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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NO.: 0-22910
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TFC ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 54-1306895
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5425 Robin Hood Road
Suite 101B
Norfolk, Virginia 23513
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: - (757) 858-4054
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $ .01 par value per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes
The aggregate market value of voting stock held by non-affiliates of
the registrant as of March 15, 2000: Common Stock - $29,638,504
The number of shares outstanding of the registrant's common stock as of
March 15, 2000:11,433,682.
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TFC ENTERPRISES, INC.
1999 FORM 10-K
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I............................................................................................... 3
Item 1. Business................................................................................... 3
Item 2. Properties................................................................................. 13
Item 3. Legal Proceedings.......................................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders........................................ 13
PART II.............................................................................................. 14
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...................... 14
Item 6. Selected Financial Data.................................................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 14
Item 7A. Quantitative and Qualitative Disclosures about Market Risk................................. 14
Item 8. Financial Statements and Supplementary Data................................................ 14
Item 9. Changes in and Disagreements with Accountants.............................................. 14
PART III............................................................................................. 15
Item 10. Directors and Executive Officers of the Registrant; Section 16(a)
Beneficial Ownership Reporting Compliance.................................................. 15
Item 11. Executive Compensation..................................................................... 15
Item 12. Security Ownership of Certain Beneficial Owners and Management............................. 15
Item 13. Certain Relationship and Related Transactions.............................................. 15
PART IV.............................................................................................. 16
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................... 16
</TABLE>
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Documents Incorporated by Reference
Portions of the registrant's Annual Report to Shareholders (the "Annual
Report") are incorporated by reference in Part II of this Form 10-K, and
portions of the definitive Proxy Statement (the "2000 Proxy Statement") to be
used in connection with the 2000 Annual Meeting of Shareholders are incorporated
by reference in Part III of this Form 10-K.
PART I
This Report contains "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. Any statements contained in this
Report that are not statements of historical fact are forward-looking
statements. Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "seeks" and similar expressions are intended to identify
forward-looking statements. The important factors discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Market Risk Disclosure and Risk Factors," among others, could cause actual
results to differ materially from those indicated by forward-looking statements
made in this report and those presented elsewhere by management from time to
time. Please refer to the cautionary statement that appears at the beginning of
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the TFC Enterprises, Inc. 1999 Annual Report, which is
incorporated by reference, for more information.
Item 1. Business
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The Company
The Company's operations began in 1977 in Alexandria, Virginia, with the
founding of TFC by Robert S. Raley, Jr., the Company's current Chairman of the
Board, President and Chief Executive Officer, whose 40 year career has been
exclusively within the consumer finance industry.
The Company now conducts its consumer finance operations through three
wholly owned subsidiaries, The Finance Company ("TFC"), First Community Finance,
Inc. ("FCF") and Recoveries, Inc. ("RI").
Through TFC, the Company is engaged in purchasing and servicing installment
sales contracts originated by automobile and motorcycle dealers in the sale of
used automobiles, vans, light trucks, and new and used motorcycles (collectively
"vehicles"). Installment sales contracts are acquired on either an individual
basis after the Company has reviewed and approved the vehicle purchaser's credit
application (a "point-of-sale purchase"), or on a group basis through the
purchase of a dealer's portfolio of existing installment sales contracts (a
"bulk purchase"). The Company primarily focuses its point-of-sale business on
installment sales contracts originated by dealers with consumers who are United
States military enlisted personnel in the E-1 through E-5 pay grades and
civilians who don't have access to traditional sources of credit. Bulk purchases
are primarily from dealers who finance their own contracts and sell them after
origination in bulk. To achieve an acceptable rate of return and provide for
credit risks, contracts are purchased from dealers at a discount to the
remaining principal balance. Most of the discount is held in a nonrefundable
reserve against which credit losses are first applied.
TFC's point-of-sale purchases provide it with the ability to direct the
credit underwriting process at the initiation of the installment sales contract.
Participating dealers benefit by having a source of financing for a group of
customers who typically find financing difficult to obtain, thereby increasing
the number of vehicles sold and improving dealer profitability. Consumers also
benefit because the financing provided by TFC enables them to purchase a vehicle
they otherwise would not be able to buy. TFC utilizes a network of nine
strategically placed Contract Production Offices ("CPOs" or individually "CPO")
to underwrite and purchase contracts from participating dealers. As of December
31, 1999, $175.6 million, or 68% of the Company's gross contract receivables
represented point-of-sale purchases, compared to $159.8 million, or 71% at
December 31, 1998 and $111.3 million, or 60% at December 31, 1997.
TFC's bulk purchase business emphasizes acquisitions of portfolios of
seasoned installment sales contracts. These contracts normally have a payment
history of at least three months. While the typical bulk purchase involves fewer
than 100 individual contracts, TFC has, at times, purchased portfolios totaling
more than 1,000 contracts.
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Bulk purchases provide a payment history on which to evaluate and price the
credit risk of the contracts and a relatively efficient mechanism for
establishing dealer relationships in new areas. Bulk purchases benefit dealers
by providing an immediate source of liquidity which in turn benefits the
consumers who want to purchase vehicles from these dealers. TFC purchases
contracts through its National Office in Norfolk, Virginia. As of December 31,
1999, $60.9 million, or 24% of the Company's gross contract receivables, was
attributable to bulk purchases, compared to $49.5 million, or 22% at December
31, 1998 and $60 million, or 33% at December 31, 1997.
Although TFC underwrites and purchases the contracts through the various
CPO's, the responsibility for servicing the accounts is centralized at the
service center. Prior to March 2000, the Norfolk, Virginia service center was
responsible for servicing the point-of-sale accounts and the Jacksonville,
Florida service center was responsible for servicing the bulk accounts. In March
2000 TFC closed the Jacksonville service center and moved the responsibility for
servicing these accounts to the Norfolk facility. The Company estimates that the
net reduction in salaries, rent and other fixed expenses resulting from this
action should approximate $1.3 million annually on a pre tax basis. Nonrecurring
pre tax costs associated with the move and transition are estimated to
negatively impact earnings in the first quarter by approximately $1.2 million.
However, the cost savings resulting from the consolidation over the remaining
nine months of the year 2000 are estimated to reduce the impact on earnings for
the year to approximately $0.2 million.
Through FCF, the Company is involved in the direct origination and
servicing of small consumer loans. FCF began operations in the first quarter of
1995 with the opening of two branches in Richmond, Virginia. Through December
31, 1999 FCF had seventeen branches in Virginia and North Carolina. FCF is
evaluating additional branch openings in 2000. As of December 31, 1999, $20.9
million, or 8% of the Company's gross contract receivables was attributable to
FCF compared to $16.5 million, or 7% at December 31, 1998 and $12.9 million, or
7% at December 31, 1997.
RI was formed in 1997 as a third party debt collection company to
capitalize on the Company's collection expertise. Recoveries, Inc. is currently
licensed in 38 states, and expects to expand to additional states. The current
business plan focuses on servicing foreclosed or troubled loan portfolios, debt
collections for medical organizations and for other third party businesses.
The Company is incorporated under the laws of Delaware. The Company's
principal executive and administrative offices are located at 5425 Robin Hood
Road, Suite 101B, Norfolk, Virginia 23513, and the Company's telephone number is
(757) 858-4054. References to the Company include the Company's wholly owned
subsidiaries.
Industry Overview
The automobile industry is dominated in certain respects by commercial
banks and captive finance companies of major automobile manufacturers. Although
consumer credit risk classifications are not standardized, institutions
generally focus on consumers that could be characterized as being "low-risk" or
"medium-risk" from a credit perspective. TFC's target market involves consumers
that are characterized as being "high-risk" from a credit perspective.
The direct consumer loan industry established in the early 1900's has
traditionally been serviced by major national companies, smaller regional
companies and small local independent companies. Over the last 10-15 years many
of the major national companies have retreated from or reduced their involvement
in this market.
Management's focus in 1999 and continuing in 2000 has been on directing the
Company toward those sectors of the market in which management believes pricing
more closely reflects the risk inherent in the business. Areas of focus include
the point-of-sale business, bulk purchases and direct consumer loans all of
which involve consumers whom have limited access to traditional sources of
credit.
Automobile Finance Operations (TFC)
Dealer Selection and Program
Through its marketing efforts, TFC has established relationships with
dealers that originate installment sales contracts purchased by TFC, either
through point-of-sale purchases or bulk purchases. TFC's relationships are with
both franchised automobile dealerships and independent used car dealers that are
not affiliated with the Company.
To achieve an acceptable rate of return and provide for credit risks,
contracts are purchased from dealers at a discount to the remaining principal
balance. With respect to point-of-sale purchases, the discount is the difference
between TFC's purchase price from the dealer and the amount financed, net of the
cost of ancillary products. With respect to bulk purchases, the discount is the
difference between TFC's purchase price and the amount of the remaining
principal balance on the contract. The amount of the discount at which contracts
are purchased reflects,
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among other things, term and credit risk. Contracts are purchased in accordance
with applicable underwriting criteria and pursuant to a Master Dealer Agreement,
in the case of point-of-sale purchases, or an Asset Purchase Agreement, in the
case of bulk purchases.
TFC believes that its dealer programs provide substantial benefits to
dealers by providing a source of financing for a group of customers who
typically find financing difficult to obtain, thereby increasing the number of
vehicles sold and improving dealer profitability. Additionally, TFC provides the
following services to dealers through its point-of-sale program: (1)
documentation designed to conform to applicable federal and state laws; (2)
timely response to credit applications; (3) timely payment for approved
installment contracts; and (4) access to a range of ancillary products.
Sales and Marketing
TFC markets to both franchised automobile dealerships and independent used
car dealers. Initial contacts are pursued both by telemarketing through its
national marketing division and by personal visits to dealer facilities by
appropriate marketing personnel. TFC also establishes relationships with dealers
through referrals from existing dealers and independent marketing contractors.
Other marketing efforts involve the distribution of marketing brochures and
advertisements in trade journals and other industry publications directed to
dealers. TFC also participates at several of the automobile dealers association
meetings and conventions.
Competition
There are numerous providers of financing for the purchase of used
vehicles. These financing sources include banks, savings and loan associations,
consumer finance companies, credit unions and financing divisions of automobile
manufacturers or automobile retailers. Many of these providers of vehicle
financing have significantly greater resources than TFC and have relationships
with established dealer networks. TFC has focused on a segment of the market
comprised of consumers who typically do not meet the more stringent credit
requirements of the traditional sources of consumer financing and whose needs,
as a result, have historically not been consistently addressed by such financing
sources. If, however, the other providers of consumer financing were to assert a
significantly greater effort to penetrate TFC's targeted market segment, given
their financial strength, TFC could be materially and adversely affected by this
type of competition.
Point-of-Sale Purchase Program
In its point-of-sale program, TFC establishes relationships with dealers
that meet its financial, organizational and compliance criteria. TFC currently
makes point-of-sale purchases from dealers in approximately 30 states.
TFC purchases contracts relating to its point-of-sale program pursuant to a
Master Dealer Agreement. Upon entering into a Master Dealer Agreement, TFC
provides the dealer with necessary documentation for the origination of
installment sales contracts and trains its personnel regarding the use of TFC's
documentation. The Master Dealer Agreement contains representations and
warranties by the dealer to TFC with respect to certain matters, including the
security interest in the vehicle, and sets forth the general terms upon which
installment contracts will be purchased by TFC. The agreements are nonexclusive
and do not obligate a dealer to sell or TFC to purchase, any particular contract
or volume of contracts. The Master Dealer Agreement may be terminated at any
time by TFC or by the dealer.
Typically, a dealer will submit a customer's credit application to more
than one financing source for review. Under TFC's program, a dealer is required
to provide TFC with a completed credit application that lists the applicant's
liabilities, income, credit and employment history, and other personal
information bearing on the decision to extend credit.
The information from the application is then entered on TFC's automated
application processing system. After data entry is complete the system
automatically contacts the Credit Bureau and includes this information in the
applicant's file and identifies characteristics of the applicant that are
outside the parameters of the credit guidelines.
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The application and collected information are then analyzed by one of TFC's
credit analysts. The credit analyst's primary concern is the ability and
likelihood of the applicant to make regular monthly payments; secondarily, the
analyst considers the value of the collateral securing the loan. A credit
analyst evaluates the applicant's personal cash flow requirements and ability to
make regular payments and considers other factors, including the size of the
monthly payment in relation to the applicant's monthly income and other monthly
payment obligations as well as the amount of money to be financed in relation to
the purchase price and value of the vehicle. TFC determines collateral value
based upon the NADA's Guides on Retail and Wholesale Values and the Kelley Blue
Book.
Upon completion of the credit application review, a credit analyst will
decide whether to approve the financing as submitted, decline the financing or
conditionally approve the financing. Conditional approval of the financing may
involve amending the proposed terms of the contract to enable an applicant to
qualify under TFC's guidelines. Typical areas that TFC might require to be
amended include requiring a co-signer, changing the length of the proposed term
of payment, requiring a greater down payment, substantiating certain additional
credit information and requiring proof of resolution of certain credit
deficiencies as noted on the customer's credit bureau reports. Approved,
declined or conditional purchase decisions are promptly communicated to the
Dealer. Prior to funding an approved purchase, another credit staff member
completes a checklist which verifies that all required documentation has been
obtained and is accurate.
Typically, installment contracts are purchased by and assigned to TFC at a
price that reflects a discount from the amount financed. Most of the discount is
held in a non-refundable reserve against which credit losses are first applied.
The assigning dealer makes certain warranties as to the validity of the contract
and compliance with certain laws and generally agrees to indemnify TFC for any
claim, defense and set-off against the dealer that may be asserted against TFC
by reason of the assignment. TFC, at the time of purchase, requires physical
damage insurance on all automobiles covered by the installment sales contracts
that it purchases through its point-of-sale program. To the extent that material
terms of a contract prove to be inaccurate, TFC generally has the right to
require the dealer to repurchase such contract under the terms of the Master
Dealer Agreement.
Bulk Purchase Program
Many dealers finance automobile sales through the use of their own funds.
TFC currently purchases portfolios (bulk purchases) of seasoned installment
contracts from such dealers in approximately 30 states. TFC limits consideration
of dealers to those that generate sufficient business volume, employ
satisfactory credit approval procedures and adequately monitor and report loan
performance data. Bulk purchases are made pursuant to an Asset Purchase
Agreement that requires the dealer to make representations and warranties to TFC
with respect to each contract to be purchased by TFC and with respect to
security interests in the related vehicles. Unlike a point-of-sale purchase,
with respect to which TFC has the opportunity to verify the information relating
to the installment contract before its purchase, bulk purchases are made after
the origination of the installment contract Generally, if a representation or
warranty is breached, TFC, under the Asset Purchase Agreement, can require the
dealer to repurchase the contract. In certain cases, a special reserve or
holdback is established, against which payment defaults on contracts can be
charged.
TFC limits consideration of bulk purchases to those dealers that generate
sufficient business volume, employ satisfactory credit approval procedures and
adequately monitor and report loan performance data. Bulk purchases are made
pursuant to an Asset Purchase Agreement (an "Asset Purchase Agreement") which
requires the seller to make representations warranties, and indemnities to TFC
regarding to each contract to be purchased by TFC and with respect to security
interests in the motor vehicles purchased. Unlike a point-of-sale purchase, with
respect to which TFC has the opportunity to verify various information relating
to the installment contract prior to its purchase, bulk purchases are made
subsequent to the origination of the installment contract. Generally, if a
representation or warranty is breached, TFC, can require the dealer to
repurchase the contract. In certain cases, a special reserve or holdback is
established, against which payment defaults on contracts can be charged. TFC's
dealer due diligence normally begins with a review of the information obtained
from a dealer on TFC's standard information-gathering forms. Additional
information is obtained to ensure a dealer's compliance with licensure, bonding
and organizational requirements. TFC then performs extensive due diligence
procedures that it has developed during its years of operation to determine
whether to do business with the particular dealer.
Generally, TFC purchases that portion of a portfolio that meets or exceeds
TFC's underwriting guidelines. Within 90 days after completing a Bulk Purchase,
TFC generally confirms by telephone various terms of the
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contract with the purchaser of the motor vehicle with respect to a portion of
each Bulk Purchase. To the extent that material terms of any contract prove to
be inaccurate, TFC generally has the right to require the dealer to repurchase
such contract under the terms of the Asset Purchase Agreement.
Contract Duration
Contracts in TFC's point-of-sale portfolio have an initial duration
normally ranging from 18 to 48 months, with an average original maturity of
approximately 40 months. Bulk purchase contracts generally have an average
remaining maturity of 18 to 24 months at the time of purchase.
Contract Purchase Volume
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C> <C>
(dollars in thousands)
Gross Contracts purchased or originated:
Point-of-sale $130,786 $142,221 $ 85,311 $ 58,623 $231,877
Bulk 71,228 54,929 70,520 61,391 61,261
-------- -------- -------- -------- --------
Total $202,014 $197,150 $155,831 $120,014 $293,138
======== ======== ======== ======== ========
Number of contracts purchased or
originated:
Point-of-sale 10,499 11,478 7,411 6,154 24,095
Bulk 12,905 11,711 14,157 11,853 14,084
-------- -------- -------- -------- --------
Total 23,404 23,189 21,568 18,007 38,179
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Average size of contract: (in dollars):
Point-of-sale $ 12,457 $ 12,391 $ 11,511 $ 9,526 $ 9,623
Bulk $ 5,519 $ 4,690 $ 4,981 $ 5,179 $ 4,349
Weighted average $ 8,632 $ 8,502 $ 7,228 $ 6,665 $ 7,678
</TABLE>
The Finance Company's contract purchase volume is discussed more fully in
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the TFC Enterprises, Inc. 1999 Annual Report, which is
incorporated herein by reference.
Ancillary Products
In connection with its point-of-sale business, TFC offers, through its
dealers in certain states, warranty products, as well as physical damage
insurance. These products are provided and underwritten by third-party vendors.
Accordingly, liabilities under the ancillary products are not obligations of
TFC. TFC offers these products to dealers so that they, in turn, may provide
vehicle purchasers a more complete line of products and services. By offering
these products, TFC is able to generate supplementary revenue without incurring
significant additional expenses. During 1999, 1998 and 1997, TFC generated gross
revenues of approximately $0.4 million, $0.7 million and $0.8 million,
respectively, from the sale of ancillary products through its dealers.
Collections
Payments on purchased contracts are received by TFC through a number of
different means, including electronic transfer, personal check, payroll check
endorsed to TFC, government check (such as Social Security, disability or income
tax refund check that is endorsed to TFC), cashier's check, traveler's check,
money order, Western Union Quick Collect Check, bank wire transfer and cash.
Payments are monitored by TFC to maintain current information regarding each
customer's current address and banking data. In certain instances, a customer
will make a payment at one of the CPOs or the service center.
TFC underwriting guidelines dictate that prior to origination by the
dealer, United States military enlisted personnel must execute an authorized
allotment form that provides for the automatic electronic transfer of their
respective monthly payments to TFC. This process is managed by a third-party
data processor, Military Assistance Corporation ("MAC"). Salary allotments are
effected monthly by the respective military branch's disbursement center. On the
first day of each month immediately following a month in which allotments are
effected, the amount
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of such allotment is deposited into a transaction account at Fort Knox National
Bank established by MAC in the name of the obligor and immediately transferred
by MAC first, from the obligor's account to a MAC custodial account at Fort Knox
-----
National Bank, and, second, to the collection account. The allotment system
------
enables United States military personnel to effect timely payment of their
obligations without regard to reassignment or temporary relocation
characteristic of United States military enlisted personnel. Although it is
TFC's policy that United States military enlisted personnel initially authorize
the allotment of their respective monthly payments to TFC, such allotments may
be withdrawn. The mere withdrawal of an allotment authorization does not
constitute an event of default under a contract, but it does make it more
difficult to effect collections with respect to the delinquent related
receivables.
Monitoring the payment history of accounts and implementing appropriate
remedial action is the responsibility of the Collections Department within the
service center. At year-end 1999, a total of 166 employees, or 50% of TFC's
total full-time equivalent employees, worked in the Collections Departments of
the two service centers.
One of the primary responsibilities of the Collections Department is to
monitor customer accounts that are delinquent in payment. Collections Department
personnel work with customers to resolve payment problems and bring accounts to
current status at the earliest possible stage of delinquency. Collections
Department employees are compensated, in part, through bonuses tied to their
monthly collection performance.
When calling a delinquent account, Collection Department personnel utilize
TFC's Collections Training Manual developed by TFC. The manual specifies the
procedure to follow in different circumstances in order to maximize the
effectiveness of the call. Specific action with respect to a delinquent account
will depend on the customer's particular circumstances as well as the past
payment history of the account. However, in all cases, the primary focus is
resolving the problem causing the delinquency, arranging a modified payment
plan, or working out a settlement agreement. Each Collections Department
employee is responsible for keeping records of all collections activity carried
out on each account and for following up on "callback" and "broken promise"
dates as appropriate. In addition, the Collections Department is responsible for
(i) following up as necessary on bankruptcies and (ii) requesting repossession
and legal action.
When TFC has difficulty locating a customer, Collections Department
personnel will attempt to locate the individual by utilizing various sources of
information about a customer to which TFC has access. All communications with
and efforts to locate the customer are reflected in TFC's data files.
In certain situations, TFC will repossess a vehicle. To the extent that a
deficiency exists upon repossession and sale of a vehicle, TFC may take action
to obtain a judgment and garnish wages and assets. From an accounting
perspective, repossessed assets are carried at the lower of the unpaid loan
balance or anticipated liquidation proceeds.
Accounts are generally charged off at the end of the month in which they
become 180 days contractually past due. Additionally, in the month that
repossession occurs the carrying value of repossessed asset is reduced, through
charge-off, to the lower of the unpaid contract balance or anticipated
liquidation proceeds. Once an account is charged off, it is transferred to a
separate group of collectors who continue collection activities (the "Recovery
Unit"). The collection activities undertaken by the Recovery Unit are similar in
many respects to those of the Collections Department. Customers are called as
required and attempts are made to set up repayment plans or workout settlement
agreements as appropriate to a customer's circumstances. Each Recovery Unit
employee is responsible for keeping records of all collections activity carried
out on Recovery Unit accounts and for following up on callback and broken
promise dates as appropriate. In addition the Recovery Unit is responsible for
(i) following up as necessary on bankruptcies and (ii) requesting repossession
and legal action.
TFC's charge-off and delinquency experience is discussed more fully in
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the TFC Enterprises, Inc. 1999 Annual Report, which is
incorporated herein by reference.
Consumer Finance Operations (FCF)
Consumer Loan Program
<PAGE>
In its Consumer Loan Program, First Community Finance ("FCF") originates
direct loans through a branch network. Loans are obtained through print media,
customer referrals, renewals and other sources. Applications are primarily
received directly from the consumer either by telephone or in person at one of
the branches.
Once an application has been received, a background investigation is
performed on the applicant, including such things as employment and income
verification, residence verification, direct references from other creditors and
review of credit bureau files. This information is reviewed by a branch manager
or assistant manager to determine creditworthiness. If the applicant is
approved, the applicant would visit the appropriate branch to execute necessary
documents and receive funding.
Loan Origination
Most contracts have an initial duration of 36 months or less.
The following table sets forth for the periods indicated FCF's loan volume
as well as the number and average size of its loans. FCF commenced operations in
1995.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans originated (in thousands) $28,143 $21,391 $16,023 $13,174 $6,257
======= ======= ======= ======= ======
Number of loans originated 14,679 11,864 7,093 6,623 3,254
======= ======= ======= ======= ======
Average size of loan $ 1,917 $ 1,803 $ 2,259 $ 1,989 $1,923
======= ======= ======= ======= ======
</TABLE>
FCF's loan volume is discussed more fully in Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the TFC
Enterprises, Inc. 1999 Annual Report, which is incorporated herein by reference.
Ancillary Products
In connection with its consumer loan business, FCF offers its customers
credit life, credit accident and health insurance and property insurance. These
products are provided and underwritten by third-party vendors. Accordingly,
liabilities under the ancillary products are not obligations of the Company.
These products protect the customer as well as providing supplementary revenue
to FCF. During 1999, 1998 and 1997, FCF generated gross revenues of
approximately $0.3 million each year from the sale of ancillary products.
Collections
Payments on consumer loans are received by FCF primarily through the mail
or the customer pays at the appropriate branch. Each branch monitors payments to
maintain current information regarding each customer's current address and
banking data. Branch personnel, at times, will make a collection through a field
visit to the customer. Monitoring the payment history of the accounts and
implementing appropriate remedial action is the responsibility of the branch.
One of the primary responsibilities of the branch is to monitor customer
accounts that are delinquent in payment. Branch personnel work with customers to
resolve payment problems and bring accounts to current status at the earliest
possible stage of delinquency. Specific action with respect to a delinquent
account will depend on the customer's particular circumstances as well as the
past payment history of the account. However, in all cases the primary focus is
resolving the problem causing the delinquency, arranging a modified payment plan
or working out a settlement. At times branch personnel meet with the customers
in the field or at the branch. When FCF has difficulty locating a customer,
collections personnel will attempt to locate the individual by utilizing various
sources of information about a customer to which FCF has access. All
communications with and efforts to locate the customer are reflected in FCF's
data files.
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Accounts are generally charged off at the end of the month in which they
become 180 day contractually past due. Collection activity continues even after
charge off. Customers are called regularly and attempts are made to set up
repayment plans or workout settlement agreements as appropriate to customer's
circumstances. FCF's charge off and delinquency experience is discussed more
fully in Management's Discussion and Analysis of Financial Condition and Results
of Operations included in the TFC Enterprises, Inc. 1999 Annual Report, which is
incorporated herein by reference.
Competition
There are numerous providers of direct loans. These financing sources
include banks, savings and loan associations, consumer finance companies and
credit unions. Many of these providers have significantly greater resources than
FCF. FCF has focused on a segment of the market comprised of consumers who
typically do not meet the more stringent credit requirements of the traditional
sources of consumer financing and whose needs, as a result, have historically
not been consistently addressed by such financing sources. If, however, the
other providers of consumer financing were to assert a significantly greater
effort to penetrate FCF's targeted market segment, given their financial
strength, FCF could be materially and adversely affected by this type of
competition.
Recoveries, Inc.
To capitalize on its collection expertise, the Company, in 1997, formed a
new subsidiary, Recoveries, Inc. (RI) as a third party debt collector. RI is
currently licensed in 38 states, and expects to expand to additional states. The
current business plan focuses on servicing foreclosed or troubled loan
portfolios, debt collections for medical organizations and for other third party
businesses.
Recoveries Inc. has listings totaling in excess of $2 million from 57
active clients, mostly in the medical profession. In addition, RI is servicing
two sub prime automobile portfolios which total more than $4 million.
Information Systems
The Company processes all data relating to its contract receivables and
financial reporting through a distributed network of computers. TFC's computer
systems are networked together to provide information to management for analysis
as well as automatic posting to the general ledger for financial reporting
purposes. The systems provide for complete contract processing from the purchase
of the contract, payment to the dealer, posting of payments and all other
collection activity from the inception date of the installment contract. TFC's
systems operate on software that has been adapted to the specific manner in
which TFC operates its business.
The Company has invested in technology that enables TFC to electronically
process credit applications, thereby reducing processing time and improving
standardization of credit underwriting without significant staff increases. The
TFC systems are interfaced with a predictive dialing system designed to enhance
collection activity by increasing the number of customer contacts per collector
hour. This system dials multiple telephone numbers simultaneously based on
parameters defined by the Collections Department. Calls are connected
automatically to a collector at the same time the customer's account is
displayed on the collector's computer screen. The process permits better control
of calling patterns for more effective calling and improved customer contact
rates. By eliminating busy signals, no answers and answering machines, the
system enables the collector to speak to more customers. The system also reports
collection performance by collector for improved supervision and results.
First Community Finance uses a computer system designed for the consumer
loan industry. Each branch processes all data relating to that branch on a
computer within the branch. The system provides for complete contract processing
from the closing of the loan, posting of payments and all collection activity.
These systems are networked together to provide consolidated management
information and automatic posting to the Company's general ledger for financial
reporting.
The Company believes that it has sufficient management information systems
in place, or in the process of being implemented, to meet the Company's current
and near-term future requirements.
Regulation
The Company's businesses are subject to regulation and licensing under
various federal, state and local statutes and regulations. Certain states where
the Company operates have adopted motor vehicle retail installment sales acts or
variations thereof, consumer finance acts and third party debt collections acts.
Such laws regulate,
Page 10
<PAGE>
among other things, the interest rates and terms and conditions of motor vehicle
retail installment sales contracts and also impose restrictions on consumer
transactions and require sales contract disclosures in addition to the
requirements under federal law. Those requirements impose specific statutory
liabilities upon creditors who fail to comply.
Numerous federal and state consumer protection laws and related regulations
impose substantive disclosure requirements upon lenders and servicers involved
in motor vehicle financing (TFC), direct consumer loans (FCF) and third party
debt collections (RI). Some of the federal laws and regulations include the
Truth-in-Lending Act, the Equal Credit Opportunity Act, the Federal Trade
Commission Act, the Fair Credit Reporting Act, the Fair Debt Collection
Practices Act, the Motor Vehicle Information and Cost Savings Act, the Magnuson-
Moss Warranty Act, the Federal Reserve Board's Regulations B and Z and the
Soldiers' and Sailors' Civil Relief Act.
In addition, the Federal Trade Commission ("FTC") has adopted the
holder-in-due-course rule, which has the effect of subjecting persons that
finance retail installment credit transactions (and certain related lenders and
their assignees) to all claims and defenses which the purchaser could assert
against the seller of the goods and services. With respect to used automobiles
specifically, the FTC's rule on Sale of Used Vehicles requires that all sellers
of used vehicles prepare, complete and display a Buyer's guide which explains
the warranty coverage for such vehicles. The Credit Practices Rules of the FTC
impose additional restrictions on sales contract provisions and credit
practices.
The Company believes that it is in compliance with all applicable laws and
regulations.
Employees
At December 31, 1999, the Company had 398 full-time equivalent employees.
No employees are currently covered by collective bargaining agreements. The
Company believes that its employee relations are excellent.
Executive Officers of the Company
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age* Position
<S> <C> <C>
Robert S. Raley, Jr. 62 Chairman of the Board of Directors of TFCE, TFC and FCF,
President and Chief Executive Officer of TFCE and TFC, and
Executive Vice President of FCF
Ronald G. Tray 58 Vice President of TFCE and, Senior Executive Vice President
and Chief Operating Officer and Director of TFC
Delma H. Ambrose 40 Senior Vice President of TFC and General Manager of the
Norfolk Service Center
G. Kent Brooks 63 President, and Chief Executive Officer and Director of FCF
Rick S. Lieberman 43 Executive Vice President and Chief Lending Officer of TFC
Patricia Piccola 55 Senior Vice President, Chief Administrative Officer and
Secretary of TFC
Craig D. Poppen 41 Vice President, Treasurer and Chief Financial Officer of
TFCE and FCF, Executive Vice President, Treasurer and Chief
Financial Officer of TFC
</TABLE>
*As of December 31, 1999
Robert S. Raley, Jr. founded TFC in 1977 and has served as Chairman of the
Board from that time until April 1990 and again from May 1990 to the present.
Additionally, he served as President and Chief Executive Officer from 1977 to
April 1990, from May 1990 to December 1992 and from August 1996 to the present.
Mr. Raley has also served as Chairman of the Board of TFCE since inception in
1984 until April 1990 and again from May 1990 to the present and as its
President and Chief Executive Officer from 1984 until April 1990 and again from
May 1990 through 1992 and from August 1996 to the present. Mr. Raley initially
entered the consumer finance industry in 1959.
Page 11
<PAGE>
Ronald G. Tray joined TFC as a Vice President and director for Management
Information Systems in 1989. Mr. Tray was appointed Chief Operating Officer and
Director of TFC in 1996. Prior to joining TFC, Mr. Tray was with MTech
Corporation, a data processing service bureau for banks, located in Fairfax,
Virginia for approximately 20 years, serving as President of the Mid-Atlantic
Division for the last 2 1/2 years.
Delma H. Ambrose, Senior Vice President of TFC and General Manager of the
Norfolk Service Center. Mrs. Ambrose joined TFC in 1989 and has served the
Company in several capacities prior to becoming the General Manager of the
Norfolk Service Center. Prior to joining TFC, she was with Beneficial Finance
Corporation for 11 years.
G. Kent Brooks joined FCF in 1994 as President. Prior to that, he was with
Peoples Finance Corporation, Richmond, Virginia, from 1956 to 1980, the last
eight years of which he served as President. From 1980 to 1992, Mr. Brooks
served as a Senior Vice President and Regional Manager for Provident Financial
Corporation, subsequent to its acquisition of Peoples Finance Corporation. From
1992 to 1993, Mr. Brooks was with American General Finance, subsequent to its
acquisition of Provident Financial Corporation. Mr. Brooks has been a Director
of FCF since 1994.
Rick S. Lieberman, Executive Vice President and Chief Lending Officer of
TFC. Mr. Lieberman joined TFC in 1989 and has served the Company in several
capacities, including General Manager, Vice President of the Norfolk Regional
Service Center. Prior to joining TFC, he was with ITT Consumer Financial
Corporation for 8 years.
Patricia Piccola joined TFC in 1980 through an acquisition of another
specialty finance company. During her tenure with the company Pat has been
involved in most every function of The Finance Company's corporate finance and
administrative areas most recently as Assistant to the Chief Operating Officer.
Craig D. Poppen, CPA, joined TFC as Chief Financial Officer in 1998. From
1988 until 1995, Mr. Poppen was employed by Ernst & Young LLP. From 1995 until
1997, Mr. Poppen was employed by KPMG Peat Marwick LLP, and from 1997 until
January 1998, Mr. Poppen was employed by New Dominion Pictures, Inc., a
television production company where he served as Chief Financial Officer.
Item 2. Properties
The Company's principal executive offices, principal Service Center, a
Point-of-Sale Loan Production Office and Bulk Loan Production Office are located
in Norfolk, Virginia. The combined facilities consist of approximately 36,000
square feet of space pursuant to a lease expiring in 2006.
The Company's Bulk Service Center and a Point-of-Sale Loan Production
Office is located in Jacksonville, Florida. The facility consists of
approximately 15,000 square feet of space pursuant to a lease expiring in 2001.
The Company's has seven additional Point-of-Sale Loan Production Offices that on
a combined basis total approximately 12,038 square feet of space pursuant to
leases expiring from March 2000 to November 2002. First Community Finance,
Inc.'s 18 offices, on a combined basis, total approximately 20,067 square feet
of space pursuant to leases expiring February 2000 to January 2003.
The Company believes that its facilities are adequate for its current and
near-term future requirements.
Item 3. Legal Proceedings
The Company is a party to several legal actions that are ordinary, routine
litigation incidental to its business. The Company believes that none of those
actions, either individually or in the aggregate, will have a material adverse
effect on the results of operations or financial position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the year ended December 31, 1999.
Page 12
<PAGE>
PART II
The information required by Part II, Items 5, 6, 7 and 8 has been
incorporated herein by reference to the TFC Enterprises, Inc. 1999 Annual Report
as set forth below, in accordance with General Instruction G(2) of Form 10-K.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Since December 22, 1993, TFC Enterprises, Inc. Common Stock has traded
on the Nasdaq National Market System under the symbol "TFCE." Share price
information with respect to the Common Stock is set forth in the "Selected
Quarterly Data" table included in the TFC Enterprises, Inc. 1999 Annual Report,
which is incorporated herein by reference.
As of March 15, 2000, there were approximately 3,155 holders of the
Common Stock, including approximately 156 holders of record. No cash dividends
have been paid with respect to the Common Stock since issuance. The Company has
no current plans to pay any cash dividends relating to the Common Stock in the
foreseeable future. Any dividends on the Common Stock will be at the sole
discretion of the Company's Board of Directors and will depend upon the
Company's profitability and financial condition, capital requirements, statutory
restrictions, requirements of the Company's lenders, future prospects and other
factors deemed relevant by the Company's Board of Directors. If any dividends
are paid to the holders of Common Stock, all holders will share equally on a per
share basis.
The Company has not issued any of its authorized preferred stock.
Item 6. Selected Financial Data
Information included in the section entitled "Five-Year Summary of
Selected Financial Data" in the TFC Enterprises, Inc. 1999 Annual Report is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Information included in the section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the TFC
Enterprises, Inc. 1999 Annual Report is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Information included in the section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the TFC
Enterprises, Inc. 1999 Annual Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements of TFC Enterprises, Inc.,
including notes thereto, are presented in the TFC Enterprises, Inc. 1999 Annual
Report and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants
None.
Page 13
<PAGE>
PART III
The information required by Part III, Items 10, 11, 12, and 13 has
been incorporated herein by reference to the Company's 2000 Proxy Statement as
set forth below, in accordance with General Instruction G(3) of Form 10-K.
Item 10. Directors and Executive Officers of the Registrant; Section 16(a)
Beneficial Ownership Reporting Compliance
Information relating to directors of the Company and compliance with
Section 16(a) of the Exchange Act is set forth in the sections entitled
"Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's 2000 Proxy Statement and is incorporated herein by
reference. Pursuant to General Instruction G(3) of Form 10-K, certain
information concerning the executive officers of the Company is set forth under
the caption entitled "Executive Officers of the Company" in Part I, Item 1, of
this Form 10-K.
Item 11. Executive Compensation
Information regarding compensation of officers and directors of the
Company is set forth in the section entitled "Executive Compensation" in the
Company's 2000 Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding ownership of certain of the Company's securities
is set forth in the section entitled "Security Ownership of Management and
Certain Beneficial Owners" in the Company's 2000 Proxy Statement and is
incorporated herein by reference.
Item 13. Certain Relationship and Related Transactions
Information regarding certain relationships and related transactions
with the Company is set forth in the section entitled "Certain Relationships and
Related Transactions" in TFC's 2000 Proxy Statement and is incorporated herein
by reference.
Page 14
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this report:
(1) Financial Statements
The Consolidated Financial Statements of TFC Enterprises, Inc.
and the Auditor's Report thereon, are incorporated herein by reference.
Applicable pages in the TFC Enterprises, Inc. 1999 Annual Report are as follows:
<TABLE>
<CAPTION>
Page
<S> <C>
Consolidated Financial Statements:
Report of Ernst & Young LLP, Independent Auditors --
Consolidated Balance Sheets at December 31, 1999 and 1998 ___
Consolidated Statements of Operations for the Years ended ___
December 31, 1999, 1998 and 1997
Consolidated Statements of Changes in Shareholders' Equity
for the Years ended December 31, 1999, 1998 and 1997 ___
Consolidated Statements of Cash Flows for the Years ended
December 31, 1999, 1998 and 1997 ___
Notes to Consolidated Financial Statements ___
</TABLE>
(2) Financial Statement Schedule
Schedule I - Financial Information of Registrant - TFC
Enterprises, Inc.
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and therefore
have been omitted.
(3) Exhibits
The exhibits listed on the accompanying Exhibit Index are filed
or incorporated by reference as part of this Form 10-K and such Exhibit
Index is incorporated herein by reference.
(b) Reports on Form 8-K (filed during the fourth quarter of 1999):
None.
Page 15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TFC ENTERPRISES, INC.
By: /s/ Robert S. Raley, Jr.
----------------------------------
Robert S. Raley, Jr.
Chairman of the Board, President and
Chief Executive Officer
Dated: March 30, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date:
<S> <C> <C>
/s/ Robert S. Raley, Jr. Chairman of the Board March 30, 2000
- -------------------------------------- and Director, President
and Chief Executive Officer
/s/ Walter S. Boone, Jr. Director March 30, 2000
- --------------------------------------
Walter S. Boone, Jr.
/s/ Douglas B. Bywater Director March 30, 2000
- --------------------------------------
Douglas B. Bywater
/s/ Peter H. Kamin Director March 30, 2000
- --------------------------------------
Peter H. Kamin
/s/ Andrew M. Ockershausen Director March 30, 2000
- --------------------------------------
Andrew M. Ockershausen
/s/ Phillip R. Smiley Director March 30, 2000
- --------------------------------------
Phillip R. Smiley
/s/ Linwood R. Watson Director March 30, 2000
- --------------------------------------
Linwood R. Watson
/s/ Craig D. Poppen Chief Financial Officer March 30, 2000
- -------------------------------------- (Principal Accounting and Financial
Craig D. Poppen Officer)
</TABLE>
Page 16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
No. Description Page No.
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation of TFC Enterprises, Inc. *
(Incorporated by reference to the Registrant's Registration Statement on Form S-1,
Commission File No. 33-70638, previously filed with the Commission on October 21,
1993.)
3.2 Amended and Restated Bylaws of TFC Enterprises, Inc. (Incorporated by reference to *
the Registrant's Registration Statement on Form S-1, Commission File No. 33-70638,
previously filed with the Commission on October 21, 1993.)
3.3 Second Amendment to Amended and Restated Bylaws of TFC Enterprises, Inc. regarding *
the number of directors comprising the Board of TFC Enterprises, Inc. (Incorporated
by reference to the Registrant's Form 10-K for the fiscal year ended December 31,
1995, Commission File No. 0-22910, previously filed with the Commission.)
4 Form of Common Stock Certificate of the TFC Enterprises, Inc. (Incorporated by *
reference to the Registrant's Registration Statement on Form S-1, Commission File
No. 33-70638, previously filed with the Commission on October 21, 1993.)
10.4 Employment Agreement between The Finance Company and Robert S. Raley, Jr. dated *
October 22, 1992. (Incorporated by reference to the Registrant's Registration
Statement on Form S-1, Commission File No. 33-70638, previously filed with the
Commission on October 21, 1993.)
10.5 The Finance Company 401(k) Savings Plan dated May 1, 1991, and Amendment No. 1 dated *
August 1, 1993. (Incorporated by reference to the Registrant's Registration
Statement on Form S-1, Commission File No. 33-70638, previously filed with the
Commission on October 21, 1993.)
10.6 TFCEI Employee Stock Purchase Plan dated December 20, 1993. (Incorporated by *
reference to the Registrant's Registration Statement on Form S-1, Commission File
No. 33-70638, previously filed with the Commission on October 21, 1993.)
10.7 Employment Agreement between Ronald G. Tray and The Finance Company dated January 1, *
1995. (Incorporated by reference to the Registrant's Form 10-K for the fiscal year
ended December 31, 1994, Commission File No. 0-22910, previously filed with the
Commission.)
10.8 TFC Enterprises, Inc. 1995 Long-Term Incentive Plan. (Incorporated by reference to *
the Registrant's Form 10-K for the fiscal year ended December 31, 1994, Commission
File No. 0-22910, previously filed with the Commission.)`
10.10 Forms of Junior Subordinated Promissory Notes. (Incorporated by reference to the *
Registrant's Registration Statement on Form S-1, Commission File No. 33-70638,
previously filed with the Commission on October 21, 1993.)
10.11 Office Lease dated June 1, 1995, by and between AFW No. 39 Corporation and The *
Finance Company. (Incorporated by reference to the Registrant's Form 10-K for the
fiscal year ended December 31, 1994, Commission File No. 0-22910, previously filed
with the Commission.)
10.12 Lease Agreement, dated April 28, 1995, between Three Oaks Plaza, Ltd. and The *
Finance Company, Inc. (Incorporated by reference to the Registrant's Form 10-Q for
the quarter ended March 31, 1995, Commission File No. 0-22910, previously filed with
the Commission.)
10.13 Note purchase agreement among The Finance Company and Connecticut General Life *
Insurance Company ("CIGNA") and certain affiliates of CIGNA dated June 30, 1995,
relating to $10,000,000 in original principal amount of 9.38% Senior Subordinated
Notes due June 30, 2003. (Incorporated by reference to the Registrant's Form 10-Q
for the quarter ended June 30, 1995, Commission File No. 0-22910, previously filed
with the Commission.)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10.14 Amendment to Employment Agreement between The Finance Company and Ronald G. Tray *
dated July 27, 1995 (effective as of January 1, 1995). (Incorporated by reference
to the Registrant's Form 10-Q for the quarter ended June 30, 1995, Commission File
No. 0-22910, previously filed with the Commission.)
10.15 Amendment No. 1 to note purchase agreement, dated as of June 30, 1995, by and *
between The Finance Company and Connecticut General Life Insurance Company ("CIGNA")
regarding CIGNA's consent to the Company's $25 million credit facility with
NationsBank. (Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended September 30, 1995, Commission File No. 0-22910, previously filed with
the Commission.)
10.16 Second Amendment to Employment Agreement between Ronald G. Tray and The Finance *
Company dated January 1, 1996. (Incorporated by reference to the Registrant's Form
10-K for the fiscal year ended December 31, 1995, Commission File No. 0-22910,
previously filed with the Commission.)
10.17 Amendment No. 2 and Waiver and Forbearance Agreement by and among The Finance *
Company, CIGNA, and certain affiliates of CIGNA, dated as of January 31, 1996,
relating to 9.38% Senior Subordinated Notes, dated as of January 31, 1996.
(Incorporated by reference to the Registrant's Form 10-K for the fiscal year ended
December 31, 1995, Commission File No. 0-22910, previously filed with the
Commission.)
10.18 Amended and Restated Motor Vehicle Installment Contract Loan and Security Agreement *
dated January 1, 1999 between The Finance Company and General Electric Capital
Corporation. (Incorporated by reference to the Registrant's Form 8-K previously
filed with the Commission, Commission File No. 0-22910, on January 29,1999.)
10.19 TFC Enterprises, Inc. Warrant to Purchase Common Stock dated December 20, 1996. *
(Incorporated by reference to the Registrant's Form 10-K for the fiscal year ended
December 31, 1996, Commission File No. 0-22910, previously filed with the
Commission.)
10.20 Allonge to Warrant to Purchase Common Stock dated April 4, 1997. (Incorporated by *
reference to the Registrant's Form 10-K for the fiscal year ended December 31, 1996,
Commission File No. 0-22910, previously filed with the Commission.)
10.21 TFC Enterprises, Inc. Warrant to Purchase Common Stock dated April 4, 1997. *
(Incorporated by reference to the Registrant's Form 10-K for the fiscal year ended
December 31, 1996, Commission File No. 0-22910, previously filed with the
Commission.)
10.22 Amended and Restated Registration Rights dated April 4, 1997 between TFC *
Enterprises, Inc. and General Electric Capital Corporation. (Incorporated by
reference to the Registrant's Form 10-K for the fiscal year ended December 31, 1996,
Commission File No. 0-22910, previously filed with the Commission.)
10.23 Amendment No. 3 and Waiver of Note Agreement by and among The Finance Company, *
CIGNA, and certain affiliates of CIGNA, dated as of April 4, 1997, relating to 9.38
% Senior Subordinated Notes. (Incorporated by reference to the Registrant's Form
10-K for the fiscal year ended December 31, 1996, Commission File No. 0-22910,
previously filed with the Commission.)
10.24 Loan and Security Agreement dated August 17, 1999, between First Community Finance,
Inc. and Bank of America National Association. (Incorporated by reference to the
Registrant's form 10Q for the quarter ended September 30, 1999, Commission File No.
0-22910, previously filed with the Commission.)
**10.25 Purchase Agreement between The Finance Company and TFC Receivables Corporation 2
dated December 1, 1999.
**10.26 Sale and Servicing Agreement among The Finance Company, Asset Guaranty Insurance
Company, TFC Automobile Receivables Trust 1999-1, TFC Receivables Corporation 2 and
Norwest Bank Minnesota, National Association dated December 1, 1999.
**10.27 Indenture among Asset Guaranty Insurance Company, Norwest Bank Minnesota,
</TABLE>
Page 18
<PAGE>
<TABLE>
<S> <C>
National Association and TFC Automobile Receivables Trust 1999-1 dated December 1,
1999.
**10.28 Insurance and Reimbursement Agreement among The Finance Company, Asset Guaranty
Insurance Company, TFC Automobile Receivables Trust 1999-1, TFC Receivables
Corporation 2 and Norwest Bank Minnesota, National Association dated December 1,
1999.
11 Statement re: computation of per share earnings. (Incorporated by reference to
Exhibit 99.1 of this report.)
**13 Annual report to security holders.
**21 List of subsidiaries of TFC Enterprises, Inc.
**23 Consent of Ernst & Young LLP.
**99.1 The Financial Statements and notes thereto which appear on pages ___ through ___ of
TFC Enterprises, Inc. 1999 Annual Report to Shareholders (filed as Exhibit 13 to
this Form 10-K) are incorporated herein by reference.
**99.2 Financial Statement Schedule I.
</TABLE>
____________________________________
* (Not filed herewith. In accordance with Rule 12b-32 of the General Rules
and Regulations under the Securities Exchange Act of 1934, the exhibit is
incorporated by reference).
** Filed herewith.
<PAGE>
EXECUTION COPY
PURCHASE AGREEMENT
between
THE FINANCE COMPANY, Seller
and
TFC RECEIVABLES CORPORATION 2, Purchaser
dated as of December 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PURCHASE AGREEMENT................................................................................ 1
- ------------------
W I T N E S S E T H:.............................................................................. 1
- -------------------
ARTICLE I DEFINITIONS............................................................................. 1
SECTION 1.1 General......................................................................... 1
SECTION 1.2 Specific Terms.................................................................. 2
SECTION 1.3 Usage of Terms.................................................................. 3
SECTION 1.4 Certain References.............................................................. 3
SECTION 1.5 No Recourse..................................................................... 3
SECTION 1.6 Action by or Consent of Noteholders and Certificateholders...................... 3
SECTION 1.7 Material Adverse Effect......................................................... 4
ARTICLE II CONVEYANCE OF THE RECEIVABLES AND THE OTHER CONVEYED PROPERTY.......................... 4
SECTION 2.1 Conveyance of the Receivables and the Other Conveyed Property................... 4
ARTICLE III REPRESENTATIONS AND WARRANTIES........................................................ 6
SECTION 3.1 Representations and Warranties of Seller........................................ 6
SECTION 3.2 Representations and Warranties of Purchaser..................................... 9
ARTICLE IV COVENANTS OF SELLER.................................................................... 12
SECTION 4.1 Protection of Title of Purchaser................................................ 12
SECTION 4.2 Other Liens or Interests........................................................ 13
SECTION 4.3 Costs and Expenses.............................................................. 13
SECTION 4.4 Indemnification................................................................. 13
ARTICLE V REPURCHASES............................................................................. 15
SECTION 5.1 Repurchase of Receivables Upon Breach of Warranty............................... 15
SECTION 5.2 Reassignment of Purchased Receivables........................................... 16
SECTION 5.3 Waivers......................................................................... 17
ARTICLE VI MISCELLANEOUS.......................................................................... 17
SECTION 6.1 Liability of Seller............................................................. 17
SECTION 6.2 Merger or Consolidation of Seller or Purchaser.................................. 17
SECTION 6.3 Limitation on Liability of Seller and Others.................................... 18
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 6.4 Seller May Own Notes or Certificates............................................ 18
SECTION 6.5 Amendment....................................................................... 18
SECTION 6.6 Notices......................................................................... 19
SECTION 6.7 Merger and Integration.......................................................... 19
SECTION 6.8 Severability of Provisions...................................................... 20
SECTION 6.9 Intention of the Parties........................................................ 20
SECTION 6.10 Governing Law................................................................... 20
SECTION 6.11 Counterparts.................................................................... 20
SECTION 6.12 Conveyance of the Receivables and the Other Conveyed Property to the Issuer..... 20
SECTION 6.13 Nonpetition Covenant............................................................ 21
SECTION 6.14 Third Party Beneficiary......................................................... 21
SCHEDULE A........................................................................................ 23
SCHEDULE OF RECEIVABLES........................................................................... 23
SCHEDULE B........................................................................................ 24
REPRESENTATIONS AND WARRANTIES OF SELLER.......................................................... 24
SCHEDULE C........................................................................................ 30
THE FINANCE COMPANY CHARGE-OFF POLICY............................................................. 30
</TABLE>
EXHIBITS
SCHEDULE A Schedule of Receivables
SCHEDULE B Representations and Warranties of Seller
SCHEDULE C The Finance Company Charge-Off Policy
SCHEDULE D Assignment
ii
<PAGE>
PURCHASE AGREEMENT
------------------
THIS PURCHASE AGREEMENT, dated as of December 1, 1999, executed between TFC
Receivables Corporation 2, a Delaware corporation, as purchaser ("Purchaser"),
and The Finance Company, a Virginia corporation, as seller ("Seller").
W I T N E S S E T H:
-------------------
WHEREAS, Seller and Purchaser are entering into this Agreement to provide for,
among other things, the acquisition by Purchaser of all of the right, title and
interests of Seller in and to the Receivables and the Other Conveyed Property on
the Closing Date;
WHEREAS, as a precondition to the effectiveness of this Agreement, the Seller,
the Trustee, the Trust Collateral Agent, the Back-up Servicer, the Insurer and
the Issuer will enter into the Sale and Servicing Agreement to provide for the
servicing of the Receivables;
WHEREAS, Purchaser is and will be conveying to the Issuer, among other things,
all of Purchaser's rights derived under this Agreement and the Sale and
Servicing Agreement, and Seller and Purchaser each agree that all covenants,
representations, warranties and agreements made by it in this Agreement with
respect to itself or the Receivables shall also be for the benefit of the
Trustee, on behalf of the Noteholders, and the Insurer;
WHEREAS, in connection with the issuance of the Notes, Seller will transfer the
Receivables or other consideration to Purchaser in exchange for such Notes;
WHEREAS, the transfer will be effected by this Agreement and an Assignment
between the Seller and Purchaser, and the list of Receivables so conveyed will
be listed on Schedule A attached hereto;
WHEREAS, Purchaser has agreed to purchase from Seller, and Seller, pursuant to
this Agreement, is transferring to Purchaser the Receivables and Other Conveyed
Property;
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, Purchaser and Seller, intending to be legally
bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
SECTION 1.1 General. Capitalized terms used herein without definition
-------
shall have the respective meanings assigned to such terms in the Sale and
Servicing Agreement dated as of December 1, 1999, by and among Asset Guaranty
Insurance Company, as insurer, Seller, in its capacity as Servicer, TFC
Automobile Receivables
<PAGE>
Trust 1999-1, as Issuer, Purchaser, as Seller, and Norwest Bank Minnesota,
National Association, as Trust Collateral Agent and Back-up Servicer.
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" means this Purchase Agreement and all amendments hereof
and supplements hereto.
"Closing Date" means December 1, 1999.
"Contracts Purchase Price" shall mean $81,438,389.
"Indenture Trustee" means Norwest Bank Minnesota, National
Association, and any successor Indenture Trustee appointed and acting pursuant
to the Indenture.
"Issuer" means TFC Automobile Receivables Trust 1999-1.
"Other Conveyed Property" means all money, instruments, rights and
other property that are subject or intended to be subject to the lien and
security interest of the Indenture (including all property and interests granted
to the Trust Collateral Agent), including all proceeds thereof, other than the
Receivables.
"Owner Trustee" means Wilmington Trust Company, not in its individual
capacity but solely as Owner Trustee appointed and acting pursuant to the Trust
Agreement.
"Receivables" means the Receivables listed on the Schedule of
Receivables attached hereto as Schedule A.
"Related Documents" means the Notes, the Certificates, the Custodian
Agreement (if any), the Sale and Servicing Agreement, the Indenture, the Trust
Agreement, the Policy, Servicer Termination Side Letter, the Insurance
Agreement, the Certificate to the Trustee, the Indemnification Agreement, the
Note Purchase Agreement, the Standby Processing Agreement, and the Premium
Letter. The Related Documents to be executed by any party are referred to herein
as "such party's Related Documents" or "its Related Documents" or by a similar
expression.
"Repurchase Event" means the occurrence of a breach of any of Seller's
representations and warranties hereunder or any other event which requires the
repurchase of a Receivable by Seller or Purchaser under the Sale and Servicing
Agreement.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement
referred to in Section 1.1 hereof.
2
<PAGE>
"Schedule of Receivables" means the schedule of Receivables sold and
transferred pursuant to this Agreement which is attached hereto as Schedule A.
"Schedule of Representations" means the Schedule of Representations
and Warranties attached hereto as Schedule B.
"Security Majority" means a majority by principal amount of the
Noteholders so long as the Notes are outstanding and a majority by principal
amount of the Certificateholders thereafter.
"Trust Collateral Agent" means Norwest Bank Minnesota, National
Association, as trust collateral agent and any successor trust collateral agent
appointed and acting pursuant to the Sale and Servicing Agreement.
SECTION 1.3 Usage of Terms. With respect to all terms used in this
--------------
Agreement, the singular includes the plural and the plural includes the
singular; words importing any gender include the other gender; references to
"writing" include printing, typing, lithography, and other means of reproducing
words in a visible form; references to agreements and other contractual
instruments include all subsequent amendments thereto or changes therein entered
into in accordance with their respective terms and not prohibited by this
Agreement or the Sale and Servicing Agreement; references to Persons include
their permitted successors and assigns; any form of the word "include" shall be
deemed to be followed by the words "without limitation"; "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.
SECTION 1.4 Certain References. All references to the Principal
------------------
Balance of a Receivable as of any date of determination shall refer to the close
of business on such day, or as of the first day of a Monthly Period shall refer
to the opening of 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 Seller
-----------
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 Seller,
or of any predecessor or successor of Seller.
SECTION 1.6 Action by or Consent of Noteholders and
---------------------------------------
Certificateholders. Whenever any provision of this Agreement refers to action
- ------------------
to be taken, or consented to, by Noteholders or Certificateholders, such
provision shall be deemed to refer to the Certificateholder or Noteholder, as
the case may be, of record as of the Record Date immediately preceding the date
on which such action is to be taken, or consent given, by Noteholders or
Certificateholders. Solely for the purposes of any action to be taken, or
consented to, by Noteholders or Certificateholders, any Note or
3
<PAGE>
Certificate registered in the name of Seller or any Affiliate thereof shall be
deemed not to be outstanding; provided, however, that, solely for the purpose of
determining whether the Indenture Trustee or the Trust Collateral Agent is
entitled to rely upon any such action or consent, only Notes or Certificates
which the Owner Trustee, the Indenture Trustee or the Trust Collateral Agent,
respectively, knows to be so owned shall be so disregarded.
SECTION 1.7 Material Adverse Effect. Whenever used in the Basic
-----------------------
Documents, "Material Adverse Effect" or "material adverse effect" means (i) when
used with respect to any action, event, fact or other matter or thing, means
that such action, event, fact or other matter or thing will not, individually or
in the aggregate, have a material adverse effect on (a) the Trust, the Trust
Property or Collateral, (b) the existence, perfection or priority of the
security interests of the Trust Collateral Agent in the Collateral, (c) the
ability of the Trust Collateral Agent on behalf of the Noteholders to collect
on, liquidate, or foreclose against, the Collateral in accordance with the
Indenture, (d) the validity, enforceability, or the performance of any Person's
obligations under, or with respect to, the Basic Documents, or the validity,
enforceability, or performance of any Person's obligations under or with respect
to, or the payment of, the Notes, (e) the transactions contemplated by the Basic
Documents, (f) the business, operations, condition (financial or otherwise) or
prospects of TFC, the Purchaser or the Issuer, (g) or the interests, right
and/or remedies hereunder, or otherwise with respect to the Collateral, or the
Trust Collateral Agent, the Trustee, the Insurer or any of the Noteholders
(which determination shall be made, in each case, without giving effect to the
existence of the Note Policy) and (ii) when used in relation to or in connection
with any Person also means that such action, event, fact or other matter or
thing shall not, individually or in the aggregate, have a material adverse
effect on the business, operations, condition (financial otherwise) or prospects
of such Person.
ARTICLE II
CONVEYANCE OF THE RECEIVABLES
AND THE OTHER CONVEYED PROPERTY
-------------------------------
SECTION 2.1 Conveyance of the Receivables and the Other
-------------------------------------------
Conveyed Property.
- -----------------
(a) Subject to the terms and conditions of this Agreement,
Seller hereby sells, transfers, assigns, and otherwise conveys to Purchaser
without recourse (but without limitation of its obligations in this Agreement),
and Purchaser hereby purchases, all right, title and interest of Seller in and
to:
(i) the Receivables and all monies paid or payable thereon on or
after the Cutoff Date (including amounts due on or before the Cutoff Date
but received by Seller on or after the Cutoff Date);
4
<PAGE>
(ii) the security interests in the Financed Vehicles granted by
Obligors pursuant to the Receivables and any other interest of Seller in
such Financed Vehicles;
(iii) any proceeds and the right to receive proceeds with respect to
the Receivables from claims on any physical damage, credit life or
disability insurance policies, if any, covering Financed Vehicles or
Obligors, and any proceeds from the liquidation of the Receivables;
(iv) all rights of Seller against Dealers pursuant to Dealer
Agreements or Dealer Assignments;
(v) all rights under any Service Contracts on the related Financed
Vehicles;
(vi) the related Receivables Files and any and all other documents
that Seller keeps on file in accordance with its customary procedures
relating to the Receivables, the Obligors or the Financed Vehicles;
(vii) property (including the right to receive future Net Liquidation
Proceeds) that secures a Receivable and that has been acquired by or on
behalf of Purchaser pursuant to liquidation of such Receivable;
(viii) the rights under the Standby Processing Agreement;
(ix) all of the Other Conveyed Property; and
(x) the proceeds of any and all of the foregoing.
It is the intention of Seller and Purchaser that the transfer and assignment
contemplated by this Agreement shall constitute a valid and enforceable sale of
the Receivables and the Other Conveyed Property from Seller to Purchaser,
conveying good title thereto, free and clear of any encumbrances or liens, and
the beneficial interest in and title to the Receivables and the Other Conveyed
Property shall not be part of Seller's estate in the event of the filing of a
bankruptcy petition by or against Seller under any bankruptcy or similar law,
and Seller delivers to Purchaser an assignment in the form attached hereto as
Schedule D with respect to the Receivables to be sold (the "Assignment").
However, in the event that, notwithstanding the intent of the parties hereto,
the Receivables are held to be property of Seller's estate, or if for any reason
this Agreement is held or deemed to create a security interest in the
Receivables, then (a) this agreement and the Assignment shall also be deemed to
be a security agreement within the meaning of Article 1, Article 8 and Article 9
of the Uniform Commercial Code as in effect in the State of New York and (b) the
transfers of the Receivables provided for in this Agreement and the Assignment
shall be deemed to be a grant by Seller to Purchaser of, and Seller hereby
grants to Purchaser, a security interest in all of Seller's rights, title and
interest in and to the Receivables. Seller hereby represents and warrants that
all Receivables transferred, assigned to and originated on behalf of Purchaser
hereunder shall be eligible contracts and that all assets conformed with the
Schedule of Representations and that all the Receivables acquired by Purchaser
do and shall conform with all of the requirements
5
<PAGE>
hereof. Seller hereby acknowledges that its transfer and assignment of the
Receivables to Purchaser is absolute and irrevocable, without reservation or
retention of any interests whatsoever by Seller.
To the extent that Seller shall retain any files or documentation, written or
electronic (collectively, "documents") pertaining to the Receivables, it shall
hold such documents in trust for the benefit of the Indenture Trustee as the
owner thereof. The possession of any such documents pertaining to the
Receivables by Seller (or any affiliate thereof other than Purchaser) is at the
will of Purchaser and for the sole purpose of servicing such Receivables, and
such retention and possession by Seller (or any affiliate thereof other than
Purchaser) is in a custodial capacity in its role as Servicer under the Sale and
Servicing Agreement and the Related Documents. The documents retained by Seller
relating to the Receivables shall be segregated from the books and records of
Seller and shall be marked appropriately to reflect clearly the transfer by
Seller of the Receivables to Purchaser.
(b) Simultaneously with the conveyance of the Receivables and the
Other Conveyed Property to Purchaser, Purchaser shall pay or cause to be paid to
or upon the order of Seller the Contracts Purchase Price. An amount equal to
[__]% of the Contracts Purchase Price shall be paid to the Seller in cash. The
remaining [__]% of the Contracts Purchase Price shall be deemed paid and
returned to the Purchaser and be considered a contribution to capital. The
portion of the Contracts Purchase Price to be paid in cash shall be by wire
transfer of immediately available funds.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
SECTION 3.1 Representations and Warranties of Seller. Seller makes
----------------------------------------
the following representations and warranties as of the date hereof on which
Purchaser relies in purchasing the Receivables and the Other Conveyed Property
and in transferring the Receivables and the Other Conveyed Property to the
Issuer under the Sale and Servicing Agreement and on which the Insurer will rely
in issuing the Note Policy, on which the Noteholders rely in purchasing the
Notes, and on which the Indenture Trustee relies in entering into the Related
Documents. Such representations are made as of the execution and delivery of
this Agreement but shall survive the sale, transfer and assignment of the
Receivables and the Other Conveyed Property hereunder, and the sale, transfer
and assignment thereof by Purchaser to the Issuer under the Sale and Servicing
Agreement. Seller and Purchaser agree that Purchaser will assign to Issuer all
Purchaser's rights under this Agreement and that the Trust Collateral Agent will
thereafter be entitled to enforce this Agreement against Seller in the Trust
Collateral Agent's own name on behalf of the Noteholders.
(i) Schedule of Representations. The representations and warranties
---------------------------
set forth on the Schedule of Representations with respect to the
Receivables are true and correct as of the date hereof.
6
<PAGE>
(ii) Organization and Good Standing. Seller has been duly organized
------------------------------
and is validly existing as a corporation in good standing under the laws of
the Commonwealth of Virginia, 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, or is proposed to be
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 Conveyed
Property to be transferred to Purchaser.
(iii) Due Qualification. Seller is duly qualified to do business
-----------------
as a foreign corporation and is in good standing, and has obtained all
necessary licenses and approvals in all jurisdictions in which the
ownership or lease of its property or the conduct of its business,
including without limitation, the acquisition and sale of the Receivables,
requires such qualification.
(iv) Power and Authority. Seller has the power and authority to
-------------------
execute and deliver this Agreement and its Related Documents and to perform
its obligations under this Agreement and its Related Documents; Seller has
full power and authority to sell and assign the Receivables and the Other
Conveyed Property to be sold and assigned to and deposited with Purchaser
hereunder and has duly authorized such sale and assignment to Purchaser by
all necessary corporate action; and the execution, delivery and performance
of this Agreement and Seller's Related Documents have been duly authorized
by Seller by all necessary corporate action.
(v) Valid Sale; Binding Obligations. This Agreement and Seller's
-------------------------------
Related Documents have been duly executed and delivered, shall effect a
valid sale, transfer and assignment of the Receivables and the Other
Conveyed Property to Purchaser, enforceable against Seller and creditors of
and purchasers from Seller and as a result of such sale, transfer and
assignment, Purchaser shall have a valid, first priority perfected
ownership interest in such Receivables and the Other Conveyed Property.
This Agreement and Seller's Related Documents constitute legal, valid and
binding obligations of 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.
(vi) 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 Seller, or any indenture,
agreement, mortgage, deed of trust or other instrument to which 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
7
<PAGE>
this Agreement, the Sale and Servicing Agreement and the Indenture and any
instruments, certificates and other documents executed pursuant to the
provisions thereof), or violate any law, order, rule or regulation
applicable to Seller of any court or of any federal or state regulatory
body, administrative agency or other governmental instrumentality having
jurisdiction over Seller or any of its properties.
(vii) No Proceedings. There are no proceedings or investigations
--------------
pending or, to Seller's knowledge, after due inquiry, threatened against
Seller, before any court, regulatory body, administrative agency or other
tribunal or governmental instrumentality having jurisdiction over Seller 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 Seller of its
obligations under, or the validity or enforceability of, this Agreement or
any of the Related Documents, (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 Receivables and the Other Conveyed Property
hereunder or under the Sale and Servicing Agreement or (v) that have a
material adverse effect on the Receivables.
(viii) Chief Executive Office. The chief executive office of Seller
----------------------
is located at 5425 Robin Hood Road, Suite 101B, Norfolk, Virginia 23513.
(ix) No Consents. Seller 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 which has not already been obtained.
(x) Approvals. All approvals, authorizations, consents, order or
---------
other actions of any person, corporation or other organization, or of any
court, governmental agency or body or official, required in connection with
the execution and delivery by Seller of this Agreement and the consummation
of the transactions contemplated hereby or will be taken or obtained on or
prior to the Closing Date.
(xi) Name. The legal name of the Seller is as set forth in this
----
Agreement, the Seller has not changed its name during the six years prior
to the Closing Date and does not have any trade names, fictitious names,
assumed names or "doing business" names.
(xii) Solvency. The Seller is solvent and will not become insolvent
--------
after giving effect to the transactions contemplated by the Basic
Documents. The Seller is paying its debts as they become due and, after
giving effect to the
8
<PAGE>
transactions contemplated by the Basic Documents, will have adequate
capital to conduct its business.
(xiii) Pension Plan. All pension or profit sharing plans of Seller
------------
have been fully funded in accordance with applicable obligations.
(xiv) Substantive Consolidation. Seller, in its individual capacity
-------------------------
and as Servicer confirms that the statement contained under "assumptions of
fact" in the opinion of Weil, Gotshal & Manges LLP regarding substantive
consolidation matters delivered to the Seller on the Closing Date are true
and correct with respect to itself, and that the Seller will comply with
any covenants or obligations assumed to be complied with by it therein as
if such covenants and obligations were set forth herein.
(xv) Sole Stockholder. Seller is the sole stockholder of Purchaser,
----------------
and all of the shares of stock have been fully paid for and are owned of
record, free and clear of all mortgages, assignments, pledges and security
interests.
SECTION 3.2 Representations and Warranties of Purchaser.
-------------------------------------------
Purchaser makes the following representations and warranties, on which Seller
relies in selling, assigning, transferring and conveying the Receivables and the
Other Conveyed Property to Purchaser hereunder, on which the Noteholders rely in
purchasing the Notes, and on which the Indenture Trustee relies in entering into
the Related Documents. Such representations are made as of the execution and
delivery of this Agreement, but shall survive the sale, transfer and assignment
of the Receivables and the Other Conveyed Property hereunder and the sale,
transfer and assignment thereof by Purchaser to the Issuer under the Sale and
Servicing Agreement.
(i) Organization and Good Standing. Purchaser 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 Receivables and the Other Conveyed Property, and to transfer the
Receivables and the Other Conveyed Property to the Issuer pursuant to the
Sale and Servicing Agreement.
(ii) Due Qualification. Purchaser 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 Purchaser's ability to acquire the
Receivables or the Other Conveyed Property, and to transfer the Receivables
and the Other Conveyed Property to the Issuer pursuant to the Sale and
Servicing Agreement, or the validity or enforceability of the Receivables
and the Other Conveyed Property or to perform Purchaser's obligations
hereunder and under Purchaser's Related Documents.
9
<PAGE>
(iii) Power and Authority. Purchaser has the power, authority and
-------------------
legal right to execute and deliver this Agreement and to carry out the
terms hereof and to acquire the Receivables and the Other Conveyed Property
hereunder; and the execution, delivery and performance of this Agreement
and all of the documents required pursuant hereto have been duly authorized
by Purchaser by all necessary action.
(iv) No Consent Required. Purchaser 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.
(v) Binding Obligation. This Agreement constitutes a legal, valid
------------------
and binding obligation of Purchaser, enforceable against Purchaser 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.
(vi) No Violation. The execution, delivery and performance by
------------
Purchaser 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 Purchaser, or
conflict with or breach any of the terms or provisions of, or constitute
(with or without notice or lapse of time) a default under, any indenture,
agreement, mortgage, deed of trust or other instrument to which Purchaser
is a party or by which Purchaser is bound or to which any of its properties
are subject, or result in the creation or imposition of any Lien upon any
of its properties pursuant to the terms of any such indenture, agreement,
mortgage, deed of trust or other instrument (other than the Sale and
Servicing Agreement, and the Indenture and any instruments, certificates
and other documents executed pursuant to the provisions thereof), or
violate any law, order, rule or regulation, applicable to Purchaser or its
properties, of any federal or state regulatory body, any court,
administrative agency, or other governmental instrumentality having
jurisdiction over Purchaser or any of its properties.
(vii) No Proceedings. There are no proceedings or investigations
--------------
pending, or, to the knowledge of Purchaser, threatened against Purchaser,
before any court, regulatory body, administrative agency, or other tribunal
or governmental instrumentality having jurisdiction over Purchaser 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 Purchaser of its obligations under,
or the validity or enforceability of, this Agreement or any
10
<PAGE>
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
Receivables and the Other Conveyed Property hereunder or the transfer of
the Receivables and the Other Conveyed Property to the Issuer pursuant to
the Sale and Servicing Agreement.
(viii) Approvals. All approvals, authorizations, consents, licenses,
---------
orders or other actions of any person, corporation or other organization,
or of any court, governmental agency or body or official, required in
connection with the execution and delivery by Purchaser of this Agreement
and the consummation of the transactions contemplated hereby, including,
without limitation, the purchase of the Receivables, has been taken, or
will be taken or obtained on or prior to the Closing Date.
(ix) Since the formation of Purchaser (a) Purchaser has incurred no
debt other than trade payables and expense accruals in connection with its
operations in the normal course of business; (b) Purchaser has maintained
its books and records separate from the books and records of any other
entity, has maintained separate bank accounts and no funds of Purchaser
have been commingled with funds of any other entity; (c) Purchaser has kept
in full effect its existence, rights and franchises as a corporation under
the laws of the Commonwealth of Virginia, and has obtained and preserved
its qualification to do business as a foreign corporation in each
jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of the Receivables; (d) Purchaser
does not own any subsidiary and has not loaned or advanced any moneys to,
or made an investment in, any Person; (e) Purchaser has not made any
capital expenditures; (f) Purchaser has not guaranteed, except with respect
to its obligation to repurchase or substitute Receivables pursuant to the
terms of this Agreement and the Indenture (directly or indirectly),
endorsed or is otherwise contingently liable (directly or indirectly) for
the obligations of, or owned or purchased any stock, obligations or
securities of or any other interest in, or made any capital contribution
to, any Person; and (g) Purchaser has not engaged in any other action that
bears on whether the separate legal identity of Purchaser will be
respected, including without limitation (l) has not held itself out as
being liable for the debts of any of any other party, (2) has not acted
other than in its corporate name and through its duly authorized officers
or agents, and (3) has not created, incurred, assumed, or in any manner
become liable in respect of any indebtedness except trade payables and
expense accruals incurred in the ordinary course of business and which are
incidental to its business purpose.
In the event of any breach of a representation and warranty made by Purchaser
hereunder, Seller 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 date on which all Notes,
Certificates, pass-through certificates or other similar securities issued by
Purchaser, or a trust or similar vehicle formed by Purchaser, have been paid in
full. Seller and Purchaser agree that damages will not be an adequate remedy for
such breach and that this covenant may be specifically enforced by Purchaser,
11
<PAGE>
Issuer or by the Indenture Trustee on behalf of the Noteholders and Owner
Trustee on behalf of the Certificateholders.
ARTICLE IV
COVENANTS OF SELLER
-------------------
SECTION 4.1 Protection of Title of Purchaser.
--------------------------------
(a) At or prior to the Closing Date, Seller shall have filed or
caused to be filed a UCC-1 financing statement, executed by Seller as seller or
debtor, naming Purchaser as purchaser or secured party and describing the
Receivables and the Other Conveyed Property being sold by it to Purchaser as
collateral, with the office of the Secretary of State of the Commonwealth of
Virginia, the office of the Clerk of the City of Norfolk, Virginia and in such
other locations as Purchaser shall have required and as shall be necessary to
perfect the security interest of Purchaser in the collateral. From time to time
thereafter, Seller shall execute and file such additional 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 Purchaser under this Agreement, of the Issuer under
the Sale and Servicing Agreement and of the Trust Collateral Agent under the
Indenture in the Receivables and the Other Conveyed Property and in the proceeds
thereof. Seller shall deliver (or cause to be delivered) to Purchaser, the
Trust Collateral Agent and the 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 Seller fails to perform its
obligations under this subsection, Purchaser, Issuer or the Trust Collateral
Agent may do so, at the expense of Seller.
(b) Seller 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 Seller (or by Purchaser, Issuer or the Trust
Collateral Agent on behalf of Seller) in accordance with paragraph (a) above
misleading within the meaning of (S) 9-402(7) of the UCC, unless it shall have
given Purchaser, Issuer and the Trust Collateral Agent at least 60 days' prior
written notice thereof, and shall have provided evidence of appropriate
amendments to all previously filed financing statements and continuation
statements acceptable to the Controlling Party.
(c) Seller shall give Purchaser, the Issuer, the Insurer (so long as
an Insurer Default shall not have occurred and be continuing) and the Trust
Collateral Agent at least 60 days' prior written notice of any relocation of its
principal place of business or chief executive office if, as a result of such
relocation, the applicable provisions of the UCC would require the filing of any
amendment of any previously filed financing or continuation statement or of any
new financing statement and Seller shall provide evidence of appropriate filings
required by the UCC acceptable to the Controlling Party. Seller shall at all
times maintain each office from which it services Receivables and its principal
place of business and chief executive office within the United States of
America.
12
<PAGE>
(d) Prior to the Closing Date, Seller has maintained accounts and
records as to each Receivable accurately and in sufficient detail to permit (i)
the reader thereof to know at any time as of or prior to the Closing Date 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 Principal Balance as
of the Closing Date. Seller shall maintain its computer systems so that, from
and after the time of sale under this Agreement of the Receivables to Purchaser,
and the conveyance of the Receivables by Purchaser to the Issuer, Seller's
master computer records (including archives) that shall refer to a Receivable
indicate clearly that such Receivable has been sold to Purchaser and has been
conveyed by Purchaser to the Issuer. Indication of the Issuer's ownership of a
Receivable shall be deleted from or modified on Seller's computer systems when,
and only when, the Receivable shall become a Purchased Receivable or shall have
been paid in full.
(e) If at any time Seller shall propose to sell, grant a security
interest in, or otherwise transfer any interest in any motor vehicle receivables
to any prospective purchaser, lender or other transferee, Seller 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 Receivable (other than a Purchased Receivable),
shall indicate clearly that such Receivable has been sold to Purchaser, sold by
Purchaser to Issuer, and is owned by the Issuer.
SECTION 4.2 Other Liens or Interests. (a) Except for the conveyances
------------------------
hereunder, Seller will not sell, pledge, assign or transfer to any other Person,
or grant, create, incur, assume or suffer to exist any Lien on the Receivables
or the Other Conveyed Property or any interest therein, and Seller shall defend
the right, title, and interest of Purchaser and the Issuer in and to the
Receivables and the Other Conveyed Property against all claims of third parties
claiming through or under Seller. Seller shall notify Purchaser, the Trustee and
the Insurer promptly after becoming aware of any Lien or any Receivable.
(b) Seller will perform the transactions contemplated by this
Agreement in a manner that is consistent with Purchaser's ownership interest in
the Receivables and Seller will respond to all third party inquiries confirming
the transfer of the Receivables and the Other Conveyed Property to Purchaser.
(c) Seller will not make any material amendments to its Charge-Off
Policy without obtaining the prior written consent of the Controlling Party and
giving prior written notice of such amendment to the Rating Agency.
SECTION 4.3 Costs and Expenses. Seller shall pay all reasonable costs
------------------
and disbursements in connection with the performance of its obligations
hereunder and under its Related Documents.
SECTION 4.4 Indemnification.
---------------
13
<PAGE>
(a) Seller shall defend, indemnify and hold harmless Purchaser, the
Issuer, the Trust Collateral Agent, the Indenture Trustee, the Insurer, the
Owner Trustee, the Noteholders and the Certificateholders from and against any
and all costs, expenses, losses, damages, claims, and liabilities, arising out
of or resulting from any breach of any of Seller's representations and
warranties contained herein.
(b) Seller shall defend, indemnify and hold harmless Purchaser, the
Insurer, the Issuer, the Trust Collateral Agent, the Indenture Trustee, the
Owner Trustee, the Noteholders and the Certificateholders 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 Seller or any affiliate
thereof of a Financed Vehicle.
(c) Seller shall defend, indemnify and hold harmless Purchaser, the
Insurer, the Issuer, the Trust Collateral Agent, the Indenture Trustee, the
Owner Trustee, the Noteholders and the Certificateholders 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 Receivables other than in accordance with this Agreement or the
Sale and Servicing Agreement.
(d) Seller agrees to pay, and shall defend, indemnify and hold
harmless Purchaser, the Issuer, the Trust Collateral Agent, the Insurer, the
Indenture Trustee, the Owner Trustee, the Noteholders and the Certificateholders
from and against any taxes that may at any time be asserted against Purchaser,
the Issuer, the Trust Collateral Agent, the Indenture Trustee, the Owner
Trustee, the Noteholders and the Certificateholders with respect to the
transactions contemplated in this 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
Receivables and the Other Conveyed Property to Purchaser and by Purchaser to the
Issuer or the issuance and original sale of the Notes or the Certificates, or
asserted with respect to ownership of the Receivables and Other Conveyed
Property which shall be indemnified by Seller pursuant to clause (e) below, or
federal, state or other income taxes, arising out of distributions on the Notes
or the Certificates or transfer taxes arising in connection with the transfer of
the Notes or the Certificates) and costs and expenses in defending against the
same, arising by reason of the acts to be performed by Seller under this
Agreement or imposed against such Persons.
(e) Seller agrees to pay, and to indemnify, defend and hold harmless
Purchaser, the Issuer, the Trust Collateral Agent, the Indenture Trustee, the
Insurer, the Owner Trustee, the Noteholders and the Certificateholders 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 Receivables or the
Other Conveyed Property hereunder and the conveyance or ownership of the
Receivables and the Other Conveyed Property under the Sale and Servicing
Agreement or the issuance and original sale of the Notes or the Certificates,
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 issuance and ownership of the Notes or the transactions contemplated
hereby or transfer taxes arising
14
<PAGE>
in connection with the transfer of the Notes or the Certificates) and costs and
expenses in defending against the same, arising by reason of the acts to be
performed by Seller under this Agreement or imposed against such Persons.
(f) Seller shall defend, indemnify, and hold harmless Purchaser, the
Insurer, the Issuer, the Trust Collateral Agent, the Indenture Trustee, the
Owner Trustee, the Noteholders and the Certificateholders 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 any of such Persons through the negligence, willful misfeasance, or
bad faith of Seller in the performance of its duties under this Agreement or by
reason of reckless disregard of Seller's obligations and duties under this
Agreement.
(g) Seller shall indemnify, defend and hold harmless Purchaser, the
Insurer, the Issuer, the Trust Collateral Agent, the Indenture Trustee, the
Owner Trustee, the Noteholders and the Certificateholders from and against any
and all costs, claims, damages and any loss, liability or expense incurred by
reason of the violation by Seller of federal or state securities laws in
connection with the registration or the sale of the Notes or the Certificates.
(h) Seller shall indemnify, defend and hold harmless Purchaser, the
Insurer, the Issuer, the Trust Collateral Agent, the Indenture Trustee, the
Owner Trustee, the Noteholders and the Certificateholders from and against any
loss, liability or expense imposed upon, or incurred by, any of such Persons as
result of the failure of any Receivable, or the sale of the related Financed
Vehicle, to comply with all requirements of applicable law.
(i) Seller shall defend, indemnify, and hold harmless Purchaser from
and against all costs, expenses, losses, claims, damages, and liabilities
arising out of or incurred in connection with the acceptance or performance of
Seller'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 Purchaser.
Indemnification under this Section 4.4 shall include reasonable fees and
expenses of counsel and expenses of litigation incurred by the Noteholders,
Trust Collateral Agent, Insurer or the Trustee in connection with enforcement of
this Agreement and shall survive termination of the Notes and the Certificates.
The indemnity obligations hereunder shall be in addition to any obligation that
Seller may otherwise have.
ARTICLE V
REPURCHASES
-----------
SECTION 5.1 Repurchase of Receivables Upon Breach of Warranty.
-------------------------------------------------
Upon the occurrence of a Repurchase Event, Seller shall, unless the breach
which is the subject of such Repurchase Event shall have been cured in all
material respects,
15
<PAGE>
repurchase the Receivable relating thereto from the Issuer as promptly as
possible but in no event later than by the last day of the first full calendar
month following the discovery by Seller or receipt by Seller of notice of such
breach and, simultaneously with the repurchase of the Receivable, Seller shall
deposit the Purchase Amount in full, without deduction or offset, to the
Collection Account, pursuant to Section 3.2 of the Sale and Servicing Agreement.
It is understood and agreed that, except as set forth in Section 6.1 hereof, the
obligation of Seller to repurchase any Receivable, as to which a breach occurred
and is continuing, shall, if such obligation is fulfilled, constitute the sole
remedy against Seller for such breach available pursuant to this Agreement
(subject to the next paragraph of this Section 5.1) to Purchaser, the Issuer,
the Insurer, the Noteholders, the Certificateholders, the Trust Collateral Agent
on behalf of the Noteholders or the Owner Trustee on behalf of
Certificateholders. The provisions of this Section 5.1 are intended to grant the
Issuer and the Trust Collateral Agent a direct right against Seller to demand
performance hereunder, and in connection therewith, Seller waives any
requirement of prior demand against Purchaser with respect to such repurchase
obligation. Any such repurchase shall take place in the manner specified in
Section 3.2 of the Sale and Servicing Agreement. Notwithstanding any other
provision of this Agreement or the Sale and Servicing Agreement to the contrary,
the obligation of Seller under this Section shall not terminate upon a
termination of Seller 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 Purchaser 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 Seller, Seller shall indemnify the
Issuer, the Trust Collateral Agent, the Indenture Trustee, the Owner Trustee,
the Insurer, the Noteholders and the Certificateholders 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
Seller under Section 5.1 hereof, Purchaser and the Issuer shall take such steps
as may be reasonably requested by Seller in order to sell, assign, convey and
otherwise transfer to Seller all right, title and interest of each of Purchaser
and the Issuer in and to such Receivable and all security and documents and all
Other Conveyed Property conveyed to Purchaser or the Issuer 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 Purchaser or the Issuer. 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 Seller
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, Purchaser and
the Issuer shall, at the expense of Seller, take such steps as Seller deems
reasonably necessary to enforce the Receivable, including bringing suit in
Purchaser's or in the Issuer's name.
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<PAGE>
SECTION 5.3 Waivers. No failure or delay on the part of Purchaser,
-------
or the Issuer as assignee of Purchaser, in exercising any power, right or remedy
under this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or remedy preclude any other or future
exercise thereof or the exercise of any other power, right or remedy.
ARTICLE VI
MISCELLANEOUS
-------------
SECTION 6.1 Liability of Seller. Seller shall be liable in
-------------------
accordance herewith only to the extent of the obligations in this Agreement
specifically undertaken by Seller and the representations and warranties of
Seller.
SECTION 6.2 Merger or Consolidation of Seller or Purchaser. Any
----------------------------------------------
corporation other entity (i) into which Seller or Purchaser may be merged or
consolidated, (ii) resulting from any merger or consolidation to which Seller or
Purchaser is a party or (iii) succeeding to the business of Seller or Purchaser,
in the case of Purchaser, which corporation has a certificate of incorporation
containing provisions relating to limitations on business and other matters
substantively identical to those contained in Purchaser'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 Seller
or Purchaser, as the case may be, under this Agreement and, whether or not such
assumption agreement is executed, shall be the successor to Seller or Purchaser,
as the case may be, hereunder (without relieving Seller or Purchaser of its
responsibilities hereunder, if it survives such merger or consolidation) without
the execution or filing of any document or any further action by any of the
parties to this Agreement. Notwithstanding the foregoing, so long as an Insurer
Default shall not have occurred and be continuing and (a) there are Notes
outstanding, (b) any amounts due to the Insurer remain unpaid or (c) the Note
Policy has not expired in accordance with its terms, Purchaser shall not merge
or consolidate with any other Person or permit any other Person to become the
successor to Purchaser's business without the prior written consent of the
Controlling Party. Seller or Purchaser shall promptly inform the other party,
the Issuer, the Trust Collateral Agent, the Owner Trustee and, so long as an
Insurer Default shall not have occurred and be continuing and (a) there are
Notes outstanding, (b) any amounts due to the Insurer remain unpaid or (c) the
Note Policy has not expired in accordance with its terms, the Controlling Party
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 3.1 and 3.2
of this 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) Seller or Purchaser, as applicable, shall have
delivered written notice of such consolidation, merger or purchase and
assumption to the Rating
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<PAGE>
Agency prior to the consummation of such transaction and shall have delivered to
the Issuer, the Controlling Party and the Trust Collateral Agent 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) Seller or
Purchaser, as applicable, shall have delivered to the Issuer, the Insurer and
the Trust Collateral Agent an Opinion of Counsel, stating, in the opinion of
such counsel, either (A) all financing statements and continuation statements
and amendments thereto have been executed and filed that are necessary to
preserve and protect the interest of the Issuer and the Trust Collateral Agent
in the Receivables and reciting the details of the filings or (B) no such action
shall be necessary to preserve and protect such interest.
SECTION 6.3 Limitation on Liability of Seller and Others. Seller
--------------------------------------------
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.
Seller 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 or
its Related Documents and that in its opinion may involve it in any expense or
liability.
SECTION 6.4 Seller May Own Notes or Certificates. Subject to the
------------------------------------
provisions of the Sale and Servicing Agreement, the Trust Agreement, the
Indenture and the Insurance Agreement, Seller and any Affiliate of Seller may in
its individual or any other capacity become the owner or pledgee of Notes or
Certificates with the same rights as it would have if it were not Seller or an
Affiliate thereof.
SECTION 6.5 Amendment.
---------
(a) This Agreement may be amended by Seller and Purchaser with
the prior written consent of the Insurer (so long as an Insurer Default shall
not have occurred and be continuing and (a) there are Notes outstanding, (b) any
amounts due to the Insurer remain unpaid or (c) the Note Policy has not expired
in accordance with its terms) and with prior written notice to the Rating Agency
but without the consent of the Trust Collateral Agent, the Owner Trustee or any
of the Certificateholders or Noteholders (i) to cure any ambiguity or (ii) to
correct any provisions in this Agreement; provided, however, that such action
shall not adversely affect in any material respect the interests of any
Certificateholder or Noteholder.
(b) This Agreement may also be amended from time to time by
Seller and Purchaser, with the prior written consent of the Insurer (so long as
an Insurer Default shall not have occurred and be continuing and (a) there are
Notes outstanding, (b) any amounts due to the Insurer remain unpaid or (c) the
Note Policy has not expired in accordance with its terms), with prior written
notice to the Rating Agency and with the consent of the Trust Collateral Agent
and, if required, a Security Majority in accordance with the Sale and Servicing
Agreement, for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of this Agreement, or of
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<PAGE>
modifying in any manner the rights of the Certificateholders or Noteholders;
provided, however, Seller provides the Trust Collateral Agent with an Opinion of
Counsel, (which may be provided by Seller's internal counsel) that no such
amendment shall 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 Certificate.
(c) It shall not be necessary for the consent of
Certificateholders or 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
Certificateholders or Noteholders shall be subject to such reasonable
requirements as the Trust Collateral Agent may prescribe, including the
establishment of record dates. The consent of a Holder of a Certificate or 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 Certificate or Note and of any Certificate or Note issued upon
the transfer thereof or in exchange thereof or in lieu thereof whether or not
notation of such consent is made upon the Certificate or Note.
Prior to the execution of any amendment to this Agreement, the
Indenture Trustee or the Trust Collateral Agent, if requested, 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.
SECTION 6.6 Notices. All demands, notices and communications to
-------
Seller or Purchaser 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 Seller, to The Finance Company,
Attention: Chief Financial Officer, 5425 Robin Hood Road, Suite 101A, Norfolk,
Virginia 23513, (b) in the case of Purchaser, to TFC Receivables Corporation 2,
Attention: Chief Financial Officer, 5425 Robin Hood Road, Suite 101B, Norfolk,
Virginia 23513 or (c) in the case of the Insurer, to Asset Guaranty Insurance
Company, Attention: Manager Asset-Backed Surveillance, 335 Madison Avenue, New
York, New York 10017-4605, or such other address as shall be designated by a
party in a written notice delivered to the other party or to the Issuer, Owner
Trustee or the Trust Collateral Agent, as applicable.
SECTION 6.7 Merger and Integration. Except as specifically stated
----------------------
otherwise herein, this Agreement and 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.
19
<PAGE>
SECTION 6.8 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 6.9 Intention of the Parties. The execution and delivery
------------------------
of this Agreement shall constitute an acknowledgment by Seller and Purchaser
that they intend that the assignment and transfer herein contemplated constitute
a sale and assignment outright, and not for security, of the Receivables and the
Other Conveyed Property, conveying good title thereto free and clear of any
Liens, from Seller to Purchaser, and that the Receivables and the Other Conveyed
Property shall not be a part of Seller'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 Seller. In the event
that such conveyance is determined to be made as security for a loan made by
Purchaser, the Issuer, the Noteholders or the Certificateholders to Seller, the
parties intend that Seller shall have granted to Purchaser a first priority,
perfected security interest in all of Seller's right, title and interest in and
to the Receivables and the Other Conveyed Property conveyed pursuant to Section
2.1 hereof, and that this Agreement shall constitute a security agreement under
applicable law and shall have granted such security interest.
SECTION 6.10 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 6.11 Counterparts. For the purpose of facilitating the
------------
execution of this Agreement and for other purposes, this Agreement may be
executed simultaneously in any number of counterparts, each of which
counterparts shall be deemed to be an original, and all of which counterparts
shall constitute but one and the same instrument.
SECTION 6.12 Conveyance of the Receivables and the Other
-------------------------------------------
Conveyed Property to the Issuer. Seller acknowledges that Purchaser intends,
- -------------------------------
pursuant to the Sale and Servicing Agreement, to convey the Receivables and the
Other Conveyed Property, together with its rights under this Agreement, to the
Issuer on the date hereof. Seller acknowledges and consents to such conveyance
and pledge and waives any further notice thereof and covenants and agrees that
the representations and warranties of Seller contained in this Agreement and the
rights of Purchaser hereunder are intended to benefit the Insurer, the Issuer,
the Owner Trustee, the Trust Collateral Agent, the Noteholders and the
Certificateholders. In furtherance of the foregoing, Seller covenants and agrees
to perform its duties and obligations hereunder, in accordance with the terms
hereof for the benefit of the Insurer, the Issuer, the Owner
20
<PAGE>
Trustee, the Trust Collateral Agent, the Noteholders and the Certificateholders
and that, notwithstanding anything to the contrary in this Agreement, Seller
shall be directly liable to the Issuer, the Insurer, the Owner Trustee, the
Trust Collateral Agent, the Noteholders and the Certificateholders
(notwithstanding any failure by the Servicer, or Purchaser to perform their
respective duties and obligations hereunder or under Related Documents) and that
the Trust Collateral Agent may enforce the duties and obligations of Seller
under this Agreement against Seller for the benefit of the Insurer, the Owner
Trustee, the Trust Collateral Agent, the Noteholders and the Certificateholders.
SECTION 6.13 Nonpetition Covenant. Neither Purchaser nor Seller
--------------------
shall petition or otherwise invoke the process of any court or government
authority for the purpose of commencing or sustaining a case against Purchaser
or the Issuer under any federal or state bankruptcy, insolvency or similar law
or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator
or other similar official of Purchaser or the Issuer or any substantial part of
their respective property, or ordering the winding up or liquidation of the
affairs of Purchaser or the Issuer.
SECTION 6.14 Third Party Beneficiary. Asset Guaranty Insurance
-----------------------
Company and the Indenture Trustee shall be third party beneficiaries of this
Agreement. The Indenture Trustee and the Insurer, and each of its respective
successors and assigns, shall be a third party beneficiary to the provisions of
this Agreement, and the Insurer shall be entitled to rely upon and directly
enforce such provisions of this Agreement so long as no Insurer Default shall
have occurred and be continuing and (a) there are Notes outstanding, (b) any
amounts due to the Insurer remain unpaid or (c) the Note Policy has not expired
in accordance with its terms. Except as expressly stated otherwise herein, any
right of the Insurer to direct, appoint, consent to, approve of, or take any
action under this Agreement, shall be a right exercised by the Insurer in its
reasonable discretion. The 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 Trust Collateral Agent. Nothing in this
Agreement, whether express or implied, shall be construed to give to any other
Person any legal or equitable right, remedy or claim in the Trust Property or
under or in respect of this Agreement or any covenants, conditions or provisions
contained herein.
[Signature Page Follows]
21
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Purchase Agreement to be duly
executed by their respective officers as of the day and year first above
written.
THE FINANCE COMPANY,
as Seller
By ________________________________________
Name:
Title:
TFC RECEIVABLES CORPORATION 2,
as Purchaser
By ________________________________________
Name:
Title:
Acknowledged and Accepted:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
As Indenture Trustee and Trust Collateral Agent
By ________________________________________
Name:
Title:
[Signature Page for Purchase Agreement]
22
<PAGE>
SCHEDULE A
SCHEDULE OF RECEIVABLES
[Distributed at Closing]
23
<PAGE>
SCHEDULE B
REPRESENTATIONS AND WARRANTIES OF SELLER
1. Characteristics of Receivables. Each Receivable (A) was originated by a
------------------------------
Dealer for the retail sale of a Financed Vehicle in the ordinary course of
such Dealer's business in accordance with either (i) TFC's credit policies
or (ii) credit policies which were reviewed by TFC prior to a purchase of a
Receivable by TFC and such Dealer had all necessary licenses and permits to
originate Receivables in the state where such Dealer was located, was fully
and properly executed by the parties thereto was purchased by TFC from such
Dealer under an existing Dealer Agreement or pursuant to a Dealer
Assignment, was validly assigned by such Dealer to the Seller pursuant to
the Dealer Agreement or the Dealer Assignment, was validly assigned by TFC
to the Seller, and was validly assigned by the Seller to the Trust and
pledged by the Trust to the Trust Collateral Agent, (B) contains customary
and enforceable provisions such as to render the rights and remedies of the
holder thereof adequate for realization against the collateral security,
(C) is a Receivable which provides for level scheduled payments (provided
that the payment in the first Monthly Period and the payment in the final
Monthly Period of the Receivable may be minimally different from the normal
period and level payment) which, if made when due, shall fully amortize the
Amount Financed over the original term, (D) provides for, in the event that
the related Contract is prepaid, a prepayment that fully pays the principal
balance of such related Contract and includes accrued but unpaid interest
through the date of prepayment in an amount at least equal to the annual
percentage rate, (E) has not been amended or rewritten, or collections with
respect to which deferred or waived, other than as evidenced in the
Receivable File relating thereto, (F) has an original term of eleven (11)
to forty-eight (48) months and a remaining term of not less than six (6)
months, (G) that has been acquired by TFC and, if a monthly pay contract
which is not more than thirty (30) days delinquent, the related Obligor
does not have other Receivables owing to TFC that are more than thirty (30)
days delinquent or defaulted, (H) that has been acquired by TFC and, if a
non-monthly-pay contract, is not more than thirty (30) days delinquent nor
is it defaulted based on the Company's methodology in effect for converting
non-monthly pay Receivables to a daily delinquency equivalent as such
methodology is described in Schedule 1 of the Insurance Agreement nor does
the Obligor have other Receivables owing to TFC that are delinquent, (I)
has a final scheduled payment due no less than eight (8) months before the
Final Scheduled Payment Date, (J) has not been extended beyond its original
term, except in keeping with the TFC's stated policies and procedures which
allow for up to two, one-month deferments in any twelve month period not to
exceed up to four, one-month deferments over the life of a monthly-pay
contract, (K) satisfies in all material respects, including but not limited
to, down-payment provisions, the requirements under TFC's Credit Guidelines
as in effect on August 31, 1999, (L) was originated through an approved
Dealer of TFC, (M) is due from a U.S. citizen in the case of military
Receivables and a U.S. resident in the case of civilian Receivables and is
denominated in U.S. dollars, (N) is secured by a Financed Vehicle and a
valid
<PAGE>
first priority perfected security interest is in effect with respect to
such Financed Vehicle, (O) is owned solely by TFC free and clear of any
lien, claim, or other encumbrance, excluding liens that will be released no
later than the Closing Date, (P) with respect to the related security
interest in the related Financed Vehicle is perfected and with clear legal
right of repossession, (Q) that if a Point-of-Sale Receivable, was secured
by a vehicle covered by a comprehensive insurance policy covering theft,
fire, collision, and naming TFC as loss payee on the date the loan advance
was made, (R) meets, in all material respects, all applicable requirements
of federal, state, and local laws and regulations, (S) has an annual
percentage rate of not less than 14.9%, (T) has a remaining principal
balance of net less than fifteen thousand dollars, (U) is not subject to
any right of setoff by the Obligor and (V) will be clearly marked in the
books and records of TFC as being sold to Seller, and from Seller to Issuer
and liened to the Trust Collateral Agent.
2. No Fraud or Misrepresentation. Each Receivable (A) was originated by a
-----------------------------
Dealer, (B) was sold by the Dealer to TFC and (C) was sold by TFC to the
Seller and by the Seller to the Trust without any fraud or
misrepresentation in any case.
3. Compliance with Law. All requirements of applicable federal, state and
-------------------
local laws, and regulations thereunder (including usury laws, the Federal
Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit
Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection
Practices Act, the Federal Trade Commission Act, the Moss-Magnuson Warranty
Act, the Federal Reserve Board's Regulations "B" and "Z", the Soldiers' and
- -
Sailors' Civil Relief Act of 1940, as amended, each applicable state Motor
Vehicle Retail Installment Sales Act, and state adaptations of the National
Consumer Act and of the Uniform Consumer Credit Code and other consumer
credit laws and equal credit opportunity and disclosure laws) in respect of
the Receivables, the Financed Vehicles and the sale of any physical damage,
credit life and credit accident and health insurance and any extended
service contracts, have been complied with in all material respects by TFC
and the Seller, as applicable, and each Receivable, the sale of the
Financed Vehicle evidenced by each Receivable and the sale of any physical
damage, credit life and credit accident and health insurance and any
extended service contracts complied at the time it was originated or made
in all material respects and now complies in all material respects with all
applicable legal and regulatory requirements.
4. Origination. Each point-of-sale Receivable was originated in the United
-----------
States and materially conforms to all requirements of the "Dealer
------
Underwriting Guide" applicable to such Receivable at the time assigned to
------------------
TFC, at the time of such assignment.
5. Binding Obligation. Each Receivable represents the genuine, legal, valid
------------------
and binding payment obligation of the Obligor thereon, enforceable by the
holder thereof in accordance with its terms, except (A) as enforceability
may be limited by bankruptcy, insolvency, reorganization or similar laws
affecting the
<PAGE>
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 and (B) as
such Receivable may be modified by the application after the Cut-Off Date
of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended; and all
parties to each Receivable had full legal capacity to execute and deliver
such Receivable and all other documents related thereto and to grant the
security interest purported to be granted thereby.
6. No Government Obligor. No Obligor is the United States of America or any
---------------------
State or any agency, department, subdivision or instrumentality thereof.
7. Obligor Bankruptcy. At the Cut-Off Date, no Obligor had been the subject
------------------
of a current bankruptcy proceeding.
8. Schedule of Receivables. The information set forth in the Schedule of
-----------------------
Receivables has been produced from the Electronic Ledger and was true and
correct in all material respects as of the close of business on the Cut-Off
Date as delivered on the Closing Date.
9. Marking Records. By the Closing Date, the Seller will have caused the
---------------
portions of the Electronic Ledger relating to the Receivables to be clearly
and unambiguously identified to show that the Receivables have been sold to
the Seller by TFC and resold by the Seller to the Trust in accordance with
the terms of the Sale and Servicing Agreement.
10. Computer Tape. The Computer Tape made available by the Seller to the Trust
-------------
Collateral Agent on the Closing Date was complete and accurate as of the
Cut-Off Date and includes a description of the same Receivables that are
described in the Schedule of Receivables.
11. Adverse Selection. No selection procedures adverse to the Noteholders or
-----------------
the Insurer were utilized in selecting the Receivables from those
receivables owned by TFC which met the selection criteria contained in the
Sale and Servicing Agreement.
12. Chattel Paper. The Receivables constitute chattel paper within the meaning
-------------
of the UCC as in effect in the State of New York, Delaware, Virginia and
Minnesota.
13. One Original. There is only one original executed copy of each Receivable.
------------
14. Receivable Files Complete. There exists a Receivable File pertaining to
-------------------------
each Receivable and such Receivable File contains, without limitation,
subject to any exceptions which may appear on any exception report
delivered by the Trust Collateral Agent, (a) a fully executed original of
the Receivable, (b) the original Lien Certificate or application therefor
together with an assignment of the Lien Certificate executed by the
Unaffiliated Originator and TFC by TFC to the Seller, and, an assignment of
the Lien Certificate executed by the Seller to the Trustee, (c) an original
credit application or copy thereof and (d) documents evidencing or
<PAGE>
relating to any Insurance Policy to the extent such documents are
maintained on behalf of the Seller or TFC. Each of such documents which is
required to be signed by the Obligor has been signed by the Obligor in the
appropriate spaces. All blanks on any form described in clauses (a), (b)
and (c) above have been properly filled in and each form has otherwise been
correctly prepared. Notwithstanding the above, a copy of the complete
Receivable File for each Receivable, which fulfills the documentation
requirements of the Dealer Underwriting Guide as in effect at the time of
purchase is in the possession of the Servicer or its bailee.
15. Receivables in Force. No Receivable has been satisfied, subordinated or
--------------------
rescinded, and the Financed Vehicle securing each such Receivable has not
been released from the lien of the related Receivable in whole or in part.
No terms of any Receivable have been waived, altered or modified in any
respect since its origination, except by instruments or documents
identified in the Receivable File. No Receivable has been modified as a
result of application of the Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
16. Lawful Assignment. No Receivable was originated in, or is subject to the
-----------------
laws of, any jurisdiction the laws of which would make unlawful, void or
voidable the sale, transfer and assignment of such Receivable under this
Agreement or pursuant to transfers of the Securities. The Seller has not
entered into any agreement with any account debtor that prohibits,
restricts or conditions the assignment of any portion of the Receivables.
17. Good Title. No Receivable has been sold, transferred, assigned or pledged
----------
by the Seller to any Person other than the Issuer; immediately prior to the
conveyance of the Receivables to the Trust pursuant to this Agreement, the
Seller was the sole owner thereof and had good and indefeasible title
thereto, free (except with respect to GE Capital, which lien of GE Capital
has been released (as of the Closing Date)) of any Lien and, upon execution
and delivery of this Agreement by the Seller, the Trust shall have good and
indefeasible title to and will be the sole owner of such Receivables, free
of any Lien other than the Lien of the Trust Collateral Agent. No Dealer
has a participation in, or other right to receive, proceeds of any
Receivable. The Seller has not taken any action to convey any right to any
Person that would result in such Person having a right to payments received
under the related Insurance Policies or the related Dealer Agreements or
Dealer Assignments or to payments due under such Receivables.
18. Security Interest in Financed Vehicle. Each Receivable created or will
-------------------------------------
create a valid, binding and enforceable first priority security interest in
favor of TFC or the Trust Collateral Agent in the Financed Vehicle. The
Lien Certificate and original certificate of title for each Financed
Vehicle show, or if a new or replacement Lien Certificate is being applied
for with respect to such Financed Vehicle the Lien Certificate will be
received within 180 days of the Closing Date, and will show TFC or the
Trust Collateral Agent named as the original secured party under each
Receivable as the holder of a first priority security interest in
<PAGE>
such Financed Vehicle. With respect to each Receivable for which the Lien
Certificate has not yet been returned from the Registrar of Titles, TFC has
received written evidence from the related Dealer that such Lien
Certificate showing TFC or the Trust Collateral Agent as first lienholder
has been applied for and (i) TFC's security interest has been validly
assigned to the Seller pursuant to the Purchase Agreement and (ii) the
Seller's security interest has been validly assigned by the Seller to the
Trust pursuant to this Agreement and (iii) the Trust's security interest
has been validly pledged to the Trust Collateral Agent pursuant to the
Indenture. Immediately after the sale, transfer and assignment thereof by
the Seller to the Trust, each Receivable will be secured by an enforceable
and perfected first priority security interest in the Financed Vehicle in
favor of the Trustee as secured party, which security interest is prior to
all other Liens upon and security interests in such Financed Vehicle which
now exist or may hereafter arise or be created (except, as to priority, for
any lien for taxes, labor or materials affecting a Financed Vehicle arising
subsequent to the Cut-Off Date). As of the Cut-Off Date there were no Liens
or claims for taxes, work, labor or materials affecting a Financed Vehicle
which are or may be Liens prior or equal to the Liens of the related
Receivable.
19. All Filings Made. All filings (including UCC filings) required to be made
----------------
by any Person and actions required to be taken or performed by any Person
in any jurisdiction to give the Trust Collateral Agent a first priority
perfected lien on the Receivables and the proceeds thereof and the Other
Conveyed Property have been made, taken or performed.
20. No Impairment. Neither TFC nor the Seller has done anything to convey any
-------------
right to any Person that would result in such Person having a right to
payments due under the Receivable or otherwise to impair the rights of the
Trust, the Insurer, the Trustee, the Trust Collateral Agent and the
Noteholders in any Receivable or the proceeds thereof.
21. Receivable Not Assumable. No Receivable is assumable by another Person
------------------------
in a manner which would release the Obligor thereof from such Obligor's
obligations to the Seller with respect to such Receivable.
22. No Default. As of the Cut-Off Date, no Receivable was in default and no
----------
condition existed or event occurred that constituted a default, breach,
violation or event permitting acceleration under the terms of any
Receivable, and there has been no waiver of any of the foregoing. As of
the Cut-Off Date no Financed Vehicle had been repossessed.
23. Insurance. At the time of origination of each point of sale Receivable,
---------
the related Financed Vehicle was covered by a comprehensive and collision
insurance policy (i) in an amount at least equal to the lesser of,
excluding any deductible, (a) its maximum insurable value or (b) the
principal amount due from the Obligor under the related Receivable, (ii)
naming TFC and its successors and assigns as loss payee and (iii) insuring
against loss and damage due to fire, theft, transportation,
<PAGE>
collision and other risks generally covered by comprehensive and collision
coverage. No Financed Vehicle is insured under a policy of Force-Placed
Insurance on the Cut-Off Date.
24. Certain Characteristics of Receivables. (i) No Receivable was more than
--------------------------------------
29 days past due as of the Cut-Off Date; (ii) no funds have been advanced
by the Seller, the Servicer, any Dealer, or anyone acting on behalf of any
of them in order to cause any Receivable to qualify under subclause (i) of
this clause 24; (iii) the Principal Balance of each Receivable set forth in
the Schedule of Receivables is true and accurate as of the Cut-Off Date.
25. Direct Payment. All Receivable are secured by Financed Vehicles on which
--------------
at least one payment has been made directly to TFC subsequent to the date
TFC has purchased such Receivable.
26. Military Assistance Corporation. As of the Closing Date, Fort Knox
-------------------------------
National Bank ("FKNB") has been directed by TFC, and evidence of FKNB's
-----
acknowledgment has been received to directly transfer to the Collection
Account all amounts received by it pursuant to the Military Assistance
Corporation ("MAC") program.
----
27. Pool Characteristics. The weighted average interest rate for the pool was
--------------------
no less than 21.2% and the weighted average remaining maturity for the pool
is no greater than 29 months.
<PAGE>
SCHEDULE C
THE FINANCE COMPANY CHARGE-OFF POLICY
<PAGE>
EXHIBIT D
---------
ASSIGNMENT
A-
<PAGE>
EXECUTION COPY
- --------------------------------------------------------------------------------
SALE AND SERVICING
AGREEMENT
among
ASSET GUARANTY INSURANCE COMPANY,
Insurer,
TFC AUTOMOBILE RECEIVABLES TRUST 1999-1,
Issuer,
TFC RECEIVABLES CORPORATION 2,
Seller,
THE FINANCE COMPANY,
Servicer
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
Trust Collateral Agent and Back-up Servicer
Dated as of December 1, 1999
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I Definitions.................................................................... 2
SECTION 1.1. Definitions............................................................... 2
SECTION 1.2. Other Definitional Provisions............................................. 20
SECTION 1.3. Usage of Terms............................................................ 21
SECTION 1.4. Certain References........................................................ 21
SECTION 1.5. No Recourse............................................................... 21
SECTION 1.6. Action by or Consent of Noteholders and Certificateholders................ 21
SECTION 1.7. Material Adverse Effect................................................... 21
ARTICLE II Conveyance of Receivables...................................................... 22
SECTION 2.1. Conveyance of Receivables................................................. 22
SECTION 2.2. Further Encumbrance of Trust Property..................................... 23
ARTICLE III The Receivables................................................................ 24
SECTION 3.1. Representations and Warranties of Seller.................................. 24
SECTION 3.2. Repurchase upon Breach.................................................... 24
SECTION 3.3. Custody of Receivables Files.............................................. 25
ARTICLE IV Administration and Servicing of Receivables.................................... 27
SECTION 4.1. Duties of the Servicer.................................................... 27
SECTION 4.2. Collection of Receivable Payments; Modifications of Receivables........... 28
SECTION 4.3. Realization Upon Receivables.............................................. 29
SECTION 4.4.. Insurance................................................................. 31
SECTION 4.5. Maintenance of Security Interests in Vehicles............................. 31
SECTION 4.6. Covenants, Representations, and Warranties of Servicer.................... 32
SECTION 4.7. Purchase of Receivables Upon Breach of Covenant........................... 34
SECTION 4.8. Total Servicing Fee; Payment of Certain Expenses by Servicer.............. 35
SECTION 4.9. Servicer's Certificate.................................................... 35
SECTION 4.10. Annual Statement as to Compliance, Notice of Servicer Termination Event... 36
SECTION 4.11. Independent Accountants' Report........................................... 36
SECTION 4.12. Access to Certain Documentation and Information Regarding Receivables..... 37
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
<S> <C>
SECTION 4.13. Monthly Tape............................................................... 37
SECTION 4.14. Retention and Termination of Servicer..................................... 39
SECTION 4.15. Fidelity Bond............................................................. 39
ARTICLE V Trust Accounts and Spread Account; Payments; Statements to Certificateholders
and Noteholders.............................................................. 39
SECTION 5.1. Establishment of Trust Accounts and Spread Account........................ 39
SECTION 5.2. Reserved.................................................................. 42
SECTION 5.3. Certain Reimbursements to the Servicer.................................... 42
SECTION 5.4. Application of Collections................................................ 43
SECTION 5.5. Spread Account............................................................ 43
SECTION 5.6. Additional Deposits....................................................... 44
SECTION 5.7. Payments.................................................................. 45
SECTION 5.8. Note Payment Account...................................................... 47
SECTION 5.9. [Reserved.]............................................................... 48
SECTION 5.10. [Reserved.]............................................................... 48
SECTION 5.11. Statements to Certificateholders and Noteholders.......................... 48
SECTION 5.12. Optional Deposits by the Insurer.......................................... 49
ARTICLE VI The Note Policy................................................................ 50
SECTION 6.1. Claims Under Note Policy.................................................. 50
SECTION 6.2. Preference Claims......................................................... 51
SECTION 6.3. Surrender of Policy....................................................... 52
ARTICLE VII RESERVED....................................................................... 52
ARTICLE VIII The Seller..................................................................... 52
SECTION 8.1. Representations of Seller................................................. 52
SECTION 8.2. Corporate Existence....................................................... 54
SECTION 8.3. Liability of Seller; Indemnities.......................................... 55
SECTION 8.4. Merger or Consolidation of, or Assumption of the Obligations of, Seller... 56
SECTION 8.5. Limitation on Liability of Seller and Others.............................. 57
SECTION 8.6. Seller May Own Certificates or Notes...................................... 57
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
<S> <C>
ARTICLE IX The Servicer................................................................... 57
SECTION 9.1. Representations of Servicer............................................... 57
SECTION 9.2. Liability of Servicer; Indemnities........................................ 59
SECTION 9.3. Merger or Consolidation of, or Assumption of the Obligations of, the
Servicer or the Trust Collateral Agent................................... 61
SECTION 9.4. Limitation on Liability of Servicer, Trust Collateral Agent and Others.... 62
SECTION 9.5. Delegation of Duties...................................................... 63
SECTION 9.6. Servicer and Trust Collateral Agent Not to Resign......................... 63
ARTICLE X Default........................................................................ 64
SECTION 10.1. Servicer Termination Event................................................ 64
SECTION 10.2. Consequences of a Servicer Termination Event.............................. 68
SECTION 10.3. Appointment of Successor.................................................. 69
SECTION 10.4. Notification to Noteholders and Certificateholders........................ 70
SECTION 10.5. Waiver of Past Defaults................................................... 70
SECTION 10.6. Termination of Trust Collateral Agent..................................... 70
SECTION 10.7. Successor to Servicer..................................................... 71
ARTICLE XI Termination.................................................................... 72
SECTION 11.1. Optional Redemption of the Notes.......................................... 72
ARTICLE XII Administrative Duties of the Servicer.......................................... 72
SECTION 12.1. Administrative Duties..................................................... 72
SECTION 12.2. Records................................................................... 75
SECTION 12.3. Additional Information to be Furnished to the Issuer...................... 75
ARTICLE XIII Miscellaneous Provisions....................................................... 75
SECTION 13.1 Amendment................................................................. 75
SECTION 13.2. Protection of Title to Trust.............................................. 77
SECTION 13.3. Notices................................................................... 79
SECTION 13.4. Assignment................................................................ 79
SECTION 13.5. Limitations on Rights of Others........................................... 80
SECTION 13.6. Severability.............................................................. 80
</TABLE>
iii
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
<S> <C>
SECTION 13.7. Separate Counterparts................................................... 80
SECTION 13.8. Headings................................................................ 80
SECTION 13.9. Governing Law........................................................... 80
SECTION 13.10. Assignment to Trustee................................................... 80
SECTION 13.11. Nonpetition Covenants................................................... 80
SECTION 13.12. Limitation of Liability of Owner Trustee and the Trust
Collateral Agent....................................................... 81
SECTION 13.13. Independence of the Servicer............................................ 81
SECTION 13.14. No Joint Venture........................................................ 82
SECTION 13.15. Limited Recourse........................................................ 82
</TABLE>
SCHEDULES
Schedule A - Schedule of Receivables
Schedule B - Schedule of Representations and Warranties
EXHIBITS
Exhibit A - Form of Servicer's Certificate
Exhibit B - Form of Deficiency Claim Notice
Exhibit C - Form of Request for Release and Receipt of Documents
Exhibit D - Form of Trustee's Acknowledgement
Exhibit E - The Finance Company Charge-Off Policy
Exhibit F - Form of Monthly Servicer Report
Exhibit G - Agreed Upon Procedures
iv
<PAGE>
SALE AND SERVICING AGREEMENT dated as of December 1, 1999, among ASSET
GUARANTY INSURANCE COMPANY, a stock insurance company incorporated in the State
of New York (the "Insurer"), TFC AUTOMOBILE RECEIVABLES TRUST 1999-1, a Delaware
--------
business trust (the "Issuer"), TFC RECEIVABLES CORPORATION 2, a Delaware
-------
corporation (the "Seller"), THE FINANCE COMPANY, a Delaware corporation ("TFC"
------- ----
or, in its capacity as Servicer hereunder, the "Servicer"), and NORWEST BANK
---------
MINNESOTA, NATIONAL ASSOCIATION, a national banking association, (in its
capacity as Trust Collateral Agent, the "Trust Collateral Agent" or in its
-----------------------
capacity as Back-up Servicer, the "Back-up Servicer" or in its role as P.O. Box
-----------------
Owner, (the "P.O. Box Owner")).
---------------
WHEREAS, the Issuer has entered into an Indenture dated as of December
1, 1999, with the Insurer, the Trust Collateral Agent and the Trustee, pursuant
to which the Notes will be issued.
WHEREAS, TFC and the Seller have entered into a Purchase Agreement to
provide for, among other things, the transfer by TFC to the Seller of all of
TFC's right, title and interests in and to certain receivables on the Closing
Date, which the Seller is assigning to the Trust hereby, and which the Trust
will assign to the Trustee, for the benefit of the Insurer and the Noteholders
pursuant to the Indenture. As a precondition to the effectiveness of the
Purchase Agreement , TFC, the Seller, the Trustee, the Trust Collateral Agent,
the Back-up Servicer, the Insurer and the Issuer will enter into this Agreement
to provide for the servicing of the Assets;
WHEREAS, the Seller is and will be conveying to the Issuer, among
other things, all of the Seller's rights derived under this Agreement, and TFC
and the Seller each agree that all covenants, representations, warranties and
agreements made by it in the Purchase Agreement with respect to itself or such
receivables shall also be for the benefit of the Trustee, on behalf of the
Noteholders and the Insurer;
WHEREAS, the Servicer agrees that all representations, warranties,
covenants and agreements made by the Servicer herein with respect to such
receivables shall also be for the benefit of the Trustee, the Insurer and the
Noteholders from time to time;
WHEREAS, for their services under this Agreement, the Servicer, the
Back-up Servicer and the Trustee will receive the compensation described herein
or in the Indenture;
WHEREAS, the Issuer desires to purchase a portfolio of receivables
arising in connection with motor vehicle retail installment sale contracts
acquired by The Finance Company directly or indirectly through motor vehicle
dealers;
WHEREAS, the Seller has purchased such receivables from The Finance
Company and is willing to sell such receivables to the Issuer; and
WHEREAS, the Servicer is willing to service all such receivables;
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
-----------
SECTION 1.1. Definitions. Whenever used in this Agreement, the following
-----------
words and phrases shall have the following meanings:
"Accountants' Report" means the report of a firm of nationally
--------------------
recognized independent accountants described in Section 4.11.
"Accounting Date" means, with respect to a Payment Date, the last day
----------------
of the Monthly Period immediately preceding such Payment Date.
"Actuarial Method" means the method of allocating a fixed level
-----------------
monthly payment on an obligation between principal and interest, pursuant to
which the portion of such payment that is allocated to interest is equal to the
product of (a) 1/12, (b) the fixed annual rate of interest on such obligation
and (c) the outstanding principal balance of such obligation.
"Actuarial Receivable" means a Receivable under which the portion of
---------------------
the payment allocated to interest and the portion of the payment allocable to
principal is determined in accordance with the Actuarial Method.
"Additional Principal Payment Amount" means, with respect to any
------------------------------------
Payment Date, the lesser of (a) the remaining Available Funds on such Payment
Date (after all payments referred to in clauses (i) through (vi) of the priority
of payments set forth in Section 5.7(a)), and (b) the amount required to reduce
the Note Principal Balance to 74% of the Pool Balance at such Payment Date.
"Administrative Receivable" means, with respect to any Monthly Period,
--------------------------
a Receivable which the Servicer is required to purchase pursuant to Section 4.7
on the Deposit Date with respect to such Monthly Period.
"Affiliate" means, with respect to any specified Person, any other
----------
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect
--------
to any Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
------------
"controlled" have meanings correlative to the foregoing.
----------
"Aggregate Principal Balance" means, with respect to any date of
----------------------------
determination, the sum of the Principal Balances for all Receivables (other than
(i) any Receivable that became a Liquidated Receivable before or during the
related Monthly Period and (ii) any Receivable that became a Purchased
Receivable before or during the related Monthly Period) as of the immediately
preceding Accounting Date.
2
<PAGE>
"Agreement" means this Sale and Servicing Agreement, as the same may
----------
be amended and supplemented from time to time.
"Amount Available" means, with respect to a Payment Date, the sum of
-----------------
(i) the Available Funds for the immediately preceding Determination Date, plus
(ii) the amount on deposit in the Spread Account for the immediately preceding
Determination Date.
"Amount Financed" means, with respect to a Receivable, the aggregate
----------------
amount advanced to the Obligor under such Receivable toward the purchase price
of the Financed Vehicle and any related costs, including amounts advanced in
respect of accessories, insurance premiums, service and warranty contracts,
other items customarily financed by auto lenders as part of retail automobile
installment sale contracts or promissory notes.
"Annual Percentage Rate" or "APR" of a Receivable means the annual
----------------------- ----
percentage rate of finance charges or service charges, as stated in the related
Contract.
"Available Funds" means, 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 during the related Monthly Period,
plus Investment Earnings with respect to the Trust Accounts for the related
Payment Date, (iii) following the acceleration of the Notes pursuant to Section
5.2 of the Indenture, the amount of money or property collected pursuant to
Section 5.4 of the Indenture since the preceding Determination Date by the Trust
Collateral Agent or Controlling Party for distribution pursuant to Section 5.7
hereof, and (iv) the proceeds of any redemption of the Notes described in
Section 11.1 hereof.
"Average Delinquency Ratio" means, with respect to any Determination
--------------------------
Date, the arithmetic average of the Delinquency Ratios (as such term is defined
in the Insurance Agreement) for such Determination Date and the two immediately
preceding Determination Dates.
"Base Servicing Fee" means, 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 Servicing Fee Rate multiplied by the
Pool Balance as of the close of business on the last day of the preceding
Monthly Period.
"Basic Documents" means this Agreement, the Certificate of Trust, the
----------------
Certificate to Trustee, the Trust Agreement, the Purchase Agreement, the
Indenture, the Insurance Agreement, the Certificate to the Trustee, the
Indemnification Agreement, the Premium Letter, the Standby Processing Agreement,
the Note Purchase Agreement, the Parent Support Agreement and the Fort Knox
Letters and other documents and certificates delivered in connection therewith.
"Business Day" means a day other than a Saturday, a Sunday or other
-------------
day on which commercial banks located in the states of Delaware, Virginia,
Minnesota or New York are authorized or obligated to be closed.
3
<PAGE>
"Certificate" means a Trust Certificate (as defined in the Trust
------------
Agreement).
"Certificate Distribution Account" means the account to be established
---------------------------------
and maintained by the Owner Trustee on behalf of the Certificateholders pursuant
to Section 3.5 of the Trust Agreement.
"Certificate to Trustee" means the Certificate to Trustee dated as of
-----------------------
December 3, 1999, entered into among, TFC, the Seller, and TFC Enterprises, Inc.
"Certificateholder" has the meaning assigned to such term in the Trust
------------------
Agreement.
"Charge-Off Policy" means The Finance Company Charge-Off Policy
-----------------
attached hereto as Exhibit E.
"Closing Date" means December 1, 1999.
-------------
"Collected Funds" means, 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 Net Liquidation
Proceeds collected during the related Monthly Period (but excluding any Purchase
Amounts deposited in the Collection Account pursuant to Sections of 3.2 or 4.7
of this Agreement).
"Collection Account" means the account designated as such, established
-------------------
and maintained pursuant to Section 5.1.
"Collection Records" means all manually prepared or computer generated
-------------------
records relating to collection efforts or payment histories with respect to the
Receivables.
"Computer Tape" means the computer tapes or other electronic media
--------------
furnished or required to be furnished by the Seller to the Issuer and its
assigns describing certain characteristics of the Receivables.
"Contract" means a motor vehicle retail installment sale contract.
---------
"Controlling Party" means (a) the Insurer, so long as (i) no Insurer
------------------
Default shall have occurred and be continuing, (ii) there are Notes outstanding,
(iii) any amounts due to the Insurer remain unpaid or (iv) the Note Policy has
not expired according to its terms and (b) in all other cases, the Security
Majority.
"Corporate Trust Office" means (i) with respect to the Owner Trustee,
-----------------------
the principal corporate trust office of the Owner Trustee, which at the time of
execution of this agreement is Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration, and
(ii) with respect to the Trustee and the Trust Collateral Agent, the principal
corporate trust office of the Trustee, which at the time of execution of this
agreement is Sixth Street and Marquette
4
<PAGE>
Avenue, MAC N9311-161 Minneapolis, Minnesota 55479, Attention: Corporate Trust
Services-Asset Backed Administration.
"Cram Down Loss" means, with respect to a Receivable, if a court of
---------------
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the amount owed on a Receivable or otherwise modifying or restructuring
the scheduled payments to be made on a Receivable, an amount equal to (i) the
excess of the principal balance of such Receivable immediately prior to such
order over the principal balance of such Receivable as so reduced and/or (ii) if
such court shall have issued an order reducing the effective rate of interest on
such Receivable, the excess of the principal balance of such Receivable
immediately prior to such order over the net present value (using as the
discount rate the higher of the APR on such Receivable or the rate of interest,
if any, specified by the court in such order) of the scheduled payments as so
modified or restructured. A "Cram Down Loss" shall be deemed to have occurred
---------------
on the date of issuance of such order.
"Credit Facility" means the Amended and Restated Motor Vehicle
----------------
Installment Contract Loan and Security Agreement, between TFC and GE Capital,
dated as of January 1, 1999.
"Cut-Off Date" means the close of business on August 31, 1999.
-------------
"Dealer" means (a) a dealer who sold a Financed Vehicle and who
-------
originated and assigned the respective Receivable or (b) a third party (which in
no event shall be an Affiliate of TFC) who purchased a Receivable from a Dealer
and who sold such Receivable to TFC under a Dealer Agreement or pursuant to a
Dealer Assignment.
"Dealer Agreement" means an agreement between a Dealer and TFC
-----------------
relating to the acquisition of Receivables from such Dealer by TFC.
"Dealer Assignment" means, with respect to a Receivable, the
------------------
assignment executed by a Dealer conveying such Receivable to TFC.
"Dealer Underwriting Guide" means TFC's Credit Approval Guidelines
--------------------------
used by TFC in the purchase of Receivables under its point-of-sale program, as
amended from time to time.
"Deficiency Claim Amount" shall have the meaning set forth in Section
------------------------
5.5.
"Deficiency Claim Date" means, with respect to any Payment Date, the
----------------------
fourth Business Day immediately preceding such Payment Date.
"Deficiency Notice" shall have the meaning set forth in Section 5.5.
------------------
"Delinquency Category" means (a) for Receivables having monthly
--------------------
Scheduled Payments in respect of which the relevant Obligor shall have failed to
make a Scheduled Payment or a portion thereof on the due date therefor, the
applicable
5
<PAGE>
Delinquency Category into which such Receivable falls based on the number of
months delinquent, as described in Schedule 1 hereto and (b) for Receivables not
having monthly Scheduled Payments in respect of which the relevant Obligor shall
have failed to make a Scheduled Payment or a portion thereof on the due date
therefor, the applicable Delinquency Category into which such Receivable falls
based on the number of weeks delinquent, as described in Schedule 1 hereto.
"Delinquent Receivable" means a Receivable which (a) falls into any
---------------------
Delinquency Category other than the "Current" category (as described in Schedule
I hereto) and (b) is not a Liquidated Receivable.
"Delivery" means as follows with respect to the Trust Account
---------
Property:
(a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that constitute
"instruments" within the meaning of Section 9-105(1)(i) of the UCC and are
-----------
susceptible of physical delivery, transfer thereof to the Trust Collateral Agent
by physical delivery to the Trust Collateral Agent endorsed to, or registered in
the name of, the Trust Collateral Agent or endorsed in blank, and, with respect
to a certificated security (as defined in Section 8-102 of the UCC) transfer
thereof (i) by delivery of such certificated security endorsed to, or registered
in the name of the Trust Collateral Agent or (ii) by delivery thereof to a
"clearing corporation" (as defined in Section 8-102 of the UCC) and the making
--------------------
by such clearing corporation of appropriate entries on its books reducing the
appropriate securities account of the transferor and increasing the appropriate
securities account of the Trust Collateral Agent by the amount of such
certificated security and the identification by the clearing corporation of the
certificated securities for the sole and exclusive account of the Trust
Collateral Agent (all of the foregoing, "Physical Property"), and, in any event,
-----------------
any such Physical Property in registered form shall be in the name of the Trust
Collateral Agent; and such additional or alternative procedures as may hereafter
become appropriate to effect the complete transfer of ownership of any such
Trust Account Property to the Trust Collateral Agent or its nominee or
custodian, consistent with changes in applicable law or regulations or the
interpretation thereof;
(b) with respect to any security issued by the U.S. Treasury, the
Federal Home Loan Mortgage Corporation or by the Federal National Mortgage
Association that is a book-entry security held through the Federal Reserve
System pursuant to federal book-entry regulations, the following procedures, all
in accordance with applicable law, including applicable federal regulations and
Articles 8 and 9 of the UCC: book-entry registration of such Trust Account
Property to an appropriate book-entry account maintained with a Federal Reserve
Bank by a securities intermediary that is also a "depository" pursuant to
----------
applicable federal regulations; the making by such securities intermediary of
entries in its books and records crediting such Trust Account Property to the
Trust Collateral Agent's security account at the securities intermediary and
identifying such book-entry security held through the Federal Reserve System
pursuant to federal book-entry regulations as belonging to the Trust Collateral
Agent; and such additional or alternative procedures as may hereafter become
appropriate to effect complete transfer of ownership of any such Trust Account
Property to the Trust
6
<PAGE>
Collateral Agent, consistent with changes in applicable law or regulations or
the interpretation thereof; and
(c) with respect to any uncertificated security under Article 8 of
the UCC and that is not governed by clause (b) above, registration on the books
and records of the issuer thereof in the name of the Trust Collateral Agent or
its financial intermediary or its nominee or custodian who either (i) becomes
the registered owner on behalf of the Trust Collateral Agent or its financial
intermediary or (ii) having previously become the registered owner, acknowledges
that it holds such uncertificated security for the Trust Collateral Agent or its
financial intermediary.
In each case of delivery contemplated hereinabove, the Trust
Collateral Agent shall use its best efforts to make appropriate notations on its
records, and shall cause same to be made of the records of its nominees,
indicating that such securities are held in trust pursuant to and as provided in
this Agreement.
"Deposit Date" means, with respect to any Monthly Period, the Business
-------------
Day immediately preceding the related Determination Date.
"Depositor" shall mean the Seller in its capacity as Depositor under
----------
the Trust Agreement.
"Determination Date" means, with respect to any Monthly Period, the
-------------------
fifth day preceding the Payment Date in the next calendar month.
"Draw Date" means, with respect to any Payment Date, the third
----------
Business Day (as defined in the Note Policy) immediately preceding such Payment
Date.
"Electronic Ledger" means the electronic master record of the retail
------------------
installment sales contracts or installment loans of the Servicer.
"Eligible Bank" means any depository institution (which shall
--------------
initially be the Trust Collateral Agent) acceptable to the Controlling Party,
organized under the laws of the United States of America or any one of the
states thereof or the District of Columbia (or any United States branch or
agency of a foreign bank), which is subject to supervision and examination by
federal or state banking authorities and which at all times (a) has a net worth
in excess of $50,000,000 and (b) has either (i) a rating of A-1+ from Standard &
Poor's with respect to short-term deposit obligations, or (ii) if such
institution has issued long-term unsecured debt obligations, a rating of AA from
Standard & Poor's with respect to long-term unsecured debt obligations. Such
depository institution (other than the Trust Collateral Agent) shall have been
approved in writing by the Controlling Party, acting in its discretion, by
written notice to the Trust Collateral Agent.
"Eligible Deposit Account" means either (a) a segregated account with
-------------------------
an Eligible Bank or (b) a segregated trust account with the corporate trust
department of a depository institution with corporate trust powers organized
under the laws of the United States of America or any state thereof or the
District of Columbia (or any United States branch or agency of a foreign bank),
provided that such institution also must have a rating
7
<PAGE>
of A or higher from Standard & Poor's with respect to long-term deposit
obligations and must be acceptable to the Insurer. Such Eligible Bank or
depository institution (other than the Trust Collateral Agent) shall have been
approved in writing by the Controlling Party, acting in its discretion, by
written notice to the Trust Collateral Agent.
"Eligible Investments" mean book-entry securities, negotiable
---------------------
instruments or securities represented by instruments in bearer or registered
form which in each case shall mature not later than the day immediately
preceding the Payment Date immediately following the date of purchase thereof
and which evidence:
(a) direct interest-bearing obligations of, and interest-bearing
obligations fully guaranteed as to timely payment of principal and interest by,
the United States of America;
(b) demand deposits, time deposits or certificates of deposit of any
depository institution or trust company organized under the laws of the United
States of America or any state thereof or the District of Columbia (or any
domestic branch of a foreign bank) and subject to supervision and examination by
Federal or state banking or depository institution authorities (including
depository receipts issued by any such institution or trust company as custodian
with respect to any obligation referred to in clause (a) above or portion of
such obligation for the benefit of the holders of such depository receipts);
provided, however, that at the time of the investment or contractual commitment
- -------- -------
to invest therein (which shall be deemed to be made again each time funds are
reinvested following each Payment Date), the commercial paper or other short-
term senior unsecured debt obligations (other than such obligations the rating
of which is based on the credit of a Person other than such depository
institution or trust company) of such depository institution or trust company
shall have a credit rating from Standard & Poor's of A-1+;
(c) commercial paper and demand notes investing solely in commercial
paper (other than commercial paper issued by TFC or any Affiliate) that (i) is
payable in United States dollars and (ii) has, at the time of the investment or
contractual commitment to invest therein, a rating from Standard & Poor's of A-
1+;
(d) investments in money market funds (including funds for which the
Trust Collateral Agent or the Owner Trustee in each of their individual
capacities or any of their respective Affiliates is investment manager or
advisor) having a rating from Standard & Poor's of AAA-m or AAAm-G and (other
than funds for which the Trust Collateral Agent or the Owner Trustee in each of
their individual capacities or any of their respective Affiliates is investment
manager or advisor) having been approved in writing by the Insurer;
(e) bankers' acceptances issued by any depository institution or
trust company referred to in clause (b) above;
(f) repurchase obligations with respect to any security that is a
direct obligation of, or fully guaranteed by, the United States of America or
any agency or
8
<PAGE>
instrumentality thereof the obligations of which are backed by the full faith
and credit of the United States of America, in either case entered into with a
depository institution or trust company (acting as principal) referred to in
clause (b) above of which are rated A-1+ by Standard & Poor's; and
(g) so long as no Insurer Default shall have occurred and be
continuing and (a) there are Notes outstanding (b) any amounts due to the
Insurer remain unpaid or (c) the Note Policy has not expired according to its
terms, any other investment which is consistent with the ratings of the
Securities and which has been approved by the Insurer.
Any of the foregoing Eligible Investments may be purchased by or
through the Trust Collateral Agent or any of their respective Affiliates.
"FDIC" means the Federal Deposit Insurance Corporation.
-----
"Final Scheduled Payment Date" means the April, 2004 Payment Date.
-----------------------------
"Financed Vehicle" with respect to a Receivable, means a used
-----------------
automobile or light truck or new or used motorcycle, together with all
accessories thereto, securing an Obligor's indebtedness under the respective
Receivable.
"Fort Knox Letters" means (a) the letter agreement by TFC, dated as of
------------------
December 1, 1999, acknowledged and agreed to by Fort Knox National Company and
the Trust Collateral Agent, (b) the letter agreement by TFC, dated as of
December 2, 1999, acknowledged and agreed to by Fort Knox National Company and
the Trust Collateral Agent (with respect to TFC's TrueCheck Program), and (c)
the letter agreement by TFC, dated as of December 2, 1999, acknowledged and
agreed to by Fort Knox National Company and the Trust Collateral Agent (with
respect to TFC's ACH Program).
"GE Capital" means General Electric Capital Corporation.
-----------
"GE Capital Agreements" means the documents entered into by TFC and GE
----------------------
Capital in connection with the Credit Facility.
"GE Capital Receivables" means receivables financed under the Credit
-----------------------
Facility.
"Indemnification Agreement" means the Indemnification Agreement dated
--------------------------
as of December 1, 1999, among the Insurer, the Seller and Rothschild Inc., as
the same may be amended and supplemented from time to time.
"Indenture" means the Indenture dated as of December 1, 1999, among
----------
the Insurer, the Issuer and Norwest Bank Minnesota, National Association, as
Trust Collateral Agent and Trustee, as the same may be amended and supplemented
from time to time in accordance with its terms.
"Independent Accountants" has the meaning assigned to such term in
------------------------
Section 4.11(a)
9
<PAGE>
"Insolvency Event" means, with respect to a specified Person, (a) the
-----------------
filing of a petition against such Person or the entry of a decree or order for
relief by a court having jurisdiction in the premises in respect of such Person
or any substantial part of its property in an involuntary case under any
applicable federal or state bankruptcy, insolvency or other similar law now or
hereafter in effect, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator, or similar official for such Person or for any
substantial part of its property, or ordering the winding-up or liquidation of
such Person's affairs, and such petition, decree or order shall remain unstayed
and in effect for a period of 60 consecutive days; or (b) the commencement by
such Person of a voluntary case under any applicable federal or state
bankruptcy, insolvency or other similar law now or hereafter in effect, or the
consent by such Person to the entry of an order for relief in an involuntary
case under any such law, or the consent by such Person to the appointment of or
taking possession by, a receiver, liquidator, assignee, custodian, trustee,
sequestrator, or similar official for such Person or for any substantial part of
its property, or the making by such Person of any general assignment for the
benefit of creditors, or the failure by such Person generally to pay its debts
as such debts become due, or the taking of action by such Person in furtherance
of any of the foregoing.
"Insurer" means Asset Guaranty Insurance Company, a stock insurance
--------
company incorporated in the State of New York, or any successor thereto, as
issuer of the Note Policy.
"Insurer Default" means the occurrence of any of the following:
----------------
(i) the Insurer shall fail to pay when, as and in the amounts
required, any amount payable under the Note Policy and such failure continues
unremedied for two Business Days; (ii) the Superintendent of Insurance of the
State of New York (or any Person succeeding to the duties of such
Superintendent) (for the purpose of this paragraph (b), the "Superintendent")
---------------
shall apply for an order (A) pursuant to Section 7402 of the New York Insurance
Law (or any successor provision thereto), directing him to rehabilitate the
Insurer, (B) pursuant to Section 7404 of the New York Insurance Law (or any
successor provision thereto), directing him to liquidate the business of the
Insurer or (C) pursuant to Section 7416 of the New York Insurance Law (or any
successor provision thereto), dissolving the corporate existence of the Insurer
and such application shall not be dismissed or withdrawn during a period of 60
consecutive days or a court of competent jurisdiction enters an order granting
the relief sought; (iii) the Superintendent shall determine that the Insurer is
insolvent within the meaning of Section 1309 of the New York Insurance Law or
any successor section; (iv) the Insurer shall commence a voluntary case or other
proceeding seeking rehabilitation, liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit or creditors; or (v) an involuntary case or other proceeding shall
be commenced against the Insurer seeking rehabilitation, liquidation,
reorganization or other relief with respect to it or its debts
10
<PAGE>
under a bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property and such
case or proceeding is not dismissed or otherwise terminated within a period of
60 consecutive days or a court of competent jurisdiction enters an order
granting the relief sought in such case or proceeding.
"Insurer Payment Default" means the occurrence of any of the
------------------------
following:
(i) the Insurer shall fail to pay when, as and in the amounts
required, any amount payable under the Note Policy and such failure continues
unremedied for five Business Days; (ii) the Superintendent of Insurance of the
State of New York (or any Person succeeding to the duties of such
Superintendent) (for the purpose of this paragraph (b), the "Superintendent")
---------------
shall apply for an order (A) pursuant to Section 7402 of the New York Insurance
Law (or any successor provision thereto), directing him to rehabilitate the
Insurer, (B) pursuant to Section 7404 of the New York Insurance Law (or any
successor provision thereto), directing him to liquidate the business of the
Insurer or (C) pursuant to Section 7416 of the New York Insurance Law (or any
successor provision thereto), dissolving the corporate existence of the Insurer
and such application shall not be dismissed or withdrawn during a period of 60
consecutive days or a court of competent jurisdiction enters an order granting
the relief sought; (iii) the Superintendent shall determine that the Insurer is
insolvent within the meaning of Section 1309 of the New York Insurance Law or
any successor section; (iv) the Insurer shall commence a voluntary case or other
proceeding seeking rehabilitation, liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit or creditors; or (v) an involuntary case or other proceeding shall
be commenced against the Insurer seeking rehabilitation, liquidation,
reorganization or other relief with respect to it or its debts under a
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property and such case or
proceeding is not dismissed or otherwise terminated within a period of 60
consecutive days or a court of competent jurisdiction enters an order granting
the relief sought in such case or proceeding.
"Insurer Optional Deposit" means, with respect to any Payment Date, an
-------------------------
amount delivered by the Insurer pursuant to Section 5.12, at its sole option,
other than amounts in respect of a Note Policy Claim Amount to the Trust
Collateral Agent for deposit into the Collection Account for any of the
following purposes: (i) to provide funds in respect of the payment of fees or
expenses of any provider of services to the Trust with respect to such Payment
Date; or (ii) to include such amount as part of the Amount Available for such
Payment Date to the extent that without such amount a draw would be required to
be made on the Note Policy.
11
<PAGE>
"Insurance Agreement" means the Insurance and Reimbursement Agreement,
--------------------
dated as of December 1, 1999, among the Insurer, the Trust, the Seller and TFC
as such agreement may be amended, modified or supplemented from time to time in
accordance with its terms.
"Insurance Agreement Event of Default" means an "Event of Default" as
------------------------------------- -----------------
defined in the Insurance Agreement.
"Insurance Policy" means, with respect to a Receivable, any insurance
-----------------
policy (including the insurance policies described in Section 4.4 hereof)
benefiting the holder of the Receivable providing loss or physical damage,
credit life, credit disability, theft, mechanical breakdown or similar coverage
with respect to the Financed Vehicle or the Obligor.
"Interest Period" means, with respect to any Payment Date, the period
----------------
from and including the Closing Date (in the case of the first Payment Date) or
from and including the most recent Payment Date on which interest has been paid
to but excluding such Payment Date.
"Interest Rate" means, with respect to the Notes, 7.50% per annum
--------------
(computed on the basis of a 360-day year of twelve 30-day months).
"Investment Earnings" means, with respect to any Payment Date and a
--------------------
Trust Account, the investment earnings on amounts on deposit in such Trust
Account on such Payment Date.
"Issuer" means TFC Automobile Receivables Trust 1999-1 and any
-------
successor thereto.
"Lien" means a security interest, lien, charge, pledge, equity, or
-----
encumbrance of any kind, other than tax liens, mechanics' liens and any liens
that attach to the respective Receivable or the related Financed Vehicle by
operation of law as a result of any act or omission by the related Obligor.
"Lien Certificate" means, with respect to a Financed Vehicle, an
-----------------
original certificate of title, certificate of lien or other notification issued
by the Registrar of Titles of the applicable state to a secured party which
indicates that the lien of the secured party on the Financed Vehicle is recorded
on the original certificate of title. In any jurisdiction in which the original
certificate of title is required to be given to the Obligor, the term "Lien
----
Certificate" shall mean only a certificate or notification issued to a secured
- ------------
party.
"Liquidated Receivable" means, with respect to monthly pay contracts,
----------------------
a Receivable with respect to which any of the following has occurred: (i) the
date on which such Receivable becomes subject to the 180 Delinquency Category,
(ii) the earlier of (a) 60 days after the date the related Financed Vehicle is
repossessed and (b) the date the related Financed Vehicle is sold following
repossession, and (iii) the date the Receivable has been written off as
uncollectible consistent with the Charge-Off Policy.
12
<PAGE>
"Monthly Period" means, with respect to the first Payment Date, the
--------------
period beginning on the Closing Date and ending on the close of business on the
day preceding the Determination Date. With respect to each subsequent Payment
Date, the calendar month preceding such Payment Date. Unless otherwise
specified, any amount stated "as of the close of business of the last day of a
------------------------------------------------
Monthly Period" shall give effect to the following calculations as determined as
- --------------
of the end of the day on such last day: (i) all applications of collections,
and (ii) all payments.
"Monthly Records" means all records and data maintained by the
---------------
Servicer with respect to the Receivables, including the following with respect
to each Receivable: the account number; the originating Dealer; Obligor name;
Obligor address; Obligor home phone number; Obligor business phone number;
original Principal Balance; original term; Annual Percentage Rate; current
Principal Balance; current remaining term; origination date; first payment date;
final scheduled payment date; next payment due date; date of most recent
payment; new/used classification; collateral description; days currently
delinquent; number of contract extensions (months) to date; amount of Scheduled
Payment; current Insurance Policy expiration date; and past due late charges.
"Net Liquidation Proceeds" means, with respect to Liquidated
------------------------
Receivables, the sum of (i) proceeds from the disposition of the underlying
Financed Vehicle securing the Liquidated Receivables, less the Servicer's
reasonable out-of-pocket costs, including repossession and resale expenses not
already deducted from such proceeds in connection with the collection of such
Liquidated Receivables, and any amounts required by law to be remitted to the
Obligor, (ii) any insurance proceeds, and (iii) any other monies received from
the Obligor or otherwise.
"Note Payment Account" means the account designated as such,
--------------------
established and maintained pursuant to Section 5.1.
"Note Percentage" means for any Payment Date, the Percentage
---------------
determined by dividing the Note Principal Balance in effect on the close of
business on the Business Day next preceding such Payment Date by the Pool
Balance as determined at such time.
"Note Policy" means the financial guaranty insurance policy issued by
-----------
the Insurer to the Trust Collateral Agent, as agent for the Trustee, for the
benefit of the Noteholders.
"Note Policy Claim Amount" means, for any Payment Date, the lesser of
------------------------
(i) the sum of the Scheduled Payments (as such term is defined in the Note
Policy) on the Notes for such Payment Date and (ii) the excess, if any, of (x)
the amount required to be distributed pursuant to clauses (i) through (iv) of
Section 5.7(a) hereof over (y) the Amount Available with respect to such Payment
Date.
"Note Factor" means a seven-digit decimal figure equal to the
-----------
outstanding principal amount of Notes divided by the original outstanding
principal amount of such Notes.
13
<PAGE>
"Note Principal Balance" means, at any time, the original outstanding
----------------------
principal amount of the Notes, reduced by the aggregate amounts previously paid
thereon in respect of principal.
"Noteholder" means the Person in whose name a Note is registered on
----------
the Note Register.
"Noteholders' Interest Carryover Shortfall" means, with respect to any
-----------------------------------------
Payment Date and the Notes, the excess of the Noteholders' Interest Payment
Amount for the preceding Payment Date over the amount in respect of interest
that was actually deposited in the Note Payment Account on such preceding
Payment Date, plus interest on the amount of interest due but not paid to
Noteholders on the preceding Payment Date, to the extent permitted by law, at
the Interest Rate borne by the Notes from such preceding Payment Date to but
excluding the current Payment Date. Interest shall be computed on the basis of
a 360-day year of twelve 30-day months.
"Noteholders' Interest Payment Amount" means, with respect to any
------------------------------------
Payment Date, the sum of the Noteholders' Monthly Interest Payment Amount for
the Notes for such Payment Date and the Noteholders' Interest Carryover
Shortfall for such Payment Date.
"Noteholders' Monthly Interest Payment Amount" means the interest
--------------------------------------------
borne by the Notes at the Interest Rate, calculated on the basis of a 360-day
year consisting of twelve 30-day months. Interest on the outstanding principal
amount of the Notes will be payable on each Payment Date to the holders of the
Notes as of the related Record Date, in an amount equal to one-twelfth of the
product of (i) the Interest Rate and (ii) the outstanding principal amount of
the Notes as of the close of business on the preceding Payment Date (after
giving effect to all payments of principal made with respect to the Notes, if
any, on such preceding Payment Date); provided, however, that with respect to
the first Payment Date, interest on the outstanding principal amount of the
Notes will accrue from the Closing Date to but excluding the first Payment Date.
"Noteholders' Monthly Principal Payment Amount" means, with respect to
---------------------------------------------
any Payment Date, the Noteholders' Percentage of the Principal Payment Amount.
"Noteholders' Percentage" means (i) for each Payment Date other than a
-----------------------
Payment Date on which the Notes are paid in full, the Note Percentage or (ii)
for any Payment Date after the Payment Date on which the Notes are paid in full,
zero.
"Noteholders' Principal Carryover Shortfall" means, as of the close of
------------------------------------------
any Payment Date, the excess of the Noteholders' Principal Payment Amount and
any outstanding Noteholders' Principal Carryover Shortfall for the preceding
Payment Date over the amount in respect of principal that was actually deposited
in the Note Payment Account on such Payment Date.
"Noteholders' Principal Payment Amount" means, with respect to any
-------------------------------------
Payment Date (other than the Final Scheduled Payment Date), the sum of the
Noteholders' Monthly Principal Payment Amount for such Payment Date and the
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<PAGE>
Noteholders' Principal Carryover Shortfall as of the close of the preceding
Payment Date. The Noteholders' Principal Payment Amount on the Final Scheduled
Payment Date for the Notes will equal the outstanding principal amount, if any,
of such Notes.
"Note Purchase Agreement" means collectively, the Note Purchase
-----------------------
Agreement among the Seller, TFC and the purchasers listed therein.
"Notes" has the meaning assigned to such term in the Indenture.
-----
"Obligor" on a Receivable means the purchaser or co-purchasers of the
-------
Financed Vehicle and any other Person who owes payments under the Receivable.
"Officers' Certificate" means a certificate signed by the chairman of
---------------------
the board, the president, any executive vice president, any vice president, any
treasurer or secretary of the Seller, the Issuer or the Servicer, as
appropriate.
"Opinion of Counsel" means an opinion of counsel reasonably acceptable
------------------
to the Controlling Party, in form and substance reasonably acceptable to the
Controlling Party.
"Original Pool Balance" means the aggregate principal balance of the
---------------------
Receivables as of the Cut-Off Date which shall be equal to $[___________].
"Other Conveyed Property" means all property conveyed by the Seller to
-----------------------
the Trust pursuant to Section 2.1(b) through (k) of this Agreement.
"Owner Trust Estate" has the meaning assigned to such term in the
------------------
Trust Agreement.
"Owner Trustee" means Wilmington Trust Company, not in its individual
-------------
capacity but solely as Owner Trustee under the Trust Agreement, its successors-
in-interest or any successor Owner Trustee under the Trust Agreement.
"Payment Date" means, with respect to each Monthly Period, the
------------
fifteenth day of the following calendar month, or if such day is not a Business
Day, the immediately following Business Day, commencing on December 15, 1999.
"Person" means any individual, corporation, estate, partnership,
------
limited liability company, joint venture, association, joint stock company,
trust (including any beneficiary thereof), unincorporated organization or
government or any agency or political subdivision thereof.
"Physical Property" has the meaning assigned to such term in the
-----------------
definition of Delivery.
"P.O. Box Owner" means Norwest Bank of Minnesota, National
--------------
Association, or its successor thereto in its capacity as P.O. Box Owner under
the Standby Processing Agreement.
15
<PAGE>
"Pool Balance" means, with respect to the first Monthly Period, the
------------
Aggregate Principal Balance of the Receivables as of the Cut-Off Date, and as of
any date of determination thereafter, the Aggregate Principal Balance of the
Receivables at the end of the preceding Monthly Period, after giving effect to
all payments received from Obligors for such Monthly Period and all Liquidated
Receivables, including Cram Down Losses, realized on Receivables during such
Monthly Period.
"Post Office Box" has the meaning assigned to it in the Standby
---------------
Processing Agreement.
"Premium Letter" means the side letter among the Insurer, the Issuer,
--------------
the Seller, the Servicer and the Trust Collateral Agent dated the date of
issuance of the Note Policy in respect of the premium payable in consideration
of the issuance of the Note Policy.
"Principal Balance" means, with respect to any Receivable, as of any
-----------------
date, the Amount Financed minus the sum of (i) that portion of all amounts
received on or prior to such date and allocable to principal in accordance with
the Actuarial Method and (ii) any Cram Down Loss in respect of such Receivable.
"Principal Carryover Shortfall" means, as of the close of business on
-----------------------------
any Payment Date, the excess of the Principal Payment Amount plus any
outstanding Principal Carryover Shortfall from the preceding Payment Date over
the amount of principal deposited in the Note Payment Account and/or the
Certificate Distribution Account with respect to such current Payment Date.
"Principal Payment Amount" means, with respect to any Payment Date,
------------------------
the amount equal to the sum of the following amounts with respect to the related
Monthly Period: (i) collections on Receivables (other than Liquidated
Receivables and Purchased Receivables) allocable to principal, including full
and partial principal prepayments, (ii) the principal balance of all Receivables
(other than Purchased Receivables) that became Liquidated Receivables during the
related Monthly Period, (iii) (A) the portion of the Purchase Amount allocable
to principal of all Receivables that became Purchased Receivables (other than
Liquidated Receivables) as of the immediately preceding Record Date and (B) at
the option of the Insurer, the outstanding principal balance of those
Receivables that were required to be repurchased by the Seller and/or TFC during
such Monthly Period but were not so repurchased and (iv) the aggregate amount of
Cram Down Losses during such Monthly Period (other than in respect of Liquidated
Receivables and Purchased Receivables).
"Purchase Agreement" means the Purchase Agreement between the Seller
------------------
and TFC, dated as of December 1, 1999, pursuant to which the Seller acquired the
Receivables, as such Agreement may be amended from time to time.
"Purchase Amount" means, with respect to a Receivable, the Principal
----------------
Balance and all accrued and unpaid interest on the Receivable, after giving
effect to the
16
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receipt of any moneys collected (from whatever source) on such Receivable, if
any, as of the date of purchase.
"Purchased Receivable" means a Receivable purchased as of the close of
--------------------
business on the last day of a Monthly Period by the Servicer pursuant to Section
4.7 or repurchased by the Seller or the Servicer pursuant to Section 3.2.
"Rating Agency" means Standard & Poor's so long as Standard & Poor's
-------------
maintains a rating on the Notes; and if Standard & Poor's no longer maintains a
rating on the Notes, such other nationally recognized statistical rating
organization or other comparable Person designated by the Seller and acceptable
to the Controlling Party.
"Rating Agency Condition" means, with respect to any action, that each
-----------------------
Rating Agency shall have been given 10 days' (or such shorter period as shall be
acceptable to each Rating Agency) prior notice thereof and that the Rating
Agency shall have notified the Seller, the Noteholders, the Servicer, the
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 without giving effect to the existence of the Note Policy.
"Realized Losses" means, with respect to any Receivable that becomes a
---------------
Liquidated Receivable, the excess of the Principal Balance of such Liquidated
Receivable over Net Liquidation Proceeds to the extent allocable to principal.
"Receivable" means, any Contract listed on Schedule A, which Schedule
----------
may be in an electronic format acceptable to the Insurer, a copy of which shall
be delivered to each of the Insurer, the Trust Collateral Agent and the Back-up
Servicer on or before the Closing Date, and with respect to any such Contract,
all of, and the right to receive all of (a) the Scheduled Payments, (b) any
prepayments made with respect to such Contract, (c) any amounts guaranteed under
such Contracts, (d) any proceeds of any insurance policy relating to such
Contract and (e) any recoveries made with respect to such Contract and the right
to receive any payments in respect of the foregoing.
"Receivable Files" means the documents specified in Section 3.3.
----------------
"Record Date" with respect to each Payment Date means the Business Day
-----------
immediately preceding such Payment Date, unless otherwise specified in this
Agreement.
"Registrar of Titles" means, with respect to any state, the
-------------------
governmental agency or body responsible for the registration of, and the
issuance of certificates of title relating to, motor vehicles and liens thereon.
"Required Audits" means certain agreed upon procedures, performed by a
---------------
nationally recognized firm of independent accountants, with respect to the
accuracy of the first and second Servicer Certificates for the transaction and
thereafter to be performed after each anniversary of the Closing Date which
shall include a review of the Servicer Certificates for the preceding twelve
months.
17
<PAGE>
"Requisite Amount" has the meaning set forth in the Insurance
----------------
Agreement.
"Rule of 78s Method" means the method under which a portion of a
------------------
payment allocated to earned interest and the portion allocable to principal is
determined according to the sum of the month's digits or any equivalent method
commonly referred to as the "Rule of 78s."
-------------
"Rule of 78s Receivable" means a Receivable under which the portion of
----------------------
a payment allocable to interest and the portion of a payment allocable to
principal is determined in accordance with the Rule of 78s Method.
"Schedule of Receivables" means the schedule of all retail installment
-----------------------
sales contracts and promissory notes originally held as part of the Trust which
is attached as Schedule A.
"Schedule of Representations" means the Schedule of Representations
---------------------------
and Warranties attached hereto as Schedule B.
"Scheduled Payment" means, 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, as amended, or
(iii) modifications or extensions of the Receivable permitted by Sections 4.2(b)
and (c), 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.
"Securities" means the Notes and the Certificates.
----------
"Securities Account Control Agreement" shall have the meaning set
------------------------------------
forth in the Indenture.
"Security Majority" means a majority by principal amount of the
-----------------
Noteholders so long as the Notes are outstanding and a majority by principal
amount of the Certificateholders thereafter.
"Seller" means TFC Receivables Corporation 2, a Delaware corporation,
------
and its successors in interest to the extent permitted hereunder.
"Service Contract" means, with respect to a Financed Vehicle, the
----------------
agreement, if any, financed under the related Receivable that provides for the
repair of such Financed Vehicle.
"Servicer" means The Finance Company, as the servicer of the
--------
Receivables, and each successor Servicer pursuant to Section 10.3.
18
<PAGE>
"Servicer Extension Notice" means the notice specified in Section
-------------------------
4.14.
"Servicer Termination Event" means an event specified in Section 10.1.
--------------------------
"Servicer Termination Side Letter" means the letter from the Insurer
--------------------------------
to the Servicer, TFC and the Trustee dated as of December 1, 1999, with regard
to the renewal of the term of the Servicer's appointment.
"Servicer's Certificate" means an Officers' Certificate of the
----------------------
Servicer delivered pursuant to Section 4.9, substantially in the form of Exhibit
A hereto.
"Servicing Fee Rate" means 3.50% per annum.
------------------
"Simple Interest Method" means the method of allocating a fixed level
----------------------
payment on an obligation between principal and interest, pursuant to which the
portion of such payment that is allocated to interest is equal to the product of
the fixed rate of interest on such obligation multiplied by the period of time
(expressed as a fraction of a year, based on the actual number of days in the
calendar month and 365 days in the calendar year) elapsed since the preceding
payment under the obligation was made.
"Simple Interest Receivable" means a Receivable under which the
--------------------------
portion of the payment allocable to interest and the portion allocable to
principal is determined in accordance with the Simple Interest Method.
"Spread Account" has the meaning assigned thereto in Section 5.1.
--------------
"Spread Account Property" shall mean the Spread Account, all amounts
-----------------------
and investments held from time to time in the Spread Account (whether in the
form of deposit accounts, Physical Property, book-entry securities,
uncertificated securities or otherwise) and all proceeds of the foregoing.
"Standard & Poor's" means Standard & Poor's Ratings Services, or its
-----------------
successor.
"Standby Processing Agreement" means the Standby Remittance Processing
----------------------------
Agreement, dated as of December 1, 1999, among the Seller, TFC, the Trust
Collateral Agent, the Issuer, GE Capital the Insurer and the P.O. Box Owner.
"Supplemental Servicing Fee" means, with respect to any Monthly
--------------------------
Period, the fee payable to the Back-up Servicer or any successor servicer (as
applicable) for services rendered during such Monthly Period, which shall be
equal to the product of one-twelfth times the difference, if any, between (a)
the then-current fee for servicing assets comparable to the Receivables, which
rate shall be the rate determined by averaging three servicing fee bids obtained
by the Back-up Servicer from third-party servicers selected by the Back-up
Servicer (which shall not exceed 4.5% of the aggregate principal balance of the
Receivables at the close of business on the last day of the preceding Monthly
Period) and (b) the Base Servicing Fee.
19
<PAGE>
"TFC" means The Finance Company, a Virginia corporation.
---
"Trigger Event" has the meaning assigned thereto in the Insurance
-------------
Agreement.
"Trust" means the Issuer.
-----
"Trust Account Property" means the Trust Accounts, all amounts and
----------------------
investments held from time to time in any Trust Account (whether in the form of
deposit accounts, Physical Property, book-entry securities, uncertificated
securities or otherwise) and all proceeds of the foregoing.
"Trust Accounts" has the meaning assigned thereto in Section 5.1.
--------------
"Trust Agreement" means the Amended and Restated Trust Agreement,
---------------
dated as of December 1, 1999, between the Seller and the Owner Trustee, as the
same may be amended and supplemented from time to time.
"Trust Collateral Agent" means Norwest Bank Minnesota, National
----------------------
Association, in its capacity as trust collateral agent hereunder, its successors
in interest and any successor Trust Collateral Agent hereunder.
"Trust Officer" means, (i) in the case of the Trust Collateral Agent,
-------------
the chairman or vice-chairman of the board of directors, the chairman or vice-
chairman of the executive committee of the board of directors, the president,
any vice president, assistant vice-president or managing director, the
secretary, any assistant secretary or any other officer of the Trust Collateral
Agent customarily performing functions similar to those performed by any of the
above designated officers and also means, with respect to a particular corporate
trust matter, any other officer to whom such matter is referred because of such
officer's knowledge of and familiarity with the particular subject, and (ii) in
the case of the Owner Trustee, any officer, or authorized signatory in the
corporate trust office of the Owner Trustee or any agent of the Owner Trustee
under a power of attorney with direct responsibility for the administration of
this Agreement or any of the Basic Documents on behalf of the Owner Trustee.
"Trust Property" means the property and proceeds conveyed pursuant to
--------------
Section 2.1, together with certain monies paid on or after the Cut-Off Date, the
Collection Account (including all Eligible Investments therein and all proceeds
therefrom), the Spread Account, the Post Office Boxes and certain other rights
under this Agreement.
"Trustee" means the Person acting as Trustee under the Indenture, its
-------
successors in interest and any successor trustee under the Indenture.
"Trustee Fee" means the fees due to the Trustee and the Trust
-----------
Collateral Agent as may be set forth in that certain fee agreement dated as of
the date hereof between the Servicer and Norwest Bank Minnesota, National
Association.
20
<PAGE>
"UCC" means the Uniform Commercial Code as in effect in the relevant
---
jurisdiction on the date of this Agreement.
"Year 2000 Problem" means the risk that computer applications used by
-----------------
a Person (or suppliers, vendors and customers of such Person) may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999.
SECTION 1.2. Other Definitional Provisions.
-----------------------------
(a) Capitalized terms used herein and not otherwise defined herein
have the meanings assigned to them in the Indenture, or, if not defined therein,
in the Trust Agreement.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any instrument governed hereby and in any certificate or
other document made or delivered pursuant hereto unless otherwise defined
therein.
(c) As used in this Agreement, in any instrument governed hereby and
in any certificate or other document made or delivered pursuant hereto or
thereto, accounting terms not defined in this Agreement or in any such
instrument, certificate or other document, and accounting terms partly defined
in this Agreement or in any such instrument, certificate or other document to
the extent not defined, shall have the respective meanings given to them under
generally accepted accounting principles as in effect on the date of this
Agreement or any such instrument, certificate or other document, as applicable.
To the extent that the definitions of accounting terms in this Agreement or in
any such instrument, certificate or other document are inconsistent with the
meanings of such terms under generally accepted accounting principles, the
definitions contained in this Agreement or in any such instrument, certificate
or other document shall control.
(d) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
SECTION 1.3. Usage of Terms. With respect to all terms used in this
--------------
Agreement, the singular includes the plural and the plural includes the
singular; words importing any gender include the other gender; references to
"writing" include printing, typing, lithography, and other means of reproducing
-------
words in a visible form; references to agreements and other contractual
instruments include all subsequent amendments thereto or changes therein entered
into in accordance with their respective terms and not prohibited by this
Agreement; references to Persons include their permitted successors and assigns;
any form of the word "include" shall be deemed to be followed by the words
--------
"without limitation"; the words "herein", "hereof" and "hereunder" and other
------------------ ------ ------ ---------
words of
21
<PAGE>
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,
Schedules and Exhibits to this Agreement.
SECTION 1.4. Certain References. Unless the context clearly requires
------------------
otherwise, all references to the Principal Balance of a Receivable as of any
date of determination shall refer to the close of business on such day, or as of
the first day of an Interest Period shall refer to the opening of business on
such day. All references to the last day of an Interest Period shall refer to
the close of business on such day.
SECTION 1.5. No Recourse. Without limiting the obligations of TFC
-----------
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 TFC, its
Affiliates, or of any predecessor or successor of TFC and its Affiliates.
SECTION 1.6. Action by or Consent of Noteholders and Certificateholders.
----------------------------------------------------------
Whenever any provision of this Agreement refers to action to be taken, or
consented to, by Noteholders or Certificateholders, such provision shall be
deemed to refer to the Certificateholder or Noteholder, as the case may be, of
record as of the Record Date which shall be the date ten Business Days
immediately preceding the date on which such action is to be taken, or consent
given, by Noteholders or Certificateholders. Solely for the purposes of any
action to be taken, or consented to, by Noteholders or Certificateholders, any
Note or Certificate registered in the name of TFC or any Affiliate thereof shall
be deemed not to be outstanding; provided, however, that solely for the purpose
-------- -------
of determining whether a Trust Officer of the Trustee or the Trust Collateral
Agent is entitled to rely upon any such action or consent, only Notes or
Certificates which the Owner Trustee, the Trust Officer of the Trustee or the
Trust Collateral Agent, respectively, actually knows to be so owned shall be so
disregarded.
SECTION 1.7. Material Adverse Effect. Whenever used in the Basic
-----------------------
Documents, "Material Adverse Effect" or "material adverse effect" means (i) when
used with respect to any action, event, fact or other matter or thing, means
that such action, event, fact or other matter or thing will, individually or in
the aggregate, have a material adverse effect on (a) the Trust, the Trust
Property or Collateral, (b) the existence, perfection or priority of the
security interests of the Trust Collateral Agent in the Collateral, (c) the
ability of the Trust Collateral Agent on behalf of the Noteholders and the
Insurer to collect on, liquidate, or foreclose against, the Collateral in
accordance with the Indenture, (d) the validity, enforceability, or the
performance of any Person's obligations under, or with respect to, the Basic
Documents, or the validity, enforceability, or performance of any Person's
obligations under or with respect to, or the payment of, the Notes, (e) the
transactions contemplated by the Basic Documents, (f) the business, operations,
condition (financial or otherwise) of the Servicer, the Seller or the Issuer or
(g) the interests, rights and/or remedies hereunder, or otherwise with respect
to the Trust Property, of the Trust Collateral Agent, the Trustee, the Insurer
or any of the Noteholders (which determination shall be made, in each case,
without giving effect to the existence of the Note Policy),
22
<PAGE>
and (ii) when used in relation to or in connection with any Person also means
that such action, event, fact or other matter or thing shall not, individually
or in the aggregate, have a material adverse effect on the business, operations,
condition (financial otherwise) of such Person.
ARTICLE II
Conveyance of Receivables
SECTION 2.1. Conveyance of Receivables. In consideration of the Issuer's
-------------------------
delivery to the Seller on the Closing Date of the Notes and the Certificates and
the other amounts to be distributed from time to time to the Seller in
accordance with the terms of this Agreement, the Seller does hereby sell,
transfer, assign, set over and otherwise convey to the Issuer, without recourse
(subject to the obligations set forth herein), all right, title and interest of
the Seller in and to:
(a) the Receivables and all monies paid or payable thereon or in
respect thereof after the Cut-Off Date (including amounts due on or before the
Cut-Off Date but received by TFC, the Seller or the Issuer on or after the Cut-
Off Date);
(b) the security interests in the Financed Vehicles granted by
Obligors pursuant to the Receivables and any other interest of the Seller in
such Financed Vehicles;
(c) any proceeds and the right to receive proceeds with respect to the
Receivables from claims on any physical damage, credit life or disability
insurance policies covering Financed Vehicles or Obligors, including rebates of
insurance premiums relating to the Receivables, and any proceeds from the
liquidation of the Receivables;
(d) all rights of the Seller against Dealers pursuant to Dealer
Agreements or Dealer Assignments;
(e) all rights under any Service Contracts on the related Financed
Vehicles;
(f) the related Receivables Files and any and all other documents that
TFC keeps on file in accordance with its customary procedures relating to the
Receivables, the Obligors or the Financed Vehicles;
(g) property (including the right to receive future Net Liquidation
Proceeds) that secures a Receivable and that has been acquired by or on behalf
of the Trust pursuant to liquidation of such Receivable;
(h) all funds on deposit from time to time in the Trust Accounts (less
all investments and proceeds thereof) and all rights of the Issuer therein;
(i) all of its rights and benefits, but none of its obligations or
burdens, under the Purchase Agreement, including the delivery requirements,
representations and
23
<PAGE>
warranties and the cure and repurchase obligations of TFC under the Purchase
Agreement;
(j) all rights under the Standby Processing Agreement;
(k) all of the other Conveyed Property; and
(l) the proceeds of any and all of the foregoing.
It is the intention of the Seller that the transfer and assignment
contemplated by this Agreement shall constitute a sale of the Receivables and
other Trust Property from the Seller to the Issuer and the beneficial interest
in and title to the Receivables and the other Trust Property shall not be part
of the Seller's estate in the event of the filing of a bankruptcy petition by or
against the Seller under any bankruptcy law. In the event that, notwithstanding
the intent of the Seller, the transfer and assignment contemplated hereby is
held not to be a sale, this Agreement shall constitute a grant of a security
interest in the property referred to in this Section 2.1 for the benefit of the
Noteholders and the Insurer.
SECTION 2.2. Further Encumbrance of Trust Property.
-------------------------------------
(a) Immediately upon the conveyance to the Trust by the Seller of any
item of the Trust Property pursuant to Section 2.1, all right, title and
interest of the Seller in and to such item of Trust Property shall terminate,
and all such right, title and interest shall vest in the Trust, in accordance
with the Trust Agreement and Sections 3802 and 3805 of the Business Trust
Statute (as defined in the Trust Agreement).
(b) Immediately upon the vesting of the Trust Property in the Trust,
the Trust shall have the sole right to pledge or otherwise encumber, such Trust
Property. Pursuant to the Indenture and contemporaneously with such property
vesting in the Trust pursuant to (a) above, the Trust shall grant a security
interest in the Trust Property to secure the repayment of the Notes and the
obligations owed to the Insurer under the Basic Documents. The Certificates
shall represent the beneficial ownership interest in the Trust Property, and the
Certificateholders shall be entitled to receive distributions with respect
thereto as set forth herein.
(c) Prior to the payment in full on the Notes, the payment of all
amounts due to the Insurer under the Basic Documents, the end of the Term of the
Note Policy (as defined therein) and the surrender of the Note Policy by the
Trust Collateral Agent to the Insurer, the Trust Collateral Agent shall hold the
Trust Property for the exclusive benefit of the Trustee on behalf of the
Noteholders and the Insurer. Following the payment in full of the Notes and the
release and discharge of the Indenture, all covenants of the Issuer under
Article III of the Indenture shall, until payment in full of the Certificates,
remain as covenants of the Issuer for the benefit of the Certificateholders,
enforceable by the Certificateholders to the same extent as such covenants were
enforceable by the Noteholders prior to the discharge of the Indenture. Any
rights of the Trustee under Article III of the Indenture, following the
discharge of the Indenture, shall vest in the Certificateholders.
24
<PAGE>
(d) The Trust Collateral Agent shall, at such time as there are no
Securities outstanding and all sums due to (i) the Trustee or any agent or
counsel thereof pursuant to the Indenture, (ii) the Trust Collateral Agent
pursuant to this Agreement, and (iii) the Insurer under the Basic Documents have
been paid, release any remaining portion of the Trust Property to the Seller.
ARTICLE III
The Receivables
---------------
SECTION 3.1. Representations and Warranties of Seller. The Seller makes
----------------------------------------
the following representations and warranties as to the Receivables and the Other
Conveyed Property on which the Issuer is deemed to have relied in acquiring the
Receivables, upon which the Insurer shall be deemed to rely in issuing the Note
Policy, upon which the Trustee shall be deemed to rely in issuing the Notes and
upon which the Noteholders shall be deemed to rely in purchasing the Notes. The
representations and warranties set forth on the Schedule of Representations
attached hereto as Schedule B are true and correct. Such representations and
warranties speak as of the execution and delivery of this Agreement and as of
the Closing Date, but shall survive the sale, transfer and assignment of the
Receivables to the Issuer and the pledge thereof to the Trust Collateral Agent
pursuant to the Indenture.
SECTION 3.2. Repurchase upon Breach.
----------------------
(a) The Seller, the Servicer, any Trust Officer of the Trust
Collateral Agent or the Owner Trustee, as the case may be, shall inform each of
the other parties to this Agreement promptly, in writing, upon the discovery of
any breach of the Seller's representations and warranties made pursuant to
Section 3.1; provided, however, that the failure to give any such notice shall
-------- -------
not derogate from any obligations of the Seller under this Section 3.2. As of
the last day of the first month following the discovery by the Seller or receipt
by the Seller of notice of such breach, unless such breach and the resulting
Material Adverse Effect is cured by such date, the Seller shall have an
obligation to repurchase any Receivable in which the interests of the
Noteholders or the Certificateholders or the Insurer are materially and
adversely affected by any such breach as of such date. The "first month" shall
-----------
mean the month following the month in which notice is given. In consideration of
and simultaneously with the repurchase of the Receivable, the Seller shall
remit, or cause TFC to remit, to the Collection Account the Purchase Amount in
the manner specified in Section 5.6 and the Issuer and the Trust Collateral
Agent shall perform such acts and execute such assignments, termination
statements and other documents as may reasonably be requested by such person in
order to effect such repurchase, it being understood that the Seller shall
undertake the preparation of any such documents and the payment of any costs
associated therewith (including any required filing fees). The sole remedy of
the Issuer, the Owner Trustee, the Trust Collateral Agent, the Trustee, the
Noteholders or the Certificateholders with respect to a breach of
representations and warranties pursuant to Section 3.1 and the agreement
contained in this Section shall be the repurchase of Receivables pursuant to
this Section, subject to the conditions contained herein or to enforce the
obligation of
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TFC to the Seller to repurchase such Receivables pursuant to the Purchase
Agreement. Neither the Owner Trustee, the Trust Collateral Agent nor the Trustee
shall have a duty to conduct any affirmative investigation as to the occurrence
of any conditions requiring the repurchase of any Receivable pursuant to this
Section; provided, however, that the Trust Collateral Agent shall notify the
-------- -------
Insurer in writing promptly of any failure by the Seller to repurchase any
Receivables as provided herein to the extent the Trust Collateral Agent has
actual knowledge of such failure.
(b) In addition to the foregoing and notwithstanding whether the
related Receivable shall have been purchased by the Seller, the Seller shall
indemnify the Trust, the Trust Collateral Agent, the Trustee, the Insurer, and
the Noteholders and any of their respective officers, directors, employees or
agents against all costs, expenses, losses, damages, claims and liabilities,
including reasonable fees and expenses of counsel, which may be asserted against
or incurred by any of them as a result of third party claims arising out of the
events or facts giving rise to such breach. This indemnity shall survive the
termination of this Agreement or the earlier resignation and removal of the
Trust Collateral Agent.
(c) Pursuant to Section 2.1 of this Agreement, the Seller conveyed to
the Trust all of the Seller's right, title and interest in its rights and
benefits, but none of its obligations or burdens, under the Purchase Agreement
including the Seller's rights under the Purchase Agreement and the delivery
requirements, representations and warranties and the cure or repurchase
obligations of TFC thereunder. The Seller hereby represents and warrants to the
Trust that such assignment is valid, enforceable and effective to permit the
Trust to enforce such obligations of TFC under the Purchase Agreement.
SECTION 3.3. Custody of Receivables Files.
----------------------------
(a) In connection with the sale, transfer and assignment of the
Receivables and the Other Conveyed Property to the Trust pursuant to this
Agreement, the Trust Collateral Agent shall act as custodian of the following
documents or instruments, constituting with respect to each Receivable, a
Receivables File, in its possession to the extent such documents are delivered
to the Trust Collateral Agent:
(i) The fully executed original of the Receivable (together
with any agreements modifying the Receivable, including any extension
agreements);
(ii) The original credit application, or a copy thereof, of
each Obligor, on TFC's form or on a form approved in writing by TFC and provided
to the Trust Collateral Agent for such application;
(iii) Documents evidencing or relating to any Insurance Policy,
to the extent such documents are maintained by or on behalf of the Seller or
TFC; and
(iv) A copy of the Lien Certificate for each Financed Vehicle
and any application therefor and, on and after January 31, the original Lien
Certificate for each Financed Vehicle.
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(b) The Trust Collateral Agent shall, as soon as practicable after
receipt thereof, (A) conduct a physical inventory of the Receivable Files
relating to the Receivables in order to confirm that the Trust Collateral Agent
is in possession of a Receivable File for each Receivable listed in the relevant
Schedule of Receivables delivered to the Trust Collateral Agent and (B) perform
a review of the Receivable Files relating to such Receivables that would enable
the Trust Collateral Agent to determine that each Receivable File includes (i) a
fully executed original retail installment sales contract or promissory note,
(ii) the Lien Certificate or application therefor, (iii) an original credit
application or copy thereof, (iv) documents evidencing or relating to any
Insurance Policy, if any, or (v) a copy of the title or security instrument for
each Financed Vehicle (to the extent not covered by (ii) above). As evidence of
the performance of such inventory and review, within 5 Business Days of the
Trust Collateral Agent's receipt of the Receivable Files, the Trust Collateral
Agent shall have delivered to the Owner Trustee, the Seller, the Servicer and
the Insurer, an Acknowledgement in the form of Exhibit D hereto, which
Acknowledgment shall be made available to the Noteholders upon their request
therefor. Upon receipt by the Trust Collateral Agent of what it believes to be
all of the original Lien Certificates with respect to the Receivables (and in no
event later than February 5, 2000), the Trust Collateral Agent shall deliver to
the Owner Trustee, the Seller, the Servicer and the Insurer, a follow-up report
to the Acknowledgement referred to above, stating that it has in its possession
and has reviewed original Lien Certificates with respect to all of the
Receivables, stating any exceptions thereto. Such report shall be made available
to the Noteholders upon their request therefor.
(c) Upon payment in full of any Receivable, the Servicer will notify
the Trust Collateral Agent by an Officer's Certificate of the Servicer (which
certificate 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 4.1 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
Trust Collateral Agent shall, upon written request of an officer of the Servicer
and delivery to the Trust Collateral Agent of a receipt signed by such officer,
each in the form attached hereto as Exhibit C, cause the original Receivable and
the related Receivable File to be released to the Servicer. The Trustee and the
Trust Collateral Agent may rely and shall be protected when acting or refraining
from acting upon any certificate, request or receipt under this Section. 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 Trust Collateral Agent when its need by the Servicer has ceased but in any
event no more than 60 days after delivery to the Servicer unless the Receivable
is repurchased as described in Section 3.2 or 4.7.
ARTICLE IV
Administration and Servicing of Receivables
SECTION 4.1. 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
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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 with 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; provided, however,
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that the Servicer shall not materially change its servicing standards and
procedures without the prior written consent of the Controlling Party unless
such changes are required by legal statutes. In performing such duties, so long
as TFC is the Servicer, it shall comply with the standard and customary
procedures for servicing all of its comparable motor vehicle receivables. The
Servicer's duties shall include, without limitation, collection and posting of
all payments, responding to inquiries of Obligors on the Receivables,
investigating delinquencies, reporting any required tax information to Obligors,
monitoring the collateral, accounting for collections and furnishing monthly and
annual statements to the Trust Collateral Agent, the Trustee, the Insurer and
the Noteholders with respect to distributions, 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, 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 Trust to execute and deliver, on behalf of the Trust, any and all
instruments of satisfaction or cancellation, or of partial or full release or
discharge, and all other comparable instruments, with respect to the Receivables
and with respect to the Financed Vehicles; provided, however, that to the extent
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any such instruments relate to a settlement with an Obligor in which the Obligor
is required to pay an amount less than the Principal Balance (together with any
accrued interest) on the related Receivable in exchange for instrument, the
Servicer shall execute and deliver such instruments only to the extent such
execution and delivery (i) is in the ordinary course of the Servicer's business,
(ii) is not done on a wholesale basis and (iii) would, in the opinion of the
Servicer, maximize the return to Trust and the Noteholders with respect to the
related Receivable. The Servicer is hereby authorized to commence, in it's own
name or in the name of the Trust, a legal proceeding to enforce a Receivable
pursuant to Section 4.3 or to commence or participate in any other legal
proceeding (including 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 Trust to execute and deliver in the Servicer's name any notices, demands,
claims, complaints, responses, affidavits or other documents or instruments in
connection with any such proceeding. The Trust Collateral Agent and 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
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and take any other steps which the Servicer may deem reasonably necessary or
appropriate to enable the Servicer to carry out its servicing and administrative
duties under this Agreement.
SECTION 4.2. Collection of Receivable Payments; Modifications of
---------------------------------------------------
Receivables.
- -----------
(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 Financed Vehicles 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 Conveyed Property in such manner as will, in the reasonable judgment of
the Servicer, maximize the amount to be received by the Trust with respect
thereto. The Servicer is authorized in its discretion to waive any prepayment
charge, late payment charge or any other similar fees that may be collected in
the ordinary course of servicing any Receivable.
(b) The Servicer may at any time agree to a modification or amendment
of a Receivable in order to (i) change the Obligor's regular due date to a date
within 30 days in which such due date occurs or (ii) re-amortize the scheduled
payments on the Receivable following a partial prepayment of principal;
provided, however, that no such change shall extend the maturity date of any
- -------- -------
Receivable for more than two calendar months in any 12 month period; and,
provided, further, that the Servicer shall not grant with respect to any
- -------- -------
Receivable, extensions and/or deferrals (pursuant to the Charge-Off Policy)
which total more than four calendar months in the aggregate, for such
Receivable. Notwithstanding anything in the foregoing to the contrary, the
Servicer shall not agree to any extension, amendment or deferral with respect to
any Receivable in respect of which payments are scheduled to be made on other
than a monthly basis.
(c) The Servicer may grant payment extensions on, or other
modifications or amendments to, a Receivable in accordance with the terms set
forth in Section 4.2(b).
(d) The Servicer shall use its best efforts to direct Obligors to send
payments in respect of the Receivables, (x) by direct debit of the Obligor's
bank account to the Collection Account or (y) by check, to be made directly to
one or more Post Office Boxes. Prior to the making of an Access Denial Election
(as defined in the Standby Processing Agreement), TFC, acting as the bailee of
the Trust, the Insurer, the Trust Collateral Agent and GE Capital, shall have
access to the mail, checks and other items directed to the Post Office Boxes and
shall process such items in accordance with the requirements of the applicable
GE Capital Agreements (with respect to the GE Capital Receivables) and Basic
Documents (with respect to the Receivables). Immediately upon the effectiveness
of an Access Denial Election, TFC's right of access to the Post-Office Boxes or
their contents shall terminate and, instead, the P.O. Box Owner, acting as the
bailee of the Trust and GE Capital, shall thereafter have unrestricted and
exclusive access to the mail, checks and other items directed to the Post Office
Boxes and shall process such items in accordance with the requirements of the
Standby Processing Agreement.
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(e) Prior to the Closing Date, the Servicer will issue coupon books to
the Obligors (other than Obligors under Receivables with respect to which
automatic allotment is then in effect) under the Receivables and the GE Capital
Receivables which provide for such Obligors to forward their remittances to (i)
one of the Post Office Boxes or (ii) to such other address as the Insurer (with
respect to any Receivables) or GE Capital (with respect to any GE Capital
Receivables) shall direct, in each of cases (i) and (ii), in accordance with the
applicable requirements of the GE Capital Agreements (with respect to any GE
Capital Receivables) and the Basic Documents (with respect to any Receivables),
and the Servicer will continue, not less often than every three months, to so
notify those Obligors who have failed to forward remittances to the Post Office
Boxes.
(f) Notwithstanding the Standby Processing Agreement, or any of the
provisions of this Agreement relating to the Standby Processing Agreement, the
Servicer shall remain obligated and liable to the Trust, the Trust Collateral
Agent and Noteholders for servicing and administering the Receivables and the
Other Conveyed Property in accordance with the provisions of this Agreement
without diminution of such obligation or liability by virtue thereof.
(g) In the event of a termination of the Servicer pursuant to Article
X hereof, the Backup Servicer or any other successor Servicer shall assume all
of the rights and obligations of the outgoing Servicer under the Standby
Processing Agreement subject to the terms hereof. In such event, the Backup
Servicer or any other 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 the Standby Processing Agreement to the same extent as if
the Standby Processing Agreement had been assigned to the Backup Servicer or any
other 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 Standby Processing Agreement. The outgoing Servicer shall, upon request of
the Trust Collateral Agent, but at the expense of the outgoing Servicer, deliver
to the Backup Servicer or any other successor Servicer all documents and records
relating to each such Standby Processing Agreement and otherwise use its best
efforts to effect the orderly and efficient transfer of the Standby Processing
Agreement to the Backup Servicer or any other successor Servicer.
SECTION 4.3. 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 a
Receivable has become a Liquidated Receivable (other than in the case of
Financed Vehicles where neither the Financed Vehicle nor the Obligor can be
physically located by the Servicer (using procedures consistent with the
standards, policies and procedures of the Servicer required by this Agreement)
and other than in the case of an Obligor who is subject to a bankruptcy
proceeding); provided, however, that the Servicer may elect not to repossess a
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Financed Vehicle within such time period if in
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<PAGE>
its good faith judgment it determines that the proceeds ultimately recoverable
with respect to such Receivable would be increased by forbearance. The Servicer
is authorized to follow such customary practices and procedures as it shall deem
necessary or advisable, consistent with the standard of care required by Section
4.1, 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, including entering into settlements with Obligors, 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 Collection 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. The Servicer shall recover such reasonable
expenses based on the information contained in the Servicer's Certificate
delivered on the related Determination Date. 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 Net
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, Dealer Assignment, the Owner Trustee and/or (subject to the
protections of the Trust Agreement) the Trust Collateral Agent, at the
Servicer's written direction and expense, or the Seller, at the Seller's
expense, shall take such steps as the Servicer deems reasonably necessary to
enforce the Dealer Agreement or Dealer Assignment, including bringing suit in
its name or the name of the Seller or of the Trust and the Owner Trustee and/or
the Trust Collateral Agent for the benefit of the Noteholders. All amounts
recovered shall be remitted directly by the Servicer as provided in Section 4.2.
(c) The Servicer agrees that prior to delivering any repossessed
Finance Vehicle for sale to any dealer, it shall make such filings and effect
such notices as are necessary under Section 9-114(1) of the UCC to preserve its
ownership interest (or security interest, as the case may be) in such
repossessed Financed Vehicle.
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SECTION 4.4. Insurance.
---------
(a) The Servicer shall require (except for portfolio purchased
Receivables for which insurance is not a requirement), in accordance with its
customary servicing policies and procedures, that each Financed Vehicle be
initially insured by the related Obligor under the Insurance Policies referred
to in Paragraph 23 of the Schedule of Representations and Warranties. Each
Receivable (except for portfolio purchased Receivables for which insurance is
not a requirement) requires the Obligor to initially obtain such physical loss
and damage insurance, naming TFC and its successors and assigns as additional
insureds. If the Servicer shall determine that an Obligor has failed to obtain
or maintain a physical loss and damage Insurance Policy covering the related
Financed Vehicle which satisfies the conditions set forth in clause (i)(a) of
such Paragraph 23 (including during the repossession of such Financed Vehicle)
the Servicer in its discretion shall be diligent in enforcing the rights of the
holder of the Receivable under the Receivable to require the Obligor to obtain
such physical loss and damage insurance in accordance with its customary
servicing policies and procedures.
(b) 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 and/or the Trust Collateral Agent, at the Servicer's
written direction and expense, or the Seller, at the Seller's expense, shall
take such steps as the Servicer deems reasonably necessary to enforce such
Insurance Policy, including bringing suit in its name or the name of the Trust
and the Owner Trustee and/or the Trust Collateral Agent for the benefit of the
Noteholders.
SECTION 4.5. Maintenance of Security Interests in Vehicles.
---------------------------------------------
(a) Consistent with the policies and procedures required by this
Agreement, the Servicer shall take such steps on behalf of the Trust as are
necessary to maintain TFC as the noted lienholder on each Financed Vehicle once
such notation has occurred and maintain perfection of the security interest
created by each Receivable in the related Financed Vehicle, including 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 Trust
hereby authorizes the Servicer, and the Servicer agrees, to take any and all
steps reasonably necessary to re-perfect such security interest on behalf of the
Trust Collateral Agent 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 Trust Collateral Agent 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
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related Financed Vehicle in favor of the Trust, the Servicer hereby agrees that
either TFC's or the Trust Collateral Agent's designation as the secured party on
the certificate of title is in its capacity as agent of the Trust.
(b) Upon the occurrence of an Insurance Agreement Event of Default,
or, if an Insurer Default shall have occurred, upon the occurrence of a Servicer
Termination Event, the Controlling Party may instruct the Trust Collateral Agent
and the Servicer to take or cause to be taken such action as may, in the opinion
of counsel to the Controlling Party, be necessary to perfect or re-perfect the
security interests in the Financed Vehicles securing the Receivables in the name
of the Trust Collateral Agent by amending the title documents of such Financed
Vehicles or by such other reasonable means as may, in the opinion of counsel to
the Controlling Party, be necessary or prudent. TFC hereby agrees to pay all
expenses related to such perfection or reperfection and to take all action
necessary therefor. In addition, prior to the occurrence of an Insurance
Agreement Event of Default or Servicer Termination Event, the Controlling Party
may instruct the Servicer to take or cause to be taken such action as may, in
the opinion of counsel to the Controlling Party, be necessary to perfect or re-
perfect the security interest in the Financed Vehicles underlying the
Receivables in the name of the Trust Collateral Agent, including by amending the
title documents of such Financed Vehicles or by such other reasonable means as
may, in the opinion of counsel to the Controlling Party, be necessary or
prudent; provided, however, that if the Controlling Party requests that the
-------- -------
title documents be amended prior to the occurrence of an Insurance Agreement
Event of Default or a Servicer Termination Event, the out-of-pocket expenses of
the Servicer in connection with such action shall be reimbursed to the Servicer,
by the Controlling Party. TFC hereby appoints the Trust Collateral Agent as its
attorney-in-fact to take any and all steps required to be performed by TFC
pursuant to this Section 4.5(b), including execution of certificates of title or
any other documents in the name and stead of TFC, and the Trust Collateral Agent
hereby accepts such appointment. Notwithstanding any provision of this
Agreement to the contrary, the Trust Collateral Agent shall not have any duty or
obligation to pay any of the expenses associated with perfecting or re-
perfecting security interests in the Financed Vehicles.
SECTION 4.6. Covenants, Representations, and Warranties of Servicer. (a)
------------------------------------------------------
By its execution and delivery of this Agreement, the Servicer makes the
following representations, warranties and covenants on which the Trust
Collateral Agent relies in accepting the Receivables, on which the Trustee
relies in authenticating the Notes on which the Trustee relies in issuing the
Notes, on which the Owner Trustee relies in executing the Certificates, on which
the Insurer relies in issuing the Note Policy and on which the Noteholders rely
in purchasing the Notes:
(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 Insurer or the Noteholders in the Receivables, the
Dealer
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Agreements, the Dealer Assignments, the Insurance Policies or the Other Conveyed
Property;
(iii) No Amendments. The Servicer shall not extend or otherwise
-------------
amend the terms of any Receivable, except in accordance with Section 4.2;
(iv) Restrictions on Liens. The Servicer shall not (i) create,
---------------------
incur or suffer to exist, or agree to create, incur or suffer to exist, or
consent to cause or permit in the future (upon the happening of a contingency or
otherwise) the creation, incurrence or existence of, any Lien or restriction on
transferability of the Receivables except for the Lien in favor of the Trust
Collateral Agent for the benefit of the Noteholders and Insurer, the Lien
imposed by the Indenture in favor of the Trust Collateral Agent for the benefit
of the Noteholders and the Insurer, and the restrictions on transferability
imposed by this Agreement or (ii) sign or file under the Uniform Commercial Code
of any jurisdiction any financing statement which names TFC, the Seller or the
Servicer as a debtor, or sign any security agreement authorizing any secured
party thereunder to file such financing statement, with respect to the
Receivables, except in each case any such instrument solely securing the rights
and preserving the Lien of the Trust Collateral Agent, for the benefit of the
Noteholders and the Insurer;
(v) Servicing of Receivables. The Servicer shall service the
------------------------
Receivables as required by the terms of this Agreement and in material
compliance with its standard and customary procedures for servicing all its
other comparable motor vehicle receivables; in addition, the Servicer will co-
operate with the Back-up Servicer upon its assumption of servicing under this
Agreement in order to enable the Back-up Servicer to carry out its servicing and
administrative duties under this Agreement; and
(vi) Year 2000 Compliance. The Servicer (i) initiated a
--------------------
review and assessment of all areas within its business and operations that could
be adversely affected by the Year 2000 Problem (including those affected by
Dealers, suppliers, vendors and subservicers, but only to the extent that the
adverse effect on such businesses and operations affected by Dealers, suppliers,
venders and subservicers would be reasonably likely to constitute a material
adverse effect on the financial conditions or operations of the Servicer or the
collectibility of the Receivables), (ii) developed a plan and timeline for
addressing the Year 2000 Problem, (iii) implemented the plan in accordance with
that timetable. Based on the foregoing, the Servicer believes that all computer
applications (including those of its Dealers, suppliers, vendors, and
subservicers) that are material to its business and operations are reasonably
expected to be able to perform properly date-sensitive functions for dates
before and after January 1, 2000 (that is, be "Year 2000 Compliant"), except to
--------------------
the extent that a failure to do so could not reasonably be expected to have
material adverse effect, or to result in (A) an event which, with the giving of
notice or the passage of time or both, would constitute an Event of Default, (B)
an Event of Default, (C) a Servicer Termination Event, or (D) an event which,
with the giving of notice or the passage of time or both, would constitute a
Servicer termination Event, (iv) has completed a review and assessment of all
computer applications (including, but not limited to those of its Dealers,
suppliers, vendors and subservicers, but only to the extent that the failure of
any such applications of its Dealers,
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suppliers, vendors and subservicers to be Year 2000 Compliant would be
reasonably likely to have material adverse effect), which are related to or
involved in the collection, management or servicing of the Receivables and
Related Security (the "Management Systems"), and (v) has determined that such
------------------
Management Systems are Year 2000 Compliant.
All of the representations and warranties of the Servicer set forth in
this Section 4.6 (vi) (other than representations and warranties, if any, that
----------------
expressly speak only as of a different date) shall be deemed to be made, without
further act by any Person, on and as of the Closing Date and to be remade,
without further act by any Person, on and as of each Business Day hereunder
occurring prior to the Final Scheduled Payment Date. All of the representations
and warranties set forth in this Section 4.6 (vi) shall survive the termination
----------------
of this Agreement.
(b) The Servicer represents, warrants and covenants as of the Closing
Date as to itself that the representations and warranties set forth on the
Schedule of Representations attached hereto as Schedule B are true and correct,
provided that such representations and warranties contained therein and herein
shall not apply to any entity other than TFC.
SECTION 4.7. Purchase of Receivables Upon Breach of Covenant. Upon
-----------------------------------------------
discovery by any of the Servicer, the Seller, a Trust Officer of the Trust
Collateral Agent, the Owner Trustee or a Responsible Officer of the Trustee of a
breach of any of the covenants set forth in Sections 4.5(a) or 4.6(a), the party
discovering such breach shall give prompt written notice to the others, the
Insurer and the Noteholders; provided, however, that the failure to give any
-------- -------
such notice shall not affect any obligation of the Servicer under this Section
4.7. As of the last day of the month following the month of its discovery or
receipt of notice of any breach of any covenant set forth in Sections 4.5(a) or
4.6(a) which materially and adversely affects the interests of the Noteholders
or the Insurer in any Receivable (including any Liquidated Receivable) or the
related Financed Vehicle, the Servicer shall, unless such breach and the
resulting Material Adverse Effect shall have been cured in all material
respects, purchase from the Trust the Receivable affected by such breach and, on
the related Deposit Date, the Servicer shall pay the related Purchase Amount and
deposit such Purchase Amount into the Collection Account in accordance with
Section 5.6 hereof. In consideration of and simultaneously with the purchase of
the Receivable, the Issuer and the Trust Collateral Agent shall perform such
acts and execute such assignments, termination statements and other documents as
may reasonably be requested by the Servicer in order to effect such purchase, it
being understood that the preparation of any such documents and the payment of
any costs associated therewith (including any required filing fees) shall be
undertaken by the Servicer. The Trust Collateral Agent shall notify the
Controlling Party promptly, in writing, of any failure by the Servicer to so
repurchase any Receivable to the extent the Trust Collateral Agent has actual
knowledge of such failure. 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 Insurer, the Noteholders, the Owner Trustee or
35
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the Trust Collateral Agent under this Agreement; provided, however, that the
Servicer shall indemnify the Trust, the Insurer, the Owner Trustee, the Trust
Collateral Agent, the Trustee and the Noteholders (and their respective
directors, officers, employees and agents) against all costs, expenses, losses,
damages, claims and liabilities, including reasonable fees and expenses of
counsel, which may be asserted against or incurred by any of them as a result of
third party claims arising out of the events or facts giving rise to such
breach.
SECTION 4.8. Total Servicing Fee; Payment of Certain Expenses by Servicer.
------------------------------------------------------------
On each Payment Date, the Servicer shall be entitled to receive out of the
Collection Account the Base Servicing Fee and reimbursable amounts for the
related Monthly Period pursuant to Section 5.3. 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 made by the Servicer to Noteholders or
the Insurer and all other fees and expenses of the Trust not payable or
reimbursable pursuant to Section 5.3, except taxes levied or assessed against
the Trust, and claims against the Trust in respect of indemnification, which
taxes and claims in respect of indemnification against the Trust are expressly
stated to be for the account of TFC).
SECTION 4.9. Servicer's Certificate. No later than 12:00 noon New York
----------------------
City time on each Determination Date, the Servicer shall deliver, or cause to be
delivered, to the Trustee, the Owner Trustee, the Trust Collateral Agent, the
Insurer, the Noteholders and the Rating Agency, a Servicer's Certificate
executed by a responsible officer or agent of the Servicer containing among
other things, (i) all information necessary to enable the Trust Collateral Agent
to make any withdrawal and deposit required by Section 5.5, to give any notice
required by Section 5.5(b) and to make the distributions required by Section
5.7, (ii) all information to be provided to Noteholders and the Insurer
specified by Section 5.11 and (iii) a listing of all receivables repurchased by
the Servicer or by the Seller 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). In addition to the information set forth in the
preceding sentence, the Servicer's Certificate shall also contain the following
information: (a) the Delinquency Ratio, Average Delinquency Ratio and Cumulative
Net Loss Rate (as such terms are defined in the Insurance Agreement) for such
Determination Date; (b) whether to the knowledge of the Servicer 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; and (e) such other
information reasonably requested by the Insurer or the Noteholders; provided,
--------
however, that such information shall only be required to be included in the
- -------
Servicer's Certificate on any Determination Date to the extent the request
therefor is received by the Servicer on or prior to the last Business Day of the
Second Monthly Period immediately preceding such Determination Date; provided,
--------
further, that the foregoing restriction shall not be applicable to the Insurer
- -------
until after the February 2000 Determination Date.
36
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SECTION 4.10. Annual Statement as to Compliance, Notice of Servicer
-----------------------------------------------------
Termination Event.
- -----------------
(a) The Servicer shall deliver or cause to be delivered to the
Trustee, the Owner Trustee, the Trust Collateral Agent, the Rating Agency and
the Insurer on or before April 30 (or 120 days after the end of the Servicer's
fiscal year, if other than December 31) of each year, beginning on April 30,
2000, an Officer's Certificate signed by any responsible officer of the
Servicer, 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 Trustee, the Owner Trustee, the
Trust Collateral Agent, and the Insurer, promptly after having obtained
knowledge thereof, but in no event later than two (2) Business Days thereafter,
written notice in an Officer's Certificate of any event which with the giving of
notice or lapse of time, or both, would become a Servicer Termination Event
under Section 10.1(a). The Seller or the Servicer shall deliver to the Trustee,
the Owner Trustee, the Trust Collateral Agent, the Insurer, the Servicer or the
Seller (as applicable) promptly after having obtained knowledge thereof, but in
no event later than two (2) 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 10.1.
SECTION 4.11. 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 Board of Directors of the Servicer, to the Trustee, the Owner Trustee, the
Trust Collateral Agent, the Insurer and the Noteholder (with a copy delivered to
the Rating Agency):
(b) As soon as practical, but not later than 30 days after the due
date for the second Servicer's Certificate, a nationally recognized firm of
independent public accountants acceptable to the Insurer will perform certain
agreed upon procedures with respect to the accuracy of the first and second
Servicer's Certificate in relation to the Servicer's records and files and the
degree of the Servicer's compliance with required remittances to the Collection
Account. If such review indicates a high degree of accuracy in the Servicer's
Certificates and a high degree of compliance with remittance requirements, such
firm (or other firm acceptable to the Controlling Party) will perform the same
procedures as soon as practical, but in no event later than 45 days after the
end of each calendar year, with respect to a random sample of six of the twelve
calendar
37
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year's Servicer's Certificates delivered by the Servicer over the preceding
yearly period, and submit such results to the Insurer and the Noteholders by
such 45th day after the end of each calendar year.
(c) On or before April 30 (or 120 days after the end of the Servicer's
fiscal year, if other than December 31) of each year, beginning on April 30,
2000, with respect to the twelve months ended the immediately preceding December
31 (or other applicable date) (or such other period as shall have elapsed from
the Closing Date to the date of such certificate) the financial statements of
the Servicer containing a report of the Independent Accountants to the effect
that such firm has examined the books and records of the Servicer and that, on
the basis of such examination conducted in compliance with generally accepted
audit standards, such financial statements accurately reflect the financial
condition of the Servicer, in each case certified by a Responsible Officer of
the Servicer to be true, accurate and complete copies of such financial
statements.
(d) The statements referenced above shall also indicate that the
Independent Accountants are independent of the Seller and the Servicer within
the meaning of the Code of Professional Ethics of the American Institute of
Certified Public Accountants.
(e) In the event such Independent Accountants require the Trustee to
agree to the procedures to be performed by such firm in any of the reports
required to be prepared pursuant to this Section 4.11, the Servicer shall direct
the Trustee in writing to so agree; it being understood and agreed that the
Trustee will deliver such letter of agreement in conclusive reliance upon the
direction of the Servicer, and the Trustee has not made any independent inquiry
or investigation as to, and shall have no obligation or liability in respect of,
the sufficiency, validity or correctness of such procedures.
SECTION 4.12. Access to Certain Documentation and Information Regarding
---------------------------------------------------------
Receivables. The Servicer shall provide to representatives of the Trustee, the
- -----------
Owner Trustee, the Trust Collateral Agent, the Insurer and the Noteholders
reasonable access to the documentation (including any computer tapes or files)
regarding the Receivables. In each case, such access shall be afforded without
charge but only upon reasonable request and during normal business hours.
Nothing in this Section 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.
SECTION 4.13. Monthly Tape. On or before the Determination Date for each
------------
month, the Servicer will deliver or cause to be delivered to the Trust
Collateral Agent and the Insurer a computer tape or a diskette (or any other
electronic transmission acceptable to the Back-up Servicer and the Insurer) in a
format acceptable to the Back-up Servicer and the Insurer, 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 5.4 and detailed collection
records and
38
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collection notes upon the request of the Back-up Servicer or the Insurer. The
Back-up Servicer shall use such tape or diskette (or other electronic
transmission acceptable to the Trust Collateral Agent and Insurer) to review
each Servicer's Certificate delivered pursuant to Section 4.9 of this Agreement
and shall:
(i) confirm that such Servicer's Certificate is complete on its
face;
(ii) load the tape (which shall be in a format acceptable to the
Trustee and Back-up Servicer) and confirm that such computer diskette is in a
readable form and confirm the Pool Balance for the most recent Payment Date;
(iii) confirm based solely on the recalculation of the numbers
set forth in the Servicer's Certificate that the Pool Balance, the Aggregate
Principal Balance, the Available Funds, the Base Servicing Fee, the Noteholders'
Interest Payment Amount, the Noteholders' Principal Payment Amount and the
Noteholders' Principal Carryover Shortfall are accurate; and
(iv) confirm based solely on the recalculation of the numbers
set forth in the Servicer's Certificate that the Delinquency Ratio and
Cumulative Net Loss Rate (as such terms are defined in the Insurance Agreement)
are accurate.
The Back-up Servicer shall certify in the event that there is any
discrepancy to the Insurer that it has verified the Servicer's Certificate in
accordance with this Section 4.13 and shall notify the Servicer, the Trustee,
the Noteholders and the Insurer of any discrepancies, in each case, on or before
the third Business Day following the Determination Date. In the event that the
Back-up Servicer reports any such discrepancies, the Servicer and the Back-up
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 payments with
respect to the related Payment Date. In the event that the Back-up Servicer and
the Servicer are unable to reconcile discrepancies with respect to a Servicer
Certificate by the related Payment Date, the Servicer shall cause the
Independent Accountants, at the Servicer's expense, to audit the Servicer's
Certificate and, prior to the fifth Business Day, but in no event later than the
eighth 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, upon the
occurrence of an Insurance Agreement Event of Default the Servicer shall, if so
requested by the Controlling Party deliver to the Back-up Servicer its
Collection Records and its Monthly Records within 15 days after 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 Back-up Servicer shall have no obligations hereunder, including
without limitation to supervise, verify, monitor or administer the performance
of the Servicer. The Back-up Servicer shall have no liability for any actions
taken or omitted by the Servicer. The Back-up Servicer shall have no duties or
obligations hereunder other than those expressly set forth
39
<PAGE>
in this Agreement and no implied duties or obligations shall be read into this
Agreement against the Back-up Servicer. Except for reports, information or other
documents provided to the Back-up Servicer pursuant to the specific provisions
in this Agreement, any reports, information or other documents provided to the
Back-up Servicer or the Trustee are for informational purposes only and such
parties' receipt of any such information shall not constitute constructive
notice of any information contained therein or determinable from any information
contained therein, including the Issuer, the Seller or the Servicer's compliance
with any of its covenants, representations or warranties hereunder.
SECTION 4.14. 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 March 31, 2000, which term shall be
extendible by the Controlling Party for successive quarterly terms ending on
each successive June 30, September 30, December 31 and March 31, until the Notes
are paid in full. Each such extension notice which may be executed by the
Controlling Party from time to time (a "Servicer Extension Notice") shall be
--------------------------
delivered by the Controlling Party to the Trust Collateral Agent, the
Noteholders 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. The Trust Collateral Agent agrees that if as of the fifteenth day
prior to the last day of any term of the Servicer the Trust Collateral Agent
shall not have received any Servicer Extension Notice from the Controlling
Party, the Trust Collateral Agent will, within five days thereafter, give
written notice of such non-receipt to the Insurer (or, if the Insurer is not the
Controlling Party, to the Noteholder), the Back-up Servicer (or any alternate
successor Servicer appointed by the Insurer pursuant to Section 10.3(b)) and the
Servicer and the Servicer's term shall not be extended unless a Servicer
Extension Notice is received on or before the last day of such term.
SECTION 4.15. Fidelity Bond. The Servicer or such successor servicer
-------------
that is performing the servicing duties of the Servicer (unless the successor
servicer is the Back-up Servicer), has obtained, and shall continue to maintain
in full force and effect, a fidelity bond of a type and in such amount as is
customary for servicers engaged in the business of servicing automobile
receivables.
ARTICLE V
Trust Accounts and Spread Account; Payments;
--------------------------------------------
Statements to Certificateholders and Noteholders
------------------------------------------------
SECTION 5.1. Establishment of Trust Accounts and Spread Account.
--------------------------------------------------
(a) The Trust Collateral Agent, on behalf of the Noteholders and the
Insurer, shall establish and maintain in its own name an Eligible Deposit
Account (the "Collection Account"), bearing a designation clearly indicating
-------------------
that the funds deposited
40
<PAGE>
therein are held for the benefit of the Trust Collateral Agent on behalf of the
Noteholders and the Insurer. The Collection Account shall initially be
established with the Trust Collateral Agent.
(b) The Trust Collateral Agent, on behalf of the Noteholders and the
Insurer, shall establish and maintain in its own name an Eligible Deposit
Account (the "Note Payment Account"), bearing a designation clearly indicating
---------------------
that the funds deposited therein are held for the benefit of the Trust
Collateral Agent on behalf of the Noteholders and the Insurer. The Note Payment
Account shall initially be established with the Trust Collateral Agent.
(c) The Trust Collateral Agent, on behalf of the Noteholders and the
Insurer, shall establish and maintain in its own name an Eligible Deposit
Account (the "Spread Account"), bearing a designation clearly indicating that
---------------
the funds deposited therein are held for the benefit of the Trust Collateral
Agent on behalf of the Noteholders and the Insurer. The Spread Account shall
initially be established with the Trust Collateral Agent.
(d) Funds on deposit in the Collection Account, the Note Payment
Account and the Spread Account (collectively, the "Trust Accounts") shall be
--------------
invested by the Trust Collateral Agent (or any custodian with respect to funds
on deposit in any such account) in Eligible Investments selected in writing by
the Servicer (pursuant to standing instructions or otherwise) which, absent any
instruction shall be the investments specified in clause (d) of the definition
of Eligible Investments set forth herein. Other than as permitted by the Rating
Agency and the Insurer, funds on deposit in any Trust Account or the Spread
Account shall be invested in Eligible Investments that will mature so that such
funds will be available at the close of business on the Business Day immediately
preceding the following Payment Date. All Eligible Investments will be held to
maturity.
(e) All investment earnings of monies deposited in the Trust Accounts
shall be deposited (or caused to be deposited) by the Trust Collateral Agent in
the Collection Account no later than the close of business on the Business Day
immediately preceding the related Payment Date, and any loss resulting from such
investments shall be charged to the Collection Account. All investment earnings
of monies deposited in the Spread Account shall be deposited (or caused to be
deposited) by the Trust Collateral Agent in the Spread Account no later than the
close of business on the Business Day immediately preceding the related Payment
Date, and any loss resulting from such investments shall be charged to the
Spread Account. The Servicer will not direct the Trust Collateral Agent to make
any investment of any funds held in any of the Trust Accounts and the Spread
Account unless the security interest granted and perfected in such account will
continue to be perfected in such investment, in either case without any further
action by any Person, and, in connection with any direction to the Trust
Collateral Agent to make any such investment, if necessary, the Servicer shall
deliver to the Trust Collateral Agent an Opinion of Counsel to such effect.
(f) The Trust Collateral Agent shall not in any way be held liable by
reason of any insufficiency in any of the Trust Accounts or the Spread Account
resulting
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from any loss on any Eligible Investment included therein except for losses
attributable to the Trust Collateral Agent's negligence or bad faith or its
failure to make payments on such Eligible Investments issued by the Trust
Collateral Agent, in its commercial capacity as principal obligor and not as
trustee, in accordance with their terms.
(g) If (i) the Servicer shall have failed to give investment
directions for any funds on deposit in the Trust Accounts or the Spread Account
to the Trust Collateral Agent by 12:00 p.m. Eastern Time (or such other time as
may be agreed by the Issuer and Trust Collateral Agent) on any Business Day; or
(ii) a Default or Event of Default shall have occurred and be continuing with
respect to the Notes but the Notes shall not have been declared due and payable,
or, if such Notes shall have been declared due and payable following an Event of
Default, amounts collected or receivable from the Trust Property and Spread
Account Property are being applied as if there had not been such a declaration;
then the Trust Collateral Agent shall, to the fullest extent practicable, invest
and reinvest funds in the Trust Accounts and the Spread Account in one or more
Eligible Investments pursuant to paragraph (b) above.
(h) (i) The Trust Collateral Agent shall possess all right, title and
interest in all funds on deposit from time to time in the Trust Accounts and in
all proceeds thereof and all such funds, investments, proceeds and income shall
be part of the Trust Property. The Trust Collateral Agent shall possess all
right, title and interest in all funds on deposit from time to time in the
Spread Account and in all proceeds thereof and all such funds, investments,
proceeds and income shall be part of the Spread Account Property. Except as
otherwise provided herein, the Trust Accounts and the Spread Account shall be
under the sole dominion and control of the Trust Collateral Agent for the
benefit of the Noteholders and/or the Insurer, as the case may be. If, at any
time, any of the Trust Accounts or the Spread Account ceases to be an Eligible
Deposit Account, the Trust Collateral Agent (or the Servicer on its behalf)
shall within five Business Days (or such longer period as to which the Rating
Agency and the Insurer may consent) establish a new Trust Account or Spread
Account, as the case may be, as an Eligible Deposit Account and shall transfer
any cash and/or any investments to such new Trust Account or Spread Account. In
connection with the foregoing, the Servicer agrees that, in the event that any
of the Trust Accounts or the Spread Account are not accounts with the Trust
Collateral Agent, the Servicer shall notify the Trust Collateral Agent in
writing promptly upon any of such Trust Accounts or the Spread Account, as the
case may be, ceasing to be an Eligible Deposit Account.
(ii) With respect to the Trust Account Property:
(A) any Trust Account Property or any property in the
Certificate Distribution Account that is held in deposit accounts shall
be held solely in the Eligible Deposit Accounts; and, except as otherwise
provided herein, each such Eligible Deposit Account shall be subject to
the exclusive custody and control of the Trust Collateral Agent, and the
Trust Collateral Agent shall have sole signature authority with respect
thereto;
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(B) any Trust Account Property that constitutes Physical
Property shall be delivered to the Trust Collateral Agent in accordance
with paragraph (a) of the definition of "Delivery" in Section 1.1 and
---------
shall be held, pending maturity or disposition, solely by the Trust
Collateral Agent or a financial intermediary (as such term is defined in
Section 8-102(a)(14) of the UCC) acting solely for the Trust Collateral
Agent;
(C) any Trust Account Property that is a book-entry
security held through the Federal Reserve System pursuant to Federal
book-entry regulations shall be delivered in accordance with paragraph
(b) of the definition of "Delivery" in Section 1.1 and shall be
--------
maintained by the Trust Collateral Agent, pending maturity or
disposition, through continued book-entry registration of such Trust
Account Property as described in such paragraph; and
(D) any Trust Account Property that is an "uncertificated
--------------
security" under Article 8 of the UCC and that is not governed by clause
--------
(C) above shall be delivered to the Trust Collateral Agent in accordance
with paragraph (c) of the definition of "Delivery" in Section 1.1 and
---------
shall be maintained by the Trust Collateral Agent, pending maturity or
disposition, through continued registration of the Trust Collateral
Agent's (or its nominee's) ownership of such security.
Effective upon delivery of any Trust Account Property in the form of
physical property, book-entry securities or uncertificated securities, the Trust
Collateral Agent shall be deemed to have purchased such Trust Account Property
for value, in good faith and without notice of any adverse claim thereto.
The Trust Collateral Agent shall not enter into any subordination or
intercreditor agreement with respect to the Trust Account Property.
SECTION 5.2. Reserved.
--------
SECTION 5.3. Certain Reimbursements to the Servicer. To the extent that
--------------------------------------
other reimbursable expenses are not recovered pursuant to Section 4.3, 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 to have
resulted from mistaken deposits or postings or checks returned for insufficient
funds. The amount to be reimbursed hereunder shall be paid to the Servicer on
the related Payment Date pursuant to Section 5.7(a)(i) upon certification by the
Servicer of such amounts and the provision of such information to the Trust
Collateral Agent and the Controlling Party as may be necessary in the opinion of
the Controlling Party to verify the accuracy of such certification. In the event
that the Controlling Party has not received evidence satisfactory to it of the
Servicer's entitlement to reimbursement pursuant to this Section, the
Controlling Party shall give the Trust Collateral Agent notice to such effect,
following receipt of which the Trust Collateral Agent shall not make a
distribution to the Servicer in respect of such amount pursuant to
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Section 5.7, or if the Servicer prior thereto has been reimbursed pursuant to
Section 5.7, the Trust Collateral Agent shall withhold such amounts from amounts
otherwise distributable to the Servicer on the next succeeding Payment Date.
SECTION 5.4. Application of Collections. All collections for the Monthly
--------------------------
Period shall be applied by the Servicer as follows:
With respect to each Simple Interest Receivable (other than a
Purchased Receivable), payments by or on behalf of the Obligor shall be applied
to interest and principal in accordance with the Simple Interest Method. With
respect to each Rule of 78s Receivable and with respect to each Actuarial
Receivable, (other than a Purchased Receivable), payments by or on behalf of the
Obligor shall be applied to interest and principal in accordance with the
Actuarial Method.
SECTION 5.5. Spread Account.
--------------
(a) The Spread Account will be held for the benefit of the Noteholders
and the Insurer. On or prior to the Closing Date, the Issuer shall deposit or
cause to have deposited an amount equal to the Requisite Amount into the Spread
Account from the net proceeds of the sale of the Notes.
(b) In the event that the Servicer's Certificate with respect to any
Determination Date (other than the Determination Date preceding the Final
Scheduled Payment Date) shall state that the Available Funds with respect to
such Determination Date is less than the sum of the amounts payable on the
related Payment Date pursuant to clauses (i) through (iv) (and, at the option of
the Insurer in its sole discretion, clause (v)) of Section 5.7(a) (such
deficiency being a "Deficiency Claim Amount") then on the Deficiency Claim Date
------------------------
immediately preceding such Payment Date, the Servicer shall deliver to the Trust
Collateral Agent, the Owner Trustee and the Insurer, by hand delivery, telex or
facsimile transmission, a written notice in substantially the form of Exhibit B
attached hereto (a "Deficiency Notice") specifying the Deficiency Claim Amount
------------------
for such Payment Date. Such Deficiency Notice shall direct the Trust Collateral
Agent to remit such Deficiency Claim Amount for deposit in the Collection
Account on the related Payment Date. With respect to the Determination Date next
preceding the Final Scheduled Payment Date, the Deficiency Claim Amount will be
calculated in the manner described above, except that, the calculation will use
clauses (i) through (v) of Section 5.7(a).
(c) Any Deficiency Notice shall be delivered by 12:00 noon, New York
City time, on the fourth Business Day preceding such Payment Date. The amounts
distributed pursuant to a Deficiency Notice shall be deposited by the Trust
Collateral Agent into the Collection Account pursuant to Section 5.6.
(d) With respect to the Spread Account Property, the Trust Collateral
Agent agrees that, subject at all times to the terms of the Securities Account
Control Agreement:
44
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(i) Any Spread Account Property that is held in deposit
accounts shall be held solely in the name of the Trust Collateral Agent, with
the Trust Collateral Agent. The Spread Account shall be subject to the exclusive
custody and control of the Trust Collateral Agent, and the Trust Collateral
Agent shall have sole signatory authority with respect thereto.
(ii) Any Spread Account Property that constitutes Physical
Property shall be delivered to the Trust Collateral Agent, in accordance with
paragraph (a) of the definition of "Delivery" in Section 1.1 and shall be held,
--------
pending maturity or disposition, solely by the Trust Collateral Agent, or a
securities intermediary, as such term is defined in Section 8-102(a)(14) of the
UCC, acting solely for the Trust Collateral Agent.
(iii) Any Spread Account Property that is a book-entry security
held through the Federal Reserve System pursuant to federal book-entry
regulations shall be delivered in accordance with paragraph (c) of the
definition of "Delivery" in Section 1.1 and shall be maintained by the Trust
--------
Collateral Agent, pending maturity or disposition, through continued book-entry
registration of such Spread Account Property as described in such paragraph.
(iv) Any Spread Account Property that is an "uncertificated
--------------
security" under Article 8 of the UCC and that is not governed by clause (iii)
- --------
above shall be delivered to the Trust Collateral Agent, in accordance with
paragraph (d) of the definition of "Delivery" in Section 1.1 and shall be
--------
maintained by the Trust Collateral Agent, pending maturity or disposition
through continued registration of the Trust Collateral Agent's or its securities
intermediary's (or its custodian's or its nominee's) ownership of such security,
in its capacity as Trust Collateral Agent.
(v) Effective upon delivery of any Spread Account Property in
the form of physical property, book-entry securities or uncertificated
securities, the Trust Collateral Agent shall be deemed to have purchased such
Spread Account Property for value, in good faith and without notice of any
adverse claim thereto.
(vi) The Trust Collateral Agent shall not enter into any
subordination or intercreditor agreement with respect to the Spread Account
Property.
(e) On or after the occurrence of an Event of Default under the
Indenture and the acceleration of the Notes thereunder, and upon the written
direction of the Insurer, all, or any portion of, amounts on deposit in the
Spread Account shall be applied to pay amounts described in Section 5.6 of the
Indenture.
SECTION 5.6. Additional Deposits.
-------------------
(a) TFC and the Seller, as applicable, shall deposit or cause to be
deposited in the Collection Account on the Determination Date following the date
on which such obligations are due the aggregate Purchase Amount with respect to
Purchased Receivables.
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(b) Proceeds of any redemption of the Notes described in Section 11.1
shall be deposited in the Collection Account.
SECTION 5.7. Payments.
--------
(a) On each Payment Date, the Trust Collateral Agent shall (x)
distribute all amounts deposited by the Insurer pursuant to Section 5.12 as
directed by the Insurer in writing and (y) (based solely on the information
contained in the Servicer's Certificate delivered with respect to the related
Determination Date unless the Insurer shall have notified the Trust Collateral
Agent in writing by the close of business on the Business Day immediately
preceding such Payment Date of any errors or deficiencies with respect thereto)
distribute the following amounts from the Collection Account unless otherwise
specified, to the extent of the sources of funds stated to be available
therefor, and in the following order of priority:
(i) from the Amount Available, to the Servicer, the Base
Servicing Fee for the related Monthly Period, and any amounts specified in
Section 5.3, to the extent the Servicer has not reimbursed itself in respect of
such amounts pursuant to Section 5.3 and to the extent not retained by the
Servicer;
(ii) from the remaining Amount Available, pro rata in accordance
with the respective amounts then owed, to the Trustee, Trust Collateral Agent,
Back-up Servicer, Owner Trustee and P.O. Box Owner, their accrued and unpaid
fees and expenses, (including, but not limited to, reasonable attorneys' fees
and reasonable transition costs); provided, however, that such fees and expenses
-------- -------
in the aggregate for the Trustee, Trust Collateral Agent, Back-up Servicer and
the P.O. Box Owner shall not exceed an amount equal to the product of one-
twelfth (1/12) of 0.09% times the Pool Balance as of the next preceding
-----
Accounting Date (except in the case of the first Payment Date, such amount shall
be based on the Pool Balance as of the Closing Date and the number of days
between the Closing Date and the first Payment Date), and that such fees and
expenses in the aggregate for the Owner Trustee shall not exceed $2500, per
annum, and that all such expenses in the aggregate shall not exceed $100,000 for
the period concluding on the Final Scheduled Payment Date.
(iii) from the remaining Amount Available and from amounts, if
any, paid under the Note Policy with respect to such Payment Date, to the Note
Payment Account, the Noteholders' Interest Payment Amount;
(iv) so long as an Insurer Payment Default has not occurred and
is continuing, from the remaining Amount Available, to the Insurer, the premium
owing to the Insurer under the Insurance Agreement (other than the Excess
Premium as such term is defined in the Premium Letter);
(v) from the remaining Amount Available and from amounts, if
any, paid under the Note Policy with respect to such Payment Date to the Note
Payment Account, the Noteholders' Principal Payment Amount;
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(vi) from the remaining Amount Available, to the Insurer, all
other amounts owing to the Insurer under the Insurance Agreement and the other
Basic Documents and not previously paid;
(vii) from the remaining Available Funds to the Note Payment
Account, the Additional Principal Payment Amount;
(viii) from the remaining Available Funds to the Spread Account,
the amount required to fund the Spread Account to the Requisite Amount;
(ix) from the remaining Available Funds to the Back-up
Servicer, the Supplemental Servicing Fee; and
(x) to the Certificate Distribution Account or as otherwise
specified in the Trust Documents, all remaining Available Funds together with
any remaining funds released from the Spread Account due to an excess of funds
in the Spread Account over the Requisite Amount.
Provided, however, that (A) following an acceleration of the Notes or (B) if an
- -------- -------
Insurer Default shall have occurred and be continuing and an Event of Default
pursuant to Section 5.1(i), 5.1(ii), 5.1(iv), 5.1(v) or 5.1(vi) of the Indenture
shall have occurred and be continuing, in each case, to the extent actually
known by a Trust Officer of the Trust Collateral Agent, or (C) following the
receipt of Insolvency Proceeds pursuant to Section 11.1(b), amounts deposited in
the Note Payment Account (including any such Insolvency Proceeds) shall be paid
to the Noteholders pursuant to Section 5.6 of the Indenture and the Trustee may,
and if the Trustee is so directed by Holders holding Notes representing not less
than 66/2/3/% of the Outstanding Amount of the Notes, the Trustee (subject to
Section 6.2(f) of the Indenture), shall, declare the unpaid principal amount of
all the Notes to be immediately due and payable at par, together with accrued
interest thereon, and upon such declaration such principal amount shall become
immediately due and payable together with all accrued and unpaid interest.
(b) In the event that the Collection Account is maintained with an
institution other than the Trust Collateral Agent, the Servicer shall instruct
and cause such institution to make all deposits and distributions pursuant to
Section 5.7(a) on the related Payment Date.
(c) Each Certificateholder, by its acceptance of its Certificate will
be deemed to have consented to the provisions of paragraph (a) above relating to
the priority of distributions, and will be further deemed to have acknowledged
that no property rights in any amount of or the proceeds of any such amount
shall vest in such Certificateholder until such amounts have been distributed to
such Certificateholder pursuant to such provisions; provided, that the foregoing
shall not restrict the right of any Certificateholder, upon compliance with the
provisions hereof, from seeking to compel the performance of the provisions
hereof by the parties hereto.
(d) In furtherance of and not in limitation of the foregoing, each
Certificateholder, by acceptance of its Certificate, specifically acknowledges
that no
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amounts shall be received by it, nor shall it have any right to receive any
amounts, unless and until such amounts have been distributed pursuant to clause
(x) above to such Certificateholder. Each Certificateholder by acceptance of its
Certificate, further specifically acknowledges that it has no right to or
interest in any monies at any time held in the Spread Account pursuant hereto
prior to the release of such monies as aforesaid, such monies being held in
trust for the benefit of the Noteholders and the Insurer. Notwithstanding the
foregoing, nothing shall be deemed to limit the Certificateholders from
receiving any amounts to which they are entitled from the releases from the
Spread Account pursuant to Sections 5.7(a)(x). Notwithstanding the foregoing, in
the event that it is ever determined that the monies held in the Spread Account
constitute a pledge of collateral, then the provisions of this Agreement shall
be considered to constitute a security agreement and the Seller and the
Certificateholders hereby grant to the Trust Collateral Agent for the benefit of
the Trustee and the Insurer a first priority perfected security interest in such
amounts, to be applied as set forth in Section 5.5. In addition, each
Certificateholder, by acceptance of its Certificate, as applicable, hereby
appoints the Seller as its agent to pledge a first priority perfected security
interest in the Spread Account, and any amounts held therein from time to time
to the Trust Collateral Agent for the benefit of the Trustee and the Insurer and
agrees to execute and deliver such instruments of conveyance, assignment, grant,
confirmation, etc., as well as any financing statements, in each case as the
Insurer shall consider reasonably necessary in order to perfect the Trust
Collateral Agent's Security Interest in the Spread Account.
SECTION 5.8. Note Payment Account.
--------------------
(a) On each Payment Date, the Trust Collateral Agent shall distribute
all amounts on deposit in the Note Payment Account, as such amounts on deposit
in the Note Payment Account are specified on the related Servicer's Certificate,
to Noteholders in respect of the Notes to the extent of amounts due and unpaid
on the Notes for principal and interest in the following amounts and in the
following order of priority:
(i) the Noteholders' Interest Payment Amount;
(ii) the Noteholders' Principal Payment Amount and the Additional
Principal Payment Amount until the Outstanding Amount of the Notes is reduced to
zero.
(b) On each Payment Date, the Trust Collateral Agent shall send to
each Noteholder pursuant to a written request the statement provided to the
Trust Collateral Agent by the Servicer pursuant to Section 5.11 hereof on such
Payment Date.
(c) In the event that any withholding tax is imposed on the Trust's
payment (or allocations of income) to a Noteholder, such tax shall reduce the
amount otherwise distributable to the Noteholder in accordance with this
Section. The parties hereto hereby agree to provide to the Trust Collateral
Agent the information any such party may have, if any, with respect to any such
withholding tax. The Trust Collateral Agent is hereby authorized and directed to
retain from amounts otherwise distributable to the Noteholders sufficient funds
for the payment of any tax that is legally owed by the
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Trust (but such authorization shall not prevent the Trust Collateral Agent from
contesting any such tax in appropriate proceedings, although the Trust
Collateral Agent is under no obligation to so contest absent direction from the
Controlling Party to so contest, and withholding payment of such tax, if
permitted by law, pending the outcome of such proceedings). The amount of any
withholding tax imposed with respect to a Noteholder shall be treated as cash
distributed to such Noteholder at the time it is withheld by the Trust and
remitted to the appropriate taxing authority. If there is a possibility that
withholding tax is payable with respect to a payment (such as a payment to a
non-US Noteholder), the Trust Collateral Agent may in its sole discretion
withhold such amounts in accordance with this clause (c). In the event that a
Noteholder wishes to apply for a refund of any such withholding tax, the Trust
Collateral Agent shall reasonably cooperate with such Noteholder in making such
claim so long as such Noteholder agrees to reimburse the Trust Collateral Agent
for any out-of-pocket expenses incurred. Notwithstanding anything to the
contrary contained in this Agreement, neither the Trust Collateral Agent nor the
Trustee shall have any liability or obligation with respect to withholding tax
issues unless and until it receives notification from the Servicer pursuant to
Section 12.1(b)(ii).
(d) Payments required to be made to Noteholders on any Payment Date
shall be made to each Noteholder of record on the preceding Record Date either
by wire transfer, in immediately available funds, to the account of such Holder
at a bank or other entity having appropriate facilities therefor, if such
Noteholder shall have provided to the Note Registrar appropriate written
instructions at least five Business Days prior to such Payment Date and such
Holder's Notes in the aggregate evidence a denomination of not less than
$1,000,000 or, if not, by check mailed to such Noteholder at the address of such
holder appearing in the Note Register; provided, however, that, unless Notes
-------- -------
have been issued pursuant to Section 3.13 of the Indenture, with respect to
Notes registered on the Record Date in the name of the nominee of the Clearing
Agency (initially, such nominee to be Cede & Co. or Morgan Guaranty Trust
Company of New York), payments will be made by wire transfer in immediately
available funds to the account designated by such nominee. Notwithstanding the
foregoing, the final payment in respect of any Note (whether on the Final
Scheduled Payment Date or otherwise) will be payable only upon presentation and
surrender of such Note at the office or agency maintained for that purpose by
the Note Registrar pursuant to Section 2.4 of the Indenture; provided, however,
-------- -------
that such presentation and surrender shall be waived with respect to any
Noteholder upon satisfaction by such Noteholder of the indemnity requirements
set forth in Section 2.6 of the Indenture.
SECTION 5.9. [Reserved.]
---------
SECTION 5.10. [Reserved.]
--------
SECTION 5.11. Statements to Certificateholders and Noteholders. On or
------------------------------------------------
prior to each Determination Date, the Servicer shall provide, or cause to be
provided, to the Trust Collateral Agent and the Owner Trustee (with a copy to
the Insurer and the Rating Agency) for the Trust Collateral Agent to forward to
each Noteholder of record, and to
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each Certificateholder of record, a statement setting forth at least the
following information as to the Notes and the Certificates to the extent
applicable:
(i) the amount of such payment allocable to principal of the
Notes and to the Certificate Balance of the Certificates;
(ii) the amount of such payment allocable to interest on or
with respect to the Notes and to the Certificates;
(iii) the amount of such payment allocable to the Certificates;
(iv) the amount of such payment payable to the Noteholders
withdrawn from the Spread Account or pursuant to a claim on the Note Policy;
(v) the Pool Balance as of the close of business on the last
day of the preceding Monthly Period;
(vi) the aggregate outstanding principal amount of the Notes,
the Note Factor, and after giving effect to payments allocated to principal
reported under (i) above;
(vii) the amount of the Base Servicing Fee and any reimbursable
amounts paid to the Servicer with respect to the related Monthly Period and/or
due but unpaid with respect to such Monthly Period or prior Monthly Periods, as
the case may be;
(viii) the Noteholders' Interest Carryover Shortfall and the
Noteholders' Principal Carryover Shortfall;
(ix) the amount of the aggregate Realized Losses, if any, for
the second preceding Monthly Period;
(x) the aggregate Purchase Amounts for Receivables, if any,
that were repurchased in such period;
(xi) recoveries for the period on charged off and liquidated
accounts; and
(xii) the amount of any deposits to the Collection Account
pursuant to Section 5.12 hereof.
Each amount set forth pursuant to paragraph (i), (ii), (iii), (iv),
(vii) and (viii) above shall be expressed as a dollar amount per $1,000 of the
initial principal balance of the Notes or the initial Certificate Balance, as
applicable.
SECTION 5.12. Optional Deposits by the Insurer. The Insurer shall at any
--------------------------------
time, and from time to time, with respect to a Payment Date, have the option
(but shall not be required, except in accordance with the terms of the Note
Policy) to deliver amounts to the Trust Collateral Agent for deposit into the
Collection Account for any of
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the following purposes: (i) to provide funds in respect of the payment of fees
or expenses of any provider of services to the Trust with respect to such
Payment Date, or (ii) to include such amount to the extent that without such
amount a draw would be required to be made on the Note Policy.
ARTICLE VI
The Note Policy
---------------
SECTION 6.1. Claims Under Note Policy.
------------------------
(a) In the event that the Trust Collateral Agent has received a
Deficiency Notice with respect to any Determination Date pursuant to Section 5.5
hereof, the Trust Collateral Agent shall on the related Draw Date determine the
Note Policy Claim Amount for the related Payment Date. If the Note Policy Claim
Amount specified on the Deficiency Notice for such Payment Date is greater than
zero, the Trust Collateral Agent shall furnish to the Insurer no later than
12:00 noon New York City time on the related Draw Date a completed Notice For
Payment (as defined in (b) below) in the amount of the Note Policy Claim Amount.
Amounts paid by or on behalf of the Insurer pursuant to a claim submitted under
this Section 6.1 shall be deposited by the Trust Collateral Agent into the Note
Payment Account for payment pursuant to paragraph (b) below to Noteholders on
the related Payment Date.
(b) Any notice delivered by the Trust Collateral Agent to the Insurer
pursuant to subsection 6.1(a) shall specify the Note Policy Claim Amount claimed
under the Note Policy and to the extent such notice satisfies requirements set
forth in the Note Policy shall constitute a "Notice For Payment" thereunder. In
-------------------
accordance with and subject to the provisions of the Note Policy, the Insurer is
required to pay to the Trust Collateral Agent 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 (as defined in the Note Policy) following receipt on
a Business Day (as defined in the Note Policy) of the Notice For Payment, and
(ii) the applicable Payment Date. Any payment made by the Insurer under the
Note Policy shall be applied by the Trust Collateral Agent solely to the payment
of the Notes, and for no other purpose.
(c) The Trust Collateral Agent shall (i) receive as attorney-in-fact
of each Noteholder any Note Policy Claim Amount from the Insurer and (ii)
deposit the same in the Note Payment Account for payment to Noteholders. Any and
all Note Policy Claim Amounts disbursed by the Trust Collateral Agent 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 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 Insurer, the Trust Collateral Agent shall assign to the 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
Insurer, and the Insurer may exercise
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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 (as defined in the Indenture) shall note the
Insurer's rights as subrogee upon the register of the Noteholders upon receipt
from the Insurer of proof of payment by the Insurer in respect of any
Noteholders' Interest Payment Amount or Noteholders' Principal Payment Amount.
The foregoing subrogation shall in all cases be subject to the rights of the
Noteholders to receive all Scheduled Payments (as defined in the Note Policy) in
respect of the Notes.
(d) The Trust Collateral Agent shall keep a complete and accurate
record of all funds deposited by the Insurer into the Note Payment Account and
the Collection Account and the allocation of such funds to payment of interest
on and principal paid in respect of any Note. The Insurer shall have the right
to inspect such records at reasonable times during normal business hours upon
one Business Day's prior notice to the Trust Collateral Agent.
(e) The Trust Collateral Agent shall be entitled to enforce on behalf
of the Noteholders the obligations of the Insurer under the Note Policy.
SECTION 6.2. Preference Claims.
-----------------
(a) In the event that the Trust Collateral Agent has received a
certified copy of final, non appealable order of the appropriate court that any
Noteholders' Interest Payment Amount or Noteholders' Principal Payment Amount
paid on a Note has been avoided in whole or in part as a preference payment
under applicable bankruptcy law, the Trust Collateral Agent shall so notify the
Insurer, shall comply with the provisions of the Note Policy to obtain payment
by the Insurer of such avoided payment, and shall, at the time it provides
notice to the Insurer, notify Holders of the 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 Trust
Collateral Agent shall furnish to the Insurer its records evidencing the
payments of principal of and interest on Notes, if any, which have been made by
the Trust Collateral Agent and subsequently recovered from Noteholders, and the
dates on which such payments were made. Pursuant to the terms of the Note
Policy, the Insurer will make such payment on behalf of the Noteholder to the
receiver, conservator, debtor-in-possession or trustee in bankruptcy named in
the Final Order (as defined in the Note Policy) and not to the Trust Collateral
Agent 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 Insurer will make such payment to the Trust
Collateral Agent for payment to such Noteholder upon proof of such payment
reasonably satisfactory to the Insurer).
(b) The Trust Collateral Agent shall promptly notify the Insurer of
any proceeding or the institution of any action (of which the Trust Collateral
Agent has actual knowledge) seeking the avoidance as a preferential transfer
under applicable bankruptcy, insolvency, receivership, rehabilitation or similar
law (a "Note Preference Claim") of any payment made with respect to the Notes.
---------------------
Each Holder, by its purchase of Notes, and the Trust Collateral Agent hereby
agree that so long as an Insurer Default shall not have
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occurred and be continuing and there are Notes outstanding, the Insurer may at
any time during the continuation of any proceeding relating to a Preference
Claim direct all matters relating to such Preference Claim, including (i) the
direction of any appeal of any order relating to any Preference Claim and (ii)
the posting of any surety, supersedes or performance bond pending any such
appeal at the expense of the Insurer, but subject to reimbursement as provided
in the Insurance Agreement. In addition, and without limitation of the
foregoing, as set forth in Section 6.1(c), the Insurer shall be subrogated to,
and each Noteholder and the Trust Collateral Agent 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.
SECTION 6.3. Surrender of Policy. The Trust Collateral Agent shall
-------------------
surrender the Note Policy to the Insurer for cancellation upon the expiration of
such policy in accordance with the terms thereof.
ARTICLE VII
RESERVED
--------
ARTICLE VIII
The Seller
----------
SECTION 8.1. Representations of Seller. The Seller makes the following
-------------------------
representations on which the Insurer shall be deemed to have relied in executing
and delivering the Note Policy, on which the Issuer is deemed to have relied in
acquiring the Receivables, on which the Trustee is deemed to have relied in
issuing the Note and on which the Noteholders are deemed to have relied in
purchasing the Notes. The representations speak as of the execution and delivery
of this Agreement and as of the Closing Date and shall survive the sale,
transfer and assignment of the Receivables to the Issuer and the pledge thereof
to the Trustee pursuant to the Indenture.
(a) Schedule of Representations. The representations and warranties
---------------------------
set forth on the Schedule of Representations attached hereto as Schedule B 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 Commonwealth of Virginia, 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 Conveyed Property transferred to the Trust.
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(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 where the failure to do so would materially and
adversely affect Seller's ability to transfer the Receivables and the Other
Conveyed Property to the Trust pursuant to this Agreement, or the validity or
enforceability of the Receivables and the Other Conveyed Property or to perform
Seller's obligations hereunder and under the Seller's Basic Documents.
(d) Power and Authority. The Seller has the power and authority to execute
-------------------
and deliver this Agreement and its Basic Documents and to carry out its terms
and their terms, respectively; the Seller has full power and authority to sell
and assign the Receivables and the Other Conveyed 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 Basic
Documents have been duly authorized by the Seller by all necessary corporate
action.
(e) Valid Sale, Binding Obligations. This Agreement effects a valid sale,
-------------------------------
transfer and assignment of the Receivables and the Other Conveyed Property,
enforceable against the Seller and creditors of and purchasers from the Seller.
This Agreement and the Seller's Basic 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 Basic Documents and the fulfillment of the terms of this
Agreement and the Basic 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, 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 Basic Documents, (B)
seeking to prevent the issuance of the Securities or the consummation of any of
the transactions contemplated by this Agreement or any of the Basic Documents,
(C) seeking any determination or ruling that might materially and
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adversely affect the performance by the Seller of its obligations under, or the
validity or enforceability of, this Agreement or any of the Basic Documents, or
(D) seeking to adversely affect the federal income tax or other federal, state
or local tax attributes of the Securities.
(h) Approvals. All approvals, authorizations, consents, orders or other
---------
actions of any person, corporation or other organization, or of any court,
governmental agency or body or official, required in connection with the
execution and delivery by the Seller of this Agreement and the consummation of
the transactions contemplated hereby have been or will be taken or obtained on
or prior to the Closing Date.
(i) No Consents. The Seller 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 which has not already been obtained.
(j) Chief Executive Office. The chief executive office of the Seller is at
----------------------
5425 Robin Hood Road, Suite 101C, Norfolk, Virginia 23513.
SECTION 8.2. Corporate Existence.
-------------------
(a) During the term of this Agreement, the Seller will keep in full force
and effect its existence, rights and franchises as a corporation under the laws
of the jurisdiction of its incorporation and will obtain and preserve its
qualification to do business in each jurisdiction in which such qualification is
or shall be necessary to protect the validity and enforceability of this
Agreement, the Basic Documents and each other instrument or agreement necessary
or appropriate to the proper administration of this Agreement and the
transactions contemplated hereby.
(b) During the term of this Agreement, the Seller shall observe the
applicable legal requirements for the recognition of the Seller as a legal
entity separate and apart from its Affiliates, including as follows:
(i) the Seller shall maintain corporate records and books of account
separate from those of its Affiliates;
(ii) except as otherwise provided in this Agreement, the Seller shall
not commingle its assets and funds with those of its Affiliates;
(iii) the Seller shall hold such appropriate meetings of its Board
of Directors or distribute appropriate unanimous consents in lieu of a meeting
as are necessary to authorize all the Seller's corporate actions required by law
to be authorized by the Board of Directors, shall keep minutes of such meetings
and of meetings of its stockholder(s) and observe all other customary corporate
formalities (and any successor Seller not a corporation shall observe similar
procedures in accordance with its governing documents and applicable law);
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(iv) the Seller shall at all times hold itself out to the public under
the Seller's own name as a legal entity separate and distinct from its
Affiliates; and
(v) all transactions and dealings between the Seller and its
Affiliates will be conducted on an arm's-length basis.
SECTION 8.3. Liability of Seller; Indemnities. The Seller shall be liable in
--------------------------------
accordance herewith only to the extent of the obligations specifically
undertaken under this Agreement by the Seller and the representations made by
the Seller under this Agreement.
(a) The Seller shall indemnify, defend and hold harmless the Issuer, the
Owner Trustee, the Trust, the Insurer, the Trustee, Back-up Servicer and the
Trust Collateral Agent from and against any taxes that may at any time be
asserted against any such Person with respect to the transactions contemplated
in this Agreement and any of the Basic Documents (except any federal or other
income taxes arising hereunder, including any fees, late charges, penalty or
other similar payment paid to the Owner Trustee, the Trust Collateral Agent, the
Trustee, the Back-up Servicer and the Insurer and any taxes to which the Owner
Trustee, the Trust Collateral Agent or the Trustee may otherwise be subject),
including any sales, gross receipts, general corporation, tangible personal
property, privilege or license taxes (but, in the case of the Issuer, not
including any taxes asserted with respect to federal or other income taxes
arising out of distributions on the Certificates and the Notes) and costs and
expenses in defending against the same.
(b) The Seller shall indemnify, defend and hold harmless the Issuer, the
Owner Trustee, the Trustee, the Trust Collateral Agent, the Insurer, the
Certificateholders, Back-up Servicer and the Noteholders from and against any
loss, liability or expense incurred by reason of (i) the Seller's willful
misfeasance, bad faith or negligence in the performance of its duties under this
Agreement or the Seller's reckless disregard of its obligations and duties under
this Agreement and (ii) the Seller's or the Issuer's violation of Federal or
state securities laws in connection with the offering and sale of the Notes and
the Certificates but not any violation of such laws that are attributable in
whole to the actions of Rothschild Inc.
(c) The Seller shall indemnify, defend and hold harmless the Owner Trustee,
the Trustee, Back-up Servicer and the Trust Collateral Agent and their
respective officers, directors, employees and agents from and against any and
all costs, expenses, losses, claims, damages and liabilities arising out of, or
incurred in connection with the acceptance or performance of the trusts and
duties set forth herein and in the Basic Documents except to the extent that
such cost, expense, loss, claim, damage or liability shall be due to the willful
misfeasance, bad faith or gross negligence (except for errors in judgment) of
the Back-up Servicer, the Owner Trustee, the Trustee, and the Trust Collateral
Agent.
Indemnification under this Section shall survive the resignation or
removal of the Owner Trustee, the Trustee, Back-up Servicer or the Trust
Collateral Agent and the
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termination of this Agreement or the Indenture or the Trust Agreement or the
Custodian Agreement, as applicable, and shall include reasonable fees and
expenses of counsel and other expenses of litigation. If the Seller shall have
made any indemnity payments pursuant to this Section and the Person to or on
behalf of whom such payments are made thereafter shall collect any of such
amounts from others, such Person shall promptly repay such amounts to the
Seller, without interest.
SECTION 8.4. Merger or Consolidation of, or Assumption of the Obligations of,
----------------------------------------------------------------
Seller. Any Person (a) into which the Seller may be merged or consolidated, (b)
- ------
which may result from any merger or consolidation to which the Seller shall be a
party or (c) which may succeed to the properties and assets of the Seller
substantially as a whole, which Person in any of the foregoing cases (x) has a
certificate of incorporation containing provisions relating to limitations on
business and other matters substantially identical to those contained in the
Seller's certificate of incorporation and (y) executes an agreement of
assumption to perform every obligation of the Seller under this Agreement, shall
be the successor to the Seller hereunder without the execution or filing of any
document or any further act by any of the parties to this Agreement; provided,
--------
however, that (i) the Seller shall have received the written consent of the
- -------
Controlling Party prior to entering into any such transaction, (ii) immediately
after giving effect to such transaction, no representation or warranty made
pursuant to Section 3.1 shall have been breached and no Servicer Termination
Event, and no event which, after notice or lapse of time, or both, would become
a Servicer Termination Event shall have happened and be continuing, (iii) the
Seller shall have delivered to the Owner Trustee, the Trust Collateral Agent,
the Trustee and the Controlling Party 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 and that all conditions
precedent, if any, provided for in this Agreement relating to such transaction
have been complied with, (iv) the Rating Agency Condition shall have been
satisfied with respect to such transaction, (v) the Seller shall have delivered
to the Owner Trustee, the Trust Collateral Agent, the Trustee and the
Controlling Party 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 fully to
preserve and protect the interest of the Trust Collateral Agent, the Owner
Trustee and the Trustee, respectively, in the Receivables and reciting the
details of such filings or (B) no such action shall be necessary to preserve and
protect such interest, and (vi) immediately after giving effect to such
transaction, no Insurance Agreement Event of Default 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. The Seller shall provide notice
of any merger, consolidation or succession pursuant to this Section 8.4 to the
Rating Agency and the Trust Collateral Agent and shall have received
confirmation from the Rating Agency that the then current rating of the
Securities (without giving effect to the Note Policy) will not be downgraded as
a result of such merger, consolidation or succession. Notwithstanding anything
herein to the contrary, the execution of the foregoing agreement of assumption
and compliance with clauses (i), (ii), (iii), (iv), (v) and (vi) above shall be
conditions to the consummation of the transactions referred to in clauses (a),
(b) or (c) above.
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SECTION 8.5. Limitation on Liability of Seller and Others. The Seller and any
--------------------------------------------
director or officer or employee or agent of the Seller may rely in good faith on
the written advice of counsel or on any document of any kind, prima facie
properly executed and submitted by any Person respecting any matters arising
under any Basic Document. The Seller shall not be under any obligation to
appear in, prosecute or defend any legal action that shall not be incidental to
its obligations under this Agreement, and that in its opinion may involve it in
any expense or liability.
SECTION 8.6. Seller May Own Certificates or Notes. The Seller and any
------------------------------------
Affiliate thereof may in its individual or any other capacity become the owner
or pledgee of Certificates or Notes with the same rights as it would have if it
were not the Seller or an Affiliate thereof, except as expressly provided herein
or in any Basic Document. Notes or Certificates so owned by the Seller or such
Affiliate shall have an equal and proportionate benefit under the provisions of
the Basic Documents, without preference, priority, or distinction as among all
of the Notes or Certificates; provided, however, that any Notes or Certificates
-------- -------
owned by the Seller or any Affiliate thereof, during the time such Notes or
Certificates are owned by them, shall be without voting rights for any purpose
set forth in the Basic Documents and will not be entitled to the benefits of the
Note Policy. The Seller shall notify the Owner Trustee, the Trustee, the Trust
Collateral Agent, the Noteholders and the Insurer in writing promptly after it
or any of its Affiliates become the owner or pledgee of a Certificate or a Note.
ARTICLE IX
The Servicer
------------
SECTION 9.1. Representations of Servicer. The Servicer makes the following
---------------------------
representations on which the Insurer shall be deemed to have relied in executing
and delivering the Note Policy, on which the Issuer is deemed to have relied in
acquiring the Receivables, on which the Trust shall be deemed to have relied in
issuing the Notes and on which the Noteholders shall be deemed to rely in
purchasing the Notes. The representations speak as of the execution and
delivery of this Agreement and as of the Closing Date and shall survive the sale
of the Receivables to the Issuer and the pledge thereof to the Trustee pursuant
to the Indenture.
(i) Representations and Warranties. The representations and
------------------------------
warranties set forth on the Schedule of Representations attached hereto as
Schedule B are true and correct, provided that such representations and
warranties contained therein and herein shall not apply to any entity other than
TFC;
(ii) 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 and each of the Basic Documents to which it is a party;
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(iii) 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;
(iv) Power and Authority. The Servicer has the power and authority
-------------------
to execute and deliver this Agreement and its Basic Documents and to carry out
its terms and their terms, respectively, and the execution, delivery and
performance of this Agreement and the Servicer's Basic Documents have been duly
authorized by the Servicer by all necessary corporate action;
(v) Binding Obligation. This Agreement and the Servicer's Basic
------------------
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;
(vi) No Violation. The consummation of the transactions contemplated
------------
by this Agreement and the Servicer's Basic Documents, and the fulfillment of the
terms of this Agreement and the Servicer's Basic 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, 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,
or any way materially adversely affect the interest of the Insurer, the
Noteholders or the Trust in any Receivable or affect the Servicer's ability to
perform its obligations under this Agreement;
(vii) 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 Basic
Documents, (B) seeking to prevent the issuance of the Securities or the
consummation of any of the transactions contemplated by this Agreement or any of
the Basic 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 Basic Documents or (D) seeking to adversely affect the federal income tax
or other federal, state or local tax attributes of the Securities;
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(viii) Approvals. All approvals, authorizations, consents, orders
---------
or other actions of any person, corporation or other organization, or of any
court, governmental agency or body or official, required in connection with the
execution and delivery by the Servicer of this Agreement and the consummation of
the transactions contemplated hereby have been or will be taken or obtained on
or prior to the Closing Date;
(ix) 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 which has not already been obtained;
(x) Chief Executive Office. The chief executive office of TFC is
----------------------
located at 5425 Robin Hood Road, Suite 101B, Norfolk, Virginia 23513.
SECTION 9.2. Liability of Servicer; Indemnities.
----------------------------------
(a) The Servicer (in its capacity as such) shall be liable hereunder only
to the extent of the obligations in this Agreement specifically undertaken by
the Servicer and the representations made by the Servicer and to the extent not
covered in Section 3.04 (Indemnification) of the Insurance Agreement;
(b) The Servicer shall defend, indemnify and hold harmless the Trust, the
Trustee, the Trust Collateral Agent, the Owner Trustee, Back-up Servicer, the
Insurer, their respective officers, directors, agents and employees, and the
Noteholders from and against any and all costs, expenses, losses, damages,
claims and liabilities, including reasonable fees and expenses of counsel and
expenses of litigation arising out of or resulting from the use, ownership or
operation by the Servicer or any Affiliate thereof of any Financed Vehicle;
(c) The Servicer (when the Servicer is TFC) shall indemnify, defend and
hold harmless the Trust, the Trustee, the Trust Collateral Agent, the Owner
Trustee, Back-up Servicer, the Insurer, their respective officers, directors,
agents and employees and the Noteholders from and against any taxes that may at
any time be asserted against any of such parties with respect to the
transactions contemplated in this Agreement, including any sales, gross
receipts, tangible or intangible personal property, privilege or license taxes
(but not including any federal or other income taxes, including franchise taxes
asserted with respect to, and as of the date of, the sale of the Receivables and
the Other Conveyed Property to the Trust or the issuance and original sale of
the Securities) and costs and expenses in defending against the same, except to
the extent that such costs, expenses, losses, damages, claims and liabilities
arise out of the negligence or willful misconduct of such indemnified parties;
(d) The Servicer (when the Servicer is not TFC or the Trust Collateral
Agent) shall indemnify, defend and hold harmless the Trust, the Trustee, the
Trust Collateral Agent, the Owner Trustee, Back-up Servicer, the Insurer, their
respective
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officers, directors, agents and employees and the Noteholders from and against
any taxes with respect to the sale of Receivables in connection with servicing
hereunder that may at any time be asserted against any of such parties with
respect to the transactions contemplated in this Agreement, including any sales,
gross receipts, tangible or intangible personal property, privilege or license
taxes (but not including any federal or other income taxes, including franchise
taxes asserted with respect to, and as of the date of, the sale of the
Receivables and the Other Conveyed Property to the Trust or the issuance and
original sale of the Securities) and costs and expenses in defending against the
same;
(e) The Servicer shall indemnify, defend and hold harmless the Trust,
the Trustee, the Trust Collateral Agent, the Owner Trustee, Back-up Servicer,
the Insurer, their respective officers, directors, agents and employees and the
Noteholders from and against any and all costs, expenses, losses, claims,
damages, and liabilities to the extent that such cost, expense, loss, claim,
damage, or liability arose out of, or was imposed upon the Trust, the Trustee,
the Trust Collateral Agent, the Owner Trustee, Back-up Servicer, the Insurer or
the Noteholders, by reason of 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;
(f) The Servicer shall indemnify, defend and hold harmless the Owner
Trustee, the Trustee, Back-up Servicer and the Trust Collateral Agent and their
respective officers, directors, employees and agents from and against any and
all costs, expenses, losses, claims, damages and liabilities arising out of, or
incurred in connection with the acceptance or performance of the trusts and
duties set forth herein and in the Basic Documents except to the extent that
such cost, expense, loss, claim, damage or liability shall be due to the willful
misfeasance, bad faith or gross negligence (except for errors in judgment) of
the Back-up Servicer, the Owner Trustee, the Trustee, and the Trust Collateral
Agent;
(g) TFC shall indemnify, defend and hold harmless the Trust, the
Trustee, the Trust Collateral Agent, the Owner Trustee, Back-up Servicer, the
Insurer, their respective officers, directors, agents and employees and the
Noteholders from and against any loss, liability or expense incurred by reason
of the violation by Servicer or Seller of federal or state securities laws in
connection with the registration or the sale of the Securities except for
violations of such laws by Rothschild Inc.; and
(h) Indemnification under this Article shall survive the termination
of this Agreement and will survive the early resignation or removal of any of
the parties hereto and the Trustee, Back-up Servicer, and the Trust Collateral
Agent and shall include, without limitation, reasonable fees and expenses of
counsel and expenses of litigation. If the Servicer has made any indemnity
payments pursuant to this Article and the recipient thereafter collects any of
such amounts from others, the recipient shall promptly repay such amounts
collected to the Servicer, without interest. Notwithstanding any other provision
of this Agreement, the obligations of the Servicer shall not terminate or be
deemed released upon the resignation or termination of TFC as the Servicer and
shall survive any termination of this Agreement.
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SECTION 9.3. Merger or Consolidation of, or Assumption of the Obligations
------------------------------------------------------------
of, the Servicer or the Trust Collateral Agent.
- ----------------------------------------------
(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, there shall be
no material adverse effect upon the ability of the surviving entity to fulfill
its duties 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 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
9.3(a) to the Owner Trustee, the Trust Collateral Agent, the Noteholders, the
Insurer and the 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 4.6 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
Trust Collateral Agent, the Rating Agency and the 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
9.3(a) and that all conditions precedent, if any, provided for in this Agreement
relating to such transaction have been complied with, and (z) TFC shall have
delivered to the Owner Trustee, the Trust Collateral Agent, the Rating Agency
and the Insurer an Opinion of Counsel, stating in the opinion of such counsel,
either (A) all financing statements and continuation statements and amendments
thereto have been executed and filed that are necessary to preserve and protect
the interest of the Trust Collateral Agent in the Receivables and the Other
Conveyed Property and reciting the details of the filings or (B) no such action
shall be necessary to preserve and protect such interest.
(b) Any Person (i) into which the Trust Collateral Agent may be
merged or consolidated, (ii) resulting from any merger or consolidation to which
the Trust Collateral Agent shall be a party, (iii) which acquires by conveyance,
transfer or lease substantially all of the assets of the Trust Collateral Agent,
or (iv) succeeding to the business of the Trust Collateral Agent, in any of the
foregoing cases shall be the successor to the Trust Collateral Agent under this
Agreement without the execution or
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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. In the
event that the resulting entity does not meet the eligibility requirements set
forth in Section 6.11 of the Indenture, the Trust Collateral Agent, upon the
written request of the Insurer, shall resign. Nothing contained herein shall be
deemed to release the Trust Collateral Agent from any obligation.
SECTION 9.4. Limitation on Liability of Servicer, Trust Collateral Agent
-----------------------------------------------------------
and Others.
- ----------
(a) Neither TFC, the Seller, the Trust Collateral Agent, the Back-up
Servicer, the Trustee nor any of the directors or officers or employees or
agents of TFC, the Seller, the Trustee, Back-up Servicer or the Trust Collateral
Agent shall be under any liability to the Trust or the Noteholders, except as
provided in this Agreement, for any action taken or for refraining from the
taking of any action pursuant to this Agreement; provided, however, that this
-------- -------
provision shall not protect TFC, the Trustee, the Trust Collateral Agent, Back-
up Servicer or any such person against any liability that would otherwise be
imposed by reason of willful misfeasance, bad faith or negligence (excluding
errors in judgment) in the performance of duties, reckless disregard of
obligations and duties under this Agreement or any violation of law by TFC, the
Seller, the Trustee, the Trust Collateral Agent, Back-up Servicer or such
person, as the case may be; provided further, however, that this provision shall
-------- ------- -------
not affect any liability to indemnify the Trust Collateral Agent, the Trustee,
Back-up Servicer and the Owner Trustee for costs, taxes, expenses, claims,
liabilities, losses or damages paid by the Trust Collateral Agent, the Back-up
Servicer, the Trustee and the Owner Trustee, in their individual capacities.
TFC, the Trust Collateral Agent, Back-up Servicer, the Trustee and any director,
officer, employee or agent of any such entity may rely in good faith on the
written advice of counsel or on any document of any kind prima facie properly
executed and submitted by any Person respecting any matters arising under this
Agreement. The Trust Collateral Agent and the Back-up Servicer shall not be
required to expend or risk their 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 the repayment of such funds or adequate
written indemnity against such risk or liability is not reasonably assured to it
in writing prior to the expenditure or risk of such funds or incurrence of
financial liability.
(b) Notwithstanding anything herein to the contrary, the Trust
Collateral Agent, the Back-up Servicer and the Trustee shall not be liable for
any obligation of the Servicer contained in this Agreement, and the Owner
Trustee, the Seller, the Insurer and the Noteholders shall look only to the
Servicer to perform such obligations.
(c) The parties expressly acknowledge and consent to Norwest Bank
Minnesota, National Association acting in the possible multiple capacities of
Back-up Servicer, successor Servicer, Trust Collateral Agent and Trustee.
Norwest Bank Minnesota, National Association may, in such dual or other
capacity, discharge its separate functions fully, without hindrance or regard to
conflict of interest principles, duty of loyalty principles or other breach of
fiduciary duties to the extent that any such
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conflict or breach arises from the performance by Norwest Bank Minnesota,
National Association of express duties set forth in this Agreement in any of
such capacities, all of which defenses, claims or assertions are hereby
expressly waived by the other parties hereto, and the Noteholders except in the
case of gross negligence and willful misconduct by Norwest Bank Minnesota,
National Association.
SECTION 9.5. Delegation of Duties. The Servicer may delegate duties under
--------------------
this Agreement to an Affiliate thereof, with the prior written consent of the
Controlling Party. The Servicer also may at any time perform through sub-
contractors the specific duties of (i) repossession of Financed Vehicles, (ii)
tracking Financed Vehicles' insurance and (iii) pursuing the collection of
deficiency balances on certain Liquidated Receivables, in each case, without the
written consent of the Insurer and may perform other specific duties through
such sub-contractors in accordance with Servicer's customary servicing policies
and procedures, without the prior written consent of the Insurer; provided,
--------
however, that no such delegation or sub-contracting of 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 and (a)
there are Notes outstanding, (b) any amounts due to the Insurer remain unpaid or
(c) the Note Policy has not expired in accordance with its terms, neither TFC
nor any party acting as Servicer hereunder shall appoint any subservicer
hereunder without the prior written consent of the Insurer and the Trust
Collateral Agent.
SECTION 9.6. Servicer and Trust Collateral Agent Not to Resign.
-------------------------------------------------
(a) Subject to the provisions of Section 9.3, the Servicer shall not
resign from the obligations and duties imposed on it by this Agreement as
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, and the Controlling Party does not
elect to waive the obligations of the Servicer to perform the duties which
render it legally unable to act or to delegate those duties to another Person.
Any such determination permitting the resignation of the Servicer shall be
evidenced by an Opinion of Counsel to such effect delivered and acceptable to
the Trust Collateral Agent, the Owner Trustee and the Controlling Party. No
resignation of the Servicer shall become effective until the Trust Collateral
Agent or an entity acceptable to the Controlling Party shall have assumed the
responsibilities and obligations of the Servicer.
(b) The Trust Collateral Agent and any successor Trust Collateral
Agent may resign under this Agreement at any time upon 30 days prior written
notice by so notifying the Servicer, the Owner Trustee, the Insurer and the
Noteholders; provided, however that such resignation shall not be effective
-------- -------
until a successor Trust Collateral Agent shall have accepted appointment as
successor Trust Collateral Agent.
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ARTICLE X
Default
-------
SECTION 10.1. Servicer Termination Event. For purposes of this Agreement,
--------------------------
each of the following shall constitute a "Servicer Termination Event":
---------------------------
(a) Any failure by the Servicer to deliver, or cause to be delivered,
to the Trust Collateral Agent for distribution to Noteholders any proceeds or
payment required to be so delivered under the terms of this Agreement or any
other Basic Document (including deposits of the Purchase Amount pursuant to
Section 3.2 and Section 4.7) that continues unremedied for a period of one (1)
Business Day after the earlier to occur of the date on which written notice is
received by the Servicer from the Trust Collateral Agent or (unless an Insurer
Default shall have occurred and be continuing) the Insurer or discovery of such
failure by a Responsible Officer of the Servicer; or
(b) Failure by the Servicer to deliver, or cause to be delivered, to
the Trust Collateral Agent and (so long as an Insurer Default shall not have
occurred and be continuing and (a) there are Notes outstanding, (b) any amounts
due to the Insurer remain unpaid or (c) the Note Policy has not expired in
accordance with its terms) the Insurer the Servicer's Certificate by the
Determination Date prior to the Payment Date that continues unremedied for a
period of one (1) Business Day or failure on the part of the Servicer to observe
its covenants and agreements set forth in Section 9.3(a); or
(c) Failure on the part of the Servicer duly to observe or perform
any other covenant, agreement or obligation (including any financial obligation)
of the Servicer set forth in this Agreement (or, as to TFC, if TFC is the
Servicer, the Purchase Agreement or any other Basic Documents to which it is a
party), 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 Insurer (unless an Insurer Default shall have occurred
and be continuing), and (ii) continues unremedied for a period of 30 days after
the earlier to occur of (x) the date on which written notice of such failure,
requiring the same to be remedied, shall have been received by a Responsible
Officer of the Servicer by the Trust Collateral Agent or the Insurer (or, if an
Insurer Default shall have occurred and be continuing by any Noteholder or group
of Noteholders evidencing not less than 25% of the principal balance of the
Notes) or (y) the discovery of such failure by a Responsible Officer of the
Servicer; or
(d) The entry of a decree or order for relief by a court or
regulatory authority having jurisdiction in respect of the Servicer (or if TFC
or an Affiliate of the Seller is the Servicer, the Seller) in an involuntary
case under the federal bankruptcy laws, as now or hereafter in effect, or
another present or future, federal bankruptcy, insolvency or similar law, or
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or
other similar official of the Servicer (or if TFC or an Affiliate of the Seller
is the Servicer, the Seller) or of any substantial part of its property or
ordering the winding up or liquidation of the affairs of the Servicer (or if TFC
or an Affiliate of the Seller is the Servicer, the Seller) or the commencement
of an involuntary
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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
(e) The commencement by the Servicer (or if TFC or an Affiliate of
the Seller is the Servicer, 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 if TFC or an Affiliate of the Seller is the Servicer, 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
if TFC or an Affiliate of the Seller is the Servicer, the Seller) or of any
substantial part of its property or the making by the Servicer (or if TFC or an
Affiliate of the Seller is the Servicer, the Seller) of an assignment for the
benefit of creditors or the failure by the Servicer (or if TFC or an Affiliate
of the Seller is the Servicer, the Seller) generally to pay its debts as such
debts become due or the admission by the Servicer of its inability to pay its
debts generally as they become due or the taking of corporate action by the
Servicer (or if TFC or an Affiliate of the Seller is the Servicer, the Seller)
in furtherance of any of the foregoing; or
(f) Any representation, warranty or statement of the Servicer made in
this Agreement or any other Basic Document or any certificate, report or other
writing delivered pursuant hereto or thereto shall prove to be incorrect in any
material respect as of the time when the same shall have been made, and the
incorrectness of such representation, warranty or statement has a material
adverse effect on the interests or rights of the Trust, the Insurer or the
Noteholders in the Trust Property, including the Receivables and, if capable of
remedy, continues unremedied for a period of 30 days after the earlier to occur
of (x) discovery thereof by a Responsible Officer of the Servicer or (y) the
delivery of written notice thereof shall have been given to the Servicer by the
Trust Collateral Agent or the Insurer (or, if an Insurer Default shall have
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 and (a) there are Notes outstanding, (b) any amounts due to the
Insurer remain unpaid or (c) the Note Policy has not expired in accordance with
its terms, an Insurance Agreement Event of Default shall have occurred; or
(h) The existence in any audit of the Servicer required to be
provided hereunder of a material exception which may have a material adverse
effect on the Noteholders, the Trust Property or the Insurer, as determined
under Section 1.7 by the Insurer in the reasonable exercise of its judgment; or
(i) The Servicer (if TFC is the Servicer) shall fail to pay any
principal, premium or interest on any indebtedness in excess of $1,000,000 (the
"Indebtedness") or greater, when the same becomes due and payable (whether by
------------
scheduled maturity, required prepayment, acceleration, demand or otherwise) and
such failure shall continue
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uncured and unwaived after the applicable grace period, if any, specified in the
agreement or instrument relating to such Indebtedness; or any other default
under any agreement or instrument relating to any such Indebtedness of the
Servicer or any other similar event, shall occur and shall continue uncured and
unwaived after the applicable grace period, if any, specified in such agreement
or instrument if the effect of such default or event is to accelerate, or to
permit the acceleration of, the maturity of such Indebtedness; or any such
Indebtedness shall be declared to be due and payable or required to be prepaid
(other than by a regularly scheduled required prepayment) prior to the stated
maturity thereof; or
(j) So long as an Insurer Default shall not have occurred and be
continuing and (a) there are Notes outstanding, (b) any amounts due to the
Insurer remain unpaid or (c) the Note Policy has not expired in accordance with
its terms, the Insurer shall not have delivered a Servicer Extension Notice
pursuant to Section 4.14; or
(k) A claim is made under the Note Policy; or
(l) Failure by the Servicer to deliver to the Trustee and (so long as
an Insurer Default shall not have occurred and be continuing and (a) there are
Notes outstanding, (b) any amounts due to the Insurer remain unpaid or (c) the
Note Policy has not expired in accordance with its terms) the Insurer, the
Servicer's Certificate required pursuant to Section 4.9 on any Determination
Date within one (1) Business Day after the date such certificate is required to
be delivered; or
(m) A default exists under the Certificate to the Trustee and the
Controlling Party is not the Insurer,
(1) with respect to any Determination Date occurring during a period
set forth below, the Average Delinquency Ratio shall be greater than the
percentage set forth below opposite the period during which such Determination
Date occurs:
Period Maximum Percentage
----------------------------------------------------------
from the Cutoff Date to the 12th 20.00%
Monthly Period to occur after the
Closing Date
from the 13th Monthly Period to 23.00%
occur after the Cutoff Date to the
18th Monthly Period to occur after
the Cutoff Date
from the 19th Monthly Period to occur 28.00%
after the Cutoff Date and at any time
thereafter;
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(2) the Cumulative Net Loss Rate (as such term is defined in the Insurance
Agreement) for any Determination Date occurring during a period set forth below
shall be greater than the percentage set forth opposite such period:
Period Maximum Percentage
----------------------------------------------------------
from the Cutoff Date to the third 1.60%
Monthly Period to occur after the
Cutoff Date
from the fourth Monthly Period to 5.50%
occur after the Cutoff Date to the
sixth Monthly Period to occur after
the Cutoff Date
from the seventh Monthly Period 12.90%
to occur after the Cutoff Date to
the ninth Monthly Period after the
Cutoff Date
from the tenth Monthly Period to 20.00%
occur after the Cutoff Date to
the 12th Monthly Period to occur
after the Cutoff Date
from the 13th Monthly Period to 20.30%
occur after the Cutoff Date to
the 15th Monthly Period to occur
after the Cutoff Date
from the 16th Monthly Period to 20.80%
occur after the Cutoff Date to
the 18th Monthly Period to occur
after the Cutoff Date
from the 19th Month Period to 21.80%
occur after the Cutoff Date to
the 21st Monthly Period to occur
after the Cutoff Date
from the 22nd Monthly Period to 22.80%
occur after the Cutoff Date to
the 24th Monthly Period to occur
after the Cutoff Date
from the 25th Monthly Period to 23.80%
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occur after the Cutoff Date to
the 27th Monthly Period to occur
after the Cutoff Date
from the 28th Monthly Period to 24.90%
occur after the Cutoff Date and at any
time thereafter.
(n) So long as TFC is the Servicer hereunder, the failure of TFC
Enterprises, Inc. to own 100% of the capital stock of the Servicer.
SECTION 10.2. Consequences of a Servicer Termination Event. If a Servicer
--------------------------------------------
Termination Event shall occur and be continuing, the Trust Collateral Agent (to
the extent a Trust Officer of the Trustee has actual knowledge thereof) at the
direction of the Controlling Party (or, in the event that an Insurer Default
shall have occurred and be continuing, the Security Majority), by notice given
in writing to the Servicer (and to the Trust Collateral Agent if given by the
Insurer or the Noteholders) or the Insurer, by written notice of the non-
extension of the term of the Servicer as referred to in Section 4.14, shall
terminate all (but not less than all) of the rights and obligations of the
Servicer under this Agreement. On or after the receipt by the Servicer of such
written notice or upon termination of the term of the Servicer pursuant to
Section 4.14, all authority, power, obligations and responsibilities of the
Servicer under this Agreement, whether with respect to the Notes, the
Certificates or the Other Conveyed Property or otherwise, automatically shall
pass to, be vested in and become obligations and responsibilities of the Back-up
Servicer (or such other successor Servicer appointed by the Controlling Party in
its sole and absolute discretion pursuant to Section 10.3(b)); provided,
--------
however, that the successor Servicer shall have (i) 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, (ii) no obligation to perform any repurchase or advancing obligations,
if any, of the Servicer, (iii) no obligation to pay any taxes required to be
paid by the Servicer, (iv) no obligation to pay any of the fees and expenses of
any other party involved in this transaction (except for those of any person to
whom the Successor Servicer delegates its duties pursuant to Section 9.5) and
(v) no liability or obligation with respect to any indemnification obligations
of any prior servicer including the 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 Conveyed Property and related
documents to show the Trust as lienholder or secured party on the related Lien
Certificates, or otherwise. The terminated Servicer agrees to cooperate with
the successor Servicer in effecting the termination of the responsibilities
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and rights of the terminated Servicer under this Agreement, including the
transfer to the successor Servicer for administration by it of all cash amounts
that shall at the time be held by the terminated Servicer for deposit, or have
been deposited by the terminated Servicer, in the Collection Account or
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 to service
the Receivables and the Other Conveyed Property. If requested by the Controlling
Party, the successor Servicer shall direct the Obligors to make all payments
under the Receivables directly to the successor Servicer (in which event the
successor Servicer shall process such payments in accordance with Section 4.2),
or to a Post Office Box established by the successor Servicer at the direction
of the Controlling Party, at the terminated Servicer's expense. The terminated
Servicer shall grant the Trust Collateral Agent, the successor Servicer and the
Controlling Party reasonable access to the terminated Servicer's premises at the
terminated Servicer's expense.
SECTION 10.3. Appointment of Successor.
------------------------
(a) On and after the time the Servicer receives a notice of
termination pursuant to Section 10.2, upon non-extension of the servicing term
as referred to in Section 4.14, or upon the resignation of the Servicer pursuant
to Section 9.6, the Back-up Servicer (unless the Insurer shall have exercised
its option pursuant to Section 10.3(b) to appoint an alternate successor
Servicer) shall be the successor in all respects to the Servicer in its capacity
as servicer under this Agreement and the transactions set forth or provided for
in this Agreement, and shall be subject to all the rights, responsibilities,
restrictions, duties, liabilities and termination provisions relating thereto
placed on the Servicer by the terms and provisions of this Agreement except as
otherwise stated herein. The Back-up Servicer and such successor shall take such
action, consistent with this Agreement, as shall be necessary to effectuate any
such succession. If a successor Servicer is acting as Servicer hereunder, it
shall be subject to term-to-term servicing as referred to in Section 4.14 and to
termination under Section 10.2 upon the occurrence of any Servicer Termination
Event applicable to it as Servicer.
(b) The Insurer, or in the event that an Insurer Default shall have
occurred and be continuing, a Security Majority, may exercise at any time its
right to appoint as successor to the Servicer a Person other than the Person
serving as Back-up Servicer at the time, and (without limiting its obligations
under the Note Policy) shall have no liability to the Back-up Servicer, TFC, the
Seller, the Person then serving as successor servicer, any Noteholders or any
other Person if it does so. Notwithstanding the above, if the Back-up Servicer
shall be legally unable to act as Servicer, and an Insurer Default shall have
occurred and be continuing, a Security Majority may petition a court of
competent jurisdiction to appoint a successor to the Servicer. Pending
appointment pursuant to the preceding sentence, the Back-up 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.
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(c) Any successor Servicer shall be entitled to such compensation
(whether payable out of the Collection Account or otherwise) as the Servicer
would have been entitled to under this Agreement if the Servicer had not
resigned or been terminated hereunder. In addition, any successor Servicer shall
be entitled to reasonable transition expenses incurred in acting as successor
Servicer payable by the outgoing Servicer, and to the extent such transition
expenses have not been paid by the outgoing Servicer, such expenses payable
pursuant to this Agreement shall not exceed $50,000 in the aggregate.
SECTION 10.4. Notification to Noteholders and Certificateholders. Upon any
--------------------------------------------------
termination of, or appointment of a successor to, the Servicer, the Back-up
Servicer shall give prompt written notice thereof to each Noteholder. The Back-
up Servicer shall also give courtesy copies of such notice to the Rating Agency.
SECTION 10.5. Waiver of Past Defaults. So long as no Insurer Default shall
-----------------------
have occurred and be continuing and (a) there are Notes outstanding, (b) any
amounts due to the Insurer remain unpaid or (c) the Note Policy has not expired
in accordance with its terms, the Insurer (or, if an Insurer Default shall have
occurred and be continuing, the Security Majority) may, on behalf of all
Noteholders and Certificateholders, waive any default by the Servicer in the
performance of its obligations hereunder and its consequences. Upon any such
waiver of a past default, such default shall cease to exist, and any Servicer
Termination Event arising therefrom shall be deemed to have been remedied for
every purpose of this Agreement. No such waiver shall extend to any subsequent
or other default or impair any right consequent thereto. Written notice of such
waiver shall be given promptly to the Rating Agency.
SECTION 10.6. Termination of Trust Collateral Agent. If any of the
-------------------------------------
following events occur and shall be continuing, the Controlling Party, upon
notice to the Noteholders, may terminate all of the duties of the Trust
Collateral Agent under this Agreement:
(i) the Trust Collateral Agent shall cease to meet the
eligibility requirements for the Trustee as set forth in Section 6.11 of the
Indenture and shall fail to resign after written request therefor by the
Insurer,
(ii) a court having jurisdiction in the premises in respect of
the Trust Collateral Agent in an involuntary case or proceeding under federal or
state 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 Trust Collateral Agent or for any substantial part of the Trust
Collateral Agent's property, or ordering the winding-up or liquidation of the
Trust Collateral Agent's affairs.;
(iii) an involuntary case under the federal bankruptcy laws, as
now or hereafter in effect, or another present or future federal or state
bankruptcy, insolvency or similar law is commenced with respect to the Trust
Collateral Agent and such case is not dismissed within 60 days;
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(iv) the Trust Collateral Agent 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 Trust Collateral Agent or any substantial
part of the Trust Collateral Agent'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 Trust Collateral Agent has failed to perform its duties
hereunder, and such failure has a material adverse effect on the Insurer or the
Noteholders; and
(vi) the Trust Collateral Agent otherwise becomes incapable of
acting.
On or after the receipt by the Trust Collateral Agent of such written
notice, all authority, power, obligations and responsibilities of the Trust
Collateral Agent under this Agreement, whether with respect to the Notes, the
Certificates or the Other Conveyed Property or otherwise, automatically shall
pass to, be vested in and become obligations and responsibilities of such
successor Trust Collateral Agent appointed by the Controlling Party.
SECTION 10.7. Successor to Servicer.
---------------------
(a) The Back-up Servicer shall perform such duties and only such
duties as are specifically set forth in this Agreement with respect to the
assumption of any servicing duties and no implied covenants or obligations shall
be read into this Agreement against the Back-up Servicer.
(b) In the absence of bad faith or negligence on its part, the Back-up
Servicer may conclusively rely as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or opinions
furnished to the Back-up Servicer and conforming to the requirements of this
Agreement; but in the case of any such certificates or opinions, which by any
provision hereof are specifically required to be furnished to the Back-up
Servicer, the Back-up Servicer shall be under a duty to examine the same and to
determine whether or not they conform to the requirements of this Agreement.
(c) The Back-up Servicer shall have no liability for any actions taken
or omitted by the Servicer.
(d) The Back-up Servicer shall be entitled to all of the benefits and
immunities afforded the Trustee pursuant to Section 6.2 of the Indenture.
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ARTICLE XI
Termination
-----------
SECTION 11.1. Optional Redemption of the Notes.
--------------------------------
(a) On the last day of any Monthly Period as of which the Pool Balance
shall be less than or equal to 15% of the Original Pool Balance, as of the Cut-
Off Date, the Seller shall have the option to (i) redeem the Notes in an amount
sufficient to pay the full amount of principal and interest then due and payable
on the Notes and the Certificates plus all fees and expenses due and owing (with
the prior written consent of the Insurer if such redemption would result in a
claim on the Note Policy or would result in any amount owing to the Insurer
under the Insurance Agreement remaining unpaid); and (ii) obtain the Trust
Property, if any, in its capacity as the sole Certificateholder. To exercise
such option, the Seller or the Servicer shall deposit pursuant to Section 5.6 in
the Collection Account an amount equal to the aggregate Purchase Amount for the
Receivables (including Liquidated Receivables), plus the appraised value of any
other property held by the Trust, if any, such value to be determined by an
appraiser mutually agreed upon by the Servicer, the Insurer and the Trust
Collateral Agent, and shall succeed to all interests in and to the Trust. If the
Seller or the Servicer exercises such option pursuant to this Section 10.1(a),
the Servicer or the Seller shall comply with the notice requirements in Section
10.1(a) of the Indenture.
(b) Upon any redemption of the Notes pursuant to Section 9.1 of the
Trust Agreement, the Servicer shall instruct the Trust Collateral Agent to
deposit the proceeds from such sale after all payments and reserves therefrom
(including the expenses of such sale) have been made (the "Insolvency Proceeds")
-------------------
in the Collection Account.
(c) Notice of any termination of the Trust shall be given by the
Servicer to the Owner Trustee, the Trustee, the Trust Collateral Agent, the
Insurer and the Rating Agency as soon as practicable after the Servicer has
received notice thereof.
(d) Following the satisfaction and discharge of the Indenture, the
payment in full of the principal of and interest on the Notes, the payment of
all amounts due to the Insurer under the Insurance Agreement and to the Trustee
and Trust Collateral Agent under the Indenture and this Agreement, the end of
the Term of the Note Policy (as defined therein) and the surrender of the Note
Policy by the Trust Collateral Agent to the Insurer, the Certificateholders will
succeed to the rights of the Noteholders hereunder and the Owner Trustee will
succeed to the rights of, and assume the obligations of, the Trust Collateral
Agent pursuant to this Agreement.
ARTICLE XII
Administrative Duties of the Servicer
-------------------------------------
SECTION 12.1. Administrative Duties.
---------------------
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(a) Duties with Respect to the Indenture. The Servicer shall
------------------------------------
perform all its duties and the duties of the Issuer under the Basic Documents.
In addition, the Servicer shall consult with the Owner Trustee as the Servicer
deems appropriate regarding the duties of the Issuer under the Basic Documents.
The Servicer shall monitor the performance of the Issuer and shall advise the
Owner Trustee when action is necessary to comply with the Issuer's duties under
the Basic Documents. The Servicer shall prepare for execution by the Issuer or
shall cause the preparation by other appropriate Persons of all such documents,
reports, filings, instruments, certificates and opinions as it shall be the duty
of the Issuer to prepare, file or deliver pursuant to the Indenture. In
furtherance of the foregoing, the Servicer shall take all necessary action that
is the duty of the Issuer to take pursuant to the Basic Documents. In connection
with the foregoing, the Servicer shall be deemed an agent of the Issuer,
authorized to act (including with respect to the execution of documents) on its
behalf.
(b) Duties with Respect to the Issuer.
---------------------------------
(i) In addition to the duties of the Servicer set forth in
this Agreement or any of the Basic Documents, the Servicer shall perform such
calculations and shall prepare for execution by the Issuer or the Owner Trustee
or shall cause the preparation by other appropriate Persons of all such
documents, reports, filings, instruments, certificates and opinions as it shall
be the duty of the Issuer or the Owner Trustee to prepare, file or deliver
pursuant to this Agreement or any of the Basic Documents or under state and
federal tax and securities laws, and at the request of the Owner Trustee shall
take all appropriate additional action that it is the duty of the Issuer to take
pursuant to this Agreement or any of the Basic Documents, including pursuant to
Sections 2.6 and 2.11 of the Trust Agreement. In accordance with the directions
of the Issuer or the Owner Trustee, the Servicer shall administer, perform or
supervise the performance of such other activities in connection with the
Collateral (including the Basic Documents) as are not covered by any of the
foregoing provisions and as are expressly requested by the Issuer or the Owner
Trustee and are reasonably within the capability of the Servicer.
(ii) Notwithstanding anything in this Agreement or any of the
Basic Documents to the contrary, the Servicer shall be responsible for promptly
notifying the Owner Trustee and the Trust Collateral Agent in the event that any
withholding tax is imposed on the Issuer's payments (or allocations of income)
to an Owner (as defined in the Trust Agreement) as contemplated by this
Agreement. Any such notice shall be in writing and specify the amount of any
withholding tax required to be withheld by the Owner Trustee or the Trust
Collateral Agent pursuant to such provision.
(iii) Notwithstanding anything in this Agreement or the Basic
Documents to the contrary, the Servicer shall be responsible for performance of
the duties of the Issuer or the Seller set forth in Section 5.1(a), (b), (c) and
(d) of the Trust Agreement with respect to, among other things, accounting and
reports to Owners (as defined in the Trust Agreement); provided, however, that
-------- -------
once prepared by the Servicer, the Depositor shall retain responsibility under
Section 5.1(b) of the Trust Agreement for
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the distribution of the Schedule K-1s necessary to enable each Certificateholder
to prepare its federal and state income tax returns.
(iv) The Servicer shall perform the duties of the Servicer
specified in Section 10.2 of the Trust Agreement required to be performed in
connection with the resignation or removal of the Owner Trustee, and any other
duties expressly required to be performed by the Servicer under this Agreement
or any of the Basic Documents.
(v) In carrying out the foregoing duties or any of its other
obligations under this Agreement, the Servicer may enter into transactions with
or otherwise deal with any of its Affiliates; provided, however, that the terms
-------- -------
of any such transactions or dealings shall be in accordance with any directions
received from the Issuer and shall be, in the Servicer's opinion, no less
favorable to the Issuer in any material respect.
(c) Tax Matters. The Servicer shall prepare and file, on behalf of
-----------
the Seller, all tax returns, tax elections, financial statements and such annual
or other reports of the Issuer as are necessary for preparation of tax reports
as provided in Article V of the Trust Agreement, including Forms 1099 and 1066.
All tax returns will be signed by the Seller.
(d) Non-Ministerial Matters. With respect to matters that in the
-----------------------
reasonable judgment of the Servicer are non-ministerial, the Servicer shall not
take any action pursuant to this Article XII unless within a reasonable time
before the taking of such action, the Servicer shall have notified the Owner
Trustee and the Insurer of the proposed action and the Owner Trustee and, with
respect to items (i), (ii), (iii), (iv) and (v) below, the Insurer shall not
have withheld consent or provided an alternative direction. For the purpose of
the preceding sentence, "non-ministerial matters" shall include:
------------------------
(i) the amendment of or any supplement to the Indenture;
(ii) the initiation of any claim or lawsuit by the Issuer and
the compromise of any action, claim or lawsuit brought by or against the Issuer
(other than in connection with the collection of the Receivables);
(iii) the amendment, change or modification of this Agreement
or any of the Basic Documents;
(iv) the appointment of successor Note Registrars, successor
Paying Agents and successor Trustees pursuant to the Indenture or the
appointment of successor Servicers or the consent to the assignment by the Note
Registrar, Paying Agent or Trustee of its obligations under the Indenture; and
(v) the removal of the Trustee or the Trust Collateral
Agent.
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(e) Exceptions. Notwithstanding anything to the contrary in this
----------
Agreement, except as expressly provided herein or in the other Basic Documents,
the Servicer, in its capacity hereunder, shall not be obligated to, and shall
not, (i) make any payments to the Noteholders or Certificateholders under the
Basic Documents, (ii) sell the Indenture Trust Property pursuant to Section 5.5
of the Indenture, (iii) take any other action that the Issuer directs the
Servicer not to take on its behalf or (iv) in connection with its duties
hereunder assume any indemnification obligation of any other Person.
(f) The Back-up Servicer or any successor Servicer shall not be
responsible for any obligations or duties of the Servicer under Section 12.1.
SECTION 12.2. Records. The Servicer shall maintain appropriate books of
-------
account and records relating to services performed under this Agreement, which
books of account and records shall be accessible for inspection (a) by the
Issuer and the Trust Collateral Agent at any time and (b) by the Noteholders
upon reasonable notice, in each case during normal business hours.
SECTION 12.3. Additional Information to be Furnished to the Issuer. The
----------------------------------------------------
Servicer shall furnish to the Issuer, the Insurer and the Trust Collateral Agent
from time to time such additional information regarding the Collateral as the
Issuer, the Insurer or the Trust Collateral Agent shall reasonably request.
ARTICLE XIII
Miscellaneous Provisions
------------------------
SECTION 13.1. Amendment.
---------
(a) This Agreement may be amended from time to time by the parties
hereto, with the consent of the Trustee and the Owner Trustee (which consent may
not be unreasonably withheld), with the prior written consent of the Insurer
(which consent may not be unreasonably withheld) (so long as no Insurer Default
has occurred and is continuing and (a) there are Notes outstanding, (b) any
amounts due to the Insurer remain unpaid or (c) the Note Policy has not expired
in accordance with its terms) and with the prior written notice to the Rating
Agency but without the consent of any of the Noteholders or the
Certificateholders, to cure any ambiguity, to correct or supplement any
provisions in this Agreement, to comply with any changes in the Code, or to make
any other provisions with respect to matters or questions arising under this
Agreement which shall not be inconsistent with the provisions of this Agreement
or the Insurance Agreement; provided, however, that such action shall not
-------- -------
adversely affect in any material respect the interests of any Noteholder or
Certificateholder; and provided further, however, that if an Insurer Default has
-------- ------- -------
not occurred and is continuing and (a) there are Notes outstanding, (b) any
amounts due to the Insurer remain unpaid or (c) the Note Policy has not expired
in accordance with its terms, such action shall not materially adversely affect
the interests of the Insurer.
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This Agreement may also be amended from time to time by the parties
hereto, with the prior written consent of the Insurer, the consent of the
Trustee and the Owner Trustee, the consent of the Holders of Notes evidencing
not less than a majority of the outstanding principal amount of the Notes, the
consent of the Holders (as defined in the Trust Agreement) of Certificates
evidencing not less than a majority of the Certificate Balance (which consent of
such Holders of Notes and Certificates given pursuant to this Section 13.1 or
pursuant to any other provision of this Agreement shall be conclusive and
binding on such Holder and on all future Holders of such securities and of any
Security issued upon the transfer thereof or in exchange thereof or in lieu
thereof whether or not notation of such consent is made upon the security) and
with prior written notice to the Rating Agency for the purpose of adding any
provisions to or changing in any manner any provisions to or eliminating any of
the provisions of this Agreement or of modifying in any manner the rights of the
Noteholders or the Certificateholders; 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 or distributions that
shall be required to be made for the benefit of the Noteholders or the
Certificateholders or (ii) reduce the aforesaid percentage of the outstanding
principal amount of the Notes and the Certificate Balance, the Holders of which
are required to consent to any such amendment, without the consent of the
Holders of all the outstanding Notes and the Holders (as defined in the Trust
Agreement) of all the outstanding Certificates; and provided, further, that if
-------- -------
an Insurer Default has not occurred and is continuing and (a) there are Notes
outstanding, (b) any amounts due to the Insurer remain unpaid or (c) the Note
Policy has not expired in accordance with its terms, such action shall not
materially adversely affect the interest of the Insurer.
Promptly after the execution of any such amendment or consent, the
Trust Collateral Agent shall furnish written notification of the substance of
such amendment or consent to each Noteholder and to the Rating Agency.
The manner of obtaining such consents (and any other consents of
Noteholders or Certificateholders provided for in this Agreement) and of
evidencing the authorization of any action by Noteholders or Certificateholders
shall be subject to such reasonable requirements as the Trustee or the Owner
Trustee, as applicable, may prescribe, including the establishment of record
dates.
The Owner Trustee, the Trust Collateral Agent and the Trustee may, but
shall not be obligated to, enter into any amendment which affects the Issuer's,
the Owner Trustee's, the Trust Collateral Agent's or the Trustee's, as
applicable, own rights, duties or immunities under this Agreement or otherwise.
Prior to the execution of any amendment to this Agreement, the Trustee
and the Trust Collateral Agent shall be entitled to receive or 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.
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(b) Notwithstanding anything to the contrary contained in subsection
13.1(a) above, the provisions of this Agreement relating to (i) the Spread
Account, the Requisite Amount, a Trigger Event or any component definition of a
Trigger Event and (ii) any additional sources of funds which may be added to the
Spread Account or uses of funds on deposit in the Spread Account may be amended
in any respect by the Seller, the Servicer, the Insurer and the Trust Collateral
Agent without the consent of, or notice to, the Noteholders or the
Certificateholders.
Promptly after the execution of any such amendment or consent, the
Trust Collateral Agent shall furnish written notification of the substance of
such amendment or consent to each Noteholder and to the Rating Agency.
SECTION 13.2. Protection of Title to Trust.
----------------------------
(a) The Seller shall execute and file such financing statements and
cause to be executed and filed such continuation statements, all in such manner
and in such places as may be required by law fully to preserve, maintain and
protect the interest of the Issuer and the interests of the Trust Collateral
Agent and the Insurer in the Receivables and the Other Conveyed Property and in
the proceeds thereof. The Seller shall deliver (or cause to be delivered) to the
Insurer, the Owner Trustee and the Trust Collateral Agent file-stamped copies
of, or filing receipts for, any document filed as provided above, as soon as
available following such filing.
(b) Neither the Seller nor the Servicer shall change its name,
identity or corporate structure in any manner that would, could or might make
any financing statement or continuation statement filed in accordance with
paragraph (a) above seriously misleading within the meaning of (S) 9-402(7) of
the UCC, unless it shall have given the Insurer, the Owner Trustee, the Trust
Collateral Agent and the Trustee at least sixty days' prior written notice
thereof and shall have promptly filed appropriate amendments to all previously
filed financing statements or continuation statements. Promptly upon such
filing, the Seller or the Servicer, as the case may be, shall deliver an Opinion
of Counsel in form and substance reasonably satisfactory to the Insurer, the
Trust Collateral Agent and the Trustee, stating either (A) all financing
statements and continuation statements have been executed and filed that are
necessary fully to preserve and protect the interest of the Trust and the Trust
Collateral Agent in the Receivables, and reciting the details of such filings or
referring to prior Opinions of Counsel in which such details are given, or (B)
no such action shall be necessary to preserve and protect such interest.
(c) Each of the Seller and the Servicer shall have an obligation to
give the Insurer, the Owner Trustee, the Trust Collateral Agent and the Trustee
at least 60 days' prior written notice of any relocation of its principal place
of business and chief executive office if, as a result of such relocation, the
applicable provisions of the UCC would require the filing of any amendment of
any previously filed financing or continuation statement or of any new financing
statement and shall promptly file any such amendment. The Servicer shall at all
times maintain each office from which it shall service
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Receivables, and the Seller shall at all times maintain its principal place of
business and chief executive office, within the United States of America.
(d) The Servicer shall maintain accounts and records as to each Receivable
accurately and in sufficient detail to permit (i) the reader thereof to know at
any time the status of such Receivable, including payments and recoveries made
and payments owing (and the nature of each) and (ii) reconciliation between
payments or recoveries on (or with respect to) each Receivable and the amounts
from time to time deposited in the Collection Account in respect of such
Receivable.
(e) The Servicer shall maintain or cause to be maintained, a computer
system so that, from and after the time of sale under this Agreement of the
Receivables to the Issuer, such master computer records (including any backup
archives) that refer to a Receivable shall indicate clearly the interest of the
Trust in such Receivable and that such Receivable is owned by the Trust.
Indication of the Trust's interest in a Receivable shall be deleted from or
modified on such computer systems when, and only when, the related Receivable
shall have been paid in full or repurchased by TFC or the Seller.
(f) If at any time the Seller or TFC shall propose to sell, grant a
security interest in or otherwise transfer any interest in automotive
receivables to any prospective purchaser, lender or other transferee, the
Servicer shall give to such prospective purchaser, lender or other transferee
computer tapes, records or printouts (including any restored from backup
archives) that, if they shall refer in any manner whatsoever to any Receivable,
shall indicate clearly that such Receivable has been sold and is owned by the
Trust unless such Receivable has been paid in full or repurchased by TFC or the
Seller.
(g) Upon request, the Servicer shall furnish or cause to be furnished to
the Insurer, the Owner Trustee or to the Trustee, within five Business Days, a
list of all Receivables (by contract number and name of Obligor) then held as
part of the Trust, together with a reconciliation of such list to the Schedule
of Receivables and to each of the Servicer's Certificates furnished before such
request indicating removal of Receivables from the Trust. The 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.
(h) The Servicer shall deliver to the Insurer, the Owner Trustee, the Trust
Collateral Agent and the Trustee simultaneously with the execution and delivery
of this Agreement and, if required pursuant to Section 13.1, of each amendment,
an Opinion of Counsel stating that, in the opinion of such counsel, in form and
substance reasonably satisfactory to the Insurer, either (A) all financing
statements and continuation statements have been executed and filed that are
necessary fully to preserve and protect the interest of the Trust and the Trust
Collateral Agent in the Receivables, and reciting the details of such filings or
referring to prior Opinions of Counsel in which such details are given, or (B)
no such action shall be necessary to preserve and protect such interest or (C)
any action which is necessary to preserve and protect such interest during the
following 12-month period.
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<PAGE>
Each Opinion of Counsel referred to in clause (1) or (2) above shall
specify any action necessary (as of the date of such opinion) to be taken in the
following year to preserve and protect such interest.
(i) The Servicer shall permit the Trustee, the Trust Collateral Agent,
the Insurer and their respective agents, during regular business hours and upon
reasonable advance notice, to inspect and make copies of the records regarding
any Receivables or any other portion of the Receivables.
SECTION 13.3. Notices. All demands, notices and communications upon or to
-------
the Seller, the Servicer, the Owner Trustee, the Trustee, the Trust Collateral
Agent, the Insurer or the Rating Agency under this Agreement shall be in
writing, personally delivered, or mailed by certified mail, or sent by confirmed
telecopier transmission and shall be deemed to have been duly given upon receipt
(a) in the case of the Seller to TFC Receivables Corporation 2, 5425 Robin Hood
Road, Suite 101C, Norfolk, Virginia 23513, Attention: Chief Financial Officer,
(b) in the case of the Servicer, to The Finance Company, 5425 Robin Hood Road,
Suite 101B, Norfolk, Virginia 23513, Attention: Chief Financial Officer with a
copy to John M. Paris Jr., Williams, Mullen, Clark, Dobbins P.C., One Columbus
Center, Virginia Beach, Virginia 23462, (c) in the case of the Issuer or the
Owner Trustee, to Wilmington Trust Company, Rodney Square North, 1100 North
Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust
Administration, Telecopier # 302-651-8882, (d) in the case of the Trustee, the
Trust Collateral Agent, or the Back-up Servicer, to Norwest Bank Minnesota,
National Association, Sixth Street and Marquette Avenue, MAC N9311-611
Minneapolis, Minnesota 55479, Corporate Trust Services-Asset Backed
Administration, Telecopier # (612) 667-3464, (e) in the case of the Insurer, to
Asset Guaranty Insurance Company, 335 Madison Avenue, New York, NY 10017-4605,
Attention: Manager, Asset-Backed Surveillance, Telecopier (212) 682-5377 (in
each case in which notice or other communication to the Insurer refers to a
Servicer Termination Event, a claim on a Policy, a Deficiency Notice pursuant to
Section 5.5 of this Agreement or with respect to which failure on the part of
the Insurer to respond shall be deemed to constitute consent or acceptance, then
a copy of such notice or other communication should also be sent to the
attention of each of the General Counsel and shall be marked to indicate "URGENT
------
MATERIAL ENCLOSED") Telecopier # 212-984-1498, and (f) in the case of Standard &
- -----------------
Poor's, to Standard & Poor's Ratings Group, 25 Broadway - 15th Floor, New York,
New York 10004, Attention: Asset Backed Surveillance Department, Telecopier #
212-208-1582. Any notice required or permitted to be mailed to a Noteholder or
Certificateholder shall be given by first class mail, postage prepaid, at the
address of such Holder as shown in the Certificate Register or Note Register, as
applicable. Any notice so mailed within the time prescribed in this Agreement
shall be conclusively presumed to have been duly given, whether or not the
Certificateholder or Noteholder shall receive such notice.
SECTION 13.4. Assignment. This Agreement shall inure to the benefit of and
----------
be binding upon the parties hereto and their respective successors and permitted
assigns. Notwithstanding anything to the contrary contained herein, except as
provided in Sections 8.4 and 9.3 and as provided in the provisions of this
Agreement concerning the
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resignation of the Servicer, this Agreement may not be assigned by the Seller or
the Servicer without the prior written consent of the Owner Trustee, the Trust
Collateral Agent, the Trustee and the Insurer (or if an Insurer Default shall
have occurred and be continuing, the Holders of Notes evidencing not less than
66% of the principal amount of the outstanding Notes).
SECTION 13.5. Limitations on Rights of Others. The provisions of this
-------------------------------
Agreement are solely for the benefit of the parties hereto and for the benefit
of the Certificateholders (including the Seller), the Trustee, the Owner Trustee
(including in its individual capacity) and the Noteholders, as third-party
beneficiaries. Nothing in this Agreement, whether express or implied, shall be
construed to give to any other Person any legal or equitable right, remedy or
claim in the Owner Trust Estate or under or in respect of this Agreement or any
covenants, conditions or provisions contained herein.
SECTION 13.6. Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 13.7. Separate Counterparts. This Agreement may be executed by the
---------------------
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 13.8. Headings. The headings of the various Articles and Sections
--------
herein are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.
SECTION 13.9. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
-------------
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 13.10. Assignment to Trustee. The Seller hereby acknowledges and
---------------------
consents to any mortgage, pledge, assignment and grant of a security interest by
the Issuer to the Trust Collateral Agent pursuant to the Indenture for the
benefit of the Noteholders and the Insurer of all right, title and interest of
the Issuer in, to and under the Receivables and/or the assignment and delegation
of any or all of the Issuer's rights and obligations hereunder to the Trustee.
SECTION 13.11. Nonpetition Covenants.
---------------------
(a) Notwithstanding any prior termination of this Agreement, the Servicer
and the Seller shall not, prior to the date which is one year and one day after
the termination of this Agreement with respect to the Issuer, acquiesce,
petition or otherwise invoke or cause the Issuer to invoke the process of any
court or government authority for
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<PAGE>
the purpose of commencing or sustaining a case against the Issuer under any
federal or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Issuer or any substantial part of its property, or ordering the winding
up or liquidation of the affairs of the Issuer.
(b) Notwithstanding any prior termination of this Agreement, the Servicer
shall not, prior to the date that is one year and one day after the termination
of this Agreement with respect to the Seller, acquiesce to, petition or
otherwise invoke or cause the Seller to invoke the process of any court or
government authority for the purpose of commencing or sustaining a case against
the Seller under any federal or state bankruptcy, insolvency or similar law,
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator,
or other similar official of the Seller or any substantial part of its property,
or ordering the winding up or liquidation of the affairs of the Seller.
SECTION 13.12. Limitation of Liability of Owner Trustee and the Trust
------------------------------------------------------
Collateral Agent.
- ----------------
(a) Notwithstanding anything contained herein to the contrary, this
Agreement has been executed on behalf of the Issuer by Wilmington Trust Company
not in its individual capacity but solely in its capacity as Owner Trustee of
the Issuer and in no event shall Wilmington Trust Company in its individual
capacity or, as Owner Trustee, have any liability for the representations,
warranties, covenants, agreements or other obligations of the Issuer hereunder
or in any of the certificates, notices or agreements delivered pursuant hereto,
as to all of which recourse shall be had solely to the assets of the Issuer. For
all purposes of this Agreement, in the performance of its duties or obligations
hereunder or in the performance of any duties or obligations of the Issuer
hereunder, the Owner Trustee shall be subject to, and entitled to the benefits
of, the terms and provisions of the Trust Agreement.
(b) Notwithstanding anything contained herein to the contrary, this
Agreement has been executed and delivered by Norwest Bank Minnesota, National
Association not in its individual capacity but solely as Trust Collateral Agent
and as Back-up Servicer and in no event shall Norwest Bank Minnesota, National
Association, in its individual capacity have any liability for the
representations, warranties, covenants, agreements or other obligations of the
Issuer hereunder or in any of the certificates, notices or agreements delivered
pursuant hereto, as to all of which recourse shall be had solely to the assets
of the Issuer.
(c) In no event shall Wilmington Trust Company, in any of its capacities
hereunder, be deemed to have assumed any duties of the Owner Trustee under the
Delaware Business Trust Statute, common law, or the Trust Agreement.
SECTION 13.13. Independence of the Servicer. For all purposes of this
----------------------------
Agreement, the Servicer shall be an independent contractor and shall not be
subject to the supervision of the Issuer, the Trust Collateral Agent or the
Owner Trustee with respect to the manner in which it accomplishes the
performance of its obligations hereunder. Unless expressly authorized by this
Agreement, the Servicer shall have no authority to act
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for or represent the Issuer or the Owner Trustee in any way and shall not
otherwise be deemed an agent of the Issuer or the Owner Trustee.
SECTION 13.14. No Joint Venture. Nothing contained in this Agreement (i)
----------------
shall constitute the Servicer and either of the Issuer or the Owner Trustee as
members of any partnership, joint venture, association, syndicate,
unincorporated business or other separate entity, (ii) shall be construed to
impose any liability as such on any of them or (iii) shall be deemed to confer
on any of them any express, implied or apparent authority to incur any
obligation or liability on behalf of the others.
SECTION 13.15. Limited Recourse. Notwithstanding anything to the contrary
----------------
contained in this Agreement or the Indemnification Agreement, the obligations of
each of the Seller and Issuer under this Agreement and the Indemnification
Agreement are solely the corporate obligations of the Seller or the trust
obligations of Issuer, as applicable, and shall be payable by the Seller or
Issuer, as applicable, solely as provided in this Section 13.15 Each of the
Seller and the Issuer shall only be required to pay (a) any fees, expenses,
indemnities or other liabilities that it may incur under this Agreement or the
Indemnification Agreement to the extent it has funds available therefor on the
date of such determination and (b) any expenses, indemnities or other
liabilities that it may incur under this Agreement or the Indemnification
Agreement only to the extent it receives funds designated for such purposes or
to the extent it has funds available therefor. In addition, no amount owing by
any of the Seller or Issuer hereunder (other than principal and interest in
respect of the Notes) or under the Indemnification Agreement in excess of the
liabilities that it is required to pay in accordance with the preceding sentence
shall constitute a "claim" (as defined in Section 101(5) of the Bankruptcy Code)
against it. No recourse shall be had for the payment of any amount owing
hereunder or under the Indemnification Agreement or for the payment of any fee
hereunder or any other obligation of, or claim against, the Seller or the Issuer
arising out of or based upon this Agreement or the Indemnification Agreement,
against any stockholder, employee, officer, agent, director or authorized person
of the Seller or affiliate thereof or any stockholder, employee, officer,
director, incorporator or Affiliate thereof; provided, however, that the
-------- -------
foregoing shall not relieve any such person or entity of any liability they
might otherwise have as a result of fraudulent actions or omissions taken by
them. The obligation of the parties under this Section 13.15 shall survive
termination of this Agreement.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK.]
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IN WITNESS WHEREOF, the parties hereto have caused this Sale and
Servicing Agreement to be duly executed and delivered by their respective duly
authorized officers as of the day and the year first above written.
ASSET GUARANTY INSURANCE COMPANY
By:______________________________________
Name: Kim Nance-Meier
Title: Vice President
TFC AUTOMOBILE RECEIVABLES
TRUST 1999-1
By: WILMINGTON TRUST COMPANY, not in
its individual capacity but solely as Owner Trustee on
behalf of the Trust
By:______________________________________
Name:
Title:
TFC RECEIVABLES CORPORATION 2
By:______________________________________
Name:
Title:
THE FINANCE COMPANY, in its individual capacity and as
Servicer
By:______________________________________
Name:
Title:
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<PAGE>
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, not in
its individual capacity but solely as Trust Collateral
Agent and as Back-up Servicer
By:______________________________________
Name:
Title:
[Signature Page for Sale and Servicing Agreement]
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<PAGE>
SCHEDULE A
SCHEDULE OF RECEIVABLES
[See Schedule A Of Purchase Agreement]
A-1
<PAGE>
SCHEDULE B
REPRESENTATIONS AND WARRANTIES OF THE SELLER
1. Characteristics of Receivables. Each Receivable (A) was originated by a
------------------------------
Dealer for the retail sale of a Financed Vehicle in the ordinary course of such
Dealer's business in accordance with either (i) TFC's credit policies or (ii)
credit policies which were reviewed by TFC prior to a purchase of a Receivable
by TFC and such Dealer had all necessary licenses and permits to originate
Receivables in the state where such Dealer was located, was fully and properly
executed by the parties thereto was purchased by TFC from such Dealer under an
existing Dealer Agreement or pursuant to a Dealer Assignment, was validly
assigned by such Dealer to the Seller pursuant to the Dealer Agreement or the
Dealer Assignment, was validly assigned by TFC to the Seller, and was validly
assigned by the Seller to the Trust and pledged by the Trust to the Trust
Collateral Agent, (B) contains customary and enforceable provisions such as to
render the rights and remedies of the holder thereof adequate for realization
against the collateral security, (C) is a Receivable which provides for level
scheduled payments (provided that the payment in the first Monthly Period and
the payment in the final Monthly Period of the Receivable may be minimally
different from the normal period and level payment) which, if made when due,
shall fully amortize the Amount Financed over the original term, (D) provides
for, in the event that the related Contract is prepaid, a prepayment that fully
pays the principal balance of such related Contract and includes accrued but
unpaid interest through the date of prepayment in an amount at least equal to
the annual percentage rate, (E) has not been amended or rewritten, or
collections with respect to which deferred or waived, other than as evidenced in
the Receivable File relating thereto, (F) has an original term of eleven (11) to
forty-eight (48) months and a remaining term of not less than [ ] months, (G)
that has been acquired by TFC and, if a monthly pay contract which is not more
than thirty (30) days delinquent, the related Obligor does not have other
Receivables owing to TFC that are more than thirty (30) days delinquent or
defaulted, (H) that has been acquired by TFC and, if a non-monthly-pay contract,
is not more than thirty (30) days delinquent nor is it defaulted based on the
Company's methodology in effect for converting non-monthly pay Receivables to a
daily delinquency equivalent as such methodology is described in Schedule 1 of
the Insurance Agreement nor does the Obligor have other Receivables owing to TFC
that are delinquent, (I) has a final scheduled payment due no less than eight
(8) months before the Final Scheduled Payment Date, (J) has not been extended
beyond its original term, except in keeping with the TFC's stated policies and
procedures which allow for up to two, one-month deferments in any twelve month
period not to exceed up to four, one-month deferments over the life of a
monthly-pay contract, (K) satisfies in all material respects, including but not
limited to, down-payment provisions, the requirements under TFC's Credit
Guidelines as in effect on August 31, 1999, (L) was originated through an
approved Dealer of TFC, (M) is due from a U.S. citizen in the case of military
Receivables and a U.S. resident in the case of civilian Receivables and is
denominated in U.S. dollars, (N) is secured by a Financed Vehicle and a valid
first priority perfected security interest is in effect with respect to such
Financed Vehicle, (O) is owned solely by TFC free and clear of any lien, claim,
or other encumbrance, excluding liens that will be released no later than the
Closing Date, (P) with respect to the related security interest in the related
Financed Vehicle is
B-1
<PAGE>
perfected and with clear legal right of repossession, (Q) that if a Point-of-
Sale Receivable, was secured by a vehicle covered by a comprehensive insurance
policy covering theft, fire, collision, and naming TFC as loss payee on the date
the loan advance was made, (R) meets, in all material respects, all applicable
requirements of federal, state, and local laws and regulations, (S) has an
annual percentage rate of not less than 14.9%, (T) has a remaining principal
balance of net less than fifteen thousand dollars, (U) is not subject to any
right of setoff by the Obligor and (V) will be clearly marked in the books and
records of TFC as being sold to Seller, and from Seller to Issuer and liened to
the Trust Collateral Agent.
2. No Fraud or Misrepresentation. Each Receivable (A) was originated by a
-----------------------------
Dealer, (B) was sold by the Dealer to TFC and (C) was sold by TFC to the Seller
and by the Seller to the Trust without any fraud or misrepresentation in any
case.
3. Compliance with Law. All requirements of applicable federal, state and
-------------------
local laws, and regulations thereunder (including usury laws, the Federal Truth-
in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit Billing Act,
the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the
Federal Trade Commission Act, the Moss-Magnuson Warranty Act, the Federal
Reserve Board's Regulations "B" and "Z", the Soldiers' and Sailors' Civil Relief
-- --
Act of 1940, as amended, each applicable state Motor Vehicle Retail Installment
Sales Act, and state adaptations of the National Consumer Act and of the Uniform
Consumer Credit Code and other consumer credit laws and equal credit opportunity
and disclosure laws) in respect of the Receivables, the Financed Vehicles and
the sale of any physical damage, credit life and credit accident and health
insurance and any extended service contracts, have been complied with in all
material respects by TFC and the Seller, as applicable, and each Receivable, the
sale of the Financed Vehicle evidenced by each Receivable and the sale of any
physical damage, credit life and credit accident and health insurance and any
extended service contracts complied at the time it was originated or made in all
material respects and now complies in all material respects with all applicable
legal and regulatory requirements.
4. Origination. Each point-of-sale Receivable was originated in the United
-----------
States and materially conforms to all requirements of the "Dealer Underwriting
-------------------
Guide" applicable to such Receivable at the time assigned to TFC, at the time of
- -----
such assignment.
5. Binding Obligation. Each Receivable represents the genuine, legal, valid
------------------
and binding payment obligation of the Obligor thereon, enforceable by the holder
thereof in accordance with its terms, except (A) as enforceability may be
limited by bankruptcy, insolvency, reorganization or 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 and (B) as such Receivable may be
modified by the application after the Cut-Off Date of the Soldiers' and Sailors'
Civil Relief Act of 1940, as amended; and all parties to each Receivable had
full legal capacity to execute and deliver such Receivable and all other
B-2
<PAGE>
documents related thereto and to grant the security interest purported to be
granted thereby.
6. No Government Obligor. No Obligor is the United States of America or
---------------------
any State or any agency, department, subdivision or instrumentality thereof.
7. Obligor Bankruptcy. At the Cut-Off Date, no Obligor had been the
------------------
subject of a current bankruptcy proceeding.
8. Schedule of Receivables. The information set forth in the Schedule of
-----------------------
Receivables has been produced from the Electronic Ledger and was true and
correct in all material respects as of the close of business on the Cut-Off Date
as delivered on the Closing Date.
9. Marking Records. By the Closing Date, the Seller will have caused the
---------------
portions of the Electronic Ledger relating to the Receivables to be clearly and
unambiguously identified to show that the Receivables have been sold to the
Seller by TFC and resold by the Seller to the Trust in accordance with the terms
of the Sale and Servicing Agreement.
10. Computer Tape. The Computer Tape made available by the Seller to the
-------------
Trust Collateral Agent on the Closing Date was complete and accurate as of the
Cut-Off Date and includes a description of the same Receivables that are
described in the Schedule of Receivables.
11. Adverse Selection. No selection procedures adverse to the Noteholders
-----------------
or the Insurer were utilized in selecting the Receivables from those receivables
owned by TFC which met the selection criteria contained in the Sale and
Servicing Agreement.
12. Chattel Paper. The Receivables constitute chattel paper within the
-------------
meaning of the UCC as in effect in the State of New York, Delaware, Virginia and
Minnesota.
13. One Original. There is only one original executed copy of each
------------
Receivable.
14. Receivable Files Complete. There exists a Receivable File pertaining to
-------------------------
each Receivable and such Receivable File contains, without limitation, subject
to any exceptions which may appear on any exception report delivered by the
Trust Collateral Agent, (a) a fully executed original of the Receivable, (b) the
original Lien Certificate or application therefor together with an assignment of
the Lien Certificate executed by the Unaffiliated Originator and TFC by TFC to
the Seller, and, an assignment of the Lien Certificate executed by the Seller to
the Trustee, (c) an original credit application or copy thereof and (d)
documents evidencing or relating to any Insurance Policy to the extent such
documents are maintained on behalf of the Seller or TFC. Each of such documents
which is required to be signed by the Obligor has been signed by the Obligor in
the appropriate spaces. All blanks on any form described in clauses (a), (b) and
(c) above have been properly filled in and each form has otherwise been
correctly prepared.
B-3
<PAGE>
Notwithstanding the above, a copy of the complete Receivable File for each
Receivable, which fulfills the documentation requirements of the Dealer
Underwriting Guide as in effect at the time of purchase is in the possession of
the Servicer or its bailee.
15. Receivables in Force. No Receivable has been satisfied, subordinated
--------------------
or rescinded, and the Financed Vehicle securing each such Receivable has not
been released from the lien of the related Receivable in whole or in part. No
terms of any Receivable have been waived, altered or modified in any respect
since its origination, except by instruments or documents identified in the
Receivable File. No Receivable has been modified as a result of application of
the Soldiers' and Sailors' Civil Relief Act of 1940, as amended.
16. Lawful Assignment. No Receivable was originated in, or is subject to
-----------------
the laws of, any jurisdiction the laws of which would make unlawful, void or
voidable the sale, transfer and assignment of such Receivable under this
Agreement or pursuant to transfers of the Securities. The Seller has not entered
into any agreement with any account debtor that prohibits, restricts or
conditions the assignment of any portion of the Receivables.
17. Good Title. No Receivable has been sold, transferred, assigned or
----------
pledged by the Seller to any Person other than the Issuer; immediately prior to
the conveyance of the Receivables to the Trust pursuant to this Agreement, the
Seller was the sole owner thereof and had good and indefeasible title thereto,
free (except with respect to GE Capital, which lien of GE Capital has been
released (as of the Closing Date)) of any Lien and, upon execution and delivery
of this Agreement by the Seller, the Trust shall have good and indefeasible
title to and will be the sole owner of such Receivables, free of any Lien other
than the Lien of the Trust Collateral Agent. No Dealer has a participation in,
or other right to receive, proceeds of any Receivable. The Seller has not taken
any action to convey any right to any Person that would result in such Person
having a right to payments received under the related Insurance Policies or the
related Dealer Agreements or Dealer Assignments or to payments due under such
Receivables.
18. Security Interest in Financed Vehicle. Each Receivable created or will
-------------------------------------
create a valid, binding and enforceable first priority security interest in
favor of TFC or the Trust Collateral Agent in the Financed Vehicle. The Lien
Certificate and original certificate of title for each Financed Vehicle show, or
if a new or replacement Lien Certificate is being applied for with respect to
such Financed Vehicle the Lien Certificate will be received within 180 days of
the Closing Date, and will show TFC or the Trust Collateral Agent named as the
original secured party under each Receivable as the holder of a first priority
security interest in such Financed Vehicle. With respect to each Receivable for
which the Lien Certificate has not yet been returned from the Registrar of
Titles, TFC has received written evidence from the related Dealer that such Lien
Certificate showing TFC or the Trust Collateral Agent as first lienholder has
been applied for and (i) TFC's security interest has been validly assigned to
the Seller pursuant to the Purchase Agreement and (ii) the Seller's security
interest has been validly assigned by the Seller to the Trust pursuant to this
Agreement and (iii) the Trust's security interest has been validly pledged to
the Trust Collateral Agent pursuant to the Indenture.
B-4
<PAGE>
Immediately after the sale, transfer and assignment thereof by the Seller to the
Trust, each Receivable will be secured by an enforceable and perfected first
priority security interest in the Financed Vehicle in favor of the Trustee as
secured party, which security interest is prior to all other Liens upon and
security interests in such Financed Vehicle which now exist or may hereafter
arise or be created (except, as to priority, for any lien for taxes, labor or
materials affecting a Financed Vehicle arising subsequent to the Cut-Off Date).
As of the Cut-Off Date there were no Liens or claims for taxes, work, labor or
materials affecting a Financed Vehicle which are or may be Liens prior or equal
to the Liens of the related Receivable.
19. All Filings Made. All filings (including UCC filings) required to be
----------------
made by any Person and actions required to be taken or performed by any Person
in any jurisdiction to give the Trust Collateral Agent a first priority
perfected lien on the Receivables and the proceeds thereof and the Other
Conveyed Property have been made, taken or performed.
20. No Impairment. Neither TFC nor the Seller has done anything to convey
-------------
any right to any Person that would result in such Person having a right to
payments due under the Receivable or otherwise to impair the rights of the
Trust, the Insurer, the Trustee, the Trust Collateral Agent and the Noteholders
in any Receivable or the proceeds thereof.
21. Receivable Not Assumable. No Receivable is assumable by another
------------------------
Person in a manner which would release the Obligor thereof from such Obligor's
obligations to the Seller with respect to such Receivable.
22. No Default. As of the Cut-Off Date, no Receivable was in default and
----------
no condition existed or event occurred that constituted a default, breach,
violation or event permitting acceleration under the terms of any Receivable,
and there has been no waiver of any of the foregoing. As of the Cut-Off Date no
Financed Vehicle had been repossessed.
23. Insurance. At the time of origination of each point of sale
---------
Receivable, the related Financed Vehicle was covered by a comprehensive and
collision insurance policy (i) in an amount at least equal to the lesser of,
excluding any deductible, (a) its maximum insurable value or (b) the principal
amount due from the Obligor under the related Receivable, (ii) naming TFC and
its successors and assigns as loss payee and (iii) insuring against loss and
damage due to fire, theft, transportation, collision and other risks generally
covered by comprehensive and collision coverage. No Financed Vehicle is insured
under a policy of Force-Placed Insurance on the Cut-Off Date.
24. Certain Characteristics of Receivables. (i) No Receivable was more
--------------------------------------
than 29 days past due as of the Cut-Off Date; (ii) no funds have been advanced
by the Seller, the Servicer, any Dealer, or anyone acting on behalf of any of
them in order to cause any Receivable to qualify under subclause (i) of this
clause 24; (iii) the Principal Balance of each Receivable set forth in the
Schedule of Receivables is true and accurate as of the Cut-Off Date.
B-5
<PAGE>
25. Direct Payment. All Receivable are secured by Financed Vehicles on
--------------
which at least one payment has been made directly to TFC subsequent to the date
TFC has purchased such Receivable.
26. Military Assistance Corporation. As of the Closing Date, Fort Knox
-------------------------------
National Bank ("FKNB") has been directed by TFC, and evidence of FKNB's
----
acknowledgment has been received to directly transfer to the Collection Account
all amounts received by it pursuant to the Military Assistance Corporation
("MAC") program.
---
27. Pool Characteristics. The weighted average interest rate for the pool
--------------------
was no less than 21.2% and the weighted average remaining maturity for the pool
is no greater than 29 months.
B-6
<PAGE>
EXHIBIT A
FORM OF SERVICER'S CERTIFICATE
[See Attached Pages]
A-1
<PAGE>
EXHIBIT B
FORM OF DEFICIENCY CLAIM NOTICE
[Date]
Norwest Bank Minnesota, National Association, as Trust Collateral Agent
Sixth Street and Marquette Avenue
MAC N9311-161
Minneapolis, Minnesota 55479
Wilmington Trust Company, as Owner Trustee
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Administration
Asset Guaranty Insurance Company
335 Madison Avenue
New York, New York 10017-4605
Re: Sale and Servicing Agreement, dated as of December 1, 1999 (the
"Agreement") among TFC Auto Receivables Trust 1999-1, (the "Issuer"),
--------- ------
TFC Receivables Corporation 2, (the "Seller"), The Finance Company
------
(the "Servicer"), and Norwest Bank Minnesota, National Association, in
--------
its capacity as Trust Collateral Agent.
--------------------------------------
Ladies and Gentlemen:
Reference is hereby made to Section 5.5(a) of the Agreement.
Capitalized terms not defined herein shall have the meanings ascribed thereto in
the Agreement.
Pursuant to Section 5.5(a) of the Agreement, please note the following
information with respect to the Payment Date which is to occur on
_______________:
Deficiency Claim Amount: $______________________
Note Policy Claim Amount: $______________________
B-1
<PAGE>
The Trust Collateral Agent shall remit such Deficiency Claim Amount
specified above for deposit into the Collection Account pursuant to Section 5.6
of the Agreement on the next Draw Date which is to occur on _________________.
Sincerely,
THE FINANCE COMPANY, as Servicer
By:___________________________
Name:
Title:
B-2
<PAGE>
EXHIBIT C
REQUEST FOR RELEASE AND RECEIPT OF DOCUMENTS
To: Norwest Bank Minnesota, National Association
Re: Sale and Servicing Agreement (the "Servicing Agreement"), dated as of
-------------------
December 1, 1999 between TFC Receivables Corporation 2, (the "Seller"), TFC
------
Automobile Receivables Trust 1999-1 (the "Trust"), The Finance Company
-----
individually and in its capacity as Servicer (the "Servicer"), and Norwest
--------
Bank Minnesota, National Association, as Trust Collateral Agent (the "Trust
---------------------- -----
Collateral Agent")
-----------------
In connection with the administration of the Receivables held by you
as the Trust Collateral Agent, we request the release, and acknowledged receipt,
of the Receivable and related Receivable File described below, for the reason
indicated.
Obligor's Name, Customer Account Number and Vehicle Identification Number
- -------------------------------------------------------------------------
1. Receivable Paid in Full. All amounts received in connection with such
payments have been deposited into the Collection Account as required pursuant to
Section 3.3(b) of the Servicing Agreement
2. Receivable Purchased from Trust pursuant to Section 3.2 or 4.7 of the
Servicing Agreement.
3. Receivable is being serviced or subject to enforcement of rights and
remedies pursuant to Section 3.3(b) of the Servicing Agreement.
4. Other (explain) _________________________________________
If item 1 or 2 above is checked, and if all or part of the Receivable
or Receivable File was previously released to us, please release to us any
additional documents in your possession to the above specified Receivable.
C-1
<PAGE>
If Item 3 or 4 above is checked, upon our return of all of the above
documents to you as the Indenture Trustee, please acknowledge your receipt by
signing in the space indicated below and returning this form.
THE FINANCE COMPANY
as Servicer
By:________________________________
Name:______________________________
Title:_____________________________
Date:______________________________
DOCUMENTS RETURNED TO THE TRUST COLLATERAL AGENT:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Trust Collateral Agent)
By:________________________________
Name:______________________________
Title:_____________________________
Date:______________________________
C-2
<PAGE>
EXHIBIT D
TRUST COLLATERAL AGENT'S ACKNOWLEDGEMENT
Norwest Bank Minnesota, National Association (the "Trust Collateral
----------------
Agent"), holds on behalf of the Noteholders certain "Receivable Files," as
- ----- ----------------
described in the Sale and Servicing Agreement, dated as of December 1, 1999 (the
"Sale and Servicing Agreement"), among TFC Automobile Receivables Trust 1999-1,
----------------------------
TFC Receivables Corporation 2, as Seller, The Finance Company, as Servicer, and
the Trust Collateral Agent, hereby acknowledges receipt of the Receivable File
for each Receivable listed in the Schedule of Receivables attached as Schedule A
to said Sale and Servicing Agreement except as noted in the Exception List
attached as Schedule I hereto.
IN WITNESS WHEREOF, Norwest Bank Minnesota, National Association has
caused this acknowledgement to be executed by its duly authorized officer as of
this ____ day of _______________, 1999.
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trust Collateral Agent
By:_________________________________
Name:
Title:
D-1
<PAGE>
EXECUTION COPY
________________________________________________________________________
INDENTURE
ASSET GUARANTY INSURANCE COMPANY, Insurer
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
Trustee and Trust Collateral Agent
and
TFC AUTOMOBILE RECEIVABLES TRUST
1999-1, Issuer
Dated as of December 1, 1999
________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
<S> <C>
ARTICLE I. Definitions and Incorporation by Reference..................................... 3
SECTION 1.1 Definitions............................................................... 3
SECTION 1.2 [Reserved]................................................................ 10
SECTION 1.3 Rules of Construction..................................................... 10
SECTION 1.4 Action by or Consent of Noteholders and Certificateholders................ 10
SECTION 1.5 Material Adverse Effect................................................... 11
ARTICLE II. The Notes...................................................................... 11
SECTION 2.1 Form...................................................................... 11
SECTION 2.2 Execution, Authentication and Delivery.................................... 11
SECTION 2.3 [Reserved]................................................................ 12
SECTION 2.4 Registration; Registration of Transfer and Exchange....................... 12
SECTION 2.5 Restrictions on Transfer and Exchange..................................... 12
SECTION 2.6 Mutilated, Destroyed, Lost or Stolen Notes................................ 14
SECTION 2.7 Persons Deemed Owner...................................................... 15
SECTION 2.8 Payment of Principal and Interest; Defaulted Interest..................... 15
SECTION 2.9 Cancellation.............................................................. 16
SECTION 2.10 Release of Collateral..................................................... 16
SECTION 2.11 Notices to Noteholders.................................................... 17
SECTION 2.12 [Reserved]................................................................ 17
ARTICLE III. Covenants...................................................................... 17
SECTION 3.1 Payment of Principal and Interest......................................... 17
SECTION 3.2 Maintenance of Office or Agency........................................... 17
SECTION 3.3 Money for Payments to be Held in Trust.................................... 17
SECTION 3.4 Existence................................................................. 19
SECTION 3.5 Protection of Trust Property.............................................. 19
SECTION 3.6 Opinions as to Trust Property............................................. 20
SECTION 3.7 Performance of Obligations; Servicing of Receivables...................... 21
SECTION 3.8 Negative Covenants........................................................ 22
SECTION 3.9 Annual Statement as to Compliance......................................... 22
SECTION 3.10 Issuer May Consolidate, Etc. Only on Certain Terms........................ 23
SECTION 3.11 Successor or Transferee................................................... 25
SECTION 3.12 No Other Business......................................................... 25
SECTION 3.13 No Borrowing.............................................................. 25
SECTION 3.14 Servicer's Obligations.................................................... 26
SECTION 3.15 Guarantees, Loans, Advances and Other Liabilities......................... 26
SECTION 3.16 Capital Expenditures...................................................... 26
SECTION 3.17 Compliance with Laws...................................................... 26
SECTION 3.18 Restricted Payments....................................................... 26
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 3.19 Notice of Events of Default............................................... 26
SECTION 3.20 Further Instruments and Acts.............................................. 27
SECTION 3.21 Amendments of Sale and Servicing Agreement and Trust Agreement............ 27
SECTION 3.22 Income Tax Characterization............................................... 27
ARTICLE IV. Satisfaction and Discharge..................................................... 27
SECTION 4.1 Satisfaction and Discharge of Indenture................................... 27
SECTION 4.2 Application of Trust Money................................................ 28
SECTION 4.3 Repayment of Monies Held by Note Paying Agent............................. 28
ARTICLE V. Remedies....................................................................... 29
SECTION 5.1 Events of Default......................................................... 29
SECTION 5.2 Rights Upon Event of Default.............................................. 30
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee........... 32
SECTION 5.4 Remedies.................................................................. 34
SECTION 5.5 Optional Preservation of the Receivables.................................. 36
SECTION 5.6 Priorities................................................................ 36
SECTION 5.7 Limitation of Suits....................................................... 37
SECTION 5.8 Unconditional Rights of Noteholders To Receive Principal and Interest..... 38
SECTION 5.9 Restoration of Rights and Remedies........................................ 38
SECTION 5.10 Rights and Remedies Cumulative............................................ 38
SECTION 5.11 Delay or Omission Not a Waiver............................................ 38
SECTION 5.12 Control by Noteholders.................................................... 39
SECTION 5.13 Waiver of Past Defaults................................................... 39
SECTION 5.14 Undertaking for Costs..................................................... 40
SECTION 5.15 Waiver of Stay or Extension Laws.......................................... 40
SECTION 5.16 Action on Notes........................................................... 40
SECTION 5.17 Performance and Enforcement of Certain Obligations........................ 40
SECTION 5.18 Subrogation............................................................... 41
SECTION 5.19 Preference Claims......................................................... 41
ARTICLE VI. The Trustee and the Trust Collateral Agent..................................... 42
SECTION 6.1 Duties of Trustee......................................................... 42
SECTION 6.2 Rights of Trustee and the Trust Collateral Agent.......................... 45
SECTION 6.3 Individual Rights of Trustee.............................................. 46
SECTION 6.4 Trustee's Disclaimer...................................................... 46
SECTION 6.5 Notice of Defaults........................................................ 46
SECTION 6.6 Reports by Note Paying Agent to Holders................................... 46
SECTION 6.7 Compensation and Indemnity................................................ 47
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 6.8 Replacement of Trustee...................................................... 48
SECTION 6.9 Successor Trustee by Merger................................................. 49
SECTION 6.10 Appointment of Co-Trustee or Separate Trustee............................... 49
SECTION 6.11 Eligibility: Disqualification............................................... 51
SECTION 6.12 [Reserved].................................................................. 51
SECTION 6.13 Appointment and Powers...................................................... 51
SECTION 6.14 Performance of Duties....................................................... 52
SECTION 6.15 Limitation on Liability..................................................... 52
SECTION 6.16 Reliance Upon Documents..................................................... 53
SECTION 6.17 Successor Trust Collateral Agent............................................ 53
SECTION 6.18 Compensation................................................................ 54
SECTION 6.19 Representations and Warranties of the Trustee and the Trust Collateral Agent 54
SECTION 6.20 Waiver of Setoffs........................................................... 55
SECTION 6.21 Control by the Controlling Party............................................ 55
ARTICLE VII. Noteholders' Lists and Reports................................................... 56
SECTION 7.1 Issuer To Furnish To Trustee Names and Addresses of Noteholders............. 56
SECTION 7.2 Preservation of Information; Communications to Noteholders.................. 56
SECTION 7.3 Reports by Issuer........................................................... 56
ARTICLE VIII. Accounts, Disbursements and Releases............................................. 57
SECTION 8.1 Collection of Money......................................................... 57
SECTION 8.2 Release of Trust Property................................................... 57
SECTION 8.3 Opinion of Counsel.......................................................... 58
ARTICLE IX. Supplemental Indentures.......................................................... 58
SECTION 9.1 Supplemental Indentures Without Consent of Noteholders...................... 58
SECTION 9.2 Supplemental Indentures with Consent of Noteholders......................... 59
SECTION 9.3 Execution of Supplemental Indentures........................................ 61
SECTION 9.4 Effect of Supplemental Indenture............................................ 61
SECTION 9.5 [Reserved].................................................................. 61
SECTION 9.6 Reference in Notes to Supplemental Indentures............................... 61
ARTICLE X. Redemption of Notes.............................................................. 62
SECTION 10.1 Redemption.................................................................. 62
SECTION 10.2 Form of Redemption Notice................................................... 62
SECTION 10.3 Notes Payable on Redemption Date............................................ 63
ARTICLE XI. Miscellaneous.................................................................... 63
</TABLE>
iii
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 11.1 Compliance Certificates and Opinions, etc................................. 63
SECTION 11.2 Form of Documents Delivered to Trustee.................................... 65
SECTION 11.3 Acts of Noteholders....................................................... 66
SECTION 11.4 Notices, etc. to Trustee, Issuer and Rating Agency........................ 66
SECTION 11.5 Notices to Noteholders; Waiver............................................ 67
SECTION 11.6 Alternate Payment and Notice Provisions................................... 68
SECTION 11.7 [Reserved]................................................................ 68
SECTION 11.8 Effect of Headings and Table of Contents.................................. 68
SECTION 11.9 Successors and Assigns.................................................... 68
SECTION 11.10 Separability.............................................................. 68
SECTION 11.11 Benefits of Indenture..................................................... 68
SECTION 11.12 Legal Holidays............................................................ 68
SECTION 11.13 Governing Law............................................................. 68
SECTION 11.14 Counterparts.............................................................. 69
SECTION 11.15 Recording of Indenture.................................................... 69
SECTION 11.16 Trust Obligation.......................................................... 69
SECTION 11.17 No Petition............................................................... 69
SECTION 11.18 Inspection................................................................ 69
SECTION 11.19 Limitation of Liability................................................... 70
</TABLE>
EXHIBITS
Exhibit A -- Form of Note
iv
<PAGE>
INDENTURE dated as of December 1, 1999, among ASSET GUARANTY INSURANCE
COMPANY, a stock insurance company incorporated in the State of New York (the
"Insurer"), NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking
association, as trustee (in such capacity, the "Trustee") and trust collateral
agent (in such capacity, the "Trust Collateral Agent") and TFC AUTOMOBILE
RECEIVABLES TRUST 1999-1 (the "Issuer").
Each party agrees as follows for the benefit of each other party and
for the equal and ratable benefit of the Holders of the Issuer's 7.50% Asset
Backed 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 Collateral (as defined below) to the Trust Collateral Agent for the benefit
of the Trustee and the Insurer on behalf of the Noteholders.
The Insurer has issued and delivered a financial guaranty insurance
policy, dated the Closing Date (with endorsements, the "Note Policy"), pursuant
to which the Insurer guarantees Scheduled Payments with respect to the Notes, as
defined in the Note Policy.
As an inducement to the Insurer to issue and deliver the Note Policy,
the Issuer and the Insurer have executed and delivered the Insurance and
Reimbursement Agreement, dated as of December 1, 1999 (as amended from time to
time, the "Insurance Agreement"), among the Insurer, the Issuer, The Finance
Company and TFC Receivables Corporation 2 (the "Seller").
As an additional inducement to the 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 Collateral (as
defined below) to the Trust Collateral Agent for the benefit of the Issuer
Secured Parties, as their respective interests may appear.
GRANTING CLAUSE
The Issuer hereby Grants to the Trust Collateral Agent at the Closing
Date, for the benefit of the Issuer Secured Parties all of the Issuer's right,
title and interest (but none of its obligations) in and to the following
(collectively, the "Collateral"): (a) the Receivables and all monies paid or
payable thereon or in respect thereof after the Cut-Off Date (including amounts
due on or before the Cut-Off Date but received by TFC, the Servicer, the Seller
or the Issuer on or after the Cut-Off Date); (b) all rights and interest,
including security interests, in the Financed Vehicles granted by Obligors
pursuant to the Receivables and any other interest of the Issuer in the Financed
Vehicles; (c) all rights of the Seller against Dealers pursuant to Dealer
Agreements, or Dealer Assignments; (d) any proceeds and the right to receive
proceeds with respect to the Receivables repurchased by either (i) a Dealer,
pursuant to a Dealer Agreement, as a
<PAGE>
result of a breach of representation or warranty in the related Dealer
Agreement; (e) all rights under any Service Contracts on the related Financed
Vehicles; (f) any proceeds and the right to receive proceeds with respect to the
Receivables from claims on any physical damage, credit life or disability
insurance policies covering Financed Vehicles or Obligors including rebates of
insurance premiums relating to the Receivables and any proceeds of the
liquidation of Receivables; (g) all funds on deposit from time to time in the
Trust Accounts (including all investments and proceeds thereof), and all rights
of the Issuer therein; (h) the Issuer's rights and benefits, but none of its
obligations or burdens, under the Purchase Agreement, including the delivery
requirements, representations and warranties and the cure and repurchase
obligations of TFC under the Purchase Agreement; (i) property (including the
right to receive future Net Liquidation Proceeds) that secures a Receivable and
that has been acquired by or on behalf of the Trust pursuant to liquidation of
such Receivable; (j) all items contained in the Receivable Files and any and all
other documents that TFC keeps on file relating to the Receivables, the Obligors
or the Financed Vehicles, (k) the Issuer's rights and benefits, but none of its
obligations or burdens, under the Sale and Servicing Agreement (including all
rights of the Seller under the Purchase Agreement, assigned to the Issuer
pursuant to the Sale and Servicing Agreement); (l) all rights, title and
interest (but none of the obligations) of the Issuer to any other Basic
Document; and (m) 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.
The foregoing Grant is made in trust to the Trust Collateral Agent,
for the benefit of the Trustee on behalf of the Holders of the Notes, and for
the benefit of the Insurer. The Trust Collateral Agent hereby acknowledges such
Grant, 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 end that the interests of such parties, recognizing the priorities of their
respective interests, may be adequately and effectively protected.
It is the intention of the Issuer and the Trustee that this Grant
constitutes a grant or assignment of a valid, first priority perfected security
interest in the Issuer's rights in the Collateral, free and clear of all Liens
(other than the security interest Granted herein) to the Trustee. This Agreement
shall be deemed to create a security interest and be a security agreement with
respect to the Collateral within the meaning of Article 1, Article 8 and Article
9 of the Uniform Commercial Code as in effect in the States of New York and
Minnesota and under the law of all jurisdictions governing the creation and
perfection of security interests in the Collateral.
2
<PAGE>
ARTICLE I.
----------
Definitions and Incorporation by Reference
------------------------------------------
SECTION 1.1 Definitions. Except as otherwise specified herein, the
-----------
following terms have the respective meanings set forth below for all purposes of
this Indenture.
"Act" has the meaning specified in Section 11.3(a).
"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. A Person shall not be
deemed to be an Affiliate of any person solely because such other Person has the
contractual right or obligation to manage such Person unless such other Person
controls such Person through equity ownership or otherwise.
"Authorized Officer" means, with respect to the Issuer and the
Servicer, any officer or agent acting pursuant to a power of attorney of the
Owner Trustee or the Servicer, as applicable, who is authorized to act for the
Owner Trustee or the Servicer, as applicable, in matters relating to the Issuer
and who is identified on the list of Authorized Officers delivered by the
Servicer to the Trustee and the Insurer on the Closing Date (as such list may be
modified or supplemented from time to time thereafter).
"Basic Documents" means this Agreement, the Certificate of Trust, the
Trust Agreement, the Sale and Servicing Agreement, the Insurance Agreement, the
Certificate to the Trustee, the Indemnification Agreement, the Premium Letter,
the Stock Pledge Agreement, the Purchase Agreement, the Note Purchase
Agreements, the Placement Agency Agreement, the Standby Processing Agreement,
the Securities Account Control Agreement, the Fort Knox Letters and other
documents and certificates delivered in connection therewith.
"Benefit Plan" has the meaning specified in Section 2.5(f).
"Business Day" means any day other than a Saturday, Sunday, legal
holiday or other day on which commercial banking institutions located in any of
the states of Delaware, Minnesota, New York, and Virginia are authorized or
obligated by law, executive order or governmental decree to be closed.
"Certificate of Trust" means the certificate of trust of the Issuer
substantially in the form of Exhibit B to the Trust Agreement.
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.
3
<PAGE>
"Certificate to the Trustee" has the meaning specified in the Trust
Agreement.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means December 1, 1999.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and Treasury Regulations promulgated thereunder.
"Collateral" has the meaning specified in the Granting Clause of this
Indenture.
"Controlling Party" means (a) the Insurer, so long as (i) no Insurer
-----------------
Default shall have occurred and be continuing, (ii) there are Notes outstanding,
(iii) any amounts due to the Insurer remain unpaid or (iv) the Note Policy has
not expired according to its terms and (b) in all other cases, the Security
Majority.
"Corporate Trust Office" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be administered
which office at the date of execution of this Agreement is located at Sixth
Street and Marquette Avenue, MAC N9311-161, Minneapolis, Minnesota, 55479,
Attention: Corporate Trust Services-Asset Backed Administration or at such other
address as the Trustee may designate from time to time by notice to the
Noteholders, the Insurer, the Servicer and the Issuer, or the principal
corporate trust office of any successor Trustee (the address of which the
successor Trustee will notify the Noteholders and the Issuer).
"Cut-Off Date" means the close of business on August 31, 1999.
"Default" means any occurrence that is, or with notice or the lapse of
time or both would become, an Event of Default.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" has the meaning specified in Section 5.1.
"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, the Secretary or the Treasurer of
such corporation.
"Grant" means mortgage, pledge, bargain, warrant, alienate, remise,
release, convey, assign, transfer, create, grant a lien upon or a security
interest in and right of set-off against, deposit, set over and confirm pursuant
to this Indenture. A Grant
4
<PAGE>
of the Collateral or of any other agreement or instrument shall include all
rights, powers and options (but none of the obligations) of the Granting party
thereunder, including the immediate and continuing right to claim for, collect,
receive and give receipt for principal and interest payments in respect of the
Collateral and all other monies payable thereunder, to give and receive notices
and other communications, to make waivers or other agreements, to exercise all
rights and options, to bring proceedings in the name of the Granting party or
otherwise and generally to do and receive anything that the Granting party is or
may be entitled to do or receive thereunder or with respect thereto.
"Holder" or "Noteholder" 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 other than accrued
contributions which are not past due; (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 and supplemented from time
to time.
"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.
"Independent Certificate" means a certificate or opinion to be
delivered to the Trust Collateral Agent, and the Insurer and the Trustee under
the circumstances described in, and otherwise complying with, the applicable
requirements of Section 11.1, prepared by an Independent appraiser or other
expert appointed pursuant to an Issuer Order and approved by the Trust
Collateral Agent in the exercise of reasonable care, and such opinion or
certificate shall state that the signer has read the definition of
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"Independent" in this Indenture and that the signer is Independent within the
meaning thereof.
"Institutional Investor" means any "qualified institutional buyer (as
defined in Rule 144A under the Securities Act) or any bank, trust company,
savings and loan association or other financial institution, any pension plan,
any investment company, any insurance company, any broker or dealer, or any
other similar financial institution or entity, regardless of legal form.
"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, TFC or the Seller may at any time owe to or on behalf of the
Insurer under this Indenture, the Insurance Agreement or any other Basic
Document.
"Interest Rate" means, 7.50% per annum (computed on the basis of a
360-day year consisting of twelve 30-day months).
"Issuer" means the party named as such in this Indenture until a
successor replaces it in accordance with the terms of the Basic Documents, and,
thereafter, means the successor.
"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 Insurer in respect of the Insurer
Issuer Secured Obligations.
"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 Clearing
Agency, or on the books of a Person maintaining an account with such Clearing
Agency (directly as a Clearing Agency Participant or as an indirect participant,
in each case in accordance with the rules of such Clearing Agency).
"Note Paying Agent" means the Trustee or any other Person that meets
the eligibility standards for the Trustee specified in Section 6.11 and is
authorized by the Issuer to make payments to and distributions from the
Collection Account and the Note Payment Account, including payment of principal
of or interest on the Notes on behalf of the Issuer.
"Note Policy" means the insurance policy issued by the Insurer with
respect to the Notes, including any endorsements thereto.
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<PAGE>
"Note Policy Claim Amount" has the meaning specified in the Sale and
Serving Agreement.
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 2.4.
"Notes" means the 7.50% Asset Backed Notes, substantially in the form
of Exhibit A.
"Officer's Certificate" means a certificate signed by the chairman of
the board, the president, any executive vice president, any vice president or
any treasurer, secretary or authorized signatory of the Seller, the Issuer or
the Servicer, as appropriate.
"Opinion of Counsel" means an opinion of counsel reasonably acceptable
to the Controlling Party and the Trustee, in form and substance reasonably
acceptable to the Controlling Party and 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 the
Note Paying Agent in trust for the Holders of such Notes (provided,
--------
however, that if such Notes are to be redeemed, notice of such redemption
-------
has been duly given pursuant to this Indenture or provision therefor,
satisfactory to the 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
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 Insurer has been paid as subrogee hereunder or reimbursed pursuant to the
Insurance Agreement as evidenced by a written notice from the Insurer delivered
to the Trustee, and the Insurer shall be deemed to be the Holder thereof to the
extent of any payments thereon made by the Insurer; provided, further, that in
determining whether the Holders of the requisite Outstanding Amount of the Notes
have given any request, demand, authorization, direction, notice, consent or
waiver hereunder or under any Basic 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 a Responsible Officer of the Trustee either actually knows to be so
owned or has received written notice thereof shall be so disregarded. Notes so
owned that have been pledged in
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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, outstanding at the date of determination.
"Preference Claim" has the meaning specified in the Sale and Servicing
Agreement.
"Proceeding" means any suit in equity, action at law or other judicial
or administrative proceeding.
"Rating Agency" means Standard & Poor's Ratings Services ("Standard &
Poor's") so long as Standard & Poor's maintains a rating on the Notes; and if
Standard & Poor's no longer maintains a rating on the Notes, such other
nationally recognized statistical rating organization selected by the Seller and
acceptable to the Controlling Party.
"Rating Agency Condition" means, with respect to any action, that the
Rating Agency shall have been given 10 days' (or such shorter period as shall be
acceptable to the Rating Agency) prior notice thereof and that the Rating Agency
shall have notified the Seller, the Servicer, the 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, without giving
effect to the existence of the Note Policy.
"Record Date" means, with respect to a Payment Date or Redemption
Date, the close of business on the 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 10.1(a) or a payment to Noteholders pursuant to Section
10.1(b), the Payment Date specified by the Servicer or the Issuer pursuant to
Section 10.1(a) or (b) as applicable.
"Redemption Price" means (a) in the case of a redemption of the Notes
pursuant to Section 10.1(a), an amount equal to the unpaid principal amount of
the then outstanding principal amount of Notes being redeemed plus accrued and
unpaid interest thereon to but excluding the Redemption Date, or (b) in the case
of a payment made to Noteholders pursuant to Section 10.1(b), the amount on
deposit in the Note Payment Account, but not in excess of the amount specified
in clause (a) above.
"Responsible Officer" means, (i) in the case of the Trust Collateral
Agent, the chairman or vice-chairman of the board of directors, the chairman or
vice-chairman of the executive committee of the board of directors, the
president, any vice president, assistant vice-president or managing director,
the secretary, any assistant secretary or any other officer of the Trust
Collateral Agent customarily performing functions similar to
8
<PAGE>
those performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of such officer's knowledge of and familiarity with
the particular subject, and (ii) in the case of the Owner Trustee, any officer
in the corporate trust office of the Owner Trustee or any officer of the Owner
Trustee with direct responsibility for the administration of this Agreement or
any of the Basic Documents on behalf of the Owner Trustee.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement
dated as of December 1, 1999, among the Issuer, the Insurer, the Seller, the
Servicer and the Trust Collateral Agent, as the same may be amended or
supplemented from time to time.
"Securities Account Control Agreement" means the Securities Account
Control Agreement dated as of December 1, 1999, among the Issuer, the Seller,
the Indenture Trustee and Norwest Bank Minnesota, National Association, as
securities intermediary, as the same may be amended or supplemented from time to
time.
"Scheduled Payments" has the meaning specified 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 Insurer for cancellation, (ii)
the date on which the 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 Accounts" has the meaning specified in the Sale and Servicing
Agreement.
"Trust Collateral Agent" means, initially, Norwest Bank Minnesota,
National Association, in its capacity as trust collateral agent on behalf of the
Issuer Secured Parties, including its successors in interest, until and unless a
successor Person shall have become the Trust Collateral Agent pursuant to
Section 6.17 hereof, and thereafter "Trust Collateral Agent" shall mean such
successor Person.
"Trust Property" means (i) 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 and the Insurer
(including all property and interests Granted to the Trust Collateral Agent),
including all proceeds thereof, the Spread Account and (ii) the right to receive
payments pursuant to the Note Policy.
"Trustee" means Norwest Bank Minnesota, National Association, a
national banking association, not in its individual capacity but as trustee
under this Indenture, or any successor trustee under this Indenture.
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<PAGE>
"Trustee Fee" means the fees due to the Trustee and the Trust
Collateral Agent as may be set forth in that certain fee letter, dated as of the
date hereof between the Servicer and Norwest Bank Minnesota, National
Association.
"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.
Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to them in the Sale and Servicing Agreement or the
Trust Agreement.
SECTION 1.2 [Reserved].
--------
SECTION 1.3 Rules of Construction. Unless the context otherwise
---------------------
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles
as in effect from time to time;
(iii) "or" is not exclusive;
(iv) any form of the word "include" shall be deemed to be followed by
the words "without limitation"; and
(v) words in the singular include the plural and words in the plural
include the singular.
SECTION 1.4 Action by or Consent of Noteholders and
---------------------------------------
Certificateholders. Whenever any provision of this Agreement refers to action to
- ------------------
be taken, or consented to, by Noteholders or Certificateholders, such provision
shall be deemed to refer to the Certificateholder or Noteholder, as the case may
be, of record as of the Record Date immediately preceding the date on which such
action is to be taken, or consent given, by Noteholders or Certificateholders.
Solely for the purposes of any action to be taken, or consented to, by
Noteholders or Certificateholders, any Note or Certificate registered in the
name of TFC, the Seller or any Affiliate thereof shall be deemed not to be
Outstanding; provided, however, that, solely for the purpose of determining
whether the Trustee or the Trust Collateral Agent is entitled to rely upon any
such action or consent, only Notes or Certificates which the Owner Trustee, the
Trustee or the Trust Collateral Agent, respectively, knows to be so owned shall
be so disregarded.
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SECTION 1.5 Material Adverse Effect. Whenever used in the Basic
-----------------------
Documents, "Material Adverse Effect" or "material adverse effect" means (i) when
used with respect to any action, event, fact or other matter or thing, means
that such action, event, fact or other matter or thing will, individually or in
the aggregate, have a material adverse effect on (a) the Trust, the Trust
Property or Collateral, (b) the existence, perfection or priority of the
security interests of the Trust Collateral Agent in the Collateral, (c) the
ability of the Trust Collateral Agent on behalf of the Noteholders and the
Insurer to collect on, liquidate, or foreclose against, the Collateral in
accordance with the Indenture, (d) the validity, enforceability, or the
performance of any Person's obligations under, or with respect to, the Basic
Documents, or the validity, enforceability, or performance of any Person's
obligations under or with respect to, or the payment of, the Notes, (e) the
transactions contemplated by the Basic Documents, (f) the business, operations,
condition (financial or otherwise) of the Servicer, the Seller or the Issuer or
(g) the interests, rights and/or remedies hereunder, or otherwise with respect
to the Trust Property, of the Trust Collateral Agent, the Trustee, the Insurer
or any of the Noteholders (which determination shall be made, in each case,
without giving effect to the existence of the Note Policy), and (ii) when used
in relation to or in connection with any Person also means that such action,
event, fact or other matter or thing shall not, individually or in the
aggregate, have a material adverse effect on the business, operations, condition
(financial otherwise) of such Person.
ARTICLE II.
-----------
The Notes
---------
SECTION 2.1 Form. (a) The Notes, together with the Trustee's
----
certificate of authentication, shall be in substantially the form set forth in
Exhibit A, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution of the Notes. Any
portion of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note.
(b) Each Note shall be dated the date of its authentication. The terms
of the Notes set forth in Exhibit A are part of the terms of this Indenture.
SECTION 2.2 Execution, Authentication and Delivery. (a) 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 original or
facsimile.
(b) Notes bearing the original 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.
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(c) The Trustee shall upon receipt of the Note Policy and Issuer Order
for authentication and delivery, authenticate and deliver Notes for original
issue in an aggregate principal amount of $65,170,711.
(d) Each Note shall be dated the date of its authentication.
(e) No Note shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose, unless there appears attached to 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 attached to any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
(f) It is expected that the delivery of the Notes will be made on
December 1, 1999.
SECTION 2.3 [Reserved].
----------
SECTION 2.4 Registration; Registration of Transfer and Exchange. (a)
---------------------------------------------------
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 the Notes and, subject to the provisions of
Section 2.5, the registration of transfers of the Notes. The Trustee shall be
"Note Registrar" for the purpose of registering the Notes and transfers of the
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.
(b) If a Person other than the Trustee is appointed by the Issuer as
Note Registrar, the Issuer will give the Trustee and the Insurer prompt written
notice of the appointment of such Note Registrar and of the location, and any
change in the location, of the Note Register, and the Trustee and the Insurer
shall have the right to inspect the Note Register at all reasonable times and to
obtain copies thereof. The Trustee shall have the right to rely upon a
certificate executed on behalf of the Note Registrar by an Authorized Officer
thereof as to the names and addresses of the Holders of the Notes and the
principal amounts and number of such Notes.
(c) All the Notes effected by the registration of transfer or exchange
of the 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. This Section 2.4(c)
shall be the sole method of a transfer or exchange of the Notes.
(d) Notwithstanding the preceding provisions of this section, the
Issuer shall not be required to make, and the Note Registrar shall not register,
transfers or exchanges of the Notes selected for redemption for a period of 15
days preceding the Payment Date.
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SECTION 2.5 Restrictions on Transfer and Exchange. (a) No transfer
-------------------------------------
of a Note shall be made unless such transfer is (i) to the Issuer, (ii) to any
person the transferor reasonably believes is a qualified institutional buyer (as
defined in Rule 144A under the Securities Act) in a transaction meeting the
requirements of Rule 144A under the Securities Act or (iii) in a transaction
complying with or exempt from the registration requirements of the Securities
Act and in accordance with any applicable securities laws of any state of the
United States or any other jurisdiction. Each prospective transferee by its
acquisition of any Note, acknowledges that each Note will contain a legend
substantially to the following effect (unless the Issuer determines otherwise in
accordance with applicable law):
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS OR "BLUE SKY' LAWS. THE HOLDER HEREOF, BY
PURCHASING ANY NOTE, AGREES FOR THE BENEFIT OF THE ISSUER THAT
SUCH NOTE IS BEING ACQUIRED FOR ITS OWN ACCOUNT AND NOT WITH A
VIEW TO DISTRIBUTION AND MAY BE RESOLD, PLEDGED OR TRANSFERRED
ONLY TO (1) THE ISSUER (UPON REDEMPTION THEREOF OR OTHERWISE),
(2) TO A PERSON THE TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A OR
(3) PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
JURISDICTION, IN EACH SUCH CASE, IN COMPLIANCE WITH THE INDENTURE
AND ALL APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY OTHER JURISDICTION.
(b) Each purchaser of any Notes offered and sold in reliance on Rule
144A under the Securities Act will be deemed to have represented and agreed as
follows (terms used in this paragraph that are defined in Rule 144A under the
Securities Act are used herein as defined therein):
(1) The purchaser (A) is a qualified institutional buyer, (B) is
aware that the sale to it is being made in reliance on Rule 144A of
the Securities Act and (C) is acquiring such Notes for its own account
or for the account of a qualified institutional buyer.
(2) The Notes are being offered only in a transaction not involving
any public offering in the United States within the meaning of the
Securities Act, have not been and will not be registered under the
Securities Act, and, if in the future the purchaser decides to offer,
resell, pledge or otherwise transfer such Notes, such Notes may be
offered,
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<PAGE>
resold, pledged or otherwise transferred only in a transaction exempt
from or not subject to registration requirements of the Securities Act
and in accordance with any applicable securities laws of any state of
the United States or any other jurisdiction and in accordance with the
restrictions set forth in the Notes.
(c) Any information the purchaser desires concerning the Issuer, the
Notes or any other matter relevant to its decision to purchase the notes is or
has been made available to it.
(d) Either (i) no part of the assets used by it to acquire the Notes
constitutes assets of any Benefit Plan, (ii) its purchase and holding of the
Notes will not, throughout the term of holding, constitute a non-exempt
"prohibited transaction" under Section 406 of ERISA or Section 4975 of the Code
by reason of the application of one or more statutory or administrative
exemptions from such prohibited transaction rules or otherwise, or (iii) the
source of funds to be used by the purchaser to pay the purchase price of the
Notes is an insurance company general account (as defined in the annual
statement for life insurance companies approved by the National Association of
Insurance Commissioners (the "NAIC Annual Statement") and before reduction for
credits on account of any reinsurance ceded on the coinsurance basis) (the
"Reserves and Liabilities"), for the general account contract(s) held by or on
behalf of any Plan, together with the amount of the Reserves and Liabilities for
the general account contract(s) held by or on behalf of any other Benefit Plans
maintained by the same employer (or any "affiliate" thereof within the meaning
of Section V(a)(1) of PTCE 95-60), does not exceed 10% of the total reserves and
liabilities of such general account plus surplus, as set forth in the NAIC
Annual Statement filed with the state of domicile of the insurance company
maintaining such general account.
SECTION 2.6 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 Insurer (unless an Insurer Default
shall have occurred and be continuing) such security or indemnity as may be
required by it to hold the Issuer, the Trustee and the Insurer harmless
(provided, however, that if the holder of such Note is, or is a nominee for, an
Institutional Investor with a net worth of at least $50,000,000, such
Institutional Investor's own unsecured agreement of indemnity shall be deemed to
be satisfactory then, in the absence of notice to the Issuer, the Note
Registrar, the Insurer or the Trustee that such Note has been acquired by a bona
fide purchaser, and provided that the requirements of Section 8-405 of the UCC
are met, the Issuer, upon the request of the Trustee 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 direct the Trustee, in writing, to 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
14
<PAGE>
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 Trustee and the Insurer shall be entitled to
recover such replacement Note (or such payment) from the Person to whom it 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 may require the payment by the Holder of such Note of a sum sufficient to
cover any expense, tax or other governmental charge that may be imposed in
relation thereto and any other reasonable expenses (including the fees and
expenses of the Trustee) connected therewith.
Every replacement Note issued pursuant to this Section 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 2.7 Persons Deemed Owner. Prior to due presentment for
--------------------
registration of transfer of any Note, the Issuer, the Trustee and any agent of
the Issuer, the Trustee and the Insurer may treat the Person in whose name any
Note is registered (as of the Record Date) as the owner of such Note for the
purpose of receiving payments of principal of and interest, if any on such Note
and for all other purposes whatsoever, whether or not such Note be overdue, and
none of the Issuer, the Insurer, the Trustee nor any agent of the Issuer or the
Trustee shall be affected by notice to the contrary.
SECTION 2.8 Payment of Principal and Interest; Defaulted Interest.
-----------------------------------------------------
(a) The Notes shall bear interest as provided in the forms of the Note set forth
in Exhibit A, and such interest shall be due and payable on each Payment Date as
specified therein. 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
Payment Date shall be paid to the Person in whose name such Note is registered
on the Record Date, by wire transfer in immediately available funds to such
Person's account as it appears on the Note Register on such Record Date. The
funds represented by any such checks returned undelivered shall be held in
accordance with Section 3.3.
(b) The principal of each Note shall be payable in installments on
each Payment Date as provided in the forms of the Note set forth in Exhibit A.
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
15
<PAGE>
have occurred and be continuing, or an Insurer Default shall have occurred and
be continuing (if the Trustee or the Holders of the Notes representing not less
than a majority of the Outstanding Amount of the Notes have declared the Notes
to be immediately due and payable in the manner provided in Section 5.2). Upon
written notice from the Issuer, 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
or transmitted by facsimile prior to such final Payment Date and shall specify
that such final installment will be payable only upon presentation and surrender
of such Note and shall specify the place where such Note may be presented and
surrendered for payment of such installment. Notices in connection with
redemptions of Notes shall be mailed to Noteholders as provided in Section 10.2.
(c) If the Issuer defaults in a payment of interest on the Notes, and
such default is not waived by the Controlling Party, the Issuer shall pay
defaulted interest (plus interest on such defaulted interest to the extent
lawful) at the applicable Interest Rate to the extent lawful. The Issuer may pay
such defaulted interest to the Persons who are Noteholders on a subsequent
special record date, which date shall be at least five Business Days prior to
the payment date. The Issuer shall fix or cause to be fixed any such special
record date and payment date, and, at least 15 days before any such special
record date, the Issuer shall mail to each Noteholder and the Trustee a notice
that states the special record date, the payment date and the amount of
defaulted interest to be paid.
(d) Promptly following the date on which all principal of and interest
on the Notes has been paid in full and the Notes have been surrendered to the
Trustee, the Trustee shall, upon written notice from the Servicer of the
amounts, if any, that the Insurer has paid in respect of the Notes under the
Note Policy or otherwise which has not been reimbursed to it, deliver such
surrendered Notes to the Insurer to the extent not previously cancelled or
destroyed.
SECTION 2.9 Cancellation. Subject to Section 2.8(d), 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 in accordance with its customary
procedures. Subject to Section 2.8(d), 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 in accordance with
its customary procedures. 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 2.8(d), 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.
SECTION 2.10 Release of Collateral. The Trust Collateral Agent
---------------------
shall, on or after the Termination Date, release any remaining portion of the
Trust Property from the lien created by this Indenture and deposit in the
Collection Account any funds then on deposit in any other Trust Account. The
Trust Collateral Agent shall release
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property from the lien created by this Indenture pursuant to this Section 2.10
only upon receipt of an Issuer Request, an Officer's Certificate, and an Opinion
of Counsel meeting the applicable requirements of Section 11.1.
SECTION 2.11 Notices to Noteholders. Whenever a notice or other
----------------------
communication to the Noteholders is required under this Indenture, the Trustee
shall give all such notices and communications specified herein to Holders of
the Notes.
SECTION 2.12 [Reserved]
________
ARTICLE III.
Covenants
---------
SECTION 3.1 Payment of Principal and Interest. The Issuer will duly
---------------------------------
and punctually pay the principal of and interest on the Notes in accordance with
the terms of the Notes and this Indenture. Without limiting the foregoing, the
Issuer will cause to be distributed all amounts on deposit in the Note Payment
Account on a Payment Date deposited therein pursuant to the Sale and Servicing
Agreement for the benefit of the Noteholders. Amounts properly withheld under
the Code or any applicable state tax law by any Person from a payment to any
Noteholder of interest and/or principal shall be considered as having been paid
by the Issuer to such Noteholder for all purposes of this Indenture.
SECTION 3.2 Maintenance of Office or Agency. The Trustee will
-------------------------------
maintain in the Borough of Manhattan, The City of New York or Minneapolis,
Minnesota, an office or agency where Notes may be surrendered for registration,
transfer or exchange of the Notes, and where notices and demands to or upon the
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 3.3 Money for Payments to be Held in Trust. On or before
--------------------------------------
each Payment Date and Redemption Date, the Issuer shall deposit or cause to be
deposited in the Note Payment Account from the Collection Account an aggregate
sum sufficient to pay the amounts then becoming due under the Notes, such sum to
be held in trust for the benefit of the Persons entitled thereto and (unless the
Note Paying Agent is the Trustee) shall promptly notify the Trustee of its
action or failure so to act.
The Issuer will cause the Note Paying Agent other than the Trustee to
execute and deliver to the Trustee and the Insurer an instrument in which the
Note Paying Agent shall agree with the Trustee (and if the Trustee acts as Note
Paying Agent, it
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hereby so agrees), subject to the provisions of this Section, that the Note
Paying Agent will:
(i) hold all sums held by it for the payment of amounts due with
respect to the Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed
of as herein provided and pay such sums to such Persons as herein provided;
(ii) give the Trustee written notice of any default by the Issuer of
which it has actual knowledge (or any other obligor upon the Notes) in the
making of any payment required to be made with respect to the Notes;
(iii) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by the Note Paying Agent;
(iv) immediately resign as the Note 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 the Note Paying
Agent at the time of its appointment; and
(v) subject to the provisions of the Sale and Servicing Agreement,
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 the Note Paying Agent to pay to the Trustee all sums held in trust
by the Note Paying Agent, such sums to be held by the Trustee upon the same
trusts as those upon which the sums were held by the Note Paying Agent; and upon
such a payment by the Note Paying Agent to the Trustee, the Note Paying Agent
shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to the escheat of funds, any
money held by the Trustee or the Note Paying Agent in trust for the payment of
any amount due with respect to any Note and remaining unclaimed for two years
after such amount has become due and payable shall be discharged from such trust
and be paid to the Issuer on Issuer Request, with the prior written consent of
the Controlling Party, and the Holder of such Note shall thereafter, as an
unsecured general creditor, look only to the Issuer for payment thereof (but
only to the extent of the amounts so paid to the Issuer), and all liability of
the Trustee or the Note Paying Agent with respect to such trust money shall
thereupon cease; provided, however, that if such money or any portion thereof
had been previously deposited by the Insurer or the Trust Collateral Agent with
the Trustee for the payment of principal or interest on the Notes, to the extent
any amounts are owing to the Insurer, such amounts shall be paid promptly to the
Insurer upon receipt of a written
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request from the Insurer to such effect; and provided, further, that the Trustee
or the Note Paying Agent, before being required to make any such repayment,
shall 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 the Issuer. The Trustee shall also
adopt and employ, at the expense of the Issuer, any other reasonable means of
notification of such repayment (including, but not limited to, mailing notice of
such repayment to Holders whose Notes have been called but have not been
surrendered for redemption or whose right to or interest in monies due and
payable but not claimed is determinable from the records of the Trustee or of
the Note Paying Agent, at the last address of record for each such Holder).
SECTION 3.4 Existence. Except as otherwise permitted by the
---------
provisions of Section 3.10, the 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 Collateral and each other
instrument or agreement included in the Trust Property.
SECTION 3.5 Protection of Trust Property. 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 Property,
and the Issuer shall take all actions necessary to obtain and maintain, in favor
of the Trust Collateral Agent, for the benefit of the Issuer Secured Parties, a
first lien on and a first priority, perfected security interest in the Trust
Property. The Issuer will from time to time prepare (or shall cause to be
prepared), execute and deliver all such supplements and amendments hereto and
all such financing statements, continuation statements, instruments of further
assurance and other instruments, and will take such other action necessary or
advisable to:
(i) Grant more effectively all or any portion of the Trust Property;
(ii) maintain or preserve the lien and security interest (and the
priority thereof) in favor of the Trust Collateral Agent for the benefit of
the 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 Collateral;
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(v) preserve and defend title to the Trust Property and the rights
of the Trust Collateral Agent in such Trust Property against the claims of
all persons and parties; and
(vi) pay all taxes or assessments levied or assessed upon the Trust
Property when due.
The Issuer hereby designates the Trust Collateral Agent its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required by the Trust Collateral Agent pursuant to this
Section; provided that, such designation shall not be deemed to create a duty in
the Trustee or the Trust Collateral Agent to monitor the compliance of the
Issuer with respect to its duties under this Section 3.5 or the adequacy of any
financing statement, continuation statement or other instrument prepared by the
Issuer.
SECTION 3.6 Opinions as to Trust Property.
------------------------------
(a) On the Closing Date, the Issuer shall furnish to the Trustee, the
Trust Collateral Agent and the Insurer an Opinion of Counsel either stating
that, in the opinion of such counsel, such action has been taken with respect to
the recording and filing of this Indenture, any indentures supplemental hereto,
and any other requisite documents, and with respect to the execution and filing
of any financing statements and continuation statements, as are necessary to
perfect and make effective the first priority lien and security interest in
favor of the Trust Collateral Agent, for the benefit of the 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) Within 90 days after the beginning of each calendar year,
beginning with the first calendar year beginning more than six months after the
Closing Date, the Issuer shall furnish to the Trustee, Trust Collateral Agent
and the Insurer, an Opinion of Counsel either stating that, in the opinion of
such counsel, such action has been taken with respect to the recording, filing,
re-recording and refiling of this Indenture, any indentures supplemental hereto
and any other requisite documents and with respect to the execution and filing
of any financing statements and continuation statements as are necessary to
maintain the lien and security interest created by this Indenture and reciting
the details of such action or stating that in the opinion of such counsel no
such action is necessary to maintain such lien and security interest. Such
Opinion of Counsel shall also describe the recording, filing, re-recording and
refiling of this Indenture, any indentures supplemental hereto and any other
requisite documents and the execution and filing of any financing statements and
continuation statements that will, in the opinion of such counsel, be required
to maintain the lien and security interest of this Indenture.
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SECTION 3.7 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 covenants or obligations under any instrument or agreement included in
the Trust Property or that would result in the amendment, hypothecation,
subordination, termination or discharge of, or impair the validity or
effectiveness of, any such instrument or agreement, except as ordered by any
bankruptcy or other court or as expressly provided in this Indenture, the Basic
Documents or such other instrument or agreement.
(b) The Issuer may contract with other Persons acceptable to the
Controlling Party to assist it in performing its duties under this Indenture,
and any performance of such duties by a Person identified to the Trustee, the
Insurer and the Noteholders in an Officer's Certificate of the Issuer shall be
deemed to be action taken by the Issuer. Initially, the Issuer has contracted
with the Servicer to assist the Issuer in performing its duties under this
Indenture.
(c) The Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, the Basic Documents and
in the instruments and agreements included in the Trust Property, including, but
not limited to, preparing (or causing to be prepared) and filing (or causing to
be filed) all UCC financing statements and continuation statements required to
be filed by the terms of this Indenture and the Sale and Servicing Agreement in
accordance with and within the time periods provided for herein and therein.
Except as otherwise expressly provided therein, the Issuer shall not waive,
amend, modify, supplement or terminate any Basic Document or any provision
thereof without the prior written consent of the Controlling Party (subject to
Section 9.2).
(d) If a Responsible Officer of the Owner Trustee shall have actual
knowledge of the occurrence of a Servicer Termination Event under the Sale and
Servicing Agreement, the Owner Trustee shall promptly notify the Trustee, the
Trust Collateral Agent, the Insurer and the Rating Agency thereof in accordance
with Section 11.4, and shall specify in such notice the action, if any, the
Issuer is taking in respect of such default. If a Servicer Termination Event
shall arise from the failure of the Servicer to perform any of its duties or
obligations under the Sale and Servicing Agreement with respect to the
Receivables, the Issuer shall take all reasonable steps available to it to
remedy such failure.
(e) The Issuer agrees that it will not waive timely performance or
observance by the Servicer or the Seller of their respective duties under the
Basic Documents (x) without the prior written consent of the Controlling Party
or (y) if the effect thereof would adversely affect the Holders of the Notes.
SECTION 3.8 Negative Covenants. So long as any Notes are
------------------
Outstanding, the Issuer shall not:
(i) except as expressly permitted by this Indenture or the Basic
Documents, sell, transfer, exchange or otherwise dispose of any of the
properties
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<PAGE>
or assets of the Issuer, including those included in the Trust Property,
unless directed to do so by the Controlling Party;
(ii) claim any credit on, or make any deduction from the principal
or interest payable in respect of, the Notes (other than amounts properly
withheld from such payments under the Code) or assert any claim against any
present or former Noteholder by reason of the payment of the taxes levied
or assessed upon any part of the Trust Property; or
(iii) (A) permit the validity or effectiveness of this Indenture to
be impaired, or permit the lien in favor of the Trust Collateral Agent
created by this Indenture to be amended, hypothecated, subordinated,
terminated or discharged, or permit any Person to be released from any
covenants or obligations with respect to the Notes under this Indenture
except as may be expressly permitted hereby, (B) permit any lien, charge,
excise, claim, security interest, mortgage or other encumbrance (other than
the lien of this Indenture) to be created on or extend to or otherwise
arise upon or burden the Trust Property or any part thereof or any interest
therein or the proceeds thereof (other than tax liens, mechanics' liens and
other liens that arise by operation of law, in each case subsequent to the
Cut-Off Date and on a Financed Vehicle and arising solely as a result of an
action or omission of the related Obligor), (C) permit the lien of this
Indenture not to constitute a valid first priority (other than with respect
to any such tax, mechanics' or other lien arising subsequent to the Cut-Off
Date) security interest in the Trust Property or (D) amend, modify or fail
to comply with the provisions of the Basic Documents without the prior
written consent of the Controlling Party.
SECTION 3.9 Annual Statement as to Compliance. The Issuer will
---------------------------------
deliver to the Trustee and the Insurer, within 90 days after the end of each
fiscal year of the Issuer (commencing with the fiscal year ended December 31,
1999), an Officer's Certificate stating, as to the Authorized Officer signing
such Officer's Certificate, that
(i) a review of the activities of the 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
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of the United States of America or any state and shall expressly assume, by
an indenture supplemental hereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee and the Controlling Party, the due and
punctual payment of the principal of and interest on all Notes and the
performance or observance of every agreement and covenant of this Indenture
on the part of the Issuer to be performed or observed, all as provided
herein;
(ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied with
respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel (and shall
have delivered copies thereof to the Trustee, the Owner Trustee and the
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 Insurer, any Noteholder or any
Certificateholder;
(v) any action as is necessary to maintain the lien and security
interest created by this Indenture shall have been taken;
(vi) the Issuer shall have delivered to the Trustee and the Insurer
an Officer's Certificate and an Opinion of Counsel 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 complied with (including any filing required
by the Exchange Act); and
(vii) so long as (a) no Insurer Default shall have occurred and be
continuing, (b) any amounts due to the Insurer under the Insurance
Agreement or the other Basic Documents remain unpaid, or (c) the Note
Policy has not expired in accordance with its terms, the Issuer shall have
given the 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 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 Property, to
any Person, unless:
(i) the Person that acquires by conveyance or transfer the properties
and assets of the Issuer the conveyance or transfer of which is hereby
restricted shall (A) be a United States citizen or a Person organized and
existing under the laws of the United States of America or any state, (B)
expressly assume, by an
23
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indenture supplemental hereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee and the Controlling Party, 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 of the Basic Documents 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 prepare (or cause to be prepared) and make all
filings with the Commission (and any other appropriate Person) required by
the Exchange Act in connection with the Notes;
(ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied with
respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel (and shall
have delivered copies thereof to the Trustee, the Insurer and the
Noteholders to the effect that such transaction will not have any material
adverse tax consequence to the Trust, the Insurer, any Noteholder or any
Certificateholder;
(v) any action as is necessary to maintain the lien and security
interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that such conveyance or
transfer and such supplemental 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) the Issuer shall have given the Insurer and the Noteholders
written notice of such conveyance or transfer at least 20 Business Days
prior to the consummation of such action and shall have received the prior
written approval of the Insurer of such conveyance or transfer and the
Issuer or the Person (if other than the Issuer) acquiring or surviving such
conveyance or transfer 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.
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
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<PAGE>
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), TFC Automobile Receivables Trust 1999-1
will be released from every covenant and agreement of this Indenture to be
observed or performed on the part of the Issuer with respect to the Notes
immediately upon the delivery of written notice to the Trustee stating that TFC
Automobile Receivables Trust 1999-1 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 Basic Documents
and activities incidental thereto.
SECTION 3.13 No Borrowing. The Issuer shall not issue, incur,
------------
assume, guarantee or otherwise become liable, directly or indirectly, for any
Indebtedness except for (i) the Notes, (ii) obligations owing from time to time
to the Insurer under the Insurance Agreement and (iii) any other Indebtedness
expressly permitted by or arising under the Basic Documents. The Notes and the
Certificates shall be issued to the Seller as payment for the Receivables under
the Sale and Servicing Agreement and the Seller shall use the proceeds from the
sale of the Notes exclusively to fund the Seller's purchase of the Receivables
and the other assets specified in the Purchase Agreement, to pay the Issuer's
organizational, transactional and start-up expenses and certain other expenses
in connection with the offering and sale of the Notes.
SECTION 3.14 Servicer's Obligations. The Issuer shall cause the
----------------------
Servicer to comply with Sections 4.9, 4.10, 4.11 and 5.11 of the Sale and
Servicing Agreement.
SECTION 3.15 Guarantees, Loans, Advances and Other Liabilities.
-------------------------------------------------
Except as expressly permitted by the Sale and Servicing Agreement or this
Indenture, the Issuer shall not make any loan or advance or credit to, or
guarantee (directly or indirectly or by an instrument having the effect of
assuring another's payment or performance on any obligation or capability of so
doing or otherwise), endorse or otherwise become contingently liable, directly
or indirectly, in connection with the obligations, stocks or dividends of, or
own, purchase, repurchase or acquire (or agree contingently to do so) any stock,
obligations, assets or securities of, or any other interest in, or make any
capital contribution to, any other Person.
SECTION 3.16 Capital Expenditures. The Issuer shall not make any
--------------------
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty).
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SECTION 3.17 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
Basic Document.
SECTION 3.18 Restricted Payments. The Issuer shall not, directly or
-------------------
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
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 any such purpose;
provided, however, that the Issuer may make, or cause to be made, distributions
to the Servicer, the Owner Trustee, the Insurer, the Trustee, the Trust
Collateral Agent and the Certificateholders as permitted by, and to the extent
funds are available for such purpose under, the Sale and Servicing Agreement or
Trust Agreement. The Issuer will not, directly or indirectly, make payments to
or distributions from the Collection Account, the Note Payment Account or the
Spread Account except in accordance with this Indenture and the Basic Documents.
SECTION 3.19 Notice of Events of Default. Upon a Responsible Officer
---------------------------
of the Owner Trustee having actual knowledge thereof, the Owner Trustee agrees
to give the Trustee, the Insurer, the Noteholders and the Rating Agency prompt
written notice of each Default or Event of Default hereunder and each default on
the part of the Servicer or the Seller of its obligations under the Sale and
Servicing Agreement.
SECTION 3.20 Further Instruments and Acts. Upon request of the
----------------------------
Trustee or the 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 3.21 Amendments of Sale and Servicing Agreement and Trust
----------------------------------------------------
Agreement. The Issuer shall not agree to any amendment to Section 13.1 of the
- ---------
Sale and Servicing Agreement or Section 11.1 of the Trust Agreement to eliminate
the requirements thereunder that the Insurer, the Trustee or the Holders of the
Notes consent to amendments thereto as provided therein.
SECTION 3.22 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 of the Issuer and hereby instructs
the Servicer to treat the Notes as indebtedness of the Issuer for federal and
state tax reporting purposes. Each Noteholder, by virtue of its possession of a
Note, agrees to treat the Notes as indebtedness for federal income, state and
local income and franchise tax purposes. In the event that the Internal Revenue
Service determines (as evidenced by an opinion of counsel is reasonably likely
to determine) that the Notes are equity interests in a partnership for federal
income tax purposes the Issuer will allocate such amounts of
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income, loss, etc. so as to replicate as closely as possible the economic
arrangements created hereunder and under the Trust Agreement.
ARTICLE IV.
Satisfaction and Discharge
--------------------------
SECTION 4.1 Satisfaction and Discharge of Indenture. This Indenture
---------------------------------------
shall cease to be of further effect with respect to the Notes except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments
of principal thereof and interest thereon, (iv) Sections 3.3, 3.4, 3.5, 3.8,
3.10, 3.11, 3.12, 3.13, 3.20, 3.21, 3.22 and 6.6, (v) the rights and immunities
of the Trustee hereunder (including the rights of the Trustee under Section 6.7
and the obligations of the Trustee under Section 4.2) and (vi) the rights of
Noteholders as beneficiaries hereof with respect to the property so deposited
with the Trustee payable to all or any of them, and the Trustee, on demand of
and at the expense of the Issuer, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture with respect to the Notes, when
(A) either
(1) all Notes theretofore authenticated and delivered (other than
Notes for whose payment money has theretofore been deposited in trust
or segregated and held in trust by the Issuer and thereafter repaid to
the Issuer or discharged from such trust, as provided in Section 3.3)
have been delivered to the Trustee for cancellation and the Note
Policy has expired and been returned to the Insurer for cancellation;
or
(2) all Notes not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable,
(ii) will become due and payable at their respective Final
Scheduled Payment Dates 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
Trust Collateral Agent cash or direct obligations of or obligations
guaranteed by the United States of America (which will mature prior to
the date such amounts are payable), in trust for such purpose, in an
amount sufficient to pay and discharge the entire indebtedness on such
Notes not theretofore delivered to the Trustee for cancellation when
due on the Final Scheduled Payment
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Date or Redemption Date (if Notes shall have been called for
redemption pursuant to Section 10.1(a)), as the case may be, and the
Note Policy, in the case of (i), (ii) and (iii) above shall have
expired on its own terms;
(B) the Issuer has paid or caused to be paid all Insurer Issuer
Secured Obligations and all Trustee Issuer Secured Obligations; and
(C) the Issuer has delivered to the Trustee, the Trust Collateral
Agent and the Insurer an Officer's Certificate and an Opinion of Counsel
each stating that all conditions precedent herein provided for relating to
the satisfaction and discharge of this Indenture have been complied with,
and if required by the Controlling Party, an Independent Certificate from a
firm of certified public accountants, each meeting the applicable
requirements of Section 11.1(a) and each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of
this Indenture have been complied with. Upon such satisfaction and
discharge, the Trustee shall give prompt written notice thereof to Standard
& Poor's.
SECTION 4.2 Application of Trust Money. All monies deposited with
--------------------------
the Trustee pursuant to Section 4.1 hereof shall be held in trust and applied by
it, in accordance with the provisions of the Notes and this Indenture, to the
payment, either directly or through the Note Paying Agent, as the Trustee may
determine, to the Holders of the particular Notes for the payment or redemption
of which such monies have been deposited with the Trustee, of all sums due and
to become due thereon for principal and interest; but such monies need not be
segregated from other funds except to the extent required herein or in the Sale
and Servicing Agreement or required by law.
SECTION 4.3 Repayment of Monies Held by Note Paying Agent. In
---------------------------------------------
connection with the satisfaction and discharge of this Indenture with respect to
the Notes, all monies then held by the Note Paying Agent other than the Trustee
under the provisions of this Indenture with respect to such Notes shall, upon
demand of the Issuer, be paid to the Trustee to be held and applied according to
Section 3.3 and thereupon the Note Paying Agent shall be released from all
further liability with respect to such monies.
ARTICLE V.
Remedies
--------
SECTION 5.1 Events of Default. "Event of Default," wherever used
-----------------
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) default in the payment of any interest on any Note when the same
becomes due and payable, and such default shall continue for a period of
one Business Day (solely for purposes of this clause, a payment on the
Notes funded
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by the Insurer or with proceeds from the Spread Account 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 and such
default shall continue for a period of one Business Day (solely for
purposes of this clause, a payment on the Notes funded by the Insurer or
with proceeds from the Spread Account shall be deemed to be a payment made
by the Issuer); or
(iii) so long as (a) an Insurer Default shall not have occurred and be
continuing, (b) any amounts due to the Insurer under the Insurance
Agreement or the other Basic Documents remain unpaid or (c) the Note Policy
has not expired in accordance with its terms, 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 Insurer shall, upon prior
written notice to the Rating Agency, 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 the Certificate to the Trustee; or
(v) 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 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 (or for such longer period, not
in excess of 90 days, as may be reasonably necessary to remedy such
default; provided that such default is capable of remedy within 90 days or
less and the Servicer, on behalf of the Owner Trustee, delivers an
Officer's Certificate to the Trustee to the effect that the Issuer has
commenced, or will promptly commence and diligently pursue, all reasonable
efforts to remedy such default) after there shall have been given, by
registered or certified mail, to the Issuer by the Trustee or to the Issuer
and the Trustee by the Holders of at least 25% of the 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
(vi) so long as an Insurer Default shall have occurred and be
continuing, the filing of a decree or order for relief by a court having
jurisdiction
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in the premises in respect of the Issuer or any substantial part of the
Trust Property in an involuntary case under any applicable Federal or state
bankruptcy, insolvency or other similar law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Issuer or for any substantial part
of the Trust Property, or ordering the winding-up or liquidation of the
Issuer's affairs, and such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or
(vii) so long as an Insurer Default shall have occurred and be
continuing, 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, or the consent by the Issuer to the entry of an
order for relief in an involuntary case under any such law, or 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 Property, or the
making by the Issuer of any general assignment for the benefit of
creditors, or the failure by the Issuer generally to pay its debts as such
debts become due, or the taking of action by the Issuer in furtherance of
any of the foregoing.
The Issuer shall as soon as possible deliver to the Trustee, the Owner
Trustee, the Insurer and the Noteholders, and in all events within two Business
Days after the occurrence thereof, written notice in the form of an Officer's
Certificate of any event which with the giving of notice and the lapse of time
would become an Event of Default under clause (iii), its status and what action
the Issuer is taking or proposes to take with respect thereto.
SECTION 5.2 Rights Upon Event of Default.
----------------------------
(a) If an Event of Default occurs and is continuing, then and in every
such case, the Controlling Party may declare the unpaid principal amount of all
the Notes to be immediately due and payable at par, together with accrued
interest thereon, and upon such declaration such principal amount shall become
immediately due and payable together with all accrued and unpaid interest
thereon, without presentment, demand, protest or other nature of any kind, all
of which are hereby waived by the Issuer. If an Event of Default shall have
occurred and be continuing, the Controlling Party may exercise any of the
remedies specified in Section 5.4(a). In the event of any acceleration of any
Notes by operation of this Section 5.2, the Trustee shall continue to be
entitled to make claims under the Note Policy pursuant to the Sale and Servicing
Agreement 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
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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 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 Insurer, in its sole discretion, shall elect.
(c) If at any time after such declaration of acceleration of maturity
has been made and before a judgment or decree for payment of the money due has
been obtained by the Trustee as hereinafter in this Article V provided the
Insurer (as long as no Insurer Default shall have occurred and be continuing) or
if an Insurer Default shall have occurred and be continuing, the Holders of
Notes representing a majority of the Outstanding Amount of the Notes may by
written notice to the Issuer and the Trustee, rescind and annul such declaration
and its consequences if:
(i) the Issuer has paid or deposited with the Trustee a sum
sufficient to pay
(A) all payments of principal of and interest on all Notes and all
other amounts that would then be due hereunder or upon such Notes if the
Event of Default giving rise to such acceleration had not occurred; and
(B) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee and its agents and counsel; and
(ii) all Events of Default, other than the nonpayment of the
principal of the Notes that has become due solely by such acceleration,
have been cured or waived as provided in Section 5.13.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement
----------------------------------------------------
by Trustee.
- ----------
(a) The Issuer covenants that if (i) default is made in the payment of
any interest on any Note when the same becomes due and payable, and such default
continues for a period of two Business Days, or (ii) default is made in the
payment of the principal of or any installment of the principal of any Note when
the same becomes due and payable, and such default continues for a period of two
Business Days, the Issuer will, upon demand of the Trustee, pay to it, for the
benefit of the Holders of the Notes, the whole amount then due and payable on
such Notes for principal and interest, with interest upon the overdue principal,
and, to the extent payment at such rate of interest shall be
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<PAGE>
legally enforceable, upon overdue installments of interest, at the applicable
Interest Rate and in addition thereto such further amount as shall be sufficient
to cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee and its agents
and counsel.
(b) 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 5.4) and under the Basic 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 Basic Documents and, without limitation,
following the occurrence of an Event of Default, exercise full right, power and
authority to take, or defer from taking, any and all acts with respect to the
administration, maintenance or disposition of the Trust Property.
(c) If an Event of Default occurs and is continuing, the Trustee may
in its discretion but with the prior written consent of the Controlling Party
and shall, at the direction of the Controlling Party, proceed to protect and
enforce its rights and the rights of the Noteholders by such appropriate
Proceedings as the Trustee or the Controlling Party shall deem most effective to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy or legal or equitable
right vested in the Trustee by this Indenture or by law.
(d) [Reserved].
(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 Property, proceedings under Title 11 of the United States
Code or any other applicable Federal or state bankruptcy, insolvency or other
similar law, or in case a receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, sequestrator or similar official shall have been
appointed for or taken possession of the 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 and interest owing and unpaid in respect of the Notes and to file
such
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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, bad faith or willful
misconduct) and of the Noteholders allowed in such proceedings;
(ii) unless prohibited by applicable law and regulations, to vote on
behalf of the Holders of Notes in any election of a trustee, a standby
trustee or person performing similar functions in any such proceedings;
(iii) to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute all amounts received with
respect to the claims of the Noteholders, the Insurer 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,
the Insurer 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
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
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<PAGE>
their respective agents and attorneys, shall be for the ratable benefit of the
Holders of the Notes and the Insurer.
(h) In any proceedings brought by the Trustee (and also any
proceedings involving the interpretation of any provision of this Indenture),
the Trustee shall be held to represent all the Holders of the Notes, and it
shall not be necessary to make any Noteholder a party to any such proceedings.
SECTION 5.4 Remedies.
--------
(a) If an Event of Default shall have occurred and be continuing, the
Controlling Party may do one or more of the following (subject to Section 5.5):
(i) institute Proceedings in its own name and as trustee of an
express trust for the collection of all amounts then payable on the Notes
or under this Indenture with respect thereto, whether by declaration or
otherwise, enforce any judgment obtained, and collect from the Issuer and
any other obligor upon such Notes monies adjudged due;
(ii) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture with respect to the Trust Property;
(iii) exercise any remedies of a secured party under the UCC and take
any other appropriate action to protect and enforce the rights and remedies
of the Issuer Secured Parties; and
(iv) direct the Trust Collateral Agent in writing to sell the Trust
Property or any portion thereof or rights or interest therein, at one or
more public or private sales called and conducted in any manner permitted
by law; provided, however, that
(A) if the Insurer is the Controlling Party, the Insurer may not sell
or otherwise liquidate the Trust Property following an Insurance Agreement
Indenture Cross Default unless
(1) 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 Insurer is the Controlling Party, the Insurer must use due
care to distribute proceeds in accordance with the requirements and
priorities of Sections 2.8 and 5.6 of this Indenture, but only to the
extent such proceeds are in fact received by the Controlling Party.
(C) if the Trustee is the Controlling Party, the Trustee may not sell
or otherwise liquidate the Trust Property following an Event of Default
unless
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(1) such Event of Default is of the type described in Section
5.1(i) or (ii), or
(2) either
(x) the Holders of 100% of the
Outstanding Amount of the Notes consent
thereto,
(y) the proceeds of such sale
or liquidation distributable to the
Noteholders are sufficient to
discharge in full all amounts then
due and unpaid upon such Notes for
principal and interest, or
(z) the Trustee determines
that the Trust Property will not
continue to provide sufficient
funds for the payment of principal
of and interest on the Notes as
they would have become due if the
Notes had not been declared due and
payable, and the Trustee provides
prior written notice to the Rating
Agency 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 Property for such purpose.
SECTION 5.5 Optional Preservation of the Receivables. If the Trustee
----------------------------------------
is the Controlling Party and if the Notes have been declared to be due and
payable under Section 5.2 following an Event of Default and such declaration and
its consequences have not been rescinded and annulled, the Trustee may, but need
not, elect to direct the Trust Collateral Agent to maintain possession of the
Trust Property. It is the desire of the parties hereto and the Noteholders that
there be at all times sufficient funds for the payment of principal of and
interest on the Notes, and the Trustee shall take such desire into account when
determining whether or not to direct the Trust Collateral Agent to maintain
possession of the Trust Property. In determining whether to direct the Trust
Collateral Agent to maintain possession of the Trust Property, 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 Property for such purpose
which opinion shall be at the expense of the Issuer.
SECTION 5.6 Priorities.
----------
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(a) Following (1) the acceleration of the Notes pursuant to Section
5.2 or (2) if an Insurer Default shall have occurred and be continuing, the
occurrence of an Event of Default pursuant to Section 5.1(i), 5.1(ii), 5.1(iii),
5.1(v) or 5.1(vi) of the Indenture or (3) the receipt of Insolvency Proceeds
pursuant to Section 11.1(b) of the Sale and Servicing Agreement, the Amount
Available, including any money or property collected pursuant to Section 5.4 of
the Indenture and any such Insolvency Proceeds, shall be applied by the Trust
Collateral Agent on the related Payment Date in the following order of priority:
FIRST: amounts due and owing and required to be
distributed to the Servicer, the Back-up Servicer, the P.O.
Box Owner, the Owner Trustee, the Trustee and the Trust
Collateral Agent, respectively, pursuant to priorities (i)
and (ii) of Section 5.7(a) 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, ratably, without preference or priority
of any kind, according to the amounts due and payable on the
Notes for principal;
FOURTH: to the Insurer, to the extent of any amounts
owing to the Insurer under the Insurance Agreement or any of
the other Basic Documents and not paid; and
FIFTH: to the Certificateholders in accordance with the
Trust Agreement.
(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 5.7 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 continued Event of Default;
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<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 own name as Trustee
hereunder;
(iii) such Holder or Holders have offered to the Trustee indemnity
reasonably satisfactory to it 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
(v) an Insurer Default shall have occurred and be continuing;
it being understood and intended that no Holders of Notes shall have any right
in any manner whatsoever by virtue of, or by availing of, any provision of this
Indenture to affect, disturb or prejudice the rights of any other Holders of
Notes or to obtain or to seek to obtain priority or preference over any other
Holders or to enforce any right under this Indenture, except in the manner
herein provided.
In the event the 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.
Notwithstanding anything to the contrary contained in this Indenture
but subject to the rights of the Controlling Party hereunder, provided the
Trustee has sent out notices to Noteholders in accordance with this Indenture,
the Trustee may act as directed by a majority of the outstanding Noteholders
responding in writing to such request contained in such notice; provided,
--------
however, that Noteholders representing at least 66-2/3% of the outstanding
- -------
principal balance of the Notes as of the time such notice is sent to Noteholders
must have responded in writing to such notice from the Trustee. In addition,
the Trustee shall not have any liability to any Noteholder or Note owner with
respect to any action taken pursuant to such notice if the Noteholder or Note
owner does not respond to such notice within the time period set forth in such
notice.
SECTION 5.8 Unconditional Rights of Noteholders To Receive Principal
--------------------------------------------------------
and Interest. Notwithstanding any other provisions in this Indenture, the Holder
- ------------
of any Note shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest, if any, on such Note on or
after the respective due dates thereof expressed in such Note or in this
Indenture (or, in the case of redemption, on or after the Redemption Date) and
to institute suit for the enforcement of any such payment, and such right shall
not be impaired without the consent of such Holder.
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SECTION 5.9 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, then and in every such case the Issuer, the Trustee,
the Insurer and the Noteholders shall, subject to any determination in such
Proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee, the Insurer
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, the Insurer or to the Noteholders may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee, the Insurer 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 5.4, any direction to
the Trustee to sell or liquidate the Trust Property shall be by the Holders
of Notes representing not less than 100% of the Outstanding Amount of the
Notes;
(iii) if the conditions set forth in Section 5.5 have been satisfied
and the Trustee elects to retain the Trust Property 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
the Trust Property 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;
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provided, however, that, subject to Section 6.1, the
Trustee need not take any action that it determines
might involve it in liability for which it has not
received adequate indemnity or might materially
adversely affect the rights of any Noteholders not
consenting to such action.
SECTION 5.13 Waiver of Past Defaults. If (a) an Insurer Default
-----------------------
shall have occurred and be continuing, (b) the Note Policy has expired in
accordance with its own terms and (c) there are no amounts due to the Insurer
under the Insurance Agreement or the other Basic Documents that remain unpaid,
prior to the declaration of the acceleration of the maturity of the Notes as
provided in Section 5.4, 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, the Insurer and the
Holders of the Notes shall be restored to their former positions and rights
hereunder, respectively; but no such waiver shall extend to any subsequent or
other Default or 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
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may lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
SECTION 5.16 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 Property 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 Trust Collateral Agent to
do so and at the Servicer's expense, the Issuer agrees to take all such lawful
action as the Trust Collateral Agent may request to compel or secure the
performance and observance by the Seller and the Servicer, as applicable, of
each of their obligations to the Issuer under or in connection with the Sale and
Servicing Agreement in accordance with the terms thereof, and to exercise any
and all rights, remedies, powers and privileges lawfully available to the Issuer
under or in connection with the Sale and Servicing Agreement to the extent and
in the manner directed by the Trust Collateral Agent, 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 a Controlling Party and if an Event of Default
has occurred and is continuing, the Trustee may, and, at the written direction
of the Holders of 66-2/3% of the Outstanding Amount of the Notes shall, 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) The Trustee acknowledges and agrees to the actions to be taken by
the Trust Collateral Agent pursuant to Sections 6.1, 6.2 and 6.3 of the Sale and
Servicing Agreement.
SECTION 5.18 Subrogation. The Trust Collateral Agent shall receive as
-----------
attorney-in-fact of each Noteholder any Note Policy Claim Amount from the
Insurer. 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
with respect to such Notes, and shall not discharge the obligations of the Trust
with respect thereto. The
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Insurer shall, to the extent it makes any payment with respect to the Notes,
become subrogated to the rights of the recipient of such payments to the extent
of such payments. Subject to and conditioned upon any payment with respect to
the Notes by or on behalf of the Insurer, the Trustee shall assign to the
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
Insurer, and the 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
Insurer's rights as subrogee upon the register of Noteholders upon receipt from
the Insurer of proof of payment by the Insurer of any Noteholders' Interest
Payment Amount or Noteholders' Principal Payment 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.
SECTION 5.19 Preference Claims.
-----------------
(a) In the event that the Trustee has received a certified copy of a
final, non-appealable order of the appropriate court that any Noteholders'
Interest Payment Amount or Noteholders' Principal Payment 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 Insurer, shall comply with the
provisions of the Note Policy to obtain payment by the Insurer of such avoided
payment, and shall, at the time it provides notice to the Insurer, notify
Holders of the 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 Insurer at its
written request, the requested records it holds in its possession 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 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 Insurer will
make such payment to the Trustee for distribution to such Noteholder upon proof
of such payment reasonably satisfactory to the Insurer).
(b) The Trustee shall promptly notify the 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 (i) an Insurer Default
shall not have occurred and be continuing, (ii) any amounts due to the Insurer
under the Insurance Agreement or the other Basic Documents remain unpaid or
(iii) the Note Policy has not expired in accordance with its terms, the Insurer
may at any time during the continuation of any proceeding relating to a
Preference Claim direct all matters relating to such Preference Claim including,
without limitation, (1) the direction of any appeal of any order relating
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to any Preference Claim and (2) the posting of any surety, supersedes or
performance bond pending any such appeal at the expense of the Insurer, but
subject to reimbursement as provided in the Insurance Agreement. In addition,
and without limitation of the foregoing, as set forth in Section 5.18, the
Insurer shall be 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.
ARTICLE VI.
The Trustee and the Trust Collateral Agent
------------------------------------------
SECTION 6.1 Duties of Trustee.
-----------------
(a) If an Event of Default has occurred and is continuing, the
Trustee and the Trust Collateral Agent shall exercise the rights and powers
vested in it by this Indenture and the Basic Documents and use the same degree
of care and skill in its exercise as a prudent person would exercise or use
under the circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) each of the Trustee and the Trust Collateral Agent undertakes to
perform such duties and only such duties as are specifically set forth in
this Indenture and no implied covenants or obligations shall be read into
this Indenture against the Trustee and the Trust Collateral Agent,
respectively; and
(ii) in the absence of bad faith or negligence on its part, each of
the Trustee and the Trust Collateral Agent may conclusively rely, as to the
truth of the statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the Trustee or the
Trust Collateral Agent, as the case may be and conforming to the
requirements of this Indenture; however, the Trustee and the Trust
Collateral Agent shall examine the certificates and opinions to determine
whether or not they conform on their face to the requirements of this
Indenture.
(c) Each of the Trustee and the Trust Collateral Agent may not be
relieved from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section;
(ii) each of the Trustee and the Trust Collateral Agent shall not be
liable for any error of judgment made in good faith by a Responsible
Officer
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unless it is proved that the Trustee or the Trust Collateral Agent was
negligent in ascertaining the pertinent facts; and
(iii) each of the Trustee and the Trust Collateral Agent shall not be
liable with respect to any action it takes or omits to take in good faith
in accordance with a direction by the Controlling Party or received by it
pursuant to Section 5.12.
(d) The Trustee and the Trust Collateral Agent shall not be liable
for interest on any money received by it except as the Trustee may agree in
writing with the Issuer.
(e) Money held in trust by the Trustee or the Trust Collateral Agent
need not be segregated from other funds except to the extent required by law or
the terms of this Indenture or the Sale and Servicing Agreement.
(f) No provision of this Indenture shall require the Trustee or the
Trust Collateral Agent to expend or risk its own funds or otherwise incur
financial liability in the performance of any of its duties hereunder or in the
exercise of any of its rights or powers, if it shall have reasonable grounds to
believe that repayment of such funds or indemnity reasonably satisfactory to it
against such risk or liability is not reasonably assured to it.
(g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee or the Trust
Collateral Agent shall be subject to the provisions of this Section.
(h) The Trustee or the Trust Collateral Agent shall, upon reasonable
prior written notice to the Trustee or the Trust Collateral Agent, as the case
may be, permit any representative of the Insurer, during the Trustee's or the
Trust Collateral Agent's, as the case may be, normal business hours, at the
expense of the Trust to examine all books of account, records, reports and other
papers of the Trustee or the Trust Collateral Agent, as the case may be,
required to be maintained pursuant to this Indenture and the Sale and Servicing
Agreement, relating to the Notes or the Collateral, to make copies and extracts
therefrom and to discuss the Trustee's or the Trust Collateral Agent's affairs
and actions, as such affairs and actions relate to the Trustee's or the Trust
Collateral Agent's duties with respect to the Notes or the Collateral, with the
Trustee's or the Trust Collateral Agent's officers and employees responsible for
carrying out the Trustee's or the Trust Collateral Agent's duties with respect
to the Notes.
(i) The Trust Collateral Agent 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.
(j) The Trust Collateral Agent is hereby appointed Note Paying Agent
pursuant to and in accordance with this Indenture, whereby the Trust Collateral
Agent, as Note Paying Agent shall hold the Trust Property in trust for the
Trustee for the benefit of the Noteholders and the Note Issuer.
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(k) Without limiting the generality of this Section 6.1, 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 Receivables or 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 Sale and Servicing Agreement.
(l) In no event shall Norwest Bank Minnesota, National Association,
in any of its capacities hereunder, be deemed to have assumed any duties of the
Owner Trustee under the Delaware Business Trust Statute, common law, or the
Trust Agreement.
SECTION 6.2 Rights of Trustee and the Trust Collateral Agent.
------------------------------------------------
(a) The Trustee and the Trust Collateral Agent may rely on any
document believed by it to be genuine and to have been signed or presented by
the proper person. The Trustee and the Trust Collateral Agent need not
investigate any fact or matter stated in the document.
(b) Before the Trustee or the Trust Collateral Agent acts or refrains
from acting, it may require an Officer's Certificate or an Opinion of Counsel.
The Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on the Officer's Certificate or Opinion of Counsel.
(c) The Trustee or the Trust Collateral Agent may execute any of the
trusts or powers hereunder or perform any duties hereunder either directly or by
or through agents or attorneys or a custodian or nominee, and the Trustee or the
Trust Collateral Agent shall not be responsible for any misconduct or negligence
on the part of, or for the supervision of, TFC, or any agent, attorney,
custodian or nominee appointed with due care by it hereunder.
(d) The Trustee or the Trust Collateral Agent shall not be liable for
any action it takes or omits to take in good faith which it believes to be
authorized or within its rights or powers; provided, however, that the Trustee's
or the Trust Collateral Agent's conduct does not constitute willful misconduct,
negligence or bad faith.
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(e) The Trustee and the Trust Collateral Agent may consult with
counsel, and the advice or opinion of counsel with respect to legal matters
relating to this Indenture, the Basic Documents and the Notes shall be full and
complete authorization and protection from liability in respect to any action
reasonably taken, omitted or suffered by it hereunder in good faith and in
accordance with the advice or opinion of such counsel.
(f) The Trustee and the Trust Collateral Agent 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 and the Trust Collateral Agent reasonable security or
indemnity against the costs, expenses and liabilities that may be incurred
therein or thereby; provided, however, that the Trustee and the Trust Collateral
Agent shall, upon the occurrence of an Event of Default (that has not been
cured), exercise the rights and powers vested in it by this Indenture with
reasonable care and skill customary for the care and skill exercised by trustees
under similar circumstances.
(g) The Trustee and the Trust Collateral Agent shall not be bound to
make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, approval, bond or other paper or document, unless requested in writing to
do so by the Insurer (so long as no Insurer Default shall have occurred and be
continuing) or (if (i) an Insurer Default shall have occurred and be continuing,
or (ii) (A) the Note Policy has expired in accordance with its own terms and (B)
there are no amounts due to the Insurer under the Insurance Agreement or the
other Basic Documents that remain unpaid) 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 and the Trust Collateral Agent
of the costs, expenses or liabilities likely to be incurred by it in the making
of such investigation is, in the opinion of the Trustee or the Trust Collateral
Agent, not reasonably assured to the Trustee or the Trust Collateral Agent by
the security afforded to it by the terms of this Indenture or the Sale and
Servicing Agreement, the Trustee or the Trust Collateral Agent may require
indemnity reasonably satisfactory to it against such cost, expense or liability
as a condition to so proceeding; the reasonable expense of every such
examination shall be paid by the Person making such request, or, if paid by the
Trustee or the Trust Collateral Agent, shall be reimbursed by the Person making
such request upon demand.
SECTION 6.3 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. The Note Paying Agent, Note Registrar, co-
registrar or co-paying agent may do the same with like rights. However, the
Trustee must comply with Section 6.11.
SECTION 6.4 Trustee's Disclaimer. Each of the Trustee and the Trust
--------------------
Collateral Agent shall not be responsible for and makes no representation as to
the
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validity or adequacy of this Indenture, the Trust Property 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 6.5 Notice of Defaults. If an Event of Default occurs and is
------------------
continuing and if it is either known by, or written notice of the existence
thereof has been delivered to, a Responsible Officer of the Trustee, the Trustee
shall mail to each Noteholder notice of the Default within 30 days after such
knowledge or notice 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 6.6 Reports by Note Paying Agent to Holders. The Note Paying
---------------------------------------
Agent shall on behalf of the Issuer deliver to each Noteholder such information
as is required under the Code (and shall comply will all information reporting
requirements of the Code, e.g. Form 1099) or which may be reasonably requested
to enable each Holder to prepare its income tax returns required by law.
SECTION 6.7 Compensation and Indemnity.
--------------------------
(a) Pursuant to Section 5.7(a) of the Sale and Servicing Agreement
and subject to Section 6.18 herein, the Issuer shall, or shall cause the
Servicer to, pay to the Trustee and the Trust Collateral Agent from time to time
the Trustee Fee as compensation for its services. The Trustee's and the Trust
Collateral Agent's compensation shall not be limited by any law on compensation
of a trustee of an express trust. The Issuer shall or shall cause the Servicer
to reimburse the Trustee and the Trust Collateral Agent for all reasonable out-
of-pocket expenses incurred or made by it, including costs of collection, in
addition to the compensation for its services. Such expenses shall include the
reasonable compensation and expenses, disbursements and advances of the
Trustee's and the Trust Collateral Agent's agents, counsel, accountants and
experts. The Issuer shall or shall cause the Servicer to indemnify the Trustee,
the Trust Collateral Agent and their respective officers, directors, employees
and agents against any and all loss, liability or expense (including attorneys'
fees) incurred by each of them in connection with the acceptance or the
administration of this trust and the performance of its duties hereunder, except
that neither the Issuer nor the Servicer shall be liable for or required to
indemnify the Trustee from and against expenses arising or resulting from
negligence, bad faith or willful misconduct on the part of the Trustee;
provided, however, any obligation of the Issuer under this Section 6.7 shall not
be payable from the Collateral or Trust Property. The Trustee or the Trust
Collateral Agent shall notify the Issuer and the Servicer promptly in writing of
any claim for which it may seek indemnity. Failure by the Trustee or the Trust
Collateral Agent to so notify the Issuer and the Servicer shall not relieve the
Issuer of its obligations hereunder or the Servicer of its obligations under
Article XII of the Sale and Servicing Agreement, except as provided in the last
sentence of this paragraph. The Issuer shall defend or shall cause the Servicer
to defend any claim for
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indemnity that may arise against the Trustee and the Trust Collateral Agent or
the Trustee or the Trust Collateral Agent may have separate counsel and the
Issuer shall or shall cause the Servicer to pay the fees and expenses of such
counsel. Neither the Issuer nor the Servicer need reimburse any expense or
indemnify against any loss, liability or expense incurred by the Trustee or the
Trust Collateral Agent through the Trustee's or the Trust Collateral Agent's own
willful misconduct, negligence or bad faith.
(b) 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 5.1(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 Basic Documents, the Trustee agrees that
the obligations of the Issuer (but not the Servicer) to the Trustee hereunder
and under the Basic Documents shall be recourse to the Trust Property only and
specifically shall not be recourse to the assets of the Issuer or any
Securityholder. In addition, the Trustee agrees that its recourse to the Issuer,
the Trust Property and the Seller shall be limited to the right to receive the
distributions referred to in Section 5.7(a) of the Sale and Servicing Agreement.
SECTION 6.8 Replacement of Trustee. The Trustee may resign at any
----------------------
time upon 30 days prior written notice by so notifying the Issuer, the Insurer
and the Controlling Party. The Issuer may and, at the request of the Controlling
Party shall, remove the Trustee, 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, and such case is not dismissed within 30 days;
(iii) 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;
(iv) the Trustee otherwise becomes incapable of acting;
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(v) the Trustee breaches any representation, warranty or covenant
made by it under any Basic Document; or
(vi) the rating assigned to the long-term unsecured debt obligations
of the Trustee by the Rating Agency shall be lowered below the rating of
"BBB" or be withdrawn by the Rating Agency.
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 deliver a notice of
such removal, resignation or vacancy to the Noteholders and the Insurer and
appoint a successor Trustee acceptable to the Controlling Party. If the Issuer
fails to appoint such a successor Trustee, the Controlling Party may appoint a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee, the Insurer, the Noteholders 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 retiring Trustee under this Indenture subject to satisfaction
of the Rating Agency Condition. 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 Issuer or the
Controlling Party 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.
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 Section 6.8 and payment of all fees and expenses owed to the
outgoing Trustee. Notwithstanding the replacement of the Trustee pursuant to
this Section, the Issuer's and the Servicer's obligations under Section 6.7
shall continue for the benefit of the retiring Trustee.
SECTION 6.9 Successor Trustee by Merger. If the Trustee consolidates
---------------------------
with, merges or converts into, or transfers all or substantially all its
corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee. The Trustee shall provide the Rating
Agency and the Insurer with written notice of any such transaction as soon as
practical thereafter.
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
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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
prior written consent of the Controlling Party shall have the power and may
execute and deliver all instruments to appoint one or more Persons to act as a
co-trustee or co-trustees, or separate trustee or separate trustees, of all or
any part of the Trust, and to vest in such Person or Persons, in such capacity
and for the benefit of the Noteholders, such title to the Collateral, or any
part thereof, and, subject to the other provisions of this Section, such powers,
duties, obligations, rights and trusts as the Trustee may consider necessary or
desirable. No co-trustee or separate trustee hereunder shall be required to meet
the terms of eligibility as a successor trustee under Section 6.11 and no notice
to Noteholders of the appointment of any co-trustee or separate trustee shall be
required under Section 6.8 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or imposed
upon the 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, including acts or omissions
of predecessor or successor trustees; 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
49
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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, dissolve, become insolvent, 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. Notwithstanding anything to the
contrary in this Indenture, the appointment of any separate trustee or co-
trustee shall not relieve the Trustee of its obligations and duties under this
Indenture.
SECTION 6.11 Eligibility: Disqualification. The Trustee shall at all
-----------------------------
times (i) have a combined capital and surplus of at least $50,000,000 as set
forth in its most recent published annual report of condition, (ii) have (or
have a parent which has) a long term debt rating of A or better by the Rating
Agency; and (iii) be acceptable to the Controlling Party. The Trustee shall
provide copies of such reports to the Insurer.
SECTION 6.12 [Reserved].
----------
SECTION 6.13 Appointment and Powers. (a) Subject to the terms and
----------------------
conditions hereof, each of the Issuer Secured Parties hereby appoint Norwest
Bank Minnesota, National Association, as the Trust Collateral Agent with respect
to the Collateral, and Norwest Bank Minnesota, National Association, hereby
accepts such appointment and agrees to act as Trust Collateral Agent with
respect to the Collateral for the Issuer Secured Parties, to maintain custody
and possession of such Collateral (except as otherwise provided hereunder) and
to perform the other duties of the Trust Collateral Agent in accordance with the
provisions of this Indenture and the other Basic Documents. Each Issuer Secured
Party hereby authorizes the Trust Collateral Agent to take such action on its
behalf, and to exercise such rights, remedies, powers and privileges hereunder,
as the Controlling Party may direct and as are specifically authorized to be
exercised by the Trust Collateral Agent by the terms hereof, together with such
actions, rights, remedies, powers and privileges as are reasonably incidental
thereto. The Trust Collateral Agent shall act upon and in compliance with the
written instructions of the Controlling Party delivered pursuant to this
Indenture promptly following receipt of such written instructions; provided that
the Trust Collateral Agent shall not act in accordance with any instructions (i)
which are not authorized by, or in violation of the provisions of, this
Indenture or (ii) for which the Trust Collateral Agent has not received
reasonable indemnity. Receipt of such instructions shall not be a condition to
the exercise by the Trust Collateral Agent of its express duties hereunder,
except where this Indenture
50
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provides that the Trust Collateral Agent is permitted to act only following and
in accordance with such instructions.
(b) Subject to the terms and conditions hereof, each of the Issuer
Secured Parties hereby appoint Norwest Bank Minnesota, National Association, as
the Note Paying Agent with respect to the Trust Property, and Norwest Bank
Minnesota, National Association, hereby accepts such appointment and agrees to
act as Note Paying Agent with respect to the Trust Property in trust for the
benefit of the Noteholders and Note Insured for the Issuer Secured Parties, to
maintain custody and possession of such Trust Property in trust for the benefit
of the Noteholders and Note Insured (except as otherwise provided hereunder) and
to perform the other duties of the Note Paying Agent in accordance with the
provisions of this Indenture and the other Basic Documents. Each Issuer Secured
Party hereby authorizes the Note Paying 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 Note Paying Agent by the terms hereof, together with such actions,
rights, remedies, powers and privileges as are reasonably incidental thereto.
The Note Paying 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 Note
Paying Agent shall not act in accordance with any instructions (i) which are not
authorized by, or in violation of the provisions of, this Indenture or (ii) for
which the Note Paying Agent has not received reasonable indemnity. Receipt of
such instructions shall not be a condition to the exercise by the Note Paying
Agent of its express duties hereunder, except where this Indenture provides that
the Note Paying Agent is permitted to act only following and in accordance with
such instructions.
SECTION 6.14 Performance of Duties. The Trust Collateral Agent shall
---------------------
have no duties or responsibilities except those expressly set forth in this
Indenture and the other Basic Documents to which the Trust Collateral Agent is a
party or as directed by the Controlling Party in accordance with this Indenture.
The Trust Collateral Agent shall not be required to take any discretionary
actions hereunder except at the written direction and with the indemnification
of the Controlling Party. The Trust Collateral Agent shall, and hereby agrees
that it will, perform all of the duties and obligations required of it under the
Sale and Servicing Agreement.
SECTION 6.15 Limitation on Liability. Neither the Trust Collateral
-----------------------
Agent nor any of its directors, officers, employees and agents shall be liable
for any action reasonably taken or omitted to be taken by it or them hereunder,
or in connection herewith, except that the Trust Collateral Agent shall be
liable for its negligence, bad faith or willful misconduct; nor shall the Trust
Collateral Agent be responsible for the validity, effectiveness, value,
sufficiency or enforceability against the Issuer of this Indenture or any of the
Collateral (or any part thereof). Notwithstanding any term or provision of this
Indenture, the Trust Collateral Agent shall incur no liability to the Issuer or
the Issuer Secured Parties for any action taken or omitted by the Trust
Collateral Agent in connection with the Collateral, except for the negligence,
bad faith or willful misconduct on the part of the Trust Collateral Agent, and,
further, shall incur no liability to the Issuer Secured Parties except for
negligence, bad faith or willful misconduct in
51
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carrying out its duties to the Issuer Secured Parties. Subject to Section 6.16,
the Trust Collateral Agent shall be protected and shall incur no liability to
any such party in conclusively relying upon the accuracy, acting in reliance
upon the contents, and assuming the genuineness of any notice, demand,
certificate, signature, instrument or other document reasonably believed by the
Trust Collateral Agent to be genuine and to have been duly executed by the
appropriate signatory, and (absent actual knowledge to the contrary) the Trust
Collateral Agent shall not be required to make any independent investigation
with respect thereto. The Trust Collateral Agent shall at all times be free
independently to establish to its reasonable satisfaction, but shall have no
duty to independently verify, the existence or nonexistence of facts that are a
condition to the exercise or enforcement of any right or remedy hereunder or
under any of the Basic Documents. The Trust Collateral Agent may consult with
counsel, and shall not be liable for any action reasonably taken or omitted to
be taken by it hereunder in good faith and in accordance with the advice of such
counsel. The Trust Collateral Agent shall not be under any obligation to
exercise any of the remedial rights or powers vested in it by this Indenture or
to follow any direction from the Controlling Party unless it shall have received
security or indemnity satisfactory to the Trust Collateral Agent against the
costs, expenses and liabilities which might be incurred by it.
SECTION 6.16 Reliance Upon Documents. In the absence of negligence,
-----------------------
bad faith or willful misconduct on its part, the Trust Collateral Agent shall be
entitled to rely on any communication, instrument, paper or other document
reasonably believed by it to be genuine and correct and to have been signed or
sent by the proper Person or Persons and shall have no liability in acting, or
omitting to act, where such action or omission to act is in reasonable reliance
upon any statement or opinion contained in any such document or instrument.
SECTION 6.17 Successor Trust Collateral Agent.
--------------------------------
(a) Merger. Any Person into which the Trust Collateral Agent may be
------
converted or merged, or with which it may be consolidated, or to which it may
sell or transfer its trust business and assets as a whole or substantially as a
whole, or any Person resulting from any such conversion, merger, consolidation,
sale or transfer to which the Trust Collateral Agent is a party, shall (provided
it is otherwise qualified to serve as the Trust Collateral Agent hereunder) be
and become a successor Trust Collateral Agent hereunder and be vested with all
of the title to and interest in the Collateral and all of the trusts, powers,
discretions, immunities, privileges and other matters as was its predecessor
without the execution or filing of any instrument or any further act, deed or
conveyance on the part of any of the parties hereto, anything herein to the
contrary notwithstanding, except to the extent, if any, that any such action is
necessary to perfect, or continue the perfection of, the security interest of
the Issuer Secured Parties in the Collateral; provided that any such successor
shall also be the successor Trustee under Section 6.9.
(b) Resignation. The Trust Collateral Agent and any successor Trust
-----------
Collateral Agent may resign under this Indenture at any time upon 30 days prior
written notice by so notifying the Issuer and the Insurer; provided that the
Trust Collateral Agent
52
<PAGE>
shall not so resign unless it shall also resign as Trustee hereunder; provided,
--------
however that such resignation shall not be effective until a successor Trust
- -------
Collateral Agent shall have accepted appointment as successor Trust Collateral
Agent and a successor Trustee shall have accepted appointment as successor
Trustee.
(c) Removal. The Trust Collateral Agent may be removed by the
-------
Controlling Party at any time (and should be removed at any time that the
Trustee has been removed), with or without cause, by an instrument or concurrent
instruments in writing delivered to the Trust Collateral Agent, the other Issuer
Secured Party and the Issuer. A temporary successor may be removed at any time
to allow a successor Trust Collateral Agent to be appointed pursuant to
subsection (d) below. Any removal pursuant to the provisions of this subsection
(c) shall take effect only upon the date which is the latest of (i) the
effective date of the appointment of a successor Trust Collateral Agent and the
acceptance in writing by such successor Trust Collateral Agent of such
appointment and of its obligation to perform its duties hereunder in accordance
with the provisions hereof, and (ii) receipt by the Controlling Party of an
Opinion of Counsel to the effect described in Section 3.6.
(d) Acceptance by Successor. The Controlling Party shall have the
-----------------------
sole right to appoint each successor Trust Collateral Agent. Every temporary or
permanent successor Trust Collateral Agent appointed hereunder shall execute,
acknowledge and deliver to its predecessor and to the 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
Collateral to the successor Trust Collateral Agent, whereupon such successor,
without any further act, deed or conveyance, shall become fully vested with all
the estates, properties, rights, powers, duties and obligations of its
predecessor. Such predecessor shall, nevertheless, on the written request of
either 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
Trust Collateral Agent to more fully and certainly vest in such successor the
estates, properties, rights, powers, duties and obligations vested or intended
to be vested hereunder in the Trust Collateral Agent, any and all such written
instruments shall, at the request of the temporary or permanent successor Trust
Collateral Agent, be forthwith executed, acknowledged and delivered by the
Trustee or the Issuer, as the case may be. The designation of any successor
Trust Collateral Agent and the instrument or instruments removing any Trust
Collateral Agent and appointing a successor hereunder, together with all other
instruments provided for herein, shall be maintained with the records relating
to the Collateral and, to the extent required by applicable law, filed or
recorded by the successor Trust Collateral Agent in each place where such filing
or recording is necessary to effect the transfer of the Collateral to the
successor Trust Collateral Agent or to protect or continue the perfection of the
security interests granted hereunder.
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(e) Notice to the Rating Agency. The Controlling Party shall give
---------------------------
Notice to the Rating Agency of any change in the Trust Collateral Agent within 5
days of such change.
SECTION 6.18 Compensation. The Trust Collateral Agent shall not be
------------
entitled to any compensation for the performance of its duties hereunder other
than the Trustee Fee it is entitled to receive in its capacity as Trustee.
SECTION 6.19 Representations and Warranties of the Trustee and
-------------------------------------------------
the Trust Collateral Agent. Each of the Trust Collateral Agent and the Trustee
- --------------------------
represents and warrants to the Issuer and to each Issuer Secured Party as
follows:
(a) Due Organization. The Trustee and the Trust Collateral Agent
----------------
is a national banking association, duly organized, validly existing and in good
standing under the laws of the United States and is duly authorized and licensed
under applicable law to conduct its business as presently conducted.
(b) Corporate Power. The Trustee and the Trust Collateral Agent has
---------------
all requisite right, power and authority to execute and deliver this Indenture
and each of the other Basic Documents to which it is a party and to perform all
of its duties as the Trustee or Trust Collateral Agent, as the case may be,
hereunder.
(c) Due Authorization. The execution and delivery by the Trust
-----------------
Collateral Agent and the Trustee of this Indenture and the other Basic Documents
to which it is a party, and the performance by the Trust Collateral Agent and
the Trustee of its duties hereunder and thereunder, have been duly authorized by
all necessary corporate proceedings which are required for the valid execution
and delivery by the Trust Collateral Agent or the Trustee, or the performance by
the Trust Collateral Agent or the Trustee, of this Indenture and such other
Basic Documents.
(d) Valid and Binding Indenture. Each of the Trustee and the Trust
---------------------------
Collateral Agent has duly executed and delivered this Indenture and each other
Basic Document to which it is a party, and each of this Indenture and each such
other Basic Document constitutes the legal, valid and binding obligation of the
Trustee and the Trust Collateral Agent, enforceable against the Trustee and the
Trust Collateral Agent in accordance with its terms, except as (i) such
enforceability may be limited by bankruptcy, insolvency, reorganization and
similar laws relating to or affecting the enforcement of creditors' rights
generally and (ii) the availability of equitable remedies may be limited by
equitable principles of general applicability.
SECTION 6.20 Waiver of Setoffs. The Trustee and the Trust Collateral
-----------------
Agent hereby expressly waives any and all rights of setoff that the Trustee or
the Trust Collateral Agent may otherwise at any time have under applicable law
with respect to any Trust Account and agrees that amounts in the Trust Accounts
shall at all times be held and applied solely in accordance with the provisions
hereof.
SECTION 6.21 Control by the Controlling Party. Unless otherwise
--------------------------------
specifically set forth herein, the Trustee and the Trust Collateral Agent shall
comply with
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notices and instructions given by the Issuer only if accompanied by the prior
written consent of the Controlling Party, except that if any Event of Default
shall have occurred and be continuing, the Trustee and the Trust Collateral
Agent shall act upon and comply with notices and instructions given by the
Controlling Party alone in the place and stead of the Issuer.
ARTICLE VII.
Noteholders' Lists and Reports
------------------------------
SECTION 7.1 Issuer To Furnish To Trustee Names and Addresses of
---------------------------------------------------
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 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 Insurer in writing on
an annual basis on each March 31 and at such other times as the Insurer may
request a copy of the list.
SECTION 7.2 Preservation of Information; Communications to
----------------------------------------------
Noteholders.
- -----------
The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of the Holders contained in the
most recent list furnished to the Trustee as provided in Section 7.1
and the names and addresses of Holders received by the Trustee in its
capacity as Note Registrar. The Trustee may destroy any list furnished
to it as provided in such Section 7.1 upon receipt of a new list so
furnished.
SECTION 7.3 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 copies 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
55
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(iii) supply to the Trustee such summaries of any information,
documents and reports required to be filed by the Issuer pursuant to
clauses (i) and (ii) of this Section 7.3(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 December 31 of each year.
(c) The Trustee shall not have any duty or obligation with respect
to any reports or other information delivered to it pursuant to this Section
7.3.
ARTICLE VIII.
Accounts, Disbursements and Releases
------------------------------------
SECTION 8.1 Collection of Money. Except as otherwise expressly
-------------------
provided herein, the Trustee may demand payment or delivery of, and shall
receive and collect, directly and without intervention or assistance of any
fiscal agent or other intermediary, all money and other property payable to or
receivable by the Trust Collateral Agent pursuant to this Indenture and the Sale
and Servicing Agreement. The Trustee shall apply all such money received by it,
or cause the Trust Collateral Agent to apply all money received by it as
provided in this Indenture and the Sale and Servicing Agreement. Except as
otherwise expressly provided in this Indenture or in the Sale and Servicing
Agreement, if any default occurs in the making of any payment or performance
under any agreement or instrument that is part of the Trust Property, the
Trustee may take such action as may be appropriate to enforce such payment or
performance, including the institution and prosecution of appropriate
proceedings. Any such action shall be without prejudice to any right to claim a
Default or Event of Default under this Indenture and any right to proceed
thereafter as provided in Article V.
SECTION 8.2 Release of Trust Property.
-------------------------
(a) Subject to the payment of its fees and expenses pursuant to
Section 6.7, the Trust Collateral Agent may, and when required by the Issuer and
the provisions of this Indenture shall, execute instruments to release property
from the lien of this Indenture, in a manner and under circumstances that are
not inconsistent with the provisions of this Indenture. No party relying upon an
instrument executed by the Trust Collateral Agent as provided in this Article
VIII shall be bound to ascertain the Trust Collateral Agent's authority, inquire
into the satisfaction of any conditions precedent or see to the application of
any monies.
(b) The Trust Collateral Agent shall, at such time as there are no
Notes outstanding and all sums due the Trustee pursuant to Section 6.7 have been
paid and (a) the Note Policy has expired in accordance with its own terms and
(b) all amounts due to the Insurer under the Insurance Agreement or the other
Basic Documents have been paid in full, release any remaining portion of the
Trust Property that secured the Notes from the lien of this Indenture and
release to the Issuer or any other Person entitled thereto any
56
<PAGE>
funds then on deposit in the Trust Accounts. The Trustee shall release property
from the lien of this Indenture pursuant to this Section 8.2(b) only upon
receipt of an Issuer Request accompanied by an Officer's Certificate and an
Opinion of Counsel.
SECTION 8.3 Opinion of Counsel. The Trust Collateral Agent shall
------------------
receive at least seven days' notice when requested by the Issuer to take any
action pursuant to Section 8.2(a), accompanied by copies of any instruments
involved, and the Trustee shall also require as a condition to such action, an
Opinion of Counsel, stating the legal effect of any such action, outlining the
steps required to complete the same, and concluding that all conditions
precedent to the taking of such action have been complied with and such action
will not materially and adversely impair the security for the Notes or the
rights of the Noteholders in contravention of the provisions of this Indenture;
provided, however, that such Opinion of Counsel shall not be required to express
an opinion as to the fair value of the Trust Property. Counsel rendering any
such opinion may rely, without independent investigation, on the accuracy and
validity of any certificate or other instrument delivered to the Trustee in
connection with any such action.
ARTICLE IX.
Supplemental Indentures
-----------------------
SECTION 9.1 Supplemental Indentures Without Consent of Noteholders.
------------------------------------------------------
(a) Without the consent of the Holders of any Notes but with prior
written notice to the Rating Agency and with the consent of the Insurer (unless
an Insurer Default shall have occurred and be continuing), as evidenced to the
Trustee, 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, for any of the following purposes:
(i) to correct or amplify the description of any property at any
time subject to the lien of this Indenture, or better to assure, convey and
confirm unto the Trust Collateral Agent any property subject or required to
be subjected to the lien of this Indenture, or to subject to the lien of
this Indenture additional property;
(ii) to evidence the succession, in compliance with the applicable
provisions hereof, of another person to the Issuer, and the assumption by
any such successor of the covenants of the Issuer herein and in the Notes
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 Trust 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
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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, however, that such
action shall not, as evidenced by an Opinion of Counsel, 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.
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 prior
notice to the Rating Agency by the Issuer and with the prior written consent of
the Insurer, as evidenced to 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 such action shall not, as evidenced by an
Opinion of Counsel, adversely affect in any material respect the interests of
any Noteholder.
SECTION 9.2 Supplemental Indentures with Consent of Noteholders.
---------------------------------------------------
The Issuer and the Trustee, when authorized by an Issuer Order, also may, with
prior notice to the Rating Agency, with the prior written consent of the Insurer
(unless an Insurer Default shall have occurred and be continuing) and with the
consent of the Holders of not less than a majority of the Outstanding Amount of
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 Insurer under the Basic Documents, no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Note affected thereby:
(i) change the date of payment of any installment of principal
of or interest on any Note, or reduce the principal amount
thereof, the interest rate thereon or the Redemption Price
with respect thereto, change the provision of this Indenture
relating to the application of collections on, or the proceeds
of the sale of, the Trust Property to payment of principal of
or interest on the Notes, or change any place of payment
58
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where, or the coin or currency in which, any Note or the
interest thereon is payable;
(ii) impair the right to institute suit for the enforcement of the
provisions of this Indenture requiring the application of
funds available therefor, as provided in Article V, to the
payment of any such amount due on the Notes on or after
the respective due dates thereof (or, in the case of
redemption, on or after the Redemption Date);
(iii) reduce the percentage of the Outstanding Amount of the
Notes, the consent of the Holders of which is required for
any such supplemental indenture, or the consent of the
Holders of which is required for any waiver of compliance
with certain provisions of this Indenture or certain defaults
hereunder and their consequences provided for in this
Indenture;
(iv) modify or alter the provisions of the proviso to the
definition of the term "Outstanding";
(v) reduce the percentage of the Outstanding Amount of the
Notes required to direct the Trustee to direct the Issuer to
sell or liquidate the Trust Property pursuant to Section 5.4;
(vi) modify any provision of this Section except to increase any
percentage specified herein or to provide that certain
additional provisions of this Indenture or the Basic
Documents cannot be modified or waived without the
consent of the Holder of each Outstanding Note affected
thereby;
(vii) modify any of the provisions of this Indenture in such
manner as to affect the calculation of the amount of any
payment of interest or principal due on any 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
(viii) permit the creation of any lien ranking prior to or on a
parity with the lien of this Indenture with respect to any
part of the Trust Property or, except as otherwise permitted
or contemplated herein or in any of the Basic Documents,
terminate the lien of this Indenture on any property at any
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<PAGE>
time subject hereto or deprive the Holder of any Note of the
security provided by the lien of this Indenture.
The Trustee may determine whether or not any Notes would be adversely
affected by any supplemental indenture upon receipt of an Opinion of Counsel to
that effect and any such determination shall be conclusive upon the Holders of
all Notes, whether theretofore or thereafter authenticated and delivered
hereunder. The Trustee shall not be liable for any such determination made in
good faith.
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 9.3 Execution of Supplemental Indentures. In executing, or
------------------------------------
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modifications thereby of the trusts created
by this Indenture, the Trustee shall be entitled to receive, and subject to
Sections 6.1 and 6.2, shall be fully protected in relying upon, an Opinion of
Counsel (and, if requested, an Officer's Certificate) stating that the execution
of such supplemental indenture is authorized or permitted by this Indenture. The
Trustee may, but shall not be obligated to, enter into any such supplemental
indenture that affects the Trustee's own rights, duties, liabilities or
immunities under this Indenture or otherwise.
SECTION 9.4 Effect of Supplemental Indenture. Upon the execution of
--------------------------------
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and be deemed to be modified and amended in accordance therewith with
respect to the Notes affected thereby, and the respective rights, limitations of
rights, obligations, duties, liabilities and immunities under this Indenture of
the Trustee, the Issuer and the Holders of the Notes shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
SECTION 9.5 [Reserved].
----------
SECTION 9.6 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 Issuer shall, bear a
notation as to any matter provided for in such supplemental indenture. If the
Issuer shall so determine, new Notes so modified as to conform, in the opinion
of the Issuer, to any such supplemental indenture may be prepared and executed
by the Issuer and authenticated and delivered by the Trustee in exchange for
outstanding Notes.
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ARTICLE X.
Redemption of Notes
-------------------
SECTION 10.1 Redemption.
----------
(a) The Notes are subject to redemption in whole, but not in part, at
the direction of the Seller pursuant to Section 11.1(a) of the Sale and
Servicing Agreement, on any Payment Date on which the Seller or the Servicer,
acting on behalf of and at the direction of the Seller, exercises its option to
make all required payments on the Notes and retain the Trust Property. The
Servicer or the Issuer shall furnish the Insurer prior written notice of such
redemption. If the Notes are to be redeemed pursuant to this Section 10.1(a),
the Servicer or the Issuer shall furnish notice of such election to the Trustee
not later than 35 days prior to the Redemption Date and the Issuer shall deposit
with the Trustee in the Note Payment Account, the Redemption Price of the Notes
Five Business Days prior to the Redemption Date whereupon all such Notes shall
be due and payable on the Redemption Date upon the furnishing of a notice
complying with Section 10.2.
(b) In the event that the assets of the Trust are sold pursuant to
Section 9.1 of the Trust Agreement, all amounts on deposit in the Note Payment
Account shall be paid to the Noteholders up to the Outstanding Amount of the
Notes and all accrued and unpaid interest thereon. If amounts are to be paid to
Noteholders pursuant to this Section 10.1(b), the Servicer or the Issuer shall
furnish written notice of such event to the Trustee not later than 45 days prior
to the Redemption Date whereupon all such amounts shall be payable on the
Redemption Date.
SECTION 10.2 Form of Redemption Notice.
-------------------------
(a) Notice of redemption supplied to the Trustee by the Servicer
under Section 10.1(a) shall be given by the Trustee by facsimile or by first-
class mail, postage prepaid, transmitted or mailed prior to the applicable
Redemption Date to each Holder of Notes of record, as of the close of business
on the date which is four days prior to the applicable Redemption Date, at such
Holder's address appearing in the Note Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) that the Record Date otherwise applicable to such Redemption
Date is not applicable and that payments shall be made only upon
presentation and surrender of such Notes and the place where such Notes are
to be surrendered for payment of the Redemption Price (which shall be the
office or agency of the Issuer to be maintained as provided in Section
3.2); and
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(iv) that interest on the Notes shall cease to accrue on the
Redemption Date.
Notice of redemption of the Notes shall be given by the 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 Section 10.1(b) is not required
to be given to Noteholders.
SECTION 10.3 Notes Payable on Redemption Date. The Notes to be
--------------------------------
redeemed shall, following notice of redemption as required by Section 10.2 (in
the case of redemption pursuant to Section 10.1(a) or (b)), on the Redemption
Date become due and payable at the Redemption Price and (unless the 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 11.1 Compliance Certificates and Opinions, etc.
-----------------------------------------
(a) Upon any application or request by the Issuer to the Trustee or
the Trust Collateral Agent to take any action under any provision of this
Indenture, the Issuer shall furnish to the Trustee or the Trust Collateral
Agent, as the case may be, and to the Insurer if the application or request is
made to the Trust Collateral Agent (i) an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, and (ii) an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent, if any, have
been complied with.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that each signatory of such certificate or opinion
has read or has caused to be read such covenant or condition and the
definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(iii) a statement that, in the opinion of each such signatory, such
signatory has made such examination or investigation as is necessary to
enable
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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 Collateral or other property or
securities with the Trust Collateral Agent that is to be made the basis for
the release of any property or securities subject to the lien of this
Indenture, the Issuer shall, in addition to any obligation imposed in
Section 11.1(a) or elsewhere in this Indenture, furnish to the Trust
Collateral Agent and the Insurer an Officer's 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 Collateral or
other property or securities to be so deposited.
(ii) Whenever the Issuer is required to furnish to the Trust
Collateral Agent and the Insurer an Officer's 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 Trust Collateral
Agent and the Insurer an Independent Certificate as to the same matters, if
the fair value to the Issuer of the securities to be so deposited and of
all other such securities made the basis of any such withdrawal or release
since the commencement of the then-current fiscal year of the Issuer, as
set forth in the certificates delivered pursuant to clause (i) above and
this clause (ii), is 10% or more of the Outstanding Amount of the Notes;
provided, that such a certificate need not be furnished with respect to any
securities so deposited, if the fair value thereof to the Issuer as set
forth in the related Officer's Certificate is less than $25,000 or less
than 1% percent of the Outstanding Amount of the Notes.
(iii) Other than with respect to the release of any Purchased
Receivables or Liquidated Receivables, whenever any property or securities
are to be released from the lien of this Indenture, the Issuer shall also
furnish to the Trust Collateral Agent and the Insurer an Officer's
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
under this Indenture in contravention of the provisions hereof.
(iv) Whenever the Issuer is required to furnish to the Trustee and
the Insurer an Officer's 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 Trust Collateral Agent and the Insurer an
Independent Certificate as to the same matters if the fair value of the
property or securities and of all other property other than Purchased
Receivables and Defaulted Receivables, or securities released from the lien
of this Indenture since the commencement of the then current calendar 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
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Notes; provided, that 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 Officer's Certificate is less than $25,000 or less
than 1 percent of the then Outstanding Amount of the Notes.
(v) Notwithstanding Section 2.10 or any other provision of this
Section, the Issuer may (A) collect, liquidate, sell or otherwise dispose
of Receivables as and to the extent permitted or required by the Basic
Documents and (B) make cash payments out of the Trust Accounts as and to
the extent permitted or required by the Basic Documents.
SECTION 11.2 Form of Documents Delivered to Trustee. In any case
--------------------------------------
where several matters are required to be certified by, or covered by an opinion
of, any specified Person, it is not necessary that all such matters be certified
by, or covered by the opinion of, only one such Person, or that they be so
certified or covered by only one document, but one such Person may certify or
give an opinion with respect to some matters and one or more other such Persons
as to other matters, and any such Person may certify or give an opinion as to
such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his or her certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer
or Opinion of Counsel may be based, insofar as it relates to factual matters,
upon a certificate or opinion of, or representations by, an officer or officers
of the Servicer, the Seller or the 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 conclusively rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
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SECTION 11.3 Acts of Noteholders.
-------------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders in person or by agents
duly appointed in writing; and 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 6.1) conclusive in
favor of the Trustee and the Issuer, if made in the manner provided in this
Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any customary manner of the Trustee.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of 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 11.4 Notices, etc. to Trustee, Issuer and Rating Agency. Any
--------------------------------------------------
request, demand, authorization, direction, notice, consent, waiver or Act of
Noteholders or other documents provided or permitted by this Indenture 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 personally delivered, delivered by
overnight courier or mailed first-class and shall be deemed to have been duly
given upon receipt to the Trustee at its Corporate Trust Office, or
(b) The Issuer by the Trustee or by any Noteholder shall be
sufficient for every purpose hereunder if personally delivered, delivered by
facsimile or overnight courier or mailed first class, and shall be deemed to
have been duly given upon receipt to the Issuer addressed to: TFC Automobile
Receivables Trust 1999-1, in care of Wilmington Trust Company, Rodney Square
North, 1100 North Market Street, Wilmington, DE 19890-0001 Attention: Corporate
Trust Administration, or at any other address previously furnished in writing to
the Trustee by Issuer. The Issuer shall promptly transmit any notice received by
it from the Noteholders to the Trustee.
(c) The Insurer by the Issuer or the Trustee shall be sufficient for
any purpose hereunder if in writing and mailed by first-class mail personally
delivered or telexed or telecopied to the recipient as follows:
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To the Insurer: Asset Guaranty Insurance Company
335 Madison Avenue
New York, NY 10017-4605
Attention: Manager, Asset-Backed
Surveillance
Fax No.: (212) 682-5377
Tel. No.: (212) 983-5859
(In each case in which notice or other communication to
the Insurer refers to an Event of Default, a claim on
the Note Policy or with respect to which failure on the
part of the Insurer to respond shall be deemed to
constitute consent or acceptance, then a copy of such
notice or other communication should also be sent to
the attention of Kim Nance-Meier (Fax No.: (212) 682-
5377).
Notices required to be given to the Rating Agency by
the Issuer, the Trustee or the Owner Trustee shall be
in writing, personally delivered, delivered by
overnight courier or first class or via facsimile to
(i) Standard & Poor's, at the following address:
Standard & Poor's Ratings Services, 26 Broadway (15th
Floor), New York, New York 10004, Attention: Asset
Backed Surveillance Department, Fax No: (212) 412-0224,
or at such other address as shall be designated by
written notice to the other parties.
SECTION 11.5 Notices to Noteholders; Waiver. Where this Indenture
------------------------------
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if 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 to Noteholders when such notice is required to be
given pursuant to any provision
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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 Agency, failure
to give such notice shall not affect any other rights or obligations created
hereunder, and shall not under any circumstance constitute a Default or Event of
Default.
SECTION 11.6 Alternate Payment and Notice Provisions.
---------------------------------------
Notwithstanding any provision of this Indenture or any of the Notes to the
contrary, the Issuer may enter into any agreement with any Holder of a Note
providing for a method of payment, or notice by the Trustee or the Note Paying
Agent to such Holder, that is different from the methods provided for in this
Indenture for such payments or notices, provided that such methods are
reasonable and consented to by the Trustee (which consent shall not be
unreasonably withheld). 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 11.7 [Reserved].
----------
SECTION 11.8 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 11.9 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. All agreements of the Trust Collateral
Agent in this Indenture shall bind its successors.
SECTION 11.10 Separability. In case any provision in this Indenture
------------
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 11.11 Benefits of Indenture. Nothing in this Indenture or in
---------------------
the Notes, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Noteholders, and the Owner
Trustee and any other party secured hereunder, and any other person with an
ownership interest in any part of the Trust Property, any benefit or any legal
or equitable right, remedy or claim under this Indenture.
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SECTION 11.12 Legal Holidays. In any case where the date on which any
--------------
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date an which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
SECTION 11.13 Governing Law. THIS INDENTURE SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.14 Counterparts. This Indenture may be executed in any
------------
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 11.15 Recording of Indenture. If this Indenture is subject to
----------------------
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Trust or any other counsel reasonably acceptable to
the Trustee and the Insurer) to the effect that such recording is necessary
either for the protection of the Noteholders or any other person secured
hereunder or for the enforcement of any right or remedy granted to the Trustee
or the Trust Collateral Agent under this Indenture or the Sale and Servicing
Agreement.
SECTION 11.16 Trust Obligation. No recourse may be taken, directly
----------------
or indirectly, with respect to the obligations of the Issuer, the Seller, the
Servicer, the Owner Trustee, the Trust Collateral Agent 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 Insurer, the Seller, the
Servicer, the Trust Collateral Agent, 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 Insurer, the Seller, the Servicer, the Trust Collateral Agent, the
Trustee or the Owner Trustee in its individual capacity, any holder of a
beneficial interest in the Issuer, the Seller, the Trust Collateral Agent, the
Servicer, the Owner Trustee or the Trustee or of any successor or assign of the
Seller, the Servicer, the Trust Collateral Agent, 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, the Trust Collateral Agent and the
Owner Trustee have no such obligations in their individual capacity) and except
that any such owner or beneficiary shall be fully liable, to the extent provided
by applicable law, for any unpaid consideration for stock, unpaid capital
contribution or failure to pay any installment or call owing to such entity. For
all purposes of this Indenture, in the performance of any duties or obligations
of the Issuer hereunder, the Owner Trustee shall be subject to, and entitled to
the benefits of, the terms and provisions of the Trust Agreement.
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SECTION 11.17 No Petition. The Trustee and the Trust 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 Basic Documents.
SECTION 11.18 Inspection. The Issuer agrees that, on reasonable prior
----------
notice, it will permit any representative of the Trustee, the Insurer and the
Holders of Notes evidencing not less than 25% of the Outstanding Amount thereof
(for purpose of this Section 11.18 only, the principal amount of Notes
Outstanding held by Persons that are affiliates may be aggregated for purposes
of satisfying the 25% threshold), during the Issuer's normal business hours, to
examine all the books of account, records, reports, and other papers of the
Issuer, at the Issuer's expense, 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; provided, however, that if
-------- -------
the Insurer is the Controlling Party, any expenses of the Noteholders incurred
in connection with this Section 11.18 shall be borne by the Noteholders and not
the Issuer. The Trustee, the Insurer and the Noteholders referenced above, 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 Wilmington Trust Company, 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 Wilmington Trust Company 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 Wilmington Trust Company individually or personally,
to perform any covenant either expressed or implied contained herein, all such
liability, if any, being expressly waived by the parties to this Agreement and
by any person claiming by, through or under them and (d) under no circumstances
shall Wilmington Trust Company be personally liable for the payment of any
indebtedness or expenses of the Issuer or be liable for the breach or failure of
any obligation, representation, warranty or covenant made or undertaking by the
Issuer under this Agreement or any related documents.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Insurer, the Issuer, the Trustee and the Trust
Collateral Agent have caused this Indenture to be duly executed by their
respective officers, hereunto duly authorized, all as of the day and year first
above written.
ASSET GUARANTY INSURANCE COMPANY
By:_______________________________
Name:
Title:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, not in
its individual capacity but solely as Trustee and Trust
Collateral Agent
By:_______________________________
Name:
Title
TFC AUTOMOBILE RECEIVABLES
TRUST 1999-1
By: WILMINGTON TRUST COMPANY, not in
its individual capacity but solely as Owner
Trustee
By:_______________________________
Name:
Title:
[Signature Page for the Indenture]
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EXHIBIT A
[Form of Note]
REGISTERED $[__________]
No. A - 1
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP No. [__________]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS
OR "BLUE SKY' LAWS. THE HOLDER HEREOF, BY PURCHASING ANY NOTE, AGREES
FOR THE BENEFIT OF THE ISSUER THAT SUCH NOTE IS BEING ACQUIRED FOR ITS
OWN ACCOUNT AND NOT WITH A VIEW TO DISTRIBUTION AND MAY BE RESOLD,
PLEDGED OR TRANSFERRED ONLY TO (1) THE ISSUER (UPON REDEMPTION
THEREOF OR OTHERWISE), (2) TO A PERSON THE TRANSFEROR REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, OR (3) PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER JURISDICTION, IN EACH SUCH CASE, IN COMPLIANCE WITH THE
INDENTURE AND ALL APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER JURISDICTION.
Unless this Note is presented to the Issuer or its agent for
registration of transfer, exchange or payment, ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, has an interest herein.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH
HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME
MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
TFC AUTOMOBILE RECEIVABLES TRUST 1999-1
7.50% ASSET BACKED NOTES
B-1
<PAGE>
TFC Automobile Receivables Trust 1999-1, a business trust organized
and existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to [__________], the
principal sum of $[__________], such amount payable on each Payment Date in an
amount equal to the result obtained by multiplying (i) a fraction the numerator
of which is $[__________] and the denominator of which is $[__________] by (ii)
the aggregate amount, if any, on such Payment Date payable from the Note Payment
Account in respect of principal on the Notes pursuant to Section 3.1 of the
Indenture until the Note Balance is equal to zero; provided, however, that the
entire unpaid principal amount of this Note shall be due and payable on the
April, 2004 Payment Date (the "Final Scheduled Payment Date"). This Note shall
bear interest from the Closing Date until the principal of this Note is paid (or
made available for payment) at the rate per annum shown above (the "Interest
Rate"). Interest on this Note shall be paid as provided in Section 3.1 of the
Indenture. Interest on this Note shall accrue and be calculated on the basis of
a 360-day year consisting of twelve 30-day months. Interest on this Note shall
be paid on each Payment Date in an amount equal to the product of (i) one-
twelfth (or, in the case of the first Payment Date only, a fraction, the
numerator of which is equal to the number of days in the initial Interest Period
and the denominator of which is equal to 360) of the Interest Rate and (ii) the
principal amount of this Note outstanding on the preceding Payment Date (after
giving effect to all payments of principal made on the preceding Payment Date)
or, in the case of the first Payment Date only, on the Closing Date. Such
principal of and interest on this Note shall be paid in the manner specified on
the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
The Notes are entitled to the benefits of a financial guaranty
insurance policy (the "Note Policy") issued by Asset Guaranty Insurance Company
(the "Insurer"), pursuant to which the Insurer has unconditionally guaranteed
payments of the Noteholders' Interest Payment Amount on each Payment Date and
the Noteholders' Principal Payment Amount on the Final Scheduled Payment Date,
all as more fully set forth in the Indenture.
For purposes of federal income, state and local income and franchise
and any other income taxes, the Issuer will treat the Notes as indebtedness of
the Issuer and hereby instructs the Trustee to treat the Notes as indebtedness
of the Issuer for federal and state tax reporting purposes.
Each Noteholder, by acceptance of this Note, covenants and agrees that
no recourse may be taken, directly or indirectly, with respect to the
obligations of the Issuer, the Owner Trustee or the Trustee on the Notes or
under the Indenture or any certificate or other writing delivered in connection
therewith, against (i) the Insurer, the Seller, the Servicer, the Trustee, the
Trust Collateral Agent or the Owner Trustee in its individual capacity, (ii) any
owner of a beneficial interest in the Issuer or (iii) any owner,
B-2
<PAGE>
beneficiary, agent, officer, director or employee of the Insurer, the Seller,
the Servicer, the Trustee, the Trust Collateral Agent or the Owner Trustee in
its individual capacity, any holder of a beneficial interest in the Issuer, the
Seller, the Servicer, the Trust Collateral Agent, the Owner Trustee or the
Trustee or of any successor or assign of the Seller, the Servicer, the Trustee,
the Trust Collateral Agent or the Owner Trustee in its individual capacity,
except as any such Person may have expressly agreed (it being understood that
the Trustee, the Trust Collateral Agent and the Owner Trustee have no such
obligations in their individual capacity) and except that any such owner or
beneficiary shall be fully liable, to the extent provided by applicable law, for
any unpaid consideration for stock, unpaid capital contribution or failure to
pay any installment or call owing to such entity.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, which shall have the same effect as though fully set forth
on the face of this Note.
Unless the certificate of authentication hereon has been executed by
the Trustee whose name appears below by manual signature, this Note shall not be
entitled to any benefit under the Indenture referred to on the reverse hereof,
or be valid or obligatory for any purpose.
B-3
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer as of the date set
forth below.
TFC AUTOMOBILE RECEIVABLES
TRUST 1999-1
By: WILMINGTON TRUST COMPANY, not in its individual
capacity but solely as Owner Trustee under the Trust
Agreement
By: _________________________________
Name:
Title:
Date: December 3, 1999
B-4
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
Date: December 3, 1999 NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, not in its
individual capacity but solely as Trustee
By___________________________
Authorized Signatory
B-5
<PAGE>
REVERSE OF NOTE
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its 7.50% Asset Backed Notes (herein called the "Notes"), all
issued under an Indenture dated as of December 1, 1999 (such indenture, as
supplemented or amended, is herein called the "Indenture"), among the Insurer,
the Issuer and Norwest Bank Minnesota, National Association, as trustee and
trust collateral agent (the "Trustee", which term includes any successor Trustee
under the Indenture, and the "Trust Collateral Agent", which term includes any
successor Trust Collateral Agent under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement of
the respective rights and obligations thereunder of the Insurer, the Issuer, the
Trustee, the Trust Collateral Agent and the Holders of the Notes. The Notes are
subject to all terms of the Indenture. All terms used in this Note that are
defined in the Indenture, as supplemented or amended, shall have the meanings
assigned to them in or pursuant to the Indenture, as so supplemented or amended.
The Notes are and will be equally and ratably secured by the
collateral pledged as security therefor as provided in the Indenture.
Principal of the Notes will be payable on each Payment Date in an
amount described on the face hereof. "Payment Date" means the 15th day of each
month, or, if any such date is not a Business Day, the next succeeding Business
Day, commencing December 15, 1999.
As described above, the entire unpaid principal amount of this Note
shall be due and payable on the earlier of the Final Scheduled Payment Date and
the Redemption Date, if any, pursuant to Section 10.1(a) or 10.1(b) of the
Indenture. Notwithstanding the foregoing, the entire unpaid principal amount of
the Notes shall be due and payable (i) on the date on which an Insurance
Agreement Indenture Cross Default shall have occurred and the Insurer shall have
delivered to the Trustee a written notice specifying that an Insurance Agreement
Indenture Cross Default constituting an Event of Default under the Indenture has
occurred or (ii) 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 the Holders of the Notes representing at least 66-2/3% of the
Outstanding Amount of the Notes have declared the Notes to be immediately due
and payable in the manner provided in Section 5.2 of the Indenture. All
principal payments on the Notes shall be made pro rata to the Noteholders
entitled thereto.
Payments of interest on this Note due and payable on each Payment
Date, together with the installment of principal, if any, to the extent not in
full payment of this Note, shall be made by wire transfer in immediately
available funds to the Person whose name appears as the Holder of this Note on
the Note Register as of the close of business on the related Record Date. Such
payments shall be wired to the Person entitled thereto to the account of such
Person as it appears on the Note Register as of the applicable Record Date
without requiring that this Note be submitted for notation of payment. Any
reduction in the principal amount of this Note effected by any payments made on
any Payment Date shall be binding upon all future Holders of this Note and of
any Note
B-6
<PAGE>
issued upon the registration of transfer hereof or in exchange hereof or in lieu
hereof, whether or not noted hereon. If funds are expected to be available, as
provided in the Indenture, for payment in full of the then remaining unpaid
principal amount of this Note on a Payment Date, then the Trustee, in the name
of and on behalf of the Issuer, will notify the Person who was the Holder hereof
as of the Record Date preceding such Payment Date by notice mailed prior to such
Payment Date and the amount then due and payable shall be payable only upon
presentation and surrender of this Note at the Trustee's principal Corporate
Trust Office or at the office of the Trustee's agent appointed for such purposes
located in Minneapolis, Minnesota; provided, however, that such presentation and
surrender shall be waived with respect to any Noteholder upon satisfaction by
the Noteholder of the indemnity requirements set forth in the Indenture (and not
rescinded).
The Issuer shall pay interest on overdue installments of interest at
the Interest Rate to the extent lawful.
As provided in the Indenture, the Notes may be redeemed pursuant to
Section 10.1(a) of the Indenture, in whole, but not in part, at the option of
the Seller on any Payment Date on or after the date on which the Pool Balance is
less than or equal to 15% of the Original Pool Balance.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, (i) duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Trustee duly executed by, the Holder hereof or his attorney duly authorized in
writing, with such signature guaranteed by an "eligible guarantor institution"
meeting the requirements of the Note Registrar which requirements include
membership or participation in Securities Transfer Agents Medallion Program
("Stamp") or such other "signature guarantee program" as may be determined by
the Note Registrar in addition to, or in substitution for, Stamp, all in
accordance with the Exchange Act, and (ii) accompanied by such other documents
as the Trustee may require, and thereupon one or more new Notes of authorized
denominations and in the same aggregate principal amount will be issued to the
designated transferee or transferees. No service charge will be charged for any
registration of transfer or exchange of this Note, but the transferor may be
required to pay a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection with any such registration of transfer or
exchange. Each Noteholder, by acceptance of a Note, covenants and agrees to
treat the Notes as indebtedness for federal, state and local income and
franchise tax purposes.
Each Noteholder, by acceptance of a Note, covenants and agrees that by
accepting the benefits of the Indenture that such Noteholder will not at any
time institute against the 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
B-7
<PAGE>
connection with any obligations relating to the Notes, the Indenture or the
Basic Documents.
Each purchaser of this Note will be deemed to have represented that
either (a) it is not a Benefit Plan and is not acting on behalf of or investing
the assets of a Benefit Plan or (b) the transferee's purchase and holding of
such interest will be covered by a U.S. Department of Labor Prohibited
Transaction Class Exemption or (c) the source of funds to be used by the
Purchaser to the Purchase Price of the Securities is an insurance company
general account (as defined in the annual statement for life insurance companies
approved by the National Association of Insurance Commissioners (the "NAIC
Annual Statement") and before reduction for credits on account of any
reinsurance ceded on the coinsurance basis) (the "Reserves and Liabilities"),
for the general account contract(s) held by or on behalf of any Plan, together
with the amount of the Reserves and Liabilities for the general account
contract(s) held by or on behalf of any other Plans maintained by the same
employer (or any "affiliate") thereof within the meaning of Section V(a)(1) of
PTCE 95-60), does not exceed 10% of the total Reserves and Liabilities of such
general account plus surplus, as set forth in the NAIC Annual Statement filed
with the state of domicile of the insurance company maintaining such general
account.
Prior to the due presentment for registration of transfer of this
Note, the Issuer, the Trustee and the Insurer and any agent of the Issuer, the
Trustee or the Insurer may treat the Person in whose name this Note (as of the
day of determination or as of such other date as may be specified in the
Indenture) is registered as the owner hereof for all purposes, whether or not
this Note be overdue, and neither the Issuer, the Trustee nor any such agent
shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Insurer and of the Holders of Notes
representing a majority of the Outstanding Amount of all Notes at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
Notes representing specified percentages of the Outstanding Amount of the Notes,
on behalf of the Holders of all the Notes, to waive compliance by the Issuer
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange hereof or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note. The Indenture also permits the
Trustee to amend or waive certain terms and conditions set forth in the
Indenture without the consent of Holders of the Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
B-8
<PAGE>
The Issuer is permitted by the Indenture, under certain circumstances,
to merge or consolidate, subject to the rights of the Trustee and the Holders of
Notes under the Indenture.
The Notes are issuable only in definitive form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
This Note and the Indenture shall be construed in accordance with the
laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place, and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Indenture or the Basic Documents, neither Wilmington Trust
Company in its individual capacity, any owner of a beneficial interest in the
Issuer, nor any of their respective beneficiaries, agents, officers, directors,
employees or successors or assigns shall be personally liable for, nor shall
recourse be had to any of them for, the payment of principal of or interest on,
or performance of, or omission to perform, any of the covenants, obligations or
indemnifications contained in this Note or the Indenture, it being expressly
understood that said covenants, obligations and indemnifications have been made
by the Issuer for the sole purposes of binding the interests of the Issuer in
the assets of the Issuer. The Holder of this Note by the acceptance hereof
agrees that except as expressly provided in the Indenture or the Basic
Documents, in the case of an Event of Default under the Indenture, the Holder
shall have no claim against any of the foregoing for any deficiency, loss or
claim therefrom; provided, however, that nothing contained herein shall be taken
to prevent recourse to, and enforcement against, the assets of the Issuer for
any and all liabilities, obligations and undertakings contained in the Indenture
or in this Note.
B-9
<PAGE>
ASSIGNMENT
Social Security or Taxpayer I.D. or other identifying number of assignee: ______
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
________________________________________________________________________
________________________________________________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints __________________________, attorney, to transfer said Note on the
books kept for registration thereof, with full power of substitution in the
premises.
Dated: ________________ _____________________________*
Signature Guaranteed:
Dated: ________________ _____________________________
_______________________
*NOTICE: The signature to this assignment must correspond with the
name of the registered owner as it appears on the face of the within Note in
every particular, without alteration, enlargement or any change whatever.
B-10
<PAGE>
[Execution Version]
INSURANCE AND REIMBURSEMENT AGREEMENT
among
ASSET GUARANTY INSURANCE COMPANY,
TFC AUTOMOBILE RECEIVABLES TRUST 1999-1,
TFC RECEIVABLES CORPORATION 2,
THE FINANCE COMPANY,
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Dated as of December 1, 1999
<PAGE>
INSURANCE AND REIMBURSEMENT AGREEMENT
THIS INSURANCE AND REIMBURSEMENT AGREEMENT (this "Insurance Agreement") is
-------------------
made as of December 1, 1999 among Asset Guaranty Insurance Company, a stock
insurance company incorporated in the State of New York, as note insurer
("AGIC"), TFC Automobile Receivables Trust 1999-1, a Delaware business trust
----
(individually, the "Trust"), as issuer (the "Issuer"), TFC Receivables
----- ------
Corporation 2, a Delaware corporation ("TFCRC"), The Finance Company, a Virginia
-----
corporation (individually, "TFC") and as servicer (together with its successors
---
and assigns in such capacity, including without limitation the Back-up Servicer
(as defined below) and any successor servicer appointed pursuant to the Sale and
Servicing Agreement (as defined below), the "Servicer") and Norwest Bank
--------
Minnesota, National Association, a national banking association (individually
"Norwest"), as trustee (together with its successors and assigns, in such
- --------
capacity, the "Trustee"), as trust collateral agent (together with its
-------
successors and assigns, in such capacity, the "Trust Collateral Agent"), and as
----------------------
back-up servicer (in such capacity, the "Back-up Servicer").
----------------
PRELIMINARY STATEMENTS
The Issuer will issue (a) the TFC 7.50% Asset Backed Notes, Series 1999-1
(the "Notes") pursuant to the Indenture, dated as of December 1, 1999, among the
-----
Issuer, AGIC and Norwest as Trustee and Trust Collateral Agent (as the same may
be amended, restated, supplemented or otherwise modified from time to time, the
"Indenture") and (b) a certificate (the "Certificate") pursuant to the Amended
--------- -----------
and Restated Trust Agreement, dated as of December 1, 1999, between Wilmington
Trust Company as owner trustee (together with its successors and assigns, in
such capacity, the "Owner Trustee") and TFCRC as depositor (as the same may be
-------------
amended, restated, supplemented or otherwise modified from time to time, the
"Trust Agreement").
- ----------------
Pursuant to the Indenture, the Issuer will grant to the Trust Collateral
Agent for the benefit of the Trustee on behalf of the Noteholders and AGIC, to
secure repayment of the Notes (and other related amounts), a security interest
in collateral consisting of all of the Issuer's right, title and interest in, to
and under a pool of receivables, including, among other types of receivables,
receivables of retail installment sale contracts secured by the financed
vehicles and certain other assets and rights, all as more fully set forth in the
Indenture (the "Trust Property"). Such receivables and related assets
--------------
constituting a part of the Trust Property were sold to the Issuer pursuant to
the Sale and Servicing Agreement, dated as of December 1, 1999, among the
Issuer, TFCRC as seller (the "Seller"), the Servicer, AGIC, the Trust Collateral
------
Agent, the Back-up Servicer and Norwest as P.O. Box owner (as the same may be
amended, restated, supplemented or otherwise modified from time to time, the
"Sale and Servicing Agreement"); and
----------------------------
AGIC is authorized to transact a financial guaranty insurance business in
the State of New York and has agreed, subject to the terms and conditions of
this Insurance Agreement, to issue to the Trustee, for the benefit of the
Noteholders, a financial guaranty insurance policy substantially in the form of
Exhibit A hereto (the "Policy"); and
------
2
<PAGE>
The parties hereto, among other things, desire to specify the conditions
precedent to the issuance by AGIC of the Policy, the obligations of the Issuer,
the Servicer, the Back-up Servicer and TFC, as applicable, to make payments in
respect of premiums, reimbursement obligations and other amounts relating to the
Policy, and to perform certain other obligations in respect of the issuance of
the Policy, and to provide for certain other matters related thereto.
NOW, THEREFORE, in consideration of the premises and of the agreements
herein contained, AGIC, the Issuer, the Servicer, TFC, the Parent, the Trustee,
the Trust Collateral Agent and the Back-up Servicer agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. General Definitions. The terms defined in this Article I
-------------------
shall have the meanings provided herein for all purposes of this Insurance
Agreement, unless the context clearly requires otherwise, in both singular and
plural form, as appropriate. Capitalized terms used and not otherwise defined
herein shall have the meanings assigned to such terms in the Indenture or the
Sale and Servicing Agreement (as applicable).
"Affiliate" means, as 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" or "controlled" have meanings
correlative to the foregoing.
"AGIC" has the meaning assigned to such term in the Preliminary Statements
----
above.
"AGIC Information" has the meaning given to such term under the
----------------
Indemnification Agreement.
"Back-up Servicer" has the meaning assigned to such term in the Preliminary
----------------
Statements above.
"Certificate" has the meaning assigned to such term in the Preliminary
-----------
Statements above.
"Closing Date" means December 1, 1999.
------------
"Commonly Controlled Entity" means TFC and each entity, whether or not
--------------------------
incorporated, which is affiliated with TFC pursuant to Section 414(b), (c), (m)
or (o) of the Code.
"Cumulative Net Loss Rate" means with respect to any Determination Date,
------------------------
the fraction, expressed as a percentage, the numerator of which is equal to the
aggregate amount of Net Losses through the end of the related Monthly Period for
such Determination Date and the denominator of which is equal to the Original
Pool Balance.
3
<PAGE>
"Cumulative Net Loss Test Failure" means, with respect to any Determination
--------------------------------
Date occurring during a period set forth below, the Cumulative Net Loss Rate for
such Determination Date shall be greater than the percentage set forth below
opposite the period during which such Determination Date occurs:
<TABLE>
<CAPTION>
Period Maximum Percentage
------ ------------------
<S> <C>
from the Initial Cut-Off Date to third Monthly 1.40%
Period to occur after the Initial Cut-Off Date
from the fourth Monthly Period to occur 4.80%
after the Initial Cut-Off Date to sixth Monthly
Period to occur after the Initial Cut-Off Date
from the seventh Monthly Period to occur 11.30%
after the Initial Cut-Off Date to the ninth Monthly
Period to occur after the Initial Cut-Off Date
from the tenth Monthly Period to occur 17.50%
after the Initial Cut-Off Date to the 12th Monthly
Period to occur after the Initial Cut-Off Date
from the 13th Monthly Period to occur 17.80%
after the Initial Cut-Off Date to the 15th Monthly
Period to occur after the Initial Cut-Off Date
from the 16th Monthly Period to occur 18.20%
after the Initial Cut-Off Date to the 18th Monthly
Period to occur after the Initial Cut-Off Date
from the 19th Monthly Period to occur 19.10%
after the Initial Cut-Off Date to the 21st Monthly
Period to occur after the Initial Cut-Off Date
from the 22nd Monthly Period to occur 20.00%
after the Initial Cut-Off Date to the 24th Monthly
Period to occur after the Initial Cut-Off Date
from the 25th Monthly Period to occur 20.90%
after the Initial Cut-Off Date to the 27th Monthly
Period to occur after the Initial Cut-Off Date
from the 28th Monthly Period to occur after 21.80%
after the Initial Cut-Off Date and at any time
thereafter.
</TABLE>
"Delinquency Category" means (a) for Receivables having monthly Scheduled
--------------------
Payments ("Monthly-Pay Contracts, as defined in Schedule 1) in respect of which
the relevant Obligor shall have failed to make a Scheduled Payment or a portion
thereof on the due date therefor, the
4
<PAGE>
applicable Delinquency Category into which such Receivable falls based on the
number of months delinquent, as described in Schedule 1 hereto and (b) for
Receivables not having monthly Scheduled Payments ("Non-Monthly-Pay Contracts,"
as defined in Schedule 1) in respect of which the relevant Obligor shall have
failed to make a Scheduled Payment or a portion thereof on the due date
therefor, the applicable Delinquency Category into which such Receivable falls
based on the number of weeks delinquent, as described in Schedule 1 hereto.
"Delinquent Receivable" means a Receivable which (a) falls into any
---------------------
Delinquency Category other than the "Current" category (as described in Schedule
I hereto) and (b) is not a Liquidated Receivable.
"Deemed Cured" means, as of a Determination Date, (a) with respect to a
------------
Trigger Event that has occurred solely as a result of the occurrence of a
Delinquency Test Failure, that no Trigger Event or any Insurance Agreement Event
of Default shall have occurred as of such Determination Date or as of any of the
three (3) next preceding Determination Dates; or (b) with respect to any other
Trigger Event, that no Trigger Event or any Insurance Agreement Event of Default
shall have occurred as of such Determination Date or as of any of the six (6)
next preceding Determination Dates.
"Default" means any event which results, or which with the giving of notice
-------
or the lapse of time or both would result, in an Insurance Agreement Event of
Default.
"Delinquency Ratio" means, with respect to any Determination Date, the
-----------------
fraction, expressed as a percentage, (a) the numerator of which is equal to the
sum of the Principal Balances (as of the related Accounting Date) of all
Receivables that are Delinquent Receivables as of the related Accounting Date,
or that became Purchased Receivables as of the related Accounting Date and were
Delinquent Receivables as of such Accounting Date and (b) the denominator of
which is equal to the Aggregate Principal Balance as of such Accounting Date.
"Delinquency Test Failure" means, with respect to any Determination Date
------------------------
occurring during a period set forth below, the arithmetic average of the
Delinquency Ratios for such Determination Date and the two immediately preceding
Determination Dates shall be greater than the percentage set forth below
opposite the period during which such Determination Date occurs:
<TABLE>
<CAPTION>
Period Maximum Percentage
------ ------------------
<S> <C>
from the Initial Cut-Off Date to the 12th 17.00%
Monthly Period to occur after the
Initial Cut-Off Date
from the 13th Monthly Period to 20.00%
occur after the Initial Cut-Off Date to the
18th Monthly Period to occur after
the Initial Cut-Off Date
from the 19th Monthly Period to occur 25.00%
after the Initial Cut-Off Date and at any time
</TABLE>
5
<PAGE>
thereafter.
"ERISA" means the Employee Retirement Income Security Act of 1974,
-----
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"Event of Default" has the meaning assigned to such term in the Indenture.
----------------
"Financial Statements" means with respect to each of TFC and the Parent,
--------------------
the audited consolidated balance sheets as of December 31, 1998 and the
statements of income, shareholder's equity and cash flows for the 12-month
period then ended and the notes thereto, and the unaudited consolidated balance
sheets as of June 30, 1999 and the consolidated statements of income and cash
flows for the fiscal quarter then ended.
"Fort Knox Acknowledgment Letter" means the letter agreement by TFC, dated
-------------------------------
as of December 1, 1999, acknowledged and agreed to by Fort Knox National Company
and the Trust Collateral Agent.
"Fort Knox Additional Letters" means (a) the letter agreement by TFC, dated
----------------------------
as of December __, 1999, acknowledged and agreed to by Fort Knox National
Company and the Trust Collateral Agent (with respect to TFC's TrueCheck Program)
and (b) the letter agreement by TFC, dated as of December __, 1999, acknowledged
and agreed to by Fort Knox National Company and the Trust Collateral Agent (with
respect to TFC's ACH Program).
"GAAP" means generally accepted accounting principles in effect from time
----
to time in the United States of America.
"GE Capital" means General Electric Capital Corporation, a New York
----------
corporation.
"GE Capital Agreement" means the Amended and Restated Motor Vehicle
--------------------
Installment Contract Loan and Security Agreement, dated as of January 1, 1999,
between GE Capital as lender and TFC as borrower.
"Governmental Authority" means any nation or government, any state or other
----------------------
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government
as in effect on the date hereof.
"Indemnification Agreement" means the Indemnification Agreement, dated as
-------------------------
of December 1, 1999, among AGIC, the Issuer, the Placement Agent and TFC.
"Indenture" has the meaning assigned to such term in the Preliminary
---------
Statements above.
"Independent Accountants" has the meaning specified in Section 4.01(q).
-----------------------
"Independent Director" means a natural person who (i) is not a stockholder
--------------------
(whether direct, indirect or beneficial), customer, advisor or supplier of
TFCRC, the Parent or any of their respective Affiliates (other than by means of
indirect stock ownership of TFCRC or the Parent or of any of their respective
Affiliates by any Person through a mutual fund or similar diversified
6
<PAGE>
investment pool); (ii) is not a director, officer, employee or Affiliate of
TFCRC or the Parent or any of their respective Affiliates; (iii) is not a Person
related to any Person referred to in clauses (i) and (ii); (iv) is not a
trustee, conservator or receiver for any of TFCRC or the Parent or any of their
respective Affiliates; and (v) has (A) prior experience as an independent
director or independent manager for a corporation or limited liability company
whose charter documents require the unanimous written consent of all independent
directors or independent managers thereof before such corporation or limited
liability company could consent to the institution of bankruptcy or insolvency
proceedings against it or could file a petition seeking relief under any
applicable federal or state law relating to bankruptcy, and (B) at least three
years of employment experience with one or more entities that provide, in the
ordinary course of their respective businesses, advisory, management or
placement services to issuers of securitization or structured finance
instruments, agreements or securities.
"Initial Cutoff Date" means August 31, 1999.
-------------------
"Initial Spread Account Deposit Amount" means 4.00% of the Original Pool
-------------------------------------
Balance.
"Insurance Agreement" has the meaning assigned to such term in the
-------------------
Preliminary Statements above.
"Insurance Agreement Event of Default" has the meaning specified in Section
------------------------------------
6.01.
"Insurance Agreement Indenture Cross Default" means any Insurance Agreement
-------------------------------------------
Event of Default specified in clauses (a), (c) (e), (f), (l), (m) of Section
6.01.
"Investment Company Act" means the Investment Company Act of 1940,
----------------------
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"IRS" means the Internal Revenue Service.
---
"Issuer" has the meaning assigned to such term in the Preliminary
------
Statements above.
"Lien" means, as applied to the property or assets (or the income or
----
profits therefrom) of any Person, in each case whether the same is consensual or
nonconsensual or arises by contract, operation of law, legal process or
otherwise: (a) any mortgage, lien, pledge, attachment, charge, lease,
conditional sale or other title retention agreement, or other security interest
or encumbrance of any kind or (b) any arrangement, express or implied, under
which such property or assets are transferred, sequestered or otherwise
identified for the purpose of subjecting or making available the same for the
payment of debt or performance of any other obligation in priority to the
payment of the general, unsecured creditors of such Person.
"Material Adverse Change" means, (a) in respect of any Person, a material
-----------------------
adverse change in (i) the business, financial condition, results of operations
or properties of such Person or any of its Subsidiaries or (ii) the ability of
such Person to perform its obligations under any of the Basic Documents to which
it is a party and (b) in respect of the Receivables, a material adverse change
in (i) the value or marketability of the Receivables, taken as a whole, or (ii)
the
7
<PAGE>
probability that amounts now or hereafter due in respect of a material portion
of the Receivables will be collected on a timely basis.
"Multiemployer Plan" means a multiemployer plan (within the meaning of
------------------
Section 400 1(a)(3) of ERISA) in respect of which a Commonly Controlled Entity
makes contributions or has liability.
"Net Losses" means, with respect to any Determination Date and the most
----------
recently concluded Monthly Period, the positive difference of (a) the sum of (i)
the aggregate amount of the Principal Balances as of the related Accounting Date
(plus accrued and unpaid interest through and including such Accounting Date, at
the applicable APR) of all Receivables that became Liquidated Receivables since
the Initial Cutoff Date, plus (ii) the aggregate Cram Down Losses as of the
related Accounting Date that occurred since the Initial Cutoff Date, over (b)
the aggregate, cumulative Net Liquidation Proceeds received by the Issuer as of
the related Accounting Date since the Initial Cutoff Date.
"Notes" has the meaning assigned to such term in the Preliminary Statements
-----
above.
"Offering Document" means the Preliminary Private Placement Memorandum
-----------------
dated December 1, 1999, and the Private Placement Memorandum dated December 1,
1999 relating to the Notes and any amendment or supplement thereto and any other
offering document in respect of the Notes that makes reference to the Policy.
"Owner Trustee" has the meaning assigned to such term in the Preliminary
-------------
Statements above.
"Parent" means TFC Enterprises, Inc., a Delaware corporation.
------
"Parent Support Agreement" means the agreement among TFCRC, TFC, AGIC, the
------------------------
Trust Collateral Agent, and the Parent, dated as of December 1, 1999.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
----
agency, corporation or instrumentality of the United States to which the duties
and powers of the Pension Benefit Guaranty Corporation are transferred.
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, a business trust, a joint stock company, a trust, an
unincorporated association, a joint venture, a Governmental Authority or other
entity of whatever nature.
"Placement Agent" means Rothschild Inc.
---------------
"Placement Agent Agreement" means the Placement Agent Agreement dated as of
-------------------------
December 1, 1999, among the Issuer, TFC, TFCRC and the Placement Agent.
"Placement Agent Information" means the information relating to the
---------------------------
Placement Agent in the Private Placement Memorandum.
8
<PAGE>
"Plan" means any pension plan (other than a Multiemployer Plan) covered by
----
Title IV of ERISA, which is maintained by a Commonly Controlled Entity or in
respect of which a Commonly Controlled Entity has liability.
"Policy" has the meaning assigned to such term in the Preliminary
------
Statements above.
"Premium" means the premium payable by the Issuer pursuant to the Premium
-------
Letter.
"Premium Letter" means the letter agreement between AGIC, TFC and the
--------------
Issuer, dated as of the Closing Date, setting forth the payment arrangement for
the premiums in respect of the Policy, and certain other fees, related expenses
and other related matters.
"Premium Rate" has the meaning assigned to such term in the Premium Letter.
------------
"Prime Rate" means the fluctuating rate of interest as published from time
----------
to time in the New York, New York edition of The Wall Street Journal, under the
-----------------------
caption "Money Rates" as the "prime rate", the "Prime Rate" to change when and
as such published prime rate changes.
"Private Placement Memorandum" means the final Private Placement Memorandum
----------------------------
dated December 1, 1999, relating to the offering of the Notes.
"Provided Documents" means the Transaction Documents and any documents,
------------------
agreements, instruments, schedules, certificates, statements, cash flow
schedules, number runs or other writings or data furnished to AGIC by or on
behalf of TFC, the Parent or TFCRC with respect to itself, its respective
Subsidiaries, the Receivables or the Transaction.
"Purchaser" has the meaning assigned to such term in the Preliminary
---------
Statements above.
"Purchase Agreement" means the Purchase Agreement between TFC, as seller,
------------------
and TFCRC, as purchaser, dated as of December 1, 1999.
"Rating Agency" means Standard & Poor's Rating Services, a division of
-------------
McGraw-Hill Companies, Inc.
"Receivable" has the meaning provided in the Sale and Servicing Agreement.
----------
"Reportable Event" means any of the events set forth in Section 4043(b) of
----------------
ERISA or the regulations thereunder.
"Restrictions on Transferability" means, as applied to the property or
-------------------------------
assets (or the income or profits therefrom) of any Person, in each case whether
the same is consensual or non-consensual or arises by contract, operation of
law, legal process or otherwise, any material condition to, or restriction on,
the ability of such Person or any transferee therefrom to sell, assign, transfer
or otherwise liquidate such property or assets in a commercially reasonable time
and manner or which would otherwise materially deprive such Person or any
transferee therefrom of the benefits of ownership of such property or assets.
9
<PAGE>
"Requisite Amount" means (a) on the Closing Date, the Initial Spread
----------------
Account Deposit Amount and (b) with respect to any Determination Date
thereafter, (i) if no Trigger Event or Insurance Agreement Event of Default
shall have occurred, the lesser of (A) the Initial Spread Account Deposit Amount
and (B) an amount equal to the Note Principal Balance, (ii) after the occurrence
of a Trigger Event, the lesser of (A) an amount equal to 6.00% of the Original
Pool Balance and (B) an amount equal to the Note Principal Balance; provided,
--------
however, that, in the event such Trigger Event has been Deemed Cured, an amount
- -------
equal to the amount calculated for such Determination Date pursuant to clause
(i) above, and (iii) notwithstanding anything in clauses (i) and (ii) above to
the contrary, after the occurrence of an Insurance Agreement Event of Default,
an amount equal to the Note Principal Balance.
"Sale and Servicing Agreement" has the meaning assigned to such term in the
----------------------------
Preliminary Statements above.
"Schedule of Receivables" means the schedule of receivables delivered to
-----------------------
the Trust Collateral Agent by the Issuer in connection with the Sale and
Servicing Agreement.
"Securities Act" means the Securities Act of 1933, including, unless the
--------------
context otherwise requires, the rules and regulations thereunder, as amended
from time to time.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
-----------------------
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"S&P" means Standard & Poor's Ratings Service, a division of McGraw-Hill
---
Corporation, and any successor thereto, and, if such corporation shall for any
reason no longer perform the functions of a securities rating agency, "S&P"
shall be deemed to refer to any other nationally recognized rating agency
designated by AGIC.
"Servicer" has the meaning assigned to such term in the Preliminary
--------
Statements above.
"Standby Remittance and Processing Agreement" means the Standby Remittance
-------------------------------------------
and Processing Agreement among TFCRC, TFC, General Electric Capital Corporation,
AGIC, the Trust Collateral Agent and Norwest as P.O. Box owner, dated as of
December 1, 1999.
"Subordinated Debt" means a debt obligation of TFC which is subordinated to
-----------------
obligations owed to GE Capital as lender under the GE Capital Agreement,
pursuant to a subordination agreement which is in the form of Exhibit 16 to the
GE Capital Agreement or pursuant to some other agreement approved by GE Capital
and the Insurer.
"Subsidiary" means, with respect to any Person, any corporation of which a
----------
majority of the outstanding shares of capital stock having ordinary voting power
for the election of directors is at the time owned by such Person directly or
through one or more Subsidiaries.
"Tangible Net Worth" means, with respect to TFC, the excess of (a) the
------------------
tangible assets of TFC and all of its consolidated subsidiaries calculated in
accordance with GAAP, as reduced by adequate reserves in each case where
reserves are proper, over (b) all Indebtedness (excluding Subordinated Debt) of
TFC and all of its consolidated subsidiaries; provided, however, that (i)
-------- -------
10
<PAGE>
in no event shall there be included in the above calculation any intangible
assets such as patents, trademarks, trade names, copyrights, licenses, goodwill,
organizational costs, advances or loans to, or receivables from, directors,
shareholders, officers, employees or subsidiaries, amounts relating to covenants
not to compete, pension assets or treasury stock or any securities of TFC or of
any Affiliate of TFC, or any other securities unless the same are readily
marketable in the United States of America or entitled to be used as a credit
against federal income tax liabilities, (ii) securities included as such
intangible assets shall be taken into account at their current market price or
cost, whichever is lower, and (iii) any write-up in the book value of any assets
shall not be taken into account.
"TFC" has the meaning assigned to such term in the Preliminary Statements
---
above.
"Transaction" means the transactions contemplated by the Transaction
-----------
Documents, including the transactions described in the Offering Documents.
"Trigger Event" means the occurrence of any of the following events, the
-------------
occurrence of which shall not have been waived in writing by AGIC: (a) the
occurrence of a Delinquency Test Failure, or (b) the occurrence of a Cumulative
Net Loss Test Failure.
"Trust Agreement" is the Amended and Restated Trust Agreement, dated as of
---------------
December 1, 1999 between TFCRC and Wilmington Trust Company as owner trustee.
"Trust Collateral Agent" has the meaning assigned to such term in the
----------------------
Preliminary Statements above.
"Trustee" has the meaning assigned to such term in the Preliminary
-------
Statements above.
"Trust Property" has the meaning assigned to such term in the Preliminary
--------------
Statements above.
"Year 2000 Problem" means the risk that computer applications used by a
-----------------
Person (or suppliers, vendors and customers of such Person) may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999.
Section 1.02. Generic Terms. All words used herein shall be construed to
-------------
be of such gender or number as the circumstances require. The words "herein,"
"hereby," "hereof," "hereto," "hereinbefore" and "hereinafter," and words of
similar import, refer to this Insurance Agreement in its entirety and not to any
particular paragraph, clause or other subdivision, unless otherwise specified.
Section 1.03. Computation of Time Periods. In this Insurance Agreement in
---------------------------
the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each means "to and including". Periods of days referred to in this Insurance
Agreement shall be counted in calendar days unless Business Days are expressly
prescribed and references in this Insurance Agreement to months and years shall
be to calendar months and calendar years unless otherwise specified.
11
<PAGE>
ARTICLE II
THE POLICY AND REIMBURSEMENT
Section 2.01. Policy. AGIC agrees, subject to the satisfaction or waiver
------
of the conditions hereinafter set forth on or prior to the Closing Date, to
issue the Policy on the Closing Date.
Section 2.02. Conditions Precedent. The obligation of AGIC to issue the
--------------------
Policy is subject to the satisfaction of the following conditions on or prior to
the Closing Date:
(a) The following documents shall have been duly authorized, executed
and delivered by each of the parties thereto (other than AGIC) and shall be
in full force and effect and in form and substance satisfactory to AGIC, in
the exercise of AGIC's sole discretion, and an executed counterpart of each
thereof shall have been delivered to AGIC:
(i) this Insurance Agreement;
(ii) the Indenture;
(iii) the Sale and Servicing Agreement, including the Schedule of
Receivables;
(iv) the Purchase Agreement, including the Schedule of Receivables;
(v) the Placement Agent Agreement;
(vi) the Indemnification Agreement;
(vii) the Standby Remittance and Processing Agreement;
(viii) the Trust Agreement;
(ix) the Parent Support Agreement;
(x) the Securities Account Control Agreement;
(xi) the Premium Letter; and
(xii) the Fort Knox Letters.
(items (i) through (xii) being, collectively, the "Transaction Documents").
(b) AGIC shall have received:
(i) copies certified by the Secretary or an Assistant Secretary of
each of the Parent, the Issuer, TFC and TFCRC, dated the
Closing Date, of its certificate of incorporation and by-laws
and the resolutions of its Board of Directors, as the case may
be, or a duly authorized committee thereof
12
<PAGE>
authorizing its execution and delivery of the Basic Documents
and of all documents evidencing other corporate or company
action and governmental approvals, if any, that are necessary
for the consummation of the transactions contemplated in such
documents;
(ii) a certificate, dated the Closing Date, of the secretary or an
assistant secretary of each of the Parent, the Issuer, TFCRC,
the Trustee, the Owner Trustee, the Back-up Servicer and TFC
certifying the names and true signatures of its officers
authorized to sign such Basic Documents to which it is a
party;
(iii) a certificate, dated the Closing Date, of a Chief Financial
Officer, a Treasurer, an Assistant Treasurer or Vice President
of each of the Issuer, TFCRC and TFC certifying to the effect
of the representation and warranty set forth in Section
3.01(e) hereof;
(iv) each of the opinions, letters and certificates described in
the closing checklist attached hereto as Exhibit B (other than
any such opinion, letter or certificate required to be issued
or delivered by AGIC or an agent or employee thereof), in each
case (1) dated the Closing Date, (2) in full force and effect
at the time of delivery thereof, (3) in form and substance
satisfactory to AGIC in the exercise of its sole discretion,
and (4) covering such matters as AGIC shall require in the
exercise of its sole discretion;
(v) evidence that one or more UCC financing statements covering
the security interest of the Trust Collateral Agent created by
or pursuant to the Indenture in the Trust Property and the
other property and rights which the Trustee is granted in the
Indenture and the proceeds thereof has been executed by the
Issuer in favor of the Trust Collateral Agent, and has been
duly filed in such place or places which, in the opinion of
counsel for the Issuer, TFC and AGIC, are necessary or
desirable to perfect such interest;
(vi) evidence that one or more UCC financing statements covering
the interest of TFCRC in the Receivables and the other related
assets assigned pursuant to the Purchase Agreement has been
executed by TFC in favor of TFCRC, and has been duly filed in
such place or places which, in the opinion of counsel for the
Issuer, TFC and AGIC, are necessary or desirable to perfect
such interest;
(vii) evidence that one or more UCC financing statements covering
the interest of the Issuer in the Receivables and the other
related assets assigned pursuant to the Sale and Servicing
Agreement has been executed by TFCRC in favor of the Issuer,
and assigned to the Trust Collateral Agent, and has been duly
filed in such place or places which, in the opinion of counsel
for the Issuer, TFC and AGIC, are necessary or desirable to
perfect such interest;
13
<PAGE>
(viii) evidence that each of the Collection Account, the Spread
Account, and the Note Payment Account have been established in
accordance with the terms and conditions of the Indenture and
the Sale and Servicing Agreement;
(ix) certified copies of documents, certificates, instruments,
approvals or executed copies thereof that relate to the
transactions as contemplated by the Basic Documents as AGIC
may reasonably request;
(x) a specimen Note; and
(xi) a statement, in form and substance satisfactory to AGIC,
reviewing the results of the Independent Accountants'
performance of certain agreed upon procedures with respect to
TFC, its reporting and record keeping, and the characteristics
of the Receivables as of the Cut-Off Date, by way of
independent verification of (x) information provided by TFC
for inclusion in the Offering Document and (y) certain cash
flow models supplied to AGIC by the Placement Agent in advance
of the Closing Date (the full costs of which statement shall
have been paid on or before the Closing Date by or on behalf
of TFC).
(c) (i) No statute, rule, regulation or order shall have been
enacted, entered or deemed applicable by any government or governmental or
administrative agency or court which would make the transactions
contemplated by the Transaction Documents illegal or otherwise prevent the
consummation thereof, (ii) no material omission or change of fact shall
have occurred or come to the attention of any of TFC, TFCRC, the Issuer,
the Parent, the Trustee, the Placement Agent or AGIC that would cause
information or documents heretofore supplied to AGIC to be untrue or
misleading, (iii) no other material change or omission shall have occurred
or come to the attention of any of TFC, TFCRC, the Issuer, the Parent, the
Trustee, the Placement Agent or AGIC that would entitle the Placement Agent
to decline to place the Notes, and (iv) no Material Adverse Change shall
have occurred in the security for the Notes since the date of the Purchase
Agreement.
(d) No suit, action or other proceeding, investigation, or injunction
or final judgment relating thereto, shall be threatened or pending before
any court or governmental agency in which it is sought to restrain or
prohibit or obtain damages or other relief in connection with the
consummation of the Transactions, and no investigation that might result in
any such suit, action or proceeding shall be pending or threatened.
(e) AGIC shall have received an executed copy of all legal opinions,
certificates, accountant's reports and other documents required to be
furnished by the Issuer, the Servicer, the Back-up Servicer, the Trustee,
TFCRC, the Parent and TFC pursuant to any of the Transaction Documents or
pursuant to the requirements of the Rating Agency (if any). Such documents
shall be in form and substance satisfactory to AGIC in the
14
<PAGE>
exercise of its sole discretion and each such legal opinion or certificate
shall be addressed to AGIC, or accompanied by appropriate reliance letters
to AGIC.
(f) There shall be on deposit in the Spread Account a sum of not less
than $2,606,028 in immediately available funds.
(g) Simultaneously with the issuance of the Policy, the Notes shall
have been duly executed and authenticated and delivered to the relevant
Noteholders pursuant to the Indenture.
(h) All fees and expenses payable hereunder or pursuant to the
Premium Letter to AGIC on or prior to the Closing Date shall have been paid
in full by TFC or the Issuer.
(i) AGIC shall have received confirmation that the risk secured by
the Policy constitutes at least "BBB-" by S&P and that the Notes, when
issued, will be rated "AA" by S&P.
(j) No Trigger Event, Event of Default, Servicer Termination Event,
Default or Insurance Agreement Event of Default shall have occurred.
Section 2.03. Premium Letter. AGIC shall be entitled to receive the
--------------
Premium payable under the Premium Letter on each Payment Date, and the timely
payment or other performance of all other obligations set forth in the Premium
Letter, in each case in accordance with the terms and conditions of the Premium
Letter.
Section 2.04. Reimbursement Obligations. (a) In consideration of the
-------------------------
issuance of the Policy by AGIC, AGIC shall be entitled to reimbursement by the
Issuer from the Trust Property, pursuant to the terms hereof, the Indenture and
the Sale and Servicing Agreement, for any payment made under the Policy, which
reimbursement shall be due and payable to AGIC on the date that any amount is to
be paid pursuant to a Notice for Payment (as defined in the Policy). Such
reimbursement shall be made in accordance with the terms hereof and of the
Indenture, in an amount equal to the sum of all amounts paid or previously paid
that remain unpaid under the Policy, together with interest on any and all
amounts remaining unpaid (to the extent permitted by law, if in respect of any
unpaid amounts representing interest) from the date such amounts became due
until paid in full (after as well as before judgment), at a rate of interest
equal to the Prime Rate from time to time in effect plus 2.0%.
(b) Anything in Section 2.04(a) to the contrary notwithstanding, AGIC
shall be entitled to reimbursement (to the extent such reimbursement and
related interest has not previously been paid by payment to AGIC from the
Trust Property) from (i) the Issuer, for payments made under the Policy
arising as a result of the Issuer's failure to make any payment or deposit
with respect to a Receivable required to be made pursuant to Section 3.2 of
the Sale and Servicing Agreement, together with interest on any and all
such amounts remaining unpaid (to the extent permitted by law, if in
respect of any unpaid amounts representing interest) from the date such
amounts became due until paid in full (after as well as before judgment),
at a rate of interest equal to the Prime Rate from time to time in effect
plus 2.0%, and (ii) the Servicer, for payments made under the Policy
arising as a result of the Servicer's failure to make any deposit,
including without
15
<PAGE>
limitation, a deposit required to be made pursuant to Section 4.7 of the
Sale and Servicing Agreement, together with interest on any and all such
amounts remaining unpaid (to the extent permitted by law, if in respect of
any unpaid amounts representing interest) from the date such amounts became
due until paid in full (after as well as before judgment), at a rate of
interest equal to the Prime Rate from time to time in effect plus 2.0%.
(c) Interest payable to AGIC under this Insurance Agreement shall be
calculated on the basis of a 360-day year for the actual number of days
elapsed and with respect to amounts payable pursuant to Sections 2.03 or
2.04(a) or (b) shall be payable in accordance with the Indenture and the
Sale and Servicing Agreement, or to the extent payable pursuant to any
other section herein, on demand.
Section 2.05. Assignment and Other Rights upon Payments under the Policy.
----------------------------------------------------------
(a) In consideration of the issuance of the Policy by AGIC, in the case of any
payment made by or on behalf of AGIC under the Policy, in addition to and not by
way of limitation of, any of the rights and remedies of AGIC hereunder or under
the Indenture with respect to such payment, each of the Issuer, TFCRC and TFC
hereby acknowledges and consents to the assignment by the Trustee, on behalf of
the Noteholders, to AGIC in accordance with the terms of the relevant Notice for
Payment (as such term is defined in the Policy):
(i) the rights of the Noteholders with respect to the Notes and
the Trust Property, to the extent of any such payment under
the Policy; and
(ii) the rights of the Trustee and each Noteholder in the conduct
of any Insolvency Proceeding relating to any Preference
Event (as such terms are defined in the Policy), 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.
(b) The rights and remedies of AGIC described in clause (a) above are
in addition to, and not in limitation of, rights of subrogation and other
rights and remedies otherwise available to AGIC in respect of payments
under the Policy. The Trustee shall take such action and deliver such
instruments as may be reasonably requested or required by AGIC to
effectuate the purpose or provisions of this Section 2.05.
Section 2.06. Subrogation; Further Assurances. (a) The interests, rights
-------------------------------
and remedies of AGIC described in Article II above are in addition to, and not
in lieu of, AGIC's equitable rights of subrogation, and AGIC reserves all of
such rights. Each of the Issuer, TFCRC and TFC agrees to take, or cause to be
taken, all actions deemed desirable by AGIC to preserve, enforce, perfect or
maintain the perfection in AGIC's favor of such interests, rights and remedies
and such equitable rights of subrogation.
(b) For the avoidance of doubt, the parties hereto acknowledge and
agree that the receipt of any payment under the Policy shall not constitute
(x) a reduction of any unpaid amounts of principal or interest of Notes
outstanding under the Indenture or (y) otherwise discharge any other
obligations whatsoever of the Issuer under the Indenture.
16
<PAGE>
(c) Each of the Issuer, TFCRC and TFC agrees to promptly and duly
take, execute, acknowledge and deliver such further acts, documents,
instruments and assurances as AGIC may from time to time reasonably request
to more effectively evidence any rights to assignment or subrogation under
this Article II, and to protect and perfect all of AGIC's other rights as
against the Issuer, as the case may be.
Section 2.07 Indemnification by TFC; Conduct of Actions or Proceedings;
Contribution.
(a) In addition to any and all rights of reimbursement,
indemnification, subrogation and any other rights pursuant hereto or under
law or in equity, TFC agrees to pay, and to protect, indemnify and save
harmless, AGIC and its officers, directors, shareholders, employees, agents
and each Person, if any, who controls AGIC within the meaning of either
Section 15 of the Securities Act or Section 20 of the Securities Exchange
Act (individually, an "Indemnified Party" and, collectively, the
"Indemnified Parties"), from and against any and all claims, losses,
liabilities (including penalties), actions, suits, judgments, demands,
damages, costs or expenses (including, without limitation, reasonable fees
and expenses of attorneys, consultants and auditors and reasonable costs of
investigations) of any nature arising out of or relating to the
transactions contemplated by the Transaction Documents by reason of:
(i) the negligence, bad faith, willful misconduct, misfeasance,
malfeasance or theft committed by any director, officer,
employee or agent of the Issuer, TFC, the Servicer, the Parent,
TFCRC, the Seller, as the case may be; or
(ii) the breach by the Issuer, TFC, the Servicer, the Parent, TFCRC,
or the Seller of any representation, warranty or covenant under
any of the Transaction Documents, or the occurrence, in respect
of the Issuer, TFC, the Servicer, the Parent, TFCRC, or the
Seller, under any of the Transaction Documents of any
"default," "event of default" or any event which, with the
giving of notice or the lapse of time or both, would constitute
any "event of default"; provided, however, it is understood and
-------- -------
agreed that the sole remedy with respect to a breach of
representations and warranties pursuant to Section 3.1 of the
Sale and Servicing Agreement shall be the repurchase of
Receivables pursuant to Section 3.2 of the Sale and Servicing
Agreement, subject to the conditions contained therein, or to
enforce the obligation of TFC to TFCRC to repurchase such
Receivables pursuant to the Purchase Agreement; provided,
--------
further, it is understood and agreed that the sole remedy with
-------
respect to the breach of any of the covenants set forth in
Sections 4.5(a) or 4.6(a) of the Sale and Servicing Agreement
shall be the purchase of Receivables pursuant to Section 4.7 of
the Sale and Servicing Agreement, subject to the conditions
contained therein; provided further, however, that TFC shall
---------------- ------
indemnify AGIC (and its respective directors, officers,
employees and agents) against all costs, expenses, losses,
damages, claims and liabilities, including reasonable fees and
expenses of counsel, which may be asserted against or incurred
by it
17
<PAGE>
as a result of third party claims arising out of the events or
facts giving rise to any such breach of such covenant.
(b) If any action or proceeding (including any governmental
investigation) shall be brought or asserted against the Indemnified Parties
in respect of which indemnity may be sought from TFC hereunder, AGIC shall
promptly notify TFC in writing, and TFC shall assume the defense thereof,
including the employment of counsel satisfactory to AGIC and the payment of
all reasonable expenses. An Indemnified Party shall have the right to
employ separate counsel in any such action and to participate in the
defense thereof at the expense of the Indemnified Party; provided, however,
-------- -------
that the fees and expenses of such separate counsel shall be at the expense
of TFC if (i) TFC has agreed to pay such fees and expenses, (ii) TFC shall
have failed to assume the defense of such action or proceeding and employ
counsel satisfactory to AGIC in any such action or proceeding or (iii) the
named parties to any such action or proceeding (including any impleaded
parties) include both the Indemnified Party and TFC, and the Indemnified
Party shall have been advised by counsel that (A) there may be one or more
legal defenses available to it which are different from or additional to
those available to TFC and (B) the representation of TFC and the
Indemnified Party by the same counsel would be inappropriate or contrary to
prudent practice (in which case, if the Indemnified Party notifies TFC in
writing that it elects to employ separate counsel at the expense of TFC,
TFC shall not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Party, it being understood,
however, that TFC shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys at any time for the
Indemnified Parties, which firm shall be designated in writing by AGIC).
TFC shall not be liable for any settlement of any such action or proceeding
effected without its written consent to the extent that any such settlement
shall be prejudicial to TFC, but, if settled with its written consent, or
if there be a final judgment for the plaintiff in any such action or
proceeding with respect to which TFC shall have received notice in
accordance with this subsection (b), TFC agrees to indemnify and hold the
Indemnified Parties harmless from and against any loss or liability by
reason of such settlement or judgment.
(c) To provide for just and equitable contribution, if the
indemnification provided by TFC is determined to be unavailable for any
Indemnified Party (other than due to application of this Section), TFC
shall contribute to the losses incurred by the Indemnified Party on the
basis of the relative fault of TFC, on the one hand, and the Indemnified
Party, on the other hand.
Section 2.08 Indemnification by TFCRC; Conduct of Actions or Proceedings;
Contribution.
(a) In addition to any and all rights of reimbursement,
indemnification, subrogation and any other rights pursuant hereto or under
law or in equity TFCRC agrees to pay, and to protect, indemnify and save
harmless the Indemnified Parties, from and against any and all claims,
losses, liabilities (including penalties), actions, suits,
18
<PAGE>
judgments, demands, damages, costs or expenses (including, without
limitation, reasonable fees and expenses of attorneys, consultants and
auditors and reasonable costs of investigations) of any nature arising out
of or relating to the transactions contemplated by the Transaction
Documents by reason of:
(i) the negligence, bad faith, willful misconduct, misfeasance,
malfeasance or theft committed by any director, officer,
employee or agent of TFCRC; or
(ii) the breach by TFCRC of any representation, warranty or covenant
under any of the Transaction Documents, or the occurrence, in
respect of TFCRC, under any of the Transaction Documents of any
"default," "event of default" or any event which, with the
giving of notice or the lapse of time or both, would constitute
any "event of default"; provided, however, it is understood and
-------- -------
agreed that the sole remedy with respect to a breach of
representations and warranties pursuant to Section 3.1 of the
Sale and Servicing Agreement shall be the repurchase of
Receivables pursuant to Section 3.2 of the Sale and Servicing
Agreement, subject to the conditions contained therein, or to
enforce the obligation of TFC to repurchase such Receivables
pursuant to the Purchase Agreement;
(b) If any action or proceeding (including any governmental
investigation) shall be brought or asserted against the Indemnified Parties
in respect of which indemnity may be sought from TFCRC hereunder, AGIC
shall promptly notify TFCRC in writing, and TFCRC shall assume the defense
thereof, including the employment of counsel satisfactory to AGIC and the
payment of all reasonable expenses. An Indemnified Party shall have the
right to employ separate counsel in any such action and to participate in
the defense thereof at the expense of the Indemnified Party; provided,
--------
however, that the fees and expenses of such separate counsel shall be at
-------
the expense of TFCRC if (i) TFCRC has agreed to pay such fees and expenses,
(ii) TFCRC shall have failed to assume the defense of such action or
proceeding and employ counsel satisfactory to AGIC in any such action or
proceeding or (iii) the named parties to any such action or proceeding
(including any impleaded parties) include both the Indemnified Party and
TFCRC, and the Indemnified Party shall have been advised by counsel that
(A) there may be one or more legal defenses available to it which are
different from or additional to those available to TFCRC and (B) the
representation of TFCRC and the Indemnified Party by the same counsel would
be inappropriate or contrary to prudent practice (in which case, if the
Indemnified Party notifies TFCRC in writing that it elects to employ
separate counsel at the expense of TFCRC, TFCRC shall not have the right to
assume the defense of such action or proceeding on behalf of such
Indemnified Party, it being understood, however, that TFCRC shall not, in
connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate
firm of attorneys at any time for the Indemnified Parties, which firm shall
be designated in writing by AGIC). TFCRC shall not be liable for any
settlement of any such action or proceeding effected without its written
consent to the extent that any such settlement shall be prejudicial to
TFCRC, but, if settled with its
19
<PAGE>
written consent, or if there be a final judgment for the plaintiff in any
such action or proceeding with respect to which TFCRC shall have received
notice in accordance with this subsection (b), TFCRC agrees to indemnify
and hold the Indemnified Parties harmless from and against any loss or
liability by reason of such settlement or judgment.
(c) To provide for just and equitable contribution, if the
indemnification provided by TFCRC is determined to be unavailable for any
Indemnified Party (other than due to application of this Section), TFCRC
shall contribute to the losses incurred by the Indemnified Party on the
basis of the relative fault of TFCRC, on the one hand, and the Indemnified
Party, on the other hand.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01. Representations and Warranties with respect to TFC and
------------------------------------------------------
TFCRC. Each of TFC and TFCRC represents and warrants, as of the Closing Date,
- -----
with respect to TFC and TFCRC, that:
(a) Due Organization and Qualification. (i) TFC is a corporation,
----------------------------------
duly organized, validly existing and in good standing under the laws of
Virginia. TFC is duly qualified to do business, is in good standing and
has obtained all necessary licenses, permits, charters, registrations and
approvals (together, "approvals") necessary for the conduct of its business
as currently conducted and as described in the Offering Document and the
performance of its obligations under the Transaction Documents, in each
jurisdiction in which the failure to be so qualified or to obtain such
approvals might result in a Material Adverse Change. (ii) TFCRC is a
corporation duly organized, validly existing and in good standing under the
laws of Delaware. With the exception of becoming qualified to do business
under the laws of Virginia, TFCRC is duly qualified to do business, is in
good standing and has obtained all necessary licenses, permits, charters,
registrations and approvals (together, "approvals") necessary for the
conduct of its business as currently conducted and as described in the
Offering Document and the performance of its obligations under the
Transaction Documents, in each jurisdiction in which the failure to be so
qualified or to obtain such approvals might result in a Material Adverse
Change.
(b) Power and Authority. Each of TFC and TFCRC has all necessary
-------------------
corporate power and authority to conduct its business as currently
conducted and as described in the Offering Document, to execute, deliver
and perform its obligations under the Transaction Documents and has full
power and authority to sell and assign the Receivables as contemplated by
the Transaction Documents and to consummate the Transaction.
(c) Due Authorization. The execution, delivery and performance of
-----------------
the Transaction Documents by each of TFC and TFCRC has been duly authorized
by all necessary corporate action and does not require any additional
approvals or consents or other action by, or any notice to, or filing with,
any Person, including, without limitation, any governmental entity or any
of its stockholders.
20
<PAGE>
(d) Noncontravention. None of the execution and delivery of the
----------------
Transaction Documents by TFC or TFCRC, the consummation of the transactions
contemplated thereby nor the satisfaction of the terms and conditions of
the Transaction Documents,
(i) conflicts with or results in any material breach or violation
of any provision of the Certificate of Incorporation or Bylaws
of TFC or TFCRC, as the case may be, or any law, rule,
regulation, order, writ, judgment, injunction, decree,
determination or award currently in effect having applicability
to TFC or TFCRC, as the case may be, or any of their respective
properties, including regulations issued by an administrative
agency or other governmental authority having supervisory
powers over TFC or TFCRC, as the case may be,
(ii) constitutes or will constitute a default by TFC or TFCRC, as
the case may be, under or a material breach of any provision of
any loan agreement, mortgage, indenture or other agreement or
instrument to which TFC or TFCRC is a party or by which it, or
any of its or their properties is, or may be, bound or
affected, or
(iii) results in or requires the creation of any Lien upon or in
respect of any of the assets of TFC or TFCRC except as
otherwise expressly contemplated by the Transaction Documents.
(e) Legal Proceedings. Other than as stated in the Private
-----------------
Placement Memorandum, there is no action, proceeding or investigation
pending, or to the best knowledge of TFC or TFCRC after reasonable inquiry,
threatened by or before any court, regulatory body, governmental or
administrative agency or arbitrator against or affecting TFC or TFCRC, or
any properties or rights of TFC or TFCRC, including without limitation, the
Receivables, which might result in a Material Adverse Change with respect
to TFC or TFCRC.
(f) Valid and Binding Obligations. Each of the Transaction Documents
-----------------------------
to which either TFC or TFCRC is a party when executed and delivered by TFC
or TFCRC, as the case may be, will constitute the legal, valid and binding
obligations of such Person, enforceable in accordance with their respective
terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and general equitable principles. The
Certificate, when executed, authenticated and delivered in accordance with
the Trust Agreement, will be validly issued and outstanding and entitled to
the benefits of the Trust Agreement and will evidence the entire beneficial
ownership interest in the Issuer. The Notes when executed, authenticated
and delivered in accordance with the Indenture, will be entitled to the
benefits of the Indenture and will constitute legal, valid and binding
obligations of the Issuer, enforceable in accordance with their terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting the enforcement of creditors' rights
generally or general equitable principles (whether in a proceeding at law
or in equity) and except to the extent that rights to indemnity and
contribution may be limited by public policy.
21
<PAGE>
(g) ERISA. Each of TFC and TFCRC is in compliance with ERISA and has
-----
not incurred and does not reasonably expect to incur, any liabilities to
the PBGC under ERISA in connection with any Plan or Multiemployer Plan.
(h) Accuracy of Information. None of the Transaction Documents nor
-----------------------
any of the Provided Documents contain any statement of a material fact with
respect to TFC or TFCRC or the Transaction that was untrue or misleading in
any material respect when made. Since the furnishing of the Provided
Documents, there has been no change, nor any development or event involving
a prospective change known to TFC or TFCRC, that would render any of the
Provided Documents untrue or misleading in any material respect. There is
no fact known to TFC or TFCRC which has a material possibility of causing a
Material Adverse Change with respect to either of TFC or TFCRC, or which
has a material possibility of impairing the value or marketability of the
Receivables, taken as a whole, or decreasing the possibility that amounts
due in respect of the Receivables will be collected as due.
(i) Compliance With Securities Laws. The Notes have not been offered
-------------------------------
or sold in any manner that would render the issuance and sale of the Notes
a violation of the Securities Act or any state securities or "Blue Sky"
laws or require registration pursuant thereto, nor has any Person been
authorized to act in such manner. No registration under the Securities Act
is required for the sale of the Notes as contemplated by the Transaction
Documents, assuming the accuracy of the Purchaser's representations and
warranties set forth in the Purchase Agreement, and satisfaction by the
Placement Agent of its obligations set forth in the Placement Agency
Agreement. Without limitation of the foregoing, the Offering Document does
not contain any untrue statement of a material fact and does not omit to
state a material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they
were made, not misleading.
(j) Transaction Documents. Each of the representations and
---------------------
warranties of TFC or TFCRC contained in the Transaction Documents is true
and correct in all material respects and each of TFC or TFCRC hereby makes
each such representation and warranty made by it to, and for the benefit
of, AGIC as if the same were set forth in full herein.
(k) No Consents. No consent, license, approval or authorization
-----------
from, or registration, filing or declaration with, any regulatory body,
administrative agency, or other governmental instrumentality, nor any
consent, approval, waiver or notification of any creditor, lessor or other
nongovernmental person, is required in connection with the execution,
delivery and performance by TFC or TFCRC of this Insurance Agreement or of
any other Transaction Document to which such Person is a party, except (in
each case) as have been obtained and are in full force and effect.
(l) Compliance With Law. Etc. No practice, procedure or policy
-------------------------
employed or proposed to be employed by TFC or TFCRC in the conduct of their
respective businesses violates any law, regulation, judgment, agreement,
order or decree applicable to it which, if enforced, would result in a
Material Adverse Change with respect to such Person.
22
<PAGE>
(m) Special Purpose Entity.
----------------------
(i) The capital of TFCRC is adequate for the business and
undertakings of TFCRC.
(ii) Other than with respect to the purchase by TFC of the stock of
TFCRC, and as provided in this Insurance Agreement and the
Transaction Documents, TFCRC is not engaged in any business
transactions with TFC.
(iii) At least two directors of TFCRC shall be persons who are not,
and will not be, a director, officer, employee or holder of any
equity securities of TFC or any of its affiliates or
subsidiaries.
(iv) The funds and assets of TFCRC are not, and will not be,
commingled with the funds of any other person.
(v) The Bylaws of TFCRC require it to maintain (A) correct and
complete minute books and records of account, and (B) minutes
of the meetings and other proceedings of its shareholders and
board of directors.
(n) Solvency: Fraudulent Conveyance. Each of TFC and TFCRC is
-------------------------------
solvent, is able to pay its debts as they become due and will not be
rendered insolvent by the Transaction and, after giving effect to such
Transaction, neither TFC nor TFCRC will be left with an unreasonably small
amount of capital with which to engage in its business. Neither TFC nor
TFCRC intends to incur, or believes that it has incurred, debts beyond its
ability to pay such debts as they mature. Neither TFC nor TFCRC
contemplates the commencement of insolvency, bankruptcy, liquidation or
consolidation proceedings or the appointment of a receiver, liquidator,
conservator, trustee or similar official in respect of TFC or TFCRC, as the
case may be, or any of their respective assets. The amount of consideration
being received by TFCRC upon the sale of the Receivables to the Issuer
constitutes reasonably equivalent value and fair consideration for the
Receivables. TFCRC is not selling the Receivables to the Issuer, as
provided in the Transaction Documents, with any intent to hinder, deal or
defraud any of TFC's creditors.
(o) Good Title; Valid Transfer: Absence of Liens: Security Interest.
---------------------------------------------------------------
(i) Immediately prior to the pledge of the Collateral to the Trust
Collateral Agent pursuant to the Indenture, the Issuer was the
owner of, and had good and marketable title to, such property
free and clear of all Liens and Restrictions on
Transferability, and had or will have had full right, power and
lawful authority to assign, transfer and pledge such
Receivables. The Indenture constitutes a valid pledge of the
Collateral to the Trust Collateral Agent and the Trust
Collateral Agent shall have a valid and perfected first
priority security interest in the Collateral, free and clear of
all Liens and Restrictions on Transferability.
23
<PAGE>
(ii) Immediately prior to the transfer of any Receivables to the
Issuer pursuant to the Sale and Servicing Agreement, TFCRC was
or will have been the owner of, and had good and marketable
title to, such property free and clear of all Liens and
Restrictions on Transferability, and had or will have had full
right, corporate power and lawful authority to assign, transfer
and pledge such Receivables. In the event that a transfer of
the Receivables by TFCRC to the Issuer is characterized as
other than a sale, such transfer shall be characterized as a
secured financing, and the Trustee shall have a valid and
perfected first priority security interest in such Receivables
free and clear of all Liens and Restrictions on
Transferability.
(iii) Immediately prior to the sale of the Receivables to TFCRC
pursuant to the Purchase Agreement, TFC was or will have been
the owner of, and had good and marketable title to, the
Receivables being transferred by such party free and clear of
all Liens and Restrictions on Transferability, and had or will
have had full right, corporate power and lawful authority to
assign, transfer and pledge such Receivables. In the event that
a transfer of the Receivables by TFC to TFCRC is characterized
as other than a sale, such transfer shall be characterized as a
secured financing, and TFCRC shall have a valid and perfected
first priority security interest in such Receivables free and
clear of all Liens and Restrictions on Transferability.
(p) Taxes. Each of TFC and TFCRC has (i) filed all tax returns which
-----
are required to be filed in any jurisdiction and (ii) paid all taxes,
assessments, fees and other governmental charges against TFC or TFCRC or any of
the properties, income or franchise of TFC or TFCRC, to the extent that such
taxes have become due, other than any taxes or assessments, the validity of
which are being contested in good faith by appropriate proceedings and with
respect to which it has set aside adequate reserves on its books in accordance
with GAAP and which proceedings have not given rise to any Lien. To the best of
the knowledge of TFC and TFCRC, all such tax returns were true and correct in
all material respects and neither of TFC nor TFCRC knows of any proposed
material additional tax assessment against it nor any basis therefor. Any taxes,
assessments, fees and other governmental charges payable by TFC or TFCRC in
connection with the Transaction, the execution and delivery of the Transaction
Documents and the issuance of the Notes have been paid or shall have been paid
at or prior to Closing Date.
(q) Private Placement Memorandum. As of the Closing Date, neither
----------------------------
the Private Placement Memorandum nor any amendment thereof or supplement
thereto (other than the AGIC Information and the Placement Agent
Information) contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(r) Year 2000 Compliance.
--------------------
(i) TFC (A) initiated a review and assessment of all areas within
its business and operations that could be adversely affected by
the Year 2000 Problem
24
<PAGE>
(including those affected by Dealers, suppliers, vendors and
subservicers, but only to the extent that the adverse effect on
such businesses and operations affected by Dealers, suppliers,
vendors and subservicers would be reasonably likely to
constitute a material adverse effect on the financial
conditions or operations of TFC or the collectibility of the
Receivables), (B) developed a plan and timeline for addressing
the Year 2000 Problem, (C) implemented the plan in accordance
with that timetable. Based on the foregoing, TFC believes that
all computer applications (including those of its Dealers,
suppliers, vendors, and subservicers) that are material to its
business and operations are reasonably expected to be able to
perform properly date-sensitive functions for dates before and
after January 1, 2000 (that is, be "Year 2000 Compliant"),
-------------------
except to the extent that a failure to do so could not
reasonably be expected to have material adverse effect, or to
result in (1) a Default under the Indenture, (2) an Event of
Default under the Indenture, (3) a Servicer Termination Event,
or (4) an event which, with the giving of notice or the passage
of time or both, would constitute a Servicer Termination Event,
(D) has completed a review and assessment of all computer
applications (including, but not limited to those of its
Dealers, suppliers, vendors and subservicers, but only to the
extent that the failure of any such applications of its
Dealers, suppliers, vendors and subservicers to be Year 2000
Compliant would be reasonably likely to have material adverse
effect), which are related to or involved in the collection,
management or servicing of the Receivables and Related Security
(the "Management Systems"), and (E) has determined that such
------------------
Management Systems are Year 2000 Compliant.
(ii) All of the representations and warranties set forth in this
Section 3.01 (r) (other than representations and warranties, if
----------------
any, that expressly speak only as of a different date) shall be
deemed to be made, without further act by any Person, on and as
of the Closing Date. All of the representations and warranties
set forth in this Section 3.01 (r) shall survive the
----------------
termination of this Insurance Agreement.
(s) Investment Company. Neither TFC nor TFCRC is an "investment
------------------
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act, and none of the execution, delivery
or performance of obligations under the Agreement or any of the Transaction
Documents or the consummation of any of the transactions contemplated
thereby will violate any provision of the Investment Company Act, or any
rule, regulation or order issued by the Securities and Exchange Commission
thereunder.
(t) No Restrictions on TFCRC Affecting Its Business. TFCRC is not a
-----------------------------------------------
party to any contract or agreement, or subject to any charter or other
corporate restriction which materially and adversely affects it business.
(u) Perfection of Security Interest. All filings and recordings as
-------------------------------
may be necessary to perfect the interest of the Issuer in the Receivables
have been accomplished
25
<PAGE>
and are in full force and effect. TFCRC will from time to time, at its own
expense, execute and file such additional financing statements (including
continuation statements) as may be necessary to ensure that at any time,
the interest of the Issuer in all of the Receivables is fully protected.
(v) Ownership of TFCRC. 100.00% of the issued and outstanding shares
------------------
of capital stock of TFCRC are directly owned (both beneficially and of
record) by TFC. Such shares are validly issued, fully paid and
nonassessable and no one other than TFC has any options, warrants or other
rights to acquire shares of capital stock of and from TFCRC.
(w) No Broker, Finder or Financial Adviser Other Than Rothschild.
------------------------------------------------------------
Neither TFCRC nor any of its officers, directors, employees or agents has
employed any broker, finder or financial adviser other than Rothschild Inc.
or incurred any liability for fees or commissions to any person other than
Rothschild Inc. in connection with the offering, issuance or sale of the
Notes.
(x) S&P. The information supplied by TFC or TFCRC to S&P in
---
connection with obtaining a rating for the Notes did not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated in order to make such information not misleading.
(y) No Violation of Exchange Act or Regulations T, U or X. None of
-----------------------------------------------------
the transactions contemplated in the Transaction Documents (including the
use of the proceeds from the sale of the Notes) will result in a violation
of Section 7 of the Securities and Exchange Act, or any regulations issued
pursuant thereto, including Regulations T, U and X of the Board of
Governors of the Federal Reserve System, 12 C.F.R, Chapter II.
(z) Financial Statements. The Financial Statements of TFC, copies of
--------------------
which have been furnished to AGIC, (i) are, as of the dates and for the
periods referred to therein, complete and correct in all material respects.
(ii) present fairly the financial condition and results of operations of
TFC as of the dates and for the periods indicated, and (iii) have been
prepared in accordance with GAAP consistently applied, except as noted
therein (subject as to interim statements to normal year-end adjustments).
Since the date of the most recent Financial Statements, there has been no
Material Adverse Change. Except as disclosed in the Financial Statements,
TFC is not subject to any contingent liabilities or commitments that,
individually or in the aggregate, have a material possibility of causing a
Material Adverse Change with respect to TFC.
Section 3.02. Representations and Warranties of the Issuer. The Issuer
--------------------------------------------
represents and warrants, as of the Closing Date, as follows:
(a) Due Organization and Qualification. The Issuer is duly formed
----------------------------------
and validly existing as a Delaware statutory business trust and is in good
standing under the laws of the State of Delaware. The Issuer is duly
qualified to do business, is in good standing and has obtained all
necessary licenses, permits, charters, registrations and approvals
26
<PAGE>
(together, "approvals") necessary for the conduct of its business as
currently conducted and as described in the Offering Document and the
performance of its obligations under the Transaction Documents, in each
jurisdiction in which the failure to be so qualified or to obtain such
approvals would render any Receivable or Transaction Document unenforceable
in any material respect or would otherwise cause a Material Adverse Change
to occur with respect to the Transaction.
(b) Power and Authority. The Issuer has all necessary trust power
-------------------
and authority to conduct its business as currently conducted and as
described in the Offering Document, to execute, deliver and perform its
obligations under the Transaction Documents and has full power and
authority to sell and assign the Receivables as contemplated by the
Transaction Documents and to consummate the Transaction.
(c) Due Authorization. The execution, delivery and performance of
-----------------
the Transaction Documents by the Issuer have been duly authorized by all
necessary trust action and do not require any additional approvals or
consents or other action by, or any notice to or filing with, any Person,
including, without limitation, any governmental entity.
(d) Noncontravention. None of the execution and delivery of the
----------------
Transaction Documents by the Issuer, the consummation of the transactions
contemplated thereby nor the satisfaction of the terms and conditions of
the Transaction Documents,
(i) conflicts with, or results in any material breach or violation
of, any provision of the Certificate or the Trust Agreement, or
any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award currently in effect having
applicability to the Issuer or its property, including
regulations issued by an administrative agency or other
governmental authority having supervisory powers over the
Issuer,
(ii) constitutes, or will constitute, a material default by the
Issuer under, or a material breach of, any provision of any
loan agreement, mortgage, indenture or other agreement or
instrument to which the Issuer is a party or by which it or any
of its property is or may be bound or affected, or
(iii) results in or requires the creation of any Lien upon or in
respect of any of the assets of the Issuer, except as otherwise
expressly contemplated by the Transaction Documents.
(e) Legal Proceedings. There is no action, proceeding, suit or
-----------------
investigation by or before any court, governmental or administrative agency
or arbitrator against or affecting the Issuer, or any properties or rights
of the Issuer, pending or, to the knowledge of the Issuer, threatened,
which, in any case, if decided adversely, would result in a Material
Adverse Change with respect to the Issuer, the Certificate or the Notes.
(f) Valid and Binding Obligations. Each of the Transaction
-----------------------------
Documents to which the Issuer is a party when executed by the Owner Trustee
on behalf of the Issuer, will constitute the legal, valid and binding
obligations of the Issuer enforceable against the
27
<PAGE>
Issuer in accordance with their respective terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws affecting the enforcement of creditors' rights generally or general
equitable principles (whether in a proceeding at law or in equity) and
except to the extent that rights to indemnity and contribution may be
limited by public policy. The Certificate, when executed, authenticated and
delivered in accordance with the Trust Agreement, will be validly issued
and outstanding and entitled to the benefits of the Trust Agreement and
will evidence the entire beneficial ownership interest in the Issuer. The
Notes when executed, authenticated and delivered in accordance with the
Indenture, will be entitled to the benefits of the Indenture and will
constitute legal, valid and binding obligations of the Issuer, enforceable
in accordance with their terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally or general equitable principles
(whether in a proceeding at law or in equity) and except to the extent that
rights to indemnity and contribution may be limited by public policy.
(g) Accuracy of Information. None of the Transaction Documents, nor
-----------------------
any of the Provided Documents, contain any statement of a material fact
with respect to the Issuer or the Transaction that was untrue or misleading
in any material respect when made. Since the furnishing of the Provided
Documents, there has been no change, that would render any of the Provided
Documents untrue or misleading in any material respect. There is no fact
known to the Issuer which has a material possibility of causing a Material
Adverse Change with respect to the Issuer or which has a material
possibility of impairing the value or marketability of the Receivables,
taken as a whole, or decreasing the possibility that amounts due in respect
of the Receivables will be collected as due.
(h) Compliance With Securities Laws; Offering Document. The Notes
--------------------------------------------------
have not been offered or sold in any manner that would render the issuance
and sale of the Notes a violation of the Securities Act or any state
securities or "Blue Sky" laws or require registration pursuant thereto, nor
has any Person been authorized to act in such manner. No registration
under the Securities Act is required for the sale of the Notes as
contemplated by the Transaction Documents, assuming the accuracy of the
Purchaser's representations and warranties set forth in the Purchase
Agreement, and satisfaction by the Placement Agent of its obligations set
forth in the Placement Agency Agreement. Without limitation of the
foregoing, the Offering Document did not, as of its date, and does not, as
of the date hereof, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they
were made, not misleading.
(i) Transaction Documents. Each of the representations and
---------------------
warranties of the Issuer contained in the Transaction Documents is true and
correct in all material respects and the Issuer hereby makes each such
representation and warranty made by it to, and for the benefit of, AGIC as
if the same were set forth in full herein.
(j) No Consents. No consent, license, authorization or approval
-----------
from, or registration or other action by, and no notice to or filing or
declaration with, any governmental entity or regulatory body, is required
for the due execution, delivery and
28
<PAGE>
performance by the Issuer of the Transaction Documents or any other
material document or instrument to be delivered thereunder, except (in each
case) as have been obtained or the failure of which to be obtained would
not be reasonably likely to cause a Material Adverse Change with respect to
the Transaction.
(k) Compliance With Law. Etc. No practice, procedure or policy
------------------------
employed or proposed to be employed by the Issuer in the conduct of its
business violates any law, regulation, judgment, agreement, order or decree
applicable to it which, if enforced, would result in a Material Adverse
Change with respect to the financial condition of such Person.
(l) Special Purpose Entity.
----------------------
(i) The capital of the Issuer is adequate for the business and
undertakings of the Issuer.
(ii) Except as contemplated by the Transaction Documents, the Issuer
is not engaged in any business transactions with TFC, the
Parent, TFCRC or any Affiliate of any of them.
(iii) The Issuer's funds and assets are not, and will not be,
commingled with the funds of any other Person.
(m) Solvency: Fraudulent Conveyance. The Issuer is solvent and will
-------------------------------
not be rendered insolvent by the Transaction and, after giving effect to
such Transaction, the Issuer will not be left with an unreasonably small
amount of capital with which to engage in its business. The Issuer does not
intend to incur, or believe that it has incurred, debts beyond its ability
to pay such debts as they mature. The Issuer does not contemplate the
commencement of insolvency, bankruptcy, liquidation or consolidation
proceedings or the appointment of a receiver, liquidator, conservator,
trustee or similar official in respect of the Issuer or any of its assets.
(n) Perfection of Liens and Security Interest. On the Closing Date,
-----------------------------------------
the Lien and security interest in favor of the Trust Collateral Agent with
respect to the Collateral will be perfected by the filing of financing
statements on Form UCC-1 in each jurisdiction where such recording or
filing is necessary for the perfection thereof, the delivery of the
Receivables Files to the Trust Collateral Agent, and the establishment of
the Collection Account, the Spread Account and the Note Payment Account in
accordance with the provisions of the Transaction Documents, and no other
filings in any jurisdiction or any other actions (except as expressly
provided herein) are necessary to perfect the Trust Collateral Agent's Lien
on and security interest in the Collateral as against any third parties.
(o) Investment Company. The Issuer is not an "investment company"
------------------
or a company "controlled" by an "investment company" within the meaning of
the Investment Company Act, and none of the execution , delivery or
performance of obligations under the Agreement or any of the Transaction
Documents or the consummation of any of the transactions contemplated
thereby by the Issuer or the acquisition by the Issuer of the
29
<PAGE>
Receivables will violate any provision of the Investment Company Act, or
any rule, regulation or order issued by the Securities and Exchange
Commission thereunder.
(p) Collateral. On the Closing Date, the Issuer will have good and
----------
marketable title to each item of other Trust Property conveyed on such date
and will own each such item free and clear of any Lien (other than Liens
contemplated under the Indenture) or any equity or participation interest
of any other Person.
(q) Security Interest in Funds and Investments. Assuming the
------------------------------------------
retention of funds in the Trust Accounts, such funds will be subject to a
valid and perfected, first priority security interest in favor of the Trust
Collateral Agent on behalf of the Trustee (on behalf of the Noteholders)
and AGIC.
(r) No Violation of Exchange Act or Regulations T, U or X. None of
-----------------------------------------------------
the transactions contemplated in the Transaction Documents will result in a
violation of Section 8 of the Exchange Act, or any regulations issues
pursuant thereto, including Regulations T, U and X of the Board of
Governors of the Federal Reserve System, 12 C.F.R., Chapter II. The Issuer
does not own nor does it intend to carry or purchase any "Margin Security"
within the meaning of said Regulation U, including margin securities
originally issued by it or any "margin stock" within the meaning of said
Regulation U.
ARTICLE IV
COVENANTS
Section 4.01. Covenants of TFCRC and TFC. Each of TFCRC and TFC hereby
--------------------------
covenants and agrees that during the term of this Insurance Agreement, unless
AGIC shall otherwise expressly consent in writing:
(a) Compliance With Agreements and Applicable Laws. Each of TFCRC
----------------------------------------------
and TFC shall perform each of its respective obligations under the
Transaction Documents and shall comply with all material requirements of
any law, rule or regulation applicable to it, or that are required in
connection with its performance under any of the Transaction Documents.
Neither TFCRC nor TFC will cause or permit to become effective any
amendment to or modification of any of the Transaction Documents to which
it is a party unless AGIC shall have previously approved in writing the
form of such amendment or modification. Neither TFCRC nor TFC shall take
any action or fail to take any action that would interfere with the
enforcement of any rights of AGIC or the Trust Collateral Agent under the
Transaction Documents.
(b) Reports: Other Information. Each of TFCRC and TFC shall keep or
--------------------------
cause to be kept in reasonable detail books and records of account of their
respective assets and business, and in the case of TFC, which shall clearly
reflect the transfer of the Receivables to TFCRC, and, in the case of
TFCRC, which shall clearly reflect the transfer of the Receivables to the
Trust Collateral Agent. Each of TFCRC and TFC shall furnish or caused to be
furnished to AGIC:
30
<PAGE>
(i) Promptly upon receipt thereof, copies of all reports,
statements, certifications, schedules, or other similar items
delivered to or by TFCRC and TFC pursuant to the terms of the
Transaction Documents and, promptly upon request, such other
data as AGIC may reasonably request; provided, however, that
neither TFCRC nor TFC shall be required to deliver any such
items if provision by some other party to AGIC is required
under the Transaction Documents unless such other party
wrongfully fails to deliver such item. TFCRC and TFC shall,
upon the reasonable request of AGIC, permit AGIC or its
authorized agents (A) to inspect its books and records as they
may relate to the Notes, the Receivables, the obligations of
TFCRC and TFC under the Transaction Documents, the Transaction
and the business of TFC or TFCRC; (B) to discuss the affairs,
finances and accounts of TFCRC and TFC with an officer of each
upon AGIC's reasonable request; and (C) to discuss the affairs,
finances and accounts of TFCRC and TFC with its independent
accountants, provided that an officer of such Person shall have
the right to be present during such discussions. Such
inspections and discussions shall be conducted during normal
business hours and shall not unreasonably disrupt the business
of such Person. The reasonable fees and expenses of AGIC or any
such authorized agents shall be for the account of TFC.
(ii) TFC shall provide or cause to be provided to AGIC an executed
original copy of each document executed in connection with the
transaction within 30 days after the Closing Date.
(iii) At least 30 days prior to the implementation thereof, notice of
any material change to the software, hardware or other systems
employed by the Parent or TFC in connection with billing,
collecting or otherwise servicing the Receivables.
(c) Notice of Material Events. TFCRC and TFC shall promptly inform
-------------------------
AGIC in writing of the occurrence of any of the following:
(i) the submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation
(A) against TFCRC or TFC pertaining to the Receivables in
general, (B) with respect to a material portion of the
Receivables, or (C) in which a request has been made for
certification as a class action (or equivalent relief) that
would involve a material portion of the Receivables;
(ii) any change in the location of the principal office of either of
TFCRC or TFC or any change in the location of the books and
records of TFCRC or TFC;
(iii) the occurrence of any Default, Event of Default or Trigger
Event; or
31
<PAGE>
(iv) any other event, circumstance or condition that has resulted,
or which TFCRC or TFC, as the case may be, reasonably believes
might result, in a Material Adverse Change with respect to
TFCRC or TFC.
(d) Further Assurances. Each of TFCRC and TFC will file all
------------------
necessary financing statements, assignments or other instruments, and any
amendments or continuation statements relating thereto, necessary to be
kept and filed in such manner and in such places as may be required by law
to preserve and protect fully the Lien on and security interest in, and all
rights of the Trust Collateral Agent, for the benefit of the Trustee (for
the Noteholders and AGIC), with respect to the Receivables, the Collection
Account, the Note Payment Account and the Spread Account. In addition, each
of TFCRC and TFC shall, upon the request of AGIC, from time to time,
execute, acknowledge and deliver, or cause to be executed, acknowledged and
delivered, within thirty (30) days of such request, such amendments hereto
and such further instruments and take such further action as may be
reasonably necessary to effectuate the intention, performance and
provisions of the Transaction Documents or to protect the interest of the
Issuer, the Owner Trustee, the Trustee and AGIC, in the Receivables, the
Collection Account, the Note Payment Account and the Spread Account, free
and clear of all Liens and Restrictions on Transferability except as
contemplated by the Transaction Documents. In addition, each of TFCRC and
TFC agrees to cooperate with S&P in connection with any review of the
Transaction which may be undertaken by S&P and after the date hereof.
(e) TFCRC's Corporate Existence. TFCRC shall become qualified to do
---------------------------
business and be in good standing under the laws of Virginia within fourteen
(14) days of the Closing Date. TFCRC shall maintain its corporate
existence and shall at all times continue to be duly organized under the
laws of Delaware, and duly qualified and duly authorized (as described in
Sections 3.01 (a), (b) and (c) hereof, including, but not limited to, in
the Commonwealth of Virginia) and shall conduct its business in accordance
with the terms of its Certificate of Incorporation and Bylaws.
(f) TFC's Corporate Existence. TFC shall maintain its corporate
-------------------------
existence and shall at all times continue to be duly organized under
applicable law, and duly qualified and duly authorized (as described in
Sections 3.01 (a), (b) and (c) hereof) and shall conduct its business in
accordance with the terms of its Certificate of Incorporation and Bylaws.
(g) Disclosure Document. Each Offering Document delivered with
-------------------
respect to the Notes shall clearly disclose that the Policy is not covered
by the property/casualty insurance security fund specified in Article 76 of
the New York Insurance Law. In addition, each Offering Document delivered
with respect to the Notes which includes financial statements of AGIC
prepared in accordance with GAAP shall include the following statement
immediately preceding such financial statements:
The New York State Insurance Department
recognizes only statutory accounting
practices for determining and reporting the
financial condition
32
<PAGE>
and results of operations of an insurance
company, for determining its solvency under
the New York Insurance Law, and for
determining where its financial condition
warrants the payment of a dividend to its
stockholders. No consideration is given by
the New York State Insurance Department to
financial statements prepared in accordance
with GAAP in making such determinations.
(h) Special Purpose Entity.
----------------------
(i) TFCRC shall conduct its business solely in its own name through
its duly authorized officers or agents so as not to mislead
others as to the identity of the entity with which those others
are concerned; in particular, TFCRC shall (A) require that its
employees, if any, identify themselves as employees of TFCRC
when conducting business of TFCRC; (B) use its best efforts to
avoid the appearance that it is conducting business on behalf
of any Affiliate thereof or that its assets are available to
pay the creditors of TFC or the Parent or any Affiliate
thereof; (C) maintain at all times stationary separate from
that of any Affiliate; and (D) conduct all oral and written
communications, including, without limitation, letters,
invoices, purchase orders, contracts, statements and loan
applications, solely in the name of TFCRC.
(ii) TFCRC shall respond to any inquiries made directly to it with
respect to ownership of a Receivable by stating that it is the
owner of such contributed Receivable, and, if requested to do
so, that the Trust Collateral Agent has been granted a security
interest in such Receivable
(iii) TFCRC shall compensate all employees, consultant and agent
directly or indirectly through reimbursement of TFC, from
TFCRC's bank accounts, for services provided to TFCRC by such
employees, consultants and agents and, to the extent any
employee, consultant or agent of TFCRC is also an employee,
consultant or agent of TFC, allocate the compensation of such
employee, consultant or agent between TFCRC and TFC on a basis
which reflects the respective services rendered to TFCRC and
TFC.
(iv) TFCRC shall keep its assets and liabilities wholly separate
from those of all other entities, including, but not limited to
TFC and the Parent and the Affiliates thereof. TFCRC shall not
commingle its funds or other assets with those of any of its
Affiliates (other than in respect of items of payment or funds
which may be commingled until deposit into the Collection
Account in accordance with the Sale and Servicing Agreement),
and not hold its assets in any manner that would create an
appearance that such assets belong to any such Affiliate, not
maintain bank accounts or other depository accounts to which
any such Affiliate is an account party, into which such
Affiliate makes deposits or from which
33
<PAGE>
any such Affiliate has the power to make withdrawals, and not
act as an agent or representative of any of its Affiliates in
any capacity.
(v) TFCRC shall not guarantee any obligation of any of its
Affiliates nor have any of its obligations guaranteed by any
such Affiliate (either directly or by seeking credit based on
the assets of such Affiliate), or otherwise hold itself out as
responsible for the debts of any Affiliate;
(vi) TFCRC shall maintain corporate records and books of account
separate from those of TFC or the Parent, and the Affiliates
thereof.
(vii) TFCRC shall obtain proper authorization from its Board of
Directors of all corporate action requiring such
authorization. Meetings of the Board of Directors of TFCRC
shall be held not less frequently than one time per annum, and
copies of the minutes of each such board meeting shall be
delivered to AGIC within 30 days of such meeting.
(viii) TFCRC shall obtain proper authorization from its shareholders
of all corporate action requiring shareholder approval.
Meetings of the shareholders of TFCRC shall be held not less
frequently than one time per annum, and copies of each such
authorization and the minutes of each such shareholder meeting
shall be delivered to AGIC within 30 days of such
authorization or meeting, as the case may be.
(ix) TFCRC shall (A) pay its own incidental administrative costs
and expenses from its own funds, (B) allocate all other shared
overhead expenses (including, without limitation, telephone
and other utility charges, the services of shared employees,
consultants and agent, and reasonable legal auditing
expenses), and other items of cost and expense shared between
TFCRC and any Affiliate thereof, on the basis of actual use to
the extent practicable, and to the extent such allocation is
not practicable, on a basis reasonably related to actual use
or the value of services rendered. TFCRC shall not permit any
of its Affiliates to pay the its operation expenses.
(x) The annual financial statements of TFCRC shall disclose the
effects of TFCRC's transactions in accordance with GAAP and
shall disclose that the assets of TFCRC are not available to
pay creditors of TFC, the Parent or any Affiliate thereof.
Without limiting the foregoing, TFCRC shall prepare its
financial statements separately from those of its Affiliates
and ensure that any consolidated financial statement have
notes to the effect that TFCRC is a separate entity whose
creditors have a claim on its assets prior to those assets
becoming available to its equity holders and to any of their
respective creditors.
(xi) The resolutions, agreements and other instruments of TFCRC
underlying the transactions described in this Insurance
Agreement and in the other Transaction Documents shall be
continuously maintained by TFCRC as
34
<PAGE>
official records of TFCRC, separately identified and held
apart from the records of TFC and the Parent and each
affiliate thereof.
(xii) TFCRC shall at all times have at least two independent
directors who satisfy the definition of Independent Director
provided in its certificate of incorporation, and have at
least one officer responsible for managing its day-to-day
business and manage such business by or under the direction of
its board of directors.
(xiii) TFCRC shall take such actions as are necessary on its part to
ensure that the facts and assumptions set forth in the non-
consolidation opinion delivered by its counsel remain true and
correct at all times.
(i) Maintenance of Licenses. Each of TFCRC and TFC shall maintain
-----------------------
all licenses, permits, charters and registrations which are material to the
performance by it of its obligations under this Insurance Agreement and
each other Transaction Document to which it is a party or by which it is
bound.
(j) Transaction Documents. Each of TFCRC and TFC shall comply with
---------------------
each of the covenants, as applicable, made by it in each of the Transaction
Documents.
(k) Ownership of TFCRC. TFC shall at all times own 100.00% of the
------------------
issued and outstanding shares of capital stock of TFCRC free and clear of
any liens.
(l) Civilian Portfolio. At all times prior to December 31, 2000,
------------------
unless AGIC shall otherwise consent in writing (which consent shall not be
unreasonably withheld, delayed or conditioned), TFC shall cause
(i) the fraction (stated as a percentage) (A) the numerator of which
is the aggregate outstanding principal balance of Contracts
serviced by TFC (including, without limitation, those Contracts
pledged to secure loans to TFC or transferred by TFC in
connection with securitization transactions) as determined as of
the close of business of the last day of the most recently
concluded Monthly Period, and in respect of which the obligors
are not military personnel and which were purchased by or on
behalf of TFC in connection with a purchase in bulk of such
Contracts from an originator thereof, and (B) the denominator of
which is the aggregate outstanding principal balance of all such
Contracts serviced by TFC as determined as of the close of
business of the last day of such Monthly Period, not to exceed
35.0%; and
(ii) the fraction (stated as a percentage) (A) the numerator of which
is the aggregate outstanding principal balance of Contracts
serviced by TFC (including, without limitation, those Contracts
pledged to secure loans to TFC or transferred by TFC in
connection with securitization transactions) as determined as of
the close of business of the last day of the most recently
concluded Monthly Period, and in respect of which the obligors
35
<PAGE>
are not military personnel and which were purchased by or on
behalf of TFC from a Dealer in connection with a point-of-sale
transaction, and (B) the denominator of which is the aggregate
outstanding principal balance of all such Contracts serviced by
TFC as determined as of the close of business of the last day of
such Monthly Period, not to exceed the percentage set forth below
opposite the relevant period set forth below:
Period Maximum Percentage
------ ------------------
from the Closing Date to the 5.00%
the third Monthly Period to
occur after the Closing Date
from the fourth Monthly 10.00%
Period to occur after the
Closing Date to the sixth
Monthly Period to occur
after the Closing Date
thereafter 15.00%.
(m) Access to Records; Discussions with Officers. TFC shall, upon
--------------------------------------------
the reasonable request of AGIC, permit AGIC or its authorized agent access
to:
(i) the documentation regarding the Receivables, the other Trust
Property, the obligations of TFC under the Transaction
Documents, the business of TFC and the transactions consummated
in connection therewith including, but not limited to, the
accounts, records and computer systems maintained by TFC with
respect thereto; and
(ii) any of the properties of TFC, to examine all of its books of
account, records, reports and other papers, to make copies and
extracts therefrom and to discuss its affairs, finances and
accounts with its officers, employees, and independent public
accounts (and by this provision TFC authorizes said accountants
to discuss the finances and affairs of TFC) (in each such case,
it being understood that an officer of TFC shall be entitled to
be present during any such examination and/or discussion).
Such inspections and discussions shall be conducted at such reasonable
times and as often as may be reasonably requested. In each case, such
access shall be afforded without charge but only upon reasonable request
and during normal business hours.
(n) Benefit Plan. Each of TFC and TFCRC shall comply in all material
------------
respects with the provisions of ERISA, the Code, and all other applicable
laws, and the regulations and interpretations thereunder to the extent
applicable, with respect to each Benefit Plan. Each of TFC and TFCRC will
not, and will cause any ERISA Affiliate not to:
36
<PAGE>
(i) engage in any non-exempt prohibited transaction (within the
meaning of Code Section 4975 or ERISA Section 406) with respect
to any Benefit Plan which would result in a material liability
to either of TFC or TFCRC;
(ii) permit to exist any accumulated funding deficiency as defined
in Section 301(a) of ERISA and Section 412(a) of the Code,
with respect to any Benefit Plan which is subject to Section
302(q) of ERICA or 412 of the Code;
(iii) terminate any Benefit Plan of either of TFC or TFCRC or any
ERISA Affiliate if such termination would result in any
material liability to either of TFC or TFCRC or an ERISA
Affiliate; or
(iv) create any defined benefit plan (as defined in ERISA).
(o) Reporting and Accounting Treatment. For reporting and accounting
----------------------------------
purposes, and in its books of account and records, TFCRC will treat each
transfer of Receivables pursuant to the Sale and Servicing Agreement as an
absolute sale and assignment of TFCRC's full right, title and ownership
interest in such Receivable and TFCRC will not account for or treat the
transactions in any other manner.
(p) Financial Statements: Accountants' Reports: Other Information.
-------------------------------------------------------------
TFC shall keep, or cause to be kept, in reasonable detail books and records
of account of its assets and business, and shall clearly reflect therein
the transfer of the Receivables to the Issuer and the sale of the Notes to
the underwriters as a sale of TFCRC's interest in the Receivables evidenced
by the Notes. TFC shall furnish or cause to be furnished to AGIC:
(i) Annual Financial Statements. As soon as available, and in any
---------------------------
event within 120 days after the close of each fiscal year of
the Parent, the audited consolidated balance sheets of TFC and
the Parent as of the end of such fiscal year and the audited
consolidated statements of income, shareholders' equity and
cash flows of TFC or the Parent, as applicable, for such fiscal
year, all in reasonable detail and stating in comparative form
the respective figures for the corresponding date and period in
the preceding fiscal year, prepared in accordance with GAAP,
consistently applied, and certified by an authorized officer of
TFC as being complete and correct in all material respects and
present the financial condition and results of operations of
TFC or the Parent, as applicable, as of the dates and for the
periods indicated, in accordance with GAAP consistently
applied.
(ii) Quarterly Financial Statements. As soon as available, and in
------------------------------
any event within 45 days after the close of the first three
quarters of each fiscal year of TFC and the Parent, the
unaudited consolidated balance sheets of as of the end of each
such quarter and the unaudited consolidated statements of
income and cash flows of TFC and the Parent for the portion of
the fiscal year then ended, all in reasonable detail and
stating in comparative form
37
<PAGE>
the respective figures for the corresponding date and period in
the preceding fiscal year, prepared in accordance with GAAP,
consistently applied (subject to normal year-end adjustments),
and certified by an authorized officer of TFC as being complete
and correct in all material respects and present the financial
condition and results of operations of TFC or the Parent, as
applicable, as of the dates and for the periods indicated, in
accordance with GAAP consistently applied (subject as to
interim statements to normal year-end adjustments).
(iii) Other Information. Promptly upon receipt thereof, copies of
-----------------
all reports, statements, certifications, schedules, or other
similar items delivered to or by TFC pursuant to the terms of
the Transaction Documents and, promptly upon request, such
other data as AGIC may reasonably request; provided, however,
that TFC shall not be required to deliver any such items if
provision by some other party to AGIC is required under the
Transaction Documents unless such other party wrongfully fails
to deliver such item. The reasonable fees and expenses of AGIC
or any such authorized agents shall be for the account of TFC.
In addition, TFC shall promptly (but in no case more than 30
days following issuance or receipt by a Commonly Controlled
Entity) provide to AGIC a copy of all correspondence between a
Commonly Controlled Entity and the PBGC, IRS, Department of
Labor or the administrators of a Multiemployer Plan relating to
any Reportable Event or the under-funded status, termination or
possible termination of a Plan or a Multiemployer Plan. The
books and records of TFC will be maintained at the address for
it designated herein for receipt of notices, unless it shall
otherwise advise the parties hereto in writing.
(iv) TFC shall provide, or cause to be provided, to AGIC an executed
original copy of each document executed in connection with the
Transaction within 30 days after the Closing Date.
(q) Agreed Upon Procedures; Reports. (1) TFC shall cause a firm of
-------------------------------
nationally recognized independent certified public accountants (the
"Independent Accountants"), who may also render other services to TFC
-----------------------
and/or to TFCRC, to deliver to the Board of Directors of the Servicer, to
the Trustee, the Owner Trustee, the Trust Collateral Agent and AGIC (with a
copy delivered to the Rating Agency):
(i) As soon as practical, but in no event later than 30 days
after the delivery by the Servicer of the second Servicer's
Certificate required to be delivered by the Servicer after the Closing
Date pursuant to Section 4.9 of the Sale and Servicing Agreement, a
statement (the "Initial Accountant's Statement"), in form and
substance satisfactory to AGIC, reviewing the results of the
Independent Accountants' performance of certain agreed upon procedures
with respect to the Servicer, its reporting and record keeping and the
degree of its compliance with provisions of the Basic Documents
requiring the deposit or remittance of funds by the Servicer to the
Collection Account, substantially to the effect that: (1) the
Independent Accountants have examined the accounts and
38
<PAGE>
records of the Servicer relating to the Receivables (which records
shall be described in one or more schedules to such statement), (2)
such firm has compared the information contained in the first and
second Servicer's Certificates delivered by the Servicer pursuant to
Section 4.9 of the Sale and Servicing Agreement with information
contained in such accounts and records for such periods, (3) such firm
has traced deposits and remittances made to the Collection Account by
the Servicer for such periods, and (4) on the basis of the agreed upon
procedures so performed, whether and to what extent (x) the
information contained in such Servicer's Certificates reconciles with
the information contained in such accounts and records, (y) such
accounts and records of the Servicer related to the Receivables agree
to the respective source documents, and (z) the Servicer has complied
with the obligations set forth in the Basic Documents with respect to
the deposits and remittances made to the Collection Account by the
Servicer for such periods, except for such exceptions as TFC and AGIC
believe to be immaterial and such other exceptions as shall be set
forth in such statement;
(ii) In the event that the Initial Accountant's Statement
indicates a degree of accuracy with respect to either or both of the
first and second Servicer's Certificates deemed by AGIC to be
unsatisfactory in the exercise of its sole discretion, as soon as
practical after written demand therefor by AGIC to TFC and the
Independent Accountants (which demand may be made as frequently as
deemed necessary in the sole discretion of AGIC), but in no event
later than 30 days after the delivery to AGIC by the Servicer of any
subsequent Servicer's Certificate constituting the subject of such
demand, a statement (each, an "Additional Accountant's Statement"), in
form and substance satisfactory to AGIC, reviewing the results of the
Independent Accountants' performance of certain agreed upon procedures
with respect to then most recently completed and delivered Servicer's
Certificate, and otherwise covering the same subjects, and having the
same scope, as the Initial Accountant's Statement; provided, however,
-------- -------
that AGIC shall not demand Additional Accountant's Statements if and
to the extent that no fewer than three consecutive Additional
Accountant's Statements are deemed by AGIC, in the exercise of its
sole discretion, to indicate a high degree of accuracy with respect to
the related Servicer's Certificate; and
(iii) As soon as practical, but in no event later than 90 days
after the end of each calendar year during the term hereof (commencing
with the calendar year 2000), a statement (each, an "Annual
Accountant's Statement"), in form and substance satisfactory to AGIC,
reviewing the results of the Independent Accountants' performance of
certain agreed upon procedures with respect to a sample of six of the
preceding twelve Servicer's Certificates (randomly selected by such
Independent Accountants; provided that in no event shall any of the
--------
Servicer's Certificates so selected include any of the Servicer's
Certificates which formed the basis of the Initial Accountant's
Statement or any of the Additional Accountant's Statement), and
otherwise covering the same subjects, and having the same scope, as
the Initial Accountant's Statement; and
39
<PAGE>
(iv) TFC shall use its best efforts to arrive at a mutually
satisfactory agreement with AGIC concerning the agreed upon procedures
referred to in each of clauses (i) and (iii) above, by no later than
January 31, 2000.
(2) On or before April 30 (or 120 days after the end of the
Servicer's fiscal year, if other than December 31) of each year, beginning on
April 30, 2000, with respect to the twelve months ended on 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) the
financial statements of TFC containing a report of the Independent Accountants
to the effect that such firm has examined the books and records of TFC and that,
on the basis of such examination conducted in compliance with generally accepted
audit standards, such financial statements accurately reflect the financial
condition of TFC, in each case certified by a Responsible Officer of TFC to be
true, accurate and complete copies of such financial statements. The statements
referenced above shall also indicate that the Independent Accountants are
independent of TFC and TFCRC within the meaning of the Code of Professional
Ethics of the American Institute of Certified Public Accountants.
(3) In the event such Independent Accountants require the Trust
Collateral Agent to agree to the procedures to be performed by such firm in any
of the reports required to be prepared pursuant to this Section 4.01(q), TFC, in
its capacity as Servicer only, shall direct the Trust Collateral Agent in
writing to so agree; it being understood and agreed that the Trust Collateral
Agent will deliver such letter of agreement in conclusive reliance upon the
direction of the Servicer, and the Trust Collateral Agent has not made any
independent inquiry or investigation as to, and shall have no obligation or
liability in respect of, the sufficiency, validity or correctness of such
procedures.
(4) All fees, costs and expenses incurred by AGIC and the Trust
Collateral Agent in connection with obtaining any of the foregoing described
statements shall be for the sole cost and expense of TFC.
(r) Title Certificates of Financed Vehicles. On or before January 31,
---------------------------------------
2000, TFC shall deliver to the Trust Collateral Agent, as custodian, the
original title certificate for each of the Financed Vehicles, to be held by
the Trust Collateral Agent as part of the Receivables Files pursuant to
Section 3.3.(a) of the Sale and Servicing Agreement.
(s) Fort Knox letters. On or before December 31, 1999, TFC shall
-----------------
deliver the fully executed Fort Knox Additional Letters to the Trust
Collateral Agent and AGIC.
(t) UCC-3 Matters. Within fifteen (15) days of the Closing Date, TFC
-------------
and TFRC shall:
(x) execute, deliver and file in the appropriate filing office
set forth below, the following UCC-3 financing statements: (1) an
assignment of the UCC-1 financing statement, filing no. 9962512, filed
with the Secretary of State of the State of Delaware, to the Trust
Collateral Agent; (2) an assignment of the UCC-1 financing statement,
filing no. 9911307186, filed with the Secretary of State of the
Commonwealth of Virginia, to the Trust Collateral Agent; and (3) an
40
<PAGE>
assignment of the UCC-1 financing statement, filing no.99-1666, filed
with the clerk, Circuit Court of the City of Norfolk, Virginia, to the
Trust Collateral Agent; and
(y) execute and deliver, an assignment of all of the rights,
title and interest of the Issuer in, to and under (a) the UCC-1
financing statement, filing no. 9911307187, filed with the Secretary
of State of the Commonwealth of Virginia, and (b) the UCC-1 financing
statement, filing no.99-16665, filed with the clerk, Circuit Court of
the City of Norfolk, Virginia, to the Trust Collateral Agent.
Section 4.02. Negative Covenants with Respect to TFCRC and TFC. Each of
------------------------------------------------
TFCRC and TFC hereby covenants and agrees that during the term of this Insurance
Agreement, unless AGIC shall otherwise expressly consent in writing, which
consent shall not be unreasonably withheld:
(a) Restrictions on Liens. Neither TFCRC nor TFC shall, except as
---------------------
contemplated by the Transaction Documents, (i) create, incur or suffer to
exist, or agree to create, incur or suffer to exist, or consent to cause or
permit in the fixture (upon the happening of a contingency or otherwise)
the creation, incurrence or existence of any Lien or Restriction on
Transferability of the Receivables, or (ii) sign or file under the Uniform
Commercial Code of any jurisdiction any financing statement which names
TFCRC or TFC as a debtor, or sign any security agreement authorizing any
secured party thereunder to file such financing statement, with respect to
the Receivables.
(b) Impairment of Rights. Neither TFCRC nor TFC shall take any
--------------------
action, or fail to take any action, if such action or failure to take
action may reasonably be expected to (i) interfere with the enforcement of
any rights under the Transaction Documents that are material to the rights,
benefits or obligations of the Trustee, the Certificate holder or AGIC,
(ii) result in a Material Adverse Change with respect to the Receivables,
or (iii) impair the ability of TFCRC or TFC to perform their respective
obligations under the Transaction Documents.
(c) Waiver. Amendments, Etc. Neither TFCRC nor TFC shall waive,
-----------------------
modify or amend, or consent to any waiver, modification or amendment of,
any of the provisions of any of the Transaction Documents.
(d) Succesor. Neither TFCRC nor TFC shall terminate or designate, or
--------
consent to the termination or designation of, the Servicer, the Trustee,
the Back-up Servicer, the Trust Collateral Agent, the Owner Trustee or any
successor thereto.
(e) Creation of Indebtedness: Guarantees. TFCRC shall not create,
------------------------------------
incur, assume or suffer to exist any Indebtedness. TFCRC shall not assume,
guarantee, endorse or otherwise be or become directly or contingently
liable for the obligations of any Person by, among other things, agreeing
to purchase any obligation of another Person, agreeing to advance funds to
such Person or causing or assisting such Person to maintain any amount of
capital.
41
<PAGE>
(f) Subsidiaries. TFCRC shall not form, or cause to be formed, any
------------
Subsidiaries.
(g) Issuance of Stock. TFCRC shall not issue any shares of capital
-----------------
stock or rights, warrants or options in respect of capital stock or
securities convertible into or exchangeable for capital stock.
(h) No Mergers. TFCRC shall not consolidate with or merge into any
----------
Person or transfer all or any material amount of their respective assets to
any Person or liquidate or dissolve.
(i) No Related Transactions.
-----------------------
(i) TFCRC shall not conduct transactions with the Parent, TFC or
any other Affiliate of the Parent or TFCRC or with any
shareholder, director, officer, or employee of TFCRC, other
than in the ordinary course of business and on an arm's length
basis upon fair and reasonable terms materially no less
favorable to TFCRC than would be obtained in a comparable
arm's-length transaction with a Person not an Affiliate of the
Parent or TFCRC or a shareholder, director, officer, or
employee of TFCRC, as the case may be; and
(ii) TFC shall not conduct transactions with the Parent, TFCRC or
any other Affiliate of the Parent or TFC or with any
shareholder, director, officer, or employee of TFC which would
cause a Material Adverse Change with respect to the financial
condition or operations of TFC, other than in the ordinary
course of business and on an arm's-length basis upon fair and
reasonable terms materially no less favorable to TFC than would
be obtained in a comparable arm's-length transaction with a
Person not an Affiliate of the Parent or TFC or a shareholder,
director, officer, or employee of TFC, as the case may be.
(j) No Sale of Assets. TFCRC shall not sell, transfer, exchange or
-----------------
otherwise dispose of any of its assets except pursuant to securitization
transactions as expressly permitted under the Transaction Documents.
(k) Other Activities. TFCRC shall not engage in any business or
----------------
activity other than in connection with the Transaction Documents, other
transactions with respect to which AGIC acts as insurer of a financial
guaranty insurance policy in order to guaranty asset-backed notes or
certificates issued by an affiliate of TFCRC and as permitted by its
certificate of incorporation.
(l) Insolvency. Neither TFCRC nor TFC shall commence with respect to
----------
TFCRC or the Issuer any case, proceeding or other action (A) under any
existing or future law of any jurisdiction, domestic or foreign, relating
to the bankruptcy, insolvency, reorganization or relief of debtors, seeking
to have an order for relief entered with respect to it, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, corporation or other relief with respect to it or (B) seeking
appointment of a receiver, trustee, custodian or other similar official for
it or for all or any substantial part
42
<PAGE>
of its assets, or make a general assignment for the benefit of its
creditors. Neither of TFCRC nor TFC shall take any action in furtherance
of, or indicating the consent to, approval of, or acquiescence in any of
the acts set forth above. TFCRC shall not admit in writing its inability to
pay its debts.
(m) Tangible Net Worth of TFC. TFC shall not permit its Tangible Net
-------------------------
Worth, at any time, to be less than the sum of (i) $30,000,000 plus (ii)
50% of the net earnings (after taxes) of TFC for the period commencing on
September 30, 1999 and ending at the end of TFC's then most recently
concluded fiscal quarter (treated for this purpose as a single accounting
period). For purposes of this clause, if net earnings of TFC for any
period shall be less than zero, the amount calculated pursuant to clause
(ii) above for such period shall be zero.
(n) No Change in Name, Etc. (i) TFCRC shall not make any change to
-----------------------
its corporate name, or use any trade names, fictitious names, assumed names
or "doing business as" names. (ii) TFC shall not change its name
(including using any trade names, fictitious names, assumed names or "doing
business as" names), identity or organizational structure in any manner
that would, could or might make any financing statement or continuation
statement filed in accordance with Section 4.01(d) above seriously
misleading within the meaning of Section 9-402(7) of the UCC, unless it
shall have given AGIC at least 60 days' prior written notice thereof and
shall have filed before the date of such change appropriate amendments to
all such previously filed financing statements or continuation statements.
(o) No Merger or Consolidation of, or Assumption of the Obligations
---------------------------------------------------------------
of TFC. (x) TFC 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 TFC's
business unless, after the merger, consolidation, conveyance, transfer,
lease or succession, the successor or surviving entity, there shall be no
Material Adverse Change with respect to the ability of the surviving entity
to fulfill its duties contained in this Insurance Agreement. Any
corporation (i) into which TFC may be merged or consolidated, (ii)
resulting from any merger or consolidation to which TFC shall be a party,
(iii) which acquires by conveyance, transfer, or lease substantially all of
the assets of TFC, or (iv) succeeding to the business of TFC, in any of the
foregoing cases shall execute an agreement of assumption to perform every
obligation of TFC under this Insurance Agreement and, whether or not such
assumption agreement is executed, shall be the successor to TFC under this
Insurance Agreement without the execution or filing of any paper or any
further act on the part of any of the parties to this Insurance Agreement,
anything in this Insurance Agreement to the contrary notwithstanding;
provided, however, that nothing contained herein shall be deemed to release
-------- -------
TFC from any obligation. TFC shall provide notice of any merger,
consolidation or succession pursuant to this Section 4.02(o) to the Issuer,
the Trust Collateral Agent, the Noteholders, AGIC and the Rating Agency.
Notwithstanding the foregoing, TFC shall not merge or consolidate with any
other Person or permit any other Person to become a successor to TFC's
business, unless (x) immediately after giving effect to such transaction,
no representation or warranty made by TFC with respect to the business,
operations or condition (financial or otherwise of TFC) pursuant to this
Insurance
43
<PAGE>
Agreement (by way of avoidance of doubt, the representations and warranties
referred to in this clause (x) shall exclude the representations and
warranties made under Schedule B of the 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 Insurance
Agreement Event of Default shall have occurred and be continuing, (y) TFC
shall have delivered to the Issuer, the Trust Collateral Agent, the Rating
Agency and AGIC 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 4.02(o) and that all conditions
precedent, if any, provided for in this Insurance Agreement relating to
such transaction have been complied with, and (z) TFC shall have delivered
to the Issuer, the Trust Collateral Agent, the Rating Agency and AGIC an
Opinion of Counsel, stating in the opinion of such counsel, either (A) all
financing statements and continuation statements and amendments thereto
have been executed and filed that are necessary to preserve and protect the
interest of the Trust Collateral Agent in the Receivables and the Other
Conveyed Property and reciting the details of the filings or (B) no such
action shall be necessary to preserve and protect such interest.
Section 4.03. Affirmative Covenants of the Issuer. The Issuer hereby
-----------------------------------
covenants and agrees that during the term of this Insurance Agreement:
(a) Compliance With Agreements and Applicable Laws. The Issuer shall
----------------------------------------------
perform each of its obligations under the Transaction Documents and shall
comply with all material requirements of, and the Notes shall be offered
and sold in accordance with, any law, rule, regulation or order applicable
to it or thereto, or that are required in connection with its performance
under any of the Transaction Documents. The Issuer will not cause or permit
to become effective any amendment to or modification of any of the
Transaction Documents to which it is a party unless the Controlling Party
shall have previously approved in writing the substance of such amendment
or modification. The Issuer shall not take any action or fail to take any
action that would interfere with the enforcement of any rights under the
Transaction Documents.
(b) Certain Information. The Issuer shall keep, or cause to be kept,
-------------------
in reasonable detail books and records of account of its assets and
business, which shall be furnished to AGIC upon request. The Issuer shall
furnish to AGIC, simultaneously with the delivery of such documents to the
Trustee, the Noteholders or the Certificate holder, as the case may be,
copies of all reports, certificates, statements, financial statements or
notices furnished to the Trustee, the Noteholders or the Certificate
holder, as the case may be, pursuant to the Transaction Documents. In
addition, the Issuer shall furnish to AGIC the following:
(i) Certain Information. Not less than two weeks prior to the date
-------------------
of filing with the IRS of any tax return or amendment thereto,
copies of the proposed form of such return or amendment and,
promptly after the filing or sending thereof, (A) copies of
each tax return and amendment thereto that the Issuer files
with the IRS and (B) copies of all financial statements,
reports, and registration statements which the Issuer files
with, or delivers
44
<PAGE>
to, any federal government agency, authority or body which
supervises the issuance of securities by the Issuer.
(ii) Other Information. Promptly upon the request of AGIC, copies of
-----------------
all schedules, financial statements or other similar reports
delivered to or by the Issuer pursuant to the terms of this
Insurance Agreement and the other Transaction Documents and
such other data as AGIC may reasonably request.
(c) Access to Records; Discussions with Officers. The Issuer shall,
--------------------------------------------
upon the reasonable request of AGIC, permit AGIC or its authorized agent:
(i) to inspect such books and records of the Issuer as may relate
to the Notes, the Certificate, the Receivables and the other
Trust Property, the obligations of the Issuer under the
Transaction Documents, the business of the Issuer and the
transactions consummated in connection therewith; and
(ii) to discuss the affairs, finances and accounts of the Issuer
with an appropriate officer of the Issuer.
Such inspections and discussions shall be conducted at such reasonable
times and as often as may be reasonably requested. In each case, such
access shall be afforded without charge but only upon reasonable request
and during normal business hours.
(d) Notice of Material Events. The Issuer shall promptly inform AGIC
-------------------------
in writing of the occurrence of any of the following:
(i) the submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation
against the Issuer in any federal, state or local court or
before any arbitration board, or any such proceeding threatened
by any governmental agency, which, if adversely determined,
would cause a Material Adverse Change to occur with respect to
the Receivables as a whole, or which, if adversely determined,
would cause a Material Adverse Change to occur with respect to
the ability of the Issuer to perform its obligations under any
Transaction Document;
(ii) any change in the location of the Issuer's principal office or
any. change in the location of the books and records of the
Issuer;
(iii) the occurrence of any Default or Trigger Event; or
(iv) any other event, circumstance or condition that has resulted,
or which is reasonably likely to result, in a Material Adverse
Change with respect to the Issuer.
(e) Further Assurances. The Issuer will file all necessary financing
------------------
statements, assignments or other instruments, and any amendments or
continuation statements relating thereto, necessary to be kept and filed in
such manner and in such places as may
45
<PAGE>
be required by law to preserve and protect fully the Lien on and security
interest in, and all rights of the Trust Collateral Agent with respect to
the Collateral under the Indenture. In addition, the Issuer shall, upon the
request of AGIC, from time to time, execute, acknowledge and deliver, or
cause to be executed, acknowledged and delivered, within thirty (30) days
of such request, such amendments hereto and such further instruments and
take such further action as may be reasonably necessary to effectuate the
intention, performance and provisions of the Transaction Documents or to
protect the interest of the Trust Collateral Agent in the Collateral under
the Indenture. In addition, the Issuer agrees to cooperate with S&P in
connection with any review of the Transaction which may be undertaken by
S&P after the date hereof.
(f) Retirement of Notes. The Issuer shall, upon retirement of the
-------------------
Notes, furnish to AGIC a notice of such retirement, and, upon such
retirement and the expiration of the term of the Policy, surrender the
Policy to AGIC for cancellation.
(g) Preservation of Existence. The Issuer shall observe in all
-------------------------
material respects all procedures required by its Certificate and Trust
Agreement and preserve and maintain its existence as a trust and its
rights, franchises and privileges in the jurisdiction of its organization,
and shall qualify and remain qualified in good standing in each
jurisdiction where the nature of its business requires it to do so except
where the failure to be so qualified, in good standing and to maintain its
rights, franchises and privileges would not cause a Material Adverse Change
to occur with respect to the financial condition of the Issuer, or its
ability to perform its obligations under this Insurance Agreement or under
any other Transaction Document to which it is party.
(h) Disclosure Document. Each Offering Document with respect to the
-------------------
Notes shall include only information concerning AGIC that is supplied or
consented to in writing by AGIC expressly for inclusion therein. Each
Offering Document delivered with respect to the Notes shall clearly
disclose that the Policy is not covered by the property/casualty insurance
security fund specified in Article 76 of the New York Insurance Law. In
addition, each Offering Document delivered with respect to the Notes which
includes financial statements of AGIC prepared in accordance with GAAP (but
excluding any Offering Document in which such financial statements are
incorporated by reference) shall include the following statement
immediately preceding such financial statements:
The New York State Insurance Department
recognizes only statutory accounting
practices for determining and reporting the
financial condition and results of
operations of an insurance company, for
determining its solvency under the New York
Insurance Law, and for determining where
its financial condition warrants the
payment of a dividend to its stockholders.
No consideration is given by the New York
State Insurance Department to financial
statements prepared in accordance with
46
<PAGE>
generally accepted accounting principles in
making such determinations.
(i) Special Purpose Entity.
----------------------
(i) The Issuer shall conduct its business solely in its own name
through its duly authorized officers or agents so as not to
mislead others as to the identity of the entity with which
those others are concerned, and particularly will use its best
efforts to avoid the appearance of conducting business on
behalf of the Parent, TFC, TFCRC or any other Affiliates
thereof or that the assets of the Issuer are available to pay
the creditors of the Parent, TFC, TFCRC or any other Affiliates
thereof. Without limiting the generality of the foregoing, all
oral and written communications, including, without limitation,
letters, invoices, purchase orders, contracts, statements and
loan applications, will be made solely in the name of the
Issuer.
(ii) The Issuer shall maintain trust records and books of account
separate from those of the Parent, TFC, TFCRC and Affiliates of
any of them.
(iii) The Issuer shall obtain proper authorization from its equity
owners of all trust action requiring such authorization, and
copies of each such authorization and the minutes or other
written summary of each such meeting shall be delivered to AGIC
within 30 days of such authorization or meeting as the case may
be.
(iv) Although the organizational expenses of the Issuer have been
paid by TFC, operating expenses and liabilities of the Issuer
shall be paid from its own funds.
(v) The annual financial statements of the Issuer shall disclose
the effects of the Issuer's transactions in accordance with
GAAP and shall disclose that the assets of the Issuer are not
available to pay creditors of the Parent, TFC, TFCRC or any
Affiliate of any of them.
(vi) The resolutions, agreements and other instruments of the Issuer
underlying the transactions described in this Insurance
Agreement and in the other Transaction Documents shall be
continuously maintained by the Issuer as official records of
the Issuer separately identified and held apart from the
records of the Parent, TFC, TFCRC and each Affiliate of any of
them.
(vii) The Issuer shall maintain an arm's-length relationship with the
Parent, TFC, TFCRC and each Affiliate of any of them and will
not hold itself out as being liable for the debts of any such
Person.
(viii) The Issuer shall keep its assets and its liabilities wholly
separate from those of all other entities, including, but not
limited to the Parent, TFC,
47
<PAGE>
TFCRC and each Affiliate of any of them except, in each case,
as contemplated by the Transaction Documents.
(j) Tax Matters. The Issuer will take all actions reasonably
-----------
necessary to ensure that for federal and State income tax purposes the
Issuer is not taxable as an association (or publicly traded partnership)
taxable as a corporation.
(k) Securities Laws. The Issuer shall comply in all material
---------------
respects with all applicable provisions of State and federal securities
laws, including blue sky laws and the Securities Act, the Securities
Exchange Act and the Investment Company Act and all rules and regulations
promulgated thereunder for which non-compliance would result in a Material
Adverse Change with respect to the Issuer.
(l) Incorporation of Covenants. The Issuer shall comply with each of
--------------------------
the Issuer's covenants set forth in the Transaction Documents and hereby
incorporates such covenants by reference as if each were set forth herein.
(m) Reports. The Issuer shall furnish to AGIC:
-------
(i) Annual Financial Statements. As soon as available, and in any
---------------------------
event within 120 days after the close of each fiscal year, its
audited balance sheets as of the end of such fiscal year and
the audited statements of income, shareholders' equity and cash
flows for such fiscal year, all in reasonable detail and
stating in comparative form the respective figures for the
corresponding date and period in the preceding fiscal year,
prepared in accordance with GAAP, consistently applied, and
accompanied by the certificate of independent accountants
(which shall be a nationally recognized firm or otherwise
acceptable to AGIC) and certified by an authorized officer of
the Issuer as being complete and correct in all material
respects and present the financial condition and results of
operations of the Issuer as of the dates and for the periods
indicated, in accordance with GAAP consistently applied.
(ii) Quarterly Financial Statements. As soon as available, and in
------------------------------
any event within 45 days after the close of the first three
quarters of each fiscal year of the Issuer, the unaudited
balance sheets of as of the end of each such quarter and the
unaudited statements of income and cash flows of the Issuer for
the portion of the fiscal year then ended, all in reasonable
detail and stating in comparative form the respective figures
for the corresponding date and period in the preceding fiscal
year, prepared in accordance with GAAP, consistently applied
(subject to normal year-end adjustments), and certified by an
authorized officer of the Issuer as being complete and correct
in all material respects and present the financial condition
and results of operations of the Issuer as of the dates and for
the periods indicated, in accordance with GAAP consistently
applied (subject as to interim statements to normal year-end
adjustments).
48
<PAGE>
(iii) Other Information. Promptly upon receipt thereof, copies of
-----------------
all reports, statements, certifications, schedules, or other
similar items delivered to or by the Issuer pursuant to the
terms of the Transaction Documents and, promptly upon request,
such other data as AGIC may reasonably request. The fees and
expenses of AGIC or any such authorized agents shall be for the
account of the Issuer. The books and records of the Issuer will
be maintained at the address for it designated herein for
receipt of notices or at the Servicer, unless it shall
otherwise advise the parties hereto in writing.
Section 4.04. Negative Covenants on Behalf of the Issuer. TFCRC as
------------------------------------------
depositor under the Trust Agreement, on behalf of the Issuer, hereby covenants
and agrees, that during the term of this Insurance Agreement, unless AGIC shall
otherwise expressly consent in writing:
(a) Restrictions on Liens. The Issuer shall not, except as
---------------------
contemplated by the Transaction Documents, (i) create, incur or suffer to
exist, or agree to create, incur or suffer to exist, or consent to cause or
permit in the future (upon the happening of a contingency or otherwise) the
creation, incurrence or existence of any Lien or Restriction on
Transferability of the Receivables, or (ii) sign or file under the Uniform
Commercial Code of any jurisdiction any financing statement which names the
Issuer as a debtor, or sign any security agreement authorizing any secured
party thereunder to file such financing statement, with respect to the
Receivables.
(b) Impairment of Rights. The Issuer shall not take any action, or
--------------------
fail to take any action, if such action or failure to take action would be
reasonably likely to (i) interfere with the enforcement of any rights under
the Transaction Documents that are material to the rights, benefits or
obligations of the Trustee, the Certificate holder, the Noteholders or
AGIC, (ii) result in a Material Adverse Change with respect to the
Receivables, or (iii) impair the ability of the Issuer to perform its
obligations under the Transaction Documents.
(c) Waiver, Amendments. Etc. The Issuer shall not waive, modify or
------------------------
amend, or consent to any waiver, modification or amendment of, any of the
provisions of any of the Transaction Documents.
(d) Successors. The Issuer shall not terminate or designate, or
----------
consent to the termination or designation of, the Servicer, Back-up
Servicer, the Trustee, the Trust Collateral Agent, the Owner Trustee or any
successor thereto.
(e) Creation of Indebtedness; Guarantees. Other than the Transaction
------------------------------------
Documents, the Issuer shall not create, incur, assume or suffer to exist
any Indebtedness other than Indebtedness guaranteed or approved in writing
by AGIC. The Trustee shall not assume, guarantee, endorse or otherwise be
or become directly or contingently liable for the obligations of any Person
by, among other things, agreeing to purchase any obligation of another
Person, agreeing to advance funds to such Person or causing or assisting
such Person to maintain any amount of capital.
49
<PAGE>
(f) Subsidiaries. The Issuer shall not form, or cause to be formed,
------------
any Subsidiaries.
(g) No Mergers. The Issuer shall not consolidate with or merge into
----------
any Person or transfer all or any material amount of its assets to any
Person, liquidate or dissolve except as permitted by the Trust Agreement
and as contemplated by the Transaction Documents.
(h) Other Activities. The Issuer shall not:
----------------
(i) sell, pledge, transfer, exchange or otherwise dispose of any of
its assets except as permitted under the Transaction
Documents; or
(ii) engage in any business or activity except as contemplated by
the Transaction Documents and as permitted by the Trust
Agreement.
(i) Insolvency. The Issuer shall not commence any case, proceeding
----------
or other action (A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to the bankruptcy, insolvency, reorganization
or relief of debtors, seeking to have an order for relief entered with
respect to it, or seeking reorganization, arrangement, adjustment, winding-
up, liquidation, dissolution, corporation or other relief or (B) seeking
appointment of a receiver, trustee, custodian or other similar official for
it or for all or any substantial part of its assets or make a general
assignment for the benefit of its creditors. The Issuer shall not take any
action in furtherance of, or indicating the consent to, approval of, or
acquiescence in, any of the acts set forth above. The Issuer shall not
admit in writing its inability to pay its debts.
ARTICLE V
FURTHER AGREEMENTS
Section 5.01. Obligations Absolute. The obligations of the Issuer, TFCRC
--------------------
and TFC pursuant to this Insurance Agreement are absolute and unconditional and
will be paid or performed strictly in accordance with the respective terms
hereof, irrespective of:
(a) any lack of validity or enforceability of, or any amendment or
other modifications of, or waiver with respect to, the Indenture, the
Policy or the Indemnification Agreement;
(b) any amendment or waiver of, or consent to departure from the
Indenture, the Policy or the Indemnification Agreement;
(c) the existence of any claim, set off, defense or other rights it
may have at any time against the Trustee, the Trust Collateral Agent, any
beneficiary or any transferee of the Policy (or any persons or entities for
whom the Trustee, the Trust Collateral Agent, any such beneficiary or any
such transferee may be acting), AGIC or any other person or
50
<PAGE>
entity whether in connection with the Policy, the Transaction Documents or
any unrelated transactions;
(d) any statement or any other document presented under the Policy
(including any Notice for Payment) proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect whatsoever;
(e) the inaccuracy or alleged inaccuracy of any Monthly Servicer
Report or Notice for Payment upon which any drawing under the Policy is
based;
(f) payment by AGIC under the Policy against presentation of a draft
or certificate which does not comply with the terms of the relevant Policy;
(g) the bankruptcy or insolvency of AGIC, the Issuer, any other party
or the Trust Property;
(h) any default or alleged default of AGIC under the Policy (other
than any payment default by AGIC under the Policy);
(i) any defense based upon the failure of the Issuer or the Trust
Property to receive all or part of the proceeds of the sale of the Notes or
of the Servicer to receive any or all of the servicing fee or other
compensation required under the Indenture or otherwise, or any
nonapplication or misapplication of the proceeds of any drawing upon the
Policy; and
(j) any other circumstance or happening whatsoever which would
otherwise constitute a defense to the obligations of the Issuer, TFCRC or
TFC hereunder.
Section 5.02. Reinsurance. AGIC shall have the right to grant
-----------
participations in its rights under this Insurance Agreement and to enter into
contracts of reinsurance with respect to the Policy, provided that AGIC agrees
--------
that any such disposition will not alter or affect in any way whatsoever AGIC's
direct obligations hereunder and under the Policy, and provided further that any
-------- -------
reinsurer or participant will not have any rights against the Trust Property,
the Issuer, the Servicer, TFC, any Noteholders, or the Trustee and that the
Trust Property, the Issuer, the Servicer, TFC, the Noteholders, or the Trustee
shall have no obligation to have any communication or relationship whatsoever
with any reinsurer or participate in order to enforce the obligations of AGIC
hereunder and under the Policy. None of the Issuer, the Servicer or TFC may
assign its obligations under this Insurance Agreement without the prior written
consent of AGIC, such consent not to be unreasonably withheld.
Section 5.03. Liability of AGIC. Each of the Issuer, the Servicer, TFCRC,
-----------------
the Parent and TFC agree that neither AGIC, nor any of its officers, directors
or employees shall be liable or responsible for (except to the extent of its own
gross negligence or willful misconduct): (a) the use which may be made of the
Policy by or for any acts or omissions of another Person in connection therewith
or (b) the validity, sufficiency, accuracy or genuineness of any documents
delivered to AGIC, or of any endorsement(s) thereon, even if such documents
should in fact prove to be in any or all respects invalid, insufficient,
fraudulent or forged. In furtherance and
51
<PAGE>
not in limitation of the foregoing, AGIC may accept documents that appear on
their face to be in order, without responsibility for further investigation.
Section 5.04. [Reserved].
Section 5.05. Fees and Expenses. (a) The Issuer agrees to pay all
-----------------
reasonable costs and expenses (including, without limitation, reasonable fees
and expenses of legal counsel and accountants) incurred by AGIC in connection
with the negotiation, preparation, execution and delivery of the Private
Placement Memorandum, the Transaction Documents and all other documents,
instruments and agreements delivered with respect thereto, and all Rating Agency
fees incurred by AGIC in connection with the initial issuance of the Notes, in
all cases in accordance with the terms of, and subject to the limitations set
forth in, the Premium Letter. AGIC's attorney's fees and expenses incurred in
connection with the negotiation, preparation, execution and delivery of the
Private Placement Memorandum, the Transaction Documents and all other documents,
instruments and agreements delivered with respect thereto shall be payable (i)
on the Closing Date upon the presentation of an invoice for any such fees, costs
and expenses and (ii) at any time thereafter, promptly upon presentation of an
invoice for any such fees, costs and expenses.
(b) TFC agrees to pay all reasonable costs and expenses (including,
without limitation, reasonable fees and expenses of legal counsel and
accountants) incurred by AGIC in connection with the amendment,
modification, waiver or any similar action whether or not executed or
completed and/or the enforcement, defense or preservation of any rights,
including but not limited to defending, monitoring or participating in any
litigation or proceeding (including any insolvency or bankruptcy
proceeding) against the Issuer, the Servicer, the Parent, TFCRC or TFC, as
the case may be, of AGIC's rights against any of them under this Insurance
Agreement, the Policy, the Indenture, the Indemnification Agreement or any
of the other Transaction Documents.
(c) TFC agrees to pay AGIC for any payments made by AGIC on behalf
of, or advanced to, TFC, in its capacity as Servicer, or the Trustee,
including, without limitation, any amounts payable by TFC, in its capacity
as Servicer, or the Trustee pursuant to the Notes or any other Transaction
Documents; and any payments made by AGIC as, or in lieu of, any servicing,
management, trustee, custodial or administrative fees payable, in the sole
discretion of AGIC to third parties in connection with the Transaction.
Section 5.06. Certain Obligations Not Recourse to TFC. Notwithstanding
---------------------------------------
any provision of Section 2.04 to the contrary, the payment obligations provided
in Section 5.05(b) and 5.05(c) (to the extent of advances to the Trustee in
respect of payments on the Notes), in each case, to the extent that such payment
obligations do not arise from any failure or default in performance by the
Parent, TFC, TFCRC, the Issuer of any of its obligations under the Transaction
Documents, and any interest on the foregoing in accordance with Section 2.04,
shall not be recourse to TFC, but shall be payable in the manner and in
accordance with priorities provided in the Sale and Servicing Agreement.
52
<PAGE>
ARTICLE VI
EVENTS OF DEFAULT; REMEDIES
Section 6.01. Insurance Agreement Events of Default. The occurrence of
-------------------------------------
any of the following events shall constitute an Event of Default hereunder:
(a) any demand for payment shall be made under the Policy;
(b) (i) any representation or warranty made by any of the Issuer, the
Parent, TFC, the Servicer, TFCRC or the Seller under any of the Basic
Documents, or in any certificate or report furnished under any of the Basic
Documents, shall prove to have been untrue or incorrect in any material
respect when made; provided, however, if such default has not been
-------- -------
committed voluntarily and is capable of being cured, it shall be deemed a
default hereunder only if it shall continue or fail to 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 such Person shall have been given a written
notice by AGIC, the Trustee or the Trust Collateral Agent specifying such
default or incorrect representation or warranty and requiring it to be
remedied; or
(ii) any covenant made by any of the Issuer, the Parent, TFC, the
Servicer, TFCRC or the Seller under any of the Basic Documents, shall
be breached in any material respect; provided, however, if such
-------- -------
breach in the observance or performance of such covenant has not been
committed voluntarily and is capable of being cured, it shall be
deemed a default hereunder only if it shall continue or fail to be
cured, or the circumstance or condition in respect of which such
covenant was breached shall not have been eliminated or otherwise
cured, for a period of 30 days after such Person shall have been given
a written notice by AGIC, the Trustee or the Trust Collateral Agent
specifying such breach and requiring it to be remedied;
(c) the Cumulative Net Loss Rate for any Determination Date occurring
during a period set forth below shall be greater than the percentage set
forth opposite such period:
Period Maximum Percentage
------ ------------------
from the Initial Cut-Off Date to the third 2.00%
Monthly Period to occur after the
Initial Cut-Off Date
from the fourth Monthly Period to 6.50%
occur after the Initial Cut-Off Date to the
sixth Monthly Period to occur after
the Initial Cut-Off Date
from the seventh Monthly Period 15.40%
to occur after the Initial Cut-Off Date to
53
<PAGE>
the ninth Monthly Period after the
Initial Cut-Off Date
from the tenth Monthly Period to 24.00%
occur after the Initial Cut-Off Date to
the 12th Monthly Period to occur
after the Initial Cut-Off Date
from the 13th Monthly Period to 24.50%
occur after the Initial Cut-Off Date to
the 15th Monthly Period to occur
after the Initial Cut-Off Date
from the 16th Monthly Period to 25.00%
occur after the Initial Cut-Off Date to
the 18th Monthly Period to occur
after the Initial Cut-Off Date
from the 19th Month Period to 26.00%
occur after the Initial Cut-Off Date to
the 21st Monthly Period to occur
after the Initial Cut-Off Date
from the 22nd Monthly Period to 27.30%
occur after the Initial Cut-Off Date to
the 24th Monthly Period to occur
after the Initial Cut-Off Date
from the 25th Monthly Period to 28.60%
occur after the Initial Cut-Off Date to
the 27th Monthly Period to occur
after the Initial Cut-Off Date
from the 28th Monthly Period to 30.00%
occur after the Initial Cut-Off Date
and at any time thereafter;
(d) [Reserved];
(e) any of the Issuer, TFC or TFCRC shall fail to pay its debts
generally as they come due, or shall admit in writing its inability to pay
its debts generally, or shall make a general assignment for the benefit of
creditors, or shall institute any proceeding seeking to adjudicate it
insolvent or seeking a liquidation, or shall take advantage of any
insolvency act, or shall commence a case or other proceeding naming it as
debtor under the United States Bankruptcy Code or similar law, domestic or
foreign, or a case or other proceeding shall be commenced against any of
the Issuer, TFC or TFCRC under the United States Bankruptcy Code or similar
law, domestic or foreign, or any proceeding shall be instituted against any
of the Issuer, TFC or TFCRC seeking liquidation of their respective assets;
and such Person shall fail to take appropriate action resulting in the
54
<PAGE>
withdrawal or dismissal of such proceeding within 60 days or there shall be
appointed or any of the Issuer, TFC or TFCRC shall consent to, or acquiesce
in, the appointment of a receiver, liquidator, conservator, trustee or
similar official in respect of such Person or the whole or any substantial
part of its respective properties or assets or such Person shall take any
corporate action in furtherance of any of the foregoing;
(f) on any Payment Date, after taking into account the application in
accordance with Section 5.7(a) of the Sale and Servicing Agreement on the
related Payment Date of the sum of Amount Available with respect to such
related Payment Date and the amounts available in the Spread Account (prior
to withdrawals therefrom in accordance with the terms of the Spread Account
under the Sale and Servicing Agreement) any amounts payable on such related
Payment Date pursuant to clauses (i), (ii), (iii) or (v) of Section 5.7(a)
of the Sale and Servicing Agreement have not been paid in full;
(g) with respect to any Determination Date occurring during a period
set forth below, the arithmetic average of the Delinquency Ratios for such
Determination Date and the two immediately preceding Determination Dates
shall be greater than the percentage set forth below opposite the period
during which such Determination Date occurs:
Period Maximum Percentage
------ ------------------
from the Initial Cut-Off Date to the 12th 20.00%
Monthly Period to occur after the
Initial Cut-Off Date
from the 13th Monthly Period to 23.00%
occur after the Initial Cut-Off Date to the
18th Monthly Period to occur after
the Initial Cut-Off Date
from the 19th Monthly Period to occur 28.00%
after the Initial Cut-Off Date and at any time
thereafter;
(h) the Cumulative Net Loss Rate for any Determination Date occurring
during a period set forth below shall be greater than the percentage set
forth opposite such period:
Period Maximum Percentage
------ ------------------
from the Initial Cut-Off Date to the third 1.60%
Monthly Period to occur after the
Initial Cut-Off Date
from the fourth Monthly Period to 5.50%
occur after the Initial Cut-Off Date to the
sixth Monthly Period to occur after
the Initial Cut-Off Date
55
<PAGE>
from the seventh Monthly Period 12.90%
to occur after the Initial Cut-Off Date to
the ninth Monthly Period after the
Initial Cut-Off Date
from the tenth Monthly Period to 20.00%
occur after the Initial Cut-Off Date to
the 12th Monthly Period to occur
after the Initial Cut-Off Date
from the 13th Monthly Period to 20.30%
occur after the Initial Cut-Off Date to
the 15th Monthly Period to occur
after the Initial Cut-Off Date
from the 16th Monthly Period to 20.80%
occur after the Initial Cut-Off Date to
the 18th Monthly Period to occur
after the Initial Cut-Off Date
from the 19th Month Period to 21.80%
occur after the Initial Cut-Off Date to
the 21st Monthly Period to occur
after the Initial Cut-Off Date
from the 22nd Monthly Period to 22.80%
occur after the Initial Cut-Off Date to
the 24th Monthly Period to occur
after the Initial Cut-Off Date
from the 25th Monthly Period to 23.80%
occur after the Initial Cut-Off Date to
the 27th Monthly Period to occur
after the Initial Cut-Off Date
from the 28th Monthly Period to 24.90%
occur after the Initial Cut-Off Date
and at any time thereafter;
(i) the occurrence of a Servicer Termination Event;
(j) TFC shall fail to pay any principal, premium or interest on any
Indebtedness having an aggregate principal amount of $1,000,000 or greater,
when the same becomes due and payable (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and such failure
shall continue uncured and unwaived after the applicable grace period, if
any, specified in the agreement or instrument relating to such
Indebtedness; or any other default under any agreement or instrument
relating to any such Indebtedness of either of TFC or any other similar
event, shall occur and shall continue uncured and unwaived after the
applicable grace period, if any, specified in such agreement or instrument
if the effect of such failure to pay, other default or other event is
56
<PAGE>
to accelerate, or permit the acceleration of, the maturity of such
Indebtedness; or any such Indebtedness shall be declared to be due and
payable or required to be prepaid (other than by a regulatory scheduled
required prepayment) prior to the stated maturity thereof;
(k) the occurrence of any Event of Default under the Indenture; and
not cured within the applicable grace period, if any.
(l) the Trust Collateral Agent shall fail to have a perfected, first
priority security interest in the Trust Property; or
(m) the Issuer becomes taxable as an association (or publicly traded
partnership) taxable as a corporation for federal or state income tax
purposes.
Section 6.02. Remedies: Waivers.
-----------------
(a) Upon the occurrence of an Insurance Agreement Event of Default,
AGIC may exercise any one or more of the rights and remedies set forth
below:
(i) declare all or a portion of the Premium that has accrued or will
accrue payable, and the same shall thereupon (A) be immediately
due and payable to the extent then accrued and (B) become
immediately due and payable upon accrual to the extent accruing
thereafter, whether or not AGIC shall have declared an "Event of
Default" or shall have exercised, or be entitled to exercise,
any other rights or remedies hereunder;
(ii) exercise any rights and remedies available under the Basic
Documents in its own capacity or in its capacity as the Person entitled to
exercise the rights of the Controlling Party under the Basic Documents,
including, without limitation, its right to accelerate the Notes, to sell the
Receivables, or to terminate TFC and to appoint a substitute Servicer; or
(iii) take whatever action at law or in equity may appear necessary
or desirable in its judgment to enforce performance of any
obligation of the Issuer, The Parent, TFC or TFCRC under the
Basic Documents.
(b) Unless otherwise expressly provided, no remedy herein conferred
upon or reserved is intended to be exclusive of any other available remedy,
but each remedy shall be cumulative and shall be in addition to other
remedies given under the Basic Documents or existing at law or in equity.
No delay or failure to exercise any right or power accruing under any
Transaction Document upon the occurrence of any Event of Default or
otherwise shall impair any such right or power or shall be construed to be
a waiver thereof, but any such right and power may be exercised from time
to time and as often as may be deemed expedient. In order to entitle AGIC
to exercise any remedy reserved to AGIC in this Article, it shall not be
necessary to give any notice, other than such notice as may be expressly
required in this Article.
(c) If any proceeding has been commenced to enforce any right or
remedy under this Insurance Agreement and such proceeding has been
discontinued or abandoned for
57
<PAGE>
any reason, or has been determined adversely to AGIC, then and in every
such case the parties hereto shall, subject to any determination in such
proceeding, be restored to their respective former positions hereunder,
and, thereafter, all rights and remedies of AGIC shall continue as though
no such proceeding had been instituted.
(d) AGIC shall have the right, to be exercised in its complete
discretion, to waive any covenant, Default or Insurance Agreement Event of
Default or collection of Premium by a writing setting forth the terms,
conditions and extent of such waiver signed by AGIC and delivered to the
Issuer, the Parent, TFC or TFCRC, as the case may be. Any such waiver may
only be effected in writing duly executed by AGIC, and no other course of
conduct shall constitute a waiver of any provision hereof. Unless such
writing expressly provides to the contrary, any waiver so granted shall
extend only to the specific event or occurrence so waived and not to any
other similar event or occurrence.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.01. Amendments, Etc. No amendment or waiver of any provision of
----------------
this Insurance Agreement, nor consent to any departure therefrom, shall in any
event be effective unless in writing and signed by all of the parties hereto,
with written notice thereof to the Rating Agency in the case of any material
amendment or waiver; provided that any waiver so granted shall extend only to
the specific event of occurrence so waived and not to any other similar event or
occurrence which occurs subsequent to the date of such waiver.
Section 7.02. Notices. Except to the extent otherwise expressly provided
-------
herein, all notices, requests and demands to or upon the respective parties
hereto to be effective shall be in writing (and if sent by mail, certified or
registered, return receipt requested) or facsimile transmission and, unless
otherwise expressly provided herein, shall be deemed to have been duly given or
made when delivered by hand, or three (3) Business Days after being deposited in
the mail, postage prepaid, or, in the case of facsimile transmission, when sent,
addressed as follows or to such other address or facsimile number as set forth
in a written notice delivered by a party to each other party hereto:
If to TFC, the Parent or the Servicer:
-------------------------------------
The Finance Company
5425 Robin Hood Road, Suite 101A
Norfolk, Virginia 23513
Attention: Chief Financial Officer
Telephone: (757) 858-1400
Facsimile: (757) 858-4093
With a copy to:
John M. Paris, Jr.
58
<PAGE>
Williams, Mullen, Clark, Dobbins P.C.
900 One Columbus Center,
Virginia Beach, Virginia 23462
Attention:
Telephone: (757) 473-5308
Facsimile: (757) 473-0395
If to TFCRC:
-----------
c/o The Finance Company
5425 Robin Hood Road, Suite 101B
Norfolk, Virginia 23513]
Attention: Chief Financial Officer
Telephone: (___) ________
Facsimile: (___) ________
If to the Issuer:
----------------
TFC Automobile Receivables Trust 1999-1
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Administration
Telephone: (302) 651-1000
Facsimile: (302) 651-8882
If to AGIC:
----------
Asset Guaranty Insurance Company
335 Madison Avenue
New York, NY 10017-4605
Attention: Chief Risk Officer
Telephone: (212) 983-5859
Facsimile: (212) 682-5377
If to the Back-up Servicer:
--------------------------
Norwest Bank Minnesota, National Association
Sixth Street and Marquette Avenue,
Minneapolis, Minnesota 55479
MAC N9311-161
Attention: Corporate Trust Services/Asset-Backed Administration
Telephone: (612) 667-8058
Facsimile: (612) 667-3464
59
<PAGE>
Section 7.03. No Waiver; Remedies and Severability. No failure on the
------------------------------------
part of AGIC to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law. The parties further agree that the holding by any
court of competent jurisdiction that any remedy pursued by AGIC hereunder is
unavailable or unenforceable shall not affect in any way the ability of AGIC to
pursue any other remedy available to it. In the event any provision of this
Insurance Agreement shall be held invalid or unenforceable by any court of
competent jurisdiction, the parties hereto agree that such holding shall not
invalidate or render unenforceable any other provision hereof.
Section 7.04. Payments. (a) All payments to AGIC hereunder shall be made
--------
in lawful currency of the United States and in immediately available funds and
except for payments required to be made pursuant to Section 2.04 hereof, shall
be made prior to 2:00 p.m. (New York City time) on the date such payment is due
by wire transfer to:
Chase Manhattan Bank
ABA#: 021-000-021
Account #: 9102738722
Credit: Asset Guaranty Insurance Company
Reference: TFC: AGI Insurance Policy # FANI-0404-99337-NY
or to such other office or account as AGIC may direct. Payments received by AGIC
after 2:00 p.m. (New York City time) shall be deemed to have been received on
the next succeeding Business Day, and such extension of time shall be included
in computing interest, commissions or fees, if any, in connection with such
payment.
(b) Whenever any payment under this Insurance Agreement shall be
stated to be due on a day which is not a Business Day, such payment shall
be made on the next succeeding Business Day, and such extension of time
shall in such cases be included in computing interest, commissions or fees,
if any, in connection with such payment.
(c) Unless otherwise specified herein, AGIC shall be entitled to
interest on all amounts owed to AGIC under this Insurance Agreement,
together with interest on any and all amounts remaining unpaid (to the
extent permitted by law, if in respect of any unpaid amounts representing
interest) from the date such amounts become due until paid in full (after
as well as before judgment), at a rate of interest equal to the Prime Rate
from time to time in effect plus 2.0%.
SECTION 7.05. GOVERNING LAW AND JURY TRIAL WAIVER. THIS INSURANCE
-----------------------------------
AGREEMENT SHALL BE CONSTRUED, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INSURANCE
AGREEMENT, THE POLICY OR ANY TRANSACTION CONTEMPLATED HEREBY, THEREBY OR BY THE
INDENTURE AND FOR ANY COUNTERCLAIM THEREIN.
60
<PAGE>
Section 7.06. Counterparts. This Insurance Agreement may be executed in
------------
counterparts by the parties hereto, and each such counterpart shall be
considered an original and all such counterparts shall constitute one and the
same instrument.
Section 7.07. Paragraph Headings, Etc. The headings of paragraphs
------------------------
contained in this Insurance Agreement are provided for convenience only. They
form in no part of this Insurance Agreement and shall not affect its
construction or interpretation.
Section 7.08. No Petition. Each of the parties hereto agrees that it will
-----------
not institute against, or join any other Person in instituting against, the
Issuer or the Trust Property any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceeding, or other proceeding under any federal or
state bankruptcy or similar law, for one year and one day after satisfaction of
all of the Issuer's payment obligations under the Notes, the Premium Letter and
the Reimbursement Obligations. The provisions of this Section 7.08 shall survive
the termination of this Insurance Agreement.
Section 7.09. Limitation of Owner Trustee Liability. It is expressly
-------------------------------------
understood and agreed by the parties hereto that (a) this Insurance Agreement is
executed and delivered by Wilmington Trust Company, not individually or
personally but solely as 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 Wilmington Trust Company 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 Wilmington Trust Company individually or
personally, to perform any covenant either expressed or implied contained
herein, all such liability, if any, being expressly waived by the parties to
this Insurance Agreement and by any person claiming by, through or under them
and (d) under no circumstances shall Wilmington Trust Company be personally
liable for the payment of any indebtedness or expenses of the Issuer or be
liable for the breach or failure of any obligation, representation, warranty or
covenant made or undertaking by the Issuer under this Insurance Agreement or any
related documents.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
61
<PAGE>
[Insurance Agreement - signature page]
IN WITNESS WHEREOF, the parties hereto have executed this Insurance
Agreement, all as of the day and year first above mentioned.
ASSET GUARANTY INSURANCE COMPANY
By: ________________________________
Name: Kim Nance-Meier
Title: Vice President
TFC RECEIVABLES CORPORATION 2
By: ________________________________
Name:
Title:
THE FINANCE COMPANY,
individually and as Servicer
By: ________________________________
Name:
Title:
62
<PAGE>
[Insurance Agreement - signature page]
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, not in its individual
capacity, but solely as Trust Collateral Agent, Trustee and as Back-up
Servicer
By: ________________________________
Name:
Title:
TFC AUTOMOBILE RECEIVABLES TRUST 1999-1
By: WILMINGTON TRUST COMPANY,
not in its individual capacity but solely as Owner Trustee
By: ________________________________
Name:
Title:
63
<PAGE>
SCHEDULE 1
The following table is based, in part, on The Finance Company's memo
entitled "Aged Trial Balance Report Modifications for Non-Monthly Accounts MIS
Project #2367", dated March 5, 1998.
1. Pursuant to (i) the Sale and Servicing Agreement dated as of
December 1, 1999 (the "Sale and Servicing Agreement") among TFC Automobile
Receivables Trust 1999-1 as issuer (the "Issuer"), TFC Receivables Corporation 2
as seller ("TFCRC"), Norwest Bank Minnesota, National Association (individually
"Norwest") as trust collateral agent, backup servicer and P.O. Box owner, The
Finance Company as servicer (the "Servicer"), and Asset Guaranty Insurance
Company as insurer ("AGIC"); (ii) the Insurance and Reimbursement Agreement
dated as of December 1, 1999 (the "Insurance Agreement") among AGIC, the Issuer,
TFCRC, the Servicer and Norwest as trustee, trust collateral agent and back-up
servicer; (iii) the other Basic Documents (as defined under the Sale and
Servicing Agreement); and (iv) the transactions contemplated by the agreements
listed in clauses (i) through (iii) above, the following table shall be used to
define delinquency categories for contracts with monthly Scheduled Payments
("Monthly-Pay Contracts") and contracts with more frequent Scheduled Payments
("Non-monthly-Pay Contracts"):
Monthly-Pay Contracts* Non-Monthly-Pay Contracts** Delinquency
(# Months Delinquent) (# Weeks Delinquent) Category
- ------------------------------------------------------------------------------
0 0-5 Current
1 6-9 30
2 10-13 60
3 14-17 90
4 18-21 120
5 22-25 150
6 26+ 180+
2. In accordance with The Finance Company's customary policy, in
assigning a delinquency category to any contract, a single partial payment of at
least 51% of a Scheduled Payment (a "One-Time Partial Payment") shall prevent
either the characterization of such contract as being in the 30 Delinquency
Category or, in the case of a contract which is in a more advanced Delinquency
Category at the time of the receipt of such One-Time Partial Payment,
progression of the contract to the next higher Delinquency Category.
EXHIBIT A
__________________________
*Monthly-Pay contracts (e.g., "Monthly Accounts").
**Non-monthly-Pay contracts (e.g., "Weekly Accounts," "Bi-Weekly Accounts," and
"Semi-Monthly Accounts").
64
<PAGE>
FORM OF FINANCIAL GUARANTY INSURANCE POLICY
[Attached]
65
<PAGE>
EXHIBIT B
CLOSING CHECKLIST
[Attached]
66
<PAGE>
TFC ENTERPRISES, INC.
1999 Annual Report
<PAGE>
TFC Enterprises, inc. Financial Highlights
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year: 1999 1998 1997
<S> <C> <C> <C>
Net income $6,487 $4,025 $707
Net income per common share:
Basic 0.57 0.36 0.06
Diluted 0.53 0.33 0.06
- --------------------------------------------------------------------
Average common and common equivalent
shares outstanding (in thousands) 11,409 11,330 11,290
- --------------------------------------------------------------------
Performance ratios:
Return on average common equity 16.86% 12.30% 2.30%
Return on average assets 3.40 2.49 0.47
Yield on interest earning assets 23.60 23.08 21.30
Cost of interest bearing
liabilities 9.07 10.58 10.85
Net interest margin 17.17 15.43 13.38
Operating expense as a percentage
of average interest earning
assets (a) 12.00 12.89 13.17
Total net charge-offs to average
gross contract receivables, net
of unearned interest 13.51 16.59 18.60
60 day delinquencies to period
end gross contract receivables 6.03 5.91 8.85
30 day delinquencies to period
end gross contract receivables 9.14 8.79 12.56
Total allowance and nonrefundable
reserve to period end gross
contract receivables, net of
unearned interest 10.84 11.80 14.70
Equity to assets, period end 20.06 20.44 21.02
- --------------------------------------------------------------------
Average balances:
Interest earning assets (b) $203,428 $169,340 $151,743
Total assets 190,720 161,747 148,932
Interest bearing liabilities 144,378 122,479 110,812
Equity 38,479 32,723 30,731
- --------------------------------------------------------------------
</TABLE>
Note: Throughout this report, ratios are based on unrounded numbers.
(a) Excludes a $0.4 million charge for an abandoned securitization costs in
1998.
(b) Average gross contract receivables net of unearned interest revenue.
- --------------------------------------------------------------------------------
1999 Annual Report
1
<PAGE>
TFC Enterprises, inc. President's Letter
To our shareholders:
It is with enthusiasm and excitement that we share the results of TFC Enter-
prises (TFCE) for 1999 with our shareholders. We are happy to report that the
great year we experienced in 1998 was followed up with an even better year in
1999. We have now achieved eight consecutive profitable quarters. Diluted earn-
ings per common share grew from $0.33 for 1998 to $0.53 for 1999, a 61%
increase. Contract volume grew from $218.5 million in 1998 to $230.2 million in
1999, a 5% increase. Net charge offs improved by 19% and thirty plus days
delinquency held steady. A huge "Thank You" goes out to every member of the TFC
Enterprises team for the part they played in delivering these wonderful
results.
Other significant accomplishments were; return on assets grew from 2.49% in
1998 to 3.40% in 1999, a 36% increase, cost of interest-bearing liabilities
decreased from 10.58% in 1998 to 9.07% in 1999, a 14% improvement, and operat-
ing expense as a percentage of interest-earning assets dropped from 12.89% in
1998 to 12.00% in 1999, a 7% improvement.
In last year's report to shareholders, I set forth several objectives we would
strive to meet in 1999. It is rewarding to report to you nearly all of those
objectives were met or exceeded.
Data gathered by the Speciality Lender, a national publication of SNL Securi-
ties, listed TFCE as the fifth most improved stock of publicly traded
speciality lenders and the second most improved stock of publicly traded auto
finance lenders measured as a percentage increase in stock price over the past
year. Obviously, our continued improved earnings, coupled with our program to
take TFCE's story to the street, reaped dividends during 1999. This was accom-
plished even though the analyst community continued to ignore coverage of our
Company. We will, of course, continue to promote TFCE's accomplishments during
2000.
Another major objective set forth was to improve our cost of funds. Tremendous
headway was achieved in this area during 1999. In addition to extending The
Finance Company's (TFC) facility with its primary lender for an additional two
years with more favorable terms, we were able to attract Bank of America Busi-
ness Credit, a subsidiary of Bank of America, as the lender for TFCE's direct
consumer lending subsidiary, First Community Finance (FCF), at significantly
better terms than its previous lender. Additionally, TFC securitized $65 mil-
lion of automobile receivables, using the proceeds to reduce the outstanding
balance of the primary credit facility, which will support the planned growth
for the year 2000. This transaction was kept on balance sheet allowing the Com-
pany to avoid the controversial "gain on sale accounting". The interest rate on
the securitization is fixed over the term of the securitization which elimi-
nates the interest rate risk associated with potential future interest rates
hikes. All in all, improvement in and diversification of funding in 1999 proved
to be extremely significant.
These accomplishments were achieved while maintaining delinquency levels,
improving charge off rates, and holding constant our underwriting and pricing
guidelines, all of which were objectives reported to you last year.
- --------------------------------------------------------------------------------
2
<PAGE>
TFC Enterprises, inc. President's Letter
With an eye towards improving our operating expenses as a percentage of inter-
est-earning assets, we completed the consolidation of the Jacksonville,
Florida Service Center into the Norfolk, Virginia Service Center on March 31,
2000. This enables the Company to service its accounts with substantially less
overhead.
It is now time to look to the future. The Company will continue to look to its
core businesses; military point of sale business, bulk acquisitions of exist-
ing automobile receivables and direct consumer loans for an even better year
in 2000.
Additionally, the Company will research and explore other business products
within the Speciality Finance arena to further improve revenues for 2000 and
future years.
Once again, we would like to express to our wonderful team of employees our
appreciation for their contributions in making 1999 an incredible year. Addi-
tionally, we thank all of our shareholders for their loyalty and support.
It is with deep satisfaction that I submit TFCE's Annual Report.
[LOGO]
Robert S. Raley, Jr.
Chairman of the Board, President
and Chief Executive Officer
[GRAPH]
[GRAPH]
- -------------------------------------------------------------------------------
1999 Annual Report
3
<PAGE>
TFC Enterprises, inc. Five-Year Summary of Selected Financial Data
T
he Five-Year Summary of Selected Financial Data should be reviewed in conjunc-
tion with Management's Discussion and Analysis of Financial Condition and
Results of Operations and with the accompanying Consolidated Financial State-
ments of TFC Enterprises, Inc., including notes thereto.
Five-Year Summary of Selected Financial Data
<TABLE>
<CAPTION>
(in thousands) Years ended December 31
- -----------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations data:
Net interest revenue $34,922 $26,133 $20,298 $27,033 $36,825
Provision for credit losses 466 737 719 8,733 26,500
- -----------------------------------------------------------------------------
Net interest revenue after
provision for credit losses 34,456 25,396 19,579 18,300 10,325
Other revenue 1,382 1,062 1,105 1,436 2,292
Operating expense:
Amortization of intangible
assets 1,091 1,092 1,091 1,091 1,091
Severance benefits -- -- -- 1,804 --
Restructuring charge -- -- -- 590 --
Securitization costs -- 448 -- -- --
Other 23,313 20,743 18,886 23,055 21,551
- -----------------------------------------------------------------------------
Total operating expense 24,404 22,283 19,977 26,540 22,642
- -----------------------------------------------------------------------------
Income (loss) before income
taxes 11,434 4,175 707 (6,804) (10,025)
Provision for (benefit from)
income taxes 4,947 150 -- 792 (3,564)
- -----------------------------------------------------------------------------
Net income (loss) $6,487 $4,025 $707 $(7,596) $(6,461)
- -----------------------------------------------------------------------------
Net income (loss) per common
share:
Basic $0.57 $0.36 $0.06 $(0.67) $(0.57)
Diluted $0.53 $0.33 $0.06 $(0.67) $(0.57)
- -----------------------------------------------------------------------------
Balance Sheet data:
Net contract receivables $182,039 $155,895 $128,503 $126,252 $171,051
Total assets 208,511 172,597 147,833 156,508 215,146
Total debt 156,683 130,917 109,786 120,378 170,459
- -----------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
4
<PAGE>
TFC Enterprises, inc. Management's Discussion and Analysis
C
autionary statement under the "Safe-Harbor" provisions of the Private Securi-
ties Litigation Reform Act of 1995: Included in this Report and other written
and oral information presented by management from time to time, including but
not limited to, reports to shareholders, quarterly shareholder letters, filings
with the Commission, news releases, discussions with analysts and investor pre-
sentations, are forward-looking statements about business strategies, market
potential, potential for purchases, future financial performance and other mat-
ters that reflect management's expectations as of the date made. Without
limiting the foregoing, the words "believes," "anticipates," "plans," "ex-
pects," "seeks," and similar expressions are intended to identify forward-
looking statements. Future events and the Company's actual results could differ
materially from the results reflected in these forward-looking statements.
There are a number of important factors that could cause the Company's actual
results to differ materially from those indicated by such forward-looking
statements. These factors include, without limitation: the Company's dependence
on its line of credit, intense competition within its markets, the fluctuating
interest rates associated with its line of credit and the impact of installment
contract defaults. Please refer to a discussion of these and other factors in
this Report and the Company's other Commission filings. The Company disclaims
any intent or obligation to update these forward-looking statements, whether as
a result of new information, future events or otherwise.
This section should be reviewed in conjunction with the Five-Year Summary of
Selected Financial Data and the accompanying Consolidated Financial Statements
of TFC Enterprises, Inc., including notes thereto.
General
The Company's operations began in 1977 in Alexandria, Virginia, with the found-
ing of TFC by Robert S. Raley, Jr., the Company's current Chairman of the
Board, President and Chief Executive Officer, whose 40 year career has been
exclusively within the consumer finance industry. The Company now conducts its
consumer finance operations through three wholly-owned subsidiaries, The
Finance Company ("TFC"), First Community Finance, Inc. ("FCF") and Recoveries,
Inc. ("RI").
Through TFC, the Company is engaged in purchasing and servicing installment
sales contracts originated by automobile and motorcycle dealers in the sale of
used automobiles, vans, light trucks, and new and used motorcycles (collec-
tively "vehicles"). Installment sales contracts are acquired on either an
individual basis after the Company has reviewed and approved the vehicle pur-
chaser's credit application (a "point-of-sale purchase"), or on a group basis
through the purchase of a dealer's portfolio of existing installment sales con-
tracts (a "bulk purchase"). The Company primarily focuses its point-of-sale
business on installment sales contracts originated by dealers with consumers
who are United States military enlisted personnel, in the E-1 through E-5 pay
grades and civilians who don't have access to traditional sources of credit.
Bulk purchases are primarily from dealers who finance their own contracts and
sell them after origination in bulk. To achieve an acceptable rate of return
and provide for credit risks, contracts are purchased from dealers at a dis-
count to the remaining principal balance. Most of the discount is held in a
nonrefundable reserve against which credit losses are first applied.
TFC's point-of-sale purchases provide TFC with the ability to direct the credit
underwriting process at the initiation of the installment sales contract. Par-
ticipating dealers benefit by having a source of financing for a group of
customers who typically find financing difficult to obtain, thereby increasing
the number of vehicles sold and improving dealer profitability. Consumers also
benefit because the financing provided by the Company enables them to purchase
a vehicle they otherwise might not be able to buy. TFC utilizes a network of
nine strategically placed Contract Production Offices ("CPO's or individually
"CPO") to underwrite and purchase contracts from participating dealers. As of
December 31, 1999, $175.6 million, or 68%, of the Company's gross contract
receivables represented point-of-sale purchases, compared to $159.8 million, or
71%, at December 31, 1998.
TFC's bulk purchase business emphasizes acquisitions of portfolios of seasoned
installment sales contracts. These contracts normally have a payment history of
at least three months. While the typical bulk purchase involves less than 100
individual contracts, TFC has, at times, purchased portfolios totaling more
than 1,000 contracts. Bulk purchases provide a payment history on which to
evaluate and price the credit risk of the contracts and a relatively efficient
mechanism for establishing dealer relationships in new areas. Bulk purchases
benefit dealers by providing an immediate source of liquidity,
which in turn benefits the consumers who want to purchase vehicles from these
dealers. TFC purchases contracts through its National Office located in Nor-
folk, Virginia. As of December 31, 1999, $60.9 million, or 24%, of the
Company's gross contract receivables was attributable to bulk purchases, com-
pared to $49.5 million, or 22%, at December 31, 1998.
- --------------------------------------------------------------------------------
1999 Annual Report
5
<PAGE>
TFC Enterprises, inc. MD&A
Although TFC underwrites and purchases the contracts through the various CPO's,
the responsibility for servicing the accounts is centralized at the service
center. Prior to March 2000, the Norfolk, Virginia service center was responsi-
ble for servicing the point-of-sale accounts and the Jacksonville, Florida
service center was responsible for servicing the bulk accounts. In March 2000
TFC closed the Jacksonville service center and moved the responsibility for
servicing these accounts to the Norfolk facility. The Company estimates that
the net reduction in salaries, rent and other fixed expenses resulting from
this action should approximate $1.3 million annually on a pre tax basis. Nonre-
curring pre tax costs associated with the move and transition are estimated to
negatively impact earnings in the first quarter. However, the cost savings
resulting from the consolidation is estimated to reduce the impact on earnings,
for the year 2000, to approximately $0.2 million.
Through FCF, the Company is involved in the direct origination and servicing of
small consumer loans. FCF began operations in the first quarter of 1995 with
the opening of two branch offices in Richmond, Virginia. Through December 31,
1999 FCF had seventeen branches in Virginia and North Carolina. FCF is evaluat-
ing additional branch openings in 2000. As of December 31, 1999, $20.9 million,
or 8%, of the Company's gross contract receivables was attributable to FCF,
compared to $16.5 million, or 7%, at December 31, 1998.
RI was formed in 1997 as a third party debt collection company to capitalize on
the Company's collection expertise. RI is currently licensed in 38 states, and
expects to expand to additional states. Although its operations have not been
material to the Company's results thus far the current business plan focuses on
servicing foreclosed or troubled loan portfolios, debt collections for medical
organizations and for other third party businesses.
Results of Operations
Net income and earnings per basic common share
The Company reported net income of $6.5 million, or $0.57 per basic common
share, in 1999, compared to net income of $4.0 million, or $0.36 per basic com-
mon share in 1998, and net income of $0.7 million, or $0.06 per basic common
share in 1997. The Company's profitability is primarily the result of continu-
ing improvement in the performance of its contract receivables.
Volume
Gross contracts purchased or originated in 1999 totaled $230.2 million, com-
pared to $218.5 million in 1998 and $171.9 million in 1997. The increase in
1999 volume compared to 1998 reflected growth in the bulk business line. Bulk
originations increased $16.3 million over 1998 levels reflecting TFC's contin-
ued emphasis on expanding the Bulk portion of its core business. Point-of-sale
volume decreased in 1999 by $11.4 million compared to 1998 levels. This
decrease was driven by the aggressive underwriting and pricing policies used by
several of the Company's competitors for the military point-of-sale business.
TFC has instituted strategies in 2000 to minimize the impact of the increased
competition. The increase in 1998 volume compared to 1997 reflected growth in
the point-of-sale business line. Point-of-sale originations increased $56.9
million over 1997 levels reflecting the Company's marketing efforts to the mil-
itary point-of-sale market. Bulk purchases representing acquisitions from
dealer generated receivables decreased $15.6 million in 1998 compared to 1997
due to more emphasis placed on the point of sale business line and more selec-
tive purchasing.
- --------------------------------------------------------------------------------
6
<PAGE>
TFC Enterprises, inc. MD&A
Gross contract volume
Gross contracts purchased or originated were as follows:
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------
(dollars in thousands) Amount Percent Amount Percent Amount Percent
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Contracts purchased
or originated:
Auto finance:
Point-of-sale $130,786 56.9% $142,221 65.1% $85,311 49.7%
Bulk 71,228 30.9 54,929 25.1 70,520 41.0
Consumer finance 28,143 12.2 21,391 9.8 16,023 9.3
- ------------------------------------------------------------------------------
Total $230,157 100.0% $218,541 100.0% $171,854 100.0%
- ------------------------------------------------------------------------------
Number of contracts
purchased or originated:
Auto finance:
Point-of-sale 10,499 27.6% 11,478 32.7% 7,411 25.9%
Bulk 12,905 33.9 11,711 33.4 14,157 49.4
Consumer finance 14,679 38.5 11,864 33.9 7,093 24.7
- ------------------------------------------------------------------------------
Total 38,083 100.0% 35,053 100.0% 28,661 100.0%
- ------------------------------------------------------------------------------
</TABLE>
At year end 1999, the Company was purchasing point-of-sale motor vehicle
finance contracts through nine Contract Production Offices ("CPO's") located in
Norfolk, Virginia; Killeen, Texas; Jacksonville, Florida; San Diego, Califor-
nia; Tacoma, Washington; Clarksville, Tennessee; Columbus; Georgia; Wichita
Falls, Texas and Honolulu, Hawaii. Bulk purchases are acquired through the bulk
purchase CPO located; Norfolk, Virginia.
In 1999, FCF originated $28.1 million in consumer finance contracts, compared
to $21.4 million in 1998 and $16.0 million in 1997. The growth is primarily
attributable to the maturing of the existing offices and their ability to cap-
ture a larger market share in the communities they serve and to an increase in
the number of offices from 15 in 1997 to 16 in 1998 to 17 in 1999. All consumer
finance contract originations are produced and serviced by 17 FCF offices
located in Virginia and North Carolina. FCF added one office in North Carolina
during 1999. Management believes there are significant growth opportunities in
this segment of the market and is evaluating the impact of further FCF expan-
sion in 2000.
- --------------------------------------------------------------------------------
1999 Annual Report
7
<PAGE>
TFC Enterprises, inc. MD&A
Net interest revenue
Net interest revenue was $34.9 million in 1999 compared to $26.1 million in
1998 and $20.3 million in 1997. The increase in 1999 compared to 1998 and 1998
compared to 1997 was the result of an increase in interest-earning assets. The
improvement for 1999 compared to 1998 and 1998 compared to 1997 was primarily
attributable to an increase in the amount of contract purchase discount
accreted to interest revenue as a yield enhancement resulting from increased
discounts on purchased receivables, the reduced cost of interest bearing lia-
bilities and improved charge-off experience. The yield on interest earning
assets was 23.60% for 1999 compared to 23.08% and 21.30% for the years of 1998
and 1997. The Company periodically reassesses the amount of contract purchase
discount accreted to interest revenue to reflect changes in delinquency and
charge-off experience. The cost of interest bearing liabilities was 9.07% for
1999, compared to 10.58% and 10.85%, for 1998 and 1997. The decrease in 1999
compared to 1998 was primarily attributable to the 25 basis point decrease in
the rate upon the renewal of the Company's primary line of credit plus an over-
all lower one-month LIBOR rate for 1999 compared to 1998. Additionally,
interest expense for 1998 included the costs related to warrants and structur-
ing fees that were fully amortized at December 31, 1998. The decrease in 1998
compared to 1997 is primarily attributable to a 25 basis point reduction of
it's interest rate related to the primary line of credit and the decrease in
LIBOR during the year.
Net interest revenue
<TABLE>
- -------------------------------------------------------------------
<CAPTION>
Years ended December 31
(dollars in thousands) 1999 1998 1997
- -------------------------------------------------------------------
<S> <C> <C> <C>
Average interest earning assets (a) $203,428 $169,340 $151,743
Average interest bearing liabilities 144,378 122,479 110,812
- -------------------------------------------------------------------
Net interest earning assets $59,050 $46,861 $40,931
- -------------------------------------------------------------------
Interest and other finance revenue $48,010 $39,085 $32,317
Interest expense 13,088 12,952 12,019
- -------------------------------------------------------------------
Net interest revenue $34,922 $26,133 $20,298
- -------------------------------------------------------------------
Yield on interest earning assets 23.60% 23.08% 21.30%
Cost of interest bearing liabilities 9.07 10.58 10.85
- -------------------------------------------------------------------
Net interest spread 14.53% 12.50% 10.45%
Net interest margin (b) 17.17% 15.43% 13.38%
- -------------------------------------------------------------------
</TABLE>
(a) Average gross contract receivables net of unearned interest revenue.
(b) Net interest margin is net interest revenue divided by average interest
earning assets.
Other revenue
Other revenue was $1.4 million in 1999 compared to $1.1 million in 1998 and
1997. The increase in 1999 compared to 1998 and 1997 was caused by fee income
generated by Recoveries, Inc. which was offset by a decrease in commission
income on ancillary products as the result of lower sales of those programs.
Operating expense
Operating expense was $24.4 million in 1999 compared to $22.3 million in 1998
and $20.0 million in 1997. The increase of $2.1 million in 1999 over 1998 was
attributable to increased salaries and benefits necessary to maintain the
proper level of collection personnel to service the increased receivable port-
folio and increased staffing in the national sales department. The increase of
$2.3 million in 1998 was attributable to: a one time $0.4 million charge in the
fourth quarter for expenses incurred for a securitization which was not com-
pleted due to the market conditions that existed during the fourth quarter of
1998, expenses incurred for TFC to start a national sales department and open
three new contract production offices, an expansion of the branch offices for
First Community Finance and the Company's expansion of its employee benefit
programs.
- --------------------------------------------------------------------------------
8
<PAGE>
TFC Enterprises, inc. MD&A
Operating expenses as a percent of interest earning assets decreased to 12.00%
for 1999 from 12.89% and 13.17% in 1998 and 1997. The decrease in the operating
expense ratio in 1999 over 1998 and the decrease in 1998 over 1997 resulted
from the increase in average interest-earning assets which is attributable to
the increase in net contract receivables. The decrease in 1998 excludes a 0.27%
effect of a one time $0.4 million charge in the fourth quarter for expenses
incurred for a securitization which was not completed due to the market condi-
tions that existed during the fourth quarter of 1998.
Provision for income taxes
The Company recorded a $4.9 million tax provision in 1999, compared to a $0.2
million tax provision in 1998 and no tax provision in 1997. The effective tax
rate in 1999 of 43.3% is higher than the expected combined federal and state
tax rates due primarily to goodwill amortization which is not deductible for
tax purposes. The small provision in 1998 relative to income and no tax provi-
sion in 1997 was due to the reversal of a portion of a deferred tax valuation
allowance recorded at year-end 1996.
In 1993, contingent interest on the Company's convertible notes was considered
deductible for Federal income tax purposes but was treated as non-deductible
for income tax expense in the Company's financial statements. The Company is
continuing to challenge the IRS regarding the deductibility of the contingent
interest. To the extent that the contingent interest on convertible notes is
ultimately determined to be deductible for Federal income tax purposes, the
benefit, which totals approximately $2.1 million, will be recognized in the
period that the determination is made.
Financial Condition
Assets
Total assets increased by $35.9 million, or 21%, to $208.5 million at December
31, 1999, from $172.6 million at December 31, 1998. The increase was primarily
attributable to an increase in net contract receivables. There was also a $9.5
million increase in restricted cash related to the Company's 1999 asset
securitization activity.
Net contract receivables
Net contract receivables were $182.0 million, or 87% of total assets at Decem-
ber 31, 1999, compared to $155.9 million, or 90% of total assets at December
31, 1998.
Net contract receivables
<TABLE>
- -----------------------------------------
<CAPTION>
December 31,
(dollars in thousands) 1999 1998
- -----------------------------------------
<S> <C> <C>
Auto finance:
Point-of-sale $116,849 $104,125
Bulk 45,672 36,649
Consumer finance 19,518 15,121
- -----------------------------------------
Total $182,039 $155,895
- -----------------------------------------
</TABLE>
Liabilities
Total liabilities were $166.7 million at December 31, 1999, an increase of
$29.4 million, or 21%, from $137.3 million at December 31, 1998. The increase
in liabilities in 1999 reflected increased borrowings as the result of the
increase in net contract receivables and an increase in income taxes payable
due to increased income. Liabilities represented 80% of total liabilities and
equity at both December 31, 1999 and 1998.
- --------------------------------------------------------------------------------
1999 Annual Report
9
<PAGE>
TFC Enterprises, inc. MD&A
Credit Quality and Reserves
Net charge-offs of auto finance contract receivables
Net charge-offs (net of recoveries) to the allowance for credit losses and
nonrefundable reserve were $27.0 million in 1999, or 14.6% of average net con-
tract receivables, compared to $27.9 million, or 17.7%, in 1998, and $27.5
million, or 19.7% in 1997. The steady reduction in charge-off is a reflection
of improvements in credit quality and servicing.
Provision for credit losses on auto finance contract receivables
The Company's primary business involves purchasing installment sales contracts
at a discount to the remaining principal balance. An amount ranging from 80
percent to 100 percent of the discount, based on experience, is held in a
nonrefundable reserve against which credit losses are first applied. Addi-
tional provisions for credit losses, should they be necessary, would be
charged to income in amounts considered by management to be adequate to absorb
future credit losses on the outstanding contract receivables.
Provision for credit losses is dependent on a number of factors, including,
but not limited to, the level and trend of delinquencies and net charge-offs,
the amount of nonrefundable and refundable dealer reserves and the overall
economic conditions in the markets in which the Company operates. Due to the
inherent uncertainty involved in predicting the future performance of these
factors, there can be no assurance regarding the future level of provision for
credit losses.
Reserves on auto finance contract receivables
The static pool reserve methodology is used to analyze and reserve for the
Company's credit losses. This methodology allows the Company to stratify its
portfolio into separate and identifiable annual pools. The loss performance of
these annual pools is analyzed monthly to determine the adequacy of the
reserves. The loss performance to date combined with estimated future losses
by pool year establishes the gross estimated loss for each pool year. The com-
bined expected losses are reduced by estimated future recoveries that are
based on historical recovery performance to establish the estimated required
reserve for credit losses.
At December 31, 1999, the combination of allowance for credit losses and
nonrefundable reserve totaled $22.7 million, or 11.6%, of gross auto finance
contract receivables, net of unearned interest revenue compared to $21.3 mil-
lion, or 12.4% at December 31, 1998. The decrease in the percentage of
reserves to contract receivables in 1999 compared to 1998 is the result of the
improved credit quality, servicing and recoveries.
The reserves as a percentage of gross auto finance contract receivables net of
unearned interest at December 31, 1999, of 11.6% are less than net charge-offs
as a percentage of average net contracts receivable for 1999, of 14.6%. This
difference exists because the reserves include an estimate of future recov-
eries on prior year charge-offs and future recoveries on current year charge-
offs that are not reflected in the current year charge-off percentage. These
estimated future recoveries are based on historical recovery performance and
this estimate is an integral part of the evaluation of the adequacy of the
reserves performed by management quarterly.
The Company's refundable dealer reserve increased to $1.5 million at December
31, 1999, compared with $0.8 million at December 31, 1998. Under certain of
the Company's programs, contracts from dealers are purchased under a refund-
able, rather than nonrefundable reserve relationship. Under certain
circumstances, the Company may have to remit some or all of the refundable
reserve back to the dealer. No such liability exists under a nonrefundable
reserve relationship. Accordingly, the refundable reserve is carried as a lia-
bility on the Company's Consolidated Balance Sheet and is not included in the
calculation of the Company's reserve ratio.
- -------------------------------------------------------------------------------
10
<PAGE>
TFC Enterprises, inc. MD&A
Consumer finance charge-offs and reserves (FCF)
Net charge-offs (net of recoveries) of consumer finance contracts totaled $0.5
million or 2.47% in 1999 compared to $0.6 million or 3.98% in 1998 and $0.4
million or 4.00% in 1997. The provision for credit losses was $0.5 million in
1999 and $0.7 million in 1998 and 1997 and the allowance for credit losses was
$0.8 million or 3.94% of outstanding gross contract receivables at December 31,
1999, compared to $0.9 million or 5.24% of contract receivables at December 31,
1998 and $0.7 million or 5.31% of contract receivables at December 31, 1997.
Management has established the level of the allowance that it considers to be
adequate based on FCF's loss experience.
Consolidated allowance and reserves for contract receivables
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Years ended December 31
(dollars in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning of period $22,195 $23,029 $28,575
Provision for credit losses 466 737 719
Charge-offs (33,330) (33,548) (32,556)
Allocation for credit losses 28,315 26,915 21,635
Recoveries 5,850 5,062 4,656
- -------------------------------------------------------------------------------
End of period $23,496 $22,195 $23,029
- -------------------------------------------------------------------------------
Average net contract receivables (a) $203,428 $171,751 $149,982
End of period net contract receivables (a) $216,900 $188,103 $156,693
Total net charge-offs as a percent of average
net contract receivables 13.51% 16.59% 18.60%
- -------------------------------------------------------------------------------
Allowance and nonrefundable reserve as a percent
of net contract receivables (period end) 10.84% 11.80% 14.70%
- -------------------------------------------------------------------------------
(a) Gross contract receivables net of unearned interest revenue.
Net charge-offs by line of business:
- -------------------------------------------------------------------------------
<CAPTION>
Years ended December 31
(in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Auto finance:
Point-of-sale $16,081 $14,199 $19,192
Bulk 10,892 13,727 8,283
Consumer finance 507 560 425
- -------------------------------------------------------------------------------
Total $27,480 $28,486 $27,900
- -------------------------------------------------------------------------------
</TABLE>
Delinquencies
Gross auto finance contract receivables that were 60 days or more past due
totaled $14.9 million, or 6.32% of gross auto finance contract receivables at
December 31, 1999, compared to $12.9 million, or 6.15%, at December 31, 1998.
Gross auto finance contract receivables that were 30 days or more past due
totaled $22.6 million, or 9.57% of gross auto finance contract receivables at
December 31, 1999, compared to $19.1 million, or 9.12%, at December 31, 1998.
Gross consumer finance receivables that were 60 days or more past due totaled
$0.6 million, or 2.8% of gross receivables at December 31, 1999, compared to
$0.4 million, or 2.9% at December 31, 1998. Gross consumer finance receivables
that were 30 days or more past due totaled $0.9 million, or 4.4% of gross
receivables at December 31, 1999, compared to $0.7 million, or 4.5% at December
31, 1998.
Consistent with standard industry practice, the Company measures delinquency at
each month end by classifying a contract that is unpaid for two monthly pay-
ments as 30 days delinquent and a contract that is unpaid for three monthly
payments as 60 days delinquent.
- --------------------------------------------------------------------------------
1999 Annual Report
11
<PAGE>
TFC Enterprises, inc. MD&A
Consolidated Delinquency
<TABLE>
- ---------------------------------------------------------------------------
<CAPTION>
Years ended December 31
(dollars in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Gross contract receivables $257,391 $225,813 $184,242
Gross contract receivables
60 + days and over delinquent
Gross contract amount $ 15,528 $ 13,347 $ 16,310
Percent of total gross contract receivables 6.03% 5.91% 8.85%
Gross contract receivables
30 + days and over delinquent
Gross contract amount $ 23,525 $ 19,842 $ 23,137
Percent of total gross contract receivables 9.14% 8.79% 12.56%
- ---------------------------------------------------------------------------
</TABLE>
Liquidity and Capital Resources
Liquidity management
As shown on the Consolidated Statements of Cash Flows, cash and cash equiva-
lents increased by $0.4 million in 1999, to $2.3 million at December 31, 1999.
The increase reflected $11.9 million of net cash provided by operating activi-
ties and $25.8 million in net cash provided by financing, offset by $37.3
million of net cash used in investing activities. Net cash used in investing
activities principally reflected $26.6 million in net purchases of contract
receivables and a $9.6 million increase in restricted cash related to the
receivable backed notes. Net cash provided by financing activities reflected
$26.4 million of net payments on the Company's revolving lines of credit, $52.3
million received under the receivable backed notes, and $1.9 million of new
subordinated debt and $2.0 million paid on outstanding subordinated debt. Cash
and cash equivalents decreased by $0.1 million in 1998, to $1.9 million at
December 31, 1998. The decrease reflected $7.9 million of net cash provided by
operating activities and $20.6 million in net cash provided by financing, off-
set by $28.6 million of net cash used in investing activities. Net cash used in
investing activities principally reflected $28.1 million in net purchases of
contract receivables. Net cash provided by financing activities reflected $22.0
million of net borrowings on the Company's revolving lines of credit, $1.7 mil-
lion of new subordinated debt and $3.3 million paid on outstanding subordinated
debt.
In August, the Company replaced the credit facility used by FCF with a new
lender. The new facility increases the credit limit from $15 million to $25
million and lowers the cost of funds compared to the replaced facility. The
increased credit limit provides a facility which allows for the continued
expansion and growth of FCF.
In December 1999, the Company placed $65 million of automobile receivables-
backed securities. The notes are expected to have an average life of 1.2 years
with a coupon to the investors of approximately 7.5%. The coupon cost compared
to the weighted average APR of the loans of approximately 20.1% leaves a gross
interest spread of approximately 12.6%.
The Company has a $2.0 million subordinated debt principal payment due in June
2000. The Company intends to fund these payments through cash flow from opera-
tions. These payments, do however, impact the availability under the Company's
primary line of credit.
In March and April of 2000, the Company has approximately $1.9 million in
income tax payments due for 1999.
The Company believes cash flows provided by operating activities and current
availability under its credit facilities will be adequate to meet the Company's
liquidity requirements for fiscal 2000.
With the improved performance in 1999 and 1998, the Company is committed to
evaluating alternative funding sources to increase the available credit facili-
ties to fund planned growth, increase liquidity and improve the interest
margin. The Company is currently evaluating capital sources, securitizations,
participating lenders and additional subordinated debt.
Inability to access these sources for additional funding could effect the
Company's ability to grow its portfolio of contract receivables.
- --------------------------------------------------------------------------------
12
<PAGE>
TFC Enterprises, inc. MD&A
Dividends
The Company did not declare dividends on its common stock during the years
ended December 31, 1999, 1998 and 1997, nor does it anticipate paying cash div-
idends in the foreseeable future. If and when the Company decides to declare
cash dividends, the amount would be limited by certain provisions of the
Company's various credit agreements.
Market Risk Disclosure and Risk Factors
In evaluating the Company, prospective investors should consider carefully all
of the information set forth throughout this Report and, in particular, should
evaluate the following risk factors.
Fluctuating Interest Rates and Dependence on Line of Credit
The Company's operations require substantial borrowings to provide funding for
the installment contracts purchased by TFC and originated by FCF. Consequently,
profitability is impacted by the difference between the rate of interest paid
on the funds it borrows and the rate of interest charged on the installment
contracts, which rate in some states is limited by law. Currently, the princi-
pal source of borrowing by TFC is its revolving line of credit, guaranteed by
TFCEI (the "Line of Credit") with General Electric Capital Corporation
("GECC"). The maximum amount of borrowings available under the Line of Credit
was $130 million at December 31, 1999. At December 31, 1999, TFC had $79 mil-
lion outstanding under the Line of Credit. The floating interest rate for
borrowings under the Line of Credit is equal to the average one-month London
Interbank Offered Rate ("LIBOR") plus 3.50%. Thus, future increases in interest
rates could adversely affect the Company's profitability. During 1999, the Com-
pany mitigated a substantial portion of this interest rate risk by the
placement of $65 million of asset backed securities with fixed interest rates
over the anticipated period required for those receivables to liquidate.
In addition, to reduce its remaining exposure to an increase in interest rates,
TFC has purchased an interest rate cap which ensures that the interest rate on
$70 million of the borrowings through April 1, 2000 under the Line of Credit
will not exceed a LIBOR ceiling of 6.50%. The Company also believes it has cer-
tain flexibility to increase the discount at which installment contracts are
purchased, or to increase the rate of interest charged on future installment
contracts (to the extent not limited by state law), in order to offset the
adverse impact of any interest rate increase on profitability. If one-month
LIBOR averaged 10% more in 2000 than in 1999, net income would decrease by
approximately $0.7 million after considering the effects, if any, of interest
rate caps. These amounts are determined by considering the impact of the hypo-
thetical interest rates on the Company's borrowing cost, short-term investment
balances, and interest rate cap agreement. These analyses do not consider the
effects of the reduced level of overall economic activity that could exist in
such an environment. Further, in the event of a change of such magnitude, man-
agement would likely take actions to further mitigate its exposure to the
change. However, due to the uncertainty of the specific actions that would be
taken and their possible effects, the sensitivity analysis assumes no changes
in the Company's financial structure.
The Finance Company has maintained a Line of Credit with GECC since 1992. The
current Line of Credit expires on January 1, 2001. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Defaults on Installment Contracts
The Company is engaged in consumer finance activities with consumers who have
limited access to traditional sources of consumer credit. The inability of an
individual to obtain financing through traditional credit sources is generally
due to such individual's past credit history or insufficient cash to make the
required down payment, if any. As a result, installment contracts purchased by
TFC or originated by FCF are generally with consumers who are considered to
have a higher risk of default on an installment contract than certain other
consumers. Accordingly, the consumer loan activities engaged in by the Company
typically have a higher risk of loss than those of other consumer financings.
While the Company believes that its expertise with this type credit customer
enables it to evaluate and price accurately the higher risk associated with the
Company's business, a significant economic downturn in the markets in which the
Company operates could materially increase the number of charged-off and delin-
quent installment contracts as compared to its historical losses. If the
Company were to experience a material increase in charge-offs or delinquencies,
its profitability could be adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Credit Quality and
Reserves."
- --------------------------------------------------------------------------------
1999 Annual Report
13
<PAGE>
TFC Enterprises, inc. MD&A
Competition
There are numerous providers of financing for the consumers targeted by the
Company. Those financing sources include commercial banks, savings and loan
associations, consumer finance companies, credit unions, financing divisions of
automobile manufacturers or automobile retailers, small sales contract compa-
nies and other consumer lenders. Many of those providers have significantly
greater financial resources than the Company and have relationships with estab-
lished networks. The Company has focused on a segment of the market composed of
consumers who typically do not meet the more stringent credit requirements of
the traditional consumer financing sources and whose needs, as a result, have
not been addressed consistently by such financing sources. If, however, the
other providers of consumer finance were to assert a significantly greater
effort to penetrate the Company's targeted market segment, the Company could be
materially and adversely affected.
Regulation
The Company's business is subject to regulation and licensing under various
federal, state and local statutes and regulations. The Company's business oper-
ations are conducted in approximately 30 states and, accordingly, the laws and
regulations of such states govern the Company's operations conducted in those
states. Most states where the Company operates limit the interest rate, fees
and other charges that may be imposed by, or prescribe certain other terms of,
the contracts that the Company purchases and define the Company's rights to
repossess and sell collateral. In addition, the Company is required to be, and
is, licensed to conduct its operations in certain states. As the Company
expands its operations into other states, it will be required to comply with
the laws of such states.
An adverse change in those laws or regulations could have a material adverse
effect on the Company's profitability by, among other things, limiting the
states in which the Company may operate or the interest rate that may be
charged on installment contracts or restricting the Company's ability to real-
ize the value of any collateral securing contracts. The Company is not aware of
any materially adverse legislation currently pending in any jurisdiction where
it currently transacts business.
Restrictions on the Payment of Dividends
The Company currently intends to retain its earnings to finance the growth and
development of its business and, therefore, does not anticipate paying any cash
dividends in the foreseeable future.
Effect of Certain Charter, Bylaw and Statutory Provisions
Certain provisions of the Company's Amended and Restated Certificate of Incor-
poration (the "Certificate of Incorporation") and Amended and Restated Bylaws
(the "Bylaws") could delay or frustrate the removal of incumbent directors and
could make more difficult a merger, tender offer or proxy contest involving the
Company, even if such events could be beneficial, in the short term, to the
interest of the stockholders. For example, the Certificate of Incorporation
provides for a classified Board of Directors and for certain limitations on the
calling of a special meeting of stockholders and the Bylaws require advance
notice of stockholder proposals and nominations of directors. The Company also
is subject to provisions of Delaware corporation law that prohibit a publicly-
held Delaware corporation from engaging in a broad range of business
combinations with a person who, together with affiliates and associates, owns
15% or more of the corporation's common stock (an "interested stockholder") for
three years after the person became an interested stockholder, unless the busi-
ness combination is approved in a prescribed manner. Those provisions could
discourage or make more difficult a merger, tender offer or similar transac-
tion, even if favorable to the Company's stockholders.
- --------------------------------------------------------------------------------
14
<PAGE>
TFC Enterprises, inc. MD&A
Authorized Preferred and Common Stock
Pursuant to the Certificate of Incorporation, shares of preferred stock and
Common Stock may be issued in the future without further stockholder approval
and upon such terms and conditions, and having such rights, privileges and
preferences, as the Board of Directors may determine. The rights of the holders
of Common Stock will be subject to, and may be adversely affected by, any pre-
ferred stock that may be issued in the future. The issuance of preferred stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporation transactions, could have the effect of making it more
difficult for a third party to acquire, or effectively preventing a third party
from acquiring, a majority of the outstanding voting stock of the Company. The
Company has no present plans to issue any shares of preferred stock.
Dependence Upon Key Executive Officers
The Company's growth and development to date have been largely dependent upon
the services of key executive officers. The loss of a significant number of
these officers could have a material adverse effect on the Company.
Common Shares and Shareholder Information
The common stock of TFC Enterprises, Inc., began trading on the NASDAQ Stock
Market under the symbol TFCE on December 23, 1993, and is designated a National
Market Security. At March 15, 2000, there were approximately 3,155 registered
and beneficial owners of the security. Share price information for the years
ended December 31, 1999 and 1998 is presented in the selected quarterly data
table on the next page.
- --------------------------------------------------------------------------------
1999 Annual Report
15
<PAGE>
TFC Enterprises, inc. Selected Quarterly Data
Selected quarterly data*
<TABLE>
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------------------------------
(dollars in thousands,
except per share Dec. Sept. June March Dec. Sept. June March
amounts) 31 30 30 31 31 30 30 31
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statements of
operations:
Net interest revenue $8,942 $9,131 $8,740 $8,109 $7,708 $6,747 $6,238 $5,440
Provision for credit
losses 149 110 109 98 246 171 199 121
Other revenue 386 329 359 308 181 252 301 328
Operating expense 6,429 6,190 5,960 5,825 6,119 5,479 5,378 5,306
- ---------------------------------------------------------------------------------------------------------
Income taxes 2,750 3,160 3,030 2,494 1,524 1,349 962 341
Provision for income
taxes 1,221 1,354 1,279 1,092 150 -- -- --
- ---------------------------------------------------------------------------------------------------------
Net income $1,529 $1,806 $1,751 $1,402 $1,374 $1,349 $962 $341
- ---------------------------------------------------------------------------------------------------------
Net income per basic
common share $0.13 $0.16 $0.15 $0.12 $0.12 $0.12 $0.09 $0.03
Net income per diluted
common share $0. 12 $0.15 $0.14 $0.12 $0.11 $0.11 $0.08 $0.03
- ---------------------------------------------------------------------------------------------------------
Performance ratios:
Return on average equity 14.90% 18.37% 18.65% 15.58% 15.92% 16.28% 12.07% 4.37%
Return on average assets 3.05 3.70 3.71 3.13 3.20 3.24 2.43 0.90
Yield on interest
earning assets 23.45 23.93 23.59 23.27 23.26 23.17 22.73 21.64
Cost of interest bearing
liabilities 9.34 9.14 8.74 8.96 10.28 10.52 10.56 10.91
Net interest margin 16.84 17.44 17.37 16.92 15.81 15.49 15.08 13.82
Operating expense as a
percentage of average
interest earning assets 12.10 11.82 11.84 12.15 12.56 12.58 13.00 13.48
Total net charge-offs to
average gross contract
receivables net of
unearned interest 13.57 13.24 12.63 14.58 15.09 17.69 15.47 18.20
30 day delinquencies to
period end gross
contract receivables 9.14 7.69 6.84 7.25 8.79 8.63 8.61 10.04
Total allowance and
nonrefundable reserve
to period end gross
contract receivables
net of unearned
interest 10.84 11.35 11.49 11.50 11.80 12.53 13.44 13.70
Equity to assets, period 20.06 20.36 19.99 19.86 20.44 19.85 19.84 20.37
- ---------------------------------------------------------------------------------------------------------
Average balances:
Interest earning assets $212,417 $209,446 $201,308 $191,712 $180,613 $174,249 $165,451 $157,459
Total assets 200,785 195,080 188,602 179,136 171,708 166,337 158,491 151,244
Interest bearing
liabilities 150,514 147,740 143,379 135,833 130,908 127,187 119,786 112,972
Equity 41,057 39,319 37,545 35,979 34,536 33,135 31,860 31,252
- ---------------------------------------------------------------------------------------------------------
Common stock data:
Market price range:
High $4.50 $3.50 $2.72 $2.75 $2.38 $3.00 $3.00 $1.81
Low 2.13 2.25 1.88 1.56 1.38 1.19 1.44 1.00
Average 3.37 2.75 2.38 2.11 1.90 2.22 2.37 1.50
Close 3.75 2.75 2.25 2.19 1.63 1.75 2.63 1.56
- ---------------------------------------------------------------------------------------------------------
</TABLE>
*The fourth quarter of 1998 includes a $0.4 million charge to operating
expense, incurred for a securitization which was not completed due to the mar-
ket conditions that existed during the fourth quarter. Also, net interest
revenue includes a positive $0.5 million adjustment for dealer discount and
fees which were earned during 1998.
- --------------------------------------------------------------------------------
16
<PAGE>
TFC Enterprises, inc. Report of Management
Shareholders
TFC Enterprises, Inc.
The management of TFC Enterprises, Inc. is responsible for the preparation,
content, integrity, and objectivity of the following financial statements.
These financial statements have been prepared in accordance with generally
accepted accounting principles.
Management is further responsible for maintaining a system of internal controls
designed to provide reasonable assurance as to the protection of the Company's
assets and the integrity of its financial statements. This company-wide system
of controls includes written policies and procedures, proper delegation of
authority, division of responsibility, and the selection and training of quali-
fied personnel. Management believes that the system of internal controls
provides reasonable assurance that financial transactions are recorded properly
to permit the preparation of reliable financial statements.
The Audit Committee of the Board of Directors is comprised of four outside
directors and has the responsibility, along with the Shareholders, for the
selection of the independent auditors. The Audit Committee meets with manage-
ment and the independent auditors to review the scope of audits and their
results, and to discuss other matters affecting the Company's internal controls
and financial reporting. The independent auditors have free access to the Audit
Committee.
[SIGNATURE] [SIGNATURE]
Robert S. Raley, Jr. Craig D. Poppen
Chairman, President and Vice President, Treasurer and
Chief Executive Officer Chief Financial Officer
- --------------------------------------------------------------------------------
1999 Annual Report
17
<PAGE>
TFC Enterprises, inc. Report of Ernst & Young LLP, Independent Auditors
Board of Directors
TFC Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of TFC Enter-
prises, Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our responsibil-
ity is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial state-
ments. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reason-
able basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of TFC Enterprises,
Inc. at December 31, 1999 and 1998, and the consolidated results of its opera-
tions and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
[LOGO]
Richmond, Virginia
February 15, 2000
- --------------------------------------------------------------------------------
18
<PAGE>
TFC Enterprises, inc. Consolidated Financial Statements
Consolidated Balance Sheets
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
December 31
(dollars in thousands, except per share and share
amounts) 1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $2,290 $1,868
Restricted cash 9,563 --
Net contract receivables 182,039 155,895
Property and equipment, net 2,244 1,949
Intangible assets, net 9,887 10,978
Other assets 2,488 1,907
- -----------------------------------------------------------------------------
Total assets $208,511 $172,597
- -----------------------------------------------------------------------------
Liabilities and shareholders' equity
Liabilities:
Revolving lines of credit $94,866 $121,281
Automobile receivables-backed notes 52,316 --
Subordinated notes and other term debt 9,501 9,636
Accounts payable and accrued expenses 3,539 3,180
Income taxes and other liabilities 4,941 2,394
Refundable dealer reserve 1,519 824
- -----------------------------------------------------------------------------
Total liabilities 166,682 137,315
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized; none outstanding -- --
Common stock, $.01 par value, 40,000,000 shares
authorized; 11,430,482 and 11,404,882 shares issued and
outstanding in 1999 and 1998, respectively 50 50
Additional paid-in capital 56,080 56,020
Retained deficit (14,301) (20,788)
- -----------------------------------------------------------------------------
Total shareholders' equity 41,829 35,282
- -----------------------------------------------------------------------------
Total liabilities and shareholders' equity $208,511 $172,597
- -----------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
1999 Annual Report
19
<PAGE>
TFC Enterprises, inc. Consolidated Financial Statements
Consolidated Statements of Income
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Years ended December 31
(in thousands, except per share amounts) 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and other finance revenue $48,010 $39,085 $32,317
Interest expense 13,088 12,952 12,019
- -------------------------------------------------------------------------------
Net interest revenue 34,922 26,133 20,298
Provision for credit losses 466 737 719
- -------------------------------------------------------------------------------
Net interest revenue after provision for credit losses 34,456 25,396 19,579
- -------------------------------------------------------------------------------
Other revenue:
Commissions on ancillary products 742 845 780
Other 640 217 325
- -------------------------------------------------------------------------------
Total other revenue 1,382 1,062 1,105
- -------------------------------------------------------------------------------
Total net interest and other revenue 35,838 26,458 20,684
- -------------------------------------------------------------------------------
Operating expense:
Salaries 12,561 11,077 9,866
Employee benefits 2,531 2,003 1,511
Occupancy 985 910 896
Equipment 1,437 1,233 1,253
Amortization of intangible assets 1,091 1,092 1,091
Securitization costs -- 448 --
Other 5,799 5,520 5,360
- -------------------------------------------------------------------------------
Total operating expense 24,404 22,283 19,977
- -------------------------------------------------------------------------------
Income before income taxes 11,434 4,175 707
Provision for income taxes 4,947 150 --
- -------------------------------------------------------------------------------
Net income $6,487 $4,025 $707
- -------------------------------------------------------------------------------
Net income per common share:
Basic $0.57 $0.36 $0.06
Diluted $0.53 $0.33 $0.06
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
20
<PAGE>
TFC Enterprises, inc. Consolidated Financial Statements
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
Number of Additional
Shares Common Paid-in Retained
(in thousands) Outstanding Stock Capital (Deficit) Total
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 11,290 $49 $55,333 $(25,520) $29,862
Net income -- -- -- 707 707
Issuance of stock warrants -- -- 511 -- 511
- ------------------------------------------------------------------------------
Balance at December 31, 1997 11,290 49 55,844 (24,813) 31,080
Net income -- -- -- 4,025 4,025
Stock options exercised 115 1 176 -- 177
- ------------------------------------------------------------------------------
Balance at December 31, 1998 11,405 50 56,020 (20,788) 35,282
Net income -- -- -- 6,487 6,487
Stock options exercised 25 -- 60 -- 60
- ------------------------------------------------------------------------------
Balance at December 31, 1999 11,430 $50 $56,080 $(14,301) $41,829
- ------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
1999 Annual Report
21
<PAGE>
TFC Enterprises, inc. Consolidated Financial Statements
Consolidated Statements of Cash Flows
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
Years ended December 31
(in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $6,487 $4,025 $707
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of intangible assets 1,091 1,092 1,091
Depreciation and other amortization 1,301 1,613 1,053
Provision for deferred income taxes 712 150 --
Provision for credit losses 466 737 719
Changes in operating assets and liabilities:
Decrease in recoverable income taxes -- 1,229 4,602
(Increase) decrease in other assets (1,044) (397) 582
Increase (decrease) in accounts payable and
accrued liabilities 359 339 (1,119)
Increase (decrease) in refundable dealer
reserve 695 (1,163) (221)
Increase (decrease) in income taxes and
other liabilities 1,872 255 (36)
- ------------------------------------------------------------------------------
Net cash provided by operating activities 11,939 7,880 7,378
- ------------------------------------------------------------------------------
Investing activities
Net cost of acquiring contract receivables (135,470) (126,003) (104,342)
Repayment of contract receivables 108,860 97,874 101,372
Purchase of property and equipment (1,160) (434) (339)
(Increase) decrease in restricted cash (9,563) -- 5,532
- ------------------------------------------------------------------------------
Net cash (used in) provided by investing
activities (37,333) (28,563) 2,223
- ------------------------------------------------------------------------------
Financing activities
Net (payments) borrowings on the revolving
lines of credit (26,415) 22,016 26,280
Payments on term notes -- -- (19,464)
Borrowings on automobile receivables-backed
notes 65,150 -- (15,843)
Payments on automobile receivables-backed notes (12,834) -- --
Borrowings on subordinated notes 1,855 1,670 --
Payments on subordinated notes (2,000) (3,287) (1,287)
Proceeds from stock options exercised 60 177 --
- ------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities 25,816 20,576 (10,314)
- ------------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents 422 (107) (713)
Cash and cash equivalents at beginning of year 1,868 1,975 2,688
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of year $2,290 $1,868 $1,975
- ------------------------------------------------------------------------------
Supplemental disclosures:
Interest paid $12,303 $11,618 $11,315
Income taxes paid 2,611 -- --
Noncash transactions:
Issuance of stock warrants -- -- $511
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
22
<PAGE>
TFC Enterprises, inc. Notes to Consolidated Financial Statements
1.Summary of significant accounting policies
Organization and business
TFC Enterprises Inc. ("TFCE") is a holding company with three primary wholly-
owned subsidiaries, The Finance Company ("TFC"), First Community Finance, Inc.
("FCF") and Recoveries, Inc. ("RI"). TFCE has no significant operations of its
own. TFC specializes in purchasing and servicing installment sales contracts
originated by automobile and motorcycle dealers involved in the sale of used
automobiles, vans, light trucks, and new and used motorcycles (collectively
"vehicles") both on an individual basis ("point-of-sale" purchase) and on a
bulk basis ("bulk" purchase). Based in Norfolk, Virginia, TFC also has ten loan
production offices throughout the United States in communities with a large
concentration of military personnel. FCF is involved in the direct origination
and servicing of small consumer loans. FCF operates 17 branches throughout Vir-
ginia and North Carolina. Recoveries, Inc., a third party debt collection
agency, located in Norfolk, Virginia, services foreclosed or troubled loan
portfolios and receivables for medical organizations and others.
Principles of consolidation
The accompanying financial statements include the accounts of TFCE and its
wholly-owned subsidiaries, TFC, FCF, and RI (collectively, the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Cash and cash equivalents
Cash and cash equivalents are defined as cash and overnight repurchase agree-
ments, exclusive of restricted cash.
Restricted cash
Restricted cash relates to cash collected on contract receivables which are the
collateral for the automobile receivables-backed notes. The restricted cash is
used to pay the principal and interest on the automobile receivables-backed
notes.
Contract Receivables
Contract receivables that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their outstand-
ing unpaid principal balances reduced by any charge-off or specific valuation
accounts and net of any unamortized deferred service fees and unamortized dis-
counts on purchased loans.
Credit losses
The Company's primary business involves purchasing installment sales contracts
at a discount from the remaining principal balance on both a bulk and point-of-
sale basis. A portion of this discount represents anticipated credit loss and,
based upon projected loss experience, is held in a nonrefundable reserve
against which future credit losses will first be applied. The remaining por-
tion, if any, of the discount is recorded as unearned discount and accreted to
income as discussed below. Additional provisions for credit losses, if neces-
sary, are charged to income in amounts sufficient to maintain the combined
allowance for credit losses and nonrefundable reserve at an amount considered
by management to be adequate to absorb estimated future credit losses.
Management evaluates the reasonableness of the assumptions used in projecting
the loss experience by reviewing historical credit loss experience, delinquen-
cies, repossession and other recovery trends, the size of the finance contract
portfolio and general economic conditions and trends. Historical credit loss
experience is monitored on a static pool basis. Contract originations, subse-
quent charge-offs and recoveries are assigned to annual pools and the pool
performance is monitored separately. If necessary, any assumptions used will be
changed in the future to reflect historical experience to the extent it devi-
ates materially from that which was assumed.
It is generally the Company's policy, related to the installment sales con-
tracts purchased by TFC, to charge its nonrefundable reserve and then the
allowance for credit losses for all contract receivables which are 180 days
past due. Any amounts collected subsequent to being charged off are restored to
the nonrefundable reserve.
- --------------------------------------------------------------------------------
1999 Annual Report
23
<PAGE>
TFC Enterprises, inc. Notes to Consolidated Financial Statements
1.Summary of significant accounting policies (continued)
The carrying value of repossessed assets is reduced, through charge-off, to the
lower of the unpaid contract balance or anticipated liquidation proceeds.
The Company's policy related to unsecured consumer contracts originated by FCF
is to establish and maintain, through a charge to income, an allowance for
credit losses, based on historical credit experience of FCF and the industry.
Generally, consumer finance receivables which are 180 days past due are charged
against this allowance for credit losses. Any amounts collected subsequent to
being charged off are restored to the allowance for credit losses.
Property and equipment
Property and equipment are recorded at cost, less accumulated depreciation.
Depreciation expense is computed using the straight-line method over each
asset's estimated useful life, generally five to seven years.
Intangible assets
Intangible assets consist of a purchased dealer list and goodwill, which are
being amortized using the straight-line method over periods of 15 years and 20
years, respectively. The carrying values of the intangible assets are reviewed
on an ongoing basis. If this review indicates that the intangibles will not be
fully recoverable, as determined based on estimated undiscounted cash flows
generated by the intangible assets over their remaining lives, their carrying
values will be reduced to the recoverable amounts using discounted cashflows.
No impairment losses have been recorded for any period presented.
Income taxes
The Company uses the liability method to account for income taxes. Under the
liability method, deferred tax assets and liabilities are determined based on
differences between the financial statement carrying amounts and the tax basis
of assets and liabilities (i.e., temporary differences) and are measured at the
enacted rates that will be in effect when these differences are expected to
reverse.
Interest rate protection agreements
The Company has purchased interest-rate cap agreements that are designed to
limit its exposure to increasing interest rates and is designated as a hedge of
its revolving line of credit. An interest rate cap entitles the Company to
receive a payment from the counterparty equal to the excess, if any, of the
hypothetical interest expense (strike price) on a specified notional amount at
a current market interest rate over an amount specified in the agreement. The
only amount the Company is obligated to pay to the counterparty is an initial
premium. The strike price of these agreements exceeds the current market levels
at the time they are entered into. The interest rate index specified by the cap
agreement has been and is expected to be highly correlated with the interest
rates the Company incurs on its revolving line of credit. Payments to be
received as a result of the specified interest rate index exceeding the strike
price are accrued in other assets and are recognized as a reduction of interest
expense. The cost of the agreement is included in other assets and amortized to
interest expense ratably during the life of the agreement.
Income recognition
Interest revenue from precomputed contract receivables, simple interest-bearing
contract receivables and revenue from insurance commissions are recognized
using the interest method. Loan origination service fees and certain direct
costs are capitalized and recognized as an adjustment of the yield of the
related loan using the interest method.
The portion of the discount arising from purchases of contract receivables
which is not considered to be nonrefundable reserve for credit losses (see dis-
cussion above) is recorded as a unearned discount. Unearned discounts are
deferred and accreted to income using the interest method over the contractual
life of the related receivables. The Company periodically reassesses the amount
of contract purchase discount accreted to interest revenue to reflect changes
in delinquency and charge-off experience.
- --------------------------------------------------------------------------------
24
<PAGE>
TFC Enterprises, inc. Notes to Consolidated Financial Statements
1.Summary of significant accounting policies (continued)
Accrual of interest revenue and accretion of unearned discounts continue until
contracts are collected in full, become ninety days contractually delinquent,
or are charged-off (see discussion above) consistent with practices generally
applied by consumer finance companies.
Comprehensive Income
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Components of
comprehensive income are required to be reported in a financial statement that
is displayed with the same prominence as other financial statements. The Com-
pany has no comprehensive income items other than net income for any periods
presented.
Stock-based compensation
As permitted by the provisions of FAS No. 123, "Accounting for Stock Based Com-
pensation" (FAS No. 123), the Company continues to account for stock-based
compensation using the intrinsic value method prescribed by Accounting Princi-
ples Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations.
Earnings per share
Basic earnings per share is based on the weighted average number of common
shares outstanding, excluding any dilutive effects of options and convertible
securities. Diluted earnings per share is based on the weighted average number
of common and common equivalent shares, including dilutive stock options and
convertible securities outstanding during the year.
Use of estimates
The preparation of financial statements in conformity with accounting princi-
ples generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those esti-
mates.
Risks and Uncertainties
In its normal course of business, the Company encounters two significant types
of risk: economic and regulatory. There are three components of economic risk:
interest rate risk, credit risk and market risk. The Company is subject to
interest rate risk to the degree that its interest-bearing liabilities mature
or reprice more rapidly or on a different basis than its interest-earning
assets. Credit risk is the risk of default on the Company's loan portfolio that
results from the borrowers' inability or unwillingness to make contractually
required payments. Market risk reflects changes in the value of collateral
underlying contracts receivable.
The determination of the allowance for loan losses is particularly susceptible
to significant changes in the economic, environment and market conditions. Man-
agement believes that, as of December 31, 1999, the allowance for loan losses
and non-refundable reserves are adequate based on information currently avail-
able. A worsening or protracted economic decline would increase the likelihood
of losses due to credit and market risks and could create the need for substan-
tial increases to the allowance for loan losses.
The Company's business is subject to regulation and licensing under various
federal, state and local statutes and regulations. Most states where the Com-
pany operates limit the interest rate, fees and other charges that may be
imposed by, or prescribe certain other terms of the contracts that the Company
purchases and define the Company's rights to repossess and sell collateral. An
adverse change in those laws or regulations could have a material adverse
effect on the Company's profitability by, among other things, limiting the
states in which the Company may operate or the interest rate that may be
charged on installment contracts or restricting the Company's ability to real-
ize the value of any collateral securing contracts. The Company is not aware of
any materially adverse legislation currently pending in any jurisdiction where
it currently transacts business.
- --------------------------------------------------------------------------------
1999 Annual Report
25
<PAGE>
TFC Enterprises, inc. Notes to Consolidated Financial Statements
1.Summary of significant accounting policies (continued)
Reclassifications
Certain reclassifications have been made to the 1998 and 1997 financial state-
ments in order to conform with the 1999 presentation.
2.Contract receivables
The following is a summary of contract receivables at December 31:
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in thousands) 1999 1998
-----------------------------------------------------
<S> <C> <C>
Contract receivables:
Auto finance $236,305 $209,341
Consumer finance 21,086 16,472
-----------------------------------------------------
Gross contract receivables 257,391 225,813
-----------------------------------------------------
Less:
Unearned interest revenue 40,491 37,710
Unearned discount 4,613 3,539
Unearned commissions 441 637
Unearned service fees 1,074 1,186
Payments in process 4,707 3,915
Escrow for pending acquisitions 530 736
Allowance for credit losses 817 859
Nonrefundable reserve 22,679 21,336
-----------------------------------------------------
Net contract receivables $182,039 $155,895
-----------------------------------------------------
</TABLE>
The effective rate of interest earned on contract receivables was 23.60%,
23.08%, and 21.60% for the years ended December 31, 1999, 1998, and 1997
respectively.
At December 31, 1999, contractual maturities of contract receivables were as
follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
2000 $119,069
2001 81,497
2002 40,529
2003 11,137
2004 5,159
----------------------------------------
Gross contract receivables $257,391
----------------------------------------
</TABLE>
It has been the Company's experience that a substantial portion of the portfo-
lio generally is prepaid before contractual maturity dates. The above
tabulation, therefore, should not be regarded as a forecast of future cash col-
lections.
Changes in the allowance for credit losses and nonrefundable reserve were as
follows:
<TABLE>
-----------------------------------------------------------
<CAPTION>
(in thousands) 1999 1998 1997
-----------------------------------------------------------
<S> <C> <C> <C>
Beginning Balance $22,195 $23,029 $28,575
Allocation for credit losses 28,315 26,915 21,635
Provision for credit losses 466 737 719
Charge-offs (33,330) (33,548) (32,556)
Recoveries 5,850 5,062 4,656
-----------------------------------------------------------
Ending Balance $23,496 $22,195 $23,029
-----------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
26
<PAGE>
TFC Enterprises, inc. Notes to Consolidated Financial Statements
3.Property and equipment
The following is a summary of property and equipment at December 31:
<TABLE>
----------------------------------------------------------------
<CAPTION>
(in thousands) 1999 1998
----------------------------------------------------------------
<S> <C> <C>
Leasehold improvements $305 $255
Computer equipment and software 3,228 3,721
Furniture and office equipment 2,331 2,136
Automobiles 177 154
----------------------------------------------------------------
Property and equipment 6,041 6,266
Less: accumulated depreciation and amortization 3,797 4,317
----------------------------------------------------------------
Property and equipment, net $2,244 $1,949
----------------------------------------------------------------
</TABLE>
Depreciation and amortization of property and equipment for the years ended
December 31, 1999, 1998, and 1997, were $0.9 million, $0.8 million, and $0.9
million, respectively
4.Intangible assets
The following is a summary of intangible assets at December 31:
<TABLE>
---------------------------------------------------
<CAPTION>
(in thousands) 1999 1998
---------------------------------------------------
<S> <C> <C>
Goodwill $16,265 $16,265
Dealer list 4,172 4,172
Less: accumulated amortization (10,550) (9,459)
---------------------------------------------------
Intangible assets, net $9,887 $10,978
---------------------------------------------------
</TABLE>
5.Debt
Debt outstanding at December 31 consisted of the following:
<TABLE>
--------------------------------------------------------
<CAPTION>
(in thousands) 1999 1998
--------------------------------------------------------
<S> <C> <C>
Revolving lines of credit $94,866 $121,281
Automobile receivables-backed notes 52,316 --
Subordinated notes (a) 9,019 9,636
Other term debt 482 --
--------------------------------------------------------
Total debt $156,683 $130,917
--------------------------------------------------------
</TABLE>
(a) The subordinated non-convertible notes are net of unamortized discount
totaling $25 thousand and $34 thousand at December 31, 1999 and 1998,
respectively.
Debt maturity schedule at December 31, 1999:
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
(in thousands) 2000 2001 2002 2003 Total
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revolving lines of credit -- $78,750 $16,116 -- $94,866
Automobile receivables-backed notes
(b) $31,741 13,509 4,472 $2,594 52,316
Senior Subordinated Note 2,000 2,000 2,000 -- 6,000
15% Subordinated notes 55 670 1,319 -- 2,044
Subordinated Debenture -- 1,000 -- -- 1,000
Other term debt 186 216 80 -- 482
------------------------------------------------------------------------------
Total $33,982 $96,145 $23,987 $2,594 $156,708
------------------------------------------------------------------------------
</TABLE>
(b) Maturities are based on a cash flow analysis that incorporates various
assumptions tied to the performance of the contracts that
collateralize these notes. Variation from these assumptions could
significantly impact the above tabulation.
- --------------------------------------------------------------------------------
1999 Annual Report
27
<PAGE>
TFC Enterprises, inc. Notes to Consolidated Financial Statements
5.Debt (continued)
Revolving lines of credit
Pursuant to the amended revolving line of credit agreement dated January 1,
1999, the Company's primary lender agreed to provide a credit line of $130 mil-
lion through January 1, 2001. The revolving line of credit is secured by
certain contract receivables held by TFC and is guaranteed by TFCE. On a daily
basis, TFC remits all cash receipts relating to those receivables to the lend-
er. These daily cash receipts are first applied to accrued interest on the
revolving line of credit and the remainder to principal. Borrowings under the
revolving line of credit, totaled $78.8 million and $109.0 million at December
31, 1999 and 1998, respectively. The advance rate used to determine availabil-
ity on this line is limited to a percentage, currently 73%, of eligible
collateral as specified in this amended agreement. Unused availability under
this facility totaled $5.8 million and $6.0 million at December 31, 1999 and
1998, respectively, based on collateral in existence at that time. The 1997
amended agreement, along with the December 1996 amended agreement, granted the
lender warrants to purchase a cumulative total of approximately 1.1 million
shares of the Company's common stock at $1 per share over a 5-year period. The
issuance of these warrants was recorded as additional paid-in capital and as a
discount to the line of credit. The amount, $0.5 million in 1997 and $0.4 mil-
lion in 1996, was amortized into interest expense over the term of the 1997
amended agreement. These amounts were fully amortized as of December 31, 1998.
The amount included in interest expense was $0.5 million and $0.4 million in
1998 and 1997, respectively.
Interest on the revolving line of credit accrues at a floating rate equivalent
to one-month LIBOR plus a borrowing spread and line fees of $0.3 million for
1999 and $0.4 million for 1998.
The borrowing spread on the Company's primary revolving line of credit was as
follows for the years ended December 31, 1999, 1998, and 1997:
<TABLE>
--------------------------------------------------------
<CAPTION>
Borrowing Spread
--------------------------------------------------------
<S> <C>
January 1, 1997 to March 31, 1998 4.00
April 1, 1998 to December 31, 1998 3.75
January 1, 1999 to December 31, 1999 3.50
--------------------------------------------------------
</TABLE>
The new contract and security agreement signed in December 1996 and amended in
April 1997 set the borrowing spread at 4.00%. As of April 1, 1998, the Company
met certain operating goals set in the Line of Credit agreement and the spread
was reduced 25 basis points to 3.75%. Pursuant to the amended revolving line of
credit agreement dated January 1, 1999, the spread was reduced an additional 25
basis points to 3.50%. The average outstanding balance on the revolving line of
credit totaled $118.1 million, $102.9 million, and $82.8 million, respectively,
in 1999, 1998, and 1997. The average interest rate paid on the revolving line
of credit was 8.68% in 1999, 9.41% in 1998 and 9.63% in 1997. At December 31,
1999, 1998, and 1997 respectively, one-month LIBOR was 5.56%, 5.24% and 5.71%
and the total interest rate was 9.06%, 8.99% and 9.71%.
A second line of credit with another lender is secured by certain contract
receivables of FCF and is guaranteed by TFCE. The facility was established in
August 1999, replacing FCF's facility dated March 1997. Borrowings outstanding
under FCF's credit facility totaled $16.1 million and $12.3 million at December
31, 1999 and 1998, respectively. The advance rate used to determine availabil-
ity on the line is limited to 85% of eligible collateral as specified in the
agreement. Interest on the revolving line of credit accrues at a floating rate
equivalent to one-month LIBOR on the first day of the month plus 2.75%. There
was no unused availability under this facility in 1999 or 1998. The average
outstanding balance on the FCF revolving line of credit totaled $13.8 million,
$10.5 million and $8.2 million, in 1999, 1998 and 1997, respectively with an
average interest rate of 8.65%, 9.60% and 9.50%, in 1999, 1998 and 1997,
respectively. At December 31, 1999, 1998, and 1997, respectively the total
interest rate was 9.23%, 9.00% and 9.75%.
Automobile Receivables-Backed Notes
On December 3, 1999, TFC completed a debt financing consisting of $65.2 million
of Automobile Receivables-Backed Notes, Series 1999-A. The notes were sold in a
private placement to qualified institutional buyers. The notes were issued
through TFC's wholly-owned, bankruptcy remote, receivables subsidiary, TFC
Receivables Corporation 2 ("TRC"), and are rated "AA" by Standard & Poor's Rat-
ings Services. The notes are collateralized by the assets of TRC. Principal
- --------------------------------------------------------------------------------
28
<PAGE>
TFC Enterprises, inc. Notes to Consolidated Financial Statements
5.Debt (continued)
and interest payments under the notes are guaranteed pursuant to a financial
guaranty insurance policy issued by Asset Guaranty Insurance Company.
Principal and interest payments on the notes are made monthly based on cash
collections relating to the collateral pool of contract receivables. At the
time of issuance, the notes had an expected average life of 1.2 years and a
final maturity of April 2004. Subject to certain conditions, the notes may be
redeemed in whole, but not in part, when the outstanding principal balance of
the notes is equal to or less than $9.8 million.
The terms of the various agreements supporting the issuance of the Automobile
Receivables-Backed Notes require TRC to operate within certain parameters with
respect to the collateral pool and requires TFC to maintain a minimum net
worth. As of December 31, 1999, TRC was in compliance with the provisions of
the agreements. TFC is responsible for the administration and collection of
TRC's receivables.
Subordinated debt
Senior Subordinated Notes, due 2002
In June 1995, the Company issued $10.0 million of 9.38% Senior Subordinated
Notes due June 30, 2002. Interest on the Senior Subordinated Notes is pay-
able semi-annually. The notes may be prepaid subject to a "make-whole"
prepayment penalty. Principal payments of $2 million are due annually with
the final payment due June 2002. Under the terms of an amendment to the
notes effective April 1, 1997, the interest rate was increased to 10.48%.
15% Subordinated Notes, due 2001-2002
From July 1998 to September 1999, the Company issued $2.0 million of
unsecured subordinated debt due three years from origination. These notes
were offered pursuant to a private placement to a limited number of pro-
spective investors, including but not limited to, the Board of Directors,
officers and certain existing shareholders of the Company. The unsecured
notes bear interest at 15% per year. Members of the Board of Directors,
Executive Officers, and certain relatives have purchased $1.4 million of
these notes.
Subordinated Debenture, due 2001
In June, 1998, the Company signed a $1.0 million subordinated floating rate
debenture with a subsidiary of a large U.S. based insurance company that is
a major provider of credit insurance products to the industry. The deben-
ture matures in January 2001, with interest adjusted quarterly and payable
quarterly at 1% over prime. The weighted-average interest rate was 8.875%
for 1999 and 9.375% for 1998.
The revolving lines of credit agreements and the Senior Subordinated Note
agreement provide for certain covenants and restrictions regarding, among
other things, minimum net worth and interest coverage, maximum debt to equity
ratio, maximum delinquency and charge-off and minimum reserve requirements.
Interest rate protection agreement
TFC has entered into an interest rate protection agreement (cap) that limits
TFC's exposure to increases in its borrowing cost relating to an increase in
the one-month LIBOR rate. As discussed above, LIBOR is the base rate used in
connection with the revolving line of credit. The agreement has a notional
principal amount of $70 million, a LIBOR ceiling of 6.50% and an expiration
date of April 1, 2000. The cap subjects the Company to credit risk that the
counterparty may fail to perform under the terms of the agreement.
Dividend restrictions
The Company did not declare dividends on its common stock during the years
ended December 31, 1999, 1998, and 1997, nor does it anticipate paying cash
dividends in the foreseeable future. If and when the Company decides to
declare cash dividends, the amount would be limited by certain provisions of
the Company's various credit agreements. Additionally, the various credit
agreements provide restrictions on TFC's ability to transfer funds to TFCE in
the form of dividends.
- -------------------------------------------------------------------------------
1999 Annual Report
29
<PAGE>
TFC Enterprises, inc. Notes to Consolidated Financial Statements
6.Income taxes
Significant components of deferred tax assets and liabilities were as follows
as of December 31:
<TABLE>
----------------------------------------------------------------------------
<CAPTION>
(in thousands) 1999 1998
----------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Excess of book nonrefundable reserve over tax $10,983 $9,914
Excess of book allowance for credit losses over tax 310 326
Temporary difference relating to employee benefits 106 262
Contingent interest 209 296
Other 32 73
----------------------------------------------------------------------------
Total deferred tax assets 11,640 10,871
----------------------------------------------------------------------------
Deferred tax liabilities:
Recognition of unearned discount income for book purposes
in advance of tax recognition 11,532 9,999
Temporary differences relating to intangible assets 563 669
Temporary differences relating to employee benefits 84 0
Excess of tax over book depreciation 124 165
Other 11 --
----------------------------------------------------------------------------
Total deferred tax liabilities 12,314 10,833
----------------------------------------------------------------------------
Net deferred tax (liabilities) assets $(674) $38
----------------------------------------------------------------------------
</TABLE>
The following is a summary of the income tax provision for the years ended
December 31:
<TABLE>
-------------------------------------------
<CAPTION>
(in thousands) 1999 1998 1997
-------------------------------------------
<S> <C> <C> <C>
Current provision:
Federal $3,559 $-- $--
State 676 -- --
-------------------------------------------
4,235 -- --
Deferred provision:
Federal 600 1,335 372
State 112 250 70
-------------------------------------------
712 1,585 442
Valuation allowance -- (1,435) (442)
-------------------------------------------
Total $4,947 $150 $--
-------------------------------------------
</TABLE>
The differences between income taxes computed at the statutory Federal rate and
actual amounts were as follows for the years ended December 31:
<TABLE>
---------------------------------------------------------------
<CAPTION>
(in thousands) 1999 1998 1997
---------------------------------------------------------------
<S> <C> <C> <C>
Computed at statutory Federal rate $3,900 $1,393 $240
State taxes, net of Federal tax benefit 490 196 28
Amortization of intangible assets 277 277 277
Other items 280 (281) (103)
Valuation allowance -- (1,435) (442)
---------------------------------------------------------------
Computed at effective rate $4,947 $150 $--
---------------------------------------------------------------
</TABLE>
In 1993, contingent interest on the Company's convertible notes was considered
deductible for Federal income tax purposes but was treated as non-deductible
for income tax expense on the Company's financial statements. The Company is
continuing to challenge the IRS regarding the deductibility of the contingent
interest. To the extent that the contingent interest on convertible notes is
ultimately determined to be deductible for Federal income tax purposes, the
benefit, which totals $2.1 million, will be recognized in the period that the
determination is made.
- --------------------------------------------------------------------------------
30
<PAGE>
TFC Enterprises, inc. Notes to Consolidated Financial Statements
7.Employee benefit plan
The Company has a defined contribution savings plan covering all permanent
employees working 20 or more hours per week and with more than one year of
service. Under the terms of the plan, the Company matches 50% of employees'
contributions up to 10% of each employee's earnings as defined. In addition,
employees have the option of contributing additional amounts. The Company's
plan expense for 1999, 1998, and 1997 was $0.2 million, $0.2 million, and $0.1
million, respectively.
8.Stock Plans
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (the "Stock Purchase Plan"),
which allows for options to purchase common stock to be granted to employees,
including eligible officers, of the Company. A total of 530,000 shares of com-
mon stock have been reserved for issuance under the Stock Purchase Plan.
The Company periodically grants options to certain eligible employees under
this plan. These stock options are fully vested at the date of grant. Approxi-
mately 25,600 and 114,600 options were exercised in 1999 and 1998,
respectively. As of December 31, 1999, there are no outstanding unexercised
options.
Any employee who is customarily employed for at least 20 hours per week and
more than five months per calendar year by the Company and has more than two
years of service is eligible to participate in the Stock Purchase Plan. No
employee is permitted to purchase shares under the Stock Purchase Plan if such
employee owns 5% or more of the total outstanding shares of the Company. In
addition, no employee is entitled to purchase more than $25,000 of common stock
(based upon the fair market value of the shares of common stock at the time the
option is granted) in any calendar year. The price at which shares of common
stock are sold under the Stock Purchase Plan is the lower of 85% of the fair
market value on the date of grant or the purchase date of such shares.
Long-term Incentive Plan
The Company has established the 1995 Long-Term Incentive Plan ("Incentive
Plan"), which provides incentive stock options, non-qualified stock options and
restricted stock for certain executives of the Company. The options generally
vest over a period of five years. A total of 1.5 million shares of common stock
have been reserved for issuance under the Incentive Plan. On June 1, 1998,
104,679 options granted in 1995 were canceled and reissued at an exercise price
equal to the then fair market value of the Company's common stock of $2.94 with
vesting beginning January 1, 1999 over five years. The remaining options
granted in 1995 at an exercise price of $11.50 expired on December 31, 1999. On
June 1, 1998, 483,750 options were granted to certain employees at an exercise
price equal to the then fair market value of the Company's common stock of
$2.94, with vesting beginning January 1, 1999 over five years. All outstanding
options generally expire five years from the vesting date.
Pro forma information regarding net income and earnings per share is required
by FAS No. 123, which also requires that the information be determined as if
the Company has accounted for its employee stock options granted subsequent to
December 31, 1994, under the fair value method of FAS No. 123. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions: risk free
interest rate of 6% for 1999 and 1998; volatility factor of the expected market
price of the Company's common stock of 0.60 for 1999 and 0.74 for 1998, for
shares whose exercise price is less than the stock prices on the grant date and
1.92 for shares whose exercise price equals the stock price on the grant date
for 1998 and a weighted-average expected life of the options ranging up to 7.5
years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in manage-
ment's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of the Company's stock options.
- --------------------------------------------------------------------------------
1999 Annual Report
31
<PAGE>
TFC Enterprises, inc. Notes to Consolidated Financial Statements
8.Stock Plans (continued)
For purposes of pro forma disclosures, the estimated fair value of the options
are amortized to expense over the options' vesting periods. The Company's pro
forma net income (in thousands) and pro forma income per share based on options
issued during 1999, 1998 and 1997 were as follows:
<TABLE>
-----------------------------------------------------------
<CAPTION>
Years ended
December 31
1999 1998 1997
-----------------------------------------------------------
<S> <C> <C> <C>
Pro forma net income $6,312 $3,742 $651
Pro forma net income per basic share $0.55 $0.33 $0.06
-----------------------------------------------------------
</TABLE>
A summary of the activity for the Company's stock options with exercise prices
equal to the grant-date market value for the three years ended December 31 was
as follows:
<TABLE>
------------------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
Shares Weighted Shares Weighted Shares Weighted
Under Average Under Average Under Average
Option Exercise Option Exercise Option Exercise
(In 000s) Price (In 000s) Price (In 000s) Price
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 1,367 $9.02 1,026 $11.18 806 $10.11
Granted 768 2.31 1,105 2.77 300 1.26
Exercised (26) 2.32 (115) 1.55 -- --
Forfeited and expired (1,227) 9.03 (649) 9.45 (80) 1.13
------------------------------------------------------------------------------------
Outstanding at end of
year 883 $2.55 1,367 $8.86 1,026 $11.18
------------------------------------------------------------------------------------
Exercisable at end of
year 313 $1.82 576 $9.02 637 $11.13
Weighted-average fair
value of options
granted during the year $0.60 $1.63 $ 0.84
------------------------------------------------------------------------------------
</TABLE>
For stock options outstanding at December 31, 1999, the range of exercise
prices were $0.91 to $2.94 and the weighted-average remaining contractual life
was 5 years.
- --------------------------------------------------------------------------------
32
<PAGE>
TFC Enterprises, inc. Notes to Consolidated Financial Statements
9. Earnings per share
Earnings per share for the years ended December 31 were as follows:
<TABLE>
----------------------------------------------------------------------------
<CAPTION>
(Amounts in thousands) 1999 1998 1997
----------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income $6,487 $4,025 $707
Denominator:
Denominator for basic earnings per share-weighted-
average shares 11,409 11,330 11,290
Effect of dilutive securities:
Employee stock options 249 150 39
Warrants 692 549 276
----------------------------------------------------------------------------
Dilutive potential common shares 941 699 315
----------------------------------------------------------------------------
Denominator for diluted earnings per share 12,350 12,029 11,605
Basic earnings per share $0.57 $0.36 $0.06
----------------------------------------------------------------------------
Diluted earnings per share $0.53 $0.33 $0.06
----------------------------------------------------------------------------
</TABLE>
10. Commitments
The Company conducts its business in leased facilities with original terms of
one to eleven years with renewal options for additional periods. These leases
are classified as operating leases. Certain equipment, including automobiles,
are leased for original terms of one to five years and are classified as oper-
ating leases. Options to purchase are also included in certain equipment lease
agreements. Rent expense for the years ended December 31, 1999, 1998, and 1997
was approximately $1.0 million, $0.9 million and $0.9 million, respectively.
Future minimum annual lease payments for property and equipment under lease at
December 31, 1999 were as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
2000 $904
2001 647
2002 550
2003 468
2004 through 2006 1,151
---------------------------
Total $3,720
---------------------------
</TABLE>
The Company is party to several legal actions which are ordinary, routine liti-
gation incidental to its business. The Company believes that none of those
actions, either individually or in the aggregate, will have a material adverse
effect on the results of operations or financial position of the Company.
11. Financial instruments with off-balance-sheet risk and concentrations of
credit risks
In its normal course of business, the Company engages in consumer lending
activities with a significant number of consumers (obligors) throughout the
United States. In addition, the Company is party to certain off-balance-sheet
financial instruments, specifically an interest rate cap, which subjects the
Company to credit risk in the event market conditions cause the interest rate
cap to experience an unrealized gain and the counterparty to the transaction
should fail to honor the contract. The maximum risk of accounting loss from
these on- and off-balance-sheet financial instruments with these
counterparties, assuming all collateral is deemed worthless, is represented by
their respective balance sheet amounts and the replacement cost of the off-bal-
ance-sheet financial instruments. At December 31, 1999, the replacement cost
for the Company's interest rate cap was not significant.
At December 31, 1999, approximately 67% of the Company's contract receivables
portfolio is related to obligors in Virginia (15%), Texas (15%), Georgia (14%),
California (13%) and Florida (10%). Although the Company's contract receivables
portfolio includes consumers living throughout the United States, a substantial
portion of the obligors' ability to honor their obligations to the Company may
be dependent on economic conditions in these states.
- --------------------------------------------------------------------------------
1999 Annual Report
33
<PAGE>
TFC Enterprises, inc. Notes to Consolidated Financial Statements
12. Estimated fair value of financial instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," (FAS No. 107) requires the disclosure of the
estimated fair value of on- and off-balance-sheet financial instruments.
Fair value estimates are made at a point in time based on judgments regarding
current economic conditions, interest rate risk characteristics, loss experi-
ence and other relevant market data and information about the financial
instrument. Many of these estimates involve uncertainties and matters of sig-
nificant judgment and cannot be determined with precision. Therefore, the
estimated fair value may not be realizable in a current sale of the instrument.
Changes in assumptions could significantly affect the estimates.
Fair value estimates exclude all non-financial assets and liabilities including
property and equipment, goodwill and other intangibles, prepaid assets, accrued
liabilities, taxes payable and refundable dealer reserves. Accordingly, the
estimated fair value amounts of financial instruments do not represent the
entire value of the Company.
The following methods and assumptions were used by the Company in estimating
the fair value of its financial instruments at December 31, 1999 and 1998:
Short-term financial instruments
The carrying amounts reported on the Company's balance sheet generally approxi-
mate fair value for financial instruments that mature in 90 days or less, with
no significant change in credit risk. The carrying amounts approximate fair
value for cash and cash equivalents, restricted cash and certain other assets
and liabilities. Financial instruments included in other assets and liabilities
primarily include trade accounts receivable and payable.
Contract receivables
The estimated fair value of contract receivables was calculated using market
rates of return required for a bulk purchase of contract receivables with simi-
lar credit and interest rate characteristics. The estimated fair value of
contract receivables that did not meet the criteria for a bulk purchase, gener-
ally contracts that were more than 30 days past due, was calculated based upon
the liquidation value of the collateral.
Revolving lines of credit, automobile-receivables notes, subordinated notes and
other term debt
The estimated fair values for the revolving lines of credit, automobile receiv-
ables backed notes, subordinated notes, and other term debt were based on
indicative market prices for debt with similar terms and remaining maturities
currently available to companies with similar credit ratings.
Interest rate protection agreements
The estimated fair value of the Company's interest rate protection agreements
was based on market quotes from a financial institution at December 31, 1999
and 1998.
- --------------------------------------------------------------------------------
34
<PAGE>
TFC Enterprises, inc. Notes to Consolidated Financial Statements
12. Estimated fair value of financial instruments (continued)
The estimated fair values of the Company's financial instruments at December
31, 1999 and 1998 were as follows:
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
(in thousands) 1999 1998
------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $2,290 $2,290 $1,868 $1,868
Restricted cash 9,563 9,563 -- --
Net contract receivables 182,039 175,813 155,895 148,991
Other assets 520 520 633 633
------------------------------------------------------------------------------
Total financial assets $194,412 $188,186 $158,396 $151,492
------------------------------------------------------------------------------
Financial liabilities:
Revolving lines of credit $94,866 $94,866 $121,281 $121,281
Automobile receivables-backed notes 52,316 52,316 -- --
Subordinated notes 9,019 7,736 9,636 7,387
Other term debt 482 482 -- --
Other liabilities 2,034 2,034 1,719 1,719
------------------------------------------------------------------------------
Total financial liabilities $158,717 $157,434 $132,636 $130,387
------------------------------------------------------------------------------
Off-balance-sheet financial
instruments:
Interest rate protection agreements $8 $1 $21 $14
------------------------------------------------------------------------------
</TABLE>
13. Segments
Operating segments are defined as components of an enterprise about which sepa-
rate financial information is available that is evaluated regularly by the
chief operating decision makers in deciding how to allocate resources and in
assessing performance.
The Company is a specialty finance company with two business segments. Through
TFC, the auto finance segment, the Company is engaged in purchasing and servic-
ing installment sales contracts originated by automobile and motorcycle dealers
involved in the sale of used automobiles, vans, light trucks, and new and used
motorcycles (collectively "vehicles") throughout the United States. This seg-
ment consists of two business units (i) point-of-sale which contracts are
acquired on an individual basis from dealers after the Company has reviewed and
approved the purchasers credit application and (ii) bulk which contracts are
acquired through the purchase of dealer portfolios. Through FCF, the consumer
finance segment, the Company is involved in the direct origination and servic-
ing of small consumer loans through a branch network in Virginia and North
Carolina. The other column consists of RI and corporate support functions not
allocated to either of the business segments. All revenue is generated from
external customers in the United States.
Management measures segment performance based on revenue earned (yields
achieved) on the outstanding portfolio of contract receivables as well as net
income before taxes.
- --------------------------------------------------------------------------------
1999 Annual Report
35
<PAGE>
TFC Enterprises, inc. Notes to Consolidated Financial Statements
13. Segments (continued)
The accounting policies are the same as those described in the summary of sig-
nificant accounting policies.
<TABLE>
----------------------------------------------------------------------------
<CAPTION>
(In thousands) Auto Finance Consumer Finance Other Total
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Interest revenues $43,742 $4,268 $-- $48,010
----------------------------------------------------------------------------
Interest expense $11,780 $1,308 $-- $13,088
----------------------------------------------------------------------------
Income (loss) before
unallocated amounts: $12,986 $ 395 $(162) $13,219
Unallocated amounts:
Intangible amortization (1,091)
Corporate expenses (694)
--------
Consolidated income before
taxes $11,434
----------------------------------------------------------------------------
Net contract receivables $162,288 $19,519 $232 $182,039
Other assets 26,472
--------
Total assets $208,511
----------------------------------------------------------------------------
----------------------------------------------------------------------------
1998
Interest revenues $35,599 $3,486 $-- $39,085
----------------------------------------------------------------------------
Interest expense $11,825 $1,127 $-- $12,952
----------------------------------------------------------------------------
Income (loss) before
unallocated amounts: $6,395 $(347) $(197) $5,851
Unallocated amounts:
Intangible amortization (1,092)
Corporate expenses (584)
--------
Consolidated income before
taxes $4,175
----------------------------------------------------------------------------
Net contract receivables $140,774 $15,118 $3 $155,895
Other assets 16,702
--------
Total assets $172,597
----------------------------------------------------------------------------
----------------------------------------------------------------------------
1997
Interest revenues $29,631 $2,686 $-- $32,317
----------------------------------------------------------------------------
Interest expense $11,366 $653 $-- $12,019
----------------------------------------------------------------------------
Income (loss) before
unallocated amounts: $1,822 $(228) $346 $1,940
Unallocated amounts:
Intangible amortization (1,091)
Corporate expenses (142)
--------
Consolidated income before
taxes $707
----------------------------------------------------------------------------
Net contract receivables $116,809 $11,694 $-- $128,503
Other assets 19,330
--------
Total assets $147,833
----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
36
<PAGE>
TFC Enterprises, inc. Notes to Consolidated Financial Statements
14. Bankruptcy remote subsidiary--TFC Receivables Corporation 2
TFC Receivables Corporation 2 is a wholly-owned bankruptcy remote subsidiary of
TFC that was formed in December 1999 to facilitate certain asset-backed financ-
ing transactions requiring a bankruptcy remote structure. Bankruptcy remote
refers to a legal structure in which it is expected that the applicable entity
would not be included in any bankruptcy filing by its parent or affiliates. In
December 1999, TRC issued $65.2 million of 7.50% Automobile Receivables-Backed
Notes, Series 1999-A. Proceeds from the issuance were used to purchase certain
assets from TFC, which collateralize the notes. At December 31, 1999, TRC had
total assets of $67.2 million, of which $56.7 million represented net contract
receivables, $9.6 million represented restricted cash and $0.9 million repre-
sented other assets which primarily included deferred charges. All of the
assets of TRC have been pledged as collateral on the 7.50% Automobile Receiv-
ables-Backed Notes. None of the assets of TRC is available to pay other
creditors of the Company or its affiliates. The 7.50% Automobile Receivables-
Backed Notes are further discussed in Note 5 of the Notes to Consolidated
Financial Statements.
- --------------------------------------------------------------------------------
1999 Annual Report
37
<PAGE>
TFC Enterprises, inc. Directors, Officers and Shareholders Information
Board of Directors *Executive Officers Shareholder Contact Annual Meeting
Robert S. Raley, Jr. (1)
Robert S. Raley, Jr. Craig D. Poppen The annual
Chairman of the Board, shareholders'
Chairman of the Board, meeting will be
held Tuesday,
May 9, 2000, at
10:00 p.m. at
the Airport
Hilton Hotel,
Norfolk,
Virginia
Vice President, Treasurer
President and Chief Executive
President and Chief and Chief Financial Officer
Officer Executive Officer
5425 Robin Hood Road,
Craig D. Poppen Suite 101B,
Walter S. Boone, Jr. (1)(2) Norfolk, Virginia 23513
Vice President, Treasurer
President, Virginia General (757) 858-4054 ext. 355
and Chief Financial
Investment, Inc. Officer FAX: (757) 858-4093
Ronald G. Tray
Douglas E. Bywater (1)(3) Transfer Agent and
Vice President and
Partner, Tate & Assistant Secretary Registrar
Bywater, Ltd. Form 10-K
American Stock Transfer &
Peter H. Kamin (1)(2) Trust Company Copies of TFC
General Partner, 40 Wall Street Enterprises,
Peak Investment, LP Inc.'s Annual
Report on Form
10-K are filed
with the
Securities and
Exchange
Commission and
may be obtained
from the
Shareholder
Relations
Department,
New York, New York 10005
Andrew M. Ockershausen (3)
Director of Business
Development, Home
Team Sports
Phillip R. Smiley (2)
Field Services Regional
Manager, Lockheed Martin
Linwood R. Watson (2)(3)
Thompson, Greenspon 5425 Robin Hood
& Co., P.C. Road,
Suite 101B,
Norfolk, Vir-
ginia 23513
(1) Member of Executive
Committee Stock Trading
(2) Member of Audit
Committee TFC Enterprises,
(3) Member of Inc. Common
Compensation Committee Stock trades on
The NASDAQ Stock
Market under the
symbol TFCE and
is designated a
National Market
Security. The
listing found in
most newspapers
is TFC ENT.
* As of March 2000
Independent
Auditors
Ernst & Young
LLP
901 East Cary
Street
One James Center
Richmond, Va
23218
Outside Corpo-
rate
Counsel
Williams, Mul-
len, Clark and
Dobbins
One Columbus
Center
Suite 900
Virginia Beach,
Virginia
- --------------------------------------------------------------------------------
38
<PAGE>
TFC Enterprises, inc. TFC Officers and Locations
The Finance Company Officers*
Locations*
Robert S. Raley, Jr.Corporate Executive Office
Clarkesville
Chairman of the 5425 Robin Hood Road,Contract Production Office
Board and Chief Suite 101B 822 Providence Blvd
Executive Officer Norfolk, Virginia 23513
Clarkesville, Tennessee 37042
(757) 858-4054 (931) 906-5595
Ronald G. Tray FAX: (757) 858-4093
FAX: (931) 906-5591
President, Chief Service Center Columbus
Operating Officer 5425 Robin Hood Road,Contract Production Office
and Assistant Suite 101A 2821 Warm Springs Road
Secretary Norfolk, Virginia 23513
Unit 2B
(757) 858-1400 Columbus, Georgia 31904
Craig D. Poppen FAX: (757) 858-5499
(706) 323-7682
Executive Vice FAX: (706) 321-9029
President, Norfolk
Treasurer and Contract Production Office
Chief Financial Wichita Falls
Officer 5425 Robin Hood Road,Contract Production Office
Suite 101A 2525 Kell Blvd., Suite 310
Norfolk, Virginia 23513
Wichita Falls,
(757) 858-1400 Texas 76308
Rick S. Lieberman FAX: (757) 858-5499
(940) 763-0360
Executive Vice Jacksonville FAX: (940)763-0380
President and Contract Production Office
Chief Lending Honolulu
Officer 8000 Arlington Expressway,
Contract Production Office
Suite 400 3049 Ualena Street,
Jacksonville, Florida 32211
Suite 1102
Delma H. Ambrose (904) 725-5222 Honolulu, Hawaii 96819
Senior Vice Presi-
dent
FAX: (904) 725-5833
(808) 838-7801
M. Patricia Piccola Killeen Fax: (808)838-7814
Senior Vice Contract Production Office
President, Chief Colorado Springs
Administrative 2201 South W.S. YoungContract Production Office
Officer & Suite 106C 1040 South 8th Street #102
Secretary Killeen, Texas 76543 Colorado Springs,
(254) 526-8390 Colorado 80906
FAX: (800) 221-8698
(719) 473-0001
Susan Traylor San Diego FAX: (719) 473-9363
Vice President
Contract Production Office
Bulk Contract Production Office
Marylou Hennessey 637 Third Ave. Suite I
5425 Robin Hood Road,
Vice President
Chula Vista, CA 91910Suite 101A
Guy H. Putman III (619) 425-3723 Norfolk, Virginia 23513
Vice President
FAX: (619) 546-0360
(757) 858-1400
Kevin J. Obal Tacoma FAX: (757) 858-5499
Vice President
Contract Production Office
Ed Conaway 3640 South Cedar St #G
Controller
Tacoma, Washington 98409
James Ostrich (253) 474-6445
Assistant Vice
President
FAX: (253) 474-0834
* As of March 2000
- --------------------------------------------------------------------------------
1999 Annual Report
39
<PAGE>
TFC Enterprises, inc. FCF, Inc. Officers and Locations
First Community Finance, Inc. Officers*
Locations Recoveries, Inc.
Officers*
Robert S. Raley, Corporate Office 715 North Queen Street
Jr. Robert S. Raley,
4900 Augusta Avenue Jr.
Kinston, North Carolina 28501
Chairman of the Suite 104 (252) 939-1665 Chairman of the
Board Richmond, Virginia 23230 Board and Chief
FAX: (252) 939-9521 Executive
and Executive Vice Officer
President
(804) 353-4900
G. Kent Brooks FAX: (804) 353-7818 1060 Tiffany Square
President and Chief Branches Rocky Mount, North
Executive Officer Carolina 27804 Ronald G. Tray
7103 Staples Mill Rd
Walter Owings (252) 977-0250 President and
Richmond, Virginia 23228 Assistant Secre-
Vice President and FAX: (252) 977-9649 tary
Secretary
(804) 262-7612
Robert Boykin FAX: (804) 262-7998
3308 Bragg Boulevard
Vice President and
Assistant Secretary 9903 Hull Street RoadSuite 132 Craig D. Poppen
Vice President
and Treasurer
Fayetteville, North
Craig D. Poppen Richmond, Virginia 23236
Vice President, (804) 745-3743 Carolina 28303 M. Patricia
Treasurer and FAX: (804) 745-3898 (910) 868-9411 Piccola
FAX: (910) 868-9013 Secretary
Chief Financial
Officer
* As of March 2000 101-A North
Brunswick Avenue John M. Paris,
Jr.
4119-D Arendell Street
Wellons Center
South Hill, Virginia 23970
(804) 447-5778 Morehead City, Assistant Secre-
FAX: (804) 447-6077 North tary
Carolina 28557
(252) 247-2494 Corporate Office
1327-B West Broad Street
FAX: (252) 247-1189 5425 Robin Hood
Waynesboro, Virginia 22980 Rd
(540) 946-2633
FAX: (540) 946-2601 715 Gum Branch Norfolk, Vir-
Center, Unit #4 ginia 23513
150 Walker Street Jacksonville, (757) 858-1400
North FAX: (757) 858-
Carolina 28546 5499
Lexington, Virginia 24450
(540) 464-3160
FAX: (540) 464-1760 (910) 455-8818
FAX: (910) 455-9440
Washington Square
Shopping Center 2326 Forest Hills Road
5338-E George Wilson, North Carolina 27893
Washington Memo- (252) 234-2754
rial Hwy. FAX: (252) 234-2752
Grafton, Virginia 23692
(757) 874-6775 2408 ML King JR Blvd.
FAX: (757) 874-6090 Suite A
New Bern, North Carolina 28652
1312-C West Grant- (252) 635-9945
ham Street FAX: (252) 635-9961
Goldsboro, North
Carolina 27530
421 Warsaw Road
(919) 736-9912 Clinton, North Carolina 28328
FAX: (919) 736-9807 (910) 596-0707
FAX: (910) 596-0495
232 Greenville
Blvd. S. E. 2252 North Main Street
Tarboro, North Carolina 27889
Greenville, North Carolina 27858
(252) 355-7540 (252) 824-8066
FAX: (252) 355-0050 FAX: (252) 824-8069
- --------------------------------------------------------------------------------
40
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
1. The Finance Company, a Virginia corporation (100%).
a. The Insurance Agency, Inc., a Virginia corporation owned
100% by The Finance Company.
b. TFC Receivables Corporation, a Delaware corporation owned
100% by The Finance Company.
2. First Community Finance, Inc., a Virginia corporation (100%).
3. Recoveries, Inc., a Virginia corporation (100%).
4. PC Acceptance Corporation, a Virginia corporation (100%).
<PAGE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of TFC Enterprises, Inc. of our report dated February 15, 2000, included in the
1999 Annual Report to Shareholders of TFC Enterprises, Inc. (the Company).
Our audits also included the financial statement schedule of TFC Enterprises,
Inc. listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the following Registration
Statements and related Prospectuses of our report dated February 15, 2000 with
respect to the consolidated financial statements of TFC Enterprises, Inc.
incorporated by reference in and the related financial statement schedule
included in its Annual Report (Form 10-K) for the year ended December 31, 1999:
<TABLE>
<CAPTION>
Registration Statement Description
- ---------------------- -----------
<S> <C>
Form S-8 No. 33-78376 pertaining to the 1993 Employee Stock Purchase
Plan
Form S-8 No. 33-98680 pertaining to the 1995 Long Term Incentive Plan
Form S-3 No. 333-50531 registration of 1,135,280 shares of common
stock for issuance of warrants
</TABLE>
Ernst & Young LLP
Richmond, Virginia
March 24, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TFC
ENTERPRISES, INC. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,290
<SECURITIES> 0
<RECEIVABLES> 205,535
<ALLOWANCES> 23,496
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,041
<DEPRECIATION> 3,797
<TOTAL-ASSETS> 208,511
<CURRENT-LIABILITIES> 166,682
<BONDS> 0
0
0
<COMMON> 50
<OTHER-SE> 41,779
<TOTAL-LIABILITY-AND-EQUITY> 41,829
<SALES> 48,010
<TOTAL-REVENUES> 49,392
<CGS> 0
<TOTAL-COSTS> 24,404
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 466
<INTEREST-EXPENSE> 13,088
<INCOME-PRETAX> 11,434
<INCOME-TAX> 4,947
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,487
<EPS-BASIC> 0.57
<EPS-DILUTED> 0.53
</TABLE>
<PAGE>
Schedule I- Financial Information of Registrant
TFC Enterprises, Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31
(in thousands) 1999 1998
---- ----
<S> <C> <C>
Assets
Investment in subsidiaries $ 11,068 $ 3,159
Intangible assets, net 9,887 10,978
Due from subsidiaries 22,806 23,796
Other assets 86 106
-------- --------
Total assets $ 43,847 $ 38,039
======== ========
Liabilities and shareholders' equity
Liabilities:
Income taxes payable $ 1,542 $ 1,948
Accounts payable and accrued expenses 122 140
Deferred income taxes 354 669
-------- --------
Total liabilities 2,018 2,757
Shareholders' equity:
Preferred stock, $.01 per value, 1,000,000 shares -- --
authorized; none outstanding
Common stock, $.01 par value, 40,000,000 shares 50 50
authorized and 11,430,482 and 11,404,882 outstanding in
1999 and 1998, respectively
Additional paid-in capital 56,080 56,020
Retained deficit (14,301) (20,788)
-------- --------
Total shareholders' equity 41,829 35,282
-------- --------
Total liabilities and shareholders' equity $ 43,847 $ 38,039
======== ========
</TABLE>
<PAGE>
Schedule I- Financial Information of Registrant
TFC Enterprises, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Years ended December 31
-------------------------------------------------
(in thousands) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net interest revenue:
Interest revenue $ -- $ -- $ 346
Interest expense -- -- --
------ ------ ------
Net interest revenue -- -- 346
Other revenue:
Equity in net income
of subsidiaries 7,909 5,069 1,945
------ ------ ------
Total other revenue 7,909 5,069 1,945
Operating expenses:
Amortization of intangible assets 1,091 1,092 1,091
Other 694 334 143
------ ------ ------
Total operating expense 1,785 1,426 1,234
Income before income taxes 6,124 3,643 1,057
(Benefit from) provision for income taxes (363) (382) 350
------ ------ ------
Net income $6,487 $4,025 $ 707
====== ====== ======
</TABLE>
<PAGE>
Schedule I- Financial Information of Registrant
TFC Enterprises, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31
-----------------------
(in thousands) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operating activities
Net income $ 6,487 $ 4,025 $ 707
Adjustments to reconcile net income to net cash used in operating
activities:
Equity in net (income) of subsidiaries (7,909) (5,069) (1,945)
Amortization of intangible assets 1,091 1,092 1,091
(Benefit from) provision for deferred income taxes (315) (255) 22
Changes in operating assets and liabilities:
Decrease in other assets 20 42 17
(Increase) decrease in due from subsidiaries 990 512 3,353
(Increase) decrease in accounts payable and accrued
expenses (18) 109 (172)
Increase (decrease) in income taxes payable (406) (633) (3,073)
------- ------- -------
Net cash used in operating activities (60) (177) -
Financing activities
Proceeds from stock options exercised 60 177 -
------- ------- -------
Net cash provided by financing activities 60 177 -
Increase (decrease) in cash - - -
Cash at beginning of year - - -
------- ------- -------
Cash at end of year $ - $ - $ -
======= ======= =======
Supplemental disclosures:
Income taxes paid
$ 587 $ - $ -
Noncash transactions:
Issuance of stock warrants
$ - $ - $ 511
</TABLE>
