Document:

Exhibit 4.2

 

Execution Version

 

 

 

AMENDED AND RESTATED
 TRUST AGREEMENT

 

 

between

 

 

FORD CREDIT AUTO RECEIVABLES TWO LLC,
 as Depositor

 

 

and

 

 

U.S. BANK TRUST NATIONAL ASSOCIATION,
 as Owner Trustee

 

 

for

 

 

FORD CREDIT AUTO OWNER TRUST 2012-A

 

 

Dated as of January 1, 2012

 

 

 

 

TABLE OF CONTENTS

 

	
ARTICLE I USAGE AND   DEFINITIONS
    	
1
    
	
Section 1.1.
    	
Usage and Definitions
    	
1
    
	
 
    	
 
    	
 
    
	
ARTICLE II ORGANIZATION OF   THE TRUST
    	
1
    
	
Section 2.1.
    	
Name
    	
1
    
	
Section 2.2.
    	
Office
    	
1
    
	
Section 2.3.
    	
Purposes and Powers
    	
1
    
	
Section 2.4.
    	
Appointment of the Owner Trustee
    	
2
    
	
Section 2.5.
    	
Contribution and Conveyance of Trust Property
    	
2
    
	
Section 2.6.
    	
Declaration of Trust
    	
2
    
	
Section 2.7.
    	
Liability of the Depositor; Conduct of Activities;   Liability to Third Parties
    	
3
    
	
Section 2.8.
    	
Title to Trust Property
    	
3
    
	
Section 2.9.
    	
Situs of Issuer
    	
3
    
	
Section 2.10.
    	
Representations and Warranties of the Depositor
    	
3
    
	
Section 2.11.
    	
Tax Matters
    	
4
    
	
 
    	
 
    	
 
    
	
ARTICLE III RESIDUAL   INTEREST AND TRANSFER OF INTERESTS
    	
6
    
	
Section 3.1.
    	
The Residual Interest
    	
6
    
	
Section 3.2.
    	
Registration of Residual Interests; Transfer of the   Residual Interest
    	
7
    
	
Section 3.3.
    	
Capital Accounts
    	
8
    
	
Section 3.4.
    	
Maintenance of Office or Agency
    	
8
    
	
Section 3.5.
    	
Distributions to the Holder of the Residual Interest
    	
9
    
	
 
    	
 
    	
 
    
	
ARTICLE IV APPLICATION OF   TRUST FUNDS; CERTAIN DUTIES
    	
9
    
	
Section 4.1.
    	
Application of Trust Funds
    	
9
    
	
Section 4.2.
    	
Method of Payment
    	
10
    
	
 
    	
 
    	
 
    
	
ARTICLE V AUTHORITY AND   DUTIES OF THE OWNER TRUSTEE
    	
10
    
	
Section 5.1.
    	
General Authority
    	
10
    
	
Section 5.2.
    	
General Duties
    	
10
    
	
Section 5.3.
    	
Action upon Prior Notice with Respect to Certain Matters
    	
10
    
	
Section 5.4.
    	
Action upon Direction by the Holder of the Residual   Interest with Respect to Certain Matters
    	
11
    
	
Section 5.5.
    	
Action with Respect to Bankruptcy
    	
11
    
	
Section 5.6.
    	
Action upon Instruction
    	
11
    
	
Section 5.7.
    	
No Duties Except as Specified in this Agreement or in   Instructions
    	
12
    
	
Section 5.8.
    	
No Action Except Under Specified Documents or Instructions
    	
12
    
	
Section 5.9.
    	
Prohibition on Certain Actions
    	
12
    
	
Section 5.10.
    	
Audits of the Owner Trustee
    	
12
    
	
Section 5.11.
    	
Furnishing of Documents
    	
13
    
	
Section 5.12.
    	
Sarbanes-Oxley Act
    	
13
    
	
Section 5.13.
    	
Maintenance of Licenses
    	
13
    
	
Section 5.14.
    	
Covenants for Reporting of Repurchase Demands due to   Breaches of Representations and Warranties
    	
13
    

 

i

 

	
ARTICLE VI REGARDING THE   OWNER TRUSTEE
    	
14
    
	
Section 6.1.
    	
Acceptance of Trusts and Duties
    	
14
    
	
Section 6.2.
    	
Representations and Warranties of the Owner Trustee
    	
15
    
	
Section 6.3.
    	
Reliance; Advice of Counsel
    	
16
    
	
Section 6.4.
    	
Not Acting in Individual Capacity
    	
16
    
	
Section 6.5.
    	
U.S. Bank Trust National Association May Own Notes
    	
17
    
	
Section 6.6.
    	
Duty to Update Disclosure
    	
17
    
	
 
    	
 
    	
 
    
	
ARTICLE VII COMPENSATION AND   INDEMNIFICATION OF THE OWNER TRUSTEE; ORGANIZATIONAL EXPENSES
    	
17
    
	
Section 7.1.
    	
Owner Trustee’s Fees and Expenses
    	
17
    
	
Section 7.2.
    	
Indemnification of the Owner Trustee
    	
18
    
	
Section 7.3.
    	
Organizational Expenses of the Issuer
    	
19
    
	
Section 7.4.
    	
Certain Expenses of the Indenture Trustee and the Owner   Trustee
    	
19
    
	
 
    	
 
    	
 
    
	
ARTICLE VIII TERMINATION
    	
19
    
	
Section 8.1.
    	
Termination of Trust Agreement
    	
19
    
	
 
    	
 
    	
 
    
	
ARTICLE IX SUCCESSOR OWNER   TRUSTEES AND ADDITIONAL OWNER TRUSTEES
    	
20
    
	
Section 9.1.
    	
Eligibility Requirements for the Owner Trustee
    	
20
    
	
Section 9.2.
    	
Resignation or Removal of the Owner Trustee
    	
20
    
	
Section 9.3.
    	
Successor Owner Trustee
    	
21
    
	
Section 9.4.
    	
Merger or Consolidation of the Owner Trustee
    	
21
    
	
Section 9.5.
    	
Appointment of Separate Trustee or Co-Trustee
    	
22
    
	
Section 9.6.
    	
Compliance with Delaware Statutory Trust Act
    	
23
    
	
 
    	
 
    	
 
    
	
ARTICLE X MISCELLANEOUS
    	
23
    
	
Section 10.1.
    	
Supplements and Amendments
    	
23
    
	
Section 10.2.
    	
No Legal Title to Trust Property in the Holder of the   Residual Interest
    	
25
    
	
Section 10.3.
    	
Limitation on Rights of Others
    	
25
    
	
Section 10.4.
    	
Notices
    	
26
    
	
Section 10.5.
    	
GOVERNING LAW
    	
26
    
	
Section 10.6.
    	
WAIVER OF JURY TRIAL
    	
26
    
	
Section 10.7.
    	
Severability
    	
26
    
	
Section 10.8.
    	
Counterparts
    	
27
    
	
Section 10.9.
    	
Headings
    	
27
    
	
Section 10.10.
    	
No Petition
    	
27
    
	
 
    	
 
    	
 
    
	
Exhibit A
    	
Form of   Certificate of Trust
    	
A-1
    
				

 

ii

 

AMENDED AND RESTATED TRUST AGREEMENT, dated as of January 1, 2012 (this “Agreement”), between FORD CREDIT AUTO RECEIVABLES TWO LLC, a Delaware limited liability company, as Depositor, and U.S. BANK TRUST NATIONAL ASSOCIATION, a national banking association, not in its individual capacity but solely as trustee under this Agreement, to establish Ford Credit Auto Owner Trust 2012-A.

 

BACKGROUND

 

The parties to this Agreement wish to amend and restate in its entirety the original Trust Agreement, dated as of September 16, 2011, between the Depositor and the Owner Trustee.

 

ARTICLE I
 USAGE AND DEFINITIONS

 

Section 1.1.            Usage and Definitions.  Capitalized terms used but not otherwise defined in this Agreement are defined in Appendix A to the Sale and Servicing Agreement, dated as of January 1, 2012, among Ford Credit Auto Owner Trust 2012-A, as Issuer, Ford Credit Auto Receivables Two LLC, as Depositor, and Ford Motor Credit Company LLC, as Servicer.  Appendix A also contains rules as to usage applicable to this Agreement.  Appendix A is incorporated by reference into this Agreement.

 

ARTICLE II
 ORGANIZATION OF THE TRUST

 

Section 2.1.            Name.  The trust was created and is known as “Ford Credit Auto Owner Trust 2012-A”, in which name the Owner Trustee may conduct the activities of the Issuer, make and execute contracts and other instruments on behalf of the Issuer and sue and be sued on behalf of the Issuer.

 

Section 2.2.            Office.  The office of the Issuer is in care of the Owner Trustee at its Corporate Trust Office.

 

Section 2.3.            Purposes and Powers.

 

(a)           The purpose of the Issuer is, and the Issuer will have the power and authority, to engage in the following activities:

 

(i)            to acquire the Receivables and other Trust Property pursuant to the Sale and Servicing Agreement from the Depositor in exchange for the Notes and the Residual Interest;

 

(ii)           to Grant the Collateral to the Indenture Trustee pursuant to the Indenture;

 

(iii)          to enter into and perform its obligations under the Transaction Documents;

 

(iv)          to enter into and perform its obligations under any interest rate hedge agreement or agreements with one or more hedge counterparties;

 

 

(v)           to issue the Notes pursuant to the Indenture and to sell the Notes upon the order of the Depositor;

 

(vi)          to pay interest on and principal of the Notes;

 

(vii)         to issue additional securities pursuant to one or more supplemental indentures or amendments to this Agreement and to transfer all or a portion of such securities to the Depositor or other holder of a Residual Interest, subject to compliance with the Transaction Documents, in exchange for all or a portion of the Residual Interest;

 

(viii)        to engage in those activities, including entering into agreements, that are necessary, appropriate or convenient to accomplish the foregoing or are incidental to the foregoing; and

 

(ix)           subject to compliance with the Transaction Documents, to engage in such other activities as may be required in connection with conservation of the Trust Property and the making of payments to the Noteholders and distributions to the holder of the Residual Interest.

 

(b)           The Issuer will not engage in any activity other than as required or authorized by this Agreement or the other Transaction Documents.

 

Section 2.4.            Appointment of the Owner Trustee.  The Depositor appoints the Owner Trustee as trustee of the Issuer effective as of the Cutoff Date, to have all the rights, powers and duties set forth in this Agreement.

 

Section 2.5.            Contribution and Conveyance of Trust Property.  As of the date of the formation of the Issuer, the Depositor contributed to the Owner Trustee the amount of $1.  The Owner Trustee acknowledges receipt in trust from the Depositor, as of such date, of such contribution, which constitutes the initial Trust Property.  On the Closing Date, the Depositor will sell to the Issuer the Trust Property in exchange for the Notes.

 

Section 2.6.            Declaration of Trust.  The Owner Trustee will hold the Trust Property in trust upon and subject to the conditions set forth in this Agreement for the use and benefit of the holder of the Residual Interest, subject to the obligations of the Issuer under the Transaction Documents.  It is the intention of the parties that the Issuer constitute a statutory trust under the Delaware Statutory Trust Act and that this Agreement constitute the governing instrument of such statutory trust.  Effective as of the Cutoff Date, the Owner Trustee will have the rights, powers and duties set forth in this Agreement and in the Delaware Statutory Trust Act with respect to accomplishing the purposes of the Issuer.  A Certificate of Trust substantially in the form of Exhibit A and any necessary certificate of amendment has been filed with the Secretary of State of the State of Delaware.

 

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Section 2.7.            Liability of the Depositor; Conduct of Activities; Liability to Third Parties.

 

(a)           The Depositor, as initial holder of the entire Residual Interest, will be entitled to the same limitation of personal liability extended to stockholders or a private corporation for profit organized under the Delaware General Corporation Law.

 

(b)           The activities and affairs of the Issuer will be operated in such a manner as to preserve (i) the limited liability of the Depositor, (ii) the separateness of the Issuer from the activities of the Depositor and Ford Credit and (iii) until one year and one day after all Notes and any additional securities issued pursuant to Section 3.1(b) are paid in full, the bankruptcy remote status of the Issuer.

 

(c)           Except as otherwise provided in this Agreement, none of the Depositor, the Administrator or any of their Affiliates or any director, manager, officer or employee of any such Person, will be liable for the debts, obligations or liabilities of the Issuer.

 

Section 2.8.            Title to Trust Property.  Legal title to the Trust Property will be vested in the Issuer as a separate legal entity, except where applicable law in any jurisdiction requires title to any part of the Trust Property to be vested in a trustee or trustees, in which case title will be deemed to be vested in the Owner Trustee, a co-trustee and/or a separate trustee, as the case may be.

 

Section 2.9.            Situs of Issuer.  The Issuer will be administered in the States of Delaware and Illinois.  All bank accounts maintained by the Owner Trustee on behalf of the Issuer will be located in the State of Delaware.  The Issuer will not have any employees in any state other than the State of Delaware, except that U.S. Bank Trust National Association, in its capacity as Owner Trustee or any other capacity, may have employees within or outside the State of Delaware.  Payments will be received by the Issuer only in Delaware, and payments will be made by the Issuer only from Delaware.  The principal office of the Issuer will be in care of the Owner Trustee in the State of Delaware.

 

Section 2.10.          Representations and Warranties of the Depositor.  The Depositor represents and warrants to the Owner Trustee as of the Closing Date:

 

(a)           Organization and Qualification.  The Depositor is duly organized and is validly existing as a limited liability company in good standing under the laws of the State of Delaware.  The Depositor is qualified as a foreign limited liability company in good standing and has obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of its properties or the conduct of its activities requires such qualification, license or approval, unless the failure to obtain such qualifications, licenses or approvals would not have a material adverse effect on the Depositor’s ability to perform its obligations under this Agreement or the other Transaction Documents to which it is a party.

 

(b)           Power, Authorization and Enforceability.  The Depositor has the power and authority to execute, deliver and perform the terms of this Agreement.  The Depositor has authorized the execution, delivery and performance of the terms of each of the Transaction Documents to which it is a party.  Each of the Transaction Documents to which the Depositor is

 

3

 

a party is the legal, valid and binding obligation of the Depositor enforceable against the Depositor, except as may be limited by insolvency, bankruptcy, reorganization or other laws relating to the enforcement of creditors’ rights or by general equitable principles.

 

(c)           No Conflicts and No Violation.  The consummation of the transactions contemplated by the Transaction Documents to which the Depositor is a party and the fulfillment of the terms of the Transaction Documents to which the Depositor is a party will not: (i) conflict with or result in a material breach of the terms or provisions of, or constitute a default under any indenture, mortgage, deed of trust, loan agreement, guarantee or similar agreement or instrument under which the Depositor is a debtor or guarantor, (ii) result in the creation or imposition of any Lien upon any of the properties or assets of the Depositor pursuant to the terms of any such indenture, mortgage, deed of trust, loan agreement, guarantee or similar agreement or instrument (other than this Agreement), (iii) violate the Certificate of Formation or Limited Liability Company Agreement of the Depositor, or (iv) violate any law or, to the Depositor’s knowledge, any order, rule, or regulation applicable to the Depositor of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Depositor or its properties, in each case which conflict, breach, default, Lien, or violation would reasonably be expected to have a material adverse effect on the Depositor’s ability to perform its obligations under the Transaction Documents.

 

(d)           No Proceedings.  To the Depositor’s knowledge, there are no proceedings or investigations pending or overtly threatened in writing, before any court, regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over the Depositor or its properties: (i) asserting the invalidity of any of the Transaction Documents or the Notes, (ii) seeking to prevent the issuance of the Notes or the consummation of any of the transactions contemplated by any of the Transaction Documents, (iii) seeking any determination or ruling that would reasonably be expected to have a material adverse effect on the Depositor’s ability to perform its obligations under, or the validity or enforceability of, any of the Transaction Documents or the Notes, or (iv) that would reasonably be expected to (A) affect the treatment of the Notes as indebtedness for U.S. federal income or Applicable Tax State income or franchise tax purposes, (B) be deemed to cause a taxable exchange of the Notes for U.S. federal income tax purposes or (C) cause the Issuer to be treated as an association or publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, in each case, other than such proceedings that, to the Depositor’s knowledge, would not reasonably be expected to have a material adverse effect upon the Depositor or materially and adversely affect the performance by the Depositor of its obligations under, or the validity and enforceability of, the Transaction Documents or the Notes or materially and adversely affect the tax treatment of the Issuer or the Notes.

 

Section 2.11.          Tax Matters.

 

(a)           It is the intention of the parties and Ford Credit that, for purposes of U.S. federal income, State and local income and franchise tax and any other income taxes, so long as the Issuer has no equity owner other than the Depositor (as determined for U.S. federal income tax purposes), the Issuer will be treated as an entity disregarded as separate from the Depositor.  If beneficially owned by a Person other than Ford Credit, each Class of Notes is intended to be treated as indebtedness for U.S. federal income tax purposes.  The Depositor agrees, and the

 

4

 

Noteholders by acceptance of their Notes agree in the Indenture, to such treatment and each agrees to take no action inconsistent with such treatment.

 

(b)           If one or more Classes of Notes is recharacterized as an equity interest in the Issuer, and not as indebtedness (any such Class, a “Recharacterized Class”) and any such Recharacterized Class is treated as not owned by Ford Credit or the Depositor (if the Depositor is not an entity disregarded as separate from Ford Credit for U.S. federal income tax purposes) for U.S. federal income, or State or local income or franchise tax purposes, the parties intend that the Issuer be characterized as a partnership among Ford Credit or the Depositor (to the extent either is at that time treated as an equity owner of the Issuer for U.S. federal income tax purposes), any other holder of the Residual Interest and any holders of the Recharacterized Class or Classes.  In that event, for purposes of U.S. federal income, State and local income or franchise tax each month:

 

(i)            amounts paid as interest to holders of any Recharacterized Class will be treated as a guaranteed payment within the meaning of Section 707(c) of the Code;

 

(ii)           to the extent the characterization provided for in Section 2.11(a) is not respected, gross ordinary income of the Issuer for such month as determined for U.S. federal income tax purposes will be allocated to the holders of each Recharacterized Class as of the Record Date occurring within such month, in an amount equal to the sum of (A) the interest accrued to such Recharacterized Class for such month, (B) the portion of the market discount on the Receivables accrued during such month that is allocable to the excess, if any, of the aggregate initial Note Balance of such Recharacterized Class over the initial aggregate issue price of the Notes of such Recharacterized Class and (C) any amount expected to be distributed to the holders of such Class of Notes pursuant to Section 8.2 of the Indenture (to the extent not previously allocated pursuant to this Section 2.11(b)(ii)) to the extent necessary to reverse any net loss previously allocated to holders of the Notes of such Recharacterized Class (to the extent not previously reversed pursuant to this Section 2.11(b)(ii)(C)); and

 

(iii)          thereafter all remaining net income of the Issuer (subject to the modifications set forth below) for such month as determined for U.S. federal income tax purposes (and each item of income, gain, credit, loss or deduction entering into the computation thereof) will be allocated to the holder of the Residual Interest.

 

If the gross ordinary income of the Issuer for any month is insufficient for the allocations described in Section 2.11(b)(ii) above, subsequent gross ordinary income will first be allocated to each Recharacterized Class in alphabetical order (if applicable) to make up such shortfall before any allocation pursuant to Section 2.11(b)(iii).  Net losses of the Issuer, if any, for any month as determined for U.S. federal income tax purposes (and each item of income, gain, credit, loss or deduction entering into the computation thereof) will be allocated to the holder of the Residual Interest to the extent the holder of the Residual Interest is reasonably expected to bear the economic burden of such net losses, and any remaining net losses will be allocated in reverse alphabetical order (if applicable) to each Recharacterized Class, in each case, until the Note Balance of such Recharacterized Class is reduced to zero as of the Record Date occurring within such month, and among each Recharacterized Class, in proportion to their ownership of the

 

5

 

aggregate Note Balance of such Recharacterized Class on such Record Date. The tax matters partner designated pursuant to Section 2.11(f) is authorized to modify the allocations in this Section 2.11(b) if necessary or appropriate, in its sole discretion, for the allocations to fairly reflect the economic income, gain or loss to the holder of the Residual Interest or the holders of a Recharacterized Class or as otherwise required by the Code.

 

(c)           The parties agree that, unless otherwise required by the appropriate tax authorities, the Depositor, on behalf of the Issuer, will file or cause to be filed annual or other necessary returns, reports and other forms consistent with the characterizations described in Section 2.11(a).

 

(d)           The Owner Trustee will not elect or cause the Issuer to elect, and the other parties to this Agreement will not elect or permit an election to be made, to treat the Issuer as an association taxable as a corporation for U.S. federal income tax purposes pursuant to Treasury Regulation §301.7701-3.

 

(e)           If at any time the Issuer is not treated as an entity disregarded as separate from the Depositor for U.S. federal income tax purposes, the Owner Trustee will, based on information provided by or on behalf of the Depositor, (i) maintain the books of the Issuer on the basis of a calendar year and the accrual method of accounting, (ii) deliver to the holder of the Residual Interest such information as may be required under the Code to enable such holder to prepare its U.S. federal and State income tax returns, (iii) file any tax returns relating to the Issuer and make such elections as may be required or appropriate under any applicable U.S. federal or State statute and (iv) collect any withholding tax as described in and in accordance with Section 4.1(c).

 

(f)            If at any time the Issuer is not treated as an entity disregarded as separate from the Depositor for U.S. federal income tax purposes, the Depositor so long as it is treated as holding any equity interest in the Issuer for U.S. federal income tax purposes, and otherwise, the owner of such equity interests designated by a majority of such owners, will (i) prepare and sign, on behalf of the Issuer, the tax returns of the Issuer and (ii) be designated the “tax matters partner” of the Issuer pursuant to Section 6231(a)(7)(A) of the Code.

 

ARTICLE III
 RESIDUAL INTEREST AND TRANSFER OF INTERESTS

 

Section 3.1.            The Residual Interest.

 

(a)           Upon the formation of the Issuer by the contribution and conveyance by the Depositor pursuant to Section 2.5, the Depositor will be the sole holder of the Residual Interest.  The holder of the Residual Interest will be entitled, pro rata, to any amounts not needed on any Payment Date to make payments on the Notes and on all other obligations to be paid under the Indenture and this Agreement, and to receive amounts remaining in the Reserve Account following the payment in full of the Notes and of all other amounts owing or to be distributed under this Agreement, the Indenture or the Sale and Servicing Agreement to the Secured Parties upon the termination of the Issuer.

 

(b)           The Depositor may exchange its Residual Interest for additional securities issued by the Issuer pursuant to one or more supplemental indentures to the Indenture or amendments to

 

6

 

this Agreement.  Such additional securities may consist of one or more classes of notes, certificates or other securities, as directed by the Depositor, each having the characteristics, rights and obligations as may be directed by the Depositor (which may include subordination to one or more other classes of such additional securities); provided:

 

(i)            the Depositor delivers, or causes the Administrator to deliver, to the Indenture Trustee and the Owner Trustee an Officer’s Certificate to the effect that the issuance of such additional securities will not have a material adverse effect on the Notes;

 

(ii)           the Depositor delivers an Opinion of Counsel to the Indenture Trustee and the Owner Trustee to the effect that the issuance of such additional securities will not (A) cause any Note to be deemed sold or exchanged for purposes of Section 1001 of the Code, (B) cause the Issuer to be treated as an association or publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, or (C) adversely affect the treatment of the Notes as debt for U.S. federal income tax purposes; and

 

(iii)          the Depositor either delivers to the Indenture Trustee and the Owner Trustee (A) an Opinion of Counsel to the effect that, after giving effect to such exchange, there will be no withholding imposed under Sections 1441 or 1442 of the Code in respect of payments on any such additional security or that the withholding tax imposed will be no greater than the withholding tax imposed prior to such exchange or (B) an Officer’s Certificate that states withholding is applicable to payments on any such additional securities, the rate of withholding tax required on such payments, and that such amounts will be withheld and remitted to the Internal Revenue Service in satisfaction of the requirements of Sections 1441 and 1442 of the Code.

 

Without limiting the foregoing, one or more classes of such additional securities may, if so directed by the Depositor, be secured by all or a portion of the Trust Property, so long as such security interest is subordinated in priority to the security interest granted to the Secured Parties pursuant to the Indenture.  Subject to this Section 3.1(b) and the other terms of the Transaction Documents, the Owner Trustee, on behalf of the Issuer, will take (at the expense of the Depositor) all actions requested by the Depositor to facilitate the issuance and sale of any such additional securities or the Grant and perfection of any security interest granted pursuant to this Section 3.1(b), including the authorization of the filing of any financing statements in jurisdictions deemed necessary or advisable by the Depositor to perfect such security interest.

 

Section 3.2.            Registration of Residual Interests; Transfer of the Residual Interest.  The Issuer appoints the Owner Trustee to be the “Trust Registrar” and to keep a register (the “Trust Register”) for the purpose of registering Residual Interests and transfers of Residual Interests as provided in this Agreement.  Upon any resignation of the Trust Registrar, the Issuer will promptly appoint a successor or, if it elects not to make such an appointment, assume the duties of Trust Registrar.  The holder of the Residual Interest will be permitted to sell, transfer, assign or convey its rights in the Residual Interest to any Person if the following conditions are satisfied:

 

(a)           such holder of the Residual Interest delivers an Opinion of Counsel to the Issuer and the Indenture Trustee to the effect that such action will not cause the Issuer to be or become

 

7

 

characterized for U.S. federal or any then Applicable Tax State income tax purposes as an association or publicly traded partnership taxable as a corporation;

 

(b)           such holder of the Residual Interest delivers to the Indenture Trustee and the Owner Trustee (i) an Opinion of Counsel to the effect that, after giving effect to such action, there will be no withholding imposed under Sections 1441 or 1442 of the Code in respect of payments on any such transferred security or that the withholding tax imposed will be no greater than the withholding tax imposed prior to such transfer or (ii) an Officer’s Certificate that states withholding is applicable to payments on any such transferred security, the rate of withholding tax required on such payments, and that such amounts will be withheld and remitted to the Internal Revenue Service in satisfaction of the requirements of Sections 1441 and 1442 of the Code;

 

(c)           the Depositor has notified the transferee or assignee of the Residual Interest of the tax positions previously taken by it, as holder of the Residual Interest, for U.S. federal and any Applicable Tax State income tax purposes and the transferee or assignee has agreed to take positions for U.S. federal and any Applicable Tax State income tax purposes consistent with the tax positions previously taken by the Depositor, as holder of the Residual Interest;

 

(d)           the holder or assignee of the Residual Interest delivers to the Indenture Trustee and the Owner Trustee a certification that it is not, and is not acting on behalf of or investing the assets of (i) an “employee benefit plan” (as defined in Section 3(3) of ERISA) that is subject to Title I of ERISA, (ii) a “plan” (as defined in Section 4975(e)(1) of the Code) that is subject to Section 4975 of the Code, (iii) an entity whose underlying assets include “plan assets” by reason of a plan’s investment in the entity (within the meaning of Department of Labor Regulation 29 C.F.R. Section 2510.3-101 or otherwise under ERISA), or (iv) an employee benefit plan or retirement arrangement that is subject to any Similar Law; and

 

(e)           if the assignee of the Residual Interest is Ford Credit or an Affiliate of Ford Credit that is not a special-purpose, bankruptcy remote entity, the holder of the Residual Interest provides evidence of satisfaction of the Rating Agency Condition.

 

Section 3.3.            Capital Accounts.  This Section 3.3 will apply only if the Issuer is not treated as an entity disregarded for U.S. federal income tax purposes.

 

(a)           The Owner Trustee will establish and maintain, in accordance with Section 1.704-1(b)(2)(iv) of the Treasury Regulations, a separate bookkeeping account (a “Capital Account”) for the Depositor and each other person treated as an equity owner for U.S. federal income tax purposes.

 

(b)           Notwithstanding any other provision of this Agreement to the contrary, the foregoing provisions of this Section 3.3 regarding the maintenance of Capital Accounts will be construed so as to comply with the provisions of the Treasury Regulations promulgated pursuant to Section 704 of the Code.  The Depositor is authorized to modify these provisions to the minimum extent necessary to comply with such regulations.

 

Section 3.4.            Maintenance of Office or Agency.  The Owner Trustee will maintain an office or offices or agency or agencies where notices and demands to or upon the Owner Trustee

 

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in respect of the Transaction Documents may be served.  The Owner Trustee designates its Corporate Trust Office for such purposes and will promptly notify the Depositor and the Indenture Trustee of any change in the location of its Corporate Trust Office.

 

Section 3.5.            Distributions to the Holder of the Residual Interest.  If the Trust Distribution Account has been established, the Owner Trustee will have the revocable power to withdraw funds from the Trust Distribution Account for the purpose of making distributions to the holder of the Residual Interest under this Agreement.  The Owner Trustee will make the distributions pursuant to Sections 3.1, 4.1, 4.2 and 8.1.  The Owner Trustee will hold all sums held by it for distribution to the holder of the Residual Interest in trust for the benefit of the holder of the Residual Interest until such sums are distributed to the holder of the Residual Interest.

 

ARTICLE IV
 APPLICATION OF TRUST FUNDS; CERTAIN DUTIES

 

Section 4.1.            Application of Trust Funds.  Upon request of the Depositor, the Owner  Trustee will establish and maintain the Trust Distribution Account as provided in Section 4.1 of the Sale and Servicing Agreement.  If the Trust Distribution Account has been established:

 

(a)           On each Payment Date, the Owner Trustee, based on the information contained in the Monthly Investor Report, will withdraw the amounts deposited into the Trust Distribution Account pursuant to Sections 8.2(c)(xiii), 8.2(d)(viii) and 8.2(e)(xiv) of the Indenture on or before such Payment Date and distribute such amounts to the holder of the Residual Interest.

 

(b)           Following the satisfaction and discharge of the Indenture and the payment in full of the principal and interest on the Notes, the Owner Trustee will distribute any remaining funds in the Trust Distribution Account to the holder of the Residual Interest.

 

(c)           If any withholding tax is imposed on the Issuer’s payment (or allocations of income) to the holder of the Residual Interest, such tax will reduce the amount otherwise distributable to such holder in accordance with this Section 4.1(c).  The Owner Trustee is authorized and directed to retain from amounts otherwise distributable to the holder of the Residual Interest  sufficient funds for the payment of any such withholding tax that is legally owed by the Issuer (but such authorization will not prevent the Owner Trustee from contesting any such tax in appropriate proceedings, and withholding payment of such tax, if permitted by law, pending the outcome of such proceedings).  The amount of any withholding tax imposed with respect to the holder of the Residual Interest will be treated as cash distributed to such holder at the time it is withheld by the Issuer and remitted to the appropriate taxing authority.  If there is a possibility that withholding tax is payable with respect to a distribution, the Owner Trustee may, in its sole discretion, withhold such amounts in accordance with this Section 4.1(c).  If the holder of a Residual Interest wishes to apply for a refund of any such withholding tax, the Owner Trustee will reasonably cooperate with such holder  in making such claim so long as such holder agrees to reimburse the Owner Trustee for any out-of-pocket expenses incurred in so cooperating.

 

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Section 4.2.            Method of Payment.  Distributions required to be made to the holder of the Residual Interest on any Payment Date will be made by wire transfer, in immediately available funds, to the account specified by such holder to the Owner Trustee.

 

ARTICLE V
 AUTHORITY AND DUTIES OF THE OWNER TRUSTEE

 

Section 5.1.            General Authority.

 

(a)           Upon the Depositor’s execution of this Agreement, the Owner Trustee is authorized and directed, on behalf of the Issuer, to (i) execute and deliver the Transaction Documents and each certificate or other document attached as an exhibit to or contemplated by the Transaction Documents to which the Issuer is to be a party and (ii) direct the Indenture Trustee to authenticate and deliver the Notes.

 

(b)           The Owner Trustee is authorized to take all actions required of the Issuer pursuant to the Transaction Documents and is authorized to take such action on behalf of the Issuer as is permitted by the Transaction Documents that the Servicer or the Administrator directs with respect to the Transaction Documents, except to the extent that this Agreement requires the consent of the Noteholders or the holder of the Residual Interest for such action.

 

Section 5.2.            General Duties.  Subject to Section 5.3, it is the duty of the Owner Trustee to discharge all of its responsibilities pursuant to this Agreement and the Transaction Documents to which the Issuer is a party and to administer the Issuer in the interest of the holder of the Residual Interest, subject to the Lien of the Indenture and in accordance with the Transaction Documents.  The Owner Trustee will be deemed to have discharged its duties and responsibilities under the Transaction Documents to the extent the Administrator is required in the Administration Agreement to perform any act or to discharge such duty of the Owner Trustee or the Issuer under any Transaction Document.  The Owner Trustee will not be held liable for the default or failure of the Administrator to carry out its obligations under the Administration Agreement.  The Owner Trustee will have no obligation to administer, service or collect the Receivables or to maintain, monitor or otherwise supervise the administration, servicing or collection of the Receivables.

 

Section 5.3.            Action upon Prior Notice with Respect to Certain Matters.  With respect to the following matters, the Owner Trustee may not take action unless (i) at least 30 days before taking such action, the Owner Trustee has notified the Indenture Trustee (who will notify the Noteholders), the holder of the Residual Interest and the Administrator (who will notify the Rating Agencies) of the proposed action and (ii) the Indenture Trustee acting upon instruction of the Noteholders of a majority of the Note Balance of the Controlling Class (or if no Notes are Outstanding, the holder of the Residual Interest) have not notified the Owner Trustee before the 30th day after receipt of such notice that such majority of the Note Balance of the Controlling Class (or if no Notes are Outstanding, the holder of the Residual Interest) has withheld consent or provided alternative direction:

 

(a)           the initiation of any material claim or lawsuit by the Issuer and the settlement of any material action, claim or lawsuit brought by or against the Issuer;

 

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(b)           the election by the Issuer to file an amendment to the Certificate of Trust (unless such amendment is required to be filed under the Delaware Statutory Trust Act), except to cure any ambiguity or to amend or supplement any provision in a manner or to add any provision that would not materially adversely affect the interests of the holders of the Notes or the Residual Interest;

 

(c)           the appointment pursuant to the Indenture of a successor Indenture Trustee or the consent to the assignment by the Indenture Trustee of its obligations under the Indenture or this Agreement; and

 

(d)           consenting to the Administrator taking any of the actions described in clauses (a) through (c) above.

 

Section 5.4.            Action upon Direction by the Holder of the Residual Interest with Respect to Certain Matters.

 

(a)           The Owner Trustee on behalf of the Issuer will not execute an amendment to the Sale and Servicing Agreement, the Indenture or the Administration Agreement that would materially adversely affect the holder of the Residual Interest without the consent of such holder.

 

(b)           The Owner Trustee will not (i) remove the Servicer or appoint a successor Servicer under Article VII of the Sale and Servicing Agreement, or (ii) remove the Administrator or appoint a successor Administrator under Article V of the Administration Agreement unless (A) there is a Servicer Termination Event subsequent to the payment in full of the Notes and (B) the holder of the Residual Interest directs the Owner Trustee to take such action.

 

Section 5.5.            Action with Respect to Bankruptcy.  The Owner Trustee may not commence a voluntary proceeding in bankruptcy relating to the Issuer unless the Notes have been paid in full and the holder of the Residual Interest approves of such commencement in advance and delivers to the Owner Trustee a certificate certifying that it reasonably believes that the Issuer is insolvent.

 

Section 5.6.            Action upon Instruction.

 

(a)           The Owner Trustee will not be required to take any action under any Transaction Document if the Owner Trustee reasonably determines, or is advised by counsel, that such action is likely to result in liability on the part of the Owner Trustee, is contrary to any Transaction Document or is contrary to law.

 

(b)           If (i) the Owner Trustee is unsure as to the application of any provision of any Transaction Document, (ii) any provision of any Transaction Document is, or appears to be, in conflict with any other applicable provision, (iii) this Agreement permits any determination by the Owner Trustee or is silent or is incomplete as to the course of action that the Owner Trustee is required to take with respect to a particular set of facts or (iv) the Owner Trustee is unable to decide between alternative courses of action permitted or required by any Transaction Document, the Owner Trustee may, and with respect to clause (iv) will, notify the Administrator requesting instruction and, to the extent that the Owner Trustee acts or refrains from acting in good faith in accordance with any such instruction received, the Owner Trustee will not be liable

 

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to any Person on account of such action or inaction.  If the Owner Trustee does not receive appropriate instruction within ten days of such notice (or within such shorter period of time as reasonably may be specified in such notice or may be necessary under the circumstances) it may, but will be under no duty to, take or refrain from taking such action, not inconsistent with the Transaction Documents, as it deems to be in the best interests of the holder of the Residual Interest, and will have no liability to any Person for such action or inaction.

 

Section 5.7.            No Duties Except as Specified in this Agreement or in Instructions.  The Owner Trustee has no duty or obligation to manage, make any payment with respect to, register, record, sell, dispose of, or otherwise deal with the Trust Property, or to otherwise take or refrain from taking any action under, or in connection with, any document contemplated by this Agreement to which the Owner Trustee or the Issuer is a party, except as provided by this Agreement or in any document or instruction received by the Owner Trustee pursuant to Section 5.6.  No implied duties or obligations will be read into any Transaction Document against the Owner Trustee.  The Owner Trustee has no responsibility for filing any financing statements or continuation statements or to otherwise perfect or maintain the perfection of any security interest or Lien granted to it under this Agreement or to prepare or file any Securities and Exchange Commission filing for the Issuer or to record any Transaction Document.  The Owner Trustee nevertheless agrees that it will promptly take, at its own cost and expense, all action as may be necessary to discharge any Lien (other than the Lien of the Indenture) on any part of the Trust Property that results from actions by, or claims against, the Owner Trustee that are not related to the ownership or the administration of the Trust Property.

 

Section 5.8.            No Action Except Under Specified Documents or Instructions.  The Owner Trustee will not manage, control, use, sell, dispose of or otherwise deal with any part of the Trust Property except (a) in accordance with the powers granted to and the authority conferred upon the Owner Trustee pursuant to this Agreement, (b) in accordance with the other Transaction Documents to which the Issuer or the Owner Trustee is a party and (c) in accordance with any document or instruction delivered to the Owner Trustee pursuant to Section 5.6.  The Depositor will not direct the Owner Trustee to take any action that would violate this Section 5.8.

 

Section 5.9.            Prohibition on Certain Actions.  The Owner Trustee will not take any action (a) that is inconsistent with the purposes of the Issuer set forth in Section 2.3 or (b) that, to the knowledge of the Owner Trustee, would (i) cause any Class of Notes not to be treated as indebtedness for U.S. federal income or Applicable Tax State income or franchise tax purposes, (ii) be deemed to cause a sale or exchange of the Notes for purposes of Section 1001 of the Code (unless no gain or loss would be recognized on such deemed sale or exchange for U.S. federal income tax purposes) or (iii) cause the Issuer or any portion thereof to be taxable as an association (or publicly traded partnership) taxable as a corporation for U.S. federal income or Applicable Tax State income or franchise tax purposes.  The Administrator will not direct the Owner Trustee to take action that would violate this Section 5.9.

 

Section 5.10.          Audits of the Owner Trustee.  The Owner Trustee agrees that, with reasonable prior notice, it will permit any authorized representative of the Servicer or the Administrator, during the Owner Trustee’s normal business hours, to examine and audit the books of account, records, reports and other documents and materials of the Owner Trustee relating to (a) the performance of the Owner Trustee’s obligations under this Agreement, (b) any

 

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payments of fees and expenses of the Owner Trustee in connection with such performance and (c) any claim made by the Owner Trustee under this Agreement.  In addition, the Owner Trustee will permit such representatives to make copies and extracts of any such books and records and to discuss the same with the Owner Trustee’s officers and employees.  Each of the Servicer and the Administrator will, and will cause its authorized representatives to, hold in confidence all such information except to the extent disclosure may be required by law (and all reasonable applications for confidential treatment are unavailing) and except to the extent that the Servicer or the Administrator, as the case may be, may reasonably determine that such disclosure is consistent with its obligations under this Agreement.  The Owner Trustee will maintain all such pertinent books, records, reports and other documents and materials for a period of two years after the termination of its obligations under this Agreement.

 

Section 5.11.          Furnishing of Documents.  Upon request from the holder of the Residual Interest, the Owner Trustee will furnish to such holder copies of all reports, notices, requests, demands, certificates, financial statements and any other instruments furnished to the Owner Trustee under the Transaction Documents.

 

Section 5.12.          Sarbanes-Oxley Act.  Notwithstanding anything to the contrary in any Transaction Document, the Owner Trustee will not be required to execute, deliver or certify on behalf of the Issuer, the Servicer, the Depositor or any other Person any filings, certificates, affidavits or other instruments required by the Securities and Exchange Commission or required under the Sarbanes-Oxley Act of 2002.  However, any entity executing, delivering or certifying such filings, certificates, affidavits or other instruments required by the Securities and Exchange Commission or required under the Sarbanes-Oxley Act of 2002 on behalf of the Issuer may request, at its option, such subcertifications, including any assessments of compliance required from the Owner Trustee as it may deem necessary to provide such certifications and the Owner Trustee will reasonably comply with such request.

 

Section 5.13.          Maintenance of Licenses.  The Owner Trustee will obtain and maintain any licenses that the Administrator informs the Owner Trustee are required to be obtained or maintained by the Owner Trustee under the laws of any State in connection with the Owner Trustee’s duties and obligations under the Transaction Documents.

 

Section 5.14.          Covenants for Reporting of Repurchase Demands due to Breaches of Representations and Warranties.  The Owner Trustee will (a) notify the Sponsor, the Depositor and the Servicer, as soon as practicable and in any event within five Business Days, of all demands or requests received by a Responsible Person of the Owner Trustee (including to the Owner Trustee on behalf of the Issuer) for the repurchase of any Receivable pursuant to Section 3.3 of the Purchase Agreement or Section 2.4 of the Sale and Servicing Agreement, (b) promptly upon request by the Sponsor, the Depositor or the Servicer, provide to them any other information reasonably requested to facilitate compliance by them with Rule 15Ga-1 under the Exchange Act, and Items 1104(e) and 1121(c) of Regulation AB and (c) if requested by Ford Credit, the Depositor or the Servicer, provide a written certification no later than fifteen days following the end of any calendar quarter or calendar year that the Owner Trustee has not received any repurchase demands for such period, or if repurchase demands have been received during such period, that the Owner Trustee has provided all the information reasonably requested under clause (b) above.  In no event will the Owner Trustee or the Issuer have any responsibility

 

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or liability in connection with any filing required to be made by a securitizer under the Exchange Act or Regulation AB.

 

ARTICLE VI
 REGARDING THE OWNER TRUSTEE

 

Section 6.1.            Acceptance of Trusts and Duties.  The Owner Trustee accepts the trusts created by this Agreement and agrees to perform its duties under this Agreement with respect to such trusts but only in accordance with this Agreement.  The Owner Trustee also agrees to distribute all monies actually received by it constituting part of the Trust Property in accordance with the Transaction Documents.  The Owner Trustee will not be liable under any Transaction Document under any circumstances, except (i) for its own willful misconduct, bad faith or negligence (except for errors in judgment) or (ii) if any representation or warranty in Section 6.2 is not true and correct as of the Closing Date.  In particular, but not by way of limitation (and subject to the exceptions set forth in the preceding sentence):

 

(a)           the Owner Trustee will not be liable with respect to any action taken or omitted to be taken by it in accordance with the instructions of the Noteholders of a majority of the Note Balance of the Controlling Class, the Indenture Trustee, the Depositor, the holder of the Residual Interest, the Administrator or the Servicer;

 

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

 

(c)           the Owner Trustee will not be liable for indebtedness evidenced by or arising under any of the Transaction Documents, including the principal of and interest on the Notes or amounts distributable to the holder of the Residual Interest;

 

(d)           the Owner Trustee will not be responsible for (i) the validity or sufficiency of this Agreement, (ii) the due execution of this Agreement by the Depositor, (iii) the form, character, genuineness, sufficiency, value or validity of any of the Trust Property or (iv) the validity or sufficiency of the other Transaction Documents, the Notes, any Receivable or any related documents, and the Owner Trustee will in no event assume or incur any liability, duty or obligation to any Noteholder, the Depositor or the holder of the Residual Interest, other than as provided for in the Transaction Documents;

 

(e)           the Owner Trustee will not be liable for the default or misconduct of the Servicer, the Administrator, the Depositor, the holder of the Residual Interest or the Indenture Trustee under any of the Transaction Documents or otherwise and the Owner Trustee will have no obligation or liability to perform the obligations of the Issuer under the Transaction Documents that are required to be performed by the Administrator under the Administration Agreement, the Servicer under the Sale and Servicing Agreement or the Indenture Trustee under the Indenture;

 

(f)            the Owner Trustee will be under no obligation to exercise any of the rights or powers vested in it by this Agreement or, at the request, order or direction of the Depositor, to

 

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institute, conduct or defend any litigation under this Agreement or in relation to any Transaction Document or otherwise unless the Depositor has offered to the Owner Trustee reasonable security or indemnity satisfactory to it against the costs, expenses, losses, damages, claims and liabilities that may be incurred by the Owner Trustee.  The right of the Owner Trustee to perform any discretionary act enumerated in any Transaction Document will not be construed as a duty; and

 

(g)           the Owner Trustee will not be responsible or liable for (i) the legality, validity and enforceability of any Receivable, (ii) the perfection and priority of any security interest created by any Receivable in any Financed Vehicle or the maintenance of any such perfection and priority, (iii) the sufficiency of the Trust Property or the ability of the Trust Property to generate the amounts necessary to make payments to the Noteholders under the Indenture or distributions to the holder of the Residual Interest under this Agreement, (iv) the accuracy of any representation or warranty made under any Transaction Document (other than the representations and warranties made in Section 6.2) or (v) any action of the Indenture Trustee, the Administrator or the Servicer or any subservicer taken in the name of the Owner Trustee.

 

Section 6.2.            Representations and Warranties of the Owner Trustee.  The Owner Trustee represents and warrants to the Depositor as of the Closing Date:

 

(a)           Organization and Qualification.  The Owner Trustee is duly formed and is validly existing as a national banking association under the laws of the United States.  The Owner Trustee is duly qualified as a national banking association and has obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of its properties or the conduct of its activities requires such qualification, license or approval, unless the failure to obtain such qualifications, licenses or approvals would not reasonably be expected to have a material adverse effect on the Owner Trustee’s ability to perform its obligations under this Agreement.

 

(b)           Power, Authorization and Enforceability.  The Owner Trustee has the power and authority to execute deliver and perform the terms this Agreement.  The Owner Trustee has authorized the execution, delivery and performance of the terms of this Agreement.  This Agreement is the legal, valid and binding obligation of the Owner Trustee enforceable against the Owner Trustee, except as may be limited by insolvency, bankruptcy, reorganization or other laws relating to the enforcement of creditors’ rights or by general equitable principles.

 

(c)           No Conflicts and No Violation.  The execution and delivery by the Owner Trustee of this Agreement, the consummation by the Owner Trustee of the transactions contemplated by this Agreement and the compliance by the Owner Trustee with this Agreement will not (i) violate any federal or State law, governmental rule or regulation governing the banking or trust powers of the Owner Trustee or any judgment or order binding on it, (ii) conflict with, result in a breach of, or constitute (with or without notice or lapse of time or both) a default under its charter documents or by-laws or any indenture, mortgage, deed of trust, loan agreement, guarantee or similar agreement or instrument under which the Owner Trustee is a debtor or guarantor or (iii) violate any law or, to the Owner Trustee’s knowledge, any order, rule, or regulation applicable to the Owner Trustee of any court or of any federal or State regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Owner Trustee or its properties, in each case which conflict, breach, default, Lien, or violation

 

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would reasonably be expected to have a material adverse effect on the Owner Trustee’s ability to perform its obligations under this Agreement.

 

(d)           No Proceedings.  To the Owner Trustee’s knowledge, there are no proceedings or investigations pending or overtly threatened in writing, before any court, regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over the Owner Trustee or its properties: (i) asserting the invalidity of this Agreement, (ii) seeking to prevent the issuance of the Notes or the consummation of any of the transactions contemplated by any of the Transaction Documents, or (iii) seeking any determination or ruling that would reasonably be expected to have a material adverse effect on the Owner Trustee’s ability to perform its obligations under, or the validity or enforceability of, this Agreement.

 

(e)           Banking Association.  The Owner Trustee is a banking association satisfying Section 3807(a) of the Delaware Statutory Trust Act and meets the eligibility requirements of Section 9.1(a).

 

(f)            Information Provided by the Owner Trustee.  The information provided by the Owner Trustee in its individual capacity in any certificate delivered by a Responsible Person of the Owner Trustee is true and correct in all material respects.

 

Section 6.3.            Reliance; Advice of Counsel.

 

(a)           The Owner Trustee may rely upon, will be protected in relying upon and will incur no liability to anyone in acting upon any signature, instrument, notice, resolution, request, consent, order, certificate, report, opinion, bond or other document believed by it to be genuine that appears on its face to be properly executed and signed by the proper party or parties.  The Owner Trustee may accept a certified copy of a resolution of the board of directors or other governing body of any corporate party as conclusive evidence that such resolution has been duly adopted by such body and that the same is in full force and effect.  As to any fact or matter the method of the determination of which is not specifically prescribed in this Agreement, the Owner Trustee may for all purposes of this Agreement rely on a certificate, signed by the president or any vice president or by the treasurer or other Responsible Persons of the relevant party, as to such fact or matter and such certificate will constitute full protection to the Owner Trustee for any action taken or omitted to be taken by it in good faith in reliance thereon.

 

(b)           In the exercise or administration of the trusts under this Agreement and in the performance of its duties and obligations under the Transaction Documents, the Owner Trustee (i) may act directly or through its agents or attorneys pursuant to agreements entered into with any of them and will not be liable for the conduct or misconduct of such agents or attorneys if the Owner Trustee selects such agents or attorneys with reasonable care and (ii) may consult with counsel, accountants and other skilled Persons whom the Owner Trustee selects with reasonable care and employs.  The Owner Trustee will not be liable for anything it does, suffers or omits to do in good faith in accordance with the written opinion or advice of any such counsel, accountants or other such Persons that is not contrary to any Transaction Document.

 

Section 6.4.            Not Acting in Individual Capacity.  Except as provided in this Article VI, in accepting the trusts created by this Agreement, U.S. Bank Trust National Association acts

 

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solely as Owner Trustee under this Agreement and not in its individual capacity.  All Persons having any claim against the Owner Trustee by reason of the transactions contemplated by any Transaction Document will look only to the Trust Property for payment or satisfaction thereof.  However, the Owner Trustee will be responsible for any breach of its representations and warranties made in Section 6.2.

 

Section 6.5.            U.S. Bank Trust National Association May Own Notes.  U.S. Bank Trust National Association, in its individual or any other capacity, may become the owner or pledgee of Notes and may deal with the Depositor, the holder of the Residual Interest, the Servicer, the Administrator and the Indenture Trustee in banking transactions with the same rights as it would have if it were not the Owner Trustee.

 

Section 6.6.            Duty to Update Disclosure.  The Owner Trustee will notify and provide information, and certify such information in an Officer’s Certificate, to the Depositor upon any event or condition relating to the Owner Trustee or actions taken by the Owner Trustee that (A) (i) is required to be disclosed by the Depositor under Item 2 (the institution of, material developments in, or termination of legal proceedings against U.S. Bank Trust National Association that are material to Noteholders) of Form 10-D under the Exchange Act within five days of such occurrence or (ii) the Depositor reasonably requests of the Owner Trustee that the Depositor, in good faith, believes is necessary to comply with Regulation AB within five days of request or (B) (i) is required to be disclosed under Item 6.02 (resignation, removal, replacement or substitution of U.S. Bank Trust National Association as Owner Trustee) of Form 8-K under the Exchange Act within two days of a Responsible Person of the Owner Trustee becoming aware of such occurrence or (ii) causes the information provided by the Owner Trustee in any certificate delivered by a Responsible Person of the Owner Trustee to be untrue or incorrect in any material respect or is necessary to make the statements provided by the Owner Trustee in light of the circumstances in which they were made not misleading within five days of a Responsible Person of the Owner Trustee becoming aware thereof.  The obligations of the Owner Trustee to provide such information with respect to the period during which it served as Owner Trustee will survive the resignation or removal of the Owner Trustee under the Agreement.

 

ARTICLE VII
 COMPENSATION AND INDEMNIFICATION OF THE OWNER TRUSTEE; ORGANIZATIONAL EXPENSES

 

Section 7.1.            Owner Trustee’s Fees and Expenses.  The Issuer will, or will cause the Administrator to, pay the Owner Trustee as compensation for its services under this Agreement such fees as have been separately agreed upon by the Administrator and the Owner Trustee.  The Issuer will reimburse the Owner Trustee for all reasonable out-of-pocket expenses incurred or made by the Owner Trustee in performing its rights and duties under this Agreement, including the reasonable compensation, expenses and disbursements of the Owner Trustee’s agents, counsel, accountants and experts, but excluding any expenses incurred by the Owner Trustee through the Owner Trustee’s own willful misconduct, bad faith or negligence (other than errors in judgment).

 

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Section 7.2.            Indemnification of the Owner Trustee.

 

(a)           The Depositor will, or will cause the Administrator to, indemnify, defend and hold harmless the Owner Trustee, and its respective officers, directors, employees and agents, from and against any and all costs, expenses, losses, damages, claims and liabilities (including the reasonable compensation, expenses and disbursements of the Owner Trustee’s agents, counsel, accountants and experts) incurred by it in connection with the administration of and the performance of its duties under this Agreement, including the costs and expenses of defending itself against any loss, damage, claim or liability incurred by it in connection with the exercise or performance of any of its powers or duties under the Indenture, but excluding any cost, expense, loss, damage, claim or liability (i) incurred by the Owner Trustee through the Owner Trustee’s own willful misconduct, bad faith or negligence (other than errors in judgment) or (ii) arising from the inaccuracy of any representation or warranty contained in Section 6.2.

 

(b)           Promptly upon receipt by the Owner Trustee, or any of its officers, directors, employees and agents (each, an “Indemnified Person”), of notice of the commencement of any Proceeding against any such Indemnified Person, such Indemnified Person will, if a claim in respect of such Proceeding is to be made under Section 7.2(a), notify the Depositor and the Administrator of the commencement of such Proceeding.  The Depositor, or, if the Depositor so causes, the Administrator, may participate in and assume the defense and settlement of any such Proceeding at its expense, and no settlement of such Proceeding may be made without the approval of the Depositor or the Administrator, as applicable, and such Indemnified Person, which approvals will not be unreasonably withheld, delayed or conditioned.  After notice from the Depositor or the Administrator, as applicable, to the Indemnified Person of the intention of the Depositor or the Administrator, as applicable, to assume the defense of such Proceeding with counsel reasonably satisfactory to the Indemnified Person, and so long as the Depositor or the Administrator, as applicable, so assumes the defense of such Proceeding in a manner reasonably satisfactory to the Indemnified Person, neither the Depositor nor the Administrator will be liable for any legal expenses of counsel to the Indemnified Person unless there is a conflict between the interests of the Depositor or the Administrator, as applicable, on one hand, and an Indemnified Person, on the other hand, in which case the Depositor, or, if Depositor so causes, the Administrator, will pay for the separate counsel to the Indemnified Person.

 

(c)           The Depositor’s obligations under this Section 7.2 are obligations solely of the Depositor and do not constitute a claim against the Depositor to the extent that the Depositor does not have funds sufficient to make payment of such obligations.  The Owner Trustee, by entering into or accepting this Agreement, acknowledges and agrees that it has no right, title or interest in or to the Other Assets of the Depositor.  Notwithstanding the preceding sentence, if the Owner Trustee either (i) asserts an interest or claim to, or benefit from, the Other Assets or (ii) is deemed to have any such interest, claim to, or benefit in or from the Other Assets, whether by operation of law, legal process, pursuant to insolvency laws or otherwise (including by virtue of Section 1111(b) of the Bankruptcy Code), then the Owner Trustee further acknowledges and agrees that any such interest, claim or benefit in or from the Other Assets is expressly subordinated to the indefeasible payment in full of the other obligations and liabilities, which, under the relevant documents relating to the securitization or conveyance of such 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

 

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to a priority of distributions or application under applicable law, including insolvency laws, and whether or not asserted against the Depositor), including the payment of post-petition interest on such other obligations and liabilities.  This subordination agreement is deemed a subordination agreement within the meaning of Section 510(a) of the Bankruptcy Code.  The Owner Trustee further acknowledges and agrees that no adequate remedy at law exists for a breach of this Section 7.2(c) and this Section 7.2(c) may be enforced by an action for specific performance.  This Section 7.2(c) is for the third party benefit of the holders of such other obligations and liabilities and will survive the termination of this Agreement.

 

Section 7.3.            Organizational Expenses of the Issuer.  The Depositor will, or will cause the Administrator to, pay the organizational expenses of the Issuer as they may arise or, upon the request of the Owner Trustee, the Depositor will, or will cause the Administrator to, promptly reimburse the Owner Trustee for any such expenses paid by the Owner Trustee.

 

Section 7.4.            Certain Expenses of the Indenture Trustee and the Owner Trustee.  The Depositor will reimburse (a) the Indenture Trustee and any successor Indenture Trustee for any expenses associated with the replacement of the Indenture Trustee pursuant to Section 6.8 of the Indenture and (b) the Owner Trustee and any successor Owner Trustee for any expenses associated with the replacement of the Owner Trustee pursuant to Section 9.2 of this Agreement, in each case, to the extent such amounts have not been otherwise paid pursuant to Section 8.2 of the Indenture.

 

ARTICLE VIII
 TERMINATION

 

Section 8.1.            Termination of Trust Agreement.

 

(a)           This Agreement (other than the provisions of Article VII) will terminate and be of no further force or effect and the Issuer will terminate, wind up and dissolve, upon the earlier to occur of (i) the last remaining Receivable is paid in full, settled, sold or charged off and any amounts received are applied or (ii) the payment to the Noteholders and any other holders of securities issued under any supplemental indentures or amendments to this Agreement, the Indenture Trustee and the Owner Trustee of all amounts required to be paid to them pursuant to the Indenture, the Sale and Servicing Agreement and Article IV.  Any Insolvency Event, liquidation or dissolution with respect to the Depositor will not (A) operate to terminate this Agreement or the Issuer, (B) entitle the Depositor’s legal representatives to claim an accounting or to take any action or proceeding in any court for a partition or winding up of all or any part of the Issuer or the Trust Property or (C) otherwise affect the rights, obligations and liabilities of the parties to this Agreement.  Upon dissolution of the Issuer, the Owner Trustee will wind up the activities and affairs of the Issuer as required by Section 3808 of the Delaware Statutory Trust Act.

 

(b)           The Depositor may not revoke or terminate the Issuer, unless it is the holder of 100% of the Residual Interest and in accordance with Section 8.1(a).

 

(c)           Upon termination of the Issuer, any remaining Trust Property will be distributed to the holder of the Residual Interest, and the Owner Trustee will cause the Certificate of Trust to

 

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be cancelled by preparing, executing and filing a certificate of cancellation with the Secretary of State of the State of Delaware in accordance with Section 3810(c) of the Delaware Statutory Trust Act or as otherwise required by the Delaware Statutory Trust Act.  Upon the filing of such certificate of cancellation, the Owner Trustee’s services under this Agreement will simultaneously terminate.  The Owner Trustee will deliver a file-stamped copy of such certificate of cancellation to the Administrator promptly upon such document becoming available following such filing.

 

ARTICLE IX
 SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES

 

Section 9.1.            Eligibility Requirements for the Owner Trustee.

 

(a)           The Owner Trustee must (i) be authorized to exercise corporate trust powers, (ii) have a combined capital and surplus of at least $50,000,000 and be subject to supervision or examination by federal or State authorities and (iii) have (or have a parent that has) a long-term debt rating of investment grade by each of the Rating Agencies or be otherwise acceptable to the Rating Agencies.  If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or examining authority, then for the purpose of this Section 9.1, the combined capital and surplus of such corporation will be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.  If the Owner Trustee ceases to be eligible in accordance with this Section 9.1, it must resign immediately in the manner and with the effect specified in Section 9.2.  The Owner Trustee will promptly notify the Depositor and the Administrator if it ceases to satisfy the requirements of this Section 9.1.

 

(b)           The Owner Trustee must satisfy Section 3807(a) of the Delaware Statutory Trust Act.

 

Section 9.2.            Resignation or Removal of the Owner Trustee.

 

(a)           The Owner Trustee may resign and be discharged from the trusts created by this Agreement by giving notice to the Depositor and the Administrator.

 

(b)           The Administrator may remove the Owner Trustee upon notice to the Owner Trustee and will remove the Owner Trustee if:

 

(i)            the Owner Trustee ceases to be eligible in accordance with Section 9.1;

 

(ii)           the Owner Trustee is legally unable to act; or

 

(iii)          an Insolvency Event with respect to the Owner Trustee has occurred and is continuing.

 

(c)           If the Owner Trustee resigns or the Administrator removes the Owner Trustee, the Administrator will promptly (i) appoint a successor Owner Trustee, by written instrument, in duplicate and (ii) deliver one copy of such instrument to the outgoing Owner Trustee and one copy to the successor Owner Trustee.  The Owner Trustee will be entitled to payment through

 

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the date of its resignation or removal from distributions made under Section 8.2 of the Indenture.  If no successor Owner Trustee is appointed and has accepted such appointment within 30 days after the Administrator’s receipt of notice of resignation or removal of the Owner Trustee, the outgoing Owner Trustee may petition any court of competent jurisdiction for the appointment of a successor Owner Trustee.  The right to appoint or to petition for the appointment of any such successor Owner Trustee does not relieve the outgoing Owner Trustee from any obligations otherwise imposed on it under the Transaction Documents until the appointment of the successor Owner Trustee has become effective.

 

(d)           No resignation or removal of the Owner Trustee and appointment of a successor Owner Trustee pursuant to this Section 9.2 will become effective until (i) the successor Owner Trustee accepts its appointment as the Owner Trustee pursuant to Section 9.3(a) and (ii) the successor Owner Trustee files the certificate of amendment to the Certificate of Trust referred to in Section 9.3(d).  The Administrator will notify the Depositor, the Indenture Trustee and the Rating Agencies of any resignation or removal of the Owner Trustee.

 

Section 9.3.            Successor Owner Trustee.

 

(a)           Any successor Owner Trustee appointed pursuant to Section 9.2 must execute and deliver to the Administrator and to its predecessor Owner Trustee an instrument accepting such appointment under this Agreement.  Upon the resignation or removal of the predecessor Owner Trustee becoming effective pursuant to Section 9.2(d), such successor Owner Trustee, without any further act, will become fully vested with all the rights, powers, duties, and obligations of its predecessor under this Agreement.  The predecessor Owner Trustee will, upon payment of its fees and expenses, deliver to the successor Owner Trustee all documents and statements and monies held by it under this Agreement, and the Administrator and the predecessor Owner Trustee will execute and deliver such instruments and do such other things as may reasonably be required to vest and confirm in the successor Owner Trustee all such rights, powers, duties and obligations.

 

(b)           No successor Owner Trustee may accept appointment as provided in this Section 9.3 unless, at the time of such acceptance, such successor Owner Trustee is eligible pursuant to Section 9.1.

 

(c)           Upon the acceptance of appointment by a successor Owner Trustee pursuant to this Section 9.3, the Administrator will notify the Depositor, the Indenture Trustee, the Noteholders and the Rating Agencies of such successor Owner Trustee.

 

(d)           Any successor Owner Trustee appointed under this Agreement will promptly file a certificate of amendment to the Certificate of Trust with the Secretary of State of the State of Delaware identifying the name and principal place of business of such successor Owner Trustee in the State of Delaware.  The successor Owner Trustee will deliver a file-stamped copy of such certificate of amendment to the Administrator promptly upon such document becoming available following such filing.

 

Section 9.4.            Merger or Consolidation of the Owner Trustee.  Any Person (a) into which the Owner Trustee may be merged or converted or with which it may be consolidated, (b)

 

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resulting from any merger, conversion or consolidation to which the Owner Trustee is a party or (c) succeeding to all or substantially all of the corporate trust business of the Owner Trustee will, provided such Person is eligible pursuant to Section 9.1, be the successor of the Owner Trustee under this Agreement without the execution or filing of any document or any further act (except as required under this Section 9.4); provided, that the Owner Trustee (i) notifies the Issuer (who will notify the Rating Agencies) of such merger or consolidation within 15 Business Days of such event and (ii) files a certificate of amendment to the Certificate of Trust as required by Section 9.3(d).

 

Section 9.5.            Appointment of Separate Trustee or Co-Trustee.

 

(a)           Notwithstanding any other provision of this Agreement, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust Property or any Financed Vehicle may be located, the Administrator and the Owner Trustee acting jointly will have the power and will execute and deliver all instruments to appoint one or more Persons approved by the Owner Trustee to act as a separate trustee or as separate trustees, or as co-trustee, jointly with the Owner Trustee, of all or any part of the Issuer, and to vest in such Person, in such capacity, such title to the Trust Property, or any part thereof, and, subject to this Section 9.5, such powers, duties, obligations, rights and trusts as the Administrator and the Owner Trustee consider necessary or desirable.  If the Administrator has not joined in such appointment within 15 Business Days of its receipt of a request so to do, the Owner Trustee will have the power to make such appointment.  No separate trustee or co-trustee under this Agreement will be required to meet the terms of eligibility as a successor trustee pursuant to Section 9.1 and no notice of the appointment of any separate trustee or co-trustee is required.

 

(b)           Each separate trustee and co-trustee will, to the extent permitted by law, be appointed and act subject to the following:

 

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

 

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

 

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

 

(c)           Any notice, request or other writing given to the Owner Trustee will be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to

 

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each of them.  Every instrument appointing any separate trustee or co-trustee must refer to this Agreement and the conditions of this Article IX.  Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, will be vested with the estates or property specified in its instrument of appointment, either jointly with the Owner Trustee or separately, as may be provided in such instrument, subject to this Agreement.  The Owner Trustee will keep a copy of each such instrument in its files and will deliver a copy of each such instrument to the Administrator.

 

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

 

Section 9.6.            Compliance with Delaware Statutory Trust Act.  Notwithstanding anything in this Agreement to the contrary, the Issuer must have at least one trustee that meets the requirements of Section 3807(a) of the Delaware Statutory Trust Act.

 

ARTICLE X
 MISCELLANEOUS

 

Section 10.1.          Supplements and Amendments.

 

(a)           This Agreement may be amended by the holder of the Residual Interest and the Owner Trustee, with prior notice by the Administrator to the Rating Agencies, without the consent of any of the Noteholders, for the purpose of curing any ambiguity or correcting or supplementing any provisions in this Agreement inconsistent with any other provision of this Agreement.

 

(b)           This Agreement may be amended by the holder of the Residual Interest and the Owner Trustee, with prior notice by the Administrator to the Rating Agencies, without the consent of any of the Noteholders, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or issuing securities in exchange for all or a portion of the Residual Interest, subject to the following conditions:

 

(i)            such holder delivers an Officer’s Certificate to the Indenture Trustee and the Owner Trustee to the effect that such amendment will not have a material adverse effect on the Notes;

 

(ii)           such holder delivers an Opinion of Counsel to the Indenture Trustee and the Owner Trustee to the effect that such amendment will not (A) cause any Note to be deemed sold or exchanged for purposes of Section 1001 of the Code, (B) cause the Issuer to be treated as an association or publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, or (C) adversely affect the treatment of the Notes as debt for U.S. federal income tax purposes; and

 

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(iii)          such holder either delivers to the Indenture Trustee and the Owner Trustee (A) an Opinion of Counsel to the effect that, after giving effect to such amendment, there will be no withholding imposed under Sections 1441 or 1442 of the Code in respect of payments on any additional security or that the withholding tax imposed will be no greater than the withholding tax imposed prior to such amendment or (B) an Officer’s Certificate that states withholding is applicable to payments on any such additional securities, the rate of withholding tax required on such payments, and that such amounts will be withheld and remitted to the Internal Revenue Service in satisfaction of the requirements of Sections 1441 and 1442 of the Code.

 

(c)           This Agreement also may be amended by the holder of the Residual Interest and the Owner Trustee for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement with prior notice by the Administrator to the Rating Agencies, subject to the following conditions:

 

(i)            (A) the Indenture Trustee, to the extent that its rights or obligations would be affected by such amendment consents (which consent may not be unreasonably withheld, delayed or conditioned) and (B) the Noteholders of a majority of the Note Balance of each Class of Notes Outstanding consent to such amendment (with each affected Class voting separately, except that all Noteholders of Class A Notes will vote together as a single class);

 

(ii)           such holder delivers an Opinion of Counsel to the Indenture Trustee and the Owner Trustee to the effect that such amendment will not (A) cause any Note to be deemed sold or exchanged for purposes of Section 1001 of the Code, (B) cause the Issuer to be treated as an association or publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, or (C) adversely affect the treatment of the Notes as debt for U.S. federal income tax purposes; and

 

(iii)          such holder either delivers to the Indenture Trustee and the Owner Trustee (A) an Opinion of Counsel to the effect that, after giving effect to such amendment, there will be no withholding imposed under Sections 1441 or 1442 of the Code in respect of payments on any additional security as a result of such amendment or that the withholding tax imposed will be no greater than the withholding tax imposed prior to such amendment or (B) an Officer’s Certificate that states withholding is applicable to payments on any such additional securities, the rate of withholding tax required on such amounts, and that such withheld amounts are required to be remitted to the Internal Revenue Service in satisfaction of the requirements of Sections 1441 and 1442 of the Code.

 

However, no amendment may (A) increase or reduce the amount of, or accelerate or delay the timing of, or change the allocation or priority of, collections of payments on Receivables or distributions that are required to be made for the benefit of the Secured Parties or (B) reduce the percentage of the Note Balance of the Notes Outstanding required to consent to any such amendment, in each case, without the consent of all affected Noteholders.

 

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(d)           Promptly after the execution of any such amendment or consent, the Owner Trustee will notify the Indenture Trustee of the substance of such amendment or consent.

 

(e)           If the consent of the Noteholders or the Indenture Trustee is required under this Section 10.1, they do not need to approve the particular form of any proposed amendment or consent so long as their consent approves the substance of the proposed amendment or consent.  The manner of obtaining such consents will be subject to such reasonable requirements as the Owner Trustee may prescribe.

 

(f)            Promptly after the execution of any certificate of amendment to the Certificate of Trust, the Owner Trustee will cause such amendment to be filed with the Secretary of State of the State of Delaware.  The Owner Trustee will deliver a file-stamped copy of such certificate of amendment to the Administrator promptly upon such document becoming available following such filing.

 

(g)           Before the execution of any amendment to this Agreement or certificate of amendment to the Certificate of Trust, the Owner Trustee will be entitled to receive and rely upon an Opinion of Counsel delivered by the holder of the Residual Interest to the effect that the execution of such amendment or certificate of amendment, as applicable, is authorized or permitted by this Agreement.  The Owner Trustee may enter into any such amendment or certificate of amendment that affects the Owner Trustee’s own rights, duties or immunities under this Agreement or otherwise.

 

(h)           In connection with the execution of any amendment to this Agreement or any amendment to any other agreement to which the Issuer is a party, the Owner Trustee will be entitled to receive and rely upon an Opinion of Counsel delivered by the holder of the Residual Interest to the effect that such amendment is authorized or permitted by the Transaction Documents and that all conditions precedent in the Transaction Documents for the execution and delivery thereof by the Issuer or the Owner Trustee, as the case may be, have been satisfied.

 

Section 10.2.          No Legal Title to Trust Property in the Holder of the Residual Interest.  The holder of the Residual Interest has no legal title to any part of the Trust Property.  The holder of the Residual Interest is entitled to receive distributions with respect to its Residual Interest only in accordance with Article VIII of the Indenture.  No transfer, by operation of law or otherwise, of any right, title, or interest of the Depositor to and in the Residual Interest in the Trust Property will operate to terminate this Agreement or the trusts under this Agreement or entitle any transferee to an accounting or to the transfer to it of legal title to any part of the Trust Property.

 

Section 10.3.          Limitation on Rights of Others.  Except for Sections 2.6, 7.2 and 10.1, this Agreement is solely for the benefit of the Owner Trustee, the Depositor, the Administrator, the Servicer, the holder of the Residual Interest and, to the extent provided in this Agreement, the Indenture Trustee and the Secured Parties, and nothing in this Agreement (other than Section 2.6), whether express or implied, will be construed to give to any other Person any legal or equitable right, remedy or claim in the Trust Property or under or in respect of this Agreement or any covenants, conditions or provisions contained in this Agreement.

 

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Section 10.4.          Notices.

 

(a)           All notices, requests, demands, consents, waivers or other communications to or from the parties to this Agreement must be in writing and will be deemed to have been given and made:

 

(i)            upon delivery or, in the case of a letter mailed by registered first class mail, postage prepaid, three days after deposit in the mail;

 

(ii)           in the case of a fax, when receipt is confirmed by telephone, reply email or reply fax from the recipient;

 

(iii)          in the case of an email, when receipt is confirmed by telephone or reply email from the recipient; and

 

(iv)          in the case of an electronic posting to a password-protected website to which the recipient has been provided access, upon delivery (without the requirement of confirmation of receipt) of an email to such recipient stating that such electronic posting has occurred.

 

Any such notice, request, demand, consent or other communication must be delivered or addressed as set forth on Schedule B to the Sale and Servicing Agreement or at such other address as any party may designate by notice to the other parties.

 

(b)           Notices to the Owner Trustee will be addressed to its Corporate Trust Office or to such other address designated by the Owner Trustee by notice to the Depositor.

 

(c)           Any notice required or permitted to be mailed to a Noteholder (i) in the case of Definitive Notes, must be sent by overnight delivery, mailed by registered first class mail, postage prepaid, or sent by fax, to the address of such Person as shown in the Note Register or (ii) in the case of Book-Entry Notes, must be delivered pursuant to the applicable procedures of the Clearing Agency.  Any notice so mailed within the time prescribed in this Agreement will be conclusively presumed to have been properly given, whether or not the Noteholder receives such notice.

 

Section 10.5.          GOVERNING LAW.  THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE.

 

Section 10.6.          WAIVER OF JURY TRIAL.  EACH PARTY TO THIS AGREEMENT IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

 

Section 10.7.          Severability.  If any of the covenants, agreements or terms of this Agreement is held invalid, illegal or unenforceable, then it will be deemed severable from the remaining covenants, agreements or terms of this Agreement and will in no way affect the

 

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validity, legality or enforceability of the remaining Agreement or of the Notes or the rights of the Noteholders.

 

Section 10.8.          Counterparts.  This Agreement may be executed in any number of counterparts.  Each counterpart will be an original, and all counterparts will together constitute one and the same instrument.

 

Section 10.9.          Headings.  The headings in this Agreement are included for convenience only and will not affect the meaning or interpretation of this Agreement.

 

Section 10.10.        No Petition.  The Owner Trustee (not in its individual capacity but solely as Owner Trustee), by entering into this Agreement, covenants and agrees that, before the date that is one year and one day (or, if longer, any applicable preference period) after the payment in full of (a) all securities issued by the Depositor or by a trust for which the Depositor was a depositor or (b) the Notes, it will not institute against, or join any other Person in instituting against, the Depositor or the Issuer, respectively, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other proceedings under any federal or State bankruptcy or similar law in connection with any obligations relating to the Notes, this Agreement or any of the Transaction Documents.  This Section 10.10 will survive the resignation or removal of the Owner Trustee under this Agreement and the termination of this Agreement.

 

[Remainder of Page Intentionally Left Blank]

 

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EXECUTED BY:

 

	
 
    	
FORD   CREDIT AUTO RECEIVABLES TWO LLC,
    
	
 
    	
 
    	
as   Depositor
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/   Susan J. Thomas
    
	
 
    	
 
    	
Name:   Susan J. Thomas
    
	
 
    	
 
    	
Title:   Secretary
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
U.S.   BANK TRUST NATIONAL ASSOCIATION,
    
	
 
    	
 
    	
as   Owner Trustee
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/   Nicole Poole
    
	
 
    	
 
    	
Name:   Nicole Poole
    
	
 
    	
 
    	
Title:   Vice President
    

 

[Signature Page to Amended and Restated Trust Agreement]

 

 

Exhibit A

 

Form of Certificate of Trust of
 Ford Credit Auto Owner Trust 2012-A

 

This Certificate of Trust of FORD CREDIT AUTO OWNER TRUST 2012-A (the “Trust”) is being duly executed and filed by U.S. Bank Trust National Association, a national banking association, as owner trustee (the “Owner Trustee”), to form a statutory trust under the Delaware Statutory Trust Act (12 Delaware Code, § 3801 et  seq.) (the “Act”).

 

1.             Name.  The name of the statutory trust formed hereby is “Ford Credit Auto Owner Trust 2012-A”.

 

2.             Owner Trustee.  The name and business address of the sole trustee of the Trust in the State of Delaware is U.S. Bank Trust National Association, 300 Delaware Avenue, 9th Floor, Corporate Trust, Wilmington, Delaware 19801.

 

3.             Effective Date. This Certificate of Trust will be effective upon filing.

 

IN WITNESS WHEREOF, the undersigned, being the sole trustee of the Trust, has executed this Certificate of Trust in accordance with Section 3811(a)(1) of the Act.

 

 

	
 
    	
U.S.   BANK TRUST NATIONAL ASSOCIATION,
    
	
 
    	
 
    	
not   in its individual capacity but solely as Owner Trustee
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    

 

A-1Exhibit 4.3

 

 

Gerdau Special Steel North America

Equity Incentive Plan

 

Effective August 30, 2010

 

 

 

Gerdau Special Steel North America

 

Equity Incentive Plan

 

ARTICLE 1
 PURPOSE

 

1.1                               Purpose

 

The purpose of this Plan is to assist the Company, a subsidiary of Gerdau S.A., to attract, retain and motivate key employees, directors, officers and consultants through retention and performance related incentives, thereby advancing the interests of the Company and its shareholders.

 

ARTICLE 2
 INTERPRETATION

 

2.1                               Definitions

 

When used herein, unless the context otherwise requires, the following terms have the indicated meanings, respectively:

 

“ADS” means an American Depositary Share of Gerdau S.A. which represents a right to receive a preferred share of Gerdau S.A.

 

“Affiliate” means an entity which is an “affiliate” of the Company for the purposes of the Securities Act.

 

“Associate” has the meaning set forth in the Securities Act, as amended from time to time.

 

“Award” means any Option, Stock Appreciation Right, Deferred Share Unit, Restricted Share Unit, Performance Share Unit, Restricted Stock, or Other Share-Based Award granted under this Plan.

 

“Award Agreement” means an agreement between a Participant and the Company in the form used by the Company from time to time in accordance with its policies and practices, including forms sent and/or received electronically, subject to any amendments or additions in the discretion of the Committee evidencing the terms and conditions on which an Award has been granted under this Plan.

 

“Black Out Period” means a time when, pursuant to the policies of Gerdau S.A., any securities of Gerdau S.A. may not be traded by certain persons designated by Gerdau S.A., including any holder of an Award, but does not include any period when a regulator has halted trading in securities of Gerdau S.A.

 

 

“Board” means the board of directors of Gerdau S.A.

 

“Business Day” means a day, other than a Saturday or Sunday, on which the New York Stock Exchange is open for trading.

 

“Change in Control” means the happening of any of the following events:

 

(i)                                     any transaction pursuant to which (A) the Company goes out of existence by any means, except for a corporate transaction or reorganization in which the Gerdau S.A.  Shareholders continue to hold more than 50% of the then issued and outstanding voting securities or in which the proportionate voting power among holders of securities of the entity resulting from such corporate transaction or reorganization is substantially the same as the proportionate voting power of such holders of Company voting securities immediately prior to such corporate transaction or reorganization or (B) any Person or any group of two or more Persons acting jointly or in concert (other than the Gerdau S.A. Shareholders, the Company, a wholly-owned Subsidiary of the Company, an employee benefit plan of the Company or of any of its wholly-owned Subsidiaries, including the trustee of any such plan acting as trustee), hereafter acquires the direct or indirect “beneficial ownership” (as defined by the Securities Act) of, or acquires the right to exercise control or direction over, securities of the Company representing more than 50% of the then issued and outstanding voting securities in any manner whatsoever, including, without limitation, as a result of a take-over bid, an exchange of securities, an amalgamation of the Company with any other entity, an arrangement, a capital reorganization or any other business combination or reorganization;

 

(ii)                                  the sale, assignment or other transfer of all or substantially all of the assets of the Company to a Person other than to the Gerdau S.A. Shareholders or to a wholly-owned Subsidiary of the Company;

 

(iii)                               the dissolution or liquidation of the Company except in connection with the distribution of assets of the Company to the Gerdau S.A. Shareholders or to one or more Persons which were wholly-owned Subsidiaries of the Company immediately prior to such event;

 

(iv)                              the occurrence of a transaction requiring approval of the Company’s shareholders whereby the Company is acquired through consolidation, merger, exchange of securities, purchase of assets, amalgamation, arrangement or otherwise by any other Person (other than a short form amalgamation or exchange of securities with a wholly-owned Subsidiary of the Company) provided such event constitutes a change in control for purposes of Section 409A of the Code; or

 

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(v)                                 the Committee passes a resolution to the effect that, for the purposes of some or all of the Award Agreements, an event set forth in (i), (ii), (iii) or (iv) above has occurred or is about to occur provided such event constitutes a change in control for purposes of Section 409A of the Code.

 

“Code” means the U.S. Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated under it.

 

“Committee” means the Human Resources Committee of the Board or such other committee or person designated by the Board from time to time.

 

“Company” means Gerdau Macsteel, Inc.

 

“Consultant” means an individual or a consultant company, other than an Employee or a Director that:

 

(i)                                     is engaged to provide services to the Company or a Subsidiary other than services provided in relation to a distribution of securities of the Company or a Subsidiary;

 

(ii)                                  provides the services under a written contract with the Company or a Subsidiary; and

 

(iii)                               spends or will spend a significant amount of time and attention on the affairs and business of the Company or a Subsidiary,

 

For the purposes of this definition, “consultant company” means, with respect to an individual consultant, a company of which the individual consultant is the sole shareholder.

 

“controlled” means:

 

(i)                                     in the case of a Person,

 

(A)                              voting securities of the first-mentioned Person carrying more than 50% of the votes for the election of directors are held, directly or indirectly, otherwise than by way of security only, by or for the benefit of the other Person; and

 

(B)                                the votes carried by the securities are entitled, if exercised, to elect a majority of the directors of the first-mentioned Person;

 

(ii)                                  in the case of a partnership that does not have directors, other than a limited partnership, the second-mentioned Person holds more than 50% of the interests in the partnership; and

 

(iii)                               in the case of a limited partnership, the general partner is the second-mentioned Person.

 

3

 

“Covered Employee” has the meaning set out in Section 162(m)(3) of the Code.

 

“Date of Grant” means, for any Award, the date specified by the Committee at the time it grants the Award (which, for greater certainty, shall be no earlier than the date on which the Committee approves the grant of such Award) or if no such date is specified, the date upon which the Award was granted.

 

“Deferred Share Unit” means a unit equivalent in value to an ADS, credited by means of a bookkeeping entry in the books of the Company in accordance with Article 6.

 

“Director” means a member of the Board who is not an Employee or a Consultant and shall also mean, for purposes of the definition herein of “Insider”, a Director as defined in the Securities Act of the Company.

 

“Disabled” or “Disability” means, for U.S. Taxpayers, “disability” for purposes set forth in Treasury Regulations Section 1.409A-3(i)(4) and means, for other Participants, a state of permanent and total incapacity, resulting from illness or accidental injury, which wholly prevents an employee from performing all material functions of his/her regular employment as evidenced by receipt of disability payments under an employing entity long-term disability program or a government provided disability program.

 

“Distribution Date” means the Termination Date for a U.S. Taxpayer, and for any other Participant (i) the Termination Date; or (ii) such later date as elected by the Participant provided that in no event shall a Participant be permitted to elect a date which is later than the last Business Day of the calendar year following the calendar year in which the Termination Date occurs.  An election for a Distribution Date described in (ii) above will only be valid if it is delivered to the Corporate Secretary of the Company prior to the Termination Date in the form prescribed for such purposes by the Company.

 

“Eligible Person” means an Employee, Consultant or Director.

 

“Employee” means a current full-time or part-time  employee or officer of the Company or a Subsidiary (other than a Director or a Consultant).

 

“Equity Compensation Plan” has the meaning given to that term in the New York Stock Exchange Rules.

 

“Exchange Act” means the United States Securities Exchange Act of 1934, as amended from time to time.

 

“Executive Officer” means an executive officer of the Company as defined in the Securities Act.

 

“Exercise Notice” means a notice in the form used by the Company from time to time in accordance with its policies and practices, including forms sent and/or received electronically stating the Participant’s intention to exercise a particular Option or Stock

 

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Appreciation Right subject to any amendments or additions in the discretion of the Committee.

 

“Exercise Price” means the price at which an ADS may be purchased pursuant to the exercise of an Option and is the amount used to determine the SAR Amount of a Stock Appreciation Right.

 

“Exercise Period” means the period of time during which an Option or Stock Appreciation Right granted under this Plan may be exercised.

 

“Fair Market Value” means, with respect to any ADS at a particular date, the closing price on the New York Stock Exchange on such date (or if such date is not a trading day, the trading day immediately prior to such date or if ADSs did not trade on such exchange on such day, the average of the bid and ask prices of such ADSs at the close of trading on such day); provided that if such ADSs are not then listed on such stock exchange, the Fair Market Value shall be determined based on the closing price of such ADSs on any stock exchange on which such ADSs are then listed on the particular date (or if such date is not a trading day, the trading day immediately prior to such date or if such ADSs did not trade on such exchange on such day, the average of the bid and ask prices of such ADSs at the close of trading on such day); and further provided that if such ADSs are not then listed on any stock exchange, the Fair Market Value shall be the fair market value determined by the Committee through the reasonable application of a reasonable valuation method.

 

“Gerdau S.A.” means Gerdau S.A., a Brazilian sociedade anonima.

 

“Gerdau S.A. Shareholders” means the current Gerdau S.A. shareholders.

 

“Incentive Stock Option” means an option granted under Section 4.6 of the Plan that meets the requirements of Section 422 of the Code or any successor provision and is designated as such in the applicable Award Agreement.

 

“Insider” means an Affiliate, an Associate, an Executive Officer or Director of the Company.

 

“Market Price” means the trading price of an ADS on the New York Stock Exchange at the time at which ADS’s are traded which is the closest time after the exercise of an Option or Stock Appreciation Right provided that if such ADS’s are not then listed on such stock exchange, the Market Price shall be determined based on the trading price of such ADS’s on any stock exchange on which such ADSs are then listed at the time closest to and after the time of exercise (or if such ADS’s did not trade on such exchange on the day of such exercise, the average of the bid and ask prices of such ADS’s at the close of trading on the last trading day prior to the particular day); and further provided that if such ADS’s are not then listed on any stock exchange, the Market Price shall be the fair market value determined by the Committee through the reasonable application of a reasonable valuation method.

 

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“Non Qualified Stock Option” means an Option that is not intended to be or does not meet the requirements of an Incentive Stock Option.  Any Option granted by the Committee that is not designated as an Incentive Stock Option in the applicable Award Agreement will be deemed a Non Qualified Stock Option.

 

“Option” means a right to purchase ADSs for the Exercise Price under this Plan.

 

“Optionee” means a Participant who has been granted one or more Options under this Plan.

 

“Other Share-Based Award” means any right granted in accordance with Article 10.

 

“Parent Corporation” has the meaning set forth in Section 424(e) of the Code.

 

“Participant” means an Employee, Consultant or a Director who has received an Award under this Plan.

 

“Performance Goals” means performance goals set by the Committee from time to time.  Performance Goals may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase or decrease in a particular criteria, and may be applied to one or more of the Company, a Subsidiary, or a division or strategic business unit of the Company, or may be applied to the performance of the Company relative to a market index, a group of other companies or a combination thereof, all as determined by the Committee.  The Performance Goals may include a threshold level of performance below which no payment will be made (or no vesting will occur), levels of performance at which specified payments will be made (or specified vesting will occur), and a maximum level of performance above which no additional payment will be made (or at which full vesting will occur).  The Committee shall have the authority to make adjustments to the Performance Goals in recognition of unusual or non-recurring events affecting the Company or any Subsidiary or the financial statements of the Company or any Subsidiary, in response to changes in applicable laws or regulations, or to account for items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to a change in accounting principle.

 

“Performance Share Unit” means a unit equivalent in value to an ADS credited by means of a bookkeeping entry in the books of the Company in accordance with Article 8.

 

“Person” includes an individual, sole proprietorship, partnership, unincorporated association, unincorporated syndicate, unincorporated organization, trust, body corporate, and a natural person in his or her capacity as trustee, executor, administrator or other legal representative.

 

“Plan” means this Gerdau Special Steel North America Equity Incentive Plan.

 

“Restricted Share Unit” means a unit equivalent in value to an ADS, credited by means of a bookkeeping entry in the books of the Company in accordance with Article 7.

 

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“Restricted Stock” has the meaning set out in Section 9.1.

 

“Retirement” means retirement from active employment with the Company or a Subsidiary at a time when the Participant (i) is not less than 55 years of age and  has  not less than 20 years of service with the Company, participating subsidiaries, or affiliated companies or (ii) is not less than 65 years of age.  “Retires” has a corresponding meaning.

 

“SAR Amount” has the meaning set out in Section 5.2.

 

“Securities Act” means the United States Securities Act of 1933, as amended from time to time.

 

“Share Units” means Deferred Share Units, Performance Share Units and Restricted Share Units.

 

“Stock Appreciation Right” means a right equivalent in value to the increase in value of an ADS credited by means of a bookkeeping entry in the books of the Company in accordance with Article 5.

 

“Subsidiary” means a Person that:

 

(i)                                     it is controlled by,

 

(A)                              another Person, or

 

(B)                                another Person and one or more Persons, each of which is controlled by that other Person, or

 

(C)                                two or more Persons, each of which is controlled by another Person; or

 

(ii)                                  it is a Subsidiary of a Person that is another Person’s Subsidiary.

 

“Subsidiary Corporation” has the meaning set forth in Section 424(f) of the Code.

 

“Termination Date” means where employment or term of office, directorship or engagement with the Company or an Affiliate terminates:

 

(i)                                     by reason of the death, the date of death; and

 

(ii)                                  for any reason other than Death, the last day of such employment, office, directorship or consulting.

 

and does not include any period of statutory, contractual or reasonable notice or any period of salary continuance or deemed employment.

 

“U.S. Taxpayer” shall mean a Participant who is a U.S. citizen, U.S. permanent resident or U.S. tax resident for purposes of the Code.

 

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2.2                               Interpretation

 

(a)                                  Whenever the Committee is to exercise discretion in the administration of this Plan, the term “discretion” means the sole and absolute discretion of the Committee.

 

(b)                                 As used herein, the terms “Article” and “Section” mean and refer to the specified Article or Section of this Plan, respectively.

 

(c)                                  Words importing the singular include the plural and vice versa and words importing any gender include any other gender.

 

(d)                                 Whenever any payment is to be made or action is to be taken on a day which is not a Business Day, such payment shall be made or such action shall be taken on the next following Business Day.

 

(e)                                  Unless otherwise specified, all references to money amounts are to U.S. currency.

 

ARTICLE 3
 ADMINISTRATION

 

3.1                               Administration

 

This Plan will be administered by the Board which retains ultimate authority under the Plan.  The Board has delegated all of its authority under the Plan to the Committee which has sole and complete authority, in its discretion, to:

 

(a)                                  determine to which Eligible Persons grants under the Plan are made;

 

(b)                                 make grants of Awards under the Plan in such amounts and in such combinations, to such Eligible Persons and, subject to the provisions of this Plan, on such terms and conditions as it determines including without limitation:

 

(i)                                     the time or times at which Awards may be granted;

 

(ii)                                  the conditions under which:

 

(A)                              Awards may be granted to Participants; or

 

(B)                                Awards may be forfeited,

 

including any conditions relating to the attainment of specified Performance Goals;

 

(iii)                               the Exercise Price, and/or price to be paid by a Participant in connection with the granting of Awards;

 

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(iv)                              the time or times when each Option becomes exercisable and, subject to Section 4.3, the duration of the Exercise Period;

 

(v)                                 whether restrictions or limitations are to be imposed on the ADSs issuable pursuant to grants of Awards, and the nature of such restrictions or limitations, if any; and

 

(vi)                              any acceleration of exercisability or vesting, or waiver of termination regarding any Award, based on such factors as the Committee may determine;

 

(c)                                  interpret this Plan and adopt, amend and rescind administrative guidelines and other rules and regulations relating to this Plan; and

 

(d)                                 make all other determinations and take all other actions necessary or advisable for the implementation and administration of this Plan.

 

The Committee’s determinations and actions within its authority under this Plan are conclusive and binding on the Company and all other persons.  The day-to-day administration of the Plan may be delegated to such officers and employees of the Company or of a Subsidiary as the Committee determines.

 

3.2                               Delegation to Committee

 

Notwithstanding any delegation or any reference to the Committee in this Plan, the Board may also take any action and exercise any powers that the Committee is authorized to take or has power to exercise under this Plan.  To the extent applicable in respect of certain Awards granted to a Participant who is a Covered Employee, the Committee shall be composed of not less than two directors of Gerdau S.A., neither of whom shall be employees of the Gerdau S.A. or its Affiliates and each of whom shall otherwise be “outside directors” for the purposes of Section 162(m) of the Code.  To the extent Gerdau S.A. is not a “foreign private issuer” as defined in Exchange Act Rule 3b-4, such Committee shall be composed of not less than two directors of Gerdau S.A., each of whom are “non-employee directors” for purposes of Section 16 of the Exchange Act and Rule 16b-3 thereunder.

 

3.3                               Eligibility

 

Eligibility to participate in this Plan does not confer upon any Eligible Person any right to receive any grant of an Award pursuant to the Plan.  The extent to which any Participant is entitled to receive a grant of an Award pursuant to the Plan will be determined in the sole and absolute discretion of the Committee, provided however that the following restrictions shall also apply to this Plan, together with all other Equity Compensation Plans of the Company:

 

(a)                                  the number of ADSs issuable to Insiders, at any time, under all Equity Compensation Plans, shall not exceed 10% of issued and outstanding ADSs; and

 

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(b)                                 the number of ADSs issued to Insiders or to any one Insider, within any one year period, under all Equity Compensation Plans, shall not exceed 10% of issued and outstanding ADSs.

 

If Gerdau S.A. repurchases ADSs for cancellation such that the tests in Section 3.3(a) or (b) are not met following such repurchase, this shall not constitute non-compliance under the Plan for any Awards then outstanding.

 

3.4                               Total ADSs Available

 

(a)                                  The maximum number of ADSs that may be issued pursuant to the Plan is 1,600,000 ADSs representing approximately 0.1 percent of the outstanding issue as at the date of approval of this Plan.  No grant may be made under the Plan if such grant would result in the issuance of ADSs in excess of the above-noted limit.  The maximum number of ADSs that may be issued under this Plan pursuant to the exercise of Incentive Stock Options is 200,000. Subject to applicable law, the requirements of any stock exchange upon which the ADSs may then be listed and any shareholder or other approval which may be required, the Committee may in its discretion amend the Plan to increase such limit without notice to any Participants.

 

(b)                                 For purposes of computing the total number of ADSs available for grant under the Plan, ADSs subject to any Award (or any portion thereof) that has expired or is forfeited, surrendered, cancelled or otherwise terminated prior to the issuance or transfer of such ADSs shall again be available for grant under the Plan.

 

3.5                               Award Agreements

 

All grants of Awards under this Plan will be evidenced by Award Agreements.  Award Agreements will be subject to the applicable provisions of this Plan and will contain such provisions as are required by this Plan and any other provisions that the Committee may direct.  Any one officer of the Company is authorized and empowered to execute and deliver, for and on behalf of the Company, an Award Agreement to each Participant granted an Award pursuant to this Plan.

 

3.6                               Conditions of Grant

 

Each Participant will, when requested by the Company, deliver all such documents relating to the grant of Awards or exercise of Options which the Company deems necessary or desirable.

 

3.7                               Non-transferability of Awards

 

Subject to Section 11.1, Awards granted under this Plan may only be exercised during the lifetime of the Participant by such Participant personally.  Subject to Section 11.1, no assignment or transfer of Awards, whether voluntary, involuntary, by operation of law or otherwise, vests any interest or right in such Awards whatsoever in any assignee or transferee and immediately

 

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upon any assignment or transfer, or any attempt to make the same, such Awards will terminate and be of no further force or effect.

 

ARTICLE 4
 GRANT OF OPTIONS

 

4.1                               Grant of Options

 

The Committee may, from time to time, subject to the provisions of this Plan and such other terms and conditions as the Committee may prescribe, grant Options to any Eligible Person.

 

4.2                               Exercise Price

 

The Exercise Price will be as determined by the Committee but in any event will be no less than the Fair Market Value on the Date of Grant.

 

4.3                               Term of Options

 

Subject to any accelerated termination or as otherwise set forth in this Plan, each Option, unless otherwise specified by the Committee, expires on the tenth (10th) anniversary of the Date of Grant provided that if such expiry would otherwise be during or within ten (10) Business Days following a Black Out Period, then the expiry of such Option (other than an Incentive Stock Option) shall be extended until ten (10) Business Days following the expiration of the Black Out Period.

 

The Committee shall have the authority to condition the grant or vesting of Options upon the attainment of specified Performance Goals, or such other factors (which may vary as between Options) as the Committee may determine in its sole discretion.

 

4.4                               Exercise of Options

 

Except as otherwise provided in this Plan, the Committee will determine when each Option will vest and be exercisable.

 

Once an instalment of an Option vests and becomes exercisable, it remains exercisable until expiration or termination of the Option, unless otherwise specified by the Committee in connection with the grant of such Option or otherwise as specified herein.  Each Option may be exercised at any time or from time to time, in whole or in part, for up to the total number of ADSs with respect to which it is then exercisable.  The Committee has the right to accelerate the date upon which any instalment of any Option becomes exercisable.

 

Subject to the provisions of this Plan and any Award Agreement, Options shall be exercised by delivery of an Exercise Notice to the Company.

 

4.5                               Payment of Exercise Price

 

The Exercise Notice must be accompanied by payment in full of the Exercise Price in respect of the ADSs to be purchased.  The Exercise Price must be fully paid by electronic transfer, cash,

 

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certified cheque, bank draft or money order payable to the Company.  No ADSs will be issued or transferred until full payment therefor has been received by the Company. As soon as practicable after receipt of any Exercise Notice and full payment of the Exercise Price, the Company will, subject to Section 14.5, deliver to the Participant, a certificate or certificates representing the acquired ADSs.

 

4.6                               Incentive Stock Options

 

The following provisions will apply only to Incentive Stock Options granted under the Plan:

 

(a)                                  No Incentive Stock Option may be granted to any Participant who, at the time such Option is granted, (i) is not an employee of the Company or any Parent Corporation or Subsidiary Corporation of the Company or (ii) owns securities possessing more than ten percent (10%) of the total combined voting power of all classes of securities of the Company or any Parent Corporation or Subsidiary Corporation of the Company, except that with respect to provision (ii) hereof such an Option may be granted to an Employee if, at the time the Option is granted, the exercise price is at least one hundred ten percent (110%) of the Fair Market Value of the ADSs subject to the Option, and the Option by its terms is not exercisable after the expiration of five (5) years from the date the Option is granted; and

 

(b)                                 To the extent that the aggregate Fair Market Value of the ADSs with respect to which Incentive Stock Options (without regard to this Section) are exercisable for the first time by any individual during any calendar year (under all plans of the Company or any Parent Corporation or Subsidiary Corporation of the Company) exceeds U.S. $100,000, such Options will be treated as Non Qualified Stock Options.  This Section will be applied by taking Options into account in the order in which they were granted.  If some but not all Options granted on any one day are subject to this Section, then such Options will be apportioned between Incentive Stock Option and Non Qualified Stock Option treatment in such manner as the Committee will determine.

 

(c)                                  No Incentive Stock Option shall be granted more than ten (10) years from the date the Plan is adopted or the date the Plan is approved by shareholders, whichever is earlier.

 

4.7                               Special Rule Applicable to U.S. Taxpayers

 

With respect to Options granted to Participants who are U.S. Taxpayers, ADSs shall constitute “stock of the service recipient” within the meaning of Section 409A of the Code if such Participant performs services for any affiliate that is at least fifty percent owned by Gerdau S.A.

 

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ARTICLE 5
 GRANT OF STOCK APPRECIATION RIGHTS

 

5.1                               Grant of Stock Appreciation Rights

 

The Committee may grant Stock Appreciation Rights to any Eligible Person either on a stand alone basis or in relation to any Option.  Where a Stock Appreciation Right is granted in relation to an Option, it shall be a right in respect of the same number of ADSs and shall have the same Exercise Price as the Option.  Where a Stock Appreciation Right is granted on a stand alone basis, the Committee shall designate the number of ADSs in respect of which the Stock Appreciation Right is granted and shall designate the Exercise Price.  No more than 850,000 ADSs may be issued under the Plan pursuant to Stock Appreciation Rights granted on a stand alone basis.

 

5.2                               Stock Appreciation Rights

 

A Stock Appreciation Right is the right to the excess, if any, of:

 

(a)                                  the Market Price of an ADS at the time such Stock Appreciation Right is exercised over

 

(b)                                 the Exercise Price less any amount required to be withheld by applicable law,

 

multiplied by the number of ADSs in respect of which the Stock Appreciation Right is being exercised (the “SAR Amount”).

 

5.3                               Terms of Stock Appreciation Rights Granted in Connection with an Option

 

Stock Appreciation Rights granted in relation to an Option shall be exercisable only at the same time, by the same persons and to the same extent, that the related Option is exercisable.  Upon exercise of any Stock Appreciation Right related to an Option, the corresponding portion of the related Option shall be surrendered to the Company and cancelled.

 

5.4                               Terms of Stock Appreciation Rights Granted on a Stand Alone Basis

 

Stock Appreciation Rights granted on a stand alone basis shall be granted on such terms as shall be determined by the Committee and set out in the Award Agreement, provided that the Exercise Price shall not be less than the Fair Market Value on the Date of Grant and provided that any such grant to a Canadian taxpayer shall be on such terms as do not make the grant a salary deferral arrangement.  Subject to any accelerated termination or as otherwise set forth in this Plan, each Stock Appreciation Right, unless otherwise specified by the Committee, expires on the tenth (10th) anniversary of the Date of Grant provided that if such expiry would otherwise be during or within ten (10) Business Days following a Black Out Period, then the expiry of such Stock Appreciation Right shall be extended until ten (10) Business Days following the expiration of the Black Out Period.  The Committee shall have the authority to condition the grant or vesting of Stock Appreciation Rights upon the attainment of specified Performance Goals, or such other factors (which may vary as between Stock Appreciation Rights) as the Committee

 

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may determine in its sole discretion.  Once an instalment of an Stock Appreciation Right vests and becomes exercisable, it remains exercisable until expiration or termination of the Stock Appreciation Right, unless otherwise specified by the Committee in connection with the grant of such Stock Appreciation Right or otherwise as specified herein.  Each Stock Appreciation Right may be exercised at any time or from time to time, in whole or in part, for up to the total number of ADSs with respect to which it is then exercisable.  The Committee has the right to accelerate the date upon which any instalment of any Stock Appreciation Right becomes exercisable.

 

5.5                               Exercise of Stand Alone Stock Appreciation Rights

 

Subject to the provisions of the Plan and Award Agreement, a Stock Appreciation Right may be exercised from time to time by delivery to the Company of an Exercise Notice.  Upon receipt of the Exercise Notice and subject to the terms of this Plan, the Company shall within ten (10) business days pay to the Participant the SAR Amount, less the amount required to satisfy withholding tax obligations.

 

5.6                               Satisfying Stock Appreciation Rights

 

In the sole discretion of the Committee, determined either at the Date of Grant or the date of exercise, the Committee may determine to satisfy the exercise of a Stock Appreciation Right in whole or in part by issuing to the Participant ADSs, subject to Section 14.5, which have a Market Price as at the time of exercise of the Stock Appreciation Right, equal to the SAR Amount.

 

ARTICLE 6
 GRANT OF DEFERRED SHARE UNITS

 

6.1                               Grant of Deferred Share Units

 

The Committee may, from time to time, subject to the provisions of this Plan and such other terms and conditions as the Committee may prescribe, grant Deferred Share Units to any Participant.  No more than 100,000 ADSs may be issued under the Plan pursuant to Deferred Share Units.

 

All Deferred Share Units received by a Participant shall be credited to an account maintained for the Participant on the books of the Company, as of the Date of Grant.  The award of Deferred Share Units to a Participant shall be evidenced by an Award Agreement.

 

6.2                               Distribution of Deferred Share Units

 

A Participant shall receive, on the Distribution Date, a lump sum payment in cash equal to the number of Deferred Share Units recorded in the Participant’s account on the Distribution Date multiplied by the Fair Market Value, less the amount required to satisfy withholding tax obligations.

 

6.3                               Satisfying Deferred Share Units

 

In the discretion of the Committee, the Company may determine to settle the Deferred Share Units, in whole or in part, by issuing to the Participant one (1) ADS, subject to Section 14.5, for

 

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each Deferred Share Unit.  Such determination may be made at the Date of Grant or the date of settlement.  Upon payment or transfer in full of the value of the Deferred Share Units, the Deferred Share Units shall be cancelled.

 

ARTICLE 7
 GRANT OF RESTRICTED SHARE UNITS

 

7.1                               Grant of Restricted Share Units

 

The Committee may, from time to time, subject to the provisions of this Plan and such other terms and conditions as the Committee may prescribe, grant Restricted Share Units to any Participant.  No more than 350,000 ADSs may be issued under the Plan pursuant to Restricted Share Units.

 

All Restricted Share Units received by a Participant shall be credited to an account maintained for the Participant on the books of the Company, as of the Date of Grant.  The award of Restricted Share Units to a Participant shall be evidenced by an Award Agreement.

 

7.2                               Vesting of Restricted Share Units

 

The Committee shall have the authority to determine at the Date of Grant, in its sole discretion, the duration of the vesting period and other vesting terms applicable to the grant of Restricted Share Units, provided that all Restricted Share Units (other than Restricted Share Units settled by the issuance of ADSs from treasury) shall vest and be payable not later than December 31 of the third year following the year in respect of which the Restricted Share Units were granted.

 

7.3                               Distribution of Restricted Share Units

 

A Participant shall receive as soon as practicable following the expiry of the applicable vesting period, or at such later date as may be determined by the Committee in its sole discretion, a lump sum payment in cash equal to the number of Restricted Share Units recorded in the Participant’s account on the vesting date multiplied by the Fair Market Value on the vesting date, less the amount required to satisfy withholding tax obligations, provided, however, that all payments in respect of an Award of Restricted Share Units to a U.S. Taxpayer shall be made no later than the date that is the later of (i) the 15th day of the third month of the year following the end of the U.S. Taxpayer’s first taxable year in which payment of the Award is no longer subject to a substantial risk of forfeiture, or (ii) the 15th day of the third month following the end of the Company’s (or relevant Subsidiary’s) first taxable year in which payment of the Award is no longer subject to a substantial risk of forfeiture; provided further, however that if the Award is subject to Section 409A of the Code (i.e., because the Award was granted to a U.S. Taxpayer who could become eligible to satisfy the Retirement eligibility requirements during the vesting period applicable to the Award), payment in respect of such Restricted Share Units shall be paid on the applicable vesting date pursuant to the vesting schedule set forth in the Award Agreement (notwithstanding anything to the contrary in Section 11.2, hereof and regardless of whether the U.S. Taxpayer ceases to be an Eligible Person by reason of Retirement).

 

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7.4                               Satisfying Restricted Share Units

 

In the discretion of the Committee, the Company may determine to settle the Restricted Share Units, in whole or in part, by issuing to the Participant one (1) ADS, subject to Section 14.5, for each Restricted Share Unit.  Such determination may be made at the Date of Grant or the date of settlement.  Upon payment or transfer in full of the value of the Restricted Share Units, the Restricted Share Units shall be cancelled.

 

ARTICLE 8
 GRANT OF PERFORMANCE SHARE UNITS

 

8.1                               Grant of Performance Share Units

 

The Committee may, from time to time, subject to the provisions of this Plan and such other terms and conditions as the Committee may prescribe, grant Performance Share Units to any Participant payable to, or exercisable by, the holder of the Performance Share Unit, in whole or in part, upon the achievement of such Performance Goals during such performance periods as the Committee establishes.

 

All Performance Share Units received by a Participant shall be credited to an account maintained for the Participant on the books of the Company, as of the Date of Grant.  The award of Performance Share Units to a Participant shall be evidenced by an Award Agreement.

 

8.2                               Terms of Performance Share Units

 

The Committee shall have the authority to determine, at the Date of Grant, in its sole discretion the Performance Goals to be achieved during any performance period, the length of any performance period and the number of Performance Share Units which vest.

 

8.3                               Performance Goals

 

The Committee will set Performance Goals, or the methodology for establishing Performance Goals not later than sixty (60) days following the commencement of the performance period to which such Performance Goals pertain and prior to the grant of the award.  The Performance Goals may be based upon the achievement of corporation-wide, divisional or individual goals, or any other basis determined by the Committee.  The Committee may modify the Performance Goals as necessary to align them with the Company’s corporate objectives if there is a subsequent material change in the Company’s business, operations or capital or corporate structure.

 

8.4                               Distribution of Performance Share Units

 

A Participant shall receive as soon as practicable following the expiry of the applicable vesting period, or at such later date as may be determined by the Committee in its sole discretion and to the extent Performance Goals are achieved a lump sum payment in cash equal to the number of Performance Share Units recorded in the Participant’s account on the vesting date to the extent Performance Goals are achieved, multiplied by the Fair Market Value on the vesting date, less

 

16

 

the amount required to satisfy withholding tax obligations, provided, however, that all payments in respect of an Award of Performance Share Units to a U.S. Taxpayer shall be made no later than the date that is the later of (i) the 15th day of the third month of the year following the end of the U.S. Taxpayer’s first taxable year in which payment of the Award is no longer subject to a substantial risk of forfeiture, or (ii) the 15th day of the third month following the end of the Company’s (or relevant Subsidiary’s) first taxable year in which payment of the Award is no longer subject to a substantial risk of forfeiture; provided further, however that if the Award is subject to Section 409A of the Code (i.e., because the Award was granted to a U.S. Participant who could become eligible to satisfy the Retirement eligibility requirements during the vesting period applicable to the Award), payment in respect of such Performance Share Units shall be paid on the applicable vesting date pursuant to the vesting schedule set forth in the Award Agreement (notwithstanding anything to the contrary in Section 11.2 hereof and regardless of whether the U.S. Participant ceases to be an Eligible Person by reason of Retirement).

 

8.5                               Satisfying Performance Share Units

 

In the discretion of the Committee, the Company may determine to settle the vested Performance Share Units, in whole or in part, by issuing to the Participant one (1) ADS, subject to Section 14.5, for each such Performance Share Unit.  Such determination may be made at the Date of Grant or the date of settlement.  Upon payment or transfer in full of the value of the Performance Share Units, the Performance Share Units shall be cancelled.

 

ARTICLE 9
 RESTRICTED STOCK

 

9.1                               Grants of Restricted Stock

 

The Committee may, from time to time, subject to the provisions of this Plan, Section 14.3 and such other terms and conditions as the Committee may prescribe, grant ADSs subject to specified restrictions (“Restricted Stock”) to Eligible Persons.  No more than 100,000  ADSs  may be issued under the Plan as Restricted Stock.

 

The award of Restricted Stock to a Participant shall be evidenced by an Award Agreement.

 

9.2                               Restricted Stock

 

Restricted Stock is an ADS subject to restrictions which lapse based on the achievement of Performance Goals, the passage of time or both.

 

9.3                               Terms of Restricted Stock

 

The Committee shall have the authority to determine at the Date of Grant, in its sole discretion, the duration of the period of restriction and any other terms applicable to the grant of Restricted Stock.  Restricted Stock shall be granted on such terms as shall be determined by the Committee and set out in the Award Agreement.

 

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9.4                               Lapse of Restrictions

 

Subject to the provisions of the Plan and Award Agreement, Restricted Stock may be sold, transferred or otherwise dealt with, only when all restrictions have lapsed.

 

ARTICLE 10
 OTHER ADS-BASED AWARDS

 

10.1                        Other ADS-Based Awards

 

The Committee may, from time to time, subject to the provisions of this Plan and such other terms and conditions as the Committee may prescribe, grant Other ADS-Based Awards to any Participant.  Each Other ADS-Based Award will consist of a right other than an Award described in Article 4, Article 5, Article 6, Article 7, Article 8 or Article 9 which is denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, ADS (including, without limitation, securities convertible into ADSs) as are deemed by the Committee to be consistent with the purposes of the Plan; provided, however, that such right will comply with applicable law.  Subject to the terms of the Plan and any applicable Award Agreement, the Committee will determine the terms and conditions of Other ADS-Based Awards.  ADSs or other securities delivered pursuant to a purchase right granted under this Section 10.1 will be purchased for such consideration, which may be paid by such method or methods and in such form or forms, including, without limitation, cash, ADSs, other securities, other Awards, other property, or any combination thereof, as the Committee determines.

 

ARTICLE 11
 TERMINATION OF EMPLOYMENT

 

11.1                        Treatment of Awards on Death or Disability

 

Subject to the provisions of the Award Agreement, if a Participant dies, or becomes Disabled while an Eligible Person:

 

(a)                                  The executor or administrator of the Participant’s estate or the Participant may exercise Options and Stock Appreciation Rights of the Participant.  All outstanding Options and Stock Appreciation Rights shall vest on the Termination Date.  The right to exercise such Options and Stock Appreciation Rights terminates on the earlier of: (i) the date that is twelve months after the Termination Date; and (ii) the date on which the Exercise Period of the particular Option or Stock Appreciation Right expires.

 

(b)                                 All Awards, other than Options or Stock Appreciation Rights, continue to vest and shall be satisfied at the same time and on the same conditions as if the Participant had not died or become Disabled.

 

(c)                                  The Participant’s eligibility to receive further grants of Awards under the Plan ceases as of the Termination Date.

 

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11.2                        Treatment of Awards on Retirement

 

Subject to the provisions of the Award Agreement, if a Participant Retires while an Eligible Person:

 

(a)                                  The Participant may exercise Options and Stock Appreciation Rights which are exercisable at the Termination Date plus a pro-rata portion of those Options and Stock Appreciation Rights which are not exercisable at the Termination Date based on the number of months from the Date of Grant to the end of the month in which the Termination Date occurs divided by the total number of months from the Date of Grant to the last date of vesting of the particular instalment of the Options and Stock Appreciation Rights.  The right to exercise such Options and Stock Appreciation Rights terminates on the earlier of: (i) the date that is five years after Termination Date (except that in the case of Retirement of a U.S. Taxpayer, any Incentive Stock Option shall expire on the date that is three months after the Termination Date); and (ii) the date on which the Exercise Period of the Particular Option or Stock Appreciation Right expires.

 

(b)                                 All Awards, other than Options or Stock Appreciation Rights, which have vested at the Termination Date will be satisfied and a pro-rata portion of all Awards which were not vested at the Termination Date shall vest and be satisfied based on the number of months from the Date of Grant to the end of the month in which the Termination Date occurs divided by the total number of months from the Date of Grant to the last date of vesting of the particular instalment of the Awards.  Such pro-rata portion of the Awards shall be satisfied at the same time and on the same conditions as if the Participant had not Retired.

 

(c)                                  The Participant’s eligibility to receive further grants of Awards under the Plan ceases as of the Termination Date.

 

11.3                        Treatment of Awards on Termination of Employment or Services

 

Subject to the provisions of the Award Agreement, if the employment of a Participant is terminated while an Eligible Person:

 

(a)                                  Where  a Participant’s employment or term of office or engagement terminates by reason of a Participant’s resignation or termination of employment whether for cause or without cause then all Options and Stock Appreciation Rights held by the Participant which are vested and exercisable at the Termination Date shall be exercisable for three months following the Termination Date and all Options and Stock Appreciation Rights which are not vested and exercisable at the Termination Date immediately expire and are cancelled on the Termination Date, and any other Awards held by the Participant that are not yet vested or have not had restrictions lapse at the Termination Date are immediately forfeited to the Company on the Termination Date.

 

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(b)                                 The eligibility of a Participant to receive further grants under the Plan ceases as of the date that the Company or an Affiliate, as the case may be, provides the Participant with written notification that the Participant’s employment or term of office, directorship or consultancy is terminated, notwithstanding that such date may be prior to the Termination Date.

 

(c)                                  Unless the Committee, in its sole discretion, otherwise determines, at any time and from time to time, Awards are not affected by a change of employment arrangement within or among the Company or a Subsidiary for so long as the Participant continues to be an employee of the Company or a Subsidiary, including without limitation a change in the employment arrangement of a Participant whereby such Participant becomes a Director in addition to or instead of being an Employee.

 

11.4                        Discretion to Permit Exercise

 

Notwithstanding the provisions of Sections 11.1, 11.2 and 11.3, the Committee may, in its discretion, at any time prior to or following the events contemplated in such Sections, permit the exercise of any or all Options held by a Participant or permit the acceleration of vesting or lapse of restrictions of any or all Awards, all in the manner and on the terms as may be authorized by the Committee, provided that the Committee will not, in any case, authorize the exercise of an Option pursuant to this Section beyond the expiration of the Exercise Period of the particular Option.

 

11.5                        Incentive Stock Options

 

Notwithstanding anything to the contrary in this Article 11, any Incentive Stock Options held by a U.S. Taxpayer that are exercisable at the Termination Date continue to be exercisable by the U.S. Taxpayer until the earlier of: (A) the date that is three months after the Termination Date; (B) the date on which the Exercise Period of the particular Incentive Stock Option expires, or (C) any shorter post-Termination Date exercise period as is set forth in this Article 11 or in the U.S. Taxpayer’s Award Agreement.

 

ARTICLE 12
 CHANGE IN CONTROL

 

12.1                        Change in Control

 

Awards outstanding immediately prior to the occurrence of a Change in Control shall become fully vested (as if all Performance Goals had been achieved) and exercisable and be satisfied and have restrictions lapse immediately prior to a Change in Control.  The Committee may provide for the conversion or exchange of any Award into or for rights or other securities in any entity participating in or resulting from the Change in Control.  In addition, and notwithstanding this Section, the Committee may determine, in its sole discretion, that Options and Stock Appreciation Rights outstanding which are not exercised prior to or in connection with the Change of Control shall be cashed out for an amount equal to the excess, if any, of the Fair Market Value immediately prior to the Change of Control minus the Exercise Price, multiplied

 

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by the number of Options and Stock Appreciation Rights for which there is such an excess and all Options and Stock Appreciation Rights for which there is no such excess shall be cancelled without payment and shall be forfeited to the Company.

 

12.2                        Parachute Payments

 

If a Participant is entitled to receive payments that would qualify as excess “parachute payments” under Section 280G of the Code, those payments shall be reduced by the necessary amount so that the Participant is not subject to excise tax under Section 4999 of the Code if such reduction would result in the Participant receiving a greater after-tax payment.

 

ARTICLE 13
 SHARE CAPITAL ADJUSTMENTS

 

13.1                        General

 

The existence of any Awards does not affect in any way the right or power of the Company or its shareholders to make, authorize or determine any adjustment, recapitalization, reorganization or any other change in the Company’s capital structure or its business, or any amalgamation, combination, arrangement, merger or consolidation involving the Company, to create or issue any bonds, debentures, ADSs or other securities of the Company or to determine the rights and conditions attaching thereto, to effect the dissolution or liquidation of the Company or any sale or transfer of all or any part of its assets or business, or to effect any other corporate act or proceeding, whether of a  similar character or otherwise, whether or not any such action referred to in this Section would have an adverse effect on this Plan or on any Award granted hereunder.

 

13.2                        Reorganization of Gerdau S.A.’s Capital

 

Should Gerdau S.A. effect a subdivision or consolidation of ADS’s or any similar capital reorganization or a payment of a stock dividend (other than a stock dividend that is in lieu of a cash dividend), or should any other change be made in the capitalization of Gerdau S.A. and that, in the opinion of the Committee, would warrant the amendment or replacement of any existing Awards in order to adjust: (a) the number of ADSs that may be acquired on the vesting of outstanding Awards or the exercise of any outstanding Options; and/or (b) the Exercise Price of any outstanding Options and/or (c) the terms of any other Award in order to preserve proportionately the rights and obligations of the Participants holding such Awards, the Committee will authorize such steps to be taken as it may consider to be equitable and appropriate to that end.

 

13.3                        Other Events Affecting Gerdau S.A.

 

In the event of an amalgamation, combination, arrangement, merger or other transaction or reorganization involving Gerdau S.A. and occurring by exchange of ADSs, by sale or lease of assets or otherwise and that, in the opinion of the Committee, warrants the amendment or replacement of any existing Awards in order to adjust: (a)  the number of ADSs that may be acquired on the vesting of outstanding Awards or the exercise of any outstanding Options; or (b) the Exercise Price of any outstanding Options and/or (c) the terms of any other Award in order to

 

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preserve proportionately the rights and obligations of the Participants holding such Awards, the Committee will authorize such steps to be taken as it may consider to be equitable and appropriate to that end provided that no such amendment or replacement shall be made that would cause a U.S. Taxpayer to be subject to tax under Section 409A of the Code.

 

13.4                        Immediate Exercise of Awards

 

Where the Committee determines that the steps provided in Sections 13.2 and 13.3 would not preserve proportionately the rights, value and obligations of the Participants holding such Awards in the circumstances or otherwise determines that it is appropriate the Committee may permit the immediate exercise of any outstanding Options that are not otherwise exercisable, and the immediate vesting of any unvested Awards provided that no such accelerated vesting or payment shall be made that would cause a U.S. Taxpayer to be subject to tax under Section 409A of the Code.

 

13.5                        Issue by Gerdau S.A. of Additional ADSs

 

Except as expressly provided in this Article 13, neither the issue by Gerdau S.A. of shares of any class or securities convertible into or exchangeable for shares of any class, nor the conversion or exchange of such shares or securities, affects, and no adjustment by reason thereof is to be made with respect to: (a) the number of ADSs that may be acquired as a result of a grant of Awards or upon the exercise of any outstanding Options; or (b) the Exercise Price of any outstanding Options.

 

13.6                        Fractions

 

No fractional ADSs will be issued on the exercise of an Option or Stock Appreciation Right or the satisfaction of an Award.  Accordingly, if a Participant would become entitled to a fractional ADSs, the Participant has the right to acquire only the adjusted number of full ADSs and a payment will be made with respect to any fractional ADSs based on Fair Market Value at the relevant time.

 

ARTICLE 14
 GENERAL PROVISIONS

 

14.1                        Legal Requirement

 

The Company is not obligated to grant any Awards, issue any ADSs or other securities, make any payments or take any other action if, in the opinion of the Committee, in its sole discretion, such action would constitute a violation by a Participant or the Company of any provision of any applicable statutory or regulatory enactment of any government or government agency or the requirements of any stock exchange upon which the ADSs may then be listed.

 

14.2                        Participants’ Entitlement

 

Except as otherwise provided in this Plan, Options (whether or not exercisable) and other Awards previously granted under this Plan are not affected by any change in the relationship

 

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between, or ownership of, the Company and an Affiliate.  For greater certainty, all grants of Awards remain valid and all Options remain valid and exercisable in accordance with the terms and conditions of this Plan and are not affected by reason only that, at any time, an Affiliate ceases to be an Affiliate.

 

14.3                        Dividends

 

When dividends are paid on ADSs, additional Share Units shall be credited to the Participant’s account as of the dividend payment date.  The number of additional Share Units (including fractional Share Units) to be credited to the Participant’s account shall be determined by dividing the dollar amount of dividends payable in respect of the Share Units credited to the Participant’s account by the Fair Market Value of an ADS on the date credited.  Such additional Share Units shall vest at the same time and in the same proportion as the associated Share Units.

 

14.4                        Delay of Issuance and Vesting

 

The Committee may, in its discretion, delay the vesting of an Award or the issuance of ADS thereunder until three Business Days following the end of a Black Out Period or a period during which a Participant has material undisclosed information.

 

14.5                        Withholding Taxes

 

The granting or vesting of each Award and exercise of each Option and Stock Appreciation Right under this Plan is subject to the satisfaction of any withholding tax obligations.  The Company may withhold the amount of withholding tax obligations from any cash amount being paid to a Participant and may direct that a number of ADSs be sold which have a Fair Market Value equal to the amount of withholding tax obligations or may withhold the number of ADSs which have a Fair Market Value equal to the amount of the withholding tax obligation from any ADSs being issued to a Participant.

 

14.6                        Rights of Participant

 

No Participant has any claim or right to be granted an Award and the granting of any Award is not to be construed as giving a Participant a right to remain as an employee, officer, consultant or director of the Company or an Affiliate.  No Participant has any rights as a shareholder of the Company in respect of ADSs issuable on the exercise of any Option or issuable pursuant to any other Award until the allotment and issuance to such Participant of certificates representing such ADSs.

 

14.7                        Other Incentive Awards

 

The Committee shall have the right to grant other incentive awards based upon ADSs under this Plan to Participants in accordance with applicable laws and regulations and subject to regulatory approval, including without limitation the approval of any applicable stock exchange, having such terms and conditions as the Committee may determine, including without limitation the grant of ADSs based upon certain conditions and the grant of securities convertible into ADSs.

 

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14.8                        Termination

 

The Plan may be terminated by the Committee at any time, provided that such termination will not affect Awards which are outstanding at the time of termination.  This Plan will automatically terminate on the date upon which no further ADSs remain available for issuance under the Plan and no Options or other Awards remain outstanding.

 

14.9                        Amendment

 

(a)                                  Subject to the rules and policies of any stock exchange on which the ADSs are listed and applicable law, the Committee may, without notice or shareholder approval, at any time or from time to time, amend the Plan in any matter whatsoever including, but not limited to amendments for the purposes of:

 

(i)                                     making any amendments to the general vesting provisions of each Option or Award;

 

(ii)                                  making any amendments to the general term of each Option provided that no Option held by an Insider may be extended beyond its original expiry date and, subject to Section 4.3, no Option may be exercised after the tenth (10th) anniversary of the Date of Grant;

 

(iii)                               making any amendments to the provisions set out in Article 11;

 

(iv)                              making any amendments to add covenants of the Company for the protection of Participants provided that the Committee shall be of the good faith opinion that such additions will not be prejudicial to the rights or interests of the Participants;

 

(v)                                 making any amendments not inconsistent with the Plan as may be necessary or desirable with respect to matters or questions which, in the good faith opinion of the Committee, having in mind the best interests of the Participants, it may be expedient to make, including amendments that are desirable as a result of changes in law in any jurisdiction where a Participant resides, provided that the Committee shall be of the opinion that such amendments and modifications will not be prejudicial to the interests of the Participants; or

 

(vi)                              making such changes or corrections which, on the advice of counsel to the Company, are required for the purpose of curing or correcting any ambiguity or defect or inconsistent provision or clerical omission or mistake or manifest error, provided that the Committee shall be of the opinion that such changes or corrections will not be prejudicial to the rights and interests of the Participants.

 

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(b)                                 Subject to Section 12.1, the Committee shall not alter or impair any rights or increase any obligations with respect to an Award previously granted under the Plan without the consent of the Participant.

 

(c)                                  Notwithstanding any other provision of this Plan, none of the following amendments shall be made to this Plan without approval of shareholders:

 

(i)                                     amendments to the Plan which would increase the number of ADSs issuable under the Plan, otherwise than in accordance with the terms of this Plan;

 

(ii)                                  amendments to the Plan which would increase the number of ADSs issuable to Insiders, otherwise than in accordance with the terms of this Plan;

 

(iii)                               amendments to the Plan which would increase the number of ADSs issuable pursuant to any form of Award for which a maximum is specified in the Plan.

 

(iv)                              amendments that would extend the Exercise Period of any Options held by Insiders beyond the Exercise Period otherwise determined in accordance with this Plan;

 

(v)                                 amendments that would reduce the Exercise Price of any Options held by Insiders, otherwise than in accordance with the terms of this Plan; and

 

(vi)                              the addition of any form of financial assistance to a Participant.

 

Any amendment that would cause an Award held by a U.S. Taxpayer to fail to comply with Section 409A of the Code shall be null and void ab initio.

 

14.10                 Section 409A of the Code

 

This Plan is intended to comply with Section 409A of the Code (“Section 409A”) and will be administered, construed and interpreted to so comply to the extent required to preserve the intended tax consequences of this Plan.  The Company reserves the right to amend this Plan to the extent it reasonably determines is necessary in order to preserve the intended tax consequences of this Plan in light of Section 409A and any guidance under that section. In no event will the Company be responsible if Awards under this Plan result in tax or penalties to a U.S. Taxpayer under Section 409A.  In no event shall a U.S. Taxpayer, directly or indirectly, designate the calendar year in which payments under this Plan will be made.  Notwithstanding any provisions of the Plan to the contrary, (i) the acceleration of the time or schedule of any payment of deferred compensation under the Plan is prohibited except as permitted under Section 409A, and (ii) in the case of any “specified employee” within the meaning of Section 409A who is a U.S. Taxpayer, distributions of deferred compensation made in connection with a “separation from service” within the meaning of Section 409A may not be made prior to the date which is 6 months after the date of separation from service (or, if earlier, the date of death of the

 

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U.S. Taxpayer).  Any amounts subject to a delay in payment pursuant to the preceding sentence shall be paid on the first Business Day of the seventh month following such separation from service.

 

14.11                 Requirement of Notification of Election Under Section 83(b) of the Code

 

If a Participant, in connection with the acquisition of ADSs under the Plan, is permitted under the terms of the Award Agreement to make the election permitted under Section 83(b) of the Code and the Participant makes such an election, the Participant shall notify the Company of such election within ten (10) days of filing notice of the election with the Internal Revenue Service, in addition to any filing and notification required pursuant to regulations issued under Section 83(b) of the Code.

 

14.12                 Requirement of Notification Upon Disqualifying Disposition Under Section 421(b) of the Code

 

If any Participant shall make any disposition of ADSs issued pursuant to the exercise of an Incentive Stock Option under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions), such Participant shall notify the Company of such disposition within ten (10) days thereof.

 

14.13                 Indemnification

 

Every member of the Committee will at all times be indemnified and saved harmless by the Company from and against all costs, charges and expenses whatsoever including any income tax liability arising from any such indemnification, that such member may sustain or incur by reason of any action, suit or proceeding, taken or threatened against the member, otherwise than by the Company, for or in respect of any act done or omitted by the member in respect of this Plan, such costs, charges and expenses to include any amount paid to settle such action, suit or proceeding or in satisfaction of any judgment rendered therein.

 

14.14                 Participation in the Plan

 

The participation of any Participant in the Plan is entirely voluntary and not obligatory and shall not be interpreted as conferring upon such Participant any rights or privileges other than those rights and privileges expressly provided in the Plan. In particular, participation in the Plan does not constitute a condition of employment or engagement nor a commitment on the part of the Company to ensure the continued employment or engagement of such Participant. The Plan does not provide any guarantee against any loss which may result from fluctuations in the market value of the ADSs. The Company does not assume responsibility for the income or other tax consequences for the Participants and they are advised to consult with their own tax advisors.

 

14.15                 International Participants

 

With respect to Participants who do not reside or work in either Canada or the United States, the Committee may, in its sole discretion, amend, or otherwise modify, without shareholder approval, the terms of the Plan or Awards with respect to such Participants in order to conform

 

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such terms with the provisions of local law, and the Committee may, where appropriate, establish one or more sub-plans to reflect such amended or otherwise modified provisions.

 

14.16                 Effective Date

 

This Plan became effective on August 30, 2010.

 

14.17                 Governing Law

 

This Plan is created under and is to be governed, construed and administered in accordance with the laws of the State of Delaware and the federal laws applicable therein.

 

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