Document:

Exhibit 10.5

 

ASSET REPRESENTATIONS REVIEW AGREEMENT

 

among

 

HONDA AUTO RECEIVABLES 2016-3 OWNER TRUST,

as Issuer,

 

AMERICAN HONDA FINANCE CORPORATION,

as Sponsor and Servicer

 

and

 

CLAYTON FIXED INCOME SERVICES LLC,

 

as Asset Representations Reviewer

 

Dated as of August 23, 2016

 

     

    

    

 

Table
of Contents

 

	 	 	Page
	 	 	 
	ARTICLE I	USAGE AND DEFINITIONS	1
	 	 	 
	Section 1.1.	Usage and Definitions	1
	 	 	 
	Section 1.2.	Additional Definitions	2
	 	 	 
	ARTICLE II	ENGAGEMENT OF ASSET REPRESENTATIONS REVIEWER	2
	 	 	 
	Section 2.1.	Engagement; Acceptance	2
	 	 	 
	Section 2.2.	Confirmation of Scope	2
	 	 	 
	ARTICLE III	ASSET REPRESENTATIONS REVIEW PROCESS	2
	 	 	 
	Section 3.1.	Review Notices	2
	 	 	 
	Section 3.2.	Identification of Subject Receivables	3
	 	 	 
	Section 3.3.	Review Materials	3
	 	 	 
	Section 3.4.	Performance of Reviews	3
	 	 	 
	Section 3.5.	Review Reports	4
	 	 	 
	Section 3.6.	Limitations on Review Obligations	5
	 	 	 
	ARTICLE IV	ASSET REPRESENTATIONS REVIEWER	5
	 	 	 
	Section 4.1.	Representations and Warranties	5
	 	 	 
	Section 4.2.	Covenants	6
	 	 	 
	Section 4.3.	Fees, Expenses and Indemnities	7
	 	 	 
	Section 4.4.	Limitation on Liability	7
	 	 	 
	Section 4.5.	Indemnification by Asset Representations Reviewer	8
	 	 	 
	Section 4.6.	Indemnification of Asset Representations Reviewer	8
	 	 	 
	Section 4.7.	Inspections of Asset Representations Reviewer	9
	 	 	 
	Section 4.8.	Delegation of Obligations	9
	 	 	 
	Section 4.9.	Confidential Information	9
	 	 	 
	Section 4.10.	Personally Identifiable Information	11
	 	 	 
	ARTICLE V	RESIGNATION AND REMOVAL; SUCCESSOR ASSET REPRESENTATIONS REVIEWER	13
	 	 	 
	Section 5.1.	Eligibility Requirements for Asset Representations Reviewer	13
	 	 	 
	Section 5.2.	Resignation and Removal of Asset Representations Reviewer	13
	 	 	 
	Section 5.3.	Successor Asset Representations Reviewer	13
	 	 	 
	Section 5.4.	Merger, Consolidation or Succession	14

 

    	 	i	

     

    

 

Table
of Contents

(continued)

 

	 	 	Page
	 	 	 
	ARTICLE VI	OTHER AGREEMENTS	14
	 	 	 
	Section 6.1.	Independence of Asset Representations Reviewer	14
	 	 	 
	Section 6.2.	No Petition	14
	 	 	 
	Section 6.3.	Limitation of Liability of Owner Trustee	15
	 	 	 
	Section 6.4.	Termination of Agreement	15
	 	 	 
	ARTICLE VII	MISCELLANEOUS PROVISIONS	15
	 	 	 
	Section 7.1.	Amendments	15
	 	 	 
	Section 7.2.	Assignment; Benefit of Agreement; Third Party Beneficiaries	15
	 	 	 
	Section 7.3.	Notices	16
	 	 	 
	Section 7.4.	Governing Law; Submission to Jurisdiction; Waiver of Jury Trial	16
	 	 	 
	Section 7.5.	No Waiver; Remedies	17
	 	 	 
	Section 7.6.	Severability	17
	 	 	 
	Section 7.7.	Headings	17
	 	 	 
	Section 7.8.	Counterparts	17
	 	 	 
	Schedule A	Representations and Warranties, Review Materials and Tests	 

 

    	 	ii	

     

    

 

ASSET REPRESENTATIONS REVIEW AGREEMENT,
dated as of August 23, 2016 (this “Agreement”), among HONDA AUTO RECEIVABLES 2016-3 OWNER TRUST, a Delaware
statutory trust, as Issuer (the “Issuer”), AMERICAN HONDA FINANCE CORPORATION, a California corporation (“AHFC”),
as Sponsor and Servicer, and CLAYTON FIXED INCOME SERVICES LLC, a Delaware limited liability company, as Asset Representations
Reviewer (the “Asset Representations Reviewer”).

 

BACKGROUND

 

WHEREAS, in the regular course of its business,
AHFC acquires certain motor vehicle retail installment sale contracts secured by new and used automobiles (including light-duty
trucks) from motor vehicle dealers.

 

WHEREAS, in connection with a securitization
transaction sponsored by AHFC, AHFC sold a pool of Receivables consisting of retail installment sale contracts to American Honda
Receivables, LLC (the “Depositor”), who sold them to the Issuer.

 

WHEREAS, the Issuer has granted a security
interest in the pool of Receivables to the Indenture Trustee, for the benefit of the Holders of Notes, as security for the Notes
issued by the Issuer under the Indenture.

 

WHEREAS, the Issuer desires to engage the
Asset Representations Reviewer to perform reviews of certain Receivables for compliance with the representations and warranties
made by AHFC about the Receivables in the pool.

 

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

 

ARTICLE
I

USAGE AND DEFINITIONS

 

Section 1.1.          Usage
and Definitions. (a) Except as otherwise specified herein or if the context may otherwise require, capitalized terms
not defined in this Agreement shall have the respective meanings assigned such terms set forth in Appendix A to the Sale and Servicing
Agreement, dated as of the date hereof (the “Sale and Servicing Agreement”), by and among the Depositor, as
seller, AHFC, as servicer, RPA seller and sponsor, and Honda Auto Receivables 2016-3 Owner Trust, as issuer.

 

(b)          With
respect to all terms in this Agreement, the singular includes the plural and the plural the singular; words importing any gender
include the other genders; references to “writing” include printing, typing, lithography and other means of reproducing
words in a visible form; references to agreements and other contractual instruments include all subsequent amendments, amendments
and restatements, and supplements thereto or changes therein entered into in accordance with their respective terms and not prohibited
by this Agreement; references to Persons include their permitted successors and assigns; references to laws include their amendments
and supplements, the rules and regulations thereunder and any successors thereto; the term “including” means “including
without limitation;” and the term “or” is not exclusive.

 

     

    

    

 

Section 1.2.          Additional
Definitions. The following terms have the meanings given below:

 

“Asset Review” means
the performance by the Asset Representations Reviewer of the testing procedures for each Test and each Subject Receivable according
to Section 3.4.

 

“Confidential Information”
has the meaning stated in Section 4.9(b).

 

“Information Recipients”
has the meaning stated in Section 4.9(a).

 

“Issuer PII” has the
meaning stated in Section 4.10(a).

 

“Personally Identifiable Information”
or “PII” has the meaning stated in Section 4.10(a).

 

“Review Fee” has the
meaning stated in Section 4.3(b).

 

“Review Materials” means,
for an Asset Review and a Subject Receivable, the documents and other materials for each Test listed under “Review Materials”
in Schedule A.

 

“Review Report” means,
for an Asset Review, the report of the Asset Representations Reviewer prepared according to Section 3.5.

 

“Test” has the meaning
stated in Section 3.4(a).

 

“Test Complete” has the
meaning stated in Section 3.4(c).

 

“Test Fail” has the meaning
stated in Section 3.4(a).

 

“Test Incomplete” has
the meaning stated in Section 3.4(a).

 

“Test Pass” has the meaning
stated in Section 3.4(a).

 

ARTICLE
II

ENGAGEMENT OF ASSET REPRESENTATIONS REVIEWER

 

Section 2.1.          Engagement;
Acceptance. The Issuer engages Clayton Fixed Income Services LLC to act as the Asset Representations Reviewer for the Issuer.
Clayton Fixed Income Services LLC accepts the engagement and agrees to perform the obligations of the Asset Representations Reviewer
on the terms in this Agreement.

 

Section 2.2.          Confirmation
of Scope. The parties confirm that the Asset Representations Reviewer is not responsible for determining whether noncompliance
with the representations or warranties constitutes a breach of the Basic Documents.

 

ARTICLE
III

ASSET REPRESENTATIONS REVIEW PROCESS

 

Section 3.1.          Review
Notices. On receipt of a review notice from the Indenture Trustee in accordance with Section 7.05 of the Indenture, the Asset
Representations Reviewer will start an Asset Review. The Asset Representations Reviewer will have no obligation to start an Asset
Review until a review notice is received.

 

    	 	2	

     

    

 

Section 3.2.          Identification
of Subject Receivables. Within ten (10) Business Days after receipt of a review notice, the Servicer will deliver to the Asset
Representations Reviewer a list of the Subject Receivables.

 

Section 3.3.          Review
Materials.

 

(a)          Access
to Review Materials. The Servicer will give the Asset Representations Reviewer access to the Review Materials for all of the
Subject Receivables within sixty (60) calendar days after receipt of the review notice in one or more of the following ways in
the Servicer’s reasonable discretion: (i) by electronic posting of Review Materials to a password-protected website to which
the Asset Representations Reviewer has access, (ii) by providing originals or photocopies of documents relating to the Subject
Receivables at one of the properties of the Servicer or (iii) in another manner agreed by the Servicer and the Asset Representations
Reviewer. The Servicer may redact or remove PII from the Review Materials so long as all information in the Review Materials necessary
for the Asset Representations Reviewer to complete the Asset Review remains intact and unchanged.

 

(b)          Missing
or Insufficient Review Materials. The Asset Representations Reviewer will review the Review Materials to determine if any Review
Materials are missing or insufficient for the Asset Representations Reviewer to perform any Test. If the Asset Representations
Reviewer reasonably determines that any of the Review Materials are missing or insufficient for the Asset Representations Reviewer
to perform any Test, the Asset Representations Reviewer will notify the Servicer promptly, and in any event no less than twenty
(20) calendar days before completing the Review, and the Servicer will use reasonable efforts to provide the Asset Representations
Reviewer access to such missing Review Materials or other documents or information to correct the insufficiency within fifteen
(15) calendar days. If the missing or insufficient Review Materials have not been provided by the Servicer within sixty (60) calendar
days, the parties agree that the Subject Receivable will have a Test Incomplete for the related Test(s) and the Review Report will
indicate the reason for the Test Incomplete.

 

Section 3.4.          Performance
of Reviews.

 

(a)          Test
Procedures. For an Asset Review, the Asset Representations Reviewer will perform for each Subject Receivable the procedures
listed under “Tests” in Schedule A for each representation and warranty (each, a “Test”),
using the Review Materials listed for each such Test in Schedule A. For each Test and Subject Receivable, the Asset Representations
Reviewer will determine in its reasonable judgment if the Test has been satisfied (a “Test Pass”), or if the
Test has not been satisfied (a “Test Fail”), or if the Test could not be concluded as a result of missing or
incomplete Review Materials (a “Test Incomplete”). The Asset Representations Reviewer will use such determination
for all Subject Receivables that are subject to the same Test.

 

(b)          Review
Period. The Asset Representations Reviewer will complete the Review of all of the Subject Receivables within sixty (60) calendar
days after receiving access to the Review Materials under Section 3.3(a). However, if missing or additional Review Materials
are provided to the Asset Representations Reviewer under Section 3.3(b), the review period will be extended for an additional
thirty (30) calendar days.

 

    	 	3	

     

    

 

(c)          Completion
of Review for Certain Subject Receivables. Following the delivery of the list of the Subject Receivables and before the delivery
of the Review Report by the Asset Representations Reviewer, the Servicer may notify the Asset Representations Reviewer if a Subject
Receivable is paid in full by the Obligor or purchased from the Issuer by the Sponsor, the Depositor or the Servicer according
to the applicable Basic Document. On receipt of notice, the Asset Representations Reviewer will immediately terminate all Tests
of such Receivables and the Review of such Receivables will be considered complete (a “Test Complete”). In this
case, the Review Report will indicate a Test Complete for the Receivables and the related reason.

 

(d)          Previously
Reviewed Receivable: Duplicative Tests. If any Subject Receivable was included in a prior Asset Review, the Asset Representations
Reviewer will not perform the same Tests on it, but will include the results of the previous Tests in the Review Report for the
current Asset Review.

 

(e)          Duplicative
Tests. If the same Test is required for more than one representation or warranty listed on Schedule A, the Asset Representations
Reviewer will only perform the Test once for each Review Receivable but will report the results of the Test for each applicable
representation or warranty on the Review Report.

 

(f)          Termination
of Review. If an Asset Review is in process and the Notes will be paid in full on the next Distribution Date, the Servicer
will notify the Asset Representations Reviewer and the Indenture Trustee no less than ten (10) calendar days before that Distribution
Date. On receipt of notice, the Asset Representations Reviewer will terminate the Asset Review immediately and will have no obligation
to deliver a Review Report.

 

Section 3.5.          Review
Reports. (a) Within ten (10) calendar days after the end of the Asset Review period under Section 3.4(b), the Asset
Representations Reviewer will deliver to the Issuer, the Sponsor, the Servicer and the Indenture Trustee a Review Report indicating
for each Subject Receivable whether there was a Test Pass or a Test Fail for each Test, or whether the Subject Receivable was a
Test Complete and the related reason. The Review Report will contain a summary of the findings and conclusions of the Asset Representations
Reviewer with respect to the Asset Review to be included in the Issuer’s Form 10-D report for the Collection Period in which
the Review Report is received. The Asset Representations Reviewer will ensure that the Review Report does not contain any Issuer
PII. On the reasonable request of the Servicer or the Indenture Trustee, acting solely on behalf of the Noteholders, the Asset
Representations Reviewer will provide additional details on the Test results.

 

(b)          Questions
About Review. The Asset Representations Reviewer will make appropriate personnel available to respond in writing to written
questions or requests for clarification of any Review Report from the Servicer or the Indenture Trustee, acting solely on behalf
of the Noteholders, until the earlier of (i) payment in full of the Notes and (ii) one year after the delivery of the Review Report.
The Asset Representations Reviewer will have no obligation to respond to questions or requests for clarification from Noteholders
or any Person other than the Servicer or the Indenture Trustee, acting solely on behalf of the Noteholders, and will direct such
Persons to submit written requests to the Servicer.

 

    	 	4	

     

    

 

Section 3.6.          Limitations
on Review Obligations.

 

(a)          Review
Process Limitations. The Asset Representations Reviewer will have no obligation:

 

(i)          to
determine whether a Delinquency Trigger has occurred or whether the required percentage of Noteholders has voted to direct an Asset
Review under the Indenture, and may rely on the information in any review notice delivered by the Indenture Trustee;

 

(ii)         to
determine which Receivables are subject to an Asset Review, and may rely on the lists of Subject Receivables provided by the Servicer;

 

(iii)        to
obtain or confirm the validity of the Review Materials and no liability for any errors in the Review Materials and may rely on
the accuracy and completeness of the Review Materials;

 

(iv)        to
obtain missing or insufficient Review Materials from any party or any other source; or

 

(v)         to
take any action or cause any other party to take any action under any of the Basic Documents or otherwise to enforce any remedies
against any Person for breaches of representations or warranties about the Subject Receivables.

 

ARTICLE
IV

ASSET REPRESENTATIONS REVIEWER

 

Section 4.1.          Representations
and Warranties. The Asset Representations Reviewer represents and warrants to the Issuer as of the Closing Date:

 

(a)          Organization
and Qualification. The Asset Representations Reviewer is duly organized and validly existing as a limited liability company
in good standing under the laws of the State of Delaware. The Asset Representations Reviewer 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 the qualification, license or approval, unless the failure
to obtain the qualifications, licenses or approvals would not reasonably be expected to have a material adverse effect on the Asset
Representations Reviewer’s ability to perform its obligations under this Agreement.

 

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

 

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(c)          No
Conflicts and No Violation. The completion of the transactions contemplated by this Agreement and the performance of the Asset
Representations Reviewer’s obligations under this Agreement will not (A) conflict with, or be a breach or default under,
any indenture, loan agreement, guarantee or other agreement or instrument under which the Asset Representations Reviewer is a debtor
or guarantor, (B) result in the creation or imposition of any Lien on any of the properties or assets of the Asset Representations
Reviewer under the terms of any indenture, loan agreement, guarantee or other agreement or instrument, (C) violate the organizational
documents of the Asset Representations Reviewer or (D) violate any law or any order, rule or regulation of a federal or State court,
regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Asset Representations
Reviewer or its properties that applies to the Asset Representations Reviewer, which, in each case, would reasonably be expected
to have a material adverse effect on the Asset Representations Reviewer’s ability to perform its obligations under this Agreement.

 

(d)          No
Proceedings. There are no proceedings or investigations pending or, to the knowledge of the Asset Representations Reviewer,
threatened in writing before a federal or State court, regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over the Asset Representations Reviewer or its properties (A) asserting the invalidity of this Agreement, (B)
seeking to prevent the completion of the transactions contemplated by this Agreement or (C) seeking any determination or ruling
that would reasonably be expected to have a material adverse effect on the Asset Representations Reviewer’s ability to perform
its obligations under, or the validity or enforceability of, this Agreement.

 

(e)          Eligibility.
The Asset Representations Reviewer meets the eligibility requirements in Section 5.1 and will notify the Issuer and the
Servicer promptly if it no longer meets, or reasonably expects that it will no longer meet, the eligibility requirements in Section
5.1.

 

Section 4.2.          Covenants.
The Asset Representations Reviewer covenants and agrees that:

 

(a)          Eligibility.
It will notify the Issuer and the Servicer promptly if it no longer meets the eligibility requirements in Section 5.1.

 

(b)          Review
Systems; Personnel. It will maintain business process management and/or other systems necessary to ensure that it can perform
each Test and, on execution of this Agreement, will load each Test into these systems. The Asset Representations Reviewer will
ensure that these systems allow for each Subject Receivable and the related Review Materials to be individually tracked and stored
as contemplated by this Agreement. The Asset Representations Reviewer will maintain adequate staff that is properly trained to
conduct Asset Reviews as required by this Agreement.

 

(c)          Maintenance
of Review Materials. It will maintain copies of any Review Materials, Review Reports and other documents relating to an Asset
Review, including internal correspondence and work papers, for a period of two years after the termination of this Agreement or
repayment of the Notes in full, whichever comes first.

 

    	 	6	

     

    

 

Section 4.3.          Fees,
Expenses and Indemnities.

 

(a)          Annual
Fee. The Sponsor will pay the Asset Representations Reviewer, as compensation for agreeing to act as the Asset Representations
Reviewer under this Agreement, an annual fee equal to $7,500.00. The annual fee will be paid as agreed in Section 4.3(d)
by the Sponsor until this Agreement is terminated.

 

(b)          Review
Fee. Following the completion of an Asset Review and the delivery to the Indenture Trustee, the Sponsor and the Servicer of
the Review Report, or the termination of an Asset Review according to Section 3.4(e), and the delivery to the Sponsor of
a detailed invoice, the Asset Representations Reviewer will be entitled to a fee of up to $250 for each Account containing a Subject
Receivable (the “Review Fee”). However, no Review Fee will be charged for any Tests that were performed in a
prior Asset Representations Review or for any Asset Representations Review in which no Tests were completed prior to the Asset
Representations Reviewer being notified of a termination of the Asset Representations Review in accordance with Section 3.4(e).
The Sponsor will pay the Review Fee to the Asset Representations Reviewer in accordance with the terms of Section 4.3(d)
of this Agreement. If an Asset Review is terminated according to Section 3.4(e), the Asset Representations Reviewer must
submit its invoice for the Review Fee for the terminated Asset Review no later than five Business Days before the final Payment
Date to be reimbursed no later than the final Payment Date.

 

(c)          Reimbursement
of Travel Expenses. If the Servicer provides access to the Review Materials at one of its properties, the Sponsor will reimburse
the Asset Representations Reviewer for its reasonable travel expenses incurred in connection with the Asset Review upon receipt
of a detailed invoice.

 

(d)          Payment
of Fees and Indemnities. The Asset Representations Reviewer shall submit reasonably detailed invoices to the Sponsor for any
amounts owed to it under this Agreement. To the extent not paid by the Sponsor within sixty (60) calendar days following the receipt
of a detailed invoice, the fees provided for in this Section 4.3 and the indemnities provided for in Section 4.6(a)
shall be paid by the Issuer pursuant to Section 4.06(c) of the Sale and Servicing Agreement; provided, that prior to any
such payment pursuant to the Sale and Servicing Agreement, the Asset Representations Reviewer shall notify the Sponsor in writing
that such payments have been outstanding for at least sixty (60) calendar days. For the avoidance of doubt, to the extent that
such owed amounts are not paid in full by the Sponsor or any other party, upon receipt of a detailed invoice, the Asset Representations
Reviewer shall be entitled to payment by the Sponsor of incurred but otherwise unpaid amounts.

 

Section 4.4.          Limitation
on Liability. The Asset Representations Reviewer will not be liable to any Person for any action taken, or not taken, in good
faith under this Agreement or for errors in judgment. However, the Asset Representations Reviewer will be liable for its willful
misconduct, bad faith, breach of this Agreement or negligence in performing its obligations under this Agreement. In no event will
the Asset Representations Reviewer be liable for special, indirect or consequential losses or damages (including lost profit),
even if the Asset Representations Reviewer has been advised of the likelihood of the loss or damage and regardless of the form
of action.

 

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Section 4.5.          Indemnification
by Asset Representations Reviewer. The Asset Representations Reviewer will indemnify each of the Issuer, the Depositor, the
Servicer, the Sponsor, the Owner Trustee and the Indenture Trustee (each, an “Indemnified Party”) and their
respective directors, officers, employees and agents for all costs, expenses, losses, damages and liabilities (including any reasonable
legal fees and expenses incurred by an Indemnified Party in connection with the enforcement of any indemnification or other obligation
of the Asset Representations Reviewer) resulting from (a) the willful misconduct, bad faith or negligence of the Asset Representations
Reviewer in performing its obligations under this Agreement, (b) the Asset Representations Reviewer’s failure to comply with
the requirements of applicable federal, state or local laws and regulations in the performance of its duties hereunder or (c) the
Asset Representations Reviewer’s breach of any of its representations, warranties, covenants or other obligations in this
Agreement. The Asset Representations Reviewer’s obligations under this Section 4.5 will survive the termination of
this Agreement, the termination of the Issuer and the permitted resignation or removal of the Asset Representations Reviewer.

 

Section 4.6.          Indemnification
of Asset Representations Reviewer.

 

(a)          Indemnification.
The Sponsor will indemnify the Asset Representations Reviewer and its officers, directors, employees and agents (each, an “Indemnified
Person”), for all costs, expenses, losses, damages and liabilities resulting from the performance of the Asset Representations
Reviewer’s obligations under this Agreement (including the costs and expenses of defending itself against any loss, damage
or liability), but excluding any cost, expense, loss, damage or liability resulting from (i) the Asset Representations Reviewer’s
willful misconduct, bad faith or negligence, (ii) the Asset Representations Reviewer’s failure to comply with the requirements
of applicable federal, state and local laws and regulations in the performance of its duties hereunder or (iii) the Asset Representations
Reviewer’s breach of any of its representations, warranties, covenants or other obligations in this Agreement.

 

(b)          Proceedings.
Promptly on receipt by an Indemnified Person of notice of a Proceeding against it, the Indemnified Person will, if a claim is to
be made under Section 4.6(a), notify the Sponsor of the Proceeding. The Sponsor may participate in and assume the defense
and settlement of a Proceeding at its expense. If the Sponsor notifies the Indemnified Person of its intention to assume the defense
of the Proceeding with counsel reasonably satisfactory to the Indemnified Person, and the Sponsor will not be liable for legal
expenses of counsel to the Indemnified Person unless there is a conflict between the interests of the Sponsor, and an Indemnified
Person. If there is a conflict, the Sponsor will pay for the reasonable fees and expenses of separate counsel to the Indemnified
Person. No settlement of a Proceeding may be made without the approval of the Sponsor and the Indemnified Person, which approval
will not be unreasonably withheld.

 

(c)          Survival
of Obligations. The Issuer’s obligations under this Section 4.6 will survive the permitted resignation or removal
of the Asset Representations Reviewer and the termination of this Agreement.

 

    	 	8	

     

    

 

(d)          Repayment.
If the Sponsor makes any payment under this Section 4.6 and the Indemnified Person later collects any of the amounts for
which the payments were made to it from others, the Indemnified Person will promptly repay the amounts to the Sponsor.

 

Section 4.7.          Inspections
of Asset Representations Reviewer. The Asset Representations Reviewer agrees that, with reasonable prior notice not more than
once during any year, it will permit authorized representatives of the Issuer, the Servicer or the Sponsor, during the Asset Representations
Reviewer’s normal business hours, to examine and review the books of account, records, reports and other documents and materials
of the Asset Representations Reviewer relating to (a) the performance of the Asset Representations Reviewer’s obligations
under this Agreement, (b) payments of fees and expenses of the Asset Representations Reviewer for its performance and (c) a claim
made by the Asset Representations Reviewer under this Agreement. In addition, the Asset Representations Reviewer will permit the
Issuer’s, the Servicer’s or the Sponsor’s representatives to make copies and extracts of any of those documents
and to discuss them with the Asset Representations Reviewer’s officers and employees. Each of the Issuer, the Servicer and
the Sponsor will, and will cause its authorized representatives to, hold in confidence any proprietary confidential information
of the Asset Representations Reviewer except if disclosure may be required by law or if the Issuer, the Servicer or the Sponsor
reasonably determines that it is required to make the disclosure under this Agreement or the other Basic Documents. Except as described
in Section 4.2(c), the Asset Representations Reviewer will maintain all relevant books, records, reports and other documents
and materials for a period of at least two years after the termination of its obligations under this Agreement.

 

Section 4.8.          Delegation
of Obligations. The Asset Representations Reviewer may not delegate or subcontract its obligations under this Agreement to
any Person without the consent of the parties to this Agreement.

 

Section 4.9.          Confidential
Information.

 

(a)          Treatment.
The Asset Representations Reviewer agrees to hold and treat Confidential Information given to it under this Agreement in confidence
and under the terms and conditions of this Section 4.9, and will implement and maintain safeguards to further assure the
confidentiality of the Confidential Information. The Confidential Information will not, without the prior consent of the Issuer,
the Sponsor and the Servicer, be disclosed or used by the Asset Representations Reviewer, or its officers, directors, employees,
agents, representatives or affiliates, including legal counsel (collectively, the “Information Recipients”)
other than for the purposes of performing Asset Reviews of Subject Receivables or performing its obligations under this Agreement.
The Asset Representations Reviewer agrees that it will not, and will cause its Affiliates to not (i) purchase or sell securities
issued by AHFC or its Affiliates or special purpose entities on the basis of Confidential Information or (ii) use the Confidential
Information for the preparation of research reports, newsletters or other publications or similar communications.

 

(b)          Definition.
“Confidential Information” means oral, written and electronic materials (irrespective of its source or form
of communication) furnished before, on or after the date of this Agreement to the Asset Representations Reviewer for the purposes
contemplated by this Agreement, including:

 

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(i)          lists
of Subject Receivables and any related Review Materials;

 

(ii)         origination
and servicing guidelines, policies and procedures and form contracts; and

 

(iii)        notes,
analyses, compilations, studies or other documents or records prepared by the Sponsor or the Servicer, which contain information
supplied by or on behalf of the Sponsor or the Servicer or their representatives.

 

However, Confidential Information will not include information
that (A) is or becomes generally available to the public other than as a result of disclosure by the Information Recipients, (B)
was available to, or becomes available to, the Information Recipients on a non-confidential basis from a Person or entity other
than the Issuer, the Sponsor or the Servicer before its disclosure to the Information Recipients who, to the knowledge of the Information
Recipient is not bound by a confidentiality agreement with the Issuer, the Sponsor or the Servicer and is not prohibited from transmitting
the information to the Information Recipients, (C) is independently developed by the Information Recipients without the use of
the Confidential Information, as shown by the Information Recipients’ files and records or other evidence in the Information
Recipients’ possession or (D) the Issuer, the Sponsor or the Servicer provides permission to the applicable Information Recipients
to release.

 

(c)          Protection.
The Asset Representations Reviewer will use reasonable measures to protect the secrecy of and avoid disclosure and unauthorized
use of Confidential Information, including those measures that it takes to protect its own confidential information and not less
than a reasonable standard of care. The Asset Representations Reviewer acknowledges that Personally Identifiable Information is
also subject to the additional requirements in Section 4.9.

 

(d)          Disclosure.
If the Asset Representations Reviewer is required by applicable law, regulation, rule or order issued by an administrative, governmental,
regulatory or judicial authority to disclose part of the Confidential Information, it may disclose the Confidential Information.
However, before a required disclosure, the Asset Representations Reviewer, if permitted by law, regulation, rule or order, will
use its reasonable efforts to provide the Issuer, the Sponsor and the Servicer with notice of the requirement and will cooperate,
at the Sponsor’s expense, in the Issuer’s and the Sponsor’s pursuit of a proper protective order or other relief
for the disclosure of the Confidential Information. If the Issuer or the Sponsor is unable to obtain a protective order or other
proper remedy by the date that the information is required to be disclosed, the Asset Representations Reviewer will disclose only
that part of the Confidential Information that it is advised by its legal counsel it is legally required to disclose.

 

(e)          Responsibility
for Information Recipients. The Asset Representations Reviewer will be responsible for a breach of this Section 4.9
by its Information Recipients.

 

(f)          Violation.
The Asset Representations Reviewer agrees that a violation of this Agreement may cause irreparable injury to the Issuer, the Sponsor
and the Servicer and the Issuer, the Sponsor and the Servicer may seek injunctive relief in addition to legal remedies. If an action
is initiated by the Issuer or the Servicer to enforce this Section 4.9, the prevailing party will be reimbursed for its
fees and expenses, including reasonable attorney’s fees, incurred for the enforcement.

 

    	 	10	

     

    

 

Section 4.10.         Personally
Identifiable Information.

 

(a)          Definitions.
“Personally Identifiable Information” or “PII” means information in any format about an identifiable
individual, including, name, address, phone number, e-mail address, account number(s), identification number(s), vehicle identification
number(s) or “VIN(s)”, any other actual or assigned attribute associated with or identifiable to an individual and
any information that when used separately or in combination with other information could identify an individual. “Issuer
PII” means PII furnished by the Issuer, the Servicer or their Affiliates to the Asset Representations Reviewer and PII
developed or otherwise collected or acquired by the Asset Representations Reviewer in performing its obligations under this Agreement.

 

(b)          Use
of Issuer PII. The Issuer does not grant the Asset Representations Reviewer any rights to Issuer PII. None of the Issuer, the
Sponsor or the Servicer intend to share, provide or supply any Issuer PII to the Asset Representations Reviewer. However, if the
Asset Representations Reviewer receives any Issuer PII, the Asset Representations Reviewer will promptly (i) notify the Servicer
and (ii) delete and destroy such Issuer PII in accordance with Section 4.10(c). Notwithstanding the foregoing, the Asset
Representations Reviewer must comply with all laws applicable to PII, Issuer PII and the Asset Representations Reviewer’s
business, including any legally required codes of conduct, including those relating to privacy, security and data protection. The
Asset Representations Reviewer will implement and maintain reasonable and appropriate practices, procedures and systems, including
administrative, technical and physical safeguards designed to (i) protect the security, confidentiality and integrity of Issuer
PII, (ii) ensure against anticipated threats or hazards to the security or integrity of Issuer PII, (iii) protect against unauthorized
access to or use of Issuer PII and (iv) otherwise comply with its obligations under this Agreement. These safeguards include a
written data security plan, employee training, information access controls, restricted disclosures, systems protections (e.g.,
intrusion protection, data storage protection and data transmission protection) and physical security measures.

 

(c)          Additional
Limitations. In addition to the use and protection requirements described in Section 4.10(b), the Asset Representations
Reviewer’s disclosure of Issuer PII is also subject to the following requirements:

 

(i)          The
Asset Representations Reviewer will not disclose Issuer PII to its personnel or allow its personnel access to Issuer PII except
(A) for the Asset Representations Reviewer personnel who require Issuer PII to perform an Asset Review, (B) with the prior consent
of the Issuer or (C) as required by applicable law. When permitted, the disclosure of or access to Issuer PII will be limited to
the specific information necessary for the individual to complete the assigned task. The Asset Representations Reviewer will inform
personnel with access to Issuer PII of the confidentiality requirements in this Agreement and train its personnel with access to
Issuer PII on the proper use and protection of Issuer PII.

 

    	 	11	

     

    

 

(ii)         The
Asset Representations Reviewer will not sell, disclose, provide or exchange Issuer PII with or to any third party without the prior
consent of the Issuer.

 

(d)          Notice
of Breach. The Asset Representations Reviewer will notify the Issuer promptly in the event of an actual or reasonably suspected
security breach, unauthorized access, misappropriation or other compromise of the security, confidentiality or integrity of Issuer
PII and, where applicable, immediately take action to prevent any further breach.

 

(e)          Return
or Disposal of Issuer PII. Except where return or disposal is prohibited by applicable law, promptly on the earlier of the
completion of the Asset Review or the request of the Issuer, all Issuer PII in any medium in the Asset Representations Reviewer’s
possession or under its control will be (i) destroyed in a manner that prevents its recovery or restoration or (ii) if so directed
by the Issuer, returned to the Issuer without the Asset Representations Reviewer retaining any actual or recoverable copies, in
both cases, without charge to the Issuer. Where the Asset Representations Reviewer retains Issuer PII, the Asset Representations
Reviewer will limit the Asset Representations Reviewer’s further use or disclosure of Issuer PII to that required by applicable
law.

 

(f)          Compliance;
Modification. The Asset Representations Reviewer will cooperate with and provide information to the Issuer regarding the Asset
Representations Reviewer’s compliance with this Section 4.10. The Asset Representations Reviewer and the Issuer agree
to modify this Section 4.10 as necessary from time to time for either party to comply with applicable law.

 

(g)          Affiliates
and Third Parties. If the Asset Representations Reviewer processes the PII of the Issuer’s Affiliates or a third party
when performing an Asset Review, and if such Affiliate or third party is identified to the Asset Representations Reviewer, such
Affiliate or third party is an intended third-party beneficiary of this Section 4.10, and this Agreement is intended to
benefit the Affiliate or third party. The Affiliate or third party will be entitled to enforce the PII related terms of this Section
4.10 against the Asset Representations Reviewer as if each were a signatory to this Agreement.

 

(h)          Audit
of Asset Representations Reviewer. The Asset Representations Reviewer will permit the Issuer and its authorized representatives
to audit the Asset Representations Reviewer’s compliance with this Agreement during the Asset Representations Reviewer’s
normal business hours on reasonable advance notice to the Asset Representations Reviewer, and not more than once during any year
unless circumstances necessitate additional audits. The Issuer agrees to make reasonable efforts to schedule any audit described
in this Section 4.10 with the inspections described in Section 4.7. The Asset Representations Reviewer will also
permit the Issuer and its authorized representatives during normal business hours on reasonable advance written notice to audit
any service providers used by the Asset Representations Reviewer with the Sponsor’s prior written consent to fulfill the
Asset Representations Reviewer’s obligations under this Agreement.

 

    	 	12	

     

    

 

ARTICLE
V

RESIGNATION AND REMOVAL;

SUCCESSOR ASSET REPRESENTATIONS REVIEWER

 

Section 5.1.          Eligibility
Requirements for Asset Representations Reviewer. The Asset Representations Reviewer must be a Person who (a) is not Affiliated
with the Sponsor, the Depositor, the Servicer, the Indenture Trustee, the Owner Trustee or any of their Affiliates and (b) was
not, and is not Affiliated with a Person that was, engaged by the Sponsor or any Underwriter to perform any due diligence on the
Receivables prior to the Closing Date.

 

Section 5.2.          Resignation
and Removal of Asset Representations Reviewer.

 

(a)          No
Resignation of Asset Representations Reviewer. The Asset Representations Reviewer will not resign as Asset Representations
Reviewer unless (a) the Asset Representations Reviewer no longer meets the eligibility requirements in Section 5.1 or (b)
upon determination that the performance of its duties under this Agreement is no longer permissible under applicable law. The Asset
Representations Reviewer will notify the Issuer and the Servicer of its resignation as soon as practicable after it determines
it is required to resign and stating the resignation date and including an Opinion of Counsel supporting its determination.

 

(b)          Removal
of Asset Representations Reviewer. If any of the following events occur, the Sponsor, by notice to the Asset Representations
Reviewer, may remove the Asset Representations Reviewer and terminate its rights and obligations under this Agreement:

 

(i)          the
Asset Representations Reviewer no longer meets the eligibility requirements in Section 5.1;

 

(ii)         the
Asset Representations Reviewer breaches of any of its representations, warranties, covenants or obligations in this Agreement;
or

 

(iii)        an
Insolvency Event of the Asset Representations Reviewer occurs.

 

(c)          Notice
of Resignation or Removal. The Sponsor will notify the Issuer, the Owner Trustee and the Indenture Trustee of any resignation
or removal of the Asset Representations Reviewer.

 

(d)          Continue
to Perform After Resignation or Removal. No resignation or removal of the Asset Representations Reviewer will be effective,
and the Asset Representations Reviewer will continue to perform its obligations under this Agreement, until a successor Asset Representations
Reviewer has accepted its engagement according to Section 5.3(b).

 

Section 5.3.          Successor
Asset Representations Reviewer.

 

(a)          Engagement
of Successor Asset Representations Reviewer. Following the resignation or removal of the Asset Representations Reviewer, the
Sponsor will appoint a successor Asset Representations Reviewer who meets the eligibility requirements of Section 5.1.

 

    	 	13	

     

    

 

(b)          Effectiveness
of Resignation or Removal. No resignation or removal of the Asset Representations Reviewer will be effective until the successor
Asset Representations Reviewer has executed and delivered to the Issuer and the Servicer an agreement accepting its engagement
and agreeing to perform the obligations of the Asset Representations Reviewer under this Agreement or entered into a new agreement
with the Issuer on substantially the same terms as this Agreement.

 

(c)          Transition
and Expenses. If the Asset Representations Reviewer resigns or is removed, the Asset Representations Reviewer will cooperate
with the Issuer and take all actions reasonably requested to assist the Issuer in making an orderly transition of the Asset Representations
Reviewer’s rights and obligations under this Agreement to the successor Asset Representations Reviewer. The Asset Representations
Reviewer will pay the reasonable expenses (including the fees and expenses of counsel) of transitioning the Asset Representations
Reviewer’s obligations under this Agreement and preparing the successor Asset Representations Reviewer to take on such obligations
on receipt of an invoice with reasonable detail of the expenses from the Issuer or the successor Asset Representations Reviewer.

 

Section 5.4.          Merger,
Consolidation or Succession. Any Person (a) into which the Asset Representations Reviewer is merged or consolidated, (b) resulting
from any merger or consolidation to which the Asset Representations Reviewer is a party or (c) succeeding to the business of the
Asset Representations Reviewer, if that Person meets the eligibility requirements in Section 5.1, will be the successor
to the Asset Representations Reviewer under this Agreement. Such Person will execute and deliver to the Issuer and the Servicer
an agreement to assume the Asset Representations Reviewer’s obligations under this Agreement (unless the assumption happens
by operation of law).

 

ARTICLE
VI

OTHER AGREEMENTS

 

Section 6.1.          Independence
of Asset Representations Reviewer. The Asset Representations Reviewer will be an independent contractor and will not be subject
to the supervision of the Issuer, the Owner Trustee or the Indenture Trustee for the manner in which it accomplishes the performance
of its obligations under this Agreement. Unless authorized by the Issuer, the Owner Trustee, or the Indenture Trustee, respectively,
the Asset Representations Reviewer will have no authority to act for or represent the Issuer, the Owner Trustee or the Indenture
Trustee and will not be considered an agent of the Issuer, the Owner Trustee or the Indenture Trustee. None of the Issuer, the
Owner Trustee or the Indenture Trustee will be responsible for monitoring the performance of the Asset Representations Reviewer
or liable to any Person for the failure of the Asset Representations Reviewer to perform its obligations hereunder. Nothing in
this Agreement will make the Asset Representations Reviewer and any of the Issuer, the Owner Trustee or the Indenture Trustee members
of any partnership, joint venture or other separate entity or impose any liability as such on any of them.

 

Section 6.2.          No
Petition. Each of the parties, by entering into this Agreement, agrees that, before the date that is one year and one day (or,
if longer, any applicable preference period) after payment in full of (a) all securities issued by the Depositor or by a trust
for which the Depositor was a depositor (including, without limitation, the Issuer) or (b) the Notes, it will not start or pursue
against, or join any other Person in starting or pursuing against (i) the Depositor or (ii) the Issuer, respectively, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings or other proceedings under any bankruptcy or similar law. This
Section 6.2 will survive the termination of this Agreement.

 

    	 	14	

     

    

 

Section 6.3.          Limitation
of Liability of Owner Trustee. This Agreement has been signed on behalf of the Issuer by The Bank of New York Mellon not in
its individual capacity but solely in its capacity as Owner Trustee of the Issuer. In no event will The Bank of New York Mellon
in its individual capacity or a beneficial owner of the Issuer be liable for the Issuer’s obligations under this Agreement.
For all purposes under this Agreement, the Owner Trustee will be subject to, and entitled to the benefits of, the Trust Agreement.

 

Section 6.4.          Termination
of Agreement. This Agreement will terminate, except for the obligations under Section 4.5 or as otherwise stated in
this Agreement, on the earlier of (a) the payment in full of all outstanding Notes and the satisfaction and discharge of the Indenture
and (b) the date the Issuer is terminated under the Trust Agreement.

 

ARTICLE
VII

MISCELLANEOUS PROVISIONS

 

Section 7.1.          Amendments.

 

(a)          This
Agreement can be modified in a written document executed by the parties hereto without the consent of the Noteholders or any other
Person; provided, that, except with respect to amendments (i) to clarify an ambiguity, correct an error or correct or supplement
any term of this Agreement that may be defective or inconsistent with the other terms of this Agreement or to provide for, or facilitate
the acceptance of this Agreement by, a successor Asset Representations Reviewer or (ii) to convert or supplement any provision
in a manner consistent with the intent of this Agreement, either (a) such amendment shall not, as evidenced by an opinion of counsel
or officer’s certificate, materially and adversely affect the interests of the holders of any outstanding Note or (b) the
Rating Agency Condition is satisfied with respect to such amendment. With respect to any amendment for which clauses (a) or (b)
of the immediately preceding sentence cannot be satisfied, this Agreement can be amended with the consent of the Noteholders of
a majority of the Outstanding Principal Balance of the Notes of each adversely affected Series.

 

(b)          Notice
of Amendments. The Servicer will notify the Rating Agencies in advance of any amendment. Promptly after the execution of an
amendment, the Servicer will deliver a copy of the amendment to the Rating Agencies and the Indenture Trustee.

 

Section 7.2.          Assignment;
Benefit of Agreement; Third Party Beneficiaries.

 

(a)          Assignment.
Except as stated in Section 5.4, this Agreement may not be assigned by the Asset Representations Reviewer without the consent
of the parties to this Agreement.

 

(b)          Benefit
of Agreement; Third-Party Beneficiaries. This Agreement is for the benefit of and will be binding on the parties and their
permitted successors and assigns. The Owner Trustee and the Indenture Trustee, for the benefit of the Noteholders, will be third-party
beneficiaries of this Agreement and entitled to enforce this Agreement against the Asset Representations Reviewer. No other Person
will have any right or obligation under this Agreement.

 

    	 	15	

     

    

 

Section 7.3.          Notices.

 

(a)          Delivery
of Notices. All notices, requests, demands, consents, waivers or other communications to or from the parties must be in writing
and will be considered given:

 

(i)          For
overnight mail, on delivery or, for a letter mailed by registered first class mail, postage prepaid, three days after deposit in
the mail;

 

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

 

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

 

(iv)        for
an electronic posting to a password-protected website to which the recipient has access, on delivery (without the requirement of
confirmation of receipt) of an email to that recipient stating that the electronic posting has occurred.

 

(b)          Notice
Addresses. Any notice, request, demand, consent, waiver or other communication will be delivered or addressed to: (i) (a) in
the case of the Sponsor and the Servicer, to American Honda Finance Corporation, 20800 Madrona Avenue, Torrance, CA 90503, Attention:
Program Services & Investor Relations, (b) in the case of the Issuer or the Owner Trustee, to Honda Auto Receivables 2016-3
Owner Trust, c/o The Bank of New York Mellon, 101 Barclay Street, Floor 7 West, New York, NY 10286, Attention: Asset Backed Securities
Unit – Honda Auto Receivables 2016-3, (c) in the case of the Indenture Trustee, to U.S. Bank National Association, 190 South
LaSalle Street, 7th Floor, Chicago, Illinois 60603, Attention: Corporate Trust Services - Honda Auto Receivables 2016-3, and (d)
in the case of the Asset Representations Reviewer, to Clayton Fixed Income Services LLC, 1700 Lincoln Street, Denver, CO 80203,
Attention: SVP, Surveillance; with a copy to Clayton Fixed Income Services LLC, 100 Beard Sawmill Road, Ste. 200, Shelton, CT 06484,
Attention: General Counsel or, (ii) as to each party, at such other address or email as shall be designated by such party in a
written notice to each other party.

 

Section 7.4.          Governing
Law; Submission to Jurisdiction; Waiver of Jury Trial. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

 

    	 	16	

     

    

 

Each
of the parties hereto hereby submits to the exclusive jurisdiction of the United States District Court for the Southern District
of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating
to this Agreement or the transactions contemplated hereby. Each of the parties hereto hereby further irrevocably waives any claim
that any such courts lack jurisdiction over such party, and agrees not to plead or claim, in any legal action or proceeding with
respect to this Agreement in any of the aforesaid courts, that any such court lacks jurisdiction over such party. Each of the parties
hereto irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying
of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has
been brought in an inconvenient forum.

 

Each
party hereto hereby waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect
of any litigation directly or indirectly arising out of, under or in connection with this agreement.

 

Section 7.5.          No
Waiver; Remedies. No party’s failure or delay in exercising a power, right or remedy under this Agreement will operate
as a waiver. No single or partial exercise of a power, right or remedy will preclude any other or further exercise of the power,
right or remedy or the exercise of any other power, right or remedy. The powers, rights and remedies under this Agreement are in
addition to any powers, rights and remedies under law.

 

Section 7.6.          Severability.
If a part of this Agreement is held invalid, illegal or unenforceable, then it will be deemed severable from the remaining Agreement
and will not affect the validity, legality or enforceability of the remaining Agreement.

 

Section 7.7.          Headings.
The headings in this Agreement are included for convenience and will not affect the meaning or interpretation of this Agreement.

 

Section 7.8.          Counterparts.
This Agreement may be executed in multiple counterparts. Each counterpart will be an original and all counterparts will together
be one document.

 

[Remainder of Page Left
Blank]

 

    	 	17	

     

    

 

	EXECUTED BY:	 
	 	 
	 	HONDA AUTO RECEIVABLES 2016-3 OWNER TRUST,
	 	 	as Issuer
	 	 	 
	 	By:	The Bank of New York Mellon, not in its
	 	 	individual capacity, but solely as Owner Trustee
	 	 	 
	 	By:	 
	 	 	Name:  
	 	 	Title:  
	 	 	 
	 	AMERICAN HONDA FINANCE CORPORATION,
	 	 	as Sponsor and Servicer
	 	 	 
	 	By:	 
	 	 	Name:  	Paul C. Honda
	 	 	Title:	Vice President and Assistant Secretary
	 	 	 
	 	CLAYTON FIXED INCOME SERVICES LLC,
	 	 	as Asset Representations Reviewer
	 	 	 
	 	By:	 
	 	 	Name:  
	 	 	Title:  

  

    	 	S-1	HAROT 2016-3
ARR Agreement

     

    

 

Schedule A

 

Representations and Warranties, Review Materials
and Tests

 

	Representations and Warranty	 	Review Materials and Tests
	
        (i)          Characteristics
        of Receivables. Each Receivable

        (a)   was
        originated by a Dealer located in the United States for the sale of the related Financed Vehicle, fully executed by the Obligor
        thereto, purchased by AHFC from such Dealer under an existing agreement with AHFC, assigned by such Dealer to the RPA Seller and
        subsequently sold by the RPA Seller to the Purchaser pursuant to the Receivables Purchase Agreement,

        (b)   has
        created or shall create a first priority security interest in favor of the RPA Seller in the related Financed Vehicle, which security
        interest has been assigned by the RPA Seller to the Purchaser and shall be assignable, and shall be so assigned, by the Purchaser
        to the Issuer,

        (c)   contains
        provisions that permit the repossession and sale of the Financed Vehicle upon a default under the Receivable by the Obligor,

        (d)   except
        as otherwise provided in this Agreement, provides, at the time of origination, for level Monthly Payments (provided that the first
        and last payments in the life of the Receivable may be different from but in no event more than two times the level payment) that
        fully amortize the Amount Financed over its original term,

        (e)   allows
        for prepayment,

        (f)   is
        not listed on the Servicer’s records as a federal, state or local governmental entity and

        (g)   is
        a retail installment sales contract.
	 	
        Review Materials:

        (a)    Title
        documents

        (b)    Installment
        sales contract

        (c)    Receivable
        Files

        (d)    Servicer’s
        Records/Data file

        Tests:

        (a)    Origination

        i.     Review
        the contract and confirm that the Dealer address is a United States address.

        ii.    Review
        the contract and confirm that it was signed by the Obligor.

        iii.   Review
        the contract and confirm that AHFC (or an acceptable variation of the name) is listed as an assignee within the assignment section.

        iv.   Review
        the contract and confirm the Vehicle Identification Number (VIN) on the contract matches the VIN on the Certificate of Title or
        Application for Title.

        v.    Confirm
        the Dealer signed the assignment section of the contract.

        (b)    Security
        Interest Enforcement

        i.     Review
        the Receivable File and confirm that the security interest has not been subordinated and the Receivable maintains an enforceable
        security interest in favor of AHFC for the Financed Vehicle.

        (c)    Repossession

        i.     Review
        the contract and confirm that it contains language permitting the repossession and sale of the Financed Vehicle upon default by
        the Obligor.

        (d)    Fully
        Amortizing Payment Schedule

        i.     Review
        the contract and confirm that all payments are equivalent with the possible exception of the first and last payments, which may
        be two times the level payment.

        ii.    Review
        the Truth-in-Lending section of the contract and calculate the product of the Amount of Payments with the Number of Payments and
        confirm that this amount is equal to the Total of Payments.

        (e)    Prepayments

        i.     Review
        the contract and confirm that the terms conform to the representation.

        (f)    No
        governmental obligors

        i.     Review
        the contract and confirm that the Obligor does not appear to be a governmental entity and that the Servicer’s records do
        not otherwise indicate that the Obligor is a governmental entity.

 

     

    

    

 

	 	 	
        (g)    Retail
        installment sale contract

        i.      Review
        the contract and confirm that the contract terms conform to the representation.

        (h)    If
        (a) through (g) are confirmed, then Test Pass.

	(ii)         Compliance with Law.  At the time it was originated, the Receivable complied in all material respects with all requirements of law in effect at the time and applicable to such Receivable.	 	
        Review Materials:

        (a)  Installment
        sales contract

        (b)  AHFC’s
        list of approved contract forms.

        Tests:

        (a)   Review
        the contract form number and revision date and confirm that they are both on AHFC’s list of approved contract forms.

        (b)   If
        (a) is confirmed, then Test Pass.

	(iii)        Binding Obligation.  Each Receivable is on a form contract that includes the legal and binding payment obligation in writing of the related Obligor, enforceable by the holder thereof, except as enforceability may be subject to or limited by bankruptcy, insolvency, reorganization, moratorium, liquidation or other laws affecting the enforcement of creditors’ rights and by general principles of equity, consumer protection laws and the Servicemembers Civil Relief Act.	 	
        Review Materials:

        (a)    Installment
        sales contract

        (b)   AHFC’s
        list of approved contract forms.

        Tests:

        (a)   Review
        the contract form number and revision date and confirm that they are both on AHFC’s list of approved contract forms.

        (b)   Confirm
        the Obligor signed the contract.

        (c)    If
        (a) and (b) are confirmed, then Test Pass.

	(iv)        Receivables in Force.  According to the Servicer’s Receivables system, the Receivable shall not have been satisfied, subordinated or rescinded, nor shall the Financed Vehicle have been released in whole or in part from the lien granted by the related Receivable on the Cutoff Date.	 	
        Review Materials:

        (a)    Receivable
        Files

        (b)   Title
        documents

        (c)    Servicer’s
        Records/Data file

        Tests:

        (a)   Confirm
        that there is no indication in the Servicer’s Records or Receivable Files that the Receivable was subordinated or rescinded.

        (b)   Confirm
        that there is no indication in the Servicer’s Records or Receivable Files that the Receivable was satisfied prior to the
        Cut-off Date.

        (c)   Confirm
        that there is no indication in the Servicer’s Records or Receivable Files that the Financed Vehicle has been released from
        the lien in whole or in part.

        (d)   If
        (a) through (c) are confirmed, then Test Pass.

	(v)          No Defenses.  To the RPA Seller’s knowledge, no right of rescission, setoff, counterclaim or defense has been asserted or threatened in writing by any Obligor against the Receivable.	 	
        Review Materials:

        (a)   Receivable
        Files

        (b)   Receivable
        system

        Tests:

        (a)   Review
        the Receivable Files and confirm that there is no indication the Receivable is subject to rescission, setoff, counterclaim or defense
        that would cause the Receivable to become invalid, or, if so, confirm such indications were not present as of the Cut-off Date.

        (b)   If
        (a) is confirmed, then Test Pass.

	(vi)        No Defaults.  Except for payment delinquencies that, as of the Cutoff Date, were not more than thirty (30) days, according to the accounting records of the RPA Seller, no payment default existed under the terms of any Receivable as of the Cutoff Date.	 	
        Review Materials:

        (a)    Servicer’s
        Records/Data file

        Tests:

        (a)   Confirm
        that there is no indication of a payment default, other than payment delinquencies of not more than thirty (30) days, or if so,
        confirm such defaults were not present as of the Cut-off Date.

        (b)   If
        (a) is confirmed, then Test Pass.

 

     

     

    

 

	(vii)       Insurance.  Each Obligor of a Receivable has been required to obtain physical damage insurance covering the related Financed Vehicle and is required under the terms of the related Receivable to maintain such insurance.	 	
        Review Materials:

        (a)   Installment
        sale contract

        Tests:

        (a)   Confirm
        that the contract contains language that requires the Obligor to obtain and maintain insurance against physical damage to the Financed
        Vehicle.

        (b)   If
        (a) is confirmed, then Test Pass.

	(viii)      Lawful Assignment.  The terms of the Receivable do not limit the right of the owner of the Receivable to sell the Receivable.	 	
        Review Materials:

        (a)   Installment
        sale contract

        Tests:

        (a)   Review
        the contract and confirm that there is no language present that limits the rights of the owner of the Receivable to sell the Receivable.

        (b)   If
        (a) is confirmed, then Test Pass.

	(ix)         Chattel Paper.  The Receivable is either “tangible chattel paper” or “electronic chattel paper” within the meaning of the applicable UCC and there is only one original authenticated copy of the Receivable.	 	
        Review Materials:

        (a)   Installment
        sale contract

        (b)  AHFC’s
        list of approved contract forms

        (c)  Title
        documents

        Tests:

        (a)   Review
        the contract form number and revision date and confirm that it is on AHFC’s list of approved contract forms.

        (b)  Confirm
        there is a signature under the each of the Obligor’s and seller’s name within the contract.

        (c)   Confirm
        there is no indication the contract was voided or is otherwise not the original authenticated copy.

        (d)   If
        (a) through (c) are confirmed, then Test Pass.

	(x)          Security Interest.  The RPA Seller has, or the Servicer has, started procedures that will result in the RPA Seller having a perfected, first priority security interest in the Financed Vehicle within then (10) days of the Closing Date, which security interest was validly created and is assignable by the RPA Seller to the Purchaser.	 	
        Review Materials:

        (a)   Installment
        sales contract

        (b)   Title
        documents

        Tests:

        (a)   Confirm
        the Title documents report AHFC (or an acceptable variation of the name) as the first lien holder.

        (b)   Confirm
        that the Obligor name on the contract matches the name on the title documents.

        (c)   Confirm
        that the Vehicle Identification Number (VIN) on the contract matches the vehicle identification number as reported on the title
        documents.

        (d)   If
        (a) through (c) are confirmed, then Test Pass.

	
        (xi)         Individual
        Characteristics. Each Receivable has the following individual characteristics as of the Cutoff Date:

        (a)   is
        not listed on the Servicer’s records as the subject of a pending bankruptcy proceeding;

        (b)   had
        an original maturity of not greater than 72 payments;

        (c)   provides
        for the payment of a finance charge or shall yield interest calculated on the basis of a Contract Rate of at least 0.50%;

        (d)   has
        a Scheduled Payment that is not more than thirty (30) days past due;

        (e)   the
        Financed Vehicle to which the Receivable relates is a new or used Honda or Acura automobile or light-duty truck; and

        
	 	
        Review Materials:

        (a)    Installment
        sales contract

        (b)    Servicer’s
        Records/Data file

        (c)    Receivable
        Files

        Tests:

        (a)    Bankruptcy

        i.     Review
        the Servicer’s records and confirm that the Obligor was not the subject of a bankruptcy proceeding as of the Cutoff Date.

        (b)    Original
        Maturity

        i.     Confirm
        that the number of payments as stated within the contract does not exceed 72 payments.

        (c)    Contract
        Rate

        i.     Confirm
that the Contract Rate stated within the contract is greater than or equal to 0.50% as of the Cutoff Date.

 

     

    

    

 

	(f)   the
        Obligor under each Receivable had a billing address in the United States or its territories or possessions, according to the records
        of the Servicer.	 	
        (d)    Past
        Due

        i.     Review
        the Servicer’s records and confirm that the Receivable was not more than thirty (30) days past due as of the Cutoff Date.

        (e)    New
        or Used Honda or Acura

        i.     Confirm
        the Financed Vehicle is a new or used automobile or light-duty truck as stated within the New/Used section of the contract.

        (f)    Billing
        Address

        i.     Confirm
        the Receivable Files indicate that the Obligor’s address is located within the United States or its territories or possessions
        as of the Cutoff Date.

        (g)    If
        (a) through (f) are confirmed, then Test Pass.MANAGEMENT AGREEMENT

This AGREEMENT made as of the 11th day of August, 2016 (the “Agreement”), is by and among CERES MANAGED FUTURES LLC, a Delaware limited liability company (“CMF”), GLOBAL DIVERSIFIED FUTURES FUND L.P. (formerly Citigroup Global Diversified Futures Fund L.P.), a New York limited partnership (the “Partnership”) and PGR CAPITAL LLP, a United Kingdom limited liability partnership (“PGR” or the “Advisor”).

W I T N E S S E T H :

WHEREAS, CMF is the general partner of the Partnership, a limited partnership organized for the purpose of speculative trading of commodity interests, including futures contracts, options, forward contracts, swaps and other derivative instruments with the objective of achieving substantial capital appreciation, such trading to be conducted directly or through an investment in PGR Master Fund L.P., a Delaware limited partnership (the “Master Fund”) of which CMF is the general partner and PGR is the advisor; and

WHEREAS, the Limited Partnership Agreement dated as of June 15, 1998, as amended by that certain Amendment No. 1 dated as of August 8, 2014 and that certain Amendment No. 2 dated December 30, 2015 (the “Partnership Agreement”), permits CMF to delegate to one or more commodity trading advisors CMF’s authority to make trading decisions for the Partnership, which advisors may or may not have any prior experience managing client funds; and

WHEREAS, the Advisor is registered as a commodity trading advisor and a commodity pool operator with the U.S. Commodity Futures Trading Commission (“CFTC”), is a member of the National Futures Association (“NFA”) and is authorized and regulated in the United Kingdom by the Financial Conduct Authority (“FCA”); and

WHEREAS, CMF is registered as a commodity trading advisor and a commodity pool operator with the CFTC and is a member of the NFA; and

WHEREAS, CMF, the Partnership and the Advisor wish to enter into this Agreement in order to set forth the terms and conditions upon which the Advisor will render and implement advisory services in connection with the conduct by the Partnership of its commodity trading activities during the term of this Agreement.

NOW, THEREFORE, the parties agree as follows.

1.  DUTIES OF THE ADVISOR.  a) For the period and on the terms and conditions of this Agreement, the Advisor shall have sole authority and responsibility, as one of the Partnership’s agents and attorneys-in-fact, for directing the investment and reinvestment of the assets and funds of the Partnership allocated to it from time to time by CMF in commodity interests, including commodity futures contracts, options, spot and forward contracts.  The Advisor may also engage in swap transactions and other derivative transactions on behalf of the Partnership with the prior written approval of CMF.  All such trading on behalf of the Partnership shall be in accordance with the trading strategies and trading policies set forth in the Partnership’s Private Placement Offering Memorandum dated January 31, 2013, as supplemented (the “Memorandum”), and as such trading policies may be changed from time to time upon receipt by the Advisor of prior written notice of such change, and pursuant to the trading strategy selected by CMF to be utilized by the Advisor in managing the Partnership’s assets.  CMF has selected the Advisor’s PGR Systematic Investment Programme (the “Program”), as described in Appendix A attached hereto, to manage the Partnership’s assets allocated to it.

 

 

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Any open positions or other investments at the time of receipt of such notice of a change in trading policy shall not be deemed to violate the changed policy and shall be closed or sold in the ordinary course of trading.  The Advisor may not deviate from the trading policies set forth in the Memorandum without the prior written consent of the Partnership given by CMF.  The Advisor makes no representation or warranty that the trading to be directed by it for the Partnership will be profitable or will not result in losses.

(b)  CMF acknowledges receipt of the description of the Program, attached hereto as Appendix A.  All trades made by the Advisor for the account of the Partnership, whether directly or indirectly through the Master Fund, shall be made through such commodity broker or brokers as CMF shall direct, and the Advisor shall have no authority or responsibility for selecting or supervising any such broker in connection with the execution, clearance or confirmation of transactions for the Partnership or for the negotiation of brokerage rates charged therefor.  However, the Advisor, with the prior written permission (by original, fax copy or email copy) of CMF, may direct any and all trades in commodity futures and options to a futures commission merchant or independent floor broker it chooses for execution with instructions to give-up the trades to the broker designated by CMF, provided that the futures commission merchant or independent floor broker and any give-up or floor brokerage fees are approved in advance by CMF.  All give-up or similar fees relating to the foregoing shall be paid by the Partnership after all parties have executed the relevant give-up agreements (by original, fax copy or email copy).

(c)  The allocation of the Partnership’s assets to the Advisor shall be made to  the Program, as described in Appendix A attached hereto, provided that CMF, the Partnership and the Advisor agree that the amount of leverage applied to the assets of the Partnership allocated to the Advisor by CMF shall be no more than 1.5 times the assets of the Partnership allocated to the Advisor by CMF, and, provided further, that CMF, the Partnership and the Advisor may agree in writing to change the amount of leverage applied to the assets of the Partnership allocated to the Advisor by CMF from time to time.. In the event the Advisor wishes to use a trading system or methodology other than or in addition to the Program in connection with its trading for the Partnership, either in whole or in part, it may not do so unless the Advisor gives CMF prior written notice of its intention to utilize such different trading system or methodology and CMF consents thereto in writing.  In addition, the Advisor will provide five days’ prior written notice to CMF of any change in the trading system or methodology to be utilized for the Partnership which the Advisor deems material.  If the Advisor deems such change in system or methodology or in markets traded to be material, the changed system or methodology or markets traded will not be utilized for the Partnership without the prior written consent of CMF.  In addition, the Advisor will notify CMF of any changes to the trading system or methodology that would cause the description of the trading strategy or methods described in Appendix A to be materially inaccurate.  Further, the Advisor will provide the Partnership with a current list of all commodity interests to be traded for the Partnership’s account and the Advisor will not trade any additional commodity interests for such account without providing notice thereof to CMF and receiving CMF’s written approval.  The Advisor also agrees to provide CMF, on a monthly basis, with a written report of the assets under the Advisor’s management together with all other matters deemed by the Advisor to be material changes to its business not previously reported to CMF.  The Advisor further agrees that it will convert foreign currency balances (not required to margin positions denominated in a foreign currency) to U.S. dollars no less frequently than monthly.  U.S. dollar equivalents in individual foreign currencies of more than $100,000 will be converted to U.S. dollars within one business day after such funds are no longer needed to margin foreign positions.

 

 

 

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(d)  The Advisor agrees to make all material disclosures to the Partnership regarding itself and its principals as defined in Part 4 of the CFTC’s regulations (“principals”), partners, directors, officers and employees, their trading performance and general trading methods, its customer accounts (but not the identities of or identifying information with respect to its customers) and otherwise as are required in the reasonable judgment of CMF to be made in any filings required by federal or state law or NFA rule or order.  Notwithstanding Sections 1(d) and 4(d) of this Agreement, the Advisor is not required to disclose the actual trading results of proprietary accounts of the Advisor or its principals unless CMF reasonably determines that such disclosure is required in order to fulfill its fiduciary obligations to the Partnership or the reporting, filing or other obligations imposed on it by federal or state law or NFA rule or order.  The Partnership and CMF acknowledge that the trading advice to be provided by the Advisor is a property right belonging to the Advisor and that they will keep all such advice confidential.

(e)  The Advisor understands and agrees that CMF may designate other trading advisors for the Partnership and apportion or reapportion to such other trading advisors the management of an amount of Net Assets of the Partnership (as defined in Section 3(b) hereof) as it shall determine in its absolute discretion.  The designation of other trading advisors and the apportionment or reapportionment of Net Assets of the Partnership to any such trading advisors pursuant to this Section 1 shall neither terminate this Agreement nor modify in any regard the respective rights and obligations of the parties hereunder.

(f)  CMF may, from time to time, in its absolute discretion, select additional trading advisors and reapportion funds among the trading advisors for the Partnership as it deems appropriate.  CMF shall use its best efforts to make reapportionments, if any, as of the first day of a calendar month.  The Advisor agrees that it may be called upon at any time promptly to liquidate positions in CMF’s sole discretion so that CMF may reallocate the Partnership’s assets, meet margin calls on the Partnership’s account, fund redemptions, or for any other reason, except that CMF will not require the liquidation of specific positions by the Advisor.  CMF will use its best efforts to give two business days’ prior notice to the Advisor of any reallocations or liquidations.

(g)  The Advisor shall assume financial responsibility for any errors committed or caused by it in transmitting orders for the purchase or sale of commodity interests for the Partnership’s account including payment to the brokers of the floor brokerage commissions, exchange, NFA fees, and other transaction charges and give-up charges incurred by the brokers on such trades.  The Advisor’s errors shall include, but not be limited to, inputting improper trading signals or communicating incorrect orders to the commodity brokers.  The Advisor shall have an affirmative obligation to promptly notify CMF in accordance with the provisions of Section 8(a)(iii) of any errors with respect to the account, and the Advisor shall use its best efforts to identify and promptly notify CMF of any order or trade which the Advisor reasonably believes was not executed in accordance with its instructions to any broker utilized to execute orders for the Partnership.

 

 

 

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2.  INDEPENDENCE OF THE ADVISOR.  For all purposes herein, the Advisor shall be deemed to be an independent contractor and, unless otherwise expressly provided or authorized, shall have no authority to act for or represent the Partnership in any way and shall not be deemed an agent, promoter or sponsor of the Partnership, CMF, or any other trading advisor.  The Advisor shall not be responsible to the Partnership, CMF, any trading advisor or any limited partners for any acts or omissions of any other trading advisor to the Partnership.

3.  COMPENSATION.  a) In consideration of and as compensation for all of the services to be rendered by the Advisor to the Partnership under this Agreement, the Partnership shall pay the Advisor (i) an incentive fee payable quarterly equal to 20% of New Trading Profits (as such term is defined below) earned by the Advisor for the Partnership (the “Incentive Fee”) and (ii) a monthly fee for professional management services equal to 1.0% per year of the month-end Net Assets of the Partnership allocated to the Advisor (computed monthly by multiplying the Net Assets of the Partnership allocated to the Advisor as of the last business day of each month by 1.0% and dividing the result thereof by 12) (the “Management Fee”).

(b)  “Net Assets” shall have the meaning set forth in Section 7(d)(1) of the Partnership Agreement and without regard to further amendments thereto, provided that in determining the Net Assets of the Partnership on any date, no adjustment shall be made to reflect any distributions, redemptions, or incentive fees accrued or payable as of the date of such determination.

(c)   “New Trading Profits” shall mean the excess, if any, of Net Assets managed by the Advisor at the end of the fiscal period over Net Assets of the Partnership managed by the Advisor at the end of the highest previous fiscal period or Net Assets of the Partnership allocated to the Advisor at the date trading commences by the Advisor for the Partnership, whichever is higher, and as further adjusted to eliminate the effect on Net Assets of the Partnership resulting from new capital contributions, redemptions, reallocations or capital distributions, if any, made during the fiscal period decreased by interest or other income, not directly related to trading activity, earned on the Partnership’s assets during the fiscal period, whether the assets are held separately or in margin accounts.  Ongoing expenses shall be attributed to the Advisor based on the Advisor’s proportionate share of Net Assets of the Partnership.  Ongoing expenses shall not include expenses of litigation not involving the activities of the Advisor on behalf of the Partnership.  No Incentive Fee shall be paid to the Advisor until the end of the first full calendar quarter of the Advisor’s trading for the Partnership, which fee will be based on New Trading Profits (if any) earned from the commencement of trading by the Advisor on behalf of the Partnership through the end of the first full calendar quarter of such trading.  Interest income earned, if any, shall not be taken into account in computing New Trading Profits earned by the Advisor.  If Net Assets of the Partnership allocated to the Advisor are reduced due to redemptions, distributions or reallocations (net of additions), there will be a corresponding proportional reduction in the related loss carryforward amount that must be recouped before the Advisor is eligible to receive another Incentive Fee.

(d)  Quarterly Incentive Fees and monthly Management Fees shall be paid within twenty (20) business days following the end of the period for which such fee is payable.  In the event of the termination of this Agreement as of any date which shall not be the end of a calendar quarter or a calendar month, as the case may be, the quarterly Incentive Fee shall be computed as if the effective date of termination were the last day of the then current quarter and the monthly Management Fee shall be prorated to the effective date of termination.  If, during any month, the Partnership does not conduct business operations or the Advisor is unable to provide the services contemplated herein for more than two successive business days, the monthly Management Fee shall be prorated by the ratio which the number of business days during which CMF conducted the Partnership’s business operations or utilized the Advisor’s services bears in the month to the total number of business days in such month.

 

 

 

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(e)  The provisions of this Section 3 shall survive the termination of this Agreement.

4.  RIGHT TO ENGAGE IN OTHER ACTIVITIES.   a) The services provided by the Advisor hereunder are not to be deemed exclusive.  CMF on its own behalf and on behalf of the Partnership acknowledges that, subject to the terms of this Agreement, the Advisor and its officers, directors, employees and shareholder(s), may render advisory, consulting and management services to other clients and accounts.  The Advisor and its officers, directors, employees and shareholder(s) shall be free to trade for their own accounts and to advise other investors and manage other commodity accounts during the term of this Agreement and to use the same information, computer programs and trading strategies, programs or formulas which they obtain, produce or utilize in the performance of services to CMF for the Partnership.  However, the Advisor represents, warrants and agrees that it believes the rendering of such consulting, advisory and management services to other accounts and entities will not require any material change in the Advisor’s basic trading strategies and will not affect the capacity of the Advisor to continue to render services to CMF for the Partnership of the quality and nature contemplated by this Agreement.

(b)  If, at any time during the term of this Agreement, the Advisor is required to aggregate the Partnership’s commodity positions with the positions of any other person for purposes of applying CFTC‐ or exchange‐imposed speculative position limits, the Advisor agrees that it will promptly notify CMF in writing if the Partnership’s positions are included in an aggregate amount which exceeds the applicable speculative position limit.  The Advisor agrees that, if its trading recommendations are altered because of the application of any speculative position limits, it will not modify the trading instructions with respect to the Partnership’s account in such manner as to affect the Partnership substantially disproportionately as compared with the Advisor’s other accounts.  The Advisor further represents, warrants and agrees that under no circumstances will it knowingly or deliberately use trading programs, strategies or methods for the Partnership that are inferior to strategies or methods employed for any other client or account and that it will not knowingly or deliberately favor any client or account managed by it over any other client or account in any manner, it being acknowledged, however, that different trading programs, strategies or methods may be utilized for differing sizes of accounts, accounts with different trading policies or risk parameters, accounts experiencing differing inflows or outflows of equity, accounts that commence trading at different times, accounts that have different portfolios or different fiscal years, accounts utilizing different executing brokers and accounts with other differences, and that such differences may cause divergent trading results.

(c)  It is acknowledged that the Advisor and/or its officers, employees, directors and shareholder(s) presently act, and it is agreed that they may continue to act, as advisor for other accounts managed by them, and may continue to receive compensation with respect to services for such accounts in amounts which may be more or less than the amounts received from the Partnership.

 

 

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(d)  The Advisor agrees that it shall make such information available to CMF respecting the performance of the Partnership’s account as compared to the performance of other commodity trading accounts managed by the Advisor or its principals, if any, as shall be reasonably requested by CMF.  The Advisor presently believes and represents that existing speculative position limits will not materially adversely affect its ability to manage the Partnership’s account given the potential size of the Partnership’s account and the Advisor’s and its principals’ current accounts and all proposed accounts for which they have contracted to act as trading advisor.

5.  TERM.   a) This Agreement shall continue in effect until August 11, 2017 (the “Initial Termination Date”). If this Agreement is not terminated on the Initial Termination Date, as provided for herein, then, this Agreement shall automatically renew for an additional one-year period and shall continue to renew for additional one-year periods until this Agreement is otherwise terminated, as provided for herein. At any time during the term of this Agreement, CMF may terminate this Agreement upon 5 days’ notice to the Advisor. At any time during the term of this Agreement, CMF may elect immediately to terminate this Agreement if (i) the Net Asset Value per unit shall decline as of the close of business on any day to $400 or less; (ii) the Net Assets of the Partnership allocated to the Advisor (adjusted for redemptions, distributions, withdrawals or reallocations, if any) decline by 30% or more as of the end of a trading day from such Net Assets of the Partnership’s previous highest value; (iii) limited partners owning at least 50% of the outstanding units of the Partnership shall vote to require CMF to terminate this Agreement; (iv) the Advisor fails to comply with the terms of this Agreement; (v) CMF, in good faith, reasonably determines that the performance of the Advisor has been such that CMF’s fiduciary duties to the Partnership require CMF to terminate this Agreement; (vi) CMF reasonably believes that the application of speculative position limits will substantially affect the performance of the Partnership; (vii) the Advisor fails to conform to the trading policies set forth in the Partnership Agreement or the Memorandum as they may be changed from time to time; (viii) the Advisor merges, consolidates with another entity, sells a substantial portion of its assets, or becomes bankrupt or insolvent; (ix) Nigel Gent dies, becomes incapacitated, leaves the employ of the Advisor, ceases to control the Advisor or is otherwise not managing the trading programs or systems of the Advisor; (x) the Advisor’s registration with the FCA, with the CFTC as a commodity trading advisor or its membership in the NFA or any other regulatory authority, is terminated or suspended; or (xi) CMF reasonably believes that the Advisor has or may contribute to any material operational, business or reputational risk to CMF or CMF’s affiliates.  This Agreement will immediately terminate upon dissolution of the Partnership or upon cessation of trading by the Partnership prior to dissolution.

(b)  The Advisor may terminate this Agreement by giving not less than 30 days’ written notice to CMF.  The Advisor may immediately terminate this Agreement if (i) CMF’s registration as a commodity pool operator or its membership in NFA is terminated or suspended or (ii) the Partnership merges, consolidates with another entity, sells a substantial portion of its assets, or becomes bankrupt or insolvent.

 

 

 

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(c)  Except as otherwise provided in this Agreement, any termination of this Agreement in accordance with this Section 5 shall be without penalty or liability to any party, except for any fees due to the Advisor pursuant to Section 3 hereof.

6.  INDEMNIFICATION.  a) (i) In any threatened, pending or completed action, suit, or proceeding to which the Advisor was or is a party or is threatened to be made a party arising out of or in connection with this Agreement or the management of the Partnership’s assets by the Advisor or the offering and sale of units in the Partnership, CMF shall, subject to subsection (a)(iii) of this Section 6, indemnify and hold harmless the Advisor against any loss, liability, damage, fine, penalty, obligation, cost, expense (including, without limitation, attorneys’ and accountants’ fees, collection fees, court costs and other reasonable legal expenses), judgments and awards and amounts paid in settlement actually and reasonably incurred by it in connection with such action, suit, or proceeding if the Advisor acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Partnership, and provided that its conduct did not constitute negligence, bad faith, recklessness, intentional misconduct, or a breach of its fiduciary obligations to the Partnership as a commodity trading advisor, unless and only to the extent that the court or administrative forum in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, the Advisor is fairly and reasonably entitled to indemnity for such expenses which such court or administrative forum shall deem proper; and further provided that no indemnification shall be available from the Partnership if such indemnification is prohibited by Section 16 of the Partnership Agreement.  The termination of any action, suit or proceeding by judgment, order or settlement shall not, of itself, create a presumption that the Advisor did not act in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Partnership.

(ii)  Without limiting subsection (i) above, to the extent that the Advisor has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsection (i) above, or in defense of any claim, issue or matter therein, CMF shall indemnify the Advisor against the expenses (including, without limitation, attorneys’ and accountants’ fees) actually and reasonably incurred by it in connection therewith.

(iii)  Any indemnification under subsection (i) above, unless ordered by a court or administrative forum, shall be made by CMF only as authorized in the specific case and only upon a determination by independent legal counsel in a written opinion that such indemnification is proper in the circumstances because the Advisor has met the applicable standard of conduct set forth in subsection (i) above.  Such independent legal counsel shall be selected by CMF in a timely manner, subject to the Advisor’s approval, which approval shall not be unreasonably withheld.  The Advisor will be deemed to have approved CMF’s selection unless the Advisor notifies CMF in writing, received by CMF within five days of CMF’s telecopying to the Advisor of the notice of CMF’s selection, that the Advisor does not approve the selection.

(iv)  In the event the Advisor is made a party to any claim, dispute or litigation or otherwise incurs any loss or expense as a result of, or in connection with, the Partnership’s or CMF’s activities or claimed activities unrelated to the Advisor, CMF shall indemnify, defend and hold harmless the Advisor against any loss, liability, damage, cost or expense (including, without limitation, attorneys’ and accountants’ fees) actually and reasonably incurred by it in connection therewith.

 

 

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(v)  As used in this Section 6(a), the term “Advisor” shall include the Advisor, its principals, officers, directors, partners and employees and the term “CMF” shall include the Partnership.

(b)  (i) The Advisor agrees to indemnify, defend and hold harmless CMF, the Partnership and their affiliates against any loss, liability, damage, fine penalty, obligation, cost or expense (including, without limitation, attorneys’ and accountants’ fees, collection fees, court costs and other legal expenses), judgments and awards and amounts paid in settlement reasonably incurred by them (A) as a result of the material breach of any representations and warranties or covenants made by the Advisor in this Agreement, or (B) as a result of any act or omission of the Advisor relating to the Partnership if (1) there has been a final judicial or regulatory determination, or a written opinion of an arbitrator pursuant to Section 14 hereof, to the effect that such acts or omissions violated the terms of this Agreement in any material respect or involved negligence, bad faith, recklessness or intentional misconduct on the part of the Advisor (except as otherwise provided in Section 1(g)), or (2) there has been a settlement of any action or proceeding with the Advisor’s prior written consent.

(ii)  In the event CMF, the Partnership or any of their affiliates is made a party to any claim, dispute or litigation or otherwise incurs any loss or expense as a result of, or in connection with, the activities or claimed activities of the Advisor or its principals, officers, directors, partners or employees unrelated to CMF’s or the Partnership’s business, the Advisor shall indemnify, defend and hold harmless CMF, the Partnership or any of their affiliates against any loss, liability, damage, fine, penalty, obligation, cost or expense (including, without limitation, attorneys’ and accountants’ fees, collection fees, court costs and other legal expenses), judgments, awards and amounts including amounts paid in settlement incurred in connection therewith.

(c)  In the event that a person entitled to indemnification under this Section 6 is made a party to an action, suit or proceeding alleging both matters for which indemnification can be made hereunder and matters for which indemnification may not be made hereunder, such person shall be indemnified only for that portion of the loss, liability, damage, cost or expense incurred in such action, suit or proceeding which relates to the matters for which indemnification can be made.

(d)  None of the indemnifications contained in this Section 6 shall be applicable with respect to default judgments, confessions of judgment or settlements entered into by the party claiming indemnification without the prior written consent, which shall not be unreasonably withheld or delayed, of the party obligated to indemnify such party.

(e)  The provisions of this Section 6 shall survive the termination of this Agreement.

7.  REPRESENTATIONS, WARRANTIES AND AGREEMENTS.

(a)  The Advisor represents and warrants that:

(i)  All information with respect to the Advisor and its principals and the trading of any of them that has been provided to CMF, including, without limitation, the description of the Program contained in Appendix A, is complete and accurate in all material respects and does not contain any untrue statement of a material fact or omit to state a material fact that is necessary to make the statements and information therein not misleading.  All references to the Advisor and its principals, if any, in the Memorandum or a supplement thereto will, after review and approval of such references by the Advisor prior to the use of such Memorandum in connection with the offering of the Partnership’s units, be accurate in all material respects, except that with respect to pro forma or hypothetical performance information in such Memorandum, if any, this representation and warranty extends only to any underlying data made available by the Advisor for the preparation thereof and not to any hypothetical or pro forma adjustments.

 

 

 

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(ii)  The information with respect to the Advisor set forth in the actual performance tables in the Memorandum, if any, is based on all of the customer accounts managed on a discretionary basis by the Advisor’s principals and/or the Advisor during the period covered by such tables and required to be disclosed therein, and such tables have been prepared by the Advisor or its agents in accordance with applicable CFTC and NFA rules and guidance, including, but not limited to, CFTC Rule 4.25.

(iii)  The Advisor will be acting as a commodity trading advisor with respect to the Partnership and not as a securities investment adviser and is duly registered with the CFTC as a commodity trading advisor, is a member of NFA, is authorized and regulated by the FCA, and is in compliance with any such other registration and licensing requirements as shall be necessary to enable it to perform its obligations hereunder.  The Advisor agrees to maintain and renew such registrations and licenses during the term of this Agreement including, without limitation, registration as a commodity trading advisor with the CFTC and membership in NFA; provided, however, the Advisor is not required to maintain or renew its registration with the CFTC as a commodity pool operator.

(iv)  The Advisor is a limited liability partnership duly organized, validly existing and in good standing under the laws of England and Wales and has full limited liability partnership power and authority to enter into this Agreement and to provide the services required of it hereunder.

(v)  The Advisor will not, by acting as a commodity trading advisor to the Partnership, breach or cause to be breached any undertaking, agreement, contract, statute, rule or regulation to which it is a party or by which it is bound.

(vi)  This Agreement has been duly and validly authorized, executed and delivered by the Advisor and is a valid and binding agreement enforceable in accordance with its terms.

(vii)  At any time during the term of this Agreement that an offering memorandum or prospectus relating to the units is required to be delivered in connection with the offer and sale thereof, the Advisor agrees upon the request of CMF to promptly provide the Partnership with such information as shall be necessary so that, as to the Advisor and its principals, such offering memorandum or prospectus is accurate.

(b)  CMF represents and warrants for itself and the Partnership that:

(i)  CMF is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and has full limited liability company power and authority to perform its obligations under this Agreement.

 

 

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(ii)  CMF and the Partnership have the capacity and authority to enter into this Agreement on behalf of the Partnership.

(iii)  This Agreement has been duly and validly authorized, executed and delivered on CMF’s and the Partnership’s behalf and is a valid and binding agreement of CMF and the Partnership enforceable in accordance with its terms.

(iv)  CMF will not, by acting as general partner to the Partnership and the Partnership will not, breach or cause to be breached any undertaking, agreement, contract, statute, rule or regulation to which it is a party or by which it is bound which would materially limit or affect the performance of its duties under this Agreement.

(v)  CMF is registered as a commodity pool operator and is a member of NFA and it will maintain and renew such registration and membership during the term of this Agreement.

(vi)  The Partnership is a limited partnership duly organized and validly existing under the laws of the State of New York and has full limited partnership power and authority to enter into this Agreement and to perform its obligations under this Agreement.

(vii)  The Partnership is a qualified eligible person as defined in CFTC Rule 4.7 under the Commodity Exchange Act.

8.  COVENANTS OF THE ADVISOR, CMF AND THE PARTNERSHIP.

(a)  The Advisor agrees as follows:

(i)  In connection with its activities on behalf of the Partnership, the Advisor will comply with all applicable laws, including rules and regulations of the CFTC, NFA and/or the commodity exchange on which any particular transaction is executed.

(ii)  The Advisor will promptly notify CMF of the commencement of any investigation, suit, action or proceeding involving the Advisor or any of its affiliates, officers, partners, employees, agents or representatives, regardless of whether such investigation, suit, action or proceeding also involves CMF.  The Advisor will provide CMF with copies of any correspondence (including, but not limited to, any notice or correspondence regarding the violation, or potential violation, of position limits) from or to the CFTC, NFA or any commodity exchange in connection with an investigation or audit of the Advisor’s business activities.

(iii)  In the placement of orders for the Partnership’s account and for the accounts of any other client, the Advisor will utilize a pre-determined, systematic, fair and reasonable order entry system, which shall, on an overall basis, be no less favorable to the Partnership than to any other commodity trading account managed by the Advisor.  The Advisor acknowledges its obligation to review the Partnership’s positions, prices and equity in the account managed by the Advisor daily and within two business days to notify, in writing, the broker and CMF and the Partnership’s brokers of (A) any error committed by the Advisor or its principals or employees; (B) any trade which the Advisor believes was not executed in accordance with its instructions; and (C) any discrepancy with a value of $10,000 or more (due to differences in the positions, prices or equity in the account) between its records and the information reported on the account’s daily and monthly broker statements.

 

 

 

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(iv)  The Advisor will maintain a net worth of not less than £250,000 during the term of this Agreement.

(v)  The Advisor will use its best efforts to close out all futures positions prior to any applicable delivery period, and will use its best efforts to avoid causing the Partnership to take delivery of any commodity.

(vi)  The Advisor and its officers, directors, employees and partners will conduct their business in compliance with applicable anti-corruption laws, including the Bribery Act 2010, and have instituted and maintained, and will continue to maintain, policies and procedures reasonably designed to promote and achieve compliance with such laws.  In connection with this Agreement, neither the Advisor nor any officer, director, employee, partner, agent or representative of them, has taken or will take any action in furtherance of any offer, payment, promise to pay, or authorization or approval of the payment or giving of money, property, gifts or anything else of value, directly or indirectly, to any person while knowing that all or some portion of the money or value will be offered, given or promised to anyone to improperly influence official action, to obtain or retain business or otherwise to secure any improper advantage.

(b)  CMF agrees for itself and the Partnership that:

(i)  CMF and the Partnership will comply with all applicable laws, including rules and regulations of the CFTC, NFA, swap execution facility and/or the commodity exchange on which any particular transaction is executed.

(ii)  CMF will promptly notify the Advisor of the commencement of any material suit, action or proceeding involving it or the Partnership, whether or not such suit, action or proceeding also involves the Advisor.

(iii)  CMF or the selling agents for the Partnership have policies, procedures, and internal controls in place that are reasonably designed to comply with applicable anti-money laundering laws, rules and regulations, including applicable provisions of the USA PATRIOT Act.  CMF or the selling agents for the Partnership have Customer Identification Programs (“CIP”), which require the performance of CIP due diligence in accordance with applicable USA PATRIOT Act requirements and regulatory guidance.  CMF or the selling agents for the Partnership also have policies, procedures, and internal controls in place that are reasonably designed to comply with regulations and economic sanctions programs administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control.

9.  COMPLETE AGREEMENT.  This Agreement constitutes the entire agreement between the parties pertaining to the subject matter hereof.

10.  ASSIGNMENT.  This Agreement may not be assigned by any party without the express written consent of the other parties.

 

 

 

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11.  AMENDMENT.  This Agreement may not be amended except by the written consent of the parties.

12.  NOTICES.  All notices, demands or requests required to be made or delivered under this Agreement shall be effective upon actual receipt and shall be made either by electronic mail (email) copy or in writing and delivered personally or by registered or certified mail or expedited courier, return receipt requested, postage prepaid, to the addresses below or to such other addresses as may be designated by the party entitled to receive the same by notice similarly given:

If to CMF or to the Partnership:

Ceres Managed Futures LLC

522 Fifth Avenue

New York, New York  10036

 Attention:  Patrick Egan

Email:  Patrick.Egan@morganstanley.com

If to the Advisor:

PGR Capital LLP

115 Park Street

London W1K 7AP

United Kingdom

Attention:  Casey Grylls

Email:  legal@pgrcapital.com

13.  GOVERNING LAW.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York.

14.  ARBITRATION.  The parties agree that any dispute or controversy arising out of or relating to this Agreement or the interpretation thereof, shall be settled by arbitration in accordance with the rules, then in effect, of NFA or, if NFA shall refuse jurisdiction, then in accordance with the rules, then in effect, of the American Arbitration Association; provided, however, that the power of the arbitrator shall be limited to interpreting this Agreement as written and the arbitrator shall state in writing his reasons for his award, and further provided, that any such arbitration shall occur within the Borough of Manhattan in New York City.  Judgment upon any award made by the arbitrator may be entered in any court of competent jurisdiction.

15.  NO THIRD PARTY BENEFICIARIES.  There are no third party beneficiaries to this Agreement, except that certain persons not parties to this Agreement may have rights under Section 6 hereof.

16.  COUNTERPARTS.  This Agreement may be executed in any number of counterparts, including via facsimile or email, each of which is an original and all of which when taken together evidence the same agreement.

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PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING COMMISSION IN CONNECTION WITH ACCOUNTS OF QUALIFIED ELIGIBLE PERSONS, THIS BROCHURE OR ACCOUNT DOCUMENT IS NOT REQUIRED TO BE, AND HAS NOT BEEN, FILED WITH THE COMMISSION. THE COMMODITY FUTURES TRADING COMMISSION DOES NOT PASS UPON THE MERITS OF PARTICIPATING IN A TRADING PROGRAM OR UPON THE ADEQUACY OR ACCURACY OF COMMODITY TRADING ADVISOR DISCLOSURE. CONSEQUENTLY, THE COMMODITY FUTURES TRADING COMMISSION HAS NOT REVIEWED OR APPROVED THIS TRADING PROGRAM OR THIS BROCHURE OR ACCOUNT DOCUMENT.

[YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY TRADING ADVISOR MAY ENGAGE IN TRADING FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE YOUR TRANSACTIONS MAY BE EFFECTED.]

IN WITNESS WHEREOF, this Agreement has been executed for and on behalf of the undersigned as of the day and year first above written.

	 	
CERES MANAGED FUTURES LLC

	 	 
	 	 
	 	
By

	
/s/ Patrick T. Egan                                        

	 	 	
Patrick T. Egan

	 	 	
President and Director

	 	 
	 	 
	 	
GLOBAL DIVERSIFIED FUTURES FUND L.P.

	 	 
	 	
By:

	
Ceres Managed Futures LLC

	 	 	
(General Partner)

	 	 
	 	
By

	
/s/ Patrick T. Egan                                        

	 	 	
Patrick T. Egan

	 	 	
President and Director

	 	 
	 	 
	 	
PGR CAPITAL LLP

	 	 
	 	
By

	
/s/ Casey Grylls                                           

	 	 	
Casey Grylls

	 	 	
Partner

	 	 

 

 

  

13

Appendix A

PGR's investment strategies have a strong mathematical and statistical basis and exploit established signal processing and econometric techniques. Underlying our strategies are models of how markets move; it is an important principle that focuses on real markets rather than data mining.

Strategies are primarily directional in nature; they identify and take advantage of both upward and downward price momentum. Complementing these models are strategies that capture price action not captured by the trend models.

Another key feature of our strategies is that they are continuous and update on every tick in the market. This approach allows us to be fully systematic, enhances our ability to adapt to changes in conditions and avoids the dangers of optimization around discrete events.

Trend Strategy

The source of trends may be sound economic considerations, asymmetric information or behavioral patterns of market participants. Whatever the cause, persistent trends can be shown to occur in all markets across all sectors with varying strengths and durations.

PGR's strategies have been designed to identify the direction and strength of any trend over multiple timeframes and have the ability to adapt to the prevailing market conditions. Our existing trend models efficiently exploit the medium to longer-term momentum. It uses standard tried and tested signal processing techniques to fit a simple model of market dynamics (the trend) to the observed tick prices. This model then enables us to forecast the future returns and risk of each market and size our positions to efficiently exploit the information.

The model is symmetric in nature; identifying and exploiting both upward and downward price trends and has been designed to identify the direction and strength of any trend with duration between a few days and a few months.

Mean Reversion Strategy

This exploits the short term reversion process of markets and has a typical timescale of about a day. The strategy has a firm mathematical basis and places multiple limit orders into the market based on expected market statistics and trading costs.

Contra-Trend Strategy

In addition to the longer-term trend strategy and the short-term reversion strategy, we have also developed a third strategy which spans the gap between the two; this strategy relies on the autocorrelation function having a short-term negative component AND a longer-term positive component.

The strategy uses a short-term trend estimator to exploit a sign change in the autocorrelation function, and hence depends on both reverting and trending behavior; it spans the gap between reversion and trend.

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