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As filed with the Securities and Exchange Commission on July 14, 1998
Registration No. 333-12199
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE
AMENDMENT NO. 3
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)
FIRST SIERRA RECEIVABLES III, Inc.
(Exact name of co-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)
600 Travis St., Suite 7050
Houston, TX 77002
713-221-8822
(Address, including zip code and telephone number
including area code, of registrants' principal executive offices)
MR. E. R. GEBHART
Vice President
600 Travis St., Suite 7050
Houston, TX 77002
713-221-8822
(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
<TABLE>
<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>
Contract Backed Securities $ 1,000,000 100% $ 1,000,000 $ 303.03 (Paid)
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</TABLE>
The registrants hereby amend this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrants 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.
and
FIRST SIERRA RECEIVABLES III, 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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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS
CONTRACT BACKED SECURITIES ISSUABLE IN SERIES
FIRST SIERRA RECEIVABLES III, INC.
COMPANY
FIRST SIERRA FINANCIAL INC.,
SERVICER
This Prospectus describes certain Contract Backed Notes (the "Notes") and
Contract 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/or one or
more classes of Certificates. Each Series will be issued by a trust (each a
"Trust") formed by First Sierra Receivables III, Inc. (the "Company") for the
purpose of issuing the Securities. The Trust (which may be an owner trust)
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 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 shall consist
of finance leases and commercial loans, together with all monies received
relating thereto (the "Contracts"). Each Asset Pool may also include certain
interests in the underlying equipment and property relating thereto, together
with the proceeds thereof (the "Equipment" together with the Contracts, 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, 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."
AN INVESTMENT IN THE SECURITIES INVOLVES CERTAIN RISKS. SEE "MATERIAL
RISKS" COMMENCING ON PAGE HEREIN AND THE RELATED PROSPECTUS SUPPLEMENT FOR
A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE SECURITIES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE
SECURITIES WILL NOT REPRESENT AN INTEREST IN OR AN OBLIGATION OF THE COMPANY,
FIRST SIERRA, ANY SERVICER, ANY SUBSERVICER, ANY LESSOR, OR ANY OF THEIR
RESPECTIVE AFFILIATES. NEITHER THE SECURITIES NOR THE UNDERLYING CONTRACTS WILL
BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR BY THE COMPANY, FIRST
SIERRA, ANY SERVICER, ANY SUBSERVICER, ANY LESSOR, OR ANY OF THEIR RESPECTIVE
AFFILIATES EXCEPT AS SET FORTH IN THE RELATED PROSPECTUS SUPPLEMENT.
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.
THE DATE OF THIS PROSPECTUS IS , 1998.
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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, overcollateralization 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 Issuer, 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
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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.
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, 600 Travis Street, Houston, Texas 77002, Attention: Roger
Gebhart, Senior Vice President and Treasurer, (713) 221-8822.
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SUMMARY
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, a trust
(each trust of a series, the "Trust") to be
formed by the Company. The 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 Trust and will either evidence a
beneficial ownership in or indebtedness secured
by 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 III, Inc., a Delaware
corporation (the "Company"). The principal office
of the Company is located at 600 Travis Street,
Houston, Texas, 77002, and its telephone number
is (713) 221-8822. 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, 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 equipment lease portfolios from
small ticket lessors (the "Portfolio Acquisition
Program") or (b) as the result of the ongoing
acquisition of equipment leases which comply with
certain underwriting criteria specified by First
Sierra from certain lessors as such leases are
originated (the "Private Label Program") or (c)
as the result of direct origination by First
Sierra through its own sales force and referral
programs (the "Broker Program" and the "Vendor
Program"). A "small-ticket" lessor, is a lessor
who leases equipment having original equipment
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.
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 shall consist of
finance leases and commercial loans, together
with all monies received relating thereto (the
"Contracts"). The characteristics of a particular
Asset Pool will be more
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fully described in the related Prospectus
Supplement. To the extent any Asset Pool includes
participation interests in previously issued
lease-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. Each Asset
Pool also may include a security interest in the
underlying equipment and property relating
thereto, together with the proceeds thereof (the
"Equipment" and together with the Contracts, 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, 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.
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 to the extent related to the
Receivables in 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 Agree-
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ment" 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
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 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
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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 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
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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.
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.... The Issuer will not be required to 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............ As specified in the related Prospectus Supplement,
each Asset Pool will consist of the related
Contracts, and may include a security interest in
the related Equipment. 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 reserve account, letters of credit,
credit or liquidity facilities, repurchase
obligations, third party payments or
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<PAGE> 11
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 lease or purchase of the Equipment, or
evidence borrowings used to acquire the
Equipment, entitling the obligor thereunder (the
"Lessor") to payments of rent and related
payments and to either the return of the
Equipment at the termination of the related
Contract or, with respect to certain of the
Contracts, the payment of a purchase price for
the Equipment at the election of the obligee
thereunder (the "Lessee").
The Contracts which are leases will all be finance
leases. "Finance Leases" usually have a term
greater than three years. In a Finance Lease, the
Lessor transfers substantially all benefits and
risks of ownership to the Lessee. In accordance
with Statement of Financial Accounting Standards
No. 13 ("FASB 13"), a lease agreement is
classified as a Finance Lease if the
collectibility of payments are reasonably certain
and it meets one of the following criteria: (1)
the lease agreement transfers title and ownership
of the Equipment to the Lessee by the end of the
Contract term; (2) the lease agreement contains a
bargain purchase option; (3) the lease agreement
term at inception is at least 75% of the
estimated life of the Equipment; or (4) the
present value of the minimum lease agreement
payments is at least 90% of the fair market value
of the Equipment at inception of the lease
agreement. The related Prospectus Supplement will
describe the type and characteristics of the
Contracts included in each Asset Pool relating to
the Securities offered pursuant to this
Prospectus and the related Prospectus Supplement.
The Receivables comprising an Asset Pool shall be
either (i) originated by the Seller, (ii)
originated by Lessors and acquired by the Seller
or (iii) acquired by the Seller from other
originators or owners of Receivables. See "The
Receivables."
With respect to the Receivables comprising each
Asset Pool, the Company will receive the related
Receivables from the Seller pursuant to a
Contribution and Sale Agreement as defined
herein. The Company will transfer such
Receivables to a Trust pursuant to a Pooling
Agreement or the Trust may pledge it's right,
title and interest in and to such Receivables to
a Trustee on behalf of Securityholders pursuant
to an Indenture. The Contracts transferred to a
Trust or pledged to a Trustee shall have a
Discounted Contract Balance (as defined below)
specified in the related Prospectus Supplement.
The rights and benefits of the Company under such
Contribution and Sale Agreement will be assigned
to the Trustee on behalf of the related
Securityholders. The obligations of the Company
and the Servicer under such Trust Agreements
include those specified below and in the related
Prospectus Supplement.
The "Discounted Contract Balance" of a Contract as
of any Cut-Off Date is the present value of all
of the remaining payments scheduled to be made
with respect to such Contract, discounted at a
rate specified in the related Prospectus
Supplement and the Trust Agreement.
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<PAGE> 12
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.
During any Pre-Funding Period, the Company will be
obligated (subject only to the availability
thereof) to acquire from the Seller and to either
7
<PAGE> 13
transfer to a Trust, additional Receivables (the
"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 which eligibility
criteria will be consistent with the eligibility
criteria of the Receivables included in each
Asset Pool 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, 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 overcollateralization. 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."
8
<PAGE> 14
Cross-Collateralization.... 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.
Certain Legal Aspects of
the Contracts.............. With respect to the transfer of the Contracts to
the related Trust, the Company will warrant, in
each case, that the transfer by it 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 whether the Company will be required to
take such action as is required to perfect either
the Trust's or the Securityholders' security
interest in the Contracts. The Company may also
warrant that, if the transfer or pledge by it to
the Trust or to the Securi-
9
<PAGE> 15
tyholders is deemed to be a grant to the Trust or
to the Securityholders of a security interest in
the Contracts, then the Trust 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 Company with respect to the
Equipment.
Each Prospectus Supplement will specify if the
Seller or the Company has filed or will be
required to file UCC (as herein defined)
financing statements identifying the Equipment 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 Equipment will not be perfected in favor
of the related Trust or Trustee. See "Risk
Factors."
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 ("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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<PAGE> 16
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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<PAGE> 17
MATERIAL RISKS
Prospective investors should consider, among other things, the following
factors in connection with the purchase of the Securities:
Limited Liquidity May Result In A Securityholder Being Unable To
Liquidate Its Investments. 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 Will Secure The Securities And Securityholders Will
Have No Recourse To The Issuer, The Company, The Servicer, The Seller Or
Any Respective Affiliate. 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, 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 Of Interest And Principal On Certain Classes And Series
of Securities Will Increase The Likelihood Of Delays And Loss Of Payments
To Such Classes And Series. 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.
The Seller Or Servicer Rather Than The Trustee May Have Possession Of
The Contracts, Exposing Securityholders To The Risk That They May Lose
Their Security Interest Or Ownership Interest In The Contracts And
Equipment. In connection with the issuance of each Series, the Seller will
transfer Contracts to the Company. The Seller will warrant in a
Contribution and Sale Agreement that the transfer of the Contracts by it to
the Company is a valid assignment, transfer and conveyance of such
Contracts. The Company will warrant in a Trust Agreement (a) if the Company
retains title to the Contracts, that it has granted to the Trustee for the
benefit of Securityholders a valid security interest in such Contracts, or
(b) if the Company transfers such Contracts to a Trust, that the transfer
of the Contracts by it to such Trust is either a valid assignment, transfer
and conveyance of the Contracts to the Trust or it has granted to the
Trustee on behalf of the Securityholders a valid security interest in such
Contracts. Pursuant to each Trust Agreement, the Trustee will be required
to maintain possession of the original copies of all Contracts that
constitute chattel paper; provided that the Servicer may take possession of
such original copies as necessary for the enforcement of any Contract. In
certain circumstances, and as specified in the related Prospectus
Supplement, a portion of the Contracts may remain in the possession of a
Lessor or the Seller, subject to specific trigger events that will require
12
<PAGE> 18
delivery to the Trustee. If the Company, the Servicer, the Trustee, a
Lessor or other third party, while in possession of the Contracts, sells or
pledges and delivers such Contracts to another party, in violation of the
Contribution and Sale Agreement or the Trust Agreement, there is a risk
that such other party could acquire an interest in such Contracts having a
priority over the Issuer's interest. Furthermore, if the Servicer, a Lessor
or a third party, while in possession of the Contracts, is rendered
insolvent, such event of insolvency may result in competing claims to
ownership or security interests in the Contracts. Such an attempt, even if
unsuccessful, could result in delays in payments on the Securities. If
successful such attempt could result in losses to the Securityholders or an
acceleration of the repayment of the Securities. The Seller and the Company
will make certain representations and warranties with respect to the
ownership of the Contracts as of the date of the transfer to the Company
and the Trust, if any, respectively. The Seller will be obligated to
acquire any Contract from the related Asset Pool if there is a breach of
such representations and warranties that materially adversely affects the
interests of the Company or the Trust in such Contract and such breach has
not been cured.
The Seller will also sell and/or contribute all of its right, title
and interest in and to the Equipment to the Company. If a security interest
in title to the Equipment is transferred, the Contribution and Sale
Agreement shall require the Seller to make certain representations and
warranties with respect to the transfer of title and perfection and
priority of such security interest, if any, in the Equipment. The Company
will pledge all of its right, title and interest in and to such Equipment
to the Trust. Pursuant to a Trust Agreement, the Company will warrant (a)
if the Company transfers such Equipment to a Trust, that such transfer is
either a valid assignment, transfer and conveyance of such Equipment to the
Trust or it has granted to the Trust a security interest in such Equipment,
or (b) if the Company retains title, that it has granted to the Trustee for
the benefit of Securityholders a valid security interest in such Equipment.
As specified herein and related Prospectus Supplement, because of the
administrative burden and expense that would be entailed in so doing,
neither the Seller nor the Company will have filed, or necessarily would be
required to file, UCC financing statements identifying the Equipment 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 Equipment will not be perfected in favor of the related Trust or
Trustee. As a result the Trust or Trustee could lose priority of its
security interest in such Equipment. Neither the Seller nor the Company
will have any obligation to reacquire Equipment as to which such
aforementioned occurrence results in the loss of lien priority after the
date the Company or the Trust receives an interest in such Equipment unless
otherwise obligated in the related Prospectus Supplement.
Yields, Maturities And Prepayments On The Securities Cannot Be
Predicted And Social, Economic And Other Factors May Affect Securityholders
Return On Their Investments. 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 Defaulted
Contracts, 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.
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<PAGE> 19
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.
Recoveries On The Contracts May Be Limited, Which May Result In The
Issuer Receiving Substantially Less Than The Face Amount Of The Related
Contract. 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 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 Trustee must rely on repossession and
disposition of Equipment to recover scheduled payments due on Defaulted
Contracts, 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 Equipment had been filed, depreciation, obsolescence,
damage or loss of any item of Equipment, 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 Of The Seller 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
14
<PAGE> 20
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.
Lessees of the Equipment 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.
Equipment Obsolescence May Diminish Recovery Values. In the event a
Contract becomes a Defaulted Contract and the Lessee (and any guarantor)
has insufficient assets available to pay the Contract payments on the
scheduled payment dates, the only other source of moneys (other than the
applicable credit enhancements, if any) for such amounts will be the income
and proceeds from the disposition of the related Equipment. Because the
market value of equipment generally declines with age and may be subject to
sudden, significant declines in value because of technological advances, in
the event of a repossession and sale of Equipment subject to a Defaulted
Contract, the Issuer may not recover the entire amount due on such
Contract. As a result, the Securityholders may be subject to delays in
receiving payments and suffer loss of their investment in the Securities.
Future Levels Of Delinquencies On The Contracts Are 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.
Book-Entry Registration May Further Reduce Liquidity And May Lead To
Payment Delays. 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."
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Rating Of Securities Subject To Change Based On The Ratings Of The
Credit Enhancers. 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.
Software and Service Contracts May Not Be Owned By The Seller And The
Issuer May Not Realize Proceeds Upon A Default Of Such Software And Service
Contracts. Certain Contracts, as described in the related Prospectus
Supplement, will relate to software and services that are not owned by the
Seller and in which no related interest will be transferred to the Issuer.
Instead, the Issuer will receive the right to receive payments under the
Contract. Accordingly, if any such Contract becomes a Defaulted Contract,
the Issuer will not realize any proceeds from the related software and
services from which to satisfy any unpaid payments under such Contracts.
Transfer Of Servicing May Delay Payments To Securityholders. 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.
The Seller's Inability To Repurchase Contracts May Result In Losses
And Delays Of Payments To The Securityholders. 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.
The Initial Contact Pool May Have Geographic Or Other
Concentrations. 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.
The Seller's Ability To Originate Additional Contracts May Determine
Whether The Pre-Funding Account Will Be Fully Utilized. 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.
The Underwriting Criteria Used To Originate Contracts Under The
Portfolio Acquisition Program May Deviate From The Underwriting Criteria Of
First Sierra. 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.
Securityholders' Waiver Of Right To Institute Proceeding Against
Company. Each Securityholder by its purchase of Securities is deemed by
its purchase of such Securities to have covenanted that it 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 by 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 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 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, 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
Each Asset Pool will include, as specified in the related Prospectus
Supplement, (i) a pool of Contracts which will consist solely of finance leases
and commercial loans and the Receivables related thereto, (ii) all moneys
(including accrued interest) due or to become due thereunder on or after the
applicable Cut-off Date, (iii) such amounts as from time to time may be held in
one or more accounts established and maintained by the Servicer pursuant to the
related Trust Agreement, as described below and in the related Prospectus
Supplement, (iv) the security interests, if any, in the Equipment relating to
such pool of Receivables, (v) the right to proceeds from claims on physical
damage policies, if any, covering such Equipment or the related Lessees, as the
case may be, (vi) the rights of the Seller under the related Contribution and
Sale Agreement and (vii) interest earned on short-term investments made by such
Trust. The Asset Pool will also include, if so specified in the related
Prospectus Supplement, monies on deposit in a Pre-Funding Account, which will be
used by the Trustee to acquire or receive a security interest in Additional
Receivables from the Company from time to time during the Pre-Funding Period
specified in the related Prospectus Supplement. In addition, to the extent
specified in the related Prospectus Supplement, some combination of Credit
Enhancements may be issued to or held by the Trustee on behalf of the related
Securityholders for the benefit of the holders of one or more classes of
Securities.
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
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held by the Seller based on the criteria specified in the applicable Trust
Agreement and described in the related Prospectus Supplement.
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
lease term, original lease 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
GENERAL
The Contracts are full payout leases with an average original equipment
cost of approximately $17,000, generally range in size from $1,000 to $500,000,
have an average term of nearly 60 months and generally range from 36 to 84
months in term. The equipment currently consists of medical and business
equipment; although additional equipment types as more fully described in the
related Prospectus Supplement, may be included as the result of the inclusion of
additional participants in the Seller's Private Label Program, Broker Program,
Vendor Program and Portfolio Acquisition Program.
The Contracts were acquired by the Company from First Sierra or an
affiliate. As more fully described in the related Prospectus Supplement, the
Contracts were either (a) originated by a lessor and acquired by First Sierra
pursuant to First Sierra's Portfolio Acquisition Program, (b) acquired by First
Sierra because such Contracts comply with First Sierra's underwriting criteria
for the Private Label Program or (c) originated by First Sierra under the Broker
Program and Vendor Program.
As more fully described in the related Prospectus Supplement, the Equipment
subject to the Contracts is expected to include furniture, dentist operatories,
diagnostic equipment (including, X-ray machines and blood diagnostic equipment),
copiers, telephone systems, computers and facsimile machines and general office
equipment.
FIRST SIERRA
First Sierra Financial Inc. (the "Seller" or "First Sierra") is a
specialized finance company that acquires and originates, sells and services
equipment contracts. The underlying contracts financed by First Sierra relate to
a wide range of equipment, including computers and peripherals, computer
software, medical, dental and diagnostic, telecommunications, office, automotive
servicing, hotel security, food services, tree service and industrial, as well
as specialty vehicles.
First Sierra has established strategic alliances with a network of
independent leasing companies, contract brokers and equipment vendors, each of
which acts as a source from which First Sierra obtains access to equipment
contracts. First Sierra customizes contract financing products to meet the
specific equipment financing needs of its customers and in many cases provides
such customers with servicing and technological support via on-line connections
to First Sierra's state-of-the-art computer system.
First Sierra commenced operations in June 1994 and initially developed a
program to purchase contracts from leasing companies which had the ability to
originate significant contract volumes and were willing and able to provide
credit protection to First Sierra (through recourse and purchase price holdback
features) and perform certain servicing functions on an ongoing basis with
respect to such contracts. This program, referred to by First Sierra as its
"Private Label" program (and the companies that participate in the Private Label
Program are "Sources"), was designed to provide First Sierra with access to high
volumes of contracts eligible for the securitization market, while minimizing
the risk of loss to First Sierra. First Sierra has experienced significant
growth in its Private Label program since inception, with the volume of
contracts purchased increasing from $4.5 million in 1994, to $65.2 million in
1995, to $161.1 million in 1996, to $210 million in 1997. The volume of
contracts originated under the Broker Program and Vendor Program was a combined
$168 million in 1997.
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PRIVATE LABEL PROGRAM
General
The Private Label Program was designed to provide financing to small ticket
Sources 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 Source which requires the Source to repurchase
contracts that are typically 90 days past due up to an aggregate amount that is
up to 10% of the total purchase price of the contracts acquired from such
Source, (b) remarketing of the equipment that is subject to a defaulted contract
and (c) maintenance of a reserve fund funded by holdbacks of a portion of the
purchase price owing to the Source, such reserve funds typically range from 1%
to 10% of the purchase price of the related contracts. However, some Private
Label transactions contain none of the foregoing protections and are
non-recourse to the Source (although such Sources are obligated to repurchase
contracts 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 Source up to 10% of the aggregate purchase price of the
contracts acquired from such Source for defaulted contracts. Under the second
form of agreement, in addition to the aforementioned recourse to the Source,
First Sierra has the benefit of a reserve account which generally ranges from 1%
to 10% of the total purchase price of the contracts acquired from such Source.
Such amount is funded by the retention of a specified percentage of the purchase
price for each contract as a reserve. Under the third option, First Sierra has
recourse only to the reserve account for credit losses.
Underwriting Procedures
In order to qualify for participation in the Private Label Program, a
Source must satisfy certain criteria, which generally require that the majority
of the Source's business be small ticket contracts ($1,000 -- $500,000),
generate a minimum volume of contracts, 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 requirements vary
depending upon such things as transaction size, and type and location of
equipment financed.
First Sierra's underwriting guidelines with respect to Obligors contain
specific requirements which vary according to the nature of the Obligor's
business, the size of the transaction, and the type of program under which the
Source is seeking approval. In underwriting the Obligor, 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
Obligor, verification of a personal medical license, where applicable, and
historical financial statements or tax returns for commercial exposures greater
than $75,000 or as specifically arranged with the originating Source.
The Private Label Source typically closes the contract transaction prior to
sale to First Sierra. The Source will have performed all the necessary credit
inquiries and documentation, and will submit this information to First Sierra
for review. Each contract submitted for funding from any approved Source is
individually underwritten and approved by First Sierra. Individual contract
underwriting procedures generally include review of credit bureau reports and
verification of bank references, trade references, and licenses. For commercial
exposures greater than $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 contract payments and debt. For each
contract application First Sierra receives, the credit department reviews all
documentation and credit reviews. First Sierra performs periodic verification on
all acquired contracts on a random basis.
BROKER PROGRAM
First Sierra's Broker Program is designed to fund equipment contracts from
small ticket contract brokers that are unwilling or unable to provide the credit
protection and perform the servicing functions necessary to participate in First
Sierra's Private Label program. In a typical Broker transaction, First Sierra
originates
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contracts referred to it by the Broker and pays the Broker a referral fee.
Contracts originated under the Broker Program are structured on a non-recourse
basis, with risk of loss in the event of default by the Obligor residing with
First Sierra. First Sierra owns or (in the case of a contract intended as
security) has a security interest in the underlying equipment covered by a
Broker contract and, in certain cases, retains a residual interest in such
underlying equipment. All servicing functions are performed by First Sierra.
First Sierra also provides a variety of value-added services to
participants in its Broker Program, including consulting on the structuring of
financing transactions with equipment purchasers, timely and efficient credit
approvals and preparation and completion of standardized contract documents.
Although First Sierra enters into a brokerage agreement with each of the
participants in its Broker Program, such agreements are not exclusive and can be
terminated by either party.
First Sierra's yields on contracts originated under its Broker Program are
higher than those acquired under its Private Label program because of the risk
of loss and servicing responsibilities assumed by First Sierra in the Broker
Program.
VENDOR PROGRAM
First Sierra's Vendor Program focuses on establishing formal and informal
relationships with equipment vendors (of which vendors may deal in software) in
order to establish First Sierra as the provider of financing recommended by such
vendors to their equipment purchasers. By assisting such vendors in providing
timely, convenient and competitive financing for their equipment sales and
offering vendors a variety of value-added services, First Sierra simultaneously
promotes the vendor's equipment sales and the utilization of First Sierra as the
equipment finance provider.
In a typical vendor arrangement, First Sierra originates all contracts
referred to it by the Vendor. Contracts originated under the Vendor Program are
structured on a non-recourse basis, with risk of loss in the event of a default
by the Obligor residing with First Sierra. First Sierra owns or (in the case of
a contract intended as security) has a security interest in the underlying
equipment covered by a vendor contract and, in certain cases, retains a residual
interest in such equipment. All servicing functions are performed by First
Sierra under the Vendor Program.
The Vendor Program provides for customized financing arrangements to
respond to the needs of a particular vendor and its equipment purchasers. The
value-added services offered by First Sierra to participants in its Vendor
Program include consulting with vendors on structuring financing transactions
with equipment purchasers, training the vendor's sales and management staffs to
understand and market First Sierra's various financing alternatives, customizing
financial products to encourage product sales, and preparation and completion of
standardized contract documents. In most cases, First Sierra's sales
representatives also work directly with the vendor's equipment purchasers,
providing them with the guidance necessary to complete the equipment financing
transaction. First Sierra also may participate actively in the vendor's sale
sand marketing efforts, including advertising, promotions, trade show activities
and sales meetings.
First Sierra generally obtains higher yields on contracts funded under the
Vendor Program than those in the Broker Program due to additional services
provided by First Sierra under the Vendor Program.
THE SERVICER
GENERAL
First Sierra Financial, Inc., a Delaware corporation (the "Servicer"), was
founded in June 1994. Its principal office is located at 600 Travis Street,
Suite 7050, Houston, Texas 77002. Since its incorporation through March 31,
1998, First Sierra has acquired over $820 million of contracts for equipment and
other property. First Sierra, is a publicly traded company and its common stock
is listed on the Nasdaq National Market System under the symbol "FSFH".
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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 Chase Bank of Texas' cash management operations, which utilize optical
code reading technology to scan the invoices and earmark payments to the
specific pool where the contract is funded.
For Private Label Programs, the First Sierra relies on the Source to
undertake the initial collection efforts with respect to the Obligors. First
Sierra monitors contract receipts and aging results on a daily basis. First
Sierra provides delinquency status to Sources at least twice monthly. Many
Sources are connected to First Sierra's delinquency reporting systems and can
receive delinquency performance on daily basis. First Sierra monitors the
Source's progress, and is in regular contact with the Source regarding
collection activity, and actions to prevent the delinquency from worsening.
After 60 days, First Sierra contacts the Source directly to notify it that it
has 30 days to ensure the account is brought current. After 90 days, First
Sierra notifies the Source that it has 60 days to repurchase the contract it was
purchased pursuant to a recourse program, or to re-market the equipment. If
collections activities do not rectify the account, First Sierra typically
charges off the account at between 120 and 180 days past due depending on the
specific circumstances related to that account.
With respect to Broker/Vendor Programs, First Sierra's automated billing
cues collectors to initiate contact with Obligors if payment is not received by
the 11th day after due date. If payment has not been received by the 25th, a
general demand letter is sent to the Obligor. If no contact is made within 45
days, a letter is sent which gives the Obligor five days to bring the account
current. If no payment is received, the collector, in conjunction with senior
credit personnel, determines the subsequent actions appropriate for the
circumstances. If collection activities do not rectify the account, First Sierra
typically charges off the account at 120 days.
PREPAYMENT AND YIELD 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.
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.
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THE COMPANY
First Sierra Receivables III, Inc. (the "Company") is a limited purpose
corporation organized under the laws of the State of Delaware in
, 199 . The Company's principal executive offices are located
at 600 Travis Street, Houston, Texas 77002.
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.
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.
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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.
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 or an Indenture. 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.
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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.
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.
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.
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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 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
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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 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
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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;
(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, in the case of Notes, the related Trust Agreement. 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
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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 any original lease documentation constituting "chattel paper"
under the UCC.
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 Contract 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 Contract 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
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 Contract Balance or Discounted Contract 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
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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.
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 Equipment (if such Equipment
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
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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.
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.
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.
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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
Equipment, for and replace any Contract 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.
The Company will also have the right to substitute Equipment under any
Contract for comparable Equipment so long as there is no change in the amount,
number or timing of the scheduled payments with respect to such Contract, and,
to the extent provided in the related Prospectus Supplement, the Company may
also have the right to permit add-ons and upgrades with respect to any Contract.
Upon the replacement of a Contract and/or Equipment with a substitute
Contract and/or Equipment as described above, the interest of the related
Trustee in such replaced Contract and/or Equipment shall be terminated and, if
it has been transferred to the related Trust, such replaced Contract and/or
Equipment 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 Lessee 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 Equipment securing the
respective Defaulted Contract, if any, at a public or private sale, or take any
other action permitted by applicable law. See "Certain Legal Aspects of the
Receivables".
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.
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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.
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, 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
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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".
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.
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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.
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
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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.
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
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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 MATTERS AFFECTING 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 State of California and the
State of Florida; 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 SECURITY INTEREST IN THE EQUIPMENT
The Seller will convey the Seller's interest in the Equipment to the
Company. The Company will pledge a security interest in the Equipment to the
related Issuer. UCC financing statements will not be filed to perfect any
security interest in the Equipment unless otherwise specified in the related
Prospectus Supplement. Moreover, in the event of the repossession and resale of
Equipment, it may be subject to a superior lien. In such case, the senior
lienholder may be entitled to be paid the full amount of the indebtedness owed
to it out of the sale proceeds before such proceeds could be applied to the
payment of claims of the Servicer on behalf of the Trust.
In the event of a default by the Lessee, the Servicer on behalf of the
related Trustee may take action to enforce such Defaulted Contract by
repossession and resale of the leased Equipment. Under the UCC in most states, a
creditor can, without prior notice to the debtor, repossess assets securing a
defaulted contract by the Lessee's voluntary surrender of such assets or by
"self-help" repossession that does not involve a breach of the peace and by
judicial process.
In the event of a default by the Lessee, some jurisdictions require that
the Lessee be notified of the default and be given a time period within which it
may cure the default prior to repossession. Generally, this right of
reinstatement may be exercised on a limited number of occasions in any one-year
period.
The UCC and other state laws place restrictions on repossession sales,
including requirements that the secured party provide the Lessee 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 and that any such sale be
conducted in a commercially reasonable manner. Each Trust Agreement may require
the Servicer to sell promptly any repossessed item of Equipment, reacquire such
Equipment from the Asset Pool, re-lease such Equipment for the benefit of the
Securityholders or take such other action as specified in the related Prospectus
Supplement.
Under most state laws, a Lessee has the right to redeem collateral for its
obligations prior to actual sale by paying the secured party the unpaid balance
of the obligation plus reasonable expenses for repossession, holding and
preparing the collateral for disposition and arranging for its sale, plus, to
the extent provided for in the written agreement of the parties, reasonable
attorneys' fees.
In addition, because the market value of the equipment of the type financed
pursuant to the Receivables generally declines with age and because of
obsolescence, the net disposition proceeds of leased Equipment at any time
during the term of the lease may be less than the outstanding balance on the
Contract principal balance which it secures. Because of this, and because other
creditors may have rights in the related leased Equipment superior to those of
the related Trustee, the Servicer may not be able to recover the entire amount
due on a Defaulted Contract in the event that the Servicer elects to repossess
and sell such leased Equipment at any time.
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Under the UCC and laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a Lessee for any deficiency on repossession
and resale of the asset securing the unpaid balance of such Lessee's contract.
However, some states impose prohibitions or limitations on deficiency judgments.
In most jurisdictions the courts, in interpreting the UCC, would impose upon a
creditor an obligation to repossess the equipment in a commercially reasonable
manner and to "mitigate damages" in the event of a Lessee's failure to cure a
default. The creditor would be required to exercise reasonable judgment and
follow acceptable commercial practice in seizing and disposing of the equipment
and to offset the net proceeds of such disposition against its claim. In
addition, a Lessee may successfully invoke an election of remedies defense to a
deficiency claim in the event that the Servicer's repossession and sale of the
leased Equipment is found to be a retention discharging the Lessee from all
further obligations under UCC Section 9-505(2). If a deficiency judgment were
granted, the judgment would be a personal judgment against the Lessee for the
shortfall, but a defaulting Lessee may have very little capital or sources of
income available following repossession. Therefore, in many cases, it may not be
useful to seek a deficiency judgment or, if one is obtained, it may be settled
at a significant discount.
Certain statutory provisions, including federal and state bankruptcy and
insolvency laws, may also limit the ability of the Servicer to repossess and
resell collateral or obtain a deficiency judgment. In the event of the
bankruptcy or reorganization of a Lessee, various provisions of the Bankruptcy
Code of 1978 (the "Bankruptcy Code") and related laws may interfere with or
eliminate the ability of the Servicer or the Trustee to enforce its rights under
the Receivables. If bankruptcy proceedings were instituted in respect of a
Lessee, the Trustee could be prevented from continuing to collect payments due
from or on behalf of such Lessee or exercising any remedies assigned to such
Trustee without the approval of the bankruptcy court, and the bankruptcy court
could permit the Lessee to use or dispose of the leased Equipment and provide
the Trustee with a lien on substitute collateral, so long as such substitute
collateral constituted "adequate protection" as defined under the Bankruptcy
Code.
In addition, certain of the Receivables may be leased by the Seller to
governmental entities. Payment by governmental authorities of amounts due under
such Contracts may be contingent upon legislative approval. Accordingly, payment
delays and collection difficulties as described in the related Prospectus
Supplement may limit collections with respect to certain governmental Contracts.
These UCC and bankruptcy provisions, in addition to the possible decrease
in value of a repossessed item of Equipment (equipment leased pursuant to a
Finance Lease), may limit the amount realized on the sale of the collateral to
less than the amount due on the related Receivable.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
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.
[ADD DISCUSSION REGARDING OWNER TRUST TAXATION]
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
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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 Equipment 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
LLP, 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 Equipment 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 Equipment 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 Leases, 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 Leases 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."
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 Leases, 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 Leases, the amount
includible in income on a Grantor Trust Fractional Interest Certificate may
differ from the amount of interest distributable thereon. See "Discount and
Premium," below.
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
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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 includible 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.
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 Equipment and Contracts. Consequently, the Debt
Certificates will not be treated as ownership interests in the Equipment 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.
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
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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 Equipment 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.
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.
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Original Issue Discount. In general, a 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.
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.
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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 a 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).
Market Discount. A Holder that purchases a 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 a 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 a 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 a 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 a Certificate is
treated as zero under this rule, the actual amount of market discount must be
allocated to the
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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 a 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 excludible 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.
Because the interest rate on a Grantor Trust Certificate generally will be
lower than the implicit interest rate on the Finance Leases that comprise the
Grantor Trust Estate, the principal amount of such Certificates may be higher
than the aggregate outstanding principal amount of the Finance Leases. 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
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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.
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
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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.
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.
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
47
<PAGE> 53
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.
CERTAIN LEGAL MATTERS
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 LLP, 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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<PAGE> 54
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.
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Accrual Securities.......................................... 4
Additional Receivables...................................... 8
Asset Pool.................................................. 1
Bankruptcy Code............................................. 39
Broker Program.............................................. 1
Cede........................................................ 8
CEDEL Participants.......................................... 26
Certificate of Incorporation................................ 26
Certificates................................................ 1,2
Class....................................................... 1
Closing Date................................................ 28
Code........................................................ 47
Collection Account.......................................... 30
Collection Period........................................... 32
Commission.................................................. 2
Company..................................................... 1,22
Contracts................................................... 1,2
Contribution and Sale Agreement............................. 17
Cooperative................................................. 26
Credit Enhancement.......................................... 16
Credit Enhancer............................................. 16
Custodian................................................... 29
Debt Certificates........................................... 40
Debt Securities............................................. 10
Definitive Securities....................................... 27
Depositaries................................................ 25
Direct Participants......................................... 15
Discounted Contract Balance................................. 6
Distribution Account........................................ 30
DTC......................................................... 8
Eligible Deposit Account.................................... 31
Eligible Institution........................................ 31
Eligible Investment......................................... 7
Equipment................................................... 1,2
ERISA....................................................... 10
Euroclear Operator.......................................... 27
Euroclear Participants...................................... 26
Exchange Act................................................ 11
FASB 13..................................................... 6
Finance Leases.............................................. 6
First Sierra................................................ 1,18
FSFH........................................................ 20
Grantor Trust Certificates.................................. 10,40
Fully Taxable Bonds......................................... 45
Grantor Trust Estate........................................ 40
Grantor Trust Securities.................................... 10
Indenture................................................... 2
</TABLE>
49
<PAGE> 55
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Indenture Trustee........................................... 2
Independent Director........................................ 22
Indirect Participants....................................... 15
Insolvency Event............................................ 35
Insolvency Laws............................................. 14
Interest Rate............................................... 3
Investment Company Act...................................... 5
Investment Earnings......................................... 31
Issuer...................................................... 1
Lessee...................................................... 6
Lessor...................................................... 2
Lockbox..................................................... 32
Market Discount............................................. 45
Notes....................................................... 1,2
Owner Trust................................................. 17
Participants................................................ 25
Partnership Interest........................................ 10
Pass-Through Rate........................................... 2
Payment Date................................................ 4
Policy...................................................... 1,2
Pool Factor................................................. 21
Pooling Agreement........................................... 2
Portfolio Acquisition Program............................... 1
Pre-Funded Amount........................................... 7,31
Pre-Funding Account......................................... 7,31
Premium Certificate......................................... 45
Prepayment.................................................. 13
Prepayment Assumption....................................... 43
Private Label............................................... 18
Private Label Program....................................... 1
Prospectus Supplement....................................... 1
Purchase Agreement.......................................... 2
Receivables................................................. 1,2
Record Date................................................. 4
Registration Statement...................................... 2
Remittance Period........................................... 4
Rules....................................................... 26
Securities.................................................. 1
Securities Act.............................................. 2
Security Insurer............................................ 8
Securityholders............................................. 4
Seller...................................................... 1,18
Senior Securities........................................... 4
Servicer.................................................... 1,20
Servicer Defaults........................................... 34
Servicing Agreement......................................... 2
Servicing Fee............................................... 32
Servicing Fee Rate.......................................... 32
Sources..................................................... 18
Special Counsel............................................. 46
Strip Securities............................................ 3
</TABLE>
50
<PAGE> 56
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Subordinate Securities...................................... 4
Terms and Conditions........................................ 27
Trust....................................................... 1
Trust Accounts.............................................. 30
Trust Agreement............................................. 3
Trustee..................................................... 3
U.S. Person................................................. 45
Vendor Program.............................................. 1
Warranty Purchase Price..................................... 29
</TABLE>
51
<PAGE> 57
- ------------------------------------------------------
- ------------------------------------------------------
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 SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS 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 SUPPLEMENT AND THE
PROSPECTUS 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
SUPPLEMENT OR THE PROSPECTUS 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement...................... i
Available Information...................... i
Incorporation of Certain Documents by
Reference................................ i
Reports to Securityholders................. ii
Summary.................................... 1
Material Risks............................. 12
Use of Proceeds............................ 17
The Issuers................................ 17
The Asset Pools............................ 17
The Receivables............................ 18
First Sierra............................... 18
The Servicer............................... 20
Prepayment and Yield Considerations........ 21
Pool Factors............................... 21
The Company................................ 22
The Trustees............................... 23
Description of the Securities.............. 23
Description of the Trust Agreements........ 28
Certain Legal Matters Affecting the
Receivables.............................. 38
Material Federal Income Tax Consequences... 39
ERISA Considerations....................... 47
Method of Distribution..................... 47
Certain Legal Matters...................... 48
Financial Information...................... 48
Additional Information..................... 48
Index of Terms............................. 49
</TABLE>
---------------------
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS 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.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
CONTRACT BACKED
FIRST SIERRA
RECEIVABLES III, INC.
--------------------
PROSPECTUS
--------------------
[UNDERWRITER]
[DATE]
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 58
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 Registrants may enter into with
underwriters or agents (forms of which will be included as exhibits to this
Registration Statement), officers and directors of the Registrants, 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
Registrants by such underwriters or agents that appear in the Registration
Statement or any Prospectus.
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<PAGE> 59
Item 16. EXHIBITS AND FINANCIAL STATEMENTS
(a) Exhibits
<TABLE>
<S> <C>
1.1* --Form of Underwriting Agreement for the Notes.
1.2** --Form of Underwriting Agreement for the Certificates.
3.1** --Certificate of Incorporation of the Co-Registrant.
3.2* --Bylaws of the Co-Registrant.
3.3* --Certificate of Limited Partnership of the Registrant.
3.4* --Agreement of Limited Partnership of the Registrant.
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.
** To be filed by Amendment
(b) All financial statements, schedules and historical financial
information have been omitted as they are not applicable.
Item 17. UNDERTAKINGS
The undersigned Registrants hereby undertake:
(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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<PAGE> 60
(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
Registrants 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 Registrants pursuant to the provisions described
under item 15 above, or otherwise, the Registrants have 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 Registrants of expenses incurred or paid by a director,
officer or controlling person of the Registrants 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
registrants 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 registrants hereby undertake that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrants' annual reports 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 registrants 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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<PAGE> 61
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 registrants hereby undertake 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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<PAGE> 62
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have 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 Houston, State of Texas on July 14, 1998.
FIRST SIERRA RECEIVABLES III, INC.
By: /s/ Thomas Depping
--------------------------------
Thomas Depping
President
FIRST SIERRA RECEIVABLES II, INC.
By: /s/ Thomas Depping
--------------------------------
Thomas Depping
President
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<PAGE> 63
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 14th day of July, 1998.
SIGNATURE TITLE
--------- -----
/s/ Thomas Depping Director and President of First Sierra
- ------------------------------ Receivables III, Inc. and First Sierra
By: Thomas Depping Receivables II, Inc.
/s/ Thomas Depping Director, Chief Financial Officer
- ------------------------------ and Principal Accounting Officer of
By: Thomas Depping First Sierra Receivables III, Inc. and
First Sierra Receivables II, Inc.
/s/ Thomas Depping Director of First Sierra Receivables III,
- ------------------------------ Inc. and First Sierra Receivables II, Inc.
By: Thomas Depping
/s/ Thomas Depping Director and Vice President of First Sierra
- ------------------------------ Receivables III, Inc. and First Sierra
By: Thomas Depping Receivables II, Inc.
II-6
