Document:

Exhibit
10.3

 

AMENDED
AND RESTATED

 

SERIES
B-1 NOTE

 

THE SECURITY REPRESENTED BY THIS INSTRUMENT HAS NOT BEEN REGISTERED
UNDER ANY APPLICABLE SECURITIES LAW. 
THIS SECURITY CANNOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS IT IS
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 OR THE BORROWER IS FURNISHED
WITH AN ACCEPTABLE OPINION OF COUNSEL THAT AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.

 

THIS NOTE HAS NOT BEEN QUALIFIED BY THE FILING OF A PROSPECTUS UNDER
APPLICABLE CANADIAN SECURITIES LAWS.  BY
ITS ACCEPTANCE OF THIS NOTE, THE HOLDER REPRESENTS THAT IT IS AN ACCREDITED
INVESTOR, AS SUCH TERM IS DEFINED IN ONTARIO SECURITIES COMMISSION RULE 45-501,
AND AGREES THAT THIS NOTE IS NOT BEING ACQUIRED WITH A VIEW TO DISTRIBUTION.

 

Series B-1 Senior Secured Note Due
2006

 

	
  U.S.$30,000,000.00

  	
  November 8,
  2002

  

 

Section 1.                                            General.

 

(a)                                  Bookham Technology
plc, a public limited company incorporated under the laws of England and Wales
(the “Borrower”), for value received, hereby promises to pay, subject to the
further provisions hereof, to Nortel Networks UK Limited (the “Lender”), the
principal amount of THIRTY MILLION U.S. DOLLARS (U.S.$30,000,000.00), as such
principal amount may be reduced by prepayments pursuant to Section 3 and Section 4
of this Note (as defined below), on November 8, 2006 (such date, the “Maturity
Date”), on presentation and surrender of this Note to the Borrower, in such
coin or currency of the United States of America as at the time of payment
shall be legal tender therein for the payment of public and private debts.

 

(b)                                 The Borrower further
agrees to pay interest on the outstanding principal amount hereof from time to
time from the date hereof at the Interest Rate (as defined below), payable in
arrears on each Interest Payment Date (as defined below) and on the Maturity
Date.  Interest shall be calculated on
the basis of a 360-day year of twelve 30-day months.

 

(c)                                  The Lender shall act
on behalf of and as agent for all present and future Holders (as defined below)
and shall exclusively exercise or enforce any and all rights, powers,
privileges and remedies hereunder.  If
the Holder is not the Lender, the Borrower and the Guarantors shall satisfy any
requirement hereunder to deliver to the Holder any notice or payment by
delivering such notice or payment to the Lender rather than the Holder.

 

 

Section 2.                                            Security
Interest, Retention of Title and Limitation on Liens.

 

(a)                                  As security for the
Indebtedness (as defined below), and as security for the agreements and other
obligations of the Borrower and the Guarantors (as defined below) hereunder and
in order to secure the full and punctual payment of their respective
obligations hereunder in accordance with the terms set forth herein, (i) the
Borrower has pledged, and Bookham, Inc. has caused certain of its Subsidiaries
to pledge, and the Borrower will pledge and Bookham, Inc. will cause certain of
its Subsidiaries to pledge, the Collateral (as defined below) pursuant to the
Security Agreements and the documents delivered pursuant thereto and pursuant to
certain other documents delivered or to be delivered, as applicable, pursuant
to the Restructuring Agreement, and (ii) the Seller (as defined in the
Acquisition Agreement) and its Subsidiaries have retained title to certain of
the Assets (as defined in the Acquisition Agreement) pursuant to the Bill of
Sale, dated as of November 8, 2002 delivered by Seller and certain of its
Subsidiaries to Bookham (Switzerland) AG (as such title retention arrangements
have been modified by certain documents and agreements delivered or to be
delivered, as applicable, pursuant to the Restructuring Agreement).

 

(b)                                 None of the Borrower
and the Guarantors shall (and none of them shall permit any of its Subsidiaries
to) create, incur, assume or permit to exist any Lien on any of the Collateral,
except for Permitted Liens.

 

Section 3.                                            Voluntary
Prepayment.

 

This Note shall be prepayable, at the option
of the Borrower, in whole or in part, on one or more occasions, on not less
than two (2) Business Days (as defined below) and not more than twenty (20)
calendar days prior written notice to the Holder, at a price in cash equal to
100% of the outstanding principal amount to be prepaid, plus accrued and unpaid
interest to such prepayment date.

 

Section 4.                                            Mandatory
Prepayment.

 

(a)                                  Within one (1)
Business Day after the consummation of any Qualified Financing (as defined
below), the Borrower shall prepay in cash on a pro rata basis by wire transfer
of immediately available funds the outstanding obligations under the Series B-1
Note in an amount equal to 20% of the Net Proceeds (as defined below) of such
Qualified Financing to the extent such Net Proceeds constitute all or part of
the Initial Net Proceeds (as defined below).

 

(b)                                 Within one (1)
Business Day after the consummation of any Qualified Financing, the Borrower
shall prepay in cash on a pro rata basis by wire transfer of immediately
available funds the outstanding obligations under the Series B-1 Note in an
amount equal to 40% of the Net Proceeds of such Qualified Financing to the
extent such Net Proceeds constitute all or part of the Subsequent Net Proceeds
(as defined below).

 

(c)                                  Within one (1)
Business Day after the consummation of any sale, distribution, assignment,
lease, transfer or other disposition in violation of Section 7(d), the
Borrower shall prepay on a pro rata basis by wire transfer of immediately
available funds the outstanding obligations under the Series B-1 Note in an
amount equal to the Net Proceeds of such sale, distribution, assignment, lease,
transfer or other disposition

 

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(d)                                 Within one (1)
Business Day after a Change of Control (as defined below) of Bookham, Inc., the
Borrower shall prepay the Series B-1 Note in full at a price in cash equal to
100% of the outstanding principal amount, plus accrued and unpaid interest to
such prepayment date.

 

Section 5.                                            Replacement
of Note.

 

At the request of the Holder upon receipt by
the Borrower of evidence satisfactory to it of the loss, theft, destruction or
mutilation of this Note and, in case of loss, theft or destruction, of
indemnity reasonably satisfactory to it, or, in the case of mutilation, upon
surrender and cancellation of this Note, and in all cases upon reimbursement to
the Borrower of all reasonable expenses incidental thereto, the Borrower and
the Guarantors shall make and deliver to the Holder a replacement Note of like
tenor in lieu of this Note.

 

Section 6.                                            Amendments,
Modifications and Waivers.

 

No covenant, agreement or condition contained
in this Note may be amended or modified and no right hereunder may be waived
(either generally or in a particular instance and either retroactively or
prospectively) other than by a written instrument or agreement executed by the
Holder and the Borrower.  Any such amendment,
modification or waiver shall be binding upon each present and future holder of
this Note and upon the Borrower.  Upon
the request of the Borrower, the Holder shall submit this Note to the Borrower
so that this Note be marked to indicate such amendment, modification or waiver,
and any Note issued thereafter shall bear a similar notation referring to any
such amendment, modification or continuing waiver.

 

Section 7.                                            Existence;
Conduct of Business; Report on Cash Balance and Forecast of Cash Flows; Sales
of Assets; Confidentiality; Trading in Securities.

 

(a)                                  Each of the Borrower
and the Guarantors shall do or cause to be done all things necessary to
preserve, renew and keep in full force and effect its legal existence and the
rights, contracts, licenses, permits, privileges, franchises, patents,
copyrights, trademarks and trade names that are, in the Borrower’s reasonable
judgment, material to the conduct of its business.

 

(b)                                 Provided that from
time to time the Holder may instruct the Borrower to discontinue the delivery
of reports pursuant to this Section 7(b), Bookham, Inc. shall deliver the
following reports to the Holder via email to paolini@nortelnetworks.com and via
facsimile at 905-863-8261 (or such other email address or facsimile number as the
Holder shall designate in writing):

 

(i)                                     By Tuesday of the
following calendar week, for each calendar week ending after the date of this
Note, Bookham, Inc. shall provide the Holder with a report, on a consolidated
basis, of the amount of Bank Cash (as defined below), as of the end of the day
on Friday of such calendar week.

 

(ii)                                  By the 10th day of
each calendar month ending after the date of this Note, Bookham, Inc. shall
provide the Holder with a report stating the Cash Balance (as defined below) of
Bookham, Inc. and its Subsidiaries, on a consolidated basis, as of the end of

 

3

 

the prior calendar month (or the nearest Business Day thereafter if the
end of the calendar month is not a Business Day).

 

(iii)                               By the 25th day of each
calendar month ending after the date of this Note, Bookham, Inc. shall provide
the Holder with a report stating the Cash Balance of the Borrower and its
Subsidiaries, on a consolidated basis, as of the 15th day of the then current
calendar month or, if the 15th day is not a Friday, the nearest Friday to the
15th day.

 

(c)                                  Within 15 Business
Days of the end of each calendar month ending after the date of this Note,
Bookham, Inc. shall provide the Holder with (i) a statement of operations,
balance sheet and statement of cashflows prepared in accordance with Bookham,
Inc.’s internal format for Bookham, Inc. and its Subsidiaries, on a
consolidated basis, for the previous calendar month and (ii) a financial
forecast of Bookham, Inc. and its Subsidiaries, on a consolidated basis, for
the current quarter and for the four subsequent quarters, consisting of a
statement of operations, balance sheet and statement of cashflows prepared in
accordance with Bookham, Inc.’s internal format, as well as qualitative
analysis of such forecasts and any changes from prior forecasts provided to the
Holder in accordance with this Section 7(c); provided, however, that from
time to time the Holder may instruct the Borrower to discontinue the delivery
of reports pursuant to this Section 7(c).

 

(d)                                 Neither the Borrower
nor any Guarantor shall distribute, sell, assign, transfer or otherwise dispose
of any Collateral without the prior written consent of the Holder while the
Guaranteed Obligations are outstanding, except for the disposition of equipment
having a fair market value not to exceed $5,000,000 in the aggregate.

 

(e)                                  The Holder and its
Representatives shall hold in confidence, and shall not disclose to any person
outside its organization, any of the information provided by Bookham, Inc.
pursuant to Section 7(b) or Section 7(c) without the prior written
consent of Bookham, Inc..  The Holder
shall disclose such information only to persons within its organization who
have a need to know such information in the course of the performance of their
duties.  The Holder will promptly report
to Bookham, Inc. any actual violation of the terms of this Section 7(e)
and will take all reasonable further steps requested by Bookham, Inc. to
prevent, control or remedy any such violation. 
The obligations of the Holder in this Section 7(e) shall not apply,
and the Holder shall have no further obligations, with respect to (i) any
information that is known to the Holder prior to the date of disclosure of such
information pursuant to Sections 7(b) or 7(c) hereof or is publicly available
when provided or that thereafter becomes publicly available other than through
a breach by the Holder of this Section 7(e), or (ii) any information that
the Holder or its Representatives are required to disclose to or by a court,
governmental or regulatory agency, stock exchange or similar body, or as
otherwise required by applicable law, provided that the Holder exercises its
reasonable efforts to preserve the confidentiality of the information, including,
without limitation, by cooperating with Bookham, Inc. to obtain an appropriate
protective order or other reliable assurance that confidential treatment will
be accorded the information by the person or entity receiving such information.

 

(f)                                    The Holder
acknowledges that it is aware applicable securities laws prohibit any person
who is aware of material, non-public information about a company obtained
directly or indirectly from that company from purchasing or selling securities
of such company

 

4

 

or from communicating such information to any other person under
circumstances in which it is reasonably foreseeable that such person is likely
to purchase or sell such securities and agrees that it will not do so while in
possession of any material nonpublic information about Bookham, Inc..

 

Section 8.                                            Guarantees.

 

(a)                                  Each Guarantor hereby
jointly and severally unconditionally guarantees, as a primary obligor and not
merely as a surety, to the Holder the full and punctual payment when due,
whether at the Maturity Date, by acceleration, by prepayment or otherwise, of
all obligations of the Borrower under this Note, whether for payment of
principal or interest (including interest accruing during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding, regardless of
whether allowed or allowable in such proceeding) in respect of the Note and all
other monetary obligations of the Borrower under this Note, whether for fees,
expenses, indemnification or otherwise (all the foregoing being hereinafter
collectively called the “Guaranteed Obligations”).  Each Guarantor further agrees that the
Guaranteed Obligations may be extended or renewed, in whole or in part,
pursuant to the terms of Section 6, without notice to or further assent
from each such Guarantor, and that each such Guarantor shall remain bound under
this Section 8 notwithstanding any extension or renewal of any Guaranteed
Obligation.

 

(b)                                 Each Guarantor waives
presentation to, demand of payment from and protest to the Borrower of any of
the Guaranteed Obligations and also waives notice of acceptance of its
guarantee and notice of protest for nonpayment. 
Each Guarantor waives notice of any default under this Note.  The obligations of each Guarantor hereunder
shall not be affected by (i) the failure of the Holder to assert any claim or
demand or to enforce any right or remedy against the Borrower or any other
Person (as defined below) under this Note or any other agreement or otherwise;
(ii) any extension of the repayment terms of the Guaranteed Obligations; (iii)
any rescission, waiver, amendment or modification of any of the terms or
provisions of this Note or any other agreement; (iv) the failure to perfect any
security interest in, or the release of, any security held by the Holder for
the Guaranteed Obligations or any of them; or (v) the failure of the Holder to
exercise any right or remedy against any other Guarantor.  In the event that there is a Change in
Control with respect to any Guarantor, all obligations of such Guarantor
hereunder shall be relieved in full and such Guarantor shall cease to be
subject to any obligation hereunder or to be deemed a “Guarantor” upon the
effectiveness of such Change in Control.

 

(c)                                  Each Guarantor hereby
waives any right to which it may be entitled to have its obligations hereunder
divided among the Guarantors, such that such Guarantor’s obligations would be
less than the full amount claimed.  Each
Guarantor hereby waives any right to which it may be entitled to have the
assets of the Borrower first be used and depleted as payment of the Borrower’s
or such Guarantor’s obligations hereunder prior to any amounts being claimed
from or paid by such Guarantor hereunder. 
Each Guarantor hereby waives any right to which it may be entitled to
require that the Borrower be sued prior to an action being initiated against
such Guarantor.

 

5

 

(d)                                 Each Guarantor further
agrees that its guarantee herein constitutes a guarantee of payment when due
(and not a guarantee of collection) and waives any right to require that any
resort be had by the Holder to any security held for payment of the Guaranteed
Obligations.

 

(e)                                  The obligations of
each Guarantor hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason (other than payment of the Guaranteed
Obligations in full), including any claim of waiver, release, surrender,
alteration or compromise of any Guaranteed Obligation, and shall not be subject
to any defense of setoff, counterclaim, recoupment or termination whatsoever or
by reason of the invalidity, illegality or unenforceability of the Guaranteed
Obligations or otherwise.  Without limiting
the generality of the foregoing, the obligations of each Guarantor herein shall
not be discharged or impaired or otherwise affected by the failure of the
Holder to assert any claim or demand or to enforce any remedy under this Note
or any other agreement, by any waiver or modification of any provision thereof
by any default, failure or delay, willful or otherwise, in the performance of
the Guaranteed Obligations, or by any other act or omission or delay to do any
other act that may or might in any manner or to any extent vary the risk of any
Guarantor or that would otherwise operate as a discharge of any Guarantor as a
matter of law or equity.

 

(f)                                    Each Guarantor
agrees that its guarantee shall remain in full force and effect until payment
in full of all the Guaranteed Obligations. 
Each Guarantor further agrees that its guarantee herein shall continue
to be effective or be reinstated, as the case may be, if at any time payment,
or any part thereof, of principal of or interest on any Guaranteed Obligation
is rescinded or must otherwise be restored by the Holder upon the bankruptcy or
reorganization of the Borrower or otherwise.

 

(g)                                 In furtherance of the
foregoing and not in limitation of any other right which the Holder has at law
or in equity against any Guarantor by virtue hereof, upon the failure of the
Borrower to pay the Guaranteed Obligation when and as the same shall become
due, whether at maturity, by acceleration, by prepayment or otherwise, each
Guarantor hereby promises to and shall, upon receipt of written demand by the
Holder, forthwith pay, or cause to be paid, in cash, to the Holder an amount
equal to the sum of (i) the unpaid amount of such Guaranteed Obligations and
(ii) accrued and unpaid interest on such Guaranteed Obligations then due and
owing (but only to the extent not prohibited by law).

 

(h)                                 Each Guarantor agrees
that it shall not be entitled to any right of subrogation in relation to the
Holder in respect of any Guaranteed Obligations guaranteed hereby until payment
in full of all Guaranteed Obligations. 
Each Guarantor further agrees that, as between it and the Holder, (i)
the maturity of the Guaranteed Obligations guaranteed hereby may be accelerated
as provided in Section 9 for the purposes of any guarantee herein,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the Guaranteed Obligations guaranteed hereby, and
(ii) in the event of any declaration of acceleration of such Guaranteed
Obligations as provided in Section 10, such Guaranteed Obligations
(whether or not due and payable) shall forthwith become due and payable by such
Guarantor for the purposes of this Section 8.

 

6

 

(i)                                     Each Guarantor
also agrees to pay any and all costs and expenses (including reasonable attorneys’
fees and expenses) incurred by the Holder in enforcing any rights under this Section 8.

 

(j)                                     Bookham, Inc.
shall cause each of its Subsidiaries that (i) has not executed and delivered
this Note “as Guarantor” and (ii) is or becomes a Principal Borrower Subsidiary
to execute and deliver such instruments and do such acts as may be necessary
for such Principal Borrower Subsidiary to become a Guarantor under this Section 8.

 

(k)                                  Upon request of the
Holder, each Guarantor shall execute and deliver such further instruments and
do such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Note.

 

(l)                                     In the case of any
payments made by a Guarantor pursuant to this Section 8, the following
shall apply:

 

(i)                                     All such payments
shall be made to the Holder without withholding or deduction for, or on account
of, Taxes (other than those withholdings or deductions to which payments by the
Borrower are subject).  In the event any
withholding or deduction for Taxes is required by law or by the interpretation
or administration thereof by the relevant governmental authority, such
Guarantor shall pay such additional amounts as may be necessary in order that
the net amounts received by the Holder after such withholding or deduction may
not be less than the net amount that would have been received by the Holder
from the Borrower.

 

(ii)                                  If the Holder is
entitled to claim an exemption from, or a reduction of, any withholding or
deduction for or on account of Taxes under any applicable law or treaty, the
Holder hereby covenants and agrees that it will take all reasonably necessary
steps to secure the benefit of such exemption or reduction.  Further, if the Holder is entitled to claim a
refund of any withholding or deduction of or on account of Taxes under any
applicable law or treaty, the Holder hereby covenants and agrees that it will
take all reasonably necessary steps to secure such refund, and (to the extent
that such Guarantor has made a payment of an additional amount pursuant to this
Section 8(l)) account for such refund to such Guarantor.

 

(iii)                               If (and for so long as)
the Holder fails to satisfy its obligations under clause (ii) of this Section 8(l),
such Guarantor shall not be required to make any payments under this Section 8
to the extent that such payments could have been avoided if the Holder had
complied with its obligations under clause (ii) of this Section 8(l).  For example (and solely for purposes of
illustration), if payments by such Guarantor are subject to a withholding tax
of 15%, but under the applicable tax treaty the Holder is entitled to claim a
reduction of withholding tax from 15% to 10%, then, if the Holder fails to
comply with its obligations under clause (ii) of this Section 8(l), such
Guarantor shall be obligated to make payments under clause (i) of this Section 8(l)
on the reduced 10% withholding tax and shall have no obligation under clause
(i) of this Section 8(l) with respect to the 5% withholding tax that could
have been avoided if the Holder had complied with its obligations under clause
(ii) of this Section 8(l).

 

7

 

Section 9.                                            Events
of Default.

 

(a)                                  An “Event of
Default” occurs if:

 

(i)                                     any default shall
be made in the payment of the principal of or cash interest on the Series B-1
Note, when and as the same shall become due and payable, whether at the due
date thereof, upon acceleration thereof or otherwise;

 

(ii)                                  any event or
condition occurs that results in any Material Indebtedness becoming due prior
to its scheduled maturity; provided that this clause (ii) shall not apply in
the case of (A) voluntary or mandatory prepayments under the Series A-2 Note or
the Series B-1 Note that are paid in full when due or (B) any secured
Indebtedness that becomes due as a result of the voluntary sale or transfer of
the property or assets securing such Indebtedness;

 

(iii)                               an Event of Default (as
defined in the Series A-2 Note) occurs with respect to the Series A-2 Note;

 

(iv)                              Bookham, Inc. or any of
its Subsidiaries defaults in any material respect in its obligations hereunder
(other than any obligations for the payment of principal or interest) or in any
of the Security Agreements, the Restructuring Agreement or the agreements
delivered pursuant thereto; provided that such default shall not have been
cured within twenty (20) Business Days after written notice of such default;

 

(v)                                 Bookham, Inc. or the
Borrower becomes subject to a Bankruptcy Event;

 

(vi)                              (A) except as permitted
by this Note, any of the Security Agreements or other documents delivered
pursuant thereto or pursuant to any other documents delivered or to be
delivered, as applicable, pursuant to the Restructuring Agreement shall be held
in any judicial proceeding to be unenforceable or invalid, or shall cease for
any reason to be in full force and effect and such default continues for twenty
(20) Business Days after written notice, or (B) the Borrower or any Guarantor,
or anyone acting on behalf of the Borrower or any Guarantor, shall deny or
disaffirm its obligations under any of the Security Agreements or other
documents delivered pursuant thereto or pursuant to any other documents
delivered or to be delivered, as applicable, pursuant to the Restructuring
Agreement;

 

(vii)                           Bookham, Inc. and its
Subsidiaries, on a consolidated basis, fail to maintain a Cash Balance of at
least U.S.$25,000,000, as reported pursuant to Section 7(b)(ii) or Section 7(b)(iii),
and Bookham, Inc. receives written notice from the Holder of such failure;

 

(viii)                        Bookham, Inc. fails to provide
the information required by Section 7(b)(ii) or Section 7(b)(iii)
within the time periods set forth in such sections; provided that Bookham, Inc.
may cure such default by providing the information required by Section 7(b)(ii)
or Section 7(b)(iii), as applicable, within 3 calendar days of such
default if the most recent report delivered by Bookham, Inc. pursuant to Section 7(b)(i)
both (A) was delivered within the time period set forth in such section and
(B) reported an amount of Bank Cash in excess of U.S.$35,000,000;

 

(ix)                                Bookham, Inc. fails to
provide the information required by Section 7(c) within the time period
set forth in such section; provided that Bookham, Inc. may cure such

 

8

 

default by providing the information required by Section 7(c)
within 10 calendar days of such default.

 

(b)                                 If an Event of Default
occurs, then the Holder of this Note may, by written notice to the Borrower,
declare this Note to be forthwith due and payable, whereupon this Note shall
become forthwith due and payable, both as to principal and interest, without
presentment, demand, protest, or other notice of any kind, all of which are
hereby expressly waived.

 

Section 10.                                      Notices
of Material Events.

 

(a)                                  The Borrower shall
furnish the Holder written notice of the occurrence of any Event of Default or
any development or circumstance that has, or could reasonably be expected to
have, a Borrower Material Adverse Effect (as defined below) promptly upon the
Borrower’s obtaining knowledge thereof.

 

(b)                                 Each notice delivered
under this Section 10 shall be accompanied by a statement of an executive
officer of the Borrower setting forth the details of the event, development or
circumstance requiring such notice and any action taken or proposed to be taken
with respect thereto.

 

Section 11.                                      Extension
of Maturity.

 

Should the principal of and interest on this
Note become due and payable on other than a Business Day, the maturity hereof
shall be extended to the next succeeding Business Day, and interest shall be
payable at the rate per annum herein specified during such extension.

 

Section 12.                                      Successors
and Assigns.

 

The provisions of this Note shall be binding
upon and inure to the benefit of the Borrower and the Guarantors and their
respective successors and permitted assigns and the Holder of this Note and its
successors and assigns.  None of the
obligations of the Borrower or any Guarantor hereunder may be assigned without
the prior written consent of the Holder. 
Subject to applicable federal and state securities Laws, this Note is
transferable and assignable by the Holder (or its successor) only to a
Subsidiary of the Holder (or back to the Holder).  Any transfer of this Note may be made only
upon surrender of the original Note for registration of transfer, duly
endorsed, or accompanied by a duly executed written instrument of transfer.

 

Section 13.                                      No
Waiver.

 

Neither a failure nor a delay on the part of
the Holder in exercising any right, power or privilege under this Note shall operate
as a waiver thereof, nor shall a single or partial exercise thereof preclude
any other or further exercise of any right, power or privilege.  The rights, remedies and benefits of the
Holder herein expressly specified are cumulative and not exclusive of any other
rights remedies or benefits which either may have under this Note at law, in
equity, by statute or otherwise.

 

9

 

Section 14.                                      Governing
Law.

 

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.  This Note was negotiated and executed in the
State and County of New York.  All
actions, suits and proceedings arising out of relating to this Note shall be
heard and determined exclusively in a New York state or federal court sitting
in the County of New York, and the Holder, the Borrower and the Guarantors
hereby irrevocably submit to the exclusive jurisdiction of such courts in any
such action or proceeding and irrevocably agree to the laying of venue in such
courts and waive the defense of an inconvenient forum to the maintenance of any
such action, suit or proceeding.

 

Section 15.                                      Titles
and Subtitles.

 

The titles and subtitles used in this Note
are used for convenience only and are not to be considered in construing or
interpreting this Note.

 

Section 16.                                      Definitions.  All accounting and financial terms not
defined herein shall be construed in accordance with U.S. generally accepted
accounting principles, as in effect from time to time.  In addition, as used in this Note, unless
otherwise specified, the following terms have the meanings specified below:

 

“Acquisition Agreement” means the
Acquisition Agreement between Nortel Networks Corporation and the Borrower
dated as of October 7, 2002 (as amended through the date hereof).

 

“Bank Cash” means cash held in any
deposit account in the name of Bookham, Inc. or any of its Subsidiaries.

 

“Bankruptcy Event” has the meaning set
forth in the Acquisition Agreement.

 

“Borrower” has the meaning set forth
in Section 1(a).

 

“Borrower Material Adverse Effect”
means any long-term or short-term effect that is or is reasonably likely to be
materially adverse to (i) the business, results of operations, assets,
liabilities or condition (financial or otherwise) of the Borrower and its
Subsidiaries, taken as a whole, or (ii) the ability of the Borrower and its
Subsidiaries to perform their respective obligations under the Security
Documents and the Supply Agreement between the Borrower and Nortel Networks
Corporation dated as of the date hereof, but in each case shall not include any
effect arising out of or resulting from (A) a change in general economic or
financial conditions (provided that such changes do not affect the Borrower and
its Subsidiaries, taken as a whole, in a materially disproportionate manner in
comparison to other companies engaged in the same industry) or (B) a change,
condition or circumstance in the industry in which the Borrower and its
Subsidiaries operate (provided that such changes do not affect the Borrower
and its Subsidiaries, taken as a whole, in a materially disproportionate manner
in comparison to other companies engaged in the same industry); provided,
however, that (1) any decrease in the market price or trading volume of
the Borrower’s securities or any shareholder litigation resulting therefrom
shall not, in and of itself, constitute a Borrower Material Adverse Effect and
(2) the

 

10

 

failure of the Borrower to achieve internal or external financial
forecasts or projections shall not, in and of itself, constitute a Borrower
Material Adverse Effect.

 

“Business Day” means any day that is
not a Saturday, Sunday or other day on which banks are required or authorized
by law to be closed in New York, New York; London, England or Toronto, Ontario,
Canada.

 

“Cash Balance” of any party as of a
reference date means the amount of Bank Cash, marketable securities and other
cash equivalents of such party as of the reference date (which, for the
avoidance of doubt, shall be less any bank checks issued and not cleared as of
such reference date).

 

“Change of Control” has the meaning
set forth in the Acquisition Agreement.

 

“Collateral” means all of the
collateral described in the Security Agreements and the documents delivered
pursuant thereto and pursuant to certain other documents delivered or to be
delivered, as applicable, pursuant to the Restructuring Agreement.

 

“Control” or “Controlled”
means, as to any Person, the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.

 

“Equity Interest” of any Person means
any and all common stock, preferred stock and any other class of capital stock
of, and any partnership or limited liability company interests in, such Person
or any other similar interests in such Person if such Person is not a
corporation, partnership or limited liability company and includes any interest
that is convertible into or exchangeable or exercisable for any Equity Interest
and any other right to acquire any Equity Interest.

 

“Event of Default” has the meaning set
forth in Section 9(a).

 

“Guaranteed Obligations” has the
meaning set forth in Section 8.

 

“Guarantors” means (i) subject to the
last sentence of Section 8(b), those Subsidiaries of Bookham, Inc. that
have executed and delivered this Note on the date hereof “as Guarantor” and
(ii) such other Subsidiaries of Bookham, Inc. that have guaranteed the Series
B-1 Note pursuant to Section 8(j).

 

“Highest Lawful Rate” means the
maximum non-usurious rate of interest, as in effect from time to time, which
may be charged, contracted for, reserved, received or collected by the Holder
in connection with this Note under applicable law.

 

“Holder” means the Person named as the
Lender or such Person’s permitted transferee or assign.

 

“Indebtedness” means any obligation in
respect of (i) borrowed money, (ii) capitalized lease obligations, (iii)
obligations under interest rate agreements and currency

 

11

 

agreements, (iv) guarantees of any obligation of any third Person, (v)
letters of credit and (vi) indemnities or performance bonds.

 

“Initial Net Proceeds” means the first
$50,000,000 of the aggregate Net Proceeds of all Qualified Financings
consummated after the date hereof.

 

“Interest Payment Date” means each February 8,
May 8, August 8 and November 8 beginning on February 8, 2003.

 

“Interest Rate” means 7.00% per annum;
provided that such interest rate shall increase by 0.25% on each
Interest Payment Date, up to a maximum rate of 10.00% per annum; provided
further that anything herein to the contrary notwithstanding, if during
any period for which interest is computed hereunder, the amount of interest
computed on the basis provided for in this Note, together with all fees,
charges and other payments that are treated as interest under applicable law,
as provided for herein or in any other document executed in connection
herewith, would exceed the amount of such interest computed on the basis of the
Highest Lawful Rate, neither the Borrower nor any Guarantor shall be obligated
to pay, and the Holder shall not be entitled to charge, collect, receive,
reserve or take, interest in excess of the Highest Lawful Rate, and during any
such period the interest payable hereunder shall be computed on the basis of
the Highest Lawful Rate.

 

“Lender” has the meaning set forth in Section 1(a).

 

“Liens” means any mortgage, easement,
tenancy, right-of-way, restriction, deed or trust, pledge, hypothecation,
security interest, encumbrance, claim, lien, license, lease or charge of any
kind.

 

“Material Indebtedness” means any
Indebtedness of Bookham, Inc. or any of its Subsidiaries having an outstanding
principal amount of at least U.S.$5,000,000, individually or in the aggregate,
whether such Indebtedness now exists or shall hereafter be created.

 

“Maturity Date” has the meaning set
forth in Section 1(a).

 

“Net Proceeds” means, with respect to
the sale, transfer or other disposition of any asset, the issuance of any
security or any financing, the aggregate amount of cash proceeds (including any
other consideration that is converted into cash) therefrom, in each case net of
any customary attorneys’ fees, accountants’ fees, underwriters’ or placement
agents’ fees, discounts or commissions and brokerage and consultant fees
actually incurred in connection, and contemporaneously, therewith.

 

“Note” means this Note and any
replacement Note executed and delivered by the Borrower and the Guarantors
pursuant to Section 5 hereof.

 

“Permitted Liens” has the meaning set
forth in the Security Agreements.

 

“Person” means any natural person,
general or limited partnership, corporation, limited liability company, firm,
association or other legal entity.

 

12

 

“Principal Borrower Subsidiary” means
any Subsidiary of Bookham, Inc. the assets of which have an aggregate fair
market value equal to or greater than $1,000,000.

 

“Qualified Financing” means (i) any issuance
by Bookham, Inc. or any of its Subsidiaries of any Equity Interests and any
Indebtedness incurred by Bookham, Inc. or any of its Subsidiaries that is
convertible into or exchangeable or exercisable for any Equity Interests (other
than the issuance of shares of common stock of Bookham, Inc. or options with
respect thereto to employees, directors or officers of Bookham, Inc. or any
Subsidiary of Bookham, Inc. in the ordinary course consistent with past
practice) and (ii) any “sale-leaseback” or similar transaction involving the
Collateral located in Shenzhen, China.

 

“Representatives” means, with respect
to a Person, such Person’s directors, officers, employees, agents or advisors
(including, without limitation, attorneys, accountants, consultants, bankers,
financial advisors and members of advisory boards).

 

“Restructuring Agreement” means the
Restructuring Agreement among Bookham Technology plc, Bookham, Inc., the
subsidiaries of Bookham, Inc. whose names appear on the signature pages
thereto, Nortel Networks UK Limited and Nortel Networks Corporation, dated as
of December 2, 2004.

 

“Security Agreements” means the
Security Agreements (as defined in the Acquisition Agreement), each as amended
and restated as of the date hereof.

 

“Series A-2 Note” means the Amended
and Restated Series A-2 Senior Secured Note due November 8, 2007 in an
original principal amount of U.S.$20,000,000 issued by Bookham, Inc.

 

“Series B-1 Note” means the Amended
and Restated Series B-1 Senior Secured Note due November 8, 2006 in an
original aggregate principal amount of U.S.$30,000,000 issued by Bookham
Technology plc.

 

“Subsequent Net Proceeds” means the
excess over $50,000,000 of Net Proceeds of all Qualified Financings consummated
after the date hereof.

 

“Subsidiary” of any Person means any
corporation, partnership, joint venture, limited liability company, trust or
estate of which (or in which) more than 50% of (a) the issued and outstanding
capital stock (or other Equity Interest) having ordinary voting power to elect
a majority of the board of directors (or similar governing body) of such entity
or (b) the interest in the capital or profits of such entity is at the time
directly or indirectly owned or Controlled by such Person, by such Person and
one or more of its other Subsidiaries or by one or more of such Person’s other
Subsidiaries.

 

“Taxes” has the meaning set forth in
the Acquisition Agreement.

 

13

 

IN WITNESS WHEREOF, each of the Borrower and
the Guarantors has duly executed and delivered this Note as of the date first
written above.

 

 

	
   

  	
  BOOKHAM TECHNOLOGY PLC, as Borrower

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Stephen
  Abely

  	
   

  
	
   

  	
     Name:
  Steve Abely

  
	
   

  	
     Title:
  Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  NEW FOCUS, INC., as Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Stephen
  Abely

  	
   

  
	
   

  	
     Name:
  Steve Abely

  
	
   

  	
     Title:
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ONETTA, INC., as Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Philip
  Davis

  	
   

  
	
   

  	
     Name:
  Philip Davis

  
	
   

  	
     Title:
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BOOKHAM (US) INC., as Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Stephen
  Abely

  	
   

  
	
   

  	
     Name:
  Steve Abely

  
	
   

  	
     Title:
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BOOKHAM (CANADA) INC., as Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Philip
  Davis

  	
   

  
	
   

  	
     Name:
  Philip Davis

  
	
   

  	
     Title:
  Treasurer

  
							

 

14

 

	
   

  	
  BOOKHAM (SWITZERLAND) AG, as Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Stephen
  Abely

  	
   

  
	
   

  	
     Name:
  Steve Abely

  
	
   

  	
     Title:
  President and Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  IGNIS OPTICS, INC., as Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Stephen
  Abely

  	
   

  
	
   

  	
     Name:
  Steve Abely

  
	
   

  	
     Title:
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BOOKHAM, INC., as Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Stephen
  Abely

  	
   

  
	
   

  	
     Name:
  Steve Abely

  
	
   

  	
     Title:
  CFO

  
							

 

15Exhibit 4.1

 

                                                                                                                                                                                                                

 

TRUST AGREEMENT

by and between

HARLEY-DAVIDSON
CUSTOMER FUNDING CORP.,

as Trust Depositor,

and

WILMINGTON TRUST
COMPANY,

as Owner Trustee

 

 

 

 

Dated as of January 25, 2005

 

                                                                                                                                                                                                                

 

 

 

 

TABLE OF CONTENTS

	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE ONE

  	
   

  	
  DEFINITIONS

  	
   

  	
   

  
	
  Section 1.01.

  	
   

  	
  Capitalized
  Terms

  	
   

  	
   

  
	
  Section 1.02.

  	
   

  	
  Other
  Definitional Provisions

  	
   

  	
   

  
	
  Section 1.03.

  	
   

  	
  Usage of
  Terms

  	
   

  	
   

  
	
  Section 1.04.

  	
   

  	
  Section
  References

  	
   

  	
   

  
	
  Section 1.05.

  	
   

  	
  Accounting
  Terms

  	
   

  	
   

  
	
  ARTICLE TWO

  	
   

  	
  ORGANIZATION

  	
   

  	
   

  
	
  Section 2.01.

  	
   

  	
  Name

  	
   

  	
   

  
	
  Section 2.02.

  	
   

  	
  Office

  	
   

  	
   

  
	
  Section 2.03.

  	
   

  	
  Purposes and
  Powers

  	
   

  	
   

  
	
  Section 2.04.

  	
   

  	
  Appointment
  of Owner Trustee

  	
   

  	
   

  
	
  Section 2.05.

  	
   

  	
  Initial
  Capital Contribution of Owner Trust Estate

  	
   

  	
   

  
	
  Section 2.06.

  	
   

  	
  Declaration
  of Trust

  	
   

  	
   

  
	
  Section 2.07.

  	
   

  	
  Liability of
  Trust Depositor

  	
   

  	
   

  
	
  Section 2.08.

  	
   

  	
  Title to
  Trust Property

  	
   

  	
   

  
	
  Section 2.09.

  	
   

  	
  Situs of
  Trust

  	
   

  	
   

  
	
  Section 2.10.

  	
   

  	
  Representations
  and Warranties of the Trust Depositor

  	
   

  	
   

  
	
  Section 2.11.

  	
   

  	
  Federal
  Income Tax Treatment

  	
   

  	
   

  
	
  ARTICLE
  THREE

  	
   

  	
  TRUST
  CERTIFICATE AND TRANSFER OF INTERESTS

  	
   

  	
   

  
	
  Section 3.01.

  	
   

  	
  Initial
  Ownership

  	
   

  	
   

  
	
  Section
  3.02.

  	
   

  	
  The Trust
  Certificate

  	
   

  	
   

  
	
  Section 3.03.

  	
   

  	
  Authentication
  and Delivery of Trust Certificate

  	
   

  	
   

  
	
  Section 3.04.

  	
   

  	
  Registration
  of Transfer and Exchange of Trust Certificate

  	
   

  	
   

  
	
  Section 3.05.

  	
   

  	
  Mutilated,
  Destroyed, Lost or Stolen Trust Certificate

  	
   

  	
   

  
	
  Section 3.06.

  	
   

  	
  Person Deemed
  Owner

  	
   

  	
   

  
	
  Section 3.07.

  	
   

  	
  Access to
  List of Certificateholder’s Name and Address

  	
   

  	
   

  
	
  Section 3.08.

  	
   

  	
  Maintenance
  of Office or Agency

  	
   

  	
   

  
	
  Section 3.09.

  	
   

  	
  Trust
  Certificate

  	
   

  	
   

  
	
  Section 3.10.

  	
   

  	
  Appointment
  of Paying Agent

  	
   

  	
   

  
	
  Section 3.11.

  	
   

  	
  Ownership by
  Trust Depositor of Trust Certificate

  	
   

  	
   

  
	
  ARTICLE FOUR

  	
   

  	
  ACTIONS BY OWNER
  TRUSTEE

  	
   

  	
   

  
	
  Section 4.01.

  	
   

  	
  Prior Notice
  to Owner with Respect to Certain Matters

  	
   

  	
   

  
	
  Section 4.02.

  	
   

  	
  Action by
  Owner with Respect to Certain Matters

  	
   

  	
   

  
	
  Section 4.03.

  	
   

  	
  Action by
  Owner with Respect to Bankruptcy

  	
   

  	
   

  
	
  Section 4.04.

  	
   

  	
  Restrictions
  on Owner’s Power

  	
   

  	
   

  
	
  ARTICLE
  FIVE

  	
   

  	
  APPLICATION
  OF TRUST FUNDS; CERTAIN DUTIES

  	
   

  	
   

  
	
  Section 5.01.

  	
   

  	
  Application
  of Trust Funds

  	
   

  	
   

  
	
  Section 5.02.

  	
   

  	
  Method of
  Payment

  	
   

  	
   

  
	
  Section 5.03.

  	
   

  	
  Accounting
  and Reports to the Certificateholder, Owner, the Internal Revenue Service and
  Others

  	
   

  	
   

  
	
  Section 5.04.

  	
   

  	
  Signature on
  Returns; Tax Matters Partner

  	
   

  	
   

  
	
  ARTICLE
  SIX

  	
   

  	
  AUTHORITY
  AND DUTIES OF OWNER TRUSTEE

  	
   

  	
   

  
	
  Section 6.01.

  	
   

  	
  General
  Authority

  	
   

  	
   

  
	
  Section 6.02.

  	
   

  	
  General
  Duties

  	
   

  	
   

  
	
  Section 6.03.

  	
   

  	
  Action Upon
  Instruction

  	
   

  	
   

  
	
  Section 6.04.

  	
   

  	
  No Duties
  Except as Specified in this Agreement or in Instructions

  	
   

  	
   

  
	
  Section 6.05.

  	
   

  	
  No Action
  Except Under Specified Documents or Instructions

  	
   

  	
   

  
	
  Section 6.06.

  	
   

  	
  Restrictions

  	
   

  	
   

  
	
  Section 6.07.

  	
   

  	
  Pennsylvania
  Motor Vehicle Sales Finance Act Licenses

  	
   

  	
   

  
						

 

 

 

 

	
  ARTICLE
  SEVEN

  	
   

  	
  CONCERNING
  THE OWNER TRUSTEE

  	
   

  	
   

  
	
  Section 7.01.

  	
   

  	
  Acceptance of
  Trusts and Duties

  	
   

  	
   

  
	
  Section 7.02.

  	
   

  	
  Furnishing of
  Documents

  	
   

  	
   

  
	
  Section 7.03.

  	
   

  	
  Representations
  and Warranties

  	
   

  	
   

  
	
  Section 7.04.

  	
   

  	
  Reliance;
  Advice of Counsel

  	
   

  	
   

  
	
  Section 7.05.

  	
   

  	
  Not Acting in
  Individual Capacity

  	
   

  	
   

  
	
  Section 7.06.

  	
   

  	
  Owner Trustee
  Not Liable for Trust Certificate, Notes or Contracts

  	
   

  	
   

  
	
  Section 7.07.

  	
   

  	
  Owner Trustee
  May Own Trust Certificate and Notes

  	
   

  	
   

  
	
  ARTICLE
  EIGHT

  	
   

  	
  COMPENSATION
  OF OWNER TRUSTEE

  	
   

  	
   

  
	
  Section 8.01.

  	
   

  	
  Owner
  Trustee’s Fees and Expenses

  	
   

  	
   

  
	
  Section 8.02.

  	
   

  	
  Indemnification

  	
   

  	
   

  
	
  Section 8.03.

  	
   

  	
  Payments to
  the Owner Trustee

  	
   

  	
   

  
	
  ARTICLE
  NINE

  	
   

  	
  TERMINATION
  OF TRUST AGREEMENT

  	
   

  	
   

  
	
  Section 9.01.

  	
   

  	
  Termination
  of Trust Agreement

  	
   

  	
   

  
	
  ARTICLE
  TEN

  	
   

  	
  SUCCESSOR
  OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES

  	
   

  	
   

  
	
  Section
  10.01.

  	
   

  	
  Eligibility
  Requirements for Owner Trustee

  	
   

  	
   

  
	
  Section
  10.02.

  	
   

  	
  Resignation
  or Removal of Owner Trustee

  	
   

  	
   

  
	
  Section
  10.03.

  	
   

  	
  Successor
  Owner Trustee

  	
   

  	
   

  
	
  Section
  10.04.

  	
   

  	
  Merger or
  Consolidation of Owner Trustee

  	
   

  	
   

  
	
  Section
  10.05.

  	
   

  	
  Appointment
  of Co-Trustee or Separate Trustee

  	
   

  	
   

  
	
  ARTICLE ELEVEN

  	
   

  	
  MISCELLANEOUS

  	
   

  	
   

  
	
  Section
  11.01.

  	
   

  	
  Supplements
  and Amendments

  	
   

  	
   

  
	
  Section
  11.02.

  	
   

  	
  No Legal
  Title to Trust Estate in Owner

  	
   

  	
   

  
	
  Section
  11.03.

  	
   

  	
  Limitations
  on Rights of Others

  	
   

  	
   

  
	
  Section
  11.04.

  	
   

  	
  Notices

  	
   

  	
   

  
	
  Section
  11.05.

  	
   

  	
  Severability
  of Provisions

  	
   

  	
   

  
	
  Section
  11.06.

  	
   

  	
  Counterparts

  	
   

  	
   

  
	
  Section
  11.07.

  	
   

  	
  Successors
  and Assigns

  	
   

  	
   

  
	
  Section
  11.08.

  	
   

  	
  Covenants
  of the Trust Depositor

  	
   

  	
   

  
	
  Section
  11.09.

  	
   

  	
  No Petition

  	
   

  	
   

  
	
  Section
  11.10.

  	
   

  	
  No Recourse

  	
   

  	
   

  
	
  Section
  11.11.

  	
   

  	
  Headings

  	
   

  	
   

  
	
  Section
  11.12.

  	
   

  	
  Governing
  Law

  	
   

  	
   

  
	
  Section
  11.13.

  	
   

  	
  Trust
  Certificate Transfer Restrictions

  	
   

  	
   

  
	
  Section
  11.14.

  	
   

  	
  Trust
  Depositor Payment Obligation

  	
   

  	
   

  
	
   

  	
   

  	
  [signature page follows]

  	
   

  	
   

  

 

 

	
  EXHIBITS

  
	
   

  
	
  Exhibit A — Form of
  Certificate of Trust

  	
   

  	
  A-1

  
	
  Exhibit B — Form of
  Trust Certificate

  	
   

  	
  B-1

  

 

 

 

 

TRUST AGREEMENT
dated as of January 25, 2005, between HARLEY-DAVIDSON CUSTOMER FUNDING CORP., a
Nevada corporation, as Trust Depositor (the “Trust Depositor”),
and WILMINGTON TRUST COMPANY, a Delaware banking corporation, as owner trustee
(the “Owner Trustee”).

WHEREAS, in
connection herewith, the Trust Depositor is willing to assume certain
obligations pursuant hereto; and

WHEREAS, in
connection herewith, the Trust Depositor is willing to purchase the Trust
Certificate (as defined herein) to be issued pursuant to this Agreement and to
assume certain obligations pursuant hereto;

NOW,
THEREFORE, the parties hereto hereby agree as follows:

ARTICLE ONE

DEFINITIONS

Section 1.01.        Capitalized
Terms.  Except as otherwise provided in this
Agreement, whenever used in this Agreement the following words and phrases,
unless the context otherwise requires, shall have the following meanings:

“Administration  Agreement” means the Administration Agreement, dated as of
February 1, 2005, among the Trust, the Trust Depositor, the Indenture Trustee
and Harley-Davidson Credit, as administrator.

“Agreement” means this Trust Agreement, as the same
may be amended and supplemented from time to time.

“Benefit
Plan” means (i)
an employee benefit plan (as such term is defined in Section 3(3) of ERISA)
that is subject to the provisions of Title I of ERISA, (ii) a plan described in
Section 4975(e)(1) of the Code or (iii) any entity whose underlying assets
include plan assets by reason of a plan’s investment in the entity.

 “Certificate of Trust” means the Certificate of Trust filed for
the Trust pursuant to Section 3810(a) of the Statutory Trust Statute,
substantially in the form of Exhibit A
hereto.

“Certificate
Register” and “Certificate Registrar” mean the register maintained and the
registrar (or any successor thereto) appointed pursuant to Section 3.04.

“Certificateholder” 
or “Holder” means with respect to a Trust
Certificate the Person in whose name the Trust Certificate is registered in the
Certificate Register.

“Clearing
Agency” means an
organization registered as a “Clearing Agency” pursuant to Section 17A of the
Exchange Act.

1

 

 “Closing Date” shall have the meaning assigned to such term in the
Sale and Servicing Agreement.

“Code” means the Internal Revenue Code of 1986,
as amended.

“ERISA” means the Employee Retirement Income
Security Act of 1974, as amended.

“Exchange
Act” means the
Securities Exchange Act of 1934, as amended.

“Expenses” shall have the meaning assigned to such
term in Section 8.02.

“Harley-Davidson
Credit” means
Harley-Davidson Credit Corp., a Nevada corporation.

“Indemnified
Parties” shall
have the meaning assigned to such term in Section 8.02.

“Indenture” 
means the Indenture dated as of February 1, 2005 between the Trust and
BNY Midwest Trust Company.

“Note
Depository Agreement” means the Agreement dated as of the Closing Date among the Trust, the
Indenture Trustee, the Administrator and DTC, as the Clearing Agency, relating
to the Notes, as the same may be amended and supplemented from time to time.

“Notes” means the Class A-1 Notes, the Class A-2
Notes and the Class B Notes, in each case issued pursuant to the Indenture.

“Owner” means the Holder of the Trust
Certificate.

“Owner
Trustee” means
Wilmington Trust Company, a Delaware corporation, not in its individual
capacity but solely as owner trustee under this Agreement, and any successor
Owner Trustee hereunder.

“Owner
Trustee Corporate Trust Office” means the office of the Owner Trustee at which its
corporate trust business shall be administered, which initially shall be Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001 Attn:
Corporate Trust Administration, or such other office at such other address as
the Owner Trustee may designate from time to time by notice to the
Certificateholder, the Servicer, the Indenture Trustee, the Trust Depositor and
Harley-Davidson Credit.

“Paying
Agent” means any
paying agent or co-paying agent appointed pursuant to Section 3.10.

“Person” means any individual, corporation,
estate, partnership, joint venture, association, joint stock company, trust
(including any beneficiary thereof) unincorporated organization or government
or any agency or political subdivision thereof.

“Record
Date” means, with
respect to any Distribution Date, the last Business Day of the preceding
calendar month.

 

2

 

“Sale and
Servicing Agreement” means the Sale and Servicing Agreement, dated as of February 1, 2005,
among the Trust, as Issuer, the Trust Depositor, Harley-Davidson Credit, as
servicer, and BNY Midwest Trust Company, as Indenture Trustee, as the same may
be amended or supplemented from time to time.

“Secretary
of State” means
the Secretary of State of the State of Delaware.

“Statutory
Trust Statute”
means Chapter 38 of Title 12 of the Delaware Code, 12 Del. Code
§ 3801 et seq., as the same may be amended from
time to time.

“Tax
Matters Partner”
shall have the meaning provided in Section 5.04(b) hereof.

“Treasury
Regulations”
means regulations, including proposed or temporary regulations, promulgated
under the Code.  References herein to
specific provisions of proposed or temporary regulations shall include
analogous provisions of final Treasury Regulations or other successor Treasury
Regulations.

“Trust” means the trust established by this
Agreement.

“Trust
Certificate”
means the trust certificate evidencing the beneficial equity interest of  the Owner, substantially in the form of Exhibit B hereto.

“Trust
Depositor” means
Harley-Davidson Customer Funding Corp. in its capacity as Trust Depositor
hereunder, and its successors.

 “Trust Estate” means all right, title and interest of the Trust in
and to the property and rights assigned to the Trust pursuant to Article Two of
the Sale and Servicing Agreement, all funds on deposit from time to time in the
Trust Accounts and all other property of the Trust from time to time, including
any rights of the Owner Trustee and the Trust pursuant to the Sale and
Servicing Agreement and the Administration Agreement.

“Underwriters” shall have the meaning set forth in the Sale
and Servicing Agreement.

Section 1.02.        Other
Definitional Provisions.  Capitalized terms used that
are not otherwise defined herein shall have the meanings ascribed thereto in
the Sale and Servicing Agreement or, if not defined therein, in the Indenture.

Section 1.03.        Usage
of Terms.  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 amendments, modifications and supplements thereto or any 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”.

Section 1.04.        Section
References.  All section references, unless otherwise
indicated, shall be to Sections in this Agreement.

 

3

 

Section 1.05.        Accounting
Terms.  All accounting terms used but not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles in the United States.

 

ARTICLE
TWO

ORGANIZATION

Section 2.01.        Name. 
The Trust created hereby shall be known as “Harley-Davidson  Motorcycle Trust 2005-1”, in which
name the Owner Trustee may conduct the activities of the Trust, make and
execute contracts and other instruments on behalf of the Trust and sue and be
sued.

Section 2.02.        Office. 
The office of the Trust shall be in care of the Owner Trustee at the
Owner Trustee Corporate Trust Office or at such other address in Delaware as
the Owner Trustee may designate by written notice to the Owner and the Trust
Depositor.

Section 2.03.        Purposes
and Powers.

(a)           The sole purpose of the Trust is to
manage the Trust Estate and collect and disburse the periodic income therefrom
for the use and benefit of the Owner, and in furtherance of such purpose to
engage in the following ministerial activities:

(i)            to issue the Notes pursuant to the
Indenture and the Trust Certificate pursuant to this Agreement and to sell the
Notes;

(ii)           with the proceeds of the sale of the
Notes, to purchase the Contracts, to fund the Pre-Funding Account and to pay the
organizational, start-up and transactional expenses of the Trust and to pay the
balance to the Trust Depositor pursuant to the Sale and Servicing Agreement;

(iii)          to assign, grant, transfer, pledge,
mortgage and convey the Trust Estate pursuant to the Indenture and to hold,
manage and distribute to the Owner pursuant to the Sale and Servicing Agreement
any portion of the Trust Estate released from the Lien of, and remitted to the
Trust pursuant to, the Indenture;

(iv)          to enter into and perform its obligations
under the Transaction Documents to which it is to be a party;

(v)           to engage in those activities,
including entering into agreements, that are necessary, suitable or convenient
to accomplish the foregoing or are incidental thereto or connected therewith;
and

(vi)          subject to compliance with the
Transaction Documents, to engage in such other activities as may be required in
connection with conservation of the Trust Estate and the making of
distributions to the Owner and the Noteholders.

 

4

 

The Trust shall not
engage in any activities other than in connection with the foregoing.  Nothing contained herein shall be deemed to
authorize the Owner Trustee to engage in any business operations or any
activities other than those set forth in the introductory sentence of this
Section.  Specifically, the Owner Trustee
shall have no authority to engage in any business operations, or acquire any
assets other than those specifically included in the Trust Estate under Section
1.01, or otherwise vary the assets held by the Trust.  Similarly, the Owner Trustee shall have no
discretionary duties other than performing those ministerial acts set forth
above necessary to accomplish the purpose of this Trust as set forth in the introductory
sentence of this Section.

Section 2.04.        Appointment
of Owner Trustee.  The Trust Depositor hereby appoints the Owner
Trustee as trustee of the Trust effective as of the date hereof, to have all
the rights, powers and duties set forth herein, and the Owner Trustee hereby
accepts such appointment.

Section 2.05.        Initial
Capital Contribution of Owner Trust Estate.  The Trust
Depositor hereby sells, assigns, transfers, conveys and sets over to the Owner
Trustee, as of the date hereof, the sum of $1,000.  The Owner Trustee hereby acknowledges receipt
in trust from the Trust Depositor, as of the date hereof, of the foregoing
contribution, which shall constitute the initial Trust Estate.  The Trust Depositor shall pay organizational
expenses of the Trust as they may arise or shall, upon the request of the Owner
Trustee, promptly reimburse the Owner Trustee for any such expenses paid by the
Owner Trustee.

Section 2.06.        Declaration
of Trust.  The Owner Trustee hereby declares that it
will hold the Trust Estate in trust upon and subject to the conditions set
forth herein for the sole purpose of conserving the Trust Estate and collecting
and disbursing the periodic income therefrom for the use and benefit of the
Owner, subject to the obligations of the Trust under the Transaction
Documents.  It is the intention of the
parties hereto that the Trust constitute a statutory trust under the Statutory
Trust Statute and that this Agreement constitute the governing instrument of such
statutory trust.  Effective as of the
date hereof, the Owner Trustee shall have all rights, powers and duties set
forth herein and in the Statutory Trust Statute for the sole purpose and to the
extent necessary to accomplish the purpose of this Trust as set forth in the
introductory sentence of Section 2.03.

Section 2.07.        Liability
of Trust Depositor.

(a)           All liabilities of the Trust, to the
extent not paid by a third party, are and shall be obligations of the Trust and
when due and payable shall be satisfied out of the Trust Estate.

(b)           Except as provided in the Statutory
Trust Statute, the Certificateholder shall not be personally liable for any
liability of the Trust.

Section 2.08.        Title
to Trust Property.  Legal title to the Trust Estate shall be
vested at all times in the Trust as a separate legal entity except where
applicable law in any jurisdiction requires title to any part of the Trust
Estate to be vested in an  Owner Trustee
or Owner Trustees, in which case title shall be deemed to be vested in the
Owner Trustee, a co-trustee and/or a separate trustee, as the case may be.

Section 2.09.        Situs
of Trust.  The Trust will be located and administered in
the State of Delaware.  All bank accounts
maintained by the Owner Trustee on behalf of the Trust shall be located in the
State of Illinois or the State of Delaware. 
The Trust shall not have any employees in any state other than Delaware; provided, however, that nothing herein shall restrict or
prohibit the Owner Trustee from having employees within or without the State of
Delaware.  Payments will be received by
the Trust only in Delaware and payments will be made by the Trust only from
Delaware.  The only office of the Trust
will be at the Owner Trustee Corporate Trust Office.

 

5

 

Section 2.10.        Representations
and Warranties of the Trust Depositor.

The Trust
Depositor hereby represents and warrants to the Owner Trustee that:

(i)            The Trust Depositor is duly
organized and validly existing as a corporation organized and existing and in
good standing under the laws of the State of Nevada, with power and authority
to own its properties and to conduct its business and had at all relevant
times, and has, power, authority and legal right to acquire and own the
Contracts.

(ii)           The Trust Depositor is duly qualified
to do business as a foreign corporation in good standing and has obtained all
necessary licenses and approvals in all jurisdictions in which the ownership or
lease of property or the conduct of its business requires such qualifications.

(iii)          The Trust Depositor has the power and
authority to execute and deliver this Agreement and to carry out its terms; the
Trust Depositor has full power and authority to sell and assign the property to
be sold and assigned to and deposited with the Owner Trustee on behalf of the
Trust as part of the Trust Estate and has duly authorized such sale and
assignment and deposit with the Owner Trustee on behalf of the Trust by all
necessary corporate action; and the execution, delivery and performance of this
Agreement have been duly authorized by the Trust Depositor by all necessary
corporate action.

(iv)          The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof do not
conflict with, result in any breach of any of the terms and provisions of, nor
constitute (with or without notice or lapse of time) a default under, the
articles of incorporation or bylaws of the Trust Depositor, or any indenture,
agreement or other instrument to which the Trust Depositor is a party or by which
it is bound; nor result in the creation or imposition of any Lien upon any of
the properties of the Trust Depositor pursuant to the terms of any such
indenture, agreement or other instrument (other than pursuant to the
Transaction Documents); nor violate any law or any order, rule or regulation
applicable to the Trust Depositor of any court or of any federal or state
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over the Trust Depositor or its properties.

(v)           There are no proceedings or
investigations pending, or to the Trust Depositor’s best knowledge threatened,
before any court, regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Trust Depositor or its properties:
(A) asserting the invalidity of this Agreement, any of the other Transaction
Documents or the Trust Certificate, (B) seeking to prevent the issuance of the
Trust Certificate or the consummation of any of the transactions contemplated
by this Agreement or any of the other Transaction Documents, (C) seeking any
determination or ruling that might materially and adversely affect the
performance by the Trust Depositor of its obligations under, or the validity or
enforceability of, this Agreement, any of the other Transaction Documents or
the Trust Certificate

 

6

 

or (D) involving
the Trust Depositor and which might adversely affect the federal income tax or
other federal, state or local tax attributes of the Trust Certificate.

Section 2.11.        Federal
Income Tax Treatment.

It is the
intention of the Trust Depositor that the Trust be disregarded as a separate
entity pursuant to Treasury Regulations Section 301.7701-3(b)(1)(ii) as in
effect for periods after January 1, 1997. 
The Trust Certificate constitutes the sole equity interest in the Trust
and must at all times be held by either the Trust Depositor or its transferee
as sole owner.  The Trust Depositor
agrees not to take any action inconsistent with such intended federal income
tax treatment.  Because for federal
income tax purposes the Trust will be disregarded as a separate entity, Trust
items of income, gain, loss and deduction for any month as determined for
federal income tax purposes shall be allocated entirely to the Trust Depositor
(or subsequent purchaser of the Trust Certificate) as the sole
Certificateholder.

ARTICLE
THREE

 

TRUST CERTIFICATE AND
TRANSFER OF INTERESTS

Section
3.01.        Initial Ownership.

(a)           Upon the formation of the Trust by
the contribution by the Trust Depositor pursuant to Section 2.05 and until the
issuance of the Trust Certificate, the Trust Depositor shall be the sole
beneficiary of the Trust.  The Trust
Certificate must at all times be held by either the Trust Depositor or its
transferee as sole owner.

(b)           No transfer of the Trust Certificate
shall be made unless such transfer is made in a transaction which does not
require registration or qualification under the Securities Act of 1933 or
qualification under any state securities or “Blue Sky” laws.  Neither the Owner Trustee nor the Certificate
Registrar shall effect the registration of any transfer of the Trust
Certificate unless, (i) prior to such transfer the Owner Trustee shall have
received a Tax Opinion, and (ii) following such transfer, there would be no
more than one holder of the Trust Certificate and the holder of the Trust
Certificate would not be a Foreign Person, a partnership, Subchapter S
corporation or grantor trust.

 

7

 

Section
3.02.        The Trust Certificate. 
The Trust Certificate shall be substantially in the form of Exhibit B hereto.  The
Trust Certificate shall be executed by the Owner Trustee on behalf of the Trust
by manual or facsimile signature of an authorized officer of the Owner Trustee
and shall be deemed to have been validly issued when so executed.  The Trust Certificate bearing the manual or
facsimile signature of individuals who were, at the time when such signatures
were affixed, authorized to sign on behalf of the Owner Trustee shall be a
valid and binding obligation of the Trust, notwithstanding that such
individuals or any of them have ceased to be so authorized prior to the
authentication and delivery of such Trust Certificate or did not hold such
offices at the date of such Trust Certificate. 
The Trust Certificate shall be dated the date of its authentication.

Section
3.03.        Authentication and Delivery of Trust
Certificate.  The Owner Trustee shall cause to be
authenticated and delivered upon the order of the Trust Depositor, in exchange
for the Contracts and the other Trust Assets, simultaneously with the sale,
assignment and transfer to the Trust of the Contracts and other Trust Assets,
and the constructive delivery to the Owner Trustee of the Contract Files and
the other Trust Assets, a Trust Certificate duly authenticated by the Owner
Trustee, evidencing the entire ownership of the Trust, and Notes issued by the
Owner Trustee and authenticated by the Indenture Trustee in aggregate principal
amount of, in the case of (i) Class A-1 Notes, $437,000,000, (ii) Class A-2
Notes, $249,200,000 and (iii) Class B Notes, $43,800,000, or be valid for
any purpose, unless there appears on such Trust Certificate a certificate of
authentication substantially in the form set forth in the form of Trust
Certificate attached hereto as Exhibit B,
executed by the Owner Trustee or its authenticating agent, by manual signature,
and such certificate upon any Trust Certificate shall be conclusive evidence,
and the only evidence, that such Trust Certificate has been duly authenticated
and delivered hereunder.  Upon issuance,
authorization and delivery pursuant to the terms hereof, the Trust Certificate
will be entitled to the benefits of this Agreement.

Section 3.04.        Registration
of Transfer and Exchange of Trust Certificate.

(a)           The Certificate Registrar shall keep
or cause to be kept, a Certificate Register, subject to such reasonable
regulations as it may prescribe.  The
Certificate Register shall provide for the registration of the Trust
Certificate and transfers and exchanges of the Trust Certificate as provided
herein.  The Owner Trustee is hereby
initially appointed Certificate Registrar for the purpose of registering the
Trust Certificate and transfers and exchanges of the Trust Certificate as
herein provided.  In the event that,
subsequent to the Closing Date, the Owner Trustee notifies the Servicer that it
is unable to act as Certificate Registrar, the Servicer shall appoint another
bank or trust company, having an office or agency located in the City of
Chicago, Illinois, agreeing to act in accordance with the provisions of this
Agreement applicable to it, and otherwise acceptable to the Owner Trustee, to
act as successor Certificate Registrar hereunder.

(b)           Upon surrender for registration of
transfer of the Trust Certificate at the Owner Trustee Corporate Trust Office,
the Owner Trustee shall execute, authenticate and deliver (or shall cause its
authenticating agent to authenticate and deliver), in the name of the designated
transferee, the new Trust Certificate having the same aggregate principal
amount.

(c)           Every Trust Certificate presented or
surrendered for registration of transfer shall be accompanied by a written
instrument of transfer in form satisfactory to the Owner Trustee and the
Certificate Registrar duly executed by the Holder thereof or his attorney duly
authorized in writing.

 

8

 

(d)           No service charge shall be made for
any registration of transfer or exchange of the Trust Certificate, but the
Owner Trustee may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer of the
Trust Certificate.

(e)           All Trust Certificates surrendered
for registration of transfer shall be canceled and subsequently destroyed by
the Owner Trustee.

Section 3.05.        Mutilated,
Destroyed, Lost or Stolen Trust Certificate.  If (i) any
mutilated Trust Certificate is surrendered to the Certificate Registrar, or the
Certificate Registrar receives evidence to its satisfaction of the destruction,
loss or theft of any Trust Certificate, and (ii) there is delivered to the
Certificate Registrar and the Owner Trustee such security or indemnity as may
be required by them to save each of them harmless, then, in the absence of
notice that such Trust Certificate has been acquired by a bona fide purchaser,
the Owner Trustee on behalf of the Trust shall execute and the Owner Trustee or
its authenticating agent shall authenticate and deliver, in exchange for or in
lieu of any such mutilated, destroyed, lost or stolen Trust Certificate, a new
Trust Certificate of like tenor and fractional undivided interest.  In connection with the issuance of any new Trust
Certificate under this Section, the Owner Trustee may require the payment by
the Holder of a sum sufficient to cover any tax or other governmental charge
that may be imposed in relation thereto. 
Any duplicate Trust Certificate issued pursuant to this Section shall
constitute complete and indefeasible evidence of ownership in the Trust, as if
originally issued, whether or not the lost, stolen or destroyed Trust
Certificate shall be found at any time.

Section 3.06.        Person
Deemed Owner.  Prior to due presentation of a Trust
Certificate for registration of transfer, the Owner Trustee, the Certificate
Registrar and any of their respective agents may treat the Person in whose name
any Trust Certificate is registered as the owner of such Trust Certificate for
the purpose of receiving distributions pursuant to Section 5.01 and for all
other purposes whatsoever, and none of the Owner Trustee, the Certificate
Registrar, any Paying Agent or any of their respective agents shall be affected
by any notice of the contrary.

Section 3.07.        Access
to List of Certificateholder’s Name and Address.  The Owner
Trustee shall furnish or cause to be furnished to the Servicer and the Trust
Depositor, within 15 days after receipt by the Certificate Registrar of a
written request therefor from the Servicer or the Trust Depositor, the name and
address of the Certificateholder as of the most recent Record Date in such form
as the Servicer or the Trust Depositor may reasonably require.  The Certificateholder, by receiving and
holding the Trust Certificate, agrees with the Servicer, the Trust Depositor
and the Owner Trustee that none of the Servicer, the Trust Depositor or the
Owner Trustee shall be held accountable by reason of the disclosure of any such
information as to the name and address of the Certificateholder hereunder,
regardless of the source from which such information was derived.

Section 3.08.        Maintenance
of Office or Agency.  The Owner Trustee shall maintain in
Wilmington, Delaware, an office or offices or agency or agencies where the
Trust Certificate may be surrendered for registration of transfer or exchange
and where notices and demands to or upon the Owner Trustee in respect of the
Trust Certificate and this Agreement may be served.  The Owner Trustee hereby designates the Owner
Trustee Corporate Trust Office as its office for such purposes.  The Owner Trustee shall give prompt written
notice to the Trust Depositor, the Servicer and to the Certificateholder of any
change in the location of the Certificate Register or any such office or
agency.

 

9

 

Section 3.09.        Trust
Certificate.  The Owner Trustee, on behalf of the Trust,
shall execute, authenticate and deliver, a Trust Certificate.

Section 3.10.        Appointment
of Paying Agent.  The Paying Agent shall make distributions to
the Certificateholder pursuant to Section 5.01(a) and shall report the amounts
of such distributions to the Owner Trustee. 
The Paying Agent initially shall be BNY Midwest Trust Company, and any
co-paying agent chosen by the Paying Agent that is acceptable to the Owner
Trustee.  Each Paying Agent shall be
permitted to resign as Paying Agent upon 30 days’ written notice to the Owner
Trustee.  In the event that BNY Midwest Trust
Company shall no longer be the Paying Agent, the Owner Trustee shall appoint a
successor to act as Paying Agent (which shall be a bank or trust company).  The Owner Trustee shall cause such successor
Paying Agent or any additional Paying Agent appointed by the Owner Trustee to
execute and deliver to the Owner Trustee an instrument in which such successor
Paying Agent or additional Paying Agent shall agree with the Owner Trustee
that, as Paying Agent, such successor Paying Agent or additional Paying Agent
will hold all sums, if any, held by it for payment to the Certificateholder in
trust for the benefit of the Certificateholder entitled thereto until such sums
shall be paid to such Certificateholder. 
The Paying Agent shall return all unclaimed funds to the Owner Trustee
and upon removal of a Paying Agent such Paying Agent shall also return all
funds in its possession to the Owner Trustee. 
The provisions of Sections 7.01, 7.03, 7.04 and 8.01 shall apply to the
Owner Trustee also in its role as Paying Agent, for so long as the Owner
Trustee shall act as Paying Agent and, to the extent applicable, to any other
paying agent appointed hereunder.  Any
reference in this Agreement to the Paying Agent shall include any co-paying
agent unless the context requires otherwise.

Section 3.11.        Ownership
by Trust Depositor of Trust Certificate.  The Trust
Depositor shall on the Closing Date hold the Trust Certificate.

ARTICLE FOUR

 

ACTIONS BY OWNER TRUSTEE

Section 4.01.        Prior
Notice to Owner with Respect to Certain Matters.  Subject to
the provisions and limitation of Section 4.04, with respect to the following
matters, the Owner Trustee shall not take action unless at least 30 days before
the taking of such action, the Owner Trustee shall have notified the
Certificateholder in writing of the proposed action, the Indenture Trustee
shall have consented to such action in the event any Notes are outstanding and
the Owner shall not have notified the Owner Trustee in writing prior to the
30th day after such notice is given that the Owner has withheld consent or
provided alternative direction:

(a)           the initiation of any claim or
lawsuit by the Trust (except claims or lawsuits brought in connection with the
collection of the Contracts) and the compromise of any action, claim or lawsuit
brought by or against the Trust (except with respect to the aforementioned
claims or lawsuits for collection of the Contracts);

(b)           the election by the Trust to file an
amendment to the Certificate of Trust (unless such amendment is required to be
filed under the Statutory Trust Statute);

 

10

 

(c)           the amendment of the Indenture by a
supplemental indenture in circumstances where the consent of any Noteholder is
required;

(d)           the amendment of the Indenture by a
supplemental indenture in circumstances where the consent of any Noteholder is
not required and such amendment materially and adversely affects the interest
of the Owner;

(e)           the amendment, change or modification
of the Administration Agreement, except to cure any ambiguity or to amend or
supplement any provision in a manner or add any provision that would not
materially and adversely affect the interests of the Owner; or

(f)            the appointment pursuant to the
Indenture of a successor Note Registrar or Indenture Trustee or pursuant to
this Agreement of a successor Certificate Registrar, or the consent to the
assignment by the Note Registrar, Indenture Trustee or Certificate Registrar of
its obligations under the Indenture or the Agreement, as applicable.

Section 4.02.        Action
by Owner with Respect to Certain Matters.  Subject to
the provisions and limitations of Section 4.04, the Owner Trustee shall not
have the power, except upon the direction of the Owner, to (a) remove the
Administrator pursuant to Section 8 of the Administration Agreement, (b)
appoint a successor Administrator pursuant to Section 8 of the Administration
Agreement, (c) except as expressly provided in the Transaction Documents, sell
the Contracts or other Trust Assets after the termination of the Indenture, (d)
initiate any claim, suit or proceeding by the Trust or compromise any claim,
suit or proceeding brought by or against the Trust, (e) authorize the merger or
consolidation of the Trust with or into any other statutory trust or entity
(other than in accordance with Section 3.10 of the Indenture) or (f) amend the Certificate
of Trust.  The Owner Trustee shall take
the actions referred to in the preceding sentence only upon written
instructions assigned by the Owner.

Section 4.03.        Action
by Owner with Respect to Bankruptcy.  The Owner
Trustee shall not have the power to commence a voluntary proceeding in a
bankruptcy relating to the Trust without the prior approval of Owner and the
delivery to the Owner Trustee by such Owner of a certificate certifying that
such Owner reasonably believes that the Trust is insolvent.

Section 4.04.        Restrictions
on Owner’s Power.  The Owner shall not direct the Owner Trustee
to take or to refrain from taking any action if such action or inaction would
be contrary to any obligation of the Trust or the Owner Trustee under this
Agreement or any of the Transaction Documents or would be contrary to the
purpose of this Trust as set forth in Section 2.03, nor shall the Owner Trustee
be obligated to follow any such direction, if given.

ARTICLE FIVE

 

APPLICATION OF TRUST
FUNDS;

CERTAIN DUTIES

Section 5.01.        Application of Trust Funds.

 

11

 

(a)           On each Distribution Date, the Paying
Agent will distribute to the Certificateholder amounts received pursuant to
Section 7.05 of the Sale and Servicing Agreement with respect to such
Distribution Date.

(b)           On each Distribution Date, the Paying
Agent shall send to the Certificateholder the statement or statements provided
to the Owner Trustee by the Servicer pursuant to Section 9.01 of the Sale and
Servicing Agreement with respect to such Distribution Date.

(c)           In the event that any withholding tax
is imposed on the Trust’s payment (or allocation of income) to the
Certificateholder, such tax shall reduce the amount otherwise distributable to
the Certificateholder  in accordance with
this Section.  The Paying Agent is hereby
authorized and directed to retain from amounts otherwise distributable to the
Owner sufficient funds for the payment of any tax that is legally owed by the
Trust (but such authorization shall not prevent the Owner Trustee from
contesting any such tax in appropriate proceedings, and withholding payment of
such tax, if permitted by law, pending the outcome of such proceedings).  The amount of any withholding tax imposed
with respect to the Certificateholder shall be treated as cash distributed to
such Certificateholder at the time it is withheld by the Trust and remitted to
the appropriate taxing authority.  If
there is a possibility that withholding tax is payable with respect to a
distribution, the Paying Agent may in its sole discretion withhold such amounts
in accordance with the paragraph (c).

Section 5.02.        Method
of Payment.  Subject to Section 9.01(c) respecting the
final payment upon retirement of the Trust Certificate, distributions required to
be made to the Certificateholder of record on the related Record Date shall be
made by check mailed to such Certificateholder at the address of such Holder
appearing in the Certificate Register.

Section 5.03.        Accounting
and Reports to the Certificateholder, Owner, the Internal Revenue Service and
Others.  The Administrator shall (a) maintain (or
cause to be maintained) the books of the Trust on a calendar year basis and the
accrual method of accounting, (b) deliver to the Owner, as may be required by
the Code and applicable Treasury Regulations, such information as may be
required to enable the Owner to prepare its federal and state income tax
returns, (c) file such tax returns relating to the Trust and make such
elections as from time to time may be required or appropriate under any
applicable state or federal statute or any rule or regulation thereunder so as
to maintain the federal income tax treatment for the Trust as set forth in
Section 2.11, (d) cause such tax returns to be signed in the manner required by
law and (e) collect or cause to be collected any withholding tax as described
in and in accordance with Section 5.01(c) with respect to income or
distributions to Owner.  The Owner
Trustee shall elect under Section 1278 of the Code to include in income
currently any market discount that accrues with respect to the Contracts.  If applicable, the Owner Trustee shall not
make the election provided under Section 754 or Section 761 of the Code.

Section 5.04.        Signature
on Returns; Tax Matters Partner.

(a)           The Trust Depositor shall sign on
behalf of the Trust the tax returns of the Trust.

(b)           If subchapter K of the Code should be
applicable to the Trust, the Certificateholder shall be designated the “tax matters partner” of the Trust pursuant to Section 6231(a)(7)(A)
of the Code and applicable Treasury Regulations.

 

12

 

ARTICLE SIX

 

AUTHORITY AND DUTIES OF
OWNER TRUSTEE

Section 6.01.        General
Authority.  Subject to the provisions and limitations of
Sections 2.03 and 2.06, the Owner Trustee is authorized and directed to execute
and deliver the Transaction Documents to which the Trust is to be a party and
each certificate or other document attached as an exhibit to or contemplated by
the Transaction Documents to which the Trust is to be a party and any amendment
or other agreement, as evidenced conclusively by the Owner Trustee’s execution
thereof.  In addition to the foregoing,
the Owner Trustee is authorized, but shall not be obligated, to take all
actions required of the Trust pursuant to the Transaction Documents.  The Owner Trustee is further authorized from
time to time to take such action as the Administrator recommends with respect
to the Transaction Documents.

Section 6.02.        General
Duties.  Subject to the provisions and limitations of
Sections 2.03 and 2.06, it shall be the duty of the Owner Trustee to discharge
(or cause to be discharged through the Administrator) all of its
responsibilities pursuant to the terms of this Agreement and the Transaction
Documents to which the Trust is a party and to administer the Trust in the
interest of the Owner, subject to the Transaction Documents and in accordance
with the provisions of this Agreement. 
Without limiting the foregoing, the Owner Trustee shall on behalf of the
Trust file and prove any claim or claims that may exist against Harley-Davidson
Credit in connection with any claims paying procedure as part of an insolvency
or receivership proceeding involving Harley-Davidson Credit.  Notwithstanding the foregoing, the Owner
Trustee shall be deemed to have discharged its duties and responsibilities
hereunder and under the Transaction Documents to the extent the Administrator
has agreed in the Administration Agreement to perform any act or to discharge
any duty of the Owner Trustee hereunder or under any Transaction Document, and
the Owner Trustee shall not be held liable for the default or failure of the
Administrator to carry out its obligations under the Administration Agreement.

Section 6.03.        Action
Upon Instruction.

(a)           Subject to Article Four, in
accordance with the terms of the Transaction Documents the Owner may by written
instruction direct the Owner Trustee in the management of the Trust.

(b)           The Owner Trustee shall not be
required to take any action hereunder or under any other Transaction Document
if the Owner Trustee shall have reasonably determined, or shall have been
advised by counsel, that such action is likely to result in liability on the
part of the Owner Trustee or is contrary to the terms hereof or of any other
Transaction Document or is otherwise contrary to law.

(c)           Whenever the Owner Trustee is unable
to decide between alternative courses of action permitted or required by the
terms of this Agreement or under any other Transaction Document, the Owner
Trustee shall promptly give notice (in such form as shall be appropriate under
the circumstances) to the Owner requesting instruction as to the course of
action to be adopted, and to the extent the Owner Trustee acts in good faith in
accordance with any written instruction of the Owner received, the Owner
Trustee shall not be liable on account of such action to any Person.  If the Owner Trustee shall not have received
appropriate instruction within ten days of such notice (or within such shorter
period of time as reasonably may be specified in such notice or may be
necessary under the

 

13

 

circumstances) it may,
but shall be under no duty to, take or refrain from taking such action not
inconsistent with this Agreement and the other Transaction Documents, as it
shall deem to be in the best interests of the Owner, and shall have no
liability to any Person for such action or inaction.

(d)           In the event that the Owner Trustee
is unsure as to the applicability of any provision of this Agreement or any
other Transaction Document or any such provision is ambiguous as to its
application, or is, or appears to be, in conflict with any other applicable
provision, or in the event that this Agreement permits any determination by the
Owner Trustee or is silent or is incomplete as to the course of action that the
Owner Trustee is required to take with respect to a particular set of facts,
the Owner Trustee may give notice (in such form as shall be appropriate under
the circumstances) to the Owner requesting instruction and, to the extent that
the Owner Trustee acts or refrains from acting in good faith in accordance with
any such instruction received, the Owner Trustee shall not be liable, on
account of such action or inaction, to any Person.  If the Owner Trustee shall not have received
appropriate instruction within ten days of such notice (or within such shorter
period of time as reasonably may be specified in such notice or may be necessary
under the circumstances) it may, but shall be under no duty to, take or refrain
from taking such action not inconsistent with this Agreement or the other
Transaction Documents, as it shall deem to be in the best interests of the
Owner, and shall have no liability to any Person for such action or inaction.

Section 6.04.        No
Duties Except as Specified in this Agreement or in Instructions. 
The Owner Trustee shall not have any duty or obligation to manage, make
any payment with respect to, register, record, sell, dispose of or otherwise
deal with the Trust Estate, or to otherwise take or refrain from taking any
action under, or in connection with, any document contemplated hereby to which
the Owner Trustee is a party, except as expressly provided by the terms of this
Agreement or any document or written instruction received by the Owner Trustee
pursuant to Section 6.03; and no implied duties or obligations shall be read
into this Agreement or any other Transaction Document against the Owner
Trustee.  The Owner Trustee shall have no
responsibility for filing any financing or continuation statement in any public
office at any time or to otherwise perfect or maintain the perfection of any
security interest or lien granted to it hereunder or to prepare or file any
Commission filing for the Trust or to record this Agreement or any other
Transaction Document.  The Owner Trustee
nevertheless agrees that it will, at its own cost and expense, promptly take
all action as may be necessary to discharge any liens on any part of the Trust
Estate that result from actions by, or claims against, the Owner Trustee that
are not related to the ownership or the administration of the Trust Estate.

Section 6.05.        No
Action Except Under Specified Documents or Instructions. 
The Owner Trustee shall not manage, control, use, sell, dispose of or
otherwise deal with any part of the Trust Estate except (i) in accordance with
the powers granted to and the authority conferred upon the Owner Trustee
pursuant to this Agreement, (ii) in accordance with the other Transaction
Documents and (iii) in accordance with any document or instruction delivered to
the Owner Trustee pursuant to Section 6.03.

Section 6.06.        Restrictions. 
The Owner Trustee shall not take any action (i) that is inconsistent
with the purposes of the Trust set forth in Section 2.03 or (ii) that, to the
actual knowledge of the Owner Trustee, would result in the Trust’s becoming
taxable as a corporation for federal or state income tax purposes.  The Owner shall not direct the Owner Trustee
to take actions that would violate the provisions of this Section.

 

14

 

Section 6.07.        Pennsylvania
Motor Vehicle Sales Finance Act Licenses. 
The Owner
Trustee shall use its best efforts to maintain the effectiveness of all
licenses required under the Pennsylvania Motor Vehicle Sales Finance Act in
connection with the transactions contemplated by the Transaction Documents
until the lien and security interest of the Indenture shall no longer be in
effect in accordance with its terms.

ARTICLE SEVEN

 

CONCERNING THE OWNER
TRUSTEE

Section 7.01.        Acceptance
of Trusts and Duties.  The Owner Trustee accepts the trusts hereby
created and agrees to perform its duties hereunder with respect to such trusts
but only upon the terms of this Agreement. 
The Owner Trustee also agrees to disburse all moneys actually received
by it constituting part of the Trust Estate upon the terms of the Transaction
Documents and this Agreement.  The Owner
Trustee shall not be answerable or accountable hereunder or under any other
Transaction Document under any circumstances, except (i) for its own willful
misconduct or negligence or (ii) in the case of the inaccuracy of any
representation or warranty contained in Section 7.03 expressly made by the
Owner Trustee.  In particular, but not by
way of limitation (and subject to the exceptions set forth in the preceding
sentence):

(a)           the Owner Trustee shall not be liable
for any error of judgment made by a responsible officer of the Owner Trustee;

(b)           the Owner Trustee shall not be liable
with respect to any action taken or omitted to be taken by it in accordance
with the instructions of the Administrator or any Owner;

(c)           no provision of this Agreement or any
other Transaction Document shall require the Owner Trustee to expend or risk
funds or otherwise incur any financial liability in the performance of any of
its rights or powers hereunder or under any Transaction Document if the Owner
Trustee shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured or provided to it;

(d)           under no circumstances shall the
Owner Trustee be liable for indebtedness evidenced by or arising under any of
the Transaction Documents, including the principal of and interest on the
Notes;

(e)           the Owner Trustee shall not be
responsible for or in respect of the validity or sufficiency of this Agreement
or for the due execution hereof by the Trust Depositor or for the form,
character, genuineness, sufficiency, value or validity of any of the Trust
Estate, or for or in respect of the validity or sufficiency of the Transaction
Documents, other than the certificate of authentication on the Trust
Certificate, and the Owner Trustee shall in no event assume or incur any
liability, duty, or obligation to any Noteholder or to any Owner, other than as
expressly provided for herein or expressly agreed to in the Transaction
Documents;

(f)            the Owner Trustee shall not be
liable for the default or misconduct of the Administrator, the Trust Depositor,
the Indenture Trustee or the Servicer under any of the Transaction 

 

15

 

Documents or otherwise
and the Owner Trustee shall have no obligation or liability to perform the
obligations of the Trust under this Agreement or the other Transaction
Documents that are required to be performed by the Administrator under the
Administration Agreement, the Indenture Trustee under the Indenture, or the
Servicer or the Trust Depositor under the Sale and Servicing Agreement; and

(g)           the Owner Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by the
Agreement, or to institute, conduct or defend any litigation under this
Agreement or otherwise or in relation to this Agreement or any other
Transaction Document, at the request, order or direction of the Owner, unless
the Owner has offered to the Owner Trustee security or indemnity satisfactory
to it against the costs, expenses and liabilities that may be incurred by the
Owner Trustee therein or thereby.  The
right of the Owner Trustee to perform any discretionary act enumerated in this
Agreement or in any other Transaction Document shall not be construed as a
duty, and the Owner Trustee shall not be answerable for other than its negligence
or willful misconduct in the performance of any such act.

Section 7.02.        Furnishing
of Documents.  The Owner Trustee shall furnish to the Owner
promptly upon receipt of a written request therefor, duplicates or copies of
all reports, notices, requests, demands, certificates, financial statements and
any other instruments furnished to the Owner Trustee under the Transaction
Documents.

Section 7.03.        Representations
and Warranties.  The Owner Trustee hereby represents and
warrants to the Trust Depositor and the Owner that:

(a)           It is a banking corporation duly
organized and validly existing in good standing under the laws of the State of
Delaware.  It has all requisite corporate
power and authority to execute, deliver and perform its obligations under this
Agreement.

(b)           It has taken all corporate action
necessary to authorize the execution and delivery by it of this Agreement, and
this Agreement will be executed and delivered by one of its officers who is
duly authorized to execute and deliver this Agreement on its behalf.

(c)           Neither the execution nor the
delivery by it of this Agreement, nor the consummation by it of the
transactions contemplated hereby nor compliance by it with any of the terms or
provisions hereof will contravene any federal or Delaware law, governmental
rule or regulation governing the banking or trust powers of the Owner Trustee
or any judgment or order binding on it, or constitute any default under its
charter documents or bylaws or any indenture, mortgage, contract, agreement or
instrument to which it is a party or by which any of its properties may be
bound or result in the creation or imposition of any lien, charge or
encumbrance on the Trust Estate resulting from actions by or claims against the
Owner Trustee individually which are unrelated to this Agreement or the other
Transaction Documents.

Section 7.04.        Reliance;
Advice of Counsel.

(a)           The Owner Trustee shall incur no
liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond or
other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties. 
The Owner Trustee may accept a certified copy of a resolution of the
board of directors or other 

 

16

 

governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect.  As to any fact or matter the method of determination
of which is not specifically prescribed herein, the Owner Trustee may for all
purposes hereof rely on a certificate, signed by the president or any vice
president or by the treasurer or other authorized officers of the relevant
party, as to such fact or matter and such certificate shall constitute full
protection to the Owner Trustee for any action taken or omitted to be taken by
it in good faith in reliance thereon.

(b)           In the exercise or administration of
the trusts hereunder and in the performance of its duties and obligations under
this Agreement or the other Transaction Documents, the Owner Trustee (i) may
act directly or through its agents or attorneys pursuant to agreements entered
into by any of them, and the Owner Trustee shall not be liable for the conduct
or misconduct of such agents or attorneys as shall have been selected by the
Owner Trustee with reasonable care, and (ii) may consult with counsel,
accountants and other skilled persons to be selected with reasonable care and
employed by it.   The Owner Trustee shall
not be liable for anything done, suffered or omitted in good faith by it in
accordance with the written opinion or advice of any such counsel, accountants
or other such persons.

Section 7.05.        Not
Acting in Individual Capacity.  Except as
provided in this Article Seven, in accepting the trusts hereby created,
Wilmington Trust Company acts solely as Owner Trustee hereunder and not in its
individual capacity, and all Persons having any claim against the Owner Trustee
by reason of the transactions contemplated by this Agreement or any other
Transaction Document shall look only to the Trust Estate for payment or
satisfaction thereof.

Section 7.06.        Owner
Trustee Not Liable for Trust Certificate, Notes or Contracts. 
The recitals contained herein and in the Trust Certificate (other than
the signature and countersignature of the Owner Trustee and the certificate of
authentication on the Trust Certificate) shall be taken as the statements of
the Trust Depositor, and the Owner Trustee assumes no responsibility for the
correctness thereof.  The Owner Trustee
makes no representations as to the validity or sufficiency of this Agreement,
any other Transaction Document or the Trust Certificate (other than the
signature and countersignature of the Owner Trustee and the certificate of
authentication on the Trust Certificate) or the Notes, or of any Contract or
related documents.  The Owner Trustee
shall at no time have any responsibility or liability for or with respect to
the legality, validity and enforceability of any Contract, or the perfection
and priority of any security interest created by any Contract in any Motorcycle
or the maintenance of any such perfection and priority, or for or with respect
to the sufficiency of the Trust Estate or its ability to generate the payments
to be distributed to the Certificateholder under this Agreement or the
Noteholders under the Indenture, including, without limitation, the existence,
condition and ownership of any Motorcycle; the existence and enforceability of
any insurance thereon; the existence and contents of any Contract on any
computer or other record thereof; the validity of the assignment of any
Contract to the Trust or of any intervening assignment; the completeness of any
Contract; the performance or enforcement of any Contract; the compliance by the
Trust Depositor or the Servicer with any warranty or representation made under
any Transaction Document or in any related document or the accuracy of any such
warranty or representation; or any action of the Administrator, the Indenture
Trustee or the Servicer or any subservicer taken in the name of the Owner
Trustee.

Section 7.07.        Owner
Trustee May Own Trust Certificate and Notes.  The Owner
Trustee in its individual or any other capacity may become the owner or pledgee
of the Trust Certificate or Notes 

 

17

 

and may deal with the
Trust Depositor, the Administrator, the Indenture Trustee and the Servicer in
banking transactions with the same rights as it would have if it were not Owner
Trustee.

ARTICLE EIGHT

 

COMPENSATION OF OWNER
TRUSTEE

Section 8.01.        Owner
Trustee’s Fees and Expenses.  The Owner
Trustee shall receive as compensation for its services hereunder such fees as
have been separately agreed upon between the Owner Trustee and the Trust
Depositor.  Additionally, the Owner
Trustee shall be entitled to be reimbursed by the Trust Depositor for its other
reasonable expenses hereunder, including the reasonable compensation, expenses
and disbursements of such agents, representatives, experts and counsel as the
Owner Trustee may employ in connection with the exercise and performance of its
rights and its duties hereunder.

Section 8.02.        Indemnification. 
The Trust Depositor shall be liable as primary obligor for, and shall
indemnify the Owner Trustee and its successors, assigns and servants
(collectively, the “Indemnified Parties”) from and
against, any and all liabilities, obligations, losses, damages, taxes, claims,
actions and suits, and any and all reasonable costs, expenses and disbursements
(including reasonable legal fees and expenses) of any kind and nature
whatsoever (collectively, “Expenses”)
which may at any time be imposed on, incurred by or asserted against the Owner
Trustee or any Indemnified Party in any way relating to or arising out of this
Agreement, the other Transaction Documents, the Trust Estate, the
administration of the Trust Estate or the action or inaction of the Owner
Trustee hereunder, except only that the Trust Depositor shall not be liable for
or required to indemnify an Indemnified Party from and against Expenses arising
or resulting from any of the matters described in the third sentence of Section
7.01.  The indemnities contained in this
Section shall survive the resignation or termination of the Owner Trustee or
the termination of this Agreement.  In
the event of any claim, action or proceeding for which indemnity will be sought
pursuant to this Section, the Owner Trustee’s choice of legal counsel shall be
subject to the approval of the Trust Depositor, which approval shall not be
unreasonably withheld.

Section 8.03.        Payments
to the Owner Trustee.  Any amounts paid to the Owner Trustee
pursuant to this Article shall be deemed not to be a part of the Trust Estate
immediately after such payment.

ARTICLE NINE

 

TERMINATION OF TRUST
AGREEMENT

Section 9.01.        Termination
of Trust Agreement.

(a)           This Agreement (other than Article
Eight) and the Trust shall terminate and be of no further force or effect upon
the earlier of (i) final distribution by the Owner Trustee of all moneys or
other property or proceeds of the Trust Estate in accordance with the terms of
the Indenture, the Sale and Servicing Agreement and Article Five and (ii) the
expiration of 21 years from the death of the survivor of the descendants of
Joseph P. Kennedy, the late Ambassador of the United States to the Court of St.

 

18

 

James’s, living on the
date hereof.  The bankruptcy,
liquidation, dissolution, death or incapacity of any Owner shall not (i)
operate to terminate this Agreement or the Trust, (ii) entitle such Owner’s
legal representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of all or any part of the
Trust or Trust Estate or (iii) otherwise affect the rights, obligations and
liabilities of the parties hereto.

(b)           Except as provided in Section
9.01(a), neither the Trust Depositor nor any Holder shall be entitled to revoke
or terminate the Trust.

(c)           Notice of any termination of the
Trust, specifying the Distribution Date upon which the Certificateholder shall
surrender the Trust Certificate to the Paying Agent for payment of the final
distribution and cancellation, shall be given by the Owner Trustee by letter to
the Certificateholder mailed within five Business Days of receipt of notice of
such termination from the Servicer given pursuant to Section 10.01 of the Sale
and Servicing Agreement, stating (i) the Distribution Date upon or with respect
to which final payment of the Trust Certificate shall be made upon presentation
and surrender of the Trust Certificate at the office of the Paying Agent
therein designated, (ii) the amount of any such final payment and (iii) that
the Record Date otherwise applicable to such Distribution Date is not
applicable, payments being made only upon presentation and surrender of the
Trust Certificate at the office of the Paying Agent therein specified.  The Owner Trustee shall give such notice to
the Certificate Registrar (if other than the Owner Trustee) and the Paying
Agent at the time such notice is given to the Certificateholder.  Upon presentation and surrender of the Trust
Certificate, the Paying Agent shall cause to be distributed to the
Certificateholder amounts distributable on such Distribution Date pursuant to
Section 5.01.

(d)           Upon the winding up of the Trust and
its termination, the Owner Trustee shall cause the Certificate of Trust to be
canceled by filing a certificate of cancellation with the Secretary of State in
accordance with the provisions of Section 3810 of the Statutory Trust Statute.

ARTICLE TEN

 

SUCCESSOR OWNER TRUSTEES
AND ADDITIONAL OWNER TRUSTEES

Section 10.01.      Eligibility
Requirements for Owner Trustee.  The Owner
Trustee shall at all times be a corporation satisfying the provisions of
Section 3807(a) of the Statutory Trust 
Statute; authorized to exercise corporate trust powers; and (a) having a
combined capital and surplus of at least $50,000,000 and subject to supervision
or examination by federal or state authorities; and having (or having a parent
that has) a rating of at least Baa3 by Moody’s; or (b) which the Rating
Agencies have otherwise indicated in writing is an entity acceptable to act as
Owner Trustee hereunder.  If such
corporation shall publish reports of condition at least annually pursuant to
law or to the requirements of the aforesaid supervising or examining authority,
then for the purpose of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published.  In case at any time the Owner Trustee shall
cease to be eligible in accordance with the provisions of this Section, the
Owner Trustee shall resign immediately in the manner and with the effect
specified in Section 10.02.

 

19

 

Section 10.02.      Resignation
or Removal of Owner Trustee.  The Owner
Trustee may at any time resign and be discharged from the trusts hereby created
by giving written notice thereof to the Administrator.  Upon receiving such notice of resignation,
the Administrator shall promptly appoint a successor Owner Trustee by written
instrument, in duplicate, one copy of which instrument shall be delivered to
the resigning Owner Trustee and one copy to the successor Owner Trustee.  If no successor Owner Trustee shall have been
so appointed and have accepted appointment within 30 days after the giving of
such notice of resignation, the resigning Owner Trustee may petition any court
of competent jurisdiction for the appointment of a successor Owner Trustee.

If at any time the
Owner Trustee shall cease to be eligible in accordance with the provisions of
Section 10.01 and shall fail to resign after written request therefor by the
Administrator, or if at any time the Owner Trustee shall be legally unable to
act, or shall be adjudged bankrupt or insolvent, or a receiver of the Owner
Trustee or of its property shall be appointed or any public officer shall take
charge or control of the Owner Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation, then the Administrator,
may remove the Owner Trustee.  If the
Administrator shall remove the Owner Trustee under the authority of the
immediately preceding sentence, the Administrator shall promptly appoint a
successor Owner Trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the outgoing Owner Trustee so removed and one
copy to the successor Owner Trustee, and shall pay all fees owed to the
outgoing Owner Trustee.

Any resignation or
removal of the Owner Trustee and appointment of a successor Owner Trustee
pursuant to any of the provisions of this Section shall not become effective
until acceptance of appointment by the successor Owner Trustee pursuant  to Section 10.03 and payment of all fees and
expenses owed to the outgoing Owner Trustee. 
The Administrator shall provide notice of such resignation or removal of
the Owner Trustee to each Rating Agency.

Section 10.03.      Successor
Owner Trustee.  Any successor Owner Trustee appointed
pursuant to Section 10.02 shall execute, acknowledge and deliver to the
Administrator, and to its predecessor Owner Trustee an instrument accepting
such appointment under this Agreement, and thereupon the resignation or removal
of the predecessor Owner Trustee shall become effective, and such successor
Owner Trustee, without any further act, deed or conveyance, shall become fully
vested with all the rights, powers, duties and obligations of its predecessor
under this Agreement, with like effect as if originally named as Owner
Trustee.  The predecessor Owner Trustee
shall upon payment of its fees and expenses deliver to the successor Owner
Trustee all documents and statements and monies held by it under this
Agreement; and the Administrator and the predecessor Owner Trustee shall
execute and deliver such instruments and do such other things as may reasonably
be required for fully and certainly vesting and confirming in the successor
Owner Trustee all such rights, powers, duties and obligations.

No successor Owner
Trustee shall accept appointment as provided in this Section unless at the time
of such acceptance such successor Owner Trustee shall be eligible pursuant to
Section 10.01.

Upon acceptance of
appointment by a successor Owner Trustee pursuant to this Section, the
Administrator shall mail notice thereof to the Certificateholder, the Indenture
Trustee, the Noteholders and each Rating Agency.  If the Administrator shall fail to mail such
notice within ten days after acceptance of such appointment by the successor
Owner Trustee, the successor Owner Trustee shall cause such notice to be mailed
at the expense of the Administrator.

 

20

 

Section 10.04.      Merger
or Consolidation of Owner Trustee.  Any
corporation into which the Owner Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Owner Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Owner Trustee, shall be the successor of the Owner Trustee
hereunder, without the execution or filing of any instrument or any further act
on the part of any of the parties hereto, anything herein to the contrary
notwithstanding; provided, that such corporation
shall be eligible pursuant to Section 10.01 and, provided,
further, that the Owner Trustee shall mail notice of such merger or
consolidation to each Rating Agency.

Section 10.05.      Appointment
of Co-Trustee or Separate Trustee. 
Notwithstanding any other provisions of this Agreement, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Trust Estate or any financed Motorcycle may at the time be located,
the Administrator and the Owner Trustee acting jointly shall have the power and
shall execute and deliver all instruments to appoint one or more Persons
approved by the Administrator and Owner Trustee to act as co-trustee, jointly
with the Owner Trustee, or as separate trustee or separate trustees, of all or
any part of the Trust Estate, and to vest in such Person, in such capacity,
such title to the Trust or any part thereof and, subject to the other
provisions of this Section, such powers, duties, obligations, rights and trusts
as the Administrator and the Owner Trustee may consider necessary or
desirable.  If the Administrator shall
not have joined in such appointment within 15 days after the receipt by it of a
request so to do, the Owner Trustee alone shall have the power to make such
appointment.  No co-trustee or separate
trustee under this Agreement shall be required to meet the terms of eligibility
as a successor Owner Trustee pursuant to Section 10.01 and no notice of the
appointment of any co-trustee or separate trustee shall be required pursuant to
Section 10.03.

Each separate
trustee and co-trustee shall, to the extent permitted by law, be appointed and
act subject to the following provisions and conditions:

(a)           all
rights, powers, duties and obligations conferred or imposed upon the Owner
Trustee shall be conferred upon and exercised or performed by the Owner Trustee
and such separate trustee or co-trustee jointly (it being understood that such
separate trustee or co-trustee is not authorized to act separately without the
Owner Trustee joining in such act), except to the extent that under any law of
any jurisdiction in which any particular act or acts are to be performed, the
Owner Trustee shall be incompetent or unqualified to perform such act or acts,
in which event such rights, powers, duties and obligations (including the
holding of title to the Trust Estate or any portion thereof in any such jurisdiction)
shall be exercised and performed singly by such separate trustee or co-trustee,
but solely at the direction of the Owner Trustee;

(b)           no
trustee under this Agreement shall be personally liable by reason of any act or
omission of any other trustee under this Agreement; and

(c)           the
Administrator and the Owner Trustee acting jointly may at any time accept the
resignation of or remove any separate trustee or co-trustee.

Any notice,
request or other writing given to the Owner Trustee shall be deemed to have
been given to each of the then separate trustees and co-trustees, as
effectively as if given to each of them. 
Every instrument appointing any separate trustee or co-trustee shall
refer to this Agreement and the conditions of this Article.  Each separate trustee and co-trustee, upon
its acceptance of the trusts 

 

21

 

conferred, shall
be vested with the estates or property specified in its instrument of
appointment, either jointly with the Owner Trustee or separately, as may be
provided therein, subject to all the provisions of this Agreement, specifically
including every provision of this Agreement relating to the conduct of,
affecting the liability of or affording protection to, the Owner Trustee.  Each such instrument shall be filed with the
Owner Trustee and a copy thereof given to the Administrator.

Any separate
trustee or co-trustee may at any time appoint the Owner Trustee as its agent or
attorney-in-fact with full power and authority, to the extent not prohibited by
law, to do any lawful act under or in respect of this Agreement on its behalf
and in its name.  If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Owner Trustee, to the extent permitted by law, without the
appointment of a new or successor co-trustee or separate trustee.

ARTICLE ELEVEN

 

MISCELLANEOUS

Section 11.01.      Supplements
and Amendments.

(a)           The Agreement may be amended by the
Trust Depositor, and the Owner Trustee, without the consent of any of the
Noteholders or the Certificateholder, to cure any ambiguity, to correct or
supplement any provisions in this Agreement or to add any other provisions with
respect to matters or questions arising under this Agreement that shall not be
inconsistent with the provisions of this Agreement; provided,
however, that any such action shall not, as evidenced by an Opinion
of Counsel, adversely affect in any material respect the interests of any
Noteholder or Certificateholder.

(b)           This Agreement may also be amended
from time to time by the Trust Depositor, and the Owner Trustee, with the
consent of the Modified Required Holders, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement, or of modifying in any manner the rights of the Noteholders or
the Certificateholder; provided, however,
that no such amendment shall increase or reduce in any manner the amount of, or
accelerate or delay the timing of, (i) collections of payments on Contracts or
distributions that shall be required to be made for the benefit of the
Noteholders or the Certificateholder, or (ii) eliminate the Certificateholder consent
or reduce the aforesaid percentage of the Outstanding Amount of the Notes
required to consent to any such amendment, without the consent of the Holder of
all outstanding Notes and the Trust Certificate.

(c)           Prior to the execution of any such
amendment or consent, the Trust Depositor shall furnish written notification of
the substance of such amendment or consent, together with a copy thereof, to
the Indenture Trustee, the Administrator and each Rating Agency.

(d)           Promptly after the execution of any such
amendment or consent, the Owner Trustee shall furnish written notification of
the substance of such amendment or consent to each Certificateholder.  It shall not be necessary for the consent of
Certificateholder, Noteholders or the Indenture Trustee pursuant to this
Section to approve the particular form of any proposed amendment or consent,
but it shall be sufficient if such consent shall approve the substance
thereof.  The manner of 

 

22

 

obtaining such consents
(and any other consents of the Certificateholder provided for in this Agreement
or in any other Transaction Document) and of evidencing the authorization of
the execution thereof by the Certificateholder shall be subject to such
reasonable requirements as the Owner Trustee may prescribe.

(e)           Promptly after the execution of any
amendment to the Certificate of Trust, the Owner Trustee shall cause the filing
of such amendment with the Secretary of State.

(f)            Prior to the execution of any
amendment to this Agreement or the Certificate of Trust, the Owner Trustee
shall be entitled to receive and rely upon an Opinion of Counsel stating that
the execution of such amendment is authorized or permitted by this
Agreement.  The Owner Trustee may, but
shall not be obligated to, enter into any such amendment that affects the Owner
Trustee’s own rights, duties or immunities under this Agreement or otherwise.

Section 11.02.      No
Legal Title to Trust Estate in Owner.  The Owner
shall not have legal title to any part of the Trust Estate.  The Owner shall be entitled to receive
distributions with respect to their undivided ownership interest herein only in
accordance with Articles Five and Nine. 
No transfer, by operation of law or otherwise, of any right, title or
interest of the Owner to and in their ownership interest in the Trust Estate
shall operate to terminate this Agreement or the trusts hereunder or entitle
any transferee to an accounting or to the transfer to it of legal title to any
part of the Trust Estate.

Section 11.03.      Limitations
on Rights of Others.  Except for Section 2.07, the provisions of
this Agreement are solely for the benefit of the Owner Trustee, the Trust
Depositor, the Owner, the Administrator and, to the extent expressly provided
herein, the Indenture Trustee and the Noteholders, and nothing in this
Agreement (other than Section 2.07), whether express or implied, shall be
construed to give to any other Person any legal or equitable right, remedy or
claim in the Trust Estate or under or in respect of this Agreement or any
covenants, conditions or provisions contained herein.

Section 11.04.      Notices. 
All notices, demands, certificates, requests and communications
hereunder (“notices”) shall be in writing and shall
be effective (a) upon receipt when sent through the U.S. mails, registered or
certified mail, return receipt requested, postage prepaid, with such receipt to
be effective the date of delivery indicated on the return receipt, or (b) one
Business Day after delivery to an overnight courier, or (c) on the date
personally delivered to an Authorized Officer of the party to which sent, or
(d) on the date transmitted by legible telecopier transmission with a
confirmation of receipt, in all cases addressed to the recipient at the address
for such recipient set forth in the Sale and Servicing Agreement.

Each
party hereto may, by notice given in accordance herewith to each of the other
parties hereto, designate any further or different address to which subsequent
notices shall be sent.

Section 11.05.      Severability
of Provisions.  If any one or more of the covenants,
agreements, provisions, or terms of this Agreement shall be for any reason
whatsoever held invalid, then such covenants, agreements, provisions or terms
shall be deemed severable from the remaining covenants, agreements, provisions
or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Trust
Certificate or the rights of the Holder 
thereof.

Section 11.06.      Counterparts. 
This Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.

 

23

 

Section 11.07.      Successors
and Assigns.  All covenants and agreements contained herein
shall be binding upon, and inure to the benefit of, each of the Trust
Depositor, and the Owner Trustee and their respective successors and permitted
assigns and each Owner and its successors and permitted assigns, all as herein
provided.  Any request, notice,
direction, consent, waiver or other instrument or action by an Owner shall bind
the successors and assigns of such Owner.

Section 11.08.      Covenants
of the Trust Depositor.  In the event that any
litigation with claims in excess of $1,000,000 to which the Trust Depositor is
a party which shall be reasonably likely to result in a material judgment
against the Trust Depositor that the Trust Depositor will not be able to
satisfy shall be commenced, during the period beginning immediately following
the commencement of such litigation and continuing until such litigation is
dismissed or otherwise terminated (and, if such litigation has resulted in a
final judgment against the Trust Depositor, such judgment has been satisfied),
the Trust Depositor shall not pay any dividend to the Servicer, or make any
distribution on or in respect of its capital stock to the Servicer, or repay
the principal amount of any indebtedness of the Trust Depositor held by the
Servicer, unless (i) after giving effect to such payment, distribution or
repayment, the Trust Depositor’s liquid assets shall not be less than the
amount of actual damages claimed in such litigation or (ii) the Rating Agencies
shall not downgrade the then existing rating on the Certificate with respect to
any such payment, distribution or repayment.

Section 11.09.      No
Petition.

(a)           The Trust Depositor will not at any
time institute against the Trust any bankruptcy proceedings under any United
States federal or state bankruptcy or similar law in connection with any
obligations relating to the Trust Certificate, the Notes, this Agreement or any
of the other Transaction Documents.

(b)           The Owner Trustee, by entering into
this Agreement, each Certificateholder, by accepting a Trust Certificate, and
the Indenture Trustee and each Noteholder, by accepting the benefits of this
Agreement, hereby covenant and agree that they will not at any time institute
against the Trust Depositor or the Trust, or join in any institution against the
Trust Depositor, or the Trust of, any bankruptcy proceedings under any United
States federal or state bankruptcy or similar law in connection with any
obligations relating to the Trust Certificate, the Notes, this Agreement or any
of the other Transaction Documents.

Section 11.10.      No
Recourse.  The Certificateholder by accepting the Trust
Certificate acknowledges that such Certificateholder’s Trust Certificate
represents beneficial interests in the Trust only and does not represent
interests in or obligations of the Trust Depositor, the Servicer, the Seller,
the Administrator, the Owner Trustee, the Indenture Trustee or any of the
respective Affiliates (other than the Trust) and no recourse may be had against
such parties or their assets, except as may be expressly set forth or
contemplated in this Agreement, the Trust Certificate or the other Transaction
Documents.

Section 11.11.      Headings. 
The headings of the various Articles and Sections herein are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.

Section 11.12.      Governing
Law.  THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO 

 

24

 

ITS CONFLICT OF LAW
PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

Section 11.13.      Trust
Certificate Transfer Restrictions.  The Trust
Certificate may not be acquired by or for the account of a Benefit Plan.  By accepting and holding a Trust Certificate,
the Holder thereof shall be deemed to have represented and warranted that it is
not a Benefit Plan and that it is not acquiring and will not hold such Trust
Certificate for the account of, or with plan assets of, a Benefit Plan.

Section 11.14.      Trust
Depositor Payment Obligation.  The Trust
Depositor shall be responsible for payment of the Administrator’s compensation
pursuant to Section 3 of the Administration Agreement and shall reimburse the
Administrator for all expenses and liabilities of the Administrator incurred
thereunder.

[signature page follows]

 

25

 

IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective officers hereunto duly authorized, as of the day
and year first above written.

HARLEY-DAVIDSON
CUSTOMER FUNDING

CORP., as Trust Depositor

 

 

By: /s/
PERRY A. GLASSGOW                         

Printed  Name:  
Perry A. Glassgow

Title: 
Treasurer

 

WILMINGTON TRUST COMPANY,

as Owner Trustee

By: /s/
ANITA E. DALLAGO                                            

Printed  Name: Anita E. Dallago

Title:   Senior Financial Services Officer

 

Signature Page to
Trust Agreement

 

26

 

EXHIBIT A

FORM
OF CERTIFICATE OF TRUST OF

Harley-Davidson Motorcycle Trust 2005-1

This Certificate
of Trust of Harley-Davidson Motorcycle Trust 2005-1 (the “Trust”),
dated _______________, 2005, is being duly executed and filed by Wilmington
Trust Company, a Delaware banking corporation, as Owner Trustee, to form a
statutory trust under the Delaware Statutory Trust Act (12 Del. Code,
§ 3801 et seq.).

1.             Name.  The name of the statutory trust formed hereby
is Harley-Davidson Motorcycle Trust 2005-1.

2.             Delaware Trustee.  The name and business address of the Owner
Trustee of the Trust in the State of Delaware is Wilmington Trust Company,
Rodney Square North, 1100 North Market Street, Wilmington, Delaware l9890.

IN WITNESS
WHEREOF, the undersigned, being the sole Owner Trustee of the Trust, has executed
this Certificate of Trust as of the date first above written.

WILMINGTON
TRUST COMPANY,

not in its individual
capacity but solely as

Owner
Trustee

By:                                                                                                          

Printed
Name:___________________________

Title:__________________________________

 

27

 

EXHIBIT B

FORM OF TRUST CERTIFICATE

THIS TRUST CERTIFICATE
REPRESENTS THE BENEFICIAL INTEREST IN THE TRUST (AS DEFINED BELOW) AND IS
ENTITLED TO PAYMENTS AS DESCRIBED IN THE SALE AND SERVICING AGREEMENT AND
INDENTURE REFERRED TO HEREIN.

THIS TRUST CERTIFICATE
DOES NOT REPRESENT AN OBLIGATION OF OR AN INTEREST IN HARLEY-DAVIDSON CUSTOMER
FUNDING CORP., HARLEY-DAVIDSON CREDIT CORP. OR ANY AFFILIATE THEREOF, EXCEPT TO
THE EXTENT SET FORTH IN THE TRUST AGREEMENT. 
THIS TRUST CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR
PLEDGED UNLESS THE CONDITIONS SET FORTH IN SECTIONS 3.01, 3.04 AND 11.13 OF THE
TRUST AGREEMENT HAVE BEEN COMPLIED WITH.

HARLEY-DAVIDSON MOTORCYCLE TRUST 2005-1 CERTIFICATE

NO. ___________                                                                                                              Initial
Trust Certificate

                Fractional Interest 100%

 

THIS CERTIFIES
THAT Harley-Davidson Customer Funding Corp. is the registered owner of  100% of the non-assessable, fully-paid, fractional
undivided beneficial interest in the Harley-Davidson Motorcycle Trust 2005-1
(the “Trust”) formed by Harley-Davidson
Customer Funding Corp., a Nevada corporation (the “Trust
Depositor”).

The Trust was
created pursuant to a Trust Agreement, dated as of January 25, 2005 (as amended
and supplemented from time to time, the “Trust Agreement”),
between the Trust Depositor, and Wilmington Trust Company, as owner trustee
(the “Owner Trustee”), a summary of certain
of the pertinent provisions of which is set forth below.  To the extent not otherwise defined herein,
the capitalized terms used herein have the meanings assigned to them in (i) the
Trust Agreement, (ii) the Sale and Servicing Agreement, dated as of February 1,
2005 (the “Sale and Servicing Agreement”), among
the Trust, the Trust Depositor, Harley-Davidson Credit Corp. (“Harley-Davidson Credit”), as Servicer (in such capacity,
the “Servicer”) and BNY Midwest Trust
Company, as Indenture Trustee (the “Indenture
Trustee”) or (iii) the Indenture, dated as of February 1, 2005 (the “Indenture”), between the Trust and the Indenture Trustee.

This Trust
Certificate is the duly authorized Trust Certificate designated as “Harley-Davidson Motorcycle Trust 2005-1 Certificate”  (the “Trust Certificate”).  Issued under the Indenture are three classes
of notes designated as “3.28% Harley-Davidson
Motorcycle Contract Backed Notes, Class A-1”, “3.76% Harley-Davidson Motorcycle
Contract Backed Notes, Class A-2” and “3.66%
Harley-Davidson Motorcycle Contract Backed Notes, Class B” (collectively,
the “Notes”).  This Trust Certificate is issued under and is
subject to the terms, provisions and conditions of the Trust Agreement, to
which Trust Agreement the Holder of this Trust Certificate by virtue of its
acceptance hereof assents and by which 

 

28

 

such
Holder is bound.  The property of the
Trust includes, among other things, (i) all the right, title and interest of
the Trust Depositor in and to the Initial Contracts listed on the initial List
of Contracts delivered on the Closing Date (including, without limitation, all
security interests and all rights to receive payments which are collected
pursuant thereto after the Initial Cutoff Date, including any liquidation
proceeds therefrom, but excluding any rights to receive payments which were
collected pursuant thereto on or prior to the Initial Cutoff Date), (ii) all
rights of the Trust Depositor under any physical damage or other individual
insurance policy (and rights under a “forced placed”
policy, if any), any debt insurance policy or any debt cancellation agreement
relating to any such Contract, an Obligor or a Motorcycle securing such
Contract, (iii) all security interests in each such Motorcycle, (iv) all
documents contained in the related Contract Files, (v) all rights (but not the
obligations) of the Trust Depositor under any related motorcycle dealer
agreements between dealers (i.e., the originators of such Contracts) and
Harley-Davidson Credit, (vi) all rights of the Trust Depositor in the Lockbox,
the Lockbox Account and related Lockbox Agreement to the extent they relate to
such Contracts, (vii) all rights (but not the obligations) of the Trust
Depositor under the Transfer and Sale Agreement, including but not limited to
the Trust Depositor’s rights under Article V thereof, (viii) the remittances,
deposits and payments made into the Trust Accounts from time to time and
amounts in the Trust Accounts from time to time (and any investments of such
amounts), (ix) all rights of the Trust Depositor to certain rebates of premiums
and other amounts relating to insurance policies, debt cancellation agreements,
extended service contracts or other repair agreements and other items financed
under such Contracts and (x) all proceeds and products of the foregoing.

Under the Trust
Agreement, there will be distributed on the fifteenth day of each month or if
such day is not a Business Day the next succeeding Business Day commencing
March 15, 2005 (each, a “Distribution Date”)
to the person in whose name this Trust Certificate is registered as of the last
Business Day immediately preceding the calendar month in which such
Distribution Date occurs (each, a “Record Date”),
such Certificateholder’s fractional undivided beneficial interest in the amount
to be distributed to the Certificateholder on such Distribution Date.

The holder of this
Trust Certificate acknowledges and agrees that its rights to receive
distributions in respect of this Trust Certificate are subordinated to the
rights of the Noteholders to the extent described in the Sale and Servicing
Agreement and the Indenture.

It is the
intention of Harley-Davidson Credit, the Servicer, the Trust Depositor, Owner
Trustee, Indenture Trustee and the Certificateholder that the Trust be disregarded
as a separate entity pursuant to Treasury Regulations Section
301.7701-3(b)(1)(ii) as in effect for periods after January 1, 1997.  The Trust Certificate constitutes the sole
equity interest in the Trust and must at all times be held by either the Trust
Depositor or its transferee as sole owner. 
The Trust Depositor agrees not to take any action inconsistent with such
intended federal income tax treatment. 
Because for federal income tax purposes the Trust will be disregarded as
a separate entity, Trust items of income, gain, loss and deduction for any
month as determined for federal income tax purposes shall be allocated entirely
to the Trust Depositor (or subsequent purchaser of the Trust Certificate) as
the sole Certificateholder.

Each Certificateholder,
by its acceptance of a Trust Certificate or 
beneficial interest in a Trust Certificate, covenants and agrees that
such Certificateholder will not at any time institute against the Trust or the
Trust Depositor, or join in any institution against the Trust or the Trust
Depositor, Harley-Davidson Credit or the Servicer any bankruptcy,
reorganization, arrangement, insolvency or liquidation 

 

29

 

proceedings,
or other proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Trust
Certificate, the Notes, the Trust Agreement or any of the other Transaction
Documents.

Distributions on
this Trust Certificate will be made as provided in the Sale and Servicing
Agreement by wire transfer or check mailed to the Certificateholder of record
in the Certificate Register without the presentation or surrender of this Trust
Certificate or the making of any notation hereon.  Except as otherwise provided in the Trust
Agreement and notwithstanding the above, the final distribution on this Trust
Certificate will be made after due notice by the Owner Trustee of the pendency
of such distribution and only upon presentation and surrender of this Trust
Certificate at the office or agency maintained for that purpose by the Owner
Trustee in the City of Wilmington, Delaware.

Reference is
hereby made to the further provisions of this Trust Certificate set forth on
the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.

Unless the
certificate of authentication hereon shall have been executed by an authorized
officer of the Owner Trustee, by manual signature, this Trust Certificate shall
not entitle the holder hereof to any benefit under the Trust Agreement or any
other Transaction Document or be valid for any purpose.

THIS TRUST
CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED
IN ACCORDANCE WITH SUCH LAWS.

 

30

 

[REVERSE OF CERTIFICATE]

The Trust
Certificate does not represent an obligation of, or an interest in the Trust
Depositor, Harley-Davidson Credit, as the Seller or Servicer, the Owner
Trustee, the Indenture Trustee or any of their respective Affiliates (other
than the Trust) and no recourse may be had against such parties or their
assets, except as expressly set forth or contemplated herein or in the Trust
Agreement or the other Transaction Documents. 
In addition, this Trust Certificate is not guaranteed by any
governmental agency or instrumentality and is limited in right of payment to
certain collections and recoveries with respect to the Contracts and certain
other amounts, in each case as more specifically set forth herein and in the
Sale and Servicing Agreement.  A copy of
each of the Sale and Servicing Agreement and the Trust Agreement may be
examined by any Certificateholder upon written request during normal business
hours at the principal office of the Trust Depositor and at such other places,
if any, designated by the Trust Depositor.

The Trust
Agreement permits, with certain exceptions therein provided, the amendment
thereof and the modification of the rights and obligations of the Trust
Depositor and the rights of the Certificateholder under the Trust Agreement at
any time by the Trust Depositor and the Owner Trustee with the consent of the
Holder of the Trust Certificate and the Modified Required Holders.  Any such consent by the Holder of this Trust
Certificate shall be conclusive and binding on such Holder and on all future
Holders of this Trust Certificate and of any Trust Certificate issued upon the
transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent is made upon this Trust Certificate.  The Trust Agreement also permits the
amendment thereof, in certain limited circumstances, without the consent of the
Holder of any of the Trust Certificate.

As provided in the
Trust Agreement and subject to certain limitations therein set forth, the
transfer of this Trust Certificate is registerable in the Certificate Register
upon surrender of this Trust Certificate for registration of transfer at the
offices or agencies of the Certificate Registrar, accompanied by a written
instrument of transfer in form satisfactory to the Owner Trustee and the
Certificate Registrar duly executed by the Holder hereof or such Holder’s
attorney duly authorized in writing, and thereupon the new Trust Certificate of
authorized denominations evidencing the same aggregate interest in the Trust
will be issued to the designated transferee. 
The initial Certificate Registrar appointed under the Trust Agreement is
the Owner Trustee.

The Owner Trustee,
the Certificate Registrar and any of their respective agents may treat the
Person in whose name this Trust Certificate is registered as the owner hereof
for all purposes, and none of the Owner Trustee, the Certificate Registrar or
any such agent shall be affected by any notice to the contrary.

The obligations
and responsibilities created by the Trust Agreement and the Trust created
thereby shall terminate upon the payment to the Certificateholder of all
amounts required to be paid to it pursuant to the Trust Agreement and the Sale
and Servicing Agreement and the disposition of all property held as part of the
Trust Estate.  Harley-Davidson Credit may
at its option purchase the Trust Estate at a price specified in the Sale and
Servicing Agreement, and such purchase of the Contracts and other property of
the Trust will affect early retirement of the Trust Certificate; however, such
right of purchase is exercisable only as of any Distribution Date on which the
Pool Balance has declined to less than 10% of 

 

31

 

the sum
of (i) the initial Pool Balance on the Initial Cutoff Date and (ii) the
Pre-Funded Amount as of the Closing Date.

The Trust
Certificate may not be acquired by a Benefit Plan.  The Holder hereof, by accepting a beneficial
interest in this Trust Certificate, shall be deemed to have represented and
warranted that it is not a Benefit Plan and is not acquiring this Trust Certificate
or an interest therein for the account of, or with plan assets of, a Benefit
Plan.

 

32

 

IN WITNESS
WHEREOF, the Owner Trustee, on behalf of the Trust and not in its individual
capacity, has caused this Trust Certificate to be duly executed.

Dated:                                                                    Harley-Davidson
Motorcycle Trust 2005-1

By:                              WILMINGTON TRUST
COMPANY, not in its
individual capacity but solely as Owner Trustee

By:                                                                  

Authorized Signatory

OWNER TRUSTEE’S CERTIFICATE OF AUTHENTICATION

This is the Trust
Certificate referred to in the within-mentioned Trust Agreement.

WILMINGTON
TRUST COMPANY,

not in its individual
capacity but solely

as Owner Trustee

 

By:                                                                                          

Authorized
Signatory

 

33

 

 

ASSIGNMENT

FOR VALUE
RECEIVED the undersigned hereby sells, assigns and transfers unto

PLEASE INSERT SOCIAL
SECURITY OR

OTHER IDENTIFYING NUMBER
OF ASSIGNEE

 

 

 

 

(Please print or type
name and address, including postal zip code, of assignee)

                                                                                                                                                                                                                

the within Trust
Certificate, and all rights thereunder, hereby irrevocably constituting and
appointing

                                                                                                                                                                                                                

to transfer said Trust
Certificate on the books of the Certificate Registrar, with full power of substitution
in the premises.

Dated:                                    

Signature Guaranteed:

 

 

	
                                                                                                  

  NOTICE:  Signature(s) must be guaranteed by an
  eligible guarantor institution.

  	
                                                                                                  

  NOTICE:  The signature to this assignment must
  correspond with the name of the registered owner as it appears on the face of
  the within Trust Certificate in every particular, without alteration or
  enlargement or any change whatever.

  

 

 

 

34

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