<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission File Number 0-26410
JAYHAWK ACCEPTANCE CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 75-2486444
- ------------------------------ -------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
TWO GALLERIA TOWER
13455 NOEL ROAD, SUITE 1800, DALLAS, TX 75240
- ------------------------------------------ -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 663-1000
-------------------
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 X No
-
At August 9, 1996, the latest practicable date, there were
23,873,750 shares of Common Stock, $.01 par value, outstanding.
See exhibit index on page 16.
Page 1
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JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
--------------------------------------
PART I. FINANCIAL INFORMATION
- ------------------------------
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS PAGE
<S> <C> <C>
Consolidated Balance Sheets at June 30, 1996 (Unaudited) and December 31, 1995... 3
Consolidated Income Statements for the three and six months ended
June 30, 1996 and 1995 (Unaudited)............................................... 4
Consolidated Statement of Shareholders' Equity for the six months ended
June 30, 1996 (Unaudited)........................................................ 5
Consolidated Statements of Cash Flows for the six months ended
June 30, 1996 and 1995 (Unaudited)............................................... 6
Notes to Consolidated Financial Statements (Unaudited)........................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................................... 8
<CAPTION>
PART II. OTHER INFORMATION
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<S> <C> <C>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.......................... 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................. 14
SIGNATURES.............................................................................. 15
- ----------
</TABLE>
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PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- -------------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................. $ 341 $ 120
Restricted cash........................... 4,120 --
Installment contracts receivable.......... 283,566 167,491
Allowance for credit losses............... (4,784) (2,308)
------- --------
Installment contracts receivable, net..... 278,782 165,183
Furniture, fixtures and equipment, net.... 7,109 5,004
Deferred income taxes..................... -- 2,088
Income taxes receivable................... 563 --
Other assets.............................. 2,749 978
-------- --------
Total assets.............................. $293,664 $173,373
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Liabilities:
Accounts payable and accrued.... $ 8,156 $ 7,982
liabilities
Deferred dealer fees, net....... 2,478 2,052
Dealer holdbacks, net........... 133,383 82,373
Revolving credit facility....... 30,777 32,386
Secured notes payable........... 24,468 --
-------- --------
Total liabilities......................... 199,262 124,793
Shareholders' Equity:
Common stock, $.01 par value;
40,000,000 shares authorized;
23,869,522 and 20,486,046
shares issued and
outstanding at
June 30, 1996 and December
31, 1995, respectively........ 239 205
Additional paid-in capital...... 88,343 47,461
Retained earnings............... 5,820 914
-------- --------
Total shareholders' equity................ 94,402 48,580
-------- --------
Total liabilities and shareholders'
equity................................... $293,664 $173,373
======== ========
</TABLE>
See notes to consolidated financial statements.
Page 3
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JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- ------------------
1996 1995 1996 1995
-------- ------ -------- --------
<S> <C> <C> <C> <C>
Revenues:
Finance charges......................... $10,077 $ 3,848 $18,238 $ 6,580
Dealer fees............................. 1,822 797 3,537 1,579
Service contracts....................... 606 --- 869 ---
------- ------- ------- -------
12,505 4,645 22,644 8,159
Costs and expenses:
Sales and marketing..................... 1,946 996 3,724 1,779
Operating............................... 3,813 1,591 6,804 3,025
Provision for credit losses............. 998 399 1,812 683
Provision for service contract claims .. 235 --- 432 ---
Interest................................ 1,200 296 2,417 465
------- ------- ------- -------
8,192 3,282 15,189 5,952
------- ------- ------- -------
Income before income taxes............... 4,313 1,363 7,455 2,207
Income taxes............................. 1,451 327 2,549 536
------- ------- ------- -------
Net income............................... $ 2,862 $ 1,036 $ 4,906 $ 1,671
======= ======= ======= =======
Net income per share..................... $.12 $.06 $.22 $.10
======= ======= ======= =======
Weighted average number of shares
outstanding............................. 23,765 17,255 22,298 17,242
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
Page 4
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JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- -------- -----
<S> <C> <C> <C> <C>
Balance at December 31, 1995.......... $ 205 $47,461 $ 914 $48,580
Issuance of 3,350,000 shares of
common stock, net of costs........... 34 40,757 --- 40,791
Issuance of 33,476 shares of
common stock upon exercise of
stock options........................ --- 125 --- 125
Net income............................ --- --- 4,906 4,906
------- ------- -------- -------
Balance at June 30, 1996.............. $ 239 $88,343 $ 5,820 $94,402
======= ======= ======== =======
</TABLE>
See notes to consolidated financial statements.
Page 5
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JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income..................................................................... $ 4,906 $ 1,671
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization................................................. 989 335
Provision for credit losses................................................... 1,812 683
Provision for service contract claims......................................... 432 --
Deferred income taxes......................................................... 2,088 (913)
Changes in operating assets and liabilities:
Other assets................................................................. 423 (468)
Accounts payable and accrued liabilities..................................... (735) 3,307
Income taxes payable......................................................... (1,675) --
Deferred dealer fees, net.................................................... 24 434
-------- ---------
Net cash provided by operating activities....................................... 8,264 5,049
Cash flows from investing activities:
Payments to dealers............................................................ (98,516) (33,315)
Collections of principal on installment contracts receivable................... 33,932 12,314
Capital expenditures........................................................... (3,114) (2,069)
-------- ---------
Net cash used in investing activities........................................... (67,698) (23,070)
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit facility................... (1,609) 11,937
Net proceeds from the issuance of secured notes payable........................ 20,348 --
Proceeds from sales of common stock, net....................................... 40,916 12
-------- ---------
Net cash provided by financing activities....................................... 59,655 11,949
-------- ---------
Net increase (decrease) in cash and cash equivalents............................ 221 (6,072)
Cash and cash equivalents at the beginning of the period........................ 120 6,124
-------- ---------
Cash and cash equivalents at the end of period.................................. $ 341 $ 52
======== =========
Supplemental disclosure of cash flow information:
Cash paid for interest......................................................... $ 1,905 $ 472
======== =========
Cash paid for income taxes..................................................... $ 1,950 $ 1,450
======== =========
</TABLE>
See notes to consolidated financial statements.
Page 6
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JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
Jayhawk Acceptance Corporation and subsidiaries (the "Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for fair presentation have
been included. All significant intercompany transactions and balances have been
eliminated in the accompanying consolidated financial statements as of and for
the three and six month periods ended June 30, 1996. There were no intercompany
transactions or balances requiring elimination as of December 31, 1995 and for
the three and six month periods ended June 30, 1995. Operating results for the
three and six month periods ended June 30, 1996 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1996. For
further information, refer to the financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1995, filed with the Securities and Exchange Commission on March 27, 1996.
NOTE 2 - NET INCOME PER SHARE
The weighted average number of common and common equivalent shares
outstanding for the purposes of computing net income per share were 23,765,234
and 17,255,257 for the three months ended June 30, 1996 and 1995, and 22,297,668
and 17,241,920 for the six months ended June 30, 1996 and 1995, respectively.
Incremental shares resulting from the issuance of convertible preferred stock
and stock options issued prior to the Company's initial public offering have
been included in the weighted average shares outstanding for 1995.
NOTE 3 - SECURITIZATION
On August 7, 1996, the Company completed a securitization
transaction. Pursuant to this transaction, the Company contributed installment
sales contracts ("Contracts" or "Installment Contracts") having an aggregate
principal balance of approximately $73 million and approximately $4.4 million in
cash (which generally represents the collections on such Contracts between June
23, 1996 and the closing of the securitization transaction) to a business trust
wholly-owned by the Company (the "Trust"), and the Trust sold approximately
$47.9 million aggregate principal amount of notes (the "Notes") in a private
placement to institutional investors. The Notes bear interest at a weighted
average rate of approximately 7.5% per annum and have a stated maturity of March
15, 2000. As a result of the structure of the transaction, the Company did not
recognize any gain upon contributing the Contracts to the Trust, and the
Contracts and the Notes will be reflected in the Company's consolidated balance
sheet.
Page 7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
Total Revenue. Total revenue increased from $4,645,000 for the three
months ended June 30, 1995 to $12,505,000 for the same period in 1996, an
increase of $7,860,000 or 169%. The increase was primarily due to increased
finance charges resulting from the increased number of installment sales
contracts ("Contracts" or "Installment Contracts") held in the Company's
portfolio, and, to a lesser extent, a $1,013 (21%) increase in the average
Contract size. Finance charges increased from $3,848,000 for the three months
ended June 30, 1995 to $10,077,000 for the same period in 1996, an increase of
$6,229,000 or 162%. The Company purchased 18,139 Installment Contracts during
the three months ended June 30, 1996, an increase of 84% over the same period in
1995, and the Company's installment contracts receivable balance increased from
$78,447,000 as of June 30, 1995 to $283,566,000 as of June 30, 1996, an increase
of $205,119,000 or 261%. Dealer fees also contributed to the increase in total
revenue. Dealer fees increased by $1,025,000 for the three months ended June 30,
1996 over the same period in 1995 or 129%. The number of dealers enrolled in the
Company's program increased from 1,209 as of June 30, 1995 to 2,706 as of June
30, 1996, an increase of 1,497 dealers or 124%. The average annualized yield on
the Company's portfolio decreased from 24% to 16% for the three months ended
June 30, 1995 and June 30, 1996, respectively. The decrease in the average
annualized yield is primarily attributable to the longer average original term
of Contracts included in the Company's portfolio in the second quarter of 1996,
when compared with the second quarter of 1995, and to a lesser extent, the
higher percentage of non-accrual contracts as a percentage of the total number
of Contracts included within the Company's portfolio as of the second quarter of
1996 when compared with the second quarter of 1995. Non-accrual contracts as a
percentage of the total number of Contracts in the Company's portfolio increased
from 18% at June 30, 1995 to 24% at June 30, 1996. This increase was due in part
to an increase in the average age of the Contracts included within the portfolio
between the respective periods. See "--Credit Loss Policy." Service contract
revenue was $606,000 for the three months ended June 30, 1996. The Company
recognized no service contract revenue during the three months ended June 30,
1995, as the Company did not offer the service contract program to its dealers
at that time.
Sales and Marketing. Sales and marketing expenses increased from
$996,000 for the three months ended June 30, 1995 to $1,946,000 for the same
period in 1996, but decreased as a percentage of total revenue from 21% for the
second quarter of 1995 to 16% for the second quarter of 1996. The dollar
increase in sales and marketing expenses is primarily a result of the continued
effort by the Company to expand the number of dealers participating in the
Company's program. The decrease in sales and marketing expenses as a percentage
of total revenue was primarily the result of economies of scale associated with
increased total revenue.
Operating Expenses. Operating expenses increased from $1,591,000 for
the three months ended June 30, 1995 to $3,813,000 for the same period in 1996,
an increase of $2,222,000 or 140 %, but decreased as a percentage of total
revenue from 34% for the second quarter of 1995 to 30% for the second quarter of
1996. The dollar increase in operating expenses is primarily a result of the
overall expansion in the Company's operations. The decrease in operating
expenses as a percentage of total revenue was primarily the result of economies
of scale associated with increased total revenue.
Provision for Credit Losses. The amount provided for credit losses
increased from $399,000 for the three months ended June 30, 1995 to $998,000 for
the same period in 1996, but decreased from 9% to 8% as a percentage of total
revenue. See "--Credit Loss Policy."
Provision for Service Contract Claims. The Company provided $235,000
for service contract claims for the three months ended June 30, 1996. No amount
was provided for the three months ended June 30, 1995, as the Company did not
offer the service contract program at that time.
Interest Expense. Interest expense increased from $296,000 during
the second quarter of 1995 to $1,200,000 during the same period in 1996. The
increase was due to higher average borrowings used to fund operations and the
purchase of Contracts. The Company anticipates that interest expense will
increase to the extent borrowings are used to fund growth of the Company.
Page 8
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Income Taxes. The Company's effective income tax rate was 34% for
the three-month period ended June 30, 1996, as compared with an effective income
tax rate of 24% for the same period in 1995. The lesser rate utilized in 1995
relates to a reduction in the Company's deferred tax asset valuation allowance
in 1995 to reflect the estimated realizability of the Company's deferred tax
assets.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Total Revenue. Total revenue increased from $8,159,000 for the six
months ended June 30, 1995 to $22,644,000 for the same period in 1996, an
increase of $14,485,000 or 178%. The increase was primarily due to increased
finance charges resulting from the increased number of Installment Contracts
held in the Company's portfolio. Finance charges increased from $6,580,000 for
the six months ended June 30, 1995 to $18,238,000 for the same period in 1996,
an increase of $11,658,000 or 177%. The Company purchased 38,197 Installment
Contracts during the six months ended June 30, 1996, an increase of 140% over
the same period in 1995. The Company's installment contracts receivable
increased from $78,447,000 as of June 30, 1995, to $283,566,000, as of June 30,
1996, an increase of $205,119,000 or 261%. Dealer fees also contributed to the
increase in total revenue. Dealer fees increased by $1,958,000 for the six
months ended June 30, 1996 over the same period in 1995 or 124%. Service
contract revenue was $869,000 for the six months ended June 30, 1996. The
Company recognized no service contract revenue during the six months ended June
30, 1995, as the Company did not offer the service contract program to its
dealers at that time.
SALES AND MARKETING. Sales and marketing expenses increased from
$1,779,000 for the six months ended June 30, 1995 to $3,724,000 for the same
period in 1996, but decreased as a percentage of total revenue from 22% for the
first six months of 1995 to 16% for the first six months of 1996. The dollar
increase in sales and marketing expenses is primarily a result of the continued
effort by the Company to expand the number of dealers participating in the
Company's program. The decrease in sales and marketing expenses as a percentage
of total revenue was primarily the result of economies of scale associated with
increased total revenue.
OPERATING EXPENSES. Operating expenses increased from $3,025,000 for
the six months ended June 30, 1995 to $6,804,000 for the same period in 1996, an
increase of $3,779,000 or 125%, but decreased as a percentage of total revenue
from 37% for the first six months of 1995 to 30% for the first six months of
1996. The dollar increase in operating expenses is primarily a result of the
overall expansion in the Company's operations. The decrease in operating
expenses as a percentage of total revenue was primarily the result of economies
of scale associated with increased total revenue.
PROVISION FOR CREDIT LOSSES. The amount provided for credit losses
increased from $683,000 for the six months ended June 30, 1995 to $1,812,000 for
the same period in 1996, but remained constant as a percentage of total revenue
at 8%. See "Credit Loss Policy."
PROVISION FOR SERVICE CONTRACT CLAIMS. The Company provided $432,000
for service contract claims for the six months ended June 30, 1996. No amount
was provided for the six months ended June 30, 1995, as the Company did not
offer the service contract program at that time.
INTEREST EXPENSE. Interest expense increased from $465,000 during
the first six months of 1995 to $2,417,000 during the same period in 1996. The
increase was due to a higher average interest rate on borrowings and higher
average borrowings used to fund operations and the purchase of Contracts.
INCOME TAXES. The Company's effective income tax rate was 34% for
the six month period ended June 30, 1996, as compared with an effective income
tax rate of 24% for the same period in 1995. The lesser rate utilized in 1995
relates to a reduction in the Company's deferred tax asset valuation allowance
in 1995 to reflect the estimated realizability of the Company's deferred tax
assets.
Page 9
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INSTALLMENT CONTRACTS RECEIVABLE
Installment contracts receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------- ------------
<S> <C> <C>
Gross installment contracts receivable.... $335,877 $198,397
Unearned finance charges.................. (52,311) (30,906)
-------- --------
Installment contracts receivable.......... $283,566 $167,491
======== ========
</TABLE>
Changes in gross installment contracts receivable are as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- -------------------
1996 1995 1996 1995
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance, beginning of period....................................... $273,751 $ 56,654 $198,397 $ 41,106
Gross amount of installment contracts accepted..................... 105,417 46,364 214,005 69,988
Cash collections on installment contracts receivable............... (30,824) (10,674) (56,004) (18,692)
Charge offs........................................................ (12,467) (209) (20,521) (267)
-------- -------- -------- --------
Balance, end of period............................................. $335,877 $ 92,135 $335,877 $ 92,135
======== ======== ======== ========
</TABLE>
The increase in charge-offs between the three and six months ended June 30, 1996
and the three and six months ended June 30, 1995, respectively, is primarily
attributable to the increase in the average age of such Contracts, the growth in
gross installment contracts receivable and the Company's charge-off policy. See
"-- Credit Loss Policy."
DEALER HOLDBACKS
Dealer holdbacks, net, consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
--------- -------------
<S> <C> <C>
Dealer holdbacks.............. $ 268,698 $158,746
Less: Acquisition payments... (135,315) (76,373)
--------- --------
Dealer holdbacks, net......... $ 133,383 $ 82,373
========= ========
</TABLE>
CREDIT LOSS POLICY
The Company regularly reviews its installment contracts receivable
portfolio to determine the adequacy of its allowance for credit losses. Amounts
provided for credit losses include the provision for credit losses, as well as
an amount recorded upon the purchase of Installment Contracts.
The level of related dealer holdbacks and the possible impact of
economic conditions on the creditworthiness of obligors are given major
consideration in determining the adequacy of the allowance. Credit loss
experience, changes in the character, size and age of the installment contracts
receivable portfolio and management's judgment are other factors used in
assessing the overall adequacy of the allowance and the resulting provision for
credit losses. Ultimate losses may vary from current estimates and the amount of
the provision, which is a current expense, may be either greater or less than
actual charge-offs.
Page 10
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The Company's non-accrual contracts as a percentage of the total
number of Contracts included within the Company's portfolio were 24% and 18% as
of June 30, 1996 and June 30, 1995, respectively. The Company believes that this
increase in non-accrual contracts as a percentage of the total number of
Contracts included within the Company's portfolio was due primarily to an
increase in the average age of the Contracts included within its portfolio.
Because the Company specifically targets used vehicle buyers who do not qualify
for traditional financing, these non-accrual percentages are considered by the
Company to be reasonable. The Company anticipates that as the average age of the
Contracts included within its portfolio increases, the Company's non-accrual
contracts as a percentage of the total number of Contracts included within the
Company's portfolio will increase.
The following table sets forth certain information regarding charge-offs and the
provision for credit losses (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- --------------------
1996 1995 1996 1995
------- ------- ------ --------
<S> <C> <C> <C> <C>
Gross installment contracts receivable charged off................... $12,467 $ 209 $20,521 $ 267
Charged against dealer holdbacks.................................... 9,974 167 16,417 214
Charged against unearned finance charges............................ 1,887 18 3,093 21
Charged against allowance for credit losses......................... 606 24 1,011 32
Provision for credit losses.......................................... 998 399 1,812 683
</TABLE>
Revenue on installment contracts receivable is recognized under the
interest method of accounting until the underlying obligation is 120 days
contractually past due or the collateral securing the Contract is repossessed,
whichever occurs first. At such time, the Company suspends the accrual of
revenue.
Principal balances on which no material payment has been received
for a significant period of time (in no event greater than one year) are
charged-off against the related dealer holdback and, if insufficient, the
allowance for credit losses. Because any remaining outstanding Installment
Contracts in the applicable dealer pool are available to recover acquisition
payments paid upon the Company's purchase of Contracts included within such pool
and as the acquisition payment generally approximates 50% of the principal
amount of the Contract, the risk of loss to the Company is mitigated.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal need for capital is to fund acquisition
payments to dealers upon its purchase of Installment Contracts. The Company's
cash needs resulting from acquisition payments and the payment of dealer
holdbacks to dealers increased from approximately $33.3 million for the six
months ended June 30, 1995 to approximately $98.5 million for the six months
ended June 30, 1996.
The Company maintains a revolving credit facility, under which it
may borrow up to $65 million, based on defined levels of qualified installment
contracts receivable. Borrowings under the Company's revolving credit facility
were approximately $32.4 million as of December 31, 1995 and approximately $30.8
million as of June 30, 1996. As of August 9, 1996, and after applying
approximately $29.9 million of the proceeds from the Company's securitization
transaction completed on August 7, 1996, to repay borrowings under the Company's
revolving credit facility (see discussion below), borrowings under the facility
were approximately $15.8 million, and the Company had approximately $16.9
million of availability under the facility.
To the extent the Company's acquisition payment to a dealer upon
purchase of a Contract continues to exceed the incremental amount of borrowings
available under the Company's revolving credit facility with respect to such
Contract, additional capital will be required to fund the Company's rapid
growth. Such additional capital may be generated by either additional debt or
equity financing. The Company believes that cash flow from operations,
borrowings under the Company's revolving credit facility and the proceeds from
an anticipated third securitization transaction will be adequate to fund the
Page 11
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Company's operations through the end of the Company's current fiscal year at its
current rate of growth. Additionally, the Company is currently negotiating with
its existing and other lenders regarding a credit facility which would provide
the Company with significantly increased borrowing capacity. However, there can
be no assurance as to if or when the Company will enter into a new credit
facility, nor can there be any assurance as to the terms of any such facility or
when the Company will be required to seek additional capital to fund its
operations.
The Company leases approximately 35,718 square feet for its
corporate headquarters in Dallas, Texas. The lease provides for monthly rent of
approximately $41,788 and expires in November 1996, although, the Company has a
non-binding commitment from the lessor for a six-month extension for a portion
of its existing space. The Company is currently investigating its options as to
current and future space requirements, which may include an extension of the
lease for a portion of its offices, or moving all or part of its corporate
offices. Management believes that alternative space will be available on
reasonable terms and that any relocation of its corporate offices will not have
a material effect on the Company's operations.
STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, the matters
discussed in Management's Discussion and Analysis, including the matters
relating to the anticipated need for and availability of financing, are forward
looking statements that are dependent upon a number of risks and uncertainties
that could cause actual results to differ materially from those in the forward
looking statements. These risks and uncertainties include the Company's actual
rate of growth, delinquency and default rates with respect to the Contracts
included in the Company's portfolio, the impact of competitive services and
products, changes in market conditions, the impact of changes in regulation or
litigation, the management of growth and the other risk factors identified in
the Company's S.E.C. filings, including under the caption "Risk Factors" in its
most recent registration statement on Form S-1. The Company does not intend to
provide updated information about the matters referred to in these forward
looking statements, other than in the context of management's discussion and
analysis in the Company's quarterly and annual reports on Form 10-Q and 10-K.
SEASONALITY
The Company's operations are affected by higher delinquency rates
during certain holiday periods, as well as higher sales of used vehicles during
the annual period at the beginning of the calendar year when many persons are
receiving state and federal tax refunds.
SECURITIZATION
On August 7, 1996, the Company completed its second securitization
transaction. Pursuant to this transaction, the Company contributed Contracts
having an aggregate principal balance of approximately $72.7 million and
approximately $4.4 million in cash (which generally represents the amount of
principal and interest collected on such Contracts between June 23, 1996 and the
closing of the securitization transaction) to a business trust wholly-owned by
the Company (the "Trust"), and the Trust sold approximately $47.9 million
principal amount of notes (the "Notes") to an institutional investor. The Notes,
which are comprised of approximately $42.9 million of Class A Notes which bear
interest at a fixed rate of 6.64% and $5.0 million of Class B Notes which bear
interest at a fixed rate of 11.57%, have a stated maturity of March 15, 2000,
and are secured by the installment sale contracts contributed to the Trust, all
amounts in the Pre-Funding Account (as defined below) and approximately $1.6
million of additional cash deposits. The Class A Notes were rated "Aaa" by
Moody's Investors Service, Inc., "AAA" by Standard & Poor's Ratings Group and
"AAA" by Fitch Investors Service, L.P. ("Fitch"), and the Class B Notes were
rated "BB" by Fitch. MBIA Insurance Corporation (the "Note Insurer") issued a
note insurance policy for the benefit of the Class A Noteholders. As a result of
the structure of the transaction, the Company did not recognize any gain upon
contributing the Contracts to the Trust and the Contracts will be reflected in
the Company's consolidated balance sheet. The net proceeds from the sale of the
Notes were used to repay indebtedness under the Company's revolving credit
facility.
Approximately $12.0 million of the proceeds from the sale of the
Notes were deposited in an account (the "Pre-Funding Account") securing the
Notes and, subject to certain conditions, will be released to the Company as up
to approximately $24.2 million in additional Contracts meeting specified
eligibility requirements are contributed to the Trust
Page 12
<PAGE>
and pledged to secure the Notes. Any portion of the Pre-Funding Account not
released to the Company on or before October 31, 1996 will be used to prepay the
Notes.
The Company acts as servicer of the Contracts contributed to the
Trust (the "Contributed Contracts") and is responsible for servicing, managing
and making collections on the Contributed Contracts. As long as the Company acts
as servicer, the Company is entitled to a monthly servicing fee generally equal
to one-twelfth of the product of 3% times the aggregate principal amount of the
Contributed Contracts (other than certain non-performing Contracts) outstanding
from time to time. Subject to certain limitations, including certain limitations
on the modification or amendment of Contributed Contracts, the Company, in its
capacity as servicer, is generally required to service and administer the
Contributed Contracts in the manner customarily employed by it in servicing and
administering its own Contracts. In the event the Company fails to comply with
certain covenants, it can be terminated as servicer.
Generally, all amounts collected by the Company on the Contributed
Contracts will be deposited into an account securing the Notes. Substantially,
all of these collections will be applied to the payment of certain fees and
expenses, such as fees and expenses of the Note trustee, the servicer and the
Note Insurer, and to pay principal and interest on the Notes. Consequently, the
Company believes that it is likely that the Notes will be repaid in full prior
to their stated maturity, although no assurances can be given to such effect.
The Company made certain representations and warranties in
connection with its contribution of Contracts to the Trust. If the interest of
the holders of the Notes or the Note Insurer is materially adversely affected by
a breach of any such representation or warranty with respect to a Contract, then
the Company will be obligated to purchase such Contract from the Trust.
Similarly, upon the breach by the Company, in its capacity as servicer, of
certain covenants regarding the maintenance of liens on the vehicles securing
the Contracts or the protection of the Noteholder's and Note Insurer's interests
in the Contracts, then the Company will be obligated to purchase the Contracts
affected by such breach from the Trust. Additionally, in the event of the breach
of certain representations, warranties and covenants, the Note Insurer, and in
certain cases, the Trustee or the holders of the Notes, can declare an event of
default and accelerate the Notes.
Page 13
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Company held its Annual Meeting of Shareholders on May 16,
1996, at which the shareholders considered and voted on the election of ten
directors and the approval of the Company's Amended and Restated 1994 Stock
Option and Restricted Stock Plan and certain amendments thereto.
1. Each of the nominees for director at the meeting was an
incumbent and all nominees were elected. The following tables sets forth the
number of shares voted for and withheld with respect to each nominee.
NOMINEE VOTES FOR VOTES WITHHELD
------- --------- -------------
Michael I. Smartt 17,720,978 3,021
Richard B. Hoffmann 17,721,928 2,071
Dan W. Cook, III 17,721,928 2,071
John D. Curtis 17,720,978 3,021
C. Gregory Earls 17,721,928 2,071
Regina T. Montoya 17,720,678 3,321
Joe J. Pollard, III 17,721,178 2,821
Jack T. Smith 17,721,528 2,471
John C. Tolleson 17,721,928 2,071
Carl H. Westcott 17,721,928 2,071
2. The Company's Amended and Restated 1994 Stock Option and
Restricted Stock Plan and certain amendments thereto were approved. The results
of the voting were as follows:
FOR AGAINST ABSTAIN BROKER NON VOTES
--- ------- ------- ----------------
17,534,548 181,551 1,900 6,000
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits:
Exhibit Number Description
-------------- -----------
4.1 Indenture dated August 7, 1996, between
Jayhawk Funding Trust I, as Issuer,
and Norwest Bank Minnesota, N.A.,
as Trustee
4.2 Series 1996B Supplement dated August 7,
1996, between Jayhawk Funding Trust I, as
Issuer, and Norwest Bank Minnesota, N.A.,
as Trustee
10.1 Contribution and Servicing Agreement dated
August 7, 1996, between the Registrant,
individually and as Servicer, Jayhawk
Funding Trust I, as Issuer, and Norwest
Bank Minnesota, N.A., as Trustee and
Backup Servicer
11 Statement re Computation of Per Share
Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K; No reports on Form 8-K were filed during
the quarter ended June 30, 1996.
Page 14
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
JAYHAWK ACCEPTANCE CORPORATION
Date: August 14, 1996 By: /s/ Jerry W. Bayless
--------------------
Jerry W. Bayless
Executive Vice President, Chief Financial
Officer and Treasurer (Principal Financial
and Accounting Officer)
Page 15
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Number Description
-------------- -----------
4.1 Indenture dated August 7, 1996, between Jayhawk
Funding Trust I, as Issuer, and Norwest Bank
Minnesota, N.A., as Trustee
4.2 Series 1996B Supplement dated August 7, 1996,
between Jayhawk Funding Trust I, as Issuer, and
Norwest Bank Minnesota, N.A., as Trustee
10.1 Contribution and Servicing Agreement dated August
7, 1996, between the Registrant, individually and
as Servicer, Jayhawk Funding Trust I, as Issuer,
and Norwest Bank Minnesota, N.A., as Trustee and
Backup Servicer
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
<PAGE>
EXHIBIT 4.1
INDENTURE
between
JAYHAWK FUNDING TRUST I,
Issuer
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
Trustee
Dated as of August 7, 1996
JAYHAWK FUNDING TRUST I
AUTOMOBILE LOAN-BACKED NOTES
(Issuable in Series)
(Senior/Subordinate Notes)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
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<S> <C> <C>
ARTICLE I - DEFINITIONS.................................................... 1
Section 1.01 Definitions...................................... 1
Section 1.02 Rules of Construction............................ 17
ARTICLE II- THE NOTES...................................................... 18
Section 2.01 Form Generally................................... 18
Section 2.02 Notes Issuable in Series and Classes............. 18
Section 2.03 Execution, Authentication, Delivery and Dating... 19
Section 2.04 Temporary Notes.................................. 20
Section 2.05 Registration, Registration of Transfer and
Exchange............................................... 20
Section 2.06 Restrictions on Transfer......................... 22
Section 2.07 Mutilated, Destroyed, Lost or Stolen Notes....... 22
Section 2.08 Payment of Principal and Interest; Principal and
Interest Rights Preserved.............................. 23
Section 2.09 Persons Deemed Owner............................. 25
Section 2.10 Cancellation..................................... 25
Section 2.11 Tax Treatment.................................... 25
Section 2.12 Conditions to Issuance of Notes.................. 25
Section 2.13 Security for Notes............................... 29
Section 2.14 Purchase and Release of Contracts................ 29
Section 2.15 Releases......................................... 30
Section 2.16 Trust Estate..................................... 30
Section 2.17 Book Entry Notes................................. 31
Section 2.18 Termination of Book Entry System................. 31
ARTICLE III - REPRESENTATIONS, WARRANTIES AND COVENANTS...................... 33
Section 3.01 Payment of Notes................................. 33
Section 3.02 Representations and Warranties................... 33
Section 3.03 Covenants........................................ 35
Section 3.04 Other Matters as to the Issuer................... 39
Section 3.05 Payments on Notes; Paying Agent; Money for
Note Payments to Be Held in Trust...................... 40
Section 3.06 Maintenance of Trust Estate...................... 42
Section 3.07 Annual Statement as to Compliance................ 42
ARTICLE IV - SATISFACTION AND DISCHARGE..................................... 43
Section 4.01 Satisfaction and Discharge of Indenture.......... 43
Section 4.02 Application of Trust Money....................... 44
ARTICLE V - DEFAULTS AND REMEDIES.......................................... 45
Section 5.01 Events of Default................................ 45
Section 5.02 Acceleration of Maturity; Rescission and
Annulment.............................................. 46
Section 5.03 Collection of Indebtedness and Suits for
Enforcement by Trustee................................. 47
Section 5.04 Remedies......................................... 48
Section 5.05 Optional Preservation of Trust Estate............ 49
</TABLE>
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<S> <C> <C>
Section 5.06 Trustee May File Proofs of Claim................. 49
Section 5.07 Trustee May Enforce Claims Without
Possession of Notes.................................... 50
Section 5.08 Application of Money Collected................... 50
Section 5.09 Limitation on Suits.............................. 50
Section 5.10 Unconditional Right of Noteholders to Receive
Principal and Interest................................. 51
Section 5.11 Restoration of Rights and Remedies............... 51
Section 5.12 Rights and Remedies Cumulative................... 52
Section 5.13 Delay or Omission; Not Waiver.................... 52
Section 5.14 Control by Noteholders........................... 52
Section 5.15 Waiver of Past Defaults by Less than All
Noteholders............................................ 53
Section 5.16 Undertaking for Costs............................ 53
Section 5.17 Waiver of Stay or Extension Laws................. 53
Section 5.18 Sale of Trust Estate............................. 54
Section 5.19 Action on Notes.................................. 55
Section 5.20 No Recourse to Other Trust Estates or Other
Assets of the Issuer................................... 55
ARTICLE VI - THE TRUSTEE.................................................... 56
Section 6.01 Certain Duties and Responsibilities.............. 56
Section 6.02 Notice of Default................................ 57
Section 6.03 Certain Rights of Trustee........................ 58
Section 6.04 Not Responsible for Recitals or Issuance of Notes 59
Section 6.05 May Hold Notes................................... 59
Section 6.06 Money Held in Trust.............................. 60
Section 6.07 Compensation and Reimbursement................... 60
Section 6.08 Corporate Trustee Required; Eligibility.......... 61
Section 6.09 Resignation and Removal; Appointment of Successor 61
Section 6.10 Acceptance of Appointment by Successor........... 62
Section 6.11 Merger, Conversion, Consolidation or Succession
to Business of Trustee................................. 63
Section 6.12 Co-Trustees and Separate Trustees................ 63
Section 6.13 Rights with Respect to the Servicer and
Backup Servicer........................................ 65
Section 6.14 Appointment of Authenticating Agent.............. 65
ARTICLE VII - NOTEHOLDERS' LISTS AND REPORTS................................. 67
Section 7.01 Issuer to Furnish Trustee Names and Addresses
of Noteholders......................................... 67
Section 7.02 Preservation of Information; Communications to
Noteholders............................................ 67
ARTICLE VIII - ACCOUNTS, PAYMENTS OF INTEREST AND PRINCIPAL, AND
RELEASES................................................................. 68
Section 8.01 Collection of Moneys............................. 68
Section 8.02 Collection Accounts.............................. 68
Section 8.03 Pre-Funding Account.............................. 69
</TABLE>
<PAGE>
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<S> <C> <C>
Section 8.04 Reserve Fund..................................... 70
Section 8.05 Capitalized Interest Account..................... 71
Section 8.06 General Provisions Regarding Pledged Accounts.... 72
Section 8.07 Reports by Trustee to Noteholders................ 74
Section 8.08 Reports by Trustee............................... 75
Section 8.09 Appointment of Independent Accountants........... 75
Section 8.10 Expense Fund..................................... 75
ARTICLE IX - SUPPLEMENTAL INDENTURES.......................................... 77
Section 9.01 Supplemental Indentures without Consent of
Noteholders............................................ 77
Section 9.02 Supplemental Indentures with Consent of
Noteholders............................................ 78
Section 9.03 Execution of Supplemental Indentures............. 79
Section 9.04 Effect of Supplemental Indentures................ 79
Section 9.05 Reference in Notes to Supplemental Indentures.... 80
ARTICLE X - REDEMPTION OF NOTES............................................... 81
Section 10.01 Redemption at the Option of the Issuer; Election
to Redeem................................................. 81
Section 10.02 Notice to Trustee; Deposit of Redemption Price..... 81
Section 10.03 Notice of Redemption by the Trustee................ 81
Section 10.04 Notes Payable on Redemption Date................... 82
ARTICLE XI - PROVISIONS OF GENERAL APPLICATION................................ 83
Section 11.01 Compliance Certificates and Opinions.............. 83
Section 11.02 Form of Documents Delivered to Trustee............ 83
Section 11.03 Acts of Noteholders............................... 84
Section 11.04 Notices, etc., to Trustee, to Note Insurer,
Issuer, Servicer and Seller.............................. 85
Section 11.05 Notices and Reports to Noteholders;
Waiver of Notices........................................ 85
Section 11.06 Effect of Headings and Table of Contents.......... 86
Section 11.07 Successors and Assigns............................ 86
Section 11.08 Separability...................................... 86
Section 11.09 Benefits of Indenture............................. 86
Section 11.10 Legal Holidays.................................... 86
Section 11.11 Governing Law..................................... 87
Section 11.12 Counterparts...................................... 87
Section 11.13 Corporate Obligation.............................. 87
Section 11.14 Note Insurer's Right of Consent................... 87
</TABLE>
<PAGE>
This INDENTURE (this "Indenture"), dated as of August 7, 1996, is by and
between JAYHAWK FUNDING TRUST I, a limited purpose Delaware business trust (the
"Issuer") and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking
association (the "Trustee"), and may be supplemented from time to time with
Series Supplements as described herein.
PRELIMINARY STATEMENT
The Issuer has duly authorized the execution and delivery of this Indenture
to provide for one or more series (a "Series") of its Automobile Loan-Backed
Notes ("Notes"), issuable as provided in this Indenture. Each Series of such
Notes (i) will be issued only under a separate supplement to this Indenture duly
executed and delivered by the Issuer and the Trustee and (ii) must include at
least one Class (as defined below) which will be subject to the coverage of a
Note Insurance Policy (as defined herein) issued by the Note Insurer (as defined
herein). Each Series shall be non-recourse obligations of the Issuer and shall
be limited in right of payment to amounts available from the Trust Estate (as
defined herein) relative thereto as provided in this Indenture and the Issuer
shall not otherwise be liable for payments on the Notes. All covenants and
agreements made by the Issuer and the Trustee herein are for the benefit and
security of the Holders of the Notes and the Note Insurer. The Issuer and the
Trustee are entering into this Indenture, and the Trustee is accepting the
trusts created hereby, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged.
All things necessary to make the Indenture a valid agreement of the Issuer
and the Trustee in accordance with its terms have been done.
ARTICLE I
DEFINITIONS
SECTION 1.01 DEFINITIONS. Except as otherwise expressly provided herein
or the applicable Series Supplement, or unless the context otherwise requires,
the following terms have the respective meanings set forth below for all
purposes hereof, and the definitions of such terms are equally applicable both
to the singular and plural forms of such terms. The meaning of certain defined
terms used herein shall, when applied to the Notes of a particular Series, be as
defined in this Section 1.01 but with such additional provisions as are
specified in the related Series Supplement.
Accounting Date: The last day of a Monthly Period.
---------------
Act: With respect to any Noteholder, the meaning specified in Section
---
11.03.
Affiliate: 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
<PAGE>
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
Aggregate Contract Principal Balance: With respect to a Series, and the
------------------------------------
related Closing Date, the sum of the Cutoff Principal Balances; with respect to
any Determination Date, the sum of the Principal Balances (computed as of the
Accounting Date preceding such Determination Date) of all related Series
Contracts.
Aggregate Note Balance: With respect to a Series, the sum of the Note
----------------------
Balances for all Notes Outstanding in such Series as of the date of
determination.
Amendment to Contract Schedule: With respect to any Series Contract
------------------------------
Schedule, the list of Contracts amending such Series Contract Schedule attached
to a Subsequent Transfer Agreement to reflect the Grant of Subsequent Contracts
pursuant to such Subsequent Transfer Agreement.
Amount Financed: With respect to a Contract, the aggregate amount advanced
---------------
under such Contract toward the purchase price of the related Financed Vehicle
and related costs, including amounts advanced in respect of accessories,
insurance premiums, service and warranty contracts, other items customarily
financed as part of retail motor vehicle installment sales contracts or
promissory notes, and related costs.
APR: The annual percentage rate (as such term is used with respect to the
---
federal Truth-in-Lending Act) of interest borne by, and indicated on, a
Contract.
Assignment: With respect to a Contract (i) the original instrument of
----------
assignment of such Contract and all other documents securing such Contract made
by the Person originating such Contract to JAC and (ii) the original instrument
of assignment of such Contract made by JAC to the Issuer pursuant to the related
Contribution and Servicing Agreement, which, in each case, is in a form
sufficient under the laws of the jurisdiction in which the related Financed
Vehicle is located to permit the assignee to exercise all rights granted by the
Obligor under such Contract and such other documents and all rights available
under applicable law to the obligee under such Contract and which, in each case,
may, to the extent permitted by the laws of the State in which the related
Financed Vehicle is located, be a blanket instrument of assignment covering
other Contracts as well.
Authenticating Agent: With respect to a Series, the Person, if any, named
--------------------
as Authenticating Agent for such Series in the related Series Supplement or
appointed by the Trustee at the request of the Issuer pursuant to Section 6.14,
until any successor Authenticating Agent for such Series is named, and
thereafter "Authenticating Agent" shall mean such successor.
Backup Servicer: With respect to a Series for which there will be a backup
---------------
servicer under the related Contribution and Servicing Agreement, the Person
acting as "Backup Servicer" under such Contribution and Servicing Agreement.
-2-
<PAGE>
Backup Servicer Fee: With respect to a Series for which there will be a
-------------------
Backup Servicer, the amount payable to such Backup Servicer as the Backup
Servicer Fee on each Payment Date for such Series as specified in the related
Series Supplement.
Beneficial Owner: With respect to a Book Entry Note, the Person who is the
----------------
beneficial owner of such 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).
Board of Directors: The board of directors of JAC or the Servicer, as the
------------------
context requires, or any duly authorized committee of such board.
Board of Trustees: The board of trustees of the Issuer, or any duly
-----------------
authorized committee of such board.
Board Resolution: A copy of a resolution certified by the Secretary or an
----------------
Assistant Secretary of the Issuer, JAC, or the Servicer, as the context
requires, to have been duly adopted by its Board of Directors or Board of
Trustees, as applicable, and to be in full force and effect on the date of such
certification and delivered to the Trustee.
Book Entry Notes: As specified in the related Series Supplement, the Notes
----------------
of any Class of a Series, if any, which are issued in book entry form and held
in the form of one or more certificates issued in the name of a Clearing Agency
registered with the Commission.
Business Day: Any day other than a Saturday, a Sunday or a day on which
------------
banking institutions in New York City, the cities in which the principal place
of business of the Issuer, or the Corporate Trust Office of the Trustee
hereunder, are located, are authorized or obligated by law or executive order to
close.
Capitalized Interest Account: With respect to a Series, the trust account,
----------------------------
if any, created and maintained pursuant to Section 8.05.
Capitalized Interest Account Deposit: With respect to a Series, the amount,
------------------------------------
if any, required to be deposited into the Capitalized Interest Account on the
Closing Date, as specified in the Series Supplement.
Class: With respect to a Series, each subdivision of the Notes of such
-----
Series created pursuant to the related Series Supplement, such subdivisions
having the characteristics and designations set forth in such Series Supplement.
Class Note Balance: With respect to a Class of a Series, the sum of the
------------------
Note Balances for all Notes Outstanding in such Class, as of the date of
determination.
Clearing Agency: An organization registered as a "clearing agency"
---------------
pursuant to Section 17A of the Securities and Exchange Act of 1934, as amended,
and the regulations of the Commission
-3-
<PAGE>
thereunder. The Clearing Agency for any Book Entry Notes of a Series will be
specified in the related Series Supplement.
Clearing Agency Agreement: With respect to a Series which includes a Class
-------------------------
of Book Entry Notes, the letter agreement between the Issuer, the Trustee and
the Clearing Agency governing book entry transfers of, and certain other matters
with respect to, such Book Entry Notes and attached as an exhibit to the related
Series Supplement.
Clearing Agency Participants: The entities for whom the Clearing Agency
----------------------------
will maintain book entry records of ownership and transfer of Book Entry Notes,
which may include securities brokers and dealers, banks and trust companies and
clearing corporations and certain other organizations.
Closing Date: With respect to a Series, as defined in the related Series
------------
Supplement.
Code: The Internal Revenue Code of 1986, as amended.
----
Collected Funds: Except as otherwise defined in the related Series
---------------
Supplement, with respect to any Series and a Determination Date the amount of
all interest collections, principal collections, Recoveries, and all other
collections with respect to the related Series Contracts which in each case have
been deposited in the related Collection Account during the related Monthly
Period.
Collection Account: With respect to a Series, the trust account created and
------------------
maintained pursuant to Section 8.02.
Collection Account Deposit: With respect to a Series, as defined in the
--------------------------
related Contribution and Servicing Agreement.
Commission: The Securities and Exchange Commission.
----------
Contract: A motor vehicle retail installment sale contract or note and
--------
security agreement, which, with respect to a Series, is identified on either the
related Series Contract Schedule delivered to the Trustee and the Note Insurer
on the related Closing Date or on an Amendment to Contract Schedule delivered to
the Trustee and the Note Insurer on the date on which Subsequent Contracts are
delivered to the Trustee; provided that, except as otherwise provided herein,
from and after the date on which a Contract is purchased by JAC or the Servicer
in accordance with the related Contribution and Servicing Agreement, or is
released from the related Trust Estate pursuant to Section 2.14(b), such
Contract shall no longer constitute a Series Contract for purposes of the
Transaction Documents relating to such Series.
Contract File: With respect to a Contract, (i) the sole original of such
-------------
Contract; (ii) the Assignment of such Contract made by the Dealer originating
such Contract to JAC; (iii) the original Title Document or a copy of the UCC
financing statement evidencing that the security interest granted under such
Contract has been perfected under applicable state law (except for any Title
Document or UCC financing statement not returned from the applicable public
records office, in
-4-
<PAGE>
which case JAC will be required to deliver an Officer's Certificate of JAC, as
specified in the related Contribution and Servicing Agreement); and (iv) the
original of any assumption agreement or any modification, extension or
refinancing agreement.
Contribution and Servicing Agreement: With respect to a Series, as defined
------------------------------------
in the related Series Supplement.
Controlling Party: With respect to a Series, as defined in the related
-----------------
Contribution and Servicing Agreement.
Corporate Trust Office: The corporate trust office of the Trustee, located
----------------------
at Norwest Center, 6th & Marquette, Minneapolis, Minnesota 55479-0070, or at
such other address as the Trustee may designate from time to time by notice to
the Note Insurer, the Noteholders and the Issuer, or the principal corporate
trust office of any successor Trustee.
Cram Down Loss: With respect to a Contract, if a court of appropriate
--------------
jurisdiction in an insolvency proceeding has issued an order reducing the amount
owed on a Contract or otherwise modifying or restructuring the scheduled
payments to be made on a Contract, an amount equal to the excess of the
Principal Balance of such Contract immediately prior to such order over the
Principal Balance of such Contract as so reduced or the net present value (using
as the discount rate the higher of the APR 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 will be deemed to have occurred on the date
of issuance of such order.
Custodian: With respect to a Series, the Person acting as "Custodian"
---------
under the related Custodian Agreement.
Custodian Agreement: With respect to a Series, as defined in the related
-------------------
Series Supplement.
Custodian Fee: With respect to a Series, the amount payable to the related
-------------
Custodian as the Custodian Fee on each Payment Date for such Series as specified
in the related Series Supplement.
Cutoff Principal Balance: The Principal Balance with respect to each
-------------------------
Initial Contract at the close of business on the day immediately preceding the
related Initial Cutoff Date.
Declaration of Trust: The Declaration of Trust of Jayhawk Funding Trust I,
--------------------
dated as of March 14, 1996, as amended pursuant to Amendment No. 1, dated as of
July 19, 1996 and as amended from time to time as provided therein.
Default: Any occurrence or circumstance which with notice or the lapse of
-------
time or both would become an Event of Default.
Defaulted Contract: With respect to a Series, as defined in the related
------------------
Contribution and Servicing Agreement.
-5-
<PAGE>
Definitive Notes: Notes, other than Book Entry Notes, in definitive, fully
----------------
registered form.
Delinquent Contract: With respect to a Series, as defined in the related
-------------------
Contribution and Servicing Agreement.
Determination Date: For each Series, unless otherwise specified in the
------------------
related Series Supplement, with respect to (i) any Payment Date for such Series,
the tenth (10th) calendar day of the month of such Payment Date and (ii) any
Monthly Period for such Series, the tenth (10th) calendar day of the immediately
following month, or, in either case, the next following Business Day if such
tenth (10th) calendar day is not a Business Day.
Due Date: With respect to a Contract, each date on which a Scheduled
--------
Payment is due thereunder.
Eligible Investments: Any and all of the following:
--------------------
(i) direct obligations of, and obligations fully guaranteed by, the
United States of America, the Federal Home Loan Mortgage Corporation, the
Federal National Mortgage Association, the Federal Home Loan Banks or any
agency or instrumentality of the United States of America the obligations
of which are backed by the full faith and credit of the United States of
America;
(ii) demand and time deposits in, certificates of deposit of,
banker's acceptances issued by or federal funds sold by any depository
institution or trust company (including the Trustee or its agent acting in
their respective commercial capacities) incorporated under the laws of the
United States of America or any State thereof and subject to supervision
and examination by federal and/or state authorities, so long as at the time
of such investment or contractual commitment providing for such investment,
such depository institution or trust company or its ultimate parent has a
short term unsecured debt rating in one of the two highest available rating
categories of S&P and the highest available rating category of Moody's and
provided that each such investment has an original maturity of no more than
365 days, and any other demand or time deposit or deposit which is fully
insured by the Federal Deposit Insurance Corporation;
(iii) repurchase obligations with a term not to exceed 30 days with
respect to any security described in clause (i) above and entered into with
a depository institution or trust company (acting as a principal) rated "A"
or higher by S&P and rated "A2" or higher by Moody's; provided, however,
that collateral transferred pursuant to such repurchase obligation must be
of the type described in clause (i) above and must (A) be valued daily at
current market price plus accrued interest, (B) pursuant to such valuation,
be equal, at all times, to 105% of the cash transferred by the Trustee in
exchange for such collateral and (C) be delivered to the Trustee or, if the
Trustee is supplying the collateral, an agent for the Trustee, in such a
manner as
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<PAGE>
to accomplish perfection of a security interest in the collateral by
possession of certificated securities;
(iv) securities bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States of America or
any State thereof which has a long term unsecured debt rating in the
highest available rating category of each of the Rating Agencies at the
time of such investment;
(v) commercial paper having an original maturity of less than 365
days and issued by an institution having a short term unsecured debt rating
in the highest available rating category of each of the Rating Agencies at
the time of such investment;
(vi) a guaranteed investment contract approved by each of the Rating
Agencies and the Note Insurer and issued by an insurance company or other
corporation having a long term unsecured debt rating in the highest
available rating category of each of the Rating Agencies at the time of
such investment;
(vii) money market funds having ratings in the highest available
rating category of Moody's and one of the two highest available rating
categories of S&P at the time of such investment which invest only in other
Eligible Investments; any such money market funds which provide for demand
withdrawals being conclusively deemed to satisfy any maturity requirement
for Eligible Investments set forth herein; and
(viii) any investment approved in writing by the Note Insurer and
written evidence that any such investment will not result in a downgrading
or withdrawal of the rating by each Rating Agency on the Notes.
The Trustee may purchase from or sell to itself or an Affiliate, as principal or
agent, the Eligible Investments listed above. All Eligible Investments in a
Pledged Account for a Series shall be made in the name of the Trustee for the
benefit of the Noteholders of such Series and the Note Insurer.
Event of Default: The meaning specified in Section 5.01.
----------------
ERISA: The Employee Retirement Income Security Act of 1974, as amended, or
-----
any successor statutes thereof.
Event of Termination: With respect to a Series, as defined in the related
--------------------
Contribution and Servicing Agreement.
Expense Fund: With respect to a Series, the trust account, if any, created
------------
and maintained pursuant to Section 8.10.
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<PAGE>
Final Payment Date: With respect to any Note of a Series, the date on
------------------
which the final principal payment on such Note is made as therein or herein
provided, whether at the Stated Maturity, or by acceleration or redemption.
Financed Vehicle: With respect to a Contract, the automobile or light-duty
----------------
truck securing the indebtedness of the related Obligor under such Contract.
Fitch: Fitch Investors Service, L.P.
-----
Funding Period: With respect to each Series for which a Pre-Funding
--------------
Account is established pursuant to the related Series Supplement, as defined in
such Series Supplement.
GAAP: Generally accepted accounting principles, applied on a consistent
----
basis, as set forth in Opinions of the Accounting Principles Board of the
American Institute of Certified Public Accountants and/or in statements of the
Financial Accounting Standards Board and/or their respective successors and
which are applicable in the circumstances as of the date in question. Accounting
principles are applied on a "consistent basis" when the accounting principles
observed in a current period are comparable in all material respects to those
accounting principles applied in a preceding period.
Grant: To grant, bargain, sell, warrant, alienate, remise, release,
-----
convey, assign, transfer, mortgage, pledge, create and grant a security interest
in and right of set-off against, deposit, set over and confirm. A Grant of the
security interest in Financed Vehicles, Contracts or of any other instrument
shall include all rights, powers and options (but none of the obligations) of
the Granting party thereunder, including, without limitation, the immediate and
continuing right to claim, collect, receive and receipt for payments in respect
of such Contracts, or any other payment due 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 which the
Granting party is or may be entitled to do or receive thereunder or with respect
thereto.
Guaranty Amounts: With respect to a Contract, any and all amounts paid by
----------------
any guarantor with respect to such Contract.
Holder or Noteholder: The person in whose name a Note is registered in the
------ ----------
Note Register.
Indenture: This Indenture, as supplemented by each Series Supplement, in
---------
the form when originally executed and, if from time to time further supplemented
or amended by one or more indentures supplemental hereto or amendments to any
Series Supplement entered into pursuant to the applicable provisions hereof, as
so supplemented or amended. All references in this Indenture designated
"Articles," "Sections," "Subsections" and other subdivisions are to the
designated Articles, Sections, Subsections and other subdivisions hereof as
originally executed, or if amended or supplemented, as so amended and
supplemented, and all references in a Series Supplement to the designated
"Articles," "Sections," "Subsections" and other subdivisions are to the
designated Articles, Sections, Subsections and other subdivisions of such Series
Supplement. The words
-8-
<PAGE>
"herein," "hereof," "hereunder" and other words of similar import when not
related to a specific subdivision hereof, refer to this Indenture as a whole and
not to any particular Article, Section, Subsection or other subdivision hereof
or any Series Supplement.
Independent: When used with respect to any specified Person means such a
-----------
Person, who (1) is in fact independent of the Issuer and JAC, (2) does not have
any direct financial interest or any material indirect financial interest in the
Issuer, JAC, or in any Affiliate of the Issuer or JAC and (3) is not connected
with the Issuer or JAC as an officer, employee, promoter, underwriter, trustee,
partner, director, or person performing similar functions. Whenever it is
herein provided that any Independent Person's opinion or certificate shall be
furnished to the Trustee or the Note Insurer, such Person shall be appointed by
an Issuer Order and approved by the Trustee or the Note Insurer, as applicable,
in the exercise of reasonable care, and such opinion or certificate shall state
that the signer has read this definition and that the signer is Independent
within the meaning hereof.
Independent Accountants: Ernst & Young L.L.P. or any other firm of
-----------------------
independent certified public accountants of recognized national standing
acceptable to the Note Insurer.
Initial Closing Date: The date on which the first Series is executed,
--------------------
authenticated and delivered.
Initial Contracts: With respect to a Series, the Contracts securing such
-----------------
Series as of the related Closing Date, as specified in the related Series
Supplement.
Initial Cutoff Date: With respect to a Series and the related Series
-------------------
Contracts, as specified in the related Series Supplement.
Initial Payment Date: With respect to a Series, as defined in the related
--------------------
Series Supplement.
Insurance Agreement: With respect to a Series, as defined in the related
-------------------
Contribution and Servicing Agreement.
Insurance Policy: With respect to a Contract securing a Series and the
----------------
related Financed Vehicle, as defined in the related Series Supplement.
Insurance Proceeds: With respect to a Financed Vehicle and a related
------------------
Contract securing a Series, as defined in the related Series Supplement.
Issuer: Jayhawk Funding Trust I, and all successors thereto in accordance
------
with the terms hereof.
Issuer Order and Issuer Request: A written order or request signed in the
------------ --------------
name of the Issuer by its Chairman of the Board, President, or a Vice President,
and delivered to the Trustee.
JAC: Jayhawk Acceptance Corporation, in its individual capacity, and all
---
successors thereto.
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<PAGE>
Lien: Any security interest, lien, charge, pledge, preference, equity, or
----
encumbrance of any kind, including tax liens, mechanics' liens and any liens
that attach by operation of law.
Liquidation Proceeds: Cash (exclusive of Insurance Proceeds) received by
--------------------
the related Servicer in connection with the liquidation of Contracts, whether
from the Obligor, through sale, or otherwise and including any Guaranty Amounts
and any and all rebates (including, but not limited to, warranty rebates,
insurance premium rebates, dealer rebates, and sales tax rebates).
Monthly Period: With respect to a Payment Date or a Determination Date, the
--------------
calendar month immediately preceding the month in which such Payment Date or
Determination Date occurs (such calendar month being referred to as the
"related" Monthly Period with respect to such Payment Date or Determination
Date).
Monthly Period Statement: As defined in Section 2.08(e).
------------------------
Moody's: Moody's Investors Service.
-------
New York Agent: With respect to a Series, the agent appointed by the
--------------
Issuer for purposes of receiving surrender of the Notes of such Series prior to
or after the final payment thereof, which agent shall be located in the State of
New York. Unless otherwise specified in Series Supplement with respect to a
Series, the New York Agent with respect to each Series shall be Norwest Trust
Co. of New York, 3 New York Plaza, New York, New York 10004.
Note Balance: With respect to any Note of a Series as of any date of
------------
determination, the principal amount thereof on the Closing Date for such Series
reduced by all payments, if any, made with respect to principal of such Note.
Noteholder or Holder: The Person in whose name a Note is registered in the
---------- ------
Note Register.
Note Insurance Policy: With respect to a Series, the note guaranty
---------------------
insurance policy issued by the Note Insurer insuring one or more Classes of such
Series in accordance with the terms thereof.
Note Insurer: MBIA Insurance Corporation and all successors thereto.
------------
Note Insurer Default: With respect to a Series, the occurrence and
--------------------
continuance of an "Insurer Default" or an "Insurer Insolvency" (as each such
term is defined in the related Insurance Agreement).
Note Insurer Premium: With respect to a Series, the Note Insurer Premium
--------------------
specified in the related Insurance Agreement.
Note Interest Rate: With respect to a Series or Class, the annual rate at
------------------
which interest accrues on the Notes of such Series or Class, as specified in the
related Series Supplement.
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Note Majority: With respect to a Series, Noteholders representing at least
-------------
51% of the Aggregate Note Balance of such Series.
Note Pool Factor: With respect to any Payment Date and any Class of a
----------------
Series, an eight-digit decimal figure equal to the Class Note Balance of such
Class as of such Payment Date (after giving effect to all payments on such date)
divided by the original Class Note Balance of such Class as of the Closing Date
as determined by the Servicer in the Servicer's Certificate relating to such
Payment Date.
Note Register and Note Registrar: The respective meanings specified in
------------- --------------
Section 2.05.
Note Voting Amount: With respect to a Series, Noteholders representing at
------------------
least two-thirds of the Aggregate Note Balance of the applicable Series.
Notes: The Issuer's Automobile Loan-Backed Notes of a Series designated as
-----
such in the related Series Supplement.
Obligor: The purchaser of a Financed Vehicle under each related Contract,
-------
including any guarantor of such purchaser, and their respective successors,
assigns, heirs, and personal representatives.
Officer's Certificate: A certificate signed by the Chairman of the Board,
---------------------
the President, a Vice President, the Treasurer, the Controller, an Assistant
Controller, or the Secretary of the company or trust on whose behalf the
certificate is delivered, which certificate shall comply with the applicable
requirements of Section 11.01. Unless otherwise specified, any reference herein
to an Officer's Certificate shall be to an Officer's Certificate of the Issuer.
Opinion of Counsel: A written opinion of counsel who may, except as
------------------
otherwise expressly provided herein, be counsel for the Issuer and who shall be
reasonably satisfactory to the Trustee and the Note Insurer and which opinion
shall comply with the applicable requirements of Section 11.01.
Outstanding: With respect to Notes, as of any date of determination, all
-----------
Notes theretofore authenticated and delivered hereunder, except:
(i) Notes theretofore canceled by the Note Registrar or delivered to
the Note Registrar for cancellation;
(ii) Notes for whose payment money in the necessary amount has been
theretofore irrevocably deposited with the Trustee or any Paying Agent
(other than the Issuer) 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 hereto or any provision therefor, satisfactory
to the Trustee, has been made); and
-11-
<PAGE>
(iii) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant hereto, unless proof satisfactory to
the Trustee is presented that any such Notes are held by a bona fide
purchaser;
provided, however, that for purposes of disbursing payments from each Note
Insurance Policy and in determining whether Noteholders representing the
required percentage of the Aggregate Note Balance of Notes of a given Series
have given any request, demand, authorization, direction, notice, consent or
waiver hereunder, Notes owned by the Issuer or any other obligor upon the Notes
or any Affiliate of the Issuer or such other obligor 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 which the Trustee actually
knows to be so owned shall be so disregarded.
Paying Agent: The Trustee or any other Person that meets the eligibility
------------
standards for the Trustee specified in Section 6.08 and is authorized by the
Issuer pursuant to Section 3.05 to pay the principal of, or interest on, any
Notes on behalf of the Issuer.
Payment Date: For each Series, unless specified otherwise in the related
------------
Series Supplement, the fifteenth (15th) day of each calendar month (or if such
day is not a Business Day, the next succeeding Business Day) commencing on the
Initial Payment Date for such Series.
Payment Date Statement: As defined in Section 2.08(e).
----------------------
Person: Any individual, corporation, partnership, limited liability
------
company, association, joint-stock company, trust (including any beneficiary
thereof), unincorporated organization or government or any agency or political
subdivision thereof.
Placement Agent: With respect to a Series, as defined in the related Series
---------------
Supplement.
Pledged Account: With respect to a Series, the Collection Account, any Pre-
---------------
Funding Account, any Reserve Fund, any Capitalized Interest Account, and any
Expense Fund maintained with respect thereto.
Pre-Funding Account: With respect to a Series, the trust account, if any,
-------------------
established and maintained pursuant to Section 8.03.
Pre-Funding Account Deposit: With respect to a Series for which a Pre-
---------------------------
Funding Account is established, as defined in the related Series Supplement.
Principal Balance: With respect to any Contract, as of any date, the Amount
-----------------
Financed with respect to such Contract less the amount of (i) that portion of
all amounts received on or prior to such date and allocable to principal in
accordance with the terms of the Contract and (ii) any Cram Down Loss in respect
of such Contract; provided, however, that on and after the Accounting Date in a
Monthly Period in which a Contract has become a Defaulted Contract or has been
released from the Lien of this Indenture as provided in Section 2.15, the
"Principal Balance" of such Contract shall be
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<PAGE>
zero; and provided further, however, that the "Principal Balance" with respect
to a Contract shall be subject to any modifications or adjustments provided for
in the Series Supplement with respect to the Series with respect to which such
Contract is a Series Contract.
Private Placement Memorandum: With respect to a Series, the Private
----------------------------
Placement Memorandum related to any direct or indirect offering of such Series.
Proceeding: Any suit in equity, action at law or other judicial or
----------
administrative proceeding.
Purchase Price: With respect to a Contract securing a Series, as defined in
--------------
the related Contribution and Servicing Agreement.
Qualified Nominee: A Person in whose name Eligible Investments Granted to
-----------------
the Trustee may be registered as nominee of the Trustee in lieu of registration
directly in the name of the Trustee, provided that the following conditions
shall be satisfied in connection with such registration:
(a) the instruments governing the creation and operation of the nominee
provide that neither the nominee nor any owner of an interest in the nominee
(other than the Trustee) shall have any interest, beneficial or otherwise, in
any Eligible Investments at any time held in the name of the nominee, except for
the purpose of transferring and holding legal title thereto;
(b) the nominee and the Trustee have entered into a binding agreement:
(i) establishing that any Eligible Investments held in the name of the
nominee are to be held by the nominee as agent (other than commission agent
or broker) or nominee for the account of the Trustee, and
(ii) appointing the Trustee as the agent and attorney of the nominee
with full power and authority irrevocably to sell, assign, endorse,
transfer and deliver any Eligible Investments standing in the name of the
nominee, and to execute and deliver all such instruments as may be
necessary and proper for such purpose; and
(c) in connection with the registration of any Eligible Investment in the
name of the nominee, all requirements under applicable governmental regulations
necessary to effect a valid registration of transfer of such Eligible Investment
are complied with.
Rating Agency or Rating Agencies: With respect to each Series at any
------------- ---------------
relevant time, the rating agency or agencies requested by the Issuer or the Note
Insurer to rate the Notes of such Series at the Closing Date for such Series,
and then rating such Notes. The Rating Agencies for each Series will be
specified in the related Series Supplement.
Record Date: With respect to a Series, the date specified in the related
-----------
Series Supplement.
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<PAGE>
Recoveries: Except as otherwise defined in the related Series Supplement,
----------
with respect to a Contract, all Insurance Proceeds and Liquidation Proceeds,
excluding (i) proceeds to be applied to the restoration or repair of the related
Financed Vehicle or released to the related Obligor in accordance with the
Servicer's normal servicing procedures (which shall be JAC's Credit and
Collection Policy (as defined in the related Contribution and Servicing
Agreement), if JAC is the Servicer), and (ii) proceeds to be retained by such
Servicer for reimbursement of certain expenses as provided in the related
Contribution and Servicing Agreement.
Redemption Date: With respect to a Series, a Payment Date as specified in
---------------
the related Series Supplement.
Redemption Price: With respect to any Series or Class being redeemed
----------------
pursuant to Article X, and as of the related Redemption Date, the Aggregate Note
Balance of such Series or the Class Note Balance of such Class, as applicable,
together with interest accrued thereon to but excluding the related Redemption
Date at the applicable Note Interest Rate (exclusive of installments of interest
and principal maturing on or prior to such date, payment of which shall have
been made or duly provided for to the Holder of each such Note on the applicable
Record Date or as otherwise provided herein).
Redemption Record Date: With respect to any redemption of Notes, a date
----------------------
fixed pursuant to Section 10.01.
Registrar of Titles: The agency, department or office having the
-------------------
responsibility for maintaining records of titles to motor vehicles and issuing
documents evidencing such titles in the jurisdiction in which a particular
Financed Vehicle is registered.
Reinvestment Income: With respect to a Pledged Account, any interest or
-------------------
other earnings earned on investments of funds in such Pledged Account.
Re-Liening Trigger: With respect to a Series for which the related Series
------------------
Contracts are subject to re-liening upon the occurrence of specified events, as
defined in the related Contribution and Servicing Agreement.
Reserve Fund: With respect to a Series, the trust account, if any, created
------------
and maintained pursuant to Section 8.04.
Responsible Officer: When used with respect to the Trustee, any officer
-------------------
assigned to the Corporate Trust Office (or any successor thereto), including any
Vice President, Senior Trust Officer, Trust Officer, Assistant Trust Officer,
any Assistant Secretary, or any other Officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and having direct responsibility for the administration of this
Indenture, and also, with respect to a particular matter, any other officer, to
whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject.
S&P: Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc.
---
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Sale: The meaning specified in Section 5.18.
----
Scheduled Payment: With respect to a Contract, the periodic payment set
-----------------
forth in such Contract due from the Obligor on each related Due Date, and the
amount due on the final Due Date for such Contract.
Securities Act: The Securities Act of 1933, as amended.
--------------
Series: Each separate series of Notes issued pursuant to this Indenture
------
and the related Series Supplement thereto setting forth the specific terms of
such series of Notes, which series, as provided in the related Series
Supplement, may consist of only one Class or may be divided into two or more
Classes.
Series Contracts: With respect to a Series, the Contracts listed on
----------------
related Series Contract Schedule.
Series Contract Schedule: With respect to a Series, the list of Contracts
------------------------
attached to the related Series Supplement, together with and as amended by, all
related Amendments to Contract Schedule, each of which shall include the
following information with respect to each Contract listed thereon: (a) a number
identifying the Contract, (b) the Principal Balance as of the related Cutoff
Date (if any such Principal Balance is subject to any modifications or
adjustments pursuant to the terms of the related Series Supplement, such
Principal Balance as of the related Cutoff Date shall be set forth both with and
without giving effect to such modifications or adjustments), (c) the Obligor,
(d) the Obligor's billing address, (e) the original and remaining months to
maturity of the Contract, (f) the Scheduled Payment, (g) the frequency with
which Scheduled Payments are due, and (h) the APR.
Series Event of Default: With respect to a Series, as defined in the
-----------------------
related Series Supplement.
Series Supplement: With respect to a Series, a supplement hereto providing
-----------------
for the issuance of such Series.
Servicer: With respect to a Series, the Person acting as "Servicer"
--------
pursuant to the related Contribution and Servicing Agreement.
Servicer Fee: The amount payable to the Servicer with respect to a Series
------------
as the Servicer Fee on each Payment Date for such Series in the amount set forth
in the related Contribution and Servicing Agreement.
Servicer's Certificate: With respect to a Series, as defined in the
----------------------
related Contribution and Servicing Agreement.
Servicing Officers: With respect to a Series, as defined in the related
------------------
Contribution and Servicing Agreement.
State: Any state of the United States of America and, in addition, the
-----
District of Columbia.
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<PAGE>
Stated Maturity: With respect to each Class of a Series, as defined in the
---------------
related Series Supplement.
Subsequent Contract: With respect to a Series for which a Pre-Funding
-------------------
Account is established pursuant to the related Series Supplement, as defined in
such Series Supplement.
Subsequent Release Amount: With respect to a Series for which a Pre-
-------------------------
Funding Account is established pursuant to the related Series Supplement, as
defined in such Series Supplement.
Subsequent Transfer Agreement: With respect to a Series for which a Pre-
-----------------------------
Funding Account is established pursuant to the related Series Supplement, as
defined in such Series Supplement.
Subsequent Transfer Date: With respect to a Series for which a Pre-Funding
------------------------
Account is established pursuant to the related Series Supplement, as defined in
such Series Supplement.
Subsidiary: Any corporation of which more than 50% (by number of votes) of
----------
the Voting Stock shall be owned by such parent corporation and/or one or more
corporations which are themselves subsidiaries of such parent corporation.
Title Document: With respect to a Contract and the related Financed
--------------
Vehicle, the actual motor vehicle title or certificate of title for such
Financed Vehicle issued by the Registrar of Titles or other government agency in
the jurisdiction in which such Financed Vehicle is registered; alternatively, in
those certain jurisdictions whose law requires or contemplates that the original
of the actual motor vehicle title or certificate of title be possessed by the
Obligor, then, in lieu of the actual title or certificate of title, "Title
Document" shall mean such duplicate titles, certificates or other documents as
are permitted, required and/or contemplated to be possessed by the secured party
under the laws of such jurisdiction.
Transaction Documents: With respect to a Series, this Indenture, the
---------------------
related Series Supplement, the related Contribution and Servicing Agreement, the
Notes of such Series, the related Insurance Agreement, and the related Note
Insurance Policy.
Transaction Documents Date: With respect to a Series, as defined in the
--------------------------
related Series Supplement.
Trust Estate: With respect to a Series, as defined in the related Series
------------
Supplement.
Trustee: Norwest Bank Minnesota, National Association, as trustee, until a
-------
successor Person shall have become the Trustee pursuant to the applicable
provisions of this Indenture, and thereafter "Trustee" shall mean such successor
Person.
Trustee Fee: With respect to a Series, the amount payable to the Trustee
-----------
as the Trustee Fee on each Payment Date for such Series in the amount set forth
in the related Series Supplement.
UCC: The Uniform Commercial Code as in effect in the applicable
---
jurisdiction.
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<PAGE>
Vice President: With respect to the Issuer or the Trustee, any vice
--------------
president, whether or not designated by a number or a word or words added before
or after the title "vice president."
Voting Stock: Securities of any class or classes, the holders of which
------------
are ordinarily, in the absence of contingencies, entitled to elect a majority of
the corporate directors (or Persons performing similar functions).
SECTION 1.02 RULES OF CONSTRUCTION.
As used herein, the terms "related" and "applicable", when used with
reference to a Series Supplement, shall refer to the Series Supplement pursuant
to which a particular Series has been issued, when used with reference to any
Determination Date or Monthly Period, shall refer to the Determination Date or
Monthly Period immediately preceding a Payment Date, and when used with
reference to any Payment Date, shall refer to the Payment Date immediately
following any Monthly Period or Determination Date, as applicable.
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<PAGE>
ARTICLE II
THE NOTES
SECTION 2.01 FORM GENERALLY.
The Notes of each Series shall be in substantially the form or forms set
forth in the Series Supplement pursuant to which such Notes are constituted and
as may in the Issuer's judgment be necessary, appropriate or convenient to
permit the Notes to be issued and sold to or held in definitive form by non-
United States Persons, to establish entitlement to an exemption from United
States withholding tax or reporting requirements with respect to payments on the
Notes, or to comply, or facilitate compliance, with other applicable laws. The
Notes of each Series may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange on which the Notes
may be listed, or as may, consistently herewith, be determined by the officers
executing such Notes, as evidenced by their execution thereof. Any portion of
the text of any Note may be set forth on the reverse thereof with an appropriate
reference on the face of the Note.
Definitive Notes shall be typewritten, printed, lithographed or engraved or
produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Notes may
be listed, all as determined by the officers executing such Notes, as evidenced
by their execution thereof.
Each Class of Book Entry Notes shall be evidenced by one or more
certificates physically held by the Clearing Agency, which certificates may be
typewritten, printed, lithographed, mimeo graphed or otherwise produced.
SECTION 2.02 NOTES ISSUABLE IN SERIES AND CLASSES.
(a) The aggregate principal amount of Notes that may be issued pursuant to
this Indenture is unlimited; provided, however, no Series of Notes shall be
issued hereunder, unless at least one Class of such Series are insured by the
Note Insurer, notwithstanding that a Note Insurer Default with respect to a
prior Series may have occurred and may be continuing.
(b) The Notes may, as provided herein, at the election of and as
authorized by the Issuer's Board of Trustees, be issued in one or more Series,
each of which Series may consist of only one Class of Notes or may be divided
into two or more Classes, and shall be designated generally as the "Automobile
Loan-Backed Notes" of the Issuer, with such further particular designations
added or incorporated in such title for the Notes of any particular Series or
Class as the Board of Trustees may determine. Each Note shall bear upon the
face thereof the designation so selected for the Series and Class to which it
belongs.
(c) Each Series of Notes shall be created by a Series Supplement
authorized by the Board of Trustees and establishing the terms and provisions of
such Series, specifying the Contracts and other property to be included in the
Trust Estate therefor, and Granting such Trust Estate as security
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<PAGE>
for the Series of Notes created thereby. The Series Supplement with regard to a
Series shall establish, without limitation, the following terms and provisions
of the Notes of such Series, each of which the Issuer shall determine in
authorizing the issuance of any Series:
(i) designation of the Series;
(ii) the number and designation of Classes;
(iii) the Closing Date, the Initial Payment Date, the Initial Cutoff
Date, and the schedules to be attached to such Series Supplement containing the
Series Contract Schedule;
(iv) the maximum aggregate principal amount of Notes of each Class of
such Series that may be issued;
(v) the Note Interest Rate for each Class of Series;
(vi) the Class or Classes of the Series that will be insured by a Note
Insurance Policy, the Note Insurance Policy number, the Note Insurer Premium,
and the due dates for the Note Insurer Premium;
(vii) the Stated Maturity for each Class of such Series;
(viii) the authorized denominations of each Class of such Series;
(ix) the priority of principal and interest payments among each Class
of such Series entitled to receive such payments; and
(x) any additional conditions to the issuance of Notes.
(d) The Notes of each Series shall be issuable only as registered Notes in
the denominations prescribed by the terms of the Series Supplement creating the
particular Series.
SECTION 2.03 EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Notes shall be executed on behalf of the Issuer by its Chairman,
President or one of its Vice Presidents. The signature of any of these officers
on the Notes may be manual or facsimile.
Notes bearing the manual or facsimile signature of individuals who were at
any time the proper 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.
At any time and from time to time after the execution and delivery of this
Indenture, the Issuer may deliver Notes executed by the Issuer to the Trustee
for authentication; and the Trustee shall authenticate and deliver such Notes as
in this Indenture provided and not otherwise.
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Each Note shall be dated as of the date specified in the related Series
Supplement.
No Note shall be entitled to any benefit under this Indenture or be valid
or obligatory for any purpose, unless there appears on such Note a certificate
of authentication substantially in the form provided for herein executed by the
Trustee or by any Authenticating Agent for the Series of which it is a part by
the manual signature of one of its authorized officers or employees, and such
certificate upon any Note shall be conclusive evidence, and the only evidence,
that such Note has been duly authenticated and delivered hereunder.
The form of the Trustee's certificate of authentication is as follows:
This is one of the Notes referred to in the within-mentioned Indenture.
---------------------------------------
as Trustee
By
-------------------------------------
Authorized Signatory
SECTION 2.04 TEMPORARY NOTES.
Pending the preparation of Definitive Notes (unless Book Entry Notes are
issued), the Issuer may execute, and upon Issuer Order the Trustee shall
authenticate and deliver, temporary Notes which are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the Definitive Notes in lieu of which they may be
so issued and with such variations as the officers executing such Notes may
determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Issuer will cause Definitive Notes to be
prepared without unreasonable delay. After the preparation of Definitive Notes,
the temporary Notes shall be exchangeable for Definitive Notes upon surrender of
the temporary Notes at the office or agency of the Issuer to be maintained as
provided in Section 3.03(m), without charge to the Holder. Upon surrender or
cancellation of any one or more temporary Notes, the Issuer shall execute and
the Trustee shall authenticate and deliver and exchange therefor a like
principal amount of Definitive Notes of the same Series and Class and of
authorized denominations. Until so exchanged, the temporary Notes shall in all
respects be entitled to the same benefits under this Indenture as Definitive
Notes of the same Series and Class.
SECTION 2.05 REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
(a) The Issuer shall cause to be kept at an office or agency to be
maintained by the Issuer in accordance with Section 3.03(m) a register (the
"Note Register"), in which, subject to such reasonable regulations as it may
prescribe, the Issuer shall provide for the registration of Notes and
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the registration of transfers of Notes. The Trustee is hereby initially
appointed "Note Registrar" for the purpose of registering Notes and transfers of
Notes as herein provided. Upon any resignation of any Note Registrar appointed
by the Issuer, the Issuer shall promptly appoint a successor or, in the absence
of such appointment, shall assume the duties of Note Registrar. In the event
that the Trustee is acting as Note Registrar and the Trustee resigns as Trustee
with respect to one or more Series, the Trustee may resign as Note Registrar
with respect to the Notes of such Series.
Each Authenticating Agent for a Series, unless it is appointed Note
Registrar for such Series, and the Trustee, for any Series for which it is not
the Note Registrar, shall be a co-Note Registrar for such Series. The Issuer
shall cause each co-Note Registrar for a Series to furnish the Note Registrar
for such Series, promptly after each authentication of a Note by it, appropriate
information with respect thereto for entry by the Note Registrar into the Note
Register. If the Trustee shall at any time not be authorized to keep and
maintain the Note Register, the Trustee shall have the right to inspect such
Note Register at all reasonable times and to rely conclusively upon a
certificate of the Person in charge of the Note Register as to the names and
addresses of the Holders of the Notes and the principal amounts and numbers of
such Notes as held. In the event that the Trustee is acting as Authenticating
Agent and the Trustee resigns as Trustee with respect to one or more Series, the
Trustee may resign as Authenticating Agent with respect to the Notes of such
Series.
(b) Subject to any restrictions set forth in the related Series
Supplement, upon surrender for registration of transfer of any Note at the
office or agency of the Issuer to be maintained as provided in Section 3.03(m)
and subject to the conditions set forth in Section 2.06, the Issuer shall
execute, and the Trustee or its Authenticating Agent shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Notes of any authorized denominations, and of a like aggregate principal
amount, Series, Class and Stated Maturity.
(c) At the option of the Holder, Notes may be exchanged for other Notes of
any authorized denominations, of the same Series and Class, and of like
aggregate principal amount and Stated Maturity, upon surrender of the Notes to
be exchanged at the office or agency of the Issuer to be maintained as provided
in Section 3.03(m). Whenever any Notes are so surrendered for exchange, the
Issuer shall execute, and the Trustee or its agent shall authenticate and
deliver, the Notes which the Noteholder making the exchange is entitled to
receive.
(d) All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Issuer, evidencing the same debt and
entitled to the same benefits hereunder, as the Notes surrendered upon such
registration of such transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall (if so required by the Issuer or the Note Registrar) be duly
endorsed or be accompanied by a written instrument of transfer in form
satisfactory to the Issuer and the Note Registrar duly executed, by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental
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charge that may be imposed in connection with any registration of transfer or
exchange of Notes, other then exchanges pursuant to Section 2.04 or 9.05 not
involving any registration of transfer.
In the case of a Class of Book Entry Notes, the provisions of this Section
2.05 may be supplemented by provisions in the related Series Supplement and by
applicable rules established by the Clearing Agency for such Notes providing for
transfer of registration of Book Entry Notes on the books of the Clearing
Agency.
SECTION 2.06 RESTRICTIONS ON TRANSFER.
The Notes of each Series shall be subject to the restrictions on transfer,
if any, set forth in the related Series Supplement.
SECTION 2.07 MUTILATED, DESTROYED, LOST OR STOLEN NOTES.
If (i) any mutilated Note is surrendered to the Note Registrar, 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, the Issuer, and the
Note Insurer such security or indemnity as may be required by the Trustee, the
Issuer, and the Note Insurer to save the Issuer, the Trustee and the Note
Insurer or any agent of any of them harmless, then, in the absence of notice to
the Issuer or the Note Registrar that such Note has been acquired by a bona fide
purchaser, the Issuer shall execute and, upon the Issuer's request, the Trustee
shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Note, a new Note of the same tenor, Series,
Class, initial principal balance, and Stated Maturity, bearing a number not
contemporaneously outstanding. If after the delivery of such new Note, a bona
fide purchaser of the original Note in lieu of which such new Note was issued
presents for payments such original Note, the Note Insurer, the Issuer and the
Trustee shall be entitled to recover such new Note from the person to whom it
was delivered or any person taking therefrom, 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 expenses incurred by the Note Insurer,
the Issuer or the Trustee or any agent of any of them in connection therewith.
If any such mutilated, destroyed, lost or stolen Note shall have become or shall
be about to become due and payable, or shall have become subject to redemption
in full, instead of issuing a new Note, the Paying Agent may pay such Note
without surrender thereof, except that any mutilated Note shall be surrendered.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 2.04 or 9.05 not involving any registration of
transfer. Upon the issuance of any new Note under this Section, the Issuer may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expense (including
the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section 2.07, in lieu of any
destroyed, lost or stolen Note, shall constitute an original additional
contractual obligation of the Issuer, whether or not the
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destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all the benefits hereof equally and proportionately with
any and all other Notes of the same Series duly issued hereunder.
The provision 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 2.08 PAYMENT OF PRINCIPAL AND INTEREST; PRINCIPAL AND INTEREST
RIGHTS PRESERVED.
(a) Unless otherwise specified in the related Series Supplement, each Note
of a Series shall bear interest on the Note Balance thereof, at the applicable
Note Interest Rate, and as provided in the related Series Supplement until the
last day preceding the Final Payment Date for such Note. Interest on each Note
of a Series that bears interest shall be due and payable in arrears on each
related Payment Date, with each payment of interest calculated as described
above on the Note Balance of such Note immediately following the preceding
related Payment Date or on the applicable Closing Date, if there has not been
any preceding related Payment Date. In making any such interest payment, if the
interest calculation with respect to a Note shall result in a portion of such
payment being less than $.01, then such payment shall be decreased to the
nearest whole cent, and no subsequent adjustment shall be made in respect
thereof. All payments made with respect to any Note shall be applied first to
the interest then due and payable on such Note and then to the principal
thereof.
(b) The principal of each Note shall be payable in installments ending no
later than the applicable Stated Maturity thereof unless such Note becomes due
and payable on an earlier date by declaration of acceleration, call for
redemption or otherwise. Except to the extent specified in the related Series
Supplement for a Series, payments of principal on the Notes of each Series and
Class shall be made pro rata among all Outstanding Notes of such Series and
Class, without preference or priority of any kind. All reductions in the
principal amount of a Note effected by payments of installments of principal
made on any Payment Date shall be binding upon all future Holders of such Note
and of any Note issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof, whether or not such payment is noted on such Note.
(c) The principal of and interest on the Notes are payable by check mailed
by first-class mail to the Person whose name appears as the Holder of such Note
on the Note Register on the applicable Record Date or Redemption Record Date at
the address of such Person as it appears on the Note Register or, in the case of
a Holder holding Notes of a particular Series and Class with aggregate initial
Note Balances of not less than $1,000,000, by wire transfer in immediately
available funds to the account specified in writing to the Trustee by such
Person at least five Business Days prior to the Record Date for the Payment Date
on which wire transfers will commence, in such coin or currency of the United
States of America as at the time of payment is legal tender for the payment of
public and private debts. Except as set forth in the final sentence of this
Section 2.08(c), all payments on the Notes shall be paid without any requirement
of presentment. The Issuer shall notify the Person in whose name a Note is
registered at the close of business on the Record Date next
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preceding the Payment Date on which the Issuer expects that such final
installment will be paid on such Payment Date. Such notice shall be mailed no
later than the tenth day prior to such Payment Date and shall specify the place
where such Note may be surrendered. Funds representing any such checks returned
undeliverable shall be held in accordance with Section 3.05. Except as
otherwise provided in the related Series Supplement, each Noteholder shall
surrender its Note to the New York Agent prior to payment of the final
installment of principal of such Note.
(d) Whenever the Issuer expects that the entire remaining unpaid principal
amount of any Notes of a Series will become due and payable on the next Payment
Date, unless specified otherwise in the related Series Supplement, it shall mail
or cause to be mailed, no later than five days prior to such Payment Date, to
each Person in whose name a Note to be so retired is registered at the
applicable Record Date, a notice to the effect that:
(i) the Issuer expects that funds sufficient to pay such final
installment will be available in the Collection Account on such Payment Date,
and
(ii) if such funds are available, (A) such final installment will be
payable on such Payment Date, but (unless otherwise specified in the related
Series Supplement) only upon presentation and surrender of such Note at the
office or agency of the Issuer maintained for such purpose pursuant to Section
3.03(m) (the address of which shall be set forth in such notice), and (B) no
interest shall accrue on such Note after such Payment Date.
Notices in connection with redemptions or special redemptions of Notes shall
contain the information set forth in, and be mailed in accordance with, Section
10.03.
(e) With respect to each Series, as provided in the related Series
Supplement, the Trustee shall prepare and deliver to the Issuer and the Note
Insurer a statement (each, a "Monthly Period Statement") with respect to each
Monthly Period setting forth the information, or in the form, specified in such
Series Supplement.
(f) Notwithstanding any of the foregoing provisions with respect to
payments of principal of and interest on the Notes, if the Notes have become or
been declared due and payable following an Event of Default and such
acceleration of maturity and its consequences have not been rescinded and
annulled, then payments of principal of and interest on such Notes shall be made
in accordance with Section 5.08.
(g) Notwithstanding anything else to the contrary contained herein, the
obligation of the Issuer to pay the principal of and interest on the Notes of
each Series is not a general obligation of the Issuer, but is limited solely to
the assets of the related Trust Estate and, with respect to each Class of such
Series that is subject to the coverage provided by the related Note Insurance
Policy, the related Note Insurance Policy.
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SECTION 2.09 PERSONS DEEMED OWNER.
Prior to due presentment for registration of transfer of any Note, the
Issuer, the Note Insurer, the Trustee, any Paying Agent and any agent of the
Issuer, the Note Insurer or the Trustee shall treat the Person in whose name any
Note is registered as the owner of such Note for the purpose of receiving
payments of principal of and interest on such Note and for all other purposes
whatsoever, whether or not such Note be overdue, and none of the Issuer, the
Note Insurer, the Trustee, any Paying Agent, or any agent of the Issuer, the
Note Insurer or the Trustee shall be affected by notice to the contrary.
SECTION 2.10 CANCELLATION.
All Notes surrendered to the Trustee for or after payment, registration of
transfer, or exchange (including Notes surrendered to any Person other than
Trustee which shall be delivered to the Trustee) shall be promptly canceled by
the Trustee. No Note shall be authenticated in lieu of or in exchange for any
Notes canceled as provided in this Section 2.10, except as expressly permitted
hereby. All canceled Notes held by the Trustee shall be disposed of by the
Trustee as is customary with its standard practice.
SECTION 2.11 TAX TREATMENT.
The Issuer has structured this Indenture and the Notes with the intention
that the Notes will qualify under applicable tax law as indebtedness of the
Issuer, and the Issuer, JAC, the Servicer and each Noteholder, by acceptance of
its Note(s), agrees to treat its Note(s) as debt for all purposes.
SECTION 2.12 CONDITIONS TO ISSUANCE OF NOTES.
Notes of any one or more Series may from time to time be executed by the
Issuer and delivered to the Trustee for authentication, and thereupon, the same
shall be authenticated and delivered by the Trustee upon Issuer Order and upon
receipt by the Trustee of the following with respect to each Series being
issued:
(a) evidence of the delivery of the Contract Files for the related Initial
Contracts to the Custodian (which may consist of an Officer's Certificate of
JAC);
(b) a Board Resolution of each of the Issuer, the Servicer (if other than
JAC) and JAC authorizing, as applicable, the execution, delivery and performance
of the Transaction Documents for such Series and the transactions contemplated
hereby and by the other Transaction Documents for such Series, certified by the
Secretary or an Assistant Secretary of the Issuer, the Servicer or JAC, as
applicable;
(c) a copy of an officially certified document, dated not more than 30
days prior to the Closing Date for such Series, evidencing the good standing of
each of the Issuer, the Servicer (if other than JAC) and JAC in their respective
States of incorporation or organization;
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(d) copies of the Certificate of Incorporation or Declaration of Trust, as
applicable, and By-Laws of each of the Issuer, the Servicer (if other than JAC)
and JAC, certified by the Secretary or an Assistant Secretary of the Issuer, the
Servicer and JAC, as applicable; provided, however, that if any such document
previously delivered to the Trustee with respect to another Series has not
changed since the most recent such delivery the applicable Secretary or
Assistant Secretary may instead certify to the Trustee such fact;
(e) (i) evidence of filing with the Secretary of State of the State (and
with the relevant county, if required by the applicable state law) where JAC's
chief executive office is located of UCC-1 financing statements, describing the
assets contributed by JAC to the Issuer pursuant to the related Contribution and
Servicing Agreement, executed by JAC, as debtor, and naming the Issuer as
secured party as required in the Contribution and Servicing Agreement and (ii)
evidence of filing with the Secretary of State of the State (and with the
relevant county, if required by applicable state law) where the Issuer's chief
executive office is located of UCC-1 financing statements, describing the assets
included in the related Trust Estate as collateral, executed by the Issuer, as
debtor, and naming the Trustee, as secured party;
(f) a certificate listing the Servicing Officers of the Servicer as of the
related Closing Date;
(g) an executed copy of a Series Supplement for such Series and an
executed copy of a Contribution and Servicing Agreement for such Series;
(h) the Note Insurance Policy for such Series;
(i) evidence of the deposit by the Issuer of any applicable deposits into
the Reserve Fund, if any, the Capitalized Interest Account, if any, and the
Expense Fund, if any, for such Series;
(j) evidence of the deposit by JAC into the Collection Account for such
Series of any amounts required to be deposited in the Collection Account by JAC
on the related Closing Date pursuant to the related Contribution and Servicing
Agreement;
(k) evidence of the deposit by the Issuer of any applicable deposits into
the Pre-Funding Account for such Series;
(l) an Opinion of Counsel to the effect that the Notes of such Series will
be characterized as debt and that the issuance of such Series will not adversely
affect the characterization of the Notes of any Outstanding Series as debt;
(m) Opinions of Counsel addressed to the Trustee, the Note Insurer, and
each Rating Agency with respect to such Series, complying with the requirements
of Section 11.01, and, except to the extent provided otherwise in the related
Series Supplement or in the second to last paragraph of this Section 2.12, to
the effect that:
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(i) all instruments furnished to the Trustee in connection with such
Notes conform to the requirements of this Indenture and constitute all the
documents required to be delivered hereunder for the Trustee to authenticate and
deliver the Notes then applied for;
(ii) all conditions precedent provided for in this Indenture
relating to the authentication and delivery of such Notes have been complied
with;
(iii) the Issuer has the power to execute and deliver the related
Series Supplement (and, in the case of the first Series to be authenticated and
delivered hereunder, this Indenture), and to issue such Notes and has duly taken
all necessary action for those purposes;
(iv) assuming due execution and delivery thereof by the Trustee, this
Indenture and the related Series Supplement, as executed and delivered by the
Issuer, are the valid, legal, and binding obligations of the Issuer, enforceable
against the Issuer in accordance with their terms, subject to bankruptcy,
reorganization, insolvency, arrangement, moratorium, fraudulent or preferential
conveyance, and other similar laws of general application affecting the
enforcement of creditors' rights generally and to general principles of equity
(regardless whether such enforceability is considered in a proceeding in equity
or at law); and the execution of such Series Supplement is authorized or
permitted by Section 9.01;
(v) the Notes then applied for, when issued, delivered,
authenticated, and paid for, will be the valid, legal, and binding non-recourse
obligations of the Issuer, entitled to the benefits of this Indenture and the
related Series Supplement, equally and ratably with all other Notes of such
Series, except to the extent specified otherwise in the related Series
Supplement, if any, and enforceable against the Issuer in accordance with their
terms, subject to bankruptcy, reorganization, insolvency, arrangement,
moratorium, fraudulent or preferential conveyance, and other similar laws of
general application affecting the enforcement of creditors' rights generally and
to general principles of equity (regardless whether such enforceability is
considered in a proceeding in equity or at law);
(vi) the Issuer has the power and authority to Grant the Trust
Estate as it exists on the Closing Date for such Series to the Trustee as
security for the Notes of such Series and has duly authorized such Grant to the
Trustee by all necessary action;
(vii) this Indenture, together with the Series Supplement, creates in
favor of the Trustee a security interest in all of the Issuer's right, title and
interest in and to the Trust Estate as it exists on the Closing Date;
(viii) such action has been taken with respect to delivery of
possession of the related Trust Estate as it exists on the Closing Date and with
respect to the recording and filing of this Indenture, the related Series
Supplement, any other indentures supplemental hereto, and any other requisite
documents and with respect to the execution and filing of any financing
statements as is necessary to make effective and to perfect a first priority
lien and security interest created by this Indenture and such Series Supplement
in such Trust Estate
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as it exists on the Closing Date, with either the details of such action being
recited therein, or the absence of any such action being necessary to make such
lien and security interest effective and perfected being stated therein;
(ix) the Issuer is not required to register as an "investment
company" under the Investment Company Act, as such term is defined thereunder,
and the Issuer is not under the "control" of an "investment company," as such
terms are defined in the Investment Company Act;
(x) subject to certain assumptions regarding compliance by the
Issuer and the applicable Placement Agent with certain covenants, and regarding
compliance with certain provisions of this Indenture, the initial offers and
sales of the Notes of such Series by such Placement Agent to the initial
purchasers thereof is exempt from the registration requirements of the
Securities Act;
(xi) this Indenture is not required to be qualified under the Trust
Indenture Act of 1939, as in effect as of the date such Opinion of Counsel is
delivered; and
(xii) no authorization, approval, or consent of any governmental
body having jurisdiction in the premises which has not been obtained by the
Issuer is required for the valid issuance and delivery of the Notes of such
Series.
(n) an Officers' Certificate of the Issuer complying with the
requirements of Section 11.01 and stating that:
(i) the Issuer is not in Default under this Indenture and the
issuance of the Notes applied for will not result in any breach of any of the
terms, conditions or provisions of, or constitute a default under, the Issuer's
declaration of trust or by-laws or any indenture, mortgage, deed of trust or
other agreement or instrument to which the Issuer is a party or by which it is
bound, or any order of any court or administrative agency entered in any
proceeding to which the Issuer is a party or by which it may be bound or to
which it may be subject;
(ii) all conditions precedent provided in this Indenture relating
to the authentication and delivery of the Notes applied for have been complied
with;
(iii) the Issuer is the owner of each related Initial Contract, has
not assigned any interest or participation in any such Initial Contract (or, if
any such interest or participation has been assigned, it has been released) and
has the right to Grant each such Initial Contract to the Trustee pursuant to
this Indenture and the related Series Supplement;
(iv) the Issuer has Granted to the Trustee all of its right, title,
and interest in each such Initial Contract pursuant to this Indenture and the
related Series Supplement; and
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(v) attached thereto are true and correct copies of letters signed by
each Rating Agency with respect to such Series confirming that the Notes of such
Series have been assigned the rating(s) required by the related Series
Supplement; and
(o) such other documents, if any, as the Trustee or the Note Insurer may
reasonably require.
The Opinion of Counsel described above with respect to Series may differ
from the Opinion of Counsel described in Section 2.12(m) so long as the Opinion
of Counsel so delivered is acceptable to each related Rating Agency, the Note
Insurer, and the Trustee which shall be conclusively evidenced by the delivery
on the Closing Date of each such Rating Agency's rating letter, by delivery on
the Closing Date of the related Note Insurance Policy, and by the Trustee's
authentication and delivery of the Notes of such Series, respectively.
Upon satisfaction of the above conditions, the Trustee shall execute the Series
Supplement and issue and deliver to or upon the order of the Issuer the
applicable Notes. Nothing herein shall obligate the Note Insurer to issue any
Note Insurance Policy; rather, such obligation shall arise only under a written
commitment issued by the Note Insurer to issue a Note Insurance Policy.
SECTION 2.13 SECURITY FOR NOTES.
(a) The Issuer shall file, and shall cause JAC to file, UCC-1 financing
statements as described in Section 2.12(e).
(b) At least 10 days prior to the date the Issuer makes any change in its
name, identity, corporate structure, or location of its chief executive office,
the Issuer shall give the Servicer, the Trustee, and the Note Insurer written
notice thereof if, as a result of such change, the applicable provisions of the
UCC would require the filing of any amendment of any previously filed financing
statement or continuation statement or of any new financing statement to
preserve, protect, and perfect the Trustee's and the Note Insurer's respective
interests in each Trust Estate.
(c) During the term of this Indenture, the Issuer shall maintain its chief
executive office in the United States of America.
SECTION 2.14 PURCHASE AND RELEASE OF CONTRACTS.
(a) The Issuer shall enforce all obligations, if any, of JAC and the
Servicer to purchase Contracts with respect to a Series for breaches of
representations, warranties, and covenants pursuant to the related Contribution
and Servicing Agreement. If the Issuer fails to enforce the purchase
obligations of JAC or the Servicer under such Contribution and Servicing
Agreement, the Trustee and the Note Insurer are hereby irrevocably appointed
attorneys-in-fact (such appointment being coupled with an interest) to act on
behalf of and in the name of the Issuer to enforce such obligations.
(b) With respect to any Defaulted Contract, Delinquent Contract or
Contract subject to re-liening after the occurrence of a Re-Liening Trigger
securing a Series, the Issuer, upon five
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Business Days notice, shall be entitled (but shall not be required) to obtain
the release of such Contract from the applicable Trust Estate by payment into
the related Collection Account of the related Purchase Price; provided, however,
that (i) the aggregate of the Principal Balances of such Contracts with respect
to any Series that may be so released pursuant to this sentence shall not exceed
the amount specified in the related Series Supplement and (ii) any such release
shall be subject to the satisfaction of any additional conditions precedent to
such release that are specified in the related Series Supplement.
SECTION 2.15 RELEASES.
(a) The Issuer shall be entitled to obtain a release from the Lien of this
Indenture for any Contract and the related Financed Vehicle at any time (i)
after a payment by JAC or the Servicer, pursuant to the related Contribution and
Servicing Agreement, or by the Issuer pursuant to Section 2.14(b), of the
Purchase Price with respect to such Contract, (ii) after liquidation of the
Contract in accordance with the applicable Contribution and Servicing Agreement
and the deposit of all Recoveries thereon in the Collection Account, or (iii)
upon the termination of a Contract (due to among other causes, payment in full
of the Contract and sale or other disposition of the related Financed Vehicle),
if the Issuer delivers to the Trustee and the Note Insurer an Officer's
Certificate of the Issuer requesting such release and (A) identifying the
Contract and Financed Vehicle to be released, (B) requesting the release
thereof, (C) setting forth the amount deposited in the related Collection
Account with respect thereto, and (D) certifying that the amount deposited in
the related Collection Account (x) equals the Purchase Price with respect to
such Contract, in the event a Contract and the related Financed Vehicle are
being released from the lien of this Indenture pursuant to clause (i) above or
(y) equals the entire amount of Recoveries expected to be received with respect
to such Contract and related Financed Vehicle in the event of a release from the
Lien of this Indenture pursuant to clause (ii) or (iii) above. Notwithstanding
the foregoing, all Recoveries with respect to Contracts referred to in clauses
(ii) and (iii) above shall remain subject to the Lien of this Indenture. Also,
notwithstanding the foregoing, the related Custodian shall release Contract
Files from time to time in accordance with the related Custodian Agreement, it
being understood that the release of such Contract Files to the Servicer in
connection with the liquidation of a Contract shall precede the deposit of
Recoveries into the Collection Account.
(b) Upon satisfaction of the conditions specified in subsection (a)
hereof, the Trustee shall release from the lien of this Indenture with respect
to such Contract, and upon satisfaction of the conditions specified in the
related Custodian Agreement, the Custodian shall deliver to or upon the order of
the Issuer the related Contract File and all interests in the Financed Vehicle
as described in the applicable Officer's Certificate.
SECTION 2.16 TRUST ESTATE.
The Trustee may, and when required by the provisions hereof shall, execute
instruments to release property from the lien of this Indenture, or convey the
Trustee's interest in the same, in a manner and under circumstances which are
not inconsistent with the provisions hereof. No party relying upon an
instrument executed by the Trustee as provided in this Article II shall be bound
to
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ascertain the Trustee's authority, inquire into the satisfaction of any
conditions precedent or see to the application of any monies.
SECTION 2.17 BOOK ENTRY NOTES.
Unless provided otherwise in the related Series Supplement, Notes of any
Class of any Series, may, if specified in the related Series Supplement, be
issued initially as one or more single certificates in the name of a Clearing
Agency maintaining book entry records with respect to ownership and transfer of
such Notes, or its nominee, or a custodian bank of such Clearing Agency, or its
nominee, and registration of such Notes may not be transferred by the Trustee or
Note Registrar except under the conditions, if any, described in the related
Series Supplement. In such case, the Trustee shall deal with the Clearing
Agency and Clearing Agency Participants as representatives of the Beneficial
Owners of such Notes for purposes of exercising the rights of Noteholders
hereunder, as provided in the related Series Supplement. Requests and
directions from, and votes of, such representatives shall not be deemed to be
inconsistent if they are made with respect to different Beneficial Owners.
SECTION 2.18 TERMINATION OF BOOK ENTRY SYSTEM.
(a) Except as otherwise provided in the related Series Supplement, the
book entry system through the Clearing Agency with respect to any Book Entry
Notes may be terminated upon the happening of any of the following:
(i) The Clearing Agency or the Issuer advises the Trustee that the
Clearing Agency is no longer willing or able to properly discharge its
responsibilities under the applicable Clearing Agency Agreement and the
Issuer is unable to locate a qualified successor clearing agency
satisfactory to the Trustee and the Issuer;
(ii) The Issuer, in its sole discretion but with the consent of the
Trustee, elects to terminate the book entry system by notice to the
Clearing Agency and the Trustee; or
(iii) After the occurrence of an Event of Default with respect
to such Series (at which time the Trustee shall use all reasonable efforts
to promptly notify each Beneficial Owner through the Clearing Agency of
such Event of Default when such notice shall be given pursuant to Section
6.02), the Beneficial Owners of a majority in Note Balance of the Book
Entry Notes advise the Trustee in writing, through the related Clearing
Agency Participants and the Clearing Agency, that the continuation of a
book entry system through the Clearing Agency to the exclusion of any
Definitive Note certificates being issued to any person other than the
Clearing Agency or its nominee is no longer in the best interests of the
Beneficial Owners.
(b) Upon the occurrence of any event described in subsection (a)
above, the Trustee shall use all reasonable efforts to notify all Beneficial
Owners with respect to such Series, through the Clearing Agency, of the
occurrence of such event and of the availability of Definitive Note certificates
to Beneficial Owners requesting the same, in a Note Balance representing the
interest of
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each, making such adjustments and allowances as it may find necessary or
appropriate as to accrued interest and previous calls for redemption or special
redemption. Definitive Note certificates shall be issued only upon surrender to
the Trustee of the Note by the Clearing Agency, accompanied by registration
instructions for the Definitive Note certificates. Neither the Issuer nor the
Trustee shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon issuance of the Definitive Note certificates, all references herein and in
the Series Supplement to obligations imposed upon or to be performed by the
Clearing Agency shall cease to be applicable, and the provisions relating to
Definitive Notes shall be applicable.
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ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 3.01 PAYMENT OF NOTES.
The Issuer will pay or cause to be duly and punctually paid the
principal of, and interest on, the Notes of each Series in accordance with the
terms of such Notes and this Indenture. The Notes of each Series shall be non-
recourse obligations of the Issuer and shall be limited in right of payment to
amounts available from the related Trust Estate as provided in this Indenture
and the related Series Supplement and the Issuer shall not otherwise be liable
for payments on the Notes. No person shall be personally liable for any amounts
payable under the Notes. If any other provision of this Indenture conflicts or
is deemed to conflict with the provisions of this Section 3.01, the provisions
of this Section 3.01 shall control.
SECTION 3.02 REPRESENTATIONS AND WARRANTIES.
The Issuer hereby makes the following representations and warranties
for the benefit of the Trustee, the Note Insurer and the Noteholders of each
Series on which the Trustee relies in accepting the Trust Estate for such Series
in trust and in authenticating the Notes of such Series. Such representations
and warranties are made as of the Closing Date for the applicable Series and
shall survive the Grant of the related Trust Estate to the Trustee.
(a) Organization and Good Standing. The Issuer is a business trust
------------------------------
duly organized, validly existing and in good standing under the law of the State
of Delaware and each other State where the nature of its business requires it to
qualify, except to the extent that the failure to so qualify would not in the
aggregate materially and adversely affect the ability of the Issuer to perform
its obligations under the related Transaction Documents.
(b) Authorization. The Issuer has the power, authority and legal
-------------
right to execute, deliver and perform under the terms of the related Transaction
Documents and the execution, delivery and performance of such Transaction
Documents have been duly authorized by the Issuer by all necessary action.
(c) Binding Obligation. Each of (i) this Indenture and the related
------------------
Series Supplement, assuming due authorization, execution and delivery thereof by
the Trustee, (ii) the related Insurance Agreement, assuming due authorization,
execution and delivery thereof by the Note Insurer, the Issuer, JAC, the
Servicer, the Backup Servicer, if any, and the Trustee, and (iii) the
Contribution and Servicing Agreement, assuming due authorization, execution and
delivery thereof by JAC, the Servicer, the Issuer, the Trustee, and the Backup
Servicer, if any, constitutes a legal, valid and binding obligation of the
Issuer, enforceable against the Issuer in accordance with its terms except that
(A) such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws (whether statutory, regulatory or decisional)
now or hereafter in effect relating to creditors' rights generally and (B) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to certain equitable defenses and to the discretion of the
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court before which any proceeding therefor may be brought, whether a proceeding
at law or in equity.
(d) No Violation. The consummation of the transactions contemplated
------------
by the related Transaction Documents will 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 organizational documents or
bylaws of the Issuer, or any material indenture, agreement, mortgage, deed of
trust or other instrument to which the Issuer is a party or by which it is
bound, or in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of such indenture, agreement, mortgage, deed of trust or
other such instrument, other than any Lien created or imposed pursuant to the
terms of such Transaction Documents, or violate any law or any material order,
rule or regulation applicable to the Issuer of any court or of any federal or
state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Issuer or any of its properties.
(e) No Proceedings. There are no Proceedings or investigations to
--------------
which the Issuer, or any of the Issuer's Affiliates, is a party pending, or, to
the knowledge of Issuer, threatened, before any court, regulatory body,
administrative agency or other tribunal or governmental instrumentality (A)
asserting the invalidity of the related Transaction Documents, (B) seeking to
prevent the issuance of any of the Notes of such Series or the consummation of
any of the transactions contemplated by such Transaction Documents or (C)
seeking any determination or ruling that would materially and adversely affect
the performance by the Issuer of its obligations under, or the validity or
enforceability of, such Transaction Documents.
(f) Approvals. All approvals, authorizations, consents, orders or
---------
other actions of any Person, or of any court, governmental agency or body or
official, required in connection with the execution and delivery of the related
Transaction Documents and with the valid and proper authorization, issuance and
sale of the Notes of such Series pursuant hereto (except approvals of State
securities officials under the "Blue Sky" laws), have been or will be taken or
obtained on or prior to the related Closing Date.
(g) Place of Business. The Issuer's principal place of business and
-----------------
chief executive office are located at Two Galleria Tower, 13455 Noel Road, Suite
1800, Dallas, Texas 75240.
(h) Transfer and Assignment. Upon the delivery to the Custodian of
-----------------------
the related Contracts, the related Title Documents and the related applications
for Title Documents, the Trustee for the benefit of the Noteholders and the Note
Insurer shall have a first priority perfected security interest in such assets
and in the proceeds thereof, except for Liens permitted under Section 3.03(a)
and limited with respect to proceeds to the extent set forth in Section 9-306 of
the UCC as in effect in the applicable jurisdiction. All filings (including,
without limitation, UCC filings) and other actions as are necessary in any
jurisdiction to perfect the ownership, security interest, or other interest of
the Trustee in the related Trust Estate, including delivery of the Contracts and
the related Title Documents to the applicable Custodian, and the payment of any
fees, have been made.
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<PAGE>
(i) Parent of the Issuer. JAC is the registered owner of all of the
--------------------
issued and outstanding shares of beneficial interest of the Issuer, all of which
has been validly issued, is fully paid and nonassessable and as of the related
Closing Date.
(j) Contribution and Servicing Agreement. As of the Initial Closing
------------------------------------
Date and each subsequent Closing Date the Issuer has entered into a Contribution
and Servicing Agreement with JAC, the Servicer, the Backup Servicer, if any, and
the Trustee with respect to the applicable Series relating to the Issuer's
acquisition of the related Contracts and certain other assets to be included in
the related Trust Estate, and the representations and warranties made by JAC
relating to the related Contracts, and such assets have been validly assigned to
and are for the benefit of the Issuer, the Trustee, the Note Insurer and the
applicable Noteholders and such representations and warranties are true and
correct in all material respects except that the Contracts are free and clear of
any encumbrance, lien, or right of others and are no longer subject to the
Warehouse Lien.
(k) Bulk Transfer Laws. The transfer, assignment and conveyance of
------------------
the Contracts and security interest in the Financed Vehicles by JAC to the
Issuer pursuant to the related Contribution and Servicing Agreement or by the
Issuer pursuant to this Indenture is not subject to the bulk transfer or any
similar statutory provisions in effect in any applicable jurisdiction.
(l) Not an Investment Company. The Issuer is not an "investment
-------------------------
company" as such term is defined in the Investment Company Act of 1940, as
amended.
(m) Title to Trust Estate. Immediately prior to the Grant thereof to
---------------------
the Trustee, the Issuer will have good and marketable title to the Trust Estate
so Granted, free and clear of any encumbrances, liens, or rights of others.
SECTION 3.03 COVENANTS. The Issuer hereby makes the following
covenants for the benefit of the Trustee, the Note Insurer and the Noteholders
of each affected Series, on which the Trustee relies in accepting the Trust
Estate for each Series in trust and in authenticating the Notes. Such covenants
are made as of the Initial Closing Date, but shall survive the Grant of the
Trust Estate to the Trustee.
(a) No Liens. Except for the conveyances and grant of security
--------
interests hereunder, the Issuer will not sell, pledge, assign, or transfer to
any other Person, or Grant, create, incur, assume, or suffer to exist any Lien
on any Trust Estate now existing or hereafter created, or any interest therein
prior to the termination of this Indenture with respect to such Series pursuant
to Section 4.01; and the Issuer shall defend the right, title and interest of
the Trustee in, to and under the Trust Estate now existing or hereafter created,
against all claims of third parties claiming through or under the Issuer;
provided, however, that nothing in this Section 3.03(a) shall prevent or be
- -------- -------
deemed to prohibit the Issuer from suffering to exist upon any Financed Vehicle
which has been repossessed any Liens for municipal or other local taxes and
other governmental charges if such taxes or governmental charges shall not at
the time be due and payable or if the Issuer or related Obligor shall currently
be contesting the validity thereof in good faith by appropriate proceedings and
the Issuer shall have set aside on its books adequate reserves with respect
thereto.
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<PAGE>
(b) Delivery of Collections. The Issuer agrees to hold in trust and
-----------------------
promptly pay to the Servicer all amounts received by the Issuer in respect of
each Trust Estate (other than amounts distributed to or for the benefit of the
Issuer pursuant to Article VIII).
(c) No Action to Impair Trustee's Interest. The Issuer will take no
--------------------------------------
action to impair the rights of the Trustee (for the benefit of the affected
Noteholders and the Note Insurer) in the Contracts, the Financed Vehicles and
any other part of each Trust Estate, except to the extent permitted by this
Indenture or as required by law.
(d) Compliance with Law. The Issuer will comply, in all material
-------------------
respects, with all acts, rules, regulations, orders, decrees and directions of
any governmental authority applicable to the Contracts or any part thereof;
provided, however, that the Issuer may contest any act, regulation, order,
decree or direction in any reasonable manner which shall not materially and
adversely affect the rights of the Trustee (for the benefit of the affected
Noteholders and the Note Insurer) in the Contracts and the Financed Vehicles.
The Issuer will comply, in all material respects, with all requirements of law
applicable to the Issuer.
(e) Preservation of Security Interest. The Issuer shall execute and
---------------------------------
file such continuation statements and any other documents which may be required
by law to fully preserve and protect the interest of the Trustee (for the
benefit of the affected Noteholders and the Note Insurer) in the Trust Estate.
(f) Maintenance of Office, etc. The Issuer will not, without
---------------------------
providing 30 days prior written notice to the Trustee and the Note Insurer and
without filing such amendments to any previously filed financing statements as
the Trustee or each Note Insurer may require or as may be required in order to
maintain the Trustee's perfected security interest in each Trust Estate, (a)
change the location of its principal executive office, or (b) change its name,
identity or corporate structure in any manner which would make any financing
statement or continuation statement filed by the Issuer in accordance with the
applicable Contribution and Servicing Agreements or this Indenture seriously
misleading within the meaning of Article 9-402(7) of any applicable enactment of
the UCC.
(g) Further Assurances. The Issuer will make, execute or endorse,
------------------
acknowledge, and file or deliver to the Trustee from time to time such
schedules, confirmatory assignments, conveyances, transfer endorsements, powers
of attorney, certificates, reports and other assurances or instruments and take
such further steps relating to each Trust Estate, as the Trustee may request and
reasonably require.
(h) Notice of Liens. The Issuer shall notify the Trustee and the
---------------
Note Insurer promptly after becoming aware of any Lien on any Trust Estate,
except for any Liens on a Financed Vehicle which has been repossessed for
municipal or other local taxes if such taxes shall not at the time be due or
payable without penalty or if the Issuer or related Obligor shall currently be
contesting the validity thereof in good faith by appropriate proceedings and the
Issuer shall have set aside on its books adequate reserves with respect thereto.
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(i) Activities of the Issuer. The Issuer (a) shall engage in only
------------------------
the activities permitted under its Declaration of Trust, as it may be amended
pursuant to the terms thereof, and shall incur no debt other than trade payables
and expense accruals in connection with its operation in the normal course of
business; (b) will (1) maintain its books and records separate from the books
and records of any other entity, (2) maintain separate bank accounts and no
funds of the Issuer shall be commingled with funds of any other entity, (3) keep
in full force and effect its existence, rights and franchises as a business
trust under the laws of the State of Delaware, and will obtain and preserve its
qualification to do business as a foreign business trust in each jurisdiction in
which such qualification is or shall be necessary to protect the validity and
enforceability of this Indenture; and (c) will not (1) dissolve or liquidate in
whole or in part, (2) own any subsidiary or lend or advance any moneys to, or
make an investment in, any Person, (3) make any capital expenditures, (4) (A)
commence any case, proceeding or other action under any existing or future
bankruptcy, insolvency or similar law seeking to have an order for relief
entered with respect to it, or seeking reorganization, arrangements, adjustment,
wind-up, liquidation, dissolution, composition or other relief with respect to
it or its debts, (B) seek appointment of a receiver, trustee, custodian or other
similar official for it or any part of its assets, (C) make a general assignment
for the benefit of creditors, or (D) take any action in furtherance of, or
consenting or acquiescing in, any of the foregoing, (5) guarantee (directly or
indirectly), endorse or otherwise become contingently liable (directly or
indirectly) for the obligations of, or own or purchase any stock, obligations or
securities of or any other interest in, or make any capital contribution to, any
other Person, (6) engage in any other action that bears on whether the separate
legal identity of the Issuer will be respected, including without limitation (A)
holding itself out as being liable for the debts of any other party or (B)
acting other than in its corporate name and through its duly authorized officers
or agents, or (7) create, incur, assume, or in any manner become liable in
respect of any indebtedness other than trade payables and expense accruals
incurred in the ordinary course of business and which are incidental to its
business purpose; provided, however, that the Issuer may take any action
prohibited by this clause (7) if (x) the Issuer shall cause, prior to the taking
of such action, an Opinion of Counsel experienced in federal bankruptcy matters,
in substance satisfactory to the Trustee, the Note Insurer and each Rating
Agency that has issued a rating with respect to the Notes, to be delivered to
the Trustee, the Note Insurer and the applicable Rating Agencies, (y) each
applicable Rating Agency shall indicate in writing that the taking of such
action will not affect the then current rating of any Series, and (z) the Note
Insurer shall have given its prior written consent thereto. The Issuer shall
not amend any article in its Declaration of Trust that deals with any matter
discussed above without the prior written consent of the Note Insurer and the
Controlling Party with respect to each Series (if other than the Note Insurer).
(j) Trustees. The Issuer agrees that at all times, at least two of
--------
its trustees shall be "Independent Trustees" as defined in the Declaration of
Trust as in effect on the date hereof. The Issuer's Declaration of Trust shall
at all times provide that, to the extent allowed by applicable law, such
"Independent Trustees" shall, in voting on matters subject to the approval of
the Board of Trustees of the Issuer at all times take into account the interests
of creditors of the Issuer in addition to the interests of the Issuer and, to
the extent permitted by applicable law, shall have a fiduciary duty to such
creditors.
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(k) Consolidated Return. The Issuer and JAC are members of an
-------------------
affiliated group within the meaning of section 1504 of the Code which will file
a consolidated return for federal income tax purposes at all times until the
termination of this Indenture.
(l) Taxable Income from the Contracts. The Issuer shall treat the
---------------------------------
Notes issued by it as debt and shall treat the Contracts as owned by it for
federal, state and local income tax purposes, and the affiliated group of which
the Issuer is a member within the meaning of section 1504 of the Code shall
treat the Notes issued by the Issuer as debt of the Issuer and shall treat the
Contracts as owned by the Issuer for federal, state and local income tax
purposes, and the Issuer and such affiliated group shall report and include in
the computation of the Issuer's gross income for such tax purposes the income
from the Contracts, and shall deduct the interest paid or accrued with respect
to the Notes in accordance with its applicable method of accounting for such
purposes.
(m) Maintenance of Office or Agency. The Issuer will maintain an
-------------------------------
office or agency within the United States of America where Notes may be
presented or surrendered for or after payment, where Notes may be surrendered
for registration of transfer or exchange and where notices and demand to or upon
the Issuer in respect of the Notes and this Indenture may be served. The Issuer
hereby initially appoints the Trustee as the Paying Agent and its Corporate
Trust Office as the office for each of said purposes; provided, however, that
the New York Agent with respect to a Series shall be the agency where the Notes
of such Series must be surrendered for or after final payment. The Issuer will
give 30 days prior written notice to the Trustee, the Note Insurer and the
Noteholders of any change in the identity of the Paying Agent or 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 presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office, and the Issuer hereby appoints the Trustee
its agent to receive all such presentations, surrenders, notices and demands.
(n) Enforcement of Contribution and Servicing Agreements. The Issuer
----------------------------------------------------
will take all actions necessary, and diligently pursue all remedies available to
it, to the extent commercially reasonable, to enforce the obligations of the
Servicer and JAC under the Contribution and Servicing Agreements and to secure
its rights thereunder.
(o) Issuer May Consolidate, etc., Only on Certain Terms. The Issuer
---------------------------------------------------
shall not consolidate or merge with or into any other Person or convey or
transfer its properties and assets substantially as an entirety to any Person,
unless the Note Insurer, and the Controlling Party with respect to each Series
(if other than the Note Insurer), has each given its prior written consent
thereto and:
(i) the Person (if other than the Issuer) formed by or surviving such
consolidation or merger or which acquires by conveyance or transfer the
properties and assets of the Issuer substantially as an entirety shall be a
Person organized and existing as a limited purpose entity under the laws of
the United States of America or any State thereof and shall have expressly
assumed, by an indenture supplemental hereto, executed and delivered to the
Trustee and the Note Insurer, in form and substance reasonably satisfactory
to the Trustee and the Note Insurer, the obligation to make due and
punctual payments of the principal of
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and interest on all of the Notes and to perform every covenant of this
Indenture on the part of the Issuer to be performed or observed;
(ii) the Issuer shall have caused the Trustee to have received a
letter from the Rating Agencies to the effect that the rating issued with
respect to the Notes is confirmed, notwithstanding the consummation of such
merger, consolidation, transfer or conveyance together with the consent of
each Note Insurer to such merger, consolidation transfer or conveyance;
(iii) immediately after giving effect to such transaction, no Event
of Default or Default shall have occurred and be continuing;
(iv) the Issuer shall have delivered to the Trustee and the Note
Insurer an Officer's Certificate of the Issuer and an Opinion of Counsel
each stating that such consolidation, merger, conveyance or transfer, and
any amendment or supplement to this Indenture entered into in connection
therewith comply with this Article III and that all conditions precedent
herein provided for relating to such transaction have been complied with;
(v) such consolidation, merger, conveyance or transfer shall be on
such terms as shall fully preserve the lien and security of this Indenture,
the perfection and priority thereof and the rights and powers of the
Trustee, the Note Insurer and the Holders of the Notes hereunder; and
(vi) the surviving Person shall be a "special purpose entity"; i.e.,
shall have an organizational charter substantially similar to the
Declaration of Trust of the Issuer including specific limitations on the
business purposes, and provisions for independent directors or trustees.
(p) Successor Substituted. Upon any consolidation or merger, or any
---------------------
conveyance or transfer of the properties and assets of the Issuer substantially
as an entirety in accordance with Section 3.02(o), the Person formed by or
surviving such consolidation or merger (if other than the Issuer) or the Person
to which such conveyance or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Issuer herein.
In the event of any such conveyance or transfer, the Person named as the
"Issuer" in the first paragraph hereof or any successor which shall theretofore
have become such in the manner prescribed in this Article shall be released from
its liabilities as obligor and maker on all the Notes and from its obligations
under this Indenture and may be dissolved, wound-up and liquidated at any time
thereafter.
SECTION 3.04 OTHER MATTERS AS TO THE ISSUER.
(a) Limitation on Liability of Directors, Officers, or Employees of
---------------------------------------------------------------
the Issuer. The trustees, officers, or employees of the Issuer shall not be
- ----------
under any liability to the Note Insurer, the Trustee, the Noteholders, JAC, any
Servicer, any Backup Servicer or any other Person pursuant hereto or pursuant to
any document delivered hereunder, it being expressly understood that all such
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liability is expressly waived and released as a condition of, and as
consideration for, the execution of the Indenture and the issuance of the Notes
of each Series.
(b) Noteholders May Not Institute Insolvency Proceedings. Until the
----------------------------------------------------
date which is one year and one day after the last day on which any Note issued
hereunder is Outstanding, each Noteholder covenants (by accepting its Notes)
that it will not file any involuntary petition or otherwise institute any
bankruptcy, reorganization, moratorium, insolvency or liquidation proceeding or
other proceeding under any federal or state bankruptcy or similar law against
the Issuer.
SECTION 3.05 PAYMENTS ON NOTES; PAYING AGENT; MONEY FOR NOTE PAYMENTS
TO BE HELD IN TRUST.
All payments of amounts due and payable with respect to any Notes
which are to be made from amounts withdrawn from the related Collection Account
pursuant to Section 8.02(c) or Section 5.08 shall be made on behalf of the
Issuer by the Trustee or by a Paying Agent, and no amounts so withdrawn from a
Collection Account for payments of Notes shall be paid over to the Issuer under
any circumstances except as provided in this Section 3.05 or in Section 5.08.
When the Issuer shall have a Paying Agent for a Series that is not
also the Note Registrar for such Series, the Issuer shall furnish, or cause the
Note Registrar for such Series to furnish, no later than the fifth calendar day
after each Record Date for such Series, a list, in such form as such Paying
Agent may reasonably require, of the names and addresses of the Holders of Notes
of such Series and of the original Note Balance and Note numbers of the Notes of
each Class of such Series held by each such Holder.
Whenever the Issuer shall have a Paying Agent other than the Trustee,
the Issuer will, on or before the Business Day next preceding each Payment Date
for each Series, direct the Trustee to deposit with such Paying Agent an
aggregate sum sufficient to pay the amounts then becoming due (to the extent
funds are then available for such purpose in the Collection Account for such
Series), such sum to be held in trust by such Paying Agent for the benefit of
the Persons entitled thereto. Any moneys deposited with a Paying Agent in excess
of an amount sufficient to pay the amounts then becoming due on the Notes with
respect to which such deposit was made shall, upon Issuer Order, be paid over by
such Paying Agent to the Trustee for application in accordance with Article
VIII.
Any Paying Agent shall be appointed by Issuer Order. The Issuer shall
not appoint any Paying Agent (other than the Trustee) which is not, at the time
of such appointment, a depository institution or trust company whose obligations
would be Eligible Investments pursuant to clause (iii) of the definition of the
term "Eligible Investments". In the event that the Trustee is acting as Paying
Agent and the Trustee resigns as Trustee with respect to one or more Series, the
Trustee may resign as Paying Agent with respect to the Notes of such Series.
The Issuer will cause each Paying Agent other than the Trustee to execute and
deliver to the Trustee an instrument in which such Paying Agent shall agree with
the Trustee (and if the Trustee acts as Paying Agent, it hereby so agrees),
subject to the provisions of this Section, that such Paying Agent will:
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(1) allocate all sums received for payment to the Holders of Notes of
each Series and Class for which it is acting as Paying Agent on each
related Payment Date among such Holders in the proportion specified in the
applicable Servicer's Certificate, in each case to the extent permitted by
applicable law;
(2) 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;
(3) if such Paying Agent is not the Trustee, immediately resign as a
Paying Agent and forthwith pay to the Trustee all sums held by it in trust
for the payment of Notes if at any time it ceases to meet the standards set
forth above required to be met by a Paying Agent at the time of its
appointment;
(4) if such Paying Agent is not the Trustee, give the Trustee notice
of any Default or Event of Default by the Issuer (or any other obligor upon
the Notes) in the making of any payment required to be made with respect to
any Series for which it is acting as Paying Agent;
(5) if such Paying Agent is not the Trustee, at any time during the
continuance of any such Default or Event of Default, upon the written
request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent; and
(6) 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; provided, however, that
with respect to withholding and reporting requirements applicable to
original issue discount (if any) on any of the Notes, the Issuer shall have
first provided the calculations pertaining thereto to the Trustee.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Paying Agent, if other than the Trustee, to pay to the Trustee
all sums held in trust by such Paying Agent, such sums to be held by the Trustee
upon the same terms as those upon which such sums were held by such Paying
Agent; and upon such payment by any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Except as provided by applicable law, any money held by the Trustee or
any Paying Agent in trust for the payment of any amount due with respect to any
Note and remaining unclaimed for two and one-half years after such amount has
become due and payable to the Holder of such Note (or, if earlier, three months
prior to the date on which such amount would escheat to a governmental entity
under applicable law) shall be discharged from such trust and paid to the
Issuer; 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
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Trustee or such Paying Agent with respect to such trust money shall thereupon
cease. The Trustee may adopt and employ, at the expense of the Issuer, any
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 (if required) for redemption or whose right to or
interest in moneys due and payable but not claimed is determinable from the
records of the Trustee or any Paying Agent, at the last address of record for
each such Holder).
SECTION 3.06 MAINTENANCE OF TRUST ESTATE.
The Trustee shall not (i) remove any portion of any Trust Estate in
its physical possession from the jurisdiction in which it was held as described
in the Opinion of Counsel delivered at the Closing Date pursuant to Section
2.12(m), (ii) cause such assets to be commingled or merged with any assets not
included in the Trust Estate, or (iii) cause or permit ownership or the pledge
of any portion of the Trust Estate that consists of book-entry securities to be
recorded on the books of a Person located in a different jurisdiction from the
jurisdiction in which such ownership or pledge was recorded at such date unless
the Trustee shall have first received an Opinion of Counsel addressed to the
Trustee and the Note Insurer to the effect that the lien and security interest
created by this Indenture with respect to such property will continue to be
maintained after giving effect to such action or actions; provided that the
Trustee shall not be responsible for the acts or omissions of the Custodian or
any other Person in possession of the Trust Estate in accordance with the
Transaction Documents.
SECTION 3.07 ANNUAL STATEMENT AS TO COMPLIANCE.
On or before 120 days after the end of the first fiscal year of the
Issuer which ends more than three months after the Closing Date for a Series,
and each fiscal year thereafter, the Issuer shall deliver to the Trustee and the
Note Insurer a brief statement with respect to such Series, signed by its
principal executive officer, principal financial officer or principal accounting
officer, that
(1) a review of the fulfillment by the Issuer during such year of its
obligations under this Indenture has been made under such officer's
supervision; and
(2) to the best of such 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
fulfillment of any such obligation, specifying each such Default known to
such officer and the nature and status thereof. For purposes of this
paragraph, such compliance shall be determined without regard to any period
of grace or requirement of notice provided under the Indenture.
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ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.01 SATISFACTION AND DISCHARGE OF INDENTURE.
Whenever the following conditions shall have been satisfied with respect to
a Series:
(1) all Notes of such Series theretofore authenticated and delivered
(other than (A) Notes which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 2.07, and (B) Notes for whose
payment money has theretofore been deposited in trust and thereafter repaid to
the Issuer, as provided in Section 3.05) have been delivered to the Trustee for
cancellation;
(2) the Issuer has paid or caused to be paid all other sums payable
hereunder by the Issuer with respect to such Series and under the related
Insurance Agreement; and
(3) the Issuer has delivered to the Trustee and the Note Insurer an
Officers' Certificate of the Issuer and an Opinion of Counsel each stating that
all conditions precedent herein provided for the satisfaction and discharge of
this Indenture with respect to such Series have been complied with;
then, upon Issuer Request, authorized by a Board Resolution, this Indenture and
the related Series Supplement and the lien, rights and interests created hereby
and thereby shall cease to be of further effect with respect to such Series, and
the Trustee and each co-trustee and separate trustee, if any, then acting as
such hereunder shall, at the expense of the Issuer, execute and deliver all such
instruments as may be necessary to acknowledge the satisfaction and discharge of
this Indenture and the related Series Supplement with respect to such Series and
shall pay, or assign or transfer and deliver, to or at the direction of the
Issuer, all cash, securities and other property held by it as part of the Trust
Estate or other assets for such Series remaining after satisfaction of the
conditions specified in clauses (1) and (2) above.
In the absence of an Issuer Request authorized by a Board Resolution,
the payment of all Outstanding Notes of all Series shall not render this
Indenture inoperative or prevent the Issuer from issuing additional Series from
time to time thereafter as herein provided.
Notwithstanding the satisfaction and discharge of this Indenture with
respect to a Series, the obligations of the Issuer to the Trustee, the Backup
Servicer, the Custodian, and the Note Insurer under Section 6.07, the
obligations of the Trustee to the Issuer, the Note Insurer, and to the Holders
of Notes of such Series and the Note Insurer under Section 3.05, the obligations
of the Trustee to the Holders of Notes of such Series under Section 4.02, the
provisions of Article II with respect to lost, stolen, destroyed or mutilated
Notes of such Series, registration of transfers of Notes of such Series, and
rights to receive payments of principal of and interest on the Notes of such
Series, and the rights, privileges and immunities of the Trustee under Article
VI shall survive.
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SECTION 4.02 APPLICATION OF TRUST MONEY.
All money deposited with the Trustee pursuant to Sections 3.05 and
4.01 shall be held in trust and applied by it, in accordance with the provisions
of the Notes and this Indenture, to the payment, either directly or through any
Paying Agent, as the Trustee may determine, to the Persons entitled thereto, of
the principal and interest for whose payment such money has been deposited with
the Trustee.
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ARTICLE V
DEFAULTS AND REMEDIES
SECTION 5.01 EVENTS OF DEFAULT.
"Event of Default" wherever used herein, means, with respect to a
Series issued hereunder, except to the extent specified otherwise in the related
Series Supplement for such Series, 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):
(1) default in the payment of any interest upon any Note of such Series
when the same becomes due and payable; or
(2) default in the payment of any principal of any Note of such Series
when the same becomes due and payable; or
(3) default in the performance of any covenant of the Issuer, JAC, or
the Servicer, or material breach of any representation or warranty of the
Issuer, JAC, or the Servicer, in this Indenture with respect to such Series, the
related Series Supplement, the related Insurance Agreement, or the related
Contribution and Servicing Agreement (other than a covenant or warranty default
in the performance of which or breach of which is specifically dealt with
elsewhere in this Section), and continuance of such default or breach for a
period of 30 days after the Issuer, JAC, or the Servicer, as applicable, has
actual knowledge thereof; or
(4) the occurrence of a Series Event of Default; or
(5) the entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Issuer under the United States
Bankruptcy Code or any other applicable federal or state bankruptcy, insolvency,
reorganization, liquidation or other similar law now or hereafter in effect or
any arrangement with creditors or appointing a receiver, liquidator, assignee,
trustee, or sequestrator (or other similar official) for the Issuer or for any
substantial part of its property, or ordering the winding up or liquidation of
the Issuer's affairs, and the continuance of any such decree or order unstayed
and in effect for a period of 60 consecutive days; or
(6) the institution by the Issuer of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by the Issuer to the institution of
bankruptcy or insolvency proceedings against the Issuer, or the filing by the
Issuer of a petition or answer or consent seeking reorganization or relief under
the United States Bankruptcy Code or any other applicable federal or State
bankruptcy, insolvency, reorganization, liquidation, or other similar law now or
hereafter in effect, or the consent by the Issuer to the filing of any such
petition or to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee or sequestrator (or other similar
official) of the Issuer or of any substantial part of the Issuer's property, or
the making by the Issuer of any assignment for the benefit of creditors, or the
admission by it in writing of its inability, or the failure by it generally,
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to pay its debts as they become due, or the taking of corporate action by the
Issuer in furtherance of any such action.
SECTION 5.02 ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default with respect to any of the Notes of a Series at
the time Outstanding occurs and is continuing, then, and in every such case, the
Trustee shall, at the direction of the Controlling Party with respect to such
Series, or if the Trustee is the Controlling Party with respect to such Series,
the Trustee shall, at the direction of a Note Voting Amount with respect to such
Series, declare the principal of all the Notes of such Series to be immediately
due and payable, by notice given in writing to the Issuer (and to the Trustee if
given by Noteholders); provided that, the Note Insurer shall not declare the
Aggregate Note Balance of all of the Notes of such Series immediately due and
payable unless the related Note Insurance Policy provides coverage for any
shortfall in the payment of accelerated principal and any interest due on the
Outstanding Notes of such Series that are covered by such Note Insurance Policy
on the date established for redemption thereof pursuant to such acceleration,
and upon any such declaration, such principal shall become immediately due and
payable without any presentment, demand, protest or other notice of any kind
(except such notices as shall be expressly required by the provisions hereof),
all of which are hereby expressly waived.
At any time after such a declaration of acceleration has been made,
but before any Sale of the Trust Estate for such Series has been made or a
judgment or decree for payment of the money due has been obtained by the Trustee
as hereinafter in this Article provided, the Controlling Party with respect to
such Series, or if the Trustee is the Controlling Party with respect to such
Series, a Note Voting Amount with respect to such Series, by written notice to
the Issuer and the Trustee, may rescind and annul such declaration and its
consequences (except that in the case of a payment default on the Notes of such
Series, if the Note Insurer is not the Controlling Party with respect to such
Series, the consent of all Noteholders of such Series shall be required to
rescind and annul such a declaration and its consequences) if:
(1) the Issuer has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue installments of interest on all Notes of such
Series,
(B) the principal of any Notes of such Series which has become
due otherwise than by such declaration of acceleration and interest
thereon at the rate borne by such Notes from the time such principal
first became due until the date when paid, and
(C) all sums paid or advanced, together with interest thereon,
by the Trustee, or any Noteholder hereunder or by the Note Insurer
under the Insurance Agreement or any Note Insurance Policy, and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, the Note Insurer and the Noteholders, their agents and
counsel incurred in connection
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with the enforcement hereof to the date of such payment or deposit,
and all unpaid Trustee's fees and expenses;
and
(2) all Events of Default, other than the nonpayment of the principal
on any of the Notes of such Series which has become due solely by such
declaration of acceleration, have been cured or waived as provided in
Section 5.15.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 5.03 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.
Subject to the provisions of Section 3.01 and the second and third sentence
of the following paragraph, the Issuer covenants that if an Event of Default
with respect to a Series shall occur and be continuing and any of the Notes of
such Series have been declared due and payable and such declaration has not been
rescinded and annulled, the Issuer will, upon demand of the Trustee and (if the
Trustee is not the Controlling Party with respect to such Series) at the
direction of the Controlling Party with respect to such Series, pay to the
Trustee, for the benefit of the Holders of the Notes of such Series and the Note
Insurer, the whole amount then due and payable on the Notes of such Series for
principal and interest, with interest upon the overdue principal at the rate
borne by the Notes of such Series 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 the Note Insurer, and their respective agents and counsel.
Subject to the following two sentences, if the Issuer fails to pay such
amount forthwith upon such demand, the Trustee, in its own name and as Trustee
of an express trust shall, at the direction of the Controlling Party with
respect to the applicable Series, and if the Trustee is the Controlling Party
with respect to such Series, the Trustee may, institute Proceedings for the
collection of the sums so due and unpaid, and prosecute such Proceeding to
judgment or final decree, and enforce the same against the Issuer and collect
the monies adjudged or decreed to be payable in the manner provided by law out
of the property of the Issuer, wherever situated. Notwithstanding any provision
to the contrary herein, any proceedings brought by the Trustee on behalf of the
Noteholders or any Noteholder against the Issuer shall be limited to the
preservation, enforcement and foreclosure of the liens, assignments, rights and
security interests under the Indenture and no attachment, execution or other
unit or process shall be sought, issued or levied upon any assets, properties or
funds of the Issuer, other than the Trust Estate relative to the Series in
respect of which such Event of Default has occurred. If there is a foreclosure
of any such liens, assignments, rights and security interests under this
Indenture, by private power of sale or otherwise, no judgment for any deficiency
upon the indebtedness represented by the Notes may be sought or obtained by the
Trustee or any Noteholder against the Issuer.
Subject to the provisions of Section 3.01 and the preceding two sentences,
if an Event of Default occurs and is continuing, the Trustee shall, at the
direction of the Controlling Party with respect to the applicable Series, and if
the Trustee is the Controlling Party with respect to such Series
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the Trustee may, in its discretion, proceed to protect and enforce its rights
and the rights of the Note Insurer by such appropriate Proceedings as the
Trustee, at the direction of the applicable Controlling Party, or if the Trustee
is the Controlling Party with respect to such Series, at its discretion shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement herein or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 5.04 REMEDIES.
If an Event of Default shall have occurred and be continuing with respect
to a Series, the Trustee shall, at the direction of the Controlling Party, and
if the Trustee is the Controlling Party with respect to such Series, the Trustee
may:
(a) institute Proceedings for the collection of all amounts then due and
payable on the Notes of such Series, or under this Indenture in respect to such
Series, whether by declaration or otherwise, enforce any judgment obtained, and
collect from the Issuer the monies adjudged due (subject to Section 3.01 and
Section 5.03);
(b) in accordance with Section 5.18, take possession of and sell the Trust
Estate securing the Notes of such Series or any portion thereof or rights or
interest therein, at one or more Sales called and conducted in any manner
permitted by law;
(c) institute any Proceedings from time to time for the complete or
partial foreclosure of the lien created by this Indenture with respect to the
related Trust Estate;
(d) during the continuance of a default under a Contract, exercise any of
the rights of the lender under such Contract;
(e) exercise any remedies of a secured party under the Uniform Commercial
Code or any applicable law and take any other appropriate action to protect and
enforce the rights and remedies of the Trustee, the Note Insurer or the Holders
of the Notes of such Series hereunder; and
(f) exercise any other remedy allowed by law or in equity;
provided, however, that without the direction of the applicable Controlling
Party, or if the Note Insurer is not the Controlling Party with respect to such
Series, the consent of all the Holders of Outstanding Notes of such Series, the
Trustee may not sell or otherwise liquidate any portion of the related Trust
Estate unless the proceeds of such sale or liquidation distributable to the
Noteholders are sufficient to discharge in full the amounts then due and unpaid
upon the Notes of such Series for principal and interest together with any
amounts owed to the Note Insurer under the related Insurance Agreement.
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SECTION 5.05 OPTIONAL PRESERVATION OF TRUST ESTATE.
If (i) an Event of Default shall have occurred and be continuing with
respect to a Series and (ii) no Notes of such Series have been declared due and
payable, or such declaration and its consequences have been annulled and
rescinded, the Trustee shall, at the direction of the applicable Controlling
Party (or if the Trustee is the Controlling Party with respect to such Series,
the Trustee may in its sole discretion if it determines it to be in the best
interests of the Holders of the Notes of such Series and upon request from a
Note Voting Amount with respect to such Series, the Trustee shall) elect, by
giving written notice of such election to the Issuer, to take possession of and
retain the related Trust Estate intact, collect or cause the collection of the
proceeds thereof and make and apply all payments and deposits and maintain all
accounts in respect of such Notes in accordance with the provisions of Article
VIII. If the Trustee is unable to or is stayed from giving such notice to the
Issuer for any reason whatsoever such election shall be effective as of the time
of such determination or request, as the case may be, notwithstanding any
failure to give such notice, and the Trustee shall give such notice upon the
removal or cure of such inability or stay (but shall have no obligation to
effect such removal or cure). Any such election may be rescinded with respect
to any portion of the Trust Estate securing the Notes of a Series remaining at
the time of such rescission by written notice to the Trustee and the Issuer from
the applicable Controlling Party with respect to such Series or, if the Trustee
is the Controlling Party with respect to such Series, from a Note Voting Amount
with respect to such Series.
SECTION 5.06 TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial Proceeding related to the Issuer or any other obligor upon any of the
Notes or the property of the Issuer or of such other obligor or their creditors,
the Trustee (irrespective of whether the principal of any of the 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 on the Issuer for
the payment of overdue principal or interest) shall be entitled and empowered,
to intervene in such Proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal and
interest owing and unpaid in respect of the Notes of each Series issued
hereunder and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel and any other amounts due the Trustee under
Section 6.07) and of the Note Insurer and the Noteholders allowed in such
judicial Proceeding, and
(b) to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, or sequestrator (or other
similar official) in any such judicial Proceeding is hereby authorized by the
Note Insurer and each Noteholder to make such payments to the Trustee, and in
the event that the Trustee shall consent to the making of such payments directly
to the Note Insurer or the Noteholders, to pay to the Trustee any amount due to
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it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due that Trustee under
Section 6.07.
Nothing contained herein shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of the Note Insurer or any
Noteholder any plan or reorganization, arrangement, adjustment or composition
affecting the Note Insurer or any of the Notes or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of the Note
Insurer or any Noteholder in any such Proceeding.
SECTION 5.07 TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF NOTES.
(a) In all Proceedings brought by the Trustee (and also any Proceedings
involving the interpretation of any provision hereof to which the Trustee shall
be a party), the Trustee shall be held to represent all of the Noteholders of
the affected Series, and it shall not be necessary to make any Noteholder a
party to any such Proceeding.
(b) All right of actions and claims under this Indenture or any of the
Notes may be prosecuted and enforced by the Trustee without the possession of
any of the Notes or the production thereof in any Proceeding relating thereto,
and any such Proceedings instituted by the Trustee shall be brought in its own
name as Trustee of an express trust, and any recovery whether by judgment,
settlement or otherwise shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the Note Insurer and the ratable benefit of the Holders of
the Notes of the Series in respect of which such judgment has been recovered.
SECTION 5.08 APPLICATION OF MONEY COLLECTED.
If the Notes of a Series have been declared due and payable following an
Event of Default and such declaration has not been rescinded or annulled, any
money collected by the Trustee with respect to the Notes of such Series pursuant
to this Article V or otherwise and any other money that may be held thereafter
by the Trustee as security for the Notes of such Series shall be applied in the
order specified in the related Series Supplement, at the date or dates fixed by
the Trustee and, in case of the distribution of such money or account of
principal or interest, upon presentation of the Notes of such Series and the
notation thereon of the payment if only partially paid and (unless otherwise
specified in the related Series Supplement) upon surrender thereof if fully
paid; provided that proceeds of a claim under a Note Insurance Policy will be
used only to pay interest and principal on the Notes of the applicable Classes
of such Series that are the subject of the coverage provided by such Note
Insurance Policy.
SECTION 5.09 LIMITATION ON SUITS.
No Holder of any Note of a Series 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 for so
long as the Note Insurer is the Controlling Party with respect to such Series,
and if the Note Insurer is not the Controlling Party with respect to such
Series, unless
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(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default with respect to such Series;
(2) Holder(s) representing at least 25% of the Aggregate Note Balance
of such Series shall have made written request to the Trustee to institute
Proceedings in respect of such Event of Default in its own name as Trustee
hereunder;
(3) such Holder or Holders have furnished to the Trustee indemnity to
its satisfaction against the costs, expenses and liabilities to be incurred
in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and indemnity has failed to institute any such Proceedings; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by a Note Majority with
respect to such Series; it being understood and intended that no one or
more Holders of Notes shall have any right in any manner whatever by virtue
of, or by availing of, any provision of this Indenture to affect, disturb
or prejudice the rights of any other Holders of Notes, or to obtain or to
seek to obtain priority or preference over any other Holders or to enforce
any right hereunder, except in the manner herein provided and for the equal
and ratable benefit of all the Holders of Notes of the same Series.
SECTION 5.10 UNCONDITIONAL RIGHT OF NOTEHOLDERS TO RECEIVE PRINCIPAL AND
INTEREST.
Notwithstanding any other provision in this Indenture, the Holder of any
Note of a Series shall have the right, which is absolute and unconditional, to
receive payment solely from amounts in the related Trust Estate of the principal
and interest on such Note as such principal and interest becomes due and payable
and to institute any Proceeding for the enforcement of any such payment solely
from amounts in such Trust Estate, and such right shall not be impaired without
the consent of such Holder.
SECTION 5.11 RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee, the applicable Controlling Party or any Noteholder has
instituted any Proceeding to enforce any right or remedy under this Indenture
and such Proceeding has been discontinued or abandoned for any reason, or has
been determined adversely to the Trustee, such Controlling Party or to such
Noteholder, then, and in every case, the Issuer, the Trustee, such Controlling
Party 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, such
Controlling Party and the Noteholders shall continue as though no such
Proceeding had been instituted.
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SECTION 5.12 RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Notes in the last paragraph of Section
2.07, no right or remedy herein conferred upon or reserved to the Trustee, a
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 5.13 DELAY OR OMISSION; NOT WAIVER.
No delay or omission of the Trustee, a Controlling Party or any Holder of
any Note to exercise any right or remedy upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
any acquiescence therein. Every right and remedy given by this Article V or by
law to the Trustee, a Controlling Party or to the Noteholders may be exercised
from time to time, and as often as may be deemed expedient, by the Trustee, such
Controlling Party or by the Noteholders, as the case may be, subject in each
case, however, to the right of the applicable Controlling Party to control any
such right and remedy as provided herein.
SECTION 5.14 CONTROL BY NOTEHOLDERS.
With respect to each Series, the applicable Controlling Party or, if the
Trustee is the Controlling Party with respect to such Series, a Note Voting
Amount with respect to such Series, shall have the right to direct the time,
method and place of conducting any Proceeding with respect to such Series for
any remedy available to the Trustee or exercising any trust or power conferred
on the Trustee; provided that:
(1) such direction shall not be in conflict with any rule of law or
with this Indenture including, without limitation, any provision hereof
which expressly provides for approval by a greater percentage of Aggregate
Note Balance of all Notes;
(2) any direction to the Trustee by the Noteholders to undertake a
private sale of the related Trust Estate shall be by the Holders of all
Outstanding Notes of such Series, unless the condition set forth in Section
5.18(b)(ii) is met;
(3) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction; provided, however,
that, subject to Section 6.01, the Trustee need not take any action which a
Responsible Officer or Officers of the Trustee in good faith determines
might involve it in personal liability or be unjustly prejudicial to the
Noteholders not consenting; and
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(4) the Trustee has been furnished indemnity reasonably satisfactory
to it against costs, expenses and liabilities which it might incur in
connection therewith as provided in Section 6.01(f).
SECTION 5.15 WAIVER OF PAST DEFAULTS BY LESS THAN ALL NOTEHOLDERS.
With respect to each Series, the Controlling Party with respect to such
Series, or if the Trustee is the Controlling Party with respect to such Series,
a Note Voting Amount of such Series, may on behalf of the Holders of all the
Notes of such Series waive any past Default hereunder with respect to such
Series and its consequences, except a Default:
(1) in the payment of the principal of, or interest on any Note of
such Series, or a Default described in Sections 5.01(5) and (6), or
(2) in respect of a covenant or provision hereof which under Article
IX cannot be modified or amended without the consent of the Holder of each
Outstanding Note affected.
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
SECTION 5.16 UNDERTAKING FOR COSTS.
All parties hereto agree, and each Holder of any Note by his 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 any
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 5.16 shall not apply to any suit instituted by the Trustee, the
Note Insurer, or to any suit instituted by any Note Majority with respect to a
Series, or to any suit instituted by any Noteholder for the enforcement of the
payment of the principal of or interest on any Note on or after the Stated
Maturity expressed in such Note.
SECTION 5.17 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, which may affect the covenants or the
performance of this Indenture; and the Issuer (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
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SECTION 5.18 SALE OF TRUST ESTATE.
(a) The power to effect any sale (a "Sale") of any portion of a Trust
Estate pursuant to Section 5.04 shall not be exhausted by any one or more Sales
as to any portion of such Trust Estate remaining unsold, but shall continue
unimpaired until the entire Trust Estate securing the related Series shall have
been sold or all amounts payable on such Series secured thereby and under this
Indenture with respect thereto shall have been paid. The Trustee may from time
to time postpone any Sale by public announcement made at the time and place of
such Sale.
(b) With respect to each Series, to the extent permitted by applicable
law, and except as specified otherwise in the related Series Supplement, the
Trustee shall not, in any private Sale, sell to a third party the related Trust
Estate, or any portion thereof, unless:
(i) the Note Insurer, or if the Note Insurer is not the Controlling
Party with respect to such Series, the Holders of all Outstanding Notes of
such Series, consent to or direct the Trustee to make such Sale; or
(ii) if the Note Insurer is not the Controlling Party with respect to
such Series, the proceeds of such Sale would not be less than the sum of
all amounts due to the Trustee hereunder and the Aggregate Note Balance of
all Notes of such Series and interest due or to become due thereon on the
Payment Date for such Series next succeeding such Sale together with any
amounts owing to the Note Insurer under the related Insurance Agreement.
(c) The Trustee, the Note Insurer or the Noteholders may bid for and
acquire any portion of the Trust Estate securing a Series in connection with a
public Sale thereof, and in lieu of paying cash therefor, any Noteholder may
make settlement for the purchase price by crediting against amounts owing on the
Notes of such Holder or other amounts owing to such Holder secured by this
Indenture, that portion of the net proceeds of such Sale to which such Holder
would be entitled, after deducting the reasonable costs, charges and expenses
incurred by the Trustee, the Note Insurer or the Noteholders of such Series in
connection with such Sale. The Notes of a Series need not be produced in order
to complete any such Sale, or in order for the net proceeds of such Sale to be
credited against the Notes of such Series. The Trustee, the Note Insurer or the
Noteholders may hold, lease, operate, manage or otherwise deal with any property
so acquired in any manner permitted by law.
(d) The Trustee shall execute and deliver an appropriate instrument of
conveyance transferring its interest in any portion of a Trust Estate in
connection with a Sale thereof. In addition, the Trustee is hereby irrevocably
appointed the agent and attorney-in-fact of the Issuer to transfer and convey
its interest in any portion of a Trust Estate in connection with a Sale thereof,
and to take all action necessary to effect such Sale. No purchaser or
transferee at such a sale shall be bound to ascertain the Trustee's authority,
inquire into the satisfaction of any conditions precedent or see the application
of any monies.
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(e) The method, manner, time, place and terms of any Sale of all or any
portion of a Trust Estate shall be commercially reasonable.
SECTION 5.19 ACTION ON NOTES.
The Trustee's right to seek and recover judgment on a Series or under this
Indenture shall not be affected by 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 of a
Series 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 related Trust Estate.
SECTION 5.20 NO RECOURSE TO OTHER TRUST ESTATES OR OTHER ASSETS OF THE
ISSUER.
Except to the extent provided otherwise in the related Series
Supplement, the Trust Estate with respect to a Series will serve as security
only for that Series. Except to the extent provided otherwise in the related
Series Supplement, Holders of Notes of one Series shall have no recourse against
the Trust Estate with respect to any other Series, and no judgment against the
Issuer for any amount due with respect to one Series may be enforced against
either the Trust Estate with respect to any other Series or any other assets of
the Issuer, nor may any prejudgment lien or other attachment be sought against
any such other Trust Estate or any other assets of the Issuer.
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ARTICLE VI
THE TRUSTEE
SECTION 6.01 CERTAIN DUTIES AND RESPONSIBILITIES.
(a) Except during the continuance of an Event of Default known to the
Trustee as provided in subsection (e) below:
(i) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth herein, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith or negligence on its part, the
Trustee may conclusively rely as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
hereof; but in the case of any such certificates or opinions, which by any
provision hereof are specifically required to be furnished to the Trustee,
the Trustee shall be under a duty to examine the same and to determine
whether or not they conform to the requirements hereof.
(b) In case an Event of Default known to the Trustee, as provided in
subsection (e) below, has occurred and is continuing, the Trustee shall exercise
such of the rights and powers vested in it by this Indenture, and shall use the
same degree of care and skill in its exercise, as a reasonable person would
exercise or use under the circumstances in the conduct of his or her own
affairs.
(c) No provision hereof shall be construed to relieve the Trustee from
liability for its own negligent action, its own negligent failure to act, or its
own willful misconduct or bad faith, except that:
(i) this subsection (c) shall not be construed to limit the effect
of subsection (a) of this Section;
(ii) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer of the Trustee, unless it shall be
proven that the Trustee was negligent in ascertaining the pertinent facts;
(iii) the Trustee in all events shall not be liable with respect to
any action taken or omitted to be taken by Trustee in good faith in
accordance with the direction received by it in accordance with this
Agreement; and
(iv) no provision hereof shall require the Trustee to expend or risk
its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its right or
powers, if Trustee shall have reasonable grounds for believing that
repayment of such funds or the furnishing of
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adequate indemnity against such risk or liability is not reasonably assured
to Trustee, provided that nothing contained herein shall excuse the Trustee
for failure to perform its duties as Trustee hereunder.
(d) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section
6.01.
(e) For all purposes under this Indenture, the Trustee shall not be deemed
to have notice of any Event of Default described in Section 5.01(4) or 5.01(5)
or any Default described in Section 5.01(3) or any Note Insurer Default unless a
Responsible Officer assigned to and working in the Trustee's corporate trust
department has actual knowledge thereof, or unless written notice of any event
which is in fact such an Event of Default, Default, or a Note Insurer Default is
received by the Trustee at the Corporate Trust Office, and such notice
references any of the Notes of any Series generally, the Issuer, any Trust
Estate or this Indenture.
(f) The Trustee shall be under no obligation to institute any suit, or to
take any remedial proceeding under this Indenture, or to enter any appearance or
in any way defend in any suit in which Trustee may be made defendant, or to take
any steps in the execution of the trusts hereby created or in the enforcement of
any rights and powers hereunder until Trustee shall be furnished with indemnity
to its satisfaction against any and all costs and expenses, outlays and counsel
fees and other reasonable disbursements and against all liability in connection
with any action so taken.
(g) Notwithstanding any extinguishment of all right, title and interest of
the Issuer in and to a Trust Estate following an Event of Default with respect
to a Series and a consequent declaration of acceleration of the maturity of any
of the Notes of such Series, whether such extinguishment occurs through a Sale
of such Trust Estate to another person, the acquisition of such Trust Estate by
the Trustee or otherwise, the right, powers and duties of the Trustee with
respect to such Trust Estate (or the proceeds thereof) and the Noteholders of
such Series and the rights of such Noteholders shall continue to be governed by
the terms of this Indenture.
(h) Notwithstanding anything to the contrary contained herein, the
provisions of subsections (e) through (g), inclusive, of this Section 6.01 shall
be subject to the provisions of subsections (a) through (c), inclusive, of this
Section 6.01.
(i) The Trustee shall provide the reports and accountings as required
pursuant to Sections 8.07 and 8.08.
SECTION 6.02 NOTICE OF DEFAULT.
With respect to each Series, promptly after the occurrence of any Default,
Event of Default, or Note Insurer Default with respect to such Series known to
the Trustee (within the meaning of Section 6.01(e)) which is continuing, within
one Business Day of obtaining such knowledge, the Trustee shall transmit by
telephonic or telegraphic communication confirmed by mail to the Note Insurer
and by mail to the related Rating Agencies and all Holders of Notes of such
Series, as their
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names and addresses appear on the Note Register, notice of such Default, Event
of Default, or Note Insurer Default hereunder known to the Trustee, unless in
the case of notice of Default to such Noteholders, such Default shall have been
promptly cured within the applicable grace period.
SECTION 6.03 CERTAIN RIGHTS OF TRUSTEE.
Except as otherwise provided in Section 6.01,
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, note or other
obligation, paper or document believed by Trustee to be genuine and to have been
signed or presented by the proper party or parties;
(b) any request or direction of the Issuer mentioned herein shall be
sufficiently evidenced by a Issuer Request or Issuer Order and any resolution of
the Board of Trustees may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
conclusively rely upon an Officer's Certificate;
(d) the Trustee may consult with counsel and the written advice of such
counsel selected by the Trustee with due care or any Opinion of Counsel shall be
full and complete authorization and protection in respect of any action taken,
suffered or omitted by the Trustee hereunder in good faith and in reliance
thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in the Trustee by this Indenture at the request or direction of
any of the Noteholders pursuant to this Indenture, unless such Noteholders shall
have furnished to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by the Trustee in
compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, note or other
paper or document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as the Trustee may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, the Trustee shall be entitled to examine the books, record and
premises of the Issuer, upon reasonable notice and at reasonable times
personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys.
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SECTION 6.04 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF NOTES.
(a) The recitals contained in this Indenture and in the Notes, except the
certificates of authentication on the Notes, shall be taken as the statements of
the Issuer, and the Trustee assumes no responsibility for their correctness or
completeness. The Trustee makes no representations as to the validity or
condition of any Trust Estate or any part thereof, or as to the title of the
Issuer thereto or as to the security afforded thereby or hereby, or as to the
validity or genuineness of any securities at any time pledged and deposited with
the Trustee hereunder or as to the validity or sufficiency of this Indenture or
any of the Notes. The Trustee shall not be accountable for the use or
application by the Issuer of any of the Notes or the proceeds thereof or of any
money paid to the Issuer or upon Issuer Order under any provisions hereof.
(b) Except as otherwise expressly provided herein and without limiting the
generality of the foregoing, the Trustee shall have no responsibility or
liability for or with respect to the existence or validity of any Financed
Vehicle or Contract, the perfection of any security interest (whether as of the
date hereof or at any future time), the maintenance of or the taking of any
action to maintain such perfection, the validity of the assignment of any
portion of any Trust Estate to the Trustee or of any intervening assignment, the
review of any Contract (it being understood that the Trustee has not reviewed
and does not intend to review the substance or form of any such Contract), the
performance or enforcement of any Contract, the validity and sufficiency of any
Note Insurance Policy, the compliance by the Issuer or the Servicer with any
covenant or the breach by the Issuer or any Servicer of any warranty or
representation made hereunder or in any related document or the accuracy of any
such warranty or representation, any investment of monies in the Collection
Account for any Series or any loss resulting therefrom, the acts or omissions of
the Issuer, any Servicer, the Note Insurer or any Obligor, any action of any
Servicer taken in the name of the Trustee, or the validity of any Contribution
and Servicing Agreement.
(c) The Trustee shall not have any obligation or liability under any
Contract by reason of, or arising out of, this Indenture or the granting of a
security interest in such Contract hereunder or the receipt by the Trustee of
any payment relating to any Contract pursuant hereto, nor shall the Trustee be
required or obligated in any manner to perform or fulfill any of the obligations
of the Issuer under or pursuant to any Contract, or to make any payment, or to
make any inquiry as to the nature or the sufficiency of any payment received by
it, or the sufficiency of any performance by any party, under any Contract.
SECTION 6.05 MAY HOLD NOTES.
The Trustee, the Servicer, the Backup Servicer, any Payment Agent, the Note
Registrar, any Authenticating Agent or any other agent of the Issuer, in its
individual or any other capacity, may become the owner or pledgee of Notes, and
if operative, may otherwise deal with the Issuer with the same rights it would
have if it were not Trustee, Servicer, Paying Agent, Note Registrar,
Authenticating Agent or such other agent.
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SECTION 6.06 MONEY HELD IN TRUST.
Money and investments held in trust by the Trustee or any Paying Agent
hereunder shall be held in one or more trust accounts hereunder but need not be
segregated from other funds, except to the extent required herein or required by
law, but shall in all cases be accounted for separately for each Series. The
Trustee or any Paying Agent shall be under no liability for interest on any
money received by it hereunder except as otherwise agreed in writing with the
Issuer or otherwise specifically provided herein and except to the extent of
income or other gain on investments which are obligations of the Trustee, in its
commercial capacity, and income or other gain actually received by the Trustee
on investments, which are obligations of others.
SECTION 6.07 COMPENSATION AND REIMBURSEMENT.
With respect to each Series, the Issuer agrees:
(i) (A) subject to any separate written agreement with the Trustee,
to pay the Trustee monthly its fees for all services rendered by it
hereunder, in the amount of the Trustee Fee (which compensation shall not
otherwise be limited by any provision of law in regard to the compensation
of a trustee of an express trust); (B) subject to any separate written
agreement with the Backup Servicer, if any, to pay to the Backup Servicer
its fee for all services rendered hereunder and under the related
Contribution and Servicing Agreement, in the amount of the Backup Servicer
Fee; (C) subject to any separate written agreement with the Custodian, if
any, to pay the Custodian its fee for all services rendered under the
related Custodian Agreement; and (D) to pay the Note Insurer the related
Note Insurer Premium as specified in the related Insurance Agreement;
(ii) except as otherwise expressly provided herein, to reimburse the
Trustee or the Backup Servicer upon its request for all reasonable out-of-
pocket expenses, disbursements and advances incurred or made by the Trustee
or the Backup Servicer in accordance with any provision of this Indenture
or the related Contribution and Servicing Agreement (including the
reasonable compensation and the expenses and disbursements of the Trustee's
and Backup Servicer's agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(iii) to indemnify and hold harmless the Trustee from and against
any loss, liability, expense, damage or injury (other than those
attributable to a Noteholder in its capacity as an investor in any of the
Notes) sustained or suffered pursuant to this Indenture by reason of any
acts, omissions or alleged acts or omissions arising out of activities of
the Trustee (including without limitation any violation of any applicable
laws by the Issuer as a result of the transactions contemplated by this
Indenture), including, but not limited to, any judgment, award, settlement,
reasonable attorneys' fees and other expenses incurred in connection with
the defense of any actual or threatened action, proceeding or claim;
provided that the Issuer shall not
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indemnify the Trustee if such loss, liability, expense, damage or injury is
due to the Trustee's willful misfeasance, bad faith or negligence in the
performance of duties. Any indemnification pursuant to this Section shall
only be payable from the assets of the Issuer and shall not be payable from
the assets of the Trust Estate. The provisions of this indemnity shall run
directly to and be enforceable by an injured Person subject to the
limitations hereof and this indemnification agreement shall survive the
termination of this Indenture or the resignation or removal of the Trustee.
SECTION 6.08 CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a trustee hereunder which shall be a
corporation or association organized and doing business under the laws of the
United States of America or of any State, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$50,000,000, subject to supervision or examination by federal or State authority
and having an office within the United States of America, and which shall have a
commercial paper or other short term rating of the highest short term rating
categories by each Rating Agency rating a Series, or otherwise acceptable to
such Rating Agencies. If such corporation publishes reports of condition at
least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.
SECTION 6.09 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.10.
(b) Subject to the provisions of the applicable Series Supplement with
respect to any Series, the Trustee may resign with respect to any or all Series
at any time by giving written notice to the Issuer and the Note Insurer. If an
instrument of acceptance by a successor Trustee shall not have been delivered to
the Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee. Such court may thereupon, after such
notice, if any, as it may deem proper and may prescribe, appoint a successor
Trustee.
(c) The Trustee may be removed with respect to any Series by the Note
Insurer, or if the Note Insurer is not the Controlling Party with respect to
such Series, a Note Voting Amount with respect to such Series, at any time if
one of the following events have occurred:
(i) the Trustee shall cease to be eligible under Section 6.08 and
shall fail to resign after written request therefor by the Issuer, the Note
Insurer or, if a Note
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Insurer Default with respect to such Series has occurred, by any Noteholder
of such Series, or
(ii) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its
property shall be appointed, or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, or
(iii) the Trustee has failed to perform its duties hereunder with
respect to such Series or has breached any representation or warranty made
herein by the Trustee with respect to such Series.
(d) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of the Trustee with respect to the
Notes of one or more Series for any cause, the Issuer by a Board Resolution,
shall promptly appoint a successor Trustee with respect to such Series, which
successor Trustee, so long as the Note Insurer is the Controlling Party with
respect to such Series, must be satisfactory to the Note Insurer. If no
successor Trustee with respect to the applicable Series shall have been so
appointed by the Issuer within 30 days of notice of removal or resignation and
shall have accepted appointment in the manner hereinafter provided, then the
Note Insurer may appoint a successor Trustee. If the Note Insurer shall fail to
appoint a successor Trustee within 90 days of notice of resignation or removal
of the Trustee or, if the Note Insurer is not the Controlling Party with respect
to such Series, then a Note Voting Amount with respect to such Series may
petition any court of competent jurisdiction for the appointment of a successor
Trustee with respect to the applicable Series. No resignation or removal of the
Trustee shall be effective until a successor is appointed as provided herein.
(e) The Issuer shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee with respect to the
Notes of a Series to the Noteholders of each Series affected thereby and the
related Rating Agencies. Each notice shall include the name of the successor
Trustee and the address of its Corporate Trust Office.
SECTION 6.10 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Issuer and the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee but, on request of the Issuer or the successor
Trustee, such retiring Trustee shall execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and trusts of the
retiring Trustee (provided, however, that if the retiring Trustee has been
removed or has resigned, pursuant to Section 6.09, with respect to less than all
Series for which it is Trustee, then such transfer shall be limited to its
rights and powers with respect to each Series with respect to which it has
resigned or been removed), and shall duly assign, transfer and deliver to such
successor Trustee all property and money held by such retiring Trustee hereunder
(provided, however, that if the retiring Trustee has been removed or has
resigned, pursuant to Section 6.09, with
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respect to less than all Series for which it is Trustee, then such assignment,
transfer and delivery by the retiring Trustee shall be limited to the property
and money held by it for the benefit of the Holders of Notes of the Series with
respect to which it has resigned or been removed). Upon request of any such
successor Trustee, the Issuer shall execute any and all instruments for more
fully and certainly vesting in and confirming to such successor Trustee all such
rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be eligible under this Article.
SECTION 6.11 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS
OF TRUSTEE.
Any Person into which the Trustee may be merged or converted or with which
it may be consolidated, or any Person resulting from any merger, conversion, or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such Person
shall be otherwise qualified and eligible under this Article, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, and notice thereof shall be provided by the Trustee to the
Noteholders and each Rating Agency rating a Series of Notes. In case any Notes
have been authenticated, but not delivered, by the Trustee then in office, any
successor by merger, conversion or consolidation to such authenticating Trustee
may adopt such authentication and deliver the Notes so authenticated with the
same effect as if such successor Trustee had itself authenticated such Notes.
SECTION 6.12 CO-TRUSTEES AND SEPARATE TRUSTEES.
At any time or times, for the purpose of meeting the legal requirements of
any jurisdiction in which any of a Trust Estate may at the time be located, or
the requirements of the Series Supplement with respect to any Series, the
Issuer, the Note Insurer, and the Trustee shall have power to appoint, and, upon
the written request of the Trustee, the Note Insurer or, if the Note Insurer is
not the Controlling Party with respect to the applicable Series, of the Holders
representing at least 25% in Aggregate Note Balance of all Notes of the Series
secured by the Trust Estate with respect to which a co-trustee or separate
trustee is being appointed, the Issuer shall for such purpose join with the
Trustee in the execution, delivery and performance of all instruments and
agreements necessary or proper to appoint, one or more Persons approved by the
Trustee and meeting the requirements of Section 6.08, either to act as co-
trustee, jointly with the Trustee of all or any part of such Trust Estate, or to
act as separate Trustee of any such property, in either case with such powers as
may be provided in the instrument of appointment, and to vest in such Person or
persons in the capacity aforesaid, any property, title, right or power deemed
necessary or desirable, subject to the other provisions of this Section. If the
Issuer does not join in such appointment within 15 days after the receipt by it
of a request so to do, or in case an Event of Default has occurred and is
continuing, the Trustee alone shall have power to make such appointment.
Should any written instrument from the Issuer be reasonably required by any
co-trustee or separate trustee so appointed for more fully confirming to such
co-trustee or separate trustee such
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property, title, right or power, any and all such instruments shall, on request,
be executed, acknowledged and delivered by the Issuer.
Every co-trustee or separate trustee shall, to the extent permitted by law,
but to such extent only, be appointed subject to the following terms:
(i) the Notes shall be authenticated and delivered by, and all
rights, powers, duties and obligations under this Indenture in respect of
the custody of securities, cash and other personal property held by, or
required to be deposited or pledged with, the Trustee under this Indenture,
shall be exercised solely by the Trustee;
(ii) the rights, powers, duties and obligations conferred or imposed
upon the Trustee by this Indenture in respect of any property covered by
such appointment shall be conferred or imposed upon and exercised or
performed by the Trustee or by the Trustee and such co-trustee or separate
trustee jointly, as shall be provided in the instrument appointing such co-
trustee or separate trustee, except to the extent that under any law of any
jurisdiction in which any particular act is to be performed, the Trustee
shall be incompetent or unqualified to perform such act, in which event
such rights, powers, duties and obligations shall be exercised and
performed by such co-trustee or separate trustee;
(iii) the Trustee at any time, by an instrument in writing executed
by it, with the concurrence of the Issuer evidenced by a Board Resolution,
may accept the resignation of or remove any co-trustee or separate trustee,
appointed under this Section, and, in case an Event of Default with respect
to the applicable Series has occurred and is continuing, the Trustee shall
have power to accept the resignation of, or remove, any such co-trustee or
separate trustee without the concurrence of the Issuer. Upon the written
request of the Trustee, the Issuer shall join with the Trustee in the
execution, delivery and performance of all instruments and agreements
necessary or proper to effectuate such resignation or removal. A successor
to any co-trustee or separate trustee that has so resigned or been removed
may be appointed in the manner provided in this Section;
(iv) no co-trustee or separate trustee hereunder shall be personally
liable by reason of any act or omission of the Trustee or any other such
trustee hereunder nor shall the Trustee be liable by reason of any act or
omission of any co-trustee or separate trustee selected by the Trustee with
due care or appointed in accordance with directions to the Trustee pursuant
to Section 6.14; and
(v) any Act of Noteholders delivered to the Trustee shall be deemed
to have been delivered to each such co-trustee and separate trustee.
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SECTION 6.13 RIGHTS WITH RESPECT TO THE SERVICER AND BACKUP SERVICER.
The Trustee's rights and obligations with respect to the Servicer and the
Backup Servicer, if any, with respect to a Series shall be governed by the
related Contribution and Servicing Agreements.
SECTION 6.14 APPOINTMENT OF AUTHENTICATING AGENT.
The Trustee may appoint an Authenticating Agent or Agents with respect to
the Notes of each Series which shall be authorized to act on behalf of the
Trustee to authenticate Notes issued upon original issue or upon exchange,
registration of transfer or pursuant to Section 2.05, and Notes so authenticated
shall be entitled to the benefits of this Indenture and shall be valid and
obligatory for all purposes as if authenticated by the Trustee hereunder.
Wherever reference is made herein to the authentication or the delivery of Notes
to the Trustee for authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent and delivery of the Notes to the Authenticating Agent on
behalf of the Trustee. Each Authenticating Agent shall be acceptable to the
Issuer and the Note Insurer and shall at all times be a corporation having a
combined capital and surplus of not less than the equivalent of $50,000,000 and
subject to supervision or examination by federal or State authority or the
equivalent foreign authority, in the case of an Authenticating Agent who is not
organized and doing business under the laws of the United States of America or
any State thereof. If such Authenticating Agent publishes reports of condition
at least annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such Authenticating Agent shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time an Authenticating Agent shall cease to be eligible in
accordance with the provisions of this Section, such Authenticating Agent shall
resign immediately in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of such Authenticating Agent, shall continue to be an
Authenticating Agent without the execution or filing of any paper or any further
act on the part of the Trustee or such Authenticating Agent; provided, such
corporation shall be otherwise eligible under this Section.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee, the Note Insurer and to the Issuer. The Trustee may at
any time terminate the agency of an Authenticating Agent by giving written
notice thereof to such Authenticating Agent, the Note Insurer and to the Issuer.
Upon receiving such a notice of resignation or upon such a termination, or in
case at any time such Authenticating Agent shall cease to be eligible in
accordance with the provisions of this Section, the Trustee may appoint a
successor Authenticating Agent which shall be acceptable to the Issuer and the
Note Insurer and shall mail written notice of such appointment by first-class
mail, postage prepaid, to all Holders of Notes, if any, with respect to which
such Authenticating
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Agent will serve, as their names and addresses appear in the Note Register. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section.
The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payments, subject to the provisions
of Section 6.07.
If an appointment is made pursuant to this Section, the Notes may have
endorsed thereon, in addition to the Trustee's certificate of authentication, an
alternate certificate of authentication in the following form:
This is one of the Notes described in the within-mentioned Indenture.
________________
________________
By:----------------------------
As Authenticating Agent
By:
-----------------------------
Authorized Officer
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ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
SECTION 7.01 ISSUER TO FURNISH TRUSTEE NAMES AND ADDRESSES OF NOTEHOLDERS.
(a) The Issuer will furnish or cause to be furnished to the Trustee
(i) semi-annually, not less than 45 days nor more than 60 days after each
Payment Date for a Series, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Holders of Notes of such Series, and
(ii) 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 that 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. If the Notes of a particular
Series have Payment Dates which are more frequent than semi-annual, then the
applicable Payment Dates for purposes of clause (i) of the preceding sentence
shall be the Payment Date occurring closest to six months after the Closing Date
for such Series and each Payment Date occurring at six-month intervals
thereafter.
(b) In addition to furnishing to the Trustee the Noteholder lists, if
any, required under subsection (a), the Issuer shall also furnish all Noteholder
lists, if any, required under Section 3.05 at the times required by said Section
3.05.
SECTION 7.02 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 of Notes contained in the
most recent list, if any, furnished to the Trustee as provided in Section 7.01
and the names and addresses of the Holders of Notes received by the Trustee in
its capacity as Note Registrar. The Trustee may destroy any list furnished to
it as provided in Section 7.01 upon receipt of a new list so furnished.
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ARTICLE VIII
ACCOUNTS, PAYMENTS OF INTEREST AND PRINCIPAL, AND RELEASES
SECTION 8.01 COLLECTION OF MONEYS.
Except as otherwise expressly provided herein with respect to each
Series, the Trustee may, and shall, at the direction of the Note Insurer, demand
payment or delivery of, and shall receive and collect from the Servicer and its
subservicers in accordance with the related Contribution and Servicing
Agreement, all money and other property payable to or receivable by the Trustee
pursuant to this Indenture. The Trustee shall, upon request from the Servicer,
provide the Servicer with sufficient information regarding the amount of
collections deposited by the Trustee in the accounts established pursuant to
this Article VIII, in order to permit the Servicer to perform its duties under
the related Contribution and Servicing Agreement. The Trustee shall hold all
such money and property so received by it as part of the Trust Estate with
respect to which it was received, and shall apply it as provided herein. If the
Obligor under a Contract defaults in the payment or performance of such
Contract, the Trustee, upon Issuer or Servicer request may, and upon the request
of the Note Insurer shall, 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 to proceed
thereafter as provided in Article V.
SECTION 8.02 COLLECTION ACCOUNTS.
(a) On or before the Closing Date for a Series, the Trustee shall
open and maintain a trust account at its Corporate Trust Office (the "Collection
Account" for such Series) in the name of the Trustee for the benefit of the Note
Insurer and the Noteholders of such Series, for the receipt of (i) payments
remitted to the Trustee by the Servicer or any subservicer pursuant to Section
3.07 of the related Contribution and Servicing Agreement, (ii) proceeds of
claims made under the related Note Insurance Policy, in accordance with the
related Series Supplement, upon receipt, (iii) each Collection Account Deposit
delivered to the Trustee by the Issuer, and (iv) any Reinvestment Income with
respect to the Collection Account. Funds in the Collection Account shall not be
commingled with any other monies. All payments to be made from time to time by
the Issuer to the Noteholders for such Series out of funds in the applicable
Collection Account pursuant to this Indenture shall be made by the Trustee or
the Paying Agent of the Issuer. All monies deposited from time to time in a
Collection Account shall be held by the Trustee as part of the Trust Estate for
the related Series as herein provided, subject to withdrawal as provided in
Section 8.02(c).
(b) So long as no Default or Event of Default shall have occurred and
be continuing with respect to a Series, upon Issuer Order, and except as
otherwise provided in the related Series Supplement, the Trustee shall invest
the funds in the related Collection Account in Eligible Investments; provided,
however, that all monies on deposit in Collection Account pursuant to Section
8.02(a)(ii) shall remain uninvested. The Issuer Order shall specify the
Eligible Investments in which the Trustee shall invest, shall state that the
same are Eligible Investments and shall further specify the percentage of funds
to be invested in each Eligible Investment. Each such Eligible
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Investment shall mature no later than the Business Day preceding the next
following Payment Date for such Series (or in the case of an investment
described in paragraph (vii) of the definition of Eligible Investments, such
Eligible Investment shall mature no later than the next following Payment Date
for such Series) and shall not be sold or disposed of prior to its maturity, or
be payable on demand without penalty or discount. In the absence of an Issuer
Order, the Trustee shall invest funds in a Collection Account in Eligible
Investments as provided in Section 8.06.
Any Reinvestment Income with respect to a Collection Account shall be
credited to such Collection Account and any loss resulting from such investments
shall be charged to such account. The Trustee shall not be liable for any loss
incurred on any funds invested in Eligible Investments pursuant to the
provisions of this Section 8.02 (other than in its capacity as obligor under any
Eligible Investment).
(c) Unless the Notes of a Series have been declared due and payable
pursuant to Section 5.02 and moneys collected by the Trustee with respect to
such Series are being applied in accordance with Section 5.08, amounts on
deposit in the related Collection Account on any Payment Date shall be withdrawn
from such Collection Account, in the amounts required, for application in the
priority of payment specified in the related Series Supplement.
SECTION 8.03 PRE-FUNDING ACCOUNT.
(a) On or before the Closing Date of a Series, if required by the
related Series Supplement, the Trustee shall open and maintain a trust account
at its Corporate Trust Office (the "Pre-Funding Account" for such Series) in the
name of the Trustee for the benefit of the Note Insurer and the Noteholders of
such Series for receipt of (i) the Pre-Funding Account Deposit for the Series on
the Closing Date and (ii) any Reinvestment Income. Funds in the Pre-Funding
Account of a Series shall not be commingled with any other monies. All monies
deposited from time to time in a Pre-Funding Account shall be held by the
Trustee as part of the Trust Estate for the related Series as herein provided,
subject to withdrawal as provided in Section 8.03(c).
(b) So long as no Default or Event of Default shall have occurred and be
cowith respect to a Series, upon Issuer Order, and except as otherwise provided
in the related Series Supplement, the Trustee shall invest the funds in each
Pre-Funding Account in Eligible Investments. The Issuer Order shall specify the
Eligible Investments in which the Trustee shall invest, shall state that the
same are Eligible Investments and shall further specify the percentage of funds
to be invested in each Eligible Investment. Each such Eligible Investment shall
mature no later than the Business Day preceding the next possible Subsequent
Transfer Date for the related Series (or in the case of an investment described
in paragraph (vii) of the definition of Eligible Investments, such Eligible
Investment shall mature no later than the next possible Subsequent Transfer Date
for such Series) and shall not be sold or disposed of prior to its maturity, or
be payable on demand without penalty or discount. In the absence of an Issuer
Order, the Trustee shall invest funds in a Pre-Funding Account in Eligible
Investments as provided in Section 8.06.
Any Reinvestment Income with respect to a Pre-Funding Account shall be
credited to such Pre-Funding Account and any loss resulting from such
investments shall be charged to such account.
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The Trustee shall not be liable for any loss incurred on any funds invested in
Eligible Investments pursuant to the provisions of this Section 8.03 (other than
in its capacity as obligor under any Eligible Investment).
(c) On any Subsequent Transfer Date for a Series, the Issuer shall
instruct the Trustee to: (i) withdraw from the related Pre-Funding Account an
amount equal to the applicable Subsequent Release Amount for each Subsequent
Contract Granted to the Trustee for the related Trust Estate on such Subsequent
Transfer Date pursuant to a Subsequent Transfer Agreement and in accordance with
the related Series Supplement; and (ii) pay such amount, free from the Lien of
this Indenture, to or upon the order of the Issuer upon satisfaction of the
conditions set forth in the related Series Supplement with respect to such
Grant; provided, however, that no such amount shall be paid from Reinvestment
Income with respect to such Pre-Funding Account. On each Subsequent Transfer
Date for a Series, the Trustee shall withdraw from the related Pre-Funding
Account, and deposit in the related Collection Account, all Reinvestment Income
with respect to such Pre-Funding Account then on deposit therein.
(d) All amounts remaining in the Pre-Funding Account for a Series as
of the close of business on the date on which the related Funding Period ends
shall be withdrawn by the Trustee and deposited into the related Collection
Account on such date (or the first Business Day thereafter if such date is not a
Business Day). Any interest credited to such Pre-Funding Account after the end
of the related Funding Period shall be deposited immediately upon receipt in the
related Collection Account.
SECTION 8.04 RESERVE FUND.
(a) On or before the Closing Date for a Series, if required by the
related Series Supplement, the Trustee shall open and maintain a trust account
at its Corporate Trust Office (the "Reserve Fund" for such Series) in the name
of the Trustee for the benefit of the Note Insurer and the Noteholders of such
Series, for receipt of (i) any moneys received by the Trustee for deposit in the
Reserve Fund for such Series pursuant to Section 2.12(i) (including any Eligible
Investments delivered to the Trustee pursuant to said Section 2.12(i) in lieu of
cash), (ii) any moneys transferred from the related Collection Account pursuant
to the related Series Supplement, and (iii) any Reinvestment Income. Funds in
the Reserve Fund shall not be commingled with any other monies. All monies
deposited from time to time in a Reserve Fund shall be held by the Trustee as
part of the Trust Estate for the related Series as herein provided, subject to
disbursement and withdrawal as provided in the related Series Supplement.
(b) So long as no Default or Event of Default shall have occurred and
be continuing with respect to a Series, upon Issuer Order, and except as
otherwise provided in the related Series Supplement, the Trustee shall invest
the funds in each Reserve Fund in Eligible Investments. The Issuer Order shall
specify the Eligible Investments in which the Trustee shall invest, shall state
that the same are Eligible Investments and shall further specify the percentage
of funds to be invested in each Eligible Investment. Each such Eligible
Investment shall mature no later than the Business Day preceding the next
following Payment Date for the related Series (or in the case of an investment
described in paragraph (vii) of the definition of Eligible Investments, such
Eligible
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Investment shall mature no later than the next following Payment Date for such
Series) and shall not be sold or disposed of prior to its maturity, or be
payable on demand without penalty or discount. In the absence of an Issuer
Order, the Trustee shall invest funds in a Reserve Fund in Eligible Investments
as provided in Section 8.06.
Any Reinvestment Income with respect to a Reserve Fund shall be
credited to such Reserve Fund and any loss resulting from such investments shall
be charged to such account. The Trustee shall not be liable for any loss
incurred on any funds invested in Eligible Investments pursuant to the
provisions of this Section 8.04 (other than in its capacity as obligor under any
Eligible Investment).
(c) Except as otherwise provided in the related Series Supplement,
upon full and final payment of all Outstanding Notes of the related Series, all
unpaid expenses relating to the administration of the Notes of such Series
covered by such Reserve Fund, and all amounts due to the Note Insurer under the
related Insurance Agreement, the Trustee shall pay to or upon the order of the
Issuer all amounts remaining on deposit in the Reserve Fund for such Series.
SECTION 8.05 CAPITALIZED INTEREST ACCOUNT.
(a) On or before the Closing Date for a Series, if required by the
related Series Supplement, the Trustee shall open and maintain a trust account
at its Corporate Trust Office (the "Capitalized Interest Account" for such
Series) in the name of the Trustee for the benefit of the Noteholders of such
Series and the Note Insurer, for receipt of (i) the Capitalized Interest Account
Deposit for the Series on the Closing Date and (ii) any Reinvestment Income.
Funds in the Capitalized Interest Account of a Series shall not be commingled
with any other monies. All monies deposited from time to time in a Capitalized
Interest Account shall be held by the Trustee as part of the Trust Estate for
the related Series as herein provided, subject to disbursement and withdrawal as
provided in the related Series Supplement.
(b) So long as no Default or Event of Default shall have occurred and
be continuing with respect to a Series, upon Issuer Order, and except as
otherwise provided in the related Series Supplement, the Trustee shall invest
the funds in each Capitalized Interest Account in Eligible Investments. The
Issuer Order shall specify the Eligible Investments in which the Trustee shall
invest, shall state that the same are Eligible Investments and shall further
specify the percentage of funds to be invested in each Eligible Investment.
Each such Eligible Investment shall mature no later than the Business Day
preceding the next following Payment Date for the related Series (or in the case
of an investment described in paragraph (vii) of the definition of Eligible
Investments, such Eligible Investment shall mature no later than the next
following Payment Date for such Series) and shall not be sold or disposed of
prior to its maturity, or be payable on demand without penalty or discount. In
the absence of an Issuer Order, the Trustee shall invest funds in a Capitalized
Interest Account in Eligible Investments as provided in Section 8.06.
Any Reinvestment Income with respect to a Capitalized Interest Account
shall be credited to such Capitalized Interest Account and any loss resulting
from such investments shall be charged to such account. The Trustee shall not
be liable for any loss incurred on any funds invested in
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Eligible Investments pursuant to the provisions of this Section 8.05 (other than
in its capacity as obligor under any Eligible Investment).
(c) All amounts remaining in the Capitalized Interest Account for a
Series as of the close of business on the last Business Day of the month in
which the related Funding Period ends shall be withdrawn by the Trustee and
applied as provided in the related Series Supplement.
SECTION 8.06 GENERAL PROVISIONS REGARDING PLEDGED ACCOUNTS.
(a) Each Pledged Account shall relate solely to the Notes of the
Series with respect to which it was established and to the other property
securing such Series. Funds and other property in each Pledged Account shall not
be commingled with any other moneys or property of the Issuer or any Affiliate
thereof. Notwithstanding the foregoing, the Trustee may hold any funds or other
property received or held by it as part of a Pledged Account in collective
accounts maintained by it in the normal course of its business and containing
funds or property held by it for other Persons (which may include the Issuer or
an Affiliate), provided that such accounts are under the sole control of the
Trustee and the Trustee maintains adequate records indicating the ownership of
all such funds or property and the portions thereof held for credit to each
Pledged Account.
(b) The Trustee shall not make any investment of any funds in a
Pledged Account or sell any investment held in a Pledged Account except under
the following terms and conditions:
(i) any such investment consisting of an "instrument" within the
meaning of Article 9 of the UCC and that is susceptible of physical
delivery shall be physically delivered directly to the Trustee or its
agent;
(ii) any such investment consisting of a "certificated security"
within the meaning of Article 8 of the UCC (including collateral for
repurchase agreements), shall be either (i) in the possession of the
Trustee registered in the name of the Trustee or its Qualified Nominee, not
endorsed for collection or surrender or any other purpose not involving
transfer, not containing any evidence of a right or interest inconsistent
with the Trustee's interest therein, or (ii) in the possession of a
"clearing corporation" or its "custodian bank" (each within the meaning of
Article 8 of the UCC), registered in the name of such clearing corporation
or its nominee, not endorsed for collection or surrender or any other
purpose not involving transfer, not containing any evidence of a right or
interest inconsistent with the Trustee's interest therein, and held by such
clearing corporation in an account of the Trustee containing only customer
securities;
(iii) any such investment consisting of a security which is a direct
obligation of or guaranteed with the full faith and credit of the United
States of America and deemed to be a certificated security under applicable
regulations of the United States government, shall be held in an account
established by the Trustee with a Federal Reserve Bank containing only
customer securities;
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(iv) any such investment consisting of an "uncertificated security"
within the meaning of Article 8 of the UCC, shall be registered by the
issuer thereof in the name of the Trustee; and
(v) in the case of any such investment consisting of a security
entitlement in securities of the types described in clauses (ii), (iii) and
(iv) above, such investment shall be credited to an account of the Trustee
by a securities intermediary and held by such securities intermediary as
described in clause (ii), (iii) or (iv) above.
In addition, any cash funds held uninvested shall be deposited in a demand
deposit account, meeting the criteria of clause (ii) of the definition of
Eligible Investments, and established in the name of the Trustee, which account
shall be subject to the sole dominion and control of the Trustee and shall not
be evidenced by a certificate of deposit, passbook, or other indispensable
instrument unless the same is in the possession of the Trustee. In addition to
the foregoing procedures, the Trustee shall use such additional or alternative
procedures as may hereafter become appropriate to effect the complete transfer
to the Trustee, subject to the terms hereof, of all funds and Eligible
Investments credited to any Pledged Account, consistent with changes in
applicable law or regulations or the interpretation thereof.
(c) If any amounts are needed for disbursement from a Pledged Account
and sufficient uninvested funds are not available therein to make such
disbursement, in the absence of an Issuer Order for the liquidation of
investments held therein in an amount sufficient to provide the required funds,
the Trustee shall cause to be sold or otherwise converted to cash a sufficient
amount of the investments in such Pledged Account to complete the needed
disbursement.
(d) The Trustee shall not in any way be held liable by reason of any
insufficiency in any Pledged Account except for the obligations of Norwest Bank
Minnesota, National Association (or of any agent of such entity), as issuer,
with respect to any Eligible Investment.
(e) All investments of funds in a Pledged Account and all sales of
investments held in a Pledged Account shall, except as provided below, be made
by the Trustee in accordance with an Issuer Order. Subject to compliance with
the requirements of Section 8.02(b), such Issuer Order may authorize the Trustee
to make the specific investments set forth therein, to make investments from
time to time consistent with the general instructions set forth therein, or to
make specific investments pursuant to written, telegraphic or telephonic
instructions of the employees or agents of the Issuer identified therein, in
each case in such amounts as such Issuer Order shall specify.
With respect to each Series, in the event that:
(i) the Issuer shall have failed to give investment directions to the
Trustee by 12:30 p.m. Eastern Time on any Business Day authorizing the
Trustee to invest the funds then in a related Pledged Account,
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(ii) a Default or Event of Default with respect to such Series shall
have occurred and be continuing but the Notes of such Series shall not have
been declared due and payable pursuant to Section 5.02, or
(iii) an Event of Default with respect to such Series shall have
occurred and be continuing, the Notes of such Series shall have been
declared due and payable pursuant to Section 5.02, and amounts collected or
receivable from the related Trust Estate are being applied in accordance
with Section 5.08,
the Trustee shall invest and reinvest the funds then in each related Pledged
Account to the fullest extent practicable, in such manner as the Trustee shall
from time to time determine, but only in one or more Eligible Investments
bearing interest or sold at a discount. All investments made pursuant to clause
(i) above shall mature on the next Business Day following the date of such
investment, all such investments made pursuant to clause (ii) above shall mature
no later than the maturity date therefor permitted by Section 8.02(b), or by the
terms of the related Series Supplement, whichever is applicable, and all
investments made pursuant to clause (iii) above shall mature no later than the
Business Day immediately preceding the first date on which the Trustee proposes
to make a payment to Holders of Notes of the related Series pursuant to Section
5.08.
(f) Subject to the restriction on the maturity of investments set
forth in Sections 8.02(b), or in any related Series Supplement, and
notwithstanding paragraph (e) above, the Issuer will give appropriate and timely
investment directions to the Trustee such that at the close of business on not
more than two Business Days in any one calendar year not more than an aggregate
of $50,000 of funds in the Pledged Accounts for a Series are not invested
pursuant, directly or indirectly, to an Issuer Order in Eligible Investments
bearing interest or sold at a discount which mature on or after the opening of
business on the next Business Day. Any funds not so invested must be insured by
the Federal Deposit Insurance Corporation.
SECTION 8.07 REPORTS BY TRUSTEE TO NOTEHOLDERS.
(a) On each Payment Date for a Series the Trustee shall deliver to
each Holder of Notes of such Series on which a payment of principal and interest
is then being made (i) a written report setting forth the amount of such payment
which represents principal and the amount which represents interest and the Note
Pool Factor of each Class of such Series for such Payment Date and (ii) a copy
of the Servicer's Certificate with respect to the preceding Determination Date.
(b) Within the required period of time after the end of each calendar
year, the Trustee will deliver to each person who at any time during such
calendar year was a Noteholder, a statement as to the aggregate amounts of
interest and principal paid to such Noteholder and such other information
necessary to enable such Noteholder to prepare its tax returns.
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SECTION 8.08 REPORTS BY TRUSTEE.
In addition to any statements required to be delivered or prepared by
the Trustee pursuant to Sections 2.08, the Trustee shall deliver to the Issuer,
the Note Insurer, and the Independent Accountants appointed pursuant to Section
8.09, within two Business Days after request by the applicable Person, a written
report setting forth the amount of each Pledged Account established hereunder
and the identity of the investments included therein.
SECTION 8.09 APPOINTMENT OF INDEPENDENT ACCOUNTANTS.
At the Closing Date for a Series the Issuer shall appoint a firm of
Independent Accountants as its Independent Accountants for purposes of preparing
and delivering all reports or certificates with respect to such Series required
to be prepared by Independent Accountants. Upon any resignation by such firm
the Issuer shall promptly notify the Trustee and appoint a successor thereto
that shall also be a firm of Independent Accountants of recognized national
reputation. If the Issuer shall fail to appoint a successor to a firm of
Independent Accountants which has resigned on or before the fifteenth day after
such resignation, the Trustee shall promptly notify the Issuer and the Note
Insurer of such failure in writing. If the Issuer shall not have appointed a
successor within ten days thereafter the Trustee shall promptly appoint a
successor firm of Independent Accountants of recognized national reputation.
The fees of such successor shall be payable by the Issuer, and any fees not so
paid by the Issuer may be paid by the Trustee on behalf of the Issuer, from
amounts otherwise payable to the Issuer from the related Collection Account as
provided in the related Series Supplement.
SECTION 8.10 EXPENSE FUND.
(a) Except as otherwise provided in the related Series Supplement,
any cash or Eligible Investments received by the Trustee for deposit in the
Expense Fund for a Series pursuant to Sections 2.12(i) or the related Series
Supplement, together with any other Eligible Investments in which amounts in
such Expense Fund are or will be invested or reinvested during the term of the
Notes of such Series, shall be held by the Trustee subject to disbursement and
withdrawal as herein provided, but shall not be security for the Notes of such
Series.
(b) Except as otherwise provided in the related Series Supplement all
or a portion of the Expense Fund for a Series shall be invested and reinvested
at the Issuer's direction in one or more Eligible Investments.
(c) Except as otherwise provided in the related Series Supplement
amounts on deposit in the Expense Fund for a Series shall be applied by the
Trustee to the payment of expenses relating to the administration of the Notes
of such Series (other than interest expense on such Notes) specified in the
related Series Supplement to the extent that such expenses have not been paid by
the Issuer or from other sources.
(d) Except as otherwise provided in the related Series Supplement,
upon full and final payment of all Outstanding Notes of the related Series and
payment of all unpaid expenses relating
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to the administration of the Notes of such Series (other than interest expense
on such Notes), and all amounts due under the related Insurance Agreement,
covered by such Expense Fund, the Trustee shall pay to or upon the order of the
Issuer all amounts remaining on deposit in the Expense Fund for such Series.
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ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.01 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS.
With respect to each Series, the Issuer and the Trustee, with the
prior written consent of the Note Insurer (such consent not being required if
the Note Insurer is not the Controlling Party with respect to such Series), but
without the consent of the Holders of any Notes, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to correct or amplify the description of any property at any time
subject to the lien of this Indenture, or better to assure, convey and
confirm unto the Trustee any property subject or required to be subjected
to the lien of this Indenture, or to subject to the lien of this Indenture
additional property; or
(2) to evidence the succession of another Person to the Issuer
pursuant to Section 3.03(o), and the assumption by such successor of the
covenants of the Issuer herein; or
(3) to add to the covenants of the Issuer, for the benefit of the
Note Insurer and the Holders of all Notes of such Series, or to surrender
any right or power herein conferred upon the Issuer; or
(4) to convey, transfer, assign, mortgage or pledge any property to
or with the Trustee; or
(5) to cure any ambiguity with respect to any provision herein which
may be defective or inconsistent with any other provisions with respect to
matters or questions arising hereunder, which shall not be inconsistent
with the provisions hereof, provided that such action shall not adversely
affect the interests of the Holders of such Series and provided, further,
that the amendment shall be deemed not to adversely affect in any material
respect the interests of the Holders of such Series if the Person
requesting the amendment obtains a letter from each applicable Rating
Agency that the amendment would not result in the downgrading or withdrawal
of the ratings then assigned to the Notes of such Series; or
(6) to evidence the succession of the Trustee pursuant to Article VI;
or
(7) to add to any Events of Default; or
(8) as may be necessary to effectuate the issuance of any additional
Series in accordance with the terms of this Indenture and the related
Series Supplement;
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provided that any such amendment does not modify this Indenture in a manner
described in clauses (1) through (7) of paragraph (a) of Section 9.02.
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 but the Trustee 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.
Promptly after the consent of the Note Insurer to any supplemental
indenture and the execution by the Issuer and the Trustee of any supplemental
indenture pursuant to this Section, the Issuer shall mail to the Note Insurer,
each Rating Agency rating a Series, and each Noteholder, Servicer, and Backup
Servicer with respect to each Series affected by such supplement a copy of such
supplemental indenture.
SECTION 9.02 SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS.
(a) With respect to each Series, with the prior written consent of the
Note Insurer (such consent not being required if the Note Insurer is not the
Controlling Party with respect to such Series), and a Note Voting Amount with
respect to such Series, by Act of said Holders delivered to the Issuer and the
Trustee may 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 hereunder; provided, however that no such supplemental
indenture shall, without the consent of the Holders of each Outstanding Note
affected thereby:
(1) change the Stated Maturity of, the due date of any installment of
principal of, the amount payable upon redemption of, or any installment of
interest on, any Note, or reduce the principal amount thereof or the Note
Interest Rate or change any place of payment where, or the coin or currency
in which, any Note or the interest thereon is payable, or impair the right
to institute suit for the enforcement of any such payment; or
(2) reduce the percentage in Aggregate Note Balance of Notes of such
Series, the consent of the Holders of which is required for any such
supplemental indenture, or the consent of the Holders of which is required
for any waiver of compliance with certain provisions of this Indenture or
Events of Default or their consequences; or
(3) impair or adversely affect the related Trust Estate; or
(4) modify or alter the provisions of the proviso to the definition
of the term "Outstanding"; or
(5) modify or alter the provisions of the proviso to Section 5.04; or
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(6) modify any of the provisions of this Section 9.02, except to
increase the percentage of Holders required for any modification or waiver
or to provide that certain other provisions of this Indenture cannot be
modified or waived without the consent of each Holder of each Outstanding
Note affected thereby; or
(7) permit the creation of any lien ranking prior to or on a parity
with the lien of this Indenture with respect to any part of the Trust
Estate of each affected Series or, except as otherwise expressly permitted
herein, terminate the lien of this Indenture on any property at any time
subject hereto or deprive the Holder of any Note of the security afforded
by the lien of this Indenture.
(b) The Trustee is hereby authorized to join in the execution of any
supplemental indenture pursuant to clause (a) above and to make any further
appropriate agreements and stipulations that may be therein contained, but the
Trustee shall not be obligated to enter into any such supplemental indenture
that affects the Trustee's own rights, duties, liabilities or immunities
hereunder. It shall not be necessary for any Act of Noteholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Trustee of any
supplemental indenture pursuant to this Section, the Issuer shall mail to the
Note Insurer, each Rating Agency rating a Series, and each Noteholder, Servicer,
and Backup Servicer with respect to each Series affected by such supplement a
copy of such supplemental indenture.
SECTION 9.03 EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing any supplemental indenture permitted by this Article or the
modifications thereby of the trusts created by this Indenture, the Trustee shall
be entitled to receive upon request and (subject to Section 6.01) shall be fully
protected in relying in good faith upon, an Opinion of Counsel reasonably
acceptable to the Trustee stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture which
affects the Trustee's own rights, duties, liabilities, or immunities hereunder
or otherwise.
SECTION 9.04 EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes of any Series to which such supplemental indenture relates which have
theretofore been or thereafter authenticated and delivered hereunder shall be
bound thereby.
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SECTION 9.05 REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article which relates to the Series of
which such Notes are part may, and if required by the Trustee shall, bear a
notation in form approved by the Trustee as to any matter provided for in such
supplemental indenture. If the Issuer shall so determine, new Notes so modified
as to conform, in the opinion of the Trustee and the Issuer, to any such
supplemental indenture which relates to the Series of which such Notes are part
may be prepared and executed by the Issuer and authenticated and delivered by
the Trustee in exchange for Outstanding Notes of such Series.
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ARTICLE X
REDEMPTION OF NOTES
SECTION 10.01 REDEMPTION AT THE OPTION OF THE ISSUER; ELECTION TO REDEEM.
Subject to any conditions specified in the related Series Supplement,
the Issuer shall have the option to redeem at any time except as may be
otherwise specified in the related Series Supplement, all of the Outstanding
Notes of any Series or Class of a Series, on any Redemption Date with respect to
such Series, in each case at the applicable Redemption Price. It shall be a
condition to any such redemption that any fees due hereunder with respect to
such Series and all amounts due to the Note Insurer under the related Insurance
Agreement have been paid in full.
The Issuer shall set the Redemption Date and the Redemption Record
Date for a Series and give notice thereof to the Trustee pursuant to Section
10.02.
Installments of interest and principal that are due regarding a Series
on or prior to the related Redemption Date shall continue to be payable to the
Holders of such Notes called for redemption as of the relevant Record Dates
according to their terms and the provisions of Section 2.08. The election of
the Issuer to redeem any Notes pursuant to this Section shall be evidenced by a
Board Resolution from the Issuer directing the Trustee to make the payment of
the Redemption Price on all of the Notes to be redeemed from monies deposited
with the Trustee pursuant to Section 10.04.
SECTION 10.02 NOTICE TO TRUSTEE; DEPOSIT OF REDEMPTION PRICE.
With respect to each Series, in the case of any redemption pursuant to
Section 10.01, the Issuer or the Note Insurer, as applicable, shall, at least 15
but no more than 60 days prior to the related Redemption Date, notify the
Trustee and the Noteholders of such Series of such Redemption Date and shall
deposit into the Collection Account on such notification date an amount equal to
the Redemption Price of all Notes to be redeemed on such Redemption Date plus
any fees due hereunder and all amounts due to the Note Insurer under the related
Insurance Agreement.
SECTION 10.03 NOTICE OF REDEMPTION BY THE TRUSTEE.
Upon receipt of such notice and such deposit set forth in Section
10.02 above, the Trustee shall provide notice of redemption pursuant to Section
10.01 by first-class mail, postage prepaid, mailed no later than the Business
Day following the date on which such deposit was made, to each Holder of Notes
whose Notes are to be redeemed, at such Holder's address in the Note Register.
All notices of redemption shall state:
(1) the applicable Redemption Date;
(2) the applicable Redemption Price; and
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(3) that on such Redemption Date, the Redemption Price will become
due and payable upon each such Note of the related Series, and that interest
there on shall cease to accrue on such date.
Notice of redemption of Notes of a Series shall be given by the
Trustee in the name and at the expense of the Issuer or the Note Insurer, as
applicable. Failure to give notice of redemption, or any defect therein, to any
Holder of any Note selected for redemption shall not impair or affect the
validity of the redemption of any other Note.
SECTION 10.04 NOTES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as provided in Section 10.03,
the Notes to be redeemed shall, on the applicable Redemption Date, become due
and payable at the Redemption Price and on such Redemption Date (unless the
Issuer or the Note Insurer, as applicable, shall default in the payment of the
Redemption Price) such Notes shall cease to bear interest. The Holders of such
Notes shall be paid the Redemption Price by the Paying Agent on behalf of the
Issuer (upon surrender of such Notes to the related New York Agent for
cancellation, unless otherwise provided in the related Series Supplement),
provided, however, that installments of principal and interest that are due
regarding such Notes of Series on or prior to such Redemption Date shall be
payable to the Holders of such Notes registered as such on the relevant Record
Dates according to their terms and the provisions of Section 2.08.
If the Holders of any Note called for redemption shall not be so paid,
the principal shall, until paid, bear interest from the applicable Redemption
Date at the related Note Interest Rate.
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ARTICLE XI
PROVISIONS OF GENERAL APPLICATION
SECTION 11.01 COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application, order or request by the Issuer or the Servicer
to the Trustee to take any action under any provision of this Indenture for
which a specific request is required hereunder, the Issuer or the Servicer, as
applicable, shall furnish to the Trustee an Officer's Certificate of the Issuer
or the Servicer, as applicable, stating that all conditions precedent, if any,
provided for herein relating to the proposed action have been complied with,
except that in the case of any such application or request as to which the
furnishing of a different certificate is specifically required by any provision
of this Indenture relating to such particular application or request, no
additional certificate need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for herein shall include:
(a) a statement that each individual signing such certificate or
opinion has read or has caused to be read such covenant or condition and the
definitions herein relating thereto;
(b) 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;
(c) a statement that, in the opinion of each such individual, such
individual has made such examination or investigation as is necessary to enable
such individual to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 11.02 FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an 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 certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual
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matters, upon a certificate or opinion of, or representations by, an officer or
officers of the Issuer, stating that the information with respect to such
factual matters is in the possession of the Issuer, unless such officer or
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. Any Opinion of Counsel may be based on the written opinion of other
counsel, in which event such Opinion of Counsel shall be accompanied by a copy
of such other counsel's opinion and shall include a state ment to the effect
that such counsel believes that such counsel and the Trustee may reasonably rely
upon the opinion of such other counsel.
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.
Wherever in this Indenture, in connection with any application or
certificate or report to the Trustee, it is provided that the Issuer shall
deliver any document as a condition of the granting of such application, or as
evidence of the Issuer's compliance with any term hereof, it is intended that
the truth and accuracy, at the time of the granting of such application or at
the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Trustee's right to rely upon the truth and accuracy of
any statement or opinion contained in any such document as provided in Section
6.01(a)(ii).
Whenever in this Indenture it is provided that the absence of the
occurrence and continuation of a Default or Event of Default is a condition
precedent to the taking of any action by the Trustee at the request or direction
of the Issuer, then notwithstanding that the satisfaction of such condition is a
condition precedent to the Issuer's right to make such request or direction, the
Trustee shall be protected in acting in accordance with such request or
direction if it does not have knowledge of the occurrence and continuation of
such Default or Event of Default as provided in Section 6.01(e).
SECTION 11.03 ACTS OF NOTEHOLDERS.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders in person or by an agent
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee, and, where it is hereby expressly required, to the
Issuer. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Noteholders signing such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Indenture and (subject to Section 6.01) conclusive in
favor of the Trustee and the Issuer, if made in the manner provided in this
Section.
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(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any manner which the Trustee deems
sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Note shall bind the Holder of every
Note issued upon the registration of transfer thereof or in exchange therefor or
in lieu thereof, in respect of anything done, omitted or suffered to be done by
the Trustee or the Issuer in reliance thereon, whether or not notation of such
action is made upon such Note.
SECTION 11.04 NOTICES, ETC., TO TRUSTEE, TO NOTE INSURER, ISSUER,
SERVICER AND SELLER.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Noteholders or other document provided or permitted hereby to be made
upon, given or furnished to, or filed with any party hereto shall be sufficient
for every purpose hereunder if in writing and telecopied or mailed, first-class
postage prepaid and addressed to the appropriate address below:
(a) to the Trustee at Norwest Center, 6th & Marquette, Minneapolis,
Minnesota 55479-0070 (telecopy: 612-667-9825), Attention: Bonnie Seideman or
at any other address previously furnished in writing to the Issuer, the Note
Insurer, the Noteholders and the Servicer; or
(b) to the Note Insurer at 113 King Street, Armonk, New York 10504
(telecopy: 914-765-3818), Attention: Insured Portfolio Management-Structured
Finance (IPM-SF); or
(c) to the Issuer at Two Galleria Tower, 13455 Noel Road, Suite 1800,
Dallas, Texas 75240 (telecopy: 214-663-1355), Attention: Will Bixby or at any
other address previously furnished in writing to the Trustee by the Issuer; or
(d) to JAC or the Servicer at Two Galleria Tower, 13455 Noel Road,
Suite 1800, Dallas, Texas 75240 (telecopy: 214-663-1355), Attention: Will
Bixby or at any other address previously furnished in writing by JAC.
SECTION 11.05 NOTICES AND REPORTS TO NOTEHOLDERS; WAIVER OF NOTICES.
Where this Indenture provides for notice to Noteholders of any event
or the mailing of any report to Noteholders, such notice or report shall be
sufficiently given (unless otherwise herein expressly provided) if mailed,
first-class postage prepaid, to each Noteholder affected by such event or to
whom such report is required to be mailed, at the address of such Noteholder 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 or the mailing
of such report. In any case where a notice or report to Noteholders is mailed
in the manner provided above, neither the failure to mail such notice or report,
nor any defect in any notice or report so mailed, to any particular Noteholder
shall affect the sufficiency of such notice or report with respect to other
Noteholders, and any notice or report which
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is mailed in the manner herein provided shall be conclusively presumed to have
been duly given or provided.
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 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 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.
SECTION 11.06 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 11.07 SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Issuer shall
bind its successors and assigns, whether so expressed or not. There shall be no
assignment hereof, except in accordance with the provisions of Section 6.10.
SECTION 11.08 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 11.09 BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Notes, express or implied, shall
give to any Person, other than the parties hereto, the Noteholders, and any
Paying Agent which may be appointed pursuant to the provisions hereof, and any
of their successors hereunder, any benefit or any legal or equitable right,
remedy or claim under this Indenture or under the Notes, except that the Note
Insurer and the Backup Servicer are express third party beneficiaries to this
Indenture.
SECTION 11.10 LEGAL HOLIDAYS.
In any case in which the date of any Payment Date or the Stated
Maturity of any Note shall not be a Business Day, then (notwithstanding any
other provision of a Note or this Indenture) payment of principal or interest
need not be made on such date, but may be made on the next
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succeeding Business Day with the same force and effect as if made on the nominal
date of any such Stated Maturity or Payment Date and, assuming such payment is
actually made on such subsequent Business Day, no additional interest shall
accrue on the amount so paid for the period from and after any such nominal
date.
SECTION 11.11 GOVERNING LAW.
THIS INDENTURE, EACH SERIES SUPPLEMENT AND EACH NOTE SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED THEREIN, WITHOUT
REGARD TO THE CONFLICT OF LAWS PROVISIONS OF ANY STATE.
SECTION 11.12 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 11.13 CORPORATE OBLIGATION.
No recourse may be taken, directly or indirectly, against any incorporator,
subscriber to the capital stock, stockholder, employee, officer or director of
the Issuer or of any predecessor or successor of the Issuer with respect to the
Issuer's obligations on the Notes or under this Indenture or any certificate or
other writing made delivered by the Issuer in connection herewith.
SECTION 11.14 NOTE INSURER'S RIGHT OF CONSENT.
If the Note Insurer is not the Controlling Party with respect to a Series,
such Note Insurer's right to consent hereunder and under any other Transaction
Document with respect to such Series and to direct the Trustee shall be void. In
such event, in all provisions of this Indenture and the other Transaction
Documents wherein the Note Insurer's consent or direction is required or
permitted, the consent or direction of a Note Majority with respect to such
Series shall be required or permitted, unless the consent or direction of a
specific percentage of Noteholders is otherwise required.
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IN WITNESS WHEREOF, the Issuer and the Trustee have caused this
Indenture to be duly executed by their respective officers thereunto duly
authorized as of the date and year first above written.
JAYHAWK FUNDING TRUST I, as Issuer
By: /s/ William K. Bixby, III
--------------------------------
William K. Bixby, III
Vice President
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as
Trustee
By: /s/ Bonnie Seideman
---------------------------------
Bonnie Seideman
Assistant Vice President
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EXHIBIT 4.2
SERIES 1996B SUPPLEMENT
between
JAYHAWK FUNDING TRUST I,
Issuer
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Trustee
Dated as of August 7, 1996
JAYHAWK FUNDING TRUST I
AUTOMOBILE LOAN-BACKED NOTES
SERIES 1996B
<PAGE>
This SERIES 1996B SUPPLEMENT (this "Series 1996B Supplement"), dated as of
August 7, 1996, is by and between JAYHAWK FUNDING TRUST I, a Delaware business
trust (together with its successors and assigns as provided in the Indenture
referred to below, the "Issuer"), and NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, a national banking association (together with its successors in
trust thereunder as provided in the Indenture, the "Trustee"), as trustee under
an Indenture dated as of August 7, 1996 (such Indenture, as thereafter amended
and supplemented, is referred to herein as the "Indenture").
PRELIMINARY STATEMENT
Section 2.12 of the Indenture provides, among other things, that the
Issuer, when authorized by its Board of Trustees, and the Trustee may enter into
a Series Supplement to the Indenture for the purpose of authorizing a Series of
Notes and to specify certain terms of such Series of Notes. The Board of
Trustees of the Issuer has duly authorized the creation of a Series of Notes in
an aggregate principal amount of $47,885,266 to be known as its Automobile Loan-
Backed Notes, Series 1996B (the "Series 1996B Notes") and to consist of
$42,885,266 of 6.64% Class A Notes and $5,000,000 of 11.57% Class B Notes, and
the Issuer and the Trustee are executing and delivering this Series 1996B
Supplement in order to provide for the Series 1996B Notes. The Series 1996B
Notes are designated as Notes for purposes of the Indenture.
All terms used in this Series 1996B Supplement that are defined in the
Indenture, either directly or by reference therein, have the meanings assigned
to them therein as supplemented by Section 1 hereof, if applicable, except to
the extent the context clearly requires otherwise. Any such defined term that
is defined in the Indenture as relating to a particular Series rather than to
all Notes generally shall, when used in this Series 1996B Supplement, relate to
the Series 1996B Notes, whether or not expressly so stated herein.
GRANTING CLAUSES
Effective as of the Closing Date, the Issuer does hereby Grant to the
Trustee for the ratable benefit of the Noteholders and the Note Insurer, as
security for the Issuer's obligations hereunder and under the Series 1996B
Notes, without recourse, all of the Issuer's right, title, and interest in and
to the following and any and all benefits accruing to the Issuer from (but none
of the obligations of JAC or the Issuer under): (i) the Initial Contracts; (ii)
all rights with respect to the Initial Contracts (including all guaranties and
other agreements or arrangements of whatever character from time to time
supporting or securing payment of any Initial Contract, and all rights with
respect to any agreement or arrangement with the vendors, Dealers, or
manufacturers of the Financed Vehicles to the extent specifically related to any
Initial Contract, including, without limitation, the related Dealer Agreements
and each Dealer Agreement Addendum related thereto); (iii) all payments on or
with respect to the Initial Contracts received on or after the Initial Cutoff
Date, including without limitation, all Insurance Proceeds and Liquidation
Proceeds; (iv) the security interests created by the Initial Contracts in the
related Financed Vehicles and in any other collateral securing such Initial
Contracts; (v) the original Initial Contracts, the Title Documents, applications
for Title Documents, and UCC financing statements relating to the related
Financed Vehicles, and the Contract Files
<PAGE>
relating to the Initial Contracts; (vi) all rights of the Issuer pursuant to the
Contribution and Servicing Agreement; (vii) all amounts from time to time on
deposit in the Collection Account, the Reserve Fund, the Capitalized Interest
Account, and the Pre-Funding Account (including any Eligible Investments and
other property in such accounts); (viii) the Note Insurance Policy; (ix) all
rights of the Issuer under each Extended Service Agreement with respect to the
Initial Contracts and the related Financed Vehicles; (x) all rights of the
Issuer under the Administrative Services Agreement and the FFG Policy with
respect to the Extended Service Agreements applicable to the Initial Contracts
and the related Financed Vehicles; and (xi) proceeds of the foregoing
(including, but not by way of limitation, 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 which at any time
constitute all or part or are included in the proceeds of any of the foregoing),
in each case whether now owned or hereafter acquired (all of the foregoing,
together with such other property of the Issuer as may be subsequently pledged
to the Trustee pursuant to a Subsequent Transfer Agreement, being hereinafter
referred to as the "Trust Estate"). The Note Insurance Policy will provide
coverage with respect to the Class A Notes only. The foregoing Grant does not
constitute and is not intended to result in a creation or an assumption by the
Trustee, any Noteholder or the Note Insurer of any obligation of the Issuer,
JAC, the Servicer, or any other Person in connection with the Trust Estate or
under any agreement or instrument relating thereto. The only security for the
Series 1996B Notes is the Trust Estate, and the Trust Estate is the security for
only the Series 1996B Notes.
The Trustee acknowledges its acceptance on behalf of the Noteholders and
the Note Insurer of all right, title and interest previously held by the Issuer
in and to the Trust Estate as it exists as of the Closing Date, and declares
that it shall maintain such right, title and interest in accordance with the
provisions hereof and agrees to perform the duties herein required to the best
of its ability to the end that the interest of the Noteholders and the Note
Insurer may be adequately and effectively protected.
Section 1. Certain Defined Terms.
---------------------
Section 1.01 of the Indenture provides that the meaning of certain defined
terms used in the Indenture shall, when applied to the Notes of a particular
Series, be as defined in such Section 1.01 but with such additional provisions
as are specified in the related Series Supplement. With respect to the Series
1996B Notes, the following provisions shall govern the defined terms set forth
below:
Accelerated Payment Date: Any of the following Payment Dates:
------------------------
(i) each Payment Date prior to the first Payment Date with respect to
which the Class A Collateral Percentage would be reduced to 32.5% after giving
effect to payments of principal to be made on the Class A Notes on such Payment
Date;
(ii) each Payment Date after the occurrence or continuance of an event
included in the definition of Event of Termination (other than those certain
events identified in clause (vi)(A) of this definition, unless the Servicer has
been terminated following an Event of Termination) regardless of whether the
Controlling Party has declared an Event of Termination in connection with the
occurrence of such event;
-2-
<PAGE>
(iii) each Payment Date after the occurrence of an Event of Default
(provided the Notes have not been declared due and payable);
(iv) each Payment Date after the occurrence of a Note Insurer Default;
(v) each Payment Date after the Aggregate Contract Principal Balance, as
of the related Determination Date, less the Class A Note Balance, as of the
preceding Payment Date, after giving effect to all payments of principal to the
Class A Noteholders, has been reduced to 10% or less of the sum of (a) the
Aggregate Contract Principal Balance as of the Initial Cutoff Date and (b) the
aggregate of the Principal Balances of each Subsequent Contract, each as of its
related Subsequent Cutoff Date;
(vi) each of the first three (3) Payment Dates following (A) the
occurrence or continuance of an event set forth in clauses (k), (m), or (s) of
the definition of Event of Termination regardless of whether the Controlling
Party has declared an Event of Termination in connection with the occurrence of
such event or (B) a Monthly Period with respect to which the Cumulative Gross
Charge-Off Ratio or the Cumulative Net Charge-Off Ratio, as of the related
Determination Date, exceeds the level specified for such ratio for such Monthly
Period in the following table:
<TABLE>
<CAPTION>
Cumulative Gross Cumulative Net
Monthly Period Charge-Off Ratio Charge-Off Ratio
-------------- ---------------- ----------------
<S> <C> <C>
September 1996 7.33% 5.50%
October 1996 11.33% 8.50%
November 1996 20.00% 15.00%
December 1996 31.33% 23.50%
January 1997 39.33% 29.50%
February 1997 42.67% 32.00%
March 1997 48.00% 36.00%
April 1997 53.33% 40.00%
May 1997 56.67% 42.50%
June 1997 58.67% 44.00%
July 1997 58.67% 44.00%
</TABLE>
(vii) each Payment Date occurring during the Funding Period.
Administrative Services Agreement: As defined in the Contribution and
---------------------------------
Servicing Agreement.
Applicable Trust Estate Assets: As defined in Section 10.
------------------------------
Available Funds: With respect to any Determination Date, the sum of the
---------------
(i) the Collected Funds for such Determination Date, (ii) all Purchase Prices
deposited in the Collection Account during the related Monthly Period, (iii) all
Reinvestment Income credited to the Collection Account during the related
Monthly Period, (iv) the amount, if any, deposited in the Collection Account
during the related Monthly Period which was transferred from the Pre-Funding
Account, if any, pursuant to Section 8.03(c) or (d) of the Indenture or which
was transferred from the Capitalized
-3-
<PAGE>
Interest Account pursuant to Section 7(b) or (c) hereof, and (v) the amount, if
any, that was deposited in the Collection Account which was transferred from the
Reserve Fund on the preceding Payment Date pursuant to Section 4(e).
Backup Servicer Fee: For any Monthly Period, an amount equal to 1/12th of
-------------------
the product of (a) 0.02% and (b) the Aggregate Contract Principal Balance as of
(i) the Closing Date in the case of the first Monthly Period and (ii) the second
preceding Accounting Date in the case of subsequent Monthly Periods (after
reduction by the principal portion of payments received and applied during the
Monthly Period in which such second preceding Accounting Date occurs).
Capitalized Interest Account Deposit: $148,626.
------------------------------------
Class A Collateral Percentage: As of any Determination Date, an amount
-----------------------------
equal to (i) the Class A Note Balance, less any amounts held in the Reserve
Fund, and less the Class A Pre-Funding Amount divided by (ii) the Aggregate
Contract Principal Balance.
Class A Interest Carryover Shortfall: With respect to the Initial Payment
------------------------------------
Date, zero; with respect to each subsequent Payment Date, the excess, if any of
(i) the Class A Monthly Interest Payment Amount with respect to the preceding
Payment Date plus any outstanding Class A Interest Carryover Shortfall with
respect to such preceding Payment Date over (ii) the amount in respect of
interest on the Class A Notes that was actually paid on the Class A Notes on
such preceding Payment Date.
Class A Interest Payment Amount: With respect to each Payment Date, the
-------------------------------
sum of the Class A Monthly Interest Payment Amount for such Payment Date and the
Class A Interest Carryover Shortfall, if any, for such Payment Date.
Class A Minimum Principal Payment Amount: With respect to the Initial
----------------------------------------
Payment Date, zero; and with respect to any subsequent Payment Date, the amount,
if any, by which (i) the Class A Note Balance as of the immediately preceding
Payment Date (after giving effect to all payments of principal on the Class A
Notes on such preceding Payment Date) exceeds (ii) the sum of (a) the Aggregate
Contract Principal Balance, (b) the Class A Pre-Funding Amount, and (c) any
amounts held in the Reserve Fund, each as of the immediately preceding
Determination Date; provided, however, that with respect to the Payment Date
which is the Stated Maturity, and with respect to the first Payment Date after
the Trustee, at the direction of the Note Insurer, has declared the principal of
all of the Class A Notes to be immediately due and payable, the Class A Minimum
Principal Payment Amount shall be the amount necessary to reduce the Class A
Note Balance to zero.
Class A Monthly Interest Payment Amount: With respect to any Payment Date,
---------------------------------------
30 days' interest at the Class A Note Interest Rate on the Class A Note Balance
as of the immediately preceding Payment Date, after giving effect to all
payments of principal to the Class A Noteholders on such preceding Payment Date
(or, in the case of the Initial Payment Date, interest at the Class A Note
Interest Rate on the Class A Note Balance as of the Closing Date for the number
of days from (and including) the Closing Date to (but excluding) August 15,
1996).
Class A Note Balance: The sum of the Note Balances for all Class A Notes
--------------------
Outstanding as of the date of determination.
-4-
<PAGE>
Class A Note Interest Rate: 6.64%.
--------------------------
Class A Notes: The Notes denominated as Class A Notes.
-------------
Class A Pre-Funding Amount: As of any date of determination, an amount
--------------------------
equal to (i) the Class A Specified Percentage divided by the sum of the Class A
Specified Percentage and the Class B Specified Percentage multiplied by (ii) the
amount on deposit in the Pre-Funding Account (excluding any Reinvestment Income
included in the Pre-Funding Account).
Class A Principal Available Funds: With respect to a Payment Date, the
---------------------------------
amount (not less than zero) of the Available Funds with respect to the related
Determination Date, which will remain, if any, after application of such
Available Funds to make payment of the amounts to be paid in accordance with
Section 3(a) through (j).
Class A Principal Payment Amount: On each Payment Date that is an
--------------------------------
Accelerated Payment Date, an amount equal to the greater of (i) the Class A
Principal Available Funds with respect to such Payment Date and (ii) the Class A
Minimum Principal Payment Amount with respect to such Payment Date, and on each
Payment Date that is not an Accelerated Payment Date, the lesser of (a) the
Class A Principal Available Funds with respect to such Payment Date and (b) the
amount by which (I) the Class A Note Balance as of the immediately preceding
Payment Date (after giving effect to all payments of principal on the Class A
Notes on such preceding Payment Date), less the Class A Pre-Funding Amount as of
the applicable Payment Date, and less any amount held in the Reserve Fund as of
the applicable Payment Date (exclusive of amounts used to pay the Class A
Interest Payment Amount and the Class B Interest Payment Amount on the
applicable Payment Date) exceeds (II) 32.5% of the Aggregate Contract Principal
Balance as of the immediately preceding Determination Date.
Class A Specified Percentage: 44.20%.
----------------------------
Class B Collateral Percentage: As of any Determination Date prior to the
-----------------------------
date the Class A Note Balance has been reduced to zero, an amount equal to (i)
the Class B Note Balance less the Class B Pre-Funding Amount divided by (ii) the
Aggregate Contract Principal Balance, and as of any Determination Date on or
after the date on which the Class A Note Balance has been reduced to zero, an
amount equal to (i) the Class B Note Balance, less any amounts held in the
Reserve Fund, and less any amounts held in the Pre-Funding Account divided by
(ii) the Aggregate Contract Principal Balance.
Class B Interest Carryover Shortfall: With respect to the Initial Payment
------------------------------------
Date, zero; with respect to each subsequent Payment Date, the excess, if any of
(i) the Class B Monthly Interest Payment Amount with respect to the preceding
Payment Date plus any outstanding Class B Interest Carryover Shortfall with
respect to such preceding Payment Date over (ii) the amount in respect of
interest on the Class B Notes that was actually paid on the Class B Notes on
such preceding Payment Date.
Class B Interest Payment Amount: With respect to each Payment Date, the
-------------------------------
sum of the Class B Monthly Interest Payment Amount for such Payment Date and the
Class B Interest Carryover Shortfall, if any, for such Payment Date.
-5-
<PAGE>
Class B Monthly Interest Payment Amount: With respect to any Payment Date,
---------------------------------------
30 days' interest at the Class B Note Interest Rate on the Class B Note Balance
as of the immediately preceding Payment Date, after giving effect to all
payments of principal to the Class B Noteholders on such preceding Payment Date
(or, in the case of the Initial Payment Date, interest at the Class B Note
Interest Rate on the Class B Note Balance as of the Closing Date for the number
of days from (and including) the Closing Date to (but excluding) August 15,
1996).
Class B Note Balance: The sum of the Note Balances for all Class B Notes
--------------------
Outstanding as of the date of determination.
Class B Note Interest Rate: 11.57%.
--------------------------
Class B Notes: The Notes denominated as Class B Notes.
-------------
Class B Pre-Funding Amount: As of any date of determination, an amount
--------------------------
equal to (i) the Class B Specified Percentage divided by the sum of the Class A
Specified Percentage and the Class B Specified Percentage multiplied by (ii) the
amount on deposit in the Pre-Funding Account (excluding any Reinvestment Income
included in the Pre-Funding Account).
Class B Principal Available Funds: With respect to a Payment Date, the
---------------------------------
amount (not less than zero) of the Available Funds with respect to the related
Determination Date, which will remain, if any, after application of such
Available Funds to make payment of the amounts to be paid on such Payment Date
in accordance with Section 3(a) through (o).
Class B Principal Payment Amount: With respect to each Payment Date that is
--------------------------------
an Accelerated Payment Date, zero, and with respect to each Payment Date that is
not an Accelerated Payment Date, an amount equal to (i) if no Event of Default
or Event of Termination has occurred and is continuing, an amount, not greater
than the Class B Principal Available Funds with respect to such Payment Date,
equal to the sum of (a) the greater of (1) 50% of the Class B Principal
Available Funds and (2) the Class B Specified Percentage multiplied by the
amount by which the Aggregate Contract Principal Balance as of the second
preceding Determination Date exceeds the Aggregate Contract Principal Balance as
of the immediately preceding Determination Date plus (b) if the Class B
Collateral Percentage as of the related Determination Date would be greater than
the Class B Specified Percentage after giving effect to the payment to be made
pursuant to clause (a), an amount necessary to attain a Class B Collateral
Percentage as of such Determination Date equal to the Class B Specified
Percentage or (ii) if an Event of Default or Event of Termination has occurred
and is continuing, the Class B Principal Available Funds with respect to such
Payment Date; provided, however, with respect to the Payment Date that is the
Stated Maturity and with respect to the first Payment Date after the date on
which the Class B Notes have been declared due and payable in connection with an
Event of Default, the Class B Principal Payment Amount shall be the amount
necessary to reduce the Class B Note Balance to zero.
Class B Specified Percentage: 5.15%.
----------------------------
Closing Date: August 7, 1996.
------------
-6-
<PAGE>
Contribution and Servicing Agreement: That certain Contribution and
------------------------------------
Servicing Agreement dated as of the Closing Date between JAC, the Servicer, the
Issuer, the Trustee, and the Backup Servicer.
Controlling Party: As defined in the Contribution and Servicing Agreement.
-----------------
Cumulative Gross Charge-Off Ratio: As defined in the Contribution and
---------------------------------
Servicing Agreement.
Cumulative Net Charge-Off Ratio: As defined in the Contribution and
-------------------------------
Servicing Agreement.
Custodian: Inwood Security Vaults, Inc. and all successors thereto in
---------
accordance with the terms of the Custodian Agreement.
Custodian Agreement: That certain custodian agreement, dated as of August
-------------------
7, 1996, between the Custodian, JAC, the Servicer, the Issuer, and the Trustee.
Custodian Fee: With respect to a Payment Date, the amount charged by the
-------------
Custodian for its services under the Custodian Agreement with respect to the
related Monthly Period, in an aggregate amount not to exceed $0.10 per Contract
File held by the Custodian at any time during such Monthly Period.
Cutoff Date: With respect to the Initial Contracts, the Initial Cutoff
-----------
Date, and with respect to any Subsequent Contracts, the applicable Subsequent
Cutoff Date.
Dealer Agreement: As defined in the Contribution and Servicing Agreement.
----------------
Dealer Agreement Addendum: As defined in the Contribution and Servicing
-------------------------
Agreement.
Extended Service Agreement: As defined in the Contribution and Servicing
--------------------------
Agreement.
FFG Policy: As defined in the Contribution and Servicing Agreement.
----------
Funding Period: The period commencing on the Closing Date and ending on
--------------
the earliest to occur of (i) October 31, 1996, (ii) the date on which the amount
on deposit in the Pre-Funding Account is reduced to or below $10,000, (iii) the
date on which an Event of Default occurs, and (iv) the date on which an Event of
Termination occurs.
Initial Contracts: The Contracts listed on the Series Contract Schedule
-----------------
attached hereto as Exhibit C as of the Closing Date.
---------
Initial Cutoff Date: June 23, 1996.
-------------------
Initial Other Contributed Property: As defined in the Contribution and
----------------------------------
Servicing Agreement.
Initial Payment Date: August 15, 1996.
--------------------
-7-
<PAGE>
Initial Reserve Fund Deposit: $1,436,656 (this amount being equal to 3.35%
----------------------------
of the initial Class A Note Balance).
Insurance Agreement: As defined in the Contribution and Servicing
-------------------
Agreement.
Insurance Policy: With respect to a Contract and the related Financed
----------------
Vehicle, any insurance policy benefitting the holder of such Contract, providing
loss or physical damage, "guaranteed auto protection," credit life, accident and
health, theft, mechanical breakdown or similar coverage with respect to such
Financed Vehicle or the related Obligor, including but not limited to, any
Extended Service Agreement relating to such Financed Vehicle.
Insurance Proceeds: With respect to a Financed Vehicle and a related
------------------
Contract, any amount (including, but not limited to, proceeds of claims and
refunds of premiums) received by the related Servicer pursuant to a related
Insurance Policy.
Insured Expenses: As defined in the Contribution and Servicing Agreement.
----------------
Interest Claim Amount: As defined in Section 5(a).
---------------------
Liquidation Expenses: As defined in the Contribution and Servicing
--------------------
Agreement.
Note Insurer Premium: The "MBIA Premium" as defined in the Insurance
--------------------
Agreement.
Other Contributed Property: Collectively, the Initial Other Contributed
--------------------------
Property and all Subsequent Other Contributed Property.
Placement Agent: Chase Securities Inc.
---------------
Plan: As defined in Section 8(c).
----
Plan Investor: As defined in Section 8(c).
-------------
Preference Amount: Any amount previously paid to a Noteholder of the Class
-----------------
A Notes that is recoverable and sought to be recovered as a voidable preference
by a trustee in bankruptcy pursuant to the United States Bankruptcy Code (11
U.S.C.), as amended from time to time, in accordance with a final, nonappealable
order of a court of competent jurisdiction.
Pre-Funding Account Deposit: $11,971,316.
---------------------------
Principal Claim Amount: As defined in Section 5(a).
----------------------
Rating Agencies: Moody's, S&P, and Fitch.
---------------
Record Date: With respect to a Payment Date for the Series 1996B Notes,
-----------
the close of business on the last day of the calendar month preceding the month
of such Payment Date.
-8-
<PAGE>
Redemption Date: With respect to the redemption of the Series 1996B Notes
---------------
in whole, but not in part, any Payment Date occurring on or after the first
Payment Date on which the Aggregate Contract Principal Balance, as of the
related Determination Date, is less than or equal to 20% of the sum of (i) the
Aggregate Contract Principal Balance, as of the Initial Cutoff Date and (ii) the
aggregate of the Principal Balances of each Subsequent Contract, each as of its
related Subsequent Cutoff Date.
Re-Liening Expenses: As defined in the Contribution and Servicing
-------------------
Agreement.
Reserve Fund Class A Interest Draw: As defined in Section 4(b).
----------------------------------
Reserve Fund Class A Principal Draw: As defined in Section 4(c).
-----------------------------------
Reserve Fund Class B Interest Draw: As defined in Section 4(b).
----------------------------------
Segregation Agent: Norwest Bank Minnesota, National Association.
-----------------
Segregation Agreement: That certain segregation agreement, dated as of the
---------------------
Closing Date, between the Custodian, the Servicer, the Issuer, the Trustee, the
Segregation Agent, and the Warehouse Lender.
Series Event of Default: The failure of JAC to comply with its obligations
-----------------------
as set forth in Section 2.03(b) of the Contribution and Servicing Agreement or
the failure of the Servicer to comply with its obligations as set forth in
Section 3.19 of the Contribution and Servicing Agreement.
Specified Reserve Fund Amount: With respect to a Payment Date, the greater
-----------------------------
of (i) 3.35% of the Class A Note Balance as of such Payment Date (after giving
effect to payments of principal on the Class A Notes on such Payment Date) and
(ii) $428,853 (the amount in this clause (ii) being equal to 1% of the initial
Class A Note Balance).
Stated Maturity: The Payment Date occurring in March 2000.
---------------
Subsequent Contract: A Contract that, pursuant to a Subsequent Transfer
-------------------
Agreement, is (i) contributed to the capital of, conveyed, and assigned by JAC
to the Issuer and (ii) Granted to the Trustee by the Issuer to become part of
the Trust Estate.
Subsequent Cutoff Date: With respect to a Subsequent Contract, the date
----------------------
specified as such in the related Subsequent Transfer Agreement.
Subsequent Other Contributed Property: With respect to the Subsequent
-------------------------------------
Contracts contributed by JAC to the Issuer on a Subsequent Transfer Date, as
defined in the related Subsequent Transfer Agreement.
Subsequent Release Amount: With respect to a Subsequent Contract, an
-------------------------
amount equal to 49.35% of the Principal Balance of such Subsequent Contract as
of the related Subsequent Cutoff Date; provided, however, for purposes of the
foregoing, the Principal Balance of each Subsequent Contract for which the APR
is less than 10% per annum shall be discounted by 10%.
-9-
<PAGE>
Subsequent Transfer Agreement: An agreement, substantially in the form
-----------------------------
attached hereto as Exhibit B, pursuant to which any Subsequent Contracts are (i)
---------
contributed to the capital of, conveyed, and assigned by JAC to the Issuer and
(ii) Granted to the Trustee by the Issuer to become part of the Trust Estate.
Subsequent Transfer Date: With respect to a Subsequent Contract, as
------------------------
specified in the applicable Subsequent Transfer Agreement, the date on which,
pursuant to such Subsequent Transfer Agreement, such Subsequent Contract is (i)
contributed to the capital of, conveyed, and assigned by JAC to the Issuer and
(ii) Granted to the Trustee by the Issuer to become part of the Trust Estate;
provided, however, that (a) in any given calendar month there shall not be more
than two Subsequent Transfer Dates and (b) no Subsequent Transfer Date may occur
within ten Business Days of any other Subsequent Transfer Date.
Transition Costs: As defined in the Contribution and Servicing Agreement.
----------------
Trust Estate: As defined in the first paragraph of the Granting Clauses
------------
herein.
Trustee Fee: With respect to each Payment Date, $625.
-----------
Weighted Average Note Interest Rate: As of any date of determination, the
-----------------------------------
sum of (i) the product of (a) the Class A Note Balance divided by the Aggregate
Note Balance and (b) the Class A Note Interest Rate; and (ii) the product of (a)
the Class B Note Balance divided by the Aggregate Note Balance and (b) the Class
B Note Interest Rate.
Section 2. Establishment of Certain Terms and Provisions of the Series
-----------------------------------------------------------
1996B Notes.
- -----------
(a) The Series 1996B Notes shall be designated generally as the Issuer's
Automobile Loan-Backed Notes, Series 1996B.
(b) The date of the Private Placement Memorandum with respect to the
Series 1996B Notes is August 7, 1996.
(c) The aggregate principal amount of Series 1996B Notes that may be
authenticated and delivered under this Series 1996B Supplement shall be
$47,885,266 to consist of $42,885,266 of Class A Notes and $5,000,000 of Class B
Notes, except for Series 1996B Notes authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other Series
1996B Notes pursuant to Sections 2.04, 2.05, or 2.07 of the Indenture.
(d) The Class A Notes are covered by the Note Insurance Policy. The Note
Insurance Policy number is 21656. The Class B Notes are not covered by the Note
Insurance Policy.
(e) On the Closing Date, the Issuer will pay $41,009 to the Note Insurer,
which amount represents payment of the Note Insurer Premium for the period from
the Closing Date through the Payment Date occurring in October 1996.
Thereafter, the due dates for the Note Insurer Premium will be each Payment Date
commencing on the Payment Date occurring in November 1996.
(f) Interest on the Notes shall be computed assuming each year consists of
360 days.
-10-
<PAGE>
(g) Each Class A Note shall be substantially in the form of Exhibit A-1
-----------
attached hereto, and each Class B Note shall be substantially in the form of
Exhibit A-2 attached hereto.
- -----------
(h) The Series Contract Schedule with respect to the Series 1996B Notes is
attached hereto as Exhibit C.
---------
(i) The Class A Notes and Class B Notes shall be issued in minimum
denominations of $1,000,000 plus integral multiples of $250,000 in excess
thereof; provided, however, that one Class A Note may be issued in a different
denomination.
(j) The Series 1996B Notes that are authenticated and delivered by the
Trustee to or upon the order of the Issuer on the Closing Date for the Series
1996B Notes shall be dated the Closing Date. All other Series 1996B Notes that
are authenticated after the Closing Date for any other purpose under the
Indenture shall be dated the date of their authentication.
(k) None of the Series 1996B Notes shall be Book Entry Notes.
(l) There shall be no Expense Fund with respect to the Series 1996B Notes.
(m) The Series 1996B Notes may be authenticated by the Trustee at the
Corporate Trust Office. There shall be no Authenticating Agent for the Series
1996B Notes.
(n) No later than ten Business Days following the final payment of
principal in retirement of each Series 1996B Note (or the Redemption Price of
any such Series 1996B Note called for redemption in full), each related
Noteholder shall surrender its Series 1996B Notes to the New York Agent.
(o) On or before the fifth calendar day of each month, or the next
following Business Day if such fifth calendar day is not a Business Day, the
Trustee shall deliver to the Servicer, the Backup Servicer, the Issuer, and the
Note Insurer a Monthly Period Statement setting forth, with respect to each of
the Collection Account, the Pre-Funding Account, the Reserve Fund, and the
Capitalized Interest Account, a reconciliation of all account activity with
respect to such account (showing sources and uses of funds) for the period from
the second preceding Accounting Date (or, in the case of the first such Monthly
Period Statement, from the Closing Date) through the immediately preceding
Accounting Date.
(p) The aggregate of the Principal Balances of Contracts that may be
released from the Trust Estate pursuant to Section 2.14(b) of the Indenture may
not exceed 10% of the sum of (a) the Aggregate Contract Principal Balance of the
Initial Contracts as of the Closing Date and (b) the aggregate Principal
Balances of each Subsequent Contract which has been pledged to the Trustee as of
its respective Subsequent Transfer Date. Additionally, pursuant to Section
2.14(b) of the Indenture, the Issuer may not at any time (A) obtain the release
of any Delinquent Contract unless it has obtained the release of all Defaulted
Contracts outstanding at such time; (B) obtain the release of any other Contract
(except a Defaulted Contract) unless it has obtained the release of all
Delinquent Contracts outstanding at such time; and (C) with respect to obtaining
the release of Delinquent Contracts, obtain the release of any Delinquent
Contract unless it has obtained the release of all Delinquent Contracts
outstanding at such time that are more delinquent (based on the number
-11-
<PAGE>
of days the Scheduled Payment for such Delinquent Contract is past due) than
such Delinquent Contract.
(q) The Issuer may redeem the Series 1996B Notes in whole, but not in
part, pursuant to Section 10.01 of the Indenture on any Redemption Date. In
connection with any redemption of the Series 1996B Notes at the time when the
Aggregate Note Balance as of the Redemption Date exceeds 10% of the Aggregate
Note Balance as of the Closing Date, the funds used to redeem such Series 1996B
Note(s) shall be derived only from a refinancing of the debt by the Issuer, a
sale of the Issuer's assets at fair market value, funds retained by the Issuer
from its operations, or a combination thereof. Any exercise by the Issuer of
its option to redeem the Series 1996B Notes requires the consent of the Note
Insurer (unless the Note Insurer is not the Controlling Party) if (i) a claim
has previously been made under the Note Insurance Policy, (ii) such redemption
would result in a claim under the Note Insurance Policy, or (iii) such
redemption would result in any amount owing to the Note Insurer remaining
unpaid.
(r) The Issuer may redeem the Class B Notes pursuant to Section 10.01 of
the Indenture on any Payment Date on or after which the Class A Note Balance has
been reduced to zero.
(s) For purposes of Section 2.12(n)(v) of the Indenture, the Class A Notes
are required to be rated "AAA" by S&P, "Aaa" by Moody's, and "AAA" by Fitch, and
the Class B Notes are required to be rated at least "BB-" by Fitch.
Section 3. Payments on the Series 1996B Notes.
----------------------------------
On each Payment Date, if either no Default or Event of Default shall have
occurred and be continuing or a Default or Event of Default shall have occurred
and be continuing but the entire Aggregate Note Balance of the Series 1996B
Notes shall not have been declared due and payable pursuant to Section 5.02 of
the Indenture, in accordance with the Servicer's Certificate (on which the
Trustee may conclusively rely) with respect to such Payment Date (i) the
Available Funds with respect to the related Determination Date shall be applied
as set forth below and (ii) any amounts deposited in the Collection Account
pursuant to Sections 4 and 5 with respect to such Payment Date shall be applied
to make payments as provided in such Sections; provided, however, that even if
it shall not have received the Servicer's Certificate with respect to a Payment
Date, the Trustee shall (i) withdraw funds from the Collection Account and the
Reserve Fund, as necessary, to make payment of the amounts to be paid on such
Payment Date as specified in items (a) - (j) and (ii) the Trustee shall make a
claim on the Note Insurance Policy, as necessary, to make payment of the Class A
Interest Payment Amount with respect to such Payment Date but not to make
payments of any amounts relative to principal. Subject to the preceding
sentence, Available Funds with respect to the related Determination Date shall
be applied as follows:
(a) to pay to the Trustee the Trustee Fee with respect to such Payment
Date, and to pay any Trustee Fee or portion thereof with respect to each prior
Payment Date that remains unpaid;
(b) to pay to the Backup Servicer the Backup Servicer Fee with respect to
such Payment Date, and to pay any Backup Servicer Fee or portion thereof with
respect to each prior Payment Date that remains unpaid;
-12-
<PAGE>
(c) to pay to the Custodian the Custodian Fee with respect to such Payment
Date, and to pay any Custodian Fee or portion thereof with respect to each prior
Payment Date that remains unpaid;
(d) to pay to the Servicer: (i) the Servicer Fee with respect to such
Payment Date and to pay any Servicer Fee or portion thereof with respect to each
prior Payment Date which remains unpaid; and (ii) to reimburse the Servicer for
any Liquidation Expenses and Insured Expenses with respect to a Contract which
were not reimbursed to the Servicer pursuant to the Contribution and Servicing
Agreement but solely from Liquidation Proceeds and Insurance Proceeds with
respect to such Contract; provided, however, that no such payments shall be made
to the Servicer on any Payment Date with respect to which the Servicer has
failed to deliver the applicable Servicer's Certificate;
(e) provided that no Note Insurer Default has occurred and is continuing
and that the Class A Note Balance has not been reduced to zero, to pay to the
Note Insurer the Note Insurer Premium with respect to such Payment Date and to
pay any Note Insurer Premium or portion thereof with respect to each prior
Payment Date which remains unpaid;
(f) to pay to any successor Servicer and the Trustee any Transition Costs
incurred by such successor Servicer and the Trustee and not previously
reimbursed or paid by JAC pursuant to the Contribution and Servicing Agreement;
(g) to pay to the Segregation Agent any amounts due to the Segregation
Agent pursuant to the Segregation Agreement and not previously reimbursed or
paid by JAC pursuant to the Segregation Agreement;
(h) to pay to the Class A Noteholders the Class A Interest Payment Amount
with respect to such Payment Date, to be applied as provided in Section 2.08 of
the Indenture;
(i) to pay to the Note Insurer any amounts previously paid by the Note
Insurer under the Note Insurance Policy with respect to interest on the Class A
Notes and not previously repaid, together with interest thereon in accordance
with the Insurance Agreement;
(j) to pay to the Class B Noteholders the Class B Interest Payment Amount
with respect to such Payment Date, to be applied as provided in Section 2.08 of
the Indenture;
(k) to pay to the Class A Noteholders the Class A Principal Payment Amount
with respect to such Payment Date, to be applied as provided in Section 2.08 of
the Indenture;
(l) to pay to the Note Insurer (i) any amounts previously paid by the Note
Insurer under the Note Insurance Policy with respect to principal on the Class A
Notes and not previously repaid, together with interest thereon in accordance
with the Insurance Agreement and (ii) any other amounts due to the Note Insurer
under the Insurance Agreement;
(m) to pay to the Trustee and the Backup Servicer, any other amounts due
to the Trustee or the Backup Servicer as expressly provided in the Indenture or
in the Contribution and Servicing Agreement;
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<PAGE>
(n) to pay to the Trustee and the Servicer any Re-Liening Expenses
incurred by the Trustee or the Servicer and not previously reimbursed or paid by
JAC pursuant to the Contribution and Servicing Agreement;
(o) to make deposits into the Reserve Fund until the amount in the Reserve
Fund is equal to the Specified Reserve Fund Amount for such Payment Date;
(p) to pay to the Class B Noteholders the Class B Principal Payment Amount
with respect to such Payment Date, to be applied as provided in Section 2.08 of
the Indenture; and
(q) to remit any excess funds to or at the direction of the Issuer in
accordance with the instructions on the Servicer's Certificate with respect to
such Payment Date.
Section 4. The Reserve Fund.
----------------
(a) On or before the Closing Date, the Trustee shall open and maintain
with itself a Reserve Fund with respect to the Series 1996B Notes. The Reserve
Fund shall be maintained in accordance with Section 8.04 of the Indenture and
this Section 4. On the Closing Date, the Issuer shall deliver to the Trustee,
for deposit into the Reserve Fund, the Initial Reserve Fund Deposit.
(b) If with respect to a Payment Date (i) the amount to be paid pursuant
to Section 3(h) with respect to such Payment Date exceeds (ii) the amount of the
Available Funds with respect to the related Determination Date remaining, if
any, after application of such Available Funds to make payment of the amounts to
be paid pursuant to Sections 3(a) - (g) on such Payment Date, on such Payment
Date the Trustee shall withdraw from the Reserve Fund, up to the amount on
deposit therein as of such Determination Date, the amount of such excess and
deposit the funds so withdrawn (the "Reserve Fund Class A Interest Draw" with
respect to such Payment Date) in the Collection Account for application to
payment of the amount to be paid pursuant to Section 3(h) on such Payment Date
as provided in the first paragraph of Section 3. In addition, if with respect
to a Payment Date (i) the amount to be paid with respect to Section 3(j) with
respect to such Payment Date exceeds (ii) the amount of Available Funds with
respect to the related Determination Date remaining, if any, after application
of such Available Funds to make payment of the amounts to be paid pursuant to
Sections 3(a) - (i) on such Payment Date, on such Payment Date the Trustee shall
withdraw from the Reserve Fund, up to the amount on deposit therein as of such
Determination Date (less the Reserve Fund Class A Interest Draw with respect to
such Payment Date), the amount of such excess and deposit the funds so withdrawn
(the "Reserve Fund Class B Interest Draw" with respect to such Payment Date) in
the Collection Account for application to payment of the amount to be paid
pursuant to Section 3(j) on such Payment Date as provided in the first paragraph
of Section 3.
(c) If with respect to a Payment Date (i) the Class A Minimum Principal
Payment Amount with respect to such Payment Date exceeds (ii) the Class A
Principal Available Funds with respect to such Payment Date, on such Payment
Date the Trustee shall withdraw from the Reserve Fund, up to the amount on
deposit therein as of the related Determination Date (less the Reserve Fund
Class A Interest Draw and the Reserve Fund Class B Interest Draw, each with
respect to such Payment Date), the amount of such excess and deposit the funds
so withdrawn (the "Reserve Fund Class A Principal Draw" with respect to such
Payment Date) in the Collection Account for
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<PAGE>
application to payment of the amount to be paid pursuant to Section 3(k) on such
Payment Date as provided in the first paragraph of Section 3.
(d) On the Payment Date that is the Stated Maturity, the Trustee shall
withdraw from the Reserve Fund, the amount on deposit therein as of such Payment
Date (less the Reserve Fund Class A Interest Draw, the Reserve Fund Class B
Interest Draw, and the Reserve Fund Class A Principal Draw, each with respect to
such Payment Date) and deposit the funds so withdrawn in the Collection Account
for application first, to pay to the Note Insurer any amounts due to the Note
Insurer under the Insurance Agreement, and second to payments of the Class B
Principal Payment Amount pursuant to Section 3(p) on such Payment Date as
provided in the first paragraph of Section 3.
(e) On each Payment Date, so long as no Default, Event of Default, or
Event of Termination shall have occurred and be continuing, the Trustee shall
withdraw from the Reserve Fund and deposit in the Collection Account (for
inclusion in the Available Funds with respect to the next succeeding
Determination Date) the amount by which (i) the amount on deposit in the Reserve
Fund (after giving effect to the payments made on the Series 1996B Notes on such
Payment Date) exceeds (ii) the Specified Reserve Fund Amount for such Payment
Date.
Section 5. Payments under the Note Insurance Policy.
----------------------------------------
(a) With respect to each Payment Date, if (i) the sum of (x) the amount of
the Available Funds with respect to the related Determination Date which will
remain, if any, after application of such Available Funds to make payments of
the amounts to be paid pursuant to Sections 3(a) - (g) on such Payment Date plus
(y) the Reserve Fund Class A Interest Draw with respect to such Payment Date, is
not sufficient to make payment of the amount to be paid pursuant to Section 3(h)
on such Payment Date (the amount of such insufficiency being the "Interest Claim
Amount" with respect to such Payment Date) or (ii) the sum of (x) the Class A
Principal Available Funds with respect to such Payment Date plus (y) the Reserve
Fund Class A Principal Draw with respect to such Payment Date, is not sufficient
to make payment of the Class A Minimum Principal Payment Amount with respect to
such Payment Date (the amount of such insufficiency being the "Principal Claim
Amount" with respect to such Payment Date), the Trustee shall, no later than
12:00 noon New York time, on the second Business Day immediately preceding such
Payment Date make a claim under the Note Insurance Policy in an amount equal to
the sum of the Interest Claim Amount, if any, with respect to such Payment Date
and the Principal Claim Amount, if any, with respect to such Payment Date. All
proceeds of claims on the Note Insurance Policy shall be deposited in the
Collection Account and (i) each Interest Claim Amount with respect to a Payment
Date shall be applied solely to make payment of the Class A Interest Payment
Amount pursuant to Section 3(h) on such Payment Date and (ii) each Principal
Claim Amount with respect to a Payment Date shall be applied solely to make
payment of the Class A Minimum Principal Payment Amount with respect to such
Payment Date, pursuant to Section 3(k).
(b) In addition, the Trustee shall make a claim upon the Note Insurance
Policy for the full amount of any Preference Amount on the first Business Day
following receipt by the Trustee from the applicable Class A Noteholder of the
following: (i) a certified copy of the order requiring the return of such
preference payment, (ii) an opinion of counsel satisfactory to the Note Insurer
that such order is final and not subject to appeal, (iii) an assignment in such
form as is reasonably
-15-
<PAGE>
required by the Note Insurer, irrevocably assigning to the Note Insurer all
rights and claims of the Class A Noteholder relating to or arising under the
Class A Notes against the debtor which made such preference payment or otherwise
with respect to such preference payment, and (iv) appropriate instruments to
effect the appointment of the Note Insurer as agent for such Class A Noteholder
in any legal proceeding related to such preference payment, such instruments
being in a form satisfactory to the Note Insurer. Any proceeds of any such
Preference Amount received by the Trustee shall be paid pursuant to the terms of
the Note Insurance Policy.
Section 6. The Pre-Funding Account.
-----------------------
(a) On or before the Closing Date, the Trustee shall open and maintain
with itself a Pre-Funding Account with respect to the Series 1996B Notes. The
Pre-Funding Account shall be maintained in accordance with Section 8.03 of the
Indenture and this Section 6. On the Closing Date, the Issuer shall deliver to
the Trustee, for deposit into the Pre-Funding Account, the Pre-Funding Account
Deposit.
(b) On each Subsequent Transfer Date, the Issuer may Grant to the Trustee
Subsequent Contracts and the related Subsequent Other Contributed Property, only
upon the satisfaction of each of the following conditions on or prior to the
related Subsequent Transfer Date:
(i) JAC, the Issuer, the Trustee, the Servicer, and the Backup
Servicer shall have entered into a Subsequent Transfer Agreement with
respect to such Subsequent Contracts;
(ii) the Note Insurer shall have delivered to the Issuer and the
Trustee a written notice confirming the Note Insurer's consent to and
approval of the Grant of such Subsequent Contracts on such Subsequent
Transfer Date;
(iii) JAC shall have delivered to the Issuer and the Trustee an
Officer's Certificate of JAC stating that the related Contract Files have
been delivered to the Custodian;
(iv) the Issuer shall have delivered to the Trustee, the Note Insurer
and each Rating Agency an Opinion of Counsel to the effect that:
(A) the Issuer has the power and authority to Grant such
Subsequent Contract and related Other Contributed Property to the
Trustee as security for the Series 1996B Notes and has duly authorized
such Grant to the Trustee by all necessary action;
(B) the Indenture, together with this Series Supplement and the
related Subsequent Transfer Agreement, creates a valid security
interest and subjects such Subsequent Contracts and related Other
Contributed Property to the lien and security interest of the
Indenture; and
(C) such action has been taken with respect to delivery of
possession of such Subsequent Contracts and related Other Contributed
Property and with respect to the recording and filing of the
Indenture, this related Series Supplement, any other indentures
supplemental to the Indenture, and any other requisite documents and
with
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<PAGE>
respect to the execution and filing of any financing statements as is
necessary to make effective and to perfect a first priority lien and
security interest created by the Indenture and this Series Supplement
in such Subsequent Contracts and related Other Contributed Property;
and
(v) the Issuer and JAC shall have delivered to the Trustee, the Note
Insurer, and each Rating Agency an Opinion of Counsel, in a form
substantially similar to the opinion delivered on the Closing Date
regarding enforceability of the Contribution and Servicing Agreement as
against such parties, regarding the enforceability of such Subsequent
Transfer Agreement as against such parties.
Section 7. The Capitalized Interest Account.
--------------------------------
(a) On or before the Closing Date, the Trustee shall open and maintain
with itself a Capitalized Interest Account with respect to the Series 1996B
Notes. The Capitalized Interest Account shall be maintained in accordance with
Section 8.05 of the Indenture and this Section 7. On the Closing Date, the
Issuer shall deliver to the Trustee, for deposit into the Capitalized Interest
Account, the Capitalized Interest Account Deposit.
(b) On each Determination Date through the first Determination Date
following the end of the Funding Period, the Trustee shall withdraw from the
Capitalized Interest Account and deposit in the Collection Account an amount
equal to the lesser of (i) the amount then on deposit in such Capitalized
Interest Account and (ii) an amount equal to the amount by which (a) the amount
of interest which would have been earned on the average balance in the Pre-
Funding Account during the related Monthly Period, if such amounts had earned
interest at a rate equal to 7.5354% per annum (representing the sum of the
Weighted Average Note Interest Rate as of the Closing Date and the annual
percentage used in the calculation of the Note Insurer Premium), without
compounding, exceeds (b) the amount of Reinvestment Income actually earned on
the amounts on deposit in the Pre-Funding Account during such Monthly Period.
(c) On the first Determination Date following the end of the Funding
Period, following the withdrawal made pursuant to Section 7(b) on such
Determination Date, the Trustee shall withdraw any funds remaining on deposit in
the Capitalized Interest Account and (i) so long as no Default, Event of
Default, or Event of Termination shall have occurred and be continuing, pay such
funds to or at the direction of the Issuer or (ii) if a Default, Event of
Default, or Event of Termination shall have occurred and be continuing, deposit
such funds in the Collection Account.
Section 8. Restrictions on Transfer.
------------------------
(a) The Notes have not been registered or qualified under the Securities
Act or the securities laws of any State. No Note may be transferred unless such
Note is resold (i) pursuant to a valid registration statement under the
Securities Act and any applicable state securities or "Blue Sky" laws, (ii)
pursuant to Rule 144A under the Securities Act or (iii) pursuant to another
exemption available under the Securities Act and, in each case, in compliance
with any applicable state securities or "Blue Sky" laws.
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<PAGE>
(b) Prior to a transfer of a Series 1996A Note pursuant to Rule 144A under
the Securities Act, the Trustee shall require a transferor's representation
letter in the form attached hereto as Exhibit D-1, or a transferor's
-----------
representation letter and a transferee's letter in the forms attached hereto as
---
Exhibit D-2 and Exhibit D-3, respectively. Prior to a transfer of a Series
- ----------- -----------
1996A Note pursuant to another exemption available under the Securities Act, the
Trustee shall require a transferee's representation letter in the form attached
hereto as Exhibit D-4, or such other representations (or an acceptable opinion
-----------
of counsel) as may be approved by the Issuer.
(c) No issuance or transfer of a Class B Note or any beneficial interest
therein shall be made to any Person unless the Trustee has received either (a) a
certificate from such transferee in the form of Exhibit E hereto, to the effect
---------
that such transferee is not an employee benefit plan, trust, or account subject
to Title I of ERISA or subject to Section 4975 of the Code, or a governmental
plan defined in Section 3(32) of ERISA subject to any federal, state, or local
law which is, to a material extent, similar to the foregoing provisions of ERISA
or the Code ("Similar Law") (each, a "Plan") and is not an entity, including an
insurance company separate account or an insurance company general account if
the assets in any such accounts constitute "plan assets" for purposes of ERISA,
whose underlying assets include plan assets by reason of a plan investor's
investment in the entity (such plan or entity, a "Plan Investor"), or (b) an
opinion of counsel satisfactory to the Trustee and the Issuer to the effect that
the proposed issuance or transfer of such Class B Notes will not cause any
assets of the Trust Estate to be deemed to be "plan assets" subject to the
fiduciary responsibility provisions of ERISA or prohibited transactions
provisions of Section 4975 of the Code or Similar Law, will not constitute or
result in a prohibited transaction within the meaning of Section 406 or Section
407 of ERISA or Section 4975 of the Code or Similar Law, and will not subject
the Trustee, the Issuer, the Servicer, or any subservicer to any obligation or
liability (including obligations or liabilities under ERISA, Section 4975 of the
Code or Similar Law) in addition to those undertaken in the Indenture and the
Contribution and Servicing Agreement. Notwithstanding the foregoing, the Trustee
will not require such opinion if, as a result of a change of law or otherwise,
counsel satisfactory to the Trustee has rendered an opinion to the effect that
the purchase and holding of a Class B Note by a Plan Investor will not
constitute or result in a prohibited transaction under ERISA or Section 4975 of
the Code or Similar Law. In addition, to the extent that the Trustee may
reasonably so request, a prospective investor may be required to provide such
evidence as may be deemed necessary to substantiate the accuracy of the
representations upon which the sale of a Class B Note is made.
(d) The Trustee shall have no liability to the Trust Estate, any
Noteholder, or any other Person arising from a transfer of any Note in reliance
upon a certification or representations, or an opinion described in this Section
8. Neither the Issuer nor the Trustee is obligated to register or qualify the
Series 1996A Notes under the Securities Act or any other securities law.
(e) Promptly after receipt, the Trustee shall furnish to a requesting
Holder, or any prospective owner designated by such Holder, the information
required to be delivered to Holders and prospective owners of Notes in
connection with resales of the Notes to permit compliance with Rule 144A of the
Securities Act in connection with such resales. Such information with respect
to the Series 1996A Notes shall be provided to the Trustee as provided in the
related Contribution and Servicing Agreement.
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<PAGE>
Section 9. Event of Default.
----------------
If the Series 1996B Notes have been declared due and payable following an
Event of Default and such declaration has not been rescinded or annulled, any
money collected by the Trustee with respect to the Series 1996B Notes and any
other money that may be held thereafter by the Trustee as security for the
Series 1996B Notes shall be applied pursuant to Section 5.08 of the Indenture in
the following order; provided that proceeds of a claim under a Note Insurance
Policy will be used only to pay interest on the Class A Notes and the Class A
Minimum Principal Payment Amount in the manner set forth in clauses Eighth and
Eleventh below and pursuant to the Note Insurance Policy:
FIRST: To the payment to the Trustee of the Trustee Fee then due, and any
costs or expenses incurred by it in connection with enforcing the remedies
provided for in the Indenture;
SECOND: To the payment to the Backup Servicer of the Backup Servicer Fee
then due;
THIRD: To the payment to the Custodian of the Custodian Fee then due;
FOURTH: If JAC is no longer acting as the Servicer with respect to the
Series 1996B Notes, to the payment of all amounts due the Servicer pursuant to
the Contribution and Servicing Agreement and this Series 1996B Supplement;
FIFTH: Unless a Note Insurer Default shall have occurred and be
continuing, to the payment to the Note Insurer of the related Note Insurer
Premium then due;
SIXTH: To the payment to the Trustee and the Backup Servicer of other
amounts due to the Trustee or Backup Servicer with respect to the Series 1996B
Notes as expressly provided in the Indenture and in the Contribution and
Servicing Agreement;
SEVENTH: To the payment to the Segregation Agent of any amounts due to the
Segregation Agent pursuant to the Segregation Agreement and not otherwise paid;
EIGHTH: To the payment of the amounts then due and unpaid upon the Class A
Notes for interest, without preference or priority of any kind, according to the
amounts due and payable on the Class A Notes for interest;
NINTH: To reimburse the Note Insurer for any amount previously paid under
the Note Insurance Policy with respect to interest on the Class A Notes and not
previously repaid, together with interest thereon;
TENTH: To the payment of the amounts then due and unpaid upon the Class B
Notes for interest, without preference or priority of any kind, according to the
amounts due and payable on the Class B Notes for interest;
ELEVENTH: To the payments of the remaining Class A Note Balance, pro rata
without preference or priority of any kind;
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<PAGE>
TWELFTH: To the payment to the Note Insurer of any amounts previously paid
by the Note Insurer under the Note Insurance Policy with respect to principal on
the Class A Notes and not theretofore repaid, together with interest thereon and
any other amounts due under the Insurance Agreement;
THIRTEENTH: To reimburse the Note Insurer and the Noteholders, pro rata
for any costs or expenses incurred in connection with any enforcement action
with respect to the Indenture (to the extent related to the Series 1996B Notes)
or the Series 1996B Notes;
FOURTEENTH: To the payment of the remaining Class B Note Balance, pro rata
without preference or priority of any kind; and
FIFTEENTH: If JAC is the Servicer, to the payment of all amounts due the
Servicer (to the extent related to the Series 1996B Notes) pursuant to the
Contribution and Servicing Agreement and this Series Supplement;
SIXTEENTH: To the payment to the Servicer of any other amounts due the
Servicer as expressly provided in the Indenture and in the related Contribution
and Servicing Agreement;
SEVENTEENTH: To the payment of any surplus to or at the written direction
of the Issuer or any other person legally entitled thereto with respect to
claims against the Issuer.
Section 10. Right of First Refusal Upon Private Sale of Trust Estate.
--------------------------------------------------------
At any time following the occurrence of an Event of Default, and while the
Note Insurer is the Controlling Party, if the Controlling Party shall have
directed the Trustee to take possession of and sell any portion of the Trust
Estate (the "Applicable Trust Estate Assets") in one or more private Sales
pursuant to Sections 5.04(b) and 5.18 of the Indenture, the Trustee shall take
possession of such Applicable Trust Estate Assets and conduct each Sale of
Applicable Trust Estate Assets in accordance with the provisions of this
Section. If at any time bids are solicited with respect to a Sale of Applicable
Trust Estate Assets each Class B Noteholder shall be solicited at the same time,
and each Class B Noteholder and the Note Insurer shall receive all solicitation
materials distributed in connection with such solicitation.
(a) The Trustee shall not consummate any Sale unless it shall have received
a written offer from a third party to purchase such Applicable Trust Estate
Assets. No later than two (2) Business Days after its receipt of any such
offer, the Trustee shall give written notice of such offer to each Class B
Noteholder, which notice shall include the terms and conditions of such offer
and shall constitute an offer on the part of the Trustee to sell such Applicable
Trust Estate Assets to the Class B Noteholders at a price and upon the terms and
conditions set forth in such notice.
(b) Unless, no later than two (2) Business Days after the giving of
notice by the Trustee to the Class B Noteholders pursuant to paragraph (a) of
this Section, any of the Class B Noteholders shall give written notice to the
Trustee that they desire to purchase the Applicable Trust Estate Assets at the
price and upon the terms offered by the third party as set forth in the offer
included in the notice given by the Trustee, the Trustee shall, at the direction
of the Note Insurer, sell the
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<PAGE>
Applicable Trust Estate Assets to such third party at a price not less than the
price set forth in such notice.
(c) In the event any of the Class B Noteholders shall, no later than
two (2) Business Days after the giving of notice by the Trustee to the Class B
Noteholders pursuant to paragraph (a) of this Section, give written notice to
the Trustee and the Note Insurer that they desire to purchase the Applicable
Trust Estate Assets at the price and upon the terms offered by the third party
as set forth in the offer included in the notice given by the Trustee (the Class
B Noteholders giving such notice within the time period referred to above being
the "Purchasing Class B Noteholders" with respect to such Applicable Trust
Estate Assets), the closing of such purchase and sale of such Applicable Trust
Estate Assets shall take place at 10:00 a.m. at the Corporate Trust Office (or
at such other time and place as may be agreed to by the Purchasing Class B
Noteholders, the Note Insurer, and the Trustee) on a Business Day no later than
two (2) Business Days after the giving of such notice by such Purchasing Class B
Noteholders to the Trustee and the Note Insurer pursuant to this paragraph.
(d) If the applicable Purchasing Class B Noteholders fail to purchase
the Applicable Trust Estate Assets as provided in paragraph (c) above, such
Purchasing Class B Noteholders shall indemnify the Issuer and the Note Insurer
for any losses incurred by the Issuer or the Note Insurer as a result of such
failure.
(e) The obligations of the applicable Purchasing Class B Noteholders
to purchase Applicable Trust Estate Assets as provided in paragraph (c) above,
and to indemnify the Issuer and the Note Insurer as provided in paragraph (d)
above, shall be joint and several obligations of such Purchasing Class B
Noteholders.
Section 11. Controlling Party.
-----------------
At any time when the Note Insurer is not the Controlling Party, a Note
Voting Amount shall have the right to remove the Controlling Party and to
designate in writing a substitute Controlling Party, provided that no removal of
such Controlling Party shall be effective until a substitute Controlling Party
has been designated.
Section 12. Counterparts.
------------
This Series 1996B Supplement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all of such counterparts shall together constitute but one and the same
instrument.
SECTION 13. GOVERNING LAW.
-------------
AS PROVIDED IN SECTION 11.11 OF THE INDENTURE, THIS SERIES 1996B
SUPPLEMENT AND EACH SERIES 1996B NOTE ISSUED HEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED THEREIN WITHOUT REGARD TO THE
CONFLICT OF LAWS PROVISIONS OF ANY STATE.
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<PAGE>
Section 14. Notices to Rating Agencies.
--------------------------
(a) The Trustee shall as soon as practicable notify the Rating
Agencies and the Note Insurer in writing of the occurrence of the following
events, or provide to the Rating Agencies, as applicable:
(i) any amendment to the Indenture or this Series 1996B Supplement
pursuant to Section 9.01 or 9.02 of the Indenture, in which case the
Trustee shall accompany such notice with a copy of the executed
supplemental indenture effecting such amendment;
(ii) the occurrence of an Event of Default or an Event of Termination
of which the Trustee has actual knowledge and the action, if any, taken as
a consequence thereof;
(iii) the resignation or removal of the Trustee and the appointment of
any successor Trustee;
(iv) the final Payment Date on the Series 1996B Notes;
(v) each Servicer's Certificate and each Monthly Period Statement; and
(vi) each Officer's Certificate of the Servicer pursuant to Section
3.11 of the Contribution and Servicing Agreement and report of Independent
Accountants pursuant to Section 3.12 of the Contribution and Servicing
Agreement.
(b) The Issuer shall, as soon as practicable, notify the Rating
Agencies of the appointment of any successor Trustee pursuant to Section 6.09 of
the Indenture in the event that the resigning or removed Trustee is unable to do
so.
(c) All notices to the Rating Agencies under this Section 14 shall be
deemed to have been duly given if mailed by registered mail, postage prepaid, or
express courier service, to (a) in the case of S&P, Standard & Poor's Ratings
Group, 25 Broadway, New York, New York 10004, Attention: Mark Golembeck, (b) in
the case of Moody's, Moody's Investors Service, Inc., 99 Church Street, New
York, New York 10007, Attention: ABS Monitoring Department, 4th Floor, and (c)
in the case of Fitch, Fitch Investors Service, L.P., One State Street Plaza, New
York, New York 10004, Attention: ABS Department.
(d) Failure to give any notice as required by this Section 14 shall not
constitute a breach hereof by any party hereto.
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<PAGE>
IN WITNESS WHEREOF, the Issuer and the Trustee have caused this Series
1996B Supplement to be duly executed by their respective officers thereunto duly
authorized all as of the day and year first above written.
JAYHAWK FUNDING TRUST I, as Issuer
By: /s/ William K. Bixby, III
------------------------------
William K. Bixby, III
Vice President
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as Trustee
By: /s/ Bonnie Seideman
-------------------------------
Bonnie Seideman
Assistant Vice President
<PAGE>
EXHIBIT A-1
Form of Class A Notes
[Exhibit Begins on Next Page]
<PAGE>
EXHIBIT A-2
Form of Class B Notes
[Exhibit Begins on Next Page]
<PAGE>
EXHIBIT B
Form of Subsequent Transfer Agreement
[Exhibit Begins on Next Page]
<PAGE>
EXHIBIT C
Series Contract Schedule
[Exhibit Begins on Next Page]
<PAGE>
EXHIBIT D-1
Form of Transferor's Representation Letter
(Rule 144A Transfer With QIB Representation)
[Exhibit Begins on Next Page]
<PAGE>
EXHIBIT D-2
Form of Transferor's Representation Letter
(Rule 144A Transfer Without QIB Representation)
[Exhibit Begins on Next Page]
<PAGE>
EXHIBIT D-3
Form of Transferee's Representation Letter
(Rule 144A Transfer)
[Exhibit Begins on Next Page]
<PAGE>
EXHIBIT D-4
Form of Transferee's Representation Letter
(Other Exemption Transfer)
[Exhibit Begins on Next Page]
<PAGE>
EXHIBIT E
Form of Transfer Certificate as to ERISA Matters
for Class B Notes
[Exhibit Begins on Next Page]
<PAGE>
EXHIBIT 10.1
CONTRIBUTION AND SERVICING AGREEMENT
between
JAYHAWK ACCEPTANCE CORPORATION,
in its individual capacity and as Servicer,
JAYHAWK FUNDING TRUST I,
as Issuer,
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee and as Backup Servicer
Dated as of August 7, 1996
JAYHAWK FUNDING TRUST I
AUTOMOBILE LOAN-BACKED NOTES
SERIES 1996B
<PAGE>
TABLE OF CONTENTS
-----------------
Section Page
- ------- ----
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I - DEFINITIONS.............................................. 1
Section 1.01 Definitions....................................... 1
Section 1.02 Certain Matters Regarding Payments on Contracts... 13
Section 1.03 No Recourse....................................... 13
Section 1.04 Material Adverse Effect........................... 13
ARTICLE II - CONTRIBUTION OF CONTRACTS AND OTHER
CONTRIBUTED PROPERTY; CUSTODY OF CONTRACTS;
REPRESENTATIONS AND WARRANTIES OF JAC................... 14
Section 2.01 Contribution of Contracts and Other
Contributed Property............................. 14
Section 2.02 Custody and Delivery of Contract
Files; Assignments............................... 16
Section 2.03 Representations, Warranties, and
Covenants of JAC................................. 17
Section 2.04 Protection of Right, Title and Interest........... 20
Section 2.05 Restrictions on Liens............................. 21
Section 2.06 Contribution...................................... 21
Section 2.07 Access to Records................................. 22
Section 2.08 Costs and Expenses................................ 22
ARTICLE III - ADMINISTRATION AND SERVICING OF CONTRACTS.............. 22
Section 3.01 Duties of the Servicer............................ 22
Section 3.02 Subservicing Agreements Between
Servicer and the Subservicers.................... 24
Section 3.03 Obligation of the Servicer........................ 24
Section 3.04 No Contractual Relationship Between
a Subservicer and the Issuer, the Trustee,
the Backup Servicer, or the Noteholders.......... 24
Section 3.05 Assumption of Subservicing Agreement
by Successor Servicer............................ 25
Section 3.06 Collection of Contract Payments;
Modification of Contracts; Obligor -
Initiated Terminations of Contracts.............. 25
Section 3.07 The Collection Account............................ 26
Section 3.08 Realization Upon Defaulted Contracts.............. 27
Section 3.09 Servicing Fee and Other Compensation.............. 27
Section 3.10 Servicer's Certificate;
Reconciliation of Backup Servicer................ 28
Section 3.11 Annual Certificate as to Compliance............... 28
Section 3.12 Annual Report of Independent Accountants.......... 29
Section 3.13 Notice of Event of Termination.................... 29
Section 3.14 Access to Certain Documentation and
Information Regarding Contracts.................. 29
Section 3.15 Agency Status..................................... 30
Section 3.16 Maintenance of Security Interests in
Financed Vehicles................................ 30
Section 3.17 Re-Liening........................................ 30
Section 3.18 Representations, Warranties, and
Covenants of the Servicer........................ 30
Section 3.19 Purchase of Contracts Upon Breach of Covenant..... 31
</TABLE>
-i-
<PAGE>
<TABLE>
Page
----
<S> <C> <C>
Section 3.20 Rule 144A Information............................. 31
Section 3.21 Certain Matters Relating to Extended
Service Agreements................................ 31
ARTICLE IV - CERTAIN MATTERS RELATING TO THE SERVICER
AND THE BACKUP SERVICER................................. 32
Section 4.01 Liability of Servicer; Indemnities................ 32
Section 4.02 Merger or Consolidation of, or Assumption
of the Obligations of JAC, the Servicer and the
Backup Servicer.................................. 33
Section 4.03 Limitation on Liability of JAC, the
Servicer, the Backup Servicer, and Others........ 34
Section 4.04 Servicer and Backup Servicer Not to Resign........ 35
ARTICLE V - EVENTS OF TERMINATION.................................... 36
Section 5.01 Events of Termination............................. 36
Section 5.02 Consequences of an Event of Termination........... 39
Section 5.03 Appointment of Successor.......................... 40
Section 5.04 Notification to Noteholders....................... 40
Section 5.05 Waiver of Past Defaults........................... 41
Section 5.06 Notice of Certain Events.......................... 41
ARTICLE VI - MISCELLANEOUS PROVISIONS................................ 41
Section 6.01 Amendment......................................... 41
Section 6.02 Governing Law..................................... 42
Section 6.03 Notices........................................... 42
Section 6.04 Intention of Parties.............................. 42
Section 6.05 Severability of Provisions........................ 43
Section 6.06 Assignment........................................ 43
Section 6.07 Third-Party Beneficiaries......................... 43
Section 6.08 Counterparts...................................... 43
Section 6.09 Parties Not to Institute Insolvency Proceedings... 43
Schedule A - Schedule of Representations and Warranties
Exhibit A - Form of Servicer's Certificate
Exhibit B - JAC's Credit and Collection Policy
Exhibit C-1 - Form of Dealer Agreement
Exhibit C-2 - Forms of Dealer Agreement Addenda
Exhibit D - Forms of JAC's Standard Contracts
Exhibit E - Form of Subsequent Transfer Agreement
Exhibit F - Form of Extended Service Agreement
Exhibit G - Form of Endorsement to FFG Policy
</TABLE>
-ii-
<PAGE>
This CONTRIBUTION AND SERVICING AGREEMENT (this "Agreement"), effective as
of August 7, 1996, is by and between JAYHAWK ACCEPTANCE CORPORATION, a Texas
corporation, in its individual capacity and as Servicer, JAYHAWK FUNDING TRUST
I, a limited purpose Delaware business trust, as Issuer, Norwest Bank Minnesota,
National Association, a national banking association, as Trustee, and Norwest
Bank Minnesota, National Association, a national banking association, as Backup
Servicer.
W I T N E S S E T H T H A T:
----------------------------
In consideration of the mutual agreements herein contained, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 DEFINITIONS.
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the meanings specified in this
Article.
Accounting Date: The last day of a Monthly Period.
---------------
Administrative Services Agreement: That certain Administrative Services
---------------------------------
Agreement dated as of November 15, 1995 between FESC and JAC and any supplements
or amendments thereto.
Affiliate: 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.
Agreement: This Contribution and Servicing Agreement and all amendments
---------
hereof and supplements hereto.
Aggregate Contract Principal Balance: As defined with respect to the
------------------------------------
Series 1996B Notes in the Indenture, as supplemented by the Series Supplement.
Aggregate Note Balance: As defined with respect to the Series 1996B Notes
----------------------
in the Indenture, as supplemented by the Series Supplement.
Amount Financed: With respect to a Contract, the aggregate amount advanced
---------------
under such Contract toward the purchase price of the related Financed Vehicle
and related costs, including amounts advanced in respect of accessories,
insurance premiums, service and warranty contracts,
<PAGE>
other items customarily financed as part of retail motor vehicle installment
sales contracts or promissory notes, and related costs.
APR: The annual percentage rate (as such term is used with respect to the
---
federal Truth-in-Lending Act) of interest borne by, and indicated on, a
Contract.
Assignment: With respect to a Contract (i) the original instrument of
----------
assignment of such Contract and all other documents securing such Contract made
by the Person originating such Contract to JAC and (ii) the original instrument
of assignment of such Contract made by JAC to the Issuer pursuant to this
Agreement, which, in each case, is in a form sufficient under the laws of the
jurisdiction in which the related Financed Vehicle is located to permit the
assignee to exercise all rights granted by the Obligor under such Contract and
such other documents and all rights available under applicable law to the
obligee under such Contract and which, in each case, may, to the extent
permitted by the laws of the state in which the related Financed Vehicle is
located, be a blanket instrument of assignment covering other Contracts as well.
Backup Servicer: Norwest Bank Minnesota, National Association and all
---------------
successors thereto in accordance with the terms hereof.
Backup Servicer Fee: As defined in the Series Supplement.
-------------------
Business Day: Any day other than a Saturday, a Sunday or a day on which
------------
banking institutions in New York City, the cities in which the principal place
of business of the Issuer, or the Corporate Trust Office of the Trustee
hereunder, are located, are authorized or obligated by law or executive order to
close.
Closing Date: August 7, 1996.
------------
Collection Account: The trust account established and maintained by the
------------------
Trustee with respect to the Series 1996B Notes pursuant to Section 8.02 of the
Indenture and Section 3 of the Series Supplement.
Collection Account Deposit: With respect to the Closing Date, an amount
--------------------------
equal to the aggregate of all payments on or with respect to the Initial
Contracts received on or after the Initial Cutoff Date and on or before the
second Business Day prior to the Closing Date, and with respect to a Subsequent
Transfer Date, an amount equal to the aggregate of all payments on or with
respect to the Subsequent Contracts Granted to the Trustee on such Subsequent
Transfer Date received on or after the related Subsequent Cutoff Date and
received on or before the second Business Day prior to such Subsequent Transfer
Date; provided, however, that if the Servicer receives any amount and the
Servicer does not receive with such amount, or otherwise have, sufficient
information to verify that such amount relates to an Initial Contract or
Subsequent Contract, as applicable, the Issuer will deposit such amount in the
Collection Account no later than the second Business Day after the Servicer
verifies that such amount relates to the applicable Contract.
Contract File: With respect to a Contract: (i) the sole original of such
-------------
Contract; (ii) the Assignment of such Contract made by the Dealer originating
such Contract to JAC; (iii) the original
-2-
<PAGE>
Title Document or a copy of the UCC financing statement evidencing that the
security interest granted under such Contract has been perfected under
applicable state law (except for any Title Document or UCC financing statement
not returned from the applicable public records office, in which case JAC will
be required to deliver to the Issuer and the Trustee an Officer's Certificate
pursuant to Section 2.02(a)); and (iv) the original of any assumption agreement
or any modification, extension or refinancing agreement.
Contracts: Collectively, the Initial Contracts and each Subsequent
---------
Contract.
Contribution Date: With respect to each Initial Contract, the Closing
-----------------
Date; with respect to each Subsequent Contract, the related Subsequent Transfer
Date.
Controlling Party: The Note Insurer, so long as no Note Insurer Default
-----------------
shall have occurred and be continuing, and the Trustee or such other Person as
may be appointed as the Controlling Party pursuant to Section 10 of the Series
Supplement, for the benefit of the Noteholders, if a Note Insurer Default shall
have occurred and be continuing; provided, however, that the Trustee or such
other Person as may be appointed as the Controlling Party pursuant to Section 10
of the Series Supplement, for the benefit of the Noteholders, shall be the
Controlling Party if (i) all amounts owing to the Note Insurer under the
Insurance Agreement have been paid in full and (ii) all principal and interest
on the Class A Notes has been paid in full.
Corporate Trust Office: The corporate trust office of the Trustee, located
----------------------
Norwest Center, 6th & Marquette, Minneapolis, Minnesota 55479-0070, or at such
other address as the Trustee may designate from time to time by notice to the
Note Insurer, the Noteholders and the Issuer, or the principal corporate trust
office of any successor Trustee.
Cram Down Loss: With respect to a Contract, if a court of appropriate
--------------
jurisdiction in an insolvency proceeding has issued an order reducing the amount
owed on a Contract or otherwise modifying or restructuring the scheduled
payments to be made on a Contract, an amount equal to the excess of the
Principal Balance of such Contract immediately prior to such order over the
Principal Balance of such Contract as so reduced or the net present value (using
as the discount rate the higher of the APR 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 will be deemed to have occurred on the date
of issuance of such order.
Cumulative After Tax Net Income: The aggregate amount of after tax net
-------------------------------
income of JAC and its consolidated subsidiaries, without deduction for any net
loss, as shown on JAC's consolidated income statements for each fiscal quarter
of JAC, commencing with the fiscal quarter beginning July 1, 1996.
Cumulative Gross Charge-Off Ratio: As of any Determination Date, the ratio
---------------------------------
of (i) the aggregate of the Principal Balances of Contracts that became
Defaulted Contracts during the period from the applicable Cutoff Date through
the end of the related Monthly Period to (ii) the sum of (a) the Aggregate
Contract Principal Balance as of the Closing Date plus (b) the Principal Balance
of each Subsequent Contract as of the related Subsequent Transfer Date.
-3-
<PAGE>
Cumulative Net Charge-Off Ratio: As of any Determination Date, the ratio
-------------------------------
of (i) the aggregate of the Principal Balances of Contracts that became
Defaulted Contracts during the period from the applicable Cutoff Date through
the end of the related Monthly Period reduced by the amount of Recoveries
received during such period and applied to principal on the Contracts to (ii)
the sum of (a) the Aggregate Contract Principal Balance as of the Closing Date
plus (b) the Principal Balance of each Subsequent Contract as of the related
Subsequent Transfer Date.
Custodian: Inwood Security Vaults, Inc. and all successors thereto in
---------
accordance with the terms of the Custodian Agreement.
Custodian Agreement: That certain custodian agreement, dated as of the
-------------------
Closing Date, between the Custodian, JAC, the Servicer, the Issuer, and the
Trustee.
Cutoff Date: With respect to the Initial Contracts, the Initial Cutoff
-----------
Date, and with respect to any Subsequent Contracts, the applicable Subsequent
Cutoff Date.
Dealer: With respect to a Contract, the retail motor vehicle dealer that
------
sold such Contract to JAC pursuant to a Dealer Agreement between JAC and such
Dealer.
Dealer Agreement: A Jayhawk Acceptance Corporation Dealer Agreement, in
----------------
the form attached hereto as Exhibit C-1.
-----------
Dealer Agreement Addendum: A Jayhawk Acceptance Corporation Extended
-------------------------
Service Agreement Addendum to Dealer Agreement, in one of the forms attached
hereto in Exhibit C-2.
-----------
Defaulted Contract: A Contract (i) with respect to which a Scheduled
------------------
Payment due on such Contract is more than 150 days Delinquent, (ii) with respect
to which a case has commenced under the United States Bankruptcy Code in which
the related Obligor is a debtor, (iii) which, consistent with JAC's Credit and
Collection Policy, has been or should be written off as uncollectible, (iv) with
respect to which 90 days (after any Obligor cure period) have elapsed since the
Servicer repossessed the related Financed Vehicle, or (v) with respect to which
proceeds have been received that, in the Servicer's good faith judgment,
constitute the final amounts recoverable in respect of such Contract.
Delinquency Ratio: As of any Determination Date, the ratio of (i) the
-----------------
aggregate of the number of Contracts that were Delinquent Contracts as of the
prior Accounting Date to (ii) the number of Contracts as of such Accounting Date
for which the related principal balance is not zero.
Delinquent: With respect to a Scheduled Payment, 20% or more of such
----------
Scheduled Payment remains unpaid after the related Due Date for such Scheduled
Payment.
Delinquent Contract: Any Contract (other than a Defaulted Contract) with
-------------------
respect to which a Scheduled Payment is more than 30 days Delinquent.
Determination Date: With respect to (i) any Payment Date, the tenth (10th)
------------------
calendar day of the month of such Payment Date and (ii) any Monthly Period, the
tenth (10th) calendar day of the
-4-
<PAGE>
immediately following month, or in either case, the next following Business Day
if such tenth (10th) calendar day is not a Business Day.
Due Date: With respect to each Contract, each date on which a Scheduled
--------
Payment is due thereunder.
Eligible Successor: An experienced servicer of motor vehicle retail
------------------
installment sales contracts that has a net worth of not less than $10,000,000.
Event of Default: As defined with respect to the Series 1996B Notes in the
----------------
Indenture, as supplemented by the Series Supplement.
Event of Termination: As defined in Section 5.01.
--------------------
Executive Officer: The Chairman of the Board, the President, a Vice
-----------------
President, the Treasurer, the Controller, an Assistant Controller or the
Secretary of a company.
Extended Service Agreement: An extended service agreement, with respect to
--------------------------
which JAC has obligations pursuant to a Dealer Agreement Addendum or otherwise,
covering repairs to a Financed Vehicle securing a Contract including extended
service agreements in the form attached hereto as Exhibit F.
---------
FESC: First Extended Service Corporation, a Texas corporation, and all
----
successors thereto.
FFG: FFG Insurance Corporation, a Texas corporation, and all successors
---
thereto.
FFG Policy: That certain Contractual Liability Policy (Policy No.:
----------
FEC1001-JAC) issued by FFG, including any amendments or endorsements thereto.
Financed Vehicle: With respect to a Contract, the automobile or light-duty
----------------
truck securing the indebtedness of the related Obligor under such Contract.
Funding Period: The period commencing on the Closing Date and ending on the
--------------
earliest to occur of (i) October 31, 1996, (ii) the date on which the amount on
deposit in the Pre-Funding Account is reduced to $10,000, (iii) the date on
which an Event of Default occurs and (iv) the date on which an Event of
Termination occurs.
Guaranty Amounts: With respect to a Contract, any and all amounts paid by
----------------
any guarantor with respect to such Contract.
Indenture: That certain Indenture dated as of the Closing Date between the
---------
Issuer and the Trustee.
Independent Accountants: Ernst & Young L.L.P. or any other firm of
-----------------------
independent certified public accountants of recognized national standing
acceptable to the Note Insurer.
-5-
<PAGE>
Initial Contracts: The Contracts identified in the Series Contract
-----------------
Schedule attached to the Series Supplement as of the Closing Date and
contributed to the capital of the Issuer by JAC as of such date.
Initial Cutoff Date: June 23, 1996.
-------------------
Initial Other Contributed Property: As defined in Section 2.01(a).
----------------------------------
Initial Warehouse Loan Payment: With respect to the Initial Contracts and
------------------------------
the Initial Other Contributed Property the amount required to be paid to the
Warehouse Lender on the Closing Date to release the Warehouse Lien on such
Initial Contracts and such Initial Other Contributed Property.
Insurance Agreement: The Insurance and Indemnity Agreement dated as of the
-------------------
Closing Date, among the Note Insurer, JAC, the Servicer, the Issuer, the
Trustee, and the Backup Servicer.
Insurance Policy: With respect to a Contract and the related Financed
----------------
Vehicle, any insurance policy benefitting the holder of such Contract, providing
loss or physical damage, "guaranteed auto protection," credit life, accident and
health, theft, mechanical breakdown or similar coverage with respect to such
Financed Vehicle or the related Obligor, including, but not limited to, any
Extended Service Agreement relating to such Financed Vehicle.
Insurance Proceeds: With respect to a Financed Vehicle and a related
------------------
Contract, any amount (including, but not limited to, proceeds of claims and
refunds of premiums) received by the related Servicer pursuant to a related
Insurance Policy.
Insured Expenses: Out-of-pocket expenses that are incurred by the Servicer
----------------
or any Subservicer and which are covered by any Insurance Policy covering a
Financed Vehicle.
Interest Coverage Ratio: With respect to any fiscal quarter of JAC, the
-----------------------
ratio of (i) JAC's and its consolidated subsidiaries' earnings, before interest,
taxes, depreciation, and amortization items to (ii) the interest expense of JAC
and its consolidated subsidiaries, each as shown on JAC's consolidated income
statements.
Issuer: Jayhawk Funding Trust I and all successors thereto.
------
JAC: Jayhawk Acceptance Corporation, in its individual capacity, and all
---
successors thereto in accordance with the terms hereof.
JAC's Credit and Collection Policy: The credit and collection guidelines
----------------------------------
of JAC, a copy of which is attached hereto as Exhibit B, as such guidelines may
---------
be amended, subject to Section 3.01, from time to time by JAC.
Lien: Any security interest, lien, charge, pledge, preference, equity, or
----
encumbrance of any kind, including tax liens, mechanics' liens, and any liens
that attach by operation of law.
-6-
<PAGE>
Liquidation Expenses: Reasonable expenses which are incurred by the
--------------------
Servicer or any Subservicer in connection with the liquidation of any Contract,
such expenses including, without limitation, legal fees and expenses, any
unreimbursed amount expended by the Servicer or any Subservicer pursuant to
Section 3.08 (to the extent such amount is reimbursable under the terms of
Section 3.08) respecting the related Contract and any related and unreimbursed
expenditures for property restoration or preservation.
Liquidation Proceeds: Cash (exclusive of Insurance Proceeds) received by
--------------------
the Servicer in connection with the liquidation of Contracts, whether from the
Obligor, through sale, or otherwise and including any Guaranty Amounts and any
and all rebates (including, but not limited to, warranty rebates, insurance
premium rebates, dealer rebates, and sales tax rebates).
Monthly Period: With respect to a Payment Date or Determination Date, the
--------------
calendar month immediately preceding the month in which such Payment Date or
Determination Date occurs.
Noteholder: With respect to the Series 1996B Notes, as defined in the
----------
Indenture.
Note Insurance Policy: The note guaranty insurance policy issued by the
---------------------
Note Insurer insuring the Class A Notes in accordance with the terms thereof.
Note Insurer: MBIA Insurance Corporation and all successors thereto.
------------
Note Insurer Default: The occurrence and continuance of an "Insurer
--------------------
Default" or an "Insurer Insolvency" (as each such term is defined in the
Insurance Agreement).
Note Majority: Noteholders representing at least 51% of the Aggregate Note
-------------
Balance of the Series 1996B Notes.
Note Voting Amount: Noteholders representing at least two-thirds of the
------------------
Aggregate Note Balance.
Obligor: The purchaser of a Financed Vehicle under each Contract,
-------
including any guarantor of such purchaser, and their respective successors,
assigns, heirs, and personal representatives.
Officer's Certificate: A certificate signed by the Chairman of the Board,
---------------------
the Vice Chairman of the Board, the President, Executive Vice President, Senior
Vice President, Vice President, or Assistant Vice President of JAC, with respect
to an Officer's Certificate of JAC, or by a Servicing Officer, with respect to
an Officer's Certificate of the Servicer.
Opinion of Counsel: A written opinion of counsel, who may be counsel for
------------------
the Servicer, acceptable in form and substance and from counsel acceptable to
the Issuer and, if such opinion or a copy thereof is required to be delivered to
the Trustee or the Note Insurer, reasonably acceptable (as to form, substance,
and identity of counsel) to the Trustee or the Note Insurer, as applicable.
Other Contributed Property: Collectively, the Initial Other Contributed
--------------------------
Property and all Subsequent Other Contributed Property.
-7-
<PAGE>
Payment Date: The fifteenth (15th) day of each calendar month (or if such
------------
day is not a Business Day, the next succeeding Business Day) commencing on
August 15, 1996.
Person: Any individual, corporation, partnership, limited liability
------
company, association, joint-stock company, trust (including any beneficiary
thereof), unincorporated organization or government or any agency or political
subdivision thereof.
Pre-Funding Account: The trust account established and maintained by the
-------------------
Trustee with respect to the Series 1996B Notes pursuant to Section 8.03 of the
Indenture and Section 7 of the Series Supplement.
Pre-Funding Account Deposit: $11,971,316.
---------------------------
Principal Balance: As defined in the Indenture, as supplemented by the
-----------------
Series Supplement.
Purchase Price: With respect to a Contract being repurchased from the
--------------
Trust Estate, (i) if such Contract is a Delinquent Contract, a Defaulted
Contract, or a Terminated Contract (until the aggregate principal balance of all
Terminated Contracts repurchased exceeds $275,000) the sum of (a) the Principal
Balance of such Contract as of the date of repurchase (determined without regard
to any Cram Down Loss) multiplied by the sum of the Class A Specified Percentage
and the Class B Specified Percentage and (b) interest on such Principal Balance
at the related APR from the date to which interest was last paid by the related
Obligor to the purchase date in the Monthly Period in which such repurchase
occurs or (ii) if such Contract is not a Contract described in clause (i), the
sum of (a) the Principal Balance of such Contract as of the date of repurchase
(determined without regard to any Cram Down Loss) and (b) interest on such
Principal Balance at the related APR from the date to which interest was last
paid by the related Obligor to the purchase date in the Monthly Period in which
such repurchase occurs. For purposes of determining the Purchase Price of any
Contract, the Principal Balance thereof will not be reduced to zero as a result
of its classification as a Defaulted Contract.
Rating Agency: Each of Moody's Investors Service, Standard & Poor's Ratings
-------------
Group, a division of McGraw-Hill, Inc., and Fitch Investors Service, L.P.
Recoveries: With respect to a Contract, all Insurance Proceeds and
----------
Liquidation Proceeds, excluding (i) proceeds to be applied to the restoration or
repair of the related Financed Vehicle or released to the related Obligor in
accordance with the Servicer's normal servicing procedures (which shall be JAC's
Credit and Collection Policy, if JAC is the Servicer), and (ii) proceeds to be
retained by such Servicer for reimbursement of Liquidation Expenses or Insured
Expenses pursuant to Section 3.08.
Registrar of Titles: The agency, department or office having the
-------------------
responsibility for maintaining records of titles to motor vehicles and issuing
documents evidencing such titles in the jurisdiction in which a particular
Financed Vehicle is registered.
Re-Liening Expenses: Any documented expenses reasonably incurred by the
-------------------
Trustee or the Servicer in connection with the taking, or causing to be taken,
of actions pursuant to Section 3.17.
-8-
<PAGE>
Re-Liening Trigger: Any of the following events:
------------------
(i) Tangible Net Worth is less than $70 million plus 85% of
Cumulative After Tax Net Income (without reduction for any net
loss) in any fiscal quarter of JAC, commencing with the fiscal
quarter beginning July 1, 1996.
(ii) Interest Coverage Ratio is less than 1.5 in any three
consecutive fiscal quarters of JAC, or less than 1.0 in any
fiscal quarter of JAC, commencing with the fiscal quarter
beginning July 1, 1996.
(iii) One or more courts of competent jurisdiction have issued final,
non-appealable orders to the effect that the Trustee is not the
secured party with respect to Financed Vehicles relating to
Contracts for which the aggregate of the Principal Balances
(each computed as of the date of purchase thereof by JAC from a
Dealer) equals or exceeds 5.0% of the aggregate of the Principal
Balances of such Contracts as of their respective Cutoff Dates.
(iv) The entry of a decree or order for relief by a court or
regulatory authority having jurisdiction in respect of JAC, the
Servicer, or the Issuer 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 JAC, the
Servicer, or the Issuer or of any substantial part of its
respective property or ordering the winding up or liquidation of
the affairs of JAC, the Servicer, or the Issuer and the
continuance of any such decree or order unstayed and in effect
for a period of 60 consecutive days or the commencement of an
involuntary case under the federal bankruptcy laws, as now or
hereinafter in effect, or another present or future federal or
state bankruptcy, insolvency or similar law and such case is not
dismissed within 60 days.
(v) The commencement by JAC, the Servicer, or the Issuer 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
JAC, the Servicer or the Issuer to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of JAC, the
Servicer, or the Issuer or of any substantial part of its
respective property or the making by JAC, the Servicer, or the
Issuer of an assignment for the benefit of creditors or the
failure by JAC, the Servicer, or the Issuer generally to pay its
respective debts as such debts become due or the taking of any
action by JAC, the Servicer, or the Issuer in furtherance of any
of the foregoing.
Repossession: Any action taken or to be taken pursuant to the UCC or other
------------
applicable laws in connection with recovery on a Contract, including
repossession of the related Financed Vehicle with or without judicial
proceedings, sale of such Financed Vehicle at public or private sale,
-9-
<PAGE>
retention of such Financed Vehicle in satisfaction of the Obligor's obligations
under such Defaulted Contract, or a levy on and sheriff's sale of the related
Financed Vehicle in enforcement of a judgment on such Contract or by voluntary
surrender or otherwise.
Reserve Fund: The trust account established and maintained by the Trustee
------------
with respect to the Series 1996B Notes pursuant to Section 8.04 of the Indenture
and Section 4 of the Series Supplement.
Schedule of Representations: The Schedule of representations and
---------------------------
warranties attached hereto as Schedule A, consisting of Subschedules A-1 and
A-2. ---
- ---
Scheduled Payment: With respect to a Contract, the periodic payment set
-----------------
forth in such Contract due from the Obligor on each related Due Date, and the
amount due on the final Due Date for such Contract.
Series Contract Schedule: The list of Contracts attached to the Series
------------------------
Supplement, as amended by each Subsequent Transfer Agreement.
Series 1996B Notes: The Issuer's Automobile Loan-Backed Notes, Series
------------------
1996B, including the Class A Notes and the Class B Notes.
Series Supplement: That certain Series 1996B Supplement to the Indenture,
-----------------
dated as of the Closing Date, between the Issuer and the Trustee.
Servicer: Jayhawk Acceptance Corporation, in its capacity as servicer
--------
under this Agreement, and all successors thereto in accordance with the terms
hereof.
Servicer Fee: With respect to a Payment Date, an amount equal to one-
------------
twelfth of the product of (i) 3% and (ii) the sum of (A) the Aggregate Contract
Principal Balance as of the second preceding Accounting Date (after reduction by
the principal portion of payments received and applied during the Monthly Period
in which such second preceding Accounting Date occurs) and (B) the aggregate of
the amounts, computed with respect to each Subsequent Contract contributed to
the Issuer by JAC during the related Monthly Period, equal to (x) the Principal
Balance of such Subsequent Contract as of the date of the related Subsequent
Cutoff Date multiplied by (y) a fraction, the numerator of which is the number
of days from the related Subsequent Transfer Date to the end of such Monthly
Period (assuming each such Monthly Period consists of 30 days) and the
denominator of which is 30; provided, however, that with respect to the first
Payment Date, the Servicer Fee will be an amount equal to 1/12th of the product
of (i) 3% and (ii) the sum of the Aggregate Contract Principal Balance as of the
Closing Date.
Servicer's Certificate: A certificate of the Servicer substantially in the
----------------------
form of Exhibit A; provided, however, that the portion of the Servicer's
---------
Certificate consisting of backup calculations (as noted in the form attached
hereto as Exhibit A) shall not be deemed to be a part of the Servicer's
---------
Certificate for purposes of Section 8.07(a) of the Indenture (that is, such
backup calculations shall not be furnished to Noteholders pursuant to such
Section 8.07(a)).
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<PAGE>
Servicing Officer: Each of the persons listed on a certificate of the
-----------------
Servicer from time to time delivered by the Servicer to the Issuer, the
Custodian, the Note Insurer, the Trustee, and the Backup Servicer.
Specified Items: With respect to a Servicer's Certificate, the items
---------------
therein indicated by a double asterisk in the form of Servicer's Certificate
attached hereto as Exhibit A.
---------
Stated Maturity: The Payment Date occurring in March 2000.
---------------
Subsequent Contract: A Contract that, pursuant to a Subsequent Transfer
-------------------
Agreement, is (i) contributed to the capital of, conveyed, and assigned by JAC
to the Issuer and (ii) Granted (as such term is defined in the Indenture) to the
Trustee by the Issuer to become part of the Trust Estate.
Subsequent Cutoff Date: With respect to a Subsequent Contract, the date
----------------------
specified as such in the related Subsequent Transfer Agreement.
Subsequent Other Contributed Property: With respect to the Subsequent
-------------------------------------
Contracts contributed by JAC to the Issuer on a Subsequent Transfer Date, as
defined in the related Subsequent Transfer Agreement.
Subsequent Transfer Agreement: An agreement, substantially in the form
-----------------------------
attached hereto as Exhibit E, pursuant to which any Subsequent Contracts are (i)
---------
contributed to the capital of, conveyed, and assigned by JAC to the Issuer and
(ii) Granted (as such term is defined in the Indenture) to the Trustee by the
Issuer to become part of the Trust Estate.
Subsequent Transfer Date: With respect to a Subsequent Contract, as
------------------------
specified in the applicable Subsequent Transfer Agreement, the date on which,
pursuant to such Subsequent Transfer Agreement, such Subsequent Contract is (i)
contributed to the capital of, conveyed, and assigned by JAC to the Issuer and
(ii) Granted (as such term is defined in the Indenture) to the Trustee by the
Issuer to become part of the Trust Estate; provided, however, that (a) in any
calendar month there shall not be more than two Subsequent Transfer Dates and
(b) no Subsequent Transfer Date may occur within ten Business Days of any other
Subsequent Transfer Date.
Subsequent Warehouse Loan Payment: With respect to the Subsequent
---------------------------------
Contracts and related Subsequent Other Contributed Property contributed by JAC
to the Issuer on a given Subsequent Transfer Date, the amount required to be
paid to the Warehouse Lender on such Subsequent Transfer Date to release the
Warehouse Lien on such Subsequent Contracts and such related Subsequent Other
Contributed Property.
Subservicer: Any Person that is subservicing a Contract pursuant to a
-----------
Subservicing Agreement pursuant to Section 3.02.
Subservicing Agreement: The written contract between the Servicer and any
----------------------
Subservicer relating to the servicing and/or administration of certain Contracts
as provided in Section 3.02.
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<PAGE>
Tangible Net Worth: The excess of:
------------------
(a) the tangible assets of JAC and its consolidated subsidiaries,
which, in accordance with GAAP, are tangible assets, after deducting
adequate reserves in each case where, in accordance with generally accepted
accounting principles, a reserve is proper over
(b) all indebtedness of JAC;
provided, however, that (i) in no event shall there be included as such tangible
assets patents, trademarks, trade names, copyrights, licenses, good will,
organization costs, advances, or loans to, or receivables from, directors,
officers, employees, or affiliates, prepaid or intangible assets, amounts
relating to covenants not to compete, pension assets, deferred charges, or
treasury stock or any securities of JAC 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 tangible 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.
Terminated Contract: A Contract which, pursuant to Section 3.06(d), the
-------------------
Servicer permits to be terminated prior to its payment in full.
Title Documents: With respect to any Contract and the related Financed
---------------
Vehicle, the actual motor vehicle title or certificate of title for such
Financed Vehicle issued by the Registrar of Titles or other government agency in
the jurisdiction in which such Financed Vehicle is registered; alternatively, in
those certain jurisdictions whose law requires or contemplates that the original
of the actual motor vehicle title or certificate of title be possessed by the
Obligor, then, in lieu of the actual title or certificate of title, "Title
Document" shall mean such duplicate titles, certificates or other documents as
are permitted, required and/or contemplated to be possessed by the secured party
under the laws of such jurisdiction.
Transition Costs: Any documented expenses reasonably incurred by a
----------------
successor Servicer, the Trustee, or the Backup Servicer in connection with a
transfer of servicing from the Servicer to such successor Servicer pursuant to
Section 5.02, not to exceed $50,000.
Trustee: Norwest Bank Minnesota, National Association as trustee, and all
-------
successors thereto with respect to the Series 1996B Notes in accordance with the
terms of the Indenture.
Trust Estate: As defined with respect to the Series 1996B Notes in the
------------
Indenture, as supplemented by the Series Supplement.
Unearned Finance Charge: With respect to any Contract, the amount of the
-----------------------
add-on finance charge that, under the terms of such Contract, would be required
to be refunded or credited to the related Obligor in accordance with such
Contract if such Contract were then prepaid in full.
UCC: The Uniform Commercial Code as in effect in the relevant jurisdiction.
---
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<PAGE>
Warehouse Lender: Fleet Capital Corporation, a Connecticut corporation.
----------------
Warehouse Lender Consent: With respect to the Contracts and the Other
------------------------
Contributed Property contributed to the Issuer by JAC on a given Contribution
Date, a consent and acknowledgment executed by the Warehouse Lender pursuant to
which the Warehouse Lender releases (or agrees to release upon receipt of a
specified amount) the Warehouse Lien with respect to such Contracts to the
extent such lien is applicable thereto; provided, however, that if such consent
and acknowledgment consists of an agreement to release the Warehouse Lien upon
receipt of a specified amount, the Warehouse Lender Consent shall also include a
document evidencing receipt of such amount by the Warehouse Lender.
Warehouse Lien: The Lien created in favor of the Warehouse Lender pursuant
--------------
to the Warehouse Loan Agreement.
Warehouse Loan Agreement: That certain Loan and Security Agreement dated
------------------------
the 4th day of April, 1995, as amended, by and between the Warehouse Lender, as
lender, and Jayhawk Acceptance Corporation, a Texas corporation, as borrower.
SECTION 1.02 CERTAIN MATTERS REGARDING PAYMENTS ON CONTRACTS.
(a) With respect to each Contract, for purposes of determining the amount
of the Unearned Finance Charge with respect to a Contract for which a principal
prepayment in full has been made by the related Obligor, the allocation of a
payment on a Contract between principal and interest shall be made based upon
the terms of the related Contract.
(b) With respect to each Contract that provides, as allowed by applicable
state law, that in computing the amount of add-on interest earned on such
Contract for purposes of determining the amount due thereon upon a principal
prepayment in full, upon origination an acquisition cost in an amount specified
in such Contract (such amount being referred to in this paragraph as the
"Acquisition Cost" with respect to such Contract) is considered earned by the
originator and owed by the related Obligor, such Acquisition Cost shall be
treated as a principal payment on such Contract for all purposes of this
Agreement.
SECTION 1.03 NO RECOURSE. No recourse may be taken, directly or
indirectly, under this Agreement or any certificate or other writing delivered
in connection herewith or therewith, against any stockholder, officer, or
director, as such, of JAC, the Servicer, the Trustee, the Backup Servicer or the
Issuer or of any predecessor or successor of JAC, the Servicer, the Trustee, the
Backup Servicer or the Issuer.
SECTION 1.04 MATERIAL ADVERSE EFFECT. Whenever a determination is to be
made under this Agreement as to whether a given event, action, course of conduct
or set of facts or circumstances could or would have a material adverse effect
on the Issuer or the Noteholders (or any similar or analogous determination),
such determination shall be made without taking into account the insurance
provided by the Note Insurance Policy.
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<PAGE>
ARTICLE II
CONTRIBUTION OF CONTRACTS AND OTHER CONTRIBUTED PROPERTY;
CUSTODY OF CONTRACTS; REPRESENTATIONS AND WARRANTIES OF JAC
SECTION 2.01 CONTRIBUTION OF CONTRACTS AND OTHER CONTRIBUTED PROPERTY.
(a) Effective as of the Closing Date and simultaneously with the
transactions to be consummated on the Closing Date pursuant to the Indenture and
the Series Supplement, JAC does hereby contribute to the capital of, convey to,
and assign to the Issuer without recourse (except as otherwise specifically
provided in this Agreement), and does hereby grant to the Issuer all the right,
title and interest of JAC in and to the following and any and all benefits
accruing to JAC from (but none of the obligations of JAC under): (i) the
Initial Contracts; (ii) all rights with respect to the Initial Contracts
(including all guaranties and other agreements or arrangements of whatever
character from time to time supporting or securing payment of any Initial
Contract, and all rights with respect to any agreement or arrangement with the
vendors, Dealers, or manufacturers of the Financed Vehicles to the extent
specifically related to any Initial Contract, including, without limitation, the
related Dealer Agreements and each Dealer Agreement Addendum related thereto);
(iii) all payments on or with respect to the Initial Contracts received on or
after the Initial Cutoff Date, including without limitation, Insurance Proceeds
and Liquidation Proceeds; (iv) the security interests created by the Initial
Contracts in the related Financed Vehicles and in any other collateral securing
such Initial Contracts; (v) the original Initial Contracts, the Title Documents,
applications for Title Documents relating to the related Financed Vehicles, and
the Contract Files relating to the Initial Contracts; (vi) all rights of JAC
under each Extended Service Agreement with respect to the Initial Contracts and
the related Financed Vehicles; (vii) all rights of JAC under the Administrative
Services Agreement with respect to the Extended Service Agreements applicable to
the Initial Contracts and the related Financed Vehicles; and (viii) proceeds of
the foregoing (including, but not by way of limitation, 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
which at any time constitute all or part or are included in the proceeds of any
of the foregoing), in each case whether now owned or hereafter acquired. The
items described in clauses (ii) - (viii) of the preceding sentence are referred
to herein as the "Initial Other Contributed Property."
(b) JAC and the Issuer intend that each contribution, conveyance, and
assignment of Contracts and Other Contributed Property by JAC to the Issuer,
pursuant to Section 2.01(a) or pursuant to a Subsequent Transfer Agreement be a
contribution, conveyance, and assignment, free and clear of all liens (other
than the Warehouse Lien, if and to the extent applicable to such assets), rather
than a financing and it is intended that the property of the Issuer shall not be
a part of JAC's estate in the event of a filing of a bankruptcy petition by or
against JAC under any bankruptcy or similar law.
(c) On or prior to the Closing Date, JAC shall record and file, at
its own expense, a UCC-1 financing statement or statements as appropriate under
the applicable UCC, executed by JAC, as debtor, and naming the Issuer, as
purchaser or secured party, describing the Contracts and the Other Contributed
Property as collateral, meeting the requirements of the laws of each applicable
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<PAGE>
jurisdiction and in such manner as is necessary to perfect the contribution,
conveyance and assignment (to the extent such may be perfected by such filing)
of such Contracts and Other Contributed Property to the Issuer. JAC shall
deliver a file-stamped copy, or other evidence satisfactory to the Issuer of
such filing, to the Issuer on or prior to the Closing Date.
(d) On or prior to the Closing Date, with respect to the Initial
Contracts and the Initial Other Contributed Property contributed to the capital
of the Issuer on such date, and on or prior to each Subsequent Transfer Date,
with respect to the Subsequent Contracts and the related Subsequent Other
Contributed Property contributed to the capital of the Issuer on such Subsequent
Transfer Date, JAC or the Issuer shall (i) obtain release of all security
interests or similar rights of any Person (other than the Issuer and the
Trustee) in the applicable Contracts and Other Contributed Property, including
without limitation, the Warehouse Lien and (ii) cause to be recorded and filed,
at its own expense, UCC termination statements and UCC amendment statements as
appropriate under the applicable UCC, meeting the requirements of the laws of
each applicable jurisdiction and in such manner as is necessary to evidence each
such release. JAC shall deliver a file-stamped copy, or other evidence
satisfactory to the Issuer of each such filing made by it, as applicable, to the
Issuer on or prior to the Closing Date and each Subsequent Transfer Date.
(e) On the Closing Date, JAC shall deposit or cause to be deposited
in the Collection Account the Collection Account Deposit with respect to the
Closing Date. Within two Business Days after the Closing Date, the Servicer and
JAC shall deliver to the Trustee, for deposit into the Collection Account, all
other payments (including all Recoveries) on or with respect to the Initial
Contracts received on or after the Initial Cutoff Date and before the Closing
Date; provided, however, that if the Servicer receives any amount and the
Servicer does not receive with such amount, or otherwise have, sufficient
information to verify that such amount relates to an Initial Contract, the
Issuer will deposit such amount in the Collection Account no later than the
second Business Day after the Servicer verifies that such amount relates to an
Initial Contract.
(f) With respect to the Initial Contracts, it is acknowledged and
agreed that the Issuer is taking such Initial Contracts and the Initial Other
Contributed Property subject to the Warehouse Lien, if and to the extent
applicable to such assets; provided, however, that upon payment of the Initial
Warehouse Loan Payment to the Warehouse Lender, such Initial Contracts and
Initial Other Contributed Assets shall be released from the Warehouse Lien. The
Issuer shall, simultaneously with the pledge of such assets to the Trustee on
the Closing Date, pay the Initial Warehouse Loan Payment to the Warehouse Lender
and obtain the Warehouse Lender Consent with respect to such assets.
(g) JAC, the Issuer, and the Trustee may from time to time enter into
Subsequent Transfer Agreements, subject to the requirements and conditions set
forth in Section 6 of the Series Supplement. With respect to the Subsequent
Contracts contributed by JAC to the Issuer on a given Subsequent Transfer Date,
it is acknowledged and agreed that the Issuer may take such Subsequent Contracts
and the related Subsequent Other Contributed Property subject to the Warehouse
Lien, if and to the extent applicable to such assets, provided, however, that
upon payment of the related Subsequent Warehouse Loan Payment to the Warehouse
Lender, such Subsequent Contracts and related Subsequent Other Contributed
Property shall be released from the Warehouse Lien. The Issuer shall,
simultaneously with the pledge of such assets to the Trustee on the related
Subsequent
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<PAGE>
Transfer Date, pay the related Subsequent Warehouse Loan Payment to the
Warehouse Lender and obtain a Warehouse Lender Consent with respect to such
assets. On each Subsequent Transfer Date on which Subsequent Contracts are
contributed by JAC to the Issuer, JAC shall deposit in the Collection Account
the Collection Account Deposit with respect to such Subsequent Transfer Date.
Within two Business Days after such Subsequent Transfer Date, the Servicer and
JAC shall deliver to the Trustee, for deposit into the Collection Account, all
other payments on or with respect to the related Subsequent Contracts received
on or after the related Subsequent Cutoff Date and on or before such Subsequent
Transfer Date; provided, however, that if the Servicer receives any amount and
the Servicer does not receive with such amount, or otherwise have, sufficient
information to verify that such amount relates to a Subsequent Contract, the
Issuer will deposit such amount in the Collection Account no later than the
second Business Day after the Servicer verifies that such amount relates to a
Subsequent Contract.
(h) On the Closing Date, JAC shall cause the FFG Policy to be
endorsed pursuant to an endorsement thereto in the form attached hereto as
Exhibit G.
- ---------
SECTION 2.02 CUSTODY AND DELIVERY OF CONTRACT FILES; ASSIGNMENTS.
(a) In connection with the contribution of the Contracts and the
Other Contributed Property to the capital of the Issuer pursuant to this
Agreement and simultaneously with the execution and delivery of this Agreement
and the Series 1996B Supplement, JAC, the Servicer, the Issuer, and the Trustee
shall enter into the Custodian Agreement with the Custodian pursuant to which
the Issuer and the Trustee shall revocably appoint the Custodian to act as the
agent of the Trustee as custodian of the Contract Files, which, with respect to
the Initial Contracts, shall be delivered by JAC to the Custodian on the Closing
Date, and which, with respect to the Subsequent Contracts contributed to the
capital of the Issuer on a given Subsequent Transfer Date, shall be delivered by
JAC to the Custodian on such Subsequent Transfer Date. The Trustee shall have
no liability to any Person for any act or omission of the Custodian. On each
date that Contract Files are delivered to the Custodian as provided in this
Section, if any Title Documents or UCC financing statements with respect to the
related Financed Vehicles are not included in such Contract Files because they
have not been returned from the applicable public records office, JAC shall
deliver to the Issuer and the Trustee an Officer's Certificate of JAC stating
that the original of such Title Document has been applied for at, or the
original of such UCC financing statement was delivered to, such public office
and shows JAC as the lienholder or secured party and that JAC will deliver such
original Title Document or a copy of such UCC financing statement to the
Custodian promptly after they have been returned from such office. On each
Determination Date, the Servicer shall deliver to the Issuer, the Note Insurer,
and the Trustee a report setting forth the status, as of the end of the
preceding month, of each Title Document and UCC financing statement that was not
included in such Contract Files.
(b) The Servicer shall be permitted to obtain Contract Files from the
Custodian as provided in the Custodian Agreement.
(c) On the Closing Date, with respect to the Initial Contracts, and
on each Subsequent Transfer Date, with respect to the applicable Subsequent
Contracts, JAC shall deliver to the Trustee the Assignment of each applicable
Contract made by JAC to the Issuer.
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<PAGE>
SECTION 2.03 REPRESENTATIONS, WARRANTIES, AND COVENANTS OF JAC.
(a) JAC hereby represents, warrants, and covenants to the Issuer, the
Trustee, the Note Insurer, the Backup Servicer, and the Servicer (if JAC is not
the Servicer) that, as of the Closing Date (or, in the case of the
representations set forth in (xi) and (xii) below, as of the applicable dates
specified therein):
(i) JAC is a Texas corporation duly organized, validly existing, and
in good standing under the laws of the State of Texas and has all licenses
necessary to carry on its business as now being conducted; JAC has the full
power and authority to own its property, to carry on its business as
presently conducted, and to execute, deliver and perform this Agreement and
each Dealer Agreement; the execution, delivery and performance of this
Agreement and each Dealer Agreement (including all instruments of transfer
to be delivered pursuant to this Agreement) by JAC and the consummation of
the transactions contemplated hereby and thereby have been duly and validly
authorized; this Agreement and each Dealer Agreement evidences the valid,
binding and enforceable obligation of JAC (subject to applicable bankruptcy
and insolvency laws and other similar laws affecting the enforcement of
creditors' rights generally and to general principles of equity, regardless
of whether enforcement is sought in a proceeding in equity or at law); and
all requisite corporate action has been taken by JAC to make this Agreement
and each Dealer Agreement valid and binding upon, and enforceable against,
JAC (subject to the preceding clause).
(ii) Other than the Warehouse Lender Consent, JAC is not required to
obtain the consent of any other party or obtain the consent, license,
approval or authorization of, or make any registration or declaration with,
any governmental authority, bureau or agency in connection with the
execution, delivery, performance, validity or enforceability of this
Agreement or any Dealer Agreement.
(iii) The consummation of the transactions contemplated by this
Agreement and the Dealer Agreements will not result in the breach of any
term or provision of the charter or by-laws of JAC or result in the breach
of any term or provision of, or conflict with or constitute a default under
or result in the acceleration of any obligation under, any material
agreement, indenture or loan or credit agreement or other instrument to
which JAC or its property is subject, or result in the violation of any
law, rule, regulation, order, judgment or decree to which JAC or its
property or the Contracts are subject.
(iv) Neither this Agreement nor any statement, report or other
document furnished or to be furnished on the Closing Date pursuant to this
Agreement or in connection with the transaction contemplated hereby, taken
as a whole, contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained therein
not misleading, in light of the circumstances under which they were made;
and no statement, report or other document to be furnished pursuant to this
Agreement or in connection with the transactions contemplated hereby will,
when furnished, contain any untrue statement of a material fact.
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(v) Neither JAC nor any of its subsidiaries or affiliates is a party
to, bound by or in breach or violation of any indenture or other agreement
or instrument, or subject to or in violation of any statute, order or
regulation of any court, regulatory body, administrative agency or
governmental body having jurisdiction over it, which materially and
adversely affects, or may in the future materially and adversely affect,
the ability of JAC to perform its obligations under this Agreement or any
Dealer Agreement.
(vi) There are no actions, suits or proceedings pending or, to the
knowledge of JAC, threatened against JAC, before or by any court,
administrative agency, arbitrator or governmental body with respect to any
of the transactions contemplated by this Agreement or any Dealer Agreement,
which will, if determined adversely to JAC, affect the validity or
enforceability hereof or thereof or materially and adversely affect JAC's
ability to perform its obligations under this Agreement or any Dealer
Agreement.
(vii) JAC has obtained or made all necessary consents, approvals,
waivers and notifications of creditors, lessors and other non-governmental
persons, in each case, in connection with the execution and delivery of
this Agreement and each Dealer Agreement, and the consummation of all the
transactions herein and therein contemplated (subject to the requirement to
obtain Warehouse Lender Consents as provided herein).
(viii) JAC has not taken and will not take any action to impair the
rights of the Issuer, the Trustee, or the Note Insurer in any Contract or
any Other Contributed Property, except to the extent allowed by this
Agreement or required by law.
(ix) JAC is not an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
(x) JAC's principal place of business and chief executive office are
located at Two Galleria Tower, 13455 Noel Road, Suite 1800, Dallas, Texas
75240. JAC's legal name is Jayhawk Acceptance Corporation, and it has not
had any other legal name.
(xi) The representations and warranties with respect to (A) each
Contract, as set forth on Subschedule A-1 of the Schedule of
---------------
Representations, and (B) each Contract with respect to which the related
Financed Vehicle is covered by an Extended Service Agreement, as set forth
on Subschedule A-2 of the Schedule of Representations, are in each case
---------------
true and correct as of the related Contribution Date, or such other date as
is specified in the applicable Subschedule of the Schedule of
Representations.
(xii) As of the Initial Cutoff Date, no more than 10% of the Initial
Contracts were between 31 and 60 days past due, and as of the related
Subsequent Cutoff Date, no more than 10% of the Subsequent Contracts
contributed to the Issuer on a given Subsequent Transfer Date will be
between 31 and 60 days past due, in each case with the remaining 90% of
such Contracts to be 30 days or less past due. No more than 8% of the
Initial Contracts (by principal balance) contributed to the Issuer by JAC
on the Closing Date have an APR of less than 10%, and no more than 8% of
any Subsequent Contracts (by principal balance) that will be contributed to
the Issuer by JAC on a given Subsequent Transfer Date pursuant to a
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Subsequent Transfer Agreement will have an APR of less than 10%. As of the
Closing Date, the aggregate of the Principal Balances of Initial Contracts
from a single Dealer does not represent more than 1.5% of the Aggregate
Contract Principal Balance as of the Closing Date, and as of each
Subsequent Transfer Date, the aggregate of the Principal Balances of all
Contracts from a single Dealer will not represent more than 1.5% of the
Aggregate Contract Principal Balance as of the Subsequent Transfer Date
except, in each case, with respect to those Dealers approved by the Note
Insurer for a greater amount.
(xiii) The contribution of the Contracts and the Other Contributed
Property by JAC to the Issuer pursuant to this Agreement is not subject to
and will not result in any tax, fee or governmental charge payable by JAC
to any federal, state or local government ("Transfer Taxes") other than
Transfer Taxes which have or will be paid by JAC as due. In the event that
the Issuer receives actual notice of any Transfer Taxes arising out of such
contribution of the Contracts and the Other Contributed Property, on
written demand by the Issuer, or upon JAC otherwise being given notice
thereof, JAC shall pay, and otherwise indemnify and hold the Issuer, the
Trustee and the Note Insurer, and the Noteholders harmless, on an after-tax
basis, from and against any and all such Transfer Taxes (it being
understood that the holders of the Series 1996B Notes, the Trustee, the
Note Insurer and the Trust Estate shall have no obligation to pay such
Transfer Taxes).
(xiv) The Initial Contracts will consist of 16,369 Contracts, having
an initial Aggregate Contract Principal Balance of approximately
$72,928,150. As of the Initial Cutoff Date, the weighted average APR of the
motor vehicle retail installment sale contracts intended to be contributed
to the Issuer as of the date of the Private Placement Memorandum was
approximately 18.34%, and the weighted average remaining scheduled term to
maturity on such contracts was approximately 25.3 months. The final
scheduled payment date on the Initial Contract with the latest maturity is
July 31, 1999.
JAC acknowledges that the Issuer, in accepting the Contracts and the Other
Contributed Property and in executing and delivering the Series 1996B Notes, the
Note Insurer, in issuing the Note Insurance Policy with respect to the Class A
Notes, the Trustee, in authenticating the Series 1996B Notes, and the Backup
Servicer, in executing this Agreement, will rely on the foregoing
representations, warranties, and covenants of JAC and each of the other
representations, warranties and covenants of JAC contained herein. All such
representations, warranties and covenants shall survive each contribution of the
Contracts and the related Other Contributed Property to the capital of the
Issuer.
(b) Upon discovery by JAC, the Issuer, the Servicer, the Note Insurer, the
Trustee, or the Backup Servicer of a breach of any of the representations and
warranties set forth in Section 2.03(a), the party discovering such breach shall
give prompt written notice thereof to the other parties. In addition, with
respect to any Contract in respect of which the related Title Document or UCC
financing statement had not been returned from the applicable public records
office as of the related Contribution Date, if the original of such Title
Document or a copy of such UCC financing statement has not been received by the
Servicer and delivered to the Custodian within 180 days after such Contribution
Date, the Servicer shall give JAC (if JAC is not the Servicer), the Trustee, the
Issuer, and the Note Insurer notice of such fact. No later than ninety (90)
days after the date JAC discovered
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or was notified of a breach of any of its representations and warranties set
forth in Section 2.03(a), JAC shall either (i) correct or cure such breach or
(ii) purchase such Contract from the Issuer at the Purchase Price; provided,
however, the Controlling Party may waive any such breach. No later than ten
(10) days after the date JAC discovered or was notified that it failed to
deliver a Title Document or UCC financing statement within the requisite time
period, JAC shall either (i) deliver such Title Document or UCC financing
statement or (ii) purchase such Contract from the Issuer at the Purchase Price;
provided, however, the Controlling Party may waive any such failure.
The Purchase Price for the purchased Contract shall be paid by JAC to the
Trustee for deposit in the Collection Account and upon receipt of the Purchase
Price, the Servicer shall cause the Custodian to release to JAC the related
Contract File and the Issuer and the Trustee shall execute and deliver such
instruments of transfer, assignment, and release in each case without recourse,
as shall be necessary to vest in JAC or its designee any Contract so purchased.
It is understood and agreed that the obligation of JAC to purchase any Contract
as to which such a breach (or failure to deliver a Title Document or UCC
financing statement within the required period) has occurred and is continuing
as described above shall constitute the sole remedy against JAC respecting such
breach available to the Issuer, the Servicer, the Note Insurer, the Noteholders,
the Trustee, and the Backup Servicer; provided, however, that JAC shall
indemnify the Issuer, the Servicer, the Note Insurer, the Noteholders, the
Trustee, and the Backup Servicer 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 or
such failure.
SECTION 2.04 PROTECTION OF RIGHT, TITLE AND INTEREST.
(a) JAC shall cause all financing statements and continuation statements
and any other necessary documents covering the right, title and interest of the
Issuer in and to the Contracts and the Other Contributed Property to be promptly
filed, and at all times to be kept recorded, registered and filed, all in such
manner and in such places as may be required by law fully to preserve, protect,
and perfect the right, title and interest of the Issuer in the Contracts and the
Other Contributed Property. JAC shall deliver to the Issuer (with copies to the
Trustee and the Note Insurer) file stamped copies of, or filing receipts for,
any document recorded, registered or filed as provided above, as soon as
available following such recordation, registration or filing. The Issuer shall
cooperate fully with JAC in connection with the obligations set forth above and
will execute any and all documents reasonably required to fulfill the intent of
this Section 2.04(a). In the event JAC fails to perform its obligations under
this Section 2.04(a), and such failure is known to the Issuer or the Trustee,
the Issuer or the Trustee, as applicable, may do so at the expense of JAC.
(b) At least 10 days prior to the date JAC makes any change in its name,
identity, corporate structure, or location of its chief executive office, JAC
shall give the Servicer (if JAC is not the Servicer), the Trustee, the Issuer,
and (for so long as the Note Insurer is the Controlling Party) the Note Insurer
written notice thereof if, as a result of such change, 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 to
maintain perfection of the contribution, conveyance, and assignment of the
Contracts and the Other Contributed Property to the Issuer pursuant to the UCC-1
financing statements on file prior to such change, and JAC shall, no later than
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five days after the effective date of such change, file any such amendment or
new financing statement. Promptly after taking the foregoing actions, JAC shall
deliver to the Servicer (if JAC is not the Servicer), the Trustee, the Issuer,
and (for so long as the Note Insurer is the Controlling Party) the Note Insurer,
an Opinion of Counsel either (i) stating that, in the opinion of such counsel,
all financing statements and continuation statements have been executed and
filed that are necessary fully to maintain the perfection of the contribution,
conveyance, and assignment of the Contracts and the Other Contributed Property
to the Issuer pursuant to the UCC-1 financing statements on file prior to such
change, and reciting the details of such filings or referring to prior Opinions
of Counsel in which such details are given, or (ii) stating that, in the opinion
of such counsel, no such action is necessary to maintain such perfection.
During the term of the Indenture, JAC shall maintain its chief executive office
within the United States of America.
(c) JAC shall maintain its computer systems so that, from and after the
time of the contribution to the capital of the Issuer of the Contracts
hereunder, JAC's master computer records (including any back-up archives) that
refer to a Contract shall indicate clearly the interest of the Issuer in such
Contract and that such Contract is owned by the Issuer. Indication of the
Issuer's ownership of a Contract shall be deleted from or modified on JAC's
computer systems when, and only when, the Contract shall have been paid in full,
repurchased or liquidated.
(d) If at any time JAC shall propose to sell, grant a security interest in,
or otherwise transfer any interest in any motor vehicle retail installment sale
contract (other than the Contracts) to any prospective purchaser, lender, or
other transferee, JAC shall give to such prospective purchaser, lender, or other
transferee computer tapes, records, or print-outs (including any restored from
back-up archives) that, if they shall refer in any manner whatsoever to any
Contract, shall indicate clearly that such Contract has been contributed to the
capital of, and is owned by, the Issuer, unless such Contract has been paid in
full, repurchased or liquidated.
SECTION 2.05 RESTRICTIONS ON LIENS. After the Closing Date, JAC 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 Contracts except for the Lien in favor of
the Trustee for the benefit of the Noteholders and the Note Insurer, and the
restrictions on transferability of the Contracts imposed by this Agreement or
(ii) sign or file under the UCC of any jurisdiction any financing statement
which names JAC or the Issuer as a debtor, or sign any security agreement
authorizing any secured party thereunder to file such financing statement, with
respect to the Contracts, except in each case any such instrument solely
protecting the rights of the Issuer, and preserving the Lien of the Trustee for
the benefit of the Noteholders and the Note Insurer. JAC shall defend the
right, title and interest of the Issuer in, to and under the Contracts against
all claims of third parties claiming through or under JAC or any Dealer.
SECTION 2.06 CONTRIBUTION. JAC agrees to treat the contribution,
conveyance, and assignment pursuant to Section 2.01(a) as a contribution to the
capital of the Issuer for all purposes (including without limitation tax and
financial accounting purposes) on all relevant books, records, tax returns,
financial statements and other applicable documents. On and after the Closing
Date, the Issuer shall own the Contracts and the Other Contributed Property and
JAC shall take no action
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inconsistent with such ownership and shall not claim any ownership interest in
any such Contracts or Other Contributed Property.
SECTION 2.07 ACCESS TO RECORDS. JAC shall permit the Issuer, the Note
Insurer, the Trustee, the Backup Servicer and their respective agents at any
time during normal business hours to inspect, audit, and make copies of and
abstracts from JAC's records regarding any Contract.
SECTION 2.08 COSTS AND EXPENSES. JAC agrees to pay all reasonable costs and
disbursements in connection with the performance of its obligations hereunder.
ARTICLE III
ADMINISTRATION AND SERVICING OF CONTRACTS
SECTION 3.01 DUTIES OF THE SERVICER.
(a) The Servicer shall service, manage, administer, and make collections on
the Contracts on behalf of the Issuer and shall have full power and authority,
acting alone and/or through Subservicers as provided in Section 3.02, to do any
and all things which it may deem necessary or desirable in connection therewith
which are consistent with this Agreement. The Servicer shall service and
administer the Contracts by employing such procedures (including collection
procedures) and degree of care, in each case consistent with prudent industry
standards, as are customarily employed by the Servicer in servicing and
administering motor vehicle retail installment sales contracts and notes owned
or serviced by the Servicer comparable to the Contracts. In performing such
duties, so long as JAC is the Servicer (i) JAC shall comply with JAC's Credit
and Collection Policy, and (ii) JAC shall not make any material amendment to
JAC's Credit and Collection Policy without the prior written consent of the
Controlling Party. Payments by or on behalf of Obligors shall be allocated by
the Servicer to Scheduled Payments, late fees, other charges, and principal and
interest in accordance with the terms of the Contracts and the Servicer's normal
servicing practices and procedures (which shall be JAC's Credit and Collection
Policies if JAC is the Servicer). The Servicer's duties shall include, without
limitation, collection and posting of all payments, responding to inquiries of
Obligors, investigating delinquencies, sending payment coupons to Obligors,
reporting any required tax information to Obligors or to such other Persons as
may be required in connection with servicing the Contracts, monitoring the
collateral, accounting for collections and furnishing statements to the Issuer,
the Trustee, and the Note Insurer as provided herein and performing the other
duties specified herein. The Servicer shall also (i) perform all obligations of
JAC under the Contracts and (ii) administer and enforce all rights of the Issuer
under the Dealer Agreements, including but not limited to the right to require
Dealers to repurchase Contracts for breaches of representations and warranties
made by the Dealers.
(b) Consistent with the terms of this Agreement, the Servicer may waive,
modify or vary any term of any Contract or consent to the postponement of strict
compliance with any such term or in any manner, grant indulgence to any Obligor
if, in the Servicer's sole determination, which shall be conclusive and binding,
such waiver, modification, postponement or indulgence is not materially adverse
to the Noteholders or the Note Insurer; provided, however, that the Servicer may
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not permit any modification with respect to any Contract or waive any provision
of any Contract that would change its APR, defer the payment of any principal or
interest (except to the extent permitted by Section 3.06(b) or (c)), reduce the
Principal Balance thereof (except for actual payments of principal), or extend
(except to the extent permitted by Section 3.06(b) or (c)) the final maturity
date on such Contract. Without limiting the generality of the foregoing, the
Servicer in its own name or in the name of the Issuer is hereby authorized and
empowered by the Issuer when the Servicer believes it appropriate in its best
judgment to execute and deliver, on behalf of the Issuer, 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 Contracts
and with respect to the Financed Vehicles. If any Contract contains a "due-on-
sale" provision allowing the holder thereof to accelerate such Contract upon
sale of the related Financed Vehicle, the Servicer shall take reasonable steps
under the circumstances to enforce such due-on-sale provision if a Financed
Vehicle is sold as soon as practicable after determining that such Financed
Vehicle has been sold, provided, however, that the Servicer shall not be
obligated to take any legal action to enforce such provision.
(c) From time to time, the Servicer shall take or cause to be taken such
actions and execute such documents as are necessary to perfect and protect the
Trustee's and the Note Insurer's interests in the Trust Estate against all other
Persons, including, without limitation, the filing of financing statements,
amendments thereto and continuation statements. In particular, promptly after
receiving notice from the Issuer pursuant to Section 2.13(b) of the Indenture of
a change in the Issuer's name, identity, structure, or location of the Issuer's
chief executive office, the Servicer shall file such amendments to financing
statements and new financing statements as are required by Section 2.13(b) of
the Indenture. The Servicer shall pay all reasonable costs and disbursements in
connection with taking or causing to be taken such actions.
(d) The Servicer is hereby authorized to commence, in its own name or in
the name of the Issuer (provided the Servicer has obtained the Issuer's consent,
which consent shall not be unreasonably withheld), a legal proceeding to enforce
a Contract pursuant to Section 3.08 or to commence or participate in any other
legal proceeding relating to or involving a Contract, an Obligor or a Financed
Vehicle. If the Servicer commences or participates in such a legal proceeding in
its own name, the Issuer shall thereupon be deemed to have automatically
assigned such Contract 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 Issuer 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.
(e) On the Closing Date, the Servicer shall deliver to the Trustee a list
of Servicing Officers of the Servicer involved in, or responsible for, the
administration and servicing of the Contracts, which list shall from time to
time be updated by the Servicer on request of the Issuer or the Trustee.
(f) The Servicer may take such actions as are necessary to discharge its
duties as Servicer in accordance with this Agreement, including the power to
execute and deliver on behalf of the Issuer such instruments and documents as
may be customary, necessary or desirable in connection with the performance of
the Servicer's duties under this Agreement (including consents, waivers and
discharges consistent with the terms of this Agreement and relating to the
Contracts and the
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Financed Vehicles, and such instruments or documents as may be necessary to
effect foreclosure or other conversion of the ownership of any Financed
Vehicle). In furtherance thereof, the Issuer hereby irrevocably appoints the
Servicer as its attorney-in-fact, such appointment being coupled with an
interest, to execute on its behalf such documents or instruments as are
necessary to effect the Repossession of Financed Vehicles, to cause the
Custodian to deliver applicable Contract Files to JAC or the Servicer upon
repurchase of a Contract under this Agreement, and to cause the Custodian to
deliver applicable Contract Files upon liquidation or final payment of a
Contract. The Issuer, upon receipt of an Officer's Certificate of the Servicer
requesting the same and certifying as to the reasons such documents are
required, shall furnish the Servicer with any other powers of attorney or other
documents necessary or appropriate which the Issuer may legally execute to
enable the Servicer to carry out its servicing and administrative duties
hereunder. Neither the Servicer nor any of its directors, officers, employees
or agents will be under any liability to the Issuer, the Trustee or any
Noteholder for the consequences of any delay resulting from having to obtain
such documents from the Issuer, provided that the Servicer has furnished such
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certificate to the Issuer reasonably promptly after determining the necessity
therefor in the particular instance.
SECTION 3.02 SUBSERVICING AGREEMENTS BETWEEN SERVICER AND THE SUBSERVICERS.
The Servicer or the Backup Servicer, if applicable, may enter into Subservicing
Agreements with one or more Subservicers for the servicing and administration of
certain of the Contracts; provided that the only servicing functions that may be
performed by Subservicers are (i) repossessing Financed Vehicles and (ii)
preparing Financed Vehicles for sale and representing JAC throughout the related
vehicle auction process; provided, however, Norwest Bank Minnesota, National
Association, if it becomes successor Servicer, may enter into Subservicing
Agreements with respect to any servicing functions. References in this Agreement
to actions taken or to be taken by the Servicer in servicing the Contracts
include actions taken or to be taken by a Subservicer on behalf of the Servicer.
Each Subservicing Agreement will be upon such terms and conditions as are not
inconsistent with this Agreement and as the Servicer and the Subservicer have
agreed. The Servicer and a Subservicer may enter into amendments thereto;
provided, however, that any such amendments shall be consistent with and not
violate the provisions of this Agreement.
SECTION 3.03 OBLIGATION OF THE SERVICER. Notwithstanding any Subservicing
Agreement, any of the provisions of this Agreement relating to agreements or
arrangements between the Servicer or a Subservicer or reference to actions taken
through a Subservicer or otherwise, the Servicer shall remain obligated to the
Issuer for the servicing of the Contracts in accordance with the provisions of
this Agreement without diminution of such obligation or liability by virtue of
such Subservicing Agreements or arrangements or by virtue of indemnification
from a Subservicer and to the same extent and under the same terms and
conditions as if the Servicer alone were servicing the Contracts. The Servicer
shall be entitled to enter into any agreement with a Subservicer for
indemnification of the Servicer and nothing contained in this Agreement shall be
deemed to limit or modify such indemnification.
SECTION 3.04 NO CONTRACTUAL RELATIONSHIP BETWEEN A SUBSERVICER AND THE
ISSUER, THE TRUSTEE, THE BACKUP SERVICER, OR THE NOTEHOLDERS. Any Subservicing
Agreement that may be entered into and any other transactions or services
relating to the Contracts involving a Subservicer in its capacity as such and
not as an originator shall be deemed to be between a Subservicer and the
Servicer alone and none of the Issuer, the Trustee, the Backup Servicer, or the
Noteholders shall be
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deemed parties thereto or have any claims, rights, obligations, duties or
liabilities with respect to a Subservicer except as set forth in Section 3.05.
SECTION 3.05 ASSUMPTION OF SUBSERVICING AGREEMENT BY SUCCESSOR SERVICER. In
the event the Servicer shall for any reason no longer be the servicer of the
Contracts (including by reason of an Event of Termination), any successor to the
Servicer pursuant to this Agreement may, in its sole discretion, thereupon
assume all of the rights and obligations of the Servicer under one or more
Subservicing Agreements that may have been entered into by giving notice of such
assumption to the related Subservicer or Subservicers within ten (10) Business
Days of the termination of the Servicer as servicer of the Contracts. Upon the
giving of such notice, such successor Servicer shall be deemed to have assumed
all of the Servicer's interest therein and to have replaced the Servicer as a
party to the Subservicing Agreement to the same extent as if the Subservicing
Agreement had been assigned to the assuming party except that the Servicer and
the Subservicer, if any, shall not thereby be relieved of any accrued liability
or obligations under the Subservicing Agreement and the Subservicer, if any,
shall not be relieved of any liability or obligation to the Servicer that
survives the assignment or termination of the Subservicing Agreement. The
Servicer shall, upon request of a successor Servicer but at the expense of the
Servicer, deliver to such successor Servicer all documents and records relating
to the Subservicing Agreement and the Contracts then being serviced and an
accounting of amounts collected and held by it and otherwise use its best
efforts to effect the orderly and efficient transfer of the Subservicing
Agreement to such successor Servicer.
SECTION 3.06 COLLECTION OF CONTRACT PAYMENTS; MODIFICATION OF CONTRACTS;
OBLIGOR -INITIATED TERMINATIONS OF CONTRACTS.
(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 Contracts as and when the same
shall become due, and shall follow such collection procedures as it follows with
respect to all comparable motor vehicle retail installment sales contracts that
it services for itself and otherwise act with respect to the Contracts, the
Dealer Agreements, the Insurance Policies and the Other Contributed Property in
such manner as will, in the reasonable judgment of the Servicer, maximize the
amount to be received by the Issuer 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 Contract.
(b) The Servicer may at any time agree to a modification or amendment of a
Contract in order to (i) change the Due Date to a date within the Monthly Period
in which such Due Date occurs or (ii) re-amortize such Contract following a
partial prepayment of principal.
(c) In addition to those modifications permitted by Section 3.06(b), the
Servicer may modify a Contract to extend the payment period with respect to a
Contract by granting an extension of up to 60 days; provided, however, such an
extension may be granted only if (i) the extension, together with any payment to
be made in connection with granting such extension, will bring the Contract
current, (ii) the Obligor on the Contract has made at least three consecutive
payments, (iii) the Obligor on the Contract has made at least six consecutive
payments since any prior extension, (iv) the Servicer has determined to its
satisfaction that the Obligor will have sufficient
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income to make the subsequent payments, (v) the Contract is not greater than 90
days past due at the time of the extension, (vi) the Obligor has not been
granted more than one prior extension, and (vii) no more than 10% (by number of
Contracts) of the total number of then outstanding Contracts included in the
Contract Pool have been granted an extension. The Servicer may also modify a
Contract by reducing the monthly payment and extending the payment period with
respect to such Contract; provided, however, the monthly payment may be reduced
only if (i) in the Servicer's judgment, an extension as provided in the
preceding sentence is not a viable alternative, (ii) the Obligor on the Contract
has made at least six consecutive payments, (iii) the reduced monthly payment is
at least one-half the amount of the monthly payment prior to modification and
the Obligor agrees that he or she can consistently meet the new payment terms,
(iv) the Obligor has not been granted a prior reduction in monthly payments, (v)
the Contract is not greater than 90 days past due at the time of the
modification, and (vi) no more than 5% (by number of Contracts) of the total
number of then outstanding Contracts included in the Contract Pool are subject
to reduced payment plans.
With respect to any Contract that is so modified or extended, the Servicer
(i) may not reduce the related Principal Balance (except as a result of actual
payments of principal) and (ii) must deposit cash into the Collection Account
(to be applied as Available Funds pursuant to Section 3 of the Series
Supplement), no later than two Business Days after the date such modification or
extension is granted, in the amount of the total of the principal portions of
any monthly payments scheduled to be collected pursuant to the modified or
extended Contract on any date subsequent to the date that is three months prior
to the Stated Maturity.
(d) During the period from the Closing Date through January 25, 1997, the
Servicer may, in its discretion and in accordance with its normal servicing
procedures (which shall be JAC's Credit and Collection Policy if JAC is the
Servicer), permit a Contract to be terminated, prior to its payment in full, and
at the request of the related Obligor, subject to the satisfaction of any
conditions imposed by the Servicer in connection with such termination;
provided, however, that prior to permitting any such termination, the Servicer
shall deposit in the Collection Account the Purchase Price with respect to such
Contract.
SECTION 3.07 THE COLLECTION ACCOUNT.
(a) The Servicer shall deposit in the Collection Account, no later than the
second Business Day following Servicer's receipt thereof, the following amounts
received by it on or after the Closing Date, with respect to the Initial
Contracts, and on or after the related Cutoff Date, with respect to any
Subsequent Contracts: (i) all payments on each Contract; and (ii) all
Recoveries; provided, however, that if the Servicer receives any amount and the
Servicer does not receive with such amount, or otherwise have, sufficient
information to verify that such amount relates to a Contract, the Servicer shall
deposit such amount in the Collection Account no later than the second Business
Day after the Servicer verifies that such amount relates to a Contract.
(b) The Servicer agrees that it has no interest in any amounts collected by
it on or with respect to the Contracts, or in any amounts on deposit in the
Collection Account, except for amounts to be retained by the Servicer pursuant
to this Agreement or to be paid to the Servicer as specifically provided in the
Series Supplement. From time to time, upon request pursuant to an Officer's
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Certificate of the Servicer, the Trustee shall withdraw from the Collection
Account and pay to the Servicer amounts not required to be deposited in the
Collection Account, but so deposited, due to error by the Servicer.
(c) In those cases where a Subservicer is servicing Contracts pursuant to a
Subservicing Agreement, the Servicer shall cause the Subservicer, pursuant to
the Subservicing Agreement, to deposit in the Collection Account, within two (2)
Business Days of such Subservicer's receipt thereof, all collections received by
such Subservicer or on in respect of the Contracts being subserviced by such
Subservicer.
(d) The Servicer shall keep and maintain a separate accounting, on a
Contract by Contract basis, for the purpose of justifying any withdrawal from
the Collection Account pursuant to Section 3(c), or Section 3(d), of the Series
Supplement. The Servicer shall also keep and maintain a separate accounting, on
a Contract by Contract basis, of reimbursements to it of Liquidated Expenses and
Insurance Expenses pursuant to Section 3.08. The Servicer shall not be required
to send monthly reports of such records to the Trustee.
SECTION 3.08 REALIZATION UPON DEFAULTED CONTRACTS. In the event that a
Contract becomes and continues to be in default, in accordance with the
Servicer's customary servicing procedures (which shall be JAC's Credit and
Collection Policy if JAC is the Servicer), the Servicer shall take all
reasonable and lawful steps necessary for Repossession, provided, however, that
the Servicer shall not be obligated to institute any action for Repossession
through judicial proceedings unless it determines in its good faith judgment,
which determination will be conclusive and binding, that Insurance Proceeds or
Liquidation Proceeds that would be realized in connection therewith would be
sufficient for the reimbursement in full of the related Liquidation Expenses and
Insured Expenses. In connection with such Repossession, the Servicer shall
follow such practices and procedures required by Section 3.01 and make advances
of its own funds for any out-of-pocket expenses incurred. The Servicer shall be
reimbursed for Liquidation Expenses and Insured Expenses with respect to a
Contract by the retention thereof from the first Liquidation Proceeds or
Insurance Proceeds received with respect to such Contract and shall deposit
Recoveries with respect to such Contract in the Collection Account as provided
in Section 3.07 (it being understood and agreed that Servicer shall continue to
deposit all Recoveries with respect to such Contract, and with respect to
terminated Contracts, in the Collection Account, notwithstanding that such
Contract may have been released from the Lien of the Indenture, unless the
Purchase Price for such Contract has been deposited in the Collection Account);
provided, however, that the Servicer shall be entitled to be reimbursed for
Liquidation Expenses and Insured Expenses with respect to a Contract solely from
Liquidation Proceeds and Insurance Proceeds with respect to such Contract. The
Servicer shall also be reimbursed for Liquidation Expenses and Insured Expenses
as provided in clause (ii) of Section 3(d) of the Series Supplement.
SECTION 3.09 SERVICING FEE AND OTHER COMPENSATION.
(a) The Servicer, as compensation for its activities hereunder, shall be
entitled to receive the Servicer Fee, payable as provided in the Series
Supplement. The Backup Servicer, as compensation for its activities hereunder,
shall be entitled to receive the Backup Servicer Fee, payable as provided in the
Series Supplement.
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(b) The Servicer shall be required to pay all expenses incurred by it in
connection with its servicing activities hereunder (including payment of the
fees and expenses of any Subservicer) and shall not be entitled to reimbursement
therefor except as specifically provided in Section 3.08. In no event shall the
Backup Servicer be obligated or responsible for any such expenses incurred by it
unless and until it becomes the successor Servicer.
SECTION 3.10 SERVICER'S CERTIFICATE; RECONCILIATION OF BACKUP SERVICER.
(a) Not later than 10:00 a.m. Central Time on each Determination Date, the
Servicer shall deliver to the Issuer, the Trustee, the Backup Servicer, the Note
Insurer and each Rating Agency a Servicer's Certificate with respect to such
Determination Date.
(b) On or before each Determination Date, the Servicer shall deliver to the
Backup Servicer, and upon request of the Note Insurer, (for so long as the Note
Insurer is the Controlling Party) to the Note Insurer, a computer tape or a
diskette (or any other electronic transmission acceptable to the Backup
Servicer), in a format acceptable to the Backup Servicer, containing the
information with respect to the Contracts as of the preceding Accounting Date
and for the preceding Monthly Period necessary for the calculation of the
Specified Items included in the Servicer's Certificate to be delivered on such
Determination Date. The Backup Servicer shall use such information to verify the
calculation of such Specified Items included in the Servicer's Certificate
delivered by the Servicer, and the Backup Servicer shall certify to the
Controlling Party that it has verified the calculation of such Specified Items
in accordance with this Section 3.10(b), or shall notify the Servicer and the
Controlling Party of any discrepancies, in each case, on or before the second
Business Day following the applicable Determination Date. In the event that the
Backup Servicer reports any discrepancies, the Servicer and the Backup Servicer
shall attempt to reconcile such discrepancies prior to the earlier to occur of
(i) the time when a claim must be made by the Trustee under the Note Insurance
Policy with respect to the next following Payment Date, if such a claim must be
made as indicated on such Servicer's Certificate and (ii) the time when payments
are to be made on such Payment Date pursuant to Section 3 of the Series
Supplement, but in the absence of a reconciliation by such time, the Servicer's
Certificate shall control for the purpose of calculations and payments with
respect to such Payment Date. In the event that the Backup Servicer and the
Servicer are unable to reconcile discrepancies with respect to a Servicer's
Certificate by the time specified above, the Servicer shall cause the
Independent Accountants, at the Servicer's expense, to audit the Servicer's
Certificate and, prior to the third Business Day, but in no event later than the
fifth calendar day, of the following month, reconcile the discrepancies. The
effect, if any, of such reconciliation shall be reflected in the Servicer's
Certificate for such next succeeding Determination Date.
SECTION 3.11 ANNUAL CERTIFICATE AS TO COMPLIANCE. The Servicer will deliver
to the Issuer, the Trustee, the Backup Servicer, the Note Insurer, and each
Rating Agency, on or before November 30 of each year, beginning with November
30, 1996, an Officer's Certificate of the Servicer, stating that (i) a review of
the activities of the Servicer under this Agreement during the one year period
ending on the preceding October 31 (or in the case of the first such Officer's
Certificate, during the period from the Closing Date through October 31, 1996)
has been made under the applicable Servicing Officer's supervision, (ii) to such
Servicing Officer's knowledge, based on such review, the Servicer has fulfilled
all its obligations under this Agreement throughout such
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period, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default known to such Servicing Officer and the
nature, and status thereof and (iii) to the best of such Servicing Officer's
knowledge, each Subservicer has fulfilled its obligations under its Subservicing
Agreement in all material respects, or if there has been a material default in
the fulfillment of such obligations, specifying such default known to such
employees and the nature and status thereof.
SECTION 3.12 ANNUAL REPORT OF INDEPENDENT ACCOUNTANTS. The Servicer shall
cause the Independent Accountants, who may also render other services to the
Servicer or to JAC, to deliver to the Issuer, the Trustee, the Backup Servicer,
the Note Insurer, and each Rating Agency, on or before April 30 of each year,
beginning with April 30, 1997, a statement with respect to the immediately
preceding calendar year addressed to the Servicer, the Issuer, the Trustee, the
Backup Servicer, the Note Insurer, and each Rating Agency, to the effect that
such firm has examined the books and records of the Servicer and issued its
report thereon in connection with the audit report on the financial statements
of the Servicer and that (1) such examination was made in accordance with
generally accepted auditing standards, and accordingly included such tests of
the accounting records and such other auditing procedures as such firm
considered necessary in the circumstances; and (2) the firm is independent of
JAC and the Servicer within the meaning of the Code of Professional Ethics of
the American Institute of Certified Public Accountants. In addition, the
Servicer shall cause such Independent Accountants to deliver to the Issuer, the
Trustee, the Backup Servicer, the Note Insurer, and each Rating Agency on or
before August 31 of each year, beginning with August 31, 1997 a report stating
that a review in accordance with agreed upon procedures provided by the Note
Insurer was made by such Independent Accountants of three randomly selected
Servicer's Certificates delivered during the one year period ending on the
preceding July 31 (or in the case of the first such report, during the period
from the Closing Date through July 31, 1997), including the delinquency, default
and loss statistics required to be specified therein, and, except as disclosed
in such report, no exceptions or errors in such Servicer's Certificates were
found. This Section 3.12 shall not apply to Norwest Bank Minnesota, National
Association, if it becomes the successor Servicer hereunder.
SECTION 3.13 NOTICE OF EVENT OF TERMINATION. The Servicer or JAC (as
applicable) shall deliver to the Issuer, the Trustee, the Backup Servicer, (for
so long as the Note Insurer is the Controlling Party) the Note Insurer, the
Servicer or JAC (as applicable), and each Rating Agency, 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 the Servicer or JAC
(as applicable), of any event which with the giving of notice or lapse of time,
or both, would become an Event of Termination under Section 5.01 with respect to
the Servicer or JAC (as applicable).
SECTION 3.14 ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING
CONTRACTS. The Servicer shall provide to representatives of the Issuer, the
Trustee, the Backup Servicer, and (for so long as the Note Insurer is the
Controlling Party) the Note Insurer reasonable access to the documentation
regarding the Contracts. 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.
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SECTION 3.15 AGENCY STATUS. The parties hereto agree and acknowledge that
to the extent JAC is named in any Title Document, UCC financing statement or
Contract Document as a lienholder, secured party, loss payee owner of a Financed
Vehicle or in another similar capacity, JAC is acting in such capacity as
Servicer and as agent of the Issuer for the sole purpose of facilitating the
servicing of the Contracts and has no equitable interest in the Contracts,
except such as it may have by virtue of its ownership of a Note or of any equity
interest in a Noteholder or the Issuer.
SECTION 3.16 MAINTENANCE OF SECURITY INTERESTS IN FINANCED VEHICLES.
Consistent with the policies and procedures required by this Agreement, the
Servicer shall take such steps on behalf of the Issuer as are necessary to
maintain perfection of the first priority security interest created by each
Contract in the related Financed Vehicle, including, but not limited to,
obtaining the execution by the Obligors and the recording, registering, filing,
re-recording, re-filing, and re-registering of all Title Documents, security
agreements, financing statements and continuation statements as are necessary to
maintain the security interest granted by the Obligors under the respective
Contracts; provided, however, that the Servicer shall not be required to expend
any of its own funds to remove any security interest, lien, or other encumbrance
on any Financed Vehicle. The Trustee hereby authorizes the Servicer, and the
Servicer agrees, to take any and all steps necessary to re-perfect such security
interest on behalf of the Issuer as necessary because of the relocation of a
Financed Vehicle or for any other reason.
SECTION 3.17 RE-LIENING. Upon the occurrence of a Re-Liening Trigger, the
Controlling Party may instruct the Trustee (if the Trustee is not the
Controlling Party) and the Servicer to take or cause to be taken such action as
may, in the judgment of the Controlling Party or its counsel, be necessary to
perfect or re-perfect the security interests in the Financed Vehicles in the
name of the Trustee by amending the Title Documents relating to such Financed
Vehicles or by such other reasonable means as may, in the judgment of the
Controlling Party or its counsel, be necessary or prudent. The Trustee and the
Servicer shall take or cause to be taken such actions. JAC hereby agrees to
reimburse the Trustee and the Servicer for all Re-Liening Expenses related to
such perfection or re-perfection and to take all action necessary therefor,
including the preparation, execution, and delivery of all such documents as may
be requested by the Trustee or the Servicer in connection therewith. In
addition, as provided in Section 3 of the Series Supplement, each of the Trustee
and the Servicer shall be entitled to be reimbursed for Re-Liening Expenses
incurred in connection with taking or causing to be taken such actions, to the
extent not paid by JAC. On the Closing Date, JAC shall grant to the Trustee an
irrevocable power of attorney, pursuant to which JAC shall appoint the Trustee
as its attorney-in-fact, such appointment being coupled with an interest, to
take any and all steps required to be performed by it pursuant to this Section
3.17, including execution of certificates of title or any other documents in the
name and stead of JAC. At any time a Person other than JAC becomes the
Servicer, JAC shall grant to such successor Servicer, promptly after its
appointment as such, a power of attorney as described in the preceding sentence.
SECTION 3.18 REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE SERVICER.
The Servicer represents, warrants, and covenants as follows:
(a) The Financed Vehicle securing each Contract shall not be released in
whole or in part from the security interest granted by the Contract, except upon
payment in full of such Contract or as expressly permitted herein.
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(b) The Servicer has not taken and will not take any action to impair the
rights of the Issuer, the Trustee or the Note Insurer in the Contracts or the
Other Contributed Property, except to the extent allowed pursuant to this
Agreement or required by law.
(c) 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 Contracts except
for the Lien in favor of the Trustee for the benefit of the Noteholders and the
Note Insurer, and the restrictions on transferability imposed by this Agreement
or (ii) sign or file under the UCC of any jurisdiction any financing statement
which names JAC, the Servicer or the Issuer as a debtor, or sign any security
agreement authorizing any secured party thereunder to file such financing
statement, with respect to the Contracts, except in each case any such
instrument solely securing the rights and preserving the Lien of the Trustee for
the Noteholders and the Note Insurer.
SECTION 3.19 PURCHASE OF CONTRACTS UPON BREACH OF COVENANT. Upon discovery
by any of the Servicer, the Note Insurer, the Issuer, the Trustee, or the Backup
Servicer of a breach of any of the covenants set forth in Section 3.16 or 3.18,
the party discovering such breach shall give prompt written notice to the
others; provided, however, that the failure to give any such notice shall not
-------- -------
affect any obligation of the Servicer under this Section 3.19. No later than
ninety (90) days following its discovery or receipt of notice of any breach of
any covenant set forth in Sections 3.16 or 3.18 which materially and adversely
affects the interests of the Trustee, the Noteholders, the Issuer, or the Note
Insurer in any Contract (including any Defaulted Contract) or the related
Financed Vehicle, the Servicer shall, unless such breach shall have been cured
in all material respects, purchase from the Issuer the Contract affected by such
breach at the related Purchase Price, which the Servicer shall deposit in the
Collection Account; provided, however, the Controlling Party may waive any such
breach. It is understood and agreed that the obligation of the Servicer to
purchase any Contract (including any Defaulted Contract) 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 Note Insurer, the Noteholders, the Issuer, or the Trustee on
behalf of Noteholders; provided, however, that the Servicer shall indemnify the
Issuer, the Note Insurer, the Noteholders, the Trustee, and the Backup Servicer
against all costs, expenses, losses, damages, claims, and liabilities, including
reasonable fees and expenses of counsel, which may be asserted against or
incurred by any of them as a result of third party claims arising out of the
events or facts giving rise to such breach.
SECTION 3.20 RULE 144A INFORMATION. Within seven (7) days after request
therefor, the Servicer shall provide to the Trustee the information required to
be delivered to Holders and prospective owners of the Notes in connection with
resales of the Notes to permit compliance with Rule 144A of the Securities Act
in connection with such resales. The Issuer shall provide to the Servicer such
information as may be requested by the Servicer for the Servicer to comply with
its obligations as set forth in the preceding sentence.
SECTION 3.21 CERTAIN MATTERS RELATING TO EXTENDED SERVICE AGREEMENTS.
(a) Promptly after cancellation or termination of any Extended Service
Agreement covering a Financed Vehicle relating to a Contract, if the Principal
Balance of such Contract is
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greater than zero (provided, however, that for purposes of this Section 3.21 the
Principal Balance of a Contract shall not be reduced to zero as a result of its
classification as a Defaulted Contract), JAC shall deposit in the Collection
Account an amount equal to any refund of the purchase price for such Extended
Service Agreement that is payable to any Person (including, without limitation,
any Obligor or lienholder) in connection with such cancellation or termination.
(b) For the benefit of the Issuer, the Trustee, and the Note Insurer, JAC
shall perform all its obligations under the Administrative Services Agreement
and each Dealer Agreement Addendum relating to any Extended Service Agreement
applicable to a Financed Vehicle securing a Contract.
(c) For the benefit of the Issuer, the Trustee, and the Note Insurer, JAC
shall enforce its rights against FESC under the Administrative Services
Agreement.
(d) For the benefit of the Issuer, the Trustee, and the Note Insurer, JAC
shall not amend any Dealer Agreement Addendum, insofar as it relates to any
Extended Service Agreement relating to any Financed Vehicle securing any
Contract without the prior written consent of the Controlling Party.
(e) JAC shall not cancel the FFG Policy with respect to any Extended
Service Agreement relating to any Financed Vehicle securing any Contract without
the prior written consent of the Controlling Party.
(f) JAC hereby agrees to indemnify the Trustee, the Issuer, and the Note
Insurer for any costs, expenses, claims, liabilities, losses, or damages
resulting from any failure on the part of JAC, FESC, or the Dealers to perform
their respective obligations under any Extended Service Agreement, any Dealer
Agreement Addendum, or the Administrative Services Agreement.
ARTICLE IV
CERTAIN MATTERS RELATING TO THE SERVICER
AND THE BACKUP SERVICER
SECTION 4.01 LIABILITY OF SERVICER; INDEMNITIES.
(a) The Servicer (in its capacity as such and, in the case of JAC, without
limitation of its obligations hereunder in its individual capacity) shall be
liable hereunder only to the extent of the obligations in this Agreement
specifically undertaken by the Servicer and the representations made by the
Servicer.
(b) The Servicer shall defend, indemnify and hold harmless the Issuer, the
Trustee, the Backup Servicer, the Note 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.
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(c) The Servicer shall indemnify, defend and hold harmless the Issuer, the
Note Insurer, the Trustee, the Backup Servicer, 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 Issuer, the Note Insurer, the Trustee, the Backup Servicer,
such other Persons, or the Noteholders by reason of the breach of this Agreement
by the Servicer, the negligence, misfeasance, or bad faith in the performance of
its duties under this Agreement by the Servicer, or by reason of reckless
disregard of its obligations and duties under this Agreement.
(d) The indemnification obligations of the Servicer under this Section
4.01 shall survive the appointment of any successor to such Servicer, any
assignment by such Servicer of its rights and obligations hereunder, and the
termination of this Agreement, and shall include, without limitation, reasonable
fees and expenses of counsel and expenses of litigation; however, such
indemnification obligations of the Servicer shall be limited to those costs,
expenses, losses, claims, damages, and liabilities that relate to or arise
during the time the Servicer is acting in such capacity pursuant to this
Agreement. 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.
(e) Notwithstanding the indemnity provisions contained in Sections 4.01(b)-
(d) above, the Servicer shall not be required to indemnify the Issuer, the Note
Insurer, the Trustee, the Backup Servicer, or their respective officers,
directors, agents or employees against any tax, costs, expenses, losses,
damages, claims or liabilities to the extent (i) the same shall be due to the
misfeasance, bad faith or negligence of such party, or (ii) the same shall be
recourse for uncollectible or uncollected amounts payable under the Contracts.
SECTION 4.02 MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE OBLIGATIONS
OF JAC, THE SERVICER AND THE BACKUP SERVICER.
(a) The Servicer shall not merge or consolidate with any other Person,
convey, transfer, or lease substantially all its assets to another Person, or
permit any other Person to become the successor to the Servicer's business
unless, after the merger, consolidation, conveyance, transfer, lease or
succession, the successor or surviving entity shall be qualified to service
motor vehicle retail installment sale contracts and capable of fulfilling the
duties of the Servicer contained in this Agreement. Any corporation (i) into
which JAC or the Servicer may be merged or consolidated, (ii) resulting from any
merger or consolidation to which JAC or the Servicer shall be a party, (iii)
which acquires by conveyance, transfer, or lease substantially all of the assets
of JAC or the Servicer, or (iv) succeeding to the business of JAC or the
Servicer in any of the foregoing cases shall execute an agreement of assumption
to perform every obligation of JAC or the Servicer, as applicable, under this
Agreement and, whether or not such assumption agreement is executed, shall be
the successor to JAC or the Servicer, as applicable, 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 JAC or the Servicer from any obligation. JAC or the Servicer,
as applicable, shall provide notice of any merger, consolidation or succession
pursuant to this Section 4.02(a) involving such party to the Issuer, the
Trustee, the Backup Servicer, the Noteholders,
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the Note Insurer and each Rating Agency. Notwithstanding the foregoing, neither
JAC nor the Servicer shall merge or consolidate with any other Person or permit
any other Person to become a successor to JAC's or the Servicer's business,
unless (i) immediately after giving effect to such transaction, in the case of
JAC, no representation or warranty made pursuant hereto or pursuant to any other
agreement or certificate made and delivered by JAC pursuant hereto (for purposes
hereof, such representations and warranties shall speak as of the date of the
consummation of such transaction except for the representation set forth in
Section 2.03(a)(xi) hereof) or, in the case of the Servicer, no covenant made
pursuant to Sections 3.16 or 3.18 shall have been breached and no event that,
after notice or lapse of time, or both, would become an Event of Termination
(or, in the case of JAC, a Re-Liening Trigger) shall have occurred and be
continuing, (ii) JAC or the Servicer, as applicable, shall have delivered to the
Issuer, the Trustee, and (for so long as the Note Insurer is the Controlling
Party) the Note Insurer an Officer's Certificate and an Opinion of Counsel each
stating that such consolidation, merger or succession and such agreement of
assumption comply with this Section 4.02(a) and that all conditions precedent,
if any, provided for in this Agreement relating to such transaction have been
complied with (in rendering such Opinion of Counsel, the applicable counsel may
rely, as to the satisfaction of the condition referred to in the preceding
clause (i), on an Officer's Certificate of JAC or the Servicer, as applicable),
and (iii) JAC or the Servicer, as applicable, shall have delivered to the
Issuer, the Trustee, and (for so long as the Note Insurer is the Controlling
Party) the Note Insurer an Opinion of Counsel, stating in the opinion of such
counsel, either (A) all financing statements and continuation statements and
amendments thereto have been executed and filed that are necessary to maintain
the perfection of the contribution, conveyance, and assignment of the Contracts
and the Other Contributed Property to the Issuer pursuant to the UCC-1 financing
statements on file prior to such consolidation, merger, or succession and
reciting the details of the filings or (B) no such action shall be necessary to
preserve and protect such interest.
(b) Any corporation (i) into which the Backup Servicer may be merged or
consolidated, (ii) resulting from any merger or consolidation to which the
Backup Servicer shall be a party, (iii) which acquires by conveyance, transfer,
or lease substantially all of the assets of the Backup Servicer, or (iv)
succeeding to the business of the Backup Servicer, in any of the foregoing cases
shall execute an agreement of assumption to perform every obligation of the
Backup Servicer under this Agreement and, whether or not such assumption
agreement is executed, shall be the successor to the Backup Servicer under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties to this Agreement, anything in this Agreement to the
contrary notwithstanding; provided, however, that nothing contained herein shall
-------- -------
be deemed to release the Backup Servicer from any obligation.
SECTION 4.03 LIMITATION ON LIABILITY OF JAC, THE SERVICER, THE BACKUP
SERVICER, AND OTHERS.
(a) None of JAC, the Servicer, the Backup Servicer, or any of the directors
or officers or employees or agents of JAC, the Servicer, or the Backup Servicer
shall be under any liability to the Issuer 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 JAC, the Servicer, the Backup Servicer or any such
person against any liability that would otherwise be imposed by reason of a
breach of this Agreement or willful misfeasance, bad faith or negligence
(excluding errors in judgment made in good faith) in the
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performance of duties; provided further that this provision shall not affect any
-------- -------
liability to indemnify the Issuer and the Trustee for costs, taxes, expenses,
claims, liabilities, losses or damages paid by the Issuer or the Trustee, each
in its individual capacity. JAC, the Servicer, the Backup Servicer, and any
director, officer, employee or agent of JAC, the Servicer, or the Backup
Servicer may rely in good faith on the written advice of counsel or on any
document of any kind prima facie properly executed and submitted by any Person
respecting any matters arising under this Agreement. Neither the Servicer nor
the Backup Servicer shall be under any obligation to appear in, prosecute, or
defend any legal action that is not incidental to its servicing responsibilities
under this Agreement and that, in its opinion, may cause it to incur any expense
or liability.
(b) Unless the Backup Servicer becomes the Servicer, the Backup Servicer
shall not be liable for any obligation of the Servicer contained in this
Agreement, and the Issuer, the Trustee, the Note Insurer and the Noteholders
shall look only to the Servicer to perform such obligations; provided, however,
that the Backup Servicer shall never be responsible for any obligation of a
resigning or terminated Servicer arising prior to the date on which the Backup
Servicer becomes the successor Servicer or for any claim of a third party based
on any alleged action or inaction of the resigning or terminated Servicer.
(c) The parties expressly acknowledge and consent to Norwest Bank
Minnesota, National Association acting in the capacity of Backup Servicer or
successor Servicer while it is also acting in the capacity as Trustee. Norwest
Bank Minnesota, National Association may, in its respective capacities,
discharge its separate functions fully, without hindrance or regard to conflict
of interest principles, duty of loyalty principles, or other breach of fiduciary
duties to the extent that any such conflict or breach arises from the
performance by Norwest Bank Minnesota, National Association of express duties
set forth in this Agreement in any of such capacities, all of which defenses,
claims, or assertions are hereby expressly waived by the other parties hereto
except in the case of negligence or willful misconduct by Norwest Bank
Minnesota, National Association.
SECTION 4.04 SERVICER AND BACKUP SERVICER NOT TO RESIGN. Subject to the
provisions of Section 4.02, neither the Servicer nor the Backup Servicer shall
resign from the obligations and duties imposed on it by this Agreement as
Servicer or Backup Servicer except upon a determination that by reason of a
change in legal requirements the performance of its duties under this Agreement
would cause it to be in violation of such legal requirements in a manner which
would have a material adverse effect on the Servicer or the Backup Servicer, as
the case may be, and the Controlling Party does not elect to waive the
obligations of the Servicer or the Backup Servicer, as the case may be, to
perform the duties which render it legally unable to act or to delegate those
duties to another Person. Any such determination permitting the resignation of
the Servicer or Backup Servicer shall be evidenced by an Opinion of Counsel to
such effect delivered and acceptable to the Issuer, the Trustee, and (for so
long as the Note Insurer is the Controlling Party) the Note Insurer. No
resignation of the Servicer shall become effective until, so long as the Note
Insurer is the Controlling Party, the Backup Servicer or an entity acceptable to
the Note Insurer shall have assumed the responsibilities and obligations of the
Servicer or, if the Note Insurer is not the Controlling Party, the Backup
Servicer or a successor Servicer that is an Eligible Successor shall have
assumed the responsibilities and obligations of the Servicer. No resignation of
the Backup Servicer shall become effective until, so long as the Note Insurer is
the Controlling Party, an entity acceptable to the Note Insurer shall have
assumed the responsibilities and obligations of the Backup Servicer or, if the
Note
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Insurer is not the Controlling Party, a Person that is an Eligible Successor
shall have assumed the responsibilities and obligations of the Backup Servicer;
provided, however, that in the event a successor Backup Servicer is not
- -------- -------
appointed within 60 days after the Backup Servicer has given notice of its
resignation and has provided the Opinion of Counsel required by this Section
4.04, the Backup Servicer may petition a court for its removal.
ARTICLE V
EVENTS OF TERMINATION
SECTION 5.01 EVENTS OF TERMINATION. For purposes of this Agreement, each of
the following shall constitute an "Event of Termination" if the Controlling
Party, by a written notice to the Servicer, the Trustee, and the Backup
Servicer, has declared such occurrence to be an Event of Termination:
(a) Any failure by JAC or the Servicer to deposit in the Collection Account
or to deliver to the Trustee any amount required to be so deposited or delivered
under the terms of this Agreement that, with respect only to the payment of a
Purchase Price, is not remedied on the first Business Day (i) after written
notice thereof is given to JAC or the Servicer, as applicable, by the Trustee,
any Noteholder, or (for so long as the Note Insurer is the Controlling Party)
the Note Insurer, or (ii) after discovery of such failure by an Executive
Officer of JAC or by a Servicing Officer of the Servicer, as applicable.
(b) Failure by the Servicer to deliver to the Trustee, the Issuer, and (for
so long as the Note Insurer is the Controlling Party) the Note Insurer the
Servicer's Certificate by the third Business Day prior to the Payment Date, or
failure on the part of JAC or the Servicer to observe its respective covenants
and agreements set forth in Section 4.02(a).
(c) Failure on the part of JAC or the Servicer duly to observe or perform
any other covenants or agreements of JAC or the Servicer, as applicable, set
forth in this Agreement (other than the breach of a covenant or agreement that
is specifically dealt with elsewhere in this Section), which failure continues
unremedied for a period of 30 days (or such longer period as may be consented to
in writing by the Controlling Party if such breach cannot be cured with
reasonable efforts within 30 days) after the earlier to occur of (i) discovery
thereof by an Executive Officer of JAC or by a Servicing Officer of the
Servicer, as applicable, or (ii) the date on which written notice of such
failure, requiring the same to be remedied, shall have been given to JAC or the
Servicer, as applicable, by the Issuer, the Trustee, any Noteholder, or (for so
long as the Note Insurer is the Controlling Party), the Note Insurer.
(d) The entry of a decree or order for relief by a court or regulatory
authority having jurisdiction in respect of JAC, the Servicer, or the Issuer 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 JAC, the Servicer, or the Issuer or of
any substantial part of its respective property or ordering the winding up or
liquidation of the affairs of JAC, the Servicer,
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or the Issuer and the continuance of any such decree or order unstayed and in
effect for a period of 60 consecutive days or the commencement of an involuntary
case under the federal bankruptcy laws, as now or hereinafter in effect, or
another present or future federal or state bankruptcy, insolvency or similar law
and such case is not dismissed within 60 days.
(e) The commencement by JAC, the Servicer, or the Issuer 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 JAC, the Servicer, or the Issuer to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of JAC, the Servicer, or the Issuer or of
any substantial part of its respective property or the making by JAC, the
Servicer, or the Issuer of an assignment for the benefit of creditors or the
failure by JAC, the Servicer, or the Issuer generally to pay its respective
debts as such debts become due or the taking of any action by JAC, the Servicer,
or the Issuer in furtherance of any of the foregoing.
(f) Any representation, warranty, or statement of JAC or the Servicer made
in this Agreement or any certificate, report, or other writing delivered
pursuant hereto (other than the representations and warranties of JAC made
pursuant to Section 2.03(a)) shall prove to be incorrect in any material respect
as of the time when the same shall have been made, and, within 30 days after
knowledge thereof by the Servicer or JAC, as applicable, or after written notice
thereof shall have been given to the Servicer or JAC, as applicable, by the
Issuer, the Trustee, or (for so long as the Note Insurer is the Controlling
Party) the Note Insurer (or, if the Note Insurer is not the Controlling Party, 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.
(g) Failure of JAC to comply with its obligations as set forth in Section
2.03(b), or the failure of the Servicer to comply with its obligations as set
forth in Section 3.19, provided, however, that with respect to the payment of a
Purchase Price, the provisions of Section 5.01(a) control.
(h) A claim is made under the Note Insurance Policy.
(i) The Trustee ceases to have a valid perfected first priority security
interest in any of the Contracts.
(j) JAC or any Affiliate of JAC is in payment default under any other
indebtedness having a principal amount equal to or greater than $1,000,000.
(k) As of any Determination Date, the average of the Delinquency Ratios as
of such Determination Date and as of the two prior Determination Dates is
greater than 42%.
(l) As of the Determination Date with respect to a given Monthly Period set
forth in the table below, the Cumulative Gross Charge-Off Ratio or the
Cumulative Net Charge-Off Ratio exceeds the level specified for such ratio for
such Monthly Period in such table:
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<TABLE>
<CAPTION>
Cumulative Gross Cumulative Net
Monthly Period Charge-Off Ratio Charge-Off Ratio
-------------- ---------------- ----------------
<S> <C> <C>
September 1996 9.33% 7.00%
October 1996 13.33% 10.00%
November 1996 22.67% 17.00%
December 1996 37.33% 28.00%
January 1997 48.00% 36.00%
February 1997 52.00% 39.00%
March 1997 57.33% 43.00%
April 1997 64.00% 48.00%
May 1997 65.33% 49.00%
June 1997 65.33% 49.00%
July 1997 65.33% 49.00%
</TABLE>
(m) As of any Determination Date, the Class A Collateral Percentage is
greater than 50%.
(n) Any three of the following individuals shall either (i) become
deceased; or (ii) become unable to work for a period of six consecutive months
or more; or (iii) cease to be employed by JAC: Jerry W. Bayless, Michael I.
Smartt, Oney A. Harvey, and Richard B. Hoffmann.
(o) The filing of any action or proceeding against JAC, (i) that is not
dismissed within 120 days (or such longer period as may be consented to by the
Controlling Party) after the initiation thereof, and (ii) that seeks damages
from JAC, and (iii) when aggregated with any other such actions or proceedings
seeks damages in excess of $5,000,000, and the Controlling Party, in its sole
discretion, has determined (and has notified the Issuer, JAC, and the Trustee
(if the Trustee is not the Controlling Party) that it has made such
determination) that such action or proceeding may be expected to have a material
adverse effect on the ability of JAC to perform its obligations under this
Agreement during the period that any Series 1996B Note is expected to be
outstanding. Case number 96 C 4273, Logan v. Wos, et al., filed in the United
-------------------
States District Court for the Northern District of Illinois, is an action that
is subject to the provisions of this paragraph (o).
(p) Any assignment or attempted assignment of this Agreement by JAC or
the Servicer other than as permitted in Section 6.06.
(q) Tangible Net Worth is less than $70 million plus 75% of JAC's
Cumulative After Tax Net Income in any fiscal quarter of JAC, commencing with
the fiscal quarter beginning July 1, 1996.
(r) Interest Coverage Ratio is less than 1.5 in any four consecutive
fiscal quarters of JAC, commencing with the fiscal quarter beginning July 1,
1996.
(s) As of any Accounting Date, the weighted average APR of the
Contracts is less than 16.00%.
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(t) The occurrence of an Event of Default which has not been waived by
the Controlling Party, or the occurrence of an Event of Default (as defined in
the Insurance Agreement) which has not been waived by the Note Insurer.
SECTION 5.02 CONSEQUENCES OF AN EVENT OF TERMINATION. If an Event of
Termination shall occur and be continuing, the Note Insurer (or, if the Note
Insurer is not the Controlling Party, either the Trustee (to the extent it has
knowledge thereof), the Issuer, or a Note Voting Amount), by notice given in
writing to the Servicer (and to the Trustee and the Issuer if given by the Note
Insurer or a Note Voting Amount) may terminate all of the rights and obligations
of the Servicer under this Agreement (except as set forth in Section 4.01(d)).
On or after the receipt by the Servicer of such written notice of termination of
the Servicer, all authority, power, obligations and responsibilities of the
Servicer under this Agreement, whether with respect to the Contracts, the Other
Contributed Property, or otherwise, automatically shall pass to, be vested in
and become obligations and responsibilities of the Backup Servicer (or such
other successor Servicer appointed by the Controlling Party); provided, however,
-------- -------
that the successor Servicer shall have no liability with respect to 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 based
on any alleged action or inaction of the terminated Servicer. The successor
Servicer is authorized and empowered by this Agreement to execute and deliver,
on behalf of the terminated Servicer, as attorney-in-fact or otherwise, any and
all documents and other instruments and to do or accomplish all other acts or
things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement of the Contracts
and the Other Contributed Property and related documents to show the Issuer as
lienholder or secured party on the related Title Documents, or otherwise. The
terminated Servicer agrees to cooperate with the successor Servicer in effecting
the termination of the responsibilities and rights of the terminated Servicer
under this Agreement, including, without limitation, the transfer to the
successor Servicer for administration by it of all cash amounts that shall at
the time be held by the terminated Servicer for deposit, or have been deposited
by the terminated Servicer, in the Collection Account or thereafter received
with respect to the Contracts and the delivery to the successor Servicer of all
Contract Files, collection records and a computer tape in readable form as of
the most recent Business Day containing all information necessary to enable the
Backup Servicer or other successor Servicer, as the case may be, to service the
Contracts and the Other Contributed Property. If requested by the Controlling
Party, the successor Servicer shall direct the Obligors then making payments
directly to the Servicer to make all payments under the Contracts directly to
the successor Servicer (in which event the successor Servicer shall process all
such payments in accordance with Section 3.07(c)), or to a lockbox established
by the successor Servicer at the direction of the Controlling Party, at the
successor Servicer's expense. The terminated Servicer shall grant the Issuer,
the Trustee, the successor Servicer and the Controlling Party reasonable access
to the terminated Servicer's premises at the terminated Servicer's expense. JAC
shall reimburse the successor Servicer and the Trustee for Transition Costs
incurred by them in connection with a transfer of servicing from JAC to such
successor Servicer. In addition, as provided in Section 3 of the Series
Supplement, each of the successor Servicer and the Trustee shall be entitled to
be reimbursed for Transition Costs incurred by them in connection with a
transfer of servicing from the Servicer to such successor Servicer (to the
extent not paid by JAC pursuant to the preceding sentence, if applicable).
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<PAGE>
SECTION 5.03 APPOINTMENT OF SUCCESSOR.
(a) On and after the time the Servicer receives a notice of termination
pursuant to Section 5.02, or upon the resignation of the Servicer pursuant to
Section 4.04, the Backup Servicer (unless the Controlling Party shall have
exercised its option pursuant to Section 5.03(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 Issuer 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 only be subject to termination under Section 5.02 upon the
occurrence of any Event of Termination specified in Section 5.01(a), (b), (c),
(d), (e), (f), or (o) and that is applicable to it as Servicer.
(b) The Controlling Party may exercise at any time its right to appoint
as Backup Servicer or as successor to the Servicer a Person other than the
Person serving as Backup Servicer at the time, and (without limiting the Note
Insurer's obligations under the Note Insurance Policy with respect to the Class
A Notes) shall have no liability to the Issuer, the Trustee (if the Note Insurer
is the Controlling Party), JAC, the Person then serving as Backup Servicer, any
Noteholders or any other Person if it does so. Notwithstanding the above, if
the Backup Servicer shall be legally unable to act as Servicer, and the Note
Insurer is not the Controlling Party, the Backup Servicer, the Trustee, a Note
Voting Amount or the Issuer may petition a court of competent jurisdiction to
appoint an Eligible Successor as the successor to the Servicer. Pending
appointment pursuant to the preceding sentence, the Backup Servicer shall act as
successor Servicer unless it is legally unable to do so, in which event the
outgoing Servicer shall continue to act as Servicer until a successor has been
appointed and accepted such appointment. Subject to Section 4.04, no provision
of this Agreement shall be construed as relieving the Backup Servicer of its
obligation to succeed as successor Servicer upon the termination of the Servicer
pursuant to Section 5.02 or the resignation of the Servicer pursuant to Section
4.04. If upon the termination of the Servicer pursuant to Section 5.02 or the
resignation of the Servicer pursuant to Section 4.04, the Controlling Party
appoints a successor Servicer other than the Backup Servicer, the Backup
Servicer shall not be relieved of its duties as Backup Servicer hereunder.
(c) Any successor Servicer shall be entitled to such compensation
(whether payable out of the Collection Account or otherwise) as the Servicer
would have been entitled to under this Agreement if the Servicer had not
resigned or been terminated hereunder. If any successor Servicer is appointed
as a result of the Backup Servicer's refusal (in breach of the terms of this
Agreement) to act as Servicer although it is legally able to do so, the Note
Insurer and such successor Servicer may agree on reasonable additional
compensation to be paid to such successor Servicer by the Backup Servicer, which
additional compensation shall be paid by such breaching Backup Servicer in its
individual capacity and solely out of its own funds.
SECTION 5.04 NOTIFICATION TO NOTEHOLDERS. Upon any termination of, or
appointment of a successor to, the Servicer pursuant to this Article V, the
Issuer shall give prompt written notice
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<PAGE>
thereof to each Rating Agency, and the Trustee shall give prompt written notice
thereof to Noteholders at their respective addresses appearing in the Note
Register.
SECTION 5.05 WAIVER OF PAST DEFAULTS. The Note Insurer (or if the
Note Insurer is not the Controlling Party, a Note Majority) may, on behalf of
all Holders of Series 1996B Notes, waive any default by the Servicer in the
performance of its obligations hereunder and its consequences. Upon any such
waiver of a past default, such default shall cease to exist, and any Event of
Termination arising therefrom shall be deemed to have been remedied for every
purpose of this Agreement. No such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 5.06 NOTICE OF CERTAIN EVENTS. Promptly after the occurrence
of an Event of Termination, or of any event or circumstance which with notice or
the lapse of time or both would become an Event of Termination (including but
not limited to the filing of an action or proceeding that, with the passage of
time or the giving of notice, may result in the occurrence of an Event of
Termination pursuant to Section 5.01(o)), in either event which is actually
known to any party hereto, such party shall give notice to each other party
hereto and to the Rating Agencies and the Note Insurer.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.01 AMENDMENT.
(a) This Agreement may be amended by JAC, the Servicer, the Issuer, and
the Backup Servicer, with the prior written consent of the Trustee and (for so
long as the Note Insurer is the Controlling Party) the Note Insurer but without
the consent of any of the Noteholders, (i) to cure any ambiguity, (ii) to
correct or supplement any provisions in this Agreement or (iii) for the purpose
of adding any provision to or changing in any manner or eliminating any
provision of this Agreement or of modifying in any manner the rights of the
Noteholders; provided, however, that such action shall not adversely affect in
-------- -------
any material respect the interests of the Noteholders; and provided, further,
that the amendment shall be deemed not to adversely affect in any material
respect the interests of the Noteholders if the Person requesting the amendment
obtains a letter from each applicable Rating Agency to the effect that the
amendment would not result in the downgrading or withdrawal of the ratings then
assigned to the Notes.
(b) This Agreement may also be amended from time to time by JAC, the
Servicer, the Issuer, and the Backup Servicer, with the prior written consent of
the Trustee and (for so long as the Note Insurer is the Controlling Party) the
Note Insurer and with the consent of a Note Voting Amount (which consent of any
Holder of a Note given pursuant to this Section or pursuant to any other
provision of this Agreement shall be conclusive and binding on such Holder and
on all future Holders of such Note and of any Note issued upon the transfer
thereof or in exchange thereof or in lieu thereof whether or not notation of
such consent is made upon the Note) for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this
Agreement, or of modifying in any manner the rights of the Noteholders;
provided, however, that
- -------- -------
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<PAGE>
no such amendment shall have the effect of (a) increasing or reducing in any
manner the amount of, or accelerating or delaying the timing of, collections of
payments on Contracts or payments required to be made on any Note or (b)
reducing the percentage of Noteholders required to consent to any such amendment
or any waiver hereunder, without the consent of the Noteholders of all Series
1996B Notes then outstanding.
(c) Prior to the execution of any such amendment or consent, the Issuer
shall furnish written notification of the substance of such amendment or consent
to each Rating Agency.
(d) Promptly after the execution of any such amendment or consent, the
Issuer shall furnish written notification of the substance of such amendment or
consent to the Trustee.
(e) Prior to the execution of any amendment to this Agreement, the
Issuer 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. The Issuer may, but shall not be obligated to, enter into any such
amendment which affects the Issuer's own rights, duties or immunities under this
Agreement or otherwise.
SECTION 6.02 GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Texas and the obligations, rights and
remedies of the parties hereunder shall be determined in accordance with such
laws.
SECTION 6.03 NOTICES. Any request, demand, authorization, direction,
notice, consent, waiver, or other document provided or permitted hereby to be
made upon, given or furnished to, or filed with any party hereto shall be
sufficient for every purpose hereunder if in writing and telecopied or mailed,
first-class postage prepaid and addressed to the appropriate address below:
(a) to the Trustee at Norwest Center, 6th & Marquette, Minneapolis,
Minnesota 55479-0070 (telecopy: 612-667-9825), Attention: Bonnie Seideman or
at any other address previously furnished in writing by the Trustee to the other
parties hereto; or
(b) to the Note Insurer at 113 King Street, Armonk, New York 10504
(telecopy: 914-765-3818), Attention: Insured Portfolio Management - Structured
Finance (IPM-SF), or at any other address previously furnished in writing by the
Note Insurer to the other parties hereto; or
(c) to the Issuer at Two Galleria Tower, 13455 Noel Road, Suite 1800,
Dallas, Texas 75240 (telecopy: 214-663-1355), Attention: Will Bixby, or at any
other address previously furnished in writing by the Issuer to the other parties
hereto; or
(d) to JAC or the Servicer at Two Galleria Tower, 13455 Noel Road,
Suite 1800, Dallas, Texas 75240 (telecopy: 214-663-1355), Attention: Will
Bixby, or at any other address previously furnished in writing by JAC or the
Servicer to the other parties hereto; or
(e) to the Backup Servicer at Norwest Center, 6th & Marquette,
Minneapolis, Minnesota 55479-0070 (telecopy: 612-667-9825), Attention: Bonnie
Seideman, or at any other address previously furnished by the Backup Service to
the other parties hereto.
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<PAGE>
SECTION 6.04 INTENTION OF PARTIES. The execution and delivery of this
Agreement shall constitute an acknowledgment by JAC and the Issuer that they
intend hereby to establish (for federal income tax purposes) a contribution of
the Contracts to the capital of the Issuer rather than a pledge of such
Contracts. The powers granted and obligations undertaken in this Agreement
shall be construed so as to further such intent. No Contract may be disposed of
except as specifically provided herein. No proceeds of a Contract shall be
reinvested except as specifically provided herein or in the Indenture.
SECTION 6.05 SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement.
SECTION 6.06 ASSIGNMENT. Notwithstanding anything to the contrary
contained in this Agreement, except as provided in Section 4.02 or Section 5.02
(and as provided in the provisions of this Agreement concerning the resignation
of the Servicer and the Backup Servicer), this Agreement may not be assigned by
JAC, the Servicer, or the Backup Servicer without the prior written consent of
the Issuer, the Trustee, and (for so long as the Note Insurer is the Controlling
Party) the Note Insurer.
SECTION 6.07 THIRD-PARTY BENEFICIARIES. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. The Note Insurer and its successors and
assigns shall be a third-party beneficiary to the provisions of this Agreement,
and shall be entitled to rely upon and directly to enforce such provisions of
this Agreement so long as the Note Insurer is the Controlling Party. Nothing in
this Agreement, express or implied, shall give to any Person, other than the
parties hereto and their successors hereunder and permitted assigns, any benefit
or any legal or equitable right, remedy or claim under this Agreement. Except as
expressly stated otherwise herein, any right of the Note Insurer to direct,
appoint, consent to, approve of, or take any action under this Agreement, shall
be a right exercised by the Note Insurer in its sole and absolute discretion.
SECTION 6.08 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
SECTION 6.09 PARTIES NOT TO INSTITUTE INSOLVENCY PROCEEDINGS. Until
the date which is one year and one day after the last day on which any Series
1996B Note is Outstanding (as defined in the Indenture), none of the Trustee,
the Servicer (if JAC is not the Servicer), or the Backup Servicer may file any
involuntary petition or otherwise institute any bankruptcy, reorganization,
moratorium, insolvency or liquidation proceeding or other proceeding under any
federal or state bankruptcy or similar law against the Issuer or JAC.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their names to be
signed hereto by their respective officers thereunto duly authorized, all as of
the day and year first above written.
JAYHAWK ACCEPTANCE CORPORATION, in its
individual capacity and as Servicer
By: /s/ WILLIAM K. BIXBY, III
------------------------------------
William K. Bixby, III
Vice President of Finance
JAYHAWK FUNDING TRUST I, as Issuer
By: /s/ WILLIAM K. BIXBY, III
------------------------------------
William K. Bixby, III
Vice President
NORWEST BANK MINNESOTA NATIONAL ASSOCIATION, as
Trustee
By: /s/ BONNIE SEIDEMAN
------------------------------------
Bonnie Seideman
Assistant Vice President
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Backup Servicer
By: /s/ BONNIE SEIDEMAN
-----------------------------------
Bonnie Seideman
Assistant Vice President
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<PAGE>
SCHEDULE A
----------
SCHEDULE OF REPRESENTATIONS AND WARRANTIES
[Consists of Subschedules A-1 and A-2]
---------------- ---
<PAGE>
SUBSCHEDULE A-1
---------------
With respect to each Contract:
1. The information regarding such Contract set forth in the Series
Contract Schedule, is true and correct in all material respects at the Cutoff
Date.
2. Immediately prior to the related Contribution Date, JAC had a valid
and enforceable security interest in the related Financed Vehicle, and such
security interest had been duly perfected and, except for the Warehouse Lien,
was prior to all other present and future liens and security interests (except
future tax liens and liens that, by statute, may be granted priority over
previously perfected security interests) that now exist or may hereafter arise,
and JAC had the full right to assign such security interest to the Issuer.
3. On and after the related Contribution Date, there shall exist under
such Contract a valid, subsisting, and enforceable first priority perfected
security interest in the related Financed Vehicle (other than, as to the
priority of such security interest, any statutory lien arising by operation of
law after the related Contribution Date which is prior to such interest) and,
following the Grant of all of the Issuer's right, title, and interest in and to
such security interest to the Trustee pursuant to the Series Supplement, at such
time as enforcement of such security interest is sought there shall exist a
valid, subsisting, and enforceable first priority perfected security interest in
such Financed Vehicle in favor of the Trustee (other than, as to the priority of
such security interest, any statutory lien arising by operation of law after the
related Contribution Date which is prior to such interest).
4. If such Contract was originated in a state in which notation of a
security interest on the Title Document for the Financed Vehicle securing such
Contract is required or permitted to perfect such security interest, the Title
Document for such Financed Vehicle shows, or if a new or replacement Title
Document is being applied for with respect to such Financed Vehicle the Title
Document will show, JAC as the sole holder of a security interest in such
Financed Vehicle. If such Contract was originated in a state in which the
filing of a financing statement under the UCC is required to perfect a security
interest in motor vehicles, such filings or recordings have been duly made and
show JAC as the sole holder of a security interest in such Financed Vehicle, and
in either case the Issuer has the same rights as JAC has or would have (if JAC
were still the owner of a Contract) against the Obligor and all creditors of the
Obligor claiming an interest in such Financed Vehicle.
5. Immediately prior to the related Contribution Date: (i) such Contract
had not been sold, assigned, or pledged to any Person other than the Warehouse
Lender; (ii) JAC had good and marketable title thereto free and clear of any
encumbrance, equity, pledge, charge, claim or security interest, other than the
Warehouse Lien; (iii) JAC was the sole owner thereof and had full right to
transfer the Contract to the Issuer and, upon the contribution thereof to the
Issuer, the Issuer will have good and marketable title thereto and will be the
sole owner of such Contract free and clear of any encumbrance, lien or rights of
others, other than the Warehouse Lien. Following the Grant (as
SUBSCHEDULE A-1 - Page 1
<PAGE>
defined in the Indenture) of such Contract to the Trustee pursuant to the
Indenture, and delivery of such Contract to the Custodian, the Trustee for the
benefit of the Noteholders and the Note Insurer shall have a first priority
perfected security interest in such Contract. The purchase of such Contract by
JAC from a Dealer was not an extension of financing to such Dealer. Such
Contract was acquired by JAC, from a Dealer with which JAC does business,
pursuant to a Dealer Agreement between JAC and such Dealer. Such Dealer had
full right to assign to JAC such Contract and the security interest in the
related Financed Vehicle. JAC has full right to contribute to the Issuer such
Contract and the security interest in the related Financed Vehicle.
6. As of the related Cutoff Date, such Contract is neither more than
sixty (60) days delinquent in payment as to any Scheduled Payment nor a
Defaulted Contract. The related Obligor has made at least one Scheduled
Payment. JAC has obtained the entire down payment called for by JAC's normal
credit requirements.
7. As of the related Contribution Date, there is no lien against the
related Financed Vehicle for delinquent taxes.
8. As of the related Contribution Date, there is no right of rescission,
offset, defense or counterclaim to the obligation of the related Obligor to pay
the unpaid principal or interest due under such Contract. The operation of the
terms of such Contract or the exercise of any right thereunder will not render
such Contract unenforceable in whole or in part or subject to any right of
rescission, offset, defense or counterclaim, and no such right of rescission,
offset, defense or counterclaim has been asserted.
9. As of the related Contribution Date, there are no prior liens or
claims for work, labor or material affecting any related Financed Vehicle which
are or may become a lien prior to or equal with the security interest granted by
such Contract.
10. Such Contract, and the sale of the Financed Vehicle securing such
Contract, where applicable, complied, at the time it was made, in all respects
with applicable state and federal laws (and regulations thereunder), including,
without limitation, usury, disclosure and consumer protection laws, equal credit
opportunity, fair credit reporting, truth-in-lending or other similar laws, the
Federal Trade Commission Act, and applicable state laws regulating retail
installment sales contracts and loans in general and motor vehicle retail
installment sales contracts and loans in particular, the failure to comply with
which would have a material adverse effect on the interest of the Trustee, the
Noteholders, the Issuer, or the Note Insurer in such Contract. The receipt of
interest on, and the ownership of, such Contract by the Issuer will not violate
any such laws.
11. Such Contract is a legal, valid and binding obligation of the Obligor
thereunder and is enforceable in accordance with its terms, except only as such
enforcement may be limited by laws affecting the enforcement of creditors rights
generally, and all parties to such Contract had full legal capacity to execute
such Contract and all documents related thereto.
12. As of the related Contribution Date, the terms of such Contract have
not been amended, impaired, waived, altered, or modified in any respect, except
by written instruments that
SUBSCHEDULE A-1 - Page 2
<PAGE>
are included in the related Contract File and as reflected in the Series
Contract Schedule, and the Contract constitutes the entire agreement between JAC
(as assignee of the related Dealer) and the related Obligor. The Contract
delivered to the Custodian is the only original of such Contract.
13. At the time of origination of such Contract, the proceeds of such
Contract were fully disbursed. There is no requirement for future advances
thereunder, and all fees and expenses in connection with the origination of such
Contract have been paid.
14. As of the related Contribution Date, there is no default, breach,
violation or event of acceleration existing under any such Contract (except
payment delinquencies permitted by paragraph 6 above) and no event which, with
the passage of time or with notice or with both, would constitute a default,
breach, violation or event of acceleration under any such Contract. JAC has not
waived any such default, breach, violation or event of acceleration.
15. In connection with the purchase of such Contract, if the initial
principal balance of such Contract was equal to or greater than $3,000, JAC
required the related Dealer to furnish evidence that the related Financed
Vehicle was covered by a comprehensive and collision insurance policy naming JAC
as a loss payee and insuring against loss and damage due to fire, theft,
transportation, collision, and other risks generally covered by comprehensive
and collision coverage.
16. Such Contract contains customary and enforceable provisions such as to
render the rights and remedies of the holder thereof adequate for the
realization against the related Financed Vehicle of the benefits of the
security.
17. Scheduled Payments under such Contract are due monthly (or, in the
case of the first Scheduled Payment, no later than the 45th day after the date
of such Contract) in substantially equal amounts to maturity, with the portion
of the aggregate amount of such Scheduled Payments to be refunded or credited to
the Obligor as unearned add-on interest upon prepayment in full or upon demand
for payment upon acceleration being determined on the basis of the terms of such
Contract, and will be sufficient to fully amortize such Contract at maturity.
Such Scheduled Payments are applicable only to payment of principal and interest
on such Contract and not to the payment of any insurance premiums (although the
proceeds of the extension of credit on such Contract may have been used to pay
insurance premiums).
18. The collection practices used with respect to such Contract have been
in all material respects legal, proper, prudent and customary in the automobile
installment sales contract or installment loan servicing business as applied
with respect to obligors with credit standings comparable to that of the
Obligor.
19. Neither the Obligor on such Contract nor any of its Affiliates is the
obligor on a Contract or Contracts with an aggregate principal amount greater
than $10,000 as of the Contribution Date.
20. Such Contract's original term was no more than 36 months.
SUBSCHEDULE A-1 - Page 3
<PAGE>
21. Such Contract satisfied in all material respects the requirements
under JAC's Credit and Collection Policy, as in effect as of the date of
purchase of such Contract by JAC.
22. The related Obligor is not the United States government or a
government entity.
23. Such Contract is due from an Obligor that resides in the United States
and is denominated in U.S. dollars.
24. The related Obligor does not have any other motor vehicle retail
installment sale contracts owing to JAC which are more than 60 days past due or
defaulted at the Contribution Date.
25. Such Contract is not due from an Obligor who has defaulted under a
previous contract with JAC.
26. The Dealer that sold such Contract to JAC has entered into a Dealer
Agreement and such Dealer Agreement constitutes the entire agreement between JAC
and the related Dealer with respect to the sale of such Contract to JAC; such
Dealer Agreement is in full force and effect and is the legal, valid, binding,
and enforceable obligation of such Dealer (subject to applicable bankruptcy and
insolvency laws and other similar laws affecting the enforcement of creditors'
rights generally and to principles of equity, regardless of whether enforcement
is sought in a proceeding in equity or at law); there have been no material
defaults by such Dealer or by JAC under such Dealer Agreement; JAC has fully
performed all of its obligations under such Dealer Agreement; JAC has not made
any statements or representations to such Dealer inconsistent with any term of
such Dealer Agreement; the Purchase Price (as defined in such Dealer Agreement)
for such Contract has been paid in full by JAC; there is no other payment due to
such Dealer from JAC for the purchase of such Contract; such Dealer has no
right, title or interest in or to any Contract; there is no prior course of
dealing between such Dealer and JAC which will affect the terms of such Dealer
Agreement; any additional payment that may be owed to such Dealer by JAC is a
corporate obligation of JAC and does not constitute part of the purchase price
for such Contract.
27. JAC has provided to the Custodian the sole original counterpart of
such Contract as amended, and the related Title Document or the application for
Title Document, previously in the possession of JAC.
28. Such Contract constitutes "chattel paper" for purposes of Section 9-
105(1)(b) and 9-308 of the UCC. JAC's electronic ledgers have been marked as
provided in Section 2.04(c) of this Agreement with respect to such Contract.
29. Such Contract was not originated in, nor is it subject to the laws of,
any jurisdiction, the laws of which would make unlawful the sale, transfer or
assignment of such document under this Agreement or the Indenture, including any
repurchase in accordance with this Agreement and the Indenture.
30. Such Contract is in full force and effect in accordance with its
respective terms and neither JAC nor the related Obligor has suspended or
reduced any payments or obligations due or
SUBSCHEDULE A-1 - Page 4
<PAGE>
to become due thereunder by reason of a default by the other party to such
Contract, except as reflected in an amendment to such Contract as referred to in
paragraph 12; there are no proceedings pending, or to the best of JAC's
knowledge, threatened, asserting insolvency of the related Obligor; there has
been no previous default on such Contract that resulted in repossession of the
related Financed Vehicle; and there are no proceedings pending, or to the best
of JAC's knowledge, threatened, wherein the related Obligor or any governmental
agency has alleged that such Contract is illegal or unenforceable.
31. The filing(s) referred to in Section 2.01(c) have been accomplished
and are in full force and effect.
32. Each Contract being acquired by the Issuer is substantially similar to
one of JAC's standard form contracts attached hereto as Exhibit D, except for
---------
immaterial modifications or deviations from the form contracts which will not
have a material adverse effect on the Holders of the Series 1996B Notes or the
Note Insurer and will not reduce the Scheduled Payments or other payments due
under the Contracts.
33. Such Contract was originated by a Dealer and underwritten by JAC
pursuant to agreed upon and well articulated underwriting and documentation
standards. Such Dealer's origination criteria meet JAC's underwriting and
origination criteria as approved by the Note Insurer.
34. JAC has duly fulfilled all obligations to be fulfilled on JAC's part
under or in connection with the origination, acquisition and contribution of
such Contract, including, without limitation, giving any notices or consents
necessary to effect the acquisition of such Contracts and the related Other
Contributed Property including, without limitation, giving any notices or
consents necessary to effect the acquisition of such Contracts and such Other
Contributed Property by the Issuer, and has done nothing to impair the rights of
the Trustee and the Noteholders in such Contract or payments with respect
thereto. JAC has obtained all necessary licenses, permits and charters required
to be obtained by JAC, which failure to obtain would render any portion of the
Transaction Documents unenforceable and would have a material adverse effect on
the Note Insurer or the Noteholders.
35. The Dealer that originated such Contract was selected by JAC based on
JAC's underwriting criteria and such Dealer's financial and operating history
and record of compliance with requirements of applicable federal and state law.
To the best of JAC's knowledge, such Dealer has not engaged in any conduct
constituting fraud or misrepresentation with respect to such Contracts or the
related Other Contributed Property.
SUBSCHEDULE A-1 - Page 5
<PAGE>
SUBSCHEDULE A-2
---------------
With respect to each Contract with respect to which the related Financed
Vehicle is covered by an Extended Service Agreement:
1. Pursuant to the FFG Policy, and subject to the terms thereof, FFG is
obligated to pay on behalf of the related Dealer the amount necessary to perform
such Dealer's contractual obligations under such Extended Service Agreement, in
the event that such Dealer and JAC are unable to perform or pay for the
performance of such obligations. The premium payable with respect to such
Extended Service Agreement under the FFG Policy has been paid in full and no
other amounts are required to be paid to maintain the coverage provided by the
FFG Policy with respect thereto.
2. Such Extended Service Agreement, and the sale of such Extended Service
Agreement to the related Obligor complied, at the time of such sale, with all
applicable state and federal laws (and regulations thereunder), including
without limitation, insurance, usury, disclosure and consumer protection laws,
equal credit opportunity, fair credit reporting, truth-in-lending or other
similar laws, the Federal Trade Commission Act, and applicable state laws
regulating extended service agreements and insurance, with which the failure to
comply would have a material adverse effect on the interest of the Trustee, the
Noteholders, the Issuer, or the Note Insurer in the related Contract.
3. The Dealer that originated such Contract has executed a Dealer
Agreement Addendum in the form set forth in Exhibit C-2, and such Dealer and JAC
-----------
have performed all their respective obligations under such Dealer Agreement
Addendum through the date as of which this representation is made.
4. The Dealer that originated such Contract has fully and timely
performed all of its material obligations under the related Extended Service
Agreement through the date as of which this representation is made. JAC has
fully and timely performed all of its obligations under the related Dealer
Agreement Addendum through the date as of which this representation is made.
5. JAC and FESC have fully and timely performed in all material respects
all obligations under the Administrative Services Agreement through the date as
of which this representation is made, and there have been no defaults under the
Administrative Services Agreement that have not been cured.
6. Such Extended Service Agreement is the legal, valid, and binding
obligation of each party thereto, and is enforceable in accordance with its
terms (subject to applicable bankruptcy and insolvency laws and other similar
laws affecting the enforcement of creditors' rights generally and to general
principles of equity, regardless of whether enforcement is sought in a
proceeding in equity or at law).
SUBSCHEDULE A-2 - Page 1
<PAGE>
7. The Administrative Services Agreement is the legal, valid, and binding
obligation of each party thereto and is enforceable in accordance with its terms
(subject to applicable bankruptcy and insolvency laws and other similar laws
affecting the enforcement of creditors' rights generally and to general
principles of equity, regardless of whether enforcement is sought in a
proceeding in equity or at law).
8. The Contractual Liability Policy is the legal, valid, and binding
obligation of FFG and is enforceable in accordance with its terms (subject to
applicable bankruptcy and insolvency laws and other similar laws affecting the
enforcement of creditors' rights generally and to general principles of equity,
regardless of whether enforcement is sought in a proceeding in equity or at
law).
9. All rights (but not any obligations) of JAC under each Extended
Service Agreement and each Dealer Agreement Addendum are assignable and have
been assigned by JAC to the Issuer.
10. All administrative fees due to FESC under the Administrative Services
Agreement with respect to such Extended Service Agreement have been paid, and
FESC is obligated to continue to service and administer such Extended Service
Agreements without further payment of administrative fees.
11. Such Extended Service Agreement is in the form attached hereto as
Exhibit F.
- ---------
12. All consents and approvals, if any, necessary for JAC to assign its
rights with respect to such Extended Service Agreement have been obtained.
13. Other than in connection with the related Obligor's right to cancel
such Extended Service Agreement, there is no right of rescission, offset,
defense, or counterclaim to the obligation of the related Obligor to pay the
amount due under such Contract which relates to such Extended Service Agreement.
14. JAC, the related Dealer, and FESC have complied in all material
respects with all licensing or other laws applicable to them in connection with
the sale, servicing, administration, and insurance of such Extended Service
Agreement.
SUBSCHEDULE A-2 - Page 2
<PAGE>
COMPUTATION OF EARNINGS PER SHARE
Exhibit 11
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- ---------------------------
1996 1995 1996 1995
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
PRIMARY:
Net income $ 2,862,000 $ 1,036,000 $ 4, 906,000 $ 1,671,000
=========== =========== ============ ===========
Shares as adjusted:
Weighted average common shares outstanding 23,384,472 14,281,693 21,931,074 14,281,068
Assumed conversion of Series A convertible
preferred stock --- 2,733,051 --- 2,720,339
Incremental shares from outstanding stock
options as determined under the treasury
stock method 380,762 240,513 366,594 240,513
----------- ----------- ------------ -----------
Shares as adjusted 23,765,234 17,255,257 22,297,668 17,241,920
=========== =========== ============ ===========
Net income per share $ .12 $ .06 $ .22 $ .10
=========== =========== ============ ===========
FULLY DILUTED:
Net income $ 2,862,000 $ 1,036,000 $ 4,906,000 $ 1,671,000
=========== =========== ============ ===========
Shares as adjusted:
Weighted average common shares outstanding 23,384,472 14,281,693 21,931,074 14,281,068
Assumed conversion of Series A convertible
preferred stock --- 2,733,051 --- 2,720,339
Incremental shares from outstanding stock
options as determined under the treasury
stock method 393,442 240,513 410,619 240,513
----------- ----------- ------------ -----------
Shares as adjusted 23,777,914 17,255,257 22,341,693 17,241,920
=========== =========== ============ ===========
Net income per share $ .12 $ .06 $ .22 $ .10
=========== =========== ============ ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 4,461<F1> 4,461
<SECURITIES> 0 0
<RECEIVABLES> 283,566 283,566
<ALLOWANCES> 4,784 4,784
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 9,385 9,385
<DEPRECIATION> 2,276 2,276
<TOTAL-ASSETS> 293,664 293,664
<CURRENT-LIABILITIES> 32,624<F2> 32,624
<BONDS> 30,777<F3> 30,777
0 0
0 0
<COMMON> 88,582 88,582
<OTHER-SE> 5,820 5,820
<TOTAL-LIABILITY-AND-EQUITY> 293,664<F4> 293,664
<SALES> 0 0
<TOTAL-REVENUES> 12,505 22,644
<CGS> 0 0
<TOTAL-COSTS> 5,759 10,528
<OTHER-EXPENSES> 235 432
<LOSS-PROVISION> 998 1,812
<INTEREST-EXPENSE> 1,200 2,417
<INCOME-PRETAX> 4,313 7,455
<INCOME-TAX> 1,451 2,549
<INCOME-CONTINUING> 2,862 4,906
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,862 4,906
<EPS-PRIMARY> .12 .22
<EPS-DILUTED> .12 .22
<FN>
<F1>INCLUDES RESTRICTED CASH OF $4,120.
<F2>INCLUDES SECURITIZED NOTES OF $24,468 EXPECTED TO BE LIQUIDATED IN SIX
MONTHS.
<F3>TWO-YEAR REVOLVING CREDIT FACILITY WHICH PERMITS BORROWINGS OF UP TO $65
MILLION AT A VARIABLE RATE OF INTEREST (8.25% AT JUNE 30, 1996).
<F4>INCLUDES DEALER HOLDBACKS OF $133,383.
</FN>
</TABLE>
