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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 19, 1997
REGISTRATION STATEMENT NO. 333-19733
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
Pre-Effective Amendment No. 3 to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
ADVANTA AUTO FINANCE CORPORATION
(SPONSOR OF THE TRUSTS DESCRIBED HEREIN)
Nevada 300 WELSH ROAD, SUITE 400 23-2826077
(Jurisdiction) HORSHAM, PENNSYLVANIA 19044 (I.R.S. Employer
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) Identification No.)
KEVIN SHIPE, ESQ.
ADVANTA AUTO FINANCE CORPORATION
300 WELSH ROAD, SUITE 400
HORSHAM, PENNSYLVANIA 19044
214-444-4663
(NAME, ADDRESS AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPY TO:
CHRIS DIANGELO, ESQ.
DEWEY BALLANTINE
1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.|_|
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box.|X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering.|_|
If this Form is filed as a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, please check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering.|_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TO BE AGGREGATE PRICE AGGREGATE REGISTRATION
TITLE OF SECURITIES BEING REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE (2)
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<S> <C> <C> <C> <C>
Auto Receivables Asset Backed Notes and Auto $300,000,000 100% $300,000,000 $90,909
Receivables Asset Backed Certificates (together,
the "Securities)
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Paid previously.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
TO FORM S-3
CAPTION OR LOCATION
ITEM AND CAPTION IN FORM S-3 IN PROSPECTUS
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<S> <C> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of Forepart of Registration Statement;
Prospectus............................................. Outside Front Cover Page**
2. Inside Front and Outside Back Cover Page of Inside Front Cover Page**; Outside
Prospectus............................................. Back Cover Page**
3. Summary Information, Risk Factors and Ratio Summary of Prospectus**; Special
of Earnings to Fixed Charges........................... Considerations**;*
4. Use of Proceeds......................................... Use of Proceeds
5. Determination of Offering Price......................... *
6. Dilution................................................ *
7. Selling Security Holders................................ *
8. Plan of Distribution.................................... Methods of Distribution**
Outside Front Cover Page**;
Summary of Prospectus**;
Description of the Securities**;
Certain Federal Income Tax
9. Description of Securities to be Registered.............. Consequences**
10. Interests of Named Experts and Counsel.................. *
11. Material Changes........................................ *
Inside Front Cover Page**;
Incorporation of Certain
12. Incorporation of Certain Information by Reference....... Documents by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities......... See page II-3
</TABLE>
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* Not applicable or answer is negative.
** To be completed from time to time
by Prospectus Supplement.
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PROSPECTUS
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Auto Receivables Backed Securities Issuable in Series
ADVANTA AUTO FINANCE CORPORATION
This Prospectus describes certain Auto Receivables Backed Notes (the
"Notes") and Auto Receivables Backed Certificates (the "Certificates" and,
together with the Notes, the "Securities") that may be sold from time to time in
one or more series, in amounts, at prices and on terms to be determined at the
time of sale and to be set forth in a supplement to this Prospectus (each, a
"Prospectus Supplement"). Each series of Securities may include one or more
classes of Notes and one or more classes of Certificates, which will be issued
either by the Company, a Transferor, or by a trust to be formed by the Company
or a Transferor for the purpose of issuing one or more series of such Securities
(each, a "Trust"). The Company, a Transferor or a Trust, as appropriate, issuing
Securities as described in this Prospectus and the related Prospectus Supplement
is referred to herein as the "Issuer."
Capitalized terms used herein are defined terms having specific meanings.
An "Index of Defined Terms" is set forth as page hereto, which indicates the
page __ on which such defined terms are defined.
Each class of Securities of any series will evidence beneficial ownership
in a segregated pool of assets (the "Trust Property") (such Securities,
"Certificates") or will represent indebtedness of the Issuer secured by the
Trust Property (such Securities, "Notes"), as described under "Description of
the Securities" herein and in the related Prospectus Supplement. The Trust
Property may consist of any combination of retail installment sales contracts
between manufacturers, dealers or certain other originators and retail
purchasers secured by new and used automobiles and light duty trucks financed
thereby, together with all monies received relating thereto (the " Contracts").
The Trust Property may also include a security interest in the underlying new
and used automobiles and light duty trucks and property relating thereto,
together with the proceeds thereof (the "Vehicles" together with the Contracts,
the "Receivables"). If and to the extent specified in the related Prospectus
Supplement, credit enhancement with respect to the Trust Property or any class
of Securities may include any one or more of the following: a financial guaranty
insurance policy (a "Policy") issued by an insurer specified in the related
Prospectus Supplement, a reserve account, letters of credit, credit or liquidity
facilities, third party payments or other support, cash deposits or other
arrangements. In addition to or in lieu of the foregoing, credit enhancement may
be provided by means of subordination, cross-support among the Receivables or
over-collateralization. See "Description of the Trust Agreements -- Credit and
Cash Flow Enhancement." The Receivables in the Trust Property for a series will
have been originated or purchased by the Company. The Receivables included in a
Trust Fund will be serviced by a servicer (the "Servicer") described in the
related Prospectus Supplement.
Each series of Securities may include one or more classes (each, a
"Class"). A series may include one or more Classes of Securities entitled to
principal distributions, with disproportionate, nominal or no interest
distributions, or to interest distributions, with disproportionate, nominal or
no principal distributions. The rights of one or more Classes of Securities of
any series may be senior or subordinate to the rights of one or more of the
other Classes of Securities. A series may include two or more Classes of
Securities which differ as to the timing, order or priority of payment, interest
rate or amount of distributions of principal or interest or both. Information
regarding each Class of Securities of a series, together with certain
characteristics of the related Receivables, will be set forth in the related
Prospectus Supplement. The rate of payment in respect of principal of the
Securities of any Class will depend on the priority of payment of such a Class
and the rate and timing of payments (including prepayments, defaults,
liquidations or repurchases of Receivables) on the related Receivables. A rate
of payment lower or higher than that anticipated may affect the weighted average
life of each Class of Securities in the manner described under "Description of
the Securities" herein and in the related Prospectus Supplement.
It is not expected that any Securities described herein will be listed on
any securities exchange. Such lack of exchange listing is likely to result in a
relatively illiquid market for the Securities. It is, however, further expected
that the underwriter(s) of each series of Securities will make a market for such
Securities for so long as they remain outstanding, although such underwriter(s)
will have no obligation to the Company or the related Securityholders so to make
a market.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" PAGE 15 HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT.
THE NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF THE ISSUER ONLY AND DO NOT
REPRESENT OBLIGATIONS OF THE COMPANY, ANY SERVICER OR ANY OF THEIR RESPECTIVE
AFFILIATES. THE CERTIFICATES OF A GIVEN SERIES REPRESENT BENEFICIAL INTERESTS IN
THE RELATED TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE
COMPANY, ANY TRANSFEROR, ANY SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES.
NEITHER THE SECURITIES NOR THE UNDERLYING RECEIVABLES WILL BE GUARANTEED OR
INSURED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY, ANY
SERVICER, ANY TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT AS SET FORTH
IN THE RELATED PROSPECTUS SUPPLEMENT. SEE ALSO "RISK FACTORS" PAGE 15.
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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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Offers of the Securities may be made through one or more different
methods, including offerings through underwriters as more fully described under
"Method of Distribution" herein and in the related Prospectus Supplement. Prior
to issuance, there will have been no market for the Securities of any series,
and there can be no assurance that a secondary market for the Securities will
develop, or if it does develop, it will continue.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of Securities unless accompanied by a Prospectus
Supplement.
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The date of this Prospectus is __________, 1997.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a series of Securities to be offered
hereunder, among other things, will set forth with respect to such series of
Securities: (i) a description of the Class or Classes of such Securities, (ii)
the rate of interest, the "Pass-Through Rate" or "Interest Rate" or other
applicable rate (or the manner of determining such rate) and authorized
denominations of such Class of such Securities; (iii) certain information
concerning the Receivables and insurance polices, cash accounts, letters of
credit, financial guaranty insurance policies, third party guarantees or other
forms of credit enhancement, if any, relating to one or more pools of
Receivables or all or part of the related Securities; (iv) the specified
interest, if any, of each Class of Securities in, and manner and priority of,
the distributions from the Trust Property; (v) information as to the nature and
extent of subordination with respect to such series of Securities, if any; (vi)
the payment date to Securityholders; (vii) information regarding the Servicer(s)
for the related Receivables; (viii) the circumstances, if any, under which the
Trust Property may be subject to early termination; (ix) information regarding
tax considerations; and (x) additional information with respect to the method of
distribution of such Securities.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (together with all amendments and
exhibits thereto, referred to herein as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Securities offered pursuant to this Prospectus. For further information,
reference is made to the Registration Statement which may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; and at the Commission's regional
offices at 500 West Madison, 14th Floor, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of the Registration
Statement may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site that contains reports, proxy and information
statements, and other information regarding registrants that file electronically
with the Commission. The address for such Web site is: http://www.sec.gov.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby, nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by the Company with respect to the
Registration Statement, either on its own behalf or on behalf of an Issuer,
relating to any series of Securities referred to in the accompanying Prospectus
Supplement, with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after the
date of this Prospectus and prior to the termination of any offering of the
Securities issued by the Issuer, shall be deemed to be incorporated by reference
in this Prospectus and to be a part of this Prospectus from the date of the
filing of such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein (or in the accompanying Prospectus Supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein, modifies or replaces such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
2
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REPORTS TO SECURITYHOLDERS
So long as the Securities are in book-entry form, monthly and annual
reports concerning the related Securities and the related Issuer will be sent by
the Trustee to Cede & Co., as the nominee of DTC and as registered holder of the
Securities pursuant to the related Trust Agreement. DTC will supply such reports
to Securityholders in accordance with its procedures. If such Securities are not
in book-entry form, the Securityholders will receive such reports directly from
the related Trustee, rather than indirectly from DTC. In connection with their
distribution on each Payment Date, the related Securityholders will receive a
statement containing the following information, at a minimum: the amount of such
distribution relating to interest, the amount of such distribution relating to
principal, the Pool Factor, the interest rate (for variable rate Securities) and
delinquency information with respect to the related Receivables. To the extent
required by the Securities Exchange Act of 1934, as amended, the related Issuer
will provide financial information to the Securityholders which has been
examined and reported upon, with an opinion expressed by, an independent public
accountant; to the extent not so required, such financial information will be
unaudited. The Company has determined that the financial statements of no entity
other than the Security Insurer are material to the offering made hereby. Each
Issuer will be formed to own the Receivables, hold and administer the
Pre-Funding Account, to issue the Securities and to acquire the Subsequent
Receivables, if available. Each Issuer will have no assets or obligations prior
to issuance of the Securities and will engage in no activities other than the
holding of the related Trust Property and the issuance of the related
Securities. Accordingly, no financial statements with respect to the related
Issuer will be included in the related Prospectus Supplement. The audited
financial statements of the Security Insurer will be set forth in (or
incorporated by reference in) the related Prospectus Supplement, and the
unaudited interim financial statements of the Security Insurer will be set forth
in (or incorporated by reference in) the related Prospectus Supplement. The
Company intends to discontinue filing periodic reports at the beginning of the
company's next fiscal year, to the extent permitted by Section 15(d) of the
Exchange Act.
3
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities of any series contained in the
related Prospectus Supplement to be prepared and delivered in connection with
the offering of such Securities. Certain capitalized terms used in the summary
are defined elsewhere in the Prospectus on the pages indicated in the "Index of
Terms," which appears on page __ hereof.
Issuer.................. With respect to each series of Securities, either
the Company, a special-purpose finance subsidiary of
the Company which may be organized and established
by the Company with respect to the Trust Property
(each such special-purpose finance subsidiary, a
"Transferor") or a trust (each, a "Trust") to be
formed by the Company. For purposes of this
Prospectus, the term "Company" includes the term
"Transferor". The Company, a Transferor or a Trust
issuing Securities pursuant to this Prospectus and
the related Prospectus Supplement shall be referred
to herein as the "Issuer" with respect to the
related Securities. See "The Issuers."
Company................. Advanta Auto Finance Corporation ("Advanta" or, the
"Company"), a Nevada corporation. The Receivables
will be either (i) originated by various dealers,
which may or may not be affiliated with one or more
manufacturers of vehicles ("Dealers", and together
with such manufacturers, " Vendors") or (ii)
acquired by the Company from other originators or
owners of Receivables. The Company's origination
business is one of "indirect" originations (i.e.,
originations through the Company's network of
unaffiliated originators) rather than "direct"
originations (in which prospective borrowers,
having decided to purchase a specific Vehicle,
approach the Company directly (or are contacted
directly by the Company, as through a mail
solicitation or telemarketing effort) rather than
through a dealer or a broker). The Company is not
affiliated with any dealers. The Company's principal
executive offices are located at 300 Welsh Road,
Suite 400, Horsham, Pennsylvania 19044, and its
telephone number is (215) 283-4200. See "The Company
and the Servicer."
Servicer................ Advanta Auto Finance Corporation (" Advanta" or, in
its capacity as the servicer, the "Servicer") or its
designee, as described in the related Prospectus
Supplement. See "Advanta's Automobile Financing
Program -- Servicing and Collections."
Trustee................. The Trustee for each series of Securities will be
specified in the related Prospectus Supplement. In
addition, a Trust may separately enter into an
Indenture and may issue Notes pursuant to such
Indenture; in any such case the Trust and the
Indenture will be administered by separate,
independent trustees as required by the rules and
regulations under the Trust Indenture Act of 1939
and the Investment Company Act of 1940.
The Securities ......... Each Class of Securities of any series will either
evidence beneficial ownership in a segregated pool
of assets (the "Trust Property") (such Securities, "
Certificates") or will represent indebtedness of the
Issuer secured by the Trust Property (such
Securities, "Notes"), as described under
"Description of the Securities" herein and in the
related Prospectus Supplement. The Trust Property
may consist of any combination of retail installment
sales contracts between manufacturers, dealers or
certain other originators and retail purchasers
secured by new and used automobiles and light duty
trucks financed thereby, together with all monies
received relating thereto (the " Contracts"). The
Trust Property also may include a security interest
in the underlying new and used automobiles and light
duty trucks and property relating thereto, together
with the proceeds thereof (the "Vehicles" and
together with the Contracts, the "Receivables").
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The Trust Property will include Receivables with
respect to which the related Contract or the related
Vehicles is subject to federal or state registration
or titling requirements.
If and to the extent specified in the related
Prospectus Supplement, credit enhancement with
respect to the Trust Property or any class of
Securities may include any one or more of the
following: a financial guaranty insurance policy (a
" Policy") issued by an insurer specified in the
related Prospectus Supplement, a reserve account,
letters of credit, credit or liquidity facilities,
third party payments or other support, cash deposits
or other arrangements. In addition to or in lieu of
the foregoing, credit enhancement may be provided by
means of subordination, cross-support among the
Receivables or over-collateralization. The Company
will originate Receivables or acquire Receivables
from one or more originators on or prior to the date
of issuance of the related Securities, as described
under "Advanta's Automobile Financing Program"
herein and in the related Prospectus Supplement.
With respect to Securities issued by a Trust, each
Trust will be established pursuant to an agreement
(each, a "Pooling Agreement") by and between the
Company and the Trustee named therein. Each Pooling
Agreement will describe the related pool of
Receivables held by the Trust.
With respect to Securities that represent debt
issued by the Issuer, the Issuer will enter into an
indenture (each, an "Indenture") by and between the
Issuer and the trustee named on such Indenture (the
"Indenture Trustee"). Each Indenture will describe
the related pool of Receivables comprising the Trust
Property and securing the debt issued by the related
Issuer.
The Receivables comprising the Trust Property will
be serviced by the Servicer pursuant to a servicing
agreement (each, a "Servicing Agreement") by and
between the Servicer and the related Issuer.
In the case of the Trust Property of any class of
Securities, the contractual arrangements relating to
the establishment of a Trust, if any, the servicing
of the related Receivables and the issuance of the
related Securities may be contained in a single
agreement, or in several agreements which combine
certain aspects of the Pooling Agreement, the
Servicing Agreement and the Indenture described
above (for example, a pooling and servicing
agreement, or a servicing and collateral management
agreement). For purposes of this Prospectus, the
term "Trust Agreement" as used with respect to Trust
Property means, collectively, and except as
otherwise described in the related Prospectus
Supplement, any and all agreements relating to the
establishment of a Trust, if any, the servicing of
the related Receivables and the issuance of the
related Securities. The term "Trustee" means any and
all persons acting as a trustee pursuant to a Trust
Agreement.
Securities Will Be Non-Recourse.
The Securities will not be obligations, either
recourse or non-recourse (except for certain
non-recourse debt described under "Certain Tax
Considerations"), of the Company, the related
Servicer or any person other than the related
Issuer. The Notes of a given series represent
obligations of the Issuer, and the Certificates of a
given series represent beneficial interests in the
related Issuer only and do not represent interests
in or obligations of the Company, the related
Servicer or any of their respective affiliates other
than the related Issuer. In the case of Securities
that represent beneficial ownership interest in the
related Issuer, such Securities will represent the
beneficial ownership interests in such Issuer and
the sole source of payment will be the assets of
such Issuer. In the case of Securities
5
<PAGE>
that represent debt issued by the related Issuer,
such Securities will be secured by assets in the
related Trust Property. Notwithstanding the
foregoing, and as to be described in the related
Prospectus Supplement, certain types of credit
enhancement, such as a letter of credit, financial
guaranty insurance policy or reserve fund may
constitute a full recourse obligation of the issuer
of such credit enhancement.
General Nature of the Securities as Investments.
All of the Securities offered pursuant to this
Prospectus and the related Prospectus Supplement
will be rated in one of the four highest rating
categories by one or more Rating Agencies.
Additionally, except to the extent provided in the
related Prospectus Supplement, all of the Securities
offered pursuant to this Prospectus and the related
Prospectus Supplement will be of the fixed-income
type ("Fixed Income Securities"). Fixed Income
Securities will generally be styled as debt
instruments, having a principal balance and a
specified interest rate ("Interest Rate"). Fixed
Income Securities may either represent beneficial
ownership interests in the related Receivables held
by the related Trust or debt secured by certain
assets of the related Issuer.
Each series or Class of Fixed Income Securities
offered pursuant to this Prospectus may have a
different Interest Rate, which may be a fixed or
adjustable Interest Rate. The related Prospectus
Supplement will specify the Interest Rate for each
series or Class of Fixed Income Securities described
therein, or the initial Interest Rate and the method
for determining subsequent changes to the Interest
Rate.
A series may include one or more Classes of Fixed
Income Securities ("Strip Securities") entitled (i)
to principal distributions, with disproportionate,
nominal or no interest distributions, or (ii) to
interest distributions, with disproportionate,
nominal or no principal distributions. In addition,
a series of Securities may include two or more
Classes of Fixed Income Securities that differ as to
timing, sequential order, priority of payment,
Interest Rate or amount of distribution of principal
or interest or both, or as to which distributions of
principal or interest or both on any Class may be
made upon the occurrence of specified events, in
accordance with a schedule or formula, or on the
basis of collections from designated portions of the
related pool of Receivables. Any such series may
include one or more Classes of Fixed Income
Securities ("Accrual Securities"), as to which
certain accrued interest will not be distributed but
rather will be added to the principal balance (or
nominal balance, in the case of Accrual Securities
which are also Strip Securities) thereof on each
Payment Date, as hereinafter defined, or in the
manner described in the related Prospectus
Supplement.
If so provided in the related Prospectus Supplement,
a series may include one or more other Classes of
Fixed Income Securities (collectively, the "Senior
Securities") that are senior to one or more other
Classes of Fixed Income Securities (collectively,
the "Subordinate Securities") in respect of certain
distributions of principal and interest and
allocations of losses on Receivables.
In addition, certain Classes of Senior (or
Subordinate) Securities may be senior to other
Classes of Senior (or Subordinate) Securities in
respect of such distributions or losses.
General Payment Terms of Securities.
As provided in the related Trust Agreement and as
described in the related Prospectus Supplement, the
holders of the Securities ("Securityholders") will
be entitled to receive payments on their
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Securities on specified dates (each, a "Payment
Date"). Payment Dates with respect to Fixed Income
Securities will occur monthly, quarterly or
semi-annually, as described in the related
Prospectus Supplement.
The related Prospectus Supplement will describe a
date (the "Record Date") preceding such Payment
Date, as of which the Trustee or its paying agent
will fix the identity of the Securityholders for the
purpose of receiving payments on the next succeeding
Payment Date. As described in the related Prospectus
Supplement, the Payment Date will be a specified day
of each month, commonly the tenth, twelfth,
fifteenth or twenty-fifth day of each month (or, in
the case of quarterly-pay Securities, the tenth,
twelfth, fifteenth or twenty-fifth day of every
third month; and in the case of semi-annual pay
Securities, the tenth, twelfth, fifteenth or
twenty-fifth day of every sixth month) and the
Record Date will be the close of business as of the
last day of the calendar month that precedes the
calendar month in which such Payment Date occurs.
Each Trust Agreement will describe a period (each, a
"Remittance Period") preceding each Payment Date
(for example, in the case of monthly-pay Securities,
the calendar month preceding the month in which a
Payment Date occurs). As more fully described in the
related Prospectus Supplement, collections received
on or with respect to the related Receivables
constituting Trust Property during a Remittance
Period will be required to be remitted by the
Servicer to the related Trustee prior to the related
Payment Date and will be used to fund payments to
Securityholders on such Payment Date. As may be
described in the related Prospectus Supplement, the
related Trust Agreement may provide that all or a
portion of the payments collected on or with respect
to the related Receivables may be applied by the
related Trustee to the acquisition of additional
Receivables during a specified period (rather than
be used to fund payments of principal to
Securityholders during such period), with the result
that the related Securities will possess an
interest-only period, also commonly referred to as a
revolving period, which will be followed by an
amortization period. Any such interest only or
revolving period may, upon the occurrence of certain
events to be described in the related Prospectus
Supplement, terminate prior to the end of the
specified period and result in the earlier than
expected amortization of the related Securities.
Such events which may result in an early
amortization event will generally consist of (i) the
Company's inability to deliver sufficient,
additional Receivables to maintain the revolving
period, (ii) an event of default by the Company or
the Servicer (i.e., the Company's or the Servicer's
failure to perform their respective duties under the
related Trust Agreement) and (iii) the occurrence of
a bankruptcy event with respect to the Company or
the Servicer.
In addition, and as may be described in the related
Prospectus Supplement, the related Trust Agreement
may provide that all or a portion of such collected
payments may be retained by the Trustee (and held in
certain temporary investments, including
Receivables) for a specified period prior to being
used to fund payments of principal to
Securityholders.
Such retention and temporary investment by the
Trustee of such collected payments may be required
by the related Trust Agreement for the purpose of
(a) slowing the amortization rate of the related
Securities relative to the installment payment
schedule of the related Receivables, or (b)
attempting to match the amortization rate of the
related Securities to an amortization schedule
established at the time such Securities are issued.
Any such feature applicable to any Securities may
terminate upon the occurrence of events to be
described in the related Prospectus Supplement,
resulting in
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distributions to the specified Securityholders and
an acceleration of the amortization of such
Securities.
As more fully specified in the related Prospectus
Supplement, neither the Securities nor the
underlying Receivables will be guaranteed or insured
by any governmental agency or instrumentality or the
Company, the related Servicer, any Trustee, or any
of their affiliates.
No Investment Companies. Neither the Company nor any Trust will register as
an "investment company" under the Investment Company
Act of 1940, as amended (the "Investment Company
Act").
Risk Factors............ There are material risks associated with an
investment in the Securities offered hereby;
prospective Securityholders should read "Risk
Factors" herein, as well as the "Risk Factors"
section of the related Prospectus Supplement.
Securities will not be
listed on any Exchange.. It is not expected that any Securities described
herein will be listed on any securities exchange.
Such lack of exchange listing is likely to result in
a relatively illiquid market for the Securities. It
is, however, further expected that the
underwriter(s) of each series of Securities will
make a market for such Securities for so long as
they remain outstanding, although such
underwriter(s) will have no obligation to the
Company or the related Securityholders so to make a
market.
See "Risk Factors -- Limited Liquidity" herein.
The Residual Interest... With respect to each Trust, the "Residual Interest"
at any time represents the rights to the related
Trust Property in excess of the Securityholders'
interest of all series then outstanding that were
issued by such Trust. The Residual Interest in any
Trust Property will fluctuate as the aggregate Pool
Balance of such Trust Fund changes from time to
time. A portion of the Residual Interest in any
Trust may be sold separately in one or more public
or private transactions.
Master Trusts; Issuance of
Additional Series ...... As may be described in the related Prospectus
Supplement, the Company may cause one or more of the
Trusts (such a Trust, a "Master Trust") to issue
additional series of Securities from time to time.
Under each Trust Agreement relating to a Master
Trust (each, a "Master Trust Agreement"), the
Company may determine the terms of any such new
series. See "Description of the Securities -- Master
Trusts."
The Company may cause the related Trustee to offer
any such new series to the public or other
investors, in transactions either registered under
the Securities Act or exempt from registration
thereunder, directly or through one or more
underwriters or placement agents, in fixed-price
offerings or in negotiated transactions or
otherwise.
A new series to be issued by a Master Trust which
has a series outstanding may, only be issued upon
satisfaction of the conditions described herein
under "Description of the Securities -- Master
Trusts". Securities secured by Receivables held by a
Master Trust shall be entitled to moneys received
relating to such Receivables on a equal priority
basis with other Securities issued pursuant to the
other Trust Agreements by such Master Trust.
Cross-Collateralization. As described in the related Trust Agreement and the
related Prospectus Supplement, the source of payment
for Securities of each series will be the assets of
the related Trust Property only.
However, as may be described in the related
Prospectus Supplement, a series or class of
Securities may include the right to receive moneys
from a common pool of credit enhancement which may
be available
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for more than one series of Securities, such as a
master reserve account, master insurance policy or a
master collateral pool consisting of similar
Receivables. Notwithstanding the foregoing, and as
described in the related Prospectus Supplement, no
payment received on any Receivable held by any Trust
may be applied to the payment of Securities issued
by any other Trust (except to the limited extent
that certain collections in excess of the amounts
needed to pay the related Securities may be
deposited in a common master reserve account or an
overcollateralization account that provides credit
enhancement for more than one series of Securities
issued pursuant to the related Trust Agreement).
Trust Property.......... As specified in the related Prospectus Supplement,
the Trust Property will consist of the related
Contracts, and may include a security interest in
the related Vehicles. If and to the extent specified
in the related Prospectus Supplement, credit
enhancement with respect to Trust Property or any
class of Securities may include any one or more of
the following: a Policy issued by an insurer
specified in the related Prospectus Supplement, a
reserve account, letters of credit, credit or
liquidity facilities, repurchase obligations, third
party payments or other support, cash deposits or
other arrangements. In addition to or in lieu of the
foregoing, credit enhancement may be provided by
means of subordination, cross-support among the
Receivables or over-collateralization. See
"Description of the Trust Agreement -- Credit and
Cash Flow Enhancement." The Contracts are
obligations for the purchase of the Vehicles, or
evidence borrowings used to acquire the Vehicles. As
specified in the related Prospectus Supplement, the
Contracts may consist of Rule of 78s Contracts, or
Simple Interest Contracts. Generally, "Rule of 78s
Contracts" provide for fixed level monthly payments
which will amortize the full amount of the Contract
over its term. The Rule of 78s Contracts provide for
allocation of payments according to the "sum of
periodic balances" or "sum of monthly payments"
method (the "Rule of 78s"). Each Rule of 78s
Contract provides for the payment by the Obligor of
a specified total amount of payments, payable in
monthly installments on the related due date, which
total represents the principal amount financed and
finance charges in an amount calculated on the basis
of a stated annual percentage rate ("APR") for the
term of such Contract. The rate at which such amount
of finance charges is earned and, correspondingly,
the amount of each fixed monthly payment allocated
to reduction of the outstanding principal balance of
the related Contract are calculated in accordance
with the Rule of 78s. Under the Rule of 78s, the
portion of each payment allocable to interest is
higher during the early months of the term of a
Contract and lower during later months than that
under a constant yield method for allocating
payments between interest and principal.
Notwithstanding the foregoing, as specified in the
related Prospectus Supplement, all payments received
by the related Servicer on or in respect of the Rule
of 78s Contracts may be allocated on an actuarial or
simple interest basis.
"Simple Interest Contracts" provide for the
amortization of the amount financed under the
receivable over a series of fixed level monthly
payments. However, unlike the monthly payment under
Rule of 78s Contracts, 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 APR 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 Contract, the
amount received is applied first to interest accrued
to the date of payment and the balance is applied to
reduce the unpaid principal balance. Accordingly, if
an Obligor pays a fixed monthly installment before
its scheduled due date, the portion of the payment
allocable to interest for the period since the
preceding payment was made will be less than it
would have been had the payment been made as
scheduled, and the portion of the payment
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<PAGE>
applied to reduce the unpaid principal balance will
be correspondingly greater. Conversely, if an
Obligor pays a fixed monthly installment after its
scheduled due date, the portion of the payment
allocable to interest for the period since the
preceding payment was made will be greater than it
would have been had the payment been made as
scheduled, and the portion of the payment applied to
reduce the unpaid principal balance will be
correspondingly less. In either case, the Obligor
pays a fixed monthly installment until the final
scheduled payment date, at which time the amount of
the final installment is increased or decreased as
necessary to repay the then outstanding principal
balance.
If an Obligor elects to prepay a Rule of 78s
Contract in full, it is entitled to a rebate of the
portion of the outstanding balance then due and
payable attributable to unearned finance charges. If
a Simple Interest Contract is prepaid, rather than
receive a rebate, the Obligor is required to pay
interest only to the date of prepayment. The amount
of a rebate under a Rule of 78s Contract calculated
in accordance with the Rule of 78s will always be
less than had such rebate been calculated on an
actuarial basis and generally will be less than the
remaining scheduled payments of interest that would
be due under a Simple Interest Contract for which
all payments were made on schedule. Distributions to
Securityholders may not be affected by Rule of 78s
rebates under the Rule of 78s Contracts because
pursuant to the related Prospectus Supplement such
distributions may be determined using the actuarial
or simple interest method.
The related Prospectus Supplement will further
describe the type and characteristics of the
Contracts included in the Trust Property relating to
the Securities offered pursuant to this Prospectus
and the related Prospectus Supplement.
The Company will either transfer Receivables to a
Trust pursuant to a Pooling Agreement or pledge the
Company's right, title and interest in and to such
Receivables to a Trustee on behalf of
Securityholders pursuant to an Indenture. The
obligations of the Company, the Servicer, the
related Trustee and the related Indenture Trustee,
if any, under the related Trust Agreement include
those specified below and in the related Prospectus
Supplement.
In addition, if so specified in the related
Prospectus Supplement, the Trust Property will
include monies on deposit in a Pre-Funding Account
(the "Pre-Funding Account") to be established with
the Trustee, which will be used to acquire
Additional Receivables from time to time during the
"Pre-Funding Period" specified in the related
Prospectus Supplement. The Pre-Funding Account, if
any, will be reduced during the related Pre-Funding
Period by the amount thereof used to purchase
Additional Receivables. Any amount remaining in the
Pre-Funding Account at the end of the related
Pre-Funding Period will be distributed to the
related Securityholders, pro rata, on the Payment
Date immediately following the end of the
Pre-Funding Period.
If and to the extent provided in the related
Prospectus Supplement, the Company will be obligated
(subject only to the availability thereof) to either
transfer to a Trust or pledge to a Trustee on behalf
of Securityholders, additional Receivables (the
"Additional Receivables") from time to time during
any Pre-Funding Period specified in the related
Prospectus Supplement.
Special Payment
Features.............. The Receivables may contain the following special
payment features:
"Balloon" Payments: In a "balloon" payment
Receivable, the final scheduled payment may be
substantially higher than the preceding scheduled
payments. Such balloon payment Receivables may have
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a higher risk of loss than Receivables that do not
contain such a feature, as borrowers may have
difficulty in paying (or refinancing) the large
final payment.
Adjustable Rate Receivables: Certain of the
Receivables may calculate interest on an adjustable
rate basis (an index such as Prime or LIBOR) rather
than on a fixed rate basis. Such Receivables may be
subject to minimum ("floors") and maximum ("caps")
rates of interest. Such adjustable rate Receivables
may have higher risk of loss than do Receivables
with a fixed rate of interest, as borrowers may have
difficulty paying the higher monthly payments which
result from an increase in rates.
"Pay for Performance" Program: The Company may offer
loans in which the interest rate may decrease if the
borrower maintains a steady history of timely
payment over a specified period of time. Any such
decrease in rate, although generally indicative of
good performance, may result in decreased cash
received by the related Issuer.
Registration of
Securities ............. Securities may be represented by global securities
registered in the name of Cede & Co. ("Cede"), as
nominee of The Depository Trust Company ("DTC"), or
another nominee. In such case, Securityholders will
not be entitled to receive definitive securities
representing such Securityholders' interests, except
in certain circumstances described in the related
Prospectus Supplement. See "Description of the
Securities -- Book Entry Registration" herein.
Credit and Cash Flow
Enhancement ............ If and to the extent specified in the related
Prospectus Supplement, credit enhancement with
respect to Trust Property or any class of Securities
may include any one or more of the following: a
Policy issued by an insurer specified in the related
Prospectus Supplement (a "Security Insurer"), a
reserve account, letters of credit, credit or
liquidity facilities, third party payments or other
support, cash deposits or other arrangements. Any
form of credit enhancement will have certain
limitations and exclusions from coverage thereunder,
which will be described in the related Prospectus
Supplement. See "Description of the Trust Agreement
-- Credit and Cash Flow Enhancement."
Repurchase Obligations and
the Receivables Acquisition
Agreement............... As more fully described in the related Prospectus
Supplement, the Company will be obligated to acquire
from the related Trust Property any Receivable which
was transferred pursuant to a Pooling Agreement or
pledged pursuant to an Indenture if the interest of
the Securityholders therein is materially adversely
affected by a breach of any representation or
warranty made by the Company with respect to such
Receivable, which breach has not been cured. In
addition, if so specified in the related Prospectus
Supplement, the Company may from time to time
reacquire certain Receivables of the Trust Property,
subject to specified conditions set forth in the
related Trust Agreement.
Servicer's Compensation. The Servicer shall be entitled to receive a fee for
servicing the Trust Property equal to a specified
percentage of the value of such Trust Property, as
set forth in the related Prospectus Supplement. See
"Description of the Trust Agreements -- Servicing
Compensation" herein and in the related Prospectus
Supplement.
Certain Legal Aspects
of the Contracts........ With respect to the transfer of the Contracts to the
related Trust pursuant to a Pooling Agreement or the
pledge of the related Issuer's right, title and
interest in and to such Contracts on behalf of
Securityholders pursuant to an Indenture, the
Company will warrant, in each case, that such
transfer is either a valid transfer and assignment
of the Contracts to the Trust or the grant of a
security
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<PAGE>
interest in the Contracts. Each Prospectus
Supplement will specify what actions will be taken
by which parties as will be required to perfect
either the Issuer's or the Securityholders' security
interest in the Contracts. The Company may also
warrant that, if the transfer or pledge by it to the
Trust or to the Securityholders is deemed to be a
grant to the Trust or to the Securityholders of a
security interest in the Contracts, then the related
Issuer or the Securityholders will have a first
priority perfected security interest therein, except
for certain liens which have priority over
previously perfected security interests by operation
of law, and, with certain exceptions, in the
proceeds thereof. Similar security interest and
priority representations and warranties, as
described in the related Prospectus Supplement, may
also be made by the Company with respect to the
Vehicles.
Perfection of security interests in automobiles and
light duty trucks is generally governed by the
vehicle registration or titling laws of the state in
which each vehicle is registered or titled. In most
states, a security interest in a vehicle is
perfected by notation of the secured party's lien on
the vehicle's certificate of title. Each Prospectus
Supplement will specify whether the Company, the
Servicer or the Trustee, in light of the
administrative burden and expense, will amend any
certificate of title to identify the Company or the
Trustee as the new secured party on the certificates
of title relating to the Vehicles. See "Certain
Legal Aspects of the Receivables."
Each Prospectus Supplement will specify if the
Company has filed or will be required to file UCC
financing statements identifying the Vehicles as
collateral pledged in favor of the related Trust or
Trustee on behalf of the Securityholders. In the
absence of such filings any security interest in the
Vehicles will not be perfected in favor of the
related Trust or Trustee. See "Certain Legal Aspects
of the Receivables."
Optional Termination.... The Servicer, the Company, or, if specified in the
related Prospectus Supplement, certain other
entities may, at their respective options, effect
early retirement of a series of Securities under the
circumstances and in the manner set forth herein
under "Description of The Trust Agreement --
Termination" and in the related Prospectus
Supplement. Such termination may occur either at a
date certain (e.g., thirty months following the
issuance date) or at such time as the Pool Factor
has declined to a specified level, which will
generally not exceed 10%. The specific date and/or
Pool Factor level at which such termination may
occur with respect to a series of Securities shall
be set forth in the related Prospectus Supplement.
Mandatory Termination... The Trustee, the Servicer or certain other entities
specified in the related Prospectus Supplement may
be required to effect early retirement of all or any
portion of a series of Securities by soliciting
competitive bids for the purchase of the Trust
Property or otherwise, under other circumstances and
in the manner specified in "Description of The Trust
Agreement -- Termination" and in the related
Prospectus Supplement. Such termination may occur
either at a date certain (e.g., thirty months
following the issuance date) or at such time as the
Pool Factor has declined to a specified level, which
will generally not exceed 10%. The specific date
and/or Pool Factor level at which such termination
may occur with respect to a series of Securities
shall be set forth in the related Prospectus
Supplement.
Tax Considerations...... Securities of each series offered hereby will, for
federal income tax purposes, constitute either (i)
interests in a Trust treated as a grantor trust
under applicable provisions of the Code ("Grantor
Trust Securities"), (ii) debt issued by an Issuer or
by the Company ("Debt Securities"), (iii) interests
in a Trust which is treated as a partnership
("Partnership Interests") or (iv) interests in a
Trust which elects to be treated as a "financial
asset securitization investment trust" (a "FASIT").
The tax characterization of any series of Securities
will be
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<PAGE>
described in the related Prospectus Supplement, and
the related Opinion of tax counsel will be filed as
part of a Current Report 8-K filing in connection
with each issuance.
Investors are advised to consult their tax advisors
and to review " Federal Income Tax Consequences" in
the related Prospectus Supplement.
ERISA Considerations.... The Prospectus Supplement for each series of
Securities will summarize, subject to the
limitations discussed therein, considerations under
the Employee Retirement Income Security Act of 1974,
as amended (" ERISA"), relevant to the purchase of
such Securities by employee benefit plans and
individual retirement accounts. See "ERISA
Considerations" in the related Prospectus
Supplement.
Ratings................. Each Class of Securities offered pursuant to this
Prospectus and the related Prospectus Supplement
will be rated in one of the four highest rating
categories by one or more "national statistical
rating organizations", as defined in the Securities
Exchange Act of 1934, as amended (the "Exchange
Act"), and commonly referred to as "Rating
Agencies". Such ratings will address, in the opinion
of such Rating Agencies, the likelihood that the
Issuer will be able to make timely payment of all
amounts due on the related Securities in accordance
with the terms thereof. Such ratings will neither
address any prepayment or yield considerations
applicable to any Securities nor constitute a
recommendation to buy, sell or hold any Securities.
The ratings expected to be received with respect to
any Securities will be set forth in the related
Prospectus Supplement.
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RISK FACTORS
Prospective Securityholders should consider, among other things, the
following factors in connection with the purchase of the Securities:
Limited Liquidity May Result in a Securityholder Being Unable to Liquidate
its Investment. It is not expected that any Securities offered hereby will be
listed on any securities exchange. Such lack of exchange listing is likely to
result in a relatively illiquid market for the Securities.
There can be no assurance that a secondary market for the Securities of
any series or Class will develop or, if it does develop, that it will provide
Securityholders with liquidity of investment or that it will continue for the
life of such Securities. The Prospectus Supplement for any series of Securities
may indicate that an underwriter specified therein intends to establish and
maintain a secondary market in such Securities; however, no underwriter will be
obligated to do so.
Ownership of Contracts will not necessarily be vested in the related
Trustee, with the result that delays and disruptions in payments may occur. The
Company will warrant in a Trust Agreement (i) if the Company retains title to
the Contracts, that the Trustee for the benefit of Securityholders has a valid
security interest in such Contracts, or (ii) if the Company transfers such
Contracts to an Issuer, that the transfer of the Contracts to such Issuer is
either a valid assignment, transfer and conveyance of the Contracts to the
Issuer or the Trustee on behalf of the Securityholders has a valid security
interest in such Contracts. As to be described in the related Prospectus
Supplement, the related Trust Agreement will provide either that the Trustee
will be required to maintain possession of the original copies of all Contracts
that constitute chattel paper or that the Company or the Servicer will retain
possession of such Contracts; provided that in case the Company retains
possession of the related Contracts, the Servicer may take possession of such
original copies as necessary for the enforcement of any Contract. If any
Contracts remain in the possession of the Company, the related Prospectus
Supplement may describe specific trigger events that will require delivery to
the Trustee. If the Company, the Servicer, the Trustee or other third party,
while in possession of the Contracts, sells or pledges and delivers such
Contracts to another party, in violation of the Receivables Acquisition
Agreement or the Trust Agreement, there is a risk that such other party could
acquire an interest in such Contracts having a priority over the Issuer's
interest. Furthermore, if the Company, the Servicer or a third party, while in
possession of the Contracts, is rendered insolvent, such event of insolvency may
result in competing claims to ownership or security interests in the Contracts.
Such an attempt, even if unsuccessful, could result in delays in payments on the
Securities. If successful, such attempt could result in losses to the
Securityholders or an acceleration of the repayment of the Securities. The
Company will be obligated to repurchase any Contract originated by the Company
and currently in the related Trust Property if there is a breach of the
Company's representations and warranties that materially and adversely affects
the interests of the Trust in such Contract and such breach has not been cured.
Security Interests in both the Receivables and the underlying Vehicles may
not be valid under certain circumstances. The transfer of the Receivables by the
Company to the Trustee pursuant to the related Trust Agreement, the perfection
of the security interests in the Receivables and the enforcement of rights to
realize on the Vehicles as collateral for the Receivables are subject to a
number of federal and state laws, including the UCC as in effect in various
states. As specified in each Prospectus Supplement, the Servicer will take such
action as is required to perfect the rights of the Trustee in the Receivables.
If, through inadvertence or otherwise, a third party were to purchase (including
the taking of a security interest in) a Receivable for new value in the ordinary
course of its business, without actual knowledge of the Trustee's interest, and
take possession of a Receivable, the purchaser would acquire an interest in such
Receivable superior to the interest of the Trustee, with the result that such
Receivable would no longer be available as part of the Trust Property for the
related series of Securities. As further specified in each Prospectus
Supplement, no action will be taken to perfect the rights of the Trustee in
proceeds of any insurance policies covering individual Vehicles or Obligors.
Therefore, the rights of a third party with an interest in such proceeds could
prevail against the rights of the Trustee prior to the time such
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proceeds are deposited by the Servicer into a Trust Account. See "Certain Legal
Aspects of the Receivables".
Except to the extent specified in the related Prospectus Supplement, each
Contract will include a perfected security interest in the related Vehicle in
favor of the Trustee or the Company (and, if perfected in the name of the
Company, assigned pursuant to the related Trust Agreement to the Trustee for the
benefit of the Securityholders). However, to the extent provided in the related
Prospectus Supplement, due to the administrative burden and expense, the
certificates of title of the Vehicles securing certain Contracts which reflect
the security interest of the Company or an unaffiliated originator in such
Vehicles may not be endorsed to reflect the Trustee's interest therein or
delivered to the Trustee. In the absence of such endorsement and delivery, the
Trustee may not have a perfected security interest in such Vehicles. As a
result, a third party buyer of a Vehicle for value from an Obligor may
extinguish the interest of the Trust in the Vehicle, a subsequent perfected
lienholder may obtain a security interest senior in right to that of the Trust,
and a trustee in bankruptcy of the Company may be able to assert successfully
that the Trust did not have a security interest in the Vehicle. In addition,
statutory liens for repairs or unpaid taxes and other liens arising by operation
of law may have priority even over prior perfected security interests in the
name of the Trustee in the Vehicles.
Restrictions on Recoveries may result in the related Issuer receiving
substantially less than the face amount of the related Contract. Unless specific
limitations are described on the related Prospectus Supplement with respect to
specific Contracts, all Contracts will provide that the obligations of the
Obligors thereunder are absolute and unconditional, regardless of any defense,
set-off or abatement which the Obligor may have against the Company or any other
person or entity whatsoever. The Company will warrant that no claims or defenses
have been asserted or threatened with respect to the Contracts and that all
requirements of applicable law with respect to the Contracts have been
satisfied.
In the event that the Company or the Trustee must rely on repossession and
disposition of Vehicles to recover scheduled payments due on defaulted
contracts, i.e., Contracts which are seriously delinquent such as 90 or 120
days, or as to which the related Obligor has affirmatively indicated an
inability or unwillingness to make payment ("Defaulted Contracts"), the Issuer
may not realize the full amount due on a Contract (or may not realize the full
amount on a timely basis). Other factors that may affect the ability of the
Issuer to realize the full amount due on a Contract include whether amendments
to certificates of title relating to the Vehicles had been filed, whether
financing statements to perfect the security interest in the Vehicles had been
filed, depreciation, obsolescence, damage or loss of any Vehicle, and the
application of Federal and state bankruptcy and insolvency laws. As a result,
the Securityholders may be subject to delays in receiving payments and suffer
loss of their investment in the Securities.
Although the transactions will be structured so as to minimize the risks
associated with the Company's bankruptcy, such safeguards may not eliminate all
such Risks. The Company will take steps in structuring the transactions
contemplated hereby that are intended to ensure that the voluntary or
involuntary application for relief by the Company under the United States
Bankruptcy Code or similar applicable state laws ("Insolvency Laws") will not
result in the Trust Property becoming property of the estate of the Company
within the meaning of such Insolvency Laws. Such steps will generally involve
the creation by the Company of one or more separate, limited-purpose
subsidiaries (each, a "Finance Subsidiary") pursuant to articles of
incorporation containing certain limitations (including restrictions on the
nature of such Finance Subsidiary's business and a restriction on such Finance
Subsidiary's ability to commence a voluntary case or proceeding under any
Insolvency Law without the prior unanimous affirmative vote of all its
directors). However, there can be no assurance that the activities of any
Finance Subsidiary would not result in a court's concluding that the assets and
liabilities of such Finance Subsidiary should be consolidated with those of the
Company in a proceeding under any Insolvency Law.
While an originator is the Servicer, cash collections held by such
originator may, subject to certain conditions, be commingled and used for the
benefit of such originator prior to each Payment Date and, in the event of the
bankruptcy of such originator, the Company, a Trust or Trustee may not have a
perfected interest in such collections.
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The Company believes that the transfer of the Receivables by the Company
to a Finance Subsidiary should be treated as a valid assignment, transfer and
conveyance of such Receivables. However, in the event of an insolvency of the
Company, a court, among other remedies, could attempt to recharacterize the
transfer of the Receivables by the Company to the Finance Subsidiary as a
borrowing by the Company from the Finance Subsidiary or the related
Securityholders, secured by a pledge of such Receivables. Such an attempt, even
if unsuccessful, could result in delays in payments on the Securities. If such
an attempt were successful, a court, among other remedies, could elect to
accelerate payment of the Securities and liquidate the Receivables, with the
Securityholders entitled to the then outstanding principal amount thereof and
interest thereon at the applicable Security Interest Rate to the date of
payment. Thus, the Securityholders could lose the right to future payments of
interest and might incur reinvestment losses. As more fully described in the
related Prospectus Supplement, in the event the related Issuer is rendered
insolvent, the related Trustee for a Trust, in accordance with the Trust
Agreement, will promptly sell, dispose of or otherwise liquidate the related
Receivables in a commercially reasonable manner on commercially reasonable
terms. The proceeds from any such sale, disposition or liquidation of such
Receivables will be treated as collections on such Receivables. If the proceeds
from the liquidation of the Receivables and any amount available from any credit
enhancement, if any, are not sufficient to pay Securities of the related series
in full, the amount of principal returned to such Securityholders will be
reduced and such Securityholders will incur a loss.
Obligors of the Vehicles may be entitled to assert against the Company,
the Issuer, or the Trust, if any, claims and defenses which they have against
the Company with respect to the Receivables. The Company will warrant that no
such claims or defenses have been asserted or threatened with respect to the
Receivables and that all requirements of applicable law with respect to the
Receivables have been satisfied.
Financial Condition of the Company may be relevant even if the intended
bankruptcy characterization is sustained. The Company is generally not obligated
to make any payments in respect of the Securities or the Receivables of a
specific Trust. If the Company were to cease acting as Servicer, delays in
processing payments on the Receivables and information in respect thereof could
occur and result in delays in payments to the Securityholders.
In certain circumstances, the Company will be required to acquire
Receivables from the related Trust Property with respect to which such
representations and warranties have been breached. In the event that the Company
is incapable of complying with its reacquire obligations and no other party is
obligated to perform or satisfy such obligations, Securityholders may be subject
to delays in receiving payments and suffer loss of their investment in the
Securities.
Insurance on Vehicles will generally be required at the time of
origination, although no assurance can be given that such insurance will be
maintained. The Company generally requires that the Obligor insure the related
Vehicle with a physical damage policy naming the Company as loss payee. Although
such insurance on the Vehicle is generally required at the time of the Contract
origination, there can be no assurance that the Obligor will maintain the
appropriate coverage on the Vehicle. Prior to the month of the policy expiration
date, the Servicer will send a notice to the Obligor requesting that the Obligor
notify the Servicer as to the status of the renewed policy. If the Servicer does
not receive a response from the Obligor, the Servicer will send a second
notification and await response from the Obligor regarding the policy status.
The Company does not anticipate force placing insurance (i.e., obtaining such
insurance coverage without the consent of the related Obligor) on the related
Vehicles. The Company will not represent and warrant to the related Trustee that
each Vehicle is in fact covered by a physical damage policy, although the
Company will represent and warrant that the procedures described above will be
followed with respect to each Vehicle. As a consequence of the foregoing, the
Vehicles may not be covered by physical damage insurance and losses to
Securityholders may result from such lack of coverage.
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Delinquencies may vary over time, and any increase in delinquencies may
result in an unanticipated level of loss. There can be no assurance that the
historical levels of delinquencies and losses experienced by the Company on its
respective loan and vehicle portfolio will be indicative of the performance of
the Contracts included in the related Trust Property or that such levels will
continue in the future. Delinquencies and losses could increase significantly
for various reasons, including changes in the federal income tax laws, changes
in the local, regional or national economies, the failure to service the
Receivables Pool adequately, or the transfer or relocation of the Servicing from
the Company or any Sub-Servicer to another.
Provisions applicable to a Series will have adverse consequences for the
subordinate Classes. To the extent specified in the related Prospectus
Supplement, distributions of interest and principal on one Class of Securities
of a series may be subordinated in priority of payment to interest and principal
due on other Classes of Securities of a related series. Consequently, the risk
of loss on the related Receivables pool may be disproportionately allocated to
the holders of the more subordinate classes, making the return on investment on
such classes highly sensitive to the loss and delinquency levels of the related
pool.
The Company is not corporately liable on the Securities, and the only
source of repayment will be the related Trust Property. Moreover, the Trust
Property will not have, nor is it permitted or expected to have, any significant
assets or sources of funds other than the related Receivables and, to the extent
provided in the related Prospectus Supplement, the related reserve account and
any other credit enhancement. The Securities represent obligations solely of the
related Issuer or debt secured by the related Trust Property, and will not
represent a recourse obligation to other assets of the Company. No Securities of
any series will be insured or guaranteed by the Company, the Servicer, or the
applicable Trustee. Consequently, holders of the Securities of any series must
rely for repayment primarily upon payments on the Receivables and, if and to the
extent available, the reserve account, if any, and any other credit enhancement,
all as specified in the related Prospectus Supplement.
Master Trusts May Pose Spread Risks, since additional Series may be issued
without the consent of the holders of prior Series. As may be described in the
related Prospectus Supplement, a Master Trust may issue from time to time more
than one series. While the terms of any additional series will be specified in a
supplement to the related Master Trust Agreement, the provisions of such
supplement and, therefore, the terms of any additional series, will not be
subject to prior review by, or consent of, holders of the Securities of any
series previously issued by such Master Trust. Such terms may include methods
for determining applicable investor percentages and allocating collections,
provisions creating different or additional security or credit enhancements and
any other provisions which are made applicable only to such series. The
obligation of the related Trustee to issue any new series is subject to the
condition, among others, that such issuance will not result in any Rating Agency
reducing or withdrawing its rating of the Securities of any outstanding series
(any such reduction or withdrawal is referred to herein as a "Ratings Effect").
There can be no assurance, however, that the terms of any series might not have
an impact on the timing or amount of payments received by a Securityholder of
another series issued by the same Master Trust. See "Description of the
Securities -- Master Trusts."
Book-Entry Registration may further reduce liquidity and may lead to
payment delays. Issuance of the Securities in book-entry form may reduce the
liquidity of such Securities in the secondary trading market since investors may
be unwilling to purchase Securities for which they cannot obtain definitive
physical securities representing such Securityholders' interests, except in
certain circumstances described in the related Prospectus Supplement.
Since transactions in Securities will, in most cases, be able to be
effected only through DTC, direct or indirect participants in DTC's book-entry
system ("Direct Participants" or "Indirect Participants") or certain banks, the
ability of a Securityholder to pledge a Security to persons or entities that do
not participate in the DTC system, or otherwise to take actions in respect to
such Securities, may be limited due to lack of a physical security representing
the Securities.
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Securityholders may experience some delay in their receipt of
distributions of interest on and principal of the Securities since distributions
may be required to be forwarded by the Trustee to DTC and, in such case, DTC
will be required to credit such distributions to the accounts of its
Participants which thereafter will be required to credit them to the accounts of
the applicable class of Securityholders either directly or indirectly through
Indirect Participants. See "Description of the Securities -- Book Entry
Registration."
Subprime lending may pose special risks to investors in the Securities.
The Company's program is geared primarily to originating and acquiring Contracts
in the so-called "subprime" automobile lending industry. The subprime market for
credit consists of making loans which may not be made by traditional sources of
credit, which in the automobile finance business is comprised of insured-deposit
taking institutions such as banks, thrifts and credit unions, and finance
companies which are "captives" (i.e., finance subsidiaries) of automobile
manufacturers.
A loan may be considered "subprime" primarily for one, or both, of two
reasons: borrower credit considerations, and collateral considerations. A
borrower may be considered a "subprime" credit due to limited income, tarnished
credit history (e.g., prior bankruptcy, history of delinquent payments on other
types of installment credit) or a lack of credit history (i.e., a relatively
young individual who has not yet developed a "credit history profile").
Collateral considerations in the subprime market primarily result from the
financing, in many cases, of used vehicles. Although depreciation also affects
new automobiles, the market value of an automobile which is several years old
may be more difficult to ascertain than for a new vehicle, since such value
will depend on mileage and general condition, which may vary substantially for
different vehicles of a similar model year.
As a result of all of the foregoing factors, the performance of a subprime
portfolio may be more susceptible to performance deterioration than a prime
portfolio, since the borrowers, being more marginal credits, are likely to be
disproportionately affected by economic downturns, and since the collateral,
often consisting of older, used vehicles, may be more difficult to value
correctly.
It is also possible that the subprime automobile finance business is more
susceptible to loss than other segments of the subprime lending business
generally, such as subprime mortgage lending, due to the mobility and
depreciation of the collateral.
Another consideration with respect to the subprime automobile lending
business relates to the degree to which the industry's asset-backed securities
(such as the Securities offered hereby) are guaranteed, in whole or in part, by
Credit Enhancers which themselves have assumed substantial exposure to this
industry. See "Security Rating may be highly dependent on the ratings of an
external Credit Enhancer" below. Although such Credit Enhancers typically have a
"AAA" rating, if portfolios of subprime automobile receivables generally suffer
lower than expected levels of performance, the ratings of such Credit Enhancers
as have concentrated on this industry may be adversely affected, even if a
specific receivables pool (such as one of the Company's pools) has not suffered
such a lower than expected level of performance.
The Company's automobile finance business is relatively new, with the
initial Contracts having been originated or acquired only in May of 1996.
Consequently, the Company has not been able to develop meaningful statistics
relating to the historical performance of its portfolio. As a result, it is
unknown how the Company's portfolio performs relative to the portfolios of other
subprime lenders.
Security Rating may be highly dependent on the ratings of an external
Credit Enhancer. The rating of Securities credit enhanced by a letter of credit,
financial guaranty insurance policy, reserve fund, credit or liquidity
facilities, cash deposits or other forms of credit enhancement (collectively "
Credit Enhancement") will depend primarily on the creditworthiness of the issuer
of such external Credit Enhancement device (a "Credit Enhancer"). Any reduction
in the rating assigned to the claims-paying
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ability of the related Credit Enhancer to honor its obligations pursuant to any
such Credit Enhancement below the rating initially given to the Securities would
likely result in a reduction in the rating of the Securities.
The Rate of Payment on the Securities is unpredictable, and may be highly
volatile; if the actual payment rate deviates from an Investor's expectations,
such Investor's yield may be reduced substantially. Because the rate of payment
of principal on the Securities will depend, among other things, on the rate of
payment on the related Contracts, the rate of payment of principal on the
Securities cannot be predicted. Payments on the Contracts will include scheduled
payments as well as partial and full prepayments (to the extent not replaced
with substitute Contracts), payments upon the liquidation of Defaulted
Contracts, payments upon acquisitions by the Servicer or the Company of
Contracts from the related Trust Property on account of a breach of certain
representations and warranties in the related Trust Agreement, payments upon an
optional acquisition by the Servicer or the Company of Contracts from the
related Trust Property (any such voluntary or involuntary prepayment or other
early payment of a Contract, a "Prepayment"), and residual payments. The rate of
early terminations of Contracts due to Prepayments and defaults may be
influenced by a variety of economic and other factors, including, among others,
obsolescence, then current economic conditions and tax considerations. The risk
of reinvesting distributions of the principal of the Securities will be borne by
the Securityholders. The yield to maturity on Strip Securities or Securities
purchased at premiums or discounts to par will be extremely sensitive to the
rate of Prepayments on the related Receivables. In addition, the yield to
maturity on certain other types of classes of Securities, including Strip
Securities, Accrual Securities or certain other Classes in a series including
more than one Class of Securities, may be relatively more sensitive to the rate
of prepayment of the related Contracts than other Classes of Securities.
The rate of Prepayments of Contracts cannot be predicted and is influenced
by a wide variety of economic, social, and other factors, including prevailing
interest rates, the availability of alternate financing and local and regional
economic conditions. Therefore, no assurance can be given as to the level of
Prepayments that a Trust will experience.
Securityholders should consider, in the case of Securities purchased at a
discount, the risk that a slower than anticipated rate of Prepayments on the
Receivables could result in an actual yield that is less than the anticipated
yield and, in the case of any Securities purchased at a premium, the risk that a
faster than anticipated rate of Prepayments on the Receivables could result in
an actual yield that is less than the anticipated yield.
Limitations on Interest Payments and Repossessions may result in reduced
and/or delayed payments. Generally, under the terms of the Soldiers' and
Sailors' Civil Relief Act of 1940, as amended (the "Relief Act"), or similar
state legislation, an Obligor who enters military service after the origination
of the related Receivable (including an Obligor who is a member of the National
Guard or is in reserve status at the time of the origination of the Receivable
and is later called to active duty) may not be charged interest (including fees
and charges) above an annual rate of 6% during the period of such Obligor's
active duty status, unless a court orders otherwise upon application of the
lender. It is possible that such action could have an effect, for an
indeterminate period of time, on the ability of the Servicer to collect full
amounts of interest on certain of the Receivables. In addition, the Relief Act
imposes limitations that would impair the ability of the Servicer to foreclose
(repossess and sell at auction) on an affected Receivable during the Obligor's
period of active duty status. Thus, in the event that such a Receivable goes
into default, there may be delays and losses occasioned by the inability of the
Servicer to realize upon the Financed Vehicle in a timely fashion.
THE TRUST PROPERTY
The Trust Property will include, as specified in the related Prospectus
Supplement, (i) a pool of Receivables, (ii) all monies (including accrued
interest) due thereunder on or after the applicable Cut-off Date, (iii) such
amounts as from time to time may be held in one or more accounts established and
maintained by the Servicer pursuant to the related Trust Agreement, as described
below and in the related
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Prospectus Supplement, (iv) the security interests, if any, in the Vehicles
relating to such pool of Receivables, (v) the right to proceeds from claims on
physical damage policies, if any, covering such Vehicles or the related
Obligors, as the case may be, (vi) the proceeds of any repossessed Vehicles
related to such pool of Receivables, (vii) the rights of the Company under the
related Receivables Acquisition Agreement and (viii) interest earned on certain
short-term investments held in such Trust Property, unless the related
Prospectus Supplement specifies that such earnings may be paid to the Servicer
or the Company. The Trust Property will also include, if so specified in the
related Prospectus Supplement, monies on deposit in a Pre-Funding Account, which
will be used by the Trustee to acquire or receive a security interest in
Additional Receivables from time to time during the Pre-Funding Period specified
in the related Prospectus Supplement. See "Description of the Securities --
Forward Commitments; Pre-Funding." In addition, to the extent specified in the
related Prospectus Supplement, some combination of Credit Enhancements may be
issued to or held by the Trustee on behalf of the related Trust for the benefit
of the holders of one or more classes of Securities.
The Receivables comprising the Trust Property will, as specifically
described in the related Prospectus Supplement, be either (i) originated by the
Company, (ii) originated by various manufacturers and acquired by the Company,
(iii) originated by various Dealers and acquired by the Company or (iv) acquired
by the Company from originators or owners of Receivables.
The Trust Property will include Receivables with respect to which the
related Contract or the related Vehicles is subject to federal or state
registration or titling requirements.
The Receivables included in the Trust Property will be selected from those
Receivables held by the Company based on the criteria specified in the
applicable Trust Agreement and described herein under "The Receivables" and
"Advanta's Automobile Financing Program" and in the related Prospectus
Supplement.
With respect to each series of Securities, on or prior to the Closing Date
on which the Securities are delivered to Securityholders, the Company or a
Finance Subsidiary will form a Trust by either (i) transferring the related
Receivables into a Trust pursuant to a Trust Agreement between the Company or a
Finance Subsidiary and the Trustee or (ii) entering into an Indenture with an
Indenture Trustee, relating to the issuance of such Securities, secured by the
related Receivables.
The Receivables comprising the Trust Property will generally have been
originated by the Company or acquired by the Company from Dealers in accordance
with the Company's specified underwriting criteria. The underwriting criteria
applicable to the Receivables included in any Trust Property will be described
in all material respects in the related Prospectus Supplement.
THE ISSUERS
With respect to each series of Securities, the Company will either
establish a separate Trust that will issue such Securities, or the Company will
form a Finance Subsidiary that will issue such Securities, in each case pursuant
to the related Trust Agreement. For purposes of this Prospectus and the related
Prospectus Supplement, the Finance Subsidiary, if the Finance Subsidiary issues
the related Securities, or the related Trust, if a Trust issues the related
Securities, shall be referred to as the "Issuer" with respect to such
Securities.
Upon the issuance of the Securities of a given series, the proceeds from
such issuance will be generally used by the Company to purchase Receivables.
The Servicer will service the related Receivables pursuant to the applicable
Servicing Agreement, and will be compensated for acting as the Servicer. To
facilitate servicing and to minimize administrative burden and expense, the
Servicer may be appointed custodian for the related Receivables by each
Trustee and the Company, as may be set forth in the related Prospectus
Supplement.
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If the protection provided to the Securityholders of a given class by the
subordination of another Class of Securities of such series and by the
availability of the funds in the reserve account, if any, or any other Credit
Enhancement for such series is insufficient, the Issuer must rely solely on the
payments from the Obligors on the related Contracts, and the proceeds from the
sale of Vehicles which secure the Defaulted Contracts. In such event, the
factors described above under "Risk Factors -- Ownership of Contracts will not
necessarily be vested in the related Trustee, with the result that delays and
disruptions in payments may occur", "Risk Factors -- Security Interests in both
the Receivables and the underlying Vehicles may not be valid under certain
circumstances" and "Risk Factors -- Restrictions on Recoveries may result in the
related Issuer receiving substantially less than the face amount of the related
Contract" and described below under "Certain Legal Aspects of the Receivables"
may affect such Issuer's ability to realize on the collateral securing such
Contracts, and thus may reduce the proceeds to be distributed to the
Securityholders of such series.
THE RECEIVABLES
Receivables Pools
Information with respect to the Receivables in the related Trust Property
will be set forth in the related Prospectus Supplement, including, to the extent
appropriate, the composition of such Receivables and the distribution of such
Receivables by geographic concentration, payment frequency and current principal
balance as of the applicable Cut-off Date.
The Contracts
As specified in the related Prospectus Supplement, the Contracts may
consist of Rule of 78s Contracts, or Simple Interest Contracts. Generally, "Rule
of 78s Contracts" provide for fixed level monthly payments which will amortize
the full amount of the Contract over its term. The Rule of 78s Contracts provide
for allocation of payments according to the "sum of periodic balances" or "sum
of monthly payments" method (the "Rule of 78s"). Each Rule of 78s Contract
provides for the payment by the Obligor of a specified total amount of payments,
payable in monthly installments on the related due date, which total represents
the principal amount financed and finance charges in an amount calculated on the
basis of a stated annual percentage rate ("APR") for the term of such Contract.
The rate at which such amount of finance charges is earned and, correspondingly,
the amount of each fixed monthly payment allocated to reduction of the
outstanding principal balance of the related Contract are calculated in
accordance with the Rule of 78s. Under the Rule of 78s, the portion of each
payment allocable to interest is higher during the early months of the term of a
Contract and lower during later months than that under a constant yield method
for allocating payments between interest and principal. Notwithstanding the
foregoing, as specified in the related Prospectus Supplement, all payments
received by the Servicer on or in respect of the Rule of 78s Contracts may be
allocated on an actuarial or simple interest basis so that such payments may be
accounted for, and presented on a basis consistent with, the payments on the
Securities, which will in no case be based on the Rule 78s' method.
"Simple Interest Contracts" provide for the amortization of the amount
financed under the receivable over a series of fixed level monthly payments.
However, unlike the monthly payment under Rule of 78s Contracts, 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
APR 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 Contract, the amount received is applied first to
interest accrued to the date of payment and the balance is applied to reduce the
unpaid principal balance. Accordingly, if an Obligor pays a fixed monthly
installment before its scheduled due date, the portion of the payment allocable
to interest for the period since the preceding payment was made will be less
than it would have been had the payment been made as scheduled, and the portion
of the payment applied to reduce the unpaid principal balance will be
correspondingly greater. Conversely, if an Obligor pays a fixed monthly
installment after its scheduled due date, the portion of the payment allocable
to
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interest for the period since the preceding payment was made will be greater
than it would have been had the payment been made as scheduled, and the portion
of the payment applied to reduce the unpaid principal balance will be
correspondingly less. In either case, the Obligor pays a fixed monthly
installment until the final scheduled payment date, at which time the amount of
the final installment is increased or decreased as necessary to repay the then
outstanding principal balance.
If an Obligor elects to prepay a Rule of 78s Contract in full, it is
entitled to a rebate of the portion of the outstanding balance then due and
payable attributable to unearned finance charges. If a Simple Interest Contract
is prepaid, rather than receive a rebate, the Obligor is required to pay
interest only to the date of prepayment. The amount of a rebate under a Rule of
78s Contract calculated in accordance with the Rule of 78s will always be less
than had such rebate been calculated on an actuarial basis and generally will be
less than the remaining scheduled payments of interest that would be due under a
Simple Interest Contract for which all payments were made on schedule.
Distributions to Security holders may not be affected by Rule of 78s rebates
under the Rule of 78s Contract because pursuant to the related Prospectus
Supplement such distributions may be determined using the actuarial or simple
interest method.
Delinquencies, Repossessions, and Losses
Certain information relating to the Company's delinquency, repossession
and loss experience with respect to Contracts it has originated or acquired will
be set forth in each Prospectus Supplement. At the time of issuance of the
related securities, the related Trust Property will not contain more than 5% (by
aggregate unpaid principal balance) or more than 1% (by aggregate unpaid
principal balance) of Contracts more than 60 days delinquent or more than 90
days delinquent, respectively. This information may include, among
other things, the experience with respect to all Contracts in the Company's
portfolio during certain specified periods. There can be no assurance that the
delinquency, repossession and loss experience on any Trust Property will be
comparable to the Company's prior experience.
Maturity and Prepayment Considerations
As more fully described in the related Prospectus Supplement, if a
Contract permits a Prepayment, such payment, together with accelerated payments
resulting from defaults, will shorten the weighted average life of the related
pool of Receivables and the weighted average life of the related Securities. The
rate of Prepayments on the Receivables may be influenced by a variety of
factors, such as increasing or declining rates of interest, the rate of
inflation, an improvement in the related Obligors' credit standing, and
availability of alternative sources of financing. In addition, under certain
circumstances, the Company will be obligated to acquire Receivables from the
related Trust Property pursuant to the applicable Trust Agreement or Receivables
Acquisition Agreement as a result of breaches of representations and warranties.
Any reinvestment risks resulting from a faster or slower amortization of the
related Securities which results from Prepayments will be borne entirely by the
related Securityholders.
The related Prospectus Supplement will set forth certain additional
information with respect to the maturity and prepayment considerations
applicable to a particular pool of Receivables and the related series of
Securities, together with a description of any applicable prepayment penalties.
ADVANTA'S AUTOMOBILE FINANCING PROGRAM
Overview
Advanta Auto Finance, a wholly-owned subsidiary of Advanta Mortgage
Holding Company, was established as an automotive finance company specializing
in non-conforming auto financing. Advanta Auto Finance is engaged in the
indirect financing of automotive purchases by consumers who have experienced
credit problems, who are attempting to re-establish credit, who may not yet have
sufficient credit history or who do not wish to deal with the traditional
sources of financing (i.e., banks).
Typical consumer characteristics include: customer has multiple
delinquencies reported on his credit record, consumer's credit history
includes judgments, charge-offs, bankruptcy or repossession,
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consumer delinquency due to health reasons, divorce of unemployment, consumer
either a renter or homeowner, consumer's request for financing turned down by
banks and captives and underlying collateral either a new or used vehicle.
Advanta Auto Finance offers an array of products to existing originators
in order to establish long-term relationships. Advanta's products are marketed
to existing originators through regional business development managers. Advanta
Auto Finance purchases the closed, non-conforming auto finance contracts, which
are originated by the existing originators and subsequently assigned to Advanta
Auto Finance, on a flow/pool and bulk basis.
Product determination criteria typically includes: the type of collateral
(i.e., year, age and mileage), time at residence, time at employer, amount of
gross monthly income, amount of selling price, trade-in value and advance rate
via the National Automobile Dealers Association Book ("NADA") or the Dealer's
Invoice, debt-to-income ratio, car payment-to-income ratio, credit bureau
risk score and prior or current automobile credit.
Underwriting
Advanta Auto Finance has policies and procedures in place to address the
controls needed to analyze prospective credit applicants. Such procedures
include verifying and evaluating the credit bureau report as well as other
credit information obtained by the existing originator and the applicant.
Auto finance contracts which are delivered on a flow/pool basis are
generally underwritten in accordance with Advanta Auto Finance's established
underwriting guidelines. These guidelines are reviewed and revised continuously
based upon opportunities and prevailing conditions in the non-conforming auto
market, as well as the expected market for the resulting securities.
For contracts purchased via flow or pool, the existing originators are
trained to underwrite to Advanta Auto Finance's underwriting criteria. As a
result, the contracts purchased generally comply with established product
guidelines. Any product exceptions must have compensating factors and must be
approved by the appropriate level of authority at Advanta Auto Finance prior to
funding. During the underwriting process for flow/pool contracts, the
underwriter assesses both the borrower's ability and willingness to repay the
obligation as well as the underlying vehicle collateral.
All contracts are secured by either a new or used vehicle. Vehicles
financed must have general market acceptance. Advance Auto Finance uses the
Dealer's Invoice, NADA, Kelley Blue Book, Black Book and Vintek appraisals to
establish vehicles values. Valuations must be on an "as-is" basis.
Eligible flow/pool contract collateral includes new and used cars, vans
and light trucks from automobile manufacturers actively engaged in new car sales
in the United States. Typical contract characteristics may include: vehicle age
ranging from current year to five years of age, minimum loan amount of $5,000.,
maximum loan amount of $100,000., mileage at the end of the contract term cannot
exceed 100,000 miles, maximum term of 60 months, minimum downpayment of 15% of
vehicle selling price, maximum advance rate of 105% of NADA trade, Kelley
wholesale or the Dealer's Invoice plus extras, debt to income ratio not to
exceed 45% and minimum credit bureau risk scores. A credit report is required
for all applicants. The credit report can be generated by either Equifax (BEACON
score), TransUnion (EMPIRICA score) or TRW (FICO score).
The auto finance contract flow/pool underwriting process includes the
evaluation of residence stability, employment history, credit history, ability
to pay, amount of income, debt ratio, credit bureau score and the value of the
collateral. As a result, the existing originator's applications, which are
written on the existing originator's documents, are underwritten to Advanta Auto
Finance's established underwriting guidelines which are generally consistent for
the auto finance contracts delivered on a flow/pool basis. For the flow/pool
originations, the Company generally funds the existing originator's closed
contracts within three months of origination.
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Auto finance contracts which are delivered on a bulk basis may be
originated by a variety of existing originators under several different
underwriting guidelines. When reviewing potential bulk acquisitions, the
existing originator's underwriting guidelines are reviewed and either deemed
acceptable or unacceptable to the Company. If deemed acceptable, Advanta Auto
Finance will generally cause the contracts acquired in a bulk acquisition to be
reunderwritten on a sample basis. The sampled contracts are reunderwritten to
the existing originator's underwriting guidelines to determine conformity as
well as consistency with said guidelines. Such reunderwriting may be performed
by Advanta Auto Finance or by a third party acting at the direction of Advanta
Auto Finance. In addition to reviewing the underwriting guidelines, the Company
will generally request the following contract-specific information: the vehicle
identification number, the type of contract (i.e., Rule of 78s, pre-computed,
simple interest, balloon, fixed or adjustable rate), the vehicle make, model and
year, the vehicle mileage, the debt-to-income ratio, the credit bureau risk
score, the monthly income, the time at current/prior residence, the time at
current/prior employer and the downpayment percentage. Bulk originators are
typically reviewed to verify that all applicable state and local laws including
required licensing is adhered to. A quality control compliance review as well as
an operational review is also generally performed.
Each loan package must contain the original note agreement or contract,
the title application or Division of Motor Vehicles lien receipt and proof of
comprehensive/collision insurance.
Originators
Advanta Auto Finance originates and purchases automobile finance contracts
nationwide through originators. Originators may include, but are not limited to,
brokers, small/large regional/national banks, finance companies and banks and
credit unions as well as other sources of non-conforming auto financing.
Originators must be approved by the appropriate level of authority at
Advanta Auto Finance prior to Advanta Auto Finance originating and/or purchasing
contracts from them. Documents generally required to be submitted to Advanta
Auto Finance include: an executed standard purchase agreement, year-end audited
financials, a list of major trade and finance references and a list of owners,
partners, shareholders and officers. Moreover, the minimum net worth requirement
is approximately $250 million.
Prospective originators are subject to extensive reviews by Advanta Auto
Finance. The reviews allow Advanta Auto Finance to ascertain whether or not the
prospective originator meets Advanta Auto Finance's requirements. Specifically,
Advanta Auto Finance will analyze the potential originator's financial
statements, determine whether they possess adequate net worth and determine
whether they conduct business in accordance with Advanta Auto Finance
established standards. Before purchasing loans from a potential originator,
Advanta Auto Finance will require detailed information concerning the
originator's contracts and agreements. Included in this documentation are retail
sales contracts for each state the originator conducts business in, dealer
agreements and marketing materials for pertinent programs. Additionally, the
originator's outside counsel will normally assist in the process of drafting
loan purchase agreements, providing sale opinions, obtaining lien perfection and
filing UCC's.
Upon acceptance as an originator, during the initial year, Advanta Auto
Finance will conduct periodic reviews to ensure compliance with the established
performance standards and guidelines. After the initial year, Advanta Auto
Finance will generally perform annual reviews of the originator. The termination
of an originator relationship can occur at any time.
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POOL FACTORS
The "Pool Factor" for each Class of Securities will be a seven-digit
decimal, which the Servicer will compute prior to each distribution with respect
to such Class of Securities, indicating the remaining outstanding principal
balance of such Class of Securities as of the applicable Payment Date, as a
fraction of the initial outstanding principal balance of such Class of
Securities. Each Pool Factor will be initially 1.0000000, and thereafter will
decline to reflect reductions in the outstanding principal balance of the
applicable Class of Securities. A Securityholder's portion of the aggregate
outstanding principal balance of the related Class of Securities is the product
of (i) the original aggregate purchase price of such Securityholder's Securities
and (ii) the applicable Pool Factor.
As more specifically described in the related Prospectus Supplement with
respect to each series of Securities, the related Securityholders of record will
receive reports on or about each Payment Date concerning the payments received
on the Receivables, the Pool Balance (as such term is defined in the related
Prospectus Supplement, the "Pool Balance"), each Pool Factor and various other
items of information. In addition, Securityholders of record during any calendar
year will be furnished information for tax reporting purposes not later than the
latest date permitted by law.
USE OF PROCEEDS
Except as provided in the related Prospectus Supplement, the proceeds from
the sale of the Securities of a given series will be used by the Company for the
acquisition of the related Receivables, for general corporate purposes,
including, but not limited to, the purchase of additional Receivables from
Dealers, repayment of indebtedness and general working capital purposes. The
Company expects that it will make additional transfers of Receivables to the
Trust from time to time, but the timing and amount of any such additional
transfers will be dependent upon a number of factors, including the volume of
Contracts originated or acquired by the Company, prevailing interest rates,
availability of funds and general market conditions.
THE COMPANY AND THE SERVICER
Advanta is a wholly-owned subsidiary of Advanta Mortgage Holding Company.
Advanta was incorporated in Nevada on October 20, 1995. Advanta purchases and
causes to be serviced automobile loans which are originated and assigned to
Advanta by automobile dealers. Advanta's executive offices are located at 300
Welsh Road, Suite 400, Horsham, PA 19044; telephone (215) 283-4200.
THE TRUSTEE
The Trustee for each series of Securities will be specified in the related
Prospectus Supplement. The Trustee's liability in connection with the issuance
and sale of the related Securities is limited solely to the express obligations
of such Trustee set forth in the related Trust Agreement.
With respect to each series of Securities, the procedures for the
resignation or removal of the Trustee and the appointment of a successor Trustee
shall be specified in the related Prospectus Supplement.
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DESCRIPTION OF THE SECURITIES
General
The Securities will be issued in series. Each series of Securities (or, in
certain instances, two or more series of Securities) will be issued pursuant to
a Trust Agreement. The following summaries (together with additional summaries
under "The Trust Agreement" below) describe all material terms and provisions
relating to the Securities common to each Trust Agreement. The summaries do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all of the provisions of the Trust Agreement for the related
Securities and the related Prospectus Supplement.
All of the Securities offered pursuant to this Prospectus and the related
Prospectus Supplement will be rated in one of the four highest rating categories
by one or more Rating Agencies.
The Securities will generally be styled as debt instruments, having a
principal balance and a specified Interest Rate. The Securities may either
represent beneficial ownership interests in the related Receivables held by the
related Trust or debt secured by certain assets of the related Issuer.
Each series or Class of Securities offered pursuant to this Prospectus may
have a different Interest Rate, which may be a fixed or adjustable interest
rate. The related Prospectus Supplement will specify the Interest Rate for each
series or Class of Securities described therein, or the initial interest rate
and the method for determining subsequent changes to the Interest Rate.
A series may include one or more Classes of Strip Securities entitled (i)
to principal distributions, with disproportionate, nominal or no interest
distributions, or (ii) to interest distributions, with disproportionate, nominal
or no principal distributions. In addition, a series of Securities may include
two or more Classes of Securities that differ as to timing, sequential order,
priority of payment, Interest Rate or amount of distribution of principal or
interest or both, or as to which distributions of principal or interest or both
on any Class may be made upon the occurrence of specified events, in accordance
with a schedule or formula, or on the basis of collections from designated
portions of the related pool of Receivables. Any such series may include one or
more Classes of Accrual Securities, as to which certain accrued interest will
not be distributed but rather will be added to the principal balance (or nominal
balance, in the case of Accrual Securities which are also Strip Securities)
thereof on each Payment Date, as hereinafter defined, or in the manner described
in the related Prospectus Supplement.
If so provided in the related Prospectus Supplement, a series may include
one or more other Classes of Senior Securities that are senior to one or more
other Classes of Subordinate Securities in respect of certain distributions of
principal and interest and allocations of losses on Receivables.
In addition, certain Classes of Senior (or Subordinate) Securities may be
senior to other Classes of Senior (or Subordinate) Securities in respect of such
distributions or losses.
General Payment Terms of Securities
As provided in the related Trust Agreement and as described in the related
Prospectus Supplement, Securityholders will be entitled to receive payments on
their Securities on the specified Payment Dates. Payment Dates with respect to
the Securities will occur monthly, quarterly or semi--annually, as described in
the related Prospectus Supplement.
The related Prospectus Supplement will describe the Record Date preceding
such Payment Date, as of which the Trustee or its paying agent will fix the
identity of the Securityholders for the purpose of receiving payments on the
next succeeding Payment Date. As more fully described in the related Prospectus
Supplement, the Payment Date will be a specified date in each month, e.g., the
fifteenth or twenty-fifth day of each month (or, in the case of quarterly-pay
Securities, a specified date in every third month; and in the case of
semi-annual pay Securities, a specified date in every sixth month) and the
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Record Date will either be the close of business as of the last day of the
calendar month that precedes the calendar month in which such Payment Date
occurs, or the close of business on the business day preceding such Payment
Date.
Each Trust Agreement will describe a Remittance Period preceding each
Payment Date (for example, in the case of monthly-pay Securities, the calendar
month preceding the month in which a Payment Date occurs). As more fully
provided in the related Prospectus Supplement, collections received on or with
respect to the related Receivables held by a Trust during a Remittance Period
will be required to be remitted by the Servicer to the related Trustee prior to
the related Payment Date and will be used to fund payments to Securityholders on
such Payment Date. As may be described in the related Prospectus Supplement, the
related Trust Agreement may provide that all or a portion of the payments
collected on or with respect to the related Receivables may be applied by the
related Trustee to the acquisition of additional Receivables during a specified
period (rather than be used to fund payments of principal to Securityholders
during such period) with the result that the related Securities will possess an
interest-only period, also commonly referred to as a revolving period, which
will be followed by an amortization period. Any such interest only or revolving
period may, upon the occurrence of certain events to be described in the related
Prospectus Supplement, terminate prior to the end of the specified period and
result in the earlier than expected amortization of the related Securities.
In addition, and as may be described in the related Prospectus Supplement,
the related Trust Agreement may provide that all or a portion of such collected
payments may be retained by the Trustee (and held in certain temporary
investments, including Receivables) for a specified period prior to being used
to fund payments of principal to Securityholders.
Such retention and temporary investment by the Trustee of such collected
payments may be required by the related Trust Agreement for the purposes of (a)
slowing the amortization rate of the related Securities relative to the
installment payment schedule of the related Receivables, or (b) attempting to
match the amortization rate of the related Securities to an amortization
schedule established at the time such Securities are issued. Any such feature
applicable to any Securities may terminate upon the occurrence of events to be
described in the related Prospectus Supplement, resulting in distributions to
the specified Securityholders and an acceleration of the amortization of such
Securities. Such events which may result in an early amortization event will
generally consist of (i) the Company's inability to deliver sufficient,
additional Receivables to maintain the revolving period, (ii) an event of
default by the Company or the Servicer (i.e., the Company's or the Servicer's
failure to perform their respective duties under the related Trust Agreement)
and (iii) the occurrence of a bankruptcy event with respect to the Company or
the Servicer.
Neither the Securities nor the underlying Receivables will be guaranteed
or insured by any governmental agency or instrumentality or the Company, the
Servicer, any Trustee or any of their respective affiliates unless specifically
set forth in the related Prospectus Supplement.
As may be described in the related Prospectus Supplement, Securities of
each series covered by a particular Trust Agreement will either evidence
specified beneficial ownership interests in the Trust Property or represent debt
secured by the related Trust Property.
Master Trusts
As may be described in the related Prospectus Supplement, each Trust
Agreement may provide that, pursuant to any one or more supplements thereto, the
Company may direct the related Trustee to issue from time to time new series
subject to the conditions described below (each such issuance a "Master Trust
New Issuance"). Each Master Trust New Issuance will have the effect of
decreasing the Residual Interest in the related Master Trust. Under each such
Master Trust Agreement, the Company may designate, with respect to any newly
issued series: (i) its name or designation; (ii) its initial principal amount
(or method for calculating such amount); (iii) its Interest Rate (or formula for
the determination thereof); (iv) the Payment Dates and the date or dates from
which interest shall accrue; (v) the method
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for allocating collections to Securityholders of such series; (vi) any bank
accounts to be used by such series and the terms governing the operation of any
such bank accounts; (vii) the percentage used to calculate monthly servicing
fees; (viii) the provider and terms of any form of Credit Enhancement with
respect thereto; (ix) the terms on which the Securities of such series may be
repurchased or remarketed to other investors; (x) the number of Classes of
Securities of such series, and if such series consists of more than one Class,
the rights and priorities of each such Class; (xi) the extent to which the
Securities of such series will be issuable in book-entry form; (xii) the
priority of such series with respect to any other series; and (xiii) any other
relevant terms. None of the Company, the Servicer, the related Trustee or any
Master Trust is required or intends to obtain the consent of any Securityholder
of any outstanding series to issue any additional series.
Each Master Trust Agreement provides that the Company may designate terms
such that each Master Trust New Issuance has an amortization period which may
have a different length and begin on a different date than such periods for any
series previously issued by the related Master Trust and then outstanding.
Moreover, each Master Trust New Issuance may have the benefits of Credit
Enhancements issued by enhancement providers different from the providers of the
Credit Enhancement, if any, with respect to any series previously issued by the
related Master Trust and then outstanding. Under each Master Trust Agreement,
the related Trustee shall hold any such Credit Enhancement only on behalf of the
Securityholders to which such Credit Enhancement relates. The Company will have
the option under each Master Trust Agreement to vary among series the terms upon
which a series may be repurchased by the Issuer or remarketed to other
investors. As more fully described in a related Prospectus Supplement, there is
no limit to the number of Master Trust New Issuances that the Company may cause
under a Master Trust Agreement. Each Master Trust will terminate only as
provided in the related Master Trust Agreement. There can be no assurance that
the terms of any Master Trust New Issuance might not have an impact on the
timing and amount of payments received by Securityholders of another series
issued by the same Master Trust.
Under each Master Trust Agreement and pursuant to a related supplement, a
Master Trust New Issuance may only occur upon the satisfaction of certain
conditions provided in each such Master Trust Agreement. The obligation of the
related Trustee to authenticate the Securities of any such Master Trust New
Issuance and to execute and deliver the supplement to the related Master Trust
Agreement is subject to the satisfaction of the following conditions: (a) on or
before the date upon which the Master Trust New Issuance is to occur, the
Company shall have given the related Trustee, the Servicer, the Rating Agency
and certain related providers of Credit Enhancement, if any, written notice of
such Master Trust New Issuance and the date upon which the Master Trust New
Issuance is to occur; (b) the Company shall have delivered to the related
Trustee a supplement to the related Master Trust Agreement, in form satisfactory
to such Trustee, executed by each party to the related Master Trust Agreement
other than such Trustee; (c) the Company shall have delivered to the related
Trustee any related Credit Enhancement agreement; (d) the related Trustee shall
have received confirmation from the Rating Agency that such Master Trust New
Issuance will not result in any Rating Agency reducing or withdrawing its rating
with respect to any other series or Class of such Trust (any such reduction or
withdrawal is referred to herein as a "Ratings Effect"); (e) the Company shall
have delivered to the related Trustee, the Rating Agency and certain providers
of Credit Enhancement, if any, an opinion of counsel acceptable to the related
Trustee that for federal income tax purposes (i) following such Master Trust New
Issuance the related Master Trust will not be deemed to be an association (or
publicly traded partnership) taxable as a corporation, (ii) such Master Trust
New Issuance will not affect the tax characterization as debt of Securities of
any outstanding series or Class issued by such Master Trust that were
characterized as debt at the time of their issuance and (iii) such Master Trust
New Issuance will not cause or constitute an event in which gain or loss would
be recognized by any Securityholders or the related Master Trust; and (f) the
delivery of officers' certificates by the Company confirming the satisfaction of
such conditions to such Master Trust New Issuance. Upon satisfaction of the
above conditions, the related Trustee shall execute the supplement to the
related Master Trust Agreement and issue the Securities of such new series.
Indexed Securities
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To the extent so specified in any Prospectus Supplement, any class of Securities
of a given series may consist of Securities ("Indexed Securities") in which the
principal amount payable at the final scheduled Payment Date (the "Indexed
Principal Amount") is determined by reference to a measure (the "Index") which
will be related to (i) the difference in the rate of exchange between United
States dollars and a currency or composite currency (the " Indexed Currency")
specified in the applicable Prospectus Supplement (such Indexed Securities,
"Currency Indexed Securities"); (ii) the difference in the price of a specified
commodity (the "Indexed Commodity") on specified dates (such Indexed Securities,
"Commodity Indexed Securities"); (iii) the difference in the level of a
specified stock index (the "Stock Index"), which may be based on U.S. or foreign
stocks, on specified dates (such Indexed Securities, "Stock Indexed
Securities"); or (iv) such other objective price or economic measures as are
described in the applicable Prospectus Supplement. The manner of determining the
Indexed Principal Amount of an Indexed Security and historical and other
information concerning the Indexed Currency, the Indexed Commodity, the Stock
Index (each, an "Index") or other price or economic measures used in such
determination will be set forth in the applicable Prospectus Supplement,
together with information concerning tax consequences to the holders of such
Indexed Securities.
Depending upon the Index used, the yield to maturity of an Indexed
Security may be highly volatile. Such yield will be a function of the
performance of the Index, and no necessarily of the level of interest rates
generally, as will be the case with Securities offered hereby which are not
Indexed Securities. Indexed Securities, to the extent offered, are likely to be
appropriate investments only for sophisticated investors which would purchase
such Securities as part of an overall hedging strategy, even though such
Securities would be secured, as a credit matter, by the related pool of
automobile loan receivables.
If the determination of the Indexed Principal Amount of an Indexed
Security is based on an Index calculated or announced by a third party and such
third party either suspends the calculation or announcement of such Index or
changes the basis upon which such Index is calculated (other than changes
consistent with policies in effect at the time such Indexed Security was issued
and permitted changes described in the applicable Prospectus Supplement), then
such Index shall be calculated for purposes of such Indexed Security by an
independent calculation agent named in the applicable Prospectus Supplement on
the same basis, and subject to the same conditions and controls, as applied to
the original third party. If for any reason such index cannot be calculated on
the same basis and subject to the same conditions and controls as applied to the
original third party, then the Indexed Principal Amount of such Indexed Security
shall be calculated in the manner set forth in the applicable Prospectus
Supplement. Any determination of such independent calculation agent shall in the
absence of manifest error be binding on all parties.
Interest on an Indexed Security will be payable based on the amount
designated in the applicable Prospectus Supplement (the " Face Amount"). The
applicable Prospectus Supplement will describe whether the principal amount of
the related Indexed Security, if any, that would be payable upon redemption or
repayment prior to the applicable final scheduled Distribution Date will be the
Face Amount of such Indexed Security, the Indexed Principal Amount of such
Indexed Security at the time of redemption or repayment or another amount
described in such Prospectus Supplement.
Book-Entry Registration
As may be described in the related Prospectus Supplement, Securityholders
of a given series may hold their Securities through DTC (in the United States)
or CEDEL or Euroclear (in Europe) if they are participants of such systems, or
indirectly through organizations that are participants in such systems.
Cede, as nominee for DTC, will hold the global Securities in respect of a
given series. CEDEL and Euroclear will hold omnibus positions on behalf of the
CEDEL Participants (as defined below) and the Euroclear Participants (as defined
below) (collectively, the "Participants"), respectively, through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries (collectively, the "Depositaries") which in turn will
hold such positions in customers' securities accounts in the Depositaries' names
on the books of DTC.
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DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entries,
thereby eliminating the need for physical movement of notes or certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations. Indirect access to the DTC system also is available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants and Euroclear Participants will
occur in the ordinary way in accordance with their applicable rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant CEDEL
Participant or Euroclear Participant on such business day. Cash received in
CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
CEDEL or Euroclear cash account only as of the business day following settlement
in DTC.
The Securityholders of a given series that are not Participants or
Indirect Participants but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, Securities of such series may do so only
through Participants and Indirect Participants. In addition, Securityholders of
a given series will receive all distributions of principal and interest through
the Participants who in turn will receive them from DTC. Under a book-entry
format, Securityholders of a given series may experience some delay in their
receipt of payments, since such payments will be forwarded by the applicable
Trustee to Cede, as nominee for DTC. DTC will forward such payments to its
Participants, which thereafter will forward them to Indirect Participants or
such Securityholders. It is anticipated that the only "Securityholder" in
respect of any series will be Cede, as nominee of DTC. Securityholders of a
given series will not be recognized as Securityholders of such series, and such
Securityholders will be permitted to exercise the rights of Securityholders of
such series only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Securities of a given series among Participants on whose behalf it acts with
respect to such Securities and to receive and transmit distributions of
principal of, and interest on, such Securities. Participants and Indirect
Participants with which the Securityholders of a given series have accounts with
respect to such Securities similarly are required to make book-entry transfers
and receive and transmit such payments on behalf of their respective
Securityholders of such series. Accordingly, although such Securityholders will
not possess Securities, the Rules provide a mechanism by which Participants will
receive payments and will be able to transfer their interests.
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Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder of a given series to pledge Securities of such series to persons
or entities that do not participate in the DTC system, or to otherwise act with
respect to such Securities, may be limited due to the lack of a physical
certificate for such Securities.
DTC will advise the Trustee in respect of each series that it will take
any action permitted to be taken by a Securityholder of the related series only
at the direction of one or more Participants to whose accounts with DTC the
Securities of such series are credited. DTC may take conflicting actions with
respect to other undivided interests to the extent that such actions are taken
on behalf of Participants whose holdings include such undivided interests.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear System ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 28 currencies, including United
States dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers with
DTC described above. Euroclear is operated by Morgan Guaranty Trust Company of
New York, Brussels, Belgium office, under contract with Euroclear Clearance
System, S.C., a Belgian cooperative corporation (the " Cooperative"). All
operations are conducted by the "Euroclear Operator" (as defined below), and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for the Euroclear System on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
Underwriters. Indirect access to the Euroclear System is also available to other
firms that clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The "Euroclear Operator" is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and
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Conditions only on behalf of Euroclear Participants and has no record of
relationship with persons holding through Euroclear Participants.
Except as required by law, the Trustee in respect of a series will not
have any liability for any aspect of the records relating to or payments made or
account of beneficial ownership interests of the related Securities held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Definitive Notes
As may be described in the related Prospectus Supplement, the Securities
will be issued in fully registered, certificated form ("Definitive Securities")
to the Securityholders of a given series or their nominees, rather than to DTC
or its nominee, only if (i) the Trustee in respect of the related series advises
in writing that DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to such Securities and such Trustee
is unable to locate a qualified successor, (ii) such Trustee, at its option,
elects to terminate the book-entry-system through DTC or (iii) after the
occurrence of an "Event of Default" under the related Indenture or a default by
the Servicer under the related Trust Agreements, Securityholders representing at
least a majority of the outstanding principal amount of such Securities advise
the applicable Trustee through DTC in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in such
Securityholders' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the applicable Trustee will be required to notify all such
Securityholders through Participants of the availability of Definitive
Securities. Upon surrender by DTC of the definitive certificates representing
such Securities and receipt of instructions for re-registration, the applicable
Trustee will reissue such Securities as Definitive Securities to such
Securityholders.
Distributions of principal of, and interest on, such Securities will
thereafter be made by the applicable Trustee in accordance with the procedures
set forth in the related Indenture or Trust Agreement directly to holders of
Definitive Securities in whose names the Definitive Securities were registered
at the close of business on the applicable Record Date specified for such
Securities in the related Prospectus Supplement. Such distributions will be made
by check mailed to the address of such holder as it appears on the register
maintained by the applicable Trustee. The final payment on any such Security,
however, will be made only upon presentation and surrender of such Security at
the office or agency specified in the notice of final distribution to the
applicable Securityholders.
Definitive Securities in respect of a given series of Securities will be
transferable and exchangeable at the offices of the applicable Trustee or of a
certificate registrar named in a notice delivered to holders of such Definitive
Securities. No service charge will be imposed for any registration of transfer
or exchange, but the applicable Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge imposed in connection therewith.
Reports to Securityholders
With respect to each series of Securities, on or prior to each Payment
Date for such series, the Servicer or the related Trustee will forward or cause
to be forwarded to each holder of record of such class of Securities a statement
or statements with respect to the related Trust Property setting forth the
information specifically described in the related Trust Agreement which
generally will include the following information:
(i) the amount of the distribution with respect to each class of
Securities;
(ii) the amount of such distribution allocable to principal;
(iii) the amount of such distribution allocable to interest;
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(iv) the Pool Balance, if applicable, as of the close of business on
the last day of the related Remittance Period;
(v) the aggregate outstanding principal balance and the Pool Factor
for each Class of Securities after giving effect to all payments reported
under (ii) above on such Payment Date;
(vi) the amount paid to the Servicer, if any, with respect to the
related Remittance Period;
(vii) the amount of the aggregate purchase amounts for Receivables
that have been reacquired, if any, for such Remittance Period; and
(viii) the amount of coverage under any letter of credit, financial
guaranty insurance policy, reserve account or other form of credit
enhancement covering default risk as of the close of business on the
applicable Payment Date and a description of any Credit Enhancement
substituted therefor.
Each amount set forth pursuant to subclauses (i), (ii), (iii) and (v) with
respect to the Securities of any series will be expressed as a dollar amount per
$1,000 of the initial principal balance of such Securities, as applicable. The
actual information to be set forth in statements to Securityholders of a series
will be described in the related Prospectus Supplement.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year, the applicable Trustee will provide to the
Securityholders a statement containing the amounts described in (ii) and (iii)
above for that calendar year and any other information required by applicable
tax laws, for the purpose of the Securityholders' preparation of federal income
tax returns.
Forward Commitments; Pre-Funding
An Issuer may enter into an agreement (each, a "Forward Purchase
Agreement") with the Company whereby the Company will agree to transfer
additional Receivables to such Issuer following the date on which such Issuer is
established and the related Certificates are issued. The Issuer may enter into
Forward Purchase Agreements to permit the acquisition of additional Receivables
that could not be delivered by the Company or have not formally completed the
origination process, in each case prior to the date on which the Securities are
delivered to the Securityholders (the "Closing Date"). Any Forward Purchase
Agreement will require that any Receivables so transferred to the Issuer conform
to the requirements specified in such Forward Purchase Agreement.
If a Forward Purchase Agreement is to be utilized, and unless otherwise
specified in the related Prospectus Supplement, the related Trustee will be
required to deposit in a segregated account (each, a "Pre-Funding Account") up
to 100% of the net proceeds received by the Trustee in connection with the sale
of one or more classes of Securities of the related Series; the additional
Receivables will be transferred to the related Issuer in exchange for money
released to the Company from the related Pre-Funding Account. Each Forward
Purchase Agreement will set a specified period (the "Funding Period") during
which any such transfers must occur; a Funding Period will generally not exceed
three months, and in no event will exceed nine months. The Forward Purchase
Agreement or the related Trust Agreement will require that, if all moneys
originally deposited to such Pre-Funding Account are not so used by the end of
the related Funding Period, then any remaining moneys will be applied as a
mandatory prepayment of the related class or classes of Securities as specified
in the related Prospectus Supplement.
During the Funding Period the moneys deposited to the Pre-Funding Account
will either (i) be held uninvested or (ii) will be invested in cash-equivalent
investments rated in one of the four highest rating categories by at least one
nationally recognized statistical rating organization and which will either
mature prior to the end of the Funding Period, or will be drawable on demand and
in any event, will not constitute
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the type of investment which would require registration of the related Issuer as
an "investment company" under the Investment Company Act of 1940, as amended.
The related Forward Purchase Agreement and/or Trust Agreement will set
forth the standards and required characteristics for pre-funded Receivables;
such standards and required characteristics will require that the principal
statistical measurements of the final pool do not vary materially from the final
pool as it is required to appear, as disclosed in the related Prospectus
Supplement. In most cases this will also mean that the final pool will not vary
materially, in terms of its principal statistical characteristics, from the
original pool (i.e., the pool before the addition of the pre-funded
Receivables). For purposes of the foregoing, the "principal statistical
characteristics" will be the weighted average Coupon Rate, weighted average
remaining term to maturity and geographic distribution of Obligors.
The related Prospectus Supplement will present the disclosure concerning
the effect on the related Trust of the pre-funded Receivables on an aggregate
basis; i.e., the related Prospectus Supplement will describe such Receivables in
terms of the characteristics of the entire pool of Receivables following the
addition of the pre-funded Receivables.
In the event that the Company is unable to deliver sufficient additional,
qualifying Receivables to utilize fully the Pre-Funding Account moneys, the
remaining moneys will be applied as a mandatory prepayment of the related class
or classes of Securities as specified in the related Prospectus Supplement. It
is expected that such moneys will be so applied at par, i.e., with the payment
of any prepayment or other "make-whole" type premium. Depending upon the
movement of interest rates from the pricing date of the related Securities to
the date of such prepayment, holders of the prepaid class(es) may be unable to
reinvest such prepaid amounts at a yield equal to (or in excess of) the yield
that they were expecting to receive on their Securities. Furthermore, if an
investor purchased such Securities at a premium prior to such prepayment, such
investor could suffer a loss due to the prepayment being made at par, rather
than at a premium.
The Company expects to disclose, in its periodic reports to be filed with
respect to each issuance of Securities, as required by the Exchange Act, the
status of any Pre-Funding Account as of each Payment Date occurring during the
related Funding Period. The Company does not expect to provide any "loan level"
detail with respect to such additional Receivables, since the material required
characteristics thereof will be set forth in the related Prospectus Supplement.
DESCRIPTION OF THE TRUST AGREEMENTS
The following summary describes certain terms of each Trust Agreement
pursuant to which a Trust Property will be created and the related Securities in
respect of such Trust Property will be issued. For purposes of this Prospectus,
the term "Trust Agreement" as used with respect to a Trust means, collectively,
and except as otherwise specified, any and all agreements relating to the
establishment of the related Trust, the servicing of the related Receivables and
the issuance of the related Securities, including without limitation the
Indenture, (i.e. pursuant to which any Notes shall be issued). Forms of the
Trust Agreement have been filed as exhibits to the Registration Statement of
which the Prospectus forms a part. The summary does not purport to be complete.
It is qualified in its entirety by reference to the provisions of the Trust
Agreements.
Origination of the Receivables by the Company and Acquisition of the Receivables
Pursuant to a Receivables Acquisition Agreement
On the closing date specified with respect to any given series of
Securities (the "Closing Date"), the Company or a Finance Subsidiary will
transfer Receivables originated by the Company either to a Trust pursuant to a
Pooling Agreement, or will pledge the Company's or the Finance Subsidiary's
right, title and interests in and to such Receivables to a Trustee on behalf of
the Securityholders pursuant to an Indenture. The Company or a Finance
Subsidiary will either transfer the Receivables to a Trust pursuant
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to a Pooling Agreement, or will pledge the Company's right, title and interests
in and to such Receivables to a Trustee on behalf of Securityholders pursuant to
an Indenture. The obligations of the Company or a Finance Subsidiary and the
Servicer under the related Trust Agreement include those specified below and in
the related Prospectus Supplement.
As more fully described in the related Prospectus Supplement, the Company
will be obligated to acquire from the related Trust Property its interest in any
Receivable transferred to a Trust or pledged to a Trustee on behalf of
Securityholders if the interest of the Securityholders therein is materially
adversely affected by a breach of any representation or warranty made by the
Company with respect to such Receivable, which breach has not been cured
following the discovery by or notice to the Company of the breach. In addition,
if so specified in the related Prospectus Supplement, the Company may from time
to time reacquire certain Receivables or substitute other Receivables for such
Receivable subject to specified conditions set forth in the related Trust
Agreement.
Accounts
With respect to each series of Securities issued by a Trust, the Servicer
will establish and maintain with the applicable Trustee one or more accounts, in
the name of such Trustee on behalf of the related Securityholders, into which
all payments made on or with respect to the related Receivables will be
deposited (the "Collection Account"). The Servicer will also establish and
maintain with such Trustee separate accounts, in the name of such Trustee on
behalf of such Securityholders, in which amounts released from the Collection
Account and the reserve account or other Credit Enhancement, if any, for
distribution to such Securityholders will be deposited and from which
distributions to such Securityholders will be made (the " Distribution
Account").
Any other accounts to be established with respect to a Trust, including
any reserve account, will be described in the related Prospectus Supplement.
For any series of Securities, funds in the Collection Account, the
Distribution Account, any reserve account and other accounts identified as such
in the related Prospectus Supplement (collectively, the "Trust Accounts") shall
be invested as provided in the related Trust Agreement in Eligible Investments.
"Eligible Investments" are generally limited to investments acceptable to the
Rating Agencies as being consistent with the rating of such Securities. Subject
to the approval of the Rating Agencies and the related Credit Enhancer, if
any, Eligible Investments may include securities issued by the Company, the
Servicer or their respective affiliates or other trusts created by the Company
or its affiliates (any such Eligible Investments described in this sentence,
"Company Investment Contracts"). A Company Investment Contract will be funding
agreement designed to allow the Company or the related Servicer access to the
money held in the related Trust Account prior to the date on which such money is
required to make distributions to the Securityholders. In effect, the money in
the Trust Accounts will be invested in a note issued by the Company or the
related Servicer. Any such Company Investment Contract would be employed to
lessen the effects of "negative carry" or "negative arbitrage"on the structure
of the Securities, i.e., to permit the reinvestment of the Trust Account moneys
at a higher rate than would be obtainable through investment of other types of
Eligible Investments. The terms of any Company Investment Contract will be
described in the related Prospectus Supplement, and a copy thereof will be filed
with the Commission on a Current Report in connection with the issuance of the
related Securities.
Except as described below or in the related Prospectus Supplement,
Eligible Investments are limited to obligations or securities that mature not
later than the business day immediately preceding the related Payment Date.
However, subject to certain conditions, funds in the reserve account may be
invested in securities that will not mature prior to the date of the next
distribution and will not be sold to meet any shortfalls. Thus, the amount of
cash in any reserve account at any time may be less than the balance of such
reserve account. If the amount required to be withdrawn from any reserve account
to cover shortfalls in collections on the related Receivables exceeds the amount
of cash in such reserve account a temporary shortfall in the amounts distributed
to the related Securityholders could result, which could, in turn, increase the
average life of the Securities of such series. Except as otherwise specified in
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the related Prospectus Supplement, investment earnings on funds deposited in the
applicable Trust Accounts, net of losses and investment expenses (collectively,
" Investment Earnings"), shall be deposited in the applicable Collection Account
on each Payment Date and shall be treated as collections of interest on the
related Receivables.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution has a credit rating from each Rating
Agency in one of its generic rating categories which signifies investment grade.
"Eligible Institution" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or the related Trustee, as
applicable, or (b) a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), which (i) (A) has either
(w) a long-term unsecured debt rating acceptable to the Rating Agencies or (x) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies or (B) the parent corporation of which has either (y) a
long-term unsecured debt rating acceptable to the Rating Agencies or (z) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies and (ii) whose deposits are insured by the FDIC.
The Servicer
The Servicer under each Trust Agreement will be named in the related
Prospectus Supplement. The entity serving as Servicer may be the Company, its
designee, or an affiliate of the Company and may have other business
relationships with the Company or the Company's affiliates. The Servicer with
respect to each series will service the Receivables contained in the Trust Fund
for such series. Any Servicer may delegate its servicing responsibilities to one
or more sub-servicers, but will not be relieved of its liabilities with respect
thereto.
The Servicer will make certain representations and warranties regarding
its authority to enter into, and its ability to perform its obligations under,
the related Trust Agreement. An uncured breach of such a representation or
warranty that in any respect materially and adversely affects the interests of
the Securityholders will constitute a Servicer Default by the Servicer under
the related Trust Agreement.
Servicing Procedures
Each Trust Agreement will provide that the Servicer will make reasonable
efforts to collect all payments due with respect to the Receivables which are
part of the Trust Fund and, in a manner consistent with the related Trust
Agreement, will continue such collection procedures as the Servicer follows with
respect to the particular type of Receivable in the particular pool it services
for itself and others. Consistent with its normal procedures, the Servicer may,
in its discretion and on a case-by-case basis, arrange with the Obligor on a
Receivable to extend or modify the payment schedule. Some of such arrangements
(including, without limitation any extension of the payment schedule beyond the
final scheduled Payment Date for the related Securities) may result in the
Servicer acquiring such Receivable if such Contract becomes a Defaulted
Contract. The Servicer may sell the Vehicle securing the respective Defaulted
Contract, if any, at a public or private sale, or take any other action
permitted by applicable law. See "Certain Legal Aspects of the Receivables".
Payments on Receivables
With respect to each series of Securities, unless otherwise specified in
the related Prospectus Supplement, the Servicer will deposit into the Collection
Account all payments on the related Receivables (from whatever source) and all
proceeds of such Receivables collected within three (3) business days of
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receipt thereof in the related collection facility, such as a lock-box account
or collection account. Moneys deposited in such collection facility for Trust
Property may be commingled with funds from other sources.
Servicing Compensation
As may be described in the related Prospectus Supplement with respect to
any series of securities issued by a Trust, the Servicer will be entitled to
receive a servicing fee for each Collection Period (the "Servicing Fee") in an
amount equal to a specified percentage per annum (as set forth in the related
Prospectus Supplement, the "Servicing Fee Rate") of the value of the assets of
the Trust Property, generally as of the first day of such Collection Period.
Each Prospectus Supplement and Servicing Agreement will specify the priority of
distributions with respect to the Servicing Fee (together with any portion of
the Servicing Fee that remains unpaid from prior Payment Dates). Generally, the
Servicing Fee will be paid prior to any distribution to the related
Securityholders.
The Servicer will also collect and retain any late fees, the penalty
portion of interest paid on past due amounts and other administrative fees or
similar charges allowed by applicable law with respect to the Receivables, and
will be entitled to reimbursement from each Trust for certain liabilities.
Payments by or on behalf of Obligors will be allocated to scheduled payments and
late fees and other charges in accordance with the Servicer's normal practices
and procedures.
The Servicing Fee will compensate the Servicer for performing the
functions of a third party servicer of similar types of receivables as an agent
for their beneficial owner, including collecting and posting all payments,
responding to inquiries of Obligors on the related Receivables, investigating
delinquencies, sending billing statements to Obligors, reporting tax information
to Obligors, paying costs of collection and disposition of defaults, and
policing the collateral. The Servicing Fee also will compensate the Servicer for
administering the related Receivables, accounting for collections and furnishing
statements to the applicable Trustee and the applicable Indenture Trustee, if
any, with respect to distributions. The Servicing Fee also will reimburse the
Servicer for certain taxes, accounting fees, outside auditor fees, data
processing costs and other costs incurred in connection with administering the
Receivables.
Distributions
With respect to each series of Securities, beginning on the Payment Date
specified in the related Prospectus Supplement, distributions of principal and
interest (or, where applicable, of principal or interest only) on each Class of
such Securities entitled thereto will be made by the applicable Indenture
Trustee to the holders of Notes (the "Noteholders") and by the applicable
Trustee to the holders of Certificates (the "Certificateholders") of such
series. The timing, calculation, allocation, order, source, priorities of and
requirements for each class of Noteholders and all distributions to each class
of Certificateholders of such series will be set forth in the related Prospectus
Supplement.
With respect to each series of Securities, on each Payment Date
collections on the related Receivables will be transferred from the Collection
Account to the Distribution Account for distribution to Securityholders,
respectively, to the extent provided in the related Prospectus Supplement.
Credit Enhancement, such as a reserve account, may be available to cover any
shortfalls in the amount available for distribution on such date, to the extent
specified in the related Prospectus Supplement. As more fully described in the
related Prospectus Supplement, distributions in respect of principal of a Class
of Securities of a given series will be subordinate to distributions in respect
of interest on such Class, and distributions in respect of the Certificates of
such series may be subordinate to payments in respect of the Notes of such
series.
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Credit and Cash Flow Enhancements
The amounts and types of Credit Enhancement arrangements, if any, and the
provider thereof, if applicable, with respect to each class of Securities of a
given series will be set forth in the related Prospectus Supplement. If and to
the extent provided in the related Prospectus Supplement, credit enhancement may
be in the form of a Policy, subordination of one or more Classes of Securities,
reserve accounts, overcollateralization, letters of credit, credit or liquidity
facilities, third party payments or other support, surety bonds, guaranteed cash
deposits or such other arrangements as may be described in the related
Prospectus Supplement or any combination of two or more of the foregoing. If
specified in the applicable Prospectus Supplement, Credit Enhancement for a
Class of Securities may cover one or more other Classes of Securities of the
same series, and Credit Enhancement for a series of Securities may cover one or
more other series of Securities.
The presence of Credit Enhancement for the benefit of any Class or series
of Securities is intended to enhance the likelihood of receipt by the
Securityholders or such Class or series of the full amount of principal and
interest due thereon and to decrease the likelihood that such Securityholders
will experience losses. As more specifically provided in the related Prospectus
Supplement, the credit enhancement for a Class or series of Securities will not
provide protection against all risks of loss and will not guarantee repayment of
the entire principal balance and interest thereon. If losses occur which exceed
the amount covered by any Credit Enhancement or which are not covered by any
Credit Enhancement, Securityholders of any Class or series will bear their
allocable share of deficiencies, as described in the related Prospectus
Supplement. In addition, if a form of Credit Enhancement covers more than one
series of Securities, Securityholders of any such series will be subject to the
risk that such Credit Enhancement will be exhausted by the claims of
Securityholders of other series.
Statements to Indenture Trustees and Trustees
Prior to each Payment Date with respect to each series of Securities, the
Servicer will provide to the applicable Indenture Trustee and/or the applicable
Trustee and Credit Enhancer as of the close of business on the last day of the
preceding related Collection Period a statement setting forth substantially the
same information as is required to be provided in the periodic reports provided
to Securityholders of such series described under "Description of the
Securities--Reports to Securityholders".
Evidence as to Compliance
Each Trust Agreement will provide that a firm of independent public
accountants will furnish to the related Trust and/or the applicable Indenture
Trustee and Credit Enhancer, annually, a statement as to compliance by the
Servicer during the preceding twelve months (or, in the case of the first such
certificate, the period from the applicable Closing Date) with certain standards
relating to the servicing of the Receivables.
Each Trust Agreement will also provide for delivery to the related Trust
and/or the applicable Indenture Trustee of a certificate signed by an officer of
the Servicer stating that the Servicer either has fulfilled its obligations
under such Trust Agreement in all material respects throughout the preceding 12
months (or, in the case of the first such certificate, the period from the
applicable Closing Date) or, if there has been a default in the fulfillment of
any such obligation in any material respect, describing each such default. The
Servicer also will agree to give each Indenture Trustee and each Trustee notice
of certain Servicer Defaults under the related Trust Agreement.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the applicable Indenture
Trustee or the applicable Trustee.
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Certain Matters Regarding the Servicers
Each Trust Agreement will provide that the Servicer may not resign from
its obligations and duties as Servicer thereunder, except upon determination
that the performance by the Servicer of such duties is no longer permissible
under applicable law. No such resignation will become effective until the
related Trustee or a successor servicer has assumed the Servicer's servicing
obligations and duties under the Trust Agreement.
Except as otherwise provided in the related Prospectus Supplement, each
Trust Agreement will further provide that neither the Servicer nor any of its
respective directors, officers, employees, or agents shall be under any
liability to the related Issuer or the related Securityholders for taking any
action or for refraining from taking any action pursuant to such Trust
Agreement, or for errors in judgment; provided, however, that neither the
Servicer nor any such person will be protected against any liability that would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties thereunder. In addition, such Trust Agreement will
provide that the Servicer is under no obligation to appear in, prosecute, or
defend any legal action that is not incidental to its servicing responsibilities
under such Trust Agreement and that, in its opinion, may cause it to incur any
expense or liability.
Under the circumstances specified in any such Trust Agreement, any entity
into which the Servicer may be merged or consolidated, or any entity resulting
from any merger or consolidation to which the Servicer is a party, or any entity
succeeding to the business of the Servicer or, with respect to its obligations
as Servicer, which corporation or other entity in each of the foregoing cases
assumes the obligations of the Servicer, will be the successor to the Servicer
under such Trust Agreement.
Servicer Default
Except as otherwise provided in the related Prospectus Supplement,
"Servicer Default" under a Trust Agreement will include (i) any failure by the
Servicer to deliver to the applicable Trustee for deposit in any of the related
Trust Accounts any required payment or to direct such Trustee to make any
required distributions therefrom, which failure continues unremedied for more
than three (3) Business Days after written notice from such Trustee is received
by the Servicer or after discovery by the Servicer; (ii) any failure by the
Servicer duly to observe or perform in any material respect any other covenant
or agreement in such Trust Agreement, which failure materially and adversely
affects the rights of the related Securityholders and which continues unremedied
for more than thirty (30) days after the giving of written notice of such
failure (1) to the Servicer by the applicable Trustee or (2) to the Servicer,
and to the applicable Trustee by holders of the related Securities, as
applicable, evidencing not less than 50% of the voting rights of such
outstanding Securities; (iii) any Insolvency Event; and (iv) any claim being
made on a Policy issued as Credit Enhancement. An "Insolvency Event" shall mean
financial insolvency, readjustment of debt, marshalling of assets and
liabilities, or similar proceedings with respect to the Servicer and certain
actions by the Servicer indicating its insolvency, reorganization pursuant to
bankruptcy proceedings, or inability to pay its obligations.
Rights upon Servicer Default
As more fully described in the related Prospectus Supplement, as long as a
Servicer Default under a Trust Agreement remains unremedied, the applicable
Trustee, Credit Enhancer or holders of Securities of the related series
evidencing not less than 50% of the voting rights of such then outstanding
Securities may terminate all the rights and obligations of the Servicer, if any,
under such Trust Agreement, whereupon a successor servicer appointed by such
Trustee or such Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under such Trust Agreement and will be entitled to
similar compensation arrangements. If, however, a bankruptcy trustee or similar
official has been appointed for the Servicer, and no Servicer Default other than
such appointment has occurred, such bankruptcy trustee or official may have the
power to prevent the applicable Trustee or such Securityholders from effecting a
transfer of servicing. In the event that the Trustee is unwilling or unable
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to so act, it may appoint, or petition a court of competent jurisdiction for the
appointment of, a successor with a net worth of at least $25,000,000 and whose
regular business includes the servicing of a similar type of receivables. Such
Trustee may make such arrangements for compensation to be paid, which in no
event may be greater than the servicing compensation payable to the Servicer
under the related Trust Agreement.
Waiver of Past Defaults
With respect to each Trust, unless otherwise provided in the related
Prospectus Supplement and subject to the approval of any Credit Enhancer, the
holders of Notes evidencing at least a majority of the voting rights of such
then outstanding Securities may, on behalf of all Securityholders of the related
Securities, waive any default by the Servicer in the performance of its
obligations under the related Trust Agreement and its consequences, except a
default in making any required deposits to or payments from any of the Trust
Accounts in accordance with such Trust Agreement. No such waiver shall impair
the Securityholders' rights with respect to subsequent defaults.
Amendment
As more fully described in the related Prospectus Supplement, each of the
Trust Agreements may be amended by the parties thereto, without the consent of
the related Securityholders, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of such Trust
Agreements or of modifying in any manner the rights of such Securityholders;
provided that such action will not, in the opinion of counsel satisfactory to
the applicable Trustee, materially and adversely affect the interests of any
such Securityholder and subject to the approval of any Credit Enhancer. As may
be described in the related Prospectus Supplement, the Trust Agreements may also
be amended by the Company, the Servicer, and the applicable Trustee with the
consent of the holders of Securities evidencing at least a majority of the
voting rights of such then outstanding Securities for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Trust Agreements or of modifying in any manner the rights of such
Securityholders; provided, however, that no such amendment may (i) increase or
reduce in any manner the amount or priority of, or accelerate or delay the
timing of, collections of payments on the related Receivables or distributions
that are required to be made for the benefit of such Securityholders or (ii)
reduce the aforesaid percentage of the Securities of such series which are
required to consent to any such amendment, without the consent of the
Securityholders of such series.
Insolvency Event
As described in the related Prospectus Supplement, if an Insolvency Event
occurs with respect to a Debtor relating to the applicable Trust Property, the
related Trust will terminate, and the Receivables of the related Trust Property
will be liquidated and each such Trust will be terminated 90 days after the date
of such Insolvency Event, unless, before the end of such 90-day period, the
Trustee of such Trust shall have received written instructions from each of the
related Securityholders (other than the Company) and/or Credit Enhancer to the
effect that such party disapproves of the liquidation of such Receivables.
Promptly after the occurrence of any Insolvency Event with respect to a Debtor,
notice thereof is required to be given to such Securityholders and/or Credit
Enhancer; provided, however, that any failure to give such required notice will
not prevent or delay termination of any Trust. Upon termination of any Trust,
the applicable Trustee shall direct that the assets of such Trust be promptly
sold (other than the related Trust Accounts) in a commercially reasonable manner
and on commercially reasonable terms. The proceeds from any such sale,
disposition or liquidation of such Receivables will be treated as collections on
such Receivables and deposited in the related Collection Account. If the
proceeds from the liquidation of such Receivables and any amounts on deposit in
the Reserve Account, if any, and the related Distribution Account are not
sufficient to pay the Securities of the related series in full, and no
additional Credit Enhancement is available, the amount of principal returned to
Securityholders will be reduced and some or all of such Securityholders will
incur a loss.
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Each Trust Agreement will provide that the applicable Trustee does not
have the power to commence a voluntary proceeding in bankruptcy with respect to
any related Trust without the unanimous prior approval of all Certificateholders
(including the Company, if applicable) of such Trust and the delivery to such
Trustee by each such Certificateholder of a certificate certifying that such
Certificateholder reasonably believes that such Trust is insolvent.
Termination
With respect to each Trust, the obligations of the Servicer, the Company
and the applicable Trustee pursuant to the related Trust Agreement will
terminate upon the earlier to occur of (i) the maturity or other liquidation of
the last related Receivable and the disposition of any amounts received upon
liquidation of any such remaining Receivables and (ii) the payment to
Securityholders of the related series of all amounts required to be paid to them
pursuant to such Trust Agreement. As more fully described in the related
Prospectus Supplement, in order to avoid excessive administrative expense, the
Servicer will be permitted in respect of the applicable Trust Property, unless
otherwise specified in the related Prospectus Supplement, at its option to
purchase from such Trust Property, as of the end of any Collection Period
immediately preceding a Payment Date, if the Pool Balance of the related
Contracts is less than a specified percentage (set forth in the related
Prospectus Supplement) of the initial Pool Balance in respect of such Trust
Property, all such remaining Receivables at a price equal to the aggregate of
the Purchase Amounts thereof as of the end of such Collection Period. The
related Securities will be redeemed following such purchase.
If and to the extent provided in the related Prospectus Supplement with
respect to the Trust Property, the applicable Trustee will, within ten days
following a Payment Date as of which the Pool Balance is equal to or less than
the percentage of the initial Pool Balance specified in the related Prospectus
Supplement, solicit bids for the purchase of the Receivables remaining in such
Trust, in the manner and subject to the terms and conditions set forth in such
Prospectus Supplement. If such Trustee receives satisfactory bids as described
in such Prospectus Supplement, then the Receivables remaining in such Trust
Property will be sold to the highest bidder.
As more fully described in the related Prospectus Supplement, any
outstanding Notes of the related series will be redeemed concurrently with
either of the events specified above and the subsequent distribution to the
related Certificateholders of all amounts required to be distributed to them
pursuant to the applicable Trust Agreement may effect the prepayment of the
Certificates of such series.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
General
The transfer of Receivables by the Company or its Finance Subsidiary to
the Trust pursuant to the related Trust Agreement, the perfection of the
security interests in the Receivables and the enforcement of rights to realize
on the Vehicles as collateral for the Receivables are subject to a number of
federal and state laws, including the UCC as in effect in various states. As
specified in each Prospectus Supplement, the Servicer will take such action as
is required to perfect the rights of the Trustee in the Receivables. If, through
inadvertence or otherwise, a third party were to purchase (including the taking
of a security interest in) a Receivable for new value in the ordinary course of
its business, without actual knowledge of the Trust's interest, and take
possession of a Receivable, the purchaser would acquire an interest in such
Receivable superior to the interest of the Trust. As further specified in each
Prospectus Supplement, no action will be taken to perfect the rights of the
Trustee in proceeds of any insurance policies covering individual Vehicles or
Obligors. Therefore, the rights of a third party with an interest in such
proceeds could prevail against the rights of the Trust prior to the time such
proceeds are deposited by the Servicer into a Trust Account.
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Security Interests in the Financed Vehicles
General
Retail installment sale contracts such as the Receivables evidence the
credit sale of automobiles and light duty trucks by dealers to consumers. The
contracts also constitute personal property security agreements and include
grants of security interests in the related automobiles and light duty trucks
under the UCC. Perfection of security interests in automobiles and light duty
trucks is generally governed by the vehicle registration or titling laws of the
state in which each vehicle is registered or titled. In most states a security
interest in a vehicle is perfected by notation of the secured party's lien on
the vehicle's certificate of title.
Perfection
Pursuant to the Trust Agreement, the Company will sell and assign the
Receivables it has originated or acquired and its security interests in the
Vehicles to the Trustee. Alternatively, the Company may sell and assign the
Receivables and its interest in the Vehicles to a Finance Subsidiary which will,
in turn, sell and assign such Receivables and related security interests to the
Trustee. Each of the related Prospectus Supplements will specify whether,
because of the administrative burden and expense, the Company, the Servicer or
the Trustee will amend any certificate of title to identify the Trustee as the
new secured party on the certificates of title relating to the Vehicles. Each of
the related Prospectus Supplements will specify the UCC financing statements to
be filed in order to perfect the transfer to the Finance Subsidiary of
Receivables and the transfer by the Finance Subsidiary to the Trustee of the
Receivables. Further, although the Trustee will not rely on possession of the
Receivables as the legal basis for the perfection of its interest therein or in
the security interests in the Vehicles, the Servicer, as specified in the
related Prospectus Supplement, will continue to hold the Receivables and any
certificates of title relating to the Vehicles in its possession as custodian
for the Trustee pursuant to the related Trust Agreement which, as a practical
matter, should preclude any other party from claiming a competing security
interest in the Receivables on the basis that the security interest is perfected
by possession.
A security interest in a motor vehicle registered in most states may be
perfected against creditors and subsequent purchasers without notice for
valuable consideration only by one or more of the following: depositing with the
related Department of Motor Vehicles or analogous state office a properly
endorsed certificate of title for the vehicle showing the secured party as legal
owner or lienholder thereon, or filing a sworn notice of lien with the related
Department of Motor Vehicles or analogous state office and noting such lien on
the certificate of title, or, if the vehicle has not been previously registered,
filing an application in usual form for an original registration together with
an application for registration of the secured party as legal owner or
lienholder, as the case may be. However, under the laws of most states, a
transferee of a security interest in a motor vehicle is not required to reapply
to the related Department of Motor Vehicles or analogous state office for a
transfer of registration when the security interest is sold or when the interest
of the transferee arises from the transfer of a security interest by the
lienholder to secure payment or performance of an obligation. Accordingly, under
the laws of such states, the assignment by the Company of its interest in the
Receivables to the Trustee under the related Trust Agreement is an effective
conveyance of the security interest of the Company in the Receivables, and
specifically, the Vehicles, without such re-registration and without amendment
of any lien noted on the related certificate of title, and (subject to the
immediately succeeding paragraphs) the Trustee will succeed to the Company's
rights as secured party.
Although re-registration of a Vehicle is not necessary to convey a
perfected security interest in the Vehicles to the Trustee, the Trustee's
security interest could be defeated through fraud, negligence, forgery or
administrative error since it may not be listed as legal owner or lienholder on
the certificates of title to the Vehicles. However, in the absence of fraud,
negligence, forgery or administrative error , the notation of the Company's lien
on the certificates of title will be sufficient to protect the Trust against the
rights of subsequent purchasers of a Vehicle or subsequent creditors who take a
security interest in a Vehicle. In the related Trust Agreement, the Company or
its Finance Subsidiary will represent and warrant that it has,
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or has taken all action necessary to obtain, a perfected security interest in
each Vehicle. If there are any Vehicles as to which the Company failed to obtain
a first priority perfected security interest, the Company's security interest
would be subordinate to, among others, subsequent purchasers of such Vehicles
and holders of first priority perfected security interests therein. Such a
failure, however, would constitute a breach of the Company's or the Finance
Subsidiary's representations and warranties under the related Trust Agreement.
Accordingly, pursuant to the related Trust Agreement, the Company or Finance
Subsidiary would be required to repurchase the related Receivables from the
Trustee unless the breach were cured.
Continuity of Perfection
Under the laws of most states, a perfected security interest in a motor
vehicle continues for four months after the vehicle is moved to a new state from
the one in which it is initially registered and thereafter until the owner
re-registers such motor vehicle in the new state. A majority of states generally
require surrender of a certificate of title to re-register a vehicle. In those
states that require a secured party to hold possession of the certificate of
title to maintain perfection of the security interest, the secured party would
learn of the re-registration through the request from the Obligor under the
related installment sale contract to surrender possession of the certificate of
title to assist in such re-registration. In the case of vehicles registered in
states providing for the notation of a lien on the certificate of title but not
requiring possession by the secured party, the secured party would receive
notice of surrender from the state of re-registration if the security interest
is noted on the certificate of title. Thus, the secured party would have the
opportunity to reperfect its security interest in the vehicle in the state of
relocation. However, these procedural safeguards will not protect the secured
party if, through fraud, forgery or administrative error, the debtor somehow
procures a new certificate of title that does not list the secured party's lien.
Additionally, in states that do not require surrender of a certificate of title
for re-registration of a vehicle, re-registration could defeat perfection. In
each of the Trust Agreements, the Servicer will be required to take steps to
effect re-perfection upon receipt of notice of re-registration or information
from the Obligor as to relocation. Similarly, when an Obligor sells a Vehicle,
the Servicer will have an opportunity to require satisfaction of the related
Receivable before release of the lien, either because the Servicer will be
required to surrender possession of the certificate of title in connection with
the sale, or because the Servicer will receive notice as a result of its lien
noted thereon. Pursuant to the related Trust Agreement, the related Servicer
will hold the certificates of title for the related Vehicles as custodian for
the Trustee. Under the related Trust Agreement, the Servicer will be obligated
to take appropriate steps, at its own expense, to maintain perfected security
interests in the Vehicles.
Priority of Certain Liens Arising by Operation of Law
Under the laws of most states, certain statutory liens such as mechanics',
repairmen's and garagemen's liens for repairs performed on a motor vehicle,
motor vehicle accident liens, towing and storage liens, liens arising under
various state and federal criminal statutes and liens for unpaid taxes take
priority over even a first priority perfected security interest in such vehicle
by operation of law. The UCC also grants priority to certain federal tax liens
over the lien of a secured party. The laws of most states and federal law permit
the confiscation of motor vehicles by governmental authorities under certain
circumstances if used in or acquired with the proceeds of unlawful activities,
which may result in the loss of a secured party's perfected security interest in
a confiscated vehicle. The Company will represent and warrant to the Trustee in
the related Trust Agreement that, as of the related Closing Date, each security
interest in a Vehicle shall be a valid, subsisting and enforceable first
priority security interest in such Vehicle. However, liens for repairs or taxes
superior to the security interest of the Trustee in any such Vehicle, or the
confiscation of such Vehicle, could arise at any time during the term of a
Receivable. No notice will be given to the Trustee or any Securityholder in the
event such a lien or confiscation arises and any such lien or confiscation
arising after the related Closing Date would not give rise to the Company's
repurchase obligation under the related Trust Agreement.
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Repossession
In the event of default by an Obligor, the holder of the related retail
installment sale contract has all the remedies of a secured party under the UCC,
except where specifically limited by other state laws. The UCC remedies of a
secured party include the right to repossession by self-help means, unless such
means would constitute a breach of the peace. Unless a vehicle is voluntarily
surrendered, self-help repossession is accomplished simply by taking possession
of the related financed vehicle. In cases where the Obligor objects or raises a
defense to repossession, or if otherwise required by applicable state law, a
court order is obtained from the appropriate state court, and the vehicle must
then be recovered in accordance with that order. In some jurisdictions, the
secured party is required to notify the debtor of the default and the intent to
repossess the collateral and give the debtor a time period within which to cure
the default prior to repossession. Generally, this right of cure may only be
exercised on a limited number of occasions during the term of the related
contract. Other jurisdictions permit repossession without prior notice if it can
be accomplished without a breach of the peace (although in some states, a course
of conduct in which the creditor has accepted late payments has been held to
create a right by the Obligor to receive prior notice).
Notice of Sale; Redemption Rights
The UCC and other state laws require a secured party to provide the
Obligor with reasonable notice of the date, time and place of any public sale
and/or the date after which any private sale of the collateral may be held. In
addition, some states also impose substantive timing requirements on the sale of
repossessed vehicles in certain circumstances and/or various substantive timing
and content requirements on such notices. In some states, under certain
circumstances after a financed vehicle has been repossessed, the Obligor may
redeem the collateral by paying the delinquent installments and other amounts
due. The Obligor has the right to redeem the collateral prior to actual sale or
entry by the secured party into a contract for sale of the collateral by paying
the secured party the unpaid principal balance of the obligation, accrued
interest thereon, reasonable expenses for repossessing, holding, and preparing
the collateral for disposition and arranging for its sale, plus, in some
jurisdictions, reasonable attorneys' fees and legal expenses or in some other
states, by payment of delinquent installments on the unpaid principal balance of
the related obligation.
Deficiency Judgments and Excess Proceeds
The proceeds of resale of the Vehicles generally will be applied first to
the expenses of resale and repossession and then to the satisfaction of the
indebtedness. In many instances, the remaining principal amount of such
indebtedness will exceed such proceeds. Under the UCC and laws applicable in
some states, a creditor is entitled to bring an action to obtain a deficiency
judgment from a debtor for any deficiency on repossession and resale of a motor
vehicle securing such debtor's loan; however, in some states, a creditor may not
seek a deficiency judgment from a debtor whose financed vehicle had an initial
cash sales price less than a specified amount, usually $3,000. Some states,
impose prohibitions or limitations or notice requirements on actions for
deficiency judgments. In addition to the notice requirement described above, the
UCC requires that every aspect of the sale or other disposition, including the
method, manner, time, place and terms, be "commercially reasonable". Generally,
courts have held that when a sale is not "commercially reasonable", the secured
party loses its right to a deficiency judgment. In addition, the UCC permits the
debtor or other interested party to recover for any loss caused by noncompliance
with the provisions of the UCC. Also, prior to a sale, the UCC permits the
debtor or other interested person to obtain an order mandating that the secured
party refrain from disposing of the collateral if it is established that the
secured party is not proceeding in accordance with the "default" provisions
under the UCC. However, the deficiency judgment would be a personal judgment
against the Obligor for the shortfall, and a defaulting Obligor can be expected
to have very little capital or sources of income available following
repossession. Therefore, in many cases, it may not be useful to seek a
deficiency judgment or, if one is obtained, it may be settled at a significant
discount or be uncollectible.
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Occasionally, after resale of a vehicle and payment of all expenses and
indebtedness, there is a surplus of funds. In that case, the UCC requires the
creditor to remit the surplus to any holder of a subordinate lien with respect
to the vehicle or if no such lienholder exists or if there are remaining funds,
the UCC requires the creditor to remit the surplus to the Obligor under the
contract.
Consumer Protection Laws
Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon creditors 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
Reporting Act, the Fair Debt Collection Practices Act, the Magnuson-Moss
Warranty Act, the Federal Reserve Board's Regulations B and Z, state adaptations
of the Uniform Consumer Credit Code, state motor vehicle retail installment sale
acts, state "lemon" laws and other similar laws. In addition, the laws of
certain states impose finance charge ceilings and other restrictions on consumer
transactions and require contract disclosures in addition to those required
under federal law. These requirements impose specific statutory liabilities upon
creditors who fail to comply with their provisions. In some cases, this
liability could affect the ability of an assignee such as the Trustee to enforce
consumer finance contracts such as the Receivables.
The so-called "Holder-in-Due-Course Rule" of the Federal Trade Commission
(the "FTC Rule") has the effect of subjecting any assignee of the seller in a
consumer credit transaction (and certain related creditors and their assignees)
to all claims and defenses which the Obligor in the transaction could assert
against the seller. Liability under the FTC Rule is limited to the amounts paid
by the Obligor under the contract, and the holder of the contract may also be
unable to collect any balance remaining due thereunder from the Obligor. The FTC
Rule is generally duplicated by the Uniform Consumer Credit Code, other state
statutes or the common law in certain states. To the extent that the Receivables
will be subject to the requirements of the FTC Rule, the Trustee, as holder of
the Receivables, will be subject to any claims or defenses that the purchaser of
the related Vehicle may assert against the seller of such Vehicle. Such claims
will be limited to a maximum liability equal to the amounts paid by the Obligor
under the related Receivable.
Under most state vehicle dealer licensing laws, sellers of automobiles and
light duty trucks are required to be licensed to sell vehicles at retail sale.
In addition, with respect to used vehicles, the Federal Trade Commission's Rule
on Sale of Used Vehicles requires that all sellers of used vehicles prepare,
complete and display a "Buyer's Guide" which explains the warranty coverage for
such vehicles. Furthermore, Federal Odometer Regulations promulgated under the
Motor Vehicle Information and Cost Savings Act and the motor vehicle title laws
of most states require that all sellers of used 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 provided to the purchaser of a Vehicle, the Obligor
may be able to assert a defense against the seller of the Vehicle. If an Obligor
on a Receivable were successful in asserting any such claim or defense, the
Servicer would pursue on behalf of the Trust any reasonable remedies against the
seller or manufacturer of the vehicle, subject to certain limitations as to the
expense of any such action to be specified in the related Trust Agreement.
Any such loss, to the extent not covered by credit support (as specified
in the Related Prospectus Supplement), could result in losses to the
Securityholders. As specified in the related Prospectus Supplement, if an
Obligor were successful in asserting any such claim or defense as described in
this paragraph or the two immediately preceding paragraphs, such claim or
defense may constitute a breach of a representation and warranty under the
related Trust Agreement and may create an obligation of the Company to
repurchase such Receivable unless the breach were cured.
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.
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In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections of the 14th Amendment to the Constitution of the United States.
Courts have generally either upheld the notice provisions of the UCC and related
laws as reasonable or have found that the creditor's repossession and resale do
not involve sufficient state action to afford constitutional protection to
consumers.
As specified in the related Prospectus Supplement, the Company (or its
Finance Subsidiary, if any) will represent and warrant under the related Trust
Agreement that each Receivable complies with all requirements of law in all
material respects. Accordingly, if an Obligor has a claim against the Trustee
for violation of any law and such claim materially and adversely affects the
Trustee's interest in a Receivable, such violation would constitute a breach of
representation and warranty under the related Trust Agreement and would create
an obligation of the Company (or its Finance Subsidiary, if any) to repurchase
such Receivable unless the breach were cured.
Soldiers' and Sailors' Civil Relief Act of 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), an Obligor who enters military service after the
origination of such Obligor's Receivable (including an Obligor who was in
reserve status and is called to active duty after origination of the
Receivable), may not be charged interest (including fees and charges) above an
annual rate of 6% during the period of such Obligor's active duty status, unless
a court orders otherwise upon application of the lender. The Relief Act applies
to Obligors who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard, and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Relief Act applies to Obligors
who enter military service (including reservists who are called to active duty)
after origination of the related Receivable, no information can be provided as
to the number of loans that may be effected by the Relief Act. Application of
the Relief Act would adversely affect, for an indeterminate period of time, the
ability of the Servicer to collect full amounts of interest on certain of the
Receivables. Any shortfall in interest collections resulting from the
application of the Relief Act or similar legislation or regulations, which would
not be recoverable from the related Receivables, would result in a reduction of
the amounts distributable to the holders of the related Securities, and would
not be covered by advances, any form of Credit Enhancement provided in
connection with the related series of Securities. In addition, the Relief Act
imposes limitations that would impair the ability of the Servicer to foreclose
on an affected Receivable during the Mortgagor's period of active duty status,
and, under certain circumstances, during an additional three month period
thereafter. Thus, in the event that the Relief Act or similar legislation or
regulations applies to any Receivable which goes into default, there may be
delays in payment and losses on the related Securities in connection therewith.
Any other interest shortfalls, deferrals or forgiveness of payments on the
Receivables resulting from similar legislation or regulations may result in
delays in payments or losses to Securityholders of the related series.
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 creditor to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossessing a motor vehicle, and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
motor 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. Any such shortfall, to the extent not covered by credit support
(as specified in each Prospectus Supplement), could result in losses to the
Securityholders.
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FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the purchase, ownership and disposition of the Notes and the Certificates.
Dewey Ballantine, special federal tax counsel for the Company ("Federal Tax
Counsel"), is of the opinion that the discussion hereunder fully and fairly
discloses all material federal tax risks associated with the purchase, ownership
and disposition of the Notes and Certificates. The summary does not purport to
deal with federal income tax consequences or special rules that are applicable
to certain categories of holders. Moreover, there are no cases or Internal
Revenue Service ("IRS") rulings on all of the issues discussed below. As a
result, the IRS may disagree with all or a part of the discussion below.
Prospective investors are urged to consult their own tax advisors in determining
the federal, state, local, foreign and any other tax consequences to them of the
purchase, ownership and disposition of the Notes and the Certificates.
Federal Tax Counsel will, in addition to delivering its opinion with
respect to the discussion set forth herein, deliver separate opinions in
connection with each issuance of Securities. Such opinions will be delivered at
pricing, and will be filed on a Current Report within two business days of
pricing (and in any event prior to the issuance of the related Securities).
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. The opinion of Federal Tax
Counsel, however, is not binding on the IRS or the courts. No ruling on any of
the issues discussed below will be sought from the IRS. For purposes of the
following summary, references to the Trust, the Notes, the Certificates and
related terms, parties and documents shall be deemed to refer, unless otherwise
specified herein, to each Trust and the Notes, Certificates and related terms,
parties and documents applicable to such Trust.
The federal income tax consequences to Certificateholders will vary
depending on whether the Trust will be treated as a partnership under the Code,
whether the Trust will be treated as a grantor trust, or whether it is intended
that the Trust serve as a security device for the issuance of Certificates that
are to be treated as indebtedness for federal income tax purposes. The
Prospectus Supplement for each series of Certificates will specify whether the
Trust will be treated as a partnership, a grantor trust, or is intended to serve
as a security device as just described. In addition, if the related Prospectus
Supplement so provides, the Transaction Documents for a Trust may provide that
an election will be made on or after September 1, 1997 to qualify such Trust as
a Financial Asset Securitization Investment Trust pursuant to new provisions of
the Code which will be effective as of such date.
TRUSTS TREATED AS PARTNERSHIPS
Tax Characterization of the Trust as a Partnership
Federal Tax Counsel will deliver its opinion that a Trust which is
intended to be a partnership, as specified in the related Prospectus Supplement,
will not be an association (or publicly traded partnership) taxable as a
corporation for federal income tax purposes. This opinion will be based on the
assumption that the terms of the Trust Agreement and related documents will be
complied with, and on counsel's conclusions that (1) the Trust will not have
certain characteristics necessary for a business trust to be classified as an
association taxable as a corporation and (2) the nature of the income of the
Trust will exempt it from the rule that certain publicly traded partnerships are
taxable as corporations.
If the Trust were taxable as a corporation for federal income tax
purposes, the Trust would be subject to corporate income tax on its taxable
income. The Trust's taxable income would include all its income on the
Receivables, possibly reduced by its interest expense on the Notes. Any such
corporate income tax could materially reduce cash available to make payments on
the Notes and distributions on the Certificates, and Certificateholders could be
liable for any such tax that is unpaid by the Trust.
Tax Consequences to Holders of the Notes Issued by a Partnership
Treatment of the Notes as Indebtedness. The Seller will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal income tax purposes. Federal Tax Counsel will, except as otherwise
provided in the related Prospectus Supplement, advise the Trust that
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in its opinion the Notes will be classified as debt for federal income tax
purposes. The discussion below assumes this characterization of the Notes is
correct.
Treatment of Original Issue Discount ("OID"). The discussion below
assumes that all payments on the Notes are denominated in U.S. dollars, and that
the Notes are not Indexed Securities or Strip Notes. Moreover, the discussion
assumes that the interest formula for the Notes meets the requirements for
"qualified stated interest" under Treasury regulations (the "OID regulations")
relating to original issue discount ("OID"), and that any OID on the Notes
(i.e., any excess of the principal amount of the Notes over their issue price)
does not exceed a de minimis amount (i.e., generally 1/4% of their principal
amount multiplied by the number of full years included in their term), all
within the meaning of the OID regulations. If these conditions are not satisfied
with respect to any given series of Notes, additional tax considerations with
respect to such Notes will be disclosed in the applicable Prospectus Supplement.
OID as Interest Income . Based on the above assumptions the Notes
generally will not be considered issued with OID. The stated interest thereon
will be taxable to a Noteholder as ordinary interest income when received or
accrued in accordance with such Noteholder's method of tax accounting. Under the
OID regulations, a holder of a Note issued with a de minimis amount of OID
generally must include such OID in income, on a pro rata basis, as principal
payments are made on the Note. However, a holder may elect to accrue de minimis
OID under a constant yield method in connection with an election to accrue all
interest, discount, and premium on the Note using the constant yield method. See
"Trusts Treated as Grantor Trusts--Taxation of Holders if Stripped Bond Rules Do
Not Apply--Election to Treat All Interest as OID" for a discussion of such
election. A purchaser who buys a Note for more or less than its principal amount
will generally be subject, respectively, to the premium amortization or market
discount rules of the Code.
A holder of a Note that has a fixed maturity date of not more than one
year from the issue date of such Note (a "Short-Term Note") may be subject to
special rules. An accrual basis holder of a Short-Term Note (and certain cash
method holders, including regulated investment companies, as set forth in
Section 1281 of the Code) generally would be required to report interest income
as interest accrues on a straight-line basis over the term of each interest
period. Other cash basis holders of a Short-Term Note would, in general, be
required to report interest income as interest is paid (or, if earlier, upon the
taxable disposition of the Short-Term Note). However, a cash basis holder of a
Short-Term Note reporting interest income as it is paid may be required to defer
a portion of any interest expense otherwise deductible on indebtedness incurred
to purchase or carry the Short-Term Note until the taxable disposition of the
Short--Term Note. A cash basis taxpayer may elect under Section 1281 of the Code
to accrue interest income on all nongovernment debt obligations with a term of
one year or less, in which case the taxpayer would include interest on the
Short-Term Note in income as it accrues, but would not be subject to the
interest expense deferral rule referred to in the preceding sentence. Certain
special rules apply if a Short-Term Note is purchased for more or less than its
principal amount.
OID Treatment Upon Sale or Other Disposition. If a Noteholder sells a
Note, the holder will recognize gain or loss in an amount equal to the
difference between the amount realized on the sale and the holder's adjusted tax
basis in the Note. The adjusted tax basis of a Note to a particular Noteholder
will equal the holder's cost for the Note, increased by any market discount,
acquisition discount, OID, if any, and gain previously included by such
Noteholder in income with respect to the Note and decreased by the amount of
bond premium (if any) previously amortized and by the amount of principal
payments previously received by such Noteholder with respect to such Note. Any
such gain or loss generally will be capital gain or loss if the Note was held as
a capital asset, except for gain representing accrued interest and accrued
market discount not previously included in income. Capital losses generally may
be used only to offset capital gains.
Foreign Holders. Interest payments made (or accrued) to a Noteholder who
is a Foreign Investor, as defined below, generally will be considered "portfolio
interest," and generally will not be subject to United States federal income tax
and withholding tax, if the interest is not effectively connected with the
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conduct of a trade or business within the United States by the Foreign Investor
and the Foreign Investor (i) is not actually or constructively a "10 percent
shareholder" of the Trust or the Seller (including a holder of 10% of the
outstanding Certificates) or a "controlled foreign corporation" with respect to
which the Trust or the Seller is a "related person" within the meaning of the
Code and (ii) provides the Owner Trustee or other person who is otherwise
required to withhold U.S. tax with respect to the Notes with an appropriate
statement (on Form W-8 or a similar form), signed under penalties of perjury,
certifying that the beneficial owner of the Note is a Foreign Investor and
providing the Foreign Investor's name and address. If a Note is held through a
securities clearing organization or certain other financial institutions, the
organization or institution may provide the relevant signed statement to the
withholding agent; in that case, however, the signed statement must be
accompanied by a Form W-8 or substitute form provided by the Foreign Investor
that owns the Note. If such interest is not portfolio interest, then it will be
subject to United States federal income and withholding tax at a rate of 30
percent, unless reduced or eliminated pursuant to an applicable tax treaty.
Any gain realized on the sale, redemption, retirement or other taxable
disposition of a Note by a foreign person will be exempt from United States
federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the Foreign Investor, (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year, and (iii) in the case of gain representing accrued
interest or OID, the conditions described in the immediately preceding paragraph
are satisfied.
If the interest, gain or income on a Note held by a Foreign Investor is
effectively connected with the conduct of a trade or business in the United
States by the Foreign Investor (although exempt from the withholding tax
previously discussed if the holder provides an appropriate and timely statement
on Form 4224), the holder generally will be subject to United States federal
income tax on the interest, gain or income at regular federal income tax rates.
In addition, if the Foreign Investor is a foreign corporation, it may be subject
to a branch profits tax equal to 30% of its "effectively connected earnings and
profits" within the meaning of the Code for the taxable year, as adjusted for
certain items, unless it qualifies for a lower rate under an applicable tax
treaty (as modified by the branch profits tax rules).
Proposed Treasury regulations which would be effective for payments made
after December 31, 1997 if adopted in their current form would provide
alternative certification requirements and means by which a Foreign Investor
could claim the exemptions from federal income and withholding taxes.
For purposes of this tax discussion, a Foreign Person or Foreign Investor
is any person other than (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, (iii) an estate
whose income is includible in gross income for United States federal income
taxation regardless of source, or (iv) a trust other than a "Foreign Trust," as
such term is defined in Section 7701(a)(31) of the Code.
Backup Withholding. Each holder of a Note (other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing, among other
things, the holder's name, address, correct federal taxpayer identification
number and a statement that the holder is not subject to backup withholding.
Should a nonexempt Noteholder fail to provide the required certification, the
Trust will be required to withhold 31 percent of the amount otherwise payable to
the holder, and remit the withheld amount to the IRS as a credit against the
holder's federal income tax liability.
Possible Alternative Treatments of the Notes. If, contrary to the opinion
of Federal Tax Counsel, the IRS successfully asserted that one or more of the
Notes did not represent debt for federal income tax purposes, the Notes might be
treated as equity interests in the Trust. If so treated, the Trust might be
taxable as a corporation with the adverse consequences described above (and the
taxable corporation would not be able to reduce its taxable income by deductions
for interest expense on Notes recharacterized as equity). Alternatively, the
Trust might be treated as a publicly traded partnership that
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would not be taxable as a corporation if it met certain qualifying income tests.
Nonetheless, treatment of the Notes as equity interests in such a publicly
traded partnership could have adverse tax consequences to certain holders. For
example, income to Foreign Investors generally would be subject to U.S. tax and
U.S. tax return filing and withholding requirements, and individual holders
might be subject to certain limitations on their ability to deduct their share
of Trust expenses.
Tax Consequences to Holders of the Certificates Issued by a Partnership
Treatment of the Trust as a Partnership. The Seller and TMS Auto Finance
will agree, and the Certificateholders will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income, with the assets of the partnership being the assets held by the
Trust, the partners of the partnership being the Certificateholders, and the
Notes being debt of the partnership. However, the proper characterization of the
arrangement involving the Trust, the Certificates, the Notes, the Seller and TMS
Auto Finance is not clear because there is no authority on transactions closely
comparable to that contemplated herein.
For example, because the Certificates may have certain features
characteristic of debt, the Certificates might be considered debt of the Seller
or the Trust. Generally, provided such Certificates are issued at or close to
face value, any characterization would not result in materially adverse tax
consequences to Certificateholders as compared to the consequences from
treatment of the Certificates as equity in a partnership, described below. If
Certificates are issued at a substantial discount, a discussion of the relevant
tax consequences will be set forth in the related Prospectus Supplement. The
following discussion assumes that the Certificates represent equity interests in
a partnership.
Indexed Securities, etc. The following discussion assumes that all
payments on the Certificates are denominated in U.S. dollars, none of the
Certificates are Indexed Securities or Strip Certificates, and that a series of
Securities includes a single class of Certificates. If these conditions are not
satisfied with respect to any given series of Certificates, additional tax
considerations with respect to such Certificates will be disclosed in the
applicable Prospectus Supplement.
Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. In certain instances, however, the
Trust could have an obligation to make payments of withholding tax on behalf of
a Certificateholder. See "Backup Withholding" and "Tax Consequences to Foreign
Certificateholders" below. The Trust's income will consist primarily of interest
and finance charges earned on the Receivables (including appropriate adjustments
for market discount, OID and bond premium) and any gain upon collection or
disposition of Receivables. The Trust's deductions will consist primarily of
interest accruing with respect to the Notes, servicing and other fees, and
losses or deductions upon collection or disposition of Receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the Certificateholders will be allocated taxable income of the
Trust for each month equal to the sum of (i) the interest that accrues on the
Certificates in accordance with their terms for such month, including interest
accruing at the Pass Through Rate for such month and interest on amounts
previously due on the Certificates but not yet distributed; (ii) any Trust
income attributable to discount on the Receivables that corresponds to any
excess of the principal amount of the Certificates over their initial issue
price; (iii) prepayment premium payable to the Certificateholders for such
month; and (iv) any other amounts of income payable to the Certificateholders
for such month. Such allocation will be reduced by any amortization by the Trust
of premium on Receivables that corresponds to any excess of the issue price of
Certificates over their principal amount. Based on the economic arrangement of
the parties, this approach for allocating Trust income should be permissible
under applicable Treasury regulations, although. Federal Tax Counsel is unable
to opine that the IRS would not require a greater amount of income to be
allocated to Certificateholders. Moreover, even under the foregoing method of
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allocation, Certificateholders may be allocated income equal to the entire
Pass-Through Rate plus the other items described above even though the Trust
might not have sufficient cash to make current cash distributions of such
amount. Thus, cash basis holders will in effect be required to report income
from the Certificates on the accrual basis and Certificateholders may become
liable for taxes on Trust income even if they have not received cash from the
Trust to pay such taxes. In addition, because tax allocations and tax reporting
will be done on a uniform basis for all Certificateholders but
Certificateholders may be purchasing Certificates at different times and at
different prices, Certificateholders may be required to report on their tax
returns taxable income that is greater or less than the amount reported to them
by the Trust.
All of some of the taxable income allocated to a Certificateholder that is
a pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) may constitute "unrelated business
taxable income" generally taxable to such a holder under the Code.
An individual taxpayer's share of expenses of the Trust (including fees to
the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Trust. Such deductions may also be subject to reduction under Section 68 of
the Code if the individual's adjusted gross income exceeds certain limits.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Receivables will not be
issued with OID, and, therefore, the Trust should not have OID income. However,
the purchase price paid by the Trust for the Receivables may be greater or less
than the remaining principal balance of the Receivables at the time of purchase.
If so, the Receivables will have been acquired at a premium or discount, as the
case may be. (As indicated above, the Trust will make this calculation on an
aggregate basis, but might be required to recompute it on a
Receivable-by-Receivable basis.)
If the Trust acquires the Receivables at a market discount or premium, the
Trust will elect to include any such discount in income currently as it accrues
over the life of the Receivables or to offset any such premium against interest
income on the Receivables. As indicated above, a portion of such market discount
income or premium deduction will be allocated to Certificateholders if the
related Trust Agreement so provides. Any such allocation will be disclosed in
the related Prospectus Supplement.
Section 708 Termination. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. Proposed
regulations would provide that if a termination occurs the partnership will be
considered to transfer its assets and liabilities to a new partnership in
exchange for interests in that new partnership which it would then be treated as
transferring to its partners. The Trust will not comply with certain technical
requirements that might apply when such a constructive termination occurs. As a
result, the Trust may be subject to certain tax penalties and may incur
additional expenses if it is required to comply with those requirements.
Furthermore, the Trust might not be able to comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
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realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share
of unrecognized accrued market discount on the Receivables would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to have any other assets that
would give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the Trust will elect to include market discount
in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such month. As a result, a holder purchasing Certificates may
be allocated tax items (which will affect its tax liability and tax basis)
attributable to periods before the actual purchase takes place.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The Affiliated
Purchaser is authorized to revise the Trust's method of allocation between
transferors and transferees to conform to a method permitted by future
regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (or loss), the purchasing Certificateholder will have a
higher (or lower) basis in the Certificates than the selling Certificateholder
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher (or lower) basis unless the Trust were to file an election under Section
754 of the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Owner Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be the calendar year. The Owner Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust and will report each Certificateholder's allocable share of items of Trust
income and expense to holders and the IRS on Schedule K-l. The Trust will
provide the Schedule K-l information to nominees that fail to provide the Trust
with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file tax returns that are consistent with
the information return filed by the Trust or be subject to penalties unless the
holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (x) the name, address and taxpayer identification number of such person,
(y) whether such person is a United
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States person, a tax-exempt entity or a foreign government, an international
organization, or any wholly owned agency or instrumentality of either of the
foregoing, and (z) certain information on Certificates that were held, bought or
sold on behalf of such person throughout the year. In addition, brokers and
financial institutions that hold Certificates through a nominee are required to
furnish directly to the Trust information as to themselves and their ownership
of Certificates. A clearing agency registered under Section 17A of the Exchange
Act is not required to furnish any such information statement to the Trust. The
information referred to above for any calendar year must be furnished to the
Trust on or before the following January 31. Nominees, brokers and financial
institutions that fail to provide the Trust with the information described above
may be subject to penalties.
The Seller will be designated as the tax matters partner in the related
Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS with respect to partnership
items. The Code provides for administrative examination of a partnership as if
the partnership were a separate and distinct taxpayer. Generally, the statute of
limitations for partnership items does not expire before three years after the
date on which the partnership information return is filed. Any adverse
determination following an audit of the return of the Trust by the appropriate
taxing authorities could result in an adjustment of the returns of the
Certificateholders, and, I under certain circumstances, a Certificateholder may
be precluded from separately litigating a proposed adjustment to the items of
the Trust. An adjustment could also result in an audit of a Certificateholder's
returns and adjustments of items not related to the income and losses of the
Trust.
Tax Consequences to Foreign Certificateholders. As discussed below, an
investment in a Certificate is not suitable for any Foreign Person, as defined
above, which is not eligible for a complete exemption from U.S. withholding tax
on interest under a tax treaty with the United States. Accordingly, no interest
in a Certificate should be acquired by or on behalf of any such Foreign Person.
No regulations, published rulings or judicial decisions exist that would
discuss the characterization for Federal withholding tax purposes with respect
to a Foreign Person of a partnership with activities substantially the same as
the Trust. Depending upon the particular terms of the related Trust Agreement
and Sale and Servicing Agreement, a trust may be considered to be engaged in a
trade or business in the United States for purposes of Federal withholding taxes
with respect to non-U.S. persons. If the Trust is considered to be engaged in a
trade or business in the United States for such purposes, the income of the
Trust distributable to a non-U.S. person would be subject to Federal withholding
tax at a rate of 35% for persons taxable as a corporation and 39.6% for all
other Foreign Persons. Also, in such cases, a Foreign Person that is a
corporation may be subject to the branch profits tax. If the Trust is notified
that a Certificateholder is a Foreign Person, the Trust may withhold as if it
were engaged in a trade or business in the United States in order to protect the
Trust from possible adverse consequences of a failure to withhold. Subsequent
adoption of Treasury regulations or the issuance of other administrative
pronouncements may require the Trust to change its withholding procedures.
If a Trust is engaged in a trade or business, each foreign
Certificateholder will be required to file a United States federal individual or
corporate income tax return (including in the case of a corporation, the branch
profits tax) on its share of the Trust's income. A foreign holder generally
would be entitled to file with the IRS a claim for refund with respect to
withheld taxes, taking the position that no taxes were due because the Trust was
not engaged in a United States trade or business. However, interest payments
made to (or accrued by) a Certificateholder who is a Foreign Person may be
considered guaranteed payments to the extent such payments are determined
without regard to the income of the Trust and for that reason or because of the
nature of the Receivables, the interest will likely not be considered "portfolio
interest." See "--Tax Consequences to Holders of the Notes Issued by a
Partnership-Foreign Holders" for a discussion of portfolio interests. As a
result, even if the Trust is not considered to be engaged in a U.S. trade or
business, Certificateholders would be subject to United States Federal income
tax which must be withheld at a rate of 30% on their share of the Trust's income
(without reduction for interest expense), unless reduced or eliminated pursuant
to an applicable income tax treaty. If the Trust is notified that a
Certificateholder is a Foreign Person, the Trust may be required to withhold and
pay over such tax, which can exceed the amounts otherwise available for
distribution to such a Certificateholder. A Foreign
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Person would generally be entitled to file with the IRS a refund claim for such
withheld taxes, taking the position that the interest was portfolio interest and
therefore not subject to U.S. tax. However, the IRS may disagree and no
assurance can be given as to the appropriate amount of tax liability. As a
result, each potential foreign Certificateholder should consult its tax advisor
as to whether the tax consequences of holding an interest in a Certificate make
it an unsuitable investment.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
TRUSTS TREATED AS GRANTOR TRUSTS
Tax Characterization of the Trust as a Grantor Trust
As specified in the related Prospectus Supplement, if a partnership
election is not made and the Certificates are not treated as debt for federal
income tax purposes as discussed below, Federal Tax Counsel will deliver its
opinion that the Trust will not be classified as an association taxable as a
corporation and that such Trust will be classified as a grantor trust under
subpart E, Part I of subchapter J of the Code. In this case, owners of
Certificates (referred to herein as "Grantor Trust Certificateholders") will be
treated for federal income tax purposes as owners of a portion of the Trust's
assets as described below. The Certificates issued by a Trust that is treated as
a grantor trust are referred to herein as "Grantor Trust Certificates."
Characterization. Each Grantor Trust Certificateholder will be treated as
the owner of a pro rata undivided interest in the interest and principal
portions of the Trust represented by the Grantor Trust Certificates and will be
considered the equitable owner of a pro rata undivided interest in each of the
Receivables in the Trust. Any amounts received by a Grantor Trust
Certificateholder in lieu of amounts due with respect to any Receivable because
of a default or delinquency in payment will be treated for federal income tax
purposes as having the same character as the payments they replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire income
from the Receivables in the Trust represented by Grantor Trust Certificates,
including interest, OID, if any, prepayment fees, assumption fees, any gain
recognized upon an assumption and late payment charges received by the Servicer.
Under Sections 162 or 212 each Grantor Trust Certificateholder will be entitled
to deduct its pro rata share of servicing fees, prepayment fees, assumption
fees, any loss recognized upon an assumption and late payment charges retained
by the Servicer, provided that such amounts are reasonable compensation for
services rendered to the Trust. Grantor Trust Certificateholders that are
individuals, estates or trusts will be entitled to deduct their share of
expenses only to the extent such expenses plus such holder's other miscellaneous
itemized deductions exceed two percent of such holder's adjusted gross income.
Such deductions may also be limited by Code Section 68 for an individual whose
adjusted gross income exceeds certain limits. A Grantor Trust Certificateholder
using the cash method of accounting must take into account its pro rata share of
income and deductions as and when collected by or paid to the Servicer. A
Grantor Trust Certificateholder using an accrual method of accounting must take
into account its pro rata share of income and deductions as they become due or
are paid to the Servicer, whichever is earlier. If the servicing fees or other
amounts paid to the Servicer exceed reasonable servicing compensation, the
amount of such excess would be considered as an ownership interest retained by
the Servicer (or any person to whom the Servicer assigned all or a portion of
the servicing fees) in a portion of the interest payments on the Receivables.
The Receivables would then be subject to the stripped bond rules of the Code
discussed below.
Taxation of Holders If Stripped Bond Rules Apply
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In the absence of comprehensive regulations, Federal Tax Counsel is unable
to opine as to the tax treatment of stripped bonds. The preamble to certain
stripped bond regulations suggests that each purchaser of a Grantor Trust
Certificate will be treated with respect to each Receivable as the purchaser of
a single stripped bond consisting of all of the stripped portions of the
applicable Receivable (such portions with respect to a Receivable are referred
to herein as a "Stripped Bond") which generally should be treated as a single
debt instrument issued on the day it is purchased for purposes of calculating
any original issue discount. Generally, under Treasury regulations relating to
Stripped Bonds (the "Section 1286 Treasury Regulations"), if the discount on a
Stripped Bond is larger than a de minimis amount (as calculated for purposes of
the OID rules of the Code) such Stripped Bond will be considered to have been
issued with OID. See "--Original Issue Discount" herein. Based on the preamble
to the Section 1286 Treasury regulations, although the matter is not entirely
clear, the interest income on the Certificates at the sum of the Pass-Through
Rate and the portion of the Servicing Fee Rate that does not constitute excess
servicing should be treated as "qualified stated interest" within the meaning of
the Section 1286 Treasury regulations, assuming all other requirements for
treatment as qualified stated interest are satisfied, and such income will be so
treated in the Trustee's tax information reporting.
Original Issue Discount. When Stripped Bonds have more than a de minimis
amount of OID, the special rules of the Code relating to "original issue
discount" (currently Sections 1271 through 1275) will be applicable to a Grantor
Trust Certificateholder's interest in those Stripped Bonds. Generally, a Grantor
Trust Certificateholder that acquires an interest in a Stripped Bond issued or
acquired with OID must include in gross income the sum of the "daily portions,"
as defined below, of the OID on such Stripped Bond for each day on which it owns
a Certificate, including the date of purchase but excluding the date of
disposition. Although the proper method is not entirely clear, the Trust intends
to calculate the daily portions of OID with respect to a Stripped Bond generally
as follows. A calculation will be made of the portion of OID that accrues on the
Stripped Bond during each successive monthly accrual period (or shorter period
in respect of the date of original issue or the final Distribution Date). This
will be done, in the case of each full monthly accrual period, by adding (i) the
present value of all remaining payments to be received on the Stripped Bond
under the prepayment assumption, if any, used in respect of the Stripped Bonds
and (ii) any payments received during such accrual period, and subtracting from
that total the "adjusted issue price" of the Stripped Bond at the beginning of
such accrual period. No representation is made that the Stripped Bonds will
prepay at any prepayment assumption. The "adjusted issue price" of a Stripped
Bond at the beginning of the first accrual period is its issue price (as
determined for purposes of the OID rules of the Code) and the "adjusted issue
price" of a Stripped Bond at the beginning of a subsequent accrual period is the
"adjusted issue price" at the beginning of the immediately preceding accrual
period plus the amount of OID allocable to that accrual period and reduced by
the amount of any payment (other than "qualified stated interest") made at the
end of or during that accrual period. The OID accruing during such accrual
period will then be divided by the number of days in the period to determine the
daily portion of OID for each day in the period. With respect to an initial
accrual period shorter than a full monthly accrual period, the daily portions of
OID must be determined according to an appropriate allocation under either an
exact or approximate method set forth in the OID Regulations, or some other
reasonable method, provided that such method is consistent with the method used
to determine the yield to maturity of the Receivables.
With respect to the Stripped Bonds, the method of calculating OID as
described above will cause the accrual of OID to either increase or decrease
(but never below zero) in any given accrual period to reflect the fact that
prepayments are occurring at a faster or slower rate than the prepayment
assumption used in respect of the Stripped Bonds.
Taxation of Holders If Stripped Bond Rules Do Not Apply
Premium. The price paid for a Grantor Trust Certificate by a holder will
be allocated to such holder's undivided interest in each Receivable based on
each Receivable's relative fair market value, so that such holder's undivided
interest in each Receivable will have its own tax basis. A Grantor Trust
Certificateholder that acquires an interest in Receivables at a premium may
elect to amortize such premium under a constant interest method. Amortizable
bond premium will be treated as an offset to
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interest income on such Grantor Trust Certificate. The basis for such Grantor
Trust Certificate will be reduced to the extent that amortizable premium is
applied to offset interest payments. It is unclear whether a reasonable
prepayment assumption should be used in computing amortization of premium
allowable under Section 171. A Grantor Trust Certificateholder that makes this
election for Receivables that are construed to be acquired at a premium will be
deemed to have made an election to amortize bond premium with respect to all
debt instruments having amortizable bond premium that such Grantor Trust
Certificateholder acquires during the year of the election or thereafter.
If a premium is not subject to amortization using a reasonable prepayment
assumption or it prepays faster than the prepayment assumption, the holder of a
Grantor Trust Certificate acquired at a premium should recognize a loss if a
Receivable prepays in full, equal to the difference between the portion of the
prepaid principal amount of such Receivable that is allocable to the Grantor
Trust Certificate and the portion of the adjusted basis of the Grantor Trust
Certificate that is allocable to such Receivable.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Receivables may be subject to the market discount rules of
Sections 1276 through 1278 to the extent an undivided interest in a Receivable
is considered to have been purchased at a "market discount." Generally, the
amount of market discount is equal to the excess of the portion of the principal
amount of such Receivable allocable to such holder's undivided interest over
such holder's tax basis in such interest. Market discount with respect to a
Receivable will be considered to be zero if the amount allocable to the
Receivable is less than 0.25% of the Receivable's stated redemption price at
maturity multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond shall be
treated as ordinary income to the extent that it does not exceed the accrued
market discount at the time of such payment. The amount of accrued market
discount for purposes of determining the tax treatment of subsequent principal
payments or dispositions of the market discount bond is to be reduced by the
amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
Because the regulations described above have not been issued, Federal Tax
Counsel is unable to opine as to what effect those regulations might have on the
tax treatment of a Grantor Trust Certificate purchased at a discount.
A holder who acquired a Grantor Trust Certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry such Grantor Trust Certificate purchased with market discount. For
these purposes, the de minimis rule referred to above applies. Any such deferred
interest expense would not exceed the market discount that accrues during such
taxable year and is, in general, allowed as a deduction not later than the year
in which such market discount is includible in income. If such holder elects to
include market discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
Election to Treat All Interest as OID. The OID regulations permit a
Grantor Trust Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) and premium in income
as interest, based on a constant yield method. If such an election were to be
made with respect to a Grantor Trust Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Grantor Trust Certificateholder acquires during the
year of the election or thereafter. Similarly, a Grantor Trust Certificateholder
that makes this election for a Grantor
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Trust Certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Grantor Trust Certificateholder owns or
acquires. See "--Premium" herein. The election to accrue interest, discount and
premium on a constant yield method with respect to a Grantor Trust Certificate
is irrevocable.
Taxation of Holders Regardless of Whether Stripped Bond Rules Apply
Sale or Exchange of a Grantor Trust Certificate. Sale or exchange of a
Grantor Trust Certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount received and the owner's
adjusted basis in the Grantor Trust Certificate. Such adjusted basis generally
will equal the seller's purchase price for the Grantor Trust Certificate,
increased by the OID included in the seller's gross income with respect to the
Grantor Trust Certificate, and reduced by principal payments on the Grantor
Trust Certificate previously received by the seller. Subject to the discussion
of market discount above, such gain or loss generally will be capital gain or
loss to an owner for which a Grantor Trust Certificate is a "capital asset"
within the meaning of Section 1221, and will be long-term or short-term
depending on whether the Grantor Trust Certificate has been owned for the
long-term capital gain holding period (currently more than one year).
Grantor Trust Certificates will be "evidences of indebtedness" within the
meaning of Section 582(c)(1), so that gain or loss recognized from the sale of a
Grantor Trust Certificate by a bank or a thrift institution to which such
section applies will be treated as ordinary income or loss.
Non-U.S. Persons. To the extent that a Grantor Trust Certificate evidences
ownership in underlying Receivables that were issued on or before July 18, 1984,
interest or OID paid by the person required to withhold tax under Section 1441
or 1442 to (i) an owner that is a Foreign Person or (ii) a Grantor Trust
Certificateholder holding on behalf of an owner that is a Foreign Person will be
subject to federal income tax, collected by withholding, at a rate of 30% or
such lower rate as may be provided for interest by an applicable tax treaty.
Accrued OID recognized by the owner on the sale or exchange of such a Grantor
Trust Certificate also will be subject to federal income tax at the same rate.
Generally, such payments would be considered portfolio interest and would not be
subject to withholding to the extent that a Grantor Trust Certificate evidences
ownership in Receivables issued after July 18, 1984, if such Grantor Trust
Certificateholder complies with certain identification requirements (including
delivery of a statement, signed by the Grantor Trust Certificateholder under
penalties of perjury, certifying that such Grantor Trust Certificateholder is
the beneficial owner, is not a U.S. Person and providing the name and address of
such Grantor Trust Certificateholder). Additional restrictions apply to
Receivables where the Obligor is not a natural person in order to qualify for
the exemption from withholding. See "--Tax Consequences to Holders of the Notes
Issued by a Partnership--Foreign Holders" for a discussion of when interest will
constitute portfolio interest.
Information Reporting and Backup Withholding. The Servicer will furnish or
make available, within a reasonable time after the end of each calendar year, to
each person who was a Grantor Trust Certificateholder at any time during such
year, such information as may be deemed necessary or desirable to assist Grantor
Trust Certificateholders in preparing their federal income tax returns, or to
enable holders to make such information available to beneficial owners or
financial intermediaries that hold Grantor Trust Certificates as nominees on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that such person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments. Any amounts
deducted and withheld from a distribution to a recipient would be allowed as a
credit against such recipient's federal income tax liability.
CERTAIN CERTIFICATES TREATED AS INDEBTEDNESS
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Upon the issuance of Certificates that are intended to be treated as
indebtedness for federal income tax purposes, Federal Tax Counsel will opine
that based upon its analysis of the factors discussed below and certain
assumptions and qualifications the Certificates will be treated as indebtedness
for federal income tax purposes. However, opinions of counsel are not binding on
the IRS and there can be no assurance that the IRS could not successfully
challenge this conclusion. Such Certificates that are intended to be treated as
indebtedness are herein referred to as "Debt Certificates" and holders of such
Certificates are herein referred to as "Debt Certificateholders."
The Seller will express in the Trust Documents its intent that for
federal, state and local income and franchise tax purposes, the Debt
Certificates will be indebtedness secured by the Receivables. The Seller agrees
and each Debt Certificateholder, by acquiring an interest in a Debt Certificate,
agrees or will be deemed to agree to treat the Debt Certificates as indebtedness
for federal state and local income or franchise tax purposes. However, because
different criteria are used to determine the non-tax accounting characterization
of the transactions contemplated by the Trust Documents, the Seller expects to
treat such transactions, for regulatory and financial accounting purposes, as a
sale of ownership interests in the Receivables and not as debt obligations.
In general, whether for federal income tax purposes a transaction
constitutes a sale of property or a loan the repayment of which is secured by
the property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction. The form of a transaction, while a
relevant factor, is not conclusive evidence of its economic substance. In
appropriate circumstances, the courts have allowed taxpayers, as well as the IRS
to treat a transaction in accordance with its economic substance, as determined
under federal income tax laws, notwithstanding that the participants
characterize the transaction differently for non-tax purposes. In some
instances, however, courts have held that a taxpayer is bound by a particular
form it has chosen for a transaction, even if the substance of the transaction
does not accord with its form. It is expected that Federal Tax Counsel will
advise that the rationale of those cases will not apply to the transactions
evidenced by a series of Debt Certificates.
While the IRS and the courts have set forth several factors to be taken
into account in determining whether the substance of a transaction is a sale of
property or a secured indebtedness for federal income tax purposes, the primary
factor in making this determination is whether the transferee has assumed the
risk of loss or other economic burdens relating to the property and has obtained
the economic benefits of ownership thereof. Federal Tax Counsel will analyze and
rely on several factors in reaching its opinion that the weight of the benefits
and burdens of ownership of the Receivables has not been transferred to the Debt
Certificateholders and that the Debt Certificates are properly characterized as
indebtedness for federal income tax purposes. Contrary characterizations that
could be asserted by the IRS are described below under "--Possible
Characterization of the Transaction as a Partnership or as an Association
Taxable as a Corporation."
Taxation of Income of Debt Certificateholders
As set forth above, it is expected that Federal Tax Counsel will advise
the Seller that the Debt Certificates will constitute indebtedness for Federal
income tax purposes, and accordingly, holders of Debt Certificates generally
will be taxed in the manner described above in "Trusts Treated as
Partnerships--Tax Consequences to Holders of Notes Issued by a Partnership."
If the Debt Certificates are issued with OID that is more than a de
minimis amount as defined in the Code and Treasury regulations (see "Trusts
Treated as Partnerships--Tax Consequences to Holders of Notes Issued by a
Partnership") a United States holder of a Debt Certificate (including a cash
basis holder) generally would be required to accrue the OID on its interest in a
Certificate in income for federal income tax purposes on a constant yield basis,
resulting in the inclusion of OID in income in advance of the receipt of cash
attributable to that income. Under section 1272(a)(6) of the Code, special
provisions apply to debt instruments on which payments may be accelerated due to
prepayments of other obligations securing those debt instruments. However, no
regulations have been issued interpreting those provisions, and the manner in
which those provisions would apply to the Debt Certificates is unclear.
Additionally,
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the IRS could take the position based on Treasury regulations that none of the
interest payable on a Debt Certificate is "unconditionally payable" and hence
that all of such interest should be included in the Debt Certificate's stated
redemption price at maturity. Accordingly, Federal Tax Counsel is unable to
opine as to whether interest payable on a Debt Certificate constitutes
"qualified stated interest" that is not included in a Certificate's stated
redemption price at maturity. Consequently, prospective investors in Debt
Certificates should consult their own tax advisors concerning the impact to them
in their particular circumstances. The Prospectus Supplement will indicate
whether the Trust intends to treat the interest on the Certificates as
"qualified stated interest".
Tax Characterization of Trust
Consistent with the treatment of the Debt Certificates as indebtedness,
the Trust will be treated as a security device to hold Receivables securing the
repayment of the Debt Certificates. In connection with the issuance of Debt
Certificates of any series, Federal Tax Counsel will render an opinion that,
based on the assumptions and qualifications set forth therein, under then
current law, the issuance of the Debt Certificates of such series will not cause
the applicable Trust to be characterized for Federal income tax purposes as an
association (or publicly traded partnership) taxable as a corporation.
Possible Classification of the Transaction as a Partnership or as an Association
Taxable as a Corporation
The opinion of Federal Tax Counsel with respect to Debt Certificates will
not be binding on the courts or the IRS. It is possible that the IRS could
assert that, for federal income tax purposes, the transactions contemplated
constitute a sale of the Receivables (or an interest therein) to the Debt
Certificateholders and that the proper classification of the legal relationship
between the Seller and some or all of the Debt Certificateholders resulting from
the transactions is that of a partnership (including a publicly traded
partnership), a publicly traded partnership taxable as a corporation, or an
association taxable as a corporation. The Seller currently does not intend to
comply with the federal income tax reporting requirements that would apply if
any Classes of Debt Certificates were treated as interests in a partnership or
corporation.
If a transaction were treated as creating a partnership between the Seller
and the Debt Certificateholders, the partnership itself would not be subject to
federal income tax (unless it were characterized as a publicly traded
partnership taxable as a corporation); rather, the partners of such partnership,
including the Debt Certificateholders, would be taxed individually on their
respective distributive shares of the partnership's income, gain, loss,
deductions and credits. The amount and timing of items of income and deductions
of a Debt Certificate could differ if the Debt Certificates were held to
constitute partnership interests, rather than indebtedness. Moreover, unless the
partnership were treated as engaged in a trade or business, an individual's
share of expenses of the partnership would be miscellaneous itemized deductions
that, in the aggregate, are allowed as deductions only to the extent they exceed
two percent of the individual's adjusted gross income, and would be subject to
reduction under Section 68 of the Code if the individual's adjusted gross income
exceeded certain limits. As a result, the individual might be taxed on a greater
amount of income than the stated rate on the Debt Certificates. Finally, all or
a portion of any taxable income allocated to a Debt Certificateholder that is a
pension, profit-sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) may, under certain circumstances,
constitute "unrelated business taxable income" which generally would be taxable
to the holder under the Code.
If it were determined that a transaction created an entity classified as
an association or as a publicly traded partnership taxable as a corporation, the
Trust would be subject to federal income tax at corporate income tax rates on
the income it derives from the Receivables, which would reduce the amounts
available for distribution to the Debt Certificateholders. Such classification
may also have adverse state and local tax consequences that would reduce amounts
available for distribution to Debt Certificateholders. Moreover, distributions
on Debt Certificates that are recharacterized as equity in an entity taxable as
a corporation would not be deductible in computing the entity's taxable income,
and cash
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distributions on such Debt Certificates generally would be treated as dividends
for tax purposes to the extent of such deemed corporation's earnings and
profits.
Foreign Investors
If the IRS were to contend successfully that the Debt Certificates are
interest in a partnership and if such partnership were considered to be engaged
in a trade or business in the United States, the partnership would be subject to
a withholding tax on income of the Trust that is allocable to a Foreign Investor
and such Foreign Investor would be credited for his or her share of the
withholding tax paid by the partnership. In such case, the holder generally
would be subject to United States federal income tax at regular income tax
rates, and possibly a branch profits tax in the case of a corporate holder.
Alternatively, although there may be arguments to the contrary, if such
partnership is not considered to be engaged in a trade or business within the
United States and if income with respect to the Debt Certificates is not
otherwise effectively connected with the conduct of a trade or business in the
United States by the Foreign Investor, the Foreign Investor would be subject to
United States income tax and withholding at a rate of 30% (unless reduced by an
applicable tax treaty) on the holder's distributive share of the partnership's
interest income. See "Trusts Treated as Partnerships--Tax Consequences to
Holders of the Certificates Issued by the Partnership--Tax Consequences to
Foreign Certificateholders" for a more detailed discussion of the consequences
of an equity investment by a Foreign Investor in an entity characterized as a
partnership.
If the Trust were taxable as a corporation, distribution to foreign
investors, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30% unless such rate were reduced or eliminated by an
applicable income tax treaty.
STATE AND LOCAL TAXATION
The discussion above does not address the tax treatment of a Trust, the
Certificates, the Notes or the holders of Certificates or Notes of any series
under state and local tax laws. Prospective investors are urged to consult their
own tax advisors regarding state and local tax treatment of the Trust, the
Certificates, the Notes and the consequences of purchase, ownership or
disposition of the Certificates and Notes under any state or local tax law.
ERISA CONSIDERATIONS
The Prospectus Supplement for each series of Securities will summarize,
subject to the limitations discussed therein, considerations under ERISA
relevant to the purchase of such Securities by employee benefit plans and
individual retirement accounts.
METHODS OF DISTRIBUTION
The Securities offered hereby and by the related Prospectus Supplement
will be offered in series through one or more of the methods described below.
The Prospectus Supplement prepared for each series will describe the method of
offering being utilized for that series and will state the public offering or
purchase price of such series and the net proceeds to the Company from such
sale.
The Company intends that Securities will be offered through the following
methods from time to time and that offerings may be made concurrently through
more than one of these methods or that an offering of a particular series of
Securities may be made through a combination of two or more of these methods.
Such methods are as follows:
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1. By negotiated firm commitment or best efforts underwriting and
public re-offering by underwriters;
2. By placements by the Company with institutional investors through
dealers;
3. By direct placements by the Company with institutional investors;
and
4. By competitive bid.
If underwriters are used in a sale of any Securities (other than in
connection with an underwriting on a best efforts basis), such Securities will
be acquired by the underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions, at
fixed public offering prices or at varying prices to be determined at the time
of sale or at the time of commitment therefor. The Securities will be set forth
on the cover of the Prospectus Supplement relating to such series and the
members of the underwriting syndicate, if any, will be named in such Prospectus
Supplement.
In connection with the sale of the Securities, underwriters may receive
compensation from the Company or from purchasers of the Securities in the form
of discounts, concessions or commissions. Underwriters and dealers participating
in the distribution of the Securities may be deemed to be underwriters in
connection with such Securities, and any discounts or commissions received by
them from the Company and any profit on the resale of Securities by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
The Prospectus Supplement will describe any such compensation paid by the
Company.
It is anticipated that the underwriting agreement pertaining to the sale
of any series of Securities will provide that the obligations of the
underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such Securities if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the Company will indemnify the
several underwriters and the underwriters will indemnify the Company against
certain civil liabilities, including liabilities under the Securities Act or
will contribute to payments required to be made in respect thereof. The
Commission is of the opinion that indemnification for securities law violations
is contrary to the public policy expressed in the federal securities laws, and,
consequently, that such indemnification provisions are unenforceable.
The Prospectus Supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the Company and purchasers of
Securities of such series.
Purchasers of Securities, including dealers, may, depending on the facts
and circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them of
Securities. Holders of Securities should consult with their legal advisors in
this regard prior to any such reoffer or sale.
LEGAL OPINIONS
Certain legal matters relating to the issuance of the Securities of any
series, including certain federal and state income tax consequences with respect
thereto, will be passed upon by Dewey Ballantine, New York, New York, or other
counsel specified in the related Prospectus Supplement.
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FINANCIAL INFORMATION
Certain specified Trust Property will secure each series of Securities, no
Trust will engage in any business activities or have any assets or obligations
prior to the issuance of the related series of Securities, except for serial
issuances by a Master Trust. Accordingly, no financial statements with respect
to any Trust Property will be included in this Prospectus or in the related
Prospectus Supplement.
A Prospectus Supplement may contain the financial statements of the
related Credit Enhancer, if any.
ADDITIONAL INFORMATION
This Prospectus, together with the Prospectus Supplement for each series
of Securities, contains a summary of the material terms of the applicable
exhibits to the Registration Statement and the documents referred to herein and
therein. Copies of such exhibits are on file at the offices of the Securities
and Exchange Commission in Washington, D.C., and may be obtained at rates
prescribed by the Commission upon request to the Commission and may be
inspected, without charge, at the Commission's offices.
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INDEX OF TERMS
Set forth below is a list of the defined terms used in this
Prospectus and the pages on which the definitions of such terms may be found
herein.
Accrual Securities................................................ 7
Additional Receivables............................................ 12
Adjustable Rate Receivables....................................... 12
Advanta........................................................... 4
AFS............................................................... 4
APR............................................................... 10, 23
Balloon Payments.................................................. 12
caps.............................................................. 12
captives.......................................................... 20
Cede.............................................................. 13
CEDEL Participants................................................ 33
Certificateholders................................................ 39
Certificates...................................................... 1, 4
Class............................................................. 1
Closing Date...................................................... 35, 36
Collection Account................................................ 37
Commission........................................................ 2
Commodity Indexed Securities...................................... 31
Company........................................................... 4
Company Investment Contracts...................................... 37
Contracts......................................................... 1, 5
Cooperative....................................................... 33
Credit Enhancement................................................ 20
Credit Enhancer................................................... 20
credit history profile............................................ 20
Currency Indexed Securties........................................ 31
Dealers........................................................... 4
Debt Securities................................................... 15
Defaulted Contracts............................................... 17
Definitive Securities............................................. 34
Depositaries...................................................... 32
direct originations............................................... 4
Direct Participants............................................... 19
Distribution Account.............................................. 37
DTC............................................................... 13
Eligible Deposit Account.......................................... 38
Eligible Institution.............................................. 38
Eligible Investments.............................................. 37
ERISA............................................................. 15
Euroclear Operator................................................ 33
Euroclear Participants............................................ 33
event of default.................................................. 8
Exchange Act...................................................... 2, 15
Face Amount....................................................... 31
Finance Subsidiary................................................ 17
Fixed Income Securities........................................... 6
floors............................................................ 12
<PAGE>
Forward Purchase Agreement........................................ 35
FTC Rule.......................................................... 47
Funding Period.................................................... 35
Grantor Trust Securities.......................................... 15
Holder-in-Due-Course Rule......................................... 47
Indenture......................................................... 5
Indenture Trustee................................................. 5
Index............................................................. 31
Indexed Commodity................................................. 31
Indexed Currency.................................................. 31
Indexed Principal Amount.......................................... 31
Indexed Securities................................................ 31
indirect originations............................................. 4
Indirect Participants............................................. 19, 32
Insolvency Event.................................................. 41
Insolvency Laws................................................... 17
Interest Rate..................................................... 2, 6
Investment Company Act............................................ 9
Investment Earnings............................................... 38
Issuer............................................................ 1, 4, 22
market discount................................................... 58
Master Trust...................................................... 9
Master Trust Agreement............................................ 9
Master Trust New Issuance......................................... 29
negative arbitrage................................................ 37
negative carry.................................................... 37
Noteholders....................................................... 39
Notes............................................................. 1, 4
Participants...................................................... 31
Partnership Interests............................................. 15
Pass-Through Rate................................................. 2
Pay for Performance Program....................................... 12
Payment Date...................................................... 7, 28
Policy............................................................ 1, 5
Pool Balance...................................................... 27
Pool Factor....................................................... 27
Pooling Agreement................................................. 5
Pre-Funding Account............................................... 12, 35
Pre-Funding Period................................................ 12
Prepayment........................................................ 21
principal statistical characteristics............................. 36
Prospectus Supplement............................................. 1
Rating Agencies................................................... 15
Ratings Effect.................................................... 19, 30
Receivables....................................................... 1, 5
Record Date....................................................... 7, 29
Registration Statement............................................ 2
Relief Act........................................................ 21, 48
Remittance Period................................................. 7
Residual Interest................................................. 9
Rule of 78s....................................................... 10, 23
Rule of 78s Contracts............................................. 10, 23
Rules............................................................. 32
<PAGE>
Section 1286 Treasury Regulations................................. 57
Securities........................................................ 1
Securities Act.................................................... 2
Security Insurer.................................................. 13
Securityholder.................................................... 32
Securityholders................................................... 7
Senior Securities................................................. 7
Servicer.......................................................... 1, 4
Servicer Default.................................................. 41
Servicing Agreement............................................... 5
Servicing Fee..................................................... 39
Servicing Fee Rate................................................ 39
Short-Term Note................................................... 50
Simple Interest Contracts......................................... 11, 23
Stock Index....................................................... 1
Stock Indexed Securities.......................................... 31
Strip Securities.................................................. 6
Stripped Bond..................................................... 57
Subordinate Securities............................................ 7
subprime.......................................................... 20
Terms and Conditions.............................................. 33
Transferor........................................................ 4
Trust............................................................. 1, 4
Trust Accounts.................................................... 37
Trust Agreement................................................... 6, 36
Trust Property.................................................... 1, 4, 10
Trustee........................................................... 6
Vehicles.......................................................... 1, 5
Vendors........................................................... 4
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION
PROCEDURES
Except in certain limited circumstances, the globally offered
Securities (the "Global Securities") will be available only in book-entry form.
Investors in the Global Securities may hold such Global Securities through any
of DTC, CEDEL or Euroclear. The Global Securities will be tradeable as home
market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors through CEDEL and
Euroclear will be conducted in the ordinary way in accordance with the normal
rules and operating procedures of CEDEL and Euroclear and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be
conducted according to DTC's rules and procedures applicable to U.S. corporate
debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of CEDEL and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, CEDEL and
Euroclear will hold positions on behalf of their participants through their
Relevant Depository which in turn will hold such positions in their accounts as
DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow DTC settlement practices. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the settlement
date.
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Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payment in
same-day funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between
DTC Participants will be settled using the procedures applicable to prior home
equity loan asset-backed certificates issues in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC, Seller and CEDEL or Euroclear Participants.
When Global Securities are to be transferred from the account of a DTC
Participant to the account of a CEDEL Participant or a Euroclear Participant,
the purchaser will send instructions to CEDEL or Euroclear through a CEDEL
Participant or Euroclear Participant at least one business day prior to
settlement. CEDEL or Euroclear will instruct the Relevant Depository, as the
case may be, to receive the Global Securities against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment date to and excluding the settlement date, on the basis of the
actual number of days in such accrual period and a year assumed to consist of
360 days. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
Payment will then be made by the Relevant Depository to the DTC Participant's
account against delivery of the Global Securities. After settlement has been
completed, the Global Securities will be credited to the respective clearing
system and by the clearing system, in accordance with its usual procedures, to
the CEDEL Participant's or Euroclear Participant's account. The securities
credit will appear the next day (European time) and the cash debt will be
back-valued to, and the interest on the Global Securities will accrue from, the
value date (which would be the preceding day when settlement occurred in New
York). If settlement is not completed on the intended value
A-2
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date (i.e., the trade fails), the CEDEL or Euroclear cash debt will be valued
instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Global Securities are credited to their account one day later.
As an alternative, if CEDEL or Euroclear has extended a line of
credit to them, CEDEL Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, CEDEL Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day, assuming
they cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the
value date. Therefore, in many cases the investment income on the Global
Securities earned during that one-day period may substantially reduce or offset
the amount of such overdraft charges, although the result will depend on each
CEDEL Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for crediting Global
Securities to the respective European Depository for the benefit of CEDEL
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two DTC
Participants.
Trading between CEDEL or Euroclear Seller and DTC Purchaser. Due to
time zone differences in their favor, CEDEL Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depository, to a DTC Participant. The seller will send
instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. In these cases CEDEL
or Euroclear will instruct the respective Depository, as appropriate, to credit
the Global Securities to the DTC Participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment to and excluding the settlement date on the basis of the
actual number of days in such accrual period and a year assumed to consist to
360 days. For
A-3
<PAGE>
transactions settling on the 31st of the month, payment will include interest
accrued to and excluding the first day of the following month. The payment will
then be reflected in the account of CEDEL Participant or Euroclear Participant
the following day, and receipt of the cash proceeds in the CEDEL Participant's
or Euroclear Participant's account would be back-valued to the value date (which
would be the preceding day, when settlement occurred in New York). In the event
that the CEDEL Participant or Euroclear Participant have a line of credit with
its respective clearing system and elect to be in debt in anticipation of
receipt of the sale proceeds in its account, the back-valuation will extinguish
any overdraft incurred over that one-day period. If settlement is not completed
on the intended value date (i.e., trade fails), receipt of the cash proceeds
in the CEDEL Participant's or Euroclear Participant's account would instead be
valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase
Global Securities from DTC Participants for delivery to CEDEL Participants or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action is taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give the
Global Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the CEDEL Participant or
Euroclear Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
CEDEL or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons (as defined below), unless (i) each clearing system, bank
or other financial institution that holds customers' securities in the ordinary
course of its
A-4
<PAGE>
trade or business in the chain of intermediaries between such beneficial owner
and the U.S. entity required to withhold tax complies with applicable
certification requirements and (ii) such beneficial owner takes one of the
following steps to obtain an exemption or reduced tax rate:
Exemption for Non-U.S. Persons (Form W-8). Beneficial Owners of
Global Securities that are Non-U.S. Persons (as defined below) can obtain a
complete exemption from the withholding tax by filing a signed Form W-8
(Certificate of Foreign Status). If the information shown on Form W-8 changes,
a new Form W-8 must be filed within 30 days of such change.
Exemption for Non-U.S. Persons with effectively connected income
(Form 4224). A Non-U.S. Person (as defined below), including a non-U.S.
corporation or bank with a U.S. branch, for which the interest income is
effectively connected with its conduct of a trade or business in the United
States, can obtain an exemption from the withholding tax by filing Form 4224
(Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons residing in a country that has a tax
treaty with the United States can obtain an exemption or reduced tax rate
(depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or
Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by Certificate Owners or their agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Owner of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
On April 22, 1996, the IRS proposed regulations relating to
withholding, backup withholding and information reporting that, if adopted in
their current form would, among other things, unify current certification
procedures and forms and clarify certain reliance standards. The regulations
are
A-5
<PAGE>
proposed to be effective for payments made after December 31, 1997 but provide
that certificates issued on or before the date that is 60 days after the
proposed regulations are made final will continue to be valid until they
expire. Proposed regulations, however, are subject to change prior to their
adoption in final form.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof, (iii) an
estate that is subject to U.S. federal income tax regardless of the source of
its income or (iv) a trust if a court within the United States can exercise
primary supervision over its administration and at least one United States
fiduciary has the authority to control all substantial decisions of the trust.
The term "Non-U.S. Person" means any person who is not a U.S. Person. This
summary does not deal with all aspects of U.S. Federal income tax withholding
that may be relevant to foreign holders of the Global Securities. Investors are
advised to consult their own tax advisors for specific tax advice concerning
their holding and disposing of the Global Securities.
A-6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Set forth below is an estimate of the amount of fees and expenses (other
than underwriting discounts and commissions) to be incurred in connection with
the issuance and distribution of the Offered Certificates.
SEC Filing Fee............................ $ 90,909
Trustee's Fees and Expenses............... 15,000
Legal Fees and Expenses................... 212,500
Accounting Fees and Expenses.............. 30,000
Printing and Engraving Expenses........... 35,000
Blue Sky Qualification and Legal
Investment Fees and Expenses............ 10,000
Rating Agency Fees........................ 40,000
Certificate Insurer's Fee................. 40,000
Miscellaneous............................. 200,000
--------
TOTAL................................ $673,409
- ----------
Item 15. Indemnification of Directors and Officers.
Indemnification. Under the laws which govern the organization of the
registrant, the registrant has the power and in some instances may be required
to provide an agent, including an officer or director, who was or is a party or
is threatened to be made a party to certain proceedings, with indemnification
against certain expenses, judgments, fines, settlements and other amounts under
certain circumstances.
Section 8 of the Certificate of Incorporation of Advanta Auto
Finance Corporation provides that all officers and directors of the corporation
shall be indemnified by the corporation from and against all expenses,
liabilities or other matters arising out of their status as an officer or
director for their acts, omissions or services rendered in such capacities.
Advanta Corp., the ultimate corporate parent of Advanta Auto Finance
Corporation, maintains certain policies of liability insurance coverage for the
officers and directors of Advanta Corp. and certain of its subsidiaries,
including Advanta Auto Finance Corporation.
The forms of the Underwriting Agreement, filed as Exhibits 1.1 and
1.2 to this Registration Statement, provide that Advanta Auto Finance
Corporation will indemnify and reimburse the underwriter(s) and each controlling
person of the underwriter(s) with respect to certain expenses and liabilities,
including liabilities under the 1933 Act or other federal or state regulations
or under the common law, which arise out of or are based on certain material
misstatements or omissions in the Registration Statement. In addition, the
Underwriting Agreements provide that the underwriter(s) will similarly indemnify
and reimburse Advanta Auto Finance Corporation with respect to certain material
misstatements or omissions in the Registration Statement which are based on
certain written information furnished by the underwriter(s) for use in
connection with the preparation of the Registration Statement.
Insurance. As permitted under the laws which govern the organization
of the registrant, the registrant's By-laws permit the board of directors to
purchase and maintain insurance on behalf of the registrant's agents, including
its officers and directors, against any liability asserted against them in such
capacity or arising out of such agents' status as such, whether or not such
registrant would have the power to indemnify them against such liability under
applicable law.
II-1
<PAGE>
Item 16. Exhibits.
1.1* -- Form of Underwriting Agreement - Notes.
1.2* -- Form of Underwriting Agreement - Certificates.
3.1* -- Certificate of Incorporation of Advanta Auto Finance
Corporation.
3.2* -- By-Laws of Advanta Auto Finance Corporation.
4.1* -- Form of Indenture between the Trust and the Indenture Trustee.
4.2* -- Form of Indenture between the Sponsor and the Indenture Trustee.
4.3* -- Form of Pooling and Servicing Agreement.
4.4* -- Form of Trust Agreement.
5.1* -- Opinion of Dewey Ballantine with respect to validity.
8.1* -- Opinion of Dewey Ballantine with respect to tax matters.
10.1* -- Form of Receivables Acquisition Agreement.
23.1* -- Consents of Dewey Ballantine are included in its opinions filed
as Exhibits 5.1 and 8.1 hereto.
99.1** -- Form of Prospectus Supplement - Certificates and Notes.
99.2** -- Form of Prospectus Supplement - Notes.
99.3** -- Form of Prospectus Supplement - Certificates.
99.4** -- Form of Prospectus Supplement - Master Trust.
* Previously filed.
** Filed herewith.
Item 17. Undertakings.
A. Undertaking in respect of indemnification
Insofar as indemnification for liabilities arising under the 1933
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described above in Item 15, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of
II-2
<PAGE>
appropriate jurisdiction the question of whether such indemnification by them is
against public policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issue.
B. Undertaking pursuant to Rule 415.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or any
material change of such information in the Registration Statement; provided,
however, that paragraphs (i) and (ii) do not apply if the information required
to be included in the post-effective amendment is contained in periodic reports
filed by the Issuer pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
C. Undertaking pursuant to Rule 430A.
The Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in Reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) With respect to Securities styled as Notes, the Registrant
hereby undertakes to file an application for the purpose of determining the
eligibility of the trustee to act under subsection (a) of section 310 of the
Trust Indenture Act ("Act") in accordance with the rules and regulations
prescribed by the Commission under section 305(b)(2) of the Act."
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this
Pre-Effective Amendment No. 3 to this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Horsham,
State of Pennsylvania on the 18th day of March, 1997. As of the date hereof, the
Registrant reasonably believes that the Security rating requirement for
asset-backed offerings on Form S-3 will be met at the time of each sale.
ADVANTA AUTO FINANCE CORPORATION
By /s/ David E. Plante
------------------------------
David E. Plante
President
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 3 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
Signature Title Date
Director and President March 18, 1997
/s/ David E. Plante (Principal Executive Officer)
- -------------------------
David E. Plante
Vice President and Treasurer March 18, 1997
(Principal Financial Officer and
/s/ Mark T. Dunsheath Principal Accounting Officer)
- -------------------------
Mark T. Dunsheath
Director and Chairman of the Board March 18, 1997
/s/ Milton Riseman of Directors
- -------------------------
Milton Riseman
==============================================================================
II-4
<PAGE>
EXHIBIT INDEX
=============================================================================
Exhibit Description of Documents
- -----------------------------------------------------------------------------
1.1 Form of Underwriting Agreement - Notes.
- -----------------------------------------------------------------------------
1.2 Form of Underwriting Agreement - Certificates.
- -----------------------------------------------------------------------------
3.1 Certificate of Incorporation of Advanta Auto Finance Corporation.
- -----------------------------------------------------------------------------
3.2 By-Laws of Advanta Auto Finance Corporation.
- -----------------------------------------------------------------------------
4.1 Form of Indenture between the Trust and the Indenture Trustee.
- -----------------------------------------------------------------------------
4.2 Form of Indenture between the Sponsor and the Indenture Trustee.
- -----------------------------------------------------------------------------
4.3 Form of Pooling and Servicing Agreement.
- -----------------------------------------------------------------------------
4.4 Form of Trust Agreement.
- -----------------------------------------------------------------------------
5.1 Opinion of Dewey Ballantine with respect to validity.
- -----------------------------------------------------------------------------
8.1 Opinion of Dewey Ballantine with respect to tax matters.
- -----------------------------------------------------------------------------
10.1 Form of Receivables Acquisition Agreement.
- -----------------------------------------------------------------------------
23.1 Consents of Dewey Ballantine are included in its opinions filed as
Exhibits 5.1 and 8.1 hereto.
- -----------------------------------------------------------------------------
*99.1 Form of Prospectus Supplement - Certificates and Notes.
- -----------------------------------------------------------------------------
*99.2 Form of Prospectus Supplement - Notes.
- -----------------------------------------------------------------------------
II-5
<PAGE>
- -----------------------------------------------------------------------------
*99.3 Form of Prospectus Supplement - Certificates.
- -----------------------------------------------------------------------------
*99.4 Form of Prospectus Supplement - Master Trust.
=============================================================================
* Filed herewith.
II-6
<PAGE>
EXHIBIT 99.1
<PAGE>
Exhibit 99.1
SUBJECT TO COMPLETION DATED _______________, 1996
[Exhibit 99.1 Form of Prospectus Supplement. This form of Prospectus Supplement
is for illustrative purposes only. A Prospectus Supplement in definitive form
reflecting the terms of each Series of Securities will be filed with the
Commission under the Securities Act of 1933, as amended, pursuant to Rule 424
(b) promulgated thereunder.]
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED __________, 1997)
- -------------------------------------------------------------------------------
ADVANTA AUTO RECEIVABLES FINANCE CORPORATION
199__-__
$____________ [Class A-1] [Floating Rate] [ %] Auto Receivables Backed
Notes
$____________ [Class A-2 [ %] Auto Receivables Backed Notes
$____________ [Floating Rate] [ %] Auto Receivables Backed Certificates
ADVANTA AUTO FINANCE CORPORATION, Sponsor
ADVANTA AUTO FINANCE CORPORATION, Servicer
- -------------------------------------------------------------------------------
ADVANTA AUTO RECEIVABLES FINANCE CORPORATION 199__-__ (the "Trust" or the
"Issuer") will be formed pursuant to a Trust Agreement, to be dated as of
____________, 199__ between Advanta Auto Finance Corporation (the "Sponsor") and
__________________, as [Owner] Trustee, and will issue $____________ aggregate
principal amount of [Class A-1] [Floating Rate] [ %] Auto Receivables Backed
Notes (the ["A-1 Notes"]) and $____________ aggregate principal amount of [Class
A-2] [Floating Rate] [ %] Auto Receivables Backed Notes (the ["A-2 Notes"] and,
together with the [A-1 Notes], the "Notes"). The Notes will be issued pursuant
to an Indenture, to be dated as of ____________, 199__ (the "Indenture"),
between the Trust and __________________, as Indenture Trustee. The Trust will
also issue $____________ aggregate principal amount of [Floating Rate] [ %] Auto
Receivables Backed Certificates (the " Certificates" and, together with the
Notes, the "Securities"). The assets of the Trust will consist of any
combination of [retail installment sales contracts between manufacturers,
dealers or certain other originators and retail purchasers secured by new and
used automobiles and light duty trucks financed thereby, all monies relating
thereto (the " Contracts"), [the underlying new and used automobiles and light
duty trucks (the "Vehicles," together with the Contracts], the " Receivables"),
and the proceeds thereof received by the Trust from the Sponsor on or prior to
the date of the issuance of the Notes and the Certificates. The Sponsor will
acquire the Receivables from _________________________ (the "Originator")
concurrently with their transfer to the Issuer. The Notes will be secured by the
assets of the Trust pursuant to the Indenture.
Capitalized terms used herein are defined terms having specific meanings.
An "Index of Defined Terms" is set forth as page S-46 hereto, which indicates
the page on which such defined terms are defined.
THE RIGHTS OF THE HOLDERS OF THE CERTIFICATES WILL BE SUBORDINATED TO THE
RIGHTS OF THE HOLDERS OF THE NOTES, AS SET FORTH HEREIN UNDER "DESCRIPTION OF
THE TRANSFER AND SERVICING AGREEMENT -- DISTRIBUTIONS".
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER
"RISK FACTORS" AT PAGE ___ HEREIN AND AT PAGE ___ IN THE PROSPECTUS.
------------------
THE NOTES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT
BENEFICIAL INTERESTS IN, THE TRUST ONLY AND DO NOT REPRESENT INTERESTS IN
OR OBLIGATIONS OF THE SPONSOR, THE SERVICER, THE ORIGINATOR OR ANY OF
THEIR RESPECTIVE AFFILIATES. NEITHER THE NOTES NOR THE CERTIFICATES OR
THE RECEIVABLES ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY. SEE ALSO "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
S-1
<PAGE>
- --------------------------------------------------------------------------------
Initial Public Underwriting Proceeds to the
Offering Price(1) Discount(2) Issuer(1)(3)
- --------------------------------------------------------------------------------
[Per A-1 Note].............
[Per A-2 Note].............
[Per Certificate]..........
Total......................
- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from ______________________, 199__.
(2) The Sponsor has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting estimated expenses of $____________ payable by the
Issuer.
------------------
[The Notes are offered by __________________ and the Certificates are
offered by __________________ (collectively, the "Underwriter[s]"), subject to
prior sale, when, as and if issued to and accepted by the Underwriter(s) and
subject to the approval of certain legal matters by Dewey Ballantine, counsel
for the Underwriter(s). It is expected that delivery of the Notes will be made
only in book-entry form through the Same Day Funds Settlement System of The
Depository Trust Company on or about ____________, 199__. It is expected that
the Certificates will be ready for delivery in New York, New York on or about
____________, 199__.]
------------------
[Name(s) of the Underwriter(s)]
S-2
<PAGE>
Interest on both the [A-1 Notes] and the [A-2 Notes] will be payable
[monthly] on or about the [15th] day of each [month] (each a "Payment Date")
commencing on ____________, 199__. Principal of the Notes will be payable on
each Payment Date to the extent described herein under "Description of the
Notes"; provided, however, that no principal payments in respect of the [A-2
Notes] will be made until the [A-1 Notes] have been paid in full.
The final scheduled payment date for the [A-1 Notes] will be ____________,
199__, and the final scheduled payment date for the [A-2 Notes] will be
____________, 199__. However, the actual payment in full of the [A-1 Notes] and
the [A-2 Notes] could occur sooner.
The interest rate for the [A-1 Notes] will be [__% per annum] [set for
each Payment Date to LIBOR [minus] [plus] ______%]. The interest rate for the
[A-2 Notes] will be [______% per annum] [set for each Payment Date to LIBOR
[minus] [plus] __%], except as otherwise described herein under "Description of
the Notes".
The [A-1 Notes] [A-2 Notes] may be subject to redemption in whole, but not
in part, on any Payment Date if the Servicer exercises its option to purchase
the Receivables when the aggregate principal amount of the Receivables is
reduced to less than ______% of the initial Pool Balance of the Receivables
assigned to the Trust.
The Certificates represent fractional undivided interests in the Trust.
Principal, to the extent described herein under "Description of the
Certificates", and interest, to the extent of the Pass-Through Rate which is
[__% per annum] [generally equal to ______% per annum plus an amount equal to
the product of ______ multiplied by LIBOR, subject to a maximum rate described
herein under "Description of the Certificates",] will be distributed on each
Payment Date, commencing on ____________, 199__. The final scheduled payment
date for the Certificates will be ____________, 199__.
The Issuer will be a newly formed limited-purpose Nevada business trust
and will generally be prohibited from incurring any indebtedness other than the
Notes, and its assets will include the Receivables, the Collection Account, the
Note Distribution Account, the Certificate Distribution Account, the Reserve
Account, the [Class A-1] Maturity Account and the [Class A-2] Lockout Account.
----------------------
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE NOTES AND THE CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED
IN THE PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE NOTES OR THE
CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
----------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE NOTES
AND THE CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------------
S-3
<PAGE>
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Notes are issued, periodic and annual
unaudited reports containing information concerning the Receivables will be
prepared by the Servicer and sent on behalf of the Trust only to Cede & Co.
("Cede"), as nominee of The Depository Trust Company ("DTC") and registered
holder of the Notes. See "Certain Information Regarding the Securities--
Book-Entry Registration" and "--Reports to Securityholders" in the accompanying
Prospectus (the "Prospectus"). Such reports will not constitute financial
statements prepared in accordance with generally accepted accounting principles.
The Trust will file with the Securities and Exchange Commission (the
"Commission") such periodic reports as are required under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder and as are otherwise agreed to by the Commission. Copies
of such periodic reports may be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
S-4
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Terms", which appears on page
S-46 hereof or, to the extent not defined herein, have the meanings assigned to
such terms in the Prospectus.
Issuer..................... Advanta Auto Receivables Finance Corporation
199__-__, a business trust organized under the
laws of the state of Nevada (the "Trust" or the
"Issuer").
Sponsor.................... Advanta Auto Finance Corporation (the " Sponsor"
or "Advanta"), a corporation organized under the
laws of the state of Nevada. The principal
executive offices of the Sponsor are located at
500 Office Center Drive, Fort Washington,
Pennsylvania 19034, and its telephone number is
(215) 283-4200.
Servicer................... Advanta Auto Finance Corporation (the "
Servicer"), a Nevada corporation. The principal
executive offices of the Servicer are located at
500 Office Center Drive, Fort Washington,
Pennsylvania 19034, and its telephone number is
(215) 283-4200.
Originator................. (the " Originator"). The principal executive
offices of the Originator are located at
_________________________________ and its
telephone number is ________________.
Indenture Trustee.......... __________________, as indenture trustee under the
Indenture (the "Indenture Trustee"). The principal
executive offices of the Indenture Trustee are
located at _______________, and its telephone
number is ___________.
[Owner] Trustee............ __________________, as trustee under the Trust
Agreement (the "[Owner] Trustee"). The principal
executive offices of the [Owner] Trustee are
located at ________________, and its telephone
number is ________________.
Cut-off Date............... ______________, 19__.
Closing Date............... ______________, 19__.
The Notes.................. [Class A-1] [Floating Rate] [____%] Auto
Receivables Backed Notes (the ["A-1 Notes"]) in
the aggregate principal amount of $____________
and [Class A-2] [Floating Rate] [______%] Auto
Receivables Backed Notes (the ["A-2 Notes"] and,
together with the [A-1 Notes], the "Notes") in the
aggregate principal amount of $____________.
The Notes will be available for purchase in
denominations of [$1,000] and integral multiples
thereof in book-entry form only. The Noteholders
will not be entitled to receive a Definitive [A-1
Note] or a Definitive [A-2 Note], as the case may
be, except in the event that Definitive [A-1
Notes] and Definitive [A-2 Notes] are issued in
the limited circumstances described herein under
"Description of the Notes" or in the Prospectus.
See "Description of the
S-5
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Securities -- Definitive Notes" in the Prospectus.
The Notes will be issued pursuant to an Indenture
to be dated as of ____________, 199__ (the
"Indenture") between the Issuer and the Indenture
Trustee.
The Certificates........... [Floating Rate] [____%] Auto Receivables Backed
Certificates (the "Certificates") in the aggregate
principal amount of $____________ will be offered.
The Sponsor will purchase the remaining
$____________ principal amount of the
Certificates. The Certificates will be available
for purchase in denominations of $100,000 and
integral multiples of $100,000 in excess thereof.
[The Certificates will be issued in fully
registered, certificated form ("Definitive
Certificates") to Certificateholders or their
nominees.] The Certificates will be issued
pursuant to a Trust Agreement to be dated as of
____________, 199__ (the " Trust Agreement")
between the Sponsor and the [Owner] Trustee,
acting thereunder not in its individual capacity
but solely as trustee of the Trust. Purchasers of
Certificates and their assignees must represent
that they are United States persons.
The Trust.................. The Trust will be a trust established under the
laws of the State of ________. The activities of
the Trust are limited by the terms of the Trust
Agreement to purchasing, owning and managing the
Receivables, issuing and making payments on the
Notes and the Certificates and other activities
related thereto. The property of the Trust
includes (i) the Receivables, (ii) all monies
(including accrued interest) due thereunder on or
after the Cut-off Date, (iii) such amounts as from
time to time may be held in one or more accounts
established and maintained by the Servicer
pursuant to the Pooling and Servicing Agreement
among the Seller, the Servicer and the Trustee
(the "Pooling and Servicing Agreement"), as
described below, [(iv) the security interests in
the Vehicles, (v) the rights to proceeds from
claims on physical damage, credit life and
disability insurance policies, if any, covering
Vehicles or Obligors, as the case may be, (vi) any
proceeds of repossessed Vehicles,] (vii) the
rights of the Sponsor under the agreement pursuant
to which the Sponsor is acquiring the Receivables
(the "Receivables Acquisition Agreement") and
(viii) interest earned on short-term investments
made by the Trust.
Receivables................ The Receivables consist of noncancelable [retail
installment sales contracts between manufacturers,
dealers or certain other originators and retail
purchasers secured by new and used automobiles and
light duty trucks financed thereby.] Each
Obligor's obligation under its Contract is a full
recourse obligation. The "Obligor" is the obligor
under each Contract including any guarantor. The
Contracts contain provisions which unconditionally
obligate the Obligor to make all payments thereon
(the "Contract Payments").
[All of the Contracts were purchased by the
Sponsor from the Originator in the ordinary course
of business and the Contracts constitute
substantially all of the automobile and light duty
truck retail installment sale contracts included
in the Originator's portfolio meeting the
selection criteria described herein under "The
Receivables". Such selection criteria included
that: (i) each Contract is secured by a new
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or used automobile or light duty truck; (ii) each
Contract was originated in the United States;
(iii) each Contract provides for level monthly
payments that fully amortize the amount financed
over its original term except that the payment in
the first or last month in the life of the
Contract may be minimally different from the level
payment, and a minimal number of the Contracts
provide for monthly payments for a period of time
not exceeding one year after origination in an
amount less than such level payment, provided that
as of the Cutoff Date the monthly payment
currently due under each such Contract is equal to
such level payment; (iv) each Contract was
originated on or prior to _______, 199_; (v) each
Contract has an original term of __ to __ months
and, as of the Cutoff Date, had a remaining term
to maturity of not less than three months nor more
than __ month; (vi) each Contract provides for the
payment of a finance charge at an APR ranging from
__% to __%; (vii) each Contract shall not have a
Scheduled Payment that is more than 30 days past
due as of the Cutoff Date; (viii) no Contract
shall be due, to the best knowledge of the
Originator, from any Obligor who is presently the
subject of a bankruptcy proceeding or is bankrupt
or insolvent; (ix) no Vehicle has been repossessed
without reinstatement as of the Cutoff Date; and
(x) as of the Cutoff Date, physical damage
insurance relating to each Vehicle is not being
force-placed by the Servicer.]
[As of the Cutoff Date, approximately __% and
approximately __% of the Aggregate Discounted
Contract Balance are expected to represent
Contracts secured by automobiles and light duty
trucks, respectively. Based on the Aggregate
Discounted Contract Balance, approximately __% and
approximately __% of the Contracts are expected to
represent financing of new vehicles and used
vehicles, respectively, and no more than __% of
the Contracts are expected to be due from
employees of the Originator or any of its
respective affiliates. As of the Cutoff Date, the
average Principal Balance of Contracts secured by
automobiles and light duty trucks is expected to
be approximately $___ and approximately $___ ,
respectively. The majority of the Vehicles are
expected to be foreign and domestic automobiles
and light duty trucks. Except in the case of any
breach of representations and warranties by the
Originator, it is expected that none of the
Contracts provide for recourse to the Originator
who originated the related Contract.]
The "Pool Balance" at any time represents the
Discounted Contract Balance of the Receivables at
the end of the preceding Collection Period after
giving effect to all payments received from
Obligors, and any other amounts to be remitted by
the Servicer or the Sponsor, as the case may be,
all for such preceding Collection Period and all
losses realized on Receivables liquidated during
such preceding Collection Period.
Terms of the Notes:
A. Interest Payments...... Interest on the outstanding principal amount of
the Notes will accrue from and including the
Closing Date, or from and including the most
recent Payment Date on which interest has been
paid to but excluding the following Payment Date
and will be payable [monthly] on the [___] day of
each [month] or, if any such date is not a
Business Day, on the next succeeding Business Day
(each a "Payment Date") commencing
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_______________, 199__, to the holders of record
of the [A-1 Notes] (the ["A-1 Noteholders"]) and
the holders of record of the [A-2 Notes] (the
["A-2 Noteholders"]; together with the [A-1
Noteholders], the "Noteholders", in each case as
of the [____] day of the calendar month in which
such Payment Date occurs (the "Note Record Date").
Interest shall be calculated on the basis of a
year of 360 days, in each case for the actual
number of days occurring in the period for which
such interest is payable.
[On each Payment Date, the per annum interest rate
for the [A-1 Notes] [A-2 Notes] (the "[A-1 Note]
[A-2 Note] Interest Rate") will be a rate equal to
the London interbank offered rate for one-month
United States dollar deposits (" LIBOR") as of the
second LIBOR Business Day prior to the immediately
preceding Payment Date (or, in the case of the
initial Payment Date, the second LIBOR Business
Day prior to the Closing Date) [minus] [plus]
______%. See "Description of the Notes--The [A- 1
Notes] [A-2 Notes]" herein.]
[On each Payment Date, the per annum interest rate
for the [A-1 Notes] [A-2 Notes] (the "[A-1 Note]
[A-2 Note] Interest Rate") will be _______, but
shall not exceed, subject to a minimum rate, the
Receivables Rate borne by the Receivables for the
Collection Period preceding such Payment Date less
the Servicing Fee Rate; provided, however, that,
to the extent that the interest paid to the [A-1
Noteholders] [A-2 Noteholders] is less than ___%
per annum, the difference between the amount paid
and ___% per annum shall be payable on subsequent
Payment Dates as [Class A-1] [Class A-2]
Noteholders' Interest Carryover Amount. See
"Description of the Notes--The [A-1 Notes] [A-2
Notes]" herein.
B. Principal Payments..... Principal of the Notes will be payable on each
Payment Date in an amount calculated as a
percentage of the Principal Distribution Amount
for such Payment Date to the extent of funds
available therefor as described herein under
"Description of the Notes". The Principal
Distribution Amount for a Payment Date will be
based upon decreases in the present value of the
scheduled and unpaid payments on the Receivables
(the " Note Value") of the Receivables and/or
collections on and losses in respect of the
principal of the Receivables during the related
Collection Period. "Collection Period" means, with
respect to the first Payment Date, the period from
the Cut-off Date through the ____ fiscal month(s)]
ending on _______________, 199_ and with respect
to each subsequent Payment Date, the Collection
Period means the [____ fiscal month(s)]
immediately following the previous Collection
Period. See "Description of the Transfers and
Servicing Agreements-Distributions" herein.
On each Payment Date, principal of the [A-1 Notes]
will be payable in an amount equal to 100% of the
Principal Distribution Amount and, on and after
the latest of (i) the Payment Date on which the
[A-1 Notes] have been paid in full, (ii) the
_______________, 199_ Payment Date and (iii) the
Payment Date on which the lesser of the full
amount of the funds withdrawn from the Reserve
Account in order to pay the [A-1 Noteholders']
Monthly Principal Distributable Amount on the
________, 19___ Payment Date (the " Maturity
Draw") and the amount of the Maturity Draw, if
any, necessary to increase the amount on deposit
in
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the Reserve Account to the amount required to be
on deposit in the Reserve Account (the "Specified
Reserve Account Balance") has been deposited into
the Reserve Account, principal of the [A-2 Notes]
will be payable in an amount equal to the [A-2
Noteholders'] Percentage of the Principal
Distribution Amount for such Payment Date, less
any portion thereof applied on such Payment Date
to reduce the outstanding principal amount of the
[A-1 Notes] to zero and any portion thereof
deposited on such date to the Reserve Account in
respect of a Maturity Draw. See "Description of
the Transfer and Servicing Agreement--
Distributions" herein.
The Servicer will calculate the [A-2 Noteholders']
Percentage in the manner described under
"Description of the Transfer and Servicing
Agreement-- Distributions" herein.
The outstanding principal amount, if any, of the
[A-1 Notes] will be payable in full on
_______________, 199__ (the "[A-1] Final Scheduled
Payment Date") and the outstanding principal
amount, if any, of the [A-2 Notes] will be payable
in full on _______________, ______ (the "[A-2]
Final Scheduled Payment Date").
C. Optional Redemption.... The [A-2 Notes] may be redeemed in whole, but not
in part, on any Payment Date after the [A-1 Notes]
have been paid in full if the Servicer exercises
its option to purchase the Receivables when the
aggregate principal amount of the Receivables is
less than ___% of the initial Pool Balance, at a
redemption price (the "[A-2] Redemption Price")
equal to the unpaid amount of the [A-2 Notes],
plus accrued and unpaid interest thereon.
Terms of the Certificates:
A. Pass-Through Rate...... A rate equal to [__%] [the sum of ______% per
annum plus an amount equal to the product of
______ multiplied by LIBOR as of the second LIBOR
business day prior to the immediately preceding
Payment Date (or, in the case of the initial
Payment Date, the second LIBOR business day prior
to the Closing Date)]; provided, however, that on
and after the _______________, 199__ Payment Date,
if the aggregate amount of Realized Losses during
the period from the Cut-off Date through the end
of the fiscal month ending in ________, 199___ is
an amount, expressed as a percentage, that is (x)
_____% or less (but greater than _____%) of the
Pool Balance as of the Cut-off Date, the
Pass-Through Rate (as determined in the clause
preceding this proviso) for any Payment Date shall
be increased by _____% per annum or (y) _____% or
less of the Pool Balance as of the Cut-off Date,
the Pass-Through Rate (as determined in the clause
preceding this proviso) for any Payment Date shall
be increased by _____% per annum; provided further
that, notwithstanding the preceding proviso, the
Pass-Through Rate shall be subject to a maximum
rate based on the applicable weighted average
Receivable Rate borne by the Receivable; for the
Collection Period preceding such Payment Date less
the Servicing Fee Rate.
B. Interest............... On each Payment Date, the [Owner] Trustee shall
distribute pro rata to the holders of record of
the Certificates (the "Certificateholders" and
together with the Noteholders, the
"Securityholders") as of the [last day] of the
immediately preceding [calendar month] (the "
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<PAGE>
Certificate Record Date") interest at the
Pass-Through Rate on the Certificate Balance as of
the preceding Payment Date (after giving effect to
distributions made on such date) generally to the
extent of funds available therefor following
payment of the Servicing Fee and distributions in
respect of the Notes. Interest for a Payment Date
will accrue from and including the most recent
Payment Date on which interest has been paid (or,
in the case of the first Payment Date, from the
Closing Date) to but excluding such current
Payment Date and will be calculated on the basis
of a year of 360 days, in each case for the actual
number of days occurring in the period for which
such interest is payable. In addition,
Certificateholders will receive on each Payment
Date, if on such Payment Date the amount on
deposit in the Reserve Account, after giving
effect to all withdrawals and deposits required to
be made on such Payment Date, exceeds the
Specified Reserve Account Balance, an amount equal
to the lesser of (1) such excess and (2)
[one-twelfth] of the product of (a) [___%] of the
excess, if any, of (i) the amount of the positive
spread, if any, between the Base Rate in effect on
the date that LIBOR for such Payment Date is
established and LIBOR for such Payment Date over
(ii) _____% times (b) [___%] of the Certificate
Balance on the preceding Payment Date.
C. Principal.............. Principal of the Certificates will be payable on
each Payment Date on and after the latest of (i)
the Payment Date following the Payment Date on
which the [ A-1 Notes] have been paid in full,
(ii) the _______________, 199___ Payment Date and
(iii) the Payment Date following the Payment Date
on which the lesser of the full amount of the
Maturity Draw or the amount of the Maturity Draw,
if any, necessary to increase the amount on
deposit in the Reserve Account to the Specified
Reserve Account Balance is deposited into the
Reserve Account, in an amount generally equal to
the Certificateholders' Principal Distributable
Amount for the Collection Period preceding such
Payment Date, to the extent of funds available
therefor following payment of the Servicing Fee
and distributions of interest and principal in
respect of the Notes and interest in respect of
the Certificates. The Certificateholders'
Principal Distributable Amount generally will be
based on the Certificateholders' Percentage of the
Principal Distribution Amount, which for any
Payment Date will be based upon decreases in the
Note Value of the Receivables and/or collections
on and losses in respect of the principal of the
Receivables during the related Collection Period.
See "Description of the Transfer and Servicing
Agreements--Distributions" herein.
The outstanding amount, if any, of the
Certificates will be payable in full on
_______________, 199__.
D. Optional Purchase...... If the Servicer exercises its option to purchase
the Receivables when the aggregate principal
amount of the Receivables is less than _____% of
the Pool Balance as of the Cut-off Date, the
Certificateholders will receive an amount in
respect of the Certificates equal to the
Certificate Balance together with accrued interest
at the Pass-Through Rate and the Certificates will
be retired. See "Description of the
Certificates--Optional Purchase" herein.
Reserve Account............ The Servicer will be obligated to deposit into the
Collection Account an amount equal to the sum of
the interest due, but not collected, with
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<PAGE>
respect to delinquent Receivables during the prior
Collection Period, but only if, in its good faith
business judgment, the Servicer believes that such
amount will ultimately be recovered from the
related Receivable. Such amounts are "Delinquency
Interest Advances." Delinquency Interest Advances
may be funded by the Servicer from subsequent
collections on the Receivables generally, and are
reimbursable from (i) future collections on the
Receivable which gave rise to the Delinquency
Interest Advance and (ii) Net Liquidation Proceeds
for such Mortgage Loan. See "Description of the
Transfer and Servicing Agreements--Reserve
Account" herein.
Collection Account......... The Servicer will be required to remit collections
received with respect to the Receivables within
two business days of receipt thereof to one or
more accounts in the name of the Indenture Trustee
(the " Collection Account"). Pursuant to the
Pooling and Servicing Agreement, the Servicer will
have the revocable power to instruct the Indenture
Trustee to withdraw funds on deposit in the
Collection Account and to apply such funds on each
Payment Date to the following (in the priority
indicated): (i) the Servicing Fee for the prior
Collection Period and any overdue Servicing Fees
to the Servicer, (ii) the Noteholders' Interest
Distributable Amount (which is an amount generally
equal to the aggregate amount of accrued interest
on the Notes), the [A-1] Noteholders' Principal
Distributable Amount and the [A-2] Noteholders'
Principal Distributable Amount into the Note
Distribution Account, (iii) the Certificateholders
Interest Distributable Amount into the Certificate
Distribution Account, (iv) the Certificateholders'
Principal Distributable Amount into the
Certificate Distribution Account, (v) an amount
necessary to make the amount on deposit in the
Reserve Account equal to the Specified Reserve
Account Balance into the Reserve Account, (vi) the
[Class A-2] Noteholders' Interest Carryover Amount
into the Note Distribution Account and (vii) the
remaining balance, if any, to the Reserve Account
for distribution in accordance with the Pooling
and Servicing Agreement. See "Description of the
Transfer and Servicing Agreements--Distributions"
and "--Reserve Account" herein.
Servicing.................. The Servicer will be responsible for servicing,
managing, arranging, making collections on and
otherwise enforcing the Contracts. The Servicer
will be required to exercise the degree of skill
and care in performing these functions that it
customarily exercises with respect to similar
contracts owned by the Servicer. The Servicer will
be entitled to receive a monthly fee (the
"Servicing Fee") of the product of (i)
one-twelfth, (ii) ___% (the "Servicing Fee Rate")
and (iii) the Aggregate Discounted Contract
Balance as of the beginning of the previous
Collection Period, payable out of the Collection
Account, plus late payment fees and certain other
fees paid by the Obligors ("Servicing Charges")
and investment earnings on amounts held in the
Collection Account ("Investment Earnings"), as
compensation for acting as Servicer.
On the day prior to any Payment Date, the Servicer
will be required to make an advance (a "Servicer
Advance") to the Indenture Trustee in an amount
sufficient to cover all amounts due and unpaid on
any Delinquent Contract as of the previous
Determination Date ("Delinquency Amounts"). A
"Delinquent Contract" will mean, as of
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<PAGE>
any Determination Date, any Contract (other than a
Contract which became a Defaulted Contract prior
to such Determination Date) with respect to which
the Obligor has not paid all Contract Payments
then due. With respect to any Delinquent Contract,
whenever the Servicer shall have determined that
it will be unable to recover a Delinquency Amount
or portion thereof on such Delinquent Contract,
the Servicer shall not be required to make a
Servicer Advance on such unrecoverable Delinquency
Amount or portion thereof, but will be required to
enforce its remedies (including acceleration)
under such Contract. Furthermore, if at any time
the Originator is no longer the Servicer, no
Servicer Advances will be required. In the event
that the Servicer determines that any Servicer
Advances previously made are not recoverable (the
"Nonrecoverable Advances"), or any Delinquent
Contracts for which the Originator has made
advances of Delinquency Amounts in respect thereof
become Defaulted Contracts, then the Indenture
Trustee shall have the right to draw on the
Collection Account and the Reserve Account to
repay such Servicer Advances.
Under the Pooling and Servicing Agreement, a
Contract will constitute a "Defaulted Contract" at
the earlier of the date on which (i) [four]
Contract Payments are due and unpaid as of any
Calculation Date or (ii) the Servicer has declined
to advance any delinquent Contract Payment in
accordance with Section ____ of the Pooling and
Servicing Agreement on the grounds that such
advance would be a Nonrecoverable Advance or (iii)
such Contract has been rejected by or on behalf of
the Obligor in a bankruptcy proceeding.
Under certain limited circumstances, the Servicer
may resign or be removed, in which event the
Indenture Trustee will be appointed as successor
Servicer.
The Servicer will be required to cause amounts
collected on the Contracts on behalf of the Issuer
to be deposited in an eligible deposit account in
the name of the Indenture Trustee on behalf of the
[A-1 Noteholders] (the "[Class A-1] Maturity
Account") and in an eligible deposit account in
the name of the Indenture Trustee on behalf of the
[A-2 Noteholders] (the "[Class A-2] Lockout
Account") maintained by the Trustee in accordance
with the Pooling and Servicing Agreement. See
"Description of Transfer and Servicing Agreement
-- Accounts", -- "[Class A-1] Maturity Account]"
and -- "[Class A-2 Lockout Account]" herein.
Certain Legal Aspects
of the Contracts
and the Vehicles......... The Issuer will be required to take such action as
is required to perfect the Indenture Trustee's
security interest in the Contracts, the Contract
Payments [and the Vehicles] as of the Closing
Date, or in any event, within [___(__)] days from
the date thereof. The Issuer will warrant that the
Indenture Trustee will have a first priority
perfected security interest in the Contracts, the
Contract Payments [and the Vehicles] owned by the
Issuer, [and a perfected security interest in the
Vehicles owned by Obligors,] except for certain
liens which by operation of law have priority over
previously perfected security interests, and, with
certain exceptions, in the proceeds thereof. The
Indenture Trustee will
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act as custodian of the Receivables on behalf of
the [A-1 Noteholders], [the A-2 Noteholders] and
the Certificateholders.
Federal Income Tax
Consequences............. In the opinion of Dewey Ballantine, counsel for
the Trust, the Notes will be characterized as debt
for federal income tax purposes and the Trust will
not be characterized as an association (or a
publicly traded partnership) taxable as a
corporation. The Certificateholders (including the
Sponsor) will agree to treat the Trust as a
partnership in which they are partners for
purposes of federal and state income tax,
franchise tax and any other income tax, with the
assets of the partnership being the assets held by
the Trust, the partners of the partnership being
the Certificateholders and the Notes being debt of
the partnership. Alternative characterizations of
the Trust and the Securities are possible, as more
fully described herein. See "Federal Income Tax
Consequences" and "State Tax Consequences" herein
for information regarding the application of
federal and [Nevada] tax laws to the Securities
and the Trust.
ERISA Considerations....... The acquisition of Notes or Certificates by an
employee benefit plan subject to the Employee
Retirement Income Security Act of 1974, as amended
("ERISA") or the provisions of Section 4975 of the
Code (the "Plan"), could result in a prohibited
transaction under "ERISA" or Section 4975 of the
Code, unless such acquisition is subject to a
statutory or administrative exemption, if, by
virtue of such acquisition, assets held by the
Issuer and pledged to the Indenture Trustee were
deemed to be assets of the Plan. In addition, the
Issuer or other parties may be considered to be a
fiduciary with respect to any Plan. Therefore, the
acquisition and transfer of the Notes or
Certificates are subject to certain restrictions.
See "ERISA Considerations."
Rating of the Securities... It is a condition to the issuance of the Notes
that the [A-1 Notes] be rated in the _____ rating
category, the [A-2 Notes] be rated in the [_____
rating category] and the Certificates be rated at
least [___] or its equivalent, in each case by at
least two nationally recognized rating agencies.
There is no assurance that a rating will not be
lowered or withdrawn by a rating agency based on a
change in circumstances deemed by such rating
agency to adversely affect the Securities. A
security rating is not a recommendation to buy,
sell or hold securities, inasmuch as such rating
does not comment as to market price or suitability
for a particular investor. The ratings of the
Securities are also based on the rating of the
security insurer. Upon a security insurer default,
the rating on the Securities may be lowered or
withdrawn entirely. In the event that any rating
initially assigned to the Securities were
subsequently lowered or withdrawn for any reason,
including by reason of a downgrading of the
security insurer's claims-paying ability, no
person or entity will be obligated to provide any
additional credit enhancement with respect to the
Securities. Any reduction or withdrawal of a
rating will have an adverse effect on the
liquidity and market price of the Securities. See
"Ratings."
Risk Factors............... For a discussion of certain factors that should be
considered by prospective investors in the Notes
and Certificates, see "Risk Factors" herein and in
the Prospectus.
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Certain Legal Matters...... Certain legal matters relating to the validity of
the issuance of the Notes and Certificates will be
passed upon for the Issuer and the Underwriter by
Dewey Ballantine, New York, NY.
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RISK FACTORS
Risk of Losses on Investment Associated with Limited Obligations of the
Trust. Distributions of interest and principal on the Certificates will be
subordinated in priority of payment to interest and principal due on the Notes.
The Certificateholders will not receive any distributions with respect to a
Payment Date until the full amount of interest on and principal of the Notes on
such Payment Date has been deposited in the Note Distribution Account. The Trust
does not have, nor is it permitted or expected to have, any significant assets
or sources of funds other than the Receivables and the Trust Accounts. The
Securities represent solely obligations of, or interests in, the Trust and the
Securities will not be insured or guaranteed by the Sponsor, the Originator, the
Servicer, the [Owner] Trustee or any other person or entity. Consequently,
holders of the Securities must rely for repayment upon payments on the
Receivables and, if and to the extent available, amounts on deposit in the
Reserve Account. Amounts to be deposited in the Reserve Account are limited in
amount, and the amount required to be on deposit in the Reserve Account will be
reduced as the Pool Balance is reduced. In addition, funds in the Reserve
Account will be available on each Payment Date to cover shortfalls in
distributions of interest and principal on the Notes prior to the application
thereof to cover shortfalls on the Certificates. If the Reserve Account is
exhausted, the Trust will depend solely on current payments on the Receivables
to make payments on the Securities. Although the Trust will covenant to sell the
Receivables if directed to do so by the Indenture Trustee in accordance with the
Indenture following an acceleration of the Notes upon an Event of Default, there
is no assurance that the market value of the Receivables will at any time be
equal to or greater than the aggregate principal amount of outstanding Notes.
Therefore, upon an Event of Default with respect to the Notes there can be no
assurance that sufficient funds will be available to repay Noteholders in full
and consequently the Noteholders run the risk of loss on their investment. In
addition, the amount of principal required to be distributed to Noteholders
under the Indenture is generally limited to amounts available therefor in the
Note Distribution Account. Therefore, the failure to pay principal on the Notes
may not result in the occurrence of an Event of Default until the [A-1] Final
Scheduled Payment Date or the [A-2] Final Scheduled Payment Date.
Risk of Limited Liquidity and Lower Market Price Associated with a
Reduction or Withdrawal of Ratings of the Securities. It is a condition to the
issuance of the Notes and the Certificates that the [A-1 Notes] be rated in the
[_____] rating category, the [A-2 Notes] be rated in the [____] rating category
and the Certificates be rated at least [___] or its equivalent, in each case by
at least two nationally recognized rating agencies (the "Rating Agencies"). A
rating is not a recommendation to purchase, hold or sell Securities, inasmuch as
such rating does not comment as to market price or suitability for a particular
investor. The rating of the Securities addresses the likelihood of the timely
payment of interest on and the ultimate repayment of principal of the Securities
pursuant to their terms. There is no assurance that a rating will remain for any
given period of time or that a rating will not be lowered or withdrawn entirely
by a Rating Agency if in its judgment circumstances in the future so warrant.
The rating of the Notes is based primarily on the creditworthiness of the
Receivables, the subordination provided by the Certificates and the availability
of funds in the Reserve Account. The rating of the Certificates is based
primarily on the creditworthiness of the Receivables and the availability of
funds in the Reserve Account. The ratings of the Securities are also based on
the rating of the security insurer. Upon a security insurer default, the rating
on the Securities may be lowered or withdrawn entirely. In the event that any
rating initially assigned to the Securities were subsequently lowered or
withdrawn for any reason, including by reason of a downgrading of the security
insurer's claims-paying ability, no person or entity will be obligated to
provide any additional credit enhancement with respect to the Securities. Any
reduction or withdrawal of a rating will have an adverse effect on the liquidity
and market price of the Securities. See "Ratings."
[Risk of Reduced Rate of Return Associated with Relationship Between Base
Rate and LIBOR. Allocations of payments on the variable rate Receivables to
principal and interest depend upon the applicable Base Rate. Interest on the
[A-1 Notes], [A-2 Notes] and [the Certificates] accrues at a rate generally
based upon LIBOR. These two rates can and will vary with respect to each other.
Historically, they have increased or decreased roughly in tandem and, during the
last ten years, LIBOR always has remained below the Base Rate. However, no
assurance can be given that these historical trends will
S-15
<PAGE>
continue. There is a risk that if LIBOR were to more above the Base Rate, the
spread used to pay interest to the Securityholders would disappear and the rate
of return to investors would be reduced.]
[The variable rate Receivables bear interest at the Base Rate plus a Base
Rate Additive ranging from _____% to _____%. Each of the [A-1 Note], [A-2]
Interest Rate and the [Pass-Through Rate] is based upon LIBOR. If, in respect of
any Payment Date, there does not exist a positive spread between the weighted
average of the Receivables Rate [A-1 Note Interest Rate] [the A-2 Note Interest
Rate] less the Servicing Fee Rate (such difference between the Receivables Rate
and the Servicing Fee Rate being the "Net Receivables Rate") for the Collection
Period preceding such Payment Date, on the one hand, and the [A-1 Note Interest
Rate], [the A-2 Note Interest Rate] [Pass-Through Rate] for such Payment Date
(calculated before giving effect to this sentence), on the other hand, then the
[Pass-Through Rate] for such Payment Date shall not exceed the Net Receivables
Rate.]
[Risk of Reduced Rate of Return Associated with Yield Considerations. The
Certificateholders will bear the risk associated with the possible narrowing of
the spread between the [A-1 Note Interest Rate] [the A-2 Note Interest Rate]
[Pass-Through Rate], on the one hand, and the Net Receivables Rate, on the other
hand. If this spread disappears (i.e., if the [A-1 Note Interest Rate] [the A-2
Note Interest Rate] [Pass-Through Rate] exceeds or equals the Net Receivables
Rate), the interest payable on the [A-1 Notes] [A-2 Notes] [Certificates] for
the related Payment Date will not exceed such Net Receivables Rate. A
substantial change in LIBOR at a time when the Net Receivables Rate does not
experience a similar change could result in limiting the [A-1 Note Interest
Rate] [A-2 Note Interest Rate] [Pass-Through Rate] and consequently could reduce
the rate of return to investors as described above.]
Risk of Lower Yield Associated with Prepayment Considerations. If
purchased at other than par, the yield to maturity on the Securities will be
affected by the rate of the payment of principal of the Contracts. If the actual
rate of payments on the Contracts is slower than the rate anticipated by an
investor who purchases the Securities at a discount, the actual yield to such
investor will be lower than such investor's anticipate yield. If the actual rate
of payments on the Contracts is faster than the rate anticipated by an investor
who purchases the Securities at a premium, the actual yield to such investor
will be lower than such investor's anticipated yield.
[All of the Contracts are fixed-rate contracts. The rate of prepayments
with respect to conventional fixed contracts has fluctuated significantly in
recent years. In general, if prevailing interest rates fall significantly below
the interest rates on fixed rate contracts, such contracts are likely to be
subject to higher prepayment rates than if prevailing rates remain at or above
the interest rate on such contracts. However, the monthly payment on contracts
similar to the Contracts is often smaller than the monthly payment on other
types of consumer debt, for example, a typical mortgage loan. Consequently, a
decrease in the interest rate payable as a result of a refinancing would result
in a relatively small reduction in the amount of the contracts monthly payment,
as a result of the relatively small loan balance. Conversely, if prevailing
interest rates rise appreciably above the interest rates on fixed rate
contracts, such contracts are likely to experience a lower prepayment rate than
if prevailing rates remain at or below the interest rates on such contracts. As
of the Cut-off Date, ____% of the aggregate principal balance of the Contracts
had prepayment penalties.]
[All of the Contracts are adjustable rate contracts. As is the case with
conventional fixed rate contracts, adjustable rate contracts may be subject to a
greater rate of principal prepayments in a declining interest rate environment.
For example, if prevailing interest rates fall significantly, adjustable rate
contracts could be subject to higher prepayment rates than if prevailing
interest rates remain constant because the availability of fixed-rate contracts
at competitive interest rates may encourage obligors to refinance their
adjustable rate contracts to "lock in" a lower fixed interest rate. However, no
assurance can be given as to the level of prepayments that the contracts will
experience. As of the Cut-off Date, ____% of the aggregate principal balance of
the Contracts had prepayment penalties.]
S-16
<PAGE>
THE RECEIVABLES
Contracts
[Description of collateral is transaction dependent - an example of
disclosure language is set forth below.]
[All of the Contracts were purchased by the Sponsor from the Originator in
the ordinary course of business and the Contracts constitute substantially all
of the automobile and light duty truck retail installment sale contracts
included in the Originator's portfolio meeting the selection criteria described
below. Such selection criteria included that: (i) each Contract is secured by a
new or used automobile or light duty truck; (ii) each Contract was originated in
the United States; (iii) each Contract provides for level monthly payments that
fully amortize the amount financed over its original term except that the
payment in the first or last month in the life of the Contract may be minimally
different from the level payment, and a minimal number of the Contracts provide
for monthly payments for a period of time not exceeding one year after
origination in an amount less than such level payment, provided that as of the
Cutoff Date the monthly payment currently due under each such Contract is equal
to such level payment; (iv) each Contract was originated on or prior to _____,
199_; (v) each Contract has an original term of __ to __ months and, as of the
Cutoff Date, had a remaining term to maturity of not less than three months nor
more than __ month; (vi) each Contract provides for the payment of a finance
charge at an APR ranging from __% to __%; (vii) each Contract shall not have a
Scheduled Payment that is more than 30 days past due as of the Cutoff Date;
(viii) no Contract shall be due, to the best knowledge of the Originator, from
any Obligor who is presently the subject of a bankruptcy proceeding or is
bankrupt or insolvent; (ix) no Vehicle has been repossessed without
reinstatement as of the Cutoff Date; and (x) as of the Cutoff Date, physical
damage insurance relating to each Vehicle is not being force-placed by the
Servicer.
Certain information with respect to the Receivables expected to be sold by
the Originator to the Sponsor pursuant to the Receivables Acquisition Agreement
and in turn sold by the Sponsor to the Trust pursuant to the Pooling and
Servicing Agreement is set forth below. The description of the Receivables
presented in this Prospectus Supplement is based upon the pool of Receivables as
it is expected to be constituted on the Cutoff Date. While information as of the
Closing Date for the Receivables that actually will be sold to the Trust may
differ somewhat from the information presented herein, the Sponsor does not
expect that the characteristics of the Receivables that are sold to the Trust
will vary materially from the information presented in this Prospectus
Supplement concerning the Receivables.
As of the Cutoff Date, approximately __% and approximately __% of the
Aggregate Discounted Contract Balance are expected to represent Contracts
secured by automobiles and light duty trucks, respectively. Based on the
Aggregate Discounted Contract Balance, approximately __% and approximately __%
of the Contracts are expected to represent financing of new vehicles and used
vehicles, respectively, and no more than __% of the Contracts are expected to be
due from employees of the Originator or any of its respective affiliates. As of
the Cutoff Date, the average Principal Balance of Contracts secured by
automobiles and light duty trucks is expected to be approximately $___ and
approximately $___ , respectively. The majority of the Vehicles are expected to
be foreign and domestic automobiles and light duty trucks. Except in the case of
any breach of representations and warranties by the Originator, it is expected
that none of the Contracts provide for recourse to the Originator who originated
the related Contract.
Each Contract provides for fixed level monthly payments which will
amortize the full amount of the Contract over its term. The Contracts provide
for allocation of payments according to the "sum of periodic balances" or "sum
of monthly payments" method (the "Rule of 78s"). Each Contract provides for the
payment by the Obligor of a specified total amount of payments, payable in
monthly installments on the related due date, which total represents the
principal amount financed and finance charges in an amount calculated on the
basis of a stated annual percentage rate ("APR") for the term of such Contract.
The rate at which such amount of finance charges is earned and, correspondingly,
the amount of each fixed monthly payment allocated to reduction of the
outstanding principal balance of the related Contract are calculated in
accordance with the Rule of 78s. Under the Rule of 78s, the portion of each
payment allocable to interest is higher during the early months of the term of a
Contract and lower during later
S-17
<PAGE>
months than that under a constant yield method for allocating payments between
interest and principal. Notwithstanding the foregoing, all payments received by
the Servicer on or in respect of the Contract will be allocated pursuant to the
Pooling and Servicing Agreement on an actuarial basis.
If an Obligor elects to prepay a Contract in full, it is entitled to a
rebate of the portion of the outstanding balance then due and payable
attributable to unearned finance charges, calculated in accordance with the Rule
of 78s. The amount of a rebate under a Contract calculated in this manner will
always be less than had such rebate been calculated on an actuarial basis.
Distributions to Noteholders and Certificateholders will not be affected by Rule
of 78s rebates under the Contract because pursuant to the Pooling and Servicing
Agreement such distributions will be determined using the actuarial method.]
The expected composition, distribution by APR and geographical
distribution of the Contracts are as set forth in the following tables.
Expected Composition of the Contracts
New Used
---------------- ------------
Aggregate Discounted Contract Balance.......... $
Number of Contracts ........................... ___
Average Original Principal Balance ............ $
Range of Original Principal Balances ........ $___ to $___
Weighted Average APR(1)........................ ___%
Range of APRs ............................... ___% to ___%
Weighted Average Original Maturity(1) ......... ____ months
Range of Original Maturities ................ __ months to __
months
Weighted Average Remaining Maturity(1) ........ __ months
Range of Remaining Maturities ............... __ months to __
months
- ----------
(1) Weighted by Aggregate Discounted Contract Balance as of the Cutoff Date.
Expected Distribution of the Contracts by APR
Percentage of
Percentage of Aggregate Aggregate
Aggregate Discounted Discounted
Number of Number Contract Contract
Range of APRs Contracts of Contracts Balance Balance
- ------------- --------- -------------- ---------- -------------
% to % .... % $ %
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
Total ......... % $ %
========= ============== ========== ==============
S-18
<PAGE>
Expected Distribution of the Contracts by State
Percentage of Aggregate Aggregate
Aggregate Discounted Discounted
Number of Number Contract Contract
State(1) Contracts of Contracts Balance Balance
- -------- ---------- ---------------- --------------- -----------
% $ %
Total.......... % $ %
========== ================ =============== ===========
- ----------
(1) Based on the addresses of the Obligors.
Substitution
Pursuant to the Pooling and Servicing Agreement, the Servicer will
have the right (but not the obligation) at any time to substitute one or more
Eligible Receivables (each a " Substitute Receivable") [and the Vehicles subject
thereto (or a perfected security interest therein)] for a Receivable ("
Predecessor Receivable") [and the Vehicles subject thereto (or a perfected
security interest therein)] if:
(i) the Predecessor Receivable is then in default and, as of the
most recent Determination Date, has been in default for at least
[____(__)] consecutive days or a bankruptcy petition has been filed by or
against the Obligor;
[(ii) the Vehicles subject to the Substitute Receivable or
Receivables has a current estimated fair market value and a projected
residual value, respectively, equal to or greater than the current fair
market value and projected residual value of the Vehicles subject to the
Predecessor Receivable;] and
(iii) the Substitute Receivable or Receivables require the obligor
or obligors thereunder to make Contract Payments during each month ending
on or prior to the final Scheduled Payment Date of the Certificates in an
amount which is at least as great as the Contract Payment required under
the Predecessor Receivable during each such month.
[provided, however, that the Aggregate Discounted Contract Balance of all
Contracts substituted shall not exceed [10%] of the Aggregate Discounted
Contract Balance of the Initial Receivables and the Additional Receivables.]
[Upon repossession and disposition of any Vehicles subject to a
Defaulted Contract, any deficiency remaining will be pursued to the extent
deemed practicable by the Servicer. [The Servicer on behalf of the Issuer is
directed to maximize the Net Residual Value of the Vehicles relating to any
Defaulted Contract, and, in such regard, the Servicer may sell such Vehicles at
the best available price, refurbish such Vehicles and re-lease such Vehicles to
third parties, or take any other commercially reasonable steps to maximize such
Vehicles's Net Residual Value. Liquidation proceeds with respect to any such
Defaulted Contract, including any future payments received with respect to such
Defaulted Contracts, shall be paid to the Collection Account. If the Servicer
reasonably believes that the Net Residual Value of any Vehicles is zero or de
minimis, it will dispose of such Vehicles in accordance with its standard
procedures.]
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<PAGE>
[The original counterpart of each Contract constituting chattel paper
and the Contract Files will be held by _________________, as Trustee on behalf
of the [A-1 Noteholders] [A-2 Noteholders] and the Certificateholders. The
Trustee will be required to indicate that the Contracts have been transferred by
the Originator to the Issuer.]
THE ORIGINATOR AND THE SERVICER
General
The Originator is principally a company engaged in the business of
originating and acquiring retail installment sale contract financing to retail
customers of automotive dealers. The Originator provides full-service financing,
primarily through installment sales contracts, to retail purchasers of new and
used automobiles and light duty trucks through dealer programs.
[The Originator has financed over $___ million of vehicles, representing
over _______ vehicles. The Originator currently services over ___ customers
through its direct servicing activities and an additional ______ customers in
connection with its subsidiaries' activities. As of ____________________, the
Originator had __ employees.]
Delinquency and Default Experience
There can be no assurance that the levels of delinquency and loss
experience reflected in Table 1 and Table 2, below, are indicative of the
performance of the Receivables included in the Collateral for the Notes.
S-20
<PAGE>
TABLE 1
<TABLE>
<CAPTION>
DELINQUENCY EXPERIENCE (1)
===========================================================================================
Year Ended December 31,
---------------------------------------------------------------
1991 1992 1993
===============================================================
Dollar Percentage Dollar Percentage Dollar Percentage
Amount of Total Amount of Total Amount of Total
(000) Portfolio (000) Portfolio (000) Portfolio
----- --------- ----- --------- ----- ---------
<S> <C> <C> <C>
Total Originator Portfolio
at Year End
Delinquencies:
31-59 Days
61-89 Days
90 Days or more
Total Delinquencies
Total Delinquencies as a
% of Total Portfolio
</TABLE>
(1) The indicated periods of delinquency (31-59, 60-89, and 90 or more) are
based on the number of days past due on a contractual basis, based on a
30-day month. No Contract is considered delinquent for these purposes until
the monthly anniversary of its contractual due date (e.g., a Contract with a
payment due on January 1 would be considered 31-59 days delinquent if the
January 1 payment has not been received on or prior to February 1).
TABLE 2
<TABLE>
<CAPTION>
LOSS EXPERIENCE
===========================================================================================
Year Ended December 31,
---------------------------------------------------------------
1991 1992 1993
===============================================================
Dollar Percentage Dollar Percentage Dollar Percentage
Amount of Total Amount of Total Amount of Total
(000) Portfolio (000) Portfolio (000) Portfolio
----- --------- ----- --------- ----- ---------
<S> <C> <C> <C>
Total Acquisitions (1)
Gross Defaults
Gross Recoveries
Net Losses
===========================================================================================
</TABLE>
(1) Total Acquisition = total cost (aggregate purchase price of the Vehicles)
to the Originator since inception in ____ thru and including the year end
set forth above.
Litigation
Originator is not involved in any legal proceedings, and is not aware of
any pending or threatened legal proceedings that would have a material adverse
effect upon its financial condition or results of operations.
Servicing
The Receivables will be serviced by the Originator, as Servicer, pursuant
to the Receivables Acquisition Agreement.
The Receivables Acquisition Agreement requires that servicing of the
Receivables by Originator shall be carried out in the same manner in which it
services contracts and vehicles held for its own account and consistent with
customary practices of servicers in the retail automobile industry, but in
performing its duties hereunder, Originator will act on behalf and for the
benefit of the Issuer, the Trustee and the holders of the Notes, subject at all
times to the provisions of the Indenture, without regard to any relationship
which Originator or any Affiliate of Originator may otherwise have with an
Obligor. Except as permitted by the terms of any Contract following a default
thereunder, Originator shall not take any action
S-21
<PAGE>
which would result in the interference with the Obligor's right to quiet
enjoyment of the Vehicles subject to the Contract during the term thereof.
Following each Determination Date, Originator shall advance and remit to
the Trustee, in such manner as will ensure that the Trustee will have
immediately available funds on account thereof by 11:00 a.m. New York time on
the [_______] Business Day prior to the next succeeding Payment Date, a Servicer
Advance equal to the Contract Payment due during the preceding Collection Period
with respect to each Contract (other than a Contract which became a Defaulted
Contract on or prior to such Determination Date) under which the Obligor has not
made such payment by such Determination Date; provided, however, that Originator
will not be obligated to make a Servicer Advance with respect to any Contract if
Originator, in its good faith judgment, believes that such Servicer Advance
would be a Nonrecoverable Advance. If Originator determines that any Contract
Payment it has made, or is contemplating making, would be a Nonrecoverable
Advance, Originator shall deliver to the Trustee an Officers' Certificate
stating the basis for such determination.
Servicing Compensation and Payment of Expenses
For its servicing of the Receivables, Originator will be entitled to
receive a monthly Servicing Fee equal to the product of (i) one-twelfth, (ii)
___% and (iii) the Aggregate Discounted Contract Balance of all Contracts as of
the preceding Determination Date, payable out of the Collection Account, plus
Servicing Charges and Investment Earnings.
All costs of servicing each Receivable in the manner required by the
Receivables Acquisition Agreement shall be borne by Originator, but Originator
shall be entitled to retain, out of any amounts actually recovered with respect
to any Defaulted Contract [or the Vehicles subject thereto,] Originator's actual
out-of-pocket expenses reasonably incurred with respect to such Defaulted
Contract [or Vehicles]. In addition, Originator shall be entitled to receive on
each Payment Date any unreimbursed Nonrecoverable Advances or Servicer Advances
with respect to any Defaulted Contract and the Servicing Fee.
Evidence as to Compliance
The Receivables Acquisition Agreement requires that with each set of
financial statements delivered pursuant to the Receivables Acquisition
Agreement, Originator will deliver an Officers' Certificate stating (i) that the
officers signing such Certificate have reviewed the relevant terms of the
Receivables Acquisition Agreement and have made, or caused to be made under such
officers' supervision, a review of the activities of Originator during the
period covered by the statements then being furnished, (ii) that the review has
not disclosed the existence of any Servicer Event of Default or, if a Servicer
Event of Default exists, describing its nature and what action Originator has
taken and is taking with respect thereto, and (iii) that on the basis of such
review the officers signing such certificate are of the opinion that during such
period Originator has serviced the Receivables in compliance with the required
procedures except as described in such certificate.
Originator shall cause a firm of independent certified public accountants
(who may also render other services to Originator) to deliver to the Trustee,
with a copy to the Rating Agency and each holder of the Notes, within [90] days
following the end of each fiscal year of Originator, beginning with Originator's
fiscal year ending ____________, 199__, a written statement to the effect that
such firm has examined in accordance with generally accepted practices samples
of the accounts, records, and computer systems of Originator for the fiscal year
ended on the previous ________ relating to the Receivables (which accounts,
records, and computer systems shall be described in one or more schedules to
such statement), that such firm has compared the information contained in
Originator's reports delivered in the relevant period with information contained
in the accounts, records, and computer systems for such period, and that, on the
basis of such examination and comparison, such firm is of the opinion that
Originator has, during the relevant period, serviced the Receivables in
compliance with such servicing procedures, manuals, and guides and in the same
manner as it services comparable contracts for itself or others, that such
accounts, records, and computer systems have been maintained, and that such
certificates, accounts, records, and computer systems have been properly
prepared and maintained in all material respects,
S-22
<PAGE>
except in each case for (a) such exceptions as such firm shall believe to be
immaterial and (b) such other exceptions as shall be set forth in such
statement.
Other Servicing Procedures
At least [___] days prior to each Payment Date, Originator shall deliver a
report in writing (the "[Monthly] Servicer Report") to each holder of the Notes,
the Trustee and the Rating Agency.
If an Obligor has [___] Contract Payments which are due and unpaid as of
any Determination Date, such Obligor's Contract shall become a Defaulted
Contract. Where no satisfactory arrangements can be made for collection of
delinquent payments within [__] days of a Contract becoming a Defaulted
Contract, Originator shall foreclose or otherwise liquidate any such Defaulted
Contract [(together with the related Vehicles)] within [60] days of such
Contract becoming a Defaulted Contract. In connection with any foreclosure or
other liquidation, Originator will take such action as is appropriate,
consistent with Originator's administration of contracts in its own portfolio,
including such action as may be necessary to cause, or attempt to cause, the
Obligor thereunder to cure such default (if the same may be cured) or to
terminate or attempt to terminate such Contract and to recover, or attempt to
recover, all damages resulting from such default.
[Originator will use its best efforts (i) to sell or re-lease any Vehicles
subject to a Defaulted Contract in a timely manner and upon reasonable terms and
conditions so as to reduce as expeditiously as is consistent with sound
commercial practice any unreimbursed amounts drawn by the Trustee on the Reserve
Account and (ii) to sell or re-lease any Vehicles remaining subject to the lien
of the Indenture upon the expiration of the Contract to which such Vehicles is
subject, in a timely manner and in a manner consistent with that utilized by
Originator with respect to vehicles owned by it so as to realize, to the extent
possible under then prevailing market conditions, the Net Residual Value of such
Vehicles.]
[All Residual Payments realized by Originator in the performance of its
duties with respect to any item of Vehicles remaining subject to the Lien of the
Indenture (net of Originator's actual out-of-pocket expenses reasonably incurred
in such realization) shall be held in trust by Originator, as agent for the
Trustee, and turned over to the Trustee within [___] Business Days for
application in accordance with the provisions of the Indenture, provided that,
to the extent that (i) Originator has made any advances with respect to any
Contract which thereafter became a Defaulted Contract and (ii) Originator has
not otherwise been fully reimbursed for such advances, Originator shall
reimburse itself for such advances from any Residual Payments recovered with
respect to such Defaulted Contract before remitting to the Trustee any such
amounts for deposit in the Collection Account.]
Removal of the Servicer
The Receivables Acquisition Agreement will provide that Originator may not
resign from its obligations and duties as Servicer thereunder, except upon a
determination that Originator's performance of such duties is no longer
permissible under applicable law. Originator can only be removed pursuant to a
Servicer Event of Default. If a Servicer Event of Default shall have occurred
and be continuing, the Trustee shall give written notice to Originator of the
termination of all of the rights and obligations of Originator (but none of the
Originator's obligations thereunder, which shall survive any such termination)
under the Receivables Acquisition Agreement. On and after the time Originator
receives a notice of termination, the Trustee shall be the successor in all
respects to Originator in its capacity as servicer under the Receivables
Acquisition Agreement of the Receivables. The Trustee may, if it shall be
unwilling to so act, or shall, if it is unable to so act, give notice of such
fact to each holder of the Notes and (i) appoint an established institution,
satisfactory to the holders of Notes evidencing not less than [_______] of the
Voting Rights, as the successor to Originator to assume all of the rights and
obligations of Originator, including, without limitation, Originator's right to
receive the Servicing Fee (but not the obligations of the Originator contained
in the Receivables Acquisition Agreement) or, (ii) if no such institution is so
appointed, petition a court of competent jurisdiction to appoint an institution
meeting such criteria as Originator.
S-23
<PAGE>
THE INDENTURE TRUSTEE
The Indenture Trustee, ____________, has an office at
________________.
The Indenture Trustee may resign, subject to the conditions set
forth below, at any time upon written notice to the Sponsor, the Servicer and
the [Owner] Trustee, in which event the Servicer will be obligated to appoint a
successor Indenture Trustee. If no successor Indenture Trustee shall have been
so appointed and have accepted such appointment within [30] days after the
giving of such notice of resignation, the resigning Indenture Trustee may
petition a court of competent jurisdiction for the appointment of a successor
Indenture Trustee. Any successor Indenture Trustee shall meet the financial and
other standards for qualifying as a successor Indenture Trustee under the
Pooling and Servicing Agreement. The Servicer, the [Owner] Trustee or
Noteholders evidencing more than [___%] of the Pool Balance may also remove the
Indenture Trustee if the Indenture Trustee ceases to be eligible to continue as
such under the Pooling Agreement and fails to resign after written request
therefor, or is legally unable to act, or if the Indenture Trustee is
adjudicated to be insolvent. In such circumstances, the Servicer, the [Owner]
Trustee or such Noteholders will also be obligated to appoint a successor
Indenture Trustee. Any resignation or removal of the Indenture Trustee and
appointment of a successor Indenture Trustee will not become effective until
acceptance of the appointment by the successor Indenture Trustee.
THE [OWNER] TRUSTEE
______________________________ will be the [Owner] Trustee under the
Trust Agreement. __________________________ is a banking corporation and its
principal offices are located at ________________________________________. The
[Owner] Trustee's liability in connection with the issuance and sale of the
Notes and the Certificates is limited solely to the express obligations of the
[Owner] Trustee set forth in the Trust Agreement and the Pooling and Servicing
Agreement.
THE TRUST
The Trust will be formed in accordance with the laws of the State of
__________, pursuant to the Trust Agreement, solely for the purpose of
effectuating the transactions described herein. Prior to formation, the Trust
will have had no assets or obligations and no operating history. Upon formation,
the Trust will not engage in any business activity other than acquiring and
holding the Receivables, issuing the Securities Certificates and distributing
payments thereon. As described under "Description of the Transfer and Servicing
Agreements - Servicing Compensation," a portion of the monthly collections with
respect to the Contracts will be paid to the Servicer as servicing compensation.
All other expenses of the Trust will be paid on behalf of the Sponsor by the
Servicer or by the Originator, as provided in the Trust Agreement.
The Trust Fund will consist of the [Vehicles], the Contracts and any
Scheduled Contract Payments to be made by Obligors (but not including any
payments due on or prior to the Cut-Off Date or, with respect to an Additional
Receivable, the day prior to the Payment Date on which the Trust acquires such
Additional Receivable; any guaranties of an Obligor's obligations under a
Contract; any documents in the Contract Files; the insurance policies maintained
by the Obligors with respect to the Vehicles (the "Insurance Policies") and the
proceeds of such Insurance Policies; any rights of the Sponsor under the
Receivables Acquisition Agreement (including the right to instruct the
Originator to exercise any unassignable rights of enforcement under the
Contracts and any guaranties thereof, the Originator's rights ("Vendor Agreement
Rights") under agreements with any vendors from which the Contracts were
acquired, and the Insurance Policies); a security interest in the Reserve
Account and amounts on deposit therein; and any and all income and proceeds of
the foregoing. Neither the Pooling and Servicing Agreement permit the Trust to
acquire any additional assets. Because the Trust does not have any operating
history and will not engage in any business activity other than owning the Trust
Fund, issuing the Securities and making distributions thereon, there has not
been included any historical or pro forma ratio of earnings to fixed charges
with respect to the Trust.
S-24
<PAGE>
DESCRIPTION OF THE NOTES
General
The Notes will be issued pursuant to the terms of the Indenture. A copy of
the Indenture will be filed with the Commission following the issuance of the
Securities. The following summary describes certain terms of the Notes and the
Indenture. The summary does not purport to be complete and is qualified in its
entirety by reference to the provisions of the Notes and the Indenture.
______________________, a _______________ banking corporation, will be the
Indenture Trustee under the Indenture.
The [A-1 Notes]
Payments of Interest. Interest on the principal balance of the [A-1 Notes]
will be payable to the [A-1 Noteholders] [monthly] on each Payment Date
commencing _______________, 199__. "Payment Date" shall mean the [____] day of
each [month] or, if any such date is not a business day, on the next succeeding
business day. Interest will accrue from and including the Closing Date or from
and including the most recent Payment Date to but excluding such Payment Date
and will be calculated on the basis of a year of 360 days, in each case for the
actual number of days occurring in the period for which such interest is
payable. Interest accrued as of any Payment Date but not paid on such Payment
Date will be due on the next Payment Date together with interest on such amount
at the rate per annum specified below. Interest payments on the [A-1 Notes] will
generally be derived from the Total Distribution Amount remaining after the
payment of the Servicing Fee and amounts from the Reserve Account. See
"Description of the Transfer and Servicing Agreements--Distributions" and
"--Reserve Account" herein. If the amount of interest on the principal balance
of the [A-1 Notes] and the [A-2 Notes] payable on any Payment Date exceeds the
excess of (A) the sum of (i) collections on the Receivables for the related
Collection Period plus (ii) the amount of cash on deposit in the Reserve Account
over (B) the amount of the Servicing Fees payable on such Payment Date, the [A-1
Noteholders] and the [A-2 Noteholders] will receive their ratable share (based
upon the total amount of interest due to the [A-1 Noteholders] and the [A-2
Noteholders], as the case may be) of the amount available to be distributed in
respect of interest on the [A-1 Notes] and the [A-2 Notes].
[On each Payment Date, the [A-1 Note] Interest Rate will equal LIBOR for
such Payment Date [minus][plus] _____%. "LIBOR" with respect to any Payment Date
shall be established by the Indenture Trustee and shall equal the arithmetic
mean (rounded upwards, if necessary, to the nearest one-sixteenth of one
percent) of the offered rates for United States dollar deposits for one month
which appear on the Reuters Screen LIBO Page (as defined below) as of 11:00
A.M., London time, on the second LIBOR Business Day prior to the immediately
preceding Payment Date (or, in the case of the initial Payment Date, the second
LIBOR Business Day prior to the Closing Date); provided that at least two such
offered rates appear on the Reuters Screen LIBO Page on such date. If fewer than
two offered rates appear, LIBOR will be determined on such date as described in
the paragraph below. "Reuters Screen LIBO Page" means the display designated as
page "LIBO" on the Reuters Monitor Money Rates Service (or such other page as
may replace the LIBO page on that service for the purpose of displaying London
interbank offered rates of major banks). "LIBOR Business Day", for purposes of
the Indenture, is a day that is both a Business Day and a day on which banking
institutions in the City of London, England, are not required or authorized by
law to be closed. A "Business Day" is a day other than a Saturday, a Sunday or a
day on which banking institutions or trust companies in New York City are
authorized or obligated by law, regulation or executive order to remain closed.]
[If on such date fewer than two offered rates appear on the Reuters Screen
LIBO Page, the Indenture Trustee will request of each of the reference banks
(which shall be major banks that are engaged in transactions in the London
interbank market, selected by the Indenture Trustee after consultation with the
Sponsor) to provide the Indenture Trustee with its offered quotation for United
States dollar deposits for one month to prime banks in the London inter-bank
market as of 11:00 A.M., London time, on such date. If at least two reference
banks provide the Indenture Trustee with such offered quotations, LIBOR on such
date will be the
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arithmetic mean (rounded upwards, if necessary, to the nearest one-sixteenth of
one percent) of all such quotations. If on such date fewer than two of the
Reference Banks provide the Indenture Trustee with such an offered quotation,
LIBOR on such date will be the arithmetic mean (rounded upwards, if necessary,
to the nearest one-sixteenth of one percent) of the offered per annum rates
which one or more leading banks in The City of New York selected by the
Indenture Trustee after consultation with the Sponsor are quoting as of 11:00
A.M., New York City time, on such date to leading European banks for United
States dollar deposits for one month; provided, however, that if such banks are
not quoting as described above, LIBOR will be the LIBOR applicable to the
immediately preceding Payment Date.]
[On each Payment Date the [A-1 Note] Interest Rate will equal _____%;
provided, however, that it the [A-1 Note] Interest Rate for such Payment Date
computed without giving effect to this proviso exceeds the Net Receivables Rate
borne by the Receivables during the related Collection Period, then the [A-1
Note] Interest Rate for such Payment Date will be the [A-1 Note] Alternative
Interest Rate. The "[A-1 Note] Alternative Interest Rate" for any Payment Date
means the Net Receivables Rate borne by the Receivables during the related
Collection Period; provided, however, that in no event shall the [A-1 Note]
Alternative Interest Rate be less than _____% per annum; provided further that
to the extent that the interest paid to the [A-1 Noteholders] is less than
_____% per annum, the difference between the amount of interest paid and
interest at _____% per annum shall be payable on subsequent Payment Dates as
[Class A-1] Noteholders' Interest Carryover Amount.]
Payments of Principal. Principal payments will be made to the [A-1
Noteholders] on each Payment Date in an amount generally equal to the Principal
Distribution Amount until the principal balance of the [A-1 Notes] is reduced to
zero. Principal payments on the [A-1 Notes] will generally be derived from the
Total Distribution Amount remaining after the payment of the Servicing Fee and
the Noteholders' Interest Distributable Amount, and from funds, if any, in the
Reserve Account remaining after the payment of the Noteholders' Interest
Distributable Amount and from funds, if any, in the [Class A-1] Maturity
Account. See "Description of the Transfer and Servicing
Agreements--Distributions" and "--Reserve Account" herein. The outstanding
principal amount, if any, of the [A-1 Notes] will be payable in full on the
[A-1] Final Scheduled Payment Date.
The A-2 Notes
Payments of Interest. Interest on the principal balance of the [A-2 Notes]
will be payable to the [A-2 Noteholders] [monthly] on each Payment Date
commencing _______________, 199__. Interest will accrue from and including the
Closing Date or the most recent Payment Date to but excluding each Payment Date
and will be calculated on the basis of a year of 360 days, in each case for the
actual number of days occurring in the period for which such interest is
payable. Interest accrued as of any Payment Date but not paid on such Payment
Date will be due on the next Payment Date together with interest on such amount
at the rate per annum specified below. Interest payments on the [A-2 Notes] will
generally be derived from the Total Distribution Amount remaining after the
payment of the Servicing Fee and from the Reserve Account. See "Description of
the Transfer and Servicing Agreements--Distributions" and "--Reserve Account"
herein. If the amount of interest on the principal balance of the [A-1 Notes]
and the [A-2 Notes] payable on any Payment Date exceeds the excess of (A) the
sum of (i) collections on the Receivables plus (ii) the amount of cash on
deposit in the Reserve Account over (B) the amount of the Servicing Fees payable
on such Payment Date, the [A-1 Noteholders] and the [A-2 Noteholders] will
receive their ratable share (based upon the total amount of interest due to the
[A-1 Noteholders] and the [A-2 Noteholders], as the case may be) of the amount
available to be distributed in respect of interest on the [A-1 Notes] and the
[A-2 Notes].
[On each Payment Date, the [A-1 Note] Interest Rate will equal LIBOR for
such Payment Date [minus][plus] _____%. "LIBOR" with respect to any Payment Date
shall be established by the Indenture Trustee and shall equal the arithmetic
mean (rounded upwards, if necessary, to the nearest one-sixteenth of one
percent) of the offered rates for United States dollar deposits for one month
which appear on the Reuters Screen LIBO Page (as defined below) as of 11:00
A.M., London time, on the second LIBOR Business Day prior to the immediately
preceding Payment Date (or, in the case of the initial Payment Date, the second
LIBOR Business Day prior to the Closing Date); provided that at least two such
offered rates appear on the Reuters Screen LIBO Page on such date. If fewer than
two offered rates appear, LIBOR will be determined on such date as described in
the paragraph below. "Reuters Screen LIBO Page" means the display designated as
page "LIBO" on the Reuters Monitor Money Rates Service (or such other page as
may replace the LIBO page on that service for the purpose of displaying London
interbank offered
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rates of major banks). "LIBOR Business Day", for purposes of the Indenture, is a
day that is both a Business Day and a day on which banking institutions in the
City of London, England, are not required or authorized by law to be closed. A
"Business Day" is a day other than a Saturday, a Sunday or a day on which
banking institutions or trust companies in New York City are authorized or
obligated by law, regulation or executive order to remain closed.]
[If on such date fewer than two offered rates appear on the Reuters Screen
LIBO Page, the Indenture Trustee will request of each of the reference banks
(which shall be major banks that are engaged in transactions in the London
interbank market, selected by the Indenture Trustee after consultation with the
Sponsor) to provide the Indenture Trustee with its offered quotation for United
States dollar deposits for one month to prime banks in the London inter-bank
market as of 11:00 A.M., London time, on such date. If at least two reference
banks provide the Indenture Trustee with such offered quotations, LIBOR on such
date will be the arithmetic mean (rounded upwards, if necessary, to the nearest
one-sixteenth of one percent) of all such quotations. If on such date fewer than
two of the Reference Banks provide the Indenture Trustee with such an offered
quotation, LIBOR on such date will be the arithmetic mean (rounded upwards, if
necessary, to the nearest one-sixteenth of one percent) of the offered per annum
rates which one or more leading banks in The City of New York selected by the
Indenture Trustee after consultation with the Sponsor are quoting as of 11:00
A.M., New York City time, on such date to leading European banks for United
States dollar deposits for one month; provided, however, that if such banks are
not quoting as described above, LIBOR will be the LIBOR applicable to the
immediately preceding Payment Date.]
[On each Payment Date the [A-2 Note] Interest Rate will equal _____%;
provided, however, that it the [A-2 Note] Interest Rate for such Payment Date
computed without giving effect to this proviso exceeds the Net Receivables Rate
borne by the Receivables during the related Collection Period, then the [A-2
Note] Interest Rate for such Payment Date will be the [A-2 Note] Alternative
Interest Rate. The "[A-2 Note] Alternative Interest Rate" for any Payment Date
means the Net Receivables Rate borne by the Receivables during the related
Collection Period; provided, however, that in no event shall the [A-2 Note]
Alternative Interest Rate be less than _____% per annum; provided further that
to the extent that the interest paid to the [A-2 Noteholders] is less than
_____% per annum, the difference between the amount of interest paid and
interest at _____% per annum shall be payable on subsequent Payment Dates as
[Class A-2] Noteholders' Interest Carryover Amount.]
Payments of Principal. Principal payments will be made to the [A-2
Noteholders] on and after the latest to occur of (x) the Payment Date on which
the [A-1 Notes] have been paid in full, (y) the _______________, 199__ Payment
Date and (z) the Payment Date on which the lesser of the full amount of the
Maturity Draw or the amount of the Maturity Draw, if any, necessary to increase
the amount on deposit in the Reserve Account to the Specified Reserve Account
Balance is deposited into the Reserve Account, in an amount generally equal to
the [A-2 Noteholders'] Percentage of the difference between the Principal
Distribution Amount and the portion thereof, if any, of the Principal
Distribution Amount paid in respect of the [A-1 Notes] on such Payment Date or
deposited in the Reserve Account in respect of a Maturity Draw. Principal
payments on the [A-2 Notes] will generally be derived from the Total
Distribution Amount remaining after the payment of the Servicing Fee, and the
Noteholders' Interest Distributable Amount, from funds, if any, in the Reserve
Account remaining after the payment of the Noteholders' Interest Distributable
Amount, and from funds, if any, in the [Class A-2] Lockout Account. In addition,
on and after the _______________, 199__ Payment Date, certain amounts available
to be released from the Reserve Account will be distributed to the [A-2
Noteholders] as a payment of principal after such amounts are applied to pay the
outstanding [Class A-2] Noteholders' Interest Carryover Amount, if any, in full.
See "Description of the Transfer and Servicing Agreements Distributions" and
"--Reserve Account" herein. The outstanding principal amount, if any, of the
[A-2 Notes] will be payable in full on the [A-2] Final Scheduled Payment Date.
Optional Redemption. The [A-2 Notes] will be redeemed in whole, but not in
part, on any Payment Date after the date on which the [A-1 Notes] have been paid
in full on which the Servicer exercises its option to purchase the Receivables
when the aggregate principal amount of the Receivables shall be less than ___%
of the initial Pool Balance. The [A-2] Redemption Price is equal to the unpaid
principal amount
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of the [A-2 Notes], plus accrued but unpaid interest thereon. The [A-1 Notes]
are not redeemable prior to maturity.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to the terms of the Trust
Agreement. A copy of the Trust Agreement will be filed with the Commission
following the issuance of the Securities. The following summary describes
certain terms of the Certificates and the Trust Agreement. The summary does not
purport to be complete and is qualified in its entirety by reference to the
provisions of the Certificates and the Trust Agreement.
Distributions of principal of, and interest on, the Certificates will be
made by the [Owner] Trustee in accordance with the procedures set forth in the
Trust Agreement directly to holders of Certificates in whose names the
Certificates were registered at the close of business on the Certificate 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 [Owner] Trustee or by
wire transfer. The final payment on any Certificate, however, will be made only
upon presentation and surrender of such Certificate at the office or agency
specified in the notice of final distribution to Certificateholders.
Certificates will be transferable and exchangeable at the offices of the
[Owner] Trustee or a certificate registrar named in a notice delivered to
holders of Certificates. No service charge will be imposed for any registration
of transfer or exchange, but the [Owner] Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
Purchasers (including nominees of beneficial owners) of Certificates and
their assignees must represent that the beneficial owners are individuals or
entities that are U.S. persons (generally, citizens or residents of the U.S. and
corporations or partnerships organized under U.S. law), and each must provide a
certification of non-foreign status under penalties of perjury.
The Certificates
Distributions of Interest Income. Certificateholders will be entitled to
distributions in an amount equal to the amount of interest that would accrue on
the Certificate Balance at the Pass-Through Rate. [The Pass-Through Rate for any
Payment Date means [___%] [a rate per annum equal to _____% plus an amount equal
to the product of _____ multiplied by LIBOR for such Payment Date;] provided,
however that on and after the _______________, 199__ Payment Date, if the
aggregate amount of Realized Losses during the period from the Cut-off Date
through the end of the fiscal month ending in _______________, 199__ is ar
amount that is (x) _____% or less (but greater than _____%) of the Pool Balance
as of the Cut-off Date the Pass-Through Rate (as determined in the clause
preceding this proviso) for any Payment Date shall be increased by _____% per
annum or (y) _____% or less of the Pool Balance as of the Cut-off Date, the
Pass-Through Rate (as determined in the clause preceding this proviso) for any
Payment Date shall be increased by _____% per annum; provided further that,
notwithstanding the preceding proviso, if the Net Receivables Rate borne by the
Receivables during the prior Collection Period is less than the Pass Through
Rate thus calculated for such Payment Date, then the Pass-Through Rate payable
on the Certificates will equal such Net Receivables Rate. [In addition,
Certificateholders will receive on each Payment Date, if on such Payment Date
the amount on deposit in the Reserve Account, after giving effect to all
withdrawals for payments on the Notes and the Certificates and all deposits
required to be made on such Payment Date, exceeds the Specified Reserve Account
Balance, an amount equal to the lesser of (1) such excess and (2) [one-twelfth]
of the product of (a) ___% of the excess, if any, of (i) the amount of the
positive spread, if any, between the Base Rate in effect on the date that LIBOR
for such Payment Date is established and LIBOR for such Payment Date over (ii)
_____% times (b) _____% of the Certificate Balance on the preceding Payment
Date.] Interest will be calculated on the basis on a year of 360 days, in each
case for the actual number of days occurring in the period for which interest is
payable. Such amounts will be distributable every [month] on each Payment Date
commencing _______________, 199__. Interest for each Payment Date will accrue
from and including "the Closing
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Date or from the most recent Payment Date but excluding the current Payment
Date. Interest distributions due for any Payment Date but not distributed on
such Payment Date will be due on the next Payment Date increased by an amount
equal to interest on such amount at the Pass-Through Rate. Interest
distributions with respect to the Certificates will be funded from the portion
of the Total Distribution Amount and the funds in the Reserve Account remaining
after the distribution of the Servicing Fee and the Noteholders' Distributable
Amount. See "Description of the Transfer and Servicing Agreements--
Distributions" and "--Reserve Account" herein.
Distributions of Principal Payments. Certificateholders will be entitled
to distributions on each Payment Date in an amount generally equal to the
Certificateholders' Percentage of (or, following the payment in full of the
Notes, all of) the Principal Distribution Amount. Distributions with respect to
principal payments will be funded from the portion of the Total Distribution
Amount remaining after the distribution of the Servicing Fee, the Noteholders'
Distributable Amount and the Certificateholders' Interest Distributable Amount,
and from funds, if any, in the Reserve Account remaining after the payment of
the Noteholders' Distributable Amount and the Certificateholders' Interest
Distributable Amount. See "Description of the Transfer and Servicing
Agreements-- Distributions" and "--Reserve Account" herein. Until the Payment
Date following the latest to occur of (i) the Payment Date after the Payment
Date on which the principal balance of the [A-1 Notes] is reduced to zero, (ii)
the _______________, 199__ Payment Date and (iii) the Payment Date after the
Payment Date on which the lesser of the full amount of the Maturity Draw or the
amount of the Maturity Draw, if any, necessary to increase the amount on deposit
in the Reserve Account to the Specified Reserve Account Balance is deposited
into the Reserve Account, the Certificateholders' Percentage will be zero.
Thereafter, the Certificateholders' Percentage will be _____%. However, if the
amount on deposit in the Reserve Account is less than the lower of _____% of the
initial Pool Balance and the sum of the aggregate outstanding principal amount
of the Notes and the Certificate Balance on any Payment Date, then, with respect
to each Payment Date thereafter, the Certificateholders will not receive any
distributions of principal until the Notes have been paid in full.
Optional Purchase. If the Servicer exercises its option to purchase the
Receivables when the aggregate principal amount of the Receivables is less than
_____% of the initial Pool Balance, the Certificateholders will receive an
amount in respect of the Certificates equal to the Certificate Balance together
with accrued interest at the Pass-Through Rate and the Certificates will be
retired.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of the Pooling and Servicing
Agreement pursuant to which the Trust is receiving and the Servicer is
undertaking to service, the Receivables, the Receivables Acquisition Agreement
pursuant to which the Sponsor is acquiring the Receivables, and the Trust
Agreement pursuant to which the Trust will be created and the Certificates will
be issued (collectively, the "Transfer and Servicing Agreements"). A copy of the
Transfer and Servicing Agreements will be filed with the Commission following
the issuance of the Securities. This summary does not purport to be complete and
is subject to, and qualified in its entirety by reference to, the provisions of
the Transfer and Servicing Agreements.
Transfer and Assignment of Receivables
Certain information with respect to the conveyance on the Closing Date of
the Receivables from the Originator to the Sponsor pursuant to the Receivables
Acquisition Agreement and from the Sponsor to the Trust pursuant to the Pooling
and Servicing Agreement is set forth under "Description of the Transfer and
Servicing Agreements--Assignment of the Receivables Pursuant to Receivables
Acquisition Agreement" in the Prospectus.
Accounts
In addition to the Accounts referred to in the Prospectus under
"Description of Transfer and Servicing Agreements--Trust Agreements--Accounts",
the Servicer will also establish and maintain at the office of the Indenture
Trustee (i) the Reserve Account, in the name of the Indenture Trustee on behalf
of the Noteholders and the Certificateholders, (ii) the [Class A-1] Maturity
Account, and (iii) the [Class A-2] Lockout Account.
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Servicing Compensation
The Servicer will be entitled to receive the Servicing Fee for each
Collection Period in an amount equal to _____% per annum of the Pool Balance as
of the first day of such Collection Period. The Servicing Fee (together with any
portion of the Servicing Fee that remains unpaid from prior Payment Dates) will
be paid solely to the extent of the Interest Distribution Amount. However, the
Servicing Fee will be paid prior to the distribution of any portion of the
Interest Distribution Amount to the Noteholders or the Certificateholders. See
"Description of the Transfer and Servicing Agreements--Servicing Compensation"
in the Prospectus.
Distributions
Deposits to Collection Account. By the [____] business day prior to a
Payment Date (each a "Determination Date"), the Servicer will provide the
Indenture Trustee with certain information with respect to the related
Collection Period, including the amount of aggregate collections on the
Receivables and the aggregate Discounted Contract Balance of Receivables to be
acquired by the Sponsor or to be purchased by the Servicer.
On or before each Payment Date, the Servicer will cause the Total
Distribution Amount to be deposited into the Collection Account. The "Total
Distribution Amount" for a Payment Date shall be the aggregate collections
(including any Liquidation Proceeds) in respect of the Receivables during the
related Collection Period plus Investment Earnings during such Collection
Period. The Total Distribution Amount on any Payment Date shall exclude all
payments and proceeds (including Liquidation Proceeds) of (i) any Receivables
the Discounted Contract Balance of which has been included in the Total
Distribution Amount in a prior Collection Period and (ii) any Liquidated
Receivable after the reassignment of such Liquidated Receivable by the Trust to
the Sponsor.
"Liquidated Receivables" means defaulted Receivables in respect of which
the Vehicles has been sold or otherwise disposed of and "Liquidation Proceeds"
means all proceeds of the Liquidated Receivables, net of expenses incurred by
the Servicer in connection with such liquidation and any amounts required by law
to be remitted to the Obligor on such Liquidated Receivables.
The "Interest Distribution Amount" for a Payment Date shall be the excess,
if any, of the Total Distribution Amount over the Principal Distribution Amount
for such Payment Date.
The "Principal Distribution Amount" for a Payment Date shall mean either
(i) in all cases when clause (ii) does not apply, the Note Value Decline for the
fiscal month ending immediately prior to such Payment Date or (ii) if the Base
Rate at the beginning of the fiscal month ending immediately prior to such
Payment Date is not equal to the Base Rate at the beginning of the next fiscal
month, the Alternate Principal Distribution Amount for such fiscal month.
Deposits to the Distribution Accounts. On the [_____] business day prior
to each Payment Date, the Servicer shall instruct the Indenture Trustee to make
deposits and distributions for receipt by the Servicer or for deposit in the
applicable Trust Account or Certificate Distribution Account on the following
Payment Date.
Distributions of the Total Distribution Amount shall be made in the
following order of priority:
[(i) to the Servicer, from the Interest Distribution Amount, the
Servicing Fee and all unpaid Servicing Fees from prior Collection Periods;
(ii) to the Note Distribution Account, from the Total Distribution
Amount remaining after the application of clause (i), the Noteholders'
Interest Distributable Amount;
(iii) to the Note Distribution Account, from the Total Distribution
Amount remaining after the application of clauses (i) and (ii), the [A-1
Noteholders'] Principal Distributable Amount; provided, however, that if
funds were withdrawn from the Reserve Account in order to pay the [A-1
Noteholders'] Monthly Principal Distributable Amount on the
_______________, 199__ Payment
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Date (the "Maturity Draw"), the Reserve Account will be reimbursed up to
the lesser of the amount of such draw and the amount of the Maturity Draw,
if any, necessary to increase the amount on deposit in the Reserve Account
to the Specified Reserve Account Balance out of the amount of the Total
Distribution Amount that would have been distributable to the holders of
the [A-1 Notes] as principal had the outstanding principal balance of the
[A-1 Notes] on the _______________, 19__ Payment Date remained outstanding
and had no withdrawal from the Reserve Account been made;
(iv) on each Payment Date prior to the _______________, 19__ Payment
Date, to the [Class A-2] Lockout Account, and thereafter, to the Note
Distribution Account, from the Total Distribution Amount remaining after
the application of clauses (i), (ii) and (iii), the [A-2 Noteholders']
Principal Distributable Amount;
(v) to the Certificate Distribution Account, from the Total
Distribution Amount remaining after the application of clauses (i) through
(iv), the Certificateholders' Interest Distributable Amount;
(vi) to the Certificate Distribution Account, from the Total
Distribution Amount remaining after the application of clauses (i) through
(v), the Certificateholders' Principal Distributable Amount;
(vii) to the Reserve Account, from the Total Distribution Amount
remaining after the application of clauses (i) through (vi) the amount, if
any, necessary to increase the amount on deposit in the Reserve Account to
the Specified Reserve Account Balance;
(viii) to the Note Distribution Account, from the Total Distribution
Amount remaining after the application of clauses (i) through (vii), the
[Class A-2 Noteholders'] Interest Carryover Amount; and
(ix) to the Reserve Account, the Total Distribution Amount remaining
after the application of clauses (i) through (viii).]
The "Note Value" of the Receivables represents the principal amount of
Notes and Certificates that, based on the assumptions stated below, can be
supported by the scheduled payments on the Receivables.
"Note Value" of the Receivables means, with respect to any day, the
present value of the scheduled and unpaid payments on the Receivables,
discounted to such day monthly at an annual rate equal to the Receivables Rate
on such day. [For purposes of calculating Note Value, in the event of a
defaulted Receivable, (a) prior to repossession of the Vehicles securing such
defaulted Receivable, the scheduled payments on such Receivable will be computed
based on the amounts that would have been the scheduled payments had such
default not occurred, (b) after the time at which the Vehicles securing such
defaulted Receivable has been repossessed, but prior to liquidation of such
defaulted Receivable, the principal balance of such defaulted Receivable shall
be added to such Note Value, but there shall be deemed to be no scheduled
payments due on such defaulted Receivable and (c) after liquidation of such
defaulted Receivable there shall be deemed to be no scheduled payments due on
such Receivable. As a result of the calculations described in the preceding
sentence, as of the end of any Collection Period, the Note Value of the
Receivables, to the extent it relates to a defaulted Receivable, will be reduced
only after liquidation of any defaulted Receivable.]
"Note Value Decline", with respect to any fiscal month, means the amount
(not less than zero) equal to (i) the Note Value as of the beginning of such
fiscal month less (ii) the Note Value as of the beginning of the next fiscal
month.
"Alternate Principal Distribution Amount" for a fiscal month means (a) the
sum of (i) the collections in respect of the Receivables (including Liquidation
Proceeds) during such fiscal month and (ii) Realized Losses in respect of
Receivables that become Liquidated Receivables in such fiscal month less
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(b) [one-twelfth] of the product of (x) the Note Value at the beginning of the
preceding fiscal month and (y) the Receivables Rate at the beginning of such
preceding fiscal month.
"Realized Losses" means the excess of the principal balance of the
Liquidated Receivables over Liquidation Proceeds to the extent allocable to
principal.
"Noteholders' Distributable Amount" means, with respect to any Payment
Date, the sum of the [A-1 Noteholders'] Principal Distributable Amount, the [A-2
Noteholders'] Principal Distributable Amount and the Noteholders' Interest
Distributable Amount.
"Noteholders' Interest Distributable Amount" means, with respect to any
Payment Date, the sum of the Noteholders' Monthly Interest Distributable Amount
for such Payment Date and the Noteholders Interest Carryover Shortfall for such
Payment Date.
"Noteholders' Monthly Interest Distributable Amount" means, with respect
to any Payment Date an amount equal to the sum of (i) the interest accrued from
and including the immediately preceding Payment Date (or, in the case of the
first Payment Date, the Closing Date) to, but excluding such Payment Date at a
rate equal to the [A-1 Note] Interest Rate on the outstanding principal balance
of the [A-1 Notes] on the immediately preceding Payment Date (or, in the case of
the first Payment Date, the Closing Date) after giving effect to all
distributions of principal to [A-1 Noteholders] on such Payment Date and (ii)
the interest accrued from and including the immediately preceding Payment Date
(or, in the case of the first Payment Date, the Closing Date) to but excluding
such Payment Date at a rate equal to the [A-2 Note] Interest Rate on the
outstanding principal balance of the [A-2 Notes] on the immediately preceding
Payment Date (or, in the case of the first Payment Date, on the Closing Date)
after giving effect to all distributions of principal to the [A-2 Noteholders]
on such Payment Date.
"Noteholders' Interest Carryover Shortfall" means, with respect to any
Payment Date, the excess of the Noteholders' Monthly Interest Distributable
Amount for the preceding Payment Date and any outstanding Noteholders' Interest
Carryover Shortfall on such preceding Payment Date, over the amount in respect
of interest that is actually deposited in the Note Distribution Account on such
preceding Payment Date, plus interest on the amount of interest due but not paid
to Noteholders on the preceding Payment Date, to the extent permitted by law, at
the weighted average interest rate borne by the [A-1 Notes] and the [A-2 Notes]
from such preceding Payment Date through the current Payment Date.
"[A-1 Noteholders'] Principal Distributable Amount" means, with respect to
any Payment Date, the sum of the [A-1 Noteholders'] Monthly Principal
Distributable Amount for such Payment Date and the [A-1 Noteholders'] Principal
Carryover Shortfall as of the close of the preceding Payment Date; provided,
however, that the [A-1 Noteholders'] Principal Distributable Amount shall not
exceed the outstanding principal balance of the [A-1 Notes]. In addition, on the
[A-1] Final Scheduled Payment Date, the principal required to be deposited in
the Note Distribution Account will include the amount necessary (i) after giving
effect to the other amounts to be deposited in the Note Distribution Account on
such Payment Date and allocable to principal) to reduce the outstanding
principal balance of the [A-1 Notes] to zero.
"[A-2 Noteholders'] Principal Distributable Amount" means, with respect to
any Payment Date the sum of the [A-2 Noteholders'] Monthly Principal
Distributable Amount for such Payment Date and the [A-2 Noteholders'] Principal
Carryover Shortfall as of the close of the preceding Payment Date; provided,
however, that, until an amount sufficient to reduce the outstanding principal
balance of the [A-1 Notes] to zero has been deposited in the Note Distribution
Account, the [A-2 Noteholders'] Principal Distribution Amount shall be zero;
provided further that the [A-2 Noteholders'] Principal Distribution Amount shall
not exceed the outstanding principal balance of the [A-2 Notes]. In addition, on
the [A-2] Final Scheduled Payment Date, the principal required to be deposited
in the Note Distribution Account will include the amount necessary (after giving
effect to the other amounts to be deposited in the Note Distribution Account on
such Payment Date and allocable to principal) to reduce the outstanding
principal balance of the [A-2 Notes] to zero.
"[A-1 Noteholders'] [Monthly] Principal Distributable Amount" means, with
respect to any Payment Date until the later of (i) the Payment Date on which the
outstanding principal balance of the [A-1 Notes] has been reduced to zero and
(ii) the Payment Date on which the lesser of the full amount of the Maturity
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Draw or the amount of the Maturity Draw, if any, necessary to increase the
amount on deposit in the Reserve Account to the Specified Reserve Account
Balance is deposited into the Reserve Account, ___% of the Principal
Distribution Amount, but not in excess of the outstanding principal balance of
the [A-1 Notes] or the amount of the Maturity Draw required to be deposited in
the Reserve Account on such Payment Date but not previously deposited in the
Reserve Account, as the case may be.
"[A-2 Noteholders'] [Monthly] Principal Distributable Amount" means, with
respect to any Payment Date on or after the later to occur of (i) the Payment
Date on which an amount sufficient to reduce the outstanding principal balance
of the [A-1 Notes] to zero has been deposited in the Note Distribution Account
and (ii) the Payment Date on which the lesser of the full amount of the Maturity
Draw and the amount of the Maturity Draw, if any, necessary to increase the
amount on deposit in the Reserve Account to the Specified Reserve Account
Balance is deposited into the Reserve Account, the [A-2 Noteholders'] Percentage
of the difference between the Principal Distribution Amount and the portion
thereof, if any, applied to reduce the principal balance of the [A-1 Notes] to
zero or the portion thereof deposited into the Reserve Account in respect of a
Maturity Draw, as the case may be; provided, however, that if the amount on
deposit in the Reserve Account is less than the lesser of _______% of the
initial Pool Balance and the sum of the outstanding principal amount of the
Notes and the Certificate Balance on any Payment Date, then, with respect to
each Payment Date thereafter, the [A-2 Noteholders'] Monthly Principal
Distributable Amount means 100% of the Principal Distribution Amount less the
portion thereof, if any, necessary on such Payment Date to be deposited in the
Note Distribution Account to reduce the outstanding principal balance of the
[A-1 Notes] to zero. In addition, on or after the ___________________, 199__
Payment Date, certain amounts from the Reserve Account may be paid as
accelerated principal on the [A-2 Notes] as described under "Reserve Account"
below.
"[A-2 Noteholders'] Percentage" means (i) for each Payment Date to and
including the latest to occur of (x) the Payment Date on which the principal
balance of the Class [A-1 Notes] is reduced to zero, (y) the
___________________, 199__ Payment Date and (z) the Payment Date on which the
lesser of the full amount of the Maturity Draw or the amount of the Maturity
Draw, if any, necessary to increase the amount on deposit in the Reserve Account
to the Specified Reserve Account Balance is deposited into the Reserve Account,
_____% and (ii) thereafter, ____%; provided, however, that if, on or after the
latest occur of (x) the Payment Date on which the principal balance of the [A-1
Notes] is reduced to zero, (y) the ______________, 19__ Payment Date and (z) the
Payment Date on which the lesser of the full amount of the Maturity Draw or the
amount of the Maturity Draw, if any, necessary to increase the amount on deposit
in the Reserve Account to the Specified Reserve Account Balance is deposited
into the Reserve Account, the amount on deposit in the Reserve Account is less
than the lesser of ____% of the initial Pool Balance and the sum of the
outstanding principal amount of the Notes and the Certificate Balance, then,
with respect to each Payment Date thereafter, the [A-2 Noteholders'] Percentage
shall be _____%.
"[A-1 Noteholders'] Principal Carryover Shortfall" means, as of the close
of any Payment Date, the excess of the [A-1 Noteholders'] [Monthly] Principal
Distributable Amount and any outstanding [A-1 Noteholders'] Principal Carryover
Shortfall from the preceding Payment Date over the amount in respect of
principal that is actually deposited in the Note Distribution Account in respect
of the [A-1 Notes.]
"[A-2 Noteholders'] Principal Carryover Shortfall" means, as of the close
of any Payment Date, the excess of the [A-2 Noteholders'] [Monthly] Principal
Distributable Amount and any outstanding [A-2 Noteholders'] Principal Carryover
Shortfall from the preceding Payment Date over the amount in respect of
principal that is actually deposited in the Note Distribution Account in respect
of the [A-2 Notes].
"[Class A-2 Noteholders]' Interest Carryover Amount" means, if on any
Payment Date the [A-2 Notes] bear interest at the [A-2 Note] Alternative
Interest Rate, the excess of (a) the amount of interest on the [A-2 Notes] that
would have accrued in respect of such Payment Date had such interest been
calculated at _______% per annum over (b) the amount of interest on the [A-2
Notes] actually accrued in respect of such Payment Date based on the [A-2 Note]
Alternative Interest Rate, together with the unpaid portion of any such excess
from prior Payment Dates and interest accrued thereon, to the extent permitted
by law, calculated at the [A-2 Note] Interest Rate without taking into account
the [A-2 Note] Alternative Interest Rate.
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"Certificateholders' Distributable Amount" means, with respect to any
Payment Date, the sum of the Certificateholders' Principal Distributable Amount
and the Certificateholders' Interest Distributable Amount.
"Certificateholders' Interest Distributable Amount" means, with respect to
any Payment Date, the sum of the Certificateholders' Monthly Interest
Distributable Amount for such Payment Date and the Certificateholders' Interest
Carryover Shortfall for such Payment Date.
"Certificateholders' Monthly Interest Distributable Amount" means, with
respect to any Payment Date, the sum of (i) interest accrued from and including
the preceding Payment Date to, but not including, such current Payment Date (or,
in the case of the first Payment Date, interest accrued from and including the
Closing Date to, but excluding, such current Payment Date) at the Pass-Through
Rate on the Certificate Balance on the last day of the preceding Collection
Period (or, in the case of the first Payment Date, on the Closing Date) [plus
(ii) if on such Payment Date the amount on deposit in the Reserve Account, after
giving effect to all withdrawals for payment on the Notes and the Certificates
(other than pursuant to this clause (ii)) and all deposits required to be made
on such Payment Date, exceeds the Specified Reserve Account Balance, an amount
equal to the lesser of (1) such excess and (2) [one-twelfth] of the product of
(a) ___% of the excess, if any, of (x) the amount of the positive spread, if
any, between the Base Rate in effect on the date that LIBOR is established for
such Payment Date and LIBOR for such Payment Date over (y) _____% times (b) ___%
of the Certificate Balance on the preceding Payment Date.]
"Pass-Through Rate" means, with respect to the Certificates, on any
Payment Date a rate per annum equal to _______% [plus an amount equal to the
product of 0.___ multiplied by LIBOR for such Payment Date;] provided, however,
that on and after the ______________, 199_ Payment Date, if the aggregate amount
of Realized Losses during the period from the Cut-off Date through the fiscal
month ending in ______________, 199__, is an amount, expressed as a percentage,
that is (x) 0.___% or less (but greater than 0.___%) of the Pool Balance as of
the Cut-off Date, the Pass-Through Rate (as determined in the clause preceding
this proviso) for any Payment Date shall be increased by 0.___% per annum or (y)
0.___% or less of the Pool Balance as of the Cut-off Date, the Pass-Through Rate
(as determined in the clause preceding this proviso) for any Payment Date shall
be increased by 0.___% per annum; provided further that, notwithstanding the
preceding proviso, if the Net Receivables Rate borne by the Receivables during
the prior Collection Period is less than the Pass-Through Rate thus calculated
for such Payment Date, then the Pass-Through Rate for such Payment Date shall
equal such Net Receivables Rate.
"Certificateholders' Interest Carryover Shortfall" means, with respect to
any Payment Date, the excess of the Certificateholders' [Monthly] Interest
Distributable Amount for the preceding Payment Date and any outstanding
Certificateholders' Interest Carryover Shortfall on such preceding Payment Date,
over the amount in respect of interest that is actually deposited in the
Certificate Distribution Account on such preceding Payment Date, plus interest
on such excess, to the extent permitted by law, at the Pass-Through Rate from
such preceding Payment Date through the current Payment Date.
"Certificateholders' Principal Distributable Amount" means, with respect
to any Payment Date, the sum of the Certificateholders' Monthly Principal
Distributable Amount for such Payment Date and the Certificateholders' Principal
Carryover Shortfall as of the close of the preceding Payment Date; provided,
however, that the Certificateholders' Principal Distributable Amount shall not
exceed the Certificate Balance. In addition, on _______________, 199__, the
principal required to be distributed to Certificateholders will include the
amount necessary (after giving effect to the other amounts to be deposited in
the Certificate Distribution Account on such Payment Date and allocable to
principal) to reduce the Certificate Balance to zero.
"Certificateholders' [Monthly] Principal Distributable Amount" means, with
respect to any Payment Date on or after the latest to occur of (i) the Payment
Date following the Payment Date on which the principal balance of the [A-1
Notes] is reduced to zero, (ii) the _______________, 199__ Payment Date and
(iii) the Payment Date following the Payment Date on which the lesser of the
full amount of the Maturity Date or the amount of the Maturity Draw, of any,
necessary to increase the amount on deposit in the Reserve Account to the
Specified Reserve Account Balance is deposited into the Reserve Account, the
Certificateholders' Percentage of the Principal Distribution Amount (less the
portion thereof, if any,
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applied on such Payment Date to reduce the principal balance of the [A-1 Notes]
to zero or deposited in the Reserve Account in respect of a Maturity Draw) and,
with respect to any Payment Date on or after the Payment Date on which the
outstanding principal balance of the [A-2 Notes] is reduced to zero, ____% of
the Principal Distribution Amount (less the portion thereof required on the
first such Payment Date to reduce the outstanding principal balance of the A-2
Notes to zero, which shall be deposited into the Note Distribution Account);
provided, however, that if as described in the definition of "[A-2 Noteholders']
[Monthly] Principal Distributable Amount", ____% of the Principal Distribution
Amount is required to be deposited in the Note Distribution Account, then no
portion of the Principal Distribution Amount will be deposited in the
Certificate Distribution Account until the Notes have been paid in full.
"Certificateholders' Percentage" means 100% minus the [A-2 Noteholders']
Percentage.
"Certificateholders' Principal Carryover Shortfall" means, as of the close
of any Payment Date, the sum of (i) the excess of the Certificateholders'
[Monthly] Principal Distributable Amount and any outstanding Certificateholders'
Principal Carryover Shortfall from the preceding Payment Date, over the amount
in respect of principal that is actually deposited in the Certificate
Distribution Account and (ii) the unreimbursed portion of the amount by which
the Certificate Balance has been reduced as described in the second sentence of
the definition of "Certificate Balance" immediately following.
"Certificate Balance" equals, initially, $____________________ and,
thereafter, equals the initial Certificate Balance, reduced by all amounts
allocable to principal previously distributed to Certificateholders. The
Certificate Balance shall also be reduced on any Payment Date by the excess, if
any, of the sum of the Certificate Balance and the outstanding principal balance
of the Notes (after giving effect to amounts allocable to principal to be
deposited in the Certificate Distribution Account and the Note Distribution
Account on such Payment Date) over the sum of the Note Value as of the close of
business on the last day of the preceding Collection Period and the amount on
deposit in the Reserve Account after giving effect to any distributions
therefrom on such Payment Date. Thereafter, the Certificate Balance shall be
increased to the extent that any portion of the Total Distribution Amount is
available to pay the existing Certificateholders' Principal Carryover Shortfall,
but not by more than the aggregate reductions in the Certificate Balance.
On each Payment Date, all amounts on deposit in the Note Distribution
Account (other than investment earnings, if any) will be distributed to the
Noteholders.
On each Payment Date, all amounts on deposit in the Certificate
Distribution Account (other than investment earnings, if any) will be
distributed to the Certificateholders.
[Class A-1] Maturity Account
If, on any Payment Date prior to the _______________, 199__ Payment Date,
the aggregate amount on deposit in the [Class A-1] Maturity Account exceeds the
aggregate principal balance of the [A-1 Notes] outstanding on such Payment Date,
the amount of such excess shall be deposited in the Reserve Account for
distribution on such Payment Date to the Sponsor and the amount of such excess
shall be distributed to the Sponsor on such Business Day regardless of whether
the amount on deposit in the Reserve Account is less than, equal to or greater
than the Specified Reserve Account Balance; provided, however, that prior to
paying the amount of such excess to the Sponsor, such excess shall be deposited
into the Note Distribution Account to the extent necessary to pay any
outstanding [Class A-2 Noteholders'] Interest Carryover Amount. On the second
Business Day prior to the _______________, 199__ Payment Date, the Servicer
shall instruct the Indenture Trustee to withdraw all funds on deposit in the
[Class A-1] Maturity Account and to deposit such funds in the Note Distribution
Account for distribution as principal to the [A-1 Noteholders] in an amount such
that the outstanding principal balance of the [A-1 Notes] (after taking into
account any deposits to the Note Distribution Account on such Payment Date in
respect of principal) is reduced to zero. Any amount remaining in the [Class
A-1] Maturity Account after such withdrawal shall be deposited in the Reserve
Account for distribution on such Payment Date to the Sponsor and the amount of
such excess shall be distributed to the Sponsor on such Business Day regardless
of whether the amount on deposit in the Reserve Account is less than, equal to
or greater than the Specified Reserve Account Balance; provided, however, that
prior to paying the amount of such excess
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to the Sponsor, such excess shall be deposited into the Note Distribution
Account to the extent necessary to pay any outstanding [Class A-2 Noteholders']
Interest Carryover Amount.
[Class A-2] Lockout Account
On the second Business Day prior to the _______________, 199__ Payment
Date, the Servicer shall instruct the Indenture Trustee to withdraw all funds on
deposit in the [Class A-2] Lockout Account and to deposit such funds in the Note
Distribution Account for distribution as principal to the [A-2 Noteholders.]
Reserve Account
The Servicer shall be required, not later than each Payment Date, to
deposit into the Collection Account the Delinquency Interest Advances. The
Servicer will be permitted to fund its payment of Delinquency Interest Advances
on any Payment Date from collections on any Receivable deposited to the
Collection Account subsequent to the related Collection Period and will be
required to deposit into the collection with respect thereto (i) collections
from the Obligor whose delinquency gave rise to the shortfall which resulted in
such Delinquency Interest Advance and (ii) Net Liquidation Proceeds recovered on
account of the related Receivable to the extent of the amount of aggregate
Delinquency Interest Advance related thereto.
A Receivable is "delinquent" if any payment due thereon is not made by the
close of business on the day such payment is scheduled to be due.
FEDERAL AND STATE INCOME TAX CONSEQUENCES
In the opinion of Dewey Ballantine, special tax counsel to the Trust, the
Sponsor and the Underwriters ("Tax Counsel"), the following discussion
accurately reflects the material federal income tax consequences relevant to the
purchase, ownership and disposition of the Notes and the Certificates. The
discussion herein does not purport to deal with all aspects of federal income
taxation that may be relevant to holders of the Notes or holders of the
Certificates in light of their specific investment circumstances, nor to certain
types of holders subject to special treatment under the federal income tax laws
(for example, banks, life insurance companies and tax-exempt organizations).
This discussion is based upon current provisions of the Internal Revenue Code of
1986, as amended (the "Code"), the Treasury regulations (proposed, temporary and
final) promulgated thereunder, judicial decisions and Internal Revenue Service
("IRS") rulings, all of which are subject to change, which change may be
retroactively applied in a manner that could adversely affect a holder of one or
more of the Notes or the Certificates. The information below is directed to
investors that will hold the Notes or the Certificates, as the case may be, as
capital assets (generally, property held for investment) within the meaning of
Section 1221 of the Code.
The Trust will, prior to the issuance of the Notes and Certificates, be
provided with an opinion of Tax Counsel regarding certain federal income tax
matters discussed below. An opinion of counsel, however, is not binding on the
IRS or the courts. The Trust has not sought, nor does it intend to seek, a
ruling from the IRS that its position as reflected in the discussion below will
be accepted by the IRS. [Moreover, there are no cases or IRS rulings on similar
transactions involving both debt and equity interests issued by a trust similar
to those of the Notes and the Certificates and, as a result, there can be no
assurance that the IRS will agree with the conclusions and discussion below.]
Prospective investors are advised to consult their own tax advisors with regard
to the federal income tax consequences of purchasing, holding and disposing of
the Notes and the Certificates, as well as the tax consequences arising under
the laws of any state, foreign country or other jurisdiction.
[The discussion below of original issue discount is based in part on
regulations proposed, but not yet effective (the " Proposed OID Regulations"),
under the Code. While the Proposed OID Regulations are proposed to be effective
for debt instruments issued sixty or more days after final regulations are
issued, the Proposed OID Regulations are a current indication of the views of
the IRS with respect to the federal income tax treatment of debt instruments
under the original issue discount rules. Because of their proposed effective
date, however, their application in the case of the Notes is not clear and,
further,
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subsequent versions of the Proposed OID Regulations or final regulations may be
adopted that have different rules that change the treatment of the Notes under
the original issue discount rules from the treatment described below.]
Tax Classification of the Trust
Tax Counsel will advise the Trust that, based upon the terms of the Trust
Agreement and related documents and transactions as described in the Prospectus
and herein (and assuming ongoing compliance with such agreement and documents),
the Trust will not be classified as an association (or as a publicly traded
partnership) taxable as a corporation for federal income tax purposes. This
advice is based upon conclusions by Tax Counsel that (1) the Trust will not have
certain characteristics necessary for a business trust to be classified as an
association taxable as a corporation, and (2) the nature of the income of the
Trust will exempt it from the rule that certain publicly traded partnerships are
taxable as corporations.
[Prospective investors should be aware, however, that the proper
characterization of the arrangement involving the Trust, the Certificates, the
Notes, the Sponsor and the Servicer is not entirely clear because there is no
authority on transactions closely comparable to that contemplated herein.] If,
contrary to the opinion of Tax Counsel, the IRS successfully argued that the
Trust should be classified (and thus taxable) as a corporation, the Trust,
including the income from the Receivables (reduced by deductions, including
interest expense on the Notes if the Notes were treated as debt of the Trust and
not otherwise recharacterized), would be subject to federal income tax at
corporate rates. Such a tax could substantially reduce the amounts available to
make payments on the Notes and distributions on the Certificates (and holders of
Certificates could be liable for any such tax that is unpaid by the Trust).
Tax Considerations for Noteholders
Treatment of Notes as Indebtedness. Tax Counsel will advise the Trust
that, based upon the terms of the Notes and the documents and transactions
relating thereto as described in the Prospectus and herein, the Notes will be
classified as debt for federal income tax purposes. If, contrary to the opinion
of Tax Counsel, the IRS successfully asserted that one or more of the Notes did
not represent debt for federal income tax purposes, the Notes might be treated
as equity interests in the Trust. If so treated, the Trust might be taxable as a
corporation with the adverse consequences noted above (and the taxable
corporation would not be able to reduce its taxable income by deductions for
interest expense on Notes recharacterized as equity). Alternatively, and more
likely in the view of Tax Counsel, the Trust might be a publicly traded
partnership that would not be taxable as a corporation because it would meet
certain qualifying income tests. Nonetheless, treatment of the Notes as equity
interests in such a publicly traded partnership could have adverse tax
consequences to certain holders. For example, income to certain tax-exempt
entities (including pension funds) would be "unrelated business taxable income",
income to foreign holders generally would be subject to U.S. tax and U.S. tax
return filing and withholding requirements, and individual holders might be
subject to certain limitations on their ability to deduct their share of Trust
expenses. The remainder of this discussion assumes, in accordance with the
opinion of Tax Counsel, the Notes would be treated as debt for federal income
tax purposes.
Interest Income on the Notes. Subject to the discussion below, stated
interest on the Notes will be taxable to a Noteholder as ordinary income when
received or accrued in accordance with such Noteholder's method of tax
accounting. If, as expected, the [A-1 Notes] and the [A-2 Notes] have scheduled
maturity dates that are more than one year from their date of original issue,
then neither class of Notes should be subject to the special rules for
short-term obligations under Code Sections 1281 to 1283. It is further expected
that, except as described below, the Notes will not be issued with original
issue discount because the Notes will be sold to the public at a first price of
par or at a first price representing a de minimis discount from par. Under the
[Proposed OID Regulations], a holder of a Note issued with a de minimis amount
of original issue discount must include such discount in income, on a pro rata
basis, as principal payments are made on the Note.
[Based upon the Proposed OID Regulations, the Trust intends to take the
position that stated interest on the Notes does not represent original issue
discount. Prospective holders are advised, however, that the Proposed OID
Regulations are ambiguous in certain respects and there are certain features in
interest rate provisions of the Notes that, while unlikely, might be interpreted
to require a
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contrary result under these regulations. Further, it is possible that a portion
of the stated interest on the [A-2 Notes,] to the extent stated interest is
payable at an amount in excess of the minimum rate, would be treated as
contingent interest and taxable when the amount becomes fixed and
unconditionally payable. This treatment should not significantly affect the tax
consequences to [A-2 Noteholders], although this treatment might require holders
to report such interest payable on a Payment Date as interest income as of the
end of the related Collection Period or on the related Determination Date and
thus somewhat in advance of the receipt of the cash attributable to such
income.]
If the Notes were treated as having original issue discount, a Noteholder
(including a cash basis holder) generally would be required to include the
interest on the Notes in income for federal income tax purposes on the accrual
method on a constant yield basis, resulting in the inclusion of interest in
income somewhat in advance of the receipt of cash attributable to that income.
Under Section 1272(a)(6) of the Code, special provisions apply to debt
instruments on which payments may be accelerated due to prepayments of other
obligations securing those debt instruments. However, no regulations have been
issued interpreting those provisions and the manner in which those provisions
would apply to the Notes is unclear.
Market Discount and Premium. A holder who purchases a Note at a market
discount (generally, at a cost less than its remaining principal amount) that
exceeds a statutorily defined de minimis amount will be subject to the "market
discount" rules of the Code. These rules provide, in part, that gain on the sale
or other disposition of a debt instrument with a term of more than one year and
partial principal payments on such a debt instrument are treated as ordinary
income to the extent of accrued market discount. The market discount rules also
provide for deferral of interest deductions with respect ta debt incurred to
purchase or carry a Note that has market discount. A holder who purchases a Note
at a premium may elect to be subject to the premium amortization rules of the
Code.
Sale or Other Disposition. If a Noteholder sells a Note, such holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any market discount or original issue discount
previously included by such Noteholder in income with respect to the Note and
decreased by the amount of bond premium (if any) previously amortized and by the
amount of principal payments previously received by such Noteholder with respect
to such Note. Any such gain or loss will be capital gain or loss if the Note was
held as a capital asset, except for gain attributable to accrued interest or
accrued market discount not previously included in income. Capital losses
generally may be used only to offset capital gains.
Foreign Holders. If interest paid (or accrued) to a Noteholder who is a
nonresident alien, foreign corporation or other non-United States person (a
"foreign person") is not effectively connected with the conduct of a trade or
business within the United States by the foreign person, the interest generally
will be considered "portfolio interest", and generally will not be subject to
United States federal income tax and withholding tax provided the foreign person
(i) is not actually or constructively a "10 percent shareholder" of the Trust
(including a holder of 10 percent of the outstanding Certificates) or the
Originator or a "controlled foreign corporation" with respect to which the Trust
or the Originator is a "related person" within the meaning of the Code and (ii)
provides the person otherwise required to withhold U.S. tax an appropriate
statement, signed under penalties of perjury, certifying that the beneficial
owner of the Note is a foreign person and providing the foreign person's name
and address. The statement may be made on a Form W-8 or substantially similar
substitute form and, if the information provided in the statement changes, the
foreign person must so inform the person otherwise required to withhold U.S. tax
within 30 days of such change. The statement generally must be provided in the
year a payment occurs or in either of the two preceding years. If a Note is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the withholding agent. However, in that case, the signed statement must be
accompanied by a Form W-8 or substitute form provided by the foreign person that
owns the Note. If interest on a Note is not portfolio interest, then it will be
subject to United States federal income and withholding tax at a rate of 30
percent, unless reduced or eliminated pursuant to an applicable tax treaty.
The Revenue Reconciliation Act of 1993, enacted into law in August 1993,
repealed the portfolio interest exemption for certain contingent interest income
received by foreign persons. As noted in the
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discussion above regarding interest income on the Notes, a portion of the stated
interest on the [A-2 Notes], to the extent stated interest is payable in an
amount that exceeds the minimum interest rate, may represent contingent
interest. However, the contingent interest feature on the [A-2 Notes] is not the
type of contingency contemplated by this newly enacted rule that denies
portfolio interest treatment for certain contingent interest and further such
contingent interest on the Notes should fall within statutory exception to the
new rule. Thus the entire amount of stated interest on the [A-2 Notes] should be
eligible for treatment as portfolio interest as described above if the other
requirements for such treatment have been satisfied.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) the gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
Information Reporting and Backup Withholding. The Trust will be required
to report to the IRS, and to each Noteholder of record, the amount of interest
paid on the Notes (and the amount of interest withheld for federal income taxes,
if any) for each calendar year, except as to exempt holders (generally, holders
that are corporations, tax-exempt organizations, qualified pension and
profit-sharing trusts, individual retirement accounts, or nonresident aliens who
provide certification as to their status as nonresidents). Accordingly, each
holder (other than exempt holders who are not subject to this reporting
requirements) will be required to provide, under penalties of perjury, a
certificate containing the holder's name, address, correct federal taxpayer
identification number and a statement that the holder is not subject to backup
withholding. [Should a nonexempt Noteholder fail to provide the required
certification, the Trust will be required to withhold 31% of the amount of
interest otherwise payable to the holder, and remit the withheld amount to the
IRS as a credit against the holder's federal income tax liability. Legislation
has been proposed in Congress that would increase the rate of back-up
withholding to 36%.]
Tax Considerations for Certificateholders
Partnership Treatment of the Trust. The Sponsor and the Servicer will
express their intent in the Trust Agreement and related documents and will
agree, and the other Certificateholders will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of federal and
state income tax, franchise tax and any other taxes measured in whole or in part
by income, with the assets of the partnership being the assets held by the
Trust, the partners of the partnership being the Certificateholders (including
the Sponsor in its capacity as recipient of distributions from the Reserve
Account), and the Notes representing indebtedness of the partnership. The
Sponsor and the other Certificateholders will further agree in such documents to
take no action inconsistent with the treatment of Certificates for such purposes
as partnership interests in the Trust.
[In view of the lack of cases or rulings on similar transactions, a
variety of alternative characterizations are possible in addition to the
position to be taken by Certificateholders that the Certificates represent
equity interests in a partnership with the Sponsor.] For example, because the
Certificates have certain features characteristic of debt, the Certificates
might be considered for tax purposes as debt of the Sponsor or of the Trust. It
is also possible that the Trust might be treated for tax purposes as holding
debt of the Sponsor rather than the Receivables. Any such characterization
should not result in materially adverse tax consequences to Certificateholders
as compared to the consequences from treatment of the Certificates as equity in
a partnership, as described below, although there could be some timing
differences for income inclusion by Certificateholders. Accordingly, the
following discussion assumes that the Certificates represent equity interests in
a partnership that owns the Receivables for federal income tax purposes.
Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's distributive share of income, gains,
losses, deductions and credits of the Trust and to report such items on his
personal income tax return for the taxable year with or within which ends the
Trust's taxable year. (As explained below, the Trust's taxable year ends
_________________.) The income of the Trust will consist primarily of interest
and finance charges earned on the Receivables (including appropriate adjustments
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for market discount, original issue discount, and premium) and any income or
gain upon collection or disposition of Receivables. The expenses of the Trust
will consist primarily of interest accruing on the Notes, servicing and other
fees, and losses or deductions upon collection or disposition of Receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the Certificateholders will be allocated taxable income of the
Trust for each fiscal month equal to the sum of (i) the Certificateholders'
[Monthly] Interest Distributable Amount for the Payment Date following such
fiscal month; (ii) an amount equivalent to interest that accrues on amounts
previously due on Certificates but not yet distributed; and (iii) subject to the
discussion below on discount and premium, any Trust income attributable to
discount (of less any offset attributable to allowable premium) on the
Receivables that corresponds to any difference of the principal amount of the
Certificates and their initial issue price. All remaining taxable income of the
Trust will be allocated to the Sponsor. [Based upon the economic arrangement of
the parties this approach for allocating Trust income should be permissible, but
because of the absence of authority directly on point, no assurance can be given
that the IRS would not require a greater amount of income to be allocated to
Certificateholders.] Moreover, even under the foregoing method of allocation,
holders of Certificates may be allocated income equal to the entire Pass-Through
Rate plus the other Items described above even though the Trust might not have
sufficient cash to make current cash distributions of such amount. Thus, cash
basis holders will in effect be required to report income from the Certificates
on the accrual basis and Certificateholders may become liable for taxes on Trust
income even if such holders have not received cash from the Trust to pay such
taxes. In addition, under such allocation a Certificateholders' taxable income
could exceed the amount of net income allocated to him because of limitations on
deductions for expenses or losses of the Trust allocated to such holder.
Alternatively, it is possible that the IRS would treat Certificateholders as
receiving guaranteed payments from the Trust, in which case the payments on
Certificates would be treated as ordinary income but not as interest income. In
addition, because tax allocations and tax reporting will be done on a uniform
basis for all Certificateholders but Certificateholders may be purchasing
Certificates at different times and at different prices, Certificateholders may
be required to report on their tax returns taxable income that is greater or
less than the amount reported to them by the Trust. Under the Trust Agreement,
the Sponsor is authorized to adjust the allocations described above if necessary
to reflect the economic income, gain or loss to the Certificateholders
(including the Sponsor) or as otherwise required by the Code.
All of the taxable income allocated for taxable years of the Trust
beginning on or before December 31, 1994 to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax exempt entity
(including an individual retirement account) will constitute "unrelated business
taxable income" generally taxable to such a holder under the Code. For Trust
taxable years beginning after December 31, 1994, a portion of the taxable income
allocated to such a Certificateholder will be treated as income from "debt
financed property", which generally will be taxable as unrelated business
taxable income.
An individual taxpayer's share of expenses of the Trust (including fees
for the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part because of the two percent limitation on miscellaneous itemized deductions
and might result in such holder being taxed on an amount of income that exceeds
the amount of cash actually distributed to such holder over the life of the
Trust.
The Trust intends to make all tax calculations relating to Trust income
and allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, the Trust
might be required to incur additional expense but it is not expected that there
will be any significant adverse tax effect on Certificateholders.
Discount and Premium. As a result of their interest rate and payment
features, it is likely that state interest on some of the Receivables would be
treated as original issue discount under the [Proposed OID Regulations] that is
includible in income by holders as such discount accrues. Since the Trust will
elect the accrual method of tax accounting, it is not expected that such
treatment would, as a general rule, have any materially adverse tax effect on
holders of Certificates. Certificateholders should be aware, however, that
interest accruing on some Receivables for a payment period could exceed payments
due thereunder
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<PAGE>
for such period, in which case the likelihood might increase that holders of
Certificates would recognize Trust income prior to the receipt of cash from the
Trust that is attributable to such income.
The cost of acquisition by the Trust for the Receivables (exclusive of
amounts paid for accrued interest thereon) may be greater or less than the
remaining principal balance of the Receivables at the time of acquisition. If
so, the Receivables will have been acquired at a premium or discount, as the
case may be, exclusive of Receivables treated as contributed by the Sponsor as a
partner to the Trust (as indicated above, the Trust will make this calculation
of discount or premium on an aggregate basis, but might be required to recompute
it on a Receivable by Receivable basis.)
If the Trust acquires the Receivables at a premium or at a market
discount, the Trust will elect to include such discount in income as it accrues
over the life of the Receivables or (to the extent allowable) may offset such
premium against interest income or original issue discount on the Receivables.
If the aggregate initial principal amount of Certificates differs from their
aggregate issue price, market discount income or allowable premium deductions
attributable to such difference will be allocated to Certificateholders. Because
some Receivables have indefinite maturities, the method and timing for including
market discount or offsetting premium against income thereon is not clear under
present law and the offset for premium might be deferred until maturity; one
reasonable approach, however, would be on the basis of principal payments when
made.
Constructive Termination. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, there will be a closing of the
partnership's taxable year for all partners and the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. The Trust will
not comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the Trust may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. (Furthermore, the Trust might not be able to
comply due to lack of data.) Moreover, if the tax year of the Trust is not a
calendar year the closing of a tax year of the Trust may cause a
Certificateholder reporting on a calendar year to report more than 12 months'
taxable income of the Trust.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate generally will equal his cost
increased by his share of Trust income (includible in his income) and decreased
by any distributions received with respect to such Certificate. In addition,
both tax basis in a Certificate and the amount realized on a sale of such
Certificate would include the holder's share of the outstanding balance of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a pro rata portion of such aggregate tax basis to the
Certificates sold (rather than maintaining a separate tax basis in each
Certificate for purposes of computing gain or loss on a sale of that
Certificate).
Any gain on the sale of a Certificate attributable to the holder's share
of unrecognized accrued market discount, if any, on the Receivables would
generally be treated as ordinary income to the holder and might give rise to
special tax reporting requirements. The Trust does not expect to have any other
assets that would give rise to such special reporting requirements. Thus, to
avoid those special reporting requirements, the Trust will elect to include
market discount in income as it accrues if the Receivables are acquired at a
market discount.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess generally will give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined each fiscal month and the tax items
for a particular fiscal month will be
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apportioned among the Certificateholders in proportion to the principal amount
of Certificates owned by them as of the close of the last day of the
corresponding calendar month, which is the Certificate Record Date for the next
Payment Date. As a result of this monthly allocation, a holder purchasing
Certificates may be allocated tax items (which will affect its tax liability and
tax basis) attributable to periods before the actual transfer.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificate-holders. The Sponsor is
authorized to revise the Trust's method of allocation between transferors and
transferees to conform to a method permitted by future regulations.
No Section 754 Election. In the event that a Certificateholder sells its
Certificates at a gain (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than that of the selling
Certificateholder. The tax basis of the Trust's assets will not be adjusted to
reflect that higher (or lower) basis unless the Trust were to file an election
under Section 754 of the Code. In order to avoid the administrative complexities
that would be involved in keeping accurate accounting records, as well as
potentially onerous information reporting requirements, the Trust will not make
such election. As a result, Certificateholders might be allocated a greater or
lesser amount of Trust income than would be appropriate based on their own
purchase price for Certificates.
Administrative Matters. The [Owner] Trustee is required to keep or cause
to be kept complete and accurate books of the Trust. Code Section 706 requires
that a partnership adopt the taxable year of its majority interest partners, or,
if none, its principal partners, and the Sponsor has a taxable year that ends
___________________. Accordingly, such books will be maintained for financial
reporting and tax purposes on an accrual basis and the fiscal and taxable year
of the Trust will be the 12-month period ending _____________ (or, in the case
of _______________, 199__, the period from the Closing Date to _______________,
199__). The [Owner] Trustee will file a partnership information return (IRS Form
1065) with the IRS for each taxable year of the Trust and will report to holders
and the IRS each Certificateholder s allocable share of items of Trust income
and expense on Schedule K-1. The Trust will provide the Schedule K-1 information
to nominees that fail to provide the Trust with the information statement
described below and such nominees will be required to forward such information
to the beneficial owners of the Certificates. Generally, holders must file tax
returns that are consistent with the information return filed by the Trust or be
subject to penalties unless the holder notifies the IRS of all such
inconsistencies.
Under Code Section 6031, any person that holds Certificates as a nominee
at any time during the Trust taxable year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. The information referred to below or any taxable
year must be furnished to the Trust on or before the last day of the first month
following the close of the Trust's taxable year, i.e., _________________. Such
information includes (i) the name, address and taxpayer identification number of
the nominee and (ii) as to each beneficial owner (x) the name, address and
taxpayer identification number of such person, (y) whether such person is a
United States person, a tax-exempt entity or a foreign government, an
international organization, or any wholly-owned agency or instrumentality of
either of the foregoing, and (z) certain information on Certificates that were
held, acquired or transferred on behalf of such person throughout the year. In
addition, brokers and financial institutions that hold Certificates through a
nominee are required to furnish directly to the Trust Information as to
themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act that holds an interest in a partnership as
a nominee is not required to furnish any such information statement to the
Trust. Nominees, brokers and financial institutions that fail to provide the
Trust with the information described above may be subject to penalties.
The Sponsor, as the tax matters partner, will be responsible for
representing the Certificateholders in any dispute with the IRS. The Code
provides for administrative examination of a partnership as if the partnership
were a separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years since the later of the
filing or the last date for filing of the partnership information return. Any
adverse determination following an audit of the return of the Trust by the
appropriate taxing authorities could result in an adjustment of the returns of
the Certificateholders, and,
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under certain circumstances, a Certificateholder may be precluded from
separately litigating a proposed adjustment to the items of the Trust. An
adjustment could also result in an audit of a Certificateholder's returns and
adjustments of items not related to the income and losses of the Trust.
Foreign Persons. Ownership of Certificates by nonresident aliens and
foreign corporations and other foreign persons raises tax issues unique to such
persons, may have substantially adverse tax consequences to them, and will
subject the Trust to U.S. tax withholding and reporting requirements. For this
reason, purchasers (including nominees of beneficial owners) of Certificates and
their assignees must represent that the beneficial owners of Certificates are
individuals or entities that are U.S. persons (generally, citizens or residents
of the U.S. and corporations or partnerships organized under U.S. law), and each
purchaser must provide a certification of non-foreign status signed under
penalties of perjury.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% (proposed to be increased to 36%) if, in general, the Certificateholder
fails to comply with certain identification procedures, unless the holder is an
exempt recipient under applicable provisions of the Code.
[Proposed Tax Legislation. Legislation pending before Congress would apply
special rules to "large partnerships", generally defined as partnerships with at
least 250 partners during a taxable year (counting towards such total each owner
during the year of a partnership interest that is transferred during the year).
Under the legislation, certain computations are made at the partnership level
rather than the partner level. In particular, taxable income is calculated at
the partnership level, and is calculated generally in the same manner as for an
individual, except that 70% of miscellaneous itemized deductions (such as
expenses for the production of nonbusiness income) are disallowed. As a result,
all partners (including corporations) might have a portion of their share of
partnership deductions (other than interest expense) disallowed. Moreover, large
partnerships would become subject to new audit procedures; among other things,
an adjustment to taxable income of the partnership for a prior year would flow
through to current partners in the year the audit was settled, and the
partnership itself (rather than the partners) would be subject to any applicable
interest or penalties. As proposed, these rules would apply to partnership
taxable years ending on or after December 31, 1993.
The proposed tax legislation dealing with large partnerships discussed
above was not adopted in the Revenue Reconciliation Act of 1993, which was
enacted into law in August 1993. No prediction can be made whether that proposal
or similar legislation might be enacted in the future, or the ultimate effective
date of such legislation or whether the number of Certificateholders would cause
the Trust to be considered a "large partnership".]
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE MAY NOT BE APPLICABLE TO
ANY INDIVIDUAL INVESTOR, DEPENDING UPON A NOTEHOLDER'S OR A CERTIFICATEHOLDER'S
PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF THE NOTES AND THE CERTIFICATES, INCLUDING THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
STATE AND LOCAL TAXATION
Investors should consult their own tax advisors regarding whether the
purchase of the Offered Notes, either alone or in conjunction with an investor's
other activities, may subject an investor to any state or local taxes based on
an assertion that the investor is either "doing business" in, or deriving income
from a source located in, any state or local jurisdiction. Additionally,
potential investors should consider the state, local and other tax consequences
of purchasing, owning or disposing of an Offered Note. State and local tax laws
may differ substantially from the corresponding federal tax law, and the
foregoing discussion does not purport to describe any aspect of the tax laws of
any state or other jurisdiction. Accordingly, potential investors should consult
their own tax advisors with regard to such matters.
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ERISA CONSIDERATIONS
The Notes
The Notes may be purchased by an employee benefit plan or an individual
retirement account (a "Plan") subject to the Employee Retirement Income Security
Act of 1974, as amended (" ERISA"), or Section 4975 of the Code. A fiduciary of
a Plan must determine that the purchase of a Note is consistent with its
fiduciary duties under ERISA and does not result in a nonexempt prohibited
transaction as defined in Section 406 of ERISA or Section 4975 of the Code.
Employee benefit plans which are governmental plans (as defined in Section 3(32)
of ERISA) and certain church plans (as defined in Section 3(33) of ERISA) are
not subject to the fiduciary responsibility or prohibited transaction provisions
of ERISA or the Code. For additional information regarding treatment of the
Notes under ERISA, see "ERISA Considerations" in the Prospectus.
If the Notes constitute equity interests, there can be no assurance that
any of the exceptions set forth in the Regulations will apply to the purchase of
Notes offered hereby. Under the terms of the Regulations, if the Issuer were
deemed to hold Plan assets by reason of a Plan's investment in Notes, such Plan
assets would include an undivided interest in the Receivables, and any other
assets held by the Issuer. In such an event, the Originator, the Sponsor, the
Issuer, the Indenture Trustee and other persons providing services with respect
to the Receivables, may be subject to the fiduciary responsibility provisions of
Title Originator of ERISA and be subject to the prohibited transaction
provisions of Section 4975 of the Code with respect to transactions involving
the Receivables unless such transactions are subject to a statutory or
administrative exemption. Additionally, if the Issuer were deemed to hold Plan
assets, each Noteholder may be subject to the fiduciary responsibility
provisions of Title Originator of ERISA with respect to its right to consent or
withhold consent to amendments to the Indenture and with respect to its right to
vote on action to be taken or not taken if an Indenture Event of Default occurs.
In addition, certain affiliates of the Originator, the Sponsor, the Issuer
and the Indenture Trustee may be considered to be parties in interest or
fiduciaries with respect to many Plans. An investment by such a Plan in Notes
may be a prohibited transaction under ERISA and the Code unless such investment
is subject to a statutory or administrative exemption.
Any Plan fiduciary that proposes to cause a Plan to purchase Notes should
consider whether such purchase would be appropriate under the general fiduciary
standards of prudence and diversification, taking into account the overall
investment policy of the Plan and its existing portfolio and should consult with
its counsel with respect to the potential applicability of ERISA and the Code.
The Certificates
The Certificates may not be acquired by (a) an employee benefit plan (as
defined in Section 3(3) of ERISA) that is subject to the provisions of Title I
of ERISA, (b) a plan described in Section 4975(e)(1) of the Code or (c) any
entity whose underlying assets include plan assets by reason of a plan's
investment in the entity (each, a "Benefit Plan"). By its acceptance of a
Certificate, each Certificateholder will be deemed to have represented and
warranted that it is not a Benefit Plan.
RATINGS
As a condition to the issuance of the Notes, the [A-1 Notes] must be rated
at least "__" by the Rating Agency, the [A-2 Notes] must be rated at least
"____" by the Rating Agency and the Certificates must be rated at least "____"
by the Rating Agency. A security rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal at any time. The
rating of ________________________ assigned to the Notes and Certificates
addresses the likelihood of the receipt by [A-1] Noteholders, [A-2] Noteholders
and Certificateholders of all distributions to which such [A-1] Noteholders,
[A-2] Noteholders and Certificateholders are entitled. The ratings assigned to
the [A-1 Notes], [A-2 Notes] and Certificates do not represent any assessment of
the likelihood that principal prepayments might differ from those originally
anticipated or address the possibility that [A-1] Noteholders, [A-2] Noteholders
or Certificateholders might suffer a lower than anticipated yield. The ratings
of the
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Securities are also based on the rating of the security insurer. Upon a security
insurer default, the rating on the Securities may be lowered or withdrawn
entirely. In the event that any rating initially assigned to the Securities were
subsequently lowered or withdrawn for any reason, including by reason of a
downgrading of the security insurer's claims-paying ability, no person or entity
will be obligated to provide any additional credit enhancement with respect to
the Securities. Any reduction or withdrawal of a rating will have an adverse
effect on the liquidity and market price of the Securities.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Note Underwriting Agreement"), the Sponsor has agreed to cause the Trust
to sell to [each of] the underwriter(s) named below (the "Note Underwriter(s)"),
and each of the Note Underwriter(s) has severally, and not jointly, agreed to
purchase, the principal amount of Notes set forth opposite its name below.
Principal Principal
Amount of Amount of
Underwriter(s) [A-1 Notes] [A-2 Notes]
- -------------- ----------- -----------
______________ ...................... $ $
______________ ......................
TOTAL ................ $ $
=========== ===========
In the Note Underwriting Agreement, the Note Underwriter(s) have agreed,
subject to the terms and conditions therein, to purchase all the Notes offered
hereby if any of such Notes are purchased. The Sponsor has been advised by the
Note Underwriter(s) that they propose initially to offer the [A-1 Notes] and the
[A-2 Notes] to the public at the respective prices set forth on the cover
hereof, and to certain dealers at such prices less a concession not in excess of
_____% per [A-1 Note] and 0.__% per [A-2 Note]. The Note Underwriter(s) may
allow and such dealers may reallow a concession not in excess of 0.__% per [A-1
Note] and 0.___% per [A-2 Note] to certain other dealers. After the initial
public offering, such prices and such concessions may be changed.
The Note Underwriting Agreement provides that the Sponsor and the
Originator will indemnify the Note Underwriter(s) against certain civil
liabilities, including liabilities under the Securities Act, or contribute to
payments the Note Underwriter(s) may be required to make in respect thereof.
The Indenture Trustee (on behalf of the Trust) may, from time to time,
invest the funds in the Trust Accounts in Eligible Investments acquired from the
Note Underwriter(s).
The closing of the sale of the Notes is conditioned on the closing of the
sale of the Certificates.
Subject to the terms and conditions set forth in a certificate
underwriting agreement the "Certificate Underwriting Agreement"), the Sponsor
has agreed to cause the Trust to sell to ___________________________ (the
"Certificate Underwriter(s)"; and, together with the Note Underwriter(s), the
"Underwriter(s)"), and the Certificate Underwriter(s) [has][have] agreed to
purchase, Certificates in an aggregate principal amount of
$____________________. The Sponsor will purchase Certificates in an aggregate
principal amount of $____________________ from the Certificate Underwriters and
will purchase Certificates in an aggregate principal amount of $_______________
from the Trust.
The Sponsor has been advised by the Certificate Underwriter(s) that they
propose initially to offer the Certificates to the public at the prices set
forth on the cover hereof, and to certain dealers at such price less the initial
concession not in excess of ____% per Certificate. The Certificate
Underwriter(s) may allow and such dealers may reallow a concession not in excess
of ____% per Certificate to certain other dealers. After the initial public
offering of the Certificates, the public offering price and such concessions may
be changed.
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The Certificate Underwriting Agreement provides that the Sponsor and the
Originator will indemnify the Certificate Underwriters against certain civil
liabilities, including liabilities under the Securities Act, or contribute to
payments the Certificate Underwriter(s) may be required to make in respect
thereof. The Commission is of the opinion that indemnification for securities
law violations is contrary to the public policy expressed in the federal
securities laws, and, consequently, that such indemnification provisions are
unenforceable.
The Indenture Trustee (on behalf of the Trust) may, from time to time,
invest the funds in the Trust Accounts in Eligible Investments acquired from the
Certificate Underwriter(s).
The closing of the sale of the Certificates is conditioned on the closing
of the sale of the Notes.
LEGAL MATTERS
In addition to the legal opinions described in the Prospectus, certain
legal matters relating to the issuance of the Notes and the Certificates,
including federal income tax consequences with respect thereto, as well as other
matters, will be passed upon for the Trust, the Sponsor and the Underwriter(s)
by Dewey Ballantine, New York, New York.
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INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus
Supplement and the pages on which the definitions of such terms may be found
herein.
Page
----
A-1 Noteholders .................................................... 7
A-1 Notes .......................................................... 1, 5
A-2 Noteholders .................................................... 7
A-2 Notes .......................................................... 1, 5
Alternate Principal Distribution Amount ............................ 33
AmeriCredit ........................................................ 5
APR ................................................................ 17
Backup ............................................................. 45
Benefit Plan ....................................................... 46
Business Day ....................................................... 27, 29
Cede ............................................................... 4
Certificate Balance ................................................ 37
Certificate Record Date ............................................ 9
Certificate Underwriter(s) ......................................... 47
Certificate Underwriting Agreement ................................. 47
Certificateholders ................................................. 9
Certificateholders' Distributable Amount ........................... 36
Certificateholders' Interest Carryover Shortfall ................... 36
Certificateholders' Interest Distributable Amount .................. 36
Certificateholders' Monthly Interest Distributable Amount .......... 36
Certificateholders' Percentage ..................................... 37
Certificateholders' Principal Carryover Shortfall .................. 37
Certificateholders' Principal Distributable Amount ................. 36
Certificateholders' [Monthly] Principal Distributable Amount ....... 36
Certificates ....................................................... 1, 6
Closing Date ....................................................... 5
Code ............................................................... 38
Collection Account ................................................. 11
Collection Period .................................................. 8
Commission ......................................................... 4
Contract Payments .................................................. 6
Contracts .......................................................... 1
Controlled foreign corporation ..................................... 40
Cut-off Date ....................................................... 5
Debt financed property ............................................. 42
Defaulted Contract ................................................. 11
Definitive Certificates ............................................ 6
Delinquency Amounts ................................................ 11
Delinquent Contract ................................................ 11
Determination Date ................................................. 32
DTC ................................................................ 4
ERISA .............................................................. 13, 46
Exchange Act ....................................................... 4
Foreign person ..................................................... 40
Indenture .......................................................... 1, 5
Indenture Trustee .................................................. 5
Insurance Policies ................................................. 26
Interest Distribution Amount ....................................... 32
Investment Earnings ................................................ 11
IRS ................................................................ 38
Issuer ............................................................. 1, 5
Large partnership .................................................. 45
Large partnerships ................................................. 45
LIBO ............................................................... 27, 28
LIBOR .............................................................. 8, 27, 28
S-47
<PAGE>
Page
----
LIBOR Business Day ................................................. 27, 29
Liquidated Receivables ............................................. 32
Liquidation Proceeds ............................................... 32
Maturity Draw ...................................................... 8, 33
Net Receivables Rate ............................................... 16
Nonrecoverable Advances ............................................ 12
Note Record Date ................................................... 8
Note Underwriter(s) ................................................ 47
Note Underwriting Agreement ........................................ 47
Note Value ......................................................... 8, 33
Note Value Decline ................................................. 33
Noteholders ........................................................ 7
Noteholders' Distributable Amount .................................. 34
Noteholders' Interest Carryover Shortfall .......................... 34
Noteholders' Interest Distributable Amount ......................... 34
Noteholders' Monthly Interest Distributable Amount ................. 34
Notes .............................................................. 1, 5
Obligor ............................................................ 6
Originator ......................................................... 1, 5
Owner Trustee ...................................................... 5
Pass-Through Rate .................................................. 36
Payment Date ....................................................... 3, 7, 27
Plan ............................................................... 13, 46
Pool Balance ....................................................... 7
Pooling and Servicing Agreement .................................... 6
Portfolio interest ................................................. 40
Predecessor Receivable ............................................. 20
Principal Distribution Amount ...................................... 32
Principal Payments ................................................. 8
Proposed OID Regulations ........................................... 38
Prospectus ......................................................... 4
Rating Agencies .................................................... 15
Realized Losses .................................................... 34
Receivables ........................................................ 1
Receivables Acquisition Agreement .................................. 6
Related person ..................................................... 40
Reserve Account .................................................... 10
Reuters Screen LIBO Page ........................................... 27, 28
Risk Factors ....................................................... 3
Rule of 78s ........................................................ 17
Securities ......................................................... 1
Securityholders .................................................... 9
Servicer ........................................................... 5
Servicer Advance ................................................... 11
Servicing Charges .................................................. 11
Servicing Fee ...................................................... 11
Servicing Fee Rate ................................................. 11
Specified Reserve Account Balance .................................. 8
Sponsor ............................................................ 1, 5
Substitute Receivable .............................................. 20
Tax Counsel ........................................................ 38
Total Distribution Amount .......................................... 32
Transfer and Servicing Agreements .................................. 31
Trust .............................................................. 1, 5
Trust Agreement .................................................... 6
Underwriter(s) ..................................................... 47
Underwriter[s] ..................................................... 2
Unrelated business taxable income .................................. 39, 42
S-48
<PAGE>
Page
----
Vehicles ........................................................... 1
Vendor Agreement Rights ............................................ 26
[A-1 Noteholders'] Principal Carryover Shortfall ................... 35
[A-1 Noteholders'] Principal Distributable Amount .................. 34
[A-1 Noteholders'] [Monthly] Principal Distributable Amount ........ 34
[A-1 Note] Alternative Interest Rate ............................... 28
[A-1 Note] [A-2 Note] Interest Rate ................................ 8
[A-1] Final Scheduled Payment Date ................................. 9
[A-2 Noteholders'] Percentage ...................................... 35
[A-2 Noteholders'] Principal Carryover Shortfall ................... 35
[A-2 Noteholders'] Principal Distributable Amount .................. 34
[A-2 Noteholders'] [Monthly] Principal Distributable Amount ........ 35
[A-2 Note] Alternative Interest Rate ............................... 29
[A-2] Final Scheduled Payment Date ................................. 9
[A-2] Redemption Price ............................................. 9
[Class A-1] Maturity Account ....................................... 12
[Class A-2 Noteholders]' Interest Carryover Amount ................. 35
[Class A-2] Lockout Account ........................................ 12
A-1 Noteholders .................................................... 6
A-1 Notes .......................................................... 1, 4
A-2 Noteholders .................................................... .6
A-2 Notes .......................................................... 1, 4
Alternate Principal Distribution Amount ............................ 33
Advanta ............................................................ 4
APR ................................................................ 16
Backup ............................................................. 44
Benefit Plan ....................................................... 46
Business Day ....................................................... 27, 28
Cede ............................................................... 3
Certificate Balance ................................................ 36
Certificate Record Date ............................................ 8
Certificate Underwriter(s) ......................................... 47
Certificate Underwriting Agreement ................................. 47
Certificateholders ................................................. 8
Certificateholders' Distributable Amount ........................... 35
Certificateholders' Interest Carryover Shortfall ................... 36
Certificateholders' Interest Distributable Amount .................. 35
Certificateholders' Monthly Interest Distributable Amount .......... 35
Certificateholders' Percentage ..................................... 36
Certificateholders' Principal Carryover Shortfall .................. 36
Certificateholders' Principal Distributable Amount ................. 36
Certificateholders' [Monthly] Principal Distributable Amount ....... 36
Certificates ....................................................... 1, 5
Closing Date ....................................................... 4
Code ............................................................... 38
Collection Account ................................................. 10
Collection Period .................................................. 7
Commission ......................................................... 3
Contract Payments .................................................. 5
Contracts .......................................................... 1
Controlled foreign corporation ..................................... 40
Cut-off Date ....................................................... 4
Debt financed property ............................................. 42
Defaulted Contract ................................................. 10
Definitive Certificates ............................................ 5
Delinquency Amounts ................................................ 10
Delinquent Contract ................................................ 10
Determination Date ................................................. 31
S-49
<PAGE>
Page
----
DTC ................................................................ 3
ERISA .............................................................. 12, 45
Exchange Act ....................................................... 3
Foreign person ..................................................... 40
Indenture .......................................................... 1, 4
Indenture Trustee .................................................. 4
Insurance Policies ................................................. 26
Interest Distribution Amount ....................................... 32
Investment Earnings ................................................ 10
IRS ................................................................ 38
Issuer ............................................................. 1, 4
Large partnership .................................................. 45
Large partnerships ................................................. 44
LIBO ............................................................... 27, 28
LIBOR .............................................................. 7, 26, 28
LIBOR Business Day ................................................. 27, 28
Liquidated Receivables ............................................. 31
Liquidation Proceeds ............................................... 31
Maturity Draw ...................................................... 7, 32
Net Receivables Rate ............................................... 15
Nonrecoverable Advances ............................................ 11
Note Record Date ................................................... 7
Note Underwriter(s) ................................................ 46
Note Underwriting Agreement ........................................ 46
Note Value ......................................................... 7, 33
Note Value Decline ................................................. 33
Noteholders ........................................................ 6
Noteholders' Distributable Amount .................................. 33
Noteholders' Interest Carryover Shortfall .......................... 33
Noteholders' Interest Distributable Amount ......................... 33
Noteholders' Monthly Interest Distributable Amount ................. 33
Notes .............................................................. 1, 4
Obligor ............................................................ 5
Originator ......................................................... 1, 4
Owner Trustee ...................................................... 4
Pass-Through Rate .................................................. 35
Payment Date ....................................................... 2, 6, 26
Plan ............................................................... 12, 45
Pool Balance ....................................................... 6
Pooling and Servicing Agreement .................................... 5
Portfolio interest ................................................. 40
Predecessor Receivable ............................................. 18
Principal Distribution Amount ...................................... 32
Principal Payments ................................................. 7
Proposed OID Regulations ........................................... 38
Prospectus ......................................................... 3
Rating Agencies .................................................... 14
Realized Losses .................................................... 33
Receivables ........................................................ 1
Receivables Acquisition Agreement .................................. 5
Related person ..................................................... 40
Reserve Account .................................................... 9
Reuters Screen LIBO Page ........................................... 27, 28
Risk Factors ....................................................... 2
Rule of 78s ........................................................ 16
Securities ......................................................... 1
Securityholders .................................................... 8
Servicer ........................................................... 4
S-50
<PAGE>
Page
----
Servicer Advance ................................................... 10
Servicing Charges .................................................. 10
Servicing Fee ...................................................... 10
Servicing Fee Rate ................................................. 10
Specified Reserve Account Balance .................................. 7
Sponsor ............................................................ 1, 4
Substitute Receivable .............................................. 18
Tax Counsel ........................................................ 37
Total Distribution Amount .......................................... 31
Transfer and Servicing Agreements .................................. 31
Trust .............................................................. 1, 4
Trust Agreement .................................................... 5
Underwriter(s) ..................................................... 47
Underwriter[s] ..................................................... 1
Unrelated business taxable income .................................. 39, 42
Vehicles ........................................................... 1
Vendor Agreement Rights ............................................ 26
VSI Insurance Policy ............................................... 22
[A-1 Noteholders'] Principal Carryover Shortfall ................... 35
[A-1 Noteholders'] Principal Distributable Amount .................. 34
[A-1 Noteholders'] [Monthly] Principal Distributable Amount ........ 34
[A-1 Note] Alternative Interest Rate ............................... 27
[A-1 Note] [A-2 Note] Interest Rate ................................ 7
[A-1] Final Scheduled Payment Date ................................. 8
[A-2 Noteholders'] Percentage ...................................... 34
[A-2 Noteholders'] Principal Carryover Shortfall ................... 35
[A-2 Noteholders'] Principal Distributable Amount .................. 34
[A-2 Noteholders'] [Monthly] Principal Distributable Amount ........ 34
[A-2 Note] Alternative Interest Rate ............................... 28
[A-2] Final Scheduled Payment Date ................................. 8
[A-2] Redemption Price ............................................. 8
[Class A-1] Maturity Account ....................................... 11
[Class A-2 Noteholders]' Interest Carryover Amount ................. 35
[Class A-2] Lockout Account ........................................ 11
[Monthly] Servicer Report .......................................... 24
S-51
<PAGE>
EXHIBIT 99.2
<PAGE>
Exhibit 99.2
SUBJECT TO COMPLETION DATED __________, 1997
[Exhibit 99.2 Form of Prospectus Supplement. This form of Prospectus Supplement
is for illustrative purposes only. A Prospectus Supplement in definitive form
reflecting the terms of each Series of Notes will be filed with the Commission
under the Securities Act of 1933, as amended, pursuant to Rule 424(b)
promulgated thereunder.]
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED __________, 1996)
- --------------------------------------------------------------------------------
ADVANTA AUTO RECEIVABLES FINANCE CORPORATION,
199_-_
$_________ Auto Receivables Backed Notes, [Class A]
$_________ Auto Receivables Backed Notes, [Class B]
ADVANTA AUTO FINANCE CORPORATION, Sponsor
ADVANTA AUTO FINANCE CORPORATION, Servicer
_____________________, Originator
- --------------------------------------------------------------------------------
The Auto Receivables Backed Notes (the "Notes") offered hereby represent
the right to receive repayment of the initial principal amount ($ ) of the Notes
and monthly interest on the unpaid portion of such principal amount. The Notes
will be issued by Advanta Auto Receivables Finance Corporation 199_-_ (the
"Issuer"), a limited purpose corporation organized under the laws of the State
of Nevada. The Notes will initially be issued in two classes: [Class A] Notes
(the "[Class A] Notes") with an interest rate of ___% per annum and representing
the right to receive __% (the "[Class A] Percentage") of the Initial Aggregate
Balance and [Class B] Notes (the "[Class B] Notes") with an interest rate of
___% per annum and representing the right to receive __% (the "[Class B]
Percentage") of the Initial Aggregate Balance. The Indenture provides that the
Issuer may, from time to time, subject to certain conditions set forth therein,
enter into Supplements directing the issuance of a third class of Notes (the
"[Class C] Notes") which will be subordinate to the [Class A] Notes and to the
[Class B] Notes. If any such [Class C] Notes are issued, the [Class C]
Noteholders shall have the right to receive a specified percentage of the
Initial Aggregate Balance (the "[Class C] Percentage") which shall not exceed
___%. Only the [Class A] Notes and the [Class B] Notes are hereby being offered
(together, the "Offered Notes"). The Series 199__-__ Collateral (the
"Collateral") will consist of any combination of retail installment sales
contracts between manufacturers, dealers or certain other originators and retail
purchasers secured by new and used automobiles and light duty trucks financed
thereby ,] together with all monies received relating thereto (the "
Contracts") [the underlying new and used automobiles and light duty trucks (the
"Vehicles," together with the Contracts], the " Receivables"), and the proceeds
thereof received by the Issuer from the Originator on or prior to the date of
the issuance of the Notes. [The Collateral also will include a perfected
security interest in the Vehicles, certain of the Originator's rights under
certain
(cover continued on next page)
Capitalized terms used herein are defined terms having specific meanings.
An "Index of Defined Terms" is set forth as page S-46 hereto, which indicates
the page on which such defined terms are defined.
THE RIGHTS OF THE HOLDERS OF THE CLASS B NOTES WILL BE SUBORDINATED TO THE
RIGHTS OF THE HOLDERS OF THE CLASS A NOTES, AS SET FORTH HEREIN UNDER
"RECEIVABLES ACQUISITION AGREEMENT -- FLOW OF FUNDS".
------------------
THE NOTES REPRESENT OBLIGATIONS OF THE ISSUER ONLY AND TO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF THE ORIGINATOR, THE SERVICER, ANY SUCCESSOR
SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE NOTES NOR THE
RECEIVABLES ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY THE ISSUER, THE ORIGINATOR OR THE SERVICER.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK FACTORS"
AT PAGE ___ HEREIN AND PAGE ___ IN THE PROSPECTUS.
- --------------------------------------------------------------------------------
Initial Public Underwriting Proceeds to the
Offering Price Discount(1) Issuer
- --------------------------------------------------------------------------------
[Per Class A Note]..........
- ----------------------------
[Per Class B Note]..........
- ----------------------------
Total.......................
- --------------------------------------------------------------------------------
<PAGE>
- ----------
(1) The Issuer has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $____________ payable by the
Issuer.
------------------
[The Notes are offered, subject to prior sale, when, as and if accepted by
the Underwriter(s) and subject to the approval of certain legal matters by Dewey
Ballantine, counsel for the Underwriter(s). It is expected that delivery of the
Notes will be made only in book-entry form through the Same Day Funds Settlement
System of The Depository Trust Company on or about ____________, 199__.]
[Name(s) of the Underwriter(s)]
S-2
<PAGE>
(continued from cover)
Insurance Policies relating to the Receivables, any amounts deposited from time
to time in the Collection Account or the Reserve Account and any amounts on
deposit in the Pre-Funding Account.]
The Notes will be issued by the Issuer pursuant to that certain indenture
(the "Indenture") entered into between the Issuer and ____________________, as
Trustee. Pursuant to the Indenture, the Collateral will be pledged to secure the
repayment of the Notes.
The Originator will transfer all of its right, title and interest in and
to the Receivables to the Issuer pursuant to the Receivables Acquisition
Agreement to be entered into between the Originator and the Issuer (the
"Receivables Acquisition Agreement"). [The Vehicles are principally
___________.]
[Form of Credit Enhancement]
[e.g., Bond Insurer]
[On or before the issuance of the Notes, the Issuer will obtain from
______________ (the "Bond Insurer") certificate guaranty insurance policies,
each relating to a class of Notes (the "Bond Insurance Policies"), in favor of
____________, as Trustee for the holders of the Notes. The Bond Insurance
Policies will provide for 100% coverage of the amounts due on the related
Notes.]
Principal and interest with respect to the Notes is payable on the
[twenty-fifth] day (each, a "Payment Date") of each month (or, if such day is
not a Business Day, the next succeeding Business Day), commencing _____________
[25,] 199_. Distributions of interest and principal on the [Class B] Notes will
be subordinated in priority of payment to interest and principal due on the
[Class A] Notes to the extent described herein under "Description of the Notes"
in the event of defaults and delinquencies on the Receivables. Distributions of
interest and principal on the [Class C] Notes will be subordinated in priority
of payment to interest and principal due on the Offered Notes to the extent
described under "Description of the Notes". The maturity date of the Notes will
be _______, 19__ (the " Stated Maturity Date").
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE NOTES. ADDITIONAL INFORMATION IS CONTAINED IN THE PROSPECTUS AND
PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS IN FULL. SALES OF THE NOTES MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
---------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER(S) MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
---------------------------
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Notes are issued, periodic and annual
unaudited reports containing information concerning the Receivables will be
prepared by the Servicer and sent on behalf of the Issuer only to Cede & Co.
("Cede"), as nominee of The Depository Trust Company ("DTC") and registered
holders of the Notes. See "Description of the Securities--Book-Entry
Registration" and "--Reports to Securityholders" in the accompanying Prospectus
(the "Prospectus"). Such reports will not constitute financial statements
prepared in accordance with generally accepted accounting principles. The Issuer
will file with the Securities and Exchange Commission (the "Commission") such
periodic reports as are required under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations thereunder and as
are otherwise agreed to by the Commission. Copies of such periodic reports may
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
S-3
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Terms", which appears on page
S-46 hereof or, to the extent not defined herein, have the meanings assigned to
such terms in the Prospectus.
Issuer.................... Advanta Auto Receivables Finance Corporation 199_-_,
a [limited purpose] corporation organized under the
laws of the State of Nevada. The principal executive
offices of the Issuer are located at 500 Office
Center Drive, Fort Washington, Pennsylvania 19034,
and its telephone number is (215) 283-4200.
Servicer.................. Advanta Auto Finance Corporation (the " Servicer"), a
Nevada corporation. The principal executive offices
of the Servicer are located at 500 Office Center
Drive, Fort Washington, Pennsylvania 19034, and its
telephone number is (215) 283-4200.
Originator................ Advanta Auto Finance Corporation (the "Originator"),
a Nevada corporation. The principal executive offices
of the Originator are located at 500 Office Center
Drive, Fort Washington, Pennsylvania 19034, and its
telephone number is (215) 283-4200.
Trustee................... ________________________________ (the " Trustee"), a
[national banking association]. The principal
executive offices of the Trustee are located at ___
____________________________________, and its
telephone number is ______________. The Servicer will
be responsible for payment of the fees of the
Trustee.
Cut-Off Date.............. ________ __, 199__.
Closing Date.............. ________ __, 199__.
Offered Securities........ The "Securities" consist of Auto Receivables Backed
Notes which will initially be issued in two classes
entitled ____% Auto Receivables Backed Notes, [Class
A] and ____% Auto Receivables Backed Notes, [Class
B]. The Indenture provides that the Issuer may, from
time to time, subject to certain conditions set forth
therein, enter into supplements to the Indenture
(each a " Supplement") directing the issuance of
[Class C] Notes which will be subordinate to the
[Class A] Notes and to the [Class B] Notes. Only the
[Class A] Notes and the [Class B] Notes are being
offered hereby. Each Note will be secured by a
fractional undivided security interest in the
Collateral. Payments of principal and interest on the
Notes will be full recourse obligations of the
Issuer.
The [Class A] Notes will be issued in minimum
denominations of $[1,000] and the [Class B] Notes
will be sold in minimum denominations of $[1,000] and
integral multiples thereof.
S-4
<PAGE>
Series 199_-_ Collateral.. The Collateral will consist of any combination of
retail installment sales contracts between
manufacturers, dealers or certain other originators
and retail purchasers secured by new and used
automobiles and light duty trucks financed thereby ,
all monies relating thereto (the "Contracts"), [the
underlying new and used automobiles and light duty
trucks ([the "Vehicles," together with the
Contracts], the "Receivables") and the proceeds
thereof. [The Collateral also will include a
perfected security interest in the Vehicles, certain
of the Originator's rights under certain insurance
policies relating to the Receivables, any amounts
deposited from time to time in the Collection Account
or the Reserve Account and any amounts on deposit in
the Pre-Funding Account.]
[The Originator will transfer all of its right, title
and interest in and to the Receivables to the Issuer
pursuant to the Receivables Acquisition Agreement to
be entered into between the Originator and the
Issuer. In the Receivables Acquisition Agreement, the
Originator will make certain representations and
warranties to the Issuer with respect to, among other
things, the Receivables, which representations and
warranties will be assigned to the Trustee under the
Indenture.]
[The maximum collateral value of any Contract will
not exceed $____ (_% of the Initial Aggregate
Balance). The excess, if any, of the Discounted
Contract Balance of any Contract over $____ (the
"Excess Contract Balance") will act as additional
credit support, and all Contract Payments under each
Contract will be paid through to the Issuer, as
collected, and as available.]
The Receivables........... The Receivables consist of noncancelable retail
installment sales contracts between manufacturers,
dealers or certain other originators and retail
purchasers secured by new and used automobiles and
light duty trucks financed thereby ]. Each Obligor's
obligation under its Contract is a full recourse
obligation. The Contracts also contain provisions
which unconditionally obligate the Obligor to make
all Contract Payments.
[All of the Contracts were purchased by the Sponsor
from the Originator in the ordinary course of
business and the Contracts constitute substantially
all of the automobile and light duty truck retail
installment sale contracts included in the
Originator's portfolio meeting the selection criteria
described herein under "The Receivables". Such
selection criteria included that: (i) each Contract
is secured by a new or used automobile or light duty
truck; (ii) each Contract was originated in the
United States; (iii) each Contract provides for level
monthly payments that fully amortize the amount
financed over its original term except that the
payment in the first or last month in the life of the
Contract may be minimally different from the level
payment, and a minimal number of the Contracts
provide for monthly payments for a period of time not
exceeding one year after origination in an amount
less than such level payment, provided that as of the
Cutoff Date the monthly payment currently due under
each such Contract is equal to such level payment;
(iv) each Contract was originated on or prior to
_____, 199_; (v) each Contract has an original term
of __ to months and, as of the Cutoff Date, had a
remaining term to maturity of not less than three
months nor more than __ month; (vi) each Contract
provides for the payment of a finance charge at an
APR ranging from
S-5
<PAGE>
__% to __%; (vii) each Contract shall not have a
Scheduled Payment that is more than 30 days past due
as of the Cutoff Date; (viii) no Contract shall be
due, to the best knowledge of the Originator, from
any Obligor who is presently the subject of a
bankruptcy proceeding or is bankrupt or insolvent;
(ix) no Vehicle has been repossessed without
reinstatement as of the Cutoff Date; and (x) as of
the Cutoff Date, physical damage insurance relating
to each Vehicle is not being force-placed by the
Servicer.]
[As of the Cutoff Date, approximately __% and
approximately __% of the Aggregate Discounted
Contract Balance are expected to represent Contracts
secured by automobiles and light duty trucks,
respectively. Based on the Aggregate Discounted
Contract Balance, approximately __% and approximately
__% of the Contracts are expected to represent
financing of new vehicles and used vehicles,
respectively, and no more than __% of the Contracts
are expected to be due from employees of the
Originator or any of its respective affiliates. As of
the Cutoff Date, the average Principal Balance of
Contracts secured by automobiles and light duty
trucks is expected to be approximately $____ and
approximately $____, respectively. The majority of
the Vehicles are expected to be foreign and domestic
automobiles and light duty trucks. Except in the case
of any breach of representations and warranties by
the Originator, it is expected that none of the
Contracts provide for recourse to the Originator who
originated the related Contract.]
[Pre-Funding Account...... On the Closing Date, the Trustee will deposit into an
account established and maintained by the Trustee
(the "Pre-Funding Account") an amount (the
"Pre-Funded Amount") equal to the difference between
the Initial Aggregate Balance and the Aggregate
Discounted Contract Balance of all Contracts actually
acquired on the Closing Date (as defined below).
During the period (the " Funding Period") beginning
on the Closing Date and until the earliest of the
date on which (a) the amount on deposit in the
Pre-Funding Account is less than $____ (b) an
Indenture Event of Default occurs, or (c) the close
of business on __________ __, 199_, the Pre-Funded
Amount will be maintained in the Pre-Funding Account,
subject to withdrawals on each Additional Receivable
Transfer Date (as defined below). During the Funding
Period, on each date on which additional Receivables
(the " Additional Receivables") are acquired by the
Issuer from the Originator (each an " Additional
Receivable Transfer Date"), the Trustee will release
to the Originator an amount equal to the Discounted
Contract Balance of such Additional Receivables. Any
amounts on deposit in the Pre-Funding Account after
the final Additional Receivable Transfer Date will be
applied as a prepayment of the Notes to the
Noteholders on the next succeeding Payment Date in
accordance with their respective Class Percentages.
[Capitalized
Interest Account.......... On the Closing Date, the Trustee will be required to
deposit $__________ of the proceeds of the sale of
the Notes in an account (the " Capitalized Interest
Account") in the name of the Trustee on behalf of the
Issuer. The amount deposited therein will be used by
the Trustee on each Payment Date through the Final
Additional Closing Date to fund the negative
arbitrage on the Pre-Funding Account. Any amounts
remaining
S-6
<PAGE>
in the Capitalized Interest Account after the Payment
Date following the Final Additional Closing Date are
required to be paid to the Issuer on such Payment
Date.]
Interest.................. Interest on the Notes will be paid on each Payment
Date, commencing _____________ [___], 199_, to
holders of record of the Notes (the " Noteholders")
on the last business day of the [month] preceding the
[month] in which such Payment Date occurs (or in the
case of the initial Payment Date, the Closing Date)
(the " Record Date"). Interest on the [Class A] Notes
is required to be paid to holders of record of the
[Class A] Notes (the "[Class A] Noteholders") in an
amount equal to the sum of the (A) product of (i) one
twelfth, (ii) ____% per annum (the "[Class A] Note
Rate") and (iii) the outstanding [Class A] Note
Balance on the preceding Payment Date (or, in the
case of the first Payment Date, on the Closing Date)
after giving effect to any payments of principal made
on that Payment Date, (B) plus [Class A] Overdue
Interest (the "[Class A] [Monthly] Interest"). The
"[Class A] Note Balance" shall equal, initially,
$____ and thereafter shall equal the initial [Class
A] Note Balance reduced by all principal payments on
the [Class A] Notes. The "[Class A] Overdue Interest"
to be paid on any Payment Date will mean the excess,
if any, of (a) the aggregate amount of [Class A]
[Monthly] Interest due on all prior Payment Dates
over (b) the aggregate amount of [Class A] [Monthly]
Interest (from whatever source) actually paid to
[Class A] Noteholders on all prior Payment Dates.
[Class A] Overdue Interest, if any, not previously
paid to Noteholders will accumulate and be paid on
the immediately succeeding Payment Date.
Interest on the [Class B] Notes is required to be
paid to holders of record of the [Class B] Notes (the
"[Class B] Noteholders") in an amount equal to the
sum of (A) the product of (i) one twelfth, (ii) ____%
per annum (the " [Class B] Note Rate") and (iii) the
outstanding [Class B] Note Balance on the preceding
Payment Date (or, in the case of the first Payment
Date, on the Closing Date) after giving effect to any
payments of principal made on that Payment Date, (B)
plus [Class B] Overdue Interest (the "[Class B]
[Monthly] Interest"). The "[Class B] Note Balance"
shall equal, initially, $ ____ and thereafter shall
equal the initial [Class B] Note Balance reduced by
all principal payments on the [Class B] Notes. The
"[Class B] Overdue Interest" to be paid on any
Payment Date will mean the excess, if any, of (a) the
aggregate amount of [Class B] [Monthly] Interest due
on all prior Payment Dates over (b) the aggregate
amount of [Class B] [Monthly] Interest (from whatever
source) actually paid to [Class B] Noteholders on all
prior Payment Dates. [Class B] Overdue Interest, if
any, not previously paid to [Class B] Noteholders
will accumulate and be paid on the immediately
succeeding Payment Date.
Interest on the [Class C] Notes (if any are issued)
is required to be paid to holders of record of the
[Class C] Notes (the "[Class C] Noteholders") in an
amount equal to the sum of (A) the product of (i) one
twelfth, (ii) the [Class C] Note Rate to be
established in connection with the original issuance
of the [Class C] Notes (the "[Class C] Note Rate")
and (iii) the outstanding [Class C] Note Balance on
the preceding Payment Date (or, in the case of the
first Payment Date, on the Closing Date) after giving
effect to any payments of principal made on that
Payment Date, (B) plus
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[Class C] Overdue Interest (the "[Class C] [Monthly]
Interest"). If any [Class C] Notes are issued, they
shall be issued in an initial principal amount equal
to the product of (A) $ ____ minus all principal
theretofore paid by the Trustee to the [Class A]
Noteholders, and the [Class B] Noteholders and (B)
the [Class C] Percentage (such initial principal
amount, being the "Initial [Class C] Note Balance").
The "[Class C] Note Balance" shall equal the Initial
[Class C] Note Balance reduced by all principal
payments on the [Class C] Notes. The "[Class C]
Overdue Interest" to be paid on any Payment Date will
mean the excess, if any, of (a) the aggregate amount
of [Class C] [Monthly] Interest due on all prior
Payment Dates over (b) the aggregate amount of [Class
C] [Monthly] Interest (from whatever source) actually
paid to [Class C] Noteholders on all prior Payment
Dates. [Class C] Overdue Interest, if any, not
previously paid to [Class C] Noteholders will
accumulate and be paid on the immediately succeeding
Payment Date.
Principal................. Principal payments on the Notes are required to be
made on each Payment Date to Noteholders on the
related Record Date. Principal on the [Class A] Notes
is required to be paid in an amount equal to the sum
of (i) the [Class A] [Monthly] Principal and (ii) the
[Class A] Overdue Principal. The "[Class A] [Monthly]
Principal" to be paid to [Class A] Noteholders on
each Payment Date will mean, with respect to all of
the Receivables for any Payment Date, the product of
(x) the sum of (i) the Contract Payments due during
the related Collection Period minus the aggregate of
the [Monthly] Yield for all Contracts, (ii) for each
Contract that is a Defaulted Contract, the Discounted
Contract Balance and (iii) for each Contract that is
the subject of a prepayment (provided that such
Prepayment Amount has actually been deposited in the
Collection Account), an amount equal to the
Discounted Contract Balance immediately prior to
prepayment and (y) the [Class A] Percentage. To the
extent that an amount is included in any of clauses
(i) through (iii) above, such amount shall not be
included in any other such clause for purposes of
calculating the [Class A] [Monthly] Principal.
The "[Class A] Overdue Principal" to be paid to
[Class A] Noteholders will mean, with respect to any
Payment Date, the excess, if any, of (a) the
aggregate amount of [Class A] [Monthly] Principal due
on all prior Payment Dates over (b) the aggregate
amount of [Class A] [Monthly] Principal (from
whatever source) actually paid to [Class A]
Noteholders on all prior Payment Dates.
Principal on the [Class B] Notes is required to be
paid in an amount equal to the sum of (i) the [Class
B] [Monthly] Principal and (ii) the [Class B] Overdue
Principal. The " [Class B] [Monthly] Principal" to be
paid to [Class B] Noteholders on each Payment Date
will mean, with respect to all of the Receivables for
any Payment Date, the product of (x) the sum of (i)
the Contract Payments due during the related
Collection Period minus the aggregate of the
[Monthly] Yield for all Contracts, (ii) for each
Contract that is a Defaulted Contract, the Discounted
Contract Balance and (iii) for each Contract that is
the subject of a prepayment (provided that such
Prepayment Amount has actually been deposited in the
Collection Account), an amount equal to the
Discounted Contract Balance immediately prior to
prepayment and (y) the [Class B] Percentage. To the
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extent that an amount is included in any of clauses
(i) through (iii) above, such amount shall not be
included in any other such clause for purposes of
calculating the [Class B] [Monthly] Principal.
The "[Class B] Overdue Principal" to be paid to
[Class B] Noteholders will mean, with respect to any
Payment Date, the excess, if any, of (a) the
aggregate amount of [Class B] [Monthly] Principal due
on all prior Payment Dates over (b) the aggregate
amount of [Class B] [Monthly] Principal (from
whatever source) actually paid to [Class B]
Noteholders on all prior Payment Dates.
Principal on the [Class C] Notes (if any are issued)
is required to be paid in an amount equal to the sum
of (i) the [Class C] [Monthly] Principal and (ii) the
[Class C] Overdue Principal. The "[Class C] [Monthly]
Principal" to be paid to [Class C] Noteholders on
each Payment Date will mean, with respect to all of
the Receivables due for any Payment Date, the product
of (x) the sum of (i) the Contract Payments due
during the related Collection Period minus the
aggregate of the [Monthly] Yield for all Contracts,
(ii) for each Contract that is a Defaulted Contract,
the Discounted Contract Balance and (iii) for each
Contract that is the subject of a prepayment
(provided that such Prepayment Amount has actually
been deposited in the Collection Account), an amount
equal to the Discounted Contract Balance immediately
prior to prepayment and (y) the [Class C] Percentage.
To the extent that an amount is included in any of
clauses (i) through (iii) above, such amount shall
not be included in any other such clause for purposes
of calculating the [Class C] [Monthly] Principal.
The "[Class C] Overdue Principal" to be paid to
[Class C] Noteholders will mean, with respect to any
Payment Date, the excess, if any, of (a) the
aggregate amount of [Class C] [Monthly] Principal due
on all prior Payment Dates over (b) the aggregate
amount of [Class C] [Monthly] Principal (from
whatever source) actually paid to [Class C]
Noteholders on all prior Payment Dates.
The "[Monthly] Yield" with respect to each Contract,
on any Payment Date, will mean one-twelfth of the
product of the Discount Rate and the Aggregate
Discounted Contract Balance on the immediately
preceding Payment Date (or the Cut-Off Date in the
case of the initial Payment Date). The "Discounted
Contract Balance" of any Contract as of the Cut-Off
Date will mean the present value of all Contract
Payments due thereon after the Cut-Off Date,
discounted monthly at the product of (i) one-twelfth
and (ii) ____% (the "Discount Rate"). The Discount
Rate is the sum of (a) the weighted average of the
[Class A] Note Rate, the [Class B] Note Rate and the
[Class C] Note Rate, calculated as of the Closing
Date (the "Weighted Average Note Rate") and (b) the
Servicing Fee Rate. (For purposes of calculating the
Weighted Average Note Rate, the [Class C] Note Rate
shall be equal to the [Class B] Note Rate and the
balance applicable thereto shall equal _% of the
Initial Aggregate Balance.) Thereafter, the
Discounted Contract Balance on the first day of any
calendar month (a "Calculation Date") is the present
value of each remaining Contract Payment to become
due under a Contract, discounted monthly from the
date such payment is to become due at a rate equal to
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one-twelfth of the Discount Rate. On the date that a
Contract becomes a Defaulted Contract, the Discounted
Contract Balance for such Contract will be reduced to
zero. The " Aggregate Discounted Contract Balance"
for any Calculation Date is the sum of the Discounted
Contract Balances of all Contracts.
Subordination............. [Payments of interest and principal on the [Class B]
Notes will be subordinated in priority of payment to
interest and principal due on the [Class A] Notes to
the extent described herein under "Description of the
Notes" in the event of defaults and delinquencies
with respect to the Receivables. The [Class B] Notes
will not receive any payments of interest and
principal with respect to a Collection Period until
the full amount of interest and principal on the
[Class A] Notes relating to such Collection Period
has been deposited in the [Class A] Distribution
Account. Distributions of interest and principal on
the [Class C] Notes will be subordinated in priority
of payment to interest and principal due on the
Offered Notes.]
[Reserve Account.......... Pursuant to the Indenture, the [Class A] Noteholders
and [Class B] Noteholders will have the benefit of an
account (the "Reserve Account") established and
maintained by the Trustee. Not later than the
business day prior to each Payment Date, the Trustee
is required to draw on the Reserve Account for
payment, to the extent that the collections from the
immediately preceding Collection Period (the
"Available Funds") on deposit in an account
established and maintained by the Trustee (the
"Collection Account") are not sufficient to pay
[Class A] [Monthly] Interest, [Class A] Overdue
Interest, [Class A] [Monthly] Principal, [Class A]
Overdue Principal, [Class B] [Monthly] Interest,
[Class B] Overdue Interest, [Class B] [Monthly]
Principal, [Class B] Overdue Principal and the
Servicing Fee (the "Required Payments") on any
Payment Date (such shortfall, the "Reserve Account
Payment"), and the proceeds thereof will be deposited
in the Collection Account.
On the Closing Date, the Trustee will deposit in the
Reserve Account an amount equal to _% of the Initial
Aggregate Balance from proceeds of the sale of the
Offered Notes. On the initial Payment Date and on
each Payment Date thereafter, if necessary, monies on
deposit in the Collection Account after payments to
the Servicer, [Class A] Noteholders and [Class B]
Noteholders (the "Excess Collections") shall be
deposited in the Reserve Account to the extent
necessary to bring the balance in the Reserve Account
to the Maximum Reserve Amount (as defined below).
If, on any Payment Date, a Restricting Event shall
exist, amounts otherwise distributable to the [Class
C] Noteholders, if any, and to the Issuer shall be
deposited into the Reserve Account pursuant to the
Indenture. A "Restricting Event" exists as of any
Payment Date or as of the related Determination Date,
when a Delinquency Condition (as defined below)
exists on (i) such Payment Date, (ii) such related
Determination Date or (iii) any of the ________
previous Payment Dates. A "Delinquency Condition"
shall be deemed to exist on and as of any Payment
Date or on and as of the related Determination Date
if (x) the aggregate of the Contract Payments due
during the related Collection
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Period under all Contracts with respect to which any
Contract Payment or portion thereof was overdue as of
each of the two immediately preceding Payment Dates
(after excluding any such Contract Payment which was
paid in full prior to the related Determination Date)
exceeds (y) __ percent of the aggregate of the
Contract Payments due during the related Collection
Period under all Contracts. If a Delinquency
Condition exists on any Payment Date, such
Delinquency Condition shall be deemed to continue to
and include the day immediately preceding the next
Payment Date.
On each Payment Date, funds on deposit in the Reserve
Account (after withdrawal of any Reserve Account
Payment) in excess of the Maximum Reserve Amount will
be distributed to the [Class C] Distribution Account
to the extent of the amount equal to the aggregate of
[Class C] Overdue Interest, [Class C] [Monthly]
Interest, [Class C] Overdue Principal and [Class C]
[Monthly] Principal (such aggregate amount (the
"[Class C] Distributions") and any remainder shall be
distributed to the Issuer in accordance with the
Indenture; provided, however, that if a Restricting
Event exists on such Payment Date, all funds on
deposit in the Reserve Account (after withdrawal of
any Reserve Account Payment) shall remain in the
Reserve Account, subject to use as otherwise provided
in the Indenture. The "Maximum Reserve Amount" shall,
on any Payment Date, be equal to the lesser of (i) _%
of the Initial Aggregate Balance or (ii) the sum of
(x) the Outstanding [Class A] Note Balance and (y)
the Outstanding [Class B] Note Balance less (z) the
Outstanding [Class C] Note Balance. If the amount on
deposit in the Reserve Account is insufficient to pay
the Required Payments, no other assets beyond the
credit enhancement specified in the prospectus will
be available on the related Payment Date for the
payment of the deficiency.]
[Bond Insurer............. __________________, a __________ corporation (the
"Bond Insurer").]
[Bond Insurance Policies.. The Issuer will obtain the bond insurance policies
(the "Bond Insurance Policies"), which are
noncancelable, in favor of the Trustee on behalf of
the Noteholders which provide for the funding of an
amount equal to 100% coverage of the amounts due on
the Notes on each Payment Date. On each Payment Date,
the Bond Insurer will be required to make Insured
Payments to the Trustee, as paying agent. Payment of
Insured Payments together with all other
distributions by the Issuer are intended to provide
the Trustee with sufficient funds to make
distributions of the full amount due to Noteholders
on such Payment Date. The Bond Insurance Policies do
not guarantee the Receivables and do not protect
against any adverse consequences caused by any
specified rate of prepayments. See "Credit
Enhancement" and "The Bond Insurance Policies and the
Bond Insurer" herein and "Description of the Trust
Agreements - Credit and Cash Flow Enhancements" in
the Prospectus.]
Servicing................. The Servicer will be responsible for servicing,
making collections on and otherwise enforcing the
Contracts. The Servicer will be required to exercise
the degree of skill and care in performing these
functions that it customarily exercises with respect
to similar contracts owned by the Servicer. The
Servicer will be entitled to receive a monthly fee
(the "Servicing Fee") of the product of (i)
one-twelfth, (ii) ___% (the "Servicing
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Fee Rate") and (iii) the Aggregate Discounted
Contract Balance as of the beginning of the previous
Collection Period, payable out of the Collection
Account, plus late payment fees and certain other
fees paid by the Obligors (" Servicing Charges") and
investment earnings on amounts held in the Collection
Account (" Investment Earnings"), as compensation for
acting as Servicer.
[On the day prior to any Payment Date, the Servicer
will be required to make an advance (a "Servicer
Advance") to the Trustee in an amount sufficient to
cover all amounts due and unpaid on any Delinquent
Contract as of the previous Determination Date
("Delinquency Amounts"). A "Delinquent Contract" will
mean, as of any Determination Date, any Contract
(other than a Contract which became a Defaulted
Contract prior to such Determination Date) with
respect to which the Obligor has not paid all
Contract Payments then due. With respect to any
Delinquent Contract, whenever the Servicer shall have
determined that it will be unable to recover a
Delinquency Amount or portion thereof on such
Delinquent Contract, the Servicer shall not be
required to make a Servicer Advance on such
unrecoverable Delinquency Amount or portion thereof,
but will be required to enforce its remedies
(including acceleration) under such Contract.
Furthermore, if at any time the Originator is no
longer the Servicer, no Servicer Advances will be
required. In the event that the Servicer determines
that any Servicer Advances previously made are
Nonrecoverable Advances, or any Delinquent Contracts
for which the Originator has made advances of
Delinquency Amounts in respect thereof become
Defaulted Contracts, then the Trustee shall have the
right to draw on the Collection Account and the
Reserve Account to repay such Servicer Advances.]
Under the Receivables Acquisition Agreement, a
Contract will constitute a "Defaulted Contract" at
the earlier of the date on which (i) [______]
Contract Payments are due and unpaid as of any
Calculation Date or (ii) the Servicer has declined to
make a Servicer Advance in accordance with Section
_______ of the Receivables Acquisition Agreement on
the grounds that such advance would be a
Nonrecoverable Advance or (iii) such Contract has
been rejected by or on behalf of the Obligor in a
bankruptcy proceeding.
Under certain limited circumstances, the Servicer may
resign or be removed, in which event the Trustee will
be appointed as successor Servicer.
The Servicer will be required to cause amounts
collected on the Receivables on behalf of the Issuer
to be deposited in a lockbox account (the "Lockbox
Account") maintained by the Trustee. Funds in the
Lockbox Account will be distributed to the Collection
Account maintained with the Trustee no later than the
[______] Business Day following receipt of such
amounts.
[Receivable Substitution.. The Originator shall have the right (but not the
obligation) to substitute a Receivable for any
Receivable which defaults or prepays. Substitute
Receivables must be at least equal in Discounted
Contract Balance and comparable in terms of residual
value, credit quality, and monthly
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payment, provided, that in no event shall the
maturity date of any Substitute Receivable be later
than the last maturity date of any Initial Receivable
or Additional Receivable.]
[Optional Redemption...... The Issuer will have the option, subject to certain
conditions set forth in the Indenture, to prepay all
of the Offered Notes on any Payment Date on which the
Outstanding [Class A] Note Balance is less than
[____%] of the Initial [Class A] Note Balance and the
Outstanding [Class B] Note Balance is less than
[___%] of the Initial [Class B] Note Balance (after
giving effect to payments of principal on such
Payment Date) (an "Optional Redemption"). In the
event such option is exercised, the entire
outstanding principal balance of the Offered Notes,
together with accrued interest thereon at the [Class
A] Note Rate or [Class B] Note Rate, as applicable,
will be required to be paid to the [Class A]
Noteholders and the [Class B] Noteholders on such
Payment Date.]
Limited Repurchase
Obligation................ In the Receivables Acquisition Agreement, the
Originator will make certain representations and
warranties with respect to, among other things, the
Receivables. The Originator will be obligated to
repurchase a Receivable if the interest of the
Trustee or the Noteholders is materially adversely
affected by a breach of such a representation or
warranty with respect to such Receivable and if such
breach has not been cured as of the [_______] Record
Date following the Originator's discovery or receipt
of notice of such breach.
Certain Legal Aspects
of the Receivables........ The Issuer will be required to take such action as is
required to perfect the Trustee's security interest
in the Contracts, the Contract Payments [and the
Vehicles] as of the Closing Date, or in any event,
within [________ (__)] days from the date thereof.
The Issuer will warrant that the Trustee will have a
first priority perfected security interest in the
Contracts, the Contract Payments owned by the Issuer,
[and a perfected security interest in the Vehicles
owned by Obligors,] except for certain liens which by
operation of law have priority over previously
perfected security interests, and, with certain
exceptions, in the proceeds thereof. The Trustee will
act as custodian of the Receivables on behalf of the
Noteholders.
Federal Income Tax
Consequences............. Subject to the discussion below, under the Internal
Revenue Code of 1986, as amended, and existing
regulations, administrative rules and judicial
decisions, counsel to the Issuer is of the opinion
that the Offered Notes will be characterized as
indebtedness for federal income tax purposes. As a
result, a portion of each payment on the Notes will
be treated as interest. Holders of the Offered Notes
will be required to include interest paid or accrued
on the Offered Notes in gross income. Principal
payments on the Offered Notes should, to the extent
of the Noteholder's basis in the Offered Notes
allocable thereto, be treated as a return of capital.
See " Federal Income Tax Consequences" regarding the
foregoing and additional information concerning the
application of federal income tax laws.
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ERISA Considerations...... The acquisition of Notes by an employee benefit plan
subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") or the provisions
of Section 4975 of the Code (a "Plan"), could result
in a prohibited transaction under "ERISA" or Section
4975 of the Code, unless such acquisition is subject
to a statutory or administrative exemption, if, by
virtue of such acquisition, assets held by the Issuer
and pledged to the Trustee were deemed to be assets
of the Plan. In addition, the Issuer or other parties
may be considered to be a fiduciary with respect to
any Plan. Therefore, the acquisition and transfer of
the Notes are subject to certain restrictions. See
"ERISA Considerations."
Ratings................... It is a condition of the original issuance of the
Offered Notes that the Offered Notes receive ratings
of ___ by ____________________ ("____"), and ___ by
__________________________ ("_________"). A security
rating is not a recommendation to buy, sell or hold
securities, and may be subject to revision or
withdrawal at any time by the assigning entity. See
"Projected Prepayments and Yields for Notes" and
"Rating of the Notes" herein and "Yield
Considerations" in the Prospectus.
Risk Factors.............. For a discussion of certain factors that should be
considered by prospective investors in the Offered
Notes, see "Risk Factors" herein and in the
Prospectus.
Certain Legal Matters..... Certain legal matters relating to the validity of the
issuance of the Offered Notes will be passed upon for
the Issuer and the Underwriter by Dewey Ballantine,
New York, NY.
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<PAGE>
RISK FACTORS
Prospective Noteholders should consider, among other things, the following
factors in connection with the purchase of the Offered Notes:
Risk of Losses on Investment Associated with Limited Obligations of the
Trust. Distributions of interest and principal on the Notes will be subordinated
in priority of payment to interest and principal due on the Notes. The
Noteholders will not receive any distributions with respect to a Payment Date
until the full amount of interest on and principal of the Notes on such Payment
Date has been deposited in the Note Distribution Account. The Trust does not
have, nor is it permitted or expected to have, any significant assets or sources
of funds other than the Receivables and the Trust Accounts. The Securities
represent solely obligations of, or interests in, the Trust and the Securities
will not be insured or guaranteed by the Sponsor, the Originator, the Servicer,
the [Owner] Trustee or any other person or entity. Consequently, holders of the
Securities must rely for repayment upon payments on the Receivables and, if and
to the extent available, amounts on deposit in the Reserve Account. Amounts to
be deposited in the Reserve Account are limited in amount, and the amount
required to be on deposit in the Reserve Account will be reduced as the Pool
Balance is reduced. In addition, funds in the Reserve Account will be available
on each Payment Date to cover shortfalls in distributions of interest and
principal on the Notes prior to the application thereof to cover shortfalls on
the Notes. If the Reserve Account is exhausted, the Trust will depend solely on
current payments on the Receivables to make payments on the Securities. Although
the Trust will covenant to sell the Receivables if directed to do so by the
Indenture Trustee in accordance with the Indenture following an acceleration of
the Notes upon an Event of Default, there is no assurance that the market value
of the Receivables will at any time be equal to or greater than the aggregate
principal amount of outstanding Notes. Therefore, upon an Event of Default with
respect to the Notes there can be no assurance that sufficient funds will be
available to repay Noteholders in full and consequently the Noteholders run the
risk of loss on their investment. In addition, the amount of principal required
to be distributed to Noteholders under the Indenture is generally limited to
amounts available therefor in the Note Distribution Account. Therefore, the
failure to pay principal on the Notes may not result in the occurrence of an
Event of Default until the Final Scheduled Payment Date.
Risk of Limited Liquidity and Lower Market Price Associated with a
Reduction or Withdrawal of Ratings of the Notes. It is a condition to the
issuance of the Notes and the Notes that the [Class A Notes] be rated in the
[_____] rating category, the [Class B Notes] be rated in the [____] rating
category and the Notes be rated at least [___] or its equivalent, in each case
by at least two nationally recognized rating agencies (the "Rating Agencies"). A
rating is not a recommendation to purchase, hold or sell securities, inasmuch as
such rating does not comment as to market price or suitability for a particular
investor. The rating of the Notes addresses the likelihood of the timely payment
of interest on and the ultimate repayment of principal of the Notes pursuant to
their terms. There is no assurance that a rating will remain for any given
period of time or that a rating will not be lowered or withdrawn entirely by a
Rating Agency if in its judgment circumstances in the future so warrant. The
rating of the Notes is based primarily on the creditworthiness of the
Receivables and the availability of funds in the Reserve Account. The ratings of
the Notes are also based on the rating of the security insurer. Upon a security
insurer default, the rating on the Notes may be lowered or withdrawn entirely.
In the event that any rating initially assigned to the Notes were subsequently
lowered or withdrawn for any reason, including by reason of a downgrading of the
security insurer's claims-paying ability, no person or entity will be obligated
to provide any additional credit enhancement with respect to the Securities. Any
reduction or withdrawal of a rating will have an adverse effect on the liquidity
and market price of the Securities. See "Ratings."
[Risk of Reduced Rate of Return Associated with Relationship Between Base
Rate and LIBOR. Allocations of payments on the variable rate Receivables to
principal and interest depend upon the applicable Base Rate. Interest on the
[Class A] Notes, [Class B] Notes and the [Class C] Notes accrues at a rate
generally based upon LIBOR. These two rates can and will vary with respect to
each other. Historically, they have increased or decreased roughly in tandem
and, during the last ten years, LIBOR
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always has remained below the Base Rate. However, no assurance can be given that
these historical trends will continue. There is a risk that if LIBOR were to
more above the Base Rate, the spread used to pay interest to the Securityholders
would disappear and the rate of return to investors would be reduced.]
[The variable rate Receivables bear interest at the Base Rate plus a Base
Rate Additive ranging from _____% to _____%. Each of the [Class A] Interest
Rate, the [Class B] Interest Rate and the [Class C] Interest Rate is based upon
LIBOR. If, in respect of any Payment Date, there does not exist a positive
spread between the weighted average of the Receivables Rate [Class A Interest
Rate] [the Class B Interest Rate] less the Servicing Fee Rate (such difference
between the Receivables Rate and the Servicing Fee Rate being the "Net
Receivables Rate") for the Collection Period preceding such Payment Date, on the
one hand, and the [Class A Interest Rate], [the Class B Interest Rate], [the
Class C Interest Rate]for such Payment Date (calculated before giving effect to
this sentence), on the other hand, then the Interest Rate for such Payment Date
shall not exceed the Net Receivables Rate.]
[Risk of Reduced Rate of Return Associated with Yield Considerations. The
Noteholders will bear the risk associated with the possible narrowing of the
spread between the [Class A Interest Rate] [the Class B Interest Rate] [Class C
Interest Rate], on the one hand, and the Net Receivables Rate, on the other
hand. If this spread disappears (i.e., if the [Class A] Note Rate, the [Class B]
Note Rate [Class C] Note Rate exceeds or equals the Net Receivables Rate), the
interest payable on the [Class A Notes] [Class B Notes] [Class C Notes] for the
related Payment Date will not exceed such Net Receivables Rate. A substantial
change in LIBOR at a time when the Net Receivables Rate does not experience a
similar change could result in limiting the [Class A Interest Rate] [Class B
Interest Rate] [Class C Interest Rate] and consequently could reduce the rate of
return to investors as described above.]
Risk of Lower Yield Associated with Prepayment Considerations. If
purchased at other than par, the yield to maturity on the Securities will be
affected by the rate of the payment of principal of the Contracts. If the actual
rate of payments on the Contracts is slower than the rate anticipated by an
investor who purchases the Securities at a discount, the actual yield to such
investor will be lower than such investor's anticipate yield. If the actual rate
of payments on the Contracts is faster than the rate anticipated by an investor
who purchases the Securities at a premium, the actual yield to such investor
will be lower than such investor's anticipated yield.
[All of the Contracts are fixed-rate contracts. The rate of prepayments
with respect to conventional fixed contracts has fluctuated significantly in
recent years. In general, if prevailing interest rates fall significantly below
the interest rates on fixed rate contracts, such contracts are likely to be
subject to higher prepayment rates than if prevailing rates remain at or above
the interest rate on such contracts. However, the monthly payment on contracts
similar to the Contracts is often smaller than the monthly payment on other
types of consumer debt, for example, a typical mortgage loan. Consequently, a
decrease in the interest rate payable as a result of a refinancing would result
in a relatively small reduction in the amount of the contracts monthly payment,
as a result of the relatively small loan balance. Conversely, if prevailing
interest rates rise appreciably above the interest rates on fixed rate
contracts, such contracts are likely to experience a lower prepayment rate than
if prevailing rates remain at or below the interest rates on such contracts. As
of the Cut-off Date, ____% of the aggregate principal balance of the Contracts
had prepayment penalties.]
[All of the Contracts are adjustable rate contracts. As is the case with
conventional fixed rate contracts, adjustable rate contracts may be subject to a
greater rate of principal prepayments in a declining interest rate environment.
For example, if prevailing interest rates fall significantly, adjustable rate
contracts could be subject to higher prepayment rates than if prevailing
interest rates remain constant because the availability of fixed-rate contracts
at competitive interest rates may encourage obligors to refinance their
adjustable rate contracts to "lock in" a lower fixed interest rate. However, no
assurance
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can be given as to the level of prepayments that the contracts will experience.
As of the Cut-off Date, ____% of the aggregate principal balance of the
Contracts had prepayment penalties.]
THE RECEIVABLES
Contracts
[Description of collateral is transaction dependent - an example of disclosure
language is set forth below].
[All of the Contracts were purchased by the Sponsor from the Originator in
the ordinary course of business and the Contracts constitute substantially all
of the automobile and light duty truck retail installment sale contracts
included in the Originator's portfolio meeting the selection criteria described
below. Such selection criteria included that: (i) each Contract is secured by a
new or used automobile or light duty truck; (ii) each Contract was originated in
the United States; (iii) each Contract provides for level monthly payments that
fully amortize the amount financed over its original term except that the
payment in the first or last month in the life of the Contract may be minimally
different from the level payment, and a minimal number of the Contracts provide
for monthly payments for a period of time not exceeding one year after
origination in an amount less than such level payment, provided that as of the
Cutoff Date the monthly payment currently due under each such Contract is equal
to such level payment; (iv) each Contract was originated on or prior to __,
199_; (v) each Contract has an original term of __ to __ months and, as of the
Cutoff Date, had a remaining term to maturity of not less than three months nor
more than __ month; (vi) each Contract provides for the payment of a finance
charge at an APR ranging from __% to __%; (vii) each Contract shall not have a
Scheduled Payment that is more than 30 days past due as of the Cutoff Date;
(viii) no Contract shall be due, to the best knowledge of the Originator, from
any Obligor who is presently the subject of a bankruptcy proceeding or is
bankrupt or insolvent; (ix) no Vehicle has been repossessed without
reinstatement as of the Cutoff Date; and (x) as of the Cutoff Date, physical
damage insurance relating to each Vehicle is not being force-placed by the
Servicer.
Certain information with respect to the Receivables expected to be sold by
the Originator to the Sponsor pursuant to the Receivables Acquisition Agreement
and in turn sold by the Sponsor to the Trust pursuant to the Trust Agreement is
set forth below. The description of the Receivables presented in this Prospectus
Supplement is based upon the pool of Receivables as it is expected to be
constituted on the Cutoff Date. While information as of the Closing Date for the
Receivables that actually will be sold to the Trust may differ somewhat from the
information presented herein, the Sponsor does not expect that the
characteristics of the Receivables that are sold to the Trust will vary
materially from the information presented in this Prospectus Supplement
concerning the Receivables.
As of the Cutoff Date, approximately __% and approximately __% of the
Aggregate Discounted Contract Balance are expected to represent Contracts
secured by automobiles and light duty trucks, respectively. Based on the
Aggregate Discounted Contract Balance, approximately __% and approximately __%
of the Contracts are expected to represent financing of new vehicles and used
vehicles, respectively, and no more than __% of the Contracts are expected to be
due from employees of the Originator or any of its respective affiliates. As of
the Cutoff Date, the average Principal Balance of Contracts secured by
automobiles and light duty trucks is expected to be approximately $_____ and
approximately $_____, respectively. The majority of the Vehicles are expected to
be foreign and domestic automobiles and light duty trucks. Except in the case of
any breach of representations and warranties by the Originator, it is expected
that none of the Contracts provide for recourse to the Originator who originated
the related Contract.
Each Contract provides for fixed level monthly payments which will
amortize the full amount of the Contract over its term. The Contracts provide
for allocation of payments according to the "sum of periodic
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balances" or "sum of monthly payments" method (the "Rule of 78s"). Each Contract
provides for the payment by the Obligor of a specified total amount of payments,
payable in monthly installments on the related due date, which total represents
the principal amount financed and finance charges in an amount calculated on the
basis of a stated annual percentage rate ("APR") for the term of such Contract.
The rate at which such amount of finance charges is earned and, correspondingly,
the amount of each fixed monthly payment allocated to reduction of the
outstanding principal balance of the related Contract are calculated in
accordance with the Rule of 78s. Under the Rule of 78s, the portion of each
payment allocable to interest is higher during the early months of the term of a
Contract and lower during later months than that under a constant yield method
for allocating payments between interest and principal. Notwithstanding the
foregoing, all payments received by the Servicer on or in respect of the
Contract will be allocated pursuant to the Indenture on an actuarial basis.
If an Obligor elects to prepay a Contract in full, it is entitled to a
rebate of the portion of the outstanding balance then due and payable
attributable to unearned finance charges, calculated in accordance with the Rule
of 78s. The amount of a rebate under a Contract calculated in this manner will
always be less than had such rebate been calculated on an actuarial basis.
Distributions to Noteholders will not be affected by Rule of 78s rebates under
the Contract because pursuant to the Indenture such distributions will be
determined using the actuarial method.]
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<PAGE>
The expected composition, distribution by APR and geographical
distribution of the Contracts are as set forth in the following tables.
Expected Composition of the Contracts
New Used
Aggregate Discounted Contract Balance ........ $
Number of Contracts .......................... _____
Average Original Principal Balance ........... $
Range of Original Principal Balances ....... $_____ to $_____
Weighted Average APR(1)....................... ___%
Range of APRs .............................. ___% to ___%
Weighted Average Original Maturity(1) ........ ___ months
Range of Original Maturities ............... __ months to __ months
Weighted Average Remaining Maturity(1) ....... __ months
Range of Remaining Maturities .............. __ months to __ months
- ----------
(1) Weighted by Aggregate Discounted Contract Balance as of the Cutoff Date.
Expected Distribution of the Contracts by APR
Percentage of
Percentage of Aggregate Aggregate
Aggregate Discounted Discounted
Number of Number Contract Contract
Range of APRs Contracts of Contracts Balance Balance
- ------------- --------- ------------- --------- --------
% to % .... % $ %
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
Total ...... % $ %
======== ===== ======= ==========
S-19
<PAGE>
Expected Distribution of the Contracts by State
Percentage of Aggregate Percentage of
Number of Aggregate Discounted Aggregate
Number Contract Discounted
State(1) Contracts of Contracts Balance Contract Balance
- -------- --------- -------------- --------- ----------------
% $ %
Total....... % $ %
======== ======== =======
- ----------
(1) Based on the addresses of the Obligors.
Substitution
Pursuant to the Receivables Acquisition Agreement, the Servicer will have
the right (but not the obligation) at any time to substitute one or more
Eligible Receivables (each a "Substitute Receivable") for a Receivable
("Predecessor Receivable") if:
(i) the Predecessor Receivable is then in default and, as of the
most recent Determination Date, has been in default for at least
[____(__)] consecutive days or a bankruptcy petition has been filed by or
against the Obligor;
[(ii) the Vehicles comprising part of the Substitute Receivable or
Receivables has a current estimated fair market value and a projected
residual value, respectively, equal to or greater than the current fair
market value and projected residual value of the Vehicles comprising part
of the Predecessor Receivable;] and
(iii) the Substitute Receivable or Receivables require the obligor
or obligors thereunder to make Contract Payments during each month ending
on or prior to the Stated Maturity Date of the Notes in an amount which is
at least as great as the Contract Payment required under the Predecessor
Receivable during each such month.
[provided, however, that the Aggregate Discounted Contract Balance of all
Contracts substituted shall not exceed [10%] of the Aggregate Discounted
Contract Balance of the Initial Receivables and the Additional Receivables.]
[Upon repossession and disposition of any Vehicles subject to a Defaulted
Contract, any deficiency remaining will be pursued to the extent deemed
practicable by the Servicer. The Servicer on behalf of the Issuer is directed to
maximize the Net Residual Value of the Vehicles relating to any Defaulted
Contract, and, in such regard, the Servicer may sell such Vehicles at the best
available price, refurbish such Vehicles and re-lease such Vehicles to third
parties, or take any other commercially reasonable steps to maximize such
Vehicles's Net Residual Value. Liquidation proceeds with respect to any such
Defaulted Contract, including any future payments received with respect to such
Defaulted Contracts, shall be paid to the Collection Account. If the Servicer
reasonably believes that the Net Residual Value of any Vehicles is zero or de
minimis, it will dispose of such Vehicles in accordance with its standard
procedures.
S-20
<PAGE>
[The original counterpart of each Contract constituting chattel paper and
the Contract Files will be held by _________________, as Trustee on behalf of
the Noteholders. The Trustee will be required to indicate that the Contracts
have been transferred by the Originator to the Issuer.]
[The Additional Receivables
Subject to the conditions set forth below, in consideration of the
Trustee's delivery on the related Additional Receivable Transfer Date upon the
order of the Issuer of all or a portion of the balance of funds in the
Pre-Funding Account, the Originator shall on any Additional Receivable Transfer
Date sell, transfer, assign, set over and otherwise convey without recourse, to
the Issuer, all right, title and interest of the Originator in and to each
Additional Receivable listed on the schedule delivered by the Originator to the
Issuer and the Trustee (including all Contract Payments due thereunder);
provided, however, that the Originator reserves and retains all of its right,
title and interest in and to all Contract Payments collected and interest
accruing on each such Additional Receivable prior to the related Additional
Receivable Transfer Date.
The amount released from the Pre-Funding Account shall be ___________
percent (_____%) of the Discounted Contract Balances of each Additional
Receivable so transferred.
The Originator shall transfer to the Issuer the Additional Receivables and
the other property and rights related thereto only upon the satisfaction of each
of the following conditions on or prior to the related Additional Receivable
Transfer Date:
a. the Originator shall have provided the Trustee with a timely
Addition Notice and shall have provided any information reasonably
requested by the Issuer or the Trustee with respect to the Additional
Receivables;
b. the Originator shall have delivered to the Issuer and the Trustee
a duly executed written assignment (including an acceptance by the
Trustee) (the "Additional Receivable Transfer Agreement"), which shall
include schedules listing the Additional Receivables and any other
exhibits listed thereon;
c. the Originator shall have deposited in the Collection Account all
collections in respect of the Additional Receivables received on or after
the related Additional Receivable Transfer Date;
d. as of each Additional Receivable Transfer Date, the Originator
was not insolvent, will not be made insolvent by such transfer nor is it
aware of any pending insolvency;
e. such addition will not result in a material adverse tax
consequence to the Issuer or the Noteholders;
f. the Originator shall have delivered to the Trustee an Officers'
Certificate confirming the satisfaction of each condition precedent
specified in this paragraph and in the related Additional Receivable
Transfer Agreement;
g. the obligation of the Issuer to purchase an Additional Receivable
on any Additional Receivable Transfer Date is subject to the requirement
that such Additional Receivable comply in all material respects with the
representations and warranties made by the Originator on the Initial
Receivables in the Receivables Acquisition Agreement.]
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<PAGE>
Any conveyance of Additional Receivables is subject to the following
conditions, among others: (i) each such Additional Receivable and/or Additional
Financed Vehicle must satisfy the eligibility criteria specified under "The
Receivables" in the Prospectus as of the respective Additional Cutoff Date of
such Additional Receivable; (ii) the Insurer (so long as no Insurer Default
shall have occurred and be continuing) shall have approved the transfer of such
Additional Receivables to the Trust; (iii) Originator will not have selected
such Additional Receivables in the manner that either believes is adverse to the
Interests of the Insurer or the Securityholders; (iv) the Originator will
deliver certain opinions of counsel with respect to the validity of the
conveyance of such Additional Receivables; and (v) the Rating Agencies shall
confirm that the ratings on the Securities have not been withdrawn or reduced as
a result of the transfer of such Additional Receivables to the Trust.
THE ORIGINATOR AND THE SERVICER
General
The Originator is principally a company engaged in the business of
originating and acquiring retail installment sale contract financing to retail
customers of automotive dealers. The Originator provides full-service financing,
primarily through installment sales contracts, to retail purchasers of new and
used automobiles and light duty trucks through dealer programs.
[The Originator has financed over $___ million of vehicles, representing
over _______ vehicles. The Originator currently services over ___ customers
through its direct servicing activities and an additional ______ customers in
connection with its subsidiaries' activities. As of ____________________, the
Originator had __ employees.]
Delinquency and Default Experience
There can be no assurance that the levels of delinquency and loss
experience reflected in Table 1 and Table 2, below, are indicative of the
performance of the Receivables included in the Collateral for the Notes.
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<PAGE>
TABLE 1
DELINQUENCY EXPERIENCE
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1991 1992 1993
===============================================================
Dollar Percentage Dollar Percentage Dollar Percentage
Amount of Total Amount of Total Amount of Total
(000) Portfolio (000) Portfolio (000) Portfolio
----- --------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Total Originator Portfolio
at Year End
Delinquencies:
31-59 Days
60-89 Days
90 Days or more
Total Delinquencies
Total Delinquencies
% of Total Portfolioas a
</TABLE>
(1) The indicated periods of delinquency (31-59, 60-89, and 90 or more) are
based on the number of days past due on a contractual basis, based on a
30-day month. No Contract is considered delinquent for these purposes until
the monthly anniversary of its contractual due date (e.g., a Contract with a
payment due on January 1 would be considered 31-59 days delinquent if the
January 1 payment has not been received on or prior to February 1).
TABLE 2
LOSS EXPERIENCE
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
1991 1992 1993
===============================================================
Dollar Percentage Dollar Percentage Dollar Percentage
Amount of Total Amount of Total Amount of Total
(000) Portfolio (000) Portfolio (000) Portfolio
----- --------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Total Acquisitions (1)
Gross Defaults
Gross Recoveries
Net Losses
================================================================================
</TABLE>
(1) Total Acquisition = total cost (aggregate purchase price of the Vehicles)
to the Originator since inception in ____ thru and including the year end
set forth above.
Litigation
Originator is not involved in any legal proceedings, and is not aware of
any pending or threatened legal proceedings that would have a material adverse
effect upon its financial condition or results of operations.
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<PAGE>
Servicing
The Receivables will be serviced by the Originator, as Servicer, pursuant
to the Receivables Acquisition Agreement.
The Receivables Acquisition Agreement requires that servicing of the
Receivables by Originator shall be carried out in the same manner in which it
services contracts and vehicles held for its own account and consistent with
customary practices of servicers in the retail automobile industry, but in
performing its duties hereunder, Originator will act on behalf and for the
benefit of the Issuer, the Trustee and the holders of the Notes, subject at all
times to the provisions of the Indenture, without regard to any relationship
which Originator or any Affiliate of Originator may otherwise have with an
Obligor. Except as permitted by the terms of any Contract following a default
thereunder, Originator shall not take any action which would result in the
interference with the Obligor's right to quiet enjoyment of the Vehicles subject
to the Contract during the term thereof.
Following each Determination Date, Originator shall advance and remit to
the Trustee, in such manner as will ensure that the Trustee will have
immediately available funds on account thereof by 11:00 a.m. New York time on
the [_______] Business Day prior to the next succeeding Payment Date, a Servicer
Advance equal to the Contract Payment due during the preceding Collection Period
with respect to each Contract (other than a Contract which became a Defaulted
Contract on or prior to such Determination Date) under which the Obligor has not
made such payment by such Determination Date; provided, however, that Originator
will not be obligated to make a Servicer Advance with respect to any Contract if
Originator, in its good faith judgment, believes that such Servicer Advance
would be a Nonrecoverable Advance. If Originator determines that any Contract
Payment it has made, or is contemplating making, would be a Nonrecoverable
Advance, Originator shall deliver to the Trustee an Officers' Certificate
stating the basis for such determination.
Servicing Compensation and Payment of Expenses
For its servicing of the Receivables, Originator will be entitled to
receive a monthly Servicing Fee equal to the product of (i) one-twelfth, (ii)
___% and (iii) the Aggregate Discounted Contract Balance of all Contracts as of
the preceding Determination Date, payable out of the Collection Account, plus
Servicing Charges and Investment Earnings.
All costs of servicing each Receivable in the manner required by the
Receivables Acquisition Agreement shall be borne by Originator, but Originator
shall be entitled to retain, out of any amounts
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<PAGE>
actually recovered with respect to any Defaulted Contract [or the Vehicles
subject thereto,] Originator's actual out-of-pocket expenses reasonably incurred
with respect to such Defaulted Contract [or Vehicles]. In addition, Originator
shall be entitled to receive on each Payment Date any unreimbursed
Nonrecoverable Advances or Servicer Advances with respect to any Defaulted
Contract and the Servicing Fee.
Evidence as to Compliance
The Receivables Acquisition Agreement requires that with each set of
financial statements delivered pursuant to the Receivables Acquisition
Agreement, Originator will deliver an Officers' Certificate stating (i) that the
officers signing such Certificate have reviewed the relevant terms of the
Receivables Acquisition Agreement and have made, or caused to be made under such
officers' supervision, a review of the activities of Originator during the
period covered by the statements then being furnished, (ii) that the review has
not disclosed the existence of any Servicer Event of Default or, if a Servicer
Event of Default exists, describing its nature and what action Originator has
taken and is taking with respect thereto, and (iii) that on the basis of such
review the officers signing such certificate are of the opinion that during such
period Originator has serviced the Receivables in compliance with the required
procedures except as described in such certificate.
Originator shall cause a firm of independent certified public accountants
(who may also render other services to Originator) to deliver to the Trustee,
with a copy to the Rating Agency and each holder of the Notes, within [90] days
following the end of each fiscal year of Originator, beginning with Originator's
fiscal year ending ____________, 199__, a written statement to the effect that
such firm has examined in accordance with generally accepted practices samples
of the accounts, records, and computer systems of Originator for the fiscal year
ended on the previous ________ relating to the Receivables (which accounts,
records, and computer systems shall be described in one or more schedules to
such statement), that such firm has compared the information contained in
Originator's reports delivered in the relevant period with information contained
in the accounts, records, and computer systems for such period, and that, on the
basis of such examination and comparison, such firm is of the opinion that
Originator has, during the relevant period, serviced the Receivables in
compliance with such servicing procedures, manuals, and guides and in the same
manner as it services comparable contracts for itself or others, that such
accounts, records, and computer systems have been maintained, and that such
certificates, accounts, records, and computer systems have been properly
prepared and maintained in all material respects, except in each case for (a)
such exceptions as such firm shall believe to be immaterial and (b) such other
exceptions as shall be set forth in such statement.
Other Servicing Procedures
At least [___] days prior to each Payment Date, Originator shall deliver a
report in writing (the "[Monthly] Servicer Report") to each holder of the Notes,
the Trustee and the Rating Agency.
If an Obligor has [___] Contract Payments which are due and unpaid as of
any Determination Date, such Obligor's Contract shall become a Defaulted
Contract. Where no satisfactory arrangements can be made for collection of
delinquent payments within [__] days of a Contract becoming a Defaulted
Contract, Originator shall foreclose or otherwise liquidate any such Defaulted
Contract [(together with the related Vehicles)] within [60] days of such
Contract becoming a Defaulted Contract. In connection with any foreclosure or
other liquidation, Originator will take such action as is appropriate,
consistent with Originator's administration of contracts in its own portfolio,
including such action as may be necessary to cause, or attempt to cause, the
Obligor thereunder to cure such default (if the same may be cured) or to
terminate or attempt to terminate such Contract and to recover, or attempt to
recover, all damages resulting from such default.
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<PAGE>
Removal of the Servicer
The Receivables Acquisition Agreement will provide that Originator may not
resign from its obligations and duties as Servicer thereunder, except upon a
determination that Originator's performance of such duties is no longer
permissible under applicable law. Originator can only be removed pursuant to a
Servicer Event of Default. If a Servicer Event of Default shall have occurred
and be continuing, the Trustee shall give written notice to Originator of the
termination of all of the rights and obligations of Originator (but none of the
Originator's obligations thereunder, which shall survive any such termination)
under the Receivables Acquisition Agreement. On and after the time Originator
receives a notice of termination, the Trustee shall be the successor in all
respects to Originator in its capacity as servicer under the Receivables
Acquisition Agreement of the Receivables. The Trustee may, if it shall be
unwilling to so act, or shall, if it is unable to so act, give notice of such
fact to each holder of the Notes and (i) appoint an established institution,
satisfactory to the holders of Notes evidencing not less than [_______] of the
Voting Rights, as the successor to Originator to assume all of the rights and
obligations of Originator, including, without limitation, Originator's right to
receive the Servicing Fee (but not the obligations of the Originator contained
in the Receivables Acquisition Agreement) or, (ii) if no such institution is so
appointed, petition a court of competent jurisdiction to appoint an institution
meeting such criteria as Originator.
THE TRUSTEE
The Trustee, ____________, has an office at ________________________.
The Trustee may resign, subject to the conditions set forth below, at any
time upon written notice to the Issuer, and the Servicer, in which event the
Issuer, will be obligated to appoint a successor Trustee. If no successor
Trustee shall have been so appointed and have accepted such appointment within
[30] days after the giving of such notice of resignation, the resigning Trustee
or any Noteholder may petition a court of competent jurisdiction for the
appointment of a successor Trustee. Any successor Trustee shall meet the
financial and other standards for qualifying as a successor Trustee under the
Indenture. The Noteholders evidencing more than [__%] of the Voting Rights of
the Trust may also remove the Trustee if the Trustee ceases to be eligible to
continue as such under the Indenture and fails to resign after written request
therefor, or is legally unable to act, or if the Trustee is adjudicated to be
insolvent. 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.
DESCRIPTION OF THE NOTES AND INDENTURE
The Notes will be issued pursuant to the Indenture entered into by and
between the Issuer and the Trustee. The Trustee will provide a copy of the
Indenture, together with copies of the Receivables Acquisition Agreement and the
Note Agreement (collectively, the "Agreements") to Noteholders, without charge,
upon written request addressed to its Corporate Trust Office.
The following summary which describes certain provisions of the Indenture,
together with certain provisions of the Receivables Acquisition Agreement as
they relate to the Notes, does not purport to be complete, and is subject to and
qualified in its entirety by reference to such Agreements. Wherever provisions
of such Agreements are referred to, such provisions are hereby incorporated
herein by reference.
S-26
<PAGE>
The obligations evidenced by the Notes are recourse obligations of the
Issuer only and are not recourse to the Originator, the Servicer, the Trustee or
any other Person. The Issuer will agree in the Indenture and in the Notes to pay
to the Noteholders (i) an amount of principal equal to the product of (x) the
Initial Aggregate Balance and (y) the applicable Class Percentage and (ii)
interest at the applicable Note Rate from the sources and on the terms and
conditions set forth in the Indenture, the Receivables Acquisition Agreement and
in the Notes.
Interest accrues on the Notes from Payment Date to Payment Date, and is
payable, along with required principal, on the [____] day of each month (or, if
such day is not a Business Day, the immediately following Business Day).
The Notes will be issued in fully registered form only, as authenticated
by the Trustee. Each [Class A] Note will evidence $___________ or more of the
Initial Aggregate Balance and each [Class B] Note will evidence $___________ or
more of the Initial Aggregate Balance. The Initial Aggregate Balance shall be
____% of the Initial Aggregate Discounted Contract Balance and the Original
Pre-Funded Amount. The Notes are transferable and exchangeable through the
Trustee at its Corporate Trust Office. No service charge will be made for any
registration of transfer or exchange of Notes, but a sum sufficient to cover any
tax or other governmental charge may be required to be paid by the Noteholder.
Payments on the Notes are required to be made by the Trustee on each
Payment Date, to persons in whose names Notes are registered as of the Record
Date.
The first Payment Date for the Notes will be _______ [__, 199_]. Payments
are required to be made by the Trustee by wire transfer of immediately available
funds, to Noteholders entitled thereto at the account for such Noteholder
appearing in the Note Register on the Record Date or, if no such account is so
specified, then by check mailed to the address for such Noteholder appearing in
the Note Register on such Record Date.
THE BOND INSURANCE POLICY
AND THE BOND INSURER
The following information has been furnished by the Bond Insurer for
use in this Prospectus Supplement.
The Bond Insurer, in consideration of the payment of the premium and
subject to the terms of the Bond Insurance Policy, thereby unconditionally and
irrevocably guarantees to any Noteholder (as described below) that an amount
equal to the full and complete Insured Payments (as described below) will be
received by the Trustee, on behalf of the Noteholders, for distribution to each
Noteholder of each Noteholder's proportionate share of the Insured Payment.
"Insured Payment" means (A) with respect to any Payment Date, the Insufficiency
Amount, if any, remaining after making all required transfers to the Collection
Account from the Reserve Account pursuant to the Trust Agreement, and (B) the
reimbursement of any portion of any interest or principal payment previously
paid which is subsequently recovered from the Trustee or any Noteholder pursuant
to a final nonappealable judgment by a court of competent jurisdiction to the
effect that such payment constitutes a voidable preference to such Noteholder or
the Trustee within the meaning of any applicable bankruptcy law. Insured
Payments shall be made only at the time set forth in the Bond Insurance Policy
and no accelerated Insured Payments shall be made regardless of any acceleration
of the Notes, unless such acceleration is at the sole option of the Bond
Insurer.
The Bond Insurer will pay any amount payable under the Bond
Insurance Policy pursuant to clause (A) above no later than [12:00 noon New York
City] time on the later of the Payment Date on which the related Insufficiency
Amount is due or the Business Day following receipt on a Business Day
S-27
<PAGE>
by ____________, as Fiscal Agent for the Bond Insurer, or any successor fiscal
agent appointed by the Bond Insurer (the "Fiscal Agent") of a Notice of
Nonpayment; provided that if such Notice of Nonpayment is received after [12:00
noon New York City] time on such Business Day, it will be deemed to be received
on the following Business Day. If any such Notice of Nonpayment received by the
Fiscal Agent is not in proper form or is otherwise insufficient for the purpose
of making claim under the Bond Insurance Policy it shall be deemed not to have
been received by the Fiscal Agent for purposes of this paragraph, and the Bond
Insurer or the Fiscal Agent, as the case may be, shall promptly so advise the
Trustee and the Trustee may submit an amended Notice of Nonpayment.
The Bond Insurer will pay any amount payable under the Bond
Insurance Policy pursuant to clause (B) above voided as a preference under any
applicable bankruptcy law on the Business Day following receipt on a Business
Day by the Fiscal Agent of (i) a certified copy of the final order of the court
which exercised jurisdiction to the effect that the Trustee or the
Certificateholder is required to return principal or interest paid on the Notes
because such payments were voidable preferences under applicable bankruptcy law,
(ii) an opinion of counsel satisfactory to the Bond Insurer that such order is
final and not subject to appeal, (iii) an assignment in such form as is
reasonably required by the Bond Insurer, irrevocably assigning to the Bond
Insurer all rights and claims of the Noteholder relating to or arising under the
Notes against the debtor which made such preference payment or otherwise with
respect to such preference payment and (iv) appropriate instruments to effect
the appointment of the Certificate Insurer as agent for such Noteholder in any
legal proceeding related to payment of principal or interest distributed
thereunder, such instruments being in a form satisfactory to the Bond Insurer,
provided that if such documents are received after [12:00 noon New York City]
time on such Business Day, they will be deemed to be received on the following
Business Day. Such payments shall be disbursed to the receiver or trustee in
bankruptcy named in the final order of the court exercising jurisdiction on
behalf of the Noteholder and not to any Noteholder directly unless such
Noteholder has returned principal or interest paid on the Notes to such receiver
or trustee in bankruptcy, in which case such payment shall be disbursed to such
Noteholder.
Insured Payments due under the Note Insurance Policy unless
otherwise stated therein will be disbursed by the Fiscal Agent to the Trustee on
behalf of the Noteholders by wire transfer of immediately available funds in the
amount of the Insured Payment less, in respect of Insured Payments described in
(B) of the definition thereof, any amount held by the Trustee for the payment of
such Insured Payment and legally available therefor. The Bond Insurer's
obligations under the Bond Insurance Policy shall be discharged to the extent
funds are transferred to the Trustee for distribution to such Noteholders as
provided therein whether or not such funds are properly applied by the Trustee.
The Fiscal Agent is the agent of the Note Insurer only and the
Fiscal Agent shall in no event be liable to Noteholders for any acts of the
Fiscal Agent or any failure of the Note Insurer to deposit or cause to be
deposited, sufficient funds to make payments due under the Note Insurance
Policy.
Subject to the prior right of the Noteholders to the receipt of the
Note Interest, the Overdue Interest, the Principal Distribution Amount and the
Overdue Principal on each Payment Date, the Note Insurer shall be entitled to
reimbursement of amounts previously paid by the Note Insurer under the Bond
Insurance Policy plus interest thereon.
As used in this section of the Prospectus Supplement, the following
terms shall have the following meanings:
"Business Day" means any day other than a Saturday, a Sunday or a
day on which banking institutions in New York City or in the city in which the
corporate trust office of the Trustee under the Trust Agreement is located are
authorized or obligated by law or executive order to close.
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"Insufficiency Amount" is the amount by which the Required Payments
in respect of the Notes for the applicable Payment Date exceeds the Available
Funds for distribution to Noteholders on the Business Day preceding such Payment
Date.
"Notice of Nonpayment" means the telephonic or telegraphic notice,
promptly confirmed in writing by telecopy substantially in the form attached to
the Bond Insurance Policy, the original of which is subsequently delivered by
registered or certified mail, from the Trustee specifying the Insufficiency
Amount which shall be due and owing on the Payment Date.
"Noteholder" means any Noteholder as defined in the Indenture (other
than the Originator, the Servicer or any affiliate thereof) who, on the
applicable Payment Date, is entitled under the terms of the Notes to payment
thereunder.
Capitalized terms used in the Bond Insurance Policy and not
otherwise defined therein shall have the respective meanings set forth in the
Indenture as of the date of execution of the Bond Insurance Policy, without
giving effect to any subsequent amendment or modification to the Indenture.
Any notice under the Bond Insurance Policy or service of process on
the Fiscal Agent of the Bond Insurer maybe made at the address listed below for
the Fiscal Agent of the Bond Insurer or such other address as the Bond Insurer
shall specify in writing to the Trustee.
The notice address of the Fiscal Agent is ________________________,
Attention: ____________ or such other address as the Fiscal Agent shall specify
to the Trustee in writing.
The Bond Insurance Policy is being issued under and pursuant to, and
shall be construed under, the laws of the State of New York, without giving
effect to the conflict of laws principles thereof.
The insurance provided by the Bond Insurance Policy is not covered
by the Property/Casualty Insurance Security specified in Article 76 of the New
York Insurance Law.
The Bond Insurance Policy is noncancellable for any reason. The
premium on the Bond Insurance Policy is not refundable for any reason including
payment, or provision being made for payment, prior to maturity of the
Certificates.
The Bond Insurer does not accept any responsibility for the accuracy
or completeness of this Prospectus Supplement or any information or disclosure
contained herein, or omitted herefrom, other than with respect to the accuracy
of the information regarding the Bond Insurance Policy and Bond Insurer set
forth under this heading "The Bond Insurance Policy and the Bond Insurer".
RECEIVABLES ACQUISITION AGREEMENT
Conveyance of Collateral
On the Closing Date, the Originator will transfer to the Issuer, without
recourse, all of its right, title and interest in and to the Collateral (other
than the Additional Receivables. On behalf of the Issuer, the Trustee will cause
the Issuer to issue the Notes offered hereby to the initial investors.
The Receivables will be serviced by the Servicer. See "Summary of Terms -
The Servicer".
The Receivables are described on the list of Receivables (the "List of
Receivables") heretofore delivered to the Trustee with respect to the
Receivables. The List of Receivables will include for each Contract, a number
identifying the Contract, the Discounted Contract Balance, the Obligor's name
and
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address, the original term of each Contract, the remaining term of each
Contract, the Discounted Contract Balance as of the Cut-Off Date and the
original balance of each Contract. The List of Receivables will be available for
inspection by any Noteholder at the principal executive office of the Servicer.
The Originator has heretofore delivered the Contract Files to the Trustee
as required by the Receivables Acquisition Agreement. The Trustee will retain
possession of the Contracts and the Contract Files, and the Servicer will retain
copies of any other documents which relate to the Contracts, any related
evidence of insurance and payment, delinquency and related reports maintained by
the Servicer in the ordinary course of business with respect to each Contract.
The Servicer has caused its electronic ledger to be marked to show that such
Contracts have been transferred by the Originator to the Issuer.
Representations and Warranties of the Originator
The Originator will make certain warranties in the Receivables Acquisition
Agreement for the benefit of the Trustee, the Noteholders and the Issuer, among
other things: that (i) the information provided with respect to the related
Receivables is correct in all material respects; (ii) the Obligor on each
related Receivable is required to maintain physical damage insurance covering
the Vehicles in accordance with Originator's normal requirements; (iii) at the
applicable Closing Date, the related Receivables are free and clear of all
security interests, liens, charges and encumbrances and no offsets, defenses, or
counterclaims have been asserted or threatened; (iv) at the applicable Closing
Date, each of the related Contracts is secured by a [first perfected] security
interest in the Vehicles in favor of Originator; and (v) each Receivable, at the
time it was originated, complied and, at the applicable Closing Date, complies
in all material respects with applicable federal and state laws.
Indemnification
The Receivables Acquisition Agreement provides that Originator will defend
and indemnify any servicer, the Trustee, the Issuer and the Noteholders against
any and all losses, claims, damages and liabilities to the extent that the same
have been suffered by any such party by virtue of a breach by the Originator of
its obligations under the Receivables Acquisition Agreement.
Pursuant to the Receivables Acquisition Agreement, neither the Servicer
nor any of the directors, officers, employees or agents of the Servicer shall
incur any liability to the Issuer, the Trustee or the holders of the Notes, for
any action taken or not taken in good faith pursuant to the terms of the
Receivables Acquisition Agreement with respect to any Contract (including any
Defaulted Contract) [or the Vehicles subject thereto;] provided, however, that
this provision shall not protect the Servicer or any such person against any
breach of warranties or representations made by it in the Receivables
Acquisition Agreement or in any certificate delivered in conjunction with the
purchase of the Notes pursuant to the Note Agreement or for any liability which
would otherwise be imposed for any action or inaction resulting from willful
misconduct or bad faith or resulting from gross negligence in the performance of
its duties thereunder.
Indenture Accounts; Investment of Funds
The Trustee, pursuant to the Indenture, is required to establish and
maintain at all times the Collection Account, the [Class A] Distribution
Account, the [Class B] Distribution Account, the [Class C] Distribution Account,
[the Pre-Funding Account, the Capitalized Interest Account and the Lockbox
Account,] each in the name of the Trustee and for the benefit of the Originator,
the Noteholders and the Servicer, as their interests may appear. Each such
account will be one or more segregated trust accounts held by the Trustee. The
Indenture permits the Issuer to direct the investment of amounts in the
Collection Account, [the Pre-Funding Account, the Capitalized Interest Account
and the Reserve Account.]
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[Pre-Funding Account and Capitalized Interest Account
On the Closing Date, the Trustee will deposit into the Pre-Funding Account
an amount equal to the difference between the Initial Aggregate Balance and the
Aggregate Discounted Contract Balance of all Contracts actually acquired on the
Closing Date. On each Additional Receivable Transfer Date until the Final
Additional Closing Date, the Trustee will distribute from the Pre-Funding
Account to the Originator an amount equal to the Discounted Contract Balance of
the Additional Receivables sold to the Issuer on such Additional Receivable
Transfer Date upon an Issuer Order detailing satisfaction of the conditions set
forth in the Receivables Acquisition Agreement with respect to such transfer.
If the Pre-Funding Account has not been reduced to zero on the Final
Additional Closing Date, the Servicer will instruct the Trustee to withdraw from
the Pre-Funding Account on such Final Additional Closing Date the remaining
Pre-Funded Amount and such amount shall be applied as a prepayment on the Notes
to Noteholders in accordance with their respective Class Percentages.
On the Closing Date, the Trustee shall deposit in the Capitalized Interest
Account an amount equal to $_________ (the " Original Capitalized Interest
Amount") from the proceeds of the sale of the Offered Notes. On each Payment
Date through and including the Payment Date immediately following the Final
Additional Closing Date (or, if the Final Additional Closing Date is also a
Payment Date, then on the Final Additional Closing Date), the Trustee shall
transfer from the Capitalized Interest Account to the Collection Account the
Capitalized Interest Requirement for such Payment Date.
On each Payment Date prior to the Final Additional Closing Date, the
Trustee, upon an Issuer Order, shall withdraw from the Capitalized Interest
Account and pay on such Payment Date to the Issuer the Overfunded Interest
Amount for such Payment Date. On the Payment Date following the Final Additional
Closing Date (or, if the Final Additional Closing Date is also a Payment Date,
then on the Final Additional Closing Date), any amounts remaining in the
Capitalized Interest Account, after taking into account the transfers on such
Payment Date described above, shall be paid to the Issuer on such Payment Date
and the Capitalized Interest Account shall be closed.]
Reserve Account
On the Closing Date, the Issuer shall direct the Trustee to deposit in the
Reserve Account an amount equal to ___% of the Initial Aggregate Balance from
proceeds of the sale of the Offered Notes.
If by 12:00 noon, New York time, on the Business Day preceding any Payment
Date, Available Funds are insufficient to permit, on such Payment Date, the
distribution of all Required Payments under the Indenture, then the Trustee
shall transfer, not later than the end of such Business Day, from the Reserve
Account to the Collection Account such amount as shall be necessary to make all
Required Payments on such Payment Date.
On each Payment Date, funds on deposit in the Reserve Account (after
withdrawal of any Reserve Account Payment) in excess of the Maximum Reserve
Amount will be distributed to the [Class C] Distribution Account to the extent
of [Class C] Distributions and any remainder shall be distributed to the Issuer
in accordance with the Indenture; provided, however, that if a Restricting Event
exists on such Payment Date, all funds on deposit in the Reserve Account (after
withdrawal of any Reserve Account Payment) shall remain in the Reserve Account,
subject to use as otherwise provided in the Indenture. The Maximum Reserve
Amount shall, on any Payment Date, be equal to the lesser of (i) ___% of the
Initial Aggregate Balance or (ii) the sum of (x) the Outstanding [Class A] Note
Balance and (y) the Outstanding [Class B] Note Balance less (z) the Outstanding
[Class C] Note Balance. If the amount on deposit in the Reserve Account is
insufficient to pay the Required Payments, no other assets will be available on
the related Payment Date for the payment of the deficiency. Upon discharge of
the Indenture, after all
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obligations to the Noteholders have been fully and irrevocably satisfied, any
balance remaining in the Reserve Account shall be paid to the Issuer.
Flow of Funds
On or before the Closing Date, the Servicer shall establish, in the name
of the Servicer, a post office box (the "Lockbox Facility") for the receipt
directly from Obligors of all Contract Payments, on or in respect of each
Receivable. No Person other than the Servicer shall be permitted to have access
to such Lockbox Facility. On [each] Business Day, the Servicer shall cause all
items received in the Lockbox Facility since the [preceding] Business Day to be
deposited into the Lockbox Account maintained with the Servicer in the name of
(and under the sole control of) the Servicer. All Contract Payments and other
payments relating to a Contract received in the Lockbox Facility and so
deposited in the Lockbox Account shall constitute part of the Collateral.
The Servicer shall, on ___ Business Day pursuant to Section _____ of the
Receivables Acquisition Agreement (each such day, a "Required Deposit Date")
withdraw from the Lockbox Account and deposit in the Collection Account the
Transaction Payment Amount.
The Trustee shall deposit the following into the Collection Account:
[(i) each Contract Payment received by the Trustee in the Lockbox
Facility or otherwise received by the Trustee, including all Contract
Payments deposited with the Trustee by the Originator on the Closing Date
pursuant to Section _____ of the Note Agreement;
(ii) the amount of each Delinquency Payment or portion thereof
received by the Trustee (whether from the Servicer as a Servicer Advance
pursuant to Section ______ of the Receivables Acquisition Agreement, from
transfers from the Reserve Account, or from a combination thereof);
(iii) the amount of each Default Payment or portion thereof received
by the Trustee (whether from transfers from the Reserve Account or
otherwise); and the proceeds of any repurchase of Contract [and Vehicles]
pursuant to Section ____ of the Receivables Acquisition Agreement;
(iv) any Insurance Proceeds received in the Lockbox Facility or
otherwise received by the Trustee;
(v) the Pre-Funding Earnings, if any, on each Payment Date; and
(vi) the Capitalized Interest Requirement, if any, on each Payment
Date from amounts on deposit in the Capitalized Interest Account.]
Unless the Notes have been declared due and payable pursuant to Section
______ of the Indenture and moneys collected by the Trustee are being applied in
accordance with Section ______ of the Indenture, the Trustee shall on each
Payment Date withdraw and pay or cause to be paid all Available Funds and any
Reserve Account Payment deposited in the Collection Account (including any
investment income with respect to monies on deposit in the Collection Account)
the amounts required, for application in the following order of priority:
[(i) To the Servicer, the Servicing Fee due to the Servicer on such
Payment Date and any unreimbursed Nonrecoverable Advances or Servicer
Advances, with respect to Defaulted Receivables;
(ii) To the [Class A] Distribution Account, in the following order
of priority, the sum of:
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(a) the [Class A] Overdue Interest, if any;
(b) the [Class A] Monthly Interest;
(c) if such Payment Date follows the Final Additional
Closing Date, the product of (x) the amount, if any,
remaining in the Pre-Funding Account on such Payment
Date and (y) the [Class A] Percentage;
(d) the [Class A] Overdue Principal, if any; and
(e) the [Class A] Monthly Principal.
(iii) To the [Class B] Distribution Account, in the following order
of priority, the sum of:
(a) the [Class B] Overdue Interest, if any;
(b) the [Class B] Monthly Interest;
(c) if such Payment Date follows the Final Additional
Closing Date, the product of (x) the amount, if any,
remaining in the Pre-Funding Account on such Payment
Date and (y) the [Class B] Percentage;
(d) the [Class B] Overdue Principal, if any; and
(e) the [Class B] Monthly Principal.
(iv) To the Reserve Account, an amount equal to the excess, if any,
of the Maximum Reserve Amount for the next succeeding Payment Date over
the amount on deposit in the Reserve Account (after giving effect to any
withdrawals from the Reserve Account on such Payment Date);
(v) To the [Class C] Distribution Account, in the following order of
priority, the sum of:
(a) the [Class C] Overdue Interest, if any;
(b) the [Class C] Monthly Interest;
(c) if such Payment Date follows the Final Additional
Closing Date, the product of (x) the amount remaining,
if any, in the Pre-Funding Account on such Payment Date
and (y) the [Class C] Percentage;
(d) the [Class C] Overdue Principal, if any; and
(e) the [Class C] Monthly Principal;]
[provided, however, that if a Restricting Event shall have occurred and be
continuing on such Payment Date, any such amounts otherwise payable under
this clause (v) shall be deposited in the Reserve Account.
(vi) To the [Class A] Noteholders, pro rata, the amount then on
deposit in the [Class A] Distribution Account;
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(vii) To the [Class B] Noteholders, pro rata, the amount then on
deposit in the [Class B] Distribution Account;
(viii) To the [Class C] Noteholders, pro rata, the amount then on
deposit in the [Class C] Distribution Account; and
(ix) All remaining amounts in the Collection Account shall be paid
to the Issuer; provided, however, that if a Restricting Event shall have
occurred and be continuing on such Payment Date, any such amounts
otherwise payable under this clause (ix) shall be deposited in the Reserve
Account.]
Reports to Noteholders
Concurrently with each payment to the Noteholders, the Trustee shall mail
to the Issuer, the Originator, the Servicer and each Noteholder the following
information: (i) the Monthly Servicer Report furnished to the Trustee by the
Servicer following such Payment Date pursuant to Section ____ of the Receivables
Acquisition Agreement or, if such report has not been received, a written
statement to such effect; and (ii) the amount on deposit as of such Payment Date
in the Collection Account, the Reserve Account, the Pre-Funding Account and the
Capitalized Interest Account, in each case after giving effect to all of the
withdrawals and applications or transfers required on such Payment Date pursuant
to the Indenture.
Optional Redemption
The Indenture provides that the Notes may be redeemed by the Issuer, in
whole but not in part, as to the then Outstanding Offered Notes, at any time
after (i) the [Class A] Note Balance is less than [___%] of the Initial [Class
A] Note Balance and (ii) the [Class B] Note Balance is less than [___%] of the
Initial [Class B] Note Balance, at the Redemption Price.
The Issuer, by an Authorized Officer, shall set the redemption date and
the redemption record date and give notice thereof to the Trustee.
Installments of interest and principal due on or prior to a redemption
date shall continue to be payable to the Holders of Offered Notes called for
redemption as of the relevant Record Dates according to their terms and the
provisions of the Indenture. The election of the Issuer to redeem any Offered
Notes as described in this Section shall be evidenced in writing by an
Authorized Officer directing the Trustee to make the payment of the Redemption
Price on all of the Offered Notes to be redeemed from monies deposited with the
Trustee pursuant to the Indenture.
Indenture Events of Default and Acceleration
"Indenture Event of Default" wherever used herein means any one of the
following events:
(i) default in the payment of any principal of or interest and
premium, if any, upon any Outstanding Note when it becomes due and
payable;
(ii) default in the performance, or breach, of any covenant set
forth in the Indenture;
(iii) default in the performance, or breach, of any covenant of the
Issuer in the Indenture, the Underwriting Agreement or the Receivables
Acquisition Agreement and continuance of such default or breach for a
period of [___] days after receipt of the written notice thereof;
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(iv) if any representation or warranty of the Issuer or the
Originator made in the Indenture, the Note Agreement or the Receivables
Acquisition Agreement shall prove to be incorrect in any material respect
as of the time when the same shall have been made;
(v) voluntary bankruptcy;
(vi) involuntary bankruptcy;
(vii) the rendering against the Issuer of a final judgment, decree
or order for the payment of money in excess of [$________] and the
continuance of such judgment, decree or order unsatisfied for any period
of [___] consecutive days without a stay of execution.
If an Indenture Event of Default occurs and is continuing, then and in
every such case the Trustee or the holders of Notes evidencing not less than
[______%] of Voting Rights may declare the unpaid principal amount of all the
Notes to be due and payable immediately, by a notice in writing to the Issuer
(and to the Trustee if given by such Noteholders), and upon any such declaration
such principal amount shall become immediately due and payable together with all
accrued and unpaid interest thereon, without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Issuer.
Remedies
If an Indenture Event of Default occurs and is continuing of which an
Authorized Officer has actual knowledge, the Trustee shall give notice to each
Noteholder as set forth in Section _______ of the Indenture and shall solicit
the Noteholders for advice. The Trustee shall then take such action, if any, as
may be directed by the holders of Notes evidencing not less than [______%] of
Voting Rights. Following any acceleration of the Notes, the Trustee shall have
all of the rights, powers and remedies with respect to the Collateral as are
available to secured parties under the Uniform Commercial Code or other
applicable law. Such rights, powers and remedies may be exercised by the Trustee
in its own name as trustee of an express trust.
Servicer Events of Default
Any of the following acts or occurrences shall constitute a Servicer Event
of Default by the Servicer under the Receivables Acquisition Agreement:
(i) failure on the part of the Servicer to remit any payment to the
Trustee within the time period required by the Receivables Acquisition
Agreement or to make any Servicer Advance;
(ii) failure on the part of either the Servicer or (so long as the
Originator is the Servicer) the Originator to observe or perform in any
material respect any other of their respective covenants or agreements in
the Receivables Acquisition Agreement which failure continues unremedied
for a period of [___] days;
(iii) if any representation or warranty of the Originator or the
Servicer made in the Receivables Acquisition Agreement or in any
certificate or other writing delivered pursuant thereto or the Note
Agreement or made by the Trustee or any other successor to the Servicer
(the "Successor Servicer") in connection with such Successor Servicer's
assumption of the duties of the Servicer shall prove to be incorrect in
any material respect as of the time when the same shall have been made;
(iv) voluntary bankruptcy;
(v) involuntary bankruptcy;
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(vi) the failure of the Servicer to make one or more payments due
with respect to recourse debt or other recourse obligations, which debt or
obligations in the aggregate exceed [$__________] or the occurrence of any
event or the existence of any condition, the effect of which event or
condition is to cause (or permit one or more Persons to cause) more than
[$_________] of aggregate recourse debt or other recourse obligations of
the Servicer to become due before its (or their) stated maturity or before
its (or their) regularly scheduled dates of payment so long as such
failure, event or condition shall be continuing and shall not have been
waived by the Person or Persons entitled to performance; and
(vii) the rendering against the Servicer of a final judgment, decree
or order for the payment of money in excess of [$_________] and the
continuance of such judgment, decree or order unsatisfied and in effect
for any period of [___] consecutive days without a stay of execution.
Rights Upon an Event of Servicing Termination
If a Servicer Event of Default shall have occurred and be continuing, the
Trustee shall, upon the request of the holders of Notes evidencing more than
[___%] of the Voting Rights, give written notice to the Servicer of the
termination of all of the rights and obligations of the Servicer (but none of
the Originator's obligations thereunder, which shall survive any such
termination) under the Receivables Acquisition Agreement. On the receipt by the
Servicer of such written notice, all rights and obligations of the Servicer
under the Receivables Acquisition Agreement, including without limitation the
Servicer's right thereunder to receive unaccrued Servicing Fees, but none of the
Originator's obligations thereunder, shall cease and the same shall pass to and
be vested in, and assumed by, the Trustee pursuant to and under the Receivables
Acquisition Agreement and the Indenture; and, without limitation, the Trustee is
hereby authorized and empowered to execute and deliver, on behalf of the
Servicer, as attorney-in-fact or otherwise, any and all other acts or things
necessary or appropriate to effect the purposes of such notice of termination,
whether to complete the transfer and assignment of any Contract [and the related
Vehicles] or such passing, vesting or assumption or to cause Obligors to remit
all future Contract Payments and other amounts due under any Contract to such
account as shall be specified by the Trustee.
On and after the time the Servicer receives a notice of termination, the
Trustee shall be the successor in all respects to the Servicer in its capacity
as servicer under the Receivables Acquisition Agreement of the Receivables and,
to such extent, shall be subject to all the responsibilities, duties and
liabilities relating thereto placed on the Servicer by the terms and provisions
hereof (but not the obligations of the Originator contained therein which shall
survive any such termination as above provided) and shall be entitled to receive
from the Issuer the Servicing Fee provided for in the Receivables Acquisition
Agreement; provided that the Trustee shall in no way be responsible or liable
for any action or actions of the Servicer before the time the Servicer receives
such a notice of termination.
Amendment of Agreements
Indenture
With the consent of the holders of Notes evidencing not less than
[_______%] of Voting Rights, by act of said Noteholders delivered to the Issuer
and the Trustee, and with the consent of the Issuer, by an Issuer Order, the
Trustee may enter into an amendment to the Indenture or an indenture or
indentures supplemental thereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
of modifying in any manner the rights of the Noteholders under the Indenture.
Without the consent of Noteholders, amendments may be made by the Issuer and the
Trustee to cure any ambiguity, to correct or supplement any provision that is
inconsistent with another provision or to add or amend any provision with
respect to matters or questions arising under the Indenture; provided, however,
that no amendment to the Indenture or supplemental indenture may modify the
amount of, or the timing of payment of, any amount due any Noteholder without
the consent of such
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Noteholder, or any other rights of the holders of a class of Notes, without the
consent of [_______%] of the Outstanding Note Balance of the Notes of such
class; and provided further that no supplemental indenture may (i) modify any
provision of the Indenture requiring the consent of all Noteholders or (ii)
release any of the Collateral from the lien of the Indenture or modify Sections
______ or ______ of the Indenture without the consent of all Noteholders.
Receivables Acquisition Agreement
The terms of the Receivables Acquisition Agreement shall not be waived,
modified or amended without the written consent of the party against whom such
waiver, modification or amendment is claimed and, in any case, the Trustee
(acting upon the instructions of the holders of Notes evidencing not less than
[_______%] of Voting Rights), provided however, that amendments may be made by
the Issuer and the Trustee to cure any ambiguity, to correct or supplement any
provision that is inconsistent with another provision or to add or amend any
provision with respect to matters or questions arising under the Receivables
Acquisition Agreement, without the consent of such Noteholders.
Duties and Immunities of the Trustee
The Trustee will make no representations as to the validity or sufficiency
of the Indenture, the Notes (other than the authentication thereof) or of any
Receivable or related document. The Trustee will be required to perform only
those duties specifically required of it under the Indenture. However, upon
receipt of the various resolutions, certificates, statement, opinions, reports,
documents, orders or other instruments required to be furnished to it, the
Trustee will be required to examine them to determine whether they conform as to
form to the requirements of the Indenture.
No recourse is available based on any provision of the Indenture, the
Notes or any Receivable or assignment thereof against the Trustee, and the
Trustee has no personal obligation, liability or duty whatsoever to any
Noteholder or any other person with respect to any such claim and such claim
shall be asserted solely against the Collateral or any indemnitor, except for
such liability as is determined to have resulted from the Trustee's own gross
negligence or willful misconduct.
The Issuer agrees to pay to the Trustee from time to time such
compensation for all services rendered by it under the Indenture as the Issuer
and the Trustee have agreed in writing prior to the Closing Date (which
compensation shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust), such payment to be made
independent of the other payment obligations of the Issuer thereunder; and,
except as otherwise expressly provided in the Indenture, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements, and
advances incurred or made by the Trustee in accordance with any provision of the
Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement,
or advance as may be attributable to its negligence or bad faith.
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on the Notes will be directly related to
the scheduled rate of principal payments on the underlying Contracts. If
purchased at a price of other than par, the yield to maturity will also be
affected by the rate of principal payments. The principal payments on such
Contracts may be in the form of scheduled principal payments or liquidations due
to default, casualty and the like. Any such payments will result in
distributions to Noteholders of amounts which would otherwise have been
distributed over the remaining term of the Contracts. In general, the rate of
such payments may be influenced by a number of other factors, including general
economic conditions. The rate of payment of principal may also be affected by
any removal of the Contracts from the pool and the deposit of the related
Prepayment Amount or Repurchase Amount into the Collection Account.
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The Contracts [generally] do not provide for the right of the Obligor to
prepay. Under the Receivables Acquisition Agreement, the Servicer will be
permitted to allow such Prepayments in full or in part, provided that no
Prepayment of a Contract will be allowed in an amount less than the Prepayment
Amount.
The effective yield to Noteholders will depend upon, among other things,
the price at which the Notes are purchased, the amount of and rate at which
principal, including both scheduled and nonscheduled payments thereof, is paid
to the Noteholders. The yield to Noteholders will be affected by lags between
the time interest accrues to Noteholders and the time the related interest
income is received by the Noteholders.
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Dewey Ballantine, special tax counsel to the Trust,
the Sponsor and the Underwriters ("Tax Counsel"), the following discussion
accurately reflects the material federal income tax consequences relevant to
the purchase, ownership and disposition of the Notes . The discussion
herein does not purport to deal with all aspects of federal income taxation
that may be relevant to holders of the Notes in light of their specific
investment circumstances , nor to certain types of holders subject to
special treatment under the federal income tax laws (for example, banks, life
insurance companies and tax-exempt organizations). This discussion is based
upon current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury regulations (proposed, temporary and final) promulgated
thereunder, judicial decisions and Internal Revenue Service ("IRS") rulings, all
of which are subject to change, which change may be retroactively applied in a
manner that could adversely affect a holder of one or more of the Notes. The
information below is directed to investors that will hold the Notes, as the case
may be, as capital assets (generally, property held for investment) within the
meaning of Section 1221 of the Code.
The Trust will, prior to the issuance of the Notes and Certificates, be
provided with an opinion of Tax Counsel regarding certain federal income tax
matters discussed below. An opinion of counsel, however, is not binding on the
IRS or the courts. The Trust has not sought, nor does it intend to seek, a
ruling from the IRS that its position as reflected in the discussion below will
be accepted by the IRS. [Moreover, there are no cases or IRS rulings on similar
transactions involving both debt and equity interests issued by a trust similar
to those of the Notes and the Certificates and, as a result, there can be no
assurance that the IRS will agree with the conclusions and discussion below.]
[Class A] Noteholders and [Class B] Noteholders and preparers of tax
returns should be aware that under applicable Treasury regulations a provider of
advice on specific issues of law is not considered an income tax return preparer
unless the advice is (i) given with respect to events that have occurred at the
time the advice is rendered and is not given with respect to the consequences of
contemplated actions, and (ii) is directly relevant to the determination of an
entry on a tax return. Accordingly, [Class A] Noteholders and [Class B]
Noteholders should consult their own tax advisors and tax return preparers
regarding the preparation of any item on a tax return, even where the
anticipated tax treatment has been discussed herein.
The Servicer and the Issuer make no representations regarding the tax
consequences of purchase, ownership or disposition of the Offered Notes under
the tax laws of any state, locality or foreign jurisdiction. Investors
considering an investment in the Offered Notes should consult their own tax
advisors regarding such tax consequences. All investors also should consult
their own tax advisors in determining the federal, state, local and foreign and
any other tax consequences to them of an investment in the Offered Notes and the
purchase, ownership and disposition thereof.
Characterization of the Offered Notes as Indebtedness
Dewey Ballantine, special tax counsel to the Issuer, has advised the
Issuer that in its opinion, assuming compliance with the provisions of the
Indenture in all material respects, and based on the application of existing
law, the provisions of the Indenture, the Receivables Acquisition Agreement and
other relevant documents, the facts set forth above in this Prospectus and
additional information (including [valuation assumptions relating to the
Vehicles] and financial calculations relating to the Contracts provided by the
Originator), the Offered Notes will be treated as indebtedness for federal
income tax purposes.
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Taxation of [Class A] Noteholders and [Class B] Noteholders
Assuming that the Offered Notes are characterized as indebtedness,
generally, interest on the Offered Notes will be taxable as ordinary income for
federal income tax purposes when received by a [Class A] Noteholder or [Class B]
Noteholder using the cash method of accounting and when accrued by a [Class A]
Noteholder or [Class B] Noteholder using the accrual method of accounting.
If a portion of the purchase price of an Offered Note paid by a [Class A]
Noteholder or [Class B] Noteholder reflects interest that accrued on such Note
prior to the Closing Date ("pre-issuance accrued interest"), the interest
payable on the first Payment Date will include such pre-issuance accrued
interest. If applicable, for purposes of information returns to the [Class A]
Noteholders and [Class B] Noteholders and the Internal Revenue Service (the
"IRS"), the Servicer currently intends to treat the applicable portion of the
stated interest payable on the first Payment Date as a return of such
pre-issuance accrued interest (as a separate asset), rather than as an amount
payable on the Offered Note. This position is based upon the rules governing
original issue discount that are set forth in proposed Treasury regulations (the
"[Proposed OID Regulations"]) issued under sections [1271-1273 and 1275 of the
Code.] However, the [Proposed OID Regulations] suggest that such pre-issuance
accrued interest also may be treated as included in the issue price of the Note
and that, under such alternative treatment, the portion of the interest paid on
the first Payment Date in excess of interest accrued for a number of days
corresponding to the number of days from the Closing Date to the first Payment
Date should be included in the stated redemption price of the Note for purposes
of the original issue discount rules under the [Proposed OID Regulations.] It is
unclear whether a [Class A] Noteholder or [Class B] Noteholder could adopt such
alternative treatment unilaterally. Accordingly, [Class A] Noteholders and
[Class B] Noteholders should consult their own tax advisors to determine the
issue price and stated redemption price at maturity of an Offered Note and the
consequences thereof under the original issue discount rules. The [Proposed OID
Regulations] are subject to change and are not binding authority before their
adoption as final or temporary regulations. [The Proposed OID Regulations are
proposed to be effective sixty days after the date their publication as final
regulations, and prior proposed regulations already have been withdrawn.]
Original Issue Discount. [While it is not anticipated that the Offered
Notes will be issued with original issue discount within the meaning of section
1273 of the Code ("OID"),] if the Offered Notes are in fact issued at a
discount, the following rules will apply. The excess of the principal amount of
the Offered Notes over their initial issue price (in this case, with respect to
each Offered Note the price paid by the first buyer of such Offered Note) will
constitute OID. [Class A] Noteholders and [Class B] Noteholders must include OID
(unless the amount of such OID is treated as de minimis) in income as interest
over the term of the Offered Note under a constant yield method. In general, OID
must be included in income in advance of the receipt of cash representing that
income. Any de minimis OID on the Offered Notes will be required to be allocated
among the principal payments to be made on such Offered Notes, and the portion
of such discount allocated to each principal payment will be required to be
reported as income as each principal payment is made.
In the case of a debt instrument as to which the repayment of principal
may be accelerated as a result of the prepayment of other obligations securing
the debt instrument, under section 1272(a)(6) of the Code the periodic accrual
of OID is determined by taking into account (i) a reasonable prepayment
assumption in accruing OID (generally, the assumption used to price the debt
offering) and (ii) adjustments in the accrual of OID when prepayments do not
conform to the prepayment assumption, and regulations could be adopted applying
those provisions to the Offered Notes. It is unclear whether those provisions
would be applicable to the Offered Notes in the absence of such regulations or
whether use of a reasonable prepayment assumption may be required or permitted
without reliance on these rules. If this provision applies to the Offered Notes,
the amount of OID that will accrue in any given "accrual period" may either
increase or decrease depending upon the actual prepayment rate. In the absence
of such regulations, the Servicer currently intends that any information reports
or returns to the IRS and the [Class A] Noteholders and [Class B] Noteholders
regarding OID, if any, will be based on the assumption that
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there will be no prepayments under the Contracts. However, neither the Issuer,
the Trustee, the Underwriter(s) nor the Originator will make any representation
regarding the prepayment rate of the Contracts. See "Prepayment and Yield
Considerations." Accordingly, [Class A] Noteholders and [Class B] Noteholders
are advised to consult their own tax advisors regarding the impact of any
prepayments under the Contracts (and the OID rules) if the Offered Notes are
issued with OID.
If any Prepayment Premium is payable on any Payment Date as a result of
certain prepayments under the Offered Notes, as described above (see "Summary of
Memorandum -- Prepayment Premium" and "Prepayment and Yield Considerations"), it
is unclear when such amounts will be taxable to a [Class A] Noteholder or [Class
B] Noteholder. It is possible that such holder of an Offered Note would not be
required to include any such amounts in income unless and until such Prepayment
Premium becomes payable to such holder, depending upon the holder's method of
accounting. However, the IRS could require such amounts to be accrued as income
in earlier periods based on anticipated prepayments or other factors. In the
absence of further guidance, the Servicer currently intends to treat such
amounts as not includible by the [Class A] Noteholders and [Class B] Noteholders
prior to the Payment Date immediately following any actual prepayment under a
Contract (or the Payment Date on which any other prepayment of the Offered Notes
occurs) that creates the entitlement of such [Class A] Noteholders and [Class B]
Noteholders to a redemption premium. Holders of the Offered Notes should consult
their own tax advisors concerning the tax treatment of such Prepayment Premium.
It appears that such income would be ordinary income rather than capital gain.
However, this is not entirely clear and [Class A] Noteholders and [Class B]
Noteholders also should consult their own tax advisors concerning such aspect of
the tax treatment of such Prepayment Premiums.
The foregoing discussion is based in part on the [Proposed OID
Regulations], which do not address certain issues relevant to, or are not
applicable to, prepayable securities such as the Offered Notes in the event that
the OID rules apply to the Offered Notes. [Moreover, final regulations may
differ from such proposed regulations, and may have retroactive effect.] [Class
A] Noteholders and [Class B] Noteholders should consult their own tax advisors
regarding the proper method of reporting taxable income from the Offered Notes.
Furthermore, if the Offered Notes are issued with OID the Servicer will
calculate the yield of each Offered Note based on the initial issue price of the
Offered Notes and will report such amount annually to the IRS and each holder of
an Offered Note. The amount of OID, if any, reported to [Class A] Noteholders
and [Class B] Noteholders by the Servicer for a calendar year may not be the
proper amount of OID required to be reported by any holder who did not purchase
its Offered Note at such initial issue price, or by any holders of Offered Notes
who are not original purchasers. Accordingly, [Class A] Noteholders and [Class
B] Noteholders should consult their own tax advisors to determine the amount of
OID includible in income during a calendar year. See "Information Reporting"
below.
Market Discount. A subsequent holder who purchases an Offered Note at a
discount may be subject to the "market discount" rules of the Code. These rules
provide, in part, for the treatment of gain attributable to accrued market
discount as ordinary income upon the receipt of partial principal payments or on
the sale or other disposition of the Offered Note, and for the deferral of
interest deductions with respect to debt incurred to acquire or carry the market
discount Offered Note. In particular, under section 1276 of the Code, a holder
who purchases an Offered Note at a discount that exceeds de minimis market
discount generally will be required to allocate a portion of each such partial
principal payment or proceeds of disposition to accrued market discount not
previously included in income, and to recognize ordinary income to that extent.
If the provisions of section 1272(a)(6) of the Code apply to the Offered Notes,
as described above with respect to the use of a reasonable prepayment assumption
(and adjustments resulting from actual prepayments), such provisions also would
affect accrual of any market discount. Accordingly, [Class A] Noteholders and
[Class B] Noteholders are advised to consult their own tax advisors regarding
the impact of such requirement if the Offered Notes are purchased at a discount.
A [Class A] Noteholder or [Class B] Noteholder may elect to include such
market discount in income currently as it accrues rather than including it on a
deferred basis in accordance with the foregoing.
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If made, such election will apply to all market-discount bonds acquired by such
[Class A] Noteholder or [Class B] Noteholder on or after the first day of the
first taxable year to which such election applied. If such election is made, the
interest deferral rule described above will not apply. If an Offered Note is
purchased at a de minimis market discount, the actual discount will be required
to be allocated among the principal payments to be made on such Offered Note,
and the portion of such discount allocated to each principal payment will be
required to be reported as income as each principal payment is made, in the same
manner as discussed above regarding de minimis OID.
Premium. In the event that an Offered Note is purchased at a premium
(i.e., the purchase price exceeds the sum of principal payments to be made
thereon), such premium will be amortizable by a [Class A] Noteholder or [Class
B] Noteholder as an offset to interest income (with a corresponding reduction in
the [Class A] Noteholder's or [Class B] Noteholder's basis) under a constant
yield method over the term of the Offered Note if such holder makes (or has in
effect) an election under section 171 of the Code.
Sales of Offered Notes. Except as described above with respect to the
market discount rules and as provided under section 582(c) of the Code in the
case of banks and other financial institutions, any gain or loss, equal to the
difference between the amount realized on the sale and the adjusted basis of
such Offered Note, recognized on the sale or exchange of an Offered Note by an
investor who holds such Offered Note as a capital asset will be capital gain or
loss. However, a portion of any gain from the sale of an Offered Note that might
otherwise be capital gain may be treated as ordinary income to the extent such
Offered Note is held as part of a "conversion transaction" within the meaning of
new section 1258 of the Code, recently enacted pursuant to the Omnibus Budget
Reconciliation Act of 1993. A conversion transaction generally is one in which
the taxpayer has taken two or more positions in Offered Notes or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such conversion transaction. The amount of gain so realized in a
conversion transaction that is recharacterized as ordinary income in general
will not exceed the amount of interest that would have accrued on the taxpayer's
net investment in such conversion transaction at 120% of the appropriate
"applicable Federal rate" (which rate is computed and published monthly by the
IRS) at the time the taxpayer enters into the conversion transaction, subject to
appropriate reduction (to the extent provided in regulations to be issued) to
reflect prior inclusion of interest or other ordinary income items from the
transaction.
The adjusted basis of an Offered Note generally will equal its cost,
increased by any income previously reported (including any OID and market
discount income) by the selling [Class A] Noteholder or [Class B] Noteholder and
reduced (but not below zero) by any deduction previously allowed for losses and
any amortized premium and by any payments previously received with respect to
such Offered Note. Principal payments on the Offered Note will be treated as
amounts received upon a sale or exchange of the Offered Note under the foregoing
rules.
Information Reporting
The Servicer is required to furnish or cause to be furnished to each
[Class A] Noteholder or [Class B] Noteholder with each payment a statement
setting forth the amount of such payment allocable to principal on the Offered
Note and to interest thereon at the applicable interest rate. In addition, the
Servicer is required to furnish or cause to be furnished, within a reasonable
time after the end of each calendar year, to each [Class A] Noteholder or [Class
B] Noteholder who was such a holder at any time during such year, a report
indicating such other customary factual information as the Servicer deems
necessary to enable holders of Offered Notes to prepare their tax returns. If
the [Class A] Notes or the [Class B] Notes are issued with OID, the Servicer
will provide or cause to be provided to the IRS and, as applicable, to the
[Class A] Noteholders or [Class B] Noteholders information statements with
respect to OID as required by the Code or as such holders of the Offered Notes
may reasonably request from time to time. For the reasons described under
"Taxation of [Class A] Noteholders and [Class B] Noteholders -- Original Issue
Discount," above, if Offered Notes are issued with OID, the amount of OID
reported for
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a calendar year may not be the proper amount of OID required to be reported by
any holder thereof who did not purchase its Offered Note for the initial issue
price at which such Offered Notes were first sold, or by holders of such Offered
Notes who are not original purchasers. Accordingly, [Class A] Noteholders and
[Class B] Noteholders should consult their own tax advisors to determine the
amount of any OID and market discount includible in income during a calendar
year.
Foreign Investors
A [Class A] Noteholder or [Class B] Noteholder that is not a "United
States person" (as defined below) and is not subject to federal income tax as a
result of any direct or indirect connection to the United States in addition to
its ownership of an Offered Note generally will not be subject to United States
federal income or withholding tax in respect of interest (including accrued OID,
if any) paid on an Offered Note, provided that the [Class A] Noteholder or
[Class B] Noteholder complies to the extent necessary with certain
identification requirements (including delivery of a statement (IRS Form W-8),
signed by the [Class A] Noteholder or [Class B] Noteholder under penalties of
perjury, certifying that such [Class A] Noteholder or [Class B] Noteholder is
not a United States person and providing the name and address of such [Class A]
Noteholder or [Class B] Noteholder). The foregoing exemption does not apply to
payments of interest (including payments in respect of accrued OID, if any),
received by a [Class A] Noteholder or [Class B] Noteholder that either (i) owns
directly or indirectly a 10% or greater interest in the Issuer, (ii) is a bank
that purchased its Note in the ordinary course of its trade or business, (iii)
is a person within a foreign country which the IRS has included in a list of
countries that do not provide adequate exchange of information with the United
States to prevent tax evasion by United States persons, or (iv) is a "controlled
foreign corporation" (within the meaning of section 957 of the Code) with
respect to which the Issuer is a "related person" (within the meaning of section
881(c)(3)(C) of the Code). If the [Class A] Noteholder or [Class B] Noteholder
does not qualify for the foregoing exemption from withholding, payments of
interest (including payments in respect of any accrued OID) to such [Class A]
Noteholder or [Class B] Noteholder may be subject to withholding tax at a tax
rate of 30%, subject to reduction (including exemption) under any applicable tax
treaty, provided the [Class A] Noteholder or [Class B] Noteholder supplies (at
the time of its initial purchase, and at such subsequent times as are required
under the Treasury regulations) a completed IRS Form 1001 to report its
eligibility for such reduced rate or exemption.
Amounts allocable to interest (including accrued OID,if any), received by
a [Class A] Noteholder or [Class B] Noteholder that is not a United States
person, which constitute income that is effectively connected with a United
States trade or business carried on by the [Class A] Noteholder or [Class B]
Noteholder, will not be subject to withholding tax, but rather will be subject
to United States income tax at the graduated rates applicable to United States
persons, provided the [Class A] Noteholder or [Class B] Noteholder supplies (at
the time of its initial purchase, and at such subsequent times as are required
under the Treasury regulations) a completed IRS Form 4224 to report its
exemption from withholding.
For these purposes, "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 from sources
without the United States is includible in gross income for United States
federal income tax purposes regardless of its connection with the conduct of a
trade or business within the United States. [Class A] Noteholders and [Class B]
Noteholders who are not United States persons should consult their own tax
advisors regarding the tax consequences of purchasing, owning or disposing of an
Offered Note.
Backup Withholding
Payments of interest and principal, as well as payments of proceeds from
the sale of Offered Notes, may be subject to the " backup withholding tax" under
section 3406 of the Code at a rate of 31% if recipients of such payments fail to
furnish to the payor certain information, including their taxpayer
identification numbers, or otherwise fail to establish an exemption from such
tax. Any amounts deducted
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and withheld from a distribution to a recipient would be allowed as a credit
against such recipient's federal income tax liability. Furthermore, certain
penalties may be imposed by the IRS on a recipient of payments that is required
to supply information but that does not do so in the proper manner. Information
returns will be sent annually to the IRS and each [Class A] Noteholder and
[Class B] Noteholder setting forth the amount of interest paid on the Offered
Notes and the amount of any tax withheld thereon.
THE FEDERAL INCOME TAX DISCUSSIONS SET FORTH ABOVE MAY NOT BE APPLICABLE
TO ANY INDIVIDUAL INVESTOR DEPENDING UPON A CERTIFICATEHOLDER'S PARTICULAR TAX
SITUATION. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT
TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE OWNERSHIP AND DISPOSITION OF THE
CERTIFICATES, INCLUDING THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX
LAWS.
STATE AND LOCAL TAXATION
Investors should consult their own tax advisors regarding whether the
purchase of the Offered Notes, either alone or in conjunction with an investor's
other activities, may subject an investor to any state or local taxes based on
an assertion that the investor is either "doing business" in, or deriving income
from a source located in, any state or local jurisdiction. Additionally,
potential investors should consider the state, local and other tax consequences
of purchasing, owning or disposing of an Offered Note. State and local tax laws
may differ substantially from the corresponding federal tax law, and the
foregoing discussion does not purport to describe any aspect of the tax laws of
any state or other jurisdiction. Accordingly, potential investors should consult
their own tax advisors with regard to such matters.
ERISA CONSIDERATIONS
The Notes may be purchased by an employee benefit plan or an individual
retirement account (a "Plan") subject to the Employees Retirement Income
Security Act of 1974, as amended ("ERISA"), or section 4975 of the Code. A
fiduciary of a Plan must determine that the purchase of a Note is consistent
with its fiduciary duties under ERISA and does not result in a nonexempt
prohibited transaction as defined in Section 406 of ERISA or Section 4975 of the
Code. Employee benefit plans which are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA)
are not subject to the fiduciary responsibility or prohibited transaction
provisions of ERISA or the Code. For additional information regarding treatment
of the Notes under ERISA, see "ERISA Considerations" in the Prospectus.
If the Notes constitute equity interests, there can be no assurance that
any of the exceptions set forth in the Regulations will apply to the purchase of
Notes offered hereby. Under the terms of the Regulations, if the Issuer were
deemed to hold Plan assets by reason of a Plan's investment in Notes, such Plan
assets would include an undivided interest in the Receivables, and any other
assets held by the Issuer. In such an event, the Originator, the Issuer, the
Trustee and other persons providing services with respect to the Receivables,
may be subject to the fiduciary responsibility provisions of Title Originator of
ERISA and be subject to the prohibited transaction provisions of Section 4975 of
the Code with respect to transactions involving the Receivables unless such
transactions are subject to a statutory or administrative exemption.
Additionally, if the Issuer were deemed to hold Plan assets, each Noteholder may
be subject to the fiduciary responsibility provisions of Title Originator of
ERISA with respect to its right to consent or withhold consent to amendments to
the Indenture and with respect to its right to vote on action to be taken or not
taken if an Indenture Event of Default occurs.
In addition, certain affiliates of the Originator, the Issuer and the
Trustee may be considered to be parties in interest or fiduciaries with respect
to many Plans. An investment by such a Plan in Notes
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may be a prohibited transaction under ERISA and the Code unless such investment
is subject to a statutory or administrative exemption.
Any Plan fiduciary that proposes to cause a Plan to purchase Notes should
consider whether such purchase would be appropriate under the general fiduciary
standards of prudence and diversification, taking into account the overall
investment policy of the Plan and its existing portfolio and should consult with
its counsel with respect to the potential applicability of ERISA and the Code.
RATINGS
As a condition to the issuance of the Offered Notes, the [Class A] Notes
must be rated at least "____" by the Rating Agency and the [Class B] Notes must
be rated at least "____" by the Rating Agency. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time. The rating of ________________________ assigned to the
Offered Notes addresses the likelihood of the receipt by [Class A] Noteholders
and [Class B] Noteholders of all distributions to which such Noteholders are
entitled. The ratings assigned to the Offered Notes do not represent any
assessment of the likelihood that principal prepayments might differ from those
originally anticipated or address the possibility that [Class A] Noteholders and
[Class B] Noteholders might suffer a lower than anticipated yield.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Issuer has agreed to sell to each of the
Underwriter(s) named below (the "Underwriter(s)"), and each of the
Underwriter(s) has severally agreed to purchase, the principal amount of Notes
set forth opposite its name below.
Principal Principal
Amount Amount
Underwriter(s) of A Notes of B Notes
$ $
___________ ____________
Total $___________ ____________
In the Underwriting Agreement, the Underwriter(s) have agreed, subject to
the terms and conditions therein, to purchase all the Notes offered hereby if
any of such Notes are purchased. The Issuer has been advised by the
Underwriter(s) that they propose initially to offer the Class A Notes and the
Class B Notes to the public at the price set forth herein, and to certain
dealers at such price less a concession not in excess of ___% per Class A Note
and __% per Class B Note. The Underwriter(s) may allow and such dealers may
reallow a concession not in excess of __% per Class A Note and ___% per Class B
Note to certain other dealers. After the initial public offering, such prices
and such concessions may be changed.
The Underwriting Agreement provides that the Issuer and Originator will
indemnify the Underwriter(s) against certain civil liabilities, including
liabilities under the Securities Act, or contribute to payments the [several]
Underwriter(s) may be required to make in respect thereof. The Commission is of
the opinion that indemnification for securities law violations is contrary to
the public policy expressed in the federal securities laws, and, consequently,
that such indemnification provisions are unenforceable.
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The Trustee may, from time to time, invest the funds in certain accounts
in Eligible Investments acquired from the Underwriter(s).
REPORT OF EXPERTS
The financial statements of the Certificate Insurer, _____________, for
each of the two years in the periods ending December 31, 199_ and 199_,
appearing in Appendix A of this Prospectus Supplement have been audited by
_____________, independent accountants, as indicated in their report thereon
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such report and upon the authority of such firm as experts in
accounting and auditing.
LEGAL MATTERS
In addition to the legal opinions described in the Prospectus, certain
legal matters relating to the issuance of the Notes, including federal and state
income tax consequences with respect thereto, as well as other matters, will be
passed upon for the Issuer and the Underwriter(s) by Dewey Ballantine, New York,
New York.
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INDEX OF DEFINED TERMS
Page
----
Additional Receivable Transfer Agreement....................................21
Additional Receivable Transfer Date..........................................6
Additional Receivables.......................................................6
Aggregate Discounted Contract Balance.......................................10
Agreements ................................................................26
Applicable Federal Rate.....................................................41
APR ................................................................18
Available Funds.............................................................10
Backup Withholding Tax......................................................42
Bond Insurance Policies..................................................3, 11
Bond Insurer.............................................................3, 11
Business Day................................................................27
Calculation Date.............................................................9
Capitalized Interest Account.................................................6
Cede ........................................................................3
Class A Monthly Interest.....................................................7
Class A Monthly Principal....................................................8
Class A Note Balance.........................................................7
Class A Note Rate............................................................7
Class A Noteholders..........................................................7
Class A Notes................................................................1
Class A Overdue Interest.....................................................7
Class A Overdue Principal....................................................8
Class A Percentage...........................................................1
Class B Monthly Interest.....................................................7
Class B Monthly Principal....................................................8
Class B Note Balance.........................................................7
Class B Note Rate............................................................7
Class B Noteholders..........................................................7
Class B Notes................................................................1
Class B Overdue Interest.....................................................7
Class B Overdue Principal....................................................9
Class B Percentage...........................................................1
Class C Distributions.......................................................11
Class C Monthly Interest.....................................................8
Class C Monthly Principal....................................................9
Class C Note Balance.........................................................8
Class C Note Rate............................................................7
Class C Noteholders..........................................................8
Class C Notes................................................................1
Class C Overdue Interest.....................................................8
Class C Overdue Principal....................................................9
Code .......................................................................38
Collateral ..................................................................1
Collection Account..........................................................10
Commission ..................................................................3
Contracts ...................................................................1
Contribution and Servicing Agreement.........................................3
Defaulted Contract..........................................................12
S-46
<PAGE>
Page
Delinquency Amounts.........................................................12
Delinquency Condition.......................................................10
Delinquent Contract.........................................................12
Discount Rate................................................................9
Discounted Contract Balance..................................................9
ERISA ......................................................................14
Excess Collections..........................................................10
Excess Contract Balance......................................................5
Funding Period...............................................................6
Indenture ...................................................................3
Investment Earnings.........................................................12
IRS ....................................................................38, 39
Issuer ......................................................................1
List of Receivables.........................................................29
Lockbox Account.............................................................12
Lockbox Facility............................................................32
Maximum Reserve Amount......................................................11
Monthly Yield................................................................9
Net Receivables Rate........................................................16
Noteholders .................................................................7
Notes .......................................................................1
Offered Notes................................................................1
Optional Redemption.........................................................13
Original Capitalized Interest Amount........................................31
Payment Date.................................................................3
Pre-Funded Amount............................................................6
Pre-Funding Account..........................................................6
Predecessor Receivable......................................................20
Rating Agencies.............................................................15
Receivables .................................................................1
Record Date .................................................................7
Required Deposit Date.......................................................32
Required Payments...........................................................10
Reserve Account.............................................................10
Reserve Account Payment.....................................................10
Restricting Event...........................................................10
Rule of 78s ................................................................18
Servicer ....................................................................4
Servicer Advance............................................................12
Servicing Charges...........................................................12
Servicing Fee...............................................................11
Servicing Fee Rate..........................................................11
Stated Maturity Date.........................................................3
Successor Servicer..........................................................35
Supplement ..................................................................4
Tax Counsel ................................................................38
Trustee .....................................................................4
VSI Insurance Policy........................................................24
Weighted-Average Note Rate...................................................9
[Class C] Percentage.........................................................1
S-47
<PAGE>
EXHIBIT 99.3
<PAGE>
Exhibit 99.3
SUBJECT TO COMPLETION DATED ___________, 1997
[Exhibit 99.3 Form of Prospectus Supplement. This form of Prospectus Supplement
is for illustrative purposes only. A Prospectus Supplement in definitive form
reflecting the terms of each Series of Certificates will be filed with the
Commission under the Securities Act of 1933, as amended, pursuant to Rule 424(b)
promulgated thereunder.]
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED _________, 1996)
- --------------------------------------------------------------------------------
ADVANTA AUTO RECEIVABLES FINANCE CORPORATION 199__-__
$________________
_____% Auto Receivables Certificates, Class __
ADVANTA AUTO FINANCE CORPORATION
Sponsor
______________
Servicer
______________
Originator
- --------------------------------------------------------------------------------
The Class ___ Auto Receivables Backed Certificates (the
"Certificates") hereby offered by Advanta Auto Finance Corporation represent the
right to receive repayment of the Initial Certificate Principal Amount
($____________) of the Certificates and monthly interest at a rate of _____% per
annum on the unpaid portion of such principal amount. The rights to receive such
payments are based solely upon the interests represented by the Certificates in
the [Advanta] Receivables Trust 199__-__ (the "Trust") formed pursuant to a
Pooling and Servicing Agreement (the "Pooling Agreement"), dated as of
____________, 199__, among , as originator, (the "Originator") Advanta Auto
Finance Corporation as servicer of the receivables (the "Servicer") Advanta Auto
Finance Corporation (the "Sponsor") and ____________, as trustee (the "
Trustee"). The assets of the Trust will consist of any combination of retail
installment sales contracts between manufacturers, dealers or certain other
originators and retail purchasers secured by new and used automobiles and light
duty trucks financed thereby,] all monies relating thereto (the "Contracts"),
[the underlying new and used automobiles and light duty trucks (the "Vehicles,"
together with the Contracts], the "Receivables") and the proceeds thereof
received by the Trust from the Sponsor on or prior to the date of the issuance
of the Certificates. [The assets of the Trust also will include a certificate
guaranty insurance policy issued with respect to the Certificates (the
"Certificate Insurance Policy") by _____________ (the "Certificate Insurer"),
and during the Funding Period, amounts on deposit in the Pre-funding Account and
the Capitalized Interest Account. The Trustee will also have access to the
Reserve Account to be established for the benefit of the holders of the
Certificates (the "Certificateholders") and the Certificate Insurer.
Capitalized terms used herein are defined terms having specific
meanings. An "Index of Defined Terms" is set forth as page S-50 hereto, which
indicates the page on which such defined terms are defined.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK FACTORS"
AS PAGE __ HEREIN AND IN THE PROSPECTUS AT PAGE __
[FORM OF CREDIT ENHANCEMENT]
------------------
THE CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND DO NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF THE ORIGINATOR, THE SPONSOR, THE
SERVICER, ANY SUCCESSOR SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER
THE SECURITIES NOR THE UNDERLYING RECEIVABLES WILL BE GUARANTEED OR INSURED BY
ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE ORIGINATOR OR THE SPONSOR.
SEE ALSO "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATIONS TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
Price to Underwriting Proceeds to the
Public(1) Discount(2) Sponsor(1)(3)
- -------------------------------------------------------------------------------
Per Certificate............. % % %
Total....................... $ $ $
- -------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from ____________, 199__.
(2) The Sponsor has agreed to indemnify the Underwriter(s) against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting".
(3) Before deducting estimated expenses of $____________ payable by the
Sponsor.
[The Certificates are offered subject to prior sale, when, as, and
if accepted by the Underwriter(s) and subject to the approval of certain legal
matters by Dewey Ballantine, counsel for the Underwriter(s). It is expected that
delivery of the Certificates will be made only in book-entry form through the
Same Day Funds Settlement System of The Depository Trust Company on or about
_____________, 19__]
[Name(s) of the Underwriter(s)]
<PAGE>
The Contracts are contracts for the sale of the Vehicles, entitling
the originator thereunder to payments of principal and interest (hereinafter,
"Contract Principal" and "Contract Interest," respectively).
Principal and interest will be paid to the Certificateholders
[monthly] on the _____ day (or the next succeeding business day thereafter) of
each [month], commencing (except as provided below) in ____________ 199__. The
final payment of principal and interest on the Certificates will not be later
than the ____________ Payment Date. The Pooling Agreement and the Receivables
Acquisition Agreement will provide that, to the extent additional, qualifying
Receivables satisfactory to the Certificate Insurer are available from the
Originator during the period prior to the ____________ 199__ Payment Date, or,
if a Required Amortization Event occurs with respect to a Payment Date prior to
the ____________ 199__ Payment Date, such earlier Payment Date (the ____________
199__ or such earlier Payment Date being the "Initial Amortization Date"), the
Pre-Funded Amount and all Contract Principal received by the Trust will be
disbursed to the Sponsor in consideration of the conveyance of such additional,
qualifying Receivables (the "Additional Receivables").
On the Funding Distribution Date, the amount, if any, remaining on
deposit in the Pre-Funding Account will be transferred to the Remittance Account
for distribution to the Certificateholders as a prepayment of principal.
Beginning with the Initial Amortization Date, the Certificateholders will
generally be entitled to receive the Applicable Percentage of all Contract
Principal (other than Contract Principal resulting from certain Prepayments)
received by the Trust during the prior calendar month together with, as a
payment of principal, ___% of the lesser of (x) all Contract Interest received
by the Trust during the preceding calendar month in excess of the amount of
interest then due on the Certificates, subject to certain adjustments (the
"Excess Contract Interest") and (y) the amount then remaining in the Remittance
Account. On and after the Initial Amortization Date (unless a Required
Amortization Event has occurred) the Sponsor will have the option on each
Payment Date to convey Additional Receivables to the Trust, having an aggregate
Discounted Contract Balance not in excess of the aggregate amount of Prepayments
deposited to the Remittance Account with respect to the prior Remittance Period.
The Trust shall disburse to the Sponsor an amount equal to the aggregate
Discounted Contract Balance of such Additional Receivables.
The Certificate Insurer will be unconditionally obligated, to the
extent that Available Funds on any Payment Date are insufficient, to pay the
full amount of the required payments of principal and interest then due and
payable under the Certificates. "Available Funds" shall mean all amounts held by
the Trust received with respect to the Receivables, all amounts in the
Capitalized Interest Account and the Reserve Account established by the Sponsor
for the benefit of the Certificateholders, other than payments under the
Certificate Insurance Policy or payments received by the Servicer which relate
to subsequent collection periods.
------------------------------------------
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION
ABOUT THE OFFERING OF THE CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN
THE PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS.
------------------------------------------
S-2
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------------------------
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, periodic and
annual unaudited reports containing information concerning the Receivables will
be prepared by the Servicer and sent on behalf of the Trust only to Cede &
Company ("Cede"), as nominee of The Depository Trust Company ("DTC") and
registered holders of the Certificates. See "Description of the Securities --
Reports to Securityholders" in the accompanying Prospectus (the "Prospectus").
Such reports will not constitute financial statements prepared in accordance
with generally accepted accounting principles. The Trust will file with the
Securities and Exchange Commission (the "Commission") such periodic reports as
are required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations thereunder and as are otherwise
agreed to by the Commission. Copies of such periodic reports may be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
S-3
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to
the detailed information appearing elsewhere herein and in the Prospectus.
Certain capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Terms," which appears on page
S-50 hereof, or, to the extent not defined herein, have the meanings assigned to
such terms in the Prospectus.
Issuer............... ADVANTA AUTO RECEIVABLES TRUST 199_-_ (the " Trust" or
the "Issuer").
Sponsor.............. Advanta Auto Finance Corporation (the " Sponsor"), a
Nevada corporation. The Sponsor will acquire the
Receivables from the Originator and will simultaneously
transfer the Receivables (including from time to time
the Additional Receivables) to the Trust. The principal
executive offices of the Sponsor are located at 500
Office Center Drive, Fort Washington, Pennsylvania
19034, and its telephone number is (215) 283-4200.
Servicer............. Advanta Auto Finance Corporation a Nevada corporation
(the "Servicer"). The principal executive offices of the
Servicer are located at 500 Office Center Drive, Fort
Washington, Pennsylvania 19034, and its telephone number
is (215) 283-4200.
Originator........... ____________________, a ________ corporation (the
"Originator"). The principal executive offices of the
Originator are located at ____________________
____________________, and its telephone number is
__________.
Trustee.............. ________________________ (the "Trustee"), a ___________
association. The corporate trust offices of the Trustee
are located at ______________________ and its telephone
number is (___) ______.
Certificate
Insurer.............. ________________________, a ____________ corporation
(the "Certificate Insurer"). The principal executive
offices of the Certificate Insurer are located at
________________________ and its telephone number is
(___) ____________.
Cut-Off Date......... ____________, 199_.
Closing Date......... ____________, 199__.
The Certificates..... The Certificates will represent the right to receive a
specified principal amount and [monthly] interest at a
rate of _____% per annum on the unpaid portion of that
principal amount (the "Required Payments"). The rights
to such payments are based solely on the interest in the
Trust represented by the Certificates. The Certificates
will be issued in a principal amount of $____________,
which is not greater than the sum of (i) ___% of the
aggregate Contract Principal Balance of the Contracts as
of the close of business on ____________, 199__ (the
"Cut-Off
S-4
<PAGE>
Date") (the "Initial Contract Principal Balance") and
(ii) the Original Pre-Funded Amount. As of any date of
determination, the aggregate outstanding Discounted
Contract Balance of all Contracts (including all
Additional Receivables) then owned by the Trust and not
represented by the Certificates is the " Transferor's
Balance." The Discounted Contract Balance was derived
using a discount rate of ___%. As discussed below, the
Sponsor's Balance as evidenced by the Sponsor's
Certificate represents a subordinate interest in the
Trust because all amounts received with respect to the
Sponsor's Balance (as well as all Residual Receipts and
all Excess Contract Interest) are available to service
any shortfall in the amounts available to meet Required
Payments under the Certificates.
The interest in the Trust to be evidenced by a
Certificate will represent at least [$1,000,000] of the
Initial Certificate Principal Amount.
As described below under "Trust Assets" and below under
"Flow of Funds," from time to time the Sponsor may
convey Additional Receivables to the Trust. The Pooling
Agreement provides that, unless a Required Amortization
Event occurs prior to the ____________ 199__ Payment
Date, all Contract Principal which would otherwise be
paid to the Certificateholders or distributed to the
Sponsor will be disbursed to the Sponsor in
consideration of the conveyance of Additional
Receivables, with the result that the Certificateholders
will receive payments of interest only, and no payments
of principal, on each Payment Date prior to the
____________ 199__ Payment Date except for a possible
prepayment of principal resulting from the distribution
of amounts remaining on deposit in the Pre-Funding
Account on the Funding Distribution Date. See
"Description of the Certificates" and "Prepayment and
Yield Considerations" in the Prospectus.
The Trust............ The Trust will be a trust established under the laws of
the State of ____________. The activities of the Trust
are limited by the terms of the Trust Agreement to
purchasing, owning and managing the Receivables, issuing
and making payments on the Certificates and other
activities related thereto. The Trust Property includes
(i) the Receivables, (ii) all monies (including accrued
interest) due thereunder on or after the Cut-off Date,
(iii) such amounts as from time to time may be held in
one or more accounts established and maintained by the
Servicer pursuant to the Pooling Agreement, as described
below, [(iv) the security interests in the Vehicles, (v)
the rights to proceeds from claims on physical damage,
credit life and disability insurance policies, if any,
covering Vehicles or Obligors, as the case may be, (vi)
any proceeds of repossessed Vehicles,] (vii) the rights
of the Sponsor under the Receivables Acquisition
Agreement and (viii) interest earned on short-term
investments made by the Trust.
In the Receivables Acquisition Agreement, the Originator
will make certain representations and warranties to the
Sponsor with respect to, among other things, the
Vehicles and the Contracts, which
S-5
<PAGE>
representations and warranties will be assigned to the
Trustee under the Pooling Agreement.
The Receivables...... The Receivables consist of noncancelable [retail
installment sales contracts between manufacturers,
dealers or certain other originators and retail
purchasers serviced by new and used automobiles and
light duty trucks financed thereby.] Each Obligor's
obligation under its Contract is a full recourse
obligation. The "Obligor" is the obligor under each
Contract including any guarantor. The Receivables
contain provisions which unconditionally obligate the
Obligor to make all Contract Payments.
[All of the Contracts were purchased by the Sponsor from
the Originator in the ordinary course of business and
the Contracts constitute substantially all of the
automobile and light duty truck retail installment sale
contracts included in the Originator's portfolio meeting
the selection criteria described below. Such selection
criteria included that: (i) each Contract is secured by
a new or used automobile or light duty truck; (ii) each
Contract was originated in the United States; (iii) each
Contract provides for level monthly payments that fully
amortize the amount financed over its original term
except that the payment in the first or last month in
the life of the Contract may be minimally different from
the level payment, and a minimal number of the Contracts
provide for monthly payments for a period of time not
exceeding one year after origination in an amount less
than such level payment, provided that as of the Cutoff
Date the monthly payment currently due under each such
Contract is equal to such level payment; (iv) each
Contract was originated on or prior to ________, 199_;
(v) each Contract has an original term of __ to __
months and, as of the Cutoff Date, had a remaining term
to maturity of not less than three months nor more than
_ month; (vi) each Contract provides for the payment of
a finance charge at an APR ranging from __% to __%;
(vii) each Contract shall not have a Scheduled Payment
that is more than 30 days past due as of the Cutoff
Date; (viii) no Contract shall be due, to the best
knowledge of the Originator, from any Obligor who is
presently the subject of a bankruptcy proceeding or is
bankrupt or insolvent; (ix) no Vehicle has been
repossessed without reinstatement as of the Cutoff Date;
and (x) as of the Cutoff Date, physical damage insurance
relating to each Vehicle is not being force-placed by
the Servicer.]
[As of the Cutoff Date, approximately __% and
approximately __% of the Aggregate Discounted Contract
Balance are expected to represent Contracts secured by
automobiles and light duty trucks, respectively. Based
on the Aggregate Discounted Contract Balance,
approximately ___% and approximately ___% of the
Contracts are expected to represent financing of new
vehicles and used vehicles, respectively, and no more
than ___% of the Contracts are expected to be due from
employees of the Originator or any of its respective
affiliates. As of the Cutoff Date, the average Principal
Balance of Contracts secured by automobiles and light
duty trucks is expected to be approximately $________
and approximately $________, respectively. The majority
S-6
<PAGE>
of the Vehicles are expected to be foreign and domestic
automobiles and light duty trucks. Except in the case of
any breach of representations and warranties by the
Originator, it is expected that none of the Contracts
provide for recourse to the Originator who originated
the related Contract.]
Flow of Funds........ The Pooling Agreement will require that the Trustee
establish an account (the "Remittance Account") and that
the Servicer deposit to the Remittance Account all
collections received by the Servicer on the Contracts on
the next business day following receipt of such amounts.
The Pooling Agreement will also require that the Trustee
establish an account (the "Pre-Funding Account") and
that the Sponsor deposit to the Pre-Funding Account on
the Closing Date cash in the amount of $____________
(the "Original Pre-Funded Amount"). On the Funding
Distribution Date, the Trustee will transfer the amount,
if any, then on deposit in the Pre-Funding Account to
the Remittance Account for distribution to the
Certificateholders as a prepayment of principal.
On each Payment Date the Trustee will be required to
make the following payments from the Available Funds
then on deposit in the Remittance Account, in the
following order of priority:
(i) to the Servicer, the Servicing Fee then
due, together with certain miscellaneous
amounts;
(ii) on the Payment Date which is also the
Funding Distribution Date, to the
Certificateholders, the Pre-Funded Amount,
if any;
(iii) to the Certificateholders, the
Certificate Interest and Overdue Interest
for the related Remittance Period;
(iv) on and after the Payment Date which is
also the Initial Amortization Date and until
the Certificate Principal Balance has been
reduced to zero, to the Certificateholders,
the Base Principal Distribution Amount and
any Overdue Principal for the related
Remittance Period;
(v) to the Certificate Insurer, the premiums
then due with respect to the Certificate
Insurance Policy (the cost of which will be
debited against the Sponsor's Interest);
(vi) to the Certificate Insurer, any amounts
previously paid by it under the Certificate
Insurance Policy and not theretofore repaid,
together with interest thereon;
(vii) to the Reserve Account, the amount of
any insufficiency therein;
(viii) on and after the Payment Date which
is also the Initial Amortization Date and
until the Certificate Principal Balance has
S-7
<PAGE>
been reduced to zero, to the
Certificateholders, the Excess Principal
Amount as of such Payment Date;
(ix) to the Servicer, certain remaining
amounts as reimbursement for certain
expenses; and
(x) to the holder of the Sponsor's
Certificate, any remaining amounts.
See "Description of the Certificates - Flow of Funds"
for the definitions of certain defined terms used above.
Credit Enhancement... The credit enhancement available for the benefit of the
Certificateholders takes the following forms: the
Transferor's Interest, the Capitalized Interest Account,
the Reserve Account and the Certificate Insurance
Policy.
A. Sponsor's
Interest....... The "Sponsor's Interest", as evidenced by the Sponsor's
Certificate, is the right of the holder of the Sponsor's
Certificate to receive the Sponsor's Balance plus other
remaining Available Funds as described in clause (x) of
"Flow of Funds" above.
The Sponsor's Balance as of any date of determination is
equal to the excess of (x) the aggregate outstanding
Discounted Contract Balance of all Contracts as of such
date (computed as stated above) over (y) the outstanding
Certificate Principal Balance minus the Pre-Funded
Amount, if any, as of such date. As of the Cut-Off Date
the Sponsor's Balance was equal to ___% of the sum of
the Initial Aggregate Discounted Contract Balance.
The Pooling Agreement provides that 100% of any losses
on Defaulted Contracts be allocated to the Sponsor's
Balance until the Sponsor's Balance is reduced to zero.
If losses on Defaulted Contracts occur when the
Sponsor's Balance is zero, then the Applicable
Percentage of the outstanding Discounted Contract
Balance of such Defaulted Contracts will be due to the
Certificateholders on the next Payment Date, such amount
to be paid from any Available Funds on deposit in the
Remittance Account on such Payment Date, amounts
transferred from the Reserve Account on such Payment
Date and, if the foregoing sources are insufficient,
Insured Payments made by the Certificate Insurer.
In addition to the repayment of the Sponsor's Balance,
the holder of the Sponsor's Certificate as owner of the
Sponsor's Interest will be entitled to receive on each
Payment Date any Available Funds not required to be used
for repayments to the Certificate Insurer, the making of
any required deposits to the Reserve Account or other
required purposes.
If, prior to the Initial Amortization Date, the
Sponsor's Balance is reduced below ___%, then the
Sponsor will be required on the next
S-8
<PAGE>
Payment Date to transfer to the Trust Additional
Receivables having an aggregate Discounted Contract
Balance necessary to increase the Sponsor's Balance to
the ___% level. The Trust will disburse to the Sponsor
Excess Contract Interest and other excess cash with
respect to such transfers, and the obligation of the
Sponsor to transfer such Additional Receivables is
limited by the amount of the Excess Contract Interest
and other excess cash available.
B. Capitalized Interest
Account........ The Pooling Agreement will require that the Trustee
establish an account (the "Capitalized Interest
Account") and that the Sponsor deposit to the
Capitalized Interest Account on the Closing Date cash in
the amount of $_________ (the "Initial Capitalized
Interest Amount"). On each Payment Date during the
Funding Period, amounts on deposit in the Capitalized
Interest Account will be required to be transferred to
the Remittance Account to the extent the aggregate
amount of Contract Interest for the related Remittance
Period is insufficient to fund the full amount of the
Certificate Interest and Servicer Fee payable on such
Payment Date. On each such Payment Date, the Sponsor
will have the right to instruct the Trustee to transfer
to the Sponsor from the Capitalized Interest Account the
Overfunded Interest Amount. The amount, if any, on
deposit in the Capitalized Interest Account on the
Funding Distribution Date will be disbursed to the
Sponsor.
C. Reserve Account... Pursuant to the terms of the Insurance Agreement, dated
as of ____________, 199__, among the Originator, the
Servicer, the Sponsor, the Collateral Agent, the Trustee
and the Certificate Insurer (the "Insurance Agreement"),
and the Pooling Agreement, the Trustee will hold a
reserve account (the " Reserve Account") for the benefit
of the Certificateholders, the Certificate Insurer and
the Transferor, as their interests may appear, which
will be funded with cash on the Closing Date in the
initial amount of $____________.
In connection with each payment to the Sponsor from the
Pre-Funding Account, the Trustee will transfer from the
Pre-Funding Account to the Reserve Account an amount
equal to __% of the aggregate Contract Principal
Balances of the Additional Contracts conveyed to the
Trust on the date of such payment. The amount on deposit
in the Reserve Account on the Funding Termination Date
will be required to be maintained until the date two
years after the Closing Date (the "Determination Date").
On each Payment Date thereafter, the amount on deposit
in the Reserve Account will be required to be maintained
in an amount equal to the greater of (i) the product of
(x) a fraction, the numerator of which is the amount on
deposit in the Reserve Account on the Determination Date
and the denominator of which is the aggregate Contract
Principal Balances as of the Calculation Date
immediately preceding the Determination Date and (y) the
aggregate Contract Principal Balances as of the related
Calculation Date and (ii) $________. On each Payment
Date, amounts on deposit in the Reserve Account are
required to be transferred to the Remittance
S-9
<PAGE>
Account to the extent that Available Funds are
insufficient to fund the full amount of Required
Payments on such Payment Date.
D. Certificate Insurance
Policy......... In the event that Available Funds plus any amounts
available to be withdrawn from the Reserve Account and
the Capitalized Interest Account are insufficient to
fund the full amount of the Required Payments due on any
Payment Date, the Trustee will be required to make a
claim under the Certificate Insurance Policy.
"Required Payments" means, with respect to any Payment
Date, the amounts described in clauses (ii), (iii) and
(iv) under "Flow of Funds" above on such Payment Date.
Servicing............ The Servicer will be responsible for servicing,
managing, arranging, making collections on and otherwise
enforcing the Contracts. The Servicer will be required
to exercise the degree of skill and care in performing
these functions that it customarily exercises with
respect to similar contracts owned by the Servicer. The
Servicer will be entitled to receive a monthly fee (the
"Servicing Fee") of the product of (i) one-twelfth, (ii)
___% (the "Servicing Fee Rate") and (iii) the Aggregate
Discounted Contract Balance as of the beginning of the
previous Remittance Period, payable out of the
Collection Account, plus late payment fees and certain
other fees paid by the Obligors ("Servicing Charges")
and investment earnings on amounts held in the
Remittance Account (" Investment Earnings"), as
compensation for acting as Servicer.
On the day prior to any Payment Date, the Servicer will
be required to make an advance (a "Servicer Advance") to
the Trustee in an amount sufficient to cover all amounts
due and unpaid on any Delinquent Contract as of the
previous Determination Date ("Delinquency Amounts"). A
"Delinquent Contract" will mean, as of any Determination
Date, any Contract (other than a Contract which became a
Defaulted Contract prior to such Determination Date)
with respect to which the Obligor has not paid all
Contract Payments then due. With respect to any
Delinquent Contract, whenever the Servicer shall have
determined that it will be unable to recover a
Delinquency Amount or portion thereof on such Delinquent
Contract, the Servicer shall not be required to make a
Servicer Advance on such unrecoverable Delinquency
Amount or portion thereof, but will be required to
enforce its remedies (including acceleration) under such
Contract. Furthermore, if at any time the Originator is
no longer the Servicer, no Servicer Advances will be
required. In the event that the Servicer determines that
any Servicer Advances previously made are Nonrecoverable
Advances, or any Delinquent Contracts for which the
Originator has made advances of Delinquency Amounts in
respect thereof become Defaulted Contracts, then the
Trustee shall have the right to draw on the Collection
Account and the Reserve Account to repay such Servicer
Advances.
S-10
<PAGE>
Optional Termination. The Sponsor will have the option, subject to certain
conditions set forth in the Pooling Agreement, including
the deposit of the sum specified in the Pooling
Agreement, to remove all, but not less than all, of the
property in the Trust, and thereby cause early
retirement of the Certificates and the Sponsor's
Certificate as of any Payment Date on which the
Certificate Principal Balance is less than ____% of the
Initial Certificate Principal Amount (after giving
effect to payment of principal on such Payment Date). In
the event of such a removal, the entire outstanding
Certificate Principal Balance, together with accrued
interest thereon at the Certificate Rate, will be
required to be paid to the Certificateholders on such
Payment Date, and the Sponsor's Balance, if any, will be
required to be paid to the holder of the Sponsor's
Certificate on such Payment Date.
Certain Legal
Aspects of the
Receivables.......... With respect to the transfer of the Receivables, the
Original Pre-Funded Amount and the Initial Capitalized
Interest Amount to the Trust, the Sponsor will warrant
in the Pooling Agreement that the transfer by it to the
Trust is either a valid transfer and assignment of the
Receivables, the Original Pre-Funded Amount and the
Initial Capitalized Interest Amount to the Trust or the
grant of a security interest in the Receivables, the
Original Pre-Funded Amount and the Initial Capitalized
Interest Amount. The Sponsor will be required to take
such action as is required to perfect the Trust's
security interest in the Receivables, the Original
Pre-Funded Amount and the Initial Capitalized Interest
Amount. The Sponsor will warrant that if the transfer by
it to the Trust is deemed to be a grant to the Trust of
a security interest in the Receivables, the Original
Pre-Funded Amount and the Initial Capitalized Interest
Amount, then the Trust will have a first priority
perfected security interest therein, except for certain
liens which have priority over previously perfected
security interests by operation of law, and, with
certain exceptions, in the proceeds thereof. If the
Sponsor, the Servicer, or the Trustee, while in
possession of an item of Receivables, sells or pledges
and delivers such Receivables to another party, in
violation of the Pooling Agreement, there is a risk that
the purchaser could acquire an interest in such an item
of Receivables having priority over the Trust's
interest.
[Because of the administrative burden and expense that
would be entailed in so doing, neither the Originator
nor the Sponsor has filed or will be required to file
UCC financing statements in favor of the Trustee
identifying the Vehicles as collateral pledged to the
Trustee on behalf of the Trust. In the absence of such
filings any security interest in the Vehicles will not
be perfected in favor of the Trustee. Upon request, the
Originator and/or the Sponsor will be required to make
such filings with respect to Defaulted Contracts. See
"Risk Factors -- Certain Legal Aspects" and "Certain
Legal Aspects -- UCC and Bankruptcy Considerations."]
S-11
<PAGE>
Federal Income Tax
Consequences......... The Certificates will be characterized as indebtedness
for federal income tax purposes. Under the Pooling
Agreement, the Sponsor and the Certificateholders and
other parties will agree to treat the Certificates as
debt for federal and state income tax purposes. See
"Federal Income Tax Consequences" for additional
information concerning the application of federal and
state income tax laws.
ERISA
Considerations....... The acquisition of a Certificate by an employee benefit
plan subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and the provisions of
Section 4975 of the Code (a "Plan"), could result in a
prohibited transaction under ERISA and Section 4975 of
the Code, unless such acquisition is subject to a
statutory or administrative exemption, if, by virtue of
such acquisition, assets held by the Trust and pledged
to the Trustee were deemed to be assets of the Plan. In
addition, the Originator or other parties may be
considered to be a fiduciary with respect to any Plan.
Therefore, the acquisition and transfer of the
Certificates are subject to certain restrictions. See
"ERISA Considerations."
Ratings.............. It is a condition of the original issuance of the
Certificates that the Certificates receive ratings of
___ by ____________________ ("____"), and ___ by
______________ ("_________"). A security rating is not a
recommendation to buy, sell or hold securities, and may
be subject to revision or withdrawal at any time by the
assigning entity. See "Ratings."
Risk Factors......... For a discussion of certain factors that should be
considered by prospective investors in the Certificates,
see "Risk Factors" herein and in the Prospectus.
Certain Legal
Matters.............. Certain legal matters relating to the validity of the
issuance of the Certificates will be passed upon for the
Issuer and the Underwriter by Dewey Ballantine, New
York, NY.
S-12
<PAGE>
RISK FACTORS
Prospective Certificateholders should consider, among other things, the
following factors in connection with the purchase of the Certificates:
Risk of Losses on Investment Associated with Limited Obligations of the
Trust. Distributions of interest and principal on the Certificates will be
subordinated in priority of payment to interest and principal due on the
Certificates. The Certificateholders will not receive any distributions with
respect to a Payment Date until the full amount of interest on and principal of
the Certificates on such Payment Date has been deposited in the Certificate
Distribution Account. The Trust does not have, nor is it permitted or expected
to have, any significant assets or sources of funds other than the Receivables
and the Trust Accounts. The Securities represent solely obligations of, or
interests in, the Trust and the Securities will not be insured or guaranteed by
the Sponsor, the Originator, the Servicer, the [Owner] Trustee or any other
person or entity. Consequently, holders of the Securities must rely for
repayment upon payments on the Receivables and, if and to the extent available,
amounts on deposit in the Reserve Account. Amounts to be deposited in the
Reserve Account are limited in amount, and the amount required to be on deposit
in the Reserve Account will be reduced as the Pool Balance is reduced. In
addition, funds in the Reserve Account will be available on each Payment Date to
cover shortfalls in distributions of interest and principal on the Certificates
prior to the application thereof to cover shortfalls on the Certificates. If the
Reserve Account is exhausted, the Trust will depend solely on current payments
on the Receivables to make payments on the Securities. Although the Trust will
covenant to sell the Receivables if directed to do so by the Indenture Trustee
in accordance with the Indenture following an acceleration of the Certificates
upon an Event of Default, there is no assurance that the market value of the
Receivables will at any time be equal to or greater than the aggregate principal
amount of outstanding Certificates. Therefore, upon an Event of Default with
respect to the Certificates there can be no assurance that sufficient funds will
be available to repay Certificateholders in full and consequently the
Certificateholders run the risk of loss on their investment. In addition, the
amount of principal required to be distributed to Certificateholders under the
Indenture is generally limited to amounts available therefor in the Certificate
Distribution Account. Therefore, the failure to pay principal on the
Certificates may not result in the occurrence of an Event of Default until the
Final Scheduled Payment Date.
Risk of Limited Liquidity and Lower Market Price Associated with a
Reduction or Withdrawal of Ratings of the Securities. It is a condition to the
issuance of the Certificates that the Certificates be rated in the [_____]
rating category or its equivalent, by at least two nationally recognized rating
agencies (the "Rating Agencies"). A rating is not a recommendation to purchase,
hold or sell securities, inasmuch as such rating does not comment as to market
price or suitability for a particular investor. The rating of the Certificates
addresses the likelihood of the timely payment of interest on and the ultimate
repayment of principal of the Certificates pursuant to their terms. There is no
assurance that a rating will remain for any given period of time or that a
rating will not be lowered or withdrawn entirely by a Rating Agency if in its
judgment circumstances in the future so warrant. The rating of the Certificates
is based primarily on the creditworthiness of the Receivables, the subordination
provided by the Certificates and the availability of funds in the Reserve
Account. The ratings of the Certificates are also based on the rating of the
security insurer. Upon a security insurer default, the rating on the
Certificates may be lowered or withdrawn entirely. In the event that any rating
initially assigned to the Certificates were subsequently lowered or withdrawn
for any reason, including by reason of a downgrading of the security insurer's
claims-paying ability, no person or entity will be obligated to provide any
additional credit enhancement with respect to the Certificates. Any reduction or
withdrawal of a rating will have an adverse effect on the liquidity and market
price of the Certificates. See "Ratings."
[Risk of Reduced Rate of Return Associated with Relationship Between Base
Rate and LIBOR. Allocations of payments on the variable rate Receivables to
principal and interest depend upon the applicable Base Rate. Interest on the
Certificates accrues at a rate generally based upon LIBOR. These
S-13
<PAGE>
two rates can and will vary with respect to each other. Historically, they have
increased or decreased roughly in tandem and, during the last ten years, LIBOR
always has remained below the Base Rate. However, no assurance can be given that
these historical trends will continue. There is a risk that if LIBOR were to
more above the Base Rate, the spread used to pay interest to the Securityholders
would disappear and the rate of return to investors would be reduced.]
[The variable rate Receivables bear interest at the Base Rate plus a Base
Rate Additive ranging from _____% to _____%. The Certificate Interest is based
upon LIBOR. If, in respect of any Payment Date, there does not exist a positive
spread between the weighted average of the Receivables Rate, Certificate
Interest Rate less the Servicing Fee Rate (such difference between the
Receivables Rate and the Servicing Fee Rate being the "Net Receivables Rate")
for the Collection Period preceding such Payment Date, on the one hand, and the
Certificate Interest Rate for such Payment Date (calculated before giving effect
to this sentence), on the other hand, then the [Pass-Through Rate] for such
Payment Date shall not exceed the Net Receivables Rate.]
[Risk of Reduced Rate of Return Associated with Yield Considerations. The
Certificateholders will bear the risk associated with the possible narrowing of
the spread between the Certificate Interest Rate, on the one hand, and the Net
Receivables Rate, on the other hand. If this spread disappears ( i.e., if the
Certificate Interest Rate exceeds or equals the Net Receivables Rate), the
interest payable on the Certificates for the related Payment Date will not
exceed such Net Receivables Rate. A substantial change in LIBOR at a time when
the Net Receivables Rate does not experience a similar change could result in
limiting the Certificate Interest Rate and consequently could reduce the rate of
return to investors as described above.]
Risk of Lower Yield Associated with Prepayment Considerations. If
purchased at other than par, the yield to maturity on the Securities will be
affected by the rate of the payment of principal of the Contracts. If the actual
rate of payments on the Contracts is slower than the rate anticipated by an
investor who purchases the Securities at a discount, the actual yield to such
investor will be lower than such investor's anticipate yield. If the actual rate
of payments on the Contracts is faster than the rate anticipated by an investor
who purchases the Securities at a premium, the actual yield to such investor
will be lower than such investor's anticipated yield.
[All of the Contracts are fixed-rate contracts. The rate of prepayments
with respect to conventional fixed contracts has fluctuated significantly in
recent years. In general, if prevailing interest rates fall significantly below
the interest rates on fixed rate contracts, such contracts are likely to be
subject to higher prepayment rates than if prevailing rates remain at or above
the interest rate on such contracts. However, the monthly payment on contracts
similar to the Contracts is often smaller than the monthly payment on other
types of consumer debt, for example, a typical mortgage loan. Consequently, a
decrease in the interest rate payable as a result of a refinancing would result
in a relatively small reduction in the amount of the contracts monthly payment,
as a result of the relatively small loan balance. Conversely, if prevailing
interest rates rise appreciably above the interest rates on fixed rate
contracts, such contracts are likely to experience a lower prepayment rate than
if prevailing rates remain at or below the interest rates on such contracts. As
of the Cut-off Date, ____% of the aggregate principal balance of the Contracts
had prepayment penalties.]
[All of the Contracts are adjustable rate contracts. As is the case with
conventional fixed rate contracts, adjustable rate contracts may be subject to a
greater rate of principal prepayments in a declining interest rate environment.
For example, if prevailing interest rates fall significantly, adjustable rate
contracts could be subject to higher prepayment rates than if prevailing
interest rates remain constant because the availability of fixed-rate contracts
at competitive interest rates may encourage obligors to refinance their
adjustable rate contracts to "lock in" a lower fixed interest rate. However, no
assurance can be given as to the level of prepayments that the contracts will
experience. As of the Cut-off Date, ____% of the aggregate principal balance of
the Contracts had prepayment penalties.]
S-14
<PAGE>
THE RECEIVABLES
Contracts
[Description of collateral is transaction dependent - an example of
disclosure language is set forth below.]
[All of the Contracts were purchased by the Sponsor from the
Originator in the ordinary course of business and the Contracts constitute
substantially all of the automobile and light duty truck retail installment sale
contracts included in the Originator's portfolio meeting the selection criteria
described below. Such selection criteria included that: (i) each Contract is
secured by a new or used automobile or light duty truck; (ii) each Contract was
originated in the United States; (iii) each Contract provides for level monthly
payments that fully amortize the amount financed over its original term except
that the payment in the first or last month in the life of the Contract may be
minimally different from the level payment, and a minimal number of the
Contracts provide for monthly payments for a period of time not exceeding one
year after origination in an amount less than such level payment, provided that
as of the Cutoff Date the monthly payment currently due under each such Contract
is equal to such level payment; (iv) each Contract was originated on or prior to
______, 199_; (v) each Contract has an original term of __ to __ months and, as
of the Cutoff Date, had a remaining term to maturity of not less than three
months nor more than __ month; (vi) each Contract provides for the payment of a
finance charge at an APR ranging from __% to __%; (vii) each Contract shall not
have a Scheduled Payment that is more than 30 days past due as of the Cutoff
Date; (viii) no Contract shall be due, to the best knowledge of the Originator,
from any Obligor who is presently the subject of a bankruptcy proceeding or is
bankrupt or insolvent; (ix) no Vehicle has been repossessed without
reinstatement as of the Cutoff Date; and (x) as of the Cutoff Date, physical
damage insurance relating to each Vehicle is not being force-placed by the
Servicer.
Certain information with respect to the Receivables expected to be
sold by the Originator to the Sponsor pursuant to the Receivables Acquisition
Agreement and in turn sold by the Sponsor to the Trust pursuant to the Pooling
Agreement is set forth below. The description of the Receivables presented in
this Prospectus Supplement is based upon the pool of Receivables as it is
expected to be constituted on the Cutoff Date. While information as of the
Closing Date for the Receivables that actually will be sold to the Trust may
differ somewhat from the information presented herein, the Sponsor does not
expect that the characteristics of the Receivables that are sold to the Trust
will vary materially from the information presented in this Prospectus
Supplement concerning the Receivables.
As of the Cutoff Date, approximately __% and approximately __% of
the Aggregate Discounted Contract Balance are expected to represent Contracts
secured by automobiles and light duty trucks, respectively. Based on the
Aggregate Discounted Contract Balance, approximately __% and approximately __%
of the Contracts are expected to represent financing of new vehicles and used
vehicles, respectively, and no more than __% of the Contracts are expected to be
due from employees of the Originator or any of its respective affiliates. As of
the Cutoff Date, the average Principal Balance of Contracts secured by
automobiles and light duty trucks is expected to be approximately $__ and
approximately $_____, respectively. The majority of the Vehicles are expected to
be foreign and domestic automobiles and light duty trucks. Except in the case of
any breach of representations and warranties by the Originator, it is expected
that none of the Contracts provide for recourse to the Originator who originated
the related Contract.
Each Contract provides for fixed level monthly payments which will
amortize the full amount of the Contract over its term. The Contracts provide
for allocation of payments according to the "sum of periodic balances" or "sum
of monthly payments" method (the "Rule of 78s"). Each Contract provides for the
payment by the Obligor of a specified total amount of payments, payable in
monthly installments on the related due date, which total represents the
principal amount financed and finance
S-15
<PAGE>
charges in an amount calculated on the basis of a stated annual percentage rate
("APR") for the term of such Contract. The rate at which such amount of finance
charges is earned and, correspondingly, the amount of each fixed monthly payment
allocated to reduction of the outstanding principal balance of the related
Contract are calculated in accordance with the Rule of 78s. Under the Rule of
78s, the portion of each payment allocable to interest is higher during the
early months of the term of a Contract and lower during later months than that
under a constant yield method for allocating payments between interest and
principal. Notwithstanding the foregoing, all payments received by the Servicer
on or in respect of the Contract will be allocated pursuant to the Pooling
Agreement on an actuarial basis.
If an Obligor elects to prepay a Contract in full, it is entitled to
a rebate of the portion of the outstanding balance then due and payable
attributable to unearned finance charges, calculated in accordance with the Rule
of 78s. The amount of a rebate under a Contract calculated in this manner will
always be less than had such rebate been calculated on an actuarial basis.
Distributions to Certificateholders will not be affected by Rule of 78s rebates
under the Contract because pursuant to the Pooling Agreement such distributions
will be determined using the actuarial method.]
S-16
<PAGE>
The expected composition, distribution by APR and geographical
distribution of the Contracts are as set forth in the following tables.
Expected Composition of the Contracts
New Used
---------------- ------------
Initial Aggregate Discounted Contract Balance.. $
Number of Contracts ........................... ___
Average Original Principal Balance ............ $
Range of Original Principal Balances ........ $___ to $___
Weighted Average APR(1)........................ ___%
Range of APRs ............................... ___% to ___%
Weighted Average Original Maturity(1) ......... ____ months
Range of Original Maturities ................ __ months to __
months
Weighted Average Remaining Maturity(1) ........ __ months
Range of Remaining Maturities ............... __ months to __
months
- ----------
(1) Weighted by Aggregate Discounted Contract Balance as of the Cutoff Date.
Expected Distribution of the Contracts by APR
Aggregate
Percentage of Discounted Percentage of
Aggregate Contract Aggregate
Number Principal Discounted
Number of of Contracts Balance Contract
Range of APRs Contracts -------------- ---------- Balance
- ------------- --------- -------------
% to % .... % $ %
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
Total ......... % $ %
========= ============== ========== ==============
S-17
<PAGE>
Expected Distribution of the Contracts by State
Percentage of
Percentage of Aggregate Aggregate
Aggregate Discounted Discounted
Number of Number Contract Contract
State(1) Contracts of Contracts Balance Balance
- -------- ---------- ---------------- --------------- -----------
% $ %
Total.......... % $ %
========== ================ =============== ===========
- ----------
(1) Based on the addresses of the Obligors.
Substitution
Pursuant to the Receivables Acquisition Agreement, the Servicer will
have the right (but not the obligation) at any time to substitute one or more
Eligible Receivables (each a " Substitute Receivable") for a Receivable
("Predecessor Receivable") if:
(i) the Predecessor Receivable is then in default and, as of the
most recent Cut-Off Date, has been in default for at least [(60)]
consecutive days or a bankruptcy petition has been filed by or against the
Obligor;
[(ii) the Vehicles comprising part of the Substitute Receivable or
Receivables has a current estimated fair market value and a projected
residual value, respectively, equal to or greater than the current fair
market value and projected residual value of the Vehicles comprising part
of the Predecessor Receivable;] and
(iii) the Substitute Receivable or Receivables require the obligor
or obligors thereunder to make Contract Payments during each month ending
on or prior to the final payment date of the Certificate in an amount
which is at least as great as the Contract Payment required under the
Predecessor Receivable during each such month.
[provided, however, that the Aggregate Discounted Contract Balance of all
Contracts substituted shall not exceed [10%] of the Aggregate Discounted
Contract Balance of the Initial Receivables and the Additional Receivables.]
[The original counterpart of each Contract constituting chattel
paper and the Contract Files will be held by _________________, as Trustee on
behalf of the Certificateholders. The Trustee will be required to indicate that
the Contracts have been transferred by the Originator to the Trust.]
The Additional Receivables
Subject to the conditions set forth below, in consideration of the
Trustee's delivery on the related Additional Receivable Transfer Date upon the
order of the Sponsor of all or a portion of the balance of funds in the
Pre-Funding Account, the Originator shall on any Additional Receivable Transfer
Date sell, transfer, assign, set over and otherwise convey without recourse, to
the Sponsor, all right, title and interest
S-18
<PAGE>
of the Originator in and to each Additional Receivable listed on the schedule
delivered by the Originator to the Sponsor and the Trustee (including all
Contract Payments due thereunder); provided, however, that the Originator
reserves and retains all of its right, title and interest in and to all Contract
Payments collected and interest accruing on each such Additional Receivable
prior to the related Additional Receivable Transfer Date.
The amount released from the Pre-Funding Account shall be __________
percent (___%) of the Discounted Contract Balances of each Additional
Receivables so transferred.
The Originator shall transfer to the Issuer the Additional
Receivable and the other property and rights related thereto only upon the
satisfaction of each of the following conditions on or prior to the related
Additional Receivable Transfer Date:
(i) the Originator shall have provided the Trustee with a timely
Addition Notice and shall have provided any information reasonably
requested by the Sponsor or the Trustee with respect to the Additional
Receivables;
(ii) the Originator shall have delivered to the Sponsor and the
Trustee a duly executed written assignment (including an acceptance by the
Trustee) (the "Additional Receivable Transfer Agreement"), which shall
include schedules listing the Additional Receivables and any other
exhibits listed thereon;
(iii) the Originator shall have deposited in the Remittance Account
all collections in respect of the Additional Receivables received on or
after the related Additional Receivable Transfer Date;
(iv) as of each Additional Receivable Transfer Date, the Originator
was not insolvent nor will it be made insolvent by such transfer nor is it
aware of any pending insolvency;
(v) such addition will not result in a material adverse tax
consequence to the Sponsor or the Certificateholders;
(vii) the Originator shall have delivered to the Trustee an
Officers' Certificate confirming the satisfaction of each condition
precedent specified in this paragraph and in the related Additional
Receivable Transfer Agreement;
(viii) the obligation of the Sponsor to purchase an Additional
Receivable on any Additional Receivable Transfer Date is subject to the
requirement that such Additional Receivable comply in all material
respects with the representations and warranties made by the Originator on
the Initial Receivables in the Pooling Agreement.
THE ORIGINATOR AND THE SERVICER
General
The Originator is principally a company engaged in the business of
originating and acquiring retail installment sales contract financing to retail
customers of automotive dealers. The Originator provides full-service financing,
primarily through installment sales contracts, to servicing of new and used
automobiles and light duty trucks through dealer programs.
[The Originator has financed over [$_____ million of vehicles,
representing over vehicles. The Originator currently services over ___ customers
through its direct servicing activities and
S-19
<PAGE>
an additional _______ customers in connection with its subsidiaries'
activities.] As of [_________________, the Originator had ____ employees.
Delinquency and Default Experience
There can be no assurance that the levels of delinquency and loss
experience reflected in Table 1 and Table 2, below, are indicative of the
performance of the Receivables included in the Collateral for the Certificates.
TABLE 1
<TABLE>
<CAPTION>
DELINQUENCY EXPERIENCE(1)
===========================================================================================
Year Ended December 31,
---------------------------------------------------------------
1991 1992 1993
===============================================================
Dollar Percentage Dollar Percentage Dollar Percentage
Amount of Total Amount of Total Amount of Total
(000) Portfolio (000) Portfolio (000) Portfolio
----- --------- ----- --------- ----- ---------
<S> <C> <C> <C>
Total Originator Portfolio
at Year End $ $ $
Delinquencies:
30-59 Days $ % $ % $ %
61-89 Days % % %
90+ Days % $ % $ %
----- --------- ----- --------- ----- ---------
Total Delinquencies $ $ $
Total Delinquencies as a
% of Total Portfolio % % %
</TABLE>
(1) The indicated periods of delinquency (31-59, 60-89, and 90 or more) are
based on the number of days past due on a contractual basis, based on a
30-day month. No Contract is considered delinquent for these purposes until
the monthly anniversary of its contractual due date (e.g., a Contract with a
payment due on January 1 would be considered 31-59 days delinquent if the
January 1 payment has not been received on or prior to February 1).
TABLE 2
<TABLE>
<CAPTION>
LOSS EXPERIENCE
===========================================================================================
Year Ended December 31,
---------------------------------------------------------------
1991 1992 1993
===============================================================
Dollar Percentage Dollar Percentage Dollar Percentage
Amount of Total Amount of Total Amount of Total
(000) Portfolio (000) Portfolio (000) Portfolio
----- --------- ----- --------- ----- ---------
<S> <C> <C> <C>
Total Acquisitions (1) $ $ $
Gross Defaults % % %
Gross Recoveries % % %
Net Losses % % %
===========================================================================================
</TABLE>
(1) Total Acquisition = total cost (aggregate purchase price of the Vehicles)
to the Originator since inception in ____ through and including the year
end set forth above.
Litigation
The Originator is not involved in any legal proceedings, and is not
aware of any pending or threatened legal proceedings that would have a material
adverse effect upon its financial condition or results of operations.
S-20
<PAGE>
Servicing
The Receivables will be serviced by the Originator, as Servicer,
pursuant to the Pooling Agreement.
The Pooling Agreement requires that servicing of the Receivables by
the Originator shall be carried out in the same manner in which it services
contracts and vehicles held for its own account and consistent with customary
practices of servicers in the retail automobile industry, but in performing its
duties hereunder, the Originator will act on behalf and for the benefit of the
Sponsor, the Trustee and the holders of the Certificates, subject at all times
to the provisions of the Pooling Agreement, without regard to any relationship
which the Originator or any Affiliate of the Originator may otherwise have with
a Obligor. Except as permitted by the terms of any Contract following a default
thereunder, the Originator shall not take any action which would result in the
interference with the Obligor's right to quiet enjoyment of the Vehicles subject
to the Contract during the term thereof.
Following each Determination Date, the Originator shall advance and
remit to the Trustee, in such manner as will ensure that the Trustee will have
immediately available funds on account thereof by 11:00 a.m. New York time on
the [______] Business Day prior to the next succeeding Payment Date, a Servicer
Advance equal to the Contract Payment due during the preceding Contract Payment
Period with respect to each Contract (other than a Contract which became a
Defaulted Contract on or prior to such Determination Date) under which the
Obligor has not made such payment by such Determination Date; provided, however,
that the Originator will not be obligated to make a Servicer Advance with
respect to any Contract if the Originator, in its good faith judgment, believes
that such Servicer Advance would be a Nonrecoverable Advance. If the Originator
determines that any Contract Payment it has made, or is contemplating making,
would be a Nonrecoverable Advance, the Originator shall deliver to the Trustee
an Officers' Certificate stating the basis for such determination.
Servicing Compensation and Payment of Expenses
For its servicing of the Receivables, the Originator will be
entitled to receive a Servicing Fee equal to the product of (i) one-twelfth,
(ii) ___% and (iii) the Aggregate Discounted Contract Balance of all Contracts
as of the preceding Determination Date, payable out of the Remittance Account,
plus Servicing Charges and Investment Earnings.
All costs of servicing each Contract in the manner required by the
Pooling Agreement shall be borne by the Originator, but the Originator shall be
entitled to retain, out of any amounts actually recovered with respect to any
Defaulted Contract [or the Vehicles subject thereto,] the Originator's actual
out-of-pocket expenses reasonably incurred with respect to such Defaulted
Contract [or Vehicles]. In addition, the Originator shall be entitled to receive
on each Payment Date any unreimbursed Nonrecoverable Advances or Servicer
Advances with respect to any Defaulted Contract and the Servicing Fee.
Evidence as to Compliance
The Pooling Agreement requires that with each set of financial
statements delivered pursuant to the Pooling Agreement, the Originator will
deliver an Officers' Certificate stating (i) that the officers signing such
Certificate have reviewed the relevant terms of the Pooling Agreement and have
made, or caused to be made under such officers' supervision, a review of the
activities of the Originator during the period covered by the statements then
being furnished, (ii) that the review has not disclosed the existence of any
Servicer Event of Default or, if a Servicer Event of Default exists, describing
its nature and what action the Originator has taken and is taking with respect
thereto, and (iii) that on the basis of such review the officers signing such
certificate are of the opinion that during such period the Originator
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has serviced the Receivables in compliance with the required procedures except
as described in such certificate.
The Originator shall cause a firm of independent certified public
accountants (who may also render other services to the Originator) to deliver to
the Trustee, with a copy to the Rating Agency and each holder of the
Certificates, within [90] days following the end of each fiscal year of the
Originator, beginning with the Originator's fiscal year ending ____________,
199__, a written statement to the effect that such firm has examined in
accordance with generally accepted practices samples of the accounts, records,
and computer systems of the Originator for the fiscal year ended on the previous
__________ relating to the Receivables (which accounts, records, and computer
systems shall be described in one or more schedules to such statement), that
such firm has compared the information contained in the Originator's reports
delivered in the relevant period with information contained in the accounts,
records, and computer systems for such period, and that, on the basis of such
examination and comparison, such firm is of the opinion that the Originator has,
during the relevant period, serviced the Receivables in compliance with such
servicing procedures, manuals, and guides and in the same manner as it services
comparable contracts for itself or others, that such accounts, records, and
computer systems have been maintained, and that such certificates, accounts,
records, and computer systems have been properly prepared and maintained in all
material respects, except in each case for (a) such exceptions as such firm
shall believe to be immaterial and (b) such other exceptions as shall be set
forth in such statement.
Other Servicing Procedures
At least [___] days prior to each Payment Date, the Originator shall
deliver a report in writing (the "[Monthly] Servicer Report") to each holder of
the Certificates, the Trustee and the Rating Agency.
If an Obligor has [____] Contract Payments which are due and unpaid
as of any Determination Date, such Obligor's Contract shall become a Defaulted
Contract. Where no satisfactory arrangements can be made for collection of
delinquent payments within [___] days of a Contract becoming a Defaulted
Contract, the Originator shall foreclose or otherwise liquidate any such
Defaulted Contract [(together with the related Vehicles)] within [60] days of
such Contract becoming a Defaulted Contract. In connection with any foreclosure
or other liquidation, the Originator will take such action as is appropriate,
consistent with the Originator's administration of contracts in its own
portfolio, including such action as may be necessary to cause, or attempt to
cause, the Obligor thereunder to cure such default (if the same may be cured) or
to terminate or attempt to terminate such Contract and to recover, or attempt to
recover, all damages resulting from such default.
[The Originator will use its best efforts (i) to sell or re-lease
any Vehicles subject to a Defaulted Contract in a timely manner and upon
reasonable terms and conditions so as to reduce as expeditiously as is
consistent with sound commercial practice any unreimbursed amounts drawn by the
Trustee on the Reserve Account and (ii) to sell or re-lease any Vehicles
remaining subject to the lien of the Trustee upon the expiration of the Contract
to which such Vehicles is subject, in a timely manner and in a manner consistent
with that utilized by the Originator with respect to vehicles owned by it so as
to realize, to the extent possible under then prevailing market conditions, the
Net Residual Value of such Vehicles.]
[All Residual Payments realized by the Originator in the performance
of its duties with respect to any item of Vehicles remaining subject to the Lien
of the Trustee (net of the Originator's actual out-of-pocket expenses reasonably
incurred in such realization) shall be held in trust by the Originator, as agent
for the Trustee, and turned over to the Trustee within [___] Business Days for
application in accordance with the provisions of the Pooling Agreement, provided
that, to the extent that (i) the Originator has made any advances with respect
to any Contract which thereafter became a Defaulted Contract and (ii) the
Originator has not otherwise been fully reimbursed for such advances, the
Originator shall
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reimburse itself for such advances from any Residual Payments recovered with
respect to such Defaulted Contract before remitting to the Trustee any such
amounts for deposit in the Remittance Account.]
Removal of the Servicer
The Pooling Agreement will provide that the Originator may not
resign from its obligations and duties as Servicer thereunder, except upon a
determination that the Originator's performance of such duties is no longer
permissible under applicable law. The Originator can only be removed pursuant to
a Servicer Event of Default. If a Servicer Event of Default shall have occurred
and be continuing, the Trustee shall give written notice to the Originator of
the termination of all of the rights and obligations of the Originator (but none
of the Originator's obligations thereunder, which shall survive any such
termination) under the Pooling Agreement. On and after the time the Originator
receives a notice of termination, the Trustee shall be the successor in all
respects to the Originator in its capacity as servicer under the Pooling
Agreement of the Receivables. The Trustee may, if it shall be unwilling to so
act, or shall, if it is unable to so act, give notice of such fact to each
holder of the Certificates and (i) appoint an established institution,
satisfactory to the holders of Certificates evidencing not less than [66-2/3%]
of the Voting Rights, as the successor to the Originator to assume all of the
rights and obligations of the Originator, including, without limitation, the
Originator's right to receive the Servicing Fee (but not the obligations of the
Originator contained in the Pooling Agreement) or, (ii) if no such institution
is so appointed, petition a court of competent jurisdiction to appoint an
institution meeting such criteria as the Originator.
THE TRUSTEE
The Trustee, ____________, has an office at ____________________.
The Trustee may resign, subject to the conditions set forth below,
at any time upon written notice to the Sponsor, the Servicer and the Certificate
Insurer, in which event the Servicer, with the consent of the Certificate
Insurer, will be obligated to appoint a successor Trustee. If no successor
Trustee shall have been so appointed and have accepted such appointment within
[30] days after the giving of such notice of resignation, the resigning Trustee
may petition a court of competent jurisdiction for the appointment of a
successor Trustee. Any successor Trustee shall meet the financial and other
standards for qualifying as a successor Trustee under the Pooling Agreement. The
Servicer, the Certificate Insurer or Certificateholders evidencing more than
[___%] of the Percentage Interests of the Trust may also remove the Trustee if
the Trustee ceases to be eligible to continue as such under the Pooling
Agreement and fails to resign after written request therefor, or is legally
unable to act, or if the Trustee is adjudicated to be insolvent. In such
circumstances, the Servicer, the Certificate Insurer or such Certificateholders
will also 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.
THE TRUST
The Trust will be formed in accordance with the laws of the State of
Nevada, pursuant to the Pooling Agreement, solely for the purpose of
effectuating the transactions described herein. Prior to formation, the Trust
will have had no assets or obligations and no operating history. Upon formation,
the Trust will not engage in any business activity other than acquiring and
holding the Receivables and, during the Funding Period, the Pre-Funded Amount,
issuing the Certificates and distributing payments thereon. As described under
"Description of the Certificates - Servicing Compensation and Payment of
Expenses," a portion of the monthly collections with respect to the Contracts
will be paid to the Servicer as servicing compensation. All other expenses of
the Trust will be paid on behalf of the Sponsor by the Servicer or by the
Originator, as provided in the Pooling Agreement.
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The Trust Fund will consist of the [Vehicles], the Contracts and any
Scheduled Contract Payments to be made by Obligors (but not including any
payments due on or prior to the Cut-Off Date or, with respect to an Additional
Receivable, the day prior to the Payment Date on which the Trust acquires such
Additional Receivable; any guaranties of an Obligor's obligations under a
Contract; any documents in the Contract Files; the insurance policies maintained
by the Obligors with respect to the Vehicles (the "Insurance Policies") and the
proceeds of such Insurance Policies; any rights of the Sponsor under the
Receivables Acquisition Agreement (including the right to instruct the
Originator to exercise any unassignable rights of enforcement under the
Contracts and any guaranties thereof, the Originator's rights ("Vendor Agreement
Rights") under agreements with any vendors from which the Contracts were
acquired, and the Insurance Policies); a security interest in the Reserve
Account and amounts on deposit therein; funds from time to time deposited in the
Pre-Funding Account, the Capitalized Interest Account, the Remittance Account,
the Advance Payment Account and the Additional Receivables Funding Account; the
Certificate Insurance Policy; and any and all income and proceeds of foregoing.
The Pooling Agreement does not permit the Trust to acquire any additional assets
other than Additional Receivables. Because the Trust does not have any operating
history and will not engage in any business activity other than owning the Trust
Fund, issuing the Certificates and making distributions thereon, there has not
been included any historical or pro forma ratio of earnings to fixed charges
with respect to the Trust.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Pooling Agreement to
be entered into by the Servicer, the Sponsor, and the Trustee. The Trustee will
provide a copy of the Pooling Agreement to subsequent Certificateholders without
charge on written request addressed to its Corporate Trust Department at
________________________.
The following summary describes certain terms of the Pooling
Agreement, does not purport to be complete and is subject to and qualified in
its entirety by reference to the Pooling Agreement. Wherever provisions of the
Pooling Agreement are referred to, such provisions are hereby incorporated
herein by reference.
General
The obligations evidenced by the Certificates are recourse to the
assets of the Trust only and are not recourse to the Sponsor, the Originator,
the Servicer, the Trustee, or any other Person. The Trustee will agree in the
Pooling Agreement and in the Certificates to pay to the Certificateholders (i)
an amount of principal equal to the Initial Certificate Principal Amount and
(ii) Certificate Interest, in each case at the times, from the sources and on
the terms and conditions set forth in the Pooling Agreement and in the
Certificates.
The Certificates will be issued in fully registered form only, as
authenticated by the Trustee. Each Certificate will evidence [$1,000,000] or
more of the Initial Certificate Principal Amount.
The "Percentage Interest" owned by a Certificateholder will be
expressed, for voting and certain other purposes under the Pooling Agreement, as
the percentage obtained by dividing the denomination representing the Percentage
Interest of the related Certificate by the Initial Certificate Principal Amount.
The Certificates are transferable and exchangeable through the Trustee at its
Corporate Trust Department in ____________. No service charge will be made for
any registration of transfer or exchange of Certificates, but a sum sufficient
to cover any tax or other governmental charge may be required to be paid by the
Certificateholder.
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Payments on the Certificates are required to be made by the Trustee
on each Payment Date, to persons in whose names Certificates are registered as
of the last day of the immediately preceding calendar month (the "Record Date").
The first Payment Date for distributions to the Certificateholders
will be __________, 199__. Payments are required to be made by the Trustee, by
check mailed or, if requested by the Certificateholder, by wire transfer of
immediately available funds, to Certificateholders entitled thereto at the
address appearing on the Certificate register on the Record Date.
Conveyance of Receivables
On the date of issuance of the Certificates (the " Closing Date"),
the Sponsor will transfer, assign, set over and otherwise convey to the Trust,
without recourse (except as expressly set forth in the Pooling Agreement), all
of its right, title and interest in and to [(a) the Initial Vehicles,] (b) the
Initial Contracts, (c) any guaranties of an Obligor's obligations under a
Contract, (d) any documents in the Contract files, (e) Insurance Policies with
respect to the Initial Vehicles and insurance proceeds thereof, (f) the Vendor
Agreement Rights with respect to the Initial Vehicles, (g) the rights of the
Sponsor pursuant to the Receivables Acquisition Agreement, (h) a security
interest in the Reserve Account and amounts on deposit therein and (i) all
income and proceeds of the foregoing (collectively, the "Initial Receivables")
and cash in an amount equal to the Original Pre-Funded Amount. On the
instructions of the Sponsor, the Trustee will cause the Trust to issue the
Certificates offered hereby to the initial investors.
During the Funding Period, the Sponsor may transfer to the Trust
Additional Receivables relating to and including Contracts having an aggregate
Discounted Contract Balance not less than $____________. In consideration of the
conveyance of such Additional Receivables, the Trust shall disburse to the
Sponsor and the Reserve Account from the Pre-Funding Account an amount not
exceeding ___% and ___%, respectively, of the aggregate Discounted Contract
Balances of such Additional Receivables. Any amounts remaining on deposit in the
Pre-Funding Account on the Funding Distribution Date shall be transferred to the
Remittance Account for distribution to the Certificateholders as a prepayment of
principal.
During the Interest-Only Period, and provided that (a) the amount on
deposit in the Pre-Funding Account has been reduced to zero and (b) no Required
Amortization Event has occurred, all Contract Principal deposited to the
Remittance Account with respect to each Remittance Period (including the
principal portions of Servicer Advances and of Reconveyance Amounts deposited on
the related Notice Date) shall be disbursed on the next Payment Date to the
Sponsor in consideration of the conveyance of Additional Receivables. The
Contracts relating to such Additional Receivables shall have an aggregate
Discounted Contract Balance as nearly as possible equal to, but in no event less
than, the Contract Principal deposited to the Remittance Account with respect to
the prior Remittance Period (including the principal portions of Servicer
Advances and of Reconveyance Amounts deposited on the related Notice Date).
On and after the Initial Amortization Date (unless a Required
Amortization Event has occurred) the Sponsor will have the option to transfer to
the Trust Additional Receivables relating to and including Contracts having an
aggregate Discounted Contract Balance not in excess of the aggregate amount of
Contract Principal Payments received by the Servicer during the prior Remittance
Period. In consideration of the conveyance of such Additional Receivables, the
Trust shall disburse to the Sponsor an amount equal to the aggregate Discounted
Contract Balances of such Additional Receivables. This option of the Sponsor is
limited to $____________ aggregate Discounted Contract Balance of such
Additional Receivables.
In connection with each such additional transfer, the Sponsor will
be required to send to the Trustee, by facsimile, on the Notice Date preceding
each such Payment Date and the Funding
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Distribution Date, in the event of a transfer on such date, a list of Additional
Receivables listing all Contracts to be transferred to the Trust on such date,
together with (i) an Additional Receivables Agreement in the form required by
the Pooling Agreement, properly completed by an appropriate officer of the
Sponsor (an "Additional Pooling Agreement") and, (ii) an opinion of counsel in
the form required by the Pooling Agreement.
If a Required Amortization Event occurs, then no further conveyances
of Additional Receivables shall occur, and all amounts that would otherwise have
been paid in consideration of such conveyances shall be retained in the
Remittance Account or, during the Funding Period, the Pre-Funding Account and
shall be distributed, in the case of amounts on deposit in the Remittance
Account, on each Payment Date or, in the case of amounts on deposit in the
Pre-Funding Account, on the Funding Distribution Date.
The Sponsor will be required to deliver the Contract files to the
Servicer as required by the Pooling Agreement. The Servicer will retain
possession of the Contracts and the Contract files, and the Servicer will retain
copies of any other documents which relate to the Receivables, any related
evidence of insurance and payment, delinquency and related reports maintained by
the Servicer in the ordinary course of business with respect to each Receivable.
Prior to transfer of the Receivables to the Trust, the Servicer will cause its
electronic ledger to be marked to show that such Receivables have been
transferred to the Sponsor and then to the Trust, and the Sponsor will file UCC
financing statements reflecting the transfer and assignment of the Receivables
with the Secretary of State of the State of ___ and the County Clerk of
____________ County, ____________. See "Certain Legal Aspects of the
Receivables."
Indemnification
The Pooling Agreement will provide that the Originator will defend
and indemnify the Servicer, the Certificate Insurer, the Sponsor, the Trustee,
the Trust and the Certificateholders against any and all losses, claims, damages
and liabilities to the extent, but only to the extent, that the same have been
suffered by any such party by virtue of a breach by the Originator of its
obligations (other than breach of the Originator's representations and
warranties, with respect to which the sole remedy is expressly limited to the
removal of the affected Receivables and the remittance of the Reconveyance
Amount by the Originator as discussed above) under the Pooling Agreement.
The Pooling Agreement will also provide that the Servicer will
defend and indemnify the Sponsor, the Certificate Insurer, the Trustee, the
Trust 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, reasonably incurred, arising out of or
resulting from [(i) the use, repossession or operation by the Servicer or any
affiliate thereof of any Vehicles] and (ii) the failure of the Servicer to
perform its duties under the Pooling Agreement. The Originator's obligations, as
Servicer, to indemnify the Trust and the Certificateholders for acts or
omissions of the Originator as Servicer will survive the removal of the Servicer
but will not apply to any acts or omissions of a successor Servicer.
The Trustee is required to establish and maintain in accordance with
the Pooling Agreement the Pre-Funding Account, the Capitalized Interest Account,
the Remittance Account, the Advance Payment Account and the Additional
Receivables Funding Account, each in the name of the Trust and for the benefit
of Certificateholders. Each such Account will be one or more segregated trust
accounts.
On the Closing Date, the Sponsor shall deposit in the Pre-Funding
Account and the Capitalized Interest Account the Original Pre-Funded Amount and
the Initial Capitalized Interest Account, respectively, from the proceeds of the
sale of the Certificates.
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During the Funding Period, it is anticipated that amounts on deposit
in the Pre-Funding Account will generate Investment Earnings in an amount less
than the interest payable on the Certificates issued in respect of the Original
Pre-Funded Amount. The Capitalized Interest Account will hold amounts that may
be required to be disbursed to the Certificateholders on each Payment Date
during the Funding Period in the event the aggregate Contract Interest deposited
in the Remittance Account for the related Remittance Period is insufficient to
fund the payment of Certificate Interest payable to the Certificateholders on
such Payment Date. On each Payment Date during the Funding Period, the Sponsor
will have the right to direct the Trustee to transfer to the Sponsor from the
Capitalized Interest Account the Overfunded Interest Amount. The Overfunded
Interest Amount arises as a result of the Sponsor's conveyance of Additional
Receivables to the Trust in exchange for cash on deposit in the Pre-Funding
Account. It is expected that the Contract Interest with respect to the Contracts
included in such Additional Receivables will exceed the Investment Earnings on
the amount of cash disbursed to the Sponsor from the Pre-Funding Account in
exchange for such Additional Receivables by the Overfunded Interest Amount. On
the funding Distribution Date, the amount, if any, on deposit in the Capitalized
Interest Account shall be disbursed to the Sponsor.
Section _____ of the Pooling Agreement outlines the amounts to be
deposited in the Remittance Account. In particular, (A) the Servicer is required
to deposit, within [___] business days following receipt, Actual Payments; (B)
the Servicer is required to deposit Servicer Advances not later than the Notice
Date for a Remittance Period; (C) the Trustee will deposit, not later than the
Notice Date, that portion of any Advance Payments that constitute Scheduled
Payments due during the immediately preceding Remittance Period; (D) the
Originator or the Servicer will deposit, not later than the Notice Date, any
Reconveyance Amount then due and payable by it and the Certificate Insurer will
deposit prior to the Payment Date the repurchase price for any Defaulted
Contracts it elects to purchase; (E) the Trustee will deposit, on the Funding
Distribution Date, the amount, if any, on deposit in the Pre-Funding Account;
(F) the Trustee will deposit from the Capitalized Interest Account, on each
Payment Date during the Funding Period, the Capitalized Interest Requirement, if
any; (G) the Trustee will deposit from the Reserve Account, on the Claim Date,
any Insufficiency Amount; and (H) the Certificate Insurer is required to
deposit, not later than 12:00 noon New York City time on the later of the
Business Day immediately following receipt by the Fiscal Agent of a Notice of
Nonpayment or the Payment Date, any Insured Payment required to be paid for such
Payment Date.
The Servicer is required to deposit all Advance Payments to the
Advance Payment Account. "Advance Payments" are amounts paid by a user during a
Remittance Period with respect to amounts due from such user in subsequent
Remittance Periods.
The Additional Receivables Funding Account will hold amounts
required to be disbursed to the Sponsor pending the transfer of Additional
Receivables to the Trust. From and after the Payment Date two months after the
Funding Distribution Date, the amount on deposit in the Additional Receivables
Funding Account may not exceed $____________. The purpose of the Additional
Receivables Funding Account is to prevent a temporary shortfall in the supply of
Additional Receivables from becoming a Required Amortization Event.
The Pooling Agreement permits the Servicer to direct the investment
of amounts in the Pre-Funding Account, the Capitalized Interest Account, the
Remittance Account, the Advance Payment Account and the Additional Receivables
Funding Account in Eligible Investments that mature not later than the business
day prior to the next succeeding Payment Date, on which Payment Date such
amounts shall be distributed as described below, and such amounts shall be held
to maturity. Generally, the holder of the Sponsor's Certificate shall be
entitled to any income from such investments.
"Eligible Investments" for amounts on deposit in the Pre-Funding
Account, the Remittance Account, the Advance Payment Account and the Additional
Receivables Funding Account are described in [Article I] of the Pooling
Agreement.
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The Servicer may deduct from amounts otherwise payable to the
Remittance Account with respect to a Remittance Period an amount equal to
amounts previously deposited by the Servicer into the Remittance Account but (i)
subsequently uncollectible as a result of dishonor of the instrument of payment
for or on behalf of the Obligor or (ii) later determined to have resulted from
mistaken deposits.
Servicer Advances
In the event that any Obligor fails to remit its full Scheduled
Payment by the Calculation Date, the Servicer is required to make an advance
from its own funds of an amount equal to such unpaid Scheduled Payment (a
"Servicer Advance") if the Servicer, in its sole discretion, determines that
eventual repayment of such Servicer Advance is likely from collections from or
on behalf of the related Obligor. The Pooling Agreement provides for the
reimbursement of the Servicer for such Servicer Advances from funds available
for distribution in the Remittance Account on each Payment Date after the
Required Payments to Certificateholders have been made as set forth below in "
Distributions on Certificates".
Reserve Account
Pursuant to the Insurance Agreement, the Sponsor will establish the
Reserve Account with the Collateral Agent and a security interest in the Reserve
Account will be granted to the Trust. On each Payment Date, as described below
under "Flow of Funds," certain amounts are required to be deposited into the
Reserve Account. No later than each Claim Date, amounts on deposit in the
Reserve Account will be deposited in the Remittance Account to the extent that
Required Payments for the following Payment Date exceed Available Funds in the
Remittance Account. Amounts on deposit in the Reserve Account that are in excess
of the specified Reserve Account Requirement set forth in the Insurance
Agreement will be paid to the Sponsor on each Payment Date.
Amounts on deposit in the Reserve Account will be invested in
Eligible Investments.
Flow of Funds
On the [_________] calendar day of each month, or if such day is not
a Business Day, on the immediately preceding business day (the "Notice Date"),
the Servicer is required to deliver to the Trustee, the Rating Agencies and the
Certificate Insurer a certificate (the "Servicer's Certificate") setting forth
the information needed to make payments on the upcoming Payment Date.
If, in preparing the Servicer's Certificate the Servicer determines
that the Required Payments exceed the Available Funds, the Servicer shall
calculate the Insufficiency Amount and notify the Trustee and the Certificate
Insurer thereof. Pursuant to the Pooling Agreement and the Insurance Agreement,
the Trustee will deposit an amount equal to such Insufficiency Amount in the
Remittance Account from the amounts, if necessary, the Reserve Account. Unless
the Certificate Insurer has otherwise caused the remaining Insufficiency Amount
(after any deposits from the Reserve Account) to be deposited into the
Remittance Account not later than [12:00 p.m New York City] time on the Claim
Date preceding any Payment Date, the Trustee shall deliver on such Claim Date a
completed Notice of Nonpayment to the Certificate Insurer and the Fiscal Agent
(with the amount of the Insufficiency Amount as of such Claim Date and any other
data appropriately completed). The Certificate Insurer will then pay the
remaining balance of the Insufficiency Amount as of such Claim Date as provided
under the terms of the Certificate Insurance Policy.
On each Payment Date, the Trustee is required to pay the entire
amount of money then on deposit in the Remittance Account in the following order
of priority:
[(a) Amounts inadvertently deposited in the Remittance Account, to
the Person entitled thereto;
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(b) To the Servicer by wire transfer to the account designated in
writing by the Servicer of immediately available funds, the
aggregate amount of the following:
(1) The Servicer Fee;
(2) An amount necessary to reimburse the Servicer for any
unreimbursed Servicer Advances; and
(3) Any Servicing Charges inadvertently deposited in the
Remittance Account;
(c) To the Certificateholders, the Certificate Interest and
Overdue Interest for the related Remittance Period;
(d) On the Payment Date which is also the Funding Distribution
Date, to the Certificateholders, the Pre-Funded Amount, if
any, deposited into the Remittance Account on such Payment
Date;
(e) On and after the Payment Date which is also the Initial
Amortization Date, to the Certificateholders, until the
Certificate Principal Balance has been reduced to zero, the
Base Principal Distribution Amount and any Overdue Principal
for the related Remittance Period;
(f) To the Certificate Insurer, an amount equal to any Premium
owed for such Payment Date;
(g) To the Certificate Insurer, by wire transfer of immediately
available funds to the account designated in writing by the
Certificate Insurer, the Reimbursement Amount, if any, then
owed to the Certificate Insurer;
(h) To the Reserve Account, for disposition in accordance with the
terms of the Insurance Agreement, by wire transfer of
immediately available funds, the lesser of (1) the difference,
if any, between (x) the Specified Reserve Account Requirement
as of such Payment Date and (y) the amount then on deposit in
the Reserve Account and (2) the aggregate amount remaining in
the Remittance Account;
(i) On and after the Payment Date which is also the Initial
Amortization Date, to the Certificateholders, until the
Certificate Principal Balance has been reduced to zero, the
Excess Principal Amount as of such Payment Date;
(j) To the Servicer, any other amounts due the Servicer as
expressly provided in the Pooling Agreement; and
(k) To the holder of the Sponsor's Certificate, any remaining
amounts.]
As used in this Prospectus Supplement, the following terms have the following
meanings:
Actual Payment: With respect to a Remittance Period and a Contract,
all Scheduled Payments, Prepayments and Residual Receipts received by the
Servicer from or on behalf of an Obligor with respect to such Contract during
such Remittance Period. Actual Payments do not include Initial Unpaid Amounts,
Reconveyance Amounts, Advance Payments and Servicer Advances.
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Adjusted Certificate Rate: The sum of (i) the Certificate Rate, (ii)
the Servicing Fee Rate and (iii) the Certificate Insurance Premium Rate, i.e.,
_____% per annum.
Administrative Amount: For any Remittance Period, the product of (x)
one-twelfth of the sum of (i) the Servicing Fee Rate and (ii) the Certificate
Insurance Premium Rate and (y) the aggregate Discounted Contract Balances of all
Contracts outstanding as of the immediately preceding Calculation Date (or as of
the Cut-Off Date in the case of the initial Remittance Period).
Advance Payment: With respect to a Receivables and a Remittance
Period, any Scheduled Payment or portion thereof made by or on behalf of an
Obligor and received by the Servicer during such Remittance Period, which
Scheduled Payment or portion thereof does not become due until a subsequent
Remittance Period.
Applicable Percentage: As of any Payment Date the greater of (x)
_____% and (y) the Certificate Percentage with respect to such Payment Date.
Available Funds: With respect to a Payment Date, shall mean for the
related Notice Date any and all amounts held in the Remittance Account on such
Notice Date and shall mean for the related Claim Date, any and all amounts held
in the Remittance Account on such Claim Date, but in each case shall not include
any (i) moneys to be disbursed to the Sponsor in connection with its conveyance
of Additional Receivables to the Trust on such Payment Date, (ii) moneys to be
applied as described in clauses (a) and (b) under Flow of Funds above, (iii)
payments under the Certificate Insurance Policy or (iv) any Actual Payments
received by the Servicer after the immediately preceding Calculation Date.
Base Interest Amount: With respect to any Remittance Period, the
product (x) [one-twelfth] of the Certificate Rate and (y) the aggregate
Discounted Contract Balances of all Contracts outstanding as of the immediately
preceding Calculation Date (or as of the Cut-Off Date in the case of the initial
Remittance Period).
Base Principal Distribution Amount: With respect to any Payment Date
occurring prior to the Initial Amortization Date, zero. With respect to any
Payment Date occurring on or after the Initial Amortization Date, an amount
equal to the product of (x) the Applicable Percentage with respect to such
Payment Date and (y) the sum, without duplication, of (i) all Scheduled
Discounted Contract due during the related Remittance Period with respect to
each Contract that has not become a Defaulted Contract, (ii) for each Contract
that was the subject of a Prepayment in full during the related Remittance
Period, the Discounted Contract Balance of such Contract as of the date of such
Prepayment, but only to the extent of the amount actually deposited in the
Remittance Account with respect to such Prepayment, (iii) for each Contract that
was the subject of a partial Prepayment during the related Remittance Period, an
amount equal to the difference between (a) the Discounted Contract Balance of
such Contract immediately prior to such partial Prepayment and (b) the
Discounted Contract Balance immediately after such partial Prepayment, but only
to the extent of the amount actually deposited in the Remittance Account with
respect to such partial Prepayment, (iv) for each Receivable which is removed
from the Trust pursuant to the Pooling Agreement during the related Remittance
Period, the Discounted Contract Balance of such Receivable to the extent
actually deposited in the Remittance Account pursuant to the Pooling Agreement,
(v) the principal portion of all Insurance Proceeds received during the prior
Remittance Period, and (vi) the amount, if any, by which (A) the Certificate
Principal Balance as of such Payment Date, after giving effect to all other
distributions to be made on such Payment Date, exceeds (B) the aggregate
Discounted Contract Balance of all Receivables as of the last day of the related
Remittance Period plus the aggregate Discounted Contract Balances of all
Additional Receivables conveyed by the Sponsor on such Payment Date; provided,
however, that with respect to the Remittance Period during which the Required
Amortization Event occurs, if ever, the phrase "during the related Remittance
Period" shall refer only to the portion of such Remittance Period occurring on
and after the Required Amortization Event; and provided, further that the
amounts described in clauses (y)(ii) and (y)(iii) shall be reduced on any
Payment
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Date by the amount, if any, of such Prepayments disbursed to the Sponsor in
consideration of Additional Receivables on such Payment Date.
Calculation Date: The last day of a Remittance Period. Amounts
calculated from Calculation Date balances shall be calculated from such balances
as of the close of business on the Calculation Date.
Capitalized Interest Rate: _____%.
Capitalized Interest Requirement: With respect to each Payment Date
prior to the Funding Termination Date, the excess if any, of (x) the Class A
Certificate Interest for the related Remittance Period over (y) the product of
(i) the aggregate Discounted Contract Balances of all Receivables as of the
related Calculation Date and (ii) one-twelfth of the Capitalized Interest Rate.
Certificate Insurance Premium Rate: _____% per annum, except that
such rate is zero for the first year.
Certificate Interest: With respect to any Payment Date, the product
of (x) [one-twelfth] of the Certificate Rate and (y) the aggregate Certificate
Principal Balance outstanding immediately prior to such Payment Date.
Certificate Percentage: With respect to the Certificates and as of
any Payment Date, the fraction equal to (x)(A) the Certificate Principal Balance
as of such Payment Date (following distributions on such Payment Date) minus (B)
the Pre-Funded Amount divided by (y) the aggregate sum of (i) outstanding
Discounted Contract Balances of all Receivables as of the Calculation Date
immediately preceding such Payment Date, (ii) the aggregate Discounted Contract
Balances as of the day preceding such Payment Date of all Additional Contracts
to be transferred to the Trust on such Payment Date and (iii) the amount on
deposit in the Additional Receivables Funding Account on such Payment Date.
Certificate Principal Balance: At any time, the Initial Certificate
Principal Amount minus all payments theretofore received by the
Certificateholders on account of principal.
Certificate Rate: _____% per annum.
Claim Date: With respect to a Payment Date, the second business day
immediately preceding such Payment Date.
Contract Principal: With respect to any Remittance Period, the sum,
without duplication, of all amounts actually deposited in the Remittance Account
during such Remittance Period with respect to Scheduled Contract Principal, full
and partial Prepayments to the extent of the principal portion of such
Prepayments and the principal portion of all Servicer Advances, Insurance
Proceeds and Reconveyance Amounts. Residual Receipts are not part of "Contract
Principal."
Contract Rate: _____%.
Cut-Off Date: With respect to the Initial Receivables, the close of
business on ____________, 199__. With respect to any Additional Receivable
transferred to the Trust on any Transfer Date, the close of business on the day
preceding such Transfer Date.
Defaulted Contract: A Delinquent Contract (a)(i) with respect to
which a Obligor is contractually delinquent for four consecutive months (without
regard to any Servicer Advances or the application of any Security Deposit) or
(ii) as to which the Servicer has determined in accordance with its customary
servicing practices, for purposes of this Agreement, that eventual payment of
the Scheduled
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Payments is unlikely and (b) as to which the Servicer has accelerated the
remaining Scheduled Payments to become due thereunder, and as permitted in the
Contract.
Delinquent Contract: A Contract (a) as to which the Scheduled
Payment was not received when due by the Servicer as of the close of business on
the last day of the month in which such payment was due and (b) which is not a
Defaulted Contract.
Sponsor's Certificate Principal Balance: As of any Payment Date, the
difference, if any, between (i) the sum of (x) the aggregate Discounted Contract
Balances of all Contracts as of the immediately preceding Calculation Date, (y)
the aggregate Discounted Contract Balances as of the day prior to such Payment
Date of all Additional Receivables to be conveyed to the Trust on such Payment
Date and (z) the amount on deposit in the Additional Receivables Funding Account
as of such Payment Date (and after taking into account any deposits or
withdrawals therein on such payment Date) and (ii) the outstanding Certificate
Principal Balance as of such Payment Date, after taking into account any
distribution of the Base Principal Distribution Amount and of the Excess
Principal Amount on such Payment Date, minus the Pre-Funded Amount, if any.
Sponsor's Certificates: The certificates evidencing the Sponsor's
Interest.
Discounted Contract Balance: On any date of calculation with respect
to a Contract which does not include a Defaulted Contract, the present value of
the Scheduled Payments to become due with respect to such Receivable on and
after such date of calculation, discounted monthly to the Calculation Date
immediately following such date of calculation (or to such date of calculation
if such date of calculation is a Calculation Date) at one-twelfth of the
Receivable Rate; with respect to any Contract which has a Defaulted Contract,
zero.
Excess Contract Interest: With respect to any Payment Date, the
product of (x) the difference between (i) [one-twelfth] of the Contract Rate and
(ii) one-twelfth of the Adjusted Certificate Rate and (y) the aggregate
Discounted Contract Balances of all Contracts outstanding as of the beginning of
the immediately preceding Remittance Period.
Excess Principal Amount: With respect to any Payment Date, the
product of (i) _____% and (ii) the lesser of (x) the amount, if any, remaining
in the Remittance Account after the making of the distributions described in
clauses (a) through (h) (inclusive) under "Flow of Funds" above on such Payment
Date and (y) the Excess Contract Interest with respect to such Payment Date.
Funding Distribution Date: The earlier to occur of (x) the Payment
Date in _______ 199__ and (y) the Payment Date which immediately follows the
Required Amortization Event.
Funding Termination Date: The earlier of (x) the date on which the
Required Amortization Event has occurred and (y) ____________, 199__.
Initial Certificate Principal Amount: $____________.
Initial Unpaid Amount: With respect to a Contract, the excess of the
aggregate amount of all Scheduled Payments due prior to the related Cut-Off
Date, over the aggregate of all Scheduled Payments made prior to the related
Cut-Off Date with respect to such Contract.
Insufficiency Amount: With respect to a Notice Date or a Claim Date,
as applicable, the excess, if any, of (a) Required Payments over (b) Available
Funds.
Interest-Only Period. The period from the Closing Date to, but
excluding, the Initial Amortization Date.
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Overdue Interest: With respect to any Payment Date, the difference,
if any, equal to (a) the aggregate amount of Certificate Interest due on all
prior Payment Dates and (b) the aggregate amount of Certificate Interest (from
whatever source) actually paid to Certificateholders on all prior Payment Dates.
Overdue Principal: With respect to any Payment Date, the difference,
if any, equal to (a) the aggregate of the Base Principal Distribution Amounts
due on all prior Payment Dates and (b) the aggregate amount of the Base
Principal Distribution Amounts (from whatever source) actually paid to
Certificateholders on all prior Payment Dates.
Overfunded Interest Amount: With respect to each Transfer Date
during the Funding Period, the excess, if any, of (x) in the case of a Transfer
Date occurring in ____________ 199__, (i) three-months' interest on the
aggregate Discounted Contract Balances of the Additional Receivables conveyed to
the Trust on such Transfer Date, calculated at the Capitalized Interest Rate
over (ii) three-months' interest on the aggregate Discounted Contract Balances
of such Additional Receivables, calculated at the rate at which the Pre-Funded
Amount is invested as of such Transfer Date, (y) in the case of a Transfer Date
occurring in ____________, 199__, (i) two-months' interest on the aggregate
Discounted Contract Balances of the Additional Receivables conveyed to the Trust
on such Transfer Date, calculated at the Capitalized Interest Rate over (ii)
two-months' interest on the aggregate Discounted Contract Balances of such
Additional Receivables, calculated at the rate at which the Pre-Funded Amount is
invested as of such Transfer Date and (z) in the case of a Transfer Date
occurring in ____________ 199__ or on the Funding Termination Date, (i)
one-months' interest on the aggregate Discounted Contract Balances of the
Additional Receivables conveyed to the Trust on such Transfer Date, calculated
at the Capitalized Interest Rate over (ii) [one-months'] interest on the
aggregate Discounted Contract Balances of such Additional Receivables,
calculated at the rate at which the Pre-Funded Amount is invested as of such
Transfer Date.
Payment Date: The _____ day of each month, or, if such day is not a
business day, the next succeeding business day.
Prepayment: With respect to a Remittance Period and a Receivable
(except a Receivable which includes a Defaulted Contract), the amount received
by the Servicer during such Remittance Period from or on behalf of an Obligor
with respect to such Contract in excess of the sum of (x) the Scheduled Payment
due during such Remittance Period plus (y) the aggregate of any overdue
Scheduled Payments, Initial Unpaid Amounts and unpaid Servicing Charges for such
Receivable, so long as such amount is designated by the Obligor as a Prepayment
and the Servicer has consented to such Prepayment. Residual Receipts are not
"Prepayments."
Prepayment Amount: With respect to a Payment Date and a Receivable,
an amount, without duplication, equal to the sum of (i) the Discounted Contract
Balance as of the immediately preceding Payment Date (without any deduction for
any Security Deposit paid by an Obligor, unless such Security Deposit has been
deposited in the Remittance Account pursuant to the Pooling Agreement); (ii) the
product of (x) such Contract's Discounted Contract Balance as of the immediately
preceding Payment Date and (y) [one-twelfth] of the Contract Rate and (iii) any
Scheduled Payments not paid by an Obligor.
Reimbursement Amount: With respect to any Payment Date, the
aggregate of unreimbursed Insured Payments as of such Payment Date, plus accrued
interest at the rate specified in the Insurance Agreement.
Reconveyance Amount: The sum, without duplication, of (i) the
Discounted Contract Balance of such Contract (without any deduction for any
Security Deposit paid by a Obligor, unless such Security Deposit has been
deposited in the Remittance Account pursuant to the Pooling Agreement) as of the
date of reconveyance with respect to a Contract that is reconveyed by the Trust
or as of the Closing Date with respect to a Receivable that shall have been
prepaid in full on or after the Cut-Off Date and prior
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to the Closing Date, (ii) the product of (x) such Contract's Discounted Contract
Balance as of the immediately preceding Payment Date and (y) [one-twelfth] of
the Contract Rate and (iii) any Scheduled Payments not paid by a Obligor.
Remittance Period: With respect to any Payment Date, the immediately
preceding calendar month.
Required Amortization Event: The earliest to occur of any of the
following: (i) the delivery by the Originator to the Sponsor, the Trustee and
the Certificate Insurer of a notice stating that the Originator, due to a lack
of supply, will be unable thereafter to transfer Additional Receivables to the
Sponsor, (ii) the occurrence of an "Event of Servicing Termination" under the
Pooling Agreement, (iii) the Subordinated Amount is reduced to below _____% of
the aggregate Discounted Contract Balances of all Receivables, (iv) at any time
on or after the second Payment Date following the Funding Distribution Date the
amount on deposit in the Additional Receivables Funding Account exceeds
$____________, (v) the bankruptcy of the Originator or the Sponsor or (vi) as of
any Notice Date, the [three month] average ratio of the aggregate Discounted
Contract Balance of Delinquent Contracts which are [61] days or more delinquent
to the aggregate Discounted Contract Balance of all Receivables, exceeds _____%
and the [three month] average ratio of the aggregate Discounted Contract
Balances of all Defaulted Contracts which became Defaulted Contracts during the
related Remittance Period to the aggregate Discounted Contract Balances of all
Receivables, exceeds _____%.
Required Payments: With respect to any Payment Date, the sum of the
Certificate Interest as of such Payment Date and the Base Principal Distribution
Amount as of such Payment Date, together with any Overdue Interest and any
Overdue Principal and, on the Funding Distribution Date, the Pre-Funded Amount;
provided , however, that for any Payment Date as to which, during the related
Remittance Period, an amount has been withdrawn from the Remittance Account in
respect of withholding taxes, an equal amount shall be deducted from the
Required Payments for such Payment Date.
Reserve Account Advance: Amounts deposited in the Remittance Account
from the Reserve Account.
[Residual Receipts: All amounts collected as judgments against a
Obligor or others related to the failure of such Obligor to pay any required
amounts under the related Contract or to return the Vehicles, in each case as
reduced by (i) any unreimbursed Servicer Advances with respect to such Contract
and (ii) any reasonably incurred out-of-pocket expenses incurred by the Servicer
in enforcing such Contract or in liquidating such Vehicles.]
Scheduled Contract Principal: With respect to any Remittance Period,
the difference between (x) all Scheduled Payments due in such Remittance Period
and (y) the sum of (i) the Administrative Amount for such Remittance Period,
(ii) the Base Interest Amount for such Remittance Period and (iii) the Excess
Contract Interest for such Remittance Period.
Scheduled Payments: With respect to a Payment Date and a Contract,
the periodic payment (exclusive of any amounts in respect of insurance or taxes
and reflecting any adjustment for any partial Prepayment) set forth in such
Contract due from the Obligor (including any Security Deposit applied with
respect thereto) in the related Remittance Period.
Servicer Fee: The fee payable to the Servicer on the first day of
each month in consideration for the Servicer's performance of its duties
pursuant to the Pooling Agreement, in an amount equal to the product of (x)
[one-twelfth] of the Servicer Fee Rate and (y) the aggregate Discounted Contract
Balances as of the prior Calculation Date.
Servicer Fee Rate: _____% per annum.
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Specified Reserve Account Requirement: As of any date, the
"Specified Reserve Account Requirement" applicable to such date, as set forth in
the Insurance Agreement.
Subordinated Amount: As of any date of determination, the sum on
such date of (x) the Sponsor's Certificate Principal Balance and (y) the amount
then on deposit in the Reserve Account.
Withholding
The Trustee is required to comply with all federal income tax
withholding requirements respecting payments to Certificateholders of interest
or original issue discount with respect to the Certificates that the Trustee
reasonably believes are applicable under the Code. The consent of
Certificateholders will not be required for such withholding. In the event that
the Trustee does withhold or causes to be withheld any amount from interest or
original issue discount payments or advances thereof to any Certificateholders
pursuant to federal income tax withholding requirements, the Trustee is required
to indicate the amount withheld in its monthly report to such
Certificateholders.
Reports to Certificateholders
On each Payment Date the Trustee will furnish or cause to be
furnished with each payment to Certificateholders, a statement (a "Monthly
Report"), based on information in the Servicer's Certificate, setting forth the
following information (per $1,000 of Initial Certificate Principal Amount as to
(a) and (b) below):
a. The amount of such payment allocable to such Certificateholder's
Percentage Interest of the Base Principal Distribution Amount, Overdue
Principal, the Excess Principal Amount and, if applicable, the Pre-Funded
Amount;
b. The amount of such payment allocable to such Certificateholder's
Percentage Interest of Certificate Interest and Overdue Interest;
c. The aggregate amount of fees and compensation received by the
Servicer for the Remittance Period;
d. The aggregate Certificate Principal Balance, the aggregate
Discounted Contract Balance, the Certificate Percentage, the Certificate
Factor and the Pool Factor, after taking into account all distributions
made on such Payment Date;
e. The total unreimbursed Servicer Advances and the total Insured
Payment with respect to the related Remittance Period;
f. The Subordinated Amount as of such Payment Date;
g. The amount of Residual Receipts for the related Remittance Period
and the aggregate Discounted Contract Balances for all Contracts that
become Defaulted Contracts during the related Remittance Period; and
h. Information provided by the Servicer concerning losses and
delinquencies with respect to the Contracts.
The "Certificate Factor" is the seven digit decimal that the
Servicer will compute or cause to be computed for each Remittance Period and
will make available on the related Notice Date representing the ratio of (x)
Certificate Principal Balance which will be outstanding on the next Payment
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Date (after taking into account all distributions to be made on such Payment
Date) to (y) the Initial Certificate Principal Amount.
The "Pool Factor" is the seven digit decimal that the Servicer will
compute or cause to be computed for each Remittance Period and will make
available on the related Notice Date representing the ratio of (x) the aggregate
Discounted Contract Balance as of the immediately preceding Calculation Date to
(y) the aggregate Discounted Contract Balance as of the Cut-Off Date.
In addition, by [January 31] of each calendar year following any
year during which the Certificates are outstanding, commencing [January 31,]
199__, the Trustee will furnish to the Certificate Insurer and to each
Certificateholder of record at any time during such preceding calendar year,
information as to the aggregate of amounts reported pursuant to items (a) and
(b) above for such calendar year to enable Certificateholders to prepare their
federal income tax returns.
Optional Removal
The Pooling Agreement will provide that on any Payment Date
following the Record Date on which the Certificate Principal Balance is _____%
or less of the Initial Certificate Principal Amount (after giving effect to the
payment of any principal on such Payment Date), the Sponsor will have the option
to acquire all rights, title and interest in all, but not less than all,
Receivables held in the Trust, by paying into the Trust for retirement of the
Certificates and the Sponsor's Certificates an amount equal to the sum of the
aggregate outstanding Certificate Principal Balance and all other amounts due to
the Certificateholders, the Sponsor's Balance, the premium due to the
Certificate Insurer, all Insured Payments that remain unreimbursed, all other
amounts owing to the Certificate Insurer and all amounts owing to the Trustee.
Remittance and Other Servicing Procedures
The Servicer has agreed to manage, administer and service the
Receivables and to enforce and make collections on the Receivables and any
Insurance Policies, exercising the degree of skill and care consistent with that
which the Servicer customarily exercises with respect to similar property owned
by it.
The Servicer may grant to an Obligor any rebate, refund or
adjustment that the Servicer in good faith believes is required, because of
Prepayment in full of a Contract. The Servicer may deduct the amount of any such
rebate, refund or adjustment from the amount otherwise payable by the Servicer
into the Remittance Account; provided, however, that the Servicer will not
permit any rescission or cancellation of any Contract which would materially
impair the rights of the Trust or the Certificateholders or the Certificate
Insurer in the Contracts or the proceeds thereof, nor will the prepayment price
after giving effect to any such rebate, refund or adjustment (and without any
adjustment for any Security Deposit previously paid by the Obligor) be less than
the Prepayment Amount. The Servicer may waive, modify or vary any term of a
Contract if the Servicer, in its reasonable and prudent judgment, determines
that it will not be materially adverse to the Certificateholders or the
Certificate Insurer. However, the Servicer will covenant in the Pooling
Agreement that (i) it will not forgive any payment of rent, principal or
interest (except for certain offsets for Security Deposits which offsets are
only permitted after the Servicer has deposited in the Remittance Account an
amount equal to such offset), (ii) unless an Obligor is in default, it will not
permit any modification with respect to a Contract which would defer the payment
of any principal or interest or any Scheduled Payment or change the final
maturity date on any Contract; provided, however, that no change in the final
maturity date of any Contract shall be permitted under any circumstances if such
new maturity date is after ____________, and (iii) the Servicer may accept
Prepayment in part or in full; provided, however that (1) in the event of
Prepayment in full, the Servicer may consent to such Prepayment only in an
amount not less than the Prepayment Amount and (2) in the event of a partial
Prepayment, the Servicer may consent to such partial Prepayment only if (x)
following such partial Prepayment there are no delinquent amounts then due from
the Obligor and (y) such partial
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Prepayment will not reduce the Discounted Contract Balance by more than an
amount equal to (I) the amount of such partial Prepayment, minus (II) unpaid
interest at the Contract Rate, accrued through the Payment Date immediately
following such partial Prepayment on the outstanding Discounted Contract Balance
prior to such partial Prepayment. In the case of a partial Prepayment, the
Servicer is required to accurately recalculate the Discounted Contract Balance,
and the allocation of Scheduled Payments to principal and interest.
Servicing Compensation and Payment of Expenses
For its servicing of the Contracts, the Servicer will receive
servicing compensation including the monthly Servicer Fee for each Remittance
Period (payable on the next succeeding Payment Date) and Servicing Charges.
The servicing compensation will compensate the Servicer for
customary servicing activities to be performed by the Servicer for the Trust,
additional administrative services performed by the Servicer on behalf of the
Trust and expenses paid by the Servicer on behalf of the Trust.
The Servicer, as an independent contractor on behalf of the Trust
and for the benefit of the Certificateholders, the Sponsor and the Certificate
Insurer, will be responsible for the managing, servicing and administering the
Receivables and enforcing and making collections on the Contracts and any
Insurance Policies [and for the enforcing of any security interest in any item
of Vehicles,] all as set forth in the Pooling Agreement. The Servicer's
responsibilities will include collecting and posting of all payments, responding
to inquiries of Obligors, investigating delinquencies, accounting for
collections, furnishing monthly and annual statements to the Trustee and the
Certificate Insurer with respect to distributions, making Servicer Advances,
providing appropriate federal income tax information for use in providing
information to Certificateholders, collecting and remitting sales and property
taxes on behalf of taxing authorities and maintaining the perfected security
interest of the Trust in the Vehicles and the Contracts.
Evidence as to Compliance
The Pooling Agreement requires that the Servicer cause an
independent accountant (who may also render other services to the Servicer) to
prepare a statement to the Trustee, the Rating Agencies and the Certificate
Insurer dated as of ____________, 199__, and annually as of the same month and
day thereafter, to the effect that the independent accountant has examined the
servicing procedures, manuals, guides and records of the Servicer and the
accounts and records of the Servicer relating to the Receivables and the
Contract Files (which procedures, manuals, guides and records shall be described
in one or more schedules to such statement), that such firm has compared the
information contained in the Servicer's Certificates delivered in the relevant
period with information contained in the accounts and records for such period
and that, on the basis of such examination and comparison, nothing has come to
the independent accountant's attention to indicate that the Servicer has not,
during the relevant period, serviced the Receivables in compliance with such
servicing procedures, manuals and guides and in the same manner required by the
Servicer's standards and with the same degree of skill and care consistent with
that which the Servicer customarily exercises with respect to similar property
owned by it, that such accounts and records have not been maintained in
accordance with the Pooling Agreement, that the information contained in the
Servicer's Certificates does not reconcile with the information contained in the
accounts and records or that such certificates, accounts and records have not
been properly prepared and maintained in all material respects, except in each
case for (a) such exceptions as the independent accountant shall believe to be
immaterial and (b) such other exceptions as shall be set forth in such
statement. On or before ____________ of each year, commencing on ____________,
199__, the Servicer shall deliver to the Trustee, the Rating Agencies and the
Certificate Insurer a copy of such statement.
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The Pooling Agreement will also provide for annual delivery of a
report (the "Supplementary Report") by the Servicer to the Trustee and the
Certificate Insurer not later than 90 days after the end of each fiscal year,
signed by a Servicing Officer of the Servicer and dated as of the last day of
such fiscal year, stating that (a) a review of the activities of the Servicer
and the Servicer's performance under the Pooling Agreement for the previous
12-month period has been made under such Servicing Officer's supervision and (b)
nothing has come to such Servicing Officer's attention to indicate that the
Servicer could be terminated as such under the terms of the Pooling Agreement
(an " Event of Servicing Termination"), or, if such Event of Servicing
Termination has so occurred and is continuing, specifying each such event known
to the officer, the nature and status thereof and the steps necessary to remedy
such event.
The Servicer is also required to furnish to the Trustee, and the
Trustee is required to furnish to the Certificateholders, copies of the Servicer
annual audited and quarterly unaudited financial statements.
The Pooling Agreement will provide that the Servicer, upon request
of the Trustee, will furnish to the Trustee such underlying data necessary for
administration of the Trust or enforcement actions as can be generated by the
Servicer's existing data processing system.
Certain Matters Relating to the Servicer
The Pooling Agreement will provide that the Servicer may not resign
from its obligations and duties as Servicer thereunder, except upon a
determination that the Servicer's performance of such duties is no longer
permissible under applicable law. The Servicer can only be removed pursuant to
an Event of Servicing Termination as discussed below.
Events of Servicing Termination
An Event of Servicing Termination under the Pooling Agreement will
occur (a) if the Servicer fails to make (i) any Servicing Advance within [two]
business days or (ii) any other payment or deposit required under the Pooling
Agreement within [three] business days; (b) if the Servicer fails to submit a
Servicer's Certificate, within [two] business days following notice of
non-receipt; (c) (i) if the Servicer fails to observe or perform in any material
respect any covenant or agreement in the Pooling Agreement or the Certificates
or (ii) if any representation or warranty of the Servicer in the Pooling
Agreement is incorrect, and such failure or breach materially affects the rights
of the Trustee or the Certificateholders and continues unremedied for [15] days
after the earlier to occur of (x) written notice to the Servicer by the Trustee
or to the Trustee and the Servicer by the Certificate Insurer or any
Certificateholders or (y) any Servicing Officer knows, or reasonably should have
known, of such failure or of such breach; (d) upon the filing of an involuntary
petition in bankruptcy or the decree or order of a court, agency or supervisory
authority having jurisdiction over the Servicer for the appointment of a
conservator, receiver, trustee in bankruptcy or liquidator in any bankruptcy,
insolvency or similar proceedings, and the continuance of any such petition,
decree or order undismissed or unstayed and in effect for a period of [60]
consecutive days; (e) upon the voluntary filing of such petition or assignment
for the benefit of creditors, the consent by the Servicer to any such
appointment or the admission in writing by the Servicer of its inability to pay
its debts as they become due; (f) in the event that the Servicer assigns or
attempts to assign its rights and duties under the Pooling Agreement except as
specifically permitted therein; (g) the Servicer shall fail to respond within
[60] days to judgments against it of [$250,000] or more or (h) the occurrence
and continuance of a default under recourse debt or other obligations of the
Servicer aggregating more than $____________. (Section 10.01.)
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Rights Upon an Event of Servicing Termination
If an Event of Servicing Termination has occurred and is continuing,
either the Trustee, the Certificate Insurer or the Majority Holders (with the
consent of the Certificate Insurer) may terminate all (but not less than all) of
the Servicer's rights and obligations under the Pooling Agreement. Upon such
termination, the Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under the Pooling Agreement; provided, however, that
neither the Trustee nor any successor Servicer (i) will assume any obligation to
reacquire Receivables by reason of misrepresentations or breaches of warranties,
(ii) will be required to make any Servicer Advance if such Servicer Advance
would be prohibited by applicable law or (iii) will be liable for acts,
omissions or breaches of representations or warranties by the Servicer or the
Originator occurring prior to transfer of the servicing functions.
Notwithstanding such termination, the Servicer shall be entitled to payment of
certain amounts payable to it prior to such termination for services rendered
prior to such termination. The Trustee, with the consent of the Certificate
Insurer, also may appoint, or petition a court of competent jurisdiction for the
appointment of, a successor Servicer in accordance with the procedures set forth
in Sections _____ and _____ of the Pooling Agreement.
Termination of the Trust
The Trust and the Pooling Agreement will terminate [123] days after
the payment to Certificateholders and holders of the Sponsor's Certificates of
all amounts required to be paid to them pursuant to the Pooling Agreement,
reducing the Certificate Principal Balance and the Sponsor's Balance to zero;
provided, however, in the event of insolvency of the Certificate Insurer or a
default by the Certificate Insurer under the Certificate Insurance Policy, the
Trust shall in no event continue to exist beyond [123] days after the Payment
Date next succeeding the Remittance Period during which the last Contract not
removed by the Servicer shall have been liquidated and any Residual Receipts
shall have been deposited in the Remittance Account or the Advance Payment
Account, as applicable. Upon termination of the Trust, any remaining Trust Fund
shall be distributed to the Sponsor.
Upon a Sponsor Liquidation with the prior written consent of the
Certificate Insurer, the Trust shall terminate and the assets thereof shall be
sold as and to the extent necessary to fund the payment in cash to the
Certificateholders of the Certificate Principal Balance then outstanding, any
Overdue Principal and all Certificate Interest and Overdue Interest due thereon
and any Reimbursement Amounts due to the Certificate Insurer, and the remaining
assets of the Trust shall be distributed to the Sponsor. If the assets of the
Trust shall be insufficient to pay all amounts due the Certificateholders, the
Certificate Insurer shall be liable for such deficiency.
A "Sponsor Liquidation" shall occur when:
(i) Sponsor shall consent to the appointment of a custodian,
receiver, trustee or liquidator (or other similar official) of itself,
[the Vehicles] or of a substantial part of its property, or shall admit in
writing its inability to pay its debts generally as they come due, or a
court of competent jurisdiction shall determine that the Sponsor is
generally not paying its debts as they come due, or the Sponsor shall make
a general assignment for the benefit of creditors;
(ii) Sponsor shall file a voluntary petition in bankruptcy or a
voluntary petition or an answer seeking reorganization in a proceeding
under any bankruptcy laws (as now or hereafter in effect) or an answer
admitting the material allegation of a petition filed against the Sponsor
in any such proceeding, or the Sponsor shall, by voluntary petition,
answer or consent, seek relief under the provisions of any now existing or
future bankruptcy or other similar law providing for the reorganization or
winding up of debtors, or providing for an agreement, composition,
extension or adjustment with its creditors;
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(iii) an order, judgment or decree shall be entered in any
proceeding by any court of competent jurisdiction appointing, without the
consent (express or legally implied) of the Sponsor, a custodian,
receiver, trustee or liquidator (or other similar official) of the
Sponsor, the Vehicles or any substantial part of its property, [or
sequestering the Vehicles or any substantial part of its property,] and
any such order, judgment or decree or appointment or sequestration shall
remain in force undismissed, unstayed or unvacated for a period of 90 days
after the date of entry thereof;
(iv) a petition against the Sponsor in a proceeding under applicable
bankruptcy laws or other insolvency laws, as now or hereafter in effect,
shall be filed and shall not be stayed, withdrawn or dismissed within [90]
days thereafter, or if, under the provisions of any law providing for
reorganization or winding-up of debtors which may apply to the Sponsor,
any court of competent jurisdiction shall assume jurisdiction, custody or
control of the Sponsor, the Vehicles or any substantial part of its
property and such jurisdiction, custody or control shall remain in force
unrelinquished, unstayed or unterminated for a period of [90] days.
The respective representations, warranties and indemnities of the
Originator, the Servicer and the Sponsor will survive any termination of the
Trust and the Pooling Agreement.
Amendment
The Pooling Agreement may be amended by agreement of the Trustee,
the Originator, the Sponsor and the Servicer at any time, without consent of the
Certificateholders, to cure any ambiguity, upon receipt of an opinion of counsel
to the Servicer that such amendment will not adversely affect in any respect the
interests of any Certificateholder.
The Pooling Agreement may also be amended from time to time by the
Trustee, the Originator, the Sponsor, and the Servicer with the consent of the
Certificate Insurer and Holders of Certificates evidencing Percentage Interests
of not less than [___%] (such Holders, the "Majority Holders") for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of the Pooling Agreement or the Certificate Insurance Policy or of
modifying in any manner the rights of the Certificateholders; provided, however,
that no such amendment shall (a) increase or reduce in any manner the amount of,
or accelerate or delay the timing of, collections of payments on the Receivables
or distributions which are required to be made on any Certificate without the
consent of the holder of such Certificate, (b) reduce the aforesaid percentage
of Certificateholders required to consent to any amendment, without unanimous
consent of the Certificateholders or (c) adversely affect in any material
respect the interests of any Certificateholder with respect to the Certificate
Insurance Policy.
The Trustee is required under the Pooling Agreement to furnish
Certificateholders, the Certificate Insurer and the Rating Agencies with written
notice of the substance of any such amendment to the Pooling Agreement promptly
upon execution of such amendment.
Duties and Immunities of the Trustee
The Trustee will make no representations as to the validity or
sufficiency of the Pooling Agreement, the Certificates (other than the
authentication thereof) or of any Receivable or related document and will not be
accountable for the use or application by the Originator or Sponsor of any funds
paid to the Sponsor in consideration of the sale of the Certificate to the
Investor. If no Event of Servicing Termination has occurred, then the Trustee
will be required to perform only those duties specifically required of it under
the Pooling Agreement. However, upon receipt of the various resolutions,
certificates, statement, opinions, reports, documents, orders or other
instruments required to be furnished to it, the Trustee will be required to
examine them to determine whether they conform as to form to the requirements of
the Pooling Agreement.
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No recourse is available based on any provision of the Pooling
Agreement, the Certificates or any Receivable or assignment thereof against
____________, in its individual capacity, and ____________ shall not have any
personal obligation, liability or duty whatsoever to any Certificateholder or
any other person with respect to any such claim and such claim shall be asserted
solely against the Trust assets or any indemnitor, except for such liability as
is determined to have resulted from the Trustee's own gross negligence or
willful misconduct.
The Servicer, to the extent provided in the Pooling Agreement, will
agree to pay to the Trustee (a) reasonable compensation for its services, (b)
reimbursement for its reasonable expenses and (c) indemnification for loss,
liability or expense incurred without gross negligence or bad faith on its part,
arising out of performance of its duties thereunder.
THE CERTIFICATE INSURANCE POLICY
AND THE CERTIFICATE INSURER
The following information has been furnished by the Certificate
Insurer for use in this Prospectus Supplement. Reference is made to Exhibit ___
for a specimen of the Certificate Insurance Policy.
The Certificate Insurer, in consideration of the payment of the
premium and subject to the terms of the Certificate Insurance Policy, thereby
unconditionally and irrevocably guarantees to any Certificateholder (as
described below) that an amount equal to the full and complete Insured Payments
(as described below) will be received by the Trustee, on behalf of the
Certificateholders, for distribution to each Certificateholder of each
Certificateholder's proportionate share of the Insured Payment. "Insured
Payment" means (A) with respect to any Payment Date, the Insufficiency Amount,
if any, remaining after making all required transfers to the Remittance Account
from the Reserve Account pursuant to the Pooling Agreement, and (B) the
reimbursement of any portion of any interest or principal payment previously
paid which is subsequently recovered from the Trustee or any Certificateholder
pursuant to a final nonappealable judgment by a court of competent jurisdiction
to the effect that such payment constitutes a voidable preference to such
Certificateholder or the Trustee within the meaning of any applicable bankruptcy
law. Insured Payments shall be made only at the time set forth in the
Certificate Insurance Policy and no accelerated Insured Payments shall be made
regardless of any acceleration of the Certificates, unless such acceleration is
at the sole option of the Certificate Insurer.
The Certificate Insurer will pay any amount payable under the
Certificate Insurance Policy pursuant to clause (A) above no later than [12:00
noon New York City] time on the later of the Payment Date on which the related
Insufficiency Amount is due or the Business Day following receipt on a Business
Day by ____________, as Fiscal Agent for the Certificate Insurer, or any
successor fiscal agent appointed by the Certificate Insurer (the "Fiscal Agent")
of a Notice of Nonpayment; provided that if such Notice of Nonpayment is
received after [12:00 noon New York City] time on such Business Day, it will be
deemed to be received on the following Business Day. If any such Notice of
Nonpayment received by the Fiscal Agent is not in proper form or is otherwise
insufficient for the purpose of making claim under the Certificate Insurance
Policy it shall be deemed not to have been received by the Fiscal Agent for
purposes of this paragraph, and the Certificate Insurer or the Fiscal Agent, as
the case may be, shall promptly so advise the Trustee and the Trustee may submit
an amended Notice of Nonpayment.
The Certificate Insurer will pay any amount payable under the
Certificate Insurance Policy pursuant to clause (B) above voided as a preference
under any applicable bankruptcy law on the Business Day following receipt on a
Business Day by the Fiscal Agent of (i) a certified copy of the final order of
the court which exercised jurisdiction to the effect that the Trustee or the
Certificateholder is required to return principal or interest paid on the
Certificates because such payments were voidable preferences under applicable
bankruptcy law, (ii) an opinion of counsel satisfactory to the Certificate
Insurer that such order
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is final and not subject to appeal, (iii) an assignment in such form as is
reasonably required by the Certificate Insurer, irrevocably assigning to the
Certificate Insurer all rights and claims of the Certificateholder relating to
or arising under the Certificates against the debtor which made such preference
payment or otherwise with respect to such preference payment and (iv)
appropriate instruments to effect the appointment of the Certificate Insurer as
agent for such Certificateholder in any legal proceeding related to payment of
principal or interest distributed thereunder, such instruments being in a form
satisfactory to the Certificate Insurer, provided that if such documents are
received after [12:00 noon New York City] time on such Business Day, they will
be deemed to be received on the following Business Day. Such payments shall be
disbursed to the receiver or trustee in bankruptcy named in the final order of
the court exercising jurisdiction on behalf of the Certificateholder and not to
any Certificateholder directly unless such Certificateholder has returned
principal or interest paid on the Certificates to such receiver or trustee in
bankruptcy, in which case such payment shall be disbursed to such
Certificateholder.
Insured Payments due under the Certificate Insurance Policy unless
otherwise stated therein will be disbursed by the Fiscal Agent to the Trustee on
behalf of the Certificateholders by wire transfer of immediately available funds
in the amount of the Insured Payment less, in respect of Insured Payments
described in (B) of the definition thereof, any amount held by the Trustee for
the payment of such Insured Payment and legally available therefor. The
Certificate Insurer's obligations under the Certificate Insurance Policy shall
be discharged to the extent funds are transferred to the Trustee for
distribution to such Certificateholders as provided therein whether or not such
funds are properly applied by the Trustee.
The Fiscal Agent is the agent of the Certificate Insurer only and
the Fiscal Agent shall in no event be liable to Certificateholders for any acts
of the Fiscal Agent or any failure of the Certificate Insurer to deposit or
cause to be deposited, sufficient funds to make payments due under the
Certificate Insurance Policy.
Subject to the prior right of the Certificateholders to the receipt
of the Certificate Interest, the Overdue Interest, the Base Principal
Distribution Amount and the Overdue Principal on each Payment Date, the
Certificate Insurer shall be entitled to reimbursement of amounts previously
paid by the Certificate Insurer under the Certificate Insurance Policy plus
interest thereon.
As used in this section of the Prospectus Supplement, the following
terms shall have the following meanings:
"Business Day" means any day other than a Saturday, a Sunday or a
day on which banking institutions in New York City or in the city in which the
corporate trust office of the Trustee under the Pooling Agreement is located are
authorized or obligated by law or executive order to close.
"Insufficiency Amount" is the amount by which the Required Payments
in respect of the Certificates for the applicable Payment Date exceeds the
Available Funds for distribution to Certificateholders on the Business Day
preceding such Payment Date.
"Notice of Nonpayment" means the telephonic or telegraphic notice,
promptly confirmed in writing by telecopy substantially in the form of Exhibit A
attached to the Certificate Insurance Policy, the original of which is
subsequently delivered by registered or certified mail, from the Trustee
specifying the Insufficiency Amount which shall be due and owing on the Payment
Date.
"Certificateholder" means any Certificateholder as defined in the
Pooling Agreement (other than the Trust Fund, the Sponsor, the Originator, the
Servicer or any affiliate thereof) who, on the applicable Payment Date, is
entitled under the terms of the Certificates to payment thereunder.
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"Pooling Agreement" means the Pooling Agreement dated and effective
as of ____________, 199__, by and among the Servicer, the Sponsor, and the
Trustee without regard to any amendment or supplement thereto.
Capitalized terms used in the Certificate Insurance Policy and not
otherwise defined therein shall have the respective meanings set forth in the
Pooling Agreement as of the date of execution of the Certificate Insurance
Policy, without giving effect to any subsequent amendment or modification to the
Pooling Agreement.
Any notice under the Certificate Insurance Policy or service of
process on the Fiscal Agent of the Certificate Insurer may be made at the
address listed below for the Fiscal Agent of the Certificate Insurer or such
other address as the Certificate Insurer shall specify in writing to the
Trustee.
The notice address of the Fiscal Agent is ________________________,
Attention: ____________ or such other address as the Fiscal Agent shall specify
to the Trustee in writing.
The Certificate Insurance Policy is being issued under and pursuant
to, and shall be construed under, the laws of the State of New York, without
giving effect to the conflict of laws principles thereof.
The insurance provided by the Certificate Insurance Policy is not
covered by the Property/Casualty Insurance Security specified in Article 76 of
the New York Insurance Law.
The Certificate Insurance Policy is noncancellable for any reason.
The premium on the Certificate Insurance Policy is not refundable for any reason
including payment, or provision being made for payment, prior to maturity of the
Certificates.
The Certificate Insurer does not accept any responsibility for the
accuracy or completeness of this Prospectus Supplement or any information or
disclosure contained herein, or omitted herefrom, other than with respect to the
accuracy of the information regarding the Certificate Insurance Policy and
Certificate Insurer set forth under this heading "The Certificate Insurance
Policy and the Certificate Insurer".
PREPAYMENT AND YIELD CONSIDERATIONS
The Originator will transfer the Receivables to the Sponsor pursuant
to the Receivables Acquisition Agreement, dated as of ____________, 199__,
between the Originator and the Sponsor (the "Receivables Acquisition
Agreement"). On each Payment Date during the Funding Period and, if no Required
Amortization has occurred, on the Funding Termination Date, to the extent
Additional Receivables satisfactory to the Certificate Insurer are available
from the Originator, the Original Pre-Funded Amount will be disbursed by the
Trust to the Sponsor in consideration of the conveyance of Additional
Receivables which include Contracts having an aggregate Discounted Contract
Balance equal as nearly as practicable to _____% of the Original Pre-Funded
Amount. The amount, if any, remaining on deposit in the Pre-Funding Account on
the Funding Distribution Date will be transferred to the Remittance Account for
distribution to the Certificateholders as a prepayment of principal. Thereafter,
on each Payment Date on and prior to the ____________ 199__ Payment Date, or, if
a Required Amortization Event occurs with respect to a Payment Date prior to the
____________ 199__ Payment Date, on such earlier Payment Date, all Contract
Principal received by the Trust on the Contracts with respect to the related
Remittance Period will be disbursed by the Trust to the Sponsor in consideration
of the conveyance of Additional Receivables having an aggregate Contract
Principal Balance on such Payment Date equal as nearly as practicable to the
amount of such Contract Principal. Beginning with the Initial Amortization Date,
the Certificateholders will generally be entitled to receive the Applicable
Percentage of all Discounted
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Contract (other than Prepayments) received by the Trust during the prior
calendar month together with, as a payment of principal, the Applicable
Percentage of all Excess Contract Interest received by the Trust during the
prior calendar month. On and after the Initial Amortization Date (unless a
Required Amortization Event has occurred), the Sponsor will have the option on
each Payment Date to transfer to the Trust Additional Receivables having an
aggregate Discounted Contract Balance not in excess of the aggregate amount of
Prepayments received by the Servicer during the prior Remittance Period and to
remove from the Trust cash in an amount not in excess of the aggregate
Discounted Contract Balance of such Additional Receivables. This option of the
Sponsor is limited to $____________ aggregate Discounted Contract Balance of
such Additional Receivables.
Following the Interest-Only Period, the rate of principal payments
on the Certificates will be directly related to the scheduled rate of principal
payments on the underlying Contracts. If purchased at a price of other than par,
the yield to maturity also will be affected by the rate of principal payments.
The principal payments on such Contracts may be in the form of scheduled
principal payments or liquidations due to default, casualty and the like. Any
such payments will result in distributions to Certificateholders of amounts
which would otherwise have been distributed over the remaining term of the
Contracts. In general, the rate of such payments may be influenced by a number
of other factors, including general economic conditions. The rate of payment of
principal may also be affected by any removal of the Receivables from the Trust
and the deposit of the Reconveyance Amount into the Trust. See "Description of
the Certificates -- Representations and Warranties" and "Description of the
Certificates -- Optional Termination." In such event, following the
Interest-Only Period the Certificate Percentage of the Reconveyance Amount is
required to be paid to the Certificateholders as a payment of principal in the
month following the month of such removal.
The effective yield to Certificateholders will depend upon, among
other things, the price at which such Certificates are purchased and the amount
of and rate at which Principal, including both scheduled and nonscheduled
payments thereof, is paid to the Certificateholders. The after-tax yield to
Certificateholders may be affected by lags between the time interest accrues to
Certificateholders and the time the related interest income is received by the
Certificateholders.
FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences to the original purchasers of the Certificates of the purchase,
ownership and disposition of the Certificates. It does not purport to discuss
all federal income tax consequences that may be applicable to investment in the
Certificates or to particular categories of investors, some of which may be
subject to special rules. In particular, this discussion applies only to
institutional investors that purchase Certificates directly from the Sponsor and
hold the Certificates as capital assets.
The discussion that follows, and the opinion set forth below of
Dewey Ballantine, special tax counsel to Trust ("Tax Counsel"), are based on the
provisions of the Internal Revenue Code of 1986, as amended (the "Code") and the
Treasury regulations promulgated thereunder as in effect on the date hereof and
on existing judicial and administrative interpretations thereof. These
authorities are subject to change and to differing interpretations, which could
apply retroactively. The opinion of Tax Counsel is not binding on the courts or
the Internal Revenue Service (the "IRS"). Potential investors should consult
their own tax advisors in determining the federal, state, local, foreign and any
other tax consequences to them of the purchase, ownership and disposition of the
Certificates.
The Trust will, prior to the issuance of the Notes and Certificates,
be provided with an opinion of Tax Counsel regarding certain federal income tax
matters discussed below. An opinion of counsel, however, is not binding on the
IRS or the courts. The Trust has not sought, nor does it intend to seek, a
ruling from the IRS that its position as reflected in the discussion below will
be accepted by the IRS. [Moreover, there are no cases or IRS rulings on similar
transactions involving both debt and equity interests issued by a trust similar
to those of the Notes and the Certificates and, as a result, there can be no
assurance that the IRS will agree with the conclusions and discussion below.]
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Characterization of the Certificates as Indebtedness
In the opinion of Tax Counsel, based on the application of existing
law to the facts as set forth in the Receivables Acquisition Agreement, Pooling
Agreement, Insurance Agreement and other relevant documents and such
investigations as it deemed appropriate, the Certificates will be treated as
indebtedness for federal income tax purposes.
In general, whether instruments such as the Certificates constitute
indebtedness for federal income tax purposes is a question of fact, the
resolution of which is based primarily upon the economic substance of the
instruments and the transaction pursuant to which they are issued rather than
the form of the transaction or the manner in which the instruments are labeled.
The IRS and the courts have set forth various factors to be taken into account
in determining whether or not an instrument constitutes indebtedness for federal
income tax purposes. On the basis of a review of such factors as applied to the
facts of the contemplated transaction, Tax Counsel has concluded, as stated
above, that the Certificates constitute indebtedness for federal income tax
purposes.
In Article ____ of the Pooling Agreement, the parties thereto and
all successors and assigns thereof, including, upon acquisition of the
Certificates, the Certificateholders, express their mutual intent that the
Certificates shall constitute indebtedness for all applicable tax purposes and,
further, covenant and agree to treat the Certificates as indebtedness for all
applicable tax purposes in all tax filings, reports and returns and otherwise.
Notwithstanding such agreement, because different criteria are used to determine
the non-tax accounting characterization of the issuance and sale of the
Certificates, the Originator and the Sponsor intend to treat the transaction as
a sale by the Sponsor of interests in the Receivables for financial accounting
purposes.
Although the economic substance of a transaction is generally of
primary importance in determining its proper treatment for federal income tax
purposes, nevertheless, a party to a transaction will be held to a high standard
of proof in establishing that the form of the transaction, if at variance with
the economic substance of the transaction, should not be treated as controlling.
In some instances, courts have indicated that a taxpayer should be bound by the
particular form it has chosen for a transaction, even if the substance of the
transaction does not accord with its form. Tax Counsel is nonetheless of the
opinion that the Certificates will be treated as indebtedness for federal income
tax purposes because (i) in many respects the form of the transaction as
reflected in the operative provisions of the documents accords with the
characterization of the Certificates as indebtedness, (ii) the parties have
stated unambiguously their intention to treat the Certificates as indebtedness
for tax purposes and (iii) the characteristics of the Certificates strongly
indicate that in economic substance the Certificates are a form of indebtedness.
Possible Classification of the Transaction as a Partnership or Association
Taxable as a Corporation
Notwithstanding Tax Counsel's opinion, potential investors should
recognize that there is some uncertainty as to the correct characterization of
the Certificates. It is possible that the IRS could assert that, for federal
income tax purposes, the transaction contemplated by this Prospectus Supplement
constitutes the sale of a direct or indirect interest in [the Vehicles and] the
Receivables to the Certificateholders and that the proper classification of the
legal relationship between the Servicer, the Sponsor and the Certificateholders
resulting from this transaction is that of a partnership or an association
taxable as a corporation. Since Tax Counsel is of the opinion that the
Certificates will be treated as indebtedness in the hands of the
Certificateholders for federal income tax purposes, the Servicer and the Sponsor
will not attempt to comply with the federal income tax reporting requirements
applicable to either partnerships or corporations.
If the transaction were treated as creating a partnership between
the Certificateholders, the Servicer and the Sponsor, the partnership itself
would not be subject to federal income tax (unless
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characterized as a publicly traded partnership taxable as a corporation);
rather, the Servicer, the Sponsor and each Certificateholder would be taxed
individually on their respective distributive shares of the partnership's
income, gain, loss, deductions and credits. The amount, timing and
characterization of items of income and deductions for a Certificateholder would
differ if the Certificates were held to constitute partnership interests, rather
than indebtedness.
If it were determined that this transaction created an entity
classified as a corporation (including a publicly traded partnership taxable as
a corporation), the Trust would be subject to federal income tax at corporate
income tax rates on the income it derives from the Receivables, which would
reduce the amounts available for distribution to the Certificateholders. Cash
distributions to the Certificateholders generally would be treated as dividends
for tax purposes to the extent of such corporation's earnings and profits.
Taxation of Interest Income of Certificateholders
Assuming, in accordance with the opinion of Tax Counsel, that the
Certificates will constitute indebtedness for federal income tax purposes,
interest thereon will be includable as ordinary income when received or accrued
by the Certificateholders in accordance with their respective methods of tax
accounting.
Sales of Certificates
Upon the sale or exchange of a Certificate, the Certificateholder
will realize a gain or loss equal to the difference between the amount realized
on the sale and the adjusted basis of such Certificate.
Backup Withholding with Respect to Certificates
Payments of interest and principal, together with payments of
proceeds from the sale of Certificates, may be subject to the "backup
withholding tax" under Section 3406 of the Code at a rate of 31% if recipients
of such payments fail to furnish to the payor certain information, including
their taxpayer identification numbers, or otherwise fail to establish an
exemption from such tax. Any amounts deducted and withheld from a payment to a
recipient would be allowed as a credit against such recipient's federal income
tax. Furthermore, certain penalties may be imposed by the IRS on a recipient of
payments that is required to supply information but that does not do so in the
proper manner.
Foreign Investors in Certificates
A Certificateholder that is not a "United States person" may be
subject to United States federal withholding tax in respect of distributions on
a Certificate. Whether withholding of tax would be required, and, if so, the
rate at which such withholding would be imposed, would depend upon a number of
factors, including the characterization of the Certificates and the Trust for
federal income tax purposes, and, under current law, the withholding rate could
be as high as 35 percent. For these purposes, "United States person" means a
citizen or resident of the United States, a corporation, partnership organized
in or under the laws of the United States or any political subdivision thereof
or an estate or trust the income of which from sources without the United States
is includable in gross income for United States federal income tax purposes
regardless of its connection with the conduct of a trade or business within the
United States.
[Proposed Tax Legislation
Legislation pending before Congress would apply special rules to
"large partnerships", generally defined as partnerships with at least 250
partners during a taxable year (counting towards such total each owner during
the year of a partnership interest that is transferred during the year). Under
the
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legislation, certain computations are made at the partnership level rather than
the partner level. In particular, taxable income is calculated at the
partnership level, and is calculated generally in the same manner as for an
individual, except that 70% of miscellaneous itemized deductions (such as
expenses for the production of nonbusiness income) are disallowed. As a result,
all partners (including corporations) might have a portion of their share of
partnership deductions (other than interest expense) disallowed. Moreover, large
partnerships would become subject to new audit procedures; among other things,
an adjustment to taxable income of the partnership for a prior year would flow
through to current partners in the year the audit was settled, and the
partnership itself (rather than the partners) would be subject to any applicable
interest or penalties. As proposed, these rules would apply to partnership
taxable years ending on or after December 31, 1993.
The proposed tax legislation dealing with large partnerships
discussed above was not adopted in the Revenue Reconciliation Act of 1993, which
was enacted into law in August 1993. No prediction can be made whether that
proposal or similar legislation might be enacted in the future, or the ultimate
effective date of such legislation or whether the number of Certificateholders
would cause the Trust to be considered a " large partnership".]
THE FEDERAL INCOME TAX DISCUSSIONS SET FORTH ABOVE MAY NOT BE
APPLICABLE TO ANY INDIVIDUAL INVESTOR DEPENDING UPON A CERTIFICATEHOLDER'S
PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF THE CERTIFICATES, INCLUDING THE POSSIBLE EFFECTS OF CHANGES
IN FEDERAL OR OTHER TAX LAWS.
STATE AND LOCAL TAXATION
Investors should consult their own tax advisors regarding whether
the purchase of the Certificates, either alone or in conjunction with an
investor's other activities, may subject an investor to any state or local taxes
based on an assertion that the investor is either "doing business" in, or
deriving income from a source located in, any state or local jurisdiction.
Additionally, potential investors should consider the state, local and other tax
consequences of purchasing, owning or disposing of a Certificate. State and
local tax laws may differ substantially from the corresponding federal tax law,
and the foregoing discussion does not purport to describe any aspect of the tax
laws of any state or other jurisdiction. Accordingly, potential investors should
consult their own tax advisors with regard to such matters.
ERISA CONSIDERATIONS
The Certificates may be purchased by an employee benefit plan or an
individual retirement account (a "Plan") subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code.
A fiduciary of a Plan must determine that the purchase of a Certificate is
consistent with its fiduciary duties under ERISA and does not result in a
nonexempt prohibited transaction as defined in Section 406 of ERISA or Section
4975 of the Code. Employee benefit plans which are governmental plans (as
defined in Section 3(32) of ERISA) and certain church plans (as defined in
Section 3(33) of ERISA) are not subject to the fiduciary responsibility or
prohibited transaction provisions of ERISA or the Code. For additional
information regarding treatment of the Certificates under ERISA, see "ERISA
Considerations" in the Prospectus.
If the Certificates constitute equity interests, there can be no
assurance that any of the exceptions set forth in the Regulations will apply to
the purchase of Certificates offered hereby. Under the terms of the Regulations,
if the Trust were deemed to hold Plan assets by reason of a Plan's investment in
Certificates, such Plan assets would include an undivided interest in the
Receivables, and any other assets held by the Trust. In such an event, the
Originator, the Sponsor, the Trust, the Trustee and other
S-47
<PAGE>
persons providing services with respect to the Receivables, may be subject to
the fiduciary responsibility provisions of Title Originator of ERISA and be
subject to the prohibited transaction provisions of Section 4975 of the Code
with respect to transactions involving the Receivables unless such transactions
are subject to a statutory or administrative exemption. Additionally, if the
Trust were deemed to hold Plan assets, each Certificateholder may be subject to
the fiduciary responsibility provisions of Title Originator of ERISA with
respect to its right to consent or withhold consent to amendments to the
Indenture and with respect to its right to vote on action to be taken or not
taken if an Indenture Event of Default occurs.
In addition, certain affiliates of the Originator, the Sponsor, the
Trust and the Trustee may be considered to be parties in interest or fiduciaries
with respect to many Plans. An investment by such a Plan in Certificates may be
a prohibited transaction under ERISA and the Code unless such investment is
subject to a statutory or administrative exemption.
Any Plan fiduciary that proposes to cause a Plan to purchase
Certificates should consider whether such purchase would be appropriate under
the general fiduciary standards of prudence and diversification, taking into
account the overall investment policy of the Plan and its existing portfolio and
should consult with its counsel with respect to the potential applicability of
ERISA and the Code.
RATINGS
It is a condition to the issuance of the Certificates that they be
rated "_____" by ____________ and "_____" by ____________. A security rating is
not a recommendation to buy, sell or hold securities and may be subject to
revision or withdrawal at any time. The ratings of ____________ and ____________
assigned to Certificates addresses the likelihood of the receipt by
Certificateholders of all distributions to which such Certificateholders are
entitled. The ratings do not address the timely or ultimate payment of any
withholding tax imposed. The ratings assigned to Certificates do not represent
any assessment of the likelihood that principal Prepayments might differ from
those originally anticipated or address the possibility that Certificateholders
might suffer a lower than anticipated yield.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement (the "Underwriting Agreement"), the Sponsor has agreed to cause the
Trust to sell to [each of] the underwriter(s) named below (the
"Underwriter(s)"), and each of the Underwriter(s) has severally, and not
jointly, agreed to purchase, the principal amount of Certificates set forth
opposite its name below.
Principal
Amount of
Certificates
------------
Underwriter(s)
__________________ .......... $ ______
__________________ ..........
______
______
TOTAL .......... $
======
In the Underwriting Agreement, the Underwriter(s) have agreed,
subject to the terms and conditions therein, to purchase all the Certificates
offered hereby if any of such Certificates are purchased. The Sponsor has been
advised by the Underwriter(s) that they propose initially to offer the
Certificates to
S-48
<PAGE>
the public at the respective prices set forth on the cover hereof, and to
certain dealers at such prices less a concession not in excess of _____% per
Certificate. The Underwriter(s) may allow and such dealers may reallow a
concession not in excess of 0.__% per Certificate to certain other dealers.
After the initial public offering, such prices and such concessions may be
changed.
The Underwriting Agreement provides that the Sponsor and the
Originator will indemnify the Underwriter(s) against certain civil liabilities,
including liabilities under the Securities Act, or contribute to payments the
Underwriter(s) may be required to make in respect thereof. The Commission is of
the opinion that indemnification for securities law violations is contrary to
the public policy expressed in the federal securities laws, and consequently,
that such indemnification provisions are unenforceable.
The Trustee (on behalf of the Trust) may, from time to time, invest
the funds in the Trust Accounts in Eligible Investments acquired from the
Underwriter(s).
LEGAL MATTERS
In addition to the legal opinions described in the Prospectus,
certain legal matters relating to the issuance of the Certificates, including
federal and state income tax consequences with respect thereto, as well as other
matters, will be passed upon for the Trust, the Sponsor and the Underwriter(s)
by Dewey Ballantine, New York, New York.
S-49
<PAGE>
INDEX OF DEFINED TERMS
Page
----
Actual Payment ....................................................... 29
Additional Pooling Agreement ......................................... 26
Additional Receivable Transfer Agreement ............................. 19
Additional Receivables ............................................... 2
Adjusted Certificate Rate ............................................ 30
Administrative Amount ................................................ 30
Advance Payment ...................................................... 30
Advance Payments ..................................................... 27
Applicable Percentage ................................................ 30
APR .................................................................. 16
Available Funds ...................................................... 2, 30
Base Interest Amount ................................................. 30
Base Principal Distribution Amount ................................... 30
Business Day ......................................................... 42
Calculation Date ..................................................... 31
Capitalized Interest Account ......................................... 9
Capitalized Interest Rate ............................................ 31
Capitalized Interest Requirement ..................................... 31
Certificate Factor .................................................. 35
Certificate Insurance Policy ......................................... 1
Certificate Insurance Premium Rate ................................... 31
Certificate Insurer .................................................. 1, 4
Certificate Interest ................................................. 31
Certificate Percentage ............................................... 31
Certificate Principal Balance ........................................ 31
Certificate Rate ..................................................... 31
Certificateholder .................................................... 42
Certificateholders ................................................... 1
Certificates ......................................................... 1
Claim Date ........................................................... 31
Closing Date ......................................................... 25
Code ................................................................. 44
Commission ........................................................... 3
Contract Interest .................................................... 2
Contract Principal ................................................... 2, 31
Contract Rate ........................................................ 31
Contracts ............................................................ 1
Contribution Agreement ............................................... 43
Cut-Off Date ......................................................... 4, 31
Defaulted Contract ................................................... 31
Delinquency Amounts .................................................. 10
Delinquent Contract .................................................. 10, 32
Depositor ............................................................ 1, 4
Depositor Liquidation ................................................ 39
Depositor's Certificate Principal Balance ............................ 32
Depositor's Certificates ............................................. 32
Determination Date ................................................... 9
Discounted Contract Balance .......................................... 32
Distributions on Certificates ........................................ 28
S-50
<PAGE>
Page
----
Eligible Investments ................................................. 27
ERISA ................................................................ 12, 47
Event of Servicing Termination ....................................... 38
Excess Contract Interest ............................................. 2, 32
Excess Principal Amount .............................................. 32
Exchange Act ......................................................... 3
Fiscal Agent ......................................................... 41
Funding Distribution Date ............................................ 32
Funding Termination Date ............................................. 32
Initial Amortization Date ............................................ 2
Initial Capitalized Interest Amount .................................. 9
Initial Certificate Principal Amount ................................. 32
Initial Contract Principal Balance ................................... 5
Initial Receivables .................................................. 25
Initial Unpaid Amount ................................................ 32
Insufficiency Amount ................................................. 32, 42
Insurance Agreement .................................................. 9
Insurance Policies ................................................... 24
Insured Payment ...................................................... 41
Interest-Only Period ................................................. 32
Investment Earnings .................................................. 10
IRS .................................................................. 44
Issuer ............................................................... 4
Large partnership .................................................... 47
Majority Holders ..................................................... 40
Monthly Report ....................................................... 35
Net Receivables Rate ................................................. 14
Notice Date .......................................................... 28
Notice of Nonpayment ................................................. 42
Obligor .............................................................. 6
Original Pre-Funded Amount ........................................... 7
Originator ........................................................... 4
Overdue Interest ..................................................... 33
Overdue Principal .................................................... 33
Overfunded Interest Amount ........................................... 33
Payment Date ......................................................... 33
Plan ................................................................. 12, 47
Pool Factor .......................................................... 36
Pooling Agreement .................................................... 1, 43
Pre-Funding Account .................................................. 7
Predecessor Receivable ............................................... 18
Prepayment ........................................................... 33
Prepayment Amount .................................................... 33
Prospectus ........................................................... 3
Rating Agencies ...................................................... 13
Receivables .......................................................... 1
Reconveyance Amount .................................................. 33
Record Date .......................................................... 25
Reimbursement Amount ................................................. 33
Remittance Account ................................................... 7
Remittance Period .................................................... 34
S-51
<PAGE>
Page
----
Required Amortization Even ........................................... 34
Required Payments .................................................... 4, 10, 34
Reserve Account ...................................................... 9
Reserve Account Advance .............................................. 34
Residual Receipts .................................................... 34
Rule of 78s .......................................................... 15
Scheduled Contract Principal ......................................... 34
Scheduled Payments ................................................... 34
Servicer ............................................................. 1
Servicer Advance ..................................................... 10, 28
Servicer Fee ......................................................... 34
Servicer Fee Rate .................................................... 34
Servicer's Certificate ............................................... 28
Servicing Charges .................................................... 10
Servicing Fee ........................................................ 10
Servicing Fee Rate ................................................... 10
Specified Reserve Account Requirement ................................ 35
Subordinated Amount .................................................. 35
Substitute Receivable ................................................ 18
Supplementary Report ................................................. 38
Tax Counsel .......................................................... 44
Transferor's Balance ................................................. 5
Trust ................................................................ 1, 4
Trustee .............................................................. 1, 4
Underwriter(s) ....................................................... 48
Underwriting Agreement ............................................... 48
United States person ................................................. 46
Vehicles ............................................................. 1
Vendor Agreement Rights .............................................. 24
[Monthly] Servicer Report ............................................ 22
S-52
<PAGE>
EXHIBIT 99.4
<PAGE>
Exhibit 99.4
SUBJECT TO COMPLETION DATED __________, 1997
[Exhibit 99.4 Form of Prospectus Supplement. This form of Prospectus Supplement
is for illustrative purposes only. A Prospectus Supplement in definitive form
reflecting the terms of each Series of Certificates will be filed with the
Commission under the Securities Act of 1933, as amended, pursuant to Rule 424(b)
promulgated thereunder.]
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED ___________, 1996)
- --------------------------------------------------------------------------------
[ADVANTA AUTO RECEIVABLES MASTER TRUST 199__-__]
$_______________
_____% Class [A] Auto Receivables Backed Certificates, Series 199__-__
ADVANTA AUTO FINANCE CORPORATION
Sponsor
________________
Originator/Servicer
- --------------------------------------------------------------------------------
The _____% Class [A] Auto Receivables Backed Certificates, Series 199__-__
(the "[Class A] Certificates") hereby offered by Advanta Auto Finance
Corporation represent the right to receive repayment of the Initial Certificate
Principal Amount ($____________) of the [Class A] Certificates and monthly
interest at a rate of _____% per annum on the unpaid portion of such principal
amount. The rights to receive such payments are based solely upon the interests
represented by the [Class A] Certificates in the [Advanta Auto Receivables
Master Trust 199__-__] (the "Trust") formed pursuant to a Pooling Agreement (the
"Pooling Agreement"), dated as of ____________, 199__, among
______________________, as originator and as servicer of the Receivables (the
"Originator" and the "Servicer," respectively) Advanta Auto Finance Corporation
(the "Sponsor") and ____________, as trustee (the "Trustee"). The assets of the
Trust will consist of any combination of retail installment sales contracts
between manufacturers, dealers or certain other originators and retail
purchasers secured by new and used automobiles and light duty trucks financed
thereby, together with all monies received relating thereto (the "Contracts"),
[the underlying new and used automobiles and light duty trucks (the " Vehicles,"
together with the Contracts], the "Receivables") and the proceeds thereof
received by the Trust from the Sponsor on or prior to the date of the issuance
of the [Class A] Certificates. The Trustee will also have access to the Reserve
Account to be established for the benefit of the holders of the [Class A]
Certificates (the "[Class A] Certificateholders") and the Certificate Insurer.
Concurrently with issuance of the [Class A] Certificates, the Trust will issue
from the same Series another Class of Certificates (the "[Class B]
Certificates"; collectively with the [Class A] Certificates, the "Series 199__-1
Certificates") described herein under "Description of the Certificates", which
initially will be retained by the Sponsor and will be subordinated to the [Class
A] Certificates in the right to payments of principal and interest. Only the
[Class A] Certificates are offered hereby. In addition, from time to time, the
Sponsor may offer other Series of Certificates that evidence undivided interests
in the Trust which may have terms significantly different from the [Class A]
Certificates.
Capitalized terms used herein are defined terms having specific meanings.
An "Index of Defined Terms" is set forth as page S-34 hereof, which indicates
the page on which such defined terms are defined.
THE RIGHTS OF THE HOLDERS OF THE CLASS A CERTIFICATES OFFERED HEREBY ARE
NOT SUBORDINATED, BUT ARE OF AN EQUAL PRIORITY WITH CERTAIN OUTSTANDING SERIES.
SEE "SERIES PROVISIONS" HEREIN.
[FORM OF CREDIT ENHANCEMENT]
------------------
THE [CLASS A] CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND
DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE ORIGINATOR, THE SPONSOR OR
ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE [CLASS A] CERTIFICATES NOR THE
UNDERLYING RECEIVABLES WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY
OR INSTRUMENTALITY OR BY THE ORIGINATOR OR THE SPONSOR. SEE ALSO "RISK FACTORS."
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 REPRESENTATIONS TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK FACTORS"
AT PAGE ___ HEREIN AND AT PAGE ___ IN THE PROSPECTUS.
- -----------------------------------------------------------------------------
Price to Underwriting Proceeds to the
Public(1) Discount(2) Sponsor(1)(3)
--------- ------------ ---------------
- -----------------------------------------------------------------------------
Per [Class A] Certificate... % % %
<PAGE>
Total....................... $ $ $
- -----------------------------------------------------------------------------
(1) Plus accrued interest, if any, from ____________, 199__.
(2) The Sponsor has agreed to indemnify the Underwriter(s) against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting estimated expenses of $____________ payable by the
Sponsor.
[The [Class A] Certificates are offered subject to prior sale, when,
as, and if accepted by the Underwriter(s) and subject to the approval of certain
legal matters by Dewey Ballantine, counsel for the Underwriter(s).]
[Name(s) of the Underwriter(s)]
S-2
<PAGE>
The Contracts are contracts for the sale of the Vehicles, entitling the
originator thereunder to payments of principal and interest (hereinafter,
"Contract Principal" and "Contract Interest," respectively).
Interest will accrue on the [Class A] Certificates at the rate of ___% per
annum (the "Certificate Rate"). Interest and Principal will be distributed on
_________, 19__, and on the __ day of each month thereafter (or, of any such ___
day is not a business day, the next succeeding business day) (each a
"Distribution Date"). Principal is scheduled to be distributed as described
herein under "Series Provisions--Principal," and its distribution may be
accelerated under certain circumstances described under "Series Provisions--Pay
Out Events" herein. If not previously paid, a principal payment equal to the
then outstanding Invested Amount of the [Class A] Certificates will be due on
the __________________ Distribution Date (the "Final Payment Date").
The Trust will have the benefit of funds on deposit in a reserve account
(the "Reserve Account") which will be funded by an initial deposit of
$10,000,000. Amounts available to be withdrawn from the Reserve Account will be
applied as described herein under "Summary of Series Terms--Reserve Account" and
"Series Provisions--Reserve Account."
The [Class A] Certificates initially will be represented by certificates
which will be registered in the name of Cede & Co., the nominee of The
Depository Trust Company. [Class A] Certificateholders will be represented by
book entries on the records of The Depository Trust Company and participating
members thereof. Definitive Certificates will be available to [Class A]
Certificateholders only under the limited circumstances described under
"Description of the Securities--Definitive Notes" in the Prospectus.
There currently is no secondary market for the [Class A] Certificates, and
there is no assurance that one will develop or, if one does develop, that it
will continue until the [Class A] Certificates are paid in full.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE [CLASS A] CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN
THE PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE [CLASS A] CERTIFICATES MAY
NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE [CLASS
A] CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
REPORTS TO CERTIFICATEHOLDERS
Periodic and annual unaudited reports containing information concerning
the Receivables will be prepared by the Servicer and sent on behalf of the Trust
to the registered holders of the [Class A] Certificates. See "Description of the
Securities-- Reports to Securityholders" in the accompanying Prospectus (the
"Prospectus"). Such reports will not constitute financial statements prepared in
accordance with generally accepted accounting principles. The Trust will file
with the Securities and Exchange Commission (the "Commission") such periodic
reports as are required under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations thereunder and as are
otherwise agreed to by the Commission. Copies of such periodic reports may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.w., Washington, D.C. 20549, at prescribed rates.
S-3
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Terms", which appears on page
S-34 hereof, or, to the extent not defined herein, have the meanings assigned to
such terms in the Prospectus.
Issuer:.......................... Advanta Auto Receivables Trust 199__-__ (the
"Trust" or the "Issuer").
Sponsor:......................... Advanta Auto Finance Corporation (the
"Sponsor"), a Nevada corporation. The Sponsor
will acquire the Receivables from the
Originator and will simultaneously transfer
the Receivables (including from time to time
the Additional Receivables) to the Trust. The
principal executive offices of the Sponsor
are located at 500 Office Center Drive, Fort
Washington, Pennsylvania 19034 and its
telephone number is (215) 283-4200.
Servicer......................... Advanta Auto Finance Corporation, a
_____________ corporation (the "Servicer").
The principal executive offices of the
Servicer are located at
_______________________, and its telephone
number is __________________.
Originator....................... _________________, a _____________
corporation (" the "Servicer"). The principal
executive offices of the Servicer are located
at _______________________, and its telephone
number is __________________.
Trustee:......................... ________________________ (the " Trustee"), a
____________ association. The corporate trust
offices of the Trustee are located at
______________________ and its telephone
number is (___) ______.
Cut-Off Date:.................... ____________, 199__.
Closing Date:.................... ____________, 199__.
[Class A] Certificates
Initial [Class A] Invested
Amount....................... $_____________________
Certificate Rate............... _____% per annum.
Distribution Date.............. The ____ day of each month (or, if any such
____ day is not a business day, the next
succeeding business day), commencing
__________, 19__.
S-4
<PAGE>
Record Date.................... The business day preceding the related
Distribution Date (or, if Definitive
Certificates are issued, the last day of the
month preceding the month in which the
related Distribution Date occurs).
Principal Commencement Date.... The __________________, 199__ Distribution
Date.
Final Payment Date............. The _________________________ Distribution
Date.
[Class A] Controlled
Amortization Amount.......... For each Distribution Date with respect to
the Scheduled Amortization Period, the amount
shown for such date on the "Schedule of
[Class A] Controlled Amortization Amounts."
See "Series Provisions-- Applications of
Collections--Payments of Principal" in this
Prospectus Supplement.
Scheduled Amortization
Period....................... The Scheduled Amortization Period with
respect to the Series 199__-_ Certificates
will commence on the Series Cut-Off Date and
will end at the close of business on
_____________, 199__, unless terminated
earlier upon the occurrence of a Pay Out
Event. Available Principal Collections will
be distributed to the [Class A]
Certificateholders up to the [Class A]
Controlled Distribution Amount on each
Distribution Date with respect to the
Scheduled Amortization Period.
Full Amortization Period....... At the close of business on the last day of
the Scheduled Amortization Period, the Full
Amortization Period with respect to the
Series 199__-_ Certificates will commence.
The [Class A] Controlled Amortization Amount
will not apply to any distributions to [Class
A] Certificateholders on any Distribution
Date with respect to the Full Amortization
Period. Principal will be distributed to
[Class A] Certificateholders on each
Distribution Date with respect to the Full
Amortization Period in an amount equal to the
lesser of (i) all Available Principal
Collections with respect to the related
Collection Period, (ii) all Principal
Payments allocated to the [Class A]
Certificateholders' Interest and (iii) the
remaining Invested Amount of [Class A]
Certificates on such Distribution Date. The
Full Amortization Period will continue until
the Invested Amount of the Series 199__-_
Certificates is paid in full or the Full
Amortization Pool Balance is zero, whichever
first occurs.
Upon the commencement of the Full
Amortization Period, the Trustee will include
all the Receivables then included in the
Trust's Floating Receivable Pool in the Full
Amortization Pool for the Series 199__-_
S-5
<PAGE>
Certificates. Following commencement of the
Full Amortization Period, the Series 199__-_
Certificateholders will have an interest only
in the Full Amortization Pool and will not
have any interest in Receivables subsequently
transferred to the Trust, in the Floating
Receivable Pool or in Full Amortization Pools
subsequently segregated with respect to other
Series.
The Full Amortization Pool, and Contract
Payments and the Defaulted Amount with
respect to Contracts therein, will be
allocated to the Series 199__-_
Certificateholders' Interest on the basis of
the Fixed Allocation Percentage for the
Series 199__-_ Certificates. The Full
Amortization Pool and such Contract Payments
and Defaulted Amount will be further
allocated to the [Class A] Certificates on
the basis of its Floating Allocation
Percentage. The portion of the Contract
Payments and the Defaulted Amount with
respect to Contracts in the Full Amortization
Pool not allocated to the Series 199__-_
Certificateholders' Interest (the "
Non-Allocated Interest") initially will be
included in the Floating Receivable Pool and
subsequently included in the next Full
Amortization Pool created for another Series,
if any.
[Class B] Certificates......... Concurrently with the issuance of the [Class
A] Certificates, the Trust will issue another
Class of Certificates of the same Series, the
[Class B] Certificates, which initially will
be retained by the Sponsor. The [Class A]
Certificates and the [Class B] Certificates
collectively comprise the first Series to be
issued by the Trust. Only the [Class A]
Certificates are offered hereby.
Payments of interest and principal on the
[Class B] Certificates will be subordinated
to payments of interest and certain other
amounts due with respect to the [Class A]
Certificates as described under "Series
Provisions--Application of
Collections--Subordination."
[Reserve Account............... The Reserve Account will be established in
the name of the Trustee for the benefit of
the [Class A] Certificateholders. The Reserve
Account will be funded on the Series Issuance
Date from the proceeds of the [Class A]
Certificates in the amount of
$________________ (the "Initial Reserve
Amount"). On each Distribution Date, the
Available Reserve Amount will be applied to
fund the Required Amount, if any, with
respect to such Distribution Date.
S-6
<PAGE>
On each Distribution Date, Available Finance
Charge Collections and Available Principal
Collections allocated and available for that
purpose (as described under "Series
Provisions--Application of
Collections--Payments of Interest, Fees and
Other Items" and "--Payments of Principal)
will be applied to increase the amount on
deposit in the Reserve Account (to the extent
such amount is less than the Required Reserve
Amount). In addition, if on any Distribution
Date the amount on deposit in the Reserve
Account exceeds the Required Reserve Amount,
such excess will be withdrawn and paid to the
Sponsor (the "Reserve Sponsor"). See "Series
Provisions--Reserve Account."]
Series Servicing Fee
Percentage................... For so long as the Originator is the
Servicer, ___% per annum or, in the event a
successor Servicer has been appointed, a
percentage determined by the Trustee which
shall not exceed ___%. See "Description of
the Trust Agreements--Servicing Compensation"
in the Prospectus.
Registration................... The [Class A] Certificates initially will be
represented by certificates registered in the
name of Cede, as nominee of DTC, and no
purchaser of [Class A] Certificates will be
entitled to receive a definitive certificate
except under certain limited circumstances.
[Class A] Certificateholders may elect to
hold their [Class A] Certificates through DTC
(in the United States) or CEDEL or Euroclear
(in Europe). See "Description of the
Securities--Book-Entry Registration" and "--
Definitive Notes" in the Prospectus.
Optional Repurchase............ On any Distribution Date occurring on or
after the day on which the Series 199__-1
Invested Amount is reduced to 5% or less of
the Series 199__-1 Initial Invested Amount,
the Sponsor will have the option to
repurchase all, but not less than all, the
Series 199__-1 Certificateholders' Interest.
The purchase price will be equal to the sum
of the Series 199__-1 Invested Amount plus
accrued and unpaid interest on the Series
199__-1 Certificates through the day
preceding such Distribution Date. See
"Description of the Trust
Agreements--Termination" in the Prospectus.
ERISA Eligibility.............. [Class A] Certificates may be eligible for
purchase by Benefit Plans. See "ERISA
Considerations" herein.
Ratings........................ It is a condition to the issuance of the
[Class A] Certificates that they be rated in
the highest rating
S-7
<PAGE>
category by at least one nationally
recognized rating agency.
[Class B] Certificates
Initial [Class B]
Invested Amount.............. $____________________.
[Class B] Certificateholder.... The [Class B] Certificates initially will be
retained by the Sponsor. The Sponsor must
retain ____% of the [Class B] Certificates,
which are nontransferable, but, subject to
certain conditions and limitations, the
Sponsor may sell up to _____% of the [Class
B] Certificates after the Series Issuance
Date. In connection with such a transfer, the
Trustee and the Sponsor may agree to amend
the Supplement and the Pooling Agreement with
respect to the [Class B] Certificates,
including changing the Series Enhancement
provided for Series 199__-_ Certificates to
add Series Enhancement for the [Class B]
Certificates, so long as no Rating Effect or
Pay Out Event results from such amendment.
The [Class B] Certificates are not offered
hereby.
[Class B] Certificate Rate..... _____% per annum.
[Class B] Controlled
Amortization Amount.......... For each Distribution Date during the
Scheduled Amortization Period, the amount
provided in the Series 199__-_ Supplement.
Subordination of Distributions
to Class B]
Certificateholders .......... Collections of Principal Payments and
collections of Finance Charge Payments
otherwise allocable to the [Class B]
Certificateholders will be subordinated to
the payment of interest and certain other
amounts due with respect to the [Class A]
Certificates. No principal or interest will
be payable on the [Class B] Certificates with
respect to a Distribution Date until all
interest payments, the Investor Default
Amount and aggregate unreimbursed Investor
Charge-Offs have been covered with respect to
the [Class A] Certificates with respect to
such Distribution Date and the Available
Reserve Amount equals the Required Reserve
Amount on such Distribution Date. The [Class
B] Certificates will receive distributions of
interest on each Distribution Date equal to
the lesser of Available [Class B] Finance
Charge Collections and interest accrued and
unpaid on the [Class B] Invested Amount at
the [Class B] Certificate Rate. The [Class B]
Certificates will receive distributions of
principal on each Distribution Date during
the Scheduled Amortization Period equal to
the
S-8
<PAGE>
lesser of the Available [Class B] Principal
Collections and the [Class B] Controlled
Amortization Amount. During the Full
Amortization Period, the [Class B]
Certificates will receive distributions of
principal on each Distribution Date equal to
Available [Class B] Principal Collections.
Payments of principal to the [Class B]
Certificates will reduce the [Class B]
Invested Amount available for subordination.
See "Series Provisions--Application of
Collections-- Subordination" herein.
Federal Income Tax
Consequences..................... In the opinion of Dewey Ballantine, counsel
for the Trust, the Certificates will be
characterized as debt for federal income tax
purposes and the Trust will not be
characterized as an association (or a
publicly traded partnership) taxable as a
corporation. Alternative characterizations of
the Trust and the Certificates are possible,
as more fully described herein. See "Federal
Income Tax Consequences" and "State Tax
Consequences" herein for information
regarding the application of federal and
[Nevada] tax laws to the Securities and the
Trust.
Risk Factors..................... For a discussion of certain factors that
should be considered by prospective investors
in the Certificates, see "Risk Factors"
herein and in the Prospectus.
Certain Legal Matters............ Certain legal matters relating to the
validity of the issuance of the Certificates
will be passed upon for the Issuer and the
Underwriter by Dewey Ballantine, New York,
NY.
S-9
<PAGE>
RISK FACTORS
Prospective Certificateholders should consider, among other things, the
following factors in connection with the purchase of the Certificates:
Risk of Losses on Investment Associated with Limited Obligations of the
Trust. Distributions of interest and principal on the Certificates will be
subordinated in priority of payment to interest and principal due on the
Certificates. The Certificateholders will not receive any distributions with
respect to a Payment Date until the full amount of interest on and principal of
the Certificates on such Payment Date has been deposited in the Certificate
Distribution Account. The Trust does not have, nor is it permitted or expected
to have, any significant assets or sources of funds other than the Receivables
and the Trust Accounts. The Securities represent solely obligations of, or
interests in, the Trust and the Securities will not be insured or guaranteed by
the Sponsor, the Originator, the Servicer, the [Owner] Trustee or any other
person or entity. Consequently, holders of the Securities must rely for
repayment upon payments on the Receivables and, if and to the extent available,
amounts on deposit in the Reserve Account. Amounts to be deposited in the
Reserve Account are limited in amount, and the amount required to be on deposit
in the Reserve Account will be reduced as the Pool Balance is reduced. In
addition, funds in the Reserve Account will be available on each Payment Date to
cover shortfalls in distributions of interest and principal on the Certificates
prior to the application thereof to cover shortfalls on the Certificates. If the
Reserve Account is exhausted, the Trust will depend solely on current payments
on the Receivables to make payments on the Securities. Although the Trust will
covenant to sell the Receivables if directed to do so by the Indenture Trustee
in accordance with the Indenture following an acceleration of the Certificates
upon an Event of Default, there is no assurance that the market value of the
Receivables will at any time be equal to or greater than the aggregate principal
amount of outstanding Certificates. Therefore, upon an Event of Default with
respect to the Certificates there can be no assurance that sufficient funds will
be available to repay Certificateholders in full and consequently the
Certificateholders run the risk of loss on their investment. In addition, the
amount of principal required to be distributed to Certificateholders under the
Indenture is generally limited to amounts available therefor in the Certificate
Distribution Account. Therefore, the failure to pay principal on the
Certificates may not result in the occurrence of an Event of Default until the
Final Scheduled Payment Date.
Risk of Limited Liquidity and Lower Market Price Associated with a Reduction
or Withdrawal of Ratings of the Securities. It is a condition to the issuance of
the Certificates that the Certificates be rated in the [_____] rating category
or its equivalent, by at least two nationally recognized rating agencies (the
"Rating Agencies"). A rating is not a recommendation to purchase, hold or sell
securities, inasmuch as such rating does not comment as to market price or
suitability for a particular investor. The rating of the addresses the
likelihood of the timely payment of interest on and the ultimate repayment of
principal of the Certificates pursuant to their terms. There is no assurance
that a rating will remain for any given period of time or that a rating will not
be lowered or withdrawn entirely by a Rating Agency if in its judgment
circumstances in the future so warrant. The rating of the Certificates is based
primarily on the creditworthiness of the Receivables and the availability of
funds in the Reserve Account. The ratings of the Certificates are also based on
the rating of the security insurer. Upon a security insurer default, the rating
on the Certificates may be lowered or withdrawn entirely. In the event that any
rating initially assigned to the Certificates were subsequently lowered or
withdrawn for any reason, including by reason of a downgrading of the security
insurer's claims-paying ability, no person or entity will be obligated to
provide any additional credit enhancement with respect to the Certificates. Any
reduction or withdrawal of a rating will have an adverse effect on the liquidity
and market price of the Certificates. See "Ratings."
[Risk of Reduced Rate of Return Associated with Relationship Between Base
Rate and LIBOR. Allocations of payments on the variable rate Receivables to
principal and interest depend upon the applicable Base Rate. Interest on the
Certificates accrues at a rate generally based upon LIBOR. These two rates can
and will vary with respect to each other. Historically, they have increased or
decreased
S-10
<PAGE>
roughly in tandem and, during the last ten years, LIBOR always has remained
below the Base Rate. However, no assurance can be given that these historical
trends will continue. There is a risk that if LIBOR were to more above the Base
Rate, the spread used to pay interest to the Securityholders would disappear and
the rate of return to investors would be reduced.]
[The variable rate Receivables bear interest at the Base Rate plus a Base
Rate Additive ranging from _____% to _____%. The Certificate Interest is based
upon LIBOR. If, in respect of any Payment Date, there does not exist a positive
spread between the weighted average of the Receivables Rate, Certificate
Interest Rate less the Servicing Fee Rate (such difference between the
Receivables Rate and the Servicing Fee Rate being the "Net Receivables Rate")
for the Collection Period preceding such Payment Date, on the one hand, and the
Certificate Interest Rate for such Payment Date (calculated before giving effect
to this sentence), on the other hand, then the [Pass-Through Rate] for such
Payment Date shall not exceed the Net Receivables Rate.]
[Risk of Reduced Rate of Return Associated with Yield Considerations. The
Certificateholders will bear the risk associated with the possible narrowing of
the spread between the Certificate Interest Rate, on the one hand, and the Net
Receivables Rate, on the other hand. If this spread disappears ( i.e., if the
Certificate Interest Rate exceeds or equals the Net Receivables Rate), the
interest payable on the Certificates for the related Payment Date will not
exceed such Net Receivables Rate. A substantial change in LIBOR at a time when
the Net Receivables Rate does not experience a similar change could result in
limiting the Certificate Interest Rate and consequently could reduce the rate of
return to investors as described above.]
Risk of Lower Yield Associated with Prepayment Considerations. If purchased
at other than par, the yield to maturity on the Securities will be affected by
the rate of the payment of principal of the Contracts. If the actual rate of
payments on the Contracts is slower than the rate anticipated by an investor who
purchases the Securities at a discount, the actual yield to such investor will
be lower than such investor's anticipate yield. If the actual rate of payments
on the Contracts is faster than the rate anticipated by an investor who
purchases the Securities at a premium, the actual yield to such investor will be
lower than such investor's anticipated yield.
[All of the Contracts are fixed-rate contracts. The rate of prepayments with
respect to conventional fixed contracts has fluctuated significantly in recent
years. In general, if prevailing interest rates fall significantly below the
interest rates on fixed rate contracts, such contracts are likely to be subject
to higher prepayment rates than if prevailing rates remain at or above the
interest rate on such contracts. However, the monthly payment on contracts
similar to the Contracts is often smaller than the monthly payment on other
types of consumer debt, for example, a typical mortgage loan. Consequently, a
decrease in the interest rate payable as a result of a refinancing would result
in a relatively small reduction in the amount of the contracts monthly payment,
as a result of the relatively small loan balance. Conversely, if prevailing
interest rates rise appreciably above the interest rates on fixed rate
contracts, such contracts are likely to experience a lower prepayment rate than
if prevailing rates remain at or below the interest rates on such contracts. As
of the Cut-off Date, ____% of the aggregate principal balance of the Contracts
had prepayment penalties.]
[All of the Contracts are adjustable rate contracts. As is the case with
conventional fixed rate contracts, adjustable rate contracts may be subject to a
greater rate of principal prepayments in a declining interest rate environment.
For example, if prevailing interest rates fall significantly, adjustable rate
contracts could be subject to higher prepayment rates than if prevailing
interest rates remain constant because the availability of fixed-rate contracts
at competitive interest rates may encourage obligors to refinance their
adjustable rate contracts to "lock in" a lower fixed interest rate. However, no
assurance can be given as to the level of prepayments that the contracts will
experience. As of the Cut-off Date, ____% of the aggregate principal balance of
the Contracts had prepayment penalties.]
S-11
<PAGE>
THE RECEIVABLES
Contracts
[Description of collateral is transaction dependent -- an example of disclosure
language is set forth below.]
[All of the Contracts were purchased by the Sponsor from the Originator in the
ordinary course of business and the Contracts constitute substantially all of
the automobile and light duty truck retail installment sale contracts included
in the Originator's portfolio meeting the selection criteria described below.
Such selection criteria included that: (i) each Contract is secured by a new or
used automobile or light duty truck; (ii) each Contract was originated in the
United States; (iii) each Contract provides for level monthly payments that
fully amortize the amount financed over its original term except that the
payment in the first or last month in the life of the Contract may be minimally
different from the level payment, and a minimal number of the Contracts provide
for monthly payments for a period of time not exceeding one year after
origination in an amount less than such level payment, provided that as of the
Cutoff Date the monthly payment currently due under each such Contract is equal
to such level payment; (iv) each Contract was originated on or prior to ___,
199_; (v) each Contract has an original term of __ to __ months and, as of the
Cutoff Date, had a remaining term to maturity of not less than three months nor
more than __ month; (vi) each Contract provides for the payment of a finance
charge at an APR ranging from __% to __%; (vii) each Contract shall not have a
Scheduled Payment that is more than 30 days past due as of the Cutoff Date;
(viii) no Contract shall be due, to the best knowledge of the Originator, from
any Obligor who is presently the subject of a bankruptcy proceeding or is
bankrupt or insolvent; (ix) no Vehicle has been repossessed without
reinstatement as of the Cutoff Date; and (x) as of the Cutoff Date, physical
damage insurance relating to each Vehicle is not being force-placed by the
Servicer.
Certain information with respect to the Receivables expected to be sold by
the Originator to the Sponsor pursuant to the Receivables Acquisition Agreement
and in turn sold by the Sponsor to the Trust pursuant to the Pooling Agreement
is set forth below. The description of the Receivables presented in this
Prospectus Supplement is based upon the pool of Receivables as it is expected to
be constituted on the Cutoff Date. While information as of the Closing Date for
the Receivables that actually will be sold to the Trust may differ somewhat from
the information presented herein, the Sponsor does not expect that the
characteristics of the Receivables that are sold to the Trust will vary
materially from the information presented in this Prospectus Supplement
concerning the Receivables.
As of the Cutoff Date, approximately __% and approximately __% of the Aggregate
Discounted Contract Balance are expected to represent Contracts secured by
automobiles and light duty trucks, respectively. Based on the Aggregate
Discounted Contract Balance, approximately __% and approximately __% of the
Contracts are expected to represent financing of new vehicles and used vehicles,
respectively, and no more than __% of the Contracts are expected to be due from
employees of the Originator or any of its respective affiliates. As of the
Cutoff Date, the average Principal Balance of Contracts secured by automobiles
and light duty trucks is expected to be approximately $___ and approximately
$___ , respectively. The majority of the Vehicles are expected to be foreign and
domestic automobiles and light duty trucks. Except in the case of any breach of
representations and warranties by the Originator, it is expected that none of
the Contracts provide for recourse to the Originator who originated the related
Contract.
Each Contract provides for fixed level monthly payments which will amortize
the full amount of the Contract over its term. The Contracts provide for
allocation of payments according to the "sum of periodic balances" or "sum of
monthly payments" method (the "Rule of 78s"). Each Contract provides for the
payment by the Obligor of a specified total amount of payments, payable in
monthly installments on the related due date, which total represents the
principal amount financed and finance charges in an amount calculated on the
basis of a stated annual percentage rate ("APR") for the term of such Contract.
The rate at which such amount of finance charges is earned and, correspondingly,
the amount of each fixed
S-12
<PAGE>
monthly payment allocated to reduction of the outstanding principal balance of
the related Contract are calculated in accordance with the Rule of 78s. Under
the Rule of 78s, the portion of each payment allocable to interest is higher
during the early months of the term of a Contract and lower during later months
than that under a constant yield method for allocating payments between interest
and principal. Notwithstanding the foregoing, all payments received by the
Servicer on or in respect of the Contract will be allocated pursuant to the
Pooling Agreement on an actuarial basis.
If an Obligor elects to prepay a Contract in full, it is entitled to a rebate
of the portion of the outstanding balance then due and payable attributable to
unearned finance charges, calculated in accordance with the Rule of 78s. The
amount of a rebate under a Contract calculated in this manner will always be
less than had such rebate been calculated on an actuarial basis. Distributions
to Certificateholders will not be affected by Rule of 78s rebates under the
Contract because pursuant to the Pooling Agreement such distributions will be
determined using the actuarial method.]
The expected composition, distribution by APR and geographical distribution
of the Contracts are as set forth in the following tables.
Expected Composition of the Contracts
New Used
Aggregate Discounted Contract Balance ......... $
Number of Contracts ........................... ___
Average Original Principal Balance ............ $
Range of Original Principal Balances ........ $___ to $___
Weighted Average APR(1)........................ __%
Range of APRs ............................... __% to __%
Weighted Average Original Maturity(1) ......... ___ months
Range of Original Maturities ................ _ months to _ months
Weighted Average Remaining Maturity(1) ........ _ months
Range of Remaining Maturities ............... _ months to _ months
- ----------
(1) Weighted by Aggregate Discounted Contract Balance as of the Cutoff Date.
S-13
<PAGE>
Expected Distribution of the Contracts by APR
Percentage of Aggregate Percentage of
Aggregate Discounted Aggregate
Number of Number Contract Discounted
Range of APRs Contracts of Contracts Balance Contract Balance
- ------------- --------- ------------- --------- ----------------
% to % .... % $ %
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
% to % ....
Total ........ % $ %
======== ===== ======= ==========
Expected Distribution of the Contracts by State
Percentage of
Percentage of Aggregate Aggregate
Aggregate Discounted Discounted
Number of Number Contract Contract
State(1) Contracts of Contracts Balance Balance
- ---------- --------- ------------- ----------- --------
% $ %
Total.......... % $ %
======== ======== ======== =======
- ------------
(1) Based on the addresses of the Obligors.
Substitution
Pursuant to the Receivables Acquisition Agreement, the Servicer will have the
right (but not the obligation) at any time to substitute one or more Eligible
Receivables (each a "Substitute Receivable") [and the Vehicles subject thereto
(or a perfected security interest therein)] for a Receivable (" Predecessor
Receivable") [and the Vehicles subject thereto (or a perfected security interest
therein)] if:
S-14
<PAGE>
(i) the Predecessor Receivable is then in default and, as of the most
recent Cut-Off Date, has been in default for at least ________ [(___)]
consecutive days or a bankruptcy petition has been filed by or against the
Obligor;
[(ii) the Vehicles subject to the Substitute Receivable or Receivables
has a current estimated fair market value and a projected residual value,
respectively, equal to or greater than the current fair market value and
projected residual value of the Vehicles subject to the Predecessor
Receivable;] and
(iii) the Substitute Receivable or Receivables require the obligor or
obligors thereunder to make Contract Payments during each month ending on
or prior to the final payment date of the Certificate in an amount which
is at least as great as the Contract Payment required under the
Predecessor Receivable during each such month.
[provided, however, that the Aggregate Discounted Contract Balance of all
Contracts substituted shall not exceed [10%] of the Aggregate Discounted
Contract Balance of the Initial Receivables and the Additional Receivables.]
[Upon repossession and disposition of any Vehicles subject to a Defaulted
Contract, any deficiency remaining will be pursued to the extent deemed
practicable by the Servicer. [The Servicer on behalf of the Issuer is directed
to maximize the Net Residual Value of the Vehicles relating to any Defaulted
Contract, and, in such regard, the Servicer may sell such Vehicles at the best
available price, refurbish such Vehicles and re-lease such Vehicles to third
parties, or take any other commercially reasonable steps to maximize such
Vehicles's Net Residual Value. Liquidation proceeds with respect to any such
Defaulted Contract, including any future payments received with respect to such
Defaulted Contracts, shall be paid to the Collection Account. If the Servicer
reasonably believes that the Net Residual Value of any Vehicles is zero or de
minimis, it will dispose of such Vehicles in accordance with its standard
procedures.]
The original counterpart of each Contract constituting chattel paper and
the Contract Files will be held by _________________, as Trustee on behalf of
the Certificateholders. The Trustee will be required to indicate that the
Contracts have been transferred by the Originator to the Trust.
[The Additional Receivables
Subject to the conditions set forth below, in consideration of the
Trustee's delivery on the related Additional Receivable Transfer Date upon the
order of the Sponsor of all or a portion of the balance of funds in the
Pre-Funding Account, the Originator shall on any Additional Receivable Transfer
Date sell, transfer, assign, set over and otherwise convey without recourse, to
the Sponsor, all right, title and interest of the Originator in and to (i) each
Additional Receivable listed on the schedule delivered by the Originator to the
Sponsor and the Trustee (including all Contract Payments due thereunder); and
[(ii) the related Vehicles; provided, however, that the Originator reserves and
retains all of its right, title and interest in and to all Contract Payments
collected and interest accruing on each such Additional Receivable prior to the
related Additional Receivable Transfer Date.]
The amount released from the Pre-Funding Account shall be ___________
percent (___%) of the Discounted Contract Balances of the Additional Receivables
so transferred.
The Originator shall transfer to the Issuer the Additional Receivables and
the other property and rights related thereto only upon the satisfaction of each
of the following conditions on or prior to the related Additional Receivable
Transfer Date:
(i) the Originator shall have provided the Trustee with a timely
Addition Notice and shall have provided any information reasonably
requested by the Sponsor or the Trustee with respect to the Additional
Receivables;
S-15
<PAGE>
(ii) the Originator shall have delivered to the Sponsor and the
Trustee a duly executed written assignment (including an acceptance by the
Trustee) (the "Additional Receivable Transfer Agreement"), which shall
include schedules listing the Additional Receivables and any other
exhibits listed thereon;
(iii) the Originator shall have deposited in the Remittance Account all
collections in respect of the Additional Receivables received on or after
the related Additional Receivable Transfer Date;
(iv) as of each Additional Receivable Transfer Date, the Originator
was not insolvent, will not be made insolvent by such transfer nor is it
aware of any pending insolvency;
(v) such addition will not result in a material adverse tax
consequence to the Sponsor or the Certificateholders;
(vi) the Originator shall have delivered to the Trustee an Officers'
Certificate confirming the satisfaction of each condition precedent
specified in this paragraph and in the related Additional Receivable
Transfer Agreement;
(vii) the obligation of the Sponsor to purchase an Additional
Receivable on any Additional Receivable Transfer Date is subject to the
requirement that such Additional Receivable comply in all material
respects with the representations and warranties made by the Originator on
the Initial Receivables in the Pooling Agreement.]
THE ORIGINATOR AND THE SERVICER
General
The Originator is a company engaged in the business of originating and
acquiring retail installment sale contract financing to retail customers of
automotive dealers. The Originator provides full-service financing, primarily
through installment sales contracts, to retail purchasers of new and used
automobiles and light duty trucks through dealer programs.
The Originator has financed over $___ million of vehicles, representing
over _________ vehicles. The Originator currently services over ___ customers
through its direct servicing activities and an additional __________ customers
in connection with its subsidiaries activities. As of _________________, the
Originator had __ employees.
Delinquency and Default Experience
There can be no assurance that the levels of delinquency and loss
experience reflected in Table 1 and Table 2, below, are indicative of the
performance of the Receivables included in the Collateral for the Notes.
S-16
<PAGE>
TABLE 1
DELINQUENCY EXPERIENCE
===============================================================================
Year Ended December 31,
------------------------------------------------------------
1991 1992 1993
============================================================
Dollar Percentage Dollar Percentage Dollar Percentage
Amount of Total Amount of Total Amount of Total
(000) Portfolio (000) Portfolio (000) Portfolio
----- --------- ----- --------- ----- ---------
Total Originator
Portfolio
at Year End
Delinquencies:
31-59 Days
60-89 Days
90 Days or more
Total Delinquencies
Total Delinquencies
as a % of Total
Portfolio
===============================================================================
TABLE 2
LOSS EXPERIENCE
===============================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1991 1992 1993
===============================================================
Dollar Percentage Dollar Percentage Dollar Percentage
Amount of Total Amount of Total Amount of Total
(000) Portfolio (000) Portfolio (000) Portfolio
----- --------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Total Acquisitions (1)
($000's)
Gross Defaults ($000's)
Gross Recoveries
($000's)
Net Losses ($000's)
</TABLE>
===============================================================================
(1) Total Acquisition = total cost (aggregate purchase price of the Vehicles)
to the Originator since inception in ____ through and including the year
end set forth above.
Litigation
The Originator is not involved in any legal proceedings, and is not
aware of any pending or threatened legal proceedings that would have a material
adverse effect upon its financial condition or results of operations.
Servicing
The Contracts will be serviced by the Originator, as Servicer, pursuant to
the Pooling Agreement.
S-17
<PAGE>
The Pooling Agreement requires that servicing of the Contracts by the
Originator shall be carried out in the same manner in which it services
contracts and vehicles held for its own account and consistent with customary
practices of servicers in the retail automobile industry, but in performing its
duties hereunder, the Originator will act on behalf and for the benefit of the
Sponsor, the Trustee and the holders of the Certificates, subject at all times
to the provisions of the Pooling Agreement, without regard to any relationship
which the Originator or any Affiliate of the Originator may otherwise have with
a Obligor. Except as permitted by the terms of any Contract following a default
thereunder, the Originator shall not take any action which would result in the
interference with the Obligor's right to quiet enjoyment of the Vehicles subject
to the Contract during the term thereof.
Following each Determination Date, the Originator shall advance and remit
to the Trustee, in such manner as will ensure that the Trustee will have
immediately available funds on account thereof by 11:00 a.m. New York time on
the [______] Business Day prior to the next succeeding Payment Date, a Servicer
Advance equal to the Contract Payment due during the preceding Contract Payment
Period with respect to each Contract (other than a Contract which became a
Defaulted Contract on or prior to such Determination Date) under which the
Obligor has not made such payment by such Determination Date; provided, however,
that the Originator will not be obligated to make a Servicer Advance with
respect to any Contract if the Originator, in its good faith judgment, believes
that such Servicer Advance would be a Nonrecoverable Advance. If the Originator
determines that any Contract Payment it has made, or is contemplating making,
would be a Nonrecoverable Advance, the Originator shall deliver to the Trustee
an Officers' Certificate stating the basis for such determination.
Servicing Compensation and Payment of Expenses
For its servicing of the Receivables, the Originator will be entitled to
receive a Servicing Fee equal to the product of (i) one-twelfth, (ii) ___% and
(iii) the Aggregate Discounted Contract Balance of all Contracts as of the
preceding Determination Date, payable out of the Remittance Account, plus
Servicing Charges and Investment Earnings.
All costs of servicing each Contract in the manner required by the Pooling
Agreement shall be borne by the Originator, but the Originator shall be entitled
to retain, out of any amounts actually recovered with respect to any Defaulted
Contract [or the Vehicles subject thereto,] the Originator's actual
out-of-pocket expenses reasonably incurred with respect to such Defaulted
Contract [or Vehicles]. In addition, the Originator shall be entitled to receive
on each Payment Date any unreimbursed Nonrecoverable Advances or Servicer
Advances with respect to any Defaulted Contract and the Servicing Fee.
The servicing compensation will compensate the Originator for customary
contract servicing activities to be performed for the Sponsor and the
Originator, as well as additional administrative services to be performed by the
Originator.
Evidence as to Compliance
The Pooling Agreement requires that with each set of financial statements
delivered pursuant to the Pooling Agreement, the Originator will deliver an
Officers' Certificate stating (i) that the officers signing such Certificate
have reviewed the relevant terms of the Pooling Agreement and have made, or
caused to be made under such officers' supervision, a review of the activities
of the Originator during the period covered by the statements then being
furnished, (ii) that the review has not disclosed the existence of any Servicer
Event of Default or, if a Servicer Event of Default exists, describing its
nature and what action the Originator has taken and is taking with respect
thereto, and (iii) that on the basis of such review the officers signing such
certificate are of the opinion that during such period the Originator has
serviced the Receivables in compliance with the required procedures except as
described in such certificate.
S-18
<PAGE>
The Originator shall cause a firm of independent certified public
accountants (who may also render other services to the Originator) to deliver to
the Trustee, with a copy to the Rating Agency and each holder of the
Certificates, within [90] days following the end of each fiscal year of the
Originator, beginning with the Originator's fiscal year ending ____________,
199__, a written statement to the effect that such firm has examined in
accordance with generally accepted practices samples of the accounts, records,
and computer systems of the Originator for the fiscal year ended on the previous
_______ relating to the Receivables (which accounts, records, and computer
systems shall be described in one or more schedules to such statement), that
such firm has compared the information contained in the Originator's reports
delivered in the relevant period with information contained in the accounts,
records, and computer systems for such period, and that, on the basis of such
examination and comparison, such firm is of the opinion that the Originator has,
during the relevant period, serviced the Receivables in compliance with such
servicing procedures, manuals, and guides and in the same manner as it services
comparable contracts for itself or others, that such accounts, records, and
computer systems have been maintained, and that such certificates, accounts,
records, and computer systems have been properly prepared and maintained in all
material respects, except in each case for (a) such exceptions as such firm
shall believe to be immaterial and (b) such other exceptions as shall be set
forth in such statement.
Other Servicing Procedures
At least [___] days prior to each Payment Date, the Originator shall
deliver a report in writing (the "[Monthly] Servicer Report") to each holder of
the Certificates, the Trustee and the Rating Agency.
If an Obligor has [____] Contract Payments which are due and unpaid as of
any Calculation Date, such Obligor's Contract shall become a Defaulted Contract.
Where no satisfactory arrangements can be made for collection of delinquent
payments within [___] days of a Contract becoming a Defaulted Contract, the
Originator shall foreclose or otherwise liquidate any such Defaulted Contract
[(together with the related Vehicles)] within [60] days of such Contract
becoming a Defaulted Contract. In connection with any foreclosure or other
liquidation, the Originator will take such action as is appropriate, consistent
with the Originator's administration of contracts in its own portfolio,
including such action as may be necessary to cause, or attempt to cause, the
Obligor thereunder to cure such default (if the same may be cured) or to
terminate or attempt to terminate such Contract and to recover, or attempt to
recover, all damages resulting from such default.
[The Originator will use its best efforts (i) to sell or re-lease any
Vehicles subject to a Defaulted Contract in a timely manner and upon reasonable
terms and conditions so as to reduce as expeditiously as is consistent with
sound commercial practice any unreimbursed amounts drawn by the Trustee on the
Reserve Account and (ii) to sell or re-lease any Vehicles remaining subject to
the lien of the Trustee upon the expiration of the Contract to which such
Vehicles is subject, in a timely manner and in a manner consistent with that
utilized by the Originator with respect to vehicles owned by it so as to
realize, to the extent possible under then prevailing market conditions, the Net
Residual Value of such Vehicles.]
[All Residual Payments realized by the Originator in the performance of
its duties with respect to any item of Vehicles remaining subject to the Lien of
the Trustee (net of the Originator's actual out-of-pocket expenses reasonably
incurred in such realization) shall be held in trust by the Originator, as agent
for the Trustee, and turned over to the Trustee within [___] Business Days for
application in accordance with the provisions of the Pooling Agreement, provided
that, to the extent that (i) the Originator has made any advances with respect
to any Contract which thereafter became a Defaulted Contract and (ii) the
Originator has not otherwise been fully reimbursed for such advances, the
Originator shall reimburse itself for such advances from any Residual Payments
recovered with respect to such Defaulted Contract before remitting to the
Trustee any such amounts for deposit in the Remittance Account.]
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Removal of the Servicer
The Pooling Agreement will provide that the Originator may not resign from
its obligations and duties as Servicer thereunder, except upon a determination
that the Originator's performance of such duties is no longer permissible under
applicable law. the Originator can only be removed pursuant to a Servicer Event
of Default. If a Servicer Event of Default shall have occurred and be
continuing, the Trustee shall give written notice to the Originator of the
termination of all of the rights and obligations of the Originator (but none of
the Originator's obligations thereunder, which shall survive any such
termination) under the Pooling Agreement. On and after the time the Originator
receives a notice of termination, the Trustee shall be the successor in all
respects to the Originator in its capacity as servicer under the Pooling
Agreement of the Receivables. The Trustee may, if it shall be unwilling to so
act, or shall, if it is unable to so act, give notice of such fact to each
holder of the Certificates and (i) appoint an established institution,
satisfactory to the holders of Certificates evidencing not less than [______%]
of the Voting Rights, as the successor to the Originator to assume all of the
rights and obligations of the Originator, including, without limitation, the
Originator's right to receive the Servicing Fee (but not the obligations of the
Originator contained in the Pooling Agreement) or, (ii) if no such institution
is so appointed, petition a court of competent jurisdiction to appoint an
institution meeting such criteria as the Originator.
THE TRUSTEE
The Trustee, ____________, has an office at ________________________.
The Trustee may resign, subject to the conditions set forth below, at any
time upon written notice to the Sponsor, the Servicer and the Certificate
Insurer, in which event the Servicer, with the consent of the Certificate
Insurer, will be obligated to appoint a successor Trustee. If no successor
Trustee shall have been so appointed and have accepted such appointment within
[30] days after the giving of such notice of resignation, the resigning Trustee
may petition a court of competent jurisdiction for the appointment of a
successor Trustee. Any successor Trustee shall meet the financial and other
standards for qualifying as a successor Trustee under the Pooling Agreement. The
Servicer, the Certificate Insurer or Certificateholders evidencing more than
[___%] of the Percentage Interests of the Trust may also remove the Trustee if
the Trustee ceases to be eligible to continue as such under the Pooling
Agreement and fails to resign after written request therefor, or is legally
unable to act, or if the Trustee is adjudicated to be insolvent. In such
circumstances, the Servicer, the Certificate Insurer or such Certificateholders
will also 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.
THE TRUST
The Trust, as a master trust, is expected to issue additional Series from
time to time. The Trust has not engaged and will not engage in any business
activity other than acquiring and holding Trust Assets and proceeds therefrom,
issuing Series of Certificates and the Sponsor's Certificate and making payments
thereon and related activities. As a consequence, the Trust does not and is not
expected to have any source of capital resources other than the Trust Assets.
The Trust will be administered in accordance with the laws of the State of
Nevada.
The Sponsor will convey to the Trust, without recourse, its interest in
all the Receivables listed in the Series 199__-1 Supplement. The Trust Fund will
consist of the Contracts, [any related Vehicles or a security interest in such
Vehicles,] all monies due or to become due thereunder, the proceeds of the
Contracts, all monies on deposit in the Collection Account and in certain other
accounts maintained for the benefit of the Certificateholders and any Series
Enhancements. The Trust Fund is expected to change over the life of the Trust as
Additional Receivables become subject to the Trust and as Contracts
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terminate, are charged off or removed and are no longer subject to the Trust.
Pursuant to the Pooling Agreement, the Sponsor will have the right (subject to
certain limitations and conditions), and in some circumstances will be
obligated, to designate Additional Receivables to the Trust Fund.
USE OF PROCEEDS
The net proceeds from the sale of the [Class A] Certificates will be paid
to the Sponsor and distributed to the Originator in payment for the Receivables.
SERIES PROVISIONS
The Series 199__-1 Certificates will consist of two Classes, the [Class A]
Certificates and the [Class B] Certificates. The [Class A] Certificates and
[Class B] Certificates will be issued pursuant to the Pooling Agreement and a
Supplement thereto relating to the [Class A] Certificates and [Class B]
Certificates (the "Series 199__-1 Supplement"). The following summary describes
the material terms generally applicable to Series 199__-1 and is qualified in
its entirety by reference to the Series 199__-1 Supplement. The Servicer will
provide, without charge, to any prospective purchaser of the [Class A]
Certificates a copy of the Pooling Agreement and the Series 199__-1 Supplement.
Reference should be made to "Description of the Securities" and "Description of
the Trust Agreements" in the Prospectus for additional information concerning
the Series 199__-1 Certificates and the Pooling Agreement.
Payments with respect to [Class B] Certificates will be subordinated to
the payment of interest and certain other amounts due with respect to the [Class
A] Certificates. The [Class B] Certificates initially will be retained by the
Sponsor; however, subject to certain restrictions, the Sponsor may sell a
portion of the Class B Certificates subsequent to the Series Issuance Date, and
in connection with such transfer, the Trustee and the Sponsor may agree to amend
the Series 199__-1 Supplement and the Pooling Agreement, including changing the
Series Enhancement provided for the Series 199__-1 Certificates to add Series
Enhancement for the [Class B] Certificates, so long as no Ratings Effect or Pay
Out Event results from such amendment. The [Class B] Certificates are not
offered hereby.
Interest
Interest will accrue on the [Class A] Invested Amount at the Certificate
Rate. Interest will be distributed to the [Class A] Certificateholders on
____________, 199__, and on each Distribution Date thereafter in an amount equal
to one-twelfth of the product of the Certificate Rate and the [Class A] Invested
Amount as of the preceding Record Date, except that interest for the first
Distribution Date will be equal to the interest accrued at the Certificate Rate
for the period from and including ___________, 199__ to but excluding such first
Distribution Date. Interest will be calculated on the basis of a 360-day year of
twelve 30-day months. Interest with respect to the [Class A] Certificates due
but not paid on any Distribution Date will be due on the next succeeding
Distribution Date with additional interest on such amount at the Certificate
Rate to the extent permitted by law. Interest payments on the [Class A]
Certificates on any Distribution Date will be funded from (a) Available Finance
Charge Collections for the related Collection Period as described herein under
"--Application of Collections--Payments of Interest, Fees and Other Items" and
(b) to the extent necessary, withdrawals from the Reserve Account as described
under "--Reserve Account."
Principal
During the Scheduled Amortization Period principal will be paid to the
[Class A] Certificateholders monthly on each Distribution Date in an amount up
to the Controlled Distribution Amount with respect to such Distribution Date.
The Scheduled Amortization Period will commence on the Series Cut-Off Date and
will end at the close of business on _____________, 199__, unless terminated
earlier upon the occurrence
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of a Pay Out Event, in which case it will end at the close of business on the
last day of the Collection Period during which the Pay Out Event occurs. Upon
the completion or termination of the Scheduled Amortization Period, the Full
Amortization Period will begin, and principal equal to the Available Principal
Collections for each Collection Period will be paid to the [Class A]
Certificateholders monthly on each Distribution Date until the Invested Amount
of the [Class A] Certificates is paid in full.
Allocation Percentages
Pursuant to the Pooling Agreement, for each Collection Period during the
Scheduled Amortization Period, the Servicer will allocate among the [Class A]
Certificateholders' Interest, the [Class B] Certificateholders' Interest, the
Sponsor's Interest and the Certificateholders' Interest of the other Series
issued and outstanding from time to time that are in their Scheduled
Amortization Periods, all Finance Charge Payments and Principal Payments and the
Defaulted Amount with respect to Receivables allocated to the Trust's Floating
Receivable Pool. Because Series 199__-1 is the first Series to be issued by the
Trust, the Floating Receivable Pool is not expected to contain any
Non-Allocated Interests created in connection with the formation of Full
Amortization Pools with respect to other Series while Series 199__-1 is in its
Scheduled Amortization Period. Collections of Finance Charge Payments, Principal
Payments and the Defaulted Amount with respect to Receivables (and
Non-Allocated Interests, if any) in the Floating Receivable Pool will be
allocated during the Scheduled Amortization Period to the [Class A]
Certificateholders' Interest based on the Floating Allocation Percentage with
respect to the [Class A] Certificates and to the [Class B] Certificateholders'
Interest based on the Floating Allocation Percentage with respect to the [Class
B] Certificates.
The "[Class A] Invested Amount" for any day means an amount equal to (i)
the initial principal amount of the [Class A] Certificates, minus (ii) the
amount of principal payments made to [Class A] Certificateholders prior to such
day, and minus (iii) the excess, if any, of the aggregate amount of Investor
Charge-Offs for all Distribution Dates preceding such day over the aggregate
amount of Investor Charge-Offs reimbursed prior to such day.
The "[Class B] Invested Amount" for any day means an amount determined
with respect to the [Class B Certificates] in the same manner as the [Class A]
Invested Amount.
"Series 199__-1 Invested Amount" for any day means the sum of the [Class
A] Invested Amount and the [Class B] Invested Amount.
"Floating Allocation Percentage" means, for the [Class A] Certificates and
the [Class B] Certificates, as applicable, with respect to any Collection
Period, the percent equivalent of a fraction, the numerator of which equals the
Invested Amount of such Class as of the day before the last day of the
Collection Period and the denominator of which equals (i) during the Scheduled
Amortization Period, the Floating Contract Pool Balance or (ii) during the Full
Amortization Period, the Full Amortization Pool Balance allocated to Series
199__-1, as applicable, as of such day.
Upon the commencement of the Full Amortization Period, the Trustee will
segregate all the Receivables (and Non-Allocated Interests, if any) included
in the Trust's Floating Receivable Pool as of such date into a Full Amortization
Pool. Contract Payments and the Defaulted Amount with respect to the Receivables
allocated to the Full Amortization Pool will be the only Contract Payments and
Defaulted Amounts allocated to the Full Amortization Pool and Series 199__-1
Certificateholders will thereafter have an interest in only such Contract
Payments and Defaulted Amount. The interest in such Contract Payments and
Defaulted Amount not allocated to the Series 199__-1 Certificateholders'
Interest will represent the Non-Allocated Interest and will be allocated
initially to the Floating Receivable Pool. The Full Amortization Pool for Series
199__-1 is expected to be the first Full Amortization Pool created for the
Trust. Consequently, the Floating Pool is not expected to contain any
Non-Allocated Interest at the time the Series 199__-1 Full Amortization Pool is
segregated, and the Series 199__-1 Full Amortization Pool is not expected to
have a Non-Allocated Interest allocated to it.
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Contract Payments and the Defaulted Amount allocated to the Full
Amortization Pool will be allocated to the Series 199__-1 Certificateholders'
Interest on the basis of the applicable Fixed Allocation Percentage. Contract
Payments and the Defaulted Amount initially allocated to the Series 199__-1
Certificateholders' Interest will be allocated further between the [Class A]
Certificateholders' Interest and the [Class B] Certificateholders' Interest on
the basis of the Floating Allocation Percentage applicable to each such Class.
The Full Amortization Period will continue until the Invested Amount of the
Series 199__-1 Certificates is paid in full or the Full Amortization Pool
Balance is zero, whichever first occurs.
"Fixed Allocation Percentage" for Series 199__-1 shall equal the
percentage equivalent of a fraction, the numerator of which is the Invested
Amount of Series 199__-1 on the day before the last day of the first Collection
Period in the Full Amortization Period and the denominator of which is the Full
Amortization Pool Balance on such day.
Application of Collections
Payments of Interest, Fees and Other Items. On each Distribution Date, the
Trustee, acting pursuant to the Servicer's instructions, will apply all amounts
allocated to the [Class A] Certificateholders' Interest with respect to
collections of Finance Charge Payments for the preceding Collection Period (as
described above under "--Allocation Percentages"), all amounts allocated to the
[Class B] Certificateholders' Interest with respect to collections of Finance
Charge Payments and Principal Payments for the preceding Collection Period (as
described under "--Subordination") and any Additional Finance Charges with
respect to other Series that are allocated to Series 199__-1 in accordance with
the Pooling Agreement (collectively, "Available Finance Charge Collections"), to
make the following payments and deposits in the following order of priority:
[(i) an amount equal to the Monthly Investor Servicing Fee with
respect to the Series 199__-1 Certificates for such Distribution Date,
plus the amount of any Monthly Investor Servicing Fee with respect to the
Series 199__-1 Certificates previously due but not distributed to the
Servicer on a prior Distribution Date, plus the amount of any outstanding
Servicer Advances allocable to the Series 199__-1 Certificates that the
Servicer has determined will not be recovered from the Receivables to
which the Servicer Advances were related as described under "Description
of the Trust Agreements--Servicing Procedures" in the Prospectus, will be
distributed to the Servicer;
(ii) an amount equal to Monthly Interest for such Distribution Date
due on the [Class A] Certificates, plus the amount of any Monthly Interest
previously due but not distributed to the [Class A] Certificateholders on
a prior Distribution Date, plus any additional interest at the Certificate
Rate with respect to interest amounts that were due but not paid to [Class
A] Certificateholders on a prior Distribution Date, will be distributed to
the [Class A] Certificateholders;
(iii) an amount equal to the Investor Default Amount for such
Distribution Date will be treated as a portion of Available Principal
Collections for such Distribution Date;
(iv) an amount equal to the aggregate amount of Investor Charge-Offs
which have not been previously reimbursed will be treated as a portion of
Available Principal Collections for such Distribution Date;
(v) an amount up to the deficiency, if any, between the Required
Reserve Amount and the remaining Available Reserve Amount will be used to
increase the amount on deposit in the Reserve Account up to the Required
Reserve Amount;
(vi) an amount equal to any unreimbursed draws under any letter of
credit or surety bond obtained by the Servicer will be paid to the
provider of such letter of credit or surety bond;
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(vii) an amount equal to the amount of Finance Charge Payments with
respect to the [Class B] Certificates included in Available Finance Charge
Collections will be reallocated to the [Class B] Certificates for the
payment of interest on the [Class B] Certificates pursuant to the terms of
the Series 199__-1 Supplement ("Class B Reallocated Finance Charge
Collections");
(viii) an amount equal to the amount of Principal Payments with respect
to the [Class B] Certificates included in Available Finance Charge
Collections will be reallocated to the [Class B] Certificates for the
payment of principal on the [Class B] Certificates pursuant to the Series
199__-1 Supplement ("[Class B] Reallocated Principal Collections"); and
(ix) the balance, if any, will constitute a portion of Additional
Finance Charges for such Distribution Date and will be available for
allocation to other Series in the Trust or to the Sponsor.]
"Monthly Interest" means, with respect to any Distribution Date,
one-twelfth of the product of (i) the Certificate Rate and (ii) the [Class A]
Invested Amount as of the preceding Record Date; provided, however, that Monthly
Interest with respect to the first Distribution Date will be equal to the
interest accrued on the initial principal amount of the [Class A] Certificates
at the Certificate Rate for the period from the Series Issuance Date to but
excluding the first Distribution Date.
"Required Amount" means, with respect to any Distribution Date, the
excess, if any, of the full amount required to be allocated pursuant to
paragraphs (i), (ii) and (iii) of the second preceding paragraph for such
Distribution Date over the amount of Available Finance Charge Collections for
such Distribution Date.
"Investor Default Amount" means, (x) with respect to any Distribution Date
in the Scheduled Amortization Period, the product of (i) the Floating Allocation
Percentage with respect to the [Class A] Certificates for the related Collection
Period and (ii) the Defaulted Amount with respect to the Floating Contract Pool
for such Collection Period and (y) with respect to any Distribution Date in the
Full Amortization Period, the product of (i) the Fixed Allocation Percentage
with respect to Series 199__-1, (ii) the Floating Allocation Percentage with
respect to the [Class A] Certificates for the related Collection Period and
(iii) the Defaulted Amount with respect to the Full Amortization Pool for such
Collection Period.
Payments of Principal. On each Distribution Date, the Trustee, acting
pursuant to the Servicer's instructions, will apply all amounts allocated to the
[Class A] Certificateholders' Interest with respect to collections of Principal
Payments for the preceding Collection Period (as described above under
"--Allocation Percentages"), any Shared Principal Collections with respect to
other Series that are allocable to the [Class A] Certificates and any other
amounts which are to be allocated in the same manner as Available Principal
Collections (as described above under "--Payment of Interest, Fees and Other
Items") (collectively, "Available Principal Collections") and will distribute
such amounts on each Distribution Date with respect to the Scheduled
Amortization Period or the Full Amortization Period in the following order of
priority:
[(i) an amount equal to Monthly Principal for such Distribution Date
will be distributed to the [Class A] Certificates;
(ii) an amount up to the deficiency, if any, between the Required
Reserve Amount and the remaining Available Reserve Amount (after giving
effect to any deposit made from Available Finance Charge Collections as
described above) will be used to increase the amount on deposit in the
Reserve Account up to the Required Reserve Amount;
(iii) the amount necessary to be paid to the Sponsor in exchange for
any related Additional Receivables;
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(iv) an amount equal to any unreimbursed draws under any letter of
credit or surety bond obtained by the Servicer will be paid to the
provider of such letter of credit or surety bond;
(v) the balance, if any, will be allocated to Shared Principal
Collections.]
"Monthly Principal" with respect to any Distribution Date relating to the
Scheduled Amortization Period or the Full Amortization Period will equal the
least of (i) the Available Principal Collections for such Distribution Date,
(ii) for each Distribution Date with respect to the Scheduled Amortization
Period, the Controlled Deposit Amount for such Distribution Date and (iii) the
[Class A] Invested Amount.
"Controlled Distribution Amount" means, for any Distribution Date with
respect to the Scheduled Amortization Period, an amount equal to the sum of the
Controlled Amortization Amount for such Distribution Date and any Deficit
Controlled Amortization Amount for the preceding Distribution Date.
"Controlled Amortization Amount" means, for any Distribution Date with
respect to the Scheduled Amortization Period, the amount set forth for such
Distribution Date on the "Schedule of Class A Controlled Amortization Amounts."
"Deficit Controlled Amortization Amount" means, (x) on the first
Distribution Date with respect to the Scheduled Amortization Period, the excess,
if any, of the Controlled Amortization Amount for such Distribution Date over
the amount distributed as Monthly Principal for such Distribution Date and (y)
on each subsequent Distribution Date with respect to the Scheduled Amortization
Period, the excess, if any, of the sum of the Controlled Amortization Amount for
such subsequent Distribution Date and any Deficit Controlled Amortization Amount
for the prior Distribution Date over the amount distributed as Monthly Principal
on such subsequent Distribution Date.
The schedule below shows the [Class A] Invested Amount and the [Class A]
Controlled Amortization Amount for each Distribution Date with respect to the
Scheduled Amortization Period for the [Class A] Certificates, assuming each
[Class A] Controlled Amortization Amount is paid in full on the date indicated,
no Payout Event occurs and losses allocable to the [Class A] Certificates do not
exceed the amounts available to cover such losses. The [Class A] Controlled
Amortization Amount is equal to the [Class A] Certificateholders' allocable
share of Scheduled Principal Payments due with respect to the Original
Receivables for each of the Distribution Dates shown.
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SCHEDULE OF CLASS A
CONTROLLED AMORTIZATION AMOUNTS
Class A
Class A Controlled
Invested Amortization
Distribution Date Amount Amount
- ------------------------------------------------ ------------- -------------
Original Invested Amount....................... $ $
December 199_..................................
January 199_...................................
February 199_..................................
March 199_.....................................
April 199_.....................................
May 199_.......................................
June 199_......................................
July 199_......................................
August 199_....................................
September 199_.................................
October 199_...................................
November 199_..................................
Subordination. The fractional undivided interest in the Trust represented
by the [Class B] Certificates will be subordinated to the extent described
herein to fund payments with respect to the [Class A] Certificates. The [Class
B] Invested Amount represents the [Class B] Certificateholders' Interest in the
Trust Assets and represents the subordinated amount which, in addition to the
Reserve Account, any Additional Finance Charges and any Shared Principal
Collections, is available to fund payments of interest and certain other amounts
due with respect to the [Class A] Certificates as described under "Series
Provision--Application of Collections--Payments of Interest, Fees and Other
Items." No principal or interest will be distributed on the [Class B]
Certificates with respect to a Distribution Date unless all interest payments,
the Investor Default Amount and aggregate unreimbursed Investor Charge-Offs have
been covered with respect to the [Class A] Certificates with respect to such
Distribution Date and the Available Reserve Amount equals the Required Reserve
Amount on such Distribution Date. See "--Payments of Interest, Fees and Other
Items" and "--Payments of Principal." To the extent the [Class B] Invested
Amount is reduced to zero, withdrawals will then be made from the Reserve
Account. If the Reserve Account is reduced to zero as described under "--Reserve
Account," the [Class A] Invested Amount may be reduced as described under
"--Investor Charge-Offs" and the [Class A] Certificateholders will bear directly
the credit and other risks associated with their interest in the Trust.
The [Class B] Certificates will receive distributions of interest on each
Distribution Date equal to the lesser of (x) [Class B] Available Finance Charge
Collections and (y) interest accrued and unpaid on the [Class B] Invested Amount
at the [Class B] Certificate Rate ("[Class B] Monthly Interest"). Any remaining
[Class B] Available Finance Charge Collections will be allocated in the
following priority: (a) an amount equal to the [Class B] Investor Default Amount
for the Collection Period will be treated as a portion of [Class B] Available
Principal Collections for such Distribution Date, (b) an amount equal to the
aggregate amount of [Class B] Investor Charge-Offs which have not previously
been reimbursed will be treated as a portion of [Class B] Available Principal
Collections for such Distribution Date and (c) the balance will be available for
allocation to the Sponsor. The [Class B] Certificates will receive distributions
of principal on each Distribution Date equal to the lesser of the [Class B]
Available Principal Collections and the principal payable to the [Class B]
Certificates pursuant to the Series 199__-1 Supplement. Any remaining [Class B]
Available Principal Collections will be allocated in the following priority: (x)
the amount necessary to be paid to the Sponsor in exchange for any related
Additional Receivables and (y) the balance, if any, will be remitted to the
Seller.
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"[Class B] Required Amount" means, with respect to any Distribution Date,
the excess, if any, of the full amount required to be allocated pursuant to
clause (a) in the preceding paragraph for such Distribution Date over the
remaining [Class B] Available Finance Charge Collections for such Distribution
Date.
"[Class B] Available Finance Charge Collections" for any Distribution Date
means [Class B] Reallocated Finance Charge Collections as described above under
"--Payments of Interest, Fees and Other Items."
"[Class B] Available Principal Collections" for any Distribution Date
means the sum of [Class B] Reallocated Principal Collections and any other
amounts treated as a portion of [Class B] Available Principal Collections as
described above.
"[Class B] Investor Default Amount" will be calculated with respect to the
[Class B] Certificates for any Distribution Date in the same manner as Investor
Default Amount is calculated with respect to the [Class A] Certificates.
Reserve Account
The Trustee will hold the Reserve Account for the benefit of the [Class A]
Certificateholders and the Reserve Sponsor, as their interests may appear. The
interest of the Reserve Sponsor will be subordinated to the interests of the
[Class A] Certificateholders as provided in the Series 199__-1 Supplement. The
Reserve Account will be one or more Eligible Deposit Accounts and funds on
deposit in the Reserve Account will be invested in Eligible Investments. A
portion of such funds may be invested in debt obligations of the Reserve Sponsor
or its affiliates to the extent such obligations qualify as Eligible
Investments.
The Reserve Account will be funded on the Series Issuance Date by the
Sponsor from the proceeds of the issuance of the [Class A] Certificates in an
amount equal to the Initial Reserve Amount (with respect to the Reserve Account,
the Sponsor shall be referred to as the "Reserve Sponsor"). The Reserve Account
will be terminated following the earlier to occur of (a) the date on which the
[Class A] Certificates are paid in full and (b) the termination of the Trust.
Any amounts then remaining on deposit in the Reserve Account will be distributed
to the Reserve Sponsor.
On each Distribution Date, the amount available to be withdrawn from the
Reserve Account (the "Available Reserve Amount") will be equal to the lesser of
the amount on deposit in the Reserve Account (before giving effect to any
deposit to be made to the Reserve Account on such Distribution Date) and the
Required Reserve Amount. The "Required Reserve Amount" shall mean, with respect
to any Distribution Date, $______________ plus, if as of any Determination Date
an Additional Reserve Event shall have occurred and be continuing, the excess,
if any, of (i) __% of the [Class A] Invested Amount as of the last day of the
previous Collection Period over (ii) $____________. An "Additional Reserve
Event" shall occur with respect to Series 199__-1 if the average ratio on the
three preceding Determination Dates (as determined by the Servicer on any
Determination Date) of (x) the product of 12 and the aggregate Contract
Discounted Balances as of the last day of the previous Collection Period of all
Defaulted Contracts which became Defaulted Contracts during the previous
Collection Period to (y) the Discounted Contract Balance of the Receivables Pool
as of the last day of the previous Collection Period, exceeds ___%.
On each Distribution Date, a withdrawal will be made from the Reserve
Account in an amount equal to the Required Amount, if any, with respect to such
Distribution Date (but not in excess of the Available Reserve Amount on such
Distribution Date). Any such funds withdrawn from the Reserve Account will be
applied in accordance with, and subject to the priorities set forth in,
paragraphs (i), (ii) and (iii) under "--Application of Collections-- Payment of
Interest, Fees and Other Items" above.
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On each Distribution Date, the Trustee, acting pursuant to the Servicer's
instructions, will apply Available Finance Charge Collections and Available
Principal Collections (to the extent described above under "--Application of
Collections--Payment of Interest, Fees and Other Items" and "--Application of
Collections-- Payments of Principal") to increase the amount on deposit in the
Reserve Account (to the extent such amount is less than the Required Reserve
Amount). On each Distribution Date, after giving effect to any deposit to be
made to, and any withdrawal to be made from, the Reserve Account on such
Distribution Date, the Trustee will withdraw from the Reserve Account an amount
equal to the excess, if any, of the amount on deposit in the Reserve Account
over the Required Reserve Amount and shall distribute such excess to (a) the
provider of any letter of credit or surety bond described in clause (vi) under
"--Application of Collections-- Payments of Interest, Fees and Other Items" to
the extent of any unreimbursed draws under the letter of credit or surety bond
and (b) the balance, if any, will be treated as [Class B] Available Principal
Collections and distributed as provided under "-- Application of
Collections--Subordination." Any amounts withdrawn from the Reserve Account and
distributed as described above will not be available for distribution to the
[Class A] Certificateholders.
Investor Charge-Offs
On each Distribution Date, if the Required Amount for such Distribution
Date exceeds the Available Reserve Amount with respect to such Distribution
Date, the [Class B] Invested Amount will be reduced by the amount of such
excess, but not by more than the Investor Default Amount for such Distribution
Date (a "[Class B] Investor Charge-Off"). If such reduction would cause the
[Class B] Invested Amount to be a negative number (or if the [Class B] Invested
Amount is already zero), the [Class B] Invested Amount will be reduced to or
remain at zero, and the [Class A] Invested Amount will be reduced by the amount
by which the [Class B] Invested Amount would have been reduced below zero, but
not more than the excess, if any, of the Investor Default Amount for such
Distribution Date over the amount of such reduction, if any, of the [Class B]
Invested Amount with respect to such Distribution Date (an "Investor
Charge-Off").
If the [Class A] Invested Amount has been reduced by the amount of any
Investor Charge-Offs, it will thereafter be increased on any Distribution Date
(but not by an amount in excess of the aggregate Investor Charge-Offs) by the
amount of Available Finance Charge Collections allocated and available for such
purpose as described under "--Application of Collections-- Payments of Interest,
Fees and Other Items." If an Investor Charge-Off is not subsequently reimbursed,
it will have the effect of slowing or reducing the return of principal to the
[Class A] Certificateholders.
On each Distribution Date, if the [Class B] Required Amount for such
Distribution Date is greater than zero, the [Class B] Invested Amount will be
reduced by the amount of such excess, but not below zero, and such reduction
will be a [Class B] Investor Charge-Off.
If the [Class B] Invested Amount has been reduced by the amount of any
[Class B] Investor Charge-Offs, it will thereafter be increased on any
Distribution Date (but not by an amount in excess of the aggregate [Class B]
Investor Charge-Offs) by the amount of Available [Class B] Finance Charge
Collections allocated and available for such purpose as described under "--
Application of Collections--Subordination."
Pay Out Events
A Pay Out Event will occur with respect to Series 199__-1 if the average
ratio on the three preceding Determination Dates (as determined by the Servicer
on any Determination Date) of (i) the product of 12 and the aggregate Discounted
Contract Balances as of the last day of the previous Collection Period of all
Defaulted Contracts which became Defaulted Contracts during the previous
Collection Period to (ii) the Discounted Contract Balance of the Receivables
Pool as of the last day of the previous Collection Period, exceeds ___%. Such
Pay Out Event shall occur immediately on such
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Determination Date without notice or other action on the part of the Trustee or
the Series 199__-1 Certificateholders.
Distributions
Payments to [Class A] Certificateholders will be made from the Collection
Account. The Servicer shall instruct the Trustee to apply, or have the Paying
Agent apply, the funds on deposit in such account to make the following
distributions:
(a) on each Distribution Date with respect to the [Class A]
Certificates, all amounts on deposit in the Collection Account which are
allocated and available to pay interest on the [Class A] Certificates will
be distributed to the [Class A] Certificateholders or applied as described
under "--Application of Collections--Payments of Interest, Fees and Other
Items"; and
(b) on each Distribution Date all amounts on deposit in the
Collection Account which are allocated and available to pay principal of
the [Class A] Certificates (as described under "--Application of
Collections--Payments of Principal") will be distributed to [Class A]
Certificateholders up to a maximum amount on any such date equal to (i)
during the Scheduled Amortization Period, the Controlled Distribution
Amount, and (ii) during the Full Amortization Period, the [Class A]
Invested Amount on such date (unless there has been an optional repurchase
of the [Class A] Certificateholders' Interest due to the failure to find a
successor Servicer upon a Servicer Default (as described in the Prospectus
under "Description of Trust Agreements-- Servicer Default") in which event
the foregoing limitation shall not apply).
FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences to the original purchasers of the [Class A] Certificates of the
purchase, ownership and disposition of the [Class A] Certificates. It does not
purport to discuss all federal income tax consequences that may be applicable to
investment in the [Class A] Certificates or to particular categories of
investors, some of which may be subject to special rules. In particular, this
discussion applies only to institutional investors that purchase Series 199__-__
Certificates directly from the Sponsor and hold the Series 199__-__ Certificates
as capital assets.
The Trust will, prior to the issuance of the Notes and Certificates, be
provided with an opinion of Tax Counsel regarding certain federal income tax
matters discussed below. An opinion of counsel, however, is not binding on the
IRS or the courts. The Trust has not sought, nor does it intend to seek, a
ruling from the IRS that its position as reflected in the discussion below will
be accepted by the IRS. [Moreover, there are no cases or IRS rulings on similar
transactions involving both debt and equity interests issued by a trust similar
to those of the Notes and the Certificates and, as a result, there can be no
assurance that the IRS will agree with the conclusions and discussion below.]
The discussion that follows, and the opinion set forth below of Dewey
Ballantine, special tax counsel to Trust ("Tax Counsel"), are based on the
provisions of the Internal Revenue Code of 1986, as amended (the "Code") and the
Treasury regulations promulgated thereunder as in effect on the date hereof and
on existing judicial and administrative interpretations thereof. These
authorities are subject to change and to differing interpretations, which could
apply retroactively. The opinion of Tax Counsel is not binding on the courts or
the Internal Revenue Service (the "IRS"). Potential investors should consult
their own tax advisors in determining the federal, state, local, foreign and any
other tax consequences to them of the purchase, ownership and disposition of the
[Class A] Certificates.
Characterization of the [Class A] Certificates as Indebtedness
In the opinion of Tax Counsel, based on the application of existing law to
the facts as set forth in the Contribution Agreement, Pooling Agreement,
Insurance Agreement and other relevant documents and such investigations as it
deemed appropriate, the [Class A] Certificates will be treated as indebtedness
for federal income tax purposes.
In general, whether instruments such as the [Class A] Certificates
constitute indebtedness for federal income tax purposes is a question of fact,
the resolution of which is based primarily upon the economic substance of the
instruments and the transaction pursuant to which they are issued rather than
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the form of the transaction or the manner in which the instruments are labeled.
The IRS and the courts have set forth various factors to be taken into account
in determining whether or not an instrument constitutes indebtedness for federal
income tax purposes. On the basis of a review of such factors as applied to the
facts of the contemplated transaction, Tax Counsel has concluded, as stated
above, that the [Class A] Certificates constitute indebtedness for federal
income tax purposes.
In Article ____ of the Pooling Agreement, the parties thereto and all
successors and assigns thereof, including, upon acquisition of the [Class A]
Certificates, the Certificateholders, express their mutual intent that the
[Class A] Certificates shall constitute indebtedness for all applicable tax
purposes and, further, covenant and agree to treat the [Class A] Certificates as
indebtedness for all applicable tax purposes in all tax filings, reports and
returns and otherwise. Notwithstanding such agreement, because different
criteria are used to determine the non-tax accounting characterization of the
issuance and sale of the [Class A] Certificates, the Originator and the Sponsor
intend to treat the transaction as a sale by the Sponsor of interests in the
Receivables for financial accounting purposes.
Although the economic substance of a transaction is generally of primary
importance in determining its proper treatment for federal income tax purposes,
nevertheless, a party to a transaction will be held to a high standard of proof
in establishing that the form of the transaction, if at variance with the
economic substance of the transaction, should not be treated as controlling. In
some instances, courts have indicated that a taxpayer should be bound by the
particular form it has chosen for a transaction, even if the substance of the
transaction does not accord with its form. Tax Counsel is nonetheless of the
opinion that the [Class A] Certificates will be treated as indebtedness for
federal income tax purposes because (i) in many respects the form of the
transaction as reflected in the operative provisions of the documents accords
with the characterization of the [Class A] Certificates as indebtedness, (ii)
the parties have stated unambiguously their intention to treat the [Class A]
Certificates as indebtedness for tax purposes and (iii) the characteristics of
the [Class A] Certificates strongly indicate that in economic substance the
[Class A] Certificates are a form of indebtedness.
Possible Classification of the Transaction as a Partnership or Association
Taxable as a Corporation
Notwithstanding Tax Counsel's opinion, potential investors should
recognize that there is some uncertainty as to the correct characterization of
the [Class A] Certificates. It is possible that the IRS could assert that, for
federal income tax purposes, the transaction contemplated by this Prospectus
Supplement constitutes the sale of a direct or indirect interest in [the
Vehicles and] the Receivables to the Certificateholders and that the proper
classification of the legal relationship between the Servicer, the Sponsor and
the [Class A] Certificateholders resulting from this transaction is that of a
partnership or an association taxable as a corporation. Since Tax Counsel is of
the opinion that the [Class A] Certificates will be treated as indebtedness in
the hands of the Certificateholders for federal income tax purposes, the
Servicer and the Sponsor will not attempt to comply with the federal income tax
reporting requirements applicable to either partnerships or corporations.
If the transaction were treated as creating a partnership between the
Certificateholders, the Servicer and the Sponsor, the partnership itself would
not be subject to federal income tax (unless characterized as a publicly traded
partnership taxable as a corporation); rather, the Servicer, the Sponsor and
each Certificateholder would be taxed individually on their respective
distributive shares of the partnership's income, gain, loss, deductions and
credits. The amount, timing and characterization of items of income and
deductions for a Certificateholder would differ if the [Class A] Certificates
were held to constitute partnership interests, rather than indebtedness.
If it were determined that this transaction created an entity classified
as a corporation (including a publicly traded partnership taxable as a
corporation), the Trust would be subject to federal income tax at corporate
income tax rates on the income it derives from the Receivables, which would
reduce the amounts available for distribution to the Certificateholders. Cash
distributions to the Certificateholders
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generally would be treated as dividends for tax purposes to the extent of such
corporation's earnings and profits.
Taxation of Interest Income of Certificateholders
Assuming, in accordance with the opinion of Tax Counsel, that the [Class
A] Certificates will constitute indebtedness for federal income tax purposes,
interest thereon will be includable as ordinary income when received or accrued
by the Certificateholders in accordance with their respective methods of tax
accounting.
Sales of [Class A] Certificates
Upon the sale or exchange of a [Class A] Certificate, the
Certificateholder will realize a gain or loss equal to the difference between
the amount realized on the sale and the adjusted basis of such [Class A]
Certificate.
Backup Withholding with Respect to Certificates
Payments of interest and principal, together with payments of proceeds
from the sale of [Class A] Certificates, may be subject to the "backup
withholding tax" under Section 3406 of the Code at a rate of 31% if recipients
of such payments fail to furnish to the payor certain information, including
their taxpayer identification numbers, or otherwise fail to establish an
exemption from such tax. Any amounts deducted and withheld from a payment to a
recipient would be allowed as a credit against such recipient's federal income
tax. Furthermore, certain penalties may be imposed by the IRS on a recipient of
payments that is required to supply information but that does not do so in the
proper manner.
Foreign Investors in [Class A] Certificates
A Certificateholder that is not a "United States person" may be subject to
United States federal withholding tax in respect of distributions on a [Class A]
Certificate. Whether withholding of tax would be required, and, if so, the rate
at which such withholding would be imposed, would depend upon a number of
factors, including the characterization of the [Class A] Certificates and the
Trust for federal income tax purposes, and, under current law, the withholding
rate could be as high as 35 percent. For these purposes, "United States person"
means a citizen or resident of the United States, a corporation, partnership
organized in or under the laws of the United States or any political subdivision
thereof or an estate or trust the income of which from sources without the
United States is includable in gross income for United States federal income tax
purposes regardless of its connection with the conduct of a trade or business
within the United States.
[Proposed Tax Legislation
Legislation pending before Congress would apply special rules to "large
partnerships," generally defined as partnerships with at least 250 partners
during a taxable year (counting towards such total each owner during the year of
a partnership interest that is transferred during the year). Under the
legislation, certain computations are made at the partnership level rather than
the partner level. In particular, taxable income is calculated at the
partnership level, and is calculated generally in the same manner as for an
individual, except that 70% of miscellaneous itemized deductions (such as
expenses for the production of nonbusiness income) are disallowed. As a result,
all partners (including corporations) might have a portion of their share of
partnership deductions (other than interest expense) disallowed. Moreover, large
partnerships would become subject to new audit procedures; among other things,
an adjustment to taxable income of the partnership for a prior year would flow
through to current partners in the year the audit was settled, and the
partnership itself (rather than the partners) would be subject to any applicable
interest or penalties. As proposed, these rules would apply to partnership
taxable years ending on or after December 31, 1993.
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The proposed tax legislation dealing with large partnerships discussed
above was not adopted in the Revenue Reconciliation Act of 1993, which was
enacted into law in August 1993. No prediction can be made whether that proposal
or similar legislation might be enacted in the future, or the ultimate effective
date of such legislation or whether the number of Certificateholders would cause
the Trust to be considered a "large partnership."]
THE FEDERAL INCOME TAX DISCUSSIONS SET FORTH ABOVE MAY NOT BE APPLICABLE
TO ANY INDIVIDUAL INVESTOR DEPENDING UPON A CERTIFICATEHOLDER'S PARTICULAR TAX
SITUATION. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT
TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF
THE CERTIFICATES, INCLUDING THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL TAX LAWS.
STATE AND LOCAL TAXATION
Investors should consult their own tax advisors regarding whether the
purchase of the [Class A] Certificates, either alone or in conjunction with an
investor's other activities, may subject an investor to any state or local taxes
based on an assertion that the investor is either "doing business" in, or
deriving income from a source located in, any state or local jurisdiction.
Additionally, potential investors should consider the state, local and other tax
consequences of purchasing, owning or disposing of a [Class A] Certificate.
State and local tax laws may differ substantially from the corresponding federal
tax law, and the foregoing discussion does not purport to describe any aspect of
the tax laws of any state or other jurisdiction. Accordingly, potential
investors should consult their own tax advisors with regard to such matters.
ERISA CONSIDERATIONS
The [Class A] Certificates may be purchased by an employee benefit plan or
an individual retirement account (a "Plan") subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code.
A fiduciary of a Plan must determine that the purchase of a [Class A]
Certificate is consistent with its fiduciary duties under ERISA and does not
result in a nonexempt prohibited transaction as defined in Section 406 of ERISA
or Section 4975 of the Code. Employee benefit plans which are governmental plans
(as defined in Section 3(32) of ERISA) and certain church plans (as defined in
Section 3(33) of ERISA) are not subject to the fiduciary responsibility or
prohibited transaction provisions of ERISA or the Code. For additional
information regarding treatment of the [Class A] Certificates under ERISA, see
"ERISA Considerations" in the Prospectus.
If the [Class A] Certificates constitute equity interests, there can be no
assurance that any of the exceptions set forth in the Regulations will apply to
the purchase of [Class A] Certificates offered hereby. Under the terms of the
Regulations, if the Trust were deemed to hold Plan assets by reason of a Plan's
investment in [Class A] Certificates, such Plan assets would include an
undivided interest in the Receivables, and any other assets held by the Trust.
In such an event, the Originator, the Sponsor, the Trust, the Trustee and other
persons providing services with respect to the Receivables, may be subject to
the fiduciary responsibility provisions of Title Originator of ERISA and be
subject to the prohibited transaction provisions of Section 4975 of the Code
with respect to transactions involving the Receivables unless such transactions
are subject to a statutory or administrative exemption. Additionally, if the
Trust were deemed to hold Plan assets, each Certificateholder may be subject to
the fiduciary responsibility provisions of Title Originator of ERISA with
respect to its right to consent or withhold consent to amendments to the
Indenture and with respect to its right to vote on action to be taken or not
taken if an Indenture Event of Default occurs.
In addition, certain affiliates of the Originator, the Sponsor, the Trust
and the Trustee may be considered to be parties in interest or fiduciaries with
respect to many Plans. An investment by such a
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Plan in [Class A] Certificates may be a prohibited transaction under ERISA and
the Code unless such investment is subject to a statutory or administrative
exemption.
Any Plan fiduciary that proposes to cause a Plan to purchase Notes should
consider whether such purchase would be appropriate under the general fiduciary
standards of prudence and diversification, taking into account the overall
investment policy of the Plan and its existing portfolio and should consult with
its counsel with respect to the potential applicability of ERISA and the Code.
RATINGS
It is a condition to the issuance of the [Class A] Certificates that they
be rated "_____" by ____________. A security rating is not a recommendation to
buy, sell or hold securities and may be subject to revision or withdrawal at any
time. The ratings of ____________ assigned to [Class A] Certificates addresses
the likelihood of the receipt by Certificateholders of all distributions to
which such Certificateholders are entitled. The ratings do not address the
timely or ultimate payment of any withholding tax imposed. The ratings assigned
to [Class A] Certificates do not represent any assessment of the likelihood that
principal prepayments might differ from those originally anticipated or address
the possibility that Certificateholders might suffer a lower than anticipated
yield.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Sponsor has agreed to cause the Trust to
sell to [each of] the underwriter(s) named below (the "Underwriter(s)"), and
each of the Underwriter(s) has severally, and not jointly, agreed to purchase,
the principal amount of [Class A] Certificates set forth opposite its name
below.
Principal
Amount of
Underwriter(s) Certificates
-------------- ------------
__________________ .......... $______
__________________ ..........
______
______
TOTAL................. $
======
In the Underwriting Agreement, the Underwriter(s) have agreed, subject to
the terms and conditions therein, to purchase all the [Class A] Certificates
offered hereby if any of such [Class A] Certificates are purchased. The Sponsor
has been advised by the Underwriter(s) that they propose initially to offer the
[Class A] Certificates to the public at the respective prices set forth on the
cover hereof, and to certain dealers at such prices less a concession not in
excess of _____% per [Class A] Certificate. The Underwriter(s) may allow and
such dealers may reallow a concession not in excess of 0.__% per [Class A]
Certificate to certain other dealers. After the initial public offering, such
prices and such concessions may be changed.
The Underwriting Agreement provides that the Sponsor and the Originator
will indemnify the Underwriter(s) against certain civil liabilities, including
liabilities under the Securities Act, or contribute to payments the
Underwriter(s) may be required to make in respect thereof. The Commission is of
the opinion that indemnification for securities law violations is contrary to
the public policy expressed in the federal securities laws, and, consequently,
that such indemnification provisions are unenforceable.
The Trustee (on behalf of the Trust) may, from time to time, invest the
funds in the Trust Accounts in Eligible Investments acquired from the
Underwriter(s).
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LEGAL MATTERS
In addition to the legal opinions described in the Prospectus, certain
legal matters relating to the issuance of the Series 199__-__ Certificates,
including federal and state income tax consequences with respect thereto, as
well as other matters, will be passed upon for the Trust, the Sponsor and the
Underwriter(s) by Dewey Ballantine, New York, New York.
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INDEX OF DEFINED TERMS
Page
----
Additional Contract Transfer Agreement..................................... 16
APR........................................................................ 12
[Class A] Certificateholders................................................ 1
[Class A] Certificates...................................................... 1
[Class A] Invested Amount.................................................. 22
[Class B] Available Finance Charge Collections............................. 26
[Class B] Available Principal Collections.................................. 26
[Class B] Invested Amount.................................................. 22
[Class B] Required Amount.................................................. 26
Code....................................................................... 29
Contributor................................................................. 1
Controlled Amortization Amount............................................. 25
Controlled Distribution Amount............................................. 25
Deficit Controlled Amortization Amount..................................... 25
Equipment................................................................... 1
ERISA...................................................................... 32
Floating Allocation Percentage............................................. 22
Investor Default Amount.................................................... 24
IRS........................................................................ 29
Lease Interest.............................................................. 3
Lease Principal............................................................. 3
Leases...................................................................... 1
Monthly Interest........................................................... 24
Net Receivables Rate....................................................... 11
Plan....................................................................... 32
Pooling Agreement........................................................... 1
Predecessor Contract....................................................... 14
Rating Agencies............................................................ 10
Receivables................................................................. 1
Required Amount............................................................ 24
Required Reserve Amount.................................................... 27
Reserve Account............................................................. 3
Rule of 78s................................................................ 12
Series 199__-1 Invested Amount............................................. 22
Servicer.................................................................... 1
Tax Counsel................................................................ 29
Trust....................................................................... 1
Trustee.................................................................. 1, 4
United States person....................................................... 31
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