EXECUTION COPY
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INSURANCE AND INDEMNITY AGREEMENT
among
FINANCIAL SECURITY ASSURANCE INC.,
NATIONAL FINANCIAL AUTO FUNDING TRUST,
and
NATIONAL AUTO FINANCE COMPANY L.P.
Dated as of November 13, 1996
National Auto Finance 1996-1 Trust
6.33% Automobile Loan Receivables-Backed Certificates
$62,098,000
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INSURANCE AND INDEMNITY AGREEMENT
INSURANCE AND INDEMNITY AGREEMENT dated as of November 13, 1996, by and
among FINANCIAL SECURITY ASSURANCE INC. ("Financial Security"), NATIONAL
FINANCIAL AUTO FUNDING TRUST (the "Transferor") and NATIONAL AUTO FINANCE
COMPANY L.P. ("NAFCO", 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 Contracts and certain other property
related thereto to Funding Trust II pursuant to the Assignment Agreement, (ii)
Funding Trust II will simultaneously sell all of its right, title and interest
in and to the Initial Contracts and such other property related thereto to the
Transferor pursuant to the Sale Agreement and (iii) the Transferor will
simultaneously sell all of its right, title and interest in and to the Initial
Contracts and such other property related thereto to the Trust pursuant to the
Pooling and Servicing Agreement.
B. Subsequent to the Closing Date, the Transferor proposes to acquire
Additional Contracts and certain other property related thereto from NAFCO
pursuant to the Purchase and Contribution Agreement (certain of such Additional
Contracts and other property related thereto NAFCO proposes to acquire from ACCH
pursuant to the Purchase Agreement), and to simultaneously sell to the Trust all
of its right, title and interest in and to such Additional Contracts and such
other property related thereto pursuant to the Pooling and Servicing Agreement.
C. The Securities will evidence in the aggregate an undivided ownership
interest of 91% of the Trust. The Transferor has requested that Financial
Security issue a financial guaranty insurance policy guarantying certain
distributions of the principal of and interest on the Securities (including any
such distributions subsequently avoided as a preference under applicable
bankruptcy law) upon the terms and subject to the conditions provided herein.
D. It is contemplated that NAFCO and/or ACCH and/or the Transferor and/or
any other Affiliate of NAFCO 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 NAFCO, Funding Trust II, the Transferor and/or
such other Affiliate of NAFCO 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.
E. 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, NAFCO and the Transferor hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01. Definitions. All terms defined in the Pooling 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 Pooling 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 1996-1. In addition,
capitalized terms used herein shall have the meanings provided in Appendix I
hereto unless the context otherwise requires.
ARTICLE II.
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 2.01. Representations and Warranties of NAFCO and the Transferor.
NAFCO 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. NAFCO is a limited
partnership, duly organized, validly existing and in
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good standing under the laws of the state of Delaware. The Transferor is a
business trust, duly organized, validly existing and in good standing
under the laws of the state of Delaware. Each of NAFCO 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 and, with
respect to NAFCO, the Subservicing Agreement, in each jurisdiction in
which the failure to be so qualified or to obtain such approvals would
render any Contract unenforceable in any respect or would otherwise have a
material adverse effect upon the Transaction.
(b) Power and Authority. Each of NAFCO 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, with
respect to NAFCO, the Subservicing Agreement and to consummate the
Transaction.
(c) Due Authorization. The execution, delivery and performance of
the Transaction Documents by each of NAFCO and the Transferor and the
Subservicing Agreement by NAFCO 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 NAFCO or the Subservicing
Agreement by NAFCO, the consummation of the transactions contemplated
thereby or the satisfaction of the terms and conditions of the Transaction
Documents or the Subservicing Agreement,
(i) conflicts with or results in any breach or violation of
any provision of the trust agreement or agreement of limited
partnership of the Transferor or of NAFCO, respectively, or any law,
rule, regulation, order, writ, judgment, injunction, decree,
determination or award currently in effect having applicability to
the Transferor or NAFCO, 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 NAFCO, as the case may be,
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(ii) constitutes a default by the Transferor or NAFCO, 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 NAFCO, 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 NAFCO 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 Contracts,
NAFCO, the Transferor or any of their respective Subsidiaries or
Affiliates, or any properties or rights of NAFCO, 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 NAFCO, the Transferor or any Contract.
(f) Valid and Binding Obligations. Each of the Transaction Documents
to which either NAFCO or the Transferor is a party when executed and
delivered by NAFCO or by the Transferor, as the case may be, and the
Subservicing Agreement when executed and delivered by NAFCO, 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 Pooling and Servicing Agreement, will
be validly issued and outstanding and entitled to the benefits of the
Pooling and Servicing Agreement and, together with the Transferor
Interest, will evidence the entire beneficial ownership interest in the
Trust.
(g) Financial Statements. The Financial Statements of each of the
Transferor and NAFCO, 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 NAFCO as of the dates and for the periods
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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 NAFCO 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 NAFCO, as the case may be.
(h) ERISA. Each of the Transferor and NAFCO 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 NAFCO, 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 NAFCO 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 NAFCO or to the Transferor which has a material possibility of
causing a Material Adverse Change with respect to NAFCO, the Transferor or
the Contracts.
(j) Compliance With Securities Laws. The offer and sale of the
Securities 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 Certificate Insurer", or such additional
information as may be deemed to be included
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in the Offering Document pursuant to the second paragraph under the
heading "Incorporation of Certain Documents by Reference" on page S-2 of
the Offering Document. Neither the Trust nor the Trust Estate is required
to be registered as an "investment company" under the Investment Company
Act. The Pooling and Servicing Agreement is not required to be qualified
under the Trust Indenture Act.
(k) Transaction Documents. Each of the representations and
warranties of NAFCO or of the Transferor contained in the Transaction
Documents is true and correct in all material respects and each of NAFCO
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 NAFCO or by the Transferor of this Insurance
Agreement or of any other Transaction Document to which such Person is a
party or by NAFCO of the Subservicing Agreement, 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 NAFCO 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.
(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 purchase by NAFCO and its
Affiliates of all of the beneficial ownership interests of the
Transferor and the transactions as provided in (a) the Sale
Agreement, (b) the Purchase Agreement, (c) the Purchase and
Contribution Agreement, (d) each Conveyance, (e) the Pooling and
Servicing Agreement and (f) each Transfer Agreement, the Transferor
is not engaged in any business transactions with NAFCO or any of its
Affiliates other than Funding Trust II.
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(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 of NAFCO 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 NAFCO and the
Transferor is solvent and will not be rendered insolvent by the
Transaction and, after giving effect to such Transaction, neither NAFCO
nor the Transferor will be left with an unreasonably small amount of
capital with which to engage in its business. Neither NAFCO nor the
Transferor intends to incur, or believes that it has incurred, debts
beyond its ability to pay such debts as they mature. Neither NAFCO 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 NAFCO
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 Securities constitutes reasonably equivalent value and fair
consideration for the interest in the portion of the Trust Estate
evidenced by the Securities. The amount of consideration being received by
the Master Trust upon the sale of the Initial Contracts and related Other
Trust Property to Funding Trust II constitutes reasonably equivalent value
and fair consideration for such Contracts and related Other Trust
Property. The amount of consideration being received by Funding Trust II
upon the sale of the Initial Contracts and related Other Trust Property to
the Transferor constitutes reasonably equivalent value and fair
consideration for such Contracts and related Other Trust Property. The
amount of consideration being received by NAFCO upon the sale of any
Additional Contracts and related Other Trust Property by NAFCO to the
Transferor constitutes reasonably equivalent value and fair consideration
for such Additional Contracts and related Other Trust Property. The amount
of consideration being received by ACCH upon the sale of any Additional
Contracts
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and related Other Trust Property by ACCH to NAFCO constitutes reasonably
equivalent value and fair consideration for such Additional Contracts and
related Other Trust Property. None of (i) the Master Trust, with respect
to the Initial Contracts and related Other Trust Property transferred by
it to Funding Trust II, (ii) Funding Trust II, with respect to the Initial
Contracts and related Other Trust Property transferred by it to the
Transferor, (iii) ACCH, with respect to any Additional Contracts and
related Other Trust Property transferred by it to NAFCO, and (iv) NAFCO,
with respect to any Additional Contracts and related Other Trust Property
transferred by it to the Transferor, is transferring any of the
above-mentioned Contracts 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 Contracts 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 NAFCO 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.
Immediately prior to the sale of the Initial Contracts and related Other
Trust Property to the Trust pursuant to the Pooling and Servicing
Agreement and the related Transfer Agreement on the Closing Date and
immediately prior to the sale of Additional Contracts and related Other
Trust Property to the Trust pursuant to the Pooling and Servicing
Agreement and the related 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 Contracts and related Other Trust Property. The
Pooling and Servicing Agreement and the related Transfer Agreement
constitute a valid sale, transfer and assignment of the Initial Contracts
and related Other Trust Property to the Trust, and the Pooling and
Servicing Agreement and each related Transfer Agreement constitute a valid
sale, transfer and assignment of the Additional Contracts 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
Contracts 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
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financing, and the Trust shall have a valid and perfected first priority
security interest in the Contracts and related Other Trust Property free
and clear of all Liens and Restrictions on Transferability other than
Restrictions on Transferability imposed by the Pooling and Servicing
Agreement.
(r) Perfection of Liens and Security Interest. On the Closing Date,
the Lien and security interest in favor of the Trustee with respect to the
Trust Estate will be perfected by the delivery of the Contracts to the
Custodian, which Contracts the Custodian will hold on behalf of the
Trustee, 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 Certificate Account, the
Pre-Funding Period Reserve Account, the Pre-Funding Account and the
Revolving 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's first priority Lien on and security interest in the Trust Estate
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 Permitted
Investments in accordance with the Transaction Documents, such funds and
Permitted Investments will be subject to a valid and perfected, first
priority security interest in favor of the Trustee. Assuming the retention
of funds in the Spread Account and the acquisition of Permitted
Investments in accordance with the Spread Account Agreement, such funds
and Permitted Investments will be subject to a valid and perfected, first
priority security interest in favor of the Collateral Agent on behalf of
Financial Security and the Trustee.
(t) Taxes. Each of NAFCO 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 NAFCO in
connection with the Transaction, the execution and delivery of the
Transaction Documents and the issuance of the Securities have been paid or
shall have been paid at or prior to the Date of Issuance.
(u) Additional Contracts. With respect to the transfer by NAFCO of
Additional Contracts and related Other Trust Property on any Subsequent
Transfer Date, immediately
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prior to the sale of such Additional Contracts and related Other Trust
Property to the Transferor pursuant to the Purchase and Contribution
Agreement and the related Conveyance, NAFCO 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, corporate power and
lawful authority to assign, transfer and pledge such Additional Contracts
and related Other Trust Property. The Purchase and Contribution Agreement
and the related Conveyance constitute a valid sale, transfer and
assignment of the related Additional Contracts and related Other Trust
Property to the Transferor enforceable against creditors of and purchasers
of NAFCO. In the event that, in contravention of the intention of the
parties, the transfer of such Additional Contracts and related Other Trust
Property by NAFCO 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 Additional Contracts 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. 33-80813),
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
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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 2.02. Affirmative Covenants of NAFCO and the Transferor. NAFCO
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 the
Agreement, unless Financial Security shall otherwise expressly consent in
writing:
(a) Compliance With Agreements and Applicable Laws. Each of the
Transferor and NAFCO shall perform each of its respective obligations
under the Transaction Documents and the Subservicing Agreement and shall
comply with all material requirements of, and the Securities 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 or the Subservicing
Agreement.
(b) Financial Statements; Accountants' Reports; Other Information.
Each of NAFCO and the Transferor shall keep or cause to be kept in
reasonable detail books and records of account of its assets and business
and, in the case of NAFCO, shall clearly reflect therein the transfer of
Additional Contracts to the Transferor, and, in the case of the
Transferor, shall clearly reflect therein the transfer of the Contracts to
the Trust. NAFCO 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 Contracts to Funding Trust II.
NAFCO 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
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the Initial Contracts to the Transferor. Each of NAFCO 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
NAFCO and the Transferor, the audited balance sheets of NAFCO 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 NAFCO 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 NAFCO'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 2.02(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 NAFCO and the Transferor, as
the case may be, the unaudited balance sheets of NAFCO 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 NAFCO 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 2.02(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 NAFCO or the Transferor by their
respective independent accountants in connection with any
examination of the financial statements of NAFCO 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
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delivered to or by NAFCO 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 NAFCO 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. NAFCO 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 NAFCO and the Transferor as they may relate to the
Securities, the Contracts and the Other Trust Property, the
obligations of NAFCO or of the Transferor under the Transaction
Documents, the Transaction and, but only following the occurrence of
a Special Event, NAFCO's business; (B) to discuss the affairs,
finances and accounts of NAFCO 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 NAFCO or the
Transferor with its independent accountants, provided that an
officer of NAFCO or the Transferor, as the case may be, shall have
the right to be present during such discussions. Such inspections
and discussions shall be conducted during normal business hours and
shall not unreasonably disrupt the business of NAFCO or the
Transferor, as the case may be. In addition, NAFCO 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 NAFCO and the
Transferor will be maintained at the respective addresses designated
herein for receipt of notices, unless NAFCO or the Transferor shall
otherwise advise the parties hereto in writing.
(v) NAFCO 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) Promptly after the filing or sending thereof, copies of
all proxy statements, financial
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statements, reports and registration statements which NAFCO 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 NAFCO or the
Transferor or any national securities exchange.
(c) Compliance Certificate. Each of NAFCO and the Transferor 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 the Chief
Financial Officer of each of NAFCO and the Transferor stating that:
(i) a review of NAFCO's and the Transferor's respective
performance under the Transaction Documents and the Subservicing
Agreement 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 NAFCO 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 NAFCO
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 2.02(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 NAFCO 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 NAFCO 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
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judicial investigation (A) against NAFCO or the Transferor
pertaining to the Contracts in general, (B) with respect to a
material portion of the Contracts 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 Contracts;
(ii) any change in the location of NAFCO's or the Transferor's
principal office or any change in the location of NAFCO'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 NAFCO or of the Transferor.
(e) Further Assurances. Each of NAFCO and the Transferor will file
or cause to be filed 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
first priority security interest in, and all rights of the Trustee for the
benefit of the Certificateholders and Financial Security with respect to
the Contracts and Other Trust Property, under the Pooling and Servicing
Agreement. In addition, each of NAFCO 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 Trustee, for the benefit of
the Certificateholders and Financial Security, in the Contracts and Other
Trust Property, free and clear of all Liens and Restrictions on
Transferability except the Lien in favor of the Trustee, for the benefit
of the Certificateholders and Financial Security, and the Restrictions on
Transferability imposed by the Pooling and Servicing Agreement. In
addition, each of NAFCO 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.
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(f) Retirement of Securities. NAFCO or the Transferor shall cause
the Trustee, upon retirement of the Securities pursuant to the Pooling and
Servicing Agreement 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 NAFCO and the Transferor agrees
that Financial Security shall have all rights of a third-party beneficiary
in respect of the Pooling and Servicing Agreement, the Purchase Agreement,
the Purchase and Contribution Agreement, each Transfer Agreement, the Sale
Agreement, the Assignment Agreement, the Custodial Agreement and each
Conveyance and hereby incorporates and restates its representations,
warranties and covenants as set forth therein for the benefit of Financial
Security.
(h) Corporate Existence. Except as provided in Section 2.03(h), each
of NAFCO and the Transferor shall maintain its existence as a limited
partnership and as a business trust, 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
2.01(a), (b) and (c) hereof) and shall conduct its business in accordance
with the terms of its agreement of limited partnership or trust agreement,
as the case may be.
(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
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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 NAFCO or
any Affiliate thereof or that the assets of the Transferor are
available to pay the creditors of NAFCO or any Affiliate thereof.
Without limiting the generality of the foregoing, all oral and
written communications, including, without limitation, letters,
invoices, purchase orders, contracts, statements and loan
applications, will be made solely in the name of the Transferor.
(ii) The Transferor shall maintain records and books of
account separate from those of NAFCO and the Affiliates thereof. The
Transferor's books and records shall clearly reflect the transfer of
the Contracts to the Trust and the sale of the Securities each as a
sale of the Transferor's interest in the Contracts (other than the
Transferor Interest). The books and records of the Transferor will
be maintained at the address designated herein for receipt of
notices, unless the Transferor shall otherwise advise the parties
hereto in writing.
(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.
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(iv) Although the organizational expenses of the Transferor
have been paid by NAFCO, 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 NAFCO 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 NAFCO and
each Affiliate thereof.
(vii) The Transferor shall maintain an arm's-length
relationship with NAFCO and the Affiliates thereof and will not hold
itself out as being liable for the debts of NAFCO 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 NAFCO and the Affiliates thereof.
(k) Maintenance of Licenses. NAFCO and the Transferor shall each
maintain all licenses, permits, charters and registrations which are
material to the performance by NAFCO or the Transferor, as the case may
be, of its business or of its respective obligations under this Insurance
Agreement and each other Transaction Document.
Section 2.03. Negative Covenants of NAFCO and the Transferor. NAFCO 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 the
Agreement, unless Financial Security shall otherwise expressly consent in
writing:
(a) Restrictions on Liens. Neither NAFCO 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 existence of
any Lien or Restriction on Transferability on the Contracts or the Other
Trust Property except for the Lien in favor of the Trustee, for the
benefit of the
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Certificateholders and Financial Security, and the Restrictions on
Transferability imposed by the Pooling and Servicing Agreement or (ii)
with respect to the Contracts or the Other Trust Property, sign or file
under the Uniform Commercial Code of any jurisdiction any financing
statement which names either NAFCO 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 Trustee, for the
benefit of the Certificateholders and Financial Security.
(b) Impairment of Rights. Neither NAFCO 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 Trustee, the Certificateholders or Financial Security,
(ii) result in a Material Adverse Change in respect of the Contracts or
(iii) impair the ability of NAFCO 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
NAFCO's or the Transferor's assets to any other Person if such
consolidation, merger or transfer would materially impair the net worth of
NAFCO or the Transferor or any successor Person obligated, after such
event, to perform NAFCO's or the Transferor's obligations under the
Transaction Documents.
(c) Waiver, Amendments, Etc. Neither NAFCO 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 Subservicing Agreement or the Transferor's trust agreement.
(d) Successors. Neither NAFCO nor the Transferor shall terminate or
designate, or consent to the termination or designation of, the Servicer,
the Custodian, the Standby Servicer, the Trustee, any Subservicer, 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 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
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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) NAFCO shall not
consolidate with or merge into any Person unless it complies with the
procedures set forth in Section 6.02 of the Pooling 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 in
connection with the Pooling and Servicing Agreement, the Purchase
Agreement, the Purchase and Contribution Agreement, each Transfer
Agreement, each Conveyance, the Sale Agreement, the Assignment
Agreement and the Spread Account Agreement and as permitted under
its trust agreement.
(j) Insolvency. Neither NAFCO 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 receiver, trustee, custodian or other
similar official for it or for all or any substantial
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part of its assets, or make a general assignment for the benefit of its
creditors. Neither NAFCO 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 under any Transaction
Document with respect to any Series is then due and owing but unpaid.
(m) Transfer of the Transferor Interest. The Transferor shall not
sell, transfer, assign, convey or pledge the Transferor Interest to any
Person (including, without limitation, NAFCO).
Section 2.04. Representations and Warranties of NAFCO and the Transferor
with respect to the Master Trust, Funding Trust II and ACCH. Each of the
Transferor and NAFCO 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,
with respect to ACCH and otherwise, as follows:
(a) Good Title; Valid Transfer; Absence of Liens; Security Interest.
Immediately prior to the sale of the Initial Contracts 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 Contracts and related Other
Trust Property. Immediately prior to the sale of the Initial Contracts 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 Contracts and
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related Other Trust Property. Immediately prior to the sale of Additional
Contracts and related Other Trust Property to NAFCO pursuant to the
Purchase Agreement and the related Conveyance on any Subsequent Transfer
Date, ACCH 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 Additional Contracts and the related Other Trust Property. The
Assignment Agreement constitutes a valid sale, transfer and assignment of
the Initial Contracts 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 Contracts and the related Other Trust Property to the
Transferor, enforceable against creditors of and purchasers of Funding
Trust II. The Purchase Agreement and the related Conveyance constitute a
valid sale, transfer and assignment of the related Additional Contracts
and the related Other Trust Property to the Transferor enforceable against
creditors of and purchasers of ACCH. In the event that, in contravention
of the intention of the parties, (i) the transfer of the Initial Contracts
and related Other Trust Property by the Master Trust to Funding Trust II,
(ii) the transfer of the Initial Contracts and related Other Trust
Property by Funding Trust II to the Transferor or (iii) the transfer of
Additional Contracts and related Other Trust Property by ACCH to NAFCO is
characterized as other than a sale, such transfer shall be characterized
as a secured financing, and Funding Trust II, the Transferor or NAFCO, as
applicable, shall have a valid and perfected first priority security
interest in such Contracts and related Other Trust Property free and clear
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, Funding Trust II and ACCH has performed each of its
obligations under the Assignment Agreement, the Sale Agreement and the
Purchase 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, the Sale Agreement and the Purchase Agreement, respectively.
Each of the Master Trust, Funding Trust II and ACCH has not taken any
action that would interfere with the enforcement of any rights under the
Assignment Agreement, the Sale Agreement and the Purchase Agreement,
respectively.
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Section 2.05. Affirmative Covenants of NAFCO and the Transferor with
respect to the Master Trust, Funding Trust II and ACCH. Each of NAFCO and the
Transferor hereby agrees with respect to itself, with respect to the Master
Trust, with respect to Funding Trust II, with respect to ACCH and otherwise,
that during the Term of the Agreement, unless Financial Security shall otherwise
expressly consent in writing:
(a) Notice of Material Events. Each of NAFCO 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, Funding Trust II or ACCH, as the case may
be, (B) with respect to any of the Contracts transferred by the
Master Trust to Funding Trust II, by Funding Trust II to the
Transferor or by ACCH to NAFCO, or (C) in which a request has been
made for certification as a class action (or equivalent relief) that
would involve any of the Contracts transferred by the Master Trust
to Funding Trust II, Funding Trust II to the Transferor or by ACCH
to NAFCO; or
(ii) any other event, circumstance or condition that has
resulted in a material adverse change in the ability of the Master
Trust, Funding Trust II or ACCH to perform its obligations under the
Assignment Agreement, the Sale Agreement or the Purchase
Agreement, respectively.
(b) Further Assurances. Each of NAFCO 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 and security interest of (i)
the Master Trust in any Contracts transferred by the Master Trust to
Funding Trust II, (ii) Funding Trust II in any Contracts transferred by
Funding Trust II to the Transferor or (iii) ACCH in any Contracts
transferred by ACCH to NAFCO. In addition, each of NAFCO 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
Contracts transferred by the Master Trust to Funding Trust II, by
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Funding Trust II to the Transferor and by ACCH to NAFCO, free and clear of
all Liens and Restrictions on Transferability created by or for the
benefit of the Master Trust, Funding Trust II or ACCH, as the case may be.
(c) Third-Party Beneficiary. The Transferor and NAFCO agree that
Financial Security shall have all rights of a third-party beneficiary in
respect of the Assignment Agreement, the Sale Agreement and the Purchase
Agreement and each of NAFCO and the Transferor hereby restates the
representations, warranties and covenants of the Master Trust, Funding
Trust II and ACCH as set forth therein for the benefit of Financial
Security.
Section 2.06. Negative Covenants of NAFCO and the Transferor with respect
to the Master Trust, Funding Trust II and ACCH. Each of NAFCO and the Transferor
hereby agrees with respect to itself, with respect to the Master Trust, with
respect to Funding Trust II, with respect to ACCH and otherwise that during the
Term of the Agreement, unless Financial Security shall otherwise expressly
consent in writing:
(a) Restrictions on Liens. Neither NAFCO nor the Transferor shall
permit the execution or filing under the Uniform Commercial Code of any
jurisdiction any financing statement naming the Master Trust, Funding
Trust II or ACCH as a debtor, or the execution of any security agreement
authorizing any secured party thereunder to file such financing statement,
with respect to the Contracts transferred by the Master Trust to Funding
Trust II, by Funding Trust II to the Transferor and by ACCH to NAFCO,
except in each case any such instrument solely securing the rights and
preserving the Lien of the Trustee, for the benefit of the
Certificateholders and Financial Security.
ARTICLE III.
THE POLICY; REIMBURSEMENT; INDEMNIFICATION
Section 3.01. 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 3.02. Payment of Fees and Premium.
(a) Inducement Letter Fees and Expenses. On the Date of Issuance,
NAFCO 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 NAFCO and Financial
Security.
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(b) Legal Fees. On the Date of Issuance, NAFCO 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 due after the Date of
Issuance, first, from monies available for such payment in accordance with
Section 4.01 of the Pooling and Servicing Agreement and second, to the
extent that such monies are insufficient, from NAFCO. The Premium paid
hereunder or under the Pooling 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
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account designated from time to time by Financial Security by written
notice to the Transferor and NAFCO.
Section 3.03. 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 NAFCO), (c) (other than in respect of amounts due from NAFCO and other
amounts that, after due notice and any required passage of time, would not be
payable as a "Guaranteed Distribution" under the Policy), and (d)(v) shall be
non-recourse obligations with respect to NAFCO, 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 4.01 of the Pooling and Servicing
Agreement (except to the extent that any such payment obligation arises from a
failure to perform or default of NAFCO, the Transferor or any Affiliate thereof
under any Transaction Document or by reason of negligence, willful misconduct or
bad faith on the part of NAFCO or the Transferor in the performance of its
duties and obligations thereunder or reckless disregard by NAFCO or the
Transferor of its duties and obligations thereunder). NAFCO and the Transferor
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;
(c) any payments made by Financial Security on behalf of, or
advanced to, NAFCO, in its capacity as Servicer, the Trust or the Trustee,
including, without limitation, any amounts payable by NAFCO, in its
capacity as Servicer, the Trust or the Trustee pursuant to the Securities
or any other Transaction Documents or the Subservicing Agreement; 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
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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 Additional
Contracts to the Trust 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.
Section 3.04. Indemnification.
(a) Indemnification by NAFCO 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 NAFCO 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
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offering, issuance, sale, remarketing or delivery of the Securities;
(ii) the negligence, bad faith, willful misconduct,
misfeasance, malfeasance or theft committed by any director,
officer, employee or agent of the Transferor or NAFCO, as the case
may be;
(iii) the breach by the Transferor or NAFCO, as the case may
be, of any representation, warranty or covenant under any of the
Transaction Documents (other than a representation or warranty set
forth in Section 2.03(c), for which the remedy with respect to a
breach thereof is set forth in the Pooling and Servicing Agreement)
or the occurrence, in respect of the Transferor or NAFCO, 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 Transferor or NAFCO 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 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 Certificate 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-2 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 NAFCO (the
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"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
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
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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 3.05. Subrogation. Subject only to the priority of payment
provisions of the Pooling and Servicing Agreement, each of the Transferor and
NAFCO 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 Certificateholders to any moneys paid or payable in respect of
the Securities under the Transaction Documents or otherwise. Each of the
Transferor and NAFCO 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 4.01. 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 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 Certificateholders under the Transaction Documents and under the Securities
have been paid in full; provided, however, that the provisions of Sections 3.02,
3.03 and 3.04 hereof shall survive any termination of this Insurance Agreement.
Section 4.02. Obligation Absolute. (a) The payment obligations of the
Transferor and NAFCO 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;
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(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 Transferor or NAFCO 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 Transferor or NAFCO of any representation,
warranty or covenant contained in any of the Transaction Documents; or
(vii) any other circumstances, other than payment in full, which
might otherwise constitute a defense available to, or discharge of the
Transferor or NAFCO in respect of any Transaction Document.
(b) The Transferor and NAFCO and any and all others who are now or may
become liable for all or part of the obligations of the Transferor or NAFCO
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 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 Transferor or NAFCO; (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
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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 NAFCO 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 4.03. 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. Neither the Transferor nor NAFCO
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 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
Certificateholder, other than Financial Security, against the Transferor or
NAFCO, 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. Neither the
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Trustee nor any Certificateholder shall have any right to payment from any
premiums paid or payable hereunder or from any other amounts paid by NAFCO or
the Transferor pursuant to Section 3.02, 3.03 or 3.04 hereof.
Section 4.04. 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 Trustee or for any acts
or omissions of the Trustee 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 5.01. Events of Default. The occurrence of any of the following
events shall constitute an Event of Default hereunder:
(a) any demand for payment shall be made under the Policy;
(b) any representation or warranty made by the Transferor, the
Servicer or NAFCO 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 Transferor, the Servicer or NAFCO 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 Transferor, the Servicer or NAFCO shall fail to pay when
due any amount payable by the Transferor, the Servicer or NAFCO under any
of the Transaction Documents, unless such amounts are paid in full within
any
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applicable cure period explicitly provided for under the relevant
Transaction Document; (ii) the Transferor, the Servicer or NAFCO 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 Transferor, the Servicer, or NAFCO shall fail to perform or
observe any other covenant or agreement contained in any of the
Transaction Documents (except for the obligations described under clause
(c) above) and such failure shall continue for a period of 30 days after
written notice given to the Transferor, the Servicer or NAFCO, as the case
may be;
(e) NAFCO, 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 NAFCO, the Servicer or the Transferor under the United
States Bankruptcy Code or similar law, domestic or foreign, or any
proceeding shall be instituted against any of NAFCO, 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 NAFCO, 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) the Average Delinquency Ratio as of any Reporting Date shall
have been equal to or greater than 11.0%;
(g) the Average Default Rate as of any Reporting Date (i) occurring
on or prior to October 15, 1998, is equal to or greater than 25.0% and
(ii) occurring subsequent to October 15, 1998, is equal to or greater than
17.0%;
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(h) the Average Net Loss Rate as of any Reporting Date (i) occurring
on or prior to October 15, 1998, is equal to or greater than 11.0% and
(ii) occurring subsequent to October 15, 1998, is equal to or greater than
8.0%;
(i) the occurrence of a Servicer Default under the Pooling and
Servicing Agreement; and
(j) 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) NAFCO and/or the Transferor and/or any other
Affiliate of NAFCO, entered into with respect to another Series.
Section 5.02. 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 Person
entitled to exercise the rights of the Certificateholders in respect of
the Securities; 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 Transferor or NAFCO 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.
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(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
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 Transferor and NAFCO. 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 6.01. 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 6.02. 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: NAFCO Auto Finance 1996-1
Trust, 6.33% Automobile Loan Asset
Backed Certificates
Confirmation: (000) 000-0000
Telecopy Nos.: (000) 000-0000,
(000) 000-0000
(in each case in which notice or
other communication to Financial
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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 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
x/x Xxx Xxxxx Xxxxxxxxx Xxxx (XXX)
000 Xxxxxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
Attention: Corporate Trust
Administration
Telecopy No: (000) 000-0000
Confirmation: (000) 000-0000
with a copy to: The Chase Manhattan Bank (USA)
x/x Xxx Xxxxx Xxxxxxxxx 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 NAFCO: National Auto Finance
Company L.P.
One Park Place
000 X.X. 00xx Xxxxxx
Xxxx Xxxxx, Xxxxxxx 00000
Attention: President
Telecopy No: (000) 000-0000
Confirmation: (000) 000-0000
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.
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Section 6.03. 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 Transferor and NAFCO 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 Transferor and NAFCO. 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 6.04. 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 Transferor or NAFCO 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 6.05. 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 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.
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Section 6.06. Governing Law. THIS INSURANCE AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 6.07. 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 Transferor and NAFCO 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 Transferor and NAFCO agrees
that service of such process upon such Person shall constitute personal service
of such process upon it.
(d) Nothing contained in this Agreement shall limit or affect Financial
Security's right to serve process in any other manner permitted by law or to
start legal proceedings relating to any of the Transaction Documents against the
Transferor or NAFCO or its respective property in the courts of any
jurisdiction.
Section 6.08. Consent of Financial Security. In the event that Financial
Security's consent is required under any of the
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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 6.09. 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. 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 FINANCIAL AUTO FUNDING
TRUST
By:____________________________
Name:
Title: __________________of
Chase Manhattan Bank USA, N.A.
as trustee for National
Financial Auto Funding Trust
NATIONAL AUTO FINANCE COMPANY
L.P.
By:____________________________
Name:
Title:
APPENDIX I
DEFINITIONS
"ACCH" means Auto Credit Clearinghouse L.P., a Delaware limited
partnership.
"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 October
21, 1996, between the Master Trust and Funding Trust II, as the same may be
amended, 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, Chicago, Illinois or
the State of Florida are authorized or obligated by law or executive order to be
closed.
"Certificateholders" means registered holders of the Securities.
"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.
"Commission" means the Securities and Exchange Commission.
"Commonly Controlled Entity" means the Transferor or NAFCO and each
entity, whether or not incorporated, which is affiliated with the Transferor or
NAFCO pursuant to Section 414(b), (c), (m) or (o) of the Code.
"Contracts" has the meaning provided in the Pooling and Servicing
Agreement.
"Custodial Agreement" means the Custodial Agreement, dated as of November
13, 1996, between NAFCO and Omni Financial Services of America, Inc. as
custodian, as the same may be amended, supplemented or otherwise modified from
time to time in accordance with the terms thereof.
Appendix I
1
"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
the 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 Section
2.01(j) of the Insurance Agreement.
"Financial Statements" means with respect to NAFCO and the Transferor, as
the case may be, the balance sheet as of December 31, 1995 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 June 30, 1996 and the statement of
income, retained earnings and cash flows for the six 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 NAFCO under the laws of the State of Delaware.
"Indemnification Agreement" means the Indemnification Agreement dated as
of November 13, 1996 among Financial Security, the Transferor and the
Underwriter, as the same may be amended, supplemented or otherwise modified from
time to time in accordance with the terms thereof.
"Inducement Letter" means that letter dated November 21, 1995 from NAFCO
to Financial Security.
"Insurance Agreement" means the Insurance and Indemnity Agreement, as the
same may be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof.
Appendix I
2
"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 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 and (b) in respect of any Contract,
a material adverse change in (i) the value or marketability of such Contract, or
(ii) the probability that amounts now or hereafter due in respect of such
Contract will be collected on a timely basis.
"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.
Appendix I
3
"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.
"NAFCO" means National Auto Finance Company L.P., a Delaware limited
partnership.
"Notice of Claim" means a Notice of Claim and Certificate in the form
attached as Exhibit A to Endorsement No. 1 to the Policy.
"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.
"Other Trust Property" means the Trust Estate exclusive of the Policy.
"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 or 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 the Insurance
Agreement.
"Pooling and Servicing Agreement" means the Pooling and Servicing
Agreement dated as of October 21, 1996 among the Transferor, the Servicer, and
the Trustee on behalf of the Certificateholders, pursuant to which the
Securities are to be issued and the Contracts are to be serviced and
administered, as the same may be amended, supplemented or otherwise modified
from time to time in accordance with the terms thereof.
"Premium" means the premium payable in accordance with Section 3.02 of the
Insurance Agreement and the Premium Supplement, if any.
Appendix I
4
"Premium Letter" means the side letter among Financial Security, NAFCO,
the Transferor and the Trustee dated November 13, 1996 in respect of the premium
payable in consideration of the issuance of the Policy.
"Premium Supplement" means a non-refundable premium, in addition to the
premium payable in accordance with Section 3.02 of the Insurance Agreement,
payable to Financial Security in monthly installments commencing on the first
Distribution Date following the Premium Supplement Commencement Date and on each
Distribution Date thereafter in accordance with the terms set forth in the
Premium Letter.
"Premium Supplement Commencement Date" means the date of occurrence of the
Event of Default in respect of which the Premium Supplement shall have been
declared due and payable in accordance with Section 5.02 of the Insurance
Agreement.
"Prospectus" has the meaning provided in Section 2.01(v) of the 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 Transferor or NAFCO with respect to itself, its
Subsidiaries or Affiliates or the Transaction.
"Purchase Agreement" means the Purchase Agreement dated as of October 21,
1996 between ACCH and NAFCO, as such agreement may be amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof.
"Purchase and Contribution Agreement" means the Purchase and Contribution
Agreement dated as of October 21, 1996 between NAFCO and the Transferor, as the
same may be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof.
"Registration Statement" has the meaning provided in Section 2.01(v) of
the 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
Appendix I
5
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.
"Sale Agreement" means the Sale Agreement, dated as of October 21, 1996,
between the Transferor and Funding Trust II, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof.
"Securities" means the $62,098,000 of National Auto Finance 1996-1 Trust,
6.33% Automobile Loan Receivables Backed Certificates issued pursuant to the
Pooling and Servicing Agreement.
"Securities Act" means the Securities Act of 1933, including, unless the
context otherwise requires, the rules and regulations thereunder, as amended
from time to time.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"Securitization Agreement" has the meaning provided in paragraph D of the
Introductory Statements to the Insurance Agreement.
"Series 1996-1" means the Series of Certificates issued on the date hereof
pursuant to the Pooling and Servicing Agreement.
"Series of Certificates" or "Series" means Series 1996-1 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 Trustee and NAFCO dated as of November 13, 1996, 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.
"Special Event" means the occurrence of any one of the following: (a) an
Event of Default under the Insurance
Appendix I
6
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 NAFCO, the Transferor
or the Contracts.
"Spread Account Agreement" means the Master Spread Account Agreement,
dated as of November 13, 1996 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 the Agreement" shall be determined as provided in Section 4.01 of
the Insurance Agreement.
"Term of the Policy" has the meaning provided in the Policy.
"Transaction" means the transactions contemplated by the Transaction
Documents, including the transactions described in the Offering Document.
"Transaction Documents" means the Insurance Agreement, the Custodial
Agreement, the Indemnification Agreement, the Pooling and Servicing Agreement,
the Premium Letter, the Inducement Letter, the Purchase Agreement, the Purchase
and Contribution Agreement, the Sale Agreement, the Assignment Agreement, the
Servicer Termination Side Letter, each Transfer Agreement, each Conveyance, the
Underwriting Agreement and the Spread Account Agreement.
"Transferor" means National Financial Auto Funding Trust, a business trust
formed by NAFCO under the laws of the State of Delaware.
"Trust" means the trust created under the Pooling and Servicing Agreement.
Appendix I
7
"Trust Accounts" means the Collection Account, the Certificate Account,
the Revolving Account, the Pre-Funding Account and Pre-Funding Period Reserve
Account.
"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.
"Trustee" means Xxxxxx Trust and Savings Bank, an Illinois banking
corporation, as trustee under the Pooling and Servicing Agreement, and any
successor thereto as trustee under the Pooling and Servicing Agreement.
"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
November 7, 1996 by and among the Transferor and the Underwriter, with respect
to the offer and sale of the Securities, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof.
Appendix I
8
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 NAFCO, a nonrefundable Premium
and shall have been reimbursed, by or on behalf of NAFCO, for other fees and
expenses identified in Section 3.02 of the 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 and the Subservicing Agreement, 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 Pooling 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 trust agreement for each of the Transferor and
Funding Trust II and agreement of limited partnership for each of NAFCO and
ACCH, and (ii) the consent, if necessary, of the limited partners and/or general
partners of each of NAFCO and ACCH and the consent, if necessary, of the
co-trustees and/or holders of beneficial interests of each of the Transferor and
Funding Trust II, each such consent authorizing the issuance of the Securities
and the execution, delivery and performance by the Transferor, Funding Trust II,
NAFCO and ACCH of the Transaction Documents and, with respect to NAFCO, the
Subservicing Agreement, and the transactions contemplated thereby, certified by
a Secretary or Assistant Secretary of the Transferor, Funding Trust II, NAFCO
and ACCH (which certificate shall state that such trust agreement and agreement
of limited partnership, 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 and
NAFCO, respectively, certifying the name and signatures of the officers of the
Transferor and NAFCO, 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.
Appendix II
1
(e) Representations and Warranties; Certificate. The representations and
warranties of the Transferor and NAFCO, as the case may be, in the 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 Transferor and NAFCO, 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
Transferor, NAFCO, Funding Trust II, ACCH, 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, the limited partners of each of NAFCO and
ACCH, and the general partners of each of NAFCO and ACCH, 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 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
Appendix II
2
by Xxxxx'x and that the Securities, when issued, will be rated "AAA" by S&P and
"Aaa" by Xxxxx'x.
(l) Maintenance of Contract Files; Filings and Recordings. Financial
Security shall have received evidence satisfactory to it that: (i) the Contract
Files are being maintained by and held in the custody of the Custodian pursuant
to the Pooling and Servicing Agreement; (ii) all filings necessary to perfect
the interest of the Trust in the Contracts and the Other Trust Property 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
Contracts 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
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 NAFCO and the
Transferor.............................................. 2
Section 2.02. Affirmative Covenants of NAFCO and the
Transferor.............................................. 11
Section 2.03. Negative Covenants of NAFCO and the Transferor............ 18
Section 2.04. Representations and Warranties of NAFCO and the
Transferor with respect to the Master Trust,
Funding Trust II and ACCH............................... 21
Section 2.05. Affirmative Covenants of NAFCO and the
Transferor with respect to the Master Trust,
Funding Trust II and ACCH............................... 23
Section 2.06. Negative Covenants of NAFCO and the Transferor
with respect to the Master Trust, Funding Trust
II and ACCH............................................. 24
ARTICLE III.
THE POLICY; REIMBURSEMENT; INDEMNIFICATION
Section 3.01. Issuance of the Policy.................................... 24
Section 3.02. Payment of Fees and Premium............................... 24
Section 3.03. Reimbursement Obligation.................................. 26
Section 3.04. Indemnification........................................... 27
Section 3.05. Subrogation............................................... 30
ARTICLE IV.
FURTHER AGREEMENTS
Section 4.01. Effective Date; Term of Agreement......................... 30
Section 4.02. Obligation Absolute....................................... 30
Section 4.03. Assignments; Reinsurance; Third-Party Rights.............. 32
Section 4.04. Liability of Financial Security........................... 33
-i-
ARTICLE V.
EVENTS OF DEFAULT; REMEDIES
Section 5.01. Events of Default......................................... 33
Section 5.02. Remedies; Waivers......................................... 35
ARTICLE VI.
MISCELLANEOUS
Section 6.01. Amendments, Etc........................................... 36
Section 6.02. Notices................................................... 36
Section 6.03. Payment Procedure......................................... 38
Section 6.04. Confidentiality........................................... 38
Section 6.05. Severability.............................................. 38
Section 6.06. Governing Law............................................. 39
Section 6.07. Consent to Jurisdiction................................... 39
Section 6.08. Consent of Financial Security............................. 40
Section 6.09. Counterparts.............................................. 40
Section 6.10. Trial by Jury Waived...................................... 40
Section 6.11. Limited Liability......................................... 40
Section 6.12. Entire Agreement.......................................... 40
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
-ii-