Document:

Exhibit
10.2

 

 

 

SALE AND SERVICING AGREEMENT

among

HARLEY-DAVIDSON MOTORCYCLE TRUST 2006-2,

as Issuer,

HARLEY-DAVIDSON CUSTOMER FUNDING CORP.,

as Trust Depositor,

HARLEY-DAVIDSON CREDIT CORP.,

as Servicer

and

THE BANK OF NEW YORK TRUST COMPANY, N.A.,

as Indenture Trustee

 

 

 

 

Dated as of May 1, 2006

 

 

 

 

 

	
   

  	
   

  	
  Page

  

 

Table of Contents

	
  ARTICLE One DEFINITIONS

  	
   

  	
  3

  
	
  Section
  1.01.

  	
   

  	
  Definitions

  	
   

  	
  3

  
	
  Section
  1.02.

  	
   

  	
  Usage of Terms

  	
   

  	
  85

  
	
  Section
  1.03.

  	
   

  	
  Section References

  	
   

  	
  85

  
	
  Section
  1.04.

  	
   

  	
  Calculations

  	
   

  	
  86

  
	
  Section
  1.05.

  	
   

  	
  Accounting Terms

  	
   

  	
  87

  
	
  ARTICLE Two TRANSFER OF CONTRACTS

  	
   

  	
  87

  
	
  Section
  2.01.

  	
   

  	
  Closing

  	
   

  	
  87

  
	
  Section
  2.02.

  	
   

  	
  Conditions to the Closing

  	
   

  	
  91

  
	
  Section
  2.03.

  	
   

  	
  Conveyance of Subsequent Contracts

  	
   

  	
  97

  
	
  ARTICLE Three REPRESENTATIONS AND
  WARRANTIES

  	
   

  	
  109

  
	
  Section
  3.01.

  	
   

  	
  Representations and Warranties Regarding the Trust Depositor

  	
   

  	
  112

  
	
  Section
  3.02.

  	
   

  	
  Representations and Warranties Regarding the Servicer

  	
   

  	
  121

  
	
  ARTICLE Four PERFECTION OF TRANSFER
  AND PROTECTION OF SECURITY INTERESTS

  	
   

  	
  127

  
	
  Section
  4.01.

  	
   

  	
  Custody of Contracts

  	
   

  	
  127

  
	
  Section
  4.02.

  	
   

  	
  Filing

  	
   

  	
  134

  
	
  Section
  4.03.

  	
   

  	
  Name Change or Relocation

  	
   

  	
  136

  
	
  Section
  4.04.

  	
   

  	
  Costs and Expenses

  	
   

  	
  138

  
	
  ARTICLE Five SERVICING OF CONTRACTS

  	
   

  	
  138

  
	
  Section
  5.01.

  	
   

  	
  Responsibility for Contract Administration

  	
   

  	
  138

  
	
  Section
  5.02.

  	
   

  	
  Standard of Care

  	
   

  	
  139

  
	
  Section
  5.03.

  	
   

  	
  Records

  	
   

  	
  140

  
	
  Section
  5.04.

  	
   

  	
  Inspection

  	
   

  	
  141

  
	
  Section
  5.05.

  	
   

  	
  Trust Accounts

  	
   

  	
  142

  
	
  Section
  5.06.

  	
   

  	
  Enforcement

  	
   

  	
  151

  
	
  Section
  5.07.

  	
   

  	
  Trustees to Cooperate

  	
   

  	
  157

  
	
  Section
  5.08.

  	
   

  	
  Costs and Expenses

  	
   

  	
  159

  
	
  Section
  5.09.

  	
   

  	
  Maintenance of Security Interests in Motorcycles

  	
   

  	
  160

  
	
  Section
  5.10.

  	
   

  	
  Successor Servicer/Lockbox Agreements

  	
   

  	
  161

  
	
  Section
  5.11.

  	
   

  	
  Separate Entity Existence

  	
   

  	
  163

  
	
  ARTICLE Six THE TRUST DEPOSITOR

  	
   

  	
  163

  
	
  Section
  6.01.

  	
   

  	
  Covenants of the Trust Depositor

  	
   

  	
  163

  
	
  (a)

  	
   

  	
  Existence

  	
   

  	
  164

  
	
  Section
  6.02.

  	
   

  	
  Liability of Trust Depositor; Indemnities

  	
   

  	
  174

  
	
  Section
  6.03.

  	
   

  	
  Merger or Consolidation of, or Assumption of the Obligations
  of, Trust Depositor; Certain Limitations

  	
   

  	
  181

  
	
  Section
  6.04.

  	
   

  	
  Limitation on Liability of Trust Depositor and Others

  	
   

  	
  185

  
	
  Section
  6.05.

  	
   

  	
  Trust Depositor Not to Resign

  	
   

  	
  187

  
	
  ARTICLE Seven DISTRIBUTIONS; RESERVE
  FUND

  	
   

  	
  187

  
	
  Section
  7.01.

  	
   

  	
  Monthly Distributions

  	
   

  	
  187

  
	
  Section
  7.02.

  	
   

  	
  Fees

  	
   

  	
  189

  
	
  Section
  7.03.

  	
   

  	
  Advances; Realization of Carrying Charge

  	
   

  	
  189

  
	
  Section
  7.04.

  	
   

  	
  Interest Reserve Account

  	
   

  	
  192

  
	
  Section
  7.05.

  	
   

  	
  Distributions; Priorities

  	
   

  	
  194

  
	
  Section
  7.06.

  	
   

  	
  Reserve Fund

  	
   

  	
  208

  
	
  Section
  7.07.

  	
   

  	
  Establishment of Pre-Funding Account

  	
   

  	
  212

  
	
  Section
  7.08.

  	
   

  	
  Purchase of Contracts for Breach of Representations and
  Warranties

  	
   

  	
  216

  
	
  Section
  7.09.

  	
   

  	
  Reassignment of Reacquired Contracts

  	
   

  	
  219

  
	
  Section
  7.10.

  	
   

  	
  Servicer’s Purchase Option

  	
   

  	
  220

  

 

i

 

	
  Section
  7.11.

  	
   

  	
  Purchase of Contracts for Breach of Servicing Obligations

  	
   

  	
  222

  
	
  ARTICLE Eight EVENTS OF TERMINATION;
  SERVICE TRANSFER

  	
   

  	
  224

  
	
  Section
  8.01.

  	
   

  	
  Events of Termination

  	
   

  	
  224

  
	
  Section
  8.02.

  	
   

  	
  Waiver of Event of Termination

  	
   

  	
  229

  
	
  Section
  8.03.

  	
   

  	
  Service Transfer

  	
   

  	
  230

  
	
  Section
  8.04.

  	
   

  	
  Successor Servicer to Act; Appointment of Successor Servicer

  	
   

  	
  233

  
	
  Section
  8.05.

  	
   

  	
  Notification to Securityholders

  	
   

  	
  235

  
	
  Section
  8.06.

  	
   

  	
  Effect of Transfer

  	
   

  	
  236

  
	
  Section
  8.07.

  	
   

  	
  Database File

  	
   

  	
  237

  
	
  Section
  8.08.

  	
   

  	
  Successor Servicer Indemnification

  	
   

  	
  238

  
	
  Section
  8.09.

  	
   

  	
  Responsibilities of the Successor Servicer

  	
   

  	
  239

  
	
  Section
  8.10.

  	
   

  	
  Limitation of Liability of Servicer

  	
   

  	
  241

  
	
  Section
  8.11.

  	
   

  	
  Merger or Consolidation of Servicer

  	
   

  	
  244

  
	
  Section
  8.12.

  	
   

  	
  Servicer Not to Resign

  	
   

  	
  245

  
	
  Section
  8.13.

  	
   

  	
  Appointment of Subservicer

  	
   

  	
  246

  
	
  ARTICLE Nine REPORTS

  	
   

  	
  247

  
	
  Section
  9.01.

  	
   

  	
  Monthly Reports

  	
   

  	
  247

  
	
  Section
  9.02.

  	
   

  	
  Officer’s Certificate

  	
   

  	
  247

  
	
  Section
  9.03.

  	
   

  	
  Other Data

  	
   

  	
  248

  
	
  Section
  9.04.

  	
   

  	
  Report on Assessment of Compliance with Servicing Criteria
  and Attestation; Annual Officer’s Certificate

  	
   

  	
  248

  
	
  Section
  9.05.

  	
   

  	
  Monthly Reports to Noteholders

  	
   

  	
  253

  
	
  ARTICLE Ten TERMINATION

  	
   

  	
  268

  
	
  Section
  10.01.

  	
   

  	
  Sale of Trust Assets

  	
   

  	
  268

  
	
  ARTICLE Eleven MISCELLANEOUS

  	
   

  	
  269

  
	
  Section
  11.01.

  	
   

  	
  Amendment

  	
   

  	
  269

  
	
  Section
  11.02.

  	
   

  	
  Protection of Title to Trust

  	
   

  	
  276

  
	
  Section
  11.03.

  	
   

  	
  Governing Law

  	
   

  	
  282

  
	
  Section
  11.04.

  	
   

  	
  Notices

  	
   

  	
  283

  
	
  Section
  11.05.

  	
   

  	
  Severability of Provisions

  	
   

  	
  290

  
	
  Section
  11.06.

  	
   

  	
  Assignment

  	
   

  	
  291

  
	
  Section
  11.07.

  	
   

  	
  Third Party Beneficiaries

  	
   

  	
  291

  
	
  Section
  11.08.

  	
   

  	
  Counterparts

  	
   

  	
  292

  
	
  Section
  11.09.

  	
   

  	
  Headings

  	
   

  	
  292

  
	
  Section
  11.10.

  	
   

  	
  No Bankruptcy Petition; Disclaimer and Subordination

  	
   

  	
  292

  
	
  Section
  11.11.

  	
   

  	
  Limitation of Liability of Owner Trustee and Indenture Trustee

  	
   

  	
  297

  

 

ii

 

EXHIBITS

 

	
  Exhibit A

  	
   

  	
  Form of
  Assignment

  	
   

  	
  A-1

  
	
  Exhibit B

  	
   

  	
  Form of Closing Certificate of Trust Depositor

  	
   

  	
  B-1

  
	
  Exhibit C

  	
   

  	
  Form of Closing Certificate of Seller/Servicer

  	
   

  	
  C-1

  
	
  Exhibit D

  	
   

  	
  Form of Attestation Report

  	
   

  	
  D-1

  
	
  Exhibit E

  	
   

  	
  Servicing Criteria to be Addressed in Indenture Trustee’s

  	
   

  	
   

  
	
   

  	
   

  	
  Assessment of Compliance

  	
   

  	
  E-1

  
	
  Exhibit F

  	
   

  	
  Form of Indenture Trustee’s Annual Certification

  	
   

  	
  F-1

  
	
  Exhibit G

  	
   

  	
  Form of Certificate Regarding Reacquired Contracts

  	
   

  	
  G-1

  
	
  Exhibit H

  	
   

  	
  List of Contracts

  	
   

  	
  H-1

  
	
  Exhibit I

  	
   

  	
  Form of Monthly Report
  to Noteholders and the Certificateholder

  	
   

  	
  I-1

  
	
  Exhibit J

  	
   

  	
  Seller’s Representations and Warranties

  	
   

  	
  J-1

  
	
  Exhibit K

  	
   

  	
  Lockbox Bank and Lockbox Account

  	
   

  	
  K-1

  
	
  Exhibit L

  	
   

  	
  Form of Subsequent Transfer Agreement

  	
   

  	
  L-1

  

 

 

 

iii

 

SALE AND SERVICING
AGREEMENT, dated as of May 1, 2006, among Harley-Davidson Motorcycle Trust
2006-2 (together with its successors and assigns, the “Issuer”
or the “Trust”), Harley-Davidson Customer
Funding Corp. (together with its successor and assigns, the “Trust
Depositor”), The Bank of New York Trust Company, N.A. (solely in its
capacity as Indenture Trustee together with its successors and assigns, the “Indenture Trustee”) and Harley-Davidson Credit Corp.
(solely in its capacity as Servicer together with its successor and assigns, “Harley-Davidson Credit” or the “Servicer”).

WHEREAS the Issuer
desires to acquire from the Trust Depositor an initial and one or more
subsequent pools of fixed-rate, simple interest motorcycle conditional sales
contracts and promissory note and security agreements relating to
Harley-Davidson and Buell motorcycles and motorcycles not manufactured by
Harley-Davidson or Buell (collectively, the “Contracts”)
purchased by Harley-Davidson Credit and subsequently sold by Harley-Davidson
Credit to the Trust Depositor;

WHEREAS the Trust
Depositor is willing to transfer and assign the Contracts to the Issuer
pursuant to the terms hereof; and

WHEREAS the
Servicer is willing to service the Contracts pursuant to the terms hereof;

NOW, THEREFORE, in
consideration of the premises and the mutual covenants herein contained, the
parties hereto agree as follows:

ARTICLE
ONE

 

DEFINITIONS

Section
1.01.               Definitions. 
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:

“Addition
Notice” means,
with respect to any transfer of Subsequent Contracts to the Issuer  pursuant to Section 2.03 and the Trust
Depositor’s corresponding prior purchase of such Contracts from the Seller, a
notice, which shall be given at least 10 days prior to the related Subsequent
Transfer Date, identifying the aggregate Principal Balance of the Subsequent
Contracts to be transferred.

“Advance” means, with respect to any Distribution
Date, the amounts, if any, deposited by the Servicer in the Collection Account
for such Distribution Date pursuant to Section 7.03.

“Affiliate” of any specified Person means any other
Person controlling or controlled by, or under common control with, such
specified Person.  For the purposes of
this definition, “control” when used with respect
to any specified Person means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership

 

1

 

of
voting securities, by contract or otherwise; and the terms “controlling” or “controlled”
have meanings correlative to the foregoing.

“Aggregate
Principal Balance” will
equal the sum of the Principal Balances of each outstanding Contract and the
Pre-Funded Amount, if any.  At the time
of initial issuance of the Securities, the initial aggregate principal amount
of the Securities will equal the initial Pool Balance plus the initial
Pre-Funded Amount.

“Aggregate
Principal Balance Decline” means, with respect to any Distribution Date, the
amount by which the Aggregate Principal Balance as of the close of business on
the last day of the Due Period relating to the Distribution Date immediately
preceding such Distribution Date (or as of the Initial Cutoff Date in the case
of the first Distribution Date) exceeds the Aggregate Principal Balance as of
the close of business on the last day of the Due Period relating to such
Distribution Date.

“Agreement” 
means this Sale and Servicing Agreement, as amended, supplemented or
otherwise modified from time to time in accordance with the terms hereof.

“Available
Monies” means,
with respect to any Distribution Date, the sum of the Available Interest and
the Available Principal for such Distribution Date.

“Available
Interest” means,
with respect to any Distribution Date, the total (without duplication) of the
following amounts received by the Servicer on or in respect of the Contracts
during the related Due Period: (i) all amounts received in respect of interest
on the Contracts, (ii) the interest component of all Net Liquidation Proceeds,
(iii) the interest component of the aggregate of the Purchase Prices for
Contracts reacquired by the Trust Depositor pursuant to Section 7.08, (iv) all
Advances made by the Servicer pursuant to Section 7.03, (v) the interest
component of all amounts paid by the Servicer in connection with an optional
purchase of the Contracts pursuant to Section 7.10, (vi) the interest component
of the aggregate of the Purchase Prices for Contracts purchased by the Servicer
pursuant to Section 7.11, (vii) all amounts received in respect of Carrying
Charges transferred from the Interest Reserve Account pursuant to Section 7.03,
and (viii) all amounts received in respect of interest, dividends, gains,
income and earnings on investment of funds in the Trust Accounts as
contemplated in Section 5.05(d).

“Available
Principal” means,
with respect to any Distribution Date, the total (without duplication) of the
following amounts received by the Servicer on or in respect of the Contracts
during the related Due Period: (i) all amounts received in respect of principal
on the Contracts, (ii) the principal component of all Net Liquidation Proceeds,
(iii) the principal component of the aggregate of the Purchase Prices for
Contracts reacquired by the Trust Depositor pursuant to Section 7.08, (iv) the
principal component of all amounts paid by the Servicer in connection with an
optional purchase of the Contracts pursuant to Section 7.10, and (v) the
principal component of the aggregate of the Purchase Prices for Contracts
purchased by the Servicer pursuant to Section 7.11.

 

2

 

“Average
Delinquency Ratio”
means, for any Distribution Date, the arithmetic average of the Delinquency
Ratios for such Distribution Date and the two immediately preceding
Distribution Dates.

 “Average Loss Ratio” means, for any Distribution Date, the
arithmetic average of the Loss Ratios for such Distribution Date and the two
immediately preceding Distribution Dates.

“Base
Prospectus” means
the Prospectus dated May 23, 2006 relating to the Harley-Davidson Motorcycle
Trusts.

“Buell” means Buell Motorcycle Company, LLC.

“Business
Day” means any
day other than a Saturday or a Sunday, or another day on which banking
institutions in the city of Chicago, Illinois, Wilmington, Delaware or New
York, New York are authorized or obligated by law, executive order, or
governmental decree to be closed.

“Calculation Day” means the last day of each
calendar month.

“Carrying
Charges” means,
with respect to any Distribution Date, the sum of (i) the product of (x) the
weighted average of the Class A-1 Rate, the Class A-2 Rate and the Class B Rate
for the related Interest Period and (y) the undisbursed funds (excluding
investment earnings) in the Pre-Funding Account (as of the last day of the
related Due Period) and (ii) the Indenture Trustee Fee for the related
Distribution Date, minus (iii) the amount of any investment earnings on funds
in the Pre-Funding Account which was transferred to the Interest Reserve
Account, as well as interest earnings on amounts in the Interest Reserve
Account with respect to such Distribution Date.

“Certificate”
means the Trust
Certificate (as such term is defined in the Trust Agreement), representing 100%
of the beneficial equity interest in the Trust and issued pursuant to the Trust
Agreement.

“Certificate
Register” shall
have the meaning specified in the Trust Agreement.

“Certificateholder”
shall have the
meaning specified in the Trust Agreement.

“Class” means all Notes whose form is identical
except for variation in denomination, principal amount or owner.

“Class A
Notes” means,
collectively, the Class A-1 Notes and the Class A-2 Notes.

“Class
A-1 Final Distribution Date” means the October 2010 Distribution Date.

“Class
A-1 Noteholder”
means the Person in whose name a Class A-1 Note is registered in the Note
Register, as such term is defined in the Indenture.

 

3

 

“Class A-1 Rate” means 5.36% per annum (computed on the basis
of a 360-day year of twelve 30-day months).

 “Class A-2 Final Distribution Date” means the March 2013 Distribution Date.

“Class
A-2 Noteholder”
means the Person in whose name a Class A-2 Note is registered in the Note
Register.

“Class A-2 Rate” means 5.35% per annum (computed on the basis
of a 360-day year of twelve 30-day months).

“Class B
Final Distribution Date” means the August 2014 Distribution Date.

“Class B
Noteholder” means
the Person in whose name a Class B Note is registered in the Note Register, as
such term is defined in the Indenture.

 “Class B Rate” means 5.58% per
annum (computed on the basis of a 360-day year of twelve 30-day months).

“Clearing Agency” shall have the meaning specified in the
Indenture.

“Closing Date” means May 31, 2006.

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

“Collateral” shall have the meaning specified in the “granting
clause” of the Indenture.

“Collection
Account” means a
trust account as described in Section 5.05 maintained in the name of the
Indenture Trustee and which shall be an Eligible Account.

“Computer
File” means the
computer file generated by the Servicer which provides information relating to
the Contracts and which was used by the Seller in selecting the Contracts sold
to the Trust Depositor pursuant to the Transfer and Sale Agreement (and any
Subsequent Purchase Agreement) and transferred to the Trust by the Trust
Depositor pursuant to this Agreement (and any Subsequent Transfer Agreement),
and includes the master file and the history file as well as servicing
information with respect to the Contracts.

“Contract
Assets” has the
meaning assigned in Section 2.01 (and 2.03, as applicable in the case of
Subsequent Contracts) of the Transfer and Sale Agreement.

“Contract
File” means, as
to each Contract, (a) the original copy of the Contract, including the executed
conditional sales contract or promissory note and security agreement or other
evidence of the obligation of the Obligor, (b) the original title certificate
to the Motorcycle and, where applicable, the certificate of lien recordation,
or, if such title certificate has not yet been issued, an application for such
title certificate, or other appropriate evidence of a security

 

4

 

interest
in the covered Motorcycle; (c) the assignments of the Contract; (d) the
original copy of any agreement(s) modifying the Contract including, without
limitation, any extension agreement(s) and (e) documents evidencing the existence
of physical damage insurance covering such Motorcycle.

“Contract
Rate” means, as
to any Contract, the annual rate of interest with respect to such Contract.

“Contracts” 
means the motorcycle conditional sales contracts or promissory note and
security agreements described in the List of Contracts and constituting part of
the Trust Corpus (as such list may be supplemented from time to time to reflect
transfers of Subsequent Contracts), and includes, without limitation, all
related security interests and any and all rights to receive payments which are
collected pursuant thereto after the Initial Cutoff Date or, with respect to
any Subsequent Contracts, any related Subsequent Cutoff Date, but excluding any
rights to receive payments which are collected pursuant thereto on or prior to
the Initial Cutoff Date, or with respect to any Subsequent Contracts, any
related Subsequent Cutoff Date.

“Corporate
Trust Office”
means the office of the Indenture Trustee at which at any particular time its
corporate trust business shall be principally administered, which office at the
date of the execution of this Agreement is located at the address set forth in
Section 11.04.

“Cram
Down Loss” means,
with respect to a Contract, if a court of appropriate jurisdiction in an insolvency
proceeding shall have issued an order reducing the Principal Balance of such
Contract, the amount of such reduction (with a “Cram Down
Loss”  being deemed to have
occurred on the date of issuance of such order).

“Cumulative
Loss Ratio”
means, as of any Distribution Date, the fraction (expressed as a percentage)
computed by the Servicer by dividing (i) the aggregate Net Liquidation Losses
for all Contracts since the related Cutoff Date through the end of the related
Due Period by (ii) the sum of (A) the Principal Balance of the Contracts as of
the Initial Cutoff Date plus (B) the Principal Balance of any Subsequent
Contracts as of the related Subsequent Cutoff Date plus (C) the Pre-Funded
Amount.

“Cutoff
Date” means
either or both (as the context may require) the Initial Cutoff Date and any
Subsequent Cutoff Date.

“Defaulted Contract” means a Contract with respect to which
there has occurred one or more of the following: (i) all or some portion of any
payment under the Contract is 120 days or more delinquent, (ii) repossession
(and expiration of any redemption period) of a Motorcycle securing a Contract
or (iii) the Servicer has determined in good faith that an Obligor is not
likely to resume payment under a Contract.

“Delinquency
Amount” means, as
of any Distribution Date, the Principal Balance of all Contracts that were
delinquent 60 days or more as of the end of the related Due Period (including

 

5

 

Contracts
in respect of which the related Motorcycles have been repossessed and are still
in inventory).

“Delinquent
Interest” means,
for each Contract and each Determination Date as to which the full payment due
in the related Due Period has not been paid before the 30th day after the
scheduled payment dated therefor (any such payment being “delinquent”
for purposes of this definition), all interest accrued on such Contract from
the Due Date in the Due Period one month prior to the Due Period in which the
payment is delinquent.

“Delinquency
Ratio” means, for
any Distribution Date, the fraction (expressed as a percentage) computed by
dividing (a) the Delinquency Amount during the immediately preceding Due Period
by (b) the Principal Balance of the Contracts as of the beginning of the
related Due Period.

“Delta Loan” means a loan made by the Seller pursuant
to the program designated as the Delta Program.

“Determination Date” means the fourth Business Day following
the conclusion of a Due Period during the term of this Agreement.

“Distribution
Date” means the
fifteenth day of each calendar month during the term of this Agreement, or if
such day is not a Business Day, the next Business Day, with the first such
Distribution Date hereunder being June 15, 2006.

“Due Date” means, with respect to any Contract, the
day of the month on which each scheduled payment of principal and interest is
due on such Contract, exclusive of days of grace.

“Due
Period” means a
calendar month during the term of this Agreement, and the Due Period related to
a Determination Date or Distribution Date shall be the calendar month
immediately preceding such date; provided, however,
that with respect to the Initial Determination Date or Initial Distribution
Date, the Due Period shall be the period from the Initial Cutoff Date to and
including May 31, 2006.

“Eligible
Account” means a
segregated deposit account maintained with the Indenture Trustee, acting in its
fiduciary capacity, or a depository institution or trust company organized
under the laws of the United States of America, or any of the States thereof,
or the District of Columbia, having a certificate of deposit, short-term
deposit or commercial paper rating of at least A-1+ by Standard &
Poor’s and P-1 by Moody’s.

“Eligible
Investments” mean
book-entry securities, negotiable instruments or securities represented by
instruments in bearer or registered form which evidence:

(a)           direct obligations
of, and obligations fully guaranteed as to timely payment by, the United States
of America;

 

6

 

(b)           demand deposits,
time deposits or certificates of deposit of any depository institution or trust
company incorporated under the laws of the United States of America or any
State (or any domestic branch of a foreign bank) and subject to supervision and
examination by Federal or State banking or depository institution authorities; provided, however, that at the time of the investment or
contractual commitment to invest therein, the commercial paper or other
short-term senior unsecured debt obligations (other than such obligations the
rating of which is based on the credit of a Person other than such depository
institution or trust company) thereof shall have a credit rating from the
Rating Agency in the highest investment category granted thereby;

(c)           commercial paper,
master notes, promissory notes, demand notes or other short term debt
obligations having, at the time of the investment or contractual commitment to
invest therein, a rating from the Rating Agency in the highest investment
category granted thereby;

(d)           investments in money
market funds having a rating from the Rating Agency in the highest investment
category granted thereby (including funds for which the Indenture Trustee or
the Owner Trustee or any of their respective Affiliates is investment manager
or advisor);

(e)           notes or bankers’
acceptances issued by any depository institution or trust company referred to
in clause (b);

(f)            repurchase
obligations with respect to any security that is a direct obligation of, or
fully guaranteed as to timely payment by, the United States of America or any
agency or instrumentality thereof the obligations of which are backed by the
full faith and credit of the United States of America, in either case entered
into with a depository institution or trust company (acting as principal)
described in clause (b); and

(g)           any other investment
with respect to which the Issuer or the Servicer has received written
notification from the Rating Agencies that the acquisition of such investment
as an Eligible Investment will not result in a withdrawal or downgrading of the
ratings on the Notes.

“Event of Termination” means an event specified in
Section 8.01.

“Excess Amounts” shall mean Available Monies after distributions made
in accordance with Section 7.05.

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

“Final
Distribution Date”
means the Class A-1 Final Distribution Date, the Class A-2 Final Distribution
Date or the Class B Final Distribution Date, as the case may be.

 

7

 

“First
Priority Principal Distributable Amount” means, with respect to any Distribution Date, an
amount, not less than zero, equal to the result of (a) the aggregate
outstanding principal amount of the Class A Notes as of the preceding
Distribution Date (after giving effect to any principal payments made on the
Class A Notes on that preceding Distribution Date), minus (b) the Aggregate Principal Balance at the
end of Due Period related to that Distribution Date; provided,
however, that the First Priority Principal Distributable Amount shall not
exceed the outstanding principal amount of the Class A Notes.

“Form 10-D
Disclosure Item” means with respect to any Person, any litigation
or governmental proceedings pending against such Person, or any of the Issuer,
the Seller, the Indenture Trustee, the Owner Trustee or the Servicer of such
Person, or in the case of the Owner Trustee or Indenture Trustee, a Responsible
Officer of such Person, has actual knowledge thereof, in each case that would
be material to the Noteholders.

“Form 10-K
Disclosure Item” means with respect to any Person, (a) any Form
10-D Disclosure Item, (b) any affiliations between such Person and the Seller,
the Servicer, the Trust Depositor, the Owner Trustee and the Indenture Trustee
(each, an “Item 1119
Party”), to the extent such Person, or in the case of the Owner Trustee or
Indenture Trustee, a Responsible Officer of such Person, has actual knowledge
thereof and (c) any relationships or transactions between such Person and any
Item 1119 Party that are outside the ordinary course of business or on terms
other than would be obtained in an arm’s-length transaction with an unrelated
third party, apart from the transactions contemplated under the Transaction
Documents, and that are material to the investors’ understanding of the Notes,
but only to the extent such Person, or in the case of the Owner Trustee or
Indenture Trustee, a Responsible Officer of such Person, has actual knowledge
of such relationships or transactions.

“Funding
Period” means the
period beginning on the Closing Date and ending on the first to occur of (a)
the Distribution Date on which the amount on deposit in the Pre-Funding
Account (after giving effect to any transfers therefrom in connection with the
transfer of Subsequent Contracts to the Trust on such Distribution Date) is
less than $150,000, (b) the date on which an Event of Termination occurs, (c)
the date on which an Insolvency Event occurs with respect to the Trust
Depositor and (d) the close of business on the date which is 90 days from and
including the Closing Date.

“Harley-Davidson Financial” means
Harley-Davidson Financial Services, Inc., a Delaware corporation.

“Holder” means, with respect to a (i)
Certificate, the Person in whose name such Certificate is registered in the
Certificate Register and (ii) Note, the Person in whose name such Note is
registered in the Note Register.

“Indenture” means the Indenture, dated as of the
date hereof, between the Issuer and the Indenture Trustee.

 

8

 

“Indenture
Trustee” means
the Person acting as Indenture Trustee under the Indenture, its successors in
interest and any successor trustee under the Indenture.

“Indenture
Trustee Fee”
means, with respect to any Distribution Date, one-twelfth of the product
of 0.00215% and the sum of (i) the Principal Balance of the Contracts as of the
beginning of the related Due Period and (ii) the Pre-Funded Amount as of the
beginning of such period; provided, however,
in no event shall such fee be less than $200.00 per month.

“Independent” when used with respect to any specified
Person, means such a Person who (i) is in fact independent of the Issuer, the
Trust Depositor or the Servicer, (ii) is not a director, officer or employee of
any Affiliate of the Issuer, the Trust Depositor or the Servicer, (iii) is not
a person related to any officer or director of the Issuer, the Trust Depositor
or the Servicer or any of their respective Affiliates, (iv) is not a holder
(directly or indirectly) of more than 10% of any voting securities of Issuer,
the Trust Depositor or the Servicer or any of their respective Affiliates, and
(v) is not connected with the Issuer, the Trust Depositor or the Servicer as an
officer, employee, promoter, underwriter, trustee, partner, director or person
performing similar functions.

“Initial Class A-1 Note Balance” means $450,000,000.

“Initial Class A-2 Note Balance” means $302,000,000.

“Initial Class B Note Balance” means $48,000,000.

“Initial
Contracts” means
those Contracts conveyed to the Trust on the Closing Date.

“Initial Cutoff Date” means as of the close of
business on May 12, 2006.

“Insolvency
Event” means,
with respect to a specified Person, (i) the entry of a decree or order for
relief by a court or regulatory authority having jurisdiction in respect of
such Person in an involuntary case under the federal bankruptcy laws, as now or
hereafter in effect, or any other present or future, federal or state,
bankruptcy, insolvency or similar law, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator or other similar official for such
Person or for any substantial part of its property, or ordering the winding-up
or liquidation of such Person’s affairs, and the continuance of any such decree
or order unstayed and in effect for a period of 60 consecutive days; (ii) the
commencement of an involuntary case under the federal bankruptcy laws, as now
or hereinafter in effect, or another present or future federal or state
bankruptcy, insolvency or similar law and such case is not dismissed within 60
days; or (iii) the commencement by such Person of a voluntary case under the
federal bankruptcy laws, as now or hereinafter in effect, or any other present
or future federal or state, bankruptcy, insolvency or similar law, or the
consent by such Person to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or other
similar official for such Person or for any substantial part of its property,
or the making by such Person of an assignment for the benefit of creditors or
the failure by such Person generally to pay its debts as such debts become due
or the taking of corporate action by such Person in furtherance of any the
foregoing.

 

9

 

“Interest
Period” means,
with respect to any Distribution Date, the period from and including the
fifteenth day of the month of the Distribution Date immediately preceding such
Distribution Date (or, in the case of the first Distribution Date, from and
including the Closing Date) to but excluding the fifteenth day of the month of
such Distribution Date.

“Interest
Rate” means the
Class A-1 Rate, the Class A-2 Rate or the Class B Rate, as applicable.

“Interest
Reserve Account”
means the account designated as the Interest Reserve Account in, and which is
established and maintained pursuant to, Section 7.04 hereof.

“Interest
Reserve Amount”
means, as of any date of determination, the amount on deposit in the Interest Reserve Account on such date, and as of the Closing Date
shall be $2,237,443.58.

“Investment
Earnings” means,
with respect to any Distribution Date, the investment earnings (net of losses
and investment expenses) on amounts on deposit in the Trust Accounts, other
than the Pre-Funding Account, to be deposited into the Collection Account on
such Distribution Date pursuant to Section 5.05(b).

“Issuer” means the Harley-Davidson Motorcycle Trust 2006-2.

“Late
Payment Penalty Fees” means any late payment fees paid by Obligors on Contracts after all
sums received have been allocated first to regular installments due or overdue
and all such installments are then paid in full.

“Lien” means a security interest, lien, charge,
pledge, equity or encumbrance of any kind, other than tax liens, mechanics’
liens and any liens that attach to the respective Contract by operation of law.

“Liquidated
Contract” means a
Contract with respect to which there has occurred one or more of the following:
(i) 90 days have elapsed following the date of repossession (and expiration of
any redemption period) with respect to the Motorcycle securing such Contract,
(ii) the receipt of proceeds by the Servicer from the sale of a repossessed
Motorcycle securing a Contract, (iii) the Servicer has determined in good faith
that all amounts expected to be recovered have been received with respect to
such Contract, or (iv) all or any portion of any payment is delinquent 150 days
or more.

“List of
Contracts” means
the list identifying each Contract constituting part of the Trust Corpus, which
list shall consist of the initial List of Contracts reflecting the Initial
Contracts transferred to the Trust on the Closing Date, together with any
Subsequent List of Contracts reflecting the Subsequent Contracts transferred to
the Trust on the related Subsequent Transfer Date, and which list (a)
identifies each Contract and (b) sets forth as to each Contract (i) the
Principal Balance as of the applicable Cutoff Date, (ii) the amount of monthly
payments due

 

10

 

from
the Obligor, (iii) the Contract Rate and (iv) the maturity date, and which list
(as in effect on the Closing Date) is attached to this Agreement as Exhibit H.

“Lockbox” means the Lockbox maintained by a
Lockbox Bank identified on Exhibit K
hereto.

“Lockbox
Account” means
the account maintained with the Lockbox Bank and identified on Exhibit K hereto.

“Lockbox
Agreement” means
the Fifth Amended and Restated Lockbox Administration Agreement dated as of
November 1, 2000 by and among the Lockbox Bank, the Servicer, the Trust
Depositor, Eaglemark Customer Funding Corporation-IV, The Bank of New York
(successor-in-interest to the corporate trust business of Harris Trust and
Savings Bank), BNY Midwest Trust Company, Bank One, National Association and
The Bank of New York Trust Company, National Association, with respect to the
Lockbox Account, unless such agreement shall be terminated in accordance with
its terms, in which event “Lockbox Agreement”
shall mean such other agreement, in form and substance acceptable to the
above-described parties.

“Lockbox
Bank” means the
financial institution maintaining the Lockbox Account and identified on Exhibit K hereto or any successor thereto.

“Loss
Ratio” means, for
any Distribution Date, the fraction (expressed as a percentage) derived by
dividing (x) Net Liquidation Losses for all Contracts that became Liquidated
Contracts during the immediately preceding Due Period multiplied by twelve by
(y) the outstanding Principal Balances of all Contracts as of the beginning of
the Due Period.

“Mandatory
Redemption” means
the prepayment, in part, made to the Noteholders without premium made on the
Distribution Date on or immediately following the last day of the Funding
Period in the event that any amount remains on deposit in the Pre-Funding
Account after giving effect to the acquisition of all Subsequent Contracts,
including any such acquisition on such date.

“Mandatory
Redemption Subaccount” means the subaccount of the Note Distribution Account into which deposits
from the Pre-Funding Account for any Mandatory Redemption are made.

“Modified
Required Holders”
means (i) prior to the payment in full of the Class A Notes outstanding, Class
A-1 Noteholders and/or Class A-2 Noteholders evidencing at least 66 2/3% of the
aggregate outstanding principal balance of the Class A Notes and (ii) from and
after the payment in full of the Class A Notes outstanding, Class B Noteholders
evidencing at least 66 2/3% of the aggregate outstanding principal balance of
the Class B Notes.

“Monthly Report” shall have the meaning specified in Section
9.05.

 

11

 

“Monthly
Servicing Fee”
means, as to any Distribution Date, one-twelfth of the product of 1.00%
and the Principal Balance of the Contracts as of the beginning of the related
Due Period or, with respect to the first Distribution Date after the Closing
Date, as of the Initial Cutoff Date.

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

“Motorcycle” means a motorcycle manufactured by a
subsidiary of Harley-Davidson, Inc. (or in certain limited instances
Buell or certain other manufacturers) securing a Contract.

“Net
Liquidation Losses”
means, as of any Distribution Date, with respect to all Liquidated Contracts on
an aggregate basis, the amount, if any, by which (a) the outstanding Principal
Balance of all Liquidated Contracts exceeds (b) the Net Liquidation Proceeds
for such Liquidated Contracts.

“Net Liquidation Proceeds” means, as to any Liquidated Contract, the
proceeds realized on the sale or other disposition of the related Motorcycle,
including proceeds realized on the repurchase of such Motorcycle by the
originating dealer for breach of warranties, and the proceeds of any insurance
relating to such Motorcycle, after payment of all reasonable expenses incurred
thereby, together, in all instances, with the expected or actual proceeds of
any recourse rights relating to such Contract as well as any post-disposition
proceeds or other amounts in respect of a Liquidated Contract received by the
Servicer.

“Noteholder” shall have the meaning specified in the Indenture.

“Note
Depository Agreement” shall have the meaning specified in the Indenture.

“Note
Distributable Amount” means, with respect to any Distribution Date, the sum of the Note
Principal Distributable Amount and the Note Interest Distributable Amount for
such Distribution Date.

“Note
Distribution Account” means the account established and maintained as such pursuant to
Section 5.05.

“Note
Interest Carryover Shortfall” means, with respect to any Distribution Date and a
Class of Notes, the excess, if any, of the sum of the Note Interest
Distributable Amount for such Class for the immediately preceding Distribution
Date plus any outstanding Note Interest Carryover Shortfall for such Class on
such preceding Distribution Date, over the amount in respect of interest that
is actually deposited in the Note Distribution Account with respect to such
Class on such preceding Distribution Date, plus, interest on such excess to the
extent permitted by applicable law, at the related Interest Rate for the
related Interest Period.

“Note
Interest Distributable Amount” means, with respect to any Distribution Date and a
Class of Notes, the sum of the Note Monthly Interest Distributable Amount and
the Note Interest Carryover Shortfall for such Class of Notes with respect to
such Distribution Date.

 

12

 

“Note
Monthly Interest Distributable Amount” means, with respect to any Distribution Date for any
Class of Notes, interest accrued from and including the fifteenth day of the
month of the preceding calendar month to, but excluding, the fifteenth day of
the calendar month in which such Distribution Date occurs (or in the case of
the first Distribution Date, interest accrued from and including the Closing
Date to but excluding such Distribution Date) at the related Interest Rate for
such Class of Notes on the outstanding principal amount of the Notes of such
Class on the immediately preceding Distribution Date, after giving effect to
all payments of principal to Noteholders of such Class on or prior to such
preceding Distribution Date (or, in the case of the first Distribution Date, on
the original principal amount of such Class of Notes).

“Note
Pool Factor”
means with respect to any Class of Notes as of the close of business on any
Distribution Date, a seven-digit decimal figure equal to the outstanding principal
amount of such Class of Notes (after giving effect to any reductions thereof to
be made on such Distribution Date) divided by the original outstanding
principal amount of such Class of Notes.

“Note
Principal Carryover Shortfall” means, as of the close of any Distribution Date, the
excess of the Note Principal Distributable Amount with respect to such
Distribution Date over the amount in respect of principal that is actually
deposited in the Note Distribution Account on such Distribution Date.

“Note Principal
Distributable Amount” means, with respect to any Distribution Date, the sum of (x) the
Principal Distributable Amount with respect to such Distribution Date and  (y) the Note Principal Carryover Shortfall as
of the close of the immediately preceding Distribution Date, minus the First
Priority Distributable Amount distributed on such Distribution Date; provided, however, that the Note Principal Distributable
Amount shall not exceed the outstanding principal amount of the Notes; and provided, further, that the Note Principal Distributable
Amount (i) on the Class A-1 Final Distribution Date shall not be less than the
amount that is necessary (after giving effect to other amounts to be deposited
in the Note Distribution Account for payment on the Class A-1 Notes on such
Distribution Date and allocable to principal) to reduce the outstanding
principal amount of the Class A-1 Notes to zero, (ii) on the Class A-2 Final
Distribution Date shall not be less than the amount that is necessary (after
giving effect to other amounts to be deposited in the Note Distribution Account
for payment on the Class A-2 Notes on such Distribution Date and allocable to
principal) to reduce the outstanding principal amount of the Class A-2 Notes to
zero, and (iii) on the Class B Final Distribution Date shall not be less than
the amount that is necessary (after giving effect to the other amounts to be
deposited in the Note Distribution Account for payment on the Class B Notes on
such Distribution Date and allocable to principal) to reduce the outstanding
principal amount on the Class B notes to zero.

“Notes” means
the Class A-1 Notes, the Class A-2 Notes and the Class B Notes, in each case as
executed and authenticated in accordance with the Indenture.

“Obligee” means the Person to whom an Obligor is
indebted under a Contract.

 

13

 

“Obligor” means a Motorcycle buyer or other person
who owes payments under a Contract.

“Officer’s
Certificate”
means a certificate signed by the Chairman, the President, a Vice President,
the Treasurer, an Assistant Treasurer, the Controller, an Assistant Controller,
the Secretary or an Assistant Secretary of any Person delivering such
certificate and delivered to the Person to whom such certificate is required to
be delivered, including any certificate delivered under any of the Transaction
Documents required to be executed by a Servicing Officer.  In the case of an Officer’s Certificate of
the Servicer, at least one of the signing officers must be a Servicing Officer.  Unless otherwise specified, any reference
herein to an Officer’s Certificate shall be to an Officers’ Certificate of the
Servicer.

“Opinion
of Counsel” means
a written opinion of counsel (who may be counsel to the Trust Depositor or the
Servicer) acceptable to the Indenture Trustee or the Owner Trustee, as the case
may be.

“Outstanding
Amount” shall
have the meaning specified in the Indenture.

“Owner
Trustee” means
the Person acting, not in its individual capacity, but solely  as Owner Trustee under the Trust Agreement,
its successors in interest and any successor owner trustee under the Trust
Agreement.

“Paying
Agent” means as
described in Section 1.01 of  the
Indenture and Section 3.10 of the Trust Agreement.

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

“Pool
Balance” means as
of any date, the Principal Balance of Contracts as of the close of business on
such date.

“Pre-Funded
Amount” means as
of any date, the amount on deposit in the Pre-Funding Account at the
close of business on such date.

“Pre-Funding
Account” means
the account designated as the Pre-Funding Account in, and which is
established and maintained pursuant to Section 7.07.

“Principal
Balance” means
(a) with respect to any Contract as of any date, an amount equal to the unpaid
principal balance of such Contract as of the close of business on the Initial
Cutoff Date or related Subsequent Cutoff Date, as applicable, reduced by the
sum of (x) all payments received by the Servicer as of such date allocable to
principal and (y) any Cram Down Loss in respect of such Contract; provided, however, that (i) if (x) a Contract is reacquired
by the Seller pursuant to Section 5.01 of the Transfer and Sale Agreement and
Section 7.08 hereof

 

14

 

because
of a breach of representation or warranty or is purchased by the Servicer pursuant
to Section 7.11 hereof, or if (y) the Servicer gives notice of its intent to
purchase the Contracts in connection with an optional termination of the Trust
pursuant to Section 7.10 hereof, in each case the Principal Balance of such
Contract or Contracts shall be deemed as of the related Determination Date to
be zero for the Due Period in which such event occurs and for each Due Period
thereafter and (ii) from and after the Due Period in which a Contract becomes a
Liquidated Contract, the Principal Balance of such Contract shall be deemed to
be zero; and (b) where the context requires, the aggregate of the Principal
Balances described in clause (a) for all such Contracts.

“Principal
Distributable Amount” means, with respect to any Distribution Date, the Aggregate Principal
Balance Decline for such Distribution Date.

“Prospectus” means the Base Prospectus together with the
Supplement.

“Purchase Price”
means, with respect to a Contract to be reacquired or purchased hereunder as of
the last day of any Due Period an amount equal to (a) the Principal Balance of
such Contract as of such day, plus (b) accrued and unpaid interest at the
Contract Rate on such Contract through the end of such Due Period.

“Qualified
Eligible Investments” means Eligible Investments acquired by the Indenture Trustee in its
name and in its capacity as Indenture Trustee, which are held by the Indenture
Trustee in any Trust Account and with respect to which (a) the Indenture
Trustee has noted its interest therein on its books and records, and (b) the
Indenture Trustee has purchased such investments for value without notice of
any adverse claim thereto (and, if such investments are securities or other
financial assets or interests therein, within the meaning of Section 8-102 of
the UCC as enacted in Illinois, without acting in collusion with a securities
intermediary in violating such securities intermediary’s obligations to
entitlement holders in such assets, under Section 8-504 of such UCC, to
maintain a sufficient quantity of such assets in favor of such entitlement
holders), and (c) either (i) such investments are in the possession, or are
under the control, of the Indenture Trustee, or (ii) such investments, (A) if
certificated securities and in bearer form, have been delivered to the
Indenture Trustee, or in registered form, have been delivered to the Indenture
Trustee and either registered by the issuer thereof in the name of the
Indenture Trustee or endorsed by effective endorsement to the Indenture Trustee
or in blank; (B) if uncertificated securities, the ownership of which has been
registered to the Indenture Trustee on the books of the issuer thereof (or
another person, other than a securities intermediary, either becomes the
registered owner of the uncertified security on behalf of the Indenture Trustee
or, having previously become the registered owner, acknowledges that it holds
for the Indenture Trustee); or (C) if securities entitlements (within the
meaning of Section 8-102 of the UCC as enacted in Illinois) representing interests
in securities or other financial assets (or interests therein) held by a
securities intermediary (within the meaning of said Section 8-102), a
securities intermediary indicates by book entry that a security or other
financial asset has been credited to the Indenture Trustee’s securities account
with such securities intermediary.  Any
such Qualified Eligible Investment may be purchased by or through the Indenture
Trustee or any of its affiliates.

 

15

 

“Rating
Agency” means
each of Moody’s and Standard & Poor’s, so long as such Persons maintain a
rating on the Notes; and if either Moody’s or Standard & Poor’s no longer
maintains a rating on the Notes, such other nationally recognized statistical
rating organization selected by the Trust Depositor.

“Record
Date” means, with
respect to any Distribution Date, the close of business on the day immediately
preceding such date.

“Regulation
AB” means Subpart 229.1100 - Asset Backed Securities (Regulation AB), 17
C.F.R. Sections 229.1100-229.1123, as amended from time to time and as
clarified and interpreted by the Securities and Exchange Commission or its
staff from time to time.

“Reimbursement Amount”
has the meaning assigned in Section 7.03 hereof.

“Required
Holders” means
(i) prior to the payment in full of the Class A Notes outstanding, Class A-1
Noteholders and Class A-2 Noteholders evidencing more than 50% of the aggregate
outstanding principal balance of the Class A Notes and (ii) from and after the
payment in full of the Class A Notes outstanding, Class B Noteholders
evidencing more than 50% of the aggregate outstanding principal balance of the
Class B Notes.

“Reportable Event” means any event required
to be reported on Form 8-K.

“Reserve
Fund” means the
Reserve Fund established and maintained pursuant to Section 7.06 hereof.

“Reserve Fund Initial Deposit” means $3,774,564.50.

“Reserve
Fund Deposits”
means all moneys deposited in the Reserve Fund from time to time including, but
not limited to, the Reserve Fund Initial Deposit as well as any monies
deposited therein pursuant to Section 7.05(a), all investments and
reinvestments thereof, earnings thereon, and proceeds of the foregoing, whether
now or hereafter existing.

“Reserve
Fund Trigger Event”
means the occurrence with respect to any Distribution Date (i) the Average
Delinquency Ratio for such Distribution Date is equal to or greater than (a)
2.50% with respect to any Distribution Date which occurs within the period from
the Closing Date to, and inclusive of, the first anniversary of the Closing
Date, (b) 3.00% with respect to any Distribution Date which occurs within the
period from the day after the first anniversary of the Closing Date to, and
inclusive of, the second anniversary of the Closing Date, or (c) 3.50% with
respect to any Distribution Date which occurs within the period from the day
after the second anniversary of the Closing Date to, and inclusive of, the
third anniversary of the Closing Date or (d) 4.00% with respect to any
Distribution Date occurring after the third anniversary of the Closing Date;
(ii) the Average Loss Ratio for such Distribution Date is equal to or greater
than (a) 3.50% with respect to any Distribution Date which occurs within the
period from the Closing Date to, and inclusive of, the second anniversary of
the Closing Date or (b) 3.25% with respect to any Distribution Date which
occurs following the second anniversary of the Closing Date;  or

 

16

 

(iii)
the Cumulative Loss Ratio for such Distribution Date is equal to or greater
than (a) 1.75% with respect to any Distribution Date which occurs within the
period from the Closing Date to, and inclusive of, the first anniversary of the
Closing Date, (b) 2.50% with respect to any Distribution Date which occurs
within the period from the day after the first anniversary of the Closing Date
to, and inclusive of, the second anniversary of the Closing Date, (c) 3.00%
with respect to any Distribution Date which occurs within the period from the
day after the second anniversary of the Closing Date to, and inclusive of, the
third anniversary of the Closing Date, or (d) 3.25% with respect to any
Distribution Date occurring after the third anniversary of the Closing Date.

A Reserve Fund
Trigger Event shall be deemed to have terminated with respect to a Distribution
Date if no Reserve Fund Trigger Event shall exist with respect to three
consecutive Distribution Dates (inclusive of the respective Distribution Date).

“Responsible
Officer” means,
with respect to the Owner Trustee, any officer in its Corporate Trust
Administration Department (or any similar group of a successor Owner Trustee)
and with respect to the Indenture Trustee, the chairman and any vice chairman
of the board of directors, the president, the chairman and vice chairman of any
executive committee of the board of directors, every vice president, assistant
vice president, the secretary, every assistant secretary, cashier or any
assistant cashier, controller or assistant controller, the treasurer, every
assistant treasurer, every trust officer, assistant trust officer and every
other authorized officer or assistant officer of the Indenture Trustee
customarily performing functions similar to those performed by persons who at
the time shall be such officers, respectively, or to whom a corporate trust
matter is referred because of knowledge of, familiarity with, and authority to
act with respect to a particular matter.

“Securities” means the Notes, or any of them.

“Securities Act” means the
Securities Act of 1933, as amended.

“Securityholders” means the Holders of the Notes.

“Seller” means Harley-Davidson Credit Corp., a
Nevada corporation, or its successor, in its capacity as Seller of Contract
Assets under the Transfer and Sale Agreement and any Subsequent Purchase
Agreement.

“Servicer” means Harley-Davidson Credit Corp., a
Nevada corporation, or its successor, until any Service Transfer hereunder and
thereafter means the Successor Servicer appointed pursuant to Article VIII
below with respect to the duties and obligations required of the Servicer under
this Agreement.

“Service Transfer” has the meaning assigned in
Section 8.03(a).

“Servicing
Criteria” means the “servicing criteria” set forth in Item 1122(d)
of Regulation AB.

 

17

 

“Servicing
Fee” means, on
any Determination Date, the sum of (a) the Monthly Servicing Fee payable on the
related Distribution Date, (b) Late Payment Penalty Fees received by the
Servicer during the related Due Period, and (c) extension fees received by the
Servicer during the related Due Period.

“Servicing
Officer” means
any officer of the Servicer involved in, or responsible for, the administration
and servicing of Contracts whose name appears on a list of servicing officers
appearing in an Officer’s Certificate furnished to the Indenture Trustee by the
Servicer, as the same may be amended from time to time.

“Shortfall” means, with respect to a Distribution
Date, an amount equal to the excess (if any) of (a) the sum of the amounts
payable pursuant to (1) clauses (v) through (viii) of Section 7.05(a), (2)
clauses (i) through (iv) of Section 7.05(b) or (3) clauses (i) through (iv) of
Section 7.05(c), as applicable, over (b) Available Monies for such Distribution
Date minus the amounts payable pursuant to clauses (i) through (iv) of Section
7.05(a) on such Distribution Date.

“Solvent” means, as to any Person at any time,
that (a) the fair value of the property of such Person is greater than the
amount of such Person’s liabilities (including disputed, contingent and unliquidated
liabilities) as such value is established and liabilities evaluated for
purposes of Section 101(31) of the Bankruptcy Code; (b) the present fair
saleable value of the property of such Person in an orderly liquidation of such
Person is not less than the amount that will be required to pay the probable
liability of such Person on its debts as they become absolute and matured; (c)
such Person is able to realize upon its property and pay its debts and other
liabilities (including disputed, contingent and unliquidated liabilities) as
they mature in the normal course of business; (d) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond such
Person’s ability to pay as such debts and liabilities mature; and (e) such
Person is not engaged in business or a transaction, and is not about to engage
in a business or a transaction, for which such Person’s property would
constitute unreasonably small capital.

“Specified
Reserve Fund Balance” means, with respect to any Distribution Date, an amount equal to the
greater of:

(a)           2.00% of the Principal Balance of the
Contracts in the Trust as of the last day of the related Due Period; provided, however, in the event a Reserve Fund Trigger Event
occurs and is continuing for three consecutive Distribution Dates (inclusive of
the respective Distribution Date), the Specified Reserve Fund Balance shall be
equal to 6.00% of the Principal Balance of the Contracts in the Trust as of the
last day of the immediately preceding Due Period; and

(b)           1.00% of the aggregate of the Initial
Class A-1 Note Balance, Initial Class A-2 Note Balance and Initial Class B Note
Balance;

provided,
however, in no
event shall the Specified Reserve Fund Balance be greater than the aggregate
outstanding principal balance of the Securities.  As of any Distribution Date, the

 

18

 

amount
of funds actually on deposit in the Reserve Fund may, in certain circumstances,
be less than the Specified Reserve Fund Balance.

“Standard
& Poor’s”
means Standard & Poor’s Ratings Services, a division of The McGraw Hill
Companies, Inc., or any successor thereto.

“Subsequent
Contracts” means
all Contracts transferred to the Trust pursuant to Section 2.03.

“Subsequent
Cutoff Date”
means the date specified as such for Subsequent Contracts in the related
Subsequent Transfer Agreement.

“Subsequent
List of Contracts”
means a list, in the form of the initial List of Contracts delivered on the
Closing Date, but listing each Subsequent Contract transferred to the Trust
pursuant to the related Subsequent Transfer Agreement.

“Subsequent
Purchase Agreement”
means, with respect to any Subsequent Contracts, the agreement between the
Seller and the Trust Depositor pursuant to which the Seller will transfer the
Subsequent Contracts to the Trust Depositor, the form of which is attached to
the Transfer and Sale Agreement as Exhibit C.

“Subsequent
Reserve Fund Amount”
means the amount on each Subsequent Transfer Date equal to 0.75% of the
aggregate balance of the Subsequent Contracts conveyed to the Trust.

“Subsequent
Transfer Agreement”
means the agreement described in Section 2.03(b) hereof.

“Subsequent
Transfer Date”
means any date during the Funding Period on which Subsequent Contracts are
transferred to the Trust.

“Successor Servicer” means a servicer described
in Section 8.03(b).

“Supplement” means the Prospectus Supplement dated May 23, 2006.

“Transaction
Documents” means
this Agreement, the Transfer and Sale Agreement, the Lockbox Agreement, the
Indenture, the Trust Agreement, the Administration Agreement, the Note
Depository Agreement, any Subsequent Transfer Agreement and any Subsequent
Purchase Agreement.

“Transfer
and Sale Agreement”
means the Transfer and Sale Agreement dated as of the date hereof by and
between the Seller and the Trust Depositor, as amended, supplemented or
otherwise modified from time to time.

“Trust” means the trust created by the Trust
Agreement, comprised of the Trust Corpus.

 

19

 

“Trust
Accounts” means,
collectively, the Collection Account, the Pre-Funding Account, the Note
Distribution Account, the Reserve Fund and the Interest Reserve Account, or any
of them.

“Trust
Account Property”
means the Trust Accounts, all amounts and investments held from time to time in
any Trust Account (whether in the form of deposit accounts, physical property,
book-entry securities, uncertificated securities or otherwise), including the
Reserve Fund Initial Deposit, and all proceeds of the foregoing.

“Trust
Agreement” means
the Trust Agreement, dated as of May 2, 2006, between the Trust Depositor and
the Owner Trustee.

“Trust
Corpus” has the
meaning given to such term in Section 2.01(a) hereof (and in Section 2.03(a)
hereof in respect of Subsequent Contracts and related assets transferred to the
Trust pursuant to Subsequent Transfer Agreements).

“Trust
Depositor” has
the meaning assigned such term in the preamble hereunder or any successor
thereto.

“Trust Estate” shall have the meaning specified in the Trust
Agreement.

“Trustees” means the Owner Trustee and the Indenture Trustee.

“UCC” means the Uniform Commercial Code as in
effect on the date hereof and from time to time in the State of
Illinois, provided that if by reason of mandatory provisions of law, the
perfection or the effect of perfection or non-perfection or priority of the security
interests in any collateral or the availability of any remedy hereunder is
governed by the Uniform Commercial Code as in effect on or after the date
hereof in any other jurisdiction, “UCC” means the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such perfection or effect of perfection or
non-perfection or priority or availability of such remedy.

“Uncollectible
Advance” means
with respect to any Determination Date and any Contract, the amount, if any,
advanced by the Servicer pursuant to Section 7.03  which the Servicer has as of such
Determination Date determined in good faith will not be ultimately recoverable
by the Servicer from insurance policies on the related Motorcycle, the related
Obligor or out of Net Liquidation Proceeds with respect to such Contract.  The determination by the Servicer that it has
made an Uncollectible Advance, or, that any Advance proposed to be made would
be an Uncollectible Advance, shall be evidenced by an Officer’s Certificate
delivered to the Trustees.

“Underwriters” means J.P. Morgan Securities Inc., ABN
AMRO Incorporated, BNP Paribas Securities Corp., Citigroup Global Markets Inc.
and Wachovia Capital Markets, LLC.

 

20

 

“Underwriting
Agreement” means
the Underwriting Agreement, dated May 23, 2006, by and among the Trust
Depositor, the Seller and the Underwriters.

“United States” means the United States of America.

“Vice
President” of any
Person means any vice president of such Person, whether or not designated by a
number or words before or after the title “Vice President” who
is a duly elected officer of such Person.

“WTC” means
Wilmington Trust Company, in its individual capacity.

Section 1.02.               Usage of Terms. 
With respect to all terms in this Agreement, the singular includes the
plural and the plural the singular; words importing any gender include the
other genders; references to “writing” include printing, typing, lithography
and other means of reproducing words in a visible form; references to agreements
and other contractual instruments include all amendments, modifications and
supplements thereto or any changes therein entered into in accordance with
their respective terms and not prohibited by this Agreement; references to
Persons include their permitted successors and assigns; and the term “including”
means “including without limitation.”

Section 1.03.               Section References. 
All section references, unless otherwise indicated, shall be to Sections
in this Agreement.

Section 1.04.               Calculations. 
Except as otherwise provided herein, all interest rate and basis point
calculations hereunder will be made on the basis of a 360-day year and twelve
30-day months and will be carried out to at least three decimal places.

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

ARTICLE TWO

 

TRANSFER OF CONTRACTS

 

Section
2.01.               Closing. 
(a)  On the Closing Date, the
Trust Depositor shall transfer, assign, set over and otherwise convey to the
Trust by execution of an assignment substantially in the form of Exhibit A hereto, without recourse other than as expressly
provided herein, (i) all the right, title and interest of the Trust Depositor
in and to the Initial Contracts listed on the initial List of Contracts
delivered on the Closing Date (including, without limitation, all security
interests and all rights to receive payments which are collected pursuant
thereto after the Initial Cutoff Date, including any liquidation proceeds
therefrom, but excluding any rights to receive payments which were collected
pursuant thereto on or prior to the Initial Cutoff Date), (ii) all rights of
the Trust Depositor under any physical damage or other individual insurance
policy

 

21

 

(and rights under a “forced placed” policy, if any), any debt insurance policy or
any debt cancellation agreement relating to any such Contract, an Obligor or a
Motorcycle securing such Contract, (iii) all security interests in each such
Motorcycle, (iv) all documents contained in the related Contract Files, (v) all
rights (but not the obligations) of the Trust Depositor under any related
motorcycle dealer agreements between dealers (i.e., the originators of certain Contracts)
and the Seller, (vi) all rights of the Trust Depositor in the Lockbox, the
Lockbox Account and the related Lockbox Agreement to the extent they relate to
the Contracts, (vii) all rights (but not the obligations) of the Trust
Depositor under the Transfer and Sale Agreement, including but not limited to
the Trust Depositor’s rights under Article V thereof, (viii) the remittances,
deposits and payments made into the Trust Accounts from time to time and
amounts in the Trust Accounts from time to time (and any investments of such
amounts), (ix) all rights of the Trust Depositor to certain rebates of premiums
and other amounts relating to insurance policies, debt cancellation agreements,
extended service contracts or other repair agreements and other items financed
under such Contracts and (x) all proceeds and products of the foregoing (the
property in clauses (i)-(x) above, being the “Trust
Corpus”).  Although the Trust
Depositor and the Owner Trustee agree that such transfer is intended to be a
transfer of ownership of the Trust Corpus, rather than the granting of a
security interest to secure a borrowing, and that the Trust Corpus shall not be
property of the Trust Depositor, in the event such transfer is deemed to be of
a mere security interest to secure a borrowing, the Trust Depositor shall be
deemed to have granted the Trust a perfected first priority security interest
in such Trust Corpus and this Agreement shall constitute a security agreement
under applicable law.

Section
2.02.               Conditions to the Closing. 
On or before the Closing Date, the Trust Depositor shall deliver or
cause to be delivered the following documents to the Owner Trustee and the
Indenture Trustee:

(a)           The initial List of
Contracts, certified by the Chairman of the Board, President or any Vice
President of the Trust Depositor, together with an assignment substantially in
the form of Exhibit A hereto.

(b)           A certificate of an
officer of the Seller substantially in the form of Exhibit B
to the Transfer and Sale Agreement and of an officer of the Trust Depositor
substantially in the form of Exhibit B
hereto.

(c)           Opinions of counsel
for the Seller and the Trust Depositor in form and substance reasonably
satisfactory to the Underwriters (and including as an addressee thereof each
Rating Agency).

(d)           A letter or letters
from Ernst & Young LLP, or another nationally recognized accounting firm,
addressed to the Seller and the Underwriters and stating that such firm has
reviewed a sample of the Initial Contracts and performed specific procedures
for such sample with respect to certain contract terms and which identifies
those Initial Contracts which do not conform.

 

22

(e)           Copies of resolutions of the Board of
Directors of each of the Seller/Servicer and the Trust Depositor or of the
Executive Committee of the Board of Directors of each of the Seller/Servicer
and the Trust Depositor approving the execution, delivery and performance of
this Agreement and the other Transaction Documents to which any of them is a
party, as applicable, and the transactions contemplated hereunder and
thereunder, certified in each case by the Secretary or an Assistant Secretary
of the Seller/Servicer and the Trust Depositor.

 

(f)            Officially
certified, recent evidence of due incorporation and good standing of each of
the Seller and the Trust Depositor under the laws of Nevada.

(g)           Evidence of proper
filing with the appropriate office in Nevada of a UCC financing statement
naming the Seller, as debtor, naming the Trust Depositor as assignor secured
party (and the Trust as secured party) and identifying the Contract Assets as
collateral; and evidence of proper filing with the appropriate office in Nevada
of a UCC financing statement naming the Trust Depositor, as debtor, naming the
Trust as assignor secured party (and the Indenture Trustee as secured party)
and identifying the Trust Corpus as collateral; and evidence of proper filing
with the appropriate office in Delaware of a UCC financing statement naming the
Trust, as debtor, and naming the Indenture Trustee, as secured party and
identifying the Collateral as collateral.

(h)           An Officer’s
Certificate listing the Servicer’s Servicing Officers.

(i)            Evidence of deposit
in the Collection Account of all funds received with respect to the Initial
Contracts after the Initial Cutoff Date to the Closing Date, together with an
Officer’s Certificate from the Trust Depositor to the effect that such amount
is correct.

(j)            The Officer’s
Certificate of the Seller specified in Section 2.02(h) of the Transfer and Sale
Agreement.

(k)           Evidence of deposit
in the Reserve Fund of the Reserve Fund Initial Deposit by the Owner Trustee.

(l)            A fully executed
Transfer and Sale Agreement.

(m)          A fully executed
Trust Agreement.

(n)           A fully executed
Administration Agreement.

(o)           A fully executed
Indenture.

Section 2.03.               Conveyance of Subsequent
Contracts.  (a) Subject to the conditions set forth in
paragraph (b) below, the Trust Depositor shall transfer, assign, set over and
otherwise convey to the Trust, without recourse other than as expressly provided
herein and therein, (i) all

 

23

 

the right, title and
interest of the Trust Depositor in and to the Subsequent Contracts listed on
the Subsequent List of Contracts (including, without limitation, all security
interests and all rights to receive payments which are collected pursuant
thereto after the related Subsequent Cutoff Date, including any liquidation
proceeds therefrom, but excluding any rights to receive payments which were
collected pursuant thereto on or prior to such Subsequent Cutoff Date), (ii)
all rights of the Trust Depositor under any physical damage or other individual
insurance policy (including a “forced placed”
policy, if any), any debt insurance policy or any debt cancellation agreement
relating to any such Subsequent Contract, an Obligor or a Motorcycle securing
such Subsequent Contract, (iii) all security interests in each such Motorcycle,
(iv) all documents contained in the related Contract Files, (v) all rights (but
not the obligations) of the Trust Depositor under any related motorcycle dealer
agreements between dealers (i.e., the originators of certain Subsequent
Contracts) and the Seller, (vi) all rights of the Trust Depositor in the
Lockbox, the Lockbox Account and the related Lockbox Agreement to the extent
they relate to such Subsequent Contracts, (vii) all rights (but not the
obligations) of the Trust Depositor under the Transfer and Sale Agreement related
to such Subsequent Contracts (to the extent not already conveyed under Section
2.01(a)), including but not limited to the Trust Depositor’s related rights
under Article V thereof, as well as all rights, but not the obligations, of the
Trust Depositor under the Subsequent Purchase Agreement related to such
Subsequent Contracts, (viii) the remittances, deposits and payments made into
the Trust Accounts from time to time and amounts in the Trust Accounts from
time to time related to such Subsequent Contracts (to the extent not already
conveyed under Section 2.01(a)) (and any investments of such amounts), (ix) all
rights of the Trust Depositor to certain rebates of premiums and other amounts
relating to insurance policies, debt cancellation agreements, extended service
contracts or other repair agreements and other items financed under such
Subsequent Contracts and (x) all proceeds and products of the foregoing (the
property in clauses (i)-(x) above, upon such transfer, becoming part of
the “Trust Corpus”).  Although the Trust Depositor and the Owner
Trustee agree that such transfer is intended to be a transfer of ownership,
rather than the granting of a security interest to secure a borrowing, and that
the Trust Corpus following such transfer shall not be property of the Trust
Depositor, in the event such transfer is deemed to be of a mere security
interest to secure a borrowing, the Trust Depositor shall be deemed to have
granted the Owner Trustee for the benefit of the Trust a perfected first
priority security interest in such Trust Corpus and this Agreement shall
constitute a security agreement under applicable law.

(b)           The Trust Depositor shall transfer to
the Trust the Subsequent Contracts and the other property and rights related
thereto described in paragraph (a) above only upon the satisfaction of each of
the following conditions on or prior to the related Subsequent Transfer Date:

(i)            The Trust Depositor
shall have provided the Owner Trustee, the Indenture Trustee, the Underwriters
and the Rating Agencies with a timely Addition Notice and shall have provided
any information reasonably requested by any of the foregoing with respect to
the Subsequent Contracts;

(ii)           the Funding Period
shall not have terminated;

 

24

 

(iii)          the Trust Depositor
shall have delivered to the Owner Trustee a duly executed written assignment
(including an acceptance by the Owner Trustee) in substantially the form of Exhibit L hereto (the “Subsequent Transfer
Agreement”), which shall include a Subsequent List of Contracts
listing the Subsequent Contracts;

(iv)          the Trust Depositor
shall have deposited or caused to be deposited in the Collection Account all
collections received with respect to the Subsequent Contracts after the related
Subsequent Cutoff Date;

(v)           as of each
Subsequent Transfer Date, neither the Seller nor the Trust Depositor was
insolvent nor will either of them have been made insolvent by such transfer nor
is either of them aware of any pending insolvency;

(vi)          the applicable
Subsequent Reserve Fund Amount for such Subsequent Transfer Date shall have
been deposited by the Indenture Trustee from the Pre-Funding Account to the
Reserve Fund;

(vii)         each Rating Agency
shall have notified the Trust Depositor, the Owner Trustee and the Indenture
Trustee that following such transfer the Class A-1 Notes and Class A-2 Notes
will be rated in the highest rating category by such Rating Agency and the
Class B Notes will be rated at least its rating as of the Closing Date by
Standard & Poor’s and Moody’s;

(viii)        such addition will
not result in a material adverse tax consequence to the Trust or the
Certificateholder as evidenced by an Opinion of Counsel to be delivered by the
Trust Depositor to the Owner Trustee, Indenture Trustee, the Rating Agencies
and the Underwriters;

(ix)           the Trust Depositor
shall have confirmed the satisfaction of each condition precedent specified in
this paragraph (b);

(x)            the Trust Depositor
shall have delivered to the Rating Agencies and the Underwriters one or more
opinions of counsel (or bring-downs of opinions of counsel delivered on the
Closing Date) with respect to the transfer of the Subsequent Contracts
substantially in the form of the opinions of counsel delivered to such Persons
on the Closing Date;

(xi)           no selection
procedures believed by the Trust Depositor to be adverse to the interests of
the Noteholders shall have been utilized in selecting the Subsequent Contracts;

(xii)          the Trust Depositor shall have
delivered to the Rating Agencies evidence that (A) the weighted average
contract rate of the Contracts collectively, following the transfer of the
Subsequent Contracts, is not less than 11.71% and (B) that the weighted

 

25

 

average calculated
remaining term to maturity of the Contracts collectively, following the
transfer of the Subsequent Contracts, does not exceed 76 months;

(xiii)         each of the
representations and warranties made by the Seller pursuant to Section 3.01
of the Transfer and Sale Agreement with respect to the Subsequent Contracts
shall be true and correct as of the related Subsequent Transfer Date, and the
Seller shall have performed all obligations to be performed by it hereunder on
or prior to such Subsequent Transfer Date;

(xiv)        the Seller or the
Servicer shall, at its own expense, on or prior to the Subsequent Transfer Date
indicate in its Computer File that the Subsequent Contracts identified on the
Subsequent List of Contracts in the Subsequent Transfer Agreement have been
transferred to the Issuer pursuant to this Agreement and the Transfer and Sale
Agreement; and

(xv)         the Seller shall have
taken any action required to maintain the first perfected ownership interest of
the Issuer in the Trust Estate and the first perfected security interest of the
Indenture Trustee in the Collateral.

(c)           The Trust Depositor covenants to
transfer (at or prior to the end of the Funding Period) to the Trust pursuant
thereto Subsequent Contracts with an aggregate Principal Balance equal to
$296,724,733.64; provided, however, that in
complying with such covenant, the Trust Depositor agrees to make no more than
one separate transfer of Subsequent Contracts per monthly period (as measured
by the corresponding Distribution Dates). 
In the event that the Trust Depositor shall fail to deliver and transfer
to the Trust any or all of such Subsequent Receivables by the date on which the
Funding Period ends and the Pre-Funded Amount is greater than $150,000 on such
date, the Trust Depositor shall cause to be deposited into the Collection
Account the amount then on deposit in the Pre-Funding Account; provided, however, that the foregoing shall be the sole
remedy of the Trust, the Owner Trustee, the Indenture Trustee and the
Securityholders with respect to a failure of the Trust Depositor to comply with
such covenant.

ARTICLE
THREE

REPRESENTATIONS AND WARRANTIES

The Seller under
the Transfer and Sale Agreement has made, and upon execution of each Subsequent
Purchase Agreement is deemed to remake, each of the representations and
warranties set forth in Exhibit J
hereto and has consented to the assignment by the Trust Depositor to the Issuer
of the Trust Depositor’s rights with respect thereto.  Such representations speak as of the
execution and delivery of this Agreement and as of the Closing Date in the case
of the Initial Contracts, and as of the applicable Subsequent Transfer Date in
the case of the Subsequent Contracts, but shall survive the transfer and
assignment of the Contracts to the Trust. 
Pursuant to Section 2.01 of this Agreement, the Trust Depositor has
assigned, transferred and conveyed to the Issuer as part of the Trust Corpus
its rights under the Transfer and Sale Agreement, including

 

26

 

without
limitation, the representations and warranties of the Seller therein as set
forth in Exhibit J attached hereto, together with
all rights of the Trust Depositor with respect to any breach thereof including
any right to require the Seller to reacquire any Contract in accordance with
the Transfer and Sale Agreement.  It is
understood and agreed that the representations and warranties set forth or
referred to in this Section shall survive delivery of the Contract Files to the
Owner Trustee or any custodian.

The Trust
Depositor hereby represents and warrants to the Trust and the Indenture Trustee
that it has entered into the Transfer and Sale Agreement with the Seller, that
the Seller has made the representations and warranties in the Transfer and Sale
Agreement as set forth in Exhibit J hereto,
that such representations and warranties run to and are for the benefit of the
Trust Depositor, and that pursuant to Section 2.01 of this Agreement the Trust
Depositor has transferred and assigned to the Trust all rights of the Trust
Depositor to cause the Seller under the Transfer and Sale Agreement to
reacquire Contracts in the event of a breach of such representations and warranties.

Section 3.01.               Representations and Warranties
Regarding the Trust Depositor.  By its
execution of this Agreement and each Subsequent Transfer Agreement, the Trust
Depositor represents and warrants to the Trust, the Indenture Trustee and the
Noteholders that:

(a)           Assumption
of Seller’s Representations and Warranties.  The representations and warranties set forth
in Exhibit J are true and correct.

(b)           Organization
and Good Standing.  The Trust
Depositor is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization and has the
corporate power to own its assets and to transact the business in which it is
currently engaged.  The Trust Depositor
is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the character of the business transacted
by it or properties owned or leased by it requires such qualification and in
which the failure so to qualify would have a material adverse effect on the
business, properties, assets, or condition (financial or other) of the Trust
Depositor or the Trust.

(c)           Authorization;
Valid Sale; Binding Obligations. 
The Trust Depositor has the power and authority to make, execute,
deliver and perform its obligations under this Agreement and the other
Transaction Documents to which it is a party and all of the transactions
contemplated under this Agreement and the other Transaction Documents to which
it is a party, and to create the Trust and cause it to make, execute, deliver
and perform its obligations under this Agreement and the other Transaction
Documents to which it is a party and has taken all necessary corporate action
to authorize the execution, delivery and performance of this Agreement and the
other Transaction Documents to which it is a party and to cause the Trust to be
created.  This Agreement and the related
Subsequent Transfer Agreement, if any, shall effect a valid transfer and
assignment of the Trust Corpus, enforceable against the Trust Depositor and
creditors of and purchasers

 

27

 

from
the Trust Depositor.  This Agreement and
the other Transaction Documents to which the Trust Depositor is a party
constitute the legal, valid and binding obligation of the Trust Depositor
enforceable in accordance with their 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.

(d)           No
Consent Required.  The Trust
Depositor is not required to obtain the consent of any other party or any
consent, license, approval or authorization from, or registration or
declaration with, any governmental authority, bureau or agency in connection
with the execution, delivery, performance, validity or enforceability of this
Agreement or the other Transaction Documents to which it is a party.

(e)           No
Violations.  The execution,
delivery and performance of this Agreement and the other Transaction Documents
to which it is a party by the Trust Depositor, and the consummation of the
transactions contemplated hereby and thereby, will not violate any provision of
any existing law or regulation or any order or decree of any court or of any
Federal or state regulatory body or administrative agency having jurisdiction
over the Trust Depositor or any of its properties or the Articles of
Incorporation or Bylaws of the Trust Depositor, or constitute a material breach
of any mortgage, indenture, contract or other agreement to which the Trust
Depositor is a party or by which the Trust Depositor or any of the Trust
Depositor’s properties may be bound, or result in the creation or imposition of
any security interest, lien, charge, pledge, preference, equity or encumbrance
of any kind upon any of its properties pursuant to the terms of any such
mortgage, indenture, contract or other agreement, other than as contemplated by
the Transaction Documents.

(f)            Litigation.  No litigation or administrative proceeding of
or before any court, tribunal or governmental body is currently pending, or to
the knowledge of the Trust Depositor threatened, against the Trust Depositor or
any of its properties or with respect to this Agreement, the other Transaction
Documents to which it is a party or the Notes (1) which, if adversely determined,
would in the opinion of the Trust Depositor have a material adverse effect on
the business, properties, assets or condition (financial or otherwise) of the
Trust Depositor or the Trust or the transactions contemplated by this Agreement
or the other Transaction Documents to which the Trust Depositor is a party or
(2) seeking to adversely affect the federal income tax or other federal, state
or local tax attributes of the Certificate or Notes.

(g)           State
of Incorporation; Name; No Changes. 
The Trust Depositor’s state of incorporation is the State of
Nevada.  The Trust Depositor’s exact
legal name is as set forth in the first paragraph of this Agreement.  The Trust Depositor has not changed its name,
whether by amendment of its Articles of Incorporation, by reorganization or
otherwise, and has not changed the location of its place of business, within
the four months preceding the Closing Date.

 

28

 

(h)           Solvency.  The Trust Depositor, after giving effect to
the conveyances made by it hereunder, is Solvent.

Such representations
speak as of the execution and delivery of this Agreement and as of the Closing
Date in the case of the Initial Contracts, and as of the applicable Subsequent
Transfer Date in the case of the Subsequent Contracts, but shall survive the
transfer and assignment of the Contracts to the Trust.

Section 3.02.               Representations and Warranties
Regarding the Servicer.  The Servicer represents and
warrants to the Trust, the Indenture Trustee and the Noteholders that:

(a)           Organization
and Good Standing.  The
Servicer is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization and has the corporate
power to own its assets and to transact the business in which it is currently
engaged.  The Servicer is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction in which the character of the business transacted by it or
properties owned or leased by it requires such qualification and in which the
failure so to qualify would have a material adverse effect on the business,
properties, assets, or condition (financial or otherwise) of the Servicer or
the Trust.  The Servicer is properly
licensed in each jurisdiction to the extent required by the laws of such
jurisdiction to service the Contracts in accordance with the terms hereof other
than such licenses the failure to obtain would not have a material adverse
effect on the business, properties, assets, or condition (financial or
otherwise) of the Servicer or on the ability of the Servicer to perform its
obligations hereunder.

(b)           Authorization;
Binding Obligations.  The
Servicer has the power and authority to make, execute, deliver and perform this
Agreement and the other Transaction Documents to which the Servicer is a party
and all of the transactions contemplated under this Agreement and the other
Transaction Documents to which the Servicer is a party, and has taken all
necessary corporate action to authorize the execution, delivery and performance
of this Agreement and the other Transaction Documents to which the Servicer is
a party.  This Agreement and the other
Transaction Documents to which the Servicer is a party constitute the legal,
valid and binding obligation of the Servicer enforceable in accordance with
their 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.

(c)           No
Consent Required.  The Servicer
is not required to obtain the consent of any other party or any consent,
license, approval or authorization from, or registration or declaration with,
any governmental authority, bureau or agency in connection with the execution,
delivery, performance, validity or enforceability of this Agreement and the
other Transaction Documents to which the Servicer is a party.

 

29

 

(d)           No
Violations.  The execution,
delivery and performance of this Agreement and the other Transaction Documents
to which the Servicer is a party by the Servicer will not violate any
provisions of any existing law or regulation or any order or decree of any
court or of any Federal or state regulatory body or administrative agency
having jurisdiction over the Servicer or any of its properties or the Articles
of Incorporation or Bylaws of the Servicer, or constitute a material breach of
any mortgage, indenture, contract or other agreement to which the Servicer is a
party or by which the Servicer or any of the Servicer’s properties may be
bound, or result in the creation of or imposition of any security interest,
lien, pledge, preference, equity or encumbrance of any kind upon any of its
properties pursuant to the terms of any such mortgage, indenture, contract or
other agreement, other than this Agreement.

(e)           Litigation.  No litigation or administrative proceeding of
or before any court, tribunal or governmental body is currently pending, or to
the knowledge of the Servicer threatened, against the Servicer or any of its
properties or with respect to this Agreement, any other Transaction Document to
which the Servicer is a party which, if adversely determined, would in the
opinion of the Servicer have a material adverse effect on the business,
properties, assets or condition (financial or otherwise) of the Servicer or the
Trust or the transactions contemplated by this Agreement or any other
Transaction Document to which the Servicer is a party.

ARTICLE FOUR

 

PERFECTION OF TRANSFER
AND PROTECTION OF SECURITY INTERESTS

 

Section 4.01.               Custody
of Contracts.  (a) Subject to the terms and conditions of
this Section 4.01, the contents of each Contract File shall be held by the
Servicer, or its custodian, for the benefit of, and as agent for, the Trust as
the owner thereof and the Indenture Trustee.

(b)           The Servicer agrees to maintain the
related Contract Files at its offices where they are currently maintained, or
at such other offices of the Servicer in the State of Nevada as shall from time
to time be identified to the Trustees  by
written notice.  The Servicer may
temporarily move individual Contract Files or any portion thereof without
notice as necessary to conduct collection and other servicing activities in
accordance with its customary practices and procedures; provided,
however, that the Servicer will take all action necessary to
maintain the perfection of the Trust’s interest in the Contracts and the
proceeds thereof.  It is intended that,
by the Servicer’s agreement pursuant to Section 4.01(a) above and this Section
4.01(b), the Trustees  shall be deemed to
have possession of the Contract Files for purposes of Section 9-313 of
the Uniform Commercial Code of the State in which the Contract Files are
located.

(c)           As custodian, the Servicer shall have
the following powers and perform the following duties:

 

30

 

(i)            hold, or cause the
Servicer’s custodian to hold, the Contract Files on behalf of the Trust,
maintain accurate records pertaining to each Contract to enable it to comply
with the terms and conditions of this Agreement, maintain a current inventory
thereof and certify to the Owner Trustee and the Indenture Trustee annually
that it, or its custodian, continues to maintain possession of such Contract
Files;

(ii)           implement policies
and procedures in writing and signed by a Servicing Officer with respect to
persons authorized to have access to the Contract Files on the Servicer’s
premises and the receipting for Contract Files taken from their storage area by
an employee of the Servicer for purposes of servicing or any other purposes;

(iii)          attend to all
details in connection with maintaining custody of the Contract Files on behalf
of the Trust;

(iv)          at all times
maintain, or cause the Servicer’s custodian to maintain, the original of the
fully executed Contract in accordance with its customary practices and
procedures, except as may be necessary to conduct collection and servicing
activities in accordance with its customary practices and procedures; and

(v)           as promptly as
practicable after the Closing Date (or Subsequent Transfer Date, as the case
may be), and in any event within 60 days thereof, deliver an Officer’s
Certificate to the Owner Trustee and the Indenture Trustee certifying that as
of a date no earlier than the Closing Date (or Subsequent Transfer Date, as the
case may be) it has conducted an inventory of the Contract Files (which in the
case of Subsequent Contracts, need be only of the Contract Files related to
such Subsequent Contracts) and that there exists a Contract File for each
Contract and stating all exceptions to such statement, if any.

(d)           In performing its duties under this
Section 4.01, the Servicer agrees to act with reasonable care, using that
degree of skill and care that it exercises with respect to similar contracts
for the installment purchase of consumer goods owned and/or serviced by it, and
in any event with no less degree of skill and care than would be exercised by a
prudent servicer of motorcycle conditional sales contracts and promissory notes
and security agreements.  The Servicer
shall promptly report to the Owner Trustee and the Indenture Trustee any
failure by it, or its custodian, to hold the Contract Files as herein provided
and shall promptly take appropriate action to remedy any such failure.  In acting as custodian of the Contract Files,
the Servicer further agrees not to assert any legal or beneficial ownership
interest in the Contracts or the Contract Files, except as provided in Section
5.06.  The Servicer agrees to indemnify
the Noteholders, the Certificateholder, the Owner Trustee and the Indenture
Trustee for any and all liabilities, obligations, losses, damages, payments,
costs, or expenses of any kind whatsoever which may be imposed on, incurred by
or asserted against the Noteholders, the Certificateholder, the Owner Trustee
and the Indenture Trustee as the result of any act or omission by the Servicer
relating to the maintenance and custody of the Contract Files; provided, however, that the Servicer will not be liable for
any portion of any such amount resulting from the gross

 

31

 

negligence
or willful misconduct of any Noteholder, Certificateholder, the Owner Trustee
or the Indenture Trustee.  The Trustees
shall have no duty to monitor or otherwise oversee the Servicer’s performance
as custodian hereunder.

Section 4.02.               Filing. 
On or prior to the Closing Date, the Servicer shall cause the UCC
financing statement(s) referred to in Section 2.02(g) hereof to be filed and
from time to time the Servicer shall take and cause to be taken such actions
and execute such documents as are necessary or desirable or as the Owner
Trustee or Indenture Trustee may reasonably request to perfect and protect the
Trust’s first priority perfected interest in the Trust Corpus against all other
persons, including, without limitation, the filing of financing statements,
amendments thereto and continuation statements, the execution of transfer
instruments and the making of notations on or taking possession of all records
or documents of title.  All financing
statements filed or to be filed against the Seller in favor of the Trust
Depositor or the Trust in connection herewith describing the Contract Assets as
collateral shall contain a statement to the following effect: “A purchase of or
security interest in any collateral described in this financing statement,
except as permitted in the Transfer and Sale Agreement or Sale and Servicing
Agreement, will violate the rights of the Secured Party.”

Section 4.03.               Name
Change or Relocation.  (a) During the term of this Agreement,
neither the Seller nor the Trust Depositor shall change its name, identity or
structure or change its state of incorporation without first giving at least 30
days’ prior written notice to the Owner Trustee and the Indenture Trustee.

(b)           If any change in either the Seller’s
or the Trust Depositor’s name, identity or structure or other action would make
any financing or continuation statement or notice of lien filed under this
Agreement seriously misleading within the meaning of applicable provisions of
the UCC or any title statute, the Servicer, no later than five days after the
effective date of such change, shall file such amendments as may be required to
preserve and protect the Trust’s interests in the Trust Corpus and the proceeds
thereof.  In addition, neither the Seller
nor the Trust Depositor shall change its state of incorporation unless it has
first taken such action as is advisable or necessary to preserve and protect
the Trust’s interest in the Trust Corpus. 
Promptly after taking any of the foregoing actions, the Servicer shall
deliver to the Owner Trustee and the Indenture Trustee an opinion of counsel
reasonably acceptable to the Owner Trustee and the Indenture Trustee stating
that, in the opinion of such counsel, all financing statements or amendments
necessary to preserve and protect the interests of the Trust in the Trust
Corpus and the Indenture Trustee in the Collateral have been filed, and
reciting the details of such filing.

Section 4.04.               Costs
and Expenses.  The Servicer agrees to pay all reasonable
costs and disbursements in connection with the perfection and the maintenance
of perfection, as against all third parties, of the Trust’s right, title and
interest in and to the Contracts (including, without limitation, the security
interest in the Motorcycles granted thereby).

 

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ARTICLE FIVE

SERVICING OF CONTRACTS

Section 5.01.               Responsibility
for Contract Administration.  The Servicer
will have the sole obligation to manage, administer, service and make
collections on the Contracts and perform or cause to be performed all contractual
and customary undertakings of the holder of the Contracts to the Obligor.  The Owner Trustee, at the written request of
a Servicing Officer, shall furnish the Servicer with any powers of attorney or
other documents necessary or appropriate in the opinion of the Owner Trustee to
enable the Servicer to carry out its servicing and administrative duties
hereunder.  The Servicer is hereby
appointed the servicer hereunder until such time as any Service Transfer may be
effected under Article VIII.

Section 5.02.               Standard
of Care.  In managing, administering, servicing and
making collections on the Contracts pursuant to this Agreement, the Servicer
will exercise that degree of skill and care consistent with the skill and care
that the Servicer exercises with respect to similar contracts serviced by the
Servicer, and, in any event no less degree of skill and care than would be
exercised by a prudent servicer of motorcycle conditional sales contracts and
promissory note and security agreements; provided, however,
that notwithstanding the foregoing, the Servicer shall not release or waive the
right to collect the unpaid balance of any Contract except that with respect to
a Contract that has become a Defaulted Contract, the Servicer, consistent with
its collection policies, may release or waive the right to collect the unpaid
balance of such Defaulted Contract in an effort to maximize collections
thereon.

Section 5.03.               Records. 
The Servicer shall, during the period it is servicer hereunder, maintain
such books of account and other records as will enable the Owner Trustee and
the Indenture Trustee to determine the status of each Contract.

Section 5.04.               Inspection. 
(a) At all times during the term hereof, the Servicer shall afford the
Owner Trustee and  the Indenture Trustee
and their respective authorized agents reasonable access during normal business
hours to the Servicer’s records relating to the Contracts and will cause its
personnel to assist in any examination of such records by the Owner Trustee or
the Indenture Trustee, or such authorized agents and allow copies of the same
to be made.  The examination referred to
in this Section will be conducted in a manner which does not unreasonably
interfere with the Servicer’s normal operations or customer or employee relations.  Without otherwise limiting the scope of the
examination the Owner Trustee or the Indenture Trustee may, using generally
accepted audit procedures, verify the status of each Contract and review the
Computer File and records relating thereto for conformity to Monthly Reports
prepared pursuant to Article IX and compliance with the standards represented
to exist as to each Contract in this Agreement.

(b)           At all times during the term hereof,
the Servicer shall keep available a copy of the List of Contracts at its
principal executive office for inspection by the Trustees.

 

33

 

Section 5.05.               Trust
Accounts.  (a) On or before the Closing Date, the Trust
Depositor shall establish the Trust Accounts, each with and in the name of the
Indenture Trustee for the benefit of the Noteholders.  The Indenture Trustee is hereby required to
ensure that each of the Trust Accounts is established and maintained as an
Eligible Account.

(b)           The Indenture Trustee shall deposit
(or the Servicer shall deposit, with respect to payments by or on behalf of the
Obligors received directly by the Servicer), without deposit into any
intervening account, into the Collection Account as promptly as practical (but
in any case not later than the second Business Day following the receipt thereof):

(i)            With respect to
principal and interest on the Contracts received after the Initial Cutoff Date
or Subsequent Cutoff Date, as applicable (which for the purpose of this
paragraph (b)(i) shall include those monies in the Lockbox Account allocable to
principal and interest on the Contracts), all such amounts received by the
Owner Trustee or Servicer;

(ii)           All Net Liquidation
Proceeds related to the Contracts;

(iii)          The aggregate of
the Purchase Prices for Contracts reacquired by the Trust Depositor as
described in Section 7.08;

(iv)          All Advances made by
the Servicer pursuant to Section 7.03(a);

(v)           All amounts paid by
the Servicer in connection with an optional purchase of the Contracts described
in Section 7.10;

(vi)          The aggregate of the
Purchase Prices for Contracts purchased by the Servicer as described in Section
7.11;

(vii)         All amounts realized
in respect of Carrying Charges transferred from the Interest Reserve Account as
contemplated in Section 7.03(b); and

(viii)        All amounts received
in respect of interest, dividends, gains, income and earnings on investments of
funds in the Trust Accounts (except the Reserve Fund and the Pre-Funding
Account) as contemplated herein.

(c)           The Indenture Trustee shall, if
amounts remain on deposit in the Pre-Funding Account at the expiration of
the Funding Period, cause to be deposited into the Note Distribution Account
the amount then on deposit in the Pre-Funding Account.

(d)           The Servicer shall direct the
Indenture Trustee, and the Indenture Trustee shall invest the amounts in the
Trust Accounts in Qualified Eligible Investments that are payable on demand or
that mature not later than one Business Day prior to the next succeeding
Distribution Date.  Once such funds are
invested, the Indenture Trustee shall not change the investment of such
funds.  Any loss on such investments
shall be deposited in the applicable Trust Account by

 

34

 

the
Servicer out of its own funds immediately as realized.  Funds in the Trust Accounts not so invested
must be insured to the extent permitted by law by the Bank Insurance Fund or
the Savings Association Insurance Fund of the Federal Deposit Insurance
Corporation.  Subject to the restrictions
herein, the Indenture Trustee may purchase a Qualified Eligible Investment from
itself or an Affiliate.   Subject to the
other provisions hereof, the Indenture Trustee shall have sole control over
each such investment and the income thereon, and any certificate or other
instrument evidencing any such investment, if any, shall be delivered directly
to the Indenture Trustee or its agent, together with each document of transfer,
if any, necessary to transfer title to such investment to the Indenture Trustee
in a manner which complies with this Section 5.05(d).  All interest, dividends, gains upon sale and
other income from, or earnings on, investments of funds in the Trust Accounts
(other than the Reserve Fund and the Pre-Funding Account) shall be deposited in
the Collection Account pursuant to Section 5.05(b) and distributed on the next
Distribution Date pursuant to Section 7.05. 
The Trust Depositor and the Trust agree and acknowledge that the
Indenture Trustee is to have “control”
(within the meaning of Section 9-106 of the UCC) of collateral comprised of “Investment Property” (within the meaning of Section 9-102
of the UCC) for all purposes of this Agreement.

(e)           Notwithstanding anything to the
contrary herein, the Servicer may remit payments on the Contracts and Net
Liquidation Proceeds to the Collection Account in next-day funds or immediately
available funds no later than 10:00 a.m., Central time, on the Business Day
prior to the next succeeding Distribution Date, but only for so long as the
short-term debt security rating of the Servicer is at least “P-1” by Moody’s
and “A-1” by Standard & Poor’s.

(f)            The Servicer shall apply collections
received in respect of a Contract as follows:

(i)            First, to accrued interest with
respect to such Contract;

(ii)           Second, to pay any expenses and
unpaid late charges or extension fees (if any) due and owing under such
Contract; and

(iii)          Third, to principal to the extent due
and owing under such Contract.

(g)           Any collections on a Contract
remaining after application by the Servicer in accordance with the provisions
of Section 5.05(f) shall constitute an excess payment (an “Excess
Payment”).  Excess Payments
constituting prepayments of principal shall be applied as a prepayment of the
Principal Balance of such Contract.  All
other Excess Payments shall be permitted to be retained by the Servicer.

(h)           The Servicer will, from time to time
as provided herein, be permitted to withdraw or request the withdrawal from the
Collection Account any amount deposited therein that, based on the Servicer’s
good-faith determination, was deposited in error.

Section 5.06.               Enforcement. 
(a) The Servicer will, consistent with Section 5.02, act with respect to
the Contracts in such manner as will maximize the receipt of all payments
called for under the terms of the Contracts. 
The Servicer shall use its best efforts to cause Obligors to

 

35

 

make all payments
on the Contracts to the Lockbox Account (either directly by remitting payments
to the Lockbox, or indirectly by making payments through direct debit, the
telephone or the internet to an account of the Servicer which payments will be
subsequently transferred from such account to the Lockbox Account).  The Servicer will act in a commercially
reasonable manner with respect to the repossession and disposition of a
Motorcycle following a default under the related Contract with a view to realizing
proceeds at least equal to the Motorcycle’s fair market value.  If the Servicer determines that eventual
payment in full of a Contract is unlikely, the Servicer will follow its normal
practices and procedures to recover all amounts due upon that Contract,
including repossessing and disposing of the related Motorcycle at a public or
private sale or taking other action permitted by applicable law.  The Servicer will be entitled to recover all
reasonable out-of-pocket expenses incurred by it in liquidating a Contract and
disposing of the related Motorcycle.

(b)           The Servicer may sue to enforce or
collect upon Contracts, in its own name, if possible, or as agent for the
Trustees.  If the Servicer elects to
commence a legal proceeding to enforce a Contract, the act of commencement
shall be deemed to be an automatic assignment of the Contract to the Servicer
for purposes of collection only.  If,
however, in any enforcement suit or legal proceeding it is held that the Servicer
may not enforce a Contract on the ground that it is not a real party in
interest or a holder entitled to enforce the Contract, the Owner Trustee (or
the Indenture Trustee) on behalf of the Trust shall, at the Servicer’s expense,
take such steps as the Servicer deems reasonably necessary to enforce the
Contract, including bringing suit in its name or the names of the Noteholders
under the Indenture and the Certificateholder as owner of the Trust.

(c)           The Servicer shall exercise any
rights of recourse against third persons that exist with respect to any
Contract in accordance with the Servicer’s usual practice.  In exercising recourse rights, the Servicer
is authorized on the Trust’s behalf to reassign the Defaulted Contract or the
related Motorcycle to the Person against whom recourse exists at the price set
forth in the document creating the recourse; provided,
however, the Servicer in exercising recourse against any third
persons as described in the immediately preceding sentence shall do so in such
manner as to maximize the aggregate recovery with respect to the Contract; and provided further, however, that notwithstanding the
foregoing the Servicer in its capacity as such may exercise such recourse only
if such Contract (i) was not required to be reacquired by the Seller pursuant
to the Transfer and Sale Agreement or (ii) was required to be reacquired by the
Seller and the Seller has defaulted on such reacquisition obligation.

(d)           The Servicer will not permit any
rescission or cancellation of any Contract due to the acts or omissions of the
Trust Depositor.

(e)           Subject to Section 5.02, the Servicer
may grant extensions, rebates or adjustments on a Contract; provided, however,
that if the Servicer extends the date for final payment by the Obligor of any
Contract beyond the Class B Final Distribution Date, it shall promptly purchase
such Contract pursuant to Section 7.11.

 

36

 

(f)            The Servicer will not add to the
outstanding Principal Balance of any Contract the premium of any physical
damage or other individual insurance on a Motorcycle securing such Contract it
obtains on behalf of the Obligor under the terms of such Contract, but may
create a separate Obligor obligation with respect to such premium if and as
provided by the Contract.

(g)           If the Servicer shall have
repossessed a Motorcycle on behalf of the Trust, the Servicer shall either (i)
maintain at its expense physical damage insurance with respect to such
Motorcycle, or (ii) indemnify the Trust against any damage to such Motorcycle
prior to resale or other disposition. 
The Servicer shall not allow such repossessed Motorcycles to be used in
an active trade or business, but rather shall dispose of the Motorcycle in a
reasonable time in accordance with the Servicer’s normal business practices.

Section 5.07.               Trustees
to Cooperate.  Upon payment in full on any Contract, the
Servicer shall (if the Servicer is not then in possession of the Contracts and
Contract Files) notify the Trustees and request delivery of the Contract and
Contract File to the Servicer.  Upon
receipt of such notice and request, the Trustees shall promptly release or
cause to be released such Contract and Contract File to the Servicer.  Upon receipt of such Contract and Contract
File, each of the Trust Depositor and the Servicer is authorized to execute an
instrument in satisfaction of such Contract and to do such other acts and
execute such other documents as the Servicer deems necessary to discharge the
Obligor thereunder and eliminate the security interest in the Motorcycle
related thereto.  The Servicer shall
determine when a Contract has been paid in full; to the extent that
insufficient payments are received on a Contract credited by the Servicer as
prepaid or paid in full and satisfied, the shortfall shall be paid by the
Servicer out of its own funds.  From time
to time as appropriate for servicing and repossession in connection with any
Contract, if the Servicer is not then in possession of the Contracts and
Contract Files, the Indenture Trustee shall, upon written request of a
Servicing Officer and delivery to the Indenture Trustee of a receipt signed by
such Servicing Officer, cause the original Contract and the related Contract
File to be released to the Servicer and shall execute such documents as the
Servicer shall deem reasonably necessary to the prosecution of any such
proceedings.  Such receipt shall obligate
the Servicer to return the original Contract and the related Contract File to
the Indenture Trustee when the need by the Servicer has ceased unless the
Contract shall be reacquired as described in Section 7.10.  Upon request of a Servicing Officer, the
Indenture Trustee shall perform such other acts as reasonably requested by the
Servicer and otherwise cooperate with the Servicer in the enforcement of the
Certificateholder’s rights and remedies with respect to Contracts.

Section 5.08.               Costs
and Expenses.  All costs and expenses incurred by the
Servicer in carrying out its duties hereunder, fees and expenses of accountants
and payments of all fees and expenses incurred in connection with the
enforcement of Contracts (including enforcement of Defaulted Contracts and
repossessions of Motorcycles securing such Contracts when such Contracts are
not reacquired pursuant to Section 7.08) and all other fees and expenses not
expressly stated hereunder to be for the account of the Trust shall be paid by
the Servicer and the Servicer shall not be entitled to reimbursement hereunder.

 

37

 

Section 5.09.               Maintenance
of Security Interests in Motorcycles.  The Servicer
shall take such steps as are necessary to maintain continuous perfection and
the first priority of the security interest created by each Contract in the
related Motorcycle.  The Owner Trustee
and the Indenture Trustee hereby authorize the Servicer to take such steps as
are necessary to perfect such security interest and to maintain the first
priority thereof in the event of a relocation of a Motorcycle or for any other
reason.

Section 5.10.               Successor
Servicer/Lockbox Agreements.  The Servicer
shall use its best efforts to cause Obligors to make all payments on the Contracts
to one or more Lockbox Banks, acting as agent for the Trust pursuant to a
Lockbox Agreement.  In the event the
Servicer shall for any reason no longer be acting as such, the Successor
Servicer shall thereupon assume all of the rights and obligations of the
outgoing servicer under the Lockbox Agreement; provided,
however, that the Successor Servicer shall not be liable for any
acts or obligations of the Servicer prior to such succession.  In such event, the Successor Servicer shall
be deemed to have assumed all of the outgoing Servicer’s interest therein and
to have replaced the outgoing Servicer as a party to each such Lockbox
Agreement to the same extent as if such Lockbox Agreement had been assigned to
the Successor Servicer, except that the outgoing Servicer shall not thereby be
relieved of any liability or obligations on the part of the outgoing Servicer
to the Lockbox Bank under such Lockbox Agreement.  The outgoing Servicer shall, upon the request
of the Owner Trustee, but at the expense of the outgoing Servicer, deliver to
the Successor Servicer all documents and records relating to each such Lockbox
Agreement and an accounting of amounts collected and held by the Lockbox Bank
and otherwise use its best efforts to effect the orderly and efficient transfer
of any Lockbox Agreement to the Successor Servicer.

Section 5.11.               Separate
Entity Existence.  The Servicer agrees to take or refrain
from taking or engaging in with respect to the Trust Depositor, as applicable,
each of the actions or activities specified in the “substantive consolidation”
opinion of Winston & Strawn LLP (or in any related Certificate of the
Servicer) delivered on the Closing Date, upon which the conclusions expressed
therein are based.

ARTICLE SIX

 

THE TRUST DEPOSITOR

 

Section 6.01.               Covenants
of the Trust Depositor.

(a)           Existence. 
During the term of this Agreement, the Trust Depositor will keep in full
force and effect its existence, rights and franchises as a corporation under
the laws of the jurisdiction of its incorporation and will obtain and preserve
its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, the other Transaction Documents and each
other instrument or agreement necessary or appropriate to the proper
administration of this Agreement and the transactions contemplated hereby.

 

38

 

(b)           Arm’s Length Transactions.  During the term of this Agreement, all
transactions and dealings between the Trust Depositor and its Affiliates will
be conducted on an arm’s-length basis.

(c)           No Other Business.  The Trust Depositor shall not engage in any
business other than financing, purchasing, owning, selling and managing the
Contracts in the manner contemplated by this Agreement and the other
Transaction Documents and activities incidental thereto; provided,
however, that the Trust Depositor may purchase and transfer (or
grant Liens in respect of) contracts and/or other related assets similar to the
Contracts to other Persons in securitization or other non-recourse financing
transactions involving the Seller or any of its Affiliates (or with respect to
the Contract Assets themselves, following a release and reconveyance thereof
from the Trust), on terms and conditions (with respect to the liabilities
imposed upon the Trust Depositor by virtue of such transactions, as well as in
respect of agreements or restrictions concerning activities of the Trust
Depositor and its relations or interactions with the Seller or the Servicer or
other applicable Affiliate relevant to “bankruptcy remoteness” or “substantive
consolidation” analysis), in each case substantially similar to such terms and
conditions applicable to the Trust Depositor hereunder and under the other
Transaction Documents.

(d)           No Borrowing.  The Trust Depositor shall not issue, incur,
assume, guarantee or otherwise become liable, directly or indirectly, for (i)
any Indebtedness except for any Indebtedness permitted by or arising under the
Transaction Documents or (ii) obligations in connection with transactions
described in the proviso of Section 6.01(c), as limited thereby.  The proceeds of the Notes shall be used
exclusively to fund the Trust Depositor’s purchase of the Contracts and the
other assets specified in this Agreement and to pay the transactional expenses
of the Trust Depositor.

(e)           Guarantees, Loans,
Advances and Other Liabilities. 
Except as otherwise contemplated by the Transaction Documents or in
connection with transactions described in Section 6.01(c), as limited thereby,
the Trust Depositor shall not make any loan or advance or credit to, or
guarantee (directly or indirectly or by an instrument having the effect of
assuming another’s payment or performance on any obligation or capability of so
doing or otherwise), endorse or otherwise become contingently liable, directly
or indirectly, in connection with the obligations, stocks or dividends of, or
own, purchase, repurchase or acquire (or agree contingently to do so) any
stock, obligations, assets or securities of, any other interest in, or make any
capital contribution to, any other Person.

(f)            Capital Expenditures.  The Trust Depositor shall not make any
expenditure (by long-term or operating lease or otherwise) for capital
assets (either realty or personalty).

(g)           Restricted Payments.  Except as permitted or contemplated by the
Transaction Documents, the Trust Depositor shall not, directly or indirectly,
(i) pay any dividend or make any distribution (by reduction of capital or
otherwise), whether in cash, property,

 

39

 

securities or a combination thereof, to any owner of an equity interest
in the Trust Depositor, (ii) redeem, purchase, retire or otherwise acquire for
value any such equity interest or (iii) set aside or otherwise segregate any
amounts for any such purpose; it being understood that the Trust Depositor
shall at all times have the right to distribute funds received pursuant to the
Transaction Documents to its equity owner.

                (h)           Separate Entity Existence.   The Trust Depositor shall:

(i)            Maintain its own
deposit account or accounts, separate from those of any Affiliate, with
commercial banking institutions.  The
funds of the Trust Depositor will not be diverted to any other Person or for
other than authorized uses of the Trust Depositor.

(ii)           Ensure that, to the
extent that it shares the same officers or other employees as any of its
members or Affiliates, the salaries of and the expenses related to providing
benefits to such officers and other employees shall be fairly allocated among
such entities, and each such entity shall bear its fair share of the salary and
benefit costs associated with all such common officers and employees.

(iii)          Ensure that, to the
extent that it jointly contracts with any of its members or Affiliates to do
business with vendors or service providers or to share overhead expenses, the
costs incurred in so doing shall be allocated fairly among such entities, and
each such entity shall bear its fair share of such costs.  To the extent that the Trust Depositor
contracts or does business with vendors or service providers when the goods and
services provided are partially for the benefit of any other Person, the costs
incurred in so doing shall be fairly allocated to or among such entities for
whose benefit the goods and services are provided, and each such entity shall
bear its fair share of such costs.  All
material transactions between Trust Depositor and any of its Affiliates shall
be only on an arm’s length basis.

(iv)          To the extent that
the Trust Depositor and any of its members or Affiliates have offices in the
same location, there shall be a fair and appropriate allocation of overhead
costs among them, and each such entity shall bear its fair share of such
expenses.

(v)           Conduct its affairs
strictly in accordance with its By-laws and Articles of Incorporation, and
observe all necessary, appropriate and customary limited liability company
formalities, including, but not limited to, holding all regular and special
members’ and directors’ meetings appropriate to authorize all entity action,
keeping separate and accurate records of such meetings and its actions, passing
all resolutions or consents necessary to authorize actions taken or to be
taken, and maintaining accurate and separate books, records and accounts,
including, but not limited to, payroll and intercompany transaction accounts.

 

40

 

(vi)          Take or refrain from
taking or engaging in, as applicable, each of the actions or activities
specified in the “true sale” and “substantive consolidation” opinions of
Winston & Strawn LLP delivered on the Closing Date (or in any related
certificate delivered in connection therewith), upon which the conclusions
expressed therein are based.

Section 6.02.               Liability
of Trust Depositor; Indemnities.  The Trust
Depositor shall be liable in accordance herewith only to the extent of the
obligations specifically undertaken by the Trust Depositor under this
Agreement.

The Trust
Depositor shall indemnify, defend and hold harmless the Issuer, the Owner
Trustee, WTC, the Indenture Trustee and the Servicer from and against any taxes
that may at any time be asserted against any such Person as a result of or
relating to the transactions contemplated herein and in the other Transaction
Documents, including any sales, gross receipts, gross margin, general
corporation, tangible personal property, Illinois personal property replacement
privilege or license taxes (but, in the case of the Issuer, not including any
taxes asserted with respect to, and as of the date of, the transfer of the
Contracts to the Issuer or the issuance and original sale of the Securities, or
federal or other income taxes arising out of distributions on the Certificate
or the Notes) and costs and expenses in defending against the same.

The Trust
Depositor shall indemnify, defend and hold harmless the Issuer, the Owner
Trustee, WTC, the Indenture Trustee and the Securityholders from and against
any loss, liability or expense incurred by reason of the Trust Depositor’s
willful misfeasance, bad faith or negligence (other than errors in judgment) in
the performance of its duties under this Agreement, or by reason of reckless
disregard of its obligations and duties under this Agreement.

The Trust
Depositor shall indemnify, defend and hold harmless the Issuer, the Owner
Trustee, WTC and the Indenture Trustee from and against all costs, expenses,
losses, claims, damages and liabilities arising out of or incurred in
connection with the acceptance or performance of the trusts and duties herein
and, in the case of the Owner Trustee, in the Trust Agreement and, in the case
of the Indenture Trustee, in the Indenture, except to the extent that such
cost, expense, loss, claim, damage or liability 
in the case of (i) the Owner Trustee or WTC, as the case may be, shall
be due to the willful misfeasance, bad faith or negligence of the Owner Trustee
or WTC, as the case may be, or shall arise from the breach by the Owner Trustee
or WTC, as the case may be, of any of its representations or warranties set
forth in Section 7.03 of the Trust Agreement, or (ii) the Indenture Trustee,
shall be due to the willful misfeasance, bad faith or negligence of the
Indenture Trustee.

The Trust
Depositor shall be liable directly to and will indemnify any injured party or
any other creditor of the Trust for all losses, claims, damages, liabilities
and expenses of the Trust to the extent that Trust Depositor would be liable if
the Trust were a partnership under the Delaware Revised Uniform Limited
Partnership Act in which Trust Depositor were a general partner; provided, however, that Trust Depositor shall not be liable
for any losses incurred by a

 

41

 

Certificateholder
in the capacity of an investor in the Trust Certificate or a Noteholder in the
capacity of an investor in the Notes.  In
addition, any third party creditors of the Trust (other than in connection with
the obligations described in the immediately preceding sentence for which Trust
Depositor shall not be liable) shall be deemed third party beneficiaries of
this paragraph.  The obligations of Trust
Depositor under this paragraph shall be evidenced by the Trust Certificate
described in the Trust Agreement.

Indemnification
under this Section shall include, without limitation, reasonable fees and
expenses of counsel and expenses of litigation and shall survive the termination
of the Trust and the resignation or removal of the Trustees.  If the Trust Depositor shall have made any
indemnity payments pursuant to this Section and the Person to or on behalf of
whom such payments are made thereafter shall collect any of such amounts from
others, such Person shall promptly repay such amounts to the Trust Depositor,
without interest.

Notwithstanding
anything to the contrary herein, the obligations of the Trust Depositor under
this Section are solely the corporate obligations of the Trust Depositor and
shall be payable by it solely as provided in this Section.  The Trust Depositor shall only be required to
make such contributions required under this Section, (y) from funds available
to it pursuant to, and in accordance with the payment priorities set forth in
Section 7.05 and (z) only to the extent that it receives additional funds
designated for such purposes or to the extent that it has additional funds
available (other than funds described in the preceding clause (y)) that would
be in excess of amounts that would be necessary to pay the debt and other
obligations of such entity incurred in accordance with its certificate of
incorporation and all financing documents to which it is a party as they come
due.  In addition , no amount owing by
the Trust Depositor hereunder in excess of the liabilities that it is required
to pay in accordance with the preceding sentence shall constitute a “claim” (as
defined in Section 101(5) of the Bankruptcy Code) against it.  No recourse shall be had for the payment of
any amount owing hereunder or any other obligation of, or claim against the
Trust Depositor arising out of or based up on this Section against any
stockholder, employee, officer, agent, director or authorized person of the
Trust Depositor or Affiliate thereof; provided, however, that the foregoing
shall not relieve any such person or entity of any liability they might
otherwise have as a result of fraudulent actions or omissions taken by them.

Section 6.03.               Merger
or Consolidation of, or Assumption of the Obligations of, Trust Depositor;
Certain Limitations.  Notwithstanding any other provision in
this Section and any provision of law, the Trust Depositor shall not do any of
the following:

(a)           engage
in any business or activity other than as set forth in its Articles of
Incorporation;

(b)           without the affirmative vote of a majority of the members
of the Board of Directors of the Trust Depositor (which must include the
affirmative vote of at least two duly appointed Independent directors) (i)
dissolve or liquidate, in whole or in part, or institute proceedings to be
adjudicated bankrupt or insolvent, (ii) consent to the

 

42

 

institution
of bankruptcy or insolvency proceedings against it, (iii) file a petition
seeking or consent to reorganization or relief under any applicable federal or
state law relating to bankruptcy, (iv) consent to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the corporation or a substantial part of its property, (v) make a
general assignment for the benefit of creditors, (vi) admit in writing its
inability to pay its debts generally as they become due, or (vii) take any
corporate action in furtherance of the actions set forth in clauses (i) through
(vi) above; provided, however, that no director may
be required by any shareholder of the Trust Depositor to consent to the
institution of bankruptcy or insolvency proceedings against the Trust Depositor
so long as it is solvent; or

(c)           merge or consolidate with any other corporation, company
or entity or sell all or substantially all of its assets or acquire all or
substantially all of the assets or capital stock or other ownership interest of
any other corporation, company or entity unless the Person formed by such consolidation
or into which the Trust Depositor has merged or the Person which acquires by
conveyance, transfer or lease substantially all the assets of the Trust
Depositor as an entirety, can lawfully perform the obligations of the Trust
Depositor hereunder and executes and delivers to the Owner Trustee and the
Indenture Trustee an agreement in form and substance reasonably satisfactory to
the Owner Trustee and the Indenture Trustee which contains an assumption by
such successor entity of the due and punctual performance and observance of
each covenant and condition to be performed or observed by the Trust Depositor
under this Agreement; provided that
the Trust Depositor shall provide notice of any merger, consolidation or
succession pursuant to this Section to each Rating Agency and shall receive
from each Rating Agency a letter to the effect that such merger, consolidation
or succession will not result in a qualification, downgrading or withdrawal of
the then-current ratings of each Class of Notes.

Section 6.04.               Limitation
on Liability of Trust Depositor and Others.  The Trust
Depositor and any director or officer or employee or agent of the Trust
Depositor may rely in good faith on any document of any kind, prima facie
properly executed and submitted by any Person respecting any matters arising
hereunder.  The Trust Depositor and any
director or officer or employee or agent of the Trust Depositor shall be
reimbursed by the Owner Trustee or the Indenture Trustee, as the case may be,
for any contractual damages, liability or expense incurred by reason of the
Owner Trustee’s or the Indenture Trustee’s willful misfeasance, bad faith or
negligence (except errors in judgment) in the performance of their respective
duties hereunder, or by reason of reckless disregard of their respective
obligations and duties hereunder.  The
Trust Depositor shall not be under any obligation to appear in, prosecute or
defend any legal action that shall not be incidental to its obligations under
this Agreement, and that in its opinion may involve it in any expense or
liability.

Section 6.05.               Trust
Depositor Not to Resign.  Subject to the provisions of
Section 6.03, the Trust Depositor shall not resign from the obligations and
duties hereby imposed on it as Trust Depositor hereunder.

 

43

ARTICLE
SEVEN

DISTRIBUTIONS; RESERVE FUND

Section 7.01.               Monthly
Distributions.  (a) 
Each Noteholder and Certificateholder as of the related Record Date
shall be paid on the next succeeding Distribution Date by check mailed to such
Noteholder or Certificateholder at the address for such Noteholder or
Certificateholder appearing on the Note Register or Certificate Register or by
wire transfer if such Noteholder or Certificateholder provides written
instructions to the Indenture Trustee or the Owner Trustee, respectively, at
least ten days prior to such Distribution Date.

(b)           The Indenture Trustee shall serve as
the paying agent hereunder (the “Paying Agent”)
and shall make the payments to or on behalf of the Noteholders and the
Certificateholder required hereunder. 
The Indenture Trustee hereby agrees that all amounts held by it for
payment hereunder will be held in trust for the benefit of the Noteholders and
the Certificateholder.

Section 7.02.               Fees. 
The Indenture Trustee shall be paid the Indenture Trustee Fee and the
Servicer shall be paid the Monthly Servicing Fee, each of which shall be paid
solely from the monies and in accordance with the priorities described in
Section 7.05(a).  No recourse may be had
to the Seller, Trust Depositor, Trustees, Servicer, or any of their respective
Affiliates in the event that amounts available under Section 7.05(a) are
insufficient for payment of the Indenture Trustee’s Fee and the Monthly
Servicing Fee.

Section 7.03.               Advances;
Realization of Carrying Charge.  (a) On each
Determination Date, the Servicer shall compute the amount of Delinquent
Interest, if any, on the Contracts for the immediately preceding Due
Period.  Not later than each Distribution
Date, the Servicer shall advance (each, an “Advance”) an
amount equal to the Delinquent Interest for such Determination Date by
depositing such amount in the Collection Account; provided,
however, that the Servicer shall be obligated to advance Delinquent
Interest only to the extent that the Servicer, in its sole discretion, expects
that such advance will not become an Uncollectible Advance.  The Servicer shall indicate on each Monthly
Report (i) the amount of Delinquent Interest, if any, on the Contracts for the
related Due Period and (ii) the amount of the Advance, if any, made by the
Servicer in respect of the Delinquent Interest pursuant to this Section
7.03.  If the amount of such Advance is
less than the amount of the Delinquent Interest, the relevant Monthly Report
shall be accompanied by a certificate of a Servicing Officer setting forth in
reasonable detail the basis for the determination by the Servicer that the
portion of the Delinquent Interest not advanced would become an Uncollectible
Advance.  By each Determination Date, the
Servicer shall determine the amount of prior unreimbursed Advances for which it
shall be entitled to be reimbursed pursuant to the provisions of this Section
(such amount, the “Reimbursement Amount”).  The Servicer shall be entitled to be
reimbursed for any outstanding Advance with respect to a Contract by means of a
first priority withdrawal from the Collection Account of such Reimbursement
Amount as provided in Section 7.05(a)(ii).

 

44

 

(b)           The Servicer shall determine no later
than 11:00 a.m., Chicago, Illinois time, on the second Business Day prior to a
Distribution Date the Carrying Charges in respect of the upcoming Distribution
Date.  To the extent of such amount, the
Indenture Trustee shall transfer an amount equal to the Carrying Charges from
the Interest Reserve Account (solely to the extent of the amount then on
deposit in such account) into the Collection Account as contemplated in Section
5.05(b)(vi) hereof.

Section 7.04.               Interest
Reserve Account.

(a)           On
or prior to the Closing Date, the Trust Depositor shall establish with and in the
name of the Indenture Trustee on behalf of the Securityholders, an Eligible
Account designated “Harley-Davidson Customer
Funding Corp. Interest Reserve Account - Harley Davidson Motorcycle Trust
2006-2 — The Bank of New York Trust Company, N.A., as Indenture Trustee”
(such account being the “Interest Reserve
Account”).

(b)           No
withdrawals may be made of funds in the Interest Reserve Account except as
provided in (c) below.  Except as
specifically provided, funds in the Interest Reserve Account shall not be
commingled with funds in any other account established with respect to the
Notes, the Certificate or with any other monies.

(c)           All
investment earnings realized in respect of amounts in the Pre-Funding Account
shall be deposited when and as received in the Interest Reserve Account, such
that the Pre-Funded Amount shall never exceed the amount initially deposited
into the Pre-Funding Account on the Closing Date.  With respect to amounts on deposit in the
Interest Reserve Account, the Indenture Trustee shall disburse from such funds
the amount specified in respect of Carrying Charges in accordance with
Section 7.03 herein.  In the event
that (i) the Funding Period has terminated, (ii) all amounts on deposit in
the Pre-Funding Account have been disbursed, (iii) a Distribution Date has
elapsed following the occurrence of both (i) and (ii), and (iv) all
amounts referred to in clause (ii) have been applied, then any amounts
remaining in the Interest Reserve Account shall be allocated and distributed to
the Trust Depositor.

Section 7.05.               Distributions;
Priorities.

(a)           Except
as provided in Section 7.05(b) or (c), on each Distribution Date, the Indenture
Trustee, at the Servicer’s direction, will make the following allocations and
distributions of Available Monies in the following order of priority:

(i)            to the Mandatory
Redemption Subaccount in the Note Distribution Account to the Noteholders, the
amount of any Mandatory Redemption (which amounts are available for payment of
such Mandatory Redemptions and not for any other purpose) which amount shall be
paid in the following order of priority: first, to the Class A-1 Noteholders
until the Class A-1 Notes are paid in full, second, any remaining amount shall
be paid to the Class A-2 Noteholders until the Class A-2 Notes are paid in
full, and third, any remaining amount shall be paid to the Class B Noteholders
until the Class B Notes are paid in full;

 

45

 

(ii)           to the Servicer,
the Reimbursement Amount to the Servicer for Advances previously made;

(iii)          to the Servicer,
the Servicing Fee, including any unpaid Servicing Fee with respect to one or
more prior Due Periods;

(iv)          to the Indenture
Trustee, any accrued and unpaid Indenture Trustee Fee with respect to one or
more prior Due Periods;

(v)           to the Note
Distribution Account, together with any amounts deposited therein pursuant to
Section 7.06, the applicable Note Interest Distributable Amount with respect to
such Distribution Date to the Class A-1 Noteholders and to the Class A-2
Noteholders; provided, however, that if there
are insufficient funds on deposit in the Note Distribution Account to pay the
entire amount of the Note Interest Distributable Amount for each such Class of
Notes, then the amount in the Note Distribution Account shall be applied to the
Class A-1 Notes and the Class A-2 Notes pro rata on the
basis of the Note Interest Distributable Amount for each such Class of Notes;

(vi)          to the Note
Distribution Account, together with any amounts deposited therein pursuant to
Section 7.06, the First Priority Principal Distributable Amount with respect to
such Distribution Date first, to the Class A-1 Notes until the Class A-1 Notes
have been paid in full, second, to the Class A-2 Notes until the Class A-2
Notes have been paid in full;

(vii)         to the Note
Distribution Account, together with any amounts deposited therein pursuant to
Section 7.06, the Note Interest Distributable Amount with respect to such
Distribution Date to the Class B Noteholders;

(viii)        to the Note
Distribution Account, together with any amounts deposited therein pursuant to
Section 7.06, the Note Principal Distributable Amount with respect to such
Distribution Date, first, to the Class A-1 Notes until the Class A-1 Notes have
been paid in full, second, to the Class A-2 Notes until the Class A-2 Notes
have been paid in full, and third, to the Class B Notes until the Class B Notes
have been paid in full;

(ix)           any Excess Amounts
to the Reserve Fund up to the Specified Reserve Fund Balance; and

(x)            to the Holder of
the Certificate.

(b)           If the Notes have been declared
immediately due and payable as provided in Section 5.02 of the Indenture
following the occurrence of an Event of Default under Section 5.01(iii) of the
Indenture, then, until such time as the Notes have been paid in full, Available
Monies shall be allocated and distributed in the following order of priority
after payment of the amounts set forth in Section 7.05(a)(i), (ii), (iii) and
(iv):

 

46

 

(i)            to the Note
Distribution Account, together with any amounts deposited therein pursuant to
Section 7.06, the applicable Note Interest Distributable Amount with respect to
such Distribution Date to the Class A-1 Noteholders and to the Class A-2
Noteholders; provided, however, that if there
are insufficient funds on deposit in the Note Distribution Account to pay the
entire amount of the Note Interest Distributable Amount for each such Class of
Notes, then the amount in the Note Distribution Account shall be applied to the
Class A-1 Notes and the Class A-2 Notes pro rata on the
basis of the Note Interest Distributable Amount for each such Class of Notes;

(ii)           to the Note
Distribution Account, together with any amounts deposited therein pursuant to
Section 7.06, the First Priority Principal Distributable Amount with respect to
such Distribution Date first, to the Class A-1 Notes until the Class A-1 Notes
have been paid in full, second, to the Class A-2 Notes until the Class A-2
Notes have been paid in full;

(iii)          to the Note
Distribution Account, together with any amounts deposited therein pursuant to
Section 7.06, the Note Interest Distributable Amount with respect to such
Distribution Date to the Class B Noteholders;

(iv)          to the Note
Distribution Account, together with any amounts deposited therein pursuant to
Section 7.06, all amounts remaining after distribution of amounts in clauses
(i), (ii) and (iii) above to each Class of Notes shall be allocated in the
following order of priority:

(1)           to the Class A
Notes, pro rata (based on outstanding principal
amount), until the outstanding principal balance of each Class of the Class A
Notes has been reduced to zero; and

(2)           to the Class B
Notes, until the outstanding principal balance of the Class B Notes has been
reduced to zero; and

(v)           to the Holder of the
Certificate.

(c)           If the Notes have been declared immediately
due and payable as provided in Section 5.02 of the Indenture following the
occurrence of an Event of Default under Section 5.01(i), (ii), (iv) or (v) of
the Indenture, then, until such time as the Notes have been paid in full,
Available Monies shall be allocated and distributed in the following order of
priority after payment of amounts set forth in Section 7.05(a)(i), (ii), (iii)
and (iv):

(i)            to the Note
Distribution Account, together with any amounts deposited therein pursuant to
Section 7.06, the Note Interest Distributable Amount with respect to such
Distribution Date for distribution to the Class A-1 Noteholders and to the
Class A-2 Noteholders, as applicable; provided, however,
that if there are insufficient funds on deposit in the Note Distribution
Account to pay the entire amount of the Note Interest Distributable Amount for
each such Class of Notes, then the amount in the Note

 

47

 

Distribution Account shall be applied to the Class A-1
Notes and the Class A-2 Notes pro rata (on
the basis of the Note Interest Distributable Amount for each such Class);

(ii)           to the Note
Distribution Account, together with any amounts deposited therein pursuant to
Section 7.06, the Note Principal Distributable Amount for distribution to the
Class A-1 Noteholders and the Class A-2 Noteholders in reduction of the
outstanding principal amount of the Class A-1 Notes and Class A-2 Notes, as
applicable, until the outstanding principal balance of the Class A-1 Notes and
the Class A-2 Notes has been reduced to zero; provided, however, that if there
are insufficient funds on deposit in the Note Distribution Account to reduce
the outstanding principal balance of the Class A-1 Notes and the Class A-2
Notes to zero, the amount in the Note Distribution Account shall be applied to
the payment of principal on the Class A-1 Notes and the Class A-2 Notes pro rata (based on outstanding principal amount);

(iii)          to the Note
Distribution Account, together with any amounts deposited therein pursuant to
Section 7.06, the Note Interest Distributable Amount with respect to such
Distribution Date for distribution to the Class B Noteholders;

(iv)          to the Note
Distribution Account, together with any amounts deposited therein pursuant to
Section 7.06, the remaining Note Principal Distributable Amount with respect to
such Distribution Date after the outstanding principal balance of the Class A-2
Notes has been reduced to zero, for distribution to the Class B Noteholders in
reduction of the outstanding principal amount of the Class B Notes until the
outstanding principal balance of the Class B Notes has been reduced to zero;
and

(v)           to the Holder of the
Certificate.

Section 7.06.               Reserve
Fund.

(a)           On or prior to the Closing Date, the
Indenture Trustee, on behalf of the Trust Depositor shall deposit the Reserve
Fund Initial Deposit into the Reserve Fund from the net proceeds of the
Securities.

(b)           The Indenture Trustee shall determine
no later than 10:00 a.m., Chicago, Illinois time, on the Distribution Date (but
after making, and taking into account, the determination, demand and transfer
of funds contemplated in Section 7.05 above) whether there exists a Shortfall
with respect to the upcoming Distribution Date. 
In the event that the Indenture Trustee determines that there exists a
Shortfall, the Indenture Trustee shall no later than 12:00 noon, Chicago,
Illinois time, on such Distribution Date remit monies from the Reserve Fund in
the following order of priority:  first,
to the Note Distribution Account, the amount of such Shortfall relating to the Note
Interest Distributable Amount and second, to the Note Distribution Account, the
amount of such Shortfall relating to the Note Principal Distributable Amount.

(c)           The Indenture Trustee shall at the
written direction of the Servicer invest the funds in the Reserve Fund in
Qualified Eligible Investments.  Funds in
the Reserve Fund shall be

 

48

 

invested
in investments that are payable on demand or mature on or before the Business
Day prior to each Distribution Date. 
Once such funds are invested, the Indenture Trustee shall not change the
investment of such funds prior to maturity. 
Upon any such investment, the Indenture Trustee shall, consistent with
the definition of Qualified Eligible Investment herein, make an appropriate
notation of the security interest in such Qualified Eligible Investment on the
Indenture Trustee’s records, by book entry or otherwise.  All income and gain realized from any such
investments as well as any interest earned on Reserve Fund Deposits shall be
deposited and retained in the Reserve Fund (subject to Section 7.06(e)).  Losses, if any, realized on amounts in the
Reserve Fund invested pursuant to this paragraph shall first be credited
against undistributed investment earnings on amounts in the Reserve Fund
invested pursuant to this paragraph, and shall thereafter be deemed to reduce
the amount on deposit in the Reserve Fund. 
Neither the Trust Depositor nor the Indenture Trustee shall be liable
for the amount of any loss incurred in respect of any investment, or lack of
investment, of funds held in the Reserve Fund. 
All income or loss on funds held in the Reserve Fund shall be taxable to
the Trust Depositor.

(d)           Any Excess Amounts will be applied to
the Specified Reserve Fund Balance.

(e)           On each Distribution Date on which
the amount on deposit in the Reserve Fund (after giving effect to all deposits
thereto and withdrawals therefrom on such Distribution Date) is greater than
the Specified Reserve Fund Balance, the Indenture Trustee shall release its
lien on any remaining amounts to the Trust Depositor.

Section 7.07.               Establishment
of Pre-Funding Account.

(a)           On
or prior to the Closing Date, the Trust Depositor shall establish with and in
the name of the Indenture Trustee on behalf of the Securityholders, an Eligible
Account designated “Harley-Davidson Customer
Funding Corp. Pre-Funding Account - Harley Davidson Motorcycle Trust 2006-2 —
The Bank of New York Trust Company, N.A., as Indenture Trustee”
(such account being the “Pre-Funding Account”).

(b)           During
the Funding Period, following receipt from the Trust Depositor of an Addition
Notice, and upon further receipt of a written demand from the Trust Depositor
for a disbursement of funds from the Pre-Funding Account to be made on or
before the date on which the Funding Period terminates (which written demand
must be delivered not later than one Business Day prior to the requested date
of funding and must be accompanied by the written consent of the Indenture
Trustee), the Indenture Trustee will disburse the amount demanded from the
Pre-Funding Account to the Seller upon the order of the Trust Depositor for the
purpose of purchasing Subsequent Contracts from the Seller pursuant to a
Subsequent Purchase Agreement.  With
respect to amounts still remaining on deposit in the Pre-Funding Account on the
date upon which the Funding Period ends (and provided a timely written demand
for funding as described above has not been received requesting funding on such
date) the Indenture Trustee shall immediately transfer all funds remaining in
the Pre-Funding Account to the Note Distribution Account.

 

49

 

(c)           If
(x) the Pre-Funded Amount has not been reduced to zero on the Distribution
Date on which the Funding Period ends (or, if the Funding Period does not end
on a Distribution Date, on the first Distribution Date following the end of the
Funding Period) or (y) the Pre-Funded Amount has been reduced to $150,000
or less on any Determination Date, in either case after giving effect to any
reductions in the Pre-Funded Amount on such Distribution Date or Determination
Date pursuant to paragraph (b) above, the Trust Depositor shall instruct
the Indenture Trustee to withdraw from the Pre-Funding Account the Pre-Funded
Amount and, in the case of (x), on such Distribution Date or, on the
Determination Date, deposit the Pre-Funded Amount in the Note Distribution
Account for payment as principal of the Class A-1 Notes up to the
Outstanding Amount thereof, then for payment of principal of the Class A-2
Notes up to the Outstanding Amount thereof and then, for payment of principal
of the Class B Notes up to the Outstanding Amount thereof.

Section 7.08.               Purchase
of Contracts for Breach of Representations and Warranties.

Upon a discovery
by the Servicer, the Trust Depositor or the Trustees of a breach of a representation
or warranty of the Seller as set forth in Exhibit J
hereto or as made in any Subsequent Purchase Agreement relating to Subsequent
Contracts that materially adversely affects the Trust’s interest in such
Contract (without regard to the benefits of the Reserve Fund), the party
discovering the breach shall give prompt written notice to the other parties; provided, that the Trustees shall have no duty or obligation
to inquire or to investigate the breach by the Seller of any of such
representations or warranties.  The
Seller, as provided in  the Transfer and
Sale Agreement and in accordance with this Section 7.08, shall reacquire a
Contract at its Purchase Price, two Business Days prior to the first
Determination Date after the Seller becomes aware, or should have become aware,
or receives written notice from the Trustees, the Servicer or the Trust
Depositor of any breach of a representation or warranty of the Seller set forth
in Article III of the Transfer and Sale Agreement that materially and adversely
affects such Contract or the Trust’s interest in such Contract and which breach
has not been cured; provided, however,
that with respect to any Contract described on the List of Contracts with
respect to an incorrect unpaid Principal Balance which the Seller would
otherwise be required to reacquire under the Transfer and Sale Agreement, the
Seller may, in lieu of reacquiring such Contract, deposit in the Collection
Account not later than one Business Day after such Determination Date cash in
an amount sufficient to cure any deficiency or discrepancy; and provided further that with respect to a breach of
representation or warranty relating to the Contracts in the aggregate and not
to any particular Contract the Seller may select Contracts (without adverse selection)
to reacquire such that had such Contracts not been included as part of the
Trust Corpus there would have been no breach of such representation or
warranty; provided further that the failure to
maintain perfection of the security interest in the Motorcycle securing a
Contract in accordance with Section 5.09, shall be deemed to be a breach
materially and adversely affecting the Trust’s interest in the Contract or in
the related Contracts.  Notwithstanding
any other provision of this Agreement, the obligation of the Seller under the
Transfer and Sale Agreement and described in this Section 7.08 shall not
terminate or be deemed released by any party hereto upon a Service Transfer
pursuant to Article VIII.  The reacquisition
obligation described in this Section 7.08 is in no way to be satisfied with
monies in the Reserve Fund.  The sole
remedy of the Issuer, the

 

50

 

Trustees
or the Noteholders against the Seller with respect to a breach of a
representation or warranty of the Seller shall be to require the Seller to
reacquire the related Contract pursuant to this Section 7.08.

Section 7.09.               Reassignment
of Reacquired Contracts.  Upon receipt by the Indenture
Trustee for deposit in the Collection Account of the Purchase Price as
described in Section 7.08, Section 7.10 or Section 7.11, and upon receipt of a
certificate of a Servicing Officer in the form attached hereto as Exhibit G, the Indenture Trustee shall release its lien on
and the Trust shall assign to the Seller or the Servicer, as applicable, all of
the Trust’s right, title and interest in the reacquired or purchased Contract
without recourse, representation or warranty, except as to the absence of
liens, charges or encumbrances created by or arising as a result of actions of
the Trustees.

Section 7.10.               Servicer’s
Purchase Option.  On written notice to the Owner Trustee and
Indenture Trustee at least 20 days prior to a Distribution Date, and provided
that the Pool Balance is then less than 10% of the sum of the Pool Balance as
of the Initial Cutoff Date plus the Pre-Funded Amount as of the Closing Date,
the Servicer may (but is not required to) purchase on that Distribution Date
all outstanding Contracts (and related Contract Assets) at a price equal to the
aggregate unpaid principal balance of the Notes on the previous Distribution
Date plus the aggregate of the Note Interest Distributable Amount for the
current Distribution Date, the Reimbursement Amount (if any) as well as accrued
and unpaid Monthly Servicing Fees and the Indenture Trustee Fee to the date of
such purchase.  Such price shall be
deposited in the Collection Account not later than one (1) Business Day before
such Distribution Date, against the Owner Trustee’s and Indenture Trustee’s
release of the Contracts and the Contract Files to the Servicer.

Section 7.11.               Purchase of Contracts for Breach of Servicing
Obligations.  Upon a discovery by the Servicer or the
Trustees of a breach of any of the covenants of the Servicer set forth in
Section 5.02, 5.06 or 5.09 that materially adversely affects the Trust’s
interest in a Contract (without regard to the benefits of the Reserve Fund),
the party discovering the breach shall give prompt written notice to the other
parties; provided, that the Trustees shall have
no duty or obligation to inquire or to investigate the breach by the Servicer
of any of such covenants.  The Servicer,
in accordance with this Section 7.11, shall purchase such Contract at its
Purchase Price, two Business Days prior to the first Determination Date after
the Servicer becomes aware, or should have become aware, or receives written
notice from the Trustees of any breach described in the preceding sentence
which breach has not been cured; provided, however,
that with respect to a breach of any of the covenants of the Servicer set forth
in Section 5.02, 5.06 or 5.09 relating to the Contracts in the aggregate and
not to any particular Contract the Servicer may select Contracts (without
adverse selection) to purchase such that had such Contracts not been included
as part of the Trust Corpus there would have been no breach of such
covenant.  Notwithstanding any other
provision of this Agreement, the obligation of the Servicer described in this
Section 7.11 shall not terminate or be deemed released by any party hereto upon
a Service Transfer pursuant to Article VIII. 
The purchase obligation described in this Section 7.11 is in no way to
be satisfied with monies in the Reserve Fund. 
Upon Servicer’s payment of

 

51

 

the Purchase Price
of the Contract, any Event of Termination pursuant to Section 8.01(b) arising
as a result of the Servicer’s breach of any of the covenants set forth in
Section 5.02, 5.06 or 5.09 with respect to such Contract shall be deemed not to
have occurred.

ARTICLE EIGHT

 

EVENTS OF TERMINATION;
SERVICE TRANSFER

 

Section 8.01.               Events
of Termination.  “Event of Termination” means the occurrence
of any of the following:

(a)           Any failure by the Servicer or the
Seller to make any payment or deposit required to be made hereunder or in the
Transfer and Sale Agreement (or in any Subsequent Purchase Agreement or
Subsequent Transfer Agreement) and the continuance of such failure for a period
of four Business Days after the date on which such payment or deposit was due;

(b)           Failure on the Servicer’s or the
Seller’s part to observe or perform in any material respect any covenant or
agreement in this Agreement or in the Transfer and Sale Agreement (or in any
Subsequent Purchase Agreement or Subsequent Transfer Agreement) (other than a
covenant or agreement, the breach of which is specifically addressed elsewhere
in this Section) which continues unremedied for 30 days after the date on which
such failure commences;

(c)           Any assignment by the Servicer or the
Seller of its duties or rights hereunder or under the Transfer and Sale
Agreement (or under any Subsequent Purchase Agreement or Subsequent Transfer
Agreement), except as specifically permitted hereunder or thereunder, or any
attempt to make such an assignment;

(d)           An involuntary case under any
applicable bankruptcy, insolvency or other similar law shall have been
commenced in respect of the Servicer or Trust Depositor and shall not have been
dismissed within 90 days, or a court having jurisdiction in the premises shall
have entered a decree or order for relief in respect of either the Servicer or
Trust Depositor in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of either the Servicer or Trust Depositor, or for any substantial
liquidation or winding up of their respective affairs;

(e)           The Servicer or Trust Depositor shall
have commenced a voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or shall have consented to the
entry of an order for relief in an involuntary case under any such law, or
shall have consented to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or sequestrator (or other similar
official) of the Servicer or Trust Depositor, as the case may be, or for any
substantial part of their respective property, or shall have made any general
assignment for the benefit of their respective creditors, or shall have

 

52

 

failed
to, or admitted in writing its inability to, pay its debts as they become due,
or shall have taken any corporate action in furtherance of the foregoing;

(f)            Any failure by the Servicer to
deliver to the Trustees the Monthly Report pursuant to the terms of this
Agreement which remains uncured for five Business Days after the date which
such failure commences;

(g)           Any representation, warranty or
statement of the Servicer made in this Agreement, in any Subsequent Transfer
Agreement or any certificate, report or other writing delivered pursuant hereto
shall prove to be incorrect in any material respect as of the time when the
same shall have been made and the incorrectness of such representation,
warranty or statement has a material adverse effect on the Trust and, within 30
days after written notice thereof shall have been given to the Servicer or the
Trust Depositor by the Indenture Trustee, the circumstances or condition in
respect of which such representation, warranty or statement was incorrect shall
not have been eliminated or otherwise cured.

Section 8.02.               Waiver
of Event of Termination.  The Required Noteholders may,
by written notice delivered to the parties hereto, waive any Event of
Termination other than an Event of Termination described in Section 8.01(a).

Section 8.03.               Service
Transfer.  (a)  If
an Event of Termination has occurred and is continuing and has not been waived
pursuant to Section 8.02, (x) the Required Holders or (y) the Indenture Trustee
may, by written notice delivered to the parties hereto, terminate all (but not
less than all) of the Servicer’s management, administrative, servicing,
custodial and collection functions hereunder (such termination being herein
called a “Service Transfer”).

(b)           Upon receipt of the notice required
by Section 8.03(a) (or, if later, on a date designated therein), all rights,
benefits, fees, indemnities, authority and power of the Servicer under this
Agreement, whether with respect to the Contracts, the Contract Files or
otherwise, shall pass to and be vested in the Indenture Trustee (the “Successor Servicer”) pursuant to and under this Section
8.03; and, without limitation, the Successor Servicer is authorized and
empowered to execute and deliver on behalf of the Servicer, as attorney-in-fact
or otherwise, any and all documents and other instruments, and to do any and
all acts or things necessary or appropriate to effect the purposes of such
notice of termination.  The Servicer
agrees to cooperate with the Successor Servicer in effecting the termination of
the responsibilities and rights of the Servicer hereunder, including, without
limitation, the transfer to the Successor Servicer for administration by it of
all cash amounts which shall at the time be held by the Servicer for deposit,
or have been deposited by the Servicer, in the Collection Account, or for its
own account in connection with its services hereafter or thereafter received
with respect to the Contracts.  The
Servicer shall transfer to the Successor Servicer all records held by the
Servicer relating to the Contracts in such electronic form as the Successor
Servicer may reasonably request and (ii) any Contract Files in the Servicer’s
possession.  In addition, the Servicer
shall permit access to its premises (including all computer records and
programs) to the Successor Servicer or its designee, and shall pay the
reasonable transition expenses of the Successor

 

53

 

Servicer.  Upon a Service Transfer, the Successor
Servicer shall also be entitled to receive the Monthly Servicing Fee for performing
the obligations of the Servicer.

Section 8.04.               Successor
Servicer to Act; Appointment of Successor Servicer. 
On or after a Service Transfer pursuant to Section 8.03, the Successor
Servicer shall be the successor in all respects to the Servicer in its capacity
as servicer under this Agreement and the transactions set forth or provided for
herein and shall be subject to all the responsibilities, duties and liabilities
relating thereto placed on the Servicer by the terms and provisions hereof, and
the terminated Servicer shall be relieved of such responsibilities, duties and
liabilities arising after such Service Transfer; provided,
however, that (i) the Successor Servicer will not assume any
obligations of the Servicer described in Section 8.08 and (ii) the Successor
Servicer shall not be liable for any acts or omissions of the Servicer
occurring prior to such Service Transfer or for any breach by the Servicer of
any of its representations and warranties contained herein or in any related
document or agreement. Notwithstanding the above, if the Successor Servicer is
legally unable or unwilling to act as Servicer, the Required Holders may
appoint a successor servicer (other than the original Servicer or an Affiliate
of the original Servicer) to act as Servicer. 
As compensation therefor, the successor servicer shall be entitled to
receive reasonable compensation equal to the Monthly Servicing Fee.  The Owner Trustee, Noteholders and the
Indenture Trustee and such successor shall take such action, consistent with
this Agreement, as shall be necessary to effectuate any such succession; provided, however, that the Indenture
Trustee shall not be required to make payment for compensation or any other
payment in order to effectuate such succession. 
To the extent the terminated Servicer has made Advances, it shall be
entitled to reimbursement of the same notwithstanding its termination
hereunder, to the same extent as if it had continued to service the Contracts
hereunder.

Section 8.05.               Notification
to Securityholders.  (a) 
Promptly following the occurrence of any Event of Termination, the
Servicer shall give written notice thereof to the Trustees, the Trust Depositor
and each Rating Agency at the addresses described in Section 11.04 hereof and
to the Noteholders at their respective addresses appearing on the Note
Register.

(b)           Within 10 days following any
termination or appointment of a Successor Servicer pursuant to this Article
VIII, the Indenture Trustee shall give written notice thereof to each Rating
Agency and the Trust Depositor at the addresses described in Section 11.04
hereof, and to the Noteholders at their addresses appearing on the Note
Register.

Section 8.06.               Effect
of Transfer.  (a) 
After a Service Transfer, the terminated Servicer shall have no further
obligations with respect to the management, administration, servicing, custody
or collection of the Contracts and the Successor Servicer appointed pursuant to
Section 8.04 shall have all of such obligations, except that the terminated
Servicer will transmit or cause to be transmitted directly to the Successor
Servicer for its own account, promptly on receipt and in the same form in which
received, any amounts (properly endorsed where required for the Successor
Servicer to collect them) received as payments upon or otherwise in connection
with the Contracts.

 

54

 

(b)           A Service Transfer shall not affect
the rights and duties of the parties hereunder (including but not limited to
the indemnities of the Servicer)  other
than those relating to the management, administration, servicing, custody or
collection of the Contracts.

Section 8.07.               Database
File.  The Servicer will provide the Successor
Servicer with a magnetic tape (in a format reasonably acceptable to the
Indenture Trustee and the Servicer) containing the database file for each
Contract (i) as of the Initial Cutoff Date, (ii) the Subsequent Cutoff Date,
(iii) thereafter, as of the last day of the preceding Due Period on each
Determination Date prior to a Service Transfer and (iv) on and as of the Business
Day before the actual commencement of servicing functions by the Successor
Servicer following the occurrence of a Service Transfer.

Section 8.08.               Successor
Servicer Indemnification.  The Servicer shall defend,
indemnify and hold the Successor Servicer and any officers, directors,
employees or agents of the Successor Servicer harmless against any and all
claims, losses, penalties, fines, forfeitures, legal fees and related costs,
judgments and any other costs, fees, and expenses that the Successor Servicer
may sustain in connection with the claims asserted at any time by third parties
against the Successor Servicer which result from (i) any willful or grossly
negligent act taken or omission by the Servicer or (ii) a breach of any
representations of the Servicer in Section 3.02 hereof.  The indemnification provided by this Section
8.08 shall survive the termination of this Agreement.

Section 8.09.               Responsibilities
of the Successor Servicer.  The Successor Servicer will
not be responsible for delays attributable to the Servicer’s failure to deliver
information, defects in the information supplied by the Servicer or other
circumstances beyond the control of the Successor Servicer.

The Successor
Servicer will make arrangements with the Servicer for the prompt and safe
transfer of, and the Servicer shall provide to the Successor Servicer, all
necessary servicing files and records, including (as deemed necessary by the
Successor Servicer at such time): (i) microfiche loan documentation, (ii)
servicing system tapes, (iii) Contract payment history, (iv) collections
history and (v) the trial balances, as of the close of business on the day
immediately preceding conversion to the Successor Servicer, reflecting all
applicable loan information.

The Successor
Servicer shall have no responsibility and shall not be in default hereunder nor
incur any liability for any failure, error, malfunction or any delay in
carrying out any of its duties under this Agreement if any such failure or
delay results from the Successor Servicer acting in accordance with information
prepared or supplied by a Person other than the Successor Servicer or the
failure of any such Person to prepare or provide such information.  The Successor Servicer shall have no
responsibility, shall not be in default and shall incur no liability (i) for
any act or failure to act by any third party, including the Servicer, the Trust
Depositor or the Trustees or for any inaccuracy or omission in a notice or
communication received by the Successor Servicer from any third party or (ii)
which is due to or results from the invalidity,

 

55

 

unenforceability
of any Contract with applicable law or the breach or the inaccuracy of any
representation or warranty made with respect to any Contract.

Section 8.10.               Limitation
of Liability of Servicer.  (a)  Neither the Servicer nor any of the
directors, officers, employees or agents of the Servicer shall be under any
liability to the Trust, the Owner Trustee, the Indenture Trustee or the
Noteholders, except as provided under this Agreement, for any action taken or
for refraining from the taking of any action pursuant to this Agreement or for
errors in judgment; provided, however, that
this provision shall not protect the Servicer or any such person against any
liability that would otherwise be imposed by reason of willful misfeasance, bad
faith or negligence in the performance of duties or by reason of reckless
disregard of obligations and duties under this Agreement.  The Servicer and any director, officer,
employee or agent of the Servicer may rely in good faith on the advice of
counsel or on any document of any kind, prima facie properly executed and
submitted by any Person respecting any matters arising under this Agreement.

(b)           Except as provided in this Agreement,
the Servicer shall not be under any obligation to appear in, prosecute or
defend any legal action that shall not be incidental to its duties to service
the Contracts in accordance with this Agreement, and that in its opinion may
cause it to incur any expense or liability; provided, however,
that the Servicer may undertake any reasonable action that it may deem
necessary or desirable in respect of the Transaction  Documents and the rights and duties of the
parties to the Transaction Documents and the interests of the Noteholders under
the Indenture.  In such event, the legal
expenses and costs of such action and any liability resulting therefrom shall
be expenses, costs and liabilities of the Servicer and the Servicer will not be
entitled to be reimbursed therefor.

Section 8.11.               Merger
or Consolidation of Servicer.  Any Person
into which the Servicer may be merged or consolidated, or any corporation, or
other entity resulting from any merger conversion or consolidation to which the
Servicer shall be a party, or any Person succeeding to all or substantially all
of the business of the Servicer (which Person assumes the obligations of the
Servicer), shall be the successor of the Servicer hereunder, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding.  The Servicer shall give prior written notice
of any such merger or consolidation to which it is a party to the Issuer, the
Owner Trustee, the Indenture Trustee and the Rating Agencies.

Section 8.12.               Servicer
Not to Resign.  Subject to the provisions of Section 8.03,
Servicer shall not resign from the obligations and duties hereby imposed on it
as Servicer under this Agreement except upon determination that the performance
of its duties under this Agreement shall no longer be permissible under
applicable law.  Notice of any such
determination permitting the resignation of Servicer shall be communicated to
the Owner Trustee and the Indenture Trustee at the earliest practicable time
(and, if such communication is not in writing, shall be confirmed in writing at
the earliest practicable time) and any such determination shall be evidenced by
an Opinion of Counsel to such effect delivered to the Owner Trustee and the
Indenture Trustee concurrently with or promptly after such notice. No such
resignation shall 

 

56

become effective until the Indenture Trustee
shall have assumed the responsibilities and rights of the predecessor Servicer
in accordance with Section 8.04.

 

Section 8.13.               Appointment
of Subservicer.  So long as Harley-Davidson Credit Corp. acts
as the Servicer, the Servicer may at any time without notice or consent perform
specific duties as servicer under this Agreement through other subcontractors; provided, however, that, in each case, no such delegation or
subcontracting shall relieve the Servicer of its responsibilities with respect
to such duties as to which the Servicer shall remain primarily responsible with
respect thereto.

 

ARTICLE NINE

REPORTS

Section 9.01.               Monthly
Reports.  No later than 10:00 a.m., Chicago, Illinois
time, two Business Days prior to each Distribution Date, the Servicer shall
deliver to the Trustees and each Rating Agency a Monthly
Report.

Section 9.02.               Officer’s
Certificate.  Each Monthly Report delivered pursuant to
Section 9.01 shall be accompanied by a certificate of a Servicing Officer
substantially in the form of Exhibit C,
certifying the accuracy of the Monthly Report and that no Event of Termination
or event that with notice or lapse of time or both would become an Event of
Termination has occurred, or if such event has occurred and is continuing,
specifying the event and its status.

Section 9.03.               Other
Data.  In addition, the Trust Depositor and the
Servicer shall, upon the request of the Trustees, Moody’s or Standard &
Poor’s, furnish the Trustees, Moody’s or Standard & Poor’s, as the case may
be, such underlying data as may be reasonably requested.

Section 9.04.               Report on Assessment of Compliance with Servicing Criteria and
Attestation; Annual Officer’s Certificate.

(a)  The Servicer will:

(i)            deliver to the
Indenture Trustee and each Rating Agency within 90 days after the end of each
calendar year a report on its assessment of compliance with the servicing
criteria applicable to it during the preceding calendar year, including
disclosure of any material instance of non-compliance identified by the
Servicer, as required by Rule 13a-18 and 15d-18 of the Exchange Act and Item
1122 of Regulation AB under the Securities Act;

(ii)           cause a firm of
registered public accountants that is qualified and independent within the
meaning of Rule 2-01 of Regulation S-X under the Securities Act to deliver to
the Indenture Trustee and each Rating Agency within 90 days after the end

 

57

 

of each calendar year an attestation report that
satisfies the requirements of Rule 13a-18 or Rule 15d-18 under the Exchange Act
and Item 1122 of Regulation AB, as applicable, on the Servicer’s assessment of
compliance with servicing criteria with respect to the prior calendar
year.  Such attestation report will be
addressed to the board of directors of the Servicer and to the Trust, the Trust
Depositor and the Indenture Trustee. 
Such attestation report will be in accordance with Rules 1-02(a)(3) and
2-02(g) of Regulation S-X under the Securities Act and the Exchange Act.  Such registered public accounting firm may
render other services to the Servicer, the Depositor or the Seller, but such
firm must indicate in each attestation report that it is qualified and
independent within the meaning of Rule 2-01 of Regulation S-X under the
Securities Act; and

(iii)          deliver to the
Indenture Trustee and each Rating Agency within 90 days after the end of each
calendar year, an Officer’s Certificate to the effect that (i) a review of the
Servicer’s activities during the immediately preceding calendar year (or, in
the case of the first certificate, since the Closing Date) and of its
performance under this Agreement has been made under the supervision of the
officer signing such certificate and (ii) to the best of such officer’s
knowledge, based on such review, the Servicer has fulfilled in all material
respects all of its obligations under this Agreement throughout such calendar
year (or applicable portion of such calendar year), or, if there has been a
failure to fulfill any such obligation in any material respect, specifying each
such failure known to such officer and the nature and status of such failure.

(b)           If the Trust is not required to file
periodic reports under the Exchange Act, or otherwise required by law to file
the reports described in clause (a) above, such reports may be delivered on or
before April 30 of each calendar year.  A
copy of such reports may be obtained by any Noteholder by a request in writing
to the Indenture Trustee.

Section 9.05.               Monthly
Reports to Noteholders.  (a)  On or before two Business Days prior to each
Distribution Date, the Servicer shall prepare and, concurrently with each
distribution to Noteholders pursuant to Article VII, deliver to the Indenture
Trustee, in its capacity as Note Registrar and Paying Agent, shall cause to be
delivered and mailed to each Noteholder at the addresses appearing on the Note
Register a statement as of the related Distribution Date substantially in the
form of Exhibit I hereto (the “Monthly Report”) setting forth at least the following
information:

(i)            the amount of
Noteholder’s principal distribution;

(ii)           the amount of
Noteholder’s interest distribution;

(iii)          the amount of fees
payable out of the Trust, separately identifying the Monthly Servicing Fee and
the Indenture Trustee Fee;

(iv)          the amount of any
Note Interest Carryover Shortfall and Note Principal Carryover Shortfall on
such Distribution Date and the change in such amounts from those with respect
to the immediately preceding Distribution Date;

 

58

(v)           the Note Pool Factor
for each Class of Notes, in each case of such Distribution Date;

(vi)          the amount of the
distributions described in (i) or (ii) above payable pursuant to a claim on the
Reserve Fund or from any other source not constituting Available Monies and the
amount remaining in the Reserve Fund after giving effect to all deposits and
withdrawals from the Reserve Fund on such date;

(vii)         the amount of any
Mandatory Redemption to be made on such Distribution Date;

(viii)        for each
Distribution Date during the Funding Period, the remaining Pre-Funded
Amount;

(ix)           for each
Distribution Date during the Funding Period to and including the Distribution
Date immediately following the end of the Funding Period, the Principal Balance
and number of Subsequent Contracts conveyed to the Trust during the related Due
Period;

(x)            the remaining
Principal Balance after giving effect to the distribution of principal (and
Mandatory Redemption, if any) to each class of Notes to be made on such
Distribution Date;

(xi)           the number and
aggregate principal balance of Contracts delinquent 30-59 days, 60-89
days and 90 or more days, computed as of the end of the related Due Period;

(xii)          the number and
aggregate principal balance of Contracts that became Liquidated Contracts
during the immediately preceding Due Period, the amount of liquidation proceeds
for such Due Period, the amount of liquidation expenses being deducted from
liquidation proceeds for such Due Period, the Net Liquidation Proceeds and the
Net Liquidation Losses for such Due Period;

(xiii)         the Loss Ratio,
Average Loss Ratio, Cumulative Loss Ratio, the Delinquency Ratio and the
Average Delinquency Ratio as of such Distribution Date;

(xiv)        the number of
Contracts and the aggregate Principal Balance of such Contracts, as of the
first day of the Due Period relating to such Distribution Date (after giving
effect to payments received during such Due Period and to any transfers of
Subsequent Contracts to the Trust occurring on or prior to such Distribution
Date);

(xv)         the aggregate
Principal Balance and number of Contracts that were reacquired by the Seller
pursuant to the Agreement with respect to the related Due Period, identifying
the Purchase Price for such Contracts;

 

59

 

(xvi)        the aggregate
Principal Balance and number of Contracts that were purchased by the Servicer
pursuant to the Agreement with respect to the related Due Period, identifying
the Purchase Price for such Contracts;

(xvii)       the amount otherwise
distributable on the Class B Notes that has instead been distributed to one or
more senior Classes of Notes on such Distribution Date;

(xviii)      the amount of
Advances made by the Servicer in respect of the related Contracts and the
related Due Period and the amount of unreimbursed Advances in respect of the
related Contracts determined by the Servicer to be Defaulted Contracts; and

(xix)         such other customary
factual information as is available to the Servicer as the Servicer deems
necessary and can reasonably obtain from its existing data base to enable the
Noteholders and the Certificateholder to prepare their tax returns.

(b)           Within the prescribed period of time
for tax reporting purposes after the end of each calendar year, the Servicer
shall prepare and the Note Registrar shall mail to each Noteholder of record at
any time during such year a report as to the aggregate amounts reported
pursuant to subsections (i), (ii), (iii) and (iv) of this Section, attributable
to such Noteholder.

(c)           The
Indenture Trustee shall send the
Monthly Report to (i) the initial Clearing Agency under the Note Depository
Agreement or any qualified successor appointed pursuant to Section 2.11 of the
Indenture and (ii) each Securityholder or party to this Agreement.

Section 9.06.               Regulation AB.

The parties hereto
acknowledge that interpretations of the requirements of Regulation AB may
change over time, whether due to interpretive guidance provided by the
Securities and Exchange Commission or its staff, consensus among participants
in the asset backed securities markets, advice of counsel, or otherwise, and
agree to comply with reasonable requests (which are practical from a timing
perspective) made by the Trust Depositor or the Servicer in good faith for
delivery of information under these provisions on the basis of evolving
interpretations of Regulation AB.  In
connection therewith, the Owner Trustee and the Indenture Trustee shall
reasonably cooperate with the Servicer in connection with the satisfaction of
the Trust Depositor’s and the Trust’s reporting requirements under the Exchange
Act, subject to reimbursement of expenses in accordance with the Transaction
Documents.

Section 9.07.               Information
to Be Provided by the Indenture Trustee.

(a)           As soon as available but no later
than March 15 of each calendar year for so long as the Issuer is required
to report under the Exchange Act, commencing in 2007, the Indenture Trustee
shall:

(i)            deliver to the
Servicer a report regarding the Indenture Trustee’s assessment of compliance
with the Servicing Criteria during the immediately preceding

 

60

 

calendar
year, as required under paragraph (b) of Rule 13a-18, Rule 15d-18 of the
Exchange Act and Item 1122 of Regulation AB substantially in the form
attached hereto as Exhibit D, or
such other form as mutually agreed upon by the Servicer and the Indenture
Trustee. Such report shall be signed by an authorized officer of the Indenture
Trustee, and shall address each of the Servicing Criteria specified in Exhibit E or such criteria as mutually
agreed upon by the Servicer and the Indenture Trustee;

(ii)           deliver to the Servicer a
report of a registered public accounting firm that attests to, and reports on,
the assessment of compliance made by the Indenture Trustee and delivered
pursuant to the preceding paragraph. Such attestation shall be in accordance
with Rules 1-02(a)(3) and 2-02(g) of Regulation S-X under the Securities Act
and the Exchange Act; and

(iii)          deliver to the
Servicer and any other Person that will be responsible for signing the
certification required by Rules 13a-14(d) and 15d-14(d) under the Exchange Act
(pursuant to Section 302 of the Sarbanes-Oxley Act of 2002) (a “Sarbanes Certification”) on behalf of the
Issuer or the Servicer a certification substantially in the form attached
hereto as Exhibit F or such form
as mutually agreed upon by the Servicer and the Indenture Trustee.

The Indenture Trustee acknowledges that the parties identified in clause
(iii) above may rely on the certification provided by the Indenture
Trustee pursuant to such clause in signing a Sarbanes Certification and filing
such with the Securities and Exchange Commission.

Section 9.08.               Exchange
Act Reporting.

(a)           Form 10-D Filings.  So long as the Issuer is required to report
under the Exchange Act, no later than each Distribution Date, each of the
Indenture Trustee and the Owner Trustee shall notify the Servicer of any Form
10-D Disclosure Item with respect to such Person, together with a description
of any such Form 10-D Disclosure Item in form and substance reasonably
acceptable to the Servicer.

(b)           Form 8-K
Filings.  So long as the Issuer is
required to report under the Exchange Act, each of the Indenture Trustee and
the Owner Trustee shall promptly notify the Servicer, but in no event later
than one (1) Business Day after its occurrence, of any Reportable Event of
which such Person (or in the case of the Owner Trustee and the Indenture
Trustee, a Responsible Officer of such Person) has actual knowledge.  Each Person shall have actual knowledge of
any such event only to the extent that it relates to such Person or any action
or failure to act by such Person.

(c)           Form 10-K Filings.  So long as the Issuer is required to report
under the Exchange Act, no later than March 15 of each year, commencing in
2007, the Indenture Trustee and the Owner Trustee shall notify the Servicer of
any Form 10-K Disclosure

 

61

Item,
together with a description of any such Form 10-K Disclosure Item in form and
substance reasonably acceptable to the Servicer.

ARTICLE
TEN

TERMINATION

Section 10.01.            Sale
of Trust Assets.

(a)           [Intentionally
Omitted].

(b)           As
described in Article Nine of the Trust Agreement, notice of any termination of
the Trust shall be given by the Servicer to the Owner Trustee and the Indenture
Trustee as soon as practicable after the Servicer has received notice thereof.

(c)           Following
the satisfaction and discharge of the Indenture and the payment in full of the
principal of and interest on the Notes, the Certificateholder will succeed to
the rights of the Noteholders hereunder and the Owner Trustee will succeed to
the rights of, and assume the obligations of, the Indenture Trustee pursuant to
this Agreement.

ARTICLE
ELEVEN

 

MISCELLANEOUS

Section 11.01.            Amendment.

(a)           This
Agreement may be amended by the Trust Depositor, the Servicer, the Indenture
Trustee and the Owner Trustee on behalf of the Issuer, collectively, without the
consent of any Securityholders, (i) to cure any ambiguity, to correct or
supplement any provisions in this Agreement which are inconsistent with the
provisions herein or in the Prospectus, or to add any other provisions with
respect to matters or questions arising under this Agreement that shall not be
inconsistent with the provisions of this Agreement or the Prospectus, (ii) to
add or provide any credit enhancement for any Class of Notes and (iii) to
change any provision applicable for determining the Specified Reserve Fund
Balance or the manner in which the Reserve Fund is funded; provided,
however that any such action shall not, as evidenced by an Opinion
of Counsel, adversely affect in any material respect the interests of any
Securityholder and provided, further, that in connection with any amendment
pursuant to clause (iii) above, the Servicer shall deliver to the Owner Trustee
and the Indenture Trustee a letter from Standard & Poor’s (so long as
Standard & Poor’s is a Rating Agency) and Moody’s (so long as Moody’s is a
Rating Agency) to the effect that such amendment will not cause its
then-current rating on any Class of Notes to be qualified, reduced or
withdrawn.

 

62

 

(b)           This
Agreement may also be amended from time to time by the Trust Depositor, the
Servicer, the Indenture Trustee and the Owner Trustee on behalf of the Issuer,
with the consent of the Required Holders, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of modifying in any manner the rights of the Noteholders or
the Certificateholder; provided, however,
that no such amendment shall increase or reduce in any manner the amount of, or
accelerate or delay the timing of (i)(a) collections of payments on the Contracts
or distributions that shall be required to be made on any Note or any Interest
Rate, (b) except as otherwise provided in Section 11.01(a), the Specified
Reserve Fund Balance or the manner in which the Reserve Fund is funded or (ii)
reduce the aforesaid percentage of the Outstanding Amount of the Notes, the
Holders of which are required to consent to any such amendment, without the
consent of the Holders of all Notes of the relevant Class then outstanding and
the Certificate.

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

(d)           Promptly
after the execution of any such amendment or consent, the Owner Trustee and the
Indenture Trustee, as the case may be, shall furnish written notification of
the substance of such amendment or consent to each Noteholder.  It shall not be necessary for the consent of
Noteholders pursuant to Section 11.01(b) to approve the particular form of any
proposed amendment or consent, but it shall be sufficient if such consent shall
approve the substance thereof.  The
manner of obtaining such consents and of evidencing the authorization by
Noteholders of the execution thereof shall be subject to such reasonable
requirements as the Owner Trustee or the Indenture Trustee may prescribe.

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

(f)            Notwithstanding anything to the
contrary in this Section 11.01, the Trust Depositor or the Servicer, acting on
behalf of the Trust Depositor, may request each Rating Agency to approve a
formula for determining the Specified Reserve Fund Balance that is different
from the formula or result determined from the current definition thereof
contained herein so as to result in a decrease in the amount of the Specified
Reserve Fund Balance or the manner by which such Reserve Fund is funded.  If each Rating Agency delivers to the
Indenture Trustee and Owner Trustee a written notice or letter stating that
such action will not result in a reduction or withdrawal of the rating of any
outstanding Class with respect to which a Rating Agency has previously issued a
rating as a result or such action, then the Specified Reserve Fund Balance will
be theretofore determined in accordance with such changed formula or manner of

 

63

 

funding,
and an amendment to this Agreement effecting such change may be executed
without the consent of any Securityholder.

Section 11.02.            Protection
of Title to Trust.

(a)           The Servicer shall file such
financing statements and cause to be filed such continuation statements, all in
such manner and in such places as may be required by law fully to preserve,
maintain and protect the interest of the Issuer, the Securityholders and the
Indenture Trustee in the Contracts and in the proceeds thereof.  The Servicer shall deliver (or cause to be
delivered) to the Owner Trustee and the Indenture Trustee file-stamped copies
of, or filing receipts for, any document filed as provided above, as soon as
available following such filing.  The
Trust Depositor authorizes the Trust to file financing statements describing
the Trust Corpus as collateral.

(b)           Neither the Seller, the Trust
Depositor nor the Servicer shall change its name, identity or corporate
structure in any manner that would, could or might make any financing statement
or continuation statement filed in accordance with Section 4.02 seriously
misleading within the meaning of § 9-507 of the UCC, unless it shall have given
the Issuer, the Owner Trustee and the Indenture Trustee at least 30 days’ prior
written notice thereof and shall have promptly filed appropriate amendments to
all previously filed financing statements or continuation statements.

(c)           The Seller and the Trust Depositor
shall give the Issuer, the Owner Trustee and the Indenture Trustee at least 30
days’ prior written notice of any change in its state of incorporation.  The Servicer shall at all times maintain each
office from which it shall service Contracts, and its principal executive
office, within the United States.

(d)           The Servicer shall maintain or cause
to be maintained accounts and records as to each Contract accurately and in
sufficient detail to permit (i) the reader thereof to know at any time the
status of such Contract, including payments and recoveries made and payments owing
(and the nature of each) and (ii) reconciliation between payments or recoveries
on (or with respect to) each Contract and the amounts from time to time
deposited in or credited to the Collection Account in respect of each Contract.

(e)           The Servicer shall maintain or cause
to be maintained its computer systems so that, from and after the time of
transfer under this Agreement of the Contracts, the Servicer’s master computer
records (including any backup archives) that shall refer to a Contract indicate
clearly the interest of the Issuer and the Indenture Trustee in such Contract
and that such Contract is owned by the Issuer and has been pledged to the
Indenture Trustee.  Indication of the
Issuer’s ownership of and the Indenture Trustee’s interest in a Contract shall
be deleted from or modified on the Servicer’s computer systems when, and only
when, the related Contract shall have been paid in full or reacquired or shall
have become a Liquidated Contract.

(f)            If
at any time the Trust Depositor or the Servicer shall propose to sell, grant a
security interest in, or otherwise transfer any interest in motorcycle
conditional sales contracts or 

 

64

promissory
note and security agreements to any prospective purchaser, lender or other
transferee, the Servicer shall give or cause to be given to such prospective
purchaser, lender or other transferee computer tapes, records or print-outs
(including any restored from back-up archives) that, if they shall refer in any
manner whatsoever to any Contract, shall indicate clearly that such Contract
has been transferred and is owned by the Issuer and has been pledged to the
Indenture Trustee.

(g)           The
Servicer shall permit the Owner Trustee and its agents, at any time during
normal business hours, to inspect, audit and make copies of and abstracts from
the Servicer’s records regarding any Contract.

(h)           Upon
request, the Servicer shall furnish to the Owner Trustee and the Indenture
Trustee, within five Business Days, a list of all Contracts then held as part
of the Trust Estate, together with a reconciliation of such list to the List of
Contracts and to each of the Monthly Reports furnished before such request
indicating removal of Contracts from the Trust.

(i)            The
Servicer shall deliver to the Owner Trustee, the Indenture Trustee and each
Rating Agency promptly after the execution and delivery of this Agreement and
of each amendment hereto, an Opinion of Counsel either (A) stating that, in the
opinion of such counsel, all financing statements and continuation statements
have been executed and filed that are necessary fully to preserve and protect
the interest of the Owner Trustee and the Indenture Trustee and reciting the
details of each filings or referring to prior Opinions of Counsel in which such
details are given, or (B) stating that, in the opinion of such counsel, no such
action shall be necessary to preserve and protect such interest.

Section 11.03.            Governing
Law.  This Agreement shall be construed in
accordance with the laws of the State of Illinois and the obligations, rights,
and remedies of the parties under the Agreement shall be determined in
accordance with such laws, except that the duties of the Owner Trustee shall be
governed by the laws of the State of Delaware.

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

(i)            If
to the Servicer or Seller:

Harley-Davidson
Credit Corp.

150
South Wacker Drive, Suite 3100

Chicago,
Illinois 60606

Attention: Perry A. Glassgow

 

65

Telecopier No.: (312) 368-4372

(ii)           If
to the Trust Depositor:

Harley-Davidson
Customer Funding Corp.

3850
Arrowhead Drive

Carson City, Nevada 89706

Attention:  Perry A. Glassgow

Telecopier No.: (775) 886-3490

with a copy to:

Harley-Davidson Credit Corp.

150 South Wacker Drive, Suite 3100

Chicago, Illinois  60606

Attention:  Perry A. Glassgow

Telecopier No.:   (312) 368-4372

(iii)          If
to the Indenture Trustee:

The Bank of New York Trust Company, N.A.

2 North LaSalle Street

Suite 1020

Chicago, Illinois 60602

Attention:  Corporate Trust
Administration

 

Telecopier No.: 
(312) 827-8562

(iv)          If
to the Owner Trustee:

Wilmington
Trust Company

Rodney
Square North

1100
North Market Street

Wilmington,
Delaware 19890-0001

Attention: Corporate Trust Administration

Telecopier No.: (302) 636-4140

 

(v)           If
to Moody’s:

Moody’s
Investors Service, Inc.

99
Church Street

New
York, New York 10007

 

66

 

Attention: ABS Monitoring Department

 

Telecopier No.: (212) 553-1350

(vi)          If
to Standard & Poor’s:

Standard
& Poor’s Ratings Services, a

division
of The McGraw Hill Companies, Inc.

55
Water Street

New York, New York 10004

Telecopier No.: (212) 438-2657

(vii)         If
to the Underwriters:

At the address set forth in
the Underwriting Agreement

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

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

Section 11.06.            Assignment. 
Notwithstanding anything to the contrary contained herein, as provided
in Sections 6.03 and 8.03, this Agreement may not be assigned by the Trust
Depositor or the Servicer without the prior written consent of Securityholders
aggregating not less than 66-2/3% of each Class.

Section 11.07.            Third
Party Beneficiaries.  Except as otherwise specifically provided
herein, the parties hereto hereby manifest their intent that no third party
shall be deemed a third party beneficiary of this Agreement, and specifically
that the Obligors are not third party beneficiaries of this Agreement.

Section 11.08.            Counterparts. 
This Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall together constitute but one and the
same instrument.

Section 11.09.            Headings. 
The headings of the various Articles and Sections herein are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.

 

67

 

Section 11.10.            No
Bankruptcy Petition; Disclaimer and Subordination. 
(a) Each of the Seller, the Indenture Trustee, the Servicer, the Owner Trustee
and each Holder (by acceptance of the applicable Securities) covenants and
agrees that, prior to the date that is one year and one day after the payment
in full of all amounts owing in respect of all outstanding Securities, it will
not institute against the Trust Depositor, or the Trust, or join any other
Person in instituting against the Trust Depositor or the Trust, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings or other
similar proceedings under the laws of the United States or any state of the
United States.  This Section 11.10 will
survive the termination of this Agreement.

(b)           The Trust acknowledges and agrees
that the Certificate represents a beneficial interest in the Trust and Trust
Corpus only and the Securities do not represent an interest in any assets
(other than the Trust Corpus) of the Trust Depositor (including by virtue of
any deficiency claim in respect of obligations not paid or otherwise satisfied
from the Trust Assets and proceeds thereof). 
In furtherance of and not in derogation of the foregoing, to the extent
that the Trust Depositor enters into other securitization transactions, the
Trust acknowledges and agrees that it shall have no right, title or interest in
or to any assets (or interests therein) other than the Trust Assets conveyed or
purported to be conveyed (whether by way of a sale, capital contribution or by
the granting of a Lien) by the Trust Depositor to any Person other than the
Trust (the “Other Assets”).

To the extent that
notwithstanding the agreements contained in this Section, the Trust or any
Securityholder, either (i) asserts an interest in or claim to, or benefit from
any Other Assets, whether asserted against or through the Trust Depositor or
any other Person owned by the Trust Depositor, or (ii) is deemed to have any
interest, claim or benefit in or from any Other Assets, whether by operation of
law, legal process, pursuant to applicable provisions of Insolvency Laws or
otherwise (including without limitation pursuant to Section 1111(b) of the
federal Bankruptcy Code, as amended) and whether deemed asserted against or
through the Trust Depositor or any other Person owned by the Trust Depositor,
then the Trust and each Securityholder by accepting a Note or Certificate further
acknowledges and agrees that any such interest, claim or benefit in or from the
Other Assets is and shall be expressly subordinated to the indefeasible payment
in full of all obligations and liabilities of the Trust Depositor which, under
the terms of the documents relating to the securitization of the Other Assets,
are entitled to be paid from, entitled to the benefits of, or otherwise secured
by such Other Assets (whether or not any such entitlement or security interest
is legally perfected or otherwise entitled to a priority of distribution under
applicable law, including Insolvency Laws, and whether asserted against the
Trust Depositor or any other Person owned by the Trust Depositor) including,
without limitation, the payment of post-petition interest on such other
obligations and liabilities.  This
subordination agreement shall be deemed a subordination agreement within the
meaning of Section 510(a) of the Bankruptcy Code.  Each Securityholder is deemed to have
acknowledged and agreed that no adequate remedy at law exists for a breach of
this Section 11.10 and that the terms and provisions of this Section 11.10 may
be enforced by an action for specific performance.

 

68

 

(c)           The provisions of this Section 11.10
shall be for the third party benefit of those entitled to rely thereon and
shall survive the termination of this Agreement.

Section 11.11.            Limitation
of Liability of Owner Trustee and Indenture Trustee.

(a)           Notwithstanding anything contained
herein to the contrary, this Agreement has been executed by Wilmington Trust
Company, not in its individual capacity but solely in its capacity as Owner
Trustee of the Issuer, and in no event shall Wilmington Trust Company in its
individual capacity or any beneficial owner of the Issuer have any liability for  the representations, warranties, covenants,
agreements or other obligations of the Issuer hereunder, as to all of which
recourse shall be had solely to the assets of the Issuer.  For all purposes of this Agreement, in the
performance of any duties or obligations of the Issuer hereunder, the Owner
Trustee shall be subject to, and entitled to the benefits of, the terms and
provisions of Articles Six, Seven and Eight of the Trust Agreement.

(b)           Notwithstanding anything contained
herein to the contrary, this Agreement has been executed by The Bank of New
York Trust Company, N.A., not in its individual capacity but solely as
Indenture Trustee, and in no event shall The Bank of New York Trust Company,
N.A. have any liability for the representations, warranties, covenants,
agreements or other obligations of the Issuer hereunder or in any of the
certificates, notices or agreements delivered pursuant hereto, as to all of
which recourse shall be had solely to the assets of the Issuer.

[signature page follows]

 

69

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

HARLEY-DAVIDSON MOTORCYCLE TRUST 2006-2

	
  By:

  	
  Wilmington
  Trust Company, not in its individual capacity but solely as Owner Trustee on
  behalf of the Trust

  
	
   

   

  
	
  By:

  	
  /s/
  JOANN A. ROZELL

  
	
   

  	
  Printed
  Name:

  	
  Joann
  A. Rozell

  
	
   

  	
  Title:

  	
  Assistant
  Vice President

  

HARLEY-DAVIDSON
CUSTOMER FUNDING CORP., as Trust Depositor

	
  By:

  	
  /s/
  PERRY A. GLASSGOW

  
	
   

  	
  Printed
  Name:

  	
  Perry
  A. Glassgow

  
	
   

  	
  Title:

  	
  Vice
  President and Treasurer

  

HARLEY-DAVIDSON
CREDIT CORP., as Servicer

	
  By:

  	
  /s/
  PERRY A. GLASSGOW

  
	
   

  	
  Printed
  Name:

  	
  Perry
  A. Glassgow

  
	
   

  	
  Title:

  	
  Vice
  President and Treasurer

  

THE BANK OF NEW YORK TRUST COMPANY, N.A.,

not in its individual capacity but solely as
Indenture Trustee

	
  By:

  	
  /s/
  CYNTHIA L. DAVIS

  
	
   

  	
  Printed
  Name:

  	
  Cynthia
  L. Davis

  
	
   

  	
  Title:

  	
  Vice
  President

  

 

 

Signature
Page to Sale and Servicing Agreement

 

 

 

Exhibit
A

[Form of Assignment]

In accordance with
the Sale and Servicing Agreement (the “Sale and Servicing
Agreement”) dated as of May 1, 2006 made by and between the
undersigned, as Trust Depositor  (“Trust Depositor”), Harley-Davidson Credit Corp., as Servicer
(“HDCC”), The Bank of New York Trust Company,
N.A., as Indenture Trustee and Harley-Davidson Motorcycle Trust 2006-2 (the “Trust”), as assignee thereunder, the undersigned does
hereby sell, transfer, convey and assign, set over and otherwise convey to the
Trust (i) all the right, title and interest of the Trust Depositor in and to
the Initial Contracts listed on the initial List of Contracts delivered on the
Closing Date (including, without limitation, all security interests and all
rights to receive payments which are collected pursuant thereto after the
Initial Cutoff Date, including any liquidation proceeds therefrom, but
excluding any rights to receive payments which were collected pursuant thereto
on or prior to the Initial Cutoff Date), (ii) all rights of the Trust Depositor
under any physical damage or other individual insurance policy (and rights
under a “forced placed” policy, if any), any debt
insurance policy or any debt cancellation agreement relating to any such
Contract, an Obligor or a Motorcycle securing such Contract, (iii) all security
interests in each such Motorcycle, (iv) all documents contained in the related
Contract Files, (v) all rights (but not the obligations) of the Trust Depositor
under any related motorcycle dealer agreements between dealers (i.e., the
originators of certain Contracts) and HDCC, (vi) all rights of the Trust
Depositor in the Lockbox, the Lockbox Account and related Lockbox Agreement to
the extent they relate to such Contracts, (vii) all rights (but not the obligations)
of the Trust Depositor under the Transfer and Sale Agreement, including but not
limited to the Trust Depositor’s rights under Article V thereof, (viii) the
remittances, deposits and payments made into the Trust Accounts from time to
time and amounts in the Trust Accounts from time to time (and any investments
of such amounts), (ix) all rights of the Trust Depositor to certain rebates of
premiums and other amounts relating to insurance policies, debt cancellation
agreements, extended service contracts or other repair agreements and other
items financed under such Contracts, and (x) all proceeds and products of the
foregoing.

This Assignment is
made pursuant to and in reliance upon the representation and warranties on the
part of the undersigned contained in Article III of the Agreement and no
others.

Capitalized terms
used herein but not otherwise defined shall have the meanings assigned to such
terms in the Agreement.

IN WITNESS
WHEREOF, the undersigned has caused this Assignment to be duly executed this        
day of May, 2006.

 

	
   

  	
  HARLEY-DAVIDSON
  CUSTOMER FUNDING CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Printed Name:   Perry A. Glassgow

  
	
   

  	
  Title:   Vice President and
  Treasurer

  
	
   

   

  	
   

  

 

 

A-1

 

Exhibit B

[Form of Closing Certificate of Trust
Depositor]

Harley-Davidson Customer Funding Corp.

Officer’s Certificate

The undersigned
certifies that he is Vice President, Treasurer and Assistant Secretary of
Harley-Davidson Customer Funding Corp., a Nevada corporation (the “Trust Depositor”), and that as such is duly authorized to
execute and deliver this certificate on behalf of the Trust Depositor in
connection with the Sale and Servicing Agreement (the “Agreement”)
dated as of May 1, 2006 (the “Effective Date”)
by and among the Trust Depositor, The Bank of New York Trust Company, N.A. (the
“Indenture Trustee”), as Indenture
Trustee,  Harley-Davidson Credit Corp. (“Harley-Davidson Credit”), as Servicer, and Harley-Davidson
Motorcycle Trust 2006-2 (“Issuer”) (all
capitalized terms used herein without definition have the respective meanings
set forth in the Agreement), and further certifies as follows:

(1)           Attached hereto as Exhibit I is a true and correct copy of the Articles of
Incorporation of the Trust Depositor, together with all amendments thereto as
in effect on the date hereof.

(2)           There has been no
other amendment or other document filed affecting the Articles of Incorporation
of the Trust Depositor since May 12, 2000, and no such amendment has been
authorized by the Board of Directors or shareholders of the Trust Depositor.

(3)           Attached hereto as Exhibit II is a Certificate of the Secretary of State of the
State of Nevada dated as of a recent date stating that the Trust Depositor is
duly incorporated under the laws of the State of Nevada and is in good
standing.

(4)           Attached hereto as Exhibit III is a true and correct copy of the By-laws
of the Trust Depositor, which are in full force and effect on the date hereof.

(5)           Attached hereto as Exhibit IV is a true and correct copy of resolutions adopted
pursuant to the unanimous written consent of the Board of Directors of the
Trust Depositor relating to the execution, delivery and performance of the
Agreement, the Transfer and Sale Agreement, the Trust Agreement; the
Administration Agreement and the Underwriting Agreement (collectively, the “Program Agreements”). 
Said resolutions have not been amended, modified, annulled or revoked,
and are on the date hereof in full force and effect and are the only resolutions
relating to these matters which have been adopted by the Board of Directors.

 

B-1

(6)           No event with
respect to the Trust Depositor has occurred and is continuing which would
constitute an Event of Termination or an event that, with notice or the passage
of time or both, would become an Event of Termination under the Agreement.  To the best of my knowledge after reasonable
investigation, there has been no material adverse change in the condition,
financial or otherwise, or the earnings, business affairs or business prospects
of the Trust Depositor, whether or not arising in the ordinary course of
business since the respective dates as of which information is given in the
Preliminary Prospectus (as defined in the Underwriting Agreement) or the Prospectus
and except as set forth therein.

(7)           All federal, state
and local taxes of the Trust Depositor due and owing as of the date hereof have
been paid.

(8)           All representations
and warranties of the Trust Depositor contained in the Program Agreements or
any other related documents, or in any document, certificate or financial or
other statement delivered in connection therewith are true and correct as of
the date hereof.

(9)           There is no action,
investigation or proceeding pending or, to our knowledge, threatened against
the Trust Depositor before any court, administrative agency or other tribunal
(a) asserting the invalidity of the Program Agreements; (b) seeking to prevent
the consummation of any of the transactions contemplated by the Program
Agreements; or (c) which is likely materially and adversely to affect the Trust
Depositor’s performance of its obligations under, or the validity or
enforceability of, the Program Agreements.

(10)         No consent, approval,
authorization or order of, and no notice to or filing with, any governmental
agency or body or state or federal court is required to be obtained by the
Trust Depositor for the Trust Depositor’s consummation of the transactions
contemplated by the Program Agreements, except such as have been obtained or
made and such as may be required under the blue sky laws of any jurisdiction in
connection with the issuance and sale of the Certificate.

(11)         The Trust Depositor
is not a party to any agreements or instruments evidencing or governing
indebtedness for money borrowed or by which the Trust Depositor or its property
is bound (other than the Program Agreements). 
Neither Harley-Davidson Credit’s transfer and assignment of the Contract
Assets to the Trust Depositor, the Trust Depositor’s concurrent transfer and
assignment of the Trust Corpus to the Trust, nor the concurrent pledge of the
Collateral by the Trust to the Indenture Trustee nor the issuance and sale of
the Certificate and the Notes, nor the execution and delivery of the Program
Agreements, nor the consummation of any other of the transactions contemplated
therein, will violate or conflict with any agreement or instrument to which the
Trust Depositor is a party or by which it is otherwise bound.

 

B-2

(12)         In connection with
the transfer of Contracts and related collateral contemplated in the Agreement,
(a) the Trust Depositor has not made such transfer with actual intent to
hinder, delay or defraud any creditor of the Trust Depositor, and (b) the Trust
Depositor has not received less than a reasonably equivalent value in exchange
for such transfer, is not on the date thereof insolvent (nor will become
insolvent as a result thereof), is not engaged (or about to engage) in a
business or transaction for which it has unreasonably small capital, and does
not intend to incur or believe it will incur debts beyond its ability to pay
when matured.

(13)         Each of the
agreements and conditions of the Trust Depositor to be performed on or before
the Closing Date pursuant to the Program Agreements have been performed in all
material respects.

 

*  *  *  *

 

B-3

In Witness Whereof, I have affixed my
signature hereto this ___ day of May, 2006.

	
  By:

  	
   

  
	
  Printed Name: Perry A. Glassgow

  
	
  Title: Vice President, Treasurer and Assistant
  Secretary

  

 

 

 

 

Exhibit C

[Form of Closing Certificate of
Servicer/Seller]

HARLEY-DAVIDSON CREDIT CORP.

Officer’s Certificate

The undersigned
certifies that he is Vice President, Treasurer and Assistant Secretary of
Harley-Davidson Credit Corp. (“Harley-Davidson Credit”),
and that as such is duly authorized to execute and deliver this certificate on
behalf of Harley-Davidson Credit, as Servicer, in connection with the Sale and
Servicing Agreement (the “Sale and Servicing
Agreement”) dated as of May 1, 2006 (the “Effective Date”)
by and among Harley-Davidson Credit, as Servicer, Harley-Davidson Customer
Funding Corp. (“CFC”), The Bank of New York Trust
Company, N.A., as Indenture Trustee and Harley-Davidson Motorcycle Trust 2006-2
(“Issuer”), in connection with the
Transfer and Sale Agreement dated as of the Effective Date (the “Transfer and Sale Agreement”) by and between Harley-Davidson
Credit and CFC (all capitalized terms used herein without definition having the
respective meanings set forth in the Sale and Servicing Agreement), and further
certifies as follows:

(1)           Attached hereto as Exhibit I is a true and correct copy of the Articles of
Incorporation of Harley-Davidson Credit, together with all amendments thereto
as in effect on the date hereof.

(2)           There has been no other
amendment or other document filed affecting the Articles of Incorporation of
Harley-Davidson Credit since August 9, 1999, and no such amendment has been
authorized by the Board of Directors or shareholders of Harley-Davidson Credit.

(3)           Attached hereto as Exhibit II is a Certificate of the Secretary of State of the
State of Nevada dated as of a recent date, stating that Harley-Davidson Credit
is duly incorporated under the laws of the State of Nevada and is in good
standing.

(4)           Attached hereto as Exhibit III is a true and correct copy of the By-laws
of Harley-Davidson Credit which were in full force and effect as of August 1999
and at all times subsequent thereto.

(5)           Attached hereto as Exhibit IV is a true and correct copy of resolutions adopted
pursuant to a unanimous written consent of the Board of Directors of
Harley-Davidson Credit and relating to the authorization, execution, delivery
and performance of the Transfer and Sale Agreement, the Sale and Servicing
Agreement, the Underwriting Agreement and the Administration Agreement.  Said resolutions have not been amended,
modified, annulled or revoked, and are on the date hereof in full force and
effect and are 

 

C-1

 

the
only resolutions relating to these matters which have been adopted by the Board
of Directors.

(6)           No event with
respect to Harley-Davidson Credit has occurred and is continuing which would
constitute an Event of Termination or an event that, with notice or the passage
of time, would constitute an Event of Termination under the Sale and Servicing
Agreement.  To the best of my knowledge
after reasonable investigation, there has been no material adverse change in
the condition, financial or otherwise, or the earnings, business affairs or business
prospects of Harley-Davidson Credit, whether or not arising in the ordinary
course of business, since the respective dates as of which information is given
in the Preliminary Prospectus (as defined in the Underwriting Agreement) or the
Prospectus and except as set forth therein.

(7)           All federal, state
and local taxes of Harley-Davidson Credit due and owing as of the date hereof
have been paid.

(8)           All representations
and warranties of Harley-Davidson Credit contained in the Transfer and Sale
Agreement, the Sale and Servicing Agreement, the Underwriting Agreement and the
Administration Agreement (collectively, the “Program
Agreements”) or in any document, certificate or financial or other
statement delivered in connection therewith are true and correct as of the date
hereof.

(9)           There is no action,
investigation or proceeding pending or, to my knowledge, threatened against
Harley-Davidson Credit before any court, administrative agency or other
tribunal (a) asserting the invalidity of any Program Agreement to which
Harley-Davidson Credit is a party; or (b) which is likely materially and
adversely to affect Harley-Davidson Credit’s performance of its obligations
under, or the validity or enforceability of, the Program Agreements.

(10)         No consent, approval,
authorization or order of, and no notice to or filing with, any governmental
agency or body or state or federal court is required to be obtained by
Harley-Davidson Credit for Harley-Davidson Credit’s consummation of the
transactions contemplated by the Program Agreements, except such as have been
obtained or made and such as may be required under the blue sky laws of any
jurisdiction in connection with the issuance and sale of the Notes or the
Certificate.

(11)         Schedule
A hereto contains a complete list of all material agreements (other
than the Transfer and Sale Agreement) or instruments evidencing or governing
indebtedness for money borrowed to which Harley-Davidson Credit is a party or
by which Harley-Davidson Credit or its property is bound.  Neither Harley-Davidson Credit’s transfer and
assignment of the Contract Assets to CFC, CFC’s concurrent transfer and
assignment of the Trust Corpus to the Trust, nor the concurrent pledge by the
Trust of the Collateral to the Indenture Trustee, nor the issuance and sale of
the Notes or the Certificate or the entering into of the Program Agreements,
nor the consummation of 

 

C-2

 

any
other of the transactions contemplated therein, will violate or conflict with
any agreement or instrument to which Harley-Davidson Credit is a party or by
which it is otherwise bound.

(12)         In connection with
the transfers of Contracts and related assets contemplated in the Transfer and
Sale Agreement, (a) Harley-Davidson Credit has not made such transfer with
actual intent to hinder, delay or defraud any creditor of Harley-Davidson
Credit, and (b) Harley-Davidson Credit has not received less than a reasonably
equivalent value in exchange for such transfer, is not on the date hereof
insolvent (nor will Harley-Davidson Credit become insolvent as a result
thereof), is not engaged (or about to engage) in a business or transaction for
which it has unreasonably small capital, and does not intend to incur or
believe it will incur debts beyond its ability to pay when matured.

(13)         The sole shareholder
of Harley-Davidson Credit is Harley-Davidson Financial Services, Inc., a
Delaware corporation, which has its chief executive office and only office in
Chicago, Illinois, and has no other offices in any other state.

(14)         Each of the
agreements and conditions of Harley-Davidson Credit to be performed or
satisfied on or before the Closing Date under the Program Agreements has been
performed or satisfied in all material respects.

(15)         Each Contract being
transferred pursuant to the Transfer and Sale Agreement is evidenced by a
written agreement providing for a repayment obligation as well as a security
interest in the related Motorcycle securing such obligation, and conforms as to
these matters in all material respects with the form of written Contract
provided as Exhibit A hereto (with such minor
variations as to specific terms as may be required or deemed desirable in
respect of the laws or requirements of particular states).

(16)         Harley-Davidson
Credit has not authorized the filing of any UCC financing statements listing
the Contract Assets as collateral other than financing statements relating to
the transactions contemplated in the Transfer and Sale Agreement and in the
agreements listed on Schedule A
hereto.

*   *   *  
*   *   *

 

C-3

 

In Witness Whereof, I have affixed my
signature hereto this      day of May, 2006.

	
  By:

  	
   

  
	
  Printed
  Name: Perry A. Glassgow

  
	
  Title:
  Vice President, Treasurer and Assistant Secretary

  

 

 

 

 

 

 

Exhibit
D

 

FORM
OF REPORT ON ASSESSMENT OF COMPLIANCE WITH APPLICABLE 

SERVICING CRITERIA PURSUANT TO ITEM 1122 OF REGULATION AB UNDER THE

SECURITIES
EXCHANGE ACT OF 1934

 

Date:               

 

Re:         
Harley-Davidson Motorcycle Trust 2006-2

 

[Servicer][Indenture
Trustee] (the “Company”) hereby certifies that it is responsible for the
assessment of its compliance with the servicing criteria set forth in Item 1122
of Regulation AB applicable to it, as described on Schedule I attached hereto
(the “Applicable Servicing Criteria”), and further certifies as follows:

 

1.             The Company
used the criteria set forth in paragraph (d) of Item 1122 of Regulation AB to
assess compliance with the Applicable Servicing Criteria; and

 

2.             The Company is
in compliance with the Applicable Servicing Criteria as of and for the period
ending December 31,          [except as
described below:].

 

[Accountant], an independent
registered public accounting firm has issued an attestation report on our
assessment of compliance with the Applicable Servicing Criteria as of and for
the period ending December 31,
        , a copy of which is attached
hereto.

 

 

	
  [                                       ]

  
	
   

  
	
  By:

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
			

 

 

 

 

D-1

 

Exhibit E

SERVICING CRITERIA TO BE ADDRESSED IN

INDENTURE TRUSTEE’S ASSESSMENT OF COMPLIANCE

 

The
assessment of compliance to be delivered by the Indenture Trustee shall
address, at a minimum, the criteria identified as below as “Applicable
Servicing Criteria” 1:

 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Servicing
  Criteria

  	
   

  	
  Applicable

  Servicing

  Criteria

  	
   

  
	
  Reference

  	
   

  	
  Criteria

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  General Servicing Considerations

  	
   

  	
   

  	
   

  
	
  1122(d)(1)(i)

  	
   

  	
  Policies and procedures
  are instituted to monitor any performance or other triggers and events of
  default in accordance with the transaction agreements.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1122(d)(1)(ii)

  	
   

  	
  If any material servicing
  activities are outsourced to third parties, policies and procedures are
  instituted to monitor the third party’s performance and compliance with such servicing
  activities.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1122(d)(1)(iii)

  	
   

  	
  Any requirements in the
  transaction agreements to maintain a back-up servicer for the pool assets are
  maintained.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1122(d)(1)(iv)

  	
   

  	
  A fidelity bond and errors
  and omissions policy is in effect on the party participating in the servicing
  function throughout the reporting period in the amount of coverage required
  by and otherwise in accordance with the terms of the transaction agreements.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Cash Collection and Administration

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1122(d)(2)(i)

  	
   

  	
  Payments on pool assets
  are deposited into the appropriate custodial bank accounts and related bank
  clearing accounts no more than two business days following receipt, or such
  other number of days specified in the transaction agreements.

  	
   

  	
  ü2

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1122(d)(2)(ii)

  	
   

  	
  Disbursements made via
  wire transfer on behalf of an obligor or to an investor are made only by
  authorized personnel.

  	
   

  	
  ü

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1122(d)(2)(iii)

  	
   

  	
  Advances of funds or
  guarantees regarding collections, cash flows or distributions, and any
  interest or other fees charged for such advances, are made, reviewed and
  approved as specified in the transaction agreements.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1122(d)(2)(iv)

  	
   

  	
  The related accounts for
  the transaction, such as cash reserve accounts or accounts established as a
  form of overcollateralization, are separately maintained (e.g., with respect
  to commingling of cash) as set forth in the transaction agreements.

  	
   

  	
  ü

  	
   

  

 

	
  1

  	
   

  	
  Each Assessment of
  compliance delivered by the Indenture Trustee shall be made only toward such
  portion(s of servicing criteria applicable to the Indenture Trustee and not
  such other portion(s) applicable to other persons.

  	
   

  
	
  2

  	
   

  	
  Solely with regard to
  deposits made by the Indenture Trustee.

  	
   

  

 

E-1

 

	
   

  	
   

  	
   

  	
   

  	
  Applicable

  Servicing

  Criteria

  	
   

  
	
   

  	
   

  	
  Servicing
  Criteria

  	
   

  	
   

  	
   

  
	
  1122(d)(2)(v)

  	
   

  	
  Each custodial account is maintained at a federally
  insured depository institution as set forth in the transaction agreements.
  For purposes of this criterion, “federally insured depository institution” with
  respect to a foreign financial institution means a foreign financial
  institution that meets the requirements of Rule 13k-1(b)(1) of the Securities
  Exchange Act.

  	
   

  	
  ü3

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1122(d)(2)(vi)

  	
   

  	
  Unissued checks are
  safeguarded so as to prevent unauthorized access.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1122(d)(2)(vii)

  	
   

  	
  Reconciliations are
  prepared on a monthly basis for all asset-backed securities related bank
  accounts, including custodial accounts and related bank clearing accounts.
  These reconciliations are (A) mathematically accurate; (B) prepared within 30
  calendar days after the bank statement cutoff date, or such other number of
  days specified in the transaction agreements; (C) reviewed and approved by
  someone other than the person who prepared the reconciliation; and (D) contain
  explanations for reconciling items. These reconciling items are resolved
  within 90 calendar days of their original identification, or such other
  number of days specified in the transaction agreements.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Reference

  	
   

  	
  Criteria

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Investor Remittances and Reporting

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1122(d)(3)(i)

  	
   

  	
  Reports to investors,
  including those to be filed with the Commission, are maintained in accordance
  with the transaction agreements and applicable Commission requirements.
  Specifically, such reports (A) are prepared in accordance with timeframes and
  other terms set forth in the transaction agreements; (B) provide information
  calculated in accordance with the terms specified in the transaction
  agreements; (C) are filed with the Commission as required by its rules and
  regulations; and (D) agree with investors’ or the trustee’s records as to the
  total unpaid principal balance and number of pool assets serviced by the
  Servicer.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1122(d)(3)(ii)

  	
   

  	
  Amounts due to investors
  are allocated and remitted in accordance with timeframes, distribution
  priority and other terms set forth in the transaction agreements.

  	
   

  	
  ü

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1122(d)(3)(iii)

  	
   

  	
  Disbursements made to an
  investor are posted within two business days to the Servicer’s investor
  records, or such other number of days specified in the transaction
  agreements.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1122(d)(3)(iv)

  	
   

  	
  Amounts remitted to
  investors per the investor reports agree with cancelled checks, or other form
  of payment, or custodial bank statements.

  	
   

  	
  ü

  	
   

  

 

	
  3

  	
   

  	
  Assessment to be given by
  Indenture Trustee shall be only with respect to trust accounts
  maintained by the Indenture Trustee under the Sale and Servicing Agreement

  	
   

  

 

E-2

 

	
   

  	
  Pool Asset Administration

  
	
   

  	
   

  
	
  1122(d)(4)(i)

  	
  Collateral or security on
  pool assets is maintained as required by the transaction agreements or
  related asset pool documents.

  
	
   

  	
   

  
	
  1122(d)(4)(ii)

  	
  Pool assets and related
  documents are safeguarded as required by the transaction agreements

  
	
   

  	
   

  
	
  1122(d)(4)(iii)

  	
  Any additions, removals or
  substitutions to the asset pool are made, reviewed and approved in accordance
  with any conditions or requirements in the transaction agreements.

  
	
   

  	
   

  
	
  1122(d)(4)(iv)

  	
  Payments on pool assets,
  including any payoffs, made in accordance with the related pool asset
  documents are posted to the Servicer’s obligor records maintained no more
  than two business days after receipt, or such other number of days specified
  in the transaction agreements, and allocated to principal, interest or other
  items (e.g., escrow) in accordance with the related asset pool documents.

  
	
   

  	
   

  
	
  1122(d)(4)(v)

  	
  The Servicer’s records
  regarding the accounts and the accounts agree with the Servicer’s records
  with respect to an obligor’s unpaid principal balance.

  
	
   

  	
   

  
	
  1122(d)(4)(vi)

  	
  Changes with respect to
  the terms or status of an obligor’s account (e.g., loan modifications or
  re-agings) are made, reviewed and approved by authorized personnel in
  accordance with the transaction agreements and related pool asset documents.

  
	
   

  	
   

  
	
  1122(d)(4)(vii)

  	
  Loss mitigation or recovery
  actions (e.g., forbearance plans, modifications and deeds in lieu of
  foreclosure, foreclosures and repossessions, as applicable) are initiated,
  conducted and concluded in accordance with the timeframes or other
  requirements established by the transaction agreements.

  
	
   

  	
   

  
	
  1122(d)(4)(viii)

  	
  Records documenting
  collection efforts are maintained during the period a pool asset is
  delinquent in accordance with the transaction agreements. Such records are
  maintained on at least a monthly basis, or such other period specified in the
  transaction agreements, and describe the entity’s activities in monitoring
  delinquent pool assets including, for example, phone calls, letters and
  payment rescheduling plans in cases where delinquency is deemed temporary
  (e.g., illness or unemployment).

  
	
   

  	
   

  
	
  1122(d)(4)(ix)

  	
  Adjustments to interest
  rates or rates of return for pool assets with variable rates are computed
  based on the related pool asset documents.

  
	
   

  	
   

  
	
  Reference

  	
  Criteria

  
	
  1122(d)(4)(x)

  	
  Regarding any funds held
  in trust for an obligor (such as escrow accounts): (A) such funds are
  analyzed, in accordance with the obligor’s Account documents, on at least an
  annual basis, or such other period specified in the transaction agreements;
  (B) interest on such funds is paid, or credited, to obligors in accordance
  with applicable Account documents and state laws; and (C) such funds are
  returned to the obligor within 30 calendar days of full repayment of the
  related Accounts, or such other number of days specified in the transaction
  agreements.

  
	
   

  	
   

  
	
  1122(d)(4)(xi)

  	
  Payments made on behalf of
  an obligor (such as tax or insurance payments) are 

  

 

E-3

 

	
   

  	
  made on or before the
  related penalty or expiration dates, as indicated on the appropriate bills or
  notices for such payments, provided that such support has been received by
  the servicer at least 30 calendar days prior to these dates, or such other
  number of days specified in the transaction agreements.

  	
   

  
	
   

  	
   

  	
   

  
	
  1122(d)(4)(xii)

  	
  Any late payment penalties
  in connection with any payment to be made on behalf of an obligor are paid
  from the servicer’s funds and not charged to the obligor, unless the late
  payment was due to the obligor’s error or omission.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Servicing Criteria

  	
  Applicable Servicing Criteria

  
	
  1122(d)(4)(xiii)

  	
  Disbursements made on behalf
  of an obligor are posted within two business days to the obligor’s records
  maintained by the servicer, or such other number of days specified in the
  transaction agreements.

  	
   

  
	
   

  	
   

  	
   

  
	
  1122(d)(4)(xiv)

  	
  Delinquencies, charge-offs
  and uncollectible accounts are recognized and recorded in accordance with the
  transaction agreements.

  	
   

  
	
   

  	
   

  	
   

  
	
  1122(d)(4)(xv)

  	
  Any external enhancement
  or other support, identified in Item 1114(a)(1) through (3) or Item 1115 of
  Regulation AB, is maintained as set forth in the transaction agreements.

  	
   

  

 

E-4

Exhibit
F

 

FORM OF INDENTURE TRUSTEE’S ANNUAL CERTIFICATION

 

Re:          Harley-Davidson Motorcycle Trust
2006-2

 

                The
Bank of New York Trust Company, N.A., not in its individual capacity but solely
as indenture trustee (the “Indenture Trustee”), certifies to Harley-Davidson
Credit Corp. (the “Servicer”), and its officers, with the knowledge and
intent that they will rely upon this certification, that:

 

                (1)
          It has reviewed the report on
assessment of the Indenture Trustee’s compliance provided in accordance with Rules
13a-18 and 15d-18 under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”) and Item 1122 of Regulation AB (the “Servicing Assessment”),
and the registered public accounting firm’s attestation report provided in
accordance with Rules 13a-18 and 15d-18 under the Exchange Act and
Section 1122(b) of Regulation AB (the “Attestation Report”) that
were delivered by the Indenture Trustee to the Seller pursuant to the Sale and
Servicing Agreement (the “Agreement”), dated as of May 1, 2006, by
and between Harley-Davidson Customer Funding Corp., the Servicer, the Indenture
Trustee and Harley-Davidson Motorcycle Trust 2006-2 (collectively, the “Indenture
Trustee Information”);

 

(2)
              To the best of its
knowledge, the Indenture Trustee Information, taken as a whole, does not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in the light of the circumstances
under which such statements were made, not misleading with respect to the period
of time covered by the Indenture Trustee Information; and

 

(3)
              To the best of its
knowledge, all of the Indenture Trustee Information required to be provided by
the Indenture Trustee under the Agreement has been provided to the Servicer.

 

 

	
  THE
  BANK OF NEW YORK TRUST COMPANY, N.A.,

  
	
  not
  in its individual capacity but solely as Indenture Trustee

  
	
   

  
	
  By:

  	
   

  
	
  Printed Name:

  
	
  Title: 

  

 

F-1

Exhibit G

[Form of Certificate Regarding Reacquired
Contracts]

Harley-Davidson Credit Corp.

Certificate Regarding Reacquired Contracts

The undersigned
certifies that he is the Treasurer of Harley-Davidson Credit Corp., a Nevada
corporation (the “Servicer”), and that as such is
duly authorized to execute and deliver this certificate on behalf of the
Servicer pursuant to Section 7.08 of the Sale and Servicing Agreement (the “Agreement”) dated as of May 1, 2006 by and among
Harley-Davidson Customer Funding Corp., as Trust Depositor, the Servicer, The
Bank of New York Trust Company, N.A., as Indenture Trustee, and Harley-Davidson
Motorcycle Trust 2006-2 (all capitalized terms used herein without definition
having the respective meanings specified in the Agreement), and further
certifies that:

1.                                       The Contracts
on the attached schedule are to be reacquired by the [Seller/Servicer] on the
date hereof pursuant to [Section 7.08 of the Agreement and Section 5.01 of the
Transfer and Sale Agreement/Section 7.10 of the Agreement/Section 7.11 of the
Agreement.]

2.                                       Upon deposit of
the Purchase Price for such Contracts, such Contracts may, pursuant to Section
7.09 of the Agreement, be assigned by the Trustee to the Seller[/Servicer].

IN WITNESS
WHEREOF, I have affixed hereunto my signature this ______ day of _____________.

	
  Harley-Davidson
  Credit Corp.

  
	
   

  
	
   

  
	
  By:
  

  	
   

  
	
  Printed Name:   Perry A. Glassgow

  
	
  Title:   Vice President and
  Treasurer

  

 

G-1

Exhibit H

[List of Contracts]

 

H-1

Exhibit I

[Form of Monthly Report to Noteholders and
the Certificateholder]

 

Harley-Davidson Motorcycle Trust 2006-2

$______________  _____% Motorcycle Contract Backed Notes, Class A-1

$_____________ ______% Motorcycle
Contract Backed Notes, Class A-2

$_____________ _______% Motorcycle
Contract Backed Notes, Class B

Monthly Report

For the ________________ Distribution Date

 

 

Capitalized terms are defined in the Sale and
Servicing Agreement dated as of May 1, 2006.

 

	
  Beginning of Due Period

  
	
   

  
	
  End of Due Period

  
	
   

  
	
  Determination Date

  
	
   

  
	
  Record Date

  
	
   

  
	
  Distribution Date

  
	
   

  
	
  Number of days in Interest
  Period (30/360 basis)

  
	
   

  

 

I-1

 

	
   

  	
   

  	
  Number

  	
   

  	
  Cut-Off

  	
   

  	
   

  	
   

  	
  Initial

  	
   

  
	
  Purchases

  	
   

  	
  of Contracts

  	
   

  	
  Date

  	
   

  	
  Closing Date

  	
   

  	
  Pool Balance

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Initial Contracts

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Subsequent Contracts

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

I-2

 

I. POOL BALANCE CALCULATION

 

	
  Principal Balance of Contracts at beginning of Due Period

  	
   

  	
   

  	
   

  
	
  Pre-Funded Amount at
  beginning of Due Period

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Purchase of Subsequent
  Contracts

  	
   

  	
   

  	
   

  
	
  Reduction of Pre-Funded
  Amount at end of Due Period

  	
   

  	
   

  	
   

  
	
  Mandatory Redemption
  amount

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Monthly principal amounts

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Principal collections on Contracts outstanding at end of Due Period

  	
   

  	
   

  	
   

  
	
  Principal collections on Contracts paid off in full during Due Period

  	
   

  	
   

  	
   

  
	
  Balance of Contracts liquidated during Due Period

  	
   

  	
   

  	
   

  
	
  Balance of Contracts purchased by Seller or Servicer during Due
  Period

  	
   

  	
   

  	
   

  
	
  Other adjustments

  	
   

  	
   

  	
   

  
	
  Mandatory Redemption amount

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Aggregate Principal Balance Decline

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Aggregate Principal
  Balance at end of Due Period

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Pool factor

  	
   

  	
   

  	
   

  

 

I-3

 

II. NOTE PRINCIPAL BALANCE
CALCULATION:

 

	
   

  	
   

  	
  Class A-1

  	
   

  	
  Class A-2

  	
   

  	
  Class B

  	
   

  	
  Total

  	
   

  
	
  Original Note Balance

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Note balance at beginning
  of Due Period

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Principal Distributable
  Amount

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Amounts otherwise distributable to Class B that have been distributed
  to Class A

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mandatory Redemption
  Amount

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Note Principal Carryover
  Shortfall

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total principal paid

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

	
  Note balance at end of Due
  Period

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Note factor at begininning
  of Due Period

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Note factor at end of Due
  Period

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
										

 

I-4

III. NOTE INTEREST DISTRIBUTABLE
CALCULATION

 

	
   

  	
   

  	
   

  	
   

  	
  Interest Carryover

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Note Monthly

  	
   

  	
  Interest Carryover

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Note Balance

  	
   

  	
  Shortfall

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Interest

  	
   

  	
  Interest

  	
   

  	
  Shortfall

  	
   

  	
  Note Interest

  	
   

  
	
   

  	
   

  	
  at Beginning of

  	
   

  	
  at Beginning of

  	
   

  	
  Interest

  	
   

  	
   

  	
   

  	
  Accrual

  	
   

  	
  Distributable

  	
   

  	
  at End of

  	
   

  	
  Distributable

  	
   

  
	
  Class

  	
   

  	
  Due Period

  	
   

  	
  Due Period

  	
   

  	
  Rate

  	
   

  	
  Days

  	
   

  	
  Basis

  	
   

  	
  Amount

  	
   

  	
  Due Period

  	
   

  	
  Amount

  	
   

  
	
  A-1

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  A-2

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Totals

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

I-5

 

IV.CALCULATION
OF AVAILABLE MONIES AND DISTRIBUTIONS

 

	
  Available Monies:

  	
   

  	
   

  	
   

  
	
  Principal collections on Contracts during Due Period

  	
   

  	
   

  	
   

  
	
  Interest collections on Contracts during Due Period

  	
   

  	
   

  	
   

  
	
  Net Liquidation Proceeds

  	
   

  	
   

  	
   

  
	
  Aggregate of Purchase Price for Contracts required to be purchased by
  Seller or Servicer

  	
   

  	
   

  	
   

  
	
  Advances made by Servicer

  	
   

  	
   

  	
   

  
	
  Amounts paid by Seller in connection with the optional repurchase of
  the Contracts

  	
   

  	
   

  	
   

  
	
  Carrying Charges from the Interest Reserve Account

  	
   

  	
   

  	
   

  
	
  Mandatory Redemption amount

  	
   

  	
   

  	
   

  
	
  Investment Earnings - Collection Account

  	
   

  	
   

  	
   

  
	
  Investment Earnings - Interest Reserve Account

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total Available Monies

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Distribution of Available
  Monies in order of priority:

  	
   

  	
   

  	
   

  
	
  Mandatory Redemption amount to the Noteholders

  	
   

  	
   

  	
   

  
	
  Return of previous month’s Advances made by Servicer

  	
   

  	
   

  	
   

  
	
  Monthly Servicing Fee to the Servicer, including any unpaid Servicing
  Fees

  	
   

  	
   

  	
   

  
	
  Monthly Indenture Trustee Fee, including any unpaid Indenture Trustee
  fees

  	
   

  	
   

  	
   

  
	
  Class A Note Interest Distributable Amount

  	
   

  	
   

  	
   

  
	
  First Priority Principal Distributable Amount

  	
   

  	
   

  	
   

  

 

I-6

 

	
  Class B Note Interest Distributable Amount

  	
   

  	
   

  	
   

  
	
  Class A Note Principal Distributable Amount

  	
   

  	
   

  	
   

  
	
  Class B Note Principal Distributable Amount

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total distribution of fees, interest and principal

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Excess Amounts (Shortfall)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Amount withdrawn from Reserve Fund to cover Shortfall

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Excess Amounts to Reserve Fund

  	
   

  	
   

  	
   

  
	
  Excess Amounts to Certificateholder

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total distribution of Available Monies

  	
   

  	
   

  	
   

  

 

I-7

 

V. ACCOUNT BALANCE INFORMATION

 

	
  Calculation of Specified Reserve Fund Balance:

  	
   

  	
   

  	
   

  
	
  The greater of:

  	
   

  	
   

  	
   

  
	
  a [______]% of the Principal Balance of the Contracts at the end of
  the Due Period

  	
   

  	
   

  	
   

  
	
  b [______]% of the aggregate initial note balance

  	
   

  	
   

  	
   

  
	
  c If Reserve Fund Trigger Event has occurred, [______]% of the
  Principal Balance of the Contracts at the end of the Due Period

  	
   

  	
   

  	
   

  
	
  Specified Reserve Fund Balance

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Reserve Fund balance at
  beginning of Due Period

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Additions to Reserve Fund:

  	
   

  	
   

  	
   

  
	
  Additional deposit - Subsequent Reserve Fund Amount deposit

  	
   

  	
   

  	
   

  
	
  Additional deposit - Excess Amounts to Reserve Fund

  	
   

  	
   

  	
   

  
	
  Investment Earnings - Reserve Fund

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total additions

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Withdrawals from Reserve
  Fund:

  	
   

  	
   

  	
   

  
	
  Amount withdrawn to cover Shortfall

  	
   

  	
   

  	
   

  

 

I-8

 

 

	
  Excess Reserve Fund balance to Servicer

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total withdrawals

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Reserve Fund balance at
  end of Due Period

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Pre-Funding Account
  balance at beginning of Due Period

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Withdrawals from
  Pre-Funding Account:

  	
   

  	
   

  	
   

  
	
  Subsequent Contracts purchased

  	
   

  	
   

  	
   

  
	
  Mandatory Redemption amount

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Pre-Funding Account
  balance at end of Due Period

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Interest Reserve Account
  balance at beginning of Due Period

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Additions to the Interest
  Reserve Account:

  	
   

  	
   

  	
   

  
	
  Investment Earnings - Interest Reserve Account

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Withdrawals from the
  Interest Reserve Account:

  	
   

  	
   

  	
   

  
	
  Carrying Charges

  	
   

  	
   

  	
   

  
	
  Transfer of Investment Earnings to Collection Account

  	
   

  	
   

  	
   

  
	
  Excess Interest Reserve Amount to Depositor

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

I-9

 

	
  Interest Reserve Account
  balance at end of Due Period

  	
   

  	
   

  	
   

  

 

I-10

 

VI. CONTRACT PERFORMANCE
INFORMATION

 

	
   

  	
   

  	
  Number of months since
  Closing Date

  	
   

  
	
   

  	
   

  	
  Trigger Status? Yes or No

  	
   

  

 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  % of Principal

  Balance at

  	
   

  
	
   

  	
   

  	
  Monthly Losses

  	
   

  	
  Number of

  Contracts

  	
   

  	
  Amount

  	
   

  	
  beginning of

  Due Period

  	
   

  
	
  Monthly Losses

  	
   

  	
  Principal Balance of
  Liquidated Contracts for the Due Period

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Less:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Net Liquidation Proceeds
  for the Due Period

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Net Liquidation Losses for
  the Due Period

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Annualized Net Liquidation
  Losses

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Average Loss Ratio

  	
   

  	
  Annualized Net Liquidation Losses - current Distribution Date

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Annualized Net Liquidation Losses - prior Distribution Date

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Annualized Net Liquidation Losses - second prior Distribution Date

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Three-month Average Loss Ratio

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Exceeds Reserve Fund Trigger Event threshold? Yes or No

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

I-11

 

	
   

  	
   

  	
  Months

  	
   

  	
  Trigger
  Threshold

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1-24

  	
   

  	
  %

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  25 or greater

  	
   

  	
  %

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cumulative Losses

  	
   

  	
   

  	
   

  	
  Number
  of Contracts

  	
   

  	
  Amount

  	
   

  	
  % of Initial Principal Balance

  	
   

  
	
   

  	
   

  	
  Cumulative Liquidated
  Contracts

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Cumulative Net Liquidation
  Proceeds

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Cumulative Net Liquidation
  Losses

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Average net loss (amount of cumulative Net Liquidation Losses /
  number of cumulative Liquidated Contracts )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cumulative Loss Ratio

  	
   

  	
  Cumulative Loss Ratio

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Exceeds Reserve Fund
  Trigger Event threshold? Yes or No

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Months

  	
   

  	
  Trigger
  Threshold

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1-12

  	
   

  	
  %

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  13-24

  	
   

  	
  %

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  25-36

  	
   

  	
  %

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  37 or greater

  	
   

  	
  %

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

I-12

 

	
  Delinquencies

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  % of
  Principal Balance at

  	
   

  
	
   

  	
   

  	
  Days

  Delinquent

  	
   

  	
  Number of

  Contracts

  	
   

  	
  Principal

  Balance

  	
   

  	
  Delinquent

  Interest Amount

  	
   

  	
  Beginning of Due Period

  	
   

  
	
   

  	
   

  	
  30-59

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  60-89

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  90-119

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  120+

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Totals

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  60+ Delinquency Amount

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Average Delinquency Ratio

  	
   

  	
  Delinquency Ratio -
  current Distribution Date

  	
   

  
	
   

  	
   

  	
  Delinquency Ratio - prior
  Distribution Date

  	
   

  
	
   

  	
   

  	
  Delinquency Ratio - second
  prior Distribution Date

  	
   

  
	
   

  	
   

  	
  Three-month Average
  Delinquency Ratio

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Exceeds Reserve Fund
  Trigger Event threshold? Yes or No

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Months

  	
   

  	
  Trigger
  Threshold

  	
  %

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1-12

  	
   

  	
  %

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  13-24

  	
   

  	
  %

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  25-36

  	
   

  	
  %

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  37 or greater

  	
   

  	
  %

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

I-13

 

VII. ADDITIONAL CONTRACT
INFORMATION

 

	
  Contract
  Data

  	
   

  	
  Beginning
  of Due Period

  	
   

  	
  End of
  Due Period

  	
   

  
	
  Number of Contracts

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Principal Balance of
  Contracts

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Weighted average original
  term

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Weighted average remaining
  term

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Weighted average life

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  One month prepayments
  (ABS)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Weighted average Contract
  Rate

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Principal
  Balance

  	
   

  	
  % of Principal Balance

  	
   

  
	
  Contract Rate

  	
   

  	
  of
  Contracts

  	
   

  	
  at End
  of Due Period

  	
   

  
	
  0.000% - 5.000%

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.001% - 10.000%

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.001% - 15.000%

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  15.001% - 20.000%

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  20.001% or greater

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Advances made by Servicer
  in current Due Period

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Unreimbursed Advances due
  to Servicer

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Number of Contracts purchased by Seller or Servicer

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Principal Balance of Contracts purchased by Seller or Servicer

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Purchase Price of Contracts purchased by Seller or Servicer

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

I-14

VIII. OTHER INFORMATION FOR
NOTEHOLDERS

 

	
  1.

  	
   

  	
  Information regarding
  material changes to the definition or determination of delinquencies,
  charge-offs and uncollectible

  	
   

  
	
   

  	
   

  	
  accounts:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  Information regarding any
  material modifications, extensions or waivers to contract terms, fees,
  penalties or payments during the distribution period or that have
  cumulatively become material over time:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
  Information regarding
  material breaches of contract representations or warranties or transaction
  covenants:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
  Information regarding any
  new issuance of asset-backed securities backed by the same contracts:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
  Information regarding any
  contract changes (other than in connection with a contract converting into
  cash in accordance with its terms), such as additions or removals in
  connection with a prefunding period, including any material changes in the
  solicitation, credit-granting, underwriting, origination, acquisition or pool
  selection criteria or procedures, as applicable, used to originate, acquire or
  select the new pool of contracts:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
  During the pre-funding
  period, if applicable, information regarding originators, pool contracts or
  significant obligors pursuant to Item 1121(b of Regulation AB:)]

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
   

  	
  Information regarding
  derivatives:

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

I-15

Exhibit
J

 

[Seller’s Representations and Warranties]

(1)           Representations and
Warranties Regarding Seller. 
Seller represents and warrants, as of the execution and delivery of this
Agreement and as of the Closing Date, in the case of the Initial Contracts, and
as of the applicable Subsequent Transfer Date, in the case of Subsequent
Contracts, that:

(a)           Organization and Good
Standing.  Seller is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and has the corporate power to own
its assets and to transact the business in which it is currently engaged.  Seller is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
character of the business transacted by it or properties owned or leased by it
requires such qualification and in which the failure so to qualify would have a
material adverse effect on the business, properties, assets, or condition
(financial or otherwise) of Seller or Trust Depositor.  Seller is properly licensed in each
jurisdiction to the extent required by the laws of such jurisdiction to service
the Contracts in accordance with the terms of the Sale and Servicing Agreement.

(b)           Authorization; Binding
Obligation.  Seller has the
power and authority to make, execute, deliver and perform this Agreement and
the other Transaction Documents to which the Seller is a party and all of the
transactions contemplated under this Agreement and the other Transaction
Documents to which the Seller is a party, and has taken all necessary corporate
action to authorize the execution, delivery and performance of this Agreement
and the other Transaction Documents to which the Seller is a party.   This Agreement and the other Transaction Documents
to which the Seller is a party constitute the legal, valid and binding
obligation of Seller enforceable in accordance with their 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.

(c)           No Consent Required.  Seller is not required to obtain the consent
of any other party or any consent, license, approval or authorization from, or
registration or declaration with, any governmental authority, bureau or agency
in connection with the execution, delivery, performance, validity or
enforceability of this Agreement and the other Transaction Documents to which
the Seller is a party.

(d)           No Violations.  Seller’s execution, delivery and performance
of this Agreement and the other Transaction Documents to which the Seller is a
party will not violate any provision of any existing law or regulation or any
order or decree of any court or the Articles of Incorporation or Bylaws of
Seller, or constitute a material breach of any mortgage, indenture, contract or
other agreement to which Seller is a party or by which Seller or any of Seller’s
properties may be bound.

 

J-1

 

(e)           Litigation.  No litigation or administrative proceeding of
or before any court, tribunal or governmental body is currently pending, or to
the knowledge of Seller threatened, against Seller or any of its properties or
with respect to this Agreement or any other Transaction Document to which the
Seller is a party which, if adversely determined, would in the opinion of
Seller have a material adverse effect on the business, properties, assets or
condition (financial or other) of Seller or the transactions contemplated by
this Agreement or any other Transaction Document to which the Seller is a
party.

(f)            State of
Incorporation; Name; No Changes. 
Seller’s state of incorporation is the State of Nevada.  Seller’s exact legal name is as set forth in
the first paragraph of this Agreement. 
Seller has not changed its name whether by amendment of its Articles of
Incorporation, by reorganization or otherwise, and has not changed its state of
incorporation within the four months preceding the Closing Date.

(g)           Buell.  Approximately 5.0% of the aggregate principal
balance of contracts financed from time to time by the Seller are secured by
motorcycles manufactured by Buell.

(h)           Solvency.  The Seller, after giving effect to the
conveyances made by it hereunder, is Solvent.

(2)           Representations and Warranties Regarding Each Contract.  Seller represents and warrants as to each
Contract as of the execution and delivery of this Agreement and as of the
Closing Date, in the case of the Initial Contracts, and as of the applicable
Subsequent Transfer Date, in the case of Subsequent Contracts, that:

(a)           List of Contracts.  The information set forth in the List of
Contracts (or Subsequent List of Contracts, in the case of Subsequent
Contracts) is true, complete and correct in all material respects as of the
Initial Cutoff Date or applicable Subsequent Cutoff Date, as the case may be.

(b)           Payments.  As of the Initial Cutoff Date or applicable
Subsequent Cutoff Date, as the case may be, the most recent scheduled payment
with respect to any Contract either had been made or was not delinquent for
more than 30 days.  To the best of Seller’s
knowledge, all payments made on each Contract were made by the respective
Obligor or under a debt insurance policy or debt cancellation agreement.

(c)           No Waivers.  As of the Closing Date (or the applicable
Subsequent Transfer Date, in the case of Subsequent Contracts), the terms of
the Contracts have not been waived, altered or modified in any respect, except
by instruments or documents included in the related Contract File.

(d)           Binding Obligation.  Each Contract is a legal, valid and binding
payment obligation of the Obligor thereunder and is enforceable in accordance
with its terms, 

 

J-2

 

except
as such enforceability may be limited by insolvency, bankruptcy, moratorium,
reorganization, or other similar laws affecting the enforcement of creditors’
rights generally.

(e)           No Defenses.  No Contract is subject to any right of
rescission, setoff, counterclaim or defense, including the defense of usury,
and the operation of any of the terms of such Contract or the exercise of any
right thereunder will not render the Contract unenforceable in whole or in part
or subject to any right of rescission, setoff, counterclaim or defense,
including the defense of usury, and no such right of rescission, setoff, counterclaim
or defense has been asserted with respect thereto.

(f)            Insurance.  The Seller, in accordance with its policies
and procedures, has determined that, as of the date of origination of each
Contract, the related Obligor had obtained or agreed to obtain physical damage
insurance covering the Motorcycle.  The
terms of each Contract require that for the term of such Contract the
Motorcycle securing such Contract will be covered by physical damage insurance.

(g)           Origination.  Each Contract (i) was originated by a Harley-Davidson
motorcycle dealer or by Eaglemark Savings Bank, in each case, in the regular
course of its business, (ii) was fully and properly executed by the parties
thereto, and (iii) has been purchased by Seller in the regular course of its
business.  Each Contract was sold by such
motorcycle dealer or Eaglemark Savings Bank, as the case may be, to the Seller
without any fraud or misrepresentation on the part of such motorcycle dealer or
Eaglemark Savings Bank.

(h)           Lawful Assignment.  No Contract was originated in or is subject
to the laws of any jurisdiction whose laws would make the sale, transfer and
assignment of the Contract under this Agreement or under the Sale and Servicing
Agreement or the pledge of the Contract under the Indenture unlawful, void or
voidable.

(i)            Compliance with Law.  None of the Contracts, the origination of the
Contracts by Harley-Davidson motorcycle dealers or Eaglemark Savings Bank, the
purchase of the Contracts by the Seller, the sale of the Contracts by the
Seller to the Trust Depositor or by the Trust Depositor to the Trust, or any
combination of the foregoing, violated at the time of origination or as of the
Closing Date or as of any Subsequent Transfer Date, as applicable, in any
material respect any requirement of any federal, state or local law and
regulations thereunder, including, without limitation, usury, truth in lending,
motor vehicle installment loan and equal credit opportunity laws, applicable to
the Contracts and the sale of Motorcycles.

(j)            Contract in Force.  As of the Closing Date (or the applicable
Subsequent Transfer Date in the case of Subsequent Contracts), no Contract has
been satisfied or subordinated in whole or in part or rescinded, and the
related Motorcycle securing any Contract has not been released from the lien of
the Contract in whole or in part.

 

J-3

 

(k)           Valid Security Interest.  Each Contract creates a valid, subsisting and
enforceable first priority perfected security interest in favor of Seller or
Eaglemark Savings Bank (as the case may be) in the Motorcycle covered thereby,
and such security interest has been validly assigned by Eaglemark Savings Bank
to Seller (where applicable) and by Seller to the Trust Depositor.  Seller’s security interest has been validly
assigned by the Seller to the Trust Depositor pursuant to this Agreement and by
the Trust Depositor to the Issuer pursuant to the Sale and Servicing
Agreement.  Immediately prior to the
transfer, assignment and conveyance thereof, each Contract is secured by a
first priority, validly perfected security interest in the Motorcycle covered
thereby in favor of the Seller or Eaglemark Savings Bank as secured party or
all necessary and appropriate actions have been commenced that would result in
a first priority, validly perfected security interest in the Motorcycle covered
thereby in favor of the Seller or Eaglemark Savings Bank as secured party,
except, in each case, as to priority for any lien for taxes, labor, materials
or of any state law enforcement agency affecting a Motorcycle.

(1)           Good Title.  Each Contract was purchased by Seller for
value and taken into possession prior to the Initial Cutoff Date (or the
applicable Subsequent Cutoff Date in the case of Subsequent Contracts) in the
ordinary course of its business, without knowledge that the Contract was
subject to a security interest.  No
Contract has been sold, assigned or pledged to any person other than Trust
Depositor and the Issuer as the transferee of Trust Depositor, and prior to the
transfer of the Contract to Trust Depositor, Seller had good and marketable
title to each Contract free and clear of any encumbrance, equity, loan, pledge,
charge, claim or security interest and was the sole owner thereof and had full
right to transfer the Contract to Trust Depositor, and, immediately upon the
transfer of each Contract by the Seller, the Trust Depositor shall have good
and marketable title to each Contract free and clear of any encumbrance,
equity, loan, pledge, charge, claim or security interest, and, immediately upon
the transfer of each Contract by the Trust Depositor, the Issuer shall have
good and marketable title to each Contract free and clear of any encumbrance,
equity, loan, pledge, charge, claim or security interest.

(m)          No Defaults.  As of the Initial Cutoff Date (or the
applicable Subsequent Cutoff Date in the case of Subsequent Contracts), no
default, breach, violation or event permitting acceleration existed with
respect to any Contract and no event had occurred which, with notice and the
expiration of any grace or cure period, would constitute such a default,
breach, violation or event permitting acceleration under such Contract.  Seller has not waived any such default,
breach, violation or event permitting acceleration, and Seller has not granted
any extension of payment terms on any Contract. 
As of the Initial Cutoff Date (or the applicable Subsequent Cutoff Date
in the case of Subsequent Contracts), no Motorcycle had been repossessed.

(n)           No Liens.  As of the Closing Date (or the applicable
Subsequent Transfer Date in the case of Subsequent Contracts) there are, to the
best of Seller’s knowledge, no liens or claims which have been filed for work,
labor or materials affecting the 

 

J-4

 

Motorcycle
securing any Contract which are liens prior to, or equal with, the lien of such
Contract.

(o)           Installments.  Each Contract has a fixed Contract Rate and
provides for monthly payments of principal and interest which, if timely made,
would fully amortize the loan on a simple-interest basis over its term.

(p)           Enforceability.  Each Contract contains customary and
enforceable provisions such as to render the rights and remedies of the holder
thereof adequate for the realization against the collateral of the benefits of
the security.

(q)           One Original.  Each Contract is evidenced by only one
original executed Contract, which original has been delivered to the Issuer or
its designee on or before the Closing Date (or the applicable Subsequent
Transfer Date in the case of Subsequent Contracts).

(r)            No Government Obligors.  No Obligor is the United States government or
an agency, authority, instrumentality or other political subdivision of the
United States government.

(s)           Lockbox Bank.  The Lockbox Bank is the only institution
holding any Lockbox Account for receipt of payments from Obligors, and all
Obligors have been instructed to make payments to the Lockbox Account (either
directly by remitting payments to the Lockbox, or indirectly by making payments
through direct debit, the telephone or the internet to an account of the Servicer
which payments will be subsequently transferred from such account to one or
more Lockbox Banks), and no person claiming through or under Seller has any
claim or interest in the Lockbox Account other than the Lockbox Bank; provided,
however, that other “Trusts” (as defined in the Lockbox Agreement) shall have
an interest in certain other collections therein not related to the Contracts.

(t)            Obligor Bankruptcy.  At the Initial Cutoff Date (or the applicable
Subsequent Cutoff Date in the case of Subsequent Contracts), no Obligor was
subject to a bankruptcy proceeding (according to the records of the Seller)
within the one year preceding such Cutoff Date.

(u)           Chattel Paper.  The Contracts constitute tangible chattel
paper within the meaning of the UCC.

(v)           Contract Not Assumable.  No Contract is assumable by another Person in
a manner which would release the Obligor thereof from such Obligor’s
obligations to the Trust Depositor with respect to such Contract.

(w)          Selection
Criteria.  Each Contract is
secured by a new or used Motorcycle.  No
Contract has a Contract Rate less than 0.90%. 
Each Contract amortizes the amount 

 

J-5

 

financed
over an original term no greater than 84 months.  Each Contract has a Principal Balance of at
least $708.94 as of the related Cutoff Date.

(3)           Representations and
Warranties Regarding the Contracts in the Aggregate.  Seller represents and warrants, as of the
execution and delivery of this Agreement and as of the Closing Date, in the
case of the Initial Contracts, and as of the applicable Subsequent Transfer
Date, in the case of Subsequent Contracts, that:

(a)           Amounts.  The sum of the aggregate Principal Balances
payable by Obligors under the Contracts as of the Initial Cutoff Date (or the
applicable Subsequent Cutoff Date in the case of Subsequent Contracts), plus
the Pre-Funded Amount as of such date, equals or exceeds the sum of the
principal balance of the Class A-1 Notes, the Class A-2 Notes and the Class B
Notes on the Closing Date or the related Subsequent Transfer Date, as
applicable.

(b)           Characteristics.  The Initial Contracts have the following
characteristics: (i) all the Contracts are secured by Motorcycles; (ii) no
Initial Contract has a remaining maturity of more than 84 months; and (iii) the
final scheduled payment on the Initial Contract with the latest maturity is due
not later than October 2013. 
Approximately 81.41% of the Principal Balance of the Initial Contracts
as of the Initial Cutoff Date is attributable to loans for purchases of new
Motorcycles and approximately 18.59% is attributable to loans for purchases of
used Motorcycles.  No Initial Contract
was originated after the Initial Cutoff Date. 
No Initial Contract has a Contract Rate less than 0.900%.  The last scheduled payment date of the
Contracts (including any Subsequent Contracts) is due no later than January
2014.  Approximately 98.85% of the
Principal Balance of the Initial Contracts as of the Initial Cutoff Date is
attributable to loans for purchases of Motorcycles manufactured by
Harley-Davidson or Buell and approximately 1.15% of the Principal Balance of
the Initial Contracts as of the Initial Cutoff Date is attributable to loans to
purchase Motorcycles not manufactured by Harley-Davidson or Buell.

(c)           Marking Records.  As of the Closing Date (or the applicable
Subsequent Transfer Date in the case of Subsequent Contracts), Seller has
caused the Computer File relating to the Contracts sold hereunder and
concurrently reconveyed by Trust Depositor to the Trust and pledged by the
Trust to the Indenture Trustee to be clearly and unambiguously marked to
indicate that such Contracts constitute part of the Trust Corpus, are owned by
the Trust and constitute security for the Notes.

(d)           No Adverse Selection.  No selection procedures adverse to
Noteholders have been employed in selecting the Contracts.

(e)           True Sale.  The transactions contemplated by the Transfer
and Sale Agreement and this Agreement constitute valid sales, transfers and
assignments from Seller to Trust Depositor and from Trust Depositor to the Trust
of all of Seller’s right, 

 

J-6

 

title and interest in the
Contract Assets as of the Closing Date and any Subsequent Transfer Date, as
applicable.

(f)            All Filings Made.  All filings (including, without limitation,
UCC filings) required to be made by any Person and actions required to be taken
or performed by any Person in any jurisdiction to give the Trustee a first
priority perfected lien on, or ownership interest in, the Contracts and the
proceeds thereof and the rest of the Trust Corpus have been made, taken or
performed.

(g)           Delta Loans.  No more than 11.00% of the Principal Balance
of the Contracts as of the end of the Funding Period is attributable to Delta
Loans.

(4)           Representations and
Warranties Regarding the Contract Files.  Seller represents and warrants as of the
execution and delivery of this Agreement and as of the Closing Date, in the
case of the Initial Contracts, and as of the applicable Subsequent Transfer
Date, in the case of Subsequent Contracts, that:

(a)           Possession.  Immediately prior to the Closing Date or any
Subsequent Transfer Date, the Servicer, or its custodian, will have possession
of each original Contract and the related complete Contract File.  Each of such documents which is required to
be signed by the Obligor has been signed by the Obligor in the appropriate
spaces.  All blanks on any form have been
properly filled in and each form has otherwise been correctly prepared.  The complete Contract File for each Contract
currently is in the possession of the Servicer, or its custodian.

(b)           Bulk
Transfer Laws.  The transfer,
assignment and conveyance of the Contracts and the Contract Files by Seller
pursuant to the Transfer and Sale Agreement or any Subsequent Purchase
Agreement and by Trust Depositor pursuant to the Sale and Servicing Agreement
is not subject to the bulk transfer or any similar statutory provisions in
effect in any applicable jurisdiction.

 

J-7

 

Exhibit
K

 

[Lockbox Bank and Lockbox Account]

Lockbox

	
   

  	
  Harley-Davidson
  Credit Corp.

  
	
   

  	
  8529
  Innovation Way

  
	
   

  	
  Chicago,
  Illinois 60682-0085

  

 

Lockbox Bank

	
   

  	
  LaSalle Bank National Association

  
	
   

  	
  135 South LaSalle Street

  
	
   

  	
  Chicago,
  Illinois 60674

  

 

 

 

J-1

 

Exhibit
L

 

FORM OF SUBSEQUENT TRANSFER
AGREEMENT

SUBSEQUENT
TRANSFER AGREEMENT (the “Agreement”),
dated as of ______________, by and among Harley-Davidson Motorcycle Trust
[____] (the “Trust”), Harley-Davidson Customer
Funding Corp., a Nevada corporation (the “Trust Depositor”),
The Bank of New York Trust Company, N.A., as Indenture Trustee (the “Indenture Trustee”) and Harley-Davidson Credit Corp., a
Nevada corporation (the “Servicer”),
pursuant to the Sale and Servicing Agreement referred to below.

WITNESSETH:

WHEREAS, the
Trust, the Trust Depositor, the Servicer and the Indenture Trustee, are parties
to the Sale and Servicing Agreement, dated as of _____________ (the “Sale and Servicing Agreement”);

WHEREAS, pursuant
to the Sale and Servicing Agreement, the Trust Depositor wishes to sell the
Subsequent Contracts to the Trust, and the Trust wishes to purchase the same,
for the consideration described in the Sale and Servicing Agreement; and

WHEREAS, the
Seller, on behalf of the Trust Depositor, has delivered an Addition Notice
related to such conveyance as required by Section 2.03(b) of the Sale and
Servicing Agreement;

NOW, THEREFORE, the parties hereto agree as follows:

Section 1.              Capitalized
terms used herein shall have the meanings ascribed to them in the Sale and
Servicing Agreement unless otherwise defined herein.

“Subsequent
Cutoff Date” shall mean, with respect to the Subsequent Contracts
transferred hereby, __________.

“Subsequent
Contracts” shall mean, for purposes of this Agreement, the
Subsequent Contracts listed in the Subsequent List of Contracts attached hereto
as Exhibit A.

“Subsequent
Transfer Date” shall mean, with respect to the Subsequent
Contracts transferred hereby, ___________.

Section
2.              Subsequent List of
Contracts.  The Subsequent List of Contracts attached
hereto as Exhibit A is a supplement to the initial
List of Contracts attached as Exhibit H to the Sale and Servicing
Agreement.  The Contracts listed in the
Subsequent List of Contracts constitute the Subsequent Contracts to be transferred
pursuant to this Agreement on the Subsequent Transfer Date.

 

L-1

 

Section
3.              Transfer of Subsequent
Contracts.
Subject to and upon the terms and conditions set forth in Section 2.03(b) of
the Sale and Servicing Agreement and this Agreement, the Trust Depositor hereby
sells, transfers, assigns, sets over and otherwise conveys to the Trust (i) all
the right, title and interest of the Trust Depositor in and to the Subsequent
Contracts listed on the Subsequent List of Contracts (including, without
limitation, all security interests and all rights to receive payments which are
collected pursuant thereto after the Subsequent Cutoff Date, including any
liquidation proceeds therefrom, but excluding any rights to receive payments
which were collected pursuant thereto on or prior to the Subsequent Cutoff
Date), (ii) all rights of the Trust Depositor under any physical damage or
other individual insurance policy (including a “forced placed” policy, if any),
any debt insurance policy or any debt cancellation agreement relating to any
such Subsequent Contract, an Obligor or a Motorcycle securing such Subsequent
Contract, (iii) all security interests in each such Motorcycle, (iv) all
documents contained in the related Contract Files, (v) all rights (but not the
obligations) of the Trust Depositor under any motorcycle dealer agreements
between the dealers (i.e., the originators of certain Subsequent Contracts) and
the Seller, (vi) all rights of the Trust Depositor in the Lockbox, the Lockbox
Account and related Lockbox Agreement to the extent they relate to such
Subsequent Contracts, (vii) all rights (but not the obligations) of the Trust
Depositor under the Transfer and Sale Agreement related to such Subsequent Contracts
(to the extent not already conveyed under Section 2.01(a) of the Sale and
Servicing Agreement), including but not limited to the Trust Depositor’s
related rights under Article V thereof, as well as all rights, but not the
obligations, of the Trust Depositor under the Subsequent Purchase Agreement
related to such Subsequent Contracts, (viii) the remittances, deposits and
payments made into the Trust Accounts from time to time and amounts in the
Trust Accounts from time to time related to such Subsequent Contracts (to the
extent not already conveyed under Section 2.01(a) of the Sale and Servicing
Agreement) (and any investments of such amounts), (ix) all rights of the Trust
Depositor to certain rebates of premiums and other amounts relating to
insurance policies, debt cancellation agreements, extended service contracts or
other repair agreements and other items financed under such Subsequent
Contracts and (x) all proceeds and products of the foregoing.  It is the intention of the Trust Depositor
and Owner Trustee that the transfer contemplated by this Agreement shall
constitute a sale of the Subsequent Contracts from the Trust Depositor to the
Trust, conveying good title thereto free and clear of any Liens.

Section
4.              Representations and
Warranties of the Trust Depositor.  (a) The Trust
Depositor hereby represents and warrants to the Trust, the Indenture Trustee
and the Noteholders that the representations and warranties of the Trust
Depositor set forth in Section 3.01 of the Sale and Servicing Agreement are true
and correct as of the Subsequent Transfer Date.

(b)           The Trust Depositor hereby repeats
and remakes with respect to the Subsequent Contracts as of the Subsequent
Transfer Date the representations and warranties of the Servicer, as Seller of
the Subsequent Contracts, set forth in Exhibit J to the Sale and Servicing
Agreement, except that no representation or warranty is made herein with
respect to paragraph 3(b) thereof (other than with respect to clause (i) of
paragraph 3(b)).

(c)           The Trust Depositor hereby represents
and warrants that (a) the aggregate Principal Balance of the Subsequent
Contracts listed on the Subsequent List of Contracts and conveyed to the Trust
pursuant to this Agreement is $__________ as of the Subsequent Cutoff 

 

L-2

 

Date,
and (b) the conditions set forth in Section 2.03(b) of the Sale and Servicing
Agreement have been satisfied as of the Subsequent Transfer Date.

Section
5.              Representations and
Warranties of the Servicer.  (a) The Servicer
hereby represents and warrants to the Trust that the representations and
warranties of the Servicer set forth in Section 3.02 of the Sale and Servicing
Agreement are true and correct as of the Subsequent Transfer Date.

Section
6.              Ratification of Agreement. 
As supplemented by this Agreement, the Sale and Servicing Agreement is
in all respects ratified and confirmed and, as so supplemented by this
Agreement, shall be read, taken and construed as one and the same instrument.

Section
7.              Counterparts.  This
Agreement may be executed in two or more counterparts (and by different parties
in separate counterparts), each of which shall be an original but all of which
together shall constitute one and the same instrument.

Section
8.              Governing Law. 
This Agreement shall be construed in accordance with the laws of the
State of Illinois, without reference to its conflict of law provisions, and the
obligations, rights and remedies of the parties hereunder shall be determined
in accordance with such laws.

Section
9.              Authorization of Trustee. 
By its execution hereof, the Trust Depositor hereby authorizes and
directs the Owner Trustee to execute and deliver this Agreement on behalf of
the Trust.

[signature page follows]

 

 

L-3

 

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

 

	
  HARLEY-DAVIDSON
  CUSTOMER

  
	
  FUNDING CORP.

  
	
   

  
	
   

  
	
  By

  	
   

  
	
  Printed
  Name:

  	
  Perry
  A. Glassgow

  
	
  Title:
  

  	
  Vice
  President and Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
  HARLEY-DAVIDSON
  CREDIT CORP.

  
	
   

  
	
  By:

  	
   

  
	
  Printed
  Name:

  	
   Perry A. Glassgow

  
	
  Title:
  

  	
  Vice
  President and Treasurer

  
	
   

  	
   

  
	
  HARLEY-DAVIDSON

  
	
  MOTORCYCLE
  TRUST [     ]

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  Wilmington
  Trust Company, not in its individual capacity but solely as Owner Trustee on
  behalf of the Trust

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  
	
  Printed
  Name:

  	
   

  
	
  Title:

  	
   

  
	
   

  
	
   

  
	
  THE
  BANK OF NEW YORK TRUST

  COMPANY, N.A.

  
	
  not
  in its individual capacity but solely

  
	
  as
  Indenture Trustee

  
	
   

  
	
  By

  	
   

  
	
  Printed
  Name:

  
	
  Title:

  
					

 

 

 

L-1EXHIBIT
10.1

CUTTER &
BUCK INC.

1997
STOCK INCENTIVE PLAN

NOTICE OF
RESTRICTED STOCK AWARD

You have been
granted restricted shares of Common Stock of Cutter & Buck Inc. (the “Company”)
on the following terms:

Name of Recipient:                                                   ________________

Total Number of Shares
Granted:                            ______

Fair Market Value per
Share:                                  $______

Total Fair Market Value
of Award:                        $______

Date of Grant:                                                           June 8,
2006

Vesting Schedule:                                                                                                                                                            Subject
to the terms of the Restricted Stock Agreement, and depending upon the Company’s
operating performance and your achievement of certain individual performance
objectives as determined by your manager (“Personal Objectives”) during the
fiscal year ending April 30, 2007, this grant will vest as follows:

A.            Vesting Independent of
Performance. Subject to the terms of the Restricted Stock
Agreement, Five and Fifty-five hundredths percent (5.55%) of the total shares
shall vest on May 1, 2007, Five and Fifty-five hundredths percent (5.55%)
shall vest on May 1, 2008, and Five and Fifty-six hundredths percent
(5.56%) shall vest on May 1, 2009.

B.            Vesting Dependent upon Company
Performance. In the event that the Company achieves at
least Eighty percent (80%) (the “Threshold Percentage”) of its pre-tax
operating income target for the fiscal year ending April 30, 2007, then in
addition to shares vested pursuant to paragraph A above: (i) Five and
Fifty-five hundredths percent (5.55%) of the total shares shall vest on May 1,
2007, Five and Fifty-six hundredths percent (5.56%) of the total shares shall
vest on May 1, 2008 and Five and Fifty-six hundredths percent (5.56%) of
the total shares shall vest on May 1, 2009; and (ii) for each
percentage point by which the Company’s pre-tax operating income exceeds the
Threshold Percentage (with such excess measured by reference to One Hundred
percent (100%) of the Company’s pre-tax operating income target), an additional
Two Hundred Eight thousandths percent (.208%) of the total shares shall vest on
May 1, 2007, an additional Two Hundred Eight thousandths percent (.208%)
of the total shares shall vest on May 1, 2008 and an additional Two
Hundred Nine thousandths percent (.209%) of the total shares shall vest on May 1,
2009, with the vesting pursuant to the preceding clause to be limited to a
maximum of an aggregate of Twenty-five percent (25%) of the total shares on the
achievement by the Company of One Hundred Twenty percent (120%) of the Company’s
pre-tax operating income target, such that the total potential vesting under
this Paragraph B is limited to Forty-one and Sixty-seven hundredths percent
(41.67%) of the total grant.

C.            Vesting Dependent upon Individual
Performance. Subject to the terms and conditions of the
Restricted Stock Agreement, the vesting over three years of the Forty-one and
Sixty-seven hundredths percent (41.67%) of the total shares not allocated among
paragraphs A and B above shall be dependent upon and determined in accordance
with the Company’s evaluation of your performance in light of your Personal
Objectives for the Company’s fiscal year ending April 30, 2007.

D.            Additional Terms. Notwithstanding
anything to the contrary contained above: (a) the number of shares to vest
by application of Paragraph A, B or C shall be rounded upwards to the next
whole share; (b) any shares which do not vest as a result of application
of paragraphs A, B and C above shall be forfeited; and (c) in no event
shall this grant be interpreted to require the vesting or issuance of greater
than _______ (_____) shares.

 6
 

 

 

By your signature
and the signature of the Company’s representative below, you and the Company
agree that these shares are granted under and governed by the terms and
conditions of the 1997 Stock Incentive Plan (the “Plan”) and the Restricted
Stock Agreement, both of which are attached to and made a part of this document.

 

	
  RECIPIENT:

  	
   

  	
  CUTTER & BUCK INC.

  BY: COMPENSATION COMMITTEE

  OF THE BOARD OF DIRECTORS

   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Larry Mounger, Chair

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Henry L. “Skip” Kotkins, Jr.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Whitney R. Tilson

  

 

 

 7

 

 

CUTTER & BUCK INC.

1997
STOCK INCENTIVE PLAN

RESTRICTED
STOCK AGREEMENT

	
  Payment for Shares

  	
   

  	
  No payment is required for the shares you receive.

  
	
   

  	
   

  	
   

  
	
  Vesting

  	
   

  	
  The shares vest in installments, as shown in the
  Notice of Restricted Stock Award. Notwithstanding the foregoing, the shares
  vest in full in the event that the Company is subject to a “Change in
  Control” (as described in the Plan) while you are an employee of the Company.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  No additional shares vest after your service as an
  employee of the Company or a subsidiary of the Company has terminated for any
  reason.

  
	
   

  	
   

  	
   

  
	
  Shares Restricted

  	
   

  	
  Unvested shares will be considered “Restricted
  Shares.” You may not sell, transfer, pledge or otherwise dispose of any
  Restricted Shares, except as provided in the next sentence. With the consent
  of the Compensation Committee of the Company’s Board of Directors, you may
  transfer Restricted Shares to your spouse, children or grandchildren or to a
  trust established by you for the benefit of yourself or your spouse, children
  or grandchildren. A transferee of Restricted Shares must agree in writing on
  a form prescribed by the Company to be bound by all provisions of this
  Agreement.

  
	
   

  	
   

  	
   

  
	
  Forfeiture

  	
   

  	
  If your service as an employee of the Company or a
  subsidiary of the Company terminates for any reason, then your shares will be
  forfeited to the extent that they have not vested before the termination date
  and do not vest as a result of the termination. This means that the
  Restricted Shares will immediately revert to the Company. You receive no
  payment for Restricted Shares that are forfeited.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The Company determines when your service terminates
  for this purpose.

  
	
   

  	
   

  	
   

  
	
  Leaves of Absence

  	
   

  	
  For purposes of this award, your service does not
  terminate when you go on a military leave, a sick leave or another bona fide
  leave of absence, if the leave was approved by the Company in writing and if
  continued crediting of service is required by the terms of the leave or by
  applicable law. But your service terminates when the approved leave ends,
  unless you immediately return to active work.

  
	
   

  	
   

  	
   

  
	
  Stock Certificates

  	
   

  	
  Your Restricted Shares will be held for you by the
  Company. After shares have vested, a stock certificate for those shares will
  be released to you.

  
	
   

  	
   

  	
   

  
	
  Voting Rights

  	
   

  	
  You may vote your shares even before they vest.

  
	
   

  	
   

  	
   

  
	
  Withholding Taxes

  	
   

  	
  No stock certificates will be released to you unless
  you have made acceptable arrangements to pay any withholding taxes that may
  be due as a result of this award or the vesting of the shares. These
  arrangements may include withholding shares of Company stock that otherwise
  would be released to you when they vest. These arrangements may also include
  surrendering shares of Company stock that you already own. The fair market value
  of the shares you surrender, determined as of the date when taxes otherwise
  would have been withheld in cash, will be applied as a credit against the
  withholding taxes.

  
	
   

  	
   

  	
   

  
	
  Restrictions on Resale

  	
   

  	
  By signing this Agreement, you agree not to sell any
  shares at a time when applicable laws or Company policies prohibit a sale.
  This restriction will apply as long as you are an employee, consultant or
  director of the Company or a subsidiary of the Company.

  
	
  No Retention Rights

  	
   

  	
  Your award or this Agreement do not give you the
  right to be employed or retained by the Company or a subsidiary of the
  Company in any capacity. The Company and its subsidiaries reserve the right
  to terminate your service at any time, with or without cause.

  

 

 

 

	
  

  	
   

  	
   

  
	
  Adjustments

  	
   

  	
  In the event of a stock split, a stock dividend or a
  similar change in Company stock, the number of Restricted Shares that remain
  subject to forfeiture will be adjusted accordingly.

  
	
  Applicable Law

  	
   

  	
  This Agreement will be interpreted and enforced
  under the laws of the State of Washington.

  
	
   

  	
   

  	
   

  
	
  The Plan and

  	
   

  	
  The text of the 1997 Stock Incentive Plan is
  incorporated in this Agreement by reference.

  
	
   

  	
   

  	
   

  
	
  Other Agreements

  	
   

  	
  This Agreement and the Plan constitute the entire
  understanding between you and the Company regarding this award. Any prior
  agreements, commitments or negotiations concerning this award are superseded.
  This Agreement may be amended only by another written agreement, signed by
  both parties.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

BY
SIGNING THE COVER SHEET OF THIS AGREEMENT,

YOU AGREE
TO ALL OF THE TERMS AND CONDITIONS

DESCRIBED ABOVE AND IN THE PLAN.

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