Document:

bmw-recivablespurchagree.htm

Exhibit 10.4

 

FORM OF

 

 

RECEIVABLES PURCHASE AGREEMENT

 

 

between

 

 

BMW FINANCIAL SERVICES NA, LLC,

as Seller,

 

 

and

 

 

BMW FS SECURITIES LLC,

as Depositor

 

 

 

Dated as of [_____], 20[__]

 

  

  

  

TABLE OF CONTENTS

 

	 	 	
PAGE

 

	
ARTICLE I

 

	
CERTAIN DEFINITIONS

 

 

	
1

	
ARTICLE II

 

	
CONVEYANCE OF RECEIVABLES

 

 

	
3

	
SECTION 2.01

	
Conveyance of Receivables

	
3

	
SECTION 2.02

	
The Closing

 

	
4

	
ARTICLE III

 

	
REPRESENTATIONS AND WARRANTIES

 

 

	
4

	
SECTION 3.01

	
Representations and Warranties of the Depositor

	
4

	
SECTION 3.02

	
Representations and Warranties of the Seller

	
6

	
SECTION 3.03

	
Perfection Representations, Warranties and Covenants

 

	
17

	
ARTICLE IV

 

	
CONDITIONS

 

 

	
18

	
SECTION 4.01

	
Conditions to Obligation of the Depositor

	
18

	
SECTION 4.02

	
Conditions to Obligation of the Seller

 

	
19

	
ARTICLE V

 

	
COVENANTS OF THE SELLER AND THE DEPOSITOR

 

 

	
20

	
SECTION 5.01

	
Protection of Right, Title and Interest

	
20

	
SECTION 5.02

	
Other Liens or Interests

	
21

	
SECTION 5.03

	
Costs and Expenses

	
21

	
SECTION 5.04

	
Hold Harmless

 

	
21

	
ARTICLE VI

 

	
MISCELLANEOUS PROVISIONS

 

 

	
21

	
SECTION 6.01

	
Obligations of Seller

	
21

	
SECTION 6.02

	
Repurchase Events

	
21

	
SECTION 6.03

	
Depositor Assignment of Repurchased Receivables

	
22

	
SECTION 6.04

	
Transfer to the Issuer

	
22

	
SECTION 6.05

	
Amendment

	
22

	
SECTION 6.06

	
Waivers

	
23

	
SECTION 6.07

	
Notices

	
23

	
SECTION 6.08

	
Costs and Expenses

	
23

	
SECTION 6.09

	
Representations of the Seller and the Depositor

	
23

	
SECTION 6.10

	
Confidential Information

	
23

	
SECTION 6.11

	
Headings and Cross-References

	
23

	
SECTION 6.12

	
Governing Law

	
23

	
SECTION 6.13

	
Counterparts

	
24

	
SECTION 6.14

	
Third Party Beneficiary

	
24

 

i

  

  

	
SECTION 6.15

	
No Proceedings

	
24

	
 

EXHIBITS AND SCHEDULES

 

EXHIBIT A           Matters Addressed in Opinion of Seller’s Counsel

SCHEDULE I        Schedule of Receivables

SCHEDULE II       Location of Receivable Files

SCHEDULE III      Perfection Representations, Warranties and Covenants

	 

 

ii  

  

  

THIS RECEIVABLES PURCHASE AGREEMENT dated as of [_____], 20[__], is between BMW FINANCIAL SERVICES NA, LLC, a Delaware limited liability company (the “Seller”), and BMW FS SECURITIES LLC, a Delaware limited liability company, as depositor (the “Depositor”).

 

RECITALS

 

WHEREAS, in the regular course of its business, BMW FS has purchased certain motor vehicle retail installment sale contracts secured by new and used automobiles, light trucks and motorcycles from certain motor vehicle dealers directly or indirectly through BMW Bank of North America;

 

WHEREAS, the Seller and the Depositor wish to set forth the terms pursuant to which such contracts are to be sold by the Seller to the Depositor; and

 

WHEREAS, the Depositor intends, concurrently with its purchase hereunder, to convey all of its right, title and interest in and to all of such contracts to BMW Vehicle Owner Trust [____]-[__] (the “Issuer”) pursuant to a Sale and Servicing Agreement dated as of [_____], 20[__] (the “Sale and Servicing Agreement”), by and among the Issuer, the Depositor, the Seller, the Sponsor, the Servicer, the Administrator and the Custodian, and [__________], as indenture trustee (the “Indenture Trustee”), and the Issuer intends to pledge all of its right, title and interest in and to such contracts to the Indenture Trustee pursuant to the Indenture dated as of [_____], 20[__] (the “Indenture”), by and between the Issuer and the Indenture Trustee.

 

NOW, THEREFORE, in consideration of the foregoing, other good and valuable consideration and the mutual terms and covenants contained herein, the parties hereto agree as follows:

 

ARTICLE I

 

CERTAIN DEFINITIONS

 

Terms not defined in this Agreement shall have the meanings assigned thereto in the Sale and Servicing Agreement, the Underwriting Agreement or the Indenture, as the case may be.  As used in this Agreement, the following terms shall, unless the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms of the terms defined):

 

“Act” shall have the meaning specified in Section 3.01(h).

 

“Agreement” shall mean this Receivables Purchase Agreement, as the same may be amended and supplemented from time to time.

 

“BMW Bank” shall mean BMW Bank of North America.

 

“BMW FS” shall mean BMW Financial Services NA, LLC.

 

“Conveyed Assets” shall have the meaning set forth in Section 2.01.

 

  

  

  

“Depositor” shall mean BMW FS Securities LLC, a Delaware limited liability company, and its successors and assigns.

 

“Final Prospectus” shall have the meaning set forth in the Underwriting Agreement.

 

“Indenture” shall have the meaning set forth in the recitals.

 

“Issuer” shall have the meaning set forth in the recitals.

 

“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 on such 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.

 

“Preliminary Prospectus” shall have the meaning set forth in the Underwriting Agreement.

 

“Purchase Price” shall have the meaning set forth in Section 2.01.

 

“Receivable” shall mean any Contract listed on Schedule I hereto (which Schedule may be in the form of microfiche).

 

“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.

 

“Registration Statement” means Registration Statement No. 333-[_____] filed by the Depositor with the Securities and Exchange Commission in the form in which it became effective on [_____], 20[__].

 

“Rules and Regulations” shall have the meaning specified in Section 3.01(i).

 

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

 

“Schedule of Receivables” shall mean the list of Receivables annexed hereto as Schedule I (which Schedule may be in the form of microfiche).

 

“Seller” shall mean BMW FS, and its successors and assigns.

 

“Transfer Date” shall mean the Closing Date.

 

“Transfer Taxes” shall have the meaning specified in Section 3.02(b)(xlii).

 

“Underwriters” means each of [__________], [__________] and [__________].

 

  

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“Underwriting Agreement” means the Underwriting Agreement dated [_____], 20[__], relating to BMW Vehicle Owner Trust [____]-[__] among BMW FS, the Depositor and [__________], as representative of the Underwriters.

 

ARTICLE II

 

CONVEYANCE OF RECEIVABLES

 

SECTION 2.01  Conveyance of Receivables.

 

(a)       In consideration of the Depositor’s delivery to or upon the order of the Seller on the Closing Date of $[__________] (the “Purchase Price”), the Seller does hereby sell, transfer, assign, set over and otherwise convey to the Depositor, without recourse (subject to the obligations of the Seller herein) all right, title, and interest of the Seller in and to the following assets and property whether now owned or existing or hereafter acquired or arising:

 

(i)       the Receivables and all moneys received thereon after the close of business on [_____], 20[__];

 

(ii)       the security interests in the Financed Vehicles and any accessions thereto granted by Obligors pursuant to the Receivables and any other interest of the Seller in such Financed Vehicles;

 

(iii)       any Liquidation Proceeds and Recoveries and any other proceeds with respect to the Receivables from claims on any theft, physical damage, credit life or disability insurance policies covering Financed Vehicles or Obligors, including any vendor’s single interest or other collateral protection insurance policy;

 

(iv)       any property that shall have secured a Receivable and that shall have been acquired by or on behalf of the Seller;

 

(v)       all documents and other items contained in the Receivable Files;

 

(vi)       all proceeds from any Receivable repurchased by a Dealer pursuant to a Dealer Agreement and all rights against BMW Bank pursuant to one or more bills of sale pursuant to which the Seller acquired the Receivables; and

 

(vii)       the proceeds of any and all of the foregoing (collectively, with the assets listed in clauses (i) through (vi) above, the “Conveyed Assets”).

 

(b)       For all non-tax purposes, the Seller and the Depositor intend that the transfer of assets by the Seller to the Depositor pursuant to this Agreement be a sale of the ownership interest in such assets to the Depositor, rather than the mere granting of a security interest to secure a borrowing.  In the event, however, that such transfer is deemed not to be a sale but to be a grant of a mere security interest to secure a borrowing, the Seller shall be deemed to have hereby granted, and does hereby grant, to the Depositor a first priority security interest in all right, title and interest of the Seller in and to the Conveyed Assets, whether now owned or existing or hereafter acquired or arising, and all accounts, money, chattel paper, securities, instruments, documents, deposit accounts, certificates of deposit, letters of credit, advices of credit, banker’s acceptances, 

 

  

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uncertificated securities, general intangibles, contract rights, goods and other property consisting of, arising from or relating to such Conveyed Assets, which security interest shall be perfected, and this Agreement shall constitute a security agreement under applicable law.  Pursuant to the Sale and Servicing Agreement and Section 6.04 hereof, the Depositor may sell, transfer and assign to the Issuer (i) all or any portion of the assets assigned to the Depositor hereunder, (ii) all or any portion of the Depositor’s rights against the Seller under this Agreement and (iii) all proceeds thereof.  Such assignment may be made by the Depositor with or without an assignment by the Depositor of its rights under this Agreement, and without further notice to or acknowledgement from the Seller.  The Seller waives, to the extent permitted under applicable law, all claims, causes of action and remedies, whether legal or equitable (including any right of setoff), against the Depositor or any assignee of the Depositor relating to such action by the Depositor in connection with the transactions contemplated by the Sale and Servicing Agreement.

 

SECTION 2.02  The Closing.  The sale and purchase of the Receivables shall take place at a closing at the offices of Bingham McCutchen LLP, 399 Park Avenue, New York, New York 10022 on the Closing Date, simultaneously with the closing under (a) the Sale and Servicing Agreement, (b) the Indenture and (c) the Trust Agreement.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

 

SECTION 3.01  Representations and Warranties of the Depositor.  The Depositor hereby represents and warrants as follows to the Seller and the Indenture Trustee as of the date hereof and the Transfer Date:

 

(a)       Organization and Good Standing.  The Depositor is duly organized and validly existing as a limited liability company in good standing under the laws of the State of Delaware, with the power and authority to own its properties and to conduct its business as such properties are currently owned and such business is currently conducted.

 

(b)       Due Qualification.  The Depositor is duly qualified to do business as a foreign limited liability company in good standing, and has obtained all necessary licenses and approvals in all jurisdictions, including a license pursuant to the Pennsylvania Motor Vehicle Sales Finance Act and the Maryland Code Financial Institutions, Title 11, Subtitle 4, where the failure to do so would materially and adversely affect the Depositor’s ability to acquire the Receivables or the validity or enforceability of the Receivables.

 

(c)       Power and Authority.  The Depositor has the limited liability company power and authority to execute and deliver this Agreement and the other Basic Documents to which it is a party and to carry out their respective terms; the Depositor has full power and authority to sell and assign the property to be sold and assigned to and deposited with the Issuer, and the Depositor shall have duly authorized such sale and assignment to the Issuer by all necessary limited liability company action; and the execution, delivery and performance of this Agreement and the other Basic Documents to which the Depositor is a party have been duly authorized by the Depositor by all necessary limited liability company action.

 

  

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(d)       Binding Obligation.  This Agreement and the other Basic Documents to which the Depositor is a party, when duly executed and delivered by the other parties hereto and thereto shall constitute legal, valid and binding obligations of the Depositor, enforceable against the Depositor in accordance with their respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or similar laws now or hereafter in effect relating to or affecting creditors’ rights generally and to general principles of equity (whether applied in a proceeding at law or in equity).

 

(e)       No Violation.  The consummation of the transactions contemplated by this Agreement and the fulfillment of the terms hereof do not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, the limited liability company agreement or certificate of formation of the Depositor, or any indenture, agreement or other instrument to which the Depositor is a party or by which it is bound, or violate any law, rules or regulation applicable to the Depositor of any court or federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Depositor.

 

(f)       No Proceedings.  There are no proceedings or investigations pending or, to the Depositor’s knowledge, threatened against the Depositor before any court, regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Depositor or its properties (i) asserting the invalidity of this Agreement or any other Basic Document to which the Depositor is a party, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or any other Basic Document to which the Depositor is a party or (iii) seeking any determination or ruling that might materially and adversely affect the performance by the Depositor of its obligations under, or the validity or enforceability of, this Agreement or any other Basic Document to which the Depositor is a party.

 

(g)       No Consents.  The Depositor is not required to obtain the consent of any other party or any consent, license, approval, registration, authorization, or declaration of or with any governmental authority, bureau or agency in connection with the execution, delivery, performance, validity, or enforceability of this Agreement or any other Basic Document to which it is a party that has not already been obtained.

 

(h)       The Depositor, and the Securities being offered in connection with the transactions described in this Agreement and the Basic Documents, meet the requirements for use of Form S-3 under the Securities Act of 1933, as amended (the “Act”), and the Depositor has filed with the Commission the Registration Statement on such Form, including a related base prospectus and a preliminary prospectus supplement, for the registration under the Act of the offering and sale of the Securities.

 

  

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(i)       On the date of this Agreement, the Registration Statement will comply in all material respects with the applicable requirements of the Act, and the respective rules and regulations of the Commission thereunder (the “Rules and Regulations”).

 

(j)       On the date of this Agreement, the Depositor is not aware of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or threat of any proceeding for that purpose.

 

SECTION 3.02  Representations and Warranties of the Seller.

 

(a)       The Seller hereby represents and warrants as follows to the Depositor and the Indenture Trustee as of the date hereof and as of the Transfer Date:

 

(i)       Organization and Good Standing.  The Seller has been duly  organized and is validly existing as a limited liability company under the laws of the State of Delaware, with the power and authority to own its properties and to conduct its business as such properties are currently owned and such business is currently conducted.

 

(ii)       Due Qualification.  The Seller is duly authorized to transact business as a foreign limited liability company 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 shall require such qualifications and in which the failure to be so authorized would have a material adverse effect on the business, properties, assets, or condition (financial or other) of the Seller and its subsidiaries, considered as one enterprise.

 

(iii)       Power and Authority; Binding Obligation.  The Seller has the  power and authority to make, execute, deliver and perform this Agreement and all of the transactions contemplated under this Agreement and the other Basic Documents to which the Seller is a  party, and has taken all necessary action to authorize the execution, delivery and performance of this Agreement and the other Basic Documents to which the Seller is a party.  When executed and delivered, this Agreement and the other Basic Documents to which the Seller is a  party will constitute legal, valid and binding obligations of the Seller enforceable in accordance with their respective terms, except as enforcement of such terms may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally and by the availability of equitable remedies.

 

(iv)       No Violation.  The execution, delivery and performance by the  Seller of this Agreement and the other Basic Documents to which the Seller is a party will not violate any provision of any existing  state, federal or, to the best knowledge of the Seller, local law or regulation or any order or decree of any court applicable to the Seller or any provision of the limited liability company agreement of the Seller, or constitute a breach of any mortgage, indenture, contract or other agreement to which the Seller is a party or by which the 

 

  

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Seller may be bound or result in the creation or imposition of any lien upon any of the Seller’s properties pursuant to any such mortgage, indenture, contract or other agreement (other than this Agreement).

 

(v)       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 governmental instrumentality having jurisdiction over the Seller or its properties (i) asserting the invalidity of this Agreement or any other Basic Document, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or any other Basic Document or (iii) 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 other Basic Document.

 

(vi)       Chief Executive Office and Principal Place of Business.  The chief executive office and the principal place of business of the Seller for the previous five years is 300 Chestnut Ridge Road, Woodcliff Lake, New Jersey 07677.

 

(vii)       No Consents.  The Seller is not required to obtain the consent of any other party or any consent, license, approval, registration, authorization, or declaration of or with any governmental authority, bureau or agency in connection with the execution, delivery, performance, validity, or enforceability of this Agreement or any other Basic Document to which it is a party that has not already been obtained.

 

(viii)       No Notice.  The Seller represents and warrants that it acquired title to the Receivables in good faith, without notice of any adverse claim.

 

(ix)       Bulk Transfer.  The Seller represents and warrants that the transfer, assignment and conveyance of the Receivables by the Seller pursuant to this Agreement is not subject to the bulk transfer laws or any similar statutory provisions in effect in any applicable jurisdiction.

 

(x)       Seller Information.  No certificate of an officer, statement or document furnished in writing or report delivered pursuant to the terms hereof by the Seller contains any untrue statement of a material fact or omits to state any material fact necessary to make the certificate, statement, document or report not misleading.

 

(xi)       Ordinary Course.  The transactions contemplated by this Agreement and the other Basic Documents to which the Seller is a party are in the ordinary course of the Seller’s business.

 

  

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(xii)       Solvency.  The Seller is not insolvent, nor will the Seller be made insolvent by the transfer of the Receivables, nor does the Seller anticipate any pending insolvency.

 

(xiii)       Legal Compliance.  The Seller is not in violation of, and the execution and delivery of this Agreement and the other Basic Documents to which the Seller is a party by it and its performance and compliance with the terms of this Agreement and the other Basic Documents to which the Seller is a party will not constitute a violation with respect to, any order or decree of any court or any order or regulation of any federal, state, municipal or governmental agency having jurisdiction, which violation would materially and adversely affect the Seller’s condition (financial or otherwise) or operations or any of the Seller’s properties or materially and adversely affect the performance of any of its duties under the Basic Documents.

 

(xiv)       Creditors.  The Seller is not selling the Receivables to the Depositor with any intent to hinder, delay or defraud any of its creditors.

 

(b)       The Seller makes the following representations and warranties with respect to the Receivables, on which the Depositor relies in accepting the Receivables and in transferring the Receivables to the Issuer under the Sale and Servicing Agreement, and on which the Issuer relies in pledging the same to the Indenture Trustee.  Such representations and warranties speak as of the execution and delivery of this Agreement and as of the Transfer Date, but shall survive the sale, transfer and assignment of the Receivables to the Depositor, the subsequent sale, transfer and assignment of the Receivables by the Depositor to the Issuer pursuant to the Sale and Servicing Agreement and the pledge of the Receivables by the Issuer to the Indenture Trustee pursuant to the Indenture and with respect to the representations and warranties set forth in paragraphs (lii) through (lviii) below, shall be non-waivable.

 

(i)       Characteristics of Receivables.  Each Receivable (A) was originated in the United States of America by a Dealer located in the United States of America for the retail sale of a Financed Vehicle in the ordinary course of such Dealer’s business in accordance with the Seller’s credit policies as of the date of origination or acquisition of the related Receivable, is payable in United States dollars, has been fully and properly executed or electronically authenticated by the parties thereto, has been purchased by the Seller or BMW Bank from such Dealer under an existing Dealer Agreement and has been validly assigned by such Dealer to the Seller or by such Dealer to BMW Bank, which has validly assigned the same to the Seller, except that certain Receivables originated through the “Lease to Loan” program were not originated by Dealers, but directly by the Seller or BMW Bank and to the best of the Seller’s knowledge was so originated or sold without fraud or misrepresentation on the part of such Dealer in either case, (B) has created a valid, subsisting and enforceable first priority perfected security interest in favor of the Seller in the Financed Vehicle, which security interest is assignable by the Seller to the Depositor, and by the Depositor to the Issuer, (C) contains customary and enforceable provisions such that the rights 

 

  

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and remedies of the holder thereof are adequate for realization against the collateral of the benefits of the security, (D) provides for fixed level monthly payments (provided that the payment in the last month of the term of the Receivable may be different from the level scheduled payments) that fully amortize the Amount Financed by maturity and yield interest at the APR and (E) amortizes using the Simple Interest Method.

 

(ii)       Compliance with Law.  Each Receivable and the sale of the related Financed Vehicle complied at the time it was originated or made, and at the time of execution of this Agreement complies, in all material respects with all requirements of applicable federal, state and, to the best knowledge of the Seller, local laws, rulings and regulations thereunder, including usury laws, the Federal Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Federal Trade Commission Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board’s Regulations “B” and “Z,” the Servicemembers Civil Relief Act, as amended (the “Relief Act”), the Military Reservist Relief Act of 1991, as amended, and state adaptations of the National Consumer Act and of the Uniform Consumer Credit Code, and other consumer credit laws and equal credit opportunity and disclosure laws applicable to such Receivable.

 

(iii)       Binding Obligation.  Each Receivable represents the genuine, legal, valid and binding payment obligation of the Obligor thereon, enforceable by the holder thereof in accordance with its terms, except (A) as enforceability thereof may be limited by bankruptcy, insolvency, reorganization or 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 and (B) as such Receivable may be modified by the application after the Transfer Date of the Relief Act or the Military Reservist Relief Act of 1991, as amended.

 

(iv)       No Government Obligor.  No Receivable is due from the United States of America or any State or any agency, department, subdivision or instrumentality thereof.

 

(v)       Obligor Bankruptcy.  To the best of the Seller’s knowledge, as of the Cutoff Date with respect to the Receivables, no Obligor is or has been, since the origination of the related Receivable, the subject of a bankruptcy proceeding.

 

(vi)       Schedule of Receivables.  The information set forth in Schedule I to this Agreement is true and correct in all material respects as of the close of business on the Cutoff Date.

 

  

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(vii)       Marking Records.  By the Transfer Date, the Seller will have caused its computer and accounting records relating to each Receivable to be marked to show that such Receivables have been sold to the Depositor by the Seller and transferred and assigned by the Depositor to the Issuer in accordance with the terms of the Sale and Servicing Agreement and pledged by the Issuer to the Indenture Trustee in accordance with the terms of the Indenture.

 

(viii)       Computer Tape.  The computer tape regarding the Receivables made available by the Seller to the Depositor is complete and accurate in all material respects as of the Cutoff Date.

 

(ix)       No Adverse Selection.  No selection procedures (other than those specified herein) believed by the Seller to be adverse to the Noteholders or the Certificateholders were utilized in selecting the Receivables.

 

(x)       [Reserved.]

 

(xi)       One Original.  With respect to any Receivable constituting “electronic chattel paper”, there is only one “authoritative copy” of the Receivable and with respect to any Receivable constituting “tangible chattel paper”, there is no more than one original executed copy of such Receivable and none of the “instruments”, “tangible chattel paper” or “electronic chattel paper” that constitute or evidence the Receivables has any marks or notations indicating that it has been pledged, assigned or otherwise conveyed to any Person other than to the Depositor, the Trust or the Indenture Trustee.  All quoted terms are used as such term is used in the UCC.

 

(xii)       Receivables in Force.  No Receivable has been satisfied, subordinated or rescinded, nor has any Financed Vehicle been released from the Lien of the related Receivable in whole or in part.  None of the terms of any Receivable has been waived, altered or modified in any respect since its origination, except by instruments or documents identified in the related Receivable File.  No Receivable has been modified as a result of the application of the Relief Act or the Military Reservist Relief Act of 1991, as amended.

 

(xiii)       Lawful Assignment.  No Receivable has been originated in, or is subject to the laws of, any jurisdiction the laws of which would make unlawful, void or voidable the sale, transfer and assignment of such Receivable under this Agreement or the Sale and Servicing Agreement, as applicable, or the pledge of such Receivable under the Indenture.

 

(xiv)       Title.  It is the intention of the Seller that the transfers and assignments herein contemplated constitute sales of the Receivables from the Seller to the Depositor and that the beneficial interest in and title to the Receivables not be part of the debtor’s estate in the event of the appointment of a receiver or conservator for the Seller under any receivership, bankruptcy law, insolvency or banking law.  Immediately prior to the Closing Date, no Receivable has been sold, transferred, assigned or pledged by the Seller to any Person 

 

  

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other than to the Depositor or pursuant to this Agreement (or by the Depositor to any other Person other than to the Issuer pursuant to the Sale and Servicing Agreement).  Immediately prior to the transfers and assignments herein contemplated, the Seller has good and marketable title to each Receivable free and clear of all Liens, and, immediately upon the transfer thereof, the Depositor shall have good and marketable title to each Receivable, free and clear of all Liens and, immediately upon the transfer thereof from the Depositor to the Issuer pursuant to the Sale and Servicing Agreement, the Issuer shall have good and marketable title to each Receivable, free and clear of all Liens and, immediately upon the pledge thereof from the Issuer to the Indenture Trustee pursuant to the Indenture, the Indenture Trustee shall have a first priority perfected security interest in each Receivable.

 

(xv)       Security Interest in Financed Vehicle.  Immediately prior to its sale, assignment and transfer to the Depositor pursuant to this Agreement, each Receivable is secured by a first priority perfected security interest in the related Financed Vehicle in favor of BMW FS as secured party, or all necessary and appropriate actions have been commenced that will result in the valid perfection of a first priority security interest in such Financed Vehicle in favor of BMW FS as secured party.  The Lien Certificate for each Financed Vehicle shows, or if a new or replacement Lien Certificate is being applied for with respect to such Financed Vehicle such Lien Certificate shall be received within 120 days of the Closing Date and shall show, BMW FS or BMW Bank named as the original secured party under each Receivable as the holder of a first priority security interest in such Financed Vehicle.  With respect to each Receivable for which the Lien Certificate has not yet been returned from the Registrar of Titles, BMW FS has received written evidence that such Lien Certificate showing BMW FS or BMW Bank as first lienholder has been applied for.  Each Dealer’s security interest in any Receivable originated by such Dealer has been validly assigned by the Dealer to BMW FS or to BMW Bank, which has validly assigned it to BMW FS.  BMW FS’ security interest has been validly assigned to the Depositor pursuant to this Agreement.  BMW FS has the legal right to repossess or recover by legal process the Financed Vehicle in its name.

 

(xvi)       All Filings Made.  All filings (including UCC filings) required to be made in any jurisdiction to give the Issuer a first perfected ownership interest in the Conveyed Assets and the Indenture Trustee a first priority perfected security interest in the Conveyed Assets have been made or will be made on the Closing Date.

 

(xvii)       No Defenses.  No Receivable is subject to any right of rescission, setoff, counterclaim, dispute or defense, including the defense of usury, whether arising out of transactions concerning the Receivable or otherwise, and the operation of any terms of the 

 

  

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Receivable or the exercise by the Seller or the Obligor of any right under the Receivable will not render the Receivable unenforceable in whole or in part, and no such right of rescission, setoff, counterclaim, dispute or defense, including the defense of usury, has been asserted with respect thereto.

 

(xviii)       No Default.  There has been no default, breach, violation or event permitting acceleration under the terms of any Receivable (other than payment delinquencies of not more than 30 days) as of the Cutoff Date, and no condition exists or event has occurred and is continuing that with notice, the lapse of time or both would constitute a default, breach, violation or event permitting acceleration under the terms of any Receivable, and there has been no waiver of any of the foregoing.  On or prior to the Transfer Date, no Financed Vehicle has been repossessed.

 

(xix)       Insurance.  The Seller, in accordance with its customary procedures, determined at the time each Receivable was originated that the related Obligor had obtained physical damage insurance covering the related Financed Vehicle and, under the terms of the related Receivable, the Obligor is required to maintain such insurance.

 

(xx)       Final Scheduled Maturity Date.  No Receivable has a final scheduled payment date later than six months prior to the Class B Final Scheduled Payment Date.

 

(xxi)       Certain Characteristics of the Receivables.  As of the Cutoff Date, (A) each Receivable had an original maturity of not less than [___] or more than [___] months and (B) no Receivable was more than [___] days past due.

 

(xxii)       No Foreign Obligor.  All of the Receivables are due from Obligors with billing addresses within the United States of America, its territories and possessions.

 

(xxiii)       No Deferments.  The number or timing of scheduled payments has not been changed on any Receivable on or before the Closing Date, except as reflected on the computer tape delivered in connection with the sale of the Receivables.

 

(xxiv)       Scheduled Payments.  Each Receivable had a first scheduled payment due on or prior to 45 calendar days after the origination date thereof.  Each Obligor has been instructed to make all scheduled payments to BMW FS.  To the best knowledge of the Seller, each Obligor has paid the entire down payment called for by the Contract.

 

  

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(xxv)       Receivable Files Complete.  There exists a Receivable File pertaining to each Receivable and such Receivable File contains, without limitation, (A) a fully executed or electronically authenticated original of the Receivable, (B) the original Lien Certificate or application therefor together with such other documents that the Seller shall keep on file in accordance with its customary procedures evidencing the security interest of the Seller in the related Financed Vehicle, and (C) any and all other documents that the Servicer shall have kept on file in accordance with its customary procedures relating to a Receivable, an Obligor or a Financed Vehicle.  Each of such documents that is required to be signed by the Obligor has been signed by the Obligor in the appropriate spaces.  All blanks on any form described in clauses (A), (B) and (C) of this paragraph have been properly filled in and each form has otherwise been correctly prepared in all material respects.  Notwithstanding the above, the complete Receivable File for each Receivable, (x) shall fulfill the documentation requirements of the Seller’s credit policies as in effect on the date of origination of such Receivable and (y) is in possession of the Servicer and/or Custodian, as applicable, at the location set forth on Schedule II hereto (except that, in the case of any Receivable constituting “electronic chattel paper”, the “authoritative copy” (as such term is used in Section 9-105 of the UCC) of such Receivable shall be maintained by the Servicer in a computer system such that the Servicer maintains “control” (as such term is used in Section 9-105 of the UCC) over such authoritative copy on the Transfer Date.  The blanket power of attorney granted to the Indenture Trustee and the original Lien Certificate are the only documents necessary to permit the Indenture Trustee to submit the Lien Certificate for each Financed Vehicle for retitling in the name of the Indenture Trustee as secured party in the event such retitling were required or otherwise permitted under the Basic Documents.

 

(xxvi)       Receivables Not Assumable.  No Receivable is assumable by another person in a manner which would release the Obligor thereof from such Obligor’s obligations to the Seller with respect to such Receivable.

 

(xxvii)       Tax Liens.  To the best of the Seller’s knowledge, there is no Lien against any Financed Vehicle for delinquent taxes.

 

(xxviii)       No Impairment.  The Seller has not done anything to convey any right to any person that would result in such person having a right to payments due under a Receivable or otherwise to impair the rights of the Depositor in any Receivable or the proceeds thereof.

 

(xxix)       Servicing.  Each Receivable has been serviced in conformity with all applicable laws, rules and regulation and in conformity with the Seller’s policies and procedures which are consistent with customary, prudent industry standards.

 

(xxx)       No Liens.  No Liens or claims have been filed for work, labor, or materials relating to a Financed Vehicle that are prior to, or equal or coordinate with, the security interest in the Financed Vehicle granted by the related Receivable.

 

  

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(xxxi)       APR.  No Receivable has an APR of less than 0.00% and the weighted average coupon on the pool of Receivables is at least [_____]%.

 

(xxxii)       Remaining Term.  Each Receivable has a remaining term of at least [___] months and no more than [___] months.

 

(xxxiii)       Seasoning.  The weighted average number of months since the initial installment due date for the Receivables is at least [___] months.

 

(xxxiv)       Remaining Balance.  Each Receivable has a remaining balance of at least $[_____].

 

(xxxv)       New Vehicles.  At least [_____]% of the aggregate principal balance of the Receivables is secured by Financed Vehicles which were new at the date of origination.

 

(xxxvi)       No Repossessions.  No Financed Vehicle has been repossessed prior to the Transfer Date.

 

(xxxvii)       Initial Payment.  The Obligor with respect to each Receivable has made at least one scheduled payment.

 

(xxxviii)       No Proceedings.  As of the Cutoff Date, there are no proceedings pending, or to the best of the Seller’s knowledge, threatened, wherein the Obligor or any governmental agency has alleged that any Receivable is illegal or unenforceable.

 

(xxxix)       Dealer Agreement.  Each Dealer from whom the Seller (or BMW Bank) purchases Receivables directly has entered into a Dealer Agreement with the Seller (or BMW Bank) providing for the sale of Receivables from time to time by such Dealer to the Seller (or BMW Bank).  Each Dealer Agreement is substantially in the form attached to the Sale and Servicing Agreement as Exhibit D, except for immaterial modifications or deviations from the Dealer Agreement.  Such modifications and deviations from the Dealer Agreement will not have a material adverse effect on the Noteholders.

 

(xl)       Obligations Fulfilled.  To the best of its knowledge, BMW FS has duly fulfilled all obligations to be fulfilled on its part under or in connection with the origination, acquisition and assignment of the Receivables.

 

(xli)       No Consent.  To the best of the Seller’s knowledge, no notice to or consent from any Obligor is necessary to effect the acquisition of the Receivables by the Depositor or the Trust or the pledge of the Receivables by the Trust to the Indenture Trustee.

 

  

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(xlii)       No Transfer Taxes.  The sale, transfer, assignment and conveyance of the Receivables by the Seller pursuant to this Agreement is not subject to and will not result in any tax, fee or governmental charge payable by the Depositor, the Seller, the Issuer or the Indenture Trustee to any federal, state or local government (“Transfer Taxes”) other than Transfer Taxes which have or will be paid by the Seller as due.  In the event the Depositor, the Issuer or the Indenture Trustee receives actual notice of any Transfer Taxes arising out of the transfer, assignment and conveyance of the Receivables, on written demand by the Depositor, the Issuer or the Indenture Trustee, or upon the Seller’s otherwise being given notice thereof by the Depositor, the Issuer or the Indenture Trustee, the Seller shall pay, and otherwise indemnify and hold the Depositor, the Issuer and the Indenture Trustee harmless, on an after-tax basis, from and against any and all such Transfer Taxes (it being understood that the Depositor, the Noteholders, the Indenture Trustee and the Issuer shall have no obligation to pay such Transfer Taxes).

 

(xliii)       Aggregate Balance.  The aggregate principal balance of the Receivables as of the Cutoff Date is equal to $[__________].

 

(xliv)       Geographic Distribution.  No more than [_____]% of the aggregate principal balance of the Receivables as of the Cutoff Date is attributable to Receivables with Obligors having a billing address in any single State other than [_____],[_____],[_____],[_____] and [_____] which represent no more than [_____]%,[_____]%,[_____]%,[_____]% and [_____]%, respectively.

 

(xlv)       No Advances.  No advances have been made to Obligors in order to meet any representation and warranties herein set forth; provided, however, that Receivables may have had up to four deferments prior to the Cutoff Date, subject to the following: (A) each such deferment was made in conformity with the Seller’s “Collection and Servicing Guidelines” and (B) each deferred Receivable satisfies in all material respects all applicable requirements under BMW FS’ credit and collection policies as of the date of its origination.

 

(xlvi)       Amount Financed.  At the time each Receivable was acquired from the Dealer, the Amount Financed was fully disbursed.  There is no requirement for future advances of principal thereunder, and all fees and expenses in connection with the origination of such Receivable have been paid.

 

(xlvii)       Tape.  The computer tape from which the selection of the Receivables being acquired on the Closing Date was made available to the accountants that are providing comfort letters to the Depositor and the Underwriters in connection with the numerical information regarding the Receivables and the Notes contained in the Preliminary Prospectus and the Final Prospectus and such information in the Preliminary Prospectus and the Final Prospectus with respect to the Receivables and the Notes was complete and accurate as of its date and includes a description of the same Receivables that are described in Schedule I to this Agreement.

 

  

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(xlviii)       Insurance.  In connection with the purchase of each Receivable, the Seller (or BMW Bank) required the related Dealer to supply information that a physical damage insurance policy covers the related Financed Vehicle: (i) in an amount at least equal to the lesser of (a) the actual cash value of the related Financed Vehicle or (b) the unpaid principal balance owing on such Receivable, (ii) naming the Seller (or BMW Bank) as a loss payee and (iii) insuring against loss and damage due to fire, theft, transportation, collision and other risks generally covered by comprehensive and collision coverage.

 

(xlix)       Dealer Agreement Binding.  Each Dealer that sold a Receivable to BMW FS (or BMW Bank) has entered into a Dealer Agreement and such Dealer Agreement, together with the assignment and related documentation signed by the Dealer, constitutes the entire agreement between BMW FS (or BMW Bank) and the related Dealer with respect to the sale of such Receivable to BMW FS (or BMW Bank).  Each such Dealer Agreement is in full force and effect and is the legal, valid and binding obligation of such Dealer; there have been no material defaults by BMW FS (or BMW Bank) under such Dealer Agreement; BMW FS (or BMW Bank) has fully performed all of its obligations under such Dealer Agreement; BMW FS (or BMW Bank) has not made any statements or representations to such Dealer (whether written or oral) inconsistent with any term of such Dealer Agreement; the purchase price (as specified in the applicable Dealer Agreement) for such Receivable has been paid in full, other than any dealer reserve, by BMW FS (or BMW Bank); and any payment owed to such Dealer by BMW FS (or BMW Bank) is a corporate obligation of BMW FS (or BMW Bank).

 

(l)       Good Working Order.  Each Receivable requires the Obligor to maintain the related Financed Vehicle in good and workable order and to obtain and maintain physical damage insurance on the related Financed Vehicle subject thereto and to name the Seller as a loss payee.

 

(li)       No Consumer Lease.  No Receivable constitutes a “consumer lease” under either (a) the UCC as in effect in the jurisdiction whose law governs the Receivable or (b) the Consumer Leasing Act, 15 USC 1667.

 

(lii)       Valid Security Interest.  This Agreement creates a valid and continuing security interest (as defined in the applicable UCC) in the Conveyed Assets in favor of the Depositor, which security interest is prior to all other Liens, and is enforceable as such as against creditors of and purchasers from the Seller.

 

(liii)       Perfection.  The Seller has taken all steps necessary to perfect its security interest against the Obligors in the property securing the Receivables.

 

  

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(liv)       Chattel Paper.  Each Receivable constitutes “tangible chattel paper” or “electronic chattel paper” within the meaning of the applicable UCC.

 

(lv)       Good and Marketable Title.  The Seller owns and has good and marketable title to the Receivables free and clear of any Lien, claim or encumbrance of any Person.

 

(lvi)       Filing of Financing Statements.  The Seller has caused or will have caused, within ten days, the filing of all appropriate financing statements in the proper filing office in the appropriate jurisdictions under applicable law in order to perfect the security interest in the Receivables granted to the Depositor hereunder.

 

(lvii)       Other Financing Statements.  Other than the security interest granted to the Depositor pursuant to this Agreement, the Seller has not pledged, assigned, sold, granted a security interest in, or otherwise conveyed any of the Conveyed Assets.  The Seller has not authorized the filing of and is not aware of any financing statements against the Seller that include a description of collateral covering the Conveyed Assets other than any financing statement relating to the security interest granted to the Depositor hereunder or that has been terminated.  The Seller is not aware of any judgment or tax lien filings against the Seller.

 

(lviii)       Original Contracts.  The Seller has in its possession all original copies of the Contracts that constitute or evidence the Receivables (or, in the case of each Receivable constituting “electronic chattel paper” the custodian has “control” (as such term is used in Section 9-105 of the UCC) of each such Receivable).  The Contracts that constitute or evidence the Receivables do not have any marks or notations indicating that they have been pledged, assigned or otherwise conveyed to any Person other than the Depositor.  All financing statements filed or to be filed against the Seller in favor of the Depositor in connection herewith describing the Receivables contain a statement to the following effect: “A purchase of or security interest in any collateral described in this financing statement will violate the rights of the Depositor.”

 

SECTION 3.03  Perfection Representations, Warranties and Covenants. The Seller hereby makes the perfection representations, warranties and covenants set forth on Schedule III hereto to the Depositor and the Depositor shall be deemed to have relied on such representations, warranties and covenants in acquiring the Receivables.

 

  

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ARTICLE IV

 

CONDITIONS

 

SECTION 4.01  Conditions to Obligation of the Depositor.  The obligation of the Depositor to purchase the Receivables is subject to the satisfaction of the following conditions:

 

(a)       Representations and Warranties True.  The representations and warranties of the Seller hereunder shall be true and correct on the Transfer Date with the same effect as if then made, and the Seller shall have performed all obligations to be performed by it hereunder on or prior to the Transfer Date.

 

(b)       Computer Files Marked.  The Seller shall, at its own expense, on or prior to the Transfer Date, indicate in its computer files that the Receivables have been sold to the Depositor by the Seller pursuant to this Agreement and transferred and assigned by the Depositor to the Issuer in accordance with the terms of the Sale and Servicing Agreement and pledged by the Issuer to the Indenture Trustee in accordance with the Indenture and deliver to the Depositor the Schedule of Receivables, certified by the Seller’s President, Vice President or Treasurer to be true, correct and complete.

 

(c)       Documents To Be Delivered by the Seller on the Transfer Date:

 

(i)       Evidence of UCC Filing.  On or prior to the Closing Date, the Seller shall record and file, at its own expense, a UCC-1 financing statement in the State of Delaware and the State of Ohio and in each other jurisdiction required by applicable law, executed by the Seller, as seller or debtor, and naming the Depositor, as secured party, describing the Receivables and the other assets assigned to the Depositor pursuant to Section 2.01 hereof meeting the requirements of the laws of each such jurisdiction and in such manner as is necessary to perfect the sale, transfer, assignment and conveyance of the Receivables and such other assets to the Depositor.  The Seller shall deliver to the Depositor a file-stamped copy or other evidence satisfactory to the Depositor of such filing on or prior to the Transfer Date.

 

(ii)       Opinions of Seller’s Counsel.  On or prior to the Closing Date, the Depositor shall have received the opinions of counsel to the Seller, in form and substance satisfactory to the Depositor, as to the matters set forth in Exhibit A hereto and such other matters as the Depositor has heretofore requested or may reasonably request.

 

(iii)         Other Documents.  Such other documents as the Depositor may reasonably request.

 

  

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(d)       Other Transactions.  The transactions contemplated by the Sale and Servicing Agreement, the Indenture and the Trust Agreement to be consummated on the Transfer Date shall be consummated on such date.

 

SECTION 4.02  Conditions to Obligation of the Seller.  The obligation of the Seller to sell the Receivables to the Depositor is subject to the satisfaction of the following conditions:

 

(a)       Representations and Warranties True.  The representations and warranties of the Depositor hereunder shall be true and correct on the Transfer Date with the same effect as if then made, and the Depositor shall have performed all obligations to be performed by it hereunder on or prior to the Transfer Date.

 

(b)       Receivables Purchase Price.  On the Transfer Date, the Depositor shall have delivered to the Seller the Purchase Price.

 

(c)       Opinion of Counsel.  The Depositor shall have furnished to the Seller an opinion of counsel, dated the Closing Date, to the effect that:

 

(i)       the Depositor has been duly formed and is validly existing as a limited liability company in good standing under the laws of the State of Delaware, with full power and authority to own its properties and conduct its business as described in the Prospectus;

 

(ii)       each of this Agreement, the Sale and Servicing Agreement and the Trust Agreement has been duly authorized, executed and delivered by the Depositor and constitutes a legal, valid and binding obligation of the Depositor, enforceable against the Depositor in accordance with its terms except as limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, receivership, conservatorship or similar laws relating to or affecting creditors’ rights generally or the rights of creditors, and except that such counsel need express no opinion as to the availability of equitable remedies or the enforceability of rights of indemnification for violations of federal securities laws;

 

(iii)         no consent, approval, authorization or order of, or filing with, any court or governmental agency or body is required for the consummation by the Depositor of the transactions contemplated herein or in the Sale and Servicing Agreement, the Trust Agreement or the Indenture, except such as may be required under the blue sky or securities laws of any jurisdiction in connection with the purchase and sale of the Notes by the Underwriters, the filing of the UCC-1 financing statements relating to the conveyance of the Receivables and the Conveyed Assets (as defined herein) by the Seller to the Depositor and of the Receivables and the Conveyed Assets (as defined in the Sale and Servicing Agreement)by the Depositor to the Trust and of the Collateral by the Trust to the Indenture Trustee for the benefit of the Noteholders and the filing of the UCC-1 financing statement relating to the security interests in the Eligible Investments included in the Reserve Account, and such other approvals (which shall be specified in such opinion) as have been obtained and such filings as have been made or are in the process of being made; and

 

  

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(iv)        none of the issue and sale of the Notes and Certificates, the execution and delivery of this Agreement, the Sale and Servicing Agreement or the Trust Agreement, the consummation of any other of the transactions herein or therein contemplated or the fulfillment of the terms hereof or thereof will conflict with, result in a breach or violation of, or constitute a default under, the limited liability company agreement or certificate of formation of the Depositor or the terms of any indenture or other agreement or instrument known to such counsel and to which the Depositor is a party or by which it is bound, or any judgment, order or decree known to such counsel to be applicable to the Depositor of any court, regulatory body, administrative agency, governmental body, or arbitrator having jurisdiction over the Depositor.

 

(d)       Other Transactions.  The transactions contemplated by the Sale and Servicing Agreement, the Indenture and the Trust Agreement to be consummated on the Transfer Date shall be consummated on such date.

 

ARTICLE V

 

COVENANTS OF THE SELLER AND THE DEPOSITOR

 

The Seller and the Depositor agree with each other, respectively, and the Indenture Trustee as follows:

 

SECTION 5.01  Protection of Right, Title and Interest.

 

(a)       Filings.  The Seller shall cause at its own expense all financing statements and continuation statements and any other necessary documents covering the right, title and interest of the Seller, the Depositor, the Trust and the Indenture Trustee, respectively, in and to the Receivables and the other property included in the Trust Estate to be promptly filed and at all times to be kept recorded, registered and filed, all in such manner and in such places as may be required by law fully to preserve and protect the right, title and interest of the Depositor hereunder, the Trust under the Sale and Servicing Agreement and the Indenture Trustee under the Indenture in and to the Receivables and the other property included in the Trust Estate.  The Seller shall deliver to the Depositor and the Indenture Trustee file-stamped copies of, or filing receipts for, any document recorded, registered or filed as provided above, as soon as available following such recordation, registration or filing.  The Depositor shall cooperate fully with the Seller in connection with the obligations set forth above and will execute any and all documents reasonably required to fulfill the intent of this paragraph.

 

(b)       Name Change.  If the Seller makes any change in its jurisdiction of organization (within the meaning of the applicable UCC), name or corporate structure that would make any financing statement or continuation statement filed in accordance with paragraph (a) above 

 

  

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seriously misleading within the applicable provisions of the UCC or any title statute, the Seller shall give the Depositor, the Indenture Trustee and the Owner Trustee written notice thereof at least 45 days prior to such change and shall promptly file such financing statements or amendments as may be necessary to continue the perfection of the Depositor’s interest in the Conveyed Assets.

 

SECTION 5.02  Other Liens or Interests.  Except for the conveyances hereunder and pursuant to the Basic Documents, the Seller shall not sell, pledge, assign or transfer to any Person, or grant, create, incur, assume, or suffer to exist any Lien on, or any interest in, to or under the Conveyed Assets, and the Seller shall defend the right, title and interest of the Depositor, the Trust and the Indenture Trustee in, to and under the Conveyed Assets against all claims of third parties claiming through or under the Seller.

 

SECTION 5.03  Costs and Expenses.  BMW FS agrees to pay all reasonable costs and disbursements in connection with the perfection, as against all third parties, of the Depositor’s, the Issuer’s and the Indenture Trustee’s right, title and interest in and to the Receivables and the other property included in the Trust Estate.

 

SECTION 5.04  Hold Harmless.  BMW FS shall protect, defend, indemnify and hold the Depositor, the Issuer, the Noteholders, the Underwriters and their respective assigns and their employees, officers and directors harmless from and against all losses, liabilities, claims and damages of every kind and character, including any legal or other expenses reasonably incurred, as incurred, resulting from or relating to or arising out of (i) the inaccuracy, nonfulfillment or breach of any representation, warranty, covenant or agreement made by the Seller in this Agreement, (ii) any legal action, including, without limitation, any counterclaim, that has either been settled by the litigants or has proceeded to judgment by a court of competent jurisdiction, in either case to the extent it is based upon alleged facts that, if true, would constitute a breach of any representation, warranty, covenant or agreement made by the Seller in this Agreement, or (iii) any failure of a Receivable to be originated in compliance with all applicable requirements of law.  These indemnity obligations shall be in addition to any obligation that the Seller may otherwise have.

 

ARTICLE VI

 

MISCELLANEOUS PROVISIONS

 

SECTION 6.01  Obligations of Seller.  The obligations of the Seller under this Agreement shall not be affected by reason of any invalidity, illegality or irregularity of any Receivable.

 

SECTION 6.02  Repurchase Events.  The Seller hereby covenants and agrees with the Depositor for the benefit of the Depositor, the Indenture Trustee, the Issuer, the Owner Trustee, the Certificateholders and the Noteholders that the occurrence of a breach of any of the Seller’s representations and warranties contained in Section 3.02 and Section 3.03 that materially and adversely affects the interests of the Issuer, the Indenture Trustee, the Owner Trustee, the Certificateholders or the Noteholders in any Receivable, without regard to any limitation set forth in 

 

  

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such representation or warranty concerning the knowledge of the Seller as to the facts stated therein shall constitute an event obligating the Seller to repurchase the Receivables to which such failure or breach is applicable, at the Purchase Amount from the Issuer on or before the last day of the second Collection Period following the Collection Period in which it discovers or receives notice of such failure or breach (or, at the Seller’s election the last day of the first Collection Period following the Collection Period in which it discovers or receives notice of such breach), unless any such failure or breach shall have been cured in all material respects by such date.

 

SECTION 6.03  Depositor Assignment of Repurchased Receivables.  With respect to all Receivables repurchased by the Seller pursuant to this Agreement, the Depositor shall assign, without recourse, representation or warranty, to the repurchasing Seller all of the Depositor’s right, title and interest in and to such Receivables and all security and documents relating thereto.

 

SECTION 6.04  Transfer to the Issuer.  The Seller acknowledges and agrees that (1) the Depositor will, pursuant to the Sale and Servicing Agreement, transfer and assign the Conveyed Assets and assign its rights under this Agreement with respect thereto to the Issuer and, pursuant to the Indenture, the Issuer will pledge the Conveyed Assets to the Indenture Trustee, and (2) the representations and warranties contained in this Agreement and the rights of the Depositor under this Agreement, including under Section 6.02, are intended to benefit the Issuer and the Noteholders.  The Seller hereby consents to such transfers and assignments and agrees that enforcement of a right or remedy hereunder by the Indenture Trustee, the Owner Trustee or the Issuer shall have the same force and effect as if the right or remedy had been enforced or executed by the Depositor.

 

SECTION 6.05  Amendment.  This Agreement may be amended from time to time, with prior written notice to the Rating Agencies, but without the consent of the Noteholders or the Certificateholders, by a written amendment duly executed and delivered by the Seller and the Depositor, 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 Noteholders or Certificateholders; provided that such amendment shall not, as evidenced by an Opinion of Counsel, materially and adversely affect the interest of any Noteholder or Certificateholder; provided further, that such action shall be deemed not to adversely affect in any material respect the interests of any Noteholder or Certificateholder and no Opinion of Counsel to that effect shall be required if the Rating Agency Condition is satisfied.  This Agreement may also be amended by the Seller and the Depositor, with prior written notice to the Rating Agencies and the prior written consent of Holders of Notes evidencing at least a majority of the Outstanding Amount of the Controlling Class of Notes and the Holders (as defined in the Trust Agreement) of outstanding Certificates evidencing not less than a majority of the outstanding aggregate Certificate Percentage Interest (as defined in the Trust Agreement), for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of the Noteholders or the Certificateholders; provided, however, that no such amendment may (i) increase or reduce in any manner the amount of, or accelerate or delay the timing of, collections of payments on Receivables or distributions that are required to be made for the benefit of Noteholders or Certificateholders or (ii) reduce the aforesaid percentage of the Notes or the Certificates that is required to consent to any such amendment, without the consent of the Holders of all the Outstanding Notes and all of the Certificates.

 

  

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SECTION 6.06  Waivers.  No failure or delay on the part of the Depositor, the Issuer or the Indenture Trustee in exercising any power, right or remedy under this Agreement or any bill of sale shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other or further exercise thereof or the exercise of any other power, right or remedy.

 

SECTION 6.07  Notices.  All demands, notices and communications under this Agreement shall be in writing, personally delivered, mailed by certified mail, return receipt requested, or sent by e-mail or fax to, and shall be deemed to have been duly given upon receipt, (a) in the case of the Depositor, to 300 Chestnut Ridge Road, Woodcliff Lake, New Jersey 07677, Attention: Vice President-Finance & CFO; (b) in the case of the Servicer, Administrator and Custodian, to 300 Chestnut Ridge Road, Woodcliff Lake, New Jersey 07677, Attention: Vice President of-Finance & CFO; (c) in the case of the Seller, 300 Chestnut Ridge Road, Woodcliff Lake, New Jersey 07677, Attention: Vice President of Finance & CFO; (d) in the case of the Issuer or the Owner Trustee, at the Corporate Trust Office (as defined in the Trust Agreement); [(e) in the case of each Rating Agency: [_____]]; or, as to each of the foregoing, at such other address as shall be designated by written notice to the other parties.

 

SECTION 6.08  Costs and Expenses.  The Seller shall pay all expenses incident to the performance of its obligations under this Agreement and the Seller agrees to pay all reasonable out-of-pocket costs and expenses of the Depositor, in connection with the perfection as against third parties of the Depositor’s, the Issuer’s and the Indenture Trustee’s right, title and interest in and to the Receivables and the enforcement of any obligation of the Seller hereunder.

 

SECTION 6.09  Representations of the Seller and the Depositor.  The respective agreements, representations, warranties and other statements by the Seller and the Depositor set forth in or made pursuant to this Agreement shall remain in full force and effect and will survive the closing under Section 2.02 and the transfers and assignments referred to in Section 6.04.

 

SECTION 6.10  Confidential Information.  The Depositor agrees that it will neither use nor disclose to any Person the names and addresses of the Obligors, except in connection with the enforcement of the Depositor’s rights hereunder, under the Receivables, under the Sale and Servicing Agreement or any other Basic Document, or as required by any of the foregoing or by law.

 

SECTION 6.11  Headings and Cross-References.  The various headings in this Agreement are included for convenience only and shall not affect the meaning or interpretation of any provision of this Agreement.  References in this Agreement to section names or numbers are to such Sections of this Agreement.

 

SECTION 6.12  Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS (OTHER THAN SECTIONS 5-

 

  

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1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW), AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

 

SECTION 6.13  Counterparts.  This Agreement may be executed in counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.

 

SECTION 6.14  Third Party Beneficiary.  The Indenture Trustee is an express third party beneficiary of this Agreement and shall be entitled to enforce the provisions of this Agreement as if it were a party hereto.

 

SECTION 6.15  No Proceedings.  The Seller hereby covenants and agrees that it will not, at any time, petition or otherwise invoke or cause the Trust or the Depositor to invoke the process of any court or government authority for the purpose of commencing or sustaining a case against the Trust or the Depositor 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 Trust or the Depositor or any substantial part of its property, or ordering the winding up or liquidation of the affairs of the Trust or the Depositor.

 

  

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

 

	 	
BMW FINANCIAL SERVICES NA, LLC

 

By:  _________________________________                                                               

    Name:

    Title:

 

By: _________________________________                                                                 

    Name:

    Title:

 

BMW FS SECURITIES LLC

 

By:   _________________________________                                                              

    Name:

    Title:

 

By:   _________________________________                                                               

    Name:

    Title:

 

 

  

  

  

EXHIBIT A

 

MATTERS ADDRESSED IN OPINION OF SELLER’S COUNSEL

 

[See Tabs [__] [BM Corporate Opinion] & [__] [BMW FS Corporate Opinion]]

 

  

A-1

  

SCHEDULE I

 

Schedule of Receivables

 

[Delivered to the Owner Trustee at Close]

 

  

  

  

SCHEDULE II

 

Location of Receivable Files

 

BMW Financial Services NA, LLC

5550 Britton Parkway

Hillard, Ohio 43016

  

  

  

SCHEDULE III

 

PERFECTION REPRESENTATIONS, WARRANTIES AND COVENANTS

 

          In addition to the representations, warranties and covenants contained in this Agreement, the Seller hereby represents, warrants and covenants to the Depositor as follows on the Closing Date:

 

General

 

          1. This Agreement creates a valid and continuing security interest (as defined in the applicable UCC) in the Receivables and the other Conveyed Assets in favor of the Depositor, which security interest is prior to all other Liens, and is enforceable as such against creditors of and purchasers from the Seller.

 

          2. The Receivables constitute “chattel paper” (including “electronic chattel paper” and “tangible chattel paper”) within the meaning of the applicable UCC.

 

          3. Each Receivable is secured by a first priority validly perfected security interest in the related Financed Vehicle in favor of BMW FS, as secured party, or all necessary actions with respect to such Receivable have been taken or will be taken to perfect a first priority security interest in the related Financed Vehicle in favor of BMW FS, as secured party.

 

Creation

 

          4. Immediately prior to the sale, transfer, assignment and conveyance of a Receivable by the Seller to the Depositor, the Seller owned and had good and marketable title to such Receivable free and clear of any Lien and immediately after the sale, transfer, assignment and conveyance of such Receivable to the Depositor, the Depositor will have good and marketable title to such Receivable free and clear of any Lien.

 

Perfection

 

          5. The Seller has caused or will have caused, within ten days after the effective date of this Agreement, the filing of all appropriate financing statements in the proper filing office in the appropriate jurisdictions under applicable law in order to perfect the security interest in the Conveyed Assets granted to the Depositor hereunder; and the Servicer, in its capacity as custodian, has in its possession the original copies of such “instruments” or “tangible chattel paper” and the “authoritative copy” of such “electronic chattel paper” that constitute or evidence the Receivables, and all financing statements referred to in this paragraph contain a statement that: “A purchase of or security interest in any collateral described in this financing statement will violate the rights of the Secured Party/Depositor.”

 

          6. With respect to Receivables that constitute “instruments” or “tangible chattel paper”, such instruments or tangible chattel paper are in the possession of the Servicer and the Indenture Trustee has received a written acknowledgment from the Servicer that the Servicer (in its capacity as custodian) is holding such instruments or tangible chattel paper solely on behalf and for the benefit of the Indenture Trustee.

 

  

  

  

Priority

 

          7. The Seller has not authorized the filing of, and is not aware of, any financing statements against the Seller that include a description of collateral covering the Receivables other than any financing statement (i) relating to the conveyance of the Receivables by the Seller to the Depositor under the Receivables Purchase Agreement, (ii) relating to the conveyance of the Receivables by the Depositor to the Issuer under the Sale and Servicing Agreement, (iii) relating to the security interest granted to the Indenture Trustee under the Indenture or (iv) that has been terminated.

 

          8. The Seller is not aware of any material judgment, ERISA or tax lien filings against the Seller.

 

          9. Neither the Seller nor a custodian or vaulting agent thereof holding any Receivable that is “electronic chattel paper” has communicated an “authoritative copy” (as such term is used in Section 9-105 of the UCC) of any loan agreement that constitutes or evidences such Receivable to any Person other than the Servicer.

 

          10. None of the tangible chattel paper or electronic chattel paper that constitute or evidence the Receivables has any marks or notations indicating that they have been pledged, assigned or otherwise conveyed to any Person other than the Depositor, the Issuer or the Indenture Trustee.

 

Survival of Perfection Representations

 

          11. Notwithstanding any other provision of this Agreement or any other Basic Document, the perfection representations, warranties and covenants contained in this Schedule III shall be continuing, and remain in full force and effect until such time as all obligations under the Basic Documents and the Notes have been finally and fully paid and performed.

 

No Waiver

 

          12. The parties to this Agreement shall provide the Rating Agencies with prompt written notice of any material breach of the perfection representations, warranties and covenants contained in this Schedule III, and shall not, without satisfying the Rating Agency Condition, waive a breach of any of such perfection representations, warranties or covenants.ex10-1_062612.htm

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (this “Agreement”) is made effective as of June 25, 2012 (the “Effective Date”), by and between Home Federal Savings and Loan Association, a federally chartered stock savings and loan association (the “Association”) and Miles R. Armentrout (“Executive”).  The Association and Executive are sometimes collectively referred to herein as the “parties.”  Any reference to the “Company” shall mean Poage Bankshares, Inc., the stock holding company of the Association.  The Company is a signatory to this Agreement for the purpose of guaranteeing the Association’s performance hereunder.

 

WITNESSETH

 

WHEREAS, the Company and the Bank wish to provide for the employment of the Executive as of the Effective Date, and the Executive wishes to serve the Company and the Bank as of the Effective Date, on the terms and conditions set forth in this Agreement; and

 

WHEREAS, in order to induce the Executive to accept employment with the Company and the Bank, the parties desire to specify the severance benefits which shall be due the Executive in the event that his employment with the Bank is terminated under specified circumstances;

 

NOW THEREFORE, in consideration of the mutual agreements herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:

 

	
1.

	
POSITION AND RESPONSIBILITIES.

 

The Company and the Association employ the Executive as Executive Vice President and Chief Credit Officer, and Executive accepts such employment, subject to the terms and conditions set forth in this Agreement.  Executive shall have such duties, responsibilities and powers as are set forth by the board of directors or the President at the direction of the board of directors (including without limitation, keeping the President and Chief Executive Officer fully informed of his activities) provided that such duties are generally consistent with those as chief credit officer.

 

	
2.

	
TERM AND DUTIES.

 

(a)           The term of this Agreement will begin as of the Effective Date and shall continue thereafter for a period of one (1) year.  Beginning on July 1, 2013, and on each annual anniversary date thereafter, the term of this Agreement shall be extended for a period of one year in addition to the then-remaining term; provided that (1) the Association has not given notice to the Executive in writing at least thirty (30) days prior to such renewal date that the term of this Agreement shall not be extended further; and (2) prior to such renewal date, the disinterested members of the Board of Directors of the Association (the “Board”) have explicitly reviewed and approved the extension and the results thereof shall be included in the minutes of the Board’s meeting.  On an annual basis prior to the deadline for the notice period referenced above, the Board shall conduct a performance review of the Executive for purposes of determining whether to provide notice of non-renewal.  Reference herein to the term of this Agreement shall refer to

 

  

  

  

 

both such initial term and such extended terms.  Notwithstanding anything herein to the contrary, in the event that the Company enters into an agreement (“Change in Control Agreement”) to engage in a transaction that would be considered a Change in Control (as defined herein) or a Change in Control otherwise occurs, this Agreement shall automatically renew and shall remain in effect for a period of three (3) years following the effective time of the Change in Control.  In the event that the Change in Control Agreement is terminated, the term of this Agreement will end on the next succeeding anniversary of the Effective Date, unless extended pursuant to the terms of this Section 2(a). 

 

(b)           Termination of Agreement.  Notwithstanding anything contained in this Agreement to the contrary, either Executive, the Company or the Association may terminate Executive’s employment with the Company or the Association at any time during the term of this Agreement, subject to the terms and conditions of this Agreement.

 

(c)           Continued Employment Following Expiration of Term.  Nothing in this Agreement shall mandate or prohibit a continuation of Executive’s employment following the expiration of the term of this Agreement, upon such terms and conditions as the Association and Executive may mutually agree.

 

(d)           Duties; Membership on Other Boards.  During the term of this Agreement, except for periods of absence occasioned by illness, reasonable vacation periods, and reasonable leaves of absence approved by the Board, Executive shall devote substantially all of his business time, attention, skill, and efforts to the faithful performance of his duties hereunder, including activities and services related to the organization, operation and management of the Association; provided, however, that, Executive may serve, or continue to serve, on the boards of directors of, and hold any other offices or positions in, business companies or business or civic organizations, which, in the Board’s judgment, will not present any conflict of interest with the Association, or materially affect the performance of Executive’s duties pursuant to this Agreement.  Executive shall provide the Board of Directors annually for its approval a list of organizations for which the Executive acts as a director or officer.

 

	
3.

	
COMPENSATION, BENEFITS AND REIMBURSEMENT.

 

(a)           Base Salary.  In consideration of Executive’s performance of the duties set forth in Section 2, the Association shall provide Executive the compensation specified in this Agreement.  The Association shall pay Executive a salary of $140,000 per year (“Base Salary”). The Base Salary shall be payable biweekly, or with such other frequency as officers of the Association are generally paid. During the term of this Agreement, the Base Salary shall be reviewed at least annually by the Board or by a committee designated by the Board, and the Association may increase, but not decrease (except for a decrease that is generally applicable to all employees) Executive’s Base Salary. Any increase in Base Salary shall become “Base Salary” for purposes of this Agreement.

 

(b)           Automobile and Social/Club Memberships.  The Association shall reimburse or pay Executive amounts sufficient to establish or maintain membership in a country club or any other club or organization (business, social or otherwise) which will benefit the Association, as mutually agreed to by the Association and the Executive, with such reimbursement or payment

 

  

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to occur as soon as practicable upon presentation to the Association of an itemized account of such expenses in such form as the Association may reasonably require, provided that such payment or reimbursement shall be made as soon as practicable but in no event later than March 15 of the year following the year in which such right to such payment or reimbursement occurred. In addition, Executive will be reimbursed for business use of a personal automobile as per existing policy for all employees.

 

(c)           Housing Relocation Assistance.  The Association shall pay on the Executive’s behalf, or the Executive shall be reimbursed up to $10,000 for any temporary housing expenses  or housing relocation expenses (to include any moving expense or other expense relating to the Executive’s relocation of his residence), with $1,000 payable within the first ten (10) days of employment.  All reimbursements under this Section 3(d) shall be made on a monthly basis upon substantiation of such expenses in accordance with applicable policies of the Association.

 

(d)           Bonus and Incentive Compensation.  Executive shall be entitled to equitable participation in incentive compensation and bonuses in any plan or arrangement of the Association or the Company in which Executive is eligible to participate.  Nothing paid to Executive under any such plan or arrangement will be deemed to be in lieu of other compensation to which Executive is entitled under this Agreement.

 

(e)           Employee Benefits.  Subject to the terms of the applicable plan documents, generally applicable policies of the Association, and applicable law, the Executive shall be entitled to participate in any tax-qualified plan, employee benefit plans, medical insurance plans, life insurance plans, disability income plans, retirement plans, vacation plans, expense reimbursement plans and other benefit plans or credit card privileges which the Association may from time to time have in effect for its senior executives other than the Chief Executive Officer. Nothing contained in this Agreement shall be construed to create any obligation on the part of the Association to establish any such plan or to maintain the effectiveness of any such plan which may be in effect from time to time.

 

(f)           Paid Time Off.  Executive shall be entitled to four weeks of paid vacation time each year during the term of this Agreement (measured on a fiscal or calendar year basis, in accordance with the Association’s usual practices), as well as sick leave, holidays and other paid absences in accordance with the Association’s policies and procedures for senior executives.  Any unused paid time off during an annual period shall be treated in accordance with the Association’s personnel policies as in effect from time to time.

 

(g)           Expense Reimbursements.  The Association shall also pay or reimburse Executive for all reasonable travel, entertainment and other reasonable expenses incurred by Executive during the course of performing his obligations under this Agreement, including, without limitation, fees for memberships in such clubs and organizations as Executive and the Board shall mutually agree are necessary and appropriate in connection with the performance of his duties under this Agreement, upon presentation to the Association of an itemized account of such expenses in such form as the Association may reasonably require, provided that such payment or reimbursement shall be made as soon as practicable but in no event later than March 15 of the year following the  year in which such right to such payment or reimbursement occurred.

 

  

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4.

	
PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.

 

(a)           Upon the occurrence of an Event of Termination (as herein defined) during the term of this Agreement, the provisions of this Section 4 shall apply; provided, however, that in the event such Event of Termination occurs within eighteen (18) months following a Change in Control (as defined in Section 5 hereof), Section 5 shall apply instead. As used in this Agreement, an “Event of Termination’’ shall mean and include any one or more of the following:

 

(i)           the involuntary termination of Executive’s employment hereunder by the Association for any reason other than termination governed by Section 5 (in connection with or following a Change in Control), Section 6 (due to Retirement), or  Section 7 (for Cause), provided that such termination constitutes a “Separation from Service” within the meaning of Section 409A of the Internal Revenue Code (“Code”); or

 

(ii)           Executive’s resignation from the Association’s employ upon any of the following, unless consented to by Executive:

 

(A)           failure to appoint Executive to the position set forth in Section 1, or a material change in Executive’s function, duties, or responsibilities, which change would cause Executive’s position to become one of lesser responsibility, importance, or scope from the position and responsibilities described in Section 1, to which Executive has not agreed in writing (and any such material change shall be deemed a continuing breach of this Agreement by the Association);

 

(B)           a relocation of Executive’s principal place of employment to a location that is more than 50 miles from the location of the Association’s principal executive offices as of the date of this Agreement;

 

(C)           a material reduction in the benefits and perquisites, including Base Salary, to Executive from those being provided as of the Effective Date (except for any reduction that is part of a reduction in pay or benefits that is generally applicable to officers or employees of the Association);

 

(D)           a liquidation or dissolution of the Association; or

 

(E)           a material breach of this Agreement by the Association.

 

Upon the occurrence of any event described in clause (ii) above, Executive shall have the right to elect to terminate his employment under this Agreement by resignation for “Good Reason” upon not less than thirty (30) days prior written notice given within a reasonable period of time (not to exceed ninety (90) days) after the event giving rise to the right to elect, which termination by Executive shall be an Event of Termination.  The Association shall have thirty (30) days to cure the condition giving rise to the Event of Termination, provided that the Association may elect to waive said thirty (30) day period.

 

(a)           Upon the occurrence of an Event of Termination, the Association shall pay to Executive, or, in the event of his subsequent death, his beneficiary or beneficiaries, or his estate,

 

  

4

  

 

as the case may be, as severance pay or liquidated damages, or both, a lump sum cash payment equal to one times the Executive’s highest annual rate of Base Salary paid to Executive at any time under this Agreement.  Such payment shall be paid in a lump sum within ten (10) days of the Executive’s Separation from Service (within the meaning of Section 409A of the Code) and shall not be reduced in the event Executive obtains other employment following the Event of Termination.  Notwithstanding the foregoing, Executive shall not be entitled to any payments or benefits under this Section 4 unless and until Executive executes a release of his claims against the Association, the Company and any affiliate, and their officers, directors, successors and assigns, releasing said persons from any and all claims, rights, demands, causes of action, suits, arbitrations or grievances relating to the employment relationship, including claims under the Age Discrimination in Employment Act, but not including claims for benefits under tax-qualified plans or other benefit plans in which Executive is vested, claims for benefits required by applicable law or claims with respect to obligations set forth in this Agreement that survive the termination of this Agreement.

 

(b)           For purposes of this Agreement, a “Separation from Service” shall have occurred if the Association and Executive reasonably anticipate that either no further services will be performed by the Executive after the date of the Event of Termination (whether as an employee or as an independent contractor) or the level of further services performed will not exceed 49% of the average level of bona fide services in the 12 months immediately preceding the Event of Termination.  For all purposes hereunder, the definition of Separation from Service shall be interpreted consistent with Treasury Regulation Section 1.409A-1(h)(ii).  If Executive is a Specified Employee, as defined in Code Section 409A and any payment to be made under sub-paragraph (b) or (c) of this Section 4 shall be determined to be subject to Code Section 409A, then if required by Code Section 409A, such payment or a portion of such payment (to the minimum extent possible) shall be delayed and shall be paid on the first day of the seventh month following Executive’s Separation from Service.

 

	
5.

	
CHANGE IN CONTROL.

 

(a)           Any payments made to Executive pursuant to this Section 5 are in lieu of any payments that may otherwise be owed to Executive pursuant to this Agreement under Section 4, such that Executive shall either receive payments pursuant to Section 4 or pursuant to Section 5, but not pursuant to both Sections.

 

(b)           For purposes of this Agreement, the term “Change in Control” shall mean:

 

(i)           a change in control of a nature that would be required to be reported in response to Item 5.01(a) of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); or

 

(ii)           a change in control of the Association within the meaning of the Home Owner’s Loan Act, as amended (“HOLA”), and applicable rules and regulations promulgated thereunder, as in effect at the time of the Change in Control; or

 

  

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(iii)           any of the following events, upon which a Change in Control shall be deemed to have occurred:

 

(A)           any “person” (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Association or the Company representing 25% or more of the combined voting power of such outstanding securities, except for any securities purchased by any employee stock ownership plan or trust established by the Association or the Company; or

 

(B)           individuals who constitute the Board on the Effective Date (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the Effective Date whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by stockholders of the Association or the Company was approved by a Nominating Committee serving under an Incumbent Board, shall be, for purposes of this subsection (B), considered as though they were members of the Incumbent Board; or

 

(C)           a sale of all or substantially all the assets of the Association or the Company, or a plan of reorganization, merger, consolidation, or similar transaction occurs in which the security holders of the Association or the Company immediately prior to the consummation of the transaction do not own at least 50.1% of the securities of the surviving entity to be outstanding upon consummation of the transaction; or

 

(D)           a tender offer is made for 25% or more of the voting securities of the Association or the Company, and stockholders owning beneficially or of record 25% or more of the outstanding securities of the Association or the Company have tendered or offered to sell their shares pursuant to such tender offer and such tendered shares have been accepted by the tender offeror.

 

(c)           Upon the occurrence of a Change in Control followed within eighteen (18) months by an Event of Termination (as defined in Section 4 hereof), Executive, shall receive as severance pay or liquidated damages, or both, a lump sum cash payment equal to three times the Executive’s highest annual rate of Base Salary paid to Executive at any time under this Agreement.  Such payment shall be paid in a lump sum within ten (10) days of the Executive’s Separation from Service (within the meaning of Section 409A of the Code) and shall not be reduced in the event Executive obtains other employment following the Event of Termination.

 

(d)           Upon the occurrence of a Change in Control followed within eighteen (18) months by an Event of Termination (as defined in Section 4 hereof), the Association (or its successor) shall provide at the Association’s (or its successor’s) expense, nontaxable medical and dental coverage and life insurance coverage substantially comparable, as reasonably available, to the coverage maintained by the Association for Executive prior to his termination, except to the extent such coverage may be changed in its application to all Association employees and then the

 

  

6

  

 

coverage provided to Executive shall be commensurate with such changed coverage.  Such coverage shall cease thirty-six (36) months following the termination of Executive’s employment.

 

(e)           Notwithstanding the preceding paragraphs of this Section 5, in the event that the aggregate payments or benefits to be made or afforded to Executive in the event of a Change in Control would be deemed to include an “excess parachute payment” under Section 280G of the Internal Revenue Code or any successor thereto, then such payments or benefits shall be reduced to an amount, the value of which is one dollar ($1.00) less than an amount equal to three (3) times Executive’s “base amount,” as determined in accordance with Section 280G of the Code.  In the event a reduction is necessary, then the cash severance payable by the Association pursuant to Section 5 shall be reduced by the minimum amount necessary to result in no portion of the payments and benefits payable by the Association under Section 5 being non-deductible to the Association pursuant to Section 280G of the Code and subject to excise tax imposed under Section 4999 of the Code.

 

	
6.

	
TERMINATION UPON RETIREMENT.

 

Termination of Executive’s employment based on “Retirement” shall mean termination of Executive’s employment at any time after Executive reaches age 65 or in accordance with any retirement policy established by the Board with Executive’s consent with respect to him.  Upon termination of Executive based on Retirement, no amounts or benefits shall be due Executive under this Agreement, and Executive shall be entitled to all benefits under any retirement plan of the Association and other plans to which Executive is a party.

 

	
7.

	
TERMINATION FOR CAUSE.

 

(a)           The Association may terminate Executive’s employment at any time, but any termination other than termination for “Cause,” as defined herein, shall not prejudice Executive’s right to compensation or other benefits under this Agreement.  Executive shall have no right to receive compensation or other benefits for any period after termination for “Cause.”

 

(b)           The term termination for “Cause” shall mean termination because of Executive’s: (i) personal dishonesty; (ii) incompetence; (iii) willful misconduct; (iv) breach of fiduciary duty involving personal profit; (v) intentional failure to perform stated duties; (vi) willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order; or (vii) material breach of any provision of this Agreement.  Notwithstanding the foregoing, Cause shall not be deemed to exist unless there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to the Executive and an opportunity for the Executive to be heard before the Board), finding that in the good faith opinion of the Board the Executive was guilty of conduct described above and specifying the particulars thereof.  Prior to holding a meeting at which the Board is to make a final determination whether Cause exists, if the Board determines in good faith at a meeting of the Board, by not less than a majority of its entire membership, that there is probable cause for it to find that the Executive was guilty of conduct constituting Cause as described above, the Board may suspend the Executive from his duties hereunder for a

 

  

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reasonable period of time not to exceed fourteen (14) days pending a further meeting  at which the Executive shall be given the opportunity to be heard before the Board.  Upon a finding of Cause, the Board shall deliver to the Executive a Notice of Termination, as more fully described in Section 9 below.

 

	
8.

	
RESIGNATION FROM BOARDS OF DIRECTORS

 

In the event of Executive’s termination of employment due to an Event of Termination and the Executive is serving as a director of the Association, the Company or any affiliate of the Association or the Company, Executive’s service as a director of the Association, the Company, and any affiliate of the Association or the Company shall immediately terminate.  This Section 8 shall constitute a resignation notice for such purposes.

 

	
9.

	
NOTICE.

 

(a)           Any purported termination by the Association for Cause shall be communicated by Notice of Termination to Executive.  If, within thirty (30) days after any Notice of Termination for Cause is given, Executive notifies the Association that a dispute exists concerning the termination, the parties shall promptly proceed to arbitration, as provided in Section 19.  Notwithstanding the pendency of any such dispute, the Association shall discontinue paying Executive’s compensation until the dispute is finally resolved in accordance with this Agreement.  If it is determined that Executive is entitled to compensation and benefits under Section 4 or 5, the payment of such compensation and benefits by the Association shall commence immediately following the date of resolution by arbitration, with interest due Executive on the cash amount that would have been paid pending arbitration (at the prime rate as published in The Wall Street Journal from time to time).

 

(b)           Any other purported termination by the Association or by Executive shall be communicated by a “Notice of Termination” (as defined in Section 9(c)) to the other party.  If, within thirty (30) days after any Notice of Termination is given, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the parties shall promptly proceed to arbitration as provided in Section 19.  Notwithstanding the pendency of any such dispute, the Association shall continue to pay Executive his Base Salary, and other compensation and benefits in effect when the notice giving rise to the dispute was given (except as to termination of Executive for Cause); provided, however, that such payments and benefits shall not continue beyond the date that is 36 months from the date the Notice of Termination is given.  In the event the voluntary termination by Executive of his employment is disputed by the Association, and if it is determined in arbitration that Executive is not entitled to termination benefits pursuant to this Agreement, he shall return all cash payments made to him pending resolution by arbitration, with interest thereon at the prime rate as published in The Wall Street Journal from time to time, if it is determined in arbitration that Executive’s voluntary termination of employment was not taken in good faith and not in the reasonable belief that grounds existed for his voluntary termination.  If it is determined that Executive is entitled to receive severance benefits under this Agreement, then any continuation of Base Salary and other compensation and benefits made to Executive under this Section 9 shall offset the amount of any severance benefits that are due to Executive under this Agreement.

 

  

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(c)           For purposes of this Agreement, a “Notice of Termination” shall mean a written notice that shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated.

 

	
10.

	
POST-TERMINATION OBLIGATIONS.

 

(a)           Executive hereby covenants and agrees that, for a period of one year following his termination of employment with the Association, he shall not, without the written consent of the Association, either directly or indirectly:

 

(i)           solicit, offer employment to, or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any officer or employee of the Association or the Company, or any of their respective subsidiaries or affiliates, to terminate his or her employment and accept employment or become affiliated with, or provide services for compensation in any capacity whatsoever to, any business whatsoever that competes with the business of the Association or the Company, or any of their direct or indirect subsidiaries or affiliates or has headquarters or offices within twenty-five (25) miles of the locations in which the Association or the Company has business operations or has filed an application for regulatory approval to establish an office;

 

(ii)           become an officer, employee, consultant, director, independent contractor, agent, sole proprietor, joint venturer, greater than 5% equity owner or stockholder, partner or trustee of any savings Association, savings and loan association, savings and loan holding company, credit union, Association or Association holding company, insurance company or agency, any mortgage or loan broker or any other financial services entity or business that competes with the business of the Association or its affiliates or has headquarters or offices within twenty-five (25) miles of any of the Company’s or Association’s offices as of the date of this Agreement; provided, however, that this restriction shall not apply if Executive’s employment is terminated following a Change in Control or if Executive does not have any right to or waives (or returns to the Association) any payments under Section 4 hereof; or

 

(b)           As used in this Agreement, “Confidential Information” means information belonging to the Association which is of value to the Association in the course of conducting its business and the disclosure of which could result in a competitive or other disadvantage to the Association. Confidential Information includes, without limitation, financial information, reports, and forecasts; inventions, improvements and other intellectual property; trade secrets; know-how; designs, processes or formulae; software; market or sales information or plans; customer lists; and business plans, prospects and opportunities (such as possible acquisitions or dispositions of businesses or facilities) which have been discussed or considered by the management of the Association. Confidential Information includes information developed by the Executive in the course of the Executive’s employment by the Association, as well as other information to which the Executive may have access in connection with the Executive’s employment. Confidential Information also includes the confidential information of others with which the Association has a business relationship. Notwithstanding the foregoing, Confidential

 

  

9

  

 

Information does not include information in the public domain.  The Executive understands and agrees that the Executive’s employment creates a relationship of confidence and trust between the Executive and the Association with respect to all Confidential Information. At all times, both during the Executive’s employment with the Association and after its termination, the Executive will keep in confidence and trust all such Confidential Information, and will not use or disclose any such Confidential Information without the written consent of the Association, except as may be necessary in the ordinary course of performing the Executive’s duties to the Association.

 

(c)           Executive shall, upon reasonable notice, furnish such information and assistance to the Association as may reasonably be required by the Association, in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party; provided, however, that Executive shall not be required to provide information or assistance with respect to any litigation between the Executive and the Association or any of its subsidiaries or affiliates.

 

(d)           All payments and benefits to Executive under this Agreement shall be subject to Executive’s compliance with this Section 10.  The parties hereto, recognizing that irreparable injury will result to the Association, its business and property in the event of Executive’s breach of this Section 10, agree that, in the event of any such breach by Executive, the Association will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by Executive and all persons acting for or with Executive. Executive represents and admits that Executive’s experience and capabilities are such that Executive can obtain employment in a business engaged in other lines and/or of a different nature than the Association, and that the enforcement of a remedy by way of injunction will not prevent Executive from earning a livelihood.  Nothing herein will be construed as prohibiting the Association or the Company from pursuing any other remedies available to them for such breach or threatened breach, including the recovery of damages from Executive.

 

	
11.

	
SOURCE OF PAYMENTS.

 

All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Association. The Company may accede to this Agreement but only for the purposed of guaranteeing payment and provision of all amounts and benefits due hereunder to Executive.

 

	
12.

	
EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.

 

This Agreement contains the entire understanding between the parties hereto and supersedes any prior employment agreement between the Association or any predecessor of the Association and Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to Executive of a kind elsewhere provided.  No provision of this Agreement shall be interpreted to mean that Executive is subject to receiving fewer benefits than those available to him without reference to this Agreement.

 

	
13.

	
NO ATTACHMENT; BINDING ON SUCCESSORS.

 

(a)           Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge,

 

  

10

  

 

pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void, and of no effect.

 

(b)           This Agreement shall be binding upon, and inure to the benefit of, Executive and the Association and their respective successors and assigns.

 

	
14.

	
MODIFICATION AND WAIVER.

 

(a)           This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto.

 

(b)           No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel.  No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future as to any act other than that specifically waived.

 

	
15.

	
REQUIRED PROVISIONS.

 

(a)           The Association may terminate Executive’s employment at any time, but any termination by the Board other than termination for Cause shall not prejudice Executive’s right to compensation or other benefits under this Agreement.  Executive shall have no right to receive compensation or other benefits for any period after termination for Cause.

 

(b)           If Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Association’s affairs by a notice served under Section 8(e)(3) [12 USC §1818(e)(3)] or 8(g)(1) [12 USC §1818(g)(1)] of the Federal Deposit Insurance Act, the Association’s obligations under this contract shall be suspended as of the date of service, unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Association may in its discretion (i) pay Executive all or part of the compensation withheld while its contract obligations were suspended and (ii) reinstate (in whole or in part) any of its obligations which were suspended.

 

(c)           If Executive is removed and/or permanently prohibited from participating in the conduct of the Association’s affairs by an order issued under Section 8(e)(4) [12 USC §1818(e)(4)] or 8(g)(1) [12 USC §1818(g)(1)] of the Federal Deposit Insurance Act, all obligations of the Association under this Agreement shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

 

(d)           If the Association is in default as defined in Section 3(x)(1) [12 USC §1813(x)(1)] of the Federal Deposit Insurance Act, all obligations of the Association under this Agreement shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties.

 

(e)           All obligations under this Agreement shall be terminated, except to the extent determined that continuation of the contract is necessary for the continued operation of the

 

  

11

  

 

Association, (i) by The Office of the Comptroller of the Currency (the “Comptroller”) or his or her designee, at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Association under the authority contained in Section 13(c) [12 USC §1823(c)] of the Federal Deposit Insurance Act; or (ii) by the Comptroller or his or her designee at the time the Comptroller or his or her designee approves a supervisory merger to resolve problems related to operation of the Association or when the Association is determined by the Comptroller to be in an unsafe or unsound condition.  Any rights of the parties that have already vested, however, shall not be affected by such action.

 

(f)           Notwithstanding anything herein contained to the contrary, any payments to Executive by the Association or the Company, whether pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1828(k), and the regulations promulgated thereunder in 12 C.F.R. Part 359.

 

	
16.

	
SEVERABILITY.

 

If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect.

 

	
17.

	
HEADINGS FOR REFERENCE ONLY.

 

The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.

 

	
18.

	
GOVERNING LAW.

 

This Agreement shall be governed by the laws of the State of Kentucky except to the extent superseded by federal law.

 

	
19.

	
ARBITRATION.

 

Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by binding arbitration, as an alternative to civil litigation and without any trial by jury to resolve such claims, conducted by a panel of three arbitrators sitting in a location selected by Executive within fifty (50) miles from the main office of the Association, in accordance with the rules of the American Arbitration Association’s National Rules for the Resolution of Employment Disputes (“National Rules”) then in effect.  One arbitrator shall be selected by Executive, one arbitrator shall be selected by the Association and the third arbitrator shall be selected by the arbitrators selected by the parties.  If the arbitrators are unable to agree within fifteen (15) days upon a third arbitrator, the arbitrator shall be appointed for them from a panel of arbitrators selected in accordance with the National Rules.  Judgment may be entered on the arbitrator’s award in any court having jurisdiction.

 

  

12

  

 

 

	
20.

	
INDEMNIFICATION.

 

(a)           Executive shall be provided with coverage under a standard directors’ and officers’ liability insurance policy during the term of this Agreement, and shall be indemnified for the term of this Agreement and for a period of six years thereafter to the fullest extent permitted under applicable law against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been a director or officer of the Association or any affiliate (whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities), such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys’ fees and the cost of reasonable settlements (such settlements must be approved by the Board), provided, however, Executive shall not be indemnified or reimbursed for legal expenses or liabilities incurred in connection with an action, suit or proceeding arising from any illegal or fraudulent act committed by Executive.  Any such indemnification shall be made consistent with Section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C. §1828(k), and the regulations issued thereunder in 12 C.F.R. Part 359.

 

(b)           Any indemnification by the Association shall be subject to compliance with any applicable regulations of the Federal Deposit Insurance Corporation.

 

  

13

  

 

 

	
21.

	
NOTICE.

 

For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below:

 

	
  

	
To the Association:

	
Home Federal Savings and Loan Association

1500 Carter Avenue

Ashland, KY  41101

	
  

	
To Executive:

	
_________

At the address last appearing on

the personnel records of the Association

  

14

  

 

SIGNATURES

 

IN WITNESS WHEREOF, the Association and the Company have caused this Agreement to be executed by their duly authorized representatives, and Executive has signed this Agreement, on the date first above written.

 

	  	
HOME FEDERAL SAVINGS AND LOAN ASSOCIATION

 

	  	  
	  	  
	  	  
	
By:

	/s/ J. Thomas Rupert  
	  	
Chairman of the Board

	  	  
	  	
POAGE BANKSHARES, INC.

 

	  	  
	  	  
	  	  
	
By:

	/s/ J. Thomas Rupert  
	  	
Chairman of the Board

	  	  
	  	  
	  	  
	  	
EXECUTIVE:

	  	  
	  	  
	  	  
	  	/s/ Miles R. Armentrout  
	  	
Miles R. Armentrout

 

 

 

 15

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