SALE AND SERVICING AGREEMENT
RELATING TO
PARAGON AUTO RECEIVABLES OWNER TRUST 1999-A
between
PARAGON ACCEPTANCE CORPORATION
In its individual capacity
and as Servicer
PARAGON AUTO RECEIVABLES CORPORATION
as Seller
PARAGON AUTO RECEIVABLES OWNER TRUST 1999-A
as Purchaser
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
as Indenture Trustee and Backup Servicer
-----------------------------------------
Dated as of March 30, 1999
-----------------------------------------
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
Section 1.1. Definitions...........................................1
Section 1.2. Usage of Terms.......................................23
Section 1.3. Calculations.........................................23
Section 1.4. Section References...................................23
Section 1.5. Action by or Consent of Noteholders..................23
Section 1.6. No Recourse..........................................23
Section 1.7. Nonpetition Covenant.................................24
ARTICLE II
CONVEYANCE OF RECEIVABLES; ACCEPTANCE BY INDENTURE TRUSTEE
Section 2.1. Conveyance of Receivables............................24
Section 2.2. Conveyance of Subsequent Receivables.................25
Section 2.3. Custody of Receivable Files..........................27
Section 2.4. Conditions Precedent to Issuance by Trust............28
Section 2.5. Representations and Warranties of Seller.............29
Section 2.6. Repurchase of Receivables Upon Breach of Warranty....31
Section 2.7. Indenture Trustee's Assignment of Receivables........31
Section 2.8. Collecting Lien Certificates.........................32
ARTICLE III
ADMINISTRATION AND SERVICING OF RECEIVABLES
Section 3.1. Duties of the Servicer...............................32
Section 3.2. Collection of Receivable Payments; Modifications of
Receivables; Lockbox Agreement...................33
Section 3.3. Realization Upon Receivables.........................34
Section 3.4. Insurance............................................35
Section 3.5. Maintenance of Security Interests in Vehicles........35
Section 3.6. Covenants, Representations and Warranties of
Servicer...........................................36
Section 3.7. Purchase of Receivables Upon Breach of Covenant......39
Section 3.8. Total Servicing Fee; Payment of Certain Expenses
by Servicer; Backup Servicer Fee.................39
Section 3.9. Servicer's Certificate...............................40
Section 3.10. Annual Statement as to Compliance; Notice of Servicer
Termination Event...............................40
Section 3.11. Annual Independent Accountants' Report..............41
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Section 3.12. Access to Certain Documentation and Information
Regarding Receivables..........................41
Section 3.13. Monthly Tape; Certain Duties of Backup Servicer.....41
Section 3.14. Insurance...........................................42
Section 3.15. Compliance with Laws................................43
ARTICLE IV
PAYMENTS; STATEMENTS TO NOTEHOLDERS
Section 4.1. Trust Accounts.......................................43
Section 4.2. Servicer Reimbursements..............................45
Section 4.3. Application of Collections...........................46
Section 4.4. Additional Deposits..................................46
Section 4.5. Payments.............................................46
Section 4.6. Pre-Funding Account and Interest Reserve Account.....48
Section 4.7. Net Deposits.........................................49
Section 4.8. Statements to Noteholders............................50
Section 4.9. Optional Deposits by the Note Insurer................51
ARTICLE V
THE RESERVE ACCOUNT AND THE POLICY
Section 5.1. Initial Deposit......................................52
Section 5.2. Policy...............................................52
Section 5.3. Deficiency Claim Amounts.............................52
Section 5.4. Claims Under Policy..................................52
Section 5.5. Distribution of Excess...............................53
Section 5.6. Surrender of Policy..................................53
ARTICLE VI
THE SELLER
Section 6.1. Liability of Seller..................................54
Section 6.2. Merger or Consolidation of the Seller................54
Section 6.3. Limitation on Liability of Seller and Others.........54
Section 6.4. Special Purpose Entity...............................54
Section 6.5. Restrictions on Liens................................55
Section 6.6. Creation of Indebtedness; Guarantees.................56
Section 6.7. Compliance with Laws.................................56
Section 6.8 Further Instruments and Acts..........................56
Section 6.9 Investment Company Act................................56
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ARTICLE VII
THE SERVICER
Section 7.1. Liability of Servicer; Indemnities...................56
Section 7.2. Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer or Backup Servicer..57
Section 7.3. Limitation on Liability of Servicer, Backup Servicer
and Others.........................................58
Section 7.4. Delegation of Duties.................................59
Section 7.5. Servicer and Backup Servicer Not to Resign...........59
Section 7.6. Administrative Duties
ARTICLE VIII
SERVICER TERMINATION EVENTS
Section 8.1. Servicer Termination Event...........................61
Section 8.2. Consequences of a Servicer Termination Event.........62
Section 8.3. Appointment of Successor.............................62
Section 8.4. Notification to Noteholders..........................63
Section 8.5. Waiver of Past Defaults..............................64
ARTICLE IX
TERMINATION
Section 9.1. Optional Purchase of All Receivables.................64
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1. Amendment...........................................64
Section 10.2. Protection of Title to Trust........................66
Section 10.3. Limitation on Rights of Noteholders.................67
Section 10.4. GOVERNING LAW.......................................68
Section 10.5. Severability of Provisions..........................68
Section 10.6. Assignment..........................................68
Section 10.7. Third-Party Beneficiaries...........................69
Section 10.8. Counterparts........................................69
Section 10.9. Notices.............................................69
Section 10.10. Successors and Assigns.............................69
Section 10.11. Subordination......................................70
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SCHEDULES
Schedule A -- Schedule of Receivables
Schedule B -- Representations and Warranties of the Seller
EXHIBITS
Exhibit A -- Form of Servicer's Certificate
Exhibit B -- Request for Release and Receipt of Documents
Exhibit C -- Form of Subsequent Transfer Agreement
Exhibit D -- Form of Officer's Certificate
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SALE AND SERVICING AGREEMENT, dated as of March 30, 1999 (this
"Agreement"), between PARAGON ACCEPTANCE CORPORATION, a Delaware
corporation, in its individual capacity ("Paragon") and as Servicer (the
"Servicer"), PARAGON AUTO RECEIVABLES CORPORATION, a Delaware corporation,
as Seller (the "Seller"), PARAGON AUTO RECEIVABLES OWNER TRUST 1999-A, a
Delaware statutory business trust, as purchaser (the "Trust" or the
"Issuer"), and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national
banking association, as Indenture Trustee (in such capacity, the "Indenture
Trustee") and as Backup Servicer (in such capacity, the "Backup Servicer").
WHEREAS, pursuant to the Receivables Purchase Agreement (as
defined below), the Seller has purchased from Paragon certain receivables
arising in connection with motor vehicle retail installment contracts
acquired by Paragon through motor vehicle dealers;
WHEREAS, the Seller wishes to sell and the Trust wishes to purchase
certain of such receivables;
WHEREAS, the Servicer has agreed to service such receivables,
which constitute the principal assets of the trust estate; and
WHEREAS, Norwest Bank Minnesota, National Association is willing
to serve in the capacities of Indenture Trustee and Backup Servicer
hereunder.
NOW, THEREFORE, in consideration of the mutual agreements
contained herein, Paragon, the Servicer, the Seller, the Trust, the
Indenture Trustee and the Backup Servicer hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. Capitalized terms used but not defined
herein shall have the meanings set forth in the Trust Agreement or the
Indenture (each as defined below). Whenever capitalized and used in this
Agreement, the following words shall have the following meanings:
Accountants' Report: The report of a firm of nationally recognized
independent accountants described in Section 3.11.
Accounting Date: (a) The last day of a Collection Period and (b)
with respect to a Payment Date or Determination Date, the last day of the
Collection Period preceding such Payment Date or Determination Date (such
date being referred to as the "related Accounting Date" with respect to
such Payment Date or Determination Date).
Addition Notice: With respect to the transfer of Subsequent
Receivables to the Trust pursuant to Section 2.2 of this Agreement, a written
notice, which shall be given by the Seller to the
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Trustee and the Note Insurer not later than seven Business Days prior to
the related Subsequent Transfer Date, of the Seller's designation of
Subsequent Receivables to be sold to the Trust, which shall include the
aggregate Principal Balance of such Subsequent Receivables and the other
pool information required by the Note Insurer and the Rating Agencies.
Administrative Receivable: With respect to any Collection Period,
a Receivable that the Servicer is required to purchase pursuant to Section
3.7 on or before the Deposit Date following such Collection Period.
Affiliate: With respect to any Person, any other Person directly
or indirectly controlling, controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
the term "control" (including the terms "controlling," "controlled by" and
"under common control with") means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies
of a Person, whether through the ownership of voting securities, by
contract or otherwise.
Aggregate Principal Balance: With respect to the Closing Date, the
Initial Cutoff Date Principal Balance, and with respect to any
Determination Date, the sum of the Principal Balances (computed as of the
related Accounting Date) for all Receivables (other than Liquidated
Receivables and Purchased Receivables).
Agreement: This Agreement and all exhibits and schedules hereto.
Amount Financed: With respect to a Receivable, the "amount
financed" within the meaning of the Federal Truth-in-Lending Act, which is
the aggregate amount of credit initially extended under such Receivable
toward the purchase price of the related Financed Vehicle and related
costs, including amounts of credit extended in respect of accessories,
insurance premiums, service and warranty policies or contracts and other
items customarily financed as part of motor vehicle retail installment
contracts.
Annual Percentage Rate or APR: With respect to a Receivable, the
rate per annum of finance charges stated in such Receivable as the "annual
percentage rate" (within the meaning of the Federal Truth-in-Lending Act);
provided, however, that if, after the Closing Date, the annual percentage
rate with respect to a Receivable as of the Closing Date is reduced as a
result of (i) an insolvency proceeding involving the related Obligor or
(ii) the Soldiers' and Sailors' Civil Relief Act of 1940, the Annual
Percentage Rate or APR shall refer to such reduced rate.
Available Funds: With respect to any Determination Date, the sum
of (i) the Collected Funds received by the Servicer during the related
Collection Period, (ii) all Purchase Amounts with respect to Purchased
Receivables deposited in the Collection Account since the preceding
Determination Date and on or before the related Deposit Date, (iii) the
Policy Claim Amount, if any, received by the Indenture Trustee from the
Note Insurer with respect to such Payment Date, (iv) all Pre-Funding
Earnings, if any, to be transferred to the Collection Account pursuant to
Section 4.6(a) for such Payment Date, (v) all income from investments of
funds in the Collection Account during the related
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Collection Period and (vi) the Interest Reserve Requirement, if any, to be
transferred to the Collection Account for such Collection Period.
Backup Servicer: Norwest Bank Minnesota, National Association, its
successor in interest pursuant to Section 7.2 or such Person as shall have
been appointed as Backup Servicer pursuant to Section 8.3.
Backup Servicer Fee: With respect to any Payment Date, the fee
payable to the Backup Servicer for services rendered during the related
Collection Period, as specified in the schedule of fees issued by the
Backup Servicer and acknowledged by Paragon on March 26, 1999, with a copy
delivered to the Note Insurer.
Basic Servicing Fee: With respect to any Payment Date, the fee
payable to the Servicer for services rendered during the related Collection
Period, which shall be equal to one-twelfth of 1.00% multiplied by the
Aggregate Principal Balance as of the open of business on the first day of
the related Collection Period and, with respect to any successor Servicer
the amounts specified in Section 8.3 to the extent not paid by the original
Servicer.
Business Day: Any day other than a Saturday, Sunday or other day
on which commercial banking institutions or trust companies in St. Louis,
Missouri, Los Angeles, California, New York, New York, Minneapolis,
Minnesota or the principal place of business of any successor Servicer or
successor Indenture Trustee are authorized or obligated by law or order to
be closed.
Certificate: As defined in the Trust Agreement.
Certificated Security: As defined in Section 8-102(a)(4) of Revised
Article 8.
Certificateholder(s): As defined in the Trust Agreement.
Class A Interest Carryover Shortfall: As of the close of business
on any Payment Date, an amount equal to (i) the Class A Interest Payment
Amount for such Payment Date, minus (ii) the amount of interest that the
holders of the Class A Notes actually received on such Payment Date.
Class A Interest Payment Amount: With respect to any Payment Date,
the sum of (i) for the initial Payment Date, 44 days of interest and for
any Payment Date thereafter, 30 days of interest, in each case calculated
on the basis of a 360-day year consisting of twelve 30-day months, at the
Class A Interest Rate on the Note Balance as of the close of business on
the related Accounting Date, plus (ii) any outstanding Class A Interest
Carryover Shortfall with respect to the preceding Payment Date, plus 30
days of interest on such outstanding Class A Interest Carryover Shortfall,
to the extent permitted by law, at the Class A Interest Rate.
Class A Interest Rate: 5.95% per annum, calculated on a basis of a
360-day year consisting of twelve 30-day months.
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Class A Note: Any Note executed on behalf of the Trust and issued
pursuant to the Indenture in substantially the form set forth in Exhibit A
to the Indenture.
Class A Note Factor: As of any Payment Date, a seven-digit decimal
figure equal to the Note Balance as of the close of business on such
Payment Date divided by the initial Note Balance.
Class A Payment Amount: On any Payment Date, the sum of the Class A
Principal Payment Amount and the Class A Interest Payment Amount.
Class A Principal Carryover Shortfall: As of the close of business
on any Payment Date, an amount equal to (i) the Class A Principal Payment
Amount, minus (ii) the amount of principal that the holders of the Class A
Notes actually received on such Payment Date.
Class A Principal Payment Amount: With respect to any Payment
Date, without duplication, the sum of: (i) the Noteholder's Percentage of
the sum of (A) the principal portion of all Collected Funds for the related
Determination Date, (B) without duplication, the Principal Balance of all
Receivables that became Liquidated Receivables during the related
Collection Period (other than Purchased Receivables) as determined on the
respective dates such Receivables became Liquidated Receivables, (C) the
principal portion of the Purchase Amount of all Receivables that became
Purchased Receivables as of the related Accounting Date, and (D) the
aggregate amount of Cram Down Losses that shall have been realized during
the related Collection Period; plus (ii) any Class A Principal Carryover
Shortfall with respect to the preceding Payment Date; provided, however,
that on the Final Scheduled Payment Date, the Class A Principal Payment
Amount shall equal the Note Balance.
Class A Redemption Amount: As of the Payment Date on or
immediately following the last day of the Funding Period, after giving
effect to any transfer of Subsequent Receivables on such date, an amount
equal to the remaining portion of the Pre-Funded Amount as of such Payment
Date multiplied by the Noteholder's Percentage.
Clearing Corporation: As defined in Section 8-102(3) of Old Article 8.
Closing: As defined in Section 2.1(d).
Closing Date: March 30, 1999
Collected Funds: With respect to any Determination Date, the
amount of funds in the Collection Account representing collections
(including collections under Insurance Policies) on the Receivables
received by the Servicer during the related Collection Period, including
all Liquidation Proceeds (but excluding any Purchase Amounts) and all
amounts paid by the Dealers under Dealer Agreements or Dealer Assignments
with respect to the Receivables during the related Collection Period.
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Collection Account: The account designated as the Collection Account
in, and which is established and maintained pursuant to, Section 4.1.
Collection Period: (a) A calendar month and (b) with respect to a
Payment Date or Determination Date, the calendar month preceding the month
in which such Payment Date or Determination Date occurs (such calendar
month being referred to as the "related Collection Period" with respect to
such Payment Date or Determination Date).
Computer Tape: The computer tape or diskette generated on behalf of
the Seller that provides information relating to the Receivables.
Control: With respect to any Federal Book Entry Security, the
Indenture Trustee shall have obtained control if:
(i) the Indenture Trustee is a participant in the book
entry system maintained by the Federal Reserve Bank that is acting
as fiscal agent for the issuer of such Federal Book Entry
Security, and such Federal Reserve Bank has indicated by book
entry that such Federal Book Entry Security has been credited to
the Indenture Trustee's securities account in such book entry
system; or
(ii) (a) the Indenture Trustee (1) is registered on the
records of a Securities Intermediary as the person having a
Securities Entitlement in respect of such Federal Book Entry
Security against such Securities Intermediary; or (2) has obtained
the agreement, in writing, of the Securities Intermediary for such
Securities Entitlement that such Securities Intermediary will
comply with Entitlement Orders of the Indenture Trustee without
further consent of any other Person; and (b) the Securities
Intermediary is a participant in the book entry system maintained
by the Federal Reserve Bank that is acting as fiscal agent for the
issuer of such Federal Book Entry Security; and (c) such Federal
Reserve Bank has indicated by book entry that such Federal Book
Entry Security has been credited to the Securities Intermediary's
securities account in such book entry system.
Controlling Party: The Note Insurer, so long as no Insurer Default
shall have occurred and be continuing, and the Indenture Trustee for the
benefit of the Noteholders for so long as an Insurer Default shall have
occurred and be continuing; provided, however, that the Owner Trustee for
the benefit of the Certificateholder(s) shall be the Controlling Party
after all unpaid principal and interest on the Notes shall have been paid
in full and the Note Insurer has received all amounts due and owing to it
under the Insurance Agreement.
Corporate Trust Office: The principal office of the Indenture
Trustee at which its corporate trust business shall be administered, which
office at the Closing Date is located at Norwest Center, Xxxxx Xxxxxx xxx
Xxxxxxxxx Xxxxxx, Xxxxxxxxxxx, Xxxxxxxxx 00000-0000, Attention: Corporate
Trust Services/Asset-Backed Administration; or such other address or the
Indenture Trustee may designate from time to time by notice to the
Noteholders, the Note Insurer and the Seller.
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Cram Down Loss: With respect to a Receivable, if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an
order reducing the amount owed on a Receivable or otherwise modifying or
restructuring the Scheduled Payments to be made on a Receivable, an amount
equal to the principal balance of such Receivable immediately prior to such
order, minus the principal balance of such Receivable as so reduced. A
"Cram Down Loss" shall be deemed to have been realized on the date of
issuance of such order.
CTS: ContiTrade Services L.L.C., a Delaware limited liability company.
Cumulative Net Loss Ratio: With respect to any Determination Date,
the fraction (expressed as a percentage) the numerator of which is equal to
the sum of (i) the Principal Balance of all Receivables that have become
Liquidated Receivables as of the related Accounting Date less all
Liquidation Proceeds and recoveries received with respect to such
Receivables and (ii) the aggregate Cram Down Losses with respect to the
Receivables as of the related Accounting Date, and the denominator of which
is equal to the Aggregate Principal Balance as of the Initial Cutoff Date
plus the aggregate Principal Balance of all Subsequent Receivables as of
their applicable Subsequent Cutoff Dates.
Dealer: A seller of new or used automobiles, light trucks or
sports utility vehicles that originated one or more of the Receivables and
sold the respective Receivable to Paragon under a Dealer Agreement or
Dealer Assignment.
Dealer Agreement: An agreement between Paragon and a Dealer relating
to the sale of retail installment contracts to Paragon and all documents and
instruments relating thereto.
Dealer Assignment: With respect to a Receivable, the assignment
executed by a Dealer conveying such Receivable to Paragon.
Deemed Cured: As of any Determination Date, with respect to a
Reserve Event or a Trigger Event that has occurred, that no Reserve Event
or Trigger Event, respectively, shall have occurred as of such
Determination Date or as of either of the three consecutively preceding
Determination Dates.
Default Ratio: With respect to any Determination Date, the
fraction (expressed as a percentage) the numerator of which is equal to the
Aggregate Principal Balance as of the related Accounting Date of all
Receivables that have become Liquidated Receivables during the related
Collection Period and the denominator of which is equal to the Aggregate
Principal Balance of the Receivables as of the open of business on the
first day of the related Collection Period.
Deficiency Claim Amount: As defined in Section 5.3.
Delinquency Ratio: With respect to any Determination Date, the
fraction (expressed as a percentage) the numerator of which is the
Principal Balance of all Receivables, of which 10% or more of any Scheduled
Payment (excluding any Receivable for which the related Financed Vehicle
6
has been repossessed but not yet sold by the Servicer) is 60 or more days
past due as of the related Accounting Date, and the denominator of which is
the Aggregate Principal Balance of the Receivables as of the open of
business on the first day of the related Collection Period.
Delivery: When used with respect to Trust Account Property,
"Delivery" means:
(i) with respect to Physical Property other than a
"certificated security" as defined under Old Article 8, transfer
thereof to the Indenture Trustee or its nominee or custodian by
physical delivery to the Indenture Trustee or its nominee or
custodian endorsed to, or registered in the name of, the Indenture
Trustee or its nominee or custodian or endorsed in blank;
(ii) with respect to a "certificated security" as defined
under Old Article 8 that will, upon compliance with the following
procedures, be held by a Person located in an Old Article 8
Jurisdiction, transfer thereof:
(A) by delivery of such certificated security
endorsed to, or registered in the name of, the Indenture
Trustee or its nominee or custodian or endorsed in blank
to a Financial Intermediary, and the making by such
Financial Intermediary of entries on its books and
records identifying such certificated security as
belonging to the Indenture Trustee or its nominee or
custodian and the sending by such Financial Intermediary
of a confirmation of the transfer to the Indenture
Trustee or its nominee or custodian of such certificated
security; or
(B)(1) by delivery thereof to a Clearing
Corporation and the registering by such Clearing
Corporation of appropriate entries on its books reducing
the appropriate securities account of the transferor and
increasing the appropriate securities account of a
Financial Intermediary by the amount of such certificated
security, (2) the identification by the Clearing
Corporation of the certificated securities for the sole
and exclusive account of the Financial Intermediary, (3)
the maintenance of such certificated securities by such
Clearing Corporation or a "custodian bank" (as defined in
Section 8-102(4) of Old Article 8) or the nominee of
either subject to the Clearing Corporation's exclusive
control, (4) the sending of a confirmation by the
Financial Intermediary of the transfer to the Indenture
Trustee or its nominee or custodian of such securities
and the registering by such Financial Intermediary of
entries on its books and records identifying such
certificated security as belonging to the Indenture
Trustee or its nominee or custodian, and, in any event,
any such Physical Property in registered form shall be in
the name of the Indenture Trustee or its nominee or
custodian, and (5) such additional or alternative
procedures as may hereafter become appropriate to effect
complete transfer of ownership of any such Trust Account
Property to the Indenture Trustee or its nominee or
custodian, consistent with applicable law or regulations
or the interpretation thereof;
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(iii) with respect to a Certificated Security that will,
upon compliance with the following procedures, be held by a person
located in a Revised Article 8 Jurisdiction, transfer of such
Certificated Security to the Indenture Trustee or its nominee or
custodian by physical delivery to the Indenture Trustee or its
nominee or custodian, endorsed to, or registered in the name of,
the Indenture Trustee or its nominee or custodian or endorsed in
blank;
(iv) with respect to any such Trust Account Property that
constitutes an "uncertificated security" under Old Article 8 (and
that is not a Federal Book Entry Security) and where the issuer
thereof is organized in an Old Article 8 Jurisdiction,
registration of the transfer to, and ownership of such Trust
Account Property by the Indenture Trustee or any Financial
Intermediary acting on behalf of the Indenture Trustee by the
issuer of such Trust Account Property, and (B) in the case of
registration in the name of any Financial Intermediary, (1) the
making by any such Financial Intermediary of entries in its books
and records identifying such uncertificated security as belonging
to the Indenture Trustee, and (2) delivery by any such Financial
Intermediary to the Indenture Trustee of a written confirmation of
the transfer of the uncertificated securities to the Indenture
Trustee; and
(v) with respect to any such Trust Account Property that
constitutes an Uncertificated Security (including any investments
in money market mutual funds, but excluding any Federal Book Entry
Security) and where the issuer thereof is organized in a Revised
Article 8 Jurisdiction, (A) registration of the Indenture Trustee
as the registered owner by the issuer, or (B) satisfaction of the
requirements for obtaining "control" pursuant to Section 8-
106(c)(2) of Revised Article 8.
Deposit Date: With respect to any Determination Date, the Business
Day preceding such Determination Date.
Depositary Agreement: The letter of representations dated
March 30, 1999 between the Issuer and the Depository Trust Company.
Determination Date: With respect to any Payment Date, the eighth
day of the calendar month in which such Payment Date occurs (or, if such
day is not a Business Day, the next Business Day).
Electronic Ledger: The electronic master record of the retail
installment contracts of the Servicer.
Eligible Account: (i) A segregated trust account that is
maintained with the corporate trust department of a depository institution,
or (ii) a segregated direct deposit account maintained with a depository
institution or trust company organized under the laws of the United States
of America, any of the States thereof or the District of Columbia having a
certificate of deposit, short-term deposit or commercial paper rating of at
least "A-l" by S&P and "P-1" by Moody's.
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Eligible Investments: Any one or more of the following types of
investments:
(a) direct interest-bearing obligations of, and
interest-bearing obligations guaranteed as to timely payment of
principal and interest by, the United States or any agency or
instrumentality of the United States the obligations of which are
backed by the full faith and credit of the United States;
(b) demand or time deposits in, certificates of deposit
of, demand notes of, or bankers' acceptances issued by any
depository institution or trust company organized under the laws
of the United States or any State and subject to supervision and
examination by federal and/or state banking authorities
(including, if applicable, the Indenture Trustee or any agent of
the Indenture Trustee acting in their respective commercial
capacities); provided, however, that the short-term unsecured debt
obligations of such depository institution or trust company at the
time of such investment, or contractual commitment providing for
such investment, are rated in one of the two highest short-term
rating categories by S&P and Moody's;
(c) repurchase obligations pursuant to a written
agreement (i) with respect to any obligation described in clause
(a) above, where the Indenture Trustee has taken actual or
constructive delivery of such obligation in accordance with
Section 4.1, and (ii) entered into with a depository institution
or trust company organized under the laws of the United States or
any State thereof, the deposits of which are insured by the
Federal Deposit Insurance Corporation and the short-term unsecured
debt obligations of which are rated in one of the two highest
short-term rating categories by S&P and Moody's (including, if
applicable, the Indenture Trustee, or any agent of the Indenture
Trustee acting in its commercial capacity);
(d) securities bearing interest or sold at a discount
issued by any corporation incorporated under the laws of the
United States or any State whose long-term unsecured debt
obligations are rated in one of the two highest long-term rating
categories by S&P and Moody's) at the time of such investment or
contractual commitment providing for such investment; provided,
however, that securities issued by any particular corporation
shall not be Eligible Investments with respect to the Collection
Account to the extent that an investment therein will cause the
then outstanding principal amount of securities issued by such
corporation and held in the Collection Account to exceed 10% of
the Eligible Investments held in the Collection Account (with
Eligible Investments held in the Collection Account valued at
par);
(e) commercial paper that (i) is payable in United States
dollars and (ii) is rated in one of the two highest short-term
rating categories by S&P and Moody's);
(f) money market mutual funds that are rated in the
highest credit rating category by Moody's and S&P; or
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(g) any other demand or time deposit, obligation,
security or investment as may be acceptable to the Rating Agency
and the Note Insurer, as evidenced by the prior written consent of
the Note Insurer and satisfaction of the Rating Agency Condition.
Any such Eligible Investments may be purchased by or through the Trustee or
any of its Affiliates.
Eligible Servicer: Paragon, the Backup Servicer or another Person
that, at the time of its appointment as Servicer, (i) is servicing a
portfolio of motor vehicle retail installment contracts and/or motor
vehicle installment loans comparable to the Receivables, (ii) is legally
qualified and has the capacity to service the Receivables, (iii) has
demonstrated the ability to service with reasonable skill and care a
portfolio of motor vehicle retail installment contracts and/or motor
vehicle installment loans similar to the Receivables, (iv) is qualified and
entitled to use, pursuant to a license or other written agreement, and
agrees to maintain the confidentiality of, the software that the Servicer
uses in connection with performing its duties and responsibilities under
this Agreement or otherwise has available software that is adequate to
perform its duties and responsibilities under this Agreement, (v) if an
Insurer Default shall have occurred and be continuing, has been approved by
Noteholders constituting a Note Majority and (vi) if an Insurer Default
shall not have occurred and be continuing, is acceptable to the Note
Insurer.
Entitlement Order: As defined in Section 8-102(a)(8) of Revised
Article 8.
Executive Officer: With respect to any corporation, the President,
Chief Financial Officer or any Vice President.
Federal Book Entry Security: An obligation (i) issued by the U.S.
Treasury, the Federal Home Loan Mortgage Corporation or the Federal
National Mortgage Association, or any other direct obligation of, or
obligation fully guaranteed as to timely payment or principal and interest
by, the United States of America, that is a book-entry security held
through the Federal Reserve System pursuant to Federal book entry
regulations, and (ii) the perfection of a security interest in which is
governed pursuant to federal regulations by Revised Article 8.
Final Scheduled Payment Date: means November 15, 2005 (or, if any
such day is not a Business Day, the next Business Day).
Financed Vehicle: A new or used automobile, light truck or sports
utility vehicle, together with all accessories thereto, securing or
purporting to secure an Obligor's indebtedness under a Receivable.
Financial Asset: As defined in Section 8-102(a)(9) of Revised
Article 8.
Financial Intermediary: As defined in Section 8-313(4) of Old
Article 8.
Funding Period: The period beginning on the Closing Date and ending on
the earliest to occur of (i) the date on which the Pre-Funded Amount (after
giving effect to any transfer of
10
Subsequent Receivables to the Trust on such date) is less than $100,000,
(ii) the date on which a Servicer Termination Event or an Event of Default
under the Indenture occurs and (iii) the close of business on the Payment
Date in May, 1999.
Governmental Authority: Any court or federal or state regulatory
body, administrative agency or other tribunal or other governmental
instrumentality.
Indemnification Agreement: means the Indemnification Agreement, dated
as of March 24, 1999, among the Note Insurer, the Servicer, the Seller,
Paragon, and Credit Suisse First Boston Corporation, as Underwriter.
Indenture: The Indenture, dated as of March 30, 1999 between the
Trust and the Indenture Trustee, as the same may be amended or supplemented
from time to time.
Indenture Trustee: The Person acting as Indenture Trustee under
the Indenture, its successors in interest and any successor Indenture
Trustee under the Indenture, as specified in a separate fee letter between
the Indenture Trustee and Paragon.
Indenture Trustee Fee: With respect to any Payment Date, the fee
payable to the Indenture Trustee for services rendered during the related
Collection Period, as specified in the schedule of fees issued by the
Indenture Trustee and acknowledged by Paragon on March 26, 1999, with a
copy delivered to the Note Insurer.
Independent Accountants: As defined in Section 3.11.
Initial Cutoff Date: The close of business on February 28, 1999.
Initial Cutoff Date Principal Balance: $76,548,946.54.
Initial Receivables: The Receivables listed on the Schedule of
Initial Receivables on the Closing Date.
Insolvency Event: With respect to a specified Person, (a) the
entry of a decree or order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its property
in an involuntary case under any applicable federal or state bankruptcy,
insolvency or other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official for such Person or for any substantial part of its property, or
ordering the winding-up or liquidation of such Person's affairs, or the
commencement of an involuntary case under the federal bankruptcy laws, as
now or hereinafter in effect, or another present or future federal or state
bankruptcy, insolvency or similar law and such case is not dismissed within
60 days; or (b) the commencement by such Person of a voluntary case under
any applicable federal or state bankruptcy, insolvency or other similar law
now or hereafter in effect, or the consent by such Person to the entry of
an order for relief in an involuntary case under any such law, or the
consent by such Person to the appointment of or taking possession by a
receiver,
11
liquidator, assignee, custodian, trustee, sequestrator or similar official
for such Person or for any substantial part of its property, or the making
by such Person of any general assignment for the benefit of creditors, or
the failure by such Person generally to pay its debts as such debts become
due, or the taking of action by such Person in furtherance of any of the
foregoing.
Instruments: As defined in Section 9-105(l)(i) of Revised Article 8.
Insurance Agreement: means the Insurance and Reimbursement Agreement,
dated as of March 30, 1999, among the Note Insurer, the Servicer, the Seller,
Paragon and the Issuer.
Insurance Policy: With respect to a Receivable, any insurance
policy benefiting the holder of the Receivable and providing loss or
physical damage, credit life, accident and health, theft, mechanical
breakdown or similar coverage with respect to the Financed Vehicle or the
related Obligor.
Insurer Default: The occurrence and continuance of any of the
following events:
(A) the Note Insurer shall have failed to make a payment
required under the Policy in accordance with its terms; or
(B) (i) the Superintendent of Insurance of the State of
New York (or any Person succeeding to the duties of such
Superintendent) (for the purpose of this paragraph (b), the
"Superintendent") shall apply for an order (1) pursuant to Section
7402 of the New York Insurance Law (or any successor provisions
thereto), directing him to liquidate the Note Insurer, (2)
pursuant to Section 7404 of the New York Insurance Law (or any
successor provision thereto), directing him to liquidate the
business of Note Insurer or (3) pursuant to Section 7416 of the
New York Insurance Law (or any successor provision thereto),
dissolving the corporate existence of Note Insurer and such
application shall not be dismissed or withdrawn during a period of
60 consecutive days or a court of competent jurisdiction enters an
order granting the relief sought; (ii) the Superintendent shall
determine that the Note Insurer is insolvent within the meaning of
Section 1309 of the New York Insurance Law; (iii) an Insolvency
Event shall have occurred with respect to the Note Insurer.
Interest Reserve Account: The account designated as the Interest
Reserve Account in, and which is established and maintained pursuant to,
Section 4.1(b).
Interest Reserve Requirement: With respect to the Payment Dates
occurring in April and May of 1999, the excess, if any, of (a) the sum of
the payments to be made pursuant to clauses (i), (iii) and (v) of Section
4.5(a) of this Agreement, over (b) the sum of (i) 30 days of interest
calculated at the Class A Interest Rate (44 days of interest for the April
1999 Payment Date) on an amount equal to the Noteholder's Percentage of the
outstanding Principal Balance of all Receivables held by the Trust as of
(x) with respect to the April 1999 Payment Date, the Initial Cutoff Date,
and (y) with respect to the Payment Date occurring in May of 1999, the
close of business on the last day of
12
the second preceding Collection Period, calculated at the Class A Interest
Rate, and (ii) any Pre- Funding Earnings to be transferred to the
Collection Account on such Payment Date; and with respect to the Payment
Date in April 1999, an additional amount equal to any amount deposited by
Paragon into the Interest Reserve Account pursuant to Section 4.6(d).
Investment Property: As defined in Section 9-115(1)(f) of Revised
Article 8.
Lien: Any security interest, lien, charge, pledge, preference,
equity or encumbrance of any kind, including tax liens, mechanics' liens
and any liens that attach by operation of law.
Lien Certificate: With respect to a Financed Vehicle, an original
certificate of title, certificate of lien or other notification issued by
the Registrar of Titles of the applicable state to a secured party that
indicates that the lien of the secured party on the Financed Vehicle is
recorded on the original certificate of title. In any jurisdiction in which
the original certificate of title is required to be given to the Obligor,
the term "Lien Certificate" shall mean only a certificate or notification
issued to a secured party.
Liquidated Receivable: With respect to any Collection Period, a
Receivable as to which the earliest of any of the following events has
occurred (i) the related Financed Vehicle has been repossessed and sold by
the Servicer, (ii) at least 10% of any Scheduled Payment has become 120 or
more days delinquent, or (iii) the Servicer has determined in good faith
that all amounts it expects to recover with respect thereto have been
received. Any Receivable that becomes a Purchased Receivable on or before
the related Deposit Date shall not be a Liquidated Receivable.
Liquidation Proceeds: With respect to a Liquidated Receivable, all
amounts realized with respect to such Receivable (other than amounts
withdrawn from the Reserve Account and drawings under the Policy) net of
(i) reasonable expenses incurred by the Servicer in connection with the
collection of such Receivable and the repossession and disposition of the
related Financed Vehicle and (ii) amounts that are required to be refunded
to the Obligor on such Receivable; provided, however, that the Liquidation
Proceeds with respect to any Receivable shall in no event be less than
zero.
Lockbox Account: As defined in Section 3.2(d).
Lockbox Agreement: As defined in Section 3.2(d).
Lockbox Bank: As defined in Section 3.2(d).
Monthly Records: All records and data maintained by the Servicer
with respect to the Receivables and the Obligors, including the following
with respect to each Receivable: the account number; the identity of the
originating Dealer; Obligor name, Obligor address; Obligor home phone
number; Obligor business phone number (if any); original Amount Financed or
Principal Balance; original total of payments; original term; Annual
Percentage Rate; current balance; pay off balance; current remaining term;
contract origination date; first payment date; final scheduled payment
date;
13
next payment due date; collateral description; days currently delinquent;
new/used classification; amount of the Scheduled Payment; and past due late
charges, if any.
Moody's: Xxxxx'x Investors Service, Inc., or any successor thereto.
Note: Any one of the Class A Notes executed on behalf of the Trust
and issued pursuant to the Indenture in substantially the form set forth in
Exhibit A to the Indenture, respectively.
Note Balance: Initially, $100,000,000 and, thereafter, an amount
equal to the initial Note Balance reduced by all amounts distributed to the
Class A Noteholders that are allocable to principal.
Note Insurer: shall mean MBIA Insurance Corporation, a New York
insurance company, or any successor thereto, as issuer of the Policy.
Note Majority: As of any date of determination, Holders of Notes
representing more than 50% of the Note Balance.
Note Register: As defined in the Indenture.
Noteholder or Holder: Registered holders of Notes.
Noteholders' Percentage: (a) 100% until and including the later of
September 15, 1999 and the first date when the Overcollateralization Amount
equals or exceeds the Target Overcollateralization Amount, (b) thereafter,
if September 15, 1999 is the later date in clause (a), zero until the
Overcollateralization Amount equals but does not exceed the Target
Overcollateralization Amount and (c) thereafter, 96%.
Notice for Payment: A written or telecopied notice from the Indenture
Trustee to the Note Insurer, as set forth in the Policy.
Obligor: With respect to a Receivable, the purchaser or the
co-purchasers of the related Financed Vehicle and any other Person or
Persons who are primarily or secondarily obligated to make payments under
such Receivable.
Officer's Certificate: A certificate signed by an Executive Officer.
Old Article 8: Article 8 of the UCC as in effect in the State of
Missouri as of the date hereof.
Old Article 8 Jurisdiction: A jurisdiction which has not adopted
Revised Article 8.
Opinion of Counsel: A written opinion of counsel reasonably
acceptable in form and substance and from counsel acceptable to the Issuer
and, if such opinion or a copy thereof is required to be delivered to the
Indenture Trustee, the Note Insurer or the Owner Trustee, reasonably
14
acceptable (as to form and substance) to the Indenture Trustee, the Note
Insurer or the Owner Trustee, respectively.
Other Assets: As defined in Section 10.11.
Overcollateralization Amount: With respect to any Payment Date,
the positive difference between (a) the Aggregate Principal Balance of the
Receivables as of the related Accounting Date and (b) the Note Balance,
after giving effect to distributions of principal to Noteholders pursuant
to clause (iv) of Section 4.5(a), including any Class A Redemption Amounts,
on such Payment Date.
Overfunded Interest Reserve Amount: (i) with respect to the April
1999 Payment Date, the excess of (a) the amount on deposit in the Interest
Reserve Account on such Payment Date (after giving effect to the transfer
of the Interest Reserve Requirement to the Collection Account on such
date), over (b) the sum of (x) estimated the payments to be made pursuant
to clauses (i) and (v) of Section 4.5(a) of this Agreement on the May 1999
Payment Date and (y) (I) 30 days of interest on the Noteholder's Percentage
of the Pre-Funded Amount as of the close of business on the Related
Accounting Date, calculated at the Class A Interest Rate, minus (II) the
product of (A) 1/360, (B) 2.5%, (C) 30 and (D) the amount on deposit in the
Pre-Funding Account (excluding Pre-Funding Earnings) as of the related
Accounting Date; and (ii) with respect to the May 1999 Payment Date, the
amount on deposit in the Interest Reserve Account on such Payment Date
(after giving effect to the transfer of the Interest Reserve Requirement to
the Collection Account on such date).
Owner Trustee: As defined in the Trust Agreement.
Owner Trustee Fee: With respect to any payment date, the fees
payable to the Owner Trustee for services rendered during the related
Collection Period, as specified in the fee agreement dated March 15, 1999
between the Owner Trustee and Paragon, with a copy delivered to the Note
Insurer.
Paragon: As defined in the first paragraph of this Agreement.
Payment Amount: With respect to a Payment Date, the sum of (i) the
Available Funds as of the related Determination Date, plus (ii) the
Deficiency Claim Amount, if any, with respect to such Payment Date.
Payment Date: The 15th day of each calendar month, or if such 15th
day is not a Business Day, the next Business Day, commencing April 15, 1999
and including the Final Scheduled Payment Date.
Permitted Lien: (i) the Lien in favor of the Trust, (ii) the Lien
in favor of the Indenture Trustee for the benefit of the Noteholders, (iii)
the restrictions on transferability imposed by the Related Documents and
(iv) inchoate Liens for taxes not yet payable and mechanics' or suppliers'
liens for services or materials supplied the payment of which is not yet
overdue.
15
Person: Any legal person, including any individual, corporation,
partnership, limited liability company, joint venture, estate, association,
joint stock company, trust, unincorporated organization or government or
any agency or political subdivision thereof.
Physical Property: Personal property constituting Instruments or
constituting "certificated securities" under Old Article 8, including
bankers' acceptances, commercial paper, negotiable certificates of deposit
and other obligations that are susceptible of physical delivery.
Policy: shall mean the note guaranty insurance policy number 28877,
dated March 30, 1999 issued by the Note Insurer to the Indenture Trustee for
the benefit of the Noteholders, including any endorsements thereto.
Policy Claim Amount: as defined in Section 5.4(a).
Pre-Computed Receivable: Any Receivable under which the portion of
a payment allocable to earned interest (which may be referred to in the
related Receivable as an add-on finance charge) and the portion allocable
to the Amount Financed is determined according to the sum of periodic
balances or the sum of monthly balances or any equivalent method or are
monthly actuarial receivables.
Preference Amount: shall mean any amounts previously distributed
to a Noteholder that are recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy with respect to Paragon, the
Seller or the Trust pursuant to the U.S. Bankruptcy Code (11 U.S.C.), as
amended from time to time, in accordance with a final nonappealable order
of a court having competent jurisdiction.
Pre-Funded Amount: With respect to the Funding Period and as of any
date, the amount on deposit in the Pre-Funding Account on such date.
Pre-Funding Account: The account designated as the Pre-Funding
Account in, and which is established and maintained pursuant to, Section 4.1(a).
Pre-Funding Earnings: As of any Payment Date, the investment earnings
on amounts on deposit in the Pre-Funding Account as of the close of business on
the related Accounting Date.
Premium: as defined in the Insurance Agreement.
Principal Balance: With respect to any Receivable, as of any date,
the Amount Financed minus (i) in the case of a Pre-Computed Receivable,
that portion of all payments (including all Scheduled Payments and any
prepayments in full or partial prepayment) received on or prior to such
date and allocable to principal in accordance with the actuarial method,
(ii) in the case of a Simple Interest Receivable, that portion of all
payments (including all Scheduled Payments and any prepayments in full or
partial prepayment) received on or prior to such date and allocable to
16
principal in accordance with the simple interest method, and (iii) any Cram
Down Loss in respect of such Receivable.
Purchase Amount: With respect to a Receivable, the Principal Balance
and all accrued and unpaid interest on the Receivable as of the Accounting Date
as of which such Receivable is to be purchased.
Purchased Receivable: With respect to any Collection Period, any
Warranty Receivable or Administrative Receivable as to which the Purchase
Amount has been deposited in the Collection Account by or on behalf of the
Seller or the Servicer, as applicable, on or before the related Deposit
Date and any Receivable purchased by the Servicer pursuant to Section 9.1
as to which the Purchase Amount has been deposited in the Collection
Account by or on behalf of the Servicer.
Rating Agency: Moody's and S&P, so long as they maintain a rating
on the Notes; and if Moody's or S&P no longer maintains a rating on the
Notes, such other nationally recognized statistical rating organization
selected by the Seller and (so long as an Insurer Default shall not have
occurred and be continuing) acceptable to the Note Insurer.
Rating Agency Condition: With respect to any action, that the
Rating Agency shall have been given prior notice thereof and that the
Rating Agency shall have notified Paragon, the Seller, the Servicer, the
Note Insurer and the Indenture Trustee in writing that such action will not
result in a reduction or withdrawal of the then current rating of the Class
A Notes.
Receivable: A retail installment contract (and related security
agreement) for a new or used automobile, light truck or sports utility
vehicle (and all accessories thereto) that is included in the Schedule of
Receivables, and all rights and obligations under such a contract.
Receivable File: The documents, electronic entries, instruments and
writings listed in Section 2.3 pertaining to a particular Receivable.
Receivables Purchase Agreement: The Receivables Purchase Agreement,
dated as of March 30, 1999 between the Seller and Paragon.
Record Date: The Business Day preceding the related Payment Date.
Registrar of Titles: With respect to any state, the Governmental
Authority responsible for the registration of, and the issuance of
certificates of title relating to, motor vehicles and liens thereon.
Reimbursement Amounts: Any payments made by the Note Insurer under
the Policy, any unpaid Premiums due the Note Insurer and any amounts paid
by the Note Insurer pursuant to Section 4.9 and all other amounts owing to
the Note Insurer pursuant to the Insurance Agreement. Reimbursement Amounts
shall be payable from the flow of funds in accordance with Section 4.5.
Reimbursement Amounts shall include interest on the above amounts
calculated at the "prime rate"
17
of interest set forth in The Wall Street Journal on the applicable
Determination Date ("Prime") plus 3%. Interest shall accrue on all
Reimbursement Amounts on a monthly basis, as of each Payment Date, at Prime
plus 3% assuming a 360-day year based on the actual number of days elapsed.
Related Documents: This Agreement, the Indenture, the Trust
Agreement, the Notes, the Receivables Purchase Agreement, the Insurance
Agreement, the Indemnification Agreement, the Policy, the Certificate of
Incorporation of Paragon Auto Receivables Corporation and the other
agreements executed in connection with the Closing. The Related Documents
executed by any party are referred to herein as "such party's Related
Documents," "its Related Documents" or by a similar expression.
Reserve Account: The Reserve Account established and maintained
pursuant to Section 4.1(a)(ii).
Reserve Account Required Amount: With respect to a Payment Date,
the greater of (a) the lesser of (i) 1% of the Aggregate Principal Balance
of the Initial Receivables as of the Initial Cutoff Date and the Aggregate
Principal Balance of the Subsequent Receivables as of their Subsequent
Cutoff Date(s) and (ii) the Note Balance and (b) 2.0% of the Aggregate
Principal Balance of the Receivables as of the related Accounting Date;
provided, however, that (1) if a Reserve Event has occurred and has not
been Deemed Cured as of such Payment Date, the Reserve Account Required
Amount shall be 6% of the Aggregate Principal Balance of the Receivables as
of the related Accounting Date, and (2) if a Trigger Event has occurred and
has not been Deemed Cured as of such Payment Date, the Reserve Account
Required Amount shall be 100% of the Aggregate Principal Balance of the
Receivables as of the related Accounting Date.
Responsible Officer: When used with respect to the Indenture
Trustee, any officer of the Indenture Trustee assigned by the Indenture
Trustee to administer its corporate trust affairs relating to the Trust.
When used with respect to any other Person that is not an individual, the
President, any Vice-President or Assistant Vice-President or the Controller
of such Person, or any other officer or employee having similar functions.
Reserve Event: With respect to any Determination Date, (a) the
three month average Default Ratio exceeds 7.00%, (b) the three month
average Delinquency Ratio exceeds 1.50%, or (c) the Cumulative Net Loss
Ratio exceeds the percentage shown opposite the number for the applicable
Determination Date (after the Closing Date) below:
18
||
Determination Date Cumulative Net Loss
(after the Closing Date) Ratio
-----
6th through 8th 0.75%
9th through 11th 1.35%
12th through 14th 2.00%
15th through 17th 2.50%
18th through 20th 3.35%
21st through 23rd 4.65%
24th through 26th 5.50%
27th through 29th 5.75%
30th and thereafter 5.90%
||
Revised Article 8: UCC, Revised Article 8, Investment Securities
(with conforming and miscellaneous amendments to Articles 1, 3, 4, 5, 9 and
10), 1994 Official Text, as adopted by the American Law Institute and the
National Conference of Commissioners on Uniform State Laws. Unless the
context requires otherwise, "Revised Article 8" means such version in the
form in which it is adopted in the applicable jurisdiction.
Revised Article 8 Jurisdiction: A jurisdiction which has adopted
Revised Article 8.
S&P: Standard & Poor's, a division of The XxXxxx-Xxxx Companies,
Inc., or any successor thereto.
Schedule of Receivables: The schedule of all retail installment
contracts sold and transferred to the Trust on the Closing Date attached
hereto as Schedule A, as supplemented by each Schedule of Subsequent
Receivables attached as Schedule A to each Subsequent Transfer Agreement,
as each may be amended from time to time, including to remove Purchased
Receivables pursuant to Section 2.6.
Schedule of Representations: The Schedule of Representations and
Warranties of the Seller attached as Schedule B.
Schedule of Subsequent Receivables: The schedule of all retail
installment contracts sold and transferred to the Trust pursuant to a
Subsequent Transfer Agreement which such schedule is
19
attached as Schedule A to such Subsequent Transfer Agreement and shall
supplement the Schedule of Initial Receivables.
Scheduled Payment: With respect to any Collection Period for any
Receivable, the amount set forth in such Receivable as required to be paid
by the Obligor thereon in such Collection Period. If, after the Closing
Date, the Obligor's obligation under a Receivable with respect to a
Collection Period has been modified so as to differ from the amount
specified in such Receivable as a result of (i) the order of a court in an
insolvency proceeding involving the Obligor, (ii) the Soldiers' and
Sailors' Civil Relief Act of 1940 or (iii) modifications or extensions of
the Receivable permitted by Section 3.2(b) or 3.2(c), the Scheduled Payment
with respect to such Collection Period shall refer to the Obligor's payment
obligation with respect to such Collection Period as so modified.
Securities Account: As defined in Section 8-501(a) of Revised
Article 8.
Securities Act: The Securities Act of 1933, as amended.
Securities Entitlement: As defined in Section 8-102(a)(17) of Revised
Article 8.
Securities Intermediary: As defined in Section 8-102(a)(14) of Revised
Article 8.
Seller: As defined in the first paragraph of this Agreement.
Servicer: Paragon Acceptance Corporation, a Delaware corporation,
its successor in interest pursuant to Section 7.2 or, after any termination
of the Servicer upon a Servicer Termination Event, the Backup Servicer or
any other successor Servicer.
Servicer Termination Event: An event described in Section 8.1.
Servicer's Certificate: With respect to each Determination Date, a
certificate, completed by and executed on behalf of the Servicer, in
accordance with Section 3.9, substantially in the form attached as Exhibit
A.
Simple Interest Receivable: Any Receivable under which principal and
interest is allocated according to the simple interest method.
Subsequent Cutoff Date: With respect to any Subsequent Receivable,
the close of business on any day at least seven Business Days before the
related Subsequent Transfer Date, but in no event later than April 30,
1999.
Subsequent Purchase Agreement: With respect to any Subsequent
Receivables, the agreement between Paragon and the Seller pursuant to which
Paragon transfers the Subsequent Receivables to the Seller, the form of
which is attached to the Receivables Purchase Agreement as Exhibit A.
20
Subsequent Receivable: Each of the Receivables sold to the Trust
pursuant to Section 2.2, which shall be listed on the Schedule of
Subsequent Receivables attached as Schedule A to the related Subsequent
Transfer Agreement.
Subsequent Reserve Account Deposit: With respect to any transfer
of Subsequent Receivables to the Trust pursuant to Section 2.2, an amount
equal to 2% of the Principal Balance of the Subsequent Receivables as of
the related Subsequent Cutoff Date.
Subsequent Transfer Agreement: As defined in Section 2.2(b).
Subsequent Transfer Date: The date specified as such in the
Subsequent Transfer Agreement.
Supplemental Servicing Fee: With respect to any Collection Period,
all administrative fees, expenses and charges paid by or on behalf of
Obligors, including any late fees, non-sufficient fund or returned check
fees and liquidation fees collected on the Receivables during such
Collection Period and reimbursement of any personal property taxes assessed
on repossessed Financed Vehicles paid by the Servicer.
Target Overcollateralization Amount: 4% of the Aggregate Principal
Balance of the Receivables.
Total Servicing Fee: The sum of the Basic Servicing Fee and the
Supplemental Servicing Fee.
Trigger Event: With respect to any Determination Date, (a) the
average of the Delinquency Ratios for the three preceding Collection
Periods exceeds 2%, (b) the occurrence of any of the events enumerated in
Section 6.1 of the Insurance Agreement or (c) the Cumulative Net Loss Ratio
exceeds the percentage shown opposite the number of the applicable
Determination Date (after the Closing Date) below:
21
||
Determination Date Cumulative Net Loss
(after the Closing Date) Ratio
-----
6th through 8th 1.00%
9th through 11th 1.60%
12th through 14th 2.30%
15th through 17th 3.00%
18th through 20th 3.65%
21st through 23rd 5.10%
24th through 26th 6.00%
27th through 29th 6.30%
30th and thereafter 6.50%
||
Trust: As defined in the first paragraph of this Agreement.
Trust Account: As defined in Section 4.1(b).
Trust Account Property: The Trust Accounts, all amounts and
investments held from time to time in any Trust Account (whether in the
form of deposit accounts, physical property, book-entry securities,
uncertificated securities or otherwise) and all proceeds of the foregoing.
Trust Agreement: The Trust Agreement, dated as of March 15, 1999,
between Paragon, Paragon Auto Receivables Corporation, as holder of the
Certificate, and Wilmington Trust Company, as Owner Trustee.
Trust Property: The property and proceeds conveyed pursuant to
Sections 2.1 and 2.2, together with certain monies paid after the Initial
Cutoff Date with respect to the Initial Receivables and after the
applicable Subsequent Cutoff Date with respect to the Subsequent
Receivables, the Policy, the Trust Accounts (including all Eligible
Investments therein and all proceeds therefrom), the rights of the Trust
under this Agreement and the rights of the Seller under the Receivables
Purchase Agreement.
Uncertificated Security: As defined in Section 8-102(a)(18) of Revised
Article 8.
UCC: The Uniform Commercial Code as in effect in the relevant
jurisdiction.
22
Warehouse Lender: CTS or any lender under a successor warehouse loan
facility.
Warehouse Liens: The security interests in the Receivables and
other Trust Property granted by Paragon as debtor/seller in favor of (i)
CTS as secured party/purchaser in connection with the Warehouse Credit and
Servicing Agreement, dated as of March 29, 1996, as amended, between
Paragon and CTS or (ii) the lender under any successor warehouse loan
facility.
Warranty Receivable: With respect to any Collection Period, a
Receivable that the Seller has become obligated to repurchase pursuant to
Section 2.6.
Section 1.2. Usage of Terms. With respect to all terms used in
this Agreement, the singular includes the plural and the plural includes
the singular, words importing one gender include the other gender,
references to "writing" include printing, typing, lithography and other
means of reproducing words in a visible form, references to agreements and
other contractual instruments include all subsequent amendments thereto or
changes therein entered into in accordance with their respective terms and
not prohibited by this Agreement, references to Persons include their
permitted successors and assigns, and the terms "include" or "including"
mean "include without limitation" or "including without limitation."
Section 1.3. Calculations. All calculations of the amount of
interest accrued on the Notes shall be made on the basis of a 360-day year
consisting of twelve 30-day months. All references to the Principal Balance
of a Receivable as of an Accounting Date shall refer to the close of
business on such day.
Section 1.4. Section References. All references to Articles,
Sections, paragraphs, subsections, exhibits and schedules shall be to such
portions of this Agreement unless otherwise specified.
Section 1.5. Action by or Consent of Noteholders. Whenever any
provision of this Agreement refers to action to be taken or consented to by
Noteholders, such provision shall be deemed to refer to Noteholders of
record as of the Record Date preceding the date on which such action is to
be taken or consent given by Noteholders. Solely for purposes of any action
to be taken or consented to by Noteholders, any Note registered in the name
of Paragon, the Seller or any Affiliate thereof shall be deemed not to be
outstanding; provided, however, that, solely for the purpose of determining
whether the Indenture Trustee is entitled to rely upon any such action or
consent, only Notes that the Indenture Trustee knows to be so owned shall
be so disregarded.
Section 1.6. No Recourse. No recourse may be taken, directly or
indirectly, under this Agreement or any certificate or other writing
delivered in connection herewith or therewith, against any stockholder,
officer or director, as such, of Paragon, the Seller, the Servicer, the
Note Insurer, the Backup Servicer, the Owner Trustee (in its individual or
trust capacities) or the Indenture Trustee or of any predecessor or
successor of Paragon, the Seller, the Servicer, the Note Insurer, the
Backup Servicer, the Owner Trustee (in its individual or trust capacities)
or the Indenture Trustee.
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Section 1.7. Nonpetition Covenant. Until one year and one day
following the payment in full of all amounts due in respect of the Notes,
none of the Seller, the Servicer, the Indenture Trustee, the Backup
Servicer, nor Paragon shall petition or otherwise invoke the process of any
court or government authority for the purpose of commencing or sustaining a
case against the Seller or the Trust under any federal or state bankruptcy,
insolvency or similar law or appointing a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of the Seller or
the Trust or any substantial part of its property, or ordering the winding
up or liquidation of the affairs of the Seller or the Trust.
ARTICLE II
CONVEYANCE OF RECEIVABLES; ACCEPTANCE BY INDENTURE TRUSTEE
Section 2.1. Conveyance of Receivables. (a) Subject to the terms
and conditions of this Agreement, the Seller hereby sells, transfers,
assigns and otherwise conveys to the Trust, without recourse (but without
limitation of its obligations under this Agreement): (1) all of the right,
title and interest of the Seller in and to the Initial Receivables and all
monies due or received thereunder or in respect thereof after the Initial
Cutoff Date (including all Liquidation Proceeds and recoveries received
with respect to such Receivables); and (2) all of the right, title and
interest of Paragon and the Seller in and to (i) the security interests of
Paragon and the Seller in the related Financed Vehicles and any other
interest of Paragon and the Seller in the related Financed Vehicles,
including the certificates of title with respect to such Financed Vehicles,
(ii) the Insurance Policies and any proceeds from any Insurance Policies
relating to the Receivables, the Obligors or the related Financed Vehicles,
including rebates or refunds of premiums, (iii) the rights of Paragon and
the Seller against Dealers with respect to the Receivables under the Dealer
Agreements and the Dealer Assignments, (iv) the rights of the Seller under
the Receivables Purchase Agreement, (v) all funds on deposit from time to
time in the Trust Accounts, including all income thereon and proceeds
thereof, and (vi) all proceeds and investments of any of the foregoing, all
present and future claims, demands, causes and choses in action in respect
of any or all of the foregoing and all payments on or under and all
proceeds of every kind and nature whatsoever in respect of any of the
foregoing.
(b) It is the intention of the Seller that the transfer and
assignment contemplated by this Agreement shall constitute a sale of the
Receivables and the other Trust Property from the Seller to the Trust and
the beneficial interest in and title to the Receivables and the other Trust
Property shall not be part of the Seller's estate in the event of the
filing of a bankruptcy petition by or against the Seller under any
bankruptcy law. If, notwithstanding the intent of the Seller, the transfer
and assignment contemplated hereby is held not to be a sale, the Seller
hereby grants a first priority security interest to the Trust in the
property referred to in this Section 2.1, and this Agreement shall
constitute a security agreement. The execution and delivery of this
Agreement shall constitute an acknowledgment by the Seller and the
Indenture Trustee on behalf of the Noteholders that, solely for income and
franchise tax purposes, until the Certificates are held by more than one
Person or the Trust is recharacterized as a separate entity, the Trust will
be disregarded as an entity separate from its owner and the Notes will be
treated as debt of the Seller. The powers granted and obligations
undertaken in this Agreement shall be construed so as to further such
intent.
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(c) The Seller hereby directs the Trust to, and the Trust does
hereby, accept the Trust Property conveyed by the Seller to the Trust
pursuant to this Section 2.1.
(d) The conveyance of the Receivables and the other Trust Property
with respect thereto shall take place at a closing (the "Closing") at the
offices of Xxxxx, Xxxxx & Xxxxx, 000 Xxxxx XxXxxxx Xxxxxx, Xxxxxxx,
Xxxxxxxx 00000 on the Closing Date.
Section 2.2. Conveyance of Subsequent Receivables. (a) Subject to
the conditions set forth in Section 2.2(b), the Seller, pursuant to the
terms contained herein and in one or more Subsequent Transfer Agreements,
shall sell, transfer, assign and otherwise convey to the Trust, without
recourse (but without limitation of its obligations under this Agreement),
(1) all of the right, title and interest of the Seller in and to the
Subsequent Receivables and all monies received thereunder or in respect
thereof after the related Subsequent Cutoff Date (including all Liquidation
Proceeds and recoveries received with respect to such Subsequent
Receivables); and (2) all of the right, title and interest of the Seller in
and to (i) the security interests of Paragon and the Seller in the related
Financed Vehicles and any other interest of Paragon and the Seller in the
related Financed Vehicles, including the certificates of title with respect
to such Financed Vehicles, (ii) the Insurance Policies and any proceeds
from any Insurance Policies relating to the Subsequent Receivables, the
Obligors or the related Financed Vehicles, including rebates or refunds of
premiums, (iii) the rights of Paragon and the Seller against Dealers with
respect to the Subsequent Receivables under the Dealer Agreements and the
Dealer Assignments, (iv) the rights of the Seller under the related
Subsequent Purchase Agreement, and (v) all proceeds and investments of any
of the foregoing, all present and future claims, demands, causes and choses
in action in respect of any or all of the foregoing and all payments on or
under and all proceeds of every kind and nature whatsoever in respect of
any of the foregoing.
(b) On any Subsequent Transfer Date, the Seller shall transfer to
the Trust the Subsequent Receivables sold to the Trust on such Subsequent
Transfer Date and the other property and rights related thereto described
in Section 2.2(a) upon the satisfaction of each of the following conditions
on or prior to such Subsequent Transfer Date:
(i) the Seller shall have provided the Owner Trustee on
behalf of the Trust, the Indenture Trustee, the Note Insurer,
Paragon and the Rating Agencies with an Addition Notice not later
than five Business Days prior to such Subsequent Transfer Date and
shall have provided any information reasonably requested by any of
them with respect to such Subsequent Receivables;
(ii) the Seller shall have delivered to the Owner Trustee
on behalf of the Trust, the Note Insurer and the Indenture Trustee
a duly executed (A) written assignment (including an acceptance by
the Owner Trustee on behalf of the Trust and the Indenture
Trustee) in substantially the form of Exhibit C (the "Subsequent
Transfer Agreement"), which shall include supplements to Schedule
A listing such Subsequent Receivables and which shall specify the
amount of the Subsequent Reserve Account Deposit, if any, and (B)
Subsequent Purchase Agreement;
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(iii) on the Subsequent Transfer Date, the Seller shall
have deposited in the Collection Account all collections received
in respect of such Subsequent Receivables received after the
related Subsequent Cutoff Date and prior to the second Business
Day preceding the Subsequent Transfer Date;
(iv) as of such Subsequent Transfer Date, neither Paragon
nor the Seller shall have been insolvent nor shall any of them
have been made insolvent by such transfer nor shall any of them be
aware of any pending insolvency;
(v) such addition shall not result in the Trust being
treated as an association (or a publicly traded partnership)
taxable as a corporation for federal or Delaware income tax
purposes;
(vi) the Funding Period shall not have terminated;
(vii) the Seller shall have delivered to the Owner
Trustee on behalf of the Trust, the Note Insurer, the Indenture
Trustee and Paragon an Officer's Certificate in the form of
Exhibit D confirming the satisfaction of each condition precedent
specified in this Section 2.2(b);
(viii) the Seller shall have delivered to the Rating
Agencies, Paragon, the Note Insurer and the Indenture Trustee an
Opinion of Counsel with respect to the transfer of such Subsequent
Receivables substantially similar to the form of the Opinion of
Counsel relating to certain bankruptcy, tax and security interest
matters delivered to the Rating Agencies, Paragon, the Note
Insurer and the Indenture Trustee on the Closing Date;
(ix) the Seller shall have deposited the Subsequent
Reserve Account Deposit, if any, in the Reserve Account;
(x) the Seller shall have delivered to the Indenture
Trustee the Receivable Files relating to the Subsequent
Receivables in accordance with Section 2.3;
(xi) each Rating Agency shall have notified the Seller,
the Indenture Trustee and the Note Insurer in writing that
following such transfer the rating on the Class A Notes will not
be withdrawn or reduced by such Rating Agency with and without
regard to the Policy;
(xii) the Receivables in the Trust, including such
Subsequent Receivables, shall meet the following criteria: (A) the
weighted average APR of the Receivables in the Trust shall not be
less than 10.60%; (B) no Receivables shall have an APR less than
6.75%; (C) the weighted average remaining term to maturity of the
Receivables on such Subsequent Transfer Date shall not be greater
than 64 months; (D) based upon the billing addresses of the
Dealers, not more than 10% of the aggregate Principal Balances of
the Receivables, including such Subsequent Receivables, are
located in any one state other than California,
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North Carolina, Virginia or Texas; (E) at least 65% of the
Receivables shall be secured by automobiles and sports utility
vehicles with a manufacturer's suggested retail price when new of
$20,000 or more; (F) Pre-Computed Receivables shall not exceed 12%
of the Receivables by Aggregate Principal Balance; (G) no more
than 45% of the Receivables shall have an original term of more
than 60 months but less than or equal to 72 months; (H) no
Receivable shall have a Principal Balance less than $1000 or in
excess of $85,000; and (I) no more than 4% of Aggregate Principal
Balance of the Receivables shall be rated "Credit Tier A" as
defined in Paragon's credit and collection policy;
(xiii) the Seller shall have taken any action required to
be taken by Paragon or the Seller to maintain the first priority
perfected ownership interest of the Trust and the first priority
security interest of the Indenture Trustee in the assets of the
Trust;
(xiv) no selection procedures adverse to the interests of
the Noteholders or the Note Insurer shall have been utilized in
selecting such Subsequent Receivables;
(xv) the representations and warranties set forth in
Section 2.5 to the extent applicable to the Subsequent Receivables
are true and correct in all material respects; and
(xvi) the Subsequent Cutoff Date related to any
Subsequent Transfer Date shall be no later than April 30, 1999.
(c) On such Subsequent Transfer Date, if all the conditions
specified in Section 2.2(b) have been satisfied as evidenced by the receipt
by the Owner Trustee on behalf of the Trust and the Indenture Trustee, as
applicable, of the documents and amounts described in Sections 2.2(b)(i),
(ii), (iii), (vii), (viii), (ix), (x) and (xi), the Owner Trustee on behalf
of the Trust shall accept the transfer of such Subsequent Receivables and
the Indenture Trustee shall pay to the Seller from the Pre- Funding Account
an amount equal to (i) the aggregate Principal Balance of the Subsequent
Receivables transferred to the Trust as of such date, minus (ii) the
Subsequent Reserve Account Deposit, if any, for such Subsequent Transfer
Date.
(d) The Seller covenants to transfer to the Trust pursuant to
Section 2.2(a) Subsequent Receivables with an aggregate Principal Balance
equal to up to $26,015,156.02; provided, however, that the sole remedy of
the Trust, the Indenture Trustee and the Noteholders with respect to a
failure of such covenant shall be to enforce the provisions of the
Receivables Purchase Agreement.
Section 2.3. Custody of Receivable Files.
(a) (i) Simultaneously with the execution and delivery of this
Agreement and the sale, transfer and assignment of the Initial Receivables
and the other Trust Property to the Trust pursuant to this Agreement, and
(ii) at least five days prior to the execution and delivery of a Subsequent
Purchase Agreement and the sale, transfer and assignment of any Subsequent
Receivables, the Seller shall deliver the following documents or
instruments in its possession to the Indenture Trustee (along with a list,
in a mutually acceptable electronic format, of the Receivables):
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(i) The fully executed original of the Receivable
(together with any agreements modifying the Receivable including
any extension agreements, provided that the Indenture Trustee
shall not have to certify the receipt of any such agreements
modifying or extending the Receivable);
(ii) The original credit application, or a copy thereof,
of each Obligor, fully executed by each such Obligor; and
(iii) The original Lien Certificate (when received) and
any such other documents, if any, that Paragon keeps on file in
accordance with its customary procedures indicating that the
Financed Vehicle is owned by the Obligor and subject to the
interest of Paragon as first lienholder or secured party
(including any Lien Certificate received by Paragon), or, if such
original Lien Certificate has not yet been received, a copy of the
application therefor, if any, showing Paragon as secured party.
(b) Upon payment in full of any Receivable, the Servicer shall
notify the Indenture Trustee pursuant to a certificate of an officer of the
Servicer in the form of Exhibit B hereto and shall request delivery of the
Receivable and the Receivable File to the Servicer. From time to time as
appropriate for servicing and enforcing any Receivable, the Indenture
Trustee shall, upon written request of an officer of the Servicer and
delivery to the Indenture Trustee of a receipt signed by such officer cause
the original Receivable and the Receivable File to be released to the
Servicer. The Servicer's receipt of a Receivable and/or a Receivable File
shall obligate the Servicer to return the original Receivable and
Receivable File to the Indenture Trustee when its need by the Servicer has
ceased, unless the Receivable is repurchased as described in Section 2.6 or
Section 3.7.
(c) The Indenture Trustee shall maintain the Receivable Files it
has received at its principal office or at such other office as shall from
time to time be identified to the Servicer, the Note Insurer and the Owner
Trustee, and the Indenture Trustee will hold such Receivable File in such
office on behalf of the Noteholders, clearly identified as being separate
from any other instruments and files on its records, including other
instruments and files held by the Indenture Trustee. Each Receivable shall
be identified on the books and records of the Indenture Trustee in a manner
that (i) is consistent with practices of a commercial bank acting in the
capacity of custodian with respect to similar receivables and (ii) is
otherwise necessary, as reasonably determined by the Indenture Trustee, to
comply with the terms of this Agreement.
Section 2.4. Conditions Precedent to Issuance by Trust. As
conditions to the Indenture Trustee's authentication and delivery of the
Notes on the Closing Date, the Indenture Trustee shall have received the
following on or before the Closing Date:
(a) The Schedule of Receivables certified by an Executive
Officer of the Seller;
(b) The acknowledgment (including an exceptions listing,
if any) of the Indenture Trustee stating that it holds the
Receivable Files relating to the Receivables and has reviewed
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such Receivable Files and such Receivable Files contain the items set
forth in Section 2.2(i)(ii) and (iii);
(c) Copies of resolutions of the Board of Directors of
the Seller approving the execution, delivery and performance of
the Seller's Related Documents and the transactions contemplated
hereby and thereby, certified by a Secretary or an Assistant
Secretary of the Seller;
(d) Copies of resolutions of the Board of Directors of
Paragon approving the execution, delivery and performance of its
Related Documents and the transactions contemplated hereby and
thereby, certified by a Secretary or an Assistant Secretary of
Paragon; and
(e) Opinions from Xxxxx, Xxxxx & Xxxxx and Xxxxx X.
Xxxxxxxx, General Counsel of Paragon, and Xxxxxx Xxxx, LLP with
respect to the Trust's first priority perfected security interest
or ownership interest in the Receivables and the Financed Vehicles
and copies of any financing statements which have been or will be
attached to such opinions.
Section 2.5. Representations and Warranties of Seller. By its
execution of this Agreement, the Seller makes the following representations
and warranties on which the Trust relies in accepting the Receivables and
the other Trust Property and in issuing the Notes, on which the Note
Insurer relies in issuing the Policy and on which the Indenture Trustee
relies in authenticating the Notes. Unless otherwise specified, such
representations and warranties speak as of the Closing Date with respect to
the Initial Receivables and as of the related Subsequent Transfer Date with
respect to the Subsequent Receivables acquired by the Trust on such
Subsequent Transfer Date, but shall survive the sale, transfer and
assignment of the Receivables to the Trust.
(a) Schedule of Representations. The representations and
warranties set forth on the Schedule of Representations are true and
correct in all material respects.
(b) Organization and Good Standing. The Seller has been duly
organized and is validly existing as a corporation under the laws of the
State of Delaware, with power and authority to own its properties and to
conduct its business as such properties are currently owned and such
business is currently conducted.
(c) Due Qualification. The Seller is duly qualified to do business
and has obtained all necessary licenses and approvals in all jurisdictions
where the failure to do so would have a material adverse effect on (i) the
Seller's ability to transfer the Receivables and the other Trust Property
to the Trust pursuant to this Agreement, (ii) the validity or
enforceability of the Receivables and the other Trust Property or (iii) the
Seller's ability to perform its obligations hereunder and under its Related
Documents.
(d) Power and Authority. The Seller has the power and authority to
execute and deliver its Related Documents and to carry out their terms; the
Seller has power and authority to sell and
29
assign the Receivables and the other Trust Property to be sold and assigned
to and deposited with the Trust by it and has duly authorized such sale and
assignment to and deposit with the Trust by all necessary corporate action;
and the execution, delivery and performance of the Seller's Related
Documents have been duly authorized by the Seller by all necessary
corporate action.
(e) Binding Obligations. The Seller's Related Documents, when duly
executed and delivered, shall constitute valid and binding obligations of
the Seller enforceable in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of creditors' rights generally
and by equitable limitations on the availability of specific remedies,
regardless of whether such enforceability is considered in a proceeding in
equity or at law.
(f) No Violation. The execution, delivery and performance by the
Seller of its Related Documents, the consummation of the transactions
contemplated thereby and the fulfillment of the terms thereof do not (i)
conflict with, result in any breach of any of the terms and provisions of,
or constitute (with or without notice or lapse of time) a default under,
the certificate of incorporation or bylaws of the Seller, or any indenture,
agreement, mortgage, deed of trust or other instrument to which the Seller
is a party or by which it or its properties are bound, (ii) result in the
creation or imposition of any Lien (other than Permitted Liens) upon any of
its properties pursuant to the terms of any such indenture, agreement,
mortgage, deed of trust or other instrument or (iii) to the Seller's
knowledge, violate any law, order, rule or regulation applicable to the
Seller of any Governmental Authority having jurisdiction over the Seller or
any of its properties.
(g) No Proceedings. There are no proceedings or investigations
pending or, to the Seller's knowledge, threatened against the Seller,
before any Governmental Authority having jurisdiction over the Seller or
its properties (i) asserting the invalidity of any of the Related
Documents, (ii) seeking to prevent the issuance of the Notes or the
consummation of any of the transactions contemplated by any of the Related
Documents, (iii) seeking any determination or ruling that would have a
material adverse effect on the performance by the Seller of its obligations
under, or the validity or enforceability of, any of the Related Documents,
or (iv) seeking to materially and adversely affect the federal income tax
or other federal, state or local tax attributes of the Notes or seeking to
impose any excise, franchise, transfer or similar tax upon the Notes or the
sale and assignment of the Receivables and the other Trust Property
hereunder.
(h) No Consents. No consent, approval, license, authorization or
order of, or declaration, registration or filing with, any Governmental
Authority or other Person is required to be made by the Seller in
connection with the execution, delivery or performance of its Related
Documents or the consummation of the transactions contemplated thereby,
except such as have been duly made, effected or obtained.
(i) Chief Executive Office. The chief executive office of the
Seller is at 27405 Puerta Real, Xxxxx 000, Xxxxxxx Xxxxx, Xxxxxxxxxx 00000.
30
(j) Dealer Recourse. The Seller shall execute and deliver such
other instruments and agreements as the Issuer may reasonably request in
order to enforce any rights against a Dealer assigned to the Seller under
the Receivables Purchase Agreement and assigned to the Issuer hereunder and
any obligations of a Dealer in connection with a Receivable including any
rights to recourse against such Dealer.
Section 2.6. Repurchase of Receivables Upon Breach of Warranty.
Upon discovery by any of the Seller, the Servicer, the Note Insurer or the
Indenture Trustee of a breach of any of the representations and warranties
of the Seller contained in Section 2.5(a) that has a material adverse
effect on the interests of the Noteholders or the Note Insurer in any
Receivable, the party discovering such breach shall give prompt written
notice to the others; provided, however, that the failure to give any such
notice shall not affect any obligation of the Seller under this Section
2.6; and provided, further, that the maximum aggregate purchase obligation
of the Seller with respect to breaches of the representation and warranty
made in clause (C) (II) of paragraph 4 of the Schedule of Representations
shall not exceed an amount equal to 10% of the aggregate Principal Balance
of all Receivables originated after January 31, 1999. As of the second
Accounting Date (or, at the Seller's election, the first Accounting Date)
following its discovery or its receipt of notice of any such breach the
Seller shall, unless such breach shall have been cured in all material
respects, repurchase such Receivable from the Trust and, on or before the
Deposit Date following such Accounting Date, the Seller shall pay the
Purchase Amount to the Trust pursuant to Section 4.4. The obligation of the
Seller to repurchase any Receivable as to which a breach has occurred and
is continuing shall, if such obligation is fulfilled, constitute the sole
remedy against the Seller for such breach available to the Trust, the Note
Insurer, the Noteholders or the Indenture Trustee on behalf of the
Noteholders. The Indenture Trustee shall not be under any duty or
obligation to investigate the occurrence of a breach of representation or
warranty in accordance with this Section 2.6.
Section 2.7. Indenture Trustee's Assignment of Receivables. With
respect to all Administrative Receivables and all Warranty Receivables
purchased by the Servicer or the Seller and all Receivables purchased by
the Servicer pursuant to Section 9.1, the Trust and the Indenture Trustee
shall take any and all actions reasonably requested by the Seller or the
Servicer, at the expense of the requesting party, to assign, without
recourse, representation or warranty, to the Seller or the Servicer, as
applicable, all the Trust's and the Indenture Trustee's right, title and
interest in and to such Purchased Receivables and the other Trust Property
with respect thereto, such assignment being an assignment outright and not
for security; and the Seller or the Servicer, as applicable, shall
thereupon own such Purchased Receivables and the other Trust Property
related thereto, free of any further obligation to the Trust, the Indenture
Trustee, the Note Insurer or the Noteholders with respect thereto. The
Trust and the Indenture Trustee shall take any and all actions reasonably
requested by the Seller or the Servicer, at the expense of the requesting
party, to release its security interest in each Purchased Receivable and in
the other Trust Property with respect thereto. The Servicer shall remove
each Purchased Receivable from the Schedule of Receivables and xxxx the
Electronic Ledger accordingly. The Servicer shall deliver any supplements
to the Schedule of Receivables to the Seller, the Note Insurer and the
Indenture Trustee. Notwithstanding the foregoing, although the Trust and
the Indenture Trustee, as applicable, shall be required to execute
31
documentation related to the foregoing, neither the Trust nor the Indenture
Trustee shall be required to prepare any such documentation.
Section 2.8. Collecting Lien Certificates. The Servicer shall use
its best efforts to collect each Lien Certificate from the applicable
Registrar of Titles as promptly as practicable and, pending receipt of each
Lien Certificate from such Registrar of Titles, shall supply written
evidence that each such Lien Certificate has been applied for. If a Lien
Certificate with respect to a Receivable showing Paragon as first
lienholder is not received by the Indenture Trustee within 180 days after
the Closing Date, the Servicer shall be obligated to purchase such
Receivable under Section 3.7.
ARTICLE III
ADMINISTRATION AND SERVICING OF RECEIVABLES
Section 3.1. Duties of the Servicer. The Servicer is hereby
authorized to act as agent for the Trust and in such capacity shall manage,
service, administer and make collections on the Receivables and perform the
other actions required by the Servicer under this Agreement. The Servicer
agrees that its servicing of the Receivables shall be carried out in
accordance with customary and usual procedures of institutions that service
motor vehicle retail installment contracts and, to the extent more
exacting, with the degree of skill and attention that the Servicer
exercises from time to time with respect to comparable motor vehicle
receivables that it services for itself or others. In performing such
duties, it shall comply with its current servicing policies and procedures,
as such servicing policies and procedures may be amended from time to time,
so long as such amendments shall not materially and adversely affect the
interests of the Noteholders, the Note Insurer or the Trust. The Servicer's
duties shall include collection and posting of all payments, responding to
inquiries of Obligors on the Receivables, investigating delinquencies,
sending statements or payment coupons to Obligors, monitoring the
collateral, accounting for collections and furnishing monthly and annual
statements to the Indenture Trustee and Note Insurer with respect to
distributions and performing the other duties specified herein. To the
extent consistent with the standards, policies and procedures otherwise
required hereby, the Servicer shall follow its customary standards,
policies and procedures and shall have full power and authority, acting
alone, to do any and all things in connection with management, servicing,
administration and collection that it may deem necessary or desirable.
Without limiting the generality of the foregoing, the Servicer is hereby
authorized and empowered by the Trust to execute and deliver, on behalf of
the Trust, any and all instruments of satisfaction or cancellation, or of
partial or full release or discharge, and all other comparable instruments,
with respect to the Receivables and the Financed Vehicles. The Servicer is
authorized to release Liens on Financed Vehicles granted by the Receivables
in order to collect insurance proceeds with respect thereto and to
liquidate such Financed Vehicles in accordance with its customary
standards, policies and procedures. The Servicer is hereby authorized to
commence, in its own name or in the name of the Trust or the Indenture
Trustee (provided that, if the Servicer is acting in the name of the
Indenture Trustee, it has obtained the Indenture Trustee's consent, which
consent shall not be unreasonably withheld), legal proceedings to enforce
Receivables or to commence or participate in any other legal proceedings
(including bankruptcy proceedings) relating to or involving Receivables,
Obligors or Financed Vehicles. If the Servicer commences or
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participates in such legal proceedings in its own name, the Trust shall
thereupon be deemed to have automatically assigned such Receivables to the
Servicer solely for purposes of commencing or participating in any such
proceedings as a party or claimant, and the Servicer is authorized and
empowered by the Trust to execute and deliver in the Servicer's name any
notices, demands, claims, complaints, responses, affidavits or other
documents or instruments in connection with any such proceedings. The
Indenture Trustee and the Trust shall furnish the Servicer with any powers
of attorney and other documents that the Servicer may reasonably request
and that the Servicer deems necessary or appropriate and take any other
steps that the Servicer may deem reasonably necessary or appropriate to
enable the Servicer to carry out its servicing and administrative duties
under this Agreement.
Section 3.2. Collection of Receivable Payments; Modifications of
Receivables; Lockbox Agreement. (a) Consistent with the standards, policies
and procedures required by this Agreement, the Servicer shall make
reasonable efforts to collect all payments called for under the terms and
provisions of the Receivables as and when the same shall become due, and
shall follow such collection procedures as it follows with respect to
comparable motor vehicle receivables that it services for itself or others
and otherwise act with respect to the Receivables, the Dealer Agreements,
the Dealer Assignments, the Insurance Policies and the other Trust Property
in such manner as will, in the reasonable judgment of the Servicer,
maximize the amount to be received by the Trust with respect thereto. The
Servicer is authorized in its discretion to waive any prepayment charge,
late payment charge or any other similar fees that may be collected in the
ordinary course of servicing any Receivable.
(b) The Servicer may not at any time agree to a modification or
amendment of a Receivable without the consent of the Note Insurer (which
consent shall not be unreasonably withheld) unless such modification or
amendment shall (i) change the Obligor's regular due date to another date
within fifteen calendar days of such due date, or (ii) re-amortize the
Scheduled Payments on the Receivable following a partial prepayment of
principal, or (iii) add an additional Obligor to the Receivable.
(c) The Servicer may grant payment extensions on, or other
modifications or amendments to, a Receivable (in addition to those
modifications permitted by Section 3.2(b)) in accordance with its customary
procedures if the Servicer believes in good faith that such extension,
modification or amendment is necessary to avoid a default on such
Receivable, will maximize the amount to be received by the Trust with
respect to such Receivable and is otherwise in the best interests of the
Noteholders and the Note Insurer; provided, however, that, with respect to
any Receivable, the Servicer shall not grant more than one extension per
year, shall not grant extensions for a cumulative total of more than six
months during the life of the Receivable, and such extension shall not
extend beyond the Final Scheduled Payment Date; and provided, further, that
the Servicer shall not grant modifications that lower the interest rate on
the Receivables for more than 5% of the sum of (i) the Aggregate Principal
Balance of the Receivables as of the Initial Cutoff Date and (ii) the
Aggregate Principal Balance of the Subsequent Receivables as of their
respective Subsequent Cutoff Dates.
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(d) Paragon has entered into a Lockbox Agreement, dated as of
November 25, 1997 (as it may be amended or supplemented from time to time,
the "Lockbox Agreement"), with NationsBank, N.A. (the "Lockbox Bank"),
ContiTrade Services L.L.C., the Servicer and Norwest Bank Minnesota,
National Association as agent for the various parties described therein.
The bank account established pursuant to the Lockbox Agreement (the
"Lockbox Account") shall be maintained at the Lockbox Bank. The Servicer
shall direct funds in the Lockbox Account relating to the Receivables to be
transferred on a daily basis to the Collection Account established in the
name of Norwest Bank Minnesota, National Association, as Indenture Trustee.
All payments made by or on behalf of Obligors or received by the Servicer
with respect to the Receivables and all Liquidation Proceeds received by
the Servicer with respect to the Receivables shall be sent to the Lockbox
Account within one Business Day after receipt. The Servicer shall transfer
such payments, and any payments made by Obligors directly to the Lockbox
Account, to the Collection Account within two Business Days after such
funds are deposited into the Lockbox Account; provided, however, that if
the Servicer is not able to transfer any such payment within two Business
Days because the Obligor or Receivable to which such payment relates is not
readily identifiable, the Servicer shall use its best efforts to identify
the related Obligor or Receivable as soon as practicable and shall transfer
such payment within one Business Day after identifying such related Obligor
or Receivable.
(e) Notwithstanding any third-party processing arrangement, or any
of the provisions of this Agreement relating to any third-party processing
arrangement, the Servicer shall remain obligated and liable to the Trust,
the Note Insurer and the Noteholders for servicing and administering the
Receivables and the other Trust Property in accordance with the provisions
of this Agreement without diminution of such obligation or liability by
virtue thereof.
Section 3.3. Realization Upon Receivables. (a) Consistent with the
standards, policies and procedures required by this Agreement, the Servicer
shall use its best efforts to repossess (or otherwise comparably convert
the ownership of) and liquidate any Financed Vehicle securing a Receivable
with respect to which the Servicer has determined that payments thereunder
are not likely to be resumed, as soon as practicable after default on such
Receivable but in no event later than the date on which at least 10% of a
Scheduled Payment has become 120 days delinquent; provided, however, that
the Servicer may elect not to repossess a Financed Vehicle within such time
period if in its good faith judgment it determines that the proceeds
ultimately recoverable with respect to such Receivable would be increased
by forbearance; and provided, further, that the Servicer shall not be
required to repossess a Financed Vehicle if prohibited by law. The Servicer
is authorized to follow such customary practices and procedures as it shall
deem necessary or advisable, consistent with the standard of care required
by Section 3.1, which practices and procedures may include reasonable
efforts to realize upon any recourse to Dealers, the sale of the related
Financed Vehicle at public or private sale, the submission of claims under
an Insurance Policy and other actions by the Servicer in order to realize
upon a Receivable. The foregoing is subject to the provision that, in any
case in which the Financed Vehicle shall have suffered damage, the Servicer
shall not expend funds in connection with any repair or towards the
repossession of such Financed Vehicle unless it shall determine in its
discretion that such repair or repossession shall increase the proceeds of
liquidation of the related Receivable by an amount greater than the amount
34
of such expenses. The Servicer shall be entitled to recover all reasonable
expenses incurred by it in the course of repossessing and liquidating a
Financed Vehicle into cash proceeds, but only out of the cash proceeds of
such Financed Vehicle, any deficiency obtained from the Obligor or any
amounts received from the related Dealer, which amounts in reimbursement
may be retained by the Servicer (and shall not be required to be deposited
as provided in Section 3.2(d) to the extent of such expenses). All amounts
received upon liquidation of a Financed Vehicle (less reasonable expenses
as described in the preceding sentence) shall be remitted directly by the
Servicer as provided in Section 3.2(d).
(b) If the Servicer elects to commence a legal proceeding to
enforce a Dealer Agreement or Dealer Assignment, the act of commencement
shall be deemed to be an automatic assignment from the Trust and the
Indenture Trustee to the Servicer of the rights under such agreements for
purposes of collection only. If, however, in any enforcement suit or legal
proceeding it is held that the Servicer may not enforce any such agreement
on the grounds that it is not a real party in interest or a Person entitled
to enforce such agreement, the Trust or the Indenture Trustee, at the
Servicer's expense, or the Seller, at the Seller's expense, shall take such
steps as the Servicer deems reasonably necessary to enforce such agreement,
including bringing suit in its name or the name of the Seller, the Trust or
the Indenture Trustee for the benefit of the Noteholders and the Note
Insurer. All amounts recovered shall be remitted directly by the Servicer
as provided in Section 3.2(d).
Section 3.4. Insurance. The Servicer may xxx to enforce or collect
upon the Insurance Policies in its own name or as agent of the Trust. If
the Servicer elects to commence a legal proceeding to enforce an Insurance
Policy, the act of commencement shall be deemed to be an automatic
assignment of the rights of the Trust and the Indenture Trustee under such
Insurance Policy to the Servicer for purposes of collection only. If,
however, in any enforcement suit or legal proceeding it is held that the
Servicer may not enforce an Insurance Policy on the grounds that it is not
a real party in interest or a holder entitled to enforce the Insurance
Policy, the Trust or the Indenture Trustee, at the Servicer's expense, or
the Seller, at the Seller's expense, shall take such steps as the Servicer
deems reasonably necessary to enforce such Insurance Policy, including
bringing suit in its name or the name of the Trust and the Indenture
Trustee for the benefit of the Noteholders.
Section 3.5. Maintenance of Security Interests in Vehicles. (a)
Consistent with the policies and procedures required by this Agreement, the
Servicer shall take such steps on behalf of the Trust as are necessary to
maintain perfection of the first priority security interest created by each
Receivable in the related Financed Vehicle, including the recording,
registering, filing, re-recording, re-filing and re-registering of all
security agreements, financing statements and continuation statements as
are necessary to maintain the security interest under the respective
Receivables. The Trust and the Indenture Trustee each hereby authorize the
Servicer, and the Servicer agrees, to take any and all steps necessary to
re-perfect such security interest in the name of Paragon or the Seller on
behalf of the Trust as necessary because of the relocation of a Financed
Vehicle or for any other reason. If the assignment of a Receivable to the
Trust and the pledge of such Receivables to the Indenture Trustee are
insufficient without a notation on the related Financed Vehicle's
certificate of title or without fulfilling any additional administrative
requirements under the laws of the state in
35
which the Financed Vehicle is located, to perfect a security interest in
the related Financed Vehicle in favor of the Indenture Trustee, the
Servicer hereby agrees that Paragon's designation as the secured party on
the certificate of title is in its capacity as agent of the Indenture
Trustee, solely for purposes of providing perfection of the security
interest therein.
(b) Upon the occurrence of a Trigger Event, the Note Insurer may
instruct the Indenture Trustee and the Servicer to take or cause to be
taken such action as may, in the opinion of the Note Insurer, be necessary
to perfect or re-perfect the security interests in the Financed Vehicles
securing the Receivables in the name of the Indenture Trustee by amending
the title documents of such Financed Vehicles or by such other reasonable
means as may, in the opinion of the Note Insurer, be necessary or prudent.
Paragon hereby agrees to pay all expenses related to such perfection or re-
perfection and to take all action necessary therefor. In addition, prior to
the occurrence of a Trigger Event, the Note Insurer may instruct the
Indenture Trustee and the Servicer to take or cause to be taken such action
as may, in the opinion of the Note Insurer, be necessary to perfect or
re-perfect the security interest in the Financed Vehicles underlying the
Receivables in the name of the Indenture Trustee, including by amending the
title documents of such Financed Vehicles or by such other reasonable means
as may, in the opinion of the Note Insurer, be necessary or prudent;
provided, however, that if the Note Insurer requests that the title
documents be amended prior to the occurrence of a Trigger Event, all
out-of-pocket expenses of Paragon, the Servicer, the Trust or the Indenture
Trustee in connection with such action shall be reimbursed to Paragon, the
Servicer, the Trust or the Indenture Trustee, as applicable, by the Note
Insurer. Each of Paragon and the Seller hereby appoints the Indenture
Trustee as its attorney-in-fact to take any and all steps required to be
performed by Paragon or the Seller, as applicable, pursuant to this Section
3.5(b), including execution of certificates of title or any other documents
in the name and stead of Paragon or the Seller, as applicable, and the
Indenture Trustee hereby accepts such appointment. Notwithstanding the
foregoing, although the Indenture Trustee shall be required to execute
documentation relating to the foregoing, the Indenture Trustee shall not be
required to prepare any such documentation.
Section 3.6. Covenants, Representations and Warranties of
Servicer. By its execution and delivery of this Agreement, the Servicer
makes the following representations, warranties and covenants on which the
Trust relies in accepting the Receivables and issuing the Notes, on which
the Note Insurer relies in issuing the Policy and on which the Indenture
Trustee relies in authenticating the Notes. Unless otherwise specified,
such representations and warranties speak as of the Closing Date with
respect to the Initial Receivables and as of the related Subsequent
Transfer Date with respect to the Subsequent Receivables acquired by the
Trust on such Subsequent Transfer Date, but shall survive the sale,
transfer and assignment of the Receivables to the Trust.
(a) The Servicer covenants as follows:
(i) Liens in Force. The Financed Vehicle securing each
Receivable shall not be released in whole or in part from the
security interest granted by the Receivable, except upon payment
in full of the Receivable or as otherwise contemplated herein;
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(ii) No Impairment. The Servicer shall do nothing to
impair the rights of the Trust, the Indenture Trustee, the Note
Insurer or the Noteholders in the Receivables or the other Trust
Property. The Servicer shall take such action as is necessary
(including the filing of appropriate UCC financing statements and
continuation statements) to preserve the rights of the Trust, the
Indenture Trustee and the Noteholders in the Receivables and the
other Trust Property;
(iii) No Amendments. The Servicer shall not extend or
otherwise amend the terms of any Receivable, except in accordance
with Section 3.2; and
(iv) Restrictions on Liens. The Servicer shall not (A)
create, incur or suffer to exist, or agree to create, incur or
suffer to exist, or consent to cause or permit in the future (upon
the happening of a contingency or otherwise) the creation,
incurrence or existence of any Lien on, or restriction on
transferability of, the Receivables, except for Permitted Liens or
(B) sign or file under the UCC of any jurisdiction any financing
statement that names the Servicer as a debtor, or sign any
security agreement authorizing any secured party thereunder to
file such financing statement, with respect to the Receivables,
except in each case any such instrument solely securing the rights
and preserving the Lien of the Indenture Trustee for the benefit
of the Noteholders and the Note Insurer or as otherwise permitted
under this Agreement or the Related Documents.
(v) Servicing of Receivables. The Servicer shall service
the Receivables as described in this Agreement until such time as
it has been replaced by a successor Servicer.
(b) The Servicer represents, warrants and covenants as of the
Closing Date as to itself:
(i) Organization and Good Standing. The Servicer has been
duly organized and is validly existing as a corporation in good
standing under the laws of its jurisdiction of organization, with
power and authority to own its properties and to conduct its
business as such properties are currently owned and such business
is currently conducted;
(ii) Due Qualification. The Servicer is duly qualified to
do business as a foreign corporation in good standing and has
obtained all necessary licenses and approvals in all jurisdictions
where the failure to do so would have a material adverse effect on
its ability to perform its obligations under its Related Documents
and its ability to enforce the Receivables and the other Trust
Property;
(iii) Power and Authority. The Servicer has the power and
authority to execute and deliver this Agreement and its Related
Documents and to carry out its terms and their terms, and the
execution, delivery and performance of the Servicer's Related
Documents have been duly authorized by the Servicer by all
necessary corporate action;
(iv) Binding Obligation. The Servicer's Related
Documents, when duly executed and delivered, shall constitute
legal, valid and binding obligations of the Servicer
37
enforceable in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency,
reorganization, or other similar laws affecting the enforcement of
creditors' rights generally and by equitable limitations on the
availability of specific remedies, regardless of whether such
enforceability is considered in a proceeding in equity or at law;
(v) No Violation. The execution, delivery and performance
by the Servicer of its Related Documents, the consummation of the
transactions contemplated thereby and the fulfillment of the terms
thereof do not (A) conflict with, result in any breach of any of
the terms and provisions of, or constitute (with or without notice
or lapse of time) a default under, the certificate of
incorporation or bylaws of the Servicer, or any indenture,
agreement, mortgage, deed of trust or other instrument to which
the Servicer is a party or by which it or its properties are
bound, (B) result in the creation or imposition of any Lien upon
any of its properties pursuant to the terms of any such indenture,
agreement, mortgage, deed of trust or other instrument, or (C) to
the best of the Servicer's knowledge, violate any law, order, rule
or regulation applicable to the Servicer of any Governmental
Authority having jurisdiction over the Servicer or any of its
properties;
(vi) No Proceedings. There are no proceedings or
investigations pending or, to the best of the Servicer's
knowledge, threatened against the Servicer, before any
Governmental Authority having jurisdiction over the Servicer or
its properties (A) asserting the invalidity of any of the Related
Documents, (B) seeking to prevent the issuance of the Notes or the
consummation of any of the transactions contemplated by the
Related Documents, (C) seeking any determination or ruling that
would have a material adverse effect on the performance by the
Servicer of its obligations under, or the validity or
enforceability of, any of the Related Documents or (D) seeking to
materially and adversely affect the federal income tax or other
federal, state or local tax attributes of the Notes or seeking to
impose any excise, franchise, transfer or similar tax upon the
Notes or the sale and assignment of the Receivables hereunder; and
(vii) No Consents. No consent, license, approval,
authorization or order of, or registration, declaration or filing
with, any Governmental Authority or other Person is required to be
made in connection with the execution, delivery or performance of
the Servicer's Related Documents or the consummation of the
transactions contemplated thereby, except such as have been duly
made, effected or obtained.
(c) The Servicer covenants and agrees:
(i) Backup Servicer and Indenture Trustee
Indemnification. The Servicer shall defend, indemnify and hold the
Owner Trustee, the Trust, the Note Insurer, the Backup Servicer
and the Indenture Trustee and any officers, directors, employees
or agents of the Owner Trustee, the Note Insurer, the Backup
Servicer and the Indenture Trustee harmless against any and all
claims, losses, penalties, fines, forfeitures, legal fees and
related costs, judgments and any other costs, fees and expenses
that the Owner Trustee, the Note Insurer,
38
the Backup Servicer and the Indenture Trustee may sustain in
connection with claims asserted at any time by third parties
against the Owner Trustee, the Trust, the Note Insurer, the Backup
Servicer or the Indenture Trustee that result from (A) any willful
or negligent act taken or omission by the Servicer (other than
errors in judgment) or (B) a material breach of any
representations of the Servicer in this Section 3.6; and
(ii) The Servicer shall make arrangements for the prompt
and safe transfer of, and the Servicer shall provide to the Backup
Servicer, all necessary servicing files and records, including (as
deemed necessary by the Backup Servicer at such time): (A) account
documentation, (B) servicing system tapes (in a format acceptable
to the Backup Servicer), (C) account payment history, (D)
collections history and (E) the trial balances, in each case
reflecting all applicable loan information, as of the following
dates: (1) the close of business on the day immediately preceding
conversion to the Backup Servicer, (2) on an annual basis
commencing April 1, 2000, and (3) following a Reserve Event,
monthly.
Section 3.7. Purchase of Receivables Upon Breach of Covenant. Upon
discovery by the Servicer, the Note Insurer or the Indenture Trustee of (a)
a breach of any of the covenants set forth in Sections 3.5 or 3.6(a) that
has a material adverse effect on the interests of the Note Insurer or the
Noteholders in any Receivable, or (b) a failure to obtain a Lien
Certificate within 180 days as described in Section 2.8, the party
discovering such breach shall give prompt written notice to the others and
the Owner Trustee; provided, however, that the failure to give any such
notice shall not affect any obligation of the Servicer under this Section
3.7. As of the second Accounting Date (or, at the Servicer's election, the
first Accounting Date) following its discovery or receipt of notice of any
such breach, the Servicer shall, unless such breach shall have been cured
in all material respects, purchase from the Trust the Receivables affected
by such breach and, on or before the related Deposit Date, the Servicer
shall pay the related Purchase Amount to the Trust pursuant to Section 4.4.
The obligation of the Servicer to purchase any Receivable with respect to
which such a breach has occurred and is continuing shall, if such
obligation is fulfilled, constitute the sole remedy against the Servicer
for such breach available to the Trust, the Noteholders, the Note Insurer
or the Indenture Trustee on behalf of Noteholders. The Indenture Trustee
shall not be under any duty or obligation to investigate the occurrence of
a breach of a covenant in accordance with this Section 3.7.
Section 3.8. Total Servicing Fee; Payment of Certain Expenses by
Servicer; Backup Servicer Fee. On each Payment Date, the Servicer shall be
entitled to receive out of the Collection Account the Total Servicing Fee
for the related Collection Period pursuant to Section 4.5. The Servicer
shall be required to pay all expenses incurred by it in connection with its
activities under this Agreement, including taxes imposed on the Servicer,
costs and expenses of independent accountants, expenses incurred in
connection with distributions and reports made by the Servicer to the
Noteholders or the Note Insurer. On each Payment Date, the Backup Servicer
shall be entitled to receive out of the Collection Account the Backup
Servicer Fee for the related Collection Period pursuant to Section 4.5.
39
Section 3.9. Servicer's Certificate. No later than 2:00 p.m., New
York City time, on each Determination Date, the Servicer shall deliver to
the Indenture Trustee, the Owner Trustee, the Note Insurer, the Backup
Servicer, and the Rating Agency a Servicer's Certificate executed by a
Responsible Officer of the Servicer containing, among other things, (i) all
information necessary to enable the Indenture Trustee to make any
withdrawal required by Section 5.3, to give any notice required by Section
5.4 and to make the distributions required by Section 4.5, (ii) all
information necessary to enable the Indenture Trustee to send the
statements required by Section 4.8 to Noteholders, (iii) a listing of all
Purchased Receivables purchased as of the related Deposit Date with respect
to the related Collection Period, (iv) all information necessary to enable
the Indenture Trustee to reconcile all deposits to, and withdrawals from,
the Collection Account for the related Collection Period and Payment Date,
including the accounting required by Section 4.7 and (v) the Premium
payable to the Note Insurer. Receivables purchased by the Servicer or
repurchased by the Seller on or before the related Deposit Date and each
Receivable that became a Liquidated Receivable or that was paid in full
during the related Collection Period shall be identified by account number
(as set forth in the Schedule of Receivables). In addition to the
information set forth in the preceding sentence, the Servicer's Certificate
shall also contain the following information: (a) the Delinquency Ratio and
the Cumulative Net Loss Ratio for such Determination Date; (b) whether any
Trigger Event has occurred as of such Determination Date; and (c) whether
any Trigger Event that may have occurred as of a prior Determination Date
is Deemed Cured as of such Determination Date. A copy of such certificate
may be obtained by any Noteholder by a request in writing to the Indenture
Trustee addressed to the Corporate Trust Office.
Section 3.10. Annual Statement as to Compliance; Notice of
Servicer Termination Event. (a) The Servicer shall deliver to the Indenture
Trustee, the Owner Trustee, the Note Insurer, the Backup Servicer, and the
Rating Agency, on or before April 30 (or 120 days after the end of the
Servicer's fiscal year, if other than December 31) of each year, beginning
on April 30, 2000, an officer's certificate signed by any Responsible
Officer of the Servicer, dated as of the preceding December 31 (or other
applicable date), stating that (i) a review of the activities of the
Servicer during the preceding 12-month period (or such other period as
shall have elapsed from the Closing Date to the date of the first such
certificate) and of its performance under this Agreement has been made
under such officer's supervision, and (ii) to such officer's knowledge,
based on such review, the Servicer has fulfilled all its obligations under
this Agreement throughout such period, or, if there has been a default in
the fulfillment of any such obligation, specifying each such default known
to such officer and the nature and status thereof.
(b) The Servicer shall deliver to the Indenture Trustee, the Owner
Trustee, the Note Insurer, the Backup Servicer and the Rating Agency,
promptly after having obtained knowledge thereof, but in no event later
than two Business Days thereafter, written notice in an Officers'
Certificate of any event that, with the giving of notice or lapse of time,
would become a Servicer Termination Event under Section 8.1.
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Section 3.11. Annual Independent Accountants' Report. The Servicer
shall cause KPMG Peat Marwick LLP or another firm of nationally recognized
independent certified public accountants reasonably acceptable to the Note
Insurer (the "Independent Accountants"), who may also render other services
to the Servicer, to deliver to the Servicer, on or before April 30 (or 120
days after the end of the Servicer's fiscal year, if other than December
31) of each year, beginning on April 30, 2000, with respect to the twelve
months ended the immediately preceding December 31 (or such other period as
shall have elapsed from the Closing Date to the date of such certificate),
a statement (the "Accountants' Report") addressed to the Servicer, to the
effect that such firm has audited the books and records of the Servicer and
issued its report thereon and that: (1) such audit was made in accordance
with generally accepted auditing standards, and accordingly included such
tests of the accounting records and such other auditing procedures as such
firm considered necessary in the circumstances; and (2) the firm is
independent of the Servicer within the meaning of the Code of Professional
Ethics of the American Institute of Certified Public Accountants. The
Servicer shall also cause the Independent Accountants to deliver to the
Servicer on such dates a letter to the effect that certain agreed upon
procedures were performed relating to three randomly selected Servicer's
Certificates, and, except as disclosed in such report, no errors or
exceptions were found in the Servicer's Certificate(s) based on the
performance of such agreed upon procedures. The Servicer shall deliver a
copy of the Accountants' Report, within 15 days of receipt, to the Seller,
the Owner Trustee, the Indenture Trustee, the Note Insurer, the Backup
Servicer and the Rating Agency.
If such firm requires the Indenture Trustee or the Owner Trustee
to agree to the procedures performed by such firm, the Servicer shall
direct the Indenture Trustee in writing to so agree; it being understood
and agreed that the Indenture Trustee or the Owner Trustee will deliver
such letter of agreement in conclusive reliance upon the direction of the
Servicer, and the Indenture Trustee or the Owner Trustee shall not make any
independent inquiry or investigation as to, and shall have no obligation or
liability in respect of, the sufficiency, validity or correctness of such
procedures. Delivery of such reports, information and documents to the
Indenture Trustee is for informational purposes only, and the Indenture
Trustee's receipt of such shall not constitute constructive notice of any
information contained therein or determinable from information contained
therein, including the Servicer's compliance with any of its covenants
hereunder.
Section 3.12. Access to Certain Documentation and Information
Regarding Receivables. The Servicer shall provide to representatives of the
Indenture Trustee, the Backup Servicer, the Note Insurer and the Owner
Trustee reasonable access to the documentation regarding the Receivables.
In each case, such access shall be afforded without charge but only upon
reasonable request and during normal business hours. Nothing in this
Section 3.12 shall derogate from the obligation of the Servicer to observe
any applicable law prohibiting disclosure of information regarding the
Obligors, and the failure of the Servicer to provide access as a result of
such obligation shall not constitute a breach of this Section 3.12.
Section 3.13. Monthly Tape; Certain Duties of Backup Servicer. (a)
On or before each Determination Date, the Servicer shall deliver to the
Indenture Trustee and the Backup Servicer a computer tape or a diskette or
any other electronic transmission in a format acceptable to the Indenture
Trustee and the Backup Servicer containing the information with respect to
the
41
Receivables as of the preceding Accounting Date necessary for preparation
of the Servicer's Certificate relating to the next Determination Date.
(b) Prior to each such Payment Date, the Backup Servicer shall use
such tape or diskette (or other means of electronic transmission acceptable
to the Indenture Trustee and the Backup Servicer) and review the related
Servicer's Certificate in order to perform the following:
(i) confirm that the Servicer's Certificate is complete on
its face;
(ii) calculate and confirm the Class A Principal Payment
Amount and the Class A Interest Payment Amount for the next
Payment Date; and
(iii) verify the mathematical accuracy of any
calculations on the face of the Servicer's Certificate.
(c) In the event of any discrepancy between the information set
forth in (ii) or (iii) in clause (b) above as calculated by the Servicer
from that determined or calculated by the Backup Servicer, the Backup
Servicer shall promptly report such discrepancy to the Servicer, the Note
Insurer and the Indenture Trustee. In the event of a discrepancy as
described in the preceding sentence, the Servicer and the Backup Servicer
shall attempt to reconcile such discrepancies prior to the related Payment
Date, but in the absence of a reconciliation, distributions on the related
Payment Date shall be made by the Indenture Trustee consistent with the
information provided by the Servicer and the Servicer and the Backup
Servicer shall attempt to reconcile such discrepancies prior to the next
Determination Date. If the Backup Servicer and the Servicer are unable to
reconcile discrepancies with respect to such Servicer's Certificate by the
next Determination Date that falls in April, July, October or January, the
Servicer shall cause the Independent Accountants, at the Servicer's
expense, to examine the Servicer's Certificate and attempt to reconcile the
discrepancies at the earliest possible date. The effect, if any, of such
reconciliation shall be reflected in the Servicer's Certificate for such
next succeeding Determination Date.
(d) Other than the duties specifically set forth in this
Agreement, the Backup Servicer shall have no obligations hereunder,
including to supervise, verify, monitor or administer the performance of
the Servicer. The Backup Servicer shall have no liability for any actions
taken or omitted by the Servicer, except for the express duties of the
Backup Servicer set forth herein.
Section 3.14. Insurance. The Servicer shall maintain customary
amounts of insurance coverage, including errors and omissions liability,
fidelity bond, commercial general liability, property, directors and
officers liability and workers' compensation coverage. The Servicer shall
be entitled to self-insure with respect to such insurance so long as the
long-term unsecured debt obligations of the Servicer are rated in the
second highest long-term debt category by each Rating Agency.
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Section 3.15. Compliance with Laws. The Servicer shall comply with
the requirements of all applicable laws (including any federal or state
laws regulating the collection or enforcement of consumer debts and/or the
foreclosure upon, and repossession of, vehicles) in the discharge of its
duties and obligations hereunder.
ARTICLE IV
PAYMENTS; STATEMENTS TO NOTEHOLDERS
Section 4.1. Trust Accounts. (a) On or prior to the Closing Date,
the Servicer or the Indenture Trustee on behalf of and at the direction of
the Servicer shall establish the Collection Account, the Reserve Account,
the Pre-Funding Account and the Interest Reserve Account each in the name
of the Indenture Trustee for the benefit of the Noteholders and the Note
Insurer. The Collection Account, the Reserve Account, the Pre-Funding
Account and the Interest Reserve Account shall each be an Eligible Account
and shall each be a segregated trust account initially established with the
Indenture Trustee.
(b) All amounts held in the Collection Account, the Pre-Funding
Account, Interest Reserve Account and the Reserve Account (collectively,
the "Trust Accounts"), shall, to the extent permitted by applicable laws,
rules and regulations, be invested by the Indenture Trustee, as directed by
the Servicer in writing (or, if the Servicer fails to provide such
direction, amounts in the Collection Account shall be invested in
investments described in clause (f) of the definition of Eligible
Investments), in Eligible Investments that mature not later than one
Business Day prior to the Payment Date for the Collection Period to which
such amounts relate. Any such written direction shall certify that any such
investment is authorized by this Section 4.1. Investments in Eligible
Investments shall be made in the name of the Indenture Trustee on behalf of
the Noteholders and the Note Insurer, and such investments shall not be
sold or disposed of prior to their maturity. Each and every investment of
funds in a Trust Account shall be made in Eligible Investments held by a
financial institution that is a Securities Intermediary:
(i) in an account pursuant to an agreement with such
financial institution, governed by the law of the State of
Missouri or any other jurisdiction which has adopted Revised
Article 8, that requires such financial institution to (A) comply
with Entitlement Orders pertaining to such account originated by
the Indenture Trustee, in its capacity as trustee under the
Indenture, without further consent of the Seller, (B) not enter
into any agreement which grants "control" (as defined in Section
8-106 of Revised Article 8) of such account (or any interest or
property therein) to any Person other than the Indenture Trustee,
(C) subordinate any security interest, banker's lien, right of
setoff or other similar right which such financial institution may
have in such account to the interest of the Indenture Trustee and
(D) expressly treat each item of property as a Financial Asset and
such account as a Securities Account; and
(ii) with respect to which such institution has noted
the Indenture Trustee's interest therein by book entry or
otherwise, and with respect to which a confirmation of the
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Indenture Trustee's interest has been sent to the Indenture
Trustee by such institution, provided that such Eligible
Investments are (A) specific "certificated securities" (as defined
under Old Article 8), and (B) either (1) in the possession of such
institution or (2) in the possession of a Clearing Corporation,
registered in the name of such Clearing Corporation, not endorsed
for collection or surrender or any other purpose not involving
transfer, not containing any evidence of a right or interest
inconsistent with the Indenture Trustee's security interest
therein, and held by such Clearing Corporation in an account of
such institution.
Subject to the other provisions hereof, the Indenture Trustee shall have
sole control over each such investment and the income thereon, and any
certificate or other instrument evidencing any such investment, if any,
shall be delivered directly to the Indenture Trustee or its agent, together
with each document of transfer, if any, necessary to transfer title to such
investment to the Indenture Trustee in a manner that complies with this
Section 4.1. All interest, dividends, gains upon sale and other income
from, or earnings on, investments of funds in the Collection Account shall
be deposited in the Collection Account and distributed on the next Payment
Date pursuant to Section 4.5. All interest, dividends, gains upon sale and
other income from or earnings on, investments of funds in the Reserve
Account shall be deposited in the Reserve Account and distributed on the
next Payment Date pursuant to Section 4.5. All interest, dividends, gains
upon sale and other income from or earnings on, investments of funds in the
Pre-Funding Account shall be deposited in the Collection Account pursuant
to Section 4.5(a). If the Indenture Trustee is given instructions to invest
funds in a Trust Account in investments other than investments of the type
described in clause (f) of the definition of "Eligible Investments", the
Person giving such instructions agrees to assist the Indenture Trustee in
complying with the requirements herein with respect to such investments.
(c) With respect to the Trust Account Property:
(i) any Trust Account Property that is held in
deposit accounts shall be held solely in the name of the Indenture
Trustee in accounts which satisfy clause (ii) of the definition of
Eligible Account; each such deposit account shall be subject to
the exclusive custody and control of the Indenture Trustee, and
the Indenture Trustee shall have sole signature authority with
respect thereto;
(ii) any Trust Account Property that constitutes
Physical Property (other than a "certificated security" as defined
under Old Article 8) shall be delivered to the Indenture Trustee
in accordance with paragraph (i) of the definition of "Delivery"
and shall be held, pending maturity or disposition, solely by the
Indenture Trustee;
(iii) any Trust Account Property that
constitutes a "certificated security" as defined under Old Article
8 that will, upon compliance with the procedures set forth in
paragraph (ii) of the definition of "Delivery," be held by a
Person located in an Old Article 8 Jurisdiction, shall be
delivered to the Indenture Trustee in accordance with paragraph
(ii) of the definition of "Delivery" and shall be held, pending
maturity or disposition, solely by the Indenture Trustee or a
Financial Intermediary acting solely for the Indenture Trustee;
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(iv) any Trust Account Property that constitutes
a Certificated Security that will, upon compliance with the
procedures set forth in paragraph (iii) of the definition of
"Delivery," be held by a Person located in a Revised Article 8
Jurisdiction shall be delivered to the Indenture Trustee in
accordance with paragraph (iii) of the definition of "Delivery"
and shall be held, pending maturity or disposition, solely by the
Indenture Trustee;
(v) any Trust Account Property that constitutes
an "uncertificated security" under Old Article 8 (and that is not
a Federal Book Entry Security) and where the issuer thereof is
organized in an Old Article 8 Jurisdiction, shall be delivered to
the Indenture Trustee in accordance with paragraph (iv) of the
definition of "Delivery" and shall be maintained, pending maturity
or disposition, through continued registration of the Indenture
Trustee's (or its nominee's) ownership of such security;
(vi) any such Trust Account Property that
constitutes an Uncertificated Security (including any investments
in money market mutual funds, but excluding any Federal Book Entry
Security) and where the issuer thereof is organized in a Revised
Article 8 Jurisdiction, shall be delivered to the Indenture
Trustee in accordance with paragraph (v) of the definition of
"Delivery" and shall be maintained, pending maturity or
disposition, through continued registration of the Indenture
Trustee's (or its nominee's) ownership of such security; and
(vii) with respect to any Trust Account Property
that constitutes a Federal Book Entry Security, the Indenture
Trustee shall maintain and obtain Control over such property.
Effective upon Delivery of any Trust Account Property in the form
of Physical Property, book-entry securities or uncertificated
securities, the Indenture Trustee shall be deemed to have
represented that it has purchased such Trust Account Property for
value, in good faith and without notice of any adverse claim
thereto.
(d) On the Closing Date, the Servicer shall deposit in the
Collection Account (i) all Scheduled Payments and prepayments of Initial
Receivables with respect to which available funds have been received in the
Lockbox Account after the Initial Cutoff Date and prior to the second
Business Day preceding the Closing Date and (ii) all Liquidation Proceeds
and proceeds of Insurance Policies realized in respect of Financed Vehicles
related to the Initial Receivables and applied by the Servicer after the
Initial Cutoff Date.
Section 4.2. Servicer Reimbursements. The Servicer shall be
entitled to be reimbursed from amounts on deposit in, or to be deposited
in, the Collection Account with respect to a Collection Period for amounts
previously deposited in the Collection Account but later determined by the
Servicer to have resulted from mistaken deposits or postings or checks
returned for insufficient funds. The amount to be reimbursed hereunder
shall be paid to the Servicer on the related Payment Date pursuant to
Section 4.5(a)(ii). Upon the request of the Indenture Trustee or the Note
Insurer,
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the Servicer shall certify any amount to be reimbursed hereunder and shall
supply such other information as may be necessary in the opinion of the
Indenture Trustee and the Note Insurer to verify the accuracy of such
certification. The Indenture Trustee shall not be under any obligation to
make the request described in the immediately preceding sentence.
Section 4.3. Application of Collections. For purposes of this
Agreement, all collections for a Collection Period shall be applied by the
Servicer as follows:
(a) With respect to each Receivable, payments by or on
behalf of the Obligor (other than Supplemental Servicing Fees with
respect to such Receivable, to the extent collected) shall be
applied to interest and principal thereof to reduce the balance
thereof in accordance with the terms of such Receivable.
(b) With respect to each Receivable that has become a
Purchased Receivable on any Deposit Date, the Purchase Amount
shall be applied to interest and principal on the Receivable in
accordance with Section 4.3(a) as if the Purchase Amount had been
paid by the Obligor on the related Accounting Date. Nothing
contained herein shall relieve any Obligor of any obligation
relating to any Receivable.
(c) All amounts collected that are payable to the
Servicer as Supplemental Servicing Fees hereunder shall be
deposited in the Collection Account and paid to the Servicer in
accordance with Section 4.5(a)(ii).
(d) All payments by or on behalf of an Obligor received
with respect to any Purchased Receivable after the Accounting Date
preceding the Deposit Date on which the Purchase Amount was paid
by the Seller or the Servicer shall be paid to the Seller or the
Servicer, respectively, and shall not be included in the Available
Funds.
Section 4.4. Additional Deposits. On or before each Deposit Date,
the Servicer or the Seller shall deposit into the Collection Account the
aggregate Purchase Amounts with respect to Purchased Receivables. All such
deposits of Purchase Amounts shall be made in immediately available funds.
On or before each Payment Date, the Indenture Trustee shall remit to the
Collection Account any amounts to be transferred into the Collection
Account by the Indenture Trustee from the Reserve Account pursuant to
Section 5.3. Upon receipt, the Indenture Trustee shall remit to the
Collection Account any amounts delivered to the Indenture Trustee by the
Note Insurer.
Section 4.5. Payments. (a) On each Payment Date, the Indenture
Trustee shall (based solely on the information contained in the Servicer's
Certificate delivered with respect to the related Determination Date)
transfer from (x) the Pre-Funding Account to the Collection Account, in
immediately available funds, the Pre-Funding Earnings on deposit in the
Pre-Funding Account with respect to the immediately preceding Collection
Period, (y) the Interest Reserve Account to Collection Account, in
immediately available funds, the Interest Reserve Requirement, if any and
(z) distribute the following amounts from the Collection Account in the
following order of priority:
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(i) first, from the Payment Amount (excluding the Policy
Claim Amount), to the Indenture Trustee, any accrued and unpaid
Indenture Trustee Fees and any other accrued and unpaid expenses
of the Indenture Trustee; to the Backup Servicer, any accrued and
unpaid Backup Servicer Fees and any other accrued and unpaid
expenses of the Backup Servicer; and to the Owner Trustee, any
accrued and unpaid Owner Trustee Fees and any accrued and unpaid
expenses of the Owner Trustee in each case in accordance with the
Related Documents; provided, however, that such accrued and unpaid
expenses payable to the Indenture Trustee, Backup Servicer (other
than transition expenses which are governed by Section 8.3) and
Owner Trustee shall not exceed an amount to be agreed by the Note
Insurer; and, provided, further, that the limitation on expenses
payable pursuant to this clause (i) shall not apply after a Event
of Default under the Indenture (as such term is defined in the
Indenture);
(ii) second, from the remaining Payment Amount (excluding
the Policy Claim Amount), to the Servicer, any accrued and unpaid
Basic Servicing Fees and Supplemental Servicing Fees with respect
to the related Collection Period and the amounts specified in
Section 4.2 to the extent the Servicer has not reimbursed itself
in respect of such amounts pursuant to Section 4.7 and to the
extent the Servicer has not in its discretion chosen to
subordinate its Basic Servicing Fee and Supplemental Servicing
Fee, in whole or in part, pursuant to clause (ix);
(iii) third, from the remaining Payment Amount, to the
Class A Noteholders the Class A Interest Payment Amount, for such
Payment Date;
(iv) fourth, from the remaining Payment Amount, until the
Note Balance has been reduced to zero, the Class A Principal
Payment Amount to the Class A Noteholders;
(v) fifth, from the remaining Payment Amount, any
amounts, including the Premium, owing to the Note Insurer under
the Insurance Agreement and not previously paid;
(vi) sixth, from the remaining Payment Amount, to the
Reserve Account to the extent necessary to make the amount on
deposit in the Reserve Account equal to the Reserve Account
Required Amount (after giving effect to all withdrawals from the
Reserve Account on such date);
(vii) seventh, from the remaining Payment Amount, any
amounts due to the Indenture Trustee, Owner Trustee, Backup
Servicer or successor Servicer relating to accrued and unpaid
expenses not previously paid pursuant to clause (i) or (ii) above,
as applicable;
(viii) eighth, from the remaining Payment Amount,
together with any funds in the Reserve Account in excess of the
Reserve Account Required Amount, until the Overcollateralization
Amount equals the Target Overcollateralization Amount as of the
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related Accounting Date, to the Class A Noteholders, as an
additional payment of principal on such Notes, an amount equal to
the difference between the Target Overcollateralization Amount as
of the related Accounting Date and the Overcollateralization
Amount;
(ix) ninth, from the remaining Payment Amount, at the
Servicer's discretion, any accrued and unpaid Basic Servicing Fees
and Supplemental Servicing Fees not paid pursuant to clause (ii)
above; and
(x) tenth, from the remaining Payment Amount, together
with any funds in the Reserve Account in excess of the Reserve
Account Required Amount, to the Certificateholder(s).
(b) Subject to Section 9.1 respecting the final payment upon
retirement of each Note, and provided that the Indenture Trustee has
received the applicable Servicer's Certificate, on each Payment Date, the
Indenture Trustee shall distribute to each Noteholder and
Certificateholder(s) of record on the preceding Record Date either (i) by
wire transfer, in immediately available funds to the account of such holder
at a bank or other entity having appropriate facilities therefor, if such
Noteholder holds Notes representing at least $1,000,000 in Note Balance as
of the Closing Date, and if such Noteholder shall have provided to the
Indenture Trustee appropriate instructions not later than 15 days prior to
such Payment Date, or (ii) by check mailed to such Noteholder at the
address of such Holder appearing in the Note Register, the amount of the
Class A Payment Amount, as applicable, allocable to such Holder to the
extent funds therefor are distributed under Section 4.5(a). The Indenture
Trustee agrees to provide notice of final payment to the
Certificateholder(s) in accordance with Section 9.1 of the Trust Agreement.
Any amounts deposited into the Collection Account pursuant to
Section 4.9 with respect to a Payment Date and any Policy Claim Amounts
received by the Indenture Trustee as a result of a claim under the Policy
with respect to such Payment Date shall be applied by the Indenture Trustee
solely to make the payments referred to in clauses (i) through (iv) above,
in that order of priority, but only to the extent that the Payment Amount
(other than any Policy Claim Amounts) with respect to such Payment Date,
after application as provided above, was insufficient to make such payment.
In addition, pursuant to Section 4.9 if the Note Insurer pays any amounts
to the Indenture Trustee with respect to a Payment Date in connection with
the Note Insurer's election to pay, as provided in the Policy, all or a
portion of any shortfalls in the Payment Amount (other than any Policy
Claim Amounts) with respect to such Payment Date available to distribute
the amounts referred to in clauses (i) through (ii) above, the Indenture
Trustee shall distribute the amounts so received from the Note Insurer as
provided in such clauses.
Section 4.6. Pre-Funding Account and Interest Reserve Account. (a)
On the Closing Date, the Indenture Trustee shall deposit, in trust for the
benefit of the Noteholders, $26,015,156.02 into the Pre-Funding Account
from the proceeds of the sale of the Notes. On each Subsequent Transfer
Date, upon satisfaction of the conditions set forth in Section 2.2(b) with
respect to such transfer, the Servicer shall instruct the Indenture Trustee
in writing: (i) first, to withdraw from the Pre-Funding Account an amount
equal to the aggregate Principal Balance of the related Subsequent
Receivables
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sold to the Trust on such Subsequent Transfer Date (calculated as of the
related Subsequent Cutoff Date); (ii) second, to deposit into the Reserve
Account, from the amount withdrawn from the Pre- Funding Account pursuant
to clause (i) above, the Subsequent Reserve Account Deposit for such
Subsequent Transfer Date; and (iii) third, to distribute the amount
remaining from the amount withdrawn from the Pre-Funding Account pursuant
to clause (i) above to or upon the order of the Seller. On each
Determination Date, the Servicer shall instruct (in the related Servicer's
Certificate) the Indenture Trustee to transfer the Pre-Funding Earnings on
deposit in the Pre-Funding Account for the related Collection Period to the
Collection Account.
(b) On the Determination Date related to the May 1999 Payment
Date, after giving effect to any reductions in the Pre-Funded Amount on
such Payment Date pursuant to Section 4.6(a) and the transfer of the
Pre-Funded Earnings into the Collection Account on such Payment Date
pursuant to Section 4.6(a), the Servicer shall instruct the Indenture
Trustee (in the related Servicer's Certificate) to withdraw from the
Pre-Funding Account the remaining Pre-Funded Amount and deposit such amount
in the Collection Account for distribution of the Class A Redemption Amount
pursuant to Section 4.6(c).
(c) On the Payment Date determined in accordance with Section
4.6(b), the Indenture Trustee shall pay to the Class A Noteholders from the
sources identified in Section 4.6(b), as a payment of principal on the
Class A Notes, the Class A Redemption Amount, if any.
(d) On the Closing Date, the Indenture Trustee shall deposit, in
trust for the benefit of the Noteholders, $260,000 in the Interest Reserve
Account from the proceeds of the sale of the Notes. On the Determination
Date relating to each of the April 1999 and May 1999 Payment Dates, the
Servicer shall instruct the Indenture Trustee in the related Officer's
Certificate to transfer from the Interest Reserve Account to the Collection
Account the Interest Reserve Requirement, if any, for such Payment Date. On
the Determination Date relating to the April 1999 Payment Date, Paragon
shall pay to the Indenture Trustee for deposit into the Interest Reserve
Account an amount equal to the excess, if any, of (i) the amount required
to make the payments in clauses (i), (iii) and (v) of Section 4.5 of this
Agreement, over (ii) Available Funds (excluding the Policy Claim Amount)
available to make payments pursuant to clauses (i), (iii) and (v) of
Section 4.5 of this Agreement on the April 1999 Payment Date.
(e) On the Determination Date relating to the April 1999 and May
1999 Payment Dates, the Servicer shall instruct the Indenture Trustee in
the related Officer's Certificate to withdraw from the Interest Reserve
Account and pay to the Seller on such Payment Date an amount equal to the
Overfunded Interest Reserve Amount for such Payment Date. On the first
Payment Date following the termination of the Funding Period (including any
Payment Date on which the Funding Period terminates), any amounts remaining
in the Interest Reserve Account, after taking into account the transfers on
such Payment Date described in Section 4.6(d), shall be paid to the Seller,
and the Interest Reserve Account shall be closed.
Section 4.7. Net Deposits. So long as no Servicer Termination Event
has occurred and is continuing, the Servicer may make the remittances to be
made by it pursuant to Sections 4.2 net of
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amounts (which amounts may be netted prior to any such remittance for a
Collection Period) to be distributed to it pursuant to Section 4.2;
provided, however, that the Servicer shall account for all of such amounts
in the related Servicer's Certificate as if such amounts were deposited and
distributed separately; and provided, further, that if an error is made by
the Servicer in calculating the amount to be deposited or retained by it,
with the result that an amount less than required is deposited in the
Lockbox Account or the Collection Account, the Servicer shall make a
payment of the deficiency to the Lockbox Account or the Collection Account,
as applicable, immediately upon becoming aware, or receiving notice from
the Indenture Trustee, of such error.
Section 4.8. Statements to Noteholders. (a) On each Payment Date,
the Indenture Trustee shall include with each payment to each Noteholder, a
statement prepared by the Servicer (which statement shall also be provided
to the Note Insurer, the Certificateholder(s) and to the Rating Agency),
based on information in the Servicer's Certificate delivered on the related
Determination Date pursuant to Section 3.9, setting forth for such Payment
Date and the Collection Period relating to such Payment Date the following
information:
(i) in the case of the Class A Noteholders, the amount of
such payment allocable to principal;
(ii) in the case of the Class A Noteholders, the amount
of such payment allocable to interest;
(iii) the amount of such payment payable out of amounts
withdrawn from the Reserve Account and the amount remaining in the
Reserve Account;
(iv) the Note Balance, as applicable (after giving effect
to all payments made on such Payment Date);
(v) the amount of fees paid by the Trust with respect to
such Collection Period;
(vi) the amount of the Class A Interest Carryover
Shortfall and Class A Principal Carryover Shortfall, if any, on
such Payment Date and the change in such amounts from those of the
prior Payment Date;
(vii) the Class A Note Factor as of such Payment Date
(after giving effect to payments made on such Payment Date);
(viii) the Delinquency Ratio, the Default Ratio and
Cumulative Net Loss Ratio for such Determination Date;
(ix) whether any Reserve Event or Trigger Event has
occurred as of such Determination Date;
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(x) whether any Reserve Event or Trigger Event that may
have occurred as of a prior Determination Date is Deemed Cured as
of such Determination Date;
(xi) the Policy Claim Amount, if any, for such Payment
Date.
(xii) the calculation of the amounts to be reimbursed to
the Note Insurer on the related Payment Date for prior payments by
the Note Insurer; and
(xiii) whether, to the knowledge of the Servicer, an Insurer
Default has occurred and is continuing; and
(xiv) for Payment Dates during the Funding Period, the
Principal Balance of all Subsequent Receivables transferred to the
Trust during the related Collection Period and the remaining
Pre-Funded Amount, after giving effect to the payments made on
such Payment Date;
(xv) for the Payment Date on or immediately following the
end of the Funding Period, the Class A Redemption Amount, if any;
and
(xvi) the Overcollateralization Amount and the Target
Overcollateralization Amount, each expressed as a dollar amount
and as a percentage of the Aggregate Principal Balance of the
Receivables.
Each amount set forth pursuant to clauses (i), (ii) and (iv) above shall be
expressed as a dollar amount per $1,000 of original principal balance of a
Note.
(b) Within the prescribed period of time for tax reporting
purposes after the end of each calendar year during the term of this
Agreement, the Indenture Trustee shall mail, to each Person who at any time
during such calendar year shall have been a Holder of a Note, a statement
containing the sum of the amounts set forth in clauses (i), (ii), and (v)
and such other information, requested in writing by the Servicer, if any,
as the Servicer determines is reasonably necessary to permit such
Noteholder to ascertain its share of the gross income and deductions of the
Trust (exclusive of the Supplemental Servicing Fee), for such calendar year
or, in the event such Person shall have been a Holder of a Note during a
portion of such calendar year, for the applicable portion of such year, for
the purposes of such Noteholder's preparation of federal income tax
returns.
Section 4.9. Optional Deposits by the Note Insurer. The Note
Insurer shall at any time, and from time to time, have the option (but
shall not be required, except as provided in Section 5.4 and in accordance
with the terms of the Policy) to deliver amounts to the Indenture Trustee
for deposit into the Collection Account to provide funds in respect of the
payment of fees or expenses of any provider of services to the Issuer with
respect to such Payment Date.
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ARTICLE V
THE RESERVE ACCOUNT AND THE POLICY
Section 5.1. Initial Deposit. On the Closing Date, the Seller
shall deposit $1,530,978.93 into the Reserve Account (representing 2% of
the Aggregate Principal Balance of the Receivables as of the Initial Cutoff
Date). On each Subsequent Transfer Date, the Indenture Trustee, on behalf
of the Seller, shall deposit the Subsequent Reserve Account Deposit from
amounts that would otherwise be released to the Seller from the Pre-Funding
Account in accordance with the written instructions of the Servicer.
Section 5.2. Policy. The Issuer agrees, simultaneously with the
execution and delivery of this Agreement, to cause the Note Insurer to
issue the Policy for the benefit of the Issuer and the Noteholders in
accordance with the terms thereof.
Section 5.3. Deficiency Claim Amounts. If the Servicer's
Certificate with respect to any Determination Date shall state that the
amount of the Available Funds (other than the Policy Claim Amount), for the
related Payment Date, with respect to such Determination Date is less than
the sum of the amounts payable on the related Payment Date pursuant to
clauses (i) through (iv) of Section 4.5(a) (such deficiency being a
"Deficiency Claim Amount"), then the Indenture Trustee shall transfer funds
in the amount of such Deficiency Claim Amount (to the extent of the funds
available therein) from the Reserve Account to the Collection Account on
the Business Day preceding the related Payment Date.
Section 5.4. Claims Under Policy. (a) The Indenture Trustee shall
determine on the second Business Day prior to the related Payment Date (i)
the amount, if any, by which (x) the Class A Interest Payment Amount
exceeds (y) the sum of (1) Available Funds (excluding the Policy Claim
Amount), and (2) the amount on deposit in the Reserve Account on such
Payment Date after giving effect to the distributions set forth in Section
4.5(a) (i) and (ii); (ii) on any Payment Date other than the Final
Scheduled Payment Date, the amount, if any, by which (x) the Note Balance
as of such Payment Date (after giving effect to all other amounts allocable
and distributable to principal on such Payment Date, including amounts
withdrawn from the Reserve Account) exceeds (y) the sum of (1) the
Aggregate Principal Balance of the Receivables as of the related Accounting
Date and (2) the Pre-Funded Amount, if any, as of the related Accounting
Date; plus (iii) on the Final Scheduled Payment Date, an amount equal to
the Note Balance (after giving effect to all other amounts allocable and
distributable to principal on such Payment Date, including amounts
withdrawn from the Reserve Account). If such a shortfall exists, then the
Indenture Trustee shall furnish to the Note Insurer no later than 12:00
noon, New York City time, two Business Days prior to the related Payment
Date a written notice specifying the Policy Claim Amount (the amount of any
such shortfall plus any Preference Amount being referred to as the "Policy
Claim Amount"). Amounts paid by the Note Insurer under the Policy shall be
deposited by the Indenture Trustee into the Collection Account pursuant to
Section 4.4 for payment to Noteholders on the related Payment Date and
shall remain uninvested.
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(b) Any notice delivered by the Indenture Trustee to the Note
Insurer pursuant to Section 5.4(a) shall specify the Policy Claim Amount
claimed under the Policy and shall constitute a "Notice for Payment" under
the Policy. In accordance with the provisions of the Policy, the Note
Insurer is required to pay to the Indenture Trustee the Policy Claim Amount
properly claimed thereunder by 10:00 a.m., New York City time, on the later
of (i) the second Business Day following receipt on a Business Day of the
Notice for Payment, and (ii) the applicable Payment Date. Any payment made
by the Note Insurer under the Policy shall be applied solely to the payment
of the Notes and for no other purpose, except as provided for in Section
4.9.
(c) The Indenture Trustee shall (i) receive as attorney-in-fact of
each Noteholder any Policy Claim Amount from the Note Insurer and (ii)
deposit the same in to the Collection Account for disbursement to the
Noteholders as set forth in Section 4.5. Any and all Policy Claim Amounts
disbursed by the Indenture Trustee from claims made under the Policy shall
not be considered payment by the Issuer or from the Reserve Account with
respect to such Notes and shall not discharge the obligations of the Issuer
with respect thereto. The Note Insurer shall, to the extent it makes any
payment with respect to the Notes, become subrogated to the rights of the
recipients of such payments to the extent of such payments. Subject to and
conditioned upon any payment with respect to the Notes by or on behalf of
the Note Insurer, the Indenture Trustee shall assign to the Note Insurer
all rights to the payment of interest or principal with respect to the
Notes that are then due for payment to the extent of all payments made by
the Note Insurer, and the Note Insurer may exercise any option, vote,
right, power or the like with respect to the Notes to the extent that it
has made payment pursuant to the Policy. To evidence such subrogation, the
Note Registrar shall note the Note Insurer's rights as subrogee upon the
Note Register of Noteholders upon receipt from the Note Insurer of proof of
payment by the Note Insurer of any Policy Claim Amount. Pursuant to the
Indenture, the Note Registrar and the Indenture Trustee shall accept a
voucher or other evidence of payment as prima facie evidence of such
payment.
(d) The Indenture Trustee shall enforce on behalf of the
Noteholders the obligations of the Note Insurer under the Policy.
Notwithstanding any other provision of this Agreement, the Noteholders are
not entitled to institute proceedings directly against the Note Insurer.
Section 5.5. Distribution of Excess. If (i) the amount on deposit
in the Reserve Account on any Payment Date (after giving effect to all
deposits therein or withdrawals therefrom on such Payment Date) exceeds the
Reserve Account Required Amount and (ii) (a) no Trigger Event or Reserve
Event has occurred or (b) all Trigger Events and Reserve Events which have
occurred have been Deemed Cured, the Indenture Trustee shall distribute an
amount equal to any such excess pursuant to the Servicer's Certificate
after giving effect to any distribution thereof pursuant to Section
4.5(a)(viii).
Section 5.6. Surrender of Policy. The Indenture Trustee shall
surrender the Policy to the Note Insurer for cancellation ninety days after
payment of all amounts due under the Notes.
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ARTICLE VI
THE SELLER
Section 6.1. Liability of Seller. The Seller shall be liable
hereunder only to the extent of the obligations in this Agreement
specifically undertaken by the Seller and the representations made by the
Seller.
Section 6.2. Merger or Consolidation of the Seller. The Seller
shall not merge or consolidate with any other Person or permit any other
Person to become the successor to all or substantially all of the Seller's
business or assets unless the conditions precedent set forth in this
Section 6.2 have been satisfied. Any such successor corporation shall
execute an agreement of assumption of every obligation of the Seller under
its Related Documents and, whether or not such assumption agreement is
executed, shall be the successor to the Seller under this Agreement without
the execution or filing of any document (or any further act on the part of
any of the parties to this Agreement). The Seller shall provide prompt
notice of any merger, consolidation or succession pursuant to this Section
6.2 to the Owner Trustee, the Indenture Trustee, the Noteholders, the Note
Insurer and the Rating Agency. Notwithstanding the foregoing, the Seller
shall not merge or consolidate with any other Person or permit any other
Person to become a successor to the Seller's business, unless: (a)
immediately after giving effect to such transaction, no representation or
warranty made pursuant to Section 2.5 shall have been breached (for
purposes hereof, such representations and warranties shall speak as of the
date of the consummation of such transaction) and no event that, after
notice or lapse of time, would become an Event of Default shall have
occurred and be continuing; (b) the Seller shall have delivered to the
Owner Trustee, the Indenture Trustee, the Note Insurer and the Rating
Agency an Officer's Certificate and an Opinion of Counsel each stating that
such consolidation, merger or succession and such agreement of assumption
comply with this Section 6.2 and that all conditions precedent, if any,
provided for in this Agreement relating to such transaction have been
complied with; (c) the Seller shall have delivered to the Owner Trustee,
the Indenture Trustee, the Note Insurer and the Rating Agency an Opinion of
Counsel, stating, in the opinion of such counsel, either (i) all financing
statements and continuation statements and amendments thereto have been
executed and filed that are necessary to preserve and protect the interests
of the Trust and the Indenture Trustee in the Receivables or (ii) no such
action shall be necessary to preserve and protect such interest and (d)
such successor Seller shall be acceptable to the Controlling Party and the
Rating Agency Condition is satisfied.
Section 6.3. Limitation on Liability of Seller and Others. The
Seller and any director or officer or employee or agent of the Seller may
rely in good faith on the advice of counsel or on any document of any kind
prima facie properly executed and submitted by any Person respecting any
matters arising under this Agreement. The Seller shall not be under any
obligation to appear in, prosecute or defend any legal action that is not
incidental to its obligations as Seller of the Receivables under this
Agreement and that in its opinion may involve it in any expense or
liability.
Section 6.4. Special Purpose Entity. (a) The Seller shall conduct its
business solely in its own name through its duly authorized officers or
agents so as not to mislead others as to the identity of the entity with
which such persons are concerned, and shall use its best efforts to avoid
the
54
appearance that it is conducting business on behalf of any Affiliate
thereof or that the assets of the Seller are available to pay the creditors
of Paragon or any Affiliate thereof (other than as expressly provided
herein).
(b) The Seller shall maintain corporate records and books of
account separate from those of Paragon and any Affiliate thereof.
(c) The Seller shall obtain proper authorization for all corporate
action requiring such authorization.
(d) The Seller shall pay its own operating expenses and
liabilities from its own funds.
(e) The annual financial statements of Paragon shall disclose the
effects of the transactions contemplated hereby in accordance with
generally accepted accounting principles.
(f) The resolutions, agreements and other instruments of the
Seller underlying the transactions described in the Related Documents shall
be continuously maintained by the Seller as official records of the Seller.
(g) The Seller shall maintain an arm's-length relationship with
Paragon and its Affiliates, and shall not hold itself out as being liable
for the debts of Paragon or any of its Affiliates.
(h) The Seller shall keep its assets and liabilities separate from
those of all other entities other than as permitted by the Related
Documents.
(i) The books and records of the Seller shall be maintained at the
address designated herein for receipt of notices, unless the Seller shall
otherwise advise the parties hereto in writing.
(j) The Seller shall not maintain bank accounts or other
depository accounts to which any Affiliate is an account party, into which
any Affiliate makes deposits or from which any Affiliate has the power to
make withdrawals, except as otherwise permitted by the Related Documents.
(k) The Seller shall insure that any consolidated financial
statements of Paragon has notes to the effect that the Seller is a separate
entity whose creditors have a claim on its assets prior to those assets
becoming available to its equity holders.
(l) The Seller shall not amend, supplement or otherwise modify (i)
its certificate of incorporation, except in accordance therewith and with
the prior written consent of the Note Insurer (which consent shall not be
unreasonably withheld) and notice to the Rating Agencies or (ii) its bylaws
except in accordance therewith.
Section 6.5. Restrictions on Liens. The Seller shall not (i) create,
incur or suffer to exist, or agree to create, incur or suffer to exist, or
consent to cause or permit in the future (upon the
55
happening of a contingency or otherwise) the creation, incurrence or
existence of any Lien on, or restriction on transferability of, the
Receivables except for Permitted Liens or (ii) sign or file under the UCC
of any jurisdiction any financing statement that names Paragon or the
Seller as a debtor, or sign any security agreement authorizing any secured
party thereunder to file such financing statement, with respect to the
Receivables, except in each case any such instrument solely securing the
rights and preserving the Lien of the Trust and the Lien of the Indenture
Trustee for the benefit of the Noteholders.
Section 6.6. Creation of Indebtedness; Guarantees. The Seller
shall not create, incur, assume or suffer to exist any indebtedness other
than indebtedness permitted under the Related Documents. The Seller shall
incur no additional borrowed money indebtedness secured by the Trust
Property other than the Notes. The Seller shall not assume guarantee,
endorse or otherwise be or become directly or contingently liable for the
obligations of any Person by, among other things, agreeing to purchase any
obligation of another Person, agreeing to advance funds to such Person or
causing or assisting such Person to maintain any amount of capital.
Section 6.7. Compliance with Laws. The Seller shall comply with
the requirements of all applicable laws, the non-compliance with which
would, individually or in the aggregate, materially and adversely affect
the ability of the Seller to perform its obligations under any Related
Document.
Section 6.8 Further Instruments and Acts. Upon request of the
Trust, the Note Insurer or the Indenture Trustee, the Seller shall execute
and deliver such further instruments and do such further acts as may be
reasonably necessary or proper to carry out more effectively the purpose of
this Agreement.
Section 6.9 Investment Company Act. The Seller shall conduct its
operations in a manner that will not subject it to registration as an
"Investment Company" under the Investment Company Act of 1940, as amended.
ARTICLE VII
THE SERVICER
Section 7.1. Liability of Servicer; Indemnities. (a) The Servicer (in
its capacity as such) shall be liable hereunder only to the extent of the
obligations in this Agreement specifically undertaken by the Servicer and the
representations made by the Servicer.
(b) The Servicer shall defend, indemnify and hold harmless the
Seller, the Indenture Trustee, the Owner Trustee, the Trust, the Backup
Servicer, the Note Insurer and the Noteholders, and their respective
officers, directors, agents and employees, from and against any and all
costs, expenses, losses, damages, claims and liabilities, including
reasonable fees and expenses of counsel and expenses of litigation, arising
out of or resulting from (i) the use, ownership or operation, if any, by
the Servicer or any Affiliate thereof of a Financed Vehicle or (ii) any
violation by the Seller, the Servicer or the Trust of state or federal
securities laws relating to the Notes or the Certificates.
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(c) The Servicer shall indemnify, defend and hold harmless the
Seller, the Indenture Trustee, the Owner Trustee, the Trust, the Backup
Servicer, the Note Insurer and their respective officers, directors, agents
and employees, from and against any and all costs, expenses, losses,
claims, penalties, fines, forfeitures, judgments, damages and liabilities
to the extent that such cost, expense, loss, claim, penalty, fine,
forfeiture, judgment, damage or liability arose out of, or was imposed upon
the Seller, the Indenture Trustee, the Owner Trustee, the Backup Servicer,
the Note Insurer or the Trust by reason of, the breach of this Agreement by
the Servicer, the negligence (other than errors in judgment), misfeasance
or bad faith of the Servicer in the performance of its duties under this
Agreement or by reason of negligent disregard of its obligations and duties
under this Agreement.
(d) Indemnification under this Section 7.1 shall survive the
termination of this Agreement and shall include reasonable fees and
expenses of counsel and expenses of litigation. If the Servicer has made
any indemnity payments pursuant to this Section 7.1 and the recipient
thereafter collects any of such amounts from others, the recipient shall
promptly repay such amounts collected to the Servicer, without interest.
(e) Notwithstanding the indemnity provisions contained in Sections
7.1(b) through (d), the Servicer shall not be required to indemnify the
Seller, the Indenture Trustee, the Owner Trustee, the Trust, the Backup
Servicer, the Note Insurer or their respective officers, directors, agents
or employees, against any costs, expenses, losses, damages, claims or
liabilities to the extent the same shall have been (i) caused by the
misfeasance, bad faith or gross negligence (or ordinary negligence in the
handling of funds) of such party or (ii) suffered by reason of
uncollectible or uncollected Receivables not caused by the Servicer's
negligence (other than errors in judgment), misfeasance or bad faith.
Notwithstanding the indemnity provisions contained in Section 7.1(b), the
Servicer shall not be required to indemnify the Noteholders for any losses
suffered in their capacity as investors in the Notes.
Section 7.2. Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer or Backup Servicer. (a) The Servicer shall not
merge or consolidate with any other Person, convey, transfer or lease all
or substantially all its assets as an entirety to another Person, or permit
any other Person to become the successor to all or substantially all of its
business or assets, unless, after the merger, consolidation, conveyance,
transfer, lease or succession, the successor or surviving entity shall be
capable of fulfilling the duties of the Servicer contained in this
Agreement and shall be an Eligible Servicer. Any corporation (i) into which
the Servicer may be merged or consolidated, (ii) resulting from any merger
or consolidation to which the Servicer shall be a party, (iii) that
acquires by conveyance, transfer, or lease substantially all of the assets
of the Servicer, or (iv) succeeding to the business of the Servicer, in any
of the foregoing cases shall execute an agreement of assumption to perform
every obligation of the Servicer under this Agreement and, whether or not
such assumption agreement is executed, shall be the successor to the
Servicer under this Agreement without the execution or filing of any paper
or any further act on the part of any of the parties to this Agreement,
anything in this Agreement to the contrary notwithstanding; provided,
however, that nothing contained herein shall be deemed to release the
Servicer from any obligation hereunder. The Servicer shall provide notice
of any merger, consolidation or succession pursuant to this
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Section 7.2(a) to the Owner Trustee, the Indenture Trustee, the Backup
Servicer, the Note Insurer and the Rating Agency and the Rating Agency
Condition in respect of such merger, consolidation or succession shall have
been satisfied and the Note Insurer shall have consented thereto; provided,
however, that if the successor to the Servicer is rated at least investment
grade by the Rating Agencies and is in the business of servicing assets
similar to the Receivables, the Note Insurer's consent may not be
unreasonably withheld. Notwithstanding the foregoing, the Servicer shall
not merge or consolidate with any other Person or permit any other Person
to become a successor to all or substantially all of its business or
assets, unless (x) immediately after giving effect to such transaction, no
representation or warranty made pursuant to Section 3.6 shall have been
breached (for purposes hereof, such representations and warranties shall
speak as of the date of the consummation of such transaction) and no event
that, after notice or lapse of time, would become an Event of Default or
Servicer Termination Event shall have occurred and be continuing, (y) the
Servicer shall have delivered to the Owner Trustee, the Indenture Trustee,
the Note Insurer and the Rating Agency an Officer's Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or
succession and such agreement of assumption comply with this Section 7.2(a)
and (z) the Servicer shall have delivered to the Owner Trustee, the
Indenture Trustee, the Note Insurer and the Rating Agency an Opinion of
Counsel, stating in the opinion of such counsel, either (A) all financing
statements and continuation statements and amendments thereto have been
executed and filed that are necessary to preserve and protect the interest
of the Trust and the Indenture Trustee in the Receivables and the proceeds
thereof or (B) no such action shall be necessary to preserve and protect
such interest.
(b) Any corporation (i) into which the Backup Servicer may be
merged, consolidated or converted, (ii) resulting from any merger,
consolidation or conversion to which the Backup Servicer shall be a party,
(iii) that acquires by conveyance, transfer or lease substantially all of
the assets of the Backup Servicer, or (iv) succeeding to the business of
the Backup Servicer, in any of the foregoing cases shall execute an
agreement of assumption to perform every obligation of the Backup Servicer
under this Agreement and, whether or not such assumption agreement is
executed, shall be the successor to the Backup Servicer under this
Agreement without the execution or filing of any paper or any further act
on the part of any of the parties to this Agreement, anything in this
Agreement to the contrary notwithstanding; provided, however, that nothing
contained herein shall be deemed to release the Backup Servicer from any
obligation.
Section 7.3. Limitation on Liability of Servicer, Backup Servicer
and Others. (a) Neither the Servicer, the Backup Servicer nor any of the
directors, officers, employees or agents of the Servicer or the Backup
Servicer shall be under any liability to the Trust, the Noteholders, the
Indenture Trustee, the Owner Trustee, the Note Insurer or the Seller,
except as provided in this Agreement, for any action taken or for
refraining from the taking of any action pursuant to this Agreement;
provided, however, that this provision shall not protect the Servicer, the
Backup Servicer or any such Person against any liability that would
otherwise be imposed by reason of a breach of this Agreement or willful
misfeasance, bad faith or negligence (other than errors in judgment) in the
performance of its duties. The Servicer, the Backup Servicer and any
director, officer, employee or agent of the Servicer or the Backup Servicer
may rely in good faith on the
58
written advice of counsel or on any document of any kind prima facie
properly executed and submitted by any Person respecting any matters
arising under this Agreement.
(b) Unless acting as Servicer hereunder, the Backup Servicer shall
not be liable for any obligation of the Servicer contained in this
Agreement, and the Indenture Trustee, the Owner Trustee, the Note Insurer,
the Seller and the Noteholders shall look only to the Servicer to perform
such obligations.
(c) The parties expressly acknowledge and consent to Norwest Bank
Minnesota, National Association acting in the possible dual capacity of
Backup Servicer or successor Servicer and in the capacity as Indenture
Trustee. Norwest Bank Minnesota, National Association may, in such dual
capacity, discharge its separate functions fully, without hindrance or
regard to conflict of interest principles, duty of loyalty principles or
other breach of fiduciary duties to the extent that any such conflict or
breach arises from the performance by Norwest Bank Minnesota, National
Association of express duties set forth in this Agreement in any of such
capacities, all of which defenses, claims or assertions are hereby
expressly waived by the other parties hereto except in the case of
negligence (other than errors in judgment) and willful misconduct by
Norwest Bank Minnesota, National Association.
(d) The Backup Servicer shall have no responsibility and shall not
be in default hereunder nor incur any liability for any failure, error,
malfunction or any delay in carrying out any of its duties under this
Agreement if any such failure or delay results from the Backup Servicer
acting in accordance with information prepared or supplied by a Person
other than the Backup Servicer or the failure of any such Person to prepare
or provide such information. The Backup Servicer shall have no
responsibility, shall not be in default and shall incur no liability (i)
for any act or failure to act by any third party, including the Servicer,
the Seller, the Controlling Party, the Indenture Trustee or the Owner
Trustee or for any inaccuracy or omission in a notice or communication
received by the Backup Servicer from any third party or (ii) that is due to
or results from the invalidity, unenforceability of any Receivable under
applicable law or the breach or the inaccuracy of any representation or
warranty made with respect to any Receivable.
Section 7.4. Delegation of Duties. The Servicer may at any time
perform through subcontractors the specific duties of (i) repossession of
Financed Vehicles and (ii) pursuing the collection of deficiency balances
on defaulted Receivables, in each case without the consent of the Owner
Trustee, the Backup Servicer or the Indenture Trustee . The Servicer may
also perform other specific duties through such sub-contractors in
accordance with its customary servicing policies and procedures without the
prior consent of the Owner Trustee, the Backup Servicer, the Note Insurer
or the Indenture Trustee. No such delegation or sub-contracting of duties
by the Servicer shall relieve the Servicer of its responsibility with
respect to such duties.
Section 7.5. Servicer and Backup Servicer Not to Resign. Subject
to the provisions of Section 7.2, neither the Servicer nor the Backup
Servicer shall resign from the obligations and duties imposed on it by this
Agreement as Servicer or Backup Servicer except upon a determination that
by reason of a change in legal requirements the performance of its duties
under this Agreement
59
would cause it to be in violation of such legal requirements, and the Note
Insurer and a Note Majority does not elect to waive the obligations of the
Servicer or the Backup Servicer, as the case may be, to perform the duties
that render it legally unable to act or to delegate those duties to another
Person. Any such determination permitting the resignation of the Servicer
or Backup Servicer shall be evidenced by an Opinion of Counsel to such
effect delivered and acceptable to the Owner Trustee, the Note Insurer and
the Indenture Trustee. No resignation of the Servicer shall become
effective until the Backup Servicer or a successor Servicer that is an
Eligible Servicer shall have assumed the responsibilities and obligations
of the Servicer. No resignation of the Backup Servicer shall become
effective until a Person that is an Eligible Servicer shall have assumed
the responsibilities and obligations of the Backup Servicer; provided,
however, that if a successor Backup Servicer is not appointed within 60
days after the Backup Servicer has given notice of its resignation and has
provided the Opinion of Counsel required by this Section 7.5, the Backup
Servicer may petition a court for its removal. Notwithstanding the
foregoing, the Backup Servicer may resign for any reason, provided an
entity acceptable to the Controlling Party shall have assumed the
responsibilities and obligations of the Backup Servicer prior to the
effectiveness of any such resignation and the Rating Agency Condition is
satisfied with respect thereto.
Section 7.6. Administrative Duties.
(a) Duties with Respect to the Indenture. The Servicer shall
perform all its duties and the duties of the Issuer under the Indenture. In
addition, the Servicer shall consult with the Owner Trustee as the Servicer
deems appropriate regarding the duties of the Issuer under the Indenture.
The Servicer shall monitor the performance of the Issuer and shall advise
the Owner Trustee when action is necessary to comply with the Issuer's
duties under the Indenture. The Servicer shall prepare for execution by the
Owner Trustee or shall cause the preparation by other appropriate Persons
of all such documents, reports, filings, instruments, certificates and
opinions as it shall be the duty of the Issuer to prepare, file or deliver
pursuant to the Indenture. In furtherance of the foregoing, the Servicer
shall take all necessary action that is the duty of the Issuer to take
pursuant to Sections 2.9, 3.3, 3.4, 3.5, 3.6, 3.7, 3.9, 3.10, 3.19, 3.21,
3.23, 4.1, 5.1, 5.16, 8.4, 8.5, 9.1, 9.2, 9.5 and 11.1 of the Indenture.
(b) Duties with Respect to the Issuer.
(i) In addition to the duties of the Servicer set forth
in this Agreement or any of the Related Documents, the Servicer shall
perform such calculations and shall prepare for execution by the Owner
Trustee or shall cause the preparation by other appropriate Persons of all
such documents, reports, filings, instruments, certificates and opinions as
it shall be the duty of the Issuer or the Owner Trustee to prepare, file or
deliver pursuant to this Agreement or any of the Related Documents or under
state and federal tax and securities laws and shall take all appropriate
action that it is the duty of the Issuer to take pursuant to this Agreement
or any of the Related Documents. In accordance with the directions of the
Issuer or the Owner Trustee, the Servicer shall administer, perform or
supervise the performance of such other activities in connection with the
Related Documents as are not covered by any of the foregoing provisions and
as are expressly requested by the Issuer or the Owner Trustee and are
reasonably within the capability of the Servicer.
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(ii) Notwithstanding anything in this Agreement or any of
the Related Documents to the contrary, the Servicer shall be responsible
for promptly notifying the Owner Trustee if any withholding tax is imposed
on the Issuer's payments (or allocations of income) to any
Certificateholder(s). Any such notice shall be in writing and specify the
amount of any withholding tax required to be withheld by the Owner Trustee
pursuant to such provision.
(c) Records. The Servicer shall maintain appropriate books of
account and records relating to the services performed under this
Agreement, which books of account and records shall be accessible for
inspection by the Owner Trustee at any time during normal business hours.
ARTICLE VIII
SERVICER TERMINATION EVENTS
Section 8.1. Servicer Termination Event. For purposes of this
Agreement, each of the following shall constitute a "Servicer Termination
Event":
(a) Any failure by the Servicer to make deposits into the
Collection Account or to deliver to the Indenture Trustee for distribution
any proceeds or payment required to be so deposited or delivered under the
terms of this Agreement that continues unremedied for a period of two
Business Days (one Business Day with respect to payment of Purchase
Amounts) after the earlier of receipt of written notice by the Servicer
from the Owner Trustee, the Indenture Trustee or (unless an Insurer Default
shall have occurred and be continuing) the Note Insurer or discovery of
such failure by a Responsible Officer of the Servicer; or
(b) Failure by the Servicer to deliver to the Indenture Trustee
and the Note Insurer, the Servicer's Certificate by 2:00 p.m., New York
City time, on each Determination Date (or within two Business Days
thereafter, if such failure by the Servicer is due to circumstances outside
the Servicer's control), or failure on the part of the Servicer to observe
in all material respects its covenants and agreements set forth in Section
7.2(a); or
(c) Failure or failures on the part of the Servicer duly to
observe or perform any other covenants or agreements of the Servicer set
forth in this Agreement, which failure or failures, individually or in the
aggregate, (i) materially and adversely affect the rights of Noteholders or
the Note Insurer and (ii) to the extent capable of cure, such failure or
falseness continues unremedied for a period of 30 days after the earlier of
knowledge thereof by a Responsible Officer of the Servicer or the date on
which written notice of such failure or failures, requiring the same to be
remedied, shall have been given to the Servicer by the Owner Trustee, the
Indenture Trustee, the Holders of more than 25% of the Note Balance or, so
long as no Insurer Default has occurred and is continuing, by the Note
Insurer; or
(d) The occurrence of an Insolvency Event with respect to the
Servicer; or
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(e) Any representation or warranty of the Servicer made in this
Agreement or any certificate, report or other writing delivered pursuant
hereto shall prove to be incorrect in any material respect as of the time
when the same shall have been made, and the incorrectness of such
representation or warranty has a material adverse effect on the Noteholders
or the Note Insurer and, within 30 days after the earlier of knowledge
thereof by a Responsible Officer of the Servicer or the date written notice
thereof shall have been given to the Servicer by the Owner Trustee, the
Indenture Trustee, the Holders of more than 25% of the Note Balance or, so
long as no Insurer Default has occurred and is continuing, by the Note
Insurer, the circumstances or condition in respect of which such
representation or warranty was incorrect shall not have been eliminated or
otherwise cured; or
(f) the occurrence of a Trigger Event under the Insurance
Agreement.
Section 8.2. Consequences of a Servicer Termination Event. If a
Servicer Termination Event shall occur and be continuing, the Note Insurer
(or, if an Insurer Default shall have occurred and be continuing, either
the Indenture Trustee (to the extent it has knowledge thereof) or a Note
Majority), by notice given in writing to the Servicer, the Note Insurer and
the Rating Agency (and to the Indenture Trustee if given by the
Noteholders), may terminate all of the rights and obligations of the
Servicer under this Agreement. On or after the receipt by the Servicer of
such written notice, all authority, power, obligations and responsibilities
of the Servicer under this Agreement, whether with respect to the Notes,
the Receivables, the other Trust Property or otherwise, automatically shall
pass to, be vested in and become obligations and responsibilities of the
Backup Servicer (or such other successor Servicer appointed by the
Controlling Party); provided, however, that the successor Servicer shall
have no liability with respect to (i) any obligation that was required to
be performed by the terminated Servicer prior to the date that the
successor Servicer becomes the Servicer or (ii) any claim of a third party
based on any alleged action or inaction of the terminated Servicer. The
successor Servicer is authorized and empowered by this Agreement to execute
and deliver, on behalf of the terminated Servicer, as attorney-in-fact or
otherwise, any and all documents and other instruments and to do or
accomplish all other acts or things necessary or appropriate to effect the
purposes of such notice of termination, whether to complete the transfer
and endorsement of the Receivables, the other Trust Property and related
documents to show the Trust or the Indenture Trustee as lienholder or
secured party on the related Lien Certificates, or otherwise. The
terminated Servicer agrees to cooperate with the successor Servicer in
effecting the termination of the responsibilities and rights of the
terminated Servicer under this Agreement, including the transfer to the
successor Servicer for administration by it of all cash amounts that shall
at the time be held by the terminated Servicer for deposit, or have been
deposited by the terminated Servicer, in the Collection Account or the
Lockbox Account or thereafter received with respect to the Receivables and
the delivery to the successor Servicer of all Receivable Files and Monthly
Records and a computer tape in readable form as of the most recent Business
Day containing all information necessary to enable the successor Servicer
to service the Trust Property. The terminated Servicer shall grant the
Indenture Trustee and the successor Servicer reasonable access during
normal business hours to the terminated Servicer's premises.
Section 8.3. Appointment of Successor. (a) On and after the time the
Servicer receives a notice of termination pursuant to Section 8.2 or upon the
resignation of the Servicer pursuant to
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Section 7.5, the Backup Servicer (unless the Note Insurer shall have
exercised its option pursuant to Section 8.3(b) to appoint an alternate
successor Servicer) shall be the successor in all respects to the Servicer
in its capacity as Servicer under this Agreement and the transactions set
forth or provided for in this Agreement, and shall be subject to all the
rights, responsibilities, restrictions, duties, liabilities and termination
provisions relating thereto placed on the Servicer by the terms and
provisions of this Agreement, except as otherwise stated herein. The
Indenture Trustee and such successor shall take such action, consistent
with this Agreement, as shall be necessary to effectuate any such
succession. If a successor Servicer is acting as Servicer hereunder, it
shall be subject to termination under Section 8.2 upon the occurrence of
any Servicer Termination Event applicable to it as Servicer. Any successor
Servicer appointed pursuant to this Section 8.3 shall be entitled to
compensation equal to the greater of (i) the Total Servicing Fee or (ii)
the then-current "market rate" fee for servicing assets comparable to the
Receivables, which rate shall be determined by averaging three servicing
fee bids obtained by the Backup Servicer from third party servicers
selected by the Backup Servicer; provided, however, in no event shall a
successor Servicer be entitled to receive compensation in excess of 1.5% of
the Aggregate Principal Balance as of the first day of any related
Collection Period, unless the Indenture Trustee shall have notified the
Rating Agencies and obtained the prior written consent of the Note Insurer
(which consent shall not be unreasonably withheld); and provided, further,
that any transition fees payable in connection with the transfer of
servicing shall be paid by Paragon, and to the extent not paid by Paragon,
such fees shall be payable pursuant to Section 4.5(a)(ii); provided;
however, that in no event shall such transition fees exceed $100,000,
unless the Indenture Trustee shall have notified the Rating Agencies and
obtained the prior written consent of the Note Insurer (which consent shall
not be unreasonably withheld).
(b) So long as no Insurer Default shall have occurred and be
continuing, the Note Insurer may exercise at any time the right to appoint
as successor to the Servicer a Person other than the Person serving as
Backup Servicer at the time, and (without limiting the Note Insurer's
obligations under the Policy) shall have no liability to the Indenture
Trustee, Paragon, the Issuer, the Person then serving as Backup Servicer,
any Noteholders or any other Person if it does so. Notwithstanding the
foregoing, if the Backup Servicer shall be legally unable or unwilling to
act as Servicer and the Note Insurer shall not have appointed a successor
Servicer, the Backup Servicer and the Note Insurer may petition a court of
competent jurisdiction to appoint any Eligible Servicer as the successor to
the Servicer. Pending appointment pursuant to the preceding sentence, the
Backup Servicer shall act as successor Servicer unless it is legally unable
to do so, in which event the outgoing Servicer shall continue to act as
Servicer until a successor has been appointed and accepted such
appointment. Subject to Section 7.5, no provision of this Agreement shall
be construed as relieving the Backup Servicer of its obligation to succeed
as successor Servicer upon the termination of the Servicer pursuant to
Section 8.2 or the resignation of the Servicer pursuant to Section 7.5.
(c) Any successor Servicer shall be entitled to such compensation
(whether payable out of the Collection Account or otherwise) as the
Servicer would have been entitled to under this Agreement if the Servicer
had not resigned or been terminated hereunder.
Section 8.4. Notification to Noteholders. Upon any termination of, or
appointment of a successor to, the Servicer pursuant to this Article VIII, the
Indenture Trustee shall give prompt
63
written notice thereof to the Rating Agency, the Note Insurer and to the
Noteholders at their respective addresses appearing in the Note Register.
Section 8.5. Waiver of Past Defaults. The Note Insurer or (if an
Insurer Default shall have occurred and be continuing), a Note Majority
may, on behalf of the Noteholders, waive any default by the Servicer in the
performance of its obligations hereunder and its consequences. Upon any
such waiver of a past default, such default shall cease to exist, and any
Servicer Termination Event arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend
to any subsequent or other default or impair any right consequent thereon.
The Note Insurer shall provide prompt written notice of any such waiver to
the Indenture Trustee. The Indenture Trustee shall provide the Noteholders,
the Note Insurer and the Rating Agency with notice of any waiver of any
default by the Servicer hereunder.
ARTICLE IX
TERMINATION
Section 9.1. Optional Purchase of All Receivables. As an
administrative convenience, the Servicer shall have the option to purchase
the Receivables and the other Trust Property on any Payment Date if, as of
the related Accounting Date, the Aggregate Principal Balance has declined
to less than 10% of the Initial Cutoff Date Principal Balance plus the
aggregate Principal Balance of all Subsequent Receivables as of their
applicable Subsequent Cutoff Dates (with the consent of the Note Insurer,
which shall not be unreasonably withheld, if a claim has previously been
made on the Policy, such purchase would result in a claim on the Policy or
such purchase would result in any amount owing and remaining unpaid under
the Related Documents to the Note Insurer or any other Person). To exercise
such option, the Servicer shall pay the aggregate Purchase Amounts for the
Receivables (which amount shall in no event be less than the Note Balance
plus accrued and unpaid interest thereon) plus all amounts due to the Note
Insurer under the Insurance Agreement and shall succeed to all interests in
and to the Trust Property. Not later than 10 days prior to any proposed
exercise of such option, the Servicer or Seller shall notify the Rating
Agency, the Indenture Trustee, the Certificateholder(s), the Note Insurer
and the Owner Trustee of any proposed exercise of such option. The purchase
price paid by the Servicer shall be deposited into the Collection Account
on or before such Payment Date and distributed pursuant to Section 4.5.
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1. Amendment. (a) This Agreement may be amended by the
Trust, the Seller, the Servicer, Paragon, the Backup Servicer and the
Indenture Trustee without the consent of any of the Certificateholder(s) or
the Noteholders, but with the prior written consent of the Note Insurer (so
long as an Insurer Default shall not have occurred and be continuing),
which consent shall not be unreasonably withheld, (i) to cure any
ambiguity, (ii) to correct or supplement any provisions in this Agreement
or (iii) for the purpose of adding any provision to or changing in any
manner or
64
eliminating any provision of this Agreement or of modifying in any manner
the rights of the Noteholders, provided that such action in this clause (a)
shall not, as evidenced by an Opinion of Counsel delivered to the Indenture
Trustee, the Note Insurer and the Rating Agency, adversely affect in any
material respect the interests of the Noteholders and the Note Insurer.
(b) This Agreement may also be amended from time to time by the
Seller, the Servicer, Paragon, the Backup Servicer and the Indenture
Trustee, with the consent of the Note Insurer (so long as an Insurer
Default shall not have occurred and be continuing), and a Note Majority
(which consent of any Holder of a Note given pursuant to this Section
10.1(b) or pursuant to any other provision of this Agreement shall be
conclusive and binding on such Holder and on all future Holders of such
Note and of any Note issued upon the transfer thereof or in exchange
thereof or in lieu thereof whether or not notation of such consent is made
upon the Note), for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Agreement, or of
modifying in any manner the rights of the Holders of Notes; provided,
however, that the Rating Agency Condition shall have been satisfied with
respect to any such amendment prior to the execution thereof; and provided,
further, that no such amendment shall (i) increase or reduce in any manner
the amount of, or accelerate or delay the timing of, collections of
payments on Receivables, distributions that shall be required to be made on
any Note or the Class A Interest Rate, (ii) amend any provisions of Section
4.5 in such a manner as to affect the priority of payment of interest or
principal to Noteholders, or (c) reduce the aforesaid percentage required
to consent to any such amendment or any waiver hereunder, without the
consent of the Holders of all Notes then outstanding.
(c) Prior to the execution of any such amendment or consent under
Section 10.1(a) or (b), the Seller shall furnish the Indenture Trustee with
a written notice describing the substance of such amendment and the
Indenture Trustee shall forward such written notification of the substance
of such amendment or consent to the Note Insurer, the Rating Agency and the
Owner Trustee within five days of receipt thereof.
(d) Promptly after the execution of any such amendment or consent
under Section 10.1(a) or 10.1(b) and receipt thereof by the Indenture
Trustee, the Indenture Trustee shall furnish a copy of such amendment or
consent to each Noteholder.
(e) It shall not be necessary for the consent of the Noteholders
pursuant to Section 10.1(b) to approve the particular form of any proposed
amendment or consent, but it shall be sufficient if such consent shall
approve the substance thereof. If an Insurer Default has occurred and is
continuing, written consent of the Note Insurer shall be required prior to
the execution of such amendment unless such action shall not, as evidenced
by an Opinion of Counsel delivered to the Note Insurer and the Indenture
Trustee, adversely affect in any material respect the interests of the Note
Insurer. The manner of obtaining such consents (and any other consents of
Noteholders provided for in this Agreement) and of evidencing the
authorization of the execution thereof by Noteholders shall be subject to
such reasonable requirements as the Indenture Trustee may prescribe.
65
(f) Prior to the execution of any amendment to this Agreement, the
Indenture Trustee, upon request, shall be entitled to receive and rely upon
an Opinion of Counsel (delivered at the expense of the Seller) stating that
the execution of such amendment is authorized or permitted by this
Agreement, in addition to the Opinion of Counsel referred to in Section
10.2(i). The Indenture Trustee may, but shall not be obligated to, enter
into any such amendment that affects the Indenture Trustee's own rights,
duties or immunities under this Agreement or otherwise.
Section 10.2. Protection of Title to Trust. (a) The Servicer shall
execute, file, record and register such financing statements and cause to
be executed, filed, recorded and registered such continuation and other
statements or documents, all in such manner and in such places as may be
required by law fully to preserve, maintain and protect the interest of the
Trust, the Note Insurer and the Indenture Trustee under this Agreement in
the Trust Property and in the proceeds thereof. The Servicer shall deliver
(or cause to be delivered) to the Indenture Trustee and the Note Insurer
file- stamped copies of, or filing receipts for, any document recorded,
registered or filed as provided above, as soon as available following such
recordation, registration or filing. Paragon and the Seller shall cooperate
fully with the Servicer in connection with the obligations set forth above
and shall execute any and all documents reasonably required to fulfill the
intent of this Section 10.2(a).
(b) Neither the Seller nor the Servicer shall change its name,
identity or corporate structure in any manner that would make any financing
statement or continuation statement filed by the Servicer in accordance
with Section 10.2(a) seriously misleading within the meaning of the
applicable provisions of the UCC or any title statute, unless it shall have
given the Owner Trustee, the Note Insurer and the Indenture Trustee at
least 30 days prior written notice thereof, and shall promptly file
appropriate amendments to all previously filed financing statements and
continuation statements.
(c) Each of the Seller and the Servicer shall give the Owner
Trustee, the Note Insurer and the Indenture Trustee at least 30 days prior
written notice of any relocation of its principal executive office if, as a
result of such relocation, the applicable provisions of the UCC would
require the filing of any amendment of any previously filed financing or
continuation statement or of any new financing statement. The Servicer
shall at all times maintain each office from which it services Receivables
and its principal executive office within the United States of America.
(d) The Servicer shall maintain accounts and records as to each
Receivable accurately and in sufficient detail to permit (i) the reader
thereof to know at any time the status of such Receivable, including
payments and recoveries made and payments owing and (ii) reconciliation
between payments or recoveries on (or with respect to) each Receivable and
the amounts from time to time deposited in the Collection Account in
respect of such Receivable.
(e) The Servicer shall maintain its computer systems so that, from
and after the time of sale under this Agreement and each Subsequent
Transfer Agreement of the Receivables to the Trust, the Servicer's master
computer records (including any backup archives) that refer to any
Receivable indicate clearly that such Receivable is owned by the Trust.
Indication of the Trust's ownership of
66
a Receivable shall be deleted from or modified on the Servicer's computer
systems when, and only when, the Receivable shall become a Purchased
Receivable or shall have been paid in full.
(f) If at any time the Seller or the Servicer proposes to sell,
grant a security interest in, or otherwise transfer any interest in
automotive receivables (other than the Receivables) to any prospective
purchaser, lender or other transferee, the Servicer shall give to such
prospective purchaser, lender or other transferee computer tapes, records
or printouts (including any restored from backup archives) that, if they
refer in any manner whatsoever to any Receivable, indicate clearly that
such Receivable has been sold and is owned by the Trust (unless such
Receivable shall become a Purchased Receivable or shall have been paid in
full).
(g) Upon reasonable notice, the Servicer shall permit the
Indenture Trustee, the Backup Servicer, the Seller, the Note Insurer and
their respective agents, at any time during normal business hours to
inspect and make copies of and abstracts from the Servicer's records
regarding any Receivables or any other portion of the Trust Property.
(h) The Servicer shall furnish to the Owner Trustee, the Indenture
Trustee, the Backup Servicer, the Note Insurer and the Seller upon request
within a reasonable period of time the Schedule of Receivables, setting
forth the Receivables then held as part of the Trust. The Indenture Trustee
shall hold the Schedule of Receivables for examination by interested
parties during normal business hours at the Corporate Trust Office upon
reasonable notice by such Persons of their desire to conduct an
examination.
(i) The Seller and the Servicer (or the applicable party in the
case of Section 10.2(b) or (c)) shall deliver to the Owner Trustee, the
Note Insurer and the Indenture Trustee simultaneously with the execution
and delivery of this Agreement and of each amendment thereto and upon the
occurrence of the events giving rise to an obligation to give notice
pursuant to Section 10.2(b) or (c), an Opinion of Counsel (i) stating that,
in the opinion of such counsel, all financing statements and continuation
statements have been executed and filed that are necessary fully to
preserve and protect the interests of the Trust and the Indenture Trustee
in the Receivables, and reciting the details of such filing or referring to
prior Opinions of Counsel in which such details are given or (ii) stating
that, in the opinion of such counsel, no such action is necessary to
preserve and protect such interest.
Section 10.3. Limitation on Rights of Noteholders. (a) The death
or incapacity of any Noteholder shall not operate to terminate this
Agreement or the Trust, nor entitle such Noteholder's legal representatives
or heirs to claim an accounting or to take any action or commence any
proceeding in any court for a partition or winding up of the Trust, nor
otherwise affect the rights, obligations and liabilities of the parties to
this Agreement or any of them.
(b) No Noteholder shall have any right to vote (except as provided
in this Section 10.3 or Sections 8.2, 8.5 or 10.1) or in any manner
otherwise control the operation and management of the Trust, or the
obligations of the parties to this Agreement, nor shall anything set forth
in this Agreement, or contained in the terms of the Notes, be construed so
as to constitute the Noteholders from time to time as partners or members
of an association; nor shall any Noteholder be under any
67
liability to any third person by reason of any action taken by the parties
to this Agreement pursuant to any provision of this Agreement or any
Related Document.
(c) No Noteholder shall have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action,
or proceeding in equity or at law upon or under or with respect to this
Agreement, unless such Holder previously shall have given to the Indenture
Trustee a written notice of default and of the continuance thereof, as
provided in this Agreement, and unless also the Holders of Notes evidencing
not less than 25% of the Note Balance shall have made written request upon
the Indenture Trustee to institute such action, suit or proceeding in its
own name as Indenture Trustee under this Agreement and shall have offered
to the Indenture Trustee such reasonable indemnity as it may require
against the costs, expenses and liabilities to be incurred therein or
thereby, and the Indenture Trustee, for 30 days after its receipt of such
notice, request, and offer of indemnity, shall have neglected or refused to
institute any such action, suit, or proceeding and during such 30-day
period, no request or waiver inconsistent with such written request has
been given to the Indenture Trustee pursuant to and in compliance with this
Section 10.3 or Section 8.5; it being understood and intended, and being
expressly covenanted by each Noteholder with every other Noteholder and the
Indenture Trustee, that no one or more Holders of Notes shall have any
right in any manner whatever by virtue or by availing itself or themselves
of any provisions of this Agreement to affect, disturb, or prejudice the
rights of the Holders of any other of the Notes, or to obtain or seek to
obtain priority over or preference to any other such Holder, or to enforce
any right under this Agreement, except in the manner provided in this
Agreement and for the equal, ratable and common benefit of all Noteholders.
For the protection and enforcement of the provisions of this Section 10.3,
each and every Noteholder and the Indenture Trustee shall be entitled to
such relief as can be given either at law or in equity.
Section 10.4. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF (OTHER THAN SECTION
5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW) AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES UNDER THIS AGREEMENT SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS. WITHOUT LIMITING THE FOREGOING, THE "SECURITIES
INTERMEDIARY'S JURISDICTION" WITHIN THE MEANING OF SECTION 8-110(E) OF
REVISED ARTICLE 8 WITH RESPECT TO THE TRUST ACCOUNTS MAINTAINED AT THE
INDENTURE TRUSTEE PURSUANT TO SECTION 4.1 SHALL BE NEW YORK.
Section 10.5. Severability of Provisions. If any one or more of
the covenants, agreements, provisions or terms of this Agreement shall be
for any reason whatsoever held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Agreement and shall in no way
affect the validity or enforceability of the other provisions of this
Agreement or of the Notes or the rights of the Holders thereof.
68
Section 10.6. Assignment. Notwithstanding anything to the contrary
contained in this Agreement, except as provided in Section 6.2 or Section
7.2 and as provided in the provisions of the Agreement concerning the
resignation of the Servicer and the Backup Servicer, this Agreement may not
be assigned by the Seller or the Servicer without the prior written consent
of the Owner Trustee, the Backup Servicer, the Note Insurer and the
Indenture Trustee. Prior written notice of any such assignment shall be
provided to the Rating Agency.
Section 10.7. Third-Party Beneficiaries. Nothing in this
Agreement, express or implied, shall give to any Person, other than the
parties hereto and the Note Insurer and their successors hereunder and
permitted assigns, any benefit or any legal or equitable right, remedy or
claim under this Agreement.
Section 10.8. Counterparts. This Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and all of which counterparts shall constitute but
one and the same instrument.
Section 10.9. Notices. All demands, notices and communications under
this Agreement shall be in writing, personally delivered or mailed by
certified mail, return receipt requested, and shall be deemed to have been
duly given upon receipt (a) in the case of the Seller, at the following
address: Paragon Auto Receivables Corporation, 27405 Puerta Real, Xxxxx
000, Xxxxxxx Xxxxx, Xxxxxxxxxx 00000, Attention: Vice President-Finance,
Telecopy No.: (000) 000-0000, (b) in the case of the Servicer, at the
following address: Paragon Acceptance Corporation, 27405 Puerta Real, Xxxxx
000, Xxxxxxx Xxxxx, Xxxxxxxxxx 00000, Attention: Vice President - Finance,
Telecopy No.: (000) 000-0000, (c) in the case of the Indenture Trustee, and
for so long as the Indenture Trustee is the Backup Servicer, the Backup
Servicer, at the following address: Norwest Bank Minnesota, National
Association, Norwest Center, Xxxxx Xxxxxx xxx Xxxxxxxxx Xxxxxx,
Xxxxxxxxxxx, Xxxxxxxxx 00000-0000, Attention: Corporate Trust
Services/Asset-Backed Administration, Telecopy No.: (000) 000-0000, (d) in
the case of the Trust or the Owner Trustee, at the following address:
Wilmington Trust Company, 0000 Xxxxx Xxxxxx Xxxxxx, Xxxxxxxxxx, Xxxxxxxx
00000, Attention: Corporate Trust Administration, (e) in the case of the
Note Insurer, at the following address: 000 Xxxx Xxxxxx, Xxxxxx, Xxx Xxxx,
00000, Attention: Insured Portfolio Management, Structured Finance,
Telecopy No. (000) 000-0000, (f) in the case of Xxxxx'x, at the following
address: 00 Xxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention: ABS
Monitoring Group, Telecopy No: (000) 000-0000, or at such other address as
shall be designated by any such party in a written notice to the other
parties and (g) in the case of S&P, at the following address: 00 Xxxxxxxx,
00xx xxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attn: ABS Surveillance, Telecopy No:
(000) 000-0000, or at such other address as shall be designated by any such
party in a written notice to the other parties. Any notice required or
permitted to be mailed to a Noteholder shall be given by first class mail,
postage prepaid, at the address of such Holder as shown in the Note
Register, and any notice so mailed within the time prescribed in this
Agreement shall be conclusively presumed to have been duly given, whether
or not the Noteholder receives such notice.
Section 10.10. Successors and Assigns. This Agreement shall be binding
upon the parties hereto and their respective successors and assigns, and
shall inure to the benefit of and be
69
enforceable by the parties hereto and their respective successors and
assigns permitted hereunder. All covenants and agreements contained herein
shall be binding upon, and inure to the benefit of, the Trust, the
Indenture Trustee, the Note Insurer and the Noteholders and their
respective permitted successors and assigns, if any. Any request, notice,
direction, consent, waiver or other instrument or action by any Noteholder
shall bind its successors and assigns. Except as otherwise provided in this
Article X, no other Person shall have any right or obligation hereunder.
Section 10.11. Subordination. The Trust and each Class A
Noteholder by accepting a Class A Note acknowledges and agrees that such
Class A Note represents indebtedness of the Trust and Trust Property only
and does not represent an interest in any assets (other than the Trust
Property) of the Seller (including by virtue of any deficiency claim in
respect of obligations not paid or otherwise satisfied from the Trust
Property and proceeds thereof). In furtherance of and not in derogation of
the foregoing, to the extent the Seller enters into other securitization
transactions, the Trust as well as each Class A Noteholder by accepting a
Class A Note acknowledges and agrees that is shall have no right, title or
interest in or to any assets (or interests therein) (other than Trust
Property) conveyed or purported to be conveyed by the Seller to another
securitization trust or other Person or Persons in connection therewith
(whether by way of a sale, capital contribution or by virtue of the
granting of a lien) ("Other Assets"). To the extent that, notwithstanding
the agreements and provisions contained in the preceding sentences of this
subsection, the Trust or any Class A Noteholder either (i) asserts an
interest or claim to, or benefit from, Other Assets, whether asserted
against or through the Seller or any other Person owned by the Seller, or
(ii) is deemed to have any such interest, claim or benefit in or from Other
Assets, whether by operation of law, legal process, pursuant to applicable
provisions of insolvency laws or otherwise (including by virtue of Section
1111(b) of the federal Bankruptcy Code or any successor provision having
similar effect under the Bankruptcy Code), and whether deemed asserted
against or through the Seller or any other Person owned by the Seller, then
the Trust and each Class A Noteholder by accepting a Class A Note further
acknowledges and agrees that any such interest, claim or benefit in or from
Other Assets is and shall be expressly subordinated to the indefeasible
payment in full of all obligations and liabilities of the Seller which,
under the terms of the relevant documents relating to the securitization of
such Other Assets, are entitled to be paid from, entitled to the benefits
of, or otherwise secured by such Other Assets (whether or not any such
entitlement or security interest is legally perfected or otherwise entitled
to a priority of distribution or application under applicable law,
including insolvency laws, and whether asserted against the Seller or any
other Person owned by the Seller), including, the payment of post-petition
interest on such other obligations and liabilities. This subordination
agreement shall be deemed a subordination agreement within the meaning of
Section 510(a) of the Bankruptcy Code. Each Class A Noteholder further
acknowledges and agrees that no adequate remedy at law exists for a breach
of this Section 10.11 and the terms of this Section 10.11 may be enforced
by an action for specific performance.
70
IN WITNESS WHEREOF, the Seller, the Servicer, the Trust, the
Backup Servicer and the Indenture Trustee have caused this Sale and
Servicing Agreement to be duly executed by their respective officers,
effective as of the day and year first above written.
PARAGON ACCEPTANCE CORPORATION, in its
individual capacity and as Servicer
By: /s/ Xxxxx X. Xxxxxxxx
------------------------------------
Name: Xxxxx X. Xxxxxxxx
Title: Secretary
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Indenture Trustee and as
Backup Servicer
By: /s/ Xxxxxx X. Xxxxxxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxxxxxx
Title: Corporate Trust Officer
PARAGON AUTO RECEIVABLES CORPORATION, as
Seller
By: /s/ Xxxxx X. Xxxxxxxx
-------------------------------------
Name: Xxxxx X. Xxxxxxxx
Title: Vice President
71 Sale and Servicing Agreement
PARAGON AUTO RECEIVABLES OWNER TRUST
1999-A, as Purchaser
By: WILMINGTON TRUST COMPANY
not in its individual capacity but
solely as Owner Trustee
By: /s/ Xxxxx X. Xxxxxx
---------------------------------
Name: Xxxxx X. Xxxxxx
Title: Vice President
72 Sale and Servicing Agreement
SCHEDULE A
SCHEDULE OF RECEIVABLES
On file with the Servicer and the Indenture Trustee.
A-1 Sale and Servicing Agreement
SCHEDULE B
REPRESENTATIONS AND WARRANTIES OF SELLER
WITH RESPECT TO RECEIVABLES
1. Contract Origination Date. Each Initial Receivable has
a contract origination date on or before February 28, 1999, and
each Subsequent Receivable has a contract origination date on or
before the applicable Subsequent Cutoff date.
2. Term of Receivables. Each Initial Receivable has an
original term of at least 18 months and not more than 72 months
and had a remaining term as of the Initial Cutoff Date of at least
12 months and not more than 72 months; each Subsequent Receivable
has an original term of at least 18 months and not more than 72
months and had a remaining term as of the Subsequent Cutoff Date
of at least 12 months and not more than 72 months; the weighted
average original contracted term of the Initial Receivables was 64
months as of the Initial Cutoff Date; the weighted average
remaining contracted term of the Initial Receivables was 61 months
as of the Initial Cutoff Date.
3. Characteristics of Receivables. (A) Each Receivable
(1) is denominated in U.S. dollars and has been originated in the
United States of America by Paragon or by a Dealer for the retail
sale of a Financed Vehicle in the ordinary course of such Dealer's
business in each case in accordance in all material respects with
Paragon's credit approval guidelines, and, to the best knowledge
of Seller, such Dealer had all necessary licenses and permits to
originate Receivables in the state where such Dealer was located,
(2) was fully and properly executed by the parties thereto, (3)
and if originated by a Dealer, was purchased by Paragon from such
Dealer under an existing Dealer Agreement and Dealer Assignment
and was purchased by the Seller from Paragon pursuant to the
Receivables Purchase Agreement, (4) contains customary and
enforceable provisions such that the rights and remedies of the
holder or assignee thereof shall be adequate for realization
against the collateral of the benefits of the security, (5)
provides for level monthly payments that fully amortize the Amount
Financed over the original term (except for the last payment,
which may be greater or smaller than the level payment), provided
payments are made on the applicable due dates, (6) as of the
Initial Cutoff Date has an Annual Percentage Rate of not less than
6.83% and not more than 17%, (7) provides for, if such contract is
prepaid, a prepayment that fully pays the Principal Balance and
accrued interest at the Annual Percentage Rate and (8) is a Simple
Interest Receivable or a Pre-Computed Receivable, provided that
not more than 12% of the Receivables are Pre-Computed Receivables;
(B) as of the Initial Cutoff Date in the case of an Initial
Receivable, or as of the applicable Subsequent Cutoff Date, in the
case of a Subsequent Receivable, no Receivable has a payment more
than 10% of which is more than 29 days past due; (C) each
Receivable has a final scheduled payment due no later than May 15,
2005; (D) as of the Initial Cutoff Date, not more than 93.40% of
the aggregate principal balance of the Initial Receivables
represented financing of used vehicles, and the remainder of the
Initial Receivables represented financing of new vehicles; (E) as
of the Initial Cutoff Date, the average remaining principal
balance of the Initial Receivables was not more than
B-1 Sale and Servicing Agreement
$18,648; (F) as of the Initial Cutoff Date, the weighted average
Annual Percentage Rate of the Initial Receivables was not less
than 10.63%; (G) as of the Initial Cutoff Date at least 65% of the
Initial Receivables shall be secured by automobiles and sports
utility vehicles with a manufacturer's suggested retail price when
new of $20,000 or more; and (H) as of the Initial Cutoff Date, no
more than 4% of Aggregate Principal Balance of the Initial
Receivables shall be rated "Credit Tier A" as defined in Paragon's
credit and collection policy.
4. Principal Balance; Scheduled Payments. (A) Each
Receivable has an outstanding principal balance as of the Initial
Cutoff Date in the case of an Initial Receivable, or as of the
applicable Subsequent Cutoff Date in the case of a Subsequent
Receivable, of not less than $1,000 and not more than $85,000; (B)
each Receivable originated on or prior to January 31, 1999 had at
least one scheduled payment made prior to the date that is two
Business Days prior to the Closing Date; and (C) each Receivable
originated after January 31, 1999 either (I) has had (and each
Subsequent Receivable will have) at least one scheduled payment
made prior to the date that is two Business Days prior to the
Closing Date (or the Subsequent Transfer Date with respect to a
Subsequent Receivable) or (II) will have a first scheduled payment
made within 29 days of the due date thereof.
5. Characteristics of Obligors. As of the Initial Cutoff
Date with respect to an Initial Receivable and as of the
applicable Subsequent Cutoff Date with respect to a Subsequent
Receivable, no Obligor on any Receivable (A) was the subject of
any federal, state or other bankruptcy, insolvency or similar
proceeding pending on the date of application that is not
discharged, (B) was currently the subject of a judgment in favor
of Paragon, and (C) had its related Financed Vehicle repossessed
(or subject to repossession).
6. Billing Addresses for Obligors. Based on the billing
addresses of the Dealers and the Principal Balances as of the
Initial Cutoff Date, the Obligors of approximately 28.42% of the
Receivables were located in California, the Obligors of
approximately 15.46% of the Receivables were located in North
Carolina, the Obligors of approximately 12.78% of the Receivables
were located in Texas, the Obligors of approximately 11.48% of the
Receivables were located in Virginia and no other state based upon
the billing addresses of the Dealers has a concentration of
Receivables greater than or equal to 10% of the Aggregate
Principal Balance of the Receivables.
7. Location of Receivable Files. There exists a complete
Receivable File with respect to each Receivable that will have
been delivered to the Indenture Trustee on or prior to the Closing
Date with respect to the Initial Receivables and on or prior to
the applicable Subsequent Transfer Date with respect to Subsequent
Receivables and any exceptions set forth in the Indenture
Trustee's certificate will be corrected within 30 days.
8. Schedule of Receivables. The information with respect
to the Receivables set forth in the Schedule of Receivables has
been produced from the Electronic Ledger and is
B-2 Sale and Servicing Agreement
true and correct in all material respects as of the close of
business on the Initial Cutoff Date and each Subsequent Cutoff
Date.
9. Adverse Selection. No selection procedures having a
material adverse effect on the Trust, the Note Insurer or
Noteholders have been utilized in selecting the Receivables from
those receivables owned by Paragon that met the selection criteria
contained in this Agreement. No advances were made to qualify the
Receivables under the eligibility criteria set forth in this
Schedule B.
10. Compliance with Law. Neither the Receivables nor the
sale of the related Financed Vehicles, at the time the related
Receivable was originated or made, contravened in any material
respect, and, at the date of transfer thereof contravenes in any
material respect, any requirements of applicable federal, state
and local laws, and regulations thereunder including, without
limitation, usury laws, the Federal Truth-in-Lending Act, the
Equal Credit Opportunity Act, the Fair Credit Reporting Act, the
Fair Debt Collection Practices Act, the Federal Trade Commission
Act, the Xxxxxxxx-Xxxx Warranty Act, the Federal Reserve Board's
Regulations B and Z, the Soldiers' and Sailors' Civil Relief Act
of 1940, each applicable state Motor Vehicle Retail Installment
Sales Act, and state adaptations of the National Consumer Act and
of the Uniform Consumer Credit Code, and other consumer credit
laws and equal credit opportunity and disclosure laws.
11. No Government Obligor. None of the Receivables is due
from the United States of America or any state or from any other
Governmental Authority.
12. Security Interest in Financed Vehicle. Each
Receivable has created, or will create when all required
procedures are completed by the Servicer, a valid, subsisting and
enforceable first priority perfected security interest in the
related Financed Vehicle in favor of Paragon as secured party, and
such security interest is, or will be upon the completion of all
required procedures by the Servicer, prior to all other liens upon
and security interests in such Financed Vehicle that now exist or
may hereafter arise or be created (except, as to priority, for any
tax liens or mechanics' liens that may arise after the Closing
Date with respect to the Initial Receivables or after the
applicable Subsequent Transfer Date with respect to Subsequent
Receivables).
13. Binding Obligation; Receivables in Force. Each
Receivable is a binding obligation of its related Obligor and no
Receivable has been satisfied, subordinated or rescinded, nor has
any Financed Vehicle been released from the lien granted by the
related Receivable in whole or in part.
14. No Amendments. As of the Initial Cutoff Date with
respect to the Initial Receivables or as of the applicable
Subsequent Cutoff Date with respect to Subsequent Receivables, no
Receivable has been amended, altered or modified; no provision of
any Receivable has been waived, other than any provisions
requiring vendor single interest insurance or late payment fees
and those waivers, alterations or modifications specifically
B-3 Sale and Servicing Agreement
permitted pursuant to Section 3.2 of this Agreement, and no more
than 0.05% of the Receivables have been extended beyond their
original maturity dates. As of the Initial Cutoff Date with
respect to the Initial Receivables or as of the applicable
Subsequent Cutoff Date with respect to Subsequent Receivables, no
Receivable has been modified as a result of application of the
Soldiers' and Sailors' Civil Relief Act of 1940, as amended.
15. No Defenses. As of the Initial Cutoff Date with
respect to the Initial Receivables and as of the related
Subsequent Cutoff Date with respect to Subsequent Receivables, no
right of rescission, setoff, counterclaim or defense exists with
respect to any Receivable. The operation of the terms of any
Receivable or the exercise of any right thereunder will not render
such Receivable unenforceable in whole or in part or subject to
any such right of rescission, setoff, counterclaim or defense.
16. No Liens. As of the Initial Cutoff Date with respect
to the Initial Receivables or as of the applicable Subsequent
Cutoff Date with respect to Subsequent Receivables, there are no
liens or claims existing or that have been filed for work, labor,
storage or materials relating to any of the related Financed
Vehicles that are liens prior to the security interest in the
related Financed Vehicles granted by the related Receivables.
17. No Fraud or Misrepresentation. Each Receivable was
originated by a Dealer and was sold by the Dealer to Paragon
without fraud or misrepresentation on the part of such Dealer in
either case.
18. No Default; Repossession. Except for payment
delinquencies continuing for a period of less than 31 days as of
the Initial Cutoff Date with respect to the Initial Receivables or
as of the applicable Subsequent Cutoff Date with respect to
Subsequent Receivables, no default, breach, violation or event
permitting acceleration under the terms of any Receivable has
occurred; no continuing condition that with notice or the lapse of
time would constitute a default, breach, violation, or event
permitting acceleration under the terms of any Receivable has
arisen; the Seller shall not waive and has not waived any of the
foregoing; and no related Financed Vehicle has been repossessed as
of the Initial Cutoff Date with respect to the Initial Receivables
or as of the applicable Subsequent Cutoff Date with respect to
Subsequent Receivables.
19. Insurance; Other. Paragon, in accordance with its
customary procedures, has determined (A) that each Obligor, at the
time of origination, had obtained or agreed to obtain insurance
covering the Financed Vehicle as of the execution of the
Receivable insuring against loss and damage due to fire, theft,
transportation, collision and other risks generally covered by
comprehensive and collision coverage (i) in an amount at least
equal to the lesser of (x) its maximum insurable value or (y) the
principal amount due from the Obligor under the related Receivable
and (ii) naming Paragon as loss payee, (B) each Receivable that
finances the cost of premiums for credit life and accident or
health insurance is covered by an insurance policy and certificate
of insurance naming Paragon as creditor under each such insurance
policy and certificate of insurance, and (C) as to each Receivable
that includes
B-4 Sale and Servicing Agreement
financing for the cost of a service contract, the respective
Financed Vehicle that secures the Receivable is covered by a
service contract. No Receivable has force-placed insurance.
20. Title. No Receivable has been sold, transferred,
assigned or pledged by Paragon to any Person other than the Seller
or a Warehouse Lender (and the Warehouse Liens shall be released
as of the Closing Date) or any such pledge that has been released
on or prior to the Closing Date with respect to the Initial
Receivables or the applicable Subsequent Transfer Date with
respect to the Subsequent Receivables. Immediately prior to the
transfer and assignment herein contemplated, the Seller had good
and marketable title to each Receivable, and was the sole owner
thereof, free and clear of all Liens and, immediately upon the
transfer thereof, the Trust shall have good and marketable title
to each such Receivable, and will be the sole owner thereof, free
and clear of all Liens (other than Permitted Liens), and the
transfer has been perfected under the UCC. No Dealer has a
participation in, or other right to receive, proceeds of any
Receivable. The Seller has not taken any action to convey any
right to any Person that would result in such Person having a
right to payments received under the related Insurance Policies or
the related Dealer Agreements or Dealer Assignments or to payments
due under such Receivables.
21. Marking of Receivables. On the Closing Date and each
Subsequent Transfer Date, Paragon or the Seller will have caused
the portions of the Electronic Ledger relating to the Receivables
to be clearly and unambiguously marked to show that the
Receivables have been sold by Paragon to the Seller in accordance
with the terms of the Receivables Purchase Agreement or the
applicable Subsequent Purchase Agreement and sold by the Seller to
the Trust in accordance with the terms of this Agreement and
pledged to the Indenture Trustee for the benefit of the
Noteholders under the Indenture.
22. Computer Tape. The Computer Tape made available by
the Seller to the Indenture Trustee on the Closing Date was
complete and accurate in all material respects as of the Initial
Cutoff Date and includes a description of the same Receivables
that are described in the Schedule of Receivables.
23. Lawful Assignment. No Receivable has been originated
in, or is subject to the laws of, any jurisdiction under which the
sale, contribution, transfer and assignment of such Receivable
under this Agreement shall be unlawful, void or voidable. The
Seller has not entered into any agreement with any account debtor
that prohibits, restricts or conditions the assignment of any
portion of the Receivables.
24. All Filings Made. All filings (including, without
limitation, UCC filings) necessary in any jurisdiction to give the
Indenture Trustee a first priority perfected ownership interest in
the Receivables and the other Trust Property have been made.
25. One Original. There is only one original executed
copy of each Receivable.
B-5 Sale and Servicing Agreement
26. Valid and Binding Obligation of Obligor. Each
Receivable is the legal, valid and binding obligation of the
Obligor thereunder and is enforceable in accordance with its
terms, except only as such enforcement may be limited by
bankruptcy, insolvency or similar laws affecting the enforcement
of creditors' rights generally; all parties to such contract had
full legal capacity to execute and deliver such contract and all
other documents related thereto and to grant the security interest
purported to be granted thereby.
27. Title Documents. (A) If any Financed Vehicle was
originated in a state in which notation of security interest on
the title document is required or permitted to perfect such
security interest, the title document for such Financed Vehicle
shows, or if a new or replacement title document is being applied
for with respect to such Financed Vehicle, the title document will
be received within 180 days and will show, Paragon named as the
original secured party under the related Receivables as the Holder
of a first priority security interest in such Financed Vehicle,
and (B) if any Financed Vehicle was originated in a state in which
the filing of a financing statement under the UCC is required to
perfect a security interest in motor vehicles, such filings or
recordings have been duly made and show Paragon named as the
original secured party under the related Receivable, and in either
case, no further action is required under the UCC or any titling
statute or act to continue the perfected status of the first
priority security interest in the Financed Vehicle against
creditors of and transferees from the original Obligor.
28. Chattel Paper. Each Receivable constitutes "chattel
paper" under the UCC.
29. Tax Liens. As of the Initial Cutoff Date with respect
to the Initial Receivables and as of the applicable Subsequent
Cutoff Date with respect to Subsequent Receivables, there is no
Lien against the related Financed Vehicles for delinquent taxes.
B-6 Sale and Servicing Agreement
EXHIBIT A
FORM OF SERVICER'S CERTIFICATE
[Attached.]
A-1 Sale and Servicing Agreement
EXHIBIT B
REQUEST FOR RELEASE AND RECEIPT OF DOCUMENTS
To: Norwest Bank Minnesota, National Association
Re: Sale and Servicing Agreement (the "Servicing
Agreement"), dated as of ________ __, ____,
between Paragon Auto Receivables Corporation
(the "Seller"), Paragon Auto Receivables Owner
Trust 1999-A, as purchaser (the "Trust"),
Paragon Acceptance Corporation, individually and
in its capacity as Servicer (the "Servicer"),
and Norwest Bank Minnesota, National
Association, as Indenture Trustee (the
"Indenture Trustee") and Backup Servicer
In connection with the administration of the Receivables held by
you as the Indenture Trustee, we request the release, and acknowledge
receipt, of the Receivable and related Receivable File described below, for
the reason indicated.
Obligor's Name, Customer Account Number and Vehicle Identification Number
Reason for Requesting Documents (check one)
_____ 1. Receivable Paid in Full. All amounts received in connection
with such payments have been deposited into the Lockbox
Account as required pursuant to Section 3.2 of the Servicing
Agreement
_____ 2. Receivable Purchased from Trust pursuant to Section 2.5 or
3.7 of the Servicing Agreement
_____ 3. Receivable is being serviced or subject to enforcement of
rights and remedies pursuant to Section 2.2(b) of the
Servicing Agreement
_____ 4. Other (explain)_______________________________
If item 1 or 2 above is checked, and if all or part of the Receivable or
Receivable File was previously released to us, please release to us any
additional documents in your possession relating to the above specified
Receivable.
B-1 Sale and Servicing Agreement
If item 3 or 4 above is checked, upon our return of all of the above
documents to you as the Indenture Trustee, please acknowledge your receipt
by signing in the space indicated below, and returning this form.
PARAGON ACCEPTANCE CORPORATION
as Servicer
By:________________________________
Name:______________________________
Title:_____________________________
Date:______________________________
DOCUMENTS RETURNED TO THE INDENTURE TRUSTEE
Norwest Bank Minnesota, National Association
(Indenture Trustee)
By:________________________________
Name:______________________________
Title:_____________________________
Date:______________________________
B-2 Sale and Servicing Agreement
EXHIBIT C
SUBSEQUENT TRANSFER AGREEMENT
TRANSFER No. ______ OF SUBSEQUENT RECEIVABLES, dated as of
____________, 1999 (this "Agreement"), between PARAGON AUTO
RECEIVABLES CORPORATION., as seller (the "Seller"), PARAGON AUTO
RECEIVABLES OWNER TRUST 1999-A, as purchaser (the "Trust"),
PARAGON ACCEPTANCE CORPORATION., in its individual capacity and as
servicer (the "Servicer"), and NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as indenture trustee and backup servicer (the
"Indenture Trustee") pursuant to the Sale and Servicing Agreement
referred to below.
WHEREAS, the Seller, the Trust, the Servicer and the Indenture
Trustee are parties to the Sale and Servicing Agreement, dated as of March
30, 1999 (the "Sale and Servicing Agreement");
WHEREAS, pursuant to the Sale and Servicing Agreement, the Seller
wishes to convey Subsequent Receivables to the Trust; and
WHEREAS, the Trust is willing to accept such conveyance subject to
the terms and conditions hereof.
NOW, THEREFORE, the Seller, the Trust, the Servicer and the
Indenture Trustee hereby agree as follows:
1. Defined Terms. Capitalized terms used but not defined herein
shall have the meanings set forth in the Sale and Servicing Agreement.
"Subsequent Cutoff Date" shall mean, with respect to the
Subsequent Receivables conveyed hereby, the opening of business on
________, 1999.
"Subsequent Reserve Account Deposit" means 2% of the
aggregate Principal Balance of Subsequent Receivables conveyed hereunder as
of the Subsequent Cutoff Date, or
$_____________.
"Subsequent Transfer Date" shall mean, with respect to
the Subsequent Receivables conveyed hereby, ______________, 1999.
2. Schedule of Receivables. Annexed hereto are supplements to
Schedule A to the Sale and Servicing Agreement listing the Receivables that
constitute the Subsequent Receivables to be conveyed pursuant to this
Agreement on the Subsequent Transfer Date.
C-1 Sale and Servicing Agreement
3. Conveyance of Subsequent Receivables; Deposit of Subsequent Reserve
Account Deposit. (a) In consideration of the Trust's delivery to or upon
the order of the Seller of $_____________, the Seller does hereby sell,
transfer, assign and otherwise convey, without recourse (except as
expressly provided in the Sale and Servicing Agreement), to the Trust, (1)
all of the right, title and interest of the Seller in and to the Subsequent
Receivables and all monies received thereunder or in respect thereof after
the Subsequent Cutoff Date (including all Liquidation Proceeds and
recoveries received with respect to such Subsequent Receivables); and (2)
all of the right, title and interest of Paragon and the Seller in and to
(i) the security interests of Paragon and the Seller in the related
Financed Vehicles and any other interest of Paragon and the Seller in the
related Financed Vehicles, including the certificates of title with respect
to such Financed Vehicles, (ii) the Insurance Policies and any proceeds
from any Insurance Policies relating to the Subsequent Receivables, the
Obligors or the related Financed Vehicles, including rebates of premiums
relating to the Subsequent Receivables, (iii) the rights of Paragon and the
Seller against Dealers with respect to the Subsequent Receivables under the
Dealer Agreements and the Dealer Assignments, (iv) the rights of the Seller
under the related Subsequent Purchase Agreement and (v) all proceeds and
investments of any of the foregoing, all present and future claims,
demands, causes and choses in action in respect of any or all of the
foregoing and all payments on or under and all proceeds of every kind and
nature whatsoever in respect of any of the foregoing. It is the intention
of the Seller that the transfer and assignment contemplated by this
Agreement shall constitute a sale of the Subsequent Receivables and the
other Trust Property with respect thereto from the Seller to the Trust and
the beneficial interest in and title to the Subsequent Receivables and the
other Trust Property with respect thereto shall not be part of the Seller's
estate in the event of the filing of a bankruptcy petition by or against
the Seller under any bankruptcy law. If, notwithstanding the intent of the
Seller, the transfer and assignment contemplated hereby is held not to be a
sale, the Seller hereby grants a first priority security interest to the
Trust in the property referred to in this Section 3(a) for the benefit of
the Noteholders, and this Agreement shall constitute a security agreement.
(b) On the Subsequent Transfer Date and simultaneously
with the conveyance of the Subsequent Receivables, the Trust, on behalf of
the Seller, shall deposit into the Reserve Account the Subsequent Reserve
Account Deposit.
4. Representations and Warranties of the Seller. The Seller hereby
represents and warrants to the other parties hereto and the Note Insurer as
of the date of this Agreement and as of the Subsequent Transfer Date:
(a) Organization and Good Standing. The Seller has been
duly organized and is validly existing as a corporation under the
laws of the State of Delaware, with power and authority to own its
properties and to conduct its business as such properties are
currently owned and such business is currently conducted.
(b) Due Qualification. The Seller is duly qualified to do
business and has obtained all necessary licenses and approvals in
all jurisdictions where the failure to do so would have a material
adverse effect on (i) the Seller's ability to transfer the
Subsequent Receivables and the other property conveyed hereunder
to the Trust pursuant to this
C-2 Sale and Servicing Agreement
Agreement, (ii) the validity or enforceability of the Subsequent
Receivables and the other property conveyed hereunder or (iii) the
Seller's ability to perform its obligations hereunder and under
its Related Documents.
(c) Power and Authority. The Seller has the power and
authority to execute and deliver this Agreement and to carry out
its terms; the Seller has power and authority to sell and assign
the Subsequent Receivables and the other property to be sold and
assigned to and deposited with the Trust by it and has duly
authorized such sale and assignment to and deposit with the Trust
by all necessary corporate action; and the execution, delivery and
performance of this Agreement has been duly authorized by the
Seller by all necessary corporate action.
(d) Binding Obligations. This Agreement, when duly
executed and delivered, shall constitute a valid and binding
obligation of the Seller enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and by equitable limitations on the
availability of specific remedies, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
(e) No Violation. The execution, delivery and performance
by the Seller of this Agreement, the consummation of the
transactions contemplated hereby and the fulfillment of the terms
hereof do not (i) conflict with, result in any breach of any of
the terms and provisions of, or constitute (with or without notice
or lapse of time) a default under, the articles of incorporation
or bylaws of the Seller, or any indenture, agreement, mortgage,
deed of trust or other instrument to which the Seller is a party
or by which it or its properties are bound, (ii) result in the
creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such indenture, agreement, mortgage,
deed of trust or other instrument or (iii) to the best of Seller's
knowledge, violate any law, order, rule or regulation applicable
to the Seller of any Governmental Authority having jurisdiction
over the Seller or any of its properties.
(f) No Proceedings. There are no proceedings or
investigations pending or, to the Seller's knowledge, threatened
against the Seller, before any Governmental Authority having
jurisdiction over the Seller or its properties (A) asserting the
invalidity of any of this Agreement, (B) seeking to prevent the
consummation of any of the transactions contemplated by this
Agreement, (C) seeking any determination or ruling that would have
a material adverse effect on the performance by the Seller of its
obligations under, or the validity or enforceability of, this
Agreement, or (D) seeking to impose any excise, franchise,
transfer or similar tax upon the sale and assignment of the
Subsequent Receivables and the other property hereunder.
(g) No Consents. No consent, approval, license,
authorization or order of, or declaration, registration or filing
with, any Governmental Authority or other Person, is required to
be made by the Seller in connection with the execution, delivery
or performance
C-3 Sale and Servicing Agreement
of this Agreement or the consummation of the transactions
contemplated hereby, except such as have been duly made, effected
or obtained.
(h) Principal Balance. The aggregate Principal Balance of
the Subsequent Receivables listed on the supplements to Schedule A
annexed hereto and conveyed to the Trust pursuant to this
Agreement as of the Subsequent Cutoff Date is $______________.
(i) Aggregate Pool Characteristics. The Receivables in
the Trust, including the Subsequent Receivables to be conveyed to
the Trust on the Subsequent Transfer Date, meet the following
criteria: (A) the weighted average APR of the Receivables in the
Trust shall not be less than 10.60%; (B) no Receivables shall have
an APR less than 6.75%; (C) the weighted average remaining term to
maturity of the Receivables on such Subsequent Transfer Date shall
not be greater than 64 months; (D) based upon the billing
addresses of the Dealers, not more than 10% of the aggregate
Principal Balances of the Receivables, including such Subsequent
Receivables, are located in any one state other than California,
North Carolina, Virginia or Texas; (E) at least 65% of the
Receivables shall be secured by automobiles and sports utility
vehicles with a manufacturer's suggested retail price when new of
$20,000 or more; (F) Pre-Computed Receivables shall not exceed 12%
of the Receivables by Aggregate Principal Balance; (G) no more
than 45% of the Receivables shall have an original term of more
than 60 months but less than or equal to 72 months; (H) no
Receivable shall have a Principal Balance less than $1000 or in
excess of $85,000; and (I) no more than 4% of Aggregate Principal
Balance of the Receivables shall be rated "Credit Tier A" as
defined in Paragon's credit and collection policy.
5. Conditions Precedent. The obligation of the Trust to acquire the
Receivables hereunder is subject to the satisfaction, on or prior to the
Subsequent Transfer Date, of the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by the Seller in Section
2.5(a) of the Sale and Servicing Agreement (with respect to the
Subsequent Receivables) and Section 4 of this Agreement shall be
true and correct as of the date of this Agreement and as of the
Subsequent Transfer Date.
(b) Sale and Servicing Agreement Conditions. Each of the
conditions set forth in Section 2.2(b) of the Sale and Servicing
Agreement shall have been satisfied.
6. Ratification of Agreement. As supplemented by this Agreement,
the Sale and Servicing Agreement is in all respects ratified and confirmed
and the Sale and Servicing Agreement as so supplemented by this Agreement
shall be read, taken and construed as one and the same instrument.
7. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together shall constitute one and the same instrument.
C-4 Sale and Servicing Agreement
8. Third Party Beneficiaries. The Note Insurer shall be a
third-party beneficiary to the provisions of this Agreement and shall be
entitled to rely upon and directly enforce such provisions of this
Agreement. Nothing in this Agreement, express or implied, shall give to any
Person, other than the parties hereto and their successors hereunder and
permitted assigns, any benefit or any legal or equitable right, remedy or
claim under this Agreement.
9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF (OTHER THAN SECTION
5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW), AND THE OBLIGATIONS,
RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
C-5 Sale and Servicing Agreement
IN WITNESS WHEREOF, the Seller, the Servicer, the Backup
Servicer, the Purchaser and the Indenture Trustee have caused this
Agreement to be executed by their duly authorized officers as of the day
and the year first above written.
PARAGON AUTO RECEIVABLES
CORPORATION, as Seller
By:__________________________________
Name:
Title:
PARAGON ACCEPTANCE
CORPORATION., as Servicer
By:__________________________________
Name:
Title:
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as
Indenture Trustee and as Backup Servicer
By:___________________________________
Name:
Title:
PARAGON AUTO RECEIVABLES
OWNER TRUST 1999-A, as Purchaser
By: WILMINGTON TRUST COMPANY,
not in its individual capacity but
solely as Owner Trustee
By:____________________________________
Name:
Title:
C-6 Sale and Servicing Agreement
SCHEDULE A
SUPPLEMENT TO SCHEDULE OF RECEIVABLES FOR
SUBSEQUENT TRANSFER DATE: __________
See attached list
C-7 Sale and Servicing Agreement
EXHIBIT D
FORM OF OFFICER'S CERTIFICATE
The undersigned hereby certifies that he is a duly authorized
officer of Paragon Acceptance Corporation, a Delaware Corporation
("Paragon"), and Paragon Auto Receivables Corporation, a Delaware
corporation ("Paragon Auto"), and that as such he is authorized to execute
and deliver this certificate in the name of and on behalf of Paragon and
Paragon Auto and represents, warrants and further certifies in his official
capacity, in the name and on behalf of Paragon and Paragon Auto, as follows
in connection with the transfer on __________, 199_ (the "Subsequent
Transfer Date") of Subsequent Receivables and with respect thereto by
Paragon to Paragon Auto and by Paragon Auto to the Trust:
1. Paragon Auto has provided Paragon, the Owner Trustee on behalf of
the Trust, the Indenture Trustee, the Note Insurer and the Rating
Agencies with an Addition Notice not later than five days prior to
the Subsequent Transfer Date and has provided any information
reasonably requested by any of them with respect to such
Subsequent Receivables;
2. Paragon Auto has delivered to Paragon, the Owner Trustee on behalf
of the Trust, the Note Insurer and the Indenture Trustee a duly
executed Subsequent Purchase Agreement, including a Schedule of
Subsequent Receivables;
3. Paragon Auto, or Paragon on its behalf, has deposited in the
Collection Account all collections received in respect of such
Subsequent Receivables received after the related Subsequent
Cutoff Date;
4. Paragon Auto has delivered to the Owner Trustee on behalf of the
Trust, the Note Insurer and the Indenture Trustee a duly executed
Subsequent Transfer Agreement, including a Schedule of Subsequent
Receivables;
5. As of the Subsequent Transfer Date, neither Paragon nor Paragon
Auto is insolvent nor have any of them been made insolvent by such
transfer nor are any of them aware of any pending insolvency;
6. Such addition shall not result in the Trust being treated as an
association taxable as a corporation for federal or Delaware
income tax purposes;
7. The Funding Period has not terminated;
8. The Note Insurer has given its prior written approval of the
transfer of such Subsequent Receivables with respect thereto by
Paragon to Paragon Auto and by Paragon Auto to the Trust, and
Paragon Auto, or Paragon on its behalf, has provided a copy
thereof to the Indenture Trustee.
D-1 Sale and Servicing Agreement
9. Paragon Auto has deposited the Subsequent Reserve Account Deposit in
the Reserve Account;
10. Paragon Auto has delivered to the Indenture Trustee the Receivable
Files relating to such Subsequent Receivables;
11. Both Paragon Auto and Paragon has delivered to the Rating
Agencies, the Note Insurer and the Indenture Trustee an Opinion of
Counsel with respect to the transfer of Subsequent Receivables
substantially in the form of the Opinion of Counsel relating to
certain bankruptcy, insolvency, tax and security interest matters
delivered to the Rating Agencies, Paragon, the Note Insurer and
the Indenture Trustee on the Closing Date;
12. The Receivables in the Trust, including such Subsequent
Receivables, shall meet the following criteria: (A) the weighted
average APR of the Receivables in the Trust shall not be less than
10.60%; (B) no Receivables shall have an APR less than 6.75%; (C) the
weighted average remaining term to maturity of the Receivables on such
Subsequent Transfer Date shall not be greater than 64 months; (D)
based upon the billing addresses of the Dealers, not more than 10% of
the aggregate Principal Balances of the Receivables, including such
Subsequent Receivables, are located in any one state other than
California, North Carolina, Virginia or Texas; (E) at least 65% of the
Receivables shall be secured by automobiles and sports utility
vehicles with a manufacturer's suggested retail price of $20,000 or
more; (F) Pre-Computed Receivables shall not exceed 12% of the
Receivables by Aggregate Principal Balance; (G) no more than 45% of
the Receivables shall have an original term of more than 60 months but
less than or equal to 72 months; (H) no Receivable shall have a
Principal Balance less than $1000 or in excess of $85,000; and (I) no
more than 4% of Aggregate Principal Balance of the Receivables shall
be rated "Credit Tier A" as defined in Paragon's credit and collection
policy.
13. No selection procedures adverse to the interests of the
Noteholders or the Note Insurer were utilized in selecting such
Subsequent Receivables;
14. Each of the conditions precedent specified in either Section
2.2(c) of the Receivables Purchase Agreement or Section 2.2(b) of
the Sale and Servicing Agreement has been satisfied;
15. The representations and warranties set forth in Section 3.1 of the
Receivables Purchase Agreement are true and correct in all
material respects; and
16. Paragon and Paragon Auto have each taken any action required to be
taken to maintain the first priority perfected ownership interest
of the Trust in the assets of the Trust.
D-2 Sale and Servicing Agreement
Capitalized terms used herein which are not defined herein shall
have the meanings ascribed thereto in the Sale and Servicing Agreement,
dated as of March 30, 1999, between Paragon Auto, as Seller, Paragon Auto
Receivables Owner Trust 1999-A, as purchaser, Paragon, in its individual
capacity and as Servicer, and Norwest Bank Minnesota, National Association,
as Indenture Trustee and as Backup Servicer.
PARAGON AUTO RECEIVABLES CORPORATION
By:_________________________________
Name:
Title:
PARAGON ACCEPTANCE CORPORATION
By:_________________________________
Name:
Title:
D-3 Sale and Servicing Agreement
