<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 26, 1999
REGISTRATION NO. 333-64337
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
KEY CONSUMER ACCEPTANCE CORPORATION
as Seller to the Trusts described herein
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE KEY TOWER 52-1995940
(State or other jurisdiction of 127 PUBLIC SQUARE (I.R.S. Employer
incorporation or organization) CLEVELAND, OHIO 44114-1306 Identification No.)
(216) 689-3335
</TABLE>
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DANIEL R. STOLZER, ESQ.
Vice President and Associate General Counsel
KeyCorp
Key Tower
127 Public Square
Cleveland, Ohio 44114-1306
(216) 689-6300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
RAYMOND T. SAWYER, ESQ. STUART M. LITWIN, ESQ.
Thompson Hine & Flory LLP Mayer, Brown & Platt
127 Public Square 190 South LaSalle Street
Cleveland, Ohio 44114-1216 Chicago, Illinois 60603
(216) 566-5500 (312) 782-0600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective 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
1933, 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, 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, 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
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<TABLE>
<S> <C> <C> <C> <C>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) REGISTRATION FEE
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Asset Backed Notes and Certificates(3)..... $1,408,000,000 100% $1,408,000,000 $391,441.00(4)
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</TABLE>
(1) $992,025,000.00 principal amount of Asset Backed Notes and Certificates
registered by the Registrant under Registration Statement No. 333-38211
referred to below and not previously sold are consolidated and carried
forward in this Registration Statement pursuant to Rule 429. All
registration fees in connection with such unsold amount of Asset Backed
Notes and Certificates have previously been paid under Registration
Statement No. 333-38211, such fees being in the amount of $300,613.63. The
total amount registered under this Registration Statement as so consolidated
as of the date of this filing is $2,400,025,000.00.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Also registered hereby are secondary market sales in Asset Backed Notes and
Certificates which may be effected by McDonald Investments Inc., A KeyCorp
Company, or its successors, the volume of which cannot be determined.
(4) A registration fee of $295.00 was previously paid on $1,000,000.00 principal
amount of Asset Backed Notes and Certificates.
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 SECTION 8(A), MAY
DETERMINE.
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF 1933, THE PROSPECTUS WHICH
IS PART OF THIS REGISTRATION STATEMENT IS A COMBINED PROSPECTUS AND INCLUDES ALL
OF THE INFORMATION CURRENTLY REQUIRED IN A PROSPECTUS RELATING TO THE SECURITIES
COVERED BY REGISTRATION STATEMENT NO. 333-38211 PREVIOUSLY FILED BY THE
REGISTRANT. THIS REGISTRATION STATEMENT, WHICH RELATES TO $2,400,025,000.00
AGGREGATE PRINCIPAL AMOUNT OF ASSET BACKED NOTES AND CERTIFICATES, CONSTITUTES A
POST-EFFECTIVE AMENDMENT TO REGISTRATION STATEMENT NO. 333-38211.
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<PAGE> 2
INTRODUCTORY STATEMENT
This Registration Statement contains (i) the form of Prospectus relating to
the offering of a series of Asset Backed Notes and/or Asset Backed Certificates
by various Key Auto Finance Trusts created from time to time by Key Consumer
Acceptance Corporation, and (ii) two forms of Prospectus Supplement relating to
offerings of particular series of Asset Backed Certificates (such form of
Prospectus Supplement is identified on the outside front cover page thereof as
the "Preliminary Grantor Trust Prospectus Supplement Form") or of Asset Backed
Notes and Asset Backed Certificates (such form of Prospectus Supplement is
identified on the outside front cover page thereof as the "Preliminary Owner
Trust Prospectus Supplement Form" and, together with the form of Grantor Trust
Prospectus Supplement, the "Prospectus Supplement Forms") described therein.
Each Prospectus Supplement Form relates only to the securities described therein
and is a form which may be used, among others, by the Seller to offer Asset
Backed Notes and/or Asset Backed Certificates under this Registration Statement.
Because an affiliate of the Seller may make a market in the Securities for
which it acts as an underwriter and may prepare a separate market making
prospectus and prospectus supplement in connection therewith, immediately
following the Preliminary Owner Trust Prospectus Supplement Form there follow
(a) alternate pages of the Prospectus, (b) alternate pages of the Preliminary
Grantor Trust Prospectus Supplement Form and (c) alternate pages of the
Preliminary Owner Trust Prospectus Supplement Form, which may be used by such
affiliate in connection with any offers and sales relating to market-making
transactions in the Asset Backed Notes and/or Asset Backed Certificates. All
other pages of the Preliminary Grantor Trust Prospectus Supplement Form, the
Preliminary Owner Trust Prospectus Supplement Form and the Prospectus are also
to be used for the market-making Prospectus Supplements and Prospectus.
<PAGE> 3
PROSPECTUS
KEY AUTO FINANCE TRUSTS
Asset Backed Notes
Asset Backed Certificates
[KEYCORP LOGO]
KEY CONSUMER ACCEPTANCE CORPORATION
Seller
KEY BANK USA, NATIONAL ASSOCIATION
Servicer
------------------
The Asset Backed Notes (the "Notes") and the Asset Backed Certificates (the
"Certificates" and, together with the Notes, the "Securities") described herein
may be sold from time to time in one or more series, in amounts, at prices and
on terms to be determined at the time of sale and to be set forth in a
supplement to this Prospectus (a "Prospectus Supplement"). Each series of
Securities, which may include one or more classes of Notes or one or more
classes of Certificates (or both), will be issued by a trust to be formed on or
before the issuance date for that series (each, a "Trust"). Each Trust will be
formed pursuant to either a Trust Agreement to be entered into among Key
Consumer Acceptance Corporation, a Delaware corporation, as seller (the
"Seller"), Key Bank USA, National Association, in its capacity as servicer (in
such capacity, the "Servicer"), and the trustee specified in the related
Prospectus Supplement (the "Trustee") or a Pooling and Servicing Agreement to be
entered into among the Trustee, the Seller and the Servicer. If a series of
Securities includes Notes, such Notes will be issued and secured pursuant to an
Indenture between the Trust and the indenture trustee specified in the related
Prospectus Supplement (the "Indenture Trustee") and will represent indebtedness
of the related Trust. The Certificates of a series will represent fractional
undivided interests in the related Trust. Certain capitalized terms used in this
Prospectus are defined in this Prospectus on the pages indicated in the "Index
of Terms" beginning on page 65 of this Prospectus. The property of each Trust
will include a pool of promissory notes and security agreements and/or retail
installment sales contracts secured by new or used automobiles and light duty
trucks (collectively, the "Receivables"), payments received thereunder on and
after the applicable Cutoff Date set forth in the related Prospectus Supplement,
security interests in the vehicles financed thereby, rights under dealer
agreements, rights with respect to deposit accounts in which collections are
held or that serve as credit enhancement, any other credit enhancements, the
proceeds of the foregoing and any proceeds from claims on insurance policies
with respect to the Financed Vehicles, all as described herein and in the
related Prospectus Supplement. See "The Trusts."
(Continued on next page)
PROSPECTIVE INVESTORS SHOULD CONSIDER THE "RISK FACTORS" SET FORTH AT PAGE 14
HEREIN, WHICH DISCUSSES MATERIAL RISKS INVOLVED WITH AN INVESTMENT IN THE
SECURITIES.
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ANY NOTES OF A SERIES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES OF A SERIES
REPRESENT BENEFICIAL INTERESTS IN, THE RELATED TRUST ONLY AND DO NOT REPRESENT
OBLIGATIONS OF OR INTERESTS IN KEY CONSUMER ACCEPTANCE CORPORATION, KEY BANK
USA, NATIONAL ASSOCIATION, OR ANY OF THEIR AFFILIATES. NONE OF THE NOTES, THE
CERTIFICATES OR THE RECEIVABLES ARE GUARANTEED OR INSURED BY, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, ANY OTHER GOVERNMENT AGENCY OR INSTRUMENTALITY,
KEY CONSUMER ACCEPTANCE CORPORATION, KEY BANK USA, NATIONAL ASSOCIATION, OR ANY
OF THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE 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 MAY NOT BE USED TO CONSUMMATE SALES OF SECURITIES OFFERED HEREBY
UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THE DATE OF THIS PROSPECTUS IS JANUARY 26, 1999.
<PAGE> 4
(Continued from previous page)
The related Prospectus Supplement will specify which class or classes of
Notes, if any, and which class or classes of Certificates, if any, of the
related series are being offered thereby. Each class of Securities of any series
other than any Strip Notes and Strip Certificates will represent the right to
receive a specified amount of payments of principal and interest on the related
Receivables, at the rates, on the dates and in the manner described herein and
in the related Prospectus Supplement. See "Description of the Notes,"
"Description of the Certificates" and "Certain Information Regarding the
Securities" herein and in the related Prospectus Supplement. If a series
includes multiple classes of Securities, the rights of one or more classes of
Securities to receive payments may be senior or subordinate to the rights of one
or more of the other classes of such series. Distributions on Certificates of a
series may be subordinated in priority to payments due on any related Notes or
any other Certificates to the extent described herein and in the related
Prospectus Supplement. See "Risk Factors--Subordination" herein and in the
related Prospectus Supplement.
------------------------
A series may include one or more classes of Notes and/or Certificates which
differ as to the timing and priority of payment, interest rate or amount of
distributions in respect of principal or interest or both. A series may include
one or more classes of Notes or Certificates entitled to distributions in
respect of principal with disproportionate, nominal or no interest
distributions, or to interest distributions, with disproportionate, nominal or
no distributions in respect of principal. The rate of payment in respect of the
principal of any class of Notes and distributions in respect of the Certificate
Balance of any class of the Certificates will depend on the priority of payment
of such class and the rate and timing of payments (including prepayments,
defaults, liquidations and repurchases of Receivables) on the related
Receivables. A rate of payment lower or higher than that anticipated may affect
the weighted average life of each class of Securities in the manner described
herein and in the related Prospectus Supplement. See "Weighted Average Life of
the Securities."
------------------------
AVAILABLE INFORMATION
The Seller, as originator of each Trust, has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement (together with
all amendments and exhibits thereto, referred to herein as the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Notes and/or the Certificates offered pursuant to this
Prospectus. For further information, reference is made to the Registration
Statement, which may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549;
and at the Commission's regional offices at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of the Registration Statement may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the
Commission maintains a public access site on the Internet through the World Wide
Web at which site reports, information statements and other information,
including all electronic filings, may be viewed. The Internet address of such
World Wide Web site is http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Seller, as originator of any Trust, pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), subsequent to the date of this Prospectus and
prior to the termination of the offering of the Securities shall be deemed to be
incorporated by reference in this Prospectus or in any related Prospectus
Supplement. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus. See "Certain Information
Regarding the Securities -- Reports to Securityholders."
2
<PAGE> 5
(Continued from previous page)
The Seller will provide without charge to each person, including any
beneficial owner of Securities, to whom a copy of this Prospectus is delivered,
on the written or oral request of such person, a copy of any or all of the
documents incorporated herein or in any related Prospectus Supplement by
reference, except the exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to the Seller, in care of Key Tower, 127 Public
Square, Cleveland, Ohio, 44114-1306 (Telephone: (216) 689-3335). The Servicer
intends to continue to file with respect to each Trust periodic reports pursuant
to the requirements of the Exchange Act for the period after such filings could
be discontinued in reliance on Section 15(d) thereof until the Securities issued
by such Trust are no longer outstanding.
3
<PAGE> 6
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities of any series contained in the
related Prospectus Supplement to be prepared and delivered in connection with
the offering of such Securities. Certain capitalized terms used in this summary
are defined elsewhere in this Prospectus on the pages indicated in the "Index of
Terms" beginning on page 65.
ISSUER........................... The issuer (the "Issuer") with respect to
each series of Securities shall be the
Trust to be formed pursuant to either a
Trust Agreement (as amended and
supplemented from time to time, a "Trust
Agreement") among the Trustee for such
Trust (the "Trustee"), the Seller and the
Servicer, or a Pooling and Servicing
Agreement among the Trustee, the Seller
and the Servicer.
SELLER........................... Key Consumer Acceptance Corporation, a
Delaware corporation (the "Seller") and a
wholly owned subsidiary of KeyCorp. See
"The Seller" and "The Seller, the
Servicer and KeyCorp" in the related
Prospectus Supplement.
SERVICER......................... Key Bank USA, National Association, a
national banking association (the "Bank"
or, in its capacity as servicer, the
"Servicer").
TRUSTEE.......................... With respect to each series of Securities,
the Trustee specified in the related
Prospectus Supplement.
INDENTURE TRUSTEE................ With respect to each series of Securities
that includes any Notes, the Indenture
Trustee specified in the related
Prospectus Supplement.
THE NOTES........................ The terms of the Notes generally are
described below.
A. GENERAL....................... A series of Securities may include one or
more classes of Notes, which will be
issued pursuant to an Indenture between
the Trust and the Indenture Trustee (as
amended and supplemented from time to
time, an "Indenture"). The related
Prospectus Supplement will specify which
class or classes, if any, of Notes of the
related series are being offered thereby.
B. DENOMINATION; BOOK-ENTRY...... Notes will be available for purchase in
denominations specified in the related
Prospectus Supplement or, if not so
specified, in original denominations of
$1,000 and integral multiples thereof.
Notes will initially be issued in
book-entry form and beneficial owners of
Notes ("Note Owners") will be able to
receive Definitive Notes only in the
limited circumstances described herein or
in the related Prospectus Supplement. See
"Certain Information Regarding the
Securities--Definitive Securities."
C. NOTE INTEREST RATES........... Each class of Notes other than Strip Notes
will have a stated principal amount and
will bear interest at a specified rate or
rates (with respect to each class of
Notes, the "Interest Rate"). Each such
class of Notes may have a different
Interest Rate, which may be a fixed,
variable or adjustable Interest Rate, or
any combination of the foregoing. The
related Prospectus Supplement will
specify the Interest Rate for each class
of Notes, or the method for determining
the
4
<PAGE> 7
Interest Rate. See "Description of the
Notes" herein and in the related
Prospectus Supplement for any Trust that
issues Notes.
D. CHARACTERISTICS............... With respect to a series that includes two
or more classes of Notes, each class may
differ as to the timing and priority of
payments, seniority, Interest Rate or
amount of payments of principal or
interest, or payments of principal or
interest in respect of any such class or
classes may or may not be made upon the
occurrence of specified events or on the
basis of collections from designated
portions of the Receivables Pool. To the
extent provided in the related Prospectus
Supplement, a series may include one or
more classes of Notes designated as fixed
payment notes, short term asset backed
notes, targeted amortization classes,
planned amortization classes or companion
classes. See "Description of the
Notes--Principal and Interest on the
Notes."
E. STRIP NOTES................... In addition, a series may include one or
more classes of Notes ("Strip Notes")
entitled to (i) principal payments with
disproportionately small, nominal or no
interest payments or (ii) interest
payments with disproportionately small,
nominal or no principal payments. Any
Strip Notes will be extremely sensitive
to the rate and timing of principal
payments, including prepayments, on the
Receivables. See "Risk Factors--Risk of
Prepayment and Possible Adverse Effect on
Yield--Risks Associated with Yield
Sensitivity of the Strip Securities."
F. SUBORDINATION TO SECURITIES
OF THE SAME TRUST.............. If the series of Securities issued by a
Trust includes classes of Notes, the
Notes will be entitled to receive
payments and distributions from the same
Trust property, and distributions in
respect of certain classes of the Notes
may be subordinated in priority of
payment to payments on other classes of
Notes to the extent specified in the
related Prospectus Supplement.
G. CLEAN-UP CALL; REDEMPTION..... If the Seller or Servicer exercises its
option to purchase the Receivables of a
Trust in the event the outstanding Pool
Balance is equal to or less than the
percentage of the Initial Pool Balance
set forth in the related Prospectus
Supplement in the manner and on the
respective terms and conditions described
under "Description of the Transfer and
Servicing Agreements--Termination," the
outstanding Notes of such series will be
redeemed in full as set forth in the
related Prospectus Supplement.
H. PRE-FUNDING ACCOUNT;
REDEMPTION....................... If the related Prospectus Supplement
provides that the property of a Trust
will include a Pre-Funding Account (as
such term is defined in the related
Prospectus Supplement, the "Pre-Funding
Account"), one or more classes of the
outstanding Notes of such series will be
subject to partial redemption on or
immediately following the end of the
applicable Funding Period (as such term
is defined in the related Prospectus
5
<PAGE> 8
Supplement, the "Funding Period") in an
amount and manner specified in the
related Prospectus Supplement.
THE CERTIFICATES................. The terms of the Certificates generally are
described below.
A. GENERAL....................... A series may include one or more classes of
Certificates and may or may not include
any Notes. The related Prospectus
Supplement will specify which class or
classes, if any, of the Certificates are
being offered thereby.
B. DENOMINATIONS; BOOK-ENTRY..... Certificates will be available for purchase
in denominations specified in the related
Prospectus Supplement or, if not so
specified, except for the Certificates,
if any, of a given series purchased by
the Seller, in minimum denominations of
$1,000 and integral multiples of $1,000
in excess thereof. Certificates will
initially be issued in book-entry form
and the beneficial owners of Certificates
("Certificate Owners") will be able to
receive Definitive Certificates only in
the limited circumstances described
herein or in the related Prospectus
Supplement. See "Certain Information
Regarding the Securities -- Definitive
Securities."
C. CERTIFICATE RATE.............. Each class of Certificates other than any
Strip Certificates will have a stated
Certificate Balance specified in the
related Prospectus Supplement (the
"Certificate Balance") and will accrue
interest on such Certificate Balance at a
specified rate (with respect to each
class of Certificates, the "Certificate
Rate"). Each such class of Certificates
may have a different Certificate Rate,
which may be a fixed, variable or
adjustable Certificate Rate, or any
combination of the foregoing. The related
Prospectus Supplement will specify the
Certificate Rate for each class of
Certificates or the method for
determining the Certificate Rate. See
"Description of the Certificates" herein
and in the related Prospectus Supplement.
D. CHARACTERISTICS............... With respect to a series that includes two
or more classes of Certificates, each
class may differ as to timing and
priority of distributions, seniority,
allocations of losses, Certificate Rate
or amount of distributions in respect of
principal or interest. Distributions in
respect of principal or interest in
respect of any such class or classes of
Certificates may or may not be made upon
the occurrence of specified events or on
the basis of collections from designated
portions of the Receivables Pool.
E. STRIP CERTIFICATES............ A series may include one or more classes of
Certificates ("Strip Certificates" and,
together with Strip Notes, "Strip
Securities") entitled to (i) principal
payments with disproportionately small,
nominal or no interest payments or (ii)
interest payments with disproportionately
small, nominal or no principal payments.
Any Strip Certificates will be extremely
sensitive to the rate and timing of
principal payments, including
prepayments, on the Receivables. See
"Risk Factors -- Risk of Prepayment and
Possible Adverse Effect on Yield -- Risks
Associated with Yield Sensitivity of the
Strip Securities."
6
<PAGE> 9
F. SUBORDINATION TO SECURITIES
OF THE SAME TRUST.............. If the series of Securities issued by a
Trust includes classes of Notes or more
than one class of Certificates, all of
the Notes and Certificates will be
entitled to receive payments and
distributions from the same Trust
property, and distributions in respect of
the Certificates may be subordinated in
priority of payment to payments on the
Notes or to other classes of Certificates
to the extent specified in the related
Prospectus Supplement.
G. CLEAN-UP CALL; PREPAYMENT..... If the Seller or Servicer exercises its
option to purchase the Receivables of a
Trust in the event the outstanding Pool
Balance is equal to or less than the
percentage of the Initial Pool Balance
set forth in the related Prospectus
Supplement in the manner and on the
respective terms and conditions described
under "Description of the Transfer and
Servicing Agreements -- Termination,"
Certificateholders will receive as a
prepayment in full an amount in respect
of the Certificates of such series as
specified in the related Prospectus
Supplement.
H. PRE-FUNDING ACCOUNT;
PARTIAL PREPAYMENT............. If the related Prospectus Supplement
provides that the property of a Trust
will include a Pre-Funding Account,
Certificateholders may receive a partial
prepayment of principal on or immediately
following the end of the applicable
Funding Period in an amount and manner
specified in the related Prospectus
Supplement.
THE TRUST PROPERTY............... The property of each Trust will include a
pool of motor vehicle promissory notes
and security agreements and/or retail
installment sales contracts secured by
new or used automobiles or light duty
trucks (collectively, the "Receivables"),
including rights to receive payments
received under such Receivables after the
applicable Cutoff Date, security
interests in the vehicles financed
thereby (the "Financed Vehicles"), rights
under agreements with automobile or light
duty truck dealers ("Dealer Agreements"),
rights with respect to Eligible Deposit
Accounts, which will include the
Collection Account and may include a
Reserve Account and/or a Yield Supplement
Account, rights under the related
Purchase Agreements and any proceeds from
claims on or rebates of premiums relating
to insurance policies and rebates of
amounts relating to items such as
extended warranties with respect to the
Financed Vehicles. On or before the
Closing Date specified in the related
Prospectus Supplement with respect to a
Trust (as such term is defined in the
related Prospectus Supplement, the
"Closing Date"), the Seller will sell or
transfer Receivables (the "Initial
Receivables") having an aggregate
principal balance specified in the
related Prospectus Supplement as of the
dates specified therein to such Trust
pursuant to either a Sale and Servicing
Agreement among the Seller, the Servicer
and the Trust (as amended and
supplemented from time to time, the "Sale
and Servicing Agreement") or, if the
Trust is to be
7
<PAGE> 10
treated as a grantor trust for federal
income tax purposes, the related Pooling
and Servicing Agreement among the Seller,
the Servicer and the Trustee (as amended
and supplemented from time to time, the
"Pooling and Servicing Agreement" and,
together with the Sale and Servicing
Agreement, each a "Transfer and Servicing
Agreement"). The property of each Trust
will also include amounts on deposit in
certain trust accounts, including the
related Collection Account, any Pre-
Funding Account, any Revolving Account
and any other account identified in the
related Prospectus Supplement. See "The
Trusts" herein and "The Trust" in the
related Prospectus Supplement.
In addition, to the extent provided in the
related Prospectus Supplement, from time
to time during the related Revolving
Period and/or Pre-Funding Period, as the
case may be, the Seller may purchase from
Affiliates additional Receivables
("Subsequent Receivables") having an
aggregate principal balance approximately
equal to the amount of principal
collections on the related Receivables
deposited in the Revolving Account from
time to time during the Revolving Period
and/or the amount deposited in the
Pre-Funding Account on the related
Closing Date (the "Pre-Funded Amount"),
and will transfer and assign such
Subsequent Receivables to the related
Trust in exchange for the payment to the
Seller of funds on deposit in such
Revolving Account or Pre-Funding Account
equal to the aggregate outstanding
principal balance of the Subsequent
Receivables so transferred as of the
applicable subsequent cutoff date. See
"Pre-Funding Account" and "Revolving
Account" below in this summary and
"Certain Information Regarding the
Securities -- Funding Period or Revolving
Period."
THE RECEIVABLES.................. The Receivables will generally consist of
(i) motor vehicle promissory notes and
security agreements executed by an
Obligor in favor of a motor vehicle
lender ("Direct Loans") and/or (ii) motor
vehicle retail installment sales
contracts between an Obligor and a
vehicle dealer (collectively, "Motor
Vehicle Loans"). Direct Loans may include
promissory notes and security agreements
for which a vehicle dealer (a "Dealer")
performed certain ministerial loan
processing functions on behalf of the
lender. In addition, the related
Receivables Pool may include Motor
Vehicle Loans acquired by an Affiliate
("Acquired Receivables"). "Originator"
means, with respect to any Motor Vehicle
Loan, the Affiliate that (i) was the
lender with respect to a Direct Loan or
(ii) acquired such Motor Vehicle Loan
from a Dealer or other third party.
"Affiliate" means a bank or other nonbank
entity owned or acquired by KeyCorp or by
its subsidiaries. "Subsidiary" includes
both direct and indirect subsidiaries. As
of the date of this Prospectus, the Bank
(the "Primary Originator"), is the only
KeyCorp subsidiary that, makes or
acquires Motor Vehicle Loans. Receivables
that are to be included in any
Receivables Pool will be transferred by
an
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Affiliate to the Seller for purposes of
sale to the applicable Trust. The
Receivables for any given Receivables
Pool will be selected from the Motor
Vehicle Loans owned by Affiliates based
on the criteria specified in the
applicable Transfer and Servicing
Agreement, and described herein and in
the related Prospectus Supplement. See
"The Receivables Pools" herein and "The
Receivables Pool" in the related
Prospectus Supplement.
CREDIT AND CASH FLOW
ENHANCEMENT...................... The form and amount of any credit
enhancement will be specified in the
related Prospectus Supplement. Credit
enhancement with respect to a Trust or
any class or classes of Securities may
include any one or more of the following:
subordination of one or more other
classes of Securities or all or a portion
of any servicing fees, a reserve account,
over-collateralization, letters of
credit, credit or liquidity facilities,
surety bonds, guaranteed investment
contracts, swaps or other interest rate
protection agreements, repurchase
obligations, yield supplement agreements,
other agreements with respect to third
party payments or other support, cash
deposits or other arrangements. Certain
forms of credit enhancement may contain
limitations on, and exclusions from,
coverage thereunder, which will be
described in the related Prospectus
Supplement. See "Description of the
Transfer and Servicing Agreements --
Credit and Cash Flow Enhancement".
PRE-FUNDING ACCOUNT.............. If specified in the related Prospectus
Supplement, during a Funding Period until
the earliest of (a) the Determination
Date on which the amount on deposit in
the Pre-Funding Account is less than the
minimum amount specified in the related
Prospectus Supplement, (b) the occurrence
of an Event of Default under the
Indenture or a Servicer Termination Event
under the applicable Transfer and
Servicing Agreement, (c) the occurrence
of certain events of insolvency with
respect to the Seller or the Servicer or
(d) the close of business on a business
day specified in the related Prospectus
Supplement not later than one year after
the applicable Closing Date, the
Pre-Funding Account will be maintained as
a trust account in the name of the
Applicable Trustee. The Pre-Funded Amount
will initially equal the amount specified
in the related Prospectus Supplement,
which may be up to 40% of the aggregate
principal amount of the series of
Securities offered thereunder. During the
Funding Period, the Pre-Funded Amount
will be reduced by the amount thereof
used to purchase Subsequent Receivables
in accordance with the applicable
Transfer and Servicing Agreement, and the
amounts thereof deposited in the Reserve
Account in connection with the purchase
of such Subsequent Receivables. Prior to
being used to purchase Subsequent
Receivables or paid to the registered
holders of each class of Notes
("Noteholders") and the registered
holders of each class of Certificates
("Certificateholders" and together with
any Noteholders, "Securityholders"), the
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Pre-Funded Amount will be invested from
time to time in Permitted Investments.
Although the specific parameters of the
Pre-Funding Account with respect to any
issuance of Securities will be specified
in the related Prospectus Supplement, it
is anticipated that the Subsequent
Receivables to be acquired during the
Funding Period will be subject to the
same types of representations and
warranties as the Initial Receivables
included in the related Receivables Pool
on the Closing Date (although additional
criteria may also be required to be
satisfied, as described in the related
Prospectus Supplement). The Funding
Period will not exceed one year from the
related Closing Date. Any Subsequent
Receivables originated by the Primary
Originator will be originated in
accordance with the underwriting criteria
described under "The Receivables Pools --
Underwriting." See "Description of the
Transfer and Servicing Agreements --
Accounts" herein and in the related
Prospectus Supplement.
REVOLVING ACCOUNT................ If specified in the related Prospectus
Supplement for any Trust that issues
Notes, all principal collections received
on the related Receivables during the
Revolving Period (as such term is defined
in the related Prospectus Supplement, the
"Revolving Period") for such Trust and,
on each Distribution Date during such
Revolving Period, such other amounts
described in the related Prospectus
Supplement, will be deposited in the
Revolving Account (as such term is
defined in such Prospectus Supplement,
the "Revolving Account") for such Trust
and, except as provided below, no
principal collections under the
Receivables will be distributed to the
holders of a series of Securities issued
by such Trust on any Distribution Date
occurring during such Revolving Period.
Although the specific parameters of the
Revolving Account with respect to any
issuance of Securities will be specified
in the related Prospectus Supplement, it
is anticipated that (a) the Revolving
Period will not exceed three years from
the related Closing Date, and (b) that
the Subsequent Receivables to be acquired
during the Revolving Period will be
subject to the same types of
representations and warranties as the
Initial Receivables included in the
related Receivables Pool on the Closing
Date (although additional criteria may
also be required to be satisfied, as
described in the related Prospectus
Supplement). Any Subsequent Receivables
originated by the Primary Originator will
be originated in accordance with the
underwriting criteria described under
"The Receivables Pools -- Underwriting."
If the amount on deposit in a Revolving
Account at the close of business on the
last day of a calendar month during the
Revolving Period exceeds the maximum
permitted Revolving Account balance
specified in the related Prospectus
Supplement, the holders of such series of
Securities will receive a distribution of
principal on their Securities on the next
Distribution Date in an amount equal to
the amount of such excess.
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<PAGE> 13
In addition, if the related Trust includes
a Revolving Account, a principal payment
equal to the sum of (a) the amount, if
any, on deposit in such Revolving Account
as of the close of business on the first
business day following the applicable
Revolving Period and (b) such other
amounts described in the related
Prospectus Supplement for the next
Distribution Date thereafter will be
distributed to the holders of the related
series of Securities on such next
Distribution Date and thereafter
principal distributions will be made to
the holders of the related series of
Securities in the manner otherwise
specified herein and in the related
Prospectus Supplement.
RESERVE ACCOUNT.................. If specified in the related Prospectus
Supplement, a Reserve Account will be
created for each Trust which may require
an initial deposit of cash or certain
investments having a value equal to the
amount specified in the related
Prospectus Supplement. To the extent
specified in the related Prospectus
Supplement, funds in the Reserve Account
will thereafter be supplemented by the
deposit of amounts remaining on any
Distribution Date after making all other
distributions required on such date and
any amounts deposited from time to time
from the Pre-Funding Account and/or
Revolving Account in connection with a
purchase of Subsequent Receivables.
Amounts in the Reserve Account will be
available to cover shortfalls in amounts
due to the holders of those classes of
Securities specified in the related
Prospectus Supplement in the manner and
under the circumstances specified
therein. The related Prospectus
Supplement will also specify to whom and
the manner and circumstances under which
amounts on deposit in the Reserve Account
(after giving effect to all other
required distributions to be made by the
applicable Trust) in excess of the
Specified Reserve Account Balance (as
defined in the related Prospectus
Supplement, the "Specified Reserve
Account Balance") will be distributed.
See "Description of the Transfer and
Servicing Agreements--Accounts" herein
and in the related Prospectus Supplement.
TRANSFER AND SERVICING
AGREEMENTS....................... With respect to each Trust, the Seller will
sell the related Receivables to such
Trust pursuant to a Transfer and
Servicing Agreement. The rights and
benefits of any Trust under a Sale and
Servicing Agreement will be assigned to
the Indenture Trustee as collateral for
the Notes of the related series. The
Servicer will agree with each Trust to be
responsible for servicing, managing,
maintaining custody of and making
collections on the related Receivables.
The Servicer will undertake certain
administrative duties under an
Administration Agreement with respect to
any Trust that has issued Notes.
The Seller will be obligated to repurchase
any Receivable if the interest of the
applicable Trust in such Receivable is
materially and adversely affected by a
breach of any representation or warranty
made by the Seller with respect to the
Receiva-
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<PAGE> 14
ble, if such breach has not been cured
following the discovery by or notice to
the Seller of the breach.
The Servicer will be obligated to purchase
any Receivable if, among other things, it
extends the date for final payment by the
Obligor of such Receivable beyond the
applicable Final Scheduled Maturity Date
(as defined in the related Prospectus
Supplement, the "Final Scheduled Maturity
Date"), reduces the contractual rate of
interest on such Receivable ("Contract
Rate") or principal balance of such
Receivable or fails to maintain a
perfected security interest in the
related Financed Vehicle.
The Servicer will be entitled to receive a
fee for servicing the Receivables of each
Trust equal to a specified percentage of
the aggregate principal balance of the
related Receivables Pool, as set forth in
the related Prospectus Supplement, and,
in addition to such fee, is entitled to
receive certain late fees, extension
fees, prepayment charges, non-sufficient
funds charges and other administrative
fees or similar charges relating to the
servicing of the Receivables. In
addition, the Servicer or the Seller will
be entitled to receive such fees and
other amounts specified in the related
Prospectus Supplement. To the extent
provided in the related Prospectus
Supplement, the right to receive all or a
portion of any such servicing fees may be
subordinated to rights of Securityholders
and all or a portion of any such
servicing fees may otherwise serve as
credit enhancement for the related
Securities. See "Description of the
Transfer and Servicing Agreements --
Servicing Compensation and Payment of
Expenses" herein and "Description of the
Transfer and Servicing Agreements --
Servicing Compensation and Payment of
Expenses" and "-- Distributions" in the
related Prospectus Supplement.
NO RECOURSE TO SELLERS OR
SERVICER......................... The Receivables sold and assigned to the
applicable Trust will be sold and
assigned by the Seller to such Trust
without recourse to the Seller, the
Servicer or any of their respective
affiliates for credit losses on such
Receivables. The Notes of any series will
represent obligations solely of, and the
Certificates of any series will represent
interests solely in, the related Trust
and, except as may be set forth in an
applicable Prospectus Supplement in
connection with any credit enhancement,
neither the Notes nor the Certificates of
any series will be insured or guaranteed
by the Seller, the Servicer, the
Applicable Trustee, any Indenture Trustee
or any other person or entity.
TAX STATUS....................... Unless the Prospectus Supplement specifies
that the related Trust will be treated as
a grantor trust, upon the issuance of the
related series of Securities, Federal Tax
Counsel to such Trust will deliver an
opinion to the effect that, for federal
income tax purposes: (i) any Notes of
such series will be characterized as debt
and (ii) such Trust will not be
classified as an association (or a
publicly traded partnership) taxable as a
corporation. In respect of any such
series, each
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<PAGE> 15
Note Owner, by the acceptance of a
beneficial interest in a Note of such
series, will agree to treat such Note as
indebtedness, and each Certificate Owner,
by the acceptance of a beneficial
interest in a Certificate of such series,
will agree to treat such Trust as a
partnership in which such Certificate
Owner is a partner for federal, state and
local tax purposes.
If the Prospectus Supplement specifies that
the related Trust will be treated as a
grantor trust, upon the issuance of the
related series of Certificates, Federal
Tax Counsel to such Trust will deliver an
opinion to the effect that such Trust
will be treated as a grantor trust for
federal income tax purposes and will not
be subject to federal income tax.
Accordingly, the Certificate Owners would
be treated as owners of the Receivables
for federal income tax purposes.
See "Federal Income Tax Consequences" and
"State Tax Consequences" herein and in
the related Prospectus Supplement for
additional information concerning the
application of federal and state tax
laws.
ERISA CONSIDERATIONS............. The related Prospectus Supplement will set
forth certain information as to whether
each class of Securities issued by the
related Trust will be eligible for
purchase by employee benefit plans
subject to the Employee Retirement Income
Security Act of 1974, as amended
("ERISA"), or by any individual
retirement account. See "ERISA
Considerations" herein and in the related
Prospectus Supplement.
RATING OF SECURITIES............. It is a condition to the issuance of each
class of Securities offered hereby that
they are rated by at least one nationally
recognized statistical rating agency in
one of its generic rating categories
which signifies investment grade. The
ratings of the Securities address the
likelihood of the timely payment of
interest on and the ultimate payment of
principal of the Securities pursuant to
their terms. There can be no assurance
that such ratings will not be lowered or
withdrawn by a Rating Agency if
circumstances so warrant. See "Risk
Factors -- Ratings of the Securities."
MATERIAL RISKS................... There are material risks associated with an
investment in the Securities. Prospective
investors should consider the factors set
forth under "Risk Factors" on pages 14 to
21, and as are provided in the related
Prospectus Supplement.
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<PAGE> 16
RISK FACTORS
LIMITED LIQUIDITY
There is currently no secondary market for the Securities. Each Underwriter
(as defined in the related Prospectus Supplement, an "Underwriter") may make a
market in the Securities for which it is an Underwriter, but it is under no
obligation to do so. There can be no assurance that a secondary market will
develop or, if a secondary market does develop, that it will provide the
Securityholders with liquidity of investment or that it will continue for the
life of the Securities.
RISK OF PREPAYMENT AND POSSIBLE ADVERSE EFFECT ON YIELD
Reinvestment Risks from Prepayments. All the Receivables are prepayable at
any time without penalty to the Obligor. (For this purpose, the term
"prepayments" includes prepayments in full, partial prepayments and liquidations
due to default, as well as receipts of proceeds from physical damage, credit
life and disability insurance policies and certain other Receivables repurchased
for administrative reasons). The weighted average life (i.e., the average time
in which each dollar of principal is paid on the Securities) of the Securities
may be reduced by full or partial prepayments on the Receivables. The rate of
prepayments on the Receivables may be influenced by a variety of economic,
social and other factors, including the fact that an Obligor generally may not
sell or transfer the Financed Vehicle securing a Receivable without the payment
in full of such Receivable. In addition, under certain circumstances, the Seller
will be obligated to repurchase Receivables pursuant to a Transfer and Servicing
Agreement as a result of uncured breaches of representations and warranties and,
under certain circumstances, the Servicer will be obligated to purchase
Receivables pursuant to such Transfer and Servicing Agreement as a result of
uncured breaches of certain covenants. See "Description of the Transfer and
Servicing Agreements -- Sale and Assignment of Receivables" and "-- Servicing
Procedures." Any reinvestment risks (i.e., risks that amounts received by
Securityholders will not be able to be invested at interest rates that are
greater than or equal to the applicable Interest Rate or Certificate Rate)
resulting from a faster or slower incidence of prepayment of Receivables held by
a given Trust will be borne entirely by the Securityholders of the related
series of Securities. See also "Description of the Transfer and Servicing
Agreements -- Termination" regarding the option of the Servicer and/or Seller to
purchase the remaining Receivables of a given Receivables Pool, "-- Insolvency"
regarding the sale of the Receivables owned by a Trust that is not a grantor
trust if an Insolvency Event with respect to the Seller occurs and "Risk
Factors -- Financial Institution Insolvency Risks" regarding the right of the
FDIC to prepay Securities in certain circumstances.
Risks Associated with Securities Purchased at a Discount or Premium.
Holders of Securities should consider, in the case of any Securities purchased
at a discount, the risk that a slower than anticipated rate of principal
payments on the Receivables will result in an actual yield (i.e., the effective
interest rate) that is less than the anticipated yield and, in the case of any
Securities purchased at a premium, the risk that a faster than anticipated rate
of principal payments on the Receivables will result in an actual yield that is
less than the anticipated yield. See "-- Reinvestment Risks from Prepayments."
Risks Associated with Yield Sensitivity of the Strip Securities. The yield
to maturity of any Strip Securities will be extremely sensitive to the
prepayment and default experience on the Receivables, which may fluctuate
significantly from time to time. See "-- Reinvestment Risks from Prepayments."
Holders of any Strip Securities entitled to principal payments with
disproportionately small, nominal or no interest payments should consider the
risk that a slower than anticipated rate of payments on the Receivables will
result in an actual yield that is less than the anticipated yield. Holders of
Strip Securities entitled to interest payments with disproportionately small,
nominal or no principal payments should consider the risk that a faster than
anticipated rate of payments on the Receivables will result in an actual yield
that is less than the anticipated yields. Prospective investors in Strip
Securities should fully consider the risk that an extremely rapid rate of
principal prepayments could result in the failure of investors in the Strip
Securities entitled to disproportionately small, nominal or no principal
payments to recoup their initial investment.
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<PAGE> 17
RISK OF COMMINGLING OF RECEIVABLES FILES
The Seller will cause financing statements to be filed with the appropriate
governmental authorities to perfect the interest of the related Trust in its
purchase of Receivables from the Seller and in the appropriate jurisdictions in
which the Affiliates are located to perfect the interest of the Seller in its
purchase of Receivables from the Affiliates in accordance with the UCC in effect
in the relevant jurisdiction. The Servicer will hold the Receivables, either
directly or through subservicers, as custodian for the Applicable Trustee
following the sale and assignment of the Receivables to the related Trust. The
Receivables will not be segregated, stamped or otherwise marked to indicate that
they have been sold to the related Trust. The Seller believes that it is
customary for Receivables to not be segregated or stamped or otherwise marked in
connection with asset securitizations of the type contemplated hereby and in
other types of receivables financings where the parent company of the transferor
has credit ratings that are investment grade or better and servicing is retained
by the transferor. The Seller's affiliates, in their traditional lending
practices, generally would take possession of the financed receivables if
servicing is not retained by the transferor or the transferor has a lower than
investment grade credit rating. If through inadvertence or otherwise (for
example, if an Affiliate or the Seller were to sell or grant a security interest
in Receivables in violation of the applicable Transfer and Servicing
Agreements), another party purchases (or takes a security interest in) the
Receivables for new value in the ordinary course of business and takes
possession of the Receivables without actual knowledge of the related Trust's
interest, the purchaser (or secured party) will acquire an interest in the
Receivables superior to the interest of the related Trust. Under such
circumstances, there is a risk that the Trust would not be able to realize some
or all of the cash flow from such Receivable. Although such Affiliate or the
Seller would be liable to the Trust in that event, if such Affiliate or the
Seller became insolvent, holders of Securities could suffer losses.
RISK OF UNENFORCEABLE SECURITY INTEREST IN FINANCED VEHICLES
In connection with the sale of Receivables by each Originator to the Seller
and by the Seller to a Trust, security interests in the Financed Vehicles
securing such Receivables will be assigned by such Originator to the Seller and
by the Seller to such Trust simultaneously with the sale of such Receivables by
such Originator to the Seller and by the Seller to such Trust. Due to
administrative burden and expense (i.e., fees payable to state motor vehicle
departments ranging up to approximately forty dollars per vehicle and related
paperwork), the certificates of title to the Financed Vehicles will not be
amended to reflect the assignments to the Seller or to the Trust. In the absence
of such amendments, the Seller and such Trust may not have a perfected security
interest in the Financed Vehicles securing the Receivables in some states. The
Seller will be obligated to repurchase any Receivable sold to such Trust as to
which the Seller has breached its representation that it has a perfected
security interest in the Financed Vehicle securing such Receivable as of the
date such Receivable is transferred to such Trust, if such breach shall
materially and adversely affect the interest of such Trust in such Receivable
and if a breach of such representation shall not have been cured by the last day
of the month that includes the sixtieth day (or, if the Seller elects, the
thirtieth day) following the discovery by or notice to the Seller of such
breach. If such Trust does not have a perfected security interest in a Financed
Vehicle, its ability to realize on such Financed Vehicle in the event of a
default may be adversely affected, which could result in delays in payments on
the related Notes (if any) and Certificates and possible reductions in the
amount of those payments. The applicable Affiliate will be obligated, pursuant
to the Purchase Agreement to which it is a party, to repurchase from the Seller
any Receivable sold by it thereunder that the Seller has repurchased as a result
of such a breach. The Seller will assign its rights under each Purchase
Agreement to the related Trust. The Seller believes that it is customary for
certificates of title or ownership to not be endorsed or amended in connection
with asset securitizations of the type contemplated hereby.
RISK OF NON-PRIORITY OF TRUST'S SECURITY INTEREST IN FINANCED VEHICLES
To the extent the security interest in the Financed Vehicles is perfected,
such Trust will have a prior claim over subsequent purchasers of such Financed
Vehicles and holders of subsequently perfected security interests. However, as
against liens for repairs of Financed Vehicles or for taxes unpaid by an Obligor
under a Receivable, or through fraud or negligence, such Trust could lose the
priority of its security interest or its security interest in a Financed
Vehicle, which could result in delays in payments on the related Notes (if any)
and Certificates and
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<PAGE> 18
possible reductions in the amount of those payments. Neither the Seller nor the
Servicer will have an obligation to repurchase a Receivable as to which any of
the aforementioned occurrences result in such Trust's losing the priority of its
security interest or its security interest in such Financed Vehicle after the
date such security interest was conveyed to such Trust. See "Certain Legal
Aspects of the Receivables -- Security Interest in Vehicles."
RISK OF SUBSTANTIVE CONSOLIDATION
Seller has taken steps in structuring the transactions described herein and
in the related Prospectus Supplement that are intended to ensure that the
voluntary or involuntary application for relief by KeyCorp or any Affiliate
subject to the United States Bankruptcy Code (the "Bankruptcy Code") under the
Bankruptcy Code or similar applicable state laws ("Insolvency Laws") will not
result in consolidation of the assets and liabilities of the Seller with those
of KeyCorp or such Affiliate. These steps include the creation of the Seller as
a separate, limited-purpose subsidiary pursuant to a certificate of
incorporation containing certain limitations (including restrictions on the
nature of the Seller's business and a restriction on the Seller's ability to
commence a voluntary case or proceeding under any Insolvency Law without the
prior unanimous affirmative vote of all of its directors). However, there can be
no assurance that the activities of the Seller would not result in a court's
concluding that the assets and liabilities of the Seller should be consolidated
with those of KeyCorp or any Affiliate in a proceeding under any Insolvency Law.
See "The Seller." If a court were to conclude that the assets and liabilities of
the Seller should be consolidated with those of KeyCorp or any Affiliate in a
proceeding under any Insolvency Law, then any "true sale" to the Seller would be
ineffective to remove the Receivables and other assets from the bankruptcy
estate of KeyCorp or such Affiliate, and delays in payments of collections of
the Receivables could occur or reductions in the amount of such payments could
result. See "Risk of No 'True Sale' " below. Although there can be no assurance,
the Seller believes there is no material risk that the Trust would be
substantively consolidated with any other entity if that entity were to become
the subject of a proceeding under any Insolvency Law.
RISK OF NO "TRUE SALE"
The Seller and each Affiliate subject to the Bankruptcy Code each intend
that the transfer of Receivables by such Affiliate to the Seller will constitute
a "true sale" of such Receivables. The Seller has taken steps in structuring its
purchases of Receivables from each Affiliate that is subject to the Bankruptcy
Code to increase the likelihood that such purchases will each be deemed a "true
sale". In particular, each such purchase will be without recourse to the
applicable Affiliate for credit losses and at a purchase price believed by the
parties to represent the fair market value of the applicable Receivables. If the
transfer does, in fact, constitute such a "true sale," the Receivables and the
proceeds thereof would not be part of such Affiliate's bankruptcy estate under
Section 541 of the Bankruptcy Code should such Affiliate become the subject of a
bankruptcy case subsequent to the transfer of the Receivables to the Seller. It
is a condition of the offering that the Seller shall have received an opinion of
counsel to the effect that, subject to certain facts, assumptions and
qualifications, the transfer of such Receivables by an Affiliate subject to the
Bankruptcy Code to the Seller pursuant to the related Purchase Agreement would
be characterized as a "true sale" of such Receivables to the Seller and such
Receivables would not form part of such Affiliate's bankruptcy estate pursuant
to Section 541 of the Bankruptcy Code.
Notwithstanding the foregoing, if the Seller or an Affiliate subject to the
Bankruptcy Code were to become a debtor in a bankruptcy case and a creditor or
trustee in bankruptcy of the Seller or such Affiliate or the Seller or such
Affiliate itself were to take the position that the transfer of Receivables by
the Seller to the Trust, or by such Affiliate to the Seller, as the case may be,
should instead be treated as a pledge of the Receivables to secure a borrowing
of the Seller or such Affiliate, as the case may be, then delays in payments of
collections of the Receivables could occur or (should the court rule in favor of
any such trustee, debtor or creditor) reductions in the amount of such payments
could result. If the transfer of the Receivables by the Seller to the Trust, or
by an Affiliate subject to the Bankruptcy Code to the Seller, is treated as a
pledge instead of a sale, a tax, government or other lien on the property of the
Seller or such Affiliate, as the case may be, arising before the transfer of the
Receivables to the Trust may have priority over the Trust's or the Seller's
interest in the Receivables.
In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir.), cert.
denied 114 S.Ct 554 (1993), the United States Court of Appeals for the 10th
Circuit suggested that even where a transfer of accounts from a
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<PAGE> 19
seller to a buyer constitutes a "true sale," the accounts would nevertheless
constitute property of the seller's bankruptcy estate in a bankruptcy of the
seller. If the Seller were to become subject to a bankruptcy proceeding and a
court were to follow the Octagon court's reasoning, Securityholders might
experience delays in payment or possibly losses on their investment in the
Securities. The Permanent Editorial Board of the UCC has issued an official
commentary (PEB Commentary No. 14) which characterizes the Octagon court's
interpretation of Article 9 of the UCC as erroneous. Such commentary states that
nothing in Article 9 is intended to prevent the transfer of ownership of
accounts or chattel paper. However, such commentary is not legally binding on
any court.
FINANCIAL INSTITUTION INSOLVENCY RISKS
Each Affiliate subject to the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA"), intends that the transfer of the Receivables
by it to the Seller constitutes a sale. In the event that an Affiliate subject
to FIRREA were to become insolvent, FIRREA sets forth certain powers that the
Federal Deposit Insurance Corporation (the "FDIC") could exercise if it were
appointed as receiver of such Affiliate. Subject to certain qualifications, to
the extent that the Seller or related Trust has a valid perfected security
interest in the Receivables, such security interest should be enforceable (to
the extent of the "actual direct compensatory damages" of the Seller or such
Trust) notwithstanding the insolvency of, or the appointment of a receiver or
conservator for, any Affiliate, and payments to such Trust with respect to the
Receivables transferred to it from the Seller (up to the amount of such damages)
should not be subject to recovery by such a conservator or receiver. See
"Certain Legal Aspects of the Receivables -- Other Limitations." If, however,
the FDIC were to assert a contrary position, such as by requiring the Seller or
related Trust to establish its right to those payments by submitting to and
completing the administrative claims procedure established under FIRREA, delays
in payments on the related Notes (if any) and the Certificates and possible
reductions in the amount of those payments could occur. Alternatively, in such
circumstances, the FDIC might have the right to repudiate the applicable
Purchase Agreement and pay damages to the Seller which, in turn, would prepay
the related Notes (if any) and Certificates, and would shorten their respective
weighted average lives.
RATINGS OF THE SECURITIES
It is a condition to the issuance of each class of Securities offered
hereby that they are rated by at least one nationally recognized statistical
rating agency in one of its generic rating categories which signifies investment
grade. A rating is not a recommendation to purchase, hold or sell Securities,
inasmuch as such rating does not comment as to market price or suitability for a
particular investor. The ratings of the Securities address the likelihood of the
timely payment of interest on and the ultimate payment of principal of the
Securities pursuant to their terms. There can be no assurance that a rating will
remain for any given period of time or that a rating will not be lowered or
withdrawn entirely by a Rating Agency if in its judgment circumstances in the
future so warrant.
REALIZATION UPON FINANCED VEHICLES; OBLIGOR INSOLVENCY-RELATED RISKS
Numerous statutory provisions, including Insolvency Laws, may interfere
with or affect the ability of a secured party to realize upon collateral or to
enforce a deficiency judgment against an obligor. For example, in a Chapter 13
proceeding under the Bankruptcy Code, a court may prevent a creditor from
repossessing a vehicle, and, as part of the obligor's rehabilitation plan,
reduce the amount of the secured indebtedness to the market value of the vehicle
at the time of bankruptcy (as determined by the court), leaving the creditor as
a general unsecured creditor for the remainder of the indebtedness. A bankruptcy
court may also reduce the monthly payments due under a contract or change the
rate of interest and time of repayment of the indebtedness. To the extent that
any credit enhancement for such Trust were insufficient to cover all such
losses, such actions could result in an inability of holders of the Notes (if
any) and Certificates issued by such Trust to recover payment in full of their
respective principal amounts and interest thereon or could result in delays in
such payments.
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CONSUMER PROTECTION LAWS
Federal and state consumer protection laws impose requirements upon
creditors in connection with retail installment sales contracts and notes and
security agreements and certain of these laws make an assignee thereof (such as
a Trust) liable to the obligor thereon for any violation by the creditor or
subject to defenses which could be asserted by the obligor against the
applicable Dealer or Originator. Application of such laws could render a
Receivable unenforceable, cause the Trust to be unable to collect any balance
remaining due on the Receivable or result in liability to the Trust. Such
consequences could result in delays in payments on the related Notes (if any)
and Certificates and possible reductions in the amount of those payments. The
Seller will be obligated to repurchase any Receivable which fails to comply with
such requirements. See "Certain Legal Aspects of the Receivables -- Consumer
Protection Laws."
LACK OF RECOURSE TO THE SELLER, THE SERVICER AND THEIR AFFILIATES
None of the Seller, the Servicer or their affiliates is generally obligated
to make any payments in respect of any Notes, the Certificates or the
Receivables of a given Trust. The Securities will not be guaranteed by,
represent an interest in or obligation, either recourse or nonrecourse, of the
Seller, the Servicer or any person other than the Trust.
However, in connection with the sale of Receivables by the Seller to a
given Trust, the Seller will make representations and warranties with respect to
the characteristics of such Receivables and, in certain circumstances, the
Seller may be required to repurchase Receivables with respect to which such
representations and warranties have been breached. See "Description of the
Transfer and Servicing Agreements -- Sale and Assignment of Receivables." In
addition, under certain circumstances, the Servicer may be required to purchase
Receivables. See "Description of the Transfer and Servicing
Agreements -- Servicing Procedures." To the extent that collections on any
Receivable were reduced as a result of any matter giving rise to a repurchase
obligation on the part of the Seller or the Servicer, and the Seller or the
Servicer failed for any reason to perform in accordance with that obligation,
then delays in payments on the related Notes (if any) and Certificates and
possible reductions in the amount of those payments could occur. Moreover, if
the Bank were to cease acting as the Servicer, delays in processing payments on
the Receivables and information in respect thereof could occur and result in
delays in payments to the Securityholders.
SUBORDINATION
To the extent specified in the related Prospectus Supplement, distributions
of interest and principal on one or more classes of Certificates of a series may
be subordinated in priority of payment to interest and principal due on the
Notes, if any, of such series or one or more other classes of Certificates of
such series. Because all of such Securities will be issued by the same Trust and
entitled to receive payments and distributions from the same Trust Property,
investors in any such subordinated class or classes of Certificates should
consider the risk that losses on the Receivables will be borne by such investors
if any Reserve Account or any other credit enhancement is exhausted and could
result in the failure of such investors to recover their initial investment.
LIMITED ASSETS; RISK OF CREDIT LOSSES ON RECEIVABLES
No Trust will have, or be permitted or expected to have, any significant
assets or sources of funds other than the Receivables and, to the extent
provided in the related Prospectus Supplement, a Pre-Funding Account, a
Revolving Account, a Reserve Account and any other credit enhancement. The Notes
of any series will represent obligations solely of, and the Certificates of any
series will represent interests solely in, the related Trust and neither the
Notes nor the Certificates of any series will be insured or guaranteed by any
Affiliate, the Seller, the Servicer, any Trustee, any Indenture Trustee or any
other person or entity. Consequently, holders of the Securities of any series
must rely for repayment upon payments on the related Receivables and, if and to
the extent available, amounts on deposit in the Pre-Funding Account (if any),
the Revolving Account (if any), the Reserve Account (if any) and any other
credit enhancement, all as specified in the related Prospectus Supplement.
Amounts to be deposited in any such Reserve Account with respect to any Trust
will be limited in amount and the amount required to be on deposit in such
Reserve Account will be reduced as the Pool Balance is reduced. In
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addition, funds in any such Reserve Account will be available on each
Distribution Date to cover shortfalls in distributions of interest and principal
on the related Securities. If any such Reserve Account is depleted, the related
Trust will depend solely on current payments on its Receivables and other credit
enhancement (if any) to make payments on the related Securities. If losses occur
which are not covered by the Reserve Account (if any) or any other credit
enhancement or which exceed the amount covered by such credit enhancement,
holders of Securities may be unable to receive payment in full of principal and
interest on their respective Securities.
If so directed by the holders of the requisite percentage of outstanding
Notes of a series issued with respect to a Trust that issues Notes, following an
acceleration of the Notes upon an Event of Default, the applicable Indenture
Trustee may sell the related Receivables in certain limited circumstances as
specified in the related Indenture. See "Description of the Notes -- The
Indenture -- Events of Default; Rights upon Event of Default." However, there is
no assurance that the market value of such Receivables will at any time be equal
to or greater than the aggregate principal amount of such outstanding Notes.
Therefore, upon an Event of Default with respect to the Notes of any series,
there can be no assurance that sufficient funds will be available to repay the
related Noteholders in full. In addition, the amount of principal required to be
paid to Noteholders of such series under the related Indenture will generally be
limited to amounts available to be deposited in the applicable Note Distribution
Account. Therefore, the failure to pay principal on a class of Notes generally
will not result in the occurrence of an Event of Default until the Final
Scheduled Distribution Date (as defined in the related Prospectus Supplement,
the "Final Scheduled Distribution Date") for such class of Notes.
RISKS ASSOCIATED WITH SUBSEQUENT RECEIVABLES
If so specified in the applicable Prospectus Supplement, the property of a
Trust may include monies on deposit in a Pre-Funding Account or Revolving
Account, which monies will be used to purchase or otherwise acquire Subsequent
Receivables from the Seller from time to time during the Funding Period or
Revolving Period specified in the related Prospectus Supplement. If a
Pre-Funding Account or Revolving Account is included in the property of a Trust,
the ability of the Originators to generate Subsequent Receivables to be conveyed
to the Seller for subsequent conveyance to such Trust will affect the amount on
deposit in such account which is not applied to the purchase of Subsequent
Receivables during the Funding Period or Revolving Period, as applicable. Such
Funding Period may be up to one year in length in the case of any Trust that
issues Notes and 90 days after the Closing Date for any other Trust. The
duration of any Revolving Period will be set forth in the related Prospectus
Supplement. At the end of the Funding Period or Revolving Period, as applicable,
the holders of Securities issued by such Trust may receive a prepayment of
principal in an amount equal to the amount remaining in the Pre-Funding Account
or Revolving Account, as applicable. The reinvestment risk associated with any
such distribution of principal will be borne by the holders of the Securities
issued by such Trust. The amount that may be initially deposited into a
Pre-Funding Account may be up to 40% of the principal amount of the Securities
issued by a Trust. Amounts on deposit in a Revolving Account will be limited to
the amount set forth in the related Prospectus Supplement. Amounts on deposit in
any Pre-Funding Account or Revolving Account may be invested only in certain
permitted investments deemed acceptable by the Rating Agencies as consistent
with the applicable ratings on the Securities. Subsequent Receivables may be of
a different credit quality than the Initial Receivables. In addition, following
the transfer of Subsequent Receivables to the applicable Trust, the
characteristics of the entire pool of Receivables included in such Trust may
vary significantly from those of the Initial Receivables transferred to such
Trust. Accordingly, it is possible that the credit quality of the Receivables in
a Trust, as a whole, may decline due to the transfer of Subsequent Receivables
to the Trust. The transfer of Subsequent Receivables to the Trust may also
result in an accelerated rate of payment to the applicable Securityholders
caused by an increased level of defaults on such Receivables. Securityholders
will bear all reinvestment risk associated with a higher than expected rate of
payment on the Securities. In addition, if such Securities were purchased at a
premium, a higher than expected rate of payment would result in a reduction in
the yield to maturity of any class of Securities to which such payments are
distributed. To the extent that amounts on deposit in the Pre-Funding Account or
Revolving Account have not been fully applied to the purchase of Subsequent
Receivables by a Trust by the end of the applicable Funding Period or Revolving
Period and such amounts exceed the applicable amount described in the related
Prospectus Supplement, the holders of Securities issued by the related Trust
will receive, on the Distribution Date on or immediately following the last day
of the applicable Funding Period or Revolving Period, as applicable, a
prepayment of principal in an amount equal to
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the amount remaining in the Pre-Funding Account or Revolving Account following
the purchase of any Subsequent Receivables on such Distribution Date. It is
anticipated that the principal balance of Subsequent Receivables sold to a Trust
will not be exactly equal to the amount on deposit in the Pre-Funding Account or
Revolving Account, and that therefore there will be at least a nominal amount of
principal prepaid to the holders of the Securities issued by such Trust. Holders
of Securities issued by a Trust the property of which includes a Pre-Funding
Account or Revolving Account will bear the reinvestment risk associated with any
such distribution of amounts on deposit in the Pre-Funding Account or Revolving
Account after the termination of the applicable Pre-Funding Period or Revolving
Period. Any such distribution will have the effect of a prepayment on the
related Receivables and, if such Securities were purchased at a premium, would
result in a reduction in the yield to maturity of any class of Securities to
which such amounts are distributed. Distributions from the Pre-Funding Account
or Revolving Account for amounts not fully applied to the purchase of Subsequent
Receivables could shorten the weighted average life of any Class of Securities
to which such amounts are distributed.
EXTENSIONS AND DEFERRALS OF PAYMENTS ON RECEIVABLES
Consistent with its customary servicing practices and procedures, the
Servicer or its designee may, in its discretion and on a case-by-case basis,
arrange with Obligors to extend or modify the terms of the related Receivables.
Some, but not all, of such arrangements will cause the Servicer to be obligated
to purchase such Receivables. Any such extensions or modifications which do not
result in a Servicer obligation to purchase such Receivables may increase the
weighted average life of the related Securities. Any reinvestment risks
resulting from purchases by the Servicer of Receivables or faster or slower
payment resulting from extensions and modifications of payments on Receivables
held by the Trust will be borne entirely by the Securityholders of the related
series of Securities. The Servicer will not be permitted to grant any such
extension or modification if as a result the final scheduled payment on a
Receivable would fall after the related Final Scheduled Maturity Date, unless
the Servicer repurchases the affected Receivable. See "Risk Factors -- Risk of
Prepayment and Possible Adverse Effect on Yield" and "Weighted Average Life of
the Securities."
RISK OF COMMINGLING
With respect to each Trust, the Servicer will deposit all payments on the
related Receivables (from whatever source) and all proceeds of such Receivables
collected during each Collection Period into the Collection Account for such
Trust or, during any Revolving Period, into the Revolving Account for such
Trust. For so long as the Bank satisfies certain requirements for monthly or
less frequent remittances and the Rating Agencies (as such term is defined in
the related Prospectus Supplement, the "Rating Agencies") so permit in
connection with the ratings of the related Securities, then for so long as the
Bank serves as the Servicer and provided that (i) there exists no Servicer
Termination Event and (ii) each other condition to making such monthly or less
frequent deposits as may be described in the related Prospectus Supplement is
satisfied, the Servicer will not be required to deposit such amounts into the
Collection Account or, during any Revolving Period, into the Revolving Account
of such Trust until on or before the business day preceding each Distribution
Date. The Servicer will deposit the aggregate Purchase Amount of Receivables
purchased by the Servicer into the applicable Collection Account on or before
the business day preceding each Distribution Date. Pending deposit into such
Collection Account or, during any Revolving Period, into the Revolving Account,
collections may be invested by the Servicer at its own risk and for its own
benefit and will not be segregated from funds of the Servicer. If the Servicer
were unable to remit such funds, the applicable Securityholders might incur a
loss. For example, the Servicer might not be able to remit such funds if it were
to become a debtor in an insolvency proceeding. Under the UCC, the Trust's
interest in cash collected by the Servicer that has been commingled with other
funds of the Servicer would become unperfected ten days after receipt by the
Servicer. If the Servicer were to become a debtor in an insolvency proceeding,
the Trust might be deemed an unsecured creditor with respect to commingled funds
held by the Servicer longer than ten days. To the extent set forth in the
related Prospectus Supplement, the Servicer may, in order to satisfy the
requirements described above, obtain a letter of credit or other security for
the benefit of the related Trust to secure timely remittances of collections on
the related Receivables and payment of the aggregate Purchase Amount with
respect to Receivables purchased by the Servicer.
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SERVICER TERMINATION EVENTS
With respect to a series of Securities that includes Notes, in the event a
Servicer Termination Event occurs, the Indenture Trustee or the Noteholders with
respect to such series, as described under "Description of the Transfer and
Servicing Agreements -- Rights Upon Servicer Termination Event" may remove the
Servicer without the consent of the Trustee or any of the Certificateholders
with respect to such series. The Trustee or the Certificateholders with respect
to such series will not have the ability to remove the Servicer if a Servicer
Termination Event occurs. In addition, the Noteholders of such series will have
the ability, with certain specified exceptions, to waive Servicer Termination
Events by the Servicer, including Servicer Termination Events that could
materially adversely affect the Certificateholders of such series. See
"Description of the Transfer and Servicing Agreements -- Waiver of Past Servicer
Termination Events."
BOOK-ENTRY REGISTRATION
Each class of Securities of a given series will be initially represented by
one or more certificates registered in the name of Cede & Co. ("Cede"), or any
other nominee for the Depository Trust Company ("DTC") set forth in the related
Prospectus Supplement (Cede, or such other nominee, "DTC's Nominee"), and will
not be registered in the names of the beneficial owners of the Securities
("Security Owners") of such series or their nominees unless Definitive
Securities are issued. As a result, unless and until Definitive Securities for
such series are issued, such Security Owners will not be recognized by the
Trustee or any applicable Indenture Trustee as "Certificateholders",
"Noteholders" or "Securityholders", as the case may be (as such terms are used
herein or in the related Pooling and Servicing Agreement or related Indenture
and Trust Agreement, as applicable). Hence, until Definitive Securities are
issued, such Security Owners will only be able to exercise the rights of
Securityholders indirectly through DTC, Cedel or Euroclear and their
participating organizations. See "Certain Information Regarding the
Securities -- Book-Entry Registration" and "-- Definitive Securities."
THE TRUSTS
With respect to each series of Securities, the Seller will establish a
separate Trust pursuant to the respective Trust Agreement or Pooling and
Servicing Agreement, as applicable, for the transactions described herein and in
the related Prospectus Supplement. The property of each Trust will include a
pool (a "Receivables Pool") of Receivables pursuant to which a purchaser (an
"Obligor") of a Financed Vehicle is obligated. The property of each Trust will
also include all payments received with respect to any Simple Interest
Receivables on and after the Cutoff Date (as such term is defined in the related
Prospectus Supplement, a "Cutoff Date") and all payments due with respect to
Precomputed Receivables on and after the applicable Cutoff Date. Pursuant to
each Dealer Agreement, the applicable Dealer is obligated to purchase from the
Originator that is a party to such Dealer Agreement any Receivables sold or
originated thereunder which do not meet certain representations made by that
Dealer, and, to the extent set forth in the related Prospectus Supplement, any
uncollectible Receivables covered by recourse plans ("Dealer Recourse"). The
Receivables of each Receivables Pool will be serviced by the Servicer. See "The
Bank." Receivables that are to be included in any Receivables Pool will be
transferred pursuant to a Purchase Agreement by an Affiliate to the Seller for
purposes of transfer to the applicable Trust. In addition, to the extent
described in any Prospectus Supplement, the related Receivables Pool may include
Receivables acquired by an Affiliate through acquisitions.
On or before the applicable Closing Date, the Seller will sell the Initial
Receivables of the applicable Receivables Pool to the Trust. To the extent so
provided in the related Prospectus Supplement, Subsequent Receivables will be
conveyed to the Trust as frequently as daily during a Funding Period. Any
Subsequent Receivables so conveyed will also be assets of the applicable Trust
and will be subject to the prior rights of the related Indenture Trustee and the
Noteholders, if any, therein. The property of each Trust will also include (i)
such amounts as from time to time may be held in separate trust accounts
established and maintained pursuant to the related Transfer and Servicing
Agreement and the proceeds of such accounts, as described herein and in the
related Prospectus Supplement (see "Description of the Transfer and Servicing
Agreement -- Accounts" herein and in the related Prospectus Supplement); (ii)
security interests in the Financed Vehicles and any other interest of the Seller
in such Financed Vehicles; (iii) the Seller's rights to proceeds from claims on
physical damage,
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credit life and disability insurance policies, if any, covering the Financed
Vehicles or the Obligors, as the case may be, and rebates of premiums relating
to any insurance policies and rebates of other items such as extended warranties
financed under the Receivables, to the extent applied to reduce the principal
balance of the related Receivable; (iv) any property or rights that shall have
secured a Receivable and that shall have been acquired by the applicable Trust;
(v) any Dealer Recourse and other rights of Affiliates under Dealer Agreements;
(vi) the Seller's rights under the related Purchase Agreements; (vii) the
Seller's rights to documents and instruments relating to the Receivables; and
(viii) any and all proceeds of the foregoing; provided that, with respect to any
series of Notes, the relevant rights and benefits with respect to such property
will be assigned by the Seller and the applicable Trustee to the related
Indenture Trustee for the benefit of the related Securityholders. To the extent
specified in the related Prospectus Supplement, a Pre-Funding Account, a
Revolving Account, a Reserve Account or other form of credit enhancement may be
a part of the property of any given Trust or may be held by the Trustee or an
Indenture Trustee for the benefit of holders of the related Securities.
If so specified in the related Prospectus Supplement, a Trust may acquire
Initial Receivables pursuant to warehouse financing arrangements entered into
prior to the sale by that Trust of any Notes offered hereby. "Warehouse
financing" generally refers to interim financing of Motor Vehicle Loans during
the period from the purchase or funding of the Motor Vehicle Loans by
Originators until the securitization of the Motor Vehicle Loans. Often, an
Originator will obtain some or all of the funds to purchase or fund Motor
Vehicle Loans through internal funds. Any remaining funds necessary may be
borrowed from a bank or other third party. In some cases, to the extent
specified in the related Prospectus Supplement, a Trust that issues Notes will
acquire Receivables prior to the issuance of the Notes and/or Certificates
ultimately to be issued by that Trust. The interim financing for such
acquisitions will be provided by the issuance by the Trust of notes or
certificates which were privately placed. Such notes or certificates will be
refinanced by the sale of the Notes and/or Certificates. It will be a condition
to the issuance of any Securities which refinance other securities issued by any
such Trust that such warehouse financing be repaid to the extent provided in the
related Prospectus Supplement, and any related security interests released, at
or prior to the time of such issuance.
The Servicer will service the Receivables held by each Trust and will
receive fees for such services. See "Description of the Transfer and Servicing
Agreements -- Servicing Compensation and Payment of Expenses" herein and
"-- Servicing Compensation and Payment of Expenses" in the related Prospectus
Supplement. To facilitate the servicing of the Receivables, each Trustee will
authorize the Servicer or the applicable Originator acting as subservicer, as
the case may be, to retain physical possession of the documents representing the
Receivables held by each Trust and other documents relating thereto as custodian
for each such Trust. Due to administrative burden and expense, the certificates
of title to the Financed Vehicles will not be amended to reflect the sale and
assignment of the security interest in the Financed Vehicles to the Seller or
each Trust. In the absence of such amendments, the Seller and such Trust may not
have a perfected security interest in the Financed Vehicles in all states. See
"Certain Legal Aspects of the Receivables" and "Description of the Transfer and
Servicing Agreements -- Sale and Assignment of Receivables."
Notes and Certificates of a given Series will be issued by the same Trust
and payable from the same Trust property. If the protection provided to any
Noteholders of a given series by the subordination of the related Certificates
and by the Reserve Account (if any) or other credit enhancement for such series,
or the protection provided to Certificateholders by any such Reserve Account or
other credit enhancement is insufficient, such Noteholders or
Certificateholders, as the case may be, would have to look principally to the
Obligors on the related Receivables, the proceeds from the repossession and sale
of Financed Vehicles which secure defaulted Receivables and the proceeds from
any recourse against Dealers with respect to such Receivables. In such event,
certain factors, such as the applicable Trust's not having perfected security
interests in the Financed Vehicles in all states, may affect the Servicer's
ability to repossess and sell the collateral securing the Receivables, and thus
may reduce the proceeds to be distributed to the holders of the Securities of
such series. See "Description of the Transfer and Servicing
Agreements -- Distributions", "-- Credit and Cash Flow Enhancement" and "Certain
Legal Aspects of the Receivables."
If so specified in the related Prospectus Supplement, a Trust may make an
election to be treated as a "financial asset securitization investment trust" or
"FASIT." The applicable Transfer and Servicing Agreement for such a Trust may
contain any such terms and provide for the issuance of Notes or Certificates on
such terms
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and conditions as are permitted to a FASIT and described in the related
Prospectus Supplement. See "Federal Income Tax Consequences -- FASIT
Legislation."
The principal offices of the applicable Trust (if any) and the related
Trustee will be specified in the related Prospectus Supplement.
THE TRUSTEE
The Trustee for each Trust will be specified in the related Prospectus
Supplement. The Trustee's liability in connection with the issuance and sale of
the related Securities is limited solely to the express obligations of such
Trustee set forth in the related Trust Agreement and the applicable Transfer and
Servicing Agreement. The Trustee under each Trust Agreement will perform
administrative functions under such Trust Agreement, including making
distributions from the Certificate Distribution Account. A Trustee may resign at
any time, in which event the Servicer, or its successor, will be obligated to
appoint a successor trustee. The Servicer may also remove the Trustee if the
Trustee ceases to be eligible to continue as Trustee under the related Trust
Agreement or Pooling and Servicing Agreement, as applicable, or if the Trustee
becomes insolvent. In such circumstances, the Servicer will be obligated to
appoint a successor trustee. Any resignation or removal of a Trustee and
appointment of a successor trustee will not become effective until acceptance of
the appointment by the successor trustee.
THE RECEIVABLES POOLS
GENERAL
The Receivables in each Receivables Pool are and will be motor vehicle
retail installment sales contracts entered into between Obligors and automotive
dealers and Direct Loans (collectively, "Motor Vehicle Loans"). Each Receivables
Pool generally will include Receivables originated by the Primary Originator. In
addition, the related Receivables Pool may include Receivables originated by
other Affiliates, including Receivables acquired through acquisitions of such
Affiliates. Receivables of an Affiliate that are to be included in any
Receivables Pool will be transferred pursuant to a Purchase Agreement by an
Affiliate to the Seller for purposes of sale to the applicable Trust.
The Primary Originator originates Motor Vehicle Loans across a wide credit
spectrum of Obligors. Obligors which do not meet traditional credit standards
are the focus of finance programs for higher risk obligors. Such higher risk
Motor Vehicle Loans will have higher loss rates and may have higher delinquency
rates than traditional credits.
The Receivables to be held by each Trust will be selected from the Motor
Vehicle Loan portfolio of each Affiliate for inclusion in a Receivables Pool by
several criteria, including that each Receivable (i) is secured by a new or used
vehicle, (ii) was originated in the United States, (iii) is a Precomputed
Receivable or a Simple Interest Receivable and (iv) as of the Cutoff Date (a)
had an outstanding principal balance of at least the amount set forth in the
related Prospectus Supplement, (b) had a scheduled maturity not later than the
date set forth in the related Prospectus Supplement, (c) had an original term to
maturity of not more than the period set forth in the related Prospectus
Supplement and (d) had a Contract Rate of not less than the rate per annum set
forth in the related Prospectus Supplement. No selection criteria or procedures
believed by the Seller to be adverse to the Securityholders are to be used in
selecting the Receivables.
"Precomputed Receivables" consist of any of the following (i) monthly
actuarial receivables ("Actuarial Receivables"), (ii) receivables that provide
for allocation of payments according to the "Rule of 78's" ("Rule of 78's
Receivables") or (iii) receivables that provide for allocation of payments
according to the "Sum of Periodic Balances" method ("Sum of Periodic Balances
Receivables"). An Actuarial Receivable provides for amortization of the loan
over a series of fixed level payment monthly installments. Each monthly
installment, including the monthly installment representing the final payment on
the receivable, consists of an amount of interest equal to the Contract Rate of
the loan multiplied by the unpaid principal balance of the loan, and an amount
of principal equal to the remainder of the monthly installment. Rule of 78's
Receivables and Sum of Periodic Balances
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Receivables provide for the payment by the obligor of a specified total amount
of payments, payable in equal monthly installments on each due date, which total
represents the principal amount financed and add-on interest in an amount
calculated at the stated Contract Rate for the term of the receivable. For a
Rule of 78's Receivable, the rate at which such amount of add-on interest is
earned and, correspondingly, the amount of each fixed monthly installment
allocated to reduction of the outstanding principal are calculated in accordance
with the "Rule of 78's." For a Sum of Periodic Balances Receivable, the rate at
which such amount of add-on interest is earned and, correspondingly, the amount
of each fixed monthly installment allocated to reduction of the outstanding
principal are calculated in accordance with the Sum of Periodic Balances method.
In either case, the fraction used in the calculation of add-on interest earned
each month has as its denominator a number equal to the sum of the series of
numbers (the sum of the numbers of payments, in the case of a Rule of 78's
Receivable, and the sum of the periodic principal balances for each month, in
the case of Sum of Periodic Balances Receivables). The numerator of the fraction
for a given month is the number of payments or the principal balance, as the
case may be, before giving effect to the payment to be made in that month. For
example, in the case of a Rule of 78's Receivable providing for twelve payments,
the denominator of each month's fraction will be 78, the sum of the series of
numbers from one to twelve. The fraction for the first payment would be 1/78,
the fraction for the second payment would be 2/78 and the fraction for the last
payment would be 12/78. The applicable fraction is then multiplied by the total
add-on interest payable over the entire term of the receivable, and the
resulting amount is the amount of add-on interest "earned" that month. The
difference between the amount of the monthly payment and the amount of add-on
interest earned for the month is applied to reduce the outstanding principal
balance of the receivable.
"Simple Interest Receivables" are receivables that provide for the
amortization of the amount financed under each receivable over a series of fixed
level payment monthly installments. Unlike the monthly installment under an
Actuarial Receivable, however, each monthly installment consists of an amount of
interest which is calculated on the basis of the outstanding principal balance
of the receivable multiplied by the stated Contract Rate and further multiplied
by the period elapsed (as a fraction of a calendar year) since the preceding
payment of interest was made. As payments are received under a Simple Interest
Receivable, the amount received is applied first to interest accrued to the date
of payment and the balance is applied to reduce the unpaid principal balance.
Accordingly, if an obligor pays a fixed monthly installment before its scheduled
due date, the portion of the payment allocable to interest for the period since
the preceding payment was made will be less than it would have been had the
payment been made as scheduled, and the portion of the payment applied to reduce
the unpaid principal balance will be correspondingly greater. Conversely, if an
obligor pays a fixed monthly installment after its scheduled due date, the
portion of the payment allocable to interest for the period since the preceding
payment was made will be greater than it would have been had the payment been
made as scheduled, and the portion of the payment applied to reduce the unpaid
principal balance will be correspondingly less. In either case, the obligor pays
a fixed monthly installment until the final scheduled payment date, at which
time the amount of the final installment is increased or decreased, or
additional monthly payments are required after the final scheduled payment date,
as necessary to repay the then outstanding principal balance and unpaid accrued
interest. If a receivable is prepaid, the Obligor is required to pay interest
only to the date of prepayment.
Interest accrues more rapidly and principal is amortized more slowly on
Rule of 78's and Sum of Periodic Balances Receivables than on Actuarial
Receivables. Each Trust will account for the Rule of 78's and Sum of Periodic
Balances Receivables as if such Receivables were Actuarial Receivables. Amounts
received upon prepayment in full of a Rule of 78's or Sum of Periodic Balances
Receivable in excess of the then outstanding principal balance of such
Receivable and accrued interest thereon (calculated pursuant to the actuarial
method) will not be paid to the Noteholders or passed through to the
Certificateholders of the applicable series but will be paid to the Servicer as
additional servicing compensation.
Information with respect to each Receivables Pool will be set forth in the
related Prospectus Supplement, including, to the extent appropriate, the
composition, the distribution by Contract Rate and by the geographic location,
the portion of such Receivables Pool consisting of Precomputed Receivables and
of Simple Interest Receivables and the portion of such Receivables Pool secured
by new vehicles and by used vehicles.
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UNDERWRITING
The Primary Originator may originate Motor Vehicle Loans in any of the
following ways: (1) making a Direct Loan to an Obligor through a Dealer that
performs certain ministerial loan processing functions on behalf of the Primary
Originator, (2) purchasing a retail installment sales contract from a Dealer
pursuant to a Dealer Agreement between the Primary Originator and the Dealer,
(3) purchasing/originating a Motor Vehicle Loan pursuant to a purchase agreement
(a "Flow Agreement") with a third party ("Flow Purchases") or (4) bulk purchases
of Motor Vehicle Loan portfolios from third parties ("Bulk Purchases").
The Primary Originator establishes and maintains relationships with
Dealers. The Primary Originator selects Dealers based upon the Dealer's
commercial reputation, the prior experience of the Dealer (or a predecessor
organization) and, in some cases, a financial review of the Dealer. Each Dealer
from whom any of the Originators purchases a Motor Vehicle Loan or that performs
certain ministerial loan processing functions for Direct Loans must execute a
Dealer Agreement with such Originator which sets out, among other things, the
guidelines and procedures of the purchasing/originating process. Such Dealer
Agreements provide for the repurchase by the Dealer of any Motor Vehicle Loan if
any representations or warranties made by the Dealer relating to the Motor
Vehicle Loan are breached.
The Primary Originator also may establish and maintain relationships with
third parties ("Flow Parties") who will refer individual Motor Vehicle Loan
applications to the Primary Originator or sell individual Motor Vehicle Loans to
the Primary Originator from time to time. Each Flow Party must execute a Flow
Agreement with the Primary Originator which sets out, among other things, the
guidelines and procedures of the purchasing process. Such Flow Agreements
provide for the repurchase by the Flow Party of any Motor Vehicle Loan if any
representations or warranties made by the Flow Party relating to the Motor
Vehicle Loan are breached.
Except in the case of Bulk Purchases, Motor Vehicle Loans are originated or
acquired by the Primary Originator in accordance with the Primary Originator's
underwriting standards (or, in the case of Motor Vehicle Loans originated by a
third party and subsequently acquired by the Primary Originator, the
underwriting standards of such third party). In the case of Bulk Purchases, the
Primary Originator's underwriting standards are used solely to assist in the
determination of the purchase price the Primary Originator is willing to pay for
a Motor Vehicle Loan Portfolio. The underwriting of traditional credits places
greater emphasis on the vehicle buyer's ability to repay the obligation and less
emphasis on the value of the vehicle being purchased, while the underwriting of
higher risk credits focuses upon both factors more evenly. In general, but to a
greater extent with higher risk credits, the underwriting standards of the
Primary Originator are not a fixed set of criteria which are required to be met
by all Motor Vehicle Loans. Underwriting standards are intended to guide and
complement, but not replace, the judgment of the credit underwriter in reviewing
a credit application.
The credit underwriting process for both traditional and higher risk
credits is consistent in that applicants are required to complete an application
which generally includes such information as the applicant's income, residential
status, deposit accounts, liabilities, credit and employment history and other
personal information. The application is reviewed for completeness.
Depending on the type of credit, use of subjective credit judgment varies.
Traditional credit underwriting relies heavily on credit scores derived from
both proprietary score cards and credit bureau reports. Higher risk credit
underwriting relies more heavily on information provided in the application and
the credit bureau report(s) with the underwriter evaluating, among other things,
the relationships among the applicant's income, debt and expenses generally and
debt and expenses related to the proposed Motor Vehicle Loan. The applicant's
creditworthiness may be (and typically is, in the case of higher risk credits)
further evaluated through verification of employment and/or income of the
applicant. Additionally, other factors deemed appropriate by the credit
underwriter may be evaluated and/or verified prior to making the credit
decision. Finally, the "value" of the vehicle to be purchased is determined
based upon the manufacturer's suggested retail price (MSRP) or average retail
value reported in the National Automotive Dealers Association's Used Car Guide
(or similar value source) for traditional programs, or dealer invoice or
wholesale value for higher risk programs, and an evaluation is made of the
collateral and the applicant's ability to repay.
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Generally, the Primary Originator will not finance more than approximately
110% of the "value" of the vehicle plus related amounts financed in connection
therewith, if any, such as title and licensing fees, taxes, credit and life
insurance premiums and extended warranties. Applications for Motor Vehicle Loans
which do not meet customary guidelines require review and approval by a more
senior credit underwriting employee than Motor Vehicle Loans which conform to
such guidelines.
The credit underwriting process for Bulk Purchases differs significantly
from the underwriting process for individual Motor Vehicle Loans. In Bulk
Purchases, the Primary Originator uses its underwriting standards solely to
assist in the determination of an appropriate purchase price for the Motor
Vehicle Loan portfolio. Bulk Purchases are typically non-recourse to the seller.
The purchase agreement for a Bulk Purchase will require the seller to repurchase
Motor Vehicle Loans which violate any material representations or warranties
made by the seller.
SUBSEQUENT RECEIVABLES
To the extent provided in the applicable Prospectus Supplement, Subsequent
Receivables may be originated by the Trust, and if so will be acquired at a
later date using the underwriting criteria applied to the Initial Receivables
but may be of a different credit quality. In addition, following the transfer of
Subsequent Receivables to the applicable Trust, the characteristics of the
entire pool of Receivables included in such Trust may vary significantly from
those of the Initial Receivables transferred to such Trust. See "Risk
Factors -- Risks Associated with Subsequent Receivables." Regular periodic
information regarding the Subsequent Receivables will be included under Item 5
in each Current Report filed on Form 8-K with the Commission pursuant to the
Exchange Act with respect to each Trust to which Subsequent Receivables have
been transferred.
SERVICING AND COLLECTIONS
Each Trust will hire the Bank as the Servicer. The Servicer is permitted to
delegate any and all of its servicing duties to any of its Affiliates, provided
that the Servicer will remain obligated and liable for servicing the Receivables
as if the Servicer alone were servicing the Receivables.
The servicing functions performed by the Servicer include customer service,
document file keeping, computerized account record keeping, vehicle title
processing, and collections. Specific servicing policies and practices of the
Servicer may be tailored to groups or types of Motor Vehicle Loans based upon
the perceived credit risk of each such group, and may change over time in
accordance with the Servicer's business judgment and experience.
The servicing policies and practices of the Servicer generally are somewhat
different for traditional credits and higher risk credits. These differences
relate primarily to tolerance for delinquency, willingness to adjust contract
terms due to specific circumstances, timeliness with which other collection
remedies are activated and charge off policies.
Tolerance for Delinquency. For traditional credits, typically payment
coupon books are utilized and accounts are allowed to become as much as 15 to 20
days delinquent before customer contact about the past due payment is initiated.
As the perception of risk increases, the tolerance for delinquency is reduced
and, accordingly, such contact is initiated sooner. For those traditional
credits which are perceived to be in the greatest risk category, the customer
contact time frame is initiated in as few as 5 days of delinquency. For higher
risk credits, collection procedures typically attempt to be more proactive.
Monthly billing statements, rather than coupon books, serve as a monthly
reminder to the customer of his or her upcoming payment obligation. Monthly
statements also serve as an early warning mechanism in the event the customer
has failed to notify the Servicer of an address change. Customer contact often
is initiated within the first day or two of delinquency.
Willingness to Adjust Contract Terms. For traditional credits, the
Servicer is generally willing to adjust contract terms by extending the contract
term and/or deferring monthly payments based upon a customer's circumstances.
Consistent with its customary servicing practices and procedures, with respect
to traditional credits, the Servicer or its designee may, in its discretion and
on a case-by-case basis, arrange with Obligors to extend or modify the terms of
the related Receivables. In addition to extensions granted in connection with
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special or seasonal programs, the Servicer generally permits an obligor on a
traditional credit who has met certain requirements to defer the full scheduled
amount of a loan payment on up to two occasions in any twelve month period. In
addition, the Servicer generally grants extensions or modifications on a
traditional credit in situations where the Servicer believes such action is
likely to maximize the amount collected. Extensions are not granted to forestall
an inevitable loss. Extensions and payment deferrals generally are not permitted
in the case of higher risk credits except in unusual cases.
Activation of Other Collection Remedies. For traditional credits, the
decision to repossess the collateral typically does not occur until
approximately 60 days of delinquency. For higher risk credits such decisions
generally occur between 15 and 45 days of delinquency.
Charge Off Policies. A delinquent traditional credit account typically
will be charged-off at the earlier of approximately 120 days of delinquency or
receipt of repossession proceeds. A delinquent higher risk credit account in the
Trust typically will be charged-off at the earlier of the time repossession
proceeds are received or 120 days of delinquency.
Regardless of the type of credit, any deficiency balance remaining
generally is pursued to the extent practicable and legally permitted.
PHYSICAL DAMAGE INSURANCE
The Primary Originator requires Obligors to obtain and maintain physical
damage insurance on each Financed Vehicle sufficient to cover the balance of the
Motor Vehicle Loan. In the event such insurance coverage is not maintained, the
Originator has the right, but is not obligated, to declare the Motor Vehicle
Loan to be in default. The Primary Originator will not force-place (i.e.,
purchase a policy and charge the Obligor for the amount of the premium) an
insurance policy to cover any Financed Vehicle. After the origination of a Motor
Vehicle Loan, the Originators do not directly verify coverage of insurance but
contract with an unaffiliated company to monitor insurance coverage on all
outstanding Motor Vehicle Loans.
DELINQUENCIES AND NET LOSSES
Certain information concerning the experience of the Servicer or the
applicable Originators pertaining to delinquencies and net losses with respect
to Motor Vehicle Loans will be set forth in the related Prospectus Supplement.
There can be no assurance that the delinquency and net loss experience on any
Receivables Pool will be comparable to prior experience or to such information.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
The weighted average life of the Notes, if any, and the Certificates of any
series will generally be influenced by the rate at which the principal balances
of the related Receivables are paid, which payment may be in the form of
scheduled amortization or prepayments. (For this purpose, the term "prepayments"
includes prepayments in full, partial prepayments, liquidations due to default,
as well as receipts of proceeds from physical damage, credit life and disability
insurance policies and certain other Receivables repurchased by the Seller or
the Servicer for administrative reasons but does not include Payaheads.) See
"Description of the Transfer and Servicing Agreements -- Accounts." All of the
Receivables are repayable at any time without penalty to the Obligor. The rate
of prepayment of automotive receivables is influenced by a variety of economic,
social and other factors, including decreases in the general level of prevailing
interest rates, the desire of the Obligor to purchase a new vehicle and the fact
that an Obligor generally may not sell or transfer the Financed Vehicle securing
a Receivable unless such Receivable is paid in full. In addition, under certain
circumstances, the Seller will be obligated to repurchase Receivables from a
given Trust pursuant to the related Transfer and Servicing Agreement as a result
of breaches of representations and warranties and the Servicer will be obligated
to purchase Receivables from such Trust pursuant to such Transfer and Servicing
Agreement as a result of breaches of certain covenants. Holders of Securities
should consider, in the case of Securities purchased at a discount, the risk
that a slower than anticipated rate of principal payments on the Receivables
could result in an actual yield that is less than the anticipated yield and, in
the case of Securities purchased at a premium, the risk that a faster than
anticipated rate of principal
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payments on the Receivables could result in an actual yield that is less than
the anticipated yield. See "Description of the Transfer and Servicing
Agreements -- Sale and Assignment of Receivables" and "-- Servicing Procedures."
See also "Description of the Transfer and Servicing Agreements -- Termination"
regarding the option of the Seller and Servicer to purchase the Receivables from
a given Trust, "-- Insolvency" regarding the sale of the Receivables owned by a
Trust that is not a grantor trust if an Insolvency Event with respect to the
Seller occurs and "Risk Factors -- Financial Institution Insolvency Risks"
regarding the right of the FDIC to prepay Securities in certain circumstances.
No prediction can be made as to the rate of prepayment on the Receivables.
The Servicer maintains limited records of the historical prepayment experience
of the Motor Vehicle Loans included in its portfolio and is not aware of any
publicly available industry statistics for the entire industry on an aggregate
basis that set forth principal prepayment experience for Motor Vehicle Loans
similar to the Receivables over an extended period of time.
In light of the above considerations, there can be no assurance as to the
amount of principal payments to be made on the Notes, if any, or the
Certificates of a given series on each Payment Date or Distribution Date, as
applicable, since such amount will depend, in part, on the amount of principal
collected on the related Receivables Pool during the applicable Collection
Period. Any reinvestment risks resulting from a faster or slower incidence of
prepayment of Receivables will be borne entirely by the Noteholders, if any, and
the Certificateholders of a given series. The related Prospectus Supplement may
set forth certain additional information with respect to the maturity and
prepayment considerations applicable to the particular Receivables Pool and the
related series of Securities.
Any extensions or modifications of Receivables which do not result in a
Servicer obligation to purchase such Receivables may increase the weighted
average life of the related Securities. Unless the Servicer repurchases the
affected Receivable, the Servicer will not be permitted voluntarily to (i) make
modifications to the Receivables that reduce the original rates of interest or
the aggregate principal amount of scheduled payments on the Receivables (ii)
grant any extension or modification if as a result the final scheduled payment
on a Receivable would fall after the related Final Scheduled Maturity Date or
(iii) amend or otherwise modify a Receivable in a Trust to be treated as a
grantor trust if such amendment or modification would result in a deemed
exchange of such Receivable under Section 1001 of the Code.
POOL FACTORS AND TRADING INFORMATION
The "Note Pool Factor" for each class of Notes will be a seven-digit
decimal which the Servicer will compute prior to each distribution with respect
to such class of Notes expressing the remaining outstanding principal balance of
such class of Notes, as of the applicable Payment Date (after giving effect to
payments to be made on such Payment Date), as a fraction of the initial
outstanding principal balance of such class of Notes. The "Certificate Pool
Factor" for each class of Certificates will be a seven-digit decimal which the
Servicer will compute prior to each distribution with respect to such class of
Certificates expressing the remaining Certificate Balance of such class of
Certificates, as of the applicable Distribution Date (after giving effect to
distributions to be made on such Distribution Date), as a fraction of the
initial Certificate Balance of such class of Certificates. Each Note Pool Factor
and each Certificate Pool Factor will initially be 1.0000000 and thereafter will
decline to reflect reductions in the outstanding principal balance of the
applicable class of Notes, or the reduction of the Certificate Balance of the
applicable class of Certificates, as the case may be. A Noteholder's portion of
the aggregate outstanding principal balance of the related class of Notes is the
product of (i) the original denomination of such Noteholder's Note and (ii) the
applicable Note Pool Factor. A Certificateholder's portion of the aggregate
outstanding Certificate Balance for the related class of Certificates is the
product of (i) the original denomination of such Certificateholder's Certificate
and (ii) the applicable Certificate Pool Factor.
The Noteholders, if any, and the Certificateholders will receive reports on
or about each Payment Date concerning payments received on the Receivables, the
Pool Balance (as such term is defined in the related Prospectus Supplement, the
"Pool Balance"), each Certificate Pool Factor or Note Pool Factor, as
applicable, and various other items of information, including amounts allocated
or distributed for such Payment Date. In addition, Securityholders of record
during any calendar year will be furnished information for tax reporting
purposes not
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later than the latest date permitted by law. See "Certain Information Regarding
the Securities -- Reports to Securityholders."
USE OF PROCEEDS
The net proceeds from the sale of the Securities of a given series will be
applied by the Seller or the applicable Trust (i) to the purchase of the
Receivables and/or repayment of any related Warehouse Financing, (ii) to make
the initial required deposit (if any) into any Reserve Account, (iii) to make
the deposit of the Pre-Funded Amount into the Pre-Funding Account, if any, and
(iv) such other uses as may be set forth in the related Prospectus Supplement.
The portion of the net proceeds paid to the Seller will be used to purchase the
Receivables from the Affiliates.
THE SELLER
The Seller is a wholly-owned subsidiary of KeyCorp, an Ohio financial
services holding company headquartered in Cleveland, Ohio ("KeyCorp"). The
Seller was incorporated in the State of Delaware on September 13, 1996. The
principal executive offices of the Seller are located at Key Tower, 127 Public
Square, Cleveland, Ohio 44114-1306 and its telephone number is (216) 689-3335.
The Seller has taken steps in structuring the transactions described herein
and in the Prospectus Supplement that are intended to ensure that the voluntary
or involuntary application for relief by KeyCorp under any Insolvency Laws will
not result in consolidation of the assets and liabilities of the Seller with
those of KeyCorp. These steps include the creation of the Seller as a separate,
limited-purpose subsidiary pursuant to a certificate of incorporation and bylaws
containing certain limitations (including restrictions on the nature of the
Seller's business and a restriction on the Seller's ability to commence a
voluntary case or proceeding under any Insolvency Law without the prior
unanimous affirmative vote of all of its directors). However, there can be no
assurance that the activities of the Seller would not result in a court's
concluding that the assets and liabilities of the Seller should be consolidated
with those of KeyCorp in a proceeding under any Insolvency Law. See "Risk
Factors -- Risk of Substantive Consolidation."
The Seller will warrant to the Trust in the applicable Transfer and
Servicing Agreement that the sale of the Receivables by the Seller to the
Trustee on behalf of the Trust is a valid sale of such Receivables. In addition,
the Seller, the Trustee and the Trust will treat the conveyance by the Seller of
the Receivables as a sale of the Receivables by the Seller to the Trustee on
behalf of the Trust and the Seller will take or cause to be taken all actions
that are required to perfect the Trustee's ownership in such Receivables. If the
Seller were to become a debtor in a bankruptcy case and a creditor or trustee in
bankruptcy of the Seller or the Seller itself were to take the position that the
sale of Receivables by the Seller to the Trust should instead be treated as a
pledge of the Receivables to secure a borrowing of the Seller, then delays in
payments of collections of the Receivables could occur or (should the court rule
in favor of any such trustee, debtor or creditor) reductions in the amount of
such payments could result. If the transfer of the Receivables by the Seller to
the Trustee on behalf of the Trust is treated as a pledge instead of a sale, a
tax or government lien on the property of the Seller arising before the transfer
of the Receivables to the Trustee on behalf of the Trust may have priority over
such Trustee's interest in the Receivables. If the conveyance by the Seller of
the Receivables is treated as a sale, the Receivables would not be part of the
Seller's bankruptcy estate and would not be available to the Seller's creditors.
THE BANK
Key Bank USA, National Association, a national banking association, is a
wholly-owned subsidiary of KeyCorp. The Bank is engaged in banking and related
activities, including providing automotive financing services to its customers
and to automotive dealers and their customers. The principal executive offices
of the Bank are located at Key Center, 127 Public Square, Cleveland, Ohio,
44114-1306 and its telephone number is (216) 689-6300.
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On April 1, 1998, the Bank became the successor to all of the assets and
liabilities of AutoFinance Group, Inc., formerly an Ohio corporation and
wholly-owned subsidiary of KeyCorp. The operations of AutoFinance Group, Inc.
have been continued as a separate business unit within the Bank, which business
unit is engaged primarily in the indirect financing (the purchase of retail
installment sales contracts from Dealers) of automotive purchases by individuals
who do not qualify for traditional credit financing. This market segment is
comprised of obligors who are deemed to be higher credit risks due to various
factors, including, among other things, the manner in which they have handled
previous credit, the absence or limited extent of their prior credit history, or
their limited financial resources.
DESCRIPTION OF THE NOTES
GENERAL
With respect to each Trust that issues Notes, one or more classes of Notes
of the related series will be issued pursuant to the terms of an Indenture, a
form of which has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The following summary describes the material
terms and provisions of the Indenture and Notes, but it does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the applicable Notes and Indenture.
Each class of Notes will initially be represented by one or more Notes, in
each case registered in the name of a nominee of DTC (together with any
successor depository selected by the Trust, the "Depository") except as set
forth below. See "Certain Information Regarding the Securities -- Definitive
Securities." Notes will be available for purchase in denominations specified in
the related Prospectus Supplement or, if not so specified, in denominations of
$1,000 and integral multiples thereof. Notes may be issued in book-entry form or
as Definitive Notes and if not otherwise specified in the related Prospectus
Supplement, will be issued in book-entry form only. As to Notes issued in
book-entry form, the Seller has been informed by DTC that DTC's nominee will be
Cede, unless another nominee is specified in the related Prospectus Supplement.
Accordingly, such nominee is expected to be the holder of record of the Notes of
each such class. Unless and until Definitive Notes are issued in replacement for
book-entry Notes under the limited circumstances described herein or in the
related Prospectus Supplement, no Note Owner will be entitled to receive a
physical certificate representing a Note. See "Certain Information Regarding the
Securities -- Definitive Securities." As to the Notes issued in book-entry form,
all references herein and in the related Prospectus Supplement to actions by
Noteholders refer to actions taken by DTC upon instructions from its
participating organizations (the "Participants") and all references herein and
in the related Prospectus Supplement to distributions, notices, reports and
statements to Noteholders refer to distributions, notices, reports and
statements to DTC or its nominee, as the registered holder of the Notes, for
distribution to Noteholders in accordance with DTC's procedures with respect
thereto. See "Certain Information Regarding the Securities -- Book-Entry
Registration" and "-- Definitive Securities."
PRINCIPAL AND INTEREST ON THE NOTES
The timing and priority of payment, seniority, Interest Rate and amount of
or method of determining payments of principal and interest on each class of
Notes of a given series will be described in the related Prospectus Supplement.
The right of holders of any class of Notes to receive payments of principal and
interest may be senior or subordinate to the rights of holders of any other
class or classes of Notes of such series, as described in the related Prospectus
Supplement. The dates for payments of interest and principal on the Notes of
such series may be different from the Distribution Dates for the Certificates of
such series. To the extent specified in the related Prospectus Supplement,
payments of interest on the Notes other than certain Strip Notes, if any, of
such series will be made prior to payments of principal thereon. To the extent
provided in the related Prospectus Supplement, a series may include one or more
classes of Strip Notes entitled to (i) principal payments with disproportionate,
nominal or no interest payments or (ii) interest payments with disproportionate,
nominal or no principal payments. Each class of Notes may have a different
Interest Rate, which may be a fixed, variable or adjustable Interest Rate (and
which may be zero for certain classes of Strip Notes), or any combination of the
foregoing. The related Prospectus Supplement will specify the Interest Rate for
each class of Notes of a given series or the method for determining such
Interest Rate. See also "Certain Information Regarding the
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Securities -- Fixed Rate Securities" and "-- Floating Rate Securities." One or
more classes of Notes of a series may be redeemable in whole or in part under
the circumstances specified in the related Prospectus Supplement, including at
the end of the Funding Period (if any) or as a result of the exercise by the
Seller or Servicer of its option to purchase the related Receivables Pool.
To the extent specified in the related Prospectus Supplement, payments to
Noteholders of all classes within a series in respect of interest will have the
same priority. Under certain circumstances, the amount available for such
payments could be less than the amount of interest payable on the Notes on any
of the dates specified for payments in the related Prospectus Supplement (each,
a "Payment Date", which may be the same date as each applicable Distribution
Date as specified in the related Prospectus Supplement), in which case each
class of Noteholders will receive its ratable share (based upon the aggregate
amount of interest due to such class of Noteholders) of the aggregate amount
available to be distributed in respect of interest on the Notes of such series.
See "Description of the Transfer and Servicing Agreements -- Distributions" and
"-- Credit and Cash Flow Enhancement."
In the case of a series of Notes which includes two or more classes of
Notes, the sequential order and priority of payment in respect of principal and
interest, and any schedule or formula or other provisions applicable to the
determination thereof, of each such class will be set forth in the related
Prospectus Supplement. Payments in respect of principal and interest of any
class of Notes will be made on a pro rata basis among all the Noteholders of
such class.
Fixed Payment Notes. To the extent specified in any Prospectus Supplement,
one or more classes of Notes of a given series may have fixed principal payment
schedules. Noteholders of such Notes would be entitled to receive as payments of
principal on any given Payment Date the applicable amounts set forth on such
schedule with respect to such Notes, in the manner and to the extent set forth
in the related Prospectus Supplement.
Short Term Asset Backed Notes. To the extent specified in any Prospectus
Supplement, one or more classes of Notes of a given series may be entitled to
receive principal payments prior to the receipt of principal payments by other
classes of Securities issued by the applicable Trust. If so provided in the
related Prospectus Supplement, such class or classes of Notes will have a final
scheduled maturity date of less than 397 days from the initial trade date
related thereto and such class or classes will have received a short-term rating
by a Rating Agency that is in one of the two highest short-term rating
categories. The failure to pay such a class of Notes on or prior to the related
Final Scheduled Maturity Date would constitute an event of default under the
related Indenture. In general, such class or classes of Notes will otherwise be
similar to Notes which are described in this Prospectus.
Planned Amortization Class. To the extent specified in any Prospectus
Supplement, one or more classes of Notes of a given series may be structured as
a planned amortization class ("PAC"). A PAC will be retired according to a
predetermined amortization schedule set forth in the related Prospectus
Supplement and structured to be substantially independent of the prepayment rate
on the Receivables. The timing of distributions in respect of the other classes
of Securities in the related series in some instances may be slowed down or
accelerated so that the PAC scheduled amortization may be met as provided in the
related Prospectus Supplement. The planned amortization for a PAC set forth in
the related Prospectus Supplement generally will require scheduled sinking fund
payments for the PAC on each Payment Date. Payments to the other classes of
Securities in the related series will be allocated as otherwise set forth in the
related Prospectus Supplement only after the scheduled sinking fund payments or
scheduled amortization payments to the PAC have been made.
Targeted Amortization Class. To the extent specified in any Prospectus
Supplement, one or more classes of Notes of a given series may be structured as
a targeted amortization class ("TAC"). Any TAC will be similar to a PAC, with
support classes providing protection against prepayment risks to the TAC.
However, a TAC will differ from a PAC in that it generally will not receive as
much protection against prepayments on the Receivables as a PAC. In particular,
a TAC will generally provide no protection against the risk of prepayments
occurring more slowly than the rate of prepayment assumed for structuring
purposes and generally will not be structured to permit expected cash flows from
non-TAC classes of Securities to be diverted to the TAC.
Companion Class. To the extent specified in any Prospectus Supplement, one
or more classes of Notes of a given series may be designed to receive principal
payments on a Payment Date only if principal payments have
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been made on a specified planned amortization class of Notes or targeted
amortization class of Notes, and to receive any excess payments over the amount
required to reduce the principal amount of the planned amortization class or
targeted amortization class to the planned or targeted balance for such Payment
Date.
THE INDENTURE
Modification of Indenture. With respect to each Trust that has issued
Notes pursuant to an Indenture, the Trust and the Indenture Trustee may, with
the consent of the holders of a majority of the outstanding Notes of the related
series, execute a supplemental indenture to add provisions to, change in any
manner or eliminate any provisions of, the related Indenture, or modify (except
as provided below) in any manner the rights of the related Noteholders.
With respect to the Notes of a given series, without the consent of the
holder of each outstanding Note affected thereby, no supplemental indenture
will: (i) change the due date of any installment of principal of or interest on
any such Note or reduce the principal amount thereof, the Interest Rate
specified thereon or the redemption price with respect thereto or change any
place of payment where or the coin or currency in which any such Note or any
interest thereon is payable; (ii) impair the right to institute suit for the
enforcement of certain provisions of the related Indenture regarding payment;
(iii) reduce the percentage of the aggregate amount of the outstanding Notes of
such series, the consent of the holders of which is required for any such
supplemental indenture or the consent of the holders of which is required for
any waiver of compliance with certain provisions of the related Indenture or of
certain defaults thereunder and their consequences as provided for in such
Indenture; (iv) modify or alter the provisions of the related Indenture
regarding the voting of Notes held by the applicable Trust, any other obligor on
such Notes, the Seller or an affiliate of any of them; (v) reduce the percentage
of the aggregate outstanding amount of such Notes, the consent of the holders of
which is required to direct the related Indenture Trustee to sell or liquidate
the Receivables; (vi) decrease the percentage of the aggregate principal amount
of such Notes required to amend the sections of the related Indenture which
specify the applicable percentage of aggregate principal amount of the Notes of
such series necessary to amend such Indenture or certain other related
agreements; or (vii) permit the creation of any lien ranking prior to or on a
parity with the lien of the related Indenture with respect to any of the
collateral for such Notes or, except as otherwise permitted or contemplated in
such Indenture, terminate the lien of such Indenture on any such collateral or
deprive the holder of any such Note of the security afforded by the lien of such
Indenture.
The Trust and the applicable Indenture Trustee may also enter into
supplemental indentures, without obtaining the consent of the Noteholders of the
related series, for the purpose of, among other things, adding any provisions to
or changing in any manner or eliminating any of the provisions of the related
Indenture or of modifying in any manner the rights of such Noteholders; provided
that such action will not adversely affect in any material respect the interest
of any such Noteholder, unless each Rating Agency then rating the Notes shall
have notified the Seller, the Servicer and the Indenture Trustee in writing that
such action will not result in a reduction or withdrawal of the rating of the
affected Notes of such series.
Events Of Default; Rights Upon Event of Default. With respect to the Notes
of a given series, "Events of Default" under the related Indenture will consist
of: (i) a default for five days or more in the payment of any interest on any
such Note; (ii) a default in the payment of the principal of or any installment
of the principal of any such Note when the same becomes due and payable; (iii) a
default in the observance or performance of any covenant or agreement of the
applicable Trust made in the related Indenture and the continuation of any such
default for a period of 30 days (or for such longer period, not in excess of 90
days, as may be reasonably necessary to remedy such default; provided that such
default is capable of remedy within 90 days or less and the Servicer on behalf
of the related Indenture Trustee delivers an officer's certificate to the
Trustee to the effect that such Trust has commenced, or will promptly commence
and diligently pursue, all reasonable efforts to remedy such default) after
notice thereof is given to such Trust by the applicable Indenture Trustee or to
such Trust and such Indenture Trustee by the holders of at least 25% in
principal amount of such Notes then outstanding; (iv) any representation or
warranty made by such Trust in the related Indenture or in any certificate
delivered pursuant thereto or in connection therewith having been incorrect in a
material respect as of the time made, and such breach not having been cured
within 30 days (or for such longer period, not in excess of 90 days, as may be
reasonably necessary to remedy such default; provided that such default is
capable of remedy within 90 days or
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less and the Servicer on behalf of the related Indenture Trustee delivers an
officer's certificate to the related Indenture Trustee to the effect that such
Trust has commenced, or will promptly commence and diligently pursue, all
reasonable efforts to remedy such default) after notice thereof is given to such
Trust by the applicable Indenture Trustee or to such Trust and such Indenture
Trustee by the holders of at least 25% in principal amount of such Notes then
outstanding; or (v) certain events of bankruptcy, insolvency, receivership or
liquidation of the applicable Trust or the Seller. However, the amount of
principal required to be paid to Noteholders of such series under the related
Indenture will generally be limited to amounts available to be deposited in the
applicable Note Distribution Account. Therefore, the failure to pay principal on
a class of Notes generally will not result in the occurrence of an Event of
Default until the final scheduled Payment Date for such class of Notes.
If an Event of Default should occur and be continuing with respect to the
Notes of any series, the related Indenture Trustee or holders of a majority in
principal amount of such Notes then outstanding may declare the principal of
such Notes to be immediately due and payable. Such declaration may, under
certain circumstances, be rescinded by the holders of a percentage of the
principal amount of Notes then outstanding specified in the related Prospectus
Supplement and, if not so specified, may be rescinded by the holder of a
majority in principal amount of such Notes then outstanding.
If the Notes of any series are due and payable following an Event of
Default with respect thereto, the related Indenture Trustee may institute
proceedings to collect amounts due or foreclose on Trust property, exercise
remedies as a secured party, sell the related Receivables or elect to have the
applicable Trust maintain possession of such Receivables and continue to apply
collections on such Receivables as if there had been no declaration of
acceleration. Such Indenture Trustee is prohibited from selling the related
Receivables following an Event of Default, other than a default in the payment
of any principal of or a default for five days or more in the payment of any
interest on any Note of such series, unless (i) the holders of all such
outstanding Notes consent to such sale, (ii) the proceeds of such sale are
sufficient to pay in full the principal of and the accrued interest on such
outstanding Notes on the date of such sale, or (iii) such Indenture Trustee
determines that the proceeds of Receivables would not be sufficient on an
ongoing basis to make all payments on such Notes as such payments would have
become due if such obligations had not been declared due and payable, and such
Indenture Trustee obtains the consent of the holders of 66 2/3% of the aggregate
outstanding amount of such Notes.
If an Event of Default occurs and is continuing with respect to a series of
Notes, such Indenture Trustee will be under no obligation to exercise any of the
rights or powers under such Indenture at the request or direction of any of the
holders of such Notes, if such Indenture Trustee believes it will not be
adequately indemnified against the costs, expenses and liabilities which might
be incurred by it in complying with such request or direction. Subject to the
provisions for indemnification and certain limitations contained in the related
Indenture, the holders of a majority in principal amount of the outstanding
Notes of a given series will have the right to direct the time, method and place
of conducting any proceeding or any remedy available to the applicable Indenture
Trustee, and the holders of a majority in principal amount of such Notes then
outstanding may, in certain cases, waive any default with respect thereto,
except a default in the payment of principal or interest or a default in respect
of a covenant or provision of such Indenture that cannot be modified without the
waiver or consent of all the holders of such outstanding Notes.
No holder of a Note of any series will have the right to institute any
proceeding with respect to the related Indenture, unless (i) such holder
previously has given to the applicable Indenture Trustee written notice of a
continuing Event of Default, (ii) the holders of not less than 25% in principal
amount of the outstanding Notes of such series have made written request to such
Indenture Trustee to institute such proceeding in its own name as Indenture
Trustee, (iii) such holder or holders have offered such Indenture Trustee
satisfactory indemnity, (iv) such Indenture Trustee has for 60 days failed to
institute such proceeding, and (v) no direction inconsistent with such written
request has been given to such Indenture Trustee during such 60-day period by
the holders of a majority in principal amount of such outstanding Notes.
With respect to any Trust, neither the related Indenture Trustee nor the
related Trustee in its individual capacity, nor any holder of a Certificate
representing an ownership interest in such Trust nor any of their respective
owners, beneficiaries, agents, officers, directors, employees, affiliates,
successors or assigns will, in the
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absence of an express agreement to the contrary, be personally liable for the
payment of the principal of or interest on the related Notes or for the
agreements of such Trust contained in the applicable Indenture.
CERTAIN COVENANTS
Each Indenture will provide that the related Trust may not consolidate with
or merge into any other entity, unless (i) the entity formed by or surviving
such consolidation or merger is organized under the laws of the United States or
any state, (ii) such entity expressly assumes such Trust's obligation to make
due and punctual payments upon the Notes of the related series and the
performance or observance of every agreement and covenant of such Trust under
the Indenture, (iii) no Event of Default shall have occurred and be continuing
immediately after such merger or consolidation, (iv) such Trust has been advised
that the rating of the Notes or the Certificates of such series then in effect
would not be reduced or withdrawn by the Rating Agencies as a result of such
merger or consolidation, (v) such Trust has received an opinion of counsel to
the effect that such consolidation or merger would have no material adverse tax
consequence to the Trust or to any related Noteholder or Certificateholder, and
(vi) any action necessary to maintain the lien and security interest under the
Indenture has been taken.
Each Trust will not, among other things, (i) except as expressly permitted
by the applicable Indenture, the applicable Transfer and Servicing Agreements or
certain related documents with respect to such Trust (collectively, the "Related
Documents"), sell, transfer, exchange or otherwise dispose of any of the assets
of such Trust, (ii) claim any credit on or make any deduction from the principal
and interest payable in respect of the Notes of the related series (other than
amounts withheld under the Code or applicable state law) or assert any claim
against any present or former holder of such Notes because of the payment of
taxes levied or assessed upon such Trust, (iii) permit the validity or
effectiveness of the related Indenture to be impaired or permit any person to be
released from any covenants or obligations with respect to such Notes under such
Indenture except as may be expressly permitted thereby, (iv) permit any lien,
charge, excise, claim, security interest, mortgage or other encumbrance (other
than certain liens that arise by operation of law) to be created on or extend to
or otherwise arise upon or burden the assets of such Trust or any part thereof,
or any interest therein or the proceeds thereof, or (v) permit the lien of the
related Indenture not to constitute a valid first priority (other than certain
liens that arise by operation of law) security interest in the assets of such
Trust.
No Trust may engage in any activity other than as specified under the
section of the related Prospectus Supplement entitled "The Trust." No Trust will
incur, assume or guarantee any indebtedness other than indebtedness incurred
pursuant to the related Notes and the related Indenture or otherwise in
accordance with the Related Documents.
Annual Compliance Statement. Each Trust will be required to file annually
with the related Indenture Trustee a written statement as to the fulfillment of
its obligations under the Indenture.
Indenture Trustee's Annual Report. The Indenture Trustee for each Trust
will be required to mail each year to all related Noteholders a brief report
relating to its eligibility and qualification to continue as Indenture Trustee
under the related Indenture, any amounts advanced by it under the Indenture, the
amount, interest rate and maturity date of certain indebtedness owing by such
Trust to the applicable Indenture Trustee in its individual capacity, the
property and funds physically held by such Indenture Trustee as such and any
action taken by it that materially affects the related Notes and that has not
been previously reported.
Satisfaction and Discharge of Indenture. An Indenture will be discharged
with respect to the collateral securing the related Notes upon the delivery to
the related Indenture Trustee for cancellation of all such Notes or, with
certain limitations, upon deposit with such Indenture Trustee of funds
sufficient for the payment in full of all such Notes.
THE INDENTURE TRUSTEE
The Indenture Trustee for a series of Notes will be specified in the
related Prospectus Supplement. The Indenture Trustee for any series may resign
at any time, in which event the Issuer will be obligated to appoint a successor
trustee for such series. The Issuer may also remove any such Indenture Trustee
if such Indenture Trustee ceases to be eligible to continue as such under the
related Indenture or if such Indenture Trustee becomes
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insolvent. In such circumstances, the Issuer will be obligated to appoint a
successor trustee for the applicable series of Notes. Any resignation or removal
of the Indenture Trustee and appointment of a successor trustee for any series
of Notes does not become effective until acceptance of the appointment by the
successor trustee for such series.
DESCRIPTION OF THE CERTIFICATES
GENERAL
With respect to each Trust, one or more classes of Certificates of the
related series will be issued pursuant to the terms of a Trust Agreement or a
Pooling and Servicing Agreement, a form of each of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part. The
following summary does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the
Certificates and the Trust Agreement or Pooling and Servicing Agreement, as
applicable.
Except for the Certificates, if any, of a given series purchased by the
Seller, each class of Certificates will initially be represented by one or more
Certificates registered in the name of the Depository, except as set forth
below. See "Certain Information Regarding the Securities -- Definitive
Securities." Except for the Certificates, if any, of a given series purchased by
the Seller, the Certificates will be available for purchase in minimum
denominations specified in the related Prospectus Supplement, or if not so
specified, in denominations of $1,000 and integral multiples of $1,000 in excess
thereof. Certificates may be issued in book-entry form or as Definitive
Certificates and if not otherwise specified in the related Prospectus Supplement
will be available in book-entry form only. As to the Certificates issued in
book-entry form, the Seller has been informed by DTC that DTC's nominee will be
Cede, unless another nominee is specified in the related Prospectus Supplement.
Accordingly, such nominee is expected to be the holder of record of the
Certificates of any series that are not purchased by the Seller. Unless and
until Definitive Certificates are issued in replacement for book-entry
Certificates under the limited circumstances described herein or in the related
Prospectus Supplement, no Certificate Owner (other than the Seller) will be
entitled to receive a physical certificate representing a Certificate. See
"Certain Information Regarding the Securities -- Definitive Securities." As to
Certificates issued in book-entry form, all references herein and in the related
Prospectus Supplement to actions by Certificateholders refer to actions taken by
DTC upon instructions from the Participants and all references herein and in the
related Prospectus Supplement to distributions, notices, reports and statements
to Certificateholders refer to distributions, notices, reports and statements to
DTC or its nominee, as the case may be, as the registered holder of the
Certificates, for distribution to Certificateholders in accordance with DTC's
procedures with respect thereto. See "Certain Information Regarding the
Securities -- Book-Entry Registration" and " -- Definitive Securities." Any
Certificates of such series owned by the Seller or its affiliates will be
entitled to equal and proportionate benefits under the applicable Trust
Agreement, except that such Certificates will be deemed not to be outstanding
for the purpose of determining whether the requisite percentage of
Certificateholders have given any request, demand, authorization, direction,
notice, consent or other action under the Related Documents (other than the
commencement by the related Trust of a voluntary proceeding in bankruptcy as
described under "Description of the Transfer and Servicing
Agreements -- Insolvency").
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
The timing and priority of distributions, seniority, allocations of losses,
Certificate Rate and amount of or method of determining distributions with
respect to principal and interest of each class of Certificates will be
described in the related Prospectus Supplement. Distributions of interest on
such Certificates other than certain Strip Certificates will be made on the
dates specified in the related Prospectus Supplement (each, a "Distribution
Date") and will be made prior to distributions with respect to principal of such
Certificates. To the extent provided in the related Prospectus Supplement, a
series may include one or more classes of Strip Certificates entitled to (i)
distributions in respect of principal with disproportionate, nominal or no
interest distributions, or (ii) interest distributions with disproportionate,
nominal or no distributions in respect of principal. Each class of Certificates
may have a different Certificate Rate, which may be a fixed, variable or
adjustable Certificate Rate (and which may be zero for certain classes of Strip
Certificates) or any combination of the foregoing. The related Prospectus
Supplement will specify the Certificate Rate for each class of Certificates of a
given series or the method for determining such Certificate Rate. See also
"Certain Information Regarding the Securities -- Fixed
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Rate Securities" and " -- Floating Rate Securities." If a series of Securities
includes classes of Notes, such Notes and Certificates will be issued by the
same Trust and payable from the same Trust property, to the extent specified in
the related Prospectus Supplement, distributions in respect of the Certificates
of such series will be subordinate to payments in respect of the Notes of such
series as more fully described in the related Prospectus Supplement.
Distributions in respect of interest on and principal of any class of
Certificates will be made on a pro rata basis among all the Certificateholders
of such class.
In the case of a series of Certificates which includes two or more classes
of Certificates, the timing, sequential order, priority of payment or amount of
distributions in respect of interest and principal, and any schedule or formula
or other provisions applicable to the determination thereof, of each such class
shall be as set forth in the related Prospectus Supplement.
CERTAIN INFORMATION REGARDING THE SECURITIES
FIXED RATE SECURITIES
Each class of Securities (other than certain classes of Strip Notes or
Strip Certificates) may bear interest at a fixed rate per annum ("Fixed Rate
Securities") or at a variable or adjustable rate per annum ("Floating Rate
Securities"), as more fully described below and in the related Prospectus
Supplement. Each class of Fixed Rate Securities will bear interest at the
applicable per annum Interest Rate or Certificate Rate, as the case may be,
specified in the related Prospectus Supplement. Interest on each class of Fixed
Rate Securities will be computed on the basis of a 360-day year of twelve 30-day
months or on such other day count basis as is specified in the applicable
Prospectus Supplement. See "Description of the Notes -- Principal and Interest
on the Notes" and "Description of the Certificates -- Distributions of Principal
and Interest."
FLOATING RATE SECURITIES
Each class of Floating Rate Securities will bear interest for each
applicable Interest Reset Period (as such term is defined in the related
Prospectus Supplement with respect to a class of Floating Rate Securities,
"Interest Reset Period") at a rate per annum determined by reference to an
interest rate basis (the "Base Rate"), plus or minus the Spread, if any, or
multiplied by the Spread Multiplier, if any, in each case as specified in the
related Prospectus Supplement. The "Spread" is the number of basis points (one
basis point equals an one-hundredth of a percentage point) that may be specified
in the applicable Prospectus Supplement as being applicable to such class, and
the "Spread Multiplier" is the percentage that may be specified in the
applicable Prospectus Supplement as being applicable to such class.
The applicable Prospectus Supplement will designate a Base Rate for a given
Floating Rate Security based on the London interbank offered rate ("LIBOR"),
commercial paper rates, Federal funds rates, U.S. Government treasury securities
rates, negotiable certificates of deposit rates or another rate as set forth in
such Prospectus Supplement.
As specified in the applicable Prospectus Supplement, Floating Rate
Securities of a given class may also have either or both of the following (in
each case expressed as a rate per annum): (i) a maximum limitation, or ceiling,
on the rate at which interest may accrue during any interest period and (ii) a
minimum limitation, or floor, on the rate at which interest may accrue during
any interest period. In addition to any maximum interest rate that may be
applicable to any class of Floating Rate Securities, the interest rate
applicable to any class of Floating Rate Securities will in no event be higher
than the maximum rate permitted by applicable law, as the same may be modified
by United States law of general application.
Each Trust with respect to which a class of Floating Rate Securities will
be issued will appoint, and enter into agreements with, a calculation agent
(each, a "Calculation Agent") to calculate interest rates on each such class of
Floating Rate Securities issued with respect thereto. The applicable Prospectus
Supplement will set forth the identity of the Calculation Agent for each such
class of Floating Rate Securities of a given series, which may be either the
Trustee or Indenture Trustee with respect to such series. All determinations of
interest by the Calculation Agent shall, in the absence of manifest error, be
conclusive for all purposes and binding on the holders of Floating Rate
Securities of a given class. All percentages resulting from any calculation of
the rate of interest on a Floating Rate Security will be rounded, if necessary,
in the manner specified in the related
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Prospectus Supplement or, if not so specified to the nearest 1/100,000 of 1%
(.0000001), with five one-millionths of a percentage point rounded upward.
BOOK-ENTRY REGISTRATION
With respect to each class of Securities of a given series issued in
book-entry form, Securityholders may hold their Securities through DTC (in the
United States) or Cedel or Euroclear (in Europe) if they are participants of
such systems, or indirectly through organizations that are participants in such
systems. DTC's Nominee will hold the global Securities. 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 "Depositaries") which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
For additional information regarding clearance and settlement procedures see
Annex I hereto.
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 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 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 Securities under the DTC system must be made by or through DTC
Participants, which will receive a credit for the Securities on DTC's records.
The ownership interest of each actual Security Owner is in turn to be recorded
on the DTC Participants' and Indirect Participants' records. Security Owners
will not receive written confirmation from DTC of their purchase, but Security
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 Security Owner entered
into the transaction. Transfers of
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ownership interests in the Securities are to be accomplished by entries made on
the books of DTC Participants acting on behalf of Security Owners. Security
Owners will not receive certificates representing their ownership interest in
Securities, except in the event that use of the book-entry system for the
Securities is discontinued. Except to the extent Seller holds Certificates with
respect to any series of Securities, it is anticipated that the only
"Securityholder", "Noteholder" and "Certificateholder" will be DTC's Nominee.
Note Owners will not be recognized by each Indenture Trustee as Noteholders, as
such term is used in each Indenture, and Note Owners will be permitted to
exercise the rights of Noteholders only indirectly through DTC and DTC
Participants. Similarly, Certificate Owners will not be recognized by each
Trustee as Certificateholders as such term is used in each Trust Agreement or
Pooling and Servicing Agreement, and Certificate Owners will be permitted to
exercise the rights of Certificateholders only indirectly through DTC and DTC
Participants.
To facilitate subsequent transfers, all Securities deposited by DTC
Participants with DTC are registered in the name of DTC's Nominee. The deposit
of Securities with DTC and their registration in the name of DTC's Nominee
effects no change in beneficial ownership. DTC has no knowledge of the actual
Security Owners of the Securities; DTC's records reflect only the identity of
the DTC Participants to whose accounts such Securities are credited, which may
or may not be the Security 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 Security 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 DTC's Nominee will consent or vote with respect to
Securities. Under its usual procedures, DTC mails an omnibus proxy to the issuer
as soon as possible after the record date, which assigns DTC's Nominees's
consenting or voting rights to those DTC Participants to whose accounts the
Securities are credited on the record date (identified in a listing attached
thereto).
Principal and interest payments on the Securities will be made to DTC.
DTC's practice is to credit 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 Security 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 related Indenture Trustee or the related Trustee, as applicable (the
"Applicable Trustee") or the Seller, 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 Applicable Trustee, disbursement of
such payments to DTC Participants shall be the responsibility of DTC, and
disbursement of such payments to Security Owners shall be the responsibility of
DTC Participants and Indirect Participants. Under a book-entry format,
Securityholders may experience some delay in their receipt of payments, since
such payments will be forwarded by the Applicable Trustee to DTC's Nominee. DTC
will forward such payments to DTC Participants which thereafter will forward
them to Indirect Participants or Security Owners.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons or entities that do not
participate in the DTC system, or otherwise take actions with respect to such
Securities, may be limited due to the lack of a physical certificate for such
Securities.
DTC has advised the Seller that it will take any action permitted to be
taken by a Noteholder under the related Indenture or a Certificateholder under
the related Trust Agreement or Pooling and Servicing Agreement only at the
direction of one or more DTC Participants to whose accounts with DTC the
applicable Notes or Certificates are credited. DTC may take conflicting actions
with respect to other undivided interests to the extent that such actions are
taken on behalf of Participants whose holdings include such undivided interests.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Seller believes to be reliable, but the
Seller takes no responsibility for the accuracy thereof.
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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 Securities. 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 Securities. 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 Securities 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 "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
Securityholder under a related 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 Securities 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. Under such
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circumstances, in the event that a successor securities depository for DTC is
not obtained, Definitive Securities are required to be printed and delivered.
The Seller may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor securities depository). In that event, Definitive
Securities will be delivered to Securityholders. See " -- Definitive
Securities."
NONE OF THE TRUST, THE SELLER, THE BANK, THE SERVICER, ANY SUBSERVICER, ANY
APPLICABLE TRUSTEE NOR ANY OF THE UNDERWRITERS WILL HAVE ANY RESPONSIBILITY OR
OBLIGATION TO ANY DTC PARTICIPANTS, CEDEL PARTICIPANTS OR EUROCLEAR PARTICIPANTS
OR THE PERSONS FOR WHOM THEY ACT AS NOMINEES WITH RESPECT TO (1) THE ACCURACY OF
ANY RECORDS MAINTAINED BY DTC, CEDEL, EUROCLEAR OR ANY PARTICIPANT, (2) THE
PAYMENT BY DTC, CEDEL, EUROCLEAR OR ANY PARTICIPANT OF ANY AMOUNT DUE TO ANY
SECURITY OWNER IN RESPECT OF THE PRINCIPAL BALANCE OF, OR INTEREST ON, THE
SECURITIES, (3) THE DELIVERY BY ANY DTC PARTICIPANT, CEDEL PARTICIPANT OR
EUROCLEAR PARTICIPANT OF ANY NOTICE TO ANY SECURITY OWNER WHICH IS REQUIRED OR
PERMITTED UNDER THE TERMS OF THE APPLICABLE AGREEMENTS TO BE GIVEN TO
SECURITYHOLDERS OR (4) ANY OTHER ACTION TAKEN BY DTC OR DTC'S NOMINEE AS THE
SECURITYHOLDER.
DEFINITIVE SECURITIES
With respect to any series of Notes and any series of Certificates issued
in book-entry form, such Notes or Certificates will be issued in fully
registered, certificated form ("Definitive Notes" and "Definitive Certificates",
respectively, and collectively referred to herein as "Definitive Securities") to
Noteholders or Certificateholders or their respective nominees, rather than to
DTC or its nominee, if the related Prospectus Supplement so provides with
respect to the initial issuance of any such Securities thereunder and, if the
related Prospectus Supplement does not so provide, only if (i) Seller advises
the related Trustee that DTC is no longer willing or able to discharge properly
its responsibilities as depository with respect to such Securities and such
Trustee is unable to locate a qualified successor, (ii) the Seller at its
option, advises the related Trustee that it elects to terminate the book-entry
system through DTC, or (iii) after the occurrence of an Event of Default or a
Servicer Termination Event with respect to such Securities, holders representing
at least a majority of the outstanding principal amount of the Notes or the
Certificates, as the case may be, of such series advise the Applicable Trustee
and DTC through its Participants in writing that the continuation of a
book-entry system through DTC (or a successor thereto) with respect to such
Notes or Certificates is no longer in the best interest of the holders of such
Securities.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Applicable Trustee will be required to notify all applicable
Security Owners of a given series through Participants of the availability of
Definitive Securities. Upon surrender by DTC of the definitive certificates
representing the corresponding Securities and receipt of instructions for
re-registration, the Applicable Trustee will reissue such Securities as
Definitive Securities to such Securityholders.
Distributions of principal of, and interest on, Definitive Securities will
be made by the Applicable Trustee in accordance with the procedures set forth in
the related Indenture or the related Trust Agreement or Pooling and Servicing
Agreement, as applicable, directly to holders of Definitive Securities in whose
names the Definitive Securities were registered at the close of business on the
applicable record date specified for such Securities in the related Prospectus
Supplement. Such distributions will be made by check mailed to the address of
such holder as it appears on the register maintained by the Applicable Trustee.
The final payment on any such Definitive Security, however, will be made only
upon presentation and surrender of such Definitive Security at the office or
agency specified in the notice of final distribution to the applicable
Securityholders.
Definitive Securities will be transferable and exchangeable at the offices
of the Applicable Trustee or of a registrar named in a notice delivered to
holders of Definitive Securities. No service charge will be imposed for any
registration of transfer or exchange, but the Applicable Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
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LIST OF SECURITYHOLDERS
Three or more holders of the Notes of a given series or one or more holders
of such Notes evidencing not less than 25% of the aggregate outstanding
principal balance of such Notes may, by written request to the related Indenture
Trustee, obtain access to the list of all Noteholders of such series maintained
by such Indenture Trustee for the purpose of communicating with other
Noteholders with respect to their rights under the related Indenture or under
such Notes. Unless Definitive Notes have been issued, the only "Noteholder"
appearing on the list maintained by the related Indenture Trustee will be Cede,
as nominee for DTC. In such circumstances, any Note Owner wishing to communicate
with other Note Owners will not be able to identify those Note Owners through
the Indenture Trustee and instead will have to attempt to identify them through
DTC and its Participants or such other means as such Note Owner may find
available.
Three or more holders of the Certificates of a given series or one or more
holders of such Certificates evidencing not less than 25% of the Certificate
Balance of such Certificates may, by written request to the related Trustee,
obtain access to the list of all Certificateholders of such series maintained by
such Trustee for the purpose of communicating with other Certificateholders with
respect to their rights under the related Trust Agreement or Pooling and
Servicing Agreement or under such Certificates. Unless Definitive Certificates
have been issued, the only "Certificateholder" appearing on the list maintained
by the related Trustee will be Cede, as nominee for DTC. In such circumstances,
any Certificate Owner wishing to communicate with other Certificate Owners will
not be able to identify those Certificate Owners through the Trustee and instead
will have to attempt to identify them through DTC and its Participants or such
other means as such Certificate Owner may find available.
REPORTS TO SECURITYHOLDERS
With respect to each series of Securities, on or prior to each Payment Date
or Distribution Date, as applicable, the Servicer will prepare and provide to
the related Trustee a statement to be delivered to the related Securityholders.
With respect to each series of Securities, each such statement to be delivered
to Noteholders will include (to the extent applicable) the following information
(and any other information so specified in the related Prospectus Supplement) as
to the Notes of such series with respect to such Payment Date or the period
since the previous Payment Date, as applicable, and each such statement to be
delivered to Certificateholders will include (to the extent applicable) the
following information (and any other information so specified in the related
Prospectus Supplement) as to the Certificates of such series with respect to
such Distribution Date or the period since the previous Distribution Date, as
applicable:
(i) the amount of the distribution allocable to principal of each
class of such Notes and to the Certificate Balance of each class of such
Certificates;
(ii) the amount of the distribution allocable to interest on or with
respect to each class of Securities of such series;
(iii) the amount of the distribution allocable to draws from the
Reserve Account (if any), any Yield Supplement Account or payments in
respect of any other credit or cash flow enhancement arrangement;
(iv) the Pool Balance as of the close of business on the last day of
the preceding Collection Period;
(v) the aggregate outstanding principal balance and the Note Pool
Factor for each class of such Notes, and the Certificate Balance and the
Certificate Pool Factor for each class of such Certificates, each after
giving effect to all payments reported under clause (i) above on such date;
(vi) the amount of the Servicing Fee paid to the Servicer with
respect to the related Collection Period or Collection Periods, as the case
may be;
(vii) the Interest Rate or Certificate Rate for the next period for
any class of Notes or Certificates of such series with variable or
adjustable rates;
(viii) the amount of the aggregate Realized Losses, if any, for the
preceding Collection Period;
(ix) the Noteholders' Interest Carryover Shortfall, the Noteholders'
Principal Carryover Shortfall, the Certificateholders' Interest Carryover
Shortfall and the Certificateholders' Principal Carryover Shortfall
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(each as defined in the related Prospectus Supplement), if any, in each
case as applicable to each class of Securities, and the change in such
amounts from the preceding statement;
(x) the aggregate Purchase Amounts for Receivables, if any, that
were repurchased in such Collection Period;
(xi) the balance of any Yield Supplement Account or the Reserve
Account (if any) on such date, after giving effect to changes therein on
such date;
(xii) for each such date during the Funding Period (if any), the
remaining Pre-Funded Amount;
(xiii) for the first such date that is on or immediately following the
end of the Funding Period (if any), the amount of any remaining Pre-Funded
Amount that has not been used to fund the purchase of Subsequent
Receivables and is being passed through as payments of principal on the
Securities of such series;
(xiv) to the extent provided in the related Prospectus Supplement,
the amount of advances made by the Servicer, if any, on such date;
(xv) the number, and aggregate principal amount outstanding, of
Receivables past due 31-60, 61-90 and over 90 days; and
(xvi) such other information as may be specified in the related
Prospectus Supplement.
Each amount set forth pursuant to subclauses (i), (ii), (vi) and (ix) with
respect to the Notes or the Certificates of any series will be expressed as a
dollar amount per $1,000 of the initial principal balance of such Notes or the
initial Certificate Balance of such Certificates, as applicable.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of each Trust, the Applicable Trustee
will mail to each person who at any time during such calendar year has been a
Securityholder with respect to such Trust and received any payment thereon a
statement containing certain information for the purposes of such
Securityholder's preparation of federal income tax returns. See "Federal Income
Tax Consequences."
FUNDING PERIOD OR REVOLVING PERIOD
If specified in the related Prospectus Supplement, during a Funding Period
and/or Revolving Period, the Pre-Funding Account and/or Revolving Account will
be maintained as a trust account in the name of the Applicable Trustee. The
Pre-Funded Amount will initially equal the amount specified in the related
Prospectus Supplement, which may be up to 40% of the aggregate principal amount
of the series of Securities offered thereunder. During the Funding Period, the
Pre-Funded Amount will be reduced by the amount thereof used to purchase
Subsequent Receivables in accordance with the applicable Transfer and Servicing
Agreement and the amounts thereof deposited in the Reserve Account in connection
with the purchase of such Subsequent Receivables.
Prior to being used to purchase Subsequent Receivables or paid to the
Noteholders and Certificateholders, the Pre-Funded Amount and amounts on deposit
in the Revolving Account will be invested from time to time in Permitted
Investments. See "Description of the Transfer and Servicing
Agreements -- Accounts."
If specified in the related Prospectus Supplement for a Trust that issues
Notes, during a Revolving Period, the Applicable Trustee will deposit in the
related Revolving Account the principal collections on the related Receivables
as described above. In addition, on each Distribution Date or Payment Date, as
applicable during the Revolving Period, the applicable Trustee will deposit in
the related Revolving Account any other amount described in the related
Prospectus Supplement. Funds on deposit in a Revolving Account will be withdrawn
from time to time during the related Revolving Period for delivery to the Seller
in exchange for the transfer and assignment of Subsequent Receivables to the
related Trust in the manner specified in the related Prospectus Supplement. In
addition, on the Distribution Date or Payment Date, as applicable following the
end of the related Revolving Period, the Applicable Trustee will transfer the
amount, if any, on deposit in the related Revolving Account at the close of
business on the last day of such Revolving Period, less any investment earnings
on deposit therein, to the related Collection Account for distribution to the
related Securityholders on such Distribution Date or Payment Date. In addition,
on each Distribution Date or Payment Date, as applicable during the related
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Revolving Period, the Applicable Trustee will transfer to the related Collection
Account for distribution to the related Securityholders on such Distribution
Date or Payment Date the amount, if any, by which the amount on deposit in the
related Revolving Account at the close of business on the last day of the
preceding calendar month, less any investment earnings on deposit therein,
exceeds the maximum permitted Revolving Account balance specified in the related
Prospectus Supplement.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes the material terms of each Sale and
Servicing Agreement or Pooling and Servicing Agreement pursuant to which a Trust
will purchase Receivables from the Seller and the Servicer will agree to service
such Receivables and each Trust Agreement (in the case of a grantor trust, the
Pooling and Servicing Agreement) pursuant to which a Trust will be created and
Certificates will be issued and pursuant to which the Trustee will undertake
certain administrative duties with respect to a Trust that issues Notes. Forms
of each type of the Transfer and Servicing Agreements and the Trust Agreement
have been filed as exhibits to the Registration Statement of which this
Prospectus forms a part. This summary does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all the provisions of
the Transfer and Servicing Agreements and the Trust Agreement.
SALE AND ASSIGNMENT OF RECEIVABLES
Prior to or at the time of issuance of the Securities of a given Trust,
pursuant to a related Purchase Agreement, each Originator will sell and assign
to the Seller, without recourse, its entire interest in the Initial Receivables,
if any, of the related Receivables Pool, including its security interests in the
related Financed Vehicles. The Seller will, if so specified in the related
Prospectus Supplement, transfer and assign to the Applicable Trustee, without
recourse, pursuant to a Transfer and Servicing Agreement, its entire interest in
the Initial Receivables, if any, of the related Receivables Pool, including its
security interests in the related Financed Vehicles. The Trustee will not
independently verify the existence and qualification of any Receivables. The
Trustee will, concurrently with such sale and assignment, execute, authenticate,
and deliver the related Notes and/or Certificates to the Seller in exchange for
the Receivables. Each such Receivable will be identified in a schedule delivered
pursuant to such Transfer and Servicing Agreement (a "Schedule of Receivables").
The net proceeds received by the Seller from the sale of the Certificates and
the Notes of a given series will be applied to the purchase of the related
Receivables from each Originator and, to the extent specified in the related
Prospectus Supplement, to the repayment of any Warehouse Financing or deposit of
the Pre-Funded Amount into the Pre-Funding Account and to make any required
initial deposit in any Reserve Account. The related Prospectus Supplement for a
given Trust will specify whether, and the terms, conditions and manner under
which, Subsequent Receivables will be sold by the Seller to the applicable Trust
from time to time during any Funding Period on each date specified as a transfer
date in the related Prospectus Supplement (each, a "Subsequent Transfer Date").
The purchase price for the Receivables purchased by the Trust from the
Seller and by the Seller from any Originator may be more or less than the
aggregate principal balance thereof. If any Receivables are purchased for a
purchase price less than their respective principal balances, a portion of the
collections or proceeds in respect of principal from such Receivables may be
deemed collections or proceeds in respect of interest on such Receivables for
the purposes of allocating distributions on the Securities.
If so specified in the related Prospectus Supplement, a Trust may acquire
Initial Receivables pursuant to Warehouse Financing arrangements entered into
prior to the issuance by that Trust of any Securities offered hereby. It will be
a condition to the issuance of Securities by any such Trust that any Warehouse
Financing be repaid in full, and any related security interests released, at or
prior to the time of such issuance.
In each Purchase Agreement, each Originator will represent and warrant to
the Seller and in each Transfer and Servicing Agreement, the Seller will
represent and warrant to the applicable Trust, among other things, that: (i) the
information provided in the related Schedule of Receivables is correct in all
material respects; (ii) the Obligor on each related Receivable is required to
maintain physical damage insurance covering the Financed Vehicle; (iii) neither
Seller nor any Originator has received notice of any liens or claims, including
liens for work, labor, materials or unpaid state or federal taxes, relating to
the Financed Vehicle securing the Receivable, that are
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or may be prior to or equal to the lien granted by the Receivable; (iv) as of
the Closing Date or the applicable Subsequent Transfer Date, if any, each of
such Receivables is owned by Seller free and clear of any lien and is secured by
a first perfected security interest in favor of the Seller in the Financed
Vehicle; (v) each related Receivable, at the time it was originated, complied
and, as of the Closing Date or the applicable Subsequent Transfer Date, if any,
complies in all material respects with applicable federal and state laws,
including, without limitation, consumer credit, truth in lending, equal credit
opportunity and disclosure laws; and (vi) any other representations and
warranties that may be described in the related Prospectus Supplement.
As of the last day of the month that includes the sixtieth day (or if the
Seller elects, the thirtieth day) following the discovery by or notice to the
Seller of a breach of any representation or warranty of the Seller that
materially and adversely affects the interests of the related Trust in any
Receivable, the Seller, unless the breach is cured, will repurchase such
Receivable from such Trust at a price equal to the amount of principal plus
accrued interest calculated in accordance with the Servicer's customary
practices for such Receivable, after giving effect to the receipt of any moneys
collected (from whatever source) on such Receivable, if any (the "Purchase
Amount"). The repurchase obligation constitutes the sole remedy available to the
Certificateholders or the Trustee and any Noteholders or Indenture Trustee in
respect of such Trust for any such uncured breach.
Pursuant to each Transfer and Servicing Agreement, to assure uniform
quality in servicing the Receivables and to reduce administrative costs, the
Seller and each Trust will designate the Servicer or an Affiliate as custodian
to maintain possession, as such Trust's agent, of the related motor vehicle
retail installment sales contract or promissory note and security agreement and
any other documents relating to the Receivables. The Receivables will not be
segregated, stamped or otherwise marked to indicate that they have been sold to
the related Trust. The accounting records and computer systems of each
Affiliate, the Servicer and the Seller will reflect the sales and assignments of
the related Receivables to the Seller or a Trust, as applicable, and Uniform
Commercial Code ("UCC") financing statements reflecting such sales and
assignments will be filed. If through inadvertence or otherwise, another party
purchases (or takes a security interest in) the Receivables for new value in the
ordinary course of business and takes possession of the Receivables without
actual knowledge of the related Trust's interest, the purchaser (or secured
party) will acquire an interest in the Receivables superior to the interest of
the related Trust. See "Certain Legal Aspects of the Receivables -- Security
Interest in Vehicles."
ACCOUNTS
With respect to each Trust that issues Notes, the Servicer will establish
and maintain with the related Indenture Trustee one or more accounts, in the
name of the Indenture Trustee on behalf of the related Noteholders and
Certificateholders, into which all payments made on or with respect to the
related Receivables will be deposited (the "Collection Account"). The Servicer
will establish and maintain with such Indenture Trustee an account, in the name
of such Indenture Trustee on behalf of such Noteholders, into which amounts
released from the Collection Account and any Pre-Funding Account, Revolving
Account, Reserve Account or other credit enhancement for payment to such
Noteholders will be deposited and from which all distributions to such
Noteholders will be made (the "Note Distribution Account"). The Servicer will
establish and maintain with the related Trustee one or more accounts, in the
name of such Trustee on behalf of such Certificateholders, into which amounts
released from the Collection Account and any Pre-Funding Account, Revolving
Account, Reserve Account or other credit or cash flow enhancement for
distribution to such Certificateholders will be deposited and from which all
distributions to such Certificateholders will be made (each, a "Certificate
Distribution Account"). With respect to each Trust that does not issue Notes,
the Servicer will also establish and maintain the Collection Account and any
other Trust Account in the name of the related Trustee on behalf of the related
Certificateholders.
If so provided in the related Prospectus Supplement, the Servicer will
establish an additional account (the "Payahead Account"), into which, to the
extent required by the applicable Transfer and Servicing Agreement, early
payments by or on behalf of Obligors on Precomputed Receivables which do not
constitute scheduled payments, full prepayments, nor certain partial prepayments
that result in a reduction of the Obligor's periodic payment below the scheduled
payment as of the applicable Cutoff Date ("Payaheads") will be deposited until
such time as the payment falls due. Until such time as payments are transferred
from the Payahead Account to the Collection Account, they will not constitute
collected interest or collected principal and will not be available for
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distribution to the applicable Noteholders or Certificateholders. For each Trust
that issues Notes, the Payahead Account will initially be maintained with and in
the name of the applicable Indenture Trustee. With respect to each Trust that
does not issue Notes, the Servicer will establish and maintain with the related
Trustee the Payahead Account in the name of such Trustee. So long as the Bank is
the Servicer and provided that (i) there exists no Servicer Termination Event
and (ii) each other condition to holding Payaheads as may be required by the
applicable Transfer and Servicing Agreement is satisfied, Payaheads may be
retained by the Servicer until the applicable Payment Date or Distribution Date.
Any other accounts to be established with respect to a Trust, including any
Pre-Funding Account, Revolving Account, Yield Supplement Account (as such term
is defined in the related Prospectus Supplement, the "Yield Supplement Account")
or Reserve Account, will be described in the related Prospectus Supplement.
For any series of Securities, funds in the Collection Account, the Note
Distribution Account, the Certificate Distribution Account(s) and any
Pre-Funding Account, Revolving Account, Reserve Account and other accounts
identified as such in the related Prospectus Supplement (collectively, the
"Trust Accounts") will be invested as provided in the related Transfer and
Servicing Agreement in Permitted Investments.
"Permitted Investments" will be any Eligible Investments, except that money
market funds will not be Permitted Investments in the case of a Pre-Funding
Account unless the Indenture Trustee receives an opinion of counsel to the
effect that making such investments will not require the related Trust to
register as an investment company under the Investment Company Act of 1940, as
amended. "Eligible Investments" consist of book-entry securities, negotiable
instruments or securities represented by instruments in bearer or registered
form which evidence: (a) direct obligations of, and obligations fully guaranteed
as to timely payment by, the United States of America; (b) demand deposits, time
deposits or certificates of deposit of any depository institution (including the
Seller or any affiliate of the Seller) or trust company incorporated under the
laws of the United States of America or any state thereof or the District of
Columbia (or any domestic branch of a foreign bank) and subject to supervision
and examination by Federal or state banking or depository institution
authorities (but excluding depository receipts issued by any such institution or
trust company); provided that at the time of the investment or contractual
commitment to invest therein (which shall be deemed to be made again each time
funds are reinvested following each Distribution Date), the commercial paper or
other short-term senior unsecured debt obligations (other than such obligations
the rating of which is based on the credit of a Person other than such
depository institution or trust company) of such depository institution or trust
company shall have a short term unsecured debt rating acceptable to the Rating
Agencies; (c) commercial paper (including commercial paper of the Seller or any
affiliate of the Seller) having, at the time of the investment or contractual
commitment to invest therein, a short term unsecured debt rating acceptable to
the Rating Agencies; (d) investments in money market funds (including funds for
which the Seller, Indenture Trustee or Trustee or any of their respective
affiliates is investment manager or advisor) having a rating acceptable to the
Rating Agencies; (e) bankers' acceptances issued by any depository institution
or trust company referred to in clause (b) above; (f) repurchase obligations
with respect to any security that is a direct obligation of, or fully guaranteed
by, the United States of America or any agency or instrumentality thereof the
obligations of which are backed by the full faith and credit of the United
States of America, in either case entered into with a depository institution or
trust company (acting as principal) referred to in clause (b) above; and (g) any
other investment which would not cause either Rating Agency to downgrade or
withdraw its then current rating of any class of Notes or the Certificates.
Permitted Investments generally are limited to obligations or securities
that mature on or before the date of the next distribution for such series.
However, to the extent permitted by the Rating Agencies, funds in any Reserve
Account may be invested in securities that will not mature prior to the date of
the next distribution with respect to such Certificates or Notes and will not be
sold to meet any shortfalls. Thus, the amount of cash in any Reserve Account at
any time may be less than the balance of the Reserve Account. If the amount
required to be withdrawn from any Reserve Account to cover shortfalls in
collections on the related Receivables (as provided in the related Prospectus
Supplement) exceeds the amount of cash in the Reserve Account, a temporary
shortfall in the amounts distributed to the related Noteholders or
Certificateholders could result, which could, in turn, increase the average life
of the Notes or the Certificates of such series. To the extent specified in the
related Prospectus Supplement, investment earnings on funds deposited in the
Trust Accounts, net of losses and investment expenses (collectively, "Investment
Earnings"), will be either deposited in the applicable Collection
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Account on each Distribution Date and shall be treated as collections of
interest on the related Receivables or distributed to the Servicer and not be
treated as collections on the Receivables or otherwise be available for
Noteholders or Certificateholders.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (x) a segregated account with an
Eligible Institution or (y) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution have a credit rating from each Rating
Agency in one of its generic rating categories which signifies investment grade.
"Eligible Institution" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or the related Trustee, as
applicable, or (b) a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), in each case (i) which has
either (A) a long-term unsecured debt rating acceptable to the Rating Agencies
or (B) a short-term unsecured debt rating or certificate of deposit rating
acceptable to the Rating Agencies and (ii) whose deposits are insured by the
FDIC.
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables held by any Trust and will, consistent with the
related Transfer and Servicing Agreement, follow such collection procedures as
it follows with respect to comparable motor vehicle retail installment sales
contracts and promissory note and security agreements it services for itself or
others. Consistent with its customary procedures, the Servicer may, in its
discretion, arrange with the Obligor on a Receivable to extend or modify the
payment schedule, but no such arrangement will, for purposes of any Transfer and
Servicing Agreement, reduce the principal balance or Contract Rate of any
Receivable or modify any Receivable if such amendment or modification would
extend the final payment date of any Receivable beyond the Final Scheduled
Maturity Date. Some of such arrangements may result in the Servicer purchasing
the Receivable for the Purchase Amount. See "Risk Factors -- Risk of Prepayment
and Possible Adverse Effect on Yield." The Servicer may sell the Financed
Vehicle securing the respective Receivable at public or private sale, or take
any other action permitted by applicable law. See "Certain Legal Aspects of the
Receivables."
Pursuant to the applicable Transfer and Servicing Agreement, the Bank, as
Servicer, has the right to delegate any or all of its responsibilities and
obligations as Servicer to any of its affiliates and to delegate specific duties
to third-party service providers who are in the business of performing such
duties. The Bank intends to delegate to other Affiliates (if any)
responsibilities and obligations as Servicer with respect to Receivables
acquired by the Seller from such other Affiliates, if any. Notwithstanding any
delegation of its responsibilities and obligations to any other entity, the
Servicer will continue to be liable for all its servicing obligations under the
applicable Transfer and Servicing Agreement as if the Servicer alone were
servicing the Receivables.
COLLECTIONS
With respect to each Trust, the Servicer will deposit all payments on the
related Receivables received from Obligors and all proceeds of the related
Receivables collected during each collection period specified in the related
Prospectus Supplement (each, a "Collection Period") into the related Collection
Account not later than two business days after receipt. However, so long as the
Bank is the Servicer and provided that (i) there exists no Servicer Termination
Event and (ii) each other condition to making monthly deposits as may be
required by the related Transfer and Servicing Agreement is satisfied, the
Servicer may retain such amounts until the Business Day (as defined in the
related Prospectus Supplement, a "Business Day") prior to the applicable
Distribution Date or Payment Date. The Servicer or the Seller, as the case may
be, will remit the aggregate Purchase Amount of any Receivables to be purchased
from a Trust to the related Collection Account on the Business Day prior to the
applicable Distribution Date or Payment Date. Pending deposit into the
Collection Account, collections may be employed by the Servicer at its own risk
and for its own benefit and will not be segregated from its own funds. To the
extent set forth in the related Prospectus Supplement, the Servicer may, in
order to satisfy the requirements described above, obtain a letter of credit or
other security for the benefit of the related Trust to secure timely
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remittances of collections on the related Receivables and payment of the
aggregate Purchase Amount with respect to Receivables purchased by the Servicer.
If so provided in the related Prospectus Supplement, to the extent the
collections on a Precomputed Receivable for a Collection Period are less than
the scheduled payment, the amount of Payaheads made on such Precomputed
Receivable not previously applied (the "Payahead Balance"), if any, with respect
to such Precomputed Receivable shall be applied by the Servicer to the extent of
the shortfall.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
On each Distribution Date, the Servicer will be entitled to receive the
Servicing Fee for the related Collection Period in an amount generally equal to
a specified percentage per annum (as set forth in the related Prospectus
Supplement, the "Servicing Fee Rate") of the Pool Balance as of the first day of
such Collection Period (the "Servicing Fee"). To the extent provided in the
related Prospectus Supplement, the Servicer's right to receive all or a portion
of the Servicing Fee on one or more Distribution Dates may be subordinated to
the rights of Securityholders to receive principal and interest for the related
Collection Period. In addition, to the extent provided in the related Prospectus
Supplement, on one or more Distribution Dates all or a portion of such Servicing
Fee may be deposited in the Reserve Account until the Specified Reserve Account
Balance or such other amount specified in the related Prospectus Supplement is
on deposit in the Reserve Account. If it is acceptable to each Rating Agency
without a reduction in the rating of any of the Securities, the Servicing Fee in
respect of a Collection Period (together with any portion of a Servicing Fee
that remains unpaid from prior Distribution Dates) at the option of the Servicer
may be paid at or as soon as possible after the beginning of such Collection
Period out of the first collections of interest received on the Receivables for
such Collection Period.
The Servicer will also collect and retain any late fees, extension fees,
prepayment charges and certain non-sufficient funds charges and other
administrative fees or similar charges ("Supplemental Servicing Fees") allowed
by applicable law with respect to the related Receivables and will be entitled
to reimbursement from such Trust for certain liabilities. Payments by or on
behalf of Obligors will be allocated to scheduled payments and late fees and
other charges in accordance with the Servicer's customary practices and
procedures. To the extent specified in the related Prospectus Supplement,
Supplemental Servicing Fees will include investment earnings on investments of
funds deposited in the Trust Accounts and other accounts with respect to a
Trust. In addition, the Servicer or the Seller will be entitled to receive such
fees and other amounts specified in the related Prospectus Supplement. See
"Description of the Transfer and Servicing Agreements -- Servicing Compensation
and Payment of Expenses" and "-- Distributions" in the related Prospectus
Supplement.
The Servicing Fee and Supplemental Servicing Fee will compensate the
Servicer for performing the functions of a third party servicer of motor vehicle
receivables as an agent for its beneficial owner, including collecting and
posting all payments, responding to inquiries of Obligors on the Receivables,
investigating delinquencies, sending billing information to Obligors, reporting
tax information to Obligors, paying costs of collections and disposition of
defaults and policing the collateral. The Servicing Fee also will compensate the
Servicer for administering the particular Receivables Pool, accounting for
collections and furnishing monthly and annual statements to the related Trustee
and Indenture Trustee with respect to distributions and generating federal
income tax information for such Trust and for the related Noteholders and
Certificateholders. The Servicing Fee also will reimburse the Servicer for
certain taxes, the fees of the related Trustee and Indenture Trustee, if any,
accounting fees, outside auditor fees, data processing costs and other costs
incurred in connection with administering the applicable Receivables Pool.
DISTRIBUTIONS
With respect to each series of Securities, beginning on the Payment Date or
Distribution Date, as applicable, specified in the related Prospectus
Supplement, distributions of principal and interest (or, where applicable, of
principal or interest only) on each class of such Securities entitled thereto
will be made by the Applicable Trustee to the Noteholders and the
Certificateholders of such series. The timing, calculation, allocation, order,
source, priorities of and requirements for all payments to each class of
Noteholders and all distributions to each class of Certificateholders of such
series will be set forth in the related Prospectus Supplement.
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With respect to each Trust, on each Payment Date and Distribution Date, as
applicable, collections on the related Receivables will be transferred from the
Collection Account to the Note Distribution Account for distribution to
Noteholders, if any, and to the Certificate Distribution Account for
distribution to Certificateholders to the extent provided in the related
Prospectus Supplement. Credit enhancement, such as a Reserve Account, will be
available to cover any shortfalls in the amount available for distribution on
such date to the extent (a) specified in the related Prospectus Supplement and
(b) that such credit enhancement is actually available for such purpose from
time to time. As more fully described in the related Prospectus Supplement,
distributions in respect of principal of a class of Securities of a given series
will be subordinate to distributions in respect of interest on such class, and
distributions in respect of one or more classes of Certificates of such series
may be subordinate to payments in respect of Notes, if any, of such series or
other classes of Certificates of such series.
CREDIT AND CASH FLOW ENHANCEMENT
The amounts and types of credit and cash flow enhancement arrangements and
the provider thereof, if applicable, with respect to each class of Securities of
a given series, if any, will be set forth in the related Prospectus Supplement.
If and to the extent provided in the related Prospectus Supplement, credit and
cash flow enhancement may be in the form of subordination of one or more classes
of Securities or all or a portion of the Servicing Fee, Supplemental Servicing
Fee or certain other amounts payable to the Servicer or the Seller pursuant to
the applicable Transfer and Servicing Agreement, Reserve Accounts,
over-collateralization, letters of credit, credit or liquidity facilities,
surety bonds, guaranteed investment contracts, guaranteed rate agreements, swaps
or other interest rate protection agreements, repurchase obligations, yield
supplement agreements, other agreements with respect to third party payments or
other support, cash deposits or such other arrangements as may be described in
the related Prospectus Supplement or any combination of two or more of the
foregoing. If specified in the related Prospectus Supplement, credit or cash
flow enhancement for a class of Securities may cover one or more other classes
of Securities of the same series, and credit or cash flow enhancement for a
series of Securities may cover one or more other series of Securities.
The presence of a Reserve Account and other forms of credit enhancement for
the benefit of any class or series of Securities is intended to enhance the
likelihood of receipt by the Securityholders of such class or series of the full
amount of principal and interest due thereon and to decrease the likelihood that
such Securityholders will experience losses. The credit enhancement for a class
or series of Securities will not provide protection against all risks of loss
and will not guarantee repayment of the entire principal balance and interest
thereon except to the extent so specified in the related Prospectus Supplement.
If losses occur which exceed the amount covered by any credit enhancement or
which are not covered by any credit enhancement, Securityholders of any class or
series will bear their allocable share of deficiencies, as described in the
related Prospectus Supplement. In addition, if a form of credit enhancement
covers more than one series of Securities, Securityholders of any such series
will be subject to the risk that such credit enhancement will be exhausted by
the claims of Securityholders of other series.
Reserve Account. If so provided in the related Prospectus Supplement,
pursuant to the related Transfer and Servicing Agreement, the Seller will
establish for a series or class of Securities an account, as specified in the
related Prospectus Supplement (the "Reserve Account"), which will be maintained
with the related Trustee or Indenture Trustee, as applicable. The Reserve
Account will be funded by an initial deposit on the Closing Date in the amount
(if any) set forth in the related Prospectus Supplement and, if the related
series has a Funding Period, will also be funded on each Subsequent Transfer
Date to the extent described in the related Prospectus Supplement. To the extent
described in the related Prospectus Supplement, the amount (if any) on deposit
in the Reserve Account will be increased on each Distribution Date or Payment
Date thereafter up to the Specified Reserve Account Balance (as defined in the
related Prospectus Supplement) by the deposit therein of the amount of
collections on the related Receivables remaining on each such Distribution Date
or Payment Date after the payment of all other required payments and
distributions on such date. The related Prospectus Supplement will describe the
circumstances and manner under which distributions may be made out of the
Reserve Account, either to holders of the Securities covered thereby or to the
Seller.
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The Seller may at any time, without consent of the Securityholders, sell,
transfer, convey or assign in any manner its rights to and interests in
distributions from the Reserve Account provided that (i) the Rating Agencies
confirm in writing that such action will not result in a reduction or withdrawal
of the rating of any class of Securities, (ii) the Seller provides to the
applicable trustee and any Indenture Trustee an opinion of counsel from
independent counsel that such action will not cause the related Trust to be
classified as an association (or publicly traded partnership) taxable as a
corporation for federal income tax purposes and (iii) such transferee or
assignee agrees in writing to take positions for federal income tax purposes
consistent with the federal income tax positions agreed to be taken by the
Seller.
Yield Supplement Account; Yield Supplement Agreement. If so provided in
the related Prospectus Supplement, pursuant to the related Transfer and
Servicing Agreement, the Affiliates, the Seller or another person will enter
into a Yield Supplement Agreement (as such term is defined in the related
Prospectus Supplement, the "Yield Supplement Agreement") pursuant to which the
Affiliates, the Seller or such other person will establish for a series a Yield
Supplement Account which will be maintained with the same entity at which the
related Collection Account is maintained and, if so specified in the related
Prospectus Supplement, will be created with an initial deposit by the Seller.
Each Yield Supplement Account will be designed solely to hold funds to be
applied by the Indenture Trustee or applicable Trustee to provide payments to
Securityholders in respect of Receivables the Contract Rate of which is less
than the Required Rate (as such term is defined in the related Prospectus
Supplement, the "Required Rate").
On each Distribution Date, the obligor under the Yield Supplement Agreement
will pay to the Trust an amount equal to the Yield Supplement Amount (as such
term is defined in the related Prospectus Supplement, the "Yield Supplement
Amount") in respect of the Receivables for such Distribution Date. If so
specified in the Prospectus Supplement, in the event that such obligor defaults
on its obligation to make payments under the Yield Supplement Agreement, the
related Prospectus Supplement will describe the manner and circumstances in
which amounts on deposit on any Distribution Date in the Yield Supplement
Account in excess of the Required Yield Supplement Amount (as such term is
defined in the related Prospectus Supplement, the "Required Yield Supplement
Amount") will be released, and to whom such amounts will be distributed. Monies
on deposit in the Yield Supplement Account may be invested in Permitted
Investments under the circumstances and in the manner described in the related
Transfer and Servicing Agreement. If so specified in the related Prospectus
Supplement, investment earnings on investment of funds in a Yield Supplement
Account will be deposited into such Yield Supplement Account. The related
Prospectus Supplement will describe the manner in which any monies remaining on
deposit in a Yield Supplement Account upon the termination of the related Trust
pursuant to its terms will be released and to whom such amounts will be
distributed.
If a Yield Supplement Account is established with respect to any Trust as
to which a Pre-Funding Account has been established, the Seller and the related
Indenture Trustee or Applicable Trustee, will enter into a Yield Supplement
Agreement pursuant to which, on each Subsequent Transfer Date, the Seller will
deposit into the Yield Supplement Account the Additional Yield Supplement Amount
(as such term is defined in the related Prospectus Supplement, the "Additional
Yield Supplement Amount") in respect of the related Subsequent Receivables. Each
Yield Supplement Agreement will affect only Receivables having a Contract Rate
less than the related Required Rate.
NET DEPOSITS
As an administrative convenience if certain conditions acceptable to the
Rating Agencies are satisfied, the Servicer will be permitted to make the
deposit of collections and aggregate Purchase Amounts for any Trust for or with
respect to the related Collection Period net of distributions to be made to the
Servicer for such Trust with respect to such Collection Period. See
"-- Collections." With respect to any Trust that issues both Certificates and
Notes, if the related Payment Dates do not coincide with Distribution Dates, all
distributions, deposits or other remittances made on a Payment Date will be
treated as having been distributed, deposited or remitted on the Distribution
Date for the applicable Collection Period for purposes of determining other
amounts required to be distributed, deposited or otherwise remitted on such
Distribution Date. Similarly, the Servicer may cause to be made a single, net
transfer from the Collection Account to the related Payahead Account, if any, or
vice versa.
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The Servicer, however, will account to the Trustee, any Indenture Trustee, the
Noteholders, if any, and the Certificateholders with respect to each Trust as if
all deposits, distributions and transfers were made individually.
STATEMENTS TO TRUSTEES AND TRUST
Prior to each Distribution Date with respect to each series of Securities,
the Servicer will provide to the applicable Indenture Trustee, if any, and the
Applicable Trustee as of the close of business on the last day of the preceding
Collection Period a statement setting forth substantially the same information
as is required to be provided in the periodic reports provided to
Securityholders of such series described under "Certain Information Regarding
the Securities--Reports to Securityholders."
EVIDENCE AS TO COMPLIANCE
Each Transfer and Servicing Agreement will provide that the Servicer will
furnish to the related Trust and Indenture Trustee or Trustee, as applicable, on
or before March 30 of each year, beginning in the calendar year following the
establishment of the related Trust, a statement of a firm of independent
certified public accountants (or other evidence satisfactory to the applicable
Rating Agencies) as to compliance by the Servicer during the preceding twelve
months ended December 31 (or, in the case of the first such certificate, from
the applicable Closing Date) with certain standards relating to the servicing of
the applicable Receivables, the Servicer's accounting records and computer files
with respect thereto and certain other matters.
Each Transfer and Servicing Agreement will also provide for delivery to the
related Trust and Indenture Trustee or Trustee, as applicable, substantially
simultaneously with the delivery of such accountants' statement referred to
above, of a certificate signed by an officer of the Servicer stating that the
Servicer has fulfilled its obligations under the applicable Transfer and
Servicing Agreement, throughout the preceding twelve months (or, in the case of
the first such certificate, from the Closing Date) or, if there has been a
default in the fulfillment of any such obligation, describing each such default.
The Servicer has agreed to give each Indenture Trustee and each Trustee notice
of certain Servicer Termination Events under the related Transfer and Servicing
Agreement.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the Applicable Trustee at
the appropriate address set forth in the Prospectus Supplement.
CERTAIN MATTERS REGARDING THE SERVICER
Each Transfer and Servicing Agreement will provide that the Servicer may
not resign from its obligations and duties as Servicer thereunder, except upon
determination that the Servicer's performance of such duties is no longer
permissible under applicable law. No such resignation will become effective
until the related Indenture Trustee or Trustee, as applicable, or a successor
servicer, has assumed the Servicer's servicing obligations and duties under such
Transfer and Servicing Agreement.
Each Transfer and Servicing Agreement will further provide that neither the
Servicer nor any of its directors, officers, employees and agents will be under
any liability to the related Trust or the related Noteholders or
Certificateholders for taking any action or for refraining from taking any
action pursuant to such Transfer and Servicing Agreement or for errors in
judgment; except that neither the Servicer nor any such person will be protected
against any liability that would otherwise be imposed by reason of willful
misfeasance, bad faith or negligence in the performance of the Servicer's duties
thereunder or by reason of reckless disregard of its obligations and duties
thereunder. In addition, each Transfer and Servicing Agreement will provide that
the Servicer is under no obligation to appear in, prosecute or defend any legal
action that is not incidental to the Servicer's servicing responsibilities under
such Transfer and Servicing Agreement and that, in its opinion, may cause it to
incur any expense or liability.
Under the circumstances specified in each Transfer and Servicing Agreement,
any entity into which the Servicer may be merged or consolidated, or any entity
resulting from any merger or consolidation to which the Servicer is a party, or
any entity succeeding to the business of the Servicer or, with respect to its
obligations as Servicer, any corporation 50% or more of the voting stock of
which is owned, directly or indirectly, by KeyCorp,
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which corporation or other entity in each of the foregoing cases assumes the
obligations of the Servicer, will be the successor of the Servicer under such
Transfer and Servicing Agreement.
SERVICER TERMINATION EVENTS
"Servicer Termination Events" under each Transfer and Servicing Agreement
will consist of (i) any failure by the Servicer to deliver to the Applicable
Trustee for deposit in any of the Trust Accounts any required payment or to
direct the Applicable Trustee to make any required distributions therefrom,
which failure continues unremedied for five business days after written notice
from the Applicable Trustee is received by the Servicer or after discovery of
such failure by the Servicer, (ii) any failure by the Servicer duly to observe
or perform in any material respect any other covenant or agreement in such
Transfer and Servicing Agreement, which failure materially and adversely affects
the rights of the Noteholders or the Certificateholders of the related series
and which continues unremedied for 60 days after the giving of written notice of
such failure (A) to the Servicer by the Applicable Trustee or (B) to the
Servicer and to the Applicable Trustee by holders of Notes or Certificates of
such series, as applicable, evidencing not less than 25% in principal amount of
such outstanding Notes or of such Certificate Balance (or, in either case, for
such longer period, not in excess of 120 days, as may be reasonably necessary to
remedy such default; provided that such default is capable of remedy within 120
days and the Servicer delivers an officer's certificate to the Applicable
Trustee to such effect and to the effect that Servicer has commenced or will
promptly commence, and will diligently pursue, all reasonable efforts to remedy
such default); and (iii) the occurrence of an Insolvency Event with respect to
the Servicer. "Insolvency Event" means, with respect to any person, any of the
following events or actions: certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings with respect to
such person and certain actions by such person indicating its insolvency,
reorganization pursuant to bankruptcy proceedings or inability to pay its
obligations.
RIGHTS UPON SERVICER TERMINATION EVENTS
In the case of any Trust that has issued Notes, as long as a Servicer
Termination Event under a Sale and Servicing Agreement remains unremedied, the
related Trustee or the related Indenture Trustee or holders of Notes of the
related series evidencing greater than 50% of the principal amount of such Notes
then outstanding may terminate all the rights and obligations of the Servicer
under such Sale and Servicing Agreement, whereupon such Indenture Trustee or a
successor servicer appointed by such Indenture Trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer under such Sale and
Servicing Agreement and will be entitled to similar compensation arrangements.
In the case of any Trust that has not issued Notes, as long as a Servicer
Termination Event under the related Pooling and Servicing Agreement remains
unremedied, the related Trustee or holders of Certificates of the related series
evidencing greater than 50% of the principal amount of such Certificates then
outstanding may terminate all the rights and obligations of the Servicer under
such Pooling and Servicing Agreement, whereupon such Trustee or a successor
servicer appointed by such Trustee will succeed to all the responsibilities,
duties and liabilities of the Servicer under such Pooling and Servicing
Agreement and will be entitled to similar compensation arrangements. If,
however, a conservator, receiver or similar official has been appointed for the
Servicer, and no Servicer Termination Event other than such appointment has
occurred, such official may have the power to prevent such Indenture Trustee,
such Noteholders, such Trustee or such Certificateholders from effecting a
transfer of servicing. In the event that such Indenture Trustee or Trustee is
unwilling or unable to so act, it may appoint, or petition a court of competent
jurisdiction for the appointment of, a successor with a net worth of at least
$50,000,000 and whose regular business includes the servicing of motor vehicle
receivables. Such Indenture Trustee or Trustee may make such arrangements for
compensation to be paid, which in no event may be greater than the servicing
compensation to the Servicer under the applicable Transfer and Servicing
Agreement.
WAIVER OF PAST SERVICER TERMINATION EVENTS
With respect to each Trust that has issued Notes, the holders of Notes
evidencing at least a majority in principal amount of the then outstanding Notes
of the related series (or the holders of the Certificates of such series
evidencing not less than a majority of the outstanding Certificate Balance, in
the case of any Servicer
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Termination Event which does not adversely affect the related Indenture Trustee
or such Noteholders) may, on behalf of all such Noteholders and
Certificateholders, waive any Servicer Termination Event by the Servicer in the
performance of its obligations under the related Sale and Servicing Agreement
and its consequences, except a Servicer Termination Event in making any required
deposits to or payments from any of the Trust Accounts in accordance with such
Sale and Servicing Agreement. With respect to each Trust that has not issued
Notes, holders of Certificates of such series evidencing not less than a
majority of the principal amount of such Certificates then outstanding may, on
behalf of all such Certificateholders, waive any Servicer Termination Event by
the Servicer in the performance of its obligations under the related Transfer
and Servicing Agreement, except a Servicer Termination Event in making any
required deposits to or payments from the related Trust Accounts in accordance
with such Transfer and Servicing Agreement. No such waiver will impair such
Noteholders' or Certificateholders' rights with respect to subsequent defaults.
AMENDMENT
Each of the Transfer and Servicing Agreements may be amended by the parties
thereto, without the consent of the related Noteholders or Certificateholders,
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of such Transfer and Servicing Agreements or
of modifying in any manner the rights of such Noteholders or Certificateholders;
provided that such action will not, in the opinion of counsel satisfactory to
the related Trustee or Indenture Trustee, as applicable, materially and
adversely affect the interest of any such Noteholder or Certificateholder. The
Transfer and Servicing Agreements may also be amended by the Seller, the
Servicer, the related Trustee and any related Indenture Trustee with the consent
of the holders of Notes evidencing at least a majority in principal amount of
then outstanding Notes, if any, of the related series and the holders of the
Certificates of such series evidencing at least a majority of the Certificate
Balance of such Certificates then outstanding, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Transfer and Servicing Agreements or of modifying in any manner the rights
of such Noteholders or Certificateholders; provided, however, that no such
amendment may (i) increase or reduce in any manner the amount of, or accelerate
or delay the timing of, collections of payments on the related Receivables or
distributions that are required to be made for the benefit of such Noteholders
or Certificateholders or (ii) reduce the aforesaid percentage of the Notes or
Certificates of such series which are required to consent to any such amendment,
without the consent of the holders of all the outstanding Notes or Certificates,
as the case may be, of such series.
Additionally, each of the Transfer and Servicing Agreements may be amended
by the parties thereto at the direction of the Seller or Servicer without the
consent of any of the Securityholders to add, modify or eliminate such
provisions as may be necessary or advisable in order to enable all or a portion
of a Trust to qualify as, and to permit an election to be made to cause all or a
portion of a Trust to be treated as, a "financial asset securitization
investment trust" as described in the provisions of the "Small Business Job
Protection Act of 1996," H.R. 3448, and in connection with any such election, to
modify or eliminate existing provisions of a Transfer and Servicing Agreement
relating to the intended federal income tax treatment of the Securities and the
related Trust in the absence of the election. See "Federal Income Tax
Consequences -- FASIT Legislation." It is a condition to any such amendment that
each Rating Agency will have notified the Seller, the Servicer and the
Applicable Trustee in writing that the amendment will not result in a reduction
or withdrawal of the rating of any outstanding Securities with respect to which
it is a Rating Agency.
Additionally, each of the Transfer and Servicing Agreements may be amended
by the parties thereto at the direction of the Seller or Servicer without the
consent of any of the Securityholders (i) to add, modify or eliminate such
provisions as may be necessary or advisable in order to enable (a) the transfer
to the Trust of all or any portion of the Receivables to be derecognized under
generally accepted accounting principles ("GAAP") by the Seller to the
applicable Trust, (b) the applicable Trust to avoid becoming a member of the
Seller's consolidated group under GAAP, or (c) the Seller or any of its
affiliates to otherwise comply with or obtain more favorable treatment under any
law or regulation or any accounting rule or principle; and (ii) in connection
with any such addition, modification or elimination, without limiting the
generality of the foregoing clause (i), to cause the Receivables to be
transferred by the Seller first to a bankruptcy remote affiliate and from such
affiliate to a Trust; provided, however, that it is a condition to any such
amendment that (i) the Seller delivers an officer's
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certificate to the related Trustee to the effect that such amendment meets the
requirements set forth in this paragraph and (ii) such amendment will not result
in a withdrawal or reduction of the rating of any outstanding series of
Securities under the related Trust.
INSOLVENCY
Each Trust Agreement will provide that the applicable Trustee does not have
the power to commence a voluntary proceeding in bankruptcy with respect to the
related Trust without the unanimous prior approval of all Certificateholders
(including the Seller) of such Trust and the delivery to such Trustee by each
such Certificateholder (including the Seller) of a certificate certifying that
such Certificateholder reasonably believes that such Trust is insolvent.
NON-RECOURSE SALE AND ASSIGNMENT
The Notes of any series will represent obligations solely of, and the
Certificates of any series will represent interests solely in, the related Trust
and neither the Notes nor the Certificates of any series will be insured or
guaranteed by any Affiliate, the Seller, the Servicer, any Trustee, any
Indenture Trustee or any other person or entity.
PAYMENT OF NOTES
Upon the payment in full of all outstanding Notes of a given series and the
satisfaction and discharge of the related Indenture, the related Trustee will
succeed to all the rights of the Indenture Trustee, and the Certificateholders
of such series will succeed to all the rights of the Noteholders of such series,
under the related Sale and Servicing Agreement, except as otherwise provided
therein.
TERMINATION
With respect to each Trust, the obligations of the Servicer, the Seller,
the related Trustee and the related Indenture Trustee, if any, pursuant to the
Transfer and Servicing Agreements will terminate upon the earlier of (i) the
maturity or other liquidation of the last related Receivable and the disposition
of any amounts received upon liquidation of any such remaining Receivables, (ii)
the payment to Noteholders, if any, and Certificateholders of the related series
of all amounts required to be paid to them pursuant to the Transfer and
Servicing Agreements and (iii) the occurrence of either event described below.
In order to avoid excessive administrative expense, each of the Seller and
the Servicer will be permitted at its respective option to purchase from each
Trust, as of the end of any applicable Collection Period, if the then
outstanding Pool Balance with respect to the Receivables held by such Trust is
equal to or less than the percentage of the Initial Pool Balance set forth in
the related Prospectus Supplement (as defined in the related Prospectus
Supplement, the "Original Pool Balance"), all remaining related Receivables at a
price equal to the aggregate of the Purchase Amounts thereof as of the end of
such Collection Period.
As more fully described in the related Prospectus Supplement, any
outstanding Notes of the related series will be redeemed concurrently with
either of the events specified above and the subsequent distribution to the
related Certificateholders of all amounts required to be distributed to them
pursuant to the applicable Trust Agreement or Pooling and Servicing Agreement
will effect early retirement of the Certificates of such series.
ADMINISTRATION AGREEMENT
The Bank, in its capacity as administrator (the "Administrator"), will
enter into an agreement (as amended and supplemented from time to time, an
"Administration Agreement") with each Trust that issues Notes and the related
Indenture Trustee pursuant to which the Administrator will agree, to the extent
provided in such Administration Agreement, to provide the notices and to perform
other administrative obligations required by the related Indenture. With respect
to any such Trust, as compensation for the performance of the Administrator's
obligations under the applicable Administration Agreement and as reimbursement
for its expenses related thereto, the Administrator will be entitled to a
monthly administration fee in an amount equal to such amount as may be set forth
in the related Prospectus Supplement (the "Administration Fee"), which fee will
be paid by the Seller.
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CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
RIGHTS IN THE RECEIVABLES
The Receivables are "chattel paper" as defined in the UCC. Pursuant to the
UCC, a sale of chattel paper is treated in a manner similar to a transaction
creating a security interest in chattel paper. The Seller will cause appropriate
financing statements to be filed with the appropriate governmental authorities
to perfect the interest of the related Trust in its purchase of Receivables from
the Seller and in the appropriate jurisdictions in which the Affiliates are
located to perfect the interest of the Seller in its purchase of Receivables
from the Affiliates.
Pursuant to the applicable Transfer and Servicing Agreement, an Originator
will hold the Receivables as custodian for the Applicable Trustee following the
sale and assignment of the Receivables to the related Trust. The Seller will
take such action as is required to perfect the rights of the Applicable Trustee
in the Receivables. The Receivables will not be segregated, stamped or otherwise
marked to indicate that they have been sold to the related Trust. If through
inadvertence or otherwise, another party purchases (or takes a security interest
in) the Receivables for new value in the ordinary course of business and takes
possession of the Receivables without actual knowledge of the related Trust's
interest, the purchaser (or secured party) will acquire an interest in the
Receivables superior to the interest of the related Trust.
Under the applicable Transfer and Servicing Agreement, the Servicer will be
obligated from time to time to take such actions as are necessary to protect and
perfect the related Trust's interest in the Receivables and their proceeds.
SECURITY INTEREST IN VEHICLES
Each retail installment sales contract or promissory note and security
agreement evidencing a Receivable grants a security interest in the Financed
Vehicle under the applicable UCC. Perfection of security interests in
automobiles and light duty trucks is generally governed by the motor vehicle
registration laws of the state in which the vehicle is located. In most states
in which the Receivables are originated, a security interest in automobiles and
light duty trucks is perfected by notation of the secured party's lien on the
vehicles' certificate of title. Each Affiliate takes all actions necessary under
the laws of the state in which the financed vehicle is located to perfect its
security interest in the financed vehicle securing a retail installment sales
contract purchased by it from a Dealer or Direct Loan made by such Affiliate,
including, where applicable, having a notation of its lien recorded on such
vehicle's certificate of title. Because the Servicer continues to service the
contracts and loans, the Obligors on the contracts and loans will not be
notified of the sales from an Affiliate to the Seller or from the Seller to the
Trust, and no action will be taken to record the transfer of the security
interest from an Affiliate to the Seller or from the Seller to the Trust by
amendment of the certificates of title for the Financed Vehicles or otherwise.
Pursuant to each Purchase Agreement, each Affiliate will assign to the
Seller its interests in the Financed Vehicles securing the Receivables assigned
by that Affiliate to the Seller and, with respect to each Trust, pursuant to the
related Transfer and Servicing Agreement, the Seller will assign its interests
in the Financed Vehicles securing the related Receivables to such Trust.
However, because of the administrative burden and expense, none of the
Affiliates, the Seller, the Servicer or the related Trustee will amend any
certificate of title to identify either the Seller or such Trust as the new
secured party on such certificate of title relating to a Financed Vehicle. Also,
each Affiliate will continue to hold any certificates of title relating to the
Financed Vehicles in its possession as custodian for the Seller and such Trust
pursuant to the related Transfer and Servicing Agreement. See "Description of
the Transfer and Servicing Agreements -- Sale and Assignment of Receivables."
In most states, an assignment such as that under each Transfer and
Servicing Agreement is an effective conveyance of a security interest without
amendment of any lien noted on a vehicle's certificate of title, and the
assignee succeeds thereby to the assignor's rights as secured party. However, by
not identifying the related Trust as the secured party on the certificate of
title, the security interest of such Trust in the vehicle could be defeated
through fraud or negligence. In most states, in the absence of fraud or forgery
by the vehicle owner or an Affiliate or administrative error by state or local
agencies, the notation of the lien of the applicable Affiliate on the
certificates of title will be sufficient to protect the related Trust against
the rights of subsequent purchasers of a
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Financed Vehicle or subsequent lenders who take a security interest in a
Financed Vehicle. If there are any Financed Vehicles as to which the Seller
failed to obtain and assign to the related Trust a perfected security interest,
the security interest of such Trust would be subordinate to, among others,
subsequent purchasers of the Financed Vehicles and holders of perfected security
interests. Such a failure, however, would constitute a breach of the warranties
of the Seller under the related Transfer and Servicing Agreement and would
create an obligation of the Seller to repurchase the related Receivable unless
the breach is cured. Pursuant to each Transfer and Servicing Agreement the
Seller will assign such rights to the related Trust. See "Description of the
Transfer and Servicing Agreements -- Sale and Assignment of Receivables" and
"Risk Factors -- Risk of Unenforceable Security Interest in Financed Vehicles."
Under the laws of most states, the perfected security interest in a vehicle
would continue for four months after the vehicle is moved to a state other than
the state in which it is initially registered and thereafter until the owner
thereof re-registers the vehicle in the new state. A majority of states
generally require surrender of a certificate of title to re-register a vehicle.
Accordingly, a secured party must surrender possession if it holds the
certificate of title to the vehicle or, in the case of a vehicle registered in a
state providing for the notation of a lien on the certificate of title but not
possession by the secured party, the secured party would receive notice of
surrender if the security interest is noted on the certificate of title. Thus,
the secured party would have the opportunity to re-perfect its security interest
in the vehicle in the state of relocation. In states that do not require a
certificate of title for registration of a motor vehicle, re-registration could
defeat perfection. In the ordinary course of servicing motor vehicle
receivables, the applicable Affiliate takes any necessary steps to effect
re-perfection upon receipt of notice of re-registration or information from the
Obligor as to relocation. Similarly, when an Obligor sells a vehicle, the
applicable Affiliate must surrender possession of the certificate of title or
will receive notice as a result of its lien noted thereon and accordingly will
have an opportunity to require satisfaction of the related Receivable before
release of the lien. Under each Transfer and Servicing Agreement, the Servicer
is obligated to take appropriate steps, at the Servicer's expense, to maintain
perfection of security interests in the Financed Vehicles and is obligated to
purchase the related Receivable if it fails to do so.
Under the laws of most states, liens for repairs performed on a motor
vehicle and liens for unpaid taxes take priority over even a perfected security
interest in a financed vehicle. The Code also grants priority to certain federal
tax liens over the lien of a secured party. The laws of certain states and
federal law permit the confiscation of vehicles by governmental authorities
under certain circumstances if used in unlawful activities, which may result in
the loss of a secured party's perfected security interest in the confiscated
vehicle. Under each Transfer and Servicing Agreement, the Seller will represent
to the related Trust that, as of the date the related Receivable is sold to such
Trust, each security interest in a Financed Vehicle is or will be prior to all
other present liens (other than tax liens and other liens that arise by
operation of law) upon and security interests in such Financed Vehicle. However,
liens for repairs or taxes could arise, or the confiscation of a Financed
Vehicle could occur, at any time during the term of a Receivable. No notice will
be given to the Trustee, the Indenture Trustee, any Noteholders or any
Certificateholders in respect of a given Trust if such a lien arises or
confiscation occurs.
REPOSSESSION
In the event of default by vehicle purchasers, the holder of the motor
vehicle retail installment sales contract or Direct Loan has all the remedies of
a secured party under the UCC, except where specifically limited by other state
laws. Among the UCC remedies, the secured party has the right to perform
self-help repossession unless such act would constitute a breach of the peace.
Self-help is the method employed by the Servicer in most cases and is
accomplished simply by retaking possession of the financed vehicle. In the event
of default by the obligor, some jurisdictions require that the obligor be
notified of the default and be given a time period within which he may cure the
default prior to repossession. Generally, the right of reinstatement may be
exercised on a limited number of occasions in any one-year period. In cases
where the obligor objects or raises a defense to repossession, or if otherwise
required by applicable state law, a court order must be obtained from the
appropriate state court, and the vehicle must then be repossessed in accordance
with that order.
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NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws require the secured party to provide the
obligor with reasonable notice of the date, time and place of any public sale
and/or the date after which any private sale of the collateral may be held. The
obligor has the right to redeem the collateral prior to actual sale, in some
states, by payment of delinquent installments or the unpaid balance and, in
other states, by paying the secured party the unpaid principal balance of the
obligation plus reasonable expenses for repossessing, holding and preparing the
collateral for disposition and arranging for its sale, plus, in some
jurisdictions, reasonable attorneys' fees.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the vehicles generally will be applied first to
the expenses of resale and repossession and then to the satisfaction of the
indebtedness. While some states impose prohibitions or limitations on deficiency
judgments if the net proceeds from resale do not cover the full amount of the
indebtedness, a deficiency judgment can be sought in those states that do not
prohibit or limit such judgments. However, the deficiency judgment would be a
personal judgment against the obligor for the shortfall, and a defaulting
obligor can be expected to have very little capital or sources of income
available following repossession. Therefore, in many cases, it may not be useful
to seek a deficiency judgment or, if one is obtained, it may be settled at a
significant discount.
Occasionally, after resale of a vehicle and payment of all expenses and all
indebtedness, there is a surplus of funds. In that case, the UCC requires the
creditor to remit the surplus to any holder of a lien with respect to the
vehicle or if no such lienholder exists or there are remaining funds, to remit
the surplus to the former owner of the vehicle.
SOLDIERS' AND SAILORS CIVIL RELIEF ACT
The Soldiers' and Sailors Civil Relief Act of 1940 (the "Relief Act")
imposes certain limitations upon the actions of creditors with respect to
persons serving in the Armed Forces of the United States, and, to a more limited
extent, their dependents and guarantors and sureties of debt incurred by such
persons. An obligation incurred by a person prior to entering military service
cannot bear interest at a rate in excess of 6% during the person's term of
military service, unless the obligee petitions a court which determines that the
person's military service does not impair his or her ability to pay interest at
a higher rate. Further, a secured party may not repossess during a person's
military service a motor vehicle subject to an installment sales contract or a
promissory note entered into prior to the person's entering military service,
for a loan default which occurred prior to or during such service, without court
action. The Relief Act imposes penalties for knowingly repossessing property in
contravention of its provisions. Additionally, dependents of military personnel
are entitled to the protection of the Relief Act, upon application to a court,
if such court determines the obligation of such dependent has been materially
impaired by reason of military service. To the extent an obligation is
unenforceable against the person in military service or a dependent, any
guarantor or surety of such obligation will not be liable for performance.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in consumer
finance. These laws include, but are not limited to, the Truth-in-Lending Act,
the Equal Credit Opportunity Act, the Federal Trade Commission Act, the Fair
Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection
Procedures Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's
Regulations B, Z and AA, the Relief Act, state adoptions of the National
Consumer Act and of the Uniform Consumer Credit Code and state motor vehicle
retail installment sales acts, retail installment sales acts and other similar
laws. In addition to Federal law, state consumer protection statutes regulate,
among other things, the terms and conditions of the motor vehicle retail
installment sales contracts and promissory notes and security agreements
pursuant to which purchasers finance the acquisition of motor vehicles. These
laws place finance charge ceilings and other restrictions on consumer
transactions and require contract disclosures in addition to those required
under federal law. These requirements
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impose specific statutory liabilities upon creditors who fail to comply. In some
cases, this liability could affect the ability of an assignee, such as the
Applicable Trustee, to enforce consumer finance contracts such as the
Receivables. The "Credit Practices" Rule of the Federal Trade Commission imposes
additional restrictions on contract provisions and credit practices.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule"), the provisions of which are generally duplicated by the
Uniform Consumer Credit Code, other statutes or the common law, has the effect
of subjecting a seller in a consumer credit transaction (and certain related
creditors and their assignees) to all claims and defenses which the obligor in
the transaction could assert against the seller of the goods. Liability under
the FTC Rule is limited to the amounts paid by the obligor under the contract
and the holder of the contract may also be unable to collect any balance
remaining due thereunder from the obligor.
Most of the Receivables will be subject to the requirements of the FTC
Rule. Accordingly, each Trust, as holder of the related Receivables, will be
subject to any claims or defenses that the purchaser of the applicable Financed
Vehicle may assert against the seller of the Financed Vehicle. Such claims are
limited to a maximum liability equal to the amounts paid by the Obligor on the
Receivable. If an Obligor were successful in asserting any such claim or
defense, such claim or defense would constitute a breach of the Seller's
warranties under the related Transfer and Servicing Agreement and would create
an obligation of the Seller to repurchase the Receivable unless the breach is
cured. See "Description of the Transfer and Servicing Agreements -- Sale and
Assignment of Receivables."
Under the motor vehicle dealer licensing laws of most states, sellers of
motor vehicles are required to be licensed to sell such vehicles at retail sale.
In addition, with respect to used motor vehicles , the FTC's Rule on Sale of
Used Vehicles requires all sellers of used motor vehicles to prepare, complete
and display a "Buyer's Guide" which explains the warranty coverage for such
vehicles. Federal Odometer Regulations promulgated under the Motor Vehicle
Information and Cost Savings Act require that all sellers of used motor vehicles
furnish a written statement signed by the seller certifying the accuracy of the
odometer reading. If a seller is not properly licensed or if either a Buyer's
Guide or Odometer Disclosure Statement was not properly provided to the
purchaser of a Financed Vehicle, such purchaser may be able to assert a claim
against the seller of such vehicle. Although the Affiliates are not sellers of
motor vehicles and are not subject to these laws, a violation thereof may form
the basis for a claim or defense against the applicable Affiliate, the Seller or
the Applicable Trustee as holder of the Receivables.
Courts have applied general equitable principles to secured parties
pursuing repossession and litigation involving deficiency balances. These
equitable principles may have the effect of relieving an Obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditor do not involve sufficient state action to afford constitutional
protection to borrowers.
Under each Transfer and Servicing Agreement, the Seller will warrant to the
related Trust that each Receivable complies with all requirements of law in all
material respects. Accordingly, if an Obligor has a claim against a Trust for
violation of any law and such claim materially and adversely affects such
Trust's interest in a Receivable, such violation would constitute a breach of
the warranties of the Seller under such Transfer and Servicing Agreement and
would create an obligation of the Seller to repurchase the Receivable unless the
breach is cured. See "Description of the Transfer and Servicing
Agreements -- Sale and Assignment of Receivables."
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a secured party
to realize upon collateral or to enforce a deficiency judgment. For example, in
a Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossessing a vehicle, and, as part of the
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rehabilitation plan, reduce the amount of the secured indebtedness to the market
value of the vehicle at the time of bankruptcy (as determined by the court),
leaving the creditor as a general unsecured creditor for the remainder of the
indebtedness. A bankruptcy court may also reduce the monthly payments due under
a contract or change the rate of interest and time of repayment of the
indebtedness.
Each Affiliate subject to FIRREA intends that the transfer of the
Receivables by it under a Purchase Agreement constitutes a sale. In the event
that an Affiliate that is subject to FIRREA were to become insolvent, FIRREA
sets forth certain powers that the FDIC could exercise if it were appointed as
receiver of such Affiliate. Subject to clarification by FDIC regulations or
interpretations, it would appear from the positions taken by the FDIC before and
after the passage of FIRREA that the FDIC in its capacity as receiver for an
Affiliate would not interfere with the timely transfer to the Trust of payments
collected on the Receivables. If the transfer of Receivables by an Affiliate to
the Seller were to be characterized as a secured loan, to the extent that such
Affiliate would be deemed to have granted a security interest in the Receivables
to the Seller or the related Trust, and that interest had been validly perfected
before the insolvency of such Affiliate, and had not been taken in contemplation
of insolvency, that security interest should not be subject to avoidance and
payments to the Trust (to the extent of the "actual direct compensatory damages"
of the Seller or Trust) with respect to the Receivables should not be subject to
recovery by the FDIC as receiver of such Affiliate.
If the FDIC were to assert a position contrary to its position with respect
to secured loans described in the preceding paragraph, such as by requiring the
Seller or the related Trust to establish its right to those payments by
submitting to and completing the administrative claims procedure established
under FIRREA, delays in payments on the related Notes (if any) and the
Certificates and possible reductions in the amount of those payments could
occur. Alternatively, in such circumstances, the FDIC might have the right to
repudiate the applicable Purchase Agreement and pay damages to the Seller which,
in turn would prepay the related Notes (if any) and Certificates, which would
shorten their respective weighted average lives.
FEDERAL INCOME TAX CONSEQUENCES
Set forth in the related Prospectus Supplement is a general summary of
material federal income tax consequences of the purchase, ownership and
disposition of the Notes and the Certificates. The summary is intended as an
explanatory discussion of the possible effects of certain federal income tax
consequences to holders generally, but does not purport to furnish information
in the level of detail or with the attention to a holder's specific tax
circumstances that would be provided by a holder's own tax advisor. For example,
it does not discuss the tax treatment of Noteholders or Certificateholders that
are insurance companies, regulated investment companies or dealers in
securities. In addition, any discussion regarding the Notes is limited to the
federal income tax consequences of the initial Noteholders and not a purchaser
in the secondary market. Moreover, there are no cases or Internal Revenue
Service ("IRS") rulings on similar transactions involving both debt and equity
interests issued by a trust with terms similar to those of the Notes and the
Certificates. As a result, the IRS may disagree with all or a part of the
discussion in the Prospectus Supplement. Prospective investors are urged to
consult their own tax advisors in determining the federal, state, local, foreign
and any other tax consequences to them of the purchase, ownership and
disposition of the Notes and the Certificates.
The summary is based upon current provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), the Treasury regulations promulgated
thereunder and judicial or ruling authority, all of which are subject to change,
which change may be retroactive. Each Trust will be provided with an opinion of
Federal Tax Counsel, regarding certain federal income tax matters. An opinion of
Federal Tax Counsel, however, is not binding on the IRS or the courts. No ruling
on any of the issues discussed in the related Prospectus Supplement will be
sought from the IRS. For purposes of the summary, references to the Trust, the
Notes, the Certificates and related terms, parties and documents shall be deemed
to refer, unless otherwise specified therein, to each Trust and the Notes,
Certificates and related terms, parties and documents applicable to such Trust.
The general summary of material federal tax consequences to the
Certificateholders, and, if applicable, to the Noteholders, is set forth in the
related Prospectus Supplement. The federal income tax consequences to
Certificateholders will vary depending on whether the Trust is intended to be
treated as a partnership under the
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Code, as a grantor trust or otherwise. The Prospectus Supplement for each series
of Certificates will specify whether a partnership election will be made, the
Trust will be treated as a grantor trust or otherwise.
SCOPE OF THE TAX OPINIONS
Unless the Prospectus Supplement specifies that the Trust will be treated
as a grantor trust, Thompson Hine & Flory LLP, special federal tax counsel for
the Seller ("Federal Tax Counsel") will, prior to issuance of a series of Notes
and/or Certificates, deliver its opinion that the applicable Trust will not be
classified as an association (or publicly traded partnership) taxable as a
corporation for federal income tax purposes. Further, with respect to each
series of Notes, Federal Tax Counsel will advise the Trust that the Notes will
be characterized as debt for federal income tax purposes.
If the Prospectus Supplement specifies that the Trust will be treated as a
grantor trust, Federal Tax Counsel will prior to issuance of a series of
Certificates deliver its opinion that the applicable Trust will not be
classified as an association (or publicly traded partnership) taxable as a
corporation and that such Trust will be classified as a grantor trust under
subpart E, Part I of subchapter J of the Code for federal income tax purposes.
In addition, Federal Tax Counsel will render its opinion that it has
prepared or reviewed the statements herein and in the related Prospectus
Supplement under the heading "Summary of Terms -- Tax Status" as they relate to
federal income tax matters and under the heading "Federal Income Tax
Consequences," and is of the opinion that such statements are correct in all
material respects. Any such opinions will be filed either as an exhibit to the
registration statement of which this Prospectus forms a part or will be filed as
an exhibit to a Form 8-K filed prior to the establishment of the related Trust
and issuance of the Securities. Such statements are intended as an explanatory
discussion of the possible effects of the classification of the Trust as a
partnership, a grantor trust or otherwise, as the case may be, for federal
income tax purposes on investors generally and of related tax matters affecting
investors generally, but do not purport to furnish information in the level of
detail or with the attention to the investor's specific tax circumstances that
would be provided by an investor's own tax adviser. Accordingly, each investor
is advised to consult its own tax advisers with regard to the tax consequences
to it of investing in the Notes and/or Certificates.
FASIT LEGISLATION
In August, 1996, the United States Congress passed and President Clinton
signed into law the "Small Business Job Protection Act of 1996," H.R. 3448 (the
"Act"). The Act creates a new type of entity for federal income tax purposes
called a "financial asset securitization investment trust" or "FASIT." The
effective date of the FASIT provisions of the Act is September 1, 1997. The Act
enables certain arrangements similar to a Trust to elect to be treated as a
FASIT. Under the FASIT provisions of the Act a FASIT generally would avoid
federal income taxation and could issue securities substantially similar to the
Certificates and Notes, and those securities would be treated as debt for
federal income tax purposes. If so specified in the related Prospectus
Supplement, a Trust may make an election to be treated as a FASIT. The
applicable Transfer and Servicing Agreement for such a Trust may contain any
such terms and provide for the issuance of Notes or Certificates on such terms
and conditions as are permitted to a FASIT and described in the related
Prospectus Supplement. In addition, upon satisfying certain conditions set forth
in the Transfer and Servicing Agreements, the Seller and Servicer will be
permitted to amend the Transfer and Servicing Agreements in order to enable all
or a portion of a Trust to qualify as a FASIT and to permit a FASIT election to
be made with respect thereto, and to make such modifications to a Transfer and
Servicing Agreement as may be permitted by reason of the making of such an
election. See "Description of the Transfer and Servicing
Agreements -- Amendment." However, there can be no assurance that the Seller
will or will not cause any permissible FASIT election to be made with respect to
a Trust or amend a Transfer and Servicing Agreement in connection with any
election. In addition, if such an election is made, it may cause a holder to
recognize gain (but not loss) with respect to any Notes or Certificates held by
it, even though Federal Tax Counsel will deliver its opinion that a Note will be
treated as debt for federal income tax purposes without regard to the election
and the Note or Certificate would be treated as debt following the election.
Additionally, any such election and any related amendments to a Transfer and
Servicing Agreement may have other tax and non-tax consequences to
Securityholders. Accordingly, prospective Securityholders should
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consult their tax advisors with regard to the effects of any such election and
any permitted related amendments on them in their particular circumstances.
STATE TAX CONSEQUENCES
The above discussion does not address the tax treatment of any Tax
Partnership, Grantor Trust, Notes, Certificates, Noteholders or
Certificateholders under any state tax laws. Prospective investors are urged to
consult with their own tax advisors regarding the state tax treatment of any Tax
Partnership or Grantor Trust as well as any state tax consequences to them of
purchasing, holding and disposing of Notes or Certificates.
* * *
THE FEDERAL TAX DISCUSSIONS SET FORTH ABOVE AND IN THE RELATED PROSPECTUS
SUPPLEMENT ARE INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE
DEPENDING UPON A NOTEHOLDER'S OR CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION.
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND
CERTIFICATES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan subject to ERISA, as well as
individual retirement accounts, certain types of Keogh Plans and other plans
subject to Section 4975 of the Code (each a "Benefit Plan"), from engaging in
certain transactions with persons that are "parties in interest" under ERISA or
"disqualified persons" under the Code with respect to such Benefit Plan. A
violation of these "prohibited transaction" rules may result in an excise tax or
other penalties and liabilities under ERISA and the Code for such persons.
A fiduciary of a Benefit Plan considering the purchase of Securities of any
series should carefully review with its legal and other advisors whether the
assets of the related Trust would be considered plan assets, whether the
purchase or holding of the Securities could give rise to a transaction
prohibited or otherwise impermissible under ERISA or the Code, and should refer
to the discussion under "ERISA Considerations" in the related Prospectus
Supplement regarding any restrictions on the purchase or holding of the
Securities offered thereby.
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to the fiduciary and prohibited transaction provisions
under ERISA or the Code discussed herein, but governmental plans may be subject
to comparable restrictions under applicable state law.
TRUSTS THAT ISSUE NOTES
The following discussion applies only to Trusts that issue Notes.
Certain transactions involving a Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit Plan
that purchased Notes or Certificates if assets of the Trust were deemed to be
assets of the Benefit Plan. Under a regulation issued by the United States
Department of Labor (the "Plan Asset Regulation"), the assets of a Trust would
be treated as plan assets of a Benefit Plan for the purposes of ERISA and the
Code only if the Benefit Plan acquired an "equity interest" in the Trust and
none of the exceptions contained in the Plan Asset Regulation was applicable. An
equity interest is defined under the Plan Asset Regulation as an interest other
than an instrument which is treated as indebtedness under applicable local law
and which has no substantial equity features. Although there is little guidance
on the subject, to the extent provided in the related Prospectus Supplement, the
Seller believes that, at the time of their issuance, the Notes of each Series
should be treated as indebtedness without substantial equity features for
purpose of the Plan Asset
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Regulation. The debt status of the Notes could be affected, after their initial
issuance, by certain changes in the financial condition of the related Trust.
Regardless of whether the Notes are treated as an equity interest for
purposes of the Plan Asset Regulation, the acquisition or holding of such Notes
with plan assets of a Benefit Plan could be considered to give rise to a
prohibited transaction if the Seller, the Servicer or the applicable Issuer,
Trustee or Indenture Trustee is or becomes a party in interest under ERISA or a
disqualified person under the Code with respect to such Benefit Plan. In such
case, certain exemptions from the prohibited transactions rules may be
available, depending upon the type and circumstances of the Benefit Plan
fiduciary making the decision to purchase the Notes with assets of the Benefit
Plan. Included among these exemptions are Prohibited Transaction Exemption
("PTE") 84-14, applicable to certain transactions effected by a qualified
professional asset manager; PTE 90-1, applicable to certain transactions entered
into by an insurance company separate account; PTE 91-38, applicable to certain
transactions entered into by a bank collective investment trust; PTE 95-60,
applicable to certain transactions entered into by an insurance company general
account; and PTE 96-23, applicable to certain transactions entered into by an
in-house asset manager. Purchasers acquiring Notes of any series with the assets
of a Benefit Plan shall be deemed to represent and warrant that such purchase
and holding will not give rise to a nonexempt prohibited transaction.
Subject to the following paragraph, because the Certificates issued by a
Trust that also issues Notes will most likely be treated as equity interests
under the Plan Asset Regulation, such Certificates may not be acquired with the
assets of any Benefit Plan. Purchasers of the Certificates issued by a Trust
that also issues Notes shall be deemed to represent and warrant that they are
not purchasing the Certificates with the assets of a Benefit Plan.
Section III of PTE 95-60, applicable to insurance company general accounts,
provides an exemption from certain of the prohibited transaction rules for the
purchase and holding by Benefit Plans of certificates representing interests in
asset-backed pass-through trusts that consist of certain receivables, loans and
other obligations, provided that the conditions and requirements of the
exemption described under "Trusts That Do Not Issue Notes", below, are
satisfied, other than the rating and the nonsubordination requirements.
Accordingly, notwithstanding the immediately preceding paragraph, if the
applicable requirements of the Exemption are satisfied an insurance company
general account that is treated as holding plan assets of a Benefit Plan is
eligible to acquire and hold the Certificates but only if: (i) prior to the
effective date of Labor Department rules on insurance company general accounts,
the acquisition and holding satisfy the applicable conditions of Section III of
PTE 95-60 and (ii) on and after the effective date of Labor Department rules on
insurance company general accounts, the insurance company general account
satisfies the applicable conditions of such Labor Department rules so as to be
treated as not holding plan assets of a Benefit Plan under such Labor Department
rules. Insurance company general accounts who are Purchasers of the Certificates
issued by a Trust that also issues Notes shall be deemed to represent and
warrant that the acquisition and holding of such Certificates satisfy the
applicable conditions of Section III of PTE 95-60 and/or Labor Department rules
on insurance company general accounts, as applicable.
TRUSTS THAT DO NOT ISSUE NOTES
The following discussion applies only to nonsubordinated Certificates
(referred to herein as "Senior Certificates") issued by a Trust that does not
issue Notes.
The related Prospectus Supplement will indicate whether the lead
underwriter named therein has been granted by the U.S. Department of Labor, an
exemption as amended by PTE 97-34 (the "Exemption") from certain of the
prohibited transaction rules of ERISA with respect to the initial purchase, the
holding and the subsequent resale by Benefit Plans of certificates representing
interests in asset-backed pass-through trusts that consist of certain
receivables, loans and other obligations that meet the conditions and
requirements of the Exemption. The receivables covered by the Exemption include
motor vehicle installment sales contracts such as the Receivables. The assets of
the trust may also consist of cash transferred to the trust on the closing date
and permitted investments therewith which are credited to a pre-funding account
established to purchase additional obligations with respect to which certain
prescribed conditions set forth for transfers to the trust during the
pre-funding period in exchange for amounts credited to the pre-funding account
are met and/or are credited to a
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capitalized interest account, and are held in the trust for a period ending no
later than the first distribution date to certificateholders after the end of
the pre-funding period.
Among the conditions which must be satisfied for the Exemption to apply to
the Senior Certificates are the following:
(1) the acquisition of the Senior Certificates by a Benefit Plan is on
terms (including the price for the Senior Certificates) that are at least
as favorable to the Benefit Plan as they would be in an arm's length
transaction with an unrelated party;
(2) the rights and interests evidenced by the Senior Certificates
acquired by the Benefit Plan are not subordinated to the rights and
interests evidenced by other certificates of the Trust;
(3) the Senior Certificates acquired by the Benefit Plan have received
a rating at the time of such acquisition that is in one of the three
highest generic rating categories from either Standard & Poor's Ratings
Services, Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co.
or Fitch Investors Service, L.P.;
(4) the Trustee is not an affiliate of any other member of the
Restricted Group (as defined below);
(5) the sum of all payments made to the underwriters in connection
with the distribution of the Senior Certificates represents not more than
reasonable compensation for underwriting the Senior Certificates; the sum
of all payments made to and retained by the Seller pursuant to the sale of
the Receivables to the Trust represents not more than the fair market value
of such Receivables; and the sum of all payments made to and retained by
the Servicer represents not more than reasonable compensation for the
Servicer's services under the Sale and Servicing Agreement and
reimbursement of the Servicer's reasonable expenses in connection
therewith;
(6) the Benefit Plan investing in the Senior Certificates is an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of the
Commission under the Securities Act; and
(7) in the event that the obligations used to fund a trust have not
been transferred to the trust on the closing date, specified additional
obligations may be transferred to the trust during the prefunding period in
exchange for amounts credited to the pre-funded account provided that
certain prescribed conditions are met.
Moreover, the Exemption would provide relief from certain
self-dealing/conflict of interest or prohibited transactions only if, among
other requirements, (i) in the case of the acquisition of Senior Certificates in
connection with the initial issuance, at least fifty (50) percent of the Senior
Certificates are acquired by persons independent of the Restricted Group and at
least 50 percent of the aggregate interest in the trust is acquired by persons
independent of the Restricted Group, (ii) the Benefit Plan's investment in
Senior Certificates does not exceed twenty-five (25) percent of all of the
Senior Certificates outstanding at the time of the acquisition, and (iii)
immediately after the acquisition, no more than twenty-five (25) percent of the
assets of the Benefit Plan are invested in certificates representing an interest
in one or more trusts containing assets sold or serviced by the same entity. The
Exemption does not apply to Benefit Plans sponsored by the Seller, any
underwriter, the Trustee, the Servicer, any Obligor with respect to Receivables
included in the Trust constituting more than five percent of the aggregate
unamortized principal balance of the assets in the Trust, or any affiliate of
such parties (the "Restricted Group").
The related Prospectus Supplement will indicate whether the Seller believes
that all conditions of the Exemption other than those within the control of the
investors have been met with respect to the Senior Certificates, and whether the
Senior Certificates may be acquired by Benefit Plans.
Subject to the following paragraph, because any Certificates issued by a
Trust that are subordinate to any other class of Securities (the "Subordinate
Certificates") will not be eligible for the relief afforded by the Exemption,
such Subordinate Certificates may not be acquired with the assets of a Benefit
Plan. Each purchaser of a Subordinate Certificate shall be deemed to represent
and warrant that it is not acquiring or holding the Subordinate Certificate with
the assets of a Benefit Plan.
Section III of PTE 95-60, applicable to insurance company general accounts,
provides an exemption from certain of the prohibited transaction rules for the
purchase and holding by Benefit Plans of certificates
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representing interests in asset-backed pass-through trusts that consist of
certain receivables, loans and other obligations, provided that the conditions
and requirements of the Exemption are satisfied, other than the rating and the
nonsubordination requirements. Accordingly, notwithstanding the immediately
preceding paragraph, if the applicable requirements of the Exemption are
satisfied an insurance company general account that is treated as holding plan
assets of a Benefit Plan is eligible to acquire and hold the Subordinate
Certificates but only if: (i) prior to the effective date of Labor Department
rules on insurance company general accounts, the acquisition and holding satisfy
the applicable conditions of Section III of PTE 95-60 and (ii) on and after the
effective date of Labor Department rules on insurance company general accounts,
the insurance company general account satisfies the applicable conditions of
such Labor Department rules so as to be treated as not holding plan assets of a
Benefit Plan under such Labor Department rules. Insurance company general
accounts who are Purchasers of the Subordinate Certificates shall be deemed to
represent and warrant that the acquisition and holding of such Subordinate
Certificates satisfy the applicable conditions of Section III of PTE 95-60
and/or Labor Department rules on insurance company general accounts, as
applicable.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement with
respect to the Notes, if any, of a given series and an underwriting agreement
with respect to the Certificates of such series (collectively, the "Underwriting
Agreements"), the Seller will agree to cause the related Trust to sell to the
underwriters named therein and in the related Prospectus Supplement, and each of
such underwriters will severally agree to purchase, the principal amount of each
class of Notes and Certificates, as the case may be, of the related series set
forth therein and in the related Prospectus Supplement.
In each of the Underwriting Agreements with respect to any given series of
Securities, the several underwriters will agree, subject to the terms and
conditions set forth therein, to purchase all the Notes and Certificates, as the
case may be, described therein which are offered hereby and by the related
Prospectus Supplement if any of such Notes and Certificates, as the case may be,
are purchased.
Each Prospectus Supplement will either (i) set forth the price at which
each class of Notes and Certificates, as the case may be, being offered thereby
will be offered to the public and any concessions that may be offered to certain
dealers, if any, participating in the offering of such Notes and Certificates or
(ii) specify that the related Notes and Certificates, as the case may be, are to
be resold by the underwriters in negotiated transactions at varying prices to be
determined at the time of such sale. After the initial public offering of any
such Notes and Certificates, such public offering prices and such concessions
may be changed.
Each Underwriting Agreement will provide that the Seller will indemnify the
underwriters against certain civil liabilities, including liabilities under the
Securities Act, or contribute to payments the several underwriters may be
required to make in respect thereof.
Each Trust may, from time to time, invest the funds in its Trust Accounts
in Permitted Investments acquired from such underwriters or from the Seller.
Pursuant to each Underwriting Agreement with respect to a given series of
Securities, the closing of the sale of any class of Securities subject to such
Underwriting Agreement will be conditioned on the closing of the sale of all
other such classes of Securities of that series.
This Prospectus may be used by McDonald Investments Inc., A KeyCorp Company
("McDonald Investments"), an affiliate of the Affiliates, the Servicer, the
Seller and KeyCorp, or its successors, in connection with offers and sales
related to market-making transactions in the Securities in which McDonald
Investments acts as principal. McDonald Investments may also act as agent in
such transactions. McDonald Investments is a member of the New York Stock
Exchange, Inc. Transactions will be at prices related to the prevailing prices
at the time of sale. McDonald Investments is not a bank or thrift, is a
subsidiary of KeyCorp and an entity separate from any Affiliate, and is solely
responsible for its contractual obligations and commitments. The portion of the
net proceeds paid to the Seller will be used to purchase the Receivables from
the Affiliates.
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Pursuant to an Agreement and Plan of Merger dated as of June 15, 1998
between KeyCorp and McDonald & Company Investments, Inc. ("McDonald"), a full
service investment banking and securities brokerage company headquartered in
Cleveland, Ohio, on October 23, 1998, McDonald was merged with and into KeyCorp.
On November 9, 1998, the merger of Key Capital Markets, Inc., a wholly-owned
broker-dealer subsidiary of KeyCorp, into the McDonald & Company Securities,
Inc. (a wholly-owned subsidiary of the former McDonald) was completed and the
surviving entity was renamed McDonald Investments Inc., A KeyCorp Company.
McDonald Investments may engage in market making transactions as described
above.
The place and time of delivery for the Securities in respect of which this
Prospectus is delivered will be set forth in the related Prospectus Supplement.
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NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Securities in Canada is being made only on a
private placement basis exempt from the requirement that each Trust prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of the Securities are effected. Accordingly, any resale of the
Securities in Canada must be made in accordance with applicable securities law
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or pursuant
to a discretionary exemption granted by the applicable Canadian securities
regulatory authority. Purchasers are advised to seek legal advice prior to any
resale of the Securities.
REPRESENTATION OF PURCHASERS
Each purchaser of Securities in Canada who receives a purchase confirmation
will be deemed to represent to the Seller, the applicable Trust and the dealer
from whom such purchase confirmation is received that (i) such purchaser is
entitled under applicable provincial securities laws to purchase such Securities
without the benefit of a prospectus qualified under such securities laws, (ii)
where required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
The applicable Trust, the Seller, the Bank, the Servicer and the Applicable
Trustee and their respective directors and officers, if any, as well as the
experts named herein, may be located outside of Canada and, as a result, it may
not be possible for Ontario purchasers to effect service of process within
Canada upon the Seller or such persons. All or a substantial portion of the
assets of the Seller and such persons may be located outside of Canada and, as a
result, it may not be possible to satisfy a judgment against the Seller or such
persons in Canada or to enforce a judgment obtained in Canadian courts against
such Seller or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of the Securities to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any of
the Securities acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #88/5. Only one such report must be filed in respect of the Securities
acquired on the same date and under the same prospectus exemption.
LEGAL OPINIONS
Certain legal matters relating to the Securities of any series will be
passed upon for the related Trust, the Seller and the Servicer by Forrest F.
Stanley, Esq., General Counsel of the Bank, by Mayer, Brown & Platt, Chicago,
Illinois and by Thompson Hine & Flory LLP, Cleveland, Ohio. Certain legal
matters will be passed upon for the Underwriters by Mayer, Brown & Platt,
Chicago, Illinois. Thompson Hine & Flory LLP and Mayer, Brown & Platt may from
time to time render legal services to the Seller, the Servicer and their
affiliates.
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INDEX OF TERMS
<TABLE>
<S> <C>
Acquired Receivables........................................ 8
Act......................................................... 59
Actuarial Receivables....................................... 23
Additional Yield Supplement Amount.......................... 49
Administration Agreement.................................... 54
Administration Fee.......................................... 54
Administrator............................................... 54
Affiliate................................................... 8
Applicable Trustee.......................................... 38
Bank........................................................ 4
Bankruptcy Code............................................. 16
Base Rate................................................... 36
Benefit Plan................................................ 60
Bulk Purchases.............................................. 25
Business Day................................................ 47
Calculation Agent........................................... 36
Cede........................................................ 21
Cedel....................................................... 39
Cedel Participants.......................................... 39
Certificate Balance......................................... 6
Certificate Distribution Account............................ 44
Certificate Owners.......................................... 6
Certificate Pool Factor..................................... 28
Certificate Rate............................................ 6
Certificateholders.......................................... 10
Certificates................................................ 1
Closing Date................................................ 7
Code........................................................ 58
Collection Account.......................................... 44
Collection Period........................................... 46
Commission.................................................. 2
Contract Rate............................................... 12
Cooperative................................................. 39
Cutoff Date................................................. 21
Dealer...................................................... 8
Dealer Agreements........................................... 7
Dealer Recourse............................................. 21
Definitive Certificates..................................... 40
Definitive Notes............................................ 40
Definitive Securities....................................... 40
Depositaries................................................ 37
Depository.................................................. 30
Direct Loans................................................ 8
Distribution Date........................................... 35
DTC......................................................... 21
DTC Participants............................................ 37
DTC's Nominee............................................... 21
Eligible Deposit Account.................................... 46
Eligible Institution........................................ 46
Eligible Investments........................................ 45
ERISA....................................................... 13
</TABLE>
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<PAGE> 69
<TABLE>
<S> <C>
Euroclear................................................... 39
Euroclear Operator.......................................... 39
Euroclear Participants...................................... 39
Events of Default........................................... 32
Exchange Act................................................ 2
Exemption................................................... 61
FDIC........................................................ 17
Federal Tax Counsel......................................... 59
Final Scheduled Distribution Date........................... 19
Final Scheduled Maturity Date............................... 12
Financed Vehicles........................................... 7
FIRREA...................................................... 17
Fixed Rate Securities....................................... 36
Floating Rate Securities.................................... 36
Flow Agreement.............................................. 25
Flow Parties................................................ 25
Flow Purchases.............................................. 25
FTC Rule.................................................... 57
Funding Period.............................................. 6
GAAP........................................................ 53
Indenture................................................... 4
Indenture Trustee........................................... 1
Indirect Participants....................................... 37
Initial Receivables......................................... 7
Insolvency Event............................................ 51
Insolvency Laws............................................. 16
Interest Rate............................................... 4
Interest Reset Period....................................... 36
Investment Earnings......................................... 46
IRS......................................................... 58
Issuer...................................................... 4
KeyCorp..................................................... 29
LIBOR....................................................... 36
McDonald.................................................... 64
McDonald Investments........................................ 63
Motor Vehicle Loans......................................... 8
Note Distribution Account................................... 44
Note Owners................................................. 4
Note Pool Factor............................................ 28
Noteholders................................................. 9
Notes....................................................... 1
Obligor..................................................... 21
Original Pool Balance....................................... 53
Originator.................................................. 8
PAC......................................................... 31
Participants................................................ 30
Payahead Account............................................ 45
Payahead Balance............................................ 47
Payaheads................................................... 45
Payment Date................................................ 31
Permitted Investments....................................... 45
Plan Asset Regulation....................................... 61
Pool Balance................................................ 28
</TABLE>
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<TABLE>
<S> <C>
Pooling and Servicing Agreement............................. 8
Pre-Funded Amount........................................... 8
Pre-Funding Account......................................... 5
Precomputed Receivables..................................... 23
Prepayments................................................. 14
Primary Originator.......................................... 8
Prospectus Supplement....................................... 1
PTE......................................................... 61
Purchase Amount............................................. 44
Rating Agencies............................................. 20
Receivables................................................. 1
Receivables Pool............................................ 21
Registration Statement...................................... 2
Related Documents........................................... 34
Relief Act.................................................. 56
Required Rate............................................... 49
Required Yield Supplement Amount............................ 49
Reserve Account............................................. 48
Restricted Group............................................ 62
Revolving Account........................................... 10
Revolving Period............................................ 10
Rule of 78's Receivables.................................... 23
Sale and Servicing Agreement................................ 7
Schedule of Receivables..................................... 43
Securities.................................................. 1
Securities Act.............................................. 2
Security Owners............................................. 21
Securityholders............................................. 10
Seller...................................................... 1
Senior Certificates......................................... 61
Servicer.................................................... 1
Servicer Termination Events................................. 51
Servicing Fee............................................... 47
Servicing Fee Rate.......................................... 47
Simple Interest Receivables................................. 24
Specified Reserve Account Balance........................... 11
Spread...................................................... 36
Spread Multiplier........................................... 36
Strip Certificates.......................................... 6
Strip Notes................................................. 5
Strip Securities............................................ 6
Subordinate Certificates.................................... 62
Subsequent Receivables...................................... 8
Subsequent Transfer Date.................................... 43
Subsidiary.................................................. 8
Sum of Periodic Balances Receivables........................ 23
Supplemental Servicing Fees................................. 47
TAC......................................................... 31
Terms and Conditions........................................ 39
Transfer and Servicing Agreement............................ 8
Trust....................................................... 1
Trust Accounts.............................................. 45
Trust Agreement............................................. 4
</TABLE>
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<TABLE>
<S> <C>
Trustee..................................................... 1
UCC......................................................... 44
Underwriter................................................. 14
Underwriting Agreements..................................... 62
Warehouse Financing......................................... 22
Yield Supplement Account.................................... 45
Yield Supplement Agreement.................................. 49
Yield Supplement Amount..................................... 49
</TABLE>
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION
PROCEDURES
Except in certain limited circumstances, the globally offered Key Auto
Finance Trust Asset Backed Notes and Asset Backed Certificates (the "Global
Securities") 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 Securities 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 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
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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 pre-position 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 to finance the 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
will instruct the respective Depositary, as appropriate, to deliver the 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 date (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 least 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;
A-2
<PAGE> 74
(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
Subject to the discussion below concerning final withholding tax Treasury
regulations, 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 Securities
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 Security 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 Security 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 (Request for Taxpayer
Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Security 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 (unless the IRS provides otherwise by
Treasury regulations) organized in or under the laws of the United States or any
political subdivision thereof, (iii) an estate or, for taxable years beginning
before January 1, 1997, a trust the income of which is includible in gross
income for United States tax purposes, regardless of its source or, (iv) for
taxable years beginning after December 31, 1996, a trust if a U.S. court is able
to exercise primary supervision over the administration of the trust and one of
more U.S. persons have the authority to control all substantial decisions of the
trust. 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.
On October 6, 1997, final Treasury regulations (the "Withholding Tax
Regulations") were issued that modify certain of the filing requirements with
which non-U.S. persons must comply in order to be entitled to an
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<PAGE> 75
exemption from U.S. withholding tax or a reduction to the applicable U.S.
withholding tax rate. Those persons currently required to file Form W-8
generally will continue to be required to file that form. However, the
requirement that non-U.S. persons submit Form W-8 is extended to most non-U.S.
persons who wish to seek an exemption from withholding tax on the basis that
income from the Global Securities is effectively connected with the conduct of a
U.S. trade or business (in lieu of Form 4224) and to non-U.S. persons wishing to
rely on a tax treaty to reduce the withholding tax rate (in lieu of Form 1001).
The Withholding Tax Regulations generally are effective for payments of interest
due after December 31, 1999, but Forms 4224 and 1001 filed prior to that date
will continue to be effective until the earlier of December 31, 2000 or the
current expiration date of those forms. Prospective investors are urged to
consult their tax advisors with respect to the effect of the Withholding Tax
Regulations.
A-4
<PAGE> 76
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED __________, 199_
PRELIMINARY GRANTOR TRUST PROSPECTUS SUPPLEMENT FORM
(To Prospectus dated __________, 199_)
[$--------------]
Key Auto Finance Trust 199_ - _
$____________________ ____% Asset Backed Certificates, Class A
$____________________ ____% Asset Backed Certificates, Class B
Key Consumer Acceptance Corporation
Seller
Key Bank USA, National Association
Servicer
The Key Auto Finance Trust 199__-__ (the "Trust") will be formed pursuant to a
Pooling and Servicing Agreement, to be dated as of _________, 199__, among
Key Consumer Acceptance Corporation, as seller (the "Seller"), Key Bank
USA, National Association in its capacity as servicer (in such
capacity, the "Servicer"), and ___________, as Trustee. The Trust
will issue $_________ aggregate principal amount of ____% Asset
Backed Certificates, Class A (the "Class A Certificates"),
and $________ aggregate principal amount of ____% Asset
Backed Certificates, Class B (the "Class B
Certificates" and, together with the Class A Certifi-
cates, the "Certificates"). The Class A Certificates
will evidence in the aggregate an approximate ___%
undivided ownership in the Trust and the Class B
Certificates will evidence in the aggregate an
approximate ___% undivided ownership interest
in the Trust. The rights of the Class B Cer-
tificateholders to receive distributions
with respect to the Receivables are
subordinated to the rights of the
Class A Certificateholders to the
extent described herein. See
"Description of the Certif-
icates--Distributions." The
Trust property will include a
pool of motor vehicle promissory
notes and security agreements
and/or retail installment sale
contracts secured by new or used
automobiles and light duty trucks
(collectively, the "Receivables"),
payments received thereunder after
____________, 199_, security interests
in the motor vehicles financed thereby,
rights under Dealer Agreements, rights
under Purchase Agreements, rights with
respect to deposit accounts in which
collections are held, any proceeds from
claims on certain insurance policies
and the proceeds of the foregoing.
(cover continued on following next page)
------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER THE MATERIAL RISKS INVOLVED WITH AN
INVESTMENT IN THE SECURITIES DISCUSSED IN THE "RISK FACTORS" SET FORTH AT PAGE
S-__ HEREIN AND AT PAGE ___ IN THE ACCOMPANYING PROSPECTUS (THE "PROSPECTUS").
[AS APPLICABLE: ALL OF THE RECEIVABLES ARE OWED BY HIGHER RISK OBLIGORS THAN
OBLIGORS OF MOTOR VEHICLE LOANS ORIGINATED BY TRADITIONAL FINANCING SOURCES.
SIGNIFICANT DELINQUENCIES, ESPECIALLY IF COMBINED WITH SIGNIFICANT LOSSES ON
THE RECEIVABLES, MAY RESULT IN THE INABILITY TO MAKE FULL OR TIMELY PAYMENTS OF
INTEREST OR PRINCIPAL ON EACH CLASS OF NOTES BECAUSE NO PERSON IS OBLIGATED TO
ADVANCE DELINQUENT PAYMENTS ON THE RECEIVABLES.]
THE CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND DO NOT
REPRESENT OBLIGATIONS OF OR INTERESTS IN THE KEY CONSUMER ACCEPTANCE
CORPORATION, KEY BANK USA, NATIONAL ASSOCIATION OR ANY OF THEIR
AFFILIATES. NEITHER THE CERTIFICATES NOR THE RECEIVABLES ARE
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE COR-
PORATION, ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY
OR BY KEY CONSUMER ACCEPTANCE CORPORATION, KEY BANK USA,
NATIONAL ASSOCIATION OR ANY OF THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions the Seller(1)(2)
------------- ------------- -----------------
<S> <C> <C> <C>
Per Class A Certificate % % %
Per Class B Certificate % % %
Total $____________ $____________ $____________
<FN>
- - - --------------------------
(1) Plus accrued interest, if any, from _______, 199__.
(2) Before deducting expenses, estimated to be $_________.
</TABLE>
------------------
The Certificates are offered by the Underwriters when, as and if issued and
accepted by the Underwriters and subject to their right to reject orders in
whole or in part. It is expected that delivery of the Certificates will be made
in book-entry form through the Same Day Funds Settlement System of The
Depository Trust Company, or through Cedel Bank, societe anonyme or the
Euroclear System, on or about _______, 199__.
After the initial distribution of the Certificates by the Underwriters, the
Prospectus and this Prospectus Supplement may be used by McDonald Investments
Inc., A KeyCorp Company ("McDonald Investments"), an affiliate of the Seller,
in connection with market making transactions in the Certificates. McDonald
Investments may act as principal or agent in such transactions. Such
transactions will be at prices related to prevailing market prices at the time
of sale. Certain information in this Prospectus Supplement will be updated from
time to time as described in "Incorporation of Certain Documents by Reference."
__________________, 19 __.
<PAGE> 77
Certain capitalized terms used in this Prospectus Supplement are
defined in this Prospectus Supplement on the pages indicated in the "Index of
Terms" on page ___ of this Prospectus Supplement or, to the extent not defined
herein, have the meanings assigned to such terms in the Prospectus. Principal
and interest to the extent of the Class A Certificate Rate or Class B
Certificate Rate, as appropriate, generally will be distributed on the [15th]
day of each month (the "Distribution Date") commencing ________, 199__. The
Final Scheduled Distribution Date on the Certificates will be in ____________,
199__ (the "Final Scheduled Distribution Date").
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT
THE OFFERING OF THE CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
There is currently no secondary market for the Certificates offered
hereby and there is no assurance that one will develop. Each Underwriter
expects, but it is not obligated, to make a market in the Certificates. There
can be no assurance that a secondary market will develop, or that it will
provide Certificateholders with liquidity of investment or that it will continue
for the life of the Certificates offered hereby.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, monthly and annual
unaudited reports containing information concerning the Receivables will be
prepared by the Servicer and sent on behalf of the Trust only to Cede & Co., as
nominee of the Depository Trust Company and registered holder of the
Certificates. See "Certain Information Regarding the Securities--Book-Entry
Registration" and "--Reports to Securityholders" in the accompanying Prospectus.
Such reports will not constitute financial statements prepared in accordance
with generally accepted accounting principles. The Seller, as originator of the
Trust, will file with the Securities and Exchange Commission (the "Commission")
such periodic reports as are required under the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission thereunder. In
addition, the Commission maintains a public access site on the Internet through
the World Wide Web at which site reports, information statements and other
information, including all electronic filings, may be viewed. The Internet
address of such World Wide Web site is http://www.sec.gov.
S-2
<PAGE> 78
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
Prospectus. Certain capitalized terms used herein are defined elsewhere in this
Prospectus Supplement on the pages indicated in the "Index of Terms" beginning
at page S-__ or, to the extent not defined herein, have the meanings assigned to
such terms in the Prospectus.
<TABLE>
<CAPTION>
<S> <C>
Issuer................................ Key Auto Finance Trust 199_-_ (the "Trust" or the "Issuer"), a
trust established pursuant to a Pooling and Servicing
Agreement, to be dated as of ______, 199__ (as amended
and supplemented from time to time, the "Agreement"),
among the Seller, the Servicer and the Trustee.
Seller................................ Key Consumer Acceptance Corporation, a Delaware corporation
(the "Seller"). See "The Seller."
Servicer.............................. Key Bank USA, National Association a national banking
association (the "Bank" or in its capacity as servicer, the
"Servicer").
Trustee............................... _________________________, a ____________ banking
corporation, as trustee under the Agreement (the "Trustee").
The principal offices of the Trustee from which information
regarding the Trust and the Certificates are located at
_________________.
The Certificates...................... The Trust will issue Asset Backed Certificates pursuant to the
Agreement in an aggregate initial principal amount of
$_______. The Certificates represent fractional undivided
interests in the Trust.
The Certificates will consist of $_____ aggregate principal
amount of ____% Asset Backed Certificates, Class A (the
"Class A Certificates"), and $_____ aggregate principal
amount of ____% Asset Backed Certificates, Class B (the
"Class B Certificates"). The Trust assets will include a pool
of motor vehicle promissory notes and security agreements
and/or retail installment sale contracts secured by new or
used automobiles or light duty trucks (collectively, the
"Receivables"), all monies received thereunder on and after
__________, 199__ (the "Cutoff Date"), security interests in
the vehicles financed thereby (the "Financed Vehicles"),
certain rights under Dealer Agreements, certain Eligible
Deposit Accounts in which collections are held, any proceeds
from claims on certain insurance policies and the proceeds of
the foregoing. The Certificates will be issued in fully
registered form in denominations of $1,000 and integral
multiples thereof.
The Class A Certificates will evidence in the aggregate an
approximate ___% undivided ownership interest (the "Class
A Percentage") in the Trust, and the Class B Certificates will
evidence in the aggregate an approximate _____% undivided
</TABLE>
S-3
<PAGE> 79
<TABLE>
<CAPTION>
<S> <C>
ownership interest (the "Class B Percentage") in the Trust.
The Class B Certificates are subordinated to the Class A
Certificates to the extent described herein. See "Description
of the Certificates--Distributions."
The Receivables....................... On __________, 199__ (the "Closing Date"), pursuant to the
Agreement, the Trust will purchase from the Seller
Receivables having an aggregate principal balance of
approximately $______________ as of the Cutoff Date.
The Receivables consist of (i) motor vehicle promissory notes
and security agreements executed by an Obligor in favor of
a motor vehicle lender ("Direct Loans") and/or (ii) motor
vehicle retail installment sales contracts between an Obligor
and a vehicle dealer (collectively, "Motor Vehicle Loans").
Direct Loans include promissory notes and security agreements
for which a Dealer performed certain ministerial loan processing
functions on behalf of the lender. In addition, the Receivables
Pool includes Motor Vehicle Loans acquired by an Affiliate
through acquisitions or Motor Vehicle Loans originated by a
bank, financial institution or other entity acquired by an
Affiliate ("Acquired Receivables"). "Originator" means, with
respect to any Motor Vehicle Loan, the Affiliate that (i) was
the lender with respect to a Direct Loan made by an Affiliate
or (ii) acquired such Motor Vehicle Loan from a Dealer or other
third party. "Affiliate" means a bank or other nonbank entity
owned or acquired by KeyCorp or by its subsidiaries. "Subsidiary"
includes both direct and indirect subsidiaries. As of the date
of this Prospectus Supplement, the Bank is the only KeyCorp
subsidiary that makes or acquires Motor Vehicle Loans. See "The
Receivables Pool" herein and "The Receivables Pools" in the
Prospectus.
The Receivables have been selected from the Motor Vehicle
Loans owned by the Affiliate based on the criteria specified
in the Agreement and described herein and in the Prospectus.
See "The Receivables Pool" herein and "The Receivables
Pools" in the Prospectus. No Receivable has or will have a
scheduled maturity that, after giving prospective effect to any
permitted extensions or deferrals, would be later than
_________, 199__ (the "Final Scheduled Maturity Date"). As
of the Cutoff Date, the weighted average annual percentage
rate of the Receivables was approximately ______% per
annum, the weighted average remaining term to maturity of
the Receivables was approximately _____ months and the
weighted average original term to maturity of the
Receivables was approximately _____ months. As of the
Cutoff Date, approximately _____% of the aggregate
principal balance of the Receivables represented financing of
new vehicles and the remainder represented financing of used
vehicles.
</TABLE>
S-4
<PAGE> 80
<TABLE>
<CAPTION>
<S> <C>
The "Pool Balance" means, at any time, the sum of the
outstanding Principal Balances of the Receivables. The
"Principal Balance" for any Receivable, at any time, means
the principal balance of such Receivable at the end of the
preceding Collection Period, after giving effect to all
payments received from Obligors and Purchase Amounts to
be remitted by the Servicer or the Seller, as the case may be,
for such Collection Period and all losses realized on
Receivables liquidated during such Collection Period.
Terms of the Certificates
A. Distribution Dates............... Distributions with respect to the Certificates will be made on the
15th day of each month or, if any such day is not a Business
Day, on the next succeeding Business Day (each, a
"Distribution Date"), commencing __________, 199__.
Distributions will be made to Certificateholders of record as
of the last Business Day of the Collection Period
immediately preceding the applicable Distribution Date (each,
a "Record Date"). A "Business Day" is a day that is not a
Saturday or a Sunday and a day that in New York City,
Cleveland, Ohio and _____________, Delaware, is neither a
legal holiday nor a day on which banking institutions are
authorized by law, regulation or executive order to be closed.
"Collection Period" means (a) the period from (but not
including) the Cutoff Date to and including __________,
199__ and (b) thereafter, each calendar month during the
term of the Agreement.
B. Class A Certificate Rate......... ____% per annum (the "Class A Certificate Rate").
C. Class B Certificate Rate......... ____% per annum (the "Class B Certificate Rate").
D. Interest......................... On each Distribution Date, interest at the Class A Certificate
Rate on the Class A Certificate Balance and interest at the
Class B Certificate Rate on the Class B Certificate Balance,
in each case as of the immediately preceding Distribution
Date (after giving effect to all payments of principal made on
such preceding Distribution Date) will be paid to the holders
of record of the Class A Certificates ("Class A
Certificateholders") and the holders of record of the Class B
Certificates ("Class B Certificateholders"; the Class A
Certificateholders and the Class B Certificateholders are
collectively referred to herein as the "Certificateholders") as
of the Record Date to the extent that sufficient funds are on
deposit for such Distribution Date in the Collection Account
or available in the Reserve Account to make such
distribution. See "Description of the Certificates--Distributions"
and "--Accounts" herein. The rights of Class B Certificateholders
to receive payments of interest will be subordinated to the
rights of the Class A Certificateholders to receive payments of
interest to the extent described herein. See "Description of the
</TABLE>
S-5
<PAGE> 81
<TABLE>
<CAPTION>
<S> <C>
Certificates--Distributions." Interest in respect of a
Distribution Date will accrue from the preceding Distribution
Date (or, for the first Distribution Date, from ______, 199__)
to and including such Distribution Date.
E. Principal........................ On each Distribution Date, all payments of principal on the
Receivables received by the Servicer during the preceding
Collection Period, as described more fully herein, plus an
amount equal to the aggregate principal balance of any
Receivables which became Defaulted Receivables during the
preceding Collection Period, will be distributed by the
Trustee pro rata to the Class A Certificateholders and to the
Class B Certificateholders of record on the preceding Record
Date, to the extent that sufficient funds are on deposit in the
Collection Account or available in the Reserve Account to
make such distribution. See "Description of the
Certificates--Distributions" and "--Accounts." The rights of
the Class B Certificateholders to receive payments of
principal will be subordinated to the rights of the Class A
Certificateholders to receive payments of interest and
principal to the extent described herein. See "Description of
the Certificates--Distributions." The "Class A Certificate
Balance" and "Class B Certificate Balance" will initially
equal $________ and $_________, respectively, and, in each
case, will thereafter equal the initial Class A Certificate
Balance or the initial Class B Certificate Balance, as the case
may be, reduced by all principal distributions on the Class A
Certificates and the Class B Certificates, respectively.
F. Optional Prepayment.............. If the Pool Balance as of the last day of a Collection Period has
declined to 5% or less of the Original Pool Balance, the
Seller or Servicer may purchase all remaining Trust Property
on any Distribution Date occurring in a subsequent
Collection Period at a purchase price equal to the aggregate
of the Purchase Amounts of the remaining Receivables (other
than Defaulted Receivables), which would result in a
prepayment of the Certificates. The "Original Pool Balance"
will equal the Pool Balance as of the Cutoff Date. See
"Description of the Certificates--Optional Prepayment."
Subordination of Class B
Certificates.......................... Distributions of interest and principal on the Class B Certificates
will be subordinated in priority of payment to interest and
principal due on the Class A Certificates to the extent
described herein. See "Description of the Certificates--Distributions."
The Class B Certificateholders will not receive any distributions of
interest with respect to a Collection Period until the full amount
of interest on the Class A Certificates relating to such Collection
Period has been deposited in the Class A Distribution Account. The
Class B Certificateholders will not receive any distributions
of principal with respect to such Collection Period until the
full amount of interest on and principal of the Class A
Certificates relating to such Collection Period has been
</TABLE>
S-6
<PAGE> 82
<TABLE>
<CAPTION>
<S> <C>
deposited in the Class A Distribution Account. See "Risk
Factors--Subordination and "--Limited Assets" in the
Prospectus.
[Pre-Funding Account]................. [During the period (the "Funding Period") from and including
the Closing Date until the earliest of (i) the
Determination Date on which (a) the Pre-Funded Amount
is less than $ , (b) an Event of Default has
occurred under the Indenture or a Servicer Termination
Event has occurred under the Sale and Servicing
Agreement, (c) certain events of insolvency have occurred
with respect to the Seller or the Servicer or (ii) the close
of business on the [Date] Distribution Date, the
Pre-Funded Amount will be maintained in an account in
the name of the Indenture Trustee (the "Pre-Funding
Account"), The Pre-Funded Amount is expected to initially
equal approximately $ and, during the
Funding Period, will be reduced by the principal balance
of Subsequent Receivables purchased by the Trust from
time to time in accordance with the Sale and Servicing
Agreement. The Seller expects that the Pre-Funded
Amount will be reduced to less than $ by the
[Date] Distribution Date. Any Pre-Funded Amount
remaining at the end of the Funding Period will be
payable to the Noteholders and Certificateholders pro
rata in proportion to the respective principal balances of
each class of Notes and the Certificates. See "Description
of the Transfer and Servicing Agreements -- Pre-Funding
Account; Subsequent Receivables."]
Reserve Account....................... A reserve account (the "Reserve Account") will be created with
an initial deposit by the Seller of cash or certain investments
having a value of at least $________ (the "Reserve Account
Initial Deposit"). In addition, on each Distribution Date, any
amounts on deposit in the Collection Account with respect to
the preceding Collection Period after payments to the
Certificateholders and the Servicer have been made will be
deposited into the Reserve Account until the amount on
deposit in the Reserve Account is equal to the Specified
Reserve Account Balance.
On or prior to the Business Day preceding each Distribution
Date (the "Deposit Date"), the Trustee will withdraw funds
from the Reserve Account, to the extent of the funds therein
(exclusive of investment earnings), to the extent (a) the sum
of the amounts required to be distributed to Certificateholders
and the Servicer on the related Distribution Date exceeds (b)
the amount on deposit in the Collection Account with respect
to the preceding Collection Period (net of investment
income). If the amount on deposit in the Reserve Account is
reduced to zero, Certificateholders will bear the credit and
other risks associated with ownership of the Receivables,
including the risk that the Trust may not have a perfected
security interest in the Financed Vehicles. See "Risk Factors"
herein and in the Prospectus, "Description of the
Certificates--Accounts" herein and "Certain Legal Aspects of
the Receivables" in the Prospectus.
Tax Status............................ In the opinion of Thompson Hine & Flory LLP, the Trust
will be treated as a grantor trust for federal income tax
purposes and will not be subject to federal income tax.
Accordingly, the Certificateholders will be treated as owners
of the Receivables for federal income tax purposes.
Certificateholders will report their pro rata share of all
income earned on the Receivables (other than amounts, if
any, treated as "stripped coupons") and, subject to certain
limitations in the case of Certificateholders who are
individuals, trusts, or estates, may deduct their pro rata share
of reasonable servicing and other fees. See "Federal Income
Tax Consequences" and "State Tax Consequences" in the Prospectus
for additional information concerning the application of federal
and state tax laws to the Trust and the Securities.
ERISA Considerations.................. Subject to the considerations discussed under "ERISA
Considerations" herein and in the Prospectus, the Class A
Certificates are eligible for purchase by employee benefit
plans.
</TABLE>
S-7
<PAGE> 83
<TABLE>
<CAPTION>
<S> <C>
The Class B Certificates and any beneficial interest in such
Class B Certificates may not be acquired with the assets of
an employee benefit plan subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or
with the assets of an individual retirement account. The
Class B Certificates are eligible to be acquired and held by
insurance company general accounts. See "ERISA Considerations"
herein and in the Prospectus.
Risk Factors.......................... See "Risk Factors" herein and in the Prospectus for a discussion
of certain factors that potential investors should consider in
determining whether to invest in the Certificates.
[No] Listing of
Certificates.......................... [The Certificates will not be listed on any national securities
exchange or on any automated quotation system of a
registered securities association.] [The Certificates will be
listed on the _____________.]
Ratings of the Certificates........... It is a condition to the issuance of the Class A Certificates that
they be rated in the highest investment rating category by at
least two nationally recognized rating agencies (the "Rating
Agencies"), and it is a condition to the issuance of the Class
B Certificates that they be rated by at least two nationally
recognized rating agencies in the "A" category. There can be
no assurance that a rating will not be lowered or withdrawn
by a rating agency if circumstances so warrant. See "Risk
Factors--Ratings of the Securities" in the Prospectus and
"Risk Factors--Ratings of the Certificates" herein.
</TABLE>
S-8
<PAGE> 84
RISK FACTORS
In addition to the other information contained herein and in the
Prospectus, prospective investors should consider carefully the following risk
factors and the information contained in "Risk Factors" in the Prospectus.
[AS APPLICABLE: HIGHER RISK CREDIT QUALITY OF THE RECEIVABLES POOL
The Receivables Pool consists entirely of Motor Vehicle Loans
purchased by AutoFinance Group that were made by Dealers to a broad array of
obligors which failed to meet one or more of the credit standards or criteria
of traditional lenders such as banks and the finance subsidiaries of major
automotive manufacturers or affiliated distributors, and therefore, were
considered "credit impaired." Such obligors generally have lower levels of
gross income and net worth, tend to have higher levels of delinquencies on
their existing debt obligations and may previously have defaulted on their
installment or revolving debt obligations or have declared bankruptcy in the
past.
AutoFinance Group has established various guidelines to assist it in
identifying obligors that may qualify for financing despite being considered
credit impaired under traditional credit standards. These guidelines, which are
included in its judgmental credit evaluation process and are subject to
override by senior credit underwriting personnel, include a minimum gross
monthly income level which varies by state and generally ranges from $1,200 to
$1,500, a maximum debt to gross income ratio of 40% (inclusive of the proposed
obligation and insurance on the vehicle) unless the applicant earns
substantially more than the minimum gross monthly income, and a minimum
verifiable employment and residence history of at least 3 years. In addition,
AutoFinance Group generally requires previous installment credit performance
with a record of six months paid as agreed. AutoFinance Group also generally
limits the amount it will advance on a vehicle to no more than 110% of the
vehicle's value, based upon the wholesale book value as defined by an
independent valuation organization for used vehicles or the dealer invoice
value for new vehicles. AutoFinance Group typically also finances the cost of
title and registration fees and taxes. In addition, AutoFinance Group finances
the price of extended service contracts or warranties from approved providers,
credit related insurance premiums and other items sold by the Dealer that would
be subject to a partial rebate in the event of a default by the obligor. Down
payments by the obligor are required, but the amount of such down payments vary.
The Motor Vehicle Loans that comprise the Receivables Pool bear higher
rates of interest, have higher losses, may have higher levels of delinquencies
and generally involve greater risk than loans made to obligors financed by
traditional lenders.
There is no requirement for the Servicer or Subservicer, or any other
person, to advance delinquent installment payments on the Receivables. In the
event of significant delinquencies, or the combination of significant
delinquencies and substantial losses on the Receivables, there may be
insufficient funds available to make full or timely payments of interest or
principal on all classes of Notes on a Distribution Date.]
SUBORDINATION
Distributions of interest and principal on the Class B Certificates
will be subordinated in priority of payment to interest on the Class A
Certificates. No distributions with respect to a Collection Period will be made
on the Class B Certificates until the full amount of interest on and principal
of the Class A Certificates on the related Distribution Date has been
distributed to the Class A Certificateholders.
LIMITED ASSETS
The Trust will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables and the
Reserve Account. Holders of the Certificates must rely for repayment upon
payments on the Receivables and, if and to the extent available, amounts on
deposit in the Reserve Account. Similarly, although funds in the Reserve Account
will be available on each Distribution Date to cover shortfalls in distributions
of interest and principal on the Certificates, amounts to be deposited in the
Reserve Account are limited in amount. If the Reserve Account is exhausted, the
Trust will depend solely on current distributions on the Receivables to make
payments on the Certificates.
Amounts on deposit in the Reserve Account will be available on any
Distribution Date first to cover payment of Servicing Fees to the Servicer, then
shortfalls in distributions of interest on the Class A Certificates and then
shortfalls in distributions of interest on the Class B Certificates. After
distributions of interest on the Certificates have been made, the remaining
amounts on deposit in the Reserve Account will be available first to cover
shortfalls in distributions of principal on the Class A Certificates and then
shortfalls in distributions of principal on the Class B Certificates. If the
Reserve Account is exhausted, the Trust will depend solely on payments on the
Receivables to make distributions on the Certificates, and Certificateholders
will bear the risk of delinquency, loan losses and repossessions with respect to
the Receivables. There can be no assurance that the future delinquency, loan
loss and repossession experience of the Trust with respect to the Receivables
will be better or worse than that set forth herein with respect to the Motor
Vehicle Loans serviced by the Servicer. Any amounts released from the Reserve
Account to the Seller will not be available to the Certificateholders. See "The
Receivables Pool--Pool Composition" and "Delinquency and Net Losses" and "The
Receivables Pools" in the Prospectus and "Description of the
Certificates--Reserve Account" and "Distributions."
MATURITY AND PREPAYMENT CONSIDERATIONS
As the rate of payment of principal of each class of the Certificates
depends on the rate of payment (including prepayments) of the principal balance
of the Receivables, the final distribution in respect of each class of the
Certificates could occur significantly earlier than the Final Scheduled
Distribution Date. It is expected that the final distribution in respect of the
Certificates will occur on or prior to the Final Scheduled Distribution Date.
However, if sufficient funds are not available to reduce the aggregate
Certificate Balance of either class of Certificates to zero on or prior to the
Final Scheduled Distribution Date, the final distribution in respect of such
class of Certificates could occur later than such date. See "Weighted Average
Life of the Certificates" herein and "Weighted Average Life of the Securities"
in the Prospectus.
S-9
<PAGE> 85
RATINGS OF THE CERTIFICATES
It is a condition to the issuance of the Class A Certificates that they
be rated in the highest investment rating category by at least two Rating
Agencies, and it is a condition to the issuance of the Class B Certificates that
they be rated by at least two Rating Agencies in the "A" category. A rating is
not a recommendation to purchase, hold or sell the Certificates, inasmuch as
such rating does not comment as to market price or suitability for a particular
investor. The ratings of the Certificates address the likelihood of the payment
of principal and interest on the Certificates pursuant to their terms. There can
be no assurance that a rating will remain for any given period of time or that a
rating will not be lowered or withdrawn entirely by a Rating Agency if in its
judgment circumstances in the future so warrant.
THE TRUST
The Seller will establish the Trust by selling and assigning the Trust
property, as described below, to the Trustee in exchange for the Certificates.
The Servicer will service the Receivables pursuant to the Agreement and will be
compensated for acting as the Servicer. See "Description of the
Certificates--Servicing Compensation and Payment of Expenses." To facilitate
servicing and to minimize administrative burden and expense, each Originator
will be appointed to act as custodian for the Receivables originated by it or
purchased by it from a Dealer, but the Trustee will not stamp the Receivables to
reflect the sale and assignment of the Receivables to the Trust or amend the
certificates of title to the Financed Vehicles. In the absence of amendments to
the certificates of title, the Trustee may not have perfected security interests
in the Financed Vehicles securing the Receivables originated in some states.
See "Certain Legal Aspects of the Receivables" in the Prospectus.
If the protection provided to the investment of the Certificateholders
by the Reserve Account and, in the case of the Class A Certificateholders, the
subordination of the Class B Certificates, is insufficient, the Trust will look
only to the Obligors on the Receivables, the proceeds from the repossession and
sale of Financed Vehicles which secure defaulted Receivables and the proceeds
from any Dealer Recourse. In such event, certain factors, such as the Trust's
not having first priority perfected security interests in some of the Financed
Vehicles, may affect the Trust's ability to realize on the collateral securing
the Receivables, and thus may reduce the proceeds to be distributed to
Certificateholders with respect to the Certificates. See "Description of the
Certificates--Distributions" and "--Accounts" herein and "Certain Legal Aspects
of the Receivables" in the Prospectus.
Each Certificate represents a fractional undivided ownership interest
in the Trust. The Trust property includes Direct Loans and/or retail installment
sale contracts secured by new or used automobiles or light duty trucks, and all
payments received thereunder after the Cutoff Date. The Trust property also
includes (a) such amounts as from time to time may be held in one or more trust
accounts established and maintained by the Servicer pursuant to the Agreement,
as described below; (b) security interests in the Financed Vehicles and any
accessions thereto; (c) the rights to proceeds with respect to the Receivables
from claims on insurance policies covering the Financed Vehicles; (d) any
property that shall have secured a Receivable and that shall have been acquired
by the Trustee; (e) any Dealer Recourse and any other rights of Affiliates under
Dealer Agreements; (f) rights under the Purchase Agreement; (g) the Seller's
rights to certain documents and instruments relating to the Receivables; (h)
certain rebates of premiums and other amounts relating to certain insurance
policies and other items financed under the Receivables; and (i) any and all
proceeds of the foregoing. The Reserve Account will be maintained by the Trustee
for the benefit of the Certificateholders, but will not be part of the Trust.
THE RECEIVABLES POOL
The Receivables were purchased or originated by the Originators in the
ordinary course of their respective businesses. [As applicable: All of the
Receivables are owed by higher risk obligors than obligors of motor vehicle
loans originated by traditional financing sources.] The pool of Receivables
(the "Receivables Pool") will consist of Receivables purchased by the Trust as
of the Cutoff Date. The
S-10
<PAGE> 86
Receivables have been selected from the Motor Vehicle Loan portfolio of each
Affiliate for inclusion in the Receivables Pool by several criteria, some of
which are set forth in the Prospectus under "The Receivables Pool," as well as
the requirement that each Receivable (a) has an outstanding principal balance of
at least $_____, (b) as of the Cutoff Date, was not more than 30 days past due,
(c) has a scheduled maturity not later than six months before the Final
Scheduled Maturity Date, (d) was not subject to a force-placed physical damage
insurance policy on the related Financed Vehicle and (e) had an original term to
maturity of not more than ___ months. No selection criteria or procedures
believed by the Seller to be adverse to the Certificateholders were used in
selecting the Receivables.
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<PAGE> 87
POOL COMPOSITION
Set forth in the following tables is information concerning the
composition, distribution by Contract Rate and the geographic distribution of
the Receivables to be conveyed by the Seller to the Trust as of the Cutoff Date.
COMPOSITION OF THE RECEIVABLES POOL
AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
<S> <C>
Aggregate Principal Balance.......................................................................$________________
Number of Receivables.............................................................................$________________
Average Principal Balance.........................................................................$________________
(Range)..................................................................................$______ to $_____
Average Original Amount Financed $________________
(Range)..................................................................................$______ to $_____
Weighted Average Contract Rate..............................................................................._____%
(Range)........................................................................................___% to___%
Weighted Average Original Term..........................................................................____ months
(Range).................................................................................____ to ___ months
Weighted Average Remaining Term.........................................................................____ months
(Range).................................................................................____ to ___ months
Scheduled Weighted Average Life (1)......................................................................____ years
</TABLE>
_______________
(1) Based on payments due on or after the Cutoff Date, assuming that no
prepayments on the Receivables are made after the Cutoff Date and that
all payments on Simple Interest Receivables are received on their
respective due dates.
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<PAGE> 88
DISTRIBUTION BY CONTRACT RATE OF THE RECEIVABLES
AS OF THE CUTOFF DATE(1)
<TABLE>
<CAPTION>
- - - -------------------------------------------------------------------------------------------
PERCENTAGE
OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
CONTRACT RANGE RECEIVABLES BALANCE BALANCE
- - - -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
7.75 to 8.00
8.01 to 9.00
9.01 to 10.00
10.01 to 11.00
11.01 to 12.00
12.01 to 13.00
13.01 to 14.00
14.01 to 15.00
15.01 to 16.00
16.01 to 17.00
17.01 to 18.00
18.01 to 19.00
19.01 to 20.00
20.01 to 21.00
21.01 to 22.00
22.01 to 23.00
23.01 to 24.00
24.01 to 25.00
Totals 100%
========== ========== ====
</TABLE>
- - - ---------------
(1) Percentages may not add to 100% because of rounding.
Approximately ___% of the aggregate principal balance of the
Receivables, constituting ___% of the number of such Receivables, as of the
Cutoff Date represented financing of new vehicles and the remainder represented
financing of used vehicles. Approximately __% of the aggregate principal balance
of the Receivables, constituting __% of the number of such Receivables, were
originated or purchased by AutoFinance Group. Approximately __% of the aggregate
principal balance of the Receivables, constituting __% of the number of such
Receivables, are Precomputed Receivables and the remainder are Simple Interest
Receivables.
S-13
<PAGE> 89
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES POOL
AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
PRINCIPAL
BALANCE
<S> <C>
STATE(1)
Alabama..........................
Alaska...........................
Arizona..........................
Arkansas.........................
California.......................
Colorado.........................
Connecticut......................
Delaware.........................
District of Columbia.............
Florida..........................
Georgia..........................
Hawaii...........................
Idaho............................
Illinois.........................
Indiana..........................
Iowa.............................
Kansas...........................
Kentucky.........................
Louisiana........................
Maine............................
Maryland.........................
Massachusetts....................
Michigan.........................
Minnesota........................
Mississippi......................
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
PRINCIPAL
BALANCE
<S> <C>
STATE(1)
Missouri.............................
Montana..............................
Nebraska.............................
Nevada...............................
New Hampshire........................
New Jersey...........................
New Mexico...........................
New York.............................
North Carolina.......................
North Dakota.........................
Ohio.................................
Oklahoma.............................
Oregon...............................
Pennsylvania.........................
Rhode Island.........................
South Carolina.......................
South Dakota.........................
Tennessee............................
Texas................................
Utah.................................
Vermont..............................
Virginia.............................
Washington...........................
West Virginia........................
Wisconsin............................
Wyoming..............................
</TABLE>
- - - ---------------
(1) Based on the billing addresses of the Obligors on the Receivables as of the
Cutoff Date.
DELINQUENCIES AND NET LOSSES
Set forth below is certain information concerning the combined
historical delinquency and loss experience of the Originators pertaining to
Motor Vehicle Loans.
S-14
<PAGE> 90
The tables set forth below combine historical Motor Vehicle Loan data
for banks and other financial institutions which are direct or indirect
subsidiaries of KeyCorp (the "Combined Motor Vehicle Loan Portfolio"). These
tables include data for banks and other financial institutions which were
acquired by KeyCorp and its subsidiaries since January 1, 1993. The Bank began
originating Motor Vehicle Loans on September 5, 1995. The underwriting
standards and servicing procedures used by some banks or financial institutions
may have been different from those currently used by the Bank and,
consequently, the experience shown in the tables below may not be comparable to
the performance of the Receivables.
A business unit of the Bank (formerly Auto Finance Group, Inc.) which
focuses on specialty finance loans originated or purchased __% of the aggregate
principal balance of the Receivables included in the Trust. As of [__________
__, 199_], __% of the aggregate principal balance of the Motor Vehicle Loans in
the Combined Motor Vehicle Loan Portfolio were originated or purchased by that
business unit. Consequently, because of the higher proportion of specialty
finance loans originated or purchased by that business unit in the
Receivables Pool, the experience shown in the tables below may not be
comparable to the performance of the Receivables.
Because the composition of the Receivables included in the Trust
differs from the Combined Motor Vehicle Loan Portfolio and the underwriting
standards and servicing procedures used by some banks or financial institutions
in the origination and servicing of Motor Vehicle Loans included in the Combined
Motor Vehicle Loan Portfolio prior to the formation of the Bank may have been
different from those used by the Bank, there can be no assurance that the
delinquency and net loss experience on the Receivables of the Trust will be
comparable to that set forth below.
S-15
<PAGE> 91
COMBINED MOTOR VEHICLE LOAN PORTFOLIO
DELINQUENCY EXPERIENCE(1)
(Dollars in Millions)
- - - --------------------------------------------------------------------------------
At September 30,
- - - --------------------------------------------------------------------------------
1996 1995
----------------------- ----------------------
- - - --------------------------------------------------------------------------------
$ Percent $ Percent
----------- -------- ------- ----------
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
Amount of Motor Vehicle
Loans Outstanding...........
- - - --------------------------------------------------------------------------------
Period of Delinquency:
- - - --------------------------------------------------------------------------------
31-90 days................
- - - --------------------------------------------------------------------------------
over 90 days..............
- - - --------------------------------------------------------------------------------
Repossessions...............
- - - --------------------------------------------------------------------------------
Total.......................
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in Millions)
- - - ----------------------------------------------------------------------------------------------------
At December 31,
- - - ----------------------------------------------------------------------------------------------------
1995 1994 1993
-------------------- --------------------- ------------
- - - ----------------------------------------------------------------------------------------------------
$ Percent $ Percent $ Percent
------ ------- -------- --------- --------- --------
- - - ----------------------------------------------------------------------------------------------------
- - - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Amount of Motor Vehicle
Loans Outstanding...........
- - - ----------------------------------------------------------------------------------------------------
Period of Delinquency:
- - - ----------------------------------------------------------------------------------------------------
31-90 days................
- - - ----------------------------------------------------------------------------------------------------
over 90 days..............
- - - ----------------------------------------------------------------------------------------------------
Repossessions...............
- - - ----------------------------------------------------------------------------------------------------
Total.......................
- - - ----------------------------------------------------------------------------------------------------
</TABLE>
- - - --------------
(1) All amounts and percentages are based on the principal amount scheduled to
be paid on each Motor Vehicle Loan, including unearned finance and other
charges.
S-16
<PAGE> 92
COMBINED MOTOR VEHICLE LOAN PORTFOLIO
HISTORICAL NET LOSS EXPERIENCE
(Dollars in Millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
----------------- -----------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Principal Amount of Motor Vehicle Loans Outstanding (1)........
Average Principal Amount of Motor Vehicle Loans Outstanding....
Gross Charge-Offs..............................................
Recoveries.....................................................
Net Losses(2)..................................................
Net Losses as a Percent of Principal Amount Outstanding(2).....
Net Losses as a Percent of Average Principal Amount............
Outstanding (2)............................................
</TABLE>
- - - ---------------
(1) Amount represents net principal amounts of Motor Vehicle Loans outstanding.
(2) Amount represents the aggregate balance of all Motor Vehicle Loans which
were determined to be uncollectible in the period, less any recoveries on
Motor Vehicle Loans charged-off in the period or any prior period.
Delinquencies and net charge-offs are affected by a number of social,
economic and other factors that may affect an Obligor's ability or willingness
to pay, such as the amount or types of indebtedness incurred by such Obligor in
addition to the Receivable on which such Obligor is indebted, and there can be
no assurance as to the level of future total delinquencies or the severity of
future net charge-offs. As a result, the delinquency and net charge-off
experience of the Receivables may differ from those shown in the tables.
THE SELLER, THE SERVICER AND KEYCORP
Information regarding the Seller is set forth under "The Seller" in the
Prospectus and information regarding the Servicer is set forth under "The Bank"
in the Prospectus. Each of the Seller and the Servicer is a wholly-owned
subsidiary of KeyCorp. KeyCorp operates through subsidiaries engaged in banking
and a variety of related businesses. As of June 30, 1996, KeyCorp had
consolidated total assets of $____________ billion, total deposits of
$_______________ billion, and total stockholders' equity of $____________
billion. Based on total assets as of June 30, 1996, KeyCorp was the [__________]
largest commercial banking organization in the United States.
YEAR 2000
The Year 2000 issue refers to the fact that many computer systems
were originally programmed using two digits rather than four digits to identify
the applicable year. Therefore, when the year 2000 occurs, these systems could
interpret the year as 1900 rather than 2000. Unless hardware, system software
and applications are corrected to be Year 2000 compliant, computers and the
devices they control could generate miscalculations and create operational
problems. Various systems could be affected ranging from complex computer
systems to telephone systems, ATMs and elevators.
To address this issue, KeyCorp, the parent of the Servicer, for the
operations of the Servicer as well as its other operating subsidiaries,
developed an extensive plan, including the formation of a team consisting of
internal resources and third-party experts. The plan, originally developed in
1995, has been in implementation since that time and consists of five major
phases: awareness-ensuring a common understanding of the issue throughout
KeyCorp; assessment-identifying and prioritizing the systems and third parties
with whom KeyCorp has exposure to Year 2000 issues; renovation-enhancing,
replacing or retiring hardware, software and systems applications;
validation-testing modifications made; and implementation-certifying Year 2000
compliance and user understanding and acceptance. The awareness and assessment
phases have been completed and the remaining phases are expected to be
substantially complete by the end of 1998, allowing 1999 as a year of final
testing and refinement. In conjunction with the assessment phase, KeyCorp
prioritized the various operating systems (including those maintained by its
business suppliers) that could be affected by the Year 2000, and efforts to
ensure compliance of core systems deemed critical to the continuation of
KeyCorp's operations have been accelerated. As of September 30, 1998,
compliance efforts had been completed for approximately 55% of the core systems
identified.
In addition, financial institutions may experience increases in
problem loans and credit losses in the event that borrowers fail to properly
respond to this issue, and higher funding costs may come about if consumers
react to publicity about the issue by withdrawing deposits. KeyCorp also could
be impacted if third parties it deals with in conducting its business, such as
foreign banks, governmental agencies, clearing houses, telephone companies, and
other service providers, fail to properly address this issue. Accordingly,
KeyCorp has formed a separate internal team charged with the task of
identifying critical business interfaces; assessing potential problems relating
to credit, liquidity and counterparty risk; and where appropriate, developing
contingency plans. This team is conducting a survey of significant credit
customers to determine their Year 2000 readiness and to evaluate the level of
potential credit risk to KeyCorp. Based on the information obtained, specific
follow-up policies will be established and the adequacy of the allowance for
loan losses will be assessed. On an ongoing basis, KeyCorp is also contacting
significant third parties with whom it conducts business to determine the
status of their Year 2000 compliance efforts. Notwithstanding these actions,
there can be no assurance that significant customers or critical third parties
will adequately address their Year 2000 issues. Consequently, KeyCorp is
developing contingency plans to help mitigate the risks associated with
potential delays in completing the renovation, validation and implementation
phases of its Year 2000 plan; and the failure of external parties to adequately
address their Year 2000 issues. These plans are expected to be well underway by
the 1998 year end and address primarily back-up solutions for KeyCorp's core
systems and the identification of alternative business partners. Because the
Year 2000 issue has never previously occurred, it is not possible to foresee or
quantify the overall financial and operational impact and/or to determine
whether it will be material to the financial condition or operations of KeyCorp.
The cost of the project (currently estimated to be $45 to $50
million) and timing of its implementation are based on management's best
estimates, which were derived using numerous assumptions about future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved, and
actual results could differ materially from those anticipated. It is currently
expected that approximately $4 million of additional cost will be incurred
during the fourth quarter of 1998 and that the estimated remaining cost of $6
to $11 million will be recognized in 1999 and the first half of 2000. The total
cost of the project is being funded through operating cash flows.
WEIGHTED AVERAGE LIFE OF THE CERTIFICATES
Information regarding certain maturity and prepayment considerations
with respect to the Certificates is set forth under "Weighted Average Life of
the Securities" in the Prospectus. As the rate of payment of principal of each
class of the Certificates
S-17
<PAGE> 93
depends primarily on the rate of payment (including prepayments and liquidations
due to default) of the aggregate principal balance of the Receivables, the final
distribution in respect of the Certificates could occur significantly earlier
than the Final Scheduled Distribution Date. [Consistent with its customary
servicing practices and procedures, the Servicer may, in its discretion and on a
case-by-case basis, arrange with Obligors to extend or modify the terms of
Receivables.] Any such extension or modification will have the effect of
extending the weighted average life of the Certificates. However, the Servicer
will not be permitted to grant any such deferral or extension if as a result the
final scheduled payment on a Receivable would fall after the Final Scheduled
Maturity Date, unless the Servicer repurchases such Receivable.
Certificateholders will bear the risk of being able to reinvest principal
payments on the Certificates at yields at least equal to the yield on their
respective Certificates.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the terms of the Agreement,
a form of which has been filed as an exhibit to the Registration Statement. A
copy of the Agreement will be filed with the Commission following the issuance
of the Certificates. The following summary describes certain terms of the
Certificates and the Agreement. The summary describes the material terms of the
Certificates and the Agreement, but it does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all the provisions of
the Certificates and the Agreement. The following summary supplements the
description of the general terms and provisions of the Certificates of any given
series and the related Agreement set forth in the Prospectus, to which
description reference is hereby made.
GENERAL
The Certificates will evidence interests in the Trust created pursuant
to the Agreement. The Class A Certificates will evidence in the aggregate an
undivided ownership interest of approximately ___% (the "Class A Percentage") in
the Trust and the Class B Certificates will evidence in the aggregate an
undivided ownership interest of approximately ___% (the "Class B Percentage") in
the Trust. In general, it is intended that Class A Certificateholders receive,
on each Distribution Date, the Class A Percentage of the Principal Distribution
Amount plus interest at the Class A Certificate Rate on the Class A Certificate
Balance. Subject to the prior rights of the Class A Certificateholders, it is
intended that the Class B Certificateholders receive, on each Distribution Date,
the Class B Percentage of the Principal Distribution Amount plus interest at the
Class B Certificate Rate on the Class B Principal Certificate.
"Available Principal" for a Distribution Date means the sum of
the following amounts with respect to the related Collection Period:
(a) that portion of the collections on the Receivables received during
the related Collection Period that is allocable to interest in
accordance with the Servicer's customary procedures; (b) all
Liquidation Proceeds received during such Collection Period; and (c)
all Purchase Amounts, each to the extent attributable to accrued
interest, of all Receivables that are repurchased by the Seller or
purchased by the Servicer under an obligation which arose during the
related Collection Period. "Available Interest" for any Distribution
Date shall exclude all payments and proceeds of any Receivables the
Purchase Amount of which has been distributed on a prior Distribution
Date.
"Defaulted Receivable" means, with respect to any Collection
Period, a Receivable (other than a Purchased Receivable) which the
Servicer has determined to charge off during such Collection Period in
accordance with its customary servicing practices; provided, that any
Receivable which the Seller or Servicer is obligated to repurchase or
purchase shall be deemed to have become a Defaulted Receivable during a
Collection Period if the Seller or Servicer fails to deposit the
Purchase Amount on the related Deposit Date when due.
"Principal Distribution Amount" means, for any Distribution
Date, the sum of the Available Principal for such Distribution Date
plus the Realized Losses with respect to the related Collection Period.
"Purchased Receivable" means, at any time, a Receivable as to
which payment of the Purchase Amount has previously been made by the
Seller or the Servicer pursuant to the Agreement.
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"Realized Losses" means, for any Collection Period, the
aggregate principal balances of any Receivables that became Defaulted
Receivables during such Collection Period.
OPTIONAL PREPAYMENT
If the Pool Balance as of the last day of a Collection Period has
declined to 5% or less of the Original Pool Balance, the Seller or Servicer may
purchase all remaining Trust Property on any Distribution Date occurring in a
subsequent Collection Period at a purchase price equal to the aggregate of the
Purchase Amounts of the remaining Receivables (other than Defaulted
Receivables), which purchases would result in a prepayment of the Certificates.
See "Description of the Transfer and Servicing Agreements--Termination" in the
Prospectus.
ACCOUNTS
Separate Certificate Distribution Accounts will be established for the
Class A Certificates (the "Class A Distribution Account") and the Class B
Certificates (the "Class B Distribution Account"). In addition to those accounts
and a Collection Account for the Trust (see "Description of the Transfer and
Servicing Agreements--Accounts" in the Prospectus), the Seller will also
establish and maintain in the name of the Trustee, the Reserve Account. The
Reserve Account will be created with an initial deposit by the Seller of cash or
Eligible Investments having a value of at least equal to the Reserve Account
Initial Deposit. In addition, on each Distribution Date, any amounts on deposit
in the Collection Account with respect to the preceding Collection Period after
payments to the Certificateholders and the Servicer have been made will be
deposited into the Reserve Account until the amount on deposit in the Reserve
Account is equal to the Specified Reserve Account Balance. All investment
earnings on funds deposited in the Trust Accounts, net of losses and investment
expenses, will be distributed to the Seller and not be treated as collections on
the Receivables or otherwise be available for Certificateholders.
The Reserve Account will be an Eligible Deposit Account which the
Seller shall establish and maintain in the name of the Trustee. Funds on deposit
in the Reserve Account will be invested in Eligible Investments selected by the
Seller and, if permitted by the Rating Agencies, funds on deposit in the Reserve
Account may be invested in Eligible Investments that mature later than the next
Deposit Date. The Reserve Account and any amounts therein will not be property
of the Trust, but will be pledged to and held for the benefit of the Trustee, as
secured party.
On each Distribution Date, the amount available in the Reserve Account
(the "Available Reserve Amount") will equal the lesser of (a) the amount on
deposit in the Reserve Account (exclusive of investment earnings) and (b) the
Specified Reserve Account Balance.
On each Deposit Date, the Trustee will withdraw funds from the Reserve
Account to the extent (a) the sum of the amounts required to be distributed to
Certificateholders and the accrued and unpaid Servicing Fees payable to the
Servicer on such Distribution Date exceeds (b) the amount on deposit in the
Collection Account with respect to the preceding Collection Period (net of
investment income). Such deficiencies in the Collection Account may result from,
among other things, Receivables becoming Defaulted Receivables or the failure by
the Servicer to make any remittance required to be made under the Agreement. The
aggregate amount to be withdrawn from the Reserve Account on any Deposit Date
will not exceed the Available Reserve Amount with respect to the related
Distribution Date. The Trustee will deposit the proceeds of such withdrawal into
the Collection Account on or before the Distribution Date with respect to which
such withdrawal was made.
Subject to reduction as described below, the "Specified Reserve Account
Balance" means the greater of (i) the excess, if any, of (A) _____% of the Pool
Balance at the end of the preceding Collection Period over (B) the
Overcollateralization Amount (after giving effect to any distributions on the
Securities on such Distribution Date), and (ii) the Minimum Specified Reserve
Balance. The Specified Reserve Account Balance may be reduced from time to time
if the Rating Agencies have delivered prior written notice to the Seller, the
Servicer and the Trustee that such reduction will not result in a reduction,
withdrawal or qualification of each Rating Agency's then current ratings of each
class of the Certificates. The time necessary for the Reserve Account to reach
and maintain the Specified Reserve Account Balance at any time after the Closing
Date will be affected by the delinquency, credit loss, repossession and
prepayment experience of the Receivables and, therefore, cannot be accurately
predicted. Amounts on deposit in the Reserve
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Account will be released to the Servicer on each Distribution Date to the extent
that the amount on deposit in the Reserve Account would exceed the Specified
Reserve Account Balance. The Trustee also will cause all investment earnings
attributable to the Reserve Account to be distributed on each Distribution Date
to the Seller. Upon any distribution to the Servicer of amounts from the Reserve
Account, the Certificateholders will not have any rights in, or claims to, such
amounts.
"Liquidation Proceeds" means, with respect to any Receivable
that has become a Defaulted Receivable, (a) insurance proceeds received
by the Servicer, with respect to insurance policies relating to the
Financed Vehicles or the Obligors and/or any proceeds from lender's
single interest insurance policies to the extent not included in
collections distributable to Certificateholders, (b) amounts received
by the Servicer in connection with such Defaulted Receivable pursuant
to the exercise of rights under the related Motor Vehicle Loan, and (c)
the monies collected by the Servicer (from whatever source, including,
but not limited to proceeds of a sale of a Financed Vehicle or
deficiency balance recovered after the charge-off of the related
Receivable or as a result of the exercise of any rights against the
related Dealer) on such Defaulted Receivable net of any expenses
incurred by the Servicer in connection therewith and any payments
required by law to be remitted to the Obligor.
"Minimum Specified Reserve Balance" with respect to any
Distribution Date means the lesser of (i) $________________ and (ii)
the Certificate Balance (after giving effect to any distributions on
the Securities on such Distribution Date).
"Overcollateralization Amount" means, with respect to any
Distribution Date, the excess, if any, of the Pool Balance at the end
of the preceding Collection Period over the Certificate Balance on such
Distribution Date (after giving effect to any distributions made on
such Distribution Date).
If funds in the Reserve Account are reduced to zero, the
Certificateholders will bear the credit and other risks associated with
ownership of the Receivables. In such a case, the amount available for
distribution may be less than that described below, and the Certificateholders
may experience delays or suffer losses as a result, among other things, of
defaults or delinquencies by the Obligors or previous extensions made by the
Servicer.
[PRE-FUNDING ACCOUNT; SUBSEQUENT RECEIVABLES]
[On the Closing Date, approximately $ of Initial
Receivables will be transferred to the Trust by the Seller and the
approximately $ Pre-Funded Amount will be deposited by the Trust in
the Pre-Funding Account. If the principal amount of eligible Receivables
originated by the Originators during the Funding Period is less than the
Pre-Funded Amount, the Seller will have insufficient Receivables to sell to the
Trust on the Subsequent Transfer Dates, thereby resulting in a prepayment of
principal in the Noteholders and the Certificateholders as described in the
following paragraph.] [In addition, any conveyance of Subsequent Receivables is
subject to the satisfaction, on or before the related Subsequent Transfer Date,
of the condition that each such Subsequent Receivable satisfies the eligibility
criteria specified in the Sale and Servicing Agreement for Initial
Receivables.]
[To the extent that the Pre-Funded Amount has not been fully
applied to the purchase of Subsequent Receivables by the Trust during the
Funding Period, the Noteholders and the Certificateholders will receive in the
Distribution Date on or immediately following the last day of the Funding
Period, a prepayment of principal in an amount equal to their pro rata share
(based on the current principal balance of each class of Notes and the
Certificate Balance) of any remaining Pre-Funded Amount following the purchase
of any Subsequent Receivables on such Distribution Date. It is anticipated that
the principal amount of Subsequent Receivables sold to the Trust will not be
exactly equal to the original Pre-Funded Amount and that therefore there will
be at least a nominal amount of principal prepaid to the Noteholders and to the
Certificateholders.]
[If the amount of the Pre-Funding Account will exceed 25% of the
aggregate proceeds from the offering include the specific investments in which
the Pre-Funding Account will be invested and specify that the actual
investments of the Pre-Funding Account as of the end of the preceding month
will be provided in the periodic reports on Form 8-K and Form 10-K to be filed
by the Seller with respect to the Trust.]
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicing Fee Rate will be 1.0% per annum of the Pool Balance as of
the first day of the related Collection Period (after giving effect to the
distributions to be made on the following Distribution Date). The Servicing Fee
(together with any portion of the Servicing Fee that remains unpaid from prior
Distribution Dates) will be paid on each Distribution Date solely to the extent
of the Available Interest. See "Description of the Transfer and Servicing
Agreements--Servicing Compensation and Payment of Expenses" in the Prospectus.
The Servicer will also collect and retain any late fees, extension fees,
prepayment charges and certain non-sufficient funds charges and other
administrative fees or similar charges (the "Supplemental Servicing Fee")
allowed by applicable law with respect to the Receivables. Payments by or on
behalf of Obligors will be allocated to scheduled payments and late fees and
other charges in accordance with the Servicer's normal practices and
procedures. As additional compensation, the Servicer may be entitled to
receive for the related Collection Period some or all of the portion, if any,
of the Available Interest and Available Principal for such Collection Period
remaining after payment of the Servicing Fee and interest and principal in
respect of the Certificates and any required deposit to the Reserve Account.
See "Description of the Transfer and Servicing Agreements -- Servicing
Compensation and Payment of Expenses" in the Prospectus and "--Distributions"
herein.
DISTRIBUTIONS
Deposits to Collection Account. On or before the eighth calendar day of
each month, or if such eighth day is not a Business Day, the immediately
preceding Business Day (the "Determination Date"), the Servicer will provide the
Trustee with a report (the "Servicer's Report") containing certain information
with respect to the preceding Collection Period, including the amount of
aggregate collections on the Receivables during such Collection Period, the
aggregate amount of Receivables which became Defaulted Receivables during such
Collection Period, the aggregate Purchase Amounts of Receivables to be
repurchased by the Seller or to be purchased by the Servicer on the related
Deposit Date and the aggregate amount to be withdrawn from the Reserve Account.
Trustee has agreed to act as Servicer's agent for the purpose of preparing and
delivering Servicer's Reports, and so long as Trustee timely prepares and
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delivers Servicer's Report, Servicer shall not be required to do so. Any failure
by Trustee to prepare and deliver a Servicer's Report, or inaccuracy in any
Servicer's Report so prepared and delivered shall (so long as Servicer shall
also not timely prepare and deliver such Servicer's Report or correct any such
inaccuracy) have the same effect as would such a failure by Servicer or
inaccuracy in a Servicer's Report prepared and filed by Servicer.
On or before each Deposit Date, (a) the Servicer will cause all
collections and Liquidation Proceeds to be deposited into the Collection Account
and will deposit into the Collection Account all Purchase Amounts of Receivables
to be purchased by the Servicer on such Deposit Date, (b) the Seller will
deposit into the Collection Account all Purchase Amounts of Receivables to be
repurchased by the Seller on such Deposit Date, (c) the Trustee will make any
required withdrawals for the related Distribution Date from the Reserve Account
and deposit such amounts into the Collection Account and (d) the Servicer will
deposit all Advances for the related Distribution Date into the Collection
Account.
Deposits to the Distribution Accounts. On each Distribution Date, the
Trustee will make the following deposits and distributions from the Collection
Account, to the extent of the sum of Available Interest and any Available
Reserve Amount remaining after such reimbursements (and, in the case of
shortfalls occurring under clause (b) below in the Class A Interest
Distributable Amount, the Class B Percentage of Available Principal to the
extent of such shortfalls), in the following priority:
(a) to the Servicer, any unpaid Servicing Fee for the related
Collection Period and all unpaid Servicing Fees from prior
Collection Periods;
(b) to the Class A Distribution Account, the Class A Interest
Distributable Amount for such Distribution Date; and
(c) to the Class B Distribution Account, the Class B Interest
Distributable Amount for such Distribution Date.
On each Distribution Date based on the related Servicer's Report, the
Trustee will make the following deposits and distributions, to the extent of
Available Principal and the portions of Available Interest and Available Reserve
Amount remaining after the application of clauses (a), (b) and (c) above, in the
following priority:
(d) to the Class A Distribution Account, the Class A Principal
Distributable Amount for such Distribution Date;
(e) to the Class B Distribution Account, the Class B Principal
Distributable Amount for such Distribution Date;
(f) to the Reserve Account, any amounts remaining, until the
amount on deposit in the Reserve Account equals the Specified
Reserve Account Balance; and
(g) to the Seller or Servicer, any amounts remaining.
On each Distribution Date, all amounts on deposit in the Class A
Distribution Account will be distributed to the Class A Certificateholders as of
the Record Date and all amounts on deposit in the Class B Distribution Account
will be distributed to the Class B Certificateholders as of the Record Date by
the Trustee.
"Class A Interest Carryover Shortfall" means, (a) with respect
to the initial Distribution Date, zero, and (b) with respect to any
other Distribution Date, the excess of Class A Monthly Interest for the
preceding Distribution Date and any outstanding Class A Interest
Carryover Shortfall on such preceding Distribution Date, over the
amount in respect of interest that is actually deposited in the Class A
Distribution Account on such preceding Distribution Date, plus 30 days
of interest on such excess, to the extent permitted by law, at the
Class A Certificate Rate.
"Class A Interest Distributable Amount" means, with respect to
any Distribution Date, the sum of Class A Monthly Interest for such
Distribution Date and the Class A Interest Carryover Shortfall for such
Distribution Date.
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"Class A Monthly Interest" means, with respect to any Distribution
Date, one-twelfth of the Class A Certificate Rate multiplied by the Class A
Certificate Balance as of the Distribution Date occurring in the preceding
Collection Period (after giving effect to any payments made on such Distribution
Date) or, in the case of the first Distribution Date, as of the Closing Date.
"Class A Monthly Principal" means, with respect to any Distribution
Date, the Class A Percentage of the Principal Distribution Amount for such
Distribution Date.
"Class A Principal Carryover Shortfall" means, as of the close of
business on any Distribution Date, the excess of Class A Monthly Principal for
such Distribution Date and any outstanding Class A Principal Carryover Shortfall
from the preceding Distribution Date over the amount in respect of principal
that is actually deposited in the Class A Distribution Account on such
Distribution Date.
"Class A Principal Distributable Amount" means, with respect to any
Distribution Date, the sum of Class A Monthly Principal for such Distribution
Date and, in the case of any Distribution Date other than the initial
Distribution Date, the Class A Principal Carryover Shortfall as of the close of
business on the preceding Distribution Date; provided, however, that the Class A
Principal Distributable Amount shall not exceed the outstanding aggregate
principal balance of the Class A Certificates prior to such Distribution Date.
In addition, on the Final Scheduled Distribution Date, the Class A Principal
Distributable Amount shall include any additional amount available to reduce the
outstanding aggregate principal balance of the Class A Certificates to zero.
"Class B Interest Carryover Shortfall" means, (a) with respect to the
initial Distribution Date, zero, and (b) with respect to any other Distribution
Date, the excess of Class B Monthly Interest for the preceding Distribution Date
and any outstanding Class B Interest Carryover Shortfall on such preceding
Distribution Date, over the amount in respect of interest that is actually
deposited in the Class B Distribution Account on such preceding Distribution
Date, plus 30 days of interest on such excess, to the extent permitted by law,
at the Class B Certificate Rate.
"Class B Interest Distributable Amount" means, with respect to any
Distribution Date, the sum of Class B Monthly Interest for such Distribution
Date and the Class B Interest Carryover Shortfall for such Distribution Date.
"Class B Monthly Interest" means, with respect to any Distribution
Date, one-twelfth of the Class B Certificate Rate multiplied by the Class B
Certificate Balance as of the Distribution Date occurring in the preceding
Collection Period (after giving effect to any payments made on such Distribution
Date) or, in the case of the first Distribution Date, as of the Closing Date.
"Class B Monthly Principal" means, with respect to any Distribution
Date, the Class B Percentage of the Principal Distribution Amount for such
Distribution Date.
"Class B Principal Carryover Shortfall" means, as of the close of
business on any Distribution Date, the excess of Class B Monthly Principal for
such Distribution Date and any outstanding Class B Principal Carryover Shortfall
from the preceding Distribution Date over the amount in respect of principal
that is actually deposited in the Class B Distribution Account on such
Distribution Date.
"Class B Principal Distributable Amount" means, with respect to any
Distribution Date, the sum of Class B Monthly Principal for such Distribution
Date and, in the case of any Distribution Date other than the initial
Distribution Date, the Class B Principal Carryover Shortfall as of the close of
business on the preceding Distribution Date; provided, however, that the Class B
Interest Distributable Amount shall not exceed the outstanding aggregate
principal balance of the Class B Certificates prior to such Distribution Date.
In addition, on the Final Scheduled Distribution Date, the Class B Interest
Distributable Amount will include any additional amount available to reduce the
outstanding aggregate principal balance of the Class B Certificates to zero.
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The following chart sets forth an example of the application of the
foregoing provisions to a hypothetical monthly distribution:
March 1 - March 31................ Collection Period. The Servicer receives
monthly payments, prepayments, and other
proceeds in respect of the Receivables.
March 31.......................... Record Date. Distributions on the next
Distribution Date are made to
Certificateholders of record at the close
of business on this date.
April 8........................... Determination Date. On or before this
date, the Servicer, delivers to the
Trustee the Servicer's Report, which
notifies the Trustee of the amounts
required to be distributed and the amounts
available for distribution on the next
Distribution Date.
April 12.......................... Deposit Date. All Collections relating to
the preceding Collection Period are
required to be deposited in the Collection
Account on or before this date. The
Trustee withdraws funds from the Reserve
Account to the extent necessary.
April 15.......................... Distribution Date. The Trustee distributes
to Certificateholders amounts payable in
respect of the Certificates, pays the
Servicing Fee to the Servicer, deposits
any excess funds to the Reserve Account
and, if the Reserve Account is equal to
the Specified Reserve Account Balance,
pays any remaining funds to the Seller.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
Information regarding certain legal aspects of the Receivables is set
forth under "Certain Legal Aspects of the Receivables" in the Prospectus.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of material federal income tax
consequences of the purchase, ownership and disposition of the Certificates.
Such summary represents the opinion of Federal Tax Counsel subject to the
qualifications set forth herein. An opinion of Federal Tax Counsel, however, is
not binding on the IRS or the courts. No ruling on any of the issues discussed
below will be sought from the IRS. The following summary is intended as an
explanatory discussion of the possible effects of certain federal income tax
consequences to holders generally, but does not purport to furnish information
in the level of detail or with the attention to a holder's specific tax
circumstances that would be provided by a holder's own tax advisor. For example,
it does not discuss the tax treatment of Certificate- holders that are insurance
companies, regulated investment companies or dealers in securities. Moreover,
there are no cases or Internal Revenue Service ("IRS") rulings on similar
transactions involving interests issued by a trust with terms similar to those
of the Certificates. As a result, the IRS may disagree with all or a part of the
discussion below. Prospective investors are urged to consult their own tax
advisors in determining the federal, state, local, foreign and any other tax
consequences to them of the purchase, ownership and disposition of the
Certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended, the Treasury regulations promulgated
thereunder and judicial or ruling authority, all of which are subject to change,
which change may be retroactive.
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SCOPE OF THE TAX OPINIONS
In the opinion of Federal Tax Counsel, the Trust will not be classified
as an association (or publicly traded partnership) taxable as a corporation and
that such Trust will be classified as a grantor trust under subpart E, Part I of
subchapter J of the Code for federal income tax purposes.
In addition, Federal Tax Counsel has prepared or reviewed the
statements herein and in the Prospectus under the heading "Summary of Terms--Tax
Status" as they relate to federal income tax matters and under the heading
"Federal Income Tax Consequences," and is of the opinion that such statements
are correct in all material respects. Such statements are intended as an
explanatory discussion of the possible effects of the classification of the
Trust as a grantor trust for federal income tax purposes on investors generally
and of related tax matters affecting investors generally, but do not purport to
furnish information in the level of detail or with the attention to the
investor's specific tax circumstances that would be provided by an investor's
own tax adviser. Accordingly, each investor is advised to consult its own tax
advisers with regard to the tax consequences to it of investing in the
Certificates.
TAX CLASSIFICATION OF THE TRUST AS A GRANTOR TRUST
Federal Tax Counsel is of the opinion that the Trust will not be
classified as an association taxable as a corporation and that such Trust will
be classified as a grantor trust under subpart E, Part 1 of subchapter J of the
Code. A copy of such opinion of Federal Tax Counsel will be filed with the
Commission as an exhibit to a Form 8-K prior to the issuance of the Certificates
by the Trust. Owners of Certificates (referred to herein as "Grantor Trust
Certificateholders") will be treated for federal income tax purposes as owners
of a portion of the Trust's assets as described below. The Certificates issued
by the Trust are referred to herein as "Grantor Trust Certificates".
Characterization. Each Grantor Trust Certificateholder will be treated
as the owner of a pro rata undivided interest in the interest and principal
portions of the Trust represented by the Grantor Trust Certificates and will be
considered the equitable owner of a pro rata undivided interest in each of the
Receivables in the Trust. Any amounts received by a Grantor Trust
Certificateholder in lieu of amounts due with respect to any Receivable because
of a default or delinquency in payment will be treated for federal income tax
purposes as having the same character as the payments they replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire income
from the Receivables in the Trust represented by the Grantor Trust Certificates,
including interest, OID, if any, market discount, if any, prepayment fees,
assumption fees, any gain recognized upon an assumption and late payment charges
received by the Servicer. Under Sections 162 or 212 of the Code each Grantor
Trust Certificateholder will be entitled to deduct its pro rata share of
servicing fees, prepayment fees, assumption fees, any loss recognized upon an
assumption and late payment charges retained by the Servicer, provided that such
amounts are reasonable compensation for services rendered to the Trust. Grantor
Trust Certificateholders that are individuals, estates or trusts will be
entitled to deduct their share of expenses only to the extent such expenses plus
all other miscellaneous itemized deductions exceed two percent of its adjusted
gross income. In addition, the Code provides that the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds a threshold amount specified in the Code adjusted
for inflation ($124,500 in 1998, in the case of a joint return) will be reduced
by the lesser of (i) 3% of the excess of adjusted gross income over the
specified threshold amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for such taxable year. A Grantor Trust Certificateholder
using the cash method of accounting must take into account its pro rata share of
income and deductions as and when collected by or paid to the Servicer. A
Grantor Trust Certificateholder using an accrual method of accounting must take
into account its pro rata share of income and deductions as they become due or
are paid to the Servicer, whichever is earlier. If the servicing fees paid to
the Servicer are deemed to exceed reasonable servicing compensation, the amount
of such excess could be considered as an ownership interest retained by the
Servicer (or any person to whom the Servicer assigned for value all or a portion
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of the servicing fees) in a portion of the interest payments on the Receivables.
The Receivables would then be subject to the "coupon stripping" rules of the
Code discussed below.
Premium. The price paid for a Grantor Trust Certificate by a holder
will be allocated to such holder's undivided interest in each Receivable based
on each Receivable's relative fair market value, so that such holder's undivided
interest in each Receivable will have its own tax basis. A Grantor Trust
Certificateholder that acquires an interest in Receivables at a premium may
elect to amortize such premium under a constant yield method. Amortizable bond
premium will be treated as an offset to interest income on such Grantor Trust
Certificate. The basis for such Grantor Trust Certificate will be reduced to the
extent that amortizable premium is applied to offset interest payments. A
Grantor Trust Certificateholder that makes this election for a Grantor Trust
Certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Grantor Trust Certificateholder held at the
beginning of the year of the election or acquired thereafter. Absent such an
election, the premium will be deductible as an ordinary loss only upon
disposition of the Certificate or pro rata as principal is paid on the
Receivables.
STRIPPED BONDS AND STRIPPED COUPONS
To the extent a transaction is determined to involve "excess servicing"
(as described above), or that the classes of Certificates represent stripped
interests in the underlying Receivables, the Grantor Trust Certificates will
represent interests in stripped bonds for federal income tax purposes. Although
the tax treatment of stripped bonds is not entirely clear, based on recent
guidance by the IRS, each purchaser of a Grantor Trust Certificate will be
treated as the purchaser of a stripped bond which generally should be treated as
a single debt instrument issued on the day it is purchased for purposes of
calculating any OID. Generally, under Treasury regulations (the "Section 1286
Treasury Regulations"), if the discount on a stripped bond is larger than a de
minimis amount (as calculated for purposes of the OID rules of the Code) such
stripped bond will be considered to have been issued with OID. If OID rules 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. Regulations do not adequately
address the circumstances in which payment of interest on Certificates such as
the Grantor Trust Certificates would be considered unconditionally payable, and
thus, Federal Tax Counsel is unable to opine as to the extent to which interest
payments on the Certificates would be treated as qualified stated interest.
Market Discount and Premium. A Grantor Trust Certificateholder that
acquires an undivided interest in Receivables may be subject to the market
discount rules of Code Sections 1276 through 1278 to the extent an undivided
interest in a Receivable is considered to have been purchased at a "market
discount." Generally, the amount of market discount is equal to the excess of
the portion of the principal amount of such Receivable allocable to such
holder's undivided interest over such holder's tax basis in such interest.
Market discount with respect to a Grantor Trust Certificate will be considered
to be zero if the amount allocable to the Grantor Trust Certificate is less than
0.25% of the Grantor Trust Certificate's stated redemption price at maturity
multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
shall be treated as ordinary income to the extent that it does not exceed the
accrued market discount at the time of such payment. The amount of accrued
market discount for purposes of determining the tax treatment of subsequent
principal payments or dispositions of the market discount bond is to be reduced
by the amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
While the Treasury Department has not yet issued regulations, rules described in
the relevant legislative history likely will apply. Under those rules, the
holder of a market discount bond may elect to accrue market discount on the
basis of a constant yield method.
A holder who acquired a Grantor Trust Certificate at a market discount
may be required to defer a portion of its interest deductions for the taxable
year attributable to any indebtedness incurred or continued to purchase or carry
such Grantor Trust Certificate purchased with market discount. For these
purposes, the de minimis rule referred to above applies. Any such deferred
S-25
<PAGE> 101
interest expense would not exceed the market discount that accrues during such
taxable year and is, in general, allowed as a deduction not later than the year
in which such market discount is includible in income. If such holder elects to
include market discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
To the extent a Grantor Trust Certificateholder is considered to have
purchased an undivided interest in a Receivable for an amount that is greater
than its stated redemption price at maturity of such Receivable, such Grantor
Trust Certificateholder will be considered to have purchased the Receivable with
"amortizable bond premium" equal in amount to such excess. See "--Premium."
Election to Treat All Interest as OID. The OID regulations permit a
Grantor Trust Certificateholder to elect to accrue all interest, discount
(including de minimis market or OID) and premium in income as interest, based on
a constant yield method. If such an election were to be made with respect to a
Grantor Trust Certificate with market discount, the Certificateholder would be
deemed to have made an election to include in income currently market discount
with respect to all other debt instruments having market discount that such
Grantor Trust Certificateholder acquires during the year of the election or
thereafter. Similarly, a Grantor Trust Certificateholder that makes this
election for a Grantor Trust Certificate that is acquired at a premium will be
deemed to have made an election to amortize bond premium with respect to all
debt instruments having amortizable bond premium that such Grantor Trust
Certificateholder held at the beginning of the year of the election or acquired
thereafter. See "--Premium." The election to accrue interest, discount and
premium on a constant yield method with respect to a Grantor Trust Certificate
is generally irrevocable.
Sale or Exchange of a Grantor Trust Certificate. Sale or exchange of a
Grantor Trust Certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount received and the owner's
adjusted basis in the Grantor Trust Certificate. Such adjusted basis generally
will equal the seller's purchase price for the Grantor Trust Certificate,
increased by the OID included in the seller's gross income with respect to the
Grantor Trust Certificate, and reduced by principal payments on the Grantor
Trust Certificate previously received by the seller. Such gain or loss will be
capital gain or loss to an owner for which a Grantor Trust Certificate is a
"capital asset" within the meaning of Code Section 1221, and will be long-term
or short-term depending on whether the Grantor Trust Certificate has been owned
for the long-term capital gain holding period (currently more than one year).
Grantor Trust Certificates will be "evidences of indebtedness" within
the meaning of Code Section 582(c)(1), so that gain or loss recognized from the
sale of a Grantor Trust Certificate by a bank or a thrift institution to which
such section applies will be treated as ordinary income or loss.
Non-U.S. Persons. Generally, interest or OID paid by the person
required to withhold tax under Code Section 1441 or 1442 to (i) an owner that is
not a U.S. Person (as defined below) or (ii) a Grantor Trust Certificateholder
holding on behalf of an owner that is not a U.S. Person would not be subject to
withholding if such Grantor Trust Certificateholder complies with certain
identification requirements (including delivery of a statement, signed by the
Grantor Trust Certificateholder under penalties of perjury, certifying that such
Grantor Trust Certificateholder is not a U.S. Person and providing the name and
address of such Grantor Trust Certificateholder).
As used herein, a "U.S. Person" means a Security Owner that is for
United States federal income tax purposes (i) an individual citizen or
resident of the United States, (ii) a corporation, partnership (unless the
Internal Revenue Service (the "IRS") provides otherwise by Treasury
Regulations) or other entity created or organized in or under the laws of the
United States, any state, or of any political subdivision thereof, (iii) an
estate the income of which is subject to United States federal income taxation
regardless of its source, or (iv) a trust if a court within the United States
is able to exercise primary supervision over the administration of the trust,
and one or more United States persons have the authority to control all
substantial decisions of the trust.
On October 6, 1997, final Treasury regulations (the "Withholding Tax
Regulations") were issued that modify certain of the filing requirements with
which foreign persons must comply in order to be entitled to an exemption from
U.S. withholding tax or a reduction to the applicable U.S. withholding tax
rate. Those persons currently required to file Form W-8 generally will continue
to be required to file that form. However, the requirement that foreign persons
submit Form W-8 is extended to most foreign persons who wish to seek an
exemption from withholding tax on the basis that income from the Certificates
is effectively connected with the conduct of a U.S. trade or business (in lieu
of Form 4224) and to foreign persons wishing to rely on a tax treaty to reduce
the withholding tax rate (in lieu of Form 1001). The Withholding Tax
Regulations generally are effective for payments of interest due after December
31, 1999, but Forms 4224 and 1001 filed prior to that date will continue to be
effective until the earlier of December 31, 2000 or the current expiration date
of those forms. Prospective investors are urged to consult their tax advisors
with respect to the effect of the Withholding Tax Regulations.
S-26
<PAGE> 102
Information Reporting and Backup Withholding. The Servicer will furnish
or make available, within a reasonable time after the end of each calendar year,
to each person who was a Grantor Trust Certificateholder at any time during such
year, such information as may be deemed necessary or desirable to assist Grantor
Trust Certificateholders in preparing their federal income tax returns, or to
enable holders to make such information available to beneficial owners or
financial intermediaries that hold Grantor Trust Certificates as nominees on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that such person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments. Any amounts
deducted and withheld from a distribution to a recipient would be allowed as a
credit against such recipient's federal income tax liability. Prospective
investors are urged to consult their tax advisors concerning the potential
impact of the Withholding Tax Regulations.
ERISA CONSIDERATIONS
THE CLASS A CERTIFICATES
Subject to the considerations set forth under "ERISA
Considerations--Trusts That Do Not Issue Notes" in the Prospectus, the Class A
Certificates may be purchased with the assets of an employee benefit plan or an
individual retirement account (a "Plan") subject to ERISA or Section 4975 of the
Internal Revenue Code of 1986, as amended (the "Code"). A fiduciary of a Plan
must determine that the purchase of a Class A Certificate is consistent with its
fiduciary duties under ERISA and does not result in a nonexempt prohibited
transaction as defined in Section 406 of ERISA or Section 4975 of the Code. For
additional information regarding treatment of the Class A Certificates under
ERISA, including acquisition and holding of Class A Certificates by insurance
company general accounts, see "ERISA Considerations" in the Prospectus.
THE CLASS B CERTIFICATES
The Class B Certificates and any beneficial interest in such Class B
Certificates may not be acquired (a) with the assets of an employee benefit plan
(as defined in Section 3(3) of ERISA) that is subject to the provisions of Title
I of ERISA, (b) by a plan described in Section 4975(e)(1) of the Code or (c) by
any entity whose underlying assets include plan assets by reason of a plan's
investment in the entity. By its acceptance of a Class B Certificate, each Class
B Certificateholder will be deemed to have represented and warranted that it is
not subject to the foregoing limitation. For additional information regarding
treatment of the Class B Certificates under ERISA, including acquisition and
holding of Class B Certificates by insurance company general accounts, see
"ERISA Considerations" in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement, the Seller has agreed to cause the Trust to sell to each of the
underwriters listed below (each, an "Underwriter"), and each of the Underwriters
has agreed to purchase, the principal amount of the Certificates set forth
opposite its name below. Under the terms and conditions of the Underwriting
Agreement, each of the Underwriters is obligated to take and pay for all of the
Certificates, if any are taken.
<TABLE>
<CAPTION>
Principal Amount of Principal Amount of
Class A Certificates Class B Certificates
-------------------- ---------------------
<S> <C> <C>
- - - ------------------------- ................. $--------------------- $------------------------
- - - ------------------------- ................. --------------------- ------------------------
- - - ------------------------- ................. --------------------- ------------------------
Total $_____________________ $________________________
</TABLE>
S-27
<PAGE> 103
The Seller has been advised by the Underwriters that they propose
initially to offer the Certificates to the public at the prices set forth
herein, and to certain dealers at such prices less the initial concession not in
excess of _____% per Class A Certificate and ____% per Class B Certificate. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of ____% per Class A Certificate and ____% per Class B Certificate to certain
other dealers. After the initial public offering of the Certificates, the public
offering prices and such concessions may be changed.
The Seller does not intend to apply for listing of the Certificates on
a national securities exchange, but has been advised by the Underwriters that
they intend to make a market in the Certificates. The Underwriters are not
obligated, however, to make a market in the Certificates and may discontinue
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Certificates.
The Seller has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
In the ordinary course of their respective businesses, each
Underwriter and its affiliates have engaged and may in the future engage in
commercial banking and investment banking transactions with the Seller.
After the initial distribution of the Certificates by the
Underwriters, this Prospectus Supplement may be used by McDonald Investments, an
affiliate of the Seller, the Servicer, the Affiliates and KeyCorp, or its
successors, in connection with offers and sales relating to market making
transactions in the Certificates. McDonald Investments may act as principal
or agent in such transactions. Such transactions will be at prices related to
prevailing market prices at the time of sale. McDonald Investments is a member
of the New York Stock Exchange, Inc.
Pursuant to an Agreement and Plan of Merger dated as of June 15, 1998
between KeyCorp and McDonald & Company Investments, Inc. ("McDonald"), a full
service investment banking and securities brokerage company headquartered in
Cleveland, Ohio, on October 23, 1998, McDonald was merged with and into
KeyCorp. On November 9, 1998, the merger of Key Capital Markets, Inc., a
wholly-owned broker-dealer subsidiary of KeyCorp, into McDonald & Company
Securities, Inc. (a wholly-owned subsidiary of the former McDonald) was
completed and the surviving entity was renamed McDonald Investments Inc., A
KeyCorp Company. McDonald Investments may engage in market making transactions
as described above.
LEGAL OPINIONS
In addition to the legal opinions described in the Prospectus, certain
federal income tax and other legal matters will be passed upon for the Trust by
Thompson Hine & Flory LLP, Cleveland, Ohio. Attorneys at Thompson Hine &
Flory LLP owned approximately ________ KeyCorp Common Shares on September
16, 1996. Certain legal matters will be passed upon for the Underwriters by
Mayer, Brown & Platt, Chicago, Illinois. Thompson Hine & Flory LLP and
Mayer, Brown & Platt may from time to time render legal services to the Seller,
the Servicer and its affiliates.
S-28
<PAGE> 104
INDEX OF DEFINED TERMS
Page
----
Acquired Receivables...................................................... S-4
Additional Servicing...................................................... S-18
Advance................................................................... S-7
Agreement................................................................. S-3
Available Interest........................................................ S-16
Available Principal....................................................... S-13
Available Reserve Amount.................................................. S-14
Bank...................................................................... S-3
Business Day.............................................................. S-5
Certificate Rate.......................................................... S-5
Certificateholders........................................................ S-5
Certificates.............................................................. S-1
Class A Certificate Balance............................................... S-6
Class A Certificate Rate.................................................. S-5
Class A Certificateholders................................................ S-5
Class A Certificates...................................................... S-1
Class A Distribution Account.............................................. S-13
Class A Interest Carryover Shortfall...................................... S-18
Class A Interest Distributable Amount..................................... S-18
Class A Monthly Interest.................................................. S-18
Class A Monthly Principal................................................. S-18
Class A Percentage........................................................ S-3
Class A Principal Carryover Shortfall..................................... S-18
Class A Principal Distributable Amount.................................... S-18
Class B Certificate Balance............................................... S-6
Class B Certificate Rate.................................................. S-5
Class B Certificateholders................................................ S-5
Class B Certificates...................................................... S-1
Class B Distribution Account.............................................. S-13
Class B Interest Carryover Shortfall...................................... S-18
Class B Interest Distributable Amount..................................... S-18
Class B Monthly Interest.................................................. S-19
Class B Monthly Principal................................................. S-19
Class B Percentage........................................................ S-4
Class B Principal Carryover Shortfall..................................... S-19
Class B Principal Distributable Amount.................................... S-19
Closing Date.............................................................. S-4
Code...................................................................... S-24
Collection Period......................................................... S-5
Commission................................................................ S-2
Cutoff Date............................................................... S-3
Defaulted Receivable...................................................... S-13
Delinquency Ratio......................................................... S-15
Deposit Date.............................................................. S-7
Determination Date........................................................ S-17
Direct Loans.............................................................. S-4
Distribution Date......................................................... S-2
S-29
<PAGE> 105
ERISA..................................................................... S-9
Expected Interest......................................................... S-15
Federal Tax Counsel....................................................... S-20
Final Scheduled Distribution Date......................................... S-2
Final Scheduled Maturity Date............................................. S-4
Financed Vehicles......................................................... S-3
Grantor Trust Certificateholders.......................................... S-21
Grantor Trust Certificates................................................ S-21
Interest Collections...................................................... S-15
Interest Shortfall........................................................ S-16
IRS....................................................................... S-20
Issuer.................................................................... S-3
Liquidation Proceeds...................................................... S-15
McDonald.................................................................. S-2
McDonald Investments...................................................... S-28
Motor Vehicle Loans....................................................... S-4
Net Interest Collections.................................................. S-16
Non-Advance Receivables................................................... S-16
Original Pool Balance..................................................... S-6
Outstanding Advances...................................................... S-16
Plan...................................................................... S-24
Pool Balance.............................................................. S-4
Principal Balance......................................................... S-4
Principal Distribution Amount............................................. S-13
Prospectus................................................................ S-1
Purchased Receivable...................................................... S-13
Rating Agencies........................................................... S-9
Realized Losses........................................................... S-13
Receivables............................................................... S-1
Record Date............................................................... S-5
Reserve Account........................................................... S-7
Reserve Account Initial Deposit........................................... S-7
Section 1286 Treasury Regulations......................................... S-22
Seller.................................................................... S-1
Servicer.................................................................. S-1
Servicer's Report......................................................... S-17
Specified Reserve Account Balance......................................... S-14
Supplemental Servicing Fee................................................ S-16
Trust..................................................................... S-1
Trustee................................................................... S-3
U.S. Person............................................................... S-24
Underwriter............................................................... S-25
Weighted Average Contract Rate............................................ S-16
S-30
<PAGE> 106
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER OR THE UNDERWRITERS. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THOSE TO WHICH THEY RELATE OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THEIR RESPECTIVE DATES.
---------------------------
TABLE OF CONTENTS
Prospectus Supplement
Page
----
Reports to Certificateholders................. S-2
Summary of Terms.............................. S-3
Risk Factors.................................. S-9
The Trust..................................... S-10
The Receivables Pool.......................... S-10
The Seller, the Servicer and KeyCorp.......... S-14
Weighted Average Life of the Certificates..... S-14
Description of the Certificates............... S-14
Certain Legal Aspects of the Receivables...... S-20
ERISA Considerations.......................... S-20
Underwriting.................................. S-21
Legal Opinions................................ S-21
Index of Defined Terms........................ S-22
Prospectus
Page
----
Available Information.........................
Incorporation of Certain Documents
by Reference................................
Summary of Terms..............................
Risk Factors..................................
The Trusts....................................
The Receivables Pools.........................
Weighted Average Life of the Securities.......
Pool Factors and Trading Information..........
Use of Proceeds...............................
The Seller....................................
The Bank......................................
Description of the Notes......................
Description of the Certificates...............
Certain Information Regarding the
Securities..................................
Description of the Transfer and
Servicing Agreements........................
Certain Legal Aspects of the Receivables......
Federal Income Tax Consequences...............
Certain State Tax Consequences................
ERISA Considerations..........................
Plan of Distribution..........................
Notice to Canadian Residents..................
Legal Opinions................................
Index of Defined Terms........................
Global Clearance, Settlement and Tax
Documentation Procedures....................
$_______________________________
KEYCORP CONSUMER
ACCEPTANCE CORPORATION
(Seller)
$__________________
__% Asset Backed
Certificates
Class A
$___________________
__% Asset Backed
Certificates
Class B
==================
PROSPECTUS SUPPLEMENT
_____________, 199__
==================
<PAGE> 107
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED __________, 199_
[PRELIMINARY OWNER TRUST PROSPECTUS SUPPLEMENT FORM]
(To Prospectus dated _____________, 199_)
[$--------------]
Key Auto Finance Trust 199_ - _
$______________ Class A-1 ____% Asset Backed Notes
$______________ Class A-2 ____% Asset Backed Notes
$______________ ____% Asset Backed Certificates
Key Consumer Acceptance Corporation
Seller
Key Bank USA, National Association
Servicer
The Key Auto Finance Trust 199_-__ (the "Trust") will be governed by a Trust
Agreement, to be dated as of ___________________, 199_, between Key Consumer
Acceptance Corporation, as seller (the "Seller") and ___________________,
as Owner Trustee. The Trust will issue $_____________ aggregate principal
amount of Class A-1 ___% Asset Backed Notes (the "Class A-1 Notes"),and
$____________ aggregate principal amount of Class A-2 ___ Asset Backed
Notes (the "Class A-2 Notes" and, together with the Class A-1 Notes,
the "Notes") pursuant to an Indenture to be dated as of
__________, 199_, between the Trust and _____________,
as Indenture Trustee. The Trust will also issue
$__________________ aggregate principal amount of
___% Asset Backed Certificates (the "Certificates"
and, together with the Notes, the "Securities"). The
rights of Certificateholders will be subordinated
to the rights of Noteholders to the extent described
herein. The assets of the Trust will include a pool
of motor vehicle promissory notes and security
agreements and/or retail installment sale contracts
secured by new or used automobiles and light duty
trucks (collectively, the "Receivables"), payments
received thereunder after ________________, 199_,
security interests in the motor vehicles financed
thereby, rights under Dealer Agreements, rights
under Purchase Agreements, rights with respect
to deposit accounts in which collections are held,
any proceeds from claims on insurance policies
relating to the Financed Vehicles and the
proceeds of the foregoing.
(cover continued on next page)
-----------------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER THE MATERIAL RISKS INVOLVED WITH
OR INVESTMENT IN THE SECURITIES DESCRIBED IN "RISK FACTORS" SET FORTH AT
PAGE S-__ HEREIN AND AT PAGE ___ IN THE ACCOMPANYING PROSPECTUS (THE
"PROSPECTUS").
[AS APPLICABLE: ALL OF THE RECEIVABLES ARE OWNED BY HIGHER RISK OBLIGORS
THAN OBLIGORS OF MOTOR VEHICLE LOANS ORIGINATED BY TRADITIONAL
FINANCING SOURCES. SIGNIFICANT DELINQUENCIES, ESPECIALLY IF
COMBINED WITH SIGNIFICANT LOSSES ON THE RECEIVABLES, MAY
RESULT IN THE INABILITY TO MAKE FULL OR TIMELY PAYMENTS
OF INTEREST OR PRINCIPAL ON EACH CLASS OF NOTES
BECAUSE NO PERSON IS OBLIGATED TO ADVANCE
DELINQUENT PAYMENTS ON THE RECEIVABLES.]
THE NOTES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT BENEFICIAL
INTERESTS IN, THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR INTERESTS
IN KEY CONSUMER ACCEPTANCE CORPORATION, KEY BANK USA, NATIONAL ASSOCIATION,
OR ANY OF THEIR AFFILIATES. NEITHER THE SECURITIES NOR THE RECEIVABLES
ARE INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY KEY CONSUMER
ACCEPTANCE CORPORATION, KEY BANK USA, NATIONAL ASSOCIATION, OR ANY
OF THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions the Seller(1)(2)
--------- ------------- ----------------
<S> <C> <C> <C>
Per Class A-1 Note % % %
Per Class A-2 Note % % %
Per Certificate % % %
Total $____________ $____________ $____________
- - - ----------------------
<FN>
(1) Plus accrued interest, if any, from ___________, 199__.
(2) Before deducting expenses, estimated to be $___________.
</TABLE>
-----------------------------
The Notes and Certificates are offered by the Underwriters when, as and if
issued and accepted by the Underwriters and subject to their right to reject
orders in whole or in part. It is expected that delivery of the Notes and the
Certificates will be made in book-entry form only through the Same Day Funds
Settlement System of The Depository Trust Company, or through Cedel Bank,
societe anonyme or the Euroclear System, on or about __________, 199__.
After the initial distribution of the Certificates and Notes by the
Underwriters, the Prospectus and this Prospectus Supplement may be used by
McDonald Investments Inc., A KeyCorp Company ("McDonald Investments"), an
affiliate of the Seller, in connection with market making transactions in the
Certificates and Notes. McDonald Investments may act as principal or agent in
such transactions. Such transactions will be at prices related to prevailing
market prices at the time of sale. Certain information in this Prospectus
Supplement will be updated from time to time as described in "Incorporation of
Certain Documents by Reference."
_____________, 199__.
<PAGE> 108
The assets of the Trust will be transferred by the Seller to
the Trust on or prior to the Closing Date. The Notes will be secured by the
assets of the Trust pursuant to the Indenture. Certain capitalized terms used
in this Prospectus Supplement are defined in this Prospectus Supplement on the
pages indicated in the "Index of Terms" on page ___ of this Prospectus
Supplement or, to the extent not defined herein, have the meanings assigned to
such terms in the Prospectus. Interest on all classes of Notes will accrue at
the fixed per annum interest rates specified above. Interest on the Notes will
generally be payable on the [15th] day of each month (each, a "Distribution
Date"), commencing _______, 199_. Principal of the Notes will be payable on
each Distribution Date to the extent described herein, except that no principal
will be paid on the Class A-2 Notes until the Class A-1 Notes have been paid
in full. See "Description of the Notes--Payments of Interest."
The Certificates will represent fractional undivided interests in
the Trust. Interest, at the Certificate Rate, will be distributed to the
Certificateholders on each Distribution Date to the extent of available funds.
Principal, to the extent described herein, will be distributed to the
Certificateholders on each Distribution Date commencing with the Distribution
Date on which the Notes were paid in full to the extent of available funds. See
"Description of the Certificates--Distributions of Principal Payments."
Distributions of interest and principal on the Certificates will be subordinated
in priority to payments due on the Notes as described herein. See "Description
of the Transfer and Servicing Agreements--Subordination of Certificates."
Each class of the Notes and the Certificates will be payable in
full on the applicable final scheduled Distribution Date as set forth herein.
However, payment in full of a class of Notes or of the Certificates could occur
earlier or later than such dates as described herein. See "Weighted Average Life
of the Securities." In addition, the Class A-2 Notes and the Certificates will
be subject to prepayment in whole, but not in part, on any Distribution Date on
which Key Bank USA, National Association in its capacity as servicer (in such
capacity, the "Servicer"), or the Seller exercises its option to purchase the
Receivables. The Seller or Servicer may purchase the Receivables when the
aggregate principal balance of the Receivables has declined to 5% or less of the
initial aggregate principal balance of the Receivables purchased by the Trust.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPETE INFORMATION
ABOUT THE OFFERING OF THE NOTES AND THE CERTIFICATES. ADDITIONAL INFORMATION IS
CONTAINED IN THE PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE NOTES OR THE
CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. TO THE EXTENT ANY STATEMENTS IN THIS
PROSPECTUS SUPPLEMENT OR SPECIFY ADDITIONAL INFORMATION WITH RESPECT TO
STATEMENTS IN THE PROSPECTUS, THE STATEMENTS IN THIS PROSPECTUS SUPPLEMENT SHALL
CONTROL.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT
OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE
NOTES AND THE CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS WHEN ACTING AS UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
There is currently no secondary market for the Securities offered
hereby. Each Underwriter expects, but is not obligated to make a market in the
Notes and Certificates. There can be no assurance that a secondary market will
develop or that it will provide Securityholders with liquidity of investment or
that it will continue for the life of the Securities offered hereby.
S-2
<PAGE> 109
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Notes or Definitive Certificates are
issued, monthly and annual unaudited reports containing information concerning
the Receivables will be prepared by the Servicer and sent on behalf of the Trust
only to Cede & Co., as nominee of the Depository Trust Company and registered
holder of the Notes and the Certificates. See "Certain Information Regarding the
Securities--Book-Entry Registration" and "--Reports to Securityholders" in the
accompanying Prospectus. Such reports will not constitute financial statements
prepared in accordance with generally accepted accounting principles. The
Seller, as originator of the Trust, will file with the Securities and Exchange
Commission (the "Commission") such periodic reports as are required under the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the Commission thereunder. In addition, the Commission maintains a public access
site on the Internet through the World Wide Web at which site reports,
information statements and other information, including all electronic filings,
may be viewed. The Internet address of such World Wide Web site is
http://www.sec.gov.
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SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the Prospectus. Certain capitalized terms used herein are defined elsewhere in
this Prospectus Supplement on the pages indicated in the "Index of Terms"
beginning at page S-__ or, to the extent not defined herein, have the meanings
assigned to such terms in the Prospectus.
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Issuer........................... Key Auto Finance Trust 199_-__ (the "Trust" or the
"Issuer"), a [Delaware business] trust established
pursuant to a trust agreement (as amended and
supplemented, the "Trust Agreement"), dated as of
________________, 199_ between the Seller and the
Owner Trustee.
Seller........................... Key Consumer Acceptance Corporation, a Delaware
corporation (the "Seller"). See "The Seller."
Servicer......................... Key Bank USA, National Association, a national banking
association (the "Bank" or in its capacity as
servicer, the "Servicer").
Indenture Trustee................ ____________________, as trustee under the Indenture (the
"Indenture Trustee").
Owner Trustee.................... ____________________, as trustee under the Trust Agreement
(the "Owner Trustee").
The Notes........................ The Trust will issue Asset Backed Notes (the "Notes"),
pursuant to an Indenture to be dated as of
_______________, 199_ (as amended and supplemented
from time to time, the "Indenture"), between the Issuer and
the Indenture Trustee, as follows: (a) Class A-1 __%
Money Market Asset Backed Notes (the "Class A-1 Notes")
in the aggregate initial principal amount of
$______________; and (b) Class A-2 __% Asset Backed
Notes (the "Class A-2 Notes") in the aggregate initial
principal amount of $____________.
The Notes will be secured by the assets of the Trust
pursuant to the Indenture.
The Certificates................. The Trust will issue __% Asset Backed Certificates (the
"Certificates" and, together with the Notes, the "Securities")
with an aggregate initial Certificate Balance of
$________________. The Certificates will represent
fractional undivided interests in the Trust and will be issued
pursuant to the Trust Agreement.
The Receivables.................. On or prior to __________, 199_ (the "Closing Date"), the
Trust will purchase a pool of motor vehicle promissory notes
and security agreements and/or retail installment sale
contracts secured by new or used automobiles or light duty
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trucks (collectively, the "Receivables"), including rights
to receive certain payments made with respect to such
Receivables, security interests in the vehicles
financed thereby (the "Financed Vehicles"), rights
under Dealer Agreements, certain deposit accounts in
which collections are held, any proceeds from claims
on insurance policies and the proceeds of the
foregoing, having an aggregate principal balance of
approximately $___________ as of ______________, 199_
(the "Cutoff Date"), from the Seller pursuant to a
Sale and Servicing Agreement to be dated as of
____________, 199_ (as amended and supplemented from
time to time, the "Sale and Servicing Agreement"),
among the Trust, the Seller and the Servicer. See
"Description of the Transfer and Servicing Agreements"
herein and in the Prospectus.
The Receivables consist of (i) motor vehicle promissory notes
and security agreements executed by an Obligor in favor of
a motor vehicle lender ("Direct Loans") and/or (ii) motor
vehicle retail installment sales contracts between an Obligor
and a vehicle dealer (collectively, "Motor Vehicle Loans").
Direct Loans include promissory notes and security
agreements for which a Dealer performed certain ministerial
loan processing functions on behalf of the lender. In addition,
the Receivables Pool includes Motor Vehicle Loans acquired by an
Affiliate through acquisitions or Motor Vehicle Loans originated
by a bank, financial institution or other entity acquired by an
Affiliate ("Acquired Receivables"). "Originator" means, with
respect to any Motor Vehicle Loan, the Affiliate that (i) was
the lender with respect to a Direct Loan made by an Affiliate
or (ii) acquired such Motor Vehicle Loan from a vehicle dealer
or other third party. "Affiliate" means a bank or other nonbank
entity owned or acquired by KeyCorp or by its subsidiaries.
"Subsidiary" includes both direct and indirect subsidiaries.
As of the date of this Prospectus Supplement, the Bank is the
only KeyCorp subsidiary that makes or acquires Motor Vehicle
Loans. See "The Receivables Pool" herein and "The Receivables
Pools" in the Prospectus.
The Receivables have been selected from Motor Vehicle Loans
owned by the Affiliates based on the criteria specified in the
Sale and Servicing Agreement and described herein and in
the Prospectus. See "The Receivables Pool" herein and
"The Receivables Pools" in the Prospectus. No Receivable
will have a scheduled maturity that, after giving prospective
effect to any permitted extensions or such deferrals, would
be later than ____________ (the "Final Scheduled Maturity
Date"). As of the Cutoff Date, the weighted average
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remaining maturity of the Receivables was approximately
_____ months and the weighted average original
maturity of the Receivables was approximately ____
months. As of the Cutoff Date, approximately ____% of
the aggregate principal balance of the Receivables
represented financing of new vehicles and the
remainder represented financing of use vehicles.
The "Pool Balance" means, at any time, the sum of the
outstanding Principal Balances of the Receivables. The
"Principal Balance" for any Receivable, at any time, means
the principal balance of such Receivable at the end of the
preceding Collection Period, after giving effect to all
payments received from Obligors and Purchase Amounts to
be remitted by the Servicer or the Seller, as the case may
be, for such Collection Period and all losses realized on
Receivables liquidated during such Collection Period.
Terms of the Notes
A. Distribution Dates........... Payments of interest and principal on the Notes will be made on
the [15th] day of each month or, if any such day is not a
Business Day, on the next succeeding Business Day (each,
a "Distribution Date"), commencing ______________, 199_.
Each reference to a "Payment Date" in the Prospectus shall
refer to a Distribution Date herein. Payments will be made
to holders of record of the Notes (the "Noteholders") as of
the day immediately preceding such Distribution Date or, if
Definitive Notes are issued, as of the last Business Day of
the preceding month (a "Record Date"). A "Business Day"
is a day other than a Saturday, a Sunday and a day that, in
New York City, Cleveland, Ohio and _____________,
Delaware, is neither a legal holiday nor a day on which
banking institutions are authorized by law, regulation or
executive order to be closed.
B. Interest Rates............... The Class A-1 Notes will bear interest at the rate of __% per
annum (the "Class A-1 Interest Rate") and the Class A-2
Notes will bear interest at the rate of __% per annum (the
"Class A-2 Interest Rate"). The Class A-1 Interest Rate and
the Class A-2 Interest Rate are referred to herein collectively
as "Interest Rates".
C. Interest..................... Interest on the outstanding principal amount of the Notes of
each class will accrue at the applicable Interest Rate from
the Closing Date (in the case of the first Distribution Date)
and thereafter from the preceding Distribution Date through
the current Distribution Date (each an "Interest Period").
Interest on the Notes will be calculated on the basis of a
360-day year consisting of twelve 30-day months. See
"Description of the Notes--Payments of Interest."
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D. Principal.................... Principal of the Notes will be payable on each Distribution Date
in an amount equal to the Noteholders' Principal
Distributable Amount for the calendar month (the
"Collection Period") preceding such Distribution Date.
No principal payments will be made on the Class A-2 Notes
until the Class A-1 Notes have been paid in full.
The outstanding principal amount of the Class A-1 Notes, to the
extent not previously paid, will be payable on the
_____________, 199_ Distribution Date (the "Class A-1
Final Scheduled Distribution Date"); and the outstanding
principal amount of the Class A-2 Notes, to the extent not
previously paid, will be payable on the ____________, 199_
Distribution Date (the "Class A-2 Final Scheduled
Distribution Date").
E. Significant Characteristics
of Class Notes............... [Interest will accrue on the Class __ Notes from [the Closing
Date] but no interest will be payable on the Class __ Notes
until [[the Distribution] [Payment] Date]] [the [Distribution]
[Payment] Date on or after which the Class __ Notes have
been paid in full]. [The Class __ Notes [do not bear interest]
[bear interest at a nominal rate] and principal thereon is due
and payable on [and after] [the [Distribution] [Payment]
Date following the [Distribution] [Payment] Date on or after
which the Class __ Notes have been paid in full] [each
[Distribution] [Payment] Date to the extent that principal
available to be paid on the Class __ Notes exceeds the
amount necessary to reduce the outstanding principal balance
of the Class __ Notes to the [planned balance] for such
[Distribution] [Payment] Date. [No principal is payable with
respect to the Class __ Notes. The Class __ Notes are
entitled only to interest on the [nominal] [notional] amount
thereof, as described above under "Principal."] As a result
the yield to maturity on the Class __ Notes will be
particularly sensitive to the rate and timing of repayment,
repurchase and defaults on the Receivables.] [See "Risk
Factors" and "The Receivables Pool-- Weighted Average
Life of the Securities."]
F. Optional Redemption.......... After the Class A-1 Notes have been paid in full, the Class A-2
Notes will be redeemed in whole, but not in part, on any
Distribution Date on which the Seller or Servicer exercises
its option to purchase the Receivables, which can occur after
the Pool Balance declines to 5% or less of the Original Pool
Balance, at a redemption price equal to the unpaid principal
amount of the Class A-2 Notes plus accrued and unpaid
interest thereon. See "Description of the Notes--Optional
Redemption." The "Original Pool Balance" will equal the
aggregate principal balance of the Receivables as of the
Cutoff Date.
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Terms of the Certificates
A. Distribution Dates............... Distributions with respect to the Certificates will be made on
each Distribution Date, commencing __________, 199_.
Distributions will be made to holders of record of the
Certificates (the "Certificateholders" and, together with the
Noteholders, the "Securityholders") as of the related Record
Date (which will be the last Business Day of the preceding
month if Definitive Certificates are issued).
B. Certificate Rate................. ___% per annum (the "Certificate Rate").
C. Interest......................... On each Distribution Date, the Owner Trustee will distribute
pro rata to Certificateholders accrued interest at the
Certificate Rate on the outstanding Certificate Balance
generally to the extent of funds available following payment
of the Servicing Fee and distributions in respect of interest
on the Notes from the Total Distribution Amount and the
Reserve Account. Interest will be calculated on the basis of
a 360-day year consisting of twelve 30-day months. Interest
in respect of a Distribution Date will accrue from the
Closing Date (in the case of the first Distribution Date) and
thereafter from the preceding Distribution Date to and
including such Distribution Date.
D. Principal........................ No distributions of principal on the Certificates will be made
until all of the Notes have been paid in full. On each
Distribution Date commencing on the Distribution Date on
which the Class A-2 Notes are paid in full, principal of the
Certificates will be payable in an amount generally equal to
the Certificateholders' Principal Distributable Amount for
the Collection Period preceding such Distribution Date, to
the extent of funds available therefor following payment of
the Servicing Fee, payments of interest and principal, if any,
due in respect of the Notes and the distribution of interest in
respect of the Certificates.
The outstanding principal amount, if any, of the Certificates
will be payable in full on the __________ Distribution Date
(the "Certificate Final Scheduled Distribution Date").
E. Optional Prepayment.............. If the Pool Balance as of the last day of a Collection Period has
declined to 5% or less of the Original Pool Balance, the
Seller or Servicer may purchase all remaining Trust Property
on any Distribution Date occurring in a subsequent
Collection Period at a purchase price equal to the aggregate
of the Purchase Amounts of the remaining Receivables
(other than Defaulted Receivables), which would result in a
prepayment of the Certificates. See "Description of the
Certificates--Optional Prepayment."
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[Pre-Funding Account]................. [During the period (the "Funding Period") from and including
the Closing Date until the earliest of (i) the
Determination Date on which (a) the Pre-Funded Amount
is less than $ , (b) an Event of Default has
occurred under the Indenture or a Servicer Termination
Event has occurred under the Sale and Servicing
Agreement, (c) certain events of insolvency have occurred
with respect to the Seller or the Servicer or (ii) the close
of business on the [Date] Distribution Date, the
Pre-Funded Amount will be maintained in an account in
the name of the Indenture Trustee (the "Pre-Funding
Account"), The Pre-Funded Amount is expected to initially
equal approximately $ and, during the
Funding Period, will be reduced by the principal balance
of Subsequent Receivables purchased by the Trust from
time to time in accordance with the Sale and Servicing
Agreement. The Seller expects that the Pre-Funded
Amount will be reduced to less than $ by the
[Date] Distribution Date. Any Pre-Funded Amount
remaining at the end of the Funding Period will be
payable to the Noteholders and Certificateholders pro
rata in properties to the respective principal balances of
each class of Notes and the Certificates. See "Description
of the Transfer and Servicing Agreements -- Pre-Funding
Account; Subsequent Receivables."]
Reserve Account................... A reserve account (the "Reserve Account") will be created with
an initial deposit by the Seller of cash or certain investments
having a value of at least $________ (the "Reserve Account
Deposit"). In addition, on each Distribution Date, any
amounts on deposit in the Collection Account with respect
to the preceding Collection Period after payments to the
Certificateholders and the Servicer have been made will be
deposited into the Reserve Account until the amount of the
Reserve Account is equal to the Specified Reserve Account
Balance.
On or prior to the Business Day preceding each Distribution
Date (the "Deposit Date"), the Indenture Trustee will
withdraw funds from the Reserve Account, to the extent of
the funds therein (exclusive of investment earnings), to the
extent (a) the sum of the amounts required to be distributed
to Certificateholders and the Servicer on the related
Distribution Date exceeds (b) the amount on deposit in the
Collection Account with respect to the preceding Collection
Period (net of investment income). If the amount in the
Reserve Account is reduced to zero, Certificateholders will
bear the credit and other risks associated with ownership of
the Receivables, including the risk that the Trust may not
have a perfected security interest in the Financed Vehicles.
See "Risk Factors" herein and in the Prospectus,
"Description of the Certificates--The Reserve Account"; and
"Certain Legal Aspects of the Receivables" in the
Prospectus.
Tax Status........................ In the opinion of Thompson Hine & Flory LLP, for federal income
tax purposes, the Notes will be characterized as debt, and the
Trust will not be classified as a separate entity that is an
association (or a publicly traded partnership) taxable as a
corporation. In the opinion of Thompson Hine & Flory LLP, Ohio
tax counsel to the Trust, the same characterization of the Notes
as debt would apply for Ohio corporation franchise tax purposes
as for federal income tax purposes. In addition, since Ohio
follows the recently issued entity classification rules of
Federal income tax law, the Trust will not be treated as a
separate entity taxable as a corporation for Ohio corporation
franchise tax purposes. If, however, Ohio changed its position
and did not follow such entity classification rules, the Trust
may be treated as a separate entity taxable as a corporation for
Ohio corporation franchise tax purposes. Any franchise tax
liability of the Trust incurred by the Trust is expected not to
be material, and the Servicer will indemnify the Trust for any
such franchise tax liability. Each Noteholder, by the acceptance
of a Note, will agree to treat the Notes as indebtedness, and
each Certificateholder, by the acceptance of a Certificate, will
agree to treat the Trust as a partnership in which the
Certificateholders are partners for federal, state and local
income and franchise tax purposes. See "Federal Income Tax
Consequences" and "State Tax Consequences" herein and in the
Prospectus for additional information concerning the application
of federal and state tax laws to the Trust and the Securities.
ERISA Considerations.............. Subject to the considerations discussed under "ERISA
Considerations" herein and in the Prospectus, the Notes are
eligible for purchase by employee benefit plans.
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The Certificates may not be acquired with the assets of any
employee benefit plan subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or
Section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code"), or with the assets of an individual
retirement account. Subject to the considerations set forth
under "ERISA Considerations--Trusts that Issue Notes" in the
Prospectus, the Certificates are eligible to be acquired and
held by insurance company general accounts in certain
circumstances. See "ERISA Considerations" herein and in
the Prospectus.
Legal Investment.................. The Class A-1 Notes will be eligible securities for purchase by
money market funds under Rule 2a-7 under the Investment
Company Act of 1940, as amended.
Risk Factors...................... See "Risk Factors" herein and in the Prospectus for a
discussion of certain factors that potential investors should
consider in determining whether to invest in the Securities.
[No] Listing of Securities........ [The [Securities]/[Notes]/[Certificates] will not be listed on any
national securities exchange or automated quotation system
of a registered securities association.] [The Certificates]
[Notes] [Securities] will be listed on ______________.]
Rating of the Notes............... It is a condition to the issuance of the Notes that the Class A-1
Notes be rated in the highest short-term rating category and
that the Class A-2 Notes be rated in the highest long-term
rating category by at least two nationally recognized rating
agencies (the "Rating Agencies"). There can be no
assurance that a rating will not be lowered or withdrawn by
a Rating Agency if circumstances so warrant. See "Risk
Factors--Ratings of the Securities" herein and in the
Prospectus.
Rating of the Certificates........ It is a condition to the issuance of the Certificates that they be
rated at least "A" or its equivalent by at least two nationally
recognized rating agencies. There can be no assurance that
a rating will not be lowered or withdrawn by a rating agency
if circumstances so warrant. See "Risk Factors--Ratings of
the Securities" in the Prospectus.
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RISK FACTORS
In addition to the other information contained herein and in the
Prospectus, prospective investors should consider carefully the following risk
factors and the information contained in "Risk Factors" in the Prospectus.
[AS APPLICABLE: HIGHER RISK CREDIT QUALITY OF THE RECEIVABLES POOL
The Receivables Pool consists entirely of Motor Vehicle Loans purchased
by AutoFinance Group that were made by Dealers to a broad array of obligors
which failed to meet one or more of the credit standards or criteria of
traditional lenders such as banks and the finance subsidiaries of major
automotive manufacturers or affiliated distributors, and therefore, were
considered "credit impaired." Such obligors generally have lower levels of
gross income and net worth, tend to have higher levels of delinquencies on
their existing debt obligations and may previously have defaulted on their
installment or revolving debt obligations or have declared bankruptcy in the
past.
AutoFinance Group has established various guidelines to assist it in
identifying obligors that may qualify for financing despite being considered
credit impaired under traditional credit standards. These guidelines, which
are included in its judgmental credit evaluation process and are subject to
override by senior credit underwriting personnel, include a minimum gross
monthly income level which varies by state and generally ranges from $1,200 to
$1,500, a maximum debt to gross income ratio of 40% (inclusive of the proposed
obligation and insurance on the vehicle) unless the applicant earns
substantially more than the minimum gross monthly income, and a minimum
verifiable employment and residence history of at least 3 years. In addition,
AutoFinance Group generally requires previous installment credit performance
with a record of six months paid as agreed. AutoFinance Group also generally
limits the amount it will advance on a vehicle to no more than 110% of the
vehicle's value, based upon the wholesale book value as defined by an
independent valuation organization for used vehicles or the dealer invoice
value for new vehicles. AutoFinance Group typically also finances the cost of
title and registration fees and taxes. In addition, AutoFinance Group finances
the price of extended service contracts or warranties from approved providers,
credit related insurance premiums and other items sold by the Dealer that
would be subject to a partial rebate in the event of a default by the obligor.
Down payments by the obligor are required, but the amount of such down payments
vary.
The Motor Vehicle Loans that comprise the Receivables Pool bear higher
rates of interest, have higher losses, may have higher levels of delinquencies
and generally involve greater risk than loans made to obligors financed by
traditional lenders.
There is no requirement for the Servicer or Subservicer, or any other
person, to advance delinquent installment payments on the Receivables. In the
event of significant delinquencies, or the combination of significant
delinquencies and substantial losses on the Receivables, there may be
insufficient funds available to make full or timely payments of interest or
principal on all classes of Notes on a Distribution Date.]
SUBORDINATION
Distributions of interest and principal on the Certificates will
be subordinated in priority of payment to interest and principal due on the
Class A-1 Notes and Class A-2 Notes. Consequently, the Certificateholders will
not receive any distributions with respect to a Collection Period until the full
amount of interest on and principal of the Notes on such Distribution Date has
been deposited in the Note Distribution Account. The Certificateholders will not
receive any distributions of principal until the Distribution Date on which the
Class A-2 Notes were paid in full. However, upon the occurrence and during the
continuation of an Event of Default which has resulted in an acceleration of the
Notes, distributions of all amounts on the Certificates will be subordinated in
priority of payment to payment in full of principal of the Notes.
If an Event of Default occurs, the Indenture Trustee or the
holders of a majority of the aggregate principal amount of all the Notes may
declare the principal of the Notes to be immediately due and payable, and the
Indenture Trustee may institute or be required to institute proceedings to
collect amounts due or exercise its remedies as a secured party (including
foreclosure or sale of the Receivables). In the event of a sale of Receivables
by the Indenture Trustee following an Event of Default, there is no assurance
that the proceeds of such sale will be equal to or greater than the aggregate
outstanding principal amount of the Notes and the Certificate Balance plus
accrued interest. Because neither interest nor principal is distributed to
Certificateholders upon sale of the Receivables following an Event of Default
and acceleration of the Notes under the Indenture until all the Notes have been
paid in full, the interests of Noteholders and the Certificateholders may
conflict, and the exercise by the Indenture Trustee of its right to sell the
Receivables or exercise other remedies under the Indenture and applicable law
may cause the Certificateholders to suffer a loss of all or part of their
investment. See "Description of the Notes--The Indenture--Events of Default;
Rights upon Event of Default" and "Description of the Transfer and Servicing
Agreements--Insolvency Event" in the Prospectus.
In general, the Seller may, and in certain circumstances the
Certificateholders may, direct the Owner Trustee in the administration of the
Trust. However, because the Trust has pledged the property of the Trust to the
Indenture Trustee to secure the payment of the Notes, including in such pledge
certain rights of the Trust under the Sale and Servicing Agreement, the
Indenture Trustee and not the Seller or the Certificateholders has the power to
direct the Trust to take certain actions in connection with the administration
of the property of the Trust until the Notes have been paid in full and the lien
of the Indenture has been released. In addition, the Seller and
Certificateholders are not allowed to direct the Owner Trustee to take any
action which conflicts with the provisions of any of the Sale and Servicing
Agreement, the Trust Agreement or the Indenture (together the "Basic
Documents"). The Indenture specifically prohibits the Issuer from taking any
action which would impair the Indenture Trustee's security interest in the Trust
and generally requires the Owner Trustee to obtain the consent of the Indenture
Trustee or the holders of a majority of the aggregate principal amount of the
Notes before modifying, amending, supplementing, waiving or terminating any
Basic Document or any provision of any Basic Document. Therefore, until the
Notes have been paid in full, the ability to direct the Trust with respect to
certain actions permitted to be taken by it under the Basic Documents rests with
the Indenture Trustee and the Noteholders instead of the Seller or the
Certificateholders.
If a Servicer Termination Event were to occur, the holders of a
majority of the outstanding principal amount of the Notes, the Indenture Trustee
acting on behalf of the Noteholders, or the Owner Trustee and not the Seller or
the Certificateholders, would have the right to terminate the Servicer as the
servicer of the Receivables without consideration of the effect such termination
would have on Certificateholders. In addition, the holders of not less than a
majority of the outstanding principal amount of the Notes would have the right
to waive certain
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Servicer Termination Events, without consideration of the effect such waiver
would have on Certificateholders. See "Description of the Transfer and Servicing
Agreements--Servicer Termination Events" and "--Rights upon Servicer Termination
Events" in the Prospectus.
LIMITED ASSETS
The Trust will not have, nor is it permitted or expected to have,
any significant assets or sources of funds other than the Receivables and the
Reserve Account. Holders of the Notes and the Certificates must rely for
repayment upon payments on the Receivables and, if and to the extent available,
amounts on deposit in the Reserve Account. Similarly, although funds in the
Reserve Account will be available on each Distribution Date to cover shortfalls
in distributions of interest and principal on the Notes and the Certificates,
amounts to be deposited in the Reserve Account are limited in amount. If the
Reserve Account is exhausted, the Trust will depend solely on current
distributions on the Receivables to make payments on the Notes and the
Certificates.
Amounts on deposit in the Reserve Account will be available on
any Distribution Date first to cover payment of Servicing Fees to the Servicer,
then shortfalls in distributions of interest on the Notes then shortfalls in
distributions of interest on Certificates. After distributions of interest on
the Certificates have been made, the remaining amounts on deposit in the Reserve
Account will be available first to cover shortfalls in distributions of
principal on the Notes and then shortfalls in distributions of principal on the
Certificates. If the Reserve Account is exhausted, the Trust will depend solely
on payments on the Receivables to make distributions on the Securities, and
Securityholders will bear the risk of delinquency, loan losses and repossessions
with respect to the Receivables. There can be no assurance that the future
delinquency, loan loss and repossession experience of the Trust with respect to
the Receivables will be better or worse than that set forth herein with respect
to the portfolio of Motor Vehicle Loans serviced by the Servicer. Any amounts
released from the Reserve Account to the Seller will not be available to the
Securityholders. See "The Receivables Pool--Pool Composition" and "Delinquency
and Net Losses" herein and "The Receivables Pools" in the Prospectus and
"Description of the Transfer and Servicing Agreements--Subordination of
Certificateholders; Reserve Account" and "--Distributions" herein.
MATURITY AND PREPAYMENT CONSIDERATIONS
The Class A-2 Notes will not receive any principal payments until
the Class A-1 Notes have been paid in full. In addition, no principal payments
on the Certificates will be made until the Distribution Date on which the Notes
are paid in full. As the rate of payment of principal of the Notes and the
Certificates depends on the rate of payment (including prepayments) of the
principal balance of the Receivables, final payment of the Notes and the final
distribution in respect of the Certificates could occur significantly earlier
than the applicable Final Scheduled Distribution Date. It is expected that final
payment of the Notes and the final distribution in respect of the Certificates
will occur on or prior to the applicable Final Scheduled Distribution Date.
However, if sufficient funds are not available to pay the Notes or the
Certificates in full on or prior to the applicable Final Scheduled Distribution
Date, final payment of the Notes and the final distribution in respect of the
Certificates could occur later than such date. See "Weighted Average Life of the
Securities" herein and in the Prospectus.
[THE YIELD ON THE CLASS ____ NOTES WILL BE EXTREMELY SENSITIVE TO
THE RATE AND TIMING OF PAYMENTS (INCLUDING PREPAYMENTS) ON THE RECEIVABLES. [AN
INVESTOR PURCHASING A CLASS ____ NOTE AT A SIGNIFICANT PREMIUM COULD, UNDER
CERTAIN PREPAYMENT SCENARIOS, FAIL TO RECOUP ITS ORIGINAL INVESTMENT.] [THE
YIELD TO MATURITY ON THE CLASS ____ NOTES WILL BE ADVERSELY AFFECTED BY A LOWER
THAN ANTICIPATED RATE OF PAYMENT ON THE RECEIVABLES.] [The reinvestment risk to
an investor in the Class ____ Notes may be exacerbated in the event of [an
increase in the rate of payment on the Receivables in a decreasing interest rate
environment] [a decrease in the rate of payment on the Receivables in an
increasing rate environment]. Any ratings assigned to the Class ____ Notes by a
Rating Agency will reflect only such Rating Agency's assessment of the
likelihood that timely distributions will be made with respect to the Class ____
Notes
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in accordance with the Sale and Servicing Agreement and the Indenture. Such
rating will not constitute an assessment of the likelihood that principal
prepayments on the Receivables will occur or of the degree to which the rate of
such prepayments might differ from that originally anticipated. As a result,
such rating will not address the possibility that prepayment rates higher or
lower than anticipated by an investor may cause [such investor to experience a
lower than anticipated yield] [an investor purchasing a Class ____ Note at a
significant premium might fail to recoup its investment]. See "The Receivable
Pool -- Sensitivity of the Class ____ Notes to Prepayments."]
RATINGS OF THE SECURITIES
It is a condition to the issuance of the Notes and of the
Certificates that the Class A-1 Notes be rated in the highest short-term rating
category and that the Class A-2 Notes be rated in the highest long-term rating
category, and that the Certificates be rated at least "A" or its equivalent, by
at least two nationally recognized rating agencies. A rating is not a
recommendation to purchase, hold or sell Securities, inasmuch as such rating
does not comment as to market price or suitability for a particular investor.
The ratings of the Securities address the likelihood of the payment of principal
and interest on the Securities pursuant to their terms. There can be no
assurance that a rating will remain for any given period of time or that a
rating will not be lowered or withdrawn entirely by a Rating Agency if in its
judgment circumstances in the future so warrant.
THE TRUST
GENERAL
The Issuer, Key Auto Finance Trust 199_-_, is a [business] trust
formed under the laws of the State of [Delaware] pursuant to the Trust Agreement
for the transactions described in this Prospectus Supplement. After its
formation, the Trust will not engage in any activity other than (a) acquiring,
holding and managing the Receivables and the other assets of the Trust and
proceeds therefrom, (b) from time to time prior to the Closing Date, issuing
indebtedness or other securities to finance its purchase of the Receivables and
such other assets and, on and after the Closing Date, issuing the Notes and the
Certificates to finance such assets, (c) making payments on the indebtedness and
other securities and the Notes and the Certificates issued by it, and (d)
engaging in other activities that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto or connected therewith.
At the time the Notes and Certificates are issued, the Trust will
be capitalized with equity in an amount equal to the Certificate Balance of
$__________, excluding amounts deposited in the Reserve Account. The equity of
the Trust, together with the net proceeds from the sale of the Notes, will be
used by the Trust to purchase the Receivables from the Seller pursuant to the
Sale and Servicing Agreement [or to repayment of any related Warehouse
Financing.]
If the protection provided to the investment of the
Securityholders by the Reserve Account is insufficient, the Trust will look only
to the Obligors on the Receivables, the proceeds from the repossession and sale
of Financed Vehicles which secure defaulted Receivables and the proceeds from
any Dealer Recourse. In such event, certain factors, such as the Trust's not
having first priority perfected security interests in some of the Financed
Vehicles, may affect the Trust's ability to realize on the collateral securing
the Receivables, and thus may reduce the proceeds to be distributed to
Securityholders with respect to the Securities. See "Description of the Transfer
and Servicing Agreements--Distributions" and "--Reserve Account" and "Certain
Legal Aspects of the Receivables" in the Prospectus.
S-13
<PAGE> 120
The Trust's principal offices are in Delaware, in care of
__________________, as Owner Trustee, at the address listed below under "--The
Owner Trustee".
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust
as of the Closing Date, as if the issuance and sale of the Notes and the
Certificates have taken place on such date:
Class A-1 __% Money Market Asset Backed Notes.......... $____________
Class A-2 __% Asset Backed Notes....................... ____________
__% Asset Backed Certificates.......................... ____________
Total.................................................. $
============
THE OWNER TRUSTEE
_______________ is the Owner Trustee under the Trust Agreement.
_____________ is a __________________ and its principal offices where
information can be obtained relating to the Trust and the Certificates are
located at _____________________. The Seller and its affiliates may maintain
normal commercial banking relations with the Owner Trustee and its affiliates.
THE RECEIVABLES POOL
The Receivables were purchased or originated by the Originators
in the ordinary course of their respective businesses. [As applicable: All of
the Receivables are owed by higher risk obligors than obligors of motor vehicle
loans originated by traditional financing sources]. The pool of Receivables
(the "Receivables Pool") will consist of Receivables purchased by the Trust as
of the Cutoff Date. The Receivables have been selected from the Motor Vehicle
Loan portfolio of each Affiliate for inclusion in the Receivables Pool by
several criteria, some of which are set forth in the Prospectus under "The
Receivables Pool," as well as the requirement that each Receivable (a) has an
outstanding principal balance of at least $_____, (b) as of the Cutoff Date,
was not more than 30 days past due, (c) has a scheduled maturity not later
than six months before the Final Scheduled Maturity Date, (d) was not subject
to a force-placed physical damage insurance policy on the related Financed
Vehicle and (e) had an original term to maturity of not more than ___ months.
No selection criteria or procedures believed by the Seller to be adverse to the
Certificateholders were used in selecting the Receivables.
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<PAGE> 121
POOL COMPOSITION
Set forth in the following tables is information concerning the
composition, distribution by Contract Rate and the geographic distribution of
the Receivables to be conveyed by the Seller to the Trust as of the Cutoff Date.
COMPOSITION OF THE RECEIVABLES POOL
AS OF THE CUTOFF DATE
<TABLE>
<S> <C>
Aggregate Principal Balance.................................................................... $________________
Number of Receivables.......................................................................... $________________
Average Principal Balance...................................................................... $________________
(Range)......................................................................... $______ to $_____
Average Original Amount Financed $________________
(Range)......................................................................... $______ to $_____
Weighted Average Contract Rate................................................................. _____%
(Range)......................................................................... ___% to___%
Weighted Average Original Term................................................................. ____ months
(Range)......................................................................... ____ to ___ months
Weighted Average Remaining Term................................................................ ____ months
(Range)......................................................................... ____ to ___ months
Scheduled Weighted Average Life (1)............................................................ ____ years
</TABLE>
(1) Based on payments due on or after the Cutoff Date, assuming that no
prepayments on the Receivables are made after the Cutoff Date and that
all payments on Simple Interest Receivables are received on their
respective due dates.
S-15
<PAGE> 122
DISTRIBUTION BY CONTRACT RATE OF THE RECEIVABLES
AS OF THE CUTOFF DATE(1)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE
OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
CONTRACT RANGE RECEIVABLES BALANCE BALANCE
- - - ------------------------- ---------------- --------------- ---------------
<S> <C> <C> <C>
7.75 to 8.00
8.01 to 9.00
9.01 to 10.00
10.01 to 11.00
11.01 to 12.00
12.01 to 13.00
13.01 to 14.00
14.01 to 15.00
15.01 to 16.00
16.01 to 17.00
17.01 to 18.00
18.01 to 19.00
19.01 to 20.00
20.01 to 21.00
21.01 to 22.00
22.01 to 23.00
23.01 to 24.00
24.01 to 25.00
Totals 100%
========== ========== ====
</TABLE>
- - - ---------------
(1) Percentages may not add to 100% because of rounding.
Approximately ___% of the aggregate principal balance of the
Receivables, constituting ___% of the number of such Receivables, as of the
Cutoff Date represented financing of new vehicles and the remainder represented
financing of used vehicles. Approximately __% of the aggregate principal balance
of the Receivables, constituting __% of the number of such Receivables, were
originated or purchased by AutoFinance Group. Approximately __% of the aggregate
principal balance of the Receivables, constituting __% of the number of such
Receivables, are Precomputed Receivables and the remainder are Simple Interest
Receivables.
S-16
<PAGE> 123
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES POOL
AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
AGGREGATE AGGREGATE
PRINCIPAL PRINCIPAL
BALANCE BALANCE
<S> <C> <C> <C>
STATE(1) STATE(1)
Alabama................... Missouri......................
Alaska.................... Montana.......................
Arizona................... Nebraska......................
Arkansas.................. Nevada........................
California................ New Hampshire.................
Colorado.................. New Jersey....................
Connecticut............... New Mexico....................
Delaware.................. New York......................
District of Columbia...... North Carolina................
Florida................... North Dakota..................
Georgia................... Ohio..........................
Hawaii.................... Oklahoma......................
Idaho..................... Oregon........................
Illinois.................. Pennsylvania..................
Indiana................... Rhode Island..................
Iowa...................... South Carolina................
Kansas.................... South Dakota..................
Kentucky.................. Tennessee.....................
Louisiana................. Texas.........................
Maine..................... Utah..........................
Maryland.................. Vermont.......................
Massachusetts............. Virginia......................
Michigan.................. Washington....................
Minnesota................. West Virginia.................
Mississippi............... Wisconsin.....................
Wyoming.......................
</TABLE>
- - - ---------------
(1) Based on the billing addresses of the Obligors on the Receivables as of
the Cutoff Date.
DELINQUENCIES AND NET LOSSES
Set forth below is certain information concerning the combined
historical delinquency and loss experience of the Originators pertaining to
Motor Vehicle Loans.
S-17
<PAGE> 124
The tables set forth below combine historical Motor Vehicle Loan
data for banks and other financial institutions which are direct or indirect
subsidiaries of KeyCorp (the "Combined Motor Vehicle Loan Portfolio"). These
tables include data for banks and other financial institutions which were
acquired by KeyCorp and its subsidiaries since January 1, 1993. The Bank began
originating Motor Vehicle Loans on September 5, 1995. The underwriting standards
and servicing procedures used by some banks or financial institutions may have
been different from those currently used by the Bank and, consequently, the
experience shown in the tables below may not be comparable to the performance of
the Receivables.
A business unit of the Bank (formerly Auto Finance Group, Inc.)
which focuses on specialty finance loans originated or purchased__% of the
aggregate principal balance of the Receivables included in the Trust. As of
[___________ __, 199_], __% of the aggregate principal balance of the Motor
Vehicle Loans in the Combined Motor Vehicle Loan Portfolio were originated or
purchased by that business unit. Consequently, because of the higher proportion
of specialty finance loans originated or purchased by that business unit in the
Receivables Pool, the experience shown in the tables below may not be
comparable to the performance of the Receivables.
Because the composition of the Receivables included in the Trust
differs from the Combined Motor Vehicle Loan Portfolio and the underwriting
standards and servicing procedures used by some banks or financial institutions
in the origination and servicing of Motor Vehicle Loans included in the Combined
Motor Vehicle Loan Portfolio prior to the formation of the Bank may have been
different from those used by the Bank, there can be no assurance that the
delinquency and net loss experience on the Receivables of the Trust will be
comparable to that set forth below.
S-18
<PAGE> 125
COMBINED MOTOR VEHICLE LOAN PORTFOLIO
DELINQUENCY EXPERIENCE(1)
(Dollars in Millions)
<TABLE>
<CAPTION>
At September 30, At December 31,
------------------------------------ ---------------------------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
- - - -----------------------------------------------------------------------------------------------------------------------------------
$ Percent $ Percent $ Percent $ Percent $ Percent
--- ------- --- ------- --- ------- --- ------- --- -------
- - - -----------------------------------------------------------------------------------------------------------------------------------
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amount of Motor Vehicle
Loans Outstanding.............
- - - -----------------------------------------------------------------------------------------------------------------------------------
Period of Delinquency:
- - - -----------------------------------------------------------------------------------------------------------------------------------
31-90 days..................
- - - -----------------------------------------------------------------------------------------------------------------------------------
over 90 days................
- - - -----------------------------------------------------------------------------------------------------------------------------------
Repossessions.................
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total.........................
- - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- - - --------------
(1) All amounts and percentages are based on the principal amount scheduled
to be paid on each Motor Vehicle Loan, including unearned finance and
other charges.
S-19
<PAGE> 126
COMBINED MOTOR VEHICLE LOAN PORTFOLIO
HISTORICAL NET LOSS EXPERIENCE
(Dollars in Millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
----------------- -----------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Principal Amount of Motor Vehicle Loans Outstanding (1)............
Average Principal Amount of Motor Vehicle Loans Outstanding........
Gross Charge-Offs..................................................
Recoveries.........................................................
Net Losses(2)......................................................
Net Losses as a Percent of Principal Amount Outstanding(2).........
Net Losses as a Percent of Average Principal Amount
Outstanding (2)................................................
</TABLE>
- - - ---------------
(1) Amount represents net principal amounts of Motor Vehicle Loans
outstanding.
(2) Amount represents the aggregate balance of all Motor Vehicle Loans
which were determined to be uncollectible in the period, less any
recoveries on Motor Vehicle Loans charged-off in the period or any
prior period.
Delinquencies and net charge-offs are affected by a number of
social, economic and other factors that may affect an Obligor's ability or
willingness to pay, such as the amount or types of indebtedness incurred by such
Obligor in addition to the Receivable on which such Obligor is indebted, and
there can be no assurance as to the level of future total delinquencies or the
severity of future net charge-offs. As a result, the delinquency and net
charge-off experience of the Receivables may differ from those shown in the
tables.
YEAR 2000
The Year 2000 issue refers to the fact that many computer systems
were originally programmed using two digits rather than four digits to identify
the applicable year. Therefore, when the year 2000 occurs, these systems could
interpret the year as 1900 rather than 2000. Unless hardware, system software
and applications are corrected to be Year 2000 compliant, computers and the
devices they control could generate miscalculations and create operational
problems. Various systems could be affected ranging from complex computer
systems to telephone systems, ATMs and elevators.
To address this issue, KeyCorp, the parent of the Servicer, for the
operations of the Servicer as well as its other operating subsidiaries,
developed an extensive plan, including the formation of a team consisting of
internal resources and third-party experts. The plan, originally developed in
1995, has been in implementation since that time and consists of five major
phases: awareness-ensuring a common understanding of the issue throughout
KeyCorp; assessment-identifying and prioritizing the systems and third parties
with whom KeyCorp has exposure to Year 2000 issues; renovation-enhancing,
replacing or retiring hardware, software and systems applications;
validation-testing modifications made; and implementation-certifying Year 2000
compliance and user understanding and acceptance. The awareness and assessment
phases have been completed and the remaining phases are expected to be
substantially complete by the end of 1998, allowing 1999 as a year of final
testing and refinement. In conjunction with the assessment phase, KeyCorp
prioritized the various operating systems (including those maintained by its
business suppliers) that could be affected by the Year 2000, and efforts to
ensure compliance of core systems deemed critical to the continuation of
KeyCorp's operations have been accelerated. As of September 30, 1998,
compliance efforts had been completed for approximately 55% of the core systems
identified.
In addition, financial institutions may experience increases in
problem loans and credit losses in the event that borrowers fail to properly
respond to this issue, and higher funding costs may come about if consumers
react to publicity about the issue by withdrawing deposits. KeyCorp also could
be impacted if third parties it deals with in conducting its business, such as
foreign banks, governmental agencies, clearing houses, telephone companies, and
other service providers, fail to properly address this issue. Accordingly,
KeyCorp has formed a separate internal team charged with the task of
identifying critical business interfaces; assessing potential problems relating
to credit, liquidity and counterparty risk; and where appropriate, developing
contingency plans. This team is conducting a survey of significant credit
customers to determine their Year 2000 readiness and to evaluate the level of
potential credit risk to KeyCorp. Based on the information obtained, specific
follow-up policies will be established and the adequacy of the allowance for
loan losses will be assessed. On an ongoing basis, KeyCorp is also contacting
significant third parties with whom it conducts business to determine the
status of their Year 2000 compliance efforts. Notwithstanding these actions,
there can be no assurance that significant customers or critical third parties
will adequately address their Year 2000 issues. Consequently, KeyCorp is
developing contingency plans to help mitigate the risks associated with
potential delays in completing the renovation, validation and implementation
phases of its Year 2000 plan; and the failure of external parties to adequately
address their Year 2000 issues. These plans are expected to be well underway by
the 1998 year end and address primarily back-up solutions for KeyCorp's core
systems and the identification of alternative business partners. Because the
Year 2000 issue has never previously occurred, it is not possible to foresee or
quantify the overall financial and operational impact and/or to determine
whether it will be material to the financial condition or operations of KeyCorp.
The cost of the project (currently estimated to be $45 to $50
million) and timing of its implementation are based on management's best
estimates, which were derived using numerous assumptions about future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved, and
actual results could differ materially from those anticipated. It is currently
expected that approximately $4 million of additional cost will be incurred
during the fourth quarter of 1998 and that the estimated remaining cost of $6
to $11 million will be recognized in 1999 and the first half of 2000. The total
cost of the project is being funded through operating cash flows.
THE SELLER, THE SERVICER AND KEYCORP
Information regarding the Seller is set forth under "The Seller"
in the Prospectus and information regarding the Servicer is set forth under "The
Bank" in the Prospectus. Each of the Seller and the Servicer is a wholly-owned
subsidiary of KeyCorp. KeyCorp operates through subsidiaries engaged in banking
and a variety of related businesses. As of June 30, 1996, KeyCorp had
consolidated total assets of $_____________ billion, total deposits of
$_____________ billion, and total stockholders' equity of $______________
billion. Based on total assets as of June 30, 1996, KeyCorp was the
[______________] largest commercial banking organization in the United States.
S-20
<PAGE> 127
WEIGHTED AVERAGE LIFE OF THE SECURITIES
Information regarding certain maturity and prepayment
considerations with respect to the Securities is set forth under "Weighted
Average Life of Securities" in the Prospectus. No principal payments will be
made on the Class A-2 Notes until all Class A-1 Notes have been paid in full. In
addition, no principal payments on the Certificates will be made until all of
the Notes have been paid in full. See "Description of the Notes--Payments of
Principal" and "Description of the Certificates--Distributions of Principal
Payments." As the rate of payment of principal of each class of Notes and the
Certificates depends primarily on the rate of payment (including prepayments) of
the principal balance of the Receivables, final payment of any class of the
Notes and the final distribution in respect of the Certificates could occur
significantly earlier than the respective Final Scheduled Distribution Dates. It
is expected that final payment of the Notes and the final distribution in
respect of the Certificates will occur on or prior to the applicable Final
Scheduled Distribution Date. However, if sufficient funds are not available to
pay the Notes or the Certificates in full on or prior to the applicable Final
Scheduled Distribution Date, final payment of the Notes and the final
distribution in respect of the Certificates could occur later than such date.
Prepayments on motor vehicle receivables can be measured relative
to a prepayment standard or model. The model used in this Prospectus Supplement,
the Absolute Prepayment Model ("ABS"), represents an assumed rate of prepayment
each month relative to the original number of receivables in a pool of
receivables. ABS further assumes that all the receivables are the same size and
amortize at the same rate and that each receivable in each month of its life
will either be paid as scheduled or be prepaid in full. For example, in a pool
of receivables originally containing 10,000 receivables, a 1% ABS rate means
that 100 receivables prepay each month. ABS does not purport to be an historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of receivables, including the Receivables.
As the rate of payment of principal with respect of the
Securities will depend on the rate of payment (including prepayments) of the
principal balance of the Receivables, final payment of any class of Notes could
occur significantly earlier than the Class A-1 or Class A-2 Final Scheduled
Distribution Date, as applicable. The final distribution in respect of the
Certificates also could occur prior to the Certificate Final Scheduled
Distribution Date. Reinvestment risk associated with early payment of the Notes
and the Certificates will be borne exclusively by the Noteholders and the
Certificateholders, respectively.
The table captioned "Percent of Initial Note Principal Balance or
Initial Certificate Balance at Various ABS Percentages" (the "ABS Table") has
been prepared on the basis of the characteristics of the Receivables. The ABS
Table assumes that (a) the Receivables prepay in full at the specified constant
percentage of ABS monthly, with no defaults, losses or repurchases, (b) each
scheduled monthly payment on the Receivables is made on the last day of each
month and each month has 30 days, (c) payments on the Notes and distributions on
the Certificates are made on each Distribution Date (and each such date is
assumed to be the 15th day of each applicable month), (d) the balance in the
Reserve Account on each Distribution Date is equal to the Specified Reserve
Account Balance, and (e) the Seller or Servicer does not exercise its option to
purchase the Receivables. The pool has an assumed cutoff date of the Cutoff
Date. The ABS Table indicates the projected weighted average life of each class
of Notes and the Certificates and sets forth the percent of the initial
principal amount of each class of Notes and the percent of the initial
Certificate Balance that is projected to be outstanding after each of the
Distribution Dates shown at various constant ABS percentages.
The ABS Tables also assume that the Receivables have been
aggregated into hypothetical pools with all of the Receivables within each such
pool having the following characteristics and that the level scheduled monthly
payment for each of the pools (which is based on its aggregate principal
balance, Contract Rate, original number of scheduled payments and remaining
number of scheduled payments as of the Cut-Off Date) will be such that each pool
will be fully amortized by the end of its remaining term to maturity.
<TABLE>
<CAPTION>
Original Term Remaining Term
Aggregate to Maturity to Maturity
Pool Principal Balance Contract Rate (in Months) (in Months)
- - - ---------------- -------------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
1............... $ %
</TABLE>
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<PAGE> 128
The actual characteristics and performance of the Receivables
will differ from the assumptions used in constructing the ABS Table. The
assumptions used are hypothetical and have been provided only to give a general
sense of how the principal cash flows might behave under varying prepayment
scenarios. For example, it is very unlikely that the Receivables will prepay at
a constant level of ABS until maturity or that all of the Receivables will
prepay at the same level of ABS. Moreover, the diverse terms of Receivables
within each of the four hypothetical pools could produce slower or faster
principal distributions than indicated in the ABS Table at the various constant
percentages of ABS specified, even if the original and remaining terms to
maturity of the Receivables are as assumed. Any difference between such
assumptions and the actual characteristics and performance of the Receivables,
or actual prepayment experience, will affect the percentages of initial balances
outstanding over time and the weighted average lives of each class of Notes and
the Certificates.
PERCENT OF INITIAL NOTE PRINCIPAL BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
Class A-1 Notes Class A-2 Notes Class A-3 Notes
-------------------------------- -------------------------------- -----------------------------------
Distribution Date 0.0% 1.0% 1.5% 1.7% 2.0% 0.0% 1.0% 1.5% 1.7% 2.0% 0.0% 1.0% 1.5% 1.7% 2.0%
- - - ----------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date............
December 1996...........
January 1997............
February 1997...........
March 1997..............
April 1997..............
May 1997................
June 1997...............
July 1997...............
August 1997.............
September 1997..........
October 1997............
November 1997...........
Weighted Average Life
(years) (1)...........
</TABLE>
- - - --------------------------------------------
(1) The weighted average life of a Class A-1 Note or Class A-2 Note is
determined by (a) multiplying the amount of each principal payment of
such Note by the number of years from the date of the issuance of such
Note to the related Distribution Date, (b) adding the results and (c)
dividing the sum by the related initial principal amount of such Note.
THE ABS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
(INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF THE
RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND PERFORMANCE
THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
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<PAGE> 129
PERCENT OF INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
Certificates
--------------------------------------
Distribution Date 0.0% 1.0% 1.5% 1.7% 2.0%
- - - ----------------- --- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Closing Date...............................
December 1996..............................
January 1997...............................
February 1997..............................
March 1997.................................
April 1997.................................
May 1997...................................
June 1997..................................
July 1997..................................
August 1997................................
September 1997.............................
October 1997...............................
November 1997..............................
Weighted Average Life (years)(1)...........
</TABLE>
- - - --------------------------------------------
(1) The weighted average life of a Certificate is determined by (a)
multiplying the amount of each distribution in respect of the
Certificate Balance of such Certificate by the number of years from the
date of the issuance of such Certificate to the related Distribution
Date, (b) adding the results and (c) dividing the sum by the original
Certificate Balance of such Certificate.
THE ABS TABLES HAVE BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
(INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF THE
RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND PERFORMANCE
THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
[SENSITIVITY OF THE CLASS ____ NOTES TO PREPAYMENTS
[Describe method of calculating principal and interest payable on the Class
____ Notes, including setting forth notional balance for each [Distribution]
[Payment] Date, if applicable. Set forth in tabular form relationship between
yield to maturity of the Class ____ Notes and assumed prepayment speeds. State
assumptions, including as to purchase price of the Class ____ Notes, if
applicable, used in calculating the data set forth in the table.]
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the Indenture, a form of
which has been filed as an exhibit to the Registration Statement. A copy of the
Indenture will be filed with the Commission following the issuance of the
Securities. The following summary describes certain terms of the Notes and the
Indenture. The summary describes the material terms of the Notes and the
Indenture, but it does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Notes and
the Indenture. Where particular provisions or terms used in the Indenture are
referred to, the actual provisions (including definitions of terms) are
S-23
<PAGE> 130
incorporated by reference as part of such summary. The following summary
supplements the description of the general terms and provisions of the Notes of
any given series and the related Indenture set forth in the Prospectus, to which
description reference is hereby made. _____________________ will be the
Indenture Trustee under the Indenture. The address of the Indenture Trustee at
which information regarding the Trust and Notes may be obtained is
________________.
PAYMENTS OF INTEREST
Each class of the Notes will constitute Fixed Rate Securities, as
such term is defined under "Certain Information Regarding the Securities--Fixed
Rate Securities" in the Prospectus. Interest on the principal balances of the
classes of the Notes will accrue at their respective per annum Interest Rates
and will be payable to the Noteholders monthly on each Distribution Date,
commencing , 199 . Interest on the outstanding principal amount of the Notes
will accrue at the applicable Interest Rate for the applicable Interest Accrual
Period. Interest distributions due for any Distribution Date but not distributed
on such Distribution Date will be due on the next Distribution Date increased by
an amount equal to interest on such amount at the applicable Interest Rate (to
the extent lawful). Interest on the Notes will be calculated on the basis of a
360-day year consisting of twelve 30-day months. Interest payments on the Notes
will generally be derived from the Total Distribution Amount remaining after the
payment of the Servicing Fee. See "Description of the Transfer and Servicing
Agreements--Distributions" and "--Reserve Account."
Interest payments to both classes of Noteholders will have the
same priority. Under certain circumstances, the amount available for interest
payments could be less than the amount of interest payable on the Notes on any
Distribution Date, in which case each class of Noteholders will receive their
ratable share (based upon the aggregate amount of interest due to such class of
Noteholders) of the aggregate amount available to be distributed in respect of
interest on the Notes.
PAYMENTS OF PRINCIPAL
Principal payments will be made to the Noteholders on each
Distribution Date in an amount generally equal to the Noteholders' Principal
Distributable Amount. Principal payments on the Notes will generally be derived
from the Total Distribution Amount remaining after the payment of the Servicing
Fee and the Noteholders' Interest Distributable Amount. See "Description of the
Transfer and Servicing Agreements--Distributions" and "--Reserve Account."
On the Business Day immediately preceding each Distribution Date
(a "Determination Date"), the Indenture Trustee shall determine the amount in
the Collection Account allocable to interest and the amount allocable to
principal.
On each Distribution Date, principal payments on the Notes will
be applied in the following order of priority: (a) to the principal balance of
the Class A-1 Notes until the principal balance of the Class A-1 Notes is
reduced to zero; and (b) to the principal balance of the Class A-2 Notes until
the principal balance of the Class A-2 Notes is reduced to zero. The principal
balance of the Class A-1 Notes, to the extent not previously paid, will be due
on the Class A-1 Final Scheduled Distribution Date and the principal balance of
the Class A-2 Notes, to the extent not previously paid, will be due on the Class
A-2 Final Scheduled Distribution Date. The actual date on which the aggregate
outstanding principal amount of either class of Notes is paid may be earlier
than the respective final scheduled Distribution Dates set forth above based on
a variety of factors, including those described under "Weighted Average Life of
the Securities" herein and in the Prospectus.
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OPTIONAL REDEMPTION
On any Distribution Date after the Class A-1 Notes have been paid
in full, the Class A-2 Notes will be redeemed in whole, but not in part, if the
Seller or Servicer exercises its option to purchase the Receivables. The Seller
or Servicer may purchase the Receivables when the Pool Balance shall have
declined to 5% or less of the Original Pool Balance, as described in the
Prospectus under "Description of the Transfer and Servicing
Agreements--Termination". The redemption price will be equal to the unpaid
principal amount of the Class A-2 Notes plus accrued and unpaid interest
thereon.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Trust Agreement,
a form of which has been filed as an exhibit to the Registration Statement. A
copy of the Trust Agreement will be filed with the Commission following the
issuance of the Securities. The following summary describes certain terms of the
Certificates and the Trust Agreement. The summary describes the material terms
of the Certificates and the Trust Agreement, but it does not purport to be
complete and is subject to, and qualified in its entirety by reference to, all
the provisions of the Certificates and the Trust Agreement. The following
summary supplements the description of the general terms and provisions of the
Certificates of any given series and the related Trust Agreement set forth in
the Prospectus, to which description reference is hereby made.
DISTRIBUTION OF INTEREST INCOME
On each Distribution Date, commencing , 199 , the
Certificateholders will be entitled to distributions in an amount equal to the
amount of interest that would accrue on the Certificate Balance at the
Certificate Rate. The Certificates will constitute Fixed Rate Securities, as
such term is defined under "Certain Information Regarding the Securities--Fixed
Rate Securities" in the Prospectus. Interest in respect of a Distribution Date
will accrue from the Closing Date (in the case of the First Distribution Date)
and thereafter, from the [15th] day of the month preceding the month of the
Distribution Date to and including the ___ day of the month of such Distribution
Date. Interest distributions due for any Distribution Date but not distributed
on such Distribution Date will be due on the next Distribution Date increased by
an amount equal to interest on such amount at the Certificate Rate (to the
extent lawful). Interest distributions with respect to the Certificates will
generally be funded from the portion of the Total Distribution Amount and the
funds in the Reserve Account remaining after the distribution of the Servicing
Fee and the Noteholders' Interest Distributable Amount. See "Description of the
Transfer and Servicing Agreements--Distributions" and "--Reserve Account."
DISTRIBUTIONS OF PRINCIPAL PAYMENTS
Certificateholders will be entitled to distributions of principal
on each Distribution Date, commencing with the Distribution Date on which the
Notes are paid in full, in an amount generally equal to the Principal
Distribution Amount (less on the Distribution Date on which the Notes are paid
in full, the portion thereof payable on the Notes). Distributions with respect
to principal payments will generally be funded from the portion of the Total
Distribution Amount remaining after the distribution of the Servicing Fee, the
Noteholders' Distributable Amount (on the Distribution Date on which the Notes
are paid in full) and the Certificateholders' Interest Distributable Amount. See
"Description of the Transfer and Servicing Agreements--Distributions" and
"--Reserve Account".
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OPTIONAL PREPAYMENT
If the Seller or Servicer exercises its option to purchase the
Receivables when the Pool Balance declines to 5% or less of the Original Pool
Balance, the Seller or Servicer may purchase all remaining Trust Property on any
Distribution Date occurring in a subsequent Collection Period at a purchase
price equal to the aggregate of the Purchase Amounts of the remaining
Receivables (other than Defaulted Receivables), which purchases would result in
a prepayment of the Certificates. The proceeds from any such purchase would be
first be applied to any unpaid principal amount on the Class A-2 Notes and
accrued interest thereon and then to the Certificates and accrued interest
thereon. See "Description of the Transfer and Servicing Agreements--Termination"
in the Prospectus.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of the Sale and
Servicing Agreement and the Trust Agreement. Forms of the Sale and Servicing
Agreement and the Trust Agreement have been filed as exhibits to the
Registration Statement. A copy of the Sale and Servicing Agreement will be filed
with the Commission following the issuance of the Securities. The summary
describes the material terms of the Sale and Servicing Agreement and the Trust
Agreement, but it does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the Sale and
Servicing Agreement and the Trust Agreement. The following summary supplements
the description of the general terms and provisions of the Sale and Servicing
Agreement and the Trust Agreement set forth in the Prospectus, to which
description reference is hereby made.
ACCOUNTS
Accounts referred to under "Description of the Transfer and
Servicing Agreements--Accounts" in the Prospectus, as well as the Reserve
Account, will be established by the Servicer and maintained in the name of the
Indenture Trustee on behalf of the Noteholders and the Certificateholders.
Amounts held from time to time in the Reserve Account will be held for the
benefit of Noteholders and Certificateholders. Funds on deposit in the Reserve
Account will be invested in Eligible Investments selected by the Seller and, if
permitted by the Rating Agencies, funds on deposit in the Reserve Account may be
invested in Eligible Investments that mature later than the next Deposit Date.
All investment earnings on funds deposited in the Trust Accounts, net of losses
and investment expenses, will be distributed to the Servicer and will not be
treated as Collections on the Receivables or otherwise be available for
Noteholders or Certificateholders. Upon any distribution to the Servicer of
amounts from the Reserve Account, the Securityholders will not have any rights
in, or claims to, such amounts. On or before each Distribution Date, funds in
the amount of the Reserve Account Transfer Amount for such Distribution Date
will be withdrawn from the Reserve Account and deposited in the Collection
Account.
On each Distribution Date, the amount available in the Reserve
Account (the "Available Reserve Amount") will equal the lesser of (a) the amount
on deposit in the Reserve Account (exclusive of investment earnings) and (b) the
Specified Reserve Account Balance.
On each Deposit Date, the Trustee will withdraw funds from the
Reserve Account in the amount of the Reserve Account Transfer Amount. Such
excess may result from, among other things, Receivables becoming Defaulted
Receivables or the failure by the Servicer to make any remittance required to be
made under the Agreement. The aggregate amount to be withdrawn from the Reserve
Account on any Deposit Date will not exceed the Available Reserve Amount with
respect to the related Distribution Date. The Trustee will deposit the proceeds
of such withdrawal into the Collection Account on or before the Distribution
Date with respect to which such withdrawal was made.
Subject to reduction as described below, the "Specified Reserve
Account Balance" means the greater of (i) the excess, if any, of (A) _____% of
the Pool Balance at the end of the preceding Collection Period over (B)
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the Overcollateralization Amount (after giving effect to any distributions on
the Securities on such Distribution Date), and (ii) the Minimum Specified
Reserve Balance. The Specified Reserve Account Balance may be reduced from time
to time if the Rating Agencies have delivered prior written notice to the
Seller, the Servicer, the Indenture Trustee and the Owner Trustee that such
reduction will not result in a reduction, withdrawal or qualification of each
Rating Agency's then current ratings of each class of the Notes and the
Certificates. The time necessary for the Reserve Account to reach and maintain
the Specified Reserve Account Balance at any time after the Closing Date will be
affected by the delinquency, credit loss, repossession and prepayment experience
of the Receivables and, therefore, cannot be accurately predicted. Amounts on
deposit in the Reserve Account will be released to the Servicer on each
Distribution Date to the extent that the amount on deposit in the Reserve
Account would exceed the Specified Reserve Account Balance.
"Liquidation Proceeds" means, with respect to any
Receivable that has become a Defaulted Receivable, (a) insurance
proceeds received by the Servicer, with respect to insurance
policies relating to the Financed Vehicles or the Obligors and/or
any proceeds from lender's single interest insurance policies to
the extent not included in collections distributable to
Securityholders, (b) amounts received by the Servicer in
connection with such Defaulted Receivable pursuant to the
exercise of rights under the related Motor Vehicle Loan, and (c)
the monies collected by the Servicer (from whatever source,
including, but not limited to proceeds of a sale of a Financed
Vehicle or deficiency balance recovered after the charge-off of
the related Receivable) on such Defaulted Receivable, net of any
expenses incurred by the Servicer in connection therewith and any
payments required by law to be remitted to the Obligor.
"Minimum Specified Reserve Balance" with respect to
any Distribution Date means the lesser of (i) $__________________
and (ii) the aggregate outstanding principal amount of the Notes
and the Certificate Balance (after giving effect to any
distributions on the Securities on such Distribution Date).
"Overcollateralization Amount" means, with respect
to any Distribution Date, the excess, if any, of the Pool Balance
at the end of the preceding Collection Period over the sum of the
aggregate outstanding principal amount of the Notes and the
Certificate Balance on such Distribution Date (after giving
effect to any distributions made on such Distribution Date).
"Reserve Account Transfer Amount" means, on any
Distribution Date, an amount equal to the lesser of (a) the
amount of cash or other immediately available funds on deposit in
the Reserve Account on such Distribution Date (before giving
effect to any withdrawals therefrom relating to such Distribution
Date) or (b) the amount, if any, by which (i) the sum of the
Servicing Fee for the related Collection Period and all accrued
and unpaid Servicing Fees for prior Collection Periods, the
Noteholders' Interest Distributable Amount, the
Certificateholders' Interest Distributable Amount, the
Noteholders' Principal Distributable Amount and the
Certificateholders' Principal Distributable Amount for such
Distribution Date exceeds (ii) the sum of the Available Interest
and the Available Principal for such Distribution Date.
If funds in the Reserve Account are reduced to zero, the
Securityholders will bear the credit and other risks associated with ownership
of the Receivables. In such a case, the amount available for distribution may be
less than that described below, and the Certificateholders may experience delays
or suffer losses as a result, among other things, of defaults or delinquencies
by the Obligors or previous extensions made by the Servicer.
[PRE-FUNDING ACCOUNT; SUBSEQUENT RECEIVABLES]
[On the Closing Date, approximately $ of Initial
Receivables will be transferred to the Trust by the Seller and the
approximately $ Pre-Funded Amount will be deposited by the Trust in
the Pre-Funding Account. If the principal amount of eligible Receivables
originated by the Originators during the Funding Period is less than the
Pre-Funded Amount, the Seller will have insufficient Receivables to sell to the
Trust on the Subsequent Transfer Dates, thereby resulting in a prepayment of
principal in the Noteholders and the Certificateholders as described in the
following paragraph.] [In addition, any conveyance of Subsequent Receivables is
subject to the satisfaction, on or before the related Subsequent Transfer Date,
of the condition that each such Subsequent Receivable satisfies the eligibility
criteria specified in the Sale and Servicing Agreement for Initial
Receivables.]
[To the extent that the Pre-Funded Amount has not been fully
applied to the purchase of Subsequent Receivables by the Trust during the
Funding Period, the Noteholders and the Certificateholders will receive in the
Distribution Date on or immediately following the last day of the Funding
Period, a prepayment of principal in an amount equal to their pro rata share
(based on the current principal balance of each class of Notes and the
Certificate Balance) of any remaining Pre-Funded Amount following the purchase
of any Subsequent Receivables on such Distribution Date. It is anticipated that
the principal amount of Subsequent Receivables sold to the Trust will not be
exactly equal to the original Pre-Funded Amount and that therefore there will
be at least a nominal amount of principal prepaid to the Noteholders and to the
Certificateholders.]
[If the amount of the Pre-Funding Account will exceed 25% of the
aggregate proceeds from the offering include the specific investments in which
the Pre-Funding Account will be invested and specify that the actual
investments of the Pre-Funding Account as of the end of the preceding month
will be provided in the periodic reports on Form 8-K and Form 10-K to be filed
by the Seller with respect to the Trust.]
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicing Fee Rate shall be 1.0% per annum, calculated on the
basis of a 360-day year consisting of twelve 30-day months. The Servicing Fee,
with respect to any Distribution Date, will be an amount equal to the product of
(a) one-twelfth of the Servicing Fee Rate, multiplied by (b) the Pool Balance as
of the first day of the preceding Collection Period. The Servicing Fee in
respect of a Collection Period (together with any portion of the Servicing Fee
that remains unpaid from prior Distribution Dates) may be paid at the beginning
of such Collection
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Period out of collections for such Collection Period. See "Description of the
Transfer and Servicing Agreements--Servicing Compensation and Payment of
Expenses" in the Prospectus.
The Servicer will also collect and retain any late fees,
extension fees, prepayment charges and certain nonsufficient funds charges and
other administrative fees or similar charges (the "Supplemental Servicing Fee")
allowed by applicable law with respect to the Receivables. Payments by or on
behalf of Obligors will be allocated to scheduled payments and late fees and
other charges in accordance with the Servicer's normal practices and procedures.
As additional compensation, the Servicer may be entitled to receive for the
related Collection Period some or all of the portion, if any, of the Total
Distribution Amount for such Collection Period remaining after payment of the
Servicing Fee and interest and principal in respect of the Securities and any
required deposit to the Reserve Account. See "Description of the Transfer and
Servicing Agreements--Servicing Compensation and Payment of Expenses" in the
Prospectus and "--Distributions" herein.
DISTRIBUTIONS
Deposits to Collection Account. On or before each Distribution
Date, the Servicer will cause all collections and other amounts constituting the
Total Distribution Amount to be deposited into the Collection Account.
"Available Interest" for a Distribution Date shall
mean the sum of the following amounts with respect to the related
Collection Period: (a) that portion of the Collections on the
Receivables received during the related Collection Period that is
allocable to interest in accordance with the Servicer's customary
procedures; (b) all Liquidation Proceeds received during such
Collection Period; and (c) all Purchase Amounts, to the extent
attributable to accrued interest, of all Receivables that are
repurchased by the Seller or purchased by the Servicer under an
obligation which arose during the related Collection Period.
"Available Interest" for any Distribution Date shall exclude all
payments and proceeds of any Receivables the Purchase Amount of
which has been distributed on a prior Distribution Date.
"Available Principal" for a Distribution Date means
the sum of the following amounts with respect to the preceding
Collection Period: (a) that portion of all Collections received
during such Collection Period and allocable to principal in
accordance with Servicer's customary servicing procedures; and
(b) to the extent attributable to principal, the Purchase Amount
received with respect to each Receivable repurchased by Seller or
purchased by Servicer under an obligation which arose during the
related Collection Period. "Available Principal" on any
Distribution Date shall exclude all payments and proceeds of any
Receivables the Purchase Amount of which has been distributed on
a prior Distribution Date.
"Certificate Balance" equals, initially, $ and,
thereafter, equals the initial Certificate Balance, reduced by
all amounts allocable to principal previously distributed to
Certificateholders.
"Certificateholders' Interest Carryover Shortfall"
means, with respect to any Distribution Date, the excess of the
Certificateholders' Monthly Interest Distributable Amount for the
preceding Distribution Date and any outstanding
Certificateholders' Interest Carryover Shortfall on such
preceding Distribution Date, over the amount in respect of
interest that is actually deposited in the Certificate
Distribution Account on such preceding Distribution Date, plus
interest on such excess, to the extent permitted by law, at the
Certificate Rate from and including such preceding Distribution
Date to but excluding the current Distribution Date.
"Certificateholders' Interest Distributable Amount"
means, for any Distribution Date, the sum of the
Certificateholders' Monthly Interest Distributable Amount for
such Distribution Date and the Certificateholders' Interest
Carryover Shortfall for such Distribution Date.
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"Certificateholders' Monthly Interest Distributable
Amount" means, for any Distribution Date, the amount of interest
accrued on the Certificates at the Certificate Rate during the
related Interest Period (calculated on the basis of a 360-day
year and twelve 30-day months).
"Certificateholders' Percentage" means 100% minus
the Noteholders' Percentage.
"Certificateholders' Principal Distributable
Amount" means, for any Distribution Date, the sum of the
Certificateholders' Monthly Principal Distributable Amount for
such Distribution Date and the Certificateholders' Principal
Carryover Shortfall as of the close of the preceding Distribution
Date; provided that the Certificateholders' Principal
Distributable Amount shall not exceed the Certificate Balance. In
addition, on the Certificate Final Scheduled Distribution Date,
the principal required to be distributed to Certificateholders
will include the lesser of (a) any payments of principal due and
remaining unpaid on each Receivable owned by Issuer as of
___________ or (b) the portion of the amount that is necessary
(after giving effect to the other amounts to be deposited in the
Certificate Distribution Account on such Distribution Date and
allocable to principal) to reduce the Certificate Balance to
zero, in either case after giving effect to any required
distribution of the Noteholders' Principal Distributable Amount
to the Note Distribution Account. In addition, on any
Distribution Date on which, after giving effect to all
distributions to Servicer, the Noteholders and the
Certificateholders on such Distribution Date, (i) the outstanding
principal balance of the Notes is zero and (ii) the amount on
deposit in the Reserve Account is equal to or greater than the
Certificate Balance, Certificateholders' Principal Distributable
Amount shall include an amount equal to such Certificate Balance.
"Certificateholder's Monthly Principal
Distributable Amount" means, for any Distribution Date, the
Certificateholders' Percentage of the Principal Distribution
Amount or, for any Distribution Date on or after the Distribution
Date on which the outstanding principal balance of the Class A-2
Notes is reduced to zero, 100% of the Principal Distribution
Amount (less any amount required on the first such Distribution
Date to reduce the outstanding principal balance of the Class A-2
Notes to zero, which shall be deposited into the Note
Distribution Account).
"Certificateholders' Principal Carryover Shortfall"
means, as of the close of any Distribution Date, the excess of
the Certificateholders' Monthly Principal Distributable Amount
and any outstanding Certificateholders' Principal Carryover
Shortfall from the preceding Distribution Date, over the amount
in respect of principal that is actually deposited in the
Certificate Distribution Account.
"Contract Rate" means, with respect to a
Receivable, the rate per annum of interest charged on the
outstanding principal balance of such Receivable.
"Defaulted Receivable" means, with respect to any
Collection Period, a Receivable (other than a Purchased
Receivable) which the Servicer has determined to charge off
during such Collection Period in accordance with its customary
servicing practices; provided, however, that any Receivable which
the Seller or Servicer is obligated to repurchase or purchase
shall be deemed to have become a Defaulted Receivable during a
Collection Period if the Seller or Servicer fails to deposit the
Purchase Amount on the related Deposit Date when due.
"Principal Distribution Amount" means, for any
Distribution Date, the sum of (a) the Available Principal for
such Distribution Date, and (b) the amount of Realized Losses for
the related Collection Period.
"Purchase Amount" means for any Receivable, as of
the close of business on the last day of a Collection Period, the
amount of principal plus accrued interest calculated in
accordance with the Servicer's customary practices, for such
Receivable as of such day.
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"Purchased Receivable" means a Receivable purchased
as of the close of business on the last day of a Collection
Period by the Servicer or repurchased by the Seller pursuant to
the Sale and Servicing Agreement.
"Realized Losses" means, for any Collection Period,
the aggregate principal balances of any Receivables that became
Defaulted Receivables during such Collection Period.
"Total Distribution Amount" means, for each
Distribution Date, the sum of (a) the Available Interest, (b) the
Available Principal and (c) the Reserve Account Transfer Amount,
in each case in respect of such Distribution Date.
Deposits to the Distribution Accounts. On each Distribution Date,
Servicer shall instruct Indenture Trustee or, in the event that the Collection
Account is maintained with an institution other than Indenture Trustee, instruct
and cause such institution (based on the information contained in the Servicer's
Report delivered on the related Determination Date) to make, and Indenture
Trustee or such other institution shall make, the following deposits and
distributions from the Collection Account for deposit in the applicable account
by 11:00 a.m. (New York time), to the extent of the Total Distribution Amount,
in the following order of priority:
(a) to Servicer, from the Total Distribution
Amount, the Servicing Fee for the related Collection Period and
all accrued and unpaid Servicing Fees for prior Collection
Periods;
(b) to the Note Distribution Account, from the
Total Distribution Amount remaining after the application of
clause (a), the Noteholders' Interest Distributable Amount;
(c) to the Note Distribution Account, from the
Total Distribution Amount remaining after the application of
clause (a) and (b), the Noteholders' Principal Distributable
Amount;
(d) to Owner Trustee for deposit in the Certificate
Distribution Account, from the Total Distribution Amount
remaining after the application of clauses (a) through (c), the
Certificateholders' Interest Distributable Amount;
(e) to Owner Trustee for deposit in the Certificate
Distribution Account, from the Total Distribution Amount
remaining after the application of clauses (a) through (d), the
Certificateholders' Principal Distributable Amount;
(f) to the Reserve Account until the amount on
deposit in the Reserve Account equals the Specified Reserve
Account Balance; and
(g) to the Seller or the Servicer, any amounts
remaining.
On each Determination Date (other than the first Determination
Date), the Servicer will provide the Owner Trustee and the Indenture Trustee
with certain information with respect to the Collection Period related to the
prior Distribution Date, including the amount of aggregate collections on the
Receivables, the aggregate amount of Receivables which were written off and the
aggregate Purchase Amount of Receivables to be repurchased by the Seller or to
be purchased by the Servicer.
For purposes hereof, the following terms shall have the following
meanings:
"Noteholders' Distributable Amount" means, with
respect to any Distribution Date, the sum of the Noteholders'
Principal Distributable Amount and the Noteholders' Interest
Distributable Amount.
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"Noteholders' Interest Carryover Shortfall" means,
with respect to any Distribution Date, the excess of the
Noteholders' Monthly Interest Distributable Amount for the
preceding Distribution Date and any outstanding Noteholders'
Interest Carryover Shortfall on such preceding Distribution Date,
over the amount in respect of interest that is actually deposited
in the Note Distribution Account on such preceding Distribution
Date, plus interest on the amount of interest due but not paid to
Noteholders on the preceding Distribution Date, to the extent
permitted by law, at the respective Interest Rates borne by each
class of Notes from such preceding Distribution Date through the
current Distribution Date.
"Noteholders' Interest Distributable Amount" means,
for any Distribution Date, the sum of the Noteholders' Monthly
Interest Distributable Amount for such Distribution Date and the
Noteholders' Interest Carryover Shortfall for such Distribution
Date.
"Noteholders' Monthly Interest Distributable
Amount" means, for any Distribution Date and for each class of
Notes, the amount of interest accrued on such class at its
respective Interest Rate during the related Interest Period
(calculated on the basis of a 360-day year and twelve 30-day
months).
"Noteholders' Monthly Principal Distributable
Amount" means, for any Distribution Date, the Noteholders'
Percentage of the Principal Distribution Amount.
"Noteholders' Percentage" means 100% until the
point in time at which Class A-1 Notes and Class A-2 Notes have
been paid in full and zero thereafter.
"Noteholders' Principal Carryover Shortfall" means,
as of the close of any Distribution Date, the excess of the
Noteholders' Monthly Principal Distributable Amount and any
outstanding Noteholders' Principal Carryover Shortfall from the
preceding Distribution Date over the amount in respect of
principal that is actually deposited in the Note Distribution
Account.
"Noteholders' Principal Distributable Amount"
means, for any Distribution Date, the sum of the Noteholder's
Monthly Principal Distributable Amount for such Distribution Date
and the Noteholders' Principal Carryover Shortfall as of the
close of the preceding Distribution Date; provided that the
Noteholders' Principal Distributable Amount shall not exceed the
outstanding principal balance of the Notes. In addition, on the
Final Scheduled Distribution Date of each class of Notes, the
principal required to be deposited in the Note Distribution
Account will include the amount necessary (after giving effect to
the other amounts to be deposited in the Note Distribution
Account on such Distribution Date and allocable to principal) to
reduce the outstanding amount of such class of Notes to zero.
On each Distribution Date, all amounts on deposit in the Note
Distribution Account (other than investment earnings) will be generally paid in
the following order of priority:
(a) to the applicable Noteholders, accrued and
unpaid interest on the outstanding principal balance of the
applicable class of Notes at the applicable Interest Rate;
(b) the Noteholders' Principal Distributable Amount
in the following order of priority:
(i) to the Holders of the Class A-1
Notes in reduction of principal until the principal
balance of the Class A-1 Notes has been reduced to
zero; and
(ii) to the Holders of the Class A-2
Notes in reduction of principal until the principal
balance of the Class A-2 Notes has been reduced to
zero.
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On each Distribution Date, all amounts on deposit in the
Certificate Distribution Account will be distributed to the Certificateholders
in the following priority:
(a) first, to the Certificateholders, on a pro rata
basis, an amount equal to the Certificateholders' Interest
Distributable Amount; and
(b) second, to the Certificateholders, on a pro
rata basis, an amount equal to the Certificateholders' Principal
Distributable Amount.
SUBORDINATION OF CERTIFICATEHOLDERS
The rights of the Certificateholders to receive distributions
with respect to the Receivables generally will be subordinated to the rights of
the Noteholders in the event of defaults and delinquencies on the Receivables as
provided in the Sale and Servicing Agreement. The protection afforded to the
Noteholders through subordination will be effected both by the preferential
right of the Noteholders to receive current distributions with respect to the
Receivables and by the establishment of the Reserve Account. If on any
Distribution Date the entire Noteholders' Interest Distributable Amount for such
Distribution Date (after giving effect to any amounts withdrawn from the Reserve
Account) is not deposited in the Note Distribution Account, the
Certificateholders will not receive any distributions.
The subordination of the Certificates and the Reserve Account are
intended to enhance the likelihood of receipt by Noteholders of the full amount
of principal and interest due them and to decrease the likelihood that the
Noteholders will experience losses. In addition, the Reserve Account is intended
to enhance the likelihood of receipt by Certificateholders of the full amount of
principal and interest due them and to decrease the likelihood that the
Certificateholders will experience losses. However, in certain circumstances,
the Reserve Account could be depleted. If the amount required to be withdrawn
from the Reserve Account to cover shortfalls in collections on the Receivables
exceeds the amount of available cash in the Reserve Account, Noteholders or
Certificateholders could incur losses or a temporary shortfall in the amounts
distributed to the Noteholders or the Certificateholders could result, which
could, in turn, increase the average life of the Notes or the Certificates.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
Information regarding certain legal aspects of the Receivables is
set forth under "Certain Legal Aspects of the Receivables" in the Prospectus.
LEGAL INVESTMENT
The Class A-1 Notes will be eligible for purchase by money market
funds under Rule 2a-7 under the Investment Company Act of 1940, as amended.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of material federal income tax
consequences of the purchase, ownership and disposition of the Notes and the
Certificates. The following summary represents the opinion of Federal Tax
Counsel subject to the qualifications set forth herein. An opinion of Federal
Tax Counsel, however, is not binding on the IRS or the courts. No ruling on any
of the issues discussed below will be sought from the IRS. The following summary
is intended as an explanatory discussion of the possible effects of certain
federal income tax consequences to holders generally, but does not purport to
furnish information in the level of detail or with the attention to a holder's
specific tax circumstances that
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would be provided by a holder's own tax advisor. For example, it does not
discuss the tax treatment of Noteholders or Certificateholders that are
insurance companies, regulated investment companies or dealers in securities. In
addition, the discussion regarding the Notes is limited to the federal income
tax consequences of the initial Noteholders and not a purchaser in the secondary
market. Moreover, there are no cases or Internal Revenue Service ("IRS") rulings
on similar transactions involving both debt and equity interests issued by a
trust with terms similar to those of the Notes and the Certificates. As a
result, the IRS may disagree with all or a part of the discussion below.
Prospective investors are urged to consult their own tax advisors in determining
the federal, state, local, foreign and any other tax consequences to them of the
purchase, ownership and disposition of the Notes and the Certificates.
The following summary is based upon current provisions of the
Internal Revenue Code of 1986, as amended, the Treasury regulations promulgated
thereunder and judicial or ruling authority, all of which are subject to change,
which change may be retroactive.
SCOPE OF THE TAX OPINIONS
In the opinion of Federal Tax Counsel, the Trust will not be
classified as a separate entity that is an association (or publicly traded
partnership) taxable as a corporation for federal income tax purposes. Further,
with respect to the Notes, Federal Tax Counsel is of the opinion that the Notes
will be characterized as debt for federal income tax purposes.
In addition, Federal Tax Counsel has prepared or reviewed the
statements under the heading "Summary of Terms--Tax Status" as they relate to
federal income tax matters and under the heading "Federal Income Tax
Consequences" herein and in the Prospectus and is of the opinion that such
statements are correct in all material respects. Such statements are intended as
an explanatory discussion of certain federal tax matters affecting investors
generally, but do not purport to furnish information in the level of detail or
with the attention to the investor's specific tax circumstances that would be
provided by an investor's own tax adviser. Accordingly, each investor is advised
to consult its own tax advisers with regard to the tax consequences to it of
investing in the Notes and the Certificates.
TAX CLASSIFICATION OF THE TRUST AS A PARTNERSHIP
Federal Tax Counsel is of the opinion that the Trust (which the
Trust Agreement specifies is intended to be treated as a partnership) will not
be classified as a separate entity that is an association (or publicly traded
partnership) taxable as a corporation for federal income tax purposes. A copy of
such opinion of Federal Tax Counsel will be filed with the Commission as an
exhibit to a Form 8-K prior to an issuance of Securities by the Trust. This
opinion is based on the assumption that all of the transactions will comply with
the terms of the Trust Agreement and related documents, and on Federal Tax
Counsel's conclusion that the nature of the income of the Trust will exempt it
from the rule that certain publicly traded partnerships are taxable as
corporations.
If the Trust were taxable as a corporation for federal income tax
purposes, the Trust would be subject to corporate income tax on its taxable
income. The Trust's taxable income would include all its income on the
Receivables, reduced by its interest expense on the Notes provided the Notes are
respected as debt for federal income tax purposes (see discussion in the
following paragraph). Any such corporate income tax could materially reduce cash
available to make payments on the Notes and distributions on the Certificates,
and Certificateholders could be liable for any such tax that is unpaid by the
Trust.
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TAX CONSEQUENCES TO HOLDERS OF THE NOTES
Treatment of the Notes as Indebtedness. The Seller will agree,
and the Noteholders will agree by their purchase of Notes, to treat the Notes as
debt for federal, state and local income and franchise tax purposes. In the
opinion of Federal Tax Counsel, the Notes will be characterized as debt for
federal income tax purposes. A copy of such opinion of Federal Tax Counsel will
be filed with the Commission with a Form 8-K. The discussion below assumes this
characterization of the Notes is correct.
The discussion below assumes that all payments on the Notes are
denominated in U.S. dollars, and that the Notes are not Strip Notes. Moreover,
the discussion assumes that the interest formula for the Notes meets the
requirements for "qualified stated interest" under Treasury regulations (the
"OID regulations") relating to original issue discount ("OID"), and that any
OID on the Notes (i.e., any excess of the principal amount of the Notes over
their issue price) does not exceed a de minimis amount (i.e., 1/4% of their
principal amount multiplied by the number of full years included in their
term), all within the meaning of the OID regulations.
Interest Income on the Notes. Based on the above assumptions,
except as discussed in the following paragraph, the Notes will not be considered
issued with OID. The stated interest thereon will be taxable to a Noteholder as
ordinary interest income when received or accrued in accordance with such
Noteholder's method of tax accounting. Under the OID regulations, a holder of a
Note issued with a de minimis amount of OID must include such OID in income, on
a pro rata basis, as principal payments are made on the Note. It is believed
that any prepayment premium paid as a result of a mandatory redemption will be
taxable as contingent interest when it becomes fixed and unconditionally
payable. A purchaser who buys a Note for more or less than its principal amount
will generally be subject, respectively, to the premium amortization or market
discount rules of the Code.
Sale or Other Disposition. If a Noteholder sells a Note, the
holder will recognize gain or loss in an amount equal to the difference between
the amount realized on the sale and the holder's adjusted tax basis in the Note.
The adjusted tax basis of a Note to a particular Noteholder will equal the
holder's cost for the Note, increased by any market discount, OID and gain
previously included by such Noteholder in income with respect to the Note and
decreased by the amount of bond premium (if any) previously amortized and by the
amount of principal payments previously received by such Noteholder with respect
to such Note. Any such gain or loss will be capital gain or loss if the Note was
held as a capital asset, except for gain representing accrued interest and
accrued market discount not previously included in income. Capital losses
generally may be used by a corporate taxpayer only to offset capital gains, and
by an individual taxpayer only to the extent of capital gains plus $3,000 of
other income.
Foreign Holders. Interest payments made (or accrued) to a
Noteholder who is a nonresident alien, foreign corporation or other non-United
States person (a "foreign person") generally will be considered "portfolio
interest", and generally will not be subject to United States federal income tax
and withholding tax, if the interest is not effectively connected with the
conduct of a trade or business within the United States by the foreign person
and the foreign person (i) is not actually or constructively a "10 percent
shareholder" of the Trust or the Seller (including a holder of 10% of the
outstanding Certificates) or a "controlled foreign corporation" with respect to
which the Trust or the Seller is a "related person" within the meaning of the
Code and (ii) provides the Trustee or other person who is otherwise required to
withhold U.S. tax with respect to the Notes with an appropriate statement (on
IRS Form W-8 or a similar form), signed under penalties of perjury, certifying
that the beneficial owner of the Note is a foreign person and providing the
foreign person's name and address. If a Note is held through a securities
clearing organization or certain other financial institutions, the organization
or institution may provide the relevant signed statement to the withholding
agent; in that case, however, the signed statement must be accompanied by a Form
W-8 or substitute form provided by the foreign person that owns the Note. If
such interest is not portfolio interest, then it will be subject to United
States federal withholding tax at a rate of 30 percent, unless that rate is
reduced or eliminated pursuant to an applicable tax treaty.
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Any capital gain realized on the sale, redemption, retirement or
other taxable disposition of a Note by a foreign person will be exempt from
United States federal income and withholding tax, provided that (i) such gain is
not effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
On October 6, 1997, final Treasury regulations (the "Withholding
Tax Regulations") were issued that modify certain of the filing requirements
with which foreign persons must comply in order to be entitled to an exemption
from U.S. withholding tax or a reduction to the applicable U.S. withholding tax
rate. Those persons currently required to file Form W-8 generally will continue
to be required to file that form. However, the requirement that foreign persons
submit Form W-8 is extended to most foreign persons who wish to seek an
exemption from withholding tax on the basis that income from the Notes is
effectively connected with the conduct of a U.S. trade or business (in lieu of
Form 4224) and to foreign persons wishing to rely on a tax treaty to reduce the
withholding tax rate (in lieu of Form 1001). The Withholding Tax Regulations
generally are effective for payments of interest due after December 31, 1999,
but Forms 4224 and 1001 filed prior to that date will continue to be effective
until the earlier of December 31, 2000 or the current expiration date of those
forms. Prospective investors are urged to consult their tax advisors with
respect to the effect of the Withholding Tax Regulations.
Backup Withholding. Each holder of a Note (other than an exempt
holder such as a corporation, tax exempt organization, qualified pension and
profit sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing the holder's name,
address, correct federal taxpayer identification number and a statement that the
holder is not subject to backup withholding. Should a nonexempt Noteholder fail
to provide the required certification, the Trust will be required to withhold 31
percent of the amount otherwise payable to the holder, and remit the withheld
amount to the IRS as a credit against the holder's federal income tax liability.
Noteholders should consult with their tax advisors as to their eligibility for
exemption from backup withholding, the procedure for obtaining the exemption,
and the potential impact of the Withholding Tax Regulations.
Possible Alternative Treatments of the Notes. If, contrary to the
opinion of Federal Tax Counsel, the IRS successfully asserted that one or more
of the Notes did not represent debt for federal income tax purposes, the Notes
might be treated as equity interests in the Trust. If so treated, the Trust
might be treated as a publicly traded partnership but it would not be taxable as
a corporation because it would meet certain qualifying income tests.
Nonetheless, treatment of the Notes as equity interests in such a publicly
traded partnership could have adverse tax consequences to certain holders. For
example, income to certain tax-exempt entities (including pension funds) would
be "unrelated business taxable income", income to foreign holders generally
would be subject to U.S. tax and U.S. tax return filing and withholding
requirements, and individual holders might be subject to certain limitations on
their ability to deduct their share of Trust expenses. Furthermore, such a
characterization could subject holders to state and local taxation in
jurisdictions in which they are not currently subject to tax.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
Treatment of the Trust as a Partnership. The Seller, the
Servicer, the Trustee, and the Certificateholders, by their purchase of
Certificates, will agree to treat the Trust as a partnership for purposes of
federal and state income tax, franchise tax and any other tax measured in whole
or in part by income, with the assets of the partnership being the assets held
by the Trust, the partners of the partnership being the Certificateholders, and
the Notes being debt of the partnership. However, the proper characterization of
the arrangement involving the Trust, the Certificates, the Notes, the Seller,
and the Servicer is not clear because there is no authority on transactions
closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For
example, because the Certificates have certain features characteristic of debt,
the Certificates might be considered debt of the Seller or the Trust. Any such
characterization would not result in materially adverse tax consequences to
Certificateholders as compared to the intended consequences from treatment of
the Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership.
The following discussion assumes that all payments on the
Certificates are denominated in U.S. dollars, none of the Certificates are Strip
Certificates, and that a series of Securities includes a single class of
Certificates.
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Partnership Taxation. As a partnership, the Trust will not be
subject to federal income tax. Rather, each Certificateholder will be required
to separately take into account such holder's accruals of guaranteed payments
from the Trust and its allocated share of other income, gains, losses,
deductions and credits of the Trust. The Trust's income will consist primarily
of interest and finance charges earned on the Receivables (including appropriate
adjustments for market discount, OID and bond premium) and any gain upon
collection or disposition of Receivables. The Trust's deductions will consist
primarily of interest accruing with respect to the Notes, guaranteed payments on
the Certificates, servicing and other fees, and losses or deductions upon
collection or disposition of Receivables.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents). Under the Trust Agreement,
interest payments on the Certificates at the Certificate Rate (including
interest on amounts previously due on the Certificates but not yet distributed)
will be treated as "guaranteed payments" under Section 707(c) of the Code.
Guaranteed payments are payments to partners for the use of their capital and,
in the present circumstances, are treated as deductible to the Trust and
ordinary income to the Certificateholders. The Trust will have a calendar year
tax year and will deduct the guaranteed payments under the accrual method of
accounting. Certificateholders with a calendar year tax year are required to
include the accruals of guaranteed payments in income in their taxable year that
corresponds to the year in which the Trust deducts the payments, and
Certificateholders with a different taxable year are required to include the
payments in income in their taxable year that includes the December 31 of the
Trust year in which the Trust deducts the payments. It is possible that
guaranteed payments will not be treated as interest for all purposes of the
Code.
In addition, the Trust Agreement will provide, in general, that
the Certificateholders will be allocated taxable income of the Trust for each
Collection Period equal to the sum of (i) any Trust income attributable to
discount on the Receivables that corresponds to any excess of the principal
amount of the Certificates over their initial issue price, (ii) prepayment
premium, if any, payable to the Certificateholders for such month and (iii) any
other amounts of income payable to the Certificateholders for such month. Such
allocation will be reduced by any amortization by the Trust of premium on
Receivables that corresponds to any excess of the issue price of Certificates
over their principal amount. All remaining items of taxable income, gain, loss
and deduction of the Trust, if any, will be allocated to the Seller.
Based on the economic arrangement of the parties, this approach
for allocating Trust income arguably should be permissible under applicable
Treasury regulations, although no assurance can be given that the IRS would not
require a greater amount of income to be allocated to Certificateholders.
Moreover, even under the foregoing method of allocation, Certificateholders
would be allocated income equal to the entire Certificate Rate plus the other
items described above even though the Trust might not have sufficient cash to
make current cash distributions of such amount. Thus, cash basis holders would,
in effect, be required to report income from the Certificates on the accrual
basis and Certificateholders may become liable for taxes on Trust income even if
they have not received cash from the Trust to pay such taxes. In addition,
because tax allocations and tax reporting will be done on a uniform basis for
all Certificateholders but Certificateholders may be purchasing Certificates at
different times and at different prices, Certificateholders may be required to
report on their tax returns taxable income that is greater or less than the
amount reported to them by the Trust.
All of the guaranteed payments and taxable income allocated to a
Certificateholder that is a pension, profit sharing or employee benefit plan or
other tax-exempt entity (including an individual retirement account) will
constitute "unrelated business taxable income" generally taxable to such a
holder under the Code.
An individual taxpayer's share of expenses of the Trust
(including fees to the Servicer but not interest expense) would be miscellaneous
itemized deductions. Such deductions might be disallowed to the individual in
whole or in part and might result in such holder being taxed on an amount of
income that exceeds the amount of
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cash actually distributed to such holder over the life of the Trust. It is not
clear whether these rules would be applicable to a Certificateholder accruing
guaranteed payments.
The Trust intends to make all tax calculations relating to income
and allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Receivables were
not issued with OID, and, therefore, the Trust should not have OID income.
However, the purchase price paid by the Trust for the Receivables may be greater
or less than the remaining principal balance of the Receivables at the time of
purchase. If so, the Receivables will have been acquired at a premium or
discount, as the case may be. (As indicated above, the Trust will make this
calculation on an aggregate basis, but might be required to recompute it on a
Receivable-by-Receivable basis.)
If the Trust acquires the Receivables at a market discount or
premium, the Trust will elect to include any such discount in income currently
as it accrues over the life of the Receivables or to offset any such premium
against interest income on the Receivables. As indicated above, a portion of
such market discount income or premium deduction may be allocated to
Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust
will be deemed to terminate for federal income tax purposes if 50% or more of
the capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
contribute all of its assets and its liabilities to the Trust, as a new
partnership (the "New Partnership"), and immediately thereafter, the Trust, as
the former partnership (the "Terminated Partnership"), will be considered to
distribute interests in the New Partnership to the Certificateholders in
proportion to their respective interests in the Terminated Partnership in
liquidation of the Terminated Partnership. The Trust will not comply with
certain technical requirements that might apply when such a constructive
termination occurs. As a result, the Trust may be subject to certain tax
penalties and may incur additional expenses if it is required to comply with
those requirements. Furthermore, the Trust might not be able to comply due to
lack of data.
Disposition of Certificates. Subject to the discussion in the
immediately following paragraph, generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the
holder's share of unrecognized accrued market discount on the Receivables would
generally be treated as ordinary income to the holder and would give rise to
special tax reporting requirements. The Trust does not expect to have any other
assets that would give rise to such special reporting requirements. Thus, to
avoid those special reporting requirements, the Trust will elect to include
market discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate
amount of income (not including income attributable to disallowed itemized
deductions described above) over the life of the Certificates that exceeds the
aggregate cash distributions with respect thereto, such excess will generally
give rise to a capital loss upon the retirement of the Certificates.
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Allocations Between Transferors and Transferees. In general, the
Trust's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the Certificateholders
in proportion to the principal amount of Certificates owned by them as of the
close of the last day of such month. As a result, a holder purchasing
Certificates may be allocated tax items (which will affect its tax liability and
tax basis) attributable to periods before the actual purchase.
The use of such a monthly convention may not be permitted by
existing Treasury regulations. If a monthly convention is not allowed (or only
applies to transfers of less than all of the partner's interest), taxable income
or losses of the Trust might be reallocated among the Certificateholders. The
Seller is authorized to revise the Trust's method of allocation between
transferors and transferees to conform to a method permitted by future
regulations.
Section 754 Election. In the event that a Certificateholder sells
its Certificates at a profit (loss), the purchasing Certificateholder will have
a higher (lower) basis in the Certificates than the selling Certificateholder
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher (or lower) basis unless the Trust were to file an election under Section
754 of the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Trustee is required to keep or have
kept complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be the calendar year. The Trust will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust and will report each Certificateholder's allocable share of items of Trust
income and expense to holders and the IRS on Schedule K-1. The Trust will
provide the Schedule K-1 information to nominees that fail to provide the Trust
with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file tax returns that are consistent with
the information return filed by the Trust or be subject to penalties unless the
holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds
Certificates as a nominee at any time during a calendar year is required to
furnish the Trust with a statement containing certain information on the
nominee, the beneficial owners and the Certificates so held. Such information
includes (i) the name, address and taxpayer identification number of the nominee
and (ii) as to each beneficial owner (x) the name, address and identification
number of such person, (y) whether such person is a United States person, a
tax-exempt entity or a foreign government, an international organization, or any
wholly-owned agency or instrumentality of either of the foregoing, and (z)
certain information on Certificates that were held, bought or sold on behalf of
such person throughout the year. In addition, brokers and financial institutions
that hold Certificates through a nominee are required to furnish directly to the
Trust information as to themselves and their ownership of Certificates. A
clearing agency registered under Section 17A of the Exchange Act is not required
to furnish any such information statement to the Trust. The information referred
to above for any calendar year must be furnished to the Trust on or before the
following January 31. Nominees, brokers and financial institutions that fail to
provide the Trust with the information described above may be subject to
penalties.
The Seller will be designated as the tax matters partner in the
related Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificateholders, and, under
certain circumstances, a Certificateholder may be precluded from separately
litigating a proposed adjustment to the
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items of the Trust. An adjustment could also result in an audit of a
Certificateholder's returns and adjustments of items not related to the income
and losses of the Trust.
Tax Consequences to Foreign Certificateholders. It is not clear
whether the Trust would be considered to be engaged in a trade or business in
the United States for purposes of federal withholding taxes with respect to non-
U.S. persons because there is no clear authority dealing with that issue under
facts substantially similar to those described herein. Although it is not
expected that the Trust would be engaged in a trade or business in the United
States for such purposes, the Trust will withhold as if it were so engaged in
order to protect the Trust from possible adverse consequences of a failure to
withhold. The Trust expects to withhold on the portion of its taxable income
that is allocable to foreign Certificateholders pursuant to Section 1446 of the
Code, as if such income were effectively connected to a U.S. trade or business,
at a rate of 35% for foreign holders that are taxable as corporations and 39.6%
for all other foreign holders. Subsequent adoption of Treasury regulations or
the issuance of other administrative pronouncements may require the Trust to
change its withholding procedures. In determining a Certificateholder's
withholding status, the Trust may rely on IRS Form W-8, IRS Form W-9 or the
holder's certification of nonforeign status signed under penalties of perjury.
Each foreign Certificateholder might be required to file a U.S.
individual or corporate income tax return and pay U.S. income tax on the amount
computed therein (including, in the case of a corporation, the branch profits
tax) on its share of accruals of guaranteed payments and the Trust's income.
Each foreign Certificateholder must obtain a taxpayer identification number from
the IRS and submit that number to the Trust on Form W-8 in order to assure
appropriate crediting of the taxes withheld. A foreign Certificateholder
generally would be entitled to file with the IRS a claim for refund with respect
to taxes withheld by the Trust, taking the position that no taxes were due
because the Trust was not engaged in a U.S. trade or business. However, the IRS
may assert additional taxes are due, and no assurance can be given as to the
appropriate amount of tax liability.
On October 6, 1997, final Treasury regulations (the "Withholding
Tax Regulations") were issued that modify certain of the filing requirements
with which foreign persons must comply in order to be entitled to an exemption
from U.S. withholding tax or a reduction to the applicable U.S. withholding tax
rate. Those persons currently required to file Form W-8 generally will continue
to be required to file that form. However, the requirement that foreign persons
submit Form W-8 is extended to most foreign persons who wish to seek an
exemption from withholding tax on the basis that income from the Certificates
is effectively connected with the conduct of a U.S. trade or business (in lieu
of Form 4224) and to foreign persons wishing to rely on a tax treaty to reduce
the withholding tax rate (in lieu of Form 1001). The Withholding Tax
Regulations generally are effective for payments of interest due after December
31, 1998, but Forms 4224 and 1001 filed prior to that date will continue to be
effective until the earlier of December 31, 1999 or the current expiration date
of those forms. Prospective investors are urged to consult their tax advisors
with respect to the effect of the Withholding Tax Regulations.
Backup Withholding. Distributions made on the Certificates and
proceeds from the sale of the Certificates will be subject to a "backup"
withholding tax of 31% if, in general, the Certificateholder fails to comply
with certain identification procedures, unless the holder is an exempt recipient
under applicable provisions of the Code. Certificateholders should consult with
their tax advisors as to their eligibility for exemption to backup withholding,
the procedure for obtaining the exemption, and the potential impact of the
Withholding Tax Regulations.
STATE TAX CONSEQUENCES
In the opinion of Thompson Hine & Flory LLP, Ohio tax counsel to the
Trust, the Notes will be characterized as debt for Ohio corporation franchise
tax purposes. In addition, since Ohio follows the recently issued entity
classification rules of federal income tax law, the Trust will not be treated as
a separate entity taxable as a corporation for Ohio corporation franchise tax
purposes. However, the Trust may be subject to one or both of an income tax or
a withholding tax that Ohio recently imposed on pass-through entities
(including partnerships), effective beginning with the 1998 tax year. Moreover,
if Ohio changed its position on the entity classification rules and thus
decided not to follow them, the Trust may be treated as a separate entity
taxable as a corporation for Ohio corporation franchise tax purposes. Any
income, withholding, or franchise tax liability of the Trust incurred by the
Trust is expected not to be material, and the Servicer will indemnify the Trust
for any such tax liability.
Prospective investors are urged to consult with their own tax advisors
regarding the state tax consequence to them of purchasing, holding and disposing
of Notes or Certificates.
ERISA CONSIDERATIONS
THE NOTES
The Notes may be purchased by an employee benefit plan or an
individual retirement account (a "Plan") subject to ERISA or Section 4975 of the
Code. A fiduciary of a Plan must determine that the purchase of a Note is
consistent with its fiduciary duties under ERISA and does not result in the
assets of the Trust being deemed to constitute plan assets or in a nonexempt
prohibited transaction as defined in Section 406 of ERISA or Section 4975
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of the Code. For additional information regarding the likely treatment of the
Notes as debt under ERISA, see "ERISA Considerations" in the Prospectus.
However, without regard to whether the Notes are treated as an
equity interest for such purposes, the acquisition or holding of Notes by or on
behalf of a Plan could be considered to give rise to a prohibited transaction if
an Affiliate, the Seller, the Trust, the Servicer, the Indenture Trustee or the
Owner Trustee is or becomes a party in interest under ERISA or disqualified
person under the Code with respect to such Plan. Certain exemptions from the
prohibited transaction rules could be applicable to the purchase and holding of
Notes by a Plan depending on the type and circumstances of the plan fiduciary
making the decision to acquire such Notes. Included among these exemptions, each
of which contains several conditions which must be satisfied before the
exemption applies, are: Prohibited Transaction Class Exemption ("PTCE") 95-60,
regarding investments by insurance company general accounts, PTCE 91-38,
regarding investments by bank collective investment funds; PTCE 90-1, regarding
investments by insurance company separate accounts, and PTCE 84-14, regarding
transactions effected by "qualified professional asset managers". By its
acceptance of a Note, each Noteholder shall be deemed to have represented and
warranted that its purchase and holding of the Note will not result in a
nonexempt prohibited transaction under Section 406(a) of ERISA or Section 4975
of the Code.
THE CERTIFICATES
The Certificates may not be acquired (a) with the assets of an
employee benefit plan (as defined in Section 3(3) of ERISA) that is subject to
the provisions of Title I of ERISA, (b) by a plan described in Section 4975(e)
(1) of the Code or (c) by any entity whose underlying assets include plan assets
by reason of a plan's investment in the entity or which uses plan assets to
acquire Certificates. By its acceptance of a Certificate, each Certificateholder
will be deemed to have represented and warranted that it is not subject to the
foregoing limitation. Subject to the considerations set forth under "ERISA
Considerations--Trusts that Issue Notes" in the Prospectus, the Certificates are
eligible to be acquired and held by insurance company general accounts in
certain circumstances. For additional information regarding treatment of the
Certificates under ERISA, see "ERISA Considerations" in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement, the Seller has agreed to cause the Trust to sell to each of the
underwriters listed below (each, an "Underwriter"), and each of the Underwriters
has agreed to purchase, the principal amount of the Securities set forth
opposite its name below. Under the terms and conditions of the Underwriting
Agreement, each of the Underwriters is obligated to take and pay for all of the
Securities if any are taken.
<TABLE>
<CAPTION>
Principal Amount of Principal Amount Principal Amount
Class A-1 of Class A-2 of Asset-Backed
Asset-Backed Notes Asset-Backed Notes Certificates
------------------- ------------------ ----------------
<S> <C> <C> <C>
- - - --------------------- $-------------------- $-------------------- $--------------------
- - - --------------------- --------------------- --------------------- ---------------------
- - - --------------------- --------------------- --------------------- ---------------------
Total: $ $ $
===================== ===================== =====================
</TABLE>
S-40
<PAGE> 147
The Seller has been advised by the Underwriters that they propose
initially to offer the Securities to the public at the prices set forth herein,
and to certain dealers at such prices less the initial concession not in excess
of ____% per Class A-1 Note; _____% per Class A-2 Note; and _____% per
Certificate. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of .__% of the principal amount of the Securities to
certain other dealers. After the initial public offering, the public offering
price and such concessions may be changed.
The Seller does not intend to apply for listing of the Notes or
the Certificates on a national securities exchange, but has been advised by the
Underwriters that they intend to make a market in the Notes and Certificates.
The Underwriters are not obligated, however, to make a market in the Notes and
the Certificates and may discontinue market making at any time without notice.
No assurance can be given as to the liquidity of the trading market for the
Notes or the Certificates.
The Seller has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.
In the ordinary course of their respective businesses, each
Underwriter and its affiliates have engaged and may in the future engage in
commercial banking and investment banking transactions with the Seller.
After the initial distribution of the Certificates by the
Underwriters, this Prospectus Supplement may be used by McDonald Investments, an
affiliate of the Seller, the Servicer, the Affiliates and KeyCorp, or its
successors, in connection with offers and sales relating to market making
transactions in the Certificates. McDonald Investments may act as principal or
agent in such transactions. Such transactions will be at prices related to
prevailing market prices at the time of sale. McDonald Investments is a member
of the New York Stock Exchange, Inc.
Pursuant to an Agreement and Plan of Merger dated as of
June 15, 1998 between KeyCorp and McDonald & Company Investments, Inc.
("McDonald"), a full service investment banking and securities brokerage company
headquartered in Cleveland, Ohio, on October 23, 1998, McDonald was merged with
and into KeyCorp. On November 9, 1998, the merger of Key Capital Markets,
Inc., a wholly-owned broker-dealer subsidiary of the former McDonald) was
completed and the surviving entity was renamed McDonald Investments Inc., A
KeyCorp Company. McDonald Investments may engage in market making transactions
as described above.
LEGAL OPINIONS
In addition to the legal opinions described in the Prospectus,
certain legal matters relating to the Notes and the Certificates and certain
federal income tax and other matters will be passed upon for the Trust by
Thompson Hine & Flory LLP, Cleveland, Ohio. Attorneys at Thompson Hine &
Flory LLP owned approximately ________ KeyCorp Common Shares on [Date].
Certain legal matters will be passed upon for the Underwriters by Mayer,
Brown & Platt, Chicago, Illinois. Thompson Hine & Flory LLP and Mayer, Brown
& Platt may from time to time render legal services to the Seller, the Servicer
and its affiliates.
S-41
<PAGE> 148
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Page
<S> <C>
ABS................................................................................ S-15
ABS Table.......................................................................... S-15
Available Interest................................................................. S-22
Available Reserve Amount........................................................... S-20
Basic Documents.................................................................... S-11
Business Day....................................................................... S-6
Certificate Balance................................................................ S-22
Certificate Final Scheduled Distribution Date...................................... S-8
Certificate Rate................................................................... S-8
Certificateholder's Monthly Principal Distributable Amount......................... S-23
Certificateholders ................................................................ S-7
Certificateholders' Interest Carryover Shortfall................................... S-22
Certificateholders' Interest Distributable Amount.................................. S-22
Certificateholders' Monthly Interest Distributable Amount.......................... S-22
Certificateholders' Principal Carryover Shortfall.................................. S-23
Certificateholders' Principal Distributable Amount................................. S-23
Certificates....................................................................... S-1
Class A-1 Final Scheduled Distribution Date........................................ S-7
Class A-1 Interest Rate............................................................ S-6
Class A-1 Notes.................................................................... S-1
Class A-2 Final Scheduled Distribution Date........................................ S-7
Class A-2 Interest Rate............................................................ S-6
Class A-2 Notes.................................................................... S-1
Closing Date....................................................................... S-4,S-5
Code............................................................................... S-9
Collection Period.................................................................. S-6
Commission......................................................................... S-3
Contract Rate...................................................................... S-23
Cutoff Date........................................................................ S-5
Defaulted Receivable............................................................... S-23
Deposit Date....................................................................... S-9
Determination Date................................................................. S-18
Distribution Date.................................................................. S-6
ERISA.............................................................................. S-9
Final Scheduled Maturity Date...................................................... S-5
Financed Vehicles.................................................................. S-5
Foreign person..................................................................... S-28
Indenture.......................................................................... S-4
Indenture Trustee.................................................................. S-4
Interest Accrual Period............................................................ S-6
Interest Period.................................................................... S-6
Interest Rates..................................................................... S-6
IRS................................................................................ S-26
Issuer............................................................................. S-4
Liquidation Proceeds............................................................... S-21
McDonald........................................................................... S-41
McDonald Investments............................................................... S-2
Minimum Specified Reserve Balance.................................................. S-21
Noteholders........................................................................ S-6
Noteholders' Distributable Amount.................................................. S-24
Noteholders' Interest Carryover Shortfall.......................................... S-24
Noteholders' Interest Distributable Amount......................................... S-25
Noteholders' Monthly Interest Distributable Amount................................. S-25
</TABLE>
S-42
<PAGE> 149
<TABLE>
<S> <C>
Noteholders' Monthly Principal Distributable Amount............................... S-25
Noteholders' Principal Carryover Shortfall........................................ S-25
Noteholders' Principal Distributable Amount....................................... S-25
Notes............................................................................. S-4
OID............................................................................... S-28
OID regulations................................................................... S-28
Original Pool Balance............................................................. S-7
Overcollateralization Amount...................................................... S-21
Owner Trustee..................................................................... S-4
Payment Date...................................................................... S-6
Plan.............................................................................. S-33
Pool Balance...................................................................... S-6
Portfolio interest................................................................ S-28
Principal Balance................................................................. S-6
Prospectus........................................................................ S-1
Purchase Amount................................................................... S-23
Purchased Receivable.............................................................. S-23
Qualified stated interest......................................................... S-28
Rating Agencies................................................................... S-10
Realized Losses................................................................... S-24
Receivables................................................................... S-1, S-5
Record Date....................................................................... S-6
Reserve Account................................................................... S-8
Reserve Account Deposit........................................................... S-8
Sale and Servicing Agreement...................................................... S-5
Securities........................................................................ S-4
Securityholders................................................................... S-7
Seller............................................................................ S-4
Servicer.......................................................................... S-2
Specified Reserve Account Balance................................................. S-20
Supplemental Servicing Fee........................................................ S-21
Total Distribution Amount......................................................... S-24
Transfer and Servicing Agreement.................................................. S-20
Trust............................................................................. S-4
Trust Agreement................................................................... S-4
Underwriter....................................................................... S-34
</TABLE>
S-43
<PAGE> 150
================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER OR THE UNDERWRITERS. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THOSE TO WHICH THEY RELATE OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THEIR RESPECTIVE DATES.
---------------------------
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
<S> <C>
Reports to Securityholders................................................. S-2
Summary of Terms........................................................... S-3
Risk Factors............................................................... S-9
The Trust.................................................................. S-11
The Receivables Pool....................................................... S-11
The Seller, the Servicer and KeyCorp....................................... S-15
Weighted Average Life of the Securities.................................... S-15
Description of the Notes................................................... S-17
Description of the Certificates............................................ S-18
Description of the Transfer and Servicing
Agreements............................................................... S-19
Certain Legal Aspects of the Receivables................................... S-26
Legal Investment........................................................... S-26
ERISA Considerations....................................................... S-26
Underwriting............................................................... S-27
Legal Opinions............................................................. S-27
Index of Defined Terms..................................................... S-28
</TABLE>
Prospectus
<TABLE>
<CAPTION>
Page
<S> <C>
Available Information......................................................
Incorporation of Certain Documents
by Reference.............................................................
Summary of Terms...........................................................
Risk Factors...............................................................
The Trusts.................................................................
The Receivables Pools......................................................
Weighted Average Life of the Securities....................................
Pool Factors and Trading Information.......................................
Use of Proceeds............................................................
The Seller.................................................................
The Bank...................................................................
Description of the Notes...................................................
Description of the Certificates............................................
Certain Information Regarding the
Securities...............................................................
Description of the Transfer and Servicing
Agreements
Certain Legal Aspects of the Receivables...................................
Federal Income Tax Consequences............................................
Certain State Tax Consequences.............................................
ERISA Considerations.......................................................
Plan of Distribution.......................................................
Notice to Canadian Residents...............................................
Legal Opinions.............................................................
Index of Defined Terms.....................................................
Global Clearance, Settlement and
Documentation Procedures.................................................
</TABLE>
===============================================================================
===============================================================================
$__________
KEY CONSUMER
ACCEPTANCE CORPORATION
(Seller)
$__________
Class A-1
Asset Backed Notes
$__________
Class A-2 ____%
Asset Backed Notes
$__________
____%
Asset Backed Certificates
______________
PROSPECTUS SUPPLEMENT
_____________, 199___
______________
===============================================================================
<PAGE> 151
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
[Alternate Pages-Prospectus]
PROSPECTUS
SUBJECT TO COMPLETION, DATED __________, 1997
KEY AUTO FINANCE TRUSTS
Asset Backed Notes
Asset Backed Certificates
[KEYCORP LOGO]
KEY CONSUMER ACCEPTANCE CORPORATION
Seller
KEY BANK USA, NATIONAL ASSOCIATION
Servicer
The Asset Backed Notes (The "Notes") and the Asset Backed Certificates
(the "Certificates" and, together with the Notes, the "Securities") described
herein may be sold from time to time in one or more series, in amounts, at
prices and on terms to be determined at the time of sale and to be set forth in
a supplement to this Prospectus (a "Prospectus Supplement"). Each series of
Securities, which may include one or more classes of Notes or one or more
classes of Certificates (or both), will be issued by a trust to be formed on or
before the issuance date for that series (each, a "Trust"). Each Trust will be
formed pursuant to either a Trust Agreement to be entered into among Key
Consumer Acceptance Corporation, a Delaware corporation, as seller (the
"Seller"), Key Bank USA, National Association, in its capacity as servicer (in
such capacity, the "Servicer"), and the trustee specified in the related
Prospectus Supplement (the "Trustee") or a Pooling and Servicing Agreement to be
entered into among the Trustee, the Seller and the Servicer. If a series of
Securities includes Notes, such Notes will be issued and secured pursuant to an
Indenture between the Trust and the indenture trustee specified in the related
Prospectus Supplement (the "Indenture Trustee") and will represent indebtedness
of the related Trust. The Certificates of a series will represent fractional
undivided interests in the related Trust. Certain capitalized terms used in this
Prospectus are defined in this Prospectus on the pages indicated in the "Index
of Terms" on page 72 of this Prospectus. The property of each Trust will
include a pool of promissory notes and security agreements and/or retail
installment sales contracts secured by new or used automobiles and light duty
trucks (collectively, the "Receivables"), payments received thereunder on and
after the applicable Cutoff Date set forth in the related Prospectus
Supplement, security interests in the vehicles financed thereby, rights under
dealer agreements, rights with respect to deposit accounts in which collections
are held or that serve as credit enhancement, any other credit enhancements,
the proceeds of the foregoing and any proceeds from claims on insurance
policies with respect to the Financed Vehicles, all as described herein and in
the related Prospectus Supplement. See "The Trusts."
(Continued on next page)
PROSPECTIVE INVESTORS SHOULD CONSIDER THE "RISK FACTORS" SET
FORTH AT PAGE 15 HEREIN, WHICH DISCUSSES MATERIAL RISKS INVOLVED WITH AN
INVESTMENT IN THE SECURITIES.
------------
ANY NOTES OF A SERIES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES OF A SERIES
REPRESENT BENEFICIAL INTERESTS IN, THE RELATED TRUST ONLY AND DO NOT REPRESENT
OBLIGATIONS OF OR INTERESTS IN KEY CONSUMER ACCEPTANCE CORPORATION, KEY
BANK USA, NATIONAL ASSOCIATION, OR ANY OF THEIR AFFILIATES. NONE OF
THE NOTES, THE CERTIFICATES OR THE RECEIVABLES ARE GUARANTEED
OR INSURED BY, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
ANY OTHER GOVERNMENT AGENCY OR INSTRUMENTALITY, KEY
CONSUMER ACCEPTANCE CORPORATION, KEY BANK USA,
NATIONAL ASSOCIATION, OR ANY OF
THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE 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 may not be used to consummate sales of Securities offered hereby
unless accompanied by a Prospectus Supplement.
The date of this Prospectus is _______ __, 1997.
<PAGE> 152
Because any Certificates issued by a Trust that are subordinate to any
other class of Securities (the "Subordinate Certificates") will not be eligible
for the relief afforded by the Exemption, such Subordinate Certificates may not
be acquired with the assets of a Benefit Plan. Each purchaser of a Subordinate
Certificate shall be deemed to represent and warrant that it is not acquiring
or holding the Subordinate Certificate with the assets of a Benefit Plan.
PLAN OF DISTRIBUTION
This Prospectus may be used by McDonald Investments Inc., A KeyCorp
Company ("McDonald Investments"), an affiliate of the Affiliates, the Servicer,
the Seller and KeyCorp, or its successors, in connection with offers and sales
related to market-making transactions in the Securities in which McDonald
Investments acts as principal. McDonald Investments may also act as agent in
such transactions. McDonald Investments is a member of the New York Stock
Exchange, Inc. Transactions will be at prices related to the prevailing prices
at the time of sale. McDonald Investments is not a bank or thrift, is a
subsidiary of KeyCorp and an entity separate from any Affiliate, and is solely
responsible for its contractual obligations and commitments. The portion of the
net proceeds paid to the Seller will be used to purchase the Receivables from
the Affiliates.
The place and time of delivery for the Securities in respect of which
this Prospectus is delivered will be set forth in the related Prospectus
Supplement.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Securities in Canada is being made only on a
private placement basis exempt from the requirement that each Trust prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of the Securities are effected. Accordingly, any resale of the
Securities in Canada must be made in accordance with applicable securities law
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or pursuant
to a discretionary exemption granted by the applicable Canadian securities
regulatory authority. Purchasers are advised to seek legal advice prior to any
resale of the Securities.
REPRESENTATION OF PURCHASERS
Each purchaser of Securities in Canada who receives a purchase
confirmation will be deemed to represent to the Seller, the applicable Trust and
the dealer from whom such purchase confirmation is received that (i) such
purchaser is entitled under applicable provincial securities laws to purchase
such Securities without the benefit of a prospectus qualified under such
securities laws, (ii) where required by law, that such purchaser is purchasing
as principal and not as agent, and (iii) such purchaser has reviewed the text
above under "Resale Restrictions."
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
The applicable Trust, the Seller, the Bank, the Servicer and the
Applicable Trustee and their respective directors and officers, if any, as well
as the experts named herein, may be located outside of Canada and, as a result,
it may not be possible for Ontario purchasers to effect service of process
within Canada upon the Seller or such persons. All or a substantial portion of
the assets of the Seller and such persons may be located outside of Canada and,
as a result, it may not be possible to satisfy a judgment against the Seller or
such persons in Canada or to enforce a judgment obtained in Canadian courts
against such Seller or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of the Securities to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any of the Securities acquired by such purchaser pursuant to this offering. Such
report must be in the form
69
<PAGE> 153
attached to British Columbia Securities Commission Blanket Order BOR #88/5. Only
one such report must be filed in respect of the Securities acquired on the same
date and under the same prospectus exemption.
LEGAL OPINIONS
Certain legal matters relating to the Securities of any series will be
passed upon for the related Trust, the Seller and the Servicer by Forrest F.
Stanley, Esq., General Counsel of the Bank and by Thompson Hine & Flory LLP,
Cleveland, Ohio. Certain legal matters will be passed upon for the Underwriters
by Mayer, Brown & Platt, Chicago, Illinois. Thompson Hine & Flory LLP and
Mayer, Brown & Platt may from time to time render legal services to the Seller,
the Servicer and their affiliates.
70
<PAGE> 154
[Alternate Pages-Grantor Trust Prospectus Supplement Form]
SUBJECT TO COMPLETION, DATED __________, 199_
[PRELIMINARY GRANTOR TRUST PROSPECTUS SUPPLEMENT FORM]
(To Prospectus dated __________, 199_)
[$--------------]
Key Auto Finance Trust 199_ - _
$____________________ ____% Asset Backed Certificates, Class A
$____________________ ____% Asset Backed Certificates, Class B
Key Consumer Acceptance Corporation
Seller
Key Bank USA, National Association
Servicer
The Key Auto Finance Trust 199__-__ (the "Trust") will be formed pursuant to a
Pooling and Servicing Agreement, to be dated as of _________, 199__, among
Key Consumer Acceptance Corporation, as seller (the "Seller"), Key Bank
USA, National Association in its capacity as servicer (in such
capacity, the "Servicer"), and ___________, as Trustee. The Trust
will issue $_________ aggregate principal amount of ____% Asset
Backed Certificates, Class A (the "Class A Certificates"),
and $________ aggregate principal amount of ____% Asset
Backed Certificates, Class B (the "Class B
Certificates" and, together with the Class A Certifi-
cates, the "Certificates"). The Class A Certificates
will evidence in the aggregate an approximate ___%
undivided ownership in the Trust and the Class B
Certificates will evidence in the aggregate an
approximate ___% undivided ownership interest
in the Trust. The rights of the Class B Cer-
tificateholders to receive distributions
with respect to the Receivables are
subordinated to the rights of the
Class A Certificateholders to the
extent described herein. See
"Description of the Certif-
icates--Distributions." The
Trust property will include a
pool of motor vehicle promissory
notes and security agreements
and/or retail installment sale
contracts secured by new or used
automobiles and light duty trucks
(collectively, the "Receivables"),
payments received thereunder after
____________, 199_, security interests
in the motor vehicles financed thereby,
rights under Dealer Agreements, rights
under Purchase Agreements, rights with
respect to deposit accounts in which
collections are held, any proceeds from
claims on certain insurance policies
and the proceeds of the foregoing.
(cover continued on following next page)
------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER THE MATERIAL RISKS INVOLVED WITH AN
INVESTMENT IN THE SECURITIES DISCUSSED IN THE "RISK FACTORS" SET FORTH AT PAGE
S-__ HEREIN AND AT PAGE ___ IN THE ACCOMPANYING PROSPECTUS (THE "PROSPECTUS").
[AS APPLICABLE: ALL OF THE RECEIVABLES ARE OWED BY HIGHER RISK OBLIGORS
THAN OBLIGORS OF MOTOR VEHICLE LOANS ORIGINATED BY TRADITIONAL
FINANCING SOURCES. SIGNIFICANT DELINQUENCIES, ESPECIALLY IF
COMBINED WITH SIGNIFICANT LOSSES ON THE RECEIVABLES, MAY
RESULT IN THE INABILITY TO MAKE FULL OR TIMELY PAYMENTS
OF INTEREST OR PRINCIPAL ON EACH CLASS OF NOTES
BECAUSE NO PERSON IS OBLIGATED TO ADVANCE
DELINQUENT PAYMENTS ON THE RECEIVABLES.]
THE CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND DO NOT
REPRESENT OBLIGATIONS OF OR INTERESTS IN THE KEY CONSUMER ACCEPTANCE
CORPORATION, KEY BANK USA, NATIONAL ASSOCIATION OR ANY OF THEIR
AFFILIATES. NEITHER THE CERTIFICATES NOR THE RECEIVABLES ARE
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE COR-
PORATION, ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY
OR BY KEY CONSUMER ACCEPTANCE CORPORATION, KEY BANK USA,
NATIONAL ASSOCIATION OR ANY OF THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
After the initial distribution of the Certificates by the Underwriters, the
Prospectus and this Prospectus Supplement may be used by McDonald Investments,
Inc., A KeyCorp Company ("McDonald Investments"), an affiliate of the Seller, in
connection with market making transactions in the Certificates. McDonald
Investments may act as principal or agent in such transactions. Such
transactions will be at prices related to prevailing market prices at the time
of sale. Certain information in this Prospectus Supplement will be updated from
time to time as described in "Incorporation of Certain Documents by Reference."
__________________, 19 __.
<PAGE> 155
PLAN OF DISTRIBUTION
After the initial distribution of the Certificates by the Underwriters,
this Prospectus Supplement may be used by McDonald Investments, an
affiliate of the Seller, the Servicer, the Affiliates and KeyCorp, or its
successors, in connection with offers and sales relating to market making
transactions in the Certificates. McDonald Investments may act as principal
or agent in such transactions. Such transactions will be at prices related to
prevailing market prices at the time of sale. McDonald Investments is a member
of the New York Stock Exchange, Inc.
Pursuant to an Agreement and Plan of Merger dated as of June 15, 1998
between KeyCorp and McDonald & Company Investments, Inc. ("McDonald"), a full
service investment banking and securities brokerage company headquartered in
Cleveland, Ohio, on October 23, 1998, McDonald was merged with and into KeyCorp.
On November 9, 1998, the merger of Key Capital Markets, Inc., a wholly-owned
broker-dealer subsidiary of KeyCorp, into McDonald & Company Securities, Inc. (a
wholly-owned subsidiary of the former McDonald) was completed and the surviving
entity was renamed McDonald Investments Inc., A KeyCorp Company. McDonald
Investments may engage in market making transactions as described above.
LEGAL OPINIONS
In addition to the legal opinions described in the Prospectus, certain
federal income tax and other legal matters will be passed upon for the Trust by
Thompson Hine & Flory LLP, Cleveland, Ohio. Attorneys at Thompson Hine & Flory
LLP owned approximately _________ KeyCorp Common Shares on September 16, 1996.
Certain legal matters will be passed upon for the Underwriters by Mayer, Brown
& Platt, Chicago, Illinois. Thompson Hine & Flory LLP and Mayer, Brown & Platt
may from time to time render legal services to the Seller, the Servicer and its
affiliates.
30
<PAGE> 156
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER OR THE UNDERWRITERS. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THOSE TO WHICH THEY RELATE OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THEIR RESPECTIVE DATES.
---------------------------
TABLE OF CONTENTS
Prospectus Supplement
Page
----
Reports to Certificateholders................. S-2
Summary of Terms.............................. S-3
Risk Factors.................................. S-9
The Trust..................................... S-10
The Receivables Pool.......................... S-10
The Seller, the Servicer and KeyCorp.......... S-14
Weighted Average Life of the Certificates..... S-14
Description of the Certificates............... S-14
Certain Legal Aspects of the Receivables...... S-20
ERISA Considerations.......................... S-20
Plan of Distribution.......................... S-21
Legal Opinions................................ S-21
Index of Defined Terms........................ S-22
Prospectus
Page
----
Available Information.........................
Incorporation of Certain Documents
by Reference................................
Summary of Terms..............................
Risk Factors..................................
The Trusts....................................
The Receivables Pools.........................
Weighted Average Life of the Securities.......
Pool Factors and Trading Information..........
Use of Proceeds...............................
The Seller....................................
The Bank......................................
AutoFinance Group.............................
Description of the Notes......................
Description of the Certificates...............
Certain Information Regarding the
Securities..................................
Description of the Transfer and
Servicing Agreements........................
Certain Legal Aspects of the Receivables......
Federal Income Tax Consequences...............
Certain State Tax Consequences................
ERISA Considerations..........................
Plan of Distribution..........................
Notice to Canadian Residents..................
Legal Opinions................................
Index of Defined Terms........................
Global Clearance, Settlement and Tax
Documentation Procedures....................
$_______________________________
KEYCORP CONSUMER
ACCEPTANCE CORPORATION
(Seller)
$__________________
__% Asset Backed
Certificates
Class A
$___________________
__% Asset Backed
Certificates
Class B
==================
PROSPECTUS SUPPLEMENT
_____________, 199__
==================
<PAGE> 157
[Alternate Pages-Owner Trust Prospectus Supplement Form]
SUBJECT TO COMPLETION, DATED __________, 199_
[PRELIMINARY OWNER TRUST PROSPECTUS SUPPLEMENT FORM]
[$--------------]
Key Auto Finance Trust 199_ - _
$______________ Class A-1 ____% Asset Backed Notes
$______________ Class A-2 ____% Asset Backed Notes
$______________ ____% Asset Backed Certificates
Key Consumer Acceptance Corporation
Seller
Key Bank USA, National Association
Servicer
The Key Auto Finance Trust 199_-__ (the "Trust") will be governed by a Trust
Agreement, to be dated as of ___________________, 199_, between Key Consumer
Acceptance Corporation, as seller (the "Seller") and ___________________,
as Owner Trustee. The Trust will issue $_____________ aggregate principal
amount of Class A-1 ___% Asset Backed Notes (the "Class A-1 Notes"),and
$____________ aggregate principal amount of Class A-2 ___ Asset Backed
Notes (the "Class A-2 Notes" and, together with the Class A-1 Notes,
the "Notes") pursuant to an Indenture to be dated as of
__________, 199_, between the Trust and _____________,
as Indenture Trustee. The Trust will also issue
$__________________ aggregate principal amount of
___% Asset Backed Certificates (the "Certificates"
and, together with the Notes, the "Securities"). The
rights of Certificateholders will be subordinated
to the rights of Noteholders to the extent described
herein. The assets of the Trust will include a pool
of motor vehicle promissory notes and security
agreements and/or retail installment sale contracts
secured by new or used automobiles and light duty
trucks (collectively, the "Receivables"), payments
received thereunder after , 199 ,
security interests in the motor vehicles financed
thereby, rights under Dealer Agreements, rights
under Purchase Agreements, rights with respect
to deposit accounts in which collections are held,
any proceeds from claims on insurance policies
relating to the Financed Vehicles and the
proceeds of the foregoing.
(cover continued on next page)
-----------------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER THE MATERIAL RISKS INVOLVED WITH
OR INVESTMENT IN THE SECURITIES DESCRIBED IN "RISK FACTORS" SET FORTH AT
PAGE S-__ HEREIN AND AT PAGE ___ IN THE ACCOMPANYING PROSPECTUS (THE
"PROSPECTUS").
[AS APPLICABLE: ALL OF THE RECEIVABLES ARE OWED BY HIGHER RISK OBLIGORS THAN
OBLIGORS OF MOTOR VEHICLE LOANS ORIGINATED BY TRADITIONAL FINANCING SOURCES.
SIGNIFICANT DELINQUENCIES, ESPECIALLY IF COMBINED WITH SIGNIFICANT LOSSES
ON THE RECEIVABLES, MAY RESULT IN THE INABILITY TO MAKE FULL OR TIMELY
PAYMENTS OF INTEREST OR PRINCIPAL ON EACH CLASS OF NOTES BECAUSE NO
PERSON IS OBLIGATED TO ADVANCE DELINQUENT PAYMENTS ON THE RECEIVABLES.]
THE NOTES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT BENEFICIAL
INTERESTS IN, THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR INTERESTS
IN KEY CONSUMER ACCEPTANCE CORPORATION, KEY BANK USA, NATIONAL ASSOCIATION,
OR ANY OF THEIR AFFILIATES. NEITHER THE SECURITIES NOR THE RECEIVABLES
ARE INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY KEY CONSUMER
ACCEPTANCE CORPORATION, KEY BANK USA, NATIONAL ASSOCIATION, OR ANY
OF THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
After the initial distribution of the Certificates and Notes by the
Underwriters, the Prospectus and this Prospectus Supplement may be used by
McDonald Investments Inc., A KeyCorp Company ("McDonald Investments"), an
affiliate of the Seller, in connection with market making transactions in the
Certificates and Notes. McDonald Investments may act as principal or agent in
such transactions. Such transactions will be at prices related to prevailing
market prices at the time of sale. Certain information in this Prospectus
Supplement will be updated from time to time as described in "Incorporation of
Certain Documents by Reference."
_____________, 199__.
<PAGE> 158
PLAN OF DISTRIBUTION
After the initial distribution of the Certificates by the Underwriters,
this Prospectus Supplement may be used by McDonald Investments, an
affiliate of the Seller, the Servicer, the Affiliates and KeyCorp, or its
successors, in connection with offers and sales relating to market making
transactions in the Certificates. McDonald Investments may act as principal
or agent in such transactions. Such transactions will be at prices related to
prevailing market prices at the time of sale. McDonald Investments is a member
of the New York Stock Exchange, Inc.
Pursuant to an Agreement and Plan of Merger dated as of June 15, 1998
between KeyCorp and McDonald & Company Investments, Inc. ("McDonald"), a full
service investment banking and securities brokerage company headquartered in
Cleveland, Ohio, on October 23, 1998, McDonald was merged with and into
KeyCorp. On November 9, 1998, the merger of Key Capital Markets, Inc., a
wholly-owned broker-dealer subsidiary of KeyCorp, into McDonald & Company
Securities, Inc. (a wholly-owned subsidiary of the former McDonald) was
completed and the surviving entity was renamed McDonald Investments Inc., A
KeyCorp Company. McDonald Investments may engage in market making transactions
as described above.
LEGAL OPINIONS
In addition to the legal opinions described in the Prospectus, certain
legal matters relating to the Notes and the Certificates and certain federal
income tax and other matters will be passed upon for the Trust by Thompson Hine
& Flory LLP, Cleveland, Ohio. Attorneys at Thompson Hine & Flory LLP owned
approximately _________ KeyCorp Common Shares on [Date]. Certain legal matters
will be passed upon for the Underwriters by Mayer, Brown & Platt, Chicago,
Illinois. Thompson Hine & Flory LLP and Mayer, Brown & Platt may from time to
time render legal services to the Seller, the Servicer and its affiliates.
__
<PAGE> 159
================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER OR THE UNDERWRITERS. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THOSE TO WHICH THEY RELATE OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THEIR RESPECTIVE DATES.
---------------------------
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
<S> <C>
Reports to Securityholders................................................. S-2
Summary of Terms........................................................... S-3
Risk Factors............................................................... S-9
The Trust.................................................................. S-11
The Receivables Pool....................................................... S-11
The Seller, the Servicer and KeyCorp....................................... S-15
Weighted Average Life of the Securities.................................... S-15
Description of the Notes................................................... S-17
Description of the Certificates............................................ S-18
Description of the Transfer and Servicing
Agreements............................................................... S-19
Certain Legal Aspects of the Receivables................................... S-26
Legal Investment........................................................... S-26
ERISA Considerations....................................................... S-26
Plan of Distribution....................................................... S-27
Legal Opinions............................................................. S-27
Index of Defined Terms..................................................... S-28
</TABLE>
Prospectus
<TABLE>
<CAPTION>
Page
<S> <C>
Available Information......................................................
Incorporation of Certain Documents
by Reference.............................................................
Summary of Terms...........................................................
Risk Factors...............................................................
The Trusts.................................................................
The Receivables Pools......................................................
Weighted Average Life of the Securities....................................
Pool Factors and Trading Information.......................................
Use of Proceeds............................................................
The Seller.................................................................
The Bank...................................................................
Description of the Notes...................................................
Description of the Certificates............................................
Certain Information Regarding the
Securities...............................................................
Description of the Transfer and Servicing
Agreements
Certain Legal Aspects of the Receivables...................................
Federal Income Tax Consequences............................................
Certain State Tax Consequences.............................................
ERISA Considerations.......................................................
Plan of Distribution.......................................................
Notice to Canadian Residents...............................................
Legal Opinions.............................................................
Index of Defined Terms.....................................................
Global Clearance, Settlement and
Documentation Procedures.................................................
</TABLE>
===============================================================================
===============================================================================
$__________
KEY CONSUMER
ACCEPTANCE CORPORATION
(Seller)
$__________
Class A-1
________%
Asset Backed Notes
$__________
Class A-2 ____%
Asset Backed Notes
$__________
____%
Asset Backed Certificates
______________
PROSPECTUS SUPPLEMENT
_____________, 199___
______________
===============================================================================
<PAGE> 160
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
<TABLE>
<S> <C>
Registration Fee............................................ $ 692,054
"Blue Sky" Registration Fees................................ 15,000
Printing and Engraving Expenses............................. 80,000
Trustee Fees and Expenses................................... 85,000
Legal Fees and Expenses..................................... 300,000
Accountants' Fees and Expenses.............................. 80,000
Rating Agencies' Fees....................................... 320,000
Miscellaneous............................................... 100,000
----------
Total............................................. $1,672,054
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware provides as follows:
145. Indemnification of officers, directors, employees and agents;
insurance
(a) A corporation shall have power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that such person is
or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests
of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which such person reasonably
believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had
reasonable cause to believe that such person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact
that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or
suit if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
II-1
<PAGE> 161
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b),
or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) (unless
ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) and (b). Such determination shall be made, with respect
to a person who is a director or officer at the time of such
determination, (1) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a
quorum, or (2) by a committee of such directors designated by majority
vote of such directors, even though less than a quorum, or (3) if there
are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (4) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending a civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of
the final disposition of such action, suit or proceeding upon receipt of
an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the corporation as authorized in this
Section. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon
such terms and conditions, if any, as the corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in such person's official capacity and as
to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the
power to indemnify such person against such liability under this
Section.
(h) For purposes of this Section, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position
under this Section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this Section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any
employee benefit plan; and references to "serving at the request of the
corporation" shall include any service as a director, officer, employee,
or agent of the corporation which imposes duties on, or involves
services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner such person reasonably
believed to be in the interest of the participants and beneficiaries of
an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
II-2
<PAGE> 162
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive
jurisdiction to hear and determine all actions for advancement of
expenses or indemnification brought under this section or under any
bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise. The Court of Chancery may summarily determine a corporation's
obligation to advance expenses (including attorneys' fees).
Article VIII of the Bylaws of Key Consumer Acceptance Corporation (referred to
as the "Corporation" therein) provides as follows:
Section 1. INDEMNIFICATION. The Corporation shall indemnify, to the full
extent permitted or authorized by the Delaware General Corporation law as it may
from time to time be amended, any person made or threatened to be made a party
to any threatened, pending or completed action, suit of proceeding, whether
civil, criminal, administrative, or investigative, by reason of the fact that he
is or was a director, officer, or employee of the Corporation, or is or was
serving at the request of the Corporation as a director, trustee, officer, or
employee of another corporation, bank, partnership, joint venture, trust or
other enterprise; in the case of a person serving at the request of the
Corporation, such request shall be evidenced by a resolution of the Board of
Directors or a duly-authorized committee thereof or by a writing executed by an
officer of the Corporation pursuant to a resolution of the Board of Directors or
a duly-authorized committee thereof. In the case of a merger into this
Corporation of a constituent corporation which, if its separate existence had
continued, would have been required to indemnify directors, officers or
employees in specified situations prior to the merger, any person who served as
a director, officer or employee of the constituent corporation, or served at the
request of the constituent corporation as a director, trustee, officer or
employee of another corporation, bank, partnership, joint venture, trust or
other enterprise, shall be entitled to indemnification by this Corporation (as
the surviving corporation) for acts, omissions or other events or occurrences
prior to the merger to the same extent he would have been entitled to
indemnification by the constituent corporation if its separate existence had
continued. The indemnification provided by this Article VIII shall not be deemed
exclusive of any other rights to which any person seeking indemnification may be
entitled by law or under the Articles of Incorporation of the Corporation or
these Bylaws, or any agreement, vote of shareholders or disinterested directors,
or otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, trustee, officer or employee and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Section 2. PURCHASE OF INSURANCE. The Corporation may purchase and
maintain insurance or furnish similar protection, including but not limited to
trust funds, letters of credit or self-insurance on behalf of or for any person
who is or was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, trustee,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against any liability asserted against him and
incurred by him in any capacity, or arising out of his status as such, whether
or not the Corporation would have the power to indemnify him against liability
under the provisions of this Article or of the Delaware General Corporation Law.
Insurance may be purchased from or maintained with a person in which the
Corporation has a financial interest.
Section 3. ADVANCEMENT OF EXPENSES. Expenses, including attorneys' fees,
incurred by a present or former director of the Corporation in defending an
action, suit or proceeding referred to in Section 1 hereof brought against him
in his capacity as a director shall be paid by the Corporation as they are
incurred in advance of the final disposition of the action, suit or proceeding
upon receipt of an undertaking by or on behalf of the director to repay such
amount if it ultimately is determined that he is not entitled to be indemnified
by the Corporation. Expenses, including attorneys' fees, incurred by a present
or former director of the Corporation in any capacity other than as a director
or by a present or former officer or employee of the Corporation in defending an
action, suit or proceeding referred to in Section 1 hereof may be paid by the
Corporation as they are incurred in advance of the final disposition of the
action, suit or proceeding upon receipt of an undertaking by or on behalf
II-3
<PAGE> 163
of the director, officer or employee to repay such amount if it ultimately is
determined that he is not entitled to be indemnified by the Corporation.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
(a) All financial statements, schedules and historical financial
information have been omitted as they are not applicable.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of Key Consumer Acceptance
Corporation.*
3.2 By-Laws of Key Consumer Acceptance Corporation.*
3.3 Form of Certificate of Trust for Key Auto Finance Trusts
(included in Exhibit 4.2).*
4.1 Form of Indenture between the Trust and the Indenture
Trustee (including forms of Notes).*
4.2 Form of Trust Agreement between the Registrant and the
Trustee (including form of Certificate of Trust and forms of
Certificates).*
4.3 Form of Pooling and Servicing Agreement, among the
Registrant, the Servicer and the Trustee (including forms of
Certificates).*
5.1 Opinion of Mayer, Brown & Platt with respect to legality.**
8.1 Opinion of Thompson Hine & Flory LLP with respect to Federal
and Ohio tax matters, and ERISA matters.**
23.1 Consents of Mayer, Brown & Platt and Thompson Hine & Flory
LLP (included in their opinions filed as Exhibits 5.1 and
8.1).**
24.1 Powers of Attorney.**
99.1 Form of Sale and Servicing Agreement among the Registrant,
the Servicer and the Trust.*
99.2 Form of Administration Agreement among the Seller, the
Servicer and the Indenture Trustee.*
99.3 Form of Purchase Agreement between an Affiliate and the
Registrant.*
</TABLE>
- - - ---------------
* Incorporated by reference to the Registrant's Registration Statement No.
333-12431.
** Previously filed on Form S-3 on September 25, 1998.
ITEM 17. UNDERTAKINGS
(a) As to Rule 415 and Rule 430A:
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made of
the securities registered hereby, 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, as amended (the "Securities Act");
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment hereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in this registration statement;
provided, however, that the undertakings set forth in clauses (i) and (ii) above
do not apply if the information required to be included in a post-effective
amendment by those clauses is contained in periodic reports filed by the
registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934, as amended, that are incorporated by reference in this registration
statement.
(2) For purposes of determining any liability under the Securities Act, 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
II-4
<PAGE> 164
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(3) That, for the purpose of determining any liability under the Securities
Act, 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.
(4) 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.
(b) As to documents subsequently filed that are incorporated by reference:
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended, that is incorporated by reference
in this registration statement shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) As to Equity Offerings of Nonreporting Registrants:
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
(d) As to indemnification:
Insofar as indemnification for liabilities arising under the Securities Act
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 Securities 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
Securities Act and will be governed by the final adjudication of such issue.
(e) As to qualification of Trust Indentures under Trust Indenture Act of
1939 for delayed offerings:
The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Act.
II-5
<PAGE> 165
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL
THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT NO. 1
TO REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF OHIO, ON THE 26TH
DAY OF JANUARY, 1999.
KEY CONSUMER ACCEPTANCE CORPORATION
By: /s/ CRAIG T. PLATT
------------------------------------
Craig T. Platt
President and Chief
Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ CRAIG T. PLATT President and Chief Executive Officer January 26, 1999
- - - ------------------------------------------------ (principal executive officer) and
Craig T. Platt Director
* Treasurer (principal financial and January 26, 1999
- - - ------------------------------------------------ accounting officer) and Director
Ronald J. Nicolas Jr.
* Director January 26, 1999
- - - ------------------------------------------------
Joseph M. Vayda
* Director January 26, 1999
- - - ------------------------------------------------
D. Daniel Porras
/s/ DANIEL R. STOLZER Attorney-in-Fact under January 26, 1999
- - - ------------------------------------------------ Power of Attorney
Daniel R. Stolzer
*Signature by Daniel R. Stolzer as
Attorney-in-Fact under Power of Attorney
</TABLE>
II-6
<PAGE> 166
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
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1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of Key Consumer Acceptance
Corporation.*
3.2 By-Laws of Key Consumer Acceptance Corporation.*
3.3 Form of Certificate of Trust for Key Auto Finance Trusts
(included in Exhibit 4.2).*
4.1 Form of Indenture between the Trust and the Indenture
Trustee (including forms of Notes).*
4.2 Form of Trust Agreement between the Registrant and the
Trustee (including form of Certificate of Trust and forms of
Certificates).*
4.3 Form of Pooling and Servicing Agreement, among the
Registrant, the Servicer and the Trustee (including forms of
Certificates).*
5.1 Opinion of Mayer, Brown & Platt with respect to legality.**
8.1 Opinion of Thompson Hine & Flory LLP with respect to Federal
and Ohio tax matters, and ERISA matters.**
23.1 Consents of Thompson Hine & Flory LLP (included in their
opinions filed as Exhibits 5.1 and 8.1).**
24.1 Powers of Attorney.**
99.1 Form of Sale and Servicing Agreement among the Registrant,
the Servicer and the Trust.*
99.2 Form of Administration Agreement among the Seller, the
Servicer and the Indenture Trustee*
99.3 Form of Purchase Agreement between an Affiliate and the
Registrant.*
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* Incorporated by reference to the Registrant's Registration Statement No.
333-12431.
** Previously filed on Form S-3 on September 25, 1998.
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