<PAGE> 1
Prospectus supplement to prospectus dated November 25, 1998
Filed Pursuant to Rule 424(b)(2)
Registration No. 333-12199
Registration No. 333-12199-01
<TABLE>
<S> <C>
FIRST SIERRA EQUIPMENT CONTRACT TRUST 1999-2
Issuer
$157,155,372
FIRST SIERRA FINANCIAL, INC. EQUIPMENT CONTRACT BACKED NOTES,
Originator and Servicer SERIES 1999-2
FIRST SIERRA RECEIVABLES III, INC.
Depositor
</TABLE>
First Sierra Equipment Contract Trust 1999-2, a common law trust acting through
its trustee, First Union Trust Company, National Association, as owner trustee,
will issue eight classes of notes backed solely by a pledge of the assets of the
trust. The assets of the trust will consist primarily of a pool of finance
leases and commercial loans and a security interest in the related underlying
equipment or other property.
<TABLE>
<S> <C>
------------------------------------ THE NOTES --
YOU SHOULD READ THE SECTION ENTITLED - Of the eight classes of notes issued by the trust, only
"RISK FACTORS" STARTING ON PAGE S-6 the five classes of notes set forth in the table below are
OF THIS PROSPECTUS SUPPLEMENT AND offered by this prospectus supplement.
PAGE 13 OF THE PROSPECTUS AND
CONSIDER THESE FACTORS BEFORE MAKING - Interest and principal on the notes is scheduled to be
A DECISION TO INVEST IN THE NOTES. paid monthly, on the 16th day of the month, or the business
day immediately following such 16th day. The first
The notes represent asset-backed scheduled payment date is October 18, 1999.
debt secured only by the assets of
the trust and are not interests in CREDIT ENHANCEMENT --
or obligations of any other person.
- The trust is also issuing the Class C Notes, the Class D
Neither the notes nor the underlying Notes and the Class E Notes, which are not being offered by
leases and loans will be insured or this prospectus supplement but which serve as credit
guaranteed by any governmental support to the notes offered by this prospectus.
agency or instrumentality or by any
other person. - The trust is also issuing a trust certificate representing
- ------------------------------------ the entire beneficial ownership interest in the trust.
Payments on the trust certificate are subordinated to the
payments due on the notes. No principal will be paid to
the holder of the trust certificate unless all payments of
principal and interest on all classes of notes have been
made. The holder of the trust certificate is referred to
as the trust certificate holder.
</TABLE>
<TABLE>
<CAPTION>
INITIAL AGGREGATE UNDERWRITING PROCEEDS TO THE
CLASS NOTE BALANCE(1) NOTE RATE PRICE TO PUBLIC DISCOUNT DEPOSITOR(2)
- ----- ----------------- --------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
A-1 $ 30,818,212 5.85535% 100.00000% 0.150% $ 30,771,985
A-2 $ 31,956,385 6.46% 99.99094% 0.190% $ 31,892,773
A-3 $ 18,823,624 6.70% 99.99546% 0.235% $ 18,778,534
A-4 $ 61,986,631 6.98% 99.98956% 0.277% $ 61,808,457
B $ 13,570,520 7.28% 99.97916% 0.350% $ 13,520,195
------------ ------------
Total $157,155,372 $156,771,943
</TABLE>
- ---------------
(1) Approximate as to all dollar amounts.
(2) Before deducting expenses estimated to be $500,000.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE CLASS A NOTES ARE BEING OFFERED BY:
FIRST UNION CAPITAL MARKETS CORP.
NESBITT BURNS SECURITIES, INC.
PNC CAPITAL MARKETS, INC.
THE CLASS B NOTES ARE BEING OFFERED BY:
FIRST UNION CAPITAL MARKETS CORP.
The date of this prospectus supplement is September 22, 1999.
<PAGE> 2
IMPORTANT NOTICE ABOUT THE INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the notes in two separate documents
that progressively provide more detail: (1) the accompanying prospectus, which
provides general information, some of which may not apply to your series of
notes, and (2) this prospectus supplement, which describes the specific terms of
your series of notes.
This prospectus supplement does not contain complete information about
the offering of the offered notes. Additional information is contained in the
prospectus. You are urged to read both this prospectus supplement and the
prospectus in full. We cannot sell the offered notes to you unless you have
received both this prospectus supplement and the prospectus.
TO THE EXTENT THE PROSPECTUS CONTEMPLATES DIFFERENT OR MULTIPLE
OPTIONS, YOU SHOULD RELY ON THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AS TO
THE APPLICABLE OPTION.
The Depositor has filed with the Securities and Exchange Commission
(the "Commission") a registration statement under the Securities Act of 1933, as
amended, with respect to the notes offered pursuant to this prospectus
supplement. This prospectus supplement and the prospectus, which form a part of
the registration statement, omit certain information contained in such
registration statement pursuant to the rules and regulations of the Commission.
You may inspect and copy the registration statement at the Public Reference Room
at the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
and the Commission's regional offices at Seven World Trade Center, 13th Floor,
New York, New York, 10048 and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. You can obtain copies of such
materials at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the
Commission maintains a site on the World Wide Web containing reports, proxy
materials, information statements and other items. The address is
http://www.sec.gov.
You should rely only on the information incorporated by reference or
provided in this prospectus supplement and the prospectus. We have not
authorized anyone else to provide you with different information. You should not
assume that the information in this prospectus supplement is accurate as of any
date other than the date on the cover page of this prospectus supplement.
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The following table of contents and the table of
contents included in the accompanying prospectus provide the pages on which
these captions are located.
S-ii
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY.................................................S-1
Parties..............................................S-1
The Pledged Assets...................................S-1
The Contracts........................................S-2
The Notes............................................S-2
Credit Enhancement...................................S-4
Optional Redemption..................................S-4
Material Federal Income Tax Consequences.............S-5
ERISA Considerations.................................S-5
Legal Investment.....................................S-5
Rating of the Offered Notes..........................S-5
RISK FACTORS............................................S-6
FORMATION OF THE TRUST..................................S-9
The Trust............................................S-9
The Owner Trustee....................................S-9
The Indenture Trustee................................S-9
The Trust Assets....................................S-10
THE RECEIVABLES........................................S-10
The Equipment.......................................S-10
The Contracts.......................................S-10
Substitution and Modification of the Contracts......S-13
Servicing of the Contracts..........................S-14
Statistical Information.............................S-15
FIRST SIERRA...........................................S-21
THE SELLERS............................................S-21
THE SERVICER...........................................S-21
Delinquency and Loss Experience.....................S-22
Collection Policies.................................S-23
Year 2000...........................................S-23
LEGAL PROCEEDINGS......................................S-25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION.................................S-25
DESCRIPTION OF THE NOTES...............................S-25
General.............................................S-25
Interest and Principal Payments.....................S-27
Flow of Funds.......................................S-32
The Accounts........................................S-35
Servicer Advances...................................S-36
Withholding.........................................S-37
Reports to Noteholders..............................S-37
Optional Redemption.................................S-38
DESCRIPTION OF THE TRANSACTION DOCUMENTS...............S-39
Conveyance of Receivables...........................S-39
Representations and Warranties of First Sierra......S-39
Indemnification.....................................S-41
Remittance and Other Servicing Procedures...........S-42
Servicing Compensation and Payment of Expenses......S-42
Evidence as to Compliance...........................S-43
Certain Matters Relating to the Servicer............S-43
Events of Servicing Termination.....................S-44
Rights Upon an Event of Servicing Termination.......S-44
Events of Default...................................S-44
Termination of the Trust............................S-45
Amendment...........................................S-45
Duties and Immunities of the Indenture Trustee......S-46
Resignation and Removal of the Indenture Trustee....S-46
PREPAYMENT AND YIELD CONSIDERATIONS....................S-47
Weighted Average Lives of the Notes.................S-48
MATERIAL FEDERAL INCOME TAX CONSEQUENCES...............S-68
Tax Characterization of the Trust...................S-68
Tax Consequences to Holders of the Notes............S-68
STATE AND LOCAL TAX CONSIDERATIONS.....................S-71
ERISA CONSIDERATIONS...................................S-72
LEGAL INVESTMENT.......................................S-73
RATINGS................................................S-73
METHOD OF DISTRIBUTION.................................S-73
LEGAL MATTERS..........................................S-75
INDEX OF PRINCIPAL DEFINED TERMS.......................S-76
</TABLE>
S-iii
<PAGE> 4
SUMMARY
o This summary highlights selected information from this prospectus
supplement and does not contain all of the information that you need to
consider in making your investment decision. To understand all of the terms
of the offering of the offered notes, read carefully this entire prospectus
supplement and the accompanying prospectus.
o This summary provides an overview of certain calculations, cash flows and
other information to aid your understanding. To understand all of the terms
of the offering, carefully read this entire document and, in particular,
the full description of these calculations, cash flows and other
information in this prospectus supplement and the accompanying prospectus.
----------
PARTIES
THE TRUST
First Sierra Equipment Contract Trust 1999-2, a common law trust acting
through First Union Trust Company, National Association, as owner trustee, is a
Delaware common law trust. The principal executive offices of the trust are in
Wilmington, Delaware, in care of the owner trustee, at the address of the owner
trustee specified below.
THE DEPOSITOR
First Sierra Receivables III, Inc. is a Delaware corporation. The
depositor is a wholly-owned special-purpose subsidiary of First Sierra. The
address of the depositor is 600 Travis Street, Suite 7050, Houston, Texas 77002,
and its telephone number is (713) 221-8822.
FIRST SIERRA
First Sierra Financial, Inc. is a Delaware corporation. The address of
First Sierra is 600 Travis Street, Suite 7050, Houston, Texas 77002, and its
telephone number is (713) 221-8822. First Sierra originated the contracts and
will also service the contracts held by the trust.
THE SELLERS
The Sellers are certain affiliates and certain trusts sponsored by
First Sierra or its affiliates, including investors in such trusts.
THE INDENTURE TRUSTEE
Bankers Trust Company is a New York banking corporation. The corporate
trust offices of the indenture trustee is Four Albany Street, New York, New York
10006, and its telephone number is (212) 250-4237.
THE OWNER TRUSTEE
First Union Trust Company, National Association, is a national banking
association. The corporate trust offices of the owner trustee are located at One
Rodney Square, 920 King Street, Suite 102, Wilmington, Delaware 19801, and its
telephone number is (302) 888-7539.
THE PLEDGED ASSETS
The notes will be backed solely by a pledge of the assets of the trust.
The assets of the trust will consist of:
o a segregated pool of direct finance leases and commercial loan contracts
relating to a wide range of equipment, together with all monies received
relating thereto after September 1, 1999;
o the security interest of the originator or its affiliate in the equipment
or other property securing such contracts;
o all funds on deposit in certain accounts relating to the contracts and the
equipment;
o moneys on deposit in a reserve account which will be used to fund
shortfalls in
S-1
<PAGE> 5
interest and principal payments to the noteholders on each payment date;
and
o certain of the originator's rights under insurance policies relating to the
contracts and the equipment.
Any security deposits received by the servicer with respect to the contracts
will be retained by the servicer, and such amounts will not be available to the
trust in the event of the liquidation of the related contracts.
THE CONTRACTS
Each contract was previously originated by either: (i) a third-party
unaffiliated with First Sierra, each, a "source," and acquired by First Sierra
through its "private label program"; or (ii) First Sierra directly through its
"vendor" or "broker program."
The sellers will transfer the contracts and a security interest in the
related equipment to the trust. The trust will then pledge all of its right,
title and interest in and to such contracts and equipment to the indenture
trustee on behalf of the noteholders.
All of the contracts:
o which are in the form of leases are characterized as finance leases;
o require the periodic, scheduled payment of rent or other payments on a
monthly, quarterly, semi-annual, or annual basis, in arrears or in advance;
o require that the obligor under such contract assumes all responsibility
with respect to the related equipment, including the obligation to pay all
costs relating to its operation, maintenance, repair and, with certain
exceptions described herein, insurance or self insurance; and
o contain "hell or high water" provisions, which unconditionally obligate the
obligor to make all scheduled payments without setoff.
The principal value of the pool of contracts at any time will be
calculated by discounting their remaining payments (except for delinquent
payments) at a rate equal to 7.525%.
THE NOTES
DENOMINATIONS
The offered notes will initially be issued in book-entry form only,
through the facilities of The Depository Trust Company. The offered notes will
be issued in minimum denominations of $1,000 and multiples of $1,000 in excess
thereof, with the exception of one note in each class which will be issued in an
odd amount.
PAYMENT DATE
Principal and interest is scheduled to be paid to the noteholders on
the 16th day of each month if the 16th is a business day. If the 16th is not a
business day, the payment date will be the next following day that is a business
day. The first payment date will be October 18, 1999.
RECORD DATE
The indenture trustee will make payments to the noteholders of record
as of the close of business on the last day of the interest accrual period for
such month.
COLLECTION PERIOD
Payments made on each payment date will relate to the collections
received in respect of the contracts and the equipment during the period
beginning on the opening of business on the second day of the immediately
preceding calendar month and ending on the close of business on the first day of
the calendar month in which such payment date occurs.
CLOSING DATE
On or about September 29, 1999.
INTEREST
Interest on the notes of each class is due and payable on each monthly
payment date and
S-2
<PAGE> 6
will accrue at the applicable note rate from the prior payment date to the day
before the next payment date. In the case of the first payment date, interest
begins to accrue on the day of the closing.
For the Class A-1 Notes, interest on the notes will be calculated on an
"actual/360" basis. For all other classes of notes, interest on the notes will
be calculated on a "30/360" basis.
PRINCIPAL
On each payment date, the noteholders are scheduled to receive an
amount of principal generally equal to the sum of actual principal collections,
payments by the originator for contracts repurchased by it and the value of any
defaulted contracts, all as determined by the decrease in the principal value of
the contracts from the prior collection period to the current collection period.
The noteholders of each class of notes are scheduled to receive a percentage of
the above amount. Each class's percentage will equal such class's initial note
principal balance divided by the sum of the aggregate balance of all of the
contracts on September 1, 1999. No principal is paid or is due to the trust
certificate holder until principal due to all classes of notes is paid.
The trust will pay principal in the following priority:
o to the Class A-1 noteholders until the principal amount on the Class A-1
Notes is reduced to zero;
o to the Class A-2, A-3 and A-4 noteholders, the payment of principal due on
the outstanding Class A Notes. Amounts distributed to the holders of the
Class A-2, A-3 and A-4 Notes will be paid in a "sequential pay" fashion:
first to the holders of the Class A-2 Notes until the principal amount on
the Class A-2 Notes is zero; then to the holders of the Class A-3 Notes
until the principal amount on the Class A-3 Notes is zero; and to the
holders of the Class A-4 Notes until principal amount on the Class A-4
Notes is zero;
o to the Class B noteholders, the payment of principal due on the outstanding
Class B Notes;
o to the Class C noteholders, the payment of principal due on the outstanding
Class C Notes;
o to the Class D noteholders, the payment of principal due on the outstanding
Class D Notes;
o to the most senior class of notes then outstanding, Reallocated Principal;
o to the Class E noteholders, the payment of principal due on the outstanding
Class E Notes;
o amounts otherwise payable as principal to the trust certificate holder will
be suspended and will be distributed to the Noteholders on a pro rata
basis.
The principal on the notes may be paid earlier or later than described
above, or in greater or lesser amounts. We refer you to "Description of the
Notes -- Flow of Funds" in this prospectus supplement for further information
regarding the payment of interest and principal on the notes.
FINAL SCHEDULED PAYMENT DATE
If the notes have not already been paid in full, the trust will pay the
outstanding principal amount of the notes in full on the payment dates in the
following months:
Class A-1 October, 2000
Class A-2 March, 2002
Class A-3 October, 2002
Class A-4 March, 2006
Class B March, 2007
Class C May, 2007
Class D May, 2007
Class E July, 2010
Final payment on the notes will probably be earlier than the final
scheduled
S-3
<PAGE> 7
payment date set forth above for the related class of notes.
CREDIT ENHANCEMENT
The credit enhancement available to the noteholders will consist of,
with respect to each class of notes, (i) the reserve account established with
the indenture trustee for the benefit of all noteholders and (ii) the
subordination provisions set forth herein in "Description of the Notes - Flow of
Funds."
RESERVE ACCOUNT
On the closing date, the trust will be required to deposit into the
reserve account an amount equal to 1.0% of the aggregate discounted contract
principal balance of the contracts as of the cut-off date. On each payment date,
to the extent that the funds available in the collection account to fund all
required interest and principal payments to the holders of the Class A Notes,
the Class B Notes, the Class C Notes and the Class D Notes are insufficient to
fund all amounts due, amounts on deposit in the reserve account will be used to
fund shortfalls to those noteholders in the same priority as such interest and
principal is paid to such noteholders. In addition, on the final scheduled
payment date of any class of notes if the funds available to fund the
outstanding principal balance of that class of notes are insufficient to fund
the full amount due, amounts on deposit in the reserve account will be used to
fund such shortfall prior to funding any shortfalls in principal, if any, due to
the holders of the other notes. On each payment date, following the funding of
higher priority items, the remaining available funds will be deposited in the
reserve account in the amount necessary to maintain the amount on deposit in the
reserve account at its requisite amount.
SUBORDINATION
The credit enhancement available for the benefit of any class of notes
is provided by each class of notes having a lower priority of payment than such
class of notes, as well as by the trust certificate. Losses caused by defaults
on the underlying contracts will be absorbed:
o first by the trust certificate holder;
o second, by the holders of the Class E Notes;
o third, by the holders of the Class D Notes;
o fourth, by the holders of the Class C Notes;
o fifth, by the holders of the Class B Notes; and
o sixth, by the holders of the Class A Notes.
Thus, any losses on the underlying contracts will be absorbed first by the trust
certificate, and then the next successive junior subordinate class of notes.
In addition, amounts otherwise payable as principal to the trust
certificate holder will be suspended and will be distributed to each class of
notes pro rata as a further reduction of the outstanding note principal balance
of each class.
OPTIONAL REDEMPTION
The trust certificate holder may redeem the notes on any payment date
on which the aggregate discounted contract principal balance is less than 15% of
the sum of the aggregate discounted contract principal balance as of the closing
date.
If a redemption occurs, the trust will pay noteholders a final
distribution equaling (a) the discounted contract principal balance of all
contracts as of the close of business on the second preceding collection period
(without any deduction for any security deposit paid by an obligor, unless such
security deposit has been deposited in the collection account); (b) the product
of (i) each contract's discounted contract principal balance as of the beginning
of the immediately preceding collection period and (ii) one-twelfth of the
actual discount rate; (c) any scheduled payments theretofore due and not paid by
an obligor; and (d) any final contract payment due or to become due under the
contract.
S-4
<PAGE> 8
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Dewey Ballantine LLP, tax counsel, is of the opinion that the offered
notes will be treated as debt for federal income tax purposes and the trust will
not be treated as an association (or a publicly traded partnership) taxable as a
corporation. By your acceptance of an offered note, you agree to treat the notes
as debt.
ERISA CONSIDERATIONS
Subject to the considerations described under "ERISA Considerations" in
this prospectus supplement, the offered notes may be purchased by pension,
profit sharing and other employee benefit plans and retirement arrangements.
Investors should consult with their counsel regarding the applicability of the
provisions of the Employer Retirement Income Security Act of 1974, as amended,
before purchasing an offered note.
LEGAL INVESTMENT
The Class A-1 Notes will be eligible securities for purchase by money
market funds under the Investment Company Act of 1940, as amended.
RATING OF THE OFFERED NOTES
The offered notes must receive at least the following ratings from
Standard & Poor's, a division of The McGraw-Hill Companies, Inc., Moody's
Investors Service, Inc., Fitch IBCA, Inc. and Duff & Phelps Credit Rating Co. in
order to be issued:
<TABLE>
<CAPTION>
Class Ratings
----- -------
S&P Moody's Fitch DCR
--- ------- ----- ---
<S> <C> <C> <C> <C>
A-1 A-1+ P-1 F1+ D-1+
A-2 AAA Aaa AAA AAA
A-3 AAA Aaa AAA AAA
A-4 AAA Aaa AAA AAA
B A A2 A A
</TABLE>
You should not assume that the ratings will not be lowered, qualified
or withdrawn by the rating agencies.
S-5
<PAGE> 9
RISK FACTORS
In addition to the risk factors discussed in the prospectus,
prospective offered noteholders should consider, among other things, the
following additional factors in connection with the purchase of the offered
notes:
<TABLE>
<S> <C>
THE ADDITION AND SUBSTITUTION OF First Sierra may, under certain circumstances, substitute or
CONTRACTS MAY ADVERSELY AFFECT add certain qualifying contracts to the trust. The addition
CASHFLOW AND MAY DECREASE THE or substitution of contracts may include contracts that
YIELD ON THE NOTES possess different payment due dates and installment amounts
than its predecessor contract. It may also include contracts
with maturity dates that are different from the maturity
dates of its predecessor contracts. If a significant number
of contracts are added or replaced, this could affect the
rate at which distributions are made on the notes and
decrease the yield to noteholders.
First Sierra may only add or substitute contracts that meet
certain qualifying characteristics and conditions. The
ability of First Sierra to acquire such contracts may be
affected by a variety of social and economic factors,
including interest rates, unemployment levels, the rate of
inflation and public perception of economic conditions
generally. As such, the addition or substitution of
contracts could change the geographic or equipment
concentration of contracts from the characteristics of the
pool described as of September 1, 1999. Consequently, any
adverse economic or social factors that particularly affect
a certain geographic area or a certain type of equipment may
adversely affect the performance of the contracts.
GEOGRAPHIC CONCENTRATIONS OF As of the statistical calculation date, obligors with
CONTRACTS MAY ADVERSELY AFFECT respect to approximately 20.64% of the contracts and the
THE CONTRACTS related equipment were located in California. To the extent
adverse events or economic conditions are particularly
severe in California or in the event an obligor or group of
obligors under the contracts in California were to
experience financial difficulties due to the economic
conditions specific to California, the delinquency and loss
experience of the contracts could be adversely impacted. In
such event, you may experience delays in receiving payments
and suffer loss of your investment in the notes.
RISKS ASSOCIATED WITH YEAR 2000 The year 2000 issue is the result of prior computer programs
COMPLIANCE being written using two digits instead of four to define the
applicable year. Any computer programs that have
time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. Any such occurrence
could
</TABLE>
S-6
<PAGE> 10
<TABLE>
<S> <C>
result in major computer system failure or miscalculations.
First Sierra has implemented a six phase program which
involves the testing of all hardware, software, operating
systems, relationships, and services to be completed by the
third quarter of 1999. The phases consist of: inventory,
impact analytics, solution planning, corrective procedures,
quality assurance, and contingency planning. First Sierra
did not incur any costs to address the year 2000 issues in
the year ended December 31, 1998. First Sierra estimates
that it will incur costs approximating $300,000 during 1999
to complete year 2000 issues.
First Sierra has not identified any specific known events,
trends or uncertainties related to the year 2000 issue which
are reasonably likely to have a material effect on First
Sierra's business.
In the event that the servicer, any subservicer or any of
their suppliers, customers, brokers or agents do not
successfully and timely achieve year 2000 compliance, the
servicer's performance of its obligations under the
Servicing Agreement could be adversely affected. This could
result in delays in processing payments on the contracts and
could cause delay in distributions to you.
The foregoing constitutes a year 2000 statement and
readiness disclosure subject to the protection afforded it
by the federal Year 2000 Information and Readiness
Disclosure Act of 1998.
PAYMENTS ON THE NOTES ARE The principal source of funds for the repayment of the notes
PRIMARILY FUNDED BY COLLECTIONS are the collections on the trust assets. Thus, losses on the
ON THE CONTRACT POOL; IF CREDIT trust assets may cause losses on your note. The structure of
ENHANCEMENT IS EXHAUSTED FOR YOUR the transaction provides for a limited level of credit
CLASS OF NOTES, LOSSES ON THE TRUST enhancement for the notes by means of amounts on deposit in
ASSETS WILL LEAD TO LOSSES ON YOUR the reserve account and by means of subordination. The trust
NOTE certificate is in a first-loss position. Thereafter, losses
on the trust assets will be allocated to the most junior
class of notes then outstanding and then to the next senior
class of notes outstanding.
In addition, amounts otherwise payable to the trust
certificate holder will be suspended and will be distributed
to each class of notes pro rata as a further reduction of
the outstanding note principal balance of each class.
</TABLE>
S-7
<PAGE> 11
<TABLE>
<S> <C>
RISKS ASSOCIATED WITH DTC AND THE With respect to year 2000 issues, DTC has informed members
YEAR 2000 of the financial community that it has developed and is
implementing a program so that its systems, as the same
relate to the timely payment of distributions (including
principal and income payments) to securityholders,
book-entry deliveries, and settlement of trades within DTC
continue to function appropriately on and after January 1,
2000. This program includes a technical assessment and a
remediation plan, each of which is complete. Additionally,
DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is
also dependent upon other parties, including, but not
limited to, its participating organizations (through which
noteholders will hold their offered notes), as well as the
computer systems of third party service providers. DTC has
informed the financial community that it is contacting (and
will continue to contact) third party vendors from whom DTC
acquires services to: (i) impress upon them the importance
of such services being year 2000 compliant and (ii)
determine the extent of their efforts for year 2000
remediation (and, as appropriate, testing) of their
services. In addition, DTC has stated that it is in the
process of developing such contingency plans as it deems
appropriate.
If problems associated with the year 2000 issue were to
occur with respect to DTC and the services described above,
distributions to noteholders could be delayed or otherwise
adversely affected.
</TABLE>
S-8
<PAGE> 12
FORMATION OF THE TRUST
You can find a listing of the pages where capitalized terms used in
this prospectus supplement are defined under the caption "Index of Principal
Defined Terms" beginning on page S-76 in this prospectus supplement and under
the caption "Index of Terms" beginning on page 50 in the accompanying
prospectus.
THE TRUST
First Sierra Equipment Contract Trust 1999-2, a common law trust acting
through its trustee, First Union Trust Company, National Association, not in its
individual capacity but solely as Owner Trustee, (the "Trust"), is a common law
trust formed in accordance with the laws of the State of Delaware. The Trust was
created pursuant to the Trust Agreement, dated as of September 1, 1999 (the
"Trust Agreement"), between First Sierra Receivables III, Inc., as depositor
(the "Depositor"), and First Union Trust Company, National Association, not in
its individual capacity but solely as owner trustee (the "Owner Trustee"),
solely for the purpose of effectuating the transactions described herein. Prior
to formation, the Trust will have had no assets or obligations and no operating
history. The Trust will not engage in any business activity other than (i)
acquiring, holding and pledging the Receivables (as defined herein), (ii)
issuing the Notes and the Trust Certificate (each, as defined herein) and (iii)
distributing payments thereon.
The Trust will issue its "Equipment Contract Backed Notes, Series
1999-2" pursuant to the terms of the Indenture. In addition the Trust will issue
a certificate (the "Trust Certificate") pursuant to the terms of the Trust
Agreement.
THE OWNER TRUSTEE
First Union Trust Company, National Association is a national banking
association, the principal offices of which are located at One Rodney Square,
920 King Street, Suite 102, Wilmington, Delaware 19801. The Owner Trustee will
perform limited administrative functions on behalf of the Trust pursuant to the
Trust Agreement. The Owner Trustee's duties are limited solely to the express
obligations of the Owner Trustee set forth in the Trust Agreement.
THE INDENTURE TRUSTEE
Bankers Trust Company (the "Indenture Trustee") will act as the
Indenture Trustee under the Indenture, dated as of September 1, 1999 (the
"Indenture"), between the Indenture Trustee, the Trust and First Sierra
Financial, Inc., in its capacity as servicer (the "Servicer") and as originator
(the "Originator"). Bankers Trust Company is a New York banking corporation, the
principal offices of which are located at Four Albany Street, New York, New York
10006. The Indenture Trustee's duties in connection with the Notes is limited
solely to its express obligations under the Indenture and the Servicing
Agreement, dated as of September 1, 1999 (the "Servicing Agreement"), among
First Sierra Financial, Inc., in its capacity as Servicer and as Originator,
Bankers Trust Company, as Indenture Trustee and the Trust, as Issuer.
S-9
<PAGE> 13
THE TRUST ASSETS
The assets of the Trust (the "Trust Assets") will consist of: (i) a
pool of finance leases and commercial loan contracts (the "Contracts"), a
security interest in the related equipment (the "Equipment" and, together with
the Contracts, the "Receivables"), and any Scheduled Payments, Final Scheduled
Payments and Defaulted Contract Recoveries (each, as defined herein) to be made
by the party who is the obligor under the related Contract (the "Obligor") (but
not including any payments due on or prior to the related Cut-Off Date (as
defined herein)); (ii) any guaranties of an Obligor's obligations under a
Contract; (iii) with respect to any Contract, copies of the Contract, any UCC
financing statement and other original documents related to the Contract, the
application of the related Obligor, documentation evidencing the information
with respect to such Contract input into the computerized electronic contract
management system maintained by the Servicer for all Contracts and other
agreements similar to the Contracts, and any other information required by the
Servicer pursuant to its customary policies and procedures (the "Contract
Files"); (iv) the insurance policies maintained by the Obligors with respect to
the Equipment (the "Insurance Policies") and the proceeds of such Insurance
Policies; (v) any rights of the Trust under the Receivables Transfer Agreement,
the Servicing Agreement and all Source Agreements (each, as defined herein)
(including the right to instruct First Sierra to exercise any unassignable
rights of enforcement under the Contracts and any guaranties thereof); (vi)
moneys from time to time deposited in the Collection Account; (vii) moneys from
time to time on deposit in the Reserve Account and (viii) any and all income and
proceeds of the foregoing. The Trust Assets will not include any security
deposits received by the Servicer with respect to the Contracts.
THE RECEIVABLES
The Receivables consist primarily of a segregated pool of finance lease
and commercial loan contracts and a security interest in the related underlying
equipment or other property.
THE EQUIPMENT
The Equipment subject to the Contracts consists of small to medium
sized equipment used in a wide variety of businesses consistent with small
ticket equipment leasing. The equipment and other property underlying the
Contracts may include, but is not limited to, the following: (i) computers and
peripherals; (ii) computer software; (iii) medical and dental related equipment
including dental operatories; (iv) medical, dental and veterinary diagnostic
equipment including x-ray machines, blood analyzers, and other diagnostic
equipment, (v) telecommunications, (vi) general office, (vii) automotive
servicing, (viii) hospitality and food services related equipment; (ix)
equipment utilized in the arbor industry; (x) machines tools; (xi) manufacturing
process equipment; (xii) heavy mobile construction equipment; (xiii) copiers;
and (xiv) specialty vehicles including bucket trucks, lifts, delivery vans and
trucks.
THE CONTRACTS
The Contracts consist of small ticket leases, commercial loans and
security interests in the related equipment or other property (i) acquired by
First Sierra from small independent leasing companies on an on-going basis
through the Private Label Program or (ii) originated directly by First Sierra
through the Broker Program or the Vendor Program (each as defined in the
prospectus). See "First Sierra" in the prospectus.
S-10
<PAGE> 14
The Trust will acquire the Contracts on the Closing Date pursuant to
the Receivables Transfer Agreement, dated as of September 1, 1999 (the
"Receivables Transfer Agreement"), among First Sierra, First Sierra Receivables
III, Inc., First Union National Bank, Variable Funding Capital Corporation,
Fairway Finance Corporation, Bankers Trust Company and the Trust.
All of the Contracts require the periodic, scheduled payment of rent or
other payments on a monthly, quarterly, semi-annual or annual basis, in arrears
or in advance. With respect to a Payment Date and a Contract, the periodic
payment (exclusive of any amounts in respect of insurance, warranty extensions,
service contracts or taxes, and reflecting any adjustment for partial
Prepayments, and further reflecting the effect of any permitted modification to
such Contract) set forth in such Contract due from the Obligor in the related
Collection Period are the "Scheduled Payments" for such Contract; provided,
however, that with respect to any Contract as to which First Sierra retained the
security deposit, a Scheduled Payment shall not include the final payment or
payments to be made thereon equal to the amount of such security deposit.
With respect to any Contract, the Trust is entitled to the Scheduled
Payments, Final Scheduled Payments and Defaulted Contract Recoveries made after
the related Cut-Off Date. The Cut-Off Date with respect to the Contracts
acquired by the Trust on the Closing Date is September 1, 1999 (the "Initial
Cut-Off Date") and the Cut-Off Date with respect to any Substitute Contracts
(the "Substitute Cut-Off Date") is as of the close of business on the first day
of the calendar month in the month in which the Trust acquires such Substitute
Contract (the "Substitute Transfer Date"). As used herein, "Cut-Off Date" with
respect to a Contract means the Initial Cut-Off Date or the Substitute Cut-Off
Date, as applicable.
With respect to any Contract, the "Final Scheduled Payment" is any
payment set forth in such Contract other than the regular Scheduled Payment
which is required to be paid by the related Obligor at the maturity of such
Contract to the extent included in the Discounted Contract Principal Balance (as
defined herein).
"Defaulted Contract Recoveries" are all proceeds of the sale of
Equipment related to Defaulted Contracts and any amounts collected as judgments
against an Obligor or others related to the failure of such Obligor to pay any
required amounts under the related Contract or to return the Equipment, in each
case as reduced by (i) any unreimbursed Servicer Advances with respect to such
Contract or such Equipment and (ii) any reasonably incurred out-of-pocket
expenses incurred by the Servicer in enforcing such Contract or in liquidating
such Equipment.
With respect to any Payment Date, the "Collection Period" is the period
from the opening of business on the second day of the immediately preceding
calendar month through the close of business on the first day of the calendar
month in which such Payment Date occurs and the "Determination Date" is the
second business day immediately prior to such Payment Date.
The Contracts have the characteristics specified in the Servicing
Agreement which characteristics are summarized herein.
The Servicer will service the Contracts in accordance with the terms of
the Servicing Agreement. The Servicer may allow an Obligor to prepay a Contract
in an amount not less than the related Prepayment Amount. In addition, in the
event that an Obligor requests an upgrade or trade-in of Equipment, the Servicer
may remove such Equipment and related Contract from the Trust Assets, but
S-11
<PAGE> 15
only upon payment of an amount (the "Repurchase Amount") equal to the sum of (i)
the Discounted Contract Principal Balance as of the close of business on the
second preceding Collection Period (without any deduction for any security
deposit paid by an Obligor, unless such security deposit has been deposited in
the Collection Account pursuant to the Indenture); (ii) the product of (x) such
Contract's Discounted Contract Principal Balance as of the beginning of the
immediately preceding Collection Period and (y) one-twelfth of the Discount
Rate; (iii) any Scheduled Payments theretofore due and not paid by an Obligor;
and (iv) any Final Scheduled Payment due or to become due under the Contract.
The "Discounted Contract Principal Balance" of a Contract, on any
Determination Date, is equal to the sum of the present value of all of the
remaining Scheduled Payments becoming due under such Contract after the end of
the prior Collection Period, discounted monthly at the Discount Rate in the
manner described below; provided, however, that the Discounted Contract
Principal Balance of any Defaulted Contract, Early Termination Contract, or
Expired Contract or Contract repurchased by First Sierra or the Servicer
pursuant to the Indenture shall be equal to zero.
The Discounted Contract Principal Balance for each Contract shall be
calculated assuming:
(i) Scheduled Payments are due on the last day of each Collection
Period;
(ii) Scheduled Payments are discounted on a monthly basis using a
30-day month and a 360-day year; and
(iii) Scheduled Payments are discounted to the last day of the
Collection Period prior to the Determination Date.
The "Aggregate Discounted Contract Principal Balance" as determined
from time to time is equal to the sum of the Discounted Contract Principal
Balances of all Contracts in the pool as of such date of determination.
The discount rate of 7.525% (the "Discount Rate") which will be used to
calculated the Discounted Contract Principal Balance of each Contract is equal
to the sum of (i) the weighted average of the Class A-1 Note Rate, the Class A-2
Note Rate, the Class A-3 Note Rate, the Class A-4 Note Rate, the Class B Note
Rate, the Class C Note Rate, the Class D Note Rate and the Class E Note Rate,
weighted by (x) the Initial Class A-1 Note Principal Balance, the Initial Class
A-2 Note Principal Balance, the Initial Class A-3 Note Principal Balance, the
Initial Class A-4 Note Principal Balance, the Initial Class B Note Principal
Balance, the Initial Class C Note Principal Balance, the Initial Class D Note
Principal Balance and the Initial Class E Note Principal Balance, as applicable,
and (y) the expected weighted average life of each Class of Notes, as
applicable, assuming a constant prepayment rate of 6.0%, and (ii) the Servicer
Fee Rate (as defined herein).
The Initial Aggregate Discounted Contract Principal Balance of the
Contracts as of the Initial Cut-Off Date calculated using the Discount Rate is
$175,103,478.
The "Prepayment Amount" for any Contract is equal to an amount, without
duplication, equal to the sum of (i) the Discounted Contract Principal Balance
of such Contract as of the close of business on the last day of second preceding
Collection Period (without any deduction for any security
S-12
<PAGE> 16
deposit paid by an Obligor, unless such security deposit has been deposited in
the Collection Account pursuant to the Indenture); (ii) the product of (x) such
Contract's Discounted Contract Principal Balance as of the immediately preceding
Payment Date and (y) one-twelfth of the Discount Rate; (iii) any Scheduled
Payments theretofore due and not paid by an Obligor; and (iv) any Final
Scheduled Payment due or to become due under the Contract.
SUBSTITUTION AND MODIFICATION OF THE CONTRACTS
First Sierra may substitute one or more Contracts (a "Substitute
Contract") and transfer a security interest in the related Equipment for and
replace one or more Contracts and terminate the security interest in the related
Equipment that (i) becomes a Delinquent Contract, a Defaulted Contract, a
Prepayment or an Early Termination Contract (each, as defined herein) or (ii)
are required to be repurchased by First Sierra pursuant to the Servicing
Agreement.
As of any Determination Date, a "Delinquent Contract" is a Contract
(other than a Contract which became a Defaulted Contract prior to such
Determination Date) with respect to which all or a portion of any Scheduled
Payment was not received when due by the Servicer as of the close of business on
the last day of the month in which such payment was due.
A Contract becomes a "Defaulted Contract" (i) at the earlier of the
date on which (a) the Servicer has determined in its sole discretion, in
accordance with the Servicing Standard and its customary servicing procedures,
that such Contract is not collectible, or (b) all or part of a Scheduled Payment
thereunder is more than 180 days delinquent, or (iii) if such Contract was
repurchased by a Source pursuant to a Source Agreement.
An "Early Termination Contract" is any Contract that has terminated
pursuant to the terms of such Contract prior to its scheduled expiration date,
other than a Defaulted Contract.
A "Prepayment" means, with respect to a Collection Period and a
Contract (except a Defaulted Contract), the amount received by the Servicer
during such Collection Period from or on behalf of an Obligor with respect to
such Contract in excess of the sum of (x) the Scheduled Payment and any Final
Scheduled Payment due during such Collection Period, plus (y) the aggregate of
any overdue Scheduled Payments, Initial Unpaid Amounts and unpaid Servicing
Charges (as defined herein) for such Contract, so long as such amount is
designated by the Obligor as a prepayment and the Servicer has consented to such
prepayment. Defaulted Contract Recoveries are not Prepayments.
With respect to a Contract, the "Initial Unpaid Amounts" are equal to
the excess of (x) the aggregate amount of all Scheduled Payments due prior to
the related Cut-Off Date over (y) the aggregate of all Scheduled Payments made
prior to such Cut-Off Date with respect to such Contract.
A "Source" is the third party from whom the Originator acquired
Contracts pursuant to the Originator's Private Label Program.
A "Source Agreement" means an agreement between the Originator and a
Source pursuant to which the Originator acquired all right, title and interest
of the Source in and to a Contract and a security interest in the Source's
right, title and interest in and to the related Equipment.
S-13
<PAGE> 17
Each Substitute Contract shall satisfy certain representations and
warranties set forth in the Servicing Agreement and as summarized under
"Description of the Transaction Documents -- Representations and Warranties of
First Sierra" herein as of the related Substitute Transfer Date. In addition,
Substitute Contracts may not be added to the Trust unless the following
conditions are satisfied:
(i) on a cumulative basis from the Initial Cut-Off Date, the sum of the
Discounted Contract Principal Balance (as of the related Substitute Cut-Off
Date) of all Substitute Contracts does not exceed 10% of the sum of the
Initial Aggregate Discounted Contract Principal Balance of all Contracts as
of the Initial Cut-Off Date;
(ii) as of the related Substitute Cut-Off Date, the Substitute
Contract(s) then being transferred have a Discounted Contract Principal
Balance that is not less than the Discounted Contract Principal Balance of
the Contract(s) being replaced; and
(iii) no substitution shall be permitted if, as a result thereof, the
sum of the Scheduled Payments on all Contracts due in any Collection Period
thereafter would be less than or increase the amount by which it is less
than the sum of the Scheduled Payments which would otherwise be due in such
Collection Period.
The Servicer may waive, modify or vary any term of a Contract if the
Servicer, in its reasonable and prudent judgment, determines that it will not be
materially adverse to the Noteholders. However, the Servicer will covenant in
the Servicing Agreement that (i) it will not forgive any payment of rent,
principal or interest, and (ii) unless an Obligor is in default, it will not
permit any modification with respect to a Contract which would defer the payment
of any principal or interest or any Scheduled Payment or change the final
maturity date on any Contract except as necessary to effect recovery under
Defaulted Contracts; provided, however, that no change in the final maturity
date of any Contract shall be permitted under any circumstances if such new
maturity date is later than the latest maturity date of any other Contract then
held by the Trust.
The Servicer may accept Prepayment in part or in full; provided,
however, that (i) in the event of Prepayment in full, the Servicer may consent
to such Prepayment only in an amount not less than the Prepayment Amount and
(ii) in the event of a partial Prepayment, the Servicer may consent to such
partial Prepayment only if (x) following such partial Prepayment there are no
delinquent amounts then due from the Obligor and (y) such partial Prepayment
will not reduce the related Discounted Contract Principal Balance by more than
an amount equal to (I) the amount of such partial Prepayment, minus (II) unpaid
interest at the Discount Rate accrued through the end of the Collection Period
immediately following such partial Prepayment on the outstanding Discounted
Contract Principal Balance of the related Contract prior to such partial
Prepayment. In the case of a partial Prepayment, the Servicer is required to
recalculate the Discounted Contract Principal Balance and the allocation of
Scheduled Payments to principal and interest.
SERVICING OF THE CONTRACTS
Pursuant to the Servicing Agreement, the Servicer will manage,
administer, service and make collections on the Contracts in accordance with the
terms of the Servicing Agreement, the Contracts, the Servicer's current credit
and collection policies and applicable law and, to the extent consistent with
such terms, in the same manner in which, and with the same care, skill, prudence
and diligence with which, it services and administers leases of similar credit
quality for itself or others, if any,
S-14
<PAGE> 18
giving due consideration to customary and usual standards of practice of prudent
institutional small ticket equipment finance lease servicers and, in each case,
taking into account its other obligations under the Servicing Agreement
(collectively, the "Servicing Standard"). The Servicer shall use commercially
reasonable best efforts consistent with the Servicing Standard and its customary
servicing procedures, to repossess or otherwise comparably convert the ownership
of any Equipment that it has reasonably determined should be repossessed or
otherwise converted following a default under the Contract and act as sales and
processing agent for Equipment which it repossesses. The Servicer shall follow
such practices and procedures as are consistent with the Servicing Standard and
as it shall deem necessary or advisable and as shall be customary and usual in
its servicing of equipment leases and other actions by the Servicer in order to
realize upon such a Contract, which may include reasonable efforts to enforce
any recourse obligations of Obligors and repossessing and selling the Equipment
at public or private sale. The foregoing is subject to the provision that, in
any case in which the Equipment shall have suffered damage, the Servicer shall
not be required to expend funds in connection with any repair or towards the
repossession of such Equipment unless it shall determine in its discretion that
such repair and/or repossession will increase the proceeds and recoveries on
such Equipment by an amount greater than the amount of such expenses. See "The
Servicer" and "Description of the Transaction Documents" herein for additional
information regarding the Servicer and the servicing of the Contracts.
STATISTICAL INFORMATION
The statistical information presented in this prospectus supplement
describes only the Contracts included in the Trust Assets on the Closing Date.
All statistical information is stated as of the Statistical Calculation Date and
all percentages, unless otherwise stated, are by Statistical Aggregate
Discounted Contract Principal Balance (as defined herein).
As of September 1, 1999 (the "Statistical Calculation Date"), the
Contracts had an Aggregate Discounted Contract Principal Balance (calculated
using an assumed discount rate of 7.546% (the "Statistical Discount Rate")) of
approximately $175,015,862 (the "Statistical Aggregate Discounted Contract
Principal Balance"). The "Statistical Discounted Contract Principal Balance" of
a Contract is the Discounted Contract Principal Balance of such Contract
discounted to the Statistical Calculation Date at the Statistical Discount Rate.
Between the Statistical Calculation Date and September 29, 1999 (the
"Closing Date") some amortization of the pool is expected to occur. Moreover,
Contracts that are not included in the pool as of the Statistical Calculation
Date may be included in the pool as of the Closing Date. While the statistical
distribution of the characteristics as of the Closing Date for the Receivables
pool (calculated at the Discount Rate) may vary somewhat from the statistical
distribution of such characteristics as of the Statistical Calculation Date
(calculated at the Statistical Discount Rate) as presented in this prospectus
supplement, such characteristics will not vary by more than 5% (measured by the
Aggregate Discounted Contract Principal Balance).
The final Scheduled Payment on the Contract with the latest maturity is
due in July, 2009. As of the Statistical Calculation Date, all of the Contracts
had (i) original terms to maturity ranging from 3 months to 122 months, with a
weighted average original term to maturity of approximately 61.08 months and
(ii) a remaining term to maturity of not less than 2 months and not more than
119 months, with a weighted average remaining term to maturity of approximately
56.52 months.
S-15
<PAGE> 19
References herein to percentages of Obligors refer in each case to the
percentage of the Statistical Discounted Contract Principal Balance of the
Contracts as of the Statistical Calculation Date.
As of the Statistical Calculation Date, the Statistical Discounted
Contract Principal Balances of the Contracts ranged from $403 to $797,585. No
more than 0.36% of the Statistical Aggregate Discounted Contract Principal
Balance is attributable to any one Obligor, with the exception of one Obligor
that makes up 0.79% of the statistical discounted contract principal balance,
and the average Statistical Discounted Contract Principal Balance is
approximately $22,998.
Following is certain statistical information relating to the Contracts,
calculated as of the Statistical Calculation Date and assuming a Statistical
Discount Rate of 7.546%. Certain columns may not total 100% due to rounding.
S-16
<PAGE> 20
DISTRIBUTION OF THE CONTRACTS BY STATISTICAL DISCOUNTED
CONTRACT PRINCIPAL BALANCE
<TABLE>
<CAPTION>
Percentage of
Statistical Discounted Statistical Aggregate
Discounted Contract Number of Contract Discounted Contract
Principal Balance Contracts % Pool Principal Balance Principal Balance
- ----------------------------- --------- ------ ---------------------- ---------------------
Greater Less Than or
Than Equal to
---- --------
<S> <C> <C> <C> <C> <C>
$ 1 $ 15,000 4,758 62.52% $ 26,120,091 14.92%
15,000 25,000 990 13.01% 19,128,377 10.93%
25,000 50,000 988 12.98% 35,599,287 20.34%
50,000 75,000 454 5.97% 27,512,262 15.72%
75,000 100,000 145 1.91% 12,241,838 6.99%
100,000 200,000 183 2.40% 26,415,170 15.09%
200,000 350,000 72 0.95% 18,160,818 10.38%
350,000 500,000 12 0.16% 5,081,022 2.90%
500,000 600,000 5 0.07% 2,706,734 1.55%
600,000 800,000 3 0.04% 2,050,265 1.17%
----- ------ ------------- ------
Total.......................... 7,610 100.00% $ 175,015,862 100.00%
===== ====== ============= ======
</TABLE>
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<PAGE> 21
DISTRIBUTION OF THE CONTRACTS BY DEFINED OBLIGOR
INDUSTRY (TOP 25) AS OF THE STATISTICAL
CALCULATION DATE
<TABLE>
<CAPTION>
Percentage of
Statistical
Number Statistical Aggregate Discounted
of Discounted Contract Contract
Industry Type Contracts % Pool Principal Balance Principal Balance
- ------------------------------------ --------- ------ ------------------- --------------------
<S> <C> <C> <C> <C>
Offices And Clinics Of Dentists 680 8.94% $ 52,415,202 29.95%
Offices & Clinics Of Medical Doctors 199 2.61% 7,631,429 4.36%
Eating And Drinking Places 332 4.36% 6,444,406 3.68%
Equipment Rental & Leasing 221 2.90% 4,932,966 2.82%
Veterinary Services 74 0.97% 4,118,773 2.35%
Grocery Stores 338 4.44% 3,546,297 2.03%
Business Services 238 3.13% 2,825,311 1.61%
Gasoline Service Stations 126 1.66% 2,764,392 1.58%
Trucking, Except Local 87 1.14% 2,201,401 1.26%
Automotive Repair Shops 258 3.39% 2,066,052 1.18%
Hotels And Motels 103 1.35% 1,877,010 1.07%
Offices And Clinics Of Optometrists 31 0.41% 1,676,716 0.96%
Groceries and Related Products 208 2.73% 1,526,934 0.87%
Automatic Vending Machines 78 1.02% 1,417,514 0.81%
Local Trucking, Without Storage 50 0.66% 1,377,039 0.79%
Carpet And Upholstery Cleaning 60 0.79% 1,317,421 0.75%
Coin-Operated Amusement Devices 57 0.75% 1,222,075 0.70%
Trucking And Warehousing 41 0.54% 1,210,946 0.69%
Religious Organizations 74 0.97% 1,191,629 0.68%
Hotels And Other Lodging Places 36 0.47% 1,016,402 0.58%
Automotive Dealers 46 0.60% 1,008,220 0.58%
Offices And Clinics Of Chiropractors 37 0.49% 967,914 0.55%
Lawn and Garden Services 56 0.74% 931,684 0.53%
Top & Body Repair & Paint Shops 36 0.47% 891,085 0.51%
Ornamental Shrub and Tree Service 34 0.45% 890,327 0.51%
----- ----- --------------- -----
Total Top 25 Defined Industries 3,500 45.99% $ 107,469,348 61.41%
----- ----- --------------- -----
All others (including not defined) 4,110 54.01% $ 67,546,514 38.59%
----- ----- --------------- -----
Total 7,610 100.00% $ 175,015,862 100.00%
===== ====== =============== ======
</TABLE>
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<PAGE> 22
DISTRIBUTION OF THE CONTRACTS BY OBLIGOR BILLING ADDRESS
<TABLE>
<CAPTION>
Percentage of
Number Statistical Statistical Aggregate
of Discounted Contract Discounted Contract
State Contracts % Pool Principal Balance Principal Balance
- ---------------------------- --------- ------ ------------------- ---------------------
<S> <C> <C> <C> <C>
Alabama 117 1.54% $ 1,669,808 0.95%
Alaska 12 0.16% 365,410 0.21%
Arizona 114 1.50% 3,725,495 2.13%
Arkansas 77 1.01% 1,265,292 0.72%
California 1,099 14.44% 36,120,827 20.64%
Colorado 115 1.51% 2,741,791 1.57%
Connecticut 94 1.24% 2,065,597 1.18%
Delaware 34 0.45% 561,796 0.32%
District of Columbia 12 0.16% 567,202 0.32%
Florida 698 9.17% 13,783,205 7.88%
Georgia 225 2.96% 5,767,334 3.30%
Hawaii 34 0.45% 437,992 0.25%
Idaho 21 0.28% 430,105 0.25%
Illinois 260 3.42% 7,480,285 4.27%
Indiana 107 1.41% 2,368,241 1.35%
Iowa 25 0.33% 1,134,660 0.65%
Kansas 75 0.99% 1,240,407 0.71%
Kentucky 86 1.13% 1,353,873 0.77%
Louisiana 204 2.68% 1,541,056 0.88%
Maine 21 0.28% 477,488 0.27%
Maryland 146 1.92% 3,248,864 1.86%
Massachusetts 165 2.17% 4,154,237 2.37%
Michigan 209 2.75% 3,828,453 2.19%
Minnesota 52 0.68% 1,420,884 0.81%
Mississippi 86 1.13% 770,458 0.44%
Missouri 155 2.04% 2,225,522 1.27%
Montana 17 0.22% 353,038 0.20%
Nebraska 47 0.62% 925,424 0.53%
Nevada 63 0.83% 1,464,075 0.84%
New Hampshire 42 0.55% 1,192,621 0.68%
New Jersey 249 3.27% 7,097,279 4.06%
New Mexico 27 0.35% 1,071,942 0.61%
New York 457 6.01% 9,846,429 5.63%
North Carolina 175 2.30% 3,238,211 1.85%
North Dakota 5 0.07% 98,565 0.06%
Ohio 228 3.00% 4,680,467 2.67%
Oklahoma 48 0.63% 932,564 0.53%
Oregon 107 1.41% 2,793,400 1.60%
Pennsylvania 259 3.40% 4,699,396 2.69%
Rhode Island 48 0.63% 950,148 0.54%
South Carolina 119 1.56% 2,458,490 1.40%
South Dakota 8 0.11% 120,830 0.07%
Tennessee 150 1.97% 2,620,149 1.50%
Texas 752 9.88% 16,757,817 9.58%
Utah 58 0.76% 622,226 0.36%
Vermont 19 0.25% 491,251 0.28%
Virginia 165 2.17% 4,436,817 2.54%
Washington 213 2.80% 5,201,390 2.97%
West Virginia. 48 0.63% 927,592 0.53%
Wisconsin 57 0.75% 1,174,793 0.67%
Wyoming 6 0.08% 114,668 0.07%
----- ------ --------------- ------
Total 7,610 100.00% $ 175,015,862 100.00%
===== ====== =============== ======
</TABLE>
S-19
<PAGE> 23
DISTRIBUTION OF THE CONTRACTS BY REMAINING TERM TO MATURITY
AS OF THE STATISTICAL CALCULATION DATE
<TABLE>
<CAPTION>
Percentage of
Number Statistical Statistical Aggregate
of Discounted Contract Discounted Contract
Remaining Term in Months Contracts % Pool Principal Balance Principal Balance
- ------------------------ --------- ------ ------------------- ---------------------
<S> <C> <C> <C> <C>
1 - 12 167 2.19% $ 2,007,062 1.15%
13 - 24 601 7.90% 5,504,139 3.14%
25 - 36 2,034 26.73% 27,949,912 15.97%
37 - 48 2,119 27.84% 22,922,359 13.10%
49 - 60 2,132 28.02% 61,993,350 35.42%
61 - 72 177 2.33% 10,120,991 5.78%
73 - 84 349 4.59% 36,283,879 20.73%
85 - 96 5 0.07% 969,554 0.55%
97 - 108 1 0.01% 257,216 0.15%
109 - 120 25 0.33% 7,007,400 4.00%
--------- ----- ----- ------------- ------
Total 7,610 100.00% $ 175,015,862 100.00%
===== ====== ============= ======
</TABLE>
DISTRIBUTION OF THE CONTRACTS BY ORIGINAL TERM TO MATURITY
AS OF THE STATISTICAL CALCULATION DATE
<TABLE>
<CAPTION>
Percentage of
Number Statistical Statistical Aggregate
of Discounted Contract Discounted Contract
Original Term in Months Contracts % Pool Principal Balance Principal Balance
- ----------------------- --------- ------ ------------------- ---------------------
<S> <C> <C> <C> <C>
1 - 12 119 1.56% $ 1,261,029 0.72%
13 - 24 512 6.73% 4,744,477 2.71%
25 - 36 1,698 22.31% 22,785,692 13.02%
37 - 48 2,175 28.58% 24,013,493 13.72%
49 - 60 1,873 24.61% 49,612,931 28.35%
61 - 72 817 10.74% 24,742,553 14.14%
73 - 84 299 3.93% 30,626,717 17.50%
85 - 96 90 1.18% 9,732,318 5.56%
97 - 108 2 0.03% 489,251 0.28%
109 - 120 18 0.24% 5,745,172 3.28%
121 - 132 7 0.09% 1,262,228 0.72%
--------- ----- ----- ------------- ------
Total 7,610 100.00% $ 175,015,862 100.00%
===== ====== ============= ======
</TABLE>
S-20
<PAGE> 24
FIRST SIERRA
First Sierra Financial, Inc. ("First Sierra"), a Delaware corporation,
was founded in June, 1994. Its principal executive offices are located at 600
Travis Street, Suite 7050, Houston, Texas 77002. First Sierra, is a publicly
traded company and its common stock is listed on the Nasdaq National Market
System under the symbol "BTOB."
First Sierra is the originator of the Contracts being transferred to
the Trust (in its separate capacity as originator, the "Originator"). Since its
incorporation through June 30, 1999, First Sierra has acquired approximately
$2.1 billion of contracts for equipment and other property. For a discussion
regarding First Sierra and its origination programs and underwriting guidelines,
see "First Sierra" in the prospectus.
THE SELLERS
The Depositor and certain affiliates and certain trusts sponsored by
the Originator or its affiliates, including investors related thereto
(collectively, the "Sellers") will transfer the Receivables to the Trust
pursuant to the Receivables Transfer Agreement.
The Sellers will warrant to the Trust in the Receivables Transfer
Agreement that the transfer of the related Receivables to the Trust is a valid
transfer. In addition, the Sellers and the Trust will treat the transactions
described herein as an absolute conveyance of the Receivables to the Trust, and
the Trust will take or cause to be taken all actions that are required to
perfect the Trust's ownership interest in the Receivables. Notwithstanding the
foregoing, if First Sierra were to become a debtor in a bankruptcy case and a
creditor or trustee-in-bankruptcy of First Sierra or First Sierra itself were to
take the position that the transfer of the Receivables to the Trust should be
recharacterized as a pledge of such Receivables to secure a borrowing, then
delays in payments of collections of Receivables to the Trust 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 Trust is recharacterized as a pledge, then a tax or
government lien on the property of First Sierra arising before the transfer of
Receivables to the Trust may have priority over the Trust's interest in such
Receivables. If the transfer of Receivables to the Trust is treated as a sale,
the Receivables would not be part of First Sierra's bankruptcy estate and would
not be available to First Sierra's creditors.
THE SERVICER
First Sierra will act as servicer of the Contracts in the Trust (in its
separate capacity as Servicer, the "Servicer").
As of June 1, 1999, First Sierra employed 494 employees, of which 80
were engaged in management and administrative functions, 47 in credit and
collection activities, 45 in collections and customer service and 322 in sales
and sales support activities.
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<PAGE> 25
DELINQUENCY AND LOSS EXPERIENCE
The tables set forth below present certain information regarding the
delinquency and loss experience of the Servicer's portfolio of contracts for
equipment and other property for the periods indicated. There can be no
assurance that the levels of delinquency and loss experience reflected in the
following tables are indicative of the performance of the Contracts.
DELINQUENCY EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998 JUNE 30, 1999
------------------------------ --------------------------------- ---------------------------------
PRIVATE BROKER/ PRIVATE BROKER/ PRIVATE BROKER/
LABEL VENDOR TOTAL LABEL VENDOR TOTAL LABEL VENDOR TOTAL
-------- -------- -------- -------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Remaining
Contract Receivable $422,290 $189,068 $611,358 $592,435 $478,139 $1,070,574 $683,089 $622,453 $1,305,543
31 - 60 days past due 1.86% 1.90% 1.87% 1.36% 1.30% 1.33% 1.13% 1.84% 1.47%
61 - 90 days past due 0.60% 0.50% 0.57% 0.63% 0.69% 0.65% 0.45% 0.56% 0.50%
Over 90 days past due 0.38% 0.36% 0.37% 0.40% 0.81% 0.58% 0.43% 1.02% 0.71%
Total 2.84% 2.76% 2.81% 2.39% 2.80% 2.56% 2.02% 3.42% 2.69%
-------- -------- -------- -------- -------- ---------- -------- -------- ----------
</TABLE>
LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE SIX MONTHS
DECEMBER 31, 1997 DECEMBER 31, 1998 ENDED JUNE 30, 1999
------------------ ------------------ -------------------
<S> <C> <C> <C>
Average servicing portfolio $321,965 $653,852 $942,270
Net losses
Private Label Programs $ 222 $ 505 $ 764
Broker/Vendor Programs $ 362 $ 3,776 $ 4,596
Percentage of average servicing portfolio 0.18% 0.65% 0.57%
</TABLE>
- --------------
The tables above include delinquency and loss experiences for the
Servicer's overall contract portfolio. Delinquency results have declined over
the reported periods due to continued strong overall economic performance and
consistent application of credit underwriting standards. The overall net loss
performance has increased in total dollar amount due to the increase in the
total number of leases acquired, the maturation of earlier acquired leases and
an increased proportion of leases originated under First Sierra's retail
origination programs.
While the above delinquency and loss experiences are typical of the
Servicer's experiences at the date for the periods indicated, there can be no
assurance that the delinquency and loss experiences on the Contracts will be
similar. Accordingly, the information should not be considered to
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<PAGE> 26
reflect the credit quality of the Contracts included in the Trust, or as a basis
of assessing the likelihood, amount or severity of losses on the Contracts. The
Contracts, in general, are likely to have characteristics which distinguish them
from the majority of the contracts in the Servicer's servicing portfolio.
COLLECTION POLICIES
For a discussion of the Servicer's collection policies, see "The
Servicer -- Collection Policies" in the prospectus.
YEAR 2000
The "year 2000 problem" exists because many computer programs, embedded
systems and components were designed to refer to a year by the last two digits
of the year, such as "99" for "1999." As a result, some of these systems may not
properly recognize that the year that follows "1999" is "2000" and not "1900."
If those problems are not corrected, the systems could fail or produce erroneous
results. No one knows the extent of the potential impact of the year 2000
problem generally.
State of Readiness
During 1998, First Sierra began its year 2000 program by making initial
inquiries of the software vendors for its major applications as to the year 2000
readiness of such applications. First Sierra received assurances from these
vendors that these applications are year 2000 ready. First Sierra also began
making inquiries of significant customers and other counterparties as to their
year 2000 readiness. For purposes of its year 2000 program, First Sierra has
divided all of its applications, systems, relationships and services into three
groups:
- Mission critical items that First Sierra requires to operate its
business without disruption,
- Important items that First Sierra does not require to operate its
business without disruption but that are important to day-to-day
operations, and
- Ordinary items that do not depend on date specific data or are not
important to day-to-day operations.
The year 2000 program for all hardware, software, operating systems,
relationships and services consists of the following six phases:
Inventory
During this first phase of its year 2000 program, First Sierra compiled
information relating to all hardware, software, operating systems, relationships
and services that may be affected by the year 2000 problem. First Sierra has
substantially completed this phase.
Impact Analysis
This phase encompassed the initial analysis of all hardware and
software, including embedded technologies and other "non-information technology"
applications, and operating systems, significant customers and counterparties,
to determine whether there is a possibility that they are not year 2000 ready,
and how this may affect First Sierra. First Sierra also investigated and
categorized the hardware, software, systems, significant customers and
counterparties as mission critical, important, or
S-23
<PAGE> 27
ordinary. This phase is now complete, except for the identification and
categorization of significant customers and other counterparties as to the year
2000 readiness which is expected to be completed during the third quarter of
1999.
Solution Planning
Based upon the results of its impact analysis, First Sierra has
identified the necessary steps to ensure year 2000 readiness for all of its
hardware and software, including embedded technologies and other
"non-information technology" applications, and its systems.
Corrective Procedures
In this phase, First Sierra will detail and perform the steps outlined
from the results of the Solution Planning phase to identify those fields or
processes that contain a year 2000 problem, and to develop appropriate
corrective procedures. These corrective procedures may include remediation,
replacement, or retirement. First Sierra expects this phase to be completed
during the third quarter of 1999 for mission critical applications and during
the fourth quarter of 1999 for important applications.
Quality Assurance
During this phase, First Sierra will ensure that the necessary steps
that are taken to test any date related issues can be properly executed to
create year 2000 readiness for the specific process or system. In addition, this
phase will ensure that all related processes and systems are not affected by the
corrective action. First Sierra expects this phase to be completed during the
third quarter of 1999 for mission critical applications and during the fourth
quarter of 1999 for important applications.
Contingency Planning
In the event that First Sierra is unable to correct a year 2000 problem
in a mission critical process or system prior to September 30, 1999, or it
identifies year 2000 problems with respect to significant customers and other
counterparties, a contingency plan will be completed to ensure continued
operation after December 31, 1999. In completing this contingency plan, First
Sierra will identify alternatives, including manual processes, the expected
correction date, and any conversion issues from the manual process to the
corrected systems.
Costs to Address The Year 2000 Issues
First Sierra did not incur any material cost to address year 2000
issues during the year ended December 31, 1998. First Sierra estimates that it
will incur costs approximating $300,000, exclusive of internal costs, during
1999 to complete its resolution of year 2000 issues. First Sierra does not
separately track internal year 2000 costs that are largely salaries and benefits
of First Sierra personnel working on the project.
Risks Of The Year 2000 Issues
Based upon its year 2000 initiatives to date, First Sierra has not
identified any specific known year 2000 events, trends or uncertainties which
are reasonably likely to have a material effect on
S-24
<PAGE> 28
its business, results of operations, or financial condition. First Sierra will
continue to review these issues as it evaluates the progress of its year 2000
program.
The foregoing constitutes a year 2000 statement and readiness
disclosure subject to the protections afforded it by the Federal year 2000
Information and Readiness Disclosure Act of 1998.
LEGAL PROCEEDINGS
As of the date of this prospectus supplement, First Sierra is involved
in various lawsuits arising in the ordinary course of its business. In the
opinion of management of First Sierra, the outcome of these matters will not
have a material adverse effect on the financial condition or results of
operations of First Sierra.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
As of the date of this prospectus supplement, the Trust has not had an
operating history. The net proceeds of the sale of the offered Notes will be
used to purchase the Contracts and make the required deposits into the Reserve
Account. The Trust was formed for the limited purposes of (i) the purchase of
equipment contracts from First Sierra and its affiliates, (ii) the issuance of
notes collateralized by its assets and (iii) engaging in acts incidental,
necessary or convenient to the foregoing.
DESCRIPTION OF THE NOTES
The Notes will be issued pursuant to the Indenture to be entered into
by the Servicer, the Trust and the Indenture Trustee. The Servicer will provide
a copy of the Indenture to subsequent Noteholders without charge on written
request addressed to it at 600 Travis Street, Suite 7050, Houston, Texas 77002.
GENERAL
Pursuant to the Indenture, the Trust will issue five classes of Notes
which are offered by this prospectus supplement:
o the 5.85535% Class A-1 Equipment Contract Backed Notes (the "Class A-1
Notes") in the initial principal amount of approximately $30,818,212 (the
"Initial Class A-1 Note Principal Balance");
o the 6.46% Class A-2 Equipment Contract Backed Notes (the "Class A-2
Notes") in the initial principal amount of approximately $31,956,385 (the
"Initial Class A-2 Note Principal Balance");
o the 6.70% Class A-3 Equipment Contract Backed Notes (the "Class A-3
Notes") in the initial principal amount of approximately $18,823,624 (the
"Initial Class A-3 Note Principal Balance");
o the 6.98% Class A-4 Equipment Contract Backed Notes (the "Class A-4 Notes"
and, together with the Class A-1 Notes, the Class A-2 Notes and the Class
A-3 Notes, the "Class A
S-25
<PAGE> 29
Notes") in the initial principal amount of approximately $61,986,631 (the
"Initial Class A-4 Note Principal Balance"); and
o the 7.28% Class B Equipment Contract Backed Notes (the "Class B Notes" and
together with the Class A Notes, the "Offered Notes") in the initial
principal amount of approximately $13,570,520 (the "Initial Class B Note
Principal Balance").
In addition to the Offered Notes, the Trust will also issue four
classes of subordinate securities:
o the 8.01% Class C Equipment Contract Backed Notes (the "Class C Notes") in
the initial principal amount of approximately $9,192,933 (the "Initial
Class C Note Principal Balance");
o the 10.27% Class D Equipment Contract Backed Notes (the "Class D Notes")
in the initial principal amount of approximately $2,188,793 (the "Initial
Class D Note Principal Balance");
o the 7.03% Class E Equipment Contract Backed Notes (the "Class E Notes"
and, collectively with the Class C Notes and the Class D Notes, the
"Subordinate Notes"; the Subordinate Notes, collectively with the Offered
Notes, the "Notes") in the initial principal amount of approximately
$2,363,897 (the "Initial Class E Note Principal Balance"); and
o the Trust Certificate.
The Subordinate Notes and the Trust Certificate are not offered hereby,
and will be issued initially to the holder of the Trust Certificate (the "Trust
Certificate Holder"). The Trust Certificate Holder expects that some of the
Subordinate Notes will be privately placed with one or more qualified
institutional investors.
The "Initial Note Principal Balance" of a Class of Notes means the
Initial Class A-1 Note Principal Balance, the Initial Class A-2 Note Principal
Balance, the Initial Class A-3 Note Principal Balance, the Initial Class A-4
Note Principal Balance, the Initial Class B Note Principal Balance, the Initial
Class C Note Principal Balance the Initial Class D Note Principal Balance or the
Initial Class E Note Principal Balance, as applicable.
The "Note Principal Balance" with respect to any Class of Notes means,
at any time, the Initial Note Principal Balance of such Class minus all payments
theretofore received by the Noteholders of such Class on account of principal.
The "Aggregate Note Principal Balance" is, at any date of
determination, equal to the sum of the Note Principal Balances of the Class A
Notes, the Class B Notes, the Class C Notes, the Class D Notes and the Class E
Notes then outstanding.
Each class of Offered Notes will initially be issued in book-entry form
only through The Depository Trust Company in minimum denominations of $1,000 and
integral multiples thereof, with the exception of one Note in each class which
will be issued in an odd amount. Payments on the Notes are required to be made
by the Indenture Trustee on each Payment Date.
S-26
<PAGE> 30
The obligations evidenced by the Notes are recourse to the assets of
the Trust only and are not recourse to the Depositor, First Sierra, the
Servicer, the Indenture Trustee, the Owner Trustee or any other Person.
The Trust will agree in the Indenture and in the respective Notes to
pay to the related Noteholders (i) an amount of principal equal to the Initial
Note Principal Balance thereof and (ii) Note Interest thereof, in each case, at
the times, from the sources and on the terms and conditions set forth in the
Indenture and in the respective Notes.
INTEREST AND PRINCIPAL PAYMENTS
Payments on the Notes will be made on the sixteenth day of each month,
or, if such day is not a business day, the next succeeding business day (each
such date, a "Payment Date"), commencing on October 18, 1999, to Noteholders of
record as of the last calendar day of the related Interest Accrual Period (the
"Record Date") . Payments are required to be made by the Indenture Trustee, by
check mailed or, if requested by the Noteholder, by wire transfer of immediately
available funds, to Noteholders entitled thereto at the address appearing on the
certificate register on the Record Date, which, for so long as the Offered Notes
are in book-entry form through The Depository Trust Company, will be Cede & Co.
Interest Payments. The Notes will bear interest from the Closing Date
at the applicable interest rate for the respective class as set forth below (the
"Note Rate"). The amount of interest accruing during each Interest Accrual
Period (as defined herein) and payable to the Noteholders of a Class on the
related Payment Date ("Note Current Interest") will be equal to the product of
(x) a fraction, the numerator of which is 30 (or with respect to the Class A-1
Notes, the actual number of days elapsed in the related Interest Accrual Period)
and the denominator of which is 360, (y) the Note Rate for such Class of Notes
and (z) the aggregate Note Principal Balance of such Class of Notes outstanding
immediately prior to such Payment Date.
The Note Rate for each Class of Notes is as follows:
o 5.85535% per annum on the Class A-1 Notes (the "Class A-1 Note Rate"),
o 6.46% per annum on the Class A-2 Notes (the "Class A-2 Note Rate"),
o 6.70% per annum on the Class A-3 Notes (the "Class A-3 Note Rate"),
o 6.98% per annum on the Class A-4 Notes (the "Class A-4 Note Rate"),
o 7.28% per annum on the Class B Notes (the "Class B Note Rate") ,
o 8.01% per annum on the Class C Notes (the "Class C Note Rate"),
o 10.27% per annum on the Class D Notes (the "Class D Note Rate"), and
o 7.03% per annum on the Class E Notes (the "Class E Note Rate").
On each Payment Date, the interest payments due with respect to the
Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes,
the Class B Notes, the Class C Notes, the
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<PAGE> 31
Class D Notes and the Class E Notes since the last Payment Date will be the
interest that has accrued on such Notes since the last Payment Date (or in the
case of the First Payment Date, since the Closing Date) (the "Interest Accrual
Period") at the applicable Note Rate applied to the then outstanding Note
Principal Balance of the Class A-1 Notes, the Class A-2 Notes, the Class A-3
Notes, the Class A-4 Notes, the Class B Notes, the Class C Notes, the Class D
Notes and the Class E Notes, respectively, after giving effect to payments of
principal to the Noteholders on the prior Payment Date. Interest on the Class E
Notes is subordinate to the payment of principal on the Class A Notes, the Class
B Notes, the Class C Notes and the Class D Notes as set forth under "Flow of
Funds" herein.
Principal Payments. For each Payment Date, each of the Class A
Noteholders, the Class B Noteholders, the Class C Noteholders, the Class D
Noteholders and the Class E Noteholders will be entitled to receive payments of
principal ("Principal Payments"), to the extent funds are available therefor, in
the priorities set forth in the Indenture and described herein below and under
"Flow of Funds."
Until the Class A-1 Note Balance has been reduced to zero, all of the
principal will be paid to the holders of the Class A-1 Notes. After the Class
A-1 Notes have been reduced to zero, principal will be allocated to each class
of Notes, pro rata, based on the related Class Percentage and subject to the
related Class Floor. The principal paydown rules incorporate a concept of a
floor on the subordinate classes, which are the Class B, Class C, Class D and
Class E Notes, which means that the Notes of a Class, for so long as any Notes
senior to that Class are outstanding, cannot be paid an amount of principal
which would reduce the Note Principal Balance of that subordinate Class below
its floor level. If a subordinate Class is at its floor level, that subordinate
Class is "locked out" from receiving further principal payments, with the
additional effect of reallocating the principal that would otherwise have been
paid to that subordinate Class to the most senior class then outstanding. The
levels of the floors are not static, but are subject to increase in the event
that losses on the Contracts are experienced, and cannot be funded by the Trust
from the current period's Available Funds and amounts on deposit in the Reserve
Account. This increase in the level of the floors tends to "lock out" the
subordinate classes earlier, which accelerates the payment of the reallocated
principal to the senior classes. If losses become severe, they could be so large
that the principal paydown rules result in a sequential-pay senior/subordinated
structure among the various note classes, with no principal being paid to a
subordinate Class unless the note principal balance of each class senior to it
has been paid in full.
Any excess principal remaining after the payment of principal in the
priorities listed below will be redistributed as supplemental principal to the
holders of the Class A-1 Notes until the Note Principal Balance of the Class A-1
Notes has been reduced to zero and then to each Class of Notes on a pro rata
basis.
On each Payment Date, to the extent funds are available therefor, the
Principal Payment will be paid to the Noteholders in the following priority:
o for so long as the Class A-1 Notes are outstanding, 100% of the Class A
Principal Payment Amount will be allocated to the Class A-1 Noteholders;
o after the Class A-1 Note Principal Balance has been reduced to zero, (i)
to the Class A-2 Noteholders only, until the Note Principal Balance on the
Class A-2 Notes has been reduced to zero, the Class A Principal Payment
Amount, then (ii) to the Class A-3 Noteholders only, until the Note
Principal Balance on the Class A-3 Notes has been reduced to zero, the
Class A
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<PAGE> 32
Principal Payment Amount and (iii) to the Class A-4 Noteholders, until the
Note Principal Balance on the Class A-4 Notes has been reduced to zero,
the Class A Principal Payment Amount;
o to the Class B Noteholders, the Class B Principal Payment Amount;
o to the Class C Noteholders, the Class C Principal Payment Amount;
o to the Class D Noteholders, the Class D Principal Payment Amount;
o to the Class E Noteholders, the Class E Principal Payment Amount; and
o to the extent that the Class B Floor equals or exceeds the Note Principal
Balance of the Class B Notes, the Class C Floor equals or exceeds the Note
Principal Balance of the Class C Notes, the Class D Floor equals or
exceeds the Note Principal Balance of the Class D Notes or the Class E
Floor equals or exceeds the Note Principal Balance of the Class E Notes,
Reallocated Principal (defined below) shall be reallocated sequentially as
a reallocated principal payment on the Class A-2 Notes, the Class A-3
Notes, the Class A-4 Notes, the Class B Notes, the Class C Notes, the
Class D Notes and the Class E Notes as applicable, until the Note
Principal Balance of each Class has been reduced to zero.
The "Class A Principal Payment Amount" with respect to any Payment Date
shall equal the lesser of (i) the sum of (a) the product of (x) the Base
Principal Amount and (y) the Class A Percentage, plus (b) Overdue Principal with
respect to the Class A Notes and (ii) the Note Principal Balance of the Class A
Notes.
The "Base Principal Amount" with respect to any Payment Date shall be
equal to the excess of (i) the Aggregate Discounted Contract Principal Balance
as of the close of business on the last day of the second preceding Collection
Period over (ii) the Aggregate Discounted Contract Principal Balance as of the
close of business on the last day of the immediately preceding Collection
Period.
With respect to any Payment Date, "Available Funds" shall be equal to
(i) all amounts held in the Collection Account on the related Determination
Date, after taking into account all deposits required to be made on such
Determination Date, (ii) proceeds of any Servicer Advances to be made on the
Business Day immediately prior to the Payment Date, other than any such amounts
which relate to any subsequent Collection Period, and (iii) any Repurchase
Amounts to be deposited by the Trust Certificate Holder two Business Days prior
to the Payment Date.
The "Class B Principal Payment Amount" shall equal the lesser of (i)
the sum of (a) the product of (x) the Base Principal Amount and (y) the Class B
Percentage, plus (b) Overdue Principal with respect to the Class B Notes, (ii)
the amount necessary to reduce the Note Principal Balance of the Class B Notes
to the Class B Floor and (iii) the amount necessary to reduce the Note Principal
Balance of the Class B Notes to zero.
The "Class C Principal Payment Amount" shall equal the lesser of (i)
the sum of (a) the product of (x) the Base Principal Amount and (y) the Class C
Percentage, plus (b) Overdue Principal with respect to the Class C Notes, (ii)
the amount necessary to reduce the Note Principal Balance of the Class
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<PAGE> 33
C Notes to the Class C Floor and (iii) the amount necessary to reduce the Note
Principal Balance of the Class C Notes to zero.
The "Class D Principal Payment Amount" shall equal the lesser of (i)
the sum of (a) the product of (x) the Base Principal Amount and (y) the Class D
Percentage, plus (b) Overdue Principal with respect to the Class D Notes, (ii)
the amount necessary to reduce the Note Principal Balance of the Class D Notes
to the Class D Floor and (iii) the amount necessary to reduce the Note Principal
Balance of the Class D Notes to zero.
The "Class E Principal Payment Amount" shall equal the lesser of (i)
the sum of (a) the product of (x) the Base Principal Amount and (y) the Class E
Percentage, plus (b) Overdue Principal with respect to the Class E Notes, (ii)
the amount necessary to reduce the Note Principal Balance of the Class E Notes
to the Class E Floor and (iii) the amount necessary to reduce the Note Principal
Balance of the Class E Notes to zero.
With respect to any Class of Notes and any Payment Date, "Overdue
Principal" shall equal the excess, if any, of (a) Principal Payment Amounts with
respect to such Class due on all prior Payment Dates over (b) the aggregate
amount of the principal (from whatever source) actually distributed to
Noteholders of such Class on all prior Payment Dates. The "Overdue Principal"
with respect to the Class A Notes is equal to the sum of the Overdue Principal
for the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes and the Class
A-4 Notes.
The "Class Floors" means the Class B Floor, the Class C Floor, the
Class D Floor or the Class E Floor.
The "Class A Percentage" will be equal to (i) until the Note Principal
Balance of the Class A-1 Notes has been reduced to zero, approximately 97.6% and
(ii) after the Note Principal Balance of the Class A-1 Notes have been reduced
to zero, approximately 82.00%.
The "Class B Percentage" will be equal to (i) until the Note Principal
Balance of the Class A-1 Notes has been reduced to zero, 0.00% and (ii) after
the Note Principal Balance of the Class A-1 Notes have been reduced to zero,
approximately 7.75%.
The "Class C Percentage" will be equal to (i) until the Note Principal
Balance of the Class A-1 Notes has been reduced to zero, 0.00% and (ii) after
the Note Principal Balance of the Class A-1 Notes have been reduced to zero,
approximately 5.25%.
The "Class D Percentage" will be equal to (i) until the Note Principal
Balance of the Class A-1 Notes has been reduced to zero, 0.00% and (ii) after
the Note Principal Balance of the Class A-1 Notes have been reduced to zero,
approximately 1.25%.
The "Class E Percentage" will be equal to (i) until the Note Principal
Balance of the Class A-1 Notes has been reduced to zero, 0.00% and (ii) after
the Note Principal Balance of the Class A-1 Notes have been reduced to zero,
approximately 1.35%.
The "Class B Floor" with respect to each Payment Date means (a) 4.75%
of the Initial Aggregate Discounted Contract Principal Balance, plus (b) the
Unfunded Loss Amount with respect to such Payment Date, minus (c) the sum of the
Note Principal Balance of the Class C Notes, the Note
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Principal Balance of the Class D Notes, the Note Principal Balance of the Class
E Notes, and the Overcollateralization Balance as of the immediately preceding
Payment Date after giving effect to all principal payments made on that day,
minus (d) the lesser of (i) the amount on deposit in the Reserve Account as of
the immediately preceding Payment Date and (ii) the excess of (x) the sum of (A)
Available Funds on deposit in the Collection Account at the beginning of such
Payment Date and (B) the amount on deposit in the Reserve Account as of the
immediately preceding Payment Date over (y) the sum of (A) amounts paid in items
(i) through (ix) and (xv) under "Flow of Funds" below and (B) the Base Principal
Amount.
The "Class C Floor" with respect to each Payment Date means (a) 2.25%
of the Initial Aggregate Discounted Contract Principal Balance, plus (b) the
Unfunded Loss Amount with respect to such Payment Date, minus (c) the sum of the
Note Principal Balance of the Class D Notes, the Note Principal Balance of the
Class E Notes and the Overcollateralization Balance as of the immediately
preceding Payment Date after giving effect to all principal payments made on
that day, minus (d) the lesser of (i) the amount on deposit in the Reserve
Account as of the immediately preceding Payment Date and (ii) the excess of (x)
the sum of (A) Available Funds on deposit in the Collection Account at the
beginning of such Payment Date and (B) the amount on deposit in the Reserve
Account as of the immediately preceding Payment Date over (y) the sum of (A)
amounts paid in items (i) through (ix) and (xv) under "Flow of Funds" below and
(B) the Base Principal Amount; provided, however, that if the Note Principal
Balance of the Class B Notes is less than or equal to the Class B Floor on such
Payment Date, the Class C Floor will equal the Note Principal Balance of the
Class C Notes utilized in the calculation of the Class B Floor for such Payment
Date.
The "Class D Floor" with respect to each Payment Date means (a) 1.20%
of the Initial Aggregate Discounted Contract Principal Balance, plus (b) the
Unfunded Loss Amount with respect to such Payment Date, minus (c) the sum of the
Note Principal Balance of the Class E Notes and the Overcollateralization
Balance as of the immediately preceding Payment Date after giving effect to all
principal payments made on that day, minus (d) the lesser of (i) the amount on
deposit in the Reserve Account as of the immediately preceding Payment Date and
(ii) the excess of (x) the sum of (A) Available Funds on deposit in the
Collection Account at the beginning of such Payment Date and (B) the amount on
deposit in the Reserve Account as of the immediately preceding Payment Date over
(y) the sum of (A) amounts paid in items (i) through (ix) and (xv) under "Flow
of Funds" below and (B) the Base Principal Amount; provided, however, that if
the Note Principal Balance of the Class C Notes is less than or equal to the
Class C Floor on such Payment Date, the Class D Floor will equal the Note
Principal Balance of the Class D Notes utilized in the calculation of the Class
C Floor for such Payment Date.
The "Class E Floor" with respect to each Payment Date means (a) 0.95%
of the Initial Aggregate Discounted Contract Principal Balance, plus (b) the
Unfunded Loss Amount with respect to such Payment Date, minus (c) the
Overcollateralization Balance as of the immediately preceding Payment Date after
giving effect to all principal payments made on that day, minus (d) ) the lesser
of (i) the amount on deposit in the Reserve Account as of the immediately
preceding Payment Date and (ii) the excess of (x) the sum of (A) Available Funds
on deposit in the Collection Account at the beginning of such Payment Date and
(B) the amount on deposit in the Reserve Account as of the immediately preceding
Payment Date over (y) the sum of (A) amounts paid in items (i) through (ix) and
(xv) under "Flow of Funds" below and (B) the Base Principal Amount; provided,
however, that if the Note Principal Balance of the Class D Notes is less than or
equal to the Class D Floor on such Payment Date, the Class E Floor
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will equal the Note Principal Balance of the Class E Notes utilized in the
calculation of the Class D Floor for such Payment Date.
The "Overcollateralization Balance" with respect to each Payment Date
is an amount equal to the excess, if any, of (a) the Aggregate Discounted
Contract Principal Balance as of the last day of the related Collection Period
over (b) the aggregate Note Principal Balance of the Notes as of such Payment
Date after giving effect to all principal payments made on that day.
The "Unfunded Loss Amount" with respect to each Payment Date is an
amount equal to the excess, if any, of (a) the total of (i) the Note Principal
Balance of the Notes as of the immediately preceding Payment Date after giving
effect to all principal payments made on that day, plus (ii) the
Overcollateralization Balance as of the immediately preceding Payment Date,
minus (iii) the lesser of (A) the Base Principal Amount for that Payment Date
and (B) Available Funds remaining after the payment of the items listed in
priorities (i) through (ix) under "Flow of Funds" below, plus the amount on
deposit in the Reserve Account as of the immediately preceding Payment Date,
over (b) the Aggregate Discounted Contract Principal Balance as of the last day
of the related Collection Period.
Expected Maturity; Stated Maturity. The expected final payment date for
the Class A-1 Notes is June 16, 2000, for the Class A-2 Notes is May 16, 2001,
for the Class A-3 Notes is December 16, 2001, for the Class A-4 Notes is January
16, 2004, and for the Class B Notes, the Class C Notes, the Class D Notes and
the Class E Notes is January 16, 2004. The stated maturity date with respect to
the Class A-1 Notes is the Payment Date in October, 2000 (the "Class A-1 Stated
Maturity Date"), the stated maturity date with respect to the Class A-2 Notes is
the Payment Date in March, 2002 (the "Class A-2 Stated Maturity Date"), the
stated maturity date with respect to the Class A-3 Notes is the Payment Date in
October, 2002 (the "Class A-3 Stated Maturity Date"), the stated maturity date
with respect to the Class A-4 Notes is the Payment Date in March, 2006 (the
"Class A-4 Stated Maturity Date"), the stated maturity date with respect to the
Class B Notes is the Payment Date in March, 2007 (the "Class B Stated Maturity
Date"), the stated maturity date with respect to the Class C Notes is the
Payment Date in May, 2007 (the "Class C Stated Maturity Date"), the stated
maturity date with respect to the Class D Notes is the Payment Date in May, 2007
(the "Class D Stated Maturity Date") and the stated maturity with respect to the
Class E Notes is the Payment Date in July, 2010 (the "Class E Stated Maturity
Date"; each of the foregoing is a "Stated Maturity Date"). However, if all
payments on the Contracts are made as scheduled, final payment with respect to
the Notes would occur prior to stated maturity.
FLOW OF FUNDS
On each Determination Date, the Servicer is required to deliver to the
Indenture Trustee and each Rating Agency a certificate (the "Monthly Statement")
setting forth the information needed to make payments on the upcoming Payment
Date.
On each Payment Date, the Indenture Trustee will be required to make
the following payments from the Available Funds then on deposit in the
Collection Account, together with amounts transferred from the Reserve Account
to the Collection Account on that Payment Date, in the following order of
priority (to the extent funds are available therefor):
(i) to reimburse unreimbursed Servicer Advances (as defined herein) in
respect of a prior Payment Date;
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(ii) to pay the Servicer Fee then due, together with any accrued and
unpaid Servicer Fees from prior Collection Periods;
(iii) to pay to the Servicer any Servicing Charges (as defined herein);
(iv) to pay the Indenture Trustee Fees then due, together with any
Indenture Trustee Fees from prior Collection Periods (subject to certain
limitations set forth in the Indenture);
(v) to pay the Indenture Trustee Expenses then due, together with any
Indenture Trustee Expenses from prior Collection Periods, in an amount not
to exceed in the aggregate $75,000;
(vi) to pay Note Interest (as defined below) on the Class A-1 Notes,
the Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes, pari
passu based on the interest due on each class of Notes;
(vii) to pay Note Interest on the Class B Notes;
(viii) to pay Note Interest on the Class C Notes;
(ix) to pay Note Interest on the Class D Notes;
(x) first, to pay the Class A Principal Payment Amount to the Class A-1
Noteholders until the Class A-1 Note Principal Balance has been reduced to
zero and second, after the Class A-1 Note Principal Balance has been
reduced to zero, to pay the Class A Principal Payment Amount until the
Class A Note Principal Balance has been reduced to zero, such amount to be
applied sequentially, with 100% of such amount being applied to reduce the
applicable Note Principal Balance of the Class A Notes then outstanding and
having the lowest numerical designation (e.g., first to the Class A-2
Notes) to zero before any principal payment is made to the next Class;
(xi) to pay the Class B Principal Payment Amount to the Class B
Noteholders;
(xii) to pay the Class C Principal Payment Amount to the Class C
Noteholders;
(xiii) to pay the Class D Principal Payment Amount to the Class D
Noteholders;
(xiv) to pay the Reallocated Principal, if any, to the Class A
Noteholders, sequentially as provided in clause (x) above, until the Note
Principal Balance on all of the Class A Notes has been reduced to zero,
then to Class B Noteholders until the Note Principal Balance on the Class B
Notes has been reduced to zero, then to the Class C Noteholders until the
Note Principal Balance on the Class C Notes has been reduced to zero, then
to the Class D Noteholders until the Note Principal Balance on the Class D
Notes has been reduced to zero, and finally to the Class E Noteholders,
until the Note Principal Balances on the Class E Notes has been reduced to
zero;
(xv) to pay Note Interest on the Class E Notes;
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(xvi) to pay the Class E Principal Payment Amount to the Class E
Noteholders;
(xvii) to pay the Supplemental Principal Payment Amount, if any, first,
to the holders of the Class A-1 Notes until the Note Principal Balance of
the Class A-1 Notes has been reduced to zero and second, after the Note
Principal Balance of the Class A-1 Notes has been reduced to zero, to the
Noteholders of each Class of Notes then outstanding on a pro rata basis;
(xviii) to the Reserve Account, the amount necessary to maintain the
amount on deposit therein at the Requisite Amount for such Payment Date;
(xix) to the Indenture Trustee, the Indenture Trustee Expenses then
due, together with any Indenture Trustee Expenses from prior Collection
Periods in excess of the $75,000 limitation set forth in clause (vi);
(xx) to the Trust Certificate Holder, any remaining amounts.
"Note Interest" with respect to a Class of Notes and any Collection
Period will equal the sum of the Note Current Interest and the Overdue Interest
for such Class.
"Overdue Interest" with respect to a Class of Notes and any Payment
Date will equal the difference between (a) the sum of (i) the excess, if any, of
any Note Current Interest due on the immediately preceding Payment Date for such
Class over the Note Current Interest paid on such Class on such immediately
preceding Payment Date, plus (ii) without duplication of the amount described in
clause (i), the amount of the Overdue Interest for such Class due and unpaid as
of the immediately preceding Payment Date and (b) any Overdue Interest for such
Class paid on such Payment Date.
The "Reallocated Principal" on any Payment Date will be equal to (a)
zero if each of the remaining Note Principal Balance for the Class B, Class C,
Class D and Class E Notes equals or exceeds their respective Class Floors on
such Payment Date, and (b) in each other case, the excess, if any, of (i) the
Aggregate Note Principal Balance plus the Overcollateralization Balance as of
the immediately preceding Payment Date after giving effect to payments on such
Payment Date, over (ii) the sum of the Class A Principal Payment Amount, the
Class B Principal Payment Amount, the Class C Principal Payment Amount, the
Class D Principal Payment Amount and the Class E Principal Payment Amount
actually paid on such Payment Date, and the Aggregate Discounted Contract
Principal Balance as of related calculation date.
The "Supplemental Principal Payment Amount" on any Payment Date will be
equal to the lesser of (i) the Base Principal Amount for the related Collection
Period, minus the sum of the Class A Principal Payment Amount, the Class B
Principal Payment Amount, the Class C Principal Payment Amount, the Class D
Principal Payment Amount and the Class E Principal Payment Amounts and minus the
Reallocated Principal distributed on such Payment Date and (ii) all Available
Funds remaining after payments of items (i) through (xvi) under "Flow of Funds"
above.
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THE ACCOUNTS
The Servicer is required to establish and maintain in accordance with
the Servicing Agreement three accounts, each as more fully described below: the
Lockbox Account, the Collection Account and the Reserve Account.
Lockbox Account. The Servicer will establish a demand deposit account
(the "Lockbox Account") maintained at Chase Bank of Texas, N.A. (the "Lockbox
Bank"). All Scheduled Payments will be paid into the Lockbox Account and
transferred to the Collection Account within two days of receipt. Any Scheduled
Payment, Final Scheduled Payment or portion thereof paid by an Obligor during a
Collection Period with respect to amounts due from such Obligor in subsequent
Collection Periods ("Advance Payments") will be retained in the Lockbox Account
until the Determination Date relating to the Collection Period in which such
Advance Payment (or portion thereof) is due in accordance with the provisions of
the related Contract.
Collection Account. The Servicer shall cause to be established an
account (the "Collection Account") to be held by the Indenture Trustee in the
name of the Trust and for the benefit of Noteholders. The Collection Account
will be one or more segregated trust accounts.
The Servicing Agreement permits the Servicer to direct the investment
of amounts in the Collection Account in certain Eligible Investments (as defined
in the prospectus) that mature not later than the Business Day prior to the next
succeeding Payment Date. Generally, the Trust Certificate Holder shall be
entitled to any income from such investments.
The Servicer shall deposit or cause to be deposited into the Collection
Account the following amounts: (i) all Scheduled Payments other than Advance
Payments which relate to a subsequent Collection Period; (ii) Servicer Advances;
(iii) recoveries on Defaulted Contracts to the extent the Servicer has not
substituted a Substitute Contract therefor; (iv) proceeds from a Casualty Loss
or Early Termination Contract; and (v) Repurchase Amounts.
Reserve Account. On the Closing Date, a portion of the cash proceeds
from the sale of the Notes in an amount equal to the Requisite Amount will be
deposited in an account (the "Reserve Account"). The Reserve Account will be in
the name of and maintained by the Indenture Trustee for the benefit of the
Noteholders and will be part of the Trust Assets. The Servicing Agreement
permits the Servicer to direct the investment of amounts in the Reserve Account
in certain eligible investments that mature not later than the Business Day
prior to the next succeeding Payment Date. The Trust Certificate Holder shall be
entitled to any net income from such investments.
On each Payment Date, the amount on deposit in the Reserve Account will
be withdrawn, to the extent necessary, to fund any deficiencies in the following
amounts, in the following order of priority:
(i) the Note Interest then due on each Class of the Class A Notes;
(ii) the Note Interest then due on the Class B Notes;
(iii) the Note Interest then due on the Class C Notes;
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(iv) the Note Interest then due on the Class D Notes;
(v) the amount necessary to reduce the Note Principal Balance of any
Class of Notes having its stated Maturity Date on such Payment Date to
zero;
(vi) the Class A Principal Payment Amount, the Class B Principal
Payment Amount, the Class C Principal Payment Amount, the Class D Principal
Payment Amount, and Reallocated Principal in accordance with the payment
priorities set forth in clauses (x) through (xiv) under "Flow of Funds,"
above;
(vii) the Note Interest then due on the Class E Notes; and
(viii) the Class E Principal Payment Amount due on such Payment Date.
In the event that payments on the Contracts may not be used to make
payments on the Notes due to the bankruptcy of First Sierra, amounts on deposit
in the Reserve Account may only be used to make interest payments on the Notes
and principal payments on the related Stated Maturity Date of the Notes.
On each Payment Date, (after giving effect to any withdrawals therefrom
on such Payment Date in accordance with the foregoing), the Available Funds
remaining after the distributions made pursuant to clauses (i) through (xvii)
under "Flow of Funds above," if any, will be deposited in the Reserve Account in
the amount necessary to maintain the amount on deposit in the Reserve Account at
the Requisite Amount with respect to such Payment Date. On any Payment Date, if
the amount on deposit in the Reserve Account (after giving effect to any
withdrawals therefrom on such Payment Date in accordance with the foregoing) is
in excess of the Requisite Amount with respect to such Payment Date, such excess
shall be distributed to the Trust Certificate Holder.
The "Requisite Amount" with respect to any Payment Date, shall be an
amount equal to the lesser of (i) 1.0% of the Initial Aggregate Discounted
Contract Principal Balance and (ii) the Aggregate Note Principal Balance then
outstanding.
SERVICER ADVANCES
In the event that any Obligor fails to remit the full Scheduled Payment
due from it with respect to a Collection Period by the Determination Date
related to such Collection Period, the Servicer may, at its option, advance from
its own funds an amount equal to such unpaid Scheduled Payment (such advance, a
"Servicer Advance") if the Servicer, in its sole discretion, determines that
eventual repayment of such Servicer Advance is likely to be made from
collections from or on behalf of the related Obligor. Reimbursement to the
Servicer for such Servicer Advances shall come, first, from Excluded Amounts and
second, to the extent not reimbursed from Excluded Amounts, from funds on
deposit in the Collection Account on each subsequent Payment Date before the
required payments to Noteholders have been made as set forth above in "Flow of
Funds" herein. Servicer Advances will not be required to be made if at any time
either First Sierra or an affiliate is not acting as Servicer. The Servicing
Agreement shall provide that, in the event that the Servicer determines that any
Servicer Advances previously made are not recoverable from the related Obligor,
or any Delinquent Contracts for which the Servicer has made a Servicer Advance
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in respect thereof become Defaulted Contracts, the Indenture Trustee shall draw
on the Collection Account to repay such Servicer Advances in accordance with the
provisions of the Indenture.
"Excluded Amounts" means any payments received from an Obligor or a
Source in connection with any application fees, tax processing fees, wire
transfer fees, express mail fees, insurance premiums, late charges and other
penalty amounts, taxes, fees or other charges imposed by any governmental
authority, any indemnity payments made by an Obligor for the benefit of the
obligee under the related Contract or any payments collected from an Obligor or
received from a Source relating to servicing and/or maintenance payments
pursuant to the related Contract or maintenance agreement, as applicable, any
and all cash proceeds or rents realized from the sale or re-lease of Equipment
under any Contract that has terminated on its scheduled expiration date (other
than any amounts then due from a related source under the related Source
Agreement) or any other non-rental charges reimbursable to the Servicer in
accordance with the Servicer's customary policies and procedures plus any
collections received following the end of the immediately preceding Collection
Period up to the amount of the Servicer Advance for the immediately preceding
Collection Period.
WITHHOLDING
The Indenture Trustee is required to comply with all applicable federal
income tax withholding requirements respecting payments to Noteholders of
interest with respect to the Notes. The consent of Noteholders is not required
for such withholding. In the event the Noteholder is other than The Depository
Trust Company, then in the event that the Indenture Trustee withholds or causes
to be withheld any amount from interest payments or advances thereof to any
Noteholders pursuant to federal income tax withholding requirements, the
Indenture Trustee shall indicate the amount withheld annually to such
Noteholders.
REPORTS TO NOTEHOLDERS
On each Payment Date, the Indenture Trustee will furnish or cause to be
furnished with each payment to Noteholders, a statement prepared by the Servicer
setting forth the following information (per $1,000 of Initial Note Principal
Balance as to (a) and (b) below):
a. With respect to a statement to a Noteholder, the amount of such
payment allocable to such Noteholder's required payment of the Base
Principal Amount;
b. With respect to a statement to a Noteholder, the amount of such
payment allocable to Note Current Interest and Overdue Interest;
c. The aggregate amount of fees and compensation received by the
Servicer pursuant to the Servicing Agreement for the Collection Period;
d. The aggregate Note Principal Balance for each Class of Notes,
the Note Factor for each Class of Notes, the Pool Factor and the
Aggregate Discounted Contract Principal Balance, after taking into
account all distributions made on such Payment Date;
e. The total unreimbursed Servicer Advances with respect to the
related Collection Period;
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f. The amount of Defaulted Contract Recoveries for the related
Collection Period and the Aggregate Discounted Contract Principal Balances
for all Contracts that became Defaulted Contracts during the related
Collection Period, calculated immediately prior to the time such Contracts
became Defaulted Contracts;
g. The Aggregate Discounted Contract Principal Balance, together
with the aggregate Discounted Contract Principal Balances of all Contracts
as to which the Obligors, as of the related Calculation Date, were one,
two, three or four Scheduled Payments delinquent, and Delinquent Contracts
reconveyed; and
h. The amount on deposit in the Reserve Account, in each case,
after giving effect to all withdrawals therefrom on such Payment Date.
Such reports will not constitute financial statements prepared in
accordance with generally accepted accounting principles. The Depositor will
cause to be filed with the Commission such periodic reports as are required
under the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder and as are otherwise agreed to by the Commission. Copies
of such periodic reports may be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
The "Note Factor" of a Class of Notes is the seven digit decimal number
that the Servicer will compute or cause to be computed for each Collection
Period and will make available on the related Determination Date representing
the ratio of (x) the Note Principal Balance for such Class of Notes which will
be outstanding on the next Payment Date (after taking into account all
distributions to be made on such Payment Date) to (y) the Initial Note Principal
Balance of such Class of Notes.
The "Pool Factor" is the seven digit decimal number that the Servicer
will compute or cause to be computed for each Collection Period and will make
available on the related Determination Date representing the ratio of (x) the
Aggregate Discounted Contract Principal Balance as of the end of the immediately
preceding Collection Period to (y) the Aggregate Discounted Contract Principal
Balance as of the Cut-Off Date.
In addition, by January 31 of each calendar year following any year
during which the Notes are outstanding, commencing January 31, 2001, the
Indenture Trustee will furnish to each Noteholder of record at any time during
such preceding calendar year, information as to the aggregate of amounts
reported pursuant to items (a) and (b) above for such calendar year to enable
Noteholders to prepare their federal income tax returns.
OPTIONAL REDEMPTION
The Notes may be redeemed in whole by the Trust Certificate Holder on
any Payment Date on which the Aggregate Discounted Contract Principal Balance is
less than 15% of the Aggregate Discounted Contract Principal Balance as of the
Closing Date. The Trust Certificate Holder shall deposit or cause to be
deposited to the Collection Account no later than the second Business Day prior
to such Payment Date the Repurchase Amount for each Contract that was not a
Defaulted Contract as of the close of business on the second preceding
Collection Period.
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DESCRIPTION OF THE TRANSACTION DOCUMENTS
The following summary describes material terms of the Receivables
Transfer Agreement, the Trust Agreement, the Servicing Agreement and the
Indenture (the "Transaction Documents"). The summary does not purport to be
complete. Wherever provisions of the Receivables Transfer Agreement, the
Servicing Agreement and the Indenture are referred to, such provisions are
hereby incorporated herein by reference.
CONVEYANCE OF RECEIVABLES
On the Closing Date, the Trust will acquire from the Sellers pursuant
to the Receivables Transfer Agreement all the right, title, and interest of the
Sellers in and to (a) the Contracts and any security interest of the Sellers in
any of the Equipment that is not owned by the Sellers, including, without
limitation, all Scheduled Payments, Defaulted Contract Recoveries and any other
payments due or made with respect to the Contracts after the Initial Cut-Off
Date; (b) any guarantees of an Obligor's obligations under an Contract; (c) all
other documents in the Contract Files relating to the Contracts, including,
without limitation, any UCC financing statements related to the Contracts or the
related Equipment; (d) any Insurance Policies and Insurance Proceeds with
respect to the Contracts; and (e) any and all income and proceeds of any of the
foregoing; provided, however, that the transfer shall not include the Initial
Unpaid Amounts relating thereto.
The Indenture Trustee will have possession of the Contracts and the
Contract Files, and the Servicer will retain copies of any other documents which
relate to the Receivables, any related evidence of insurance and payment, and
delinquency and related reports maintained by the Servicer in the ordinary
course of business with respect to each Receivable. Prior to transfer of the
Receivables to the Trust, the Servicer will cause its electronic ledger to be
marked to show that such Contracts have been transferred to the Trust, and the
Sellers and the Trust will each file UCC financing statements reflecting the
transfer and assignment of the Receivables in certain jurisdictions, as required
by the Receivables Transfer Agreement and the Servicing Agreement. See "Certain
Legal Aspects of the Receivables" in the prospectus.
REPRESENTATIONS AND WARRANTIES OF FIRST SIERRA
First Sierra, as Originator or as Servicer, as the case may be, will
make certain representations and warranties in the Servicing Agreement (as of
the Closing Date with respect to the Contracts and with respect to a Substitute
Contract, as of each Substitute Transfer Date), the benefits of which will be
assigned to the Trust and then to the Indenture Trustee, including that:
o no provision of any Contract has been waived, altered or modified in any
respect, except by instrument or documents contained in its Contract File
and identified by First Sierra and no modification or amendment of any
Contract would individually or in the aggregate materially and adversely
affect the Indenture Trustee's rights thereunder or has reduced the amount
of any Scheduled Payment (or the aggregate Scheduled Payments) owing
thereunder or extended the expiration date thereof;
o each Contract is a valid and binding payment obligation of the related
Obligor and is enforceable in accordance with its terms (except as may be
limited by applicable insolvency, bankruptcy, moratorium, reorganization,
or other similar laws affecting enforceability of creditors' rights
generally and the availability of equitable remedies) and is in full force
and effect;
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o each Contract contains a "hell or high water" clause under which the
Obligor's obligations are non-cancelable and unconditional and not subject
to any right of set-off, defense, abatement, counterclaim, reduction or
recoupment;
o no Contract is or will be subject to rights of rescission, set-off,
counterclaim or defense, and each Contract provides for acceleration of the
Scheduled Payments upon default by the Obligor;
o the Contracts, at the time they were made, did not violate the laws of any
applicable state or of the United States, including, without limitation,
usury, truth-in-lending and equal credit opportunities laws applicable to
such Contract;
o no Contract permits the prepayment or early termination thereof at the
option of the Obligor for an amount that is less than the Prepayment Amount
related to such Contract;
o no Contract provides for the substitution, addition or exchange of any item
of Equipment which would result in any reduction of payments due under such
Contract;
o all of the Contracts require the Obligor to maintain the Equipment in good
working order, to bear all the costs of operating the Equipment, including
taxes and insurance relating thereto;
o the Contract provides for periodic Scheduled Payments, which are
principally due and payable on a monthly, quarterly, semi-annual, or annual
basis;
o in an event of a casualty loss, such Contract requires the Obligor, at the
Obligor's expense, to (a) replace the Equipment with like equipment in good
repair, or (b) pay the sum of all unpaid rent and other payments due under
the Contract, all accelerated future payments due under the Contract
(discounted to present value payoff amount) and the booked residual value
of the Equipment;
o under the terms of the Contract the Obligor may not elect to utilize its
security deposit to offset any Scheduled Payment;
o if obtained during the original approval, the Contracts provide a personal
guarantee of the Obligor;
o all of the Contracts originated by a Source permit the Source to accelerate
Scheduled Payments if an Obligor is in default under the Contract;
o all the Contracts meet the Originator's credit and collections policies and
procedures;
o each Source has entered into valid sale and assignment of each Contract
originated by such Source;
o each Contract conveyed includes only the remaining, in the event the
Contract does not include all original Scheduled Payments under the
Contract, non-cancelable Scheduled Payments;
o the right, title and interest of the Originator or its affiliates including
the Sellers in and to each Contract and the security interest of the
Originator or its affiliates including the Sellers in the related Equipment
have not been sold, transferred, assigned or pledged by such entities to
any other Person (or any such pledge has been released as evidenced by
releases of collateral) and at the time of the conveyance of such Contract
to the Trust, the Trust will be the sole owner of such Contract and the
rights thereunder in and to the related Equipment and will have good and
marketable title to each Contract and will have the power to convey such
Contract and assign its security interest in the related Equipment free and
clear of any liens;
o as of the Closing Date, all action required by the Receivables Transfer
Agreement and the Servicing Agreement shall have been taken by the
Originator or its affiliates including the Sellers to convey all of its
right, title and interest in and to the Contracts and the related Equipment
to the Trust;
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<PAGE> 44
o all filings (including UCC filings) necessary to evidence the conveyance of
the Contracts to the Trust and to perfect the first perfected priority
security interest of the Indenture Trustee in the Contracts and in the
related Equipment in accordance with the filing requirements of the
Receivables Transfer Agreement and the Servicing Agreement have been made
in all appropriate jurisdictions and are in full force and effect;
o as of the related Cut-Off Date, no Obligor will have been released, in
whole or in part, from any of its obligations in respect of any such
Contract; no such Contract will have been satisfied, canceled, extended or
subordinated, in whole or in part, or rescinded, and no Equipment covered
by any such Contract will have been released from such Contract, in whole
or in part, nor will any instrument have been executed that would effect
any such satisfaction, release, cancellation, subordination or rescission;
and
o as of the Initial Cut-Off Date (in each case calculated using the
statistical discount rate of 7.546%), no one Obligor is the Obligor under
Contracts for which the sum of the Statistical Discounted Contract
Principal Balances exceeds $1,383,746 and no more than $6,261,590 of the
Statistical Discounted Contract Principal Balance is attributable to any 10
Obligors.
First Sierra will make similar representations and warranties with
respect to Substitute Contracts as of the applicable Substitute Transfer Date.
Such representations and warranties will survive the transfer of the Substitute
Contracts to the Trust.
Under the terms of the Servicing Agreement, First Sierra will be
obligated to accept the reconveyance of any Receivables and deposit the
Repurchase Amount on or before the end of the calendar month following the month
of its discovery or receipt of notice of a breach of a representation or
warranty that materially adversely affects such item of Receivables, which
breach has not been cured or waived in all material respects. This obligation to
accept the reconveyance of the Receivables and remit the Repurchase Amount will
constitute the sole remedy against First Sierra available to the Depositor, the
Trust, the Indenture Trustee and the Noteholders for a breach of a
representation or warranty made by First Sierra with respect to the required
characteristics of the Receivables.
INDEMNIFICATION
The Servicing Agreement will provide that the Servicer will defend and
indemnify the Depositor, First Sierra, the Indenture Trustee, the Owner Trustee,
the Trust, and the Noteholders against any and all costs, expenses, losses,
damages, claims and liabilities, including reasonable fees and expenses of
counsel and expenses of litigation, reasonably incurred, arising out of or
resulting from (i) the use, repossession or operation by the Servicer or any
affiliate thereof of any Equipment and (ii) (A) the failure of the Servicer to
perform its duties under the Servicing Agreement or (B) in the case of the
Indenture Trustee or the Owner Trustee, the performance of their respective
duties, except to the extent that such cost, expense, loss, damage, claim or
liability resulted from the Indenture Trustee's or the Owner Trustee's
respective gross negligence or willful misconduct. First Sierra's obligations,
as Servicer, to indemnify the Depositor, the Indenture Trustee, the Owner
Trustee, the Trust and the Noteholders for acts or omissions of First Sierra as
Servicer will survive the resignation or termination of the Servicer but will
not apply to any acts or omissions of a successor Servicer. Such indemnification
does not extend to indirect, incidental, special or consequential damages.
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<PAGE> 45
REMITTANCE AND OTHER SERVICING PROCEDURES
The Servicer has agreed to manage, administer and service the
Receivables and to enforce and make collections on the Receivables and any
Insurance Policies, exercising the degree of skill and care consistent with that
which the Servicer customarily exercises with respect to similar property owned,
managed or serviced by it.
The Servicer may grant to an Obligor any rebate, refund or adjustment
that the Servicer in good faith believes is required, because of Prepayment in
full of a Contract. The Servicer may deduct the amount of any such rebate,
refund or adjustment from the amount otherwise payable by the Servicer into the
Collection Account; provided, however, that the Servicer will not permit any
rescission or cancellation of any Contract which would materially impair the
rights of the Trust or the Noteholders in the Contracts or the proceeds thereof,
nor will the prepayment price after giving effect to any such rebate, refund or
adjustment (and without any adjustment for any security deposit previously paid
by the Obligor) be less than the Prepayment Amount.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
For its servicing of the Contracts, the Servicer will receive servicing
compensation including the monthly Servicer Fee for each Collection Period
(payable on the next succeeding Payment Date) and Servicing Charges.
The "Servicer Fee" is the fee payable to the Servicer on each Payment
Date in consideration for the Servicer's performance of its duties pursuant to
the Servicing Agreement in an amount equal to the product of (a) one-twelfth of
the Servicer Fee Rate and (b) the Aggregate Discounted Contract Principal
Balance as of the prior Calculation Date.
The "Servicer Fee Rate" is equal to 0.50% percent per annum.
"Servicing Charges" means the sum of (a) any late payment charges paid
by an Obligor on a Delinquent Contract after application of any such charges to
amounts then due under such Contract and (b) any other incidental charges or
fees received from an Obligor.
The servicing compensation will compensate the Servicer for customary
equipment contract servicing activities to be performed by the Servicer for the
Trust, additional administrative services performed by the Servicer on behalf of
the Trust and expenses paid by the Servicer on behalf of the Trust.
The Servicer, as an independent contractor on behalf of the Trust and
for the benefit of the Noteholders, will be responsible for managing, servicing
and administering the Receivables and enforcing and making collections on the
Contracts and any Insurance Policies and for enforcing any security interest in
any item of Equipment, all as set forth in the Servicing Agreement. The
Servicer's responsibilities will include collection and posting of all payments,
responding to inquiries of Obligors, investigating delinquencies, accounting for
collections, furnishing monthly and annual statements to the Indenture Trustee
with respect to distributions, making Servicer Advances, providing appropriate
federal income tax information for use in providing information to Noteholders,
collecting and remitting sales and property taxes on behalf of taxing
authorities and maintaining the perfected security interest of the Trust in the
Equipment and the Contracts.
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<PAGE> 46
EVIDENCE AS TO COMPLIANCE
The Servicing Agreement requires that the Servicer cause an independent
accountant (who may also render other services to the Servicer) to prepare a
statement to the Indenture Trustee and each Rating Agency dated not later than
April 30, 2001, and annually as of the same month thereafter, to the effect that
the independent accountant has examined the servicing procedures, manuals,
guides and records of the Servicer and the accounts and records of the Servicer
relating to the Receivables and the Contract Files (which procedures, manuals,
guides and records shall be described in one or more schedules to such
statement), that such firm has compared the information contained in the Monthly
Statements delivered in the relevant period with information contained in the
accounts and records for such period and that, on the basis of such examination
and comparison, nothing has come to the independent accountant's attention to
indicate that the Servicer has not, during the relevant period, serviced the
Receivables in compliance with such servicing procedures, manuals and guides and
in the same manner required by the Servicer's standards and with the same degree
of skill and care consistent with that which the Servicer customarily exercises
with respect to similar property owned by it, that such accounts and records
have not been maintained in accordance with the Servicing Agreement, that the
information contained in the Monthly Statements does not reconcile with the
information contained in the accounts and records or that such certificates,
accounts and records have not been properly prepared and maintained in all
material respects, except in each case for (a) such exceptions as the
independent accountant shall believe to be immaterial and (b) such other
exceptions as shall be set forth in such statement. On or before April 30 of
each year, commencing on April 30, 2001, the Servicer shall deliver to the
Indenture Trustee and each Rating Agency a copy of such statement.
The Servicing Agreement will also provide for annual delivery of a
report (the "Supplementary Report") by the Servicer to the Indenture Trustee not
later than 120 days after the end of each fiscal year beginning in 2001, signed
by an authorized officer of the Servicer (a "Servicing Officer") on behalf of
the Servicer and dated as of the last day of such fiscal year, stating that (a)
a review of the activities of the Servicer and the Servicer's performance under
the Servicing Agreement for the previous 12-month period has been made under
such Servicing Officer's supervision and (b) nothing has come to such Servicing
Officer's attention to indicate that an Event of Servicing Termination has
occurred, or, if such Event of Servicing Termination has so occurred and is
continuing, specifying each such event known to the officer, the nature and
status thereof and the steps necessary to remedy such event.
The Servicing Agreement will provide that the Servicer, upon request of
the Indenture Trustee, will furnish to the Indenture Trustee such underlying
data necessary for administration of the Trust or enforcement actions as can be
generated by the Servicer's existing data processing system.
CERTAIN MATTERS RELATING TO THE SERVICER
The Servicing Agreement will provide that the Servicer may not resign
from its obligations and duties as Servicer thereunder, except upon a
determination that the Servicer's performance of such duties is no longer
permissible under applicable law. The Servicer can only be removed pursuant to
an Event of Servicing Termination as discussed below.
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<PAGE> 47
EVENTS OF SERVICING TERMINATION
An "Event of Servicing Termination" under the Servicing Agreement will
occur (a) if the Servicer fails to make any payment or deposit required under
the Servicing Agreement within three Business Days but not more than once in any
Collection Period; (b) if the Servicer fails to submit a Monthly Statement,
within three Business Days following knowledge or notice of non-receipt; (c) (i)
if the Servicer fails to observe or perform in any material respect any other
covenant or agreement in the Servicing Agreement or the Notes or (ii) if any
representation or warranty of the Servicer in the Servicing Agreement is
incorrect, and such failure or breach materially and adversely affects the
rights of the Indenture Trustee or the Noteholders and continues unremedied for
30 days after the earlier to occur of (x) written notice to the Servicer by the
Indenture Trustee or to the Indenture Trustee or the Servicer by any Noteholders
or (y) the date on which any Servicing Officer or authorized officer of the
Indenture Trustee knows, or reasonably should have known, of any such failure or
breach; (d) upon the filing of an involuntary petition in bankruptcy or the
decree or order of a court, agency or supervisory authority having jurisdiction
over the Servicer for the appointment of a conservator, receiver, trustee in
bankruptcy or liquidator in any bankruptcy, insolvency or similar proceedings,
and the continuance of any such petition, decree or order undismissed or
unstayed and in effect for a period of 60 consecutive days; or (e) upon the
voluntary filing of such petition or assignment for the benefit of creditors,
the consent by the Servicer to any such appointment, the admission in writing by
the Servicer of its inability to pay its debts as they become due or the
determination by a court that the Servicer is generally not paying its debts as
they come due.
RIGHTS UPON AN EVENT OF SERVICING TERMINATION
If an Event of Servicing Termination has occurred and is continuing,
either the Indenture Trustee shall or the Noteholders that together own Notes
with an aggregate Percentage Interest in excess of 50% (the "Majority Holders")
may terminate all (but not less than all) of the Servicer's rights and
obligations under the Servicing Agreement. Upon such termination, the Indenture
Trustee or such successor Servicer as may be appointed in accordance with the
procedures set forth in the Servicing Agreement will succeed to all the
responsibilities, duties and liabilities of the Servicer under the Servicing
Agreement; provided, however, that the Indenture Trustee or the successor
Servicer, as the case may be, shall not (i) assume any obligation to reacquire
Receivables by reason of misrepresentations or breaches of warranties or (ii) be
liable for acts, omissions or breaches of representations or warranties by the
Servicer occurring prior to transfer of the servicing functions. Notwithstanding
such termination, the Servicer shall be entitled to payment of certain amounts
payable to it prior to such termination for services rendered prior to such
termination.
"Percentage Interest" means, with respect to a Noteholder and a Class
of Notes on any date of determination, the percentage obtained by dividing the
Note Principal Balance of the Note held by such Noteholder as of the Closing
Date by the related Note Principal Balance of the related Class of Notes as of
the Closing Date.
EVENTS OF DEFAULT
Upon the occurrence of an Event of Default, the Indenture Trustee, upon
the direction of the Controlling Parties, shall declare the unpaid principal
amount of all the Notes to be due and payable, together with all accrued and
unpaid interest thereon without presentment, demand, protest or other notice
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<PAGE> 48
of any kind, all of which are waived by the Trust. "Events of Default" wherever
used herein means any one of the following events:
(i) failure to distribute or cause to be distributed to the Indenture
Trustee, for the benefit of the Noteholders, all or part of any payment of
interest due and payable monthly at the applicable Note Rate, as required under
the terms of such Notes or the Indenture; or
(ii) failure to distribute or cause to be distributed (x) to the
Indenture Trustee, for the benefit of the Noteholders, on any Payment Date an
amount equal to the principal due on the outstanding Notes as of such Payment
Date to the extent that sufficient Available Funds are on deposit in the
Collection Account or (y) on the Maturity Date of a Class of Notes, any
remaining principal owed on such Class of Notes.
"Controlling Parties" means: (i) with respect to an Event of Default
resulting only from the failure to make a required payment on the Class E Notes,
the Majority Holders of the Class E Notes, (ii) with respect to an Event of
Default resulting only from the failure to make a required payment on the Class
D Notes, the Majority Holders of the Class D Notes, (iii) with respect to an
Event of Default resulting only from the failure to make a required payment on
the Class C Notes, the Majority Holders of the Class C Notes, (iv) with respect
to an Event of Default resulting only from the failure to make a required
payment on the Class B Notes, the Majority Holders of the Class B Notes and (v)
with respect to an Event of Default resulting from the failure to make a
required payment on the Class A Notes, the Majority Holders of the Class A
Notes.
TERMINATION OF THE TRUST
The Trust and the Indenture will terminate, at the option of the Trust
Certificate Holder, at any time which is 123 days after the payment to the
Noteholders of all amounts required to be paid to them pursuant to the
Indenture, reducing the related Note Principal Balance to zero. Upon termination
of the Trust and the reduction of the Note Principal Balance to zero, any
remaining property then held by the Trust shall be distributed to the Trust
Certificate Holder.
The respective representations, warranties and indemnities of First
Sierra, the Servicer and the Depositor will survive any termination of the Trust
and the Indenture.
AMENDMENT
The Transaction Documents may be amended by agreement of the Indenture
Trustee, the Depositor and the Servicer, and where applicable, the Owner
Trustee, at any time, without consent of the Noteholders, to cure any ambiguity,
upon receipt of an opinion of counsel to the Servicer that such amendment will
not adversely affect in any respect the interests of any Noteholder.
The Transaction Documents may also be amended from time to time by the
Indenture Trustee, the Depositor, the Servicer, the Majority Holders and, where
applicable, the Owner Trustee for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Transaction
Documents or of modifying in any manner the rights of the Noteholders; provided,
however, that no such amendment shall (a) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, collections of payments on the
Receivables or distributions which are required to
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<PAGE> 49
be made on any Note without the consent of the holder of such Note or (b) reduce
the aforesaid percentage of Noteholders required to consent to any amendment,
without unanimous consent of the Noteholders.
The Indenture Trustee is required under the Indenture to furnish
Noteholders and the Rating Agencies with written notice of the substance of any
such amendment to the Indenture promptly upon execution of such amendment.
DUTIES AND IMMUNITIES OF THE INDENTURE TRUSTEE
The Indenture Trustee will make no representations as to the validity
or sufficiency of the Servicing Agreement, the Notes (other than the
authentication thereof) or of any Contract or related document and will not be
accountable for the use or application by First Sierra of any funds paid to the
Sellers in consideration of the sale of any Notes. If an Event of Servicing
Termination has not occurred, then the Indenture Trustee will be required to
perform only those duties specifically required of it under the Servicing
Agreement. However, upon receipt of the various resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments required
to be furnished to it, the Indenture Trustee will be required to examine them to
determine whether they conform as to form to the requirements of the Servicing
Agreement.
No recourse is available based on any provision of the Servicing
Agreement, the Notes or any Receivable or assignment thereof against Bankers
Trust Company, in its individual capacity, and Bankers Trust Company shall not
have any personal obligation, liability or duty whatsoever to any Noteholder or
any other person with respect to any such claim and such claim shall be asserted
solely against the Trust Assets or any indemnitor, except for such liability as
is determined to have resulted from the Indenture Trustee's own negligence or
willful misconduct.
The Indenture Trustee will be entitled to receive, pursuant to the
priority set forth in the Indenture, (a) reasonable compensation for its
services (the "Indenture Trustee Fee"), (b) reimbursement for its reasonable
expenses and (c) indemnification for loss, liability or expense incurred without
negligence or bad faith on its part, arising out of performance of its duties
thereunder ((b) and (c) collectively, the "Indenture Trustee Expenses").
RESIGNATION AND REMOVAL OF THE INDENTURE TRUSTEE
The Indenture Trustee may resign, subject to the conditions set forth
below, at any time upon written notice to the Servicer, in which event the
Servicer will be obligated to appoint a successor Indenture Trustee. If no
successor Indenture Trustee shall have been so appointed and have accepted such
appointment within 30 days after the giving of such notice of resignation, the
resigning Indenture Trustee may petition a court of competent jurisdiction for
the appointment of a successor Indenture Trustee. Any successor Indenture
Trustee shall meet the financial and other standards for qualifying as a
successor Indenture Trustee under the Indenture. The Servicer or the Noteholders
of any Class evidencing more than 25% of the Percentage Interests of such Class
may also remove the Indenture Trustee if the Indenture Trustee ceases to be
eligible to continue as such under the Indenture and fails to resign after
written request therefor, or is legally unable to act, or if the Indenture
Trustee is adjudicated to be insolvent. In such circumstances, the Servicer or
such Noteholders will also be obligated to appoint a successor Indenture
Trustee. Any resignation or removal of the Indenture Trustee and appointment of
a
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<PAGE> 50
successor Indenture Trustee will not become effective until acceptance of the
appointment by the successor Indenture Trustee.
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on, and the weighted average life of,
the Offered Notes will be directly related to the rate of principal payments on
the underlying Contracts. If purchased at a price other than par, the yield to
maturity will also be affected by the rate of such principal payments. The
principal payments on such Contracts may be in the form of scheduled principal
payments or liquidations due to default, casualty, repurchases for breach and
the like. Any such payments will result in distributions to Noteholders of
amounts which would otherwise have been distributed over the remaining term of
the Contracts. In general, the rate of such payments may be influenced by a
number of other factors, including general economic conditions. The rate of
payment of principal may also be affected by any removal of the Contracts from
the pool and the deposit of the related Prepayment Amount or Repurchase Amount
into the Collection Account.
The Contracts generally do not provide for the right of the Obligor to
prepay. Under the Servicing Agreement, the Servicer will be permitted to allow
such Prepayments in full or in part, provided that no Prepayment of a Contract
will be allowed in an amount less than the Prepayment Amount.
The expected final payment date for the Class A-1 Notes is June 16,
2000, for the Class A-2 Notes is May 16, 2001, for the Class A-3 Notes is
December 16, 2001, for the Class A-4 Notes is January 16, 2004, and for the
Class B Notes is January 16, 2004. Such dates are the dates on which the related
Note Principal Balance would be reduced to zero, assuming, among other things,
(i) Prepayments with respect to the Contracts are received at a rate of 6% CPR
and (ii) the Modeling Assumptions (as defined below) apply. The weighted average
life of the Offered Notes is likely to be shorter than would be the case if
payments actually made on the Contracts conformed to the foregoing assumptions,
and the final Payment Dates with respect to the Offered Notes could occur
significantly earlier than such final scheduled Payment Dates due to defaults
and because First Sierra is obligated to repurchase Contracts in the event of
breaches of representations and warranties.
"Weighted Average Life" refers to the average amount of time from the
date of issuance of a security until each dollar of principal of such security
is repaid to the investor. The weighted average lives of the Offered Notes will
be influenced by the rate at which principal payments (including scheduled
payments and prepayments) on the Contracts are made. Principal payments on
Contracts may be in the form of scheduled amortization or prepayments (for this
purpose, the term "prepayment" includes prepayments and liquidations due to a
default or other dispositions of the Contracts). The weighted average lives of
the Offered Notes will also be influenced by delays associated with realizing on
Defaulted Contracts. The prepayment model used in this prospectus supplement,
the "Conditional Prepayment Rate" or "CPR", represents an assumed annualized
rate of prepayment relative to the then outstanding balance on a pool of
contracts. The CPR assumes that a fraction of the outstanding Contract Pool is
prepaid on each Payment Date, which implies that each Contract in the Contract
Pool is equally likely to prepay. This fraction, expressed as a percentage, is
annualized to arrive at the CPR for the Contract Pool. The CPR measures
prepayments based on the outstanding principal on the previous Payment Date. The
CPR further assumes that all Contracts are the same size and amortize at the
same rate and that each Contract will be either paid as scheduled or prepaid in
full.
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<PAGE> 51
WEIGHTED AVERAGE LIVES OF THE NOTES
For the purpose of the tables below, it is assumed, among other things,
that: (i) the Closing Date for the Notes occurs on September 29, 1999, (ii)
distributions on the Notes are made on the 16th day of each month regardless of
the day on which the Payment Date actually occurs, commencing on October 18,
1999 in accordance with the priorities described herein, (iii) no delinquencies
or defaults in the payment of principal and interest on the Contracts are
experienced, (iv) no Contract is repurchased for breach of a representation and
warranty or otherwise, (v) the Discount Rate is 7.525% per annum, (vi)
prepayments with respect to the Contracts are received on the last day of each
Collection Period, commencing on September 1, 1999, (vii) the Class A-1 Note
Rate is 5.85535% per annum, the Class A-2 Note Rate is 6.46% per annum, the
Class A-3 Note Rate is 6.70% per annum, the Class A-4 Note Rate is 6.98% per
annum, the Class B Note Rate is 7.28% per annum, the Class C Note Rate is 8.01%
per annum, the Class D Note Rate is 10.27% per annum, and the Class E Note Rate
is 7.03% per annum, (viii) the Servicer Fee is 0.50% per annum, (ix) the
Contract pool consists of Contracts with an Aggregate Discounted Contract
Principal Balance equal to $175,103,478, (x) Scheduled Payments on such contract
are timely received, and (xi) the option to redeem when the Aggregate Discounted
Contract Principal Balance on any Payment Date is less than 15% of the Aggregate
Discounted Contract Principal Balance as of the Closing Date is exercised
(collectively, the "Modeling Assumptions").
Since the tables were prepared on the basis of the Modeling
Assumptions, there are discrepancies between the characteristics of the actual
Contracts and the characteristics of the Contracts assumed in preparing the
tables. Any such discrepancies may have an effect upon the percentages of the
Initial Note Principal Balance for the Notes outstanding and the weighted
average lives of the Notes set forth in the tables. In addition, since the
actual Contracts in the Trust have characteristics which differ from those
assumed in preparing the tables set forth below, the related weighted average
life may be longer or shorter than as indicated in the tables.
The following tables set forth the percentages of the initial principal
amount of the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, the
Class A-4 Notes, the Class B Notes, the Class C Notes, the Class D Notes and the
Class E Notes that would be outstanding after each of the dates shown, assuming
a CPR of 0%, 3%, 6% and 9%, respectively.
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<PAGE> 52
PERCENTAGE OF INITIAL NOTE
PRINCIPAL BALANCE OUTSTANDING
CLASS A-1 NOTES
<TABLE>
<CAPTION>
Prepayment Speed (CPR)
- ------------------------------------------------------------------------------------------------
Payment Date 0% 3% 6% 9%
- ---------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Closing Date 100.00% 100.00% 100.00% 100.00%
Oct. 1999 91.11% 89.69% 88.24% 86.73%
Nov. 1999 82.08% 79.29% 76.43% 73.49%
Dec. 1999 72.79% 68.69% 64.49% 60.19%
Jan. 2000 64.25% 58.87% 53.38% 47.77%
Feb. 2000 55.51% 48.91% 42.18% 35.33%
March 2000 46.51% 38.73% 30.83% 22.80%
April 2000 37.17% 28.27% 19.25% 10.12%
May 2000 27.84% 17.87% 7.80% 0.00%
June 2000 18.53% 7.54% 0.00% 0.00%
July 2000 9.11% 0.00% 0.00% 0.00%
Aug. 2000 0.00% 0.00% 0.00% 0.00%
Sept. 2000 0.00% 0.00% 0.00% 0.00%
Oct. 2000 0.00% 0.00% 0.00% 0.00%
Nov. 2000 0.00% 0.00% 0.00% 0.00%
Dec. 2000 0.00% 0.00% 0.00% 0.00%
Jan. 2001 0.00% 0.00% 0.00% 0.00%
Feb. 2001 0.00% 0.00% 0.00% 0.00%
March 2001 0.00% 0.00% 0.00% 0.00%
April 2001 0.00% 0.00% 0.00% 0.00%
May 2001 0.00% 0.00% 0.00% 0.00%
June 2001 0.00% 0.00% 0.00% 0.00%
July 2001 0.00% 0.00% 0.00% 0.00%
Aug. 2001 0.00% 0.00% 0.00% 0.00%
Sept. 2001 0.00% 0.00% 0.00% 0.00%
Oct. 2001 0.00% 0.00% 0.00% 0.00%
Nov. 2001 0.00% 0.00% 0.00% 0.00%
Dec. 2001 0.00% 0.00% 0.00% 0.00%
Jan. 2002 0.00% 0.00% 0.00% 0.00%
Feb. 2002 0.00% 0.00% 0.00% 0.00%
March 2002 0.00% 0.00% 0.00% 0.00%
April 2002 0.00% 0.00% 0.00% 0.00%
May 2002 0.00% 0.00% 0.00% 0.00%
June 2002 0.00% 0.00% 0.00% 0.00%
July 2002 0.00% 0.00% 0.00% 0.00%
Aug. 2002 0.00% 0.00% 0.00% 0.00%
Sept. 2002 0.00% 0.00% 0.00% 0.00%
Oct. 2002 0.00% 0.00% 0.00% 0.00%
Nov. 2002 0.00% 0.00% 0.00% 0.00%
Dec. 2002 0.00% 0.00% 0.00% 0.00%
Jan. 2003 0.00% 0.00% 0.00% 0.00%
Feb. 2003 0.00% 0.00% 0.00% 0.00%
March 2003 0.00% 0.00% 0.00% 0.00%
April 2003 0.00% 0.00% 0.00% 0.00%
</TABLE>
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<PAGE> 53
<TABLE>
<CAPTION>
Prepayment Speed (CPR)
- ------------------------------------------------------------------------------------------------
Payment Date 0% 3% 6% 9%
- ---------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
May 2003 0.00% 0.00% 0.00% 0.00%
June 2003 0.00% 0.00% 0.00% 0.00%
July 2003 0.00% 0.00% 0.00% 0.00%
Aug. 2003 0.00% 0.00% 0.00% 0.00%
Sept. 2003 0.00% 0.00% 0.00% 0.00%
Oct. 2003 0.00% 0.00% 0.00% 0.00%
Nov. 2003 0.00% 0.00% 0.00% 0.00%
Dec. 2003 0.00% 0.00% 0.00% 0.00%
Jan. 2004 0.00% 0.00% 0.00% 0.00%
Feb. 2004 0.00% 0.00% 0.00% 0.00%
March 2004 0.00% 0.00% 0.00% 0.00%
April 2004 0.00% 0.00% 0.00% 0.00%
May 2004 0.00% 0.00% 0.00% 0.00%
Weighted Average Life
(years) to 15% Call 0.47 0.41 0.37 0.33
Weighted Average Life
(years) to Maturity 0.47 0.41 0.37 0.33
</TABLE>
S-50
<PAGE> 54
PERCENTAGE OF INITIAL NOTE
PRINCIPAL BALANCE OUTSTANDING
CLASS A-2 NOTES
<TABLE>
<CAPTION>
Prepayment Speed (CPR)
- ------------------------------------------------------------------------------------------------
Payment Date 0% 3% 6% 9%
- ---------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Closing Date 100.00% 100.00% 100.00% 100.00%
Oct. 1999 100.00% 100.00% 100.00% 100.00%
Nov. 1999 100.00% 100.00% 100.00% 100.00%
Dec. 1999 100.00% 100.00% 100.00% 100.00%
Jan. 2000 100.00% 100.00% 100.00% 100.00%
Feb. 2000 100.00% 100.00% 100.00% 100.00%
March 2000 100.00% 100.00% 100.00% 100.00%
April 2000 100.00% 100.00% 100.00% 100.00%
May 2000 100.00% 100.00% 100.00% 99.63%
June 2000 100.00% 100.00% 98.33% 89.64%
July 2000 100.00% 98.85% 89.15% 79.71%
Aug. 2000 99.81% 90.32% 79.90% 69.77%
Sept. 2000 92.02% 81.83% 70.74% 59.96%
Oct. 2000 84.10% 73.25% 61.53% 50.16%
Nov. 2000 76.20% 64.74% 52.44% 40.52%
Dec. 2000 68.25% 56.22% 43.38% 30.96%
Jan. 2001 60.37% 47.80% 34.47% 21.59%
Feb. 2001 52.44% 39.38% 25.60% 12.31%
March 2001 44.45% 30.93% 16.75% 3.10%
Apr. 2001 36.28% 22.37% 7.83% 0.00%
May 2001 28.16% 13.89% 0.00% 0.00%
June 2001 20.08% 5.49% 0.00% 0.00%
July 2001 12.00% 0.00% 0.00% 0.00%
Aug. 2001 3.80% 0.00% 0.00% 0.00%
Sept. 2001 0.00% 0.00% 0.00% 0.00%
Oct. 2001 0.00% 0.00% 0.00% 0.00%
Nov. 2001 0.00% 0.00% 0.00% 0.00%
Dec. 2001 0.00% 0.00% 0.00% 0.00%
Jan. 2002 0.00% 0.00% 0.00% 0.00%
Feb. 2002 0.00% 0.00% 0.00% 0.00%
March 2002 0.00% 0.00% 0.00% 0.00%
April 2002 0.00% 0.00% 0.00% 0.00%
May 2002 0.00% 0.00% 0.00% 0.00%
June 2002 0.00% 0.00% 0.00% 0.00%
July 2002 0.00% 0.00% 0.00% 0.00%
Aug. 2002 0.00% 0.00% 0.00% 0.00%
Sept. 2002 0.00% 0.00% 0.00% 0.00%
Oct. 2002 0.00% 0.00% 0.00% 0.00%
Nov. 2002 0.00% 0.00% 0.00% 0.00%
Dec 2002 0.00% 0.00% 0.00% 0.00%
Jan. 2003 0.00% 0.00% 0.00% 0.00%
Feb 2003 0.00% 0.00% 0.00% 0.00%
March 2003 0.00% 0.00% 0.00% 0.00%
April 2003 0.00% 0.00% 0.00% 0.00%
</TABLE>
S-51
<PAGE> 55
<TABLE>
<CAPTION>
Prepayment Speed (CPR)
- ------------------------------------------------------------------------------------------------
Payment Date 0% 3% 6% 9%
- ---------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
May 2003 0.00% 0.00% 0.00% 0.00%
June 2003 0.00% 0.00% 0.00% 0.00%
July 2003 0.00% 0.00% 0.00% 0.00%
Aug. 2003 0.00% 0.00% 0.00% 0.00%
Sept. 2003 0.00% 0.00% 0.00% 0.00%
Oct. 2003 0.00% 0.00% 0.00% 0.00%
Nov. 2003 0.00% 0.00% 0.00% 0.00%
Dec. 2003 0.00% 0.00% 0.00% 0.00%
Jan. 2004 0.00% 0.00% 0.00% 0.00%
Feb. 2004 0.00% 0.00% 0.00% 0.00%
March 2004 0.00% 0.00% 0.00% 0.00%
April 2004 0.00% 0.00% 0.00% 0.00%
May 2004 0.00% 0.00% 0.00% 0.00%
Weighted Average Life
(years) to 15% Call 1.45 1.32 1.20 1.10
Weighted Average Life
(years) to Maturity 1.45 1.32 1.20 1.10
</TABLE>
S-52
<PAGE> 56
PERCENTAGE OF INITIAL NOTE
PRINCIPAL BALANCE OUTSTANDING
CLASS A-3 NOTES
<TABLE>
<CAPTION>
Prepayment Speed (CPR)
- ------------------------------------------------------------------------------------------------
Payment Date 0% 3% 6% 9%
- ---------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Closing Date 100.00% 100.00% 100.00% 100.00%
Oct. 1999 100.00% 100.00% 100.00% 100.00%
Nov. 1999 100.00% 100.00% 100.00% 100.00%
Dec. 1999 100.00% 100.00% 100.00% 100.00%
Jan. 2000 100.00% 100.00% 100.00% 100.00%
Feb. 2000 100.00% 100.00% 100.00% 100.00%
March 2000 100.00% 100.00% 100.00% 100.00%
April 2000 100.00% 100.00% 100.00% 100.00%
May 2000 100.00% 100.00% 100.00% 100.00%
June 2000 100.00% 100.00% 100.00% 100.00%
July 2000 100.00% 100.00% 100.00% 100.00%
Aug. 2000 100.00% 100.00% 100.00% 100.00%
Sept. 2000 100.00% 100.00% 100.00% 100.00%
Oct. 2000 100.00% 100.00% 100.00% 100.00%
Nov. 2000 100.00% 100.00% 100.00% 100.00%
Dec. 2000 100.00% 100.00% 100.00% 100.00%
Jan. 2001 100.00% 100.00% 100.00% 100.00%
Feb. 2001 100.00% 100.00% 100.00% 100.00%
March 2001 100.00% 100.00% 100.00% 100.00%
April 2001 100.00% 100.00% 100.00% 89.59%
May 2001 100.00% 100.00% 98.36% 74.20%
June 2001 100.00% 100.00% 83.62% 59.08%
July 2001 100.00% 95.13% 69.04% 44.17%
Aug. 2001 100.00% 80.81% 54.41% 29.30%
Sept. 2001 92.61% 66.64% 39.98% 14.70%
Oct. 2001 78.72% 52.49% 25.65% 0.26%
Nov. 2001 64.78% 38.37% 11.41% 0.00%
Dec. 2001 50.77% 24.24% 0.00% 0.00%
Jan. 2002 36.80% 10.22% 0.00% 0.00%
Feb. 2002 23.03% 0.00% 0.00% 0.00%
March 2002 9.25% 0.00% 0.00% 0.00%
April. 2002 0.00% 0.00% 0.00% 0.00%
May 2002 0.00% 0.00% 0.00% 0.00%
June 2002 0.00% 0.00% 0.00% 0.00%
July 2002 0.00% 0.00% 0.00% 0.00%
Aug. 2002 0.00% 0.00% 0.00% 0.00%
Sept. 2002 0.00% 0.00% 0.00% 0.00%
Oct. 2002 0.00% 0.00% 0.00% 0.00%
Nov. 2002 0.00% 0.00% 0.00% 0.00%
Dec. 2002 0.00% 0.00% 0.00% 0.00%
Jan. 2003 0.00% 0.00% 0.00% 0.00%
Feb. 2003 0.00% 0.00% 0.00% 0.00%
March 2003 0.00% 0.00% 0.00% 0.00%
April 2003 0.00% 0.00% 0.00% 0.00%
</TABLE>
S-53
<PAGE> 57
<TABLE>
<CAPTION>
Prepayment Speed (CPR)
- ------------------------------------------------------------------------------------------------
Payment Date 0% 3% 6% 9%
- ---------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
May 2003 0.00% 0.00% 0.00% 0.00%
June 2003 0.00% 0.00% 0.00% 0.00%
July 2003 0.00% 0.00% 0.00% 0.00%
Aug. 2003 0.00% 0.00% 0.00% 0.00%
Sept. 2003 0.00% 0.00% 0.00% 0.00%
Oct. 2003 0.00% 0.00% 0.00% 0.00%
Nov. 2003 0.00% 0.00% 0.00% 0.00%
Dec. 2003 0.00% 0.00% 0.00% 0.00%
Jan. 2004 0.00% 0.00% 0.00% 0.00%
Feb. 2004 0.00% 0.00% 0.00% 0.00%
March 2004 0.00% 0.00% 0.00% 0.00%
April 2004 0.00% 0.00% 0.00% 0.00%
May 2004 0.00% 0.00% 0.00% 0.00%
Weighted Average Life
(years) to 15% Call 2.26 2.10 1.95 1.81
Weighted Average Life
(years) to Maturity 2.26 2.10 1.95 1.81
</TABLE>
S-54
<PAGE> 58
PERCENTAGE OF INITIAL NOTE
PRINCIPAL BALANCE OUTSTANDING
CLASS A-4 NOTES
<TABLE>
<CAPTION>
Prepayment Speed (CPR)
- ------------------------------------------------------------------------------------------------
Payment Date 0% 3% 6% 9%
- ---------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Closing Date 100.00% 100.00% 100.00% 100.00%
Oct. 1999 100.00% 100.00% 100.00% 100.00%
Nov. 1999 100.00% 100.00% 100.00% 100.00%
Dec. 1999 100.00% 100.00% 100.00% 100.00%
Jan. 2000 100.00% 100.00% 100.00% 100.00%
Feb. 2000 100.00% 100.00% 100.00% 100.00%
March 2000 100.00% 100.00% 100.00% 100.00%
April 2000 100.00% 100.00% 100.00% 100.00%
May 2000 100.00% 100.00% 100.00% 100.00%
June 2000 100.00% 100.00% 100.00% 100.00%
July 2000 100.00% 100.00% 100.00% 100.00%
Aug. 2000 100.00% 100.00% 100.00% 100.00%
Sept. 2000 100.00% 100.00% 100.00% 100.00%
Oct. 2000 100.00% 100.00% 100.00% 100.00%
Nov. 2000 100.00% 100.00% 100.00% 100.00%
Dec. 2000 100.00% 100.00% 100.00% 100.00%
Jan. 2001 100.00% 100.00% 100.00% 100.00%
Feb. 2001 100.00% 100.00% 100.00% 100.00%
March 2001 100.00% 100.00% 100.00% 100.00%
April 2001 100.00% 100.00% 100.00% 100.00%
May 2001 100.00% 100.00% 100.00% 100.00%
June 2001 100.00% 100.00% 100.00% 100.00%
July 2001 100.00% 100.00% 100.00% 100.00%
Aug. 2001 100.00% 100.00% 100.00% 100.00%
Sept. 2001 100.00% 100.00% 100.00% 100.00%
Oct. 2001 100.00% 100.00% 100.00% 100.00%
Nov. 2001 100.00% 100.00% 100.00% 95.74%
Dec. 2001 100.00% 100.00% 99.17% 91.45%
Jan. 2002 100.00% 100.00% 94.92% 87.23%
Feb. 2002 100.00% 98.93% 90.76% 83.12%
March 2002 100.00% 94.76% 86.64% 79.06%
April 2002 98.69% 90.68% 82.62% 75.11%
May 2002 94.74% 86.78% 78.78% 71.35%
June 2002 90.98% 83.07% 75.14% 67.80%
July 2002 87.49% 79.62% 71.75% 64.49%
Aug. 2002 84.03% 76.22% 68.42% 61.26%
Sept. 2002 80.65% 72.91% 65.20% 58.13%
Oct. 2002 77.27% 69.61% 62.00% 55.05%
Nov. 2002 73.90% 66.34% 58.84% 52.01%
Dec. 2002 70.56% 63.12% 55.75% 49.05%
Jan. 2003 67.23% 59.92% 52.69% 46.14%
Feb. 2003 63.90% 56.73% 49.65% 43.26%
March 2003 60.57% 53.56% 46.64% 40.42%
April 2003 57.22% 50.39% 43.66% 37.62%
</TABLE>
S-55
<PAGE> 59
<TABLE>
<CAPTION>
Prepayment Speed (CPR)
- ------------------------------------------------------------------------------------------------
Payment Date 0% 3% 6% 9%
- ---------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
May 2003 53.96% 47.31% 40.77% 34.92%
June 2003 50.80% 44.34% 37.99% 32.33%
July 2003 47.80% 41.52% 35.35% 29.88%
Aug. 2003 44.87% 38.78% 32.80% 27.52%
Sept. 2003 41.97% 36.09% 30.30% 25.22%
Oct. 2003 39.07% 33.40% 27.83% 22.95%
Nov. 2003 36.18% 30.74% 25.39% 0.00%
Dec. 2003 33.28% 28.08% 22.96% 0.00%
Jan. 2004 30.43% 25.48% 0.00% 0.00%
Feb. 2004 27.53% 22.85% 0.00% 0.00%
March 2004 24.84% 0.00% 0.00% 0.00%
April 2004 22.20% 0.00% 0.00% 0.00%
May 2004 0.00% 0.00% 0.00% 0.00%
Weighted Average Life
(years) to 15% Call 3.76 3.59 3.41 3.24
Weighted Average Life
(years) to Maturity 3.89 3.71 3.52 3.35
</TABLE>
S-56
<PAGE> 60
PRINCIPAL BALANCE OUTSTANDING
CLASS B NOTES
<TABLE>
<CAPTION>
Prepayment Speed (CPR)
- ------------------------------------------------------------------------------------------------
Payment Date 0% 3% 6% 9%
- ---------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Closing Date 100.00% 100.00% 100.00% 100.00%
Oct. 1999 100.00% 100.00% 100.00% 100.00%
Nov. 1999 100.00% 100.00% 100.00% 100.00%
Dec. 1999 100.00% 100.00% 100.00% 100.00%
Jan. 2000 100.00% 100.00% 100.00% 100.00%
Feb. 2000 100.00% 100.00% 100.00% 100.00%
March 2000 100.00% 100.00% 100.00% 100.00%
April 2000 100.00% 100.00% 100.00% 100.00%
May 2000 100.00% 100.00% 100.00% 97.75%
June 2000 100.00% 100.00% 97.96% 95.52%
July 2000 100.00% 98.13% 95.91% 93.31%
Aug. 2000 99.65% 96.23% 93.85% 91.10%
Sept. 2000 97.92% 94.34% 91.81% 88.92%
Oct. 2000 96.15% 92.43% 89.76% 86.74%
Nov. 2000 94.39% 90.53% 87.74% 84.59%
Dec. 2000 92.63% 88.64% 85.72% 82.46%
Jan. 2001 90.87% 86.76% 83.74% 80.38%
Feb. 2001 89.11% 84.89% 81.77% 78.31%
March 2001 87.33% 83.01% 79.80% 76.26%
April 2001 85.51% 81.10% 77.81% 74.21%
May 2001 83.70% 79.22% 75.85% 72.19%
June 2001 81.90% 77.35% 73.92% 70.21%
July 2001 80.11% 75.49% 72.01% 68.25%
Aug. 2001 78.28% 73.61% 70.09% 66.30%
Sept. 2001 76.47% 71.75% 68.20% 64.39%
Oct. 2001 74.65% 69.90% 66.32% 62.50%
Nov. 2001 72.82% 68.05% 64.46% 60.63%
Dec. 2001 70.98% 66.19% 62.60% 58.77%
Jan. 2002 69.15% 64.36% 60.77% 56.95%
Feb. 2002 67.34% 62.55% 58.97% 55.18%
March 2002 65.54% 60.76% 57.19% 53.42%
April 2002 63.76% 58.99% 55.46% 51.72%
May 2002 62.05% 57.31% 53.80% 50.10%
June 2002 60.43% 55.71% 52.23% 48.56%
July 2002 58.92% 54.22% 50.76% 47.13%
Aug. 2002 57.43% 52.75% 49.33% 45.74%
Sept. 2002 55.97% 51.32% 47.94% 44.39%
Oct. 2002 54.51% 49.90% 46.56% 43.06%
Nov. 2002 53.06% 48.49% 45.19% 41.75%
Dec. 2002 51.61% 47.09% 43.86% 40.47%
Jan. 2003 50.18% 45.71% 42.53% 39.21%
Feb. 2003 48.74% 44.34% 41.22% 37.97%
March 2003 47.30% 42.97% 39.93% 36.74%
April 2003 45.86% 41.60% 38.64% 35.53%
May 2003 44.45% 40.27% 37.39% 34.37%
</TABLE>
S-57
<PAGE> 61
<TABLE>
<CAPTION>
Prepayment Speed (CPR)
- ------------------------------------------------------------------------------------------------
Payment Date 0% 3% 6% 9%
- ---------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
June 2003 43.09% 38.99% 36.19% 33.25%
July 2003 41.79% 37.77% 35.05% 32.19%
Aug. 2003 40.52% 36.59% 33.95% 31.17%
Sept. 2003 39.27% 35.42% 32.87% 30.18%
Oct. 2003 38.02% 34.26% 31.80% 29.20%
Nov. 2003 36.77% 33.12% 30.75% 0.00%
Dec. 2003 35.52% 31.97% 29.70% 0.00%
Jan. 2004 34.29% 30.85% 0.00% 0.00%
Feb. 2004 33.04% 29.71% 0.00% 0.00%
March 2004 31.88% 0.00% 0.00% 0.00%
April 2004 30.74% 0.00% 0.00% 0.00%
May 2004 0.00% 0.00% 0.00% 0.00%
Weighted Average Life
(years) to 15% Call 3.23 3.02 2.86 2.69
Weighted Average Life
(years) to Maturity 3.62 3.39 3.22 3.05
</TABLE>
S-58
<PAGE> 62
PRINCIPAL BALANCE OUTSTANDING
CLASS C NOTES
<TABLE>
<CAPTION>
Prepayment Speed (CPR)
- ------------------------------------------------------------------------------------------------
Payment Date 0% 3% 6% 9%
- ---------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Closing Date 100.00% 100.00% 100.00% 100.00%
Oct. 1999 100.00% 100.00% 100.00% 100.00%
Nov. 1999 100.00% 100.00% 100.00% 100.00%
Dec. 1999 100.00% 100.00% 100.00% 100.00%
Jan. 2000 100.00% 100.00% 100.00% 100.00%
Feb. 2000 100.00% 100.00% 100.00% 100.00%
March 2000 100.00% 100.00% 100.00% 100.00%
April 2000 100.00% 100.00% 100.00% 100.00%
May 2000 100.00% 100.00% 100.00% 97.75%
June 2000 100.00% 100.00% 97.96% 95.52%
July 2000 100.00% 98.13% 95.91% 93.31%
Aug. 2000 99.65% 96.23% 93.85% 91.10%
Sept. 2000 97.92% 94.34% 91.81% 88.92%
Oct. 2000 96.15% 92.43% 89.76% 86.74%
Nov. 2000 94.39% 90.53% 87.74% 84.59%
Dec. 2000 92.63% 88.64% 85.72% 82.46%
Jan. 2001 90.87% 86.76% 83.74% 80.38%
Feb. 2001 89.11% 84.89% 81.77% 78.31%
March 2001 87.33% 83.01% 79.80% 76.26%
April 2001 85.51% 81.10% 77.81% 74.21%
May 2001 83.70% 79.22% 75.85% 72.19%
June 2001 81.90% 77.35% 73.92% 70.21%
July 2001 80.11% 75.49% 72.01% 68.25%
Aug. 2001 78.28% 73.61% 70.09% 66.30%
Sept. 2001 76.47% 71.75% 68.20% 64.39%
Oct. 2001 74.65% 69.90% 66.32% 62.50%
Nov. 2001 72.82% 68.05% 64.46% 60.63%
Dec. 2001 70.98% 66.19% 62.60% 58.77%
Jan. 2002 69.15% 64.36% 60.77% 56.95%
Feb. 2002 67.34% 62.55% 58.97% 55.18%
March 2002 65.54% 60.76% 57.19% 53.42%
April 2002 63.76% 58.99% 55.46% 51.72%
May 2002 62.05% 57.31% 53.80% 50.10%
June 2002 60.43% 55.71% 52.23% 48.56%
July 2002 58.92% 54.22% 50.76% 47.13%
Aug. 2002 57.43% 52.75% 49.33% 45.74%
Sept.2002 55.97% 51.32% 47.94% 44.39%
Oct. 2002 54.51% 49.90% 46.56% 43.06%
Nov. 2002 53.06% 48.49% 45.19% 41.75%
Dec. 2002 51.61% 47.09% 43.86% 40.47%
Jan. 2003 50.18% 45.71% 42.53% 39.21%
Feb. 2003 48.74% 44.34% 41.22% 37.97%
March 2003 47.30% 42.97% 39.93% 36.74%
April 2003 45.86% 41.60% 38.64% 35.53%
May 2003 44.45% 40.27% 37.39% 34.37%
</TABLE>
S-59
<PAGE> 63
<TABLE>
<CAPTION>
Prepayment Speed (CPR)
- ------------------------------------------------------------------------------------------------
Payment Date 0% 3% 6% 9%
- ---------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
June 2003 43.09% 38.99% 36.19% 33.25%
July 2003 41.79% 37.77% 35.05% 32.19%
Aug. 2003 40.52% 36.59% 33.95% 31.17%
Sept. 2003 39.27% 35.42% 32.87% 30.18%
Oct. 2003 38.02% 34.26% 31.80% 29.20%
Nov. 2003 36.77% 33.12% 30.75% 0.00%
Dec. 2003 35.52% 31.97% 29.70% 0.00%
Jan. 2004 34.29% 30.85% 0.00% 0.00%
Feb. 2004 33.04% 29.71% 0.00% 0.00%
March 2004 31.88% 0.00% 0.00% 0.00%
April 2004 30.74% 0.00% 0.00% 0.00%
May 2004 0.00% 0.00% 0.00% 0.00%
Weighted Average Life
(years) to 15% Call 3.23 3.02 2.86 2.69
Weighted Average Life
(years) to Maturity 3.63 3.40 3.24 3.06
</TABLE>
S-60
<PAGE> 64
PRINCIPAL BALANCE OUTSTANDING
CLASS D NOTES
<TABLE>
<CAPTION>
Prepayment Speed (CPR)
- ------------------------------------------------------------------------------------------------
Payment Date 0% 3% 6% 9%
- ---------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Closing Date 100.00% 100.00% 100.00% 100.00%
Oct. 1999 100.00% 100.00% 100.00% 100.00%
Nov. 1999 100.00% 100.00% 100.00% 100.00%
Dec. 1999 100.00% 100.00% 100.00% 100.00%
Jan. 2000 100.00% 100.00% 100.00% 100.00%
Feb. 2000 100.00% 100.00% 100.00% 100.00%
March 2000 100.00% 100.00% 100.00% 100.00%
April 2000 100.00% 100.00% 100.00% 100.00%
May 2000 100.00% 100.00% 100.00% 97.75%
June 2000 100.00% 100.00% 97.96% 95.52%
July 2000 100.00% 98.13% 95.91% 93.31%
Aug. 2000 99.65% 96.23% 93.85% 91.10%
Sept. 2000 97.92% 94.34% 91.81% 88.92%
Oct. 2000 96.15% 92.43% 89.76% 86.74%
Nov. 2000 94.39% 90.53% 87.74% 84.59%
Dec. 2000 92.63% 88.64% 85.72% 82.46%
Jan. 2001 90.87% 86.76% 83.74% 80.38%
Feb. 2001 89.11% 84.89% 81.77% 78.31%
March 2001 87.33% 83.01% 79.80% 76.26%
April 2001 85.51% 81.10% 77.81% 74.21%
May 2001 83.70% 79.22% 75.85% 72.19%
June 2001 81.90% 77.35% 73.92% 70.21%
July 2001 80.11% 75.49% 72.01% 68.25%
Aug. 2001 78.28% 73.61% 70.09% 66.30%
Sept. 2001 76.47% 71.75% 68.20% 64.39%
Oct. 2001 74.65% 69.90% 66.32% 62.50%
Nov. 2001 72.82% 68.05% 64.46% 60.63%
Dec. 2001 70.98% 66.19% 62.60% 58.77%
Jan. 2002 69.15% 64.36% 60.77% 56.95%
Feb. 2002 67.34% 62.55% 58.97% 55.18%
March 2002 65.54% 60.76% 57.19% 53.42%
April 2002 63.76% 58.99% 55.46% 51.72%
May 2002 62.05% 57.31% 53.80% 50.10%
June 2002 60.43% 55.71% 52.23% 48.56%
July 2002 58.92% 54.22% 50.76% 47.13%
Aug. 2002 57.43% 52.75% 49.33% 45.74%
Sept. 2002 55.97% 51.32% 47.94% 44.39%
Oct. 2002 54.51% 49.90% 46.56% 43.06%
Nov. 2002 53.06% 48.49% 45.19% 41.75%
Dec. 2002 51.61% 47.09% 43.86% 40.47%
Jan. 2003 50.18% 45.71% 42.53% 39.21%
Feb. 2003 48.74% 44.34% 41.22% 37.97%
March 2003 47.30% 42.97% 39.93% 36.74%
April 2003 45.86% 41.60% 38.64% 35.53%
May 2003 44.45% 40.27% 37.39% 34.37%
</TABLE>
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<PAGE> 65
<TABLE>
<CAPTION>
Prepayment Speed (CPR)
- ------------------------------------------------------------------------------------------------
Payment Date 0% 3% 6% 9%
- ---------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
June 2003 43.09% 38.99% 36.19% 33.25%
July 2003 41.79% 37.77% 35.05% 32.19%
Aug. 2003 40.52% 36.59% 33.95% 31.17%
Sept. 2003 39.27% 35.42% 32.87% 30.18%
Oct. 2003 38.02% 34.26% 31.80% 29.20%
Nov. 2003 36.77% 33.12% 30.75% 0.00%
Dec. 2003 35.52% 31.97% 29.70% 0.00%
Jan. 2004 34.29% 30.85% 0.00% 0.00%
Feb. 2004 33.04% 29.71% 0.00% 0.00%
March 2004 31.88% 0.00% 0.00% 0.00%
April 2004 30.74% 0.00% 0.00% 0.00%
May 2004 0.00% 0.00% 0.00% 0.00%
Weighted Average Life
(years) to 15% Call 3.23 3.02 2.86 2.69
Weighted Average Life
(years) to Maturity 3.64 3.41 3.24 3.06
</TABLE>
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<PAGE> 66
PRINCIPAL BALANCE OUTSTANDING
CLASS E NOTES
<TABLE>
<CAPTION>
Prepayment Speed (CPR)
- ------------------------------------------------------------------------------------------------
Payment Date 0% 3% 6% 9%
- ---------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Closing Date 100.00% 100.00% 100.00% 100.00%
Oct. 1999 100.00% 100.00% 100.00% 100.00%
Nov. 1999 100.00% 100.00% 100.00% 100.00%
Dec. 1999 100.00% 100.00% 100.00% 100.00%
Jan. 2000 100.00% 100.00% 100.00% 100.00%
Feb. 2000 100.00% 100.00% 100.00% 100.00%
March 2000 100.00% 100.00% 100.00% 100.00%
April 2000 100.00% 100.00% 100.00% 100.00%
May 2000 100.00% 100.00% 100.00% 97.75%
June 2000 100.00% 100.00% 97.96% 95.52%
July 2000 100.00% 98.13% 95.91% 93.31%
Aug. 2000 99.65% 96.23% 93.85% 91.10%
Sept. 2000 97.92% 94.34% 91.81% 88.92%
Oct. 2000 96.15% 92.43% 89.76% 86.74%
Nov. 2000 94.39% 90.53% 87.74% 84.59%
Dec. 2000 92.63% 88.64% 85.72% 82.46%
Jan. 2001 90.87% 86.76% 83.74% 80.38%
Feb. 2001 89.11% 84.89% 81.77% 78.31%
March 2001 87.33% 83.01% 79.80% 76.26%
April 2001 85.51% 81.10% 77.81% 74.21%
May 2001 83.70% 79.22% 75.85% 72.19%
June 2001 81.90% 77.35% 73.92% 70.21%
July 2001 80.11% 75.49% 72.01% 68.25%
Aug. 2001 78.28% 73.61% 70.09% 66.30%
Sept. 2001 76.47% 71.75% 68.20% 64.39%
Oct. 2001 74.65% 69.90% 66.32% 62.50%
Nov. 2001 72.82% 68.05% 64.46% 60.63%
Dec. 2001 70.98% 66.19% 62.60% 58.77%
Jan. 2002 69.15% 64.36% 60.77% 56.95%
Feb. 2002 67.34% 62.55% 58.97% 55.18%
March 2002 65.54% 60.76% 57.19% 53.42%
April 2002 63.76% 58.99% 55.46% 51.72%
May 2002 62.05% 57.31% 53.80% 50.10%
June 2002 60.43% 55.71% 52.23% 48.56%
July 2002 58.92% 54.22% 50.76% 47.13%
Aug. 2002 57.43% 52.75% 49.33% 45.74%
Sept. 2002 55.97% 51.32% 47.94% 44.39%
Oct. 2002 54.51% 49.90% 46.56% 43.06%
Nov. 2002 53.06% 48.49% 45.19% 41.75%
Dec. 2002 51.61% 47.09% 43.86% 40.47%
Jan. 2003 50.18% 45.71% 42.53% 39.21%
Feb. 2003 48.74% 44.34% 41.22% 37.97%
March 2003 47.30% 42.97% 39.93% 36.74%
April 2003 45.86% 41.60% 38.64% 35.53%
May 2003 44.45% 40.27% 37.39% 34.37%
</TABLE>
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<PAGE> 67
<TABLE>
<CAPTION>
Prepayment Speed (CPR)
- ------------------------------------------------------------------------------------------------
Payment Date 0% 3% 6% 9%
- ---------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
June 2003 43.09% 38.99% 36.19% 33.25%
July 2003 41.79% 37.77% 35.05% 32.19%
Aug. 2003 40.52% 36.59% 33.95% 31.17%
Sept. 2003 39.27% 35.42% 32.87% 30.18%
Oct. 2003 38.02% 34.26% 31.80% 29.20%
Nov. 2003 36.77% 33.12% 30.75% 0.00%
Dec. 2003 35.52% 31.97% 29.70% 0.00%
Jan. 2004 34.29% 30.85% 0.00% 0.00%
Feb. 2004 33.04% 29.71% 0.00% 0.00%
March 2004 31.88% 0.00% 0.00% 0.00%
April 2004 30.74% 0.00% 0.00% 0.00%
May 2004 0.00% 0.00% 0.00% 0.00%
Weighted Average Life
(years) to 15% Call 3.23 3.02 2.86 2.69
Weighted Average Life
(years) to Maturity 3.64 3.41 3.25 3.07
</TABLE>
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<PAGE> 68
The Contracts will not have the characteristics assumed above, and
there can be no assurance that (i) the Contracts will prepay at any of the rates
shown in the tables or at any other particular rate or will prepay
proportionately or (ii) the weighted average lives of the Notes will be as
calculated above. Because the rate of distributions of principal of the Notes
will be a result of the actual amortization (including prepayments) of the
Contracts, which will include Contracts that have remaining terms to stated
maturity shorter or longer than those assumed, the weighted average lives of the
Notes will differ from those set forth above, even if all of the Contracts
prepay at the indicated constant prepayment rates.
The effective yield to the Noteholders will depend upon, among other
things, the price at which such Notes are purchased, and the amount of and rate
at which principal, including both scheduled and unscheduled payments thereof,
is paid to the Noteholders. See "Risk Factors" in the prospectus.
Due to the subordination provisions applicable to the Notes, it is
likely that the Note Principal Balance of the Class A Notes will amortize more
rapidly than will the Initial Aggregate Discounted Contract Principal Balance.
See "Summary of Terms -- Subordination Provisions" and "Description of Notes --
Flow of Funds" in this prospectus supplement.
The preceding tables are prepared utilizing the following expected cash
flows of the Contracts:
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<PAGE> 69
COLLATERAL CASH FLOW
<TABLE>
<CAPTION>
Collection Period Scheduled Cash Flow
----------------- -------------------
<S> <C>
September 2, 1999 3,837,002.88
October 2, 1999 3,865,870.29
November 2, 1999 3,923,898.37
December 2, 1999 3,679,155.69
January 2, 2000 3,721,097.49
February 2, 2000 3,787,626.04
March 2, 2000 3,872,839.68
April 2, 2000 3,850,045.15
May 2, 2000 3,828,346.60
June 2, 2000 3,845,278.99
July 2, 2000 3,884,305.60
August 2, 2000 3,866,275.68
September 2, 2000 3,900,372.69
October 2, 2000 3,868,864.83
November 2, 2000 3,871,561.28
December 2, 2000 3,827,141.51
January 2, 2001 3,824,537.55
February 2, 2001 3,832,899.11
March 2, 2001 3,877,430.15
April 2, 2001 3,839,854.89
May 2, 2001 3,808,026.33
June 2, 2001 3,785,588.83
July 2, 2001 3,812,878.43
August 2, 2001 3,776,368.95
September 2, 2001 3,767,329.00
October 2, 2001 3,759,006.94
November 2, 2001 3,755,075.24
December 2, 2001 3,726,915.31
January 2, 2002 3,661,909.69
February 2, 2002 3,645,770.63
March 2, 2002 3,578,226.78
April 2, 2002 3,432,271.05
May 2, 2002 3,271,105.91
June 2, 2002 3,065,345.84
July 2, 2002 3,019,414.04
August 2, 2002 2,942,789.36
September 2, 2002 2,930,848.13
October 2, 2002 2,907,951.25
November 2, 2002 2,866,781.87
December 2, 2002 2,843,200.49
January 2, 2003 2,832,439.48
February 2, 2003 2,818,146.23
March 2, 2003 2,808,460.66
April 2, 2003 2,735,079.66
May 2, 2003 2,641,266.39
June 2, 2003 2,516,295.73
</TABLE>
<TABLE>
<CAPTION>
Collection Period Scheduled Cash Flow
----------------- -------------------
<S> <C>
July 2, 2003 2,445,317.76
August 2, 2003 2,409,238.12
September 2, 2003 2,395,555.10
October 2, 2003 2,374,088.43
November 2, 2003 2,368,270.27
December 2, 2003 2,319,291.88
January 2, 2004 2,341,875.18
February 2, 2004 2,176,017.45
March 2, 2004 2,123,664.29
April 2, 2004 1,929,334.07
May 2, 2004 1,704,450.49
June 2, 2004 1,446,090.86
July 2, 2004 1,225,095.82
August 2, 2004 1,106,026.43
September 2, 2004 1,040,939.02
October 2, 2004 1,023,443.38
November 2, 2004 988,863.37
December 2, 2004 978,353.19
January 2, 2005 962,591.89
February 2, 2005 983,626.27
March 2, 2005 953,491.20
April 2, 2005 936,912.05
May 2, 2005 930,808.55
June 2, 2005 896,191.98
July 2, 2005 876,005.88
August 2, 2005 832,659.23
September 2, 2005 827,356.44
October 2, 2005 822,644.92
November 2, 2005 807,650.48
December 2, 2005 791,915.27
January 2, 2006 844,540.20
February 2, 2006 544,666.22
March 2, 2006 438,965.13
April 2, 2006 392,044.17
May 2, 2006 472,997.15
June 2, 2006 595,725.01
July 2, 2006 299,575.62
August 2, 2006 115,524.03
September 2, 2006 114,586.87
October 2, 2006 114,586.87
November 2, 2006 114,586.87
December 2, 2006 114,586.87
January 2, 2007 114,586.87
February 2, 2007 111,830.87
March 2, 2007 111,830.87
April 2, 2007 111,830.87
</TABLE>
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<PAGE> 70
<TABLE>
<CAPTION>
Collection Period Scheduled Cash Flow
----------------- -------------------
<S> <C>
May 2, 2007 128,084.37
June 2, 2007 127,894.82
July 2, 2007 98,468.92
August 2, 2007 98,468.92
September 2, 2007 98,468.92
October 2, 2007 98,468.92
November 2, 2007 98,468.92
December 2, 2007 98,468.92
January 2, 2008 98,468.92
February 2, 2008 94,026.72
March 2, 2008 94,026.72
April 2, 2008 94,026.72
May 2, 2008 94,026.72
June 2, 2008 94,026.72
</TABLE>
<TABLE>
<CAPTION>
Collection Period Scheduled Cash Flow
----------------- -------------------
<S> <C>
July 2, 2008 94,026.72
August 2, 2008 94,026.72
September 2, 2008 94,026.72
October 2, 2008 94,026.72
November 2, 2008 94,026.72
December 2, 2008 94,026.72
January 2, 2009 72,799.22
February 2, 2009 50,489.67
March 2, 2009 29,635.67
April 2, 2009 29,635.67
May 2, 2009 29,635.67
June 2, 2009 48,951.88
July 2, 2009 6,350.00
</TABLE>
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<PAGE> 71
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Dewey Ballantine LLP, tax counsel to the Trust ("Tax
Counsel"), the material federal income tax considerations to investors of the
purchase, ownership and disposition of the securities offered hereby are
described below. Tax Counsel's opinion is based upon laws, regulations, rulings
and decisions now in effect, all of which are subject to change. This discussion
does not purport to deal with all federal tax considerations applicable to all
categories of investors or address all aspects of federal income taxation that
may be important to a holder in light of such holder's particular circumstances
or to holders subject to special rules, such as holders who are not citizens or
residents of the United States, financial institutions, tax-exempt
organizations, insurance companies, dealers or brokers in securities, holders
who held their stock as part of a hedge, appreciated financial position,
straddle or conversion transaction. Moreover, the discussion assumes that the
holders will hold their Notes as capital assets. It is recommended that
investors 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 securities.
TAX CHARACTERIZATION OF THE TRUST
Tax Counsel is of the opinion that, assuming compliance with the terms
of the Trust Agreement and related documents, the Trust will not be an
association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
Treatment of the Notes as Indebtedness. The parties to the transaction
agree, and the Noteholders will agree by their purchase of Offered Notes, to
treat the Offered Notes as debt for all federal, state and local income tax
purposes. There are no regulations, published rulings or judicial decisions
involving the characterization for federal income tax purposes of securities
with terms substantially the same as the Offered Notes. Whether instruments such
as the Offered Notes constitute indebtedness for federal income tax purposes is
a question of fact, the resolution of which is based primarily upon the economic
substance of the instruments and the transaction pursuant to which they are
issued rather than merely upon the form of the transaction or the manner in
which the instruments are labeled. The Internal Revenue Service (the "IRS") and
the courts have set forth various factors to be taken into account in
determining, for federal income tax purposes, whether or not an instrument
constitutes indebtedness and whether a transfer of property is a sale because
the transferor has relinquished substantial incidents of ownership in the
property or whether such transfer is a borrowing secured by the property. On the
basis of its analysis of such factors as applied to the facts and its analysis
of the economic substance of the contemplated transaction, Tax Counsel is of the
opinion that, for federal income tax purposes, the Offered Notes will be treated
as indebtedness of the Trust, and not as an ownership interest in the
Receivables, or an equity interest in the Trust or in a separate association
taxable as a corporation or other taxable entity.
If the Offered Notes are characterized as indebtedness, interest paid
or accrued on an Offered Note will be treated as ordinary income to the
Noteholders and principal payments on an Offered Note will be treated as a
return of capital to the extent of the Noteholder's basis in the Offered Note
allocable thereto. An accrual method taxpayer will be required to include in
income interest on the
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<PAGE> 72
Offered Notes when earned, even if not paid, unless it is determined to be
uncollectable. The Trust will report to Noteholders of record and the IRS in
respect of the interest paid and original discount, if any, accrued on the
Offered Notes to the extent required by law.
Although, as described above, it is the opinion of Tax Counsel that,
for federal income tax purposes, the Offered Notes will be characterized as
debt, such opinion is not binding on the IRS and thus no assurance can be given
that such a characterization will prevail. If the IRS successfully asserted that
the Offered Notes did not represent debt for federal income tax purposes,
holders of the Offered Notes would likely be treated as owning an interest in a
partnership and not an interest in an association (or publicly traded
partnership) taxable as a corporation. If the Noteholders were treated as owning
an equitable interest in a partnership, the partnership itself would not be
subject to federal income tax; rather each partner would be taxed individually
on their respective distributive share of the partnership's income, gain, loss,
deductions and credits. The amount, timing and characterization of items of
income and deductions for a Noteholder would differ if the Notes were held to
constitute partnership interests, rather than indebtedness. Since the Trust will
treat the Offered Notes as indebtedness for federal income tax purposes, the
Servicer will not attempt to satisfy the tax reporting requirements that would
apply under this alternative characterization of the Offered Notes. It is
recommended that investors that are foreign persons consult their own tax
advisors in determining the federal, state, local and other tax consequences to
them of the purchase, ownership and disposition of the Offered Notes.
Original Issue Discount. The Offered Notes will not have any original
issue discount ("OID") other than possibly OID of a de minimis amount and
accordingly the provisions of sections 1271 through 1273 and 1275 of the
Internal Revenue Code of 1986, as amended (the "Code"), will not apply to the
Offered Notes. OID will be considered de minimis if it is less than 0.25% of the
principal amount of a Note multiplied by its expected weighted average life. The
prepayment assumption that will be used for purposes of computing OID, if any,
for federal income tax purposes is 6% of the CPR.
Market Discount. A subsequent purchaser who buys an Offered Note for
less than its principal amount may be subject to the "market discount" rules of
Section 1276 through 1278 of the Code. If a subsequent purchaser of an Offered
Note disposes of such Note (including certain nontaxable dispositions such as a
gift), or receives a principal payment, any gain upon such sale or other
disposition will be recognized, or the amount of such principal payment will be
treated as ordinary income to the extent of any "market discount" accrued for
the period that such purchaser holds the Offered Note. Such holder may instead
elect to include market discount in income as it accrues with respect to all
debt instruments acquired in the year of acquisition of the Offered Notes and
thereafter. Market discount will equal the excess, if any, of the then current
unpaid principal balance of the Note over the purchaser's basis in the Offered
Note immediately after such purchaser acquired the Note. Market discount on an
Offered Note will be treated as accruing over the term of such Offered Note in
the ratio of interest for the current period over the sum of such current
interest and the expected amount of all remaining interest payments, or at the
election of the holder, under a constant yield method (taking into account the
CPR). At the request of a holder of an Offered Note, information will be made
available that will allow the holder to compute the accrual of market discount
under the first method described in the preceding sentence.
The market discount rules also provide that a holder who incurs or
continues indebtedness to acquire an Offered Note at a market discount may be
required to defer the deduction of all
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<PAGE> 73
or a portion of the interest on such indebtedness until the corresponding amount
of market discount is included in income.
Notwithstanding the above rules, market discount on an Offered Note
will be considered to be zero if it is less than a de minimis amount, which is
0.25% of the remaining principal balance of the Note multiplied by its expected
weighted average remaining life. If OID or market discount is de minimis, the
actual amount of discount must be allocated to the remaining principal
distributions on the Offered Notes and, when each such distribution is received,
capital gain equal to the discount allocated to such distribution will be
recognized.
Market Premium. A subsequent purchaser who buys an Offered Note for
more than its principal amount will be considered to have purchased the Offered
Note at a premium. Such holder may amortize such premium, using a constant yield
method, over the remaining term of the Offered Notes and may apply such
amortized amounts to reduce the amount of interest reportable with respect to
such Offered Note over the period from the purchase date to the date of maturity
of the Offered Note. Legislative history to the Tax Reform Act of 1986 indicates
that the amortization of such premium on an obligation that provides for partial
principal payments prior to maturity should be governed by the methods for
accrual of market discount on such an obligation (described above). Such
proposed regulations will apply to bonds acquired on or after 60 days after the
final regulations are published. A holder that elects to amortize premium must
reduce his tax basis in the related obligation by the amount of the aggregate
deductions (or interest offsets) allowable for amortizable premium. If a debt
instrument purchased at a premium is redeemed in full prior to its maturity, a
purchaser who has elected to amortize premium should be entitled to a deduction
for any remaining unamortized premium in the taxable year of redemption.
Sale or Redemption of Notes. If an Offered Note is sold or retired, the
seller will recognize gain or loss equal to the difference between the amount
realized on the sale and such seller's adjusted basis in the Offered Note. Such
adjusted basis will equal the cost of the Offered Note to the seller, increased
by any original issue discount included in the seller's gross income in respect
of the Offered Note (and by any market discount which the taxpayer elected to
include in income or was required to include in income), and reduced by payments
other than payments of qualified stated interest in respect of the Offered Note
received by the seller and by any amortized premium. Similarly, a holder who
receives a payment other than a payment of qualified stated interest in respect
of an Offered Note, either on the date on which such payment is scheduled to be
made or as a prepayment, will recognize gain equal to the excess, if any, of the
amount of the payment over his adjusted basis in the Note allocable thereto. A
Noteholder who receives a final payment which is less than his adjusted basis in
the Offered Note will recognize a loss in the amount of the shortfall on the
last day of his taxable year. Any such gain or loss realized by an investor who
holds a Note as a "capital asset" within the meaning of Code Section 1221 should
be capital gain or loss, except as described above in respect of market discount
and except that a loss attributable to accrued but unpaid interest may be an
ordinary loss.
Information Reporting and Backup Withholding. The Trust will be
required to report annually to the IRS, and to each Noteholder of record, the
amount of interest paid on the Notes, the amount of any OID on the Notes, and
the amount of interest withheld for federal income taxes, if any, for each
calendar year, except as to exempt Noteholders (generally, corporations,
tax-exempt organizations, qualified pension and profit-sharing trusts, and
individual retirement accounts). Each Noteholder (other
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<PAGE> 74
than Noteholders who are not subject to the reporting requirements, or foreign
persons who provide certification as to their status as described below) will be
required to provide to the Trust, under penalties of perjury, a certificate on
IRS Form W-9 or its equivalent containing the Noteholder's name, address,
correct federal taxpayer identification number and a statement that the
Noteholder is not subject to backup withholding. Should a nonexempt Noteholder
fail to provide the required certification, the Trust will be required to
withhold amounts otherwise payable to the Noteholder equal to 31% of such
interest and OID (if any) and remit the withheld amounts to the IRS as a credit
against such Noteholder's federal income tax liability.
The IRS recently issued regulations (the "Withholding Regulations"),
which change certain of the rules relating to certain presumptions currently
available relating to information reporting and backup withholding. The
Withholding Regulations provide alternative methods of satisfying the beneficial
ownership certification requirement. The Withholding Regulations are for
payments made after December 31, 2000.
Foreign Investors. Interest, including OID (if any), distributable to a
Noteholder who or which is not a United States person (other than a foreign bank
and certain other persons) will not be subject to United States withholding tax,
provided that such Noteholder fulfills certain certification requirements. For
these purposes, "United States person" means a person who or which is for United
States federal income tax purposes 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, an estate that
is subject to United States federal income tax, regardless of the source of its
income, or a trust if a court within the United States can exercise primary
supervision over its administration and at least one United States person has
the authority to control all substantial decisions of the trust. Under the
certification requirements, a foreign Noteholder must certify, under penalties
of perjury, that it is not a United States person and provide its name and
address.
The Withholding Regulations provide alternative certification
requirements and means for claiming the exemption from federal income and
withholding tax. If income or gain with respect to a Note is effectively
connected with a United States trade or business carried on by a Noteholder who
or which is not a United States person, the withholding tax will not apply, but
such Noteholder will be subject to United States federal income tax at graduated
rates applicable to United States persons. It is recommended that potential
investors who are non-United States persons consult their own tax advisors
regarding certification requirements and the specific tax consequences to them
of owning the Notes.
STATE AND LOCAL TAX CONSIDERATIONS
Potential Noteholders should consider the state and local income tax
consequences of the purchase, ownership and disposition of the Offered Notes.
State and local income tax laws may differ substantially from the corresponding
federal law, and this discussion does not purport to describe any aspect of the
income tax laws of any state or locality. Therefore, it is recommended that
potential Noteholders consult their own tax advisors with respect to the various
state and local tax consequences of an investment in the Offered Notes.
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<PAGE> 75
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit a pension, profit
sharing, or other employee benefit plan as well as individual retirement
accounts and certain types of Keogh Plans (each, a "Benefit Plan") from engaging
in certain transactions involving "plan assets" with persons that are "parties
in interest" under ERISA or "disqualified persons" under the Code with respect
to the Benefit Plan. A violation of these "prohibited transaction" rules may
generate excise tax and other liabilities under ERISA and the Code for such
persons. Title I of ERISA also requires that fiduciaries of a Benefit Plan
subject to ERISA make investments that are prudent, diversified (except if
prudent not to do so) and in accordance with governing plan documents. Employee
plans that are governmental plans (as defined in Section 3(32) of ERISA) and
certain church plans (as defined in Section 3(33) of ERISA), are not subject to
ERISA; however, such plans may be subject to comparable restrictions under
federal, state or local law.
Certain transactions involving the Trust might be deemed to constitute
prohibited transactions under ERISA and the Code if assets of the Trust were
deemed to be "plan assets" of a Benefit Plan. Under a regulation issued by the
United States Department of Labor (the "Plan Assets Regulation"), the assets of
the Trust would be treated as plan assets of a Benefit Plan for the purposes of
ERISA and the Code only if the Benefit Plan acquired an "equity interest" in the
Trust and none of the exceptions contained in the Plan Assets Regulation were
applicable. An equity interest is defined under the Plan Assets Regulation as an
interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. The Offered
Notes should be treated as indebtedness without substantial equity features for
purposes of the Plan Assets Regulation. This determination is based in part upon
the traditional debt features of the Offered Notes, including the reasonable
expectation of purchasers of the Offered Notes that the Offered Notes will be
repaid when due, as well as the absence of conversion rights, warrants and other
typical equity features. The debt treatment of the Offered Notes for ERISA
purposes could change if the Trust incurred losses.
Without regard to whether the Offered Notes are treated as an equity
interest for such purposes, the acquisition or holding of the Offered Notes by
or on behalf of a Benefit Plan could be considered to give rise to a prohibited
transaction if the Trust or any of its affiliates is or becomes a party in
interest or disqualified person with respect to such Benefit Plan. In such case,
certain exemptions from the prohibited transaction rules could be applicable
depending on the type and circumstances of the plan fiduciary making the
decision to acquire an Offered Note. Included among these exemptions are:
Prohibited Transaction Class Exemption ("PTCE") 90-1, regarding investments by
insurance company pooled separate accounts; PTCE 91-38, regarding investments by
bank collective investment funds; PTCE 95-60, regarding investments by insurance
company general accounts; PTCE 96-23, regarding transactions by "in-house asset
managers"; and PTCE 84-14, regarding transactions by "qualified professional
assets managers." Each investor using the assets of a Benefit Plan which
acquires the Offered Notes, or to whom the Offered Notes are transferred, will
be deemed to have represented that the acquisition and continued holding of the
Offered Notes will be covered by a prohibited transaction class exemption issued
by the United States Department of Labor.
Any Benefit Plan fiduciary considering the purchase of an Offered Note
should consult with its counsel with respect to the potential applicability of
ERISA and the Code to such investment. Moreover, each Benefit Plan fiduciary
should determine whether, under the general fiduciary standards of
S-72
<PAGE> 76
investment prudence and diversification, an investment in the Offered Notes is
appropriate for the Benefit Plan, taking into account the overall investment
policy of the Benefit Plan and the composition of the Benefit Plan's investment
portfolio. Purchasers of the Offered Notes that are insurance companies should
consult with their counsel with respect to the United States Supreme Court's
decision in John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings
Bank, 510 U.S. 86 (1993), which ruled that assets held in an insurance company's
general account may be deemed to be "plan assets" for ERISA purposes under
certain circumstances. The sale of Offered Notes to a Benefit Plan is in no
respect a representation by the Depositor or the Underwriters that this
investment meets all relevant legal requirements with respect to investments by
Benefit Plans generally or any particular Benefit Plan, or that this investment
is appropriate for Benefit Plans generally or any particular Benefit Plan.
LEGAL INVESTMENT
The Class A-1 Notes will be eligible securities for purchase by money
market funds under the Investment Company Act of 1940, as amended.
RATINGS
As a condition to issuance, the Offered Notes must receive at least the
following ratings from Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch
IBCA, Inc. ("Fitch") and Duff & Phelps Credit Rating Co. ("DCR" and together
with S&P. Moody's and Fitch, the "Rating Agencies") in order to be issued:
<TABLE>
<CAPTION>
Class Ratings
----- -------
S&P Moody's Fitch DCR
--- ------- ----- ---
<S> <C> <C> <C> <C>
A-1 A-1+ P-1 F1+ D-1+
A-2 AAA Aaa AAA AAA
A-3 AAA Aaa AAA AAA
A-4 AAA Aaa AAA AAA
B A A2 A A
</TABLE>
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time. The ratings
assigned to the Offered Notes address the likelihood of the receipt by the
Offered Noteholders of all distributions to which such Offered Noteholders are
entitled. The ratings assigned to the Offered Notes do not represent any
assessment of the likelihood that principal prepayments might differ from those
originally anticipated or address the possibility that Offered Noteholders might
suffer a lower than anticipated yield.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in an underwriting
agreement (the "Underwriting Agreement") for the sale of the Offered Notes dated
September 22, 1999, the Depositor has agreed to sell, and First Union Capital
Markets Corp., ("First Union"), Nesbitt Burns Securities, Inc. ("Nesbitt
Burns"), and PNC Capital Markets, Inc. ("PNC Capital Markets, Inc.," together
with First Union
S-73
<PAGE> 77
and Nesbitt Burns, the "Underwriters"), have each agreed to purchase, the
principal amount of the Offered Notes set forth opposite its name below:
<TABLE>
<CAPTION>
Class A-1 Notes
---------------
Underwriter Principal Amount
- ----------- ----------------
<S> <C>
First Union Capital Markets Corp. $ 18,490,927
Nesbitt Burns Securities, Inc. $ 9,245,464
PNC Capital Markets, Inc. $ 3,081,821
------------
Total $ 30,818,212
</TABLE>
<TABLE>
<CAPTION>
Class A-2 Notes
---------------
Underwriter Principal Amount
- ----------- ----------------
<S> <C>
First Union Capital Markets Corp. $ 19,173,831
Nesbitt Burns Securities, Inc. $ 9,586,916
PNC Capital Markets, Inc. $ 3,195,639
------------
Total $ 31,956,385
</TABLE>
<TABLE>
<CAPTION>
Class A-3 Notes
---------------
Underwriter Principal Amount
- ----------- ----------------
<S> <C>
First Union Capital Markets Corp. $ 11,294,174
Nesbitt Burns Securities, Inc. $ 5,647,087
PNC Capital Markets, Inc. $ 1,882,362
------------
Total $ 18,823,624
</TABLE>
<TABLE>
<CAPTION>
Class A-4 Notes
---------------
Underwriter Principal Amount
- ----------- ----------------
<S> <C>
First Union Capital Markets Corp. $ 37,191,979
Nesbitt Burns Securities, Inc. $ 18,595,989
PNC Capital Markets, Inc. $ 6,198,663
------------
Total $ 61,986,631
</TABLE>
<TABLE>
<CAPTION>
Class B Notes
-------------
Underwriter Principal Amount
- ----------- ----------------
<S> <C>
First Union Capital Markets Corp. $ 13,570,520
</TABLE>
First Union Corporation, the parent corporation of First Union, owns
approximately 1.39% of the outstanding common stock of First Sierra.
In the Underwriting Agreement, the Underwriters have agreed, subject to
the terms and conditions therein, to purchase all the Offered Notes offered
hereby if any of such Offered Notes are purchased.
The Underwriters have advised the Depositor that they propose to offer
the Offered Notes purchased by the Underwriters for sale from time to time in
one or more negotiated transactions or otherwise, at market prices prevailing at
the time of sale, at prices related to such market prices or at negotiated
prices. The Underwriters may effect such transactions by selling such Offered
Notes to or
S-74
<PAGE> 78
through a dealer, and such dealer may receive compensation in the form of
underwriting discounts, concessions or commissions from the Underwriters or
purchasers of the Offered Notes for whom they may act as agent. Any dealers that
participate with the Underwriters in the distribution of the Offered Notes
purchased by the Underwriters may be deemed to be underwriters, and any
discounts or commissions received by them or the Underwriters, and any profit on
the resale of the Offered Notes by them or the Underwriters may be deemed to be
underwriting discounts or commissions under the Securities Act of 1933, as
amended (the "Securities Act").
In connection with this offering, the underwriters may over-allot or
effect transactions which stabilize or maintain the market prices of the offered
notes at levels above those which might otherwise prevail in the open market.
Such stabilizing, if commenced, may be discontinued at any time.
For further information regarding any offer or sale of the Offered
Notes pursuant to this prospectus supplement and the prospectus , see "Methods
of Distribution" in the prospectus.
The Transaction Documents and the Underwriting Agreement provide that
First Sierra will indemnify the Underwriters against certain civil liabilities,
including liabilities under the Securities Act, or contribute to payments the
Underwriters may be required to make in respect thereof.
LEGAL MATTERS
Certain legal matters relating to the Notes will be passed upon by
Dewey Ballantine LLP, New York, New York. Certain federal income tax matters
will be passed upon for the Trust by Dewey Ballantine LLP, New York, New York.
S-75
<PAGE> 79
INDEX OF PRINCIPAL DEFINED TERMS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Advance Payments...............................................................................................S-35
Aggregate Discounted Contract Principal Balance................................................................S-12
Aggregate Note Principal Balance...............................................................................S-26
Available Funds................................................................................................S-29
Benefit Plan...................................................................................................S-72
Class A Notes..................................................................................................S-26
Class A Percentage.............................................................................................S-30
Class A Principal Payment Amount...............................................................................S-29
Class A-1 Note Rate............................................................................................S-27
Class A-1 Notes................................................................................................S-25
Class A-1 Stated Maturity Date.................................................................................S-32
Class A-2 Note Rate............................................................................................S-27
Class A-2 Notes................................................................................................S-25
Class A-2 Stated Maturity Date.................................................................................S-32
Class A-3 Note Rate............................................................................................S-27
Class A-3 Notes................................................................................................S-25
Class A-3 Stated Maturity Date.................................................................................S-32
Class A-4 Note Rate............................................................................................S-27
Class A-4 Notes................................................................................................S-25
Class A-4 Stated Maturity Date.................................................................................S-32
Class B Floor..................................................................................................S-30
Class B Note Rate..............................................................................................S-27
Class B Notes..................................................................................................S-26
Class B Percentage.............................................................................................S-30
Class B Principal Payment Amount...............................................................................S-29
Class B Stated Maturity Date...................................................................................S-32
Class C Floor..................................................................................................S-31
Class C Note Rate..............................................................................................S-27
Class C Notes..................................................................................................S-26
Class C Percentage.............................................................................................S-30
Class C Principal Payment Amount...............................................................................S-29
Class C Stated Maturity Date...................................................................................S-32
Class D Floor..................................................................................................S-31
Class D Note Rate..............................................................................................S-27
Class D Notes..................................................................................................S-26
Class D Percentage.............................................................................................S-30
Class D Principal Payment Amount...............................................................................S-30
Class D Stated Maturity Date...................................................................................S-32
Class E Floor..................................................................................................S-31
Class E Note Rate..............................................................................................S-27
Class E Notes..................................................................................................S-26
Class E Percentage.............................................................................................S-30
Class E Principal Payment Amount...............................................................................S-30
Class E Stated Maturity Date...................................................................................S-32
Class Floors...................................................................................................S-30
Closing Date...................................................................................................S-15
</TABLE>
S-76
<PAGE> 80
<TABLE>
<S> <C>
Code...........................................................................................................S-69
Collection Period..............................................................................................S-11
Conditional Prepayment Rate....................................................................................S-47
Contract Files.................................................................................................S-10
Contracts......................................................................................................S-10
Controlling Parties............................................................................................S-45
CPR............................................................................................................S-47
Cut-Off Date...................................................................................................S-11
DCR............................................................................................................S-73
Defaulted Contract.............................................................................................S-13
Defaulted Contract Recoveries..................................................................................S-11
Delinquent Contract............................................................................................S-13
Depositor.......................................................................................................S-9
Determination Date.............................................................................................S-11
Discount Rate..................................................................................................S-12
Discounted Contract Principal Balance..........................................................................S-12
Early Termination Contract.....................................................................................S-13
Equipment......................................................................................................S-10
ERISA..........................................................................................................S-72
Event of Servicing Termination.................................................................................S-44
Events of Default..............................................................................................S-45
Excluded Amounts...............................................................................................S-37
Final Scheduled Payment........................................................................................S-11
First Sierra...................................................................................................S-21
First Union....................................................................................................S-73
Fitch..........................................................................................................S-73
Indenture.......................................................................................................S-9
Indenture Trustee...............................................................................................S-9
Indenture Trustee Expenses.....................................................................................S-46
Indenture Trustee Fee..........................................................................................S-46
Initial Class A-1 Note Principal Balance.......................................................................S-25
Initial Class A-2 Note Principal Balance.......................................................................S-25
Initial Class A-3 Note Principal Balance.......................................................................S-25
Initial Class A-4 Note Principal Balance.......................................................................S-26
Initial Class B Note Principal Balance.........................................................................S-26
Initial Class C Note Principal Balance.........................................................................S-26
Initial Class D Note Principal Balance.........................................................................S-26
Initial Class E Note Principal Balance.........................................................................S-26
Initial Cut-Off Date...........................................................................................S-11
Initial Note Principal Balance.................................................................................S-26
Initial Unpaid Amount..........................................................................................S-13
Insurance Policies.............................................................................................S-10
Interest Accrual Period........................................................................................S-28
IRS............................................................................................................S-68
Lockbox Account................................................................................................S-35
Lockbox Bank...................................................................................................S-35
Majority Holders...............................................................................................S-44
Modeling Assumptions...........................................................................................S-48
Monthly Statement..............................................................................................S-32
Moody's........................................................................................................S-73
Nesbitt Burns..................................................................................................S-73
</TABLE>
S-77
<PAGE> 81
<TABLE>
<S> <C>
Note Current Interest..........................................................................................S-27
Note Factor....................................................................................................S-38
Note Interest..................................................................................................S-34
Note Principal Balance.........................................................................................S-26
Note Rate......................................................................................................S-27
Notes..........................................................................................................S-26
Obligor........................................................................................................S-10
Offered Notes..................................................................................................S-26
OID............................................................................................................S-69
Originator................................................................................................S-9, S-21
Overcollateralization Balance..................................................................................S-32
Overdue Interest...............................................................................................S-34
Overdue Principal..............................................................................................S-30
Owner Trustee...................................................................................................S-9
Payment Date...................................................................................................S-27
Percentage Interest............................................................................................S-44
Plan Assets Regulation.........................................................................................S-72
PNC Capital Markets, Inc.......................................................................................S-73
Pool Factor....................................................................................................S-38
Prepayment.....................................................................................................S-13
Prepayment Amount..............................................................................................S-12
Principal Payments.............................................................................................S-28
PTCE...........................................................................................................S-72
Rating Agencies................................................................................................S-73
Receivables....................................................................................................S-10
Receivables Transfer Agreement.................................................................................S-11
Record Date....................................................................................................S-27
Repurchase Amount..............................................................................................S-12
Requisite Amount...............................................................................................S-36
Reserve Account................................................................................................S-35
S&P............................................................................................................S-73
Scheduled Payments.............................................................................................S-11
Securities Act.................................................................................................S-75
Sellers........................................................................................................S-21
Servicer..................................................................................................S-9, S-21
Servicer Advance...............................................................................................S-36
Servicer Fee...................................................................................................S-42
Servicer Fee Rate..............................................................................................S-42
Servicing Agreement.............................................................................................S-9
Servicing Charges..............................................................................................S-42
Servicing Officer..............................................................................................S-43
Servicing Standard.............................................................................................S-15
Source.........................................................................................................S-13
Source Agreement...............................................................................................S-13
Stated Maturity Date...........................................................................................S-32
Statistical Aggregate Discounted Contract Principal Balance....................................................S-15
Statistical Calculation Date...................................................................................S-15
Statistical Discount Rate......................................................................................S-15
Statistical Discounted Contract Principal Balance..............................................................S-15
Subordinate Notes..............................................................................................S-26
Substitute Contract............................................................................................S-13
</TABLE>
S-78
<PAGE> 82
<TABLE>
<S> <C>
Substitute Cut-Off Date........................................................................................S-11
Substitute Transfer Date.......................................................................................S-11
Supplementary Report...........................................................................................S-43
Tax Counsel....................................................................................................S-68
Transaction Documents..........................................................................................S-39
Trust Agreement.................................................................................................S-9
Trust Assets...................................................................................................S-10
Trust Certificate...............................................................................................S-9
Trust Certificate Holder.......................................................................................S-26
Underwriters...................................................................................................S-74
Underwriting Agreement.........................................................................................S-73
Unfunded Loss Amount...........................................................................................S-32
Weighted average life..........................................................................................S-47
Withholding Regulations........................................................................................S-71
</TABLE>
S-79
<PAGE> 83
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 II, Inc. or First Sierra Receivables
III, Inc. (together the "Company" or the "Companies") 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 security
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 "RISK FACTORS"
COMMENCING ON PAGE 13 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 COMMISSION 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 NOVEMBER 25, 1998.
<PAGE> 84
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. In addition, the Commission maintains a site on the
world wide web containing reports, proxy materials, information statements and
other items. The address is http://www.sec.gov.
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.
This Prospectus, together with the Prospectus Supplement for each Series or
Class of Securities will contain 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
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
i
<PAGE> 85
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.
ii
<PAGE> 86
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. Capitalized terms used in the summary and not
defined are defined elsewhere in the Prospectus on the pages indicated in the
"Index of Terms" beginning on page 50 of the Prospectus.
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 II, Inc., a Delaware
Corporation, and First Sierra Receivables III,
Inc., a Delaware corporation (together, the
"Company" or the "Companies"). Either First
Sierra Receivables II, Inc. or First Sierra
Receivables III, Inc. will act as the depositor
with respect to each series of Securities. The
principal office of each of the Companies is
located at 600 Travis Street, Houston, Texas,
77002, and its telephone number is (713)
221-8822. Each of the Companies is a wholly-owned
subsidiary of the Servicer. See "The Company."
Servicer................... First Sierra Financial, Inc., a Delaware
corporation (the "Servicer" or "First Sierra").
First Sierra is a specialized finance company
that acquires and originates and sells and
services equipment contracts. The principal
office of First Sierra is 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,
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"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 fully
described in the related Prospectus Supplement.
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 that represent equity,
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 pooling
and 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 Agreement" as
used with respect to an Asset Pool means,
collectively, and except as otherwise described
in the related Prospectus Supplement,
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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 "Material
Federal Income Tax Consequences" 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 provider 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 will be of the fixed-income type
having a principal balance (or certificate
balance) and a specified interest rate ("Interest
Rate"). Securities may either represent
beneficial ownership interests in the related
Receivables held by the related Trust or debt
secured by certain assets of the related Issuer.
Each series or Class of Securities offered pursuant
to this Prospectus may have a different Interest
Rate, which may be a fixed or adjustable Interest
Rate. The related Prospectus Supplement will
specify the Interest Rate for each series or
Class of Securities described therein, or the
initial Interest Rate and the method for
determining subsequent changes to the Interest
Rate.
A series may include one or more Classes of
Securities ("Strip Securities") entitled (i) to
principal distributions, with disproportionate,
nominal or no interest distributions, or (ii) to
interest distributions, with disproportionate,
nominal or no principal distributions. In
addition, a Series of Securities may include two
or more Classes of Securities that differ as to
timing, sequential order, priority of payment,
Interest Rate or amount of distribution of
principal or interest or both, or as to which
distributions of principal or interest or both on
any Class may be made upon the occurrence of
specified events, in accordance with a schedule
or formula, or on the basis of collections
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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 related Trustee
to the acquisition of additional Receivables
during a specified period (rather than be used to
fund payments of principal to
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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"). Dewey Ballantine LLP, counsel to the
Issuer, has rendered its opinion to the effect
that registration of the Issuer as an "investment
company" is not required. However, the Commission
has not determined whether registration would, in
fact, be required, and there can be no assurance
that the Issuer will not be required to register
as an investment company.
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. All of the Lessees (as
defined herein) and all of the Equipment will be
located within the United States. If and to the
extent specified in the related Prospectus
Supplement, credit
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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 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.
Neither the related Trust nor the Servicer will
have the right to obtain possession of the
Equipment securing a Contract, or to obtain the
proceeds of the sale of any Equipment, except in
the case of a repossession of such item of
Equipment following a default of the related
Lessee under the Contract. Consequently, except
for proceeds obtained following a repossession,
the Securities will not be secured by, or paid
from, the residual value of the Equipment.
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 its 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
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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.
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
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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
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 (and in no
event will the Pre-Funding Period exceed one year
from the 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 is anticipated not to exceed
25% of the principal amount of the Securities
issued pursuant to a particular offering.
A periodic report on Form 8-K will be filed with
the Commission with respect to each Trust which
has a Pre-Funding Account, which will be filed
after the end of the related Pre-Funding Period.
Such filing will contain statistical information
on the final collateral pool, and will be
presented on a format substantially similar to
that used in the related Prospectus Supplement
for such statistical information.
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
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"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."
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
repurchase a Contract if the Contract is found to
be in breach of a representation or warranty, if
the breach is not cured and the Securityholders'
interests are materially and adversely affected.
Upon discovery by the Trust, the Servicer, a
Security Insurer or in the case of the Indenture
Trustee, upon actual knowledge of a Responsible
Officer of the Indenture Trustee, of such breach,
the party discovering such breach shall give
prompt written notice to the other parties. The
Security Insurer, to the extent there is one, or
the Indenture Trustee will then determine whether
the Securityholders' interests have been
materially and adversely affected by a breach of
a representation or warranty. In addition, if so
specified in the related Prospectus Supplement,
the Company may from time to time repurchase
certain Receivables or substitute other
Receivables for such
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Receivable held by an Asset Pool, subject to
certain requirements set forth in the related
Trust Agreement and Conveyance Agreement;
provided that the following conditions are met:
(i) on a cumulative basis, the sum of the
Discounted Contract Balance of all substitute
Contracts cannot exceed 10% of the aggregate
Discounted Contract Balance of all Contracts as
of the related cut-off date;
(ii) the substitute Contracts being transferred
must have a Discounted Contract Balance that is
greater than the Discounted Contract Balance of
the Contracts being replaced; and
(iii) no substitutions shall be permitted if, as a
result thereof, (x) the sum of the scheduled
payments on all Contracts due in any Collection
Period thereafter would be less than or increase
the amount by which it is less than (y) the sum
of the scheduled payments which would otherwise
be due in such Collection Period.
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 Securityholders 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 circum-
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stances and in the manner set forth herein under
"Description of the Trust
Agreements -- Termination" and in the related
Prospectus Supplement. In the event of such a
redemption, the entire outstanding principal
amount of the Securities subject to early
termination, together with accrued interest
thereon at the related Interest Rate will be
required to be paid to the Securityholders.
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
"Description of the Trust
Agreements -- Termination" and in the related
Prospectus Supplement.
Material Federal Income Tax
Consequences............. 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 Certificates") or (ii) debt
issued by a Trust ("Notes"). See "Material
Federal Income Tax Consequences."
Holders of Grantor Trust Securities will be treated
as the owner of an interest in the Equipment and
Contracts included in the Grantor Trust Estate.
Holders of Notes will be treated as the owner of
a debt instrument and will be required to report
income received with respect to the Notes in
accordance with their normal method of
accounting.
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 recommended to consult their tax
advisors and to review "Material Federal Income
Tax Consequences" herein and in the related
Prospectus Supplement.
ERISA Considerations....... The Prospectus Supplement for each series of
Securities will summarize, subject to the
limitations discussed therein, considerations
under the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), relevant to the
purchase of such Securities by employee benefit
plans and individual retirement accounts. See
"ERISA Considerations" in the related Prospectus
Supplement.
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Ratings.................... Each Class of Securities offered pursuant to this
Prospectus and the related Prospectus Supplement
will be rated in one of the four highest rating
categories by one or more "national statistical
rating organizations", as defined in the
Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and commonly referred to as
"Rating Agencies". Such ratings will address, in
the opinion of such Rating Agencies, the
likelihood that the Issuer will be able to make
timely payment of all amounts due on the related
Securities in accordance with the terms thereof.
Such ratings will neither address any prepayment
or yield considerations applicable to any
Securities nor constitute a recommendation to
buy, sell or hold any Securities.
The ratings expected to be received with respect to
any Securities will be set forth in the related
Prospectus Supplement.
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RISK FACTORS
Prospective investors should consider, among other things, the following
factors in connection with the purchase of the Securities:
Limited Liquidity 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 or a Lessor acting as
a sub-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
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will require delivery to the Trustee. If the Servicer, 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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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.
With respect to each series, the Seller will obtain a legal opinion
from Dewey Ballantine LLP, special counsel to the Seller 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
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the Receivables by the Seller to the Company as a borrowing by the Seller
from the Company or the related Securityholders, secured by a pledge of
such Receivables. Such an attempt, even if unsuccessful, could result in
delays in payments on the Securities. If such an attempt were successful, a
court, among other remedies, could elect to accelerate payment of the
Securities and liquidate the Receivables, with the Securityholders entitled
to the then outstanding principal amount thereof and interest thereon at
the applicable Security Interest Rate to the date of payment. Thus, the
Securityholders could lose the right to future payments of interest and
might incur reinvestment losses. As more fully described in the related
Prospectus Supplement, in the event the Company is rendered insolvent, the
Trustee for a Trust, in accordance with the Trust Agreement, will promptly
sell, dispose of or otherwise liquidate the related Receivables in a
commercially reasonable manner on commercially reasonable terms. The
proceeds from any such sale, disposition or liquidation of such Receivables
will be treated as collections on such Receivables. If the proceeds from
the liquidation of the Receivables and any amount available from any credit
enhancement, if any, are not sufficient to pay Securities of the related
series in full, the amount of principal returned to such Securityholders
will be reduced and such Securityholders will incur a loss.
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
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either directly or indirectly through Indirect Participants. See
"Description of the Securities -- Book Entry Registration."
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.
Year 2000 Issue. The "Year 2000" issue involves computer programs and
applications that were written using two digits (instead of four) to
describe the applicable year. Failure to successfully modify such programs
and applications to be Year 2000 compliant may have a material adverse
impact on First Sierra. Exposure arises not only from potential
consequences (for example, business interruption) of certain of First
Sierra's own applications not being Year 2000 compliant, but also from
non-compliance by significant counterparties with which First Sierra does
business. Management has made inquiries of its major software vendors and
has received assertions that the software programs from such vendors are
Year 2000 compliant. First Sierra expects to complete testing of the
software vendors' assertions by the first quarter of 1999.
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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.
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 Pooling and Servicing 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
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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 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 Contracts relate to a wide range of equipment, which consist
of: computers and peripherals, computer software, medical and dental related
equipment including dental operatories, medical, dental and veterinary
diagnostic equipment including x-ray machines, blood analyzers and other
diagnostic equipment, telecommunications, general office, automotive servicing,
hospitality and food services related equipment, equipment utilized in the arbor
industry which includes trucks, grinders and lifts, machine tools, manufacturing
process equipment, heavy mobile construction equipment, copiers, and specialty
vehicles including bucket trucks, lifts, delivery vans and trucks.
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.
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.
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
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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 and to $118 million in
the first six months of 1998. The volume of contracts originated under the
Broker Program and Vendor Program was a combined $168 million in 1997.
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) retention of a certain percentage of the purchase price owing to the
Source for each contract as a reserve, such reserve typically ranging from 1% to
10% of the purchase price of the related contracts. However, some Private Label
transactions are non-recourse to the Source (although such Sources are obligated
to repurchase contracts as to which a breach of representation or warranty
occurs) and are not structured with the loss protections contained in (a), (b)
and (c) above. Other than for a breach of a representation or warranty, First
Sierra would absorb the full risk of loss on leases originated under this
structure. Currently, there is no Private Label transaction that falls in this
category.
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 which generally ranges from 1% to 10%
of the total purchase price of the contracts acquired from such Source, with an
average of 3.5%. 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 cash reserve for credit losses,
which reserve also ranges from 1%-10% of the total purchase price of the
contracts acquired from such Source, with an average reserve of 3.5%.
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 in excess of $5 million a year, have been
in business a minimum of five years, have a history of profitably operating a
leasing company for a period of time in excess of five years, have a personal
credit history which shows that the principal management of the Source has a
clean credit history, 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
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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.
Ongoing review involves periodic financial analysis of the Source, portfolio
performance assessment for leases originated from the Source, and periodic
on-site visits with management. Private Label program agreements are structured
such that First Sierra retains full right of approval of all contracts
originated from the Source. In the event that ongoing monitoring and review
indicate that the performance of the Source or the pool does not meet
expectations, First Sierra would decline to accept new leases from that Source.
However, the Source remains obligated under the original terms of the program
agreement for all leases previously originated from the Source.
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 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,
depending upon the transaction, can typically range from 400 to 600 basis points
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.
Criteria for the Vendor Program include the following: minimum time in
business of four years, satisfactory Dun and Bradstreet reports, references,
personal references and satisfactory credit reports on the principals involved,
and, depending upon the size of the vendor relationship and anticipated funding
volume, satisfactory financial results and credit analysis of the vendor.
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In some cases, a vendor may desire to establish a captive finance program.
In this instance, First Sierra assists the vendor in establishing a funding
program for the vendor's customers. First Sierra may provide varying levels of
service, generally for a fee, which can include activity related to sales force
training, sales force assistance, origination, funding, and on-going servicing
and collection activities. First Sierra may purchase contracts originated
through this program or it may assist the vendor in funding these contracts on a
non-recourse basis with other funding sources.
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 yields on contracts funded under the Vendor
Program which are 2 - 3% higher 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".
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
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circumstances. If collection activities do not rectify the account, First Sierra
typically charges off the account at 180 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 II, Inc. and First Sierra Receivables III, Inc.
(together, the "Company") is each a limited purpose corporation organized under
the laws of the State of Delaware. Each of 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.
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; provided, however,
that such limitation shall in no way be deemed to affect any liability of the
Trustee under the federal securities laws.
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.
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
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operated by Morgan Guaranty Trust Company of New York, Brussels, Belgium office,
under contract with Euroclear Clearance System, S.C., a Belgian cooperative
corporation (the "Cooperative"). All operations are conducted by the "Euroclear
Operator" (as defined below), and all Euroclear securities clearance accounts
and Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for the Euroclear System on
behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other professional
financial intermediaries and may include the Underwriters. Indirect access to
the Euroclear System is also available to other firms that clear through or
maintain a custodial relationship with a Euroclear Participant, either directly
or indirectly.
The "Euroclear Operator" is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of relationship with persons holding through Euroclear Participants.
Except as required by law, the Trustee in respect of a series will not have
any liability for any aspect of the records relating to or payments made or
account of beneficial ownership interests of the related Securities held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
DEFINITIVE NOTES
As may be described in the related Prospectus Supplement, the Securities
will be issued in fully registered, certificated form ("Definitive Securities")
to the Securityholders of a given series or their nominees, rather than to DTC
or its nominee, only if (i) the Trustee in respect of the related series advises
in writing that DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to such Securities and such Trustee
is unable to locate 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.
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Definitive Securities in respect of a given series of Securities will be
transferable and exchangeable at the offices of the applicable Trustee or of a
certificate registrar named in a notice delivered to holders of such Definitive
Securities. No service charge will be imposed for any registration of transfer
or exchange, but the applicable Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge imposed in connection therewith.
REPORTS TO SECURITYHOLDERS
With respect to each series of Securities, on or prior to each Payment Date
for such series, the Servicer, Company or Trustee will forward or cause to be
forwarded to each holder of record of such class of Securities a statement or
statements with respect to the related Asset Pool setting forth the information
specifically described in the related Trust Agreement which generally will
include the following information:
(i) the amount of the distribution with respect to each class of
Securities;
(ii) the amount of such distribution allocable to principal;
(iii) the amount of such distribution allocable to interest;
(iv) the Pool Balance, if applicable, as of the close of business on
the last day of the related Remittance Period;
(v) the aggregate outstanding principal balance and the Pool Factor
for each Class of Securities after giving effect to all payments reported
under (ii) above on such Payment Date;
(vi) the amount paid to the Servicer, if any, with respect to the
related Remittance Period;
(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 POOLING AND SERVICING AGREEMENTS
The following summary describes the material 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), the Trust
Agreement and the Pooling Agreement. 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.
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
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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 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
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Securities: (a) the Seller is duly formed as a corporation and in good standing
under the laws of the State of Delaware, it has the requisite power and
authority to consummate the transactions contemplated thereby and such
Contribution and Sale Agreement constitutes a legal, valid and binding
obligation of the Seller and (b) the contribution and sale of the related
Receivables thereunder constitute a valid contribution, sale, transfer and
assignment to the Company of all right, title and interest of the Seller therein
(subject, in the case of Leased Vehicles, to applicable titling statutes), and
such Receivables will be held by the Company free and clear of any lien of any
person claiming through or under the Seller, except for liens created by or
permitted under the related Trust Agreement.
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
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will not be sold to meet any shortfalls. Thus, the amount of cash in any reserve
account at any time may be less than the balance of such reserve account. If the
amount required to be withdrawn from any reserve account to cover shortfalls in
collections on the related Receivables exceeds the amount of cash in such
reserve account a temporary shortfall in the amounts distributed to the related
Securityholders could result, which could, in turn, increase the average life of
the Securities of such series. Except as otherwise specified in the related
Prospectus Supplement, investment earnings on funds deposited in the applicable
Trust Accounts, net of losses and investment expenses (collectively, "Investment
Earnings"), shall be deposited in the applicable Collection Account on each
Payment Date and shall be treated as collections of interest on the related
Receivables.
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 (and in no event will the Pre-Funding
Period exceed one year from the 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,
cross-support among the Receivables, reserve accounts, overcollateralization,
letters of credit, credit or liquidity facilities, third party payments or other
support, surety bonds, guaranteed cash deposits or any combination of two or
more of the foregoing. If specified in the applicable Prospectus Supplement,
Credit Enhancement for a Class of Securities may cover one or more other Classes
of Securities of the same series, and Credit Enhancement for a series of
Securities may cover one or more other series of Securities.
The presence of Credit Enhancement for the benefit of any Class or series
of Securities is intended to enhance the likelihood of receipt by the
Securityholders or such Class or series of the full amount of principal and
interest due thereon and to decrease the likelihood that such Securityholders
will experience losses. As more specifically provided in the related Prospectus
Supplement, the credit enhancement for a Class or series of Securities will not
provide protection against all risks of loss and will not guarantee repayment of
the entire principal balance and interest thereon. If losses occur which exceed
the amount covered by any Credit Enhancement or which are not covered by any
Credit Enhancement, Securityholders of any Class or series will bear their
allocable share of deficiencies, as described in the related Prospectus
Supplement. In addition,
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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 Trustee and each Indenture 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 and provided, further, however, that neither
the Servicer nor any such person will be protected against any liability that
would be imposed under the federal securities laws. In addition, such Trust 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 (which must, in any
case, generate sufficient proceeds to pay in full all outstanding Securities),
then the Receivables remaining in such Asset Pool will be sold to the highest
bidder. Affiliates of the Company will be permitted to submit bids.
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. In
addition, each Prospectus Supplement will include an opinion of counsel as to
the material federal income tax consequences of purchasing, owning and disposing
of the Securities that are not addressed in the opinion with respect to the
Prospectus.
The following describes the material Federal income tax consequences to the
holders of Securities. The tax consequences 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 confirming the opinions described
herein.
Holders of Grantor Trust Certificates generally will be taxable on their
respective shares of the income from the Contracts. See "GRANTOR TRUST
CERTIFICATES -- Taxation of Holders of Grantor Trust Certificates," below.
Holders of Notes generally will be taxable on distributions of interest on the
Notes. See "NOTES," below. In either case, it is anticipated that the Trust will
not be treated as an association taxable as a corporation (or a publicly traded
partnership). See "POSSIBLE CLASSIFICATION OF THE SECURITIES AS INTERESTS IN A
PARTNERSHIP OR AN ASSOCIATION," below.
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TAX CHARACTERIZATION OF THE TRUST
Dewey Ballantine LLP, special tax counsel to the Sellers ("Special
Counsel") is of the opinion that, assuming compliance with the terms of the
Trust Agreement and related documents, the Trust will not be an association (or
publicly traded partnership) taxable as a corporation for federal income tax
purposes.
GENERAL
The following is the opinion of Special Counsel as to the material federal
income tax consequences to investors of the purchase, ownership and disposition
of the Securities offered hereby. Special Counsel's opinion is based upon laws,
regulations, rulings and decisions now in effect, all of which are subject to
change. Special Counsel's opinion does not purport to deal with all federal tax
consequences applicable to all categories of investors. Certain holders,
including insurance companies, tax-exempt organizations, financial institutions
or broker dealers, taxpayers subject to the alternative minimum tax, and holders
that will hold the Securities as other than capital assets, may be subject to
special rules that are not discussed below. It is recommended that Investors
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
Securities.
Special Counsel's opinion addresses Securities of two general types: (i)
certificates ("Grantor Trust Certificates") representing interests in a trust
estate (a "Grantor Trust Estate"); and (ii) notes ("Notes") 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 a Security.
GRANTOR TRUST CERTIFICATES
With respect to each Series of Grantor Trust Certificates, Special Counsel
will additionally 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 be treated as the owner of an interest in the Equipment
and Contracts included in the Grantor Trust Estate.
For purposes of Special Counsel's opinion, 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 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.
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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 will be required to treat such
Certificates as "stripped coupons" under section 1286 of the Internal Revenue
Code of 1986 (the "Code"). Accordingly, such a Holder will be required to treat
the excess of the total amount of payments on such an Certificate over the
amount paid for such Certificate as original issue discount and to include such
discount in income as it accrues over the life of such Certificate. See
"Discount and Premium," below.
Grantor Trust Fractional Interest Certificates may also be subject to the
coupon stripping rules if a class of Grantor Trust Strip Certificates is issued
as part of the same series of Certificates. The consequences of the application
of the coupon stripping rules would appear to be that any discount arising upon
the purchase of such a Certificate (and perhaps all stated interest thereon)
would be classified as original issue discount and 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 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.
NOTES
With respect to each Series of Notes, Special Counsel will additionally
deliver its opinion to the Seller (unless otherwise limited in the applicable
Prospectus Supplement) that the Notes will be classified as debt of the Seller
secured by the Equipment and Contracts confirming the opinion described herein.
Consequently, the Notes 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 Notes in accordance with their normal method of
accounting. For additional tax consequences relating to Notes purchased at a
discount or with premium, see "Discount and Premium," below.
Sale or Exchange of Notes. If a Holder of Notes sells or exchanges such
Notes, 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 Note. The
adjusted basis in the Notes 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 Notes and reduced by the payments
previously received on the Notes, other than payments of qualified stated
interest, and by any amortized premium.
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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 Notes recognized by an
investor who holds the Notes 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 the length of time the Holder has held the Notes.
POSSIBLE CLASSIFICATION OF THE CERTIFICATES AS INTERESTS IN A PARTNERSHIP OR AN
ASSOCIATION
Although, as described above, it is the opinion of Special Counsel that the
Securities 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
Securities were not interests in a grantor trust or debt obligations for Federal
income tax purposes, the arrangement between the Seller and the Holders 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 Securities 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 Holders) according to their
respective interests therein. Under current law, the income reportable by the
Holders as partners in such a partnership could differ from the income
reportable by the Holders 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 Holders unless the proposed legislation, discussed in the
following paragraph, is enacted. If the Holders were treated as partners, a cash
basis Holder might be required to report income when it accrues to the
partnership rather than when it is received by the Holder. Moreover, if Notes
were treated as interests in a partnership, an individual Holder'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 Notes. Finally, if the trust is treated as a partnership of a Security
treated as a partnership interest, any taxable income allocated to a Holder that
is a pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account), could constitute "unrelated
business taxable income".
If, alternatively, the Securities 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 Securities probably
would not be deductible in computing the entity's taxable income and all or part
of distributions to Holders would probably be treated as dividend income to such
Holders. Such an entity-level tax could result in a reduced amount of cash
available for distributions to Securityholders.
Since the Seller will treat the Grantor Trust Certificates as ownership
interests in a grantor trust and Notes 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 Securities. Further, If the IRS were to
contend successfully that the Securities are interests in a partnership or an
association taxable as a corporation, additional tax consequences would apply to
Foreign Holders. It is recommended that Investors consult their own tax advisors
with regard to the potential application of such provisions.
DISCOUNT AND PREMIUM
A Note purchased at original issue for an amount other than its outstanding
principal amount 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
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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 Security (or upon a sale of a Security); and (iii) if a Holder
so elects, premium may be amortized over the life of the Security and offset
against inclusions of interest income. These tax consequences are discussed in
greater detail below.
Original Issue Discount. In general, a Security 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 a
Security is the initial offering price to the public (excluding bond houses and
brokers) at which a substantial amount of the Securities is 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 a Security is
equal to the sum of all distributions to be made under such Security 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 Security
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 a Security 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 Security'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 Security and, when each such distribution is received, gain equal to the
discount allocated to such distribution will be recognized.
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 Securities 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 Securities.
Each Holder must include in gross income the sum of the "daily portions" of
original issue discount on its Security for each day during its taxable year on
which it held such Security. 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 Securities. Unless otherwise disclosed in the applicable Prospectus
Supplement, the Trustee will report original issue discount based on accrual
periods of one month, each beginning on a payment date (or, in the case of the
first such period, the Series Issuance Date) and ending on the day before the
next payment date.
Under section 1272(a)(6) of the Code, the portion of original issue
discount treated as accruing for any accrual period will equal the excess, if
any, of (i) the sum of (A) the present values of all the distributions
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<PAGE> 131
remaining to be made on the Security, if any, as of the end of the accrual
period and (B) the distribution made on such Security during the accrual period
of amounts included in the stated redemption price at maturity, over (ii) the
adjusted issue price of such Security 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 Security,
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 a Security 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
Security. The adjusted issue price of a Security at any time will equal the
issue price of such Security, increased by the aggregate amount of previously
accrued original issue discount with respect to such Security, and reduced by
the amount of any distributions made on such Security 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 Security that purchases such Security 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
Security, the daily portion of original issue discount with respect to such
Security (but reduced, if the cost of such Security 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 Security for all days on or after the day of purchase).
Market Discount. A Holder that purchases a Security at a market discount,
that is, at a purchase price less than the remaining stated redemption price at
maturity of such Security (or, in the case of a Security with original issue
discount, its adjusted issue price), will be required to allocate each principal
distribution first to accrued market discount on the Security, and recognize
ordinary income to the extent such distribution does not exceed the aggregate
amount of accrued market discount on such Security not previously included in
income. With respect to Securities 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
Security 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 a
Security 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 Security,
in any case taking into account the Prepayment Assumption. The Trustee will make
available, as required by the IRS, to Holders of Securities information
necessary to compute the accrual of market discount.
Notwithstanding the above rules, market discount on a Security 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 Security 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
Security by the subsequent purchaser. If market discount on a Security is
treated as zero under this rule, the actual amount of market discount must be
allocated to the remaining principal distributions on the Security and, when
each such distribution is received, gain equal to the discount allocated to such
distribution will be recognized.
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<PAGE> 132
Certificates Purchased at a Premium. A purchaser of a Security that
purchases such Security at a cost greater than its remaining stated redemption
price at maturity will be considered to have purchased such Security (a "Premium
Security") 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. 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 Security 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 Security.
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, it is recommended that Holders of Grantor Trust Certificates
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 Security 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. Holders are
encouraged to consult their own tax advisors 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 Securities, 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 Note 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, an estate that is subject to U.S. federal income tax
regardless of the source of its income or a trust other than a "foreign trust"
as defined in Section 7701(a)(31) of the Code. The term "Non-U.S. Person" means
any person who is not a U.S. Person. This Prospectus does not deal with all
aspects of U.S. federal income tax withholding that may be relevant to foreign
holders of the Securities or with the application of recently issued Treasury
Regulations relating to tax documentation requirements that are generally
effective with respect to payments made after
47
<PAGE> 133
December 31, 1999. This exemption is applicable provided (a) the Holder is not
subject to U.S. tax as a result of a connection to the United States other than
ownership of the Security, (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
State tax consequences to each Securityholder will depend upon the
provisions of the state tax laws to which the Holder 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 encouraged 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
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<PAGE> 134
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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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............................................. 41
Broker Program.............................................. 1
Cede........................................................ 8
CEDEL Participants.......................................... 28
Certificate of Incorporation................................ 24
Certificates................................................ 1
Class....................................................... 1
Closing Date................................................ 31
Code........................................................ 43
Collection Account.......................................... 32
Collection Period........................................... 34
Commission.................................................. i
Company..................................................... 1, 24
Company's Interest.......................................... 5
Contracts................................................... 2
Contribution and Sale Agreement............................. 19
Cooperative................................................. 29
Credit Enhancement.......................................... 17
Credit Enhancer............................................. 17
Custodian................................................... 31
Definitive Securities....................................... 29
Depositaries................................................ 27
Direct Participants......................................... 16
Discounted Contract Balance................................. 7
Distribution Account........................................ 32
DTC......................................................... 8
Eligible Deposit Account.................................... 33
Eligible Institution........................................ 33
Eligible Investment......................................... 7
Equipment................................................... 2
ERISA....................................................... 11
Euroclear Operator.......................................... 29
Euroclear Participants...................................... 28
Event of Default............................................ 29
Exchange Act................................................ 12
</TABLE>
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<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
FASB 13..................................................... 6
Finance Leases.............................................. 6
First Sierra................................................ 1, 19
FSFH........................................................ 22
Fully Taxable Bonds......................................... 45
Grantor Trust Certificates.................................. 11, 42
Grantor Trust Estate........................................ 42
Grantor Trust Strip Certificate............................. 42
Indenture................................................... 2
Indenture Trustee........................................... 2
Independent Director........................................ 24
Indirect Participants....................................... 16, 27
Insolvency Event............................................ 37
Insolvency Laws............................................. 15
Interest Rate............................................... 3
Investment Company Act...................................... 5
Investment Earnings......................................... 33
Issuer...................................................... 1
Lessee...................................................... 6
Lessor...................................................... 2, 6
Lockbox..................................................... 34
Notes....................................................... 1, 2, 11, 42
Owner Trust................................................. 18
Participants................................................ 27
Partnership Interest........................................ i
Pass-Through Rate........................................... i
Payment Date................................................ 4
Policy...................................................... 2
Pool Factor................................................. 23
Pooling Agreement........................................... 2
Portfolio Acquisition Program............................... 1
Pre-Funded Amount........................................... 7, 33
Pre-Funding Account......................................... 7, 33
</TABLE>
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<PAGE> 137
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Premium Security............................................ 47
Prepayment.................................................. 14
Prepayment Assumption....................................... 45
Private Label............................................... 19
Private Label Program....................................... 1
Prospectus Supplement....................................... 1
Purchase Agreement.......................................... 2
Receivables................................................. 1,2
Record Date................................................. 4
Registration Statement...................................... 2
Remittance Period........................................... 4
Rules....................................................... 28
Securities.................................................. 1
Securities Act.............................................. i
Security Insurer............................................ 9
Securityholders............................................. 4
Seller...................................................... 1, 19
Senior Securities........................................... 4
Servicer.................................................... 1, 22
Servicer Defaults........................................... 37
Servicing Agreement......................................... 2
Servicing Fee............................................... 35
Servicing Fee Rate.......................................... 35
Sources..................................................... 20
Special Counsel............................................. 42
Strip Securities............................................ 3
Subordinate Securities...................................... 4
Terms and Conditions........................................ 29
Trust....................................................... 1
Trust Accounts.............................................. 32, 33
Trust Agreement............................................. 3
Trustee..................................................... 2
U.S. Person................................................. 47
Vendor Program.............................................. 1
Warranty Purchase Price..................................... 31
</TABLE>
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FIRST SIERRA EQUIPMENT CONTRACT TRUST 1999-2
$157,155,372
FIRST SIERRA FINANCIAL, INC.
Originator and Servicer
FIRST SIERRA RECEIVABLES III, INC.
Depositor
EQUIPMENT CONTRACT BACKED NOTES, SERIES 1999-2
PROSPECTUS SUPPLEMENT
---------------------
THE CLASS A NOTES ARE BEING OFFERED BY:
FIRST UNION CAPITAL MARKETS CORP.
NESBITT BURNS SECURITIES, INC.
PNC CAPITAL MARKETS, INC.
THE CLASS B NOTES ARE BEING OFFERED BY:
FIRST UNION CAPITAL MARKETS CORP.
SEPTEMBER 22, 1999
You should rely on the information contained or incorporated by reference in
this prospectus supplement and the accompanying prospectus. We have not
authorized anyone to provide you with different information.
We are not offering the securities offered hereby in any state where such offer
is not permitted.
Dealers will be required to deliver a prospectus supplement and prospectus when
acting as underwriters of the securities offered hereby and with respect to
their unsold allotments or subscriptions. In addition, all dealers selling the
securities, whether or not participating in this offering, may be required to
deliver a prospectus supplement and prospectus until December 21, 1999.
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