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As filed with the Securities and Exchange Commission on May 23, 1997
Registration No. 333-12199
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE
AMENDMENT NO. 2
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FIRST SIERRA RECEIVABLES II, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
To be applied for
(I.R.S. Employer
Identification Number)
1061 East Indiantown Road, Suite 204
Jupiter, Florida 33477
(407) 745-9292
(Address, including zip code and telephone number
including area code, of registrant's principal executive offices)
MR. ROBERT QUINN
Vice President
1061 East Indiantown Road, Suite 204
Jupiter, Florida 33477
(407) 745-9292
(Name, address, including zip code and telephone
number, including area code, of agent for service)
Copies to:
CHRISTOPHER J. DIANGELO, ESQ.
Dewey Ballantine
1301 Avenue of the Americas
New York, New York 10019
(212) 259-6718
Approximate date of commencement of proposed sale to the public: From time to
time on or after the date this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend interest
reimbursement plans, check the following box. [X]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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Proposed Maximum Proposed Maximum
Amount to be Offering Price Per Aggregate Offering Amount of
Title of Each Class of Securities to be Registered Registered Certificate (1) Price (1) Registration Fee
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<S> <C> <C> <C> <C>
Auto Receivables Backed Notes and Certificates $ 1,000,000 100% $ 1,000,000 $ 303.03 (Paid)
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</TABLE>
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this Registration Statement shall
become effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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FIRST SIERRA RECEIVABLES II, Inc.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item Caption in Prospectus
No. Name and Caption in Form S-3 and Prospectus Supplement
--- ---------------------------- -------------------------
<S> <C>
1. Forepart of the Registration Statement and Forepart of the Registration Statement; Front
Outside Front Cover Page of Prospectus Cover Page of Prospectus; Front Cover Page of
Prospectus Supplement; Cross Reference Sheet
2. Inside Front and Outside Back Cover Pages of Inside Front Cover and Outside Back Cover
the Prospectus Pages of Prospectus; Inside Front Cover Page
of Prospectus Supplement; Available
Information; Table of Contents
3. Summary Information; Risk Factors and Ratio Prospectus Summary; Risk Factors; Certain
of Earnings to Fixed Charges Legal Aspects; Prepayment and Yield
Considerations
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price *
6. Dilution *
7. Selling Security Holders *
8. Plan of Distribution Methods of Distribution
9. Description of Securities to be Registered Prospectus Summary; Description of the
Securities; Certain Federal Income Tax
Characteristics
10. Interest of Named Experts and Counsel *
11. Material Changes *
12. Incorporation of Certain Information on Inside Front Cover of Prospectus, Incorporation
Reference of Certain Documents by Reference
13. Disclosure of Commission Position on *
Indemnification for Securities Act Liabilities
</TABLE>
* Not Applicable
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PROSPECTUS
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Auto Receivables Backed Securities Issuable in Series
FIRST SIERRA RECEIVABLES II, INC.
Company
First Sierra Financial Inc.,
Servicer
This Prospectus describes certain Auto Receivables Backed Notes (the
"Notes") and Auto Receivables Backed Certificates (the "Certificates" and,
together with the Notes, the "Securities") that may be sold from time to time in
one or more series, in amounts, at prices and on terms to be determined at the
time of sale and to be set forth in a supplement to this Prospectus (each, a
"Prospectus Supplement"). Each series of Securities may include one or more
classes of Notes and one or more classes of Certificates. Each Series will be
issued either by First Sierra Receivables II, Inc. (the "Company"), or by a
trust to be formed by the Company for the purpose of issuing one or more series
of such Securities (each, a "Trust"). The Company or a Trust (which may be an
owner trust), as appropriate, issuing Securities as described in this Prospectus
and the related Prospectus Supplement shall be referred to herein as the
"Issuer."
Each class of Securities of any series will evidence beneficial
ownership in a segregated pool of assets segregated from the general assets of
the Company or a segregated pool of assets owned by a Trust (each, an "Asset
Pool") (such Securities, "Certificates") or will represent indebtedness of the
Issuer secured by the Asset Pool (such Securities, "Notes"), as described herein
and in the related Prospectus Supplement. Each Asset Pool may consist of any
combination of closed-end or open-end lease contracts (the "Lease Contracts") on
new and used automobiles and light duty trucks (the "Vehicles") between
manufacturers, dealers or certain other originators and lessees ("Lessees"),
or retail installment sales contracts (the "Loan Contracts", and together with
the Lease Contracts, the "Contracts") between manufacturers, dealers and
certain other originators and retail purchasers ("Purchasers" together with
Lessees, "Obligors") secured by the related Vehicles, or participation
interests therein, together with all monies received relating thereto. The
Asset Pools will not include the underlying Vehicles, although the right to
receive certain recoveries with respect to the vehicles in the event that the
related Contract becomes defaulted may be included in the Asset Pools (the
Contracts together with such recoveries, the "Receivables"). If and to the
extent specified in the related Prospectus Supplement, credit enhancement with
respect to an Asset Pool or any class of Securities may include any one or more
of the following: a financial guaranty insurance policy (a "Policy") issued by
an insurer specified in the related Prospectus Supplement, a reserve account,
letters of credit, credit or liquidity facilities, residual value insurance,
third party payments or other support, cash deposits or other arrangements. In
addition to or in lieu of the foregoing, credit enhancement may be provided by
means of subordination, cross-support among the Receivables or
over-collateralization. See "Description of the Trust Agreements -- Credit
Enhancements." The Receivables in the Asset Pool for a series will have been
originated by First Sierra Financial, Inc. (the "Seller" or "First Sierra") or
acquired by First Sierra from other entities generally in the business of
originating or acquiring Receivables. Except to the extent provided herein and
in the related Prospectus Supplement, the Company will acquire the Receivables
from the Seller on or prior to the date of issuance of the related Securities,
as described herein and in the related Prospectus Supplement. Each series of
Securities will include one or more classes (each, a "Class"). A series may
include one or more Classes of Securities entitled to principal distributions,
with disproportionate, nominal or no interest distributions, or to interest
distributions, with disproportionate, nominal or no principal distributions.
The rights of one or more Classes of Securities of any series may be senior or
subordinate to the rights of one or more of the other Classes of Securities. A
series may include two or more Classes of Securities which differ as to the
timing, sequential order, priority of payment, interest rate or amount of
distributions of principal or interest or both. Information regarding each
Class of Securities of a series, together with certain characteristics of the
related Receivables, will be set forth in the related Prospectus Supplement.
The rate of payment in respect of principal of the Securities of any Class will
depend on the priority of payment of such a Class and the rate and timing of
payments (including prepayments, defaults, liquidations or repurchases of
Receivables) on the related Receivables. A rate of payment lower or higher than
that anticipated may affect the weighted average life of each Class of
Securities in the manner described herein and in the related Prospectus
Supplement. See "Description of the Securities."
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" ON PAGE HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT.
THE NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF THE ISSUER ONLY AND DO NOT
REPRESENT INTERESTS OF FIRST SIERRA, ANY SERVICER, ANY SUBSERVICER, OR ANY OF
THEIR RESPECTIVE AFFILIATES. THE CERTIFICATES OF A GIVEN SERIES REPRESENT
BENEFICIAL INTERESTS IN THE RELATED TRUST ONLY AND DO NOT REPRESENT INTERESTS IN
OR OBLIGATIONS OF THE COMPANY, FIRST SIERRA, ANY SERVICER, ANY SUBSERVICER, ANY
LESSOR OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE SECURITIES NOR THE
UNDERLYING RECEIVABLES WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY
OR INSTRUMENTALITY OR BY FIRST SIERRA, THE COMPANY, ANY SERVICER, ANY LESSOR,
ANY TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT AS SET FORTH IN THE
RELATED PROSPECTUS SUPPLEMENT. SEE ALSO "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Offers of the Securities may be made through one or more different
methods, including offerings through underwriters as more fully described under
"Method of Distribution" herein and in the related Prospectus Supplement. Prior
to issuance, there will have been no market for the Securities of any series,
and there can be no assurance that a secondary market for the Securities will
develop, or if it does develop, it will continue.
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE
USED TO CONSUMMATE SALES OF SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS
SUPPLEMENT.
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The date of this Prospectus is May 23, 1997.
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PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a series of Securities to be
offered hereunder, among other things, will set forth with respect to such
series of Securities: (i) a description of the Class or Classes of such
Securities, (ii) the rate of interest, the "Pass-Through Rate" or "Interest
Rate" or other applicable rate (or the manner of determining such rate) and
authorized denominations of such Class of such Securities; (iii) certain
information concerning the Receivables and insurance polices, cash accounts,
letters of credit, financial guaranty insurance policies, third party guarantees
or other forms of credit enhancement, if any, relating to one or more pools of
Receivables or all or part of the related Securities; (iv) the specified
interest, if any, of each Class of Securities in, and manner and priority of,
the distributions from the Asset Pool; (v) information as to the nature and
extent of subordination with respect to such series of Securities, if any; (vi)
the payment date to Securityholders; (vii) information regarding the Servicer;
(viii) the circumstances, if any, under which each Asset Pool may be subject to
early termination; (ix) information regarding tax considerations; and (x)
additional information with respect to the method of distribution of such
Securities.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (together with all amendments and
exhibits thereto, referred to herein as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Securities offered pursuant to this Prospectus. For further information,
reference is made to the Registration Statement which may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; and at the Commission's regional
offices at Northwest Atrium Center, 500 West Madison, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of the Registration Statement may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby, nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
This Prospectus, together with the Prospectus Supplement for each
Series or Class of Securities will contain a summary of the material liens of
the applicable exhibits to the Registration Statement and the documents referred
to herein and therein. Copies of such exhibits are on file at the offices of the
Commission in Washington, D.C., and may be obtained at rates prescribed by the
Commission upon request and may be inspected, without charge, at the
Commission's offices.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by the Company, either on its own
behalf or on behalf of a Trust, relating to any series of Securities referred to
in the accompanying Prospectus Supplement, with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), after the date of this Prospectus and prior to the
termination of any offering of the Securities issued by the Company or a Trust,
shall be deemed to be incorporated by reference in this Prospectus and to be a
part of this Prospectus from the date of the filing of such documents. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the accompanying Prospectus Supplement) or in any other subsequently
filed document which also is or is deemed to be incorporated by reference
herein, modifies or replaces such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
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REPORTS TO SECURITYHOLDERS
Periodic and annual reports concerning any Security and the related
Asset Pool will be provided to the Securityholders. See "Description of the
Securities -- Reports to Securityholders." If the Securities of a series are to
be issued in book-entry form, such reports will be provided to the
Securityholder of record and beneficial owners of such Securities will have to
rely on the procedures described herein under "Description of Securities -
Book-Entry Registration."
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the documents referred to above that have been or may be
incorporated by reference in this Prospectus (not including exhibits to the
information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates). Such requests should be directed to: First Sierra Financial Inc.,
Texas Commerce Tower, 70th Floor, 600 Travis Street, Houston, Texas 77002,
Attention: Sandy Ho, Chief Financial Officer, (713) 221-8822.
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SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities of any series contained in the
related Prospectus Supplement to be prepared and delivered in connection with
the offering of such Securities. Certain capitalized terms used in the summary
are defined elsewhere in the Prospectus on the pages indicated in the "Index of
Terms."
Issuers.......... With respect to each series of Securities, either the
Company or a trust (each, a "Trust") to be formed by the
Company. The Company or a Trust issuing Securities pursuant to
this Prospectus and the related Prospectus Supplement shall be
referred to herein as the "Issuer" with respect to the related
Securities. Each class of Securities will be issued by the
Company or a Trust and will either evidence a beneficial
ownership in or indebtedness secured by a segregated pool of
assets segregated from the general assets of the Company or a
segregated pool of assets owned by a Trust (such pool of
assets, a "Asset Pool"). No Series will be secured by more
than one Asset Pool, except to the extent that more than one
Asset Pool receives the benefit of a common form of credit
enhancement. See "The Issuers."
Company.......... First Sierra Receivables II, Inc., a Delaware corporation,
(the "Company"). The principal office of the Company is
located at 1061 East Indiantown Road, Suite 204, Jupiter,
Florida 33477 and its telephone number is (407) 745-9292. The
Company is a wholly-owned subsidiary of the Servicer. See
"The Company."
Servicer......... First Sierra Financial, Inc., a Delaware corporation (the
"Servicer" or "First Sierra"). The principal office of First
Sierra is Texas Commerce Tower, 600 Travis Street, 70th Floor,
Houston, Texas 77002, and its telephone number is (713)
221-8822. See "The Servicer."
Seller........... The Company will acquire the Receivables from First Sierra or
an affiliate (collectively the "Seller"). The Receivables will
be acquired by the Seller either (a) as the result of the
acquisition of receivables portfolios from small ticket
lessors (the "Portfolio Acquisition Program") or (b) as the
result of the ongoing acquisition of receivables which comply
with certain underwriting criteria specified by First Sierra
from certain lessors as such receivables are originated (the
"Private Label Program"). A "small ticket" lessor, is a
lessor who leases equipment having original costs which are
generally less than $1 million. For a more complete
description of the Portfolio Acquisition Program and the
Private Label Program please see the descriptions under the
caption "The Receivables" herein and in the related Prospectus
Supplement.
Trustee.......... The Trustee for each series of Securities will be specified in
the related Prospectus Supplement.
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The Securities... Each Class of Securities of any series will evidence
beneficial ownership in an Asset Pool) (such Securities,
"Certificates") or will represent indebtedness of the Issuer
secured by the Asset Pool (such Securities, "Notes"), as
described herein and in the related Prospectus Supplement.
Each Asset Pool may consist of any combination of closed-end
or open-end lease contracts (the "Lease Contracts") on new and
used automobiles and light duty trucks (the "Vehicles")
between manufacturers, dealers or certain other originators
and lessees ("Lessees") and retail installment sales
contracts (the "Loan Contracts, and, together with the Lease
Contracts, the "Contracts") between manufacturers, dealers or
certain other originators and retail purchasers ("Purchasers"
together with Lessees, "Obligors") secured by the related
Vehicles. The Asset Pools will not contain the related
Vehicles nor will any Securities be issued in respect of the
Vehicles or any Residual Values associated therewith. The
characteristics of a particular Asset Pool will be more fully
described in the related Prospectus Supplement. To the extent
any Asset Pool includes participation interests in previously
issued auto receivables-backed securities, such securities:
(a) either will have (i) been previously registered under the
Securities Act, or (ii) held for at least the Rule 144(k)
holding period; and (b) will have been acquired in a bona
fide secondary market transaction not from the issuer of such
securities or an affiliate thereof. In addition, (x) the
inclusion of such participation interests must not require
the issuer of such participation interests to register such
participation interests with the Commission because such
issuer would be considered a "co-issuer" of the securities
backed in part by such participation interests and (y)
following the inclusion of such participation interests, the
Issuer must continue to satisfy the requirements to be an
offering of "asset-backed securities" as such term is defined
in the instructions to the Registration Statement on Form
S-3. If and to the extent specified in the related Prospectus
Supplement, credit enhancement with respect to an Asset Pool
or any class of Securities may include any one or more of the
following: a financial guaranty insurance policy (a "Policy")
issued by an insurer specified in the related Prospectus
Supplement, a reserve account, letters of credit, residual
value insurance, credit or liquidity facilities, third party
payments or other support, cash deposits or other
arrangements. In addition to or in lieu of the foregoing,
credit enhancement may be provided by means of subordination,
cross-support among the Receivables or
over-collateralization. The Company will acquire the
Receivables from the Seller on or prior to the date of
issuance of the related Securities, as described herein and
in the related Prospectus Supplement.
With respect to Securities issued by a Trust, each Trust will
be established pursuant to an agreement (each, a "Pooling
Agreement") by and between the Company and the Trustee named
therein. Each Pooling Agreement will describe the related pool
of Receivables held by the Trust.
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With respect to Securities that represent debt issued by the
Issuer, the Issuer will enter into an indenture (each, an
"Indenture") by and between the Issuer and the trustee named
on such Indenture (the "Indenture Trustee"). Each Indenture
will describe the related pool of Receivables comprising the
Asset Pool and securing the debt issued by the related Issuer.
The Receivables comprising each Asset Pool will be serviced by
the Servicer pursuant to a servicing agreement (each, a
"Servicing Agreement") by and between the Servicer and the
related Issuer. In addition, the lessors from whom the
Receivables were acquired (each, a "Lessor") may be required
to perform certain monitoring and collection functions with
respect to the Receivables on behalf of the Seller and its
assignee pursuant to the purchase agreement between the First
Sierra and such Lessor (each, a "Purchase Agreement") Such
Purchase Agreements will be assigned to the Asset Pool.
In the case of any individual Asset Pool, the contractual
arrangements relating to the establishment of a Trust, if any,
the servicing of the related Receivables and the issuance of
the related Securities may be contained in a single agreement,
or in several agreements which combine certain aspects of the
Pooling Agreement, the Servicing Agreement and the Indenture
described above (for example, a pooling and servicing
agreement, or a servicing and collateral management
agreement). For purposes of this Prospectus, the term "Trust
Agreement" as used with respect to an Asset Pool means,
collectively, and except as otherwise described in the related
Prospectus Supplement, any and all agreements relating to the
establishment of a Trust, if any, the servicing of the related
Receivables and the issuance of the related Securities. The
term "Trustee" means any and all persons acting as a trustee
pursuant to a Trust Agreement.
Securities Will Be Non-Recourse to the Seller.
The Securities will not be obligations, either recourse or
non-recourse (except for certain non-recourse debt described
under "Certain Tax Considerations" in the related Prospectus
Supplement), of the Servicer, the Seller or any person other
than the related Issuer. The Notes of a given series represent
obligations of the Issuer, and the Certificates of a given
series represent beneficial interests in the related Trust
only and do not represent interests in or obligations of the
Company, the Seller or any of their respective affiliates
other than the related Trust. In the case of Securities that
represent beneficial ownership interest in the related Trust,
such Securities will represent the beneficial ownership
interests in such Trust and the sole source of payment will be
the assets of such Trust. In the case of Securities that
represent debt issued by the related Issuer, such Securities
will be secured by assets in the related Asset Pool.
Notwithstanding the
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foregoing, and as to be described in the related Prospectus
Supplement, certain types of credit enhancement, such as a
letter of credit, financial guaranty insurance policy Residual
Value Insurance (as defined herein )or reserve fund may
constitute a full recourse obligation of the issuer of such
credit enhancement.
General Nature of the Securities as Investments.
All of the Securities offered pursuant to this Prospectus and
the related Prospectus Supplement will be rated in one of the
four highest rating categories by one or more Rating Agencies
(as defined herein).
Additionally, the Securities offered pursuant to this
Prospectus and the related Prospectus Supplement generally
will be of the fixed-income type having a principal balance
(or certificate balance) and a specified interest rate
("Interest Rate"). Securities may either represent beneficial
ownership interests in the related Receivables held by the
related Trust or debt secured by certain assets of the related
Issuer.
Each series or Class of Securities offered pursuant to this
Prospectus may have a different Interest Rate, which may be a
fixed or adjustable Interest Rate. The related Prospectus
Supplement will specify the Interest Rate for each series or
Class of Securities described therein, or the initial Interest
Rate and the method for determining subsequent changes to the
Interest Rate.
A series may include one or more Classes of Securities ("Strip
Securities") entitled (i) to principal distributions, with
disproportionate, nominal or no interest distributions, or
(ii) to interest distributions, with disproportionate, nominal
or no principal distributions. In addition, a Series of
Securities may include two or more Classes of Securities that
differ as to timing, sequential order, priority of payment,
Interest Rate or amount of distribution of principal or
interest or both, or as to which distributions of principal or
interest or both on any Class may be made upon the occurrence
of specified events, in accordance with a schedule or formula,
or on the basis of collections from designated portions of the
related pool of Receivables. Any such series may include one
or more Classes of Securities ("Accrual Securities"), as to
which certain accrued interest will not be distributed but
rather will be added to the principal balance (or nominal
balance, in the case of Accrual Securities which are also
Strip Securities) thereof on each Payment Date, as hereinafter
defined, or in the manner described in the related Prospectus
Supplement.
If so provided in the related Prospectus Supplement, a series
may include one or more other Classes of Securities
(collectively, the "Senior Securities") that are senior to one
or more other Classes of Securities (collectively, the
"Subordinate Securities") in respect
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of certain distributions of principal and interest and
allocations of losses on Receivables.
In addition, certain Classes of Senior (or Subordinate)
Securities may be senior to other Classes of Senior (or
Subordinate) Securities in respect of such distributions or
losses.
General Payment Terms of Securities.
As provided in the related Trust Agreement and as described in
the related Prospectus Supplement, the holders of the
Securities ("Securityholders") will be entitled to receive
payments on their Securities on specified dates (each, a
"Payment Date"). Payment Dates with respect to Securities will
occur monthly, quarterly or semi-annually, as described in the
related Prospectus Supplement.
The related Prospectus Supplement will describe a date (the
"Record Date") preceding such Payment Date, as of which the
Trustee or its paying agent will fix the identity of the
Securityholders for the purpose of receiving payments on the
next succeeding Payment Date. As described in the related
Prospectus Supplement, the Payment Date will be a specified
day of each month, commonly the tenth, fifteenth or
twenty-fifth day of each month (or, in the case of
quarterly-pay Securities, the tenth, fifteenth or twenty-fifth
day of every third month; and in the case of semi-annual pay
Securities, the tenth, fifteenth or twenty-fifth day of every
sixth month) and the Record Date will be the close of business
as of the last day of the calendar month that precedes the
calendar month in which such Payment Date occurs.
As more fully described in the related Prospectus Supplement,
each Trust Agreement will describe a period (each, a
"Remittance Period") preceding each Payment Date (for example,
in the case of monthly-pay Securities, the calendar month
preceding the month in which a Payment Date occurs). As more
fully described in the related Prospectus Supplement,
collections received on or with respect to the related
Receivables constituting an Asset Pool during a Remittance
Period will be required to be remitted by the Servicer to the
related Trustee prior to the related Payment Date and will be
used to fund payments to Securityholders on such Payment Date.
As may be described in the related Prospectus Supplement, the
related Trust Agreement may provide that all or a portion of
the payments collected on or with respect to the related
Receivables may be applied by the related Trustee to the
acquisition of additional Receivables during a specified
period (rather than be used to fund payments of principal to
Securityholders during such period), with the result that the
related Securities will possess an interest-only period, also
commonly referred to as a revolving period, which will be
followed by an amortization period. Any such interest only or
revolving period may, upon the occurrence of certain events to
be described in the
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related Prospectus Supplement, terminate prior to the end of
the specified period and result in the earlier than expected
amortization of the related Securities.
In addition, and as may be described in the related Prospectus
Supplement, the related Trust Agreement may provide that all
or a portion of such collected payments may be retained by the
Trustee (and held in certain temporary investments, including
Receivables satisfying the criteria more fully described in
the related Prospectus Supplement) for a specified period
prior to being used to fund payments of principal to
Securityholders. Such retention and temporary investment by
the Trustee of such collected payments may be required by the
related Trust Agreement for the purpose of (a) slowing the
amortization rate of the related Securities relative to the
rent payment schedule of the related Receivables, or (b)
attempting to match the amortization rate of the related
Securities to an amortization schedule established at the time
such Securities are issued. Any such feature applicable to any
Securities may terminate upon the occurrence of events to be
described in the related Prospectus Supplement, resulting in
distributions to the specified Securityholders and an
acceleration of the amortization of such Securities.
As more fully specified in the related Prospectus Supplement,
neither the Securities nor the underlying Receivables will be
guaranteed or insured by any governmental agency or
instrumentality or the Company, First Sierra, the Servicer,
any Lessor, any Trustee, or any of their affiliates.
No Investment
Companies....... Neither the Company nor any Trust will register as an
"investment company" under the Investment Company Act of 1940,
as amended (the "Investment Company Act").
The Company's
Interest........ With respect to each Trust, the "Company's Interest" at any
time represents the rights to the related Asset Pool in excess
of the Securityholders' interest of all series then
outstanding that were issued by such Trust. The Company's
Interest in any Asset Pool will fluctuate as the aggregate
Discounted Contract Balance of such Asset Pool changes from
time to time. A portion of the Company's interest may be sold
separately in one or more public or private transactions.
The Asset
Pools........... Each Asset Pool will include Receivables with respect to which
the related Contracts are "chattel paper" within the meaning
of the Uniform Commercial Code, as in effect in the relevant
jurisdiction, and the related Vehicles are subject to federal
or state registration or titling requirements under the motor
vehicle laws of such jurisdiction. If and to the extent
specified in the related Prospectus Supplement, credit
enhancement with respect to an Asset Pool or any class of
Securities may include any one or more of the
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following: a Policy issued by an insurer specified in the
related Prospectus Supplement, a reserve account, letters of
credit, credit or liquidity facilities, repurchase
obligations, third party payments or other support, cash
deposits or other arrangements. In addition to or in lieu of
the foregoing, credit enhancement may be provided by means of
subordination, cross-support among the Receivables or
over-collateralization. See "Description of the Trust
Agreements -- Credit Enhancements." The Contracts are
obligations for the purchase of the Vehicles, or evidence
borrowings used to acquire the Vehicles.
Loan Contracts. As specified in the related Prospectus
Supplement, the Loan Contracts may consist of any
combination of Rule of 78s Contracts, Fixed Value Contracts
or Simple Interest Contracts. Generally, "Rule of 78s
Contracts" provide for fixed level monthly payments which
will amortize the full amount of the Contract over its term.
The Rule of 78s Contracts provide for allocation of payments
according to the "sum of periodic balances" or "sum of
monthly payments" method (the "Rule of 78s"). Each Rule of
78s Contract provides for the payment by the Obligor of a
specified total amount of payments, payable in monthly
installments on the related due date, which total represents
the principal amount financed and finance charges in an
amount calculated on the basis of a stated annual percentage
rate ("APR") for the term of such Contract. The rate at which
such amount of finance charges is earned and,
correspondingly, the amount of each fixed monthly payment
allocated to reduction of the outstanding principal balance
of the related Contract are calculated in accordance with the
Rule of 78s. Under the Rule of 78s, the portion of each
payment allocable to interest is higher during the early
months of the term of a Contract and lower during later
months than that under a constant yield method for allocating
payments between interest and principal. Notwithstanding the
foregoing, as specified in the related Prospectus Supplement,
all payments received by the related Servicer on or in
respect of the Rule of 78s Contracts may be allocated on an
actuarial basis.
Generally, the "Fixed Value Contracts" provide for monthly
payments with a final fixed value payment which is greater
than the scheduled monthly payments. A Fixed Value Contract
provides for amortization of the loan over a series of fixed
level payment monthly installments, but also requires a final
fixed value payment due after payment of such monthly
installments which may be satisfied by (i) payment in full in
cash of such amount, (ii) transfer of the vehicle to the
related Originator provided certain conditions are satisfied
or (iii) refinancing the fixed value payment in accordance
with certain conditions. With respect to Fixed Value
Contracts, as specified in the related Prospectus Supplement,
only the principal and interest payments due prior to the
final fixed value payment and not the final fixed value
payment may be included initially in the related Asset Pool.
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"Simple Interest Contracts" provide for the amortization of
the amount financed under the receivable over a series of
fixed level monthly payments. However, unlike the monthly
payment under Rule of 78s Contracts, each monthly payment
consists of an installment of interest which is calculated on
the basis of the outstanding principal balance of the
receivable multiplied by the stated APR and further multiplied
by the period elapsed (as a fraction of a calendar year) since
the preceding payment of interest was made. As payments are
received under a Simple Interest Contract, the amount received
is applied first to interest accrued to the date of payment
and the balance is applied to reduce the unpaid principal
balance. Accordingly, if an Obligor pays a fixed monthly
installment before its scheduled due date, the portion of the
payment allocable to interest for the period since the
preceding payment was made will be less than it would have
been had the payment been made as scheduled, and the portion
of the payment applied to reduce the unpaid principal balance
will be correspondingly greater. Conversely, if an Obligor
pays a fixed monthly installment after its scheduled due date,
the portion of the payment allocable to interest for the
period since the preceding payment was made will be greater
than it would have been had the payment been made as
scheduled, and the portion of the payment applied to reduce
the unpaid principal balance will be correspondingly less. In
either case, the Obligor pays a fixed monthly installment
until the final scheduled payment date, at which time the
amount of the final installment is increased or decreased as
necessary to repay the then outstanding principal balance.
If an Obligor elects to prepay a Rule of 78s Contract in full,
it is entitled to a rebate of the portion of the outstanding
balance then due and payable attributable to unearned finance
charges. If a Simple Interest Contract is prepaid, rather than
receive a rebate, the Obligor is required to pay interest only
to the date of prepayment. The amount of a rebate under a Rule
of 78s Contract calculated in accordance with the Rule of 78s
will always be less than had such rebate been calculated on an
actuarial basis and generally will be less than the remaining
scheduled payments of interest that would be due under a
Simple Interest Contract for which all payments were made on
schedule. Distributions to Securityholders may not be affected
by Rule of 78s rebates under the Rule of 78s Contract because
pursuant to the related Prospectus Supplement such
distributions may be determined using the actuarial method.
Lease Contracts. The Lease Contracts will consist of
closed-end and/or open-end lease contracts pursuant to
which the related Vehicles were leased. As specified in the
related Prospectus Supplement, the Lease Contracts are
generally each written for a "capitalized cost" (which
occasionally may be in excess of the manufacturer's suggested
price), plus an implicit finance or lease charge calculated
as an annual percentage rate (the "APR"), on a constant yield
basis and have an original term of generally not more than 60
months. The Lease Contracts provide for equal monthly
payments such that at the end of the Contract term such
capitalized cost has been amortized to an amount equal to the
fair market value of the related Vehicle at the end of the
term of the Lease Contract, as estimated at the time of
origination of each Lease Contract (the "Residual Value").
Such Residual Value, however, will not constitute any part of
the Asset Pool.
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The "Discounted Contract Balance" of a Contract will represent
the present value of the related scheduled payments on such
Contract, exclusive of the Residual Value of the related
Vehicle. The Discounted Contract Balance of a Contract will
decline over time as payments, including scheduled payments,
prepayments and liquidations, are made on or in respect of
such Contract. The aggregate principal balance of the
Securities of any Series will not exceed the aggregate
Discounted Contract Balance of the related Contracts.
Pre-Funding
Account......... If so specified in the related Prospectus Supplement, a
portion of the issuance proceeds of the Securities of a
particular series (such amount, (the "Pre-Funded Amount") will
be deposited in an account (the "Pre-Funding Account") to be
established with the Trustee, which will be used to acquire
Additional Receivables from time to time during time period
specified in the related Prospectus Supplement. Prior to the
investment of the Pre-Funded Amount in Additional Receivables,
such Pre-Funded Amount will be invested in one or more
Eligible Investments. An "Eligible Investment" is any of the
following, in each case as determined at the time of the
investment or contractual commitment to invest therein (to the
extent such investments would not require registration of the
Trust as an investment company pursuant to the Investment
Company Act): (a) negotiable instruments or securities
represented by instruments in bearer or registered or
book-entry form which evidence: (i) obligations which have the
benefit of the full faith and credit of the United States of
America, including depository receipts issued by a bank as
custodian with respect to any such instrument or security held
by the custodian for the benefit of the holder of such
depository receipt, (ii) demand deposits or time deposits in,
or bankers' acceptances issued by, any depositary institution
or trust company incorporated under the laws of the United
States of America or any state thereof and subject to
supervision and examination by Federal or state banking or
depositary institution authorities; provided that at the time
of the Trustee's investment or contractual commitment to
invest therein, the certificates of deposit or short-term
deposits (if any) or long-term unsecured debt obligations
(other than such obligations whose rating is based on
collateral or on the credit of a Person other than such
institution or trust company) of such depositary institution
or trust company has a credit rating in highest rating
category from each Rating Agency, (iii) certificates of
deposit having a rating in the highest rating category by the
Rating Agencies, or (iv) investments in money market funds
which are (or which are composed of instruments or other
investments which are) rated in the highest rating category by
the Rating Agencies; (b) demand deposits in the name of the
Trustee in any depositary institution or trust company
referred to in clause (a)(ii) above; (c) commercial paper
(having original or remaining maturities of no more than 270
days) having a credit rating in the highest rating category by
the Rating Agencies; (d) Eurodollar time deposits that are
obligations of institutions whose time deposits carry a credit
rating in the highest rating category by the Rating Agencies;
(e) repurchase agreements involving any Eligible Investment
described in any of clauses (a)(i), (a)(iii) or (d) above, so
long as the other party to the repurchase agreement has its
long-term unsecured debt obligations rated in the highest
rating category by the Rating Agencies; and (f) any other
investment with respect to which the Rating Agencies rating
such Securities indicate will not result in the reduction or
withdrawal of its then-existing rating of the Securities. Any
Eligible Investment must mature no later than the Business Day
prior to the next Payment Date.
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During any Pre-Funding Period, the Company will be obligated
(subject only to the availability thereof) to acquire from the
Seller and to either transfer to a Trust or pledge to a
Trustee on behalf of Securityholders, additional Receivables
(the "Additional Receivables") from time to time during such
Pre-Funding Period. Such Additional Receivables be required to
satisfy certain eligibility criteria more fully set forth in
the related Prospectus Supplement which eligibility criteria
will be consistent with the eligibility criteria of the
Receivables included in the Trust Estate as of the issuance
date subject to such exceptions as are expressly stated in
such Prospectus Supplement.
Although the specific parameters of the Pre-Funding Account
with respect to any issuance of Securities will be specified
in the related Prospectus Supplement, it is anticipated that:
(a) the Pre-Funding Period will not exceed 120 days from the
related Closing Date, (b) that the Additional Contracts to be
acquired during the Pre-Funding Period will be subject to the
same representations and warranties as the Contracts included
in the related Asset Pool on the Closing Date (although
additional criteria may also be required to be satisfied, as
described in the related Prospectus Supplement) and (c) that
the Pre-Funded Amount will not exceed 25% of the principal
amount of the Securities issued pursuant to a particular
offering.
Registration of
Securities...... Securities may be represented by global securities registered
in the name of Cede & Co. ("Cede"), as nominee of The
Depository Trust Company ("DTC"), or another nominee. In such
case, Securityholders will not be entitled to receive
definitive securities representing such Securityholders'
interests, except in certain circumstances described in the
related Prospectus Supplement. See "Description of the
Securities -- Book Entry Registration" herein.
Credit
Enhancement .... If and to the extent specified in the related Prospectus
Supplement, credit enhancement with respect to an Asset Pool
or any class of Securities may include any one or more of the
following: a Policy issued by an insurer specified in the
related Prospectus Supplement (a "Security Insurer"), a
reserve account, letters of credit, credit or liquidity
facilities, Residual Value Insurance (as defined below) third
party payments or other support, cash deposits or other
arrangements. Any form of credit enhancement will have certain
limitations and exclusions from coverage thereunder, which
will be described in the related Prospectus Supplement. See
"Description of the Trust Agreements -- Credit Enhancements."
To the extent that shortfalls in the proceeds of the Contracts
occur which exceed the amount covered by the credit
enhancement or which are not covered by the credit enhancement
available to a particular Series or Class, Certificateholders
will bear their allocable share of any deficiencies. See "Risk
Factors - Limited Assets" herein, and to the extent
applicable, in the related Prospectus Supplement.
Any form of credit enhancement will have certain limitations
and exclusions from coverage thereunder, which will be
described in the related Prospectus Settlement. See
"Description of the Trust Agreements - Credit Enhancements."
As specified in the related Prospectus Supplement, the Company
may obtain an insurance policy (the "Primary Residual Value
Insurance Policy") in respect of the Residual Values of
Vehicles relating to Lease Contracts which have reached their
scheduled maturities (each a "Matured Lease Contract"). As
specified in the related Prospectus Supplement, the related
Trustee may be an additional insured under the Primary
Residual Value Insurance Policy. The Primary Residual Value
Insurance may limit the maximum amount payable thereunder with
respect to each Vehicle or all Vehicles covered thereunder in
the aggregate.
As specified in the related Prospectus Supplement, the Company
may obtain an additional insurance policy (the "Excess
Residual Value Insurance Policy" and together with the Primary
Residual
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Value Insurance Policy, the "Residual Value Insurance")
providing coverage for losses in respect of the "insured
value" of a covered vehicle in excess of a deductible of a
specified percentage of the insured value, depending upon the
original term of the related Lease Contract. With respect to
the Vehicles relating to Lease Contracts, the Excess Residual
Value Insurance Policy is an excess liability policy and
insures the Residual Values of such Vehicles in excess of any
aggregate limits of the Primary Residual Value Insurance
Policy. Accordingly, a claim can be made under the Excess
Residual Value Insurance Policy only after the maximum amount
payable under the Primary Residual Value Insurance Policy has
been exhausted, if ever, and will cover only those losses
remaining after all amounts in respect of the Residual Value
of a Vehicle relating to a Lease Contract have been recovered.
As specified in the related Prospectus Supplement, the related
Trustee may be a loss payee under the Excess Residual
Insurance Policy.
Cross-Collater-
alization .......As described in the related Trust Agreement and the related
Prospectus Supplement, the source of payment for Securities of
each series will be the assets of the related Asset Pool only.
However, as may be described in the related Prospectus
Supplement, a series or class of Securities may include the
right to receive moneys from a common pool of credit
enhancement which may be available for more than one series of
Securities, such as a master reserve account, master insurance
policy or a master collateral pool consisting of similar
Receivables. Notwithstanding the foregoing, and as described
in the related Prospectus Supplement, no payment received on
any Receivable held by any Trust may be applied to the payment
of Securities issued by any other Trust (except to the limited
extent that certain collections in excess of the amounts
needed to pay the related Securities may be deposited in a
common master reserve account or an overcollateralization
account that provides credit enhancement for more than one
series of Securities issued pursuant to the related Trust
Agreement).
Mandatory
Repurchase of
Certain
Contracts....... As more fully described in the related Prospectus Supplement,
the Company will be obligated to acquire from the related
Asset Pool any Receivable transferred pursuant to a Pooling
Agreement or pledged pursuant to an Indenture if the interest
of the Securityholders therein is materially adversely
affected by a breach of any representation or warranty made by
the Company or the Seller with respect to such Receivable,
which breach has not been cured. The Seller will be obligated
to acquire any such Receivable from the Company pursuant to
the related Contribution and Sale Agreement contemporaneously
with the Company's acquisition of any such Receivable from the
applicable Asset Pool. The obligation of the Company to
acquire any such Receivable with respect to which the Seller
has breached a representation or warranty is subject to the
Seller's acquisition of such Receivable from the Company. In
addition, if so specified in the related Prospectus
Supplement, the Company may from time to time reacquire
certain Receivables or substitute other Receivables for such
Receivable held by an Asset Pool, subject to specified
conditions set forth in the related Trust Agreement and
Conveyance Agreement.
Servicer's
Compensation.... The Servicer shall be entitled to receive a fee for servicing
the Contracts of each Asset Pool equal to a specified
percentage of the Discounted Contract Balance of such
Contracts, as set forth in the related Prospectus Supplement.
See "Description of the Trust Agreements--Servicing
Compensation" herein and in the related Prospectus Supplement.
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Certain Legal
Aspects of
the Contracts... With respect to the transfer of the Contracts to the related
Trust pursuant to a Pooling Agreement or the pledge of the
related Company's right, title and interest in and to such
Contracts on behalf of Securityholders pursuant to an
Indenture, the Company will warrant, in each case, that such
transfer is either a valid transfer and assignment of the
Contracts to the Trust or the grant of a security interest in
the Contracts. Each Prospectus Supplement will specify what
actions will be taken by which parties as will be required to
perfect either the Issuer's or the Securityholders' security
interest in the Contracts. The Depositor may also warrant
that, if the transfer or pledge by it to the Trust or to the
Securityholders is deemed to be a grant to the Trust or to the
Securityholders of a security interest in the Contracts, then
the Company or the Securityholders will have a first priority
perfected security interest therein, except for certain liens
which have priority over previously perfected security
interests by operation of law, and, with certain exceptions,
in the proceeds thereof. Similar security interest and
priority representations and warranties, as described in the
related Prospectus Supplement, may also be made by the
Depositor with respect to the Vehicles.
In connection with Lease Contracts, the Company will be
required (to the extent not done previously) to deliver to the
appropriate motor vehicle agency office in the related states
duly completed and executed applications for (a) transfer of
the certificates of title to the related Vehicles from the
Company to either a Finance Subsidiary of the Company or to
the related Trust, (b) release of any prior liens recorded on
such certificates of title and (c) in the event that the
Vehicles are titled in the name of a Finance Subsidiary and
not the Trust, a notation of lien in favor of the related
Trustee on such certificates of title, except to the extent
that the laws of any particular state do not require such a
lien notation to be made to perfect the Trustee's security
interest. Various liens and interests could be imposed upon
all or part of the related Asset Pool that, by operation of
law, would take priority over the Trustee's interest therein,
however perfected. Such liens include tax liens arising
against the Company, the Finance Subsidiary or the Issuer,
mechanic's, repairmen's garagemen's and motor vehicle accident
liens and certain liens for personal property taxes, in each
case arising with respect to a particular Vehicle, and liens
arising under various state and federal criminal statutes. See
"Certain Legal Aspects of the Receivables."
Perfection of security interests in automobiles and light duty
trucks is generally governed by the vehicle registration or
titling laws of the state in which each vehicle is registered
or titled. In most states, a security interest in a vehicle is
perfected by notation of the secured party's lien on the
vehicle's certificate of title. Each Prospectus Supplement
will specify whether, due to the administrative burden and
expense, the Company will amend any certificate of title
relating to Loan Contracts to identify the Company or the
Trustee as the new secured party on the certificates of title
relating to the Vehicles. See "Certain Legal Aspects of the
Receivables."
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Each Prospectus Supplement will specify if the related Company
has filed or will be required to file UCC (as herein defined)
financing statements identifying the Vehicles as collateral
pledged in favor of the related Trust or Trustee on behalf of
the Securityholders. In the absence of such filings any
security interest in the Vehicles will not be perfected in
favor of the related Trust or Trustee. See "Certain Legal
Aspects of the Receivables."
Optional
Termination..... The Servicer, the Company, or, if specified in the related
Prospectus Supplement, certain other entities may, at their
respective options, effect early retirement of a series of
Securities under the circumstances and in the manner set forth
herein under "The Trust Agreement - Termination; Retirement of
Securities" and in the related Prospectus Supplement.
Mandatory
Termination..... The Trustee, the Servicer or certain other entities specified
in the related Prospectus Supplement may be required to effect
early retirement of all or any portion of a series of
Securities by soliciting competitive bids for the purchase of
the related Asset Pool or otherwise, under other circumstances
and in the manner specified in "The Trust Agreement -
Termination; Retirement of Securities" and in the related
Prospectus Supplement.
Tax
Considerations.. Securities of each series offered hereby will, for federal
income tax purposes, constitute either (i) interests in a
Trust treated as a grantor trust under applicable provisions
of the Code ("Grantor Trust Securities"), (ii) debt issued by
a Trust or by the Company ("Debt Securities") or (iii)
interests in a Trust which is treated as a partnership
("Partnership Interests"). See "Certain Tax Considerations."
The Prospectus Supplement for each series of Securities will
summarize, subject to the limitations stated therein, federal
income tax considerations relevant to the purchase, ownership
and disposition of such Securities.
Investors are advised to consult their tax advisors and to
review "Certain Federal and State Income Tax Consequences"
herein and in the related Prospectus Supplement.
ERISA
Considerations.. The Prospectus Supplement for each series of Securities will
summarize, subject to the limitations discussed therein,
considerations under the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), relevant to the purchase of
such Securities by employee benefit plans and individual
retirement accounts. See "ERISA Considerations" in the related
Prospectus Supplement.
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Ratings.......... Each Class of Securities offered pursuant to this Prospectus
and the related Prospectus Supplement will be rated in one of
the four highest rating categories by one or more "national
statistical rating organizations", as defined in the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and commonly referred to as "Rating Agencies". Such
ratings will address, in the opinion of such Rating Agencies,
the likelihood that the Issuer will be able to make timely
payment of all amounts due on the related Securities in
accordance with the terms thereof. Such ratings will neither
address any prepayment or yield considerations applicable to
any Securities nor constitute a recommendation to buy, sell or
hold any Securities.
The ratings expected to be received with respect to any
Securities will be set forth in the related Prospectus
Supplement.
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RISK FACTORS
Prospective investors should consider, among other things, the
following factors in connection with the purchase of the Securities:
LIMITED LIQUIDITY. There can be no assurance that a secondary market
for the Securities of any Series or Class will develop or, if it does develop,
that it will provide Securityholders with liquidity of investment or that it
will continue for the life of such Securities. The Prospectus Supplement for any
series of Securities may indicate that an underwriter specified therein intends
to establish and maintain a secondary market in such Securities; however, no
underwriter will be obligated to do so. The Securities will not be listed on any
securities exchange.
LIMITED ASSETS. Each Asset Pool will not have, nor is it permitted or
expected to have, any significant assets or sources of funds other than the
related Receivables and, to the extent provided in the related Prospectus
Supplement, the related reserve account(s) and any other credit enhancement. The
Certificates will represent beneficial interests in the related Trust only and
will not represent interests in or obligations of the Company, the Servicer, the
Seller or any of their respective affiliates other than the related Trust. The
sole source of payment with respect to any Certificate will be the assets of the
related Trust. The Notes will represent obligations of the related Issuer only
and will not represent interests in or obligations of the Company (unless the
Company is the Issuer), the Servicer, the Seller or any of their respective
affiliates other than the related Issuer. The Notes will be secured by the
assets of the related Asset Pool, and the sole source of payment with respect to
any Note will be the assets of the related Asset Pool. No Securities will be
insured or guaranteed by the Seller, the Company, the Servicer or the applicable
Trustee(s), except as set forth in the related Prospectus Supplement.
Consequently, holders of Securities must rely for repayment primarily upon
payments on the related Receivables and, if and to the extent available, amounts
on deposit in the reserve account(s), if any, and any other credit enhancement,
all as specified in the related Prospectus Supplement.
SUBORDINATION. To the extent specified in the related Prospectus
Supplement, distributions of interest and principal on one Class or Series of
Securities may be subordinated in priority of payment to interest and principal
due on other Classes or Series of Securities. Such Class or Series of Securities
could experience delays and or reductions in the payment of principal and/or
interest to the extent that collections and other amounts available to make
distributions to the senior Class, Classes or Series of Securities are
insufficient to cover the required amount to be distributed to such senior
Class, Classes or Series. The particular terms of any subordination will be more
fully set forth in the related Prospectus Supplement.
PERFECTION OF THE TRUSTEE'S INTERESTS. Contracts. The transfer of the
Contracts by the Company to the Trustee pursuant to the related Trust Agreement,
the perfection of the security interests in the Contracts and the enforcement of
rights to realize on the Contracts are subject to a number of federal and state
laws, including the UCC as in effect in various states. As specified in each
Prospectus Supplement, the related Servicer will take such action as is required
to perfect the rights of the Trustee in the Contracts. If, through inadvertence
or otherwise, a third party were to purchase (including the taking of a security
interest in) a Contract for new value in the ordinary course of its business,
without actual knowledge of the Trust's interest, and take possession of a
Contract, the purchaser would acquire an interest in such Contract superior to
the interest of the Trust. As further specified in each Prospectus Supplement,
no action will be taken to perfect the rights of the Trustee in proceeds of the
VSI Insurance Policy or of any other insurance policies covering individual
Vehicles or Obligors. Therefore, the rights of a third party with an interest in
such proceeds could prevail against the rights of the Trust prior to the time
such proceeds are deposited by the related Servicer into a Trust Account. See
"Certain Legal Aspects of the Contracts".
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<PAGE> 21
VEHICLES. The Vehicles subject to Lease Contracts will be titled in the
name of either a Finance Subsidiary (which may be an Originator) or in the name
of the related Trust. In the event that such Leased Vehicles are not titled in
the name of the related Trust, a notation of lien in favor of the related
Trustee on the related certificates of title will be filed except to the extent
described in the related Prospectus Supplement or that the laws of any
particular state do not require such a lien notation to be made to perfect the
Trustee's security interest. See "Certain Legal Aspects of the Receivables".
VICARIOUS TORT LIABILITY. Although the related Trust will own the
Vehicles subject to Lease Contracts, they will be operated by the related
lessees and their respective invitees. State laws differ as to whether anyone
suffering injury to person or property involving a leased vehicle may bring an
action against the owner of the vehicle merely by virtue of that ownership.
Some state statutes provide that a victim of such an accident has no
such cause of action against the owner of the leased vehicle arising from the
negligent operation of such leased vehicle unless the owner has negligently
entrusted or continues to negligently entrust the vehicle to an inappropriate
lessee.
Other state statutes provide that the owner of a motor vehicle that is
subject to a lease having an initial term of at least one year is exempt from
liability for tort claims arising out of the negligent operation of the leased
vehicle or negligent acts of the operator in the event of an accident in which
the leased vehicle is involved if the lessee is required under the lease to
maintain certain specified levels of insurance, and such insurance is in effect.
Generally, the Lease Contracts contain provisions requiring the lessees
to maintain levels of insurance satisfying applicable state law, and the related
Trust Agreement will require the Servicer to monitor compliance by the lessees
therewith.
Actions by third parties might arise against the owner of a Vehicle
subject to Lease Contracts based on legal theories other than negligence, such
as a product defect or improper vehicle preparation prior to the origination of
the related lease contract. Even if the Issuer were to be the subject of an
action for damages as a result of its ownership of a Vehicle subject to Lease
Contracts, such damages may be covered by the Contingent and Excess Liability
Insurance Policies if, as specified in the related Prospectus Supplement, the
Company is named as a beneficiary of such policies. Although such insurance
coverage is generally in excess of $10 million per claim, with an allowance for
multiple claims in any policy period, in the event that all such insurance
coverage were exhausted and damages were assessed against the Issuer, claims
could be imposed against the assets of the Issuer, however, such claims would
not take priority over any items comprising the Asset Pool to the extent that
the Trustee has a perfected security interest therein. If any such claims were
imposed against the assets of the Issuer, Securityholders could incur a loss on
their investment. See "Certain Legal Aspects of the Receivables --Vicarious Tort
Liability".
INSURANCE ON VEHICLES. Each Receivable generally requires the related
Obligor to maintain insurance covering physical damage to the Vehicle in an
amount not less than the unpaid principal balance of such Receivable pursuant to
which the Company is named as a loss payee. Since the Obligors select their own
insurers to provide the requisite coverage, the specific terms and conditions of
their policies may vary.
In addition to physical damage insurance which may be required to be
maintained by the Obligors pursuant to the Receivables, each Vehicle, as
specified in the related Prospectus Supplement, may be insured against physical
damage risks by a policy of vendor's single interest physical damage insurance
(the "VSI Insurance Policy") which provides limited coverage (subject
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to deductibles) for, among other things, (i) physical loss or damage from any
external cause to such vehicle and (ii) inability to locate such vehicle or the
related Obligor. The VSI Insurance Policy generally provides coverage in an
amount equal to the lowest of: (i) the actual cash value of such Vehicle at the
time of loss or damage, plus $3,000; (ii) the cost of repair or replacement of
such Vehicle; (iii) the unpaid principal balance, not more than 120 days past
due, computed as of the date of loss, of the related Receivable, less interest,
insurance, finance and other carrying charges; and (iv) $50,000. Accordingly,
recovery under the VSI Insurance Policy may be less than the outstanding
principal and interest due on the related Receivable. In the event of any such
shortfall Securityholders could suffer a loss on their investment.
MATURITY AND PREPAYMENT CONSIDERATIONS. Because the rate of payment of
principal on the Securities will depend, among other things, on the rate of
payment on the Contracts, the rate of payment of principal on the Securities
cannot be predicted. Payments on the Contracts will include scheduled payments
as well as partial and full prepayments (to the extent not replaced with
substitute Contracts), payments upon the liquidation of Contracts which become
defaulted, payments upon acquisitions by the Company of Contracts from the
related Asset Pool on account of a breach of certain representations and
warranties in the related Trust Agreement, payments upon an optional acquisition
by the Company of Contracts from the related Asset Pool (any such voluntary or
involuntary prepayment or other early payment of a Contract, a "Prepayment"),
and residual payments. The rate of early terminations of Contracts due to
Prepayments and defaults may be influenced by a variety of economic and other
factors, including, among others, obsolescence, then current economic conditions
and tax considerations. The risk of reinvesting distributions of the principal
of the Securities will be borne by the Securityholders. The yield to maturity on
Strip Securities or Securities purchased at premiums or discounts to par will be
extremely sensitive to the rate of Prepayments on the related Receivables. In
addition, the yield to maturity on certain other types of classes of Securities,
including Strip Securities, Accrual Securities or certain other Classes in a
series including more than one Class of Securities, may be relatively more
sensitive to the rate of prepayment of the related Contracts than other Classes
of Securities.
The Company does not have available to it any statistics as to
prepayment rates historically experienced in the equipment leasing industry and
the Seller does not accumulate information related to Prepayments with respect
to its portfolio. As a matter of practice, the Seller does not originate
Contracts which permit Prepayments. Further, in the ordinary course of dealings,
the Seller does not permit Prepayments at the request of a Lessee. Additionally,
to the extent that one or more Contracts having large Discounted Contract
Balances are prepaid, the prepayment experience of the Seller's portfolio would
not necessarily be indicative of the actual rate of Prepayments experienced by
any particular Asset Pool. The rate of Prepayments of Contracts cannot be
predicted and is influenced by a wide variety of economic, social, and other
factors, including prevailing interest rates, the availability of alternate
financing and local and regional economic conditions. Therefore, no assurance
can be given as to the level of Prepayments that an Asset Pool will experience.
Securityholders should consider, in the case of Securities purchased at
a discount, the risk that a slower than anticipated rate of Prepayments on the
Receivables could result in an actual yield that is less than the anticipated
yield and, in the case of any Securities purchased at a premium, the risk that a
faster than anticipated rate of Prepayments on the Receivables could result in
an actual yield that is less than the anticipated yield.
EFFECT OF RESTRICTIONS ON RECOVERIES IN AMOUNTS AVAILABLE TO
SECURITYHOLDERS. The Contracts provide that the obligations of the Lessees
thereunder are absolute and unconditional, regardless of any defense, set-off or
abatement which the Lessee may have against the Seller or any other person or
entity whatsoever unless otherwise described in the related Prospectus
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Supplement. The Seller will warrant that no claims or defenses have been
asserted or threatened with respect to the Contracts and that all requirements
of applicable law with respect to the Contracts have been satisfied.
In the event that the Company or the Trustee must rely on repossession
and disposition of the Vehicle to recover scheduled payments due on Contracts
which become defaulted, the Issuer may not realize the full amount due on a
Contract (or may not realize the full amount on a timely basis). Other factors
that may affect the ability of the Issuer to realize the full amount due on a
Contract include whether financing statements to perfect the security interest
in the Vehicle had been filed, depreciation, obsolescence, damage or loss of any
item of Vehicle, and the application of Federal and state bankruptcy and
insolvency laws. As a result, the Securityholders may be subject to delays in
receiving payments and suffer loss of their investment in the Securities.
RISKS RELATED TO INSOLVENCY AND BANKRUPTCY MATTERS. The Company has
taken steps in structuring the transactions contemplated hereby that are
intended to ensure that the voluntary or involuntary application for relief by
the Seller under the United States Bankruptcy Code or similar applicable state
laws ("Insolvency Laws") will not result in consolidation of the assets and
liabilities of the Company with those of the Seller. These steps include the
creation of the Company as a separate, limited-purpose subsidiary pursuant to a
certificate of incorporation containing certain limitations (including
restrictions on the nature of the Company's business and a restriction on the
Company's ability to commence a voluntary case or proceeding under any
Insolvency Law without the prior unanimous affirmative vote of all of its
directors). However, there can be no assurance that the activities of the
Company would not result in a court's concluding that the assets and liabilities
of the Company should be consolidated with those of the Seller in a proceeding
under any Insolvency Law.
In addition, while the Seller is the Servicer, cash collections held by
the Seller may, subject to certain conditions, be commingled and used for the
benefit of the Seller prior to each Payment Date and, in the event of the
bankruptcy of the Seller, the Company, a Trust or Trustee may not have a
perfected interest in such collections.
The Seller believes that the transfer of the Receivables by Seller to
the Company should be treated as a valid assignment, transfer and conveyance of
the Receivables. However, in the event of an insolvency of the Seller, a court,
among other remedies, could attempt to recharacterize the transfer of the
Receivables by the Seller to the Company as a borrowing by the Seller from the
Company or the related Securityholders, secured by a pledge of such Receivables.
Such an attempt, even if unsuccessful, could result in delays in payments on the
Securities. If such an attempt were successful, a court, among other remedies,
could elect to accelerate payment of the Securities and liquidate the
Receivables, with the Securityholders entitled to the then outstanding principal
amount thereof and interest thereon at the applicable Security Interest Rate to
the date of payment. Thus, the Securityholders could lose the right to future
payments of interest and might incur reinvestment losses. As more fully
described in the related Prospectus Supplement, in the event the Company is
rendered insolvent, the Trustee for a Trust, in accordance with the Trust
Agreement, will promptly sell, dispose of or otherwise liquidate the related
Receivables in a commercially reasonable manner on commercially reasonable
terms. The proceeds from any such sale, disposition or liquidation of such
Receivables will be treated as collections on such Receivables. If the proceeds
from the liquidation of the Receivables and any amount available from any credit
enhancement, if any, are not sufficient to pay Securities of the related series
in full, the amount of principal returned to such Securityholders will be
reduced and such Securityholders will incur a loss.
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Lessees of the Vehicle may be entitled to assert against the Seller,
the Company, or the Trust, if any, claims and defenses which they have against
the Seller with respect to the Receivables. The Seller will warrant that no such
claims or defenses have been asserted or threatened with respect to the
Receivables and that all requirements of applicable law with respect to the
Receivables have been satisfied.
CONSUMER PROTECTION LAWS. Lease Contracts, Numerous federal and state
consumer protection laws, including the federal Consumer Leasing Act of 1976 and
Regulation M promulgated by the Board of Governors of the Federal Reserve System
("Regulation M"), impose requirements on leases such as the Lease Contracts.
These laws apply to the Originator as the original lessor and may also apply to
the Issuer as assignee of the Contracts or to the Trustee if it acts to enforce
its security interest in the Contracts. The failure by the Originator to comply
with such requirements may give rise to liabilities on the part of the
Originator, the Issuer and the Trustee, and claims by such parties may be
subject to set-off as a result of such noncompliance. Certain state laws that
provide vehicle users certain rights in respect of substandard vehicles
(commonly referred to as "Lemon Laws") may apply to one or more of the Leased
Vehicles. A successful claim under an applicable Lemon Law could result in,
among other things, the termination of the related Contract or require the
refunding of a portion of prior scheduled monthly payments.
Loan Contracts. Numerous federal and state consumer protection laws
and related regulations impose substantial requirements upon creditors and
servicers involved in consumer finance. These laws include the Truth-in-Lending
Act, the Equal Credit Opportunity Act, the Federal Trade Commission Act, the
Fair Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt
Collection Practices Act, the Magnuson-Moss Warranty Act, the Federal Reserve
Board's Regulations B and Z, state adaptations of the National Consumer Act and
of the Uniform Consumer Credit Code, state motor vehicle retail installment
sale acts, state "lemon" laws and other similar laws. In addition, the laws of
certain states, impose finance charge ceilings and other restriction on
consumer transactions and require contract disclosures in addition to those
required under federal law. These requirements impose specific statutory
liabilities upon creditors who fail to comply with their provisions. In some
cases, this liability could affect the ability of an assignee such a the
Trustee to enforce consumer finance contracts such as the Receivables.
The so-called "Holder-in-Due-Course Rule" of the Federal Trade
Commission (the "FTC Rule") has the effect of subjecting any assignee of the
seller in a consumer credit transaction (and certain related creditors and
their assignees) to all claims and defenses which the Obligor in the
transaction could assert against the seller. Liability under the FTC Rule is
limited to the amounts paid by the Obligor under the contract, and the holder
of contract may also be unable to collect any balance remaining due thereunder
from the Obligor. The FTC Rule is generally duplicated by the Uniform Consumer
Credit Code, other state statutes or the common law in certain states. To the
extent that the Receivables will be subject to the requirements of the FTC
Rule, the Trustee, as holder of the Receivables, will be subject to any claims
or defenses that the purchaser of the related Vehicle may assert against the
seller of such Vehicle. Such claims will be limited to a maximum liability
equal to the amounts paid by the Obligor under the related Receivable.
Under most state vehicle dealer licensing laws, sellers of automobiles
and light duty trucks are required to be licensed to sell vehicles at retail
sale. In addition, with respect to used vehicles, the Federal Trade
Commission's Rule on Sale of Used Vehicles requires that all sellers of used
vehicles prepare, complete and display a "Buyer's Guide" which explains the
warranty coverage for such vehicles. Furthermore, Federal Odometer Regulations
promulgated under the Motor Vehicle Information and Cost Savings Act and the
motor vehicle title laws of most states require that all sellers of used
vehicles furnish a written statement signed by the seller certifying the
accuracy of the odometer reading. If a seller is not properly licensed or if
either a Buyer's Guide or Odometer Disclosure Statement was not provided to the
purchaser of a Vehicle, the Obligor may be able to assert a defense against the
seller of the Vehicle. If an Obligor on a Receivable were successful in
asserting any such claim or defense, the related Servicer would pursue on
behalf of the Trust any reasonable remedies against the seller or manufacturer
of the vehicle, subject to certain limitations as to the expense of any such
action to be specified in the related Trust Agreement. See "Certain Legal
Aspects of the Receivables - Consumer Protection Laws".
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FUTURE LEVELS OF DELINQUENCIES UNCERTAIN. There can be no assurance
that the levels of delinquencies and losses experienced in recent years by the
Seller on its equipment lease portfolio are indicative of the performance of the
Contracts included in any Asset Pool or that such levels will continue in the
future. Delinquencies and losses could increase significantly for various
reasons, including changes in the federal income tax laws, changes in the local,
regional or national economies or due to other events.
CERTAIN CONSIDERATIONS RELATING TO BOOK-ENTRY REGISTRATION. Issuance of
the Securities in book-entry form may reduce the liquidity of such Securities in
the secondary trading market since investors may be unwilling to purchase
Securities for which they cannot obtain definitive physical securities
representing such Securityholders' interests, except in certain circumstances
described in the related Prospectus Supplement.
Since transactions in Securities will, in most cases, be able to be
effected only through DTC, direct or indirect participants in DTC's book-entry
system ("Direct Participants" or "Indirect Participants") or certain banks, the
ability of a Securityholder to pledge a Security to persons or entities that do
not participate in the DTC system, or otherwise to take actions in respect to
such Securities, may be limited due to lack of a physical security representing
the Securities.
Securityholders may experience some delay in their receipt of
distributions of interest on and principal of the Securities since distributions
may be required to be forwarded by the Trustee to DTC and, in such case, DTC
will be required to credit such distributions to the accounts of its
Participants which thereafter will be required to credit them to the accounts of
the applicable class of Securityholders either directly or indirectly through
Indirect Participants. See "Description of the Securities -- Book Entry
Registration."
RATING OF SECURITIES SUBJECT TO CHANGE. The rating of Securities credit
enhanced by a letter of credit, financial guaranty insurance policy, reserve
fund, credit or liquidity facilities, cash deposits or other forms of credit
enhancement (collectively "Credit Enhancement") will depend primarily on the
creditworthiness of the issuer of such external Credit Enhancement device (a
"Credit Enhancer"). Any reduction in the rating assigned to the claims-paying
ability of the related Credit Enhancer to honor its obligations pursuant to any
such Credit Enhancement below the rating initially given to the Securities would
likely result in a reduction in the rating of the Securities.
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RISKS RESULTING FROM FAILURE TO COMPLY WITH CERTAIN CONSUMER PROTECTION
LAWS. Numerous federal and state consumer protection laws, including the
Consumer Leasing Act of 1976 and Regulation M promulgated by the Board of
Governors of the Federal Reserve System impose requirements on leases such as
the Lease Contracts. These laws apply to the Seller as the original lessor and
may also apply to each Issuer as assignee of the Lease Contracts or to the
Trustee if it acts to enforce its security interest in the Lease Contracts. The
failure by the Seller to comply with such requirements may give rise to
liabilities on the part of the Seller, the Issuer and the Trustee, and claims by
such parties may be subject to set-off as a result of such noncompliance. The
Seller will warrant in the related Contribution and Sale Agreement (which
warranties will be assigned to the related Trust, if any) that the Lease
Contracts are not subject to any right of recession, set-off, counterclaim or
defense and that the Lease Contracts did not, at the time the Lease Contracts
were made, violate state or federal law. The Seller will be obligated to
repurchase any Lease Contracts as to which such warranty has been breached which
breach has a material adverse effect on the interests of the Securityholders in
the affected Lease Contracts. See "Description of the Trust Agreements."
TRANSFER OF SERVICING MAY DELAY PAYMENTS. If the Seller were to cease
acting as Servicer, delays in processing payments on the Receivables and
information in respect thereof could occur and result in delays in payments to
the Securityholders.
RISKS ASSOCIATED WITH INABILITY OF SELLER TO TRANSFER ADDITIONAL
RECEIVABLES TO COMPANY. In connection with the transfer of Receivables by the
Seller to the Company, the Seller will make representations and warranties with
respect to certain matters relating to such Receivables. In certain
circumstances, the Company and the Seller will be required to acquire
Receivables from the related Asset Pool with respect to which such
representations and warranties have been breached. In the event that the Seller
is incapable of complying with its reacquire obligations and no other party is
obligated to perform or satisfy such obligations, Securityholders may be subject
to delays in receiving payments and suffer loss of their investment in the
Securities.
CERTAIN RISKS ASSOCIATED WITH GEOGRAPHIC OR OTHER CONCENTRATIONS OF
CONTRACTS. As more fully set forth in the related Prospectus Supplement, the
Contracts constituting a particular Asset Pool may be concentrated such that
lessees in a particular geographic region, a particular type of equipment or a
particular lessee constitutes a significant portion of the Asset Pool. To the
extent Adverse economic conditions were particularly severe in such geographic
region or industry or in the event a lessee under a large amount of Contracts
were to experience financial difficulties the delinquency and default experience
of the Asset Pool could be adversely impacted.
CERTAIN RISKS ASSOCIATED WITH PRE-FUNDING ACCOUNT. In the event the
Company is unable to transfer Contracts with an Aggregate Discounted Contract
Balance equal to the Pre-Funded Amount prior to the expiration of the
Pre-Funding Period, Securityholders will experience a prepayment equal to their
allocable share (as more fully described in the related Prospectus Supplement)
of the uninvested Pre-Funded Amount. Such prepayment may reduce the expected
yield to investors. In addition, due to market fluctuations, investors may be
unable to reinvest such prepayment amounts in similarly yielding investments.
CERTAIN RISKS RELATING TO DIFFERING UNDERWRITING CRITERIA. The
Contracts included in a particular Asset Pool may have been purchased by First
Sierra from one or more lessors pursuant to its Portfolio Acquisition Program.
To the extent described in the related Prospectus Supplement, certain
Contracts included in a particular Asset Pool may have been originated using
underwriting criteria different from that of First Sierra's. However, the
Contracts included in a particular Asset Pool will satisfy the criteria set
forth in the related Prospectus Supplement.
WAIVER OF RIGHT TO INSTITUTE PROCEEDING AGAINST COMPANY. Each
Securityholder by its purchase of Securities are deemed by their purchase of
such Securities to have covenanted that they will not at any time institute
against the Company any bankruptcy, reorganization or other proceeding under any
Insolvency Law.
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USE OF PROCEEDS
The proceeds from the sale of the Securities of a given series will be
applied by the related Issuer to the acquisition of the related Receivables or
may be transferred to the Seller in connection with the conveyance of the
Receivables. The Company expects that it will make additional sales of
securities similar to the Securities from time to time, but the timing and
amount of any such additional offering will be dependent upon a number of
factors, including the volume of Contracts acquired by the Company, prevailing
interest rates, availability of funds and general market conditions.
THE ISSUERS
The Securities offered hereby will be issued either by (i) the Company
or (ii) a Trust (which may be an owner trust or a trust) established by the
Company pursuant to a Pooling Agreement or a Trust Agreement. For purposes of
this Prospectus and the related Prospectus Supplement, the Company or the Trust
issuing the related Securities shall be referred to as the "Issuer" with respect
to such Securities. Each Trust may issue Certificates and, if it is an owner
trust, Notes. The Company may issue and sell only Notes hereunder. The Asset
Pool related to each Trust will be formed and transferred to such Trust pursuant
to the related Pooling Agreement and, in the case of Notes issued by Company,
the related Asset Pool will be formed and pledged to the related Trustee
pursuant to the related Indenture.
To the extent that a Trust in an owner trust (an "Owner Trust"), it
will be organized as a business trust to be formed in accordance with the laws
of the State of Delaware, pursuant to a Trust Agreement, solely for the purpose
of effectuating the transactions described herein and in the related Prospectus
Supplements. Prior to formation, each such Trust will have had no assets or
obligations and no operating history. Upon formation, each such Trust will not
engage in any business activity other than (a) acquiring, managing and holding
the related Contracts, (b) issuing the related Securities, (c) making
distributions and payments thereon and (d) engaging in those activities,
including entering into agreements, that are necessary, suitable or convenient
to accomplish the foregoing or are incidental thereto or connected therewith.
Such Owner Trust may issue Certificates pursuant to a Pooling Agreement or issue
Notes pursuant to an Indenture. The terms of any such issuance are more fully
described herein and may be fully in the related Prospectus Supplement.
THE ASSET POOLS
As specified in the related Prospectus Supplement, the Contracts will
consist of Loan Contracts and Lease Contracts.
A. LEASE CONTRACTS
The Lease Contracts are generally written for an original term of not
more than 60 months, for a "capitalized cost" (which occasionally may be in
excess of the manufacturer's suggested price), plus an implicit finance or lease
charge. The Lease Contracts are generally written on a constant yield basis and
provide for equal monthly payments, such that at the end of the lease term the
capitalized cost has been amortized to an amount equal to the Residual Value of
the related Vehicle.
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With respect to each Lease Contract that is a closed-end lease, at the
end of its term, if the lessee does not elect to purchase the related Vehicle
upon exercise of the purchase option contained in the Lease Contract, the lessee
is required to return the Vehicle, at which time it will then owe only such
incidental charges for excess mileage, excessive wear and use and other items as
may be due under such Lease Contract. In contrast, under each Lease Contract
that is an open-end lease, the lessee is also obligated to pay at the end of the
lease term any deficit between the fair market value of the leased vehicle at
that time and the Residual Value established at the time of origination of such
lease.
Generally, each lessee is permitted to purchase the related Vehicle at
the end of the term of the related Lease Contract. The purchase price is
generally a fixed dollar amount equal to the Residual Value plus any applicable
taxes and all other incidental charges which may be due under the Lease
Contract. In addition, each Contract generally allows the related lessee
voluntarily to terminate such Contract by paying certain miscellaneous charges
and a termination amount more fully described below.
In most instances, the Lease Contracts are not expected to run to their
full terms. For example, from time to time there are incentive programs for
dealers to trade customers under existing leases with remaining terms of less
than one year into new lease contracts. In so doing, the dealer is able to keep
the customer, sell a new car pursuant to a new lease contract and obtain a used
car for resale.
Each Lease Contract generally provides that the lessor may terminate
the Lease Contract and repossess the leased Vehicle in the event of a default by
the lessee. Events of default under a Lease Contract may include, but are not
limited to, failure to make payment when due, certain events of bankruptcy or
insolvency, failure to maintain the insurance required by the Lease Contract,
failure to maintain or repair the leased Vehicle as required or to comply with
any other term or condition of the Contract and the making of a material
misrepresentation by the lessee in the lease application.
Upon early termination or default, the amount owed by the lessee under
a Lease Contract is generally determined by adding (i) the amount of delinquent
and future scheduled monthly payments and any incidental charges owing under the
Contract, less unearned finance charges, and (ii) the Residual Value, and
subtracting any security deposit and any net liquidation proceeds realized from
the sale of the related leased Vehicle.
In the event of an early termination of, or default under, a Lease
Contract, such Lease Contract may provide that if the lessee disagrees with the
wholesale price for the leased Vehicle, the lessee has the right to obtain from
an independent third party a professional appraisal of the wholesale value of
the leased Vehicle that could be realized at sale. This appraised value then
would be used as the revised estimated fair market value for purposes of
calculating sums due from the lessee in such circumstances.
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In the event of early termination of, or a default under, a Lease
Contract, any shortfall between the amounts collected with respect to such Lease
Contract (after deducting the costs and other sums retained by the Servicer in
connection therewith) and the Discounted Contract Balance, together with the
Residual Value, of such Contract, including but not limited to a shortfall due
to the use of wholesale appraisal of a leased Vehicle as described above, will
reduce the value of the collateral constituting a part of the Asset Pool. To the
extent that any such shortfall is not covered through payments on or in respect
of the other Lease Contracts and leased Vehicles, from monies on deposit in the
Accounts, from claims under the Residual Value Insurance, if any, or from other
insurance proceeds or liquidation proceeds, the related Securityholders could
suffer a loss on their investment.
VEHICLES AND RECOVERIES THEREON
The Asset Pools will not include the underlining vehicles, although the
right to receive recoveries with respect to the Vehicles in the event that the
related Contract becomes defaulted may be included on the Asset Pools. The
related Prospectus Supplement will specify whether the Company will execute the
requisite documents in order to convey title to a Finance Subsidiary, or the
Trustee. If the Asset Pool includes a security interest in the related contract
becomes defaulted may be included on the Asset Pools. The related Prospectus
Supplement will specify what actions, if any, will be taken to perfect such
security interest including, but not limited to, filing applications for
notation of a lien in favor of the related Trustee on the certificates of title
for the leased Vehicles on the Closing Date and/or filing in the requisite
jurisdictions UCC-1 financing statements noting such a security interest in
favor of the related Trustee. See "Risk Factors - Security Interests in the
Leased Vehicles".
Since the Asset Pools will not contain the related Vehicles, no
Securities will be issued in respect of the Vehicles or any Residual Values
associated therewith; the aggregate principal balance of the Securities of
any Series will not exceed the Aggregate Discounted Contract Balance of the
related Contracts.
In the event that a Contract becomes a defaulted Contract, the
Servicer will be required to attempt to maximize the receiver, value thereon,
which may include commencing a legal action against the related Obligor for the
balance of the scheduled monthly payments remaining on such Contract,
repossessing and selling the related Vehicle or both.
Repossessions involve the seizure of the related Vehicle, followed by
either the sale of the Vehicle or the releasing of the Vehicle to a new
Obligor. In the event that the Vehicle is repossessed and offered for sale, the
sale will be conducted either at a public auction, or the Vehicle will be
consigned to a dealership and offered for sale on the lot; which sale method is
selected by the Servicer will depend on the Servicer's determination of which
method will not likely maximize the recovery proceeds, and will also depend
upon the availability of public auctions versus dealerships in the locale in
which the repossession is effected.
The related Trust will only be entitled to any recovery up to the
amount of the remaining Discounted Contract Balance of the related Contract. In
the event that a Vehicle is released, the new Contract will be substituted for
the old Contract in the related Asset Pool.
The Servicer may, in realizing on defaulted Contracts, utilize the
original lessor, as Servicer.
Since the Company began including Vehicles in its programs, which
occurred on , and through March 31, 1997, Contracts, representing
approximately $ in aggregate Discounted Contract Balance, have become
defaulted Contracts. Of such defaulted Contracts, have
resulted or the related Vehicle being repossessed. Aggregate net losses on such
defaulted Contracts have totalled $ .
If a Contract becomes a "fully-performed Contract", i.e., the related
Obligor has made all scheduled payments thereon, the Obligor will generally
have the option to purchase the Vehicle, or to return the Vehicle to the
Servicer for sale or re-leasing. Any recoveries on such a fully-performed
Contract will or released to the Company, subject to any conditions precedent
to such release set forth in the related Trust Agreement.
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RESIDUAL VALUE INSURANCE
As specified in the related Trust Agreement, the Company may have
obtained an insurance policy in respect of the Residual Values of the leased
Vehicles relating to Matured Contracts (the "Primary Residual Value Insurance
Policy"). The Trustee may be named as an additional insured under the Primary
Residual Value Insurance Policy. Any such Primary Residual Value Insurance
Policy generally provides coverage for 100% of the amount by which the "residual
value" of any leased Vehicle exceeds the "market value" therefor. For these
purposes, "residual value" is generally determined by reference to the
Automotive Lease Guide, Percentage Edition, and will be calculated by
multiplying the manufacturer's suggested price for such Leased Vehicle (as
adjusted to reflect any optional equipment) by a percentage that varies
depending upon the original term of the related Contract. Additional adjustments
are generally then made for any excess mileage and excess damage. "Market value"
is generally the greater of (i) the price actually received by or on behalf of
the insured in a commercially reasonable sale held in accordance with procedures
approved by such insurer, or (ii) the "average wholesale value" established by
the Black Book Used Car Market Guide, monthly edition. An insurer may
unilaterally change the reference publications used for these definitions upon
providing advance notice. The Primary Residual Value Insurance Policy generally
does not have any deductibles or provide for co-insurance, but does provide for
a maximum amount payable in respect of a leased Vehicle and an aggregate cap for
all payments made in respect of the leased Vehicles.
As specified in the related Trust Agreement, the Company may have
obtained an additional insurance policy (the "Excess Residual Value Insurance
Policy" and together with the Primary Residual Value Insurance Policy, the
"Residual Value Insurance") providing coverage in respect of the "insured value"
of a lease contract covered thereby in excess of a deductible of a specified
percentage of the insured value, depending upon the original term of the related
lease contract. For purposes of any Excess Residual Value Insurance Policy, the
"insured value" is generally equal to the lesser of (i) the residual value set
forth in the Company is Residual Lease Guide in effect as of the date of
origination of the related lease contract or (ii) the residual value set forth
in the Automotive Lease Guide, Percentage Edition in effect for the original
term of such Lease Contract.
An such Excess Residual Value Insurance Policy would be an excess
policy, and a claim thereunder would be made only after deducting any other
recovery by the Servicer in respect of the related Residual Value of a leased
Vehicle, and the "fair market value" of such leased Vehicle. The "fair market
value" of a Leased Vehicle is generally defined in such Excess Residual Value
Insurance Policy as an amount equal to the greater of (i) the best sales price
offered in respect of such leased Vehicle in commercially reasonable sales
transaction or (ii) the "Clean Wholesale" value established in the Black Book
Used Car Market Guide Monthly. Claims made under such Excess Residual Value
Insurance Policy are generally based upon a comparison of the net recoveries for
all covered vehicles disposed of during the related quarter to the aggregate
insured values therefor. As a result, the amount payable under such Excess
Residual Value Insurance Policy in respect of the Residual Value of a leased
Vehicle could be less than the insured value of such leased Vehicle.
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CONTINGENT AND EXCESS LIABILITY INSURANCE POLICIES
In addition to the personal property and liability insurance coverage
which is generally required to be obtained and maintained by the lessees
pursuant to the Lease Contracts, and as additional protection in the event that
any lessee fails to maintain all such required insurance, as specified in the
related Trust Agreement, the Company may maintain contingent liability insurance
which provides coverage (with no annual or aggregate cap on the number of claims
thereunder) for property damage or personal liability suffered by third persons
caused by any vehicle owned by any insured. The Company may be an additional
insured under this policy with respect to the Leased Vehicles. As specified in
the related Trust Agreement, the Company may also maintain substantial amounts
of excess insurance coverage for which the Issuer may be named as an additional
named insured (together with the aforementioned primary contingent liability
insurance policy, the "Contingent and Excess Liability Insurance Policies").
Such insurance policies generally provide insurance coverage in excess of $10
million per claim, and permit multiple claims in any policy period. With respect
to damage to the leased Vehicles themselves, each lessee is generally obligated
by the related Lease Contract to maintain collision insurance. In the event that
the Issuer was not named as an additional insured under the Contingent and
Excess Liability Insurance Policies or all of the foregoing insurance coverage
were exhausted and damages were assessed against the Issuer, claims could be
imposed against the assets of the Issuer. In such event, the related
Securityholders could incur a loss on their investment. See "Risk Factors
- -- Vicarious Tort Liability" and "Certain Legal Aspects of the
Receivables -- Vicarious Tort Liability".
B. LOAN CONTRACTS
The Loan Contracts will consist of generally fixed rate, close end
consumer installment automobile finance contracts arising from the sale of a
Vehicle. As specified in the related Prospectus Supplement, the Loan Contracts
may consist of any combination of Rule of 78s Contracts, Fixed Value Contracts
or Simple Interest Contracts. Generally, "Rule of 78s Contracts" provide for
fixed level monthly payments which will amortize the full amount of the Loan
Contract over its term. The Rule of 78s Contracts provide for allocation of
payments according to the "sum of periodic balances" or "sum of monthly
payments" method (the "Rule of 78s"). Each Rule of 78s Contract provides for the
payment by the Obligor of a specified total amount of payments, payable in
monthly installments on the related due date, which total represents the
principal amount financed and finance charges in an amount calculated on the
basis of a stated annual percentage rate ("APR") for the term of such Loan
Contract. The rate at which such amount of finance charges is earned and,
correspondingly, the amount of each fixed monthly payment allocated to reduction
of the outstanding principal balance of the related Loan Contract are calculated
in accordance with the Rule of 78s. Under the Rule of 78s, the portion of each
payment allocable to interest is higher during the early months of the term of a
Loan Contract and lower during later months than that under a constant yield
method for allocating payments between interest and principal. Notwithstanding
the foregoing, as specified in the related Prospectus Supplement, all payments
received by the related Servicer on or in respect of the Rule of 78s Contracts
may be allocated on an actuarial basis.
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Generally, the "Fixed Value Contracts" provide for monthly payments
with a final fixed value payment which is greater than the scheduled monthly
payments. A Fixed Value Contract provides for amortization of the loan over a
series of fixed level payment monthly installments, but also requires a final
fixed value payment due after payment of such monthly installments which may be
satisfied by (i) payment in full in cash of such amount, (ii) transfer of the
vehicle to the Company provided certain conditions are satisfied or (iii)
refinancing the fixed value payment in accordance with certain conditions. With
respect to Fixed Value Contracts, as specified in the related Prospectus
Supplement, only the principal and interest payments due prior to the final
fixed value payment and not the final fixed value payment may be included
initially in the related Asset Pool.
"Simple Interest Contracts" provide for the amortization of the amount
financed under the receivable over a series of fixed level monthly payments.
However, unlike the monthly payment under Rule of 78s Contracts, each monthly
payment consists of an installment of interest which is calculated on the basis
of the outstanding principal balance of the receivable multiplied by the stated
APR and further multiplied by the period elapsed (as a fraction of a calendar
year) since the preceding payment of interest was made. As payments are received
under a Simple Interest Contract, the amount received is applied first to
interest accrued to the date of payment and the balance is applied to reduce the
unpaid principal balance. Accordingly, if an Obligor pays a fixed monthly
installment before its scheduled due date, the portion of the payment allocable
to interest for the period since the preceding payment was made will be less
than it would have been had the payment been made as scheduled, and the portion
of the payment applied to reduce the unpaid principal balance will be
correspondingly greater. Conversely, if an Obligor pays a fixed monthly
installment after its scheduled due date, the portion of the payment allocable
to interest for the period since the preceding payment was made will be greater
than it would have been had the payment been made as scheduled, and the portion
of the payment applied to reduce the unpaid principal balance will be
correspondingly less. In either case, the Obligor pays a fixed monthly
installment until the final scheduled payment date, at which time the amount of
the final installment is increased or decreased as necessary to repay the then
outstanding principal balance.
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If an Obligor elects to prepay a Rule of 78s Contract in full, it is
entitled to a rebate of the portion of the outstanding balance then due and
payable attributable to unearned finance charges. If a Simple Interest Contract
is prepaid, rather than receive a rebate, the Obligor is required to pay
interest only to the date of prepayment. The amount of a rebate under a Rule of
78s Contract calculated in accordance with the Rule of 78s will always be less
than had such rebate been calculated on an actuarial basis and generally will be
less than the remaining scheduled payments of interest that would be due under a
Simple Interest Contract for which all payments were made on schedule.
Distributions to Security holders may not be affected by Rule of 78s rebates
under the Rule of 78s Contract because pursuant to the related Prospectus
Supplement such distributions may be determined using the actuarial method.
The Receivables and related items in each Asset Pool will be acquired
by the Company from the Seller pursuant to a contribution and sale agreement
between the Seller and the Company (each, a "Contribution and Sale Agreement").
The Receivables included in each Asset Pool will be selected from those
Receivables held by the Seller based on the criteria specified in the applicable
Trust Agreement and described in the related Prospectus Supplement. The Company
will form each Asset Pool by either (i) transferring the related Receivables to
a Trust pursuant to a Pooling Agreement or (i) with respect to Notes issued by
the Company, entering into an Indenture with an Indenture Trustee.
Information with respect to the Receivables in each Asset Pool will be
set forth in the related Prospectus Supplement, including, to the extent
appropriate, the distribution of such Receivables by equipment type, remaining
term, original term, Discounted Contract Balance and/or Discounted Contract and
Residual Balance, lessee industry and geographic distribution, in each case, as
of the applicable Cut-Off Date.
THE RECEIVABLES
PORTFOLIO ACQUISITION PROGRAM
General
First Sierra's Portfolio Acquisition Program focuses on acquisition of
receivables from independent lease financing companies, captive equipment lease
finance companies, and bank leasing companies. In general, First Sierra seeks to
acquire the portfolios of equipment lease finance companies being sold by parent
companies exiting the business, independent companies seeking a financial
partner, or companies with businesses complimentary to that of First Sierra. It
is anticipated that such transactions will generally range in size from $20
million to $100 million.
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Underwriting Procedures
Prior to the acquisition of a portfolio of receivables under
its Portfolio Acquisition Program, First Sierra typically reviews all or a
portion of the receivables files included in such portfolio, the loss and
delinquency experience of such portfolio and such other factors as may be
appropriate to the particular lessor. To the extent that the receivables
acquired from a particular source constitute a material portion of any Asset
Pool, the underwriting procedures with respect to such acquisition will be
described in greater detail in the related Prospectus Supplement.
PRIVATE LABEL PROGRAM
General
The Private Label Program was designed to provide financing to small
ticket lessors which were typically financed by local commercial banks. Each
Private Label transaction generally contains one or more of the following types
of loss protection (a) recourse to the lessor which requires the lessor to
repurchase leases that are typically 90 days past due up to an aggregate amount
that is 10% to 20% of the total purchase price of the leases acquired from such
lessor, (b) remarketing of the equipment that is subject to a defaulted lease
and (c) maintenance of a reserve fund funded by holdbacks of a portion of the
purchase price owing to the lessor, such reserve funds typically range from 1%
to 10% of the purchase price of the related leases. However, some Private Label
transactions contain none of the foregoing protections and are non-recourse to
the Lessor (although such Lessors are obligated to repurchase leases as to which
a breach of representation or warranty occurs.
The Private Label Program utilizes three separate forms of agreements
that utilize the above types of loss protection. Under the first, First Sierra
has recourse to the lessor in an amount ranging from 10% to 20% of the aggregate
purchase price of the leases acquired from such lessor for defaulted leases.
Under the second form of agreement, in addition to the aforementioned recourse
to the lessor, First Sierra has the benefit of a funded cash reserve account
which generally ranges from 1% to 10% of the total purchase price of the leases
acquired from such lessor. Such amount is funded by the retention of a specified
percentage of the purchase price for each lease as a reserve. Under the third
option, First Sierra has recourse only to the cash reserve account for credit
losses.
Underwriting Procedures.
In order to qualify for participation in the Private Label Program, a
lessor must satisfy certain criteria, which generally require that the majority
of the lessor's business be small ticket leases ($5,000 - $250,000), generate a
minimum volume of leases, have been in business a minimum of five years, have
established a track record in business and personal credit, and have sufficient
staff and financial resources. The specific lessor requirements vary depending
upon such things as transaction size, and type and location of equipment leased.
First Sierra's underwriting guidelines with respect to lessees contain
specific requirements which vary according to the nature of the lessee's
business, the size of the transaction, and the type of program under which the
lessor is seeking approval. In underwriting the lessee, First Sierra considers,
among other things, time in business, bank, credit and trade references, credit
bureau reports on all officers, Dun & Bradstreet reports, confirmation of
ownership, complete financial package, personal guarantees, maximum exposure per
lessee, verification of a personal medical license, where applicable, and
historical financial statements or tax returns for exposures exceeding $50,000.
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The Private Label lessor typically closes the lease transaction prior
to sale to First Sierra. The lessor will have performed all the necessary credit
inquiries and documentation, and will submit this information to First Sierra
for review. Each lease submitted for funding from any approved lessor is
individually underwritten and approved by First Sierra. Individual lease
underwriting procedures generally include review of credit bureau reports and
verification of bank references, trade references, and licenses. For
transactions over $50,000, First Sierra reviews personal financial statements,
business financial statements, and tax returns with an emphasis on cash flow and
the ability to service the lease payments and debt. For each lease application
First Sierra receives, the credit department reviews all documentation and
credit reviews. First Sierra performs periodic verification on all acquired
leases on a random basis.
Additional underwriting procedures will be described in the related
Prospectus Supplement.
RECEIVABLES POOLS
Information with respect to the Receivables in each Asset Pool will be
set forth in the related Prospectus Supplement, including, to the extent
appropriate, the composition of such Receivables and the distribution of such
Receivables by equipment type, payment frequency and current principal balance
as of the applicable Cut-off Date.
DELINQUENCIES, REPOSSESSIONS, AND NET LOSSES
Certain information relating to the Seller's delinquency, repossession
and net loss experience with respect to Contracts it has originated or acquired
will be set forth in each Prospectus Supplement. This information may include,
among other things, the experience with respect to all Contracts in the Seller's
portfolio during certain specified periods, including Contracts which may not
meet the criteria for selection as a Receivable for any particular Asset Pool.
There can be no assurance that the delinquency, repossession and net loss
experience on any Asset Pool will be comparable to the Seller's prior
experience.
MATURITY AND PREPAYMENT CONSIDERATIONS
Generally, none of the Seller's originated Contracts are prepayable at
any time. As more fully described in the related Prospectus Supplement, if a
Contract permits a Prepayment such payment or upon a default that results in
such payment, will shorten the weighted average life of the related pool of
Receivables and the weighted average life of the related Securities. The rate of
Prepayments on the Receivables may be influenced by a variety of economic,
financial and other factors. In addition, under certain circumstances, the
Company or the Seller will be obligated to acquire Receivables from the related
Asset Pool pursuant to the applicable Trust Agreement or Contribution and Sale
Agreement as a result of breaches of representations and warranties. Any
reinvestment risks resulting from a faster or slower amortization of the related
Securities which results from Prepayments will be borne entirely by the related
Securityholders.
The related Prospectus Supplement will set forth certain additional
information with respect to the maturity and prepayment considerations
applicable to a particular pool of Receivables and the related series of
Securities.
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POOL FACTORS
The "Pool Factor" for each Class of Securities will be a seven-digit
decimal, which the Servicer will compute prior to each distribution with respect
to such Class of Securities, indicating the remaining outstanding principal
balance of such Class of Securities as of the applicable Payment Date, as a
fraction of the initial outstanding principal balance of such Class of
Securities. Each Pool Factor will be initially 1.0000000, and thereafter will
decline to reflect reductions in the outstanding principal balance of the
applicable Class of Securities. A Securityholder's portion of the aggregate
outstanding principal balance of the related Class of Securities is the product
of (i) the original aggregate purchase price of such Securityholder's Securities
and (ii) the applicable Pool Factor.
THE COMPANY
First Sierra Receivables II, Inc. (the "Company") is a limited purpose
corporation organized under the laws of the State of Delaware in October, 1995.
The Company's principal executive offices are located at 1061 East Indiantown
Road, Suite 204, Jupiter, Florida 33477.
The Company does not intend to engage in any business or investment
activities other than acquiring, owning, leasing, transferring, receiving or
pledging the assets transferred to the Company. The Company's certificate of
incorporation (the "Certificate of Incorporation") limits the Company's business
and investment activities to the above purposes and to any activities necessary,
suitable or convenient to accomplish the foregoing or incidental thereto.
Pursuant to the Company's Certificate of Incorporation, the limitations so
imposed on the Company's business may only be altered upon unanimous affirmative
vote of all of the Company's directors, including the Independent Director. The
Company's Certificate of Incorporation requires the Company, at all times, to
have at least one Independent Director. An "Independent Director" is not
permitted to be a director, officer or employee of any direct or ultimate parent
or affiliate of the Seller, provided, however, that such Independent Director
may serve in similar capacities for other limited purpose corporations which are
affiliated with the Originator. The Company's Certificate of Incorporation
further prohibits the Company, without the unanimous affirmative vote of the
directors, including the Independent Director, from (1) instituting or
consenting to the institution of bankruptcy or insolvency proceedings, (2)
merging or consolidating with another corporation, (3) incurring, assuming or
guaranteeing any indebtedness other than as otherwise provided in the
Certificate of Incorporation, or (4) engaging in certain other actions that
would have a negative impact upon whether the separate legal identities of the
Company and the Seller will be respected.
The Company has taken steps in structuring the transactions
contemplated hereby that are intended to ensure that the voluntary or
involuntary petition for relief by the Originator under any Insolvency Law will
not result in consolidation of the assets and liabilities of the Company with
those of the Seller. These steps include the creation of the Company as a
separate, limited purpose corporation having a restrictive Certificate of
Incorporation as described above.
In addition, with respect to each Trust, the related Trustee will
covenant that they will not at any time institute against the Company any
bankruptcy, reorganization or other proceeding under any Insolvency Law. In
addition, each Securityholder, by his or her purchase of the related Securities
will be deemed to have covenanted that he or she will not at any time institute
against the Company any bankruptcy, reorganization or other proceeding under any
Insolvency Law.
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<PAGE> 37
The Company will not acquire any assets other than the Receivables and
other assets transferred by the Seller pursuant to the Contribution and Sale
Agreements. Because the Company does not have any operating history and will not
engage in any business activity other than as described above, there has not
been included herein any historical or current financial information with
respect to the Company.
The Seller will warrant to the Company in each Contribution and Sale
Agreement that the transfer of the related Receivables by it to the Company is a
valid transfer of the Receivables to the Company. In addition, the Seller and
the Company will treat the transactions described herein and in the related
Prospectus Supplement as a transfer of the Receivables to the Company, and the
Company will take all actions that are required to perfect the Company's
ownership interest in the Receivables. Notwithstanding the foregoing, if the
Seller were to become a debtor in a bankruptcy case and a creditor or
trustee-in-bankruptcy of such debtor or such debtor itself were to take the
position that the transfer of the Receivables to the Company should be
recharacterized as a pledge of such Receivables to secure a borrowing of such
debtor, then delays in payments of collections of Receivables to the Company
could occur or (should the court rule in favor of any such trustee, debtor or
creditor) reductions in the amount of such payments could result. If the
transfer of Receivables to the Company is recharacterized as a pledge, then a
tax or government lien on the property of the Seller arising before the transfer
of Receivables to the Company may have priority over the Company's interest in
such Receivables. If the transfer of Receivables to the Company is treated as a
sale, the Receivables would not be part of the Seller's bankruptcy estate and
would not be available to the Seller's creditors.
THE SERVICER
GENERAL
First Sierra Financial, Inc., a Delaware corporation ("First Sierra"),
was founded in June 1994. Its principal office is located at 600 Travis Street,
Suite 7050, Houston, Texas 77002. Since its incorporation, First Sierra has
acquired over $70 million of equipment finance leases.
The common stock of First Sierra is privately held.
As of September 30, 1995, First Sierra had 13 full time employees, of
which 5 were engaged in credit and collection activities, 7 were engaged in
servicing and general administration activities and 1 was engaged in marketing
activities.
First Sierra is engaged in two principal business activities. The first
is the acquisition of equipment lease portfolios (the "Portfolio Acquisition
Program"). The second is the acquisition of small ticket leases and a security
interest in the related equipment from small independent equipment leasing
companies on an on-going basis, generally as such leases are originated (the
"Private Label Program"). See "The Receivables."
SERVICING
The Contracts included in each Asset Pool will be serviced by First
Sierra, as the Servicer, pursuant to and in accordance with the related
Servicing Agreement.
DELINQUENCY AND DEFAULT EXPERIENCE
As of December 31, 1995, First Sierra Financial, Inc. had not
experienced any losses on the portfolio of contracts originated since its
inception. First Sierra has recovered the full value of defaulted contracts in
its Private Label Program under the recourse and reserve provisions the program
agreements established with sources from which First Sierra purchased the
contracts.
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DELINQUENCY PERFORMANCE:
<TABLE>
<CAPTION>
% of Leases Past Due September 30,1994 December 31, 1995 March 31, 1995 June 30, 1995 September 30, 1995 December 31, 1995
<S> <C> <C> <C> <C> <C> <C>
Remaining Lease Receivables $376,233 $5,917,426 $14,741,890 $35,104,025 $63,713,023 $83,892,400
31 - 60 Days Delinquent 0.00% 0.00% 3.60% 2.10% 1.30% 2.51%
61 - 90 Days Delinquent 0.00% 0.00% 0.10% 0.20% 0.50% 0.45%
Over 90 Days Delinquent 0.00% 0.00% 0.00% 0.50% 0.50% 0.08%
Total 0.00% 0.00% 3.70% 2.80% 2.3% 3.04%
</TABLE>
Updated information with respect to delinquency and default experience
will be incorporated by Reference by a filing of Form 8-K and, to the extent so
filed, will be included in each subsequent Prospectus Supplement.
COLLECTION POLICIES
On a day-to-day basis, the billing and collection process is handled by
First Sierra's automated billing system. Day-to-day collections are processed
through Texas Commerce Bank's cash management operations, which utilizes optical
code reading technology to scan the invoices and earmark payments to a given
pool, depending upon the lease funding method.
Generally, First Sierra relies on the Lessors to undertake the initial
collection efforts with respect to the Obligors. First Sierra monitors contract
receipts and aging results on a daily basis. If a payment is not received within
30 days of its schedule due date, First Sierra will send a delinquency report to
the lessor, which continues to subservice the contracts. The lessor in turn is
obligated to take action to prevent the delinquency from worsening. After 60
days, First Sierra contacts the lessor directly to notify it that it has 30 days
to bring the account current. After 90 days, First Sierra notifies the lessor
that it has 60 days to repurchase the contract, if it was purchased pursuant to
a recourse program, or to repossess the Vehicle. After 150 days, First Sierra
charges off the account.
THE TRUSTEES
The Trustee for each series of Securities will be specified in the
related Prospectus Supplement. The Trustee's liability in connection with the
issuance and sale of the related Securities is limited solely to the express
obligations of such Trustee set forth in the related Trust Agreement.
With respect to each series of Securities, no resignation or removal of
the Trustee and no appointment of a successor Trustee shall become effective
until the acceptance of appointment by the successor Trustee. The Trustee may
resign for cause at any time by giving written notice thereof to the Company and
by mailing notice of resignation by first-class mail, postage prepaid, to the
Securityholders of such series at their addresses appearing on the Security
Register. The Trustee may be removed at any time by written notice of the
holders of Securities evidencing more than 50% of the voting rights with respect
to such series, delivered to the Trustee and the Company. If the Trustee shall
resign, be removed, or become incapable of acting, or if a vacancy shall occur
in the office of Trustee for any cause, the Company shall promptly appoint a
successor Trustee. If no successor Trustee shall have been so appointed by the
Company or the Securityholders, or if no successor Trustee shall have accepted
appointment within 30 days after any such resignation or removal, existence of
incapability, or occurrence of such vacancy, the Trustee or any Securityholder
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
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DESCRIPTION OF THE SECURITIES
GENERAL
The Securities will be issued in series. Each series of Securities (or,
in certain instances, two or more series of Securities) will be issued pursuant
to a Trust Agreement. The following summaries (together with additional
summaries under "The Trust Agreement" below) describe all material terms and
provisions relating to the Securities common to each Trust Agreement. The
summaries do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all of the provisions of the Trust Agreement for
the related Securities and the related Prospectus Supplement.
All of the Securities offered pursuant to this Prospectus and the
related Prospectus Supplement will be rated in one of the four highest rating
categories by one or more Rating Agencies.
The Securities will generally be styled as debt instruments, having a
principal balance and a specified Interest Rate. The Securities may either
represent beneficial ownership interests in the related Asset Pool held by the
related Trust or debt secured by certain assets of the related Issuer. To the
extent that the Securities represent debt secured by certain assets of the
related Asset Pool, such Securities will not represent beneficial ownership
interests in the related Receivables.
Each series or Class of Securities offered pursuant to this Prospectus
may have a different Interest Rate, which may be a fixed or adjustable interest
rate. The related Prospectus Supplement will specify the Interest Rate for each
series or Class of Securities described therein, or the initial interest rate
and the method for determining subsequent changes to the Interest Rate.
A series may include one or more Classes of Strip Securities entitled
(i) to principal distributions, with disproportionate, nominal or no interest
distributions, or (ii) to interest distributions, with disproportionate, nominal
or no principal distributions. In addition, a series of Securities may include
two or more Classes of Securities that differ as to timing, sequential order,
priority of payment, Interest Rate or amount of distribution of principal or
interest or both, or as to which distributions of principal or interest or both
on any Class may be made upon the occurrence of specified events, in accordance
with a schedule or formula, or on the basis of collections from designated
portions of the related pool of Receivables. Any such series may include one or
more Classes of Accrual Securities, as to which certain accrued interest will
not be distributed but rather will be added to the principal balance (or nominal
balance, in the case of Accrual Securities which are also Strip Securities)
thereof on each Payment Date, as hereinafter defined, or in the manner described
in the related Prospectus Supplement.
If so provided in the related Prospectus Supplement, a series may
include one or more other Classes of Senior Securities that are senior to one or
more other Classes of Subordinate Securities in respect of certain distributions
of principal and interest and allocations of losses on Receivables.
In addition, certain Classes of Senior (or Subordinate) Securities may
be senior to other Classes of Senior (or Subordinate) Securities in respect of
such distributions or losses.
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GENERAL PAYMENT TERMS OF SECURITIES
As provided in the related Trust Agreement and as described in the
related Prospectus Supplement, Securityholders will be entitled to receive
payments on their Securities on the specified Payment Dates. Payment Dates with
respect to the Securities will occur monthly, quarterly or semi-annually, as
described in the related Prospectus Supplement.
The related Prospectus Supplement will describe the Record Date
preceding such Payment Date, as of which the Trustee or its paying agent will
fix the identity of the Securityholders for the purpose of receiving payments on
the next succeeding Payment Date. As more fully described in the related
Prospectus Supplement, the Payment Date may be the tenth, fifteenth or
twenty-fifth day of each month (or, in the case of quarterly-pay Securities, the
tenth, fifteenth or twenty-fifth day of every third month; and in the case of
semi-annual pay Securities, the tenth, fifteenth or twenty-fifth day of every
sixth month) and the Record Date will be the close of business as of the last
day of the calendar month that precedes the calendar month in which such Payment
Date occurs.
As more fully provided in the related Prospectus Supplement, each Trust
Agreement will describe a Remittance Period preceding each Payment Date (for
example, in the case of monthly-pay Securities, the calendar month preceding the
month in which a Payment Date occurs). As more fully provided in the related
Prospectus Supplement, collections received on or with respect to the related
Receivables held by a Trust during a Remittance Period will be required to be
remitted by the Servicer to the related Trustee prior to the related Payment
Date and will be used to fund payments to Securityholders on such Payment Date.
As may be described in the related Prospectus Supplement, the related Trust
Agreement may provide that all or a portion of the payments collected on or with
respect to the related Receivables may be applied by the related Trustee to the
acquisition of additional Receivables during a specified period (rather than be
used to fund payments of principal to Securityholders during such period) with
the result that the related Securities will possess an interest-only period,
also commonly referred to as a revolving period, which will be followed by an
amortization period. Any such interest only or revolving period may, upon the
occurrence of certain events to be described in the related Prospectus
Supplement, terminate prior to the end of the specified period and result in the
earlier than expected amortization of the related Securities. The revolving
period is one of structural features related to the conclusion that under
certain structures the Securities are considered debt of the particular issuer
for federal income tax considerations. The duration of the revolving period and
the requirements to be satisfied by additional Receivables will be specified in
the related Prospectus Supplement. Any direct or indirect costs to investors
associated with a revolving period will be discussed in the related Prospectus
Supplement.
In addition, and as may be described in the related Prospectus
Supplement, the related Trust Agreement may provide that all or a portion of
such collected payments may be retained by the Trustee (and held in certain
temporary investments, including Receivables) for a specified period prior to
being used to fund payments of principal to Securityholders.
Such retention and temporary investment by the Trustee of such
collected payments may be required by the related Trust Agreement for the
purposes of (a) slowing the amortization rate of the related Securities relative
to the rent payment schedule of the related Receivables, or (b) attempting to
match the amortization rate of the related Securities to an amortization
schedule established at the time such Securities are issued. Any such feature
applicable to any Securities may terminate upon the occurrence of events to be
described in the related Prospectus Supplement, resulting in distributions to
the specified Securityholders and an acceleration of the amortization of such
Securities.
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Neither the Securities nor the underlying Receivables will be
guaranteed or insured by any governmental agency or instrumentality or the
Company, First Sierra, the Servicer, any Seller, any Trustee or any of their
affiliates unless specifically set forth in the related Prospectus Supplement.
As may be described in the related Prospectus Supplement, Securities of
each series covered by a particular Trust Agreement will either evidence
specified beneficial ownership interest in a separate Asset Pool created
pursuant to such Trust Agreement or represent debt secured by the related Asset
Pool. To the extent that any Asset Pool includes certificates of interest or
participations in Receivables, the related Prospectus Supplement will describe
the material terms and conditions of such certificates or participations.
BOOK-ENTRY REGISTRATION
As may be described in the related Prospectus Supplement,
Securityholders of a given series may hold their Securities through DTC (in the
United States) or CEDEL or Euroclear (in Europe) if they are participants of
such systems, or indirectly through organizations that are participants in such
systems.
Cede, as nominee for DTC, will hold the global Securities in respect of
a given series. CEDEL and Euroclear will hold omnibus positions on behalf of the
CEDEL Participants (as defined below) and the Euroclear Participants (as defined
below) (collectively, the "Participants"), respectively, through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries (collectively, the "Depositaries") which in turn will
hold such positions in customers' securities accounts in the Depositaries' names
on the books of DTC.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entries,
thereby eliminating the need for physical movement of notes or certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations. Indirect access to the DTC system also is available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants and Euroclear Participants will
occur in the ordinary way in accordance with their applicable rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
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Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant CEDEL
Participant or Euroclear Participant on such business day. Cash received in
CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
CEDEL or Euroclear cash account only as of the business day following settlement
in DTC.
The Securityholders of a given series that are not Participants or
Indirect Participants but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, Securities of such series may do so only
through Participants and Indirect Participants. In addition, Securityholders of
a given series will receive all distributions of principal and interest through
the Participants who in turn will receive them from DTC. Under a book-entry
format, Securityholders of a given series may experience some delay in their
receipt of payments, since such payments will be forwarded by the applicable
Trustee to Cede, as nominee for DTC. DTC will forward such payments to its
Participants, which thereafter will forward them to Indirect Participants or
such Securityholders. It is anticipated that the only "Securityholder" in
respect of any series will be Cede, as nominee of DTC. Securityholder of a given
series will not be recognized as Securityholders of such series, and such
Securityholders will be permitted to exercise the rights of Securityholders of
such series only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
of Securities of a given series among Participants on whose behalf it acts with
respect to such Securities and to receive and transmit distributions of
principal of, and interest on, such Securities. Participants and Indirect
Participants with which the Securityholders of a given series have accounts with
respect to such Securities similarly are required to make book-entry transfers
and receive and transmit such payments on behalf of their respective
Securityholders of such series. Accordingly, although such Securityholders will
not possess Securities, the Rules provide a mechanism by which Participants will
receive payments and will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder of a given series to pledge Securities of such series to persons
or entities that do not participate in the DTC system, or to otherwise act with
respect to such Securities, may be limited due to the lack of a physical
certificate for such Securities.
DTC will advise the Trustee in respect of each Series that it will take
any action permitted to be taken by a Securityholder of the related series only
at the direction of one or more Participants to whose accounts with DTC the
Securities of such series are credited. DTC may take conflicting actions with
respect to other undivided interests to the extent that such actions are taken
on behalf of Participants whose holdings include such undivided interests.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets
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in several countries. As a professional depository, CEDEL is subject to
regulation by the Luxembourg Monetary Institute. CEDEL Participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Indirect access to CEDEL is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a CEDEL Participant, either directly
or indirectly.
Euroclear was created in 1968 to hold securities for participants of
the Euroclear System ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 28 currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several countries generally similar to the arrangements for
cross-market transfers with DTC described above. Euroclear is operated by Morgan
Guaranty Trust Company of New York, Brussels, Belgium office, under contract
with Euroclear Clearance System, S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the "Euroclear Operator" (as
defined below), and all Euroclear securities clearance accounts and Euroclear
cash accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for the Euroclear System on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include the Underwriters. Indirect access to the Euroclear System is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The "Euroclear Operator" is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of relationship with persons holding through Euroclear Participants.
Except as required by law, the Trustee in respect of a series will not
have any liability for any aspect of the records relating to or payments made or
account of beneficial ownership interests of the related Securities held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
DEFINITIVE NOTES
As may be described in the related Prospectus Supplement, the
Securities will be issued in fully registered, certificated form ("Definitive
Securities") to the Securityholders of a given series or their nominees, rather
than to DTC or its nominee, only if (i) the Trustee in respect of the related
series advises in writing that DTC is no longer willing or able to discharge
properly its responsibilities as depository with respect to such Securities and
such Trustee is unable to locate
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a qualified successor, (ii) such Trustee, at its option, elects to terminate the
book-entry-system through DTC or (iii) after the occurrence of an "Event of
Default" under the related Indenture or a default by the Servicer under the
related Trust Agreements, Securityholders representing at least a majority of
the outstanding principal amount of such Securities advise the applicable
Trustee through DTC in writing that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in such Securityholders' best
interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the applicable Trustee will be required to notify all such
Securityholders through Participants of the availability of Definitive
Securities. Upon surrender by DTC of the definitive certificates representing
such Securities and receipt of instructions for re-registration, the applicable
Trustee will reissue such Securities as Definitive Securities to such
Securityholders.
Distributions of principal of, and interest on, such Securities will
thereafter be made by the applicable Trustee in accordance with the procedures
set forth in the related Indenture or Trust Agreement directly to holders of
Definitive Securities in whose names the Definitive Securities were registered
at the close of business on the applicable Record Date specified for such
Securities in the related Prospectus Supplement. Such distributions will be made
by check mailed to the address of such holder as it appears on the register
maintained by the applicable Trustee. The final payment on any such Security,
however, will be made only upon presentation and surrender of such Security at
the office or agency specified in the notice of final distribution to the
applicable Securityholders.
Definitive Securities in respect of a given series of Securities will
be transferable and exchangeable at the offices of the applicable Trustee or of
a certificate registrar named in a notice delivered to holders of such
Definitive Securities. No service charge will be imposed for any registration of
transfer or exchange, but the applicable Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
REPORTS TO SECURITYHOLDERS
With respect to each series of Securities, on or prior to each Payment
Date for such series, the Servicer, Company or Trustee will forward or cause to
be forwarded to each holder of record of such class of Securities a statement or
statements with respect to the related Asset Pool setting forth the information
specifically described in the related Trust Agreement which generally will
include the following information:
(i) the amount of the distribution with respect to each class of
Securities;
(ii) the amount of such distribution allocable to principal;
(iii) the amount of such distribution allocable to interest;
(iv) the Pool Balance, if applicable, as of the close of business on the
last day of the related Remittance Period;
(v) the aggregate outstanding principal balance and the Pool Factor for
each Class of Securities after giving effect to all payments reported under
(ii) above on such Payment Date;
(vi) the amount paid to the Servicer, if any, with respect to the
related Remittance Period;
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(vii) the amount of the aggregate purchase amounts for Receivables that
have been reacquired, if any, for such Remittance Period; and
(viii) the amount of coverage under any letter of credit, financial
guaranty insurance policy, reserve account or other form of credit
enhancement covering default risk as of the close of business on the
applicable Payment Date and a description of any Credit Enhancement
substituted therefor.
Each amount set forth pursuant to subclauses (i), (ii), (iii) and (v) with
respect to the Securities of any series will be expressed as a dollar amount per
$1,000 of the initial principal balance of such Securities, as applicable.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year, the applicable Trustee will provide to the
Securityholders a statement containing the amounts described in (ii) and (iii)
above for that calendar year and any other information required by applicable
tax laws, for the purpose of the Securityholders' preparation of federal income
tax returns.
DESCRIPTION OF THE TRUST AGREEMENTS
The following summary describes certain terms of each Trust Agreement
pursuant to which an Asset Pool will be created and the related Securities in
respect of such Asset Pool will be issued. For purposes of this Prospectus, the
term "Trust Agreement" as used with respect to a Trust means, collectively, and
except as otherwise specified, any and all agreements relating to the
establishment of the related Trust, the servicing of the related Receivables and
the issuance of the related Securities, including without limitation the
Indenture, (i.e. pursuant to which any Notes shall be issued). Forms of the
Trust Agreement have been filed as exhibits to the Registration Statement of
which the Prospectus forms a part. The summary does not purport to be complete.
It is qualified in its entirety by reference to the provisions of the Trust
Agreements.
ASSIGNMENT OF THE RECEIVABLES
On the Closing Date specified with respect to any given series of Securities
(the "Closing Date"), the Company will receive the related Receivables from the
Seller pursuant to a Contribution and Sale Agreement. The Company will either
transfer such Receivables to a Trust pursuant to a Pooling Agreement, or will
pledge the Company's right, title and interests in and to such Receivables to a
Trustee on behalf of Securityholders pursuant to an Indenture. The rights and
benefits of the Company under such Contribution and Sale Agreement will be
assigned to the Trustee on behalf of Securityholders as collateral for the
Securities of the related series issued by a Trust or pursuant to an Indenture.
The obligations of the Company and the Servicer under such Trust Agreements
include those specified below and in the related Prospectus Supplement.
In each Contribution and Sale Agreement, the Seller will agree, and in each
Trust Agreement, the Servicer will agree, to indicate in its computer records
that the Receivables included in the related Asset Pool have been sold to the
Company, and, as appropriate, transferred to the related Trust and/or pledged
under the related Indenture. As specified in the related Trust Agreement, a
custodian, as may be specified therein (the "Custodian") or the Trustee will
have possession of that portion of the related Lease Files representing the
original lease documentation, including, any lease documentation constituting
"chattel paper" under the UCC.
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With respect to each Asset Pool, First Sierra, as Seller, will file UCC
financing statements with respect to the sale, contribution, transfer and
assignment of the related Receivables to the Company. If the Issuer is a Trust,
the Company will file UCC financing statements with respect to the sale,
transfer and assignment of such Receivables to such Trust. In addition, if
applicable, the Issuer will file UCC financing statements with respect to the
security interest in its assets granted to the Indenture Trustee under the
related Indenture. Since the Lease Files will remain in First Sierra's
possession, as Servicer, and will not be stamped or otherwise marked to reflect
the sale, contribution, transfer and assignment of the related Receivables to
the Company, the Trust and/or the Trustee, as applicable, if a subsequent
purchaser were able to take possession of the related Lease for new value in the
ordinary course of its business without actual knowledge of the assignments, the
Company's, the Trust's and/or the Trustees, as applicable, interests in such
Receivables could be defeated. See "Certain Legal Aspects of the Receivables."
Any Receivables to be included in an Asset Pool in substitution for other
Receivables will also be acquired by the Company from the Seller under the
related Contribution and Sale Agreement. Any substitute lease would be required
to satisfy criteria set forth in the relevant transaction documents and
described in the related prospectus supplement. Any additional costs, direct or
indirect associated with the substitution of Contracts will be discussed in the
related Prospectus Supplement.
REPRESENTATIONS AND WARRANTIES
With respect to each Asset Pool, the Seller will make certain representation
and warranties pursuant to the Contribution and Sale Agreement with respect to
the related Receivables. In the related Pooling Agreement (or, if the Issuer is
the Company, in the related Indenture), the Company will assign such
representations and warranties to the related Trust (or the related Trustee) and
will represent and warrant that the Company has taken no action to which would
cause such representations and warranties of the Seller to be false in any
material respect. Under the related Trust Agreement, in the event the Servicer
or the related Trustee discovers or by written notice is informed that any such
representation or warranty of the Seller or Company is untrue, the Servicer and
such Trustee will be obligated to use reasonable efforts to enforce the
obligation of the Seller or Company set forth in the related Contribution and
Sale Agreement or the related Pooling Agreement to purchase any Receivable
included in the related Asset Pool materially and adversely affected by such
untruth. The Seller or Company will be obligated to purchase each such
Receivable on or prior to the thirtieth day after such discovery or notice (or
such later date as the Seller or Company and such Trustee shall agree);
provided, that the Seller or Company will not be required to purchase any such
Receivable if such untruth has been cured in all material aspects or if such
Receivable is replaced with a substitute Receivable (if and to the extent
substitution is permitted in the related Trust Agreement). Any such repurchase
shall be the sole remedy for any such breach. The purchase price for any
Receivable so purchased (the "Warranty Purchase Price") will be based on the
then Discounted Lease Balance or Discounted Lease and Residual Balance of such
Receivable as further described in the related Prospectus Supplement. All such
payments will be deposited in the related Collection Account.
In each Contribution and Sale Agreement, the Seller will also make
representations and warranties to the Company to the effect that, among other
things, as of the closing date for the issuance of any related Securities: (a)
the Seller is duly formed as a corporation and in good standing under the laws
of the State of Delaware, it has the requisite power and authority to consummate
the transactions contemplated thereby and such Contribution and Sale Agreement
constitutes a legal, valid and binding obligation of the Seller and (b) the
contribution and sale of the related Receivables thereunder constitute a valid
contribution, sale, transfer and assignment to the Company of all right, title
and interest of the Seller therein (subject, in the case of Leased Vehicles, to
applicable titling statutes), and such Receivables will be held by the Company
free and clear of any lien of any person claiming through or under the Seller,
except for liens created by or permitted under the related Trust Agreement.
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In each Trust Agreement, the Company will make representations and
warranties to the effect that, among other things, as of the closing date for
the issuance of any related Securities: (a) the Company is duly incorporated and
in good standing under the laws of the State of Delaware, it has the corporate
power and authority to consummate the transactions contemplated thereby and such
Trust Agreement constitutes a legal, valid and binding agreement of the Company;
and (b) if the Issuer is a Trust, the transfer of the Receivables pursuant to
such Trust Agreement constitutes a valid sale, transfer and assignment to such
Trust of all right, title and interest of the Company in such Receivables, and
such Receivables will be held by such Trust free and clear of any lien of any
person claiming through the Company, except for liens created or permitted by
the such Trust Agreement. In the related Indenture, if any, the Issuer will
represent and warrant to the related Indenture Trustee that (a) no interest in
any Receivable conveyed by such Issuer to such Indenture Trustee thereunder has
been sold, transferred or pledged by such Issuer to any other person, (b) upon
execution and delivery of such Indenture by such Issuer, such Indenture Trustee
shall have all of the right, title and interest of the Issuer in such
Receivables, free of any lien, and (c) all UCC filings have been made to give
such Indenture Trustee, a first priority perfected security interest in the
Issuer's interest in such Contract and the related Vehicle (if such Vehicle is
located in a state in which a UCC filing was made), subject to liens permitted
by the related Trust Agreement and liens which have priority by operation of
law.
In each Contribution and Sale Agreement, the Seller will agree to do nothing
to impair the rights of the Company in the Receivables included in the related
Asset Pool, except as it is expressly permitted to do in its capacity as the
Servicer under the related Trust Agreement. In each Trust Agreement, the Company
will covenant that, except for the sale and conveyances pursuant thereto, and
the interests created under, such Trust Agreement or as otherwise permitted
therein, the Company will not sell, pledge, assign or transfer any interest in
any Receivables included in the related Asset Pool.
ACCOUNTS
With respect to each series of Securities issued by a Trust, the Servicer
will establish and maintain with the applicable Trustee one or more accounts, in
the name of such Trustee on behalf of the related Securityholders, into which
all payments made on or with respect to the related Receivables will be
deposited (the "Collection Account"). The Servicer will also establish and
maintain with such Trustee separate accounts, in the name of such Trustee on
behalf of such Securityholders, in which amounts released from the Collection
Account and the reserve account or other Credit Enhancement, if any, and to the
extent provided, for distribution to such Securityholders will be deposited and
from which distributions to such Securityholders will be made (the "Distribution
Account").
Any other accounts to be established with respect to a Trust, including any
reserve account, will be described in the related Prospectus Supplement.
For any series of Securities, funds in the Collection Account, the
Distribution Account, any reserve account and other accounts identified as such
in the related Prospectus Supplement (collectively, the "Trust Accounts") shall
be invested as provided in the related Trust Agreement in Eligible Investments.
Subject to certain conditions, Eligible Investments may include securities
issued by the Company or its affiliates or other trusts created by the Company
or its affiliates. Except as described below or in the related Prospectus
Supplement, Eligible Investments are limited to obligations or securities that
mature not later than the business day immediately preceding the next
distribution. However, subject to certain conditions, funds in the reserve
account may be invested in securities that will not mature prior to the date of
the next distribution and will not be sold to meet any shortfalls. Thus, the
amount of cash in any reserve account at any time may be less than the balance
of such reserve account. If the amount required to be withdrawn from any reserve
account to cover shortfalls in collections on the related Receivables exceeds
the amount of cash in such reserve account a temporary shortfall in the amounts
distributed to the related Securityholders could result, which could, in turn,
increase the average life of the Securities of such series. Except as otherwise
specified in the related Prospectus Supplement, investment earnings on funds
deposited in the applicable Trust Accounts, net of losses and investment
expenses (collectively, "Investment Earnings"), shall be deposited in the
applicable Collection Account on each Payment Date and shall be treated as
collections of interest on the related Receivables.
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The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution has a credit rating from each Rating
Agency in one of its generic rating categories which signifies investment grade.
"Eligible Institution" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or the related Trustee, as
applicable, or (b) a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), which (i) (A) has either
(w) a long-term unsecured debt rating acceptable to the Rating Agencies or (x) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies or (B) the parent corporation of which has either (y) a
long-term unsecured debt rating acceptable to the Rating Agencies or (z) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies and (ii) whose deposits are insured by the FDIC.
To the extent that the Seller's unsecured debt ratings are acceptable to the
Rating Agencies, amounts deposited to any Trust Account may be commingled with
the Seller's general account moneys. Any rights to so commingle moneys will be
described in the related Prospectus Supplement.
PRE-FUNDING ACCOUNT
In accordance with the provisions that may be set forth in the related
Prospectus Supplement, a portion of the issuance proceeds of the Securities of a
particular series (such amount, the "Pre-Funded Amount") will be deposited in an
account (the "Pre-Funding Account") to be established with the Trustee, which
will be used to acquire Additional Receivables from time to time during time
period specified in the related Prospectus Supplement. Prior to the investment
of the Pre-Funded Amount in Additional Receivables, such Pre-Funded Amount will
be invested in certain temporary investments satisfying certain eligibility
criteria more fully described in the related Prospectus Supplement. Although the
specific criteria with respect to such temporary investments will be specified
in the related Prospectus Supplement, such temporary investments will be highly
rated, short-term securities.
During any Pre-Funding Period, the Company will be obligated (subject only
to the availability thereof) to acquire from the Seller and to either transfer
to a Trust or pledge to a Trustee on behalf of Securityholders, Additional
Receivables from time to time during such Pre-Funding Period. Such Additional
Receivables will be required to satisfy certain eligibility criteria more fully
set forth in the related Prospectus Supplement.
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Although the specific parameters of the Pre-Funding Account with respect to
any issuance of Securities will be specified in the related Prospectus
Supplement, it is anticipated that: (a) the Pre-Funding Period will not exceed
120 days from the related Closing Date, (b) that the Additional Contracts to be
acquired during the Pre-Funding Period will be subject to the same
representations and warranties as the Contracts included in the related Asset
Pool on the Closing Date (although additional criteria may also be required to
be satisfied, as described in the related Prospectus Supplement) and (c) that
the Pre-Funded Amount will not exceed 25% of the principal amount of the
Securities issued pursuant to a particular offering.
SUBSTITUTION
Subject to the limitations set forth in the related Prospectus Supplement,
pursuant to the related Trust Agreement, the Company may have the ability to
substitute a comparable Contract, together with an interest in the related
Vehicle, for and replace any Lease that defaults, terminates prior to its
scheduled termination date or becomes subject to purchase by the Seller, the
Company or the Servicer as a result of the breach of the representations,
warranties or covenants by the Seller, the Company or the Servicer, as
applicable, with respect to such Contract. The related Prospectus Supplement
will describe the limitations, if any, on the ability of the Company to
substitute Receivables with respect to any Asset Pool and the criteria to be
satisfied with respect to any Receivable to be added to an Asset Pool in
substitution of another Receivable. The Company will acquire all such
Receivables under the related Contribution and Sale Agreement.
Upon the replacement of a Contract with a substitute Contract as described
above, the interest of the related Trustee in such replaced Lease Contract shall
be terminated and, if it has been transferred to the related Trust, such
replaced Contract shall be transferred to the Company.
SERVICING PROCEDURES
In accordance with the Servicer's procedures set forth under "Underwriting
Procedures" herein, with respect to each series of Securities, the Servicer will
make reasonable efforts to collect all payments due with respect to the
Receivables held in the related Asset Pool and, in a manner consistent with the
related Trust Agreement, will continue such collection procedures as the
Servicer follows with respect to the particular type of Receivable in the
particular pool it services for itself and others. Consistent with its normal
procedures, the Servicer may, in its discretion and on a case-by-case basis,
arrange with the Obligor on a Receivable to extend or modify the payment
schedule. Some of such arrangements (including, without limitation any extension
of the payment schedule beyond the final scheduled Payment Date for the related
Securities may result in the Servicer acquiring such Receivable if such Contract
becomes a defaulted Contract. The Servicer may sell the Vehicle securing the
respective defaulted Contract, if any, at a public or private sale, or take any
other action permitted by applicable law. See "The Asset Pools - The Vehicles
and Recoveries Thereon" and "Certain Legal Aspects of the Receivables".
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PAYMENTS ON RECEIVABLES
With respect to each series of Securities, the Servicer will deposit all
payments on the related Receivables (from whatever source) and all proceeds of
such Receivables collected within two (2) business days of receipt thereof in
the related collection facility (a "Lockbox"). As specified in the related
Prospectus Supplement, the Servicer will be required to deposit payments on the
related Receivables (from whatever source) collected during each collection
period (each, a "Collection Period") into the related Collection Account on a
specified day each month. Pending deposit into the related Collection Account,
collections in the Lockbox may be invested by the Servicer at its own risk and
for its own benefit, and will not be segregated from funds of the Servicer.
SERVICING COMPENSATION
As may be described in the related Prospectus Supplement with respect to any
series of securities issued by a Trust, the Servicer will be entitled to receive
a servicing fee for each Collection Period (the "Servicing Fee") in an amount
equal to a specified percentage per annum (as set forth in the related
Prospectus Supplement, the "Servicing Fee Rate") of the Pool Balance as of the
first day of such Collection Period. Each Prospectus Supplement and Servicing
Agreement will specify the priority of distributions with respect to the
Servicing Fee (together with any portion of the Servicing Fee that remains
unpaid from prior Payment Dates), such Servicing Fee may be paid prior to any
distribution to the related Securityholders.
The Servicer will also collect and retain any late fees, the penalty portion
of interest paid on past due amounts and other administrative fees or similar
charges allowed by applicable law with respect to the Receivables, and will be
entitled to reimbursement from each Trust for certain expenses to the extent
provided in the related Servicing Agreement or Pooling Agreement, as the case
may be. Payments by or on behalf of Lessees will be allocated to scheduled
payments and late fees and other charges in accordance with the Servicer's
normal practices and procedures.
The Servicing Fee will compensate the Servicer for performing the functions
of a third party servicer of similar types of receivables as an agent for their
beneficial owner, including collecting and posting all payments, responding to
inquiries of Lessees on the Receivables, investigating delinquencies, sending
payment coupons to Lessees, paying costs of collection and disposition of
defaults, and policing the collateral. The Servicing Fee also will compensate
the Servicer for administering the Receivables, accounting for collections and
furnishing statements to the applicable Trustee and the applicable Indenture
Trustee, if any, with respect to distributions. The Servicing Fee also will
reimburse the Servicer for certain taxes, accounting fees, outside auditor fees,
data processing costs and other costs incurred in connection with administering
the Receivables.
DISTRIBUTIONS
With respect to each series of Securities, beginning on the Payment Date
specified in the related Prospectus Supplement, distributions of principal and
interest (or, where applicable, of principal or interest only) on each Class of
such Securities entitled thereto will be made by the applicable Indenture
Trustee to the Noteholders and by the applicable Trustee to the
Certificateholders of such series. The timing, calculation, allocation, order,
source, priorities of and requirements for each class of Noteholders and all
distributions to each class of Certificateholders of such series will be set
forth in the related Prospectus Supplement.
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<PAGE> 51
With respect to each series of Securities, on each Payment Date collections
on the related Receivables will be transferred from the Collection Account to
the Distribution Account for distribution to Securityholders, respectively, to
the extent provided in the related Prospectus Supplement. Credit Enhancement,
such as a reserve account, may be available to cover any shortfalls in the
amount available for distribution on such date, to the extent specified in the
related Prospectus Supplement. As more fully described in the related Prospectus
Supplement, and unless otherwise specified therein, distributions in respect of
principal of a Class of Securities of a given series will be subordinate to
distributions in respect of interest on such Class, and distributions in respect
of the Certificates of such series may be subordinate to payments in respect of
the Notes of such series.
CREDIT ENHANCEMENTS
The amounts and types of Credit Enhancement arrangements, if any, and the
provider thereof, if applicable, with respect to each class of Securities of a
given series will be set forth in the related Prospectus Supplement. If and to
the extent provided in the related Prospectus Supplement, credit enhancement may
be in the form of a Policy, subordination of one or more Classes of Securities,
reserve accounts, overcollateralization, letters of credit, Residual Value
Insurance, credit or liquidity facilities, third party payments or other
support, surety bonds, guaranteed cash deposits or such other arrangements as
may be described in the related Prospectus Supplement or any combination of two
or more of the foregoing. If specified in the applicable Prospectus Supplement,
Credit Enhancement for a Class of Securities may cover one or more other Classes
of Securities of the same series, and Credit Enhancement for a series of
Securities may cover one or more other series of Securities.
The presence of Credit Enhancement for the benefit of any Class or series of
Securities is intended to enhance the likelihood of receipt by the
Securityholders or such Class or series of the full amount of principal and
interest due thereon and to decrease the likelihood that such Securityholders
will experience losses. As more specifically provided in the related Prospectus
Supplement, the credit enhancement for a Class or series of Securities will not
provide protection against all risks of loss and will not guarantee repayment of
the entire principal balance and interest thereon. If losses occur which exceed
the amount covered by any Credit Enhancement or which are not covered by any
Credit Enhancement, Securityholders of any Class or series will bear their
allocable share of deficiencies, as described in the related Prospectus
Supplement. In addition, if a form of Credit Enhancement covers more than one
series of Securities, Securityholders of any such series will be subject to the
risk that such Credit Enhancement will be exhausted by the claims of
Securityholders of other series.
STATEMENTS TO INDENTURE TRUSTEES AND TRUSTEES
Prior to each Payment Date with respect to each series of Securities, the
Servicer will provide to the applicable Indenture Trustee and/or the applicable
Trustee and Credit Enhancer as of the close of business on the last day of the
preceding related Collection Period a statement setting forth substantially the
same information as is required to be provided in the periodic reports provided
to Securityholders of such series described under "Description of the
Securities--Reports to Securityholders".
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<PAGE> 52
EVIDENCE AS TO COMPLIANCE
Each Trust Agreement will provide that a firm of independent public
accountants will furnish to the related Trust and/or the applicable Indenture
Trustee and Credit Enhancer, annually, a statement as to compliance by the
Servicer during the preceding twelve months (or, in the case of the first such
certificate, the period from the applicable Closing Date) with certain standards
relating to the servicing of the Receivables.
Each Trust Agreement will also provide for delivery to the related Trust
and/or the applicable Indenture Trustee of a certificate signed by an officer of
the Servicer stating that the Servicer either has fulfilled its obligations
under such Trust Agreement in all material respects throughout the preceding 12
months (or, in the case of the first such certificate, the period from the
applicable Closing Date) or, if there has been a default in the fulfillment of
any such obligation in any material respect, describing each such default. The
Servicer also will agree to give each Indenture Trustee and each Trustee notice
of certain "Servicer Defaults" (as defined below) under the related Trust
Agreement.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the applicable Indenture
Trustee or the applicable Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
With respect to each series of Securities issued by a Trust, each Trust
Agreement will provide that First Sierra may not resign from its obligations and
duties as Servicer thereunder, except upon determination that First Sierra's
performance of such duties is no longer permissible under applicable law. No
such resignation will become effective until the related Trustee or a successor
servicer has assumed First Sierra's servicing obligations and duties under the
Trust Agreement.
Except as otherwise provided in the related Prospectus Supplement, each
Trust Agreement will further provide that neither the Servicer nor any of its
respective directors, officers, employees, or agents shall be under any
liability to the related Issuer or the related Securityholders for taking any
action or for refraining from taking any action pursuant to such Trust
Agreement, or for errors in judgment; provided, however, that neither the
Servicer nor any such person will be protected against any liability that would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties thereunder. In addition, such Trust Agreement will
provide that the Servicer is under no obligation to appear in, prosecute, or
defend any legal action that is not incidental to its servicing responsibilities
under such Trust Agreement and that, in its opinion, may cause it to incur any
expense or liability.
Under the circumstances specified in any such Trust Agreement, any entity
into which the Servicer may be merged or consolidated, or any entity resulting
from any merger or consolidation to which the Servicer is a party, or any entity
succeeding to the business of the Servicer or, with respect to its obligations
as Servicer, which corporation or other entity in each of the foregoing cases
assumes the obligations of the Servicer, will be the successor of the Servicer
under such Trust Agreement.
SERVICER DEFAULT
Except as otherwise provided in the related Prospectus Supplement, "Servicer
Default" under a Trust Agreement will include (i) any failure by the Servicer to
deliver to the applicable Trustee for deposit in any of the related Trust
Accounts any required payment or to direct such Trustee to make any required
distributions therefrom, which failure continues unremedied for greater than
three (3) Business Days after written notice from such Trustee is received by
the Servicer or after discovery by the Servicer; (ii) any failure by the
Servicer or the Company, as the case may be, duly to observe or perform in any
material respect any other covenant or agreement in such Trust Agreement, which
failure materially and adversely affects the rights of the related
Securityholders and which continues unremedied for greater than ninety (90) days
after the giving of written notice of such failure (1) to the Servicer or the
Company, as the case may be, by the applicable Trustee or (2) to the Servicer or
the Company, as the case may be, and to the applicable Trustee by holders of the
related Securities, as applicable, evidencing not less than 25% of the voting
rights of such outstanding Securities; and (iii) any Insolvency Event. An
"Insolvency Event" shall mean financial insolvency, readjustment of debt,
marshalling of assets and liabilities, or similar proceedings with respect to
the Servicer or the Company and certain actions by the Servicer or the Company
indicating its insolvency, reorganization pursuant to bankruptcy proceedings, or
inability to pay its obligations.
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RIGHTS UPON SERVICER DEFAULT
As more fully described in the related Prospectus Supplement, as long as a
Servicer Default under a Trust Agreement remains unremedied, the applicable
Trustee, Credit Enhancer or holders of Securities of the related series
evidencing not less than 25% of the voting rights of such then outstanding
Securities may terminate all the rights and obligations of the Servicer, if any,
under such Trust Agreement, whereupon a successor servicer appointed by such
Trustee or such Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under such Trust Agreement and will be entitled to
similar compensation arrangements. If, however, a bankruptcy trustee or similar
official has been appointed for the Servicer, and no Servicer Default other than
such appointment has occurred, such bankruptcy trustee or official may have the
power to prevent the applicable Trustee or such Securityholders from effecting a
transfer of servicing. In the event that the Trustee is unwilling or unable to
so act, it may appoint, or petition a court of competent jurisdiction for the
appointment of, a successor with a net worth of at least $25,000,000 and whose
regular business includes the servicing of a similar type of receivables. Such
Trustee may make such arrangements for compensation to be paid, which in no
event may be greater than the servicing compensation payable to the Servicer
under the related Trust Agreement.
WAIVER OF PAST DEFAULTS
With respect to each Asset Pool, unless otherwise provided in the related
Prospectus Supplement and subject to the approval of any Credit Enhancer, the
holders of Notes evidencing at least a majority of the voting rights of such
then outstanding Securities may, on behalf of all Securityholders of the related
Securities, waive any default by the Servicer, or by the Company, in the
performance of its obligations under the related Trust Agreement and its
consequences, except a default in making any required deposits to or payments
from any of the Trust Accounts in accordance with such Trust Agreement. No such
waiver shall impair the Securityholders' rights with respect to subsequent
defaults.
AMENDMENT
As more fully described in the related Prospectus Supplement, each of the
Trust Agreements may be amended by the parties thereto, without the consent of
the related Securityholders, for the purpose of (a) adding any provisions to or
changing in any manner or eliminating any of the provisions of such Trust
Agreements or (b) modifying in any manner the rights of such Securityholders;
provided that such action will not, in the opinion of counsel satisfactory to
the applicable Trustee, materially and adversely affect the interests of any
such Securityholder and, to the extent provided in the related Prospectus
Supplement, to which the related Credit Enhancer may consent. As may be
described in the related Prospectus Supplement, the Trust Agreements may also be
amended by the Company, the Servicer, and the applicable Trustee with the
consent of the holders of Securities evidencing at least a majority of the
voting rights of such then outstanding Securities for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Trust Agreements or of modifying in any manner the rights of such
Securityholders; provided, however, that no such amendment may (i) increase or
reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on the related Receivables or distributions that are
required to be made for the benefit of such Securityholders or (ii) reduce the
aforesaid percentage of the Securities of such series which are required to
consent to any such amendment, without the consent of the Securityholders of
such series.
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INSOLVENCY EVENT
As described in the related Prospectus Supplement, if an Insolvency Event
occurs with respect to the Company, the Receivables held in each Asset Pool will
be liquidated and each Trust will be terminated 90 days after the date of such
Insolvency Event, unless, before the end of such 90-day period, the Trustee of
such Trust shall have received written instructions from each of the related
Securityholders (other than the Company) and/or Credit Enhancer to the effect
that such party disapproves of the liquidation of such Receivables and
termination of such Trust. Promptly after the occurrence of any Insolvency Event
with respect to the Company, notice thereof is required to be given to such
Securityholders and/or Credit Enhancer; provided, however, that any failure to
give such required notice will not prevent or delay termination of any Trust.
Upon termination of any Trust, the applicable Trustee shall direct that the
assets of such Trust be promptly sold (other than the related Trust Accounts) in
a commercially reasonable manner and on commercially reasonable terms. The
proceeds from any such sale, disposition or liquidation of such Receivables will
be treated as collections on such Receivables and deposited in the related
Collection Account. If the proceeds from the liquidation of such Receivables and
any amounts on deposit in the Reserve Account, if any, and the related
Distribution Account are not sufficient to pay the Securities of the related
series in full, and no additional Credit Enhancement is available, the amount of
principal returned to Securityholders will be reduced and some or all of such
Securityholders will incur a loss.
Each Trust Agreement will provide that the applicable Trustee does not have
the power to commence a voluntary proceeding in bankruptcy with respect to any
related Trust without the unanimous prior approval of all Certificateholders
(including the Company, if applicable) of such Trust and the delivery to such
Trustee by each such Certificateholder of a certificate certifying that such
Certificateholder reasonably believes that such Trust is insolvent.
TERMINATION
With respect to each Trust formed by the Company to issue Securities, the
obligations of the Servicer, the Company and the applicable Trustee pursuant to
the related Trust Agreements will terminate upon the earlier to occur of (i) the
maturity or other liquidation of the last related Receivable and the disposition
of any amounts received upon liquidation of any such remaining Receivables and
(ii) the payment to Securityholders of the related series of all amounts
required to be paid to them pursuant to such Trust Agreement. As more fully
described in the related Prospectus Supplement, in order to avoid excessive
administrative expense, the Servicer will be permitted in respect of the
applicable Asset Pool, unless otherwise specified in the related Prospectus
Supplement, at its option to purchase from such Asset Pool, as of the end of any
Collection Period immediately preceding a Payment Date, if the Discounted
Contract Balance of the related Contracts is less than a specified percentage
(set forth in the related Prospectus Supplement) of the initial Pool Balance in
respect of such Asset Pool, all such remaining Receivables at a price equal to
the Aggregate Discounted Contract Balance of the related Securities will be
redeemed following such purchase. Unless otherwise provided in the related
Prospectus Supplement, the Trustee shall not be required to solicit bids from
third parties.
If and to the extent provided in the related Prospectus Supplement with
respect to an Asset Pool, the applicable Trustee will, within ten days following
a Payment Date as of which the Pool Balance is equal to or less than the
percentage of the initial Pool Balance specified in the related Prospectus
Supplement, solicit bids for the purchase of the Receivables remaining in such
Trust, in the manner and subject to the terms and conditions set forth in such
Prospectus Supplement. If such Trustee receives satisfactory bids as described
in such Prospectus Supplement, then the Receivables remaining in such Asset Pool
will be sold to the highest bidder.
As more fully described in the related Prospectus Supplement, any
outstanding Notes of the related series will be redeemed concurrently with
either of the events specified above and the subsequent distribution to the
related Certificateholders of all amounts required to be distributed to them
pursuant to the applicable Trust Agreement may effect the prepayment of the
Certificates of such series.
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CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
GENERAL
To the extent provided in the related Prospectus Supplement, the Contracts
that comprise the Receivables are "chattel paper" as defined in the Uniform
Commercial Code in effect in the State of Texas; the governing laws chosen in
the First Sierra forms of lease contract. The governing law of the lease
contracts acquired by the Seller pursuant to its Portfolio Acquisition Program
may vary as specified in the related Prospectus Supplement. Pursuant to the UCC
for most purposes, a sale of chattel paper is treated in a manner similar to a
transaction creating a security interest in chattel paper. To the extent
provided in the related Prospectus Supplement, First Sierra and the Company will
cause the filing of appropriate UCC-1 financing statements to be made with the
appropriate governmental authorities. Under the Trust Agreement, the Servicer
will be obligated from time to time to take such actions as are necessary to
protect and perfect the Trust's or the Trustee's interests in the Contracts and
their proceeds.
THE TRUSTEE'S INTERESTS IN THE CONTRACTS
The Contracts that comprise a portion of the Receivables will be "chattel
paper" as defined in the Uniform Commercial Code. Pursuant to the UCC for most
purposes, a sale of chattel paper is treated in a manner similar to a
transaction creating a security interest in chattel paper. The Depositor, the
related Servicer and/or the related Originator(s) will cause the filing of
appropriate UCC-1 financing statements to be made with the appropriate
governmental authorities. Under the Trust Agreement, the related Servicer will
be obligated from time to time to take such actions as are necessary to protect
and perfect the Trust's or the Trustee's interests in the Contracts and their
proceeds, which will generally consist of filing UCC filing statements by or on
behalf of (i) the related Originator and the Depositor, each as a seller and
"debtor" in favor of the Issuer as buyer and "secured party" to perfect the
sale of the Contracts under the UCC and (ii) by the issuer as "debtor" in favor
of the Trustee (on behalf of the Securityholders) as the "secured party", in
each case with respect to the perfection of a security interest in the
Contracts and any related contract rights the transfer of which is perfected
pursuant to the UCC. In addition, the related Servicer will cause the original
of each Contract to be stamped to indicate the security interest of the Trustee
therein in order to give notice to third parties of such security interest and
thereby to prevent any sale or other transfer of an interest in the Contracts
to a third party without knowledge or actual notice of the security interest.
The Trustee's security interest in the Contracts could be subordinate to
the interest of certain other parties who take possession of the Contracts
before the stamping described above has been completed. Specifically, until the
stamping process is completed, the Trustee's security interest in a Contract
could be subordinate to the rights of a purchaser of such Contract who takes
possession thereof without knowledge or actual notice of the Trustee's security
interest.
In most states the Trustee's perfected security interest in the Contracts
will be unaffected by any change of location of any lessee, since, under the
UCC as in effect in most states, this security interest will be perfected by
the filing of a UCC-1 financing statement in the jurisdiction in which the
chief executive office of the "debtor" (in this case, the issuer) is located,
not the location of any lessee.
THE TRUSTEE'S INTEREST IN THE VEHICLES
1. The Leased Vehicles
----------------------
Titling Requirements. In connection with the establishment of each Trust,
the Company will be required (to the extent not done previously) to deliver to
the appropriate motor vehicle agency office in the related states duly completed
and executed applications for (a) transfer of the certificates of title to the
related leased Vehicles from the Company to either a Finance Subsidiary or to
the related Trust, (b) release of any prior liens recorded on such certificates
of title and (c) in the event that the leased Vehicles are titled in the name of
a Finance Subsidiary and not the Trust, a notation of lien in favor of the
related Trustee on such certificates of title, except, to the extent that the
laws of any particular state do not require such a lien notation to be made to
perfect the Trustee's security interest. Various liens and interests could be
imposed upon or all part of the related Asset Pool that, by operation of law,
would take priority over the Trustee's interest thereon, however perfected. Such
liens include tax liens arising against the Company or, the Finance Subsidiary,
mechanic's, repairman's, garagemen's and motor vehicle accident liens and
certain liens for personal property taxes, in each case arising with respect to
a particular leased Vehicle, and liens arising under various state and federal
criminal statutes.
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Perfection of Security Interests in Leased Vehicles. In the event that the
leased Vehicles are not re-titled in the name of the related Trust, the related
Trustee will receive a security interest in such leased Vehicles. A security
interest in a motor vehicle registered in most states may be perfected against
creditors and subsequent purchasers without notice for valuable consideration
only by one or more of the following: depositing with the related Department of
Motor Vehicles or analogous state office a properly endorsed certificate of
title for the vehicle showing the secured party as legal owner or lienholder
thereon, or filing a sworn notation of lien with the related Department of Motor
Vehicles or analogous state office and noting such lien on the certificate of
title, or, if the vehicle has not been previously registered, filing an
application in usual form for an original registration together with an
application for registration of the secured party as legal owner or lienholder,
as the case may be. However, under the laws of most states, a transferee of a
security interest in a motor vehicle is not required to reapply to the related
Department of Motor Vehicles or analogous state office for a transfer of
registration when the security interest is sold or when the interest of the
transferee arises from the transfer of a security interest by the lienholder to
secure payment or performance of an obligation.
Although re-registration of the vehicle is not necessary to convey a
perfected security interest in the Vehicles to the Trustee, the Trustee's
security interest could be defeated through fraud, negligence, forgery or
administrative error since it may not be listed as legal owner or lienholder on
the certificates of title to the Vehicles. However, in the absence of fraud,
negligence, forgery or administrative error, the notation of the related
Originator's lien on the certificates of title will be sufficient to protect the
Trust against the rights of subsequent purchasers of a Vehicle or subsequent
creditors who take a security interest in a Vehicle. The Company will represent
and warrant, that it has, or has taken all action necessary to obtain, a
perfected security interest in each Vehicle. If there are any Vehicles as to
which the Company failed to obtain a first priority perfected security interest,
its security interest would be subordinate to, among others, subsequent
purchasers of such Vehicles and holders of first priority perfected security
interests therein. Such a failure, however, would constitute a breach of the
Company's representations and warranties under the related Trust Agreement.
Accordingly, pursuant to the related Trust Agreement, the Company would be
required to repurchase the related Receivables from the Trustee unless the
breach were cured.
2. The Loan Contracts
---------------------
Titling Requirements. Retail installment sale contracts such as the
Receivables evidence the credit sale of automobiles and light duty trucks by
dealers to consumers. The contracts also constitute personal property security
agreements and include grants of security interests in the related automobiles
and light duty trucks under the UCC. Perfection of security interests in
automobiles and light duty trucks is generally governed by the vehicle
registration or titling laws of the state in which each vehicle is registered
or titled. In most states a security interest in a vehicle is perfected by
notation of the secured party's lien on the vehicle's certificate of title.
All of the Loan Contracts name the related Company as obligee or assignee
and as the secured party. The Company will represent that it has taken all
actions necessary under the laws of the state in which the related vehicles are
titled to perfect its security interest in such vehicles, including, where
applicable, having a notation of its lien recorded on the related certificate
of title.
Perfection of Security Interests in the Loan Contracts. Pursuant to the
related Trust Agreement, the Company will assign to the Trustee the Receivables
and its interest in the security interests in the financed Vehicles. Each of
the related Prospectus Supplements will specify whether, because of the
administrative burden and expense, the Company, the related Servicer or the
Trustee will amend any certificate of title to identify the Company or the
Trustee as the new secured party on the certificates of title relating to the
Vehicles. Each of the related Prospectus Supplements will specify the UCC
financing statements to be filed in order to perfect the transfer to the
Company of the Receivables and the transfer to the Trustee of the Receivables.
Further, although neither the Company nor the Trustee will rely on possession
of the Receivables as the legal basis for the perfection of their respective
interests therein or in the security interests in the Vehicles, the related
Servicer, as specified in the related Prospectus Supplement, will continue to
hold the Receivables and any certificates of title relating to the Vehicles in
its possession as custodian for the Trustee pursuant to the related Trust
Agreement which, as a practical matter, should preclude any other party from
claiming a competing security interest in the Receivables on the basis that the
security interest is perfected by possession.
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A security interest in a motor vehicle registered in most states may be
perfected against creditors and subsequent purchasers without notice for
valuable consideration only by one or more of the following: depositing with
the related Department of Motor Vehicles or analogous state office a properly
endorsed certificate of title for the vehicle showing the secured party as
legal owner or lienholder thereon, or filing a sworn notice of lien with the
related Department of Motor Vehicles or analogous state office and noting such
lien on the certificate of title, or, if the vehicle has not been previously
registered, filing an application in usual form for an original registration
together with an application for registration of the secured party as legal
owner or lienholder, as the case may be. However, under the laws of most
states, a transferee of a security interest in a motor vehicle is not required
to reapply to the related Department of Motor Vehicles or analogous state
office for a transfer of registration when the security interest is sold or
when the interest of the transferee arises from the transfer of a security
interest by the lienholder to secure payment or performance of an obligation.
Accordingly, under the laws of such states, the assignment by the Company of its
interests in the Receivables to the Trustee under the related Trust Agreement
are effective conveyances of the respective security interests of the Company
in the Receivables, and specifically, the Vehicles, without such
re-registration and without amendment of any lien noted on the related
certificate of title, and (subject to the immediately succeeding paragraphs)
the Trustee will succeed to the Company's rights as secured party.
Although re-registration of the vehicle is not necessary to convey a
perfected security interest in the Vehicles to the Trustee, the Trustee's
security interest could be defeated through fraud, negligence, forgery or
administrative error since it may not be listed as legal owner or lienholder on
the certificates of title to the Vehicles. However, in the absence of fraud,
negligence, forgery or administrative error, the notation of the Company's lien
on the certificates of title will be sufficient to protect the Trust against
the rights of subsequent purchasers of a Vehicle or subsequent creditors who
take a security interest in a Vehicle. In each Trust Agreement, the Company
will represent and warrant, and in the related Trust Agreement, the Company
will represent and warrant that it has, or has taken all action necessary to
obtain, a perfected security interest in each Vehicle. If there are any
Vehicles as to which the Company failed to obtain a first priority perfected
security interest, its security interest would be subordinate to, among others,
subsequent purchasers of such Vehicles and holders of first priority perfected
security interests therein. Such a failure, however, would constitute a breach
of the Company's representations and warranties under the related Trust
Agreement. Accordingly, pursuant to the related Trust Agreement, the Company
would be required to repurchase the related Receivables from the Trustee unless
the breach were cured.
3. Continuity of Perfection
---------------------------
Under the laws of most states, a perfected security interest in a motor
vehicle continues for four months after the vehicle is moved to a new state from
the one in which it is initially registered and thereafter until the owner
re-registers such motor vehicle in the new state. A majority of states generally
require surrender of a certificate of title to re-register a vehicle. In those
states that require a secured party to hold possession of the certificate of
title to maintain perfection of the security interest, the secured party would
learn of the reregistration through the request from the Obligor under the
related installment sale contract to surrender possession of the certificate of
title to assist in such re-registration. In the case of vehicles registered in
states providing for the notation of a lien on the certificate of title but not
requiring possession by the secured party (such as Texas), the secured party
would receive notice of surrender from the state of re-registration if the
security interest is noted on the certificate of title. Thus, the secured party
would have the opportunity to reperfect its security interest in the vehicle in
the state of relocation. However, these procedural safeguards will not protect
the secured party if, through fraud, forgery or administrative error, the debtor
somehow procures a new certificate of title that does not list the secured
party's lien. Additionally, in states that do not require surrender of a
certificate of title for re-registration of a vehicle, re-registration could
defeat perfection. In each of the Trust Agreements, the related Servicer will be
required to take steps to effect re-perfection upon receipt of notice of
re-registration or information from the Obligor as to relocation. Similarly,
when an Obligor sells a Vehicle, the related Servicer will have an opportunity
to require satisfaction of the related Receivable before release of the lien,
either because the related Servicer will be required to surrender possession of
the certificate of title in connection with the sale, or because the related
Servicer will receive notice as a result of its lien noted thereon. Pursuant to
the related Trust Agreement, the related Servicer will hold the certificates of
title for the related Vehicles as custodian for the Trustee. Under the related
Trust Agreement, the related Servicer will be obligated to take appropriate
steps, at its own expense, to maintain perfected security interests in the
Vehicles.
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4. Priority of Certain Liens Arising by Operation of Law
--------------------------------------------------------
Under the laws of most states, certain statutory liens such as mechanics',
repairmen's and garagemen's liens for repairs performed on a motor vehicle,
motor vehicle accident liens, towing and storage liens, liens arising under
various state and federal criminal statutes and liens for unpaid taxes take
priority over even a first priority perfected security interest in such vehicle
by operation of law. The UCC also grants priority to certain federal tax liens
over the lien of a secured party. The laws of most states and federal law permit
the confiscation of motor vehicles by governmental authorities under certain
circumstances if used in or acquired with the proceeds of unlawful activities,
which may result in the loss of a secured party's perfected security interest in
a confiscated vehicle. The Company will represent and warrant to the Trustee in
the related Trust Agreement that, as of the related Closing Date, each security
interest in a Vehicle shall be a valid, subsisting and enforceable first
priority security interest in such Vehicle. However, liens for repairs or taxes
superior to the security interest of the Trustee in any such Vehicle, or the
confiscation of such Vehicle, could arise at any time during the term of a
Receivable. No notice will be given to the Trustee or any Securityholder in the
event such a lien or confiscation arises and any such lien or confiscation
arising after the related Closing Date would not give rise to the Company's
repurchase obligation under the related Trust Agreement.
REPOSSESSION OF VEHICLES
In the event of default by an Obligor, the holder of the related Contract
has all the remedies of a secured party under the UCC, except where specifically
limited by other state laws. The UCC remedies of a secured party include the
right to repossession by self-help means, unless such means would constitute a
breach of the peace. Unless a vehicle is voluntarily surrendered, self-help
repossession is accomplished simply by taking possession of the related financed
vehicle. In cases where the Obligor objects or raises a defense to repossession,
or if otherwise required by applicable state law, a court order is obtained from
the appropriate state court, and the vehicle must then be recovered in
accordance with that order. In some jurisdictions, the secured party is required
to notify the debtor of the default and the intent to repossess the collateral
and give the debtor a time period within which to cure the default prior to
repossession. Generally, this right of cure may only be exercised on a limited
number of occasions during the term of the related contract. Other jurisdictions
permit repossession without prior notice if it can be accomplished without a
breach of the peace (although in some states, a course of conduct in which the
creditor has accepted late payments has been held to create a right by the
Obligor to receive prior notice).
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws require a secured party to provide the Obligor
with reasonable notice of the date, time and place of any public sale and/or
the date after which any private sale of the collateral may be held. In
addition, some states also impose substantive timing requirements on the sale
of repossessed vehicles in certain circumstances and/or various substantive
timing and content requirements on such notices. In most states, under certain
circumstances after a financed vehicle has been repossessed, the Obligor may
redeem the collateral by paying the delinquent installments and other amounts
due. The Obligor has the right to redeem the collateral prior to actual sale or
entry by the secured party into a contract for sale of the collateral by paying
the secured party the unpaid principal balance of the obligation, accrued
interest thereon, reasonable expenses for repossessing, holding, and preparing
the collateral for disposition and arranging for its sale, plus, in some
jurisdictions, reasonable attorneys' fees and legal expenses or in some other
states, by payment of delinquent installments on the unpaid principal balance
of the related obligation.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of sale of a Vehicle generally will be applied first to the
expenses of resale and repossession and then to the satisfaction of the amounts
due under the related contract. While some states impose prohibitions or
limitations on deficiency judgments if the net proceeds from resale of a
vehicle do not cover the full amounts due under the related lease contract, a
deficiency judgment can be sought in those states that do not prohibit or limit
such judgments. However, the deficiency judgment would be a personal judgment
against the obligor for the shortfall, and a defaulting obligor would be
expected to have little capital or sources of income available following
repossession. Therefore, in many cases, it may not be useful to seek a
deficiency judgment. Even if a deficiency judgment is obtained, it may be
settled at a significant discount.
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In some states, amounts recoverable by the dealer from an obligor upon
default or early termination are not considered to be "deficiency judgments",
but damages for breach or early termination of the related contract. The
only limitation or prohibition on such damages is that they not constitute a
"penalty", but rather compensate the dealer for actual damages. Generally, there
are no requirements that any excess proceeds from disposition of a vehicle be
paid to an obligor. However, under certain state laws, where a dealer or obligor
has exercised rights against the manufacturer and obtained a replacement vehicle
and the dealer realizes a gain from disposition of the replacement vehicle, the
dealer must refund to the obligor the lesser of any offset for use paid by the
obligor to the manufacturer or the gain realized by the dealer.
OTHER LIMITATIONS ON DEFICIENCY JUDGMENTS
1. General
----------
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a creditor to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossessing a motor vehicle, and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
motor vehicle at the time of bankruptcy (as determined by the court), leaving
the party providing financing as a general unsecured creditor for the remainder
of the indebtedness. A bankruptcy court may also reduce the monthly payments due
under a contract or change the rate of interest and time of repayment of the
indebtedness. Any such shortfall, to the extent not covered by credit support
(as specified in each Prospectus Supplement), could result in losses to the
Securityholders.
2. Lease Contracts
------------------
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a lessee who enters the military service after the
origination of such lessee's Contract (including a lessee who is a member of
the National Guard or is in reserve status at the time of the origination of
the Contract and is later called to active duty) may not be charged interest
above an annual rate of 6% during the period of such lessee's active duty
status, unless a court orders otherwise upon application of the lender. Any
shortfall in interest collections resulting from the application of the Relief
Act, to the extent not covered by credit support, could result in losses to
Securityholders. In addition, the Relief Act imposes limitations which would
impair the ability of the Servicer to repossess the Leased Vehicle relating to
an affected Contract, or otherwise to take legal action with respect to such
Contract, during the lessee's period of active duty status. Thus, in the event
that such a Contract goes into default, there may be delays and losses
occasioned by the inability to realize upon the related Leased Vehicle in a
timely fashion.
CONSUMER PROTECTION LAWS
1. Lease Contracts
------------------
Numerous federal and state consumer protection laws impose requirements upon
lessors and servicers involved in consumer leasing. The federal Consumer Leasing
Act of 1976 and Regulation M, issued by the Board of Governors of the Federal
Reserve System, for example, require that a number of disclosures be made at the
time a vehicle is leased, including the amount of any down payment, a
description of the lessee's liability at the end of the lease term, the amount
of any periodic payments and the circumstances under which the lessee may
terminate the lease prior to the end of the lease term. The various consumer
protection laws would apply to the Company as the initial lessor, and may also
apply to the Issuer and the Trustee as purchasers or assignees of the Contracts.
The failure to comply with such consumer protection laws may give rise to
liabilities on the part of the Servicer, the Company and the Trustee, including
liabilities for statutory damages and attorneys' fees. In addition, claims by
the Servicer, the Company and the Trustee may be subject to set-off as a result
of such noncompliance.
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Courts have applied general equitable principles in litigation relating to
repossession and deficiency balances. These equitable principles may have the
effect of relieving a lessee from some or all of the legal consequences of a
default.
In several cases, consumers have asserted that the self-help remedies of
lessors violate the due process protections provided under the Fourteenth
Amendment to the Constitution of the United States. Courts have generally found
that repossession and resale by a lessor do not involve sufficient state action
to afford constitutional protection to consumers.
Some states have adopted "Lemon Laws" providing redress to consumers who
purchase or lease a vehicle that remains out of conformance with its
manufacturer's warranty after a specified number of attempts to correct a
problem or after a specific time period. Should any leased Vehicle become
subject to an applicable Lemon Law, a lessee could compel the Issuer to
terminate the related Lease Contract and refund a portion of prior scheduled
monthly payments. Although the Issuer may be able to assert a claim against the
manufacturer of any such defective vehicle, there can be no assurance any such
claim would be successful.
Any loss, to the extent not covered by credit support (as specified in the
Related Prospectus Supplement), could result in losses to the Securityholders.
As specified in the related Prospectus Supplement, if an Obligor were successful
in asserting any such claim or defense as described in this section, such claim
or defense may constitute a breach of a representation and warranty under the
related Receivables Acquisition Agreement and the Company unless the breach were
cured.
As specified in the related Prospectus Supplement, the Company will
represent and warrant under the related Trust Agreement, that each Receivable
complies with all requirements of law in all material respects. Accordingly, if
an Obligor has a claim against the Trustee for violation of any law and such
claim materially and adversely affects the Trustee's interest in a Receivable,
such violation would constitute a breach of representation and warranty under
the related Trust Agreement and would create an obligation of the Company to
repurchase such Receivable unless the breach were cured.
2. LOAN CONTRACTS
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon creditors and servicers involved in
consumer finance. These laws include the Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, the Fair Credit Billing Act,
the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B and Z,
state adaptations of the National Consumer Act and of the Uniform Consumer
Credit Code, state motor vehicle retail installment sale acts, state "lemon"
laws and other similar laws. In addition, the laws of certain states impose
finance charge ceilings and other restrictions on consumer transactions and
require contract disclosures in addition to those required under federal law.
These requirements impose specific statutory liabilities upon creditors who
fail to comply with their provisions. In some cases, this liability could
affect the ability of an assignee such as the Trustee to enforce consumer
finance contracts such as the Receivables.
The so-called "Holder-in-Due-Course Rule" of the Federal Trade Commission
(the "FTC Rule") has the effect of subjecting any assignee of the seller in a
consumer credit transaction (and certain related creditors and their assignees)
to all claims and defenses which the Obligor in the transaction could assert
against the seller. Liability under the FTC Rule is limited to the amounts paid
by the Obligor under the contract, and the holder of the contract may also be
unable to collect any balance remaining due thereunder from the Obligor. The
FTC Rule is generally duplicated by the Uniform Consumer Credit Code, other
state statutes or the common law in certain states. To the extent that the
Receivables will be subject to the requirements of the FTC Rule, the Trustee,
as holder of the Receivables, will be subject to any claims or defenses that
the purchaser of the related Vehicle may assert against the seller of such
Vehicle. Such claims will be limited to a maximum liability equal to the
amounts paid by the Obligor under the related Receivable.
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Under most state vehicle dealer licensing laws, sellers of automobiles and
light duty trucks are required to be licensed to sell vehicles at retail sale.
In addition, with respect to used vehicles, the Federal Trade Commission's Rule
on Sale of Used Vehicles requires that all sellers of used vehicles prepare,
complete and display a "Buyer's Guide" which explains the warranty coverage for
such vehicles. Furthermore, Federal Odometer Regulations promulgated under the
Motor Vehicle Information and Cost Savings Act and the motor vehicle title
laws of most states require that all sellers of used vehicles furnish a written
statement signed by the seller certifying the accuracy of the odometer reading.
If a seller is not properly licensed or if either a Buyer's Guide or Odometer
Disclosure Statement was not provided to the purchaser of a Vehicle, the
Obligor may be able to assert a defense against the seller of the Vehicle. If
an Obligor on a Receivable were successful in asserting any such claim or
defense, the related Servicer would pursue on behalf of the Trust any
reasonable remedies against the seller or manufacturer of the vehicle, subject
to certain limitations as to the expense of any such action to be specified in
the related Trust Agreement.
Any such loss, to the extent not covered by credit support (as specified in
the Related Prospectus Supplement), could result in losses to the
Securityholders. As specified in the related Prospectus Supplement, if an
Obligor were successful in asserting any such claim or defense as described in
this paragraph or the two immediately preceding paragraphs, such claim or
defense may constitute a breach of a representation and warranty under the
related Receivables Acquisition Agreement and the related Trust Agreement and
may create an obligation of the related Originator and the Depositor to
repurchase such Receivable unless the breach were cured.
Courts have applied general equitable principles to secured parties
pursuing repossession or litigation involving deficiency balances. These
equitable principles may have the effect of relieving an Obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections of the 14th Amendment to the Constitution of the United States.
Courts have generally either upheld the notice provisions of the UCC and related
laws as reasonable or have found that the creditor's repossession and resale do
not involve sufficient state action to afford constitutional protection to
consumers.
As specified in the related Prospectus Supplement, the Company will
represent and warrant under the related Trust Agreement that each Receivable
complies with all requirements of law in all material respects. Accordingly, if
an Obligor has a claim against the Trustee for violation of any law and such
claim materially and adversely affects the Trustee's interest in a Receivable,
such violation would constitute a breach of representation and warranty under
the related Trust Agreement and would create an obligation of the Company to
repurchase such Receivable unless the breach were cured.
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VICARIOUS TORT LIABILITY WITH RESPECT TO THE LEASED VEHICLES
Although the Issuer may own the leased Vehicles, they will be operated by
the related lessees and their respective invitees. State laws differ as to
whether anyone suffering injury to person or property involving a leased
vehicle may bring an action against the owner of the vehicle merely by virtue
of that ownership.
Some state statutes provide that a victim of such an accident has no such
cause of action against the owner of the leased vehicle arising from the
negligent operation of such leased vehicle unless the owner has negligently
entrusted or continues to negligently entrust the vehicle to an inappropriate
lessee. Other state statutes provide that the owner of a motor vehicle that is
subject to a lease having an initial term of at least one year is exempt from
liability for tort claims arising out of the negligent operation of the leased
vehicle or negligent acts of the operator in the event of an accident in which
the leased vehicle is involved if the lessee is required under the lease to
maintain certain specified levels of insurance, and such insurance is in effect.
Generally, the Lease Contracts contain provisions requiring the lessees to
maintain levels of insurance satisfying applicable state requirements and the
related Trust Agreement will require the Servicer to police compliance by the
lessees therewith.
Actions by third parties might arise against the owner of a leased Vehicle
based on legal theories other than negligence, such as a product defect or
improper vehicle preparation prior to the origination of the related lease
contract. Even if the Issuer were to be the subject of an action for damages as
a result of its ownership of a leased Vehicle, such damages may be covered by
Contingent and Excess Liability Insurance Policies if, as specified in the
related Prospectus Supplement, the Issuer is named as a beneficiary of such
policies. Although such insurance coverage is generally quite substantial, in
the event that all such insurance coverage were exhausted and damages were
assessed against the Issuer, claims could be imposed against the assets of the
Issuer, including the Leased Vehicles. However, such claims would not take
priority over any items comprising the Asset Pool to the extent that the
Trustee has a perfected security interest therein. If any such claims were
imposed the assets of the Issuer, Securityholders could incur a loss on their
investment. See "Risk Factors -- Vicarious Tort Liability".
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CERTAIN TAX CONSIDERATIONS
The Prospectus Supplement for each series of Securities will summarize,
subject to the limitations stated therein, federal income tax considerations
relevant to the purchase, ownership and disposition of such Securities.
The following is a general discussion of the anticipated Federal income tax
consequences to the holders of Securities. The tax aspects of each Series will
be reflected in the related Prospectus Supplement, and the Company will file an
additional tax opinion with respect thereto by Form 8-K.
CERTIFICATES
GENERAL
The following is a general discussion of the material anticipated federal
income tax consequences to investors of the purchase, ownership and disposition
of the Certificates offered hereby. The discussion is based upon laws,
regulations, rulings and decisions now in effect, all of which are subject to
change. The discussion below does not purport to deal with all federal tax
consequences applicable to all categories of investors, some of which may be
subject to special rules. Investors should consult their own tax advisors in
determining the federal, state, local and any other tax consequences to them of
the purchase, ownership and disposition of the Investor Certificates.
The following discussion addresses certificates of two general types: (i)
certificates ("Grantor Trust Certificates") representing interests in a trust
estate (a "Grantor Trust Estate"); and (ii) certificates ("Debt Certificates")
that are intended to be treated for federal income tax purposes as indebtedness
secured by the Vehicles and Contracts. For purposes of this discussion,
references to a "Holder" are to the beneficial owner of an Certificate.
GRANTOR TRUST CERTIFICATES
With respect to each Series of Grantor Trust Certificates, Dewey Ballantine,
special tax counsel to the Seller ("Special Counsel"), will deliver its opinion
to the Seller that (unless otherwise limited in the applicable Prospectus
Supplement) the related Grantor Trust Estate will be classified as a grantor
trust and not as a partnership or an association taxable as a corporation.
Accordingly, each Holder of a Grantor Trust Certificate will generally be
treated as the owner of an interest in the Vehicles and Contracts included in
the Grantor Trust Estate.
For purposes of the following discussion, a Grantor Trust Certificate
representing an undivided equitable ownership interest in the Vehicles and
Contracts constituting the related Grantor Trust Estate, together with interest
thereon at a pass-through rate, will be referred to as a "Grantor Trust
Fractional Interest Certificate."
In certain cases in which the Contracts in the Grantor Trust Estate consist
entirely of Finance Contracts, a Grantor Trust Certificate may be issued
representing ownership of all or a portion of the difference between the
interest component of the payments on the Finance Contracts constituting the
related Grantor Trust Estate and interest paid to the Holders of Grantor Trust
Fractional Interest Certificates issued with respect to such Grantor Trust
Estate. Such an Certificate will be referred to as a "Grantor Trust Strip
Certificate."
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TAXATION OF HOLDERS OF GRANTOR TRUST CERTIFICATES. Holders of Grantor Trust
Fractional Interest Certificates generally will be required to report on their
federal income tax returns their respective shares of the income from the
Contracts (including amounts used to pay reasonable servicing fees and other
expenses but excluding amounts payable to Holders of any corresponding Grantor
Trust Strip Certificates) and, subject to the limitations described below, will
be entitled to deduct their shares of any such reasonable servicing fees and
other expenses. If all of the Contracts in the Grantor Trust Estate consist of
Finance Contracts, the income from the Contracts will be limited to the interest
component of the payment thereon. Payments of principal generally will be
treated as nontaxable recoveries of the Holder's investment. In such a case, if
a Holder acquires a Grantor Trust Fractional Interest Certificate for an amount
that differs from its outstanding principal amount or from the aggregate
outstanding principal amount of the underlying Finance Contract, the amount
includable in income on a Grantor Trust Fractional Interest Certificate may
differ from the amount of interest distributable thereon. See "-- Discount and
Premium," below.
To the extent that a Grantor Trust Certificate represents an interest in
True Leases, an Certificateholder will be required to include in gross income
its pro rata share of all of the payments on the True Leases and will be allowed
an offsetting deduction for a portion of its basis in the Certificates. If the
Certificateholder is treated as owning an undivided interest in the Vehicles as
well as in the Contracts, the Certificateholder will be entitled to recover its
basis in the form of cost recovery deductions on the Vehicles. If the
Certificateholder is not so treated, the method for amortizing basis over the
life of the Certificates is unclear. It is possible that the Internal Revenue
Service (the "IRS") may take the position that basis must be recovered in the
same manner as if the Grantor Trust Certificates were debt instruments, which
generally will result in a slower recovery of basis than under other methods.
Individuals holding a Grantor Trust Fractional Interest Certificate
directly or through certain pass-through entities will be allowed a deduction
for such reasonable servicing fees and expenses only to the extent that the
aggregate of such Holder's miscellaneous itemized deductions exceeds two percent
of such Holder's adjusted gross income. Further, Holders (other than
corporations) subject to the alternative minimum tax may not deduct
miscellaneous itemized deductions in determining alternative minimum taxable
income.
Holders of Grantor Trust Strip Certificates generally will be required to
treat such Certificates as "stripped coupons" under section 1286 of the Internal
Revenue Code of 1986 (the "Code"). Accordingly, such a Holder will be required
to treat the excess of the total amount of payments on such an Certificate over
the amount paid for such Certificate as original issue discount and to include
such discount in income as it accrues over the life of such Certificate. See "--
Discount and Premium," below.
Grantor Trust Fractional Interest Certificates may also be subject to the
coupon stripping rules if a class of Grantor Trust Strip Certificates is issued
as part of the same series of Certificates. The consequences of the application
of the coupon stripping rules would appear to be that any discount arising upon
the purchase of such a Certificate (and perhaps all stated interest thereon)
would be classified as original issue discount and includable in the Holder's
income as it accrues (regardless of the Holder's method of accounting), as
described below under "-- Discount and Premium." The coupon stripping rules will
not apply, however, if (i) the pass-through rate is no more than 100 basis
points lower than the gross rate of interest on the Contracts and (ii) the
difference between the outstanding principal balance on the Certificate and the
amount paid for such Certificate is less than 0.25 percent of such principal
balance times the weighted average remaining maturity of the Certificate.
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SALES OF GRANTOR TRUST CERTIFICATES. Any gain or loss recognized on the
sale of a Grantor Trust Certificate (equal to the difference between the amount
realized on the sale and the adjusted basis of such Grantor Trust Certificate)
will be capital gain or loss, except to the extent of accrued and unrecognized
market discount, which will be treated as ordinary income, and in the case of
banks and other financial institutions except as provided under section 582(c)
of the Code. The adjusted basis of a Grantor Trust Certificate will generally
equal its cost, increased by any income reported by the seller (including
original issue discount and market discount income) and reduced (but not below
zero) by any previously reported losses, any amortized premium and by any
distributions on the Certificates.
GRANTOR TRUST REPORTING. The Trustee will furnish to each Holder of a
Grantor Trust Fractional Interest Certificate with each distribution a statement
setting forth the amount of such distribution allocable to principal on the
Contracts and to interest thereon at the related Certificate Rate. In addition,
within a reasonable time after the end of each calendar year, based on
information provided by the Servicer, the Trustee will furnish to each Holder
during such year such customary factual information as the Servicer deems
necessary or desirable to enable Holders of Grantor Trust Certificates to
prepare their tax returns and will furnish comparable information to the IRS as
and when required to do so by law.
DEBT CERTIFICATES
With respect to each Series of Debt Certificates, Special Counsel will
deliver its opinion to the Seller (unless otherwise limited in the applicable
Prospectus Supplement) that the Certificates will be classified as debt of the
Seller secured by the Vehicles and Contracts. Consequently, the Debt
Certificates will not be treated as ownership interests in the Vehicles and
Contracts or the Trust. Holders will be required to report income received with
respect to the Debt Certificates in accordance with their normal method of
accounting. For additional tax consequences relating to Debt Certificates
purchased at a discount or with premium, see "--Discount and Premium," below.
SALE OR EXCHANGE OF DEBT CERTIFICATES. If a Holder of a Debt Certificate
sells or exchanges such Certificate, the Holder will recognize gain or loss
equal to the difference, if any, between the amount received and the Holder's
adjusted basis in the Certificate. The adjusted basis in the Certificate
generally will equal its initial cost, increased by any original issue discount
or market discount previously included in the seller's gross income with respect
to the Certificate and reduced by the payments previously received on the
Certificate, other than payments of qualified stated interest, and by any
amortized premium.
In general (except as described in "-- Discount and Premium -- Market
Discount," below, and except for certain financial institutions subject to
section 582(c) of the Code), any gain or loss on the sale or exchange of a Debt
Certificate recognized by an investor who holds the Certificate as a capital
asset (within the meaning of section 1221 of the Code), will be capital gain or
loss and will be long-term or short-term depending on whether the Certificate
has been held for more than one year.
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POSSIBLE CLASSIFICATION OF THE CERTIFICATES AS INTERESTS IN A PARTNERSHIP OR
ASSOCIATION
Although, as described above, it is the opinion of Special Counsel
that the Certificates will properly be characterized either as ownership
interests in a grantor trust or as debt for Federal income tax purposes, such
opinion is not binding on the IRS and thus no assurance can be given that such a
characterization will prevail. If the IRS were to contend successfully that the
Certificates were not interests in a grantor trust or debt obligations for
Federal income tax purposes, the arrangement between the Seller and the
Certificateholders might be classified as a partnership for Federal income tax
purposes, as an association taxable as a corporation or as a "publicly traded
partnership" taxable as a corporation.
If the Certificates were treated as interests in a partnership,
each item of income, gain, loss, deduction and credit generated through the
ownership of the Vehicles and the Contracts by the partnership would be passed
through to the partners in such a partnership (including the Certificateholders)
according to their respective interests therein. Under current law, the income
reportable by the Certificateholders as partners in such a partnership could
differ from the income reportable by the Certificateholders as holders of debt
or of interests in a grantor trust. Except as discussed below, it is not
expected that such differences would be materially adverse to Certificateholders
unless the proposed legislation, discussed in the following paragraph, is
enacted. If the Certificateholders were treated as partners, a cash basis
Certificateholder might be required to report income when it accrues to the
partnership rather than when it is received by the Certificateholder. Moreover,
if Debt Certificates were treated as interests in a partnership, an individual
Certificateholder's share of expenses of the partnership (such as Servicing
Fees) would be miscellaneous itemized deductions that in the aggregate are
allowed only to the extent they exceed two percent of the holder's adjusted
gross income, meaning that the holder might be taxed on a greater amount of
income than the stated interest on his Debt Certificate. Finally, if the
partnership is a "publicly traded partnership" not taxable as a corporation, any
taxable income allocated to an Certificateholder that is a pension, profit
sharing or employee benefit plan or other tax-exempt entity (including an
individual retirement account), that portion of its distributive share of income
from such partnership would constitute "unrelated business taxable income" to
the extent such income constitutes unrelated business taxable income. Thus,
whether a tax-exempt entity's share of income from a partnership is treated as
unrelated business taxable income would depend on the underlying character of
the income.
If, alternatively, the Certificates were treated as interests in an
association taxable as a corporation or a "publicly traded partnership" taxable
as a corporation, the resulting entity would be subject to Federal income tax at
corporate tax rates on its taxable income generated by ownership of the
Contracts. Moreover, distributions by the entity on the Certificates probably
would not be deductible in computing the entity's taxable income and all or
part of distributions to Certificateholders would probably be treated as
dividend income to such Certificateholders. Such an entity-level tax could
result in a reduced amount of cash available for distributions to
Certificateholders.
Since the Seller will treat the Grantor Trust Certificates as
ownership interests in a grantor trust and Debt Certificates as indebtedness for
Federal income tax purposes, the Trustee (and Participants and Indirect
Participants) will not attempt to satisfy the tax reporting requirements that
would apply under these alternative characterizations of the Certificates.
Further, If the IRS were to contend successfully that the Certificates are
interests in a partnership or an association taxable as a corporation,
additional tax consequences would apply to Foreign Holders. Investors should
consult their own tax advisors with regard to the potential application of such
provisions.
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DISCOUNT AND PREMIUM
A Debt Certificate purchased at original issue for an amount other
than its outstanding principal amount generally will be subject to the rules
governing original issue discount or premium. A Grantor Trust Certificate
purchased for an amount other than the aggregate outstanding principal amount of
the Contracts in the Grantor Trust Estate generally will be subject to the rules
governing market discount or premium. In addition, all Grantor Trust Strip
Certificates and certain Grantor Trust Fractional Interest Certificates will be
treated as having original issue discount by virtue of the coupon stripping
rules in section 1286 of the Code. In general terms, (i) original issue discount
is treated as a form of interest and must be included in a Holder's income as it
accrues (regardless of the Holder's regular method of accounting) using a
constant yield method; (ii) market discount is treated as ordinary income and
must be included in a Holder's income as principal payments are made on the
Certificate (or upon a sale of a Certificate); and (iii) if a Holder so elects,
premium may be amortized over the life of the Certificate and offset against
inclusions of interest income. These tax consequences are discussed in greater
detail below.
ORIGINAL ISSUE DISCOUNT. In general, an Certificate will be
considered to be issued with original issue discount equal to the excess, if
any, of its "stated redemption price at maturity" over its "issue price." The
issue price of an Certificate is the initial offering price to the public
(excluding bond houses and brokers) at which a substantial amount of the
Certificates was sold. The issue price also includes any accrued interest
attributable to the period prior to the Series Issuance Date. The stated
redemption price at maturity of an Certificate is equal to the sum of all
distributions to be made under such Certificate other than amounts of "qualified
stated interest." Qualified stated interest is stated interest that is
unconditionally payable at least annually at a single fixed rate or, unless
otherwise stated in an applicable Prospectus Supplement, at one or more variable
rates. The stated redemption price at maturity of any Certificate will include
an amount equal to the excess (if any) of the interest payable on the first
Distribution Date over the interest that accrues for the period from the Series
Issuance Date to the first Distribution Date.
Notwithstanding the general definition, original issue discount
will be treated as zero if such discount is less than 0.25 percent of the stated
redemption price at maturity multiplied by its weighted average life. The
weighted average life of an Certificate is apparently computed for this purpose
as the sum, for all distributions included in the stated redemption price at
maturity, of the amounts determined by multiplying (i) the number of complete
years (rounding down for partial years) from the Series Issuance Date until the
date on which each such distribution is expected to be made under the assumption
that the Contracts prepay at a specified rate (the "Prepayment Assumption") by
(ii) a fraction, the numerator of which is the amount of such distribution and
the denominator of which is the Certificate's stated redemption price at
maturity. If original issue discount is treated as zero under this rule, the
actual amount of original issue discount must be allocated to the principal
distributions on the Certificate and, when each such distribution is received,
gain equal to the discount allocated to such distribution will be recognized.
Section 1272(a)(6) of the Code contains special original issue
discount rules directly applicable to Debt Certificates and applicable by
analogy to Grantor Trust Certificates. Investors in Grantor Trust Strip
Certificates should be aware that there can be no assurance that the rules
described below will be applied to such Certificates. Under these rules
(described in greater detail below), (i) the amount and rate of accrual of
original issue discount on each Series of Certificates will be based on (x) the
Prepayment Assumption, and (y) in the case of an Certificate calling for a
variable rate of interest, an assumption that the value of the index upon which
such variable rate is based remains equal to the value of that rate on the
Series Issuance Date, and (ii) adjustments will be made in the amount of
discount accruing in each taxable year in which the actual prepayment rate
differs from the Prepayment Assumption.
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Section 1272(a)(6)(B)(iii) of the Code requires that the prepayment
assumption used to calculate original issue discount be determined in the manner
prescribed in Treasury regulations. To date, no such regulations have been
promulgated. The legislative history of this Code provision indicates that the
assumed prepayment rate must be the rate used by the parties in pricing the
particular transaction. The Seller anticipates that the Prepayment Assumption
for each Series of Certificates will be consistent with this standard. The
Seller makes no representation, however, that the Contracts for a given Series
will prepay at the rate reflected in the Prepayment Assumption for that Series
or at any other rate. Each investor must make its own decision as to the
appropriate prepayment assumption to be used in deciding whether or not to
purchase any of the Certificates.
Each Holder must include in gross income the sum of the "daily
portions" of original issue discount on its Certificate for each day during its
taxable year on which it held such Certificate. For this purpose, in the case of
an original Holder, the daily portions of original issue discount will be
determined as follows. A calculation will first be made of the portion of the
original issue discount that accrued during each "accrual period." The Trustee
will supply, at the time and in the manner required by the IRS, to Holders,
brokers and middlemen information with respect to the original issue discount
accruing on the Certificates. Unless otherwise disclosed in the applicable
Prospectus Supplement, the Trustee will report original issue discount based on
accrual periods of one month, each beginning on a payment date (or, in the case
of the first such period, the Series Issuance Date) and ending on the day before
the next payment date.
Under section 1272(a)(6) of the Code, the portion of original issue
discount treated as accruing for any accrual period will equal the excess, if
any, of (i) the sum of (A) the present values of all the distributions remaining
to be made on the Certificate, if any, as of the end of the accrual period and
(B) the distribution made on such Certificate during the accrual period of
amounts included in the stated redemption price at maturity, over (ii) the
adjusted issue price of such Certificate at the beginning of the accrual period.
The present value of the remaining distributions referred to in the preceding
sentence will be calculated based on (i) the yield to maturity of the
Certificate, calculated as of the Series Issuance Date, giving effect to the
Prepayment Assumption, (ii) events (including actual prepayments) that have
occurred prior to the end of the accrual period, (iii) the Prepayment
Assumption, and (iv) in the case of an Certificate calling for a variable rate
of interest, an assumption that the value of the index upon which such variable
rate is based remains the same as its value on the Series Issuance Date over the
entire life of such Certificate. The adjusted issue price of an Certificate at
any time will equal the issue price of such Certificate, increased by the
aggregate amount of previously accrued original issue discount with respect to
such Certificate, and reduced by the amount of any distributions made on such
Certificate as of that time of amounts included in the stated redemption price
at maturity. The original issue discount accruing during any accrual period will
then be allocated ratably to each day during the period to determine the daily
portion of original issue discount.
In the case of Grantor Trust Strip Certificates, the calculation
described in the preceding paragraph may produce a negative amount of original
issue discount for one or more accrual periods. No definitive guidance has been
issued regarding the treatment of such negative amounts. The legislative history
to section 1272(a)(6) indicates that such negative amounts may be used to offset
subsequent positive accruals but may not offset prior accruals and may not be
allowed as a deduction item in a taxable year in which negative accruals exceed
positive accruals. Holders of such Certificates should consult their own tax
advisors concerning the treatment of such negative accruals.
A subsequent purchaser of an Certificate that purchases such
Certificate at a cost less than its remaining stated redemption price at
maturity also will be required to include in gross income for each day on which
it holds such Certificate, the daily portion of original issue discount with
respect to such Certificate (but reduced, if the cost of such Certificate to
such purchaser exceeds its adjusted issue price, by an amount equal to the
product of (i) such daily portion and (ii) a constant fraction, the numerator of
which is such excess and the denominator of which is the sum of the daily
portions of original issue discount on such Certificate for all days on or after
the day of purchase).
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<PAGE> 69
MARKET DISCOUNT. A Holder that purchases an Certificate at a market
discount, that is, at a purchase price less than the remaining stated redemption
price at maturity of such Certificate (or, in the case of an Certificate with
original issue discount, its adjusted issue price), will be required to allocate
each principal distribution first to accrued market discount on the Certificate,
and recognize ordinary income to the extent such distribution does not exceed
the aggregate amount of accrued market discount on such Certificate not
previously included in income. With respect to Certificates that have unaccrued
original issue discount, such market discount must be included in income in
addition to any original issue discount. A Holder that incurs or continues
indebtedness to acquire an Certificate at a market discount may also be required
to defer the deduction of all or a portion of the interest on such indebtedness
until the corresponding amount of market discount is included in income. In
general terms, market discount on an Certificate may be treated as accruing
either (i) under a constant yield method or (ii) in proportion to remaining
accruals of original issue discount, if any, or if none, in proportion to
remaining distributions of interest on the Certificate, in any case taking into
account the Prepayment Assumption. The Trustee will make available, as required
by the IRS, to Holders of Certificates information necessary to compute the
accrual of market discount.
Notwithstanding the above rules, market discount on an Certificate
will be considered to be zero if such discount is less than 0.25 percent of the
remaining stated redemption price at maturity of such Certificate multiplied by
its weighted average remaining life. Weighted average remaining life presumably
would be calculated in a manner similar to weighted average life, taking into
account payments (including prepayments) prior to the date of acquisition of the
Certificate by the subsequent purchaser. If market discount on an Certificate is
treated as zero under this rule, the actual amount of market discount must be
allocated to the remaining principal distributions on the Certificate and, when
each such distribution is received, gain equal to the discount allocated to such
distribution will be recognized.
CERTIFICATES PURCHASED AT A PREMIUM. A purchaser of an Certificate
that purchases such Certificate at a cost greater than its remaining stated
redemption price at maturity will be considered to have purchased such
Certificate (a "Premium Certificate") at a premium. Such a purchaser need not
include in income any remaining original issue discount and may elect, under
section 171(c)(2) of the Code, to treat such premium as "amortizable bond
premium." If a Holder makes such an election, the amount of any interest payment
that must be included in such Holder's income for each period ending on a
Distribution Date will be reduced by the portion of the premium allocable to
such period based on the Premium Certificate's yield to maturity. The
legislative history of the Tax Reform Act of 1986 states that such premium
amortization should be made under principles analogous to those governing the
accrual of market discount (as discussed above under "Market Discount"). If such
election is made by the Holder, the election will also apply to all bonds the
interest on which is not excludable from gross income ("fully taxable bonds")
held by the Holder at the beginning of the first taxable year to which the
election applies and to all such fully taxable bonds thereafter acquired by it,
and is irrevocable without the consent of the IRS. If such an election is not
made, (i) such a Holder must include the full amount of each interest payment in
income as it accrues, and (ii) the premium must be allocated to the principal
distributions on the Premium Certificate and, when each such distribution is
received, a loss equal to the premium allocated to such distribution will be
recognized. Any tax benefit from the premium not previously recognized will be
taken into account in computing gain or loss upon the sale or disposition of the
Premium Certificate.
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Because the interest rate on a Grantor Trust Certificate generally
will be lower than the implicit interest rate on the Finance Contracts that
comprise the Grantor Trust Estate, the principal amount of such Certificates may
be higher than the aggregate outstanding principal amount of the Finance
Contracts. The IRS may take the position that the existence of market discount
or premium on Grantor Trust Certificates should be measured with reference to
the aggregate outstanding principal balance of the Contracts, rather than the
Certificates. Accordingly, Holders of Grantor Trust Certificates should consult
with their own advisors regarding the advisability of making a protective
election to treat any premium on such Certificates as amortizable bond premium.
SPECIAL ELECTION. A Holder may elect to include in gross income all
"interest" that accrues on the Certificate by using a constant yield method. For
purposes of the election, the term "interest" includes stated interest,
acquisition discount, original issue discount, de minimis original issue
discount, market discount, de minimis market discount and unstated interest as
adjusted by any amortizable bond premium or acquisition premium. A Holder should
consult its own tax advisor regarding the time and manner of making and the
scope of the election and the implementation of the constant yield method.
BACKUP WITHHOLDING
Distributions of interest and principal, as well as distributions
of proceeds from the sale of Certificates, may be subject to the "backup
withholding tax" under section 3406 of the Code at a rate of 31 percent if
recipients of such distributions fail to furnish to the payor certain
information, including their taxpayer identification numbers, or otherwise fail
to establish an exemption from such tax. Any amounts deducted and withheld from
a distribution to a recipient would be allowed as a credit against such
recipient's federal income tax. Furthermore, certain penalties may be imposed by
the IRS on a recipient of distributions that is required to supply information
but that does not do so in the proper manner.
FOREIGN INVESTORS
Distributions made on a Grantor Trust Certificate or a Debt
Certificate to, or on behalf of, a Holder that is not a U.S. Person generally
will be exempt from U.S. federal income and withholding taxes. The term "U.S.
Person" means a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, or an estate or trust that
is subject to U.S. federal income tax regardless of the source of its income.
This exemption is applicable provided (a) the Holder is not subject to U.S. tax
as a result of a connection to the United States other than ownership of the
Certificate, (b) the Holder signs a statement under penalties of perjury that
certifies that such Holder is not a U.S. Person, and provides the name and
address of such Holder, and (c) the last U.S. Person in the chain of payment to
the Holder receives such statement from such Holder or a financial institution
holding on its behalf and does not have actual knowledge that such statement is
false. Holders should be aware that the IRS might take the position that this
exemption does not apply to a Holder that also owns 10 percent or more of the
total combined voting power of all classes of stock of the Seller entitled to
vote, or to a Holder that is a "controlled foreign corporation" described in
section 881(c)(3)(C) of the Code.
STATE AND LOCAL TAX CONSEQUENCES
General. State tax consequences to each Certificateholder will
depend upon the provisions of the state tax laws to which the Certificateholder
is subject. Because each state's tax law varies, it is impossible to predict the
tax consequences to the Certificateholders in all of the state taxing
jurisdictions in which they are already subject to tax. Certificateholders are
urged to consult their own tax advisors with respect to state taxes.
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<PAGE> 71
New York. New York Tax Law imposes a New York State franchise tax
and a New York City general corporation tax on corporations doing business in
New York State and City, respectively, measured by their net income allocated
and apportioned to the state and city and the municipality. This discussion is
based upon present provisions of New York law and regulations, and applicable
judicial or ruling authority, all of which are subject to change, which change
may be retroactive. No ruling on any of the issues discussed below will be
sought from any New York agency.
Assuming the Certificates are treated as ownership interests in a
grantor trust or as indebtedness for Federal income tax purposes, this treatment
will also apply for New York tax purposes. Pursuant to this treatment,
Certificateholders not otherwise subject to New York tax would not become
subject to such tax solely because of their ownership of the Certificates.
Certificateholders already subject to taxation in New York, however, would be
required to pay tax on the income generated from ownership of these
Certificates.
In the alternative, if the Certificates are treated as interests in
a partnership (not taxable as a corporation) for Federal income tax purposes,
the same treatment should also apply for New York tax purposes. In such case,
New York could view the partnership as doing business in New York, and an
Certificateholder not otherwise subject to taxation in New York could become
subject to New York State and New York City income, franchise or withholding
taxes as a result of its mere ownership of Certificates.
If the Certificates are instead treated as ownership interests in
an association taxable as a corporation or a "publicly traded partnership"
taxable as a corporation, then the entity could be subject to New York State
franchise tax and New York City general corporation tax. Such taxes could result
in reduced distributions to Certificateholders. An Certificateholder not
otherwise subject to tax in New York would not become subject to New York taxes
as a result of its mere ownership of such an interest.
NOTES
It is intended that each Series of Notes to be issued will be treated as
indebtedness of the Issuer for federal income tax purposes and not as an
ownership interest in the Contracts or an equity interest in the Issuer. The
terms of each Indenture will require the Issuer and each Noteholder to treat
each Series of Notes as indebtedness of the Issuer for federal, state, local
and foreign income and other tax purposes. It is expected, however, that no
regulations, published rulings or judicial decisions confirming the
characterization for such tax purposes of securities with terms substantially
the same as the Notes.
If properly characterized as indebtedness, interest on the Notes will be
taxable as ordinary income when received by a Noteholder on the cash method of
accounting and when accrued by Noteholders on the accrual method of accounting.
If for any reason the Notes were treated as an ownership interest in the
Contracts, a proportionate share of income on such Contracts would be income to
the holders of the Notes, and related fees and expenses would generally be
deductible (subject to certain limitations on the deductibility of miscellaneous
itemized deductions by individuals) and certain market discount and premium
provisions of the Internal Revenue Code of 1986, as amended (the "Code") might
apply to a purchaser of the Notes.
If, alternatively, the Notes were treated as an equity interest in the
Issuer, distributions on the Notes probably would not be deductible in computing
the taxable income of the Issuer and all or a part of distributions to the
holders of the Notes probably would be treated as dividend income to those
holders. Such an Issuer-level tax could result in a reduced amount of cash
available for distributions to the holders of the Notes.
Potential Noteholders are encouraged to consult their own tax advisors with
regard to the federal, state and local tax consequences of their ownership of
the Notes.
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STATE AND LOCAL TAX CONSEQUENCES
State tax consequences to each Securityholder will depend upon the
provisions of the state tax laws to which the Certificateholder is subject. Most
states modify or adjust the taxpayer's Federal taxable income to arrive at the
amount of income potentially subject to state tax. Resident individuals
generally pay state tax on 100% of such state-modified income, while
corporations and other taxpayers generally pay state tax only on that portion of
state-modified income assigned to the taxing state under the state's own
apportionment and allocation rules. Because each state's tax law varies, it is
impossible to predict the tax consequences to the Securityholders in all the
state taxing jurisdictions in which they are already subject to tax.
Securityholders are urged to consult their own tax advisors with respect to
state taxes.
ERISA CONSIDERATIONS
The Prospectus Supplement for each series of Securities will summarize,
subject to the limitations discussed therein, considerations under ERISA
relevant to the purchase of such Securities by employee benefit plans and
individual retirement accounts.
METHOD OF DISTRIBUTION
The Securities offered hereby and by the related Prospectus Supplement will
be offered in series through one or more of the methods described below. The
Prospectus Supplement prepared for each series will describe the method of
offering being utilized for that series and will state the public offering or
purchase price of such series and the net proceeds to the Company from such
sale.
The Company intends that Securities will be offered through the following
methods from time to time and that offerings may be made concurrently through
more than one of these methods or that an offering of a particular series of
Securities may be made through a combination of two or more of these methods.
Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting and
public re-offering by underwriters;
2. By placements by the Company with institutional investors through
dealers;
3. By direct placements by the Company with institutional investors;
and
4. By competitive bid.
In addition, if specified in the related Prospectus Supplement, a series of
Securities may be offered in whole or in part in exchange for the Receivables
(and other assets, if applicable) that would comprise the Asset Pool in respect
of such Securities.
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If underwriters are used in a sale of any Securities (other than in
connection with an underwriting on a best efforts basis), such Securities will
be acquired by the underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions, at
fixed public offering prices or at varying prices to be determined at the time
of sale or at the time of commitment therefor. The Securities will be set forth
on the cover of the Prospectus Supplement relating to such series and the
members of the underwriting syndicate, if any, will be named in such Prospectus
Supplement.
In connection with the sale of the Securities, underwriters may receive
compensation from the Company or from purchasers of the Securities in the form
of discounts, concessions or commissions. Underwriters and dealers participating
in the distribution of the Securities may be deemed to be underwriters in
connection with such Securities, and any discounts or commissions received by
them from the Company and any profit on the resale of Securities by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
The Prospectus Supplement will describe any such compensation paid by the
Company.
It is anticipated that the underwriting agreement pertaining to the sale of
any series of Securities will provide that the obligations of the underwriters
will be subject to certain conditions precedent, that the underwriters will be
obligated to purchase all such Securities if any are purchased (other than in
connection with an underwriting on a best efforts basis) and that, in limited
circumstances, the Company will indemnify the several underwriters and the
underwriters will indemnify the Company against certain civil liabilities,
including liabilities under the Securities Act or will contribute to payments
required to be made in respect thereof.
The Prospectus Supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the Company and purchasers of
Securities of such series.
Purchasers of Securities, including dealers, may, depending on the facts and
circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them of
Securities. Holders of Securities should consult with their legal advisors in
this regard prior to any such reoffer or sale.
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LEGAL OPINIONS
Certain legal matters relating to the issuance of the Securities of any
series, including certain federal and state income tax consequences with respect
thereto, will be passed upon by Dewey Ballantine, New York, New York.
FINANCIAL INFORMATION
A new Asset Pool will be formed with respect to each Series of Securities
and no Asset Pool will engage in any business activities or have any assets or
obligations prior to the issuance of the related Series of Securities. The
Company's activities will be limited solely to the activities of Asset Pools to
be formed with respect to each Series of Securities. Accordingly, no financial
statements with respect to any Asset Pool will be included in this Prospectus or
in the related Prospectus Supplement.
A Prospectus Supplement may contain the financial statements of the related
Credit Enhancer, if any.
ADDITIONAL INFORMATION
This Prospectus, together with the Prospectus Supplement for each series of
Securities, contains a summary of the material terms of the applicable exhibits
to the Registration Statement and the documents referred to herein and therein.
Copies of such exhibits are on file at the offices of the Securities and
Exchange Commission in Washington, D.C., and may be obtained at rates prescribed
by the Commission upon request to the Commission and may be inspected, without
charge, at the Commission's offices.
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INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus and
the pages on which the definitions of such terms may be found herein.
"publicly traded partnership"................................................69
Accrual Securities............................................................7
Additional Receivables...................................................13, 46
APR..........................................................................11
Cede.........................................................................13
CEDEL Participants...........................................................40
Certificate of Incorporation.................................................34
Certificates ..............................................................1, 5
Class.........................................................................1
Closing Date ................................................................43
Code.........................................................................63
Collection Account...........................................................45
Collection Period............................................................47
Commission....................................................................2
Company...................................................................4, 34
Company's Interest............................................................9
Contingent and Excess Liability Insurance Policies...........................29
Contracts.....................................................................1
Cooperative..................................................................41
Credit Enhancement...........................................................24
Credit Enhancer..............................................................24
Custodian....................................................................43
Debt Certificates............................................................61
Debt Securities..............................................................17
Definitive Securities........................................................41
Depositaries ................................................................39
Direct Participants..........................................................24
Distribution Account.........................................................45
DTC..........................................................................13
Eligible Deposit Account.....................................................46
Eligible Institution.........................................................46
Eligible Investment..........................................................12
ERISA........................................................................18
Euroclear Operator...........................................................41
Euroclear Participants.......................................................41
Excess Residual Value Insurance Policy.......................................14
Exchange Act .............................................................2, 18
First Sierra .................................................................4
Grantor Trust Certificates...................................................61
Grantor Trust Estate.........................................................61
Grantor Trust Fractional Interest Certificate................................62
Grantor Trust Securities.....................................................17
Grantor Trust Strip Certificate..............................................62
Indenture.....................................................................6
Indenture Trustee.............................................................6
Indirect Participants....................................................24, 39
Insolvency Event.............................................................50
Insolvency Laws..............................................................22
Interest Rate..............................................................2, 7
Investment Company Act........................................................9
Investment Earnings..........................................................46
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IRS..........................................................................62
Issuer........................................................................1
Lease Contracts...............................................................1
Lessor........................................................................6
Loan Contracts................................................................1
Lockbox......................................................................47
Matured Contract.............................................................14
Net Investment Value.........................................................12
Notes.........................................................................1
Obligors......................................................................1
Originator....................................................................4
Owner Trust..................................................................26
Participants ................................................................39
Partnership Interests........................................................17
Pass-Through Rate.............................................................2
Payment Date .................................................................8
Policy.....................................................................1, 5
Pool Factor..................................................................33
Pooling Agreement.............................................................5
Pre-Funding Account......................................................12, 46
Prepayment...................................................................21
Primary Residual Value Insurance Policy......................................14
Prospectus Supplement.........................................................1
Purchase Agreement............................................................6
Purchasers....................................................................1
Receivables................................................................1, 5
Record Date...................................................................8
Registration Statement........................................................2
Relief Act...................................................................58
Remittance Period.............................................................8
Residual Value...............................................................12
Residual Value Insurance.....................................................14
Rules........................................................................40
Securities....................................................................1
Securities Act................................................................2
Security Insurer.............................................................14
Securityholders...............................................................8
Senior Securities.............................................................7
Servicer .....................................................................4
Servicer Defaults............................................................49
Servicing Agreement...........................................................6
Servicing Fee................................................................47
Servicing Fee Rate...........................................................47
Special Counsel..............................................................62
Strip Securities..............................................................7
Subordinate Securities........................................................7
Terms and Conditions.........................................................41
Trust .....................................................................1, 4
Trust Accounts...............................................................45
Trust Agreement...............................................................6
Trust Fund.................................................................1, 5
Trustee.......................................................................6
Vehicles......................................................................1
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================================================================================
No person has been authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
Prospectus and any related Prospectus Supplement in connection with the offer
made by this Prospectus and the related Prospectus Supplement and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company or the Underwriter(s). This Prospectus and the related
Prospectus Supplement do not constitute an offer or solicitation by anyone in
any state in which such offer or solicitation is not authorized or in which the
person making such offer or solicitation is not qualified to do so or to anyone
to whom it is unlawful to make such offer or solicitation. The delivery of this
Prospectus or the related Prospectus Supplement at any time does not imply that
information herein or therein is correct as of any time subsequent to its date.
--------------------------
TABLE OF CONTENTS
PROSPECTUS
Page
----
Prospectus ................................................................2
Available Information......................................................2
Incorporation of Certain
Documents by Reference...................................................2
Reports to Securityholders.................................................3
Summary of Terms...........................................................4
Risk Factors..............................................................18
Use of Proceeds...........................................................25
The Issuers...............................................................25
The Asset Pools...........................................................25
The Receivables...........................................................31
Maturity and Prepayment Considerations....................................33
Pool Factors..............................................................34
The Company...............................................................34
The Servicer..............................................................35
The Trustees..............................................................36
Description of the Trust Agreements.......................................43
Certain Legal Aspects of the Receivables..................................53
Certain Tax Considerations................................................61
ERISA Considerations......................................................70
Method of Distribution....................................................70
Legal Opinions............................................................72
Financial Information.....................................................72
Additional Information....................................................72
Index of Terms............................................................73
----------------------------
Until _____________, 1997 (90 days after the date of the Prospectus
Supplement), all dealers effecting transactions in the Securities, whether or
not participating in this distribution, may be required to deliver a Prospectus
Supplement and a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus Supplement and a Prospectus when acting as underwriter(s)
and with respect to their unsold allotments or subscriptions.
================================================================================
================================================================================
AUTO RECEIVABLES
FIRST SIERRA RECEIVABLES II, INC.
[Date]
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PROSPECTUS
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[UNDERWRITER]
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following is an itemized list of the estimated expenses to be
incurred in connection with the offering of the securities being offered
hereunder other than underwriting discounts and commissions.
Registration Fee..............................................$ 303.03*
Printing and Engraving Expenses..................................... **
Trustee's Fees...................................................... **
Legal Fees and Expenses............................................. **
Blue Sky Fees and Expenses.......................................... **
Accountants' Fees and Expenses...................................... **
Rating Agency Fees.................................................. **
Miscellaneous Fees.................................................. **
Total............................................................... **
* Paid.
** To be filed by amendment.
Item 15. INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS
The General Corporation Law of Delaware (Section 145) gives Delaware
corporations broad powers to indemnify their present and former directors and
officers and those affiliated corporations against expenses incurred in the
defense of any lawsuit to which they are made parties by reason of being or
having been such directors or officers, subject to specified conditions and
exclusions; gives a director or officer who successfully defends an action the
right to be so indemnified; and authorizes said corporation to buy director's
and officers' liability insurance. Such indemnification is not exclusive of any
other right to which those indemnified may be entitled under any bylaw,
agreement, vote of stockholders or otherwise.
Pursuant to agreements which the Registrant may enter into with
underwriters or agents (forms of which will be included as exhibits to this
Registration Statement), officers and directors of the Registrant, and
affiliates thereof, may be entitled to indemnification by such underwriters or
agents against certain liabilities, including liabilities under the Securities
Act of 1933, arising from information which has been or will be furnished to the
Registrant by such underwriters or agents that appears in the Registration
Statement or any Prospectus.
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Item 16. EXHIBITS AND FINANCIAL STATEMENTS
(a) Exhibits
<TABLE>
<C> <S>
1.1* --Form of Underwriting Agreement for the Notes.
1.2* --Form of Underwriting Agreement for the Certificates.
3.1* --Certificate of Limited Partnership of the Issuer.
3.2* --Agreement of Limited Partnership of the Issuer.
4.1* --Form of Indenture between the Trust and the Indenture Trustee, including
forms of Notes and certain other related agreements as Exhibits thereto.
4.2* --Form of Indenture between the Company and the Indenture Trustee,
including forms of Notes and certain other related agreements as Exhibits
thereto.
4.3* --Form of Pooling and Servicing Agreement between the Trust, the Company
and the Servicer.
4.4* --Form of Trust Agreement between the Company and the Trustee.
5.1* --Opinion of Dewey Ballantine with respect to legality.
8.1* --Opinion of Dewey Ballantine as to tax matters.
10.1* --Form of Bond Insurance Policy.
23.1* --Consent of Dewey Ballantine (included in Exhibits 5.1 and 8.1).
23.2* --Consent of Independent Auditor of Bond Insurer.
24.1* --Power of Attorney.
25.1* --Statement of Eligibility and Qualification of Trustee (Form T-1).
99.1* --Form of Prospectus Summary -- Notes.
99.2* --Form of Prospectus Summary -- Certificates.
99.3* --Form of Prospectus Summary -- Notes and Certificates.
</TABLE>
* Incorporated by reference to Registration Statement No. 33-98822.
(b) All financial statements, schedules and historical financial
information have been omitted as they are not applicable.
Item 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement;
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(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in
the registration statement.
provided that paragraph (a)(i) and (a)(ii) do not apply if such information is
contained in periodic reports filed or furnished to the Commission by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934.
(b) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(d) That insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions described under
item 15 above, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(e) That, for the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(f) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(g) (i) That, for purposes of determining any liability under
the Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(ii) That for the purpose of determining any liability
under the Securities Act of 1933, each post-effective amendment that contains
a form of prospectus shall be deemed to be a new
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registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(h) The undersigned registrant hereby undertakes to file an
application for the purpose of determining the eligibility of the trustee to act
under subsection (a) of section 310 of the Trust Indenture Act (the "TIA") in
accordance with the rules and regulations prescribed by the Commission under
section 305(b)(2) of the TIA.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment to Registration Statement No.
333-12199 on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Jupiter, State of Florida on May 23, 1997.
FIRST SIERRA RECEIVABLES II, INC.
By: /s/ Thomas Depping
--------------------------------
Thomas Depping
President
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Pursuant to the requirements of the Securities Act of 1933, this
Amendment to Registration Statement No. 333-12199 on Form S-3 has been signed by
the following person in the capacities indicated on the 23rd day of May, 1997.
SIGNATURE TITLE
--------- -----
/s/ Thomas Depping Director and President
- ------------------------------
By: Thomas Depping
/s/ Thomas Depping Director, Chief Financial Officer
- ------------------------------ and Principal Accounting Officer
By: Thomas Depping
/s/ Thomas Depping Director
- ------------------------------
By: Thomas Depping
/s/ Thomas Depping Director and Vice President
- ------------------------------
By: Thomas Depping
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