Document:

Exhibit

4.3

Execution Copy

 

	

   

  

 

MASTER SALE AND

SERVICING AGREEMENT

 

among

 

HOUSEHOLD

AUTOMOTIVE TRUST 2003-1,

as Issuer,

 

HOUSEHOLD AUTO

RECEIVABLES CORPORATION,

as Seller,

 

HOUSEHOLD FINANCE

CORPORATION,

as Master Servicer

 

and

 

U.S. BANK NATIONAL

ASSOCIATION,

as Indenture

Trustee

 

Dated as of May

29, 2003

 

	

   

  

 

 

TABLE

OF CONTENTS

 

	

  ARTICLE I

  
	

   

  
	

  Definitions

  
	

   

  	

   

  
	

  SECTION

  1.1.

  	

  Definitions

  
	

  SECTION

  1.2.

  	

  Other

  Interpretive Provisions

  
	

  SECTION

  1.3.

  	

  Usage

  of Terms

  
	

  SECTION

  1.4.

  	

  Certain

  References

  
	

  SECTION

  1.5.

  	

  No

  Recourse

  
	

  SECTION

  1.6.

  	

  Action

  by or Consent of Noteholders

  
	

   

  	

   

  
	

  ARTICLE

  II

  
	

   

  	

   

  
	

  Conveyance of Receivables

  
	

   

  
	

  SECTION

  2.1.

  	

  Conveyance

  of Receivables

  
	

  SECTION

  2.2.

  	

  Further

  Encumbrance of Owner Trust Estate

  
	

   

  	

   

  
	

  ARTICLE III

  
	

   

  	

   

  
	

  The Receivables

  
	

   

  
	

  SECTION

  3.1.

  	

  Representations

  and Warranties of Seller

  
	

  SECTION

  3.2.

  	

  Repurchase

  upon Breach

  
	

  SECTION

  3.3.

  	

  Custody

  of Receivables Files

  
	

   

  	

   

  
	

  ARTICLE

  IV

  
	

   

  
	

  Administration

  and Servicing of Receivables

  
	

   

  	

   

  
	

  SECTION

  4.1.

  	

  Duties

  of the Master Servicer

  
	

  SECTION

  4.2.

  	

  Collection

  of Receivable Payments; Modifications of Receivables

  
	

  SECTION

  4.3.

  	

  Realization

  Upon Receivables

  
	

  SECTION

  4.4.

  	

  Insurance

  
	

  SECTION

  4.5.

  	

  Maintenance

  of Security Interests in Vehicles

  
	

  SECTION

  4.6.

  	

  Covenants,

  Representations, and Warranties of Master Servicer

  
	

  SECTION

  4.7.

  	

  Repurchase

  of Receivables Upon Breach of Covenant

  
	

  SECTION

  4.8.

  	

  Total

  Servicing Fee; Payment of Certain Expenses by Master Servicer

  
	

  SECTION

  4.9.

  	

  Master

  Servicer’s Certificate

  
	

  SECTION

  4.10.

  	

  Annual

  Statement as to Compliance, Notice of Master Servicer Termination Event

  

 

 

 

	

  SECTION

  4.11.

  	

  Annual

  Independent Accountants’ Report

  
	

  SECTION

  4.12.

  	

  Access

  to Certain Documentation and Information Regarding Receivables

  
	

  SECTION

  4.13.

  	

  Fidelity

  Bond and Errors and Omissions Policy

  
	

   

  	

   

  
	

  ARTICLE

  V

  
	

   

  	

   

  
	

  Trust

  Accounts; Distributions;

  Statements to Certificateholders and Noteholders

  
	

   

  
	

  SECTION

  5.1.

  	

  Establishment

  of Trust Accounts

  
	

  SECTION

  5.2.

  	

  Certain

  Reimbursements to the Master Servicer

  
	

  SECTION

  5.3.

  	

  Application

  of Collections

  
	

  SECTION

  5.4.

  	

  Additional

  Deposits

  
	

   

  	

   

  
	

  ARTICLE

  VI

  
	

   

  	

   

  
	

  RESERVED

  
	

   

  	

   

  
	

  ARTICLE VII

  
	

   

  	

   

  
	

  RESERVED

  
	

   

  
	

  ARTICLE VIII

  
	

   

  	

   

  
	

  The

  Seller

  
	

   

  
	

  SECTION

  8.1.

  	

  Representations

  of Seller

  
	

  SECTION

  8.2.

  	

  Corporate

  Existence

  
	

  SECTION

  8.3.

  	

  Liability

  of Seller; Indemnities

  
	

  SECTION

  8.4.

  	

  Merger

  or Consolidation of, or Assumption of the Obligations of, Seller

  
	

  SECTION

  8.5.

  	

  Limitation

  on Liability of Seller and Others

  
	

  SECTION

  8.6.

  	

  Seller

  May Own Certificates or Notes

  
	

   

  	

   

  
	

  ARTICLE

  IX

  
	

   

  	

   

  
	

  The Master Servicer

  
	

   

  
	

  SECTION

  9.1.

  	

  Representations

  of Master Servicer

  
	

  SECTION

  9.2.

  	

  Liability

  of Master Servicer; Indemnities

  
	

  SECTION

  9.3.

  	

  Merger

  or Consolidation of, or Assumption of the Obligations of the Master Servicer

  
	

  SECTION

  9.4.

  	

  Limitation

  on Liability of Master Servicer and Others

  
	

  SECTION

  9.5.

  	

  Delegation

  of Duties

  
	

  SECTION

  9.6.

  	

  Master

  Servicer Not to Resign

  
	

  SECTION

  9.7.

  	

  Subservicing

  Agreements Between Master Servicer and Subservicers

  

 

ii

 

	

   

  	

   

  
	

  SECTION

  9.8.

  	

  Successor

  Subservicers

  
	

   

  	

   

  
	

  ARTICLE

  X

  
	

   

  	

   

  
	

  Default

  
	

   

  
	

  SECTION

  10.1.

  	

  Master

  Servicer Termination Event

  
	

  SECTION

  10.2.

  	

  Consequences

  of a Master Servicer Termination Event

  
	

  SECTION

  10.3.

  	

  Appointment

  of Successor

  
	

  SECTION

  10.4.

  	

  Notification

  to Noteholders and Certificateholders

  
	

  SECTION

  10.5.

  	

  Waiver

  of Past Defaults

  
	

  SECTION

  10.6.

  	

  Successor

  to Master Servicer

  
	

   

  	

   

  
	

  ARTICLE

  XI

  
	

   

  	

   

  
	

  Termination

  
	

   

  
	

  SECTION

  11.1.

  	

  Optional

  Purchase of All Receivables

  
	

   

  	

   

  
	

  ARTICLE XII

  
	

   

  	

   

  
	

  Administrative

  Duties of the Master Servicer

  
	

   

  
	

  SECTION

  12.1.

  	

  Administrative

  Duties.

  
	

  SECTION

  12.2.

  	

  Records

  
	

  SECTION

  12.3.

  	

  Additional

  Information to be Furnished to the Issuer

  
	

   

  	

   

  
	

  ARTICLE XIII

  
	

   

  	

   

  
	

  Miscellaneous Provisions

  
	

   

  
	

  SECTION

  13.1.

  	

  Amendments

  
	

  SECTION

  13.2.

  	

  Protection

  of Title to Series Trust Estate

  
	

  SECTION

  13.3.

  	

  Notices

  
	

  SECTION

  13.4.

  	

  Assignment

  
	

  SECTION

  13.5.

  	

  Limitations

  on Rights of Others

  
	

  SECTION

  13.6.

  	

  Severability

  
	

  SECTION

  13.7.

  	

  Separate

  Counterparts

  
	

  SECTION

  13.8.

  	

  Headings

  
	

  SECTION

  13.9.

  	

  Governing

  Law

  
	

  SECTION

  13.10.

  	

  Assignment

  to Indenture Trustee

  
	

  SECTION

  13.11.

  	

  Nonpetition

  Covenants

  
	

  SECTION

  13.12.

  	

  Limitation

  of Liability of the Owner Trustee and the Indenture Trustee

  
	

  SECTION

  13.13.

  	

  Limitation

  of Liability of Issuer

  
	

  SECTION

  13.14.

  	

  Independence

  of the Master Servicer.

  
	

  SECTION

  13.15.

  	

  No

  Joint Venture

  
	

  SECTION

  13.16.

  	

  Third-Party

  Beneficiary

  

 

iii

 

	

  EXHIBITS

  
	

   

  
	

  Exhibit A

  	

  -

  	

  Form of Transfer Agreement

  

 

iv

 

 

MASTER SALE AND SERVICING AGREEMENT dated as of May

29, 2003, among HOUSEHOLD AUTOMOTIVE TRUST 2003-1, a Delaware statutory trust

(the “Issuer” or the “Trust”), HOUSEHOLD AUTO RECEIVABLES CORPORATION, a Nevada

corporation (the “Seller”), HOUSEHOLD FINANCE CORPORATION, a Delaware

corporation (the “Master Servicer”) and U.S. BANK NATIONAL ASSOCIATION, a

national banking association, in its capacity as Indenture Trustee.

 

WHEREAS the Issuer desires to purchase from time to

time Receivables arising in connection with motor vehicle retail installment

sale contracts originated or acquired by Household Automotive Finance

Corporation (“HAFC”) or any of its predecessors or Affiliates, including, but

not limited to, Household Automotive Credit Corporation (“HACC”);

 

WHEREAS the Seller will purchase from time to time

Receivables from HAFC or one or more of its Affiliates, including, but not

limited to, HACC, and is willing to sell Receivables to the Issuer;

 

WHEREAS the Master Servicer is willing to service all

such Receivables;

 

NOW, THEREFORE, in consideration of the promises and the

mutual covenants herein contained, the parties hereto agree as follows:

 

ARTICLE I

 

Definitions

 

SECTION 1.1.        Definitions.  Whenever used in this Agreement, the

following words and phrases shall have the following meanings:

 

“Accountants’ Report” means the report of a firm of

nationally recognized independent accountants described in Section 4.11.

 

“Accounting Date” means, with respect to a

Distribution Date, the last day of the Collection Period immediately preceding

such Distribution Date.

 

“Actuarial Method” means the method of allocating a

fixed level monthly payment on an obligation between principal and interest,

pursuant to which the portion of such payment that is allocated to interest is

equal to the product of (a) 1/12, (b) the fixed annual rate of interest on such

obligation and (c) the outstanding principal balance of such obligation.

 

“Actuarial Receivable” means a Receivable under which

the portion of the payment allocated to interest and the portion allocable to

principal is determined in accordance with the Actuarial Method.

 

“Addition Notice” means, with respect to any transfer

of Receivables to the Trust pursuant to Section 2.1 of this Agreement, notice

of the Seller’s election to

 

 

transfer Receivables to

the Trust, such notice to designate the related Transfer Date, and the

approximate principal amount of Receivables to be transferred on such Transfer

Date.

 

“Additional Principal Amount” has the meaning, if any,

assigned to such term in the Series Supplement.

 

“Administrative Agent” means the Person, if any,

specified in the Note Purchase Agreement.

 

“Affiliate” means, with respect to any specified

Person, any other Person controlling or controlled by or under common control

with such specified Person.  For the

purposes of this definition, “control” when used with respect to any Person

means the power to direct the management and policies of such Person, directly

or indirectly, whether through the ownership of voting securities, by contract

or otherwise; and the terms “controlling” and “controlled” have meanings

correlative to the foregoing.

 

“Aggregate Principal Balance” means, with respect to

any date of determination, the sum of the Principal Balances for all

Receivables (other than (i) any Receivable that has become a Liquidated Receivable

and (ii) any Receivable that has become a Repurchased Receivable as of the date

of determination).

 

“Agreement” means this Master Sale and Servicing

Agreement, as the same may be amended and supplemented from time to time.

 

“Amount Financed” means, with respect to a Receivable,

the aggregate amount advanced under such Receivable toward the purchase price

of the Financed Vehicle and any related costs, including amounts advanced in

respect of accessories, insurance premiums, service and warranty contracts,

other items customarily financed as part of retail motor vehicle installment

sale contracts and related costs.

 

“Annual Percentage Rate” or “APR” of a Receivable

means the annual percentage rate of finance charges or service charges, as

stated in the related Contract.

 

“Basic Documents” has the meaning assigned to such

term in the Series Supplement.

 

“Business Day” has the meaning assigned to such term

in the Series Supplement.

 

“Certificates” has the meaning assigned to such term

in the Trust Agreement.

 

“Certificateholder” means the holders of the

Certificates.

 

“Class” means a class of Notes or Certificates, as the

context requires.

 

“Closing Date” has the meaning assigned to such term

in the Series Supplement.

 

2

 

“Collected Funds” means, with respect to any

Collection Period, the amount of funds in the Collection Account representing

collections (including, where applicable, all payment cancellation fees and all

administrative fees, expenses and charges actually paid by or on behalf of

Obligors, including late fees, payment fees and liquidation fees but excluding

taxes, assessments, credit insurance payments or similar items) received by the

Master Servicer on or with respect to the Receivables during such Collection

Period, including all Net Liquidation Proceeds collected during such Collection

Period (but excluding any Repurchase Amounts).

 

“Collection Account” means the collection account

designated in the Series Supplement.

 

“Collection Period” means, (i) with respect to the

first Distribution Date, the period beginning on the opening of business on the

day after the related Cutoff Date and ending on the close of business on the

last day of the calendar month preceding such Distribution Date and (ii) with

respect to each subsequent Distribution Date, the preceding calendar

month.  Any amount stated “as of the

close of business of the last day of a Collection Period” shall give effect to

all applications of collections on such day.

 

“Collection Records” means all manually prepared or

computer generated records relating to collection efforts or payment histories

with respect to the Receivables.

 

“Contract” means a motor vehicle retail installment

sales contract.

 

“Controlling Party” has the meaning assigned to such

term in the Series Supplement.

 

“Corporate Trust Office” has the meaning assigned to

such term in the Series Supplement.

 

“Cram Down Loss” means, with respect to a Receivable,

if a court of appropriate jurisdiction in an insolvency proceeding shall have

issued a final order reducing the amount owed on a Receivable or otherwise

modifying or restructuring the scheduled payments to be made on a Receivable,

an amount equal to the excess of the Principal Balance of such Receivable

immediately prior to such order over the Principal Balance of such Receivable

as so reduced.  A “Cram Down Loss” shall

be deemed to have occurred on the date of issuance of such order.

 

“Cutoff Date” means, except as otherwise provided in

the Series Supplement, with respect to a Receivable, the date designated in the

related Transfer Agreement as the Cutoff Date for such Receivable transferred

to the Trust on the related Transfer Date.

 

“Dealer” means a dealer who sold a Financed Vehicle

and who originated and assigned the respective Receivable, directly or

indirectly, to HAFC or one of its Affiliates under a Dealer Agreement or

pursuant to a Dealer Assignment.

 

3

 

“Dealer Agreement” means any agreement between HAFC or

one if its Affiliates and a Dealer relating to the acquisition of Receivables

from a Dealer by HAFC or one of its Affiliates.

 

“Dealer Assignment” means, with respect to a

Receivable, the executed assignment executed by a Dealer conveying such

Receivable to HAFC or one of its Affiliates.

 

“Delivery” means, with respect to Trust Account

Property:

 

(1)           (a)           with respect to bankers’ acceptances,

commercial paper, negotiable certificates of deposit and other obligations that

constitute “instruments” within the meaning of Article 9 of the UCC, transfer

thereof:

 

(i)            by

physical delivery to the Indenture Trustee, indorsed to, or registered in the

name of, the Indenture Trustee or its nominee or indorsed in blank;

 

(ii)           by

the Indenture Trustee continuously maintaining possession of such instrument;

and

 

(iii)          by

the Indenture Trustee continuously indicating by book-entry that such

instrument is credited to the related Trust Account;

 

(b)           with respect to a “certificated

security” (as defined in Article 8 of the UCC), transfer thereof:

 

(i)            by

(x) physical delivery of such certificated security to the Indenture Trustee,

provided that if the certificated security is in registered form, it shall be

indorsed to, or registered in the name of, the Indenture Trustee or indorsed in

blank, and (y) the Indenture Trustee continuously maintaining possession of

such certificated security; or

 

(ii)           by

another Person (not a securities intermediary) (1) acquiring possession of such

certificated security on behalf of the Indenture Trustee, provided that if the

certificated security is in registered form, it shall be indorsed to, or

registered in the name of, the Indenture Trustee or indorsed in blank, or (2)

having acquired possession of such certificated security, acknowledging that it

holds such certificated security for the Indenture Trustee, and, in either such

case, continuously maintaining possession of such certificated security; and

 

by the Indenture Trustee continuously indicating by

book-entry that such certificated security is credited to the related Trust

Account;

 

(c)           with respect to any security issued

by the U.S. Treasury, the Federal Home Loan Mortgage Corporation or the Federal

National Mortgage Association that is a book-entry security held through the

Federal Reserve System

 

4

 

pursuant to

Federal book entry regulations, transfer thereof pursuant to the following

procedures, all in accordance with applicable law, including applicable federal

regulations and Articles 8 and 9 of the UCC:

 

(i)            by

(x) book-entry registration of such property to an appropriate book-entry

account maintained with a Federal Reserve Bank by a securities intermediary

that is also a “depositary” pursuant to applicable federal regulations and

issuance by such securities intermediary of a deposit advice or other written

confirmation of such book-entry registration to the Indenture Trustee of the

purchase by the securities intermediary on behalf of the Indenture Trustee of

such book-entry security; the making by such securities intermediary of entries

in its books and records identifying such book-entry security held through the

Federal Reserve System pursuant to Federal book-entry regulations as belonging

to the Indenture Trustee and continuously indicating that such securities

intermediary holds such book-entry security solely as agent for the Indenture

Trustee or such additional or alternative procedures as are appropriate under

applicable law to effect a complete transfer of ownership of such property to

the Indenture Trustee or its nominee or custodian; or (y) continuous book-entry

registration of such property to a book-entry account maintained by the

Indenture Trustee with a Federal Reserve Bank; and

 

(ii)           by

the Indenture Trustee continuously indicating by book-entry that such property

is credited to the related Trust Account;

 

(d)           with

respect to any asset in the Trust Accounts that is an “uncertificated security”

(as defined in Article 8 of the UCC) and that is not governed by clause (c)

above or clause (e) below:

 

(i)            transfer

thereof:

 

(A)          by

registration to the Indenture Trustee as the registered owner thereof, on the

books and records of the issuer thereof; or

 

(B)           by

another Person (not a securities intermediary) (1) becoming the registered

owner of the uncertificated security on behalf of the Indenture Trustee, or (2)

having become the registered owner of the uncertificated security,

acknowledging that it holds such uncertificated security for the Indenture

Trustee; or

 

(ii)           the

issuer of the uncertificated security has agreed that it will comply with

instructions originated by the Indenture Trustee with respect to such

uncertificated security without further consent of the registered owner

thereof; and

 

the Indenture Trustee continuously indicating by book-entry

that such uncertificated security is credited to the related Trust Account;

 

5

 

(e)           in

the case of a security in the custody of or maintained on the books of a

clearing corporation (as defined in Article 8 of the UCC) or its nominee,

transfer thereof by causing:

 

(i)            the

relevant clearing corporation to credit such security to a securities account

of the Indenture Trustee at such clearing corporation; and

 

(ii)           the

Indenture Trustee to continuously indicate by book-entry that such security is

credited to the related Trust Account; or

 

(f)            with

respect to a “security entitlement” (as defined in Article 8 of the UCC) to be

transferred to or for the benefit of the Indenture Trustee and not governed by clauses

(c) or (e) above, transfer thereof by:

 

(i)            a

securities intermediary’s (A) indicating by book entry that the underlying

“financial asset” (as defined in Article 8 of the UCC) has been credited to the

Indenture Trustee’s “securities account” (as defined in Article 8 of the UCC),

(B) receiving a financial asset from the Indenture Trustee or acquiring the

underlying financial asset for the Indenture Trustee, and in either case,

accepting it for credit to the Indenture Trustee’s securities account, or (C)

becoming obligated under other law, regulation or rule to credit the underlying

financial asset to the Indenture Trustee’s securities account,

 

(ii)  the

making by the securities intermediary of entries on its books and records

continuously identifying such security entitlement as belonging to the

Indenture Trustee; and continuously indicating by book-entry that such

securities entitlement is credited to the Indenture Trustee’s securities

account; and

 

(iii)  the

Indenture Trustee’s continuously indicating by book-entry that such security

entitlement (or all rights and property of the Indenture Trustee representing

such securities entitlement) is credited to the related Trust Account; and/or

 

(2)           In

the case of any such asset, (i) compliance with such additional or alternative

procedures as are now or may hereafter become appropriate to effect the

complete transfer of ownership of, or control over, any such Trust Account

Property to the Indenture Trustee free and clear of any adverse claims,

consistent with changes in applicable law or regulations or the interpretation

thereof, and (ii) the Indenture Trustee’s continuously indicating by book entry

that such asset is credited to the related Trust Account.

 

In each case of delivery contemplated herein, the Indenture

Trustee shall make appropriate notations on its records, and shall cause the

same to be made on the records of its nominees, indicating that securities are

held in trust pursuant to and as provided in this Agreement.

 

6

 

“Depositor” means the Seller in its capacity as

Depositor under the Trust Agreement.

 

“Determination Date” means, unless otherwise provided

in the Series Supplement, the earlier of the fifth calendar day (or if such day

is not a Business Day, the next preceding Business Day) or the third Business

Day preceding each Distribution Date.

 

“Distribution Date” has the meaning assigned to such

term in the Series Supplement.

 

“Eligibility Criteria” means the criteria set forth in

the Schedule of Eligibility Criteria.

 

“Eligible Bank” means, except as otherwise provided in

the Series Supplement, any depository institution (which shall initially be the

Indenture Trustee), organized under the laws of the United States of America or

any one of the states thereof or the District of Columbia (or any United States

branch or agency of a foreign bank), which is subject to supervision and

examination by federal or state banking authorities and which at all times (a)

has a net worth in excess of $50,000,000 and (b) (i) has a rating of P-1 from

Moody’s, A-1 from Standard & Poor’s and F1 from Fitch, in each case only if

such Person is a Rating Agency, with respect to short-term deposit obligations,

or such other lower ratings acceptable to the Rating Agency and the Insurer

(for so long as it is the Controlling Party), or (ii) if such institution has

issued long-term unsecured debt obligations, a rating acceptable to the Rating

Agency and the Insurer (for so long as it is the Controlling Party) with

respect to long-term unsecured debt obligations.

 

“Eligible Deposit Account” means, except as otherwise

provided in the Series Supplement, either (a) a segregated account with an

Eligible Bank or (b) a segregated trust account with the corporate trust

department of a depository institution with corporate trust powers organized

under the laws of the United States of America or any state thereof or the

District of Columbia (or any United States branch or agency of a foreign bank),

provided that such institution also must have a rating of Baa3 or higher from

Moody’s, a rating of BBB- or higher from Standard & Poor’s and a rating of

BBB- or higher from Fitch, in each case only if such Person is a Rating Agency,

with respect to long-term deposit obligations, or such other lower ratings

acceptable to the Rating Agency and the Insurer (for so long as it is the

Controlling Party).

 

“Eligible Investments” shall mean, except as otherwise

provided in a Series Supplement, (i) negotiable instruments or securities

represented by instruments in bearer or registered form (or, in the case of

Eligible Investments described in clause (a) of this definition, book-entry

securities representing such obligations), or (ii) securities entitlements (as

defined in Article 8 of the UCC) arising from Delivery of any such negotiable

instruments or securities in accordance with the provisions of clause (1)(f) of

the definition of such term, or (iii) in the case of deposits described below,

deposit accounts held in the name of the Indenture Trustee in trust for the

benefit of the Holders of the Securities, subject to the exclusive custody and

control of the Indenture Trustee

 

7

 

and for which the

Indenture Trustee has sole signature authority, which evidence or arise out of,

as the case may be:

 

(a)           direct

obligations of, or obligations fully guaranteed as to timely payment by, the

United States of America;

 

(b)           demand

deposits, time deposits or certificates of deposit (having original maturities

of no more than 365 days) of depositary institutions or trust companies

incorporated under the laws of the United States of America or any state

thereof (or domestic branches of foreign banks) and subject to supervision and

examination by federal or state banking or depositary institution authorities; provided,

that at the time of the Trust’s investment or contractual commitment to invest

therein, the short-term debt rating of such depository institution or trust

company shall be satisfactory to the Rating Agency, and provided  further

that the “jurisdiction” of such depositary institution or trust company, for

purposes of Article 9 of the UCC, shall be a state in which Revised Article 9

of the UCC has become effective and in which security interests in deposit

accounts are subject to Article 9, as in effect therein;

 

(c)           commercial

paper (having original or remaining maturities of not more than 30 days)

having, at the time of the Trust’s investment or contractual commitment to

invest therein, a rating satisfactory to the Rating Agency;

 

(d)           investments

in money market funds having, at the time of the Trust’s investment therein, a

rating satisfactory to the Rating Agency;

 

(e)           demand

deposits, time deposits and certificates of deposit which are fully insured by

the FDIC having, at the time of the Trust’s investment therein, a rating

satisfactory to the Rating Agency;

 

(f)            bankers’

acceptances (having original maturities of no more than 365 days) issued by a

depository institution or trust company referred to in (b) above;

 

(g)           (x)

time deposits (having maturities not later than the succeeding Distribution

Date) other than as referred to in clause (e) above, with a Person the

commercial paper of which has a credit rating satisfactory to the Rating Agency

or (y) notes which are payable on demand issued by Household Finance

Corporation; provided such notes will constitute Eligible Investments

only if Household Finance Corporation has, at the time of the Trust’s

investment in such notes, a commercial paper rating of not less than A–1

by Standard & Poor’s, P–1 by Moody’s and F1 by Fitch (or such other

rating as shall be satisfactory to such Rating Agency and the Insurer (for so

long as it is the Controlling Party)); or

 

(h)           any

other investment of a type or rating that is acceptable to the Rating Agency

and the Insurer (for so long as it is the Controlling Party).

 

Any of the foregoing Eligible Investments may be

purchased by or through the Indenture Trustee or through any of its Affiliates.

 

8

 

“Eligible Servicer” means Household Finance

Corporation or any other Person reasonably acceptable to the Insurer (for so

long as it is the Controlling Party) which at the time of its appointment as

Master Servicer, (i) is servicing a portfolio of motor vehicle retail

installment sales contracts and/or motor vehicle installment loans, (ii) is

legally qualified and has the capacity to service the Receivables, (iii) has

demonstrated the ability professionally and competently to service a portfolio

of motor vehicle retail installment sales contracts and/or motor vehicle

installment loans similar to the Receivables with reasonable skill and care,

(iv) is qualified and entitled to use, pursuant to a license or other written

agreement, and agrees to maintain the confidentiality of, the software which

the Master Servicer uses in connection with performing its duties and

responsibilities under this Agreement or otherwise has available software which

is adequate to perform its duties and responsibilities under this Agreement and

(v) has a net worth of at least $50,000,000.

 

“Eligible Subservicer” means Household Automotive

Finance Corporation or any wholly owned subsidiary of Household Finance

Corporation or any other Person reasonably acceptable to the Insurer (for so

long as it is the Controlling Party) which at the time of its appointment as

Subservicer, (i) is servicing a portfolio of motor vehicle retail installment

sales contracts and/or motor vehicle installment loans, (ii) is legally

qualified and has the capacity to service the Receivables, (iii) has

demonstrated the ability professionally and competently to service a portfolio

of motor vehicle retail installment sales contracts and/or motor vehicle

installment loans similar to the Receivables with reasonable skill and care,

and (iv) is qualified and entitled to use, pursuant to a license or other

written agreement, and agrees to maintain the confidentiality of, the software

which the Master Servicer uses in connection with performing its duties and

responsibilities under this Agreement or otherwise has available software which

is adequate to perform its duties and responsibilities under this Agreement.

 

“Financed Vehicle” means a new or used automobile,

light duty truck or van securing an Obligor’s indebtedness under the respective

Receivable.

 

“Fitch” means Fitch Inc., or its successor.

 

“Grant” has the meaning assigned to such term in the

Indenture.

 

“HACC” means Household Automotive Credit Corporation,

a Delaware Corporation.  For the

avoidance of doubt, HACC is an Affiliate of HAFC.

 

“HAFC” means Household Automotive Finance Corporation,

a Delaware Corporation.

 

“Indenture” has the meaning assigned to such term in

the Series Supplement.

 

“Indenture Trustee” means the Person acting as

Indenture Trustee under the Indenture, its successors in interest and any

successor Indenture Trustee under the Indenture.

 

9

 

“Indenture Trustee Fee” means the fees and reasonable

out-of-pocket expenses due to the Indenture Trustee as may be set forth in that

certain fee agreement dated as of the date hereof between the Master Servicer

and the Indenture Trustee.

 

“Insolvency Event” means, with respect to a specified

Person, (a) the filing of a petition against such Person or the entry of a

decree or order for relief by a court having jurisdiction in respect of such

Person or any substantial part of its property in an involuntary case under any

applicable federal or state bankruptcy, insolvency or other similar law now or hereafter

in effect, or appointing a receiver, liquidator, assignee, custodian, trustee,

sequestrator, or similar official for such Person or for any substantial part

of its property, or ordering the winding-up or liquidation of such Person’s

affairs, and such petition, decree or order shall remain unstayed and in effect

for a period of 60 consecutive days; or (b) the commencement by such Person of

a voluntary case under any applicable federal or state bankruptcy, insolvency

or other similar law now or hereafter in effect, or the consent by such Person

to the entry of an order for relief in an involuntary case under any such law,

or the consent by such Person to the appointment of or taking possession by, a

receiver, liquidator, assignee, custodian, trustee, sequestrator, or similar

official for such Person or for any substantial part of its property, or the

making by such Person of any general assignment for the benefit of creditors,

or the failure by such Person generally to pay its debts as such debts become

due, or the taking of action by such Person in furtherance of any of the

foregoing.

 

“Insurance Policy” means, with respect to a

Receivable, any insurance policy (including the insurance policies described in

Section 4.4 hereof) benefiting the holder of the Receivable providing loss or

physical damage, credit life, credit disability, theft, mechanical breakdown or

similar coverage with respect to the Financed Vehicle or the Obligor.

 

“Insurance Agreement” has the meaning assigned to such

term in the Series Supplement.

 

“Insurer” has the meaning assigned to such term in the

Series Supplement.

 

“Interest Period” has the meaning assigned to such

term in the Series Supplement.

 

“Issuer” means Household Automotive Trust 2003-1, a

Delaware statutory trust formed under the laws of the State of Delaware.

 

“Lien” means a security interest, lien, charge,

pledge, equity, or encumbrance of any kind, other than tax liens, mechanics’

liens and any liens that attach to the respective Receivable by operation of

law as a result of any act or omission by the related Obligor, provided that

the lien created by this Agreement or the Indenture shall not be deemed to

constitute a Lien.

 

“Lien Certificate” means, with respect to a Financed

Vehicle, an original certificate of title, certificate of lien or other

notification issued by the Registrar of Titles of the applicable state to a

secured party which indicates that the lien of the secured party

 

10

 

on the Financed Vehicle

is recorded on the original certificate of title.  In any jurisdiction in which the original certificate of title is

required to be given to the Obligor, the term “Lien Certificate” shall mean

only a certificate or notification issued to a secured party.

 

“Liquidated Receivable” means, with respect to any

Collection Period, upon the earliest of any of the following to occur, a

Receivable as to which (i) such Receivable has been liquidated by the Master

Servicer through the sale of the Financed Vehicle, (ii) 90 days have

elapsed since the Master Servicer repossessed the Financed Vehicle, (iii)

proceeds have been received in respect of such Receivable which, in the Master

Servicer’s reasonable judgment, constitute the final amounts recoverable in

respect of such Receivable or (iv) 10% or more of a Scheduled Payment

shall have become 150 or more days delinquent (or, in the case where the

Obligor of such Receivable is subject to an Insolvency Event, 10% or more of a

Scheduled Payment shall have become 210 or more days delinquent); provided,

however, that the number of days specified in either clause (ii) or (iv)

may at the election of the Master Servicer be such shorter number of days as

may from time to time be consistent with the Master Servicer’s then-current

collection policy.  Any Receivable that

becomes a Repurchased Receivable on or before the related Accounting Date shall

not be a Liquidated Receivable.

 

“Managing Agent” means, with respect to any Purchaser

Group, the Person specified as the Managing Agent for such Purchaser Group from

time to time pursuant to the Note Purchase Agreement (including, without

limitation, Schedule I thereto) or any Joinder Agreement thereto or any

Assignment and Acceptance Agreement thereto.

 

“Majority Purchaser” has the meaning assigned to such

term in the Note Purchase Agreement.

 

“Master Receivables Purchase Agreements” has the

meaning assigned to such term in the Series Supplement.

 

“Master Servicer” means Household Finance Corporation,

as the servicer of the Receivables, and each successor Master Servicer pursuant

to Section 10.3.

 

“Master Servicer Credit Facility” means the credit

facility maintained by the Master Servicer with a Master Servicer Credit

Facility Issuer pursuant to Section 4.2(e).

 

“Master Servicer Credit Facility Issuer” means a

depository institution or insurance company that qualifies pursuant to Section

4.2(e).

 

“Master Servicer Termination Event” means an event

specified in Section 10.1.

 

“Master Servicer’s Certificate” has the meaning

assigned to such term in the Series Supplement.

 

11

 

“Monthly Extension Rate” means, with respect to any

Accounting Date, the fraction, expressed as a percentage, the numerator of

which is the aggregate Principal Balance of Receivables whose payments were

extended during the Collection Period ended on such Accounting Date and the

denominator of which is the Aggregate Principal Balance as of the Accounting

Date on which such Collection Period began.

 

“Monthly Records” means all records and data

maintained by the Master Servicer with respect to the Receivables, including

the following with respect to each Receivable: 

the account number; the originating Dealer, if any; Obligor name;

Obligor address; Obligor home phone number; Obligor business phone number;

original Principal Balance; original term; Annual Percentage Rate; current

Principal Balance; current remaining term; origination date; first payment

date; final scheduled payment date; next payment due date; date of most recent

payment; new/used classification; collateral description; days currently

delinquent; number of contract extensions (months) to date; amount of Scheduled

Payment; current Insurance Policy expiration date; and past due late charges.

 

“Moody’s” means Moody’s Investors Service, Inc., or

its successor.

 

“Net Liquidation Proceeds” means, with respect to a

Liquidated Receivable, all amounts realized with respect to such Receivable

(other than amounts withdrawn or received from any Series Support) net of (i)

reasonable expenses incurred by the Master Servicer in connection with the

collection of such Receivable and the repossession and disposition of the

Financed Vehicle and (ii) amounts that are required to be refunded to the

Obligor on such Receivable; provided, however, that the Net

Liquidation Proceeds with respect to any Receivable shall in no event be less

than zero; provided, further, that, so long as amounts are

not traced to specific Receivables the Master Servicer shall reasonably

estimate, on or prior to each Accounting Date, the amount of Net Liquidation

Proceeds attributable to the Series Trust Estate.

 

“Noteholder” means the Person in whose name a Note is

registered on the Note Register.

 

“Note Policy” has the meaning assigned to such term in

the Series Supplement.

 

“Note Purchase Agreement” has the meaning, if any,

assigned to such term in the Series Supplement.

 

“Notes” has the meaning assigned to such term in the

Indenture.

 

“Obligor” on a Receivable means the purchaser or

co-purchasers of the Financed Vehicle and any other Person who owes payments

under the Receivable.

 

“Officers’ Certificate” means a certificate signed by

the chairman of the board, the president, any executive vice president or any

vice president, any treasurer, assistant treasurer, secretary or assistant

secretary of the Seller or the Master Servicer, as appropriate.

 

12

 

“Opinion of Counsel” means an opinion of counsel who

may be counsel to the Master Servicer or the Seller, acceptable to the

Indenture Trustee and the Insurer (for so long as it is the Controlling Party).

 

“Other Conveyed Property” means all property conveyed

by the Seller to the Trust pursuant to Section 2.1(a)(ii) through (xii) of this

Agreement.

 

“Outstanding” has the meaning assigned to such term in

the Indenture.

 

“Outstanding Amount” has the meaning assigned to such

term in the Indenture.

 

“Owner Trust Estate” has the meaning assigned to such

term in the Trust Agreement.

 

“Owner Trustee” means the Person acting as Owner Trustee

under the Trust Agreement, its successors-in-interest or any successor Owner

Trustee under the Trust Agreement.

 

“Payment Record” means the record maintained by the

Master Servicer for the Trust as provided in Section 4.2(f) hereof.

 

“Person” means any individual, corporation, limited

liability company, estate, partnership, joint venture, association, joint stock

company, trust (including any beneficiary thereof), unincorporated organization

or government or any agency or political subdivision thereof.

 

“Principal Balance” means, with respect to any

Receivable, as of any date, the Amount Financed minus (i) that portion of all

amounts received on or prior to such date and allocable to principal in

accordance with the Actuarial Method, or the Simple Interest Method, as

appropriate and (ii) any Cram Down Loss in respect of such Receivable.  The “Principal Balance” of a Repurchased

Receivable or Liquidated Receivable shall be deemed to be zero.

 

“Rating Agency” has the meaning assigned to such term

in the Series Supplement.

 

“Receivables” has the meaning assigned to such term in

the Series Supplement.

 

“Receivable Files” means the documents specified in

Section 3.3.

 

“Receivables Purchase Agreement Supplement” means any

Receivables Purchase Agreement Supplement to any Master Receivables Purchase

Agreement.

 

“Record Date” with respect to each Distribution Date

means the Business Day immediately preceding such Distribution Date, unless

otherwise specified in the Series Supplement.

 

13

 

“Registrar of Titles” means, with respect to any

state, the governmental agency or body responsible for the registration of, and

the issuance of certificates of title relating to, motor vehicles and liens

thereon.

 

“Related Documents” has the meaning assigned to such

term in the Series Supplement.

 

“Repurchase Amount” means, with respect to a

Receivable, the Principal Balance and all accrued and unpaid interest on the

Receivable, after giving effect to the receipt of any moneys collected (from

whatever source) on such Receivable, if any, as of the date of repurchase,

provided that, reductions in the Principal Balance resulting from such

Receivable becoming a Liquidated Receivable shall be disregarded.

 

“Repurchased Receivable” means a Receivable purchased

by the Master Servicer pursuant to Section 4.7 or repurchased by the Seller

pursuant to Section 3.2 or the Master Servicer pursuant to Section 11.1(a).

 

“Schedule of Eligibility Criteria” means the Schedule

of Eligibility Criteria attached as Schedule I to the Series Supplement.

 

“Schedule of Receivables” has the meaning assigned to

such term in the Series Supplement.

 

“Scheduled Payment” means, with respect to any

Collection Period for any Receivable, the amount set forth in such Receivable

as required to be paid by the Obligor in such Collection Period.  If after the Closing Date, the Obligor’s

obligation under a Receivable with respect to a Collection Period has been

modified so as to differ from the amount specified in such Receivable as a

result of (i) the order of a court in an insolvency proceeding involving the

Obligor, (ii) pursuant to the Soldiers’ and Sailors’ Civil Relief Act of 1940,

as amended, or (iii) modifications or extensions of the Receivable permitted by

Sections 4.2(b) and (c), the Scheduled Payment with respect to such Collection

Period shall refer to the Obligor’s payment obligation with respect to such

Collection Period as so modified.

 

“Secured Parties” has the meaning assigned to such

term in the Series Supplement.

 

“Securities” means the Notes and the Certificates.

 

“Securityholders” means the Noteholders and the

Certificateholders.

 

“Seller” means Household Auto Receivables Corporation,

a Nevada corporation, and its successors in interest to the extent permitted

hereunder.

 

“Series” means the Notes and Certificates issued

pursuant to the Series Supplement.

 

14

 

“Series 2003-1 Notes” shall have the meaning assigned

to such term in the Series Supplement.

 

“Series Supplement” means, the Series Supplement,

dated as of the Closing Date, to this Agreement, the Indenture and the Trust

Agreement, among the Master Servicer, the Issuer, the Seller, the Indenture

Trustee and the Owner Trustee, as such agreement may be amended or supplemented

from time to time.

 

“Series Support” means any such rights and benefits as

specified in the Series Supplement provided to the Indenture Trustee or the

Noteholders of any Class pursuant to any letter of credit, surety bond, cash

collateral account, spread account, reserve account, guaranteed rate agreement,

maturity liquidity facility, interest rate swap agreement, tax protection

agreement or other similar arrangement. 

The subordination of any Class to another Class shall be deemed to be Series

Support.  Notwithstanding that such

Series Support may be held by or in favor of the Indenture Trustee for the

benefit of any Class, only those Class(es) to which such Series Support relates

shall have any rights with respect thereto and all payments thereunder received

by the Indenture Trustee shall be distributed exclusively as prescribed in the

Series Supplement.

 

“Series Trust Estate” has the meaning assigned to such

term in the Series Supplement.

 

“Service Contract” means, with respect to a Financed

Vehicle, the agreement, if any, financed under the related Receivable that

provides for the repair of such Financed Vehicle.

 

“Servicing Fee” has the meaning assigned to such term

in the Series Supplement.

 

“Servicing Fee Rate” means the rate per annum

specified in the Series Supplement.

 

“Simple Interest Method” means the method of

allocating a fixed level monthly payment on an obligation between principal and

interest, pursuant to which the portion of such payment that is allocated to

interest is equal to the product of (a) the fixed rate of interest on such

obligation, (b) the period of time (expressed as a fraction of a year, based on

the actual number of days in the calendar month and 365 or 360 days (as

applicable in the underlying document) in the calendar year) elapsed since the

preceding payment under the obligation was made and (c) the outstanding

principal balance of such obligation.

 

“Simple Interest Receivable” means a Receivable under

which the portion of the payment allocable to interest and the portion

allocable to principal is determined in accordance with the Simple Interest

Method.

 

“Standard & Poor’s” means Standard & Poor’s

Rating Services, a division of The McGraw-Hill Companies, Inc., or its

successor.

 

15

 

“Subservicer” means, initially, Household Automotive

Finance Corporation, or any Eligible Subservicer with whom the Master

Servicer  has entered into an agreement

relating to subservicing the Receivables.

 

“Successor Master Servicer” has the meaning assigned

to such term in Section 10.3(a).

 

“Support Default” means a default relating to an

Insolvency Event with respect to, or the performance of, a Support Provider.

 

“Support Provider” means the Person, if any,

designated in the Series Supplement, as providing any Series Support, other

than Household Finance Corporation or any of its Affiliates or the Noteholders

of any Class which is subordinated to any other Class.

 

“Transfer Agreement” means the agreement among the

Issuer, the Seller, the Master Servicer and the Indenture Trustee,

substantially in the form of Exhibit A.

 

“Transfer Date” means, with respect to Receivables,

any date on which Receivables are to be transferred to the Trust pursuant to

this Agreement and a related Transfer Agreement.

 

“Trust” means the Issuer.

 

“Trust Account Property” means the Trust Accounts, all

amounts and investments held from time to time in any Trust Account (whether in

the form of deposit accounts, book-entry securities, uncertificated securities

or otherwise), and all proceeds of the foregoing.

 

“Trust Accounts” has the meaning assigned to such term

in the Series Supplement.

 

“Trust Agreement” has the meaning assigned to such

term in the Series Supplement.

 

“Trust Officer” means, (i) in the case of the

Indenture Trustee, any officer within the Corporate Trust Office of the

Indenture Trustee, including any President, Vice President, Assistant Vice

President, Assistant Treasurer, Assistant Secretary, Financial Services Officer

or any other officer of the Indenture Trustee, customarily performing functions

similar to those performed by any of the above designated officers and having

direct responsibility for the administration of the Indenture, and (ii) in the

case of the Owner Trustee, any officer in the corporate trust office of the

Owner Trustee or any agent of the Owner Trustee under a power of attorney with

direct responsibility for the administration of this Agreement or any of the

Basic Documents or Related Documents on behalf of the Owner Trustee.

 

“UCC” means the Uniform Commercial Code as in effect

in the relevant jurisdiction on the date of this Agreement.

 

16

 

SECTION 1.2.        Other

Interpretive Provisions.  (a)  Capitalized terms used herein and not

otherwise defined herein have the meanings assigned to them in the Indenture,

the Series Supplement or the Trust Agreement.

 

(b)           All

terms defined in this Agreement shall have the defined meanings when used in

any instrument governed hereby and in any certificate or other document made or

delivered pursuant hereto unless otherwise defined therein.

 

(c)           As

used in this Agreement, in any instrument governed hereby and in any

certificate or other document made or delivered pursuant hereto or thereto,

accounting terms not defined in this Agreement or in any such instrument,

certificate or other document, and accounting terms partly defined in this

Agreement or in any such instrument, certificate or other document to the

extent not defined, shall have the respective meanings given to them under

generally accepted accounting principles as in effect on the date of this

Agreement or any such instrument, certificate or other document, as

applicable.  To the extent that the definitions

of accounting terms in this Agreement or in any such instrument, certificate or

other document are inconsistent with the meanings of such terms under generally

accepted accounting principles, the definitions contained in this Agreement or

in any such instrument, certificate or other document shall control.

 

(d)           Any

agreement, instrument or statute defined or referred to herein or in any

instrument or certificate delivered in connection herewith means such

agreement, instrument or statute as from time to time amended, modified or

supplemented and includes (in the case of agreements or instruments) references

to all attachments thereto and instruments incorporated therein.

 

(e)           Any

term defined herein, which is otherwise defined in the Series Supplement, shall

have the meaning specified therefor in the Series Supplement, whether or not

the definition in this Agreement includes a phrase to the effect that such term

may be otherwise defined in the Series Supplement.

 

(f)            In

the event that with respect to the Series there is no Support Provider, any

references herein or in any other of the Basic Documents to the consent of, or

acceptability to, the Support Provider shall be deemed to be deleted.

 

(g)           In

the event that with respect to the Series, the Indenture and Series Supplement

do not provide for the purchase by the Noteholders of Additional Principal

Amounts, any references herein or in any other Basic Document to Additional

Principal Amounts shall be deemed to be deleted.

 

(h)           In

the event that with respect to the Series, the Indenture and Series Supplement

do not provide for an Administrative Agent or any Managing Agent, any

references herein or in any other Basic Document to an Administrative Agent

shall be deemed to be deleted.

 

SECTION 1.3.        Usage

of Terms.  With respect to all terms

used in this Agreement, the singular includes the plural and the plural

includes the singular; words

 

17

 

importing any gender

include the other gender; references to “writing” include printing, typing,

lithography, and other means of reproducing words in a visible form; references

to agreements and other contractual instruments include all subsequent

amendments thereto or changes therein entered into in accordance with their

respective terms and not prohibited by this Agreement; references to Persons

include their permitted successors and assigns; the terms “include” or

“including” mean “include without limitation” or “including without

limitation;” the words “herein”, “hereof” and “hereunder” and other words of similar

import refer to this Agreement as a whole and not to any particular Article,

Section or other subdivision, and Article, Section, Schedule and Exhibit

references, unless otherwise specified, refer to Articles and Sections of

Schedules and Exhibits to this Agreement.

 

SECTION 1.4.        Certain

References.  All references to the

Principal Balance of a Receivable as of any date of determination shall refer

to the close of business on such day, or as of the first day of an Interest

Period shall refer to the opening of business on such day.  All references to the last day of an

Interest Period shall refer to the close of business on such day.

 

SECTION 1.5.        No

Recourse.  Without limiting the

obligations of the Master Servicer or Seller hereunder, no recourse may be

taken, directly or indirectly, under this Agreement or any certificate or other

writing delivered in connection herewith or therewith, against any stockholder,

officer or director, as such, of the Master Servicer or Seller, or of any of

their respective Affiliates, predecessors or successors.

 

SECTION 1.6.        Action

by or Consent of Noteholders. 

Whenever any provision of this Agreement refers to action to be taken,

or consented to, by Noteholders, such provision shall be deemed to refer to the

Noteholders of record as of the Record Date immediately preceding the date on

which such action is to be taken, or consent given, by Noteholders.  Solely for the purposes of any action to be

taken, or consented to, by Noteholders, any Note registered in the name of HAFC

or any Affiliate thereof shall be deemed not to be outstanding; provided,

however, that, solely for the purpose of determining whether the

Indenture Trustee is entitled to rely upon any such action or consent, only

Notes which the Trust Officer of the Indenture Trustee actually knows to be so

owned shall be so disregarded.

 

ARTICLE II

 

Conveyance of Receivables

 

SECTION 2.1.        Conveyance

of Receivables.  (a)  Subject to the conditions set forth in

paragraph (b) below, in consideration of the Issuer’s delivery to or upon the

order of the Seller on a Transfer Date (which may include the Closing Date) of

the net proceeds of the issuance of Notes or from any Additional Principal

Amount thereunder and the other amounts to be distributed from time to time to

the Seller in accordance with the terms of this Agreement and the Series

Supplement, the Seller shall, from time to time, sell, transfer, assign, set

over and otherwise convey to the Issuer,

 

18

 

without recourse (subject

to the obligations set forth herein), all right, title and interest of the

Seller in and to:

 

(i)            each

and every Receivable listed on the Schedules of Receivables and all monies paid

or payable thereon or in respect thereof after the related Cutoff Date

(including amounts due on or before such Cutoff Date but received by HAFC or

any Affiliate of HAFC that is a seller under a Master Receivables Purchase

Agreement or the Seller after such Cutoff Date);

 

(ii)           the

security interests in the related Financed Vehicles granted by Obligors

pursuant to the related Receivables and any other interest of the Seller in

such Financed Vehicles;

 

(iii)          all

rights of the Seller against the Dealers pursuant to Dealer Agreements or

Dealer Assignments related to such Receivables;

 

(iv)          any

proceeds and the right to receive proceeds with respect to such Receivables

repurchased by a Dealer pursuant to a Dealer Agreement;

 

(v)           all

rights under any Service Contracts on the related Financed Vehicles;

 

(vi)          any

proceeds and the right to receive proceeds with respect to such Receivables

from claims on any physical damage, credit life or disability insurance

policies covering the related Financed Vehicles or Obligors, including rebates

of insurance premiums relating to the Receivables;

 

(vii)         all

items contained in the related Receivables Files with respect to the

Receivables; and any and all other documents that HAFC or any Affiliate of HAFC

that is a seller under a Master Receivables Purchase Agreement, the Seller or

the Master Servicer, as applicable, keeps on file in accordance with its

customary procedures relating to the related Receivables, the Obligors or the

Financed Vehicles;

 

(viii)        all

funds on deposit from time to time in the Trust Accounts (including all

investments and proceeds thereof);

 

(ix)           all

property (including the right to receive future Net Liquidation Proceeds) that

secures a Receivable and that has been acquired by or on behalf of the Seller

pursuant to liquidation of such Receivable;

 

19

 

(x)            all

of the Seller’s right, title and interest in its rights and benefits, but none

of its obligations or burdens, under each of the Master Receivables Purchase

Agreements and the Receivables Purchase Agreement Supplements, including the

delivery requirements, representations and warranties and the cure and

repurchase obligations of HAFC or any Affiliate of HAFC that is a seller under

a Master Receivables Purchase Agreement or Household Finance Corporation, as

applicable, under each of the Master Receivables Purchase Agreements and the

related Receivables Purchase Agreement Supplements, after the related Cutoff

Date;

 

(xi)           on

the Closing Date, one share of Class SV Preferred Stock of the Seller together

with the exclusive right to vote such share; and

 

(xii)          all

present and future claims, demands, causes and choses in action in respect of

any or all of the foregoing and all payments on or under and all proceeds of

every kind and nature whatsoever in respect of any or all of the foregoing,

including all proceeds of the conversion, voluntary or involuntary, into cash

or other liquid property, all cash proceeds, accounts, accounts receivable,

notes, drafts, acceptances, chattel paper, checks, investment property, deposit

accounts, insurance proceeds, condemnation awards, rights to payment of any and

every kind and other forms of obligations and receivables, instruments and

other property which at any time constitute all or part of or are included in

the proceeds of any of the foregoing.

 

(b)           The

Seller shall transfer to the Issuer the Receivables and the other property and

rights related thereto described in paragraph (a) above only upon the

satisfaction of each of the following conditions on or prior to the related

Transfer Date:

 

(i)            if

the Transfer Date is not also the Closing Date, the Seller shall have provided

the Indenture Trustee, the Owner Trustee and the Insurer with an Addition

Notice not later than five days prior to such Transfer Date and shall have

provided any information reasonably requested by any of the foregoing with

respect to the related Receivables;

 

(ii)           the

Seller shall have delivered to the Owner Trustee a duly executed Transfer

Agreement and to the Insurer a copy of such Transfer Agreement which shall

include supplements to Schedule A (which may be in electronic format), listing

the Receivables to be transferred to the Issuer;

 

20

 

(iii)          the

Master Servicer, on behalf of the Issuer, shall have delivered to the Indenture

Trustee and the Insurer a supplemental schedule to the Series Supplement (which

may be in electronic format), listing the Receivables to be pledged to the

Indenture Trustee under the Indenture;

 

(iv)          the

Seller shall, to the extent required by Section 4.2, have deposited in the

Collection Account all collections received after the related Cutoff Date in

respect of the Receivables to be transferred;

 

(v)           as

of each Transfer Date, (A) the Seller shall not be insolvent and shall not

become insolvent as a result of the transfer of Receivables on such Transfer

Date, (B) the Seller shall not intend to incur or believe that it shall incur

debts that would be beyond its ability to pay as such debts mature, (C) such

transfer shall not have been made with actual intent to hinder, delay or

defraud any Person and (D) the assets of the Seller shall not constitute

unreasonably small capital to carry out its business as conducted;

 

(vi)          each

of the representations and warranties made by the Seller pursuant to Section

3.1 with respect to the Receivables to be transferred on such Transfer Date

shall be true and correct as of the related Transfer Date, and the Seller shall

have performed all obligations to be performed by it hereunder on or prior to

such Transfer Date;

 

(vii)         the

Seller shall, at its own expense, on or prior to the Transfer Date indicate in

its computer files that the Receivables identified in the Transfer Agreement

have been sold to the Trust pursuant to this Agreement;

 

(viii)        the

Seller shall have taken any action necessary or, if required by the Indenture

Trustee or the Insurer (for so long as it is the Controlling Party), advisable

to obtain and maintain the first priority perfected ownership interest of the

Trust in the Owner Trust Estate;

 

(ix)           the

Issuer shall have taken any action necessary or, if required by the Indenture

Trustee or the Insurer (for so long as it is the Controlling Party), advisable

to obtain and maintain the first priority perfected security interest of the

Indenture Trustee, for the benefit of the Noteholders and the Insurer, in the

Series Trust Estate;

 

21

 

(x)            no

selection procedures adverse to the interests of the Noteholders or any Support

Provider shall have been utilized in selecting the related Receivables;

 

(xi)           the

addition of any such Receivables shall not result in a material adverse tax

consequence to the Trust or the Noteholders;

 

(xii)          if

required by any of the Related Documents, the Issuer shall simultaneously transfer

to the Indenture Trustee any amounts required to be deposited in the related

Trust Accounts with respect to the Receivables transferred on such Transfer

Date; and

 

(xiii)         the

Seller shall have delivered to the Indenture Trustee and the Insurer an Officers’

Certificate confirming the satisfaction of each condition precedent specified

in this paragraph (b).

 

The Seller covenants that in the event any of the

foregoing conditions precedent are not satisfied with respect to any Receivable

on the date required as specified above, the Seller will immediately repurchase

such Receivable from the Trust, at a price equal to the Repurchase Amount

thereof, in the manner specified in Section 5.4.

 

It is the intention of the Seller that the transfer

and assignment contemplated by this Agreement and each related Transfer

Agreement shall constitute a sale of the related Receivables and the related

Other Conveyed Property from the Seller to the Issuer and the beneficial

interest in and title to such property shall not be part of the Seller’s estate

in the event of the filing of a bankruptcy petition by or against the Seller

under any bankruptcy law.  In the event

that, notwithstanding the intent of the Seller, the transfer and assignment

contemplated hereby and thereby is held not to be a sale, this Agreement and

the related Transfer Agreement shall constitute a Grant of a security interest

in the property referred to in this Section 2.1 to the Issuer.

 

(c)           Notwithstanding

the provisions of this Section 2.1 and any other provisions of any Transaction

Document that purport to allow multiple conveyances of Receivable from the

Seller to the Issuer, the parties hereto agree that, other than the conveyance

of the Receivables on the Closing Date, the Seller shall not convey any Receivables

to the Trust pursuant to this Agreement or any Transfer Agreement without the

prior written consent of the Insurer.

 

SECTION 2.2.        Further

Encumbrance of Owner Trust Estate. 

(a)  Immediately upon the

conveyance to the Trust by the Seller of Receivables and the related Other

Conveyed Property pursuant to Section 2.1, all right, title and interest of the

Seller in and to such Receivables and such Other Conveyed Property shall

terminate, and all such right, title and interest shall vest in the Issuer, in

accordance with the Trust

 

22

 

Agreement and Sections

3802 and 3805 of the Statutory Trust Statute (as defined in the Trust

Agreement).

 

(b)           Immediately

upon the vesting of any Receivables and the related Other Conveyed Property,

the Trust shall have the sole right to pledge or otherwise encumber such

property subject to the terms of the Basic Documents.  Pursuant to the Indenture and the Series Supplement, the Trust

will grant a security interest in the Series Trust Estate to secure the

repayment of the Notes and amounts owing to the Insurer under the Insurance

Agreement and the Basic Documents.  The

Certificates shall represent the beneficial ownership interest in the

Receivables and the Other Conveyed Property, and the Certificateholders shall

be entitled to receive distributions with respect thereto as set forth in the

Series Supplement.

 

(c)           The

Indenture Trustee shall hold the Series Trust Estate for the benefit of the

Secured Parties.  Following the payment

in full of the Notes and all amounts owing to the Insurer under the Insurance

Agreement and the Basic Documents and the release and discharge of the

Indenture and the Series Supplement, all covenants of the Issuer under Article

III of the Indenture and the Series Supplement shall, until payment in full of

the Certificates, remain as covenants of the Issuer for the benefit of the

Certificateholders, enforceable by the Certificateholders to the same extent as

such covenants were enforceable by the Secured Parties prior to the discharge

of the Indenture.  Any rights of the

Indenture Trustee under Article III of the Indenture and the Series Supplement,

following the discharge of the Indenture and the Series Supplement, shall vest

in the Certificateholders.

 

(d)           The

Indenture Trustee shall, at such time as there are no Securities outstanding

and all amounts owing to the Insurer under the Insurance Agreement and the

Basic Documents and all sums due to the Indenture Trustee or any agent or

counsel thereof pursuant to the Indenture as supplemented by the Series

Supplement, have been paid, pursuant to Section 4.1 of the Indenture, and

subject to satisfaction of the conditions set forth therein, release the Lien

of the Series Supplement and the Indenture with respect to the Series Trust

Estate.

 

ARTICLE III

 

The Receivables

 

SECTION 3.1.        Representations

and Warranties of Seller.  The

Seller represents and warrants as to the related Receivables that the

representations and warranties set forth on the Schedule of Eligibility

Criteria are, or will be, true and correct as of the respective dates specified

in such Schedule.  The Issuer is deemed

to have relied on such representations and warranties in acquiring the related

Receivables, the Insurer is deemed to have relied on such representations and

warranties in issuing the Note Policy and the related Securityholders shall be

deemed to rely on such representations and warranties in purchasing the Notes

and Certificates or any Additional Principal Amounts thereunder.  Such representations and warranties shall

survive the sale, transfer and

 

23

 

assignment of the Owner

Trust Estate to the Issuer and any pledge of the Series Trust Estate to the

Indenture Trustee pursuant to the Indenture and the Series Supplement.

 

SECTION 3.2.        Repurchase

upon Breach.  (a)  The Seller, the Master Servicer, the

Insurer, any Trust Officer of the Indenture Trustee, or the Owner Trustee, as

the case may be, shall inform each of the other parties to this Agreement

promptly, in writing, upon the discovery of any breach of the Seller’s

representations and warranties made pursuant to Section 3.1; provided, however,

that the failure to give any such notice shall not derogate from any

obligations of the Seller under this Section 3.2.  As of the last day of the second (or, if the Seller so elects,

the first, or with respect to any exceptions appearing on any exception report

delivered by the Indenture Trustee, the first) month following the discovery by

the Seller or receipt by the Seller of notice of such breach (or such longer

period not in excess of 120 days, as may be agreed upon by the Indenture

Trustee, the Insurer (for so long as it is the Controlling Party) and the

Master Servicer), unless such breach is cured by such date, the Seller shall

have an obligation to repurchase or cause HAFC or an Affiliate of HAFC that is

the seller under a Master Receivables Purchase Agreement or Household Finance

Corporation, as applicable, to repurchase any Receivable in which the interests

of the Securityholders and/or the Insurer are materially and adversely affected

by any such breach.  In consideration of

and simultaneously with the repurchase of the Receivables, the Seller shall

remit, or cause HAFC or an Affiliate of HAFC that is the seller under a Master

Receivables Purchase Agreement or Household Finance Corporation, as applicable,

to remit, to the Collection Account the Repurchase Amount in the manner

specified in Section 5.4 and the Issuer shall execute such assignments and

other documents reasonably requested by such person in order to effect such

repurchase.  The sole remedy of the

Issuer, the Owner Trustee, the Indenture Trustee, the Insurer and the related

holders with respect to a breach of representations and warranties pursuant to

Section 3.1 and the agreement contained in this Section shall be the repurchase

of the Receivables pursuant to this Section, subject to the conditions

contained herein or to enforce the obligation of HAFC or an Affiliate of HAFC

that is the seller under a Master Receivables Purchase Agreement or Household

Finance Corporation, as applicable, to the Seller to repurchase such

Receivables pursuant to the related Master Receivables Purchase Agreement.  Neither the Owner Trustee nor the Indenture

Trustee shall have a duty to conduct any affirmative investigation as to the

occurrence of any conditions requiring the repurchase of any Receivable

pursuant to this Section.

 

(b)           Pursuant

to Section 2.1 of this Agreement and pursuant to the related Transfer

Agreement, the Seller conveyed to the Trust all of the Seller’s right, title

and interest in its rights and benefits, but none of its obligations or

burdens, under the Master Receivables Purchase Agreements and the related

Master Receivables Purchase Agreement Supplements, including the Seller’s

rights under the Master Receivables Purchase Agreements and the delivery

requirements, representations and warranties and the cure or repurchase

obligations of HAFC or an Affiliate of HAFC that is the seller under a Master

Receivables Purchase Agreement or Household Finance Corporation, as applicable,

thereunder.  The Seller hereby

represents and warrants to the Trust that such assignment is valid, enforceable

and effective to permit the Trust to enforce such obligations of HAFC or an

Affiliate of HAFC that is the seller under a Master

 

24

 

Receivables Purchase Agreement and Household Finance

Corporation under the Master Receivables Purchase Agreements.

 

SECTION 3.3.        Custody

of Receivables Files.  In connection

with the sale, transfer and assignment of the Receivables to the Trust pursuant

to this Agreement and pursuant to the related Transfer Agreement, the Master

Servicer shall act as custodian for the benefit of the Indenture Trustee of the

following documents or instruments with respect to each Receivable:

 

(i)            The

fully executed original of the Receivable (together with any agreements

modifying the Receivable, including, without limitation, any extension

agreements);

 

(ii)           The

original credit application, or a copy thereof, of each Obligor, fully executed

by each such Obligor on the customary form used by HAFC, an Affiliate of HAFC,

or the related Dealer, as applicable, or on a form approved by HAFC or an

Affiliate of HAFC, as applicable, for such application; and

(iii)          The

original certificate of title (when received) and otherwise such documents, if

any, that HAFC or any Affiliate of HAFC that is the seller under a Master

Receivables Purchase Agreement, as applicable, keeps on file in accordance with

its customary procedures indicating that the Financed Vehicle is owned by the

Obligor and subject to the interest of HAFC or any Affiliate of HAFC that is

the seller under a Master Receivables Purchase Agreement as first lienholder or

secured party (including any Lien Certificate received by HAFC or any Affiliate

of HAFC that is the seller under a Master Receivables Purchase Agreement, as

applicable), or, if such original certificate of title has not yet been

received, a copy of the application therefor, showing any of HAFC, any

Affiliate of HAFC that is a seller under a Master Receivables Purchase

Agreement or a Dealer as secured party (in the case of a Dealer, the

application shall be to obtain title in the name of HAFC or any Affiliate of

HAFC that is a seller under a Master Receivables Purchase Agreement); and

 

(iv)          Documents

evidencing or relating to any Insurance Policy, to the extent such documents

are maintained by or on behalf of the Seller, HAFC or any Affiliate of HAFC

that is a seller under a Master Receivables Purchase Agreement.

 

Notwithstanding the

foregoing, the Master Servicer may appoint a subcustodian, which subcustodian

may hold physical possession of some or all of the Receivable Files.  The Indenture Trustee shall have no liability

for the acts or omissions of any such custodian or subcustodian.

 

25

 

ARTICLE IV

 

Administration and

Servicing of Receivables

 

SECTION 4.1.        Duties

of the Master Servicer.  The Master

Servicer is hereby authorized to act as agent for the Trust (and also on behalf

of the Indenture Trustee, the Noteholders and the Insurer) and in such capacity

shall manage, service, administer and make collections on the Receivables, and

perform the other actions required by the Master Servicer under this Agreement,

the Indenture and the Series Supplement. 

The Master Servicer agrees that its servicing of the Receivables shall

be carried out in accordance with customary and usual procedures of

institutions which service motor vehicle retail installment sales contracts

and, to the extent more exacting, the degree of skill and attention that the

Master Servicer exercises with respect to all comparable motor vehicle

receivables that it services for itself or others.  In performing such duties, so long as Household Finance

Corporation is the Master Servicer, it shall comply with the standard and

customary procedures for servicing all of its comparable motor vehicle

receivables.  The Master Servicer’s

duties shall include, without limitation, collection and posting of all

payments, responding to inquiries of Obligors on the Receivables, investigating

delinquencies, sending monthly billing statements to Obligors, reporting any

required tax information to Obligors, monitoring the collateral, accounting for

collections and furnishing monthly and annual statements to the Indenture

Trustee, the Noteholders and the Insurer with respect to distributions,

monitoring the status of Insurance Policies with respect to the Financed

Vehicles and performing the other duties specified herein.  The Master Servicer shall also administer

and enforce all rights and responsibilities of the holder of the Receivables

provided for in the Dealer Agreements (and Household Finance Corporation shall

make commercially reasonable efforts to obtain possession of the Dealer

Agreements, to the extent it is necessary to do so), the Dealer Assignments,

the Master Receivables Purchase Agreements, and the Insurance Policies, to the

extent that such Dealer Agreements, Dealer Assignments, the Master Receivables

Purchase Agreements, and Insurance Policies relate to the Receivables, the

Financed Vehicles or the Obligors.  To

the extent consistent with the standards, policies and procedures otherwise

required hereby, the Master Servicer shall follow its customary standards,

policies, and procedures and shall have full power and authority, acting alone,

to do any and all things in connection with such managing, servicing,

administration and collection that it may deem necessary or desirable.  In performing such duties, the Master

Servicer or any Subservicer may delegate their duties in accordance with

Section 9.5 hereof.  Without limiting

the generality of the foregoing, the Master Servicer is hereby authorized and

empowered by the Trust to execute and deliver, on behalf of the Trust, any and

all instruments of satisfaction or cancellation, or of partial or full release

or discharge, and all other comparable instruments, with respect to the

Receivables and with respect to the Financed Vehicles.  The Master Servicer is hereby authorized to

commence, in it’s own name or in the name of the Trust, a legal proceeding to

enforce a Receivable pursuant to Section 4.3 or to commence or participate in

any other legal proceeding (including, without limitation, a bankruptcy

proceeding) relating to or involving a Receivable, an Obligor or a Financed

Vehicle.  If the Master Servicer

commences or participates in such a legal proceeding in its own name, the Trust

shall thereupon be deemed to have automatically assigned such Receivable to the

Master

 

26

 

Servicer solely for

purposes of commencing or participating in any such proceeding as a party or

claimant, and the Master Servicer is authorized and empowered by the Trust to

execute and deliver in the Master Servicer’s name any notices, demands, claims,

complaints, responses, affidavits or other documents or instruments in

connection with any such proceeding.  The

Indenture Trustee and the Owner Trustee shall furnish the Master Servicer with

any powers of attorney and other documents which the Master Servicer may

reasonably request and which the Master Servicer deems necessary or appropriate

and take any other steps which the Master Servicer may deem reasonably

necessary or appropriate to enable the Master Servicer to carry out its

servicing and administrative duties under this Agreement.

 

SECTION 4.2.        Collection

of Receivable Payments; Modifications of Receivables.  (a) 

Consistent with the standards, policies and procedures required by this

Agreement, the Master Servicer shall make reasonable efforts to collect all

payments called for under the terms and provisions of the Receivables as and

when the same shall become due, and shall follow such collection procedures as

it follows with respect to all comparable motor vehicle receivables that it

services for itself or others and otherwise act with respect to the

Receivables, the Dealer Agreements, the Dealer Assignments, the Master

Receivables Purchase Agreements, the Insurance Policies and the Other Conveyed

Property in such manner as will, in the reasonable judgment of the Master

Servicer, maximize the amount to be received by the Trust with respect thereto.  Consistent with the foregoing, the Master

Servicer may, if it determines in its reasonable judgment that such action

would maximize the amount to be received by the Trust, arrange for the sale by

the Trust of Liquidated Receivables with respect to which the related Financed

Vehicle has been sold, and the net proceeds of such sale shall be included in

Net Liquidation Proceeds.  The Master

Servicer is authorized in its discretion to waive any prepayment charge, late

payment charge or any other similar fees that may be collected in the ordinary

course of servicing any Receivable.

 

(b)           The

Master Servicer may at any time agree to a modification or amendment of a

Receivable in order to (i) change the

Obligor’s regular due date to a date within 30 days of when such due date

occurs; provided, however, that no modification of a Receivable

in connection with a due date change pursuant to this clause (i) shall be

considered an extension for purposes of Section 4.2(c) below and therefore

shall not be subject to the restrictions on extensions, modifications or

amendments specified in Section 4.2(c) below or (ii) re-amortize the Scheduled

Payments on the Receivable following a partial prepayment of principal; provided,

however, that no re-amortization permitted by this clause (ii) shall

extend the maturity date of any Receivable.

 

(c)           The

Master Servicer may grant payment extensions on, or other modifications or

amendments to, a Receivable in accordance with its customary procedures if the

Master Servicer believes in good faith that such extension, modification or

amendment is necessary to avoid a default on such Receivable, will maximize the

amount to be received with respect to such Receivable, and is otherwise in the

best interests of the Trust; provided, however,

that unless otherwise specified in the Series Supplement:

 

27

 

(i)            The

aggregate period of all extensions on a Receivable shall not exceed six months;

provided, however, that not more than three months can be in any

consecutive twelve month period;

 

(ii)           In

no event may a Receivable be extended by the Master Servicer beyond the

Collection Period immediately preceding the Final Scheduled Distribution Date

of the Notes;

 

(iii)          The

average Monthly Extension Rate for any three consecutive calendar months shall

not exceed 4%; and

 

(iv)          Not

more than 5% of the Pool Balance may be subject to a modified interest rate at

any time (exclusive of Cram Down Losses).

 

(d)           Except

as otherwise provided below in Section 4.2(e) hereof, the Master Servicer shall

deposit collections in immediately available funds on or with respect to

Receivables into the Collection Account as promptly as possible after the date

of processing of such collections, but in no event later than the second

Business Day following the date of processing.

 

(e)           Subject

to the express terms of the Series Supplement, but notwithstanding anything

else in this Agreement to the contrary, for so long as (i) Household Finance

Corporation remains the Master Servicer and maintains a commercial paper rating

of not less than A-1 by Standard & Poor’s, P-1 by Moody’s and F1 by Fitch

(or such other rating as shall be satisfactory to such Rating Agency and the

Insurer (for so long as it is the Controlling Party)), in each case only if such

Person is a Rating Agency, and for five Business Days following any reduction

of any such rating or (ii) a Master Servicer Credit Facility is maintained in

effect by the Master Servicer in form and substance acceptable to the Rating

Agency (such acceptability to be evidenced in writing by the Rating Agency to

the effect that failure to make the aforementioned deposit on the basis of the

maintenance of the Master Servicer Credit Facility will not adversely affect

the then current rating of the Notes) and the Insurer (for so long as it is the

Controlling Party) issued by a depository institution or insurance company

having a rating on its (A) short-term obligations of at least P-1 by Moody’s,

A-1 by Standard & Poor’s and F1 by Fitch (or such other rating as shall be

satisfactory to such Rating Agency and the Insurer (for so long as it is the

Controlling Party)), in each case only if such Person is a Rating Agency, and

(B) long term obligations of at least A2 by Moody’s, A by Standard &

Poor’s, and A by Fitch, in each case only if such Person is a Rating Agency,

the Master Servicer shall not be required to make deposits of collections on or

with respect to Receivables as provided in Section 4.2(d), but may make one or

more deposits of Collected Funds (excluding any portion of such funds which the

Master Servicer may retain in accordance with Section 4.8 or pay directly to

the Seller in its capacity as Certificateholder in accordance with Section

5.1(f)) with respect to the Series Trust Estate with respect to a Collection

Period into the Collection Account in immediately available funds not later

than 1:00 P.M., Central time, on the Business Day immediately

 

28

 

preceding the related Distribution Date.  The Master Servicer shall give written

notice to the Indenture Trustee and the Insurer if it is required to deposit

funds in accordance with Section 4.2(d).

 

(f)            In

the event that a Master Servicer Credit Facility is maintained, the Master

Servicer shall within two Business Days of the date of processing of

collections on or with respect to Receivables notify the Indenture Trustee and

the Master Servicer Credit Facility Issuer in writing of the amounts that would

otherwise be deposited in the Collection Account and the Master Servicer shall

establish and maintain for the Trust a Payment Record in which the payments on

or with respect to the Receivables shall be credited and the Master Servicer

shall notify the Indenture Trustee, the Insurer and the Master Servicer Credit

Facility Issuer in writing as promptly as practicable (but in any event prior

to the Determination Date for the following Distribution Date) of the amounts

so credited on or with respect to the Receivables that are to be included in

Collected Funds (as determined for this purpose after giving effect to the

exclusions described above) for the related Distribution Date and of the

amounts so credited which will constitute a part of Collected Funds (as

determined for this purpose after giving effect to the exclusions described

above) for the second following Distribution Date.  The Payment Record shall be made available for inspection during

normal business hours of the Master Servicer upon request of the Indenture Trustee,

the Insurer (for so long as it is the Controlling Party) or any Master Servicer

Credit Facility Issuer.

 

SECTION 4.3.        Realization

Upon Receivables.  (a)  Consistent with the standards, policies and

procedures required by this Agreement, the Master Servicer shall use its best

efforts to repossess (or otherwise comparably convert the ownership of) and

liquidate any Financed Vehicle securing a Receivable with respect to which the

Master Servicer has determined that payments thereunder are not likely to be

resumed, as soon as is practicable after default on such Receivable but in no

event later than the date on which 10% or more of a Scheduled Payment has

become 150 days delinquent (other than in the case of Financed Vehicles where

neither the Financed Vehicle nor the Obligor can be physically located by the

Master Servicer (using procedures consistent with the standards, policies and

procedures of the Master Servicer required by this Agreement) and other than in

the case of an Obligor who is subject to a bankruptcy proceeding); provided,

however, that the Master Servicer may elect not to repossess a Financed

Vehicle within such time period if in its good faith judgment it determines

that the proceeds ultimately recoverable with respect to such Receivable would

be increased by forbearance.  The Master

Servicer is authorized to follow such customary practices and procedures as it

shall deem necessary or advisable, consistent with the standard of care

required by Section 4.1, which practices and procedures may include reasonable

efforts to realize upon any recourse to Dealers, the sale of the related

Financed Vehicle at public or private sale, the submission of claims under an

Insurance Policy and other actions, including, without limitation, entering

into settlements with Obligors, by the Master Servicer in order to realize upon

such a Receivable.  The foregoing is

subject to the provision that, in any case in which the Financed Vehicle shall

have suffered damage, the Master Servicer shall not expend funds in connection

with any repair or towards the repossession of such Financed Vehicle unless it

shall determine in its discretion that such repair and/or 

 

29

 

repossession shall

increase the proceeds of liquidation of the related Receivable by an amount greater

than the amount of such expenses. The Master Servicer shall be entitled to

recover all reasonable expenses incurred by it in the course of repossessing

and liquidating a Financed Vehicle but only from the liquidation proceeds of

the vehicle or under the related Dealer Agreement.  The Master Servicer shall pay on behalf of the Trust any personal

property taxes assessed on repossessed Financed Vehicles.  The Master Servicer shall be entitled to

reimbursement of any such tax from Net Liquidation Proceeds with respect to

such Receivable.

 

(b)           If

the Master Servicer elects to commence a legal proceeding to enforce a Dealer

Agreement or Dealer Assignment, the act of commencement shall be deemed to be

an automatic assignment from the Trust to the Master Servicer of the rights

under such Dealer Agreement and Dealer Assignment for purposes of collection

only.  If, however, in any

enforcement suit or legal proceeding it is held that the Master Servicer may

not enforce a Dealer Agreement or Dealer Assignment on the grounds that it is

not a real party in interest or a Person entitled to enforce the Dealer

Agreement or Dealer Assignment, the Indenture Trustee, at the Master Servicer’s

written direction and expense, or the Seller, at the Seller’s expense, shall take

such steps as the Master Servicer deems reasonably necessary to enforce the

Dealer Agreement or Dealer Assignment, including bringing suit in its name or

the name of the Seller, the Trust or the Owner Trustee.  All amounts recovered shall be remitted directly

by the Master Servicer as provided in Section 4.2(d) or 4.2(e), as applicable.

 

SECTION 4.4.        Insurance.  (a) 

The Master Servicer shall require, in accordance with its customary

servicing policies and procedures, that each Financed Vehicle be insured by the

related Obligor under an insurance policy covering physical loss and damage to

the related Financed Vehicle and shall monitor the status of such physical loss

and damage insurance coverage thereafter, in accordance with its customary

servicing procedures.  Each Receivable

requires the Obligor to obtain such physical loss and damage insurance, naming

HAFC or any Affiliate of HAFC that is the seller under a Master Receivables

Purchase Agreement, as applicable, and its successors and assigns as loss payee,

and with respect to liability coverage, additional insureds, and permits the

holder of such Receivable to obtain physical loss and damage insurance at the

expense of the Obligor if the Obligor fails to maintain such insurance.  If the Master Servicer shall determine that

an Obligor has failed to obtain or maintain a physical loss and damage

Insurance Policy covering the related Financed Vehicle which satisfies the

conditions set forth in the related Eligibility Criteria (including, without

limitation, during the repossession of such Financed Vehicle) the Master

Servicer shall be diligent in carrying out its customary servicing procedures

to enforce the rights of the holder of the Receivable under the Receivable to

require the Obligor to obtain such physical loss and damage insurance in

accordance with its customary servicing policies and procedures.

 

(b)           The

Master Servicer may sue to enforce or collect upon the Insurance Policies, in

its own name, if possible, or as agent of the Trust.  If the Master Servicer elects to commence a legal proceeding to

enforce an Insurance Policy, the act of commencement shall be deemed to be an

automatic assignment of the rights of the Trust under such Insurance Policy to

the Master Servicer for purposes of collection only.  If,

 

30

 

however, in any enforcement suit or

legal proceeding it is held that the Master Servicer may not enforce an

Insurance Policy on the grounds that it is not a real party in interest or a

holder entitled to enforce the Insurance Policy, the Indenture Trustee, at the

Master Servicer’s written direction and expense, or the Seller, at the Seller’s

expense, shall take such steps as the Master Servicer deems reasonably

necessary to enforce such Insurance Policy, including bringing suit in its name

or the name of the Trust or the Owner Trustee.

 

SECTION 4.5.        Maintenance

of Security Interests in Vehicles. 

Consistent with the policies and procedures required by this Agreement,

the Master Servicer shall take such steps on behalf of the Trust as are

necessary to maintain perfection of the security interest created by each

Receivable in the related Financed Vehicle on behalf of the Trust or as the

Indenture Trustee or the Insurer (for so long as it is the Controlling Party)

shall reasonably request, including, but not limited to, obtaining the

execution by the Obligors and the recording, registering, filing, re-recording,

re-filing, and re-registering of all security agreements, financing statements

and continuation statements as are necessary to maintain the security interest

granted by the Obligors under the respective Receivables.  The Owner Trustee, on behalf of the Trust,

hereby authorizes the Master Servicer, and the Master Servicer agrees, to take

any and all steps necessary to re-perfect such security interest on behalf of

the Trust as necessary because of the relocation of a Financed Vehicle or for

any other reason.  In the event that the

assignment of a Receivable to the Trust is insufficient, without a notation on

the related Financed Vehicle’s certificate of title, or without fulfilling any

additional administrative requirements under the laws of the state in which the

Financed Vehicle is located, to perfect a security interest in the related

Financed Vehicle in favor of the Trust, the Seller hereby agrees to cause HAFC

or any Affiliate of HAFC that is the seller under a Master Receivables Purchase

Agreement, as applicable, to treat the designation of HAFC or any Affiliate of

HAFC that is the seller under a Master Receivables Purchase Agreement, as

applicable, as the secured party on the certificate of title as a designation

in its capacity as agent of the Trust for such limited purpose.

 

SECTION 4.6.        Covenants,

Representations, and Warranties of Master Servicer.  By its execution and delivery of this

Agreement, the Master Servicer makes the following representations, warranties

and covenants on which the Issuer relies in accepting the Receivables, on which

the Indenture Trustee relies in authenticating the Notes, on which the

Noteholders rely in purchasing the Notes and any Additional Principal Amount

thereunder, on which the Owner Trustee relies in executing the Certificates and

on which the Insurer relies in issuing the Note Policy.

 

The Master Servicer covenants as follows:

 

(i)            Liens

in Force.  The Financed Vehicle

securing each Receivable shall not be released in whole or in part from the

security interest granted by the Receivable, except upon payment in full of the

Receivable or as otherwise contemplated herein;

 

(ii)           No

Impairment.  The Master Servicer

shall do nothing to impair the rights of the Trust, the Insurer or the

 

31

 

Noteholders in the

Receivables, the Dealer Agreements, the Dealer Assignments, the Master

Receivables Purchase Agreements, the Insurance Policies or the Other Conveyed

Property;

 

(iii)          No

Amendments.  The Master Servicer

shall not extend or otherwise amend the terms of any Receivable, except in

accordance with Section 4.2;

 

(iv)          Restrictions

on Liens.  The Master Servicer shall

not (i) create, incur or suffer to exist, or agree to create, incur or suffer

to exist, or consent to cause or permit in the future (upon the happening of a

contingency or otherwise) the creation, incurrence or existence of any Lien or

restriction on transferability of the Receivables except for the Lien in favor

of the Indenture Trustee for the benefit of the Secured Parties, and the

restrictions on transferability imposed by this Agreement or (ii) sign or file

under the Uniform Commercial Code of any jurisdiction any financing statement

which names HAFC, the Master Servicer or any Affiliate thereof as a debtor, or

sign any security agreement authorizing any secured party thereunder to file

such financing statement, with respect to the Receivables, except in each case

any such instrument solely securing the rights and preserving the Lien in favor

of the Indenture Trustee for the benefit of the Secured Parties;

 

(v)           Servicing

of Receivables.  The Master Servicer

shall service the Receivables as required by the terms of this Agreement and in

material compliance with its standard and customary procedures for servicing

all its other comparable motor vehicle receivables and in compliance with

applicable law; and

 

(vi)          Relocations

of Principal Office.  The Master

Servicer shall notify in writing the Indenture Trustee and the Insurer of any

relocation of the Master Servicer’s principal office set forth in Section 13.3

hereof and all Receivables Files shall be maintained by the Master Servicer in

the United States.

 

SECTION 4.7.        Repurchase

of Receivables Upon Breach of Covenant. 

Upon discovery by any of the Master Servicer, the Seller, the Insurer, a

Trust Officer of the Owner Trustee or a Trust Officer of the Indenture Trustee

of a breach of any of the covenants set forth in Sections 4.5 or 4.6, the party

discovering such breach shall give prompt written notice to the others; provided,

however, that the failure to give any such notice shall not affect any

obligation of the Master Servicer under this Section 4.7.  As of the second Accounting Date following

its discovery or receipt of notice of any breach of any covenant set forth in

Sections 4.5 or 4.6 which materially and adversely affects the interests of the

Securityholders or the Insurer in any Receivable (including any Liquidated

Receivable) or the related Financed Vehicle (or, if such second Accounting Date

is more than 45 days after discovery or receipt by the Master Servicer of

notice of

 

32

 

such breach, then the

first Accounting Date so following), the Master Servicer shall, unless such

breach shall have been cured in all material respects, repurchase from the

Trust the Receivable affected by such breach and, on the date specified in

Section 5.4, the Master Servicer shall pay the related Repurchase Amount and

deposit such Repurchase Amounts into the Collection Account.  It is understood and agreed that the

obligation of the Master Servicer to repurchase any Receivable (including any

Liquidated Receivable) with respect to which such a breach has occurred and is

continuing shall, if such obligation is fulfilled, constitute the sole remedy

against the Master Servicer for such breach.

 

SECTION 4.8.        Total

Servicing Fee; Payment of Certain Expenses by Master Servicer.  So as long as:  (i) Household Finance Corporation is the Master Servicer, (ii)

the Master Servicer is permitted to make deposits of collections in accordance

with Section 4.2(e) hereof and (iii) the Master Servicer’s Certificate

delivered with respect to such Distribution Date indicates that Available Funds

with respect to such Distribution Date are sufficient to make the distributions

required to be made on such Distribution Date in respect of the Servicing Fee payable

to Household Finance Corporation as Master Servicer (and all other

distributions required to be made on such Distribution Date having a higher

priority than the distribution of the Servicing Fee payable to Household

Finance Corporation as Master Servicer), the Master Servicer shall be entitled

to retain out of amounts otherwise to be deposited in the Collection Account

with respect to a Collection Period, the Servicing Fee payable to Household

Finance Corporation as Master Servicer for such Collection Period.  The Master Servicer shall be required to pay

all expenses incurred by it in connection with its activities under this

Agreement (including taxes imposed on the Master Servicer, expenses incurred in

connection with distributions and reports made by the Master Servicer to

Securityholders, all fees and expenses of the Owner Trustee or the Indenture

Trustee), except taxes levied or assessed against the Trust, and claims against

the Trust in respect of indemnification, which taxes and claims in respect of

indemnification against the Trust are expressly stated to be for the account of

Household Finance Corporation.  The

Master Servicer shall be liable for the fees, charges and expenses of the Owner

Trustee, the Indenture Trustee, any Subservicer and their respective agents.

 

SECTION 4.9.        Master

Servicer’s Certificate.  No later

than 10:00 a.m. Central time on each Determination Date, the Master Servicer

shall deliver, and cause to be delivered via access to its or its Affiliate’s

web-site address, to the Insurer, the Indenture Trustee and the Owner Trustee,

a Master Servicer’s Certificate executed by a responsible officer or agent of

the Master Servicer containing among other things, all information necessary to

enable the Indenture Trustee to give any notice required by Section 3.03(c) of

the Series Supplement and make the distributions with respect to the related

Distribution Date pursuant to the Series Supplement.  In addition to the information set forth in the preceding

sentence, the Master Servicer’s Certificate shall also contain the information

required by the Series Supplement.

 

SECTION 4.10.      Annual

Statement as to Compliance, Notice of Master Servicer Termination Event.  (a) 

The Master Servicer shall deliver or cause to be delivered to the Insurer,

the Indenture Trustee and the Owner Trustee on or before April

 

33

 

30 (or 120 days after the

end of the Master Servicer’s fiscal year, if other than December 31) of each

year, beginning on April 30 in calendar year 2004, an Officer’s Certificate

signed by any responsible officer of the Master Servicer, or such Eligible

Subservicer who is performing the servicing duties of the Master Servicer,

dated as of December 31 (or other applicable date) of the immediately preceding

year, stating that (i) a review of the activities of the Master Servicer, or

such Eligible Subservicer who is performing the servicing duties of the Master

Servicer, during the preceding 12-month period (or such shorter or longer, as

applicable, period since the Closing Date) and of its performance under this

Agreement has been made under such officer’s supervision, and (ii) to such

officer’s knowledge, based on such review, the Master Servicer, or such

Eligible Subservicer who is performing the servicing duties of the Master

Servicer, has in all material respects fulfilled all its obligations under this

Agreement throughout such period, or, if there has been a default in the

fulfillment of any such obligation, specifying each such default known to such

officer and the nature and status thereof.

 

(b)           The

Master Servicer, or such Eligible Subservicer who is performing the servicing

duties of the Master Servicer, shall deliver to the Insurer, the Indenture

Trustee and the Owner Trustee, and, in the event that such notice is delivered

by the Subservicer, to the Master Servicer, promptly after having obtained

knowledge thereof, but in no event later than two (2) Business Days thereafter,

written notice in an Officer’s Certificate of any event which with the giving

of notice or lapse of time, or both, would become a Master Servicer Termination

Event under Section 10.1(a).  The Seller

or the Master Servicer shall deliver to the Insurer, the Indenture Trustee, the

Owner Trustee, the Master Servicer or the Seller (as applicable) promptly after

having obtained knowledge thereof, but in no event later than two (2) Business

Days thereafter, written notice in an Officer’s Certificate of any event which

with the giving of notice or lapse of time, or both, would become a Master

Servicer Termination Event under any other clause of Section 10.1.

 

SECTION 4.11.      Annual

Independent Accountants’ Report. 

(a)  The Master Servicer shall

cause a firm of nationally recognized independent certified public accountants

(the “Independent Accountants”), who may also render other services to the

Master Servicer or to the Seller, to deliver to the Insurer, the Indenture

Trustee and the Owner Trustee on or before April 30 (or 120 days after the end

of the Master Servicer’s fiscal year, if other than December 31) of each year,

beginning on April 30 in calendar year 2004 with respect to the twelve months

(or shorter applicable period) ended the immediately preceding December 31 (or

other applicable date), a report to the effect that they have examined certain

documents and records relating to the servicing of Receivables under this

Agreement and the Series Supplement, compared the information contained in the

Master Servicer’s Certificates delivered pursuant to Section 4.9 during the

period covered by such report with such documents and records and that, on the

basis of such examination, such accountants are of the opinion that the

servicing has been conducted in compliance with the terms and conditions as set

forth in Articles IV and V of this Agreement and the applicable provisions of

the Series Supplement, except for such exceptions as they believe to be

immaterial and such other exceptions as shall be set forth in such

statement.  Such report shall

acknowledge that the Indenture Trustee shall be a “non-participating party”

with respect to such report, or words to similar effect.  The

 

34

 

Indenture Trustee shall

have no duty to make any independent inquiry or investigation as to, and shall

have no obligation or liability in respect of, the sufficiency of such

procedures.

 

(b)           On

or before April 30 of each calendar year, beginning with April 30 in calendar

year 2004, the Master Servicer shall cause a firm of nationally recognized independent

public accountants (who may also render other services to the Master Servicer

or the Seller) to furnish a report to the Indenture Trustee, the Insurer and

the Master Servicer to the effect that they have compared the mathematical

calculations of each amount set forth in the Master Servicer’s Certificates

delivered pursuant to Section 4.9 during the period covered by such report with

the Master Servicer’s computer reports which were the source of such amounts

and that on the basis of such comparison, such accountants are of the opinion

that such amounts are in agreement, except for such exceptions as they believe

to be immaterial and such other exceptions as shall be set forth in such

statement.  Such report shall

acknowledge that the Indenture Trustee shall be a “non-participating party”

with respect to such report, or words to similar effect.  The Indenture Trustee shall have no duty to

make any independent inquiry or investigation as to, and shall have no obligation

or liability in respect of, the sufficiency of such procedures.

 

SECTION 4.12.      Access

to Certain Documentation and Information Regarding Receivables.  The Master Servicer shall provide to

representatives of the Insurer (for so long as it is the Controlling Party),

the Indenture Trustee and the Owner Trustee reasonable access to the

documentation regarding the Receivables. 

In each case, such access shall be afforded without charge but only upon

reasonable request and during normal business hours.  Nothing in this Section shall derogate from the obligation of the

Master Servicer to observe any applicable law prohibiting disclosure of

information regarding the Obligors, and the failure of the Master Servicer to

provide access as provided in this Section as a result of such obligation shall

not constitute a breach of this Section.

 

SECTION 4.13.      Fidelity

Bond and Errors and Omissions Policy. 

The Master Servicer or such Eligible Subservicer that is performing the

servicing duties of the Master Servicer, has obtained, and shall continue to

maintain in full force and effect, a Fidelity Bond and Errors and Omissions

Policy of a type and in such amount as is customary for servicers engaged in

the business of servicing motor vehicle receivables.

 

ARTICLE V

 

Trust Accounts;

Distributions;

Statements to

Certificateholders and Noteholders

 

SECTION 5.1.        Establishment

of Trust Accounts.  (a)  (i) 

The Indenture Trustee shall establish and maintain the Trust Accounts

required to be established and maintained pursuant to the Series Supplement,

and such Trust Accounts shall be subject to the sole dominion and control of

the Indenture Trustee for the benefit of the Noteholders and the Insurer.

 

35

 

(ii)   No Trust

Account shall be maintained with an institution other than the Indenture

Trustee unless such institution agrees in writing to the provisions of this

Section 5.1 as if such institution were the Indenture Trustee, except that the

Indenture Trustee shall continue to be the “entitlement holder” of the related Trust

Account.

 

(iii)  With

respect to any Trust Account Property held from time to time in any Trust

Account, the Indenture Trustee agrees that (A) such Trust Account Property

shall at all times be credited in the Indenture Trustee’s books and records to

the relevant Trust Account, (B) any Eligible Investment constituting a deposit

account shall be, except as otherwise provided herein, subject to the exclusive

custody and control of the Indenture Trustee, and, if the Indenture Trustee is

not the depositary bank with which such deposit account is maintained, the

Indenture Trustee shall be the depositary bank’s customer with respect thereto,

and (C) any Eligible Investment other than a deposit account shall be held,

pending maturity or disposition by the Indenture Trustee, in accordance with

the relevant terms of the definition of “Delivery.”  The Indenture Trustee acknowledges and agrees that each item of

property (whether investment property, financial asset, security, instrument,

cash or any other type of property) credited to a Trust Account shall be

treated as a “financial asset” within the meaning of Article 8 of the UCC.

 

(b)           Except

as otherwise provided in the Series Supplement, funds on deposit in the Trust

Accounts shall be invested by the Indenture Trustee (or any custodian with

respect to funds on deposit in any such account) in Eligible Investments

selected in writing by the Master Servicer (pursuant to standing instructions

or otherwise) which absent any instruction shall be the investments specified

in clause (d) of the definition of Eligible Investments set forth herein.  Unless otherwise agreed in writing by the

Rating Agencies and the Insurer, funds on deposit in any Trust Account shall be

invested in Eligible Investments that will mature so that such funds will be

available at the close of business on the Business Day immediately preceding

the following Distribution Date.  Funds

deposited in a Trust Account on the day immediately preceding a Distribution Date

and representing the proceeds of Eligible Investments are required to be held

overnight in an Eligible Deposit Account and a portion of the earnings on such

overnight deposits in accordance with the agreed upon Indenture Trustee Fee

shall be included in Available Funds (as defined in the Series Supplement) for

the succeeding Distribution Date.  All

Eligible Investments will be held to maturity.

 

(c)           All

investment earnings of monies deposited in the Trust Accounts shall be

deposited (or caused to be deposited) by the Indenture Trustee in the Collection

Account no later than the close of business on the Business Day immediately

preceding the related Distribution Date, and any loss resulting from such

investments shall be charged to the Collection Account.  The Master Servicer will not direct the

Indenture Trustee to make any investment of any funds held in any of the Trust

Accounts unless the security interest granted and perfected in such account

will continue to be perfected in such investment, in either case without any

further action by any Person, and, in connection with any direction to the

Indenture Trustee, to make any such

 

36

 

investment, if necessary, the Master Servicer shall

deliver to the Indenture Trustee an Opinion of Counsel to such effect.

 

(d)           The

Indenture Trustee shall not in any way be held liable by reason of any

insufficiency in any of the Trust Accounts resulting from any loss on any

Eligible Investment included therein except for losses attributable to the

Indenture Trustee’s negligence or bad faith or its failure to make payments on

such Eligible Investments issued by the Indenture Trustee in its commercial

capacity as principal obligor and not as Indenture Trustee in accordance with

their terms.

 

(e)           If

(i) the Master Servicer shall have failed to give investment directions for any

funds on deposit in the Trust Accounts to the Indenture Trustee by 2:00 p.m.

Eastern Time (or such other time as may be agreed by the Issuer and the

Indenture Trustee) on any Business Day; or (ii) an Event of Default shall have

occurred and be continuing, the Indenture Trustee shall, to the fullest extent

practicable, invest and reinvest funds in the Trust Accounts in one or more

Eligible Investments in accordance with paragraph (b) above; provided

that, if following an Event of Default amounts are to be distributed to

Securityholders other than on a Distribution Date, investments shall mature on

the Business Day preceding any such proposed date of distribution.

 

(f)            The

Indenture Trustee shall possess all right, title and interest in all funds on

deposit from time to time in the Trust Accounts and in all proceeds thereof and

all such funds, investments, proceeds and income shall be part of the Series

Trust Estate.  Except as otherwise

provided herein, the Trust Accounts shall be under the sole dominion and

control of the Indenture Trustee for the benefit of the Secured Parties.  If, at any time, any Trust Account ceases to

be an Eligible Deposit Account, the Indenture Trustee (or the Master Servicer on

its behalf) shall within five Business Days (or such longer period as to which

each Rating Agency and the Insurer (for so long as it is the Controlling Party)

may consent) establish a new Trust Account as an Eligible Deposit Account and

shall transfer any cash and/or any investments to such new Trust Account.  In connection with the foregoing, the Master

Servicer agrees that, in the event that any of the Trust Accounts are not

accounts with the Indenture Trustee, the Master Servicer shall notify the Indenture

Trustee and the Insurer in writing promptly upon any of such Trust Accounts

ceasing to be an Eligible Deposit Account. The Master Servicer may net against

any deposits required to be made to the Collection Account on the Business Day

before any Determination Date amounts that the Seller, as Certificateholder or

otherwise, is entitled to receive as distributions from the Collection Account

on the related Distribution Date.

 

SECTION 5.2.        Certain

Reimbursements to the Master Servicer. 

The Master Servicer shall be entitled to withhold from amounts otherwise

required to be remitted to the Collection Account with respect to a Collection

Period an amount in respect of funds deposited with respect to prior Collection

Periods in the Collection Account but later determined by the Master Servicer

to have resulted from mistaken deposits or postings or checks returned for

insufficient funds; provided, that, such withholding may be made

only following certification by the Master Servicer of such

 

37

 

amounts and the provision

of such information to the Indenture Trustee as may be necessary in the opinion

of the Indenture Trustee to verify the accuracy of such certification.

 

SECTION 5.3.        Application

of Collections.  All collections for

the Collection Period shall be applied by the Master Servicer as follows:  with respect to each Simple Interest

Receivable (other than a Repurchased Receivable), payments by or on behalf of

the Obligor, (other than amounts, if any, collected with respect to

administrative fees, including late fees, prepayment fees and liquidation fees

collected on the Receivable) shall be applied to interest and principal in

accordance with the Simple Interest Method. 

With respect to each Actuarial Receivable, (other than a Repurchased

Receivable), payments by or on behalf of the Obligor, (other than amounts, if

any, collected with respect to administrative fees, including late fees,

prepayment fees and liquidation fees collected on the Receivable) shall be

applied to interest and principal in accordance with the Actuarial Method.

 

SECTION 5.4.        Additional

Deposits.  (a)    HAFC, any Affiliate of HAFC that is the

seller under a Master Receivables Purchase Agreement, Household Finance

Corporation and the Seller, as applicable, shall deposit or cause to be

deposited in the Collection Account on the Business Day preceding the

Distribution Date following the date on which such obligations are due the

aggregate Repurchase Amount with respect to Repurchased Receivables.

 

(b)           The

Master Servicer agrees for the benefit of the Indenture Trustee that any

amounts payable by the Master Servicer to the Seller under the Master

Receivables Purchase Agreement to which the Master Servicer is a party which

are to be paid by the Seller to the Indenture Trustee for the benefit of the

Secured Parties shall be paid by the Master Servicer, on behalf of the Seller,

directly to the Indenture Trustee.

 

ARTICLE VI

 

RESERVED

 

ARTICLE VII

 

RESERVED

 

ARTICLE VIII

 

The Seller

 

SECTION 8.1.        Representations

of Seller.  The Seller makes the

following representations on which the Issuer is deemed to have relied in

acquiring the Receivables and on which the Noteholders are deemed to have

relied on in the purchasing of Notes and any Additional Principal Amount and on

which each Support Provider shall be deemed to have relied on providing the

Series Support.  Except as otherwise

 

38

 

specifically provided,

the representations speak as of the Closing Date and as of each Transfer Date

and shall survive each sale of the Receivables to the Issuer and each pledge

thereof to the Indenture Trustee pursuant to the Indenture and the Series

Supplement.

 

(a)           Representations

in Transfer Agreement.  The

representations and warranties set forth on the Schedule of Eligibility

Criteria attached as Schedule I to the Series Supplement are true and correct

with respect to the Receivables included in the Series Trust Estate.

 

(b)           Organization

and Good Standing.  The Seller has

been duly organized and is validly existing as a corporation in good standing

under the laws of the State of Nevada, with power and authority to own its

properties and to conduct its business as such properties are currently owned

and such business is currently conducted, and had at all relevant times, and

now has, power, authority and legal right to acquire, own and sell the Owner

Trust Estate transferred to the Trust.

 

(c)           Due

Qualification.  The Seller is duly

qualified to do business as a foreign corporation in good standing and has

obtained all necessary licenses and approvals in all jurisdictions where the

failure to do so would materially and adversely affect Seller’s ability to

transfer the Receivables and the Other Conveyed Property to the Trust pursuant

to this Agreement, or the validity or enforceability of the Receivables and the

Other Conveyed Property or to perform Seller’s obligations hereunder and under

the Related Documents to which the Seller is a party.

 

(d)           Power

and Authority.  The Seller has the

power and authority to execute and deliver this Agreement and the Related

Documents to which it is a party and to carry out its terms and their terms,

respectively; the Seller has full power and authority to sell and assign the

Owner Trust Estate to be sold and assigned to and deposited with the Trust by

it and has duly authorized such sale and assignment to the Trust by all

necessary corporate action; and the execution, delivery and performance of this

Agreement and the Related Documents to which the Seller is a party have been

duly authorized by the Seller by all necessary corporate action.

 

(e)           Valid

Sale, Binding Obligations. This Agreement and each related Transfer

Agreement effects a valid sale, transfer and assignment of the Owner Trust Estate,

enforceable against the Seller and creditors of and purchasers from the Seller;

and this Agreement and the Related Documents to which the Seller is a party,

when duly executed and delivered, shall constitute legal, valid and binding

obligations of the Seller enforceable in accordance with their respective

terms, except as enforceability may be limited by bankruptcy, insolvency,

reorganization or other similar laws affecting the enforcement of creditors’

rights generally and by equitable limitations on the availability of specific

remedies, regardless of whether such enforceability is considered in a

proceeding in equity or at law.

 

(f)            No

Violation.  The consummation of the

transactions contemplated by this Agreement and the Related Documents and the

fulfillment of the terms of this Agreement and the Related Documents shall not

(A) conflict with, result in

 

39

 

any breach of any of the terms and provisions of, or

constitute (with or without notice, lapse of time or both) a default under, the

articles of incorporation or by-laws of the Seller, or any indenture,

agreement, mortgage, deed of trust or other instrument to which the Seller is a

party or by which it is bound, (B) result in the creation or imposition of any

Lien upon any of its properties pursuant to the terms of any such indenture,

agreement, mortgage, deed of trust or other instrument, other than this

Agreement, or (C) violate any law, order, rule or regulation applicable to the

Seller of any court or of any federal or state regulatory body, administrative

agency or other governmental instrumentality having jurisdiction over the

Seller or any of its properties, except in the case of (A), (B) or (C) where

any such default, Lien or violation shall not materially and adversely affect

the interest of the Noteholders, the Insurer or the Trust in the Series Trust

Estate.

 

(g)           No

Proceedings.  There are no

proceedings or investigations pending or, to the Seller’s knowledge, threatened

against the Seller, before any court, regulatory body, administrative agency or

other tribunal or governmental instrumentality having jurisdiction over the

Seller or its properties (A) asserting the invalidity of this Agreement or any

of the Related Documents, (B) seeking to prevent the issuance of any Securities

or the consummation of any of the transactions contemplated by this Agreement

or any of the Related Documents, (C) seeking any determination or ruling that

might materially and adversely affect the performance by the Seller of its

obligations under, or the validity or enforceability of, this Agreement or any

of the Related Documents, or (D) seeking to adversely affect the federal income

tax or other federal, state or local tax attributes of the Securities.

 

(h)           Approvals.  All approvals, authorizations, consents,

orders or other actions of any person, corporation or other organization, or of

any court, governmental agency or body or official, required in connection with

the execution and delivery by the Seller of this Agreement and the other

Related Documents to which it is a party, and the consummation of the

transactions contemplated hereby and thereby have been or will be taken or

obtained on or prior to the Closing Date and each Transfer Date.

 

(i)            No

Consents.  The Seller is not

required to obtain the consent of any other party or any consent, license,

approval or authorization, or registration or declaration with, any

governmental authority, bureau or agency in connection with the execution,

delivery, performance, validity or enforceability of this Agreement which has

not already been obtained.

 

(j)            Chief

Executive Office.  The chief

executive office of the Seller is at 1111 Town Center Drive, Las Vegas, Nevada

89134.

 

SECTION 8.2.        Corporate

Existence.  (a)  During the term of this Agreement, the

Seller will keep in full force and effect its existence, rights and franchises

as a corporation under the laws of the jurisdiction of its incorporation and

will obtain and preserve its qualification to do business in each jurisdiction

in which such qualification is or shall be necessary to protect the validity

and enforceability of this Agreement, the Related Documents and each other

instrument or agreement necessary or appropriate to the proper administration

of this Agreement and the transactions contemplated hereby.

 

40

 

(b)           During

the term of this Agreement, the Seller shall observe the applicable legal

requirements for the recognition of the Seller as a legal entity separate and

apart from its Affiliates, including as follows:

 

(i)            the

Seller shall not engage in any other business other than as provided in Article

THIRD of Seller’s Articles of Incorporation and shall not amend such Article

THIRD without the prior written consent of the Insurer (for so long as it is

the Controlling Party) which consent shall not be unreasonably withheld;

 

(ii)           the

Seller shall maintain corporate records and books of account separate from

those of its Affiliates;

 

(iii)          except

as otherwise provided in this Agreement, the Seller shall not commingle its

assets and funds with those of its Affiliates;

 

(iv)          the

Seller shall hold such appropriate meetings of its Board of Directors as are

necessary to authorize all the Seller’s corporate actions required by law to be

authorized by the Board of Directors, shall keep minutes of such meetings and

of meetings of its stockholder(s) and observe all other customary corporate

formalities or shall obtain written consents in lieu of formal meetings of its

Board of Directors or stockholder(s) (and any successor Seller that is not a

corporation shall observe similar procedures in accordance with its governing

documents and applicable law);

 

(v)           the

Seller shall at all times hold itself out to the public under the Seller’s own

name as a legal entity separate and distinct from its Affiliates;

 

(vi)          the

Seller shall not become involved in the day-to-day management of any other

Person;

 

(vii)         the

Seller shall not guarantee any other Person’s obligations or advance funds to

any other Person for the payment of expenses or otherwise;

 

(viii)        the

Seller shall not act as an agent of any other Person in any capacity;

 

(ix)           the

Seller shall not dissolve or liquidate, in whole or in part; and

 

(x)            all

transactions and dealings between the Seller and its Affiliates will be

conducted on an arm’s-length basis.

 

41

 

(c)           During

the term of this Agreement, the Seller will comply with the limitations on its

business and activities, as set forth in its Articles of Incorporation, and

will not incur indebtedness other than pursuant to or as expressly permitted by

the Related Documents.

 

(d)           During

the term of this Agreement, the Seller will ensure that its corporate records

indicate that the Indenture Trustee has the exclusive right to vote the Class

SV Preferred Stock.

 

SECTION 8.3.        Liability

of Seller; Indemnities.  The Seller

shall be liable in accordance herewith only to the extent of the obligations

specifically undertaken under this Agreement by the Seller and the

representations made by the Seller under this Agreement.

 

(a)           The

Seller shall indemnify, defend and hold harmless the Issuer, the Insurer, the

Owner Trustee and the Indenture Trustee from and against any taxes that may at

any time be asserted against any such Person with respect to the transactions

contemplated in this Agreement and any of the Basic Documents (except any

income taxes arising out of fees paid to the Owner Trustee, the Indenture

Trustee and except any taxes to which the Owner Trustee or the Indenture

Trustee may otherwise be subject to), including any sales, gross receipts,

general corporation, tangible personal property, privilege or license taxes

(but, in the case of the Issuer, not including any taxes asserted with respect

to federal or other income taxes arising out of distributions on the

Certificates and the Notes) and costs and expenses in defending against the

same.

 

(b)           The

Seller shall indemnify, defend and hold harmless the Issuer, the Owner Trustee

and the Indenture Trustee against any loss, liability or expense incurred by

reason of (i) the Seller’s willful misfeasance, bad faith or negligence in the

performance of its duties under this Agreement, or by reason of reckless

disregard of its obligations and duties under this Agreement and (ii) the

Seller’s or the Issuer’s violation of Federal or state securities laws in

connection with the offering and sale of the Notes.

 

(c)           The

Seller shall indemnify, defend and hold harmless the Owner Trustee and the

Indenture Trustee and their respective officers, directors, employees and

agents from and against any and all costs, expenses, losses, claims, damages

and liabilities arising out of, or incurred in connection with, the acceptance

or performance of the trusts and duties set forth herein and in the Basic

Documents, except to the extent that such cost, expense, loss, claim, damage or

liability shall be due to the willful misfeasance, bad faith or negligence

(except for errors in judgment) of the Person seeking indemnification.

 

Indemnification under this Section shall survive the

resignation or removal of the Owner Trustee or the Indenture Trustee and the

termination of this Agreement or the Indenture or the Trust Agreement, as

applicable, and shall include reasonable fees and expenses of counsel and other

expenses of litigation.  If the Seller

shall have made any indemnity payments pursuant to this Section and the Person

to or on behalf of whom such

 

42

 

payments are made

thereafter shall collect any of such amounts from others, such Person shall

promptly repay such amounts to the Seller, without interest.

 

SECTION 8.4.        Merger

or Consolidation of, or Assumption of the Obligations of, Seller.  Any Person (a) into which the Seller may be

merged or consolidated, (b) which may result from any merger or consolidation

to which the Seller shall be a party or (c) which may succeed to the properties

and assets of the Seller substantially as a whole, which Person in any of the

foregoing cases (x) has articles of incorporation containing provisions

relating to limitations on business and other matters substantially identical

to those contained in the Seller’s articles of incorporation and (y) executes

an agreement of assumption to perform every obligation of the Seller under this

Agreement and the other Related Documents shall be the successor to the Seller

hereunder without the execution or filing of any document or any further act by

any of the parties to this Agreement, provided, however, that the

Insurer (for so long as it is the Controlling Party) shall have consented to

such action and written confirmation shall be received by the Indenture

Trustee, and the Insurer from each Rating Agency rating the Notes that the then

current rating of the Notes will not be withdrawn, downgraded or suspended as a

result of any action described in this Section 8.4.

 

SECTION 8.5.        Limitation

on Liability of Seller and Others. 

(a)  The Seller and any director

or officer or employee or agent of the Seller may rely in good faith on the

written advice of counsel or on any document of any kind, prima facie properly

executed and submitted by any Person respecting any matters arising under any

Basic Document.  The Seller shall not be

under any obligation to appear in, prosecute or defend any legal action that

shall not be incidental to its obligations under this Agreement, and that in

its opinion may involve it in any expense or liability.  Except as provided in Section 8.3 hereof,

neither the Seller nor any of the directors, officers, employees or agents of

the Seller acting in such capacities shall be under any liability to the Trust,

the Securityholders, any Support Provider or any other Person for any action

taken or for refraining from the taking of any action in good faith in such

capacities pursuant to this Agreement; provided, however, that

this provision shall not protect the Seller or any such person against any

liability which would otherwise be imposed by reason of willful misfeasance,

bad faith or negligence in the performance of duties or by reason of reckless

disregard of obligations and duties hereunder.

 

(b)           All

obligations of the Seller under this Agreement (including, but not limited to,

repurchase and indemnification obligations) and under any of the Related

Documents shall be limited in recourse to property, if any, which the Seller

may hold from time to time, not subject to any Lien.

 

SECTION 8.6.        Seller

May Own Certificates or Notes.  The

Seller and any Affiliate thereof may in its individual or any other capacity

become the owner or pledgee of Certificates or Notes with the same rights as it

would have if it were not the Seller or an Affiliate thereof, except as

expressly provided herein or in any Basic Document.  Notes or Certificates so owned by the Seller or such Affiliate

shall have an equal and proportionate benefit under the provisions of the Basic

Documents, without preference, priority, or distinction as among all of the

Notes or Certificates; provided,

 

43

 

however,

(i) except in the event that all outstanding Notes and Certificates are

owned by the Seller and/or any Affiliates thereof, that any Notes or

Certificates owned by the Seller or any Affiliate thereof, during the time such

Notes or Certificates are owned by them, shall be without voting rights for any

purpose set forth in the Basic Documents and (ii) any Notes or

Certificates owned by the Seller or any Affiliate thereof, during the time such

Notes or Certificates are owned by them, will not be entitled to the benefits

of the Note Policy.  The Seller shall

notify the Owner Trustee, the Insurer and the Indenture Trustee promptly after

it or any of its Affiliates become the owner or pledgee of a Certificate or a

Note.

 

ARTICLE IX

 

The Master Servicer

 

SECTION 9.1.        Representations

of Master Servicer.  The Master

Servicer makes the following representations on which the Issuer is deemed to

have relied in acquiring the Owner Trust Estate, on which the Noteholders are

deemed to have relied in the purchasing of Notes and any Additional Principal

Amount, and on which Support Provider shall be deemed to have relied in

providing the Series Support.  The

representations speak as of the execution and delivery of this Agreement, the

Closing Date and as of each Transfer Date and shall survive the sale of the

Owner Trust Estate to the Issuer and the pledge of the Series Trust Estate to

the Indenture Trustee pursuant to the Indenture.

 

(i)            Organization

and Good Standing.  The Master

Servicer has been duly organized and is validly existing and in good standing

under the laws of its jurisdiction of organization, with power, authority and

legal right to own its properties and to conduct its business as such

properties are currently owned and such business is currently conducted, and

had at all relevant times, and now has, power, authority and legal right to

enter into and perform its obligations under this Agreement and the other

Related Documents to which it is a party.

 

(ii)           Due

Qualification.  The Master Servicer

is duly qualified to do business as a foreign corporation in good standing and

has obtained all necessary licenses and approvals, in all jurisdictions in

which the ownership or lease of property or the conduct of its business

(including the servicing of the Receivables as required by this Agreement)

requires or shall require such qualification; except where the failure to

qualify or obtain licenses or approvals would not have a material adverse

effect on its ability to perform its obligations as Master Servicer under this

Agreement and the other Related Documents to which it is a party.

 

(iii)          Power

and Authority.  The Master Servicer

has the power and authority to execute and deliver this Agreement and the

 

44

 

Related Documents

to which it is a party  and to carry out

its terms and their terms, respectively, and the execution, delivery and

performance of this Agreement and the Related Documents to which the Master

Servicer is a party have been duly authorized by the Master Servicer by all

necessary corporate action.

 

(iv)          Binding

Obligation.  This Agreement and the

Related Documents to which the Master Servicer is a party shall constitute

legal, valid and binding obligations of the Master Servicer enforceable in

accordance with their respective terms, except as enforceability may be limited

by bankruptcy, insolvency, reorganization, or other similar laws affecting the

enforcement of creditors’ rights generally and by equitable limitations on the

availability of specific remedies, regardless of whether such enforceability is

considered in a proceeding in equity or at law.

 

(v)           No

Violation.  The consummation of the

transactions contemplated by this Agreement and the Related Documents to which

the Master Servicer is a party, and the fulfillment of the terms of this

Agreement and the Related Documents to which the Master Servicer is a party,

shall not (A) conflict with, result in any breach of any of the terms and

provisions of, or constitute (with or without notice or lapse of time) a

default under, the articles of incorporation or bylaws of the Master Servicer,

or any indenture, agreement, mortgage, deed of trust or other instrument to

which the Master Servicer is a party or by which it is bound, or (B) result in

the creation or imposition of any Lien upon any of its properties pursuant to

the terms of any such indenture, agreement, mortgage, deed of trust or other

instrument, or (C) violate any law, order, rule or regulation applicable to the

Master Servicer of any court or of any federal or state regulatory body,

administrative agency or other governmental instrumentality having jurisdiction

over the Master Servicer or any of its properties, except in the case of (A),

(B) or (C) where any such default, Lien or violation shall not materially and

adversely affect the interest of the Noteholders, the Insurer or the Trust in

the Series Trust Estate or affect the Master Servicer’s ability to perform its

obligations under this Agreement.

 

(vi)          No

Proceedings.  There are no

proceedings or investigations pending or, to the Master Servicer’s knowledge,

threatened against the Master Servicer, before any court, regulatory body,

administrative agency or other tribunal or governmental instrumentality having

jurisdiction over the Master Servicer or its properties (A) asserting the

invalidity of this Agreement or any of the Related Documents, (B) seeking to

prevent the issuance of the Securities or the consummation of any of the

transactions

 

45

 

contemplated by

this Agreement or any of the Related Documents, or (C) seeking any

determination or ruling that might materially and adversely affect the

performance by the Master Servicer of its obligations under, or the validity or

enforceability of, this Agreement or any of the Related Documents or (D)

seeking to adversely affect the federal income tax or other federal, state or

local tax attributes of the Securities.

 

(vii)         Approvals.  All approvals, authorizations, consents,

orders or other actions of any person, corporation or other organization, or of

any court, governmental agency or body or official, required in connection with

the execution and delivery by the Master Servicer of this Agreement and the

consummation of the transactions contemplated hereby have been or will be taken

or obtained on or prior to the Closing Date.

 

(viii)        No

Consents.  The Master Servicer is

not required to obtain the consent of any other party or any consent, license,

approval or authorization, or registration or declaration with, any

governmental authority, bureau or agency in connection with the execution,

delivery, performance, validity or enforceability of this Agreement which has

not already been obtained.

 

(ix)           Chief

Executive Office.  The chief

executive office of the Master Servicer is located at 2700 Sanders Road,

Prospect Heights, Illinois  60070.

 

SECTION 9.2.        Liability

of Master Servicer; Indemnities. 

(a)  The Master Servicer (in its

capacity as such) shall be liable hereunder only to the extent of the

obligations in this Agreement specifically undertaken by the Master Servicer

and the representations made by the Master Servicer.

 

(b)           The

Master Servicer shall defend, indemnify and hold harmless the Trust, the

Indenture Trustee, the Owner Trustee, each Support Provider and their

respective officers, directors, agents and employees, from and against any and

all costs, expenses, losses, damages, claims and liabilities, including

reasonable fees and expenses of counsel and expenses of litigation arising out

of or resulting from the use, ownership or operation of, or lien on, any

Financed Vehicle.

 

(c)           The

Master Servicer (when the Master Servicer is Household Finance Corporation or

an Affiliate of Household Finance Corporation) shall indemnify, defend and hold

harmless the Trust, the Indenture Trustee, the Owner Trustee, each Support

Provider and their respective officers, directors, agents and employees and

from and against any taxes that may at any time be asserted against any of such

parties with respect to the transactions contemplated in this Agreement,

including, without limitation, any sales, gross receipts, tangible or

intangible personal property, privilege or license taxes (but not including any

federal or other income taxes) and costs and expenses

 

46

 

in defending against the same, except to the extent

that such costs, expenses, losses, damages, claims and liabilities arise out of

the negligence or willful misconduct of such parties.

 

(d)           The

Master Servicer (when the Master Servicer is not Household Finance Corporation)

shall indemnify, defend and hold harmless the Trust, the Indenture Trustee, the

Owner Trustee, each Support Provider and their respective officers, directors,

agents and employees from and against any taxes with respect to the sale of

Receivables in connection with servicing hereunder that may at any time be

asserted against any of such parties with respect to the transactions

contemplated in this Agreement, including, without limitation, any sales, gross

receipts, tangible or intangible personal property, privilege or license taxes

(but not including any federal or other income taxes) and costs and expenses in

defending against the same, except to the extent that such costs, expenses,

losses, damages, claims and liabilities arise out of the negligence or willful

misconduct of such parties.

 

(e)           The

Master Servicer shall indemnify, defend and hold harmless the Trust, the

Indenture Trustee, the Owner Trustee, each Support Provider and their

respective officers, directors, agents and employees from and against any and

all costs, expenses, losses, claims, damages, and liabilities to the extent

that such cost, expense, loss, claim, damage, or liability arose out of, or was

imposed upon the Trust, the Owner Trustee or the Indenture Trustee, and the

Insurer (to the extent provided in the Insurance Agreement), by reason of the

breach of this Agreement by the Master Servicer, the negligence, misfeasance,

or bad faith of the Master Servicer in the performance of its duties under this

Agreement or the Series Supplement or by reason of reckless disregard of its

obligations and duties under this Agreement or the Series Supplement, except to

the extent that such costs, expenses, losses, damages, claims, and liabilities

arise out of the negligence or willful misconduct of the Person seeking

indemnification.

 

(f)            The

Master Servicer (when the Master Servicer is Household Finance Corporation or

an Affiliate of Household Finance Corporation) shall indemnify, defend and hold

harmless the Trust, the Indenture Trustee, the Owner Trustee, the Insurer (to

the extent provided in the Insurance Agreement) and their respective officers,

directors, agents and employees from and against any loss, liability or expense

incurred by reason of the violation by Master Servicer of federal or state

securities laws in connection with the registration or the sale of the

Securities, except to the extent that such costs, expenses, losses, damages,

claims, and liabilities arise out of the negligence or willful misconduct of

such parties.

 

(g)           Indemnification

under this Article shall survive the termination of this Agreement and will

survive the early resignation or removal of any of the parties hereto and shall

include, without limitation, reasonable fees and expenses of counsel and

expenses of litigation.  If the Master

Servicer has made any indemnity payments pursuant to this Article and the

recipient thereafter collects any of such amounts from others, the recipient

shall promptly repay such amounts collected to the Master Servicer, without

interest.  Notwithstanding any other

provision of this Agreement, the obligations of the Master Servicer shall not

terminate or be deemed

 

47

 

released upon the resignation or termination of

Household Finance Corporation as the Master Servicer and shall survive any

termination of this Agreement.

 

SECTION 9.3.        Merger

or Consolidation of, or Assumption of the Obligations of the Master Servicer.  Any Person (i) into which the Master

Servicer may be merged or consolidated, (ii) resulting from any merger or

consolidation to which the Master Servicer shall be a party, (iii) which

acquires by conveyance, transfer, or lease substantially all of the assets of

the Master Servicer, or (iv) succeeding to the business of the Master Servicer,

in any of the foregoing cases shall execute an agreement of assumption to

perform every obligation of the Master Servicer under this Agreement and each

Related Document and, whether or not such assumption agreement is executed,

shall be the successor to the Master Servicer under this Agreement and each

Related Document without the execution or filing of any paper or any further

act on the part of any of the parties to this Agreement or the Series

Supplement, anything in this Agreement or the Series Supplement to the contrary

notwithstanding.  Notwithstanding the

foregoing, the Master Servicer shall not merge or consolidate with any other

Person or permit any other Person to become a successor to the Master

Servicer’s business, unless the Master Servicer shall have delivered to the

Owner Trustee, the Insurer and the Indenture Trustee an Officer’s Certificate

and an Opinion of Counsel each stating that such consolidation, merger or

succession and such agreement of assumption comply with this Section 9.3 and

that all conditions precedent, if any, provided for in this Agreement relating

to such transaction have been complied with.

 

SECTION 9.4.        Limitation

on Liability of Master Servicer and Others.  (a)  Neither the Master

Servicer, the Indenture Trustee nor any of the directors or officers or

employees or agents of any such Persons shall be under any liability to the Trust,

except as provided in this Agreement and each Related Document, for any action

taken or for refraining from the taking of any action pursuant to this

Agreement or a Related Document; provided, however, that this

provision shall not protect the Master Servicer, the Indenture Trustee or any

such Persons against any liability that would otherwise be imposed by reason of

willful misfeasance, bad faith or negligence (excluding errors in judgment) in

the performance of duties (including negligence with respect to the Master

Servicer’s indemnification obligations hereunder), by reason of reckless

disregard of obligations and duties under this Agreement and each Related

Document or any violation of law by the Master Servicer, the Indenture Trustee

or such person, as the case may be; provided, further, that this

provision shall not affect any liability to indemnify the Indenture Trustee or

the Owner Trustee for costs, taxes, expenses, claims, liabilities, losses or

damages paid by the Indenture Trustee or the Owner Trustee, in their individual

capacities.  The Master Servicer, the

Indenture Trustee and any director, officer, employee or agent of such Persons

may rely in good faith on the written advice of counsel or on any document of

any kind prima facie properly executed and submitted by any Person pertaining

to any matters arising under this Agreement. 

The Indenture Trustee shall not be required to expend or risk its own

funds or otherwise incur financial liability in the performance of any of its

duties hereunder, or in the exercise of any of its rights or powers, if the

repayment of such funds or adequate written indemnity against such risk or

liability is not reasonably assured to it in writing prior to the expenditure

of risk of such funds or incurrence of financial liability.

 

48

 

(b)           Unless

serving as Successor Master Servicer pursuant to Sections 10.2 and 10.3 hereof,

and notwithstanding any other provision to the contrary herein, the Indenture

Trustee shall not be liable for any obligation of the Master Servicer contained

in this Agreement or any Related Document, and the Owner Trustee, the Seller

and the Noteholders shall look only to the Master Servicer to perform such

obligations.

 

(c)           The

parties expressly acknowledge and consent to the initial Indenture Trustee

acting in the potential dual capacity of successor Master Servicer and in the

capacity as Indenture Trustee.  Such

Indenture Trustee may, in such dual or other capacity, discharge its separate

functions fully, without hindrance or regard to conflict of interest

principles, duty of loyalty principles or other breach of fiduciary duties to

the extent that any such conflict or breach arises from the performance by such

Indenture Trustee of express duties set forth in this Agreement in any of such capacities,

all of which defenses, claims or assertions are hereby expressly waived by the

other parties hereto and the Noteholders except in the case of negligence or

willful misconduct by such Indenture Trustee.

 

SECTION 9.5.        Delegation

of Duties.  Subject to Section 9.7,

in the ordinary course of business, the Master Servicer and the Subservicer,

provided it is HAFC, at any time may delegate any of their duties hereunder to

any Person, including any of their Affiliates, who agrees to conduct such duties

in accordance with standards employed by the Master Servicer or such

Subservicer in compliance with Section 4.1. 

Such delegation shall not relieve the Master Servicer of its liabilities

and responsibilities with respect to such duties and shall not constitute a

resignation within the meaning of Section 9.6.

 

SECTION 9.6.        Master

Servicer Not to Resign.  Subject to

the provisions of Section 9.3, the Master Servicer shall not resign from the

obligations and duties hereby imposed on it except (i) upon determination that

the performance of its obligations or duties hereunder are no longer

permissible under applicable law or are in material conflict by reason of

applicable law with any other activities carried on by it or its subsidiaries

or Affiliates, or (ii) upon satisfaction of the following conditions:  (a) the Master Servicer has proposed a

successor servicer to the Indenture Trustee and the Insurer (for so long as it

is the Controlling Party) in writing and such proposed successor servicer is

reasonably acceptable to the Indenture Trustee, the Insurer (for so long as it

is the Controlling Party) and the Administrative Agent, where one exists, or

otherwise, the Managing Agents; (b) such proposed successor servicer has agreed

in writing to assume the obligations of Master Servicer hereunder and under

each Basic Document to which it is a party and (c) the Master Servicer has

delivered to the Indenture Trustee and the Insurer an Opinion of Counsel to the

effect that all conditions precedent to the resignation of the Master Servicer

and the appointment of and acceptance by the proposed successor servicer have

been satisfied; provided, however, that, in the case of

clause (i) above, no such resignation by the Master Servicer shall become

effective until the Indenture Trustee shall have assumed the Master Servicer’s

responsibilities and obligations hereunder or the Indenture Trustee shall have

designated a successor servicer reasonably acceptable to the Insurer (for as

long as it is the Controlling Party) in accordance with Section 10.3 which

shall have assumed such responsibilities and obligations.  Any such resignation shall not

 

49

 

relieve the Master

Servicer of responsibility for any of its obligations hereunder arising prior

to the effective date of such resignation. 

Any such determination permitting the resignation of the Master Servicer

pursuant to clause (i) above shall be evidenced by an Opinion of Counsel to

such effect delivered to the Indenture Trustee and the Insurer.

 

SECTION 9.7.        Subservicing

Agreements Between Master Servicer and Subservicers. The Master Servicer

initially appoints HAFC to subservice the Receivables.  From time to time after the Closing Date,

the Master Servicer may enter into a subservicing agreement with any Person

other than HAFC which is an Eligible Subservicer and is in compliance with the

laws of each state necessary to enable it to perform the obligations of the

Master Servicer pursuant to this Agreement. 

Any such subservicing agreement shall be consistent with and not violate

the provisions of this Agreement.  The

Master Servicer shall not be relieved of its obligations under this Agreement

and each Basic Document to which it is a party notwithstanding any agreement

relating to subservicing and the Master Servicer shall be obligated to the same

extent and under the same terms and conditions as if it alone were servicing

and administering the Receivables.  For

purposes of this Agreement and each Related Document, the Master Servicer shall

be deemed to have received payments on Receivables when any Subservicer has

received such payments.  The parties

hereto acknowledge that with respect to statements or certificates required to

be delivered by the Master Servicer in accordance with this Agreement and the

Series Supplement, including, but not limited to, Sections 4.9, 4.10 and 4.11

hereof, that a statement or certificate delivered by a subservicer shall be

sufficient to discharge the Master Servicer’s obligation to deliver such

certificate or statement.

 

SECTION 9.8.        Successor

Subservicers.  The Master Servicer

may terminate any Subservicer and either directly service the related

Receivables itself or enter into an agreement with a successor Subservicer that

is an Eligible Subservicer.  Neither of

the Owner Trustee nor the Indenture Trustee shall have a duty or obligation to

monitor or supervise the performance of any Subservicer.

 

ARTICLE X

 

Default

 

SECTION 10.1.      Master

Servicer Termination Event.  For

purposes of this Agreement, each of the following shall constitute a “Master

Servicer Termination Event”:

 

(a)           Any

failure by the Master Servicer to deliver, or cause to be delivered, to the

Indenture Trustee for distribution pursuant to the terms of this Agreement or

any Basic Document, any proceeds or payment required to be so delivered by the

Master Servicer under the terms of this Agreement or any Basic Document

(including deposits of the Repurchase Amount pursuant to Section 4.7) that

continues unremedied for a period of three Business Days after written notice

is received by the Master Servicer from the Indenture Trustee or the Insurer or

after discovery of such

 

 

50

 

failure by a responsible officer of the Master

Servicer (but in no event later than three Business Days after the Master

Servicer is required to make such delivery or deposit);

 

(b)           Failure

on the part of the Master Servicer duly to observe or perform any other

covenants or agreements of the Master Servicer set forth in this Agreement or

the Basic Documents, which failure (i) materially and adversely affects the

rights of Noteholders (determined without regard to the availability of funds

under any Series Support) or the Insurer and (ii) continues unremedied for a

period of 60 days after the date on which written notice of such failure,

requiring the same to be remedied, shall have been given to the Master Servicer

by the Indenture Trustee or the Insurer or after discovery thereof by the

Master Servicer;

 

(c)           The

entry of a decree or order for relief by a court or regulatory authority having

jurisdiction in respect of the Master Servicer in an involuntary case under the

federal bankruptcy laws, as now or hereafter in effect, or another present or

future, federal bankruptcy, insolvency or similar law, or appointing a

receiver, liquidator, assignee, trustee, custodian, sequestrator or other

similar official of the Master Servicer or of any substantial part of its

property or ordering the winding up or liquidation of the affairs of the Master

Servicer or the commencement of an involuntary case under the federal

bankruptcy laws, as now or hereinafter in effect, or another present or future

federal or state bankruptcy, insolvency or similar law and such case is not

dismissed within 60 days; or

 

(d)           The

commencement by the Master Servicer of a voluntary case under the federal

bankruptcy laws, as now or hereafter in effect, or any other present or future,

federal or state, bankruptcy, insolvency or similar law, or the consent by the

Master Servicer to the appointment of or taking possession by a receiver,

liquidator, assignee, trustee, custodian, sequestrator or other similar

official of the Master Servicer or of any substantial part of its property or

the making by the Master Servicer of an assignment for the benefit of creditors

or the failure by the Master Servicer generally to pay its debts as such debts

become due or the taking of corporate action by the Master Servicer in

furtherance of any of the foregoing; or

 

(e)           Any

representation, warranty or certification of the Master Servicer made in this

Agreement or any Basic Document or any certificate, report or other writing

delivered pursuant hereto or thereto shall prove to be incorrect in any

material respect as of the time when the same shall have been made, and the

incorrectness of such representation, warranty or statement has a material

adverse effect on the interests of the Indenture Trustee in the Series Trust

Estate or the Insurer and, within 60 days after written notice thereof shall

have been given to the Master Servicer by the Indenture Trustee or the Insurer

or after discovery thereof by the Master Servicer, the circumstances or

condition in respect of which such representation, warranty or statement was

incorrect shall not have been eliminated or otherwise cured; or

 

(f)            An

Event of Default (as defined in the Insurance Agreement) shall have occurred;

or

 

51

 

(g)           A

demand for payment shall be made by the Indenture Trustee under the Note

Policy.

 

Notwithstanding the foregoing, a delay in or failure

of performance under Section 10.1(a) for a period of three Business Days or

under Section 10.1(b) for a period of 60 days, shall not constitute a Master

Servicer Termination Event if such delay or failure could not be prevented by

the exercise of reasonable diligence by the Master Servicer and such delay or

failure was caused by an act of God, acts of declared or undeclared war,

terrorism, public disorder, rebellion or sabotage, epidemics, landslides,

lightning, fire, hurricanes, earthquakes, floods or similar causes.  The preceding sentence shall not relieve the

Master Servicer from using its best efforts to perform its obligations in a

timely manner in accordance with the terms of this Agreement, and the Master

Servicer shall provide the Indenture Trustee, the Insurer and the Seller with

an Officers’ Certificate giving prompt notice of such failure or delay by it,

together with a description of its efforts to so perform its obligations.

 

SECTION 10.2.      Consequences

of a Master Servicer Termination Event. 

If a Master Servicer Termination Event shall occur and be continuing,

the Indenture Trustee (to the extent a Trust Officer of the Indenture Trustee

has actual knowledge or has received written notice thereof), by notice given

in writing to the Master Servicer may, with the consent of the Insurer (for so

long as it is the Controlling Party), and shall, at the written direction of

the Controlling Party, terminate all of the rights and obligations of the

Master Servicer under this Agreement and the other Basic Documents to which it

is a party.  On or after the receipt by

the Master Servicer of such written notice, all authority, power, obligations

and responsibilities of the Master Servicer under this Agreement, whether with

respect to the Notes, the Receivables or the Other Conveyed Property or

otherwise, automatically shall pass to, be vested in, and become obligations

and responsibilities, of the Indenture Trustee (or such other successor Master

Servicer appointed by the Controlling Party pursuant to Section 10.3); provided,

however, that the successor Master Servicer shall have (i) no liability

with respect to any obligation which was required to be performed by the

terminated Master Servicer prior to the date that the successor Master Servicer

becomes the Master Servicer or any claim of a third party based on any alleged

action or inaction of the terminated Master Servicer, (ii) no obligation to

perform any repurchase or advancing obligations, if any, of the terminated

Master Servicer, (iii) no obligation to pay any of the fees and expenses of any

other party involved in this transaction not expressly assumed by the Master

Servicer and (iv) no liability or obligation with respect to any Master Servicer

indemnification obligations of any prior master servicer including the original

master servicer.

 

Notwithstanding anything contained in this Agreement

to the contrary, the Indenture Trustee as successor Master Servicer and any

Successor Master Servicer, are authorized to accept and rely on all of the

accounting, records (including computer records) and work of the prior Master

Servicer relating to the Receivables (collectively, the “Predecessor Servicer

Work Product”) without any audit or other examination thereof, and the

Indenture Trustee or Successor Master Servicer shall have no duty,

responsibility, obligation or liability for the acts and omissions of the prior

Master Servicer.  If any error,

inaccuracy, omission or incorrect or non-standard practice or

 

52

 

procedure (collectively,

“Errors”) exist in any Predecessor Servicer Work Product and such Errors make

it materially more difficult to service or should cause or materially

contribute to the Indenture Trustee or Successor Master Servicer making or

continuing any Errors (collectively, “Continued Errors”), the Indenture Trustee

or Successor Master Servicer, as the case may be, shall have no duty,

responsibility, obligation or liability for such Continued Errors; provided,

however, that the Indenture Trustee or Successor Master Servicer

agrees to use its best efforts to prevent further Continued Errors.  In the event that the Indenture Trustee or

Successor Master Servicer becomes aware of Errors or Continued Errors, such

Indenture Trustee or Successor Master Servicer shall, with the prior consent of

(i) for so long as it is the Controlling Party, the Insurer, or (ii) for so

long as the Insurer is not the Controlling Party, Noteholders representing 66-2/3%

of the outstanding Notes, use its best efforts to reconstruct and reconcile

such data as is commercially reasonable to correct such Errors and Continued

Errors and to prevent future Continued Errors.

 

The successor Master Servicer is authorized and

empowered by this Agreement to execute and deliver, on behalf of the terminated

Master Servicer, as attorney-in-fact or otherwise, any and all documents and

other instruments and to do or accomplish all other acts or things necessary or

appropriate to effect the purposes of such notice of termination, whether to

complete the transfer and endorsement of the Owner Trust Estate and related

documents to show the Trust as lienholder or secured party on the related Lien

Certificates, or otherwise.  The

terminated Master Servicer agrees to cooperate with the successor Master

Servicer in effecting the termination of the responsibilities and rights of the

terminated Master Servicer under this Agreement, including, without limitation,

the transfer to the successor Master Servicer for administration by it of all

cash amounts that shall at the time be held by the terminated Master Servicer

for deposit, or have been deposited by the terminated Master Servicer, in a

Trust Account and the delivery to the successor Master Servicer of all

Receivable Files, Monthly Records and Collection Records and a computer tape in

readable form as of the most recent Business Day containing all information

necessary to enable the successor Master Servicer to service the Owner Trust

Estate.  If requested by the Controlling

Party, the successor Master Servicer shall direct the Obligors to make all

payments under the Receivables directly to the successor Master Servicer (in

which event the successor Master Servicer shall process such payments in

accordance with Section 4.2(d) or 4.2(e), as applicable).  The terminated Master Servicer shall grant

the Indenture Trustee, the Insurer (for so long as it is the Controlling Party)

and the successor Master Servicer reasonable access to the terminated Master

Servicer’s premises at the terminated Master Servicer’s expense.

 

SECTION 10.3.      Appointment

of Successor.  (a)  On and after the time the Master Servicer

receives a notice of termination pursuant to Section 10.2 or upon the

resignation of the Master Servicer pursuant to Section 9.6, the Master Servicer

shall continue to perform all servicing functions under this Agreement until

the date specified in such termination notice or until such resignation becomes

effective or until a date mutually agreed upon by the Master Servicer, the

Indenture Trustee and the Insurer (for as long as it is the Controlling

Party).  The Indenture Trustee shall as

promptly as possible after such termination or resignation appoint an Eligible

Servicer as a successor

 

53

 

servicer (the “Successor

Master Servicer”) reasonably acceptable to the Insurer (for so long as it is

the Controlling Party), and such Successor Master Servicer shall accept its

appointment by a written assumption in a form reasonably acceptable to the

Indenture Trustee and the Insurer (for so long as it is the Controlling

Party).  In the event that a Successor

Master Servicer has not been appointed or has not accepted its appointment at

the time when the Master Servicer ceases to act as Master Servicer, the

Indenture Trustee without further action shall automatically be appointed the

Successor Master Servicer.  The

Indenture Trustee may, with the consent of the Insurer (for so long as it is

the Controlling Party), delegate any of its servicing obligations to an

Affiliate or agent in accordance with Section 9.5.  Notwithstanding the foregoing, the Indenture Trustee shall, if it

is legally unable so to act, petition a court of competent jurisdiction to

appoint any established institution qualifying as an Eligible Servicer as the

Successor Master Servicer hereunder. 

The Indenture Trustee or the Successor Master Servicer, as the case may

be, shall be the successor in all respects to the Master Servicer in its

capacity as servicer under this Agreement and the transactions set forth or

provided for in this Agreement, and shall be subject to all the rights,

responsibilities, restrictions, duties, liabilities and termination provisions

relating thereto placed on the Master Servicer by the terms and provisions of

this Agreement, except as otherwise stated herein.  The Indenture Trustee  or the Successor Master Servicer, as the

case may be, shall take such action, consistent with this Agreement, as shall

be necessary to effectuate any such succession.  The Successor Master Servicer shall be subject to termination

under Section 10.2 upon the occurrence of any Master Servicer Termination Event

applicable to it as Master Servicer.

 

(b)           Subject

to Section 9.6, no provision of this Agreement shall be construed as relieving

the Indenture Trustee  of its obligation to succeed as successor

Master Servicer upon the termination of the Master Servicer pursuant to Section

10.2 or the resignation of the Master Servicer pursuant to Section 9.6.

 

(c)           Any

Successor Master Servicer shall be entitled to such compensation (whether

payable out of the Collection Account or otherwise) equal to the compensation

the Master Servicer would have been entitled to under this Agreement if the

Master Servicer had not resigned or been terminated hereunder or such other

amount as may be agreed to by the Successor Master Servicer and the Insurer

(for so long as it is the Controlling Party). 

In addition, any Successor Master Servicer shall be entitled to

reasonable transition expenses incurred in acting as Successor Master Servicer

payable by the outgoing Master Servicer, and to the extent such transition

expenses have not been paid by the outgoing Master Servicer, such Successor

Master Servicer shall be entitled to reimbursement for such reasonable expenses

pursuant to the Series Supplement.

 

SECTION 10.4.      Notification

to Noteholders and Certificateholders. 

Upon any termination of, or appointment of a successor to, the Master

Servicer the Indenture Trustee shall give prompt written notice thereof to each

Noteholder.

 

SECTION 10.5.      Waiver

of Past Defaults.  The Controlling

Party or, with the consent of the Controlling Party, a majority of the

Noteholders may, on behalf of all Securityholders, waive any default by the Seller

or the Master Servicer in the performance of their obligations hereunder and

its consequences, except the failure to

 

54

 

make any distributions

required to be made to Noteholders or to make any required deposits of any

amounts to be so distributed.  Upon any

such waiver of a past default, such default shall cease to exist, and any

default arising therefrom shall be deemed to have been remedied for every

purpose of this Agreement.  No such

waiver shall extend to any subsequent or other default or impair any right

consequent thereon except to the extent expressly so waived.

 

SECTION 10.6.      Successor

to Master Servicer.  (a)  The Indenture Trustee, in its capacity as

successor to the Master Servicer, shall perform such duties and only such

duties as are specifically set forth in this Agreement and each Related

Document with respect to the assumption of any servicing duties and no implied

covenants or obligations shall be read into this Agreement against the Indenture

Trustee.

 

(b)           In

the absence of bad faith or negligence on its part, the Indenture Trustee  may

conclusively rely as to the truth of the statements and the correctness of the

opinions expressed therein, upon certificates or opinions furnished to the

Indenture Trustee  and conforming to the requirements of this Agreement and the

Series Supplement; but in the case of any such certificates or opinions, which

by any provision hereof are specifically required to be furnished to the

Indenture Trustee, the Indenture Trustee  shall be under a duty to examine the same

and to determine whether or not they conform to the requirements of this

Agreement and the Series Supplement.

 

(c)           The

Indenture Trustee  shall have no liability for any actions taken or omitted by

the terminated Master Servicer.

 

ARTICLE XI

 

Termination

 

SECTION 11.1.      Optional

Purchase of All Receivables. 

(a)  To the extent and under the

circumstances provided in the Series Supplement, the Master Servicer and HAFC

each shall have the option to effect a “clean-up” redemption or purchase of the

Series Trust Estate.

 

(b)           Upon

any sale of the assets included in the Series Trust Estate permitted by the

Series Supplement, the Master Servicer shall instruct the Indenture Trustee to

deposit the proceeds from such sale after all payments and reserves therefrom

(including the expenses of such sale) have been made in the Collection Account.

 

(c)           Notice

of any termination of the Trust shall be given by the Master Servicer to the

Owner Trustee, the Indenture Trustee and the Insurer as soon as practicable

after the Master Servicer has received notice thereof.

 

(d)           Following

the satisfaction and discharge of the Indenture, the payment in full of the

principal of and interest on the Notes, the satisfaction of all payment

obligations under the Basic Documents and the Insurance Agreement and

termination of any Series Support (as provided therein), the Certificateholders

will

 

55

 

succeed to the rights of the Noteholders hereunder and

the Owner Trustee will succeed to the rights of, and assume the obligations of,

the Indenture Trustee pursuant to this Agreement.

 

ARTICLE XII

 

Administrative Duties of

the Master Servicer

 

SECTION 12.1.      Administrative

Duties.

 

(a)           Duties

with Respect to the Indenture.  The

Master Servicer shall perform all its duties and the duties of the Issuer under

the Indenture. In addition, the Master Servicer shall consult with the Owner

Trustee as the Master Servicer deems appropriate regarding the duties of the

Issuer under the Indenture.  The Master

Servicer shall monitor the performance of the Issuer and shall advise the Owner

Trustee when action is necessary to comply with the Issuer’s duties under the

Indenture.  The Master Servicer shall

prepare for execution by the Issuer or shall cause the preparation by other

appropriate Persons of all such documents, reports, filings, instruments,

certificates and opinions as it shall be the duty of the Issuer to prepare,

file or deliver pursuant to the Indenture. 

In furtherance of the foregoing, the Master Servicer shall take all

necessary action that is the duty of the Issuer to take pursuant to the

Indenture, including, without limitation, pursuant to Sections 2.7, 3.3, 3.4,

3.5, 3.6, 3.7, 3.9, 3.10, 3.17, 7.3, 8.3, 9.2, 9.3, 11.1 and 11.15 of the

Indenture.

 

(b)           Duties

with Respect to the Issuer.

 

(i)            In

addition to the duties of the Master Servicer set forth in this Agreement or

any of the Related Documents, the Master Servicer shall perform such calculations

and shall prepare for execution by the Issuer or the Owner Trustee, or shall

cause the preparation by other appropriate Persons of all such documents,

reports, filings, instruments, certificates and opinions as it shall be the

duty of the Issuer or the Owner Trustee, to prepare, file or deliver pursuant

to this Agreement or any of the Related Documents or under state and federal

tax and securities laws, and at the request of the Owner Trustee shall take all

appropriate action that it is the duty of the Issuer to take pursuant to this

Agreement or any of the Basic Documents, including, without limitation,

pursuant to Sections 2.6 and 2.11 of the Trust Agreement.  In accordance with the directions of the

Issuer or the Owner Trustee, the Master Servicer shall administer, perform or

supervise the performance of such other activities in connection with the Owner

Trust Estate (including the Related Documents) as are not covered by any of the

foregoing provisions and as are expressly requested by the Issuer or the Owner

Trustee and are reasonably within the capability of the Master Servicer.

 

56

 

(ii)           Notwithstanding

anything in this Agreement or any of the Basic Documents to the contrary, the

Master Servicer shall be responsible for promptly notifying the Owner Trustee

and the Indenture Trustee in the event that any withholding tax is imposed on

the Issuer’s payments (or allocations of income) to a Certificateholder as

contemplated by this Agreement.  Any

such notice shall be in writing and specify the amount of any withholding tax

required to be withheld by the Owner Trustee or the Indenture Trustee pursuant

to such provision.

 

(iii)          Notwithstanding

anything in this Agreement or the Basic Documents to the contrary, the Master

Servicer shall be responsible for performance of the duties of the Issuer and

the Seller set forth in Section 5.1(a), (b), (c) and (d) of the Trust Agreement

with respect to, among other things, accounting and reports to Owners (as

defined in the Trust Agreement); provided, however, that once

prepared by the Master Servicer, the Depositor shall retain responsibility

under Section 5.1(b) of the Trust Agreement for the distribution of the

Schedule K-1s necessary to enable each Certificateholder to prepare its federal

and state income tax returns.

 

(iv)          The

Master Servicer shall perform the duties of the Depositor specified in Section

10.2 of the Trust Agreement required to be performed in connection with the

resignation or removal of the Owner Trustee, and any other duties expressly

required to be performed by the Master Servicer under this Agreement or any of

the Related Documents.

 

(v)           The

Master Servicer, on behalf of the Seller, shall direct the Issuer to request

the tender of all or a portion of the Notes in accordance with the Indenture or

the Series Supplement.

 

(vi)          In

carrying out the foregoing duties or any of its other obligations under this

Agreement, the Master Servicer may enter into transactions with or otherwise

deal with any of its Affiliates; provided, however, that the

terms of any such transactions or dealings shall be in accordance with any

directions received from the Issuer and shall be, in the Master Servicer’s

opinion, no less favorable to the Issuer in any material respect.

 

(c)           Tax

Matters. The Master Servicer shall prepare and file, or cause to be

prepared and filed, on behalf of the Seller, all tax returns, tax elections,

financial statements and such annual or other reports of the Issuer as are

necessary for preparation of tax reports as provided in Article V of the Trust

Agreement, including without limitation forms 1099 and 1066.  All tax returns will be signed by the

Seller.

 

57

 

(d)           Non-Ministerial

Matters.  With respect to matters

that in the reasonable judgment of the Master Servicer are non-ministerial, the

Master Servicer shall not take any action pursuant to this Article XII unless

within a reasonable time before the taking of such action, the Master Servicer

shall have notified the Owner Trustee, the Insurer and the Indenture Trustee of

the proposed action and the Owner Trustee, the Insurer (for so long as it is

the Controlling Party) or the Indenture Trustee shall not have withheld consent

or provided an alternative direction. 

For the purpose of the preceding sentence, “non-ministerial matters”

shall include:

 

(A)                              the

initiation of any claim or lawsuit by the Issuer and the compromise of any

action, claim or lawsuit brought by or against the Issuer (other than in connection

with the collection of the Receivables);

 

(B)                                the

appointment of successor Note Registrars, successor Note Paying Agents and

successor Indenture Trustees pursuant to the Indenture or the consent to the

assignment by the Note Registrar, Note Paying Agent or Indenture Trustee of its

obligations under the Indenture; and

 

(C)                                the

removal of the Indenture Trustee.

 

(e)           Exceptions.  Notwithstanding anything to the contrary in

this Agreement, except as expressly provided herein or in the other Basic

Documents, the Master Servicer, in its capacity hereunder, shall not be

obligated to, and shall not, (1) make any payments to the Noteholders or

Certificateholders under the Basic Documents, (2) sell any portion of the

Series Trust Estate pursuant to the Basic Documents, (3) take any other action

that the Issuer directs the Master Servicer not to take on its behalf or (4) in

connection with its duties hereunder assume any indemnification obligation of

any other Person.

 

(f)            Neither

the Indenture Trustee nor any successor Master Servicer shall be responsible

for any obligations or duties of a predecessor Master Servicer under Section

12.1.

 

SECTION 12.2.      Records.  The Master Servicer shall maintain

appropriate books of account and records relating to services performed under

this Agreement, which books of account and records shall be accessible for

inspection by the Issuer and the Indenture Trustee at any time during normal

business hours.

 

SECTION 12.3.      Additional

Information to be Furnished to the Issuer. 

The Master Servicer shall furnish to the Issuer, the Indenture Trustee

and the Insurer (for so long as it is the Controlling Party), from time to time

such additional information regarding the Owner Trust Estate as the Issuer, the

Indenture Trustee and the Insurer (for so long as it is the Controlling Party)

shall reasonably request.

 

58

 

ARTICLE XIII

 

Miscellaneous Provisions

 

SECTION 13.1.      Amendments.  (a)   This Agreement may be amended by the parties

hereto at any time when no Securities are outstanding and all amounts payable

to the Insurer pursuant to the Insurance Agreement have been paid in full

without the requirement of any consents or the satisfaction of any conditions

set forth below.

 

(b)           Except

as otherwise provided in the Series Supplement, this Agreement may be amended

from time to time by the parties hereto, by a written instrument signed by each

of the parties hereto, with the prior written consent of the Insurer (for so

long as it is the Controlling Party) but without the consent of any of the

Securityholders, provided that (i) an Opinion of Counsel for the Seller (which

Opinion of Counsel may, as to factual matters, rely upon Officers’ Certificates

of the Seller or the Master Servicer) is addressed and delivered to the

Indenture Trustee and the Insurer, dated the date of any such amendment, to the

effect that the conditions precedent to any such amendment, including those of

Section 13.2(h) hereof, have been satisfied and (ii) the Seller shall have

delivered to the Indenture Trustee and the Insurer, an Officer’s Certificate

dated the date of any such amendment, stating that the Seller reasonably

believes that such amendment will not have a material adverse effect on the

rights of the Noteholders or the Insurer; provided, however, that

no such amendment shall materially and adversely affect the Insurer without the

prior written consent of the Insurer.

 

(c)           Except

as otherwise provided in the Series Supplement, subject to Section 13.2(h)

hereof, this Agreement may also be amended from time to time by the Master

Servicer, the Seller and the Indenture Trustee, with the prior written consent

of the Insurer and the Administrative Agent, where one exists, or otherwise the

Managing Agents, 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 Securityholders; provided, however,

that no such amendment shall (i) reduce in any manner the amount of or delay

the timing of any distributions to be made to Securityholders or deposits of

amounts to be so distributed or the amount available under any Series Support

without the consent of each affected Securityholder, (ii) change the definition

of or the manner of calculating the interest of any Securityholder without the

consent of each affected Securityholder, or (iii) reduce the aforesaid

percentage of Noteholders required to consent to any such amendment.

 

Promptly after the execution of any such amendment or

supplement, the Indenture Trustee  shall furnish written notification of the

substance of such amendment or supplement to each Securityholder.

 

It shall not be necessary for the consent of

Certificateholders or Noteholders pursuant to this Section to approve the

particular form of any amendment, but it shall be sufficient if such consent

shall approve the substance thereof. 

The manner of obtaining such consents (and any other consents of

Noteholders or Certificateholders provided for in this Agreement) and of

evidencing the authorization of any action by

 

59

 

Noteholders or

Certificateholders shall be subject to such reasonable requirements as the

Indenture Trustee or the Owner Trustee, as applicable, may prescribe, including

the establishment of record dates.

 

The Owner Trustee and the Indenture Trustee may, but

shall not be obligated to, enter into any amendment which affects the Issuer’s,

the Owner Trustee’s or the Indenture Trustee’s, as applicable, own rights,

duties or immunities under this Agreement or otherwise.

 

Prior to the execution of any amendment to this

Agreement, the Indenture 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 and that all conditions precedent to the

execution and delivery of such amendment have been satisfied.

 

SECTION 13.2.      Protection

of Title to Series Trust Estate. 

(a)  The Seller shall execute and

file such financing statements and cause to be executed and filed such

continuation statements, all in such manner and in such places as may be

required by law fully to preserve, maintain and protect the interest of the

Issuer in the Owner Trust Estate and the Indenture Trustee in the Series Trust

Estate.

 

(b)           Neither

the Seller nor the Master Servicer shall change its name, identity or corporate

structure in any manner that would, could or might make any financing statement

or continuation statement filed in accordance with paragraph (a) above

seriously misleading within the meaning of Sections 9-503(a), 9-506 and 9-507

of the UCC, unless it shall have given the Insurer, the Owner Trustee and the

Indenture Trustee at least thirty days’ prior written notice thereof and shall

have promptly filed appropriate amendments to all previously filed financing

statements or continuation statements.

 

(c)           Each

of the Seller and the Master Servicer shall have an obligation to give the

Insurer, the Owner Trustee and the Indenture Trustee prompt notice of any

change in its state of incorporation if, as a result of such change, the

applicable provisions of the UCC would require the filing of any amendment of

any previously filed financing or continuation statement or of any new financing

statement and shall promptly file any such amendment.  The Master Servicer shall at all times maintain each office from

which it shall service Receivables within the United States of America.

 

(d)           The

Master Servicer shall maintain accounts and records as to each Receivable

accurately and in sufficient detail to permit (i) the reader thereof to know at

any time the status of such Receivable, including payments and recoveries made

and payments owing (and the nature of each) and (ii) reconciliation between payments

or recoveries on (or with respect to) each Receivable and the amounts from time

to time deposited in the Collection Account in respect of such Receivable.

 

(e)           The

Master Servicer shall maintain or cause to be maintained, a computer system so

that, from and after the time of sale under this 

 

60

 

Agreement and each Transfer Agreement of the

Receivables to the Issuer, such master computer records (including any backup

archives) that refer to a Receivable shall indicate clearly the interest of the

Trust in such Receivable and that such Receivable is owned by the Trust and

such Receivable has been pledged pursuant to the Indenture.  Indication of the Trust’s and the Indenture

Trustee’s interest in a Receivable shall be deleted from or modified on such

computer systems when, and only when, the related Receivable shall have been

paid in full, repurchased by HAFC, any Affiliate of HAFC that is the seller

under a Master Receivables Purchase Agreement, Household Finance Corporation or

the Seller or otherwise disposed of by the Issuer in accordance with the terms

of this Agreement.

 

(f)            If

at any time the Seller, HAFC or any Affiliate of HAFC that is the seller under

a Master Receivables Purchase Agreement shall propose to sell, grant a security

interest in or otherwise transfer any interest in motor vehicle receivables to

any prospective purchaser, lender or other transferee, the Master Servicer

shall give to such prospective purchaser, lender or other transferee computer

tapes, records or printouts (including any restored from backup archives) that,

if they shall refer in any manner whatsoever to any Receivable, shall indicate

clearly that such Receivable has been sold and is owned by the Trust unless

such Receivable has been paid in full, been repurchased by HAFC, any Affiliate

of HAFC that is the seller under a Master Receivables Purchase Agreement,

Household Finance Corporation or the Seller or has otherwise been disposed of

by the Issuer in accordance with the terms of this Agreement.

 

(g)           Upon

request, the Master Servicer shall furnish or cause to be furnished to, the

Insurer, the Owner Trustee or the Indenture Trustee, within five Business Days,

a list of all Receivables (by contract number) then held as part of the Series

Trust Estate, together with a reconciliation of such list to the related

Schedule of Receivables and to any Master Servicer’s Certificates furnished

before such request indicating removal of Receivables from the Series Trust

Estate.  The Indenture Trustee shall

hold any such list and Schedule of Receivables for examination by interested

parties during normal business hours at the Corporate Trust Office upon

reasonable notice by such Persons of their desire to conduct an examination.

 

(h)           The

Master Servicer shall deliver to the Insurer, the Owner Trustee and the

Indenture Trustee:

 

(1)           simultaneously

with the execution and delivery of the Agreement and, if required pursuant to

Section 13.1, of each amendment, an Opinion of Counsel stating that, in the

opinion of such Counsel, in form and substance reasonably satisfactory to the

addressees of such Opinion, either (A) all financing statements and

continuation statements have been executed and filed that are necessary fully

to preserve and protect the interest of the Trust and the Indenture Trustee in

the Receivables then held as part of the Series Trust Estate, or (B) no such

action shall be necessary to preserve and protect such interest or (C) any

action which is necessary to preserve and protect such interest during the

following 12-month period; and

 

61

 

(2)           within

90 days after the beginning of each calendar year beginning with the first

calendar year following the Closing Date dated as of a date during such 90-day

period, stating that, in the opinion of such counsel, either (A) all financing

statements and continuation statements have been executed and filed that are

necessary fully to preserve and protect the interest of the Trust and the Indenture

Trustee in the Series Trust Estate or (B) no such action shall be necessary to

preserve and protect such interest.

 

Each Opinion of Counsel referred to in clause (1) or

(2) above shall specify any action necessary (as of the date of such opinion)

to be taken in the following year to preserve and protect such interest.

 

SECTION 13.3.      Notices.  All demands, notices and communications upon

or to the Seller, the Insurer, the Master Servicer, the Owner Trustee, the

Indenture Trustee or any other Person entitled to receive a notice, shall be in

writing, personally delivered, or mailed by certified mail, sent by confirmed

telecopier transmission, or at the consent of the receiving party by electronic

mail, and shall be deemed to have been duly given upon receipt at the address

specified in the Series Supplement.  Any

notice required or permitted to be mailed to a Noteholder or Certificateholder

shall be given by first class mail, postage prepaid, at the address of such Holder

as shown in the Certificate Register or Note Register, as applicable.  Any notice so mailed within the time

prescribed in the Agreement shall be conclusively presumed to have been duly

given, whether or not the Certificateholder or Noteholder shall receive such

notice.

 

SECTION 13.4.      Assignment.  This Agreement shall inure to the benefit of

and be binding upon the parties hereto, the Insurer and their respective

successors and permitted assigns. 

Notwithstanding anything to the contrary contained herein, except as

provided in Sections 8.4 and 9.3 and as provided in the provisions of this

Agreement concerning the resignation of the Master Servicer, this Agreement may

not be assigned by the Seller or the Master Servicer without the prior written

consent of the Insurer, the Owner Trustee, the Indenture Trustee and the

Administrative Agent, where one exists, or otherwise, the Managing Agents.  In the event that a successor Issuer is

formed as permitted by the Series Supplement, such Issuer shall succeed to all

of the rights and obligations of the predecessor Issuer hereunder; and all

references to the Issuer hereunder shall thereafter be deemed to be references

to such successor Issuer.

 

SECTION 13.5.      Limitations

on Rights of Others.  The provisions

of this Agreement are solely for the benefit of the parties hereto and for the

benefit of the Certificateholders (including the Seller), the Indenture

Trustee, the Owner Trustee, any Support Provider and the Secured Parties, as

third-party beneficiaries.  Each Support

Provider shall be entitled to rely upon and directly enforce such provisions of

this Agreement, the Series Supplement and the Indenture so long as no default

with respect to such Support Provider shall have occurred and be continuing;

provided that nothing herein shall affect or limit the Support Provider’s

rights as subrogee to the Noteholders. 

Nothing in this Agreement or in the Series Supplement, whether express

or implied, shall be construed to give to any other Person any legal or

equitable right, remedy or claim in

 

62

 

the Owner Trust Estate or

under or in respect of this Agreement or any covenants, conditions or

provisions contained herein.

 

SECTION 13.6.      Severability.  Any provision of this Agreement that is

prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,

be ineffective to the extent of such prohibition or unenforceability without

invalidating the remaining provisions hereof, and any such prohibition or

unenforceability in any jurisdiction shall not invalidate or render

unenforceable such provision in any other jurisdiction.

 

SECTION 13.7.      Separate

Counterparts.  This Agreement and

each Transfer Agreement may be executed by the parties hereto in separate

counterparts, each of which when so executed and delivered shall be an

original, but all such counterparts shall together constitute but one and the

same instrument.

 

SECTION 13.8.      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 13.9.      Governing

Law.  THIS AGREEMENT AND EACH

TRANSFER AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE

OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAWS PROVISIONS WHICH WOULD

REQUIRE THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION, AND THE

OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED

IN ACCORDANCE WITH SUCH LAWS.

 

SECTION 13.10.    Assignment

to Indenture Trustee.  The Seller

hereby acknowledges and consents to any mortgage, pledge, assignment and grant

of a security interest by the Issuer to the Indenture Trustee pursuant to the

Indenture, as supplemented by the Series Supplement for the benefit of the

Secured Parties of all right, title and interest of the Issuer in, to and under

the Series Trust Estate.

 

 

SECTION 13.11.    Nonpetition

Covenants.  (a)  Notwithstanding any prior termination of

this Agreement or the Series Supplement, none of the Master Servicer, the

Seller, the Administrative Agent, any Managing Agent or any Secured Party

shall, prior to the date which is one year and one day after the termination of

this Agreement and the payment in full of all obligations of the Issuer under

the Basic Documents, acquiesce, petition or otherwise invoke or cause the

Issuer to invoke the process of any court or government authority for the

purpose of commencing or sustaining a case against the Issuer under any federal

or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator,

assignee, trustee, custodian, sequestrator or other similar official of the

Issuer or any substantial part of its property, or ordering the winding up or

liquidation of the affairs of the Issuer.

 

(b)           Notwithstanding

any prior termination of this Agreement or the Series Supplement, none of the

Master Servicer, any Managing Agent, the Administrative Agent or any Secured

Party shall, prior to the date that is one year and

 

63

 

one day after the termination of this Agreement,

acquiesce to, petition or otherwise invoke or cause the Seller to invoke the

process of any court or government authority for the purpose of commencing or

sustaining a case against the Seller under any federal or state bankruptcy, insolvency

or similar law, appointing a receiver, liquidator, assignee, trustee,

custodian, sequestrator, or other similar official of the Seller or any

substantial part of its property, or ordering the winding up or liquidation of

the affairs of the Seller.

 

SECTION 13.12.    Limitation

of Liability of the Owner Trustee and the Indenture Trustee.  (a) 

Notwithstanding anything contained herein to the contrary, this

Agreement and the Series Supplement have been countersigned by the Owner

Trustee not in its individual capacity but solely in its capacity as Owner

Trustee of the Issuer and in no event shall the Owner Trustee in its individual

capacity or, except as expressly provided in the Trust Agreement, as Owner

Trustee have any liability for the representations, warranties, covenants,

agreements or other obligations of the Issuer hereunder or in any of the

certificates, notices or agreements delivered pursuant hereto, as to all of

which recourse shall be had solely to the assets of the Issuer.  For all purposes of this Agreement and the

Series Supplement, in the performance of its duties or obligations hereunder or

in the performance of any duties or obligations of the Issuer hereunder, the

Owner Trustee shall be subject to, and entitled to the benefits of, the terms

and provisions of Articles VI, VII and VIII of the Trust Agreement.

 

(b)           Notwithstanding

anything contained herein to the contrary, this Agreement has been executed and

delivered by the Person acting as the Indenture Trustee not in its individual

capacity but solely as Indenture Trustee and in no event shall such Person have

any liability for the representations, warranties, covenants, agreements or

other obligations of the Issuer hereunder or in any of the certificates,

notices or agreements delivered pursuant hereto, as to all of which recourse

shall be had solely to the assets of the Issuer.

 

SECTION 13.13.    Limitation

of Liability of Issuer.  The Issuer

shall have no liability to the Master Servicer except for payment of the

Servicing Fee and reimbursement of repossession and liquidation expenses.  The Issuer shall have no obligation to

indemnify the Master Servicer for costs or expenses, except with respect to the

preceding sentence.

 

SECTION 13.14.    Independence

of the Master Servicer.  For all

purposes of this Agreement, the Master Servicer shall be an independent

contractor and shall not be subject to the supervision of the Issuer, the

Indenture Trustee or the Owner Trustee with respect to the manner in which it

accomplishes the performance of its obligations hereunder.  Unless expressly authorized by this

Agreement or the Series Supplement, the Master Servicer shall have no authority

to act for or represent the Issuer or the Owner Trustee in any way and shall not

otherwise be deemed an agent of the Issuer or the Owner Trustee.

 

SECTION 13.15.    No

Joint Venture.  Nothing contained in

this Agreement or the Series Supplement (i) shall constitute the Master

Servicer and either of the Issuer or the Owner Trustee as members of any

partnership, joint venture, association,

 

64

 

syndicate, unincorporated

business or other separate entity, (ii) shall be construed to impose any

liability as such on any of them or (iii) shall be deemed to confer on any of

them any express, implied or apparent authority to incur any obligation or

liability on behalf of the others.

 

SECTION 13.16.    Third-Party

Beneficiary.  The parties hereto

agree that the Insurer is a third-party beneficiary hereof.

 

65

 

IN WITNESS WHEREOF, the parties hereto have caused

this Master Sale and Servicing Agreement to be duly executed and delivered by

their respective duly authorized officers as of the day and the year first

above written.

 

	

   

  	

  HOUSEHOLD AUTOMOTIVE TRUST 2003-1

  
	

   

  	

   

  
	

   

  	

  By:

  	

  Wilmington Trust Company, not in its

  individual capacity but solely as Owner

  Trustee on behalf of the Trust

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

    /s/ Anita

  E. Dallago

  
	

   

  	

   

  	

  Name: Anita E. Dallago

  
	

   

  	

   

  	

  Title: 

  Senior Financial Services Officer

  
	

   

  	

   

  	

   

  
	

   

  	

  HOUSEHOLD AUTO RECEIVABLES CORPORATION,

  
	

   

  	

   

  	

  as Seller

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

    /s/ Steven

  H. Smith

  
	

   

  	

   

  	

  Name: Steven H. Smith

  
	

   

  	

   

  	

  Title: Vice President and Assistant Treasurer

  
	

   

  	

   

  	

   

  
	

   

  	

  HOUSEHOLD FINANCE CORPORATION,

  
	

   

  	

   

  	

  as Master Servicer

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

    /s/ B. B.

  Moss, Jr.

  
	

   

  	

   

  	

  Name:  B. B.

  Moss, Jr.

  
	

   

  	

   

  	

  Title:  Vice

  President and Treasurer

  
	

   

  	

   

  	

   

  
	

   

  	

  U.S. BANK NATIONAL ASSOCIATION,

  
	

   

  	

   

  	

  not in its individual capacity but solely as

  Indenture Trustee

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

    /s/

  Patricia M. Child

  
	

   

  	

   

  	

  Name: Patricia M. Child

  
	

   

  	

   

  	

  Title: Vice President

  
				

 

66

 

EXHIBIT A

 

FORM OF TRANSFER AGREEMENT

 

TRANSFER

No.                               of

Receivables dated as of                               pursuant

to the Master Sale and Servicing Agreement dated as of May 29, 2003 (the “Sale

and Servicing Agreement”), among HOUSEHOLD AUTOMOTIVE TRUST 2003-1, a Delaware

statutory trust (the “Issuer” or the “Trust”), HOUSEHOLD AUTO RECEIVABLES

CORPORATION, a Nevada corporation (the “Seller”), HOUSEHOLD FINANCE

CORPORATION, a Delaware corporation (the “Master Servicer”), and U.S. BANK

NATIONAL ASSOCIATION, a national banking association in its capacity as

Indenture Trustee (the “Indenture Trustee”).

 

W I T N E S S E T H:

 

WHEREAS pursuant to the Sale and Servicing Agreement,

the Seller wishes to convey the Receivable to the Issuer; and

 

WHEREAS, the Issuer is willing to accept such

conveyance subject to the terms and conditions hereof.

 

NOW, THEREFORE, the Issuer, the Seller, the Master

Servicer and the Indenture Trustee hereby agree as follows:

 

1.             Defined

Terms.  Capitalized terms used

herein shall have the meanings ascribed to them in the Sale and Servicing

Agreement unless otherwise defined herein.

 

“Cutoff Date” shall mean, with respect to the

Receivables conveyed hereby, the close of business

on                     ,                 .

 

“Transfer Date” shall mean. with respect to the

Receivables conveyed

hereby,                 ,                 .

 

2.             List

of Receivables.  Annexed hereto is

Schedule A listing the Receivables that constitute the Receivables to be

conveyed pursuant to the Sale and Servicing Agreement and this Agreement on the

Transfer Date.

 

3.             Conveyance

of Receivables.  The Seller does

hereby sell, transfer, assign, set over and otherwise convey to the Issuer,

without recourse (except as expressly provided in the Sale and Servicing

Agreement), all right, title and interest of the Seller in and to:

 

(a)           each and every Receivable listed on

Schedule A and all monies paid or payable thereon or in respect thereof after

the related Cutoff Date (including amounts due on or before the related Cutoff

Date but received by HAFC (or any predecessor or Affiliate of HAFC, as

applicable) or Seller on or after such date);

 

 

(b)           the security interests in the related

Financed Vehicles granted by Obligors pursuant to such Receivables and any

other interest of the Seller in such Financed Vehicles;

 

(c)           all rights of the Seller against

Dealers pursuant to Dealer Agreements or Dealer Assignments related to such

Receivables;

 

(d)           any proceeds and the right to receive

proceeds with respect to such Receivables repurchased by a Dealer pursuant to a

Dealer Agreement;

 

(e)           all rights of the Seller under any

Service Contracts on the related Financed Vehicles;

 

(f)            any proceeds and the right to

receive proceeds with respect to such Receivables from claims on any physical

damage, credit life or disability insurance policies covering the related

Financed Vehicles or Obligors, including rebates of insurance premiums relating

to such Receivables;

 

(g)           all items contained in the

Receivables Files with respect to such Receivables and any and all other

documents that HAFC, any Affiliate of HAFC that is the seller under a Master

Receivables Purchase Agreement, the Seller or the Master Servicer, as

applicable, keeps on file in accordance with its customary procedures relating

to the related Receivables, the related Financed Vehicles or Obligors;

 

(h)           all funds on deposit from time to

time in the Trust Accounts (including all investments and proceeds thereof);

 

(i)            all property (including the right to

receive future Net Liquidation Proceeds) that secures each related Receivable

and that has been acquired by or on behalf of the Seller or the Trust pursuant

to liquidation of such Receivable;

 

(j)            all of Seller’s right, title and

interest in its rights and benefits, but none of its obligations or burdens,

under each of the Master Receivables Purchase Agreements and the Receivables

Purchase Agreement Supplements, including the delivery requirements,

representations and warranties and the cure and repurchase obligations of HAFC,

any Affiliate of HAFC that is the seller under a Master Receivables Purchase

Agreement or Household Finance Corporation, as applicable, under each of the

Master Receivables Purchase Agreements and related Receivables Purchase

Agreement Supplements, on or after the related Cutoff Date;

 

(k)           on the initial Transfer Date only,

one share of Class SV Preferred Stock of the Seller together with the exclusive

right to vote such share; and

 

(l)            all present and future claims,

demands, causes and chooses in action in respect of any or all of the foregoing

and all payments on or under and all proceeds of every kind and nature

whatsoever in respect of any or all of the 

 

A-2

 

foregoing,

including all proceeds of the conversion, voluntary or involuntary, into cash

or other liquid property, all cash proceeds, accounts, accounts receivable,

notes, drafts, acceptances, chattel paper, checks, deposit accounts, insurance

proceeds, condemnation awards, rights to payment of any and every kind and

other forms of obligations and receivables, instruments and other property

which at any time constitute all or part of or are included in the proceeds of

any of the foregoing.

 

4.             Representations

and Warranties of the Seller.  The

Seller hereby represents and warrants to the Issuer as of the Transfer Date

that:

 

(a)           Each of its representations set forth

in Sections 3.1 and 8.1 of the Sale and Servicing Agreement are true and correct

as if made on the Transfer Date, except if specified to be true as of an

earlier date, in which case, such representations and warranties are true as of

such earlier date.

 

(b)           The aggregate of the Principal

Balances of the Receivables listed on Schedule A annexed hereto and conveyed to

the Issuer pursuant to this Agreement as of the Cutoff Date is

$                            .

 

5.             Conditions

Precedent.  The obligation of the

Issuer to acquire the Receivables hereunder is subject to the satisfaction, on

or prior to the Transfer Date, of the following conditions precedent:

 

Representations and

Warranties.  Each of

the representations and warranties made by the Seller in Section 4 of this

Agreement shall be true and correct as of the Transfer Date.

 

Sale and Servicing

Agreement Conditions. 

Each of the conditions set forth in Section 2.1(b) to the Sale and

Servicing Agreement shall have been satisfied.

 

Additional Information.  The Seller shall have delivered to the

Issuer such information as was reasonably requested by the Issuer to satisfy

itself as to the accuracy of the representations and warranties set forth in

Section 4 of this Agreement.

 

6.             Ratification

of Agreement.  As supplemented by

this Agreement, the Sale and Servicing Agreement is in all respects ratified

and confirmed and the Sale and Servicing Agreement as so supplemented by this

Agreement shall be read, taken and construed as one and the same instrument.

 

7.             Counterparts.  This Agreement may be executed in two or

more counterparts (and by different parties in separate counterparts), each of

which shall be an original but all of which together shall constitute one and

the same instrument.

 

8.             GOVERNING

LAW.  THIS AGREEMENT SHALL BE

CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW

 

 

A-3

 

YORK, 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.

 

A-4

 

IN WITNESS WHEREOF, the Issuer, the Seller and the

Master Servicer have caused this Agreement to be duly executed and delivered by

their respective duly authorized officers as of day and the year first above

written.

 

	

   

  	

  HOUSEHOLD AUTOMOTIVE TRUST 2003-1

  
	

   

  	

   

  
	

   

  	

  By:

  	

  Wilmington Trust Company, not in its individual

  capacity but solely as Owner Trustee on behalf of the Trust

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

   

  
	

   

  	

   

  	

  Name:

  
	

   

  	

   

  	

  Title:

  
	

   

  	

   

  	

   

  
	

   

  	

  HOUSEHOLD AUTO RECEIVABLES CORPORATION,

  
	

   

  	

   

  	

  as Seller

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

   

  
	

   

  	

   

  	

  Name:

  
	

   

  	

   

  	

  Title:

  
	

   

  	

   

  	

   

  
	

   

  	

  HOUSEHOLD FINANCE CORPORATION,

  
	

   

  	

   

  	

  as Master Servicer

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

   

  
	

   

  	

   

  	

  Name:

  
	

   

  	

   

  	

  Title:

  
	

   

  	

   

  	

   

  
	

  Acknowledged and Accepted:

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  U.S. BANK NATIONAL ASSOCIATION,

  	

   

  	

   

  
	

   

  	

  not in its individual capacity but solely as

  Indenture Trustee

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  By:

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

  Name:

  	

   

  	

   

  	

   

  
	

   

  	

  Title:

  	

   

  	

   

  	

   

  
						

 

A-5Exhibit

4.4

 

AMBAC ASSURANCE CORPORATION

 

NOTE GUARANTY INSURANCE POLICY

 

Policy

No.  AB0669BE

 

Insured Party:                                                                                                                                                                     The

Indenture Trustee (as defined herein) for the benefit of the Registered Holders

(as defined herein) of the Household Automotive Trust 2003-1, Series 2003-1

Class A Asset-Backed Notes issued pursuant to the Indenture.

 

Insured

Obligations:                                                                                                                                   To

the extent set forth herein, the aggregate interest on and the aggregate

outstanding principal balance of all Class A Notes owned by Registered

Holders, such principal amount not to exceed in the aggregate $1,049,000,000.

 

Policy Claim

Amounts:                                                                                                                       (i) With

respect to each Distribution Date, the excess, if any, without duplication, of

(a) the Class A Interest Distributable Amount and (b) the Insured

Principal Balance Shortfall, if any, minus (c) the Payment Funds

available pursuant to the Basic Documents for payment of the amounts listed in

(i)(a) and (b) in accordance with the priorities set forth in the

Indenture, the Series Supplement and the Master Sale and Servicing Agreement;

(ii) with respect to any Scheduled Maturity Date, the excess of

(a) the outstanding principal balance of (A) the Class A-1 Notes,

with respect to the Class A-1 Scheduled Maturity Date, (B) the Class A-2

Notes, with respect to the Class A-2 Scheduled Maturity Date, (C) the

Class A-3 Notes, with respect to the Class A-3 Scheduled Maturity Date or

(D) the Class A-4 Notes, with respect to the Class A-4 Scheduled Maturity

Date, as applicable, minus (b) the Payment Funds available pursuant

to the Basic Documents for payment of the applicable amount listed in

(ii)(a) with respect to such Scheduled Maturity Date in accordance with

the priorities set forth in the Indenture, the Series Supplement and the Master

Sale and Servicing Agreement; and (iii) with respect to any Preference

Payment Date, Preference Amounts, provided, however, that the aggregate

amount of all such Preference Amounts shall be subject to the limitations in

such definition; provided, further, that in no event shall the amount

payable by the Insurer under this Policy exceed the Maximum Insured Amount.

 

For

consideration received, AMBAC ASSURANCE CORPORATION, a Wisconsin domiciled

stock insurance corporation (“Ambac” or the “Insurer”),

in consideration of

 

 

the payment of the premium, hereby unconditionally and

irrevocably guarantees, subject only to (i) proper presentation of a

Notice in accordance with the terms of this Note Guaranty Insurance Policy

(together with each and every endorsement, if any, hereto, the “Policy”)

and (ii) the terms of this Policy, the payment to, or at the direction of,

the Indenture Trustee, for the benefit of the Registered Holders of the Insured

Obligations, that portion of the Policy Claim Amounts which are Due for Payment

but are unpaid by reason of Nonpayment.

 

1.             Definitions.  Capitalized terms used herein and not

otherwise defined shall have the meaning assigned to them in the Insurance

Agreement or, if not defined therein, in the Master Sale and Servicing

Agreement, or, if not defined therein, in the Series Supplement, or, if not

defined therein, in the Indenture, without giving effect to any subsequent

amendment or modification thereto unless such amendment or modification has

been approved in writing by the Insurer. 

For purposes of this Policy, the following terms shall have the

following meanings:

 

“Accounting Date”

shall mean, with respect to a Distribution Date, the last day of the Collection

Period immediately preceding such Distribution Date.

 

“Affiliate” shall

mean, with respect to any specified Person, any other Person controlling or

controlled by or under common control with such specified Person.  For the purposes of this definition,

“control” when used with respect to any Person means the power to direct the

management and policies of such Person, directly or indirectly, whether through

the ownership of voting securities, by contract or otherwise; and the terms

“controlling” and “controlled” have meanings correlative to the foregoing.

 

“Aggregate Note Principal Balance”

shall mean, (i) with respect to all of the Class A Notes, as of any date,

the aggregate outstanding principal amount of all of the Class A Notes on such

date, and (ii) with respect to any class of the Class A Notes, as of any

date, the aggregate outstanding principal amount of all of the Class A Notes of

such class on such date.

 

“Aggregate Optimal Note Principal Balance”

shall mean, with respect to any Distribution Date, the product of (x) 87%

and (y) the Pool Balance as of the close of business on the last day of

the prior Collection Period.

 

“Amount Financed”

shall mean, with respect to a Receivable, the aggregate amount advanced under

such Receivable toward the purchase price of the Financed Vehicle and any

related costs, including amounts advanced in respect of accessories, insurance

premiums, service and warranty contracts, other items customarily financed as

part of retail motor vehicle installment sale contracts or promissory notes,

and related costs.

 

“Available Funds”

shall mean, with respect to any Distribution Date and the related Collection

Period, the sum of (i) the Collected Funds for such Collection Period,

(ii) investment earnings realized on the Collection Account and the

Reserve Account during such Collection Period, (iii) all Repurchase Amounts

deposited in the Collection Account during such Collection Period and

(iv) all proceeds of any liquidation, in whole or in part, of the assets

of the Issuer.

 

“Bankruptcy Code”

shall mean Title 11 of the United States Code.

 

2

 

“Basic Documents”

shall mean the Series Supplement, the Master Sale and Servicing Agreement, the

Certificate of Trust filed for the Issuer, the Trust Agreement, the Insurance

Agreement, the Indemnification Agreement, the Indenture, the Master Receivables

Purchase Agreements, each Transfer Agreement related to the Owner Trust Estate

and all other documents and certificates delivered in connection therewith or

pursuant thereto in connection with the Class A Notes or the Certificates (as

defined in the Trust Agreement).

 

“Business Day” shall

mean a day other than a Saturday, a Sunday or other day on which commercial

banks located in the states of Illinois or New York are authorized or obligated

by law to be closed.

 

“Class A Interest Carryover Shortfall”

shall mean, with respect to any Distribution Date, the sum of: (i) the

excess of (a) the related Class A Interest Distributable Amount for the

preceding Distribution Date, over (b) the amount actually paid as interest

to the Class A Noteholders on such preceding Distribution Date (under the

Indenture or this Policy), plus (ii) interest on such excess, to the extent

permitted by law, at a rate per annum equal to the related Note Rate with

respect to the Class A Notes from such preceding Distribution Date to but

excluding the current Distribution Date.

 

“Class A Interest Distributable Amount”

shall mean, with respect to any Distribution Date and each class of Class A

Notes, an amount equal to the sum of: (i) the aggregate amount of interest

accrued on the Class A Notes at the related Note Rate from and including the

preceding Distribution Date (or, in the case of the First Distribution Date,

from and including the Closing Date) to but excluding the current Distribution

Date plus

(ii) the related Class A Interest Carryover Shortfall for the current

Distribution Date.

 

“Class A Minimum Principal Distributable

Amount” shall mean, with respect to any Distribution

Date, the greatest of (i) the lesser of (A) the Optimal Principal

Distributable Amount for such Distribution Date, (B) the excess of the

aggregate of the Principal Balances of the Receivables as of the last day of

the second preceding Collection Period, over the aggregate of the Principal

Balances of the Receivables as of the last day of the immediately preceding

Collection Period, and (C) the Aggregate Note Principal Balance,

(ii) on the Scheduled Maturity Date for any Class of the Notes, the amount

necessary to reduce the Aggregate Note Principal Balance of such Class to zero

and (iii) the positive excess, if any, of the Aggregate Note Principal

Balance prior to making any distribution on such Distribution Date over the

Pool Balance as of the last day of the preceding Collection Period.

 

“Class A Notes” shall

mean, collectively, the Class A-1 Notes, the Class A-2 Notes, the

Class A-3 Notes and the Class A-4 Notes.

 

“Class A-1 Notes”

shall mean the Class A-1 Notes in an aggregate initial principal amount of

$227,000,000 issued pursuant to the Series Supplement and the Indenture.

 

“Class A-1 Scheduled Maturity Date”

shall mean May 17, 2004.

 

“Class A-2 Notes”

shall mean the Class A-2 Notes in an aggregate initial principal amount of

$296,000,000 issued pursuant to the Series Supplement and the Indenture.

 

3

 

“Class A-2 Scheduled Maturity Date”

shall mean September 18, 2006.

 

“Class A-3 Notes”

shall mean the Class A-3 Notes in an aggregate initial principal amount of

$268,000,000 issued pursuant to the Series Supplement and the Indenture.

 

“Class A-3 Scheduled Maturity Date”

shall mean December 17, 2007.

 

“Class A-4 Notes”

shall mean the Class A-4 Notes in an aggregate initial principal amount of

$258,000,000 issued pursuant to the Series Supplement and the Indenture.

 

“Class A-4 Scheduled Maturity Date”

shall mean November 17, 2009.

 

“Closing Date” shall

mean May 29, 2003.

 

“Collected Funds”

shall mean, with respect to any Collection Period, the amount of funds in the

Collection Account representing collections (including, where applicable, all

payment cancellation fees and all administrative fees, expenses and charges

actually paid by or on behalf of Obligors, including late fees, payment fees

and liquidation fees but excluding taxes, assessments, credit insurance charges

or similar items) received by the Master Servicer on or with respect to the

Receivables during such Collection Period, including all Net Liquidation

Proceeds collected during such Collection Period (but excluding any Repurchase

Amounts).

 

“Collection Account”

shall mean the Eligible Deposit Account created pursuant to Section 3.01 of the

Series Supplement, which initially shall be account no. 77125301, reference

Household Auto 2003-1 Collection Account at the Indenture Trustee, ABA No.

091000022.

 

“Collection Period”

shall mean, (i) with respect to the First Distribution Date, the period

beginning on the opening of business on the day after the Cutoff Date and

ending on the close of business on the last day of the calendar month preceding

such Distribution Date, and (ii) with respect to each subsequent

Distribution Date, the preceding calendar month.  Any amount stated “as of the close of business of the last day of

a Collection Period” shall give effect to all applications of collections on

such day.

 

“Cram Down Loss”

shall mean, with respect to a Receivable, if a court of appropriate

jurisdiction in an insolvency proceeding shall have issued a final order

reducing the amount owed on a Receivable or otherwise modifying or

restructuring the scheduled payments to be made on a Receivable, an amount equal

to the excess of the Principal Balance of such Receivable immediately prior to

such order over the Principal Balance of such Receivable as so reduced.  A “Cram Down Loss”

shall be deemed to have occurred on the date of issuance of such order.

 

“Cutoff Date” shall

mean the close of business on April 30, 2003.

 

“Determination Date”

shall mean the earlier of the fifth calendar day (or if such day is not a

Business Day, the next preceding Business Day) or the third Business Day

preceding each Distribution Date.

 

4

 

“Distribution Date”

shall mean, with respect to each Collection Period, the seventeenth (17th)

day of the calendar month next commencing after the last day of such Collection

Period or, if such day is not a Business Day, the immediately following

Business Day, commencing on June 17, 2003.

 

“Due for Payment”

shall mean, with respect to any Policy Claim Amounts, such amount as is due and

payable pursuant to the terms of the Indenture.

 

“Financed Vehicle”

shall mean a new or used automobile, light duty truck or van securing an

Obligor’s indebtedness under the respective Receivable.

 

“First Distribution Date”

shall mean June 17, 2003.

 

“Indenture” shall

mean that certain Indenture, dated as of May 29, 2003, by and between the

Issuer and the Indenture Trustee, as supplemented by the Series Supplement.

 

“Indenture Trustee”

shall mean U.S. Bank National Association, not in its individual capacity but

as trustee under the Indenture, and its successors and assigns in such

capacity.

 

“Initial Aggregate Note Principal Balance”

shall mean $1,049,000,000.

 

“Insurance Agreement”

shall mean that certain Insurance and Indemnity Agreement, dated as of

May 29, 2003, among the Insurer, the Issuer, the Master Servicer, the

Originators, the Seller, and the Indenture Trustee, as such agreement may be

amended, modified or supplemented from time to time.

 

“Insured Payments”

shall mean, (i) with respect to any Distribution Date, the aggregate

amount actually paid by the Insurer to, or at the direction of, the Indenture

Trustee in respect of Policy Claim Amounts for such Distribution Date and

(ii) the aggregate amount of any Preference Amounts paid by the Insurer on

any given Business Day.

 

“Insured Principal Balance Shortfall”

shall mean, with respect to a Distribution Date, the positive excess, if any,

of the Aggregate Note Principal Balance with respect to the Class A Notes

(after giving effect to the distribution of the Class A Minimum Principal

Distributable Amount on such Distribution Date pursuant to

Section 3.03(a)(iv) of the Series Supplement and after making any

distribution from the Reserve Account pursuant to Section 3.03(b) of the

Series Supplement on such Distribution Date) over the Pool Balance as of the close

of business on the last day of the preceding Collection Period.

 

“Insurer” shall mean

Ambac, or any successor thereto, as issuer of this Policy.

 

“Interest Period”

shall mean, with respect to any Distribution Date, the period from and

including the prior Distribution Date (or, in the case of the first Interest

Period, from and including the Closing Date) through (and including) the day

preceding such Distribution Date.

 

5

 

“Issuer” shall mean

Household Automotive Trust 2003-1, a Delaware statutory trust.

 

“Late Payment Rate”

shall mean the lesser of (a) the greater of (i) the per annum rate of

interest publicly announced from time to time by Citibank, N.A. as its prime or

base lending rate (any change in such rate of interest to be effective on the

date such change is announced by Citibank, N.A.), plus 2% per annum and

(ii) the then applicable highest rate of interest on the Class A

Notes and (b) the maximum rate permissible under applicable usury or

similar laws limiting interest rates. 

The Late Payment Rate shall be computed on the basis of the actual

number of days elapsed over a year of 360 days.

 

“Liquidated Receivable”

shall mean, with respect to any Collection Period, upon the earliest of any of

the following to occur, a Receivable as to which (i) such Receivable has

been liquidated by the Master Servicer through the sale of the Financed

Vehicle, (ii) 90 days have elapsed since the Master Servicer repossessed

the Financed Vehicle, (iii) proceeds have been received in respect of such

Receivable which, in the Master Servicer’s reasonable judgment, constitute the

final amounts recoverable in respect of such Receivable or (iv) 10% or

more of a Scheduled Payment shall have become 150 or more days delinquent (or,

in the case where the Obligor of such Receivable is subject to an Insolvency

Event, 10% or more of a Scheduled Payment shall have become 210 or more days

delinquent); provided, however, that the number of days specified in

either clause (ii) or (iv) may at the election of the Master Servicer

be such shorter number of days as may from time to time be consistent with the

Master Servicer’s then-current collection policy.  Any Receivable that becomes a Repurchased Receivable on or before

the related Accounting Date shall not be a Liquidated Receivable.

 

“Master Receivables Purchase Agreements”

shall mean, collectively, (i) the Master Receivables Purchase Agreement

dated as of December 18, 2001 between Household Automotive Finance Corporation,

as Originator, and the Seller, as such agreement may be amended or supplemented

from time to time, (ii) the Master Receivables Purchase Agreement dated as

of June 24, 2002 between the Seller and Household Automotive Credit

Corporation, as Originator, as such agreement may be amended or supplemented

from time to time, (iii) the Master Receivables Purchase Agreement dated as of

August 8, 2002 between the Seller and Household Automotive Credit Corporation,

as Originator, as such agreement may be amended or supplemented from time to time,

and (iv) the Master Receivables Purchase Agreement dated as of November

18, 2002, between the Seller and Household Automotive Finance Corporation, as

Originator, as such agreement may be amended or supplemented from time to time.

 

“Master Sale and Servicing Agreement”

shall mean that certain Master Sale and Servicing Agreement, dated as of May

29, 2003, by and among the Issuer, the Seller, the Master Servicer and the

Indenture Trustee, as such agreement may be amended or supplemented from time

to time.

 

“Master Servicer”

shall mean Household Finance Corporation, as Master Servicer under the Master

Sale and Servicing Agreement.

 

“Maximum Insured Amount”

shall mean $1,049,000,000 in respect of principal, plus interest thereon

calculated at the applicable Note Rate for the Class A Notes.

 

6

 

“Nonpayment” shall

mean, with respect to any Distribution Date, Policy Claim Amounts which are Due

for Payment but have not been paid pursuant to the Indenture.

 

“Note Paying Agent”

shall mean the Indenture Trustee or any other Person that meets the eligibility

standards for the Indenture Trustee specified in Section 6.11 of the Indenture

and is authorized by the Issuer to make payments to and distributions from the

Collection Account, including payment of principal of or interest on the Class

A Notes on behalf of the Issuer.

 

“Note Rate” shall

mean with respect to (i) the Class A-1 Notes, 1.24% per annum,

(ii) the Class A-2 Notes, 1.30% per annum, (iii) the

Class A-3 Notes, 1.73% per annum, (iv) the Class A-4 Notes,

2.22% per annum (in the case of the Class A-1 Notes, computed on the basis

of a 360-day year and the actual number of days in the related Interest Period;

in the case of the Class A-2, Class A-3 and Class A-4 Notes, computed

on the basis of a 360-day year consisting of twelve 30-day months; and in the

case of the Class A-2, Class A-3 and Class A-4 Notes with respect to the

initial Interest Period only, computed on the basis of a 360-day year and the

actual number of days elapsed in such initial Interest Period).

 

“Notice” shall mean

the telephonic or telegraphic notice, promptly confirmed in writing by telecopy

substantially in the form of Exhibit A or Exhibit B, as

applicable, to this Policy, the original of which is subsequently delivered by

registered or certified mail, from the Indenture Trustee specifying the amount

of any Insured Payment which shall be due and owing.

 

“Obligor” on a

Receivable shall mean the purchaser or co-purchasers of the Financed Vehicle

and any other Person who owes payments under the Receivable.

 

“Optimal Principal Distributable Amount”

shall mean, with respect to any Distribution Date, the excess, if any, of

(i) the Aggregate Note Principal Balance immediately prior to such

Distribution Date over (ii) the Aggregate Optimal Note Principal Balance

for such Distribution Date.

 

“Order” shall have

the meaning given such term in Section 8 hereto.

 

“Originators” shall

mean Household Automotive Finance Corporation and Household Automotive Credit

Corporation, as Originators under the Master Receivables Purchase Agreements.

 

“Payment Funds” shall

mean the sum of, without duplication, (i) all amounts of Available Funds,

(ii) all other funds on deposit in the Collection Account, the Reserve

Account and any other Trust Accounts and (iii) all other funds available

pursuant to the Basic Documents for payment in accordance with the priorities

set forth therein.

 

“Person” shall mean

any individual, corporation, limited liability company, estate, partnership,

joint venture, association, joint stock company, trust (including any

beneficiary thereof), unincorporated organization or government or any agency

or political subdivision thereof.

 

7

 

“Pool Balance” shall

mean, as of any date of determination, the aggregate of the outstanding

Principal Balances of the Receivables as of the close of business on the

preceding Business Day.

 

“Preference Amount”

shall mean any interest on or principal of the Class A Notes which has

become Due for Payment, the Nonpayment of which would have been covered by this

Policy, and which was made to a Registered Holder by or on behalf of the Issuer

which has been deemed a preferential transfer and recoverable, or theretofore

recovered, from its Registered Holder pursuant to the Bankruptcy Code in

accordance with a final, nonappealable order of a court of competent

jurisdiction; provided that any Preference Amount that constitutes

interest shall be limited to the amount of interest on the outstanding

principal amount of the Class A Notes (calculated at the Note Rate for the

relevant class of Class A Notes) accrued as of the last day of the applicable

interest accrual period with respect to the Class A Notes and shall not, in any

event, include any interest on the Class A Notes accrued after such date or any

interest on such interest amount; provided, further, that in no event

shall the Insurer be obligated to make any payment in respect to any Preference

Amount to the extent that such payment, when added to all prior payments of

Policy Claim Amounts, would exceed the Maximum Insured Amount.

 

“Preference Payment Date”

shall have the meaning given such term in Section 8 hereto.

 

“Principal Balance”

shall mean, with respect to any Receivable, as of any date, the Amount Financed

minus (i) that portion of all amounts received on or prior to such date

and allocable to principal in accordance with the Actuarial Method, or the

Simple Interest Method, as appropriate and (ii) any Cram Down Loss in respect

of such Receivable.  The “Principal

Balance” of a Repurchased Receivable or Liquidated Receivable shall be deemed

to be zero.

 

“Receivable” shall

mean each receivable listed on the Schedule of Receivables, which (a) has

not been released from the Series Trust Estate as provided in the Series

Supplement or in the Indenture and (b) is not a Liquidated Receivable.

 

“Registered Holder”

shall mean any registered or beneficial owner of a Class A Note (other than the

Issuer, the Seller, the Master Servicer, the Originators or any of their

respective Affiliates).

 

“Reimbursement Amount”

shall mean, as of any Distribution Date, the sum of (x)(i) all Insured

Payments paid by the Insurer, but for which the Insurer has not been reimbursed

prior to such Distribution Date pursuant to Section 3.3 of the Insurance

Agreement and Section 3.03 of the Series Supplement, plus

(ii) interest accrued on such Insured Payments not previously repaid

calculated at the Late Payment Rate from the date the Indenture Trustee, or any

other Person at its direction, received the related Insured Payments or the

date such Insured Payments were made, and (y) without duplication

(i) any amounts then due and owing to the Insurer under the Insurance

Agreement and Section 3.03 of the Series Supplement, as certified to the

Indenture Trustee by the Insurer

plus (ii) interest on such amounts at the Late

Payment Rate.

 

“Repurchase Amount”

shall mean, with respect to a Receivable, the Principal Balance and all accrued

and unpaid interest on the Receivable, after giving effect to the receipt

 

8

 

of any moneys collected (from whatever source) on such

Receivable, if any, as of the date of repurchase, provided that, reductions in

the Principal Balance resulting from such Receivable becoming a Liquidated

Receivable shall be disregarded.

 

“Repurchased Receivable”

shall mean a Receivable purchased by the Master Servicer pursuant to Section

4.7 of the Master Sale and Servicing Agreement or repurchased by the Seller

pursuant to Section 3.2 of the Master Sale and Servicing Agreement or the

Master Servicer pursuant to Section 11.1(a) of the Master Sale and Servicing

Agreement.

 

“Reserve

Account” shall

mean the account designated as such in the Series Supplement, and established

and maintained pursuant to Section 3.01 of the Series Supplement.

 

“Scheduled Maturity Date”

shall mean with respect to (i) the Class A-1 Notes, the Class A-1

Scheduled Maturity Date, (ii) the Class A-2 Notes, the Class A-2

Scheduled Maturity Date, (iii) the Class A-3 Notes, the Class A-3

Scheduled Maturity Date and (iv) the Class A-4 Notes, the Class A-4

Scheduled Maturity Date.

 

“Scheduled Payment”

shall mean, with respect to any Collection Period for any Receivable, the

amount set forth in such Receivable as required to be paid by the Obligor in

such Collection Period.  If after the

Closing Date, the Obligor’s obligation under a Receivable with respect to a

Collection Period has been modified so as to differ from the amount specified

in such Receivable as a result of (i) the order of a court in an

insolvency proceeding involving the Obligor, (ii) pursuant to the

Soldiers’ and Sailors’ Civil Relief Act of 1940, as amended, or

(iii) modifications or extensions of the Receivable permitted by Sections

4.2(b) and (c) of the Master Sale and Servicing Agreement, the Scheduled

Payment with respect to such Collection Period shall refer to the Obligor’s

payment obligation with respect to such Collection Period as so modified.

 

“Seller”

shall mean Household Auto Receivables Corporation, a Nevada corporation, as

Seller under the Master Sale and Servicing Agreement, and its successors in

interest to the extent permitted under the Master Sale and Servicing Agreement.

 

“Series Supplement”

shall mean that certain Series Supplement to the Indenture, the Master Sale and

Servicing Agreement and the Trust Agreement, dated as of May 29, 2003, executed

pursuant to Section 9.3 of the Indenture and Section 3.2 of the Trust

Agreement, by and among the Master Servicer, the Issuer, the Seller, the

Indenture Trustee and Wilmington Trust Company, a Delaware banking corporation,

as Owner Trustee.

 

“Series

Trust Estate”

shall mean the property Granted to the Indenture Trustee pursuant to

Section 1.02 of the Series Supplement.

 

“Transaction

Party” shall mean

the Indenture Trustee, the Issuer, the Originators, the Master Servicer or the

Seller.

 

“Trust

Accounts” shall

mean the Collection Account and the Reserve Account and any other account

designated as such under the Series Supplement.

 

9

 

“Trust

Agreement” shall

mean the Trust Agreement, dated as of April 15, 2003, between the Seller

and Wilmington Trust Company, a Delaware banking corporation, as Owner Trustee,

as amended and restated as of May 29, 2003 and as supplemented by the Series

Supplement.

 

2.             Payments

under the Policy. 

(a)  Upon the presentation by the Indenture Trustee to the

Insurer at the Insurer’s principal office in respect of the applicable

Distribution Date of a duly executed Notice, the Insurer will make or cause to

be made to the Indenture Trustee, on the guarantee set forth in the first

paragraph of this Policy, payment in an amount equal to the applicable Policy

Claim Amounts.

 

(b)           Amounts

payable in respect of any Policy Claim Amounts due hereunder, unless otherwise

stated herein, will be distributed by the Insurer to, or at the direction of,

the Indenture Trustee, by wire transfer of immediately available funds.  Solely the Indenture Trustee on behalf of

the Registered Holders shall have the right to make a claim for an Insured

Payment under this Policy.

 

(c)           The

Insurer’s payment obligations hereunder with respect to particular Policy Claim

Amounts shall be discharged to the extent funds equal to the applicable Policy

Claim Amounts are paid by the Insurer to, or at the direction of, the Indenture

Trustee in accordance with the Indenture Trustee’s request, whether or not such

funds are properly applied by the Indenture Trustee or the Note Paying Agent.  Payments of Policy Claim Amounts shall be

made only at the time set forth in this Policy, and no accelerated Insured

Payments shall be made except to the extent that the Insurer has specified an

earlier date for payment at its sole option. 

This Policy does not insure against loss of any prepayment or other

acceleration payment which at any time may become due in respect of any Insured

Obligation, other than at the sole option of the Insurer, nor against any risk

other than Nonpayment, including failure of the Indenture Trustee or the Note

Paying Agent to pay any Policy Claim Amounts due to Registered Holders.

 

(d)           Notwithstanding

anything to the contrary set forth herein, in no event shall the aggregate

amount paid by the Insurer hereunder exceed the Maximum Insured Amount

hereunder.

 

3.             Presentation

of Notice of Non-Payment and Demand. 

(a)  Notwithstanding any other provision of this Policy but

subject to Section 8 hereof with respect to Preference Amounts, the Insurer

will pay any Policy Claim Amounts payable hereunder to, or at the direction of,

the Indenture Trustee no later than 12:00 noon, New York City time, on the

later of (i) the Distribution Date or Scheduled Maturity Date, as the case

may be, on which the related Policy Claim Amount is due for payment under the

Indenture or (ii) the second Business Day following actual receipt in New

York, New York on a Business Day by the Insurer of a Notice in the form

attached as Exhibit A, appropriately completed and executed by the

Indenture Trustee; provided that, if such Notice is received after 12:00

noon, New York City time, on such Business Day, it will be deemed to be

received before 12:00 noon, New York City time, on the following Business Day.

 

(b)           If any

such Notice is not in proper form or is otherwise insufficient for the purpose

of making a claim under this Policy, it shall be deemed not to have been

received for

 

10

 

purposes

of this Policy, and the Insurer shall promptly so advise the Indenture Trustee

in writing and the Indenture Trustee may submit an amended or corrected

Notice.  If such an amended or corrected

Notice is in proper form and is otherwise sufficient for the purpose of making

a claim under this Policy, it shall be deemed to have been timely received on

the Business Day of such resubmission subject to the proviso in (a) above.

 

4.             Waiver.  To the fullest extent permitted by

applicable law, the Insurer hereby waives and agrees not to assert any and all

rights and defenses (including, set-offs, counterclaims,

fraud in the inducement or fact or any other circumstances that would have the

effect of discharging a surety at law or in equity), to the extent such rights

and defenses may be available to the Insurer, so as to avoid payment of any

amount due in respect of this Policy in accordance with express provisions

hereof, including, without limitation, any such rights acquired by subrogation,

assignment or otherwise.  For the

avoidance of doubt, the Insurer undertakes not to impose any defense to payment,

but reserves all rights to assert any claim it may have against any Registered

Holder or any other person and none of the foregoing waivers shall prejudice

any claim the Insurer may have, whether directly or as subrogee or otherwise,

subsequent to making such payment to the Registered Holders.  For the avoidance of doubt, the Insurer does

not waive its right to seek payment of all Reimbursement Amounts to which it is

entitled.

 

5.             Subrogation.  Upon any payment hereunder, in furtherance

and not in limitation of the Insurer’s equitable right of subrogation and the Insurer’s

rights under the Insurance Agreement, the Insurer will, to the extent of such

payment by the Insurer hereunder, be subrogated to the rights of any Registered

Holder to receive any and all amounts due in respect of the Insured Obligations

as to which such Insured Payment was made. 

In so doing, the Insurer does not waive its rights to seek full payment

of all Reimbursement Amounts owed it.

 

6.             Communications.  All notices, presentations, transmissions,

deliveries and communications made by the Indenture Trustee to the Insurer with

respect to this Policy shall specifically refer to the number of this Policy

and shall be made to the Insurer at:

 

Ambac Assurance

Corporation

One State Street Plaza

New York, New York

10004

Attention:  Asset-Backed Securities Department Head

General Counsel – URGENT

Phone:  (212) 208-3357

Fax:  (212) 208-3547

 

or to such other address, officer, telephone number or facsimile number

as the Insurer may designate to the Indenture Trustee from time to time.

 

7.             Nature

of the Obligations.  Except as

expressly provided herein, the obligations of the Insurer under this Policy are

irrevocable, absolute and unconditional.

 

8.             Termination.  This Policy and the obligations of the

Insurer hereunder shall terminate upon the earlier of:

 

11

 

(a)           the

date on which all of the Policy Claim Amounts have been paid in full by the

Insurer to, or at the direction of, the Indenture Trustee;  or

 

(b)           the

close of business on the third (3rd) Business Day after the date on which all

principal and interest on the Class A Notes has been paid in full;

 

provided, however, that notwithstanding the occurrence of any of

the foregoing events, the Insurer shall pay any Preference Amount when due to

be paid pursuant to an Order referred to below, but in any event no earlier

than the fifth Business Day following actual receipt by the Insurer of

(i) a certified copy of a final, nonappealable order of a court or other

body exercising jurisdiction to the effect that a Registered Holder is required

to return such Preference Amount paid during the term of this Policy because

the payments of such amounts were avoided as a preferential transfer or

otherwise rescinded or required to be restored by the Indenture Trustee or such

Registered Holder (the “Order”),

(ii) an opinion of counsel satisfactory to the Insurer that the Order has

been entered and is final and not subject to any stay, (iii) an

assignment, in form and substance satisfactory to the Insurer, duly executed

and delivered by such Registered Holder and the Indenture Trustee, irrevocably

assigning to the Insurer all rights and claims of the Indenture Trustee and

such Registered Holder relating to or arising under the Indenture or otherwise

with respect to such Preference Amount, (iv) appropriate instruments in

form satisfactory to the Insurer to effect the appointment of the Insurer as

agent for such Registered Holder in any legal proceeding related to such

Preference Payment, and (v) a Notice (in the form attached as Exhibit

B) appropriately completed and executed by the Indenture Trustee, (the

“Preference Payment Date”); provided,

further, that (I) if such documents are received by the Insurer after

12:00 noon, New York City time, on such Business Day, they will be deemed to be

received before 12:00 noon, New York City time, on the following Business Day

and (II) the Insurer shall not be obligated to pay any Preference Amount

in respect of principal (other than the Insured Principal Balance Shortfall)

prior to the Scheduled Maturity Date for the relevant class of Class A

Notes.  Such payment shall be disbursed

to the receiver, conservator, debtor-in-possession or trustee in bankruptcy

named in the Order, and not to the Indenture Trustee or the Registered Holder

directly, unless the Indenture Trustee or the relevant Registered Holder has

made a payment of the Preference Amount to the court or such receiver,

conservator, debtor-in-possession or trustee in bankruptcy named in the Order,

in which case the Insurer will pay the Indenture Trustee, or as directed by the

Indenture Trustee, to the extent of the payment of the Preference Amount,

subject to the delivery of (a) the items referred to in clauses (i), (ii),

(iii), (iv) and (v) above to the Insurer and (b) evidence

satisfactory to the Insurer that payment has been made to such court or

receiver, conservator, debtor-in-possession or trustee in bankruptcy named in

the Order.

 

Notwithstanding the foregoing, in no event shall the Insurer be obligated

to make any payment in respect of any Preference Amount (i) to the extent

that such payment, when added to all prior payments of Insured Amounts, would

exceed the Maximum Insured Amount or (ii) prior to the time the Insurer

would have been required to make an Insured Payment pursuant to Section 3 of

this Policy.

 

There shall be no acceleration payment due under this Policy unless such

acceleration is at the sole option of the Insurer.  This Policy does not cover (i) premiums, if any, payable in

respect of the Class A Notes, (ii) shortfalls, if any, attributable

to any payment of 

 

12

 

withholding taxes (including penalties and interest in

respect of any such liability) or (iii) any risk other than Nonpayment,

including the failure of the Indenture Trustee or the Note Paying Agent to

apply, disburse, transfer or direct Policy payments or Available Funds or other

amounts in accordance with the Indenture to Registered Holders or to any other

party.

 

9.             Miscellaneous.  (a)  This Policy sets forth the

full understanding of the Insurer, and except as expressly provided herein, or

as otherwise agreed in writing hereafter by the Insurer and the Indenture

Trustee, may not be modified, altered or affected by any other agreement or

instrument, including any modification or amendment thereto, and may not be

canceled or revoked.

 

(b)           This

Policy is issued pursuant to, and shall be construed under, the laws of the

State of New York, without giving effect to the conflicts of laws rules

thereof, as contemplated in Section 5-1401 of the New York General Obligations

Law.

 

(c)           THE

INSURANCE PROVIDED BY THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY

INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.

 

(d)           Any

notice hereunder or service of process on the Insurer may be made at the

address listed above for the Insurer or such other address as the Insurer shall

specify in writing to the Indenture Trustee.

 

(e)           The

premium of this Policy is not refundable for any reason.  The premium will be payable on this Policy

on each Distribution Date as provided in the Insurance Agreement, beginning

with the First Distribution Date.

 

ANY PERSON WHO

KNOWINGLY AND WITH INTENT TO DEFRAUD ANY INSURANCE COMPANY OR OTHER PERSON

FILES AN APPLICATION FOR INSURANCE OR STATEMENT OF CLAIM CONTAINING ANY

MATERIALLY FALSE INFORMATION, OR CONCEALS FOR THE PURPOSE OF MISLEADING,

INFORMATION CONCERNING ANY FACT MATERIAL THERETO, COMMITS A FRAUDULENT

INSURANCE ACT, WHICH IS A CRIME AND SHALL ALSO BE SUBJECT TO A CIVIL PENALTY

NOT TO EXCEED FIVE THOUSAND DOLLARS AND THE STATED VALUE OF THE CLAIM FOR EACH

SUCH VIOLATION.

 

13

 

IN WITNESS WHEREOF, the Insurer has

caused this Note Guaranty Insurance Policy to be executed and attested this 29th

day of May, 2003.

 

	

   

  	

  AMBAC ASSURANCE CORPORATION

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  By:

  	

  /s/ Michael Babick

  
	

   

  	

   

  	

  Name: Michael Babick

  
	

   

  	

   

  	

  Title: First Vice President

  
	

   

  	

   

  	

   

  
	

  Attest:

  	

   

  
	

   

  	

   

  
	

   /s/ Melissa L. Velia

  	

   

  	

   

  
	

  Name: Melissa L. Velia

  	

   

  
	

  Title: Asst. Secretary, Asst. Vice

  President

  	

   

  
				

 

14

 

EXHIBIT

A

 

TO

THE NOTE GUARANTY INSURANCE POLICY

 

Policy No. AB0669BE

 

NOTICE

OF NONPAYMENT AND DEMAND

FOR PAYMENT OF INSURED AMOUNTS

(OTHER THAN PREFERENCE AMOUNT)

 

Date: 

[        ]

 

Ambac

Assurance Corporation

One State

Street Plaza

New York, New

York 10004

Attention:    Asset-Backed

Securities Department Head

General Counsel – URGENT

 

Reference is made to Note Guaranty Insurance Policy No. AB0669BE

(the “Policy”) issued by Ambac Assurance Corporation

(“Ambac”). 

Terms capitalized herein and not otherwise defined shall have the

meanings specified in the Policy, unless the context otherwise requires.

 

The undersigned hereby certifies as

follows:

 

1.             It

is the Indenture Trustee under the Indenture, and is acting for the Registered

Holders.

 

2.             The

relevant [Distribution Date] / [Scheduled Maturity Date] is [date].

 

3.             There

is an amount of $          

with respect to such [Distribution Date] / [Scheduled Maturity Date], which

amount is a Policy Claim Amount which is Due for Payment.

 

4.             The

Indenture Trustee has not heretofore made a demand for the Policy Claim Amount

in respect of such [Distribution Date] / [Scheduled Maturity Date].

 

5.             The

Indenture Trustee hereby requests the payment of the Policy Claim Amount that

is Due for Payment be made by Ambac under the Policy and directs that payment

under the Policy be made to the Indenture Trustee to the following account by

bank wire transfer of federal or other immediately available funds in

accordance with the terms of the Policy

to:                         .(1)

 

6.             The

Indenture Trustee hereby agrees that, following receipt by the Indenture

Trustee of the Insured Payment from Ambac, it shall (a) hold such amounts

in trust and apply the same directly to the distribution of payments in respect

of the Class A Notes when 

 

(1)           The

account number of the Indenture Trustee.

 

 

A-1

 

due, (b) not apply such funds for any other purpose,

and (c) maintain an accurate record of such payments with respect to the

Class A Notes and the corresponding claim on the Policy and proceeds

thereof.

 

7.             The

Indenture Trustee hereby assigns to Ambac all rights, and confirms that the

Registered Holders have assigned all rights, under the Insured Obligations in

respect of which payment is being requested to Ambac.

 

ANY PERSON WHO

KNOWINGLY AND WITH INTENT TO DEFRAUD ANY INSURANCE COMPANY OR OTHER PERSON FILES

AN APPLICATION FOR INSURANCE OR STATEMENT OF CLAIM CONTAINING ANY MATERIALLY

FALSE INFORMATION, OR CONCEALS FOR THE PURPOSE OF MISLEADING, INFORMATION

CONCERNING ANY FACT MATERIAL THERETO, COMMITS A FRAUDULENT INSURANCE ACT, WHICH

IS A CRIME AND SHALL ALSO BE SUBJECT TO A CIVIL PENALTY NOT TO EXCEED FIVE

THOUSAND DOLLARS AND THE STATED VALUE OF THE CLAIM FOR EACH SUCH VIOLATION.

 

 

	

   

  	

  By:

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  Title:

  	

   

  
	

   

  	

  (Officer)

  
				

 

A-2

 

EXHIBIT

B

 

TO

THE NOTE GUARANTY INSURANCE POLICY

 

Policy No. AB0669BE

 

NOTICE

OF NONPAYMENT AND DEMAND

FOR PAYMENT OF PREFERENCE AMOUNT

 

Date: 

[       ]

 

Ambac

Assurance Corporation

One State

Street Plaza

New York, New

York 10004

Attention:            Asset-Backed

Securities Department Head

General Counsel – URGENT

 

Reference is made to Financial Guaranty Insurance Policy

No. AB0669BE (the “Policy”) issued by

Ambac Assurance Corporation (“Ambac”).  Terms capitalized herein and not otherwise

defined shall have the meanings specified in the Policy, unless the context

otherwise requires.

 

The undersigned hereby certifies as

follows:

 

1.             It

is the Indenture Trustee under the Indenture, and is acting for the Registered

Holders.

 

2.             [A

payment previously made in respect of the Class A Notes pursuant to the Indenture

has become a Preference Amount, as indicated by the attached Order.]

 

3.             The

Registered Holder of the applicable Class A Notes has certified that the

Order has been entered and is not subject to stay.

 

4.             The

amount of the Preference Amount is $         ,

and consists of interest in the amount of

$          paid

on         ,

         , [and principal in the

amount of $          paid

on         ,         .]

 

5.             Neither

the Indenture Trustee nor the Registered Holder has heretofore made a demand

for such Preference Amount.

 

6.             The

Indenture Trustee hereby requests the payment of the Insured Payment be made by

Ambac under the Policy and directs that payment under the Policy be made

 

B-1

 

to the Indenture Trustee to the following account by bank

wire transfer of federal or other immediately available funds in accordance

with the terms of the Policy

to:         .(2)

 

7.             The

Indenture Trustee hereby agrees that if such Insured Payment is made to the

Indenture Trustee, following receipt of such Insured Payment from Ambac, it

shall (a) hold such amounts in trust and apply the same directly to the

Registered Holder for payment of the Preference Amount, (b) not apply such

funds for any other purpose, and (c) maintain an accurate record of such

payments with respect to the Class A Notes and the corresponding claim on

the Policy and proceeds thereof.

 

8.             The

Indenture Trustee hereby assigns to Ambac all rights, and confirms that the

Registered Holders have assigned all rights, under the Insured Obligations in

respect of which payment is being requested to Ambac.

 

ANY PERSON WHO

KNOWINGLY AND WITH INTENT TO DEFRAUD ANY INSURANCE COMPANY OR OTHER PERSON

FILES AN APPLICATION FOR INSURANCE OR STATEMENT OF CLAIM CONTAINING ANY

MATERIALLY FALSE INFORMATION, OR CONCEALS FOR THE PURPOSE OF MISLEADING,

INFORMATION CONCERNING ANY FACT MATERIAL THERETO, COMMITS A FRAUDULENT

INSURANCE ACT, WHICH IS A CRIME AND SHALL ALSO BE SUBJECT TO A CIVIL PENALTY

NOT TO EXCEED FIVE THOUSAND DOLLARS AND THE STATED VALUE OF THE CLAIM FOR EACH

SUCH VIOLATION.

 

	

   

  	

  By:

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  Title:

  	

   

  
	

   

  	

  (Officer)

  
				

 

(2)           The account of the relevant receiver, conservator,

debtor-in-possession or trustee in bankruptcy named in the Order, unless the

Holder or Indenture Trustee has already paid such Preference Amount to such

party, in which case, the account of the payor.

 

B-2

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