Exhibit 10.1
Execution Copy
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SALE AND SERVICING AGREEMENT
among
LONG BEACH ACCEPTANCE AUTO RECEIVABLES TRUST 2006-B
Issuer
LONG BEACH ACCEPTANCE RECEIVABLES CORP.
Transferor
LONG BEACH ACCEPTANCE CORP.
Originator, Servicer and Custodian
and
DEUTSCHE BANK TRUST COMPANY AMERICAS
Back-up Servicer and Trust Collateral Agent
Dated as of September 1, 2006
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TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS 1
SECTION 1.1.
Definitions ...............................................
1
SECTION 1.2.
Other
Definitional Provisions ............................. 1
SECTION 1.3.
Calculations ..............................................
2
SECTION 1.4.
Action by
or Consent of Noteholders ....................... 2
SECTION 1.5.
Material
Adverse Effect ................................... 3
ARTICLE II CONVEYANCE OF RECEIVABLES
........................................ 3
SECTION 2.1.
Conveyance
of Initial Receivables ......................... 3
SECTION 2.2.
Conveyance
of Subsequent Receivables ...................... 4
SECTION 2.3.
Transfer
Intended as Sale; Precautionary
Security Interest .......................................
9
SECTION 2.4.
Assignment
by Transferor .................................. 9
SECTION 2.5.
Further
Encumbrance of Trust Assets ....................... 10
ARTICLE III THE RECEIVABLES
................................................. 10
SECTION 3.1.
Representations and Warranties of Transferor .............. 10
SECTION 3.2.
Repurchase
upon Breach of Representations and
Warranties of the Transferor ............................ 11
SECTION 3.3.
Custody of
Legal Files and Receivable Files ............... 11
SECTION 3.4.
Legal File
Deficiencies ................................... 12
SECTION 3.5.
Access to
Receivable Files; Servicer's Duties with
Respect to Receivable Files ............................. 13
SECTION 3.6.
Issuer's
Certificate ...................................... 14
ARTICLE IV ADMINISTRATION AND SERVICING OF RECEIVABLES
...................... 14
SECTION 4.1.
Duties of
the Servicer .................................... 14
SECTION 4.2.
Collection
and Allocation of Receivable Payments .......... 15
SECTION 4.3.
Realization upon Receivables
.............................. 16
SECTION 4.4.
Physical
Damage Insurance; Other Insurance ................ 17
SECTION 4.5.
Maintenance of Security Interests in Financed Vehicles .... 18
SECTION 4.6.
Additional
Covenants of Servicer .......................... 19
SECTION 4.7.
Purchase
of Receivables Upon Breach ....................... 20
SECTION 4.8.
Servicing
Fee ............................................. 20
SECTION 4.9.
Servicer's
Certificate .................................... 21
SECTION 4.10.
Annual Statement
as to Compliance; Notice of Default ...... 21
SECTION 4.11.
Annual
Independent Certified Public Accountant's Report ... 22
SECTION 4.12.
Servicer
Expenses ......................................... 23
SECTION 4.13.
Retention and
Termination of Servicer ..................... 23
SECTION 4.14.
Access to
Certain Documentation and Information
Regarding Receivables ................................... 23
SECTION 4.15.
Verification of
Servicer's Certificate .................... 24
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SECTION 4.16.
Fidelity Bond
............................................. 25
SECTION 4.17.
Delegation of
Duties ...................................... 25
SECTION 4.18.
Delivery of
Back-up Tapes of Back-up Servicer ............. 26
SECTION 4.19.
Confidential
Information .................................. 26
ARTICLE V ACCOUNTS; PAYMENTS; STATEMENTS TO NOTEHOLDERS
..................... 27
SECTION 5.1.
Accounts;
Lock-Box Account ................................ 27
SECTION 5.2.
Collections ............................................... 29
SECTION 5.3.
Application of Collections ................................ 29
SECTION 5.4.
Intentionally Omitted ..................................... 30
SECTION 5.5.
Additional
Deposits ....................................... 30
SECTION 5.6.
Payments;
Policy Claims ................................... 30
SECTION 5.7.
Statements
to Noteholders; Tax Returns .................... 35
SECTION 5.8.
Reliance
on Information from the Servicer ................. 38
SECTION 5.9.
Optional
Deposits by the Note Insurer ..................... 38
SECTION 5.10.
Spread Account
............................................ 38
SECTION 5.11.
Withdrawals from
Spread Account ........................... 39
SECTION 5.12.
Demand Note
............................................... 39
SECTION 5.13.
Pre-Funding
Account ....................................... 40
SECTION 5.14.
Securities
Accounts ....................................... 41
ARTICLE VI THE POLICY
....................................................... 41
SECTION 6.1.
Policy
.................................................... 41
SECTION 6.2.
Claims
Under Policy ....................................... 41
SECTION 6.3.
Preference
Claims; Direction of Proceedings ............... 42
SECTION 6.4.
Surrender
of Policy ....................................... 43
ARTICLE VII THE TRANSFEROR
.................................................. 43
SECTION 7.1.
Representations of the Transferor ......................... 43
SECTION 7.2.
Liability
of the Transferor ............................... 45
SECTION 7.3.
Merger or
Consolidation of, or Assumption of the
Obligations of, the Transferor .......................... 46
SECTION 7.4.
Limitation
on Liability of the Transferor and Others ...... 46
SECTION 7.5.
Transferor
May Own Notes .................................. 46
ARTICLE VIII THE SERVICER
................................................... 47
SECTION 8.1.
Representations of Servicer ............................... 47
SECTION 8.2.
Indemnities of Servicer ................................... 49
SECTION 8.3.
Merger or
Consolidation of, or Assumption of the
Obligations of, Servicer or Back-up Servicer ............ 51
SECTION 8.4.
Limitation
on Liability of Servicer and Others ............ 52
SECTION 8.5.
Servicer
and Back-up Servicer Not to Resign ............... 52
ARTICLE IX SERVICER TERMINATION EVENTS
...................................... 53
SECTION 9.1.
Servicer
Termination Events ............................... 53
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SECTION 9.2.
Appointment of Successor .................................. 57
SECTION 9.3.
Notification to Noteholders ............................... 58
SECTION 9.4.
Action
Upon Certain Failures of the Servicer .............. 58
ARTICLE X THE TRUST COLLATERAL AGENT
........................................ 58
SECTION 10.1.
Duties of the
Trust Collateral Agent ...................... 58
SECTION 10.2.
Trust Collateral
Agent to Act for the Class A
Noteholders and Note Insurer ............................ 61
SECTION 10.3.
Certain Matters
Affecting the Trust Collateral Agent ...... 61
SECTION 10.4.
Trust Collateral
Agent and Back-up Servicer Not
Liable for Notes or Receivables ......................... 63
SECTION 10.5.
Trust Collateral
Agent and Back-up Servicer
May Own Notes ........................................... 64
SECTION 10.6.
Indemnity of
Trust Collateral Agent and
Back-up Servicer ........................................ 64
SECTION 10.7.
Eligibility
Requirements for Trust Collateral Agent ....... 64
SECTION 10.8.
Resignation or
Removal of Trust Collateral Agent .......... 65
SECTION 10.9.
Successor Trust
Collateral Agent .......................... 66
SECTION 10.10.
Merger or
Consolidation of Trust Collateral Agent ......... 66
SECTION 10.11.
Co-Trustee; Separate
Trustee .............................. 67
SECTION 10.12.
Representations and
Warranties of Trust
Collateral Agent ........................................ 68
SECTION 10.13.
Rights of Note Insurer
to Direct Trust
Collateral Agent ........................................ 68
ARTICLE XI TERMINATION
...................................................... 69
SECTION 11.1.
Termination
............................................... 69
ARTICLE XII ADMINISTRATIVE DUTIES OF THE SERVICER
........................... 70
SECTION 12.1.
Administrative
Duties ..................................... 70
SECTION 12.2.
Records
................................................... 71
SECTION 12.3.
Additional
Information to be Furnished to the Issuer ...... 71
SECTION 12.4.
No Additional
Compensation ................................ 71
ARTICLE XIII MISCELLANEOUS PROVISIONS
....................................... 71
SECTION 13.1.
Amendment
................................................. 71
SECTION 13.2.
Protection of
Title ....................................... 73
SECTION 13.3.
Limitation on
Rights of Noteholders ....................... 75
SECTION 13.4.
Governing Law
............................................. 76
SECTION 13.5.
Notices
................................................... 76
SECTION 13.6.
Severability of
Provisions ................................ 77
SECTION 13.7.
Assignment to
Indenture Trustee ........................... 77
SECTION 13.8.
Limitation of
Liability of Owner Trustee, Back-up
Servicer and Trust Collateral Agent ..................... 78
SECTION 13.9.
Independence of
the Servicer .............................. 78
SECTION 13.10.
No Joint Venture
.......................................... 78
SECTION 13.11.
Nonpetition Covenant
...................................... 78
SECTION 13.12.
Third Party
Beneficiaries ................................. 79
SECTION 13.13.
Consent to
Jurisdiction ................................... 79
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SECTION 13.14.
Headings
.................................................. 80
SECTION 13.15.
Trial by Jury Waived
...................................... 80
SECTION 13.16.
Entire Agreement
.......................................... 80
SECTION 13.17.
Effect of Policy
Expiration Date .......................... 80
SECTION 13.18.
Termination of Demand
Note and/or Demand
Note Guarantee .......................................... 81
ANNEXES
Annex A Defined
Terms
EXHIBITS
Exhibit A-1
Form of Issuer's
Certificate
Exhibit A-2
Form of Issuer's
Certificate
Exhibit B-1
Form of
Servicer's Certificate
Exhibit B-2
Form of Loan
Master File Layout
Exhibit C
Intentionally Omitted
Exhibit D
Payment Deferment and Due Date Change Policies
Exhibit E
Documentation Checklist
Exhibit F
Form
of Transfer Agreement
SCHEDULES
Schedule A
Schedule of Receivables
Schedule B
Location of Receivable Files; Location of Legal Files
Schedule C
Delivery Requirements
iv
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SALE AND
SERVICING AGREEMENT ("Agreement"), dated as of September 1,
2006, among LONG BEACH
ACCEPTANCE AUTO
RECEIVABLES
TRUST 2006-B,
a Delaware
statutory trust, as
issuer (the "Issuer"),
LONG BEACH ACCEPTANCE
RECEIVABLES
CORP., a Delaware
corporation, as
transferor (the
"Transferor"),
LONG BEACH
ACCEPTANCE CORP.,
a Delaware
corporation,
as originator
of the receivables
("LBAC"), as servicer
(in such capacity, the
"Servicer") and as
custodian (in
such capacity, the
"Custodian") and DEUTSCHE BANK TRUST COMPANY AMERICAS, a New
York banking
corporation, as
back-up servicer and trust collateral agent, (the
"Back-up Servicer" and the "Trust Collateral Agent",
respectively).
WHEREAS the Issuer
desires to acquire a
portfolio of
receivables
arising in connection
with motor vehicle
retail installment sale contracts
acquired by LBAC through motor vehicle dealers;
WHEREAS the Transferor has purchased such receivables from LBAC and
Long Beach
Acceptance
Receivables Corp. Warehouse I (collectively, the
"Sellers") and is willing to convey such receivables to the
Issuer;
WHEREAS the Issuer desires to acquire, from time to time,
additional
receivables arising in
connection with motor
vehicle retail
installment sale
contracts to be acquired by LBAC;
WHEREAS the Transferor
has agreed to
purchase, from time to
time,
such additional
receivables
from the Sellers and is willing to convey
such
receivables to the Issuer; and
WHEREAS the Servicer is willing to service all such
receivables.
NOW, THEREFORE,
in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.1.
Definitions. Whenever
used in this
Agreement,
capitalized terms used
and not otherwise defined herein shall have the meanings
set forth in Annex A attached hereto.
SECTION 1.2. Other Definitional Provisions.
(a) All
terms defined in this Agreement (including Annex A hereto) shall
have the defined meanings when used in any instrument governed
hereby and in any
certificate or other document made or delivered pursuant hereto
unless otherwise
defined therein.
(b) As
used in this
Agreement, in any
instrument governed
hereby and in
any certificate or other document made or delivered pursuant hereto or thereto,
accounting terms not defined in this Agreement (including Annex A hereto) or
in
any such instrument, certificate or
<PAGE>
other document, and accounting terms partly defined in this
Agreement (including
Annex A hereto) or in any such instrument, certificate or other document to
the
extent not defined,
shall have the respective meanings given to them under
generally accepted
accounting
principles
as in effect on the date of this
Agreement or any such instrument, certificate or other document, as
applicable.
To the extent
that the definitions of accounting terms in this Agreement
(including Annex A
hereto) or in any such instrument, certificate or other
document are
inconsistent
with the meanings of such terms under generally
accepted accounting
principles,
the definitions contained in this Agreement
(including Annex A
hereto) or in any such instrument, certificate or other
document shall control.
(c) The
words "hereof," "herein," "hereunder" and words of similar
import
when used in this Agreement shall refer to this Agreement as a
whole and not to
any particular
provision of this Agreement; Section, Schedule and Exhibit
references contained in this Agreement are references to Sections,
Schedules and
Exhibits in or to this
Agreement unless otherwise specified; and the term
"including" shall mean "including without limitation."
(d) With
respect to all terms in this Agreement, the singular includes
the
plural and the plural the singular; words importing any gender
include the other
genders; references to
"writing" include
printing, typing,
lithography,
and
other means of reproducing words in a visible form; references to
agreements and
other contractual
instruments
include all
subsequent
amendments
thereto or
changes therein entered into in accordance with their respective terms and not
prohibited by this
Agreement;
references to Persons
include their
permitted
successors and
assigns; and the term "including" means "including without
limitation."
(e) Any
agreement, instrument
or statute defined or referred to herein or
in any instrument or
certificate
delivered in
connection herewith
means such
agreement, instrument
or statute
as from time to time
amended, modified or
supplemented in
accordance with the
terms thereof and includes (in the case of
agreements or instruments) references to all attachments thereto
and instruments
incorporated therein;
references
to a Person are also to its permitted
successors and assigns.
SECTION 1.3.
Calculations. All
calculations of the amount of
the Servicing Fee, the
Back-up Servicer
Fee, Custodian Fee and the
Indenture
Trustee Fee shall be made on the basis of a 360-day year consisting of twelve
30-day months. All references to the Principal Balance of a
Receivable as of the
last day of a
Collection Period
shall refer to the close of business on
such
day.
SECTION 1.4. Action by or Consent of Noteholders. Whenever any
provision of this
Agreement refers to
action to be taken, or
consented to, by
Noteholders, such provision shall be deemed to refer to Noteholders
of record as
of the Record Date immediately preceding the date on which such
action is to be
taken, or consent given, by Noteholders. Solely for the purposes of any
action
to be taken or consented to by Noteholders, any Note registered in the name
of
the Transferor, LBAC,
the Servicer or any Affiliate thereof shall be deemed not
to be outstanding and shall not be taken into account in
determining whether the
requisite interest
necessary to effect any such action or consent has been
obtained; provided, however, that, solely for the purpose of
determining whether
the Indenture Trustee or the Trust Collateral Agent is entitled to
rely upon any
such action or consent, only Notes which a Responsible Officer of
the
2
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Indenture Trustee or
the Trust Collateral
Agent actually knows
to be so owned
shall be so disregarded.
SECTION 1.5. Material Adverse Effect. Whenever a determination
is to be made under this Agreement as to whether a given event,
action, course
of conduct
or set of facts or
circumstances
could or would
have a material
adverse effect on the
Issuer or Noteholders (or any similar or analogous
determination), such determination shall be made without taking
into account the
insurance provided by
the Policy. Whenever a
determination is to be made under
this Agreement whether a breach of a representation, warranty or
covenant has or
could have a material
adverse effect on a Receivable or the interest therein of
the Issuer, the
Noteholders
or the Note
Insurer (or any
similar or analogous
determination), such determination shall be made by the Controlling
Party in its
sole discretion.
ARTICLE II
CONVEYANCE OF RECEIVABLES
SECTION 2.1. Conveyance of Initial Receivables.
In consideration of the Issuer's delivery of the Class R
Certificate
to or upon the order of the Transferor on the Closing Date and
the net proceeds
from the sale of the Notes and the other amounts to be distributed
from time to
time to, or upon the order of, the Transferor in accordance with the terms of
this Agreement,
the Transferor does hereby transfer, assign, set over and
otherwise convey to the Issuer, without recourse, all right, title
and interest
of the Transferor in, to and under:
(i) the Initial
Receivables listed in Schedule A hereto, all monies
received
on the Initial
Receivables
after the Initial
Cutoff Date and,
with
respect to any Initial Receivables which are Precomputed
Receivables,
the
related Payahead Amount, and all Liquidation Proceeds and Recoveries
received
with respect to such Initial Receivables;
(ii) the security interests in the related Financed Vehicles
granted
by the
related Obligors pursuant to the Initial Receivables and any other
interest
of the Transferor in such Financed Vehicles, including the
certificates of title
and any other evidence of ownership with respect to
such
Financed Vehicles;
(iii) any proceeds from claims on any physical damage, credit life
and credit
accident and health
insurance policies or
certificates or the
VSI
Policy, if any, relating to the related Financed Vehicles or the
related
Obligors, including any rebates and premiums;
(iv) property
(including the right
to receive future
Liquidation
Proceeds)
that secures an Initial Receivable and that has been acquired
by
or on
behalf of the Transferor pursuant to the liquidation of such
Initial
Receivable;
(v) the Purchase Agreement including a direct right to cause LBAC
to
purchase
Initial Receivables from the Issuer upon the
occurrence
of a
breach of
any of the representations and warranties contained in Section
3.03(b) of
the Purchase Agreement or
3
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the
failure of LBAC to
timely comply
with its obligations pursuant to
Section
5.05 of the Purchase Agreement;
(vi) refunds
for the costs of extended service contracts with
respect to
the related Financed
Vehicles, refunds of unearned premiums
with
respect to credit
life and credit accident and health insurance
policies
or certificates covering a related Obligor or Financed Vehicle
or
his or her
obligations
with respect to such Financed Vehicle and any
recourse
to Dealers for any of the foregoing;
(vii) the Legal
Files and the
Receivable
Files related to each
Initial
Receivable and any and all other documents that LBAC keeps on
file
in
accordance
with its customary procedures relating to the Initial
Receivables, the related Obligors or the related Financed
Vehicles;
(viii) all
amounts and property from time to time held in or
credited
to the Lock-Box Account, to the extent such amounts and
property
relate to
the Initial Receivables;
(ix) any proceeds from
recourse against Dealers (other than any
Chargeback
Obligations),
including any Dealer Title Guaranties with
respect
to the Initial Receivables, with respect to the sale of the
Initial
Receivables; and
(x) the proceeds of any and all of the foregoing.
SECTION 2.2. Conveyance of Subsequent Receivables.
(a)
Subject to the
conditions set forth
in Section 2.2(b)
hereof and in
the related Transfer Agreement, in consideration of the Issuer's
delivery to or
upon the order of the
Transferor
of the purchase price for the Subsequent
Receivables, in each
case as described below and set forth in the related
Transfer Agreement,
the Transferor shall on each Subsequent Transfer Date sell,
transfer, assign, set over and otherwise convey to the Issuer,
without recourse,
all right, title and interest of the Transferor in, to and
under:
(i) the Subsequent
Receivables listed in
Schedule A to the related
Transfer
Agreement,
all monies received on
such Subsequent
Receivables
after the
related Subsequent
Cutoff Date and,
with respect to any such
Subsequent
Receivables
which are Precomputed Receivables, the related
Payahead
Amount, and all Liquidation Proceeds and Recoveries received
with
respect to
such Subsequent Receivables;
(ii) the security interests in the related Financed Vehicles
granted
by the
related Obligors
pursuant to such
Subsequent Receivables
and any
other
interest of the Transferor in such Financed Vehicles, including the
certificates of title
and any other evidence of ownership with respect to
such
Financed Vehicles;
(iii) any proceeds from claims on any physical damage, credit life
and credit
accident and health
insurance policies or
certificates or the
VSI
Policy, if any, relating to the related Financed Vehicles or the
related
Obligors, including any rebates and premiums;
4
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(iv) property
(including the right
to receive future
Liquidation
Proceeds)
that secures a Subsequent Receivable and that has been
acquired
by or on
behalf of the
Transferor pursuant
to the liquidation of such
Subsequent
Receivable;
(v) each Transfer Agreement and the Purchase Agreement,
including a
direct
right to cause LBAC to
purchase Subsequent
Receivables
from the
Issuer
upon the occurrence of a breach of any of the representations and
warranties
contained in Section 4
of the related Transfer Agreement, or
the
failure of LBAC to
timely comply
with its obligations pursuant to
Section
5.05 of the Purchase Agreement;
(vi) refunds
for the costs of extended service contracts with
respect to
the related Financed
Vehicles, refunds of unearned premiums
with
respect to credit
life and credit accident and health insurance
policies
or certificates covering a related Obligor or the related
Financed
Vehicle or his or her obligations with respect to a related
Financed
Vehicle and any recourse to Dealers for any of the foregoing;
(vii) the Legal Files and the Receivable Files related to each such
Subsequent
Receivable and any and
all other documents
that LBAC keeps on
file
in accordance with its customary procedures relating to such
Subsequent
Receivables,
the related
Obligors or the related Financed
Vehicles;
(viii) all
amounts and property from time to time held in or
credited
to the Lock-Box Account, to the extent such amounts and
property
relate to
such Subsequent Receivables;
(ix) any proceeds from
recourse against Dealers (other than any
Chargeback
Obligations),
including any Dealer Title Guaranties with
respect to
such Subsequent
Receivables, with
respect to the sale of such
Subsequent
Receivables; and
(x) the proceeds
of any and all of the foregoing.
The purchase
price to be paid by the Issuer on each Subsequent
Transfer Date for the
Subsequent Receivables
so sold shall be set forth in the
related Transfer
Agreement and shall be paid from
monies released from the
Pre-Funding Account pursuant to Section 5.13(b). Such purchase
price shall equal
the aggregate Principal Balance of such Subsequent Receivables as
of the related
Subsequent Cutoff Date.
(b) The
Transferor shall transfer to the Issuer the Subsequent
Receivables
and the other property
and rights related
thereto described in
Section 2.2(a)
only upon the prior written consent of the Note Insurer
acting in its sole
and
absolute discretion and the satisfaction of each of the following
conditions on
or prior to the related Subsequent Transfer Date:
(i) the Transferor
shall have provided the Indenture Trustee, the
Trust
Collateral
Agent, the Note Insurer, the Demand Note Provider and
each Rating
Agency with an
Addition Notice not
later than five
Business
Days prior
to the related
Subsequent
Transfer Date and shall also have
provided
the Indenture Trustee,
the Trust Collateral Agent and the Note
Insurer
with an electronic
transmission of the information on the related
Subsequent
Receivables
set forth in such Addition Notice in a format
acceptable
5
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to each of
the Indenture Trustee,
the Trust Collateral Agent and the Note
Insurer
no later than such fifth Business Day prior to the related
Subsequent
Transfer Date;
(ii) LBAC and LBARC-WI shall have each delivered to the
Transferor,
a
written Subsequent Assignment, which shall include a list of the
Subsequent
Receivables so
transferred attached thereto as Schedule A, and
a copy
thereof to the Note Insurer;
(iii) the Transferor, the Sellers, the Trust and the Trust
Collateral
Agent shall have executed a written Transfer Agreement, which
shall
include a list of the Subsequent Receivables so transferred
attached
thereto as
Schedule A, and a copy thereof shall have been delivered to the
Note
Insurer;
(iv) the Transferor shall have caused the Servicer to deposit in
the
Collection
Account all collections on or in respect of the
Subsequent
Receivables (to the
extent conveyed to the
Trust as specified in Section
2.2(a))
received prior to the related Subsequent Transfer Date;
(v) the Transferor
shall have
deposited or caused to
be deposited
the
related Subsequent
Spread Account Deposit into the Spread
Account
pursuant
to Section 5.10;
(vi) as of each Subsequent Transfer Date, none of the
Sellers, the
Servicer
and the Transferor
will be insolvent nor
will either of them be
made
insolvent by the
related transfer nor
shall any of them be aware of
any pending
insolvency;
(vii) the Funding Period shall not have terminated;
(viii) the Transferor shall have delivered to the Indenture
Trustee,
the Trust
Collateral Agent, the Note Insurer, the Demand Note Provider
and
each
Rating Agency an Officer's Certificate confirming the satisfaction
of
each
condition precedent specified in this Section 2.2(b) and in Section
5
of the
related Transfer Agreement and certifying that:
(A) such conveyance of Subsequent Receivables by the
Transferor to the Trust on the related Subsequent Transfer Date was
made in good faith for legitimate business purposes and was not
made
with intent to
hinder, delay or defraud any Person to which the
Transferor has been,
is or will
become, on or after the related
Subsequent Transfer Date, indebted;
(B) the Transferor
did not receive less than a reasonably
equivalent value in
exchange for the
conveyance of the
Subsequent
Receivables by
the Transferor to the Issuer on the related
Subsequent Transfer Date pursuant to the related Transfer
Agreement;
(C) the Transferor is not insolvent on the related Subsequent
Transfer Date and
will not become insolvent as a result of the
conveyance of the
Subsequent Receivables
by the Transferor to
the
Issuer on the related
Subsequent
Transfer Date pursuant to the
related Transfer Agreement;
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(D) the Transferor is not engaged in a business or
transaction, and
is not about to engage in a business or
transaction, for which
any property remaining
with the
Transferor
after such business or transaction would be an unreasonably small
amount of capital; and
(E) the
Transferor has not incurred, and does not believe that
it will incur, debts
that would be beyond the Transferor's ability
to pay as such debts mature;
(ix) each Seller shall have delivered to the Indenture Trustee,
the
Trust
Collateral
Agent, the Note Insurer, the Demand Note Provider and
each
Rating Agency an Officer's Certificate confirming the satisfaction
of
each
condition precedent specified in this Section 2.2(b) and in Section
5
of the
related Transfer Agreement and certifying that:
(A) such sale of Subsequent Receivables by such Seller to
the
Transferor on the related Subsequent Transfer Date was made in good
faith for legitimate
business purposes and was not made with intent
to hinder,
delay or defraud
any Person to which such Seller has
been, is or will become, on or after the related Subsequent
Transfer
Date, indebted;
(B)
such Seller did not receive less than a reasonably
equivalent value
in exchange for the sale of the Subsequent
Receivables by
such Seller to the Transferor on the related
Subsequent Transfer
Date pursuant to the Purchase Agreement and the
related Subsequent Assignment;
(C) such Seller is not
insolvent on the
related Subsequent
Transfer Date and will not become insolvent as a result of the
sale
of the Subsequent
Receivables
by such Seller to the
Transferor on
the related
Subsequent
Transfer Date pursuant to the Purchase
Agreement and the related Subsequent Assignment;
(D) such Seller is not
engaged in a business or transaction,
and is not about to engage in a business or transaction, for which
any property
remaining with such Seller after such business or
transaction would be an unreasonably small amount of capital;
and
(E) such Seller has not incurred, and does not believe that it
will incur, debts that
would be beyond such Seller's ability to pay
as such debts mature;
(x) the Transferor
shall have delivered to each Rating Agency, the
Note
Insurer, the Indenture Trustee and the Trust Collateral Agent
Opinions
of Counsel with respect to the transfer of the Subsequent
Receivables substantially in the form of the Opinions of Counsel
delivered
to each
Rating Agency,
the Note Insurer,
the Indenture
Trustee and the
Trust
Collateral
Agent
on the Closing Date regarding true sale,
non-consolidation, perfection, and other such matters satisfactory
in form
and
substance to each of the Note Insurer, the Indenture Trustee and the
Trust
Collateral Agent in its sole discretion;
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(xi) the Transferor shall have taken all action required to
maintain
the first
priority perfected
security interest (as defined in the UCC) of
the Issuer
in the Trust Assets;
(xii) no selection
procedures believed by
the Transferor or either
Seller to
be adverse
to the interests of the Noteholders or the Note
Insurer
shall have been utilized in selecting the Subsequent
Receivables;
(xiii) the conveyance of the Subsequent Receivables shall not
result
in a
qualification, modification or withdrawal of the then-current
ratings
of the
Notes; provided that written confirmation of such ratings shall
not
be
required from the Rating Agencies;
(xiv) the Transferor
shall have provided the Indenture Trustee and
the
Trust Collateral Agent with a supplement to the Schedule of
Receivables setting forth the Subsequent Receivables to be transferred
on
such
Subsequent Transfer Date;
(xv) the Transferor shall have caused a firm of independent
accountants to deliver
to the Indenture
Trustee, the Trust Collateral
Agent and
the Note Insurer
written confirmation that the Receivables,
including
the related Subsequent Receivables, meet the following
criteria,
as of the
related Subsequent Cut-off Date:
(1) the weighted
average remaining
term of the
Receivables
will be no more than 69 months and the weighted average original
term for the Receivables will be no more than 69 months;
(2) each Receivable will have a minimum APR of 4.90%;
(3) each Receivable will have an original term of no more than
75 months;
(4) no more than 45%,
16% or 15% of the
Receivables will
be
originated in California, Florida or Arizona, respectively;
(5) the weighted
average APR for the Receivables will be
greater than or equal to 12.70%;
(6) not less than 11.60% of the aggregate Principal Balance of
the Receivables will be Premium Receivables, not less than 17.20%
of
the aggregate
Principal Balance of
the Receivables
will be Elite
Receivables, not less than 17.20% of the aggregate Principal
Balance
of the Receivables
will be Superior Receivables, not less than
18.35% of the aggregate Principal Balance of the Receivables will
be
Preferred Receivables
and not more than
20.75% of the aggregate
Principal Balance of
the Receivables will
be Classic
Receivables;
and
(7) not more than 63% of the aggregate Principal Balance of
the Receivables will represent loans to finance the purchase of
used
Financed Vehicles;
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(xvi) the Transferor shall satisfy the document delivery
requirements for such Subsequent Receivables as specified in
Section 3.3;
(xvii) the representations and warranties made by the Transferor
and
the
Servicer in
Sections 7.1 and 8.1, respectively, shall be true and
correct on
and as of such Subsequent Transfer Date and the representations
and
warranties made by the Originator with respect to each such
Subsequent
Receivable
being transferred to the Trust on such Subsequent Transfer Date
in Section
4 of the related
Transfer Agreement
shall be true and correct
as of such
Subsequent Transfer Date;
(xviii) on or before such Subsequent Transfer Date, the Transferor
shall have
provided any
information
reasonably
requested by the
Rating
Agencies,
the Note Insurer, the
Indenture Trustee or the Trust Collateral
Agent with
respect to any Subsequent Receivables;
(xix) the Custodian
shall confirm that it is in possession of a
Legal File
for each Subsequent
Receivable identified in the supplement to
the
Schedule of Receivables attached as Schedule A to the related
Transfer
Agreement;
and
(xx) the Servicer
shall deliver the loan master file and
history
information and the
information
required to be set forth in the form
attached
hereto as Exhibit B-2 as specified in Section 4.18.
SECTION 2.3. Transfer Intended as Sale; Precautionary Security
Interest. Each conveyance to the Issuer of the property set forth
in Section 2.1
and Section 2.2 above is intended as a sale (for certain non-tax
purposes) free
and clear of all Liens, and it is intended that the property of the
Issuer shall
not be part of the Transferor's estate in the event of the filing of a
bankruptcy petition by
or against the Transferor under any bankruptcy law. In
the event, however,
that notwithstanding the intent of LBAC, the Transferor and
the Issuer,
any transfer under this Agreement and/or under any Transfer
Agreement is held not
to be a sale, this
Agreement and/or under any Transfer
Agreement shall constitute a security agreement under the UCC (as
defined in the
UCC as in effect
in the State of New York) and applicable law, and the
Transferor hereby
grants a security interest to the Issuer in, to and under the
property described
in Section 2.1 and Section 2.2 above and all proceeds
thereof, for the
benefit of the Indenture Trustee, the Trust Collateral Agent,
the Noteholders,
the Demand Note Provider and the Note Insurer as their
interests may appear
herein, for the purpose of securing the payment and
performance of the Notes and the Certificate and the repayment of amounts
owed
to the Issuer from the Transferor. The Transferor hereby authorizes the Issuer
or its agents to file such financing statements and continuation
statements as
the Issuer may deem advisable in connection with the security
interest granted
by the Transferor pursuant to the preceding sentence.
SECTION 2.4.
Assignment by Transferor. The Transferor does
hereby transfer, assign and otherwise convey unto the Issuer, for
the benefit of
the Noteholders, the
Certificateholder,
the Demand Note
Provider and the Note
Insurer, its right to
any recourse to LBAC
resulting from the
occurrence of a
breach of any of their respective representations and warranties contained in
Section 3.03 of the Purchase Agreement and Section 4 of each
Transfer
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Agreement or from the failure of LBAC to comply with its
obligations pursuant to
Section 5.05 of the Purchase Agreement. The provisions of this Section 2.4
are
intended to grant the Issuer a direct right against LBAC to demand
performance
under the terms of the Purchase Agreement.
SECTION 2.5. Further Encumbrance of Trust Assets.
(a)
Immediately upon the conveyance to the Issuer by the Transferor of
any
item of the Trust
Assets pursuant
to Section 2.1 or
Section 2.2,
all right,
title and interest of the Transferor in and to such item of Trust
Assets shall
terminate, and all
such right, title and
interest shall vest in the Issuer, in
accordance with the
Trust Agreement and Sections 3802 and 3805 of the Statutory
Trust Act (as defined in the Trust Agreement).
(b)
Immediately
upon the vesting of
the Trust Assets in the Issuer, the
Issuer shall have the
sole right to pledge or otherwise encumber, such Trust
Assets. Pursuant to the Indenture, the Issuer shall grant a
security interest in
the Trust Assets to the Indenture Trustee to secure its obligations under the
Notes and all
amounts due and owing to the Note Insurer, the Demand Note
Provider and the Demand Note Guarantor. The Class R Certificate shall
represent
the beneficial ownership interest in the Trust Assets, and the
Noteholders shall
be entitled to receive
payments with
respect thereto as set forth herein
and
pursuant to the Indenture.
(c)
Following the payment in full of the Notes and
all amounts due
and
owing to the Note
Insurer, the Demand Note Provider and the Demand Note
Guarantor have
been paid in full, and the release and discharge of the
Indenture, all covenants of the Issuer under Article III of the
Indenture shall,
until payment in full
of the Class R
Certificate, remain as
covenants of the
Issuer for
the benefit of the Certificateholder,
enforceable
by the
Certificateholder to
the same extent as such covenants were enforceable by the
Noteholders prior to the discharge of the Indenture. Any rights of
the Indenture
Trustee under
Article III of the
Indenture,
following the discharge of the
Indenture, shall vest in the Certificateholder.
(d) The
Trust Collateral Agent shall, at such time as no Notes or
the
Class R Certificate
remains outstanding,
the Policy has expired
in accordance
with its terms and all sums due to (i) the Note Insurer hereunder
or pursuant to
the Insurance
Agreement, (ii) the
Indenture Trustee pursuant to the Indenture,
(iii) the Trust
Collateral Agent pursuant to this Agreement and (iv) the Demand
Note Provider and/or the Demand Note Guarantor pursuant to the Demand Note,
the
Demand Note Guarantee or hereunder, as applicable, have been paid, release any
remaining portion of the Trust Assets to the Transferor.
ARTICLE III
THE RECEIVABLES
SECTION 3.1. Representations and Warranties of Transferor. The
Transferor hereby makes each of the representations and warranties
made by LBAC
in Section 3.03(b) of
the Purchase
Agreement and Section 4 of each Transfer
Agreement with
respect to the Receivables to the same extent as if such
representations and warranties were fully set forth herein. With
respect to such
representations and
warranties,
the Issuer
shall be deemed to
have relied on
such representations
and warranties in acquiring the Receivables, the Note
Insurer is deemed to
have relied on such
representations
and warranties in
issuing the Policy, the Demand
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Note Provider and the Demand Note Guarantor are deemed to have
relied on
such representations
and warranties in
issuing the Demand Note
and the
Demand Note Guarantee,
respectively,
the Indenture Trustee is
deemed
to have relied on such representations and warranties in
authenticating the
Notes, the
Noteholders
are deemed to have
relied on
such
representations and
warranties in purchasing the Notes and the Owner
Trustee is
deemed to have relied on such representations and warranties in
entering
into the Trust
Agreement. Such
representations
and warranties
speak as
of the execution
and delivery of this
Agreement and as of the
Closing
Date in the case of the Initial Receivables, and as of the
related
Subsequent
Transfer Date in the
case of the Subsequent
Receivables, but
shall
survive the transfer and assignment of the Receivables to the
Issuer
and the
subsequent pledge thereof to the Indenture Trustee pursuant to
the
Indenture.
SECTION 3.2.
Repurchase upon Breach
of Representations
and
Warranties
of the Transferor.
(a) The
Transferor,
the Servicer, the Note Insurer, the Demand Note
Provider, the
Custodian, the Trust
Collateral Agent or the Issuer, as the case
may be, shall inform the other parties to this Agreement promptly,
by notice in
writing, upon the
discovery of any breach of the Transferor's representations
and warranties
made pursuant to Section 3.1. As of the
last day of the second
Collection Period
following the
discovery by the
Transferor or receipt by the
Transferor of notice
of such breach, unless
such breach is cured by such date,
the Transferor
shall have an
obligation to repurchase any Receivable in which
the interests of the
Noteholders, the
Demand Note Provider or the Note Insurer
are materially
and adversely affected by any such breach as of
such date. In
consideration of and simultaneously with the repurchase of the
Receivable, the
Transferor shall
remit, or cause LBAC to remit, to the Collection Account the
Purchase Amount in the
manner specified
in Section
5.5 and the Issuer
shall
execute such assignments and other documents reasonably requested
by such person
in order to effect such repurchase. The sole remedies of the Issuer,
the Trust
Collateral Agent,
the Indenture Trustee, the Demand Note Provider or the
Noteholders with respect to a breach of representations
and warranties
pursuant
to Section 3.1 shall
be (i) the repurchase
of Receivables pursuant to this
Section, subject to
the conditions
contained herein, or (ii) to enforce the
obligation of LBAC to
the Transferor
to repurchase such Receivables or to
indemnify for any such breach pursuant to the Purchase
Agreement.
Neither the
Owner Trustee,
the Custodian, the Trust Collateral Agent, the Demand Note
Provider nor the Indenture Trustee shall have a duty to
conduct any affirmative
investigation as to the occurrence of any conditions requiring the
repurchase of
any Receivable pursuant to this Section.
(b)
Pursuant to Section 2.1 and Section 2.2, the Transferor conveys to
the
Issuer all of the
Transferor's
right, title and interest in its rights and
benefits, but none of
its obligations or burdens, under the Purchase Agreement
including the Transferor's rights under the Purchase
Agreement and the delivery
requirements,
representations and
warranties
and the cure or
repurchase and
indemnity obligations
of LBAC thereunder.
The Transferor hereby represents and
warrants to the Issuer that such assignment is valid, enforceable and effective
to permit the Issuer
to enforce such
obligations
of LBAC and the
Transferor
under the Purchase Agreement.
SECTION 3.3. Custody
of Legal Files and Receivable Files. In
connection with the
sale, transfer and
assignment of the
Receivables and
the
other Transferred
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Assets to the Trust
pursuant to Section
2.1 and Section 2.2 of this Agreement
and simultaneously
with the execution and delivery of this Agreement, the
Custodian shall enter into the Custodial Agreement with the Indenture
Trustee,
the Note Insurer and
the Issuer, dated as
of September
1, 2006, pursuant to
which the Custodian
shall agree to act as custodian for the Indenture Trustee,
on behalf of the Noteholders, the Demand Note Provider and the
Note Insurer, of
the following
documents or instruments in its possession on or before the
Closing Date (with respect to each Initial Receivable) or the third
Business Day
immediately preceding the related Subsequent Transfer Date (with
respect to each
Subsequent Receivable), as applicable:
(i) a copy of the fully executed original of the Receivable
with a
copy of
the fully executed assignment from the related Dealer to the
Originator
(together
with copies of any agreements modifying the
Receivable, including, without limitation, any extension
agreements);
(ii) a copy of the original credit application fully executed by
the
Obligor;
(iii) a copy of the Lien Certificate or Title Package, as
applicable;
(iv) all other documents listed on the Documentation Checklist in
effect on
the Cutoff
Date or the
related Subsequent Cutoff Date, as
applicable, relating to such Receivable; and
(v) any and all other
documents that the Servicer or the Originator
shall keep
on file, in accordance with its customary procedures, relating
to a
Receivable, an Obligor or a Financed Vehicle;
provided, however that
the Receivable Files shall contain a copy of
those documents the original of which constitutes a part of the
Legal File.
SECTION 3.4. Legal File Deficiencies. The Custodian shall hold
the Legal Files subject to the terms and conditions of the
Custodial
Agreement.
If the Custodian
finds during its review of the Legal
Files required by the
Custodial Agreement or at any time thereafter that a Legal File for
a Receivable
has not been received or that any of the documents referred to in
the definition
of the term "Legal File" are not contained in a Legal File or, if
applicable,
the related Dealer is
not listed on the Dealer Title Addendum, the Custodian
shall promptly inform the Trust Collateral Agent, LBAC, the Transferor, the
Back-up Servicer and the Note Insurer promptly, in writing, of the failure to
receive a Legal File with respect to such Receivable (or of the failure of any
of the aforementioned
documents to be included in the Legal File or the failure
of the related Dealer to be so listed) (it being understood that
the Custodian's
obligation to review
the contents of any Legal File and the Dealer Title
Addendum shall be limited as set forth in the Custodial
Agreement).
Unless any
such defect with
respect to such
Receivable shall have
been cured by the last
day of the second Collection Period following discovery thereof by the
Custodian, LBAC shall
repurchase
any such Receivable as of such last day.
In
consideration of the
purchase of the Receivable, LBAC shall remit the Purchase
Amount, in the manner specified in Section 5.5. The sole remedy of
the Indenture
Trustee, the Trust
Collateral Agent, the Issuer or the Noteholders with respect
to a breach pursuant
to this Section 3.4
shall be to require
LBAC to purchase
the Receivables pursuant to this Section 3.4.
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Upon receipt of the Purchase Amount and written instructions from the
Servicer,
the Trust Collateral
Agent shall cause the
Custodian to release to LBAC or its
designee the related
Legal File and shall
execute and deliver
all reasonable
instruments of transfer or assignment, without recourse, as are
prepared by LBAC
and delivered to the Trust Collateral Agent and are necessary to
vest in LBAC or
such designee the Issuer's right, title and interest in the
Receivable. On the
date which is 90 days
following the Closing
Date (with respect to
the Initial
Receivables) or the
related Subsequent Transfer Date (with respect to the
Subsequent Receivables), as applicable, or, if such date is
not a Business Day,
on the next succeeding
Business Day, the
Custodian shall inform LBAC and the
other parties to this Agreement and the Note Insurer of any
Receivable for which
the related
Legal File on such
date does not include a Lien Certificate, and
LBAC shall repurchase
any such Receivable as
of the last day of the Collection
Period in which the date, which is 150 days following the Closing Date (with
respect to the Initial
Receivables) or the
related Subsequent
Transfer Date
(with respect to the
Subsequent
Receivables), as
applicable, occurs,
if the
related Legal
File does not include a Lien Certificate as of the close of
business on such 150th day. In consideration of the purchase of
such Receivable,
LBAC shall remit the Purchase Amount in the manner specified in
Section 5.5. The
Transferor shall have
no obligation to repurchase any Receivable upon a breach
pursuant to this
Section 3.4. The
Transferor shall have
no liability for
any
action taken or omitted to be taken by LBAC pursuant to this
Section 3.4.
SECTION 3.5. Access to
Receivable Files;
Servicer's
Duties
with
Respect to Receivable Files.
(a) The
Servicer shall, upon reasonable notice, permit the Originator,
the
Trust Collateral Agent, the Transferor, the Issuer, the Demand Note
Provider and
the Note Insurer access to the Receivable Files at all reasonable
times, upon
reasonable notice and
during the Servicer's normal business hours. In addition,
the Servicer shall provide such access to any Noteholder upon
reasonable notice
at all reasonable
times during the
Servicer's normal
business hours in
cases
where the Noteholders shall be required by applicable statutes or
regulations to
review such
documentation;
provided, however, that the Servicer shall be
entitled to rely upon an Opinion of Counsel as to such fact. In
each case, such
access shall be afforded without charge but only upon reasonable
request. Each
Noteholder shall be deemed to have agreed by its acceptance of a
Note to hold in
confidence all Confidential Information in accordance with the
Federal Financial
Privacy Law and, to the extent more exacting, its then customary procedures;
provided that nothing herein shall prevent any Noteholder from
delivering copies
of any financial
statements and other
documents whether or not constituting
Confidential
Information, and
disclosing
other information, whether or not
Confidential Information, to (i) its directors, officers, employees, agents
and
professional
consultants, (ii) any
other institutional
investor that holds
Notes, (iii) any
prospective
institutional investor
transferee in
connection
with the contemplated
transfer of a Note or
any part thereof or
participation
therein who is subject to confidentiality arrangements at least substantially
similar hereto, (iv) any governmental authority, (v) the National
Association of
Insurance
Commissioners or
any similar organization, (vi) any nationally
recognized rating
agency in connection with the rating of the Notes by such
agency or (vii) any other Person to which such delivery or disclosure may be
necessary or
appropriate (a) in
compliance
with any applicable law, rule,
regulation or order, (b) in response to any subpoena or other legal
process, (c)
in connection with any
litigation to which such Noteholder is a party,
(d) in
order to enforce such Person's investment in any Note or (e)
13
<PAGE>
otherwise, in accordance with the Federal Financial Privacy Law;
provided, that,
prior to any such disclosure, such Noteholder shall inform each
such party that
receives Confidential
Information of the
foregoing requirements
and shall use
its commercially reasonable best efforts to cause such party to
comply with such
requirements.
(b) Upon
instruction from the
Trust Collateral
Agent, the Servicer shall
release any Receivable Files to the Trust Collateral Agent, the
Trust Collateral
Agent's agent or the Trust Collateral Agent's designee, as the case may be, at
such place or places as the Trust Collateral Agent may designate, as soon as
practicable; provided,
however, that such Receivable Files may be, at the
discretion of the Servicer, in the form of electronic files or
reproduced copies
of such electronic files. The Servicer shall not be responsible for the
safekeeping of such
Receivable
Files following such release to the Trust
Collateral Agent
unless and until such
Receivable
Files are returned to the
Servicer.
SECTION 3.6. Issuer's
Certificate. Within
five Business Days
after each Payment
Date on which
Receivables shall be
assigned to LBAC or the
Servicer, as applicable, pursuant to this Agreement, based
on amounts deposited
to the Collection
Account, notices
received pursuant to this Agreement and the
information contained
in the Servicer's
Certificate for the related Collection
Period, identifying the Receivables purchased by LBAC pursuant to
Section 3.4 or
purchased by the Servicer pursuant to Section 4.7, the
Issuer shall execute
an
Issuer's Certificate
(in the form of
Exhibit A-1 or A-2, as
applicable), and
shall deliver such Issuer's Certificate, accompanied by a copy of
the Servicer's
Certificate for such Collection Period, to LBAC or the Servicer, as
the case may
be, with a copy to the Note Insurer and the Demand Note
Provider. The Issuer's
Certificate submitted
with respect to such
Payment Date shall
operate, as of
such Payment
Date, as an assignment, without recourse, representation or
warranty, to LBAC or
the Servicer,
as the case may be, of all the Issuer's
right, title,
and interest in and to such repurchased Receivable, and all
security and documents
relating thereto,
such assignment
being an
assignment
outright and not for security.
ARTICLE IV
ADMINISTRATION AND SERVICING OF RECEIVABLES
SECTION 4.1. Duties of
the Servicer. The
Servicer, as agent
for the Issuer (to the extent provided herein), and in such capacity, shall
manage, service,
administer
and make collections on the Receivables with
reasonable care,
using that degree of
skill and attention
customary and usual
for institutions
which service motor vehicle retail installment contracts
similar to the Receivables and, to the extent more exacting,
that the Servicer
exercises with respect to all comparable automotive receivables
that it services
for itself or others. The Servicer's duties shall include
collection and posting
of all payments,
responding
to inquiries of Obligors on such Receivables,
investigating
delinquencies, sending
payment statements to Obligors, reporting
tax information to Obligors, accounting for collections,
furnishing monthly
and
annual statements to
the Trust Collateral
Agent, the Indenture
Trustee, the
Back-up Servicer, the
Demand Note Provider and the Note Insurer with respect to
payments and complying
with the terms of the Lock-Box Agreement. The Servicer
shall also administer and enforce all rights and responsibilities
of the holders
of the Receivables provided for in the Dealer Agreements to
14
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the extent that such Dealer Agreements relate to the Receivables,
the Financed
Vehicles or the Obligors. Without limiting the generality of
the foregoing, and
subject to the servicing standards set forth in this Agreement,
the Servicer is
authorized and empowered by the Trust Collateral Agent to execute and deliver,
on behalf of itself,
the Issuer, the
Noteholders, or any of
them, any and all
instruments of
satisfaction
or cancellation, or partial or full release or
discharge, and
all other comparable instruments, with respect to such
Receivables or to the Financed Vehicles securing such Receivables and/or the
certificates of title
or other evidence
of ownership with respect to such
Financed Vehicles;
provided, however,
that notwithstanding the foregoing, the
Servicer shall not
release an Obligor from payment of any unpaid amount under
any Receivable
or waive the right to collect the unpaid balance of any
Receivable from the
Obligor, except (i) pursuant to an order from a court
of
competent
jurisdiction, (ii) in
accordance with its
customary procedures or
(iii) in accordance
with Section 4.2. If
the Servicer shall
commence a legal
proceeding to enforce a Receivable, the Issuer shall thereupon be
deemed to have
automatically assigned, solely for the purpose of collection, such
Receivable to
the Servicer. If in
any enforcement suit
or legal proceeding it
shall be held
that the Servicer may
not enforce a Receivable on the ground that it shall
not
be a real party in interest or a holder entitled to enforce such
Receivable, the
Trust Collateral Agent shall, at the Servicer's expense and written direction,
take steps to enforce such Receivable, including bringing suit in its name or
the name of the
Noteholders. The
Servicer shall prepare and furnish and the
Trust Collateral Agent shall execute, any powers of attorney and
other documents
reasonably necessary
or appropriate to enable the Servicer to carry out its
servicing and administrative duties hereunder.
SECTION 4.2. Collection and Allocation of Receivable Payments.
Consistent with
the standards, policies and procedures required by this
Agreement, the
Servicer shall make
reasonable efforts to
collect all payments
called for under the terms and provisions of the Receivables as and when the
same shall become due and shall follow such collection procedures as it follows
with respect to all
comparable
automotive
receivables
that it services
for
itself or others; provided, however, that the Servicer shall notify
each Obligor
prior to the Closing Date, in the case of the Initial Receivables,
and prior to
the related Subsequent Transfer Date, in the case of the Subsequent
Receivables,
to make all payments with respect to the Receivables to the Lock-Box and shall
make reasonable
efforts to cause
Obligors to make all such payments to such
Lock-Box. The Servicer
will provide each Obligor with a
monthly statement
in
order to notify such
Obligors to make payments directly to the Lock-Box. The
Servicer shall allocate collections between principal and interest
in accordance
with the customary servicing procedures it follows with respect to all
comparable automotive
receivables that it
services for itself or others and in
accordance with the terms of this Agreement. The Servicer, for so long as LBAC
is the Servicer, may grant extensions, rebates or adjustments on a
Receivable in
accordance with the
customary servicing
procedures it follows
with respect to
all comparable
automotive receivables
that it services for
itself which shall
not modify the original due date of the Scheduled Receivable Payments on any
Receivable other than (a) in accordance with the Payment
Deferment and Due
Date
Change Policies, (b) in connection with a Deficient Liquidated
Receivable,
(c)
with the prior written
consent of the Note
Insurer, with respect
to any other
Liquidated
Receivable or
(d) as otherwise required by applicable law.
Notwithstanding
anything contained herein to the contrary, the Servicer may, at
its option, repurchase up to 25 Receivables and shall remit the
Purchase Amount,
in the manner
specified in Section 5.5 hereof and any such repurchased
Receivable (an
"Optional Repurchase
Receivable")
shall not be deemed to
be a
Defaulted Receivable or a Liquidated Receivable. The Servicer shall
not modify
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the Payment Deferment
and Due Date Change
Policies without the prior written
consent of
the Note Insurer. The Servicer shall notify Moody's of any
modification to the
Payment Deferment and Due Date Change Policies. If the
Servicer is not LBAC,
the Servicer may not
make any extension on
a Receivable
without the prior written consent of the Note Insurer.
The Servicer may in
its
discretion waive any late payment charge or any other fees that may
be collected
in the ordinary course of servicing a Receivable if it would forgo
collection of
such amount
in accordance with its customary procedures. Notwithstanding
anything to the contrary contained herein, the Servicer (i) shall not agree
to
any alteration of the
interest rate on any
Receivable or of the
amount of any
Scheduled Receivable Payment on any Receivable, except (a) as
otherwise required
by applicable law, (b) with respect to a Deficient Liquidated
Receivable and (c)
with the prior written
consent of the Note
Insurer, with respect
to any other
Liquidated Receivable,
and (ii) shall not
agree to any modification that would
result in a material
adverse effect on a
Receivable
(other than a Deficient
Liquidated Receivable
and, with the prior
written consent of the Note Insurer,
any other Liquidated
Receivable)
or the interest
therein of the Issuer,
the
Noteholders, the
Demand Note Provider or the Note Insurer other than a
modification in
accordance
with the Payment Deferment and Due Date Change
Policies.
On each Business Day, the Servicer shall prepare and transmit to
the
Trust Collateral
Agent and the Back-up
Servicer in a form
acceptable
to the
Trust Collateral
Agent and the Back-up
Servicer, a record setting forth the
aggregate amount of collections on the Receivables processed by the Servicer on
the second preceding Business Day.
SECTION 4.3. Realization upon Receivables.
(a) On behalf of the
Issuer, the Noteholders, the Demand Note Provider and
the Note Insurer, the
Servicer shall use its best efforts, consistent with the
servicing procedures
set forth herein,
to repossess or
otherwise convert
the
ownership of the
Financed Vehicle securing any Receivable as to which the
Servicer shall
have determined eventual payment in full is unlikely. The
Servicer shall commence efforts to repossess or otherwise
convert the
ownership
of a Financed Vehicle
on or prior to the
date that an Obligor
has not paid at
least 95% of a Scheduled Receivable Payment thereon for 120
consecutive days or
more; provided,
however, that the Servicer may elect not to commence such
efforts within
such time period if in
its good faith
judgment it
determines
either that it would be impracticable to do so or that the proceeds
ultimately
recoverable with
respect to such Receivable would be increased by
forbearance.
The Servicer shall follow such customary and usual practices and procedures as
it shall deem necessary or advisable in its servicing of automotive
receivables,
consistent with the
standards of care set forth in Section 4.1, which may
include reasonable
efforts to realize
upon any recourse to Dealers and selling
the Financed Vehicle
at public or private sale. The foregoing shall be subject
to the provision
that, in any case in which the Financed
Vehicle shall have
suffered damage,
the Servicer
shall not expend funds
in connection
with the
repair or the repossession of such Financed Vehicle unless it shall
determine in
its discretion that such repair and/or repossession will increase the proceeds
ultimately recoverable with respect to such Receivable by an amount
greater than
the amount of such expenses. All Liquidation Proceeds and Recoveries
received
shall be remitted
directly by the Servicer to the Collection Account, without
deposit into any
intervening account as
soon as practicable,
but in no event
later than the second Business Day after receipt thereof.
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(b) The
Servicer agrees that within 45 days from
the Closing Date or the
related Subsequent Transfer Date, as applicable, it shall make such filings and
effect such notices as are necessary under Section 9-324(b) and 9-324(c) of the
New York UCC (or
comparable section
of the UCC of any
applicable
state) to
preserve the Trust's interest (or security interest, as the case may be) in any
repossessed Financed Vehicles delivered for sale to Dealers.
(c)
Consistent
with the standards,
policies and
procedures required
by
this Agreement,
the Servicer may use its best efforts
to locate a third party
purchaser that is not affiliated with the Servicer, the Transferor
or the Issuer
to purchase
from the Issuer any
Receivable
that has become more
than 60 days
delinquent, and
shall have the right to direct the Issuer to sell any such
Receivable to the third-party purchaser; provided, that the Note
Insurer and the
Demand Note Provider shall each have the right of first refusal to
purchase such
Receivables (with the Note Insurer winning any tie bid); provided,
further, that
no more than 20% of the initial number of Initial Receivables and
the Subsequent
Receivables in the
pool may be sold by
the Issuer
pursuant to this Section
4.3(c) in the aggregate; provided further, that the Servicer may elect not
to
direct the
Issuer to sell a Receivable that has become more than 60 days
delinquent if in its
good faith
judgment the Servicer determines that the
proceeds ultimately
recoverable
with respect to such Receivable would be
increased by forbearance. In selecting Receivables to be sold to a third
party
purchaser pursuant to
this Section 4.3(c),
the Servicer shall use commercially
reasonable efforts to
locate purchasers
for the most
delinquent
Receivables
first. In any event,
the Servicer shall not use any procedure in selecting
Receivables to be sold to third party purchasers which is
materially adverse
to
the interest of the
Noteholders, the
Demand Note Provider or the Note Insurer.
The Issuer
shall sell each Sold Receivable for the greatest market price
possible; provided,
however, that aggregate Sale Amounts received by the Issuer
for all Receivables sold to a single third-party purchaser on a
single date must
be at least
equal to the sum of the Minimum Sale Prices for all such
Receivables. The
Servicer shall remit or cause the
third-party
purchaser to
remit all sale proceeds from the sale of Receivables directly to the Collection
Account without deposit into any intervening account as soon as
practicable, but
in no event later than the Business Day after receipt thereof.
(d) The
Servicer agrees that at any time after 45 days
from the Closing
Date there will be (a)
no more than 25
repossessed Financed
Vehicles in the
aggregate delivered
for sale to any Dealer and (b) no more than 50 repossessed
Financed Vehicles in
the aggregate
delivered for the sale
to all Dealers with
respect to which the actions referred to in paragraph (b) above have not been
effected. The
Servicer agrees that prior to delivering additional Financed
Vehicles for sale to any such Dealer, it shall make such filings
and effect such
notices as are necessary under Section 9-324(b) and 9-324 (c) of the New
York
UCC (or comparable
section of the
applicable
UCC) to preserve the Trust's
ownership interest
(or security interest, as the case may be) in any such
repossessed Financed Vehicle.
SECTION 4.4. Physical Damage Insurance; Other Insurance.
(a) The
Servicer shall continue to maintain the VSI Policy or another
collateral protection
insurance policy providing physical damage insurance
coverage to at least
the same extent as the
VSI Policy
with respect to all
Financed Vehicles,
unless the Servicer
shall have
received the prior
written
consent
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of the Note Insurer (and if a draw has been made on the Demand Note
pursuant to
Section 5.12(b) hereof at any time, with the prior written consent
of the Demand
Note Provider) allowing the Servicer to no longer maintain any of
such policies.
The Servicer, in
accordance with the
servicing procedures and standards set
forth herein, shall
require that (i) each Obligor shall have obtained insurance
covering the
Financed Vehicle, as of the date of the execution of the
Receivable, insuring against loss and damage due to fire, theft,
transportation,
collision and other
risks generally
covered by
comprehensive
and collision
coverage and each Receivable requires the Obligor to maintain such
physical loss
and damage insurance naming LBAC and its successors and assigns as
an additional
insured, (ii) each Receivable that finances the cost of premiums
for credit life
and credit accident
and health insurance
is covered by an insurance policy or
certificate naming
LBAC as policyholder (creditor) and (iii) as to each
Receivable that
finances the cost of an extended service contract, the
respective Financed
Vehicle which secures the Receivable is covered by an
extended service contract.
(b) To the
extent applicable, the Servicer shall not take any action which
would result in noncoverage under any of the insurance
policies referred to
in
Section 4.4(a)
which, but for the actions of the Servicer, would have been
covered thereunder. The Servicer, on behalf of the Trust Collateral
Agent, shall
take such reasonable
action as shall be
necessary to permit recovery under any
of the foregoing insurance policies. Any amounts collected by the
Servicer under
any of the foregoing
insurance policies
shall be deposited in
the Collection
Account pursuant to Section 5.2. In the event of the cancellation
or non-renewal
of the insurance
referred to in Section
4.4(a)(i) above with respect to any
Financed Vehicle, the
Servicer will endeavor, in accordance with its
customary
servicing standards
and procedures,
to cause the related
Obligor to obtain
a
replacement insurance
policy. In no event shall the Servicer be required to
force place insurance on a Financed Vehicle.
SECTION 4.5.
Maintenance
of Security
Interests in
Financed
Vehicles.
(a)
Consistent
with the policies and procedures required by this
Agreement, the
Servicer shall take such steps as are
necessary to maintain
perfection of the
security interest created in the name of LBAC by each
Receivable in the
related Financed Vehicle, including, but not limited to,
obtaining the execution by the Obligors and the recording,
registering,
filing,
re-recording,
re-registering and refiling of all security agreements,
financing
statements and
continuation
statements
or instruments as are necessary to
maintain the
security interest granted by Obligors under the respective
Receivables. The Trust
Collateral Agent hereby authorizes the Servicer to
take
such steps as are
necessary to
re-perfect or continue
the perfection of
such
security interest on
behalf of the Issuer in the event of the relocation of a
Financed Vehicle or for any other reason.
(b) Upon
the occurrence of an Insurance Agreement Event of Default, the
Note Insurer may (so long as a Note Insurer Default shall not have occurred
and
be continuing)
instruct in writing
the Servicer to take
or cause to be taken,
or, if a Note Insurer
Default shall have occurred and be continuing, upon the
occurrence of a Servicer Termination Event, either the Trust
Collateral Agent or
the Trust Collateral Agent acting at the written direction of the
Majorityholders shall direct the Servicer to take and the Servicer
shall take or
cause to be taken such
action as may,
in the opinion of counsel to the Note
Insurer (or, if a Note Insurer Default shall have occurred and be continuing,
the Trust Collateral Agent), which opinion shall not be an
18
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expense of the Note
Insurer or the Trust
Collateral Agent,
be necessary to
perfect or reperfect the security interests in the Financed
Vehicles securing
the Receivables
in the name of the
Trust Collateral Agent on behalf of the
Issuer by amending the title documents of such Financed
Vehicles to reflect
the
security interest of the Trust Collateral Agent in the related
Financed Vehicles
or by such other
reasonable means as may, in the opinion of counsel to the Note
Insurer or the Trust Collateral Agent (as applicable),
which opinion shall
not
be an expense of the Note Insurer or the Trust Collateral Agent, be
necessary or
prudent. The
Servicer hereby agrees to pay all expenses related to such
perfection or
reperfection
and to take
all action necessary therefor. In
addition, prior to the
occurrence of an Insurance Agreement Event of Default,
the Note Insurer may (unless a Note Insurer Default shall have occurred and be
continuing) instruct
in writing the
Servicer to take or cause to be taken such
action as may, in the opinion of counsel to the Note Insurer, be necessary to
perfect or reperfect the security interest in the Financed Vehicles
securing the
Receivables in the name of the Trust Collateral Agent on behalf of the Issuer,
including by amending the title documents of such Financed
Vehicles to
reflect
the security
interest of the Trust
Collateral
Agent in the related
Financed
Vehicle or by such other reasonable means as may, in the opinion of
counsel to
the Note Insurer, be necessary or prudent; provided, however, that if the Note
Insurer requests that
the title documents be amended prior to the occurrence of
an Insurance
Agreement Event of Default, the out-of-pocket expenses of the
Servicer in connection
with such action shall
be reimbursed to the Servicer by
the Note Insurer.
In addition
to the foregoing, in the event any of the Servicer
Termination Events described in Section 9.1(iii) or (iv) shall have
occurred, or
in the event LBAC shall have been removed or replaced as Servicer pursuant to
Section 8.3, Section 8.5, or otherwise pursuant to Section 9.1,
then LBAC and/or
the Servicer
shall immediately cause each Lien Certificate for a Financed
Vehicle to be marked to reflect the security interest of the Trust Collateral
Agent in the Financed Vehicle at the expense of LBAC.
The Servicer
hereby makes, constitutes and appoints the Trust
Collateral Agent acting through its duly appointed officers or any of them, its
true and lawful attorney, for it and in its name and on its behalf,
for the sole
and exclusive
purpose of
authorizing
said attorney to
execute and deliver as
attorney-in-fact or
otherwise, any and all
documents and other instruments and
to do or accomplish
all other acts or things necessary or appropriate to show
the Trust Collateral
Agent as lienholder or secured party on the
related Lien
Certificates relating
to a Financed Vehicle
(provided that such appointment
shall not be construed as an obligation).
SECTION 4.6.
Additional Covenants
of Servicer. The
Servicer
hereby makes the
following covenants to
the other parties
hereto, the Demand
Note Provider
and the Note Insurer
on which the Trust
Collateral Agent
shall
rely in accepting the Receivables in trust, on which the Note
Insurer shall rely
in issuing
the Policy and on which the
Demand Note Provider shall rely in
issuing the Demand Note: (i) the Servicer shall not release the
Financed Vehicle
securing any Receivable from the security interest granted by such
Receivable in
whole or in part
except in the event of payment in full by the Obligor
thereunder or repossession or other liquidation of such Financed
Vehicle, (ii)
the Servicer shall not
impair the rights of the Noteholders, the Issuer, the
Demand Note Provider or the Note Insurer in such Receivables, (iii)
the Servicer
shall not modify a Receivable, except in accordance with Section 4.2, (iv) the
Servicer shall
service the Receivables as required by the terms of this
Agreement and in material compliance with its current
servicing procedures
for
servicing of all its other comparable motor
19
<PAGE>
vehicle receivables
and (v) the Servicer
shall not modify any
Receivable
in
accordance with the
Payment Deferment
and Due Date Change
Policies, if as a
result of such
modification,
there would be negative amortization of such
Receivable.
SECTION 4.7.
Purchase
of Receivables Upon Breach. The
Servicer, the Transferor, the Issuer or the Trust Collateral
Agent shall inform
the other parties hereto, the Demand Note Provider and the Note Insurer
promptly, in writing,
upon the discovery by the Servicer, the Transferor, the
Issuer or a Responsible Officer of the Trust Collateral
Agent or the Custodian,
as the case may be, of any breach of the provisions of Section 4.2 relating to
modifications of the
Receivables,
or any breach of
Sections 4.4, 4.5 or
4.6;
provided, however,
that the failure to
give such notice
shall not affect
any
obligation of the Servicer hereunder. Unless the breach shall have
been cured by
the last day of the second Collection Period following such discovery by or
notice to the
Servicer of such breach, the Servicer shall purchase any
Receivable with
respect to which such breach has a material adverse effect on
such Receivable or the
interest therein of
the Issuer, the
Noteholders,
the
Demand Note Provider or the Note Insurer. In consideration of the purchase of
such Receivable,
the Servicer
shall remit the
Purchase Amount in the manner
specified in Section
5.5. The sole remedy of the Trust Collateral Agent, the
Issuer, the Note
Insurer, the Demand Note Provider or the Noteholders with
respect to a breach of the provisions of Section 4.2 relating
to modifications
of the Receivables or any breach of Sections 4.4, 4.5 or 4.6 shall
be to require
the Servicer to repurchase Receivables pursuant to this Section 4.7;
provided,
however, that the
Servicer shall
indemnify the Trust
Collateral
Agent, the
Indenture Trustee,
the Collateral Agent,
the Back-up Servicer,
the Custodian,
the Transferor, the
Note Insurer, the Demand Note Provider, the Issuer and the
Noteholders and each of their respective officers, employees,
directors, agents
and representatives
against all costs, expenses, losses, damages, claims and
liabilities, including
reasonable
fees and expenses of
counsel, which may
be
asserted against or
incurred by any of
them as a result of third party claims
arising out of the events or facts giving rise to such breach.
The Transferor
shall have no
obligation to
repurchase the
Receivables
upon a breach of
the
provisions of Section 4.2 relating to modifications of the Receivables, or any
breach of Sections 4.4, 4.5 or 4.6. The Transferor shall have no liability for
actions taken or
omitted to be taken by the Servicer pursuant to this Section
4.7.
SECTION 4.8. Servicing
Fee. The Servicing Fee for the initial
Payment Date shall equal the product of (a) one-twelfth of the Servicing Fee
Rate and (b) the Original Pool Balance. Thereafter, the Servicing Fee for a
Payment Date shall equal the product of (i) one-twelfth of the Servicing Fee
Rate and (ii) the Pool Balance as of the last day of the second preceding
Collection Period.
The Servicing Fee
shall in addition
include all late fees,
deferment fees,
prepayment
charges including, in the case of a Precomputed
Receivable that is
prepaid in full, to
the extent not
required by law to be
remitted to the related Obligor, the difference between the amounts received
upon prepayment in full of such Precomputed Receivable and the then
outstanding
Principal Balance of
such Precomputed
Receivable and accrued
interest thereon
(calculated pursuant
to the Simple Interest
Method) and other
administrative
fees or similar
charges allowed by
applicable law with respect to Receivables,
collected (from whatever source) on the Receivables.
20
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SECTION 4.9. Servicer's Certificate.
(a) By
10:00 a.m., New York
City time, on each
Determination Date,
the
Servicer shall deliver to the Issuer, the Trust Collateral Agent, the
Indenture
Trustee, the Back-up
Servicer, the
Collateral Agent, the Transferor, the Note
Insurer, the
Demand Note Provider and the Rating Agencies, a Servicer's
Certificate containing
all information
necessary to make the payments pursuant
to Section 5.6 (including, (i) if required, the amount of withdrawals from
the
Spread Account, the
Demand Note Spread Account, if any, and draws on the Demand
Note, if any,
and (ii) the remaining Pre-Funded Amount, if any), for the
Collection Period
preceding the date of
such Servicer's
Certificate
and all
information necessary
for the Trust
Collateral
Agent to send
statements
to
Noteholders, the
Demand Note Provider and the Note Insurer pursuant to Section
5.7. Receivables
to be purchased by the Servicer or to be purchased by
LBAC
shall be identified
by the Servicer by account number with respect to such
Receivable (as specified in the Schedule of Receivables).
(b) In
addition to the information required by Section 4.9(a), the
Servicer shall include
in the copy of the Servicer's Certificate delivered to
the Note Insurer and the Demand Note Provider (i) the Average
Delinquency Ratio,
the Cumulative Default
Rate, and the
Cumulative
Loss Rate (as such
terms are
defined in the Spread
Account Agreement),
(ii) whether any
Trigger Event (as
such term is defined in the Spread Account Agreement) has occurred as of such
Determination Date, (iii) whether any Trigger Event that may have
occurred as of
a prior Determination
Date is Deemed
Cured (as defined in
the Spread Account
Agreement) as of such
Determination Date,
(iv) whether to the knowledge of the
Servicer an Insurance
Agreement Event of
Default has occurred,
(v) the number
and percentage of Receivables modified in accordance
with the Loss
Mitigation
Program and the
General Payment Deferment Policy as set forth on
Exhibit D
hereto and (vi) the Average Delinquency Ratio, the Cumulative
Default Rate, and
the Cumulative
Loss Rate (as such
terms are defined in the Spread Account
Agreement), with
respect to such modified Receivables. The Servicer shall in
addition give notice
of the occurrence
of any Trigger
Event or any
Insurance
Agreement Event of Default to each Rating Agency.
SECTION 4.10. Annual
Statement as to
Compliance;
Notice of
Default.
(a) The
Servicer shall deliver to the Issuer, the Trust Collateral Agent,
the Indenture
Trustee, the Back-up Servicer, the Collateral Agent, the
Transferor, the
Issuer, the Demand
Note Provider and the Note Insurer, on or
before March 31 of each year beginning March 31, 2007, an Officer's
Certificate,
dated as of December
31 of the preceding
calendar year, stating that (i) a
review of the activities of the Servicer during such preceding
calendar year and
of its performance
under this
Agreement has been made under such officer's
supervision and (ii)
to the best of such
officer's knowledge, based on such
review, the Servicer
has fulfilled in all material respects all its obligations
under this Agreement
throughout
such year, or, if
there has been a failure to
fulfill any such
obligation in any
material respect, identifying each such
failure known to such
officer and the nature
and status of such
failure. The
Trust Collateral
Agent shall send a copy of such certificate to the Rating
Agencies.
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(b) The
Servicer shall deliver to the Issuer, the Trust Collateral Agent,
the Indenture
Trustee, the Back-up Servicer, the Collateral Agent, the
Transferor, the Demand
Note Provider, the Note Insurer and the Rating Agencies,
promptly after having obtained knowledge thereof, but in no event
later than two
(2) Business Days after having obtained such knowledge, written notice in an
Officer's Certificate
of any event which
with the giving of notice or lapse of
time, or both, would become a Servicer Termination Event under
Section 9.1.
(c) The
Servicer will deliver to the Issuer, on or before March 31 of
each
year beginning on March 31, 2007, a report regarding the Servicer's
assessment
of compliance
with the Servicing
Criteria during the immediately preceding
calendar year, as required under Rules 13a-18 and 15d-18 of the
Exchange Act and
Item 1122 of Regulation AB.
(d) Except
as otherwise set forth
herein, none of the Trust Collateral
Agent or the Back-up Servicer or the Indenture Trustee shall have
any obligation
to prepare or file any reports or certificates required under
Regulation AB.
SECTION 4.11. Annual Independent Certified Public Accountant's
Report(a).
(a) The
Servicer shall cause a firm of nationally recognized independent
certified public accountants, who may also render other services to
the Servicer
or to the Transferor,
to deliver to the Issuer, the Trust Collateral Agent, the
Indenture Trustee, the Back-up Servicer, the Collateral Agent, the
Noteholders,
the Note Insurer
and each Rating Agency on or before March 31 of each year
beginning March 31,
2007, a report dated as of December 31 of the
preceding
calendar year and
reviewing the
Servicer's activities
during such
preceding
calendar year,
addressed to the Board
of Directors of the Servicer, providing
such information as is required under Item 1122(b) of Regulation
AB.
(b) The
Servicer shall cause a firm of nationally recognized independent
certified public accountants, who may also render other services to
the Servicer
or to the Transferor,
to deliver to the
Trust Collateral
Agent, the Back-up
Servicer, the
Collateral Agent,
the Issuer,
the Transferor,
the Demand Note
Provider and the Note
Insurer, on or before March 31 of each year beginning
March 31, 2007, a report dated as of December 31 of the preceding
calendar year,
to the effect
that such firm has audited the financial statements of the
Servicer and
issued its
report therefor and that such audit (i) was made
in
accordance with generally accepted auditing standards, and accordingly included
such tests of the accounting records and such other auditing
procedures as such
firm considered necessary in the circumstances; (ii) included tests relating
to
automotive loans serviced for others in accordance with the
Servicing
Criteria;
(iii) included an examination of the delinquency and loss
statistics relating to
the Servicer's
portfolio of
automobile, van, sport
utility vehicle and
light
duty truck installment
sales contracts; and (iv) except as described in the
report, disclosed no exceptions or errors in the records relating
to automobile,
van, sport utility
vehicle and light duty truck loans serviced for others that,
in the firm's opinion, the Program requires such firm to report. The
accountant's report
shall further state
that (1) a review in
accordance with
agreed upon
procedures
was made of three randomly selected Servicer's
Certificates; (2)
except as disclosed in the report, no exceptions or errors in
the Servicer's
Certificates
were found; and (3) the delinquency and loss
information relating to the Receivables contained in the Servicer's
Certificates
were found to be accurate.
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The report will also
indicate that the firm is independent of the
Servicer within the meaning of the Code of Professional Ethics of the American
Institute of Certified Public Accountants.
The Servicer shall file, or cause to be filed, the reports
furnished
pursuant to Section
4.10 and this Section
4.11 as exhibits to the Issuer's
annual report on Form 10-K.
SECTION 4.12.
Servicer Expenses. The Servicer shall be
required to pay all expenses incurred by it in connection
with its activities
under this Agreement (including taxes imposed on the Servicer,
expenses incurred
by the Servicer in
connection with
payments and reports
to Noteholders,
the
Trust Collateral
Agent, the Demand Note Provider and the
Note Insurer and all
other fees and expenses of the Issuer including taxes levied or
assessed against
the Issuer,
and claims
against the Issuer in
respect of
indemnification
not
expressly stated under this agreement to be for the account of the
Issuer).
SECTION 4.13.
Retention and Termination of Servicer. The
Servicer hereby
covenants and agrees to act as such under this Agreement for an
initial term,
commencing
on the Closing
Date and ending on
December 31, 2006
which term shall be
extendible by the Note
Insurer for
successive
quarterly
terms ending on each successive March 31, June 30, September 30
and December 31
(or, pursuant to
revocable written
standing instructions
from time to time to
the Servicer and the Trust Collateral Agent, for any specified number of
terms
greater than
one), until the termination of the Issuer. Each such notice
(including each notice pursuant to standing instructions,
which shall be
deemed
delivered at
the end of successive quarterly terms for so long as such
instructions are in effect) (a "Servicer Extension Notice") shall be delivered
by the Note Insurer to the Trust Collateral Agent and the Servicer.
The Servicer
hereby agrees
that, as of the date hereof and upon its receipt of any such
Servicer Extension Notice, the Servicer shall become bound, for the
initial term
beginning on the date
hereof and for the
duration of the term
covered by such
Servicer Extension
Notice, to continue as the Servicer subject to and in
accordance with the
other provisions of
this Agreement.
Until such time as
a
Note Insurer Default shall have occurred and be continuing, the
Trust Collateral
Agent agrees that if as of the fifteenth day prior to the last day of any
term
of the Servicer, the Trust Collateral Agent shall not have received
any Servicer
Extension Notice from the Note Insurer, the Trust Collateral Agent will,
within
five days thereafter, give written notice of such non-receipt to the Note
Insurer, the Demand
Note Provider,
the Back-up Servicer (or any alternate
successor servicer
appointed by the Note
Insurer pursuant to
Section 8.5) and
the Servicer and the
Servicer's terms shall
not be extended unless
a Servicer
Extension Notice is received on or before the last day of such
term. Following a
Note Insurer Default,
this Section 4.13
shall no longer apply and the Servicer
shall be deemed to be retained for the term of this Agreement,
unless otherwise
removed pursuant to Article 9.
SECTION 4.14. Access to Certain Documentation and Information
Regarding Receivables.
The Servicer
shall provide to
representatives
of the
Indenture Trustee, the Trust Collateral Agent, the Collateral
Agent, the Back-up
Servicer, the
Transferor,
the Issuer,
the Demand Note
Provider and the
Note
Insurer reasonable
access to documentation and computer systems and information
regarding the
Receivables and shall
provide such access to Noteholders in such
cases where the
Noteholders are
required by applicable
law or regulation to
review such
documentation. In each
case, such access shall be afforded without
charge but
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only upon reasonable
request and during normal business hours. Nothing in this
Section 4.14 shall
derogate from the
obligation of the Servicer to observe any
applicable law prohibiting disclosure of information regarding the
Obligors, and
the failure of the
Servicer to provide
access as provided in this Section 4.14
as a result of such
obligation shall not
constitute
a breach of this
Section
4.14.
SECTION 4.15. Verification of Servicer's Certificate.
(a) On or
before the fifth
Business Day of each month, the Servicer will
deliver to the Trust
Collateral
Agent and the
Back-up Servicer a computer
diskette (or other electronic transmission) in a format
acceptable to the Trust
Collateral Agent and
the Back-up Servicer
containing
such information with
respect to the
Receivables as of the
close of business on
the last day of the
preceding Collection
Period as is necessary
for preparation of the
Servicer's
Certificate. The
Back-up Servicer
shall use such
computer diskette (or
other
electronic
transmission) to
verify the information specified in Section
4.15(b)(iii) contained
in the Servicer's Certificate delivered by the Servicer,
and the Back-up
Servicer shall certify
to the Note Insurer and the Demand Note
Provider that it has verified the Servicer's Certificate in
accordance with this
Section 4.15 and shall notify the Servicer, the Note Insurer, the Demand Note
Provider and the Trust Collateral Agent of any discrepancies, in each case, on
or before the related
Deficiency
Claim Date. In the event that the Back-up
Servicer reports any discrepancies, the Servicer and the Back-up
Servicer shall
attempt to reconcile such discrepancies prior to the related Deficiency Claim
Date, but in the absence of a reconciliation, the Servicer's Certificate shall
control for the purpose of calculations and payments with respect
to the related
Payment Date. In the event that the Back-up Servicer and the
Servicer are unable
to reconcile
discrepancies
with respect to a
Servicer's
Certificate
by the
related Payment Date, (i) the Back-up Servicer will notify the Note
Insurer, the
Demand Note Provider and the Trust Collateral Agent, and (ii) the
Servicer shall
cause a firm of
independent certified
public accountants, at the Servicer's
expense, to audit the
Servicer's Certificate
and, prior to the
fifth calendar
day of the following month, reconcile the discrepancies.
The effect, if any,
of
such reconciliation
shall be reflected in
the Servicer's
Certificate for such
next succeeding
Determination
Date. In addition,
the Servicer
shall, if so
requested by the Note Insurer (unless a Note Insurer Default shall
have occurred
and be continuing)
deliver to the Back-up Servicer (i) within five (5) Business
Days of demand
therefor a computer tape containing as of the close of
business
on the date of demand all of the data maintained by the Servicer in computer
format in connection with servicing the Receivables and (ii) within
fifteen (15)
Business Days
of demand therefor a copy of such other information as is
reasonably requested
by the Note Insurer
for the purpose of
reconciling such
discrepancies. Other
than the duties
specifically set forth in this Agreement,
the Back-up Servicer
shall have no obligations hereunder, including, without
limitation, to
supervise, verify,
monitor or administer the performance of the
Servicer. The Back-up
Servicer shall have no liability for any actions taken or
omitted by the
Servicer. The duties
and obligations
of the Back-up
Servicer
shall be determined
solely by the express
provisions of this
Agreement and no
implied covenants or
obligations shall be
read into this Agreement against the
Back-up Servicer.
(b)
The Back-up Servicer shall review each Servicer's Certificate
delivered pursuant
to Section
4.15(a) and shall,
based upon the
information
provided from the Servicer under Section 4.15(a):
24
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(i) confirm
that such Servicer's Certificate is complete on its
face;
(ii) load the computer diskette (which shall be in a format
acceptable
to the Back-up Servicer) received from the Servicer pursuant to
Section
4.15(a) hereof, confirm that such computer diskette is in a
readable
form and calculate the Principal Balance of each Receivable as
of
the
preceding Payment Date
(as set forth in such Servicer's Certificate)
and the
current principal
payment for such
Receivable
(as set forth in
such
Servicer's
Certificate)
and compare such
calculation
to that set
forth in
the Servicer's Certificate (and give notice of any discrepancy
to
the Note
Insurer); and
(iii) recalculate the Available Funds, the Principal Payment
Amount,
the
Pre-Funding Amount,
the Class A-1 Interest
Payment Amount, the Class
A-2
Interest Payment Amount, the Class A-3 Interest
Payment Amount,
the
Class A-4
Interest Payment Amount, the Back-up Servicer Fee, the
Servicing
Fee, the
Indenture Trustee Fee,
the Custodian Fee, the
amount on deposit
in the
Spread Account,
the amount on deposit
in the Demand Note
Spread
Account,
the Demand Note
Amount, the Demand Note Interest Payment Amount,
the Demand
Note Supplemental
Interest Payment Amount and the Premium
in
the
Servicer's Certificate
based solely on the
balances and calculations
specifically set
forth in the Servicer's Certificate, compare such
calculations to those
set forth in the
Servicer's
Certificate.
To the
extent of
any discrepancy, the
Back-up Servicer shall give notice thereof
to the
Note Insurer. The Back-up Servicer's obligation shall be limited
to
the
mathematical
recalculation
of the amounts set
forth in this Section
4.15(b)(iii) based on the Servicer's Certificate.
SECTION 4.16. Fidelity
Bond. The Servicer shall maintain a
fidelity bond in such
form and amount as is customary for entities acting as
custodian of funds and
documents in respect of consumer contracts on behalf of
institutional investors.
SECTION 4.17.
Delegation of Duties.
The Servicer may at
any
time delegate
duties under this
Agreement to
sub-contractors
who are in the
business of servicing
automotive receivables
with the prior written consent of
the Controlling Party and notice to the Demand Note Provider;
provided, however,
that no such
delegation or
sub-contracting
of duties by the
Servicer shall
relieve the Servicer of its responsibility with respect to such duties. In
the
event the Servicer
shall for any
reason no longer be the servicer of the
Receivables (including
by reason of a Servicer Termination Event), the
Back-up
Servicer, its designee
or any successor Servicer shall assume all of the rights
and obligations
of the predecessor Servicer under one or more subservicing
agreements that may have been entered into by the predecessor
Servicer by giving
notice of such assumption to the related subservicer or subservicers within
ten
(10) Business
Days of the
termination
of the Servicer as servicer of the
Receivables; provided, however, that the Back-up Servicer may elect
to terminate
a subservicing
agreement with the prior written consent of the Note Insurer,
so
long as no Note Insurer Default is then continuing. If the Back-up
Servicer does
not elect to assume any subservicing agreement, any and all costs
of termination
shall be at the predecessor Servicer's expense. Upon the
giving of such notice,
the Back-up Servicer,
its designee or the successor Servicer shall be deemed to
have assumed all of
the predecessor
Servicer's
interest therein and to have
replaced the predecessor Servicer as a party to the
subservicing
agreement to
the same extent
as if the subservicing agreement had been assigned to the
assuming party except that the predecessor Servicer and the
subservicer, if any,
25
<PAGE>
shall not thereby be relieved of any liability or obligations
accrued up to the
date of the replacement of the Servicer under the subservicing
agreement and the
subservicer, if any, shall not be relieved of any liability or
obligation to the
predecessor Servicer
that survives the assignment or termination of the
subservicing
agreement. The Back-up
Servicer shall notify
each Rating Agency,
the Demand Note Provider and the Note Insurer if any subservicing agreement is
assumed by the Back-up
Servicer, its designee
or the successor
Servicer. The
predecessor Servicer
shall, upon request of
the Trust Collateral
Agent, the
Back-up Servicer
or any successor Servicer, but at the expense of the
predecessor Servicer,
deliver to the
assuming party all
documents and records
relating to the
subservicing agreement
and the Receivables then being serviced
and an accounting
of amounts
collected and held by it and otherwise use its
reasonable efforts
to effect the orderly and efficient transfer of the
subservicing agreement to the assuming party.
SECTION 4.18. Delivery of Back-up Tapes of Back-up Servicer.
(a) In
addition to the
information to be delivered by the Servicer to the
Back-up Servicer on or
before the fifth
Business Day of each month pursuant to
Section 4.15(a),
the Servicer
shall deliver to the
Back-up Servicer,
or its
designated agent, a computer diskette (or other electronic
transmission),
in a
format acceptable to
the Back-up Servicer or its designated agent, as the case
may be, with the loan master file and history information in the form attached
hereto as Exhibit B-2 on or prior to the Closing Date in the case
of the Initial
Receivables, and on or prior to the related Subsequent Transfer
Date in the case
of Subsequent Receivables, which loan master file and history
information shall
be sufficiently
detailed to enable the Back-up Servicer to maintain records
sufficient to assume the role of successor Servicer pursuant to
this Agreement.
(b) In
addition to the information required to be delivered by the
Servicer to the Back-up Servicer or its designated agent
on or before the fifth
Business Day of each
month pursuant to
Section 4.15(a) and on
or prior to the
Closing Date and each Subsequent Transfer Date pursuant to Section
4.18(a), the
Servicer shall
deliver the loan
master file and
history information to the
Back-up Servicer or its designated agent on the Determination
Date occurring in
October 2006 (with respect to the period from and including the Initial Cutoff
Date to the last day of the related Collection Period) and on the
Determination
Date occurring
every six months thereafter in the form attached hereto as
Exhibit B-2
in writing and on a computer diskette (or other electronic
transmission) in a
format acceptable to
the Back-up Servicer or its designated
agent, as the case may be, and as at such other times as may be
requested by the
Note Insurer or the Back-up Servicer upon prior written notice
to the Servicer,
provided that the
Back-up Servicer
shall deliver a copy
of any such notice by
the Back-up Servicer
to the Note Insurer
simultaneously
with its delivery
of
such notice to the Servicer.
SECTION 4.19. Confidential Information. The Back-up Servicer,
each subservicer, any
successor Servicer and
the Backup Servicer's
designated
agent shall hold in confidence all Confidential Information in accordance with
the Federal Financial
Privacy Law and, to
the extent more
exacting, its then
customary procedures, and each represents and warrants that it has
in place, and
will continue to maintain, sufficient systems and procedures
to do so; provided
that nothing herein shall prevent the Back-up Servicer, any subservicer, any
successor Servicer or
the Backup Servicer's
designated
agent from
delivering
copies of any
26
<PAGE>
financial
statements and
other documents whether or not constituting
Confidential
Information, and
disclosing
other information, whether or not
Confidential Information, to (i) its directors, officers, employees, agents
and
professional
consultants to the
extent necessary to carry on the Back-up
Servicer's, such
subservicer's
or such successor Servicer's business, as
applicable, in the ordinary course, (ii) any Noteholder,
Certificateholder,
the
Demand Note
Provider or the Note
Insurer to the extent
that such
Noteholder,
Certificateholder, the
Demand Note Provider
or the Note Insurer is entitled to
such information
under this
Agreement or any other Basic Document, but not
otherwise, (iii) any
governmental authority
which specifically requests (or as
to which applicable
regulations require) such information, (iv) any nationally
recognized rating
agency in connection with the rating of the Notes by such
agency, or (v) any
other Person to which
such delivery or
disclosure
may be
necessary or
appropriate (a) in
compliance
with any applicable law, rule,
regulation or order, (b) in response to any subpoena or other legal
process, (c)
in connection
with any litigation to which the Back-up Servicer, such
subservicer or such successor Servicer, as applicable, is a party, (d) in order
to enforce the rights of the Noteholders, the Certificateholder,
the Demand Note
Provider and the Note Insurer hereunder or under any other Basic
Document, or
(e) otherwise, in
accordance with the Federal Financial Privacy Law; provided,
that, prior to any such disclosure, the Back-up Servicer, such subservicer or
such successor Servicer, as applicable, shall inform each such
party (other than
any Noteholder, Certificateholder, the Demand Note Provider, the
Note Insurer or
any other party to the Basic Documents) that receives Confidential Information
of the foregoing
requirements and shall
use its commercially
reasonable best
efforts to cause such party to comply with such requirements.
ARTICLE V
ACCOUNTS; PAYMENTS;
STATEMENTS TO NOTEHOLDERS
SECTION 5.1. Accounts; Lock-Box Account.
(a) The
Servicer has
established
the Lock-Box Account as two Eligible
Accounts, one
established
with Bank of
America National Trust and Savings
Association entitled
"Long Beach Acceptance Corp., JPMorgan Chase, Agent
Account--Auto Loan
Programs," account
number 1457202900,
and one
established
with JPMorgan Chase entitled "Long Beach Acceptance Corp., JPMorgan
Chase, Agent
Account -- Auto Loan Programs," account number 530097095; provided, that the
Servicer, with the prior written consent of the Note Insurer and
prior notice to
the Demand Note
Provider, may from
time to time (a)
establish additional
or
substitute Lock-Box
Accounts, each of
which shall be an Eligible Account, and
(b) close or terminate
the use of any of the
aforementioned
accounts or any
subsequently
established accounts,
each of which accounts, at such time, shall
no longer be deemed to be a Lock-Box Account; provided, further, that pursuant
to the Lock-Box Agreement, the Lock-Box Processor and no
other person, save the
Trust Collateral Agent or the Servicer, has authority to direct
disposition of
funds related to the Receivables on deposit in the Lock-Box
Account consistent
with the provisions
of this Agreement and the Lock-Box
Agreement.
The Trust
Collateral Agent shall have no liability or responsibility with respect to the
Lock-Box Processor's or the Servicer's directions or activities as set
forth in
the preceding
sentence. The Lock-Box
Account shall be established pursuant to
and maintained in accordance with the Lock-Box Agreement and shall be a
demand
deposit account into which Obligors will be directed to make
payments due under
27
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Receivables and which
shall at all
times be an
Eligible Account, initially
established and
maintained
with JPMorgan Chase
or, at the request of the Note
Insurer, an Eligible
Account satisfying
clause (i) of the definition thereof.
The Servicer has
established and shall maintain the Lock-Box at a United States
Post Office
Branch. Notwithstanding the Lock-Box Agreement or any of the
provisions of
this Agreement relating to the Lock-Box and the Lock-Box
Agreement, the
Servicer shall remain obligated and liable to the Trust
Collateral Agent, the Demand Note Provider and the Noteholders for
servicing and
administering the
Receivables
and the other Trust
Assets in accordance
with
provisions of this Agreement without diminution of such obligation or
liability
by virtue thereof.
In the event the
Servicer shall for any
reason no longer be acting
as such, the Lock-Box
Agreement shall
terminate in
accordance with its
terms
with respect to the
Receivables or, upon
the occurrence and
continuance of a
Servicer Termination Event, the Note Insurer may direct the
Indenture Trustee in
writing to terminate
the Lock-Box Agreement
with respect to the
Receivables,
and, in any such
case, funds on deposit in the Lock-Box Account shall be
distributed by JPMorgan Chase, as agent for the beneficial
owners of funds in
the Lock-Box Account
at such time
(including the
Issuer), and JPMorgan
Chase
shall deposit any such funds relating to the Receivables to such other
account
as shall be identified by the Back-up Servicer or successor
Servicer for deposit
therein; provided,
however, that the outgoing Servicer shall not thereby be
relieved of any liability or obligations on the part of the
outgoing Servicer to
the Lock-Box Bank under such Lock-Box Agreement. The outgoing Servicer shall,
upon request of the Trust Collateral Agent, but at the expense of the
outgoing
Servicer, deliver to
the successor Servicer
all documents and records relating
to the Lock-Box Agreement and an accounting of amounts collected
and held in the
Lock-Box Account or held by the Lock-Box Processor in respect of
the Receivables
and otherwise use its best efforts to effect the orderly and
efficient transfer
of any Lock-Box
Agreement to the successor Servicer. In the event that the
Lock-Box Account
fails at any time to
qualify as an Eligible Account, the
Servicer, at its
expense, shall cause the Lock-Box Bank to deliver, at the
direction of the Controlling Party to the Trust Collateral
Agent or a successor
Lock-Box Bank, all
documents and records
relating to the
Receivables and
all
amounts held (or thereafter received) on deposit in the Lock Box
Account or held
by the Lock-Box
Processor in respect of the Receivables (together with an
accounting of such
amounts) and shall
otherwise use its best efforts to effect
the orderly
and efficient transfer of the lock-box arrangements, and the
Servicer shall
promptly notify the Obligors to make payments to any new
Lock-Box.
(b) In addition to the Lock-Box Account, the Trust Collateral Agent
shall establish, with itself, (i) the Collection Account and the
Note Account in
the name of the Issuer
for the benefit of the Indenture Trustee, the Trust
Collateral Agent,
the Noteholders, the Demand Note Provider and the Note
Insurer, the
Pre-Funding
Account in the name of
the Issuer for the benefit of
the Noteholders and the Note Insurer and (ii) the Policy Payments
Account in the
name of the Issuer for the benefit of the Noteholders. The Collection Account,
the Note Account, the
Pre-Funding Account and the Policy Payments Account shall
be Eligible Accounts
initially established with the Trust
Collateral
Agent;
provided, however,
if any of such accounts shall cease to be an Eligible
Account, the Servicer,
with the consent of the Note Insurer (so long as no Note
Insurer Default has occurred and is continuing), within five (5) Business Days
shall, cause such
accounts to be moved to an institution so that such account
meets the definition of Eligible
28
<PAGE>
Account. The
Servicer shall promptly notify the Rating Agencies and the
Transferor of any change in the location of any of the
aforementioned accounts.
All
amounts held in the
Collection Account and
the Pre-Funding
Account
shall be invested by the Trust Collateral Agent at the written
direction of the
Transferor in Eligible
Investments in the name of the Trust Collateral Agent on
behalf of the Issuer and shall mature no later than one Business
Day immediately
preceding the Payment Date next succeeding the date of such
investment.
Absent
written direction from the Transferor, such funds shall remain
uninvested. In no
event shall the Trust
Collateral Agent be
liable for any
insufficiency in the
Collection Account
resulting from any
investment loss in any Eligible Account.
Such written direction
shall certify that any
such investment is authorized by
this Section. No
investment may be sold
prior to its maturity.
Amounts in the
Note Account and the Policy Payments Account shall not be invested.
The amount
of earnings
on investments of funds in the Collection Account during the
Collection Period
related to each Payment Date shall be deposited into the Note
Account on each Payment Date, and shall be available
for payment
pursuant to
Section 5.6(c).
The amount of earnings on investments of funds in the
Pre-Funding Account
during the Collection
Period related to each
Payment Date
shall be deposited in the Note Account on each Payment Date, and such amount
shall be available for distribution pursuant to Section 5.6(c). For
purposes of
this paragraph, the
Trust Collateral
Agent will take
delivery of the Eligible
Investments in accordance with Schedule C.
SECTION 5.2.
Collections. The
Servicer shall use
reasonable
efforts to cause the
Lock-Box Processor to
transfer any payments in respect of
the Receivables
from or on behalf of
Obligors received in
the Lock-Box to the
Lock-Box Account on
the Business
Day on which
such payments are received,
pursuant to the Lock-Box Agreement. Within two Business Days of
receipt of such
funds into the Lock-Box Account, the Servicer shall cause the
Lock-Box Bank to
transfer available funds related to the Receivables from the
Lock-Box Account to
the Collection
Account, and if such funds are not
available funds, as soon
thereafter as they
clear (i.e., become available for withdrawal from the
Lock-Box Account). In
addition, the Servicer
shall remit all payments by or on
behalf of the Obligors
received by the Servicer with respect to the Receivables
(other than Purchased
Receivables), and all
Liquidation Proceeds no later than
the second Business
Day following
receipt into the Lock-Box Account or the
Collection Account. Not less than eight (8) days prior to each
Payment Date, the
Indenture Trustee
shall give notice to
each Eligible
Institution
that holds
Eligible Investments
in money market deposit accounts in the Collection Account
or the Pre-Funding
Account that on such Payment Date the Indenture Trustee may
be withdrawing all funds from such Account.
SECTION 5.3.
Application of Collections. All collections for
each Collection Period shall be applied by the Servicer as
follows:
With respect to each Receivable (other than a Purchased
Receivable),
payments actually
received from or on behalf of the Obligor
shall be applied
hereunder, first,
to interest
and principal in accordance with the Simple
Interest Method to the
extent necessary to bring such Receivable current,
second, in
connection
with the redemption of a defaulted Receivable, to
reimburse the Servicer
for reasonable
and customary out-of-pocket expenses
incurred by the Servicer in connection with such Receivable, third,
to late fees
and fourth,
to principal in accordance with the Simple Interest Method.
Notwithstanding anything herein to the contrary,
29
<PAGE>
no amount applied as
interest accrued on
any Precomputed
Receivable
for any
single Collection
Period will exceed 30 days' interest accrued thereon assuming
a 360-day year of twelve 30-day months.
SECTION 5.4. Intentionally Omitted.
SECTION 5.5.
Additional Deposits.
The following
additional
deposits shall be made in immediately available funds on the dates indicated:
(i) on the Business Day immediately preceding each Determination Date, the
Servicer or LBAC, as
the case may be, shall deposit or cause to be deposited in
the Collection Account
the aggregate Purchase
Amount with respect to Purchased
Receivables, (ii) on
the Business Day immediately preceding each Determination
Date, the Trust
Collateral Agent shall
deposit in the
Collection Account
all
amounts to be
paid under Section 11.1, (iii) on the Determination Date
immediately succeeding
the date on which the
Funding Period ends (or, if the
Funding Period ends on or after the Determination Date immediately
preceding the
Final Funding
Period Payment Date, on the date on which the Funding
Period
ends), the Trust Collateral Agent shall transfer the remaining
Pre-Funded Amount
on deposit in the
Pre-Funding Account to
the Note Account
pursuant to Section
5.13(c) and (iv) on or before each Draw Date, the Trust
Collateral
Agent shall
transfer to the
Collection
Account any amounts transferred to the Trust
Collateral Agent by
the Collateral Agent
from the Spread Account or the Demand
Note Spread Account,
if applicable, and (v) on or before each Draw
Date, the
Trust Collateral Agent shall, pursuant to the Servicer's written
instructions,
transfer to the Collection Account any amounts to be drawn on the
Demand Note or
the Demand Note Guarantee in accordance with Section 5.12.
SECTION 5.6. Payments; Policy Claims.
(a) The
Trust Collateral Agent
(based solely on the information set forth
in the Servicer's
Certificate for the related Payment Date upon which the Trust
Collateral Agent may conclusively rely) shall transfer,
(i) on each Payment Date, from the Collection Account to the Note
Account,
in immediately available funds, an amount equal to the sum of
(a)
all funds
that were deposited in the Collection Account, plus (b)
earnings
on investments of funds in the Collection Account pursuant to Section
5.1(b),
for the related Collection Period; and
(ii) on each Payment Date during the Funding Period and on the
Final
Funding
Period Payment Date, from the Pre-Funding Account to the Note
Account,
in immediately
available funds, earnings on investments of funds
in the
Pre-Funding
Account for the
related Collection Period, to the
extent
required pursuant to Section 5.1(b).
(b) Prior to each Payment Date, the Servicer shall on the related
Determination Date
calculate the Available Funds, the Principal Payment Amount,
the Class A-1 Interest
Payment Amount, the
Class A-2 Interest
Payment Amount,
the Class A-3 Interest Payment Amount and the Class A-4 Interest
Payment Amount,
the Demand Note Interest Payment Amount, the Demand Note Supplemental
Interest
Payment Amount,
if any, the Monthly
Dealer Participation
Fee Payment
Amount,
and, based on the Available Funds and the other amounts available
for
30
<PAGE>
payment on such Payment Date, determine the amount payable to the Noteholders
and the Class R Certificateholder.
(c) On
each Payment Date, the Trust Collateral Agent shall (x)
distribute
all amounts delivered
by the Note
Insurer to the Trust
Collateral
Agent for
deposit into the Collection Account pursuant to Section 5.9 for
payment in the
amounts and priority
as directed
by the Note
Insurer, and (y) (based on the
information contained
in the Servicer's
Certificate
delivered on the
related
Determination Date pursuant to Section 4.9 upon which the Trust
Collateral Agent
may conclusively
rely) subject to subsection (e) hereof, make the following
distributions from the
Available Funds withdrawn from the Note Account and from
the other sources described below in the following order of
priority:
(i) first, to LBAC,
the Monthly Dealer
Participation
Fee Payment
Amount and
all unpaid Monthly
Dealer Participation
Fee Payment
Amounts
from prior
Collection
Periods and second, to the Servicer, from the
Available
Funds (as such
Available Funds have been reduced by payments
made
pursuant to subclause
first of this clause (i)), the Servicing Fee,
the
Supplemental
Servicing
Fee and all unpaid Servicing Fees and
Supplemental Servicing
Fees from prior
Collection
Periods and, if the
Available
Funds
are insufficient to pay such Servicing Fees and
Supplemental Servicing
Fees from prior Collection Periods, the Servicer
will
receive such deficiency from the Deficiency Claim Amount with
respect
to such
Payment Date, if any, from amounts on deposit in the Spread
Account
(including the Demand
Note), to the extent
received by the Trust
Collateral
Agent from the Collateral Agent;
(ii) to the
Indenture Trustee, the Custodian and the Back-up
Servicer
from the Available Funds (as such Available Funds have been
reduced by
payments made
pursuant to clause (i)
above), the Indenture
Trustee
Fee, the Custodian Fee and the Back-up Servicer Fee,
respectively,
and all
unpaid Indenture Trustee Fees, Custodian Fees and Back-up
Servicer
Fees
from prior Collection Periods and, if the Available Funds are
insufficient to pay such amounts, the Indenture Trustee, the
Custodian and
the
Back-up Servicer
will receive
such deficiency from the remaining
portion of
the Deficiency Claim
Amount with respect to such Payment Date,
if any,
from amounts on deposit in the
Spread Account (including the
Demand
Note), to the extent
received by the Trust
Collateral Agent
from
the
Collateral Agent,
after application thereof pursuant to clause (i)
above;
(iii) to the Class A-1 Noteholders, the Class A-2 Noteholders,
the
Class A-3
Noteholders and the Class A-4 Noteholders, pro rata based on
the
interest
due on each such class
of Notes, from the
Available Funds (as
such
Available Funds have been reduced by payments made pursuant to
clauses
(i) and (ii) above), an amount equal to the Class A-1 Note
Interest,
the Class A-2 Note Interest, the Class A-3 Note Interest and
the
Class A-4
Note Interest
(calculated
(i) with respect to the Class A-1
Notes on
each Payment
Date, on the basis of the actual number of days
elapsed
during such Accrual
Period based on a 360 day year) and (ii) with
respect
to the Class A-2 Notes, the Class A-3 Notes and the Class
A-4
Notes on
each Payment Date, on
the basis of a 360-day year consisting of
twelve
30-day months or, with respect to the first Payment Date, 17
days),
respectively,
with respect
to such Payment Date (plus (without
duplication) interest on
31
<PAGE>
any
outstanding Class A-1 Interest Carryover Shortfall, Class A-2
Interest
Carryover
Shortfall,
Class A-3 Interest
Carryover Shortfall or Class A-4
Interest
Carryover Shortfall, if any, to the extent permitted by
applicable
law, at the Class A-1
Note Rate, the Class
A-2 Note Rate, the
Class A-3
Note Rate or the Class A-4 Note Rate, as applicable, for the
related
Accrual Period (calculated (i) with respect to the Class A-1
Notes
on each
Payment Date,
on the basis of the
actual number of days
elapsed
during
such Accrual
Period based on a 360
day year and (ii) with respect
to the
Class A-2 Notes, the Class A-3 Notes and the Class
A-4 Notes on
each
Payment Date,
on the basis of a
360-day year
consisting of
twelve
30-day
months) and, if the Available Funds are insufficient to pay such
amounts,
the Class A
Noteholders will
receive such
deficiency from
the
following
sources in the following order of priority: (A) from the
remaining
portion of the
Deficiency
Claim Amount with respect to such
Payment
Date, if any, from amounts on deposit in the Spread Account
(including
the Demand Note), to the extent received by the Trust
Collateral
Agent from the
Collateral Agent,
after application thereof
pursuant
to clauses (i) and (ii) above and (B) from the
Policy Claim
Amount
with respect to such Payment Date, if any, received by the Trust
Collateral
Agent from the Note Insurer;
(iv) from the
Available Funds (as
such Available
Funds have been
reduced by
payments made pursuant to clauses (i) through (iii) above) and,
if such
Payment Date is the Final Funding Period Payment Date, from the
Mandatory
Special Redemption, if any, first, to the Class A-1
Noteholders,
until the
Class A-1 Note Balance has been reduced to zero, an amount
equal
to the
Principal Payment Amount with respect to such Payment Date,
second,
to the
Class A-2 Noteholders,
after the Class A-1
Note Balance has
been
reduced to
zero, an amount equal to the remaining Principal Payment Amount
with
respect to such Payment Date, if any, third, to the Class A-3
Noteholders, after the Class A-2 Note Balance has been reduced to
zero, an
amount
equal to the remaining
Principal Payment Amount with respect to
such
Payment Date, if any, and fourth, to the Class A-4 Noteholders,
after
the Class
A-3 Note Balance has
been reduced to zero,
an amount equal to
the
remaining Principal
Payment Amount with respect to such Payment Date,
if any,
and, if the Available Funds are insufficient to pay such
amounts,
the Class
A Noteholders will
receive such
deficiency from the
following
sources in
the following order of priority: (A) from the remaining portion
of the
Deficiency Claim
Amount with respect to such Payment Date, if any,
from
amounts on deposit in the Spread Account (including the Demand
Note),
to the
extent received by the Trust Collateral Agent from the Collateral
Agent,
after application thereof pursuant to clauses (i) through
(iii)
above,
plus, (B) the remaining portion of the Policy Claim Amount
with
respect to
such Payment Date, if any, after application thereof pursuant
to clause
(iii) above;
(v) to the Note Insurer, from the Available Funds (as such
Available
Funds have
been reduced by payments made pursuant to clauses (i)
through
(iv)
above), an amount equal to the Reimbursement Obligations (other than
any
accrued and unpaid Premium) and, if the Available Funds are
insufficient to pay such Reimbursement Obligations, the Note
Insurer shall
receive
such deficiency from the remaining portion of the Deficiency
Claim
Amount
with respect to such Payment Date, if any, from amounts on
deposit
in the
Spread Account
(including the Demand Note), to the extent received
by
32
<PAGE>
the Trust
Collateral Agent from the Collateral Agent, after application
thereof
pursuant to clauses (i) through (iv) above;
(vi) to the
Note Insurer, from the Available Funds (as such
Available
Funds have been reduced by payments made pursuant to clauses
(i)
through
(v) above), any
accrued and unpaid
Premium and, if the Available
Funds are
insufficient the Note Insurer shall receive such deficiency
from
the
remaining portion of
the Deficiency Claim Amount with respect to such
Payment
Date, if any, from amounts on deposit in the Spread Account
(including
the Demand Note), to the extent received by the Trust
Collateral
Agent from the
Collateral Agent,
after application thereof
pursuant
to clauses (i) through (v) above;
(vii) to the Demand Note Provider, from the Available Funds (as
such
Available
Funds have been reduced by payments made pursuant to clauses
(i)
through
(vi) above), the Demand Note Interest Payment Amount;
(viii) to the Demand Note Provider or the Demand Note Guarantor,
as
applicable, from the
Available Funds (as
such Available Funds
have been
reduced by
payments made
pursuant to clauses
(i) through (vii)
above),
reimbursement for any
current and previously
unreimbursed
draws on the
Demand
Note or the Demand
Note Guarantee, as applicable, pursuant to
Section
5.12(b) hereof; provided, however, that if the Demand Note
Spread
Account
has been funded in accordance with Section 5.12(c) hereof and
the
Spread
Account Agreement, any reimbursed amounts shall instead be
distributed to the Collateral Agent for deposit in the Demand
Note Spread
Account;
(ix) first, to the Trust Collateral Agent, the Collateral Agent,
the
Indenture
Trustee, the Back-up Servicer and the Custodian, as applicable,
from the
Available Funds (as such Available Funds have been reduced by
payments
made pursuant to clauses (i) through (viii) above) all
reasonable
out-of-pocket expenses
and indemnity amounts of the Trust Collateral
Agent, the
Collateral Agent, the Indenture Trustee, the Back-up Servicer
and the
Custodian (including,
but not limited to, reasonable counsel fees
and
expenses), including,
without limitation, costs and expenses required
to be paid
by the Servicer to the Back-up Servicer under Section
9.2(a),
to the
extent not paid by the Servicer, and all unpaid reasonable
out-of-pocket expenses
and indemnity amounts of the Trust Collateral
Agent, the
Collateral Agent, the Indenture Trustee, the Back-up Servicer
and the
Custodian (including,
but not limited to, reasonable counsel fees
and
expenses) from prior Collection Periods, and, if the Available Funds
are
insufficient to pay
such amounts, such
deficiency shall be paid from
the
remaining portion of
the Deficiency Claim Amount with respect to such
Payment
Date, if any, from amounts on deposit in the Spread Account
(including
the Demand Note), to the extent received by the Trust
Collateral
Agent from the
Collateral Agent,
after application thereof
pursuant
to clauses (i)
through (vi) above; provided, however, that
expenses
and indemnity amounts
payable to the Trust Collateral Agent, the
Collateral
Agent, the Indenture Trustee, the Back-up Servicer and the
Custodian
pursuant to this subclause first of clause (ix) shall be
limited
to a
combined aggregate
amount of $50,000
per annum,
and second to the
Back-up
Servicer, from the Available Funds (as such
Available Funds have
been
reduced by payments made pursuant to clauses (i) through (viii)
above
and
subclause first of this
33
<PAGE>
clause
(ix)), in the event
that the Back-up
Servicer shall have
assumed
the
obligations
of Servicer
pursuant to Section
9.2(a) and the Servicer
fails to
pay the Back-up
Servicer for system conversion expenses as
required
by said section, an
aggregate amount not
to exceed $100,000
in
payment of
such system conversion expenses;
(x) to the Collateral
Agent, from the Available Funds (as such
Available
Funds have been reduced by payments made pursuant to clauses
(i)
through
(ix) above),
for deposit in the
Spread Account,
the remaining
Available
Funds (as such
Available Funds have been reduced by payments
pursuant
to clauses (i) through (ix) above), if any, until the amount on
deposit in
the Spread Account
(not including the Demand Note) is equal to
the
Requisite Amount;
(xi) from the
Available Funds (as
such Available
Funds have been
reduced by
payments made pursuant to clauses (i) through (x) above), until
the
Overcollateralization Amount is equal to the Required
Overcollateralization
Target, first,
to the Class A-1
Noteholders,
in
reduction
of the Class A-1 Note Balance, until the Class A-1 Note
Balance
has been
reduced to zero, second, once the Class A-1 Note Balance has
been
reduced to
zero, to the Class A-2
Noteholders, in
reduction of the Class
A-2 Note
Balance, third, once
the Class A-2 Note Balance has been reduced
to zero,
to the Class A-3 Noteholders, in reduction of the Class A-3
Note
Balance,
and fourth,
once the Class A-3
Note Balance has been reduced to
zero,
to the Class A-4
Noteholders,
in reduction of the Class A-4
Note
Balance,
until the Class A-4 Note Balance has been reduced to zero;
(xii) to the Demand Note Provider, from the Available Funds (as
such
Available
Funds have been reduced by payments made pursuant to clauses
(i)
through
(xi) above), the Demand Note Supplemental Interest Payment
Amount;
and
(xiii) to the
Certificateholder, any
remaining Available Funds (as
such
Available Funds have been reduced by payments made pursuant to
clauses
(i) through (xii) above).
(d) In
addition, on each Payment Date, after giving effect to the
payments
specified in clauses (i) through (xiii) of Section 5.6(c),
the Trust
Collateral
Agent (based
on the information contained in the Servicer's Certificate
delivered on the related Determination Date pursuant to Section 4.9 upon
which
the Trust Collateral
Agent may conclusively
rely) shall distribute
the Spread
Account Release Amount, if any, to the Certificateholder.
(e) Each
Noteholder, by its acceptance of its Note, will be deemed to
have
consented to the
provisions
of Sections 5.6(c) and 5.6(d) relating to the
priority of payments,
and will be further deemed to have acknowledged that no
property rights in any
amount or the proceeds
of any such amount shall vest in
such Noteholder
until such amounts
have been distributed
to such Noteholder
pursuant to such provisions; provided, that the foregoing shall not
restrict the
right of any
Noteholder, upon
compliance
with the provisions hereof, from
seeking to compel
the performance of the provisions hereof by the parties
hereto. Each
Noteholder, by its
acceptance of its Note, will be deemed to have
further agreed that withdrawals of funds by the Collateral Agent
from the Spread
Account for
application
hereunder shall be made in accordance with the
provisions of the Spread Account Agreement.
34
<PAGE>
In furtherance
of and not in limitation of the foregoing, the
Certificateholder by
acceptance of its Certificate, specifically acknowledges
that no amounts shall
be received by it, nor shall it have any right to receive
any amounts, unless
and until such amounts
have been distributed
pursuant to
Sections 5.6(c) and
5.6(d) above for
payment to such
Certificateholder.
The
Certificateholder, by
its acceptance of its Certificate, further specifically
acknowledges that it
has no right to or interest in any moneys at any time held
in the Spread Account
prior to the release
of such moneys as
aforesaid, such
moneys being held in
trust for the benefit
of the Indenture Trustee, Trust
Collateral Agent,
Backup Servicer, Class
A Noteholders and the Note Insurer as
their interests may appear prior to such release.
(f) Notwithstanding
the foregoing, in the event that it is ever determined
that any property held in the Spread Account constitutes a pledge
of collateral,
then the provisions of this Agreement and the Spread Account
Agreement shall be
considered to
constitute
a security agreement and the Transferor and the
Certificateholder
hereby grant
to the Collateral Agent and to the Trust
Collateral Agent, respectively, a first priority perfected
security interest in
such amounts,
to be applied as set forth in Section 3.03(b) of the Spread
Account Agreement.
In addition,
the Certificateholder, by acceptance of its
Certificate, hereby
appoints the Transferor as its agent to pledge a first
priority perfected
security interest in the Spread Account,
and any property
held therein from time
to time to the
Collateral Agent for
the benefit of the
Trust Collateral
Agent and the Note
Insurer pursuant to the Spread Account
Agreement and agrees
to execute and deliver
such instruments
of conveyance,
assignment, grant,
confirmation, etc., as
well as any financing statements, in
each case as the Note Insurer shall consider reasonably necessary in order to
perfect the Collateral
Agent's Security Interest in the Collateral (as such
terms are defined in the Spread Account Agreement).
(g)
Subject to Section 11.1 respecting the final payment upon
retirement
of each Note,
the Servicer shall on each Payment Date instruct the Trust
Collateral Agent in
writing to distribute
to each Noteholder of
record on the
preceding Record Date
either (i) by wire
transfer, in
immediately
available
funds to the account of such Holder at a bank or other entity
having appropriate
facilities therefor,
if such Noteholder is the Clearing Agency or such Holder's
Notes in the aggregate evidence an original Note Balance of at
least $1,000,000,
and if such Noteholder
shall have provided to the Trust Collateral Agent
appropriate instructions prior to the Record Date for such Payment
Date, or (ii)
by check mailed to such Noteholder at the address of such Holder
appearing in
the Note Register,
such Holder's pro rata share (based on the outstanding Note
Balance) of (i) the
Principal Payment
Amount plus (ii) the
Class A-1 Interest
Payment Amount, the
Class A-2 Interest
Payment Amount, the
Class A-3 Interest
Payment Amount or the Class A-4 Interest Payment Amount, as applicable, to be
paid to such Class of Notes in accordance with the Servicer's
Certificate.
SECTION 5.7. Statements to Noteholders; Tax Returns.
(a) With
each payment from the Note Account to the Noteholders made on a
Payment Date, the
Servicer shall provide
to the Note Insurer,
the Demand Note
Provider, the
Transferor,
the Indenture
Trustee, each Rating Agency and the
Trust Collateral
Agent (the Trust
Collateral
Agent to make
available to each
Noteholder of
record on its website at https://www.tss.db.com/invr.com
or
through such other means as the Trust Collateral Agent believes will make the
distribution more convenient and/or accessible and the Trust
Collateral
35
<PAGE>
Agent shall
provide timely and adequate notification to all Noteholders
regarding any such changes) the Servicer's Certificate
substantially in the form
of Exhibit B-1 hereto,
setting forth at least the following information as to
the Notes, to the extent applicable:
(i) the amount of the payment allocable to principal of the Class
A-1
Notes, the Class A-2 Notes, the Class A-3 Notes and the Class
A-4
Notes,
respectively,
and in the aggregate
with respect to all classes of
Notes;
(ii) the amount of the
payment allocable
to interest on the
Class
A-1
Notes, the Class A-2 Notes, the Class A-3 Notes and the Class
A-4
Notes,
respectively,
and in the aggregate
with respect to each
class of
Notes;
(iii) the number of
Receivables, the
weighted average APR of the
Receivables, the
weighted average
maturity of the Receivables, the Pool
Balance,
the Class A-1 Pool
Factor, the Class A-2
Pool Factor, the Class
A-3 Pool
Factor and the Class
A-4 Pool Factor as of the close of business
on the
last day of the preceding Collection Period;
(iv) the Class A-1 Note Balance, the Class A-2 Note Balance, the
Class A-3
Note Balance,
the Class A-4 Note
Balance and the Note Balance,
as of the
close of business on
the last day of the
preceding
Collection
Period,
after giving effect to
payments allocated to
principal reported
under
clause (i) above;
(v) the amount of the
Monthly Dealer Participation Fee Payment
Amount
paid to LBAC, the
amount of the Servicing Fee paid to the Servicer
and the
amount of the Back-up
Servicer Fee paid to
the Back-up
Servicer
with
respect to the related
Collection Period,
the amount of any
unpaid
Servicing
Fees and any unpaid Back-up Servicer Fees and the change in
such
amounts
from the prior Payment Date;
(vi) the amount of the Class A-1 Interest Carryover Shortfall, if
applicable, the Class A-2 Interest Carryover Shortfall, if
applicable, the
Class A-3
Interest Carryover Shortfall, if applicable, and the Class A-4
Interest
Carryover Shortfall, if applicable, on such Payment Date and the
change in
such amounts from the prior Payment Date;
(vii) the amount paid, if any, to the Class A Noteholders
under the
Policy for
such Payment Date;
(viii) the amount paid to the Note Insurer on such Payment Date in
respect of
Premium and Reimbursement Obligations;
(ix) the amount in the Spread Account;
(x) the Demand Note Amount;
(xi) the amount paid to the Demand Note Provider and/or the Demand
Note
Guarantor,
as applicable,
in respect of any
current and previously
unreimbursed draws on
the Demand Note, the
Demand Note Interest
Payment
Amount and
the Demand Note Supplemental Interest Payment Amount;
36
<PAGE>
(xii) the number of Receivables and the aggregate outstanding
principal amount scheduled to be paid thereon, for which the related
Obligors
are delinquent in making Scheduled Receivable Payments between
30
and 59
days, 60 and 89 days, 90 and 119 days and 120 days or more (in
each
case
calculated on the basis of a 360-day year consisting of twelve
30-day
months),
and the percentage of
the aggregate
principal amount which such
delinquencies represent;
(xiii) the number and the aggregate Purchase Amount of Receivables
repurchased by the
Originator
or purchased
by the Servicer
during the
related
Collection Period;
(xiv) the cumulative
number and amount of
Liquidated
Receivables
(including
the cumulative number and amount of Sold
Receivables),
the
cumulative
amount of any
Liquidation Proceeds
and Recoveries, since
the
Initial
Cutoff Date to the last day of the related Collection Period, the
number and
amount of Liquidated
Receivables
for the related
Collection
Period and
the amount of Recoveries in the related Collection Period;
(xv) the Average
Delinquency Ratio, the Cumulative Default Rate and
the
Cumulative Loss Rate
(as such terms are defined in the Spread Account
Agreement)
for such Payment Date;
(xvi) whether
any Trigger Event has occurred as of such
Determination Date;
(xvii) whether
any Trigger Event that may have occurred as of a
prior
Determination
Date is Deemed Cured
(as such term is defined in the
Spread
Account Agr
