As filed with the Securities and Exchange Commission on September 13, 1996
Registration No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
MELLON BANK, N.A.
(Originator of Mellon Bank Premium Finance Loan Master Trust
described herein) (Exact name of registrant as
specified in its charter)
United States 25-0659306
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
(412) 234-5000
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
---------------------
Carl Krasik, Esq.
MELLON BANK CORPORATION
Suite 1910
500 Grant Street
Pittsburgh, Pennsylvania 15258-0001
(412) 234-5222
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
Copies to:
Robert K. Morris, Esq. Reed D. Auerbach, Esq.
REED SMITH SHAW & MCCLAY STROOCK & STROOCK & LAVAN
435 Sixth Avenue 7 Hanover Square
Pittsburgh, Pennsylvania 15219 New York, New York 10004
(412) 288-3131 (212) 806-5400
---------------------
Approximate date of commencement of proposed sale to the
public: From time to time on or after the effective date of this registration
statement, as determined by market conditions. If the only securities being
registered on this form are being offered pursuant to dividend or interest
reinvestment plans, please check the following box. If any of the securities
being registered on this Form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act of 1993, other than securities
offered only in connection with dividend or interest reinvestment plans, check
the following box. X
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.
---------------------
CALCULATION OF REGISTRATION FEE*
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM
TITLE OF SECURITIES TO PROPOSED MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
BE REGISTERED AMOUNT TO BE REGISTERED PRICE PER CERTIFICATE** PRICE** REGISTRATION FEE
<S> <C> <C> <C> <C>
Asset Backed
Certificates........... 1,000,000 100% $1,000,000 $344.83
===============================================================================================================================
* Also registered hereby are secondary market sales of certificates to be
effected by Mellon Financial Markets, Inc., the volume of
which cannot be determined.
** Estimated solely for the purpose of calculating the registration fee.
------------------------
</TABLE>
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
EXPLANATORY NOTE
This Registration Statement contains a Prospectus relating to a public
offering by Mellon Bank Premium Finance Loan Master Trust of $___________
aggregate principal amount of Mellon Bank Premium Finance Loan Asset Backed
Certificates, Series 1996-1, together with certain pages of a second Prospectus
to be used in connection with offers and sales relating to market-making
transactions in the Certificates by Mellon Financial Markets, Inc., an affiliate
of Mellon Bank, N.A. The Prospectus relating to the Certificates follows
immediately after this Explanatory Note. Following such Prospectus are the
alternate cover page and pages _____ of the market-making Prospectus relating to
the Certificates. All other pages of the public offering Prospectus are also to
be used for the market-making Prospectus.
<PAGE>
PROSPECTUS Subject to Completion, dated _________, 1996
$----------------
Mellon Bank Premium Finance Loan Master Trust
$_______________ Class A Floating Rate Asset
Backed Certificates, Series 1996-1
$_______________ Class B Floating Rate Asset
Backed Certificates, Series 1996-1
MELLON BANK, N.A.
Transferor
AFCO CREDIT CORPORATION
AFCO ACCEPTANCE CORPORATION
Originators and Servicers
Each Class A Floating Rate Asset Backed Certificate, Series 1996-1
(collectively, the "Class A Certificates") and each Class B Floating Rate Asset
Backed Certificate, Series 1996-1 (collectively, the "Class B Certificates" and,
together with the Class A Certificates, the "Certificates") will represent the
right to receive certain payments from the Mellon Bank Premium Finance Loan
Master Trust (the "Trust"), created pursuant to a pooling and servicing
agreement (the "Pooling and Servicing Agreement") dated __________ __, 1996
among Mellon Bank, N.A., as transferor (the "Transferor"), AFCO Credit
Corporation ("AFCO Credit"), as servicer, AFCO Acceptance Corporation ("AFCO
Acceptance"), as servicer (and together with AFCO Credit in their capacity as
servicers, the "Servicer") and [ ] as trustee (the "Trustee"). The assets of the
Trust will include (i) loans made by either AFCO Credit or AFCO Acceptance (each
in its capacity as an originator, an "Originator") to commercial borrowers to
finance the payment of insurance premiums on insurance and related sums
regarding insurance policies under which the borrowers are the insureds governed
by the law of a State in the United States of America or the District of
Columbia, which loans are transferred from time to time by either of the
Originators to the Transferor and by the Transferor to the Trustee for the
benefit of Trust (the "Receivables"); (ii) all monies due or to become due with
respect to the Receivables, including all monies received from insurance
companies and state insurance guaranty funds representing returns of unearned
portions of insurance premiums, up to the amount of principal, interest and
other charges due on the related Receivables; (iii) such amounts as may be from
time to time held in one or more trust accounts, which will be established and
maintained by the Trustee pursuant to the Agreement; (iv) any Enhancement issued
with respect to any Series; (v) all of the Transferor's rights under a
receivables purchase agreement (the "Receivables Purchase Agreement"), dated as
of _____ 1, 1996, among the Transferor and each Originator and (vi) the proceeds
of all of the foregoing. (Cover continued on next page)
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE CERTIFICATES, AND THERE IS NO
ASSURANCE THAT ONE WILL DEVELOP. POTENTIAL INVESTORS SHOULD CONSIDER, AMONG
OTHER THINGS, THE INFORMATION SET FORTH IN "RISK FACTORS" COMMENCING ON PAGE
____.
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF MELLON BANK, N.A., ANY OF THE ORIGINATORS OR ANY
AFFILIATE THEREOF. A CERTIFICATE IS NOT A DEPOSIT AND NEITHER THE CERTIFICATES
NOR THE UNDERLYING RECEIVABLES ARE INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Price to Underwriting Proceeds to
PUBLIC(1) DISCOUNT TRANSFEROR(1) (2)
Per Class A Certificate......
Per Class B Certificate......
Total........................
(1) Plus accrued interest, if any, at the Class A Rate or the Class B Rate,
as applicable, from ________ __, 1996.
(2) Before deduction of expenses
estimated to be $_________.
The Certificates are offered by the Underwriters as specified herein, subject to
the Underwriters' right to reject orders in whole or in part. It is expected
that the Certificates will be offered globally and delivered in book-entry form
on or about ________ __, 1996 through the facilities of The Depository Trust
Company, Cedel Bank, Societe Anonyme, and the Euroclear System.
[ ]
Mellon Financial Markets, Inc.
The date of this Prospectus is __________ __, 1996
<PAGE>
(Cover continued from previous page)
In addition, the Collateral Interest will be issued to the Collateral Interest
Holder in the initial amount of $____ and will be subordinated to the
Certificates as described herein. The Transferor will also own the undivided
interest in the Trust not represented by the Certificates or other interests
issued by the Trust from time to time (the "Transferor Interest"). The
Transferor may offer from time to time other Series of certificates which
evidence fractional undivided interests in certain assets of the Trust, which
may have terms significantly different from the Certificates. See "Description
of the Certificates-- New Issuances."
Interest will accrue on the Class A Certificates from ________ __, 1996
(the "Closing Date") through ________ __, 1996 at a rate of __% per annum and
during each Interest Period (as defined herein) thereafter, at the rate of
_____% per annum above the London interbank offered rate for one-month United
States dollar deposits ("LIBOR"), determined as described herein, prevailing on
the LIBOR Determination Date (as defined herein) with respect to such period
(the "Class A Rate"). Interest will accrue on the Class B Certificates from the
Closing Date through ________ __, 1996 at a rate of ___% per annum and during
each Interest Period thereafter, at the rate of _____% per annum above LIBOR
prevailing on the LIBOR Determination Date with respect to each such period (the
"Class B Rate"). The initial LIBOR Determination Date is ________ __, 1996.
Interest with respect to the Certificates will be distributed on ________ __,
1996 and on the __th day of each month thereafter (or, if such __th day is not a
business day, the next succeeding business day) (each, a "Distribution Date").
Principal on the Class A Certificates is scheduled to be distributed on the
________ ____ Distribution Date (the "Class A Scheduled Payment Date"), but may
be paid earlier or later under the circumstances described herein. Principal on
the Class B Certificates is scheduled to be distributed on the ________ ____
Distribution Date (the "Class B Scheduled Payment Date"), but may be paid
earlier or later under the circumstances described herein. See "Maturity
Assumptions."
The Class B Certificates will be subordinated to the Class A Certificates
and the Collateral Interest will be subordinated to the Class A Certificates and
the Class B Certificates, as described herein.
--------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
AVAILABLE INFORMATION
The Transferor, as originator of the Trust, has filed a Registration
Statement on Form S-3 (together with all amendments and exhibits thereto, the
"Registration Statement"), of which this Prospectus is a part, under the
Securities Act of 1933, as amended, with the Securities and Exchange Commission
(the "Commission") with respect to the Certificates offered pursuant to this
Prospectus. For further information, reference is made to the Registration
Statement which is available for inspection without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; Northeast Regional Office, 7 World Trade Center, Suite
1300, New York, New York 10048; and Midwest Regional Office, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of the Registration
Statement may be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington D.C. 20549, at prescribed rates and
electronically through the Commission's Electronic Gathering and Retrieval
system at the Commission's Web site (http:\\www.sec.gov).
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, monthly reports,
containing unaudited information concerning the Trust and prepared by the
Servicer, will be sent on behalf of the Trust only to Cede & Co. ("Cede"), as
nominee of The Depository Trust Company ("DTC") and registered holder of the
Certificates, pursuant to the Agreement. See "Description of the
Certificates--Book-Entry Certificates," "--Reports to Certificateholders" and
"--Evidence as to Compliance." Such reports will not constitute financial
statements prepared in accordance with generally accepted accounting principles.
The Agreement does not require the sending of, and the Transferor does not
intend to send, any of its financial reports to Certificateholders. Copies of
the monthly reports may be obtained free of charge by calling AFCO Credit
Corporation, at (212) 612-3540. The Servicer will file with the Commission such
periodic reports with respect to the Trust as are required under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations of the Commission thereunder.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Servicer on behalf of the Trust referred to
herein with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act on or after the date hereof and prior to the termination of the
offering of the Certificates issued by the Trust shall be deemed to be
incorporated by reference herein and to be a part of this Prospectus from the
date of the filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for all purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or replaces
such statement. Any statement so modified or superseded shall not be deemed,
except as modified or superseded, to constitute a part of this Prospectus.
The Transferor on behalf of the Trust 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 request should be directed to: Mellon Bank
Corporation, One Mellon Bank Center, 500 Grant Street, Pittsburgh, Pennsylvania
15258 (Attention: Corporate Secretarial Services Department).
PROSPECTUS SUMMARY
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus. Certain capitalized terms
used in this summary are defined elsewhere in this Prospectus. A listing of the
pages on which the terms are defined is found in the "Index of Terms."
Type of Securities Class A Floating Rate Asset Backed Certificates,
Series 1996-1 (the "Class A Certificates") and
Class B Floating Rate Asset Backed Certificates,
Series 1996-1 (the "Class B Certificates," and
together with the Class A Certificates, the
"Certificates").
The Certificates initially will be
represented by Certificates registered in the name
of Cede, as the nominee of DTC. No Certificate
Owner will be entitled to receive a Definitive
Certificate, except under the limited
circumstances described herein. Holders may elect
to hold their Certificates through DTC (in the
United States) or Cedel Bank, Societe Anonyme
("Cedel") or the Euroclear System (in Europe)
("Euroclear"). Transfers will be made in
accordance with the rules and operating procedures
described herein. See "Description of the
Certificates-- Definitive Certificates".
Beneficial interests in the
Certificates will be offered for purchase in
denominations of $1,000, and integral multiples
thereof.
Originators AFCO Credit Corporation, a New York corporation
("AFCO Credit") and a wholly owned
subsidiary of Mellon Bank, N.A., was formed to
originate premium finance loans throughout the
United States, except California. AFCO Acceptance
Corporation, a California corporation ("AFCO
Acceptance") and a wholly owned subsidiary of AFCO
Credit, was formed to originate premium finance
loans in California. AFCO Credit and AFCO
Acceptance are collectively sometimes referred to
herein as the "Originators" or "AFCO". See
"Business of the Originators-General."
Transferor Mellon Bank, N.A., a national banking association
organized under the laws of the United States of
America (the "Transferor").
Servicer Each of AFCO Credit and AFCO Acceptance will
service the Receivables which it originates (each
in such capacity, a "Servicer" and collectively,
the "Servicer").
Trustee _________, as trustee (the "Trustee").
Trust The Mellon Bank Premium Finance Loan Master Trust
(the "Trust") will be created as a master trust
under which one or more series of investor
certificates (each a "Series") will be issued. The
Certificates will be the first Series issued. The
Trust will be formed pursuant to a pooling and
servicing agreement dated __________ ___, 1996
(the "Agreement"), among the Transferor, each
Servicer and the Trustee, as supplemented by the
supplement relating to the Certificates (the
"Series 1996-1 Supplement"). As used in this
Prospectus, the term "Holders" refers to holders
of the Certificates, the term "Class A Holders"
refers to holders of the Class A Certificates, the
term "Class B Holders" refers to holders of the
Class B Certificates and the term "Agreement"
(unless the context requires otherwise) refers to
the Agreement as supplemented by the Series 1996-1
Supplement.
Trust Assets The assets of the Trust include (i) loans
made by either of the Originators to commercial
borrowers to finance the payment of insurance
premiums on insurance and related sums regarding
insurance policies under which the borrowers are
the insureds governed by the law of a State in the
United States of America or the District of
Columbia, which loans are transferred from time to
time by either of the Originators to the
Transferor and by the Transferor to the Trustee
for the benefit of the Trust (the "Receivables");
(ii) all monies due or to become due with respect
to the Receivables, including all monies received
from insurance companies and state insurance
guaranty funds representing returns of unearned
portions of insurance premiums, up to the amount
of principal, interest and other charges due on
the related Receivables; (iii) such amounts as may
be from time to time held in one or more trust
accounts which will be established and maintained
by the Trustee pursuant to the Agreement; (iv) any
Enhancement issued with respect to any Series; (v)
all of the Transferor's rights under a receivables
purchase agreement (the "Receivables Purchase
Agreement"), dated as of _____ __, 1996, among the
Transferor and each of the Originators and (vi)
the proceeds of all of the foregoing. See "The
Receivables."
Pursuant to the Receivables Purchase
Agreement, on the date of issuance of the
Certificates (the "Closing Date"), the Originators
will transfer and assign to the Transferor
Receivables from their portfolio of commercial
insurance premium finance loans to borrowers whose
stated addresses in the related insurance premium
finance loan agreements are in one of the
Permitted States (as defined under "The
Receivables") (the "Identified Portfolio") that
satisfy as of ______, 1996 (the "Cut-off Date")
the eligibility criteria specified in the
Receivables Purchase Agreement and the Agreement.
As of the Cut-off Date, the Permitted States
consist of the ____ States and the District of
Columbia set forth in the table "Geographic
Concentration" under the heading "The Receivables"
herein. Pursuant to the Agreement, the Transferor
will transfer and assign such Receivables to the
Trustee for the benefit of the Trust. See "The
Receivables" and "Description of the
Certificates-- Eligible Receivables." As of the
Cut-off Date commercial premium finance loans in
the Identified Portfolio constitute approximately
___% (by principal balance) of all commercial
premium finance loans in the Originators' entire
portfolio. It is expected that substantially all
of the commercial premium finance loans in the
Identified Portfolio will satisfy the eligibility
criteria in the Receivables Purchase Agreement and
the Agreement and will be transferred and assigned
to the Trustee for the benefit of the Trust on the
Closing Date. The selection of the Permitted
States was based on state regulatory
considerations. Each of the Originators will
represent and warrant in the Receivables Purchase
Agreement, and the Transferor will represent and
warrant in the Agreement, that the Identified
Portfolio was not selected in a manner adverse to
Certificateholders. See "The Receivables" and
"Description of Certificates--Transfer and
Assignment of Receivables."
Each Originator will be obligated
pursuant to the Receivables Purchase Agreement to
transfer and assign on each day all commercial
insurance premium finance loans from the
Identified Portfolio originated by it after the
Cut-off Date which satisfy the eligibility
criteria set forth under "Description of the
Certificates--Eligible Receivables" (the
"Additional Receivables") to the Transferor, who
in turn will be required pursuant to the Agreement
to transfer and assign all such Additional
Receivables to the Trustee for the benefit of the
Trust. See "Risk Factors--Additional Receivables
Considerations." In the event that sufficient
Additional Receivables are not transferred to the
Trustee for the benefit of the Trust to maintain
the Minimum Transferor Interest as required by the
Agreement and as described herein, a Pay Out Event
would occur and the Rapid Amortization Period will
occur. See "Description of the
Certificates--Additional Receivables" and "--Pay
Out Events."
Receivables The Receivables are short-term in duration,
generally with maturities under one year. Each
Receivable bears a fixed interest rate that is
established at the time of Origination. Such
interest rate is generally based on a spread over
the estimated London interbank offered rate at the
date of origination of the loan for deposits with
a maturity comparable to the average life of the
loan, which currently is generally 4 1/2 months.
The principal amount of each Receivable is fully
amortized over a fixed number of scheduled
payments. Each insurance premium finance agreement
representing a Receivable grants the related
Originator a security interest in the borrower's
right to receive any unearned premium from the
insurance company upon cancellation of the related
insurance policy prior to its expiration. Each
insurance premium finance agreement representing a
Receivable also contains a power of attorney
granting the related Originator the right to
cancel the insurance policy and collect such
unearned premium from the insurance company
following a payment default on the related
Receivable. Each Originator will assign its
security interests and deliver a related power of
attorney to the Transferor pursuant to the
Receivables Purchase Agreement, and the Transferor
will assign such security interest and deliver
such powers of attorney to the Trustee pursuant to
the Agreement. However, the Trustee's security
interest in the related unearned premium will not
be perfected unless and until the related
insurance companies are notified of the Trustee's
security interest upon the occurrence of a Trigger
Event. See "Risk- Factors--Conditions to
Perfecting Security Interests in Unearned
Premiums" and "Certain Legal Aspects-- Conditions
to Perfecting Security Interest in Unearned
Premiums."
The Receivables consist of (a)(i) the
sum of all monies due or to become due from the
related borrowers in payment of finance charges,
late fees, collection fees and other
administrative charges [plus (ii) Discount
Receivables] (collectively, "Finance Charge
Receivables") and (b) [the excess of (x)] the
principal owing or to become owing with respect to
the Receivables after the Cut-off Date (["Actual
Principal Receivables") over (y) the Discount
Receivables (such excess,] "Principal
Receivables"). ["Discount Receivables" means at
any time an amount equal to 1% of the Actual
Principal Receivables.] The aggregate amount of
Receivables as of the Cut-off Date was $_________,
comprised of $_________ of Principal Receivables
and $__________ of Finance Charge Receivables.
[Because the Receivables will be sold at a
discount, the amount of Finance Charge Receivables
will be greater, and the amount of Principal
Receivables and the Transferor Interest will be
less than otherwise would have been the case if
the Receivables were not sold at a discount. See
"Description of Certificates--Allocation of
Collections."]
The amount of Finance Charge Receivables
will not affect the amount of Investor Interest
represented by the Certificates and the Collateral
Interest or the amount of the Transferor Interest,
which, in the case of the Investor Interest, is
determined on the basis of the amount of Principal
Receivables and, in the case of the Transferor
Interest, is determined on the basis of the sum of
the Principal Receivables and the amount on
deposit in the Excess Funding Account. The
aggregate undivided interest in the Principal
Receivables evidenced by the Certificates and the
Collateral Interest will always equal the amount
of Investor Interest regardless of the total
amount of Principal Receivables at any time.
Certificate Interest
and Principal Each of the Certificates represents the
right to receive certain payments from the assets
of the Trust. The Trust assets will be allocated
among the Class A Holders (the "Class A Investor
Interest"), the Class B Holders (the "Class B
Investor Interest"), the Collateral Interest
Holder (the "Collateral Interest," and together
with the Class A Investor Interest and the Class B
Investor Interest, the "Investor Interest"), the
interest of the holders of other undivided
interests in the Trust issued pursuant to the
Agreement and applicable Series Supplements and
the Transferor (the "Transferor Interest"), as
described below. The Collateral Interest in the
initial amount of $_____ (which amount represents
___% of the amount of the initial Investor
Interest) constitutes Credit Enhancement for
Certificates. The provider of such Credit
Enhancement is referred to herein as the
"Collateral Interest Holder"). Allocations will be
made to the Collateral Interest and the Collateral
Interest Holder will have voting and certain other
rights as if the Collateral Interest were a
subordinated class of Certificates. The Collateral
Interest is not being offered hereby and any
information contained herein relating to the
Collateral Interest is included in the Prospectus
solely for the purpose of facilitating an
understanding of the Certificates.
The Transferor Interest will represent
the right to the assets of the Trust not allocated
to the Investor Interest or the holders of other
undivided interests in the Trust. The principal
amount of the Transferor Interest will fluctuate
as the amount of Receivables and the amount on
deposit in the Excess Funding Account changes from
time to time. The term "Enhancement" means, with
respect to any Series or Class, any Credit
Enhancement, guaranteed rate agreement, maturity
liquidity facility, interest rate cap agreement,
interest rate swap agreement or other similar
arrangement for the benefit of the
certificateholders of that Series or Class. The
term "Credit Enhancement" means with respect to
any Series or Class, any cash collateral guaranty
or account, collateral interest, letter of credit,
surety bond, insurance policy, spread account,
reserve account or other similar arrangement for
the benefit of the certificateholders of that
Series or Class. Credit Enhancement may also take
the form of subordination of one or more Classes
of a Series to any other Class or Classes of a
Series or a cross-support feature which requires
collections on Receivables of one Series to be
paid as principal and/or interest with respect to
another Series.
The Class A Certificates will represent
the right to receive, from the assets of the Trust
allocated to the Class A Certificates, funds up to
(but not in excess of) the amounts required to
make (a) payments of interest accruing from the
Closing Date through ________ __, 1996 at the rate
of ___% per annum and during each Interest Period
thereafter, at the rate of ____% per annum above
the London interbank offered rate for one-month
United States dollar deposits ("LIBOR"),
determined as described herein, prevailing on the
related LIBOR Determination Date (such rate, the
"Class A Rate"), and (b) payments of principal on
the Class A Scheduled Payment Date or, under
certain limited circumstances, during the Rapid
Amortization Period, to the extent of the Class A
Investor Interest, which may be less than the
unpaid principal balance of the Class A
Certificates in certain circumstances described
herein.
The Class B Certificates will represent
the right to receive, from the assets of the Trust
allocated to the Class B Certificates, funds up to
(but not in excess of) the amounts required to
make (a) payments of interest accruing from the
Closing Date through ________ __, 1996 at the rate
of ___% per annum and during each Interest Period
thereafter, at the rate of _____% per annum above
LIBOR, determined as described herein, prevailing
on the related LIBOR Determination Date (such
rate, the "Class B Rate") and (b) payments of
principal on the Class B Scheduled Payment Date
or, under certain limited circumstances, during
the Rapid Amortization Period, to the extent of
the Class B Investor Interest, which may be less
than the unpaid principal balance of the Class B
Certificates in certain circumstances described
herein. No principal will be paid to the Class B
Holders until the Class A Investor Interest is
paid in full.
The aggregate principal amount of the
Class A Investor Interest and the Class B Investor
Interest will, except as otherwise provided
herein, remain fixed at $__________ and
$__________, respectively. The Class A Investor
Interest will decline in certain circumstances if
the Default Amounts allocated to the Class A
Certificates exceed funds allocable thereto as
described herein and the Class B Investor Interest
and the Collateral Interest are zero. The Class B
Investor Interest will decline in certain
circumstances as a result of (a) the reallocation
of collections of Principal Receivables otherwise
allocable to the Class B Investor Interest to fund
certain payments in respect of the Class A
Certificates and (b) the allocation to the Class B
Investor Interest of certain Default Amounts,
including such amounts otherwise allocable to the
Class A Investor Interest when the Collateral
Interest is zero. During the Controlled
Accumulation Period, for the sole purpose of
allocating collections of Finance Charge
Receivables and Default Amounts with respect to
each Monthly Period, the Class A Investor Interest
will be further reduced by the amount on deposit
in the Principal Funding Account from time to time
(as so reduced, the "Class A Adjusted Investor
Interest" and together with the Class B Investor
Interest and the Collateral Interest, the
"Adjusted Investor Interest"). See "Description of
Certificates--Reallocation of Cash Flows,"
"--Defaulted Receivables; Investor Charge-offs"
and "--Principal Funding Account."
The Class A Certificates, the Class B
Certificates and the Collateral Interest will each
include the right to receive (but only to the
extent needed to make required payments under the
Agreement) varying percentages of collections of
Finance Charge Receivables and Principal
Receivables and will be allocated varying
percentages of the amount of Receivables which are
written off as uncollectible by a Servicer
("Defaulted Receivables" and the principal amount
of such Defaulted Receivables being, the "Default
Amount") during each calendar month (each, a
"Monthly Period"). Collections of Finance Charge
Receivables and Default Amounts at all times, and
collections of Principal Receivables during the
Revolving Period, will be allocated to the
Investor Interest based on the Floating Investor
Percentage and will be further allocated among the
Class A Investor Interest, the Class B Investor
Interest and the Collateral Interest based on the
Class A Floating Allocation, the Class B Floating
Allocation and the Collateral Floating Allocation,
respectively, applicable during the related
Monthly Period. Collections of Principal
Receivables during the Controlled Accumulation
Period and the Rapid Amortization Period will be
allocated to the Investor Interest based on the
Fixed Investor Percentage and will be further
allocated among the Class A Investor Interest, the
Class B Investor Interest and the Collateral
Interest based on the Class A Fixed Allocation,
the Class B Fixed Allocation and the Collateral
Fixed Allocation, respectively. See "Description
of the Certificates-- Allocation Percentages" and
"--Pay Out Events".
Interest Interest on the Certificates for each Interest
Period will be distributed, from Class A Available
Funds, with respect to the Class A Certificates
and from Class B Available Funds with respect to
the Class B Certificates, on ________ __, 1996,
and on the __th day of each month thereafter, or
if such day is not a business day, on the next
succeeding business day (each, a "Distribution
Date"), in an amount equal to (a) with respect to
the Class A Certificates, the product of (i) the
actual number of days in the related Interest
Period divided by 360, (ii) the Class A Rate and
(iii) the outstanding principal balance of the
Class A Certificates as of the preceding Record
Date (or in the case of the first Distribution
Date, as of the Closing Date) ("Class A Monthly
Interest") and (b) with respect to the Class B
Certificates, the product of (i) the actual number
of days in the related Interest Period divided by
360, (ii) the Class B Rate and (iii) the
outstanding principal balance of the Class B
Certificates as of the preceding Record Date (or
in the case of the first Distribution Date, as of
the Closing Date) ("Class B Monthly Interest").
Interest for any Distribution Date due but not
paid on such Distribution Date will be payable on
the next succeeding Distribution Date, together
with additional interest on such amount at the
applicable Certificate Rate plus 2% per annum
(such amount, as applicable, "Additional
Interest").
"Class A Available Funds" means, with
respect to any Monthly Period, an amount equal to
the sum of (a) the Class A Floating Allocation of
collections of Finance Charge Receivables
[(including collections of Discount Receivables)]
allocated to the Investor Interest with respect to
such Monthly Period, (b) Principal Funding
Investment Proceeds, if any, with respect to the
related Transfer Date and (c) amounts, if any, to
be withdrawn from the Reserve Account which are
required to be included in Class A Available Funds
pursuant to the Series 1996-1 Supplement with
respect to such Transfer Date.
"Class B Available Funds" means, with
respect to any Monthly Period, an amount equal to
the Class B Floating Allocation of collections of
Finance Charge Receivables [(including collections
of Discount Receivables)] allocated to the
Investor Interest with respect to such Monthly
Period.
The "Interest Period" with respect to
any Distribution Date, will be the period from and
including the previous Distribution Date through
the day preceding such Distribution Date, except
the initial Interest Period will be the period
from and including the Closing Date through the
day preceding the initial Distribution Date.
Interest payments on each Distribution Date will
be funded from the portion of Finance Charge
Receivables collected during the preceding Monthly
Period (or with respect to the first Distribution
Date, from and including the Closing Date through
__________ __, 1996) and certain other available
amounts (a) with respect to the Class A
Certificates, allocated to the Class A Investor
Interest, and, if necessary, from Excess Spread
and Reallocated Principal Collections (to the
extent available), (b) with respect to the Class B
Certificates, allocated to the Class B Investor
Interest and, if necessary, from Excess Spread and
Reallocated Principal Collections (to the extent
available) and (c) with respect to the Collateral
Interest, from Excess Spread. See "Description of
the Certificates--Reallocation of Cash Flows" and
"--Application of Collections--Payment of
Interest, Fees and Other Items" and "Risk
Factors--Risk of Limitations on Subordination and
Additional Yield."
Revolving Period "Revolving Period" for the Certificates
means the period from and including the Closing
Date to, but not including, the commencement of
the earlier of (a) the Controlled Accumulation
Period and (b) the Rapid Amortization Period.
During the Revolving Period, collections on
Principal Receivables otherwise allocable to the
Investor Interest will, subject to certain
limitations and unless a reduction in the required
Collateral Interest has occurred, be treated as
Shared Principal Collections and allocated to the
holders of other Series of certificates issued and
outstanding or, subject to certain limitations,
paid to the Transferor or deposited into the
Excess Funding Account. See "Description of the
Certificates--Principal Payments." See
"Description of the Certificates--Pay Out Events"
for a discussion of the events which might lead to
the termination of the Revolving Period prior to
the commencement of the Controlled Accumulation
Period.
Controlled Accumulation
Period Unless a Pay Out Event occurs, the
controlled accumulation period for the
Certificates (the "Controlled Accumulation
Period") is scheduled to begin at the close of
business on _______ __, 19__. Subject to the
conditions set forth under "Description of the
Certificates--Postponement of Controlled
Accumulation Period," the day on which the
Revolving Period ends and the Controlled
Accumulation Period begins may be delayed to not
later than the close of business on _________ __,
____. The Controlled Accumulation Period will end
on the earliest of (i) the commencement of the
Rapid Amortization Period, (ii) payment of the
Investor Interest in full and (iii) the Series
1996-1 Termination Date.
On the business day preceding each
Distribution Date (each, a "Transfer Date")
Transfer Date during the Controlled Accumulation
Period, prior to the payment of the Class A
Investor Interest in full, amounts equal to the
least of (a) Available Investor Principal
Collections for the related Monthly Period, (b)
the sum of the Controlled Accumulation Amount for
such Monthly Period and any portion of the
Controlled Accumulation Amount for any prior
Monthly Period that has not yet been deposited
(such sum, the "Controlled Deposit Amount" for
such Monthly Period) and (c) the Class A Investor
Interest on such Transfer Date will be deposited
monthly in a trust account established by the
Servicer (the "Principal Funding Account") on each
Transfer Date beginning with the Transfer Date in
the month following the commencement of the
Controlled Accumulation Period until the Principal
Funding Account Balance is equal to the Class A
Investor Interest. On each Transfer Date during
the Controlled Accumulation Period after the
Distribution Date on which the Class A Investor
Interest has been paid in full, an amount equal to
the lesser of (a) Available Investor Principal
Collections for the related Monthly Period and (b)
the Class B Investor Interest on such Transfer
Date will be deposited into the Distribution
Account for distribution to the Class B Holders on
the Class B Scheduled Payment Date. If, for any
Monthly Period, the Available Investor Principal
Collections for such Monthly Period exceed the
applicable Controlled Deposit Amount, the amount
of such excess will be first paid to the
Collateral Interest Holder to the extent that the
Collateral Interest exceeds the Required
Collateral Interest and then will be treated as
Shared Principal Collections and allocated to the
holders of other Series of certificates issued and
outstanding or, subject to certain limitations,
paid to the Transferor or deposited into the
Excess Funding Account. See "Description of the
Certificates--Application of Collections."
"Available Investor Principal
Collections" means, with respect to any Monthly
Period in the Controlled Accumulation Period or
the Rapid Amortization Period, an amount equal to
the sum of (a) (i) the Fixed Investor Percentage
of collections of Principal Receivables received
during such Monthly Period and certain other
amounts allocable to the Investor Interest, minus
(ii) the amount of Reallocated Principal
Collections with respect to such Monthly Period
used to fund interest on the Certificates or the
Servicing Fee, plus (b) any Shared Principal
Collections with respect to other Series that are
allocated to Series 1996-1.
Unless a Pay Out Event occurs, prior to
the payment of the Class A Investor Interest in
full, all funds on deposit in the Principal
Funding Account will be invested at the direction
of the Servicer by the Trustee in certain
Permitted Investments. Investment earnings (net of
investment losses and expenses) on funds on
deposit in the Principal Funding Account (the
"Principal Funding Investment Proceeds") during
the Controlled Accumulation Period will be used to
pay interest on the Class A Certificates in an
amount up to, for each Transfer Date, the product
of (a) a fraction, the numerator of which is the
actual number of days in the related Interest
Period and the denominator of which is 360, (b)
the Class A Rate in effect with respect to the
related Interest Period and (c) the Principal
Funding Account Balance as of the Record Date
preceding such Transfer Date (the "Class A Covered
Amount"). If, for any Transfer Date, the Principal
Funding Investment Proceeds are less than the
Class A Covered Amount, the amount of such
deficiency (the "Class A Principal Funding
Investment Shortfall") shall be paid, to the
extent available, from the Reserve Account and, if
necessary, from Excess Spread and Reallocated
Principal Collections. See "Description of the
Certificates--Principal Funding Account."
Funds on deposit in the Principal
Funding Account will be available to pay the Class
A Holders in respect of the Class A Investor
Interest on the Class A Scheduled Payment Date. If
the aggregate principal amount of deposits made to
the Principal Funding Account is insufficient to
pay the Class A Investor Interest in full on the
Class A Scheduled Payment Date, the Rapid
Amortization Period will commence. Although it is
anticipated that during the Controlled
Accumulation Period prior to the payment of the
Class A Investor Interest in full, funds will be
deposited in the Principal Funding Account in an
amount equal to the applicable Controlled Deposit
Amount on each Transfer Date and that scheduled
principal will be available for distribution to
the Class A Holders on the Class A Scheduled
Payment Date, no assurance can be given in that
regard. See "Maturity Assumptions."
On the Class B Scheduled Payment Date,
provided that the Class A Investor Interest is
paid in full on the Class A Scheduled Payment Date
and the Rapid Amortization Period has not
commenced, Available Investor Principal
Collections will be used to pay the Class B
Holders in respect of the Class B Investor
Interest as described herein. If the Available
Investor Principal Collections are insufficient to
pay the Class B Investor Interest in full on the
Class B Scheduled Payment Date, the Rapid
Amortization Period will commence. Although it is
anticipated that scheduled principal will be
available for distribution to the Class B Holders
on the Class B Scheduled Payment Date, no
assurance can be given in that regard. See
"Maturity Assumptions".
If a Pay Out Event occurs during the
Controlled Accumulation Period, the Rapid
Amortization Period will commence, and any amounts
on deposit in the Principal Funding Account will
be paid to the Class A Holders on the Distribution
Date in the month following the commencement of
the Rapid Amortization Period.
Other Series offered by the Trust may or
may not have amortization or accumulation periods
like the Controlled Accumulation Period for the
Certificates, and such periods may have different
lengths and begin on different dates than such
Controlled Accumulation Period. Thus, certain
Series may be in their revolving periods while
others are in periods during which collections of
Principal Receivables are distributed to or held
for the benefit of certificateholders of such
other Series. In addition, other Series may
allocate Principal Receivables based upon
different investor percentages. See "Description
of the Certificates--New Issuances."
Rapid Amortization
Period During the period from the day
on which a Pay Out Event has occurred and ending
on the earlier of (a) the payment of the Investor
Interest in full and (b) the Series 1996-1
Termination Date (the "Rapid Amortization
Period"), Available Investor Principal Collections
will be distributed monthly on each Distribution
Date to the Class A Holders and, following payment
of the Class A Investor Interest in full, to the
Class B Holders and, following payment of the
Class B Investor Interest in full, to the
Collateral Interest Holder beginning with the
Distribution Date in the month following the
commencement of the Rapid Amortization Period. See
"Description of the Certificates--Pay Out Events"
for a discussion of the events which might lead to
the commencement of the Rapid Amortization Period.
Subordination of the Class B
Certificates and the
Collateral Interest The Class B Certificates and the
Collateral Interest will be subordinated, as
described herein, to the extent necessary to fund
certain payments with respect to the Class A
Certificates as described herein. In addition, the
Collateral Interest will be subordinated to the
extent necessary to fund certain payments with
respect to the Class B Certificates. If the Class
B Investor Interest and the Collateral Interest
are reduced to zero, the Class A Holders will bear
directly the credit and other risks associated
with their interest in the Trust. If the
Collateral Interest is reduced to zero, the Class
B Holders will bear directly the credit and other
risks associated with their interest in the Trust.
To the extent the Class B Investor Interest is
reduced, the percentage of collections of Finance
Charge Receivables allocable to the Class B
Holders in subsequent Monthly Periods will be
reduced. Such reductions of the Class B Investor
Interest will thereafter be reimbursed and the
Class B Investor Interest increased on each
Transfer Date by the amount, if any, of Excess
Spread for such Transfer Date available for that
purpose. To the extent the amount of such
reduction in the Class B Investor Interest is not
reimbursed, the amount of principal and interest
distributable to the Class B Holders will be
reduced. See "Risk Factors--Limitations on
Subordination [and Additional Yield]" and
"Description of the Certificates--Subordination."
Additional Amounts Available
to Holders
With respect to any Transfer Date,
Excess Spread will be applied to
fund the Class A Required Amount and the Class B
Required Amount, if any. The "Class A Required
Amount" means the amount, if any, by which the sum
of (a) the Class A Monthly Interest due on the
related Distribution Date and any overdue Class A
Monthly Interest and Class A Additional Interest
thereon, (b) the Class A Servicing Fee for the
related Monthly Period and any overdue Class A
Servicing Fee and (c) the Class A Investor Default
Amount, if any, for the related Monthly Period
exceeds the Class A Available Funds for the
related Monthly Period. The "Class B Required
Amount" means an amount, if any, equal to the sum
of (a) the amount, if any, by which the sum of (i)
Class B Monthly Interest due on the related
Distribution Date and any overdue Class B Monthly
Interest and Class B Additional Interest thereon
and (ii) the Class B Servicing Fee for the related
Monthly Period and any overdue Class B Servicing
Fee exceeds the Class B Available Funds for the
related Monthly Period and (b) the Class B
Investor Default Amount, if any, for the related
Monthly Period. "Excess Spread" for any Transfer
Date will equal the sum of (1) the excess of (A)
Class A Available Funds for the related Monthly
Period over (B) the sum of the amounts referred to
in clauses (a), (b) and (c) in the definition of
"Class A Required Amount" above, (2) the excess of
(A) Class B Available Funds for the related
Monthly Period over (B) the sum of the amounts
referred to in clauses (a)(i) and (a)(ii) in the
definition of "Class B Required Amount" above and
(3) Collateral Available Funds for the related
Monthly Period not used under certain
circumstances to pay the Collateral Interest
Servicing Fee, as described herein.
If, on any Transfer Date, Excess Spread
is less than the Class A Required Amount,
Reallocated Principal Collections allocable first
to the Collateral Interest and then to the Class B
Investor Interest with respect to the related
Monthly Period will be used to fund the remaining
Class A Required Amount. If Reallocated Principal
Collections with respect to such Monthly Period
are insufficient to fund the remaining Class A
Required Amount for the related Transfer Date,
then the Collateral Interest (after giving effect
to reductions for any Collateral Charge-Offs and
any Reallocated Principal Collections allocable to
the Collateral Trust on such Transfer Date) will
be reduced by the amount of such deficiency (but
not by more than the Class A Investor Default
Amount for such Monthly Period). In the event that
such reduction would cause the Collateral Interest
to be a negative number, the Collateral Interest
will be reduced to zero and the Class B Investor
Interest (after giving effect to reductions for
any Class B Charge-Offs and Reallocated Principal
Collections allocable to the Class B Investor
Interest) will be reduced by the amount by which
the Collateral Interest would have been reduced
below zero (but not by more than the excess of the
Class A Investor Default Amount, if any, for such
Monthly Period over the amount, if any, of the
Collateral Interest with respect to such Monthly
Period). In the event that such reduction would
cause the Class B Investor Interest to be a
negative number, the Class B Investor Interest
will be reduced to zero and the Class A Investor
Interest will be reduced by the amount by which
the Class B Investor Interest would have been
reduced below zero (but not by more than the
excess, if any, of the Class A Investor Default
Amount for such Monthly Period over such
reductions in the Collateral Interest and the
Class B Investor Interest with respect to such
Monthly Period) (such reduction, a "Class A
Investor Charge-Off"). If the Collateral Interest
and the Class B Investor Interest are reduced to
zero, the Class A Holders will bear directly the
credit and other risks associated with their
undivided interest in the Trust. See "Description
of the Certificates--Reallocation of Cash Flows"
and "-- Defaulted Receivables; Investor
Charge-Offs."
If, on any Transfer Date, Excess Spread
not required to pay the Class A Required Amount
and to reimburse Class A Investor Charge-Offs is
less than the Class B Required Amount, Reallocated
Principal Collections allocable to the Collateral
Interest for the related Monthly Period not
required to pay the Class A Required Amount will
be allocated to fund the remaining Class B
Required Amount. If such remaining Reallocated
Principal Collections allocable to the Collateral
Interest with respect to such Monthly Period are
insufficient to fund the remaining Class B
Required Amount for the related Transfer Date,
then the Collateral Interest (after giving effect
to reductions for any Collateral Charge-Offs,
Reallocated Principal Collections allocable to the
Collateral Interest and any adjustments made
thereto for the benefit of the Class A Holders)
will be reduced by the amount of such deficiency
(but not by more than the Class B Investor Default
Amount for such Monthly Period). If such reduction
would cause the Collateral Interest to be a
negative number, the Collateral Interest will be
reduced to zero, and the Class B Investor Interest
will be reduced by the amount by which the
Collateral Interest would have been reduced below
zero (but not by more than the excess, if any, of
the Class B Investor Default Amount for such
Monthly Period over such reduction in the
Collateral Interest with respect to such Monthly
Period) (such reduction, a "Class B Investor
Charge-Off"). In the event of a reduction of the
Class A Investor Interest, the Class B Investor
Interest or the Collateral Interest, the amount of
principal and interest available to fund payments
with respect to the Class A Certificates and the
Class B Certificates will be decreased. See
"Description of the Certificates--Reallocation of
Cash Flows" and "--Defaulted Receivables; Investor
Charge- Offs."
Required Collateral
Interest The "Required Collateral Interest" with
respect to any Transfer Date means
(a) initially, $__________ (the "Initial
Collateral Interest") and (b) on any Transfer Date
thereafter, an amount equal to __% of the Adjusted
Investor Interest on such Transfer Date, after
taking into account deposits into the Principal
Funding Account on such Transfer Date and payments
to be made on the related Distribution Date, and
the Collateral Interest on the prior Transfer Date
after any adjustments made on such Transfer Date,
but not less than $_____; provided however, (i)
that if certain reductions in the Collateral
Interest occur or if a Pay Out Event occurs, the
Required Collateral Interest for such Transfer
Date shall equal the Required Collateral Interest
for the Transfer Date immediately preceding the
occurrence of such reduction or Pay Out Event;
(ii) in no event shall the Required Collateral
Interest exceed the unpaid principal amount of the
Certificates as of the last day of the Monthly
Period preceding such Transfer Date after taking
into account payments to be made on the related
Distribution Date; and (iii) the Required
Collateral Interest may be reduced at any time to
a lesser amount if the Rating Agency Condition is
satisfied. See "Description of the
Certificates--Required Collateral Interest."
If on any Transfer Date, the Collateral
Interest is less than the Required Collateral
Interest, certain Excess Spread amounts, if
available, will be used to increase the Collateral
Interest to the extent of such shortfall. If on
any Transfer Date the Collateral Interest equals
or exceeds the Required Collateral Interest, any
such Excess Spread amounts will first be deposited
into the Reserve Account as described herein and
second, to the extent available, be applied in
accordance with the Loan Agreement among the
Trustee, the Transferor, each Servicer and the
Collateral Interest Holder (the "Loan Agreement")
and will not be available to the Holders.
Shared Excess Finance
Charge Collections To the extent that collections
of Finance Charge Receivables
allocated to the Investor Interest (and certain
other amounts that are to be treated as
collections of Finance Charge Receivables
allocated to the Investor Interest) are not needed
to make payments in respect of the Investor
Interest as described herein under "Description of
the Certificates-- Application of Collections,"
such Excess Finance Charge Collections will be
applied to make payments with respect to other
Series entitled to share therein in accordance
with the Agreement. In addition, Excess Finance
Charge Collections otherwise allocable to certain
other Series, to the extent not required to make
payments in respect of such Series, may be applied
to cover shortfalls in amounts payable from Excess
Spread as described herein under "Description of
the Certificates--Application of Collections."
Shared Principal
Collections To the extent that collections
of Principal Receivables allocated to
the Investor Interest are not needed to make
payments on the Investor Interest or to be
deposited in the Principal Funding Account, such
collections ("Shared Principal Collections") will
be allocated to cover certain principal payments
due to or for the benefit of certificateholders of
other Series or, under certain circumstances,
deposited into the Excess Funding Account or paid
to the Transferor. Any such reallocation or
deposit will not result in a reduction in the
Investor Interest with respect to Series 1996-1.
In addition, collections of Principal Receivables
and certain other amounts otherwise allocable to
other Series, to the extent such collections are
not needed to make payments to or deposits for the
benefit of the certificateholders of such other
Series, may be applied to cover principal payments
due to or for the benefit of the holders of the
Certificates or the holder of the Collateral
Interest. See "Description of the
Certificates--Shared Principal Collections."
Servicing Fee The Servicers will receive a monthly fee as
servicing compensation from the Trust on each
Transfer Date. On each Transfer Date, the Class A
Servicing Fee, the Class B Servicing Fee and the
Collateral Interest Servicing Fee will be paid as
described under "Description of the Certificates--
Servicing Compensation and Payment of Expenses."
Optional Repurchase The Investor Interest will be subject
to optional repurchase by the Transferor on any
Distribution Date on or after the Distribution
Date on which the Investor Interest is reduced to
an amount less than or equal to $__________ (_% of
the initial Investor Interest), if certain
conditions set forth in the Agreement are met. The
repurchase price will be equal to the sum of the
Investor Interest and all accrued and unpaid
interest on the Certificates and the Collateral
Interest through the day preceding the
Distribution Date on which the repurchase occurs.
See "Description of the Certificates--Final
Payment of Principal; Termination."
New Issuances Pursuant to any one or more supplements
to the Agreement (each, a "Series Supplement"),
the Transferor may require the Trustee to issue
one or more new Series in exchange for a reduction
in the Transferor Interest. In addition, if
provided in the relevant Series Supplement (and
subject to any applicable requirements under the
Exchange Act and the rules and regulations
thereunder, including Rule 13E-4), Certificates
representing any Series issued by that trust may
be tendered to the trustee in exchange for one or
more new Series. Any issuance or tender and
issuance pursuant to either of the above
procedures is referred to as a "New Issuance."
A New Issuance may occur only upon
delivery to the trustee of the following: (i) a
Series Supplement specifying the principal terms
(the "Principal Terms") of the new Series, (ii)
(a) an opinion of counsel to the effect that,
unless otherwise stated in the related Series
Supplement, the certificates of that Series will
be characterized as indebtedness for Federal
income tax purposes and (b) an opinion of counsel
to the effect that, for Federal income tax
purposes, (1) such issuance will not adversely
affect the tax characterization as debt of
Certificates of any outstanding Series or Class
that were characterized as debt at the time of
their issuance, (2) such issuance will not cause
the Trust to be classified as an association (or
publicly traded partnership) taxable as a
corporation and (3) such issuance will not cause
or constitute an event in which gain or loss would
be recognized by any Certificateholder (an opinion
of counsel to this effect with respect to any
action being a "Tax Opinion"), (iii) if required
by the related Series Supplement, the form of
Credit Enhancement, (iv) if Credit Enhancement is
required by the Series Supplement, an appropriate
Credit Enhancement agreement with respect thereto,
(v) written confirmation from each Rating Agency
that the New Issuance will not result in that
Rating Agency reducing or withdrawing its rating
on any then outstanding Series rated by it, (vi)
an officer's certificate of the Transferor to the
effect that after giving effect to the New
Issuance the Transferor Interest would be at least
equal to the Minimum Transferor Interest and (vii)
the Certificates representing the Series to be
exchanged, if applicable. See "Description of the
Certificates -- New Issuances."
The Transferor also may from time to
time cause the Trustee to sell purchased interests
in the Receivables and other assets of the Trust
to one or more purchasers. Any purchased interest
will represent an interest in the applicable
Trust's assets similar to the interest of a Series
of Certificates. No Series will be subordinated to
any purchased interest, and no purchased interest
will have any interest in the Enhancement or
series accounts specified for any Series, except
as specified in the prospectus relating to that
Series. Any such sale will take place pursuant to
one or more agreements which will specify terms
similar to Principal Terms for the applicable
purchased interests and may grant the purchasers
of such interests notice and consultation rights
with respect to rights or actions of the Trustee.
Any sale of purchased interests in the assets of a
Trust will be subject to the satisfaction of the
same conditions (including Rating Agency
confirmations) as for a New Issuance, as
appropriately adjusted to apply to the relevant
purchased interest rather than a New Issuance. See
"Risk Factors--Master Trust Considerations."
Tax Status Special Tax Counsel to the Transferor will
opine on the Closing Date that under existing law
the Certificates will be characterized as debt for
Federal income tax purposes and the Trust will not
be an association or publicly traded partnership
taxable as a corporation. Under the Agreement, the
Transferor, the Servicer, the Holders and the
Certificate Owners will agree to treat the
Certificates as debt for Federal, state, local and
foreign income and franchise tax purposes. See
"U.S. Federal Income Tax Consequences" for
additional information concerning the application
of Federal income tax laws.
ERISA Considerations Under a regulation issued by the
Department of Labor, the Trust's assets would not
be deemed "plan assets" of an employee benefit
plan holding the Class A Certificates if certain
conditions are met, including that the Class A
Certificates must be held, upon completion of the
public offering made hereby, by at least 100
investors who are independent of the Transferor
and of one another. No assurance can be given that
the Class A Certificates will be held by at least
100 such persons. The Transferor anticipates that,
if the Class A Certificates are held by at least
100 such persons, the other conditions of the
regulation will be met. No monitoring or other
measures will be taken to ensure that any such
conditions will be met. If the Trust's assets were
deemed to be "plan assets" of an employee benefit
plan investor (e.g., if the 100 independent
investor criterion is not satisfied), violations
of the "prohibited transaction" rules of the
Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), could result and generate
excise tax and other liabilities under ERISA and
section 4975 of the Internal Revenue Code of 1986,
as amended (the "Code"), unless a statutory,
regulatory or administrative exemption is
available. It is uncertain whether existing
exemptions from the "prohibited transaction" rules
of ERISA would apply to all transactions involving
the Trust's assets. Accordingly, fiduciaries or
other persons contemplating purchasing the
Certificates on behalf or with "plan assets" of
any employee benefit plan should consult their
counsel before making a purchase. See "ERISA
Considerations".
The Underwriters currently do not expect
that the Class B Certificates will be held by at
least 100 such persons and, therefore, do not
expect that such Class B Certificates will qualify
as publicly-offered securities under the
regulation referred to in the preceding paragraph.
Accordingly, the Class B Certificates may not be
acquired by (a) any employee benefit plan that is
subject to ERISA, (b) any plan or other
arrangement (including an individual retirement
account or Keogh plan) that is subject to section
4975 of the Code or (c) any entity whose
underlying assets include "plan assets" under the
regulation by reason of any such plan's investment
in the entity. By its acceptance of a Class B
Certificate or an interest therein, each Class B
Holder and Certificate Owner will be deemed to
have represented and warranted that it is not
subject to the foregoing limitation.
Class A Certificate
Rating It is a condition to the
issuance of the Class A Certificates that they be
rated in the highest rating category by at least
one Rating Agency. The rating of the Class A
Certificates is based primarily on the value of
the Receivables and the terms of the Class B
Certificates and the Collateral Interest.
Class B Certificate
Rating It is a condition to the
issuance of the Class B Certificates that they be
rated in one of the three highest rating
categories by at least one Rating Agency. The
rating of the Class B Certificates is based
primarily on the value of the Receivables and the
terms of the Collateral Interest.
<PAGE>
RISK FACTORS
LIMITED LIQUIDITY. There is currently no market for the Certificates.
The Underwriters intend to make a market in the Certificates but are not
obligated to do so. There is no assurance that a secondary market will develop
or, if it does develop, that it will provide Certificateholders with liquidity
of investment or that it will continue until the Certificates are paid in full.
NONRECOURSE OBLIGATIONS. No Certificateholder will have recourse for
payment of its Certificates to any assets of the Originators, the Transferor or
any of their affiliates. Consequently, Certificateholders must rely solely upon
payments on or in respect of the Receivables for the payment of principal of and
interest on the Certificates and the Collateral Interest. Furthermore, under the
Agreement, the Certificateholders will have an interest in the Receivables and
collections with respect thereto only to the extent of the Invested Amount.
Should the Certificates not be paid in full on a timely basis,
Certificateholders may not look to any assets of the Originators, the Transferor
or any of their affiliates to satisfy their claims.
CONDITIONS TO PERFECTING SECURITY INTERESTS IN UNEARNED PREMIUMS. Each
insurance premium finance loan agreement underlying a Receivable includes a
grant by the borrower to the applicable Originator of a security interest in the
unearned portion of the premium of the financed commercial insurance policy (the
"Unearned Premium"). The perfection of a security interest in an unearned
premium is not governed by the Uniform Commercial Code ("UCC"). State statutes,
common law and industry practice govern the perfection of a security interest in
the unearned premiums and generally require for the perfection of such security
interest, a notice informing the applicable insurance company of the identity of
the person entitled to the payment of such unearned premium. It is standard
practice for the Originators to send such a notice to the applicable insurance
company at or about the time the insurance policy premium is financed. Each
Originator will represent and warrant in the Receivables Purchase Agreement that
it has a first priority perfected security interest in the Unearned Premiums
relating to the Receivables it transfers to the Transferor. Pursuant to the
Receivables Purchase Agreement, any breach of this representation and warranty
that results in an obligation of the Transferor to repurchase the related
Receivable under the Agreement will result in an obligation of the applicable
Originator to repurchase the related Receivable. The Transferor will assign all
of its rights under the Receivables Purchase Agreement to the Trustee for the
benefit of the Certificateholders.
Each Originator will assign its security interest in the Unearned
Premiums to the Transferor, who will in turn assign its security interest in the
Unearned Premiums to the Trust. Due to the administrative burden and expense of
mailing a notice for each Receivable to the applicable insurance company and the
administrative burden and expense of the related insurance companies, which
would have to process such notices, neither the Transferor nor the Trustee will
send notices to the related insurance companies, except under the circumstances
described below. In the absence of such procedures neither the Transferor nor
the Trust will have a perfected security interest in the Unearned Premiums.
However, on the Closing Date, each Originator will deliver to the
Trustee by electronic means a notice of financed premium (each a "Notice of
Financed Premium") for each Receivable appropriately completed naming the
Trustee on behalf of the Certificateholders as the assignee of the security
interest in the related Unearned Premiums. Any time an Additional Receivable is
transferred to the Trust, the applicable Originator will deliver to the Trustee
by electronic means on the Determination Date following the Monthly Period in
which such Receivable was transferred to the Trust, a Notice of Financed
Premium, for each such Additional Receivable, appropriately completed. The
Trustee will agree not to furnish to an insurance company or its general agent
any notices of financed premium unless and until a Trigger Event shall have
occurred and be continuing. A "Trigger Event" is defined as (i) the occurrence
of a Servicer Default that results in an Originator's replacement as a Servicer
and (ii) the occurrence of certain insolvency events with respect to any of the
Originators and (iii) certain other events specified by the Rating Agencies.
It is possible that an Originator could become the subject of an
insolvency or bankruptcy proceeding prior to the receipt by the applicable
insurance company of the notice of financed premium which identifies the Trust
as the party entitled to payment of the Unearned Premium. In such case, the
Trust's interest in such Unearned Premium would be subordinate to the interest
of a bankruptcy trustee of the Originator. As a result, Certificateholders might
not be able to obtain the proceeds of any such refunded Unearned Premiums.
TRANSFEROR BANKRUPTCY RISK. While the Transferor will transfer
Receivables to the Trust, a court could treat such transfers as an assignment of
collateral as security for the benefit of holders of certificates issued by the
Trust. The Transferor represents and warrants in the Agreement that the transfer
of the Receivables to the Trust is either a valid transfer and assignment of the
Receivables to the Trust or the grant to the Trust of a security interest in the
Receivables. The Transferor has taken and will take certain actions as are
required to perfect the Trust's security interest in the Receivables and
warrants that if the transfer to the Trust is deemed to be a grant to the Trust
of a security interest in the Receivables, the Trustee will have a first
priority perfected security interest therein. Nevertheless, if the transfer of
the Receivables to the Trust is deemed to create a security interest therein, a
tax or government lien on property of the Transferor arising before Receivables
come into existence may have priority over the Trust's interest in such
Receivables, and, if the FDIC were appointed receiver of the Transferor, the
receiver's administrative expenses may also have priority over the Trust's
interest in such Receivables. See "Certain Legal Aspects of the
Receivables--Transfer of Receivables."
To the extent that the Transferor has granted a security interest in
the Receivables to the Trust and that security interest was validly perfected
before any insolvency of the Transferor and was not granted or taken in
contemplation of insolvency or with the intent to hinder, delay or defraud the
Transferor or its creditors, that security interest should not be subject to
avoidance in the event of insolvency and receivership, and payments to the Trust
with respect to the Receivables should not be subject to recovery by a
conservator or receiver for the Transferor. If, however, the conservator or
receiver were to assert a contrary position, or were to require the Trustee to
establish its right to those payments by submitting to and completing the
administrative claims procedure established under the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), or the conservator or
receiver were to request a stay of proceedings with respect to the Transferor as
provided under FIRREA, delays in payments on the Certificates and possible
reductions in the amount of those payments could occur. If a conservator or
receiver were appointed for the Transferor pursuant to the Agreement, new
Receivables would not be transferred to the Trust and the Trustee would sell the
portion of the Receivables allocable in accordance with the Agreement to each
Series (unless holders of more than 50% of the principal amount of each class of
such Series instruct otherwise), thereby causing early termination of the Trust
and a loss to the Certificateholders if the net proceeds allocable to the
Certificateholders from such sale, if any, were insufficient to pay the
Certificateholders in full. Upon the occurrence of a Pay Out Event, if a
conservator or receiver is appointed for the Transferor and no Pay Out Event
other than such conservatorship, receivership or insolvency of the Transferor
exists, the conservator or receiver may have the power to prevent the early
sale, liquidation or disposition of the Receivables and the commencement of the
Rapid Amortization Period. In addition, a conservator or receiver for the
Transferor may have the power to cause early payment of the Certificates. See
"Certain Legal Aspects of the Receivables-Certain Matters Relating to
Receivership."
PREMIUM FINANCE LOAN CREDIT AND RELATED RISKS. Commercial premium
finance loans entail several different risks, including (a) the creditworthiness
of the borrower, (b) the creditworthiness of the insurance company, and (c) the
capabilities and operating procedures of the insurance agent or broker that (i)
places the insurance policy, (ii) serves as a source of significant information
concerning the loan transaction and (iii) may pay the loan proceeds to insurance
companies or their agents or collect unearned premium funds. Application of
federal and state bankruptcy, debtor relief or insolvency laws to an insolvency
of a borrower, insurance company or insurance agent or broker involved with a
loan would affect the interests of the Certificateholders in the Receivables if
such laws result in any Receivables being written off as uncollectible or
prevent the cancellation of such borrower's insurance policy or the collection
of related Unearned Premium, if any, which may serve as collateral for such
borrower's loan. Moreover, the amount of the unearned premium required to be
returned to the insured is dependent on state law and varies depending on when
the notice of cancellation becomes effective. Additionally, at the time of the
origination of a Receivable, the Unearned Premium will not fully collateralize
the borrower's obligations. Generally, depending on the amount of the borrower's
downpayment, the payment terms of the Receivable and applicable state law, the
Unearned Premium will fully collateralize the Receivable after four or five
scheduled payments have been made [;although in some circumstances the Unearned
Premium may never fully collateralize the Receivable]. Consequently, in certain
circumstances, the Trust will have to rely on payments and recoveries from
borrowers as its sole source of payment on the Receivables. See "Business of the
Originators-Premium Finance Loan Underwriting Procedures" and "Description of
the Certificates-Defaulted Receivables; Charge-Offs."
DEPENDENCE ON BUSINESS OF ORIGINATORS. The premium finance loan
industry is competitive and includes banks as well as other premium finance
lending companies that offer financing to companies that purchase commercial
insurance. Insurance premium lenders may compete on the basis of loan pricing
and terms, underwriting criteria and servicing quality. If commercial insurance
consumers choose to utilize competing sources of credit, the amount of available
Additional Receivables generated may be reduced. The size of the Trust will be
dependent upon the Originators' continued ability to generate and transfer
Additional Receivables to the Transferor, who in turn will transfer such
Receivables to the Trustee for the benefit of the Trust. While the Receivables
only represent a portion of the Originators' total portfolio of commercial
premium finance loans and the Originators have generated a relatively stable
dollar volume of premium finance loans on a year-to-year basis over the past
five fiscal years, due to state regulatory considerations, the Additional
Receivables eligible to be transferred to the Trustee for the benefit of the
Trust must be originated with borrowers located in Permitted States. As of the
Cut-off Date commercial premium finance loans in the Identified Portfolio
constitute approximately ___% (by principal balance) of all commercial premium
finance loans in the Originators' portfolio. If the amount of Additional
Receivables originated with borrowers located in Permitted States declines
significantly, Additional Receivables available to be transferred to the Trustee
for the benefit of the Trust will decline. If the amount of Additional
Receivables originated declines to such an extent that the Transferor is unable
to maintain the Minimum Transferor Interest as required by the Agreement and
described herein, a Pay Out Event would occur, in which event the Rapid
Amortization Period would commence. If the Rapid Amortization Period commences,
Certificateholders are likely to be repaid principal on the Certificates earlier
than anticipated which would affect the anticipated average life of the
Certificates and could result in reinvestment risk with respect to such earlier
repayments. See "Description of the Certificates--Pay Out Events."
RISK OF LIMITATIONS ON SUBORDINATION [AND ADDITIONAL YIELD]. Although
the probability of payment of amounts due with respect to the Certificates is
intended to be enhanced by the subordination described herein of payments on the
Collateral Interest [and by additional Portfolio Yield through the discounting
of the Receivables] as described herein and, in the case of the Class A
Certificates, also by the subordination of payments on the Class B Certificates
to the Class A Certificates as described herein, the amount of such enhancement
is limited and may decline during any Rapid Amortization Period [or as a result
of Defaulted Receivables.] If the subordination of payments on the Collateral
Interest [and the additional yield provided by Discount Receivables] are
insufficient to protect the Class B Certificates from shortfalls or delays in
collections on the Receivables, then the Class B Certificateholders will bear
directly the credit risk associated with their undivided interests in the Trust.
If the subordination of payments on the Collateral Interest and the Class B
Certificates and the additional yield provided by the Discount Receivables are
insufficient to protect the Class A Certificates from shortfalls or delays in
collections on the Receivables, then the Class A Certificateholders will bear
directly the credit risk associated with their undivided interests in the Trust.
The credit risk associated with the Certificateholders' undivided interests in
the Trust is the risk that the Trust will not receive full and timely payment of
the Receivables. Series of certificates issued in the future may share with the
Class A Certificates and the Class B Certificates in the benefits of the
subordination of the Collateral Interest[, the additional yield provided by
Discount Receivables] and any amounts deposited into the Excess Funding Account.
See "Description of the Certificates--Subordination," "--Certificate Interest
and Principal" and "--Excess Funding Account." [In addition, because the
Receivables will be purchased at a discount, the Transferor Interest will be
less than what otherwise would have been the case had the Receivables not been
bought at a discount. As a result, the Transferor will have to transfer more
Additional Receivables in order to maintain the Minimum Transferor Interest as
required by the Agreement and described herein; to avoid a Pay Out Event.]
GEOGRAPHIC CONCENTRATION AND ADVERSE ECONOMIC FACTORS. As of the
Cut-off Date, ___% of the aggregate Receivables (based on principal balance)
were related to insurance premium finance loans to borrowers whose stated
addresses in the related insurance premium loan agreements is in California.
After giving effect to the transfer of Additional Receivables this percentage
may increase or decrease. Economic factors, including the occurrence of a
recession, the rate of inflation, and relative interest rates, may have an
adverse impact upon the performance of the Receivables and on the Originators'
ability to generate Additional Receivables. In particular, negative economic
developments in California could have an adverse impact on the timing and
amounts of payments made by borrowers in respect of Receivables and could cause
such borrowers to become bankrupt or insolvent. See "--Premium Finance Loan
Credit and Related Risks" and "Maturity Considerations."
ADDITIONAL RECEIVABLES CONSIDERATIONS. Each Originator will be
obligated pursuant to the Receivables Purchase Agreement to transfer all
Additional Receivables originated by it in the Identified Portfolio to the
Transferor, who in turn will be obligated pursuant to the Agreement to transfer
such Additional Receivables to the Trustee for the benefit of the Trust. Such
Additional Receivables may include Receivables originated using criteria
different from those which were applied to the Receivables assigned to the
Trustee for the benefit of the Trust on the Closing Date or to previously
transferred Additional Receivables, because such Receivables were originated at
a different date. Consequently there can be no assurance that Additional
Receivables transferred to the Trust in the future will be of the same credit
quality as previously transferred Receivables. The transfer of Additional
Receivables will be subject to the satisfaction of certain criteria described
herein under "Description of Certificates-- Eligible Receivables" and
"--Addition of Receivables." Except for the criteria described thereunder, there
are no required characteristics of Additional Receivables. Additionally, because
the latest scheduled maturity date of any Receivable included in the Trust as of
the Closing Date is _____, 199_, it is expected that following such date all of
the Receivables in the Trust will consist of Additional Receivables. Following
the transfer of Additional Receivables to the Trust, the aggregate
characteristics of the entire pool of Receivables included in the Trust may vary
from those of the Receivables included in the Trust on the Closing Date. See
"The Receivables."
RISK OF STATE REGULATION OF PREMIUM FINANCE LENDING. On occasion,
Congress has introduced bills that would limit the fees and finance charges that
financial institutions may impose on the purchase of insurance policies, or
which would require additional disclosure to borrowers. In some cases, the rates
proposed have been substantially below the rate at which the Originators assess
fees and finance charges on most of the Receivables. In addition, the
Originators are subject to state laws and regulations which impose requirements
on the making, enforcement and collection of insurance premium loans. The states
may enact additional laws and regulations and amendments to existing laws and
regulations to regulate further the premium loan industry or to reduce finance
charges or other fees or charges applicable to insurance premium loans.
Currently the Originators do not expect the enactment of any such legislation.
However, if any such laws were adopted, the Servicer's ability to collect on the
Receivables or maintain the required level of finance charges and other fees and
charges and the ability of the Trust to obtain a successor servicer in the event
an Originator shall cease for any reason to continue as a Servicer may be
adversely affected. In addition, if one of the Permitted States in which the
Transferor, the Trustee or the Trust was exempt from licensing laws relating to
the acquisition, transfer, ownership or servicing of insurance premium finance
loans were to subsequently require any of the Transferor, the Trustee or the
Trust to be licensed under such laws and such entity failed to become so
licensed within the period specified in the Agreement, a Pay-Out Event would
occur and the Rapid Amortization Period would commence.
Pursuant to the Receivables Purchase Agreement, each Originator
covenants, and pursuant to the Agreement, the Transferor covenants to accept
reassignment of each Receivable that does not comply with certain
representations and warranties, including representations concerning compliance
with applicable state law and regulations, made by it if, as a result of such
noncompliance the related Receivable becomes a Defaulted Receivable or impairs
the Trust's rights under the Receivable. The Trustee has not, and it is not
anticipated that it will, make any examination of the Receivables or the records
relating thereto for the purpose of establishing the presence or absence of
defects, compliance with such representations and warranties, or for any other
purpose. The Trust's remedy if any such representation or warranty is breached
and such breach continues beyond the applicable cure period and the related
Receivable becomes a Defaulted Receivable because of such breach is that the
Transferor (and the applicable Originator) will be obligated to accept
reassignment of the Receivables affected thereby. See "Description of the
Certificates-Representations and Warranties" and "The Receivables Purchase
Agreement--Representations and Warranties".
LIMITATIONS ON STATE INSURANCE GUARANTY FUNDS. All states have state
insurance guaranty funds that support the obligations of insurance companies
regulated by that state, including the obligation of such insurance companies to
return unearned premiums to their insureds upon cancellation of the related
insurance policies. Some state insurance guaranty funds impose dollar limits,
exclude certain types of coverage and do not operate with reference to surplus
and excess lines insurance companies, including in most states, foreign
insurance companies (the "State Fund Refund"). Additionally, state legislation
may be enacted imposing additional limitations or restrictions on State Funds
Refunds. There is also a possibility that a state insurance guaranty fund will
become underfunded which could cause an additional delay in the Trust receiving
a State Fund Refund, or could ultimately result in a failure by the state
insurance guaranty fund to pay to the Trust any State Fund Refund. See "Certain
Legal Aspects of the Receivables--State Insurance Guaranty Funds."
COMMINGLING RISK. For as long as an Originator remains a Servicer under
the Agreement and (a) (i) such Servicer provides to the Trustee a letter of
credit or other credit enhancement covering the risk of collection of such
Servicer acceptable to the Rating Agencies and (ii) the Transferor shall not
have received a notice from the Rating Agency that reliance on such letter of
credit or other credit enhancement would result in the lowering of such Rating
Agency's then-existing rating of any Series then outstanding or (b) the
certificates of deposit or unsecured short-term debt obligations of such
Servicer (or, if neither such certificates of deposit nor obligations of such
Servicer are rated by Moody's or Standard & Poor's, then the certificates of
deposit or unsecured short-term debt obligations of Mellon Bank, N.A.) are rated
P-1 by Moody's and at least A-1 by Standard & Poor's and insured by either BIF
or SAIF or such Servicer makes other arrangements satisfactory to each Rating
Agency rating any Series then outstanding, then such Servicer may make deposits
and payments described in "Description of the Certificates--Application of
Collections" on the business day immediately prior to the Distribution Date (the
"Transfer Date") in an amount equal to the net amount of such deposits and
payments which would have been made during the related Monthly Period had the
conditions set forth above not applied. In the event that a Servicer commingles
collections, the Certificateholders will be subject to the risk of loss of such
collections, including as a result of the bankruptcy or insolvency of such
Servicer. Because Mellon Bank, N.A.'s unsecured short-term debt obligations are
currently rated P-1 by Moody's and A-1 by Standard & Poor's, the Servicer will
initially make such deposits and payments monthly on a net basis and expects to
continue to do so (subject to the requirements described above) for as long as
the Certificates are outstanding. See "Description of the
Certificates--Application of Collections."
MASTER TRUST CONSIDERATIONS. The Trust, as a master trust, will issue
the Certificates, and may issue additional Series of certificates. While the
principal terms of any Series will be specified in a Series Supplement, the
provisions of a Supplement and, therefore, the terms of any additional Series,
will not be subject to the prior review or consent of holders of the
certificates of any previously issued Series, including Series 1996-1. Such
principal terms may include methods for determining applicable investor
percentages and allocating collections, provisions creating different or
additional security or other Enhancement, provisions subordinating such Series
to another Series (if the Series Supplement relating to such Series so permits;
the Series 1996-1 Supplement will not permit the subordination of the
Certificates to any other Series). It is a condition precedent to the issuance
of any additional Series that either (A) each Rating Agency deliver written
confirmation to the Trustee that such New Issuance will not result in such
Rating Agency reducing or withdrawing its then-existing rating on any
outstanding Series or (b) if at the time of the New Issuance there is no
outstanding Series which is currently rated by a Rating Agency, a nationally
recognized investment banking firm or commercial bank delivers a certificate to
the trustee to the effect that the New Issuance will not have an adverse effect
on the timing or distribution of payments to such other Series. There can be no
assurance, however, that the principal terms of any Series issued from time to
time hereafter might not have an impact on the timing and amount of payments
received by a Certificateholder, including as a result of the refixing of the
percentage utilized with respect to the allocation of the Principal Receivables.
See "Description of the Certificates-New Issuances" and "--Allocation
Percentages."
If the Trust issues any additional Series in a future public offering,
the Trust will do so pursuant to a registration statement (and prospectus) under
the Securities Act that is separate from this Prospectus and its related
registration statement.
CERTIFICATEHOLDER CONTROL LIMITATIONS. Subject to certain exceptions,
the certificateholders of each Series may take certain actions, or direct
certain actions to be taken, under the Agreement or the related Series
Supplement. However, under certain circumstances, the consent or approval of a
specified percentage of the aggregate certificateholders ownership interest of
all Series or of the certificateholders ownership interest of each Series or of
Classes within a Series will be required to take or direct certain actions,
including requiring the appointment of a successor Servicer following a Servicer
Default, amending the Agreement in certain circumstances and directing a
repurchase by the Transferor of all outstanding Receivables upon the breach of
certain representations and warranties by the Transferor. In such instances, the
interests of the holders of the Certificates may not be aligned with the
interests of the holders of certificates of such other Series. Thus, even if the
requisite majority of Certificateholders votes to take or direct such action,
the certificateholders of such other Series may control whether or not such
action occurs.
LIMITATIONS ON CERTIFICATE RATING; RISK OF DOWNGRADE. Any rating
assigned to the Certificates by a Rating Agency will reflect such Rating
Agency's assessment of the likelihood that Certificateholders will receive the
payments of interest and principal required to be made under the Agreement and
will be based primarily on the value of the Receivables in the Trust and the
Collateral Interest. However, any such rating will not, unless otherwise
specified herein with respect to any Class offered hereby, address the
likelihood that the principal of, or interest on, any Certificates will be paid
on a scheduled date. In additional, any such rating will not address the
possibility of the occurrence of a Pay Out Event with respect to such Class or
the possibility of the imposition of the United States withholding tax with
respect to non-U.S. Certificateholders. The rating will not be a recommendation
to purchase, hold or sell Certificates, and such rating will not comment as to
the marketability of such Certificates, any market price or suitability for a
particular investor. There is no assurance that any rating will remain for any
given period of time or that any rating will not be lowered or withdrawn
entirely by a Rating Agency if in such Rating Agency's judgment circumstances so
warrant.
The Transferor will request a rating of the Certificates offered hereby
by each of the Rating Agencies. There can be no assurance as to whether any
rating agency not requested to rate the Certificates will nonetheless issue a
rating with respect to any Certificates, and, if so, what such rating would be.
A rating assigned to any of the Certificates by a rating agency that has not
been requested by the Transferor to do so may be lower than the rating assigned
by the Rating Agencies pursuant to the Transferor's request.
BOOK-ENTRY REGISTRATION. The Certificates initially will be represented
by one or more certificates registered in the name of Cede, the nominee for DTC,
and will not be registered in the names of the Certificate Owners or their
nominees. Unless and until Definitive Certificates are issued for a Series, the
owners of the beneficial interests of the Certificates ("Certificate Owners")
will not be recognized by the Trustee as Certificateholders. Hence, until such
time, Certificate Owners will only be able to exercise the rights of
Certificateholders indirectly through DTC, Cedel or Euroclear and their
participating organizations. See "Description of the Certificates--Book-Entry
Registration" and "--Definitive Certificates."
BUSINESS OF THE ORIGINATORS
GENERAL
AFCO Credit Corporation, a New York corporation ("AFCO Credit"), was
formed in 1954 as a wholly owned subsidiary of Continental Insurance Company and
was subsequently purchased by Mellon Bank, N.A. in 1993. The principal business
of AFCO Credit consists of making loans to commercial borrowers to finance
property and casualty insurance premiums throughout the United States, other
than in California. AFCO Acceptance Corporation ("AFCO Acceptance") was formed
in California in 1968 for the purpose of making loans to commercial borrowers to
finance property and casualty insurance premiums in California For the purpose
of this "Business of the Originators" section AFCO Credit and AFCO Acceptance
will be referred to collectively as "AFCO". AFCO finances premiums for most
lines of property and casualty insurance and is the largest insurance premium
finance company in the United States. AFCO financed insurance premiums during
1995 in excess of $____, and during the first six months of 1996, in excess of
$_____. The principal executive offices of AFCO Credit are located at 10 Hanover
Street, New York, New York 10004, telephone number (212) 612-3500 and of AFCO
Acceptance Corporation are located at __________, telephone number ___________.
A commercial premium finance loan typically is an installment loan made
to a commercial insurance buyer, the proceeds of which pay premiums which are
due to the insurance company. Financed commercial insurance policies commonly
(a) are for a term of one year or less, (b) require the full premium to be paid
at or near inception and (c) provide for a return of the unearned premium to the
insured in the event of cancellation. Borrowers generally make fixed scheduled
payments which include a finance charge that is established at the time of
origination of the loan. Such finance charge is based on a spread over the
estimated London interbank offered rate at the date of origination of the loan
for deposits with a maturity comparable to the average life of the loan, which
currently is generally 4 1/2 months.
The finance charges on premium finance loans made by AFCO may vary
considerably, depending on the term and amount of the loan, the insured's credit
payment history, the size of the premium down payment and other considerations.
For additional information concerning the calculation of AFCO's finance charges,
see "Description of the Certificates--Allocation Percentages".
AFCO utilizes standardized premium finance loan agreements that give
AFCO a limited power of attorney allowing it to cancel the insurance coverage
upon non-payment of a loan installment by the borrower, to collect from the
insurance company any unearned premium that may secure the loan and to take
certain limited actions in furtherance of the premium finance loan agreement.
Depending on the terms of the loan and of the related insurance policy, the
unearned premium may or may not be sufficient to pay off the outstanding balance
of the loan. AFCO also has a right to recover any unpaid loan balance directly
from the borrower if any returned premium is insufficient.
A common premium finance loan structure may include a 20% down payment
on the premium paid by the borrower with the remaining 80% funded by a loan from
the insurance premium finance company to be repaid by the borrower in nine equal
monthly installments. AFCO's premium finance loans generally have terms that
range from 6 to 12 months with higher or lower down payment percentages
depending upon insured's needs and AFCO's applicable credit and underwriting
policies. Certain loans do not have level repayment requirements, usually to
accommodate a borrower's cash flow. Given the relatively short duration of most
premium finance loans, such loans are generally not prepaid prior to the
scheduled payment dates although the loan terms and controlling regulations do
not prohibit prepayments or provide for penalties in the event of prepayment.
Financed commercial insurance policies usually require that the full
insurance premium be paid at the commencement of the policy period. The
insurance company customarily earns the full premium over the course of the
policy period. If the insured cancels the policy prior to the end of the policy
period, the insured is commonly entitled to a repayment of the portion of
premium payment that is unearned by the insurance company at the time of
cancellation. Depending on the type of insurance coverage and the terms of the
particular insurance policy, the amount of unearned premium available upon
cancellation will vary in light of relevant factors such as (a) the applicable
method for measuring unearned premium which may be by proration over the policy
term or, as required by some states, by an accelerated method under which more
premium is earned in the earlier portion of the policy period, (b) the extent of
the policy period that has expired at the time of cancellation, (c) the loss
experience under the policy prior to cancellation and (d) variations after the
commencement of the policy period in the scope of the risks covered. The
insurance company may, depending on the terms of the policy, be entitled to
retroactively review and evaluate factors (c) and (d) above after cancellation
which may result in a reduction of the amount, and affect the timing, of
repayment of any unearned premiums. Also, in certain cases the insurance company
may earn the entire premium or a portion thereof at inception of the policy or
upon the occurrence of an insured loss under the policy, in either of which case
there would be either less or no unearned premium to be returned.
Premium finance lending activities are regulated by most states. Among
other matters, many states regulate various terms of the premium finance loans
such as refund policies and rates of interest and late charges that may be
charged an insured. Premium finance loans are made by AFCO on standardized loan
forms, the provisions and format of which are also usually subject to state
regulation. AFCO regards its relations with state regulatory agencies as good.
See "-State Regulation of Premium Finance Lending Activities."
PREMIUM FINANCE LOAN ORIGINATION; COLLECTION POLICY
AFCO generally locates premium finance borrowers through independent
insurance agents and brokers that are licensed under state laws, who offer
premium loan programs to enable their commercial customers to purchase the full
amount of insurance coverage needed and spread out the premium payments over
time. Thus, origination is usually dependent on relationships with insurance
brokers and agents and knowledge of the insurance marketplace. The origination
by AFCO of insurance premium finance loans is commonly commenced by an agent or
broker contacting AFCO to initiate the premium loan process and outlining to
AFCO the proposed loan transaction, including borrower and insurance company
information and coverage types and amounts. AFCO then reviews the information
submitted by such agent or broker in light of its underwriting procedures. See
"-Premium Finance Loan Underwriting Procedures" below. After AFCO approval, the
borrower executes a standard premium finance loan agreement which contains a
limited power of attorney giving AFCO the authority in the event of default on
the loan to contact the insurance company directly and cancel coverage, and a
collateral assignment to AFCO of the unearned insurance premium, if any,
returnable following such cancellation or for any other reason.
Following receipt and acceptance of the signed premium finance loan
agreement, AFCO either sends the loan proceeds to the insurance company to pay
the premium balance due or releases funds to the insurance agent or broker who
then pays the insurance company. AFCO bills the borrower directly. Each borrower
is directed to remit payments to the appropriate regional lockbox account
maintained by AFCO or in some cases to one of AFCO's processing centers. While
most premium finance loans are repaid in equal monthly installments, AFCO may
enter into transactions in which payments are to be made quarterly or in some
other fashion.
Since the insurance company generally earns a portion of the premium
each day, thereby reducing unearned premium amounts for loans secured by such
collateral, prompt action on loan defaults is important. On defaulted loans,
most states require premium finance companies such as AFCO to issue to the
borrower a "Notice of Intent to Cancel" the related insurance policy after the
premium loan installment due date on which the borrower defaulted. A "Notice of
Cancellation" can then be issued to the applicable insurance company generally
ten days after a Notice of Intent to Cancel has been mailed. AFCO's policy for
defaulted loans is to mail a Notice of Intent to Cancel 10 days after the loan
installment due date and to mail a notice of cancellation 28 days after the loan
installment due date. Once a Notice of Cancellation has been issued, AFCO will
customarily proceed to collect any unearned premium available from the insurance
company and apply it to the loan balance and to seek direct collection from the
borrower.
Generally, the policy cancellation date occurs within one month of the
related loan installment default. The current policy of AFCO is to generally
charge off as a loss the unpaid defaulted loan balance 270 days after the
effective date of the cancellation. Following cancellation, AFCO will process
the collection of any unearned premium with the appropriate insurance company
and may pursue collection against the borrower. Under the terms of the
Agreement, any recoveries with respect to Receivables that have been written off
will be included in the assets of the Trust and considered Finance Charge
Receivables. See "The Receivables."
PREMIUM FINANCE LOAN UNDERWRITING PROCEDURES
AFCO considers and evaluates a variety of risks in evaluating each
insurance premium finance loan transaction. These include (a) the loan structure
(the loan term, the amount of down payment and the availability of unearned
premium as collateral), (b) the creditworthiness of the borrower, (c) the
creditworthiness of the insurance company, and (d) the capabilities and
operating procedures of the insurance agent or broker that (i) places the
insurance policy, (ii) serves as a source of significant information regarding
the loan transaction, and (iii) may pay the loan proceeds or collect unearned
premium funds for AFCO. These factors may be given different weight in the case
of any particular loans. See "Risk Factors--Premium Finance Loan Credit and
Related Risks."
All applications from insureds for loans to be originated by AFCO are
reviewed for completeness and creditworthiness based on the loan underwriting
criteria established by AFCO and under certain circumstances are reviewed by
representatives of Mellon Bank, N.A. With respect to agents and brokers, AFCO
monitors loans in its portfolio originated by particular agents and brokers to
assist in assessing their capabilities and performance as agents or brokers .
AFCO's general guideline for approval of an insurance company is a
rating of at least B+ by A.M. Best Company. No insurance company group accounted
for more than ___% (by principal balance) of the outstanding insurance premium
finance loans in the Identified Portfolio as of the Cut-off Date. Based upon
AFCO's own credit determination, it may finance insurance policies issued by
insurance companies that have a lower rating or, in the case of foreign insurers
and certain domestic insurers that meet AFCO credit requirements, that are
unrated. As of the Cut-off Date, __% of the aggregate outstanding principal
balance of the Receivables in the Identified Portfolio represented loans
originated by AFCO to finance premiums on policies issued by domestic unrated
insurers.
STATE REGULATION OF PREMIUM FINANCE LENDING ACTIVITIES
The making, enforcement and collection of insurance premium loans is
subject to extensive regulation by many states' laws. Such laws vary widely by
state, but often (i) require that premium finance lenders be licensed by the
state, (ii) restrict the content of premium finance loan agreements, and impose
certain disclosure requirements on such agreements, (iii) limit the amount of
finance charges that may be lawfully imposed, (iv) regulate the amount of
refunds due an obligor who prepays the premium finance loan prior to maturity,
(v) regulate the amount of late fees, if any, and finance charges that may be
charged upon a premium finance loan becoming overdue, (vi) regulate the manner
and method of cancelling an insurance policy upon non-payment of the premium
finance loan, including a requirement that the premium finance lender provide
the obligor with appropriate notice prior to such cancellation, and (vii) allow
imposition of penalties, which may be significant, upon premium finance lenders
for violations of the state's premium finance laws. See "Risk Factors--State
Regulation of Premium Finance Lending."
In order to increase the likelihood of the payment of claims and
unearned premiums in the event that an insurance company becomes insolvent, the
insurance industry created self-funded state guaranty associations. All States
have state insurance guaranty funds that cover the return of some or all
unearned insurance premiums in the event an insurance company becomes insolvent
or is placed in receivership. However, there is no guaranty of payment in the
event the state insurance guaranty fund is underfunded or legislation changes
the terms and conditions of its refund program. See "Risk Factors--Limitations
on State Insurance Guaranty Funds."
State insurance guaranty funds differ by the types of insurance
policies covered and by deductible amounts required or maximum refunds allowed.
Generally, state insurance guaranty funds have successfully responded to claims
for refunds in a timely manner if access to the liquidation estate is readily
accessible and their premium assessments on fund members are accurate.
Generally, the timing of payment of a State Fund Refund by a state insurance
guaranty fund ranges from a few months to one year.
AS SERVICER
Each Originator will act as a Servicer for the Receivables in
accordance with the Agreement. In certain limited circumstances, a Servicer may
resign or be removed as Servicer, in which case a third party may be appointed
as its successor. See "Risk Factors--State Regulation of Premium Finance
Lending," "Description of the Servicer Defaults."
THE RECEIVABLES
The assets of the Trust will include (i) loans made by either of the
Originators to commercial borrowers to finance the payment of insurance premiums
on insurance and related sums regarding insurance policies under which the
borrowers are the insureds governed by the law of a State in the United States
of America or the District of Columbia, which loans are transferred from time to
time by either of the Originators to the Transferor and by the Transferor to the
Trustee for the benefit of the Trust (the "Receivables"); (ii) all monies due or
to become due with respect to the Receivables, including all monies received
from insurance companies and state insurance guaranty funds representing returns
of unearned portions of insurance premiums, up to the amount of principal,
interest and other charges due on the related Receivables; (iii) such amounts as
may be from time to time held in one or more trust accounts, which will be
established and maintained by the Trustee pursuant to the Agreement; (iv) any
Enhancement issued with respect to any Series; (v) all of the Transferor's
rights under a receivables purchase agreement (the "Receivables Purchase
Agreement"), dated as of _____ 1, 1996, among the Transferor and the Originators
and (vi) the proceeds of all of the foregoing. "
Each Receivable will have been originated by the Originators to finance
commercial insurance premiums. The Receivables are not guaranteed by AFCO
Credit, AFCO Acceptance, the Transferor or any affiliate thereof, and the Trust,
as holder of the Receivables, has no recourse against AFCO Credit, AFCO
Acceptance, the Transferor or any affiliate thereof for the non-collectibility
of the Receivables, except that, under certain limited circumstances, AFCO
Credit or AFCO Acceptance, as the case may be, and the Transferor will be
required to repurchase certain Receivables from the Trust and to provide
indemnification to the Trust in certain events. AFCO Credit and AFCO Acceptance
will each act as Servicer with respect to the Receivables it originated and
transferred to the Transferor, who in turn will transfer such Receivables to the
Trust. As set forth in the Agreement, each Receivable to be transferred to the
Trust must satisfy certain eligibility criteria. See "Description of the
Certificates-Representations and Warranties" and "--Eligible Receivables."
Certain information regarding the performance and composition of the
Originators' pool of commercial premium finance loans with borrowers whose
stated addresses in the related insurance premium finance loan agreements are in
one of the Permitted States (the "Identified Portfolio") is set forth below. As
of the Cut-off Date, commercial premium finance loans in the Identified
Portfolio constitute approximately __% (by principal balance) of all the
commercial premium finance loans in the Originators' portfolio. It is expected
that substantially all of the commercial premium finance loans in the Identified
Portfolio will satisfy the eligibility criteria in the Agreement and will be
transferred to the Trust on the Closing Date. "Permitted State" means (i) any
State listed in the chart entitled "Geographic Concentration" appearing below or
(ii) any other state with respect to which each of the Originators, the
Transferor and the Trust has either complied with such state's applicable
licensing laws or is not required to be licensed under such state's applicable
licensing laws, in each case, as evidenced by an opinion of counsel. The
selection of the Permitted States listed in the chart entitled "Geographic
Concentration" was based on state regulatory considerations.
Each Originator will be required pursuant to the Receivables Purchase
Agreement to transfer and assign all Additional Receivables from the Identified
Portfolio to the Transferor, who in turn will be required pursuant to the
Agreement to transfer and assign all such Additional Receivables to the Trustee
for the benefit of the Trust. Such Additional Receivables may include
Receivables originated using criteria different from those which were applied to
the Receivables assigned to the Trustee for the benefit of the Trust on the
Closing Date or to previously transferred Additional Receivables, because such
Receivables were originated at a different date. Consequently there can be no
assurance that Additional Receivables transferred to the Trust in the future
will be of the same credit quality as previously transferred Receivables. See
"Risk Factors--Additional Receivables Considerations". In addition, there are
many legal, economic and competitive factors that could adversely affect the
amount and collectibility of the Receivables, including insureds' decisions to
use new sources of credit, which would affect the Originators' ability to
generate Additional Receivables, and changes in usage of credit, payment
patterns and general economic conditions. Because the impact of these and other
factors (including the composition of the Receivables and the interest rates,
fees and charges assessed thereon) may change in the future, the text and tables
set forth below are not necessarily indicative of the future performance of the
Receivables that are transferred to the Trust.
The following tables set forth certain summary information regarding
the Identified Portfolio. During each of the calendar years 1993, 1994 and 1995
and during the six months ended June 30, 1996, collections by the Originators on
commercial premium finance loans in each month of such periods exceeded __% of
the principal balance of the loans outstanding as of the beginning of the month.
Assuming (i) a __% payment rate each month, (ii) twelve equal 30-day monthly
periods, and (iii) the Transferor Interest equalling at least the Minimum
Transferor Interest, the amount available under the Agreement during the
Revolving Period for yield enhancement would be ___ basis points on the
outstanding principal of the Certificates on an annualized basis and may be
greater during an amortization period (unless the amount of interest due on the
outstanding principal of the Certificates during such Monthly Period is less
than ____ basis points on an annualized basis, in which case the amount
available for yield enhancement would be such lesser amount). There can be no
assurance, however, that the monthly payment rate on the Receivables will not be
less than __% since the payment rate will vary depending on a variety of
factors, including loan maturities, interest rates and delinquency and default
rates.
<TABLE>
<CAPTION>
OUTSTANDING PRINCIPAL BALANCES OF RECEIVABLES BY SIZE
AS OF THE CUT-OFF DATE
(DOLLARS IN THOUSANDS)
% of
AGGREGATE AGGREGATE
% OF OUTSTANDING OUTSTANDING
OUTSTANDING PRINCIPAL BALANCE OF NO. OF PRINCIPAL PRINCIPAL PRINCIPAL
RECEIVABLES(1) RECEIVABLES BALANCES BALANCE BALANCE
<S> <C> <C> <C> <C>
$5,000 or less..............................
$5,001 to $10,000...........................
$10,001 to $25,000..........................
$25,001 to $50,000..........................
$50,001 to $75,000..........................
$75,001 to $100,000.........................
$100,001 to $250,000........................
$250,001 to $500,000........................
$500,001 to $1,000,000......................
$1,000,001 to $5,000,000....................
Over $5,000,000.............................
Total..............................
<FN>
(1) Receivable principal balances include outstanding principal balances
(including committed but unfunded amounts) and unearned finance
charges.
</FN>
</TABLE>
<TABLE>
<CAPTION>
COMPOSITION OF RECEIVABLES BY REMAINING INSTALLMENT TERM
AS OF THE CUT-OFF DATE
(DOLLARS IN THOUSANDS)
% OF
AGGREGATE AGGREGATE
OUTSTANDING OUTSTANDING
NO. OF PRINCIPAL PRINCIPAL
REMAINING INSTALLMENT TERM(1) RECEIVABLES BALANCE BALANCE
<S> <C> <C> <C>
3 months or less................................
4 to 6 months...................................
7 to 9 months...................................
10 to 12 months.................................
13 to 18 months.................................
More than 18 months.............................
<FN>
(1) Terms of the loans commonly provide for level payments of principal and
finance charges on a monthly basis[, although certain loans do not have
level repayment requirements.]
</FN>
</TABLE>
<PAGE>
GEOGRAPHIC CONCENTRATION
The Identified Portfolio as of the Cut-Off Date includes commercial premium
finance loans originated in _____ states and the District of Columbia. The
following table sets forth information regarding the concentration of
Receivables in the "Identified Portfolio" by outstanding principal balance of
the Cut-Off Date.
GEOGRAPHIC DISTRIBUTION
AS OF THE CUT-OFF DATE
(DOLLARS IN THOUSANDS)
% OF
AGGREGATE AGGREGATE
STATES OUTSTANDING OUTSTANDING
PRINCIPAL PRINCIPAL
BALANCE BALANCE
%
Total $ 100.00%
-- ------
LOSS AND DELINQUENCY EXPERIENCE
The following tables set forth the loss and delinquency experience with
respect to commercial premium finance loans in the Identified Portfolio for each
of the periods or at each of the dates shown, as applicable. The Originators
collectively originated commercial premium finance loans in [all 50] states
during such periods. Consequently, commercial premium finance loans in the
Identified Portfolio at any time represented only a portion of the Originators'
entire premium finance loan portfolio. The Originators do not believe that the
historical performance of commercial premium finance loans in the Identified
Portfolio differs materially from the historical performance of their entire
premium finance loan portfolio. All of the Receivables transferred to the Trust
on the Closing Date will be from the Originators' current Identified Portfolio;
however, if a state becomes a Permitted State subsequent to the Cut-off Date
premium finance loans from such Permitted State that otherwise satisfy the
eligibility criteria set forth under "Description of the Certificates--Eligible
Receivables" may be transferred to the Trust. There can be no assurance that the
loss or delinquency experience for the Trust with respect to the Receivables
will be similar to the historical experience set forth below. For purposes of
the following tables the Identified Portfolio only includes insurance premium
finance loans to borrowers whose stated addresses in the related insurance
premium finance loan agreements are in one of the States listed in the chart
entitled "Geographic Concentration" above.
LOAN LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
The following table sets forth loss experience with respect to payments
by borrowers on commercial premium finance loans in the Identified Portfolio for
each of the periods shown. Neither the Originators nor the Transferor believe
that changes of amounts from period to period reflect any material trends.
<TABLE>
Six Months Ended
JUNE 30, YEAR ENDED DECEMBER 31,
1996 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average Aggregate Outstanding Principal
Balance................................... $ $ $ $
Gross Charge-Offs......................... $ $ $ $
Recoveries................................ $ $ $ $
Net Charge-Offs........................... $ $ $ $
Net Charge-Offs as
Percentage of Average
Aggregate Outstanding
Principal Balance....................... % % % %
</TABLE>
<PAGE>
LOAN DELINQUENCY EXPERIENCE FOLLOWING CANCELLATION
The following table sets forth the delinquency experience with respect
to payments on premium finance loans in the Identified Portfolio at each of the
dates shown. In conformity with state requirements regarding cancellation
notification, insurance policies are generally cancelled within one month
following a borrower's failure to make a related scheduled loan installment
payment. The loan delinquency data presented in the following table are measured
from the date of issuance of a Notice of Cancellation. The percentages presented
for each aging category reflect the sum of the balance of principal and unearned
finance charges (including the overdue installment(s) as well as all of the
remaining installment payments not yet due) on all cancelled accounts within
each category divided by the aggregate principal loan balance (excluding
unearned finance charges). Since the table reflects percentages calculated by
including unearned finance charges in the cancelled accounts, but not including
such amounts in the aggregate loan balances, the resulting percentages may
reflect higher percentages of delinquencies than actually experienced.
Variations from one measurement date to another measurement date within aging
categories are primarily a reflection of the variability of time required to
collect the unearned insurance premium from the insurance carrier or,
alternatively, the remaining loan balance from the borrower, on a revolving pool
of loans. Neither the Originators nor the Transferor believe the changes in
amounts from period to period in the categories in the table reflect any
material trend. There can be no assurance that the delinquency experience with
respect to the Receivables will be similar to the historical experience set
forth below.
<TABLE>
At At
Number of days a loan remains June 30, DECEMBER 31,
overdue after cancellation of
the related insurance policy:
1996 1995 1994 1993
------------- ------------- ------------- --------
<S> <C> <C> <C> <C>
31-60 days............................ % % % %
61-90 days............................ % % % %
91-120 days........................... % % % %
121-150 days.......................... % % % %
151 days or greater(1)................ % % % %
----- ----- ----- -----
Total............................. % % % %
----- ----- ----- -----
<FN>
- --------
(1) A loan is generally written off to the extent it is uncollected 270 days after the effective date of
cancellation. See "Business of the Originators -- Premium Finance Loan Origination; Collection Policy."
</FN>
</TABLE>
USE OF PROCEEDS
The net proceeds from the sale of the Certificates, approximately
$_________ before deduction of expenses, will be applied to the purchase of the
Receivables from the Originators.
MATURITY ASSUMPTIONS
The Agreement provides that Class A Holders will not receive payments
of principal until the Class A Scheduled Payment Date, or earlier in the event
of a Pay Out Event which results in the commencement of the Rapid Amortization
Period. The Class B Holders will not begin to receive payments of principal
until the final principal payment on the Class A Certificates has been made.
CONTROLLED ACCUMULATION PERIOD. On each Transfer Date during the
Controlled Accumulation Period prior to the payment of the Class A Investor
Interest in full, an amount equal to, for each Monthly Period, the least of (a)
the Available Investor Principal Collections, (b) the "Controlled Deposit
Amount" for such Monthly Period (which equals the sum of the Controlled
Accumulation Amount for such Monthly Period and any portion of the Controlled
Accumulation Amount for any prior Monthly Period that was not deposited in the
Principal Funding Account) and (c) the Class A Adjusted Investor Interest prior
to any deposits on such day, will be deposited in the Principal Funding Account
(the "Principal Funding Account") established by the Trustee until the principal
amount on deposit in the Principal Funding Account (the "Principal Funding
Account Balance") equals the Class A Investor Interest. After the Class A
Investor Interest has been paid in full, Available Investor Principal
Collections, to the extent required, will be distributed to the Class B Holders
on each Distribution Date until the earlier of the date the Class B Investor
Interest has been paid in full and the Series 1996-1 Termination Date. After the
Class A Investor Interest and the Class B Investor Interest have each been paid
in full, Available Investor Principal Collections, to the extent required, will
be distributed to the Collateral Interest Holder on each Transfer Date until the
earlier of the date the Collateral Interest has been paid in full and the Series
1996-1 Termination Date. Amounts in the Principal Funding Account are expected
to be available to pay the Class A Investor Interest on the Class A Scheduled
Payment Date. After the payment of the Class A Investor Interest in full,
Available Investor Principal Collections are expected to be available to pay the
Class B Investor Interest on the Class B Scheduled Payment Date. Although it is
anticipated that collections of Principal Receivables will be available on each
Transfer Date during the Controlled Accumulation Period to make a deposit of the
applicable Controlled Deposit Amount and that the Class A Investor Interest will
be paid to the Class A Holders on the Class A Scheduled Payment Date and the
Class B Investor Interest will be paid to the Class B Holders on the Class B
Scheduled Payment Date, respectively, no assurance can be given in this regard.
If the amount required to pay the Class A Investor Interest or the Class B
Investor Interest in full is not available on the Class A Scheduled Payment Date
or the Class B Scheduled Payment Date, respectively, a Pay Out Event will occur
and the Rapid Amortization Period will commence. The ability of
Certificateholders to receive payments of principal on the Class A Scheduled
Payment Date or the Class B Scheduled Payment Date, as applicable, depends on
the amount and schedule of installments of outstanding Receivables,
delinquencies, charge-offs and the timing of the origination and transfer of
Additional Receivables, which may vary from month to month due to seasonal
variations, regulatory factors, general economic conditions and conditions in
the insurance premium finance market.
RAPID AMORTIZATION PERIOD. If a Pay Out Event occurs, the Rapid
Amortization Period will commence and any amount on deposit in the Principal
Funding Account will be paid to the Class A Holders on the Distribution Date in
the month following the commencement of the Rapid Amortization Period. In
addition, to the extent that the Class A Investor Interest has not been paid in
full, the Class A Holders will be entitled to monthly payments of principal
equal to the Available Investor Principal Collections until the earlier of the
date on which the Class A Certificates have been paid in full and the Series
1996-1 Termination Date. After the Class A Certificates have been paid in full
and if the Series 1996-1 Termination Date has not occurred, Available Investor
Principal Collections will be paid to the Class B Certificates on each
Distribution Date until the earlier of the date on which the Class B
Certificates have been paid in full and the Series 1996-1 Termination Date.
PAY OUT EVENTS. A Pay Out Event occurs, either automatically or after
specified notice, upon (a) the failure of the Transferor to make certain
payments or transfers of funds for the benefit of the Holders within the time
periods stated in the Agreement, (b) material breaches of certain
representations, warranties or covenants of the Transferor, (c) a reduction in
the average of the Portfolio Yields for any three consecutive Monthly Periods to
a rate that is less than the average of the Base Rates for such period, (d) (i)
the average Transferor Interest during any 30 consecutive days being below the
Minimum Transferor Interest for the same period and (ii) the sum of (x) the
Principal Receivables and (v) the principal amount on deposit in the excess
Funding Account being less than the Minimum Aggregate Principal Receivables, (e)
the occurrence of a Servicer Default which would have a material adverse effect
on the Holders, (f) insufficient monies in the Distribution Account to pay the
Class A Investor Interest or the Class B Investor Interest in full on the Class
A Scheduled Payment Date or the Class B Scheduled Payment Date, respectively,
(g) certain insolvency events involving the Transferor or either Originator, (h)
the failure of either Originator to transfer Additional Receivables to the
Transferor when required by the Receivables Purchase Agreement or the failure of
the Transferor to convey Additional Receivables when required by the Agreement,
(i) the Trust becoming an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, (j) a Financed Premium Percentage of
more than 90% in respect of Additional Receivables being transferred to the
Trust for three consecutive monthly periods; (k) any of the Transferor, the
Trustee or the Trust becoming required to be licensed under the licensing laws
of a Permitted State relating to the acquisition, transfer, ownership or
servicing of insurance premium finance loans and such entity fails to become so
licensed within the period specified in the Agreement; and [or (l) the
occurrence and the continuation of a Trigger Event ]. See "Description of the
Certificates- -Pay Out Events." The term "Base Rate" means, with respect to any
Monthly Period, the annualized percentage equivalent of a fraction, the
numerator of which is the sum of the Class A Monthly Interest, the Class B
Monthly Interest and the Collateral Monthly Interest, each for the related
Interest Period, and the Investor Servicing Fee for such Monthly Period, and the
denominator of which is the Investor Interest as of the close of business on the
last day of such Monthly Period. The term "Portfolio Yield" means, with respect
to any Monthly Period, the annualized percentage equivalent of a fraction, the
numerator of which is the sum of collections of Finance Charge Receivables,
Principal Funding Investment Proceeds and amounts withdrawn from the Reserve
Account deposited into the Finance Charge Account and allocable to the
Certificates and the Collateral Interest for such Monthly Period, calculated on
a cash basis after subtracting the Investor Default Amount for such Monthly
Period and the denominator of which is the Investor Interest as of the close of
business on the last day of such Monthly Period. "Financed Premium Percentage"
means, in respect of any Monthly Period, the ratio (expressed as a percentage)
of the aggregate of the portions of premiums financed or committed to be
financed, as of the respective dates of origination of the related Receivables,
of all Additional Receivables transferred to the Trust during such Monthly
Period to the aggregate of the premiums paid or committed to be paid with
respect to such Receivables. If a Pay Out Event occurs, the average life and
maturity of the Certificates could be significantly reduced. No prepayment
premium will be payable on account of any prepayment of the Certificates as the
result of the occurrence of the Rapid Amortization Period.
PAYMENT RATES. The following table sets forth highest and lowest borrower
monthly payment rates for the Identified Portfolio during the period shown and
the average borrower monthly payment rates during the periods shown, in each
case calculated as a percentage of total opening monthly loan balances during
the periods shown. Payment rates shown in the table are based on amounts which
would be deemed payments of Principal Receivables and Finance Charge
Receivables. For purposes of the following tables the Identified Portfolio only
includes insurance premium finance loans to borrowers whose stated addresses in
the related insurance premium finance loan agreements are in one of the States
listed in the chart entitled "Geographic Concentration" above.
BORROWER MONTHLY PAYMENT RATES
IDENTIFIED PORTFOLIO
Six Months
Ended
JUNE 30, YEAR ENDED DECEMBER 31,
1996 1995 1994 1993
Lowest Month..............
Highest Month.............
Monthly Average...........
There can be no assurance that the monthly payment rates in the future will
be similar to the historical experience set forth above. In addition, the amount
of collections of Receivables may vary from month to month due to seasonal
variations and general economic conditions. There can be no assurance that
collections of Principal Receivables will be similar to the historical
experience set forth above or that deposits into the Principal Funding Account
or the Distribution Account, as applicable, will be made in accordance with the
applicable Controlled Accumulation Amount. If a Pay Out Event occurs, the
average life of the Certificates could be significantly reduced or increased.
Because there may be a slowdown in the payment rate below the payment
rates used to determine the Controlled Accumulation Amounts, or a Pay Out Event
may occur which would initiate the Rapid Amortization Period, there can be no
assurance that the actual number of months elapsed from the date of issuance of
the Class A Certificates and the Class B Certificates to their respective final
Distribution Dates will equal the expected number of months. As described under
"Description of the Certificates--Postponement of Controlled Accumulation
Period," the Servicer may shorten the Controlled Accumulation Period and, in
such event, there can be no assurance that there will be sufficient time to
accumulate all amounts necessary to pay the Class A Investor Interest and the
Class B Investor Interest on the Class A Scheduled Payment Date and the Class B
Scheduled Payment Date, respectively.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement. Pursuant to
the Agreement, the Transferor and the Trustee may execute further series
supplements in order to issue additional Series. The following summary of the
Certificates does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all of the provisions of the Agreement.
GENERAL
The Certificates will represent the right to receive certain payments
from the assets of the Trust, including the right to the applicable allocation
percentage of all borrower payments on the Receivables in the Trust. Each Class
A Certificate represents the right to receive payments of interest at the Class
A Rate for the related Interest Period and payments of principal on the Class A
Scheduled Payment Date or, to the extent of the Class A Investor Interest, on
each Distribution Date during the Rapid Amortization Period, funded from
collections of Finance Charge Receivables and Principal Receivables,
respectively, allocated to the Class A Investor Interest and certain other
available amounts. Each Class B Certificate represents the right to receive
payments of interest at the applicable Class B Rate for the related Interest
Period, and payments of principal on the Class B Scheduled Payment Date or, to
the extent of the Class B Investor Interest, on each Distribution Date during
the Rapid Amortization Period after the Class A Certificates have been paid in
full, funded from collections of Finance Charge Receivables and Principal
Receivables, respectively, allocated to the Class B Investor Interest and
certain other available amounts. In addition to representing the right to
payment from collections of Finance Charge Receivables and Principal
Receivables, each Class A Certificate also represents the right to receive
payments from Excess Spread, funds on deposit in the Principal Funding Account
and the Reserve Account and certain investment earnings thereon, Reallocated
Principal Collections and Shared Principal Collections and certain other
available amounts (including, under certain circumstances, amounts on deposit in
the Excess Funding Account). In addition to representing the right to payment
from collections of Finance Charge Receivables and Principal Receivables, each
Class B Certificate also represents the right to receive payments from Excess
Spread, Reallocated Collateral Principal Collections and Shared Principal
Collections and certain other available amounts (including, under certain
circumstances, amounts on deposit in the Excess Funding Account). Payments of
interest and principal will be made, to the extent of funds available therefor,
on each Distribution Date on which such amounts are due to Holders in whose
names the Certificates were registered on the last business day of the calendar
month preceding such Distribution Date (each, a "Record Date").
The Transferor initially will own the Transferor Interest. The
Transferor Interest will represent the right to receive certain payments from
the assets of the Trust, including the right to a percentage (the "Transferor
Percentage") of all payments on the Receivables in the Trust equal to 100% minus
the sum of the applicable Investor Percentages for all Series of certificates
then outstanding. The Transferor Interest may be transferred in whole or in part
subject to certain limitations and conditions set forth in the Agreement. See
"--Certain Matters Regarding the Transferor and the Servicer."
The Class A Certificates and the Class B Certificates initially will be
represented by certificates registered in the name of Cede, as nominee of DTC.
Unless and until Definitive Certificates are issued, all references herein to
actions by Class A Holders and/or Class B Holders shall refer to actions taken
by DTC upon instructions from DTC Participants and all references herein to
distributions, notices, reports and statements to Class A Holders and/or Class B
Holders shall refer to distributions, notices, reports and statements to DTC or
Cede, as the registered holder of the Class A Certificates and the Class B
Certificates, as the case may be, for distribution to Certificate Owners in
accordance with DTC procedures. Holders may hold their Certificates 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
Certificates. Cede and Euroclear will hold omnibus positions on behalf of the
Cedel Participants and the Euroclear Participants, respectively, through
customers' securities accounts in Cedel's and Euroclear's names on the books of
their respective Depositaries which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
See "--Book-Entry Registration."
BOOK-ENTRY REGISTRATION
Certificateholders may hold their certificates 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 Certificates. Cedel and
Euroclear will hold omnibus positions on behalf of the Cedel Participants and
the Euroclear Participants, respectively, through customers' securities accounts
in Cedel's and Euroclear's names on the books of their respective depositories
(collectively, the "Depositories") which in turn will hold such positions in
customers' securities accounts in the Depositories' names on the books of DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC holds securities for its Participants ("DTC Participants") and
facilitates the clearance and settlement among DTC Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic book-entry changes in DTC Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. DTC Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. Indirect access to the DTC system
is also available to others such as securities brokers and dealers, banks, and
trust companies that clear through or maintain a custodial relationship with a
DTC Participant, either directly or indirectly ("Indirect Participants"). The
rules applicable to DTC and its DTC Participants are on file with the Securities
and Exchange Commission.
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.
Purchases of Certificates under the DTC system must be made by or
through DTC Participants, which will receive a credit for the Certificates on
DTC's records. The ownership interest of each actual Certificate Owner is in
turn to be recorded on the DTC Participants' and Indirect Participants' records.
Certificate Owners will not receive written confirmation from DTC of their
purchase, but Certificate Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the DTC Participant or Indirect Participant through which the
Certificate Owner entered into the transaction. Transfers of ownership interests
in the Certificates are to be accomplished by entries made on the books of DTC
Participants acting on behalf of Certificate Owners. Certificate Owners will not
receive certificates representing their ownership interest in Certificates,
except in the event that use of the book-entry system for the Certificates is
discontinued.
To facilitate subsequent transfers, all Certificates deposited by DTC
Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of Certificates with DTC and their registration in the name of Cede
& Co. effects no change in beneficial ownership. DTC has no knowledge of the
actual Certificate Owners of the Certificates; DTC's records reflect only the
identity of the DTC Participants to whose accounts such Certificates are
credited, which may or may not be the Certificate Owners. The DTC Participants
will remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to DTC
Participants, by DTC Participants to Indirect Participants, and by DTC
Participants and Indirect Participants to Certificate Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to
Certificates. Under its usual procedures, DTC mails an omnibus proxy to the
issuer as soon as possible after the record date, which assigns Cede & Co.'s
consenting or voting rights to those DTC Participants to whose accounts the
Certificates are credited on the record date (identified in a listing attached
thereto).
Principal and interest payments on the Certificates will be made to
DTC. DTC's practice is to credit DTC Participants' accounts on the applicable
Distribution Date in accordance with their respective holdings shown on DTC's
records unless DTC has reason to believe that it will not receive payment on
such Distribution Date. Payments by DTC Participants to Certificate Owners will
be governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer form or registered
in "street name" and will be the responsibility of such DTC Participant and not
of DTC, the Trustee or the Transferor, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal and
interest to DTC is the responsibility of the Trustee, disbursement of such
payments to DTC Participants shall be the responsibility of DTC, and
disbursement of such payments to Certificate Owners shall be the responsibility
of DTC Participants and Indirect Participants.
DTC may discontinue providing its services as securities depository
with respect to the Certificates at any time by giving reasonable notice to the
Transferor or the Trustee. Under such circumstances, in the event that a
successor securities depository is not obtained, Definitive Certificates are
required to be printed and delivered. The Transferor may decide to discontinue
use of the system of book-entry transfers through DTC (or a successor securities
depository). In that event, Definitive Certificates will be delivered to
Certificateholders.
See "-Definitive Certificates."
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that the Transferor believes to be
reliable, but the Transferor takes no responsibility for the accuracy thereof.
Cedel Bank, Societe Anonyme ("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 32 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 and may include the underwriters of any Series
of Certificates. 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.
The Euroclear System 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 32
currencies, including United States dollars. The Euroclear System includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in 25 countries generally similar to the
arrangements for cross-market transfers with DTC described above. The Euroclear
System is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office (the "Euroclear Operator" or "Euroclear"), under contract with
Euroclear Clearance System, Societe Cooperative, a Belgian cooperative
corporation (the "Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative Board establishes policy for the Euroclear System. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
underwriters of any Series of Certificates. Indirect access to the Euroclear
System is also available to other firms that 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 (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 or relationship
with persons holding through Euroclear Participants.
Distributions with respect to Certificates held through Cedel or
Euroclear will be credited to the cash accounts of Cedel Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions will be
subject to tax reporting in accordance with relevant United States tax laws and
regulations. See "U.S. Federal Income Tax Consequences." Cedel or the Euroclear
Operator, as the case may be, will take any other action permitted to be taken
by a Certificateholder under the Agreement on behalf of a Cedel Participant or
Euroclear Participant only in accordance with its relevant rules and procedures
and subject to its Depositary's ability to effect such actions on its behalf
through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Certificates among participants
of DTC, Cedel and Euroclear, they are under no obligation to perform or continue
to perform such procedures and such procedures may be discontinued at any time.
DEFINITIVE CERTIFICATES
Certificates will be issued as Definitive Certificates in fully
registered, certificated form to Certificate Owners or their nominees rather
than to DTC or its nominee, only if (i) the Transferor advises the Trustee for
such Series in writing that DTC is no longer willing or able to discharge
properly its responsibilities as Depositary with respect to such Series of
Certificates, and the Trustee or the Transferor is unable to locate a qualified
successor, (ii) the Transferor, at its option, advises the Trustee in writing
that it elects to terminate the book-entry system through DTC or (iii) after the
occurrence of a Servicer Default, Certificate Owners representing not less than
50% of the Investor Interest advise the Trustee and DTC through DTC Participants
in writing that the continuation of a book- entry system through DTC (or a
successor thereto) is no longer in the best interest of the Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all DTC Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the definitive certificate representing the Certificates and instructions for
reregistration, the Trustee will issue the Certificates as Definitive
Certificates, and thereafter the Trustee will recognize the holders of such
Definitive Certificates as holders under the Agreement ("Holders").
Distribution of principal and interest on the Certificates will be made
by the Trustee directly to Holders of Definitive Certificates in accordance with
the procedures set forth herein and in the Agreement. Interest payments and any
principal payments on each Distribution Date will be made to Holders in whose
names the Definitive Certificates were registered at the close of business on
the related Record Date. The final payment on any Certificate (whether
Definitive Certificates or the Certificates registered in the name of Cede
representing the Certificates), will be made only upon presentation and
surrender of such Certificate at the office or agency specified in the notice of
final distribution to Certificateholders. The Trustee will provide such notice
to registered Certificateholders not later than the fifth day of the month of
such final distributions.
Definitive Certificates will be transferable and exchangeable at the
offices of the Transfer Agent and Registrar, which shall initially be the
Trustee. No service charges will be imposed for any registration of transfer or
exchange, but the Transfer Agent and Registrar may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith. The Transfer Agent and Registrar shall not be required to register
the transfer or exchange of Definitive Certificates for a period of fifteen days
preceding the due date for any payment with respect to such Definitive
Certificates.
INTEREST PAYMENTS
Interest will accrue on the Class A Certificates at the Class A Rate
and on the Class B Certificates at the Class B Rate from the Closing Date.
Interest will be distributed to Holders on ___________ __, 1996 and on each
Distribution Date thereafter. Interest payments on the Class A Certificates and
the Class B Certificates on any Distribution Date will be calculated on the
outstanding principal balance of the Class A Certificates and the outstanding
principal balance of the Class B Certificates, as applicable, as of the
preceding Record Date, except that interest for the first Distribution Date will
accrue at the applicable Certificate Rate on the initial outstanding principal
balance of the Class A Certificates and the initial outstanding principal
balance of the Class B Certificates, as applicable, from the Closing Date.
Interest due on the Certificates but not paid on any Distribution Date will be
payable on the next succeeding Distribution Date together with additional
interest on such amount at the applicable Certificate Rate plus 2% per annum
(such amount with respect to the Class A Certificates, the "Class A Additional
Interest," and such amount with respect to the Class B Certificates, the "Class
B Additional Interest"). Additional Interest shall accrue on the same basis as
interest on the Certificates, and shall accrue from the Distribution Date on
which such overdue interest first became due, to but excluding the Distribution
Date on which such Additional Interest is paid. Interest payments on the Class A
Certificates on any Distribution Date will be paid from Class A Available Funds
for the related Monthly Period, and to the extent such Class A Available Funds
are insufficient to pay such interest, from Excess Spread and Reallocated
Principal Collections (to the extent available) for such Monthly Period.
Interest payments on the Class B Certificates on any Distribution Date will be
paid from Class B Available Funds for the related Monthly Period, and to the
extent such Class B Available Funds are insufficient to pay such interest, from
Excess Spread and Reallocated Collateral Principal Collections (to the extent
available) remaining after certain other payments have been made with respect to
the Class A Certificates.
"Class A Available Funds" means, with respect to any Monthly Period, an
amount equal to the sum of (a) the Class A Floating Allocation of collections of
Finance Charge Receivables [(including collections of Discount Receivables)]
allocated to the Investor Interest with respect to such Monthly Period, (b)
Principal Funding Investment Proceeds, if any, with respect to the related
Transfer Date and (c) amounts, if any, to be withdrawn from the Reserve Account
which are required to be included in Class A Available Funds pursuant to the
Series 1996-1 Supplement with respect to such Transfer Date. "Class B Available
Funds" means, with respect to any Monthly Period, an amount equal to the Class B
Floating Allocation of collections of Finance Charge Receivables [(including
collections of Discount Receivables)] allocated to the Investor Interest with
respect to such Monthly Period.
The Class A Certificates will bear interest from the Closing Date
through ________ __, 1996 at a rate of ___% per annum and with respect to each
Interest Period thereafter, at a rate of ____% per annum above LIBOR prevailing
on the related LIBOR Determination Date with respect to each such period (the
"Class A Rate"). The Class B Certificates will bear interest from the Closing
Date through ________ __, 1996 at a rate of ___% per annum and with respect to
each Interest Period thereafter, at a rate of ____% per annum above LIBOR
prevailing on the related LIBOR Determination Date with respect to each such
period (the "Class B Rate").
The Trustee will determine LIBOR on ________ __, 1996 for the period
from the Closing Date through ________ __, 1996 and for each Interest Period
thereafter, on the second business day prior to the Distribution Date on which
such Interest Period commences (each, a "LIBOR Determination Date"). For
purposes of calculating LIBOR, a business day is any business day on which
dealings in deposits in United States dollars are transacted in the London
interbank market.
"LIBOR" means, as of any LIBOR Determination Date, the rate for
deposits in United States dollars for a period equal to the relevant Interest
Period which appears on Telerate Page 3750 as of 11:00 a.m., London time, on
such date. If such rate does not appear on Telerate Page 3750, the rate for that
LIBOR Determination Date will be determined on the basis of the rates at which
deposits in United States dollars are offered by the Reference Banks at
approximately 11:00 a.m., London time, on that day to prime banks in the London
interbank market for a period equal to the relevant Interest Period. The Trustee
will request the principal London office of each of the Reference Banks to
provide a quotation of its rate. If at least two such quotations are provided,
the rate for that LIBOR Determination Date will be the arithmetic mean of the
quotations. If fewer than two quotations are provided as requested, the rate for
that LIBOR Determination Date will be the arithmetic mean of the rates quoted by
major banks in New York City, selected by the Servicer, at approximately 11:00
a.m., New York City time, on that day for loans in United States dollars to
leading European banks for a period equal to the relevant Interest Period.
"Telerate Page 3750" means the display page currently so designated on
the Dow Jones Telerate Service (or such other page as may replace that page on
that service for the purpose of displaying comparable rates or prices).
"Reference Banks" means four major banks in the London interbank market
selected by the Servicer.
The Class A Rate and the Class B Rate applicable to the current and
immediately preceding Interest Period may be obtained by telephoning the Trustee
at its Corporate Trust Office at ______________.
Interest on the Certificates will be calculated on the basis of the
actual number of days in the Interest Period and a 360-day year.
PRINCIPAL PAYMENTS
On each Transfer Date relating to the Revolving Period (which begins on
the Closing Date and ends at the commencement of the Controlled Accumulation
Period or, if earlier, the Rapid Amortization Period), unless a reduction in the
Required Collateral Interest has occurred, collections of Principal Receivables
allocable to the Investor Interest will, subject to certain limitations,
including the allocation of any Reallocated Principal Collections with respect
to the related Monthly Period to pay the Class A Required Amount and the Class B
Required Amount, be treated as Shared Principal Collections or, under certain
circumstances, deposited into the Excess Funding Account.
On each Transfer Date relating to the Controlled Accumulation Period,
the Trustee will deposit in the Principal Funding Account an amount equal to the
least of (a) Available Investor Principal Collections with respect to such
Transfer Date, (b) the applicable Controlled Deposit Amount and (c) the Class A
Adjusted Investor Interest prior to any deposits on such date. Amounts in the
Principal Funding Account will be paid to the Class A Holders on the Class A
Scheduled Payment Date. After the Class A Investor Interest has been paid in
full, on each Transfer Date during the Controlled Accumulation Period, amounts
equal to the lesser of (a) Available Investor Principal Collections with respect
to such Transfer Date and (b) the Class B Investor Interest will be deposited in
the Distribution Account for distribution to the Class B Holders until the Class
B Investor Interest has been paid in full. Such amounts in the Distribution
Account will be paid to the Class B Holders on the Class B Scheduled Payment
Date. During the Controlled Accumulation Period until the final principal
payment to the Class B Holders, the portion of Available Investor Principal
Collections not applied to Class A Monthly Principal, Class B Monthly Principal
or Collateral Monthly Principal on a Transfer Date will generally be treated as
Shared Principal Collections or, under certain circumstances, deposited into the
Excess Funding Account.
"Available Investor Principal Collections" means, with respect to any
Monthly Period in the Controlled Accumulation Period or the Rapid Amortization
Period, an amount equal to the sum of (a) (i) the Fixed Investor Percentage of
collections of Principal Receivables received during such Monthly Period and
certain other amounts allocable to the Investor Interest, minus (ii) the amount
of Reallocated Principal Collections with respect to such Monthly Period used to
fund interest on the Certificates or Servicing Fee, plus (b) any Shared
Principal Collections with respect to other Series that are allocated to Series
1996-1.
On each Distribution Date during the Rapid Amortization Period, the
Class A Holders will be entitled to receive Available Investor Principal
Collections for the related Monthly Period in an amount up to the Class A
Investor Interest until the earlier of the date the Class A Certificates are
paid in full and the Series 1996-1 Termination Date. After payment in full of
the Class A Investor Interest, the Class B Holders will be entitled to receive
on each Distribution Date during the Rapid Amortization Period Available
Investor Principal Collections until the earlier of the date the Class B
Certificates are paid in full and the Series 1996-1 Termination Date. After
payment in full of the Class B Investor Interest, the Collateral Interest Holder
will be entitled to receive on each Transfer Date (other than the Transfer Date
prior to the Series 1996-1 Termination Date) and on the Series 1996-1
Termination Date, Available Investor Principal Collections until the earlier of
the date the Collateral Interest is paid in full and the Series 1996-1
Termination Date. See "--Pay Out Events" below for a discussion of events which
might lead to the commencement of the Rapid Amortization Period.
POSTPONEMENT OF CONTROLLED ACCUMULATION PERIOD
Upon written notice to the Trustee, the Servicer may elect to postpone
the commencement of the Controlled Accumulation Period, and extend the length of
the Revolving Period, subject to certain conditions including those set forth
below. The Servicer may make such election only if the Accumulation Period
Length (determined as described below) is less than 12 months. On each
Determination Date on and after the Determination Date preceding the ________
____ Monthly Period, until the Controlled Accumulation Period begins, the
Servicer will determine the "Accumulation Period Length," which is a number of
months such that the amount available for distribution of principal on the Class
A Certificates on the Class A Scheduled Payment Date is expected to equal or
exceed the Class A Investor Interest, assuming (a) the expected monthly
collections of Principal Receivables expected to be distributable to the Holders
of all Series have a principal payment rate no greater than the lowest monthly
principal payment rate on the Receivables for the preceding twelve months, (b)
the amount of principal expected to be distributable to Holders of all Series
remains constant at the level on such date of determination, (c) no Pay Out
Event with respect to any Series will subsequently occur and (d) no additional
Series will be subsequently issued. If the Accumulation Period Length is less
than twelve months, the Servicer may, at its option, postpone the commencement
of the Controlled Accumulation Period such that the number of months included in
the Controlled Accumulation Period will be equal to or exceed the Accumulation
Period Length. The effect of the foregoing calculation is to permit the
reduction of the length of the Controlled Accumulation Period based on the
investor interest of certain other Series which are scheduled to be in their
revolving periods during the Controlled Accumulation Period and on increases in
the principal payment rate occurring after the Closing Date. The length of the
Controlled Accumulation Period will not be determined to be less than one month.
SUBORDINATION
The Class B Certificates and the Collateral Interest will be
subordinated to the extent necessary to fund certain payments with respect to
the Class A Certificates. In addition, the Collateral Interest will be
subordinated to the extent necessary to fund certain payments with respect to
the Class B Certificates. Certain principal payments otherwise allocable to the
Class B Holders may be reallocated to cover amounts in respect of the Class A
Certificates and the Class B Investor Interest may be reduced if the Collateral
Interest is equal to zero. Similarly, certain principal payments allocable to
the Collateral Interest may be reallocated to cover amounts in respect of the
Class A Certificates and the Class B Certificates and the Collateral Interest
may be reduced. To the extent the Class B Investor Interest is reduced, the
percentage of collections of Finance Charge Receivables allocated to the Class B
Certificates in subsequent Monthly Periods will be reduced. Moreover, to the
extent the amount of such reduction in the Class B Investor Interest is not
reimbursed, the amount of principal and interest distributable to the Class B
Holders will be reduced. See "--Allocation Percentages," "--Reallocation of Cash
Flows" and "--Application of Collections--Excess Spread."
TRANSFER AND ASSIGNMENT OF RECEIVABLES
Pursuant to the Receivables Purchase Agreement, the Originators will
transfer and assign to the Transferor all of their right, title and interest in
and to the Receivables being transferred on the Closing Date and thereafter. The
Transferor will in turn transfer such Additional Receivables to the Trust.
In connection with the transfer of the Receivables to the Trust, the
Originators will indicate in their respective computer files that the
Receivables have been conveyed to the Transferor who will in turn convey such
Receivables to the Trust. In addition, the Transferor has provided to the
Trustee or its bailee computer files or microfiche lists containing a true and
complete list showing each Receivable, identified by account number and by total
outstanding balance on the Cut-Off Date. The Transferor will provide the Trustee
an updated list of each Receivable since the Trust Cut-Off Date, identified by
account number and indicating the total outstanding receivable balance as of the
end of any Monthly Period and a written assignment of Additional Receivables
conveyed to the Trust during any Monthly Period, on or prior to the
Determination Date immediately following a Monthly Period during which
Additional Receivables are conveyed to the Trust as contemplated by the
Agreement. Neither the Originators nor the Transferor will deliver to the
Trustee any other records or agreements relating to the Receivables and
documents and agreements maintained by an Originator will not be segregated by
such Originator from other documents and agreements relating to other premium
finance loans and will not be stamped or marked to reflect the transfer and
assignment of the related Receivables to the Trustee on behalf of the Trust, but
the Originators are required to indicate on their computer records that the
Receivables have been transferred and assigned to the Transferor, who in turn
will transfer and assign such Receivables to the Trustee on behalf of the Trust.
The Originators have not taken and will not be obligated to take any actions in
order to perfect for the benefit of the Transferor a security interest in the
Receivables, other than filing in the appropriate filing offices in the states
of New York and California a financing statement on Form UCC-1. The Transferor
has not taken and will not be obligated to take any actions in order to perfect
for the benefit of the Trust a security interest in the Receivables, other than
filing in the appropriate filing offices in the State of Pennsylvania a
financing statement on Form UCC-1. See "Risk Factors--Transferor Bankruptcy
Risk."
NEW ISSUANCES
The Agreement will authorize the Trustee to issue one or more Series of
Certificates which are transferable and have the characteristics described
below. The Transferor Interest will initially be held by the Transferor and will
be transferable only as provided in the Agreement. The Transferor may require
the Trustee to issue one or more new Series in exchange for a reduction in the
Transferor Interest. In addition (and subject to any applicable requirement
under the Exchange Act and the rules and regulations thereunder, including Rule
13E-4), Certificates representing any Series issued by the Trust may be tendered
to the Trustee in exchange for one or more new Series issued by the Trust.
Pursuant to the Agreement, the Transferor may define, with respect to any newly
issued Series, all Principal Terms of such new Series. Upon the issuance of an
additional Series of Certificates, none of the Transferor, the Servicer, the
Trustee or the related Trust will be required or will intend to obtain the
consent of any Certificateholder of any other Series previously issued by such
Trust. However, as a condition of a New Issuance, the Transferor will deliver to
the Trustee written confirmation that the New Issuance will not result in the
reduction or withdrawal by any Rating Agency of its rating of any outstanding
Series, including Series 1996-1. The Transferor may offer any Series to the
public or other investors in transactions either registered or under the
Securities Act or exempt from registration thereunder, directly, through the
Underwriters or one or more other underwriters or placement agents, in
fixed-price offerings, in negotiated transactions, or otherwise. Any such Series
may be issued in fully registered or book-entry form in minimum denominations
determined by the Transferor.
The Transferor may require New Issuances and define Principal Terms
such that a Series issued under the Trust has a period during which amortization
or accumulation of the principal amount thereof is intended to occur which may
have a different length and begin on a different date than such period for the
Certificates. Further, one or more Series may be in their amortization or
accumulation periods while the Certificates are not. Moreover, each Series may
have the benefit of a Credit Enhancement which is available only to such Series.
Under the Agreement, the Trustee shall hold any such form of Credit Enhancement
only on behalf of the Series to which it relates. The Transferor may deliver a
different form of Credit Enhancement agreement with respect to any Series. The
Transferor may specify different certificate rates and monthly servicing fees
with respect to each Series (or a particular Class within such Series). The
Transferor will also have the option under the Agreement to vary between Series
the terms upon which a Series (or a particular Class within such Series) may be
repurchased by the Transferor or remarketed to other investors. There will be no
limit to the number of New Issuances that may be performed under the Agreement.
Under the Agreement, the Transferor may commence a New Issuance by
notifying the Trustee at least five days in advance of the date upon which the
New Issuance is to occur stating the Series to be issued on the date of the New
Issuance and, with respect to each such Series (and, if applicable, each Class
thereof): (1) its initial principal amount (or method for calculating such
amount), (2) its certificate rate (or method of calculating such rate) and (3)
the provider of Credit Enhancement, if any, which is expected to provide support
with respect to it. The Agreement will provide that on the date of the New
Issuance the Trustee will authenticate any such Series only upon delivery to it
of at least the following: (i) a Series Supplement specifying the Principal
Terms of such Series; (ii) (a) an opinion of counsel to the effect that, unless
otherwise stated in the related Series Supplement, the certificates of such
Series will be characterized as indebtedness for Federal income tax purposes and
(b) a Tax Opinion; (iii) if required by the related Series Supplement, the form
of Credit Enhancement; (iv) if Credit Enhancement is required by the Series
Supplement, an appropriate Credit Enhancement agreement executed by the
Transferor and the Credit Enhancement Provider; (v) written confirmation from
each Rating Agency that the New Issuance will not result in such Rating Agency's
reducing or withdrawing its rating on any then outstanding Series rated by it;
(vi) an officer's certificate of the Transferor to the effect that after giving
effect to the New Issuance the Transferor would not be required to add
Additional Receivables pursuant to the Agreement and the Transferor Interest
would be at least equal to the Minimum Transferor Interest; and (vii) the
certificates representing the Series to be exchanged, if applicable. Upon
satisfaction of such conditions, the Trustee will reduce the Transferor Interest
and/or cancel the certificates of the exchanged Series, as applicable, and
authenticate the new Series.
The Transferor also may from time to time cause the Trustee to sell
purchased interests in the Receivables and other assets of a Trust to one or
more purchasers. Any purchased interest will represent an interest in the
applicable Trust's assets similar to the interest of a Series of Certificates.
No Series will be subordinated to any purchased interest, and no purchased
interest will have any interest in the Enhancement or series accounts specified
for any Series, except as specified in the prospectus relating to that Series.
Any such sale will take place pursuant to one or more agreements which will
specify terms similar to Principal Terms for the applicable purchased interests
and may grant the purchasers of such interests notice and consultation rights
with respect to rights or actions of the Trustee. Any sale of purchased
interests in the assets of a Trust will be subject to the satisfaction of the
same conditions (including Rating Agency confirmations) as for a New Issuance,
as appropriately adjusted to apply to the relevant purchased interest rather
than a New Issuance.
REPRESENTATIONS AND WARRANTIES
Pursuant to the Agreement, the Transferor represents and warrants that,
among other things, subject to specified exceptions and limitations (i) the
Transferor is a national banking association and validly existing in good
standing under the laws of the United States and has the full corporate power,
authority and legal right to own its properties and conduct its business as such
properties are presently owned and such business presently conducted, and to
execute, deliver, and perform its obligations under the Agreement and the
Receivables Purchase Agreement and to execute and deliver to the Trustee the
Certificates, (ii) the execution and delivery of the Agreement, and the
Receivables Purchase Agreement, and the consummation of the transactions
provided for therein, have been duly authorized by the Transferor by all
necessary corporate action on its part, (iii) each of the Agreement and the
Receivables Purchase Agreement constitutes a legal, valid, and binding
obligation of the Transferor, (iv) the transfer of Receivables by it to the
Trust under the Agreement constitutes either a valid transfer and assignment to
the Trust of all right, title, and interest of the Transferor in and to the
Receivables and the proceeds thereof (including amounts in any of the accounts
established for the benefit of certificateholders) or the grant of a first
priority security interest in such Receivables and the proceeds thereof
(including amounts in any of the accounts established for the benefit of
Certificateholders), (v) as of the Closing Date, each of the related Receivables
then existing is an Eligible Receivable and (vi) as of the date of the transfer
of any Additional Receivable to the Trust, such Receivable is an Eligible
Receivable. In the event (i) of a breach of any representation and warranty
described in clauses (i) through (iv) and such breach continues for 60 days
after notice to the Transferor by the Trustee or to the Transferor and the
Trustee by the Certificateholders holding more than 50% of the Investor Interest
of the related Series, and (ii) as a result the interests of the
Certificateholders are materially and adversely affected, and continue to be
materially and adversely affected during such period, then the Trustee or
Certificateholders holding more than 50% of the Investor Interest may give
notice to the Transferor (and to the Trustee in the latter instance) declaring
that a Pay Out Event has occurred, thereby commencing the Rapid Amortization
Period. In the event (i) of a breach of any representation or warranty described
in clauses (v) and (vi), within 60 days, or such longer period as may be agreed
to by the Trustee, of the earlier to occur of the discovery of such breach by
the Transferor or Servicer or receipt by the Transferor of written notice of
such breach given by the Trustee, or, with respect to certain breaches relating
to prior liens, immediately upon the earlier to occur of such discovery or
notice and (ii) that as a result of such breach, a Receivable becomes a
Defaulted Receivable, the Trust's rights in, to or under the Receivables or its
proceeds are impaired or the proceeds of such Receivables are not available for
any reason to the Trust free and clear of any lien, the Transferor will accept
reassignment of each such Receivable as to which such breach relates (an
"Ineligible Receivable") on the terms and conditions set forth below. No such
reassignment will be required to be made with respect to an Ineligible
Receivable if, on any day within the applicable period (or such longer period as
may be agreed to by the Trustee), the representations and warranties with
respect to that Ineligible Receivable are true and correct in all material
respects. The Transferor will accept reassignment of Ineligible Receivables by
directing the Servicers to deduct the amount [of 99%] of the principal amount of
each Ineligible Receivable from the aggregate amount of Principal Receivables
used to calculate the Transferor Interest. If the exclusion of an Ineligible
Receivable from the calculation of the Transferor Interest would cause the
Transferor Interest to be less than zero, on the date of reassignment of such
Ineligible Receivable, the Transferor will make a deposit in the Excess Funding
Account in immediately available funds in an amount equal to the amount by which
the Transferor Interest would be reduced below zero. Any such deduction or
deposit shall be considered a repayment in full of the Ineligible Receivable.
The obligation of the Transferor to accept reassignment of any Ineligible
Receivable is the sole remedy respecting any breach of the representations and
warranties set forth in this paragraph with respect to such Receivable available
to the Certificateholders or the Trustee on behalf of Certificateholders.
CERTAIN COVENANTS
Pursuant to the Agreement, the Transferor covenants that, among other
things, subject to specified exceptions and limitations, (i) it will take no
action to cause any Receivable to be evidenced by any instruments or to be
anything other than a general intangible, (ii) except for the conveyances under
the Agreement, it will not sell any Receivable or grant a lien on any
Receivable, (iii) it will comply with and perform its obligations under, and
will cause each Originator to comply with and perform its obligations under, any
Receivable to which it is a party and its credit and collection policies and it
will not change the terms of such agreements or policies except as provided in
the Agreement, (iv) in the event it is unable for any reason to transfer
Receivable to the Trust, it will nevertheless continue to allocate and pay all
collections from all Receivables to the Trust, (vi) it will notify the Trust
promptly after becoming aware of any lien on any Receivable, and (vii) it will
take all actions necessary to enforce its rights and claims under the Receivable
Purchase Agreement.
ELIGIBLE RECEIVABLES
An "Eligible Receivable" means a Receivable, that as of the date of
transfer and assignment of such Receivable to the Trustee for the benefit of the
Trust, satisfies the following criteria: (a) the related borrower or his agent
used substantially all of the proceeds of such Receivable to pay premiums on
property and casualty insurance policies governed by the law of a State of the
United States or the District of Columbia, under which such borrower is the
insured, (b) such Receivable has a stated maturity of [10] months or less, (c)
all material consents, licenses, approvals or authorizations of, or
registrations or declarations with, each governmental authority required to be
obtained, effected or given in connection with the creation of such Receivable
and the transfer and assignment of such Receivable from the related Originator
to the Transferor and from the Transferor to the Trust have been duly obtained,
effected or given and are in full force and effect, (d) the terms of such
Receivable have not been waived or modified except for waivers or modifications
that were made by the Originators in accordance with their customary servicing
standards, (e) such Receivable is not subject to any right of rescission,
setoff, counterclaim, defense arising out of violations of usury laws, or any
other defenses of any borrower, (f) all obligations of the applicable Originator
under such Receivable are satisfied, (g) with respect to such Receivable, the
Originators have not taken any action which would impair, or failed to take any
action necessary to avoid impairing, the rights of the Trust or the
Certificateholders therein, (h) such Receivable is not delinquent for more than
___ days, (i) all amounts due on such Receivable are denominated and payable
only in United States Dollars, (j) such Receivable provides the related
Originator with a limited power of attorney allowing it to cancel the related
insurance policy, if cancelable, in accordance with state law upon non-payment
of a loan installment by the borrower, (k) such Receivable grants the related
Originator a security interest in the related unearned premium and allows the
related Originator to direct the related insurance company to pay the related
Originator any unearned premium under the related insurance policy calculated as
of the time of cancellation of the insurance policy, if cancelable, (l) with
respect to such Receivable, the related insurance policy has not been cancelled,
(m) with respect to such Receivable, the related borrower's billing address is a
Permitted State, (n) such Receivable was underwritten in accordance with the
Originators' customary credit policies and procedures, (o) such Receivable does
not relate to a borrower which is the borrower under any Defaulted Receivable;
(p) such Receivable was originated in compliance, in all material respects, with
the requirements of law applicable to the applicable Originator and pursuant to
loan documents which comply, in all material respects, with all requirements of
law applicable to the applicable Originator; (q) such Receivable is the legal
valid and binding payment obligation of the related borrower, legally
enforceable against such borrower in accordance with its terms; and (r) with
respect to such Receivable, the related borrower is a [commercial borrower].
ADDITION OF RECEIVABLES
Pursuant to the Receivable Purchase Agreement each Originator will be
required to transfer and assign on each day all commercial insurance premium
finance loans from the Identified Portfolio originated by it after the Cut- off
Date which meet the eligibility criteria set forth under "Description of the
Certificates--Eligible Receivables" ("Additional Receivables") to the Transferor
who in turn will be required pursuant to the Agreement to transfer and assign
all such Additional Receivables to the Trustee for the benefit of the Trust. See
"Description of the Certificates--Additional Receivables. Any transfer of
Additional Receivables to the Trust, will be subject to the following
conditions: (i) each Originator shall deliver to the Transferor and the
Transferor shall deliver to the Trust, on or prior to the Determination Date
following a Monthly Period during which Additional Receivables are conveyed to
the Trust, a written assignment to the Trust of the Additional Receivables and a
computer file or microfiche list containing a true and complete list of all
Receivables, including Additional Receivables, as of the end of such Monthly
Period, (ii) each Originator shall deliver to the Trustee a Notice of Financed
Premium by electronic means with respect to each Additional Receivable,
appropriately completed, each Originator shall deliver to the Trustee and (iii)
the transfer of Additional Receivables by the Transferor to the Trust
constitutes a valid transfer and sale of the entire right, title and interest of
the Transferor in and to the Additional Receivables. The Transferor is not
required to give notice to either Rating Agency of its intention to convey
Additional Receivables to the Trust. See --"Pay Out Events."
REMOVAL OF RECEIVABLES
The Transferor may, but shall not be obligated to, designate from time
to time certain Receivables be Removed Receivables, which shall be subject to
deletion and removal from the Trust. The Transferor will, however, be permitted
to designate and require reassignment to it of the Removed Receivables only if:
(i) the removal of any Receivables will not, in the reasonable belief of the
Transferor, cause a Pay Out Event to occur; (ii) the Transferor shall have
delivered to the Trustee for execution a written assignment and a computer file
or microfiche list containing a true and complete list of all Removed
Receivables; (iii) the Transferor represents and warrants that no selection
procedures believed by the Transferor to be materially adverse to the interests
of the holders of any Series of Certificates outstanding under such Trust were
used in selecting the Removed Accounts to be removed from such Trust; (iv) the
Transferor shall have received notice from each such Rating Agency that such
proposed removal will not result in a downgrade of its then-current rating for
any such Series; (v) the principal balance of the Removed Receivables in the
trust at such time; and (vi) the Transferor shall have delivered to the trustee
an officers certificate confirming the items set forth in clauses (i) through
(v) above. Notwithstanding the above, the Transferor will be permitted to
designate as a Removed Receivable without the consent of the Trustee,
Certificateholders or Rating Agencies any Receivable that has a zero balance and
which the Transferor will remove from its computer file.
COLLECTION AND OTHER SERVICING PROCEDURES
For each Series of Certificates, the Servicer will be responsible for
servicing and administering the Receivables in accordance with the Servicer's
policies and procedures for servicing insurance premium finance loans comparable
to the Receivables. The Servicer will be required to maintain fidelity bond
coverage insuring against losses through wrongdoing of its officers and
employees who are involved in the servicing of insurance premium Finance loans
covering such actions and in such amounts as the Servicer believes to be
reasonable from time to time.
TRUST ACCOUNTS
The Trustee will establish and maintain in the name of the Trust a
"Finance Charge Account," an "Excess Funding Account," and a "Principal Funding
Account" as segregated trust accounts or with a Qualified institution, for the
benefit of the Certificateholders of all related Series, including any Series
offered pursuant to this Prospectus. The Trustee will also establish a
non-interest bearing segregated demand deposit account to serve as the
"Distribution Account" for the Trust. The Servicers will establish and maintain,
in the name of the Trust, for the benefit of Certificateholders of all Series
issued thereby, a non-interest bearing segregated account to serve as the
Collection Account for the Trust. The Distribution Account and Collection
Account will each be established as a segregate trust account or with a
"Qualified Institution," defined as a depository institution or trust company,
which may include the Trustee, organized under the laws of the United States or
any one of the states thereof, which at all times has a certificate of deposit,
short-term deposit or commercial paper rating of P-1 by Moody's Investors
Service, Inc. ("Moody's") and of at least A-1 by Standard & Poor's Ratings
Services, a division of The McGraw Hill Companies, Inc. ("Standard & Poor's") or
long-term unsecured debt obligation (other than such obligation the rating of
which is based on collateral or on the credit of a person other than such
institution (or trust company) rating of at lease Aa3 by Moody's and AA-- by
Standard & Poor's and deposit insurance provided by either the Bank Insurance
Fund ("BIF") or the Savings Association Insurance Fund ("SAIF"), each
administered by the FDIC, or a depository institution, which may include the
Trustee, which is acceptable to each Rating Agency. The Servicer will also
establish and maintain, with respect to each Trust, the Excess funding Account,
as more fully described herein. Funds in the Excess Funding Account and the
Finance Charge Account for each Trust will be invested, at the direction of the
Servicer, in (i) obligations fully guaranteed by the United States of America,
(ii) demand deposits, time deposits or certificates of deposit of depository
institutions or trust companies, the certificates of deposit of which have the
highest rating from Moody's and Standard & Poor's, (iii) commercial paper
having, at the time of the Trust's investment, a rating in the highest rating
category from Moody's and Standard & Poor's, (iv) bankers' acceptances issued by
any depository institution or trust company described in clause (ii) above, (v)
money market funds which have the highest rating from, or have otherwise been
approved in writing by, Moody's and Standard & Poor's (so long as such
investment will not require the Trust to register as an "investment company"
under the Investment Company Act of 1940, as amended), (vi) repurchase
obligations with respect to any security described in clause (i) above or with
respect to any other security issued or guaranteed by an agency or
instrumentality of the United States of America, in either case entered into
with a depository institution or trust company described in clause (ii) above
and (vii) any other investment if each Rating Agency confirms in writing that
such investment will not adversely affect its then current rating or ratings of
the Certificates and making such investment will not require the related Trust
to register as an investment company under the Investment Company Act of 1940,
as amended (such investments, "Permitted Investments"). Any earnings (net of
losses and investment expenses) on funds in the Finance Charge Account or the
Excess funding Account will be paid to the Transferor. The Servicer will have
the revocable power to withdraw funds from the Collection Account and to
instruct the Trustee to make withdrawals and payments from the Finance Charge
Account and the Excess Funding Account for the purpose of carrying out the
Servicer's duties under the Agreement. The Trustee will be the paying agent and
will have the revocable power to withdraw funds from the Distribution Account
for the purpose of making distributions to the Certificateholders.
EXCESS FUNDING ACCOUNT
If on any date the Transferor Interest is less than zero (after giving
effect to any addition of Principal Receivables to the applicable Trust), the
Servicer will not distribute to the holder of the Transferor Interest any
collections of Principal Receivables that otherwise would be distributed to the
holder of the Transferor Interest, but shall instead deposit such funds in a
segregated account established and maintained by the Servicer, in the name of
the Trust, for the benefit of Certificateholders of all Series issued by such
Trust, as a trust account or with the Servicer or with a Qualified Institution
(the "Excess Funding Account") until the Transferor Interest equals zero. Funds
on deposit in the Excess Funding Account will be withdrawn and paid to the
Transferor on any date to the extent that the Transferor Interest is greater
than zero on such date.
Funds on deposit in the Excess Funding Account will be invested by the
Trustee, at the direction of the Servicer, in Permitted Investments. Any
earnings (net of losses and investment expenses) earned on amounts on deposit in
the Excess funding Account during any Monthly Period will be withdrawn from the
Excess Funding Account and turned over to or at the direction of the Servicer.
ALLOCATION OF COLLECTIONS
The Receivables consist of (a)(i) the sum of all monies due or to
become due from the related borrowers in payment of finance charges, late fees,
collection fees and other administrative charges [plus (ii) Discount
Receivables] (collectively, "Finance Charge Receivables") and (b) [the excess of
(x)] the principal owing or to become owing with respect to the Receivables
after the Cut-off Date (["Actual Principal Receivables") over (y) the Discount
Receivables (such excess,] "Principal Receivables"). ["Discount Receivables"
means at any time an amount equal to 1% of the Actual Principal Receivables.]
The aggregate amount of Receivables as of the Cut-off Date was $_________,
comprised of $_________ of Principal Receivables and $__________ of Finance
Charge Receivables. [Because the Receivables will be sold at a discount, the
amount of Finance Charge Receivables will be greater, and the amount of
Principal Receivables and the Transferor Interest will be less than otherwise
would have been the case if the Receivables were not sold at a discount.]
The amount of Finance Charge Receivables will not affect the amount of
Investor Interest represented by the Certificates and the Collateral Interest or
the amount of the Transferor Interest, which, in the case of the Investor
Interest is determined on the basis of the amount of Principal Receivables and,
in the case of the Transferor Interest, is determined on the basis of sum of the
Principal Receivables and the amount on deposit in the Excess Funding Account.
The aggregate undivided interest in the Principal Receivables in the Trust
evidenced by the Certificates and the Collateral Interest will always equal the
amount of Investor Interest regardless of the total amount of Principal
Receivables in the Trust at any time.
The Servicer will allocate collections on the Receivables on each
business day between Finance Charge Collections and Principal Collections in the
manner described in the definitions thereof.
ALLOCATION PERCENTAGES
Pursuant to the Agreement, with respect to each Monthly Period the
Servicer will allocate among the Investor Interest, the investor interest for
all other Series issued and outstanding and the Transferor Interest, all amounts
collected on Finance Charge Receivables, all amounts collected on Principal
Receivables and all Default Amounts with respect to such Monthly Period.
Default Amounts and collections of Finance Charge Receivables at any
time and collections of Principal Receivables during the Revolving Period will
be allocated to the Investor Interest based on the Floating Investor Percentage.
The "Floating Investor Percentage" means, with respect to any Monthly Period,
the percentage equivalent of a fraction, the numerator of which is the Adjusted
Investor Interest as of the close of business on the last day of the preceding
Monthly Period (or with respect to the first Monthly Period, the initial
Investor Interest) and the denominator of which is the greater of (a) the
aggregate amount of Principal Receivables as of the close of business on the
last day of the preceding Monthly Period (or with respect to the first Monthly
Period, the aggregate amount of Principal Receivables as of the close of
business on the day immediately preceding the Closing Date) and (b) the sum of
the numerators used to calculate the Investor Percentages for allocations with
respect to Finance Charge Receivables, Default Amounts or Principal Receivables,
as applicable, for all outstanding Series on such date of determination;
provided, however, that with respect to any Monthly Period in which a Reset Date
occurs, the amount in clause (a) above shall be (i) the aggregate amount of
Principal Receivables in the Trust as of the close of business on the last day
of the prior Monthly Period for the period from and including the first day of
such Monthly Period to but excluding the Reset Date and (ii) the aggregate
amount of Principal Receivables in the Trust as of the beginning of the day on
the Reset Date after adjusting for the aggregate amount of Principal Receivables
added to or, in certain circumstances, removed from the Trust on the Reset Date,
if any, for the period from and including the Reset Date to and including the
last day of such Monthly Period. The amounts so allocated will be further
allocated between the Class A Holders, Class B Holders and the Collateral
Interest Holder based on the Class A Floating Allocation, the Class B Floating
Allocation and the Collateral Floating Allocation, respectively. The "Class A
Floating Allocation" means, with respect to any Monthly Period, the percentage
equivalent (which percentage shall never exceed 100%) of a fraction, the
numerator of which is equal to the Class A Adjusted Investor Interest as of the
close of business on the last day of the preceding Monthly Period (or with
respect to the first Monthly Period, as of the Closing Date) and the denominator
of which is equal to the Adjusted Investor Interest as of the close of business
on such day. The "Class B Floating Allocation" means, with respect to any
Monthly Period, the percentage equivalent (which percentage shall never exceed
100%) of a fraction, the numerator of which is equal to the Class B Investor
Interest as of the close of business on the last day of the preceding Monthly
Period (or with respect to the first Monthly Period, as of the Closing Date) and
the denominator of which is equal to the Adjusted Investor Interest as of the
close of business on such day. The "Collateral Floating Allocation" means, with
respect to any Monthly Period, the percentage equivalent (which percentage shall
never exceed 100%) of a fraction, the numerator of which is equal to the
Collateral Interest as of the close of business on the last day of the preceding
Monthly Period (or with respect to the first Monthly Period, as of the Closing
Date) and the denominator of which is equal to the Adjusted Investor Interest as
of the close of business on such day.
Collections of Principal Receivables during the Controlled
Accumulation Period and Rapid Amortization Period will be allocated to the
Investor Interest based on the Fixed Investor Percentage. The "Fixed Investor
Percentage" means, with respect to any Monthly Period, the percentage equivalent
of a fraction, the numerator of which is the Investor Interest as of the close
of business on the last day of the Revolving Period and the denominator of which
is the greater of (a) the aggregate amount of Principal Receivables as of the
close of business on the last day of the prior Monthly Period and (b) the sum of
the numerators used to calculate the Investor Percentages for allocations with
respect to Principal Receivables for all outstanding Series for such Monthly
Period; provided, however, that with respect to any Monthly Period in which a
Reset Date occurs, the amount in clause (a) above shall be (i) the aggregate
amount of Principal Receivables in the Trust as of the close of business on the
last day of the prior Monthly Period for the period from and including the first
day of such Monthly Period to but excluding the Reset Date and (ii) the
aggregate amount of Principal Receivables in the Trust at the beginning of the
day on the Reset Date after adjusting for the aggregate amount of Principal
Receivables added to or, in certain circumstances, removed from the Trust on the
Reset Date, if any, for the period from and including the Reset Date to and
including the last day of such Monthly Period. The amounts so allocated will be
further allocated between the Class A Holders, the Class B Holders and the
Collateral Interest Holder based on the Class A Fixed Allocation, the Class B
Fixed Allocation and the Collateral Fixed Allocation, respectively. The "Class A
Fixed Allocation" means, with respect to any Monthly Period, the percentage
equivalent (which percentage shall never exceed 100%) of a fraction, the
numerator of which is equal to the Class A Investor Interest as of the close of
business on the last day of the Revolving Period, and the denominator of which
is equal to the Investor Interest as of the close of business on the last day of
the Revolving Period. The "Class B Fixed Allocation" means, with respect to any
Monthly Period, the percentage equivalent (which percentage shall never exceed
100%) of a fraction, the numerator of which is equal to the Class B Investor
Interest as of the close of business on the last day of the Revolving Period,
and the denominator of which is equal to the Investor Interest as of the close
of business on the last day of the Revolving Period. The "Collateral Fixed
Allocation" means, with respect to any Monthly Period, the percentage equivalent
(which percentage shall never exceed 100%) of a fraction, the numerator of which
is equal to the Collateral Interest as of the close of business on the last day
of the Revolving Period, and the denominator of which is equal to the Investor
Interest as of the close of business on the last day of the Revolving Period.
"Class A Adjusted Investor Interest," for any date of determination,
means an amount equal to the then current Class A Investor Interest, minus the
Principal Funding Account Balance on such date.
"Class A Investor Interest" for any date means an amount equal to (a)
the aggregate initial principal amount of the Class A Certificates, minus (b)
the aggregate amount of principal payments made to Class A Holders prior to such
date, minus (c) the excess, if any, of the aggregate amount of Class A Investor
Charge-Offs for all Transfer Dates preceding such date over the aggregate amount
of any reimbursements of Class A Investor Charge-Offs for all Transfer Dates
preceding such date; provided, however, that the Class A Investor Interest may
not be reduced below zero.
"Class B Investor Interest" for any date means an amount equal to (a)
the aggregate initial principal amount of the Class B Certificates, minus (b)
the aggregate amount of principal payments made to Class B Holders prior to such
date, minus (c) the aggregate amount of Class B Investor Charge-Offs for all
prior Transfer Dates, minus (d) the aggregate amount of Reallocated Class B
Principal Collections for all prior Transfer Dates for which the Collateral
Interest has not been reduced, minus (e) an amount equal to the aggregate amount
by which the Class B Investor Interest has been reduced to fund the Class A
Investor Default Amount on all prior Transfer Dates as described under
"--Defaulted Receivables; Investor Charge Offs," and plus (f) the aggregate
amount of Excess Spread allocated and available on all prior Transfer Dates for
the purpose of reimbursing amounts deducted pursuant to the foregoing clauses
(c), (d) and (e); provided, however, that the Class B Investor Interest may not
be reduced below zero.
"Collateral Interest" for any date means an amount equal to (a) the
Initial Collateral Interest, minus (b) the aggregate amount of principal
payments made to the Collateral Interest Holder prior to such date, minus (c)
the aggregate amount of Collateral Charge-Offs for all prior Transfer Dates,
minus (d) the aggregate amount of Reallocated Principal Collections for all
prior Transfer Dates, minus (e) an amount equal to the aggregate amount by which
the Collateral Interest has been reduced to fund the Class A Investor Default
Amount and the Class B Investor Default Amount on all prior Transfer Dates as
described under "--Defaulted Receivables; Investor Charge- Offs," plus (f) the
aggregate amount of Excess Spread allocated and available on all prior Transfer
Dates for the purpose of reimbursing amounts deducted pursuant to the foregoing
clauses (c), (d) and (e); provided, however, that the Collateral Interest may
not be reduced below zero.
"Reset Date" means each of (a) any date on which Additional Receivables
are designated to the Trust, (b) any date on which Receivables are removed from
the Trust and on which, if any Series has been paid in full, Principal
Receivables in an aggregate amount approximately equal to the initial investor
interest of such Series are removed from the Trust and (c) a date on which there
is an increase in the Investor Interest under any Variable Interest issued by
the Trust.
"Variable Interest" means either of (a) any certificate that is
designated as a variable funding certificate in the related Series Supplement
and (b) any purchased interest sold as permitted by an Agreement.
REALLOCATION OF CASH FLOWS
With respect to each Transfer Date, the Servicer will determine the
amount (the "Class A Required Amount"), if any, by which the sum of (a) Class A
Monthly Interest due on the related Distribution Date and overdue Class A
Monthly Interest and Class A Additional Interest thereon, if any, (b) the Class
A Servicing Fee for the related Monthly Period and overdue Class A Servicing
Fee, if any, and (c) the Class A Investor Default Amount, if any, for the
related Monthly Period exceeds the Class A Available Funds for the related
Monthly Period. If the Class A Required Amount is greater than zero, Excess
Spread allocated to Series 1996-1 and available for such purpose will be used to
fund the Class A Required Amount with respect to such Transfer Date. If such
Excess Spread is insufficient to fund the Class A Required Amount, first,
Reallocated Collateral Principal Collections and, then, Reallocated Class B
Principal Collections will be used to fund the remaining Class A Required
Amount. If Reallocated Principal Collections with respect to the related Monthly
Period, together with Excess Spread, are insufficient to fund the remaining
Class A Required Amount for such related Monthly Period, then the Collateral
Interest (after giving effect to reductions for any Collateral Charge-Offs and
Reallocated Principal Collections on such Transfer Date) will be reduced by the
amount of such excess (but not by more than the Class A Investor Default Amount
for such Monthly Period). In the event that such reduction would cause the
Collateral Interest to be a negative number, the Collateral Interest will be
reduced to zero, and the Class B Investor Interest (after giving effect to
reductions for any Class B Investor Charge-Offs and any Reallocated Class B
Principal Collections for which the Collateral Interest was not reduced on such
Transfer Date) will be reduced by the amount by which the Collateral Interest
would have been reduced below zero (but not by more than the excess of the Class
A Investor Default Amount, if any, for such Monthly Period over the amount of
such reduction, if any, of the Collateral Interest with respect to such Monthly
Period). In the event that such reduction would cause the Class B Investor
Interest to be a negative number, the Class B Investor Interest will be reduced
to zero and the Class A Investor Interest will be reduced by the amount by which
the Class B Investor Interest would have been reduced below zero (but not by
more than the excess, if any, of the Class A Investor Default Amount for such
Monthly Period over the amount of the reductions, if any, of the Collateral
Interest and the Class B Investor Interest with respect to such Monthly Period).
Any such reduction in the Class A Investor Interest will have the effect of
slowing or reducing the return of principal and interest to the Class A Holders.
In such case, the Class A Holders will bear directly the credit and other risks
associated with their interests in the Trust. See "--Defaulted Receivables;
Investor Charge-Offs."
With respect to each Transfer Date, the Servicer will determine the
amount (the "Class B Required Amount"), which will be equal to the sum of (a)
the amount, if any, by which the sum of (i) Class B Monthly Interest due on the
related Distribution Date and overdue Class B Monthly Interest and Class B
Additional Interest thereon, if any, and (ii) the Class B Servicing Fee for the
related Monthly Period and overdue Class B Servicing Fee, if any, exceeds the
Class B Available Funds for the related Monthly Period and (b) the Class B
Investor Default Amount, if any, for the related Monthly Period. If the Class B
Required Amount is greater than zero, Excess Spread allocated to Series 1996-1
not required to pay the Class A Required Amount or reimburse Class A Investor
Charge- Offs will be used to fund the Class B Required Amount with respect to
such Transfer Date. If such Excess Spread is insufficient to fund the Class B
Required Amount, Reallocated Collateral Principal Collections not required to
fund the Class A Required Amount for the related Monthly Period will be used to
fund the remaining Class B Required Amount. If such Reallocated Collateral
Principal Collections with respect to the related Monthly Period are
insufficient to fund the remaining Class B Required Amount, then the Collateral
Interest (after giving effect to reductions for any Collateral Charge-Offs and
Reallocated Principal Collections on such Transfer Date and after any
adjustments made thereto for the benefit of the Class A Holders) will be reduced
by the amount of such deficiency (but not by more than the Class B Investor
Default Amount for such Monthly Period). In the event that such a reduction
would cause the Collateral Interest to be a negative number, the Collateral
Interest will be reduced to zero, and the Class B Investor Interest will be
reduced by the amount by which the Collateral Interest would have been reduced
below zero (but not by more than the excess of the Class B Investor Default
Amount for such Monthly Period over the amount of such reduction of the
Collateral Interest), and the Class B Holders will bear directly the credit and
other risks associated with their interests in the Trust. See "-- Defaulted
Receivables; Investor Charge- Offs."
Reductions of the Class A Investor Interest or Class B Investor
Interest described above will be reimbursed by, and the Class A Investor
Interest or Class B Investor Interest increased to the extent of, Excess Spread
available for such purposes on each Transfer Date. See "--Application of
Collections--Excess Spread." When such reductions of the Class A Investor
Interest and Class B Investor Interest have been fully reimbursed, reductions of
the Collateral Interest shall be reimbursed until reimbursed in full in a
similar manner.
"Reallocated Class B Principal Collections" for any Monthly Period
means collections of Principal Receivables allocable to the Class B Investor
Interest for the related Monthly Period in an amount not to exceed the amount
applied to fund the Class A Required Amount, if any; provided, however, that
such amount will not exceed the Class B Investor Interest after giving effect to
any Class B Investor Charge-Offs for the related Transfer Date.
"Reallocated Collateral Principal Collections" for any Monthly Period
means collections of Principal Receivables allocable to the Collateral Interest
for the related Monthly Period in an amount not to exceed the amount applied to
fund the Class A Required Amount and the Class B Required Amount, if any;
provided, however, that such amount will not exceed the Collateral Interest
after giving effect to any Collateral Charge-Offs for the related Transfer Date.
"Reallocated Principal Collections" for any Monthly Period means the
sum of (a) the Reallocated Class B Principal Collections for such Monthly
Period, if any, and (b) the Reallocated Collateral Principal Collections such
Monthly Period, if any.
APPLICATION OF COLLECTIONS
ALLOCATIONS. Except as otherwise provided below, the Servicer will
deposit into the Collection Account, no later than the second business day
following the date of processing, any payment collected by the Servicer on the
Receivables. On the same day as any such deposit is made, the Servicers will
make the deposits and payments to the accounts and parties as indicated below;
provided, however, that for as long as an Originator remains the Servicer under
the Agreement and (a) (i) such Servicer provides to the Trustee a letter of
credit or other credit enhancement covering the risk of collection of such
Servicer acceptable to the Rating Agency and (ii) the Transferor shall not have
received a notice from the Rating Agency that reliance on such letter of credit
or other credit enhancement would result in the lowering of such Rating Agency's
then-existing rating of any Series then outstanding or (b) the certificate of
deposit or unsecured short-term debt obligations of the Transferor (or, if
neither such certificates of deposit nor obligations of the Transferor are rated
by Moody's or Standard & Poor's, then the certificate of deposit or unsecured
short-term debt obligations of Mellon Bank, N.A.) are rated P-1 by Moody's and
at least A-1 by Standard & Poor's and insured by either BIF or SAIF or such
Servicer makes other arrangements satisfactory to each Rating Agency rating any
Series then outstanding, then such Servicer may make such deposits and payments
on the Transfer Date in an amount equal to the net amount of such deposits and
payments which would have been made during the related Monthly Period had the
conditions of this proviso not applied. Because Mellon Bank, N.A.'s unsecured
short-term debt obligations are currently rated P-1 by Moody's and A-1 by
Standard & Poor's, the Servicer will initially make such deposits and payments
monthly on a net basis and expects to continue to do so (subject to the
requirements described above) for as long as the Certificates are outstanding.
With respect to the Certificates and any Monthly Period, and
notwithstanding anything in the Agreement to the contrary, whether the Servicer
is required to make monthly or daily deposits from the Collection Account into
the Finance Charge Account or the "Principal Account", (i) the Servicer will
only be required to deposit Collections from the Collection Account into the
Finance Charge Account or the Principal Account up to the required amount to be
deposited into any such deposit account or, without duplication, distributed on
or prior to the related Distribution Date to Holders or to the Collateral
Interest Holder and (ii) if at any time prior to such Distribution Date the
amount of Collections deposited in the Collection Account exceeds the amount
required to be deposited pursuant to clause (i) above, the Servicer will be
permitted to withdraw the excess from the Collection Account.
PAYMENT OF INTEREST, FEES AND OTHER ITEMS. On each Transfer Date, the
Trustee, acting pursuant to the Servicer's instructions, will apply the Class A
Available Funds, Class B Available Funds and Collateral Available Funds in the
Finance Charge Account in the following manner:
(a) On each Transfer Date, an amount equal to the Class A
Available Funds will be distributed in the following priority:
(i) an amount equal to Class A Monthly Interest for the
related Distribution Date, plus the amount of any overdue
Class A Monthly Interest and Class A Additional Interest
thereon, if any, will be deposited into the Distribution
Account for distribution to Class A Holders on such
Distribution Date;
(ii) an amount equal to the Class A Servicing Fee for the
related Monthly Period, plus the amount of any overdue Class A
Servicing Fee, will be paid to the Servicer;
(iii) an amount equal to the Class A Investor Default
Amount, if any, for the related Monthly Period will be treated
as a portion of Available Investor Principal Collections and
deposited into the Principal Account for such Transfer Date;
and
(iv) the balance, if any, will constitute a portion of
Excess Spread and will be allocated and distributed as
described under "--Excess Spread."
(b) On each Transfer Date, an amount equal to the Class B
Available Funds will be distributed in the following priority:
(i) an amount equal to Class B Monthly Interest for the
related Distribution Date, plus the amount of any overdue
Class B Monthly Interest and Class B Additional Interest
thereon, if any, will be deposited into the Distribution
Account for distribution to Class B Holders on such
Distribution Date;
(ii) an amount equal to the Class B Servicing Fee for the
related Monthly Period, plus the amount of any overdue Class B
Servicing Fee, will be paid to the Servicer; and
(iii) the balance, if any, will constitute a portion of
Excess Spread and will be allocated and distributed as
described under "--Excess Spread."
(c) On each Transfer Date, an amount equal to the Collateral
Available Funds will be distributed in the following priority:
(i) if AFCO Credit and AFCO Acceptance are no longer the
Servicers, an amount equal to the Collateral Interest
Servicing Fee for the related Monthly Period, plus the amount
of any overdue Collateral Interest Servicing Fee, will be paid
to the Servicer; and
(ii) the balance, if any, will constitute a portion of
Excess Spread and will be allocated and distributed as
described under "--Excess Spread."
"Class A Monthly Interest" with respect to any Distribution Date will
equal the product of (i) the Class A Rate for the related Interest Period, (ii)
the actual number of days in such Interest Period divided by 360 and (iii) the
outstanding principal balance of the Class A Certificates as of the related
Record Date.
"Class B Monthly Interest" with respect to any Distribution Date will
equal the product of (i) the Class B Rate for the related Interest Period, (ii)
the actual number of days in such Interest Period divided by 360 and (iii) the
outstanding principal balance of the Class B Certificates as of the related
Record Date.
"Collateral Available Funds" means, with respect to any Monthly Period,
an amount equal to the Collateral Floating Allocation of collections of Finance
Charge Receivables allocated to the Investor Interest with respect to such
Monthly Period.
"Excess Spread" means, with respect to any Transfer Date, an amount
equal to the sum of the amounts described in clause (a)(iv), clause (b)(iii) and
clause (c)(ii) above. To the extent such amounts are insufficient to make the
distributions required by subparagraphs (a) through (j) below under "--Excess
Spread," Excess Spread shall also be deemed to include any Excess Finance Charge
Collections allocable to other Series available to Series 1996-1 in accordance
with the Agreement.
EXCESS SPREAD. On each Transfer Date, the Trustee, acting pursuant to
the Servicer's instructions, will apply Excess Spread with respect to the
related Monthly Period, to make the following distributions in the following
priority:
(a) an amount equal to the Class A Required Amount, if any,
with respect to such Transfer Date will be used to fund the Class A
Required Amount; provided, that in the event the Class A Required
Amount for such Transfer Date exceeds the amount of Excess Spread, such
Excess Spread shall be applied first to pay amounts due with respect to
such Transfer Date pursuant to clause (a)(i) above under "--Payment of
Interest, Fees and Other Items," second to pay amounts due with respect
to such Transfer Date pursuant to clause (a)(ii) above under "--Payment
of Interest, Fees and Other Items" and third to pay amounts due with
respect to such Transfer Date pursuant to clause (a)(iii) above under
"--Payment of Interest, Fees and Other Items";
(b) an amount equal to the aggregate amount of Class A
Investor Charge-Offs which have not been previously reimbursed (after
giving effect to the allocation on such Transfer Date of certain other
amounts applied for that purpose) will be deposited into the Principal
Account and treated as a portion of Available Investor Principal
Collections for such Transfer Date as described under "--Payments of
Principal" below;
(c) an amount equal to the Class B Required Amount, if any,
with respect to such Transfer Date will be used to fund the Class B
Required Amount and will be applied first to pay amounts due with
respect to such Transfer Date pursuant to clause (b) (i) above under
"--Payment of Interest, Fees and Other Items," second to pay amounts
due with respect to such Transfer Date pursuant to clause (b) (ii)
above under "-- Payment of Interest, Fees and Other Items" and third,
the amount remaining, up to the Class B Investor Default Amount, will
be deposited into the Principal Account and treated as a portion of
Available Investor Principal Collections for such Transfer Date as
described under "--Payments of Principal" below;
(d) an amount equal to the aggregate amount by which the Class
B Investor Interest has been reduced below the initial Class B Investor
Interest for reasons other than the payment of principal to the Class B
Holders (but not in excess of the aggregate amount of such reductions
which have not been previously reimbursed) will be deposited into the
Principal Account and treated as a portion of Available Investor
Principal Collections for such Transfer Date as described under
"--Payments of Principal" below;
(e) an amount equal to the Collateral Monthly Interest for
such Transfer Date, plus the amount of any Collateral Monthly Interest
previously due but not distributed to the Collateral Interest Holder on
a prior Transfer Date, will be distributed to the Collateral Interest
Holder for distribution in accordance with the Loan Agreement;
(f) if AFCO Credit and AFCO Acceptance are the Servicers, an
amount equal to the Collateral Interest Servicing Fee for the related
Monthly Period, plus the amount of any overdue Collateral Interest
Servicing Fee, will be paid to the Servicer;
(g) an amount equal to the aggregate Collateral Default
Amount, if any, for such Transfer Date will be deposited into the
Principal Account and treated as a portion of Available Investor
Principal Collections for such Transfer Date as described under
"--Payments of Principal" below;
(h) an amount equal to the aggregate amount by which the
Collateral Interest has been reduced below the Required Collateral
Interest for reasons other than the payment of principal to the
Collateral Interest Holder (but not in excess of the aggregate amount
of such reductions which have not been previously reimbursed) will be
deposited into the Principal Account and treated as a portion of
Available Investor Principal Collections for such Transfer Date as
described under "--Payments of Principal" below;
(i) on each Transfer Date from and after the Reserve Account
Funding Date, but prior to the date on which the Reserve Account
terminates as described under "--Reserve Account," an amount up to the
excess, if any, of the Required Reserve Account Amount over the
Available Reserve Account Amount will be deposited into the Reserve
Account;
(j) an amount equal to all other amounts due under the Loan
Agreement (to the extent payable out of Excess Spread or Excess Finance
Charge Collections) shall be distributed in accordance with the Loan
Agreement; and
(k) the balance, if any, after giving effect to the payments
made pursuant to subparagraphs (a) through (j) above, will constitute
"Excess Finance Charge Collections" to be applied with respect to other
Series in accordance with the Agreement.
"Collateral Monthly Interest" with respect to any Transfer Date will
equal the product of (a) an amount equal to LIBOR plus ___% per annum, or such
lesser amount as may be designated in the Loan Agreement (the "Collateral
Rate"), (b) the actual number of days in the related Interest Period divided by
360 and (c) the Collateral Interest as of the related Record Date, or with
respect to the first Transfer Date, the Initial Collateral Interest.
PAYMENTS OF PRINCIPAL. On each Transfer Date, the Trustee, acting
pursuant to the Servicer's instructions, will distribute Available Investor
Principal Collections (see "--Principal Payments" above) on deposit in the
Principal Account in the following manner:
(a) on each Transfer Date with respect to the Revolving
Period, all such Available Investor Principal Collections will be
distributed or deposited in the following priority:
(i) an amount equal to the Collateral Monthly Principal will
be paid to the Collateral Interest Holder in accordance with the Loan
Agreement; and
(ii) the balance will be treated as Shared Principal
Collections and applied as described under "Description of the
Certificates--Shared Principal Collections";
(b) on each Transfer Date with respect to the Controlled
Accumulation Period or the Rapid Amortization Period, all such
Available Investor Principal Collections will be distributed or
deposited in the following priority:
(i) an amount equal to Class A Monthly Principal will be
deposited in the Principal Funding Account (during the
Controlled Accumulation Period) or distributed to the Class A
Holders (during the Rapid Amortization Period); and
(ii) for each Transfer Date after the Class A Investor
Interest has been paid in full (after taking into account
payments to be made on the related Distribution Date), an
amount equal to the Class B Monthly Principal for such
Transfer Date will be distributed to the Class B Holders;
(c) on each Transfer Date with respect to the Controlled
Accumulation Period and the Rapid Amortization Period in which a
reduction in the Required Collateral Interest has occurred, Available
Investor Principal Collections not applied to Class A Monthly Principal
or Class B Monthly Principal will be applied to reduce the Collateral
Interest to the Required Collateral Interest; and
(d) on each Transfer Date with respect to the Controlled
Accumulation Period and Rapid Amortization Period, the balance of
Available Investor Principal Collections not applied pursuant to (b)
and (c) above, if any, will be treated as Shared Principal Collections
and applied as described under "Description of the Certificates--Shared
Principal Collections".
"Class A Monthly Principal" with respect to any Transfer Date relating
to the Controlled Accumulation Period or the Rapid Amortization Period, prior to
the payment in full of the Class A Investor Interest, will equal the least of
(i) the Available Investor Principal Collections on deposit in the Principal
Account with respect to such Transfer Date, (ii) for each Transfer Date with
respect to the Controlled Accumulation Period, prior to the payment in full of
the Class A Investor Interest, and on or prior to the Class A Scheduled Payment
Date, the applicable Controlled Deposit Amount for such Transfer Date and (iii)
the Class A Adjusted Investor Interest prior to any deposits on such Transfer
Date.
"Class B Monthly Principal" with respect to any Transfer Date relating
to the Controlled Accumulation Period or the Rapid Amortization Period, after
the Class A Certificates have been paid in full (after taking into account
payments to be made on the related Distribution Date), will equal the lesser of
(i) the Available Investor Principal Collections on deposit in the Principal
Account with respect to such Transfer Date (minus the portion of such Available
Investor Principal Collections applied to Class A Monthly Principal on such
Transfer Date) and (ii) the Class B Investor Interest for such Transfer Date.
"Collateral Monthly Principal" means (a) with respect to any Transfer
Date relating to the Revolving Period following any reduction of the Required
Collateral Interest pursuant to clause (3) of the proviso in the definition
thereof an amount equal to the lesser of (i) the excess, if any, of the
Collateral Interest (after giving effect to reductions for any Collateral
Charge-Offs and Reallocated Principal Collections on such Transfer Date and
after giving effect to any adjustments thereto for the benefit of the Class A
Holders and the Class B Holders on such Transfer Date) over the Required
Collateral Interest on such Transfer Date, and (ii) the Available Investor
Principal Collections on such Transfer Date or (b) with respect to any Transfer
Date relating to the Controlled Accumulation Period or Rapid Amortization Period
an amount equal to the lesser of (i) the excess, if any, of the Collateral
Interest (after giving effect to reductions for any Collateral Charge-Offs and
Reallocated Principal Collections on such Transfer Date and after giving effect
to any adjustments thereto for the benefit of the Class A Holders and the Class
B Holders on such Transfer Date) over the Required Collateral Interest on such
Transfer Date, and (ii) the excess, if any, of (A) the Available Investor
Principal Collections on such Transfer Date over (B) the sum of the Class A
Monthly Principal and the Class B Monthly Principal for such Transfer Date.
"Controlled Accumulation Amount" means (a) for any Transfer Date with
respect to the Controlled Accumulation Period, prior to the payment in full of
the Class A Investor Interest, $__________; provided, however, that if the
commencement of the Controlled Accumulation Period is modified as described
above under "-- Postponement of Controlled Accumulation Period," (i) the
Controlled Accumulation Amount for each Transfer Date with respect to the
Controlled Accumulation Period shall mean the amount determined in accordance
with the Agreement on the date on which the Controlled Accumulation Period has
most recently been modified and (ii) the sum of the Controlled Accumulation
Amounts for all Transfer Dates with respect to the modified Controlled
Accumulation Period shall not be less than the Class A Investor Interest.
SHARED EXCESS FINANCE CHARGE COLLECTIONS
To the extent that collections of Finance Charge Receivables allocated
to the Investor Interest (and any other amounts that are to be treated as
collections of Finance Charge Receivables allocated to the Investor Interest)
are not needed to make payment in respect of the Investor Interest as described
above under "--Application of Collections-- Payment of Interest, Fees and Other
Items" and "--Excess Spread," such Excess Finance Charge Collections will be
applied to make payments in respect of other Series entitled to share therein in
accordance with the Agreement. In addition, Excess Finance Charge Collections
with respect to certain other Series, to the extent not required to make
payments in respect of such Series, may be applied to cover shortfalls in
amounts payable from Excess Spread as described above under "--Application of
Collections--Excess Spread" (as well as shortfalls experienced by other Series).
SHARED PRINCIPAL COLLECTIONS
Collections of Principal Receivables for any Monthly Period allocated
to the Investor Interest will first be used to cover, with respect to any
Monthly Period during the Controlled Accumulation Period, deposits of the
applicable Controlled Deposit Amount to the Principal Funding Account or the
Distribution Account, and during the Rapid Amortization Period, payments to the
Holders and then under certain circumstances payments to the Collateral Interest
Holder. The Servicer will determine the amount of collections of Principal
Receivables for any Monthly Period allocated to the Investor Interest remaining
after covering required payments to the Holders and any similar amount remaining
for any other Series ("Shared Principal Collections"). The Servicer will
allocate the Shared Principal Collections to cover any scheduled or permitted
principal distributions to certificateholders and deposits to principal funding
accounts, if any, for any Series entitled thereto which have not been covered
out of the Collections of Principal Receivables allocable to such Series and
certain other amounts for such Series ("Principal Shortfalls"). Shared Principal
Collections will not be used to cover investor charge-offs for any Series. If
Principal Shortfalls exceed Shared Principal Collections for any Monthly Period,
Shared Principal Collections will be allocated pro rata among the applicable
Series based on the relative amounts of Principal Shortfalls. To the extent that
Shared Principal Collections exceed Principal Shortfalls, the balance will be
paid to the Transferor or, under certain circumstances, deposited into the
Excess Funding Account.
REQUIRED COLLATERAL INTEREST
The "Required Collateral Interest" with respect to any Transfer Date
means (i) initially $__________ and (ii) thereafter on each Transfer Date an
amount equal to ___% of the sum of the Class A Adjusted Investor Interest and
the Class B Investor Interest on such Transfer Date, after taking into account
deposits into the Principal Funding Account on such Transfer Date and payments
to be made on the related Distribution Date, and the Collateral Interest on the
prior Transfer Date after any adjustments made on such Transfer Date, but not
less than $__________; provided, however, (1) that if certain reductions in the
Collateral Interest are made or if a Pay Out Event occurs, the Required
Collateral Interest for such Transfer Date shall equal the Required Collateral
Interest for the Transfer Date immediately preceding the occurrence of such
reduction or Pay Out Event, (2) in no event shall the Required Collateral
Interest exceed the unpaid principal amount of the Certificates as of the last
day of the Monthly Period preceding such Transfer Date after taking into account
payments to be made on the related Distribution Date and (3) the Required
Collateral Interest may be reduced to a lesser amount at any time if the Rating
Agency Condition is satisfied.
"Rating Agency Condition" means the notification in writing by each
Rating Agency that a proposed action will not result in such Rating Agency
reducing or withdrawing its then existing rating of the investor certificates of
any outstanding Series or class with respect to which it is a Rating Agency.
With respect to any Transfer Date, if the Collateral Interest is less
than the Required Collateral Interest, certain Excess Spread, if available, will
be allocated to increase the Collateral Interest to the extent of such
shortfall. Any of such Excess Spread not required to be so allocated or
deposited into the Reserve Account with respect to any Transfer Date will be
applied in accordance with the Loan Agreement. See "--Application of
Collections--Excess Spread."
DEFAULTED RECEIVABLES; INVESTOR CHARGE-OFFS
On or before each Transfer Date, the Servicer will calculate the
Investor Default Amount for the preceding Monthly Period. The term "Investor
Default Amount" means, for any Monthly Period, the product of (a) the Floating
Investor Percentage with respect to such Monthly Period and (b) the aggregate
amount of Defaulted Receivables (the "Default Amount") for such Monthly Period.
A portion of the Investor Default Amount will be allocated to the Class A
Holders (the "Class A Investor Default Amount") on each Transfer Date in an
amount equal to the product of the Class A Floating Allocation applicable during
the related Monthly Period and the Investor Default Amount for such Monthly
Period. A portion of the Investor Default Amount will be allocated to the Class
B Holders (the "Class B Investor Default Amount") on each Transfer Date in an
amount equal to the product of the Class B Floating Allocation applicable during
the related Monthly Period and the Investor Default Amount for such Monthly
Period. A portion of the Investor Default Amount will be allocated to the
Collateral Interest Holder (the "Collateral Default Amount") on each Transfer
Date in an amount equal to the product of the Collateral Floating Allocation
applicable during the related Monthly Period and the Investor Default Amount for
such Monthly Period.
On each Transfer Date, if the Class A Investor Default Amount for such
Transfer Date exceeds the amount of Excess Spread and Reallocated Principal
Collections available to fund such amount with respect to the Monthly Period
immediately preceding such Transfer Date, the Collateral Interest (after giving
effect to reductions for any Collateral Charge-Offs and any Reallocated
Principal Collections on such Transfer Date) will be reduced by the amount of
such excess, but not more than the lesser of the Class A Investor Default Amount
and the Collateral Interest (after giving effect to reductions for any
Collateral Charge-Offs and any Reallocated Principal Collections on such
Transfer Date) for such Transfer Date. In the event that such reduction would
cause the Collateral Interest to be a negative number, the Collateral Interest
will be reduced to zero, and the Class B Investor Interest (after giving effect
to reductions for any Class B Investor Charge-Offs and any Reallocated Class B
Principal Collections on such Transfer Date) will be reduced by the amount by
which the Collateral Interest would have been reduced below zero. In the event
that such reduction would cause the Class B Investor Interest to be a negative
number, the Class B Investor Interest will be reduced to zero, and the Class A
Investor Interest will be reduced by the amount by which the Class B Investor
Interest would have been reduced below zero, but not more than the Class A
Investor Default Amount for such Transfer Date (a "Class A Investor
Charge-Off"), which will have the effect of slowing or reducing the return of
principal and interest to the Class A Holders. If the Class A Investor Interest
has been reduced by the amount of any Class A Investor Charge-Offs, it will be
reimbursed on any Transfer Date (but not by an amount in excess of the aggregate
Class A Investor Charge-Offs) by the amount of Excess Spread allocated and
available for such purpose as described under "--Application of
Collections--Excess Spread."
On each Transfer Date, if the Class B Investor Default Amount for such
Transfer Date exceeds the amount of Excess Spread and Reallocated Collateral
Principal Collections which are allocated and available to fund such amount with
respect to the Monthly Period preceding such Transfer Date, the Collateral
Interest (after giving effect to reductions for any Collateral Charge-Offs and
any Reallocated Principal Collections on such Transfer Date and after giving
effect to any adjustments with respect thereto as described in the preceding
paragraph) will be reduced by the amount of such excess but not more than the
lesser of the Class B Investor Default Amount and the Collateral Interest (after
giving effect to reductions for any Collateral Charge-Offs and any Reallocated
Principal Collections on such Transfer Date and after giving effect to any
adjustments with respect thereto as described in the preceding paragraph) for
such Transfer Date. In the event that such reduction would cause the Collateral
Interest to be a negative number, the Collateral Interest will be reduced to
zero and the Class B Investor Interest will be reduced by the amount by which
the Collateral Interest would have been reduced below zero, but not more than
the Class B Investor Default Amount for such Transfer Date (a "Class B Investor
Charge-Off"). The Class B Investor Interest will also be reduced by the amount
of Reallocated Class B Principal Collections in excess of the Collateral
Interest (after giving effect to reductions for any Collateral Charge-Offs and
any Reallocated Collateral Principal Collections on such Transfer Date) and the
amount of any portion of the Class B Investor Interest allocated to the Class A
Certificates to avoid a reduction in the Class A Investor Interest. The Class B
Investor Interest will thereafter be reimbursed (but not in excess of the unpaid
principal balance of the Class B Certificates) on any Transfer Date by the
amount of Excess Spread allocated and available for that purpose as described
under "--Application of Collections--Excess Spread."
On each Transfer Date, if the Collateral Default Amount for such
Transfer Date exceeds the amount of Excess Spread which is allocated and
available to fund such amount as described under "--Application of Collections-
- -Excess Spread," the Collateral Interest will be reduced by the amount of such
excess but not more than the lesser of the Collateral Default Amount and the
Collateral Interest for such Transfer Date (a "Collateral Charge-Off"). The
Collateral Interest will also be reduced by the amount of Reallocated Principal
Collections and the amount of any portion of the Collateral Interest allocated
to the Class A Certificates to avoid a reduction in the Class A Investor
Interest or to the Class B Certificates to avoid a reduction in the Class B
Investor Interest. The Collateral Interest will thereafter be reimbursed on any
Transfer Date by the amount of Excess Spread allocated and available for that
purpose as described under "--Application of Collections--Excess Spread."
PRINCIPAL FUNDING ACCOUNT
Pursuant to the Series 1996-1 Supplement, the Trustee will establish
and maintain a segregated account held for the benefit of the Holders (the
"Principal Funding Account"). The Principal Funding Account will be established
as a segregated trust account or with a Qualified Institution. During the
Controlled Accumulation Period, the Trustee at the direction of the Servicer
will transfer collections in respect of Principal Receivables (other than
Reallocated Principal Collections) and Shared Principal Collections from other
Series, if any, allocated to Series 1996-1 from the Principal Account to the
Principal Funding Account as described under "--Application of Collections."
Funds on deposit in the Principal Funding Account will be invested to
the following Transfer Date by the Trustee at the direction of the Servicer in
Permitted Investments. Investment earnings (net of investment losses and
expenses) on funds on deposit in the Principal Funding Account (the "Principal
Funding Investment Proceeds") will be used to pay interest on the Class A
Certificates in an amount up to, for each Transfer Date, the product of (a) a
fraction, the numerator of which is the actual number of days in the related
Interest Period and the denominator of which is 360, (b) the Class A Rate in
effect with respect to the related Interest Period and (c) the Principal Funding
Account Balance as of the Record Date preceding such Transfer Date (the "Class A
Covered Amount"). If, for any Transfer Date, the Principal Funding Investment
Proceeds are less than the Class A Covered Amount, the amount of such deficiency
(the "Class A Principal Funding Investment Shortfall") shall be withdrawn, to
the extent available, from the Reserve Account and deposited in the Finance
Charge Account and included in collections of Finance Charge Receivables to be
applied to the payment of Class A Monthly Interest.
RESERVE ACCOUNT
Pursuant to the Series 1996-1 Supplement, the Trustee will establish and
maintain a segregated account held for the benefit of the Holders (the "Reserve
Account") in order to assist with the subsequent distribution of interest on the
Certificates during the Controlled Accumulation Period. The Reserve Account will
be established as a segregated trust account or with a Qualified Institution. On
each Transfer Date from and after the Reserve Account Funding Date, but prior to
the termination of the Reserve Account, the Trustee, acting pursuant to the
Servicer's instructions, will apply Excess Spread allocated to the Certificates
(to the extent described above under "--Application of Collections--Excess
Spread") to increase the amount on deposit in the Reserve Account (to the extent
such amount is less than the Required Reserve Account Amount). The "Reserve
Account Funding Date" will be the Transfer Date with respect to the Monthly
Period which commences no later than three months prior to the commencement of
the Controlled Accumulation Period, or such earlier date as the Servicer may
determine. The "Required Reserve Account Amount" for any Transfer Date on or
after the Reserve Account Funding Date will be equal to (a) ___% of the
outstanding principal balance of the Class A Certificates or (b) any other
amount designated by the Transferor; provided, that if such designation is of a
lesser amount, the Transferor shall have provided the Servicer, the Collateral
Interest Holder and the Trustee with evidence that the Rating Agency Condition
has been satisfied and the Transferor shall have delivered to the Trustee a
certificate of an authorized officer to the effect that, based on the facts
known to such officer at such time, in the reasonable belief of the Transferor,
such designation will not cause a Pay Out Event or an event that, after the
giving of notice or the lapse of time, would cause a Pay Out Event to occur with
respect to Series 1996-1. On each Transfer Date, after giving effect to any
deposit to be made to, and any withdrawal to be made from, the Reserve Account
on such Transfer Date, the Trustee will withdraw from the Reserve Account an
amount equal to the excess, if any, of the amount on deposit in the Reserve
Account over the Required Reserve Account Amount and distribute such excess to
the Collateral Interest Holder for application in accordance with the terms of
the Loan Agreement.
Provided that the Reserve Account has not terminated as described
below, all amounts on deposit in the Reserve Account on any Transfer Date (after
giving effect to any deposits to, or withdrawals from, the Reserve Account to be
made on such Transfer Date) will be invested to the following Transfer Date by
the Trustee at the direction of the Servicer in Permitted Investments. The
interest and other investment income (net of investment expenses and losses)
earned on such investments will be retained in the Reserve Account (to the
extent the amount on deposit is less than the Required Reserve Account Amount)
or deposited in the Finance Charge Account and treated as Class A Available
Funds.
On or before each Transfer Date with respect to the Controlled
Accumulation Period and on the first Transfer Date with respect to the Rapid
Amortization Period, a withdrawal will be made from the Reserve Account, and the
amount of such withdrawal will be deposited in the Finance Charge Account and
included in collections of Finance Charge Receivables to be applied to the
payment of the Class A Monthly Interest for such Transfer Date in an amount
equal to the lesser of (a) the Available Reserve Account Amount with respect to
such Transfer Date and (b) the Class A Principal Funding Investment Shortfall
with respect to such Transfer Date; provided, that the amount of such withdrawal
shall be reduced to the extent that funds otherwise would be available to be
deposited in the Reserve Account on such Transfer Date. On each Transfer Date,
the amount available to be withdrawn from the Reserve Account (the "Available
Reserve Account Amount") will be equal to the lesser of the amount on deposit in
the Reserve Account (before giving effect to any deposit to be made to the
Reserve Account on such Transfer Date) and the Required Reserve Account Amount
for such Transfer Date.
The Reserve Account will be terminated upon the earlier to occur of (a)
the termination of the Trust pursuant to the Agreement and (b) if the Controlled
Accumulation Period has not commenced, the first Transfer Date with respect to
the Rapid Amortization Period or, if the Controlled Accumulation Period has
commenced, the earlier to occur of (a) the first Transfer Date with respect to
the Rapid Amortization Period and (ii) the Transfer Date immediately preceding
the Class A Scheduled Payment Date. Upon the termination of the Reserve Account,
all amounts on deposit therein (after giving effect to any withdrawal from the
Reserve Account on such date as described above) will be distributed to the
Collateral Interest Holder for application in accordance with the terms of the
Loan Agreement. Any amounts withdrawn from the Reserve Account and distributed
to the Collateral Interest Holder as described above will not be available for
distribution to the Holders.
FINAL PAYMENT OF PRINCIPAL; TERMINATION
The Certificates will be subject to optional repurchase by the
Transferor on any Distribution Date after the Investor Interest is reduced to an
amount less than or equal to 5% of the initial Investor Interest, if certain
conditions set forth in the Agreement are met. The repurchase price will be
equal to the Investor Interest (less the amount, if any, on deposit in any
Principal Funding Account), plus accrued and unpaid interest on the Certificates
and interest or other amounts payable on the Collateral Interest, through the
day preceding the Distribution Date on which the repurchase occurs.
The Certificates will be retired on the day following the Distribution
Date on which the final payment of principal is schedule to be made to the
Certificateholders, whether as a result of optional reassignment to the
Transferor or otherwise. Subject to prior termination as provided above, the
Agreement provides that the final distribution of principal and interest on the
Certificates will be made on the _________ 200_ Distribution Date (the "Series
1996-1 Termination Date"). In the event that the Invested Amount is greater than
zero on the Series 1996-1 Termination Date, the Trustee will sell or cause to be
sold (and apply the proceeds first to the Class A Certificates until paid in
full, then to the Class B Certificates and finally to the Collateral Interest to
the extent necessary to pay such remaining amounts to all Certificateholders pro
rata within each class as final payment of the Certificates) interests in the
Receivables or certain Receivables, as specified in the Agreement in an amount
equal to up to 110% of the Investor Interest at the close of business on such
date (but not more than the total amount of Receivables allocable to the
Certificates). The net proceeds of such sale and any collections on the
Receivables allocable to the Certificates). The net proceeds of such sale and
any collections on the Receivables, up to an amount equal to the Investor
Interest plus accrued interest due on the Certificates, will be paid on the
Series 1996-1 Termination Date, first to the Class A Certificateholders until
the Class A Invested Amount is paid in full, then to the Class B
Certificateholders until the Class B Invested Amount is paid in full.
Unless the Servicer and the Transferor instruct the Trustee otherwise,
the Trust will terminate on the earlier of (a) the day after the Distribution
Date on which the aggregate Investor Interest and, Collateral Interest, with
respect to each Series issued by such Trust is zero, (b) ____________ or (c) if
the Receivables are sold, disposed of or liquidated following the occurrence of
an Insolvency Event, immediately following such sale, disposition or liquidation
(such date, the "Trust Termination Date"). Upon the termination of each Trust
and the surrender of the Transferor Interest, the Trustee shall convey to the
holder of the Transferor Interest all right, title and interest of the Trust in
and to the Receivables and other funds of the Trust.
PAY OUT EVENTS
As described above, the Revolving Period will continue through
___________ (unless such date is postponed as described under "--Postponement of
Controlled Accumulation Period"), unless a Pay Out Event occurs prior to such
date. A "Pay Out Event" refers to any of the following events:
(a) failure on the part of the Transferor (i) to make any
payment or deposit on the date required under the Agreement (or within
the applicable grace period which shall not exceed five days) or (ii)
to observe or perform in any material respect any other covenants or
agreements of the Transferor set forth in the Agreement or the Series
1996-1 Supplement, which failure has a material adverse effect on the
Holders (which determination shall be made without regard to the
existence of the Collateral Interest) and which continues unremedied
for a period of 60 days after written notice and continues to
materially and adversely affect the interests of the Holders (which
determination shall be made without regard to the existence of the
Collateral Interest) for such period;
(b) any representation or warranty made by the Transferor in
the Agreement, or any information required to be given by the
Transferor to the Trustee to identify the Receivables proves to have
been incorrect in any material respect when made and which continues to
be incorrect in any material respect for a period of 60 days after
written notice and as a result of which the interests of the Holders
are materially and adversely affected (which determination shall be
made without regard to the existence of the Collateral Interest) and
continue to be materially and adversely affected for such period;
provided, however, that a Pay Out Event pursuant to this subparagraph
(b) shall not be deemed to occur thereunder if the Transferor has
accepted reassignment of the related Receivable or all such
Receivables, if applicable, during such period (or such longer period
as the Trustee may specify) in accordance with the provisions of the
Agreement;
(c) any reduction of the average of the Portfolio Yields for
any three consecutive Monthly Periods to a rate which is less than the
average of the Base Rates for such period;
(d) (i) the average Transferor Interest during any 30
consecutive days is below the Minimum Transferor Interest for the same
period [and (ii) the sum of (x) the Principal Receivables and (y) the
principal amount on deposit in the Excess Funding Account is less than
the Minimum Aggregate Principal Receivable];
(e) any Servicer Default occurs which would have a material
adverse effect on the Holders;
(f) insufficient moneys in the Distribution Account to pay the
Class A Investor Interest on the Class A Scheduled Payment Date or the
Class B Investor Interest on the Class B Scheduled Payment Date;
(g) certain events of insolvency, conservatorship or
receivership relating to the Transferor or the Originators;
(h) an Originator fails to transfer Additional Receivables to
the Transferor when required by the Receivables Purchase Agreement or
the Transferor fails to transfer Additional Receivables to the Trust
when required by the Agreement;
(i) the Trust becomes an "investment company" within the
meaning of the Investment Company Act of 1940, as amended;
(j) a Financed Premium Percentage of more than 90% in respect
of Additional Receivables transferred to the Trust for three
consecutive Monthly Periods;
(k) any of the Transferor, the Trustee or the Trust becomes
required to be licensed under the licensing laws of a Permitted State
relating to the acquisition, transfer, ownership or servicing of
insurance premium finance loans and such entity fails to become so
licensed within the period specified in the Agreement; and
[(l) a Trigger Event has occurred and is continuing.]
"Minimum Transferor Interest" for any period means __% of the sum of
(i) the average Principal Receivables and (ii) the average principal amount on
deposit in the Excess Funding Account for such period; provided, however, that
the Transferor may increase the Minimum Transferor Interest or reduce the
Minimum Transferor Interest upon satisfaction of the Rating Agency Condition and
certain other conditions to be set forth in the Agreement. "Minimum Aggregate
Principal Receivables" means an amount equal to the sum of the numerators used
to calculate the Investor Percentages with respect to the allocation of
collections of Principal Receivables for each Series then outstanding; provided
that the Minimum Aggregate Principal Receivables may be reduced to a lesser
amount at any time if the Rating Agency Condition is satisfied.
In the case of any event described in clause (a), (b), or (e) above, a
Pay Out Event will be deemed to have occurred with respect to the Certificates
only if, after any applicable grace period, either the Trustee or Holders and
the Collateral Interest Holder evidencing undivided interests aggregating more
than 50% of the Investor Interest, by written notice to the Transferor and the
Servicer (and to the Trustee if given by the Holders) declare that a Pay Out
Event has occurred with respect to the Certificates as of the date of such
notice. In the case of any event described in clause (g), (h) or (i), a Pay Out
Event with respect to all Series then outstanding, and in the case of any event
described in clause (c), (d), (f), (j), (k) or (l), a Pay Out Event with respect
to only the Certificates, will be deemed to have occurred without any notice or
other action on the part of the Trustee or the Holders, the Collateral Interest
Holder or all certificateholders, as appropriate, immediately upon the
occurrence of such event. On the date on which a Pay Out Event is deemed to have
occurred, the Rapid Amortization Period will commence. In such event,
distributions of principal to the Holders will begin on the first Distribution
Date following the month in which such Pay Out Event occurred.
In addition to the consequences of a Pay Out Event discussed above, if
pursuant to certain provisions of Federal law, the Transferor voluntarily enters
liquidation or a receiver is appointed for the Transferor, on the day of such
event the Transferor will immediately cease to transfer Principal Receivables to
the Trust and promptly give notice to the Trustee of such event. Within 15 days,
the Trustee will publish a notice of the liquidation or the appointment stating
that the Trustee intends to sell, dispose of, or otherwise liquidate the
Receivables in a commercially reasonable manner. Unless otherwise instructed
within a specified period by Certificateholders representing undivided interests
aggregating more than 50% of the Investor Interest of each Series (or if any
Series has more than one Class, of each Class, and any other Person specified in
the Agreement or a Series Supplement) issued and outstanding, the Trustee will
sell, dispose of, or otherwise liquidate the Receivables in a commercially
reasonable manner and on commercially reasonable terms. The Proceeds from the
sale, disposition or liquidation of the Receivables will be treated as
collections of the Receivables and applied as specified above in "--Application
of Collections".
If the only Pay Out Event to occur is either the insolvency of the
Transferor or the appointment of a conservator or receiver for the Transferor,
the conservator or receiver may have the power to prevent the early sale,
liquidation or disposition of the Receivables and the commencement of a Rapid
Amortization Period. In addition, a conservator or receiver may have the power
to cause the early sale of the Receivables and the early retirement of the
Certificates. See "Risk Factors--Certain Matters Relating to Receivership" and
"Certain Legal Aspects of the Receivables--Certain Matters Relating to
Receivership."
SERVICING COMPENSATION AND PAYMENT OF EXPENSES.
The share of the Servicing Fee allocable to the Investor Interest with
respect to any Transfer Date (the "Investor Servicing Fee") shall be equal to
one-twelfth of the product of (a) __% and (b) the Adjusted Investor Interest as
of the last day of the Monthly Period preceding such Transfer Date.
The share of the Investor Servicing Fee allocable to the Class A
Holders with respect to any Transfer Date (the "Class A Servicing Fee") shall be
equal to one-twelfth of the product of (a) the Class A Floating Allocation, (b)
__% or if AFCO Credit and/or AFCO Acceptance are not the Servicers __% (the "Net
Servicing Fee Rate") and (c) the Adjusted Investor Interest as of the last day
of the Monthly Period preceding such Transfer Date. The share of the Investor
Servicing Fee allocable to the Class B Holders with respect to any Transfer Date
(the "Class B Servicing Fee") shall be equal to one-twelfth of the product of
(a) the Class B Floating Allocation, (b) the Net Servicing Fee Rate and (c) the
Adjusted Investor Interest as of the last day of the Monthly Period preceding
such Transfer Date. The share of the Investor Servicing Fee allocable to the
Collateral Interest Holder with respect to any Transfer Date (the "Collateral
Interest Servicing Fee") shall be equal to one-twelfth of the product of (a) the
Collateral Floating Allocation, (b) the Net Servicing Fee Rate and (c) the
Adjusted Investor Interest as of the last day of the Monthly Period preceding
such Transfer Date. The remainder of the Servicing Fee shall be paid by the
Transferor or other Series (as provided in the related Series Supplements). The
Class A Servicing Fee and the Class B Servicing Fee shall be payable to the
Servicer solely to the extent amounts are available for distribution in respect
thereof as described under "--Application of Collections."
The Servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the Receivables including, without
limitation, payment of the fees and disbursements of the Trustee and independent
certified public accountants and other fees which are not expressly stated in
the Agreement to be payable by the Trust or the Holders other than federal,
state and local income and franchise taxes, if any, of the Trust.
CERTAIN MATTERS REGARDING THE TRANSFEROR AND THE SERVICER
The Servicer may not resign from their obligations and duties under the
Agreement, except upon determination that performance of their duties are no
longer permissible under applicable law. No such resignation will become
effective until the Trustee or a successor or successors to the Servicer has
assumed the Servicer's responsibilities and obligations under the Agreement.
The Agreement provides that, subject to the limitations on the
Servicers's liability described below, the Servicer will indemnify the
Transferor and the Trust from and against any loss, liability, reasonable
expense, damage, or injury suffered or sustained by reason of any acts or
omissions or alleged acts or omissions of the Servicer with respect to the
activities of the Trust or the Trustee for which the Servicer is responsible
pursuant to the Agreement; provided, however, that the Servicer will not
indemnify (a) the Transferor or the Trust if such acts, omissions, or alleged
acts or omissions constitute or are caused by fraud, negligence, or willful
misconduct by the Transferor, the Trustee (or any of its officers, directors,
employees, or agents), or the Certificateholders, (b) the Trust, the
Certificateholders, or the Certificate Owners for losses, liabilities, expenses,
damages, or injuries arising from actions taken by the Trustee at the request of
Certificateholders, (c) the Trust, the Certificateholders, or the Certificate
Owners for any losses, liabilities, expenses, damages, or injuries incurred by
any of them in their capacities as investors, including without limitation
losses incurred as a result of defaulted Receivables or Receivables which are
written off as uncollectible, or (d) the Transferor, the Trust, the
Certificateholders, or the Certificate Owners for any losses, liabilities,
expenses, damages, or injuries suffered or sustained by the Trust, the
Certificateholders, or the Certificate Owners arising under any tax law,
including without limitation any federal, state, local, or foreign income or
franchise tax or any other tax imposed on or measured by income (or any interest
or penalties with respect thereto or arising from a failure to comply therewith)
required to be paid by the Trust, the Certificateholders, or the Certificate
Owners in connection with the Agreement to any taxing authority. The Agreement
also provides that the Servicer will indemnify the Trustee and its officers,
directors, employees, or agents from and against any loss, liability, reasonable
expense, damage, or injury suffered or sustained by reason of the acceptance of
the Trust by the Trustee, the issuance by the Trust of certificates , or any of
the other matters contemplated in the Agreement; provided, however, that the
Servicer will not indemnify the Trustee or its officers, directors, employees,
or agents for any loss, liability, expense, damage, or injury caused by the
fraud, negligence, or willful misconduct of any of them.
In addition, the Agreement provides that, subject to certain
exceptions, the Transferor will indemnify and the Trust and the Trustee from and
against any reasonable loss, liability, expense, damage, or injury (other than
to the extent that any of the foregoing relate to any tax law or any failure to
comply therewith) suffered or sustained by reason of any acts or omissions or
alleged acts or omissions arising out of or based upon the arrangement created
by the Agreement as though the Agreement created a partnership under the
Delaware Uniform Partnership Law in which the Transferor is a general partner.
The Agreement provides that, except for obligations specifically
undertaken by the Transferor and the Servicer pursuant to the Agreement, neither
the Transferor nor the Servicer nor any of their respective directors, officers,
employees, or agents will be under any liability to the Trust, the Trustee, its
officers, directors, employees, or agents, the Certificateholders, or any other
person for any action taken, or for refraining from taking any action pursuant
to the Agreement provided that neither the Transferor nor the Servicer nor any
of their respective directors, officers, employees, or agents will be protected
against any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith, or gross negligence of the Transferor, the Servicer, or
any such person in the performance of its duties thereunder or by reason of
reckless disregard of obligations and duties thereunder. In addition, the
Agreement provides that the Servicer is not under any obligation to appear in,
prosecute, or defend any legal action which is not incidental to its servicing
responsibilities under the Agreement and which in its opinion may expose it to
any expense or liability.
Any person into which, in accordance with the Agreement, the Transferor
or any of the Servicers may be merged or consolidated or any person resulting
from any merger or consolidation to which the Transferor or the Servicer is a
party, or any person succeeding to the business of the Transferor or any of the
Servicers, upon execution of a Series Supplement and delivery of an opinion of
counsel with respect to the compliance of the transaction with the applicable
provisions of the Agreement, will be the successor to the Transferor or the
applicable Servicer, as the case may be, under the Agreement.
SERVICER DEFAULT
In the event of any Servicer Default (as defined below), either the
Trustee or Certificateholders representing undivided interests aggregating more
than 50% of the Investor Interests for all Series of certificates of the Trust,
by written notice to the applicable Servicer (and to the Trustee if given by the
certificateholders), may terminate all of the rights and obligations of the
applicable Servicer as servicer under the Agreement and in and to the
Receivables and the proceeds thereof and the Trustee may appoint a new Servicer
(a "Service Transfer"). The rights and interest of the Transferor under the
Agreement and in the Transferor Interest will not be affected by such
termination. The Trustee will as promptly as possible appoint a successor
Servicer. If no such Servicer has been appointed and has accepted such
appointment by the time a Servicer ceases to act as Servicer, all authority,
power and obligations of such Servicer under the Agreement will pass to and be
vested in the Trustee. If the Trustee is unable to obtain any bids from eligible
servicers and the Servicer delivers an officer's certificate to the effect that
it cannot in good faith cure the Servicer Default which gave rise to a transfer
of servicing, and if the Trustee is legally unable to act as successor Servicer,
then the Trustee will give the Transferor the right of first refusal to purchase
the Receivables on terms equivalent to the best purchase offer as determined by
the Trustee.
"Servicer Default" under the Agreement refers to any of the following
events:
(a) failure by the Servicer to make any payment, transfer or
deposit, or to give instructions to the Trustee to make certain
payments, transfers or deposits, on the date such Servicer is required
to do so under the Agreement (or within the applicable grace period,
which shall not exceed 10 business days);
(b) failure on the part of the Servicer to duly observe or
perform in any respect any other covenants or agreements of the
Servicer which has a material adverse effect on the certificateholders
of any Series issued and outstanding under the Trust and which
continues unremedied for a period of 60 days after written notice and
continues to have a material adverse effect on such certificateholders;
or the delegation by a Servicer of its duties under the Agreement,
except as specifically permitted thereunder;
(c) any representation, warranty or certification made by the
Servicer in the Agreement, or in any certificate delivered pursuant to
the Agreement, proves to have been incorrect when made which has a
material adverse effect on the certificateholders of any Series issued
and outstanding under the Trust, and which continues to be incorrect in
any material respect for a period of 60 days after written notice and
continues to have a material adverse effect on such certificateholders;
or
(d) the occurrence of certain insolvency events with respect
to the Servicer.
Notwithstanding the foregoing, a delay in or failure of performance
referred to in clause (a) above for a period of 10 business days, or referred to
under clause (b) or (c) for a period of 60 business days, will not constitute a
Servicer Default if such delay or failure could not be prevented by the exercise
of reasonable diligence by the Servicer or if such delay or failure caused by an
act of God or other similar occurrence. Upon the occurrence of any such event,
the Servicer will not be relieved from using their best efforts to perform their
obligations in a timely manner in accordance with the terms of Agreement, and
the Servicer will provide the Trustee, any provider of Enhancement, the
Transferor and the holders of certificates of each Series issued and outstanding
under the Trust prompt notice of such failure or delay by it, together with a
description of the cause of such failure or delay and its efforts to perform its
obligations.
If a conservator or receiver is appointed for the Servicer, and no
Servicer Default other than such conservatorship or receivership or the
insolvency of such Servicer exists, the conservator or receiver may have the
power to prevent either the Trustee or the majority of the certificateholders
from effecting a Service Transfer.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Trustee will forward to each
Certificateholder of record a statement prepared by the Servicers setting forth,
among other things: (a) the total amount distributed, (b) the amount of the
distribution on such Distribution Date allocable to principal on the Class A
Certificates, the Class B Certificates and the Collateral Interest, (c) the
amount of such distribution allocable to interest on the Class A Certificates,
the Class B Certificates and the Collateral Interest, (d) the amount of
collections of Principal Receivables processed during the preceding month or
months since the last Distribution Date and allocated in respect of the Class A
Certificates, the Class B Certificates and the Collateral Interest, (e) the
aggregate amount of Principal Receivables, in the Trust as of the end of the
last day of the preceding Monthly Period or Periods since the last Distribution
Date, (f) the aggregate outstanding balance of Receivables which are 30-50,
60-89 and 90 or more days delinquent (or a similar classification of
delinquency) as of the end of the last day of the preceding Monthly Period or
Periods since the last Distribution Date, (g) the Class A Investor Default
Amount, Class B Investor Default Amount and the Collateral Default Amount for
the preceding Monthly Period or Periods since the last Distribution Date, (h)
the amount of Class A Investor Charge-Offs of Class B Investor Charge-Offs and
Collateral Charge-Offs for the preceding Monthly Period or Periods since the
last Distribution Date and the amount of reimbursements of previous Investor
Charge-Offs for the preceding Monthly Period or Periods since the last
Distribution Date, (i) the amount of the Class A Servicing Fee, the Class B
Servicing Fee and the Collateral Interest Servicing Fee for the preceding
Monthly Period or Periods since the last Distribution Date, (j) the Collateral
Interest, as of the close of business on such Distribution Date, (k) the
aggregate amount of collections of Finance Charge Receivables processed during
the preceding Monthly Period or Periods since the last Distribution Date and (l)
the Portfolio Yield for the preceding Monthly Period or Periods since the last
Distribution Date.
On or before January 31 of each calendar year the Trustee will furnish
to each person who at any time during the preceding calendar year was a
Certificateholder of record, a statement prepared by the Servicer containing the
information required to be required to be contained in the regular monthly
report to Certificateholders, as set forth in clauses (a), (b) and (c) above
aggregated for such calendar year or the applicable portion thereof during which
such person was a Certificateholder, together with such other customary
information (consistent with the treatment of the Certificates as debt) as the
Trustee or the Servicer deems necessary or desirable to enable the
Certificateholders to prepare their United States tax returns.
EVIDENCE AS TO COMPLIANCE
The Agreement will provide that on or before March 31 of each calendar
year commencing after the calendar year during which such Agreement is in effect
the Servicer will cause a firm of independent certified public accountants (who
may also render other services to the Servicer or the Bank) to furnish a report
to the effect that such accounting firm has examined certain documents and
records relating to the servicing of the Receivables, compared the information
contained in the Servicer's certificates delivered during the period covered by
the report with such documents and records and that, on the basis of such
examination, such firm is of the opinion that such servicing was conducted in
compliance with the Agreement except for such exceptions or errors as such firm
shall believe to be immaterial and such other exceptions as shall be set forth
in such statement.
The Agreement will provide for delivery to the Trustee on or before
March 31 of each calendar year commencing in 1997, of an annual statement signed
by an officer of each Servicer to the effect that each Servicer has fully
performed its obligations under the Agreement throughout the preceding year, or,
if there has been a default in the performance of any such obligation,
specifying the nature and status of the default.
AMENDMENTS
The Agreement may be amended by the Transferor, the Servicer and the
Trustee, without the consent of Certificateholders of any Series then
outstanding, for any purpose, so long as (i) the Transferor delivers to the
Trustee an opinion of counsel to the effect that such amendment will not
adversely affect in any material respect the interest of such Certificateholders
and (ii) such amendment will not result in a withdrawal or reduction of the
rating of any outstanding Series under the Trust by any Rating Agency; provided
that if such amendment provides for additional or substitute Credit Enhancement
for a Series, changes the definition of Eligible Receivable or provides for the
addition of a Participation to the Trust, the matters to be covered by the
opinion of counsel described in clause (i) may instead be covered by a
certificate of an authorized officer of the Transferor. Such an amendment may be
entered into in order to comply with or obtain the benefits of certain future
tax legislation (such as legislation creating FASIT, as described below under
"U.S. Federal Income Tax Consequences--Future Legislation").
The Agreement may also be amended by the Transferor, the Servicer and
the Trustee with the consent of the holders of certificates evidencing undivided
interests aggregating not less than 66 2/3% of the Investor Interests for all
Series of the Trust, for the purpose of adding any provisions to, changing in
any manner or eliminating any of the provisions of, the Agreement or the related
Series Supplement or of modifying in any manner the rights of Certificateholders
of any outstanding Series of the Trust. No such amendment, however, may (a)
reduce in any manner the amount of, or delay the timing of, distributions
required to be made on any Series, (b) change the definition of or the manner of
calculating the interest of any certificateholder of any Series issued by the
Trust or (c) reduce the aforesaid percentage of undivided interests the holders
of which are required to consent to any such amendment, in each case without the
consent of all certificateholders of the related Series and of all Series
adversely affected. Promptly following the execution of any amendment to the
Agreement, the Trustee will furnish written notice of the substance of such
amendment to each certificateholder. Any Series Supplement and any amendments
regarding the addition or removal of Receivables or Participations from the
Trust will not be considered an amendment requiring Certificateholders consent
under the provisions of the Agreement.
LIST OF CERTIFICATEHOLDERS
Upon written request of Certificateholders of record representing
undivided interests in the Trust aggregating not less than 10% of the Investor
Interest, the Trustee will afford such Certificateholders access during business
hours to the current list of Certificateholders of the Trust for purposes of
communicating with other Certificateholders with respect to their rights under
the Agreement. The Trustee may, however, refuse to supply such list until it has
been adequately indemnified by such Certificateholders for its costs and
expenses, and will give the Servicers notice that such request has been made.
See "--Book-Entry Registration" and "--Definitive Certificates" above.
THE TRUSTEE
[ ] is the Trustee under the Agreement. The Transferor, the Servicer
and their respective affiliates may from time to time enter into normal banking
and trustee relationships with the Trustee and its affiliates. The Trustee, the
Transferor, the Servicer and any of their respective affiliates may hold
Certificates in their own names (except that the Trustee may not hold a
Certificate issued by the related Trust for its own account). In addition, for
purposes of meeting the legal requirements of certain local jurisdictions, the
Trustee shall have the power to appoint a co-trustee or separate trustees of all
or part of the Trust. In the event of such appointment, all rights, powers,
duties and obligations conferred or imposed upon the Trustee by the Agreement
shall be conferred or imposed upon the Trustee and such separate trustee or
co-trustee jointly, or, in any jurisdiction in which the Trustee shall be
incompetent or unqualified to perform certain acts, singly upon such separate
trustee or co-trustee who shall exercise and perform such rights, powers, duties
and obligations solely at the direction of the Trustee.
The Trustee may resign at any time, in which event the Transferor will
be obligated to appoint a successor Trustee. The Transferor may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent. In such circumstances, the
Transferor will be obligated to appoint a successor Trustee. Any resignation or
removal of the Trustee and appointment of a successor Trustee does not become
effective until acceptance of the appointment by the successor Trustee.
DESCRIPTION OF THE RECEIVABLES PURCHASE AGREEMENT
PURCHASES OF RECEIVABLES
The Receivables transferred to the Trust pursuant to the Agreement are
purchased by the Transferor pursuant to a Receivables Purchase Agreement.
Pursuant to the Receivables Purchase Agreement, the Transferor purchases
Receivables from the Originators from time to time until the Purchase
Termination Date (as defined below in "--Purchase Termination Date"). The
purchase price of such Receivables is equal to 99% of the outstanding principal
balance of such Receivables, and is payable by the Transferor in cash or by a
note. See "Description of Certificates." Pursuant to the Agreement, such
Receivables are thereafter transferred immediately by the Transferor to the
Trust. Pursuant to the Agreement, the Transferor assigned its rights in, to, and
under the Receivables Purchase Agreement with respect to such Receivables to the
Trust.
REPRESENTATIONS AND WARRANTIES
Pursuant to the Receivables Purchase Agreement, each of the Originators
represents and warrants to the Transferor that, among other things, as of the
Closing Date and subject to specified exceptions and limitations, such
Originator is duly organized, validly existing, and in good standing under the
laws of its jurisdiction of incorporation, such Originator is duly qualified to
do business and in good standing in any state required in order to conduct its
business and has obtained all necessary licenses and approvals required under
applicable law, and such Originator has the requisite corporate power and
authority to conduct its business and to perform its obligations under the
Receivables Purchase Agreement.
Pursuant to the Receivables Purchase Agreement, each of the Originators
represents and warrants to the Transferor that, among other things, as of the
Closing Date, and, as to matters involving Additional Receivables, as of the
date that the Receivables therein are transferred to the Trust and subject to
specified exceptions and limitations, (i) each of the Originators is a
corporation validly existing and in good standing in the State of its
incorporation and has the full corporate power, authority and legal right to own
its properties and conduct its business as such properties are presently owned
and such business presently conducted, and to execute, deliver, and perform its
obligations under the Receivables Purchase Agreement, (ii) the execution and
delivery of the Receivables Purchase Agreement, and the consummation of the
transactions provided for therein, have been duly authorized by the applicable
Originator by all necessary corporate action on its part, (iii) the Receivables
Purchase Agreement constitutes a legal, valid, and binding obligation of the
applicable Originator, (iv) the transfer of Receivables by the applicable
Originator to the Transferor under the Receivables Purchase Agreement
constitutes a valid transfer and assignment to the Transferor of all right,
title, and interest of such Originator in and to the Receivables and the
proceeds thereof, (v) as of the Closing Date, each of the Receivables then
existing is an Eligible Receivable and (vi) as of the date of the transfer of
any Additional Receivable to the Transferor, such Receivable is an Eligible
Receivable.
If any of the representations and warranties of any Originator as to
matters described in the preceding paragraph are not true with respect to an
Originator or a Receivable that such Originator originated, as applicable, at
the time such representation or warranty was made and as a result thereof (i)
the Transferor is required to repurchase any Receivable from the Trust pursuant
to the Agreement or (ii) any Receivable is designated an "Ineligible Receivable"
pursuant to the Agreement, then such Originator will be obligated to pay to the
Transferor immediately upon the Transferor's demand therefor an amount equal to
the amount of all losses, damages, and liabilities of the Transferor that result
from such breach, including but not limited to the cost of any of the
Transferor's repurchase obligations pursuant to the Agreement.
CERTAIN COVENANTS
Pursuant to the Receivables Purchase Agreement, each Originator
covenants that, among other things, subject to specified exceptions and
limitations, (i) it will take no action or cause any Receivable to be anything
other than a general intangible under the applicable UCC, [(ii) it will not
convey or transfer any receivable except for transfers to the Transferor and as
otherwise provided in the Receivables Purchase Agreement,] (iii) it will comply
with all laws, rules, and regulations applicable to the Receivables, (iv) it
will maintain in all material respects its corporate existence and corporate
franchises, (v) it will permit the Transferor or its agents to examine the
records relating to the Receivables, (vi) it will maintain and implement any
administrative or operating procedure reasonably necessary for the collection of
Receivables, (vii) if the Transferor purchases a Receivable that does not
satisfy the eligibility requirements set forth in the Receivables Purchase
Agreement, such Originator will give prompt notice thereof to the Transferor,
and will furnish to the Transferor such information, documents, records, or
reports as the Transferor may reasonably request, (viii) it will take all
actions reasonably necessary to maintain its rights under all loan agreements to
which it is a party, (ix) it will record each sale of a Receivable as a sale on
its books and records, reflect each sale in its financial statements and tax
returns as a sale, and recognize gain or loss on such sale, and (x) it will
maintain the Transferor's valid and properly perfected title to each Receivable
and will execute action to protect the Transferor's rights in the Receivables
and enable the Transferor to exercise such rights, including without limitation,
by filing UCC financing statements in each relevant jurisdiction.
PURCHASE TERMINATION DATE
If any of the Originators becomes insolvent, the Transferor's
obligations under the Receivables Purchase Agreement to such Originator will
automatically be terminated. In addition, if a Pay Out Event occurs as to all
Series of certificates, the Transferor's obligations under the Receivables
Purchase Agreement as to all of the Originators will automatically be
terminated. The date of such termination will be the "Purchase Termination Date"
as to each Originator affected thereby.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
The Transferor will represent and warrant in the Agreement that the
transfer of Receivables by it to the related Trust is either a valid transfer
and assignment to such Trust of all right, title and interest of the Transferor
in and to the related Receivables, except for the Transferor Interest, or the
grant to the Trust of a security interest in such Receivables. The Transferor
also will represent and warrant in the Agreement that, if the transfer of
Receivables by the Transferor or the related Trust is deemed to create a
security interest under the Uniform Commercial Code, as in effect in the State
of [Pennsylvania] (the "UCC"), there will exist a valid, subsisting and
enforceable first priority perfected security interest in such Receivables
created thereafter in favor of such Trust on and after their creation, except
for certain tax and other governmental liens. For a discussion of the Trust's
rights arising from a breach of these warranties, see "Description of the
Certificates--Representations and Warranties."
CERTAIN MATTERS RELATING TO RECEIVERSHIP
The Transferor is chartered as a national banking association and is
subject to regulation and supervision by the Office of the Comptroller of the
Currency, which is authorized to appoint the FDIC as conservator or receiver of
the Transferor upon the occurrence of certain events relating to the
Transferor's financial condition.
The FDIA, as amended by FIRREA, sets forth certain powers that the FDIC
in its capacity as conservator or receiver for the Transferor could exercise.
Positions taken by the FDIC prior to the passage of FIRREA suggest that the
FDIC, if appointed as conservator or receiver of the Transferor, would not
interfere with the timely transfer to a Trust of payments collected on the
Receivables or interfere with the timely liquidation of related Receivables, as
described below. To the extent that the Transferor has granted a security
interest in related Receivables to a Trust, and that interest was validly
perfected before the Transferor's insolvency and was not taken in contemplation
of the insolvency of the Transferor, or with the intent to hinder, delay or
defraud the Transferor or the creditors of the Transferor, the FDIA provides
that such security interest should not be subject to avoidance. As a result,
payments to such Trust with respect to the Receivables should not be subject to
recovery by the FDIC as conservator or receiver of the Transferor. If, however,
the FDIC, as conservator or receiver for the Transferor, were to assert a
contrary position, or were to require the Trustee to establish its right to
those payments by submitting to and completing the administrative claims
procedure established under the FDIA, or the conservator or receiver were to
request a stay of proceedings with respect to the Transferor as provided under
the FDIA, delays in payments on the related Series of Certificates and possible
reductions in the amount of those payments could occur.
Upon the appointment of a conservator or receiver or upon a voluntary
liquidation with respect to the Transferor, the Transferor will promptly give
notice thereof to each Trustee and a Pay Out Event will occur with respect to
all Series then outstanding under the related Trust. Pursuant to the Agreement,
newly created Principal Receivables will not be transferred to the Trust on and
after any such appointment or voluntary liquidation, and the Trustee will
proceed to sell, dispose of or otherwise liquidate the Receivables in a
commercially reasonable manner and on commercially reasonable terms, unless
otherwise instructed within a specified period by holders of Certificates
representing undivided interests aggregating more than 50% of the Investor
Interest of each Series (or if any Series has more than one Class, of each
Class, and any other Person specified in the related Agreement of a Series
Supplement), or unless otherwise required by the FDIC as receiver or conservator
of the Transferor. Under the Agreement, the proceeds from the sale of the
Receivables would be treated as collections of the Receivables and the Investor
Percentage of such proceeds would be distributed to the Certificateholders. This
procedure could be delayed, as described above. If the only Pay Out Event to
occur is either the insolvency of the Transferor or the appointment of a
conservator or receiver for the Transferor, the conservator or receiver may have
the power to prevent the early sale, liquidation or disposition of the
Receivables and the commencement of a Rapid Amortization Period. In addition, a
conservator or receiver may have the power to cause the early sale of the
Receivables and the early retirement of the Certificates or to prohibit the
continued transfer of Principal Receivables to the Trust. See "Description of
the Certificates--Pay Out Events."
CONDITIONS TO PERFECTING INTERESTS IN UNEARNED PREMIUMS
Each insurance premium finance loan agreement underlying a Receivable
includes a grant by the borrower to the applicable Originator of a security
interest in the unearned portion of the premium of the financed commercial
insurance policy (the "Unearned Premium"). The perfection of a security interest
in an unearned premium is not governed by the Uniform Commercial Code ("UCC").
State statutes and industry practice govern the perfection of a security
interest in the unearned premiums and generally require, for the perfection of
such security interest, a notice of financed premium to be sent informing the
applicable insurance company of the identity of the person entitled to the
payment of such unearned premium. It is standard practice for the Originators to
send such a notice to the applicable insurance company at or about the time the
insurance policy premium is financed. Each Originator will represent and warrant
in the Receivables Purchase Agreement that it has a first priority perfected
security interest in the Unearned Premiums relating to Receivables it transfers
to the Transferor. Pursuant to the Receivables Purchase Agreement, any breach of
this representation and warranty that results in an obligation of the Transferor
to repurchase the related Receivable under the Agreement will result in an
obligation of the applicable Originator to repurchase the related Receivable.
The Transferor will assign all of its rights under the Receivables Purchase
Agreement to the Trustee for the benefit of the Certificateholders.
Each Originator will assign its security interest in the Unearned
Premiums to the Transferor, who will in turn assign its security interest in the
Unearned Premiums to the Trust. Due to the administrative burden and expense of
mailing a notice for each Receivable to the applicable insurance company and the
administrative burden and expense of the related insurance company which would
have to process such notices, neither the Transferor nor the Trustee will send
notices to the related insurance companies, except under the circumstances
described below. In the absence of such procedures neither the Transferor nor
the Trust will have a perfected security interest in the Unearned Premiums.
However, on the Closing Date, each Originator will deliver to the
Trustee by electronic means a notice of financed premium for each Receivable
appropriately completed naming the Trustee on behalf of the Certificateholders
as the assignee of the security interest in the related Unearned Premiums. Any
time an Additional Receivable is transferred to the Trust, the applicable
Originator will deliver to the Trustee by electronic means on the Determination
Date following the Monthly Period in which such Receivable was transferred to
the Trust, a notice of financed premium for each such Additional Receivable
appropriately completed. The Trustee will agree not to furnish to an insurance
carrier or its agents any Notices of Financed Premium unless and until a Trigger
Event shall have occurred and be continuing.
However, unless the Trust has perfected its security interest in an
Unearned Premium prior to the bankruptcy or insolvency of the applicable
Originator, the Trust's interest in the Unearned Premium would be subordinate to
the interest of a bankruptcy trustee. As a result, Certificateholders might not
be able to obtain the proceeds of any such refunded Unearned Premiums.
U.S. FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion, summarizing the anticipated material
generally applicable Federal income tax consequences of the purchase, ownership
and disposition of the Certificates of a Series, is based upon the provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), proposed, temporary
and final Treasury regulations thereunder, and published rulings and court
decisions in effect as of the date hereof, all of which are subject to change,
possibly retroactively. This discussion does not address every aspect of the
Federal income tax laws that may be relevant to Certificate Owners in light of
their personal investment circumstances or to certain types of Certificate
Owners subject to special treatment under the Federal income tax laws (for
example, banks and life insurance companies). Accordingly, investors should
consult their own tax advisors regarding Federal, state, local, foreign and any
other tax consequences to them of any investment in the Certificates.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH REGARD
TO THE FEDERAL TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, OR DISPOSITION OF
INTERESTS IN CERTIFICATES, AS WELL AS THE TAX CONSEQUENCES ARISING UNDER THE
LAWS OF ANY STATE, FOREIGN COUNTRY, OR OTHER TAXING JURISDICTION. For purposes
of this section "U.S. Federal Income Tax Consequences" the term "Certificate
Owner" refers to a holder of a beneficial interest in a Certificate.
CHARACTERIZATION OF THE CERTIFICATES AS INDEBTEDNESS
Stroock & Stroock & Lavan will act as special tax counsel to the
Transferor ("Special Tax Counsel") and will, advise the Bank based on the
assumptions and qualifications set forth in the opinion that the Certificates
will be treated as indebtedness for Federal income tax purposes. However,
opinions of counsel are not binding on the Internal Revenue Service (the "IRS"),
and there can be no assurance that the IRS could not successfully challenge this
conclusion.
The Transferor will express in the Agreement its intent that for
Federal, state and local income or franchise tax purposes, Certificates will be
indebtedness secured by the Receivables. The Transferor agrees and each
Certificateholder and Certificate Owner, by acquiring an interest in a
Certificate, agrees or will be deemed to agree to treat the Certificates as
indebtedness for Federal, state and local income or franchise tax purposes.
However, because different criteria are used to determine the non-tax accounting
characterization of the transactions contemplated by the Agreement, the
Transferor expects to treat such transaction, for regulatory and financial
accounting purposes, as a sale of an ownership interest in the Receivables and
not as a debt obligation.
In general, whether for Federal income tax purposes a transaction
constitutes a sale of property or a loan, the repayment of which is secured by
the property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction rather than its form or the manner in
which it is labeled. While the IRS and the courts have set forth several factors
to be taken into account in determining whether the substance of a transaction
is a sale of property or a secured indebtedness for Federal income tax purposes,
the primary factor in making this determination is whether the transferee has
assumed the risk of loss or other economic burdens relating to the property and
has obtained the benefits of ownership thereof. Special Tax Counsel will analyze
and rely on several factors in reaching its opinion that the weight of the
benefits and burdens of ownership of the Receivables has not been transferred to
the Certificate Owners.
In some instances, courts have held that a taxpayer is bound by a
particular form it has chosen for a transaction, even if the substance of the
transaction does not accord with its form. It is expected that Special Tax
Counsel will advise that the rationale of those cases will not apply to the
transaction evidenced by a Series of certificates, because the form of the
transaction, as reflected in the operative provisions of the documents, either
is not inconsistent with the characterization of the Certificates as debt for
Federal income tax purposes or otherwise makes the rationale of those cases
inapplicable to this situation.
TAXATION OF INTEREST INCOME OF CERTIFICATEHOLDERS
As set forth above, it is expected that Special Tax Counsel will advise
the Bank that the Certificates will constitute indebtedness for Federal income
tax purposes, and accordingly, interest thereon will be includible in income by
Certificate Owners as ordinary income when received (in the case of a cash basis
taxpayer) or accrued (in the case of an accrual basis taxpayer) in accordance
with their respective methods of tax accounting. Interest received on the
Certificates may also constitute "investment income" for purposes of certain
limitations of the Code concerning the deductibility of investment interest
expense.
While it is not anticipated that the Certificates will be issued at a
greater than de minimis discount, under Treasury regulations (the "Regulations")
the Certificates may nevertheless be deemed to have been issued with original
issue discount ("OID"). This could be the case, for example, if interest
payments for a Series are not deemed to be payments of "qualified stated
interest" because (i) Certificate Owners of a Series do not have default
remedies ordinarily available to holders of debt instruments and (ii) no
penalties are imposed on the Transferor or the applicable Trust as a result of
any failure to make interest payments. As a result, if such Regulations were to
apply, all of the taxable income to be recognized with respect to the
Certificates would be includible in income as OID but would not be includible
again when the interest is actually received.
If the Certificates are in fact issued at a greater than de minimis
discount or are treated as having been issued with OID under the Regulations the
following rules will apply. The excess of the "stated redemption price at
maturity" of a Certificate over the original issue price (in this case, the
initial offering price at which a substantial amount of the Certificates are
sold to the public) will constitute OID. A Certificate Owner must include OID in
income as interest over the term of the Certificate under a constant yield
method. In general, OID must be included in income in advance of the receipt of
cash representing that income. In the case of a debt instrument as to which the
repayment of principal may be accelerated as a result of the prepayment of other
obligations securing the debt instrument, the periodic accrual of OID is
determined by taking into account both the prepayment assumptions used in
pricing the debt instrument and the prepayment experience. If this provision
applies to a Class of Certificates (which is not clear), the amount of OID which
will accrue in any given "accrual period" may either increase or decrease
depending upon the actual prepayment rate. Accordingly, each Certificate Owner
should consult its own tax adviser regarding the impact to it of the OID rules
if the Certificates are issued with OID. Under the Regulations, a holder of a
Certificate issued with de minimis OID must include such OID in income
proportionately as principal payments are made on a Class of certificates.
A holder who purchases a Certificate at a discount from its adjusted
issue price may be subject to the "market discount" rules of the Code. These
rules provide, in part, for the treatment of gain attributable to accrued market
discount as ordinary income upon the receipt of partial principal payments or on
the sale or other disposition of the Certificate, and for the deferral of
interest deductions with respect to debt incurred to acquire or carry the market
discount Certificate.
A subsequent holder who purchases a Certificate at a premium may elect
to amortize and deduct this premium over the remaining term of the Certificate
in accordance with rules set forth in Section 171 of the Code.
SALE OF A CERTIFICATE
In general, a Certificate Owner will recognize gain or loss upon the
sale, exchange, redemption, or other taxable disposition of a Certificate
measured by the difference between (i) the amount of cash and the fair market
value of any property received (other than amounts attributable to, and taxable
as, accrued interest) and (ii) the Certificate Owner's tax basis in the
Certificate (as increased by any OID or market discount previously included in
income by the holder and decreased by any deductions previously allowed for
amortizable bond premium and by any payments reflecting principal or OID
received with respect to such Certificate). Subject to the market discount rules
discussed above and to the one-year holding period requirement for long-term
capital gain treatment, any such gain or loss generally will be long-term
capital gain, provided that the Certificate was held as a capital asset. The
maximum ordinary income rate for individuals, estates, and trusts exceeds the
maximum long-term capital gains rate for such taxpayers. In addition, capital
losses generally may be used only to offset capital gains.
TAX CHARACTERIZATION OF TRUST
The Agreement permits the issuance of Classes of Certificates that are
treated for Federal income tax purposes either as indebtedness or as an interest
in a partnership. Accordingly, the Trust could be characterized either as (i) a
security device to hold Receivables securing the repayment of the Certificates
or (ii) a partnership in which the Transferor and certain classes of
Certificateholders are partners, and which has issued debt represented by other
classes of Certificates of such Trust (including, the Certificates). In
connection with the issuance of Certificates of any Series, Special Tax Counsel
will render an opinion to the Bank, based on the assumptions and qualifications
set forth therein, that under then current law, the issuance of the Certificates
of such Series will not cause the applicable Trust to be characterized for
Federal income tax purposes as an association (or publicly traded partnership)
taxable as a corporation.
Proposed regulations issued on May 1, 1995 (the "Proposed
Regulations"), in their current form, narrow the circumstances under which a
partnership may be excepted from classification as a publicly traded partnership
taxable as a corporation. The Proposed Regulations are proposed to be effective
for taxable years beginning on or after the date that final regulations are
published in the Federal Register, and accordingly could, in future taxable
years, affect the characterization of transactions occurring prior to the
effective date. Moreover, the Proposed Regulations could be altered
substantially before being adopted in final form and thus there is no assurance
that a transaction that is not characterized as a publicly traded partnership
under the Proposed Regulations will not be characterized as a publicly traded
partnership under final regulations.
FASIT LEGISLATION
Legislation enacted on August 20, 1996 provides for a new entity for
Federal income tax purposes, the "financial asset securitization investment
trust" (or "FASIT"), beginning on September 1, 1997. The Agreement may provide
that the Transferor may cause a FASIT election to be made for all or a portion
of the Trust if the Transferor delivers to the Trustee a Tax Opinion.
POSSIBLE CLASSIFICATION OF THE TRANSACTION AS A PARTNERSHIP OR AS AN
ASSOCIATION TAXABLE AS A CORPORATION
The opinion of Special Tax Counsel with respect to Certificates will
not be binding on the courts or the IRS. It is possible that the IRS could
assert that, for purposes of the Code, the transaction contemplated by this
Prospectus constitutes a sale of the Receivables (or an interest therein) to the
Certificate Owners and that the proper classification of the legal relationship
between the Transferor and some or all of the Certificate Owners or
Certificateholders resulting from the transaction is that of a partnership
(including a publicly traded partnership), a publicly traded partnership taxable
as a corporation, or an association taxable as a corporation. The Transferor
currently does not intend to comply with the Federal income tax reporting
requirements that would apply if any Classes of Certificates were treated as
interests in a partnership or corporation (unless, as is permitted by the
Agreement, an interest in the Trust is issued or sold that is intended to be
classified as an interest in a partnership).
If a transaction were treated as creating a partnership between the
Transferor and the Certificate Owners or Certificateholders, the partnership
itself would not be subject to Federal income tax (unless it were to be
characterized as a publicly traded partnership taxable as a corporation);
rather, the partners of such partnership, including the Certificate Owners or
Certificateholders, would be taxed individually on their respective distributive
shares of the partnership's income, gain, loss, deductions and credits. The
amount and timing of items of income and deductions of a Certificate Owner could
differ if the Certificates were held to constitute partnership interests, rather
than indebtedness. Moreover, unless the partnership were treated as engaged in a
trade or business, an individual's share of expenses of the partnership would be
miscellaneous itemized deductions that, in the aggregate, are allowed as
deductions only to the extent they exceed two percent of the individual's
adjusted gross income, and would be subject to reduction under Section 68 of the
Code if the individual's adjusted gross income exceeded certain limits. As a
result, the individual might be taxed on a greater amount of income than the
stated rate on the Certificates. Finally, even if the partnership qualifies for
exemption from taxation as a corporation, all or a portion of any taxable income
allocated to a Certificate Owner that is a pension, profit-sharing or employee
benefit plan or other tax-exempt entity (including an individual retirement
account) may, under certain circumstances, constitute "unrelated business
taxable income" which generally would be taxable to the holder under the Code.
If it were determined that a transaction created an entity classified
as an association or as a publicly traded partnership taxable as a corporation,
the Trust would be subject to Federal income tax at corporate income tax rates
on the income it derives from the Receivables, which would reduce the amounts
available for distribution to the Certificate Owners, possibly including
Certificate Owners of a Class that is treated as indebtedness. Such
classification may also have adverse state and local tax consequences that would
reduce amounts available for distribution to Certificate Owners. Cash
distributions to the Certificate Owners (except any Class not recharacterized as
an equity interest in an association) generally would be treated as dividends
for tax purposes to the extent of such deemed corporation's earnings and
profits.
FOREIGN INVESTORS
As set forth above, it is expected that Special Tax Counsel will render
an opinion, upon issuance, that the Certificates will be treated as debt for
U.S. Federal income tax purposes. The following information describes the U.S.
Federal income tax treatment of investors that are not U.S. persons ("Foreign
Investors") if the Certificates are treated as debt. The term "Foreign Investor"
means any person other than (i) a citizen or resident of the United States, (ii)
a corporation, partnership or other entity organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or trust
the income of which is includible in gross income for U.S. Federal income tax
purposes, regardless of its source.
Interest, including principal to the extent of accrued OID, paid to a
Foreign Investor will be subject to U.S. withholding taxes at a rate of 30%
unless (i) the income is "effectively connected" with the conduct by such
Foreign Investor of a trade or business in the United States and the investor
provides on a timely basis Form 4224 or (ii) the Foreign Investor and each
securities clearing organization, bank, or other financial institution that
holds the Certificates on behalf of the customer in the ordinary course of its
trade or business, in the chain between the Certificate Owner and the U.S.
person otherwise required to withhold the U.S. tax, complies with applicable
identification requirements and the Certificate Owner does not actually or
constructively own 10% or more of the voting stock of the Bank (or, upon the
issuance of an interest in the Trust that is treated as a partnership interest,
any holder of such interest) and is not a controlled foreign corporation with
respect to the Bank (or the holder of such an interest). Applicable
identification requirements generally will be satisfied if there is delivered to
a securities clearing organization (i) IRS Form W-8 signed under penalties of
perjury by the Certificate Owner, stating that the Certificate Owner is not a
U.S person and providing such Certificate Owner's name and address, (ii) IRS
Form 1001, signed by the Certificate Owner or such Certificate Owner's agent,
claiming exemption from withholding under an applicable tax treaty, or (iii) IRS
Form 4224 signed by the Certificate Owner or such owner's agent, claiming
exemption from withholding of tax on income effectively connected with the
conduct of a trade or business in the United States; provided that in any such
case (x) the applicable form is delivered pursuant to applicable procedures and
is properly transmitted to the United States entity otherwise required to
withhold tax and (y) none of the entities receiving the form has actual
knowledge that the Certificate Owner is a U.S. person or that the form is
otherwise inaccurate.
A Certificate Owner that is a nonresident alien or foreign corporation
will not be subject to U.S. Federal income tax on gain realized upon the sale,
exchange, or redemption of a Certificate, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States, (ii) in the case of a Certificate Owner that is an individual, such
Certificate Owner is not present in the United States for 183 days or more
during the taxable year in which such sale, exchange, or redemption occurs, and
(iii) in the case of gain representing accrued interest or OID the conditions
described in the immediately preceding paragraph are satisfied.
If the interests of the Certificate Owners were reclassified as
interests in a partnership (not taxable as a corporation), such
recharacterization could cause a Foreign Investor to be treated as engaged in a
trade or business in the United States. In such event the Certificate Owner
would be required to file a Federal income tax return and, in general, would be
subject to Federal income tax, including branch profits tax in the case of a
Certificateholder that is a corporation, on its net income from the partnership.
Further, the partnership would be required, on a quarterly basis, to pay
withholding tax equal to the sum, for each foreign partner, of such foreign
partner's distributive share of "effectively connected" income of the
partnership multiplied by the highest rate of tax applicable to that foreign
partner. The tax withheld from each foreign partner would be credited against
such foreign partner's U.S. income tax liability.
If a Trust were taxable as a corporation, distributions to foreign
persons, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30%, unless such rate were reduced by an applicable
tax treaty.
STATE AND LOCAL TAXATION
The discussion above does not address the tax treatment of a Trust, the
Certificates, or the Certificate Owners of any Series under state and local tax
laws. Prospective investors are urged to consult their own tax advisors
regarding state and local tax treatment of the Trust and the Certificates, and
the consequences of purchase, ownership or disposition of the Certificates under
any state or local tax law.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit sharing or other employee benefit plan or retirement arrangement 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 plan. ERISA also imposes certain duties on persons who are
fiduciaries of plans subject to ERISA and prohibits certain transactions between
such plans and parties in interest with respect to such plans. Under ERISA, any
person who exercises any authority or control respecting the management or
disposition of the assets of a plan is considered to be a fiduciary of such plan
(subject to certain exceptions not here relevant). A violation of these
"prohibited transaction" rules may generate excise tax and other liabilities
under ERISA and the Code for such persons.
Plan fiduciaries must determine whether the acquisition and holding of
the Certificates and the operations of the Trust would result in direct or
indirect prohibited transactions under ERISA and the Code. The operations of the
Trust could result in prohibited transactions if Benefit Plans (as defined
below) that purchase the Certificates of a Series are deemed to own an interest
in the underlying assets of the Trust. There may also be an improper delegation
of the responsibility to manage Benefit Plan assets if Benefit Plans that
purchase the Certificates are deemed to own an interest in the underlying assets
of the Trust.
Pursuant to a final regulation (the "Final Regulation") issued by the
Department of Labor ("DOL") concerning the definition of what constitutes the
"plan assets" of an employee benefit plan subject to ERISA or the Code, or an
individual retirement account ("IRA") (collectively referred to as "Benefit
Plans"), the assets and properties of certain entities in which a Benefit Plan
makes an equity investment could be deemed to be assets of the Benefit Plan in
certain circumstances. Accordingly, if Benefit Plans purchase Certificates, the
Trust could be deemed to hold plan assets unless one of the exceptions under the
Final Regulation is applicable to the Trust.
The Final Regulation only applies to the purchase by a Benefit Plan of
an "equity interest" in an entity. Assuming that interests in Certificates are
equity interests, the Final Regulation contains an exception that
provides that if a Benefit Plan acquires a "publicly-offered security," the
issuer of the security is not deemed to hold plan assets. A publicly-offered
security is a security that is (i) freely transferable, (ii) part of a class of
securities that is owned by 100 or more investors independent of the issuer and
of one another and (iii) either is (A) part of a class of securities registered
under Section 12(b) or 12(g) of the Exchange Act or (B) sold to the plan as part
of an offering of securities to the public pursuant to an effective registration
statement under the Act and the class of securities of which such security is a
part is registered under the Exchange Act within 120 days (or such later time as
may be allowed by the Commission) after the end of the fiscal year of the issuer
during which the offering of such securities to the public occurred. In
addition, the Final Regulation provides that if at all times more than 75% of
the value of all classes of equity interests in Certificates are held by
investors other than benefit plan investors (which is defined as including plans
subject to ERISA, government plans and IRAs), the investing plan's assets will
not include any of the underlying assets of the applicable Trust.
There are no restrictions imposed on the transfer of the Certificates
offered hereby, and the Certificates offered hereby will be sold as part of an
offering pursuant to an effective registration statement under the Securities
Act. Based on information provided by any underwriter, agent or dealer involved
in the distribution of the Certificates offered hereby, the Transferor will
notify the Trustee as to whether or not the Certificates of any Series (or if
there is more than one Class in a Series each Class) will be expected to be held
by at least 100 separately named persons at the conclusion of the offering. The
Transferor will not, however, determine whether there will, in fact, be at least
100 separately named persons or whether the 100-investor requirement of the
exception for publicly offered securities is satisfied as to the Certificates of
such Series (or Class). Prospective purchasers may obtain a copy of the
notification described in the second preceding sentence from the Trustee at its
Corporate Trust Department. If the Certificates in any Class are expected to be
held by at least 100 separately named persons at the conclusion of the offering,
those Certificates will be timely registered under the Exchange Act.
If interests in the Certificates fail to meet the criteria of
publicly-offered securities and the applicable Trust's assets are deemed to
include assets of Benefit Plans that are Certificateholders, transactions
involving the Trust and "parties in interest" or "disqualified persons" with
respect to such plans might be prohibited under Section 406 of ERISA and Section
4975 of the Code unless an exemption is applicable. The Transferor, Servicer,
Trustee or any underwriter of such Series may be considered to be a party in
interest, disqualified person or fiduciary with respect to an investing Benefit
Plan. Accordingly, an investment by a Benefit Plan in Certificates may be a
prohibited transaction under ERISA and the Code unless such investment is
subject to a statutory or administrative exemption. Four class exemptions issued
by the DOL that could apply in such event are DOL Prohibited Transaction
Exemption ("PTE") 84-14 (Class Exemption for Plan Asset Transactions Determined
by Independent Qualified Professional Asset Managers), PTE 91-38 (Class
Exemption for Certain Transactions Involving Bank Collective Investment Funds),
PTE 90-1 (Class Exemption for Certain Transactions Involving Insurance Company
Pooled Separate Accounts), PTE 95-60 (Class Exemption for Certain Transactions
Involving Insurance Company General Accounts) and PTE 96-23 (Class Exemption for
Plan Asset Transactions Determined by In-house Asset Managers). There is no
assurance that these exemptions, even if all of the conditions specified therein
are satisfied, or any other exemption will apply to all transactions involving
the Trust's assets.
IN LIGHT OF THE FOREGOING, FIDUCIARIES OF A BENEFIT PLAN CONSIDERING
THE PURCHASE OF INTERESTS IN CERTIFICATES OF ANY SERIES SHOULD CONSULT THEIR OWN
COUNSEL AS TO WHETHER THE ASSETS OF THE TRUST WHICH ARE REPRESENTED BY SUCH
INTERESTS WOULD BE CONSIDERED PLAN ASSETS, AND WHETHER, UNDER THE GENERAL
FIDUCIARY STANDARDS OF INVESTMENT PRUDENCE AND DIVERSIFICATION, AN INVESTMENT IN
CERTIFICATES OF ANY SERIES 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. In addition, fiduciaries should
consider the consequences that would apply if the Trust's assets were considered
plan assets, the applicability of exemptive relief from the prohibited
transaction rules and whether all conditions for such exemptive relief would be
satisfied.
In particular, insurance companies considering the purchase of
Certificates should consult their own benefits or other appropriate counsel with
respect to the United States Supreme Court's decision in JOHN HANCOCK MUTUAL
LIFE INSURANCE CO. V. HARRIS TRUST & SAVINGS BANK, 114 S. Ct. 517 (1993) ("John
Hancock") and the applicability of PTE 95-60. In John Hancock, the Supreme Court
held that assets held in an insurance company's general account may be deemed to
be "plan assets" under certain circumstances, however, PTE 95-60 may exempt some
or all of the transactions that could occur as the result of the acquisition and
holding of the Certificates by an insurance company general account from the
penalties normally associated with prohibited transactions. In addition, recent
amendments to Section 401 of ERISA enacted under the Small Business Job
Protection Act of 1996 (the "1996 Act") may affect the acquisition of
Certificates by insurance company general accounts. Accordingly, investors
should analyze whether John Hancock and PTE 95-60 or any other exemption may
have an impact with respect to their purchase of the Certificates.
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Class A
Underwriting Agreement (the "Class A Underwriting Agreement") between the
Transferor and the Class A Underwriters named below (the "Class A
Underwriters"), and the terms and conditions set forth in the Class B
Underwriting Agreement (the "Class B Underwriting Agreement," and together with
the Class A Underwriting Agreement, the "Underwriting Agreement") between the
Transferor and the Class B Underwriters named below (the "Class B Underwriters,"
and together with the Class A Underwriters, the "Underwriters"), the Transferor
has agreed to sell to the Underwriters, and each of the Underwriters has
severally agreed to purchase, the principal amount of the Certificates set forth
opposite its name:
CLASS A UNDERWRITERS Principal Amount of
CLASS A CERTIFICATES
[ ] $
Mellon Financial Markets, Inc $
Total $
CLASS B UNDERWRITERS Principal Amount of
CLASS B CERTIFICATES
[ ] $
Mellon Financial Markets, Inc $
Total $
In the Class A Underwriting Agreement, the Class A Underwriters have
agreed, subject to the terms and conditions set forth therein, to purchase all
of the Class A Certificates offered hereby if any of the Class A Certificates
are purchased. In the Class B Underwriting Agreement, the Class B Underwriters
have agreed, subject to the terms and conditions set forth therein, to purchase
all of the Class B Certificates offered hereby if any of the Class B
Certificates are purchased. The Underwriters have agreed to reimburse the
Transferor for certain expenses of the issuance and distribution of the
Certificates.
The Class A Underwriters propose initially to offer the Class A
Certificates to the public at the price set forth on the cover page hereof and
to certain dealers at such price less concessions not in excess of _____% of the
principal amount of the Class A Certificates. The Class A Underwriters may
allow, and such dealers may reallow, concessions not in excess of _____% of the
principal amount of the Class A Certificates to certain brokers and dealers.
After the initial public offering, the public offering price and other selling
terms may be changed by the Class A Underwriters.
The Class B Underwriters propose initially to offer the Class B
Certificates to the public at the price set forth on the cover page hereof and
to certain dealers at such price less concessions not in excess of ______% of
the principal amount of the Class B Certificates. The Class B Underwriters may
allow, and such dealers may reallow, concessions not in excess of ______% of the
principal amount of the Class B Certificates to certain brokers and dealers.
After the initial public offering, the public offering price and other selling
terms may be changed by the Class B Underwriters.
Each Underwriter has represented and agreed that (a) it has not offered or
sold and, prior to the expiry of the period of six months from the Closing Date,
will not offer or sell any Certificates to persons in the United Kingdom except
to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which do not constitute an offer
to the public in the United Kingdom for the purposes of the Public Offers of
Securities Regulations 1995, (b) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 of the United Kingdom
with respect to anything done by it in relation to the Certificates in, from or
otherwise involving the United Kingdom and (c) it has only issued or passed on
and will only issue or pass on in the United Kingdom any document received by it
in connection with the issue of the Certificates to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995 of the United Kingdom or is a person to
whom the document may otherwise lawfully be issued or passed on.
Mellon Financial Markets, Inc. is an affiliate of Mellon Bank, N.A.
The Transferor will indemnify the Underwriters against liabilities
relating to the adequacy of disclosure to investors, including 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 issuance of the Certificates will
be passed upon for the Transferor and the Trust by Carl Krasik, Esq., Associate
General Counsel to Mellon Bank Corporation, Reed Smith Shaw & McClay,
Pittsburgh, Pennsylvania and Stroock & Stroock & Lavan, New York, New York.
Certain federal income tax matters with respect to the Certificates will be
passed upon for the Transferor and the Trust by Stroock & Stroock & Lavan, New
York, New York. Stroock & Stroock & Lavan, New York, New York will act as
counsel for the Underwriters. Certain ERISA matters will be passed upon for the
Transferor and the Trust by Stroock & Stroock & Lavan, New York, New York. At
August 31, 1996, Mr. Krasik held options to purchase 5,950 shares of Mellon Bank
Corporation common stock.
<PAGE>
INDEX OF TERMS
PAGE
Accumulation Period Length...............................................
Actual Principal Receivables...........................................
Additional Interest......................................................
Additional Receivables...................................................
Adjusted Investor Interest...............................................
AFCO.....................................................................
AFCO Acceptance..........................................................
AFCO Credit..............................................................
Agreement................................................................
Available Investor Principal Collections.................................
Available Reserve Account Amount.........................................
Base Rate................................................................
Benefit Plans................................ ...........................
BIF......................................................................
Cede.....................................................................
Cedel....................................................................
Cedel Participants.......................................................
Certificate Owner........................................................
Certificate Owners.......................................................
Certificates.............................................................
Class A Additional Interest..............................................
Class A Adjusted Investor Interest.......................................
Class A Available Funds..................................................
Class A Certificates.....................................................
Class A Covered Amount...................................................
Class A Fixed Allocation.................................................
Class A Floating Allocation..............................................
Class A Holders..........................................................
Class A Investor Charge-Off..............................................
Class A Investor Default Amount..........................................
Class A Investor Interest................................................
Class A Monthly Interest.................................................
Class A Monthly Principal................................................
Class A Principal Funding Investment Shortfall...........................
Class A Rate.............................................................
Class A Required Amount..................................................
Class A Scheduled Payment Date...........................................
Class A Servicing Fee....................................................
Class A Underwriters.....................................................
Class A Underwriting Agreement...........................................
Class B Additional Interest .............................................
Class B Available Funds..................................................
Class B Certificates.....................................................
Class B Fixed Allocation.................................................
Class B Floating Allocation..............................................
Class B Holders..........................................................
Class B Investor Charge-Off..............................................
Class B Investor Default Amount..........................................
Class B Investor Interest................................................
Class B Monthly Interest.................................................
Class B Monthly Principal................................................
Class B Rate.............................................................
Class B Required Amount..................................................
Class B Scheduled Payment Date...........................................
Class B Servicing Fee....................................................
Class B Underwriters.....................................................
Class B Underwriting Agreement...........................................
Closing Date.............................................................
Code.....................................................................
Collateral Available Funds...............................................
Collateral Charge-Off....................................................
Collateral Default Amount................................................
Collateral Fixed Allocation..............................................
Collateral Floating Allocation...........................................
Collateral Interest......................................................
Collateral Interest Holder...............................................
Collateral Interest Servicing Fee........................................
Collateral Monthly Interest..............................................
Collateral Monthly Principal.............................................
Collateral Rate..........................................................
Commission...............................................................
Controlled Accumulation Amount...........................................
Controlled Accumulation Period...........................................
Controlled Deposit Amount................................................
Cooperative..............................................................
Credit Enhancement.......................................................
Cut-Off Date.............................................................
Default Amount...........................................................
Defaulted Receivables....................................................
Depositories.............................................................
Discount Receivables.....................................................
Distribution Date........................................................
DOL......................................................................
DTC......................................................................
DTC Participants.........................................................
Eligible Receivable......................................................
Eligible Receivables.....................................................
Enhancement .............................................................
ERISA....................................................................
Euroclear................................................................
Euroclear Operator.......................................................
Euroclear Participants...................................................
Excess Finanbce Charge Collections.......................................
Excess Funding Account...................................................
Excess Spread............................................................
Exchange Act.............................................................
FASIT....................................................................
Final Regulation.........................................................
Finance Charge Account...................................................
Finance Charge Receivables..............................................
Financed Premium Percentage..............................................
FIRREA...................................................................
Fixed Investor Percentage................................................
Floating Investor Percentage.............................................
Foreign Investor.........................................................
Foreign Investors........................................................
Holders..................................................................
Identified Portfolio.....................................................
Indirect Participants....................................................
Ineligible Receivable....................................................
Initial Collateral Interest..............................................
Interest Period..........................................................
Investor Default Amount..................................................
Investor Interest........................................................
Investor Servicing Fee...................................................
IRA......................................................................
IRS......................................................................
John Hancock.............................................................
LIBOR...................................................................
LIBOR Determination Date................................................
Loan Agreement...........................................................
Minimum Aggregate Principal Receivables..................................
Minimum Transferor Interest..............................................
Monthly Period...........................................................
Moody's..................................................................
Net Servicing Fee Rate...................................................
New Issuance.............................................................
1996 Act.................................................................
Notice of Financed Premium...............................................
OID......................................................................
Originator...............................................................
Originators..............................................................
Permitted Investments....................................................
Pooling and Servicing Agreement..........................................
Portfolio Yield..........................................................
Principal Account........................................................
Principal Funding Account................................................
Principal Funding Account Balance........................................
Principal Funding Investment Proceeds....................................
Principal Receivables....................................................
Principal Shortfalls.....................................................
Principal Terms..........................................................
Proposed Regulations.....................................................
PTE......................................................................
Purchase Termination Date................................................
Qualified Institution....................................................
Rapid Amortization Period................................................
Rating Agency Condition..................................................
Reallocated Class B Principal Collections................................
Reallocated Collateral Principal Collections.............................
Reallocated Principal Collections........................................
Receivables.............................................................
Receivables Purchase Agreement...........................................
Record Date..............................................................
Reference Banks..........................................................
Registration Statement...................................................
Regulations..............................................................
Removed Receivables......................................................
Required Collateral Interest.............................................
Required Reserve Account Amount..........................................
Reserve Account..........................................................
Reserve Account Funding Date.............................................
Reset Date...............................................................
Revolving Period.........................................................
SAIF.....................................................................
Series...................................................................
Series 1996-1-Supplement.................................................
Series 1996-1-Termination Date...........................................
Servicer.................................................................
Service Transfer.........................................................
Servicer Default.........................................................
Shared Principal Collections.............................................
Special Tax Counsel......................................................
Standard & Poors.........................................................
State Fund Refund........................................................
Tax Opinion..............................................................
Telerate Page 3750.......................................................
Terms and Conditions.....................................................
Transfer Date............................................................
Transferor...............................................................
Transferor Interest......................................................
Transferor Percentage....................................................
Trigger Event............................................................
Trust....................................................................
Trustee..................................................................
Trust Termination Date...................................................
UCC......................................................................
Underwriters.............................................................
Underwriting Agreement...................................................
Unearned Premium.........................................................
Variable Interest........................................................
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Mellon
Bank Premium Finance Loan Master Trust Asset Backed Certificates (the "Global
Securities") to be issued in Series from time to time (each, a "Series") will be
available only in book-entry form. Investors in the Global Securities may hold
such Global Securities through any of The Depository Trust Company ("DTC"),
Cedel or Euroclear. The Global Securities will be tradeable as home market
instruments in both the European and U.S. domestic markets. Initial settlement
and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, Cedel and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts as
DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to U.S. corporate debt obligations.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedel Participant or a Euroclear Participant, the purchaser
will send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear will instruct the respective Depositary, as the case may be, to
receive the Global Securities against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date. Payment will then be made by the
respective Depositary to the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the Cedel Participant's or Euroclear
Participant's account. The Global Securities credit will appear the next day
(European time) and the cash debit will be back-valued to, and the interest on
the Global Securities will accrue from, the value date (which would be the
preceding day when settlement occurred in New York). If settlement is not
completed on the intended value date (i.e., the trade fails), the Cedel or
Euroclear cash debit will be valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit
to them, Cedel Participants or Euroclear Participants can elect not to
pre-position funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, Cedel Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day, assuming
they cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the investment income on the Global Securities
earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although this result will depend on each Cedel
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Global Securities
to the respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Cedel Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system
through the respective Depositary to a DTC Participant. The seller will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases, Cedel
or Euroclear w ill instruct the respective Depositary, as appropriate, to
deliver Global Securities to the DTC Participant's account against payment.
Payment will include interest accrued on the Global Securities from and
including the last coupon payment date to and excluding the settlement date. The
payment will then be reflected in the account of the Cedel Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in the
Cedel Participant's or Euroclear Participant's account would be back-valued to
the value date (which would be the preceding day, when settlement occurred in
New York). Should the Cedel Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debit in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft charges incurred over that one-day period. If
settlement is not completed on the intended value (i.e., the trade fails),
receipt of the cash proceeds in the Cedel Participant's or Euroclear Participant
s account would instead be valued as of the actual settlement date. Finally, day
traders that use Cedel or Euroclear and that purchase Global Securities from DTC
Participants for delivery to Cedel Participants or Euroclear Participants should
note that these trades would automatically fail on the sale side unless
affirmative action were taken. At lease three techniques should be readily
available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until
the purchase side of the day trade is reflected in their Cedel or
Euroclear accounts) in accordance with the clearing system's customary
procedures;
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give
the Global Securities sufficient time to be reflected in their Cedel or
Euroclear account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of
the trade so that the value date for the purchase from the DTC
Participant is at least one day prior to the value date for the sale to
the Cedel Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Cedel or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business in the chain of intermediaries between such beneficial owner and the
U.S. entity required to withhold tax complies with applicable certification
requirements and (ii) such beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of
Certificates that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Certificate Owners residing in
a country that has a tax treaty with the United States can obtain an exemption
or reduced tax rate (depending on the treaty terms) by filing Form 1001
(Ownership, Exemption or Reduced Rate Certificate). If the treaty provides only
for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the Certificate
Owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a
Global Security or in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or trust
the income of which is includible in gross income for United States tax
purposes, regardless of its source. This summary does not deal with all aspects
of U.S. Federal income tax withholding that may be relevant to foreign holders
of the Global Securities. Investors are advised to consult their own tax
advisers for specific tax advice concerning their holding and disposing of the
Global Securities.
No dealer, salesman or other person has been authorzed to give any
information or to make any representation not contained or incorporated by
reference in this Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Transferor or any agent or Underwriter. This Prospectus does not constitue an
offer or solicitation by anyone in any state in which such offer or solicitation
is not authorized or in which the person making such offer or solicitation is
not qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Transferor or the Receivables since the
date hereof or that the information contained or incorporated by reference
herein is correct as of any time subsequent to its date.
<PAGE>
TABLE OF CONTENTS
Prospectus
Available Information...............................
Reports to Certificateholders.......................
Incorporation of Certain Documents by
Reference.........................................
Prospectus Summary..................................
Risk Factors........................................
Business of the Orginators..........................
The Receivables.....................................
Use of Proceeds.....................................
Maturity Assumptions................................
Description of the Certificates.....................
Description of the Receivables Purchase
Agreement.........................................
Certain Legal Aspects of the Receivables............
U.S. Federal Income Tax Consequences................
State and Local Taxation............................
ERISA Considerations................................
Underwriting........................................
Legal Matters.......................................
Index of Terms......................................
Annex I: Global Clearance, Settlement and
Tax Documentation Procedures......................
Until ________________, 199__, all dealers effecting transactions in
the Certificates, whether or not participating in this distribution, may be
required to deliver a Prospectus. This delivery requirement is in addition to
the obligation of dealers to deliver a Prospectus when acting as Underwriters
and with respect to their unsold allotments or subscriptions.
<PAGE>
MELLON BANK
PREMIUM FINANCE LOAN
MASTER TRUST
$-------------- Class A
Floating Rate
Asset Backed
Certificates, Series 1996-1
$------------- Class B
Floating Rate
Asset Backed
Certificates, Series 1996-1
MELLON BANK, N.A.
Transferor
AFCO Credit
Corporation
AFCO Acceptance
Corporation
Originators and Servicers
PROSPECTUS
Underwriters of the Class A and B
Certificates
[ ]
Mellon Financial Markets, Inc.
<PAGE>
PROSPECTUS [ALTERNATE PAGE]
$----------------
MELLON BANK PREMIUM FINANCE LOAN MASTER TRUST
$_______________ Class A Floating Rate Asset
Backed Certificates, Series 1996-1
$_______________ Class B Floating Rate Asset
Backed Certificates, Series 1996-1
MELLON BANK, N.A.
Transferor
AFCO CREDIT CORPORATION
AFCO ACCEPTANCE CORPORATION
Servicers
Each Class A Floating Rate Asset Backed Certificate, Series 1996-1
(collectively, the "Class A Certificates") and each Class B Floating Rate Asset
Backed Certificate, Series 1996-1 (collectively, the "Class B Certificates" and,
together with the Class A Certificates, the "Certificates") will represent the
right to receive certain payments from the Mellon Bank Premium Finance Loan
Master Trust (the "Trust"), created pursuant to a pooling and servicing
agreement (the "Pooling and Servicing Agreement") dated __________ __, 1996
among Mellon Bank, N.A., as transferor (the "Transferor"), AFCO Credit
Corporation ("AFCO Credit"), as servicer, AFCO Acceptance Corporation ("AFCO
Acceptance"), as servicer (and together with AFCO Credit in their capacity as
servicers will be referred to herein as the "Servicers") and [ ] as trustee (the
"Trustee"). The assets of the Trust will include (i) loans made by either AFCO
Credit or AFCO Acceptance (each in its capacity as an originator, an
"Originator") to commercial borrowers to finance the payment of insurance
premiums on insurance and related sums regarding insurance policies under which
the borrowers are the insureds governed by the law of a State in the United
States of America or the District of Columbia, which loans are transferred from
time to time by either of the Originators to the Transferor and by the
Transferor to the Trustee for the benefit of the Trust (the "Receivables"); (ii)
all monies due or to become due with respect to the Receivables, including all
monies received from insurance companies and state insurance guaranty funds
representing returns of unearned portions of insurance premiums, up to the
amount of principal, interest and other charges due on the related Receivables;
(iii) such amounts as may be a from time to time held in one or more trust
accounts, which will be established and maintained by the Trustee pursuant to
the Agreement; (iv) any Enhancement issued with respect to any Series; (v) all
of the Transferor's rights under a receivables purchase agreement (the
"Receivables Purchase Agreement"), dated as of _____ 1, 1996, among the
Transferor and each Originator and (vi) the proceeds of all of the foregoing.
(Cover continued on next page)
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE CERTIFICATES, AND THERE IS NO
ASSURANCE THAT ONE WILL DEVELOP. POTENTIAL INVESTORS SHOULD CONSIDER, AMONG
OTHER THINGS, THE INFORMATION SET FORTH IN "RISK FACTORS" COMMENCING ON PAGE
____.
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF MELLON BANK, N.A., ANY OF THE ORIGINATORS OR ANY
AFFILIATE THEREOF. A CERTIFICATE IS NOT A DEPOSIT AND NEITHER THE CERTIFICATES
NOR THE UNDERLYING RECEIVABLES ARE INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This Prospectus is to be used by Mellon Financial Markets, Inc., an
affiliate of Mellon Bank, N.A., in connection with offers and sales related to
market- making transactions in the Certificates in which Mellon Financial
Markets, Inc. acts as principal. Mellon Financial Markets, Inc. may also act as
agent in such transactions. Sales will be made at prices related to the
prevailing prices at the time of sale.
MELLON FINANCIAL MARKETS, INC.
_____________ __, 1996
<PAGE>
[ALTERNATE PAGE]
(Cover continued from previous page)
In addition, the Collateral Interest will be issued in the initial amount of
$____ and will be subordinated to the Certificates as described herein. The
Transferor will also own the undivided interest in the Trust not represented by
the Certificates or other interests issued by the Trust from time to time (the
"Transferor Interest"). The Transferor may offer from time to time other Series
of certificates which evidence fractional undivided interests in certain assets
of the Trust, which may have terms significantly different from the
Certificates, by exchanging a portion of its interest in the Trust. See
"Description of the Certificates -- New Issuances."
Interest will accrue on the Class A Certificates from ________ __, 1996
(the "Closing Date") through ________ __, 1996 at a rate of __% per annum and
during each Interest Period (as defined herein) thereafter, at the rate of
_____% per annum above the London interbank offered rate for one-month United
States dollar deposits ("LIBOR"), determined as described herein, prevailing on
the LIBOR Determination Date (as defined herein) with respect to such period
(the "Class A Rate"). Interest will accrue on the Class B Certificates from the
Closing Date through ________ __, 1996 at a rate of ___% per annum and during
each Interest Period thereafter, at the rate of _____% per annum above LIBOR
prevailing on the LIBOR Determination Date with respect to each such period (the
"Class B Rate"). The initial LIBOR Determination Date is ________ __, 1996.
Interest with respect to the Certificates will be distributed on ________ __,
1996 and on the __th day of each month thereafter (or, if such __th day is not a
business day, the next succeeding business day) (each, a "Distribution Date").
Principal on the Class A Certificates is scheduled to be distributed on the
________ ____ Distribution Date (the "Class A Scheduled Payment Date"), but may
be paid earlier or later under the circumstances described herein. Principal on
the Class B Certificates is scheduled to be distributed on the ________ ____
Distribution Date (the "Class B Scheduled Payment Date"), but may be paid
earlier or later under the circumstances described herein. See "Maturity
Assumptions."
The Class B Certificates will be subordinated to the Class A Certificates
and the Collateral Interest will be subordinated to the Class A Certificates and
the Class B Certificates, as described herein.
--------------------
No person is authorized in connection with any offering made hereby to
give any information or to make any representation other than as contained in
this Prospectus, and if given or made, such information or representation must
not be relied upon as having been authorized by the Seller or by the
Underwriter. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy by any person in any jurisdiction in which it is
unlawful for such person to make such an offering or solicitation. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstances imply that the information herein is correct as of any date
subsequent to the date hereof.
<PAGE>
[ALTERNATE PAGE]
UNDERWRITING
This Prospectus is to be used by Mellon Financial Markets, Inc., an
affiliate of Mellon Bank, N.A., in connection with offers and sales related to
market-making transactions in the Certificates in which Mellon Financial
Markets, Inc. acts as principal. Mellon Financial Markets, Inc. may also act as
agent in such transactions. Sales will be made at prices related to the
prevailing prices at the time of sale. Any obligations of Mellon Financial
Markets, Inc. are the sole obligations of Mellon Financial Markets, Inc., and do
not create any obligations on the part of any affiliate of Mellon Financial
Markets, Inc.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Certificates will be
passed upon for the Transferor and the Trust by Carl Krasik, Esq., Associate
General Counsel to Mellon Bank Corporation, Reed Smith Shaw & McClay,
Pittsburgh, Pennsylvania and Stroock & Stroock & Lavan, New York, New York.
Certain federal income tax matters with respect to the Certificates will be
passed upon for the Transferor and the Trust by Stroock & Stroock & Lavan, New
York, New York. Stroock & Stroock & Lavan, New York, New York will act as
counsel for the Underwriters. Certain ERISA matters will be passed upon for the
Transferor and the Trust by Stroock & Stroock & Lavan, New York, New York. At
August 31, 1996, Mr. Krasik held options to purchase 5,950 shares of Mellon Bank
Corporation common stock.
No dealer, salesman or other person has been authorized to give any information
or to make any representation not contained or incorporated by reference in this
Prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized by the Transferor or any agent or
Underwriter. This Prospectus does not constitute an offer or
solicitation by anyone in any state in which such
offer or solicitation is not authorized or in which
the person making such offer or solicitation is not
qualified to do so or to anyone to whom it is
unlawful to make such offer or solicitation.
Neither the delivery of this Prospectus nor any
sale made hereunder or thereunder shall, under any
circumstances, create any implication that there
has been no change in the affairs of the Transferor
or the Receivables since the date hereof or thereof
or that the information contained or incorporated
by reference herein or therein is correct as of any
time subsequent to its date.
<PAGE>
[ALTERNATE PAGE]
TABLE OF CONTENTS
PROSPECTUS
Available Information............................
Reports to Certificateholders....................
Incorporation of Certain Documents by
Reference......................................
Prospectus Summary...............................
Risk Factors.....................................
Business of the Originators......................
The Receivables..................................
Use of Proceeds..................................
Maturity Assumptions ............................
Description of the Certificates..................
Description of the Receivables Purchase
Agreement......................................
Certain Legal Aspects of the Receivables.........
U.S. Federal Income Tax Consequences.............
State and Local Taxation.........................
ERISA Considerations.............................
Underwriting.....................................
Legal Matters....................................
Index of Terms...................................
Annex I: Global Clearance, Settlement and
Tax Documentation Procedures...................
Until ___________ __, 199_, all dealers effecting transactions in the
Certificates, whether or not participating in this distribution, may be required
to deliver a Prospectus. This delivery requirement is in addition to the
obligation of dealers to deliver a Prospectus when acting as Underwriters and
with respect to their unsold allotments or subscriptions.
[ALTERNATE PAGE]
MELLON BANK
PREMIUM FINANCE LOAN
MASTER TRUST
$_______________ CLASS A
FLOATING RATE
ASSET BACKED
CERTIFICATES, SERIES 1996-1
$_______________ CLASS B
FLOATING RATE
ASSET BACKED
CERTIFICATES, SERIES 1996-1
MELLON BANK, N.A.
TRANSFEROR
AFCO CREDIT
CORPORATION
AFCO ACCEPTANCE
CORPORATION
ORIGINATORS AND SERVICES
- ----------------------
PROSPECTUS
- ---------------------
MELLON FINANCIAL MARKETS, INC.
<PAGE>
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized list of the estimated expenses to be
incurred in connection with the offering of the securities being offered
hereunder other than underwriting discounts and commissions.
SEC Registration Fee................................................$
Printing and Engraving...............................................
Trustee's Fees.......................................................
Legal Fees and Expenses..............................................
Blue Sky Fees and Expenses...........................................
Accountants' Fees and Expenses.......................................
Rating Agency Fees...................................................
Miscellaneous Fees...................................................
Total................................................................
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Seventh of the Articles of Association of the registrant
provides as follows:
To the fullest extent that the laws of the Commonwealth of
Pennsylvania, as in effect on January 27, 1987 or as thereafter amended, permit
elimination or limitation of the liability of directors, no Director of the
Association shall be personally liable for monetary damages as such for any
action taken, or any failure to take any action as a Director.
This Article Seventh shall not apply to any administrative proceeding
or action instituted by an appropriate bank regulatory agency which proceeding
or action results in a final order assessing civil money penalties or requiring
affirmative action by the Director in the form of making payments to the
Association.
This Article Seventh shall not apply to any actions filed prior to
January 27, 1987, nor to any breach of performance of duty or any failure of
performance of duty by any Director of the Association occurring prior to
January 27, 1987. The provisions of this Article shall be deemed to be a
contract with each Director of the Association who serves as such at any time
while this Section is in effect and each such Director shall be deemed to be
doing so in reliance on the provisions of this Article. Any amendment or repeal
of this Article or adoption of any other provision of the Articles or By-Laws of
the Association which has the effect of increasing Director liability shall
operate prospectively only and shall not affect any action taken, or any failure
to act, prior to the adoption of such amendment, repeal or other provision.
Article Eighth of the Articles of Association of the registrant
provides as follows:
SECTION I. RIGHT TO INDEMNIFICATION. Except as prohibited by law, every
Director and officer of the Association shall be entitled as of right to be
indemnified by the Association against expenses and any liability paid or
incurred by such person in connection with any actual or threatened claim,
action, suit or proceeding, civil, criminal , administrative, investigative or
other, whether brought by or in the right of the Association or otherwise, in
which he or she may be involved, as a party or otherwise, by reason of such
person being or having been a Director or officer of the Association or by
reason of the fact that such person is or was serving at the request of the
Association as a director, officer, employee, fiduciary or other representative
of another corporation, partnership, joint venture, trust, employee benefit plan
or other entity (such claim, action, suit or proceeding hereinafter being
referred to as "Action"); provided, that no such right of indemnification shall
exist with respect to an Action brought by an indemnitee (as hereinafter
defined) against the Association except as provided in the last sentence of this
Section I. Persons who are not directors or officers of the Association may be
similarly indemnified in respect of service to the Association or to another
such entity at the request of the Association to the extent the Board of
Directors at any time denominates any of such persons as entitled to the
benefits of this Article. As used in this Article, "indemnitee" shall include
each Director and officer of the Association and each other person denominated
by the Board of Directors as entitled to the benefits of this Article,
"expenses" shall include fees and expenses of counsel selected by any such
indemnitee and "liability" shall include amounts of judgments, excise taxes,
fines, penalties and amounts paid in settlement. An indemnitee shall be entitled
to be indemnified pursuant to this Section I for expenses incurred in connection
with any Action brought by an indemnitee against the Association only if (i) the
Action is a claim for indemnity or expenses under Section III of this Article or
otherwise, (ii) the indemnitee is successful in whole or in part in the Action
for which expenses are claimed or (iii) the indemnification for expenses is
included in a settlement of the Action or is awarded by a court.
SECTION II. RIGHT TO ADVANCEMENT OF EXPENSES. Every indemnitee shall be
entitled as of right to have his or her expenses in any Action (other than an
Action brought by such indemnitee against the Association) paid in advance by
the Association prior to final disposition of such Action, subject to any
obligation which may be imposed by law or by provision in the Articles, By-Laws,
agreement or otherwise to reimburse the Association in certain events.
SECTION III. RIGHT OF INDEMNITEE TO INITIATE ACTION. If a written claim
under Section I or Section II of this Article is not paid in full by the
Association within thirty days after such claim has been received by the
Association, the indemnitee may at any time thereafter initiate an Action
against the Association to recover the unpaid amount of the claim and, if
successful in whole or in part, the indemnitee shall also be entitled to be paid
the expense of prosecuting such Action. It shall be a defense to any Action to
recover a claim under Section I that the indemnitee's conduct was such that
under Pennsylvania law the Association is prohibited from indemnifying the
indemnitee for the amount claimed, but the burden of proving such defense shall
be on the Association. Neither the failure of the Association (including its
Board of Directors, independent legal counsel and its shareholders) to have made
a determination prior to the commencement of such suit that indemnification of
the indemnitee is proper in the circumstances, nor an actual determination by
the Association (including its Board of Directors, independent legal counsel or
its shareholders) that the indemnitee's conduct was such that indemnification is
prohibited by law, shall be a defense to such Action or create a presumption
that the indemnitee's conduct was such that indemnification is prohibited by
law. The only defense to any such Action to receive payment of expenses in
advance under Section II of this Section shall be failure to make an undertaking
to reimburse if such an undertaking is required by law or by provision in the
Articles, By-Laws, agreement or otherwise.
SECTION IV. INSURANCE AND FUNDING. The Association may purchase and
maintain insurance to protect itself and any person eligible to be indemnified
hereunder against any liability or expense asserted or incurred by such person
in connection with any Action, whether or not the Association would have the
power to indemnify such person against such liability or expense by law or under
the provisions of this Article. The Association may create a trust fund, grant a
security interest, cause a letter of credit to be issued or use other means
(whether or not similar to the foregoing) to ensure the payment of such sums as
may become necessary to effect indemnification as provided herein.
SECTION V. NON-EXCLUSIVITY: NATURE AND EXTENT OF RIGHTS. The rights of
indemnification and advancement of expenses provided for in this Article (i)
shall not be deemed exclusive of any other rights, whether now existing or
hereafter created, to which any indemnitee may be entitled under any agreement
or by-law, charter provision, vote of shareholders or directors or otherwise,
(ii) shall be deemed to create contractual rights in favor of each indemnitee,
(iii) shall continue as to each person who has ceased to have the status
pursuant to which he or she was entitled or was denominated as entitled to
indemnification hereunder and shall inure to the benefit of the heirs and legal
representatives of each indemnitee and (iv) shall be applicable to Actions
commenced after the adoption hereof, whether arising from acts or omissions
occurring before or after the adoption hereof. The rights of indemnification
provided for in this Article may not be amended or repealed so as to limit in
any way the indemnification or the right to advancement of expenses provided for
herein with respect to any acts or omissions occurring prior to the adoption of
any such amendment or repeal.
SECTION VI. EFFECTIVE DATE. This Article Eighth shall apply to every
Action other than an Action filed prior to January 27, 1987, except that it
shall not apply to the extent that Pennsylvania law prohibits its application to
any breach of performance of duty or any failure of performance of duty by an
indemnitee occurring prior to January 27, 1987.
SECTION VII. REGULATORY EXCLUSION. Nothing in this Article shall
authorize the Association to indemnify or to provide insurance which would
indemnify any person against expenses or penalties incurred in an administrative
proceeding or action instituted by an appropriate bank regulatory agency which
proceeding or action results in a final order assessing civil money penalties,
and nothing in this Article shall authorize the Association to indemnify any
person against expenses or payments incurred in such an administrative
proceeding or action which results in a final order requiring affirmative action
by such person in the form of payment to the Association.
Article Two of the By-Laws of the registrant provides as follows:
SECTION 12. PERSONAL LIABILITY FOR MONETARY DAMAGES. (a) To the fullest
extent that the laws of the Commonwealth of Pennsylvania, as in effect on
January 27, 1987 or as thereafter amended, permit elimination or limitation of
the liability of directors, no Director of the Association shall be personally
liable for monetary damages as such for any action taken, or any failure to take
any action, as a Director.
(b) This Section 12 shall not apply to any administrative proceeding or
action instituted by an appropriate bank regulatory agency which proceeding or
action results in a final order assessing civil money penalties or requiring
affirmative action by the Director in the form of making payments to the
Association.
(c) This Section 12 shall not apply to any actions filed prior to
January 27, 1987, nor to any breach of performance of duty or any failure of
performance of duty by any Director of the Association occurring prior to
January 27, 1987. The provisions of this Section shall be deemed to be a
contract with each Director of the Association who serves as such at any time
while this Section is in effect and each such Director shall be deemed to be
doing so in reliance on the provisions of this Section. Any amendment repeal of
this Section or adoption of any other provision of the By-Laws or the Articles
of the Association which has the effect of increasing Director liability shall
operate prospectively only and shall not affect any action taken, or any failure
to act, prior to the adoption of such amendment, repeal or other provision.
<PAGE>
ITEM 16. EXHIBITS
1.1 Form of Underwriting Agreement.*
3.1 Articles of Association.*
3.2 By-Laws.*
4.1 Form of Pooling and Servicing Agreement.*
4.2 Form of Receivables Purchase Agreement.*
5.1 Opinion of Stroock & Stroock & Lavan with respect to legality.
* 8.1 Opinion of Stroock & Stroock & Lavan with respect to
tax matters.* 23.1 Consent of Stroock & Stroock & Lavan
(included in opinion filed as Exhibit 5.1).*
23.2 Consent of Stroock & Stroock & Lavan (included in opinion filed as
Exhibit 8.1).*
24.1 Power of Attorney.
- ---------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement; (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement; (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement; provided, however, that (a)(i) and
(a)(ii) will not apply if the information required to be included in a
post-effective amendment thereby is contained in periodic reports filed pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(d) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(e) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item 15
above, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(f) That, for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(i) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to
be part of this Registration Statement as of the time it was declared effective.
(g) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pittsburgh, Commonwealth of Pennsylvania, on
September 13, 1996.
MELLON BANK, N.A.
as originator of the Trust and
registrant
By: /S/ FRANK V. CAHOUET
Frank V. Cahouet
Chairman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on September 13, 1996 by the following
persons in the capacities indicated.
SIGNATURE TITLE
BY: /S/ FRANK V. CAHOUET Chairman, President and Chief Executive Officer
Frank V. Cahouet
PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER:
BY: /S/ STEVEN G. ELLIOTT
Steven G. Elliott Vice Chairman and Chief Financial Officer
BOARD OF DIRECTORS:
By: Director
*
Dwight L. Allison, Jr.
By: Director
*
Burton C. Borgelt
By: Director
*
Carol R. Brown
By: Director
*
J.W. Connolly
By: Director
*
Charles A. Corry
By: Director
*
C. Frederick Fetterolf
By: Director
*
Ira J. Gumberg
By: Director
*
Pemberton Hutchinson
By: Director
*
Rotan E. Lee
By: Director
*
Andrew W. Mathieson
By: Director
*
Edward J. McAniff
By: Director
*
Robert Mehrabian
By: Director
*
Seward Prosser Mellon
By: Director
*
David S. Shapira
By: Director
*
W. Keith Smith
By: Director
*
Joab L. Thomas
Director
*
Wesley W. von Schack
By: Director
*
William J. Young
*By: /S/ CARL KRASIK
Carl Krasik
Attorney-in-fact
September 13, 1996
<PAGE>
As filed with the Securities and Exchange Commission on September 13,
1996 Registration Statement No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MELLON BANK, N.A.
(Exact name of registrant as specified in its charter)
-----------------
EXHIBITS
-----------------
1.1 Form of Underwriting Agreement.*
3.1 Articles of Association.*
3.2 By-Laws.*
4.1 Form of Pooling and Servicing Agreement.*
4.2 Form of Receivables Purchase Agreement.*
5.1 Opinion of Stroock & Stroock & Lavan with respect to
legality.*
8.1 Opinion of Stroock & Stroock & Lavan with respect to
tax matters.*
23.1 Consent of Stroock & Stroock & Lavan (included in
opinion filed as
Exhibit 5.1).*
23.2 Consent of Stroock & Stroock & Lavan (included in
opinion filed as
Exhibit 8.1).*
24.1 Power of Attorney.
- ---------------
* To be filed by amendment.
EXHIBIT 24.1
MELLON BANK, N.A.
POWER OF ATTORNEY
Each of the undersigned persons, in his or her capacity as an officer
or director, or both, of Mellon Bank, N.A. (the "Bank"), hereby appoints Carl
Krasik and Ann M. Sawchuck, and each of them, with full power of substitution
and resubsitution and with full power in each to act without the other, his or
her attorney-in-fact and agent for the following purposes:
1. To sign for him or her, in his or her name and in his
or her capacity as an officer or director, or both, of
the Bank, a Registration Statement on Form S-3 and any
amendments and post-effective amendments thereto
(collectively, the "Registration Statement"), for the
registration under the Securities Act of 1933, as
amended (the "Act"), of asset backed certificates (the
"Certificates") representing undivided interests in a
trust, the property of which includes, among other
things, insurance premium receivables;
2. To file or cause to be filed such Registration
Statement with the Securities and Exchange Commission;
3. To take all such other action as any such attorney-in-
fact, on his or her substitute, may deem necessary or
desirable in order to effect and maintain the
registration of the Certificates; and
4. To sign for him or her, in his or her name and in his
or her capacity as an officer or director, or both, of
the Bank, all such documents and instruments as any
such attorney-in-fact, or his or her substitute, may
deem necessary or advisable in connection with the
registration, qualification or exemption of the
Certificates under the securities laws of any state or
other jurisdiction.
This power of attorney shall be effective as of August 20,
1996 and shall continue in full force and effect until revoked
by the undersigned in a writing filed with the Secretary of the
Bank.
Ow
/S/ DWIGHT L. ALLISON, JR. /S/ ANDREW W. MATHIESON
Dwight L. Allison, Jr. Andrew W. Mathieson
/S/ BURTON C. BORGELT /S/ EDWARD J. MCANIFF
Burton C. Borgelt Edward J. McAniff
/S/ CAROL R. BROWN /S/ ROBERT MEHRABIAN
Carol R. Brown Robert Mehrabian
/S/ FRANK V. COHOUET /S/ SEWARD PROSSER MELLON
Frank V. Cohouet Seward Prosser Mellon
/S/ J.W. CONNOLLY /S/ DAVID S. SHAPIRA
J.W. Connolly David S. Shapira
/S/ CHARLES A. CORRY /S/ W. KEITH SMITH
Charles A. Corry W. Keith Smith
/S/ FREDERICK FETTEROLF
C. Frederick Fetterolf Howard Stein
/S/ IRA J. GUMBERG /S/ JOAB L. THOMAS
Ira J. Gumberg Joab L. Thomas
/S/ PEMBERTON HUTCHINSON /S/ WESLEY W. VON SCHACK
Pemberton Hutchinson Wesley W. von Schack
/S/ ROTAN E. LEE /S/ WILLIAM J. YOUNG
Rotan E. Lee William J. Young
