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Filed Pursuant to Rule No. 424(b)(4)
Registration No. 333-18089
Prospectus
[LOGO]
$300,071,473.85
First Security-Registered Trademark- Auto Grantor Trust 1997-A
$286,568,473.85 6.30% ASSET BACKED CERTIFICATES, CLASS A
$13,503,000.00 6.50% ASSET BACKED CERTIFICATES, CLASS B
First Security Bank,-Registered Trademark- N.A.
SELLER AND SERVICER
The 6.30% Asset Backed Certificates, Class A (the "Class A Certificates") and
the 6.50% Asset Backed Certificates, Class B (the "Class B Certificates"
together with the Class A Certificates, the "Certificates") offered hereby
evidence undivided interests in the First Security Auto Grantor Trust 1997-A
(the "Trust") created pursuant to a Pooling and Servicing Agreement (the
"Agreement") among First Security Bank, N.A., as seller (the "Seller" and the
"Bank") and as servicer (the "Servicer"), and Bankers Trust Company, a New York
banking corporation, as trustee (the "Trustee"). The property of the Trust will
include a pool of fixed rate simple interest retail motor vehicle installment
sale contracts and installment loans directly or indirectly originated by the
Seller (collectively, the "Receivables"), certain monies received under the
Receivables after February 25, 1997 (the "Cutoff Date"), (COVER CONTINUED ON
NEXT PAGE)
Principal and interest at the Class A Pass-Through Rate of 6.30% per annum will
be distributed on the 15th day of each month (or the next following business
day), beginning April 15, 1997 (each, a "Distribution Date"). Principal and
interest at the Class B Pass-Through Rate of 6.50% per annum will be distributed
on each Distribution Date. The final scheduled Distribution Date is August 15,
2003 (the "Final Scheduled Distribution Date"). Distributions of interest and
principal on the Class B Certificates will be subordinated in priority of
payment to the payment of interest and principal on the Class A Certificates to
the extent described herein.
The Certificates will be represented initially by global certificates registered
in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC").
The interests of beneficial owners of the Certificates will be represented by
book entries on the records of DTC and participating members thereof. Definitive
Certificates will be available only under the limited circumstances described
herein.
Prospective investors should consider the factors set forth under "Risk Factors"
on pages 10 through 14 herein.
THE CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND DO NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF THE SELLER, FIRST SECURITY CORPORATION
OR ANY AFFILIATE THEREOF. NEITHER THE CERTIFICATES NOR THE RECEIVABLES ARE
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
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.
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Price to Underwriting Proceeds to the
Public (1) Discount (2) Seller (1)(2)(3)
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Per Class A Certificate 99.937500% 0.265% 99.672500%
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Per Class B Certificate 99.944234% 0.350% 99.594234%
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Total $299,884,838.47 $540,816.96 $299,344,021.52
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(1) Plus accrued interest, if any, calculated from March 15, 1997.
(2) The underwriting discount only applies to $187,568,473.85 aggregate
principal amount of the Class A Certificates and $12,503,000.00 aggregate
principal amount of the Class B Certificates that are offered by J.P. Morgan
Securities Inc. and First Chicago Capital Markets, Inc. See "Underwriting."
(3) Before deducting expenses payable by the Seller, estimated to be $660,000.
The Certificates are offered subject to receipt and acceptance by the
Underwriters and the Capital Markets Division of First Security Bank, N.A., to
prior sale and to the right of the Underwriters and First Security Bank, N.A. to
reject any order in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that delivery of the Certificates will be made in
book-entry form through the facilities of DTC on or about March 25, 1997.
J.P. Morgan & Co.
First Chicago Capital Markets, Inc.
First Security Bank-Registered Trademark-
The date of this Prospectus is March 18, 1997.
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(COVER CONTINUED FROM PREVIOUS PAGE)
perfected security interests in the new and used automobiles and light trucks
financed thereby, certain rights of the Trust under the Pooling and Servicing
Agreement and the Yield Supplement Agreement, certain amounts from time to time
on deposit in certain accounts maintained by the Trustee for the benefit of
Certificateholders and the Seller's rights to payments under agreements with
dealers of Financed Vehicles and insurance policies relating to the Receivables,
as more fully described under "The Trust Property" herein. The aggregate
principal balance of the Receivables on the Cutoff Date was $300,071,473.85.
No dealer, salesman or other person has been authorized to give any information
or to make any representation not contained in this Prospectus and, if given or
made, such information or representation must not be relied upon as having been
authorized by the Seller or the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this Prospectus nor any sale made hereunder, shall, under any
circumstances, create any implication that the information herein is correct as
of any time subsequent to the date hereof or that there has been no change in
the affairs of the Seller or the Trust since such date.
Until June 16, 1997 (90 days after the date of this Prospectus), all dealers
effecting transactions in the Certificates, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
Table of Contents
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Reports to Certificateholders...................... 3
Available Information.............................. 3
Prospectus Summary................................. 4
Risk Factors....................................... 10
Formation of the Trust............................. 14
The Trust Property................................. 14
The Motor Vehicle Loan Portfolio................... 15
The Receivables.................................... 19
Yield Considerations............................... 21
Pool Factors and Other Information................. 22
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Use of Proceeds.................................... 22
The Bank........................................... 22
The Certificates................................... 23
Certain Legal Aspects of the Receivables........... 41
Federal Income Tax Consequences.................... 45
ERISA Considerations............................... 52
Underwriting....................................... 55
Legal Matters...................................... 55
Index of Principal Terms........................... 56
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PLACE 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.
2
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Reports to Certificateholders
Unless and until Definitive Certificates are issued, unaudited monthly and
annual reports concerning the Receivables and the Trust will be prepared by the
Servicer and sent by the Trustee, on behalf of the Trust, only to Cede & Co. as
nominee of DTC, the registered holder of the Class A Certificates and the Class
B Certificates, pursuant to the Agreement. Such reports will not contain audited
financial statements with respect to the Trust. Owners of beneficial interests
in the Certificates may obtain these reports by a request in writing to the
Trustee. The Seller does not intend to send any of its financial reports to
Certificateholders or Certificate Owners. See "The Certificates--Book Entry
Registration" and "--Statements to Certificateholders."
Available Information
The Seller has filed with the Securities and Exchange Commission (the
"Commission"), on behalf of the Trust, a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Certificates offered pursuant to this Prospectus. For further information,
reference is made to such Registration Statement, and the exhibits thereto,
which are available for inspection without charge at the public reference
facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
as well as the Regional Offices of the Commission at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such information can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission at the following
address: http://www.sec.gov. The Servicer, on behalf of the Trust, will also
file or cause to be filed with the Commission such periodic reports as may be
required under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder.
3
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Prospectus Summary
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. CERTAIN CAPITALIZED TERMS
USED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS PROSPECTUS. SEE THE INDEX OF
PRINCIPAL TERMS, BEGINNING ON PAGE 56, FOR THE LOCATION HEREIN OF THE
DEFINITIONS OF CAPITALIZED TERMS.
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Issuer....................... First Security Auto Grantor Trust 1997-A (the "Trust")
Seller and Servicer.......... First Security Bank, N.A. (the "Seller" and the "Servicer"
in its capacity as such; and otherwise sometimes referred to
herein as the "Bank").
Securities Offered........... 6.30% Asset Backed Certificates, Class A (the "Class A
Certificates").
6.50% Asset Backed Certificates, Class B (the "Class B
Certificates" together with the Class A Certificates, the
"Certificates").
The Certificates will be offered for purchase in
denominations of $1,000 and integral multiples thereof. See
"The Certificates--General."
Trust Assets................. The property of the Trust (the "Trust Property") will
include (i) a pool of fixed rate retail motor vehicle
installment sale contracts and installment loans originated
by the Seller that provide for the allocation of payments
between principal and interest according to the simple
interest method (collectively, the "Receivables"), (ii) all
monies received under the Receivables after the close of
business of the Servicer on February 25, 1997 (the "Cutoff
Date"), (iii) security interests in the new and used
automobiles and light trucks financed thereby (collectively,
the "Financed Vehicles"), (iv) certain rights of the Trust
under the Yield Supplement Agreement as described below, (v)
the Seller's rights (if any) to receive proceeds from claims
under certain insurance policies relating to the Financed
Vehicles or the obligors under the Receivables (each, an
"Obligor"), (vi) certain of the Seller's rights relating to
the Receivables under agreements between the Seller and the
motor vehicle dealers ("Dealers") that sold the Financed
Vehicles and any assignments and other documents related
thereto (collectively, the "Dealer Agreements") and under
the documents and instruments contained in the Receivable
Files, (vii) all rights of the Trust under the Pooling and
Servicing Agreement with respect to the Trust (the
"Agreement") between the Bank, as Seller and Servicer, and
the Trustee, (viii) certain amounts from time to time on
deposit in the Certificate Account, the Class A Distribution
Account and the Class B Distribution Account and (ix) all
proceeds of the foregoing within the meaning of the UCC. The
Reserve Account and the Yield Supplement Account, and any
amounts therein, will not be property of the Trust, but will
be pledged to and held by the Collateral Agent, as secured
party for the benefit of the Certificateholders.
Certificates................. The Class A Certificates will be issued in an initial
principal amount equal to $286,568,473.85 (the "Original
Class A Certificate Balance"), and the Class B Certificates
will be issued in an initial principal amount equal to
$13,503,000.00 (the "Original Class B Certificate Balance"
and, together with the Original Class A Certificate Balance,
the "Original Certificate Balance"). The Original Class A
Certificate Balance will equal approximately 95.50% of the
aggregate outstanding principal balance of the Receivables
determined in accordance with the Agreement (the "Pool
Balance") as of the
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Cutoff Date (the "Original Pool Balance"). The Original
Class B Certificate Balance will equal approximately 4.50%
of the Original Pool Balance.
Registration of
Certificates............... The Class A Certificates and the Class B Certificates will
each be represented initially by global certificates
registered in the name of the Certificateholders, initially
Cede & Co. ("Cede"), as nominee of The Depository Trust
Company ("DTC"). No person acquiring a beneficial ownership
interest in the Certificates (a "Certificate Owner") will be
entitled to receive a Definitive Certificate representing
such person's interest in the Trust except in certain
limited circumstances. Under the terms of the Agreement,
Certificate Owners will not be recognized as
Certificateholders and will be permitted to exercise the
rights of the Certificateholders only indirectly through
DTC. See "Risk Factors--The Certificates" and "The
Certificates."
Class A Pass-Through Rate.... 6.30% per annum, calculated on the basis of a 360-day year
consisting of twelve 30-day months (the "Class A
Pass-Through Rate").
Class B Pass Through Rate.... 6.50% per annum, calculated on the basis of a 360-day year
consisting of twelve 30-day months (the "Class B
Pass-Through Rate" and, together with the Class A
Pass-Through Rate, the "Pass-Through Rates").
Distribution Date............ The 15th day of each month (or, if such day is not a
business day, the next succeeding business day) (each, a
"Distribution Date"), beginning April 15, 1997.
Interest..................... On each Distribution Date, interest at the Class A
Pass-Through Rate on the Class A Certificate Balance and
interest at the Class B Pass-Through Rate on the Class B
Certificate Balance, in each case as of the immediately
preceding Distribution Date (after giving effect to any
payments of principal made on such Distribution Date) will
be distributed to the registered holders of the Class A
Certificates ("Class A Certificateholders") and the
registered holders of the Class B Certificates ("Class B
Certificateholders" and, together with the Class A
Certificateholders, the "Certificateholders"), initially,
Cede as nominee of DTC, as of the day immediately preceding
such Distribution Date (or, if Definitive Certificates are
issued, the last day of the related Collection Period) (the
"Record Date") to the extent that sufficient funds are on
deposit for such Distribution Date in the Certificate
Account or available in the Reserve Account to make such
distribution. A "Collection Period" means a period during
the term of the Agreement from and including the 26th day of
a calendar month to and including the 25th day of the
succeeding calendar month (or, in the case of the initial
Collection Period, the period from but not including the
Cutoff Date to and including March 25, 1997). See "The
Certificates--Distributions on Certificates" and "--Reserve
Account." 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 "Risk
Factors-- Limited Assets; Subordination."
Principal.................... On each Distribution Date, as described more fully herein,
all payments of principal on the Receivables received by the
Servicer during the related Collection Period, plus all
Liquidation Proceeds, to the extent allocable to principal
will be distributed by the Trustee PRO RATA to the Class A
Certificateholders and to the Class B Certificate holders of
record on the related Record Date to the extent that
sufficient funds are on deposit in the
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Certificate Account or available in the Reserve Account to
make such distribution. See "The Certificates--Distributions
on Certificates" and "--Reserve Account." 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.
Servicing Fees............... On each Distribution Date, the Servicer will receive a fee
for servicing the Receivables, equal to the product of (i)
one-twelfth of the Basic Servicing Fee Rate (as defined
below), multiplied by (ii) the Pool Balance as of the first
day of the related Collection Period (the "Basic Servicing
Fee"). In addition, the Servicer will be entitled to retain
any late fees, prepayment charges (other than Deferral Fees)
and other fees and charges collected during such Collection
Period on the Receivables it services, plus any interest
earned during the Collection Period on the amounts deposited
by it in the Accounts (as such terms are defined below) (the
"Supplemental Servicing Fee"). The "Basic Servicing Fee
Rate" will equal 1.0% per annum. See "The
Certificates--Servicing Compensation."
Subordination of Class B
Certificates............... Distributions of interest and principal on the Class B
Certificates will be subordinated in priority of payment to
distributions of interest and principal due on the Class A
Certificates in the event of defaults on the Receivables to
the extent described herein. 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 deposited in the Class A Distribution Account. See
"Risk Factors--Limited Assets; Subordination."
Advances..................... On each Deposit Date, the Servicer shall, subject to the
following, make a payment (an "Advance") with respect to
each Receivable serviced by it (other than a Defaulted
Receivable) equal to the excess, if any, of (x) the product
of the principal balance of such Receivable as of the first
day of the related Collection Period and one-twelfth of its
Contract Rate (calculated on the basis of a 360-day year
comprised of twelve 30-day months), over (y) the interest
actually received by the Servicer with respect to such
Receivable from the Obligor or from payments of the Purchase
Amount, Liquidation Proceeds or Recoveries (in each case for
the related Collection Period and to the extent allocable to
interest) during or with respect to such Collection Period.
The Servicer may elect not to make an Advance of interest
due and unpaid with respect to a Receivable to the extent
that the Servicer, in its sole discretion, determines that
such Advance is not recoverable from subsequent payments on
such Receivable or from funds in the Reserve Account. See
"The Certificates--Advances."
Yield Supplement Agreement... The Seller will enter into a yield supplement agreement with
the Trust (the "Yield Supplement Agreement") which will
provide funds to supplement the interest collections on
Receivables that have Contract Rates that are below the
Class A Pass-Through Rate or the Class B Pass-Through Rate,
plus the
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Basic Servicing Fee Rate, as described below. The Yield
Supplement Agreement will, with respect to each Receivable,
provide for payment by the Seller on or prior to the
business day preceding each Distribution Date (such date,
the "Deposit Date") of an amount (if positive) calculated by
the Servicer equal to one-twelfth of the difference between
(i) the sum of interest on the Class A Percentage of such
Receivable's principal balance as of the first day of the
related Collection Period at a rate equal to the sum of the
Class A Pass-Through Rate and the Basic Servicing Fee Rate
and interest on the Class B Percentage of such Receivable's
principal balance as of the first day of the related
Collection Period at a rate equal to the sum of the Class B
Pass-Through Rate and the Basic Servicing Fee Rate and (ii)
interest at the Contract Rate on such Receivable's principal
balance as of the first day of the related Collection Period
(in the aggregate for all Receivables with respect to any
Deposit Date, the "Yield Supplement Amount"). The Seller's
obligations under the Yield Supplement Agreement will be
secured by funds on deposit in an account to be maintained
by the Seller in the name of the Collateral Agent (the
"Yield Supplement Account"). The amount on deposit in the
Yield Supplement Account and available on any Distribution
Date will be equal to at least the sum of all projected
Yield Supplement Amounts for all future Distribution Dates,
assuming that future scheduled payments on the Receivables
are made on their scheduled due dates; provided that if on
any date the Seller shall fail to pay the amount payable
under the Yield Supplement Agreement in accordance with the
terms thereof, then, in such event, the Specified Yield
Supplement Balance shall not thereafter be reduced (the
"Specified Yield Supplement Balance"). The amount required
to be deposited by the Seller into the Yield Supplement
Account on or prior to the Closing Date will be $36,484.04
(the "Yield Supplement Initial Deposit").
Reserve Account.............. A reserve account (the "Reserve Account") will be
established and maintained by the Seller, in the name of,
and under the control of, the Collateral Agent with an
initial deposit of cash or certain investments having an
aggregate value of at least $7,501,786.85 (the "Reserve
Account Initial Deposit"). In addition, on each Distribution
Date, any amounts on deposit in the Certificate Account with
respect to the related 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. The Reserve Account provides credit
enhancement and liquidity to the Certificateholders that
will be available in the event that, as a result of defaults
or delinquencies, Collections on the Receivables are
insufficient to make the distributions on the Certificates.
On or prior to each Deposit Date, the Collateral Agent will
withdraw funds from the Reserve Account, to the extent of
the funds therein (net of investment earnings), (i) to the
extent required to reimburse the Servicer for Advances
previously made and not reimbursed ("Outstanding Advances")
to the extent provided in the Agreement and (ii) to the
extent (x) the sum of the amounts required to be distributed
to Certificateholders and the Servicer on the related
Distribution Date exceeds (y) the amount on deposit in the
Certificate Account as of the last day of the related
Collection Period (net of investment income). If the amount
in the Reserve Account is reduced to zero,
Certificateholders will bear directly the credit and other
risks associated with
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ownership of the Receivables, including the risk that the
Trust may not have a perfected security interest in the
Financed Vehicles. See "Risk Factors," "The
Certificates--Reserve Account," "Certain Legal Aspects of
the Receivables."
Specified Reserve Account
Balance.................... On any Distribution Date, the Specified Reserve Account
Balance will equal 4.50% (9.00% under certain circumstances
described herein) of the Pool Balance as of the last day of
the related Collection Period, but in any event not less
than the lesser of (i) $6,001,429.48 and (ii) the sum of the
Pool Balance and an amount sufficient to pay interest on (a)
the Class A Percentage of such Pool Balance at a rate equal
to the sum of the Class A Pass-Through Rate and the Basic
Servicing Fee Rate through the Final Scheduled Distribution
Date and (b) the Class B Percentage of such Pool Balance at
a rate equal to the sum of the Class B Pass-Through Rate and
the Basic Servicing Fee Rate through the Final Scheduled
Distribution Date. The Specified Reserve Account Balance may
be reduced to a lesser amount as determined by the Seller,
provided that such reduction does not adversely affect the
ratings of the Certificates by the Rating Agencies. Amounts
in the Reserve Account on any Distribution Date (after
giving effect to all distributions made on that date) in
excess of the Specified Reserve Account Balance for such
Distribution Date will be paid to the Seller.
Optional Purchase............ If the Pool Balance as of the last day of a Collection
Period has declined to 10% or less of the Original Pool
Balance, the 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). See "The
Certificates--Termination."
Trustee...................... Bankers Trust Company (the "Trustee").
Collateral Agent............. Bankers Trust Company (the "Collateral Agent").
Tax Status................... In the opinion of Kirkland & Ellis, special tax counsel to
the Seller, the Trust will be classified for Federal income
tax purposes as a grantor trust and not as an association
taxable as a corporation. Certificate Owners must report
their respective allocable shares of income earned on Trust
assets and, subject to certain limitations applicable to
individuals, estates and trusts, may deduct their respective
allocable shares of reasonable servicing and other fees. See
"Federal Income Tax Consequences."
Prepayment Considerations.... The weighted average life of the Certificates may be reduced
by full or partial prepayments on the Receivables. The
Receivables are prepayable at any time. Prepayments may also
result from liquidations due to default, the receipt of
monthly installments earlier than the scheduled due dates
for such installments, the receipt of proceeds from credit
life, disability, theft or physical damage insurance,
repurchases by the Seller as result of certain uncured
breaches of the warranties made by it in the Agreement with
respect to the Receivables, purchases by the Servicer as a
result of certain uncured breaches of the covenants made by
it in the Agreement with respect to the Receivables, or the
Servicer exercising its optional purchase right. The rate of
prepayments on the Receivables may be influenced by a
variety of economic, social, and other factors, including
Obligor refinancings resulting from
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decreases in interest rates and the fact that the Obligor
may not sell or transfer the Financed Vehicle securing a
Receivable without the consent of the Seller. No prediction
can be made as to the actual prepayment rates which will be
experienced on the Receivables. If prepayments were to occur
after a decline in interest rates, investors seeking to
reinvest their distributed funds might be required to invest
at a return lower than the applicable Pass-Through Rate.
Certificate Owners will bear all reinvestment risk resulting
from prepayment of the Receivables. See "Risk
Factors--Prepayment Considerations" and "The
Receivables--Maturity and Prepayment Assumptions."
Rating....................... It is a condition to the issuance of the Certificates that
the Class A Certificates be rated in the "AAA" category or
its equivalent, and the Class B Certificates be rated at
least in the "A" category or its equivalent, in each case by
at least one nationally recognized rating agency (a "Rating
Agency"). A security rating is not a recommendation to buy,
sell or hold securities and may be revised or withdrawn at
any time by the assigning Rating Agency. The ratings on the
Certificates do not address the timing of distributions of
principal on the Certificates prior to the Final Scheduled
Distribution Date.
ERISA Considerations......... The Class A Certificates may be purchased by employee
benefit plans that are subject to the Employee Retirement
Income Security Act of 1974, as amended, upon satisfaction
of certain conditions described herein. Because the Class B
Certificates are subordinated to the Class A Certificates,
employee benefit plans subject to ERISA will not be eligible
to purchase Class B Certificates. Any benefit plan fiduciary
considering a purchase of Certificates should, among other
things, consult with experienced legal counsel in
determining whether all required conditions have been
satisfied. See "ERISA Considerations."
Risk Factors................. Prospective investors should consider the factors set forth
under "Risk Factors."
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Risk Factors
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, PROSPECTIVE
INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS BEFORE INVESTING
IN THE CERTIFICATES.
Limited Liquidity
There is currently no secondary market for the Class A Certificates or the Class
B Certificates. The Underwriters expect, but are not obligated, to make a market
in the Certificates. There is no assurance that any such market will develop or,
if one does develop, that it will provide liquidity of investment or will
continue for the life of the Class A Certificates or the Class B Certificates,
as the case may be.
Possible Subordination of Security Interests
The Seller will cause financing statements to be filed with the appropriate
governmental authorities to perfect the interest of the Trust in its purchase of
the Receivables in accordance with the requirements of the Uniform Commercial
Code in effect in the States of Utah and Idaho (the "UCC"), and the Trustee will
appoint First Security Service Company, an affiliate of the Servicer, to hold
the Receivables and Receivable Files as custodian for the Trustee following the
sale and assignment of the Receivables to the Trust. Although the Receivable
Files will not be segregated, stamped or otherwise marked to so indicate, the
Servicer and First Security Service Company will note in their computer records
that the Receivables have been sold to the 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 Trust's interest,
such purchaser (or secured party) will acquire an interest in the Receivables
superior to the interest of the Trust.
The Seller will assign its security interests in the Financed Vehicles along
with the sale and assignment of the Receivables to the Trustee. The certificates
of title or ownership will not be endorsed or otherwise amended to identify the
Trust as the new secured party. In Utah, Idaho and most other states, in the
absence of fraud or forgery by the vehicle owner or of fraud, forgery,
negligence or error by the Bank or administrative error by state or local
agencies, the notation of the Bank's lien on the certificates of title or
ownership and/or possession of such certificates with such notation will be
sufficient to perfect the security interest of the Trust in the Financed Vehicle
which will protect the Trust against the rights of subsequent purchasers of a
Financed Vehicle or subsequent lenders who take a security interest in a
Financed Vehicle. There exists a risk, however, in the remaining states that by
not identifying the Trust or Trustee as the new secured party on the certificate
of title that the security interest of the Trust or Trustee may not be
perfected. In the event the Trust has failed to obtain or maintain a perfected
security interest in a Financed Vehicle, its security interest would be
subordinate to, among others, a bankruptcy trustee of the Obligor, a subsequent
purchaser of the Financed Vehicle or a holder of a perfected security interest.
See "Certain Legal Aspects of the Receivables."
Possible Reductions and Delays in Payments Due to Bankruptcy and Insolvency
The Bank intends that the transfer of the Receivables by it under the Agreement
constitute a sale. In the event that the Bank were to become insolvent, the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA")
sets forth certain powers that the Federal Deposit Insurance Corporation (the
"FDIC") could exercise if it were appointed as receiver of the Bank. 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 the Bank, would not interfere with the
timely transfer to the Trust of payments collected on the Receivables. If the
transfer to the Trust were to be characterized as a loan secured by a pledge of
Receivables, to the extent that the Bank would be deemed to have granted a
security interest in the Receivables to the Trust, and that interest had been
validly perfected before the Bank's insolvency and had not been taken in
contemplation of insolvency, that security interest should not be subject to
avoidance, and payments to the Trust with respect to the Receivables should not
be subject to recovery by the FDIC as receiver of the Bank. If, however, the
FDIC were to assert a contrary position, such as by requiring the Trustee to
establish its right to those payments by submitting to
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and completing the administrative claims procedure established under FIRREA,
delays in payments on the Certificates and possible reductions in the amount of
those payments could occur. Alternatively, in such circumstances, the FDIC might
have the right to repay the Certificates for an amount which may be greater or
less than the principal balance thereof and which would shorten their weighted
average life. See "Certain Legal Aspects of the Receivables."
Limited Enforceability of the Receivables
Numerous Federal and state consumer protection laws and related regulations
impose substantial and detailed requirements upon lenders and services involved
in consumer finance. These requirements impose specific statutory liabilities
upon creditors who fail to comply with their provisions where applicable. In
most cases, this liability could affect the ability of an assignee, such as the
Trustee, to enforce secured loans such as the Receivables. If, as of the Cutoff
Date, an Obligor had a claim against the Trust for violation of any law and such
claim materially and adversely affects the Trust's interest in a Receivable,
such violation would create an obligation of the Seller to repurchase the
Receivable unless the breach was cured. See "Certain Legal Aspects of the
Receivables--Consumer Protection Laws."
Reduction in Weighted Average Life of the Certificates; Possible Reinvestment
Risk
The weighted average life of the Certificates may be reduced by full or partial
prepayments on the Receivables. The Receivables are prepayable at any time.
Prepayments may also result from liquidation due to default, the receipt of
monthly installments earlier than the scheduled due dates for such installments,
the receipt of proceeds from credit life, disability, theft or physical damage
insurance, repurchases by the Seller as a result of certain uncured breaches of
the warranties made by it in the Agreement with respect to the Receivables,
purchases by the Servicer as a result of certain uncured breaches of the
covenants made by it in the Agreement with respect to the Receivables, or the
Servicer exercising its optional purchase right. The rate of prepayment on the
Receivables may be influenced by a variety of economic, social, and other
factors, including decreases in interest rates and the fact that the Obligor may
not sell or transfer the Financed Vehicle securing a Receivable without the
consent of the Seller. No prediction can be made as to the actual prepayment
rates which will be experienced on the Receivables. If prepayments were to occur
after a decline in interest rates, investors seeking to reinvest their funds
might be required to invest at a return lower than the applicable Pass-Through
Rate. Certificate Owners will bear all reinvestment risk resulting from
prepayment of the Receivables. See "The Receivables--Maturity and Prepayment
Assumptions."
Limited Reliance on 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 the Certificates or the Receivables. However, in
connection with the sale of Receivables by the Seller to the 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 "The Certificates--Mandatory Repurchase of the
Receivables." In addition, under certain circumstances, the Servicer may be
required to purchase Receivables. See "The Certificates--Servicing Procedures."
If collections on any Receivable were reduced as a result of any matter giving
rise to a repurchase or purchase obligation on the part of the Seller or the
Servicer, respectively, and the Seller or the Servicer failed for any reason to
perform in accordance with that obligation, then delays in payments on the
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 Certificateholders.
The Bank's parent, First Security Corporation, is subject to the information
requirements of the Exchange Act and in accordance therewith files reports and
other information with the Commission. For further information regarding First
Security Corporation, reference is made to such reports and other information,
which are available at the addresses specified under "Available Information."
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<PAGE>
Extensions and Deferrals of Payments on Receivables
The Bank may, on a case-by-case basis, permit extensions with respect to the due
dates of the Receivables in the discretion of a senior credit officer other than
the origination officer. In addition to such extensions, the Servicer has
historically offered payment deferrals to a broader population of qualifying
applicants in June and in December. All Obligors that meet the Bank's
eligibility requirements will be given the opportunity to take advantage of such
payment deferrals. Any such deferrals or extensions may extend the maturity of
the applicable Receivable and increase the weighted average life of the
Receivables and any fees associated therewith will increase the principal
balance of the related Receivable. Any reinvestment risks resulting from
extensions and deferrals of payments on Receivables will be borne entirely by
the Certificate Owners. However, if any payment deferral results in the final
scheduled payment on the applicable Receivable falling after the Final Scheduled
Distribution Date, the Servicer will be required to purchase the Receivable from
the Trust. See "The Certificates--Credit Deferrals and Optional Payment
Deferrals."
Lack of Geographic Diversification
Economic conditions in states where Obligors reside may affect the delinquency,
loan loss and repossession experience of the Trust with respect to the
Receivables. As of the Cutoff Date, the mailing addresses of Obligors with
respect to 36.79% and 25.96% by principal balance of the Receivables were
located in Utah and Idaho, respectively. Due to the concentration of Obligors in
Utah and Idaho, adverse economic conditions in one or both of these states may
have a disproportionate impact on the performance of the Receivables. Economic
factors such as unemployment, interest rates, the rate of inflation and consumer
perceptions may affect the rate of prepayment and defaults on the Receivables.
See "The Receivables--Certain Characteristics."
Limited Assets of the Trust
The Trust does not have, nor is it permitted or expected to have access to, any
significant assets or sources of funds other than the Receivables and the right
to receive payments under certain circumstances from the Reserve Account or
pursuant to the Yield Supplement Agreement. The Certificates represent interests
solely in the Trust and neither the Class A Certificates nor the Class B
Certificates will be insured or guaranteed by First Security Corporation, the
Seller, the Servicer, the Trustee, or any other person or entity. Consequently,
Certificateholders must rely for payment upon collections on the Receivables,
the Yield Supplement Agreement and, if and to the extent available, amounts on
deposit in the Reserve Account. Amounts on deposit in the Reserve Account are
limited in amount and will be reduced as the Pool Balance declines.
Amounts on deposit in the Reserve Account will be available on any Distribution
Date first to cover shortfalls in reimbursement of Outstanding Advances and
payment of Basic 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 (and
not replenished), the Trust will depend solely on payments on the Receivables to
make distributions on the Certificates, and Certificateholders will bear,
without any additional credit enhancement (except with respect to the Yield
Supplement Agreement and to the extent that the Reserve Account is replenished
from Collections on Receivables), 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 total portfolio of Motor Vehicle Loans currently and
historically owned and serviced by the Bank. See "The Motor Vehicle Loan
Portfolio--Delinquency and Loss Experience," "The Certificates--Reserve Account"
and "--Distributions on Certificates."
Subordination of the Class B Certificates
Distributions of interest and principal on the Class B Certificates will be
subordinated in priority of payment to interest due on the Class A Certificates.
The Class B Certificateholders will not receive any distributions of interest
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<PAGE>
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. Distributions of principal on the Class B
Certificates will be subordinated in priority of payment to interest and
principal due on the Class A Certificates. 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 deposited in the Class A
Distribution Account. However, distributions of interest on the Class B
Certificates, to the extent of collections on the Receivables allocable to
interest and the amounts on deposit in the Reserve Account available after the
payment of interest on the Class A Certificates has been made, will not be
subordinated to the payment of principal on the Class A Certificates. See "The
Certificates--Distributions on Certificates."
Risk of Commingling of Collections by the Servicer
The Servicer will deposit all payments on Receivables (other than late fees,
prepayment charges and certain other amounts payable to the Servicer under the
Agreement which are not required to be deposited into the Certificate Account)
into the Certificate Account not later than two business days after receipt
thereof. However, if conditions satisfactory to the Rating Agencies have been
met, the Servicer will no longer be required to make such payments within two
business days, but instead will be permitted to make such payments for a
Collection Period into the Certificate Account not later than the opening of
business (New York time) on the related Deposit Date. The Servicer intends to
satisfy such conditions and make deposits only on Deposit Dates for the related
Collection Period. Pending deposit into the Certificate 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 Certificateholders might incur a loss. In order to satisfy the
requirements described above, the Servicer may, upon confirmation by the Rating
Agencies that the rating of the Class A Certificates and Class B Certificates
would not be lowered as a result, obtain a letter of credit or other security
for the benefit of the Trust to secure timely remittances of collections on the
related Receivables (other than with respect to Advances) and payment of the
aggregate Purchase Amount with respect to Receivables purchased by the Servicer.
Federal Income Taxation; Subordination of Class B Certificate Owners
It is expected that, for Federal income tax purposes, amounts otherwise payable
to the Class B Certificate Owners that are paid to the Class A Certificate
Owners pursuant to the subordination provisions described above under "--Limited
Assets; Subordination" will be deemed to have been received by the Class B
Certificate Owners and then paid by them to the Class A Certificate Owners
pursuant to a guaranty. See "Federal Income Tax Consequences-- Class B
Certificate Owners."
If the Class B Certificate Owners received distributions of less than their
share of the Trust's receipts of principal or interest (the "Shortfall Amount")
because of the subordination of the Class B Certificates, Class B Certificate
Owners would probably be treated for Federal income tax purposes as if they had
(i) received as distributions their full share of such receipts, (ii) paid over
to the Class A Certificate Owners an amount equal to such Shortfall Amount, and
(iii) retained the right to reimbursement of such amounts to the extent of
future Collections otherwise available for deposit in the Reserve Account.
Under this analysis, (i) Class B Certificate Owners would be required to accrue
as current income any interest or OID income of the Trust that was a component
of the Shortfall Amount, even though such amount was in fact paid to the Class A
Certificate Owners, (ii) a loss would only be allowed to the Class B Certificate
Owners when their right to receive reimbursement of such Shortfall Amount became
worthless (i.e., when it becomes clear that such amount will not be available
from any source to reimburse such loss), and (iii) reimbursement of such
Shortfall Amount prior to such a claim of worthlessness would not be taxable
income to Class B Certificate Owners because such amount was previously included
in income. Those results should not significantly affect the inclusion of income
for Class B Certificate Owners on the accrual method of accounting, but could
accelerate inclusion of income to Class B Certificate Owners on the cash method
of accounting by, in effect, placing them on the accrual method. Moreover, the
character and timing of loss deductions is unclear.
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<PAGE>
Limited Significance of Ratings
It is a condition to the issuance of the Certificates that the Class A
Certificates be rated in the "AAA" category or its equivalent, and the Class B
Certificates be rated at least in the "A" category or its equivalent, in each
case by at least one Rating Agency. A security rating is not a recommendation to
buy, sell or hold securities and may be revised or withdrawn at any time by the
assigning Rating Agency. In addition, the ratings on the Certificates do not
address the timing of distributions of principal on the Certificates prior to
the Final Scheduled Distribution Date.
Absence of Definitive Certificates
The Class A Certificates and the Class B Certificates will each be represented
initially by global certificates registered in the name of Cede, as nominee of
DTC. No Certificate Owner will be entitled to receive a Definitive Certificate
representing such person's interest in the Trust except in certain limited
circumstances. Under the terms of the Agreement, Certificate Owners will not be
recognized as Certificateholders, and will be permitted to exercise the rights
of the Certificateholders only indirectly through DTC. See "The Certificates."
Formation of the Trust
The Seller will establish the Trust by selling and assigning the Receivables and
certain other Trust Property to the Trust in exchange for the Certificates.
Prior to such sale and assignment, the Trust will have no assets or obligations
or any operating history. The Trust will not engage in any activity other than
acquiring and holding the Trust Property, issuing the Certificates and
distributing payments on the Certificates.
The Servicer will service the Receivables, either directly or through
subservicers, and will be paid the Basic Servicing Fee out of collections from
the Receivables, prior to distributions to the Certificateholders. Certain other
expenses of the Trust will be paid by the Servicer or by the Seller as provided
in the Agreement. See "The Certificates--Servicing Procedures," "--Servicing
Compensation" and "--Distributions on Certificates."
The Servicer will appoint an affiliate, First Security Service Company, to hold
the Receivables and Receivable Files as custodian for the Trustee. Although the
Receivables will not be marked or stamped to indicate that they have been sold
to the Trust, and the certificates of title for the Financed Vehicles will not
be endorsed or otherwise amended to identify the Trust as the new secured party,
the Servicer and First Security Service Company will indicate in their computer
records that the Receivables have been sold to the Trust. Under such
circumstances and in certain jurisdictions, the Trust's interest in the
Receivables and the Financed Vehicles may be subordinate to certain third
parties. See "Certain Legal Aspects of the Receivables."
The Trust will not acquire any assets other than the Trust Property, and it is
not anticipated that the Trust will have any need for additional capital
resources. Because the Trust will have no operating history upon its
establishment and will not engage in any activity other than acquiring and
holding the Trust Property, issuing the Certificates and distributing payments
on the Certificates, no historical or pro forma financial statements or ratios
of earnings to fixed charges with respect to the Trust have been included
herein.
The Trust Property
Each Certificate will represent a fractional undivided interest in the Trust.
The Trust Property will include (i) the Receivables, (ii) all monies received
under the Receivables after the Cutoff Date, (iii) certain amounts from time to
time on deposit in the Certificate Account, the Class A Distribution Account and
the Class B Distribution Account, (iv) security interests in the Financed
Vehicles, (v) certain rights of the Trust under the Yield Supplement Agreement,
(vi) the Seller's rights (if any) to receive proceeds from claims on credit
life, disability, theft and physical damage insurance policies covering the
Financed Vehicles or the Obligors, (vii) the Seller's right to all documents and
information contained in the Receivable Files, (viii) the rights of the Trust
under the Agreement, (ix) certain of the Seller's rights relating to the
Receivables under the Dealer Agreements and (x) all proceeds (within the meaning
of the UCC) of the foregoing. The Reserve Account and the Yield Supplement
Account, and any amounts therein, will not be property of the Trust, but will be
pledged to and held by the Collateral Agent, as secured party for the benefit of
the Certificateholders.
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The Motor Vehicle Loan Portfolio
General
The Bank originates retail motor vehicle installment sale contracts and
installment loans secured by new and used automobiles and light-duty trucks
manufactured by a number of automobile manufacturers through Dealers and
branches of the Bank ("Motor Vehicle Loans"). Approximately 93.69% of the Motor
Vehicle Loans to be transferred to the Trust were made to borrowers through
Dealers which have a relationship with the Bank. Applications for such loans are
made by borrowers through the Dealers. As of December 31, 1996, no more than 3%
of the Motor Vehicle Loans made through Dealers were made by a single Dealer or
affiliated group of Dealers. All applications are reviewed by the Bank in
accordance with its established underwriting procedures. The remaining 6.31% of
the Motor Vehicle Loans to be transferred to the Trust were made directly by the
Bank to borrowers.
Origination of Receivables
Since September 30, 1996, the Bank's direct loans are referred to, and approved
at, the Direct Loan Center located in Boise. Prior to this date, direct loans
for the State of Utah were approved at a Direct Loan Center in Salt Lake City
and the direct loans for the State of Idaho were approved at a Direct Loan
Center in Boise.
Applications for credit which originate with Dealers are sent via fax to the
Application Processing Center in Boise. These applications are data-entered and
transmitted through the Application Processing System to Regional Dealer
Services Centers located in Salt Lake City, Utah and Boise and Lewiston, Idaho.
These centers are responsible for all credit analysis and credit decisions on
indirect loan requests.
Since September 30, 1996, bank wide consumer loan collections have been
performed by the Consumer Collection Center located in Salt Lake City. Prior to
this date, collection activities for Utah were performed in Salt Lake City and
collections for Idaho were handled in Boise.
The Consumer Loan Servicing Center of First Security, located in Boise, reviews
and tracks all loan documentation, stores and maintains all loan files, follows
up on lien perfection, processes payments, reconciles accounting records and
provides for internal and external reporting for all of the Bank's direct and
indirect consumer lending business. In addition, this department provides
central processing of dealer flooring, including processing of manufacturer's
drafts and flooring requests for the Regional Dealer Services Centers and
processing of flooring billing and payments.
Credit administration is provided by the Small Business and Consumer Loan
Administration department located in Boise. This department provides policy and
functional guidance for all areas of consumer lending.
Underwriting
The Bank uses the applicant's creditworthiness as the basic criterion in
purchasing a retail installment sale contract from a Dealer and in making an
installment loan. Each applicant is evaluated individually by the Bank based on
underwriting guidelines developed by the Bank. These underwriting guidelines are
intended to assess the applicant's ability to repay such loan and the adequacy
of the Financed Vehicle as collateral. Among the criteria considered in
evaluating the individual applications are (i) stability of the applicant with
specific regard to the applicant's length of residence in the area, occupation,
length of employment, and whether the applicant rents or owns a residence, (ii)
the applicant's payment history, (iii) a debt service to net monthly income
ratio test, and (iv) a loan to value ratio test taking into account the age,
type and market value of the Financed Vehicle.
The Bank obtains information from the loan application form which generally
lists the applicant's income, deposit accounts, liabilities, credit history,
employment history, and a description of the Financed Vehicle. Upon receipt of
an application, the Bank obtains a credit bureau report from a major credit
reporting agency summarizing the applicant's credit history and paying habits,
including such items as open accounts, delinquent payments, bankruptcies,
repossessions, lawsuits and judgments. The Bank's analysts generally verify the
applicant's employment or, where
15
<PAGE>
appropriate, check directly with the applicant's creditors. The Bank's general
policy has been to reject applications for applicants whose debt service to net
monthly income ratio exceed 45%.
The amount financed by the Bank under a retail installment sale contract
generally will not exceed (i) for a new Financed Vehicle, the Dealer wholesale
price, plus sales tax, license fees, title fees, service and warranty contracts,
and premiums for credit life and credit accident and health insurance obtained
in connection with the vehicle or the financing and (ii) for a used Financed
Vehicle, the wholesale value of the Financed Vehicle (as determined according to
industry standards and price quotations), plus sales tax, license fees, title
fees, and premiums for credit life and credit accident and health insurance
obtained in connection with the vehicle or the financing. However, the maximum
amount advanced for Motor Vehicle Loans is often less than such amounts
depending on a number of factors, including the length of the Motor Vehicle Loan
term and the model and year of the Financed Vehicle. These adjustments are made
to assure that the Financed Vehicle constitutes adequate collateral to secure
the Motor Vehicle Loan.
Since January 1994 an empirically based credit scoring process has been used to
objectively index an applicant's creditworthiness. This scoring process was
created using historical information from the database of Motor Vehicle Loans
owned and serviced by the Bank. Through credit scoring, the Bank evaluates
credit profiles in order to quantify credit risk. The credit scoring process
entails the use of statistics to correlate common characteristics with credit
risk. The credit scoring process used by the Bank is periodically reviewed and
validated and, if necessary, updated based upon statistical sampling of actual
credit results. The Bank's credit scoring process is intended to provide a basis
for lending decisions, but is not meant to supersede the judgment of the credit
analyst.
Such information is evaluated by the Bank's experienced credit officers as a
package; no one factor is determinative to the analysis. As a result, certain
contracts may not comply with all of the Bank's guidelines. Deviations from the
guidelines must be approved by a lending officer with appropriate authority.
Motor Vehicle Loans which do not comply with all of the Bank's guidelines must
have strong compensating factors which indicate a high ability of the applicant
to repay the loan. Any Receivables sold by the Bank to the Trust which were the
subject of special financing or other promotional programs were approved by the
Bank in accordance with its normal and customary underwriting practices and
procedures for all Motor Vehicle Loans.
The Bank has established internal control procedures and performs periodic
audits to ensure compliance with the underwriting guidelines and its established
policies and procedures for Motor Vehicle Loans originated directly by the Bank
as well as those originated through Dealers.
Dealers from which the Bank purchases retail installment sale contracts have
been selected by the Bank based on the Dealer's financial and operating history,
and have made representations and warranties to the Bank with respect to the
contracts and the security interests in the Financed Vehicles relating thereto,
which representations and warranties do not relate to the creditworthiness of
the applicant or the collectibility of the loans. In addition, as to Receivables
representing approximately .95% of the Original Pool Balance, there is recourse
to a Dealer ("direct recourse") if an applicant defaults under a Receivable,
subject to certain conditions to be fulfilled by the Bank seeking the recourse.
Upon breach of any representation or warranty made by such a Dealer with respect
to a retail installment sale contract, the Bank has a right of recourse against
such Dealer to require it to repurchase such contract. Generally, in determining
whether to exercise such right or any right of direct recourse, the Bank
considers the prior performance of the Dealers and other business and commercial
considerations. The Bank, as Servicer, is obligated to enforce such rights with
respect to Dealer Agreements relating to the Receivables in accordance with such
customary practices, and the right to any proceeds received upon such
enforcement will be conveyed to the Trust under the Agreement.
The Bank may, on a case-by-case basis, permit extensions with respect to the due
dates of the Receivables or payment deferrals in the discretion of a senior
credit officer other than the origination officer. In addition to such
extensions, the Bank has historically offered payment deferrals to a broader
population of qualifying applicants in June and in December. All Obligors that
meet the Bank's eligibility requirements will be given the opportunity to take
advantage of such payment deferrals. Any such deferrals or extensions may extend
the maturity of the applicable Receivable and increase the weighted average life
of the Receivables and any fees associated therewith will increase the principal
balance of the related Receivable.
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<PAGE>
Servicing and Collections
Collection activities with respect to delinquent contracts are performed by the
Bank's collection personnel. Under current practices, collection personnel
generally initiate contact, by mail, with obligors whose contracts have become
more than 10 days delinquent. In the event that such contact fails to resolve
the delinquency, the collection personnel contact the obligor by telephone
generally after the contract becomes 15 days delinquent. Generally, after a
contract continues delinquent for 90 days, the vehicle is repossessed; however,
under certain circumstances, the vehicle may be repossessed immediately after a
contract has become delinquent. After repossession, the Bank is required to give
reasonable notice of any proposed sale of the vehicle, and the Bank's practice
is generally to give the obligor 10 days' notice. Losses may occur in connection
with delinquent contracts and can arise in several ways, including inability to
locate the vehicle to be repossessed. The Bank recognizes losses on Receivables
at the time it deems such Receivables to be uncollectible, which is generally at
the time it has exhausted all of its non-legal remedies, generally no later than
the 120th day of delinquency. The servicing and charge-off policies and
collection practices of the Bank may change over time in accordance with the
Bank's business judgment. Upon repossession and disposition of the vehicle, any
deficiency remaining will be pursued to the extent deemed practical.
Physical Damage Insurance
The Bank requires that an Obligor provide an insurance policy covering collision
and comprehensive insurance. The deductibles are a maximum of $1,000 each for
the collision insurance and the comprehensive insurance. The Bank uses an
automatic insurance tracking system. If after 42 days the Bank has not received
evidence of the proper insurance, a notice is sent to the Obligor. After giving
the Obligor another 28 days to purchase the required insurance, the Bank force
places "collateral protection insurance" policies on the Financed Vehicle. If
the principal balance of a Receivable is less than $2,000, the Bank does not
force place insurance. An amount equal to the premium to cover the policy is
added to the loan, and monthly payments are adjusted to pay for the insurance
premium over a nine-month period. Such additional principal and any interest
thereon will not be included in the Trust Property. Virtually all of such force
placed insurance policies are written for one year and then re-issued for
subsequent years if necessary. Insurance is written through Balboa Life and
Casualty Company. Balboa Life and Casualty Company also provides the Bank with
an errors and omissions policy for insurance follow-ups.
Delinquency and Loss Experience
The tables set forth below indicate the delinquency and credit loss/repossession
experience for each of the last five calendar years of the Bank's entire
portfolio of Motor Vehicle Loans. The tables include both Motor Vehicle Loans
originated directly by the Bank and through Dealers in a relative proportion
substantially similar to the Motor Vehicle Loans to be transferred to the Trust.
Fluctuations in delinquencies, repossessions and charge-offs generally follow
trends in the overall economic environment and may be affected by such factors
as increased competition for obligors, rising consumer debt burden per household
and increases in personal bankruptcies. Although delinquencies, repossessions
and charge-offs have been rising, the Bank believes that these numbers continue
to be commensurate with industry experience. The Bank believes that the increase
in delinquencies in 1996 was due primarily to the merger in September 1996 of
the Bank's Utah and Idaho collection departments and some associated turnover in
personnel which resulted in a lack of continuity in the collections function.
The Bank believes that most of the merger related issues have since been
resolved. No assurance can be made, however, that the delinquency and loss
experience for the Motor Vehicle Loans in the future will be similar to the
historical experience set forth below.
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Delinquency Experience
<TABLE>
<CAPTION>
As of December 31,
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993
---------------------- ---------------------- ---------------------- ----------------------
<CAPTION>
(Dollars in Number Number Number Number
Thousands) of Loans Amount of Loans Amount of Loans Amount of Loans Amount
- ------------------------------ ----------- --------- ----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio at Period End....... 186,063 $$1,888,980 169,273 $1,637,857 197,996 $1,885,492 159,870 $1,409,188
Delinquency(1)
30-59 Days.................... 3,183 30,284 2,691 23,440 2,345 20,775 1,458 11,722
60-89 Days.................... 1,148 10,897 517 5,018 603 5,838 337 2,702
90 Days or More............... 576 5,767 246 2,382 273 2,595 153 1,306
Total Delinquencies........... 4,907 $ 46,948 3,454 $ 30,840 3,221 $ 29,208 1,948 $ 15,730
Total Delinquencies as
Percentage of the
Portfolio................... 2.64% 2.49% 2.04% 1.88% 1.63% 1.55% 1.22% 1.12%
<CAPTION>
<S> <C> <C>
1992
----------------------
(Dollars in Number
Thousands) of Loans Amount
- ------------------------------ ----------- ---------
<S> <C> <C>
Portfolio at Period End....... 130,180 $1,035,480
Delinquency(1)
30-59 Days.................... 1,227 8,398
60-89 Days.................... 283 2,171
90 Days or More............... 123 976
Total Delinquencies........... 1,633 $ 11,545
Total Delinquencies as
Percentage of the
Portfolio................... 1.25% 1.11%
</TABLE>
- ------------------------
(1) The period of delinquency is based on the number of days payments are
contractually past due for all Motor Vehicle Loans other than Motor Vehicle
Loans previously charged off.
Credit Loss/Repossession Experience
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Dollars in Thousands) 1996 1995 1994 1993 1992
- --------------------------------------------- ----------- ----------- ----------- ----------- -----------
Portfolio at Period End...................... $ 1,888,980 $ 1,637,857 $ 1,885,492 $ 1,409,188 $ 1,035,480
Average Month-end Portfolio.................. $ 1,753,324 $ 1,745,369 $ 1,650,636 $ 1,221,927 $ 914,093
Average Number of Loans Outstanding During
the Period................................. 176,850 182,716 179,061 145,683 119,669
Number of Repossessions During the Period.... 4,198 4,153 3,528 2,583 2,125
Number of Repossessions as a Percentage of
Average Number of Loans Outstanding........ 2.37% 2.27% 1.97% 1.77% 1.78%
Gross Charge-offs(1)......................... $ 28,629 $ 24,593 $ 17,657 $ 11,676 $ 9,918
Recoveries on Loans Previously Charged
Off(2)..................................... $ 11,031 $ 10,866 $ 8,301 $ 6,538 $ 4,665
Net Charge-offs(3)........................... $ 17,598 $ 13,727 $ 9,355 $ 5,138 $ 5,253
Net Charge-offs as a Percentage of Portfolio
at Period End.............................. .93% 0.84% 0.50% 0.36% 0.51%
Net Charge-offs as a Percentage of Average
Month-end Portfolio........................ 1.00% 0.79% 0.57% 0.42% 0.57%
</TABLE>
- ------------------------
(1) Gross Charge-offs are generally stated net of liquidation proceeds.
(2) Recoveries on Loans Previously Charged Off generally include amounts
received with respect to loans previously charged off, other than
liquidation proceeds, net of collection expenses. A portion of recoveries
has resulted from certain collection and recovery efforts used by the Bank
with respect to defaulted receivables acquired by the Bank from other
institutions as a result of mergers. Such defaulted receivables are not
being transferred to the Trust and such reported recoveries may not be
indicative of future results.
(3) Net Charge-offs equal Gross Charge-offs minus Recoveries on Loans Previously
Charged Off.
18
<PAGE>
The Receivables
Selection Criteria
Approximately 93.69% of the Motor Vehicle Loans were originated by the Seller
through Dealers in the ordinary course of the Seller's business and in
accordance with Seller's underwriting standards; the remainder of the Motor
Vehicle Loans were made directly by the Seller to the Obligors in accordance
with the Seller's underwriting standards. The Seller will warrant in the
Agreement that all the Receivables have the following individual
characteristics, among others: (i) the obligation of the related Obligor under
each Receivable is secured by a security interest in either a new or used
automobile or light truck; (ii) each Receivable has a contractual interest rate
("Contract Rate") of at least 6% and not more than 14%; (iii) each Receivable
had a remaining maturity, as of the Cutoff Date, of not less than 6 months and
not more than 60 months; (iv) each Receivable had a remaining principal balance
of not less than $100 and not more than $77,000 as of the Cutoff Date; (v) no
Receivable was more than 30 days past due as of the Cutoff Date; (vi) no
Financed Vehicle had been repossessed as of the Cutoff Date; (vii) each
Receivable is a Simple Interest Receivable; (viii) the Dealer of the Financed
Vehicle, if any, has no participation in, or other right to receive, any
proceeds of the Receivable and (ix) each Receivable was originated on or after
December 15, 1990. No procedures adverse to Certificateholders were used by the
Seller in selecting the Receivables to be transferred to the Trust on the
Closing Date. All terms of the retail motor vehicle installment sale contracts
constituting the Receivables which are material to the Certificateholders are
described in this Prospectus.
Certain Characteristics
The Receivables had the following characteristics in the aggregate as of the
Cutoff Date: (i) approximately 40.25% of the Original Pool Balance was
attributable to loans for purchases of new Financed Vehicles and approximately
59.75% of the Original Pool Balance was attributable to loans for purchases of
used Financed Vehicles; (ii) the weighted average Contract Rate of the
Receivables was 10.009%; (iii) there are 31,361 Receivables being conveyed by
the Seller to the Trust; (iv) the average principal balance of a Receivable, as
of the Cutoff Date, was $9,568.30; and (v) the weighted average original term
and weighted average remaining term of the Receivables were 59.487 months and
44.864 months, respectively.
The composition and distribution by Contract Rate of the Receivables as of the
Cutoff Date are set forth in the following tables:
Composition of the Receivables
<TABLE>
<CAPTION>
Weighted
Average Weighted
Contract Rate Number of Average Weighted Average
of Aggregate Receivables Principal Average Original
Receivables Principal Balance in Pool Balance Remaining Term Term
- ------------- ----------------- ----------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C>
10.009% $ 300,071,473.85 31,361 $ 9,568.30 44.864 mos. 59.487 mos.
</TABLE>
19
<PAGE>
Distribution by Contract Rate of the Receivables
<TABLE>
<CAPTION>
Aggregate Percent of
Contract Number of Principal Original Pool
Rate Range Receivables Balance Balance(1)
- -------------------- ----------- ----------------- -------------
<S> <C> <C> <C>
6.00-6.99.......... 732 $ 4,864,293.45 1.62%
7.00-7.99.......... 2,342 20,073,747.86 6.69
8.00-8.99.......... 5,639 58,520,996.87 19.50
9.00-9.99.......... 8,096 86,891,346.68 28.96
10.00-10.99......... 6,418 62,855,472.26 20.95
11.00-11.99......... 3,687 32,863,319.77 10.95
12.00-12.99......... 2,727 21,739,924.25 7.24
13.00-13.99......... 1,531 11,017,210.65 3.67
14.00-14.99......... 189 1,245,162.06 0.41
----------- ----------------- ------
Total........... 31,361 $ 300,071,473.85 100.00%
----------- ----------------- ------
----------- ----------------- ------
</TABLE>
- ------------------------
(1) Percentages do not add to 100.00% because of rounding.
The following table sets forth the percentage of the Original Pool Balance in
the states with the largest concentration of Receivables based on the billing
addresses of the Obligors. No other state accounts for more than 1.0% of the
Original Pool Balance.
<TABLE>
<CAPTION>
Percentage of
State Original Pool Balance
- ------------------------------------------------------------------------- ---------------------
<S> <C>
Utah .................................................................... 36.79
Idaho.................................................................... 25.96
Washington .............................................................. 10.73
Nevada................................................................... 9.89
Oregon................................................................... 8.53
Montana.................................................................. 3.16
Wyoming.................................................................. 1.75
</TABLE>
Payments on the Receivables
The entire Original Pool Balance is attributable to Receivables that provide for
the allocation of payments according to the "Simple Interest" method (each a
"Simple Interest Receivable"). A Simple Interest Receivable provides for the
amortization of the amount financed under the Receivable over a series of fixed
level monthly payments (except that the last such payment may be different).
However, each monthly payment consists of an installment of interest which is
calculated on the basis of the outstanding principal balance of the Receivable
multiplied by the stated 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 and unpaid 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 schedule
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, thereby having the
effect of a prepayment. 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
20
<PAGE>
time the amount of the final installment is increased or decreased as necessary
to repay the then outstanding principal balance.
The Receivables are prepayable at any time. Prepayments may also result from
liquidations due to default, the receipt of monthly installments earlier than
the scheduled due dates for such installments, the receipt of proceeds from
credit life, disability, theft or physical damage insurance, repurchases by the
Seller as a result of certain uncured breaches of the warranties made by it in
the Agreement with respect to the Receivables, purchases by the Servicer as a
result of certain uncured breaches of the covenants made by it in the Agreement
with respect to the Receivables, or the Servicer exercising its option to
purchase all of the remaining Receivables. Prepayments on the Receivables may be
influenced by a variety of economic, social, and other factors, including
decreases in interest rates and the fact that an Obligor may not sell or
transfer the Financed Vehicle securing a Receivable without the consent of the
Seller.
Maturity and Prepayment Assumptions
Full or partial prepayments on the Receivables will have the effect of reducing
the weighted average life of the Certificates, while delinquencies by Obligors
under the Receivables, as well as extensions and deferrals on the Receivables,
will have the effect of increasing the weighted average life of the
Certificates. The Receivables may be prepaid at any time and mandatory
prepayments of a Receivable may result from, among other things, the sale,
insured loss or other disposition of the Financed Vehicle or the Receivable
becoming a Defaulted Receivable. No assurance can be given as to the level or
timing of prepayments. If prepayments were to occur after a decline in interest
rates, investors seeking to reinvest their funds might be required to invest at
a return lower than the applicable Pass-Through Rate. Certificate Owners will
bear all reinvestment risk resulting from prepayment of 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 may not
sell or transfer a Financed Vehicle without the consent of the Servicer. The
Servicer believes that the actual rate of prepayments will result in a
substantially shorter weighted average life than the scheduled weighted average
life of the Receivables. Any reinvestment risks resulting from a faster or
slower incidence of prepayment of Receivables will be borne by the
Certificateholders. See also "The Certificates--Termination" regarding the
Servicer's option to purchase all of the Receivables as of the last day of any
Collection Period in which the Pool Balance of the Trust as a percentage of the
Original Pool Balance is 10% or less.
The Bank maintains certain records of the historical prepayment experience of
its portfolio of indirect Motor Vehicle Loans. The Bank does not believe that
such records are adequate to provide meaningful information with respect to the
Receivables. In any event, no assurance can be given that prepayments on the
Receivables would conform to any historical experience, and no prediction can be
made as to the actual prepayment experience to be expected with respect to the
Receivables.
Yield Considerations
On each Distribution Date, interest on the Certificates will be distributed at
the applicable Pass-Through Rate on the Class A Certificate Balance and the
Class B Certificate Balance as of the immediately preceding Distribution Date
(after giving effect to all payments made on such preceding Distribution Date).
In the event of a principal prepayment on a Receivable during a Collection
Period, Certificateholders will receive their PRO RATA share of interest for the
full Collection Period with respect to the unpaid principal balance of such
Receivable as of the first day of such Collection Period to the extent that
amounts on deposit in the Certificate Account and in the Reserve Account are
available for such purpose. The Receivables are Simple Interest Receivables and,
to the extent that payments of the fixed monthly installments thereunder are
received prior to the scheduled due dates for such installments, the portions of
such installments allocable to interest will be less than they would be if the
payments were received as scheduled. If the Reserve Account is exhausted, the
amount of interest distributed to the Class B Certificateholders and, in certain
circumstances, the Class A Certificateholders, may be less than that described
above. See "The Certificates-- Distributions on Certificates."
21
<PAGE>
Although the Receivables have different Contract Rates, disproportionate rates
of prepayments between Receivables with Contract Rates greater than or less than
a rate equal to the sum of the applicable Pass-Through Rate and the Basic
Servicing Fee Rate will generally not affect the yield to Certificateholders
because the Seller has entered into the Yield Supplement Agreement with the
Trust. However, higher rates of prepayments of Receivables with higher Contract
Rates will decrease the amount available to cover delinquencies and defaults on
the Receivables. See "The Certificates--Distributions on Certificates."
Pool Factors and Other Information
The "Class A Pool Factor" and the "Class B Pool Factor" will each be a
seven-digit decimal that the Servicer will compute each month indicating the
remaining Class A Certificate Balance and Class B Certificate Balance,
respectively, as of the close of business of the Servicer on the Distribution
Date, as a fraction of the respective initial outstanding principal balance of
the Class A Certificates and the Class B Certificates. The Class A Pool Factor
and the Class B Pool Factor will each be 1.0000000 as of the date of the initial
issuance of the Certificates (the "Closing Date"), and thereafter will decline
to reflect reductions in the outstanding principal balance of the Class A
Certificates and Class B Certificates.
A Class A Certificateholder's portion of the aggregate outstanding principal
balance of the Class A Certificates is the product of (i) the original
denomination of the holder's Class A Certificate and (ii) the Class A Pool
Factor. A Class B Certificateholder's portion of the aggregate outstanding
principal balance of the Class B Certificates is the product of (i) the original
denomination of the holder's Class B Certificate and (ii) the Class B Pool
Factor.
Pursuant to the Agreement, the Certificateholders will receive from the Trustee
monthly reports concerning the payments received on the Receivables, the Pool
Balance, the Class A Pool Factor and the Class B Pool Factor, and various other
items of information. Certificateholders of record during any calendar year will
be furnished information by the Trustee for tax reporting purposes not later
than the latest date permitted by law. See "The Certificates-- Statements to
Certificateholders."
Use of Proceeds
The Seller will receive the Certificates in exchange for the contribution to the
Trust of the Receivables and the other Trust Property. The net proceeds to be
received by the Seller from the sale of the Certificates will be added to its
general corporate funds and will be used for general corporate purposes.
The Bank
The Bank is a subsidiary of First Security Corporation, a Delaware multi-state
financial services corporation based in Salt Lake City, Utah. First Security
Corporation is the oldest continuously operating multi-state bank holding
company in the United States. The Bank is a major participant in the motor
vehicle financing and dealer flooring markets in Utah and Idaho, as well as in
all facets of consumer and commercial lending.
22
<PAGE>
The Certificates
The Certificates will be issued pursuant to the Agreement. Copies of the
Agreement may be obtained by the Certificateholders upon written request to the
Bank at 79 South Main Street, Salt Lake City, Utah 84111. The following summary
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, the Agreement.
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 95.5% (the "Class A Percentage") in the
Trust and the Class B Certificates will evidence in the aggregate an undivided
ownership interest of approximately 4.5% (the "Class B Percentage") in the
Trust. On each Distribution Date, the Trustee will distribute to
Certificateholders of record on the related Record Date all payments of
principal on the Receivables received by the Servicer during the related
Collection Period, plus interest at the applicable Pass-Through Rate on the
Class A Certificate Balance and the Class B Certificate Balance as of the
immediately preceding Distribution Date (after giving effect to all payments
made on such Distribution Date), to the extent that sufficient funds are on
deposit in the Certificate Account or available in the Reserve Account to make
such distribution. See "--Distributions on Certificates" and "-- Reserve
Account." Principal and interest to be distributed to Certificateholders may be
provided by payments made by or on behalf of Obligors, the payment of Purchase
Amounts by the Seller or the Servicer, draws from the Reserve Account, payments
pursuant to the Yield Supplement Agreement, repossession of, or other
enforcement measures taken with respect to, Financed Vehicles after default by
Obligors and the realization of net Liquidation Proceeds with respect thereto,
or Recoveries (if any) of deficiencies from Obligors after repossession and sale
of Financed Vehicles. See "--Sale and Assignment of the Receivables" and
"--Servicing Procedures." In the event that, on any Distribution Date, funds
available from the foregoing sources are insufficient to provide for such
distributions, any shortfall will be payable on the subsequent Distribution
Date, to the extent funds are available therefor.
The Certificates will be offered for purchase in denominations of $1,000 and
integral multiples thereof and will be represented initially by global
certificates registered in the name of Cede, as nominee of DTC. No Certificate
Owner will be entitled to receive a Definitive Certificate representing such
person's interest in the Trust unless Definitive Certificates are issued under
the limited circumstances described herein. Unless and until Definitive
Certificates are issued, all references to actions by Certificateholders shall
refer to actions taken by DTC upon instructions from its Direct Participants and
all references to distributions, notices, reports and statements to
Certificateholders shall refer to distributions, notices, reports and statements
to DTC. See "--Definitive Certificates."
Book Entry Registration
DTC is a limited purpose trust company organized under the laws of the State of
New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to Section 17A of the Exchange Act. DTC was created
to hold securities for its participating organizations ("Direct Participants")
and to facilitate the clearance and settlement of securities transactions
between Direct Participants through electronic book-entries, thereby eliminating
the need for physical movement of certificates. Direct Participants include
securities brokers and dealers, banks, trust companies and clearing
corporations, and may include certain other organizations. Indirect access to
the DTC system is also available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ("Indirect Participants").
Certificate Owners that are not Direct Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Certificates may do so only through Direct Participants or Indirect
Participants. In addition, Certificate Owners will receive all distributions of
principal and interest from the Trustee through Direct Participants or Indirect
Participants. Under a book-entry format, Certificate Owners may experience some
delay in their receipt of payments, as such payments will be forwarded by the
Trustee to Cede as nominee of DTC. DTC will forward such payments to its Direct
Participants which thereafter will forward them to Indirect
23
<PAGE>
Participants or Certificate Owners. It is anticipated that the only
"Certificateholder" will be Cede as nominee of DTC. Certificate Owners will not
be recognized by the Trustee as Certificateholders, as such term is used in the
Agreement, and Certificate Owners will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and its Direct Participants and
Indirect Participants.
Under the rules, regulations and procedures creating and affecting DTC and its
operations (the "Rules"), DTC will be required to make book-entry transfers of
Certificates among Direct Participants and to receive and transmit distributions
of principal of, and interest on, the Certificates. Direct Participants and
Indirect Participants with which Certificate Owners have accounts with respect
to the Certificates similarly are required to make book-entry transfers and
receive and transmit such payments on behalf of their respective Certificate
Owners.
Because DTC can only act on behalf of Direct Participants, who in turn act on
behalf of Indirect Participants, and on behalf of certain banks, trust companies
and other persons approved by it, the ability of a Certificate Owner to pledge
Certificates to persons or entities that do not participate in the DTC system,
or to otherwise act with respect to such Certificates, may be limited due to the
absence of physical certificates for such Certificates.
DTC has advised the Seller that it will take any action permitted to be taken by
a Certificateholder under the Agreement only at the direction of one or more
Direct Participants to whose accounts with DTC the Certificates are credited.
Additionally, DTC has advised the Seller that to the extent that the Agreement
requires that any action may be taken only by holders of Class A Certificates or
Class B Certificates representing specified percentages of the aggregate
outstanding principal amount thereof, DTC will take such action only at the
direction of and on behalf of Direct Participants whose holdings include
undivided interests that satisfy such specified percentages. DTC may take
conflicting actions with respect to other undivided interests to the extent that
such actions are taken on behalf of Direct Participants whose holdings include
such undivided interests.
Definitive Certificates
The Certificates will be issued in fully registered, certificated form
("Definitive Certificates") to Certificate Owners or their nominees, rather than
to DTC or its nominee, only if (i) the Seller advises the Trustee in writing
that DTC is no longer willing or able to discharge properly its responsibilities
as depository with respect to the Certificates and the Trustee or the Seller is
unable to locate a qualified successor, (ii) the Seller, at its option, elects
to terminate the book-entry system through DTC or (iii) after the occurrence of
an Event of Servicing Termination, with respect to the Class A Certificates,
Class A Certificate Owners representing in the aggregate not less than a
majority of the aggregate outstanding principal balance of the Class A
Certificates or, with respect to the Class B Certificates, Class B Certificate
Owners representing in the aggregate not less than a majority of the aggregate
outstanding principal balance of the Class B Certificates, advise the Trustee
and DTC through Direct Participants in writing that the continuation of a
book-entry system through DTC (or successor thereto) is no longer in the Class A
Certificate Owners' or the Class B Certificate Owners', as the case may be, best
interests.
Upon the occurrence of any event described in the immediately preceding
paragraph, DTC is required to notify all Direct Participants of the availability
through DTC of Definitive Certificates. Upon surrender by DTC to the Trustee of
the global certificates representing the Certificates and receipt by the Trustee
of instructions for re-registration, the Trustee will reissue the Certificates
as Definitive Certificates and thereafter the Trustee will recognize the holders
of such Definitive Certificates as Certificateholders under the Agreement
("Holders").
Distributions of principal of, and interest on, the Definitive Certificates will
be made by the Trustee directly to Holders in accordance with the procedures set
forth herein and in the Agreement. Distributions of principal and interest on
each Distribution Date will be made to Holders in whose names the Definitive
Certificates were registered at the close of business of the Trustee on the
related Record Date. Such distributions will be made by check mailed to the
address of such Holder as it appears on the register maintained by the Trustee.
The final payment on any Definitive Certificate, however, will be made only upon
presentation and surrender of such Definitive Certificate at the office or
agency specified in the notice of final distribution mailed to Holders.
24
<PAGE>
Definitive Certificates will be transferable and exchangeable subject to such
reasonable regulations as the Trustee may prescribe. No service charge will be
imposed for any registration of transfer or exchange, but the Trustee may
require payment of a sum sufficient to cover any tax or other government charge
imposed in connection therewith.
Sale and Assignment of the Receivables
On the Closing Date, the Seller will sell and assign to the Trust, without
recourse, the Seller's entire interest in the Receivables and the proceeds
thereof, including its security interests in the Financed Vehicles. Each
Receivable conveyed by the Seller to the Trust will be identified in a schedule
incorporated by reference into the Agreement (the "Schedule of Receivables").
The Trustee will, concurrently with such sale and assignment, execute,
authenticate and deliver the global certificates representing the Certificates
to the Seller, to be delivered by, or on behalf of, the Seller to DTC.
The Seller will warrant in the Agreement as to each Receivable conveyed by it to
the Trust that, among other things, as of the Closing Date (unless otherwise
indicated): (i) the Receivable has been fully and properly executed by the
parties thereto and (a) has been originated by the Seller or has been originated
by a Dealer for the retail sale of a Motor Vehicle in the ordinary course of
such Dealer's business and has been purchased by the Seller in the ordinary
course of the Seller's business and has been validly assigned by such Dealer to
the Seller, (b) is secured by a valid, subsisting and enforceable security
interest in favor of the Seller in the Financed Vehicle (subject to
administrative delays and clerical errors on the part of the applicable
government agency) prior in right to the security interest of any other
creditor, which security interest is assignable together with such Receivable,
and has been so assigned, by the Seller to the Trustee, (c) contains customary
and enforceable provisions such that the rights and remedies of the holder
thereof are adequate for realization against the collateral of the benefits of
the security, (d) provided, at origination, for level monthly payments (although
the amount of the first and last payments may be different), which fully
amortize the initial principal balance of the Receivable over the original term
and (e) provides for a payment that will fully pay the principal balance of such
Receivable as of the first day of the Collection Period in which the Receivable
is prepaid, together with interest accrued at least to the date of prepayment at
the related Contract Rate; (ii) the information set forth in the Schedule of
Receivables was true and correct as of the close of business of the Seller on
the Cutoff Date; (iii) the Receivable complied at the time it was originated or
made, and will comply as of the Closing Date, in all material respects with all
requirements of applicable Federal, state and local laws, and regulations
thereunder; (iv) the Receivable constitutes the genuine, legal, valid and
binding payment obligation in writing of the Obligor, enforceable in all
material respects by the holder thereof in accordance with its terms, and the
Receivable is not subject to any right of rescission, setoff, counterclaim or
defense, including the defense of usury, and the operation of any of the terms
of the Receivable, or the exercise of any right thereunder, will not render the
Receivable unenforceable in whole or in part or subject to any right of
rescission, setoff, counterclaim or defense, including the defense of usury, and
the Seller has no notice that any right of rescission, setoff, counterclaim or
defense has been asserted with respect thereto; (v) the Seller has taken no
action which would have the effect of releasing the related Financed Vehicle
from the lien granted by the Receivable in whole or in part; (vi) no material
provision of the Receivable has been amended, waived, altered or modified in any
respect, except such waivers as would be permitted under the Agreement, and no
amendment, waiver, alteration or modification causes such Receivable not to
conform to the other representations or warranties contained in this paragraph;
(vii) the Seller has not 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 or may be prior to or equal
to the lien granted by the Receivable; (viii) except for payment delinquencies
continuing for a period of not more than 30 days as of the Cutoff Date, no
default, breach, violation or event permitting acceleration under the terms of
the Receivable exists and no continuing condition that with notice or lapse of
time, or both, would constitute a default, breach, violation or event permitting
acceleration under the terms of the Receivable has arisen; (ix) if the principal
balance of a Receivable exceeds $2,000, the Financed Vehicle securing such
Receivable is insured under an insurance policy covering theft and physical
damage, the premiums for which have been paid in full, and such insurance policy
in full force and effect, (x) the Receivable has not been sold, assigned,
pledged or otherwise conveyed by the Seller to any person other than the Trust,
and, immediately prior to the transfer and assignment herein contemplated, the
Seller had good and marketable title to the Receivable free and clear of any
encumbrance, equity, lien, pledge, charge, claim, security
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interest or other right or interest of any other person and had full right and
power to transfer and assign the Receivable to the Trust and immediately upon
the transfer and assignment of the Receivable to the Trust, the Trust will have
good and marketable title to the Receivable, free and clear of any encumbrance,
equity, lien, pledge, charge, claim, security interest or other right or
interest of any other person and, if such transfer to the Trust is deemed to be
a transfer for security, the Trust's interest in the Receivable resulting from
the transfer has been perfected under the UCC; (xi) the Seller has duly
fulfilled all obligations on its part to be fulfilled under, or in connection
with, the Receivable and (xii) there is only one original executed Receivable,
and immediately prior to the Closing Date, the Seller will have possession of
such original executed Receivable.
The Seller also will warrant in the Agreement that: (i) the Original Pool
Balance was $300,071,473.85; (ii) as of the Cutoff Date, the Receivables had the
individual characteristics described herein under "The Receivables--Selection
Criteria;" (iii) as of the Cutoff Date, the Receivables had the characteristics
described herein under "The Receivables--Certain Characteristics;" (iv) by the
Closing Date, the Seller will have caused the portions of the Seller's
electronic master record of retail motor vehicle loans relating to the
Receivables to be clearly and unambiguously marked to show that the Receivables
constitute part of the Trust Property and are owned by the Trust in accordance
with the terms of the Agreement; and (v) the Seller has not taken any action to
convey any right to any person that would result in such person having a right
to payments received under the related theft and physical damage insurance
policies or Dealer Agreements or to payments due under such Receivables that is
senior to or equal with that of the Trust.
To assure uniform quality in servicing the Receivables and to reduce
administrative costs, the Trustee will appoint the Servicer and the Servicer
will appoint First Security Service Company, an affiliate of the Servicer, as
initial custodian of the Receivables. First Security Service Company, in its
capacity as custodian with respect to the Receivables, will hold such
Receivables and the motor vehicle certificates of title relating thereto (each,
a "Receivable File") on behalf of the Trustee for the benefit of
Certificateholders. The Receivables will not be stamped or otherwise marked to
reflect the sale and assignment of the Receivables to the Trust and will not be
segregated from other receivables held by First Security Service Company, on
behalf of the Servicer. Documents related to the Receivables that are not
included in the original Receivable Files will be maintained by First Security
Service Company, on behalf of the Servicer, in a computer imaging system (but
not in original form). The Seller's and First Security Service Company's
accounting records and computer systems will reflect the sale and assignment of
the Receivables to the Trust, and UCC financing statements with respect to such
sale and assignment will be filed. See "Formation of the Trust" and "Certain
Legal Aspects of the Receivables."
Mandatory Repurchase of Receivables
In the event of a breach or failure to be true of any warranty described in
"--Sale and Assignment of the Receivables" by the Seller with respect to the
Receivables, which breach or failure materially and adversely affects the
interests of the Trust and the Certificateholders in a Receivable (it being
understood that any such breach or failure with respect to certain
representations and warranties which does not affect the ability of the Trust to
receive and retain payment in full on the Receivable will not be deemed to have
such a material and adverse effect), the Seller, unless such breach or failure
has been cured by the last day of the Collection Period which includes the 60th
day after the date on which the Seller becomes aware of, or receives written
notice from the Trustee or the Servicer of, such breach or failure, will be
required to repurchase the Receivable from the Trustee, without recourse,
representation or warranty, other than that the Trustee has not imposed any
liens on such Receivable to be repurchased, for the Purchase Amount. In
addition, if any payment deferral or credit extension permitted by the Servicer
results in the term of a Receivable extending beyond the last day of the
Collection Period immediately preceding the Final Scheduled Distribution Date,
the Servicer is required to purchase the Receivable for the Purchase Amount. See
"--Credit Deferrals and Optional Payment Deferrals." The Purchase Amount is
payable on the Deposit Date related to such Collection Period. The repurchase
obligation will constitute the sole remedy available to the Certificateholders,
the Trustee or the Trust against the Seller for any such uncured breach or
failure, except with respect to certain indemnities of the Seller under the
Agreement related thereto.
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The "Purchase Amount" of any Receivable means, with respect to any Deposit Date,
an amount equal to the sum of (i) the outstanding principal balance of such
Receivable as of the last day of the related Collection Period and (ii) an
amount equal to the amount of accrued and unpaid interest on such principal
balance at the related Contract Rate through the last day of such related
Collection Period, in each case after giving effect to Collections on such
Receivable in such Collection Period.
Credit Deferrals and Optional Payment Deferrals
Other than as described below, the Servicer will not be allowed to increase or
decrease the amount or number of payments under a Receivable or the Contract
Rate of a Receivable, or extend, rewrite or otherwise modify the payment terms
of a Receivable, release collateral securing a Receivable, or otherwise modify
or waive any material term of a Receivable. Notwithstanding the foregoing, the
Servicer will be allowed to grant to an Obligor one or more payment deferrals
(each, a "Credit Deferral") if (i) the Servicer determines that, absent such
deferral, a payment default by the Obligor is reasonably foreseeable, (ii) the
Servicer would grant such Credit Deferral if the Receivable were serviced by it
for its own account and in accordance with its customary standards, (iii) the
cumulative extensions with respect to any Receivable would not cause the term of
such Receivable to extend beyond the last day of the Collection Period
immediately preceding the Final Scheduled Distribution Date, (iv) such
extensions in the aggregate would not exceed two months for each twelve months
of the original term of the Receivable and (v) interest would continue to accrue
on the outstanding principal balance of the Receivable during the term of such
Credit Deferral. In the event that the Servicer fails to comply with the
provisions of the preceding sentence, the Servicer will be required to purchase
the Receivable or Receivables affected thereby, for the Purchase Amount. The
Servicer will receive a fee in connection with the grant of Credit Deferrals,
which fee is then added to the principal balance of the related Receivable.
The Servicer will be allowed to grant non-credit related extensions of any
regularly scheduled payment due under a Receivable (each, an "Optional Payment
Deferral") to Obligors satisfying the following conditions: (i) at the time of
the extension, the Receivable is not the subject of two Optional Payment
Deferrals in the related fiscal year of the Trust; (ii) the Receivable is (x)
not the subject of any Credit Deferral within 90 days of the related Optional
Payment Deferral, or (y) not the subject of more than two Credit Deferrals since
its date of origination; (iii) the Receivable has been more than 30 days past
due no more than once; (iv) at the time of the Optional Payment Deferral, the
Receivable is not 15 days or more delinquent; (v) at the time of the Optional
Payment Deferral, the remaining term of the Receivable is greater than 20%, but
not more than 95%, of the original specified term of the Receivable; and (vi) in
the reasonable judgment of the Servicer, the Receivable is not likely to become
a Defaulted Receivable following the Optional Payment Deferral. If, as an
inadvertent result of any Optional Payment Deferral, the extension breached any
of the terms of the preceding criteria (i) through (vi) or caused the term of
the Receivable to extend beyond the last day of the Collection Period
immediately preceding the Final Scheduled Distribution Date, then the Servicer
will be obligated to purchase the Receivable for the Purchase Amount. The
Servicer will receive a fee in connection with the grant of Optional Payment
Deferrals, which fee is then added to the principal balance of the related
Receivable.
Accounts
The Trustee will establish one or more segregated accounts (collectively, the
"Certificate Account"), in the name of the Trustee on behalf of the Trust and
for the benefit of the Certificateholders, into which all payments made on or
with respect to the Receivables will be deposited. The Trustee will also
establish a segregated account (the "Class A Distribution Account") in the name
of the Trustee on behalf of the Trust and for the benefit of the Class A
Certificateholders, and a segregated account (the "Class B Distribution
Account") in the name of the Trustee on behalf of the Trust and for the benefit
of the Class B Certificateholders, from which all distributions with respect to
the Class A Certificates and the Class B Certificates, respectively, will be
made. The Certificate Account, the Class A Distribution Account and the Class B
Distribution Account are collectively referred to as the "Account," and such
Accounts shall initially be established at Bankers Trust Company.
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Each Account will be at all times an Eligible Deposit Account. If Accounts held
by the Trustee in its own trust department cease to be Eligible Deposit
Accounts, the Trustee will be required to transfer such Accounts to an Eligible
Bank or otherwise cause such Accounts to again become Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Bank or (b) a segregated trust account with the 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 trust powers and acting as trustee for funds
deposited in such account, so long as the long-term unsecured debt of such
depository institution shall have a credit rating from each Rating Agency in one
of its generic rating categories which signifies investment grade.
"Eligible Bank" means any institution with trust powers (which may be the Bank
or the Trustee), organized under the laws of the United States of America or any
one of the states thereof or the District of Columbia (or any domestic branch of
a foreign bank) which has a combined capital and surplus in excess of
$50,000,000, the deposits of which are insured to the full extent permitted by
law by the Federal Deposit Insurance Corporation (the "FDIC"), which is subject
to supervision and examination by Federal or state banking authorities and which
has (i) a rating of at least P-1 from Moody's Investors Service, Inc ("Moody's")
and A-l+ from Standard & Poor's Ratings Service, a Division of the McGraw Hill
Companies ("S&P") with respect to short-term deposits obligations, or (ii) a
rating of A2 or higher from Moody's and A from S&P with respect to long-term
unsecured debt obligations.
The Accounts may be maintained with the Bank, or any affiliate of the Bank, if
the Bank or such affiliate, as the case may be, and the Accounts meet the
eligibility criteria described in the preceding paragraphs.
Funds in the Accounts will be invested as provided in the Agreement in Eligible
Investments. "Eligible Investments" are generally limited to investments
acceptable to the Rating Agencies as being consistent with the rating of the
Certificates and may include, if otherwise eligible, debt securities of the
Trustee, the Bank or any of their affiliates and money market funds for which
the Trustee, the Bank or any of their affiliates is an investment manager or
investment advisor. Investments of amounts on deposit in the Accounts with
respect to any Collection Period or Distribution Date are limited to obligations
or securities that mature not later than the related Deposit Date. However, to
the extent permitted by each Rating Agency, funds on deposit in the Reserve
Account may be invested in securities that will not mature prior to the date of
the next distribution with respect to the Certificates. Any earnings (net of
losses and investment expenses) on amounts on deposit in the Accounts will be
paid to the Seller and will not be available to Certificateholders.
Collections on the Receivables
The Servicer will deposit all payments on Receivables (other than late fees,
prepayment charges and certain other amounts payable to the Servicer under the
Agreement, which are not required to be deposited into the Certificate Account)
into the Certificate Account not later than two business days after receipt
thereof. However, if conditions satisfactory to the Rating Agencies have been
met, the Servicer will no longer be required to make such payments within two
business days, but instead will be permitted to make such payments for a
Collection Period into the Certificate Account not later than the close of
business (New York time) on the related Deposit Date. Notwithstanding that
payments received in respect of the Receivables by the Servicer may not be
required to be segregated from the Servicer's own funds, the Agreement requires
the Servicer to deposit into the Certificate Account the full amount of all
payments received from Obligors during the related Collection Period and
consequently the Servicer, not the Certificateholders, will bear the risk of
loss on all amounts received with respect to the Receivables prior to their
deposit into the Certificate Account.
The Seller and the Servicer will also deposit into the Certificate Account on or
before the next Deposit Date the Purchase Amount of each Receivable to be
repurchased or purchased by them pursuant to an obligation that arose during the
related Collection Period. The Servicer will be entitled to retain, or to be
reimbursed from, amounts otherwise payable into, or on deposit in, the
Certificate Account but later determined to have resulted from mistaken deposits
or postings or checks returned for insufficient funds.
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As an administrative convenience, so long as no Event of Servicing Termination
has occurred, the Servicer will be permitted to make deposits for a Collection
Period net of distributions to be made to it with respect to such Collection
Period. The Servicer will account to the Trustee and to the Certificateholders,
however, as if all such deposits and distributions were made individually.
Servicing Procedures
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables in a manner consistent with the Agreement and will
exercise the degree of skill and care that the Servicer exercises with respect
to similar motor vehicle loans serviced by the Servicer for itself or others and
that are consistent with prudent industry standards. The Servicer is permitted
to delegate (i) any and all of its servicing duties to any of its affiliates or
(ii) specific duties to subcontractors who are in the business of performing
such duties; PROVIDED, HOWEVER the Servicer will remain obligated and liable to
the Trustee and the Certificateholders for servicing and administering the
Receivables in accordance with the Agreement as if the Servicer alone were
servicing the Receivables. References herein to actions required or permitted to
be taken, or restrictions on actions to be taken, by the Servicer include such
actions by a subservicer. References herein to amounts received by the Servicer
include amounts received by a subservicer.
The Servicer will covenant in the Agreement that: (A) the Servicer will not
release the Financed Vehicle from the security interest granted by the related
Receivable in whole or in part, except upon payment in full of the Receivable or
as otherwise contemplated by the Agreement; (B) the Servicer will not impair in
any material respect the rights of the Certificateholders in the Receivables,
the Dealer Agreement or the physical damage insurance policies; and (C) except
in the case of certain extensions, amendments or modifications explicitly
permitted by the Agreement, the Servicer will not (i) amend or modify the
principal balance or Contract Rate of any Receivable or (ii) amend, waive or
otherwise modify any material term of a Receivable.
In the event of a breach by the Servicer of any covenant described above that
materially and adversely affects the interests of the Trust and the
Certificateholders in a Receivable, the Servicer, unless such breach has been
cured by the last day of the Collection Period which includes the 60th day after
the date on which the Servicer becomes aware of, or receives written notice of
such breach from the Trustee or the Seller, will be required to purchase the
Receivable from the Trustee, without recourse, representation or warranty, other
than that the Trustee has not imposed any liens on such Receivable to be
repurchased, for the Purchase Amount on the Deposit Date related to such
Collection Period or earlier under certain circumstances. In addition, if any
payment deferral or credit extension permitted by the Servicer results in the
term of a Receivable extending beyond the last day of the Collection Period
immediately preceding the Final Scheduled Distribution Date, the Servicer will
be required to purchase the Receivable for the Purchase Amount. Such purchase
will occur as of the last day of the related Collection Period. The purchase
obligation will constitute the sole remedy available to the Certificateholders,
the Trust or the Trustee against the Servicer for any such uncured breach,
except with respect to certain indemnities of the Servicer under the Agreement
related thereto.
The Agreement will also generally require the Servicer to charge off a
Receivable as a Defaulted Receivable in accordance with its customary servicing
procedures and shall use its best efforts to repossess and liquidate the
Financed Vehicle as soon as feasible and to follow such of its normal collection
practices and procedures as it deems necessary or advisable, and that are
consistent with the standard of care required by the Agreement, to realize upon
any Receivable. The Servicer may sell the Financed Vehicle securing such
Receivable at judicial sale or take any other action permitted by applicable
law. See "Certain Legal Aspects of the Receivables."
The Agreement will provide that the Servicer will defend and indemnify the
Trust, the Collateral Agent and the Certificateholders against any and all
costs, expenses, losses, damages, claims and liabilities, including reasonable
fees and expenses of counsel and expenses of litigation, arising out of or
resulting from (i) the use, ownership or operations by the Servicer or any
affiliate thereof of any Financed Vehicle or (ii) the willful misfeasance,
negligence or bad faith of the Servicer in the performance of its duties under
the Agreement. The Servicer's obligations to indemnify the Trust, the Collateral
Agent and the Certificateholders for the Servicer's actions or omissions will
survive the removal of the Servicer or the Trust, but will not apply to any
action or omission of a successor servicer.
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Servicing Compensation
On each Distribution Date, to the extent of Interest Collections, the Servicer
will receive a fee for servicing the Receivables equal to one-twelfth of the
Basic Servicing Fee Rate multiplied by the Pool Balance as of the first day of
the related Collection Period (the "Basic Servicing Fee"). If it is acceptable
to each Rating Agency without a reduction in the rating of the Certificates, the
Basic Servicing Fee in respect of a Collection Period (together with any portion
of the Basic 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 Basic Servicing Fee
Rate will equal 1.0% per annum. In addition, the Servicer will be entitled to
retain any late fees, prepayment charges (other than Deferral Fees) and other
fees and charges collected during the related Collection Period, plus any
interest earned during the Collection Period on deposits in the Accounts (the
"Supplemental Servicing Fee").
The Basic Servicing Fee and Supplemental Servicing Fee will compensate the
Servicer for performing the functions of a third party servicer of Motor Vehicle
Loans and for administering the Receivables on behalf of the Certificateholders,
including collecting payments, accounting for collections, furnishing monthly
and annual statements to the Trustee with respect to distributions, responding
to inquiries of Obligors, investigating delinquencies and providing collection
and repossession services in cases of Obligor default. The Basic Servicing Fee
and Supplemental Servicing Fee will provide further compensation for certain
taxes, accounting fees, outside auditor fees and processing costs, and other
costs incurred by the Servicer under the Agreement in connection with
administering and servicing the Receivables.
Advances
On each Deposit Date, the Servicer shall, subject to the following, make a
payment with respect to each Receivable serviced by it (other than a Defaulted
Receivable) equal to the excess, if any, of (x) the product of the principal
balance of such Receivable as of the first day of the related Collection Period
and one-twelfth of its Contract Rate (calculated on the basis of a 360-day year
comprised of twelve 30-day months), over (y) Interest Collections actually
received by the Servicer as of the last day of such Collection Period with
respect to such Receivable. The Servicer may elect not to make any Advance of
due and unpaid interest with respect to a Receivable to the extent that the
Servicer, in its sole discretion, determines that such Advance is not
recoverable from subsequent payments on such Receivable or from funds in the
Reserve Account.
On each Distribution Date, prior to making any distribution to the
Certificateholders, the Servicer shall be reimbursed for all Outstanding
Advances with respect to prior Distribution Dates, to the extent of the Interest
Collections for such Distribution Date and, to the extent such Interest
Collections are insufficient, to the extent of the funds in the Reserve Account.
If it is acceptable to each Rating Agency without reduction in the rating of the
Certificates, the Outstanding Advances at the option the Servicer may be paid at
or as soon as possible after the beginning of the related Collection Period out
of the first collections of interest received on the Receivables for such
Collection Period.
The Servicer will deposit all Advances into the Certificate Account on the
Deposit Date.
Yield Supplement Agreement
Simultaneously with the sale and assignment of the Receivables by the Seller,
the Trust and the Seller will enter into the Yield Supplement Agreement. The
Yield Supplement Agreement will, with respect to each Receivable, provide for
the payment by the Servicer on or prior to each Deposit Date of an amount (if
positive) calculated by the Servicer equal to one-twelfth of the excess of (i)
the sum of the amount of interest that would accrue on the Class A Percentage of
such Receivable's principal balance as of the first day of the related
Collection Period at a rate equal to the sum of the Class A Pass-Through Rate
and the Basic Servicing Fee Rate and the amount of interest that would accrue on
the Class B Percentage of such Receivable's principal balance as of the first
day of the related Collection Period at a rate equal to the sum of the Class B
Pass-Through Rate and the Basic Servicing Fee Rate over (ii) interest at the
Contract Rate on such Receivable's principal balance as of the first day of the
related Collection Period.
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The Seller's obligations under the Yield Supplement Agreement will be secured by
funds on deposit in an Eligible Deposit Account to be maintained by the Seller
in the name of the Collateral Agent for the benefit of the Certificateholders
(the "Yield Supplement Account"). The amount required to be deposited by the
Seller into such Yield Supplement Account on the Closing Date will be equal to
the Yield Supplement Initial Deposit, and the amount on deposit in the Yield
Supplement Account and available on any Distribution Date will be the Specified
Yield Supplement Balance.
The Yield Supplement Account will be an Eligible Deposit Account which the
Seller shall establish and maintain in the name of, and under the control of,
the Collateral Agent. Funds on deposit in the Yield Supplement Account will be
invested in Eligible Investments selected by the Seller; PROVIDED that, if
permitted by the Rating Agencies, funds on deposit in the Yield Supplement
Account may be invested in Eligible Investments that mature later than the next
Deposit Date. The Yield Supplement Account and any amounts therein shall not be
property of the Trust, but will be pledged to and held for the benefit of the
Collateral Agent, as secured party for the benefit of the Certificateholders.
The Yield Supplement Account shall initially be maintained at Bankers Trust
Company.
Amounts on deposit in the Yield Supplement Account will be released to the
Seller on each Distribution Date to the extent the amount on deposit in the
Yield Supplement Account exceeds the Specified Yield Supplement Balance. The
Collateral Agent also shall cause all investment earnings attributable to the
Yield Supplement Account to be distributed on each Distribution Date to the
Seller. Upon any distribution to the Seller of amounts from the Yield Supplement
Account, the Certificateholders will not have any rights in, or claims to, such
amounts.
Reserve Account
The Reserve Account will be created with an initial deposit of cash or Eligible
Investments having a value of at least the Reserve Account Initial Deposit. In
addition, on each Distribution Date, any amounts on deposit in the Certificate
Account with respect to the related 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.
The Reserve Account will be an Eligible Deposit Account which the Seller shall
establish and maintain in the name of, and under the control of, the Collateral
Agent. Funds on deposit in the Reserve Account will be invested in Eligible
Investments selected by the Seller; PROVIDED that, 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 by the Collateral Agent, as secured party for the benefit of the
Certificateholders.
On each Distribution Date, the amount available in the Reserve Account (the
"Available Reserve Amount") will equal the lesser of (i) the amount on deposit
in the Reserve Account (net of investment earnings) and (ii) the Specified
Reserve Account Balance.
On or prior to each Deposit Date, the Collateral Agent will withdraw funds from
the Reserve Account (i) to the extent required to make reimbursements of
Outstanding Advances of interest accrued on Defaulted Receivables to the extent
not recovered from Liquidation Proceeds (after application of Interest
Collections) and (ii) to the extent (x) the sum of the amounts required to be
distributed to Certificateholders and the accrued and unpaid Basic Servicing
Fees payable to the Servicer on such Distribution Date exceeds (y) the amount on
deposit in the Certificate Account as of the last day of the related Collection
Period (net of investment income). Such deficiencies in the Certificate 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 Collateral Agent will deposit the proceeds of
such withdrawal into the Certificate Account on or before the Distribution Date
with respect to which such withdrawal was made.
The Specified Reserve Account Balance on any Distribution Date will equal 4.50%
of the Pool Balance as of the last day of the related Collection Period, but in
any event will not be less than the lesser of (i) $6,001,429.48 and (ii) the
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sum of such Pool Balance plus an amount sufficient to pay interest on (a) the
Class A Percentage of such Pool Balance at a rate equal to the sum of the Class
A Pass-Through Rate and the Basic Servicing Fee Rate through the Final Scheduled
Distribution Date and (b) the Class B Percentage of such Pool Balance at a rate
equal to the sum of the Class B Pass-Through Rate and the Basic Servicing Fee
Rate through the Final Scheduled Distribution Date; PROVIDED that the Specified
Reserve Account Balance will be calculated using a percentage of 9.00% for any
Distribution Date (beginning June 16, 1997) on which the Average Net Loss Ratio
exceeds 1.50% or the Average Delinquency Ratio exceeds 1.25%.
"Aggregate Net Losses" means, for any Collection Period, the aggregate
amount allocable to principal of all Receivables newly designated during
such Collection Period as Defaulted Receivables minus all Liquidation
Proceeds to the extent allocable to principal collected during such
Collection Period with respect to all Defaulted Receivables (whether or not
newly designated as such).
"Average Delinquency Ratio" means, as of any Distribution Date, the average
of the Delinquency Ratios for the preceding three Collection Periods.
"Average Net Loss Ratio" means, as of any Distribution Date, the average of
the Net Loss Ratios for the preceding three Collection Periods.
"Defaulted Receivable" means, with respect to any Collection Period, a
Receivable (other than a Purchased Receivable) which the Servicer, on behalf
of the Trust, 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 the Servicer is obligated to repurchase
or purchase shall be deemed not to be a Defaulted Receivable during a
Collection Period unless the Seller or the Servicer fails to deposit the
Purchase Amount on the related Deposit Date when due unless such Receivable
is otherwise repurchased or purchased on or prior to the last day of the
Collection Period in which such Receivable is determined to be a Defaulted
Receivable.
"Delinquency Ratio" means, for any Collection Period, the ratio, expressed
as a percentage, of (i) the principal amount of all outstanding Receivables
(other than Purchased Receivables and Defaulted Receivables) which are 60 or
more days delinquent as of the last day of such Collection Period,
determined in accordance with the Servicer's customary practices, divided by
(ii) the Pool Balance as of the last day of such Collection Period.
"Liquidation Proceeds" means, with respect to any Distribution Date and a
Receivable that became a Defaulted Receivable during the related Collection
Period, (i) insurance proceeds received during such Collection Period by the
Servicer, with respect to insurance policies relating to the Financed
Vehicles or the Obligors, (ii) amounts received by the Servicer during such
Collection Period from a Dealer in connection with such Defaulted Receivable
pursuant to the exercise of rights under a Dealer Agreement, and (iii) the
monies collected by the Servicer (from whatever source, including proceeds
of a sale of a Financed Vehicle or deficiency balance recovered after the
charge-off of the related Receivable) during such Collection Period on such
Defaulted Receivable net of any expenses incurred by the Servicer in
connection with the collection of such Receivable and the disposition of the
Financed Vehicle and any payments required by law to be remitted to the
Obligor, but, in any event, not less than zero. Liquidation Proceeds shall
be applied first to accrued and unpaid interest on the Receivable and then
to the principal balance thereof.
"Net Loss Ratio" means, for any Collection Period, an amount, expressed as a
percentage, equal to (i) the Aggregate Net Losses minus Recoveries for such
Collection Period, divided by (ii) the average of the Pool Balances on each
of the first day of such Collection Period and the last day of such
Collection Period.
"Recoveries" means, with respect to any Distribution Date, all monies
received by the Servicer with respect to any Defaulted Receivable during the
related Collection Period if such Collection Period follows the Collection
Period in which such Receivable became a Defaulted Receivable, net of the
sum of (i) any expenses incurred by the Servicer in connection with the
collection of such Receivable and the disposition of the Financed Vehicle
(to the extent not previously reimbursed) and (ii) any payments required by
law to be remitted to the Obligor, but, in any event, not less than zero.
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The Specified Reserve Account Balance may be reduced to a lesser amount as
determined by the Seller, PROVIDED that such reduction does not adversely affect
the ratings of the Certificates by the Rating Agencies. Amounts on deposit in
the Reserve Account will be released to the Seller on each Distribution Date to
the extent that the amount on deposit in the Reserve Account would exceed the
Specified Reserve Account Balance. The Collateral Agent 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 Seller of
amounts from the Reserve Account, the Certificateholders will not have any
rights in, or claims to, such amounts.
In the event that the funds in the Reserve Account are reduced to zero, the
Certificateholders will bear directly 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. 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.
Distributions on Certificates
DEPOSITS TO CERTIFICATE ACCOUNT. On or before the tenth calendar day of each
month (the "Determination Date"), the Servicer will provide the Trustee and the
Collateral Agent with a certificate (the "Servicer's Certificate") containing
certain information with respect to the related 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 Yield Supplement Amount, 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.
On or before each Deposit Date, (a) the Servicer will cause all Collections and
Liquidation Proceeds and Recoveries to be deposited into the Certificate Account
and will deposit into the Certificate Account all Purchase Amounts of
Receivables to be purchased by the Servicer on such Deposit Date, (b) the Seller
will deposit into the Certificate Account all Purchase Amounts of Receivables to
be repurchased by the Seller on such Deposit Date, (c) the Collateral Agent will
make any required withdrawals for the related Distribution Date from the Reserve
Account and deposit such amounts into the Certificate Account, (d) the Servicer
will deposit all Advances for the related Distribution Date into the Certificate
Account and (e) the Seller (or, if the Seller fails to do so, the Collateral
Agent) will deposit the Yield Supplement Amount for such Distribution Date into
the Certificate Account.
"Available Interest" means, with respect to any Distribution Date, the
excess of (a) the sum of (i) Interest Collections for such Distribution
Date, (ii) the Yield Supplement Amount for such Distribution Date and (iii)
all Advances made by the Servicer with respect to such Distribution Date,
over (b) the amount of Outstanding Advances to be reimbursed on or with
respect to such Distribution Date.
"Available Principal" means, with respect to any Distribution Date, the sum
of the following amounts with respect to the related Collection Period: (i)
that portion of all Collections allocable to principal in accordance with
the terms of the Receivables and the Servicer's customary servicing
procedures; (ii) to the extent attributable to principal, the Purchase
Amount received with respect to each Receivable repurchased by the Seller or
purchased by the Servicer under an obligation which arose during the related
Collection Period; and (iii) all Liquidation Proceeds, to the extent
allocable to principal. "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.
"Collections" means all collections on the Receivables.
"Interest Collections" means, for any Distribution Date, the sum of the
following amounts for the related Collection Period: (i) that portion of the
Collections on the Receivables received during the related Collection Period
that is allocable to interest in accordance with the terms of the
Receivables and the Servicer's customary procedures, (ii) all Liquidation
Proceeds, to the extent allocable to interest, (iii) to the extent allocable
to interest, all Recoveries and (iv) to the extent attributable to interest,
the Purchase Amount of all Receivables that
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<PAGE>
are repurchased by the Seller or purchased by the Servicer as of any day in
the related Collection Period. "Interest Collections" 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.
"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.
DEPOSITS TO THE DISTRIBUTION ACCOUNTS. On each Distribution Date, after making
reimbursements of Outstanding Advances to the Servicer, the Trustee will make
the following deposits and distributions, to the extent of Available Interest
and any Available Reserve Amount remaining after such reimbursements (and, in
the case of shortfalls occurring under clause (ii) below in the Class A Interest
Distribution, the Class B Percentage of Available Principal to the extent of
such shortfalls), in the following priority, all in accordance with the
direction contained in the Servicer's Certificate:
(i) to the Servicer, any unpaid Basic Servicing Fee for the related
Collection Period and all unpaid Basic Servicing Fees from prior Collection
Periods, but only from Interest Collections;
(ii) to the Class A Distribution Account, the Class A Interest Distribution
for such Distribution Date; and
(iii) to the Class B Distribution Account, the Class B Interest Distribution
for such Distribution Date.
On each Distribution Date, the Trustee will make the following deposits and
distributions, to the extent of the portion of Available Principal, Available
Interest and Available Reserve Amount remaining after the application of clauses
(i), (ii) and (iii) above, in the following priority:
(iv) to the Class A Distribution Account, the Class A Principal Distribution
for such Distribution Date;
(v) to the Class B Distribution Account, the Class B Principal Distribution
for such Distribution Date;
(vi) to the Collateral Agent for deposit in the Reserve Account, any amounts
remaining, until the amount on deposit in the Reserve Account equals the
Specified Reserve Account Balance; and
(vii) to the Collateral Agent for distribution to the Seller, 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 by the Trustee,
all amounts on deposit in the Class B Distribution Account will be distributed
to the Class B Certificateholders by the Trustee and all amounts on deposit in
the Reserve Account in excess of the Specified Reserve Account Balance will be
distributed to the Seller by the Collateral Agent; PROVIDED HOWEVER that upon
distribution with respect to the Class A Certificates of an amount, together
with all prior distributions with respect to the Class A Certificates, equal to
the Original Class A Certificate Balance plus interest thereon, the Class A
Certificateholders shall have no right to any additional distribution and the
Trustee shall make no distributions with respect to the Class A Certificates and
upon distribution with respect to the Class B Certificates of an amount,
together with all prior distributions with respect to the Class B Certificates,
equal to the Original Class B Certificate Balance plus interest thereon, the
Class B Certificateholders shall have no right to any additional distribution
and the Trustee shall make no distributions with respect to the Class B
Certificates.
"Class A Certificate Balance" at any time, equals the Original Class A
Certificate Balance, as reduced by all amounts allocable to principal on the
Class A Certificates distributed to Class A Certificateholders prior to such
time.
"Class A Interest Carryover Shortfall" means, (i) with respect to the
initial Distribution Date, zero, and (ii) 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 Pass-Through Rate.
"Class A Interest Distribution" 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 Pass-Through Rate multiplied by the Class A
Certificate Balance as of the preceding Distribution Date (after giving
effect to any distributions made on such Distribution Date) or, in the case
of the first Distribution Date, as of March 15, 1997.
"Class A Monthly Principal" means, with respect to any Distribution Date,
the Class A Percentage of Available Principal for such Distribution Date
plus the Class A Percentage of Realized Losses with respect to the related
Collection Period.
"Class A Principal Carryover Shortfall" means, (i) with respect to the
initial Distribution Date, zero and (ii) with respect to any other
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 Distribution" means, with respect to the initial
Distribution Date, the Class A Monthly Principal for such Distribution Date
and, in the case of any Distribution Date other than the initial
Distribution Date, the sum of the Class A Monthly Principal for such
Distribution Date and the Class A Principal Carryover Shortfall as of the
close of the preceding Distribution Date. In addition, on the Final
Scheduled Distribution Date, the Class A Principal Distribution shall
include the amount that is necessary (after giving effect to the other
amounts described above to be distributed to the Class A Certificateholders
on such Distribution Date and allocable to principal) to reduce the Class A
Certificate Balance to zero.
"Class B Certificate Balance" at any time, equals the Original Class B
Certificate Balance, as reduced by all amounts allocable to principal on the
Class B Certificates distributed to Class B Certificateholders prior to such
time.
"Class B Interest Carryover Shortfall" means, (i) with respect to the
initial Distribution Date, zero, and (ii) 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 Pass-Through Rate.
"Class B Interest Distribution" 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 Pass-Through Rate multiplied by the Class B
Certificate Balance as of the preceding Distribution Date (after giving
effect to any distributions 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 Available Principal for such Distribution Date
plus the Class B Percentage of Realized Losses with respect to the related
Collection Period.
"Class B Principal Carryover Shortfall" means, (i) with respect to the
initial Distribution Date, zero and (ii) with respect to any other
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 Distribution" means, with respect to the initial
Distribution Date, the Class B Monthly Principal for such Distribution Date
and, in the case of any Distribution Date other than the initial
Distribution Date, the sum of Class B Monthly Principal for such
Distribution Date and the Class B Principal Carryover Shortfall as of the
close of the preceding Distribution Date. In addition, on the Final
Scheduled Distribution Date, the Class B Principal Distribution will include
the amount that is necessary (after giving effect to the other
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amounts described above to be distributed to the Class B Certificateholders
on such Distribution Date and allocable to principal) to reduce the Class B
Certificate Balance to zero.
"Realized Losses" means, with respect to any Distribution Date and a
Receivable that became a Defaulted Receivable during the related Collection
Period, the excess of (i) the aggregate principal balance of such Receivable
as of the first day of the related Collection Period over (ii) Liquidation
Proceeds received with respect to such Receivable during such Collection
Period, to the extent allocable to principal.
The following chart sets forth an example of the application of the foregoing
provisions to a hypothetical monthly distribution:
<TABLE>
<S> <C>
February 26-March COLLECTION PERIOD. The Servicer receives monthly payments, prepayments,
25 and other proceeds in respect of the Receivables.
April 10 DETERMINATION DATE. On or before this date, the Servicer delivers to the
Trustee the Servicer's Certificate, which notifies the Trustee of the
amounts required to be distributed and the amounts available for
distribution on the next Distribution Date.
April 14 RECORD DATE. Distributions on the next Distribution Date are made to
Certificateholders of record at the close of business of the Trustee on
this date (or, if Definitive Certificates are issued, the Record Date
will be March 25).
April 15 DEPOSIT DATE. All Collections, Advances and any Yield Supplement Amount
relating to the related Collection Period are required to be deposited
into the Certificate 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 Basic Servicing Fee and
reimburses Outstanding Advances 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.
</TABLE>
Statements to Certificateholders
On each Distribution Date, the Trustee will include with the distribution to
each Class A Certificateholder and Class B Certificateholder a statement setting
forth the following information for the related Collection Period:
(i) the amount of the distribution allocable to principal on the Class A
Certificates and the Class B Certificates;
(ii) the amount of the distribution allocable to interest on the Class A
Certificates and the Class B Certificates;
(iii) the Yield Supplement Amount;
(iv) the amount of the Basic Servicing Fee paid to the Servicer with respect
to the related Collection Period;
(v) the Class A Certificate Balance, the Class A Pool Factor, the Class B
Certificate Balance and the Class B Pool Factor as of such Distribution
Date, after giving effect to payments allocated to principal reported under
clause (i) above;
(vi) the Pool Balance as of the close of business of the Servicer on the
last day of the related Collection Period;
(vii) the amount of the aggregate Realized Losses, if any, for such
Collection Period;
(viii) the amount of the aggregate Defaulted Receivables, if any, for such
Collection Period;
(ix) the amount otherwise distributable to the Class B Certificateholders
that is distributed to the Class A Certificateholders for the related
Collection Period;
(x) the aggregate Purchase Amount of Receivables repurchased by the Seller
or purchased by the Servicer;
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(xi) the amount of Advances made in respect of such Collection Period and
the amount of unreimbursed Advances on such Distribution Date;
(xii) the balance of the Reserve Account on such Distribution Date, after
giving effect to changes therein on such Distribution Date;
(xiii) the excess, if any, of the Class A Certificate Balance over the Pool
Balance and the excess, if any, of the Class B Certificate Balance over the
amount by which the Pool Balance exceeds the Class A Certificate Balance;
and
(xiv) the aggregate outstanding balances of the Receivables which were
delinquent 30-59 days, 60-89 days, 90-119 days and 120 or more days,
respectively, as of the close of business on the last day of the related
Collection Period.
Each amount set forth pursuant to clauses (i) through (iv) above will be
expressed in the aggregate and as a dollar amount per $1,000 of original
denomination of the Certificates.
Within a reasonable period of time after the end of each calendar year, but not
later than the latest date permitted by law, the Trustee will furnish to each
person who at any time during such calendar year was a Certificateholder a
statement containing the sum of the amounts described in the clauses (i) and
(ii) above and such other information as is available to the Servicer as the
Servicer deems necessary or desirable to enable Certificateholders to prepare
their Federal income tax returns. See "Federal Income Tax Consequences."
Evidence as to Compliance
The Agreement will provide that a firm of independent certified public
accountants, who may provide audit and other services to the Servicer, will
furnish to the Trustee, on or before March 15 of each year, beginning March 15,
1998, a report of examination to the effect that such firm has examined the
motor vehicle loan servicing functions of the Servicer over the previous
calendar year (or shorter period in the case of the first such report) and that
such examination (i) included tests relating to motor vehicle loans serviced and
such other auditing procedures as such firm considered necessary under the
circumstances and (ii) except as described in such report, disclosed no
exceptions or errors in the records relating to motor vehicle loans serviced
that, in such firm's opinion, requires such firm to report.
The Agreement will also provide for delivery to the Trustee, on or before March
31 of each year, beginning March 31, 1998, of a certificate signed by an officer
of the Servicer stating that, to the best of such officer's knowledge, the
Servicer has fulfilled its obligations under the Agreement for the previous
calendar year (or shorter period in the case of the first such certificate) or,
if there has been a default in the fulfillment of any such obligation,
describing each such default.
Certificateholders and Certificate Owners may obtain copies of such statements
and certificates by written request addressed to the Trustee. See "--The
Trustee."
Certain Matters Regarding the Servicer
The Agreement will provide that the Servicer may not resign from its obligations
and duties as Servicer thereunder, except upon a determination that the
Servicer's performance of such duties is no longer permissible under applicable
law. No such resignation will become effective until the Trustee or a successor
servicer has assumed the Servicer's servicing obligations and duties under the
Agreement.
Any corporation or other entity into which the Servicer may be merged or
consolidated, or that may result from any merger, conversion or consolidation to
which the Servicer is a party, or any entity that may succeed by purchase and
assumption to all or substantially all the business of the Servicer, where the
Servicer is not the surviving entity and where such corporation or other entity
assumes the obligations of the Servicer under the Agreement, will be the
successor to the Servicer under the Agreement.
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The Agreement will provide that the Servicer will be liable only to the extent
of the obligations specifically undertaken by it under the Agreement and will
have no other obligations or liabilities thereunder.
The Agreement will also provide that the Servicer will not be under any
obligation to appear in, prosecute, or defend any legal action that is not
incidental to the Servicer's servicing responsibilities under the Agreement and
that, in its opinion, may cause it to incur any expense or liability. The
Servicer may, however, at its expense undertake any reasonable action that it
may deem necessary or desirable in respect of the Agreement and the rights and
duties of the parties thereto and the interests of the Certificateholders
thereunder.
Events of Servicing Termination
The following events will constitute "Events of Servicing Termination" under the
Agreement: (i) any failure by the Servicer to deliver to the Trustee the
Servicer's Certificate for any Collection Period (which failure continues beyond
the earlier of three business days from the date the Servicer's Certificate was
due to be delivered and the related Deposit Date), (ii) any failure by the
Servicer to deliver to the Accounts any required payment or deposit, which
failure continues unremedied for five business days following the due date (or,
in the case of a payment or deposit to be made not later than a Deposit Date
related to a Distribution Date, the failure to make such payment or deposit by
such Distribution Date), (iii) any failure by the Servicer duly to observe or
perform in any material respect any other covenant or agreement in the
Certificates and the Agreement, which failure materially and adversely affects
the rights of Certificateholders (which determination shall be made without
regard to whether funds are available to the Certificateholders pursuant to the
Reserve Account) and which continues unremedied for 90 days after written notice
of such failure is given to the Servicer or the Seller by the Trustee or to the
Servicer and Trustee by the holders of Certificates evidencing not less than a
majority of the aggregate outstanding principal balance of the Class A
Certificates and the Class B Certificates taken together as a single class, (iv)
certain events of bankruptcy, receivership, insolvency or similar proceedings
and certain actions by the Servicer indicating its insolvency pursuant to
bankruptcy, receivership, conservatorship, insolvency or similar proceedings or
its inability to pay its obligations and (v) the failure by the Servicer to be
an Eligible Servicer.
The holders of Certificates evidencing not less than a majority of the aggregate
outstanding principal balance of the Class A Certificates and the Class B
Certificates taken together as a single class may waive any Event of Servicing
Termination, except an event resulting from the failure to make any required
deposit or payment to an Account.
If an Event of Servicing Termination occurs, the Trustee will have no obligation
to notify Certificateholders of such event prior to the end of any cure period
described above.
Rights upon an Event of Servicing Termination
As long as an Event of Servicing Termination remains unremedied, the Trustee or
the holders of Certificates evidencing not less than a majority of the aggregate
outstanding principal balance of the Class A Certificates and the Class B
Certificates taken together as a single class may terminate the Servicer's
rights and obligations under the Agreement, whereupon the Trustee will succeed
to all the responsibilities, duties and liabilities of the Servicer under the
Agreement. Thereafter, the Trustee will be entitled to the same Basic Servicing
Fee and Supplemental Servicing Fee otherwise payable to the Servicer. The
Trustee may appoint, or petition a court of competent jurisdiction for the
appointment of, an Eligible Servicer to act as successor to the outgoing
Servicer under the Agreement. In no event may the servicing compensation to be
paid to such successor be greater than the Basic Servicing Fees payable to the
outgoing Servicer under the Agreement. In the event of the bankruptcy or
insolvency of the Servicer, the bankruptcy trustee or the Servicer, as
debtor-in-possession, may have the power to prevent a termination of the
Servicer's rights and obligations under the Agreement. The Bank will be entitled
to receive all accrued and unpaid Basic Servicing Fees and Supplemental
Servicing Fees through and including, and to be reimbursed for all Outstanding
Advances as of, the effective date of its termination as the Servicer.
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"Eligible Servicer" means (a) any affiliate of the Seller, (b) Bankers Trust
Company or (c) any person which, at the time of its appointment as Servicer, (i)
has a net worth of not less than $50,000,000, (ii) is servicing a portfolio of
motor vehicle retail installment sale contracts and/or motor vehicle loans,
(iii) is legally qualified, and has the capacity, to service the Receivables,
(iv) has demonstrated the ability to service a portfolio of motor vehicle loans
similar to the Receivables professionally and completely in accordance with
standards of skill and care that are consistent with prudent industry standards,
and (v) is qualified and entitled to use pursuant to a license or other written
agreement, and agrees to maintain the confidentiality of, the software which the
Servicer uses in connection with performing its duties and responsibilities
under the Agreement or obtains rights to use, or develops at its own expense,
software which is adequate to perform its duties and responsibilities under the
Agreement.
Amendment
The Agreement may be amended by the Seller, the Servicer and the Trustee,
without the consent of the Certificateholders, to add any provisions to or
change in any manner or eliminate any of the provisions of the Agreement or
modify the rights of the Certificateholders; PROVIDED, HOWEVER, that such action
will not, in the opinion of counsel (which may be an employee of the Seller, the
Servicer or any of their affiliates) reasonably satisfactory in form to the
Trustee, materially and adversely affect the interests of any Certificateholder
or cause the Trust to be classified for Federal income tax purposes as an
association taxable as a corporation. The Agreement also may be amended by the
Seller, the Servicer and the Trustee with the consent of the holders of
Certificates evidencing not less than a majority of the aggregate outstanding
principal balance of the Class A Certificates and the Class B Certificates taken
together as a single class, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Agreement or
of modifying the rights of the Certificateholders. However, no such amendment
may (i) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, or change the allocation or priority of, Collections or
distributions that are required to be made on any Certificate, without the
consent of all adversely affected Certificateholders, (ii) reduce the percentage
of the aggregate outstanding principal balance of the Certificates, the holders
of which are required to consent to any such amendment, without the consent of
all Certificateholders, (iii) materially and adversely affect the interests of
either the Class A Certificateholders or the Class B Certificateholders without
the consent of the holders of Class A Certificates or Class B Certificates, as
the case may be, evidencing not less than a majority of the aggregate
outstanding principal balance of the Class A Certificates or the Class B
Certificates, as the case may be, (iv) adversely affect the rating of the Class
A Certificates or the Class B Certificates by any Rating Agency without the
consent of holders of Class A Certificates or Class B Certificates, as the case
may be, evidencing not less than two-thirds of the aggregate outstanding
principal balance of the Class A Certificates or the Class B Certificates, as
the case may be or (v) cause the Trust to be taxable as a corporation.
List of Certificateholders
If Definitive Certificates have been issued, the Trustee, upon written request
of the holders of Class A Certificates or Class B Certificates evidencing not
less than 25% of the aggregate outstanding principal balance of either the Class
A Certificates or the Class B Certificates, as the case may be, will afford such
Class A Certificateholders or Class B Certificateholders access during business
hours to the most current list of Certificateholders for purposes of
communicating with other Certificateholders with respect to their rights under
the Agreement. Prior to such time, neither the Trustee nor DTC will have an
obligation to maintain, or provide Certificate Owners with access to, a list of
Certificate Owners. Definitive Certificates will be issued only in the limited
circumstances described above in "--Definitive Certificates."
The Agreement will not provide for holding any annual or other meetings of
Certificateholders.
Termination
The Trust, and the respective obligations and responsibilities of the Seller,
the Servicer and the Trustee under the Agreement will, except with respect to
certain reporting requirements, terminate upon the earliest of (i) the
Distribution Date next succeeding the Servicer's purchase of the remaining Trust
Property, as described below, (ii) payment to
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<PAGE>
Certificateholders, the Trustee and the Collateral Agent of all amounts required
to be paid to them pursuant to the Agreement and (iii) the Distribution Date
next succeeding the month which is six months after the maturity or liquidation
of the last Receivable held in the Trust and the disposition of any amounts
received upon liquidation of any property remaining in the Trust in accordance
with the terms and priorities set forth in the Agreement.
In order to avoid excessive administration expense, the Servicer will be
permitted, at its option, in the event that the Pool Balance as of the last day
of a Collection Period has declined to 10% or less of the Original Pool Balance,
to purchase from the Trust, on any Distribution Date occurring in a subsequent
Collection Period, all remaining Trust Property at a purchase price equal to the
aggregate of the Purchase Amounts of the remaining Receivables. The exercise of
this right may effect an early retirement of the Certificates.
The Trustee will give written notice of termination of the Trust to each
Certificateholder of record. The final distribution to any Certificateholder
will be made only upon surrender and cancellation of such holder's Certificate
(whether a Definitive Certificate or the physical certificate representing the
Certificates) at the office or agency of the Trustee specified in the notice of
termination. Any funds remaining in the Trust after setting aside all funds
required to be distributed to Certificateholders, will be distributed to the
Seller or as otherwise provided in the Agreement.
The Trustee
Bankers Trust Company, a New York banking corporation, will be the Trustee. The
Trustee, in its individual capacity or otherwise, and any of its affiliates, may
hold Certificates in their own names or as pledgee. In addition, for the purpose
of meeting the legal requirements of certain jurisdictions, the Servicer and the
Trustee, acting jointly (or in some instances, the Trustee, acting alone), will
have the power to appoint co-trustees or separate trustees of all or any part of
the Trust. In the event of such appointment, all rights, powers, duties, and
obligations conferred or imposed upon the Trustee by the Agreement will be
conferred or imposed upon the Trustee and such co-trustee or separate trustee
jointly, or, in any jurisdiction where the Trustee is incompetent or unqualified
to perform certain acts, singly upon such co-trustee or separate trustee who
shall exercise and perform such rights, powers, duties and obligations solely at
the direction of the Trustee. The Agreement will provide that the Servicer will
pay the Trustee's reasonable fees and expenses.
The Trustee may resign at any time, in which event the Servicer will be
obligated to appoint a successor trustee. The Servicer may also remove the
Trustee if the Trustee ceases to be eligible to serve, becomes legally unable to
act, is adjudged bankrupt, insolvent or is placed in receivership or similar
proceedings. In such circumstances, the Servicer will be obligated to appoint a
successor trustee. Any resignation or removal of the Trustee and appointment of
a successor trustee will not become effective until acceptance of the
appointment by the successor Trustee. Upon removal or termination of the Trustee
for any reason, the Collateral Agent will also be removed or terminated, and the
successor Trustee shall also become the successor Collateral Agent.
The Trustee's Corporate Trust Office is located at Bankers Trust Company,
Corporate Trust and Agency Group-Structured Finance, Four Albany Street, 10th
Floor, New York, New York 10006. The Seller, the Servicer and their respective
affiliates may have other banking relationships with the Trustee and its
affiliates in the ordinary course of their business.
Duties of the Trustee
The Trustee will make no representations as to the validity or sufficiency of
the Agreement, the Certificates (other than the execution and authentication of
the Certificates), the Receivables, or any related documents, and will not be
accountable for the use or application by the Seller or the Servicer of any
funds paid to the Seller or the Servicer in respect of the Certificates or the
Receivables or for any monies prior to the time such monies are deposited into
the Certificate Account. The Trustee will not independently verify the
Receivables.
If no Event of Servicing Termination has occurred and is continuing, the Trustee
will be required to perform only those duties specifically required of it under
the Agreement. Generally, those duties are limited to the receipt of the various
certificates, reports or other instruments required to be furnished by the
Servicer to the Trustee under the
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Agreement, in which case the Trustee will only be required to examine such
instruments to determine whether they conform to the requirements of the
Agreement.
The Trustee will be under no obligation to exercise any of the rights or powers
vested in it by the Agreement or to institute, conduct or defend any litigation
thereunder or in relation thereto at the request, order, or direction of any of
the Certificateholders, unless such Certificateholders have offered the Trustee
security or indemnity satisfactory to it against the costs, expenses and
liabilities which may be incurred therein or thereby. No Certificateholder will
have any right under the Agreement to institute any proceeding with respect to
the Agreement, unless such holder has given the Trustee written notice of
default and unless holders of the Certificates evidencing not less than a
majority of the aggregate outstanding principal balance of the Class A
Certificates and the Class B Certificates, taken together as a single class,
shall have made a written request to the Trustee to institute such proceeding in
its own name as Trustee thereunder and have offered to the Trustee reasonable
indemnity, and the Trustee for 30 days has neglected or refused to institute any
such proceeding.
Certain Legal Aspects of the Receivables
Rights in the Receivables
The Receivables are "chattel paper" as defined in Article 9 of the UCC. Article
9 of the UCC specifically states that with respect to a sale of chattel paper,
the provisions of Article 9 apply. In that connection and to avail the Trust of
the benefits and protections afforded by the UCC to a purchaser of chattel paper
against other competing claimants, actions prescribed by the UCC will be taken
to "perfect" the interests of the Trust in the Receivables. First, the Seller
will cause appropriate financing statements to be filed with the appropriate
governmental authorities in the states of Utah and Idaho. Second, following the
sale and assignment of the Receivables to the Trust, pursuant to the Agreement,
an affiliate of the Servicer, First Security Service Company, will be appointed
by the Trustee to have physical possession of the Receivables and the Receivable
Files as custodian for the Trustee. The Receivables will not be stamped, or
otherwise marked to indicate that they have been sold to the Trust; however, the
Servicer and First Security Service Company will indicate in their computer
records that the Receivables have been sold to the Trust and both will have
notice of the interest of the Trust in the Receivables. 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 somehow manages
to take possession of the Receivables without actual knowledge of the Trust's
interests, such purchaser (or secured party) will acquire an interest in the
Receivables superior to the interest of the Trust. Under the Agreement, in
addition to the obligation to provide for perfection as above-described, the
Seller is also obligated to assure that the interest of the Trust in the
Receivables is perfected in such a manner as to affect the highest priority
afforded by the UCC to such interests.
Security Interests in the Financed Vehicles
Generally, retail motor vehicle installment sale contracts and installment loans
such as the Receivables evidence loans to obligors to finance the purchase of
such motor vehicles. The loan documents also constitute personal property
security agreements and include grants of security interests in the vehicles
under the UCC. Perfection of security interests in motor vehicles is generally
governed by the motor vehicle registration laws of the state in which the
vehicle is located. In Utah, Idaho and most other states, a security interest in
the vehicle is perfected by notation of the secured party's lien on the
vehicle's certificate of title.
The Bank's practice is to take such action as is required in accordance with its
normal and customary servicing practices and procedures to perfect its security
interest in a Financed Vehicle under the laws of the jurisdiction in which the
Financed Vehicle is registered. If the Bank, because of clerical error or
otherwise, has failed to take such action with respect to a Financed Vehicle, it
will not have a perfected security interest in the Financed Vehicle and its
security interest may be subordinate to the interests of, among others,
subsequent purchasers of the Financed Vehicle that give value without notice of
the Bank's security interest and to whom a certificate of title is issued in
such purchaser's name, holders of perfected security interests in the Financed
Vehicle, and the trustee in bankruptcy of the Obligor. The Bank's security
interest may also be subordinate to such third parties in the event of fraud or
forgery by
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the Obligor or administrative error by state recording officials or in the
circumstances noted below. As described more fully below, the Bank will warrant
in the Agreement that it has an enforceable first priority perfected security
interest with respect to each Financed Vehicle and will be required to
repurchase the related Receivable in the event of an uncured breach of such
warranty.
Pursuant to the Agreement, the Seller will assign its security interests in the
Financed Vehicles, along with the sale and assignment of the Receivables, to the
Trustee. The certificates of title will not be endorsed or otherwise amended to
identify the Trust or Trustee as the new secured party, however, because of the
administrative burden and expense involved.
In Utah, Idaho and most other states, an assignment of a security interest in a
Financed Vehicle along with the applicable Receivable is effective without
amendment of any lien noted on a vehicle's certificate of title or ownership,
and the assignee succeeds thereby to the assignor's rights as secured party. In
Utah, Idaho and most other states, in the absence of fraud or forgery by the
vehicle owner or of fraud, forgery, negligence or error by the Bank or
administrative error by state or local agencies, the notation of the Bank's lien
on the certificates of title or ownership and/or possession of such certificates
with such notation will be sufficient to protect the Trust against the rights of
subsequent purchasers of a Financed Vehicle or subsequent lenders who take a
security interest in a Financed Vehicle. There exists a risk, however, in not
identifying the Trust or Trustee as the new secured party on the certificate of
title that the security interest of the Trust or the Trustee may not be
enforceable. In the event the Trust has failed to obtain or maintain a perfected
security interest in a Financed Vehicle, its security interest would be
subordinate to, among others, a bankruptcy trustee of the Obligor, a subsequent
purchaser of the Financed Vehicle or a holder of a perfected security interest.
Further, with respect to any Financed Vehicle under the laws of Utah and Idaho,
if for any reason, there was a failure to file registration and title
application papers (with respect to lien notation) with the department of motor
vehicles within 30 days after such papers were executed, subsequent purchasers
and lien or security interest claimants whose interests are perfected before the
filing of such papers, would have prior claims to the Financed Vehicles.
The Seller will warrant in the Agreement as to each Receivable conveyed by it to
the Trust that, on the Closing Date, it has a valid, subsisting, and enforceable
first priority perfected security interest in the Financed Vehicle securing the
Receivable (subject to administrative delays and clerical errors on the part of
the applicable government agency) and such security interest will be assigned by
the Seller to the Trust or Trustee. In the event of an uncured breach of such
warranty, the Seller will be required to repurchase such Receivable for its
Purchase Amount. The repurchase obligation will constitute the sole remedy
available to the Trust or Trustee and the Certificateholders for such breach.
The Seller's warranties with respect to perfection and enforceability of a
security interest in a Financed Vehicle will not cover statutory or other liens
arising after the Closing Date by operation of law which have priority over such
security interest. Accordingly, any such lien would not by itself give rise to a
repurchase obligation on the part of the Seller.
In the event that an Obligor moves to a state other than the state in which the
Financed Vehicle is registered, under the laws of Utah, Idaho and most states, a
perfected security interest in a motor vehicle continues for four months after
such relocation and thereafter, in most instances, until the Obligor
re-registers the motor vehicle in the new state, but in any event not beyond the
surrender of the certificate. A majority of states require surrender of a
certificate of title to reregister a motor vehicle, and many require that notice
of such surrender be given to each secured party noticed on the certificate of
title. In those states that require a secured party to take possession of a
certificate of title to perfect a security interest, the secured party would
likely learn of the re-registration through the request from the Obligor to
surrender possession of the certificate of title. In those states that require a
secured party to note its lien on a certificate of title to perfect a security
interest but do not require possession of the certificate of title, the secured
party would likely learn of the re-registration through the notice from the
state department of motor vehicles that the certificate of title had been
surrendered. The requirements that a certificate of title be surrendered and
that notices of such surrender be given to each secured party also apply to
re-registrations effected following a sale of motor vehicle. The Seller would
therefore have the opportunity to re-perfect its security interest in a Financed
Vehicle in the state of re-registration following relocation of the Obligor and
would be able to require satisfaction of the related Receivable following a sale
of the Financed Vehicle. In states that do not require a certificate of title
for
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registration of a motor vehicles, re-registration could defeat perfection. In
the ordinary course of servicing Motor Vehicle Loans, the Servicer takes steps
to effect re-perfection upon receipt of notice of re-registration or information
from the Obligor of a relocation. However, there is a risk that an Obligor could
relocate without notification to the Seller, then file a false affidavit with
the new state to cause a new certificate of title to be issued without notation
of the Seller's lien.
Under the laws of Utah, Idaho and many other states, certain possessory liens
for repairs performed on or storage of a motor vehicle and liens for unpaid
taxes may take priority over a perfected security interest in the motor 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 motor vehicles under certain circumstances if used in unlawful
activities, which may result in a loss of a secured party's perfected security
interest in the confiscated motor vehicle. The Seller will warrant in the
Agreement that, as of the Closing Date, the Seller has not taken any action
which would have a material and adverse effect on the interests of the Trust and
the Certificateholders, and the Seller will be required to repurchase the
Receivable secured by the Financed Vehicle involved. This repurchase obligation
will constitute the sole remedy available to the Trust and the
Certificateholders for such breach. Any liens for repairs or taxes arising at
any time after the Closing Date during the term of a Receivable would not give
rise to a repurchase obligation on the part of the Seller.
Repossession
In the event of a default by an Obligor, the holder of a Receivable has all the
remedies of a secured party under the UCC, except where specifically limited by
other state laws or by contract. The remedies of a secured party under the UCC
include the right to repossession by means of self-help, unless such means would
constitute a breach of the peace. Self-help repossession is the method employed
by the Bank in most cases, and is accomplished simply by taking possession of
the Financed Vehicle. Generally, where the Obligor objects or raises a defense
to repossession, a court order must be obtained from the appropriate state court
and the Financed Vehicle must then be repossessed in accordance with that order.
In the event of a default by an Obligor, the laws of many jurisdictions (but not
Utah and Idaho) 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, except
such notice need not be given in emergency situations pursuant to an order from
the appropriate state court.
Notice of Sale; Redemption Rights
The UCC and other state laws require the secured party to provide an 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
generally has the right to redeem the collateral prior to actual sale by paying
the secured party the unpaid principal balance of the obligation plus accrued
and unpaid interest and, in most cases, reasonable expenses for repossessing,
holding and preparing the collateral for disposition and arranging for its sale
plus, in some jurisdictions, reasonable attorneys' fees. In some states (but not
Utah and Idaho), the Obligor has the right, prior to actual sale, to
reinstatement of the original loan terms and to return of the collateral by
payment of delinquent installments of the unpaid balance.
Deficiency Judgments and Excess Proceeds
The proceeds of resale of Financed Vehicles generally will be applied first to
the expenses of repossession and resale and then to the satisfaction of the
indebtedness on the related Receivable. 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
Utah, Idaho and those states that do not prohibit or limit such judgments
(assuming proper notice of sale has been given and the sale has been conducted
in a commercially reasonable manner and otherwise in compliance with applicable
UCC provisions). Any such deficiency judgment would be a personal judgment
against the Obligor for the shortfall, however, and a defaulting Obligor may
have very little capital or sources of income available following repossession.
Therefore, in many cases, it may not be useful to seek a deficiency judgment or,
if one is obtained, it may be settled at a significant discount or not paid at
all.
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Occasionally, after resale of a repossessed motor vehicle and payment of all
expenses and indebtedness, there is a surplus of funds. In that case, the UCC
requires the secured party to remit the surplus to any other holder of a lien
with respect to the Financed Vehicle or, if no such lienholder exists or funds
remain after paying such other lienholders, to the Obligor.
Consumer Protection Laws
Numerous Federal and state consumer protection laws and related regulations
impose substantial and detailed requirements upon lenders and servicers involved
in consumer finance. These laws include the Truth In Lending Act, the Equal
Credit Opportunity Act, the Federal Trade Commission Act, the Fair Credit
Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices
Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B,
Z, and AA, and other similar acts and regulations, state adoptions of the
National Consumer Act and of the Uniform Consumer Credit Code and other similar
laws. Also, state laws impose other restrictions on consumer transactions, may
require contract disclosures in addition to those required under Federal law and
may limit the remedies available in the event of default by an Obligor. These
requirements impose specific statutory liabilities upon creditors who fail to
comply with their provisions where applicable. In most cases, this liability
could affect the ability of an assignee, such as the Trustee, to enforce secured
loans such as the Receivables.
The FTC's holder-in-due-course rule (the "FTC Rule") has the effect of
subjecting a seller of motor vehicles (and certain related lenders and their
assignees) in a consumer credit transaction and any assignee of the seller to
all claims and defenses which the purchaser could assert against the seller.
Liability under the FTC Rule is limited to the amounts paid by the purchaser
under the contract, and the holder of the contract may also be unable to collect
any balance remaining due thereunder from the purchaser. The FTC Rule is
generally duplicated by state statutes or the common law in certain states.
Although the Bank is not a seller of motor vehicles and is not subject to the
jurisdiction of the FTC, the loan agreements evidencing the Receivables contain
provisions which contractually apply the FTC Rule. Accordingly, the Bank, and
the Trustee as holder of the Receivables, will be subject to claims or defenses,
if any, that the purchaser of a Financed Vehicle may assert against the seller
of such vehicle. In Utah and Idaho, such claims and defenses could also arise
under state "lemon laws," statutes governing the sale of "salvage" vehicles, and
other consumer protection laws. Other examples of such claims include, but are
not limited to, breach of implied UCC warranties and fraud.
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 that all sellers of used motor vehicles prepare, complete and
display a "Buyer's Guide" which explains the warranty coverage of 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 Bank is not a seller of motor vehicles and
is not subject to those laws, a violation thereof may form the basis for a claim
or defense against the Bank or the Trustee as holder of the Receivables.
Courts have applied general equitable principles to secured parties pursuing
repossession or litigation involving deficiency balances. These equitable
principles may have the effect of relieving an Obligor from some or all of the
legal consequences of a default.
The Seller will warrant in the Agreement as to each Receivable conveyed by it to
the Trust that such Receivable complied at the time it was originated and as of
the Closing Date in all material respects with all requirements of applicable
law. If, as of the Cutoff Date, an Obligor had a claim against the Trust for
violation of any law and such claim materially and adversely affects the Trust's
interest in a Receivable, such violation would create an obligation of the
Seller to repurchase the Receivable unless the breach was cured. This repurchase
obligation will constitute the sole remedy of the Trustee and the
Certificateholders against the Seller in respect of any such uncured breach,
except
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with respect to the Seller's indemnity obligations under the Agreement with
respect thereto. See "The Certificates-- Sale and Assignment of the
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 lender to realize upon
collateral or enforce a deficiency judgment. For example, in a Chapter 13
proceeding under the United States Bankruptcy Code, a court may prevent a lender
from repossessing a motor vehicle and, as part of the rehabilitation plan,
reduce the amount of the secured indebtedness to the market value of such
vehicle at the time of bankruptcy (as determined by the court), leaving the
party providing financing as a general unsecured creditor for the remainder of
the indebtedness. A bankruptcy court may also reduce the monthly payments due
under a contract or change the rate of interest and time of repayment of the
indebtedness.
The Seller intends that the transfer of the Receivables under the Agreement
constitute a sale. FIRREA sets forth certain powers that the FDIC could exercise
if it were appointed as receiver for the Seller. 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 the Seller would not interfere with the timely transfer to the
Trust of payments collected on the Receivables. To the extent that the Seller is
deemed to have granted a security interest in the Receivables to the Trust, and
that interest was validly perfected before the Seller's insolvency and was not
taken in contemplation of insolvency, that security interest should not be
subject to avoidance and payments to the Trust with respect to the Receivables
should not be subject to recovery by the FDIC as receiver. If, however, the FDIC
were to assert a contrary position, such as by requiring the Trustee to
establish its right to those payments by submitting to and completing the
administrative claims procedure established under FIRREA, delays in
distributions on the Certificates and possible reductions in the amount of those
payments could occur. Alternatively, in such circumstances, the FDIC might have
the right to repay the Certificates for an amount which may be greater or less
than the principal balance therof and which would shorten their weighted average
life.
Federal Income Tax Consequences
The following is a summary of the material anticipated Federal income tax
consequences of the purchase, ownership, and disposition of Certificates. This
summary is based upon laws, regulations, rulings, and decisions currently in
effect, all of which are subject to change. The discussion does not deal with
all Federal tax consequences applicable to all categories of investors, some of
which may be subject to special rules. In addition, this summary is generally
limited to investors who will hold the Certificates as "capital assets"
(generally, property held for investment) within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the "Code"). Consequences to
individual investors of investment in the Certificates will vary according to
circumstances; accordingly, investors should consult their own tax advisors to
determine the Federal, state, local, and other tax consequences of the purchase,
ownership, and disposition of the Certificates. Prospective investors should
note that no rulings have been or will be sought from the Internal Revenue
Service (the "IRS") with respect to any of the Federal income tax consequences
discussed below, and no assurance can be given that the IRS will not take
contrary positions.
Tax Status of the Trust
In the opinion of Kirkland & Ellis, special tax counsel to the Seller, the Trust
will be classified as a grantor trust and not as an association taxable as a
corporation for Federal income tax purposes. Accordingly, each Certificate Owner
will be subject to Federal income taxation as if it owned directly its interest
in each asset owned by the Trust and paid directly its share of reasonable
expenses paid by the Trust.
Treatment of Certificate Owners' Interest in Trust Assets
Each Certificate Owner could be considered to own either (i) an undivided
interest in a single debt obligation held by the Trust and having a principal
amount equal to the total stated principal amount of the Receivables and an
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interest rate equal to the applicable Pass-Through Rate, or (ii) an interest in
each of the Receivables and in the Yield Supplement Agreement and any other
Trust Assets. The Agreement will express the intent of the Seller to sell, and
the Certificateholders to purchase, the Receivables (other than the Retained
Yield) and the Seller, the Certificateholders, and each Certificate Owner, by
accepting a beneficial interest in a Certificate, will agree to treat the
Certificates as ownership interests in the Receivables.
TREATMENT AS DEBT OBLIGATION. If a Certificate Owner were considered to own an
undivided interest in a single debt obligation, rather than reporting its share
of the interest accrued on each Receivable it would, in general, be required to
include in income interest accrued or received on the Class A Certificate
Balance or the Class B Certificate Balance, as the case may be, at the
applicable Pass-Through Rate in accordance with its usual method of accounting.
The Certificates would be subject to the original issue discount ("OID") rules,
generally in the manner discussed below with respect to Stripped Receivables.
However, in determining whether such OID is DE MINIMIS, the weighted average
life of the Certificates would be determined using a reasonable assumption
regarding anticipated prepayments (a "Prepayment Assumption"). OID includible in
income for any accrual period (generally, the period between Distribution Dates)
would generally be calculated using a Prepayment Assumption and an anticipated
yield established as of the date of initial sale of the Certificates, and would
increase or decrease to reflect prepayments at a faster or slower rate than
anticipated. The Certificates would also be subject to the market discount
provisions of the Code to the extent that a Certificate Owner purchased such
Certificates at a discount from the initial issue price (as adjusted to reflect
prior accruals of OID).
INCOME ON RECEIVABLES. The remainder of the discussion herein assumes that a
Certificate Owner will be treated as owning an interest in each Receivable (and
the proceeds thereof) and an interest in the Yield Supplement Agreement.
For Federal income tax purposes, the Seller will be treated as having retained a
fixed portion of the interest due on each Receivable having an annual percentage
rate in excess of the sum of the applicable Pass-Through Rate and the Basic
Servicing Fee Rate (each, a "Stripped Receivable") equal to the difference
between (x) the annual percentage rate of the Receivable and (y) the sum of the
applicable Pass-Through Rate and the Basic Servicing Fee Rate (the "Retained
Yield"). The Retained Yield will be treated as "stripped coupons" within the
meaning of Section 1286 of the Code, and the Stripped Receivables will be
treated as "stripped bonds." Accordingly, each Certificate Owner will be treated
as owning its PRO RATA percentage interest in (i) payments received under the
Yield Supplement Agreement, and (ii) the principal of, and interest payable on,
each Receivable (minus the Retained Yield on the Stripped Receivables).
Those Receivables that bear interest at a rate which is less than or equal to
the sum of the applicable Pass-Through Rate and the Basic Servicing Fee Rate
(the "Supplemented Receivables") will not be treated as Stripped Receivables.
Instead, Yield Supplement Amounts will be payable to eliminate the difference
between the actual yield on each Supplemented Receivable and the yield such
Receivable would have had if its interest rate had equaled the sum of the
applicable Pass-Through Rate and the Basic Servicing Fee Rate. See "--Yield
Supplement Amounts."
Each Certificate Owner would be required to report on its Federal income tax
return its share of the gross income of the Trust, including interest and
certain other charges accrued on the Receivables and any gain upon collection or
disposition of the Receivables (but not including any portion of the Retained
Yield). Such gross income attributable to interest on the Receivables would
exceed the Class A Pass-Through Rate by an amount equal to the Class A
Certificate Owner's share of the expenses of the Trust for the period during
which it owns a Class A Certificate. The Class A Certificate Owner would be
entitled to deduct its share of expenses of the Trust to the extent described
below. Any amounts received by a Class A Certificate Owner from the Reserve
Account or from the subordination of the Class B Certificates will be treated
for Federal income tax purposes as having the same characteristics as the
payments they replace.
A Class A Certificate Owner would report its share of the income of the Trust
including interest and certain other charges accrued on the Receivables, OID and
market discount, payments received under the Yield Supplement Agreement (to the
extent treated as income) and investment earnings on funds held pending
distribution, under its
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usual method of accounting. Accordingly, interest, excluding OID or market
discount, would be includible in a Certificate Owner's gross income when it
accrues on the Receivables, or, in the case of Certificate Owners who are cash
basis taxpayers, when received by the Servicer on behalf of Certificate Owners.
Because (i) interest accrues on the Receivables over differing monthly periods
and is paid in arrears and (ii) interest collected on a Receivable generally is
paid to Certificateholders in the following month, the amount of interest
accruing to a Certificate Owner during any calendar month will not equal the
interest distributed in that month. The actual amount of discount on a
Receivable would be includible in income as principal payments are received on
the Receivables.
For administrative convenience, the Servicer intends to report the total amount
of income with respect to the Class A Certificates on an aggregate basis (as
though all of the Receivables and the Yield Supplement Agreement were a single
obligation), rather than on an asset-by-asset basis. The amount and, in some
instances, character, of the income reported to a Certificate Owner may differ
under this method for a particular period from that which would be reported if
income were reported on a precise asset-by-asset basis. Accordingly, the IRS
could require that a Certificate Owner calculate its income either (i) on an
asset-by-asset basis, accounting separately for each Receivable and the Yield
Supplement Agreement, or (ii) aggregating all Stripped Receivables under the
aggregation rule described below and accounting for the remaining Receivables
and the Yield Supplement Agreement on an asset-by-asset basis. See "--Discount
and Premium --Original Issue Discount on Stripped Receivables." In computing its
income on an asset-by-asset basis, a Certificate Owner would allocate its tax
basis among the Receivables and its interest in the Yield Supplement Agreement
in proportion to their fair market values. Because the annual percentage rates
of the Receivables vary widely, the allocation of basis and computation of
income on an asset-by-asset basis could have a more significant effect on the
income of a Certificate Owner than it would if the Receivables had more uniform
characteristics.
The remainder of the disclosure generally describes the Code provisions
governing reporting of income on the Receivables and the Yield Supplement
Agreement on a separate asset basis.
Discount and Premium
In determining whether a Certificate Owner has purchased its interest in the
Receivables (or any Receivable) at a discount and whether such Receivables (or
any Receivable) have OID or, in the case of Supplemented Receivables, market
discount, a portion of the purchase price of a Certificate should be allocated
to the Certificate Owner's undivided interest in accrued but unpaid interest,
amounts collected at the time of purchase but not distributed, and rights to
receive Yield Supplement Amounts. As a result, the portion of the purchase price
allocable to a Certificate Owner's undivided interest in the Receivables (or any
Receivable) (the "Purchase Price") will be decreased and the potential OID
and/or market discount on the Receivables (or any Receivable) could be
increased.
ORIGINAL ISSUE DISCOUNT ON STRIPPED RECEIVABLES. Because the Stripped
Receivables represent stripped bonds, they will be subject to the OID rules of
the Code. Accordingly, the tax treatment of a Certificate Owner will depend in
part upon whether the amount of OID on a Stripped Receivable is less than a
statutorily defined DE MINIMIS amount.
In general, under Treasury Regulations issued under Section 1286 of the Code
(the "Section 1286 Regulations"), the amount of OID on a receivable treated as a
"stripped bond" will be DE MINIMIS if it is less than 1/4 of one percent for
each full year of weighted average life remaining after the purchase date until
the maturity of the Receivable, although it is not clear whether expected
prepayments are taken into account. Under the Section 1286 Regulations, it
appears that the portion of the interest on each Receivable payable to the
Certificate Owners may be treated as "qualified stated interest." As a result,
the amount of OID on a Stripped Receivable will equal the amount by which the
Purchase Price of a Stripped Receivable is less than the portion of the
remaining principal balance of the Receivable allocable to the interest
acquired.
If the amount of OID is DE MINIMIS under the rule set forth above, a Stripped
Receivable would not be treated as having OID. The actual amount of discount on
a Stripped Receivable would be includible in income as principal payments are
received on the Receivable, in the proportion that each principal payment bears
to the total principal amount of the Receivable.
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If the OID on a Receivable is not treated as being DE MINIMIS, in addition to
the amounts described above, a Certificate Owner will be required to include in
income any OID as it accrues on a daily basis, regardless of when cash payments
are received, using a method reflecting a constant yield on the Receivable (or
Receivables). It is possible that the IRS could require use of a prepayment
assumption in computing the yield of a Receivable. Accrued OID would increase a
Class A Certificate Owner's tax basis in the Class A Certificate (and the
applicable Receivables). Distributions of principal and other items attributable
to accrued OID (other than payments of interest on the Receivables at the sum of
the Class A Pass-Through Rate and the Basic Servicing Fee Rate) would reduce a
Class A Certificate Owner's tax basis. If a Receivable is deemed to be acquired
by a Certificate Owner at a significant discount, such treatment could
accelerate the accrual of income by a Certificate Owner.
The Trustee intends to account for OID, if any, reportable by Certificateholders
by reference to the price paid for a Certificate by an initial purchaser,
although the amount of OID will differ for subsequent purchasers. Such
subsequent purchasers should consult their tax advisers regarding the proper
calculation of OID on the interest in Receivables represented by a Certificate.
The Trustee will calculate OID, if any, on all of the Receivables (including
both Stripped Receivables and Supplemented Receivables) on an aggregate basis
and without the use of a prepayment assumption. Regulations issued under the OID
provisions of the Code (the "OID Regulations") suggest that all payments on the
Stripped Receivables allocable to the Certificates may be aggregated in
determining whether the Stripped Receivables will be treated as having OID,
although the regulation does not include the Supplemented Receivables, since
they are not "stripped bonds." Separate accounting for the Stripped Receivables
and the Receivables that are not stripped would reduce the possibility that the
Stripped Receivables would be treated as issued with OID; however, as discussed
below, the Supplemented Receivables would be treated as having imputed interest,
market discount, or both. In addition, it is not clear whether use of a
prepayment assumption is required in computing OID. If the IRS were to require
that OID be computed on a Receivable-by-Receivable basis, or that a prepayment
assumption be used, the character and timing of a Certificate Owner's income
could be adversely affected. Because under the stripped bond rules, each sale of
a Certificate results in a recalculation of OID, a Certificate Owner technically
will not be subject to the market discount provisions of the Code with respect
to Stripped Receivables.
In the event that a Receivable is treated as purchased at a premium (I.E., its
Purchase Price exceeds the portion of the remaining principal balance of such
Receivable allocable to the Certificate Owner), such premium will be amortizable
by the Certificate Owner as an offset to interest income (with a corresponding
reduction in the Certificate Owner's basis) under a constant yield method over
the term of the Receivable if an election under Section 171 of the Code is made
with respect to the interests in the Receivables represented by the Certificates
or was previously in effect. Any such election will also apply to all debt
instruments held by the Certificate Owner during the year in which the election
is made and all debt instruments acquired thereafter.
A Certificate Owner will be entitled to deduct, consistent with its method of
accounting, its PRO RATA share of reasonable servicing fees and other fees paid
or incurred by the Trust as provided in Section 163 or 212 of the Code. If a
Certificate Owner is an individual, estate or trust, the deduction for such
holder's share of such fees will be allowed only to the extent that all of such
holder's miscellaneous itemized deductions, including such holder's share of
such fees, exceed 2% of such holder's adjusted gross income. In addition, in the
case of Certificate Owners who are individuals, certain otherwise allowable
itemized deductions will be reduced, but not by more than 80%, by an amount
equal to 3% of such holder's adjusted gross income in excess of a statutorily
defined threshold ($121,200 in the case of a married couple filing jointly for
the taxable year beginning in 1997). Because the Servicer will not report to
Certificate Owners the amount of income or deductions attributable to interest
earned on Collections, such a holder may effectively underreport its net taxable
income.
SUPPLEMENTED RECEIVABLES. The Supplemented Receivables will not be treated as
stripped bonds. A portion of the Certificate Owner's purchase price for a
Certificate would be allocated to each Supplemented Receivable, based on its
fair market values relative to the other assets of the Trust.
Some or all of the Supplemented Receivables may have imputed interest and/or
market discount. If, as is likely, a Supplemented Receivable did not have
"adequate stated interest" (as defined in the Code) when originated, then
48
<PAGE>
such Receivable has "imputed interest." Under the imputed interest rules of the
Code, the "total unstated interest" on any Receivable as of its origination
would equal the excess of (a) the sum of all principal payments due more than
six months after such Receivable's date of origination over (b) the sum of the
discounted present values of such principal payments and all interest payments
due under such Receivable. The discount rate to be used in computing the present
values is the "applicable federal rate" for the period during which the
Receivable was originated. A portion of the Receivable's stated principal amount
equal to such total unstated interest would be recharacterized as interest, and
the Receivable's principal amount would be correspondingly reduced, thus
increasing the total amount of income to be realized with respect to the
Receivable. The total unstated interest would be included in gross income over
the term of the Receivable using a constant yield-to-maturity method. It is not
clear whether imputed interest may be reduced to the extent that a Receivable
having imputed interest is subsequently sold for a price in excess of the
imputed principal amount. It would appear reasonable to reduce the amount of
imputed interest to the extent that such a purchase price reflects a movement of
market interest rates since the origination of the Receivable.
To the extent that the portion of the purchase price allocated to a Certificate
Owner's undivided interest in a Supplemented Receivable is less than the "stated
redemption price at maturity" (or possibly the imputed principal amount, in the
case of a Receivable with imputed interest) such Receivable will have market
discount. The allocation of a portion of the purchase price of a Certificate to
the rights to payments under the Yield Supplement Agreement, accrued interest
and/or amounts collected and undistributed as of the date such Certificate was
purchased may cause or increase the amount of market discount.
It is not clear whether the stated redemption price at maturity should be
determined by excluding imputed interest under Section 483 of the Code, thereby
avoiding duplicative amounts of market discount and imputed interest or whether
the imputed interest is also recharacterized as market discount.
In general, under the market discount provisions of the Code, principal payments
received by the Trust and all or a portion of the gain recognized upon a sale or
other disposition of a Receivable or upon the sale or other disposition of a
Certificate by a Certificate Owner will be treated as ordinary income to the
extent of accrued market discount. Any payment received by a Certificate Owner
upon a sale or other disposition of a Certificate in an amount in excess of
accrued market discount will be treated as capital gain, assuming the
Certificate Owner held such Certificate as a capital asset. In addition, a
portion of the interest deductions of the Certificate Owner attributable to any
indebtedness treated as incurred or continued to purchase or carry a Receivable
may have to be deferred, unless a Certificate Owner makes an election to include
market discount in income currently as it accrues, which election would apply to
all debt instruments acquired by the taxpayer on or after the first day of the
first taxable year to which such election applies. Taxpayers may, in general,
elect to accrue market discount either (i) under a constant yield-to-maturity
method or (ii) in the proportion that the stated interest paid on the obligation
for the current period bears to the total remaining interest on the obligation.
The manner in which the imputed interest rules interact with the market discount
rules is unclear. The effect of a discount sale of a debt instrument that did
not have adequate stated interest when originated may be to create overlapping
amounts of imputed interest and market discount. It is unclear whether a
purchaser of a debt instrument, such as a Supplemented Receivable, which has
imputed interest and market discount should continue to report the imputed
interest using the rules of Section 483 of the Code and the regulations
thereunder (with a corresponding reduction in the amount of market discount) or
whether all or a portion of such imputed interest is instead converted into
market discount.
Class B Certificate Owners
IN GENERAL. Except as described below, it is believed that the Class B
Certificate Owners will be subject to tax in the same manner as Class A
Certificate Owners. However, no Federal income tax authorities address the
precise method of taxation of an instrument such as the Class B Certificates. In
the absence of applicable authorities, the Trustee intends to report income to
Class B Certificate Owners in the manner described below.
Each Class B Certificate Owner will be treated as owning (i) the Class B
Percentage of the principal on each Receivable plus (ii) a proportionate portion
of the interest on each Receivable (not including the Retained Yield).
49
<PAGE>
Income will be reported to a Class B Certificate Owner based on the assumption
that all amounts payable to the Class B Certificate Owners are taxable under the
coupon stripping provisions of the Code and treated as a single obligation. In
applying those provisions, the Trustee will take the position that a Class B
Certificate Owner's entire share of the interest on a Receivable will qualify as
"qualified stated interest." Thus, except to the extent modified by the effects
of subordination of the Class B Certificates, as described below, income will be
reported to Class B Certificate Owners in the manner described above for the
Class A Certificate Owners.
EFFECT OF SUBORDINATION. If the Class B Certificate Owners received
distributions of less than their share of the Trust's receipts of principal or
interest (the "Shortfall Amount") because of the subordination of the Class B
Certificates, Class B Certificate Owners would probably be treated for Federal
income tax purposes as if they had (1) received as distributions their full
share of such receipts, (2) paid over to the Class A Certificate Owners an
amount equal to such Shortfall Amount, and (3) retained the right to
reimbursement of such amounts to the extent of future Collections otherwise
available for deposit in the Reserve Account.
Under this analysis, (1) Class B Certificate Owners would be required to accrue
as current income any interest or OID income of the Trust that was a component
of the Shortfall Amount, even though such amount was in fact paid to the Class A
Certificate Owners, (2) a loss would only be allowed to the Class B Certificate
Owners when their right to receive reimbursement of such Shortfall Amount became
worthless (I.E., when it becomes clear that the amount will not be available
from any source to reimburse such loss), and (3) reimbursement of such Shortfall
Amount prior to such a claim of worthlessness would not be taxable income to
Class B Certificate Owners because such amount was previously included in
income. Those results should not significantly affect the inclusion of income
for Class B Certificate Owners on the accrual method of accounting, but could
accelerate inclusion of income to Class B Certificate Owners on the cash method
of accounting by, in effect, placing them on the accrual method. Moreover, the
character and timing of loss deductions is unclear.
Yield Supplement Amounts
The proper Federal income tax characterization of the Yield Supplement Amounts
is not clear. Moreover, the sum of the income and deductions properly reportable
by a Certificate Owner in any taxable year may not equal the amounts that would
be reportable if a Certificate Owner held instead of an interest in the
Receivables and in the Yield Supplement Agreement either (i) a debt instrument
bearing interest at the applicable Pass-Through Rate or (ii) an interest in a
trust holding Receivables each of which bears interest at a rate at least equal
to the sum of the Pass-Through Rate plus the Basic Servicing Fee Rate.
It is likely that the right to receive Yield Supplement Amounts will be treated
as a separate asset purchased by each Certificate Owner, in which case a portion
of each Certificate Owner's purchase price or other tax basis in the Certificate
equal to the fair market value of the right to receive Yield Supplement Amounts
should be allocated to the right to receive payments of Yield Supplement
Amounts. See "--Discount and Premium--Original Issue Discount on Stripped
Receivables." The right to receive Yield Supplement Amounts may be treated as a
loan made by a Certificate Owner to the Seller in an amount equal to the present
value, discounted at a rate equal to the sum of the applicable Pass-Through Rate
and the Servicing Fee Rate, of the projected Yield Supplement Amounts. In that
event, a portion of the Yield Supplement Amounts generally representing a yield
equal to the applicable Pass-Through Rate plus the Basic Servicing Fee Rate on
such discounted value should be treated as interest includible in income as
accrued or received, and the remainder should be treated as a return of the
principal amount of the deemed loan. Alternatively, it is possible that the
entire amount of each Yield Supplement Amount should be included in income as
accrued or received, in which event a Certificate Owner should also be entitled
to amortize the portion of its purchase price allocable to its right to receive
Yield Supplement Amounts. The method of calculating such amortization is
unclear, and could result in the inclusion of greater amounts of income than a
Certificate Owner's actual yield on a Receivable.
Alternatively, it is possible that the Yield Supplement Amounts could be treated
as payments adjusting the purchase price of the Supplemented Receivables, rather
than as a separate asset. In that event, a Certificate Owner could be treated as
having purchased each Supplemented Receivable at a discount (which may consist
of imputed interest,
50
<PAGE>
market discount, or both) that, combined with the actual coupon rate of such
Receivable, produces a yield equal to the sum of the applicable Pass-Through
Rate and the Basic Servicing Fee Rate. See "--Discount and Premium."
It is not clear whether, and to what extent, the amounts includible in income or
amortizable under any of these methods would be adjusted to take account of
prepayments on the Receivables. Moreover, it is possible that the IRS might
contend that none of the above methods is appropriate, and that income with
respect to the Yield Supplement Agreement should be reported by a Certificate
Owner in some other manner. In addition, to the extent that the amounts payable
pursuant to the Yield Supplement Agreement decline during any period by reason
of prepayments on the related Receivables, it is possible that a portion of the
amount amortizable by the Certificate Owner during such period would be treated
as a capital loss (which would not offset ordinary income), rather than as an
ordinary deduction. It is expected that the annual statement furnished to
Certificateholders will report the net income derived from the Yield Supplement
Agreement using a method that causes the total income attributable to a
Certificate to equal income at the applicable Pass-Through Rate on the Class A
Percentage or Class B Percentage of the Pool Balance. Certificate Owners are
advised to consult their tax advisors regarding the appropriate method of
accounting for income attributable to the Yield Supplement Agreement.
Sale of a Certificate
If a Certificate is sold, gain or loss will be recognized equal to the
difference between the amount realized on the sale and the Certificate Owner's
adjusted basis in the Receivables and any other assets held by the Trust. A
Certificate Owner's adjusted basis will equal the Certificate Owner's cost for
the Certificate, increased by any discount previously included in income, and
decreased by any deduction previously allowed for accrued premium and by the
amount of principal payments previously received on the Receivables. Any gain or
loss not attributable to accrued interest will be capital gain or loss if the
Certificate was held as a capital asset.
Foreign Certificate Owners
Interest attributable to Receivables which is payable to a foreign Certificate
Owner will generally not be subject to the normal 30% withholding tax imposed
with respect to such payments, PROVIDED that such Certificate Owner is not
engaged in a trade or business in the United States and that such Certificate
Owner fulfills certain certification requirements. Under such certification
requirements, the Certificate Owner must certify, under penalties of perjury,
that it is not a "United States person" and it is the beneficial owner of the
Certificates, and must provide its name and address. For this purpose, "United
States person" means a citizen or resident of the United States, a corporation,
partnership, or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, or an estate or trust the
income of which is includible in gross income for United States Federal income
tax purposes, regardless of its source.
It is not clear whether amounts received by Certificate Owners that are
attributable to payments of Yield Supplement Amounts received on the Yield
Supplement Agreement would be subject to withholding tax. Accordingly, a
prospective investor in Certificates who is not a United States person should
assume that tax will be withheld from such payments at a rate of 30% (or such
lower rate as may be provided in an applicable tax treaty). As a result, a
Certificate may not be a suitable investment for a non-United States person.
Backup Withholding
Payments made on the Certificates and proceeds from the sale of Certificates
will not be subject to a "backup" withholding tax of 31% unless, in general, the
Certificate Owner fails to comply with certain reporting procedures and is not
an exempt recipient under applicable provisions of the Code.
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<PAGE>
ERISA Considerations
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
the Code impose certain requirements on employee benefit plans and certain other
retirement plans and arrangements, including individual retirement accounts and
annuities, Keogh plans and collective investment funds and separate accounts in
which such plans, accounts or arrangements are invested that are subject to
ERISA and the Code (all of which are hereinafter referred to as a "Plan") and on
persons who are fiduciaries with respect to such Plans. Moreover, based on the
reasoning of the United States Supreme Court in JOHN HANCOCK LIFE INS. CO. V.
HARRIS TRUST AND SAV. BANK, 510 U.S. 86 (1993), an insurance company's general
account may be deemed to include assets of the Plans investing in the general
account (E.G., through the purchase of an annuity contract), and the insurance
company might be treated as a fiduciary with respect to such plans by virtue of
such investment. In accordance with ERISA's general fiduciary standards, before
investing in a Certificate, a Plan fiduciary should determine whether such an
investment is permitted under the governing Plan instruments and is appropriate
for the Plan in view of its overall investment policy and the composition and
diversification of its portfolio. Other provisions of ERISA and the Code
prohibit certain transactions involving the assets of a Plan and persons who
have certain specified relationships to the Plan ("parties in interest" within
the meaning of ERISA or "disqualified persons" within the meaning of the Code).
Thus, a Plan fiduciary considering an investment in Certificates should also
consider whether such an investment might constitute or give rise to a
prohibited transaction under ERISA or the Code.
An investment in Certificates by a Plan might result in the assets of the Trust
being deemed to constitute Plan assets, which in turn might mean that certain
aspects of such investment, including the operation of the Trust, might be
prohibited transactions under ERISA and the Code. There may also be an improper
delegation of the responsibility to manage Plan assets if Plans that purchase
the Certificates are deemed to own an interest in the underlying assets of the
Trust. Neither ERISA nor the Code defines the term "plan assets." Under Section
2510.3-101 of the United States Department of Labor ("DOL") regulations (the
"Regulation"), a Plan's assets may include an interest in the underlying assets
of an entity (such as a trust) for certain purposes, including the prohibited
transaction provisions of ERISA and the Code, if the Plan acquires an "equity
interest" in such entity.
The DOL has issued an individual exemption, Prohibited Transaction Exemption
90-23, to J.P. Morgan Securities Inc. (the "Exemption"). The Exemption generally
exempts from the application of the prohibited transaction provisions of Section
406 of ERISA and the excise taxes imposed on such prohibited transactions
pursuant to Section 4975(a) and (b) of the Code and Section 502(i) of ERISA
certain transactions relating to the initial purchase, holding and subsequent
resale by Plans of certificates in pass-through trusts that consist of certain
receivables, loans and other obligations that meet the conditions and
requirements set forth in the Exemption. The receivables covered by the
Exemption include motor vehicle installment obligations such as the Receivables.
The Exemption will apply to the acquisition, holding and resale of the Class A
Certificates by a Plan from J.P. Morgan Securities Inc., provided that specified
conditions (certain of which are described below) are met. The Seller believes
that the Exemption will apply to the acquisition and holding of the Class A
Certificates by a Plan and that all conditions of the Exemption other than those
within the control of the investors have been or will be met.
The Exemption sets forth six general conditions that must be satisfied for a
transaction involving the acquisition of the Class A Certificates by a Plan to
be eligible for the exemptive relief thereunder:
(1) the acquisition of the Class A Certificates by a Plan is on terms
(including the price for the Class A Certificates) that are at least as
favorable to the Plan as they would be in an arm's-length transaction with
an unrelated party;
(2) the rights and interests evidenced by the Class A Certificates acquired
by a Plan are not subordinated to the rights and interests evidenced by
other certificates of the Trust;
(3) the Class A Certificates acquired by the Plan have received a rating at
the time of such acquisition that is in one of the three highest generic
rating categories from any one of four rating entities, including S&P and
Moody's;
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<PAGE>
(4) the Trustee is not an affiliate of any other member of the "Restricted
Group," which consists of the Underwriters, the Seller, the Trustee and any
Obligor with respect to the Receivables included in the Trust constituting
more than 5% of the aggregate unamortized principal balance of the assets of
the Trust as of the date of initial issuance of the Class A Certificates,
and any affiliate of such parties;
(5) the sum of all payments made to and retained by J.P. Morgan Securities
Inc. in connection with the distribution or placement of the Class A
Certificates represents not more than reasonable compensation for
underwriting or placing the Class A 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. 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 Agreement and reimbursement of the Servicer's reasonable expenses
in connection therewith; and
(6) the Plan investing in the Class A Certificates must be an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Commission
under the Securities Act.
Because the rights and interests evidenced by the Class A Certificates acquired
by a Plan are not subordinated to the rights and interests evidenced by other
certificates of the Trust, the second general condition set forth above is
satisfied. It is a condition of the issuance of the Class A Certificates that
they be rated in the highest rating category by any one of the rating entities,
including S&P and Moody's. A fiduciary of a Plan contemplating purchasing a
Class A Certificate must make its own determination that at the time of such
acquisition, the Class A Certificates continue to satisfy the third general
condition set forth above. The Seller and the Servicer expect that the fourth
general condition set forth above will be satisfied with respect to the Class A
Certificates. A fiduciary of a Plan contemplating purchasing a Class A
Certificate must make its own determination that the first, fifth and sixth
general conditions set forth above will be satisfied with respect to the Class A
Certificates.
In addition the Trust must satisfy the following requirements:
(a) the corpus of the Trust must consist solely of assets of the type which
have been included in other investment pools,
(b) certificates in such other investment pools must have been rated in one
of the three highest generic rating categories of S&P, Moody's, Duff &
Phelps Credit Rating Co. or Fitch Investors Service, Inc. for at least one
year prior to the Plan's acquisition of Class A Certificates, and
(c) certificates evidencing interests in such other investments pools must
have been purchased by investors other than Plans for at least one year
prior to any Plan's acquisition of Class A Certificates.
If the general conditions of the Exemption are satisfied, the Exemption may
provide relief from the restrictions imposed by Section 406(a) and 407(a) of
ERISA as well as the excise taxes imposed by Section 4975(a) and (b) of the Code
by reason of Section 4975(c)(1)(A) through (D) of the Code, in connection with
the direct or indirect sale, exchange, transfer or holding of the Class A
Certificates by a Plan. However, no exemption is provided from the restrictions
of Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or
holding of a Class A Certificate on behalf of an Excluded Plan by any person who
has discretionary authority or renders investment advice with respect to the
assets of such Excluded Plan. For purposes of the Class A Certificates, an
"Excluded Plan" is a Plan sponsored by any member of the Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide relief from the restrictions imposed by Sections 406(b)(1)
and (b)(2) and 407(a) of ERISA and the taxes imposed by Section 4975(a) and (b)
of the Code by reason of Section 4975(c)(1)(E) of the Code in connection with
the direct or indirect sale, exchange, transfer or holding of Class A
Certificates in the initial issuance of Class A Certificates between the Seller
or J.P. Morgan Securities Inc. and a Plan other than an Excluded Plan when the
person who has discretionary authority or renders investment advice with respect
to the investment of Plan assets in the Class A Certificates is (a) an Obligor
with respect to 5% or less of the fair market value of the Receivables or (b) an
affiliate of such person.
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The Exemption also applies to transactions in connection with the servicing,
management and operation of the Trust, provided that, in addition to the general
requirements described above, (a) such transactions are carried out in
accordance with the terms of a binding pooling and servicing agreement and (b)
the pooling and servicing agreement is provided to, or described in all material
respects in the prospectus provided to, investing Plans before their purchase of
Class A Certificates issued by the Trust. The Agreement is a pooling and
servicing agreement as defined in the Exemption. All transactions relating to
the servicing, management and operations of the Trust will be carried out in
accordance with the Agreement. See "The Certificates."
The Exemption also may provide relief from the restriction imposed by Sections
406(a) and 407(a) of ERISA and the taxes imposed by Section 4975(c)(1)(A)
through (D) of the Code if such restrictions are deemed to otherwise apply
merely because a person is deemed to be a party in interest or a disqualified
person with respect to an investing Plan by virtue of providing services to a
Plan (or by virtue of having certain specified relationships to such a person)
solely as a result of such Plan's ownership of Class A Certificates.
Any Plan fiduciary considering whether to purchase a Class A Certificate on
behalf of a Plan should consult with its counsel regarding the applicability of
the Exemption and other applicable issues and whether the Class A Certificates
are an appropriate investment for a Plan under ERISA and the Code.
Because the Class B Certificates are subordinate interests, the Exemption will
not be available for Class B Certificates. Accordingly, no Plan will be eligible
to purchase or otherwise hold Class B Certificates and no beneficial interest
therein may be sold or otherwise transferred to a Plan.
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<PAGE>
Underwriting
Subject to the terms and conditions set forth in the underwriting agreement
relating to the Certificates (the "Underwriting Agreement"), the Seller has
agreed to sell to J.P. Morgan Securities Inc. and First Chicago Capital Markets,
Inc. (the "Underwriters"), and the Underwriters have agreed to purchase, the
principal amount of the Class A Certificates and the Class B Certificates set
forth opposite their names:
<TABLE>
<CAPTION>
Principal Amount Principal Amount
of Class A of Class B
Underwriters Certificates Certificates
- ------------------------------------------------------------------------ ------------------- -------------------
<S> <C> <C>
J.P. Morgan Securities Inc.............................................. $ 93,784,236.925 $ 6,251,500.00
First Chicago Capital Markets, Inc...................................... 93,784,236.925 6,251,500.00
------------------- -------------------
Total............................................................... $ 187,568,473.85 $ 12,503,000.00
------------------- -------------------
------------------- -------------------
</TABLE>
In addition, the Capital Markets Division of First Security Bank, N.A., as
selling agent, will directly offer $99,000,000.00 aggregate principal amount of
the Class A Certificates and $1,000,000.00 aggregate principal amount of the
Class B Certificates. The Capital Markets Division of First Security Bank, N.A.
may sell a portion of the Class A Certificates and the Class B Certificates to
the Underwriters at a discount not in excess of 0.165% of the Class A
Certificate denominations or 0.200% of the Class B Certificate denominations.
The Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all the Certificates offered hereby if any of the
Certificates are purchased. The Seller has been advised by the Underwriters that
the Underwriters propose initially to offer the Certificates to the public at
the prices set forth herein and to certain dealers at such prices less a
concession not in excess of 0.165% of the Class A Certificate denominations or
0.200% of the Class B Certificate denominations, and that the Underwriters may
allow, and such dealers may reallow, a discount not in excess of 0.125% of the
Class A Certificate denominations or 0.150% of the Class B Certificate
denominations to certain other dealers. After the initial public offering, the
public offering price, concessions, and discounts to dealers may be changed by
the Underwriters.
In addition, the Seller has an arrangement with the Capital Markets Division of
First Security Bank, N.A. under which it will act as a selling agent for the
Class A Certificates and Class B Certificates described above at the same
prices, concessions and discounts to dealers applicable to the Underwriters.
The Seller has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act, or to contribute to
payments which the Underwriters may be required to make in respect thereof. The
Seller has also agreed to reimburse the Underwriters for certain of their
expenses.
In the ordinary course of its business, the Underwriters and their affiliates
have engaged and may engage in investment banking and/or commercial banking
transaction with the Seller and its affiliates.
Legal Matters
Certain legal matters will be passed upon for the Seller by Ray, Quinney &
Nebeker, Salt Lake City, Utah and for the Underwriters by Kirkland & Ellis.
Certain federal income tax and other matters will be passed upon for the Seller
by Kirkland & Ellis. Certain state tax and other matters will be passed upon for
the Seller by Moffatt, Thomas, Barrett, Rock & Fields. Alonzo W. Watson, a
shareholder and director of Ray, Quinney & Nebeker, is also an officer of First
Security Corporation. A daughter of the chief executive officer of First
Security Corporation is a shareholder and director of Ray, Quinney & Nebeker.
55
<PAGE>
Index of Principal Terms
<TABLE>
<S> <C>
Accounts............................................................................ 27
Advance............................................................................. 6
Advances............................................................................ 30
Aggregate Net losses................................................................ 32
Agreement........................................................................... 1, 4
Available Interest.................................................................. 33
Available Principal................................................................. 33
Available Reserve Amount............................................................ 31
Average Delinquency Ratio........................................................... 32
Average Net Loss Ratio.............................................................. 32
Bank................................................................................ 1, 4
Basic Servicing Fee................................................................. 6, 30
Basic Servicing Fee Rate............................................................ 6
Cede................................................................................ 5
Certificate Account................................................................. 27
Certificate Owner................................................................... 5
Certificateholders.................................................................. 5
Certificates........................................................................ 1, 4
Class A Certificate Balance......................................................... 34
Class A Certificateholders.......................................................... 5
Class A Certificates................................................................ 1, 4
Class A Distribution Account........................................................ 27
Class A Interest Carryover Shortfall................................................ 34
Class A Interest Distribution....................................................... 34
Class A Monthly Interest............................................................ 35
Class A Monthly Principal........................................................... 35
Class A Pass-Through Rate........................................................... 5
Class A Percentage.................................................................. 23
Class A Pool Factor................................................................. 22
Class A Principal Carryover Shortfall............................................... 35
Class A Principal Distribution...................................................... 35
Class B Certificate Balance......................................................... 35
Class B Certificateholders.......................................................... 5
Class B Certificates................................................................ 1, 4
Class B Distribution Account........................................................ 27
Class B Interest Carryover Shortfall................................................ 35
Class B Interest Distribution....................................................... 35
Class B Monthly Interest............................................................ 35
Class B Monthly Principal........................................................... 35
Class B Pass-Through Rate........................................................... 5
Class B Percentage.................................................................. 23
Class B Pool Factor................................................................. 22
Class B Principal Carryover Shortfall............................................... 35
Class B Principal Distribution...................................................... 35
Closing Date........................................................................ 22
Code................................................................................ 45
Collateral Agent.................................................................... 8
</TABLE>
56
<PAGE>
<TABLE>
<S> <C>
Collection Period................................................................... 5
Collections......................................................................... 33
Commission.......................................................................... 3
Contract Rate....................................................................... 19
Credit Deferral..................................................................... 27
Cutoff Date......................................................................... 1, 4
Dealer Agreements................................................................... 4
Dealers............................................................................. 4
Defaulted Receivable................................................................ 32
Definitive Certificates............................................................. 24, 39
Delinquency Ratio................................................................... 32
Deposit Date........................................................................ 7
Determination Date.................................................................. 33
Direct Participants................................................................. 23
Direct Recourse..................................................................... 16
Distribution Date................................................................... 1, 5
DOL................................................................................. 52
DTC................................................................................. 1, 5
Eligible Bank....................................................................... 28
Eligible Deposit Account............................................................ 28
Eligible Investments................................................................ 28
Eligible Servicer................................................................... 39
ERISA............................................................................... 52
Events of Servicing Termination..................................................... 38
Exchange Act........................................................................ 3
Excluded Plan....................................................................... 53
Exemption........................................................................... 52
FDIC................................................................................ 10, 28
Final Scheduled Distribution Date................................................... 1
Financed Vehicles................................................................... 4
FIRREA.............................................................................. 10
FTC Rule............................................................................ 44
Holders............................................................................. 24
Indirect Participants............................................................... 23
Interest Collections................................................................ 33
IRS................................................................................. 45
Liquidation Proceeds................................................................ 32
Moody's............................................................................. 28
Motor Vehicle Loans................................................................. 15
Net Loss Ratio...................................................................... 32
Obligor............................................................................. 4
OID................................................................................. 46
OID Regulations..................................................................... 48
Optional Payment Deferral........................................................... 27
Original Certificate Balance........................................................ 4
Original Class A Certificate Balance................................................ 4
Original Class B Certificate Balance................................................ 4
Original Pool Balance............................................................... 5
Outstanding Advances................................................................ 7
Pass-Through Rates.................................................................. 5
Plan................................................................................ 52
</TABLE>
57
<PAGE>
<TABLE>
<S> <C>
Pool Balance........................................................................ 4
Prepayment Assumption............................................................... 46
Purchase Amount..................................................................... 27
Purchase Price...................................................................... 47
Purchased Receivable................................................................ 34
Rating Agency....................................................................... 9
Realized Losses..................................................................... 36
Receivable File..................................................................... 26
Receivables......................................................................... 1, 4
Record Date......................................................................... 5
Recoveries.......................................................................... 32
Regulation.......................................................................... 52
Reserve Account..................................................................... 7
Reserve Account Initial Deposit..................................................... 7
Restricted Group.................................................................... 53
Retained Yield...................................................................... 46
Rules............................................................................... 24
S&P................................................................................. 28
Schedule of Receivables............................................................. 24
Section 1286 Regulations............................................................ 47
Securities Act...................................................................... 3
Seller.............................................................................. 1, 4
Servicer............................................................................ 1, 4
Servicer's Certificate.............................................................. 33
Shortfall Amount.................................................................... 13, 50
Simple Interest..................................................................... 20
Simple Interest Receivable.......................................................... 20
Specified Reserve Account Balance................................................... 8
Specified Yield Supplement Balance.................................................. 7
Stripped Receivable................................................................. 46
Supplemental Servicing Fee.......................................................... 6, 30
Supplemented Receivables............................................................ 46
Trust............................................................................... 1, 4
Trust Property...................................................................... 4
Trustee............................................................................. 1, 8
UCC................................................................................. 10
Underwriters........................................................................ 55
Underwriting Agreement.............................................................. 55
United States person................................................................ 51
Yield Supplement Account............................................................ 7, 31
Yield Supplement Agreement.......................................................... 6
Yield Supplement Amount............................................................. 7
Yield Supplement Initial Deposit.................................................... 7
</TABLE>
58
