INITIAL
OTHER CONVEYED PROPERTY TO THE TRUST. AFL acknowledges that ARFC intends,
pursuant to the Sale and Servicing Agreement, to convey the Initial Receivables
and the Initial Other Conveyed Property, together with its rights under this
Agreement, to the Trust on the date hereof. AFL acknowledges and consents to
such conveyance and waives any further notice thereof and covenants and agrees
that the representations and warranties of AFL contained in this Agreement and
the rights of ARFC hereunder are intended to benefit the Security Insurer, the
Owner Trustee, the Indenture Trustee, the Trust, and the Noteholders. In
furtherance of the foregoing, AFL covenants and agrees to perform its duties and
obligations hereunder, in accordance with the terms hereof for the benefit of
the Security Insurer, the Owner Trustee, the Indenture Trustee, the Trust, and
the Noteholders and that, notwithstanding anything to the contrary in this
Agreement, AFL shall be directly liable to the Owner Trustee and the Trust
(notwithstanding any failure by the Servicer, the Backup Servicer or ARFC to
perform its duties and obligations hereunder or under the Sale and Servicing
Agreement) and that the Owner Trustee may enforce the duties and obligations of
AFL under this Agreement against AFL for the benefit of the Security Insurer,
the Trust, and the Noteholders.
SECTION 6.14. NONPETITION COVENANT. Neither ARFC nor AFL shall
petition or otherwise invoke the process of any court or government authority
for the purpose of commencing or sustaining a case against the Trust (or, in the
case of AFL, against ARFC) under any federal or state bankruptcy, insolvency or
similar law or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Trust (or ARFC) or any substantial
part of its property, or ordering the winding up or liquidation of the affairs
of the Trust (or ARFC).
- 22 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Receivables
Purchase Agreement and Assignment to be duly executed by their respective
officers as of the day and year first above written.
ARCADIA RECEIVABLES FINANCE CORP.,
as Purchaser
By /s/ John A. Witham
-----------------------------------------------
Name: John A. Witham
Title: Senior Vice President and Chief
Financial Officer
ARCADIA FINANCIAL LTD., as Seller
By /s/ John A. Witham
-----------------------------------------------
Name: John A. Witham
Title: Executive Vice President and
Chief Financial Officer
- 23 -
<PAGE>
[Logo] FINANCIAL GUARANTY
INSURANCE POLICY
Obligor: Arcadia Automobile Receivables Trust, 1997-B Policy No.: 50599-N
Obligations: $775,000,000 Automobile Date of Issuance: 6/19/97
Receivables-Backed Notes, as
described in Endorsement No. 1
FINANCIAL SECURITY ASSURANCE INC, ("Financial Security"), for
consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY GUARANTEES to
each Holder, subject only to the terms of this Policy (which includes each
endorsement hereto), the full and complete payment by the Obligor of
Scheduled Payments of principal of, and interest on, the Obligations.
For the further protection of each Holder, Financial Security
irrevocably and unconditionally guarantees:
(a) payment of the amount of any distribution of principal of, or
interest on, the Obligations made during the Term Of This Policy to such
Holder that is subsequently avoided in whole or in part as a preference
payment under applicable law (such payment to be made by Financial Security
in accordance with Endorsement No. 1 hereto).
(b) payment of any amount required to be paid under this Policy by
Financial Security following Financial Security's receipt of notice as
described in Endorsement No. 1 hereto.
Financial Security shall be subrogated to the rights of each Holder to
receive payments under the Obligations to the extent of any payment by
Financial Security hereunder.
Except to the extent expressly modified by an endorsement hereto, the
following terms shall have the meanings specified for all purposes of this
Policy. "Holder" means the registered owner of any Obligation as indicated on
the registration books maintained by or on behalf of the Obligor for such
purpose or, if the Obligation is in bearer form, the holder of the
Obligation. "Scheduled Payments" means payments which are scheduled to be
made during the Term Of This Policy in accordance with the original terms of
the Obligations when issued and without regard to any amendment or
modification of such Obligations thereafter; payments which become due on an
accelerated basis as a result of (a) a default by the Obligor, (b) an
election by the Obligor to pay principal on an accelerated basis or (c) any
other cause, shall not constitute "Scheduled Payments" unless Financial
Security shall elect, in its sole discretion, to pay such principal due upon
such acceleration together with any accrued interest to the date of
acceleration. "Term Of This Policy" shall have the meaning set forth in
Endorsement No. 1 hereto.
This Policy sets forth in full the undertaking of Financial Security,
and shall not be modified, altered or affected by any other agreement or
instrument, including any modification or amendment thereto, or by the
merger, consolidation or dissolution of the Obligor. Except to the extent
expressly modified by an endorsement hereto, the premiums paid in respect of
this Policy are nonrefundable for any reason whatsoever, including payment, or
provision being made for payment, of the Obligations prior to maturity. This
Policy may not be canceled or revoked during the Term Of This Policy. THIS
POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND
SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
In witness whereof, FINANCIAL SECURITY ASSURANCE INC. has caused this
Policy to be executed on its behalf by its Authorized Officer.
FINANCIAL SECURITY ASSURANCE INC.
By /s/ RUSSELL B. BREWER II
-----------------------------
AUTHORIZED OFFICER
A subsidiary of Financial Security Assurance Holdings Ltd.
350 Park Avenue, New York, N.Y. 10022-6022 (212) 826-0100
Form 100NY (5/89)
<PAGE>
ENDORSEMENT NO. 1
FINANCIAL SECURITY 350 Park Avenue
ASSURANCE INC. New York, New York 10022
OBLIGOR: Arcadia Automobile Receivables Trust, 1997-B
OBLIGATIONS: $82,000,000 5.7425% Class A-1 Automobile Receivables-
Backed Notes
$210,000,000 6.10% Class A-2 Automobile Receivables-
Backed Notes
$170,000,000 6.30% Class A-3 Automobile Receivables-
Backed Notes
$150,000,000 6.50% Class A-4 Automobile Receivables-
Backed Notes
$163,000,000 6.70% Class A-5 Automobile Receivables-
Backed Notes
Policy No.: 50599-N
Date of Issuance: June 19, 1997
1. DEFINITIONS. For all purposes of this Policy, the terms specified
below shall have the meanings or constructions provided below. Capitalized
terms used herein and not otherwise defined herein shall have the meanings
provided in the Indenture unless otherwise specified.
"BUSINESS DAY" Means any day other than a Saturday, Sunday, legal
holiday or other day on which commercial banking institutions in the City of
New York or Minneapolis, Minnesota or any other location of any successor
Servicer, successor Owner Trustee, successor Indenture Trustee or successor
Collateral Agent are authorized or obligated by law, executive order, or
governmental decree to remain closed.
"INDENTURE" means the Indenture, dated as of June 1, 1997, between the
Obligor and The Chase Manhattan Bank, as Trustee and Indenture Collateral
Agent, as amended from time to time with the consent of Financial Security.
"POLICY" means this Financial Guaranty Insurance Policy and includes
each endorsement thereto.
"RECEIPT" and "RECEIVED" mean actual delivery to Financial Security and
to the Fiscal Agent (as defined below), if any, prior to 12:00 noon, New York
City time, on a Business Day; delivery either on a day that is not a Business
Day, or after 12:00 noon, New York City time, shall be deemed to be receipt
on the next succeeding Business Day. If any notice or certificate given
hereunder by the Trustee is not in proper form or is not properly completed,
executed or delivered, it shall be deemed not to have been Received, and
Financial Security or its Fiscal Agent shall promptly so advise the Trustee
and the Trustee may submit an amended notice.
<PAGE>
Policy No.: 50599-N Date of Issuance: June 19, 1997
"SCHEDULED PAYMENTS" means, as to each Payment Date, the payment to be
made to holders in accordance with the original terms of the Obligations when
issued and without regard to any subsequent amendment of modification of the
Obligations or of the Indenture except amendments or modifications to which
Financial Security has given its prior written consent in an amount equal to
(i) the Noteholders' Interest Distributable Amount and (ii) the
Noteholders' Principal Distributable Amount. Scheduled Payments do not
include payments which become due on an accelerated basis as a result of (a)
a default by the Obligor, (b) an election by the Obligor to pay principal on
an accelerated basis (c) the occurrence of an Event of Default under the
Indenture or (d) any other cause, unless Financial Security elects, in its
sole discretion, to pay in whole or in part such principal due upon
acceleration, together with any accrued interest to the date of acceleration.
In the event Financial Security does not so elect, this Policy will continue
to guarantee payment on the Notes in accordance with their original terms.
Scheduled Payments shall not include (x) any portion of a Noteholders'
Interest Distributable Amount due to Noteholders because a notice and
certificate in proper form as required by paragraph 2 hereof was not timely
Received by Financial Security, (y) any portion of a Noteholders' Interest
Distributable Amount due to Noteholders representing interest on any
Noteholders' Interest Carryover Shortfall accrued from and including the date
of payment of the amount of such Noteholders' Interest Carryover Shortfall
pursuant hereto, or (z) any Note Prepayment Amounts or any Note Prepayment
Premiums, unless, in each case, Financial Security elects, in its sole
discretion, to pay such amount in whole or in part. Scheduled Payments shall
not include any amounts due in respect of the Obligations attributable to any
increase in interest rate, penalty or other sum payable by the Obligor by
reason of any default or event of default in respect of the Obligations, or
by reason of any deterioration of the credit worthiness of the Obligor, nor
shall Scheduled Payments include, nor shall coverage be provided under this
Policy in respect of, any taxes, withholding or other charge with respect to
any Holder imposed by any governmental authority due in connection with the
payment of any Scheduled Payment to a Holder.
"TERM OF THIS POLICY" means the period from and including the Closing
Date to and including the latest of the date on which (i) all Scheduled
Payments have been paid or deemed to be paid within the meaning of Section
4.01 of the Indenture; (ii) any period during which any Scheduled Payment
could have been avoided in whole or in part as a preference payment under
applicable bankruptcy, insolvency, receivership or similar law shall have
expired and (iii) if any proceedings requisite to avoidance as a preference
payment have been commenced prior to the occurrence of (i) and (ii), a final
and nonappealable order in resolution of each such proceeding has been
entered.
"TRUSTEE" means The Chase Manhattan Bank, in its capacity as Trustee
under the Indenture and any successor in such capacity.
2. NOTICES AND CONDITIONS TO PAYMENT IN RESPECT OF SCHEDULED
PAYMENTS. Following Receipt by Financial Security of a notice and certificate
from the Trustee in the form attached as Exhibit A to this Endorsement,
Financial Security will pay any amount payable hereunder in respect
2
<PAGE>
Policy No.: 50599-N Date of Issuance: June 19, 1997
of Scheduled Payments on the Obligations out of the funds of Financial
Security on the later to occur of (a) 12:00 noon, New York City time, on the
third Business Day following such Receipt; and (b) 12:00 noon, New York City
time, on the date on which such payment is due on the Obligations. Payments
due hereunder in respect of Scheduled Payments will be disbursed to the
Trustee by wire transfer of immediately available funds.
Financial Security shall be entitled to pay any amount hereunder in
respect of Scheduled Payments on the Obligations, including any amount due on
the Obligations upon acceleration, whether or not any notice and certificate
shall be been Received by Financial Security as provided above. Financial
Security shall be entitled to pay hereunder any amount due on the
Obligations upon acceleration at any time or from time to time, in whole or
in part, prior to the scheduled ate of payment thereof; Scheduled Payments
insured hereunder shall not include interest, in respect of principal paid
hereunder upon acceleration, accruing from after the date of such payment of
principal. Financial Security's obligations hereunder in respect of Scheduled
Payments shall be discharged to the extent such amounts are paid by the
Issuer in accordance with the Indenture or disbursed by Financial Security as
provided herein whether or not such funds are properly applied by the Trustee
except as otherwise provided in paragraph 3 of this Endorsement.
3. NOTICES AND CONDITIONS TO PAYMENT IN RESPECT OF SCHEDULED PAYMENTS
AVOIDED AS PREFERENCE PAYMENTS. In any Scheduled Payment is avoided as a
preference payment under applicable bankruptcy, insolvency, receivership or
similar law, Financial Security will pay such amount out of the funds of
Financial Security on the later of (a) the date when due to be paid pursuant
to the Order referred to below or (b) the first to occur of (i) the fourth
Business Day following Receipt by Financial Security from the Trustee of (A)
a certified copy of the order of the court or other government body which
exercised jurisdiction to the effect that the Holder is required to return
principal of or interest paid on the Obligations during the Term Of This
Policy because such payments were avoidable as preference payments under
applicable bankruptcy law (the "Order"), (B) a certificate of the Holder that
the Order has been entered and is not subject to any stay and (C) an
assignment duly executed and delivered by the Holder, in such form as is
reasonably required by Financial Security, and provided to the Holder by
Financial Security, irrevocably assigning to Financial Security all rights
and claims of the Holder relating to or arising under the Obligations against
the estate of the Obligor or otherwise with respect to such preference
payment or (ii) the date of Receipt by Financial Security from the Trustee of
the items referred to in clauses (A), (B) and (C) above if, at least four
Business Days prior to such date of Receipt, Financial Security shall have
Received written notice from the Trustee that such items were to be delivered
on such date and such date was specified in such notice. Such payment shall
be disbursed to the receiver, conservator, debtor-in-possession or trustee
in bankruptcy named in the Order and not to the Trustee or any Holder
directly (unless a Holder has previously paid such amount to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the
Order, in which case such payment shall be disbursed to the Trustee for
distribution to such Holder upon proof of such payment reasonably
satisfactory to Financial Security). In connection with the foregoing,
Financial Security shall have the rights provided pursuant to Section 5.19 of
the Indenture.
3
<PAGE>
Policy No.: 50599-N Date of Issuance: June 19, 1997
4. GOVERNING LAW. This Policy shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
the conflict of laws principles thereof.
5. FISCAL AGENT. At any time during the Term Of This Policy, Financial
Security may appoint a fiscal agent (the "Fiscal Agent") for purposes of this
Policy by written notice to the Trustee at the notice address specified in
the Indenture specifying the name and notice address of the Fiscal Agent.
From and after the date of receipt of such notice by the Trustee, (i) copies
of all notices and documents required to be delivered to Financial Security
pursuant to this Policy shall be simultaneously delivered to the Fiscal Agent
and to Financial Security and shall not be deemed Received until Received by
both, and (ii) all payments required to be made by Financial Security under
this policy may be made directly by Financial Security or by the Fiscal Agent
on behalf of Financial Security. The Fiscal Agent is the agent of Financial
Security only and the Fiscal Agent shall in no event be liable to any Holder
for any acts of the Fiscal Agent or any failure of Financial Security to
deposit, or cause to be deposited, sufficient funds to make payments due
under the Policy.
6. WAIVER OF DEFENSES. To the fullest extent permitted by applicable
law, Financial Security agrees not to assert, and hereby waives, for the
benefit of each Holder, all rights (whether by counterclaim, setoff or
otherwise) and defenses (including, without limitation, the defenses of
fraud), whether acquired by subrogation, assignment or otherwise, to the
extent that such rights and defenses may be available to Financial Security to
avoid payment of its obligations under this Policy in accordance with the
express provisions of this Policy.
7. NOTICES. All notices to be given hereunder shall be in writing
(except as otherwise specifically provided herein) and shall be mailed by
registered mail or personally delivered or telecopied to Financial Security as
follows:
Financial Security Assurance Inc.
350 Park Avenue
New York, NY 10022
Attention: Senior Vice President - Surveillance
Telecopy No.: (212) 339-3518
Confirmation: (212) 826-0100
Financial Security may specify a different address or addresses by
writing mailed or delivered to the Trustee.
8. PRIORITIES. In the event that any term or provision of the fact of
this Policy is inconsistent with the provisions of this Endorsement, the
provisions of this Endorsement shall take precedence and shall be binding.
4
<PAGE>
Policy No.: 50599-N Date of Issuance: June 19, 1997
9. EXCLUSIONS FROM INSURANCE GUARANTY FUNDS. This Policy is not covered
by the Property/Casualty Insurance Security Fund specified in Article 76 of
the New York Insurance Law. This Policy is not covered by the Florida
Insurance Guaranty Association created under Part II of Chapter 631 of the
Florida Insurance Code. In the event that Financial Security were to become
insolvent, any claims arising under this Policy are excluded from coverage by
the California Insurance Guaranty Association, established pursuant to
Article 14.2 of Chapter 1 of Part 2 of Division 1 of the California Insurance
Code.
10. SURRENDER OF POLICY. The Holder shall surrender this Policy to
Financial Security for cancellation upon expiration of the Term Of This
Policy.
IN WITNESS WHEREOF, FINANCIAL SECURITY ASSURANCE INC. has caused this
Endorsement No. 1 to be executed by its Authorized officer.
FINANCIAL SECURITY ASSURANCE INC.
By /s/ RUSSELL B. BREWER II
--------------------------
Authorized officer
5
<PAGE>
Policy No.: 50599-N Date of Issuance: June 19,1997
EXHIBIT A
To Endorsement No.1
NOTICE OF CLAIM AND CERTIFICATE
(Letterhead of Trustee)
Financial Security Assurance Inc.
350 Park Avenue
New York, NY 10022
Attention: Senior Vice President
Re: ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1997-B
The undersigned, a duly authorized officer of The Chase Manhattan Bank
(the "Trustee"), hereby certifies to Financial Security Assurance Inc.
("Financial Security"), with reference to Financial Guaranty Insurance Policy
No. 50599-N dated June 19, 1997 (the "Policy") issued by Financial Security in
respect of the $82,000,000 5.7425% Class A-1 Automobile Receivables-Backed
Notes, $210,000,000 6.10% Class A-2 Automobile Receivables-Backed Notes,
$170,000,000 6.30% Class A-3 Automobile Receivables-Backed Notes,
$150,000,000 6.50% Class A-4 Automobile Receivables-Backed Notes,
$163,000,000 6.70% Class A-5 Automobile Receivables-Backed Notes of the above
referenced Trust (the "Obligations"), that:
(i) The Trustee is the Trustee under the Indenture for the
Holders.
(ii) The sum of all amounts on deposit (or scheduled to be
on deposit) in the Note Distribution Account and available for distribution
to the Holders pursuant to the Indenture will be $__________ (the "Shortfall")
less than the aggregate amount of Scheduled Payments due on
_______________________.
(iii) The Trustee is making a claim under the Policy for the
Shortfall to be applied to the payment of Scheduled Payments.
(iv) The Trustee agrees that, following receipt of funds
from Financial Security, it shall (a) hold such amounts in trust and apply
the same directly to the payment of Scheduled Payments on the Obligations
when due; (b) not apply such funds for any other purpose; (c) not commingle
such funds with other funds held by the Trustee and (d) maintain an accurate
record of such payments with respect to each Obligation and the corresponding
claim on the Policy and proceeds thereof, and, if the Obligation is required
to be surrendered or presented for such payment, shall stamp on each such
Obligation the legend $"[insert applicable amount] paid by Financial
A-1
<PAGE>
Policy No.: 50599-N Date of Issuance: June 19,1997
Security and the balance hereof has been canceled and reissued" and then
shall deliver such Obligation to Financial Security.
(v) The Trustee, on behalf of the Holders, hereby assigns
to Financial Security the rights of the Holders with respect to the
Obligations to the extent of any payments under the Policy, including,
without limitation, any amounts due to the Holders in respect of securities
law violations arising from the offer and sale of the Obligations. The
foregoing assignment is in addition to, and not in limitation of, rights of
subrogation otherwise available to Financial Security in respect of such
payments. Payments to Financial Security in respect of the foregoing
assignment shall in all cases be subject to and subordinate to the rights of
the Holders to receive all Scheduled Payments in respect of the Obligations.
The Trustee shall take such action and deliver such instruments as may be
reasonably requested or required by Financial Security to effectuate the
purpose or provisions of this clause (v).
(vi) The Trustee, on its behalf and on behalf of the
Holders, hereby appoints Financial Security as agent and attorney-in-fact for
the Trustee and each such Holder in any legal proceeding with respect to the
Obligations. The Trustee hereby agrees that, so long as an Insurer Default
(as defined in the Indenture) shall not exist, Financial Security may at any
time during the contribution of any proceeding by or against the Obligor
under the United States Bankruptcy Code or any other applicable bankruptcy,
insolvency, receivership, rehabilitation or similar law (an "Insolvency
Proceeding") direct all matters relating to such Insolvency Proceeding,
including without limitation, (A) all matters relating to any claim in
connection with an Insolvency Proceeding seeking the avoidance as a
preferential transfer of any payment made with respect to the Obligations (a
"Preference Claim"), (B) the direction of any appeal of any order relating to
any Preference Claim at the expense of Financial Security but subject to
reimbursement as provided in the Insurance Agreement and (C) the posting of
any surety, supersedeas or performance bond pending any such appeal. In
addition, the Trustee hereby agrees that Financial Security shall be
subrogated to, and the Trustee on its behalf and on behalf of each Holder,
hereby delegates and assigns, to the fullest extent permitted by law, the
rights of the Trustee and each Holder in the conduct of any Insolvency
Proceeding, including, without limitation, all rights of any party to an
adversary proceeding or action with respect to any court order issued in
connection with any such Insolvency Proceeding.
(vii) Payment should be made by wire transfer directed to
[SPECIFY ACCOUNT].
Unless the context otherwise requires, capitalized terms used in this
Notice of Claim and Certificate and not defined herein shall have the
meanings provided in the Policy.
IN WITNESS WHEREOF, the Trustee has executed and delivered this Notice
of Claim and Certificate as of the _____ day of _______, ______.
A-2
<PAGE>
Policy No.: 50599-N Date of Issuance: June 19,1997
THE CHASE MANHATTAN BANK
By
----------------------------
Title
----------------------------
- ---------------------------------------------------
For Financial Security or
Fiscal Agent Use Only
Wire transfer sent on _________________ by ______________________________
Confirmation Number _________________________.
A-3
<PAGE>
[LETTERHEAD]
EXHIBIT 8.1
Arcadia Receivables Finance Corp.
7825 Washington Avenue South, Suite 410
Minneapolis, Minnesota 55439-2435
Re: Registration Statement on Form S-3 File No. 333-18021
Ladies and Gentlemen:
We have acted as counsel to Arcadia Receivables Finance Corp. (the
"Seller") in connection with the registration under the Securities Act of
1933, as amended, by the Seller of $4,000,000,000 of Automobile
Receivables-Backed Certificates (the "Certificates") and Automobile
Receivables-Backed Notes (the "Notes") to be issued from time to time by
trusts established by the Seller, the related preparation and filing of a
registration statement on Form S-3, filed by the Seller with the Securities
and Exchange Commission (the "Commission") on December 17, 1996 (the
"Registration Statement"), and the preparation of a Prospectus Supplement,
dated June 11, 1997, and related Prospectus, dated June 11, 1997 (together,
the "Prospectus") relating to the offering and sale of $82,000,000 aggregate
principal amount of Class A-1 Automobile Receivables-Backed Notes (the "Class
A-1 Notes"), $210,000,000 aggregate principal amount of Class A-2 Automobile
Receivables-Backed Notes (the "Class A-2 Notes"), $170,000,000 aggregate
principal amount of Class A-3 Automobile Receivables-Backed Notes (the "Class
A-3 Notes"), $150,000,000 aggregate principal amount of Class A-4 Automobile
Receivables-Backed Notes (the "Class A-4 Notes") and $163,000,000 aggregate
principal amount of Class A-5 Automobile Receivables-Backed Notes (the "Class
A-5 Notes" and together with the Class A-1 Notes, the Class A-2 Notes, the
Class A-3 Notes and the Class A-4 Notes, the "1997-B Notes") to be issued by
Arcadia Automobile Receivables Trust, 1997-B (the "Trust"). The corpus of the
Trust will consist of a pool of motor vehicle retail installment sales
contracts and promissory notes (the "Receivables") and certain other
property. The 1997-B Notes are to be issued under an Indenture (the
"Indenture"), dated as of June 1, 1997, among the Trust and The Chase
Manhattan Bank, as Indenture Trustee and Indenture
<PAGE>
[LETTERHEAD]
Arcadia Receivables Finance Corp.
June 19, 1997
Page 2
Collateral Agent. The 1997-B Notes are described in the Prospectus forming
part of the Registration Statement.
You have requested our opinion with respect to the federal income tax
characterization of the Trust and the 1997-B Notes. For purposes of rendering
our opinion we have examined the Registration Statement, the Trust Agreement
(the "Trust Agreement"), dated as of June 1, 1997, among the Seller,
Financial Security Assurance Inc. ("Financial Security") and Mellon Bank
(DE), National Association, as Owner Trustee, the Indenture, and the related
documents and agreements contemplated therein (collectively, the "Transaction
Documents"), and we have reviewed such questions of law as we have considered
necessary and appropriate. Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to them in the Prospectus.
Our opinion is based upon the existing provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), currently applicable Treasury
Department regulations issued thereunder, current published administrative
positions of the Internal Revenue Service (the "Service") contained in
revenue rulings and revenue procedures, and judicial decisions, all of which
are subject to change, either prospectively or retroactively, and to possibly
differing interpretations. Any change in such authorities may affect the
opinions rendered herein. Our opinion is also based on the representations
set forth in the certificate dated the date hereof delivered to us by the
Seller, the representations and warranties set forth in the Transaction
Documents and the assumptions that the Seller, the Servicer, the Owner
Trustee and the Indenture Trustee will at all times comply with the
requirements of the Transaction Documents.
An opinion of counsel is predicated on all the facts and conditions set
forth in the opinion and is based upon counsel's analysis of the statutes,
regulatory interpretations and case law in effect as of the date of the
opinion. It is not a guarantee of the current status of the law and should
not be accepted as a guarantee that a court of law or an administrative
agency will concur in the opinion.
1. CHARACTERIZATION OF THE TRUST. In many respects, the Trust is
similar to trusts established to hold collateral pledged as security in
connection with lending transactions. Section 2.11 of the Trust Agreement
provides that the Depositor and the Trustee shall treat the Trust as a
security device only and shall not file tax returns or obtain an employer
identification number on behalf of the Trust, unless a class of Notes is
treated as an equity interest in the Trust. Therefore, the Trust should be
disregarded for federal income tax purposes and should be
<PAGE>
[LETTERHEAD]
Arcadia Receivables Finance Corp.
June 19, 1997
Page 3
characterized as a mere security arrangement. Treas. Reg. Section 1.61-13(b);
Rev. Rul. 76-265, 1976-2 C.B. 448; SEE ALSO Rev. Rul. 73-100, 1973-1 C.B. 613;
Rev. Rul. 71-119, 1971 C.B. 163.
If the Trust is recognized as an entity for federal tax purposes, whether
as a result of a class of Notes being treated as an equity interest in the
Trust or for some other reason, the Trust will be a business entity whose
federal tax characterization will be determined under Treasury Regulations
Sections 301.7701-2 and 301.7701-3. Treasury Regulations Section
301.7701-2 provides that "a BUSINESS ENTITY is any entity recognized for
federal tax purposes ... that is not properly classified as a trust under
Section 301.7701-4 or otherwise subject to special treatment under the
Internal Revenue Code."
Treasury Regulations Section 301.7701-2 also provides that certain types
of entities are treated as corporations for federal tax purposes, including
entities formed under a state statute which refers to the entity as
"incorporated or as a corporation, body corporate or body politic," or as a
"joint-stock company or joint-stock association." The definition of corporation
also includes insurance companies, certain banking entities, foreign entities
and other entities specified in Section 301.7701-2. The Trust is not an entity
which is treated as a corporation under Section 301.7701-2.
Treasury Regulations Section 301.7701-3 refers to a business entity that
is not classified as a corporation as an "eligible entity." That section
provides that an eligible entity with a single owner can elect to be
classified as an association (which is taxed as a corporation) or to be
disregarded as an entity separate from its owner. An eligible entity with at
least two members can elect to be classified as either an association or a
partnership. Treasury Regulations Section 301.7701-3 further provides certain
default rules pursuant to which, unless the entity affirmatively elects to be
classified as an association, an eligible entity is disregarded as an entity
separate from its owner if it has a single owner, and is treated as a
partnership if it has two or more members.
Under Sections 2.6 and 4.1 of the Trust Agreement, the Seller and the
Owner Trustee have agreed not to file any election to treat the Trust as an
association taxable as a corporation.
Based on the foregoing, it is our opinion that the Trust will not be
treated as an association taxable as a corporation for federal tax purposes.
<PAGE>
[LETTERHEAD]
Arcadia Receivables Finance Corp.
June 19, 1997
Page 4
Under Section 7704 of the Code, certain publicly traded partnerships are
treated as corporations for federal income tax purposes. This treatment does
not apply, however, to any publicly traded partnership if 90% or more of the
gross income of the partnership constitutes "qualifying income." For purposes
of Section 7704, "qualifying income" generally includes interest, dividends
and certain other types of passive income. Based on the representations made
in the Transaction Documents, we conclude that if the Trust is treated as a
partnership for federal income tax purposes, 90% or more of the Trust's gross
income will constitute "qualifying income" within the meaning of Section 7704
of the Code. Therefore, it is our opinion that the Trust will not be taxed as
a corporation under the publicly traded partnership rules of Section 7704 of
the Code.
2. CHARACTERIZATION OF THE 1997-B NOTES. The characterization of an
instrument as debt or equity for federal income tax purposes depends on all
of the facts and circumstances in each case. In any such determination,
several factors must be considered, including, among other things, the
independence of the debt holder and equity holders, the intention of the
parties to create a debt, the creation of a formal debt instrument, the
safety of the principal amount, and the debt to equity ratio of the issuer. In
this regard, we note that the Owner Trustee, on behalf of the Trust, and
each Noteholder will agree to treat the 1997-B Notes as debt for federal
income tax purposes. Based on such agreement, the factors listed above
and other considerations, although there is no authority on transactions which
resemble the issuance of the 1997-B Notes by the Trust, it is our opinion
that the 1997-B Notes will be treated as debt for federal income tax purposes.
We express no opinion about the tax treatment of any features of the
Trust's activities or an investment therein other than those expressly set
forth above.
<PAGE>
[LETTERHEAD]
Arcadia Receivables Finance Corp.
June 19, 1997
Page 5
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Certain
Federal Income Tax Consequences" in the Prospectus Supplement, and we hereby
confirm that, insofar as they constitute statements of law or legal
conclusions as to the likely outcome of material issues under the federal
income tax laws, the discussion under such heading accurately sets forth our
advice.
Dated: June 19, 1997
Very Truly Yours,
/s/ DORSEY & WHITNEY LLP
-------------------------
CFS
<PAGE>
[LETTERHEAD]
CONSENT of INDEPENDENT ACCOUNTANTS
------------
We consent to the incorporation by reference in the Prospectus Supplement
dated June 11, 1997 (to Prospectus dated June 11, 1997) of Arcadia Receivables
Finance Corp. relating to Arcadia Automobile Receivables Trust, 1997-B of our
report dated January 24, 1997 on our audits of the consolidated financial
statements of Financial Security Assurance Inc. and Subsidiaries as of
December 31, 1996 and 1995 and for each of the three years in the period
ended December 31, 1996. We also consent to the reference to our Firm under
the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
--------------------------------
COOPERS & LYBRAND L.L.P.
New York, New York
June 19, 1997
