EXECUTION COPY
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INSURANCE AND INDEMNITY AGREEMENT
among
FINANCIAL SECURITY ASSURANCE INC.,
NATIONAL AUTO FINANCE 1998-1 TRUST,
NATIONAL FINANCIAL AUTO FUNDING TRUST
and
NATIONAL AUTO FINANCE COMPANY, INC.,
Dated as of January 20, 1998
National Auto Finance 1998-1 Trust
5.88% Automobile Receivables-Backed Notes
$85,200,000
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11.TXT
TABLE OF CONTENTS
Page
ARTICLE I.DEFINITIONS
Section 1.01. Definitions...................................................2
ARTICLE II.REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 2.01. Representations and Warranties of the Trust...................3
Section 2.02. Affirmative Covenants of the Trust............................7
Section 2.03. Negative Covenants of the Trust..............................14
Section 2.04. Representations and Warranties of NAFI and the Transferor....17
Section 2.05. Affirmative Covenants of NAFI and the Transferor.............25
Section 2.06. Negative Covenants of NAFI and the Transferor................34
Section 2.07. Representations and Warranties of NAFI and the
Transferor with respect to the Master Trust and Funding Trust
II...........................................................38
Section 2.08. Affirmative Covenants of NAFI and the Transferor
with respect to the Master Trust and Funding Trust II........39
Section 2.09. Negative Covenants of NAFI and the Transferor
with respect to the Master Trust and Funding Trust II........40
ARTICLE III.THE POLICY; REIMBURSEMENT; INDEMNIFICATION
Section 3.01. Issuance of the Policy.......................................41
Section 3.02. Payment of Fees and Premium..................................41
Section 3.03. Reimbursement Obligation.....................................42
Section 3.04. Indemnification..............................................44
Section 3.05. Subrogation..................................................46
ARTICLE IV.FURTHER AGREEMENTS
Section 4.01. Effective Date; Term of Agreement............................46
Section 4.02. Obligation Absolute..........................................47
Section 4.03. Assignments; Reinsurance; Third-Party Rights.................48
Section 4.04. Liability of Financial Security..............................49
ARTICLE X.XXXXXX OF DEFAULT; REMEDIES
Section 5.01. Events of Default............................................49
Section 5.02. Remedies; Waivers............................................53
ARTICLE VI.MISCELLANEOUS
Section 6.01. Amendments, Etc..............................................54
Section 6.02. Notices......................................................54
Section 6.03. Payment Procedure............................................56
Section 6.04. Confidentiality..............................................56
Section 6.05. Severability.................................................56
Section 6.06. Governing Law................................................57
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Page
Section 6.07. Consent to Jurisdiction......................................57
Section 6.08. Consent of Financial Security................................58
Section 6.09. Counterparts.................................................58
Section 6.10. Trial by Jury Waived.........................................58
Section 6.11. Limited Liability............................................58
Section 6.13. Entire Agreement.............................................59
Appendix I Definitions
Appendix II Conditions Precedent to Issuance of the Policy
Annex I Form of Financial Guaranty Insurance Policy
Appendix A Opinions of Counsel
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11.TXT
INSURANCE AND INDEMNITY AGREEMENT
INSURANCE AND INDEMNITY AGREEMENT dated as of January 20, 1998, by and
among FINANCIAL SECURITY ASSURANCE INC. ("Financial Security"), NATIONAL AUTO
FINANCE 1998-1 TRUST (the "Trust"), NATIONAL FINANCIAL AUTO FUNDING TRUST (the
"Transferor") and NATIONAL AUTO FINANCE COMPANY, INC. ("NAFI", and in its
capacity as Servicer, the "Servicer").
INTRODUCTORY STATEMENTS
A. On the Closing Date, (i) the Master Trust will sell all of its right,
title and interest in and to the Initial Receivables and certain other property
related thereto to Funding Trust II pursuant to the Assignment Agreement and
will simultaneously release its liens on such Initial Receivables and such other
property related thereto, (ii) Funding Trust II will simultaneously (A) sell all
of its right, title and interest in and to certain of the Initial Receivables
and such other property related thereto to the Transferor pursuant to the Sale
Agreement and (B) convey all of its right, title and interest in and to certain
of the Initial Receivables and such other property related thereto to NAFI as a
dividend, and in each case will simultaneously release its liens on such Initial
Receivables and such other property related thereto, (iii) NAFI will contribute
all of its right, title and interest in and to the Initial Receivables and the
other property related thereto conveyed to NAFI by Funding Trust II as a
dividend to the Transferor pursuant to the Purchase and Contribution Agreement,
and (iv) the Transferor will simultaneously sell all of its right, title and
interest in and to the Initial Receivables and such other property related
thereto to the Trust pursuant to the Sale and Servicing Agreement.
A. On each Subsequent Transfer Date, the Transferor proposes to purchase
Subsequent Receivables and certain other property related thereto from NAFI
pursuant to the Purchase and Contribution Agreement and to simultaneously sell
to the Trust all of its right, title and interest in and to such Subsequent
Receivables and such other property related thereto pursuant to the Sale and
Servicing Agreement and the related Subsequent Transfer Agreement.
A. The Trust will issue the Securities pursuant to the Indenture and the
Certificates pursuant to the Trust Agreement. The Trust has requested that
Financial Security issue a financial guaranty insurance policy guaranteeing
certain distributions of the principal of and interest on the Securities
(including any such distributions subsequently avoided as a preference under
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applicable bankruptcy law) upon the terms and subject to the conditions provided
herein.
A. It is contemplated that NAFI and/or Funding Trust II and/or the
Transferor and/or any other Affiliate of NAFI may in the future enter into one
or more pooling and servicing agreements, sale and servicing agreements,
indentures, receivables purchase agreements or other financing documents (each,
a "Securitization Agreement") pursuant to which NAFI, Funding Trust II, the
Transferor and/or such other Affiliate of NAFI will sell, pledge or otherwise
transfer all or a portion of its right, title and interest in and to pools of
contracts and/or other financial assets or property to a trust or other Person
and in connection therewith Financial Security in its discretion may in the
future issue additional policies with respect to certain guaranteed
distributions or scheduled payments with respect to the corresponding
securities, certificates, notes or other obligations issued or arising under
such Securitization Agreements.
A. The parties hereto desire to specify the conditions precedent to the
issuance of the Policy, the terms of payment of premium in respect of the
Policy, the indemnity and reimbursement to be provided to Financial Security in
respect of amounts paid by Financial Security under the Policy or otherwise and
certain other matters.
In consideration of the premises and of the agreements herein contained,
Financial Security, the Trust, the Transferor and NAFI hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1. Definitions. Capitalized terms used herein shall have the
meanings provided in Appendix I hereto unless the context otherwise requires. In
addition, all terms defined in the Sale and Servicing Agreement or in the Spread
Account Agreement shall have the same meanings in this Insurance Agreement.
Unless otherwise specified, if a word or phrase defined in the Sale and
Servicing Agreement or in the Spread Account Agreement can be applied with
respect to one or more Series, such a word or phrase shall be used herein as
applied to Series 1998-1.
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ARTICLE II.
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 2.1. Representations and Warranties of the Trust. The Trust
represents, warrants and covenants, as of the date hereof, the Date of Issuance
and each Subsequent Transfer Date, with respect to itself and otherwise as
follows:
(a) Due Organization and Qualification. The Trust is a Delaware
statutory business trust, duly formed, validly existing and in good
standing under the laws of the State of Delaware, with power and authority
to own its properties and to conduct its business. The Trust is duly
qualified to do business, is in good standing and has obtained all
necessary licenses, permits, charters, registrations and approvals
(together, "approvals") necessary for the conduct of its business as
currently conducted and as described in the Offering Document and the
performance of its obligations under the Transaction Documents, in each
jurisdiction in which the failure to be so qualified or to obtain such
approvals would render any Receivable unenforceable in any respect or would
otherwise have a material adverse effect upon the Transaction.
(b) Power and Authority. The Trust has all necessary trust power and
authority to conduct its business as currently conducted and as described
in the Offering Document, to execute, deliver and perform its obligations
under the Transaction Documents and to consummate the Transaction.
(c) Due Authorization. The execution, delivery and performance of the
Transaction Documents by the Trust have been duly authorized by all
necessary action on the part of the Trust and do not require any additional
approvals or consents or other action by or any notice to or filing with
any Person by or on behalf of the Trust, including, without limitation, any
governmental entity.
(d) Noncontravention. None of the execution and delivery of the
Transaction Documents by the Trust, the consummation of the transactions
contemplated thereby or the satisfaction of the terms and conditions of the
Transaction Documents,
(i) conflicts with or results in any breach or violation of any
provision of the certificate of trust of the Trust or the Trust
Agreement, or any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award currently in effect having
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applicability to the Trust, or any of its properties, including
regulations issued by an administrative agency or other governmental
authority having supervisory powers over the Trust,
(ii) constitutes or will constitute a default by the Trust under
or a breach of any provision of any loan agreement, mortgage,
indenture or other agreement or instrument to which the Trust is a
party or by which it or any of its properties may be bound or
affected, or
(iii) results in or requires the creation of any Lien upon or in
respect of any of the assets of the Trust except as otherwise
contemplated by the Transaction Documents.
(e) Legal Proceedings. There is no action, proceeding or
investigation, by or before any court, governmental or administrative
agency or arbitrator against or affecting all or any of the Receivables,
the Trust, or any properties or rights of the Trust, pending or threatened,
which, in any case, if decided adversely, could result in a Material
Adverse Change with respect to the Trust or any Receivable.
(f) Valid and Binding Obligations. Each of the Transaction Documents
to which the Trust is a party when executed and delivered by the Owner
Trustee on behalf of the Trust, will constitute the legal, valid and
binding obligations of the Trust, enforceable in accordance with its
respective terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and general equitable principles. The
Securities, when executed, authenticated and delivered in accordance with
the Indenture, will be entitled to the benefits of the Indenture and will
constitute legal, valid and binding obligations of the Trust, enforceable
in accordance with their terms. The Certificates, when executed,
authenticated and delivered in accordance with the Trust Agreement, will be
validly issued and outstanding and entitled to the benefits of the Trust
Agreement and will evidence the entire beneficial interest in the Trust.
(g) ERISA. The Trust does not maintain or contribute to, or have any
obligation to maintain or contribute to, any Plan. The Trust is not subject
to any of the provisions of ERISA.
(h) Accuracy of Information. None of the Provided Documents contain
any statement of a material fact with
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respect to the Trust or the Transaction that was untrue or misleading in
any material respect when made. Since the furnishing of the Provided
Documents, there has been no change, nor any development or event involving
a prospective change known to the Trust that would render any of the
Provided Documents untrue or misleading in any material respect. There is
no fact known to the Trust which has a material possibility of causing a
Material Adverse Change with respect to the Trust or the Receivables.
(i) Compliance With Securities Laws. The offer and sale of the
Securities and the Certificates comply in all material respects with all
requirements of law, including all applicable registration requirements of
securities laws. Without limitation of the foregoing, the Offering Document
does not contain any untrue statement of a material fact and does not omit
to state a material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they
were made, not misleading; provided that no representation is made with
respect to information included in an Offering Document and furnished by
Financial Security in writing expressly for use therein (all such
information so furnished being referred to herein as "Financial Security
Information"), it being understood that, in respect of the Offering
Document, the Financial Security Information is limited to the information
included under the caption "THE INSURER", and such additional information
as may be deemed to be included in the Offering Document pursuant to the
second paragraph under the heading "Incorporation Of Certain Documents By
Reference" on page S-3 of the Offering Document. None of the Trust
Agreement, the Indenture or the Sale and Servicing Agreement is required to
be qualified under the Trust Indenture Act.
(j) Incorporation of Certain Representations and Warranties. Each of
the representations and warranties of the Trust contained in the
Transaction Documents is true and correct in all material respects and the
Trust hereby makes each such representation and warranty made by it to, and
for the benefit of, Financial Security as if the same were set forth in
full herein.
(k) No Consents. No consent, license, approval or authorization from,
or registration, filing or declaration with, any regulatory body,
administrative agency, or other governmental instrumentality, nor any
consent, approval, waiver or notification of any creditor, lessor or other
nongovernmental Person, is required with respect to, or to be obtained by,
the Trust in connection with the execution, delivery and performance by the
Trust of this Insurance
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Agreement or any other Transaction Document to which the Trust is a party,
except (in each case) such as have been obtained and are in full force and
effect.
(l) Compliance With Law, Etc. No practice, procedure or policy
employed or proposed to be employed by the Trust in the conduct of its
business violates any law, regulation, judgment, agreement, order or decree
applicable to it which, if enforced, would result in a Material Adverse
Change with respect to the Trust.
(m) Special Purpose Entity.
(i) The capital of the Trust is adequate for the business and
undertakings of the Trust.
(ii) Other than the transactions as provided in the Transaction
Documents, the Trust is not engaged in any business transactions with
NAFI, the Transferor or any of their respective Subsidiaries or
Affiliates.
(iii) The Trust's funds and assets are not, and will not be,
commingled with the funds of any other Person.
(n) Solvency; Fraudulent Conveyance. The Trust is solvent and will not
be rendered insolvent by the Transaction and, after giving effect to such
Transaction, the Trust will not be left with an unreasonably small amount
of capital with which to engage in its business. The Trust does not intend
to incur, or believe that it has incurred, debts beyond its ability to pay
such debts as they mature. The Trust does not contemplate the commencement
of insolvency, bankruptcy, liquidation or consolidation proceedings or the
appointment of a receiver, liquidator, conservator, trustee or similar
official in respect of the Trust or any of its assets. The Trust is not
pledging the Collateral to the Trust Collateral Agent, or issuing the
Securities and the Certificates, as provided in the Transaction Documents,
with any intent to hinder, delay or defraud any of the Trust's creditors.
(o) Investment Company Act Compliance. Neither the Trust nor the Owner
Trust Estate is required to be registered as an "investment company" under
the Investment Company Act. The Trust is not subject to the information
reporting requirements of the Securities Exchange Act.
(p) Collateral. On the Date of Issuance, and on each Subsequent
Transfer Date, the Trust will be the owner of, and will have good and
marketable title to, each item of
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Other Trust Property conveyed on such date and will own each such item free
and clear of all Liens and Restrictions on Transferability (other than
Liens contemplated under the Indenture) or any equity or participation
interest of any other Person and will have full right, power and lawful
authority to pledge such Other Trust Property. The Indenture constitutes a
valid pledge of the Collateral to the Trust Collateral Agent, and the Trust
Collateral Agent shall have a valid and perfected first priority security
interest in the Collateral, free and clear of all Liens and Restrictions on
Transferability.
(q) Perfection of Liens and Security Interest. On the Closing Date,
the Lien and security interest in favor of the Trust Collateral Agent with
respect to the Collateral will be perfected by the delivery of the
Receivable Files to the Custodian, which Receivable Files the Custodian
will hold on behalf of the Trust Collateral Agent, the filing of financing
statements on Form UCC-1 in each jurisdiction where such recording or
filing is necessary for the perfection of such Lien and security interest,
and the establishment of the Collection Account, the Pre-Funding Account,
the Pre-Funding Period Reserve Account, the Distribution Account and the
Note Distribution Account in accordance with the provisions of the
Transaction Documents, and no other filings in any jurisdiction or any
other actions (except as expressly provided herein) are necessary to
perfect the Trust Collateral Agent's first priority Lien on and security
interest in the Collateral as against any third parties.
(r) Security Interest in Funds and Investments. Assuming the retention
of funds in the Trust Accounts and the acquisition of Eligible Investments
in accordance with the Transaction Documents, such funds and Eligible
Investments will be subject to a valid and perfected, first priority
security interest in favor of the Trust Collateral Agent on behalf of the
Indenture Trustee (on behalf of the holders of the Securities) and
Financial Security. Assuming the retention of funds in the Spread Account
and the acquisition of Eligible Investments in accordance with the Spread
Account Agreement, such funds and Eligible Investments will be subject to a
valid and perfected, first priority security interest in favor of the
Collateral Agent on behalf of Financial Security.
Section 2.2. Affirmative Covenants of the Trust. The Trust hereby agrees,
that during the Term of this Agreement, unless Financial Security shall
otherwise expressly consent in writing:
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(a) Compliance With Agreements and Applicable Laws. The Trust shall
perform each of its obligations under the Transaction Documents and shall
comply with all material requirements of, and the Securities and the
Certificates shall be offered and sold in accordance with, any law, rule or
regulation applicable to it or thereto, or that are required in connection
with its performance under any of the Transaction Documents. The Trust will
not cause or permit to become effective any amendment to or modification of
any of the Transaction Documents to which it is a party unless Financial
Security shall have previously approved in writing the form of such
amendment or modification. The Trust shall not take any action or fail to
take any action that would interfere with the enforcement of any rights
under the Transaction Documents.
(b) Financial Statements; Accountants' Reports; Other Information. The
Trust shall keep or cause to be kept in reasonable detail books and records
of account of its assets and business, which shall be furnished to
Financial Security upon request. The Trust shall furnish or cause to be
furnished to Financial Security the following to the extent any of the
following is prepared by or on behalf of the Trust:
(i) Annual Financial Statements. As soon as available, and in any
event within 90 days after the close of each fiscal year of the Trust,
the audited balance sheets of the Trust as of the end of such fiscal
year and the audited statements of income, changes in shareholders'
equity and cash flows of the Trust, all in reasonable detail and
stating in comparative form the respective figures for the
corresponding date and period in the preceding fiscal year, prepared
in accordance with generally accepted accounting principles,
consistently applied, and accompanied by the certificate of the
Trust's independent accountants (who shall be, in each case, a
nationally recognized firm or otherwise acceptable to Financial
Security) and by the certificate specified in Section 2.02(c) hereof.
(ii) Quarterly Financial Statements. As soon as available, and in
any event within 45 days after the close of each of the first three
quarters of each fiscal year of the Trust, the unaudited balance
sheets of the Trust, as of the end of such quarter and the unaudited
statements of income, changes in shareholders' equity and cash flows
of the Trust for the portion of the fiscal year then ended, all in
reasonable detail and stating in comparative form the
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respective figures for the corresponding date and period in the
preceding fiscal year, prepared in accordance with generally accepted
accounting principles, consistently applied (subject to normal
year-end adjustments), and accompanied by the certificate specified in
Section 2.02(c) hereof.
(iii) Accountants' Reports. Copies of any reports submitted to
the Trust by its independent accountants in connection with any
examination of the financial statements of the Trust.
(iv) Other Information. Promptly upon receipt thereof, copies of
all reports, statements, certifications, schedules, financial
statements, notices or other similar items delivered to or by the
Trust pursuant to the terms of the Transaction Documents and, promptly
upon request, such other data as Financial Security may reasonably
request. The books and records of the Trust will be maintained at the
address designated herein for receipt of notices, unless the Trust
shall otherwise advise the parties hereto in writing.
(v) Documents. The Trust shall provide or cause to be provided to
Financial Security an executed original copy of each document executed
in connection with the Transaction within 10 days after the date of
closing.
(vi) Tax Documentation. Not less than ten days prior to the date
of filing with the IRS of any tax return or amendment thereto, copies
of the proposed form of such return or amendment and promptly after
the filing or sending thereof, copies of all tax returns and
amendments thereto, proxy statements, financial statements, reports
and registration statements which the Trust files, or delivers to, the
IRS, the Commission, or any other federal, state or foreign government
agency, authority or body which supervises the issuance of securities
by the Trust or any national securities exchange.
(c) Compliance Certificate. The Trust shall deliver to Financial
Security concurrently with the delivery of the financial statements
required pursuant to Section 2.02(b)(i) hereof and concurrently with the
delivery of the financial statements required pursuant to Section
2.02(b)(ii) hereof a certificate signed by an officer of the Trust stating
that:
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(i) a review of the Trust's performance under the Transaction
Documents during such period has been made under such officer's
supervision;
(ii) to the best of such individual's knowledge, no Special
Event, Default or Event of Default has occurred, or if a Special
Event, Default or Event of Default has occurred, specifying the nature
thereof and, if the Trust has a right to cure any such Default or
Event of Default pursuant to Section 5.01, stating in reasonable
detail the steps, if any, being taken by the Trust to cure such
Default or Event of Default or to otherwise comply with the terms of
the agreement to which such Default or Event of Default relates; and
(iii) the attached financial reports submitted in accordance with
Section 2.02(b)(i) or (ii) hereof, as applicable, are complete and
correct in all material respects and present fairly the financial
condition and results of operations of the Trust, as of the dates and
for the periods indicated, in accordance with generally accepted
accounting principles consistently applied (subject as to interim
statements to normal year end adjustments).
(d) Notice of Material Events. The Trust shall promptly inform
Financial Security in writing of the occurrence of any of the following:
(i) the submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation (A)
against the Trust pertaining to the Receivables in general, (B) with
respect to a material portion of the Receivables or (C) in which a
request has been made for certification as a class action (or
equivalent relief) that would involve a material portion of the
Receivables;
(ii) any change in the location of the Trust's principal office
or any change in the location of the Trust's books and records;
(iii) the occurrence of any Default or Special Event; or
(iv) any other event, circumstance or condition that has
resulted, or the Trust reasonably believes might result, in a Material
Adverse Change in respect of the Trust or the Receivables.
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(e) Access to Records, Discussions with Officers and Accountants. The
Trust shall, upon the request of Financial Security, permit Financial
Security or its authorized agents (i) to inspect the books and records of
the Trust as they may relate to the Securities, the Certificates, the
Receivables and the Other Trust Property, the obligations of the Trust
under the Transaction Documents, the Trust's business and the Transaction
and (ii) to discuss the affairs, finances and accounts of the Trust with
any of its personnel and representatives, including its independent
accountants. Such inspections and discussions shall be conducted during
normal business hours and shall not unreasonably disrupt the business of
the Trust. The books and records of the Trust will be maintained at the
address of the Trust designated herein for receipt of notices, unless the
Trust shall otherwise advise the parties hereto in writing.
(f) Further Assurances. The Trust will file all necessary financing
statements, assignments or other instruments, and any amendments or
continuation statements relating thereto, necessary to be kept and filed in
such manner and in such places as may be required by law to preserve and
protect fully the Lien on and security interest in, and all rights of the
Trust Collateral Agent with respect to the Collateral under the Indenture.
In addition, the Trust shall, upon the request of Financial Security, from
time to time, execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, within ten (10) days of such request, such
amendments hereto and such further instruments and take such further action
as may be reasonably necessary to effectuate the intention, performance and
provisions of the Transaction Documents or to protect the interest of the
Trust Collateral Agent in the Collateral under the Indenture, free and
clear of all Liens and Restrictions on Transferability except the Lien in
favor of the Trust Collateral Agent. In addition, the Trust agrees to
cooperate with S&P and Xxxxx'x in connection with any review of the
Transaction which may be undertaken by S&P and Xxxxx'x after the date
hereof.
(g) Retirement of Securities. The Trust shall, upon retirement of the
Securities, furnish to Financial Security a notice of such retirement, and,
upon retirement of the Securities and the expiration of the Term of the
Policy, surrender the Policy to Financial Security for cancellation.
(h) Third-Party Beneficiary. The Trust agrees that Financial Security
shall have all rights of a third-party beneficiary in respect of each of
the Transaction Documents and hereby incorporates and restates its
representations,
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warranties and covenants as set forth therein for the benefit of Financial
Security.
(i) Preservation of Existence. The Trust shall observe in all material
respects all procedures required by its certificate of trust and the Trust
Agreement and preserve and maintain its existence as a trust and its
rights, franchises and privileges in the jurisdiction of its organization,
and duly qualify and remain in good standing in each jurisdiction where the
nature of its business requires it to do so.
(j) Disclosure Document. (1) Each Offering Document delivered with
respect to the Securities shall clearly disclose that the Policy is not
covered by the property/casualty insurance security fund specified in
Article 76 of the New York Insurance Law. In addition, each Offering
Document delivered with respect to the Securities which includes financial
statements of Financial Security prepared in accordance with generally
accepted accounting principles shall include the following statement
immediately preceding such financial statements:
The New York State Insurance Department recognizes only statutory
accounting practices for determining and reporting the financial
condition and results of operations of an insurance company, for
determining its solvency under the New York Insurance Law, and for
determining whether its financial condition warrants the payment of a
dividend to its stockholders. No consideration is given by the New
York State Insurance Department to financial statements prepared in
accordance with generally accepted accounting principles in making
such determinations.
(2) Each Offering Document delivered with respect to the
Securities subsequent to the Date of Issuance shall be in form and
substance satisfactory to Financial Security in its sole discretion as
evidenced by Financial Security's prior written consent to the use
thereof.
(k) Special Purpose Entity.
(i) The Trust shall conduct its business solely in its own name
through its duly authorized officers or agents so as not to mislead
others as to the identity of the entity with which those officers are
concerned, and particularly will avoid the appearance of
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conducting business on behalf of NAFI, the Transferor or any of their
respective Affiliates or that the assets of the Trust are available to
pay the creditors of NAFI, the Transferor or any of their respective
Affiliates. Without limiting the generality of the foregoing, all oral
and written communications, including, without limitation, letters,
invoices, purchase orders, contracts, statements and loan
applications, will be made solely in the name of the Trust.
(ii) The Trust shall maintain trust records and books of account
separate from those of NAFI, the Transferor or any of their respective
Affiliates. The books and records of the Trust will be separate from
those of NAFI, the Transferor and their respective Affiliates and will
be maintained at the address designated herein for receipt of notices,
unless the Trust shall otherwise advise the parties hereto in writing
with respect to such address.
(iii) The Trust shall obtain proper authorization from its equity
owners of all trust action requiring such authorization, and copies of
each such authorization and the minutes or other written summary of
each such meeting shall be delivered to Financial Security within two
weeks of such authorization or meeting, as the case may be.
(iv) Although the organizational expenses of the Trust have been
paid by the Seller, operating expenses and liabilities of the Trust
shall be paid from its own funds.
(v) The annual financial statements of the Trust shall disclose
the effects of the Trust's transactions in accordance with generally
accepted accounting principles and shall disclose that the assets of
the Trust are not available to pay creditors of NAFI, the Transferor
or any of their respective Affiliates.
(vi) The resolutions, agreements and other instruments of the
Trust underlying the transactions described in this Insurance
Agreement and the other Transaction Documents shall be continuously
maintained by the Trust as official records of the Trust separately
identified and held apart from the records of NAFI, the Transferor or
any of their respective Affiliates.
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(vii) The Trust shall maintain an arm's-length relationship with
NAFI, the Transferor and their respective Affiliates and will not hold
itself out as being liable for the debts of NAFI, the Transferor or
any of their respective Affiliates.
(viii) The Trust shall keep its assets and its liabilities wholly
separate from those of all other entities, including, but not limited
to NAFI, the Transferor and their respective Affiliates.
(l) Maintenance of Licenses. The Trust shall maintain all licenses,
permits, charters and registrations which are material to the performance
by the Trust of its business and of its obligations under this Insurance
Agreement and each other Transaction Document to which the Trust is a party
or by which the Trust is bound.
(m) Tax Matters. The Trust will take all actions necessary to ensure
that the Trust is taxable as a partnership for federal and state income tax
purposes and not as an association (or publicly traded partnership) taxable
as a corporation.
(n) Securities Laws. The Trust shall comply in all material respects
with all applicable provisions of state and federal securities laws,
including blue sky laws and the Securities Act, the Exchange Act and the
Investment Company Act and all rules and regulations promulgated thereunder
for which non-compliance would result in a Material Adverse Change with
respect to the Trust.
(o) Incorporation of Covenants. The Trust shall comply with each of
the Trust's covenants set forth in the Transaction Documents and hereby
incorporates such covenants by reference as if each were set forth herein.
(p) Notification of Failure to Perform or Observe Certain Covenants or
Agreements. The Trust shall promptly deliver to the Transferor, the
Servicer or NAFI, as applicable, a copy of any written notice delivered to
the Trust pursuant to Section 5.01(d) concerning any failure to perform or
observe any covenant or agreement contained in any of the Transaction
Documents by the Transferor, the Servicer or NAFI, as the case may be.
Section 2.3. Negative Covenants of the Trust. The Trust hereby agrees that
during the Term of this Agreement, unless Financial Security shall otherwise
expressly consent in writing:
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(a) Restrictions on Liens. The Trust shall not, except as contemplated
by the Transaction Documents (i) create, incur or suffer to exist, or agree
to create, incur or suffer to exist, or consent to cause or permit in the
future (upon the happening of a contingency or otherwise) the creation,
incurrence or existence of any Lien or Restriction on Transferability on
the Receivables and the Other Trust Property except for the Lien in favor
of the Trust Collateral Agent under the Indenture or (ii) sign or file
under the Uniform Commercial Code of any jurisdiction any financing
statement which names the Trust as a debtor, or sign any security agreement
authorizing any secured party thereunder to file such financing statement,
with respect to the Receivables and the Other Trust Property, except in
each case any such instrument solely securing the rights and preserving the
Lien of the Trust Collateral Agent, for the benefit of the holders of the
Securities and Financial Security.
(b) Impairment of Rights. The Trust shall not take any action, or fail
to take any action, if such action or failure to take action may (i)
interfere with the enforcement of any rights under the Transaction
Documents that are material to the rights, benefits or obligations of the
Indenture Trustee, the Certificateholders, the holders of Securities or
Financial Security, (ii) result in a Material Adverse Change in respect of
the Receivables or (iii) impair the ability of the Trust to perform its
obligations under the Transaction Documents.
(c) Waiver, Amendments, Etc. The Trust shall not waive, modify or
amend, or consent to any waiver, modification or amendment of, any of the
provisions of any of the Transaction Documents or its certificate of trust
or the Trust Agreement unless Financial Security shall have consented
thereto in writing.
(d) Successors. The Trust shall not terminate or designate, or consent
to the termination or designation of, the Servicer, the Backup Servicer,
the Custodian, the Owner Trustee, the Trust Collateral Agent, the Indenture
Trustee or the Collateral Agent or any successor thereto without the prior
approval of Financial Security.
(e) Creation of Indebtedness; Guarantees. The Trust shall not create,
incur, assume or suffer to exist any indebtedness other than indebtedness
guaranteed or approved in writing by Financial Security. Without the prior
written consent of Financial Security, the Trust shall not assume,
guarantee, endorse or otherwise be or become directly or contingently
liable for the obligations of any Person by,
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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.
(f) Subsidiaries. The Trust shall not form, or cause to be formed, any
Subsidiaries.
(g) Issuance of Additional Beneficial Ownership Interests. The Trust
shall not issue or allow the issuance of any additional beneficial
ownership interests or securities convertible into or exchangeable for
beneficial ownership interests in the Trust.
(h) No Mergers. The Trust shall not consolidate with or merge into any
Person or transfer all or any material portion of its assets to any Person
or liquidate or dissolve except as contemplated by the Transaction
Documents.
(i) Other Activities. The Trust shall not:
(i) sell, transfer, exchange or otherwise dispose of any of its
assets except as permitted under the Transaction Documents; or
(ii) engage in any business or activity except as contemplated by
the Transaction Documents and as permitted under its certificate of
trust.
(j) Insolvency. The Trust shall not commence any case, proceeding or
other action (A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to the bankruptcy, insolvency, reorganization
or relief of debtors, seeking to have an order for relief entered with
respect to it, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, corporation or other relief with
respect to it or (B) seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial part of its
assets, or make a general assignment for the benefit of its creditors. The
Trust shall not take any action in furtherance of, or indicating the
consent to, approval of, or acquiescence in any of the acts set forth
above. The Trust shall not admit in writing its inability to pay its debts.
(k) ERISA. The Trust shall not contribute or incur any obligation to
contribute to, or incur any liability in respect of, any Plan or
Multiemployer Plan.
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Section 2.4. Representations and Warranties of NAFI and the Transferor.
NAFI represents, warrants and covenants, as of the date hereof, the Date of
Issuance and each Subsequent Transfer Date with respect to itself, with respect
to the Transferor and otherwise as follows, and the Transferor represents,
warrants and covenants, as of the date hereof, the Date of Issuance and each
Subsequent Transfer Date, with respect to itself and otherwise, as follows:
(a) Due Organization and Qualification. NAFI is a corporation, duly
organized, validly existing and in good standing under the laws of the
State of Delaware. The Transferor is a Delaware statutory business trust,
duly formed, validly existing and in good standing under the laws of the
State of Delaware. Each of NAFI and the Transferor is duly qualified to do
business, is in good standing and has obtained all necessary licenses,
permits, charters, registrations and approvals (together, "approvals")
necessary for the conduct of its business as currently conducted and as
described in the Offering Document and the performance of its obligations
under the Transaction Documents, in each jurisdiction in which the failure
to be so qualified or to obtain such approvals would render any Receivable
unenforceable in any respect or would otherwise have a material adverse
effect upon the Transaction.
(b) Power and Authority. Each of NAFI and the Transferor has all
necessary power and authority to conduct its business as currently
conducted and as described in the Offering Document, to execute, deliver
and perform its obligations under the Transaction Documents and to
consummate the Transaction.
(c) Due Authorization. The execution, delivery and performance of the
Transaction Documents by each of NAFI and the Transferor have been duly
authorized by all necessary action and do not require any additional
approvals or consents or other action by or any notice to or filing with
any Person.
(d) Noncontravention. None of the execution and delivery of the
Transaction Documents by the Transferor or NAFI, the consummation of the
transactions contemplated thereby or the satisfaction of the terms and
conditions of the Transaction Documents,
(i) conflicts with or results in any breach or violation of any
provision of the certificate of trust and the trust agreement of the
Transferor or the certificate of incorporation and by-laws of NAFI, or
any law, rule, regulation, order, writ, judgment,
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injunction, decree, determination or award currently in effect having
applicability to the Transferor or NAFI, as the case may be, or any of
their respective properties, including regulations issued by an
administrative agency or other governmental authority having
supervisory powers over the Transferor or NAFI, as the case may be,
(ii) constitutes a default by the Transferor or NAFI, as the case
may be, under or a breach of any provision of any loan agreement,
mortgage, indenture or other agreement or instrument to which the
Transferor or NAFI, as the case may be, or any of their respective
Subsidiaries or Affiliates is a party or by which it or any of its or
their properties is or may be bound or affected, or
(iii) results in or requires the creation of any Lien upon or in
respect of any of the assets of the Transferor or NAFI or any of their
respective Subsidiaries or Affiliates except as otherwise expressly
contemplated by the Transaction Documents.
(e) Legal Proceedings. There is no action, proceeding or investigation
by or before any court, governmental or administrative agency or arbitrator
against or affecting all or any of the Receivables, NAFI, the Transferor or
any of their respective Subsidiaries or Affiliates, or any properties or
rights of NAFI, the Transferor or any of their respective Subsidiaries or
Affiliates, pending or threatened, which, in any case, if decided
adversely, would result in a Material Adverse Change with respect to NAFI,
the Transferor or any Receivable.
(f) Valid and Binding Obligations. Each of the Transaction Documents
to which either NAFI or the Transferor is a party when executed and
delivered by NAFI or by the Transferor, as the case may be, will constitute
the legal, valid and binding obligations of such Person, enforceable in
accordance with their respective terms, except as such enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally and general equitable
principles. The Securities, when executed, authenticated and delivered in
accordance with the Indenture, will be binding obligations of the Trust,
enforceable in accordance with their terms, validly issued and outstanding
and entitled to the benefits of the Indenture, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and
general equitable
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principles. The Certificates, when executed, authenticated and delivered in
accordance with the Trust Agreement, will be validly issued and outstanding
and entitled to the benefits of the Trust Agreement and will evidence the
entire beneficial ownership interest in the Trust.
(g) Financial Statements. The Financial Statements of each of the
Transferor and NAFI, copies of which have been furnished to Financial
Security, (i) are, as of the dates and for the periods referred to therein,
complete and correct in all material respects, (ii) present fairly the
financial condition and results of operations of each of the Transferor and
NAFI as of the dates and for the periods indicated and (iii) have been
prepared in accordance with generally accepted accounting principles
consistently applied, except as noted therein (subject as to interim
statements to normal year-end adjustments). Since the date of the most
recent Financial Statements, there has been no Material Adverse Change in
such financial condition or results of operations. Except as disclosed in
the Financial Statements, neither the Transferor nor NAFI is subject to any
contingent liabilities or commitments that, individually or in the
aggregate, have a material possibility of causing a Material Adverse Change
in respect of the Transferor or NAFI, as the case may be.
(h) ERISA. Each of the Transferor and NAFI is in compliance with ERISA
and has not incurred and does not reasonably expect to incur any
liabilities to the PBGC under ERISA in connection with any Plan or
Multiemployer Plan or to contribute now or in the future in respect of any
Plan or Multiemployer Plan.
(i) Accuracy of Information. None of the Provided Documents contain
any statement of a material fact with respect to NAFI, the Transferor or
the Transaction that was untrue or misleading in any material respect when
made. Since the furnishing of the Provided Documents, there has been no
change, nor any development or event involving a prospective change known
to NAFI or to the Transferor, that would render any of the Provided
Documents untrue or misleading in any material respect. There is no fact
known to NAFI or to the Transferor which has a material possibility of
causing a Material Adverse Change with respect to NAFI, the Transferor or
the Receivables.
(j) Compliance With Securities Laws. The offer and sale of the
Securities and the Certificates comply in all material respects with all
requirements of law, including all applicable registration requirements of
securities laws. Without limitation of the foregoing, the Offering Document
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does not contain any untrue statement of a material fact and does not omit
to state a material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they
were made, not misleading; provided that no representation is made with
respect to information included in an Offering Document and furnished by
Financial Security in writing expressly for use therein (all such
information so furnished being referred to herein as "Financial Security
Information"), it being understood that, in respect of the Offering
Document, the Financial Security Information is limited to the information
included under the caption "THE INSURER", and such additional information
as may be deemed to be included in the Offering Document pursuant to the
second paragraph under the heading "Incorporation Of Certain Documents By
Reference" on page S-3 of the Offering Document. Neither the Trust nor the
Owner Trust Estate is required to be registered as an "investment company"
under the Investment Company Act. None of the Trust Agreement, the
Indenture or the Sale and Servicing Agreement is required to be qualified
under the Trust Indenture Act.
(k) Incorporation of Certain Representations and Warranties. Each of
the representations and warranties of NAFI and of the Transferor contained
in the Transaction Documents is true and correct in all material respects
and each of NAFI and the Transferor hereby makes each such representation
and warranty made by it to, and for the benefit of, Financial Security as
if the same were set forth in full herein.
(l) No Consents. No consent, license, approval or authorization from,
or registration, filing or declaration with, any regulatory body,
administrative agency, or other governmental instrumentality, nor any
consent, approval, waiver or notification of any creditor, lessor or other
nongovernmental Person, is required in connection with the execution,
delivery and performance by NAFI or by the Transferor of this Insurance
Agreement or of any other Transaction Document to which such Person is a
party, except (in each case) such as have been obtained and are in full
force and effect.
(m) Compliance With Law, Etc. No practice, procedure or policy
employed or proposed to be employed by NAFI or by the Transferor in the
conduct of their respective businesses violates any law, regulation,
judgment, agreement, order or decree applicable to it which, if enforced,
would result in a Material Adverse Change with respect to such Person or
the Receivables.
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(n) Special Purpose Entity.
(i) The capital of the Transferor is adequate for the business
and undertakings of the Transferor.
(ii) Other than with respect to the ownership by NAFI and its
Affiliates of all of the beneficial ownership interests of the
Transferor and the transactions as provided in (A) the Transaction
Documents and (B) the corresponding applicable agreements relating to
the issuance by each of National Auto Finance 1995-1 Trust, National
Auto Finance 1996-1 Trust and National Auto Finance 1997-1 Trust of a
Series, the Transferor is not engaged in any business transactions
with NAFI or any of its Affiliates.
(iii) At least one co-trustee of the Transferor shall be a Person
who is not, and will not be, a director, officer, employee or holder
of any partnership interests or equity securities or other beneficial
ownership interests of NAFI or any of its Affiliates.
(iv) The Transferor's funds and assets are not, and will not be,
commingled with the funds of any other Person.
(v) The trust agreement of the Transferor requires it to maintain
(A) correct and complete books and records of account, and (B) minutes
of the meetings and other proceedings of its holders of beneficial
ownership interests and trustees (including any co-trustees).
(o) Solvency; Fraudulent Conveyance. Each of NAFI and the Transferor
is solvent and will not be rendered insolvent by the Transaction and, after
giving effect to such Transaction, neither NAFI nor the Transferor will be
left with an unreasonably small amount of capital with which to engage in
its business. Neither NAFI nor the Transferor intends to incur, or believes
that it has incurred, debts beyond its ability to pay such debts as they
mature. Neither NAFI nor the Transferor is contemplating the commencement
of insolvency, bankruptcy, liquidation or consolidation proceedings or the
appointment of a receiver, liquidator, conservator, trustee or similar
official in respect of NAFI or the Transferor, as the case may be, or any
of their respective assets. The amount of consideration being received by
the Transferor upon the sale of the Receivables and related Other Trust
Property to the Trust constitutes reasonably equivalent value and fair
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consideration for such Receivables and related Other Trust Property. The
amount of consideration being received by the Master Trust upon the sale of
the Initial Receivables and related Other Trust Property to Funding Trust
II constitutes reasonably equivalent value and fair consideration for such
Receivables and related Other Trust Property. The amount of consideration
being received by Funding Trust II upon the sale of the Initial Receivables
and related Other Trust Property to the Transferor constitutes reasonably
equivalent value and fair consideration for such Receivables and related
Other Trust Property. The amount of consideration to be received by NAFI
upon the transfer of the Subsequent Receivables and related Other Trust
Property to the Transferor constitutes reasonably equivalent value and fair
consideration for such Subsequent Receivables and related Other Trust
Property. None of (i) the Master Trust, with respect to the Initial
Receivables and related Other Trust Property transferred by it to Funding
Trust II, (ii) Funding Trust II, with respect to the Initial Receivables
and related Other Trust Property transferred by it to the Transferor and
NAFI, and (iii) NAFI, with respect to any Subsequent Receivables and
related Other Trust Property transferred by it to the Transferor, is
transferring any of the above-mentioned Receivables and related Other Trust
Property or interests with any intent to hinder, delay or defraud any of
their respective creditors. The Transferor is not transferring the
Receivables and related Other Trust Property to the Trust or selling the
Securities, as provided in the Transaction Documents, with any intent to
hinder, delay or defraud any of the Transferor's creditors.
(p) Investment Company Act Compliance. Neither NAFI nor the Transferor
is required to be registered as an "investment company" under the
Investment Company Act.
(q) Good Title; Valid Transfer; Absence of Liens; Security Interest.
(i) Immediately prior to the sale of the Initial Receivables and related
Other Trust Property by the Transferor to the Trust pursuant to the Sale
and Servicing Agreement on the Closing Date and immediately prior to the
sale of any Subsequent Receivables and related Other Trust Property by the
Transferor to the Trust pursuant to the Sale and Servicing Agreement and
the related Subsequent Transfer Agreement on any Subsequent Transfer Date,
the Transferor was the owner of, and had good and marketable title to, such
property free and clear of all Liens and Restrictions on Transferability,
and had full right, power and lawful authority to assign, transfer and
pledge such Receivables and related Other Trust Property. The Sale and
Servicing Agreement constitutes a valid sale, transfer and assignment of
the Initial Receivables and related Other Trust Property
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to the Trust, and the Sale and Servicing Agreement and each related
Subsequent Transfer Agreement constitute a valid sale, transfer and
assignment of the Subsequent Receivables and related Other Trust Property
to the Trust, in each case enforceable against creditors of and purchasers
of the Transferor. In the event that, in contravention of the intention of
the parties, the transfer of such Receivables and related Other Trust
Property by the Transferor to the Trust is characterized as other than a
sale, such transfer shall be characterized as a secured financing, and the
Trust shall have a valid and perfected first priority security interest in
the Receivables and related Other Trust Property free and clear of all
Liens and Restrictions on Transferability.
(ii) Immediately prior to the pledge of the Collateral by the
Trust to the Trust Collateral Agent pursuant to the Indenture, the
Trust was the owner of, and had good and marketable title to, the
Receivables and related Other Trust Property free and clear of all
Liens and Restrictions on Transferability, and had full right, trust
power and lawful authority to assign, transfer and pledge such
property. The Indenture constitutes a valid pledge of the Collateral
to the Trust Collateral Agent, and the Trust Collateral Agent shall
have a valid and perfected first priority security interest in the
Collateral, free and clear of all Liens and Restrictions on
Transferability.
(r) Perfection of Liens and Security Interest. On the Closing Date,
the Lien and security interest in favor of the Trust Collateral Agent with
respect to the Collateral will be perfected by the delivery of the
Receivable Files to the Custodian, which Receivable Files the Custodian
will hold on behalf of the Trust Collateral Agent, the filing of financing
statements on Form UCC-1 in each jurisdiction where such recording or
filing is necessary for the perfection of the security interest in favor of
the Trustee and the establishment of the Collection Account, the
Distribution Account, the Note Distribution Account, the Pre-Funding Period
Reserve Account, the Pre-Funding Account and the Lockbox Account in
accordance with the provisions of the Transaction Documents, and no other
filings in any jurisdiction or any other actions (except as expressly
provided herein) are necessary to perfect the Trustee Collateral Agent's
first priority Lien on and security interest in the Collateral as against
any third parties.
(s) Security Interest in Funds and Investments. Assuming the retention
of funds in the Trust Accounts and the acquisition of Eligible Investments
in accordance with the Transaction Documents, such funds and Eligible
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Investments will be subject to a valid and perfected, first priority
security interest in favor of the Trust Collateral Agent on behalf of the
Indenture Trustee (on behalf of the holders of the Securities) and Finance
Security. Assuming the retention of funds in the Spread Account and the
acquisition of Eligible Investments in accordance with the Spread Account
Agreement, such funds and Eligible Investments will be subject to a valid
and perfected, first priority security interest in favor of the Collateral
Agent on behalf of Financial Security.
(t) Taxes. Each of NAFI and the Transferor have and each of their
respective Subsidiaries have filed all Federal and state tax returns which
are required to be filed and paid all taxes, including any assessments
received by it, to the extent that such taxes have become due. Any taxes,
fees and other governmental charges payable by the Transferor or NAFI in
connection with the Transaction, the execution and delivery of the
Transaction Documents and the issuance of the Securities and the
Certificates have been paid or shall have been paid at or prior to the Date
of Issuance.
(u) Subsequent Receivables. With respect to the transfer by NAFI of
Subsequent Receivables and related Other Trust Property on any Subsequent
Transfer Date, immediately prior to the sale of such Subsequent Receivables
and related Other Trust Property to the Transferor pursuant to the Purchase
and Contribution Agreement and the related Conveyance, NAFI was the owner
of, and had good and marketable title to, such Subsequent Receivables and
related Other Trust Property free and clear of all Liens and Restrictions
on Transferability, and had full right, corporate power and lawful
authority to assign, transfer and pledge such Subsequent Receivables and
related Other Trust Property. The Purchase and Contribution Agreement and
the related Conveyance constitute a valid sale, transfer and assignment of
the related Subsequent Receivables and related Other Trust Property by NAFI
to the Transferor enforceable against creditors of and purchasers of NAFI.
In the event that, in contravention of the intention of the parties, the
transfer of such Subsequent Receivables and related Other Trust Property by
NAFI to the Transferor is characterized as other than a sale, such transfer
shall be characterized as a secured financing, and the Transferor shall
have a valid and perfected first priority security interest in such
Subsequent Receivables and related Other Trust Property free and clear of
all Liens and Restrictions on Transferability.
(v) Registration Statement; Prospectus. The Transferor has filed with
the Commission a registration statement on Form S-3 (No. 333-28829) and
Form S-3MEF (No.
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333-44159) filed pursuant to Rule 462(b) of the Securities Act, including a
preliminary prospectus and prospectus supplement for the registration of
the Securities under the Securities Act, has filed such amendments thereto,
and such amended preliminary prospectuses and prospectus supplements as may
have been required to the date hereof, and will file such additional
amendments thereto and such amended prospectuses and prospectus supplements
as may hereafter be required. Such registration statement (as amended, if
applicable) and the prospectus, together with the prospectus supplement
relating to the Securities, constituting a part thereof (including in each
case all documents, if any, incorporated by reference therein and the
information, if any, deemed to be part thereof pursuant to the rules and
regulations of the Commission under the Securities Act, as from time to
time amended or supplemented pursuant to the Securities Act or otherwise),
are hereinafter referred to as the "Registration Statement" and the
"Prospectus", respectively, except that if any revised prospectus or
prospectus supplement shall be provided by the Transferor for use in
connection with the offering of the Securities which differs from the
Prospectus filed with the Commission pursuant to Rule 424 of the rules and
regulations under the Securities Act (whether or not such revised
prospectus is required to be filed by the Transferor pursuant to such rules
and regulations), the term "Prospectus" shall refer to such revised
prospectus and prospectus supplement from and after the time it is first
provided to the Underwriter for such use. The Registration Statement at the
time it became effective complied, and at each time that the Prospectus is
provided to the Underwriter for use in connection with the offering or sale
of any Securities will comply, in all material respects with the
requirements of the Securities Act and the rules and regulations
thereunder. The Registration Statement and the Prospectus at the time the
Registration Statement became effective did not and on the date hereof does
not, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading and the Prospectus at the time it was
first provided to the Underwriter for use in connection with the offering
of the Securities did not, and on the date hereof does not, contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein in light of the circumstances
under which they were made not misleading.
Section 2.5. Affirmative Covenants of NAFI and the Transferor. NAFI hereby
agrees with respect to itself and with respect to the Transferor, and the
Transferor hereby agrees with
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respect to itself, that during the Term of this Agreement, unless Financial
Security shall otherwise expressly consent in writing:
(a) Compliance With Agreements and Applicable Laws. Each of the
Transferor and NAFI shall perform each of its respective obligations under
the Transaction Documents and shall comply with all material requirements
of, and the Securities and the Certificates shall be offered and sold in
accordance with, any law, rule or regulation applicable to it or thereto,
or that are required in connection with its performance under any of the
Transaction Documents.
(b) Financial Statements; Accountants' Reports; Other Information.
Each of NAFI and the Transferor shall keep or cause to be kept in
reasonable detail books and records of account of its respective assets and
business and, in the case of NAFI, shall clearly reflect therein the
transfer of Subsequent Receivables to the Transferor, and, in the case of
the Transferor, shall clearly reflect therein the transfer of the
Receivables to the Trust. NAFI shall cause the Master Trust to keep in
reasonable detail books and records of account of its assets and business
and to clearly reflect therein the transfer of the Initial Receivables to
Funding Trust II. NAFI shall cause Funding Trust II to keep in reasonable
detail books and records of account of its assets and business and to
clearly reflect therein the transfer of the Initial Receivables to the
Transferor. Each of NAFI and the Transferor shall furnish or cause to be
furnished to Financial Security:
(i) Annual Financial Statements. As soon as available, and in any
event within 90 days after the close of each fiscal year of NAFI and
the Transferor, the audited balance sheets of NAFI and the Transferor,
as the case may be, as of the end of such fiscal year and the audited
statements of income, changes in equity and cash flows of NAFI and the
Transferor, as the case may be, for such fiscal year, all in
reasonable detail and stating in comparative form the respective
figures for the corresponding date and period in the preceding fiscal
year, prepared in accordance with generally accepted accounting
principles, consistently applied, and accompanied by the certificate
of NAFI's and the Transferor's independent accountants (who shall be,
in each case, a nationally recognized firm or otherwise acceptable to
Financial Security) and by the certificate specified in Section
2.05(c) hereof.
(ii) Quarterly Financial Statements. As soon as available, and in
any event within 45 days after the close of each of the first three
quarters of each
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fiscal year of NAFI and the Transferor, as the case may be, the
unaudited balance sheets of NAFI and the Transferor, as the case may
be, as of the end of such quarter and the unaudited statements of
income, changes in equity and cash flows of NAFI and the Transferor,
as the case may be, for the portion of the fiscal year then ended, all
in reasonable detail and stating in comparative form the respective
figures for the corresponding date and period in the preceding fiscal
year, prepared in accordance with generally accepted accounting
principles, consistently applied (subject to normal year-end
adjustments), and accompanied by the certificate specified in Section
2.05(c) hereof if such certificate is required to be provided pursuant
to such Section.
(iii) Accountants' Reports. If a Special Event has occurred,
copies of any reports submitted to NAFI or the Transferor by their
respective independent accountants in connection with any examination
of the financial statements of NAFI or the Transferor, promptly upon
receipt thereof.
(iv) Other Information. Promptly upon receipt thereof, copies of
all reports, statements, certifications, schedules, or other similar
items delivered to or by NAFI or the Transferor pursuant to the terms
of the Transaction Documents and, promptly upon request, such other
data as Financial Security may reasonably request; provided, however,
that neither NAFI nor the Transferor shall be required to deliver any
such items if provision by some other party to Financial Security is
required under the Transaction Documents unless such other party
wrongfully fails to deliver such item. NAFI and the Transferor shall,
upon the request of Financial Security, permit Financial Security or
its authorized agents (A) to inspect the books and records of NAFI and
the Transferor as they may relate to the Securities, the Certificates,
the Receivables and the Other Trust Property, the obligations of NAFI
or of the Transferor under the Transaction Documents, the Transaction
and, but only following the occurrence of a Special Event, NAFI's
business; (B) to discuss the affairs, finances and accounts of NAFI or
the Transferor with its respective Chief Operating Officer and Chief
Financial Officer, no more frequently than annually, unless a Special
Event has occurred; and (C) to discuss the affairs, finances and
accounts of NAFI or the Transferor with its independent accountants,
provided that an officer of NAFI or the Transferor, as the case may
be, shall have
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the right to be present during such discussions. Such inspections and
discussions shall be conducted during normal business hours and shall
not unreasonably disrupt the business of NAFI or the Transferor, as
the case may be. In addition, NAFI shall promptly (but in no case more
than 30 days following issuance or receipt by a Commonly Controlled
Entity) provide to Financial Security a copy of all correspondence
between a Commonly Controlled Entity and the PBGC, IRS, Department of
Labor or the administrators of a Multiemployer Plan relating to any
Reportable Event or the underfunded status, termination or possible
termination of a Plan or a Multiemployer Plan. The books and records
of NAFI and the Transferor will be maintained at the respective
addresses designated herein for receipt of notices, unless NAFI or the
Transferor shall otherwise advise the parties hereto in writing.
(v) NAFI shall provide or cause to be provided to Financial
Security an executed original copy of each document executed in
connection with the Transaction within 10 days after the Closing Date
or the related Subsequent Transfer Date, as applicable.
(vi) Promptly after the filing or sending thereof, copies of all
proxy statements, financial statements, reports and registration
statements which NAFI or the Transferor files, or delivers to, the
IRS, the Commission, or any other Federal, state or foreign government
agency, authority or body which supervises the issuance of securities
by NAFI or the Transferor or any national securities exchange.
(c) Compliance Certificate. Each of NAFI and the Transferor shall
deliver to Financial Security concurrently with the delivery of the
financial statements required pursuant to Section 2.05(b)(i) hereof and
concurrently with the delivery of the financial statements required
pursuant to Section 2.05(b)(ii) hereof, a certificate signed by the Chief
Financial Officer of each of NAFI and the Transferor stating that:
(i) a review of NAFI's and the Transferor's respective
performance under the Transaction Documents during such period has
been made under such officer's supervision;
(ii) to the best of such individual's knowledge, no Special
Event, Default or Event of Default has occurred, or if a Special
Event, Default or Event of
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Default has occurred, specifying the nature thereof and, if NAFI or
the Transferor has a right to cure any such Default or Event of
Default pursuant to Section 5.01, stating in reasonable detail the
steps, if any, being taken by NAFI or the Transferor, as the case may
be, to cure such Default or Event of Default or to otherwise comply
with the terms of the agreement to which such Default or Event of
Default relates; and
(iii) the attached financial reports submitted in accordance with
Section 2.05(b)(i) or (ii) hereof, as applicable, are complete and
correct in all material respects and present fairly the financial
condition and results of operations of NAFI or the Transferor, as the
case may be, as of the dates and for the periods indicated, in
accordance with generally accepted accounting principles consistently
applied (subject as to interim statements to normal year-end
adjustments).
(d) Notice of Material Events. Each of NAFI and the Transferor shall
promptly inform (unless, in the case of clause (i) only, prohibited by
applicable law) Financial Security in writing of the occurrence of any of
the following:
(i) the submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation (A)
against NAFI or the Transferor pertaining to the Receivables in
general, (B) with respect to a material portion of the Receivables or
(C) in which a request has been made for certification as a class
action (or equivalent relief) that would involve a material portion of
the Receivables;
(ii) any change in the location of NAFI's or the Transferor's
principal office or any change in the location of NAFI's or of the
Transferor's books and records;
(iii) the occurrence of any Default, Event of Default or Special
Event; or
(iv) any other event, circumstance or condition that has
resulted, or has a material possibility of resulting, in a Material
Adverse Change in respect of NAFI or of the Transferor.
(e) Further Assurances. Each of NAFI and the Transferor will file or
cause to be filed all necessary financing statements, assignments or other
instruments, and
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any amendments or continuation statements relating thereto, necessary to be
kept and filed in such manner and in such places as may be required by law
to preserve and protect fully the Lien on and first priority security
interest in, and all rights of the Trust Collateral Agent with respect to
the Collateral under the Indenture. In addition, each of NAFI and the
Transferor shall, upon the request of Financial Security, from time to
time, execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, within ten (10) days of such request, such
amendments hereto and such further instruments and take such further action
as may be reasonably necessary to effectuate the intention, performance and
provisions of the Transaction Documents or to protect the interest of the
Trust Collateral Agent with respect to the Collateral under the Indenture,
free and clear of all Liens and Restrictions on Transferability except the
Lien in favor of the Trust Collateral Agent under the Indenture. In
addition, each of NAFI and the Transferor agrees to cooperate with S&P and
Xxxxx'x in connection with any review of the Transaction which may be
undertaken by S&P and Xxxxx'x after the date hereof.
(f) Retirement of Securities. Each of NAFI and the Transferor shall
cause the Trust Collateral Agent, upon retirement of the Securities
pursuant to the Indenture or otherwise, to furnish to Financial Security a
notice of such retirement, and, upon retirement of the Securities and the
expiration of the Term of the Policy, to surrender the Policy to Financial
Security for cancellation.
(g) Third-Party Beneficiary. Each of NAFI and the Transferor agrees
that Financial Security shall have all rights of a third-party beneficiary
in respect of each of the Transaction Documents and hereby incorporates and
restates its representations, warranties and covenants as set forth therein
for the benefit of Financial Security.
(h) Preservation of Existence. Except as provided in Section 2.06(h),
each of NAFI and the Transferor shall maintain its existence as a
corporation organized under the laws of the State of Delaware and as a
statutory business trust organized the laws of the State of Delaware,
respectively, and shall at all times continue to be duly organized under
the laws of the jurisdiction of its formation and duly qualified and duly
authorized (as described in Sections 2.04(a), (b) and (c) hereof) and shall
conduct its business in accordance with the terms of its certificate of
incorporation and by-laws or certificate of trust and trust agreement or
other applicable governing documents, as the case may be.
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(i) Disclosure Document. (1) Each Offering Document delivered with
respect to the Securities shall clearly disclose that the Policy is not
covered by the property/casualty insurance security fund specified in
Article 76 of the New York Insurance Law. In addition, each Offering
Document delivered with respect to the Securities which includes financial
statements of Financial Security prepared in accordance with generally
accepted accounting principles shall include the following statement
immediately preceding such financial statements:
The New York State Insurance Department recognizes only statutory
accounting practices for determining and reporting the financial
condition and results of operations of an insurance company, for
determining its solvency under the New York Insurance Law, and
for determining whether its financial condition warrants the
payment of a dividend to its stockholders. No consideration is
given by the New York State Insurance Department to financial
statements prepared in accordance with generally accepted
accounting principles in making such determinations.
(2) Each Offering Document delivered with respect to the
Securities subsequent to the Date of Issuance shall be in form and
substance satisfactory to Financial Security in its sole discretion as
evidenced by Financial Security's prior written consent to the use
thereof.
(j) Special Purpose Entity.
(i) The Transferor shall conduct its business solely in its own
name through its duly authorized officers or agents so as not to
mislead others as to the identity of the entity with which those
officers are concerned, and particularly will use its best efforts to
avoid the appearance of conducting business on behalf of NAFI or any
Affiliate thereof or that the assets of the Transferor are available
to pay the creditors of NAFI or any Affiliate thereof. Without
limiting the generality of the foregoing, all oral and written
communications, including, without limitation, letters, invoices,
purchase orders, Receivables, statements and loan applications, will
be made solely in the name of the Transferor.
(ii) The Transferor shall maintain records and books of account
separate from those of NAFI and the
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Affiliates thereof. The Transferor's books and records shall clearly
reflect the transfer of the Receivables to the Trust as a sale of the
Transferor's interest in the Receivables. The books of account and
records of the Transferor will be separate from those of NAFI and its
Affiliates and will be maintained at the address designated herein for
receipt of notices, unless the Transferor shall otherwise advise the
parties hereto in writing with respect to such address.
(iii) The Transferor shall obtain proper authorization of all
action requiring approval of the co-trustees or holders of beneficial
ownership interests of the Transferor, as the case may be. Meetings of
the holders of beneficial ownership interests of the Transferor shall
be held not less frequently than one time per annum and copies of each
such authorization and the minutes of each such meeting shall be
delivered to Financial Security within two weeks of such authorization
or meeting, as the case may be.
(iv) Although the organizational expenses of the Transferor have
been paid by NAFI, operating expenses and liabilities of the
Transferor shall be paid from its own funds.
(v) The annual financial statements of the Transferor shall
disclose the effects of the Transferor's transactions in accordance
with generally accepted accounting principles and shall disclose that
the assets of the Transferor are not available to pay creditors of
NAFI or any Affiliate thereof.
(vi) The resolutions, agreements and other instruments of the
Transferor underlying the transactions described in this Insurance
Agreement and the other Transaction Documents shall be continuously
maintained by the Transferor as official records of the Transferor
separately identified and held apart from the records of NAFI and each
Affiliate thereof.
(vii) The Transferor shall maintain an arm's-length relationship
with NAFI and the Affiliates thereof and will not hold itself out as
being liable for the debts of NAFI or any Affiliate thereof.
(viii) The Transferor shall keep its assets and its liabilities
wholly separate from those of all other entities, including, but not
limited to NAFI and the Affiliates thereof.
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(k) Maintenance of Licenses. NAFI and the Transferor shall each
maintain all licenses, permits, charters and registrations which are
material to the performance by NAFI or the Transferor, as the case may be,
of its business and of its respective obligations under this Insurance
Agreement and each other Transaction Document.
(l) Incorporation of Covenants. NAFI and the Transferor shall each
comply with their respective covenants set forth in the Transaction
Documents and hereby incorporates such covenants by reference as if each
were set forth herein.
(m) Release of Liens. NAFI and the Transferor shall each duly file or
cause to be duly filed with respect to itself and on behalf of the Master
Trust and Funding Trust II and other relevant parties, no later than the
Closing Date or the related Subsequent Transfer Date, as applicable, (i)
the amendments to, and/or terminations of, UCC financing statements,
evidencing the release by NAFI, the Transferor, the Master Trust and
Funding Trust II and other relevant parties of any Liens, security
interests and/or ownership interests in the Receivables and Other Trust
Property and (ii) the financing statements on Form UCC-1 in each
jurisdiction where such recording or filing is necessary for the perfection
of Liens and security interest of the Trust Collateral Agent in favor of
the Collateral.
(n) Notification of Failure to Perform or Observe Certain Covenants or
Agreements. The Transferor shall promptly deliver to the Trust, the
Servicer or NAFI, as applicable, a copy of any written notice delivered to
the Transferor pursuant to Section 5.01(d) concerning any failure to
perform or observe any covenant or agreement contained in any of the
Transaction Documents by the Trust, the Servicer or NAFI, as the case may
be.
(o) Certain Additional Documentation With Respect to Series 1998-1 and
the Prior Series.
(i) On or prior to March 31, 1998, each of NAFI and the
Transferor shall execute and deliver (and satisfy the conditions
precedent thereto set forth therein) and shall cause the other parties
thereto other than Financial Security to execute and deliver (and
satisfy the conditions precedent thereto set forth therein) such
documentation (including operative documents, opinions, officer
certificates and other ancillary documents) with respect to Series
1998-1 and each of the prior Series as Financial Security shall
determine is necessary to provide for the cross-
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collateralization of the Series 1998-1 Spread Account and the spread
accounts for each of the prior Series with cash flow priority to such
cross-collateralization and a position senior to any and all lenders
and security holders other than holders of securities guaranteed by
Financial Security and providing customary bankruptcy remoteness and
nonconsolidation protections for all funds to be held in any spread
account (including pursuant to such cross-collateralization). The
substantive terms of such cross-collateralization provisions and such
documentation shall be comparable to automobile receivable
securitizations in which Financial Security has issued a guaranty and
in which the non-guaranteed securities (or other interests) are
retained by the sponsor of the securitization. The substantive terms
of such cross-collateralization provisions and such documentation
shall be in all other respects reasonably satisfactory to Financial
Security.
(ii) On or prior to March 31, 1998, each of NAFI and the
Transferor shall execute and deliver (and satisfy the conditions
precedent thereto set forth therein) and shall cause the other
parties thereto other than Financial Security to execute and
deliver (and satisfy the conditions precedent thereto set forth
therein) such documentation (including operative documents,
opinions, officer certificates and other ancillary documents)
with respect to Series 1998-1 and each of the prior Series as
Financial Security shall determine is necessary to provide for a
backup servicing arrangement reasonably satisfactory to Financial
Security in Series 1998-1 and in each of the prior Series, which
documentation shall be in form and substance reasonably
satisfactory to Financial Security; provided, however, that such
backup servicing arrangement shall provide for standby data
verification and other standby services commencing no later than
June 21, 1998.
Section 2.6. Negative Covenants of NAFI and the Transferor. NAFI hereby
agrees with respect to itself and with respect to the Transferor and the
Transferor hereby agrees with respect to itself that during the Term of this
Agreement, unless Financial Security shall otherwise expressly consent in
writing:
(a) Restrictions on Liens. Neither NAFI nor the Transferor shall (i)
create, incur or suffer to exist, or agree to create, incur or suffer to
exist, or consent to cause or permit in the future (upon the happening of a
contingency or otherwise) the creation, incurrence or
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existence of any Lien or Restriction on Transferability on the Receivables
or the Other Trust Property except for the Lien in favor of the Trust
Collateral Agent under the Indenture for the benefit of the holders of the
Securities and Financial Security or (ii) with respect to the Receivables
or the Other Trust Property, sign or file under the Uniform Commercial Code
of any jurisdiction any financing statement which names either NAFI or the
Transferor as a debtor, or sign any security agreement authorizing any
secured party thereunder to file such financing statement, except in each
case any such instrument solely securing the rights and preserving the Lien
of the Trust Collateral Agent, for the benefit of the holders of the
Securities and Financial Security, under the Indenture.
(b) Impairment of Rights. Neither NAFI nor the Transferor shall take
any action, or fail to take any action, if such action or failure to take
action may (i) interfere with the enforcement of any rights under the
Transaction Documents that are material to the rights, benefits or
obligations of the Trust, the Trust Collateral Agent, the holders of the
Securities, the Certificateholders or Financial Security, (ii) result in a
Material Adverse Change in respect of the Receivables or the Other Trust
Property or (iii) impair the ability of NAFI or of the Transferor to
perform its obligations under the Transaction Documents, including any
consolidation or merger with any Person or any transfer of all or any
material amount of NAFI's or the Transferor's assets to any other Person if
such consolidation, merger or transfer would materially impair the net
worth of NAFI or the Transferor or any successor Person obligated, after
such event, to perform NAFI's or the Transferor's obligations under the
Transaction Documents.
(c) Waiver, Amendments, Etc. Neither NAFI nor the Transferor shall
waive, modify or amend, or consent to any waiver, modification or amendment
of, any of the provisions of any of the Transaction Documents or the
Transferor's certificate of trust or trust agreement.
(d) Successors. Neither NAFI nor the Transferor shall terminate or
designate, or consent to the termination or designation of, the Servicer,
the Backup Servicer, the Custodian, the Owner Trustee, the Trust Collateral
Agent, the Indenture Trustee or the Collateral Agent or any successor
thereto without the prior written approval of Financial Security.
(e) Creation of Indebtedness; Guarantees. Other than as permitted in
the Transaction Documents, the Transferor
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shall not create, incur, assume or suffer to exist any indebtedness other
than indebtedness guaranteed or approved in writing by Financial Security.
Without the prior written consent of Financial Security, the Transferor
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.
(f) Subsidiaries. The Transferor shall not form, or cause to be
formed, any Subsidiaries.
(g) Issuance of Additional Beneficial Ownership Interests. The
Transferor shall not issue or allow the issuance of any additional
beneficial ownership interests or securities convertible into or
exchangeable for beneficial ownership interests in the Transferor.
(h) No Mergers. (a) The Transferor shall not consolidate with or merge
into any Person or transfer all or any material portion of its assets to
any Person or liquidate or dissolve; and (b) NAFI shall not consolidate
with or merge into any Person unless it complies with the procedures set
forth in Section 9.3 of the Sale and Servicing Agreement with respect to
the merger or consolidation of the Servicer or transfer all or any material
portion of its assets to any Person or liquidate or dissolve.
(i) Other Activities. The Transferor shall not:
(i) sell, transfer, exchange or otherwise dispose of any of its
assets except as permitted under the Transaction Documents; or
(ii) engage in any business or activity other than as
contemplated in the Transaction Documents and as permitted under its
certificate of trust and trust agreement.
(j) Insolvency. Neither NAFI nor the Transferor shall commence with
respect to the Transferor any case, proceeding or other action (A) under
any existing or future law of any jurisdiction, domestic or foreign,
relating to the bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, corporation or other relief with respect to it or (B) seeking
appointment of a
-36-
receiver, trustee, custodian or other similar official for it or for all or
any substantial part of its assets, or make a general assignment for the
benefit of its creditors. Neither NAFI nor the Transferor shall take any
action in furtherance of, or indicating the consent to, approval of, or
acquiescence in any of the acts set forth above. The Transferor shall not
admit in writing its inability to pay its debts.
(k) ERISA. The Transferor shall not contribute or incur any obligation
to contribute to, or incur any liability in respect of, any Plan or
Multiemployer Plan.
(l) Distributions. The Transferor shall not declare or make payment of
(i) any distribution on or in respect of any of its beneficial ownership
interests, or (ii) any payment on account of the purchase, redemption,
retirement or acquisition of any option, warrant or other right to acquire
its beneficial ownership interests unless (in each case) at the time of
such declaration or payment (and after giving effect thereto) no amount
payable by the Transferor or the Trust under any Transaction Document with
respect to any Series is then due and owing but unpaid.
(m) Transfer of the Certificates. The Transferor shall not sell,
transfer, assign, convey or pledge, and shall not permit or allow the sale,
transfer, assignment, conveyance or pledge of, any Certificates at any time
subsequent to the Date of Issuance to any Person that is an Affiliate of
NAFI or the Transferor unless, prior to such sale, transfer, assignment,
conveyance or pledge, the Transferor delivers to Financial Security an
opinion of counsel addressed to Financial Security and satisfactory to
Financial Security in its sole discretion and substantially similar in form
and substance to the opinion of counsel delivered on the Date of Issuance
as to non-consolidation of the assets and liabilities of (x) the Transferor
and NAFI and (y) the Transferor and any such Person that is an Affiliate of
the Transferor (other than NAFI); provided, however, that the Transferor
shall not sell, transfer, assign, convey or pledge, and shall not permit or
allow the sale, transfer, assignment, conveyance or pledge of, any
Certificate at any time subsequent to the Date of Issuance to any Person
that is not an Affiliate of either the Transferor or NAFI unless, (i) prior
to such sale, transfer, assignment, conveyance or pledge, such Person
delivers to Financial Security (A) its agreement in writing to the effect
that so long as it has any interest in any Certificate such Person shall
not become an Affiliate of the Transferor or NAFI and (B) its agreement in
writing containing a nonpetition covenant with respect to the
-37-
Transferor in form and substance satisfactory to Financial Security in its
sole discretion, and (ii) the obligations of the Transferor to such Person
in connection with such sale, transfer, assignment, conveyance or pledge
shall be recourse only to the extent of amounts, if any, received by the
Transferor pursuant to Section 3.03(b) of the Spread Account Agreement.
Section 2.7. Representations and Warranties of NAFI and the Transferor with
respect to the Master Trust and Funding Trust II. Each of the Transferor and
NAFI represents, warrants and covenants, as of the date hereof, as of the Date
of Issuance and as of each Subsequent Transfer Date, with respect to itself,
with respect to the Master Trust, with respect to Funding Trust II and
otherwise, as follows:
(a) Good Title; Valid Transfer; Absence of Liens; Security Interest.
Immediately prior to the sale of the Initial Receivables and related Other
Trust Property to Funding Trust II pursuant to the Assignment Agreement on
the Closing Date, the Master Trust was the owner of, and had good and
marketable title to, such property free and clear of all Liens and
Restrictions on Transferability, and had full right, power and lawful
authority to assign, transfer and pledge such Receivables and related Other
Trust Property. Immediately prior to the sale of the Initial Receivables
and related Other Trust Property to the Transferor pursuant to the Sale
Agreement on the Closing Date, Funding Trust II was the owner of, and had
good and marketable title to, such property free and clear of all Liens and
Restrictions on Transferability, and had full right, power and lawful
authority to assign, transfer and pledge such Receivables and related Other
Trust Property. The Assignment Agreement constitutes a valid sale, transfer
and assignment of the Initial Receivables and related Other Trust Property
to Funding Trust II, enforceable against creditors of and purchasers of the
Master Trust. The Sale Agreement constitutes a valid sale, transfer and
assignment of the Initial Receivables and the related Other Trust Property
to the Transferor, enforceable against creditors of and purchasers of
Funding Trust II. In the event that, in contravention of the intention of
the parties, (i) the transfer of the Initial Receivables and related Other
Trust Property by the Master Trust to Funding Trust II or (ii) the transfer
of the Initial Receivables and related Other Trust Property by Funding
Trust II to the Transferor is characterized as other than a sale, such
transfer shall be characterized as a secured financing, and Funding Trust
II or the Transferor, as applicable, shall have a valid and perfected first
priority security interest in such Receivables and related Other Trust
Property free and clear
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of all Liens and Restrictions on Transferability other than as imposed by
the Transaction Documents.
(b) Compliance With Agreements and Applicable Laws. Each of the Master
Trust and Funding Trust II has performed each of its obligations under the
Assignment Agreement and the Sale Agreement, respectively, and is in
compliance with all material requirements of any law, rule or regulation
applicable to it, or that are required in connection with its performance
under the Assignment Agreement and the Sale Agreement, respectively. Each
of the Master Trust and Funding Trust II has not taken any action that
would interfere with the enforcement of any rights under the Assignment
Agreement and the Sale Agreement, respectively.
Section 2.8. Affirmative Covenants of NAFI and the Transferor with respect
to the Master Trust and Funding Trust II. Each of NAFI and the Transferor hereby
agrees with respect to itself, with respect to the Master Trust, with respect to
Funding Trust II and otherwise, that during the Term of this Agreement, unless
Financial Security shall otherwise expressly consent in writing:
(a) Notice of Material Events. Each of NAFI and the Transferor shall
promptly inform Financial Security in writing of the occurrence of any of
the following:
(i) the submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation (A)
against the Master Trust or Funding Trust II, as the case may be, (B)
with respect to any of the Receivables transferred by the Master Trust
to Funding Trust II or Funding Trust II to the Transferor, or (C) in
which a request has been made for certification as a class action (or
equivalent relief) that would involve any of the Receivables
transferred by the Master Trust to Funding Trust II or Funding Trust
II to the Transferor; or
(ii) any other event, circumstance or condition that has resulted
in a material adverse change in the ability of the Master Trust or
Funding Trust II to perform its obligations under the Assignment
Agreement or the Sale Agreement, respectively.
(b) Further Assurances. Each of NAFI and the Transferor will file, or
cause to be filed, all necessary termination statements, assignments or
other instruments, and any amendments or continuation statements relating
thereto, necessary to be kept and filed in such manner and in such places
as may be required by law to release the Lien
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and security interest of (i) the Master Trust in any Receivables
transferred by the Master Trust to Funding Trust II or (ii) Funding Trust
II in any Receivables transferred by Funding Trust II to the Transferor. In
addition, each of NAFI and the Transferor shall, upon the written request
of Financial Security, from time to time, execute, acknowledge and deliver,
or cause to be executed, acknowledged and delivered, within ten (10) days
of such request, such further instruments and take such further action as
may be reasonably commercially necessary to protect the interest of the
Transferor in the Receivables transferred by the Master Trust to Funding
Trust II and by Funding Trust II to the Transferor, free and clear of all
Liens and Restrictions on Transferability created by or for the benefit of
the Master Trust or Funding Trust II, as the case may be.
(c) Third-Party Beneficiary. The Transferor and NAFI agree that
Financial Security shall have all rights of a third-party beneficiary in
respect of the Assignment Agreement and the Sale Agreement and each of NAFI
and the Transferor hereby restates the representations, warranties and
covenants of the Master Trust and Funding Trust II as set forth therein for
the benefit of Financial Security.
Section 2.9. Negative Covenants of NAFI and the Transferor with respect to
the Master Trust and Funding Trust II. Each of NAFI and the Transferor hereby
agrees with respect to itself, with respect to the Master Trust, with respect to
Funding Trust II and otherwise that during the Term of this Agreement, unless
Financial Security shall otherwise expressly consent in writing:
(a) Restrictions on Liens. Neither NAFI nor the Transferor shall
permit the execution or filing under the Uniform Commercial Code of any
jurisdiction any financing statement naming the Master Trust or Funding
Trust II as a debtor, or the execution of any security agreement
authorizing any secured party thereunder to file such financing statement,
with respect to the Receivables transferred by the Master Trust to Funding
Trust II and by Funding Trust II to the Transferor, except in each case any
such instrument solely securing the rights and preserving the Lien of the
Trustee, for the benefit of the holders of the Securities and Financial
Security.
(b) Waiver, Amendments, Etc. Neither NAFI nor the Transferor shall
waive, modify or amend, or consent to any waiver, modification or amendment
of, any of the provisions of the certificate of trust or trust agreement of
Funding Trust II (including not permitting any Affiliate of NAFI or the
Transferor to take any such action).
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ARTICLE III.
THE POLICY; REIMBURSEMENT; INDEMNIFICATION
Section 3.1. Issuance of the Policy. Financial Security agrees to issue the
Policy subject to satisfaction of the conditions precedent set forth in Appendix
II hereto.
Section 3.2. Payment of Fees and Premium.
(a) Inducement Letter Fees and Expenses. On the Date of Issuance, NAFI
and the Transferor agree to pay or cause to be paid the amounts specified
with respect to fees, expenses and disbursements in the Inducement Letter
unless otherwise agreed between NAFI and Financial Security.
(b) Legal Fees. On the Date of Issuance, NAFI shall pay or cause to be
paid legal fees and disbursements incurred by Financial Security in
connection with the issuance of the Policy.
(c) Rating Agency Fees. The initial fees of S&P and Moody's with
respect to the Securities and the transactions contemplated hereby shall be
paid by the Transferor in full on the Date of Issuance, or otherwise
provided for to the satisfaction of Financial Security. All periodic and
subsequent fees of S&P or Moody's with respect to, and directly allocable
to, the Securities shall be for the account of, and shall be billed to, the
Transferor. The fees for any other rating agency shall be paid by the party
requesting such other agency's rating, unless such other agency is a
substitute for S&P or Moody's in the event that S&P or Xxxxx'x is no longer
rating the Securities, in which case the cost for such agency shall be paid
by the Transferor.
(d) Auditors' Fees. The Transferor shall pay on demand any additional
fees of Financial Security's auditors payable in respect of any Offering
Document that are incurred after the Date of Issuance. It is understood
that Financial Security's auditors shall not incur any additional fees in
respect of future Offering Documents except at the request of or with the
consent of the Transferor.
(e) Premium. In consideration of the issuance by Financial Security of
the Policy, Financial Security shall be entitled to receive the Premium as
and when due in accordance with the terms of the Premium Letter (i) in the
case of Premium due on or before the Date of Issuance, directly from the
Transferor and (ii) in the case of Premium
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due after the Date of Issuance, first, from monies available for such
payment in accordance with Section 5.7 of the Sale and Servicing Agreement
and second, to the extent that such monies are insufficient, from NAFI. The
Premium paid hereunder or under the Sale and Servicing Agreement shall be
nonrefundable without regard to whether Financial Security makes any
payment under the Policy or any other circumstances relating to the
Securities or provision being made for payment of the Securities prior to
maturity. Although the Premium is fully earned by Financial Security as of
the Closing Date, the Premium shall be payable in periodic installments as
provided in the Premium Letter. Anything herein or in any of the
Transaction Documents notwithstanding, upon the occurrence of an Event of
Default, the entire outstanding balance of further installments of the
Premium shall be immediately due and payable. All payments of Premium shall
be made by wire transfer to an account designated from time to time by
Financial Security by written notice to the Transferor and NAFI.
Section 3.3. Reimbursement Obligation. Notwithstanding any of the following
provisions of this Section 3.03 to the contrary, the payment obligations set
forth in Sections 3.03(a), (b) (other than in respect of amounts due from NAFI),
(c) (other than in respect of amounts due from NAFI and other amounts that,
after due notice and any required passage of time, would not be payable as a
"Scheduled Payment" under the Policy), and (d)(v) shall be non-recourse
obligations with respect to NAFI, the Transferor or any Affiliate of either
(other than the Trust) and shall be payable only from monies available for such
payment in accordance with Section 5.7 of the Sale and Servicing Agreement
(except to the extent that any such payment obligation arises from a failure to
perform or default of NAFI, the Transferor or any of their respective Affiliates
under any Transaction Document or by reason of negligence, willful misconduct or
bad faith on the part of NAFI, the Transferor or any of their respective
Affiliates in the performance of its duties and obligations thereunder or
reckless disregard by NAFI, the Transferor or any of their respective Affiliates
of its duties and obligations thereunder). NAFI, the Transferor and the Trust
agree to pay to Financial Security the following amounts as and when incurred:
(a) a sum equal to the total of all amounts paid by Financial Security
under the Policy;
(b) interest on any and all amounts described in this Section 3.03 or
Section 3.02(e) from the date due to Financial Security pursuant to the
provisions hereof until payment thereof in full, payable to Financial
Security at the Late Payment Rate per annum;
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(c) any payments made by Financial Security on behalf of, or advanced
to, NAFI, in its capacity as Servicer, the Trust, the Owner Trustee, the
Trust Collateral Agent, the Collateral Agent or the Indenture Trustee,
including, without limitation, any amounts payable by NAFI, in its capacity
as Servicer, the Trust, the Owner Trustee, the Trust Collateral Agent, the
Collateral Agent or the Indenture Trustee pursuant to the Securities or any
other Transaction Documents; and any payments made by Financial Security
as, or in lieu of, any servicing, management, trustee, custodial or
administrative fees payable, in the sole discretion of Financial Security
to third parties in connection with the Transaction; and
(d) any and all out-of-pocket charges, fees, costs and expenses which
Financial Security may reasonably pay or incur, including, but not limited
to, attorneys' and accountants' fees and expenses, in connection with (i)
in the event of payments under the Policy, any accounts established to
facilitate payments under the Policy, to the extent Financial Security has
not been immediately reimbursed on the date that any amount is paid by
Financial Security under the Policy, or other administrative expenses
relating to such payments under the Policy, (ii) the administration,
enforcement, defense or preservation of any rights in respect of any of the
Transaction Documents, including defending, monitoring or participating in
any litigation or proceeding (including any insolvency or bankruptcy
proceeding in respect of any Transaction participant or any Affiliate
thereof) relating to any of the Transaction Documents, any party to any of
the Transaction Documents or the Transaction, (iii) any amendment, waiver
or other action with respect to, or related to, any Transaction Document
whether or not executed or completed, (iv) any review or investigation made
by Financial Security in those circumstances where its approval or consent
is sought under any of the Transaction Documents, (v) the foreclosure
against, sale or other disposition of any collateral securing any
obligations under any of the Transaction Documents or otherwise in the
discretion of Financial Security, or pursuit of any other remedies under
any of the Transaction Documents, to the extent such costs and expenses are
not recovered from such foreclosure, sale or other disposition, (vi)
preparation of bound volumes of the Transaction Documents (vii) the
transfer of Subsequent Receivables to the Trust and related Other Trust
Property and (viii) any Federal, state or local tax (other than taxes
payable in respect of the gross income of Financial Security) or other
governmental charge imposed in connection with the issuance of the Policy.
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Section 3.4. Indemnification.
(a) Indemnification by NAFI and the Transferor. In addition to any and
all rights of reimbursement, indemnification, subrogation and any other
rights pursuant hereto or under law or in equity, each of NAFI and the
Transferor, jointly and severally, agrees to pay, and to protect, indemnify
and save harmless, Financial Security and its officers, directors,
shareholders, employees, agents and each Person, if any, who controls
Financial Security within the meaning of either Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act from and
against any and all claims, losses, liabilities (including penalties),
actions, suits, judgments, demands, damages, costs or expenses (including,
without limitation, fees and expenses of attorneys, consultants and
auditors and reasonable costs of investigations) of any nature arising out
of or relating to the transactions contemplated by the Transaction
Documents by reason of:
(i) any statement, omission or action (other than of or by
Financial Security) in connection with the offering, issuance, sale,
remarketing or delivery of the Securities or the Certificates;
(ii) the negligence, bad faith, willful misconduct, misfeasance,
malfeasance or theft committed by any director, officer, employee or
agent of the Trust, the Transferor or NAFI, as the case may be;
(iii) the breach by the Trust, the Transferor or NAFI, as the
case may be, of any representation, warranty or covenant under any of
the Transaction Documents or the occurrence, in respect of the Trust,
the Transferor or NAFI, as the case may be, under any of the
Transaction Documents of any "event of default" or any event which,
with the giving of notice or the lapse of time or both, would
constitute any "event of default";
(iv) the violation by the Trust, the Transferor or NAFI of any
federal, state or foreign law, rule or regulation, or any judgment,
order or decree applicable to it; or
(v) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any Offering
Document or in any amendment or supplement thereto or any omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the
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statements therein not misleading, except insofar as such claims arise
out of or are based upon any untrue statement or omission in the
Financial Security Information, it being understood that in respect of
the Offering Document, the Financial Security Information is limited
to information included under the caption "THE INSURER", or such
additional information as may be deemed to be included in the Offering
Document pursuant to the second paragraph under the heading
"Incorporation of Certain Documents by Reference" on page S-3 of the
Offering Document.
(b) Conduct of Actions or Proceedings. If any action or proceeding
(including any governmental investigation) shall be brought or asserted
against Financial Security, any officer, director, shareholder, employee or
agent of Financial Security or any Person controlling Financial Security
(individually, an "Indemnified Party" and, collectively, the "Indemnified
Parties") in respect of which indemnity may be sought from the Transferor
and NAFI (the "Indemnifying Party") hereunder, Financial Security shall
promptly notify the Indemnifying Party in writing, and the Indemnifying
Party shall assume the defense thereof, including the employment of counsel
satisfactory to Financial Security and the payment of all expenses. An
Indemnified Party shall have the right to employ separate counsel in any
such action and to participate in the defense thereof at the expense of the
Indemnified Party; provided, however, that the fees and expenses of such
separate counsel shall be at the expense of the Indemnifying Party if (i)
the Indemnifying Party has agreed to pay such fees and expenses, (ii) the
Indemnifying Party shall have failed to assume the defense of such action
or proceeding and employ counsel satisfactory to Financial Security in any
such action or proceeding or (iii) the named parties to any such action or
proceeding (including any impleaded parties) include both the Indemnified
Party and the Indemnifying Party, and the Indemnified Party shall have been
advised by counsel that (A) there may be one or more legal defenses
available to it which are different from or additional to those available
to the Indemnifying Party and (B) the representation of the Indemnifying
Party and the Indemnified Party by the same counsel would be inappropriate
or contrary to prudent practice (in which case, if the Indemnified Party
notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the Indemnifying
Party shall not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Party, it being understood,
however, that the Indemnifying Party shall not, in connection with any one
such action or proceeding or separate but substantially
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similar or related actions or proceedings in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at
any time for the Indemnified Parties, which firm shall be designated in
writing by Financial Security). The Indemnifying Party shall not be liable
for any settlement of any such action or proceeding effected without its
written consent to the extent that any such settlement shall be prejudicial
to the Indemnifying Party but, if settled with its written consent, or if
there be a final judgment for the plaintiff in any such action or
proceeding with respect to which the Indemnifying Party shall have received
notice in accordance with this subsection (b), the Indemnifying Party
agrees to indemnify and hold the Indemnified Parties harmless from and
against any loss or liability by reason of such settlement or judgment.
(c) Contribution. To provide for just and equitable contribution if
the indemnification provided by the Indemnifying Party is determined to be
unavailable for any Indemnified Party (other than due to application of
this Section), the Indemnifying Party shall contribute to the losses
incurred by the Indemnified Party on the basis of the relative fault of the
Indemnifying Party, on the one hand, and the Indemnified Party, on the
other hand.
Section 3.5. Subrogation. Subject only to the priority of payment
provisions of the Sale and Servicing Agreement, each of the Trust, the
Transferor and NAFI acknowledges that, to the extent of any payment made by
Financial Security pursuant to the Policy, Financial Security is to be fully
subrogated to the extent of such payment and any additional interest due on any
late payment, to the rights of the holders of the Securities to any moneys paid
or payable in respect of the Securities under the Transaction Documents or
otherwise. Each of the Trust, the Transferor and NAFI agrees to such subrogation
and, further, agrees to execute such instruments and to take such actions as, in
the sole judgment of Financial Security, are necessary to evidence such
subrogation and to perfect the rights of Financial Security to receive any
moneys paid or payable in respect of the Securities under the Transaction
Documents or otherwise.
ARTICLE IV.
FURTHER AGREEMENTS
Section 4.1. Effective Date; Term of Agreement. This Insurance Agreement
shall take effect on the Date of Issuance and shall remain in effect until the
later of (a) such time as
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Financial Security is no longer subject to a claim under the Policy and the
Policy shall have been surrendered to Financial Security for cancellation and
(b) all amounts payable to Financial Security and the holders of the Securities
under the Transaction Documents and under the Securities have been paid in full;
provided, however, that the provisions of Sections 3.02, 3.03, 3.04 and 4.02
hereof shall survive any termination of this Insurance Agreement.
Section 4.2. Obligation Absolute. (a) The payment obligations of the Trust,
the Transferor and NAFI hereunder shall be absolute and unconditional, and shall
be paid strictly in accordance with this Insurance Agreement under all
circumstances irrespective of the following:
(i) any lack of validity or enforceability of, or any amendment
or other modifications of, or waiver with respect to, any of the
Transaction Documents, the Securities or the Policy;
(ii) any exchange or release of any other obligations hereunder;
(iii) the existence of any claim, setoff, defense, reduction,
abatement or other right which the Trust, the Transferor or NAFI may
have at any time against Financial Security or any other Person;
(iv) any document presented in connection with the Policy proving
to be forged, fraudulent, invalid or insufficient in any respect,
including any failure to strictly comply with the terms of the Policy,
or any statement therein being untrue or inaccurate in any respect;
(v) any failure of the Transferor to receive the proceeds from
the sale of the Securities;
(vi) any breach by the Trust, the Transferor or NAFI of any
representation, warranty or covenant contained in any of the
Transaction Documents;
(vii) any other circumstances, other than payment in full, which
might otherwise constitute a defense available to, or discharge of the
Trust, the Transferor or NAFI in respect of any Transaction Document.
(b) Each of the Trust, the Transferor and NAFI and any and all others
who are now or may become liable for all or part of the obligations of any
of them under this Insurance Agreement agree to be bound by this Insurance
Agreement and (i) to the extent permitted by law, waive and renounce any
and all
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redemption and exemption rights and the benefit of all valuation and
appraisement privileges against the indebtedness, if any, and obligations
evidenced by any Transaction Document or by any extension or renewal
thereof; (ii) waive presentment and demand for payment, notices of
nonpayment and of dishonor, protest of dishonor and notice of protest;
(iii) waive all notices in connection with the delivery and acceptance
hereof and all other notices in connection with the performance, default or
enforcement of any payment hereunder except as required by the Transaction
Documents; (iv) waive all rights of abatement, diminution, postponement or
deduction, or to any defense other than payment, or to any right of setoff
or recoupment arising out of any breach under any of the Transaction
Documents, by any party thereto or any beneficiary thereof, or out of any
obligation at any time owing to the Trust, the Transferor or NAFI; (v)
agree that any consent, waiver or forbearance hereunder with respect to an
event shall operate only for such event and not for any subsequent event;
(vi) consent to any and all extensions of time that may be granted by
Financial Security with respect to any payment hereunder or other
provisions hereof and to the release of any security at any time given for
any payment hereunder, or any part thereof, with or without substitution,
and to the release of any Person or entity liable for any such payment; and
(vii) consent to the addition of any and all other makers, endorsers,
guarantors and other obligors for any payment hereunder, and to the
acceptance of any and all other security for any payment hereunder, and
agree that the addition of any such obligors or security shall not affect
the liability of the parties hereto for any payment hereunder.
(c) Nothing herein shall be construed as prohibiting the Trust, NAFI
or the Transferor from pursuing any rights or remedies it may have against
any Person other than Financial Security in a separate legal proceeding.
Section 4.3. Assignments; Reinsurance; Third-Party Rights. (a) This
Insurance Agreement shall be a continuing obligation of the parties hereto and
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. None of the Trust, the Transferor
nor NAFI may assign its rights under this Insurance Agreement, or delegate any
of its duties hereunder, without the prior written consent of Financial
Security. Any assignment made in violation of this Insurance Agreement shall be
null and void.
(b) Financial Security shall have the right to give participations in
its rights under this Insurance Agreement and to enter into contracts of
reinsurance with respect to the Policy upon such terms and conditions as
Financial Security may in its discretion determine; provided, however, that
no such participation or reinsurance agreement or arrangement shall
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relieve Financial Security of any of its obligations hereunder or under the
Policy.
(c) In addition, Financial Security shall be entitled to assign or
pledge to any bank or other lender providing liquidity or credit with
respect to the Transaction or the obligations of Financial Security in
connection therewith any rights of Financial Security under the Transaction
Documents, or with respect to any real or personal property or other
interests pledged to Financial Security, or in which Financial Security has
a security interest, in connection with the Transaction.
(d) Except as provided herein with respect to participants and
reinsurers, nothing in this Insurance Agreement shall confer any right,
remedy or claim, express or implied, upon any Person, including,
particularly, any holder of the Securities or Certificateholder other than
Financial Security, against the Trust, the Transferor or NAFI, and all the
terms, covenants, conditions, promises and agreements contained herein
shall be for the sole and exclusive benefit of the parties hereto and their
successors and permitted assigns. None of the Trust Collateral Agent, the
Indenture Trustee, the Owner Trustee, any holder of the Securities or any
Certificateholder shall have any right to payment from any premiums paid or
payable hereunder or from any other amounts paid by NAFI or the Transferor
pursuant to Section 3.02, 3.03 or 3.04 hereof.
Section 4.4. Liability of Financial Security. Neither Financial Security
nor any of its officers, directors or employees shall be liable or responsible
for: (a) the use which may be made of the Policy by the Trust Collateral Agent
or for any acts or omissions of the Trust Collateral Agent in connection
therewith or (b) the validity, sufficiency, accuracy or genuineness of documents
delivered to Financial Security (or its Fiscal Agent) in connection with any
claim under the Policy, or of any signatures thereon, even if such documents or
signatures should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged (unless Financial Security had actual
knowledge thereof). In furtherance and not in limitation of the foregoing,
Financial Security (or its Fiscal Agent) may accept documents that appear on
their face to be in order, without responsibility for further investigation.
ARTICLE V.
EVENTS OF DEFAULT; REMEDIES
Section 5.1. Events of Default. The occurrence of any of the following
events shall constitute an Event of Default hereunder:
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(a) any demand for payment shall be made under the Policy;
(b) any representation or warranty made by the Trust, the Transferor,
the Servicer or NAFI under any of the Transaction Documents, or in any
certificate or report furnished under any of the Transaction Documents,
shall prove to be untrue or incorrect in any material respect; provided,
however, that if the Trust, the Transferor, the Servicer or NAFI, as
applicable, effectively cures any such defect in any representation or
warranty under any Transaction Document, or certificate or report furnished
under any Transaction Document, within the time period specified in the
relevant Transaction Document as the cure period therefor, such defect
shall not in and of itself constitute an Event of Default hereunder;
(c) (i) the Trust, the Transferor, the Servicer or NAFI shall fail to
pay when due any amount payable by the Trust, the Transferor, the Servicer
or NAFI under any of the Transaction Documents, unless such amounts are
paid in full within any applicable cure period explicitly provided for
under the relevant Transaction Document; (ii) the Trust, the Transferor,
the Servicer or NAFI shall have asserted that any of the Transaction
Documents to which it is a party is not valid and binding on the parties
thereto; or (iii) any court, governmental authority or agency having
jurisdiction over any of the parties to any of the Transaction Documents or
any property thereof shall find or rule that any material provision of any
of the Transaction Documents is not valid and binding on the parties
thereto;
(d) the Trust, the Transferor, the Servicer, or NAFI shall fail to
perform or observe any other covenant or agreement contained in any of the
Transaction Documents (except for the obligations described under Section
2.05(o), clause (c) above and clause (n) below) and such failure shall
continue for a period of 30 days after written notice given to either the
Trust or the Transferor;
(e) the Trust, NAFI, the Servicer or the Transferor shall fail to pay
its debts generally as they come due, or shall admit in writing its
inability to pay its debts generally, or shall make a general assignment
for the benefit of creditors, or shall institute any proceeding seeking to
adjudicate it insolvent or seeking a liquidation, or shall take advantage
of any insolvency act, or shall commence a case or other proceeding naming
it as debtor under the United States Bankruptcy Code or similar law,
domestic or foreign, or a case or other proceeding shall be commenced
against any of the Trust, NAFI, the Servicer or
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the Transferor under the United States Bankruptcy Code or similar law,
domestic or foreign, or any proceeding shall be instituted against any of
the Trust, NAFI, the Servicer or the Transferor seeking liquidation of its
assets and such Person shall fail to take appropriate action resulting in
the withdrawal or dismissal of such proceeding within 30 days or there
shall be appointed or any of the Trust, NAFI, the Servicer or the
Transferor shall consent to, or acquiesce in, the appointment of a
receiver, liquidator, conservator, trustee or similar official in respect
of such Person or the whole or any substantial part of its properties or
assets or such Person shall take any corporate action in furtherance of any
of the foregoing;
(f) as of any Reporting Date (i) ocurring before the January 1999
Distribution Date, the Average Delinquency Ratio shall have been equal to
or greater than 11.50% or (ii) occurring after the January 1999
Distribution Date, (x) if the Cumulative Loss Rate as of the January 1999
Distribution Date is equal to or greater than 4.0%, the Average Delinquency
Ratio shall have been equal to or greater than 11.50% or (y) if the
Cumulative Loss Rate as of the January 1999 Distribution Date is less than
4.0%, the Average Delinquency Ratio shall have been equal to or greater
than 11.10%;
(g) as of any Reporting Date (i) occurring before the January 1999
Distribution Date, the Average Default Rate is equal to or greater than
25.50%, (ii) occurring after the January 1999 Distribution Date but before
the January 2000 Distribution Date and (x) if the Cumulative Loss Rate as
of the January 1999 Distribution Date is equal to or greater than 4.0%, the
Average Default Rate is equal to or greater than 25.50% or (y) if the
Cumulative Loss Rate as of the January 1999 Distribution Date is less than
4.0%, the Average Default Rate is equal to or greater than 25.10% and (iii)
occurring subsequent to the January 2000 Distribution Date and (x) if the
Cumulative Loss Rate as of the January 1999 Distribution Date is equal to
or greater than 4.0%, the Average Default Rate is equal to or greater than
17.50% or (y) if the Cumulative Loss Rate as of the January 1999
Distribution Date is less than 4.0%, the Average Default Rate is equal to
or greater than 17.10%;
(h) as of any Reporting Date (i) occurring before the January 1999
Distribution Date, the Average Net Loss Rate is equal to or greater than
12.20%, (ii) occurring after the January 1999 Distribution Date but before
the January 2000 Distribution Date and (x) if the Cumulative Loss Rate as
of the January 1999 Distribution Date is equal to or greater than 4.0%, the
Average Net Loss Rate is equal to or greater
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than 12.20% or (y) if the Cumulative Loss Rate as of the January 1999
Distribution Date is less than 4.0%, the Average Net Loss Rate is equal to
or greater than 11.30% and (iii) occurring subsequent to the January 2000
Distribution Date and (x) if the Cumulative Loss Rate as of the January
1999 Distribution Date is equal to or greater than 4.0%, the Average Net
Loss Rate is equal to or greater than 9.20% or (y) if the Cumulative Loss
Rate as of the January 1999 Distribution Date is less than 4.0%, the
Average Net Loss Rate is equal to or greater than 8.30%.
(i) the Trust becomes taxable as an association (or publicly traded
partnership) taxable as a corporation for Federal or state income tax
purposes;
(j) the occurrence of a Servicer Termination Event under the Sale and
Servicing Agreement;
(k) the occurrence of an "Event of Default" under and as defined in
any Insurance and Indemnity Agreement or similar agreement among (x)
Financial Security and (y) NAFI and/or the Transferor and/or any other
Affiliate of NAFI, entered into with respect to another Series.
(l) any default in the observance or performance of any covenant or
agreement of the Trust made in the Indenture (other than a default in the
payment of the interest or principal of any Security when due) or any
representation or warranty of the Trust made in the Indenture or in any
certificate or other writing delivered pursuant thereto or in connection
therewith proving to have been incorrect in any material respect as of the
time when the same shall have been made, and such default shall continue or
not be cured, or the circumstance or condition in respect of which such
misrepresentation or warranty was incorrect shall not have been eliminated
or otherwise cured, for a period of 30 days after there shall have been
given, by registered or certified mail, to the Trust, NAFI and the
Indenture Trustee by Financial Security, a written notice specifying such
default or incorrect representation or warranty and requiring it to be
remedied;
(m) [reserved];
(n) the failure to file in the appropriate jurisdictions any of the
financing statements described in Section 2.01(q), 2.04(r) or 2.05(m) by
the Date of Issuance or if a filing service is used, the failure to deliver
any of the financing statements described in Section 2.01(q), 2.04(r) or
2.05(m) by the Date of Issuance to such filing
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service for prompt filing in the appropriate jurisdictions; and
(o) the Notes not being treated as debt for federal or applicable
state income tax purposes and such characterization having a material
adverse effect on the Trust, the holders of the Notes, or Financial
Security.
Section 5.2. Remedies; Waivers. (a) Upon the occurrence of an Event of
Default, Financial Security may exercise any one or more of the rights and
remedies set forth below:
(i) declare the Premium Supplement to be immediately due and
payable, and the same shall thereupon be immediately due and payable,
whether or not Financial Security shall have declared an "Event of
Default" or shall have exercised, or be entitled to exercise, any
other rights or remedies hereunder;
(ii) exercise any rights and remedies available under the
Transaction Documents in its own capacity or in its capacity as the
Controlling Party under the Transaction Documents, including, without
limitation, its right to accelerate the Securities or to terminate
NAFI as Servicer and to appoint a substitute servicer; or
(iii) take whatever action at law or in equity may appear
necessary or desirable in its judgment to enforce performance of any
obligation of the Trust, the Transferor or NAFI under the Transaction
Documents.
(b) Unless otherwise expressly provided, no remedy herein conferred
upon or reserved is intended to be exclusive of any other available remedy,
but each remedy shall be cumulative and shall be in addition to other
remedies given under the Transaction Documents or existing at law or in
equity. No delay or failure to exercise any right or power accruing under
any Transaction Document upon the occurrence of any Event of Default or
otherwise shall impair any such right or power or shall be construed to be
a waiver thereof, but any such right and power may be exercised from time
to time and as often as may be deemed expedient. In order to entitle
Financial Security to exercise any remedy reserved to Financial Security in
this Article, it shall not be necessary to give any notice, other than such
notice as may be expressly required in this Article.
(c) If any proceeding has been commenced to enforce any right or
remedy under this Insurance Agreement and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely
to Financial Security, then and in every such case the parties hereto
shall, subject to any
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determination in such proceeding, be restored to their respective former
positions hereunder, and, thereafter, all rights and remedies of Financial
Security shall continue as though no such proceeding had been instituted.
(d) Financial Security shall have the right, to be exercised in its
complete discretion, to waive any covenant, Default or Event of Default by
a writing setting forth the terms, conditions and extent of such waiver
signed by Financial Security and delivered to the Trust, the Transferor and
NAFI. Any such waiver may only be effected in writing duly executed by
Financial Security, and no other course of conduct shall constitute a
waiver of any provision hereof. Unless such writing expressly provides to
the contrary, any waiver so granted shall extend only to the specific event
or occurrence so waived and not to any other similar event or occurrence.
ARTICLE VI.
MISCELLANEOUS
Section 6.1. Amendments, Etc. This Insurance Agreement may be amended,
modified or terminated only by written instrument or written instruments
signed by the parties hereto. No act or course of dealing shall be deemed
to constitute an amendment, modification or termination hereof.
Section 6.2. Notices. All demands, notices and other communications to
be given hereunder shall be in writing (except as otherwise specifically
provided herein) and shall be mailed by registered mail or personally
delivered or telecopied to the recipient as follows:
(a) To Financial Security: Financial Security Assurance Inc.
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Surveillance Department
Re: National Auto Finance 1998-1
Trust, 5.88% Automobile Receivables
Backed Notes
Confirmation: (000) 000-0000
Telecopy Nos.: (000) 000-0000,
(000) 000-0000
(in each case in which notice or other communication to Financial
Security refers to an Event of Default, a claim on the Policy or
with respect to which failure on the part of Financial Security
to respond shall be deemed to
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constitute consent or acceptance, then a copy of such notice or
other communication should also be sent to the attention of each
of the General Counsel and the Head-Financial Guaranty Group and
shall be marked to indicate "URGENT MATERIAL ENCLOSED.")
(b) To the Transferor: National Financial Auto Funding
Trust
c/o Chase Manhattan Bank Delaware
0000 Xxxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
Attention: Corporate Trust
Administration
Telecopy No: (000) 000-0000
Confirmation: (000) 000-0000
with a copy to: Chase Manhattan Bank Delaware
c/o The Chase Manhattan Bank, N.A.
0 Xxxxx Xxxxxxxxx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Attention: Corporate Trust
Administration
Telecopy No: (000) 000-0000
Confirmation: (000) 000-0000
(c) To NAFI: National Auto Finance Company, Inc.
One Park Place (Suite 200)
000 X.X. 00xx Xxxxxx
Xxxx Xxxxx, Xxxxxxx 00000
Attention: President
Telecopy No: (000) 000-0000
Confirmation: (000) 000-0000
(d) To the Trust: National Auto Finance 1998-1 Trust
c/o Wilmington Trust Company
Xxxxxx Square North
0000 Xxxxx Xxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Attention: Corporate Trust
Administration
Telecopy No: (000) 000-0000
Confirmation: (000) 000-0000
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A party may specify an additional or different address or addresses by
writing mailed or delivered to the other party as aforesaid. All such notices
and other communications shall be effective upon receipt.
Section 6.3. Payment Procedure. In the event of any payment by Financial
Security for which it is entitled to be reimbursed or indemnified as provided
above, each of the Trust, the Transferor and NAFI agrees to accept the voucher
or other evidence of payment as prima facie evidence of the propriety thereof
and the liability therefor to Financial Security. All payments to be made to
Financial Security under this Insurance Agreement shall be made to Financial
Security in lawful currency of the United States of America in immediately
available funds to the account number provided in the Premium Letter before 1:00
p.m. (New York, New York time) on the date when due or as Financial Security
shall otherwise direct by written notice to the Trust, the Transferor and NAFI.
In the event that the date of any payment to Financial Security or the
expiration of any time period hereunder occurs on a day which is not a Business
Day, then such payment or expiration of time period shall be made or occur on
the next succeeding Business Day with the same force and effect as if such
payment was made or time period expired on the scheduled date of payment or
expiration date. Payments to be made to Financial Security under this Insurance
Agreement shall bear interest at the Late Payment Rate from the date due to the
date paid.
Section 6.4. Confidentiality. Any information obtained by Financial
Security pursuant to this Insurance Agreement shall be held in confidence by
Financial Security unless (i) such information has become available to the
public other than as a result of a disclosure by or through Financial Security,
(ii) such information was available to Financial Security on a nonconfidential
basis prior to its disclosure to Financial Security hereunder, (iii) Financial
Security shall be required in connection with any legal or regulatory proceeding
to disclose such information, or (iv) Financial Security, in its sole
discretion, deems it necessary to disclose such information to the Rating
Agencies; provided, that, in any such instance, Financial Security will use its
best efforts to notify the Trust, the Transferor or NAFI of its intention to
make any such disclosure prior to making any such disclosure and, in the case of
disclosure to a Rating Agency, Financial Security shall notify such Rating
Agency that such information is confidential and should be treated as such by
such Rating Agency.
Section 6.5. Severability. In the event that any provision of this
Insurance Agreement shall be held invalid or unenforceable by any court of
competent jurisdiction, the parties hereto agree that such holding shall not
invalidate or render
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unenforceable any other provision hereof. The parties hereto further agree that
the holding by any court of competent jurisdiction that any remedy pursued by
any party hereto is unavailable or unenforceable shall not affect in any way the
ability of such party to pursue any other remedy available to it.
Section 6.6. Governing Law. THIS INSURANCE AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 6.7. Consent to Jurisdiction. (a) THE PARTIES HERETO HEREBY
IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK AND ANY COURT IN THE STATE OF NEW YORK LOCATED
IN THE CITY AND COUNTY OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN
ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND TO OR IN CONNECTION WITH
ANY OF THE TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREUNDER OR
FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND THE PARTIES HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH
ACTION OR PROCEEDING MAY BE HEARD OR DETERMINED IN SUCH NEW YORK STATE COURT OR,
TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. THE PARTIES HERETO AGREE
THAT A FINAL JUDGMENT IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE
AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY
OTHER MANNER PROVIDED BY LAW. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE
PARTIES HERETO HEREBY WAIVE AND AGREE NOT TO ASSERT BY WAY OF MOTION, AS A
DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT
IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT,
ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE
SUIT, ACTION OR PROCEEDING IS IMPROPER OR THAT THE TRANSACTION DOCUMENTS OR THE
SUBJECT MATTER THEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURTS.
(b) To the extent permitted by applicable law, the parties hereto shall not
seek and hereby waive the right to any review of the judgment of any such court
by any court of any other nation or jurisdiction which may be called upon to
grant an enforcement of such judgment.
(c) Each of the Trust, the Transferor and NAFI hereby irrevocably appoints
and designates CT Corporation System, whose address is 0000 Xxxxxxxx, Xxx Xxxx,
Xxx Xxxx 00000, as its true and lawful attorney and duly authorized agent for
acceptance of service of legal process. Each of the Trust, the Transferor and
NAFI agrees that service of such process upon such Person shall constitute
personal service of such process upon it.
(d) Nothing contained in this Insurance Agreement shall limit or affect
Financial Security's right to serve process in
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any other manner permitted by law or to start legal proceedings relating to any
of the Transaction Documents against the Trust, the Transferor or NAFI or its
respective property in the courts of any jurisdiction.
Section 6.8. Consent of Financial Security. In the event that Financial
Security's consent is required under any of the Transaction Documents, the
determination whether to grant or withhold such consent shall be made by
Financial Security in its sole discretion without any implied duty towards any
other Person, except as otherwise expressly provided therein.
Section 6.9. Counterparts. This Insurance Agreement may be executed in
counterparts by the parties hereto, and all such counterparts shall constitute
one and the same instrument.
Section 6.10. Trial by Jury Waived. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION ARISING DIRECTLY OR INDIRECTLY OUT OF, UNDER OR IN CONNECTION WITH
ANY OF THE TRANSACTION DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREUNDER. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND
(B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THE TRANSACTION
DOCUMENTS TO WHICH IT IS A PARTY BY, AMONG OTHER THINGS, THIS WAIVER.
Section 6.11. Limited Liability. No recourse under any Transaction Document
shall be had against, and no personal liability shall attach to, any officer,
employee, director, Affiliate or shareholder of any party hereto, as such, by
the enforcement of any assessment or by any legal or equitable proceeding, by
virtue of any statute or otherwise in respect of any of the Transaction
Documents, the Securities or the Policy, it being expressly agreed and
understood that each Transaction Document is solely a corporate obligation of
each party hereto, and that any and all personal liability, either at common law
or in equity, or by statute or constitution, of every such officer, employee,
director, Affiliate or shareholder for breaches by any party hereto of any
obligations under any Transaction Document is hereby expressly waived as a
condition of and in consideration for the execution and delivery of this
Insurance Agreement.
Section 6.12. Servicing Transfer; Termination of Sub-Servicer. Financial
Security hereby acknowledges that (i) it has been present at one or more
meetings with NAFI at which the establishment by NAFI of a servicing center, the
transfer to NAFI of servicing functions previously performed by OFSA and the
termination of OFSA as Sub-Servicer were discussed, (ii) NAFI has
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assumed certain servicing functions previously performed by OFSA pursuant to the
Amended and Restated Servicing Agreement, dated as of December 5, 1994 (the
"Servicing Agreement"), between OFSA (as assignee of World Omni Financial Corp.)
and NAFI (as successor to National Auto Finance Company L.P.), and (iii) NAFI
has taken significant steps and entered into certain material commitments in
furtherance of the establishment of the servicing center and the assumption by
NAFI of all servicing functions previously or currently performed by OFSA
pursuant to the Servicing Agreement. NAFI hereby covenants to provide Financial
Security with prior notification of the occurrence of any event or events that,
individually or the aggregate, constitute a material transfer of servicing
functions from OFSA to NAFI. In addition, NAFI shall, prior to the effectiveness
of the termination of OFSA as Sub-Servicer, obtain the written consent of
Financial Security to such termination, which consent shall not be unreasonably
withheld.
Section 6.13. Entire Agreement. This Insurance Agreement, the Premium
Letter, the Inducement Letter and the Policy set forth the entire agreement
between the parties with respect to the subject matter thereof, and this
Insurance Agreement supersedes and replaces any agreement or understanding that
may have existed between the parties prior to the date hereof in respect of such
subject matter.
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Insurance Agreement, all as of the day and year first above written.
FINANCIAL SECURITY ASSURANCE INC.
By:
Name:
Title:
NATIONAL AUTO FINANCE 1998-1
TRUST
By:
Name:
Title: of
Wilmington Trust Company, not
in its individual capacity, but
solely in its capacity as owner
trustee for National Auto
Finance 1998-1 Trust
NATIONAL FINANCIAL AUTO FUNDING
TRUST
By:
Name:
Title: of
Chase Manhattan Bank Delaware,
not in its individual capacity, but
solely in its capacity as trustee for
National Financial Auto Funding Trust
NATIONAL AUTO FINANCE COMPANY, INC.
By:
Name:
Title:
APPENDIX I
DEFINITIONS
"Accumulated Funding Deficiency" has the meaning provided in Section 412 of
the Code and Section 302 of ERISA, whether or not waived.
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person within the meaning of control under Section 15 of the Securities
Act.
"Assignment Agreement" means the Assignment Agreement, dated as of December
15, 1997, between the Master Trust and Funding Trust II, as the same may be
amended, amended and restated, supplemented or otherwise modified from time to
time in accordance with the terms thereof.
"Business Day" means any day other than (a) a Saturday or Sunday or (b) a
day on which banking institutions in the City of New York, Wilmington, Delaware,
Chicago, Illinois or the State of Florida are authorized or obligated by law or
executive order to be closed.
"Certificate" means a Certificate of Trust (as defined in the Trust
Agreement).
"Code" means the Internal Revenue Code of 1986, including, unless the
context otherwise requires, the rules and regulations thereunder, as amended
from time to time.
"Collateral" has the meaning specified in the Indenture.
"Commission" means the Securities and Exchange Commission.
"Commonly Controlled Entity" means, with respect to the Trust, the
Transferor or NAFI, as the case may be, and each entity, whether or not
incorporated, which is affiliated with the Trust, the Transferor or NAFI
pursuant to Section 414(b), (c), (m) or (o) of the Code.
"Conveyance" has the meaning specified on the Purchase and Contribution
Agreement.
"Custodian Agreement" means the Custodial Agreement, dated as of January
20, 1998, between NAFI and Omni Financial Services of America, Inc. as
custodian, as the same may be amended,
Appendix I
1
amended and restated, supplemented or otherwise modified from time to time in
accordance with the terms thereof.
"Date of Issuance" means the date on which the Policy is issued as
specified therein.
"Default" means any event which results, or which with the giving of notice
or the lapse of time or both would result, in an Event of Default.
"ERISA" means the Employee Retirement Income Security Act of 1974,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"Event of Default" means any event of default specified in Section 5.01 of
this Insurance Agreement.
"Expiration Date" means the final date of the Term of the Policy, as
specified in the Policy.
"Financial Security" means Financial Security Assurance Inc., a New York
stock insurance company, its successors and assigns.
"Financial Security Information" has the meaning provided in Sections
2.01(i) and 2.04(j) of this Insurance Agreement.
"Financial Statements" means with respect to NAFI and the Transferor, as
the case may be, the balance sheet as of December 31, 1996 and the statements of
income, retained earnings and cash flows for the 12-month period then ended and
the notes thereto and the balance sheet as of September 30, 1997 and the
statement of income, retained earnings and cash flows for the three months then
ended and the notes thereto.
"Fiscal Agent" means the Fiscal Agent, if any, designated pursuant to the
terms of the Policy.
"Funding Trust II" means National Financial Auto Funding Trust II, a
business trust formed by NAFI under the laws of the State of Delaware.
"Indemnification Agreement" means the Indemnification Agreement dated as of
January 20, 1998, among Financial Security, the Transferor and the Underwriter,
as the same may be amended, amended and restated, supplemented or otherwise
modified from time to time in accordance with the terms thereof.
"Indenture" means the Indenture, dated as of December 15, 1997, between
National Auto Finance 1998-1 Trust and Xxxxxx Trust
Appendix I
2
and Savings Bank, as Indenture Trustee and Trust Collateral Agent, as the same
may be amended, amended and restated, supplemented or otherwise modified from
time to time in accordance with the terms thereof.
"Indenture Trustee" means Xxxxxx Trust and Savings Bank, an Illinois
banking corporation, as indenture trustee under the Indenture, and any successor
thereto as indenture trustee under the Indenture.
"Inducement Letter" means that letter dated November 21, 1995, from NAFI to
Financial Security.
"Insurance Agreement" means this Insurance and Indemnity Agreement dated as
of January 20, 1998, among Financial Security, the Trust, the Transferor and
NAFI, as the same may be amended, amended and restated, supplemented or
otherwise modified from time to time in accordance with the terms hereof.
"Insurance Agreement Indenture Cross Default" means an Event of Default
specified in clauses (a), (e), (i), (l) and (o) of Section 5.01 of this
Insurance Agreement.
"Investment Company Act" means the Investment Company Act of 1940,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"IRS" means the Internal Revenue Service.
"Late Payment Rate" means the lesser of (a) the greater of (i) the per
annum rate of interest, publicly announced from time to time by Chase Manhattan
Bank at its principal office in the City of New York, as its prime or base
lending rate (any change in such rate of interest to be effective on the date
such change is announced by Chase Manhattan Bank) plus 3%, and (ii) the then
applicable highest rate of interest on the Securities and (b) the maximum rate
permissible under applicable usury or similar laws limiting interest rates. The
Late Payment Rate shall be computed on the basis of the actual number of days
elapsed over 360 days.
"Lien" means, as applied to the property or assets (or the income or
profits therefrom) of any Person, in each case whether the same is consensual or
nonconsensual or arises by contract, operation of law, legal process or
otherwise: (a) any mortgage, lien, pledge, attachment, charge, lease,
conditional sale or other title retention agreement, or other security interest
or encumbrance of any kind or (b) any arrangement, express or implied, under
which such property or assets are transferred, sequestered or otherwise
identified for the purpose of subjecting
Appendix I
3
or making available the same for the payment of debt or performance of any other
obligation in priority to the payment of the general, unsecured creditors of
such Person.
"Master Trust" means National Financial Auto Receivables Master Trust, a
trust formed by the Transferor under the laws of the State of New York.
"Material Adverse Change" means, (a) in respect of any Person, a material
adverse change in (i) the business, financial condition, results of operations
or properties of such Person or any of its Subsidiaries or Affiliates, or (ii)
the ability of such Person to perform its obligations under any of the
Transaction Documents to which it is a party, (b) in respect of any Receivable,
a material adverse change in (i) the value or marketability of such Receivable,
or (ii) the probability that amounts now or hereafter due in respect of such
Receivable will be collected on a timely basis or (c) the ability of Financial
Security or the Trust to realize the benefits of the security afforded under the
Transaction Documents.
"Moody's" means Xxxxx'x Investors Service, Inc., a Delaware corporation,
and any successor thereto, and, if such corporation shall for any reason no
longer perform the functions of a securities rating agency, "Moody's" shall be
deemed to refer to any other nationally recognized rating agency designated by
Financial Security.
"Multiemployer Plan" means a multiemployer plan (within the meaning of
Section 4001(a)(3) of ERISA) in respect of which a Commonly Controlled Entity
makes contributions or has liability.
"NAFI" means National Auto Finance Company, Inc., a Delaware corporation.
"National Auto Finance 1995-1 Trust" means the National Auto Finance 1995-1
Trust.
"National Auto Finance 1996-1 Trust" means the National Auto Finance 1996-1
Trust.
"National Auto Finance 1997-1 Trust" means the National Auto Finance 1997-1
Trust
"Notice of Claim" means a Notice of Claim and Certificate in the form
attached as Exhibit A to Endorsement No. 1 to the Policy.
Appendix I
4
"Offering Document" means the Prospectus and any other offering document of
the Transferor or an Affiliate thereof in respect of the Securities that makes
reference to the Policy.
"OFSA" means Omni Financial Services of America, Inc., a Florida
corporation.
"Other Trust Property" means the Trust Property and the property and
proceeds conveyed by the Transferor to the Trust pursuant to Section 2.2 of the
Sale and Security Agreement and any Subsequent Transfer Agreement, in each case
exclusive of the Policy.
"Owner Trust Estate" has the meaning provided in the Trust Agreement.
"Owner Trustee" means Wilmington Trust Company, as owner trustee under the
Trust Agreement, and any successor thereto as owner trustee under the Trust
Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency, corporation or instrumentality of the United States to which the duties
and powers of the Pension Benefit Guaranty Corporation are transferred.
"Person" means an individual, joint stock company, trust, unincorporated
association, joint venture, corporation, business or owner trust, partnership,
limited liability company, limited liability partnership or other organization
or entity (whether governmental or private).
"Plan" means any pension plan (other than a Multiemployer Plan) covered by
Title IV of ERISA, which is maintained by a Commonly Controlled Entity or in
respect of which a Commonly Controlled Entity has liability.
"Policy" means the financial guaranty insurance policy, including any
endorsements thereto, issued by Financial Security with respect to the
Securities, substantially in the form attached as Annex I to this Insurance
Agreement.
"Premium" means the premium payable in accordance with Section 3.02 of this
Insurance Agreement and the Premium Supplement, if any.
"Premium Letter" means the side letter dated January 20, 1998, among
Financial Security, NAFI, the Transferor and the Trust Collateral Agent in
respect of the premium payable in consideration of the issuance of the Policy.
Appendix I
5
"Premium Supplement" means a non-refundable premium, in addition to the
premium payable in accordance with Section 3.02 of this Insurance Agreement,
accruing to Financial Security in monthly installments commencing on the Premium
Supplement Commencement Date and on each monthly anniversary in accordance with
the terms set forth in the Premium Letter and payable upon and in accordance
with a declaration under Section 5.02 of this Insurance Agreement.
"Premium Supplement Commencement Date" means the date of occurrence of an
Event of Default whether or not an "Event of Default" shall have been declared.
"Prospectus" has the meaning provided in Section 2.04(v) of this Insurance
Agreement.
"Provided Documents" means the Transaction Documents and any documents,
agreements, instruments, schedules, certificates, statements, cash flow
schedules, number runs or other writings or data furnished to Financial Security
by or on behalf of the Trust, the Transferor or NAFI with respect to itself, its
Subsidiaries or Affiliates, the Receivables or the Transaction.
"Purchase and Contribution Agreement" means the Purchase and Contribution
Agreement dated as of December 15, 1997, between NAFI and the Transferor, as the
same may be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof.
"Receivables" has the meaning provided in the Sale and Servicing Agreement.
"Registration Statement" has the meaning provided in Section 2.04(v) of
this Insurance Agreement.
"Reportable Event" means any of the events set forth in Section 4043(b) of
ERISA or the regulations thereunder.
"Restrictions on Transferability" means, as applied to the property or
assets (or the income or profits therefrom) of any Person, in each case whether
the same is consensual or nonconsensual or arises by contract, operation of law,
legal process or otherwise, any material condition to, or restriction on, the
ability of such Person or any transferee therefrom to sell, assign, transfer or
otherwise liquidate such property or assets in a commercially reasonable time
and manner or which would otherwise materially deprive such Person or any
transferee therefrom of the benefits of ownership of such property or assets.
Appendix I
6
"Sale Agreement" means the Sale Agreement, dated as of December 15, 1997,
between the Transferor and Funding Trust II, as the same may be amended, amended
and restated, supplemented or otherwise modified from time to time in accordance
with the terms thereof.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement,
dated as of December 15, 1997, among the Trust, the Transferor, the Servicer,
the Backup Servicer and the Trust Collateral Agent, as the same may be amended,
amended and restated, supplemented or otherwise modified from time to time in
accordance with the terms thereof.
"Securities" means the $85,200,000 of National Auto Finance 1998-1 Trust,
5.88% Automobile Receivables-Backed Notes issued pursuant to the Indenture.
"Securities Act" means the Securities Act of 1933, including, unless the
context otherwise requires, the rules and regulations thereunder, as amended
from time to time.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"Securitization Agreement" has the meaning provided in paragraph D of the
Introductory Statements to this Insurance Agreement.
"Series 1998-1" means the Series issued on the date hereof pursuant to the
Indenture.
"Series of Certificates" or "Series" means Series 1998-1 or any, or as the
context may require, all, additional series of securities, certificates, notes
or other obligations issued or arising as described in paragraph D of the
Introductory Statements hereto.
"Servicer Termination Side Letter" means the letter from Financial Security
to the Trust Collateral Agent, the Transferor and NAFI dated as of January 20,
1998, with regard to the renewal term of the Servicer.
"S&P" means Standard & Poor's Ratings Group, division of McGraw Hill, Inc.,
and any successor thereto, and, if such entity shall for any reason no longer
perform the functions of a securities rating agency, "S&P" shall be deemed to
refer to any other nationally recognized rating agency designated by Financial
Security.
Appendix I
7
"Special Event" means the occurrence of any one of the following: (a) an
Event of Default under this Insurance Agreement has occurred and is continuing,
(b) a Trigger Event has occurred and is continuing, (c) any legal proceeding or
binding arbitration is instituted with respect to the Transaction or (d) any
governmental or administrative investigation, action or proceeding is instituted
that would, if adversely decided, result in a Material Adverse Change in respect
of the Trust, NAFI, the Transferor or the Receivables.
"Spread Account Agreement" means the Master Spread Account Agreement, dated
as of January 20, 1998 among the Transferor, the Collateral Agent named therein
and Financial Security, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof.
"Subsidiary" means, with respect to any Person (herein referred to as the
"parent"), any corporation, partnership, association or other business entity
(a) of which securities or other ownership interests representing more than 50%
of the equity or more than 50% of the ordinary voting power or more than 50% of
the general partnership interests are, at the time any determination is being
made, owned, controlled or held by the parent or (b) that is, at the time any
determination is being made, otherwise controlled, by the parent or one or more
subsidiaries of the parent or by the parent and one or more subsidiaries of the
parent.
"Term of this Agreement" shall be determined as provided in Section 4.01 of
this Insurance Agreement.
"Term of the Policy" has the meaning provided in the Policy for the term
"Term of this Policy".
"Transaction" means this transactions contemplated by the Transaction
Documents, including the transactions described in the Offering Document.
"Transaction Documents" means the Securities, the Certificates, this
Insurance Agreement, the Lockbox Agreement, the Custodian Agreement, the
Indemnification Agreement, the Sale and Servicing Agreement, the Indenture, the
Premium Letter, any Sub-Servicing Agreement, the Inducement Letter, the Purchase
and Contribution Agreement, the Sale Agreement, the Assignment Agreement, the
Servicer Termination Side Letter, each Subsequent Transfer Agreement, each
Conveyance, the Underwriting Agreement, the Spread Account Agreement, the
certificate of trust of the Trust and the Trust Agreement.
Appendix I
8
"Transferor" means National Financial Auto Funding Trust, a business trust
formed by NAFI under the laws of the State of Delaware.
"Trust" means the trust created under the Trust Agreement.
"Trust Accounts" means the Collection Account, the Distribution Account,
the Note Distribution Account, the Pre- Funding Account, the Pre-Funding Period
Reserve Account and the Lockbox Account.
"Trust Agreement" means the Trust Agreement, dated as of December 15, 1997,
between the Transferor and the Owner Trustee with respect to the Trust, as the
same may be amended, amended and restated, supplemented or otherwise modified
from time to time in accordance with the terms thereof.
"Trust Collateral Agent" means Xxxxxx Trust and Savings Bank, an Illinois
banking corporation, as trust collateral agent under the Indenture and as trust
collateral agent under the Sale and Servicing Agreement, as applicable, and any
successor thereto as trust collateral agent under the Indenture or trust
collateral agent the Sale and Servicing Agreement, as the case may be.
"Trust Indenture Act" means the Trust Indenture Act of 1939, including,
unless the context otherwise requires, the rules and regulations thereunder, as
amended from time to time.
"Underfunded Plan" means any Plan that has an Underfunding.
"Underfunding" means, with respect to any Plan, the excess, if any, of (a)
the present value of all benefits under the Plan (based on the assumptions used
to fund the Plan pursuant to Section 412 of the Code) as of the most recent
valuation date over (b) the fair market value of the assets of such Plan as of
such valuation date.
"Underwriter" means First Union Capital Markets Corp.
"Underwriting Agreement" means the Underwriting Agreement dated as of
January 15, 1998, by and among the Transferor and the Underwriter, with respect
to the offer and sale of the Securities, as the same may be amended, amended and
restated, supplemented or otherwise modified from time to time in accordance
with the terms thereof.
Appendix I
9
APPENDIX II
TO INSURANCE AND INDEMNITY AGREEMENT
CONDITIONS PRECEDENT TO ISSUANCE OF THE POLICY
(a) Payment of Initial Premium and Expenses; Premium Letter. Financial
Security shall have been paid, by or on behalf of NAFI, a nonrefundable Premium
and shall have been reimbursed, by or on behalf of NAFI, for other fees and
expenses identified in Section 3.02 of this Insurance Agreement as payable at
closing and Financial Security shall have received a fully executed copy of the
Premium Letter.
(b) Transaction Documents. Financial Security shall have received a copy of
each of the Transaction Documents (other than any Subsequent Transfer Agreement
to be delivered to Financial Security on or following the related Subsequent
Transfer Date), in form and substance satisfactory to Financial Security, duly
authorized, executed and delivered by each party thereto. Without limiting the
foregoing, the provisions of the Sale and Servicing Agreement relating to the
payment to Financial Security of the Premium due on the Policy and the
reimbursement to Financial Security of amounts paid under the Policy shall be in
form and substance acceptable to Financial Security in its sole discretion.
(c) Certified Documents and Resolutions. Financial Security shall have
received a copy of (i) the certificate of trust and the trust agreement for each
of the Trust, the Transferor and Funding Trust II, (ii) the certificate of
incorporation and by-laws of NAFI, (iii) the consent, if necessary, of the
co-trustees and/or holders of beneficial interests of each of the Transferor and
Funding Trust II, and (iv) the resolutions of the Board of Directors of NAFI, in
each case authorizing the issuance of the Securities and the Certificates, and
the execution, delivery and performance by the Trust, the Transferor, Funding
Trust II and NAFI, as applicable, of the Transaction Documents and the
transactions contemplated thereby, certified by a Secretary or Assistant
Secretary of the Trust, the Transferor, Funding Trust II and NAFI, as applicable
(which certificate shall state that such certificate of trust and trust
agreement or certificate of incorporation and by-laws, as the case may be, are
in full force and effect without modification on the Date of Issuance).
(d) Incumbency Certificate. Financial Security shall have received a
certificate of a Secretary or Assistant Secretary of each of the Transferor, the
Owner Trustee, the Trust Collateral Agent, the Indenture Trustee and NAFI,
respectively, certifying
Appendix II
1
the name and signatures of the officers of the Transferor, the Owner Trustee,
the Trust Collateral Agent, the Indenture Trustee and NAFI, as the case may be,
authorized to execute and deliver the Transaction Documents and that all
consents necessary to execute and deliver such documents have been obtained.
(e) Representations and Warranties; Certificate. The representations and
warranties of the Trust, the Transferor and NAFI in this Insurance Agreement
shall be true and correct as of the Date of Issuance with respect to such Person
as if made on the Date of Issuance and Financial Security shall have received a
certificate of an appropriate officer of the Owner Trustee, the Transferor and
NAFI, as the case may be, to that effect.
(f) Opinions of Counsel. Financial Security shall have received opinions of
counsel addressed to Financial Security, Xxxxx'x and S&P in respect of the
Trust, the Owner Trustee, the Indenture Trustee, the Transferor, NAFI, Funding
Trust II, the other parties to the Transaction Documents and the Transaction in
form and substance satisfactory to Financial Security, addressing such matters
as Financial Security may reasonably request, including without limitation, the
items set forth in Appendix A hereto, and the counsel providing each such
opinion shall have been instructed by its client to deliver such opinion to the
addressees thereof.
(g) Approvals, Etc. Financial Security shall have received true and correct
copies of all approvals, licenses and consents, if any, including, without
limitation, the approval of the co-trustees of each of the Transferor and
Funding Trust II, the holders of beneficial ownership interests in each of the
Transferor and Funding Trust II and the board of directors of NAFI, required in
connection with the Transaction.
(h) No Litigation, Etc. No suit, action or other proceeding, investigation,
or injunction or final judgment relating thereto, shall be pending or threatened
before any court or governmental agency in which it is sought to restrain or
prohibit or to obtain damages or other relief in connection with any of the
Transaction Documents or the consummation of the Transaction.
(i) Legality. No statute, rule, regulation or order shall have been
enacted, entered or deemed applicable by any government or governmental or
administrative agency or court which would make the transactions contemplated by
any of the Transaction Documents, illegal or otherwise prevent the consummation
thereof.
(j) Satisfaction of Conditions of the Underwriting Agreement. All
conditions in the Underwriting Agreement to the
Appendix II
2
Underwriter's obligation to purchase the Securities (other than the issuance of
the Policy) shall have been satisfied.
(k) Issuance of Ratings. Financial Security shall have received
confirmation that the risk secured by the Policy constitutes an investment grade
risk by S&P and an insurable risk by Xxxxx'x and that the Securities, when
issued, will be rated "AAA" by S&P and "Aaa" by Xxxxx'x.
(l) Maintenance of Receivable Files; Filings and Recordings. Financial
Security shall have received evidence satisfactory to it that: (i) the
Receivable Files are being maintained by and held in the custody of the
Custodian pursuant to the Sale and Servicing Agreement and the Custodian
Agreement; (ii) all filings necessary to perfect the interest of the Trust
Collateral Agent in the Collateral have been made; and (iii) all taxes, fees and
other changes payable in connection with such filings shall have been paid.
(m) No Default. No Default or Event of Default shall have occurred.
(n) Absence of Liens. Financial Security shall have received evidence
satisfactory to it in its sole discretion that all Liens of Funding Trust II and
the Master Trust and Restrictions on Transferability relating to the Initial
Receivables transferred by the Master Trust to Funding Trust II and by Funding
Trust II to the Transferor have been released or removed on or prior to the Date
of Issuance.
(o) Additional Items. Financial Security shall have received such other
documents, instruments, approvals or opinions requested by Financial Security as
may be reasonably necessary to effect the Transaction, including but not limited
to evidence satisfactory to Financial Security that all conditions precedent, if
any, in the Transaction Documents have been satisfied.
Appendix II
3
ANNEX I
TO
INSURANCE AND INDEMNITY AGREEMENT
FORM OF FINANCIAL GUARANTY INSURANCE POLICY
APPENDIX A
OPINIONS OF COUNSEL
There shall be delivered to Financial Security, Xxxxx'x and S&P opinions of
counsel satisfactory in form and substance to Financial Security and its
counsel, including, without limitation, opinions as follows:
(i) opinions to the effect that the Securities and the Certificates have
been duly issued, and the Transaction Documents have been duly executed and
delivered, and each constitutes legal, valid and binding obligations,
enforceable in accordance with its respective terms;
(ii) opinions as to compliance with applicable securities laws, including,
but not limited to, opinions to the effect that:
(A) no filing or registration with or notice to or consent, approval,
authorization or order of any court or governmental authority or agency is
required for the consummation of the Transaction, except such as may be
required and have been obtained under the Securities Act and state
securities or "blue sky" laws;
(B) the Registration Statement is effective under the Securities Act
and, to the best of counsel's knowledge and information, no stop order
suspending the effectiveness of the Registration Statement has been issued
under the Securities Act or proceedings therefor initiated or threatened by
the Commission;
(C) none of the Transferor, NAFI, the Trust or the Trust Estate is
required to be registered under the Investment Company Act; and
(D) none of the Indenture, the Trust Agreement or the Sale and
Servicing Agreement is required to be qualified under the Trust Indenture
Act;
(iii) an opinion to the effect that (A) the Trust Collateral Agent has a
first priority perfected security interest in the Collateral and the proceeds
thereof (covering perfection by possession and by filing UCC-1 financing
statements) under the applicable Uniform Commercial Code; (B) the Receivables
and the Other Trust Property would not be included as part of the estate of NAFI
or Funding Trust II in the event of any receivership or insolvency proceedings
in respect thereof; (C) the contribution of certain of the Receivables and other
property related thereto
Appendix A
1
by NAFI to the Transferor pursuant to the Purchase and Contribution Agreement
would be characterized by a court of competent jurisdiction as a contribution of
such Receivables and such other property related thereto and not as a borrowing
by the Transferor or a relationship of joint ownership, partnership, joint
venture or similar arrangement; and (D) the transfer of the Receivables and the
Other Trust Property would be characterized by a court of competent jurisdiction
as a sale of such Receivables and Other Trust Property by NAFI or Funding Trust
II to the Transferor, as applicable, and not as a borrowing by NAFI or Funding
Trust II, as applicable, or a relationship of joint ownership, partnership,
joint venture or similar arrangement; and (E) the assets and liabilities of each
of the Trust and the Transferor would not be substantively consolidated with
those of NAFI in the event of any receivership or insolvency proceeding in
respect of NAFI;
(iv) the Collateral Agent under the Spread Account Agreement has a valid,
perfected first priority perfected security interest in the collateral held
thereunder for the benefit of secured parties thereunder;
(v) a title and perfection opinion with respect to the Financed Vehicles
from Florida, Georgia and North Carolina;
(vi) opinions with respect to United States federal tax law and ERISA;
(vii) general corporate and enforceability opinions with respect to NAFI,
the Master Trust, Funding Trust II, the Transferor, the Trust, the Collateral
Agent, the Owner Trustee, the Trust Collateral Agent and the Indenture Trustee;
(viii) an opinion to the effect that the forms of Receivables used comply
with the disclosure requirements of the Federal Truth-in-Lending Act and
Regulations Z and B of the Federal Reserve Board; and
(ix) such other opinions as Financial Security shall request.
Appendix A
2
